QE Has (Nearly) Ended. But How Will The Fed Unwind It? - The Fed’s large-scale asset purchases (LSAPs, popularly known as QE) have been tapering off for some time now and are expected to end this month. But even though the Fed won’t be making any new purchases, it will still have the largest balance sheet in history. All the securities it has purchased in three rounds of QE and Operation Twist are sitting on its balance sheet. And the banking system is awash with the excess reserves created as a consequence of those purchases It is clear now that monetary base creation on this scale does not cause runaway inflation, as was feared by many. And it does appear to have prevented the US from experiencing severe deflation in the aftermath of the financial crisis. But as the US economy recovers, the question arises whether the Fed should start shrinking its balance sheet – unwinding QE. There has been considerable debate about whether the Federal Reserve should unwind QE at all. Some have suggested that they may not be able to, because selling off all those USTs and MBS would cause yields to spike, causing distress to asset holders and the US government. Others have argued that they shouldn’t, because having excess reserves improves the liquidity of banks and protects them from runs. However, the FOMC has made its intention eventually to unwind QE clear. After its September meeting, the FOMC issued a statement outlining the principles and plans for normalization of monetary policy.
FRB: H.4.1 Release--Factors Affecting Reserve Balances--October 9, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks
Fed’s Dudley Says Bets on Mid-2015 Rate Increases Look Reasonable - Federal Reserve Bank of New York President William Dudley said Tuesday the U.S. central bank can likely hold off on raising short-term interest rates until 2015 given the expected path of the economy. “It still is premature to begin to raise interest rates–the labor market still has too much slack and the inflation rate is too low,” Mr. Dudley said. But, he added, “the consensus view” that the Fed will lift its interest rate target off the current near-zero level by the middle of next year “seems like a reasonable view to me.” Mr. Dudley suggested that it is unlikely the economy will heat up in a way that causes the Fed to chart a more aggressive path than most currently expect. “There still is a significant underutilization of labor market resources,” he said, despite clear progress in mending the job market. More broadly, he said “the likelihood that growth will be substantially stronger than the point forecast is probably relatively low.” That said, Mr. Dudley, who also serves as vice chairman of the monetary policy-setting Federal Open Market Committee, also said that the path of central bank policy isn’t fixed. “What we do will depend on the flow of economic news and how that affects the economic outlook. “Firmer growth, higher inflation, and a more rapid tightening of the labor market could cause us to move earlier. Conversely, should economic growth disappoint, the timing of lift-off could be pushed later,” Mr. Dudley said.
Falling Unemployment Alone Not Reason to Raise Rates, Fed’s Kocherlakota Says - Minneapolis Federal Reserve Bank President Narayana Kocherlakota said an improving employment picture alone isn’t reason enough for the central bank to boost interest rates. The central banker also during a press briefing after a speech in Rapid City, S.D., Tuesday said the Fed must put more focus on the rate of inflation. He forecasts the rate will continue to fall short of the central bank target of 2% for the next three years, and until that outlook changes, the Fed shouldn’t be considering raising interest rates. “Just because unemployment is falling that’s not a reason to raise rates,” Mr. Kocherlakota said. “There is no harm in having low unemployment in the country except in so far as that generates wage pressures and that shows up in inflation. But I don’t see that in my inflation outlook.” The central banker is seeing improvements in the labor market and expects a further pick up in the economy next year, forecasting GDP growth for 2015 at 3%. However, he added the low rate of inflation is a signal that people remain out of work because there isn’t enough demand for goods and services in the economy. Mr. Kocherlakota, who is a voting member of the interest-rate setting Federal Open Market Committee, has been one of its strongest advocates for continued aggressive action by the central bank to spur the economy.
Fed Officials to Be Flexible on How They Raise Rates - Federal Reserve officials agreed at their September policy meeting to be flexible in implementing a new plan on managing future interest rate increases. Fed officials decided at the meeting to use new tools when the time comes to raise rates. These include an interest rate the Fed pays banks for the money they deposit at the central bank, called reserves, and the interest it pays money market funds and other non-banks for cash they temporarily park at the central bank. The minutes of the Sept. 16-17 meeting, released with a three-week lag, made clear these plans aren’t set in stone, in part because they’re experimental. “It was emphasized that the Committee would need to be flexible and pragmatic during normalization, adjusting the details of its approach, if necessary, in light of changing conditions,” the minutes said. This flexibility might be especially important in the Fed’s dealings with money market funds through instruments known as overnight reverse repurchase agreements. It will use these trades to draw funds out of the nonbank financial sector in exchange for interest set a quarter percentage point lower than the rate banks get for cash. The Fed has set limits on using these trades, in part because of its inexperience with such instruments and its preference in dealing with banks. Currently, it won’t do more than $300 billion worth of reverse repo trades per day. (The $300 billion number looks big, but is a small fraction of the $3 trillion of reserves the Fed has placed in the financial system and the overall size of its holdings, which is in excess of $4 trillion.)
FOMC Minutes: "Costs of downside shocks to the economy would be larger than those of upside shocks" -- Note: Not every member of the FOMC agrees, but I think this is the key sentence: "the costs of downside shocks to the economy would be larger than those of upside shocks because, in current circumstances, it would be less problematic to remove accommodation quickly, if doing so becomes necessary, than to add accommodation". There was also some discussion about the impact of a strong dollar (weaker exports, lower inflation). From the Fed: Minutes of the Federal Open Market Committee, September 16-17, 2014. Excerpts: Inflation had been running below the Committee's longer-run objective, and the readings on consumer prices over the intermeeting period were somewhat softer than during the preceding four months, in part because of declining energy prices. Most participants anticipated that inflation would move gradually back toward its objective over the medium term. However, participants differed somewhat in their assessments of how quickly inflation would move up. Some cited the stability of longer-run inflation expectations at a level consistent with the Committee's objective as an important factor in their forecasts that inflation would reach 2 percent in coming years. Participants' views on the responsiveness of inflation to the level and change in resource utilization varied, with a few seeing labor markets as sufficiently tight that wages and prices would soon begin to move up noticeably but with some others indicating that inflation was unlikely to approach 2 percent until the unemployment rate falls below its longer-run normal level. While most viewed the risk that inflation would run persistently below 2 percent as having diminished somewhat since earlier in the year, a couple noted the possibility that longer-term inflation expectations might be slightly lower than the Committee's 2 percent objective or that domestic inflation might be held down by persistent disinflation among U.S. trading partners and further appreciation of the dollar. .
The FOMC takes dollar strength into account; liftoff expectations shift to a year from now -- The Fed is finally expressing unease with the world outside the US borders and its impact on the US economy. FOMC Sep-14 Minutes: - "During participants’ discussion of prospects for economic activity abroad, they commented on a number of uncertainties and risks attending the outlook. Over the intermeeting period, the foreign exchange value of the dollar had appreciated, particularly against the euro, the yen, and the pound sterling. Some participants ex-pressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector. Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk. At the same time, a couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase in inflation toward the FOMC’s 2 percent goal." In a single paragraph the FOMC minutes conveyed the concerns about the rising US dollar and risks of further dollar appreciation due to economic weakness across major economies. Strong dollar hurts US exporters and reduces dollar denominated revenues for firms that conduct a great deal of business abroad. It also puts downward pressure on inflation (see post), elevating disinflationary risks. This is clearly visible in TIPS-based inflation expectations (breakevens) that continue to decline.
Fed Officials Affirm Rate Outlook, but Seek Flexibility - Federal Reserve officials are looking for a new way to reassure investors that they are not ready to start raising interest rates, according to an account of the most recent meeting of the Fed’s policy-making committee released on Wednesday.The Fed, pleased that the economy is improving and more Americans are finding jobs, plans to finish its latest bond-buying campaign at the end of October. But most officials at the September meeting said that they were far from satisfied with the economy’s progress. And the account said some officials expressed concern that the slow growth of other major economies would start to weigh on the United States. The Fed sees a need to replace its guidance that it plans to keep short-term rates near zero for a “considerable time” after the end of its bond-buying campaign. The account suggests that officials are trying to find a new way to say the same thing. Most officials want to preserve the general perception that a first increase is most likely around the middle of the year. But they also are going out of their way to emphasize that the timing could change if job growth either exceeds or disappoints their expectations.“The consensus view is that liftoff will take place around the middle of next year,” William C. Dudley, the president of the Federal Reserve Bank of New York and the influential vice chairman of the Fed’s policy-making committee, said on Tuesday. “That seems like a reasonable view to me. But, again, it is just a forecast. What we do will depend on the flow of economic news and how that affects the economic outlook.”
Esther George Says Fed Should Move Toward Raising Rates – Federal Reserve Bank of Kansas City President Esther George reiterated Monday that a growing economy means the U.S. central bank needs to move toward raising short-term interest rates. “The time has come” for Fed officials to start talking seriously about boosting short-term rates, she said. “Starting this process sooner rather than later is important. If we continue to wait–if we continue to wait to see full employment, to see inflation running beyond the 2% target–then we risk having to move faster and steeper with interest rates in a way that is destabilizing to the economy in the long term.” Her comments came from a speech given in Albuquerque, N.M. The official, who doesn’t hold a voting role on the monetary-policy-setting Federal Open Market Committee, has long been a critic of the U.S. central bank’s ultra-easy-money policies. The Fed has had its short-term interest rate target set near zero since the end of 2008, and most officials expect to keep it around there until sometime next year. The Fed is on track to end its bond-buying stimulus program this month. Ms. George has argued in favor of raising interest rates in past speeches, believing the economy has recovered enough to see monetary policy move back toward more historically normal levels. Ms. George has argued in favor of raising rates because she believes if monetary policy stays at its current levels it could lead to a breakout of inflation and spur financial instability. Top Fed officials like Chairwoman Janet Yellen and New York Fed President William Dudley, however, support the Fed’s aggressive stimulus, and note that inflation has been and remains well under the central bank’s 2% target. Ms. George’s arguments haven’t proved influential with most other central bankers, although a small group of regional Fed bank presidents share her appetite for raising rates.
Fed’s Charles Evans ‘Very Uncomfortable’ With Calls to Raise Rates - Federal Reserve Bank of Chicago President Charles Evans repeated Wednesday his view that raising rates anytime soon would be a major blunder on the part of the central bank. “I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived,” Mr. Evans said. But he added, “I am very uncomfortable with calls to raise our policy rate sooner than later,” adding “I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals.” “We should be exceptionally patient in adjusting the stance of U.S. monetary policy,” he said. Mr. Evans, who doesn’t currently have a voting slot on the monetary-policy setting Federal Open Market Committee, has long been a supporter of aggressive Fed action to help the economy get back on track. Mr. Evans’ concern about the growing talk of rate rises is rooted in his fear that the central bank might be overestimating the economy’s strength. He also notes, as he has in recent remarks, that inflation remains very low. “We ought to get it up to 2% as quickly as feasible,” Mr. Evans said of inflation. And even with Fed efforts, inflation likely won’t hit that mark until sometime in 2018, he said. If inflation lags at 1.5% over a long period it would be a “remarkably negative hit” to the Fed’s credibility, he added. Mr. Evans also said job market gains, while real, haven’t yet erased the damage incurred over recent years.
Fed’s Williams Is Still On Board With Fed Raising Rates in Mid-2015 - Federal Reserve Bank of San Francisco President John Williams said Thursday in a speech that if the economy meets his expectations, it is likely the U.S. central bank will be able to raise rates in the middle of next year. “Based on my current forecast for economic growth, employment, and inflation, it would be appropriate to start raising the fed funds rate sometime in the middle of 2015,” Mr. Williams said. “We still have a way to go to get to full health,” and premature action would get in the way of the recovery effort, he said. That said, Mr. Williams emphasized “the decision to raise rates will be data-driven, not date-driven.” He said, “If the economy or inflation heat up faster than I expect, we should lift rates sooner,” adding, “If progress on these fronts slows, we should wait longer” to push short-term rates higher. And when rate rises do take place, he expects them to be gradual in nature. The official said monetary policy will need to remain very supportive of the economy for a long time to come. He also said he continues to support the coming end of the Fed’s bond-buying stimulus effort, which is likely to conclude this month.
The Fed Shouldn't Raise Interest Rates Too Soon -- My latest column discusses the proper course of Fed policy now that the unemployment rate is below six percent. I argue that the Fed should continue to keep interest rates low due to the considerable slack that remains in the labor market.We learned last Friday that in September the unemployment rate fell below 6 percent. This is, of course, good news. But “irrational exuberance” — to quote a former Federal Reserve chair — over the unemployment rate’s rapid decline may undermine the very recovery the Fed is trying to push forward. How so? By giving additional credence to the argument that the Fed should raise interest rates sooner and faster. It shouldn’t.[...]The fundamental logic of monetary policy is the same as it’s been for years now: Prices aren’t rising as rapidly as the Fed would like them to, and the labor market isn’t using workers to their fullest extent. The Fed is still missing on both sides of its “dual mandate.”Prudence thus dictates a patient return to normal monetary policy. And the unemployment rate falling below 6 percent shouldn’t fundamentally change anything. You can read the column here.
The Federal Reserve Won't Save the Economy for All -- Inflation hawks have been the talk of the town in elite economic circles in recent weeks. More liberal-leaning minds critique their (frankly) unsubstantiated concerns that the Federal Reserve is driving the U.S. economy toward high levels of inflation. Hawks are concerned that high levels of inflation due to expansionary monetary policy will lead to negative economic outcomes for major firms and, in turn, the rest of the American public. Instead of worrying about inflation, which has remained at or below 1.5 percent for a year and a half, many prominent economists argue that we should focus on wage growth and jobs. We have seen profits for corporations rise to nearly pre-recession rates, while the poverty rate is not declining as fast as it should be. It’s clear there are some big policies that need changing: the minimum wage, the corporate tax structure, federal budget priorities, and regulations ranging across industries. So why is there so much focus on the Fed and the inflation hawks that circle it? Is there some policy lever we can pull here that would raise outcomes for the working class? Let’s lay it out on the table: Current economic debates have focused on U.S. and global monetary policy because our fiscal policy problems appear to be inoperable. A Congressional stagnation, of sorts, has led to a fixation on a different institution, the Federal Reserve. But, overall, can this fixation actually translate into outcomes for the middle class? With a gridlocked federal system, where can we push for substantial changes in wages and investment infrastructure that support the working class? Executive orders have their limits, of course. Advancements in cities like Seattle and New York City or states like Maryland have started to take effect. But at some point, a deeper, sustainable change must take place. This is a change in who leads in governance and who leads on policy change.
Forget QE, Send in the Helicopters! -- After the Great Recession had officially began (but prior to the stock market crash of 2008/09) George W. Bush responded to the early signs of economic trouble with a "helicopter drop" in the form of lump sum tax rebates to wage earners to help stimulate the economy. They were provided for in the Economic Stimulus Act of 2008, with support from both the Democrats and the Republicans. The bill was signed into law on February 13, 2008. Most taxpayers received a rebate between $300 to $600 per person (based on adjusted gross incomes from 2007) — and eligible taxpayers also received an additional $300 per dependent child. The rebates were phased out for taxpayers with AGIs greater than $75,000. The total cost of this bill was projected to be $152 billion — just peanuts compared to quantitative easing. The U.S. Federal Reserve used quantitative easing (QE) as another unconventional monetary policy to stimulate the economy. Before the onset of the Great Recession in 2007, the Fed only held a fraction of what it does today in Treasury notes (almost $800 billion). But beginning in November 2008, they started buying up billions in mortgage-backed securities. The Fed bought billions in these securities and Treasury notes every month in what is known as QE1, QE2 and QE3. (Because of its open-ended nature, QE3 had earned the nickname of "QE Infinity".) Currently the Fed holds a total of $2.7 trillion in federal debt (about what JPMorgan has in total assets). But before we talk about the tapering of quantitative easing (or expanding it with "QE4"), we really should be discussing another viable alternative: "helicopter drops". Lately there's been an interesting and ongoing debate, where some have been arguing: rather than using quantitative easing to stimulate the economy, instead, why not use direct cash transfers (like George W. Bush's tax rebates) and give money directly to "people" rather than to banks to boost demand and create more spending — regenerating more growth in the economy.
Fischer Says Fed Officials Will Watch Dollar for Impact on Aggregate Demand - Federal Reserve officials will watch the rising U.S. dollar in the context of its effect on demand for the goods and services produced by the U.S. economy, Vice Chairman Stanley Fischer said Thursday. Stanley Fischer, vice chairman of the Federal Reserve Board of GovernorsReutersMr. Fischer, during an event at the Brookings Institution think tank, said the Fed’s focus is on inflation and employment. “We have to take into account the impact on aggregate demand of the factors that affect aggregate demand, and the exchange rate will, to some extent, affect aggregate demand,” he said. “So that is the channel through which the exchange rate will affect our decisions. It won’t be a separate factor.” The U.S. dollar has been strengthening in recent months against other major currencies, which could hold down inflation and make U.S. exports more expensive abroad. At the Fed’s Sept. 16-17 meeting, “some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector,” according to minutes released Wednesday. “I’m sure we’ll talk about it at the next meeting,” Mr. Fischer said.
N.Y. Fed’s Simon Potter: Reverse Repos Effective in Setting Rate Floor - The man responsible for implementing Federal Reserve monetary-policy decisions defended limitations set recently on a new tool designed to help set a floor underneath short-term interest rates. Simon Potter, who leads the bank’s Markets Group, was discussing officials’ decision in September to put new limitations on the bank’s overnight reverse repurchase agreement facility. His comments came from the text of a speech delivered in New York at the Securities Financing Transactions Conference. The tool takes in cash from eligible financial firms. The rate the Fed sets on the transactions is supposed to represent a floor for short-term rates. The reverse repos will be a key part of the toolkit the Fed employs when it decides to raise short-term interest rates, which most expect to happen sometime next year. In September, the Fed capped the individual and total bids available to program participants. The Fed now limits the total overall bid to $300 billion. If that limit is breached, rules kick in that can lower the rate the program pays to program participants, which can lead to the rate offered on the facility to fall under its normal level, affecting other short-term rates. Many market participants said the new limits compromised the ability of the reverse repos to effectively define the baseline for short-term interest rates. In its first big test on the final day of September, quarter-end pressures saw bids overshoot the $300 billion cap, leading investors to get no return on their investment, compared with the five basis points they would have normally earned. Other short-term rates also tilted into negative territory. Mr. Potter said that the Fed can look through these short-term gyrations. “As many market participants anticipated, the aggregate cap did bind on quarter end,” he said. “The auction procedure went smoothly and while rates did trade soft on the quarter end, this was only a temporary phenomenon and there was no evidence of market disruption from the unfilled bids at the auction.”
Fed’s ‘Reverse Repo’ Tool Catches Republican Criticism - –Two senior House Republicans are criticizing the Federal Reserve’s new tool for influencing interest rates, saying it “injects needless uncertainty and volatility” into financial markets and questioning the central bank’s legal authority for employing it. Reps. Scott Garrett (R., N.J.) and Patrick McHenry (R., N.C.) took on the Fed’s reverse repurchase agreement program in a Thursday letter to Fed Chairwoman Janet Yellen that was viewed by The Wall Street Journal. Each lawmaker chairs a subcommittee on the House Financial Services Committee. The Fed has been testing the program for a year as a way to manage short-term interest rates when it comes time to raise them from near zero. The central bank is borrowing cash and lending securities in overnight deals known as reverse repurchase agreements, or reverse repos. The program’s popularity in the markets has grown rapidly. On Sept. 30, 2013, money-market mutual funds and other market players parked about $58.2 billion at the Fed through the reverse repo facility. On that date this year, investors sought to park about $407 billion at the bank through reverse repos, hitting the Fed’s daily cap of $300 billion. Messrs. Garrett and McHenry asked the Fed to explain the “specific statutory and regulatory authority” it has for the program and explain steps it has taken “to ensure that the Federal Reserve’s increasing presence in the repo market will not crowd out other participants in that market.” “We also urge you to let this temporary tool lapse when it expires at the end of this year,”
WSJ Survey: Most Economists Confident in Fed’s Exit Tools - Most economists surveyed by the Wall Street Journal are comfortable with the Federal Reserve’s toolkit for eventually raising interest rates. But nearly all think the central bank will have to make additional changes to its closely watched overnight reverse repurchase agreement facility. Economists also appear increasingly confident the Fed will begin to raise short-term interest rates from near zero in mid-2015, with a near-majority expecting an initial rate hike in June. In the Journal’s monthly survey of business and academic economists, conducted Friday through Tuesday, 62% said they were “somewhat” or “very” confident that the Fed’s exit tools would work as needed to adjust short-term interest rates. About 38% said they were “not very” or “not at all” confident they would work.The Fed’s plan, announced last month, is to target a range for the benchmark federal funds rate and use the interest rate on excess reserves, the money banks park at the central bank, as the primary lever to move rates into that range. An overnight reverse repo facility will play a supporting role by setting a floor under rates. Some analysts are concerned the Fed’s daily limit of $300 billion for the reverse repo facility will make it less effective at supporting rates. In an early test, heavy demand at the end of September caused the repo rate, set at 0.05%, to fall to zero.
Fisher Says Fed Has Overshot Mark On Stimulus - Federal Reserve Bank of Dallas President Richard Fisher said the Fed has “overshot the mark” with its stimulus policy, creating an ebullience in credit markets that he likened to the effect of “beer goggles” on college students. Mr. Fisher also said wage inflation may soon show up in data, leading to price inflation earlier than most economists anticipate. Speaking at a meeting of the Council for Economic Education, a group that promotes financial literacy at the K-through-12 level, in Dallas, Mr. Fisher said the U.S. economy isn’t facing much “inflationary pressure.” When asked what the Fed’s target for full employment was, he said it was about 5.5%. But, he added, what the Fed was really waiting for in labor markets were signs of wages lifting. In a questions and answers session after the speech, Mr. Fisher said wage inflation was happening in Texas but not at a national level. Nevertheless, he said, recent Texas experience showed that wage inflation could “happen quicker than one might expect.” Rising wages have translated into rising prices in Texas, according to data cited by Mr. Fisher. In a broad overview of the U.S. economy, he said: “We don’t have much inflation, we’re picking up our rate of growth, and unemployment is coming down.” On inflation, Mr. Fisher said he wasn’t concerned that consumer price increases appeared to be retreating from the Fed’s 2% core inflation target. “The key is price stability,” he said. “I know a lot of my colleagues hang their hats on 2%. What I care about is, we’re not going to deflate or going to inflate above 2%. From my standpoint, and I only speak for myself, I’m quite pleased with price stability.”
Fed’s Bullard Worried Markets, Fed Not on Same Page on Rate Outlook - In a speech that offered an upbeat assessment of the economy, Federal Reserve Bank of St. Louis President James Bullard said Thursday he is worried about what he sees as disconnect between what central bankers think will happen with monetary policy, and the view held by many in the market. “When there is a mismatch between what the central bank is thinking and the market is thinking, that sometimes doesn’t end well, because there can be a surprise later on,” Mr. Bullard told reporters. Right now, “the markets are making a mistake” and expect the Fed to maintain its ultra-easy policy stance longer than Fed officials themselves currently expect, Mr. Bullard said. When it comes to these expectations, “I would prefer that those be better aligned than they are.” Most central bankers continue to support raising what are now near-zero short-term rates some time in 2015. Influential officials, like New York Fed President William Dudley, expect that the increase could come around the middle of year, while a small group of Fed officials would like to see rates rise sooner. In his comments to reporters, Mr. Bullard said “I think there’s a risk” in holding off on rate hikes until the middle of the year. “We should act on good news. We’ve got a pretty good performing economy. We should be willing to remove some accommodation,” and it would be better to get this process started and not wait too long, he said.
Fed’s Charles Plosser: Public Has Come to Expect Too Much From Fed - Federal Reserve Bank of Philadelphia President Charles Plosser said Friday that inflation levels that have fallen persistently short of where the central bank wants them to be are not a significant issue to him right now. It’s true that inflation levels are “a little bit low” relative to the Fed’s desire to have price pressures hit 2%, Mr. Plosser said at an appearance in New York. But, “for the most part, I’m not too concerned about that,” he said. Given the huge level of reserves that are currently in the banking system as a result of Fed stimulus activities, the Fed can “create any inflation level we choose,” Mr. Plosser said. He added “it’s very important we remain committed” to hitting the 2% price target, which is likely to happen over time, the policymaker said. Mr. Plosser was addressing the economy’s long-running inability to get inflation back toward levels the central bank would like to see. The weakness of inflation to reach that goal has proved problematic to officials, including Mr. Plosser, who believe the time is soon coming to raise rates. Many Fed officials see inflation weakness as a reflection of the fact that as well as the economy has been doing, underlying weakness, most notably in the job market, still persists. These officials see under-target inflation as a reason to refrain from raising short-term interest rates off of what are currently near zero levels. In a speech Thursday, San Francisco Fed President John Williams said it could take a couple of years before the Fed sees inflation back at 2%. In Mr. Plosser’s formal speech, he reiterated his belief that there are limits to what monetary policy can do for the job market. “I fear that the public has come to expect too much from its central bank and too much from monetary policy, in particular,”
Nobody Understands the Liquidity Trap, Still - Paul Krugman -- A correspondent points me to Bill Gross in 2010, declaring that we are in a liquidity trap — and that therefore the Fed’s expansionary policies won’t create jobs, but will simply cause inflation. There’s only one thing to say: But a lot of people seem to have fallen into that curious fallacy, as I pointed out in the same year. Look, the liquidity trap — which is basically the same as saying that even a zero short-term interest rate isn’t low enough to produce full employment — is a situation in which increasing the monetary base has no effect on aggregate demand, because you’re substituting one zero (or very low) interest asset — monetary base — for another zero or low interest rate asset, short-term government debt. Conventional monetary policy is completely sterile on all fronts. I don’t know why this very simple point is so hard to grasp, but people keep making a hash of it. I have no idea why Cullen Roche thinks that the TED spread has anything at all to do with the question of whether we’re in a liquidity trap; nor do I know what I can do, after all the times I’ve written about it, to make the point more clearly.
Fed's Lacker Slams Fed For "Inappropriate" Bond-Buying, "Distorting Markets & Undermining Independence" - by Richmond Fed head Jeffrey Lacker, op-ed via The Wall Street Journal, Since 2009 the Fed has acquired $1.7 trillion in mortgage-backed securities underwritten by Fannie Mae and Freddie Mac , the mortgage companies now under government conservatorship. Housing finance was at the heart of the financial crisis, and these purchases began in early 2009 out of concern for the stability of the housing-finance system. Mortgage markets have since stabilized, but the purchases have resumed, with more than $800 billion accumulated since September 2012. We were skeptical of the need for the purchase of mortgage assets, even in 2009, believing that the Fed could achieve its goals through the purchase of Treasury securities alone. Now, as the Fed looks to raise the federal-funds rate and other short-term interest rates to more normal levels, that normalization should include a plan to sell these assets at a predictable pace, so that we can minimize our distortion of credit markets. The Federal Open Market Committee’s recent statement of normalization principles did not include such a plan. For this reason, the first author, an FOMC participant, was unwilling to support the principles.The Fed’s MBS holdings go well beyond what is required to conduct monetary policy, even with interest rates near zero. The Federal Reserve has two main policy mandates: price stability and maximum employment. In the past, the pursuit of higher employment has sometimes led the Fed (and other central banks) to sacrifice monetary stability for the short-term employment gains that easier policy can provide. This sacrifice can bring unfortunate consequences such as the double-digit inflation seen in the 1960s and 1970s.
The IMF’s $3.8 trillion warning to the Fed - — A rocky exit from low interest rates by the Federal Reserve risks $3.8 trillion of losses to global bond portfolios, the International Monetary Fund warned Wednesday in its latest global financial stability report. The IMF was at pains to emphasize that it’s not forecasting such losses, but it did point out that tightening in the past has been a key trigger for declines in fixed-income markets. The IMF came up with the $3.8 trillion figure by assuming a rapid adjustment that causes term premiums to go back to historic norms and credit risk premiums to normalize, with moves of 100 basis points each. That would trigger losses by more than 8%, which could “trigger significant disruption in global markets.” The IMF also pointed to the low volatility term structure VIX, -12.15% for the S&P 500, suggesting equities also may be underpricing the risk of higher volatility in the future. It’s these concerns that have led the Federal Reserve to increase their communication to the public, through quarterly press conferences as well as interest-rate and economic forecasts. Observers both inside and outside the Fed expect the first rate hike to occur in the middle of 2015. But there remains considerable debate over the pace of subsequent hikes.
Fed Chair Janet Yellen Has a New York Problem - America’s central bank, the Federal Reserve, has a credibility problem and a management crisis unique to its unusual structure. If the Chair of the Federal Reserve Board of Governors, Janet Yellen, had any real management powers, she would have immediately asked William Dudley, President of the New York Fed, to step down after internal tape recordings revealed that his staff rubber stamps “legal but shady” deals at the big Wall Street banks it supervises. “Legal but shady” and patently illegal dressed up as just shady deals collapsed this Nation’s financial system only six years ago and continues to depress the country’s economic growth.The tapes were released by former New York Fed bank examiner, Carmen Segarra, via the public interest web site ProPublica and public radio’s “This American Life.” Segarra is suing the New York Fed, charging that she was terminated when she refused to change her negative examination of Goldman Sachs – a position given substantive credibility with the release of the tapes. Yellen’s credibility as the head of America’s central bank is undermined by these disclosures because many Americans believe that “the Fed” is the New York Fed because of its gold vault, historic building and decades of guided tours. But the New York Fed is just one of 12 regional Federal Reserve banks over which the Federal Reserve Board of Governors in Washington D.C., chaired by Yellen, oversees in what must be considered a titular capacity.
Hilsenrath Confirms Dovish Fed Talking Down The Dollar -- Federal Reserve officials have become more concerned about weak growth overseas and the impact of a strengthening U.S. dollar on the domestic economy, warns WSJ Fed-whisperer Jon Hilsenrath, adding that, the stronger currency, by reducing the cost of imported goods and services, could hold U.S. inflation below the Fed’s 2% objective. Fed staff also reduced its projection for medium-run growth in part because of these concerns. The minutes showed more clearly than before that concerns about global growth and the disinflationary impact of a strong currency are giving officials additional pause about moving quickly on rates.
The Fed Notices the Dollar -- Well, that was an interesting set of Fed minutes, in much the same way that colon exams are interesting to their unhappy recipients. Your author doesn't intend to engage in a thorough exegesis of the minutes, but there were a number of points which struck him. The shot which hit the market's bow was, of course, the explicit reference to the dollar, and how it might impact both America's external accounts (X-M in GDP accounting) and, of course, the all-important 2% target for the core PCE deflator. We can leave aside comments that the inflation target is really nonsensical- the average for the decade before the crisis was 1.75%, for example- and instead focus on why the Fed chose to raise the issue. The Fed cited the euro, yen and sterling as weakening against the dollar. Hmmm...let's see....the ECB had just announced an asset purchase program, speculation was mounting that the BOJ would add to its own QQE program, and the Fed meeting took place the day before the Scottish referendum, thus putting a significant risk premium on sterling. More broadly, even in the absence of idiosyncratic factors elsewhere (the same sort of idiosyncratic factors, it need not be said, that provided a US tailwind via a weakening dollar for much of the Fed's QE adventures), does it really come as a surprise that the dollar might strengthen as the Fed starts to contemplate its first tightening in nearly a decade? Really? Perhaps Macro Man's reading too much into this, but it looks like one of those cases where those PhD models that assume "all else being equal" might have allowed its range of adjustable factors to be a little too narrow. Either that or, as Yellen herself suggested, the Fed might be able to learn something from markets. Sadly, if the recent dollar rally came as any sort of surprise, the FOMC might have to start with the basics- defining "mine", "yours", etc., because it would appear they have a LOT to learn.
Dollar strength and inflation expectations - The ongoing strengthening of the US dollar could shift the FOMC further into dovish territory. While the labor situation continues to improve, the dollar's recent appreciation has contributed to declines in inflation expectations (based on TIPS breakevens) to multi-year lows.Another way to think about this is that lower inflation expectations are equivalent to higher real interest rates - a form of "market-generated" tightening in monetary conditions. Central banks generally don't like to tighten policy when real rates rise sharply. Part of the reason for weaker inflation expectations has been the decline in commodity prices - which to a large extent resulted from stronger US dollar (as well as slower growth expectations in China). A widely-tracked broad commodity indicator called the Continuous Commodity Index is now at the lowest level since 2010. Moreover, stronger dollar lowers prices of imported goods in the US. After a period of declines last year, growth in import prices finally turned positive this summer, providing support to the CPI. But as the dollar started appreciating, import prices began falling again, lowering US inflation (and inflation expectations). We saw signs of that in August and import prices are likely to be even lower for September. The Fed watches market-based inflation expectations quite closely and the dovish FOMC members may use this as an excuse to press for delays in rate normalization. If the US dollar appreciation continues at the current pace, the FOMC dot-charts will begin to move lower.
WSJ Survey: Economists Downgrade Their Inflation Outlook - Inflation should remain quite low until the end of 2015, say economists surveyed this month by The Wall Street Journal. On average, the forecasters expect inflation—defined as the 12-month percent change in the consumer price index—will end this year at 1.9% and still be running at a mild 2% in the final month of 2015. The projections represent a downgrade to the inflation outlook compared to the results of the April and July surveys. What’s behind the inflation reset? Falling oil prices and a strengthening dollar should combine to hold down price pressures into next year. The Federal Reserve uses the personal consumption expenditures price index as its preferred inflation gauge. But the private economists’ expectations for low CPI inflation through 2015 suggest policy makers will not have to worry about rising inflation when making interest-rate decisions next year. In fact, disinflation worries may be a bigger concern. In a speech Wednesday, Chicago Fed President Charles Evans said, “There is a risk… that inflation expectations themselves could fall—indeed, I would note that longer-dated TIPS break-evens have recently dropped to the lower end of their post-crisis range.”
Look Out for Falling U.S. Inflation Expectations -- Here’s another new reason Federal Reserve officials might be wary of raising short-term interest rates very quickly: Inflation expectations in the U.S. are sinking. By one measure they’ve dropped by a greater magnitude in the U.S. than in Europe in the past few months. Market expectations for U.S. inflation in five to ten years have dropped from 2.91% in July to 2.57% in October, according to calculations by Barclays Capital, using trading in options contracts to gauge expectations.(This is based on expected readings of the consumer price index, which Fed officials believe slightly overstate actual inflation.) In Europe, where actual inflation is much lower, expectations for inflation in five to ten years are also lower, but they haven’t fallen as much lately. Expectations there dropped from 2.13% in July to 1.90% in October, Barclays calculates. In a written commentary, Barclays strategist Michael Pond said the drop can be explained in part by falling oil prices and concerns about slow global economic growth. Expected inflation is “now at levels seen only when financial markets were stressed and the US outlook was weak,” he Central bankers pay attention to expectations because they are believed to play an important role in the inflation that actually occurs. When households, businesses or investors expect inflation to rise, they respond by pushing up wages or prices in anticipation of such a move. Falling expectations, in turn, can create downward pressure on inflation. With inflation expectations still well above 2% in the U.S. and the jobless rate falling below 6% in September, it’s very hard to imagine the Fed adding stimulus now. But the drop in expected inflation supports the arguments of Fed “doves” who want to keep rates low for a long time.
Fed’s Lacker Sees No Sign Inflation Expectations Are Drifting From 2% Target - Federal Reserve Bank of Richmond President Jeffrey Lacker, known as a “hawk” for his emphasis on the risk of runaway prices, said Thursday he sees no sign of inflation expectations moving away from the central bank’s 2% target. Bloomberg NewsInflation measures have run below that goal for more than two years, though they have picked up this year. Critics of the Federal Reserve’s easy money policies, including Mr. Lacker, have warned about the risks of higher inflation from the Fed’s efforts to pump up the economy, including bond purchases and near-zero interest rates, since the recession. Mr. Lacker, in prepared remarks to be delivered before business and community leaders here, said he still expects inflation to gradually reach the Fed’s target. “Thankfully, there are no signs that business and consumer expectations for future inflation have drifted away from 2 percent,” he added. “Of course, monetary policy must ensure that we never see such a drift in expectations materialize, for if it does, it will have been too late.”
Fed’s Plosser: Weak Inflation Not A Worry, Prices Back To 2% Eventually - Federal Reserve Bank of Philadelphia President Charles Plosser said Friday that inflation levels that have fallen persistently short of where the central bank wants them to be are not a significant issue to him right now. It’s true that inflation levels are “a little bit low” relative to the Fed’s desire to have price pressures hit 2%, Mr. Plosser said at an appearance in New York. But, “for the most part, I’m not too concerned about that,” he said. Given the huge level of reserves that are currently in the banking system as a result of Fed stimulus activities, the Fed can “create any inflation level we choose,” Mr. Plosser said. He added “it’s very important we remain committed” to hitting the 2% price target, which is likely to happen over time, the policymaker said. Mr. Plosser was addressing the economy’s long-running inability to get inflation back toward levels the central bank would like to see. The weakness of inflation to reach that goal has proved problematic to officials, including Mr. Plosser, who believe the time is soon coming to raise rates. Many Fed officials see inflation weakness as a reflection of the fact that as well as the economy has been doing, underlying weakness, most notably in the job market, still persists. These officials see under-target inflation as a reason to refrain from raising short-term interest rates off of what are currently near zero levels. In a speech Thursday, San Francisco Fed President John Williams said it could take a couple of years before the Fed sees inflation back at 2%.
Tapering is tightening? -- A funny thing has happened since the Federal Reserve announced it would begin cutting back on its bond-buying on December 18, 2013: the yield curve has flattened like a pancake. In particular, 30-year bond yields have dropped by nearly a full percentage point since tapering was first announced: These results ought to surprise those who hold the common belief that asset purchases depress the “term premium” between near and far interest rates. Those worried about slowing inflation should take heart. For better or worse, the changes in nominal interest rates are not really being driven by changes in inflation expectations so much as changes in real yields. As you can see from this chart comparing yields on 5-year Treasury inflation protected securities against 30-year TIPS, the total change in the slope of the real yield curve is basically the same as the total change in the slope of the nominal yield curve:
Wages and the Fed - Paul Krugman -- My inbox is already starting to fill up with predictions and demands that the Fed accelerate the pace of “normalization” because today’s jobs report was better than expected. But the case for wait-and-see actually remains as strong as ever, and maybe a bit stronger.There are, as I’ve tried to explain, two key points for Fed policy. The first is that we don’t know how much slack there is in the labor market. The second is that the consequences of overestimating slack and waiting too long to raise rates would be relatively minor, while the costs of underestimating slack and hiking rates too soon could be immense. On the first point: we really, really don’t know how much slack there is. Don’t show me your new estimation method and claim that it proves that there is x percent of slack — there are lots of clever people doing clever estimates, they don’t agree, and nobody really believes in econometrics anyway unless it tells them what they want to hear. (Sorry, but that’s reality.) We really won’t know until after the fact, if and when we finally see a notable pickup in inflation, and in particular in wages. On the second point: if the Fed waits too long, inflation might pick up for a while, and getting it back down to target would hurt (although the target really should be higher.) But that’s minor compared with the alternative, of raising rates too soon and then finding that we’ve entered a deflationary trap that’s really, really hard to exit. If you’re at the Fed, would you rather wake up and discover that core inflation has risen to 3 percent or that you’ve become Mario Draghi? So, what did we learn about inflation from the latest employment report? Here’s wage growth:
Fed Watch: Is There a Wage Growth Puzzle? -- Justin Wolfers says there is, and uses this picture: to claim:This puzzle isn’t entirely new, as the usual link between unemployment and the rate of wage growth has totally broken down over recent years. The recent data have made a sharp departure from the usual textbook analysis in which a tighter labor market leads to faster wage growth, and subsequent cost pressures feed through to higher inflation. But has the link between wage growth and unemployment "totally broken down"? Eyeball econometrics alone suggests reason to be cautious with this claim as the only deviation from the typical unemployment/wage growth relationship is the "swirlogram" of fairly high wage growth relative to unemployment through the end of 2011 or so. But is this a breakdown or a typical pattern of a fairly severe recession? While, it might seem unusual if you begin the sample at 1985 as Wolfers did, so let's see what the 1980-85 episode looks like: Same swirlogram. Compare the two recessions: Fairly similar patterns, although in the 80-85 episode there was more room to push down the inflation expectations component of wage growth. It would appear that in the face of severe contractions, wage adjustment is slow. Now consider the 1985-1990 period: Notice that wage growth is stagnant until unemployment moves below 6% - past experience thus suggests that we should not expect significant wage growth until we move well below 6% (you could argue the response actually began at 6.5%). Thus, it is premature to believe that there has been a breakdown in this relationship. So far, the response of wages is exactly what you should have expected in light of the 1980's dynamics. Which leads to two points:
- I am no fan of Dallas Federal Reserve President Richard Fisher. That said, he did not pick 6.1% out of a hat when he said that was the point at which wage growth has tended to accelerate in the past. That number fell out of his staff's research for a reason and surprises me not one bit.
- There is a reason the Fed picked 6.5% unemployment for the Evan's rule. There was absolutely no chance that that would be a meaningful number as far as labor market healing is concerned.
Fed Watch: The Labor Market Conditions Index: Use With Care -- I was curious to see how the press would report on the Federal Reserve Board's new Labor Market Conditions Index. My prior was that the reporting should be confusing at best. My favorite so far is from Reuters, via the WSJ:Fed Chairwoman Janet Yellen has cited the new index as a broader gauge of employment conditions than the unemployment rate, which has fallen faster than expected in recent months. The index’s slowdown over the summer could bolster the argument that the Fed should be patient in watching the economy improve before raising rates.But its pickup last month could strengthen the case that the labor market is tightening fast and officials should consider raising rates sooner than widely expected. Many investors anticipate the Fed will make its first move in the middle of next year, a perception some top officials have encouraged. Translation: We don't know what it means. Now, this is not exactly the fault of the press. The Fed appears to want you to believe the LCMI is important, but they really don't give you reason to believe it should be important. They don't even release the LCMI - the charts on Business Week and US News and World Report are titled erroneously. The Fed releases the monthly change of the LCMI, as noted by Business Insider. But wait, no that's not right either. They actually release the six-month moving average of the LCMI, which means we really don't know the monthly change.1 What the Fed releases might actually be more impacted by what left the average six months ago than the reading from the most recent month. And you should recognize the danger of the six-month moving average - the longer the smoothing process, the more likely to miss turning points in the data. Unless of course the Fed released the raw data to follow as well. Which they don't.
Punished for the Dollar's Virtue? - Paul Krugman -- I rarely disagree with Jared Bernstein, and actually agree with most of his latest post. Yes, the persistent US trade deficit is a problem for achieving full employment, and we should have a weak-dollar, not strong-dollar policy. But is the dollar’s reserve-currency status the root of the problem? I have long argued that reserve-currency status is a much overrated phenomenon — it’s not actually a significant benefit to the country that issues the currency, even aside from the employment issues. But I’m also not convinced that it’s that big a deal when we try to understand persistent trade deficits. After all, we’re not the only country that has run persistent external deficits: We do have things that cause a global savings glut to spill into America — a big, deep financial market, with lots of players willing to create what look like safe assets, a general sense that America is the refuge of last resort, and so on. But Britain offers many of the same things, and has in fact a comparable record of persistent capital inflows and deficits; while Australia has run really big external deficits for a very long time. As a policy issue I don’t think this matters too much — we should seek a weaker dollar. But I don’t think phrasing it in terms of the reserve currency status is helpful.
The Long Cryptocon - Paul Krugman -- At the end of 2013 I wrote a post titled “Bitcoin is evil,” riffing off Charlie Stross’s “Why I want Bitcoin to die in a fire.” Charlie and I both keyed in on the obvious ideological agenda: Bitcoin fever was and is intimately tied up with libertarian anti-government fantasies. So how’s it going? Bitcoin prices are down by two-thirds from their peak, and Izabella Kaminska, who has stayed with the subject, finds the sad story of a gullible rube who appears to have impoverished himself by believing in the hype. She comments: Some extremely wealthy libertarians have a lot to answer for if these sorts of ppl lose all due to believing in them But this is nothing new. Back in 2012 Rick Perlstein published an eye-opening piece titled The Long Con, in which he documented the close association that has always existed between right-wing organizing and direct-mail commercial scams — in fact, it’s pretty much impossible to tell where one ends and the other begins. Send us money to keep Obama from imposing Sharia law; invest in this sure-fire scheme to profit from the coming hyperinflation. Was Glenn Beck selling paranoid politics or Goldline? Yes. Bitcoin may be sold as a technical marvel, and it does indeed solve an interesting information problem — although it’s not at all clear whether solving that problem has any economic value. But the psychology and sociology of the phenomenon are the same old same old.
Right now, the US is a 1% growth economy – JPMorgan -- President Obama has been worrying about the wrong “1%.” More attention should be paid to a US economy where potential GDP growth may have fallen to levels more commonly associated with sclerotic Europe and Japan. The one-handle. From JP Morgan economist Robert Mellman: A 2013 Special Report by J.P. Morgan examined the prospects for US potential real GDP growth (how fast the economy would grow without putting downward pressure on the unemployment rate), and concluded that it was probably slowing to only 1.75%. This was calculated by combining a 0.5% potential growth rate for the labor supply and a 1.25% growth rate for labor productivity. This still seems to us like a reasonable forecast of potential growth over the next several years, but labor supply and labor productivity growth have fallen below these estimates, both over the past year and over the past three years. The actual performance of the economy suggests that potential GDP has been increasing at a pace below 1.25%. The supply side of the economy has disappointed already-modest expectations. Whatever the adverse effects of slow potential growth, it has allowed a rapid decline in the unemployment rate despite only middling real GDP growth. From the point of view of improving job prospects for those looking for work, weak labor force growth (less competition for jobs) and weak labor productivity (strong growth of labor demand relative to real GDP) has proved to be a very helpful combination.
Why is the recovery so weak? It’s the austerity, stupid. - Welcome to Austerity U.S.A., where the deficit is back below 3 percent of GDP and growth is still disappointing—which aren't unrelated facts. It started when the stimulus ran out. Then state and local governments had to balance their budgets amidst a still-weak economy. And finally, there was the debt ceiling deal with its staggered $2.1 trillion of cuts over the next decade. Add it all up, and there's been a big fiscal tightening the past few years, something like 4 percent of potential GDP. Indeed, as Paul Krugman points out, real government spending per capita has been falling faster now than any time since the Korean War demobilization. And, as you can see above, all this austerity has been hurting GDP growth since 2011. It shows the Hutchins Center's new "fiscal impact measure," which looks at how much total government tax-and-spending decisions have helped or harmed growth. The dark blue line is what policy has actually done, and the light blue one is what a neutral policy would have done. So, in other words, if the dark blue line is below the light blue one, like it has the last three years, then policy has subtracted from growth.
We can’t return to a ‘normal’ economy, but we can recognize our challenges and keep moving ahead. - Galbraith - Last month’s job gains extended America’s longest run of private-sector job growth and put unemployment back below 6 percent. Yet the labor force and the ratio of employment to population remain way down, and economic growth has been slower than in past expansions. It has been a mixed picture, without disaster but not without disappointment. “Secular stagnation” has become a fashionable view. But this phrase from the 1940s refers mainly to business psychology, suggesting that a better mood would bring a happier economic result. This is too easy. There are material reasons why we have done as well as we have — and also why we likely won’t see full recovery on the familiar model. Consider aging; the workforce falls as baby boomers retire. But this isn’t a bad thing, as many think; actually it’s been a big advantage. So long as older workers can retire — as long as Social Security, Medicare, and Medicaid continue to supply them with income and health care — they become a potent source of purchasing power, and this helps the economy achieve a new balance. The same goes for unemployment insurance, food stamps, and other programs that ward off destitution. Social insurance works; we should take note and be grateful. Yet these programs remain under threat. If they are cut, the support they give to the economy will decline.
Pavlina Tcherneva rightly says it is better to support labor income in a recovery rather than the financial sector. - The title of this post describes the main message of Pavlina Tcherneva’s research. This video is a “must see”. If her message becomes part of the policy approach for the next recovery, we will see much better net social benefits for society after the next recession. (video link)
Explaining “The most important chart about the American economy you’ll see this year” -- Pavlina Tcherneva’s chart has been getting a lot of play out there: Vox/Matthew Yglesias labeled it “The most important chart about the American economy you’ll see this year.” Scott Winship at Fortune came back at it on methodological grounds, with the headline “No, the Rich Are Not Taking All of the Economic Pie (In 8 Charts).” He ends up with what he calls the “money chart,” supporting his headline: some of Scott’s corrections help to usefully and informatively explain the situation better, or at least more. But to summarize the changes that are less informative or downright misinformative:
- • The blatant inaccuracy of ignoring cap gains in #5. It completely misrepresents the situation.
- • The omission of recent years in #2 — the very years where the trend is arguably most apparent and egregious. Hiding the elephant under the rug?
- • The blithely dismissive headline of Scott’s first post.
With these combined, I hope Scott can understand why many see his post as an effort to pooh-pooh and obfuscate the whole subject — the very antithesis of “explaining.”Part of that hand-waving, obfuscation, and general chaff-dispersal is the proleptic “but of course you’re right” rhetorical ploy, right up front in Scott’s second paragraph: Let’s stipulate that income inequality is at staggering levels in the U.S., and that income concentration at the top has probably risen (probably) One really must ask: if income inequality is at “staggering” levels, how did it get there…if it hasn’t risen?
U.S. fiscal 2014 budget deficit falls to $486 billion, CBO says - (Reuters) - The U.S. budget deficit fell by nearly a third during fiscal 2014 to $486 billion as federal revenues grew far faster than spending, the Congressional Budget Office said on Wednesday. Releasing preliminary estimates of final budget data for the year ended Sept. 30, the CBO said receipts grew nearly 9 percent from the previous year to $3.013 trillion, while outlays were up 1.4 percent to $3.499 trillion. The resulting fiscal 2014 deficit was down about $195 billion from the $680 billion budget gap recorded in fiscal 2013. The CBO estimated a September budget surplus of $106 billion, up from a $75 billion surplus a year earlier. The U.S. Treasury Department is expected to report final budget data for fiscal 2014 by Oct. 17. The fiscal 2014 deficit is slightly less than a $506 billion gap that the non-partisan agency forecast in August, when it predicted that many companies would reduce tax payments due to uncertainties over tax laws. The CBO has forecast a $469 billion deficit for fiscal 2015, which started on Oct. 1. Later in the decade, it expects deficits to rise again as costs associated with an aging population mount.
CBO Estimate: Budget Deficit declines to 2.8% of GDP From the CBO: Monthly Budget Review for September 2014 The federal government ran a budget deficit of $486 billion in fiscal year 2014, the Congressional Budget Office (CBO) estimates—$195 billion less than the shortfall recorded in fiscal year 2013, and the smallest deficit recorded since 2008. Relative to the size of the economy, that deficit—at an estimated 2.8 percent of gross domestic product (GDP)—was slightly below the average experienced over the past 40 years, and 2014 was the fifth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009. By CBO’s estimate, revenues were about 9 percent higher and outlays were about 1 percent higher in 2014 than they were in the previous fiscal year. CBO’s deficit estimate is based on data from the Daily Treasury Statements; the Treasury Department will report the actual deficit for fiscal year 2014 later this month. A deficit of $486 billion for 2014 would be $20 billion smaller than the shortfall that CBO projected in its August 2014 report An Update to the Budget and Economic Outlook: 2014 to 2024. This is an improvement over the recent estimate. The Treasury will release their fiscal year 2014 report on Friday.
The Deficit Is Down, and Nobody Knows or Cares - Paul Krugman -- The CBO tells us that the federal deficit is way down — under 3 percent of GDP. And Jared Bernstein notes that Obama seems to get no credit. You may ask, what did you expect? But the truth is that a few years ago many pundits claimed that Obama would reap big political rewards by being the grownup, the responsible guy who Did What Had To Be Done. Worse, some reports said that the White House political staff believed this. It was, of course, nonsense on multiple levels. While pundits may like to script out elaborate psychodramas about voter perceptions, real perceptions bear no relationship to their scripts — in fact, a majority think the deficit has gone up on Obama’s watch, while only a small minority know that it’s down.And the deficit scolds themselves are unappeasable — nothing that doesn’t involve severely damage Social Security and/or Medicare will satisfy them. Why, it’s almost as if shredding the safety net, not reducing the deficit, was their real goal. Deficit obsession has been immensely destructive as an economic matter. But it has also involved major political malpractice.
The Federal Deficit is Now Smaller than the Average Since the 1980s - The federal government’s deficit in fiscal year 2014 was $195 billion smaller than last year — clocking in at a shortfall of $486 billion, according to an estimate from the Congressional Budget Office. The deficit was $20 billion smaller than the CBO had estimated as recently as August. The rapid plunge in the deficit has reaped few political dividends for either party just weeks before the November midterm elections. The deficit remains large in absolute levels, and the headline number of $486 billion still draws ample attention from Republicans. At the same time, many Democrats are unhappy with cutting budgets in a weak economy and reducing borrowing when interest rates are low. But measuring the raw deficit only tells part of the story. The U.S. population and economy are much larger today than they were in the 1980s. In fact, adjusted for the size of the economy, today’s deficit is now smaller than the average deficit going back to the 1980s. The 2014 deficit came in at 2.8% according to the CBO estimate, compared to the 3.2% average since 1980. By that measure, President Barack Obama‘s deficit this year is one that would have been acceptable to President Ronald Reagan. During Mr. Reagan’s presidency, the deficit averaged 4% of GDP.
Shrinking Deficit? U.S. Government Debt Jumps By $1.1 Trillion In Fiscal 2014 -- When it comes to the Federal deficit, reliable numbers are as elusive as unicorns. Not that there aren't plenty of numbers out there, but they don't match reality. And reality is ultimately the change in the gross national debt which shows in its unvarnished manner just how much money the federal government actually had to borrow to fill the fiscal holes. Regardless of what has been proffered by the White House, the Congressional Budget Office, and others, the total gross national debt outstanding of the US of A hit $17.824 trillion in fiscal 2014 ended September 30; a jump for the fiscal year of $1.086 trillion. It could have been worse: note how it jumped on October 1, the first day of fiscal 2015, by another $51 billion. That's certainly one elegant way of putting some lipstick on the debt in fiscal 2014 - by kicking part of it into the next fiscal year. But hey, we all do that. From the Treasury Department: The fact that the total debt taxpayers will have to deal with in the future soared by $1.1 trillion in fiscal 2014 is in part due to last year's debt ceiling charade in Congress. Starting in March 2013, when Treasury debt outstanding hit the debt ceiling, the Treasury Department couldn't sell additional debt to bring in the money that the government continued to spend. So it borrowed that money via "extraordinary measures" from other accounts, to be repaid later. Then on October 16 last year, so in fiscal 2014, President Obama signed a deal into law that avoided default. The next day, the gross national debt jumped $328 billion to $17.075 trillion.
Secret Deficit Lovers, by Paul Krugman --What if they balanced the budget and nobody knew or cared? O.K., the federal budget hasn’t actually been balanced. But the Congressional Budget Office has tallied up the totals for fiscal 2014..., and reports that the deficit plunge of the past several years continues. ... Shouldn’t we be making a big deal of the fact that the alleged crisis is over? Well, we aren’t, and once you understand why, you also understand what fiscal hysteria was really about. First, ordinary Americans aren’t celebrating the deficit’s decline because they don’t know about it. That’s not mere speculation... Why doesn’t the public know better? Probably because of the way much of the news media report this and other issues, with bad news played up and good news downplayed if it’s reported at all. This has been glaringly obvious in the case of health reform, where every problem ... has been the subject of headlines, while in right-wing media — and to some extent in mainstream news sources — favorable developments go unremarked. As a result, many people — even, in my experience, liberals — have the impression that the rollout of Obamacare has been a disaster, and have no idea that enrollment is above expectations, costs are lower than expected, and the number of Americans without insurance has dropped sharply. Surely something similar has happened on the budget deficit. ...Deficit scolds actually love big budget deficits, and hate it when those deficits get smaller. Why? Because fears of a fiscal crisis — fears that they feed assiduously — are their best hope of getting what they really want: big cuts in social programs. ...
Paul Krugman Still Believes That “the debt” Can Be a Problem for the U.S. - The deficit is now down to under 3% of GDP, and in contemplating that fact, Paul Krugman asks why the deficit hawks aren’t celebrating the precipitous fall from nearly 10% of GDP a few years ago. He then explains that: Far from celebrating the deficit’s decline, the usual suspects — fiscal-scold think tanks, inside-the-Beltway pundits — seem annoyed by the news. It’s a “false victory,” they declare. “Trillion dollar deficits are coming back,” they warn. And they’re furious with President Obama for saying that it’s time to get past “mindless austerity” and “manufactured crises.” He’s declaring mission accomplished, they say, when he should be making another push for entitlement reform. So, he unmasks them and then goes on to say: Yes, current projections still show a rising ratio of debt to G.D.P. starting some years from now, and uncomfortable levels of debt a generation from now. But given all the clear and present dangers we face, it’s hard to see why dealing with that distant and uncertain prospect should be any kind of policy priority. That is, Paul Krugman is saying that
- – he doesn’t think it’s necessary to deal with a possible long-term rising debt-to-GDP ratio now, because of the many other problems we still have to face; but he’s also implying that if the projection of such a rise holds later, then we will have to deal with it at that time;
- – the lowered deficit now is due to both a strengthening economy and some austerity measures, thereby excluding the possibility that it is due to the recovering economy alone, in spite of the fiscal drag from reduced Government spending at the Federal level pulling in the opposite direction; and
- – “. . . uncomfortable levels of debt a generation from now” are a possibility, implying that high levels of debt, and debt-to-GDP ratios mean something to the fiscal sustainability of Government spending in the United States.
Deficit anxiety is not the answer - After a hard road and steady progress, the economic recovery is picking up steam. The unemployment rate fell to 5.9 percent in September, the lowest level since July 2008. Exports are up. Factories are churning out more goods, posting their strongest quarter in more than three years. And the biggest driver of our long-term debt — health-care costs that were on a seemingly inexorable rise for decades — has turned into the biggest driver of our shrinking deficits. I tweeted this good news to my friend Fred Hiatt last week. Unfortunately, he missed the bottom line, devoting his Monday column to a reprise of the deficit anxiety that has shaped the economic debate in Washington since 2010. The Affordable Care Act has already helped slow the rate of growth in health-care costs across the board, putting more money in Americans’ pockets and bringing down projected deficits even as millions more people sign up for health insurance and receive access to Medicaid. The improving economic picture means the deficit has been more than halved and is expected to come in under 3 percent of gross domestic product this year — down from nearly 10 percent in early 2009. The problem with Hiatt’s fixation on what’s going to happen to the budget in 2039 isn’t that high debt-to-GDP ratios don’t have consequences — it’s that deficit angst makes it all too easy for policymakers to ignore the fact that we still need to do more to repair the damage from the Great Recession, to grow wages and help middle-class families feel secure, and to invest in the future. This approach isn’t fiscally reckless; indeed, it’s the only serious way to further improve our economy today and strengthen our balance sheet in the future.
Disinvestment Madness - Paul Krugman -- I’m at an IMF seminar today, discussing infrastructure investment — or actually lack thereof. And this is a good time to think about what we’ve actually done. Consider the situation: real interest rates are extremely low, indicating that the private sector sees very little opportunity cost in using funds for public investment. There has been a lot of slack in the labor market, so that many of the workers one would employ in public investment would otherwise have been idle — so very little opportunity cost there either. This makes a very strong case for sharply increasing public investment in a depressed economy; a case that doesn’t rely on claims that there is a large multiplier, although there’s every reason to believe that this is also true. So, what has actually happened? Public construction spending as a share of GDP, along with the 10-year real interest rate: A brief uptick thanks to the ARRA, then a plunge. This is hugely dysfunctional policy.
Destroying a $30,000 Islamic State pickup truck can cost US $500,000 On Saturday, Oct. 4, Day 58 of the American campaign against the Islamic State, U.S. aircraft carried out nine strikes inside Iraq and Syria, destroying two tanks, three Humvees, one bulldozer and an unidentified vehicle. The strikes also hit several teams of Islamic State fighters and destroyed six of their firing positions. At first glance, that might seem like a lot of damage. Leaving aside the significance of killing Islamic State militants and only looking at equipment, the tanks were worth an estimated $4.5 to $6.5 million apiece and each Humvee cost $150,000 to $250,000, bringing the total value of the equipment destroyed to somewhere between $9.5 and $13.8 million. But that’s less impressive when one considers that each U.S. “strike” against the self-proclaimed Islamic State can involve several aircraft and munitions and cost up to $500,000, according to Todd Harrison, an expert with the Center for Strategic and Budgetary Assessments, a Washington-based defense think tank. Harrison said the cheapest possible strike could cost roughly $50,000 — assuming a single plane dropping one of the cheaper types of bombs. But the majority of airstrikes cost much more, involving F-15s, F-16s, F-22s and other aircraft that cost $9,000 to upward of $20,000 per hour to operate and explosives that cost tens to hundreds of thousands of dollars. Harrison noted that each strike’s price “depends on the distance to the target site, how long it may need to loiter, what type of aircraft is used, and whether it needs aerial refueling (and how many times).”
Voodoo Economics, the Next Generation, by Paul Krugman - During his failed bid for the 1980 Republican presidential nomination George H. W. Bush famously described Ronald Reagan’s “supply side” doctrine — the claim that cutting taxes on high incomes would lead to spectacular economic growth, so that tax cuts would pay for themselves — as “voodoo economic policy.” Bush was right. ... But now it looks as if voodoo is making a comeback. At the state level, Republican governors — and Gov. Sam Brownback of Kansas, in particular — have been going all in on tax cuts despite troubled budgets, with confident assertions that growth will solve all problems. It’s not happening... But the true believers show no sign of wavering. Meanwhile, in Congress Paul Ryan, the chairman of the House Budget Committee, is dropping broad hints that after the election he and his colleagues will do what the Bushies never did, try to push the budget office into adopting “dynamic scoring,” that is, assuming a big economic payoff from tax cuts. So why is this happening now? It’s not because voodoo economics has become any more credible. ... In fact,... researchers at the International Monetary Fund, surveying cross-country evidence, have found that redistribution of income from the affluent to the poor, which conservatives insist kills growth, actually seems to boost economies. But facts won’t stop the voodoo comeback,... for years they have relied on magic asterisks — claims that they will make up for lost revenue by closing loopholes and slashing spending, details to follow. But this dodge has been losing effectiveness as the years go by and the specifics keep not coming. Inevitably, then, they’re feeling the pull of that old black magic — and if they take the Senate, they’ll be able to infuse voodoo into supposedly neutral analysis.
The Return of Voodoo Economics - Paul Krugman’s column in the New York Times today talked of the revival of “Voodoo economics” by some Republican politicians. This refers to the Laffer Proposition that a cut in income tax rates stimulates economic activity so much that tax revenue goes up rather than down. Gov. Sam Brownback, who is running for re-election in Kansas, has had to confront the reality that tax revenues went down, not up as he argued they would, when he cut state tax rates. I disagree with one thing that Krugman wrote in his column: the idea that there was a long break, particularly after George W. Bush took office, during which Republican politicians did not push this line. To the contrary, I have collected many quotes from George W. Bush and his top officials claiming the Laffer Proposition during the decade of the 2000s. The quotes are on pages 35-39 of “Snake-Oil Tax Cuts,” Here is one of many from him: “The best way to get more revenues in the Treasury is…cut taxes to get more economic growth.“ It is true that the chairmen of Bush’s Council of Economic Advisers did not support the Laffer Proposition, known as the centerpiece of “supply-side economics”. But then that was also the case in the Reagan Administration. The McCain presidential campaign replayed the pattern yet again in 2008: the candidate said tax cuts would bring in more revenue even though his economic adviser said it wouldn’t. Voodoo economics is a very hardy perennial.
Does the USA Really Soak the Rich? - There's a new argument about taxes: the United States is already far too progressive with taxation, it says, and if we want to build a better, eglitarian future we can't do it through a "soak the rich" agenda. It's the argument of this recent New York Times editorial by Edward D. Kleinbard, and a longer piece by political scientists Cathie Jo Martin and Alexander Hertel-Fernandez at Vox. I'm going to focus on the Vox piece because it is clearer on what they are arguing. There, the researchers note that the countries “that have made the biggest strides in reducing economic inequality do not fund their governments through soak-the-rich, steeply progressive taxes.” They put up this graphic, based on OECD data, to make this point: When average people usually talk about soaking the rich, they are talking about the marginal tax rates the highest income earners pay. But as we can see, in Sweden the rich pay a much higher marginal tax rate. As Matt Bruenig at Demos notes, Sweden definitely taxes its rich much more (he also notes that what they do with those taxes is different than what Vox argues). At this point many people would argue that our taxes are more progressive because the middle-class in the United States is taxed less than the middle-class in Sweden. But that is not what Jo Martin and Hertel-Fernandez are arguing. They are instead looking at the right-side of the above graphic. They are measuring how much of tax revenue comes from the top decile (or, alternatively, the concentration coefficient of tax revenue), and calling that the progressivity of taxation ("how much more (or less) of the tax burden falls on the wealthiest households"). The fact that the United States gets so much more of its tax revenue from the rich when compared to Sweden means we have a much more progressive tax policy, one of the most progressive in the world.
Rob Johnson on the Uber Rich: Top 400 US Billionaires’ Wealth Equals Brazil’s GDP - Yves here. Real News Network features a vivid discussion between Rob Johnson, Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and a member of the UN Commission of Experts on Finance and International Monetary Reform, and Paul Jay on the short-sightedness of the uber-rich. Although many of the themes of this talk will be familiar to Naked Capitalism readers, Johnson, who is also a long-standing political insider, is blunt. Well, there’s an old story about a guy that jumps out of the Empire State building. And when you get the 19th floor, you open the window and say, how you doing? And he says, fine so far. I think increasingly those billionaires and other wealthy people know that we’re on an unstable trajectory, that the system is dysfunctional, the system’s broken, and we are heading towards social conflict. Social conflict can take the form of more repression, military equipment, intimidation, incarceration. As you know, the prison population, particularly black male population, is exploding, and America has a tremendous eyesore associated with the incarceration of black males. But there is a sense in which if you have wealth or if you have the knowledge to create wealth, say, like an engineer at Apple Computer, you’ve got to be scared that it isn’t going to go on, you’re not going to be able to reap the fruits of your talents and your wealth unless we adjust course. I think wealthy people have to change course now. It’s not sustainable. Please watch this video and circulate it widely. The transcript is here.
If this is “Regulatory Capture” May the Lord Smite Us with It – And May We Never Recover! By William K. Black -- In Fiddler on the Roof, Perchik and Teyve have this exchange: Perchik: Money is the world’s curse. Tevye: May the Lord smite me with it! And may I never recover! I was reminded of this when reading the Wall Street Journal editorial claiming that “regulatory capture” was “inevitab[le]” and that we should therefore replace financial regulation with “simple rules” that “can’t be gamed.” In my first installment I showed that the WSJ’s “simple rules” not only can be gamed – they are invariably gamed massively in the epidemics of accounting control fraud that cause our recurrent, intensifying financial crises. This installment refutes the “inevitability” of “regulatory capture.” As I promised to explain, I can personally attest that regulatory capture is not “inevitab[le]” even in circumstances that are ripe for capture. Further, “regulatory capture” has no definition and economists use it and the term “rent-seeking” as sloppy swear words to describe regulatory actions that are the opposite of regulatory capture. I conclude by showing that we know how to avoid harmful “regulatory capture,” but the ideologues that oppose effective regulation deliberately chose anti-regulatory leaders who create a self-fulfilling prophecy of regulatory failure. The WSJ editors and neo-classical economists are the jockeys who insure that their horse loses – and then blame the horse.
Bank of America’s No-Bid Prison Contract Facing Criticism in Congress - The prison banking industry is really taking off with an assortment of small time players on the state level snatching all the taxpayer and prisoner money they can. But one of the Too Big To Fail Wall Street banks has it locked up on the federal level. And surprise surprise they have friends at Treasury ready to give them special deals. Too Big To Fail Bank of America received an extremely lucrative and favorable deal to be the exclusive provider of technology and financial services in all federal prisons. The terms of the Bank of America deal are so favorable that even members of Congress seem uneasy. Treasury gave the contract out without competitive bid and and the transparency most federal contracts are required to have. According to the Center For Public Integrity, the contract has already paid out $76.3 million to Bank of America. CPI also reports that the contract has been amended 22 times since it was given out in the year 2000 – with each amending process like the awarding itself lacking transparency and accountability. Now at least one member of Congress is looking into the contract. Senator Chuck Grassley, a senior member of the Senate Judiciary Committee, has sent a letter to the Treasury Department asking for details about how the special contract is managed.
AIG Bailout Trial Bombshell I: Paulson Rejected Chinese Offer to Invest “More Than the Total Amount of Money Required” ---Yves Smith --Hank Greenberg may have a case after all. The former CEO of AIG, and major pre-bailout shareholder through the AIG executive enrichment vehicle, C.V. Starr, is hardly a sympathetic figure. The idea of a billionaire suing the government for saving the company that he formerly led from bankruptcy hardly seems like a winning cause. But in this beauty contest between Cinderella’s ugly sisters, in this case Greenberg versus the defendants, which is nominally the US government but in a political sense is the team that led the AIG bailout, Hank Paulson, Timothy Geithner, Ben Bernanke, and their chief lieutenants, Greenberg may well come out looking better. We base our view on a reading of the “Corrected Plaintiff’s Proposed Findings of Fact,” filed in Federal Court on August 22. We attach this document at the end of this post. Note that this record includes extracts from the depositions of Paulson, Geithner, and Bernanke, which were sealed by the court, meaning it contains information otherwise not available to the public. As we will also show in the second post in this series, even this document has a section which has been redacted.
Hell Hath No Fury Like a Bankster Scorned…. -- One of the reasons that no one went to jail for the elite control fraud that caused the financial crisis is because of the pervasiveness of the criminality. You couldn’t send one guy to jail without having that guy very publicly rat out everyone else. To get to a high level on Wall Street you had to be dirty, like in a corrupt police department. No one trusts the one guy who won’t take bribes. Which brings us to Maurice “Hank” Greenberg, the former AIG CEO who is now, for lack of a better word, ratting everyone else out. AIG, of course, is the massive insurance company which was bailed out by the government, with the Fed taking an 80% ownership stake in 2008. The AIG bailout was a strange deal, and it was renegotiated many times over the years. In a normal clean financial company resolution, AIG shareholders would have gotten wiped out. In the bailouts for Goldman, Morgan Stanley, and most of the big banks, shareholders got to keep their shares. AIG shareholders, by contrast, got to keep a little bit of what they had, a sort of split the baby in half deal. Hank Greenberg, as a shareholder, is extremely angry that he was treated this way. He thinks that he was not given equal treatment to Goldman shareholders, and in that he’s right. Most of us think that he should have been wiped out, and Goldman’s shareholders should have been wiped out too, so there’s little sympathy for this very rich man. But it’s utterly true, and everyone (even the most bank-friendly journalist Andrew Ross Sorkin) is acknowledging that it is true, that the government treated AIG shareholders differently. Greenberg is alleging, with good reason, that the motive here was quite sordid.
Bernanke defends AIG bailout in court - FT.com: Former US Federal Reserve chairman Ben Bernanke – aka Edward Quince, it emerged – took to the witness stand on Thursday to defend the government’s $182bn bailout of insurer AIG in 2008. Documents shown to the court revealed Mr Bernanke’s use of the email alias ‘Edward Quince’ when he worked at the Fed, but otherwise, David Boies, the star plaintiffs’ attorney, spent the session patiently building his case that the terms imposed on AIG were arbitrary and unfair. In contrast to his usual professorial manner, a saturnine Mr Bernanke gave brusque responses to Mr Boies, and frequently said he did not recall or was not involved in details of the AIG rescue. He was testifying in a lawsuit filed by former AIG chief executive Hank Greenberg, the insurer’s largest shareholder before the rescue, who is seeking $40bn in damages. He accuses the government of imposing illegally harsh terms on AIG and not properly compensating investors. Mr Bernanke used the ‘Edward Quince’ alias, known only to a small circle of colleagues, to avoid spam from people who guessed the format of his official email. The Quince account was used in correspondence about whether to rescue AIG.
Gretchen Morgenson Collects a Scalp: Blackstone Ditches Private Equity “Termination Fees” - There's nothing like seeing the good guys score a goal. We have two this evening. One is a win by David Sirota, whose reporting on San Francisco's plan to shift up to 15% of retiree funds into hedge funds appears to have led to a climbdown by the city. Sirota uncovered an unreported conflict of interest by the consultant recommending the change, who also operates a hedge fund of funds. Admittedly, CalPERS' recent announcement that it was exiting hedge funds entirely also put pressure on the city to reverse course. But Gretchen Morgenson collected an even bigger scalp in the form of Blackstone halting a practice that she highlighted in a May article: that of taking "termination fees" when portfolio companies are sold. However, as we discuss later, as positive as this move appears, this is almost certainly Blackstone throwing a big, visible bone to investors in the hope of deterring an SEC enforcement action.
The Buffalo Wind - Archdruid Report -- I've talked more than once in these essays about the challenge of discussing the fall of civilizations when the current example is picking up speed right outside the window. In a calmer time, it might be possible to treat the theory of catabolic collapse as a pure abstraction, and contemplate the relationship between the maintenance costs of capital and the resources available to meet those costs without having to think about the ghastly human consequences of shortfall. As it is, when I sketch out this or that detail of the trajectory of a civilization’s fall, the commotions of our time often bring an example of that detail to the surface, and sometimes—as now—those lead in directions I hadn’t planned to address. This is admittedly a time when harbingers of disaster are not in short supply. I was amused a few days back to see yet another denunciation of economic heresy in the media. This time the author was one Matt Egan, the venue was CNN/Money, and the target was Zero Hedge, one of the more popular sites on the doomward end of the blogosphere. The burden of the CNN/Money piece was that Zero Hedge must be wrong in questioning the giddy optimism of the stock market—after all, stock values have risen to record heights, so what could possibly go wrong? Zero Hedge’s pseudonymous factotum Tyler Durden had nothing to say to CNN/Money, and quite reasonably so. He knows as well as I do that in due time, Egan will join that long list of pundits who insisted that the bubble du jour would keep on inflating forever, and got to eat crow until the end of their days as a result. He's going to have plenty of company; the chorus of essays and blog posts denouncing peak oil in increasingly strident tones has built steadily in recent months. I expect that chorus to rise to a deafening shriek right about the time the bottom drops out of the fracking bubble.
Why Stocks Just Won't Drop: "Companies Spend Almost All Profits On Buybacks" -- Back in May we revealed that the "Mystery, And Completely Indiscriminate, Buyer Of Stocks", obviously a key player in a time when the Fed's own indirect monetization of stocks was fading, was none other than corporations themselves, gorging on cheap debt and using the proceeds to buy back their own stock. And while we explained that the vast majority of companies are using up as much leverage as they can to fund said buybacks, with both total and net corporate debt levels having risen to new all time highs refuting misperceptions that corporate debt is actually declining, something even more disturbing was revealed today, when Bloomberg reported that companies in the Standard & Poor’s 500 Index, are "poised to spend $914 billion on share buybacks and dividends this year, or about 95 percent of earnings!"
What Can We Learn from Prior Periods of Low Volatility? – NY Fed -- Volatility, a measure of how much financial markets are fluctuating, has been near its record low in many asset classes. Over the last few decades, there have been only two other periods of similarly low volatility: in May 2013, and prior to the financial crisis in 2007. Is there anything we can learn from the recent period of low volatility versus what occurred slightly more than one year ago and seven years ago? Probably; the current volatility environment appears quite similar to the one in May 2013, but it’s substantially different from what happened prior to the financial crisis. For the three periods we consider, the chart below compares how low volatilities are across the following asset classes: two-year Treasury securities, ten-year Treasury securities, and the S&P 500 index. The bars represent the percentiles of historical ranges.. For the two-year interest rate, only 8 percent of past observations are lower. For the ten-year interest rate, less than 1 percent are lower. We focus on May 2007, May 2013, and July 2014 because these periods were low points for volatility across asset classes. Although volatilities are a bit higher today, they remain near their long-term lows. And while volatilities in the last few months are similar to those in May 2013 and 2007, there are important differences in the underlying drivers that can help us understand the recent market environment.
Heat Wave: Rising Financial Risks in the United States – IMF direct -- Six years after the start of the global financial crisis, low interest rates and other central bank policies in the United States remain critical to encourage economic risk-taking—increased consumption by households, and greater willingness to invest and hire by businesses. However, this prolonged monetary ease also may have encouraged excessive financial risk-taking. Our analysis in the latest Global Financial Stability Report suggests that although economic benefits are becoming more evident, U.S. officials should remain alert to excessive financial risk-taking, particularly in lower-rated corporate debt markets. Persistently low global interest rates have prompted investors to search for higher returns in a wide range of markets, such as stocks, and investment-grade and high-yield bonds. This has resulted in escalating asset prices, and enabled issuers to sell assets with a reduced degree of protection for investors (we give you an example below). The combined trends of more expensive assets and a weakening quality of issuance could pose risks to stability. To track the changes in financial risk taking since the crisis, particularly in the lower-rated corporate debt market, we developed a heat map that looks at signs of financial risk taking from three angles: valuation, issuance trends, and redemption risks.
Leveraged Loans: A Danger Spot? - In the aftermath of the Great Recession, we all learned to beware complex lending structures, which can crumble like a house of cards if repayments don't happen on time. A central ingredient in the financial crisis from 2007-9 were "collateratized debt obligations," which were essentially a way of putting a group of subprime mortgage loans into a financial security, structured in a way that the credit rating agencies would rate a large portion of their value as safe. Financial regulators and the Federal Reserve didn't pay enough attention to the dangers of this financial legerdemain. Now yellow warning lights should be blinking in the area of "leveraged loans," which can be defined as "a large, variable-rate loan originated by a group of banks (sometimes called a syndicate) for a corporate borrower who is perceived to be riskier than most." Alex Musatov and William Watts lay out the issues in "Despite Cautionary Guidance, Leveraged Loans Reach New Highs," in the September 2014 Economic Letter published by the Federal Reserve Bank of Dallas. The issuance of leveraged loans spiked just before the financial crisis of 2007-9, then collapsed in 2008, but has now rebounded to new highs. The basic idea of a leveraged loan is that because of the size of the loan and the risk posed by the borrowing firm, no individual bank wants to lend the money. However, a group of banks get together as a syndicate to organize the loan. "The banks retain portions of the loan on their own books, but the majority of it is packaged for other investors—typically finance companies, insurance companies and hedge funds." What ultimately concerns me is not the specifics of the leveraged loan market by itself, but the thought that there are likely to be similar niche markets out there, invisible to most of us in their day-to-day operations, but with some potential to melt down in a way that could cause broader financial and economic distress.
Shadow Banking: U.S. Risks Persist: ...A "shadow bank" is any financial institution that gets funds from customers and then in some way lends the money to borrowers. However, a shadow bank doesn't have deposit insurance. And while the shadow bank often faces some regulation, it typically falls well short of the detailed level of risk regulation that real banks face. In this post in May, I tried to explain how shadow banking works in more detail. Many of the financial institutions at the heart of the financial crisis were "shadow banks." ... Five years past the end of the Great Recession, how vulnerable is the U.S. and the world economy to instability from shadow banking? ... The IMF devotes a chapter in its October 2014 Global Financial Stability Report to "Shadow Banking Around the Globe: How Large, and How Risky?" ... It is discomforting to me to read that for the U.S., shadow banking risks are "slightly below precrisis levels." In general, the policy approach here is clear enough. As the IMF notes: "Overall, the continued expansion of finance outside the regulatory perimeter calls for a more encompassing approach to regulation and supervision that combines a focus on both activities and entities and places greater emphasis on systemic risk and improved transparency." Easy for them to say! But when you dig down into the specifics of the shadow banking sector, not so easy to do.
Obama Had Security Fears on JPMorgan Data Breach - President Obama and his top national security advisers began receiving periodic briefings on the huge cyberattack at JPMorgan Chase and other financial institutions this summer, part of a new effort to keep security officials as updated on major cyberattacks as they are on Russian incursions into Ukraine or attacks by the Islamic State.But in the JPMorgan case, according to administration officials familiar with the briefings, who would not speak on the record about intelligence matters, no one could tell the president what he most wanted to know: What was the motive of the attack? “The question kept coming back, ‘Is this plain old theft, or is Putin retaliating?’ ” one senior official said, referring to the American-led sanctions on Russia. “And the answer was: ‘We don’t know for sure.’ ”More than three months after the first attacks were discovered, the source is still unclear and there is no evidence any money was taken from any institution.But questions are being asked across Wall Street as other targets emerge. The F.B.I., after being contacted by JPMorgan, took the I.P. addresses the hackers were believed to have used to breach JPMorgan’s system to other financial institutions, including Deutsche Bank and Bank of America, these people said. The purpose: to see whether the same intruders had tried to hack into their systems as well. The banks are also sharing information among themselves.In all, the authorities believe that the hackers may have tried to infiltrate about a dozen financial institutions, said one of the people briefed on the matter. Fidelity Investments and E*Trade are among those institutions that law enforcement officials believe were victimized in some way by the attacks, the person said.
Banks want to share your secrets, but keep their own — Alexis Goldstein - When it comes information sharing with the government, the position of America’s biggest banks seems to be, “Do as I say, not as I do.” In the realm of cybersecurity, banking trade groups are busy lobbying for the right to share more customer data with the government, and ensure that data sharing is immunized from any legal ramifications emanating from that disclosure. But when confronted with the possibility of consumers handing their own information about their banks over to the government — well, Wall Street is crying foul. Wall Street’s largest and most powerful trade groups — including the American Bankers Association, the Financial Services Roundtable and the Securities Industry and Financial Markets Association (Sifma) — have been actively lobbying on behalf of the Cybersecurity Information Sharing Act (CISA), a bill that raises substantial concerns about privacy. But even as they work to immunize themselves from privacy violations, they are simultaneously pretending to care about privacy when faced with the possibility of consumers’ complaints about them going public. CISA—the latest incarnation of a cybersecurity bill Congress has tried and failed to pass 4 times—would substantially widen the scope of when companies could share customer data with government surveillance entities. The way the bill’s advocates tell it, CISA is needed to help prevent cybersecurity threats. But CISA doesn’t just enable government agencies and companies to freely share information about potential hacks or security breaches, it also provides vast legal immunity to companies when they do so.
Why Bigger Isn't Necessarily Better on Wall Street - Alexis Goldstein -In James Kwak’s latest piece for Bull Market, he notes that Meg Whitman deserves credit for acknowledging HP needed to be broken up, and that the CEOs of big banks would do well to learn the same lesson. As someone who worked at three of the largest banks, I couldn’t agree more. Although Kwak notes that “Breaking up is in vogue,” this trend has unfortunately not yet hit the banking sector. In fact, it’s quite the opposite. As Senator Elizabeth Warren is fond of repeating, the five biggest banks are now 38% larger than they were in 2008. Bank CEOs often laud their size as a virtue. JPMorgan CEO Jamie Dimon stressed the “huge benefits to size,” while Bank of America’s CEO Brian Moynihan has said they need to be large because “our clients are operating around the world.” But during my Wall Street career, I never saw the benefits of being big. One particular problem that needed addressing was cleaning up client account data. Often, different business lines would have their own, separate client account systems. That meant a single client could have, believe it or not, hundreds of redundant accounts across the megabank — a data nightmare. This and other redundancies really needed solving, and I saw many new projects begun, aimed at bringing two totally distinct technology platforms into a new harmony. What happened? Most of those initiatives went nowhere.Integration work in general on Wall Street tends to get orphaned. Business units don’t prioritize it, so technology departments don’t want to work on it (who wants to chase a project no one cares about when you can pursue one that the traders may reward you for?). What that meant is that integration projects were usually outsourced to consulting companies, and done either badly, or not at all.
Online Payday Loans Cost More Than Storefront Payday Loans And Customers Are Harassed More Egregiously - Over the last couple years, The Pew Charitable Trusts has put together a useful series of reports regarding payday lending in the United States. The fourth installment was released on October 2. Its title is quite descriptive: "Fraud and Abuse Online: Harmful Practices in Internet Payday Lending". The report documents aggressive and illegal actions taken by online payday lenders, most prominently those lenders that are not regulated by all states: harassment, threats, unauthorized dissemination of personal information and accessing of checking accounts, and automated payments that do not reduce principal loan amounts, thereby initiating an automatic renewal of the loan(!). Storefront lenders engage in some of the same tactics, but online lenders' transgressions seem to be more egregious and more frequent. Putting these disturbing actions aside, are consumers getting a better deal online than at storefronts? Given the lower operating costs, it is logical to assume that these exorbitantly expensive loans might be just that much less expensive if purchased online? Nope. Lump-sum loans obtained online typically cost $25 per $100 borrowed, for an approximate APR of 650%. The national average APR of a store-front lump-sum loan is 391%. Why the disparity on price and severity of collection efforts? I think the answer stems from why storefront payday lenders have been so successful. It partly is a location and relationship driven business. Payday lenders report that they do not make money off a loan until a customer has borrowed three times. As a bonus, repeat customers have lower default rates than new customers. Physical lending locations allow for peer pressure. When these people call, there is a face to put to the voice. Customers also took out the loan at the same strip mall where they get their nails done, where they shop for groceries, or where they do laundry. The result is that customers stay semi-current and keep rolling the loans over.
Unofficial Problem Bank list declines to 430 Institutions, Q3 2014 Transition Matrix - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Oct 3, 2014. Quiet week for changes to the Unofficial Problem Bank List as there were only two removals. After the changes, the list holds 430 institutions with assets of $136.1 billion. A year ago, the list held 685 institutions with assets of $238.7 billion. With the passage of the third quarter this week, it is time for the quarterly update to the transition matrix. Full details are available in the accompanying table and a graphic depicting trends in how institutions have arrived and departed the list. Since publication of the Unofficial Problem Bank List started in August 2009, a total of 1,673 institutions have appeared on the list. Since year-end 2012, new entrants have slowed as only 67 institutions have been added since then while 473 institutions have been removed. The pace of action terminations did slow during the latest quarter. At the start of the third quarter, there were 468 institution on the list and there were 27 action termination resulting in a removal rate of 5.8 percent, which well under the 11.9 percent rate for the previous quarter. A high termination rate is easier to achieve as the number of institutions starting each quarter has declined consistently from 1,001 at 2011q3 to the 468 at the start of 2014q3. At the end of the third quarter, only 432 or 25.8 percent of the banks that have been on the list at some point remain. Action terminations of 646 account for 52 percent of the 1,241 institutions removed. Although failure have slowed over the past two year, they do account for a significant number of institutions that have left the list. Since publication, 383 of the institutions that have appeared on the list have failed accounting for nearly 31 percent of removals.
Black Knight releases Mortgage Monitor for August - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for August today. According to BKFS, 5.90% of mortgages were delinquent in August, up from 5.64% in July. BKFS reports that 1.80% of mortgages were in the foreclosure process, down from 2.66% in August 2013. This gives a total of 7.70% delinquent or in foreclosure. It breaks down as:
• 1,852,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,143,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 913,000 loans in foreclosure process.
For a total of 3,908,000 loans delinquent or in foreclosure in August. This is down from 4,465,000 in August 2013. This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time. Delinquencies and foreclosures are generally moving down - and might be back to normal levels in a couple of years. The second graph from BKFS shows the mortgage performance by vintage. From Black Knight: Looking at the weighted average loan age among the active mortgage population, Black Knight found that while loan age varies among different credit score groups, in general the average loan age has been rising steadily. “In terms of the entire active mortgage population, average loan age has been rising steadily for at least the last nine years,” . “The high volume of originations in 2013 resulted in a temporary slowdown. However, the average loan age since then has hit its highest level ever at 54 months. “We also looked again at mortgage performance and found delinquencies in 2012-2014 vintage loans lower than any of the prior seven years. In fact, even among borrowers with lower credit scores, these vintages are outperforming all previous vintages. This holds true for FHA mortgages as well, where we found that early-stage delinquencies were lower than in all pre-2012 vintages.”
Michigan judge rules Kalamazoo county has right to take woman’s house over one missed tax payment --In Kalamazoo, Deborah Calley was dealt a legal blow after a Kalamazoo County District Judge ruled the county was within its legal rights to sell the house she owns free and clear because of one missed tax payment: Kalamazoo County Circuit Court Judge Gary Giguere, Jr.’s ruling agrees with what county officials told FOX 17 from the beginning: that the county was only following the law: “…the Court finds that the numerous and varied forms of notice the Petitioner used to notify Defendant [Calley] pursuant to the GPTA [General Property Tax Act] were reasonably calculated to apprise her of the foreclosure proceedings,” Giguere’s court ruling reads. Deborah Calley maintains that she was unaware she owed any back taxes and of the ten certified letters sent by the county, only one was sent to her home, the other nine were sent to banks. She steadfastly maintains she never received a single notice. She's also been willing from the get-go to pay the $2,000 debt, but the county has rejected her offers, preferring to sell her mortgage-free home: She still has time for one last appeal, but it may be too late: Ven Johnson said they have 21 days to make an official appeal. He added that the county can sell the home, but if the appeal is successful they would be forced to give the home back. Sadly, this is an all too common occurrence, where far too many victims of this overreach widows and the elderly. See the more background on the story here.
Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in September -- Economist Tom Lawler sent me the table below of short sales, foreclosures and cash buyers for a few selected cities in September. Lawler also noted: "While I do not yet have enough local realtor/MLS reports to produce a reliable estimate for national existing home sales last month, my very early read is that NAR-based existing home sales ran at a seasonally adjusted annual rate of about 5.14 million in September, up 1.8% from August." On distressed: Total "distressed" share is down in these markets due to a decline in short sales. Short sales are down significantly in these areas.Foreclosures are up slightly in several of these areas. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.
MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 3.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 3, 2014. ... The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier to the highest level since early July. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 8 percent lower than the same week one year ago....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.30 percent from 4.33 percent, with points decreasing to 0.19 from 0.31 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 75% from the levels in May 2013. Refinance activity is very low this year and 2014 will be the lowest since year 2000. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 8% from a year ago.
Housing: Appears Inventory build is Slowing in Previous Distressed Markets -- And at the beginning of this year I argued house price increases would slow in 2014 because of the increase in inventory. I don't have a crystal ball, but watching inventory helps understand the housing market. If inventory kept increasing rapidly in certain markets, then we would eventually see price declines. However it now appears the inventory build is slowing in some former distressed markets. The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento (September not available yet). Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It now appears the inventory build is slowing in these markets. This makes sense. Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory). Higher prices attracted more people to list their homes. But now that prices have flattened out - and there is plenty of inventory - potential sellers aren't as motivated to list their homes. Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings will not grow to the moon!
CoreLogic: House Prices up 6.4% Year-over-year in August -- Note:The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rose by 6.4 Percent Year Over Year in August 2014Home prices nationwide, including distressed sales, increased 6.4 percent in August 2014 compared to August 2013. This change represents 30 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 0.3 percent in August 2014 compared to July 2014...Excluding distressed sales, home prices nationally increased 5.9 percent in August 2014 compared to August 2013 and 0.3 percent month over month compared to July 2014. Also excluding distressed sales, 49 states and the District of Columbia showed year-over-year home price appreciation in August, with Mississippi being the only state to experience a year-over-year decline. .
This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 0.3% in August, and is up 6.4% over the last year. This index is not seasonally adjusted, and the index will probably turn negative month-to-month in September. The second graph is from CoreLogic. The year-over-year comparison has been positive for thirty 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 increases continue to slow. This index was up 8.2% YoY in May, 7.2% in June, 6.8% in July, and now 6.4% in August.
Trulia: Asking House Prices up 6.4% year-over-year in September -- From Trulia chief economist Jed Kolko: Condo Prices and Apartment Rents Outpacing Single-Family Home Costs Nationally, the month-over-month increase in asking home prices rose to 0.8% in September. Year-over-year, asking prices rose 6.4%, down from the 10.4% year-over-year increase in September 2013. Asking prices rose year-over-year in 92 of the 100 largest U.S. metros...Nationally, rents rose 6.5% year-over-year in September. Apartment rents were up 6.9%, while single-family home rents gained 5.2%. Like the for-sale market, the rental market is tighter for multi-unit buildings than for single family homes. Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases have slowed, the month-to-month increase suggests further house price increases over the next few months on a seasonally adjusted basis.
FNC: Residential Property Values increased 7.5% year-over-year in August -- FNC released their August index data today. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.8% from July to August (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.9% and 1.1% in August. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The year-over-year (YoY) change was the same in August as in July, with the 100-MSA composite up 7.5% compared to August 2013. In general, for FNC, the YoY increase has been slowing since peaking in February at 9.4%. The index is still down 18.8% from the peak in 2006.
Goldman: The Housing Recovery Resumes -- A few excerpts from a research note by Goldman Sachs economist David Mericle Housing: The Recovery Resumes Overall, the message from the broad housing data flow is consistent with the national accounts data. Real residential investment grew at an 8.8% rate in Q2 and is tracking at nearly 15% in Q3. But how confident can we be that the recent turnaround will be sustained?We continue to see substantial upside for the housing sector in the long run. This view is driven by the large gap between the current annual run rate of housing starts, which have averaged about 1 million over the last three months, and our housing analysts' projection of a long-run equilibrium demand for new homes of about 1.5-1.6 million per year, estimated as the sum of trend household formation and demolition of existing homes.The question in the near term is how quickly and reliably that gap will close. Two factors are essential for the outlook:
1. Housing affordability. The first key factor is potential homeowners' ability to finance a mortgage. ... The index worsened last year as mortgage rates rose, but continues to point to a modestly higher level of affordability than usual. In addition, the recent data are encouraging ...
2. Mortgage credit availability. The second key factor is mortgage lending standards ... tight mortgage lending standards have been an obstacle to the housing sector's recovery, a concern frequently highlighted by Fed Chair Janet Yellen. But lending standards have shown some gradual easing in recent years, and the sudden easing in standards on prime mortgages reported in the Fed's Q3 Senior Loan Officer Opinion Survey is an encouraging sign.
New Home Prices: Are they Really Up this Year? Homebuilder Freebies: Reduced Closing Costs, Free Pools; Housing Has Peaked This Cycle - Thanks to ultra-low interest rates, massive all-cash purchases by private equity funds, and Fed-sponsored financial speculation, home prices are now back in bubble territory.Yet, builders that had an easy time of things for a few years now offer Freebies as U.S. Housing Markets Cool. Joseph Beben wasn’t in the market for a house until he heard about a year-old community in suburban Phoenix where 10 homebuilders are offering buyers incentives such as swimming pools, built-in barbecues and subsidized mortgage rates. Beben, a 33-year-old general manager at Best Buy Co. (BBY), visited three of the sales offices flanking the main corridor of The Bridges at Gilbert, whose 17 subdivisions are among the about 200 locally that have opened since early last year. He settled on Woodside Homes’ community within The Bridges after the builder agreed to cover as much as $10,000 of his closing costs, and throw in another extra he liked. “When I saw this deal, it looked like a good business decision,” said Beben, who will pay $332,000 for a 3,000-square-foot. It may, or may not turn out to be a good speculative move, but Beben is seriously misguided if he equates personal decisions as "business decisions" unless asset speculation is his business (which it clearly isn't).
Fed: Q2 Household Debt Service Ratio near Record Low -- The Fed's Household Debt Service ratio through Q2 2014 was released today: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013. The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.This data has limited value in terms of absolute numbers, but is useful in looking at trends.
Consumer Credit Grows At Slowest Pace Since Late 2013 - Americans grew more cautious about taking on non-mortgage debt in August. Total outstanding consumer credit, excluding loans secured by real estate, rose in August at a 5% seasonally adjusted annual rate to $3.247 trillion, the Federal Reserve said Tuesday. That was its slowest rate of increase since last November. Credit-card use, an important indicator of consumer confidence and financial health, declined for the first time since February. Total outstanding revolving credit, mostly credit-card debt, fell at a 0.3% rate in August from the prior month to $880.32 billion. Still, the August level of revolving credit was 3.2% higher than a year ago. “It looks like the trend in the data has picked up lately despite this latest decline,” said J.P. Morgan Chase economist Daniel Silver. Credit-card balances remain well below pre-recession levels. Usage has been held back by strained household finances and tighter lending standards. For most of the recovery, growth in consumer credit has been driven by student lending by the federal government and, more recently, by bank financing for auto purchases. August growth of nonrevolving credit—primarily auto loans and student loans—slowed to its lowest rate since February. It rose 7% to $2.367 trillion. Other recent data has pointed to healthy spending by consumers. A broad gauge of spending compiled by the Commerce Department showed outlays increased 4.1% from a year earlier, slightly faster than the pace seen in prior months. New-car sales rose to an annualized 17.5 million pace in August, according to researcher Autodata Corp., the fastest since January 2006.
Student And Car Debt Exponential; Credit Card Debt Declines -- The summer rebound is well and truly over, and the latest nail in the short-lived rebound came moments ago when the Fed reported that in August, consumer credit rose by only $13.5 billion: only because it was far below the $20 billion expected and a plunge from the $26 billion surge in July, since revised far lower to $21.6 billion. Worse, revolving credit actually declined in the month by just over $200 million, its first decline since February. But don't worry: while US consumers put their credit cards on ice, they had no problems continuing to borrow like drunken sailor when it comes to car and student loans, which rose to a new record high of $2.366 trillion, an increase of $13.7 billion, which still was the lowest monthly increase since January.
Consumerism Is Past Its Sell-By Date - The economic crash exposed all that is wrong with how we conduct our affairs. Many people feel not just let down, but powerless to do anything about it. But we should not feel powerless: under present conditions the individual has more power than ever before to control his own fortunes and needs to begin to use it. This is just as well given that those who conduct our affairs show no signs of changing their ways. They want to get back to business as usual as soon as possible and will if they are allowed. Business as usual is the only way rigid organisations can operate; workers are shown only what to do, but not why they do it. They are not paid to make value judgements; in fact they are forbidden to do so. When circumstances change, someone with a bit of wisdom would recognise the fact and perhaps act differently, whereas the rest carry on doing what they have always done. Minions act in that way to keep their jobs, but what about their bosses, their leaders? They often adhere to dogma. Frequently the nature of their dogma is so inseparable from their identity that they fear that if they were to do something outside it they would no longer know who they were. That’s how to recognise a politician or a church leader.
Why public investment really is a free lunch - FT.com: It has been joked that the letters IMF stand for “it’s mostly fiscal”. The International Monetary Fund has long been a stalwart advocate of austerity as the route out of financial crisis, and every year it chastises dozens of countries for their fiscal indiscipline. Fiscal consolidation – a euphemism for cuts to government spending – is a staple of the fund’s rescue programmes. A year ago the IMF was suggesting that the US had a fiscal gap of as much as 10 per cent of gross domestic product. All of this makes the IMF’s recently published World Economic Outlook a remarkable and important document. In its flagship publication, the IMF advocates substantially increased public infrastructure investment, and not just in the US but much of the world. It asserts that when unemployment is high, as it is in much of the industrialised world, the stimulative impact will be greater if investment is paid for by borrowing, rather than cutting other spending or raising taxes. Most notably, the IMF asserts that properly designed infrastructure investment will reduce rather than increase government debt burdens. Public infrastructure investments can pay for themselves. Why does the IMF reach these conclusions? Consider a hypothetical investment in a new highway financed entirely with debt. Assume – counterfactually and conservatively – that the process of building the highway provides no stimulative benefit. Further assume that the investment earns only a 6 per cent real return, also a very conservative assumption given widely accepted estimates of the benefits of public investment. Then, annual tax collections adjusted for inflation would increase by 1.5 per cent of the amount invested, since the government claims about 25 cents out of every additional dollar of income. Real interest costs, that is interest costs less inflation, are below 1 per cent in the US and much of the industrialised world over horizons of up to 30 years. So infrastructure investment actually makes it possible to reduce burdens on future generations.
US gasoline prices plunge to an average of $3.28 per gallon ($2.77 in St. Louis), saving US consumers billions of dollars - According to GasBuddy, retail gas prices in the US have fallen in the last week to an 8-month low of $3.28 per gallon, which is 42 cents lower than the peak of $3.70 per gallon in April (see chart above). How does that price drop at the pump translate into savings for consumers? According to the Department of Energy, Americans buy 365 million gallons of gasoline every day, so every one cent drop in prices at the pump saves consumers $3.65 million per day, and $1.33 billion dollars over a year. Therefore, the 42 cent drop in prices since April will save US consumers almost $56 billion over the next year compared to what they would have paid if gas remained at $3.70 per gallon.
What Bubble? Record $924 Billion In 65 Million Auto Loans: 31% Of All New Loans Are Subprime -- Earlier today, credit agency Equifax piggybacked on Experian's auto loan data, and reported the following:
- The total balance of auto loans outstanding in August is $924.2 billion, an all-time high and an increase of 10.8% from same time a year ago
- The total number of auto loans outstanding stands at more than 65 million, a record high and an increase of more than 6% from the same time last year;
- The total number of new loans originated year-to-date through June for subprime borrowers, defined as consumers with Equifax Risk Scores of 640 or lower, is 3.9 million, representing 31.2% of all auto loans originated this year.
- Similarly, the total balance of newly originated subprime auto loans is $70.7 billion, an eight-year high and representing 27.8% of the total balance of new auto loans
Wholesale Trade Posts Larger Than Expected Gain - Wholesale trade figures for the month of August were released by the U.S. Department of Commerce Thursday morning. The reading came out at 0.7%, beating the Bloomberg estimate of 0.3%. The previous reading was revised to 0.3% from 0.1%. The total sales for merchant wholesalers were recorded at $453.9 billion and inventories read at $538 billion. Sales for durable goods were up 0.1% from the previous month, and up 7% from August of 2013. Inventories for durable goods were up 0.8% from the previous month and 8.5% on the year. Sales of metals and minerals, except petroleum, were up 1.6% from the previous month. Sales of nondurable goods were down 1.3% from July, but they were up 4.7% from August 2013. Inventories for nondurable goods were up 0.5% from the previous month and 6.9% on the year. Petroleum and petroleum products were down 4.2%, and farm product raw materials were down 3.8% from the previous month. Inventories of drugs and druggists’ sundries were up 1.6% from July. Based on seasonally adjusted data for the month of August, the inventories to sales ratio for merchant wholesalers was 1.19 compared to the previous year of 1.16.
Full employment, trade deficits, and the dollar as reserve currency. What are the connections?- Jared Bernstein - I’ve been looking for an excuse to scratch out a few lines about the connections between full employment, the trade deficit, and dollar policy—connections that understandably don’t jump out at everyone—and I’ve found a particularly good one. Ever since this oped re “Dethroning King Dollar” ran, I’ve gotten lots of love and hate mail regarding the suggestion that we not defend the dollar as the preeminent reserve currency. I’ve often favorably cited the work of economist Michael Pettis on these points and he just posted a long blog on the subject. It’s an thorough review of the argument and I’ll amplify some of the key points in a moment, but first let me lay out why I think this is such a critical area of inquiry for US economists, especially those of us who seek the path to enlightenment full employment.
- –The persistent US trade deficit is a real barrier to full employment. Dean Baker explains this assertion in the paper he wrote for CBPPs full employment project, but the arithmetic is straightforward. Negative net exports—a trade deficit—are by definition a drag on GDP. Slightly more technically, when we run a trade deficit we are consuming more than we produce, and in doing so, exporting jobs to the countries with whom we’re running trade deficits.
- –These deficits are not the result of over-spending, under-saving US consumers. They are the inevitable outcome of actions undertaken by other countries who strategically under-consume and then export their excess savings. As Pettis notes, “an excess of savings over investment in one part of an economic system requires an excess of investment over savings in another.”
- –The dollar as preeminent reserve currency is part of the problem. This is the heart of Pettis’s essay: what was once an exorbitant privilege is now a burden. It is the point of my “Dethrone…” piece above, drawn from recent academic work by Ken Austin, who modelled the dynamics of “currency issuers” and “currency accumulators.”
Jobs data show US beating global economy - FT.com: The dollar surged on Friday as a strong jobs report showed the US is running ahead of a struggling global economy and raised the chances of an early rate hike by the US Federal Reserve. September’s jobs report showed 248,000 new jobs, compared with expectations of 215,000. The unemployment rate fell by 0.2 percentage points to 5.9 per cent and upward revisions of 69,000 jobs erased the seeming weakness of last month’s report. The big drop in unemployment highlights the strength of the US economy relative to feeble growth in Europe and a slowing China. It means the Fed cannot rule out an interest rate rise as early as March next year. The dollar rose by more than 1 per cent against major currencies. It was up 2 cents against the euro at close to $1.25, traded above $1.60 to the pound and was close to Y110 versus the yen. Yields on two-year Treasury bills rose by five basis points to 0.57 per cent, as investors moved to price in the chance of faster rate rises in 2015 and 2016, and the S&P 500 was up 0.9 per cent at 1,964. The figures raise the six-month rolling average of payrolls growth to 245,000, a pace that suggests a robust underlying recovery, boosting hopes that US strength will offset weakness elsewhere in the world economy. There was no sign of wage growth in the report, however, and the percentage of US workers participating in the labour market fell to its lowest level since 1978. That is a big challenge for the Fed, because unemployment is falling rapidly, but there is little sign of inflation rising towards its goal of 2 per cent.
The Lower Unemployment Rate is a Recovery – for the Top 10% -- NEP’s Pavlina Tcherneva appears on The Real News on October 5, 2014. The topic of discussion is the slow recovery and why monetary policy that is directed at finance and not job creation has this effect.
Jobs Report Highlights the Wage Growth Puzzle - The latest round of labor market data released Friday add to an emerging puzzle whose resolution will be central to the future of the recovery.We learned that employment is growing at a healthy clip, with 248,000 jobs created this month, and an average of 220,000 jobs created each month over the past year. Moreover, unemployment has fallen both further and faster than most had anticipated. The latest reading suggests that unemployment is down to 5.9 percent, and has fallen about a full percentage point in each of the past three years. These are all symptoms of a healthy economic expansion.Normally, this would lead to faster wage growth. When workers feel their jobs are secure, they’re better positioned to ask for a raise. Likewise, when there are fewer people unemployed, companies need to pay better wages in order to attract talented workers.Yet average hourly wages in the private sector were roughly flat in September (they fell by a penny), and they’ve grown at a rate of only around 2 percent over the past year. Alternative indicators also suggest that wage growth remains subdued.This puzzle isn’t entirely new, as the usual link between unemployment and the rate of wage growth has totally broken down over recent years. The recent data have made a sharp departure from the usual textbook analysis in which a tighter labor market leads to faster wage growth, and subsequent cost pressures feed through to higher inflation. Even as the recession threw millions of people out of work, wage growth barely slowed despite the textbook prediction to the contrary. Then through the ensuing recovery, unemployment fell rapidly, but again, wage growth has barely moved. By the usual analysis, the key variable is how much “slack” there is in the labor market. When unemployment gets too low — toward what economists call the “natural rate” (don’t be fooled, there’s nothing natural about it) — there’s no more slack, and inflationary pressures start to build.
Unemployment is finally under 6 percent, but don’t expect a raise anytime soon - It only took six years, but unemployment is finally under 6 percent again. Now, this is the part where we round up the usual caveats: these are just provisional numbers with a margin of error of 100,000. As always, it makes more sense to look at the longer-term trend instead of trying to divine too much from a single data point. But, as you can see below, the three-month jobs average is still at a respectable 224,000. Our slow and steady recovery might, every-so-slightly, be getting a little less slow. Which brings us to the Federal Reserve. It's just about to finish winding down its bond-buying program, and the question now is when it will start raising rates. The Fed has said it will wait for a "considerable time" after QE3 ends to do so, but it's given itself enough wiggle room thanks to the vagaries of Fedspeak to move that up if necessary. So would this kind of job growth, assuming it's sustained, get the Fed to start lift off in, say, March instead of June, like people expect? Probably not. Even though unemployment is approaching something close to normalcy, there are still plenty of reasons to think there's plenty of slack left in the economy. There are over 7.1 million people who want full-time jobs, but can only find part-time ones; almost 3 million people who have been unemployed for six months or longer; and fewer prime-age workers between 25 and 54 years old than you'd expect in a healthy economy. These are all getting a little bit better each month, but there's still a long ways to go.
And all this "shadow unemployment," as economists David Blanchflower and Adam Posen show, is why workers haven't really gotten raises even as joblessness is officially falling. Indeed, as you can see below, wages were flat in September, up just 2 percent on the year. The Fed, in other words, can afford to keep rates low for a long time, because inflation isn't coming anytime soon.
Workers in Part-Time Limbo Point to U.S. Job-Market Slack - The labor-market recovery that Federal Reserve Chair Janet Yellen seeks is proving incomplete as many U.S. workers languish in part-time jobs. Forty-nine percent of people working less than 35 hours a week in 2012 and desiring full-time work were able to find such a position within a year, according to research by the Federal Reserve Bank of Atlanta. That’s down from 61 percent in 2006. In addition, the almost 3 million Americans unemployed for at least 27 weeks are more likely to accept part-time jobs than counterparts out of work for shorter periods, according to a Chicago Fed paper. That means underemployment, a hallmark of the slow and uneven recovery from the recession, won’t quickly dissipate, backing policy makers such as New York Fed President William C. Dudley who counsel patience in removing stimulus. “Slack is going to be gradually picked up, rather than just disappearing overnight and causing an upturn in wages,” said Emanuella Enenajor, an economist at Bank of America Corp. in New York. “It buys the Fed time to keep policy accommodative.”
Inside the World of Multiple Jobholders: Two Decades of Trends - What are the long-term trends for multiple jobholders in the US? The Bureau of Labor Statistics has two decades of historical data to enlighten us on that topic, courtesy of Table A-16 in the monthly Current Population Survey. At present, multiple jobholders account for slightly less than 5% of civilian employment. The survey captures data for four subcategories of the multi-job workforce, the current relative sizes of which I've illustrated in a pie chart. Note that the distinction between "primary" and "secondary" jobs is subjective one determined by the survey participants. Note: Not included in the statistics are the approximately 0.20% of the employed who work part time on what they consider their primary job and full time on their secondary job(s). Let's review the complete series to help us get a sense of the long-term trends. Here is a look at all the multiple jobholders as a percent of the civilian employed. The dots are the non-seasonally adjusted monthly data points and a 12-month moving average to highlight the trend. The moving average peaked in the summer of 1997 and for the past three months has been stuck at its historic low at 4.81%. The next chart focuses on the four subcategories referenced in the pie chart. The trend outlier is the series illustrated with the red line: Multiple Part-Time Jobholders. Its trough was in 2002 and has been trending higher long before Obamacare. We also see a significant change for the employed whose hours vary between full- and part-time for either their primary or secondary job.
Fed's Labor Market Conditions Index -- The Fed staff has developed a labor market indicator that they call the Labor Market Conditions Index (LMCI). From the Fed: Assessing the Change in Labor Market Conditions A factor model is a statistical tool intended to extract a small number of unobserved factors that summarize the comovement among a larger set of correlated time series.2 In our model, these factors are assumed to summarize overall labor market conditions.3 What we call the LMCI is the primary source of common variation among 19 labor market indicators. One essential feature of our factor model is that its inference about labor market conditions places greater weight on indicators whose movements are highly correlated with each other. And, when indicators provide disparate signals, the model's assessment of overall labor market conditions reflects primarily those indicators that are in broad agreement. In terms of the average monthly changes, then, the labor market improvement seen in the current expansion has been roughly in line with its typical pace. That said, the cumulative increase in the index since July 2009 ... is still smaller in magnitude than the extraordinarily large decline during the Great Recession (... from January 2008 to June 2009). The Fed staff released the updated LMCI through September this morning. This includes 19 indicators (see link above).This graph shows the cumulative change in the index. The Fed staff didn't release any commentary this morning, but the cumulative increase is still smaller than the decline during the Great Recession (suggesting slack in the labor market).
Fed’s New Labor-Market Index Saw Conditions Improve During September - A new Federal Reserve gauge of labor-market conditions picked up in September after a summer slowdown, the latest fodder for the central bank’s debate over when to raise interest rates. The labor market conditions index, developed by Fed economists and first unveiled in May, rose by 2.5 points in September, the Fed said Monday. The index typically rises during economic expansions and falls sharply during recessions. It has been in positive territory for all but two months since the recession ended in mid-2009. The index showed the labor-market’s recovery slowed over the winter, with a three-point rise in both January and February. It then accelerated with a 4.9-point gain in March and 7.1-point rise in April, the strongest reading since February 2012. But it decelerated over the next four months. The index’s two-point rise in August was the weakest gain since July 2012. Fed officials are focused on assessing the health of the labor market as they debate when to start raising short-term interest rates, which have been pinned near zero since December 2008. Fed Chairwoman Janet Yellen has cited the new index as a broader gauge of employment conditions than the unemployment rate, which has fallen faster than expected in recent months. The index’s slowdown over the summer could bolster the argument that the Fed should be patient in watching the economy improve before raising rates. But its pickup last month could strengthen the case that the labor market is tightening fast and officials should consider raising rates sooner than widely expected.
Weekly Initial Unemployment Claims decrease to 287,000, 4-Week Average lowest since 2006 - The DOL reports: In the week ending October 4, the advance figure for seasonally adjusted initial claims was 287,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 287,000 to 288,000. The 4-week moving average was 287,750, a decrease of 7,250 from the previous week's revised average. This is the lowest level for this average since February 4, 2006 when it was 286,500. The previous week's average was revised up by 250 from 294,750 to 295,000. There were no special factors impacting this week's initial claims. The previous week was revised up to 288,000. The following graph shows the 4-week moving average of weekly claims since January 1971.
U.S. Jobless Claims Trending at Rare Low -- While many labor market indicators remain at historically weak levels, a measure of layoffs is trending at a rare low. The number of Americans applying for unemployment benefits fell by 1,000 in the week ended Oct. 4 to remain below 300,000 for the fourth straight week, the Labor Department said Thursday. That’s the longest such streak since 2006.In fact, claims have rarely remained that consistently low. Since 1980—a span of over 1,800 weeks—claims have been below 300,000 in just 107 weeks, or less than 6% of the time. A low rate of layoffs typically coincides with steady hiring and might suggest there is less slack in the labor market.The past four weeks, claims are running 25% below the average level of about 381,895 recorded since 1980. And when adjusting for population growth during that time, claims are at all-time lows. Still the labor market looks much different today than it did in early 2006, when claims were below the 300,000 mark in 11 of 14 weeks.The unemployment rate last month was 5.9%, compared to 4.7% in April 2006. Last month’s labor-force participation rate was 62.7%, matching the lowest level rate since the late 1970s. In April 2006, the rate was a healthier 66.1%.
How close are the US labor markets to normalization? -- As discussed here back in April, US labor markets continue to heal, with Friday's payrolls gains putting 2014 on track to be the best year for job growth since the late 90s. Now many are asking just how far is the employment situation from "normalizing". Of course it all depends on the metrics used. The chart below for example shows that the headline unemployment rate is now well within the normal range (based on long-term historical data).But as we know, that's only part of the story. A broader gauge of unemployment, the so-called U-6 rate, which includes marginally attached workers and those employed part time for economic reasons, suggests the labor markets have some room for improvement. Within the U-6 metric it is particularly important to track the percentage of those employed part time for economic reasons. The current number of these workers (at just over 4.5% of the labor force) is not unusual by historical standards but is still quite elevated. It's not at all clear however if we are ever returning to the lows of the decade that preceded the Great Recession. Another measure of labor markets' health is an estimate of the "job finding rate" from Credit Suisse. At least based on the data since 1990 (which may not be a sufficiently long range), that metric is currently far below average. We do see signs of significant improvements recently but the red line in the chart below may no longer be our target for what is "normal". Source: Credit Suisse We've also seen a great deal of focus on falling US labor force participation rate. The non-demographic component of the post-08 declines in participation rate is of particular importance. How much is due to aging US population vs. the discouraged workers exiting the labor force?
Job Openings Are Up, but the Hires Rate Is Down - The August Job Openings and Labor Turnover Survey (JOLTS) data release this morning from the Bureau of Labor Statistics showed mixed results. While the job openings rose, the hires rate fell. Layoffs continue to trend downwards, while the quits rate remained flat—it’s been flat now since February. The figure below shows the hires rate, the quits rate, and the layoffs rate. The first thing to note is that layoffs, which shot up during the recession, recovered quickly once the recession officially ended. Layoffs have been at prerecession levels for more than three years. This makes sense—the economy is in a recovery and businesses are no longer shedding workers at an elevated rate. And the continued trend downward in August is a good sign. But for a full recovery in the labor market to occur, two key things need to happen: Layoffs need to come down, and hiring needs to pick up. Hiring is the side of that equation that, while generally improving, has not yet come close to a full recovery. The hires rate remains well below its prerecession level. Another piece of the puzzle is voluntary quits (shown by the quits rate in the figure below). A larger number of people voluntarily quitting their job indicates a labor market in which hiring is prevalent and workers are able to leave jobs that are not right for them, and find new ones. The voluntary quits rate, which has been flat for the last seven months, is also nowhere near a full recovery. There are 14 percent percent fewer voluntary quits each month than there were before the recession began, and the quits rate is the same as it was last October. Low voluntary quits indicate that there are a large number of workers who are locked into jobs who would leave if they could.
BLS: Jobs Openings at 4.8 million in August, Up 23% Year-over-year - From the BLS: Job Openings and Labor Turnover Summary There were 4.8 million job openings on the last business day of August, up from 4.6 million in July, the U.S. Bureau of Labor Statistics reported today. ...Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits was little changed in August at 2.5 million.The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for August, the most recent employment report was for September.Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in August to 4.835 million from 4.605 million in July. The number of job openings (yellow) are up 23% year-over-year compared to August 2013 and the highest since January 2001. Quits are up 5% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). It is a good sign that job openings are over 4 million for the seventh consecutive month - and the highest since January 2001 - and that quits are increasing year-over-year.
There Were Two Unemployed Persons Per Job Opening in August 2014 --The BLS JOLTS report, or Job Openings and Labor Turnover Survey shows there are 2.0 official unemployed per job opening for August 2014. Job openings were around 4.8 million with hiring coming in at a lower rate than July. Job openings returned to precession levels while hires have only increased 27% since June 2009. In just the private sector job openings have also recovered to precession levels while hires have only increased 28% from their 2009 lows. There were 1.8 official unemployed persons per job opening at the start of the recession, December 2007. Below is the graph of the official unemployed per job opening, currently at 2.0 people per opening. This is finally some good news on jobs. If one takes the U-6 broader measure of unemployment that includes people who are forced into part-time work and the marginally attached, the ratio is 3.9 people needing a job to each actual job opening. In December 2007 this ratio was 3.2. Job openings have not been this high since January 2001, the height of the dot con bubble. By either measure it is clear job openings have finally returned to pre-recession levels. Yet, the BLS JOLTS report shows any job opening, regardless of pay or hours. There is no information on the ratio of part-time openings to full-time ones. Graphed below are raw job openings. Currently job openings stand at 4,835,000. This is still in stark contrast to the 9,262,000 official unemployed.
Job Seekers Outnumber Jobs by 2-to-1 - In August, the total number of job openings was 4.8 million, up from a revised 4.6 million in July. In August, there were 9.6 million job seekers (unemployment data are from the Current Population Survey), meaning that there were 2.0 times as many job seekers as job openings. Put another way, job seekers so outnumbered job openings that about half of the unemployed were not going to find a job in August no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. The decline of the job seekers to job openings ratio to 2.0 continues the overall downward trend since the high of 6.8 to 1 in July 2009 (see Figure A). The ratio has steadily declined, falling by about 1.0 over the last year. While this is clearly a move in the right direction, the 9.6 million unemployed workers understate how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.9 million would-be workers (in August) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will become job seekers when we enter a robust jobs recovery, so job openings will be needed for them, too.
Job Openings Hit 13-Year High in August - The number of job openings across the U.S. reached another 13-year high in August, a sign this year’s strong job growth could stretch into the fall. Employers had 4.84 million job openings in August, up from 4.61 million in July and the most since early 2001, the Labor Department said Tuesday. At the same time, sturdy job creation has depleted the number of job seekers, a sign the labor market is tightening and raising the prospect of stronger wage growth. In August, there were just under two unemployed workers per job opening, the lowest level since the recession. In 2009, that figure almost hit seven. A tighter labor market could eventually lead to higher wages for American workers. Wages have been growing at a tepid pace in recent years. In September, average hourly earnings for private-sector workers grew 2% from a year earlier, barely faster than consumer-price inflation, Friday’s employment report showed. But as companies seek to fill more job openings and the pool of job seekers shrinks, they may have to offer higher wages to fill them. The last time the proportion of job openings to overall employment was at August’s level, wages were growing at a 4% rate,.Still, other figures suggest the labor market is growing below its potential. Despite the pickup in job openings in August, the number of hires actually fell to 4.6 million from 4.9 million in July. That could be a sign that while employers are ready to expand, they’re having trouble finding the right workers or they may lack urgency to hire right away. And the number of workers quitting their jobs has remained flat in recent months. That shows that despite stronger job growth, many workers are still not confident enough to quit their jobs for better opportunities.
US Hiring Plummets Most Since June 2010, Fewest Hires Since Polar Vortex Ground Economy To A Halt - While according to the BLS survey employers have almost never had more open positions, they have also decided to put an abrupt stop to hiring, something which certainly points to a major disconnect in the US labor market. In fact, according to the JOLTS report, its far less tracked "Hirings" number plunged from 4,934K to just 4,640K. This was the lowest number of monthly hiring since January's "Polar Vortex" ground the economy to a halt. What's worse, the 294K plunge in monthly hiring was the biggest monthly drop since June 2010, and was the third biggest monthly plunge in hiring since Lehman!
Labor Market Weakness Is Still not due to Workers Lacking the Right Skills - The figure below shows the number of unemployed workers and the number of job openings by industry. This figure is useful for diagnosing what’s behind our sustained high unemployment. If our current elevated unemployment were due to skills shortages or mismatches, we would expect to find some sectors where there are more unemployed workers than job openings, and some where there are more job openings than unemployed workers. What we find, however, is that unemployed workers dramatically outnumber job openings across the board. There are between 1.1 and 6.5 times as many unemployed workers as job openings in every industry. In other words, even in the industry with the most favorable ratio of unemployed workers to job openings (health care and social assistance), there are still about 10 percent more unemployed workers than job openings. This demonstrates that the main problem in the labor market is a broad-based lack of demand for workers—not, as is often claimed, available workers lacking the skills needed for the sectors with job openings.
U.S. Still Top Destination for World’s Job Seekers - The U.S. remains the most attractive destination for job seekers from around the world, according to a new study on worker mobility. The Boston Consulting Group and The Network, an alliance of global recruiting websites, surveyed 200,000 workers in 189 countries and found that nearly 64% would be willing to move to another country for work. The U.S. was cited as a potential destination by 42% of respondents, followed by the U.K. with 37% and Canada with 35%. The study’s authors said the three destinations draw the most interest because of their large economies and high living standards. They also benefit as English-speaking countries at a time when English is widely spoken and taught around the world. Conversely, none of the large Asian economies made the list of top 10 destinations, “largely because of the perceived difficulty of learning Asian languages,” the study said. London topped the list of preferred city destinations compiled by BCG and The Network, followed by New York and then Paris. The study’s respondents were primarily white-collar and skilled-trades workers. The majority had university degrees. The survey asked workers in the largest countries where they would relocate for work. This table shows where residents of each country would most — and least — like to go.
Americans Don’t Fancy Jobs Abroad. Oh, Except Millennials. - American workers are among the world’s least likely to seek employment abroad, although attitudes are changing among younger generations, a new study on worker mobility shows. The Boston Consulting Group and The Network, an alliance of global recruiting websites, surveyed 200,000 workers in 189 countries and found that just 35% of U.S. respondents were willing to relocate to another country. That was the lowest percentage among the 31 largest countries surveyed. However, 59% of American respondents between the ages of 21 and 30 said they would be willing to go abroad. The study’s authors speculate that members of the so-called millennial generation have been forced to expand their horizons because many have had difficulties entering the U.S. job market in the wake of the recession. It was the biggest generational shift among the 31 largest countries surveyed. The survey found that Americans who are willing to go abroad show a clear preference for English-speaking destinations. The U.K. came out on top, followed by Germany and then Canada. Australia was No. 7 and Ireland No. 8.
Young adult male employment and the housing bust - In yesterday's post, I reviewed labor force by age and gender and found that about 1/3 of the movement below trend in LFP seems to come from males under the age of 35. There are about 35 million working-age males between 20 and 35, and LFP rates for this group (though this data is a bit noisy) are roughly 2 1/2 to 3% below trend. About 1 million young adult males have disappeared from the labor force. Here is a graph of construction employment and unemployment. With September's reading, the construction unemployment rate is 7.0% - basically back to 2004 levels, when the construction unemployment rate was 6.8% and U-3 unemployment rate was at 5.4%. Note, though, what has happened to construction employment over that time. In September 2004, there were about 7 million construction employees. In September 2014, there were about 6 million. A loss of.....about 1 million workers from the construction labor force. What proportion of these workers would be males under 35 years old? It must be pretty high. This is a topic where I think supply vs. demand issues are not easily disentangled. The Fed allowed a tremendous demand shock, which we have mostly grown out of. But, the one area where credit markets aren't nearly back to a healthy equilibrium is in housing, where homes are still much more leveraged with debt than they have ever been before (I have postponed my bullishness on housing since that post, waiting to see if we can overcome the credit problem.). This leverage is entirely the product of the decline in home values that came out of the demand shock. But, the disequilibrium is creating a supply shock now, because overleverage in the housing market has stalled housing credit markets, which is hampering existing home sales and new home construction. Rent inflation is high right now. (It's the only source of inflation in core CPI right now.) So, this is a supply problem, but the solution is more aggregate demand to push up home prices by another 10% or so.
Revealing Look at Hours Worked - Inquiring minds may be interested in a set of charts that show trends in hours worked. The charts are as of the latest job numbers from Friday, October 3, 2014. The index of aggregate weekly hours of all employees is at a new all time high. The data only goes back to 2007 so let's also take a look at hours worked by production and monsupervisory employees. The indexes are formulated by multiplication of the number of employees by the average number of hours worked. So let's take a look at both sub-components. More people working but for how many hours? In November of 2007, there were 121,875,000 full time employees. Now there are 119,287,000. Fulltime employment is 2,588,000 below the 2007 peak. Meanwhile working age population, 16 and older has gone up from 232,939,000 to 248,446,000. That's an increase of 15,507,000. Simply put, the working-age population has gone up by approximately 15.5 million while fulltime employment has declined by 2.5 million. Some of this is related to boomer demographics and retirement. A lot of it isn't. It takes a detailed look at the number of people in each age group and how those age groups have shifted over time to normalize the data. Tim Wallace and I explored this idea this once before, for the time period 2010-2013.For details, see Fed Study Shows Drop in Participation Rate Explained by Retirement; Let's Explore that Idea, in Depth and in Pictures.
Amazon Warehouse Workers Head To Supreme Court Over Unpaid Theft Screenings: -- Anyone who's ever worked filling orders in an Amazon warehouse knows the drill: Once your shift is over, you must stand in line and wait to be screened for stolen goods before you can leave. The process can take 20 minutes or more depending on how busy the warehouse is, and you don't get paid a dime for the wait, according to numerous lawsuits. Workers across the country have sued to be paid for that time, and now they'll have their day at the Supreme Court, where oral arguments in Integrity Staffing Solutions v. Busk are expected to begin this Wednesday. Integrity, the temp firm that helps staff Amazon's warehouses, is arguing that the screenings aren't "integral and indispensable" to the work, and that therefore it shouldn't have to pay workers for the time. In a narrow sense, the legal question being debated is whether or not these workers deserve to be paid for the time it takes to go through a theft search, said Eric Schnapper, a law professor at the University of Washington who's part of the team representing the Integrity workers. But the broader and more significant question, he said, is whether or not an employer can require you to do other tasks deemed nonessential to the job -- for free.
Why is the Obama Administration on the Wrong Side of a Wage and Hour Case? -- Integrity Staffing Solutions, which runs a warehouse operation for Amazon, makes employees go through a “security check” at the end of each working day, where they are searched for stolen goods. Even though employees spend 25 minutes being processed—and would be fired if they tried to skip the screening—Integrity doesn’t pay them a penny for their time. The employees sued and won, and the case has gone to the U.S. Supreme Court. Now, the Justice Department and Labor Department have filed a brief that takes the side of the Amazon subcontractor over its employees. This is a shame. It doesn’t look like a matter of legal principle to me. Certainly, the application of the Portal to Portal Act, which frees employers from the obligation to pay for certain preliminary and postliminary activities such as traveling to the work site or changing from a uniform into civilian clothes, isn’t obvious in this case. The court of appeals found that the search for stolen property was integral and necessary to the business operation of the warehouse, and that seems right to me. If the screening isn’t “integral and necessary” to the business operation, why would the employer fire employees who skip it? If making employees remove work clothes and shower after work to remove toxins has to be compensated (and the Supreme Court has said that it does), why isn’t making them remove belts and shoes and other clothing to prevent theft?
Obama Administration Defends Amazon’s Low Pay – Again -- Amazon’s business model is based on quick easy buying and low prices. One way it does that is to force its warehouse workers to wait a long time to leave work, without getting paid. And that’s just fine with the Obama administration, which continues to have a blind spot when it comes to decent pay and working conditions at Amazon. Yesterday the Supreme Court heard a case (Integrity Staffing Solutions v. Busk) in which workers are suing the temp firm that staff’s Amazon warehouses. The workers are in court because they don’t get paid for the time they are forced to stand on line for a security check when they leave work to be sure they haven’t stolen anything. The security screening itself reveals the poor working conditions and lack of respect that Amazon has for its workers. Workers who are well paid and have job security will not take the risk of stealing. The lack of pay adds costly insult to their injury. The legal issues revolve around whether the security screenings, which can take 20 minutes or more, are “integral and indispensable” to the job, which would trigger pay under the Fair Labor Standards Act. Amazon certainly thinks so; the screenings aren’t optional. Still the firm, which pays warehouse workers around $11 or $12 an hour, cheaps out by denying the workers pay when they are waiting on line to leave.
Intergral and Indispnesable to the regular duties, Your govenment says this defines if you get paid - From a Salon interview with Catherine Ruckelshaus, general counsel and program director for the National Employment Law Project comes this case being argued today in the Supreme’s Court: Integrity Staffing Solutions, Inc. v. Busk This is a case that’s been brought by Amazon warehouse workers who were working in a warehouse in Nevada and who at the end of their shift every day were required to go through an anti-theft screening in the warehouse that took workers as much as 25 or more minutes to get through.So the workers brought a lawsuit against the staffing company that Amazon has [contracted] to recruit and hire the workers, it’s called Integrity Staffing [Solutions], and sued to try to get paid for the time they stood in line at the end of their shifts The [United States Court of Appeals for the Ninth Circuit] said the workers should get paid for that time, and the employer appealed and the Supreme Court has now taken the case. The argument for the workers seems pretty intuitive to me; if you’re doing something because of your employer’s demand, you should, within reason, be compensated for your time. What’s Integrity’s argument in response?The employer and, surprisingly, the government are saying that because the duties are not “integral and indispensable” to the regular duties that the workers are performing, the work isn’t compensable. So they’re trying to carve out of any duties that workers would perform whether or not it’s at the direction of the employer — or for the benefit of the employer — if they’re not “integral and indispensable” then you don’t have to get paid for it.
The Great Walmart Worker Squeeze -- Walmart is at it again, slashing benefits for their workers. This time Walmart will deny health insurance to employees working less than 30 hours a week. That's about 28,000 Walmart workers. Walmart isn't alone in throwing part-time workers under the healthcare bus as Target, Home Depot, Walgreens and Trader Joe’s. have already denied healthcare coverage for their workers. On one hand, the idea of tying one's health to a company, where in order to receive healthcare insurance one must work, is an absurd idea. On the other hand, this throws almost 30,000 people under the bus. Since Walmart wages are so low, it's doubtful, even with subsidies, these people will be able to afford the insurance on their own. The truth is Walmart is not alone kicking their part-time workers to the curb: Wal-Mart, which employs about 1.4 million full- and part-time U.S. workers, says about 1.2 million Wal-Mart workers and family members combined now participate in its health care plan. And that has had an impact on Wal-Mart's bottom line. Wal-Mart now expects the impact of higher health care costs to be about $500 million for the current fiscal year, or about $170 million higher than the original estimate of about $330 million that it gave in February. But Wal-Mart is among the last of its peers to cut health insurance for some part-time workers. In 2013, 62 percent of large retail chains didn't offer health care benefits to any of its part-time workers, according to Mercer, a global consulting company. That's up from 56 percent in 2009. First, there are 25 states who refused to expand Medicaid. Odds are these part-time workers, many would qualify being on the cusp or in poverty. Yet now they would remain uninsured most likely if they are in those states. Walmart is notorious for poverty level wages and those making less than 138% of the federal poverty level cannot get a subsidy for health insurance.
The Great Wage Slowdown of the 21st Century - The lack of wage growth is on everyone’s mind these days. After the Bureau of Labor Statistics released data last week on the unemployment rate and job growth, the report was hailed as a sign of a steady and possibly strengthening recovery. But one variable stood out: the lack of wage growth. Over the past year average wage growth for all private-sector workers was 2 percent—just barely keeping up with inflation. Catherine Rampell at The Washington Post considers a variety of reasons for this slow wage growth—a change in the quality of jobs created and a lack of job changing among employees, among them—but finds one more convincing than the others. She points to a considerable amount of slack in the labor market. Justin Wolfers presents a related puzzle over at The Upshot. He looks at the historical relationship between the unemployment rate and average wage growth since the mid-1980s. What he finds is that the relationship appears to have changed in recent years. The decreases in the unemployment rate during the economic recovery from the Great Recession haven’t sparked the kind of wage growth we’d expect from previous data. Back at The Washington Post, Jared Bernstein looks at the relationship between wage growth and a more comprehensive measure of labor market slack developed by economist Andrew Levin of the International Monetary Fund. Bernstein finds that the decline in slack hasn’t sparked strong wage growth and that the relationship between slack and wage growth has weakened over the last 5 years. Tim Duy, an economist at the University of Oregon, thinks that Wolfers’s puzzle, and by extension Bernstein’s findings, really isn’t all that puzzling. Duy looks at data going back earlier than Wolfers, including the business cycle of the early 1980s. No need to worry about this time being different, the economy is still working along the same old rules, Duy is saying.
Moody's Zandi: "Have We Underestimated U.S. Wage Growth?" - My view is that there is still significant slack in the labor market. Evidence of slack includes the elevated unemployment rate at 5.9%, the elevated level of U-6 at 11.8% (an alternative measure of labor underutilization), the large number of people working part time for economic reasons (included in U-6), and the low level of wage growth.Some new research from Moody's Mark Zandi suggests wage growth might be picking up: Have We Underestimated U.S. Wage Growth? A few excerpts: [W]hat if wage growth is accelerating already, and the BLS wage measures have yet to pick this up? This is the message in new data from ADP, based on payroll processing records for more than 24 million employees, or about one-fifth of all U.S. workers. Moody’s Analytics helped ADP separate the changes in hourly wages paid to those staying in their jobs, labeled job holders, from wages paid to those who change jobs, new entrants to the workforce, and those leaving it. The data track changes quarterly from the second quarter of 2011 to the third quarter of 2014, long enough allow for seasonal adjustments. The data can also be broken down by industry, region, company size, worker age and gender, tenure on the job, pay scale, and part- vs. full-time. The hourly wage rate for job holders is the most telling. It is up 4.5% from a year ago in the third quarter, a strong and steady acceleration from its low two years ago. The acceleration in hourly wage growth occurs across the board, although it is up most for younger workers, those with one to five years on the job and at lower pay levels, and those who work at small companies. Wage gains have also picked up most in financial services and construction in the West and South.
Wages should be growing faster, but they’re not. Here’s why. -- I’ve tried to be particularly vigilant in ringing this lack-of-real-wage-growth alarm bell in recent months, as the tightening job market has led to threatening chatter about the need for the Federal Reserve to ratchet up rates sooner than later. So when I tell you I’m a little surprised to see almost no movement in wage growth despite the improving employment situation, I hope you’ll give me a listen. To be clear, that’s “a little surprised.” There’s still considerable slack in the job market, and, like I said, workers’ ability to bargain for a bigger slice of the pie has taken a real beating over the years. But given the extent to which the job market has tightened up in recent months, I would expect a bit more wage pressure than I’ve seen (“tightening,” “improving,” “less slack” are all econo-mese for stronger labor demand leading to faster job growth and lower unemployment). So let’s look at the evidence for these claims and think about why the wage dog is not barking. While I offer a number of credible hypotheses, the one I favor is pretty straightforward: Raising pay is simply not part of the business model of American employers. They will not do so until they’re absolutely forced to by a labor market that’s much tighter than what we’ve got today. Exhibit A in the absence of wage pressures is below. The two wage measures are year-over-year percentage changes in nominal average hourly wages and hourly wages of lower-paid, non-supervisory workers (“non-sup” in the figure). The slack line is a comprehensive measure derived by economist Andrew Levin that combines numerous dimensions of labor market slack, including involuntary part-time work and folks who’ve dropped out of the labor force but would come back in if the jobs were there.
America Is a Nation of Immigrants, But Not the Way It Used to Be - -The U.S. is becoming more of a nation of immigrants every day—just as it was, but in very different ways, a century ago. The share of immigrants in the U.S. population rose last year to 13.1%, from 13% in 2012—the highest level since the 1920s. As the Journal reported Friday,, immigration is picking up as the U.S. economy improves, driven largely by Asian newcomers but also by a sizeable gain in Hispanic (including Mexican) arrivals. If these trends gain traction, the U.S.’s share of foreign-born is likely to keep climbing, extending a spectacular rise from just 4.7% in 1970. But will the U.S. again become as immigrant-centered as it was at the dawn of the 20th century? Back in 1890, nearly 15% of Americans were foreign-born, mostly from Italy, Germany, Eastern Europe, Russia, Britain, Canada, Ireland and Sweden. Between 1880 and 1930, over 27 million new immigrants arrived, mostly from Italy, Germany, Eastern Europe, Russia, Britain, Canada, Ireland and Sweden. According to the Migration Policy Institute, this was the last huge immigration wave before the Mexican migration of the late 20th century. Today another big shift is taking place.After surging in the 1990s and early 2000s, Hispanic immigration to the U.S., especially from Mexico, is on a declining path. As the U.S. economy accelerates and tighter labor markets fuel demand for cheap (and often illegal) labor, Mexican immigration (legal and unauthorized) could continue turning up. But demographers don’t expect Hispanic immigration to return to 1990s levels, and for three main reasons. U.S. borders are tighter than they used to be. In Mexico, economic opportunities are making it slightly more attractive to stay there. And declining fertility in Mexico means there are simply less 20- to 25-year-olds to come in the U.S. in the first place. So, who’s taking their place? Asians.
No Country For Young Men: 78-Year-Old Former Exec Still Flipping Burgers For Minimum Wage - We noted last week that recent job data shows a strong tendency for "hiring grandparents" as only the over-50s cohort have seen real employment gains since the financial crisis. No one epitomizes that reality better than 78-year-old Tom Palome who, as Bloomberg reports, went from VP or marketing for Oral-B to flipping burgers for minimum wage - because, like the great majority of seniors, he hadn't saved enough to retire comfortably. As Palome notes, he is "a poster child for what a lot of folks my age are going through," as the ranks of employed Americans who were 65 and older jumped 67% last year to about 7.2 million from a decade ago, many of whom lack sufficient retirement savings. "I'm at the age where I'm not going to get out of this alive,"said Palome with a smile, "I plan to work until I can’t walk. I’m still the burger man."
U.S. restaurant patrons support minimum wage hike: survey (Reuters) - While the U.S. restaurant industry fights national and state efforts to increase the minimum wage, a new survey released on Tuesday showed that 83 percent of restaurant patrons support raising it and adjusting it annually for inflation. The results come as two years of union-backed protests by fast-food workers have put a spotlight on the plight of the working poor and helped fuel a debate about the federal minimum wage, which has been $7.25 since 2009. "Consumers clearly believe the economic benefits of a minimum wage increase far outweigh the negatives," said Bob Goldin, an executive vice president at Technomic, which recently conducted the online survey of 1,000 restaurant goers. true "Restaurants and other industries have to recognize the consumer groundswell that exists with respect to this matter and, in many cases, be prepared for increased labor costs," Goldin added. The Technomic survey showed broad backing across age groups and political orientations, including 93 percent of self-described liberals, 87 percent of moderates and 70 percent of conservatives. Twelve percent of survey participants said they were business owners, Goldin said. The vast majority in that group, 90 percent, supported raising the minimum wage and indexing it to inflation, he said.
Can Seattle Afford to Pay a Premium Minimum Wage? -- CEO Nick Hanauer sees the possible approach of a modern Shay's Rebellion: Farmers with pitchforks marching on investment bankers and plutocrats. If social unrest is to be avoided, Hanauer believes the top 1/100th of one percent must show greater political accountability for the design of the economic system and for laws that foster increased inequality. After all, lobbyists working for financial elites have helped tilt the playing field. Nick Hanauer is concerned that widening gaps in income and wealth bode poorly for the sustainable prosperity of elites like himself. Consequently, he is working tirelessly for "middle-out"economic policies that boost the capacity of consumers to spend, thus funneling a larger net share of the economic pie to the bottom 90 percent. Since middle and working class families spend a far greater portion of their total income than do elites, sustainable economic stimulus comes from looking out for consumers, not just pumping easy money for investment banks. Recently, Nick Hanauer was influential in helping the Seattle City Council approve a plan to increase the minimum wage within the city's jurisdiction to $15 an hour by 2018 -- potentially the highest minimum wage in the U.S. This move raises the question of whether Seattle is becoming the new Paris of the Pacific: a place that can sustain a higher wage than most parts of the country because of its enviable circumstances. It also raises questions about the scalability of Seattle's strategy -- questions that other advantaged cities are entertaining as well.
New government accounting standards to require subsidy disclosure - In a move with potentially enormous implications, Good Jobs First reports that the Government Accounting Standards Board (GASB) will soon issue new draft rules for Generally Accepted Accounting Principles (GAAP) for governments. Don’t fall asleep; this could be awesome! As regular readers know, one of the things bedeviling subsidy debates is the lack of transparency in what governments actually give to businesses, and on whether incentive recipients actually deliver on their promised jobs and investment. We have just seen how Boeing is moving 2000 jobs out of Washington state despite receiving huge subsidies there. And since the stakes nationally are $70 billion a year, by my estimates, better transparency is a must if we are to have any kind of democratic debate and accountability. As Good Jobs First reports, the GASB proposal would require governments to publish detailed information on “tax abatements” (an oddly narrow term it applies to the wider concept of tax incentives; but what about cash grants or free infrastructure?) in order to comply with Generally Accepted Accounting Principles. State and local governments will have no choice but to comply with whatever is adopted, as it is impossible to issue bonds or carry out other basic financial operations unless they meet GAAP standards. This is why Good Jobs First has long campaigned for a change by GASB. The centrality of GAAP means that we have to pay attention to the draft rules and comment on them in the three-month comment period starting in November.
Prisoners Become Lucrative Market For Bankers -- Forget the ever-diminishing middle class, banksters have found a new target – prisoners. According to the Center For Public Integrity, prison bankers are collecting tens of millions of dollars in fees each year from inmate’s families for providing basic financial services. It turns out desperate family members trying to get money to imprisoned loved ones are very compliant customers. Private banking companies are now getting prison contracts to handle financial deposits for inmates and are charging depositors ruinous fees. In order to process fund transfers from family members to inmates the banks often charge 35-45%. Families that need to get cash to inmates quickly have no choice but to pay. Inmates need money for basic necessities including food, electricity and toilet paper in some states. Given that inmates are often paid well below minimum wage for their prison jobs they need that money from their families. These fees not only hurt the inmates by getting less funds but put strain on families, especially poor families who have already lost the income that may have come if the imprisoned family member was working.JPay and other prison bankers collect tens of millions of dollars every year from inmates’ families in fees for basic financial services. To make payments, some forego medical care, skip utility bills and limit contact with their imprisoned relatives, the Center for Public Integrity found in a six-month investigation. Inmates earn as little as 12 cents per hour in many places, wages that have not increased for decades. The prices they pay for goods to meet their basic needs continue to increase. By erecting a virtual tollbooth at the prison gate, JPay has become a critical financial conduit for an opaque constellation of vendors that profit from millions of poor families with incarcerated loved ones. As if the US prison system was not doing enough to cause cycles of poverty now they are helping exploit the families of the incarcerated. Then again, it might ensure future customers. Think of what those desperate family members might have to do to get enough money to pay the fees.
Online Education for Pre-School - Online education continues to expand rapidly: Saying the option is revolutionizing the way the nation’s 3- and 4-year-olds prepare for the grade school years ahead, a Department of Education report released Thursday confirmed that an increasing number of U.S. toddlers are now attending online preschool. “We found that a growing number of American toddlers are eschewing the traditional brick-and-mortar preschools in favor of sitting down in front of a computer screen for four hours a day and furthering their early psychosocial development in a virtual environment,” said the report’s author, Dr. Stephen Forrest, who said that the affordability and flexibility characteristic of online pre-primary education are what make the option most appealing, allowing young children to learn their shapes and colors on a schedule that works best for them. “With access to their Show-And-Tell message boards, recess timers, and live webcams of class turtle tanks, most toddlers are finding that they can receive the same experience of traditional preschooling from the comfort of their parents’ living room or home office. In addition, most cited the ability to listen to their teacher’s recordings of story time at their own pace as a significant benefit of choosing an online nursery school.” Forrest added that, despite their increasing popularity, many parents remain unconvinced that online preschools provide the same academic benefits as actually hearing an instructor name farm animals and imitate their noises in person.
SRC cancels teachers' contract: In a stunning move that could reshape the face of city schools, the Philadelphia School Reform Commission voted Monday to unilaterally cancel its teachers’ contract. The vote was unanimous. The Philadelphia Federation of Teachers was given no advance word of the action — which happened at an early-morning SRC meeting called with minimal notice — and which figures to result in a legal challenge to the takeover law the SRC believes gives it the power to bypass negotiations and impose terms. Jerry Jordan, PFT president, called the move "cowardly" and vowed to fight it strongly. The district says it will not cut the wages of 15,000 teachers, counselors, nurses, secretaries and other PFT members. But it plans to dismantle the long-standing Philadelphia Federation of Teachers Health and Welfare Fund, which is controlled by the union, and take over administering benefits. Going forward, most PFT members will have to pay either 10 percent or 13 percent of the cost of their medical plan, depending on their salaries. They now pay nothing. Officials said that workers would pay between $21 and $70 a month, beginning Dec. 15. The changes will save the cash-strapped district $54 million this school year, officials said, and as much as $70 million in subsequent years. That money, SRC Chairman Bill Green said, will be invested directly into classrooms, with principals empowered to use the cash as they see fit — to hire a full-time counselor and nurse, perhaps, or to pay for more supplies or after-school programs.
A heartbreaking act of staggering cowardice: See this picture? This is what raw cowardice and utter contempt for democracy looks like. The picture was taken Monday morning and posted on Twitter by Kevin McCorry of WHYY's Newsworks just before 9:30 a.m., at the Philadelphia School District headquarters building at 440 North Broad Street. In a matter of seconds -- in a meeting that would last all of 17 minutes, and with one hasty comment from the public -- the Philadelphia School Reform Commission, the state agency that has presided over 14 years of ruination of public education here, is about to explode a political bombshell. The SRC is about to revoke its contract with the Philadelphia Federation of Teachers, and cut the teachers' benefits -- and it's about to do it before this nearly empty room. This is no accident. The lack of a crowd, and the lack of public debate, was an act of careful calculation. The calculation of cowards.
Pennsylvania: Health Costs Imposed on Teachers - Philadelphia teachers vowed to fight a sudden move by the district Monday that cancels their union contract and requires them to start paying health premiums of $55 to $140 a month. District leaders said there was nothing else to cut after years of funding woes that have prompted nearly $1 billion in cuts that include the loss of 5,000 positions and the closing of 30 schools. Both Superintendent William R. Hite and the Philadelphia Federation of Teachers president, Jerry Jordan, along with Mayor Michael Nutter, agreed that the problem lies in the state funding formula for education. But Mr. Hite nonetheless backed Monday’s decision, saying the money would yield more than $50 million a year. The announcement came at a brief, hastily called meeting of the School Reform Commission. Mr. Jordan called the process cowardly. The health care change and other benefit cuts will start in December. Mr. Jordan said a court challenge was likely.
The Teacher Gap: Strong Gains but Large Jobs Gap Remains - In September, public-sector employment increased by 12,000 jobs, with the majority of that growth coming from local government education—an increase of 6,700 jobs. Local government education is largely jobs in public preK-12 education (the majority of which are teachers, but also teacher aides, librarians, guidance counselors, administrators, and support staff). While this is clearly a positive sign, unfortunately, the number of teachers and related education staffers fell dramatically in the recession and has failed to get anywhere near its pre-recession level, let alone the level that would be required to keep up with the expanding student population. Since 2008, public preK–12 enrollment increased by 1.5 percent. The figure below breaks down the teacher gap. The dark blue line illustrates the level of teacher employment. While the most recent positive trend is obvious, the longer term losses are also readily apparently.
SAT Scores and Income Inequality: How Wealthier Kids Rank Higher - SAT originally stood for Scholastic Aptitude Test. But parsing the results by income suggests it’s also a Student Affluence Test. On average, students in 2014 in every income bracket outscored students in a lower bracket on every section of the test, according to calculations from the National Center for Fair & Open Testing (also known as FairTest), using data provided by the College Board, which administers the test. Students from the wealthiest families outscored those from the poorest by just shy of 400 points. Given the widespread use of the SAT in college admissions, the implications are obvious: Not only are the wealthiest families best equipped to pay for college, their kids on average are more likely to post the sort of scores that make admissions easy. Thus the SAT is just another area in American life where economic inequality results in much more than just disparate incomes. And making matters worse, some employers continue to ask for test scores years after graduation.The gap is not new to this year’s results and the College Board is not oblivious to the gap. Earlier this year the College Board announced plans to revise the test to help reduce the economic gaps in the test. They also announced plans to provide free online tutoring.It’s tempting to believe the disparity in results arises because wealthy parents can easily afford SAT prep courses to help students game the test by learning its tricks. But some research suggests test prep has a fairly limited effect on scores. One study found that testing boosts math scores by 14-15 points and reading scores by 6-8 points.
Want To Score High On The SAT? Pick Rich Parents - While money (reportedly) can't buy love, it appears, according to The WSJ, that it can buy brains.On average, based on calculations from FairTest, students in 2014 in every income bracket outscored students in a lower bracket on every section of the test. Rather stunningly, students from the wealthiest families outscored those from the poorest by just shy of 400 points. As WSJ's Josh Zumbrun so poetically notes, perhaps SAT should more appropriately stand for Student Affluence Test.
Why Aid for College Is Missing the Mark - In 1987, when he was Ronald Reagan’s education secretary, the conservative culture warrior William J. Bennett wrote a famous essay denouncing federal aid for higher education because it allowed colleges “blithely to raise their tuitions,” at little benefit to students. Nearly two decades later, it seems, he was broadly right. Indeed, he didn’t know the half of it. It’s not just that many colleges and universities are bleeding taxpayers. The government’s overall strategy to subsidize higher education is failing at its core task: providing less privileged Americans with a real shot at a college degree. Alarmingly, it is burdening low-income students with risks they cannot bear and steering them into low-quality educations. “Institutions of higher education in the United States extract a lot of money without delivering value but the government has no way of influencing that,” said Andreas Schleicher, the top education expert at the Organization for Economic Cooperation and Development, the research organization for the world’s major industrial powers. “It has very few levers of control over equity-related issues.”Among the most recent studies, Lesley J. Turner of the University of Maryland finds that every additional dollar of Pell Grant money — the main federal aid program — leads to a 17-cent cut in institutional aid, on average. But the most problematic analysis comes in research by Claudia Goldin of Harvard and Stephanie Rieg Cellini of George Washington University, who looked into the most controversial corner of higher education: private, for-profit colleges, which today receive nearly a quarter of all federal aid for higher education. They found that for-profits that get federal subsidies charge, on average, 78 percent more than for-profit institutions that are not eligible for aid.
College is Not a Ludicrous Waste of Money - Brookings - A couple of weeks ago former Secretary of Labor Robert Reich published an article under the unfortunate and misleading headline "College Is a Ludicrous Waste of Money." Readers who did not finish the article might have assumed Reich was arguing that a college degree is vastly overpriced, offering graduates little in the way of an economic return. As a well-informed observer of U.S. labor markets, Reich knows this frequent complaint about American colleges is flatly untrue. The economic reward from attending and completing college has probably never been higher. The fact that many parents, students, recent graduates, and, yes, economic reporters believe differently reflects confusion rather than a sober appreciation of the facts. Two different trends have combined to persuade many people that college is just not worth it anymore. One highly publicized trend is the sustained increase in the sticker price of college, especially four-year public colleges. These colleges saw average tuition double between 1988 and 2013, even after adjusting for the general rise in consumer prices. In other words, public college tuitions climbed much faster than the prices of other goods and services. A second trend visible to many recent grads and their parents is the shrunken paychecks available to students after they've graduated from college. Many students finishing college cannot even find a job that requires a diploma let alone the skills they learned in their field of specialization.
Germany Just Made College Tuition Free? Why Won’t Our Black Political Class Fight For Free Tuition Here? - Black Agenda Report - If you depend on TV and the corporate news outlets in your town you probably missed the news that this summer Germany made college tuition free for everybody, including foreign students. That's right, free. We're not talking about socialist Cuba here, or third world Sri Lanka here, we're talking Germany, the most capitalist of all European countries other than Britain. And we're talking free. It says a lot that the news was not covered at all in the corporate press or broadcast media on this side of the water. Even more tellingly, the liberal academics and think tanks like the Center For American Progress and black outfits like the United Negro College Fund, the Congressional Black Caucus, the Rainbow PUSH Coalition, National Action Network and others have nothing to say on the subject. Of course it is. It's not just possible, free tuition at the nation's public colleges and universities would actually cost LESS than the federal government now pays to those institutions, according Department of Education stats quoted in two very useful articles by Jordan Weismann in The Atlantic in 2013 and 2014. Public colleges and universities, he points out, account for 75% of college grads while sub-prime for-profit colleges, which are basically machines capture low-income students and walk them through applications for subsidized guaranteed loans account for a tiny percentage of grads but eat a full quarter of all the federal aid dollars. The skyrocketing cost of tuition has hit nobody harder than African American families. Our glittering, successful and tirelessly self-promoting black political class never tires of telling the black masses that education is the way out of poverty. But you have not and you will not hear a word from the Jesse Jacksons or the Al Sharptons, or the Urban League or the NAACP, and certainly not from black college presidents, or the United Negro College Fund on how much our people have to gain by following the example of Germany. It's not even on their horizon.
Thinking Like Corporations Is Harming American Universities - On hiring faculty off the tenure track. That’s part of the business model. It’s the same as hiring temps in industry or what they call “associates” at Walmart, employees that aren’t owed benefits. It’s a part of a corporate business model designed to reduce labor costs and to increase labor servility. When universities become corporatized, as has been happening quite systematically over the last generation as part of the general neoliberal assault on the population, their business model means that what matters is the bottom line. The effective owners are the trustees (or the legislature, in the case of state universities), and they want to keep costs down and make sure that labor is docile and obedient. The way to do that is, essentially, temps. Just as the hiring of temps has gone way up in the neoliberal period, you’re getting the same phenomenon in the universities. The idea is to divide society into two groups. One group is sometimes called the “plutonomy” (a term used by Citibank when they were advising their investors on where to invest their funds), the top sector of wealth, globally but concentrated mostly in places like the United States. The other group, the rest of the population, is a “precariat,” living a precarious existence. In the universities, cheap, vulnerable labor means adjuncts and graduate students. Graduate students are even more vulnerable, for obvious reasons. The idea is to transfer instruction to precarious workers, which improves discipline and control but also enables the transfer of funds to other purposes apart from education. The costs, of course, are borne by the students and by the people who are being drawn into these vulnerable occupations.
"Should papers be retracted if one of the authors is a total asshole?" - When science writer Vito Tartamella noticed a physics paper co-authored by Stronzo Bestiale (which means “total asshole” in Italian) he did what anyone who’s written a book on surnames would do: He looked it up in the phonebook. What he found was a lot more complicated than a funny name. It turns out Stronzo Bestiale doesn’t exist. In 1987, Lawrence Livermore National Lab physicist William G. Hoover had a paper on molecular dynamics rejected by two journals the Journal of Statistical Physics. So he added Stronzo Bestiale to the list of co-authors, changed the name, and resubmitted the paper. The Journal of Statistical Physics accepted it. 27 years later, Bestiale is still listed as co-author on several papers. He also has a Scopus profile that lists him as an active researcher at the Institute of Experimental Physics, University of Vienna. ...
NJ Pension Fund Scandal: Chris Christie’s Nose is Getting So Long He Needs to Get a Hacksaw - Yves Smith --If you see politics as a form of bloodsport, there's nothing more fun that seeing a politician start attacking a reporter. That almost without exception means the charges have hit a weak spot, that the incumbent has little to no valid defense and instead starts lashing out. In this case, it's particularly amusing to see New Jersey governor Chris Christie as the would-be pugilist. We are seeing that while Garden State pols may be great on the offensive in bare-knucle fights, they have a glass jaw when put on the defensive. Here, the combatants are International Business Times reporter, David Sirota, against various officials with close ties to Christie who administer state pension funds. Sirota has been making a mini-speciality of state pay-to-play scandals.
Retirees go to court against the city - - Memphis retirees fighting back against cuts to their health benefits had their day in court after filing a lawsuit against the city. The Memphis City Council approved the 2015 budget with massive cuts to employee and retiree health insurance. Employees say they can't survive day-to-day with a 24% hike in health insurance premiums.More >> The Memphis City Council approved the 2015 budget with massive cuts to employee and retiree health insurance. Employees say they can't survive day-to-day with a 24 percent hike in health insurance premiums. Retirees say they can't live paying 100 percent of their premiums.More >>Attorneys for the retirees want a restraining order that would prevent the city from changing the subsidies on health insurance premiums. Retirees who testified Monday say when they were hired, they were told they would be entitled to insurance for life. Swayne Merrill was one of the retirees who told the judge that the city's new plan would increase his premiums by $1,600. "If the city goes through with what they plan, it would break me," Merrill said. "I would not have any money, I could not pay any taxes. The city would take my house and put me on the street." In cross examinations, attorneys for the city have been asking the retirees if they have any proof that they were offered insurance for life. So far, the retirees have not been able to provide any proof. They say the promise of insurance was made verbally and not in writing.
San Francisco Pension Officials Halt Proposal to Invest In Hedge Funds: San Francisco officials on Wednesday tabled a proposal to move up to 15 percent of the city's $20 billion pension portfolio into hedge funds. The move came a day after International Business Times reported that the consultants advising the city on whether to invest in hedge funds currently operate a hedge fund based in the Cayman Islands. The hedge fund proposal, spearheaded by the chief investment officer of the San Francisco Employees' Retirement System, or SFERS, had been scheduled for action this week. If ultimately enacted, it could move up to $3 billion of retiree money from traditional stocks and bonds into hedge funds, potentially costing taxpayers $100 million a year in additional fees. Pension beneficiaries who oppose the proposal spoke at Wednesday's meeting of the SFERS board. They cited financial risks and the appearance of possible conflicts of interest in objecting to the hedge fund investments. Prior to the meeting, the Service Employees International Union, which represents roughly 12,000 members who are eligible for SFERS benefits, asked city officials to have the hedge fund proposal evaluated by a consultant who has worked with boards that have opted against hedge funds.
Yes We Can Pay for Increasing Social Security Benefits - Some time ago, in the pages of USA Today, Duncan Black, better known to some as Atrios voiced the immediate need for increased Social Security benefits of 20% or more even if it means raising taxes on high incomes, or removing the payroll tax cap on salaries.Black is right about the need for increased benefits; but legislating that increase doesn’t require increasing taxes. In fact, Congress should both increase benefits and remove the payroll tax entirely. But how is that possible without greatly increasing “the national debt”? The answer to that one is easy. Don’t tax or borrow to pay for it. Just mint a single one oz. platinum coin at the beginning of each fiscal year with a face value large enough to cover expected the cost of SS payments. Doing it that way will both take care of retirement needs and also provide a huge shot in the arm for employment, since the increase in Social Security benefit payments and the ending of the payroll tax won’t be offset by tax increases elsewhere that will depress aggregate demand. How many times have you heard that the Government can only spend money after it raises revenue by either taxing or borrowing? Nearly every time someone talks or writes about the US’s public deficit/debt problem? Why is it that nobody asks why, since Congress has unlimited authority to create coins and currency, it doesn’t just create money when it deficit spends? But coins, it turns out are the province of the Executive Branch, and the Treasury. And Congress provided the authority, in legislation passed in 1996, for the US Mint to create one oz. platinum bullion or proof platinum coins with face values to be specified at the discretion of the Secretary of the Treasury, having no relationship to the market value of the platinum used in the coins.
Child Mortality, Inequality, and the ACA Medicaid Expansion - -- Starting back to the 1980s, I and others wrote about the growing trends in income, wages, and wealth inequality with some alarm. That early work was important, but it was also missing something important: the impact of rising inequality. There’s now a growing body of research documenting this impact on various dimensions of opportunity and even macroeconomic growth. Add to that this new study, already reported on in various venues, which finds that income disparities in the US are a significant factor in our high infant mortality rate, a rate that makes us a big outlier among advanced economies (see WaPo link above for that figure).The authors, Alice Chen, Emily Oster, and Heidi Williams, write: This postneonatal mortality disadvantage [deaths in months 1-12] is driven almost exclusively by excess inequality in the US: infants born to white, college-educated, married US mothers have similar mortality to advantaged women in Europe. Our results suggest that high mortality in less advantaged groups in the postneonatal period is an important contributor to the US infant mortality disadvantage. It’s a careful study allowing for the type of “all else equal” comparisons that are essential is teasing out international differences. The authors find that most of the U.S. shortfall comes not from the neonatal period (first month after birth), but the postneonatal period. The authors suggest that having nurses make home visits in the first year after birth, much more common in Europe, could help narrow the differences they document. Since such home visits are also associated with health coverage, this led us (CBPP’s Brandon DeBot and I) to think about the Medicaid expansion under the Affordable Care Act. While it’s true that many poor children are already covered under the child version of Medicaid—CHIP—their parents are often uncovered and disconnected from health systems that could help them in these circumstances.
Walmart Ends Healthcare Benefits For Workers Under 30 Hours -- Under the title (only-a-PR-person-could-make-up) "Providing Quality Benefits for Our Associates," Walmart - who employs 1.3 million people in America, has changed its eligibility standards for healthcare benefits. "Like every company," they explain "Walmart faces rising healthcare costs," and so are ending benefits for associates who work less than 30 hours a week. We suspect the refrain from the American taxpayer will go something like "thanks Obamacare, you're welcome Walmart."
Walmart and the End of Employer-Based Health Care - On Monday, Walmart announced it would begin selling insurance. On Tuesday, it created a whole new set of potential customers: The retailer is cutting off health care for 30,000 employees who work fewer than 30 hours a week. That's the magic threshold set by the Affordable Care Act. As of January 2015, any employer with more than 50 workers will have to provide insurance to all employees who work more than 30 hours. You may recall that during the 2012 election, Republican politicians warned darkly that Obamacare was a "job killer" that would create a "part-time economy," in which companies started dropping their workers' hours down below that figure in order to escape the mandate and impoverishing more Americans as a result. That didn't happen. Instead, big companies have simply cut off insurance to the employees working fewer than 30 hours, as Walmart took pains to point out in blog post announcing the move. Home Depot removed almost 20,000 part-timers from its insurance rolls; Trader Joe's and Target have also cut employees. But Walmart, as the nation's largest private employer and a near-constant antagonist of progressives and labor organizers, gets special attention. The 30,000 figure also appears to be one of the largest, if not the largest, in the group. (Interestingly, Walmart also promoted 35,000 employees to full time last year, for reasons unrelated to health care.)
Big Pharma Ripoffs on Cancer Patients Makes 60 Minutes - How much would you pay for a year of life? It seems Big Pharma has figured that number out and are charging over $100,000 a year for life saving Cancer drugs. Yes, surprise, surprise, the more dire the disease, the more the great for profit pharmaceutical industry is charging for the cure. In 2012 alone, of the 12 cancer drugs approved by the FDA, 11 cost over $100,000. A king's ransom for a breath of life. Who would not pay it in order to stay alive? The 60 Minutes segment exposing the ripoff prices is called The Cost of Cancer Drugs. 60 Minutes not only reveals the outrageous cost of Cancer drugs but also how the Doctor's themselves make big profits by prescribing the most expensive ones to their patients. Here is the video segment below. While these drugs are expensive globally, the United States is the only industrialized nation getting taken to the cleaners to this degree. The lie to the American people is these prices are incentive to innovate that they are necessary for innovation. Somehow profits motivate someone to invent. Just ask Dr. Jonas Salk about his polio vaccine, the gift he gave to the public free of charge, what a lie that is. Of course sociopathic entities cannot grasp altruism and empathy. We're all Ferengi now. The most outrageous thing is the Obama administration and Congress had a chance to stop pharmaceutical companies putting a gun to people's head with their your money or your life drug prices. But the administration did not just do nothing. They took the payola from drug companies and stopped government even being allowed to negotiate drug prices. Yes, our politicians wrote into law that America must be suckers and subjugated to runaway drug prices set by big Pharma. The ripoff prices for these drugs are just that as prices have increased over time for the most effective drugs. There is no increased research, no additional expenses to produce the drug.
Why We Allow Big Pharma to Rip Us Off - Robert Reich -According to a new federal database put online last week, pharmaceutical companies and device makers paid doctors some $380 million in speaking and consulting fees over a five-month period in 2013. Some doctors received over half a million dollars each, and others got millions of dollars in royalties from products they helped develop. Doctors claim these payments have no effect on what they prescribe. But why would drug companies shell out all this money if it didn’t provide them a healthy return on their investment? America spends a fortune on drugs, more per person than any other nation on earth, even though Americans are no healthier than the citizens of other advanced nations. Of the estimated $2.7 trillion America spends annually on health care, drugs account for 10 percent of the total. Government pays some of this tab through Medicare, Medicaid, and subsidies under the Affordable Care Act. But we pick up the tab indirectly through our taxes. We pay the rest of it directly, through higher co-payments, deductibles, and premiums. Drug company payments to doctors are a small part of a much larger strategy by Big Pharma to clean our pockets.Another technique is called “product hopping” —making small and insignificant changes in a drug whose patent is about to expire, so it’s technically new.
Is Your Dentist Ripping You Off? - I came across an op-ed in ADA News, the official publication of the American Dental Association. The article, by longtime pediatric dentist Jeffrey Camm, described a disturbing trend he called "creative diagnosis"—the peddling of unnecessary treatments. William van Dyk, a Northern California dentist of 41 years, saw Camm's op-ed and wrote in: "I especially love the patients that come in for second opinions after the previous dentist found multiple thousands of dollars in necessary treatment where nothing had been found six months earlier. And, when we look, there is nothing to diagnose." Some toddlers treated at one chain underwent as many as 14 procedures—often under restraint and without anesthesia. "In recent years, I have been seeing more and more creative diagnosis," Camm told me when I called him at his practice in Washington state. A dentist, he said, might think, "'Well, the insurance covers this crown, so I'm not hurting this patient, so why don't I just do it?' That's the absolutely wrong approach." Poking around, I found plenty of services catering to dentists hoping to increase their incomes. One lecturer at a privately operated seminar called The Profitable Dentist ($389) aimed to help "dentists to reignite their passion for dentistry while increasing their profit and time away from the office." Even the ADA's 2014 annual conference offered tips for maximizing revenue: "Taking time to help our patients want what we know they need," notes one session description, "can drive the economic and reward engine of our practice."
Lower IQ in Children Linked to Chemical in Water: Babies born to mothers with high levels of perchlorate during their first trimester are more likely to have lower IQs later in life, according to a new study. The research is the first to link pregnant women's perchlorate levels to their babies’ brain development. It adds to evidence that the drinking water contaminant may disrupt thyroid hormones that are crucial for proper brain development. Perchlorate, which is both naturally occurring and manmade, is used in rocket fuel, fireworks and fertilizers. It has been found in 4 percent of U.S. public water systems serving an estimated 5 to 17 million people, largely near military bases and defense contractors in the U.S. West, particularly around Las Vegas and in Southern California.
Bigger Problem in US Than Ebola: Enterovirus D68 Spreading Respiratory, Paralytic Diseases in Children -- It has now been five days since we learned that Thomas Duncan, who came to Dallas from Liberia, tested positive for Ebola. His condition has been downgraded to critical, but so far none of his contacts have come down with Ebola symptoms. Because those most likely to have been infected by him are now under close observation and have limited contact with others, it seems quite likely the disease will not spread in the US beyond the small handful of people under close monitoring.By contrast, the US is in the midst of an ongoing outbreak of a virus that has put many children into intensive care units with severe respiratory illnesses. A handful of children in Colorado initially having respiratory illness have progressed to paralysis of some limbs and have tested positive for the virus. Four children who died from severe respiratory illness have tested positive for the virus but the CDC states that the role of the virus in these deaths is not yet known. Late yesterday, a medical examiner in New Jersey stated that the virus was the cause of death for a four year old boy.
After Death of New Jersey Boy From Enterovirus 68, Worry Grows Among Parents - When Eli went to bed on Sept. 24 in his family’s home in Hamilton Township, N.J., he seemed healthy. By morning, he was dead. “He was asymptomatic and fine, and the next morning he had passed,” said Jeffrey Plunkett, the township’s health officer. “The onset was very rapid and very sudden.” More than a week after his death, the federal Centers for Disease Control and Prevention confirmed that Eli was infected with enterovirus 68. The virus has been diagnosed in hundreds of children since August. On Saturday, the local medical examiner said that the cause of Eli’s death was the virus. It was the first reported fatality definitively caused by enterovirus 68, New Jersey health officials said, and it has stirred fears among parents, despite the reassurances of public health and education officials. Part of the anxiety stems from the symptoms associated with the virus, which resemble those of a common cold. Also fueling concerns is that there is little that can be done to treat the virus and medical experts are still working to understand it.
Polio-like illness claims fifth life in U.S. --At least five children infected with the respiratory illness known enterovirus D68 (EV-D68) have died in the U.S. in the past month. The lastest confirmed victim was a four-year-old New Jersey boy, Eli Waller. He died at home on September 25. The Centers for Disease Control (CDC) confirmed the cause of death Friday night. But health officials say they have no idea how he contracted the virus. A health official says Eli was “asymptomatic and fine” when he went to bed but died overnight. He had no known preexisting immune weakness. A 10-year girl Rhode Island girl infected with EV-D68, Emily Otrando, died less than 24 hours after being rushed to the hospital with breathing problems. Three other patients with EV-D68 also died in September.
Can Our Commercialized Health Care System Contain Ebola? --Not to bury the lede, I think it can, but it will be a lot harder than the talking heads on television predict. I have been writing about health care dysfunction since 2003. Lots of US politicians would have us believe we have the best health care system in the world (e.g., House of Representatives Speaker John Boehner (R-Ohio), here), Much of the commentary on Ebola also seems based on this “best health care system in the world” notion. For example, in an interview today (5 October, 2014) on Meet the Press, Dan Pfieffer, “senior White House adviser,” said There is no country in the world better prepared than the United States to deal with this. We have the best public health infrastructure and the best doctors in the world. However, at least the statistics say compared to other developed countries, US processes and outcomes are at best mediocre using the best of some admittedly flawed metrics (look here), yet our costs are much higher than those of comparable countries. Furthermore, on Health Care Renewal we have been connecting the dots among severe problems with cost, quality and access on one hand, and huge problems with concentration and abuse of power, enabled by leadership of health care organizations that is ill-informed, incompetent, unsympathetic or hostile to health care professionals’ values, self-interested, conflicted, dishonest, or even corrupt and governance that fails to foster transparency, accountability, ethics and honesty.
How the Discharged Ebola Patient Demonstrates the Danger of Corporatized Medicine - Yves here. The media, predictably, is missing a significant part of the real story about Ebola worries. On the one hand, the disease is not terribly contagious, yet coverage has been intense to the point of being hysterical about exactly who the Liberian patient in Dallas was in contact with before he died. Similarly, a reporter at CNN was up in arms about the current lack of screening of inbound passengers at international airports. As Dr. CB pointed out via e-mail: Was this reporter shocked at the lack of screening for SARS which has airborne transmission during the height of this epidemic? Did we call for flight bans to and from Asia? Why no outrage for the 8 SARS victims in America in 2003? Why didn’t Emory get any press time for treating 2 SARS patients in our isolation unit? EBola is transmitted the same way as Hepatitis B and HIV. It is much less contagious than SARS. Very hard to pass it on by casual contact. with SARS you just had to sit next to the guy in the airplane. With Ebola, you have to suck face, handle their poop or vomit and blood. I don’t think airline passengers engage in this initmate way on a normal basis……….Ebola is currently following evolutionary microbiology as it goes from 90% to 50% mortality rate and thus is becoming more contagious. Remember, when a parasite kills its host too quickly and efficiently, it is muck less likely to spread around. Viruses that become less and less deadly become more and contagious as the host is able to walk around and spread the parasite. Yves here. Ebola has not caused great alarm in the past, precisely because it was such a speedily deadly disease. Thus, as CC stresses, perversely, if it becomes less of a death sentence on an individual level, it becomes a greater public health menace. While Ebola has a 90% mortality rate, the Spanish flu pandemic of 1918-1919, which killed 20 to 40 million people (more than died in the Great War), had a mortality rate of 2.5%.
Actually, you CAN be too careful when it comes to Ebola -- I’ve seen a lot of pieces and tweets recently saying that we can’t be too careful about Ebola. They say that people’s fears are justified. They say that it’s better to make many, many people get screened rather than miss one case. Like this: There’s just one confirmed case of an Ebola patient reaching the United States, but that hasn’t stopped fear of the disease from reaching our shores. And, soon, our emergency rooms are likely to be filled with fearful patients.A Pew survey found this week that 32 percent of Americans are very worried or somewhat worried that they or a family member will contract Ebola. “The nation is frightened and people are frightened of [Ebola],” HHS Secretary Sylvia Mathews Burwell said Thursday morning. “They’re frightened because it has a very high mortality rate. They’re frightened because they need to learn what the facts are of that disease.”There have been at least 5,000 Ebola false alarms in the week since Thomas Eric Duncan was diagnosed in Dallas on Sept. 30, as Forbes points out. We know from past outbreaks there will be a lot of unnecessary trips to the emergency room amid heightened fears. Let’s be clear. Time is a limited resource. So is attention. I understand people’s concerns about Ebola, but if we fill our offices and hospitals with people fearful of a disease they have almost no risk of having, then the people working there cannot focus on people who might actually be at risk. Kids with asthma attacks will wait. Adults having heart attacks will wait. Elderly people having strokes will wait. That has a cost.
How Ebola sped out of control - Tom Frieden remembers the young woman with the beautiful hair, dyed a rusty gold and braided meticulously, elaborately, perhaps by someone who loved her very much. She was lying facedown, half off the mattress. She had been dead for hours, and flies had found the bare flesh of her legs. Two other bodies lay nearby. Bedridden patients who had not yet succumbed said of the dead, "Please, get them out of here." Frieden, the director of the U.S. Centers for Disease Control and Prevention (CDC), knew it was no simple matter to properly carry away a body loaded with Ebola virus. It takes four people wearing protective suits, one at each corner of the body bag. On that grim day near the end of August, in a makeshift Ebola ward in Monrovia, Liberia, burial teams already had lugged 60 victims to a truck for the trip to the crematorium. Frieden had seen plenty of death over the years, but this was far worse than he expected, a plague on a medieval scale. "A scene out of Dante," he called it. Shaken, he flew back to the United States on Aug. 31 and immediately briefed President Obama by phone. The window to act was closing, he told the president in the 15-minute call. That conversation, nearly six months after the World Health Organization (WHO) learned of an Ebola outbreak in West Africa, was part of a mounting realization among world leaders that the battle against the virus was being lost. The virus easily outran the plodding response. The WHO, an arm of the United Nations, is responsible for coordinating international action in a crisis like this, but it has suffered budget cuts, has lost many of its brightest minds and was slow to sound a global alarm on Ebola. Not until Aug. 8, 4 1 ⁄ 2 months into the epidemic, did the organization declare a global emergency. Its Africa office, which oversees the region, initially did not welcome a robust role by the CDC in the response to the outbreak.
Key Events In The Spread Of Ebola -- It began in December 2013 in a village deep in the forests of southeastern Guinea, when a 2-year-old boy named Emile developed a mysterious illness. But it wasn’t until August that the World Health Organization conceded that the worst Ebola outbreak on record had become an international public health emergency. By then, the deadly tide had reached Nigeria, Africa’s most populous nation, and casualties were beginning to wash up on U.S. and European shores.
Ebola patient in Dallas turns critical, no new U.S. cases (Reuters) - The first Ebola patient diagnosed in the United States took a turn for the worse on Saturday, slipping from serious to critical condition in a Dallas hospital, as health officials reported tracking scores of possible cases around the country that proved to be false alarms. The case of Thomas Eric Duncan, who arrived in Dallas from Liberia two weeks ago, has heightened concerns that the worst epidemic of Ebola on record could spread from West Africa where it began in March and has taken more than 3,400 lives. Dr. Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention in Atlanta, said hospitals nationwide have become more vigilant in checking incoming patients for potential risks, particularly among those traveling recently from West Africa. true In the meantime, the CDC has narrowed down the number of individuals in Dallas at greatest risk of infection from Duncan, identifying nine people who had direct contact with him. Another 40 were being monitored as potential contacts, out of a group of 114 people initially evaluated for exposure risks, though none from either group has shown symptoms, Frieden said.
Ebola Crisis Brings an Abundance of Caution Into a Dallas Community - On Friday afternoon, the deliveryman, parked across the street from the apartment complex, wore black athletic gloves, fearful of Ebola. The Ivy is where the man with the first case of Ebola diagnosed in the United States had been staying since arriving from Liberia, and where four people close to him have been quarantined by health officials.“I started wearing them as soon as I found out what happened over there,” the U.P.S. deliveryman, who asked that his name not be used because he was not authorized to talk to the news media, said of his gloves. “I’m terrified, to be honest with you. People have to sign. I’m really scared for them to even touch my board.” The Ebola crisis that has been unfolding in Dallas has had a subtle, but distinct impact on daily life near the apartment where the Liberian man whom city officials call Patient Zero was living — the limiting, however unnecessary, of “direct contact” among strangers, neighbors, friends and classmates. People have gone about their daily affairs without widespread panic, but they have done so washing their hands more often than they typically would, using hand sanitizer at the mere mention of Ebola and being wary of casual contact that would not have merited a second thought in the past.Some of the parents at the schools that several students who came into contact with the patient attended have been telling their children not to shake classmates’ hands, or they have kept their children at home. One high school senior said he thought about wearing a medical mask to school but could not find one.
Second Dallas Patient Exhibiting Ebola Symptoms - Live Feed - Following the sad death of Thomas Duncan this morning, CBS is now reporting that a possible second case of Ebola has been discovered in a suburb of Dallas: As CBS reports, An afternoon news conference has been called in Frisco, a suburb of Dallas, to discuss a possible second case of Ebola. The patient claims to have had contact with Thomas Eric Duncan, referred to as Dallas ‘patient zero.’ It is not clear how the patient had contact with Duncan or if the patient was one of the about 50 people being monitored by state and local health officials. The call came in shortly after noon from Care Now, 301 Main Street, where the patient was “exhibiting signs and symptoms of Ebola.” The patient is being transported to a nearby hospital by Frisco firefighter-paramedics. First responders are also examining clinical staff and other patients. It is unknown how many other people may have been exposed to the patient.
Ebola outbreak: Latest developments - CNN.com: A patient has been admitted to the emergency room "after reporting possible exposure to the Ebola virus," Texas Health Presbyterian Dallas said in a statement Wednesday. "Right now, there are more questions than answers about this case," the hospital said. "Our professional staff of nurses and doctors is prepared to examine the patient, discuss any findings with appropriate agencies and officials." Asked about the case by reporters, Centers for Disease Control and Prevention Director Dr. Tom Frieden said the patient "does not have either definite contact with Ebola or definite symptoms of Ebola." The patient -- who was transported from Frisco, Texas -- had reported being in the Dallas apartment where Thomas Eric Duncan had been staying and having "some contact" with Duncan's family members, Frisco Fire Chief Mark Piland told reporters.There is "no indication" that the patient had "any direct contact" with Duncan, said Christine Mann of the Texas Department of State Health Services. A spokeswoman for CareNow, which made the call to emergency dispatchers, said the medical center "was being very cautious" after the patient checked yes in response to a screening question regarding travel to West Africa. "We've had a patient that checked yes to one of the screening questions regarding travel to West Africa," CareNow spokeswoman Vickie Johnson told CNN. "We are being very cautious and are in contact with the health department to ensure we follow proper protocol. Our concern is for the safety and well-being of everyone in our clinic."
CDC Forced to Admit that Ebola Might Be Spread to Healthcare Workers through Coughing and Sneezing -- Scientists have said for some time that Ebola may be spread through coughing, sneezing and other aerosol transmission. The top American health agency – the U.S. Centers for Disease Control – has denied this for months. But CDC has finally been forced to admit that it’s true. The Los Angeles Times reports today: Some scientists who have long studied Ebola say such assurances are premature — and they are concerned about what is not known about the strain now on the loose. *** Dr. C.J. Peters, who battled a 1989 outbreak of the virus among research monkeys housed in Virginia and who later led the CDC’s most far-reaching study of Ebola’s transmissibility in humans, said he would not rule out the possibility that it spreads through the air in tight quarters. “We just don’t have the data to exclude it,” said Peters, who continues to research viral diseases at the University of Texas in Galveston. Dr. Philip K. Russell, a virologist who oversaw Ebola research while heading the U.S. Army’s Medical Research and Development Command, and who later led the government’s massive stockpiling of smallpox vaccine after the Sept. 11 terrorist attacks, also said much was still to be learned. “Being dogmatic is, I think, ill-advised, because there are too many unknowns here.”
Ebola In The US: Hospitals Aren't Prepared For Outbreak, Warns Nurses' Union: The Centers for Disease Control and Prevention tried desperately on Saturday to assure an anxious American public that health care workers are prepared for a possible Ebola outbreak. Most nurses on the front lines, however, aren't so sure. Following news this week that a Texas hospital allowed an Ebola-infected patient to walk out of an emergency room with a simple prescription for antibiotics, the country’s largest nurses’ union warned that most U.S. hospitals still haven’t instituted a proper preparedness policy or even educated their caregivers about how to spot the potentially fatal virus. In a strongly worded statement Friday, National Nurses United called on U.S. hospitals to "immediately upgrade" their emergency policies, citing preliminary data from a survey of almost 700 registered nurses working in 250 hospitals across 31 states. The results of the study are pessimistic, to say the least. Of the nurses surveyed, a staggering 80 percent said their hospital “has not communicated to them any policy regarding potential admission of patients infected by Ebola.” Nearly 40 percent said their hospital has no apparent plans to properly equip isolation rooms, and a third said their hospital does not have sufficient supplies to treat the disease. NNU, which said it began the survey several weeks ago, has been vocal about the imminent need for Ebola preparedness. “[W]e warned that it was just a matter of time in an interconnected world that we would see Ebola in the U.S.,” said RoseAnn DeMoro, the union’s executive director, in a statement. “Now, everyone should recognize that Texas is not an island either, and as we’ve heard from nurses across the U.S., hospitals here are not ready to confront this deadly disease.”
How the NRA is making the Ebola crisis worse -- A poll by Harvard found that 39% of U.S. adults are concerned about a large outbreak here, and more than a quarter fear someone in their immediate family could get sick with Ebola. If only there was someone around who could educate the American public about the actual level of risk. Someone who was trusted as a public health expert and whose job it was to help us understand what we really need to worry about and what precautions we should take. Actually, that is one of the primary responsibilities of the United States surgeon general. There’s just one problem: Thanks to Senate dysfunction and NRA opposition, we don’t have a surgeon general right now. In fact, we haven’t had a surgeon general for more than a year now — even though the president nominated the eminently qualified Dr. Vivek Murthy back in November 2013. AsI reported previously, Murthy’s nomination has been held up by Republicans and a few red state Democrats due to this surprisingly controversial stance: He believes that guns can impact your health. Well, to be fair, this conservative coalition is not troubled by his stance, so much as they are fearful of the NRA, which decided to try to scuttle Murthy’s confirmation. The NRA wrote a strongly worded letter, Rand Paul put a hold on the nomination, and Red State Democrats begged Harry Reid to not force them to vote. It’s funny that the strongly worded letters of ordinary citizens don’t seem to have quite the same effect.
U.S. To Begin Ebola Screenings For Travelers From West Africa -- Starting as early as this weekend, the U.S. will be screening arriving passengers from West Africa for signs of the Ebola virus: Federal officials said Wednesday that they would begin temperature screenings of passengers arriving from West Africa at five American airports, beginning with Kennedy International in New York as early as this weekend, as the United States races to respond to a deadly Ebola outbreak. Travelers at the four other airports — Washington Dulles International, O’Hare International, Hartsfield-Jackson International and Newark Liberty International — will be screened starting next week, according to federal officials. The screenings, which will include taking the passengers’ temperatures with a gun-like, noncontact thermometer and requiring them to fill out a questionnaire after deplaning, will be for people arriving from Liberia, Sierra Leone and Guinea, the three countries hardest hit by the epidemic. About 90 percent of the people arriving from the three countries come through the five airports, officials said. Kennedy Airport alone has about 43 percent of the travelers. The second-highest share of visitors — 22 percent — come through Washington Dulles. Over all, their numbers are relatively small. Of the roughly 36,000 travelers who left the three countries over the past two months, officials said, about a quarter came to the United States. Of those, 77 had symptoms, such as a fever, consistent with early-stage Ebola, but none turned out to have Ebola. Most of the fevers were related to malaria, a disease spread by mosquitoes.
With Ebola’s Arrival at Nebraska Center, It’s No Longer a Drill - The Nebraska Biocontainment Patient Care Unit, conceived of soon after the Sept. 11 attacks as a bulwark against bioterrorism, is now at the forefront of the nation’s response to Ebola. Should there be an actual American outbreak, the center is the largest of four units around the country that have been specially equipped to respond, and the only one designated for the general public. The others are at the National Institutes of Health in Bethesda, Md., Emory University Hospital in Atlanta and St. Patrick Hospital in Missoula, Mont.The unit here is now treating its second patient: Ashoka Mukpo, 33, an American freelance journalist who was airlifted from Liberia to Omaha, arriving Monday. He tested positive for Ebola last week and is receiving an experimental drug, brincidofovir, in the form of a twice-weekly pill. On Wednesday, he got a transfusion of blood plasma from Dr. Kent Brantly, a missionary who was treated at Emory and recovered from the disease. The unit’s first patient was Dr. Rick Sacra, another American missionary who contracted the virus in Liberia and spent three weeks here in September before being released, apparently recovered.
Public Health Emergency Declared In Connecticut Over Ebola: Civil Rights Suspended Indefinitely -- We warned a week ago of the various possibilities surrounding an Ebola outbreak in America, and today we get some degree of confirmation of a medical-based martial-law coming to the US. Governor Dan Malloy has declared a Public Health Emergency in Connecticut, authorizing the "isolation of any individual reasonably believed to have been exposed to the Ebola virus." Simply put, as we noted previously, the State of Public Health Emergency allows bureaucrats to detain and force-vaccinate people without due process - despite not one single case being found in CT. If there is a major Ebola pandemic in America, all of the liberties and the freedoms that you currently enjoy would be gone. The state of public health emergency will remain in effect indefinitely until lifted by the governor.
The CDC, NIH & Bill Gates Own the Patents On Existing Ebola & Related Vaccines: Mandatory Vaccinations Are Near - I have previously reported that Monsanto, or Monsatan as many call them, has partnered with the Department of Defense to use a proxy third party company to develop a vaccine against Ebola. The seed money began at $1.5 million. The value of the deal could grow to an estimated $86 million dollars. The company’s name is Tekmira Pharmaceuticals Corporation (TKMR) (TKM.TO), a leading developer of RNA interference (RNAi) therapeutics. “TKM-Ebola, an anti-Ebola virus RNAi therapeutic, is being developed under a $140 million contract with the U.S. Department of Defense’s Medical Countermeasure Systems BioDefense Therapeutics (MCS-BDTX) Joint Product Management Office”. As breaking and shocking of a news story as this has the potential to be, the real story is that this is not the most important part of the Ebola threat which has invaded the United States. The truth of the matter is that these unholy and untrustworthy associations, when it comes to “fighting” the Ebola virus, represent the mere tip of the iceberg. The more on digs into who is behind the creation and the development of vaccines for treating Ebola, the more the conspiracy networks widen. The most amazing fact is how incredibly easy it was to locate this information. I want to be clear on this point, Ebola was invented, a vaccine for Ebola has existed for 8-10 years, some government sponsored institutions as well as some of the global elite have positioned themselves to profit enormously from the spread of the virus and the development of and dissemination of mandatory Ebola vaccines and the imposition of total martial law in the process. Here is the proof.
Defense Department Admits US Troops In Liberia Will "Come In Contact" With Ebola-Infected Individuals - With boots-on-the-ground heading to Liberia to help 'manage' the anarchic dystopia that a frightened nation has become, General David Rodriguez (Commander, US Africa Command) held a briefing today to explain US troops' role: QUESTION: Will they be in contact with individuals or just specimens? - RODRIGUEZ: They come in contact with the individuals. Of course this was followed by a stream of qualifiers that all protection possible will be taken (just like the nurses in Madrid?)
Man Infected with Ebola Misinformation Through Casual Contact With Cable News -- An Ohio man has become infected with misinformation about the Ebola virus through casual contact with cable news, the Centers for Disease Control has confirmed. Tracy Klugian, thirty-one, briefly came into contact with alarmist Ebola hearsay during a visit to the Akron-Canton airport, where a CNN report about Ebola was showing on one of the televisions in the airport bar. “Mr. Klugian is believed to have been exposed to cable news for no more than ten minutes, but long enough to become infected,” a spokesman for the C.D.C. said. “Within an hour, he was showing signs of believing that an Ebola outbreak in the United States was inevitable and unstoppable.” Once Klugian’s condition was apparent, the Ohio man was rushed to a public library and given a seventh-grade biology textbook, at which point he “started to stabilize,” the spokesman said. But others exposed to the widening epidemic of Ebola misinformation may not be so lucky. “A man in Oklahoma was exposed to Elisabeth Hasselbeck on Fox for over three minutes,” the C.D.C. spokesman said gravely. “We hope we’re not too late.”
Doctor Who Discovered Ebola In 1976 Fears "Unimaginable Tragedy" -- I always thought that Ebola, in comparison to Aids or malaria, didn't present much of a problem because the outbreaks were always brief and local. Around June it became clear to me that there was something fundamentally different about this outbreak. At about the same time, the aid organisation Médecins Sans Frontières sounded the alarm. We Flemish tend to be rather unemotional, but it was at that point that I began to get really worried. Why did WHO react so late? On the one hand, it was because their African regional office isn't staffed with the most capable people but with political appointees. And the headquarters in Geneva suffered large budget cuts that had been agreed to by member states. The department for haemorrhagic fever and the one responsible for the management of epidemic emergencies were hit hard. But since August WHO has regained a leadership role. There is actually a well-established procedure for curtailing Ebola outbreaks: isolating those infected and closely monitoring those who had contact with them. How could a catastrophe such as the one we are now seeing even happen? I think it is what people call a perfect storm: when every individual circumstance is a bit worse than normal and they then combine to create a disaster. And with this epidemic there were many factors that were disadvantageous from the very beginning. Some of the countries involved were just emerging from terrible civil wars, many of their doctors had fled and their healthcare systems had collapsed. In all of Liberia, for example, there were only 51 doctors in 2010, and many of them have since died of Ebola.
Spanish Ebola-Infected Nurse Is First Case Of Contagion Out Of Africa; Salzburg Activates Ebola Emergency Response -- By now it should be clear to everyone that any myth that the Ebola epidemic, which has clearly gone global, is contained is about as real as the S&P 500 at 2000. And if it isn't, the latest confirmation came moments ago from BBC which reports that a Spanish nurse who treated an Ebola victim in Madrid has contracted the virus herself in the first case of contagion outside Africa, health officials say. What is different about this case is that the nurse contracted the virus in Madrid while she was part of the team that treated Spanish priest Manuel Garcia Viejo, who died of Ebola on 25 September, despite being treated with the same drug regiment that previous is said to have worked on US Ebola patients.
Spain Is Pressed for Answers After a Nurse Is Infected With Ebola - — Spain’s government came under heavy criticism Tuesday as it dealt with the repercussions of Western Europe’s first Ebola case, quarantining three more people and monitoring dozens who had come into contact with an infected nurse. Health care workers, who have been sparring with the government over cutbacks, said they had not received proper training or equipment to handle an Ebola case. The European Commission, the executive arm of the European Union, asked for an explanation, according to news reports. And some opposition politicians called for the health minister, Ana Mato, to resign.At a news conference in Madrid, officials insisted that they had taken all appropriate measures to prevent the spread of the virus. But in a sign of the government’s unease with the possible political consequences, a lower-ranking official, María Mercedes Vinuesa, director of public health, went before Parliament on Tuesday to answer questions, not Ms. Mato. The infected nurse, who has not been identified, was described as being in stable condition. Her husband and two other people were quarantined, and monitoring was extended to about 50 people who were believed to have come into contact with her.
Spain may have a second case of Ebola: reports - -- A second case of Ebola may have been detected in Madrid on Tuesday, a spokesman for the Ministry of Health told El Mundo newspaper. Like the first victim announced on Monday, the second victim was part of a medical team treating two now deceased victims of Ebola: a Spanish priest, Miguel Pajares, and missionary Manuel García Viejo. Media reports said the second victim is in isolation at Hospital Carlos III, along with the first medical worker and her husband. The European Union sent a letter Monday to the Spanish health minister to inquire as to how the first medical worker contracted the deadly disease, said media reports.
Ebola in Spain: 4 people including nurse hospitalized in Madrid — RT News: Health officials in Madrid say three more people are in the hospital on suspicion of contracting Ebola. The news comes a day after a nurse who treated two Ebola patients at a city hospital became infected with the disease. One has tested negative. The nurse is now being treated with a drip using antibodies from those previously infected with the virus, Reuters reports. Approximately 22 people who have been in contact with the woman, dubbed by media the "Spanish Ebola nurse," have been identified and are being monitored, Madrid health officials told reporters Tuesday. The officials added that the hospitalized include the nurse's husband, another health worker and a traveler who had spent time in one of the affected West African countries. One of the hospitalized - the female health worker- was reported to have tested negative for Ebola late on Tuesday, according to a Reuters health source in Spain. She had displayed only one potential symptom - diarrhea - but was not running a fever. Spain's Public Health director, Mercedes Vinuesa, told parliament that authorities were compiling a list of everyone who had come in contact with the nurse so that they could be monitored, AP reports. Vinuesa said Spain had several treatments available and was employing them Monday. The unidentified nurse is reportedly in stable condition.
Spain Warns "Something Went Wrong" As Suspected Ebola Cases Rise In Madrid -- Despite being described by Spain's public health director as "a national jewel," the head of Spain's Nursing Council warns "something went wrong" in the health care system's protocols. As RT reports, Spanish health officials have 4 patients interned including infected initial nurse, her husband, and a 2nd nurse (male). Furthermore, 22 more possible Ebola cases are under surveillance having had direct contact with the infected nurse during her vacation after being infected (officials have said they 'don't know' how she became infected with the deadly virus). Images within the hospital show "irregularities" and make-shift isolation units and an insider account said "I do not want to create social alarm, but explain what is still a reality everyday for a few months of nursing staff at the ICU.". One researcher noted "air traffic is the driver.," and added ominously, "it's just a matter of who gets lucky and who gets unlucky."
Europe probes Spanish Ebola transmission -- European Commission spokesman Frederic Vincent said Spanish health authorities would give regular updates about how a Spanish nurse came to contract Ebola from a patient. A special meeting of the EU's Health Security Committee is set to take place in Brussels on Wednesday. "Our priority... is to know exactly what happened," said Vincent, adding that the hospital in question was supposed to "respect all the rules - which are very strict - aimed at avoiding this type of contamination." Wednesday's meeting will see representatives of EU member states briefed by health experts, including those from the World Health Organization and the European Centre for Disease Prevention and Control. The European Commission on Monday sent a letter to the Spanish Health Minister "to obtain some clarification" about what had happened. The virus has killed more than 3,400 people in West AfricaWhile Spanish authorities claim they are still not certain how the virus was allowed to spread, medical staff unions have complained that staff were not adequately trained. The head of Madrid's Carlos III hospital, Rafael Perez-Santamaria, said experts were "revising our protocols." Spanish officials say the nurse began to feel ill on September 30 while she was on leave after treating Spanish priests Miguel Pajares and Manuel Garcia Viejo. Both men were repatriated from Sierra Leone and later died. The nurse is believed to have been the first person to have contracted the disease outside Africa.
Ebola Pandemic Hits Germany, Turkey, And Australia As Infected Spanish Nurse Went Un-Quarantined For A Week - Despite the still confident exclamations from officials that the Ebola pandemic is 'contained', more and more nations are admitting to Ebola-symptomatic cases or bringing infected patients back from Africa for treatment. Australia has its first potential case of the deadly disease, as Bloomberg reports a nurse who returned from volunteering in Africa has developed Ebola-like symptoms. Despite claims that Nigeria's outbreak is over, a Turkish worker there has been hospitalized in Istanbul after signs of high fever and diarrhea. Health officials from Germany confirm a 3rd Ebola patient has arrived in the country - having contracted the disease in Liberia. And finally, just as in the sad case of Thomas Duncan in Dallas, The Guardian reports the infected Spanish nurse went untreated and unquarantined for a week despite reporting symptoms at least three times to hospital officials. It seems the world is ill-prepared for this...
Chinese Company Develops Ebola Treatment - One of China’s leading generic pharmaceutical companies has purchased the rights to commercialise an experimental drug developed by the Chinese military for treating Ebola, though medical experts said the drug is still at an early stage of development. The new drug is one of 15 or so experimental medicines that have shown some success against the Ebola virus, which has killed nearly 4,000 in west Africa, in laboratories tests with cell cultures and animals around the world. In addition, a dozen vaccines to prevent infection are being evaluated for safety and efficacy. The World Health Organisation is working with international partners to fast-track the most promising treatments into clinical trials in the worst affected countries of Liberia, Sierra Leone and Guinea, though details of the trial procedures and the pharmaceuticals to be tested are not yet known. “The news that Sihuan is commercialising jk-05 could speed up its timetable to be used in Africa but I still don’t think it could be available within six months,”
Ebola Still Out of Control as Toll Nears 4,000 Deaths: WHO - The Ebola outbreak is still rampant in West Africa killing 3,879 people as of October 5, a report by the World Health Organization said Wednesday. "The total number of confirmed, probable, and suspected cases in the West African epidemic of Ebola virus disease (EVD) reported up to the end of October 5, 2014 (epidemiological week 40) is 8,033 with 3,879 deaths," the latest situation report said. "There is no evidence that the EVD epidemic in West Africa is being brought under control, though there is evidence of a decline in incidence in the districts of Lofa in Liberia, and Kailahun and Kenema in Sierra Leone," the report said. The report also noted that the high numbers of Ebola infections among the health-care workers "continues to be a cause of great concern," as 401 health care workers in West Africa are known to have been infected with the deadly virus and 232 have died of Ebola.
Southcom Keeps Watch on Ebola Situation – The potential spread of Ebola into Central and Southern America is a real possibility, the commander of U.S. Southern Command told an audience at the National Defense University here yesterday. “By the end of the year, there’s supposed to be 1.4 million people infected with Ebola and 62 percent of them dying, according to the [Centers for Disease Control and Prevention],” Marine Corps Gen. John F. Kelly said. “That’s horrific. And there is no way we can keep Ebola [contained] in West Africa.” If it comes to the Western Hemisphere, many countries have little ability to deal with an outbreak of the disease, the general said. “So, much like West Africa, it will rage for a period of time,” Kelly said. This is a particularly possible scenario if the disease gets to Haiti or Central America, he said. If the disease gets to countries like Guatemala, Honduras or El Salvador, it will cause a panic and people will flee the region, the general said. “If it breaks out, it’s literally, ‘Katie bar the door,’ and there will be mass migration into the United States,” Kelly said. “They will run away from Ebola, or if they suspect they are infected, they will try to get to the United States for treatment.”
Why Ebola is a threat -- The risk from Ebola is greater than it seems. Not only is it out of control in Africa, there is no reasonable chance it will be brought under control in Africa: it will have to burn itself out. This is because the countries simply do not have the administrative capacity to handle it: not enough beds, nurses, isolation suits, money, etc… Fundamentally, however, the decision point for handling Ebola properly passed in the 70s and 80s, when neo-liberalism, the IMF and Western bankers conspired to reduce the growth rate of Africa from its post-colonial high to below its population growth rate. The governments in question do not have the capacity to handle Ebola, and no one is going to send over enough nurses, doctors and equipment to make a difference. Even if they did, the administrative problems of these countries, lack of infrastructure and distrust in Western medicine mean they would be less effective than you think. Poor people with inadequate health care, nutrition and sanitation are resevoirs for disease to develop. They always have been. Attempts to explain this to the rich, both the global rich, and the American rich, have been in vain for the past half century or so. What happens in Africa, or India, can come back and kill you, just like what happens in the Middle East (half a million dead kids, and so on) can turn out to be very bad for Manhattan. So much for Africa. But other nations are at risk as well. The widespread waves of austerity and the destruction of countries have left gaping holes in the medical infrastructure of the first world. Does anyone think Greece, for example, could handle Ebola? Spain already fumbled a case, leaving a nurse who said she probably had Ebola in a public waiting room for hours, while she was symptomatic.
The ominous math of the Ebola epidemic - When the experts describe the Ebola disaster, they do so with numbers. The statistics include not just the obvious ones, such as caseloads, deaths and the rate of infection, but also the ones that describe the speed of the global response. Right now, the math still favors the virus. Global health officials are looking closely at the “reproduction number,” which estimates how many people, on average, will catch the virus from each person stricken with Ebola. The epidemic will begin to decline when that number falls below one. A recent analysis estimated the number at 1.5 to 2. The number of Ebola cases in West Africa has been doubling about every three weeks. There is little evidence so far that the epidemic is losing momentum.“The speed at which things are moving on the ground, it’s hard for people to get their minds around. People don’t understand the concept of exponential growth,” said Tom Frieden, director of the U.S. Centers for Disease Control and Prevention. “Exponential growth in the context of three weeks means: ‘If I know that X needs to be done, and I work my butt off and get it done in three weeks, it’s now half as good as it needs to be.’ ” Frieden warned Thursday that without immediate, concerted, bold action, the Ebola virus could become a global calamity on the scale of HIV. He spoke at a gathering of global health officials and government leaders at the World Bank headquarters in Washington. The president of Guinea was at the table, and the presidents of Liberia and Sierra Leone joined by video link. Amid much bureaucratic talk and table-thumping was an emerging theme: The virus is still outpacing the efforts to contain it.
Report: Cost of Ebola Could Top $32 Billion - Ebola's economic toll could reach $32.6 billion by year's end if the disease ravaging Guinea, Liberia and Sierra Leone spreads across West Africa, the World Bank said Wednesday. The outbreak has the potential "to inflict massive economic costs" on those three countries and its closest neighbors, according to the bank's assessment. "The international community must find ways to get past logistical roadblocks and bring in more doctors and trained medical staff, more hospital beds and more health and development support to help stop Ebola in its tracks," said Jim Yong Kim, the bank's president. "Prudent" investment in better health systems could have lessened the economic fallout, he said. The report estimated the costs of two scenarios: —more than $9 billion if the disease is rapidly contained in the three most severely affected countries. —$32.6 billion if it takes a long time to contain Ebola there and the disease spreads to neighboring nations. One way to ease the impact, the report said, was be if immediate action halted the outbreak and calmed fears. Concerns about the disease are causing neighboring countries to close their borders, and airlines and businesses to suspend commercial activities in the three worst-affected countries. David Evans, a senior economist at the World Bank and co-author of the report, said fear prompts flights to be canceled, mining operations to halt, businesses to close and farming and investment to slow as people try to avoid putting themselves and their employees at risk. That behavior has a larger economic impact than sickness and death, he said.
India dengue fever cases 300 times higher than officially reported – study -- The annual number of dengue fever cases in India is nearly 300 times higher than officially reported, according to a study by US and Indian researchers. The report also finds the sometimes-fatal viral disease, which is transmitted by mosquitoes, costs the emerging economic power at least $1.1bn (£700m) each year in medical and other expenses. “We found that India had nearly 6m annual clinically diagnosed dengue cases between 2006 and 2012 – almost 300 times greater than the number of cases that had been officially reported,” said Prof Donald S Shepard, health economics professor at Brandeis University, Massachusetts, who led the five-year research project. The scale of the under-reporting surprised researchers and will raise concerns that India’s response to the disease is inadequate, causing unnecessary suffering locally and undermining global attempts to restrict the spread of the virus. “With most infectious diseases the public healthy community has been succeeding. Ebola is an exception but hopefully a short-term one. My hope for the next decade is that we turn the tide with dengue,” said Shepard, who has been working on dengue since the early 1990s. In the past 50 years, the incidence of dengue worldwide has increased 30-fold, largely as a consequence of the growth of cities and increased travel. The virus causes severe joint pain and fever lasting up to several weeks and can kill.
New Experimental GE Wheat Contamination in Montana Puts Wheat Farmers at Risk --The U.S. Department of Agriculture (USDA) today announced that experimental genetically engineered (GE) wheat was discovered in July, 2014 at a Montana research facility that has not legally grown the variety since 2003. “Once again, USDA and the biotech industry have put farmers and the food supply at risk,” said Andrew Kimbrell, executive director for Center for Food Safety. “Coexistence between GE and non-GE crops is a failed policy that fundamentally cannot work. Genetic contamination is a serious threat to farmers across the country.” In the same announcement, USDA closed its investigation into a May, 2013 GE wheat contamination episode in Oregon without any explanation for the incident. That contamination episode led to closures of vital export markets and a class action lawsuit against Monsanto by wheat farmers. “Just as USDA closes one fruitless investigation, it tries to bury the story of yet another contamination. USDA cannot keep treating these as isolated incidents; contamination is the inevitable outcome of GE crop technology,” said Kimbrell. “It’s time for Congress to take definitive action.” Monsanto is currently in the process of settling a class action lawsuit brought by wheat farmers impacted by the Oregon contamination episode, which forced exports to several Asian and European markets to be suspended and cost farmers millions of dollars. USDA records reveal that Monsanto has conducted 279 field tests of herbicide-resistant wheat on over 4,000 acres in 17 states since 1994. Monsanto has received at least 35 notices of noncompliance from 2010 through 2013, more than any other company.
A hard look at corn economics — and world hunger | Marketplace.org: The corn harvest is coming in, and great weather has produced a record crop. This is terrible news for farmers: Oversupply means cratering prices. If that sounds like a paradox, consider this: Corn, the biggest crop in our agricultural powerhouse of a nation, is not a foodstuff. It’s a highly refined industrial material—more like aluminum than apples. And a hard look at corn economics puts world hunger in a different light. Let's start at an ethanol plant: Lincolnway Energy, in Nevada, Iowa. CEO and President Erik Hakmiller is our guide. The plant includes several big buildings, lots of loud noises... and some unexpected smells. One is hard to place at first. "What you smell is residual carbon dioxide, and a cooking— very much like a bakery smell," says Hakmiller. Then Hakmiller opens the door to a giant building with a corrugated metal roof. It’s a barn. Inside are these golden mountains—piled-up flakes of grain. For every bushel of corn that comes to Lincolnway Energy, only a third comes out as ethanol. Another third comes out as carbon dioxide, which goes into soda pop. The rest—the fat, fiber and protein—ends up on one of these piles. "Each pile being about a thousand tons,"
FAO: Global Food Price Index is Down Again - Big Picture Agriculture: -- A very reassuring new Food Outlook Report has just been released by the FAO. If we were to go back over the past five years and review all of the sensationalist headlines proclaiming that food production in the world is headed downwards and far-more-than-that drama predicting assured gloom and doom, we would see that many fear-mongers got it very wrong. The world on average has surpluses of food right now. Weather was quite good all around for the globe’s wheat crop so that 2014 will set a new high record. Strong prices pushed a rebound in corn production to make up for the recent large policy-induced demand for corn coming from the U.S. The Midwestern United States didn’t experience a multi-year drought as many predicted in 2012. And climate change is not as of yet affecting our global food supply in a significantly negative way. The graphs below show us the remarkably positive state of the world for food and agricultural production.
Here's Why We Haven't Quite Figured Out How to Feed Billions More People -- When famine loomed in Mexico and southern Asia in the mid-20th century, agricultural crop researchers saved the day. Scientists at Mexico's International Maize and Wheat Improvement Center (CIMMYT) and the Philippines's International Rice Research Institute (IRRI) came up with new, high-yielding varieties of wheat and rice that raised harvests and kept starvation at bay. That major advancement in crop production—financed with money from governments and the Rockefeller and Ford Foundations—increased yields of cereal grains by using improved crop seeds, irrigation systems, synthetic fertilizer, and pesticides. Led by American agronomist Norman Borlaug, this movement became known as the Green Revolution. Most increases in agricultural production during the past half century have come from that type of innovation: boosting crop and livestock yields on land that already was being used for agriculture. Studies indicate that this growth in productivity has stemmed largely from investments in agricultural research. But yield improvements have slowed during the past 20 years, and public spending on agricultural research in developed nations such as the United States and those in Europe has flattened. That's a daunting combination at a time when the world's population is soaring toward 11 billion by 2100 and when several parts of the world—from California's Central Valley to Brazil's southern region around São Paolo—are suffering through history-making droughts that have emptied reservoirs and damaged crops. More than 400,000 acres of food-growing lands have been left fallow in California.
Trying to Talk Sense About Demography | naked capitalism - Yves here. This post on demography is consistent with the view of a large segment of the Naked Capitalism commentariat, namely, that pro-growth policies fail to acknowledge pressures on resources, like potable water and oil, and therefore policymakers and economists need to focus much more attention on the question of how to organize a low-growth society. Note that I am not completely convinced of this view. Most of the ways we organize human enterprise are terribly wasteful, from the failure to maintain municipal water systems well (which results in leakage estimated at a typical 20% to 30% loss level), to a lack of willingness to provide incentives to move away from car-dependent suburban living, to too many people eating too much food high up on the food chain. But even allowing for the fact that it would be conceivable, say over a generation or two, to move towards much less resource-intensive lifestyles, we face a more basic conundrum: there are just too many people on the planet, and those who live in developing economies want to live a much more environmentally costly first world lifestyle. To put it more tersely: if you acknowledge the economic and resource implications of demography, you need to favor no or few child policies. But that remains a third rail in politics and economics. This article, in a somewhat gingerly manner, broaches the notion that no or negative demographic growth would be a good thing. The issue that he does not address is that aside from instinctive and social/cultural pressures to have children is that children also remain the best, if imperfect, social safety net for elderly people. The restructuring of society, with weaker community ties and the need to be willing to relocate to find work, fewer and fewer children are in a position to do much for their aging parents if they aren’t in the same community, and moving back is often too risky to undertake (if you are in your 50s and have what looks like a viable job, tossing that to help your parents is a choice many could not make even if they wanted to).
Should we upgrade photosynthesis and grow supercrops? -- PLANTS are badly out of date. They gained their photosynthetic machinery in one fell swoop a billion years ago, by enslaving bacteria that had the ability to convert sunlight into chemical energy. Plants went on to conquer the land and green the earth, but they also became victims of their own early success. Their enslaved cyanobacteria have had little scope to evolve, meaning plants can struggle to cope as the atmosphere changes. The free-living relatives of those bacteria, however, have been able to evolve unfettered. Their photosynthetic machinery is faster and more efficient, allowing them to capture more of the sun's energy. Scientists have long dreamed of upgrading crop plants with the better photosynthetic machinery of free-living cyanobacteria. Until recently all attempts had failed, but now they've taken a huge step forward. A joint team from Cornell University in New York and Rothamsted Research in the UK has successfully replaced a key enzyme in tobacco plants with a faster version from a cyanobacterium (Nature, vol 513, p 547). Their success promises huge gains in agricultural productivity – but is likely to become controversial as people wake up to the implications. The enzyme in question is called RuBisCo, which catalyses the reaction that "fixes" carbon dioxide from the air to make into sugars. It is the most important enzyme in the world – almost all living things rely on it for food. But it is incredibly slow, catalysing only about three reactions per second. A typical enzyme gets through tens of thousands. It is also wasteful. RuBisCo evolved at a time when the atmosphere was rich in CO2 but devoid of oxygen. Now there's lots of oxygen and relatively little CO2, and and RuBisCo has a habit of mistaking oxygen for CO2, which wastes large amounts of energy.
Michael Perelman: Globalization, “Free Trade,” and Food as a Strategic Weapon - naked capitalism Yves here. Michael Perelman gave a wide-ranging talk in Ankara called the Anarchy of Globalization which focused on the local impact of globalization. The presentation was wideranging and included a discussion of the evolution of usage and theoretical concerns. We've extracted a section below, on the role of "free trade" agreements and one of their not-widely-recognized side effects, that of weakening food security. The case study is Mexico.
California’s Drought Is So Bad, Even Its Hydropower Is Drying Up --California’s ability to produce renewable energy from hydroelectric dams has been significantly hampered over the last few years because of an increasingly severe and widespread drought, the U.S. Energy Information Administration said Monday. The drought, which began in 2011 and is now covering 100 percent of the state, is drying up the reservoirs behind hydroelectric dams. The reservoirs create power when the force of the water in them is released onto turbines. When there is less water, there is also less pressure to spin those turbines, thereby decreasing the amount of renewable electricity that can be produced. Hydroelectric power used to account for 20 percent of California’s in-state electricity generation for the first six months of each year from 2004 until 2013, the EIA said. But during the first six months of 2014, hydropower generation was halved, making up only 10 percent of California’s in-state electricity generation. To make up for the shortage of hydropower, California also increased its use of natural gas by 3 percent over the first six months of 2014, according to the EIA. Partially because of the length of the drought, California’s natural gas use has increased by 16 percent overall in the last 10 years, the EIA said.
California Drought Cuts Hydroelectric Generation in Half » The prolonged drought in California, now entering its fourth year, has altered the state’s mix of energy generation sources, according to the U.S. Energy Information Administration (EIA). That’s mixed news for those pushing for more reliance on renewables and less on fossil fuels. The EIA issued a report yesterday that showed that, with the state’s reservoirs currently at 42 percent of their normal levels for this time of year, the ability of hydroelectric dams to produce power has been cut in half. The dams, which normally produce about 20 percent of the state’s power, are now producing only 10 percent. With hydro power production at a ten-year low, reliance on natural gas hit a ten-year high. That’s not good news, since fracking for natural gas requires copious amounts of water and has stirred up opposition in the state. (While most fracking in California is for oil, it also sits on large natural gas reserves). According to the EIA, “In California, natural gas-fired capacity is often used to help offset lower levels of generation from hydropower facilities. The chart below shows how this inverse relationship can work: when monthly hydropower generation dips under 10-year average levels, monthly natural gas generation often rises above its 10-year average in response. From January through June of 2014, natural gas generation in California was percent higher compared to the same period in 2013 and 16 percent higher compared to the January-June average from the previous 10 years.”
"Nobody Has Any Idea How Disastrous It's Going To Be" Warns California Water Expert -- Newly released images created from NASA satellite data illustrate the staggering effect the California drought has had on groundwater supply in the state. As Mashable's Patrick Kulp explains, the images show the amount of water lost over the past 12 years, with different colors indicating severity over time. “Nobody has any idea how disastrous it’s going to be,” Mike Wade of California Farm Water Coalition told the Associated Press, as RT reports a growing number of communities in central and northern California could end up without water in 60 days due to the Golden state’s prolonged drought. While California is bearing the brunt, experts note "We're seeing it happening all over the world, in most of the major aquifers in the arid and semi-arid parts of the world."
California drought and climate warming: Studies find no clear link - Global warming contributed to extreme heat waves in many parts of the world last year, but cannot be definitively linked to the California drought, according to a report released Monday. The third annual analysis of extreme weather events underscored the continuing difficulty of teasing out the influence of human-caused climate change on precipitation patterns. One of three studies examining the California drought in 2013 found that the kind of high-pressure systems that blocked winter storms last year have increased with global warming. But another study concluded that a long-term rise in sea surface temperatures in the western Pacific did not contribute substantially to the drought. And researchers noted that California precipitation since 1895 has "exhibited no appreciable downward trend." Overall, the report editors concluded that the papers didn't demonstrate that global warming clearly influenced the drought, which is one of the worst in the state record.
Scientists say greenhouse gases most likely worsen California drought: (Reuters) - California's catastrophic drought has most likely been made worse by man-made climate change, according to a report released Monday by Stanford University, but scientists are still hesitant to fully blame the lack of rain on climate change. The research, published in the Bulletin of the American Meteorological Society as part of a collection of reports on extreme weather events in 2013, is one of the most comprehensive studies linking climate change and California's ongoing drought, which has caused billions of dollars in economic damage. The report found that high-pressure ridges like the one that stubbornly parked itself over the Pacific Ocean for the past two winters, blocking storms from hitting California, are much more likely to form in the presence of man-made greenhouse gases. The ridge, dubbed the Ridiculously Resilient Ridge by researchers, or "Triple R," parched the state during the past two rainy seasons. "You can visualize it as a fairly large boulder in a small stream," said Daniel Swain, a lead author on the report, which said the phenomenon has caused storms to bypass not only California but also Oregon and Washington, pushing rain as far north as the Arctic Circle. Using climate model simulations, the researchers found that "Triple-R" events are three times more likely to occur today than in preindustrial climates.
South-North Water Scarcity Engineering Projects in China | Big Picture Agriculture: One of the regions of the world which has a worrisome level of water scarcity is northern China, including its capital city of Beijing, a city with a population of over 21 million people. The World Bank’s definition of a water scarce region is 35,300 cubic feet of fresh water per person, per year. Each Beijing resident has about 15 percent of that amount and eleven of China’s thirty-one provinces are dryer than this. Northern China has only a fifth of the country’s fresh water but two-thirds of its farmland. Seventy percent of northern China’s water is used for agriculture to produce crops such as corn and wheat. Groundwater levels are plummeting because of un-tariffed extraction by farmers and urbanites and groundwater is also becoming contaminated. Thousands of rivers have disappeared in the region due to overuse for grain production, and for highly inefficient use in industry. Much of the river water that is left is too polluted even for industrial use. A 2009 report revealed that half of the water in seven main Chinese rivers was unfit for human consumption. Northern China is arid and southern China is water-rich, so the Chinese government’s “fix” attempt has been throwing tens of billions of dollars towards water engineering projects to get water moved from south to north across the country. The first of three phases, the Eastern Route, was completed last year. In that project, China’s 1,400 year old Grand Canal was expanded with concrete to move water from the Yangzi river basin towards the port city of Tianjin.
The world is warming faster than we thought - It's worse than we thought. Scientists may have hugely underestimated the extent of global warming because temperature readings from southern hemisphere seas were inaccurate. Comparisons of direct measurements with satellite data and climate models suggest that the oceans of the southern hemisphere have been sucking up more than twice as much of the heat trapped by our excess greenhouse gases than previously calculated. This means we may have underestimated the extent to which our world has been warming. Paul Durack from the Lawrence Livermore National Laboratory in California in the US and colleagues have compared direct and inferred sea temperature measurements with the results of climate models. While these three types of measurements together suggest that our estimates of northern hemisphere ocean warming are about right, a different story emerged for down south. The team estimate that the extent of warming in the southern hemisphere oceans since 1970 could be more than twice what has been inferred from the limited direct measurements we have for this region. This means that together, all the world's oceans are absorbing between 24 and 58 per cent more energy than has previously been estimated by direct in-situ measurements.
Scientists speed up analysis of human link to wild weather: - Climate scientists hope to be able to tell the world almost in real-time whether global warming has a hand in extreme weather thanks to an initiative they plan to launch by the end of 2015. In recent years, scientists have become more adept at working out whether climate change caused by greenhouse gas emissions is exacerbating wild weather and its impacts around the world, but the task usually takes months. "In the media, we are seeing this notion that you cannot attribute any individual events to climate change, but in fact the science has really evolved over the past decade," said Heidi Cullen, chief scientist with Climate Central. The U.S.-based non-profit science journalism organisation is leading the initiative to speed up that analysis alongside the Red Cross Red Crescent Climate Centre, scientists at Oxford University, the Royal Netherlands Meteorological Institute (KNMI) and others. A review of 16 major weather events in 2013, released on Monday, found that human-caused climate change clearly increased the severity and likelihood of five heatwaves studied - including in Australia, Japan and China. For other events like droughts, heavy rain and storms, pinning down the influence of human activity was more challenging, the researchers said. Human-caused climate change sometimes played a role, but its effect was often less clear, suggesting natural factors were far more dominant.
The Ocean’s Surface Layer Has Been Warming Much Faster Than Previously Thought - Surface layers of the ocean have been warming significantly faster than previous estimates had projected, according to a new study. The study, published in Nature Climate Change, found that the upper 700 meters (about 2,296 feet) of the ocean have been warming 24 to 55 percent faster since 1970 than previously thought. This difference in estimations is likely due to “poor sampling” of ocean temperatures in the Southern Hemisphere, the study notes. If estimations for temperatures in the Southern Hemisphere are readjusted to fit better with climate models, they increase, the scientists found.“It’s likely that due to the poor observational coverage, we just haven’t been able to say definitively what the long-term rate of Southern Hemisphere ocean warming has been,” lead author of the study Paul Durack told the BBC. “It’s a really pressing problem — we’re trying as hard as we can, as scientists, to provide the best information from the limited observations we have.” Meanwhile, temperatures in the deep ocean didn’t increase significantly between 2005 and 2013, according to another study in Nature Climate Change. Both studies noted gaps in data, however, which made uncertainties in temperature estimates more likely. As Science Magazine points out, most ocean temperature readings are collected by buoys that only account for the ocean’s upper 2,000 meters (6,561 feet). With the average depth of the ocean at 4,300 meters (14,107 feet), those buoys are likely missing significant data collection on ocean warming.
Oceans Getting Hotter Than Anybody Realized --Under an international program begun in 2000, and that started producing useful global data in 2005, the world’swarming and acidifying seas have been invisibly filled with thousands of these bobbing instruments. They are gathering and transmitting data that’s providing scientists with the clearest-ever pictures of the hitherto-unfathomed extent of ocean warming. About 90 percent of global warming is ending up not on land, but in the oceans. Research published Sunday concluded that the upper 2,300 feet of the Southern Hemisphere’s oceans may have warmed twice as quickly after 1970 than had previously been thought. Gathering reliable ocean data in the Southern Hemisphere has historically been a challenge, given its remoteness and its relative paucity of commercial shipping, which helps gather ocean data. Argo floats and satellites are now helping to plug Austral ocean data gaps, and improving the accuracy of Northern Hemisphere measurements and estimates.“The Argo data is really critical,” said Paul Durack, a Lawrence Livermore National Laboratory researcher who led the new study, which was published in Climate Nature Change. “The estimates that we had up until now have been pretty systematically underestimating the likely changes.” Durack and Lawrence Livermore colleagues worked with a Jet Propulsion Laboratory scientist to compare ocean observations with ocean models. They concluded that the upper levels of the planet’s oceans — those of the northern and southern hemispheres combined — had been warming during several decades prior to 2005 at rates that were 24 to 58 percent faster than had previously been realized.
A Gulf in Ocean Knowledge - Scientists probably have significantly underestimated how much the world’s oceans have warmed since the 1970s, according to a new study. The finding may force researchers to revise their gauges of some climate change effects, including the rate of sea-level rise.The study, by Paul J. Durack of Lawrence Livermore National Laboratory and others, found that the underestimation was the result of decades of spotty sampling of water temperatures in the Southern Hemisphere, home to three-fifths of the world’s oceans. Until 2004, when a worldwide system of autonomous floats, called Argo, became operational, there were relatively few temperature measurements south of the Equator. While atmospheric warming because of the trapping of heat by carbon dioxide and other greenhouse gases has most of the public’s attention, the oceans store far more of this heat. The study showed that the amount of heat absorbed by the top 2,200 feet of the oceans from 1970 to the mid-2000s may be as much as 58 percent higher than previously estimated. “We potentially may have missed a fair amount of heat that the ocean has been taking up,” Dr. Durack said. The researchers looked at global climate models, partitioned between north and south, and found a strong correlation between these simulations and data on sea-surface height as measured by satellites. But the models were not a good match for temperature, especially in the Southern Hemisphere. This suggested that the problem was not with the models so much as with the lack of temperature data before 2004. The study was published Sunday in the journal Nature Climate Change.
Coastal Cities Are Drowning, Thanks To New Reality Of Sea Level Rise -- Coastal American cities are sinking into saturated new realities, new analysis has confirmed. Sea level rise has given a boost to high tides, which are regularly overtopping streets, floorboards and other low-lying areas that had long existed in relatively dehydrated harmony with nearby waterfronts. The trend is projected to worsen sharply in the coming years. A new report, released by the Union of Concerned Scientists late on Tuesday, forecasts that by 2030, at least 180 floods will strike during high tides every year in Annapolis, Md. In some cases, such flooding will occur twice in a single day, since tides come in and out about two times daily. By 2045, that’s also expected be the case in Washington, D.C., Atlantic City, N.J. and 14 other East Coast and Gulf Coast locations out of 52 analyzed by the Union of Concerned Scientists. “The shock for us was that tidal flooding could become the new normal in the next 15 years; we didn’t think it would be so soon,” said Melanie Fitzpatrick, one of three researchers at the nonprofit who analyzed tide gauge data and sea level projections, producing soused prognoses for scores of coastal Americans. “If you live on a coast and haven’t seen coastal flooding yet, just give it a few years. You will.” The group originally set out to study increased risks of storm surges and hurricanes as seas rose, but quickly changed tack. “We realized before we even got through the statistics of the last 40 years that tidal flooding is a much bigger story,” Fitzpatrick said. “But nobody’s really telling that story.”
Major U.S. Cities Will See 10 Times More Coastal Flooding By 2045 - Flooding during high tide could occur so frequently in some U.S. cities in the future that parts could become “unusable,” according to a new report. The report, published by the Union for Concerned Scientists, looked at 52 National Oceanic and Atmospheric Administration tide gauges in coastal cities in Florida, Maryland, Georgia, Virginia and other states. UCS analyzed the states’ flooding risk under mid-range sea level rise predictions taken from the White House’s National Climate Assessment — an estimate of 5 inches of sea level rise by 2030, and 11 inches by 2045. It found that tidal flooding could triple in some cities in 15 years and occur 10 times as often in most cities in the next 30 years. The Mid-Atlantic states are particularly vulnerable, the report found. A tripling of tidal flooding events in these states would mean that, in some cities, flooding could occur multiple times per week. The report also found that by 2045, one-third of the cities and towns looked at could start experiencing tidal flooding more than 180 days each year, and nine cities would see flooding 240 times each year. These floods aren’t the type that cause death or major destruction, the authors of the report noted on a press conference Wednesday. They’re “nusiance” floods, the kind that force residents to wade through water on their way to work and move their cars before the tide comes to avoid saltwater damage. But as sea levels rise, there’s likely only so much of this flooding that communities will be willing to take, report co-author Erika Spanger-Siegfried said. If the flooding becomes chronic, some areas may be forced to decide whether to relocate businesses and homes.
A Danish company is building a $335 million seawall around New York -- In the aftermath of Sandy, Ovink brought his knowledge Stateside and joined the Hurricane Sandy Rebuilding Task Force, a Department of Housing and Urban Development (HUD) initiative to rebuild and reinforce the New Jersey and New York coastline.
Ocean Health Gets "D" Grade in New Global Index: Scientists assigned a grade for global ocean health on Tuesday, giving the world's waters a "D" on an annual oceans report card, citing overfishing, pollution, climate change, and lack of protections as key problems. But the score for nations' territorial waters—generally those that are within 200 miles (322 kilometers) of shore—has improved since 2012, and scientists say the overall outlook for the ocean is better than many expected. The latest report card is part of the third annual update to the the Ocean Health Index, which evaluates the state of the seas and the benefits they provide to people."This new assessment is the first fully global look at ocean health," said Kevin Connor, a spokesperson for Conservation International, an environmental group that prepared the index with help from researchers from the University of California, Santa Barbara; the University of British Columbia; the New England Aquarium; and others. For the first time, this year's index measures scores for Antarctica and the Southern Ocean plus the 15 other ocean regions beyond national jurisdiction, often called the high seas. The overall global score was 67 out of 100.
‘The Other CO2 Problem’: How Acidic Oceans Will Cost Our Economy Billions --The growing acidity of the world’s oceans could cost the global economy $1 trillion by 2100 if humans don’t stop putting so much carbon dioxide into the atmosphere, according to an extensive report compiled by 30 experts worldwide and released Wednesday by the U.N. Convention on Biological Diversity. Oceans have absorbed so much carbon dioxide emitted from power plants, deforestation, manufacturing, and driving, that their acid levels have increased by a staggering 26 percent over the last 200 years, the report said. The disruption of the ocean’s natural pH levels are directly impacting the health of marine life and ecosystems and scientists emphasize that if these trends continue unchecked, it could be both horribly detrimental for the world economy and largely irreversible for thousands of years. “The oceans are facing major threats due to rising levels of carbon dioxide in the atmosphere,” said Braulio Terreira de Souza Dias, the Convention’s executive director, in a statement accompanying the report. “In addition to driving global climate change, increasing concentrations of carbon dioxide affect ocean chemistry, impacting marine ecosystems and compromises the health of the oceans and their ability to provide important services to the global community.”
Acid damage to coral reefs could cost $1 trillion -- Ocean acidification is set to cost us $1 trillion by 2100 as it eats away at our tropical coral reefs. That's the warning from a report released today by the United Nations Convention on Biological Diversity, which assesses the economic impacts the problem could have. The ocean's pH is now 8.0, down from 8.1 in the mid-18th century. Because the pH scale is logarithmic, this change means that, over the past 250 years, the world's oceans have seen a 26 per cent increase in acidity – a result of the oceans absorbing about a quarter of our carbon dioxide emissions. With ocean pH projected to dip to 7.9 by the end of the century, the oceans may soon be 170 per cent more acidic than they were before the industrial revolution – a change that is likely to affect not just our ecosystems, but our economies too. Ocean acidification is a trend that went largely unnoticed until a decade ago, but the rapid pace of scientific investigation since means huge progress has been made in understanding its effects. We know that acidification will be bad for marine organisms because past increases in acidity led to mass extinctions – particularly of those with hard calcium carbonate shells. Coral reefs are particularly at risk. Acidification reduces the concentration of carbonate ions in the upper layers of the ocean, and when carbonate levels get too low, the calcium carbonate skeletons of the corals themselves will start to dissolve.
The Most Ambitious Environmental Lawsuit Ever - In Louisiana, the most common way to visualize the state’s existential crisis is through the metaphor of football fields. Each hour, Louisiana loses about a football field’s worth of land. Each day, the state loses nearly the accumulated acreage of every football stadium in the N.F.L. Were this rate of land loss applied to New York, Central Park would disappear in a month. Manhattan would vanish within a year and a half. The last of Brooklyn would dissolve four years later. The land loss is swiftly reversing the process by which the state was built. As the Mississippi shifted its course over the millenniums, spraying like a loose garden hose, it deposited sand and silt in a wide arc. This sediment first settled into marsh and later thickened into solid land. But what took 7,000 years to create has been nearly destroyed in the last 85. Dams built on the tributaries of the Mississippi, as far north as Montana, have reduced the sediment load by half. Levees penned the river in place, preventing the floods that are necessary to disperse sediment across the delta. The dredging of two major shipping routes, the Mississippi River Gulf Outlet and the Gulf Intracoastal Waterway, invited saltwater into the wetlands’ atrophied heart. The oil and gas industry has extracted about $470 billion in natural resources from the state in the last two decades, with the tacit blessing of the federal and state governments and without significant opposition from environmental groups. Oil and gas is, after all, Louisiana’s leading industry, responsible for around a billion dollars in annual tax revenue. Last year, industry executives had reason to be surprised, then, when they were asked to pay damages. The request came in the form of the most ambitious, wide-ranging environmental lawsuit in the history of the United States.
New and Improved Ice Loss Estimates for Polar Ice Sheets: In a previous post, several years ago, I discussed the various ways that we measure changes in the Antarctic and Greenland ice sheets.. Today, scientists still use these main methods for identifying ice changes but recent technological and data processing advances have improved the accuracy of these estimates. An example of this is the CryoSAT-2 satellite system which was launched 4 years ago by the European Space Agency and is now giving early results on the state of the two polar ice sheets. Before discussing the results of this study it is worthwhile to understand what CryoSAT-2 measures. CryoSAT-2 is a radar altimeter which sends a radar signal towards the ground, this signal is then reflected back to the satellite and using information about the time, phase and geographic position of the satellite we can estimate the elevation of the surface. Repeatedly measuring the surface elevation of an ice sheet over time therefore allows us to assess whether ice is being lost (elevation decreasing) or gained (elevation increasing). The results of early radar altimetry analyses using the ERS-1 and ERS-2 platforms were often misconstrued by contrarians and not provided with the appropriate context necessary to interpret the data. The important caveats being that these early radar altimetry studies underestimated ice sheet losses due to biases in coastal areas associated with steep slopes and low sensor resolution. CryoSAT-2 by contrast has a higher resolution and a lower susceptibility to errors on high slopes making it far more suitable for measuring ice changes in the coastal areas of Antarctica and Greenland. These coastal areas, as noted in this post, are the regions most likely to encounter substantial ice losses.
NOAA: Record Antarctic Sea Ice Growth Linked To Its Staggering Loss Of Land Ice -- NOAA said in a news release Tuesday that “as counterintuitive as expanding winter Antarctic sea ice may appear on a warming planet, it may actually be a manifestation of recent warming.” The most important thing to know about Antarctica and ice is that a large part of the South Pole’s great sheet of land ice is close to or at a point of no return for irreversible collapse. The rate of loss of that ice has reached record levels, tripling in the last five years alone. Only immediate action to sharply reverse carbon pollution could stop or significantly slow that. And that really matters since 90 percent of Earth’s ice is in the Antarctic ice sheet, and even its partial collapse could raise sea levels by tens of feet (over a period of centuries) and force coastal cities to be abandoned. In September, the extent of seasonal Antarctic sea ice reached a new record.The National Snow and Ice Data Center (NSIDC) explained this week that the best explanation from NSIDC scientists is that it “might be caused by changing wind patterns or recent ice sheet melt from warmer, deep ocean water reaching the coastline … The melt water freshens and cools the deep ocean layer, and it contributes to a cold surface layer surrounding Antarctica, creating conditions that favor ice growth.”
Gravity Shift Reveals West Antarctic Ice Loss - The West Antarctic Ice Sheet is headed toward “unstoppable” collapse according to recent studies. A new visual released by the European Space Agency show what the start of that collapse looks like both for the mass of the ice sheet and its signature on the planet’s gravitational field.We think of gravity as a constant, holding us in place on the planet. But the reality is there are small changes in gravity all over the globe. Not enough that you’ll feel lighter on your feet in one place compared to another, but enough that scientists can use satellites to measure the differences. Those measurements can, in turn, help us better understand the world around us, from how earthquakes shift land to how fast ice sheets are receding and what that means for sea level rise. The measurements released by the European Space Agency on Friday fall into the latter category. They show gravity in the region is decreasing as the West Antarctic Ice Sheet has melted faster and faster over a 3-year period from 2009-12, sending more water into the sea. This region of the ice sheet has been intensely studied by scientists and recent research indicate melt could be “unstoppable.” The melt of that section of the ice sheet would raise sea levels 10-13 feet, though the timetable for that happening is centuries, not single years or decades.
Have Humans Really Created a New Geologic Age? -- While humans arrived only recently on geologic time scales, our species already seems to be driving some major plot developments. Agriculture occupies about one-third of Earth's land. The atmosphere and oceans are filling up with chemical signatures of our industrial activity. Whole ecosystems have been reshaped as species are domesticated, transplanted or wiped out. These changes have become so noticeable on a global scale that many scientists believe we have started a new chapter in Earth’s story: the Anthropocene. Atmospheric chemist Paul Crutzen popularized the term in the early 2000s, and it has become engrained in the scientific vernacular. But don’t ask what the Anthropocene technically means unless you’re in the mood for some drama. “It’s not research, it is diplomacy. It’s not necessary for geologists,” says Lucy Edwards, a researcher with the U.S. Geological Survey. Others think there is a case to be made for at least trying to codify the Anthropocene, because it is forcing the global community to think about the true extent of human influence. "It focuses us on trying to work out how we measure the relative control of humans as opposed to nature," "For example, is human activity altering the rate of uplift of mountains? If you had asked that question 20 years ago, geologists would have looked at you as if you were mad," says Brown. "But we know some faults are lubricated by precipitation, so if we are altering global precipitation patterns, there is a slight chance of a link. If that is the case, that is quite a profound potential interaction between humans and their environment."
Neglected disaster plan deepens Pakistan's climate vulnerability - Pakistan has yet to implement a national plan to deal with natural disasters, experts say, leaving the country struggling to cope with its fourth major floods in five years. Hammered out at a meeting of the National Disaster Management Commission (NDMC) in 2012, the ambitious 10-year blueprint for tackling disasters has yet to be approved because the commission has not met since. The commission, chaired by the prime minister and made up of key government officials, was established to come up with a National Disaster Management Plan. The plan the group produced spells out measures to improve the country's ability to weather natural disasters, including floods. But the plan "has not been ratified because an NDMC meeting has not been called by the prime minister due to his being over-engaged with political affairs, the deepening energy crisis and the terror wave which continues to afflict the country," said Ahmed Kamal, a spokesperson for the National Disaster Management Authority. That does not mean approval of the disaster management plan is not on the prime minister's priority list, he added, though he declined to give a timeframe.
India sends mixed signals on climate change - Climate change activists in India have expressed criticism of Indian Prime Minister Narendra Modi's decision not to attend the UN Climate Summit in New York earlier this week.The summit, organised by UN Secretary-General Ban Ki-moon to raise the political and public profile of the climate change crisis, was attended by more than 120 world leaders, including US President Barack Obama. Experts in India said that Modi's presence at the summit would have helped change India's image as an obstructionist in climate change negotiations. "The prime minister should have prioritised the largest environmental gathering," said Sanjay Vashist, director of the Climate Action Network South Asia. "It was an opportunity for India to sound proactive as well as call on the developed countries to be more ambitious in reducing carbon emissions."Observers are hoping that the next UN climate conference - which will be held in Peruvian capital Lima in December - will produce a negotiating text for a global agreement to be signed in Paris in 2015.Experts in India pointed out that New Delhi's concerns - the low level of carbon emission reductions by developed countries, the delay in providing climate finance, and the pressure on emerging economies to reduce carbon emissions, which dilutes the principle of equity - are justified. But these experts said that India has failed to communicate its concerns to the world without sounding like it was blocking the talks."India is seen in a negative light. India's engagement and communication is poor," . "It is important for India to be constructive because the stakes are very high."
Big Business Climate Change Movement Grows in Size and Heft -- Climate Week presented a two-front push for nations to take action on climate change. The moral case was emphatically made by a record-setting, 400,000-person march through Manhattan. What followed was a similarly unprecedented barrage from investor groups and corporations to convince world leaders that there's also a compelling economic case for taking steps against global warming. The business presence last week was particularly striking because of its breadth and heft, and because of its extension well beyond the so-called "green bubble" that surrounds companies, investors and advocacy groups who embraced the cause long ago.Signatories representing $26 trillion in investment funds called on world leaders to enact strong policies, cut fossil fuel subsidies and make polluters pay for the effects of their emissions. There were commitments and pledges from the likes of General Motors, food makers Mars Inc. and Nestle, and consumer products giant Unilever. And a string of corporate CEOs joined early-adopters like Ikea Group in supporting renewable energy and citing proof that companies and countries can tackle climate change and prosper at the same time.
'This Changes Everything' Tackles Global Warming - Cutting the vast amounts of man-made pollution that feed global warming is an enormous challenge for societies that gobble up coal, oil and gas. But in "This Changes Everything," Naomi Klein argues that those fuels aren't the root problem — capitalism is. That message is likely to motivate fans of Klein's earlier books, such as "No Logo" and "The Shock Doctrine," but it also leads to a tough question. Is blaming capitalism for climate change just rhetorical hot air — or a brutal and uncomfortable truth? Whatever side you take, Klein deserves credit for not sugarcoating the problem. She writes that limiting global warming won't be quick, easy or without disruptions, yet holds out hope that the end result will be better for people, the environment and even the economy. But make no mistake: "This Changes Everything" argues that we don't just have to cut carbon pollution. We have to change society, and our own lifestyles. Klein writes: "Our economic system and our planetary system are now at war." And while Klein is predictably hard on big business and conservatives who deny climate change, she doesn't spare environmental groups or liberals. Klein pointedly shows how easy it is to ignore global warming, noting that until recently she "continued to behave as if there was nothing wrong" with the "elite" frequent flier card in her wallet.
Steaming slowly toward the limits of growth - Mark Buchanan - A few days ago I wrote a column in Bloomberg exploring some ideas about possible physical (and biological/ecological) limits to economic growth. I pointed out that total global energy consumption continues to grow even as we learn to use energy ever more efficiently. And I suggested — based on empirical data from the recent past — that there’s little reason to believe, as many economists quite confidently do, that our energy use will soon “decouple” from economic expansion, enabling us to fly off into a future of unlimited betterment through increasing economic output, even as we come to use less and less energy. I also examined a few reasons why continuing to use ever more energy is a certain path to ever worsening ecological problems; it’s really not a wise option. Economist and prolific New York Times columnist Paul Krugman was irritated, even exasperated, and fired off an “acerbic rebuttal” (to use Noah Smith’s elegant description). He was aggravated that I, as a physicist, was weighing in on topics he thinks should be left to economists. He also suggested that I was just recycling an old argument originally put forth by other physical scientists, which his fellow economist William Nordhaus had completely demolished long ago. Now Krugman had to rise up to do it again! How tiring! But Krugman’s actual argument was surprisingly weak, and I think grossly misleading, so here’s an attempt to bring a little more clarity to the discussion. I do think Krugman is a brilliant columnist, and I agree with him on lots of things, maybe even most things. But he very much has the wrong end of the stick on this one.
Limits to Growth One More Time - I’d like to respond to the dustup between Mark Buchanan and Paul Krugman over whether energy (and other resource) use can be decoupled from GDP growth.
1. I get the impression that Buchanan identifies GDP with “stuff”, at least subconsciously. But GDP is value, what people are willing to pay for. When I teach an econ class, that’s a component of GDP. If an extra student shows up, that’s GDP growth. Of course, a lot of GDP really is stuff, but as economies develop they tend to become less stuffy. Overall not enough, but how unstuffy they could become is an empirical, not a theoretical matter.
2. But I agree with Buchanan that increases in energy efficiency alone are unlikely to accomplish what we need to contain climate change. Absent changes on other fronts, the growth of demand for energy services will simply swamp the effect of greater efficiency. This has been true in the past and any realistic projection puts it in our future as well.
3. And Buchanan is also right that there is no historical precedent for the kind of decoupling between economic growth and fossil fuel use (let’s be specific here) that we would need to meet both economic and climate goals. The notion of foregoing most of our remaining supplies of extremely energy-dense minerals flies in the face of all of human history. That’s why it will be a big challenge to bring it off. The challenge begins with putting in place a policy that prohibits most fossil fuel development. You can discuss the particulars, but there is no getting around the need for a binding constraint. The reason is exactly the one that Buchanan pinpoints: increases in efficiency and even increases in renewable energy sources alone will not be sufficient by themselves to offset the energy demands stemming from global GDP growth.
Can we compel most fossil fuels to stay in the ground and still have economic growth? Since this is about growth in value and not necessarily stuff, the answer still seems to be yes. But we won’t have a sufficient shift away from stuffiness without measures that prohibit dangerous levels of fossil fuel extraction. An unprecedented change in the trajectory of economic growth requires unprecedented policies.
IEA Reverses Its Stance On Rebound Effects: A reversal in the International Energy Agency’s views on energy efficiency suggests that as much as 2,176 million tons of oil equivalent worth of extra clean energy consumption will be required by 2035 to meet the organization’s aggressive climate targets. That’s the equivalent of 19 Australias’ energy consumption. This finding is the result of a Breakthrough analysis of a new IEA report, which showcased a new position for the agency on what energy experts call “rebound effects” – a hotly contested phenomenon in energy consumption growth. Rebound effects emerge when increased energy efficiency improves the performance or lowers the cost of energy services, leading to consumer “re-spending,” investment effects, and macroeconomic rebounds in energy consumption in response to lower energy prices. As the IEA writes, “correct accounting for the rebound effect may reduce the potential contribution of energy efficiency to climate change mitigation, possibly altering the relative priority of different CO2 abatement policies.” The new report marks a major institutional leap forward for the IEA, which until last month had downplayed rebound effects both quantitatively and discursively. IEA publications – including their regular and widely read World Energy Outlook and Energy Technologies Perspective – have long emphasized the leading role that energy efficiency can play in reducing global carbon emissions, contributing “about 40% of the CO2 abatement needed by 2050” according to the new report. But such claims were made with the support of modeling that assumed rebound effects totaling only 9 percent on average (WEO 2012, page 316), far below levels identified by the academic consensus – a consensus that now includes the IEA itself.
The Vast Benefits Of Energy Efficiency: New York Times Op-Ed Confuses The Facts - The New York Times has published a uniquely misleading op-ed, “The Problem With Energy Efficiency.” How misleading is it? Consider the cornerstone claim by the authors: The growing evidence that low-cost efficiency often leads to faster energy growth was recently considered by both the Intergovernmental Panel on Climate Change and the International Energy Agency. They concluded that energy savings associated with new, more energy efficient technologies were likely to result in significant “rebounds,” or increases, in energy consumption. This means that very significant percentages of energy savings will be lost to increased energy consumption. The I.E.A. and I.P.C.C. estimate that the rebound could be over 50 percent globally. Let’s set aside for now that first misleading statement. There is no “growing evidence that low-cost efficiency often leads to faster energy growth.” To the extent that there is any evidence that broad efficiency measures actually lead to faster energy growth than would have occurred without those measures, both the IEA and IPCC clearly reject it, as we’ll see. Based on the New York Times piece, however, you’d think that the IPCC and the IEA were quite devastated by their analysis of the rebound effect and had become sour on energy efficiency as a climate-mitigation tool for policymakers. In fact, the reverse is true. Based on their review of the literature, both the IEA and IPCC strongly endorse energy efficiency measures!
Energy Expert Interview Series: Peak Oil | Big Picture Agriculture: This posting is the first in what will be a series of Monday posts which are portions of an interview that I was privileged to do with Bill Reinert this past summer. Reinert has about the most wide-ranging knowledge and understanding of energy issues of anyone that I’ve ever come across. I also happen to think that he’s one of the most logical voices you’ll ever see on energy, transportation, fuels, and other important environmental issues. His views are firmly grounded in reality since his life’s work was spent trying to solve energy problems in the industrial world. Because of this, they can be rather unpopular with wishful-thinkers or Elon Musk worshiper-types. The first part of the interview which covered car technology and fuels (including corn ethanol and more ideal octane boosters) was published over at Yale Environment 360 last week. I encourage you to read it. Today’s question (below) is about the subject of “peak oil”, a critical issue for an energy engineer who was responsible for future car technology at Toyota.
Massive Methane Hot Spot Detected by Satellite - In a study published this week, they analyzed satellite-gathered data and found that an area about 2,500 square miles, near the “Four Corners” where Arizona, Colorado, New Mexico and Utah connect, produces the largest concentration of these greenhouse gas emissions ever found in the U.S., more than triple the previous estimate based on ground-gathered information. While carbon emissions are more plentiful and have attracted most of the attention as the driver of climate change, methane has been found to be an even more potent greenhouse gas. The researchers looked at data from 2003-2009 and found that in that time, that area released 590,000 metric tons of methane into the atmosphere annually, nearly three and a half times the previous estimate for the area. That’s about 10 percent of the U.S. Environmental Protection Agency’s official estimate for the whole country during those years. The hot spot persisted during the entire observation period. Fracking has been widely identified as a culprit in boosting methane emissions. But this new analysis indicates that older methods of fossil-fuel extraction are just as harmful, with methane emissions added to carbon emissions to multiple the environmental damages from fossil fuels. Fracking wasn’t widely used in the area during the period studied; the boom didn’t kick off there until 2009. But it is a major coal-mining center. And New Mexico’s San Juan Basin is the most active coalbed methane production area in the country, a process in which methane-heavy natural gas (composed of about 95-98 percent methane) is extracted from pores and cracks in coal to use for fuel. In the process, it produces significant leaks (and well as coal mine explosions.)
There’s a Methane ‘Hot Spot’ the Size of Delaware in the American Southwest - Four Corners can add another notch onto its belt—in addition to being high kitsch for road-tripping tourists, it will now also be known as the single biggest fountain of planet-cooking methane in the United States. According to new satellite research from scientists at NASA and the University of Michigan, this "hot spot" is "responsible for producing the largest concentration of the greenhouse gas methane seen over the United States—more than triple the standard ground-based estimate." It is 2,500 square miles, about the size of Delaware. The thing was so big the scientists initially thought it was a mistake in their instruments. "We didn't focus on it because we weren't sure if it was a true signal or an instrument error," NASA's Christian Frankenberg said in a statement. Methane is an extremely potent heat-trapping gas; while it has a much shorter life cycle than fellow global warming culprit carbon dioxide, some estimates put it on the order of being 80 times more powerful. Between 2003-2009, the region released 0.59 million metric tons of it into the atmosphere. So why is Four Corners spewing out an apocalyptic amount of methane? Because of old, leaky-ass fossil fuel infrastructure, that's why. The hot spot predates fracking, the researchers say, so they've flagged "leaks in natural gas production and processing equipment in New Mexico's San Juan Basin, which is the most active coalbed methane production area in the country" as the culprit. The scientists say the finding is reason enough to zoom out from fracking, and take stock of the operations of the entire established fossil fuel industry. I'd say so, unless we'd rather Four Corners remain the equivalent of the nation's largest cow fart.
Methane Hotspot Associated with Hydrofracked Coalbeds - - An area in the Southwest accounted for the nation’s largest concentration of methane emissions during a period before 2010, researchers at NASA and the University of Michigan announced Thursday. Eric Kort, the study’s lead author from the University of Michigan, pointed out that the study period from 2003 to 2009 predates widespread use of hydraulic fracturing near the hotspot over the San Juan Basin in New Mexico and Colorado, the nations’ most productive coalbed methane basin.“The results are indicative that emissions from established fossil fuel harvesting techniques are greater than inventoried,” Kort said in a statement. “There’s been so much attention on high-volume hydraulic fracturing, but we need to consider the industry as a whole.”News stories seized on the assertion that coal not fracking was to blame for the hotspot. But methane associated with coal seams has long been harvested by hydraulic fracturing from a vertical well or drilling a well in a way to cause a collapse at the coal seam, as the EPA wrote in 2004:About 2,550 wells were operating in the San Juan Basin in 2001 (CO Oil and Gas Conservation Commission and NM Oil Conservation Division, 2001). All wells are vertical wells that range from about 500 to 4,000 feet in depth, and were drilled using water or water-based muds. Almost every well has been fracture-stimulated, using either conventional hydraulic fracturing in perforated casing or cavitation cycling in open holes. Kort said Friday that in his distinction in pressing for analysis of the whole industry, the fracking he was referring to was the high-volume hydraulic fracturing associated with horizontal drilling in shale formations.
This Methane ‘Hot Spot’ Is Huge, But It’s Nothing Compared To Our Other Methane Sources - A massive amount of the greenhouse gas methane is being released into the atmosphere from underground leaks of natural gas, producing a major U.S. “hot spot” that was previously unknown, according to satellite data released by scientists at NASA and the University of Michigan on Thursday. The 2,500 square mile hot spot — located near the Four Corners border of Arizona, Colorado, New Mexico and Utah — is spewing methane, a powerful greenhouse gas that is 20 times more effective at causing global warming than carbon dioxide. The methane is likely not from fracking, NASA said, since the data analyzed is from 2003 to 2008, before the fracking boom. Instead, the scientists hypothesize that the leaks are coming from coalbed methane extraction, a process of getting natural gas from underground coal beds. The discovery is important not only because it’s the largest concentrated spot of methane emissions in the United States, but also because it leaves questions as to whether there are other big hot spots that we’re unaware of. The methane coming from this hotspot is 3.5 times greater than what’s shown in the European Union’s popular Emissions Database for Global Atmospheric Research. This hotspot released an average of 590,000 tons of methane emissions into the atmosphere every year from 2003 to 2009. That’s a staggering amount — 590,000 tons of methane emissions is equal to almost 15 million tons of carbon dioxide, or the climate equivalent of adding 3.1 million cars to the road every year. Still, other sources of methane emissions in the United States contribute significantly more to climate change than the Four Corners hotspot. Yearly methane emissions from U.S. agriculture, land use, forestry, landfills, and energy production in general are all remarkably higher than what’s coming from the 2,500 square mile chunk of land in the southwest.
How ALEC Stacks Deck Against Renewables in Ohio » When Ohio’s legislature passed a two-year freeze on Ohio’s clean energy standards that was signed into law by Gov. John Kasich in June, it became the first state in the U.S. to move backwards on renewable energy. The bill, SB 310, was accompanied by a mandate to appoint a panel to hear testimony and decide if the freeze should be permanent. Many felt it was virtually a foregone conclusion, given some of the wording in SB 310 that said this was a step toward consideration of permanent repeal. Added evidence that that’s the goal came as Senate President Keith Faber named the legislators to serve on the panel. It’s packed with opponents of clean energy standards, including five who voted for SB 310. At the top of the list is State Sen. Bill Seitz from Cincinnati, who sits on the national board of the American Legislative Exchange Council (ALEC), the lobby group that writes conservative, pro-corporate “model legislation.” Repealing clean energy standards is one such bill. In the past, Seitz has been melodramatic in his opposing to the standards, comparing them to Stalin’s five-year plan and the Bataan Death March. He also invited rightwing climate-denying group the Heartland Institute to testify against them and charged that the testimony of opposing witnesses constituted a “filibuster.”
Group pushes for more chemical disclosure at fracking sites -- Disclosing chemical information before oil and gas companies break ground on a fracking site could better prepare emergency response teams for the worst fires, a Cleveland-based environmental and consumer organization contended today. Based on their study of a Monroe County well pad fire in June, the nonprofit Ohio Citizen Action Education Fund came up with recommendations for state government to clarify chemical disclosure laws for oil and gas companies working in Ohio. Oil and gas companies report the chemicals used on fracking sites to the Ohio Environmental Protection Agency, but they can be exempt from reporting hazardous chemicals to the State Emergency Response Commission and emergency planners and fire departments local to their well pads. Without information on the chemicals used, fire departments are not prepared to respond to fires and other incidents, said Melissa English, executive director for Education Fund. In the Monroe County fire, Statoil, the company that owns the well pad, listed three biocides, or organism-killing chemicals, used at their site to the Ohio EPA. However, Statoil failed to publicly list those chemicals on fracfocus.org, an industry website where fracking companies report the chemicals they use, said Nathan Rutz, Cleveland campaign organizer for Ohio Citizen Action.
Small Study May Have Big Answers on Health Risks of Fracking's Open Waste Ponds -- When Mary Rahall discovered that oil and gas waste was being stored in open-air ponds less than a mile from a daycare center outside Fayetteville, W. Va., she started digging for information about the facility's air emissions and protections for a nearby stream. She wasn't satisfied with the answers she got from state regulators and politicians, so the mother of two set out to find a scientist who could help. Eventually her questions found their way to William Orem, a chemist at the U.S. Geological Survey office in Reston, Va., and he began collecting air and water data at the site last fall. Orem's small study could have implications far beyond Fayetteville, because it's among the first scientific efforts directed at how air emissions from oil and gas waste could be affecting human health. He suspects waste disposal might turn out to be "the weakest link of all" in the oil and gas extraction and production cycle.The industry's waste isn't subject to regular air monitoring, because in 1980s the energy industry lobbied Congress and the U.S. Environmental Protection Agency to exempt most of it from hazardous waste laws, even though it can contain benzene and other chemicals known to affect human health. In a recent story about waste pit emissions in Texas, InsideClimate News discovered that, nationally, there's little data or regulatory oversight regarding air quality at oil and gas waste disposal sites.
Michigan Resident Confronts Natural Gas Pipeline Surveyors With Shotgun - Michigan residents aren’t happy about a proposed natural gas pipeline running through their properties, and they aren’t letting work on the pipeline begin without a fight.As the Flint Journal reports, some residents aren’t allowing representatives from Energy Transfer Partners, whose 800-mile ET Rover Pipeline is proposed to go through West Virginia, Ohio and Michigan, on their land to survey. Earlier this week, one man in Genesee County, MI noticed surveyors had showed up on his neighbor’s property and reportedly confronted them with a shotgun. The elderly neighbor “didn’t really want [the surveyors] on her property,” according to Mundy Township Sgt. Tom Hosie, who had been dispatched when the survey crew called the police after the confrontation, but she wasn’t going to physically stop them. When the man found out that the surveyors were next door, he confronted them. Another incident occurred when a Genesee County resident called the Sheriff’s Department after she said a survey crew visited her property without permission. The resident, Tammy Merkel, said she had plans of building a house on the vacant lot, which she had just purchased in June. But the pipeline’s proposed route goes right through the middle of the lot.
The Findings From Maryland’s Report On Fracking Risks Will Surprise You -- A draft report on the risks of fracking in Maryland has found little risk of drinking water contamination in the state, despite multiple reports of contamination from fracking in other states. The report, which was put together by Maryland’s Department of Environment and Department of Natural Resources, ranked the risk of contamination of soil, ground water or surface water from a spill during most parts of the fracking process as “low.” It found that current state regulations and proposed “best practices” could reduce much of the risk of water contamination from fracking, and that in general, water contamination wasn’t high on the list of risks related to fracking. The report did, however, state that there’s a greater likelihood of contamination of water by methane — rather than fracking chemicals — especially in gas wells set 2,000 feet — rather than 3,280 feet — from a water well. The report assessed other risks as well, finding that Maryland faced moderate to high risks associated with increased truck traffic to and from fracking sites, and that the state faced a high risk of road degradation as a result of this increased traffic. It also ranked air pollution risks from fracking as moderate to high. But the report’s overall classification of water contamination risks as low goes against the multiple reports of contamination of water near fracking operations. A September study linked failures in casing and cementing in gas wells to water contamination in Texas and Pennsylvania, a state that in August revealed that fracking had led to hundreds of cases of water contamination. A 2013 study found that the closer a person lives to a fracking well in Pennsylvania, the more risk that person has for methane contamination of water supplies. West Virginia has also linked water complaints to fracking, and according to a 2013 report, chemicals from oil and gas wastewater pits have contaminated water sources in New Mexico at least 421 times.
Report: New York Governor’s Office Altered And Delayed Fracking Study --New York Gov. Andrew Cuomo’s administration edited and delayed a fracking study commissioned by the state, according to a review by Capital New York.The New York news outlet reported Monday that the Cuomo administration had altered a report on the natural gas extraction technique commonly referred to as fracking. The report was commissioned in 2011 and was “going to result in a number of politically inconvenient conclusions” for the governor. A comparison of the original draft of the report, which was put together by the U.S. Geological Survey, and the final version, showed that some of the original descriptions and mentions of fracking-related health and environmental risks were “played down or removed.” “The final version of the report also excised a reference to risks associated with gas pipelines and underground storage — a reference which could have complicated the Cuomo administration’s potential support for a number of other controversial energy projects, including a proposed gas storage facility in the Finger Lakes region that local wine makers say could destroy their burgeoning industry,” Capital New York reported. However, it doesn’t appear that any numerical findings of the report were altered between the first and final versions. The news outlet acquired redacted emails between members of the Cuomo administration and the federal researchers who were compiled the report through a Freedom of Information Act request.
Cuomo Cooks Books on Frack Study —A federal water study commissioned by the Cuomo administration as it weighed a key decision on fracking was edited and delayed by state officials before it was published, a Capital review has found. The study, originally commissioned by the state in 2011, when the administration was reportedly considering approving fracking on a limited basis, was going to result in a number of politically inconvenient conclusions for Governor Andrew Cuomo, according to an early draft of the report by the U.S. Geological Survey obtained by Capital through a Freedom of Information Act request. A comparison of the original draft of the study on naturally occurring methane in water wells across the gas-rich Southern Tier with the final version of the report, which came out after extensive communications between the federal agency and Cuomo administration officials, reveals that some of the authors’ original descriptions of environmental and health risks associated with fracking were played down or removed. Email communications over a period of several months between Cuomo administration officials and federal researchers were obtained by Capital, in heavily redacted form, through a Freedom of Information Act request. The messages reveal an active role by Cuomo’s Department of Environmental Conservation in shaping the text, and determining the timing of the report’s release. In the unredacted part of the emails, a D.E.C. official refers to “alternate text” that he sent. At various points, a U.S. Geological Survey (USGS) spokeswoman thanks a state official for her edits, and reminds the study’s author that they are employed by a “science organization” which is not in the business of advocating particular positions. A later communication suggests delays from the administration side, when the USGS spokeswoman refers to a need to publish the report “in a timely fashion.”
"Report fuels fracking cynicism" - Since the early days of his administration, the issue of fracking has been a thorn in Gov. Andrew Cuomo’s side. He claims he is waiting for the results of a study on fracking’s potential health impacts in deciding whether to allow the controversial energy extraction procedure in New York. When pressed for information on when this study will be completed, he tends to be evasive, and sometimes reverses course. In 2013, he said he expected to make a decision before the election; now he says there will be no decision until after the election. Anti-frackers and pro-frackers have found the process immensely unsatisfying. Both camps are weary of being jerked around by the Cuomo administration and maintain that the governor and his staff have more than enough information to make a decision, but have put off doing so because it’s politically inexpedient. The governor’s Democratic primary challenger, Zephyr Teachout, attacked him for not banning the practice, while Cuomo’s Republican opponent, Rob Astorino, has promised to allow fracking if elected. The state’s moratorium on fracking is now six years old and whichever side of the issue you fall on, it’s hard not to be cynical about the governor’s careful refusal to take a position on it. This cynicism was reinforced Monday when Capital New York reported that the Cuomo administration edited and delayed an important fracking study before it was published. The online news site obtained the original draft of the report through a Freedom of Information Act request and compared it to the final version of the study, which was conducted by the U.S. Geological Survey.
Cuomo’s Frackastrophe – “Doesn’t Know” Who Altered Frack Study —Governor Andrew Cuomo on Wednesday said he was not sure why his administration helped shape a federal study on water quality in the Southern Tier.On Monday, Capital reported that officials from the Department of Environmental Conservation and the New York State Energy Research and Development Authority weighed in on a federal water quality study that is a necessary first step to prepare for fracking. State officials have claimed that their frequent communications with the U.S. Geological Survey were a normal back-and-forth between federal and state agencies.But in emails obtained by Capital, federal officials occasionally bristled at the editing and the delays from the state, and some fracking risks were downplayed in the final version of the report, compared to the original draft.Asked why state officials delayed and edited the fracking study on Wednesday, Cuomo said, “I don’t know.” He did not elaborate.
Fracking Gestapo (aka Pa. State Police) Harass Fractavists . . . in New York - Anti-fracking activists protesting a natural-gas conference in Philadelphia last fall were being monitored by a private security company that sent a photo of a demonstrator to the Pennsylvania State Police, according to an email obtained by Pittsburgh City Paper. A few months earlier, at another industry-led conference, state trooper Michael Hutson delivered a presentation on environmental extremism and acts of vandalism across Pennsylvania’s booming Marcellus Shale natural-gas reserves. He showed photographs of several anti-fracking groups in Pennsylvania, including Shadbush Environmental Justice Collective protesters demonstrating at an active well site in Lawrence County, in Western Pennsylvania.That same Pennsylvania state trooper visited the home of anti-fracking activist Wendy Lee, a Bloomsburg University philosophy professor, to question her about photos she took of a natural-gas compressor station in Lycoming County. Remarkably, the trooper earlier had crossed state lines and traveled to New York to visit Jeremy Alderson, publisher of the No Frack Almanac, at his home outside Ithaca, N.Y., to accuse him of trespassing to obtain photos of the same compressor station. The photo, presentation and house visits are part of a little-known intelligence-sharing network that brings together law enforcement, including the FBI, Pennsylvania Office of Homeland Security, the oil and gas industry, and private security firms. Established in late 2011 or early 2012, the Marcellus Shale Operators’ Crime Committee (MSOCC) is a group of “professionals with a law-enforcement background who are interested in developing working relationships and networking on intelligence issues,”
Fracking Energy Independence : Exporting America’s Gas Reserves on the Cheap -- Natural gas pulled from below Pennsylvania’s state forests and privately owned lands might soon get siphoned to a Maryland port, then shipped – not to markets in the nation’s heartland, but instead – overseas. Initial recipients are said to include Japan and India, but in this multibillion-dollar industry, it’s not difficult to imagine the Keystone State’s resources going to the highest bidder, no matter where. Presumably, to whichever government has the most yen for it.The international exporting of coveted fuel from places such as Susquehanna County could begin by 2017.On Monday, the Federal Energy Regulatory Commission gave its preliminary blessing to Dominion Energy’s planned liquefied natural gas terminal in Calvert County, Maryland, the first such facility on the East Coast. Three other export terminals have received the go-ahead in the Gulf of Mexico.Diane Leopold, president of Virginia-based Dominion Energy, praised this week’s decision, noting the terminal project’s “economic, environmental and geopolitical benefits.”Uh-huh. That sounds swell, but it sure seems as if Pennsylvania gets only the short end of this stick.The good-old boys from Oklahoma and Texas who crisscrossed our state’s Northern Tier in the early days of the Marcellus Shale gas boom never spent much time talking to Towanda-area residents about “geopolitical benefits.” They foretold of plentiful jobs in the yet-undeveloped gas fields and said Pennsylvanians could expect to see their home heating prices go down.Already, some U.S. manufacturers have spoken out against liquefied natural gas (LNG) exports, suggesting they will eventually drive up domestic prices.Wouldn’t the nation fair better, they ask, by using its natural gas bounty to power our vehicles and boost U.S. manufacturing, then sell American-made products, instead of raw materials, to the world?
ExxonMobil comes clean on fracking risks - not: For whatever reason, lately it looks like drilling companies have been stumbling all over each other in a rush to disclose fracking risks and other formerly secretive aspects of the drilling industry. ExxonMobil issued a major new report to its shareholders on September 30, Andarko and EOG hopped on the bandwagon with a financial risk commitment to their shareholders last Friday, and Baker Hughes earlier pledged to disclose the secret sauce in its fracking fluid. “Looks” is the operative word here, so let’s start with ExxonMobil and work our way down.The new ExxonMobil fracking risk report is titled “Unconventional resources development risk management report to shareholders.” As our friends over at DeSmogBlog.com reported last summer, ExxonMobil issued the document in response to repeated demands by groups of activist shareholders including Green Century Capital Management and the office of the New York State Comptroller among others. Just a wild guess, but we’re thinking those shareholders didn’t have very high expectations given ExxonMobil’s history (such as this), and the company doesn’t seem to have disappointed.Here’s ExxonMobil VP of Investor Relations Jeffrey Woodbury with his money quote in an ExxonMobil press release announcing the new report: Hydraulic fracturing has been responsibly and safely used by the oil and gas industry for more than 60 years, but the process isn’t without risks. This report to shareholders details how ExxonMobil uses sound risk management processes and engages with stakeholders to ensure safe and environmentally responsible operations.
Fracking Sell-Outs Killed Home Rule Vote in Colorado --On Monday, Aug. 4, as the result of a political compromise with Colorado’s Democratic Governor, John Hickenlooper, U.S. Rep. Jared Polis (D-Boulder) agreed to withdraw his support for the citizen initiative process that could have placed two anti-drilling/fracking initiatives (Amendments 88 and 89) on the November ballot. The initiatives, which had each garnered well in excess of the 86,105 signatures needed to be placed on the ballot (provided the signatures held up), would have amended the state constitution to give more control over drilling and fracking to local communities and/or establish a 2,000-foot setback from occupied structures for oil and gas drilling operations. Because Polis was funding the organization charged with getting the ballot measures before voters (Safe. Clean. Colorado.) he appears to have had the final say that day as to whether citizens would get to vote on fracking in November or instead, whether he would pull the measures as part of a compromise with Gov. Hickenlooper. As Colorado and the rest of the country where the oil and gas industry has moved in now know, Polis chose the latter and pulled the measures at the last minute in exchange for several concessions from the governor including the appointment of a 21-member taskforce made up of oil and gas industry insiders, mainstays of the Democratic Party loyal to the governor and citizens or representatives of environmental groups who support more regulation of the oil and gas industry and fracking but who have publically not endorsed bans and moratoriums. The governor also agreed to drop the state’s lawsuit against the City of Longmont for having established oil and gas regulations considered stricter than the state’s and promised to enforce a 1,000-foot setback as the norm rather than the exception.
Oil-field health studies continue but answers are still lacking - It's been 18 years since Steve Mobaldi and his late wife, Chris, first got burning eyes and nosebleeds when oil and gas drilling came to their Garfield County neighborhood. In the interim, hundreds of others have complained about health problems. Dozens of studies have looked for a link between those problems and drilling. One of those studies, done partly in the Mobaldis' old neighborhood nearly five years ago, found enough emissions in the air to potentially cause illnesses. But, before that link could be strengthened by researchers at the Colorado School of Public Health, the oil and gas industry complained about the quality of the research. County commissioners dropped the study contract. Now, another air-pollution-measuring study is underway in Garfield County, and it is being touted as the research that will finally help connect the dots on drilling and health. But to Mobaldi and others who have been seeking answers for so long, its reliance on drilling-industry funding and access raises the same old questions."It's all politics to me. They promise to do something and never come to a conclusion. It's all just so wrong," said Mobaldi, four years after his wife died at the age of 63 after bewildering and debilitating illnesses that included pituitary tumors and suspected brain damage.
In Texas, a Fight Over Fracking - — Many Texans have long held the oil and gas industry as dear to their hearts as a prairie range full of feeding cattle. Now suddenly that love is being tested here in a local election, where a grass-roots campaign against gas producers has pushed the industry into a corner.The battle is over a proposed city ban on hydraulic fracturing — the technique of blasting shale rock with water, sand and chemicals to dislodge oil and gas, often called fracking — in a referendum on Nov. 4. No city in Texas has ever come close to passing such a measure.But in this college town of 130,000 outside Dallas, the producers find themselves in an uphill battle against a diverse band of doorbell ringers and lawn-sign distributors who are working day and night.The debate in Denton echoes themes heard in communities around the country, pitting economic arguments like job creation and school funding against quality-of-life and environmental concerns like noise, traffic, fumes and fears that fracking might endanger local water supplies.
Is “Big Oil” influencing OGS earthquake study? -- As the Oklahoma Geological Survey tries to determine the cause of the recent earthquakes, some believe there may be a conflict of interest since OGS is funded by oil and gas companies. Some say those companies are the cause. Bob Jackman, a Tulsa geologist and oil and gas operator, wrote an article in The Oklahoma Observer that claimed nearly 90 percent of OGS’s funding comes from big oil producers. The University of Oklahoma is home to OGS, but a university spokesperson told us it would take “a day or two” to figure out how much money oil and gas companies give them. “It’s the disposal wells, stupid,” Jackman said Tuesday. “The science supports that.” He said oil and gas disposal wells, which pump wastewater into the earth, build pressure along fault lines and cause earthquakes. The solution, Jackman said, is simple. Pump that water away from fault lines. But he doesn’t believe producers want to do that. “It would cost them money,” Jackman said. “They’ve chosen to ignore the general public’s safety over their profit.” In the article, Jackman claims an OGS employee told him that oil and gas producers who give money to OU don’t want earthquake research to point the finger at them. “You don’t understand the politics of my position,” Jackman claimed the employee said.
California Finally to Reap Fracking’s Riches - WSJ: For the past decade, the U.S. shale boom has mostly passed by California, forcing oil refiners in the state to import expensive crude. Now that’s changing as energy companies overcome opposition to forge ahead with rail depots that will get oil from North Dakota’s Bakken Shale. Thanks in large measure to hydraulic fracturing, the U.S. has reduced oil imports from countries such as Iraq and Russia by 30% over the last decade. Yet in California, imports have shot up by a third to account for more than half the state’s oil supply. “California refineries arguably have the most expensive crude slate in North America,” says David Hackett, president of energy consulting firm Stillwater Associates. Part of the problem is that no major oil pipelines run across the Rocky Mountains connecting the state to fracking wells in the rest of the country. And building pipelines is a lengthy, expensive process. Railroads are transporting a rising tide of low-price shale oil from North Dakota and elsewhere to the East and Gulf coasts, helping to keep a lid on prices for gasoline and other refined products. Yet while California has enough track to carry in crude, the state doesn’t have enough terminals to unload the oil from tanker cars and transfer it to refineries on site or by pipeline or truck. Just 500,000 barrels of oil a month, or 1% of California’s supply, moves by rail to the state today. New oil-train terminals by 2016 could draw that much in a day, if company proposals are successful.
California aquifers contaminated with billions of gallons of fracking wastewater --Industry illegally injected about 3 billion gallons of fracking wastewater into central California drinking-water and farm-irrigation aquifers, the state found after the US Environmental Protection Agency ordered a review of possible contamination. According to documents obtained by the Center for Biological Diversity, the California State Water Resources Board found that at least nine of the 11 hydraulic fracturing, or fracking, wastewater injection sites that were shut down in July upon suspicion of contamination were in fact riddled with toxic fluids used to unleash energy reserves deep underground. The aquifers, protected by state law and the federal Safe Water Drinking Act, supply quality water in a state currently suffering unprecedented drought. The documents also show that the Central Valley Water Board found high levels of toxic chemicals - including arsenic, thallium, and nitrates - in water-supply wells near the wastewater-disposal sites. Arsenic is a carcinogen that weakens the immune system, and thallium is a common component in rat poison. “Arsenic and thallium are extremely dangerous chemicals,” “The fact that high concentrations are showing up in multiple water wells close to wastewater injection sites raises major concerns about the health and safety of nearby residents.”
With New Fracking Rules Coming, State Regulators Struggle With Enforcement - Next year, California will implement a wide range of new regulations aimed at providing a lot more public disclosure about the hydraulic fracturing process. The new rules, set into motion by 2013’s Senate Bill 4, will put California on par with other top drilling states when it comes to policing the fracking process.But tough rules are only half of the equation — they don’t matter if they aren’t enforced. And the struggles state regulators have had keeping tabs on another part of the drilling process raise a lot of questions about whether California has the resources and the tools to handle a fracking boom.Garbage Cans For Drilling OperationsThe method in question: deep injection wells. Drilling for oil and gas creates a lot of water waste. Fracking uses millions of gallons of salty, chemical-laced water. A lot of it comes back up with the oil and gas, and drillers have to do something with all that wastewater.They usually take that stuff and bring it to an injection well, where they shoot the waste deep underground. Injection wells are basically garbage cans for drilling operations. The federal Environmental Protection Agency says these wells are the best way to dispose of drilling waste.And while the fracking boom hasn’t arrived in California yet, the state already hosts thousands of these wells. That’s because the oil being drilled here is very watery.
Report Confirms Fracking is Poisoning California's Dwindling Aquifers - One of America’s greatest assets are the abundant natural resources that helped elevate a new country into a world-class nation, and over the past century a world leader. Of all this nation’s resources, fossil fuels are far and away the single-most valuable in driving the industrial revolution and enriching one industry above all others except maybe banking and agriculture. Water is also a fundamental necessity for the oil industry that could not care less how their extraction processes contaminate water used for agriculture, or human consumption. This week, yet another report reveals that fracking in California has contaminated aquifers during a historical drought. In July, California state regulators, Department of Gas and Geothermal Resources (DOGGR), shut down eleven fracking wastewater injection wells over concerns that what precious water the severely drought-stricken state has left is being contaminated with toxins and carcinogens; particularly in highly productive agricultural areas. According to its due diligence, the agency the oil industry and Republicans hate above all others, the Environment Protection Agency (EPA), promptly ordered a report within 60 days to determine if the oil industry did indeed poison what little water California has left and what extent, if any, the damage might have on the agriculture industry and drinking water supply. This past week, with little to no mention in the conservative media, the California State water Resources Board issued a report to the EPA confirming that yes, at least nine of the eleven fracking sites were deliberately dumping poisoned waste water directly into central California aquifers. The waste water is laden with extremely hazardous toxins and carcinogenic chemicals used in fracking and the aquifers the industry destroyed are protected by both state laws as well as the federal Safe Drinking Water Act.
Fracking Company Launches Pink Drill Bits, Because Nothing Says Breast Cancer Awareness Like Fracking -- The Susan G. Komen Foundation is taking an odd marketing turn for Breast Cancer Awareness Month: fracking. After donating $100,000 to the leading breast cancer research organization, fracking company Baker Hughes is partnering with Susan G. Komen to spread awareness of the disease through hot-pink drill bits. According to Baker Hughes, this is the company’s “bit for the cure.” Why would a massive fossil fuels company, which employs mostly male drillers, change the color of their drilling bits to Barbie-pink during the month of October? Well, the company seems to think the color will motivate employees to talk about breast cancer prevention with their female family members. The company has reportedly delivered 1,000 of these breast-cancer drill bits to fracking sites worldwide. This is the second year in a row Baker Hughes distributed these specially designed bits during Breast Cancer Awareness Month; last year, the company produced 500 pink drilling bits as part of the “Doing Our Bit for the Cure” campaign.” Baker Hughes also has a year-long partnership with Susan G. Komen, and participates in their Race For the Cure fundraiser.
Fracking For the Cure ? Really ? Komen Foundation, Have You No Shame ? -- Sandra Steingraber - What do you get when you cross a breast cancer charity with a frack job? The answer is the image below, which, as I am writing, is going epidemically viral. It’s hard to stop staring in utter baffled amazement. Is it some kind of … phallic cyborg? The opening scene of a yet another sequel to Tremors? (Kevin Bacon! Nevada! Subterranean, worm-like, cross-dressing graboid!) A sex toy from hell? In fact, it’s all these things and more. Susan G. Komen, the largest breast cancer organization in America with more than 100,000 volunteers and partnerships in more than 50 countries, has teamed up with Baker Hughes, one of the world’s largest oilfield service companies with employees in more than 80 countries. Susan G. Komen hands out pink ribbons for breast cancer awareness, and Baker Hughes fracks. So, there you have it: a pink, fracking, drill head. That’s Susan G. Komen pink, by the way. It’s special. Like John Deere green. And that signature color has been painted by hand on a thousand drill bits, which will soon be shipped by Baker Hughes to well pads all over the world, thus facilitating a thousand fossil fuel extraction projects just in time for Breast Cancer Awareness Month. Which is this month. (But please don’t confuse Baker Hughes pink drill bits with Chesapeake Energy’s “even-rigs-can-rally-for-a-cure” pink drill rigs. That was so 2012).
Pink Washing Breast Cancer - October is Breast Cancer Awareness month; it is also fundraising month for the Susan G. Komen Foundation. In what may be one of the most blinded by the shiney campaigns, the Komen Foundation has teamed up with Baker Hughes, one of the world’s largest fossil fuel services companies. - Baker Hughes Expands Commitment to Susan G. Komen - Company supports mission to end breast cancer forever. HOUSTON — Baker Hughes Incorporated (NYSE: BHI) announced today that for the second consecutive year, it will contribute $100,000 to support Susan G. Komen®, the world’s leading breast cancer organization, in its efforts to end breast cancer forever. It’s ironic that Baker Hughes has painted drill bits “Pink” when those very drill bits are part of a process which has been linked to breast and other cancers, something the fossil fuel industry continues to deny. We all know fossil fuel corporations are about profits and not people, so exploiting something like cancer for the PR value isn’t surprising. Baker Hughes isn’t the only fossil fuel corporation trying to be Pretty in Pink. Chesapeake Energy and its subsidiary Nomac Drilling wrapped a new drilling rig in pink. What should be making you see RED is the Komen Foundation embracing the fossil fuel industry. This is a foundation which professes to save lives and end breast cancer forever. In accepting $100,000 from Baker Hughes, Chesapeake Energy (et al) and lending their name to a PINK WASH campaign is beyond belief.
Pennsylvania told to release info on oil trains: The Pennsylvania Office of Open Records has told state emergency officials to release details on trains carrying crude oil from the Northern Plains following multiple explosive accidents. Friday's order came after railroads had argued the information should be kept secret. Norfolk Southern Railway and CSX Transportation cited potential security risks and business confidentiality. But the open records office said the information was neither proprietary nor likely to endanger public safety if released. The railroads were given 30 days to appeal. A May 7 U.S. Transportation Department order requires railroads to give state emergency officials details on the frequency and volumes of crude shipments from the Bakken region of Montana and North Dakota. A July, 2013 derailment of Bakken crude in Quebec caused an explosion and fire that killed 47 people
Air quality officials sued over crude oil trains: An environmental group is suing Sacramento air quality managers for failing to require an environmental review of a crude oil transfer station. The Sacramento Bee reports the complaint was filed Monday by Earthjustice against the Metropolitan Air Quality Management District. The suit accuses the district of quietly approving permits for InterState Oil Company, allowing it to use McClellan Business Park as a site for transferring crude oil from trains into tanker trucks headed to refineries. It charges that air quality officials and InterState failed to review the potential hazards of running crude oil through neighborhoods, and asks the court to halt the transfer operations.
Opposition to drilling elevated to an art form: Artist Peter von Tiesenhausen puts his imagination to work overtime when oil companies try to enter his northwestern Alberta sanctuary. He suspects he made himself as well known to industry as art markets with novel but effective methods of peaceful resistance. Von Tiesenhausen has kept wells, compressors and pipelines off his three square kilometres of fields and trees -- a notable feat for his location that has attracted quiet visits from pillars of corporate Alberta. Guests have included ConocoPhillips Canada president Henry Sykes, an art collector, lawyer and son of former Calgary mayor and provincial Social Credit leader Rod Sykes. The spread von Tiesenhausen inherited from his parents, a former family farm 80 kilometres west of Grande Prairie, sits atop a natural gas hot spot known as the "deep basin." Industry has been in aggressive growth mode in the area since Calgarian Jim Gray's Canadian Hunter Exploration (now part of Burlington Resources, soon to merge with ConocoPhillips) discovered rich geological formations in the early 1970s. The artist's peaceful method of fending off gas production is a basic right as well established in his field -- copyright -- as the legal underpinnings of Alberta's energy industry. To fortify his changed livelihood on his family legacy, he has copyrighted his spread as a work of art. The action mimics strong legal foundations of pharmaceutical, computer software and publishing corporations, he pointed out. Around his home and studio, his property is studded with artwork such as a 33-metre-long ship sculpted with willow stalks, winter ice forms, nest-like structures in trees, statuesque towers and a "lifeline" or visual autobiography composed as a white picket fence built in annual sections left to weather naturally.
Intense Industry Pressure Causes E.U. To Stop Calling Tar Sands Dirty -- After years of intense lobbying from Canadian fossil fuel interests and government officials, the European Union has abandoned plans to label Canadian tar sands, or oil sands, as dirtier than other forms of crude oil. A European Commission proposal released on Tuesday would make it so that no transportation fuel used in the E.U. would be penalized for the carbon intensity of its production. This redefinition would make it easier for oil suppliers to export energy intensive tar sands to the 28-country block, whereas in previous proposals the fuel was designated as 25 percent more carbon intensive than conventional crude oil. This change could lead to GHG intensity of European fuels actually increasing by around 1.5 percent in 2020, according to an analysis by the Natural Resources Defense Council (NRDC). Environmentalists blamed the concession on leaders valuing trade over the environment and saw it as a blotch on the path towards the major United Nations’ climate summit scheduled for Paris next year where hopes of a new climate treaty are high. The decision could also add momentum to the recently proposed Energy East pipeline from Transcanada, which would link Alberta’s tar sands with ports on the Canadian east coast. The pipeline would be able to transport 1.1 million barrels of tar sands crude oil per day, with Europe being considered as a priority destination. The proposed law would apply to fuels used for transport, such as cars and trucks, and is part of a 2009 fuel quality directive aiming to cut lifecycle greenhouse gas emissions of road vehicles six percent by 2020 compared to 2010 levels. The original proposal, which would have singled tar sands out as significantly more polluting, incited a “vigorous lobbying effort” from the Canadian government, according to the Globe And Mail, a Canadian newspaper.
Keystone Be Darned: Canada Finds an Oil Route Around Obama - So you’re the Canadian oil industry and you do what you think is a great thing by developing a mother lode of heavy crude beneath the forests and muskeg of northern Alberta. The plan is to send it clear to refineries on the U.S. Gulf Coast via a pipeline called Keystone XL. Just a few years back, America desperately wanted that oil. Then one day the politics get sticky. In Nebraska, farmers don’t want the pipeline running through their fields or over their water source. U.S. environmentalists invoke global warming in protesting the project. President Barack Obama keeps siding with them, delaying and delaying approval. From the Canadian perspective, Keystone has become a tractor mired in an interminably muddy field. In this period of national gloom comes an idea -- a crazy-sounding notion, or maybe, actually, an epiphany. How about an all-Canadian route to liberate that oil sands crude from Alberta’s isolation and America’s fickleness? Canada’s own environmental and aboriginal politics are holding up a shorter and cheaper pipeline to the Pacific that would supply a shipping portal to oil-thirsty Asia. Instead, go east, all the way to the Atlantic. Thus was born Energy East, an improbable pipeline that its backers say has a high probability of being built. It will cost C$12 billion ($10.7 billion) and could be up and running by 2018. Its 4,600-kilometer (2,858-mile) path, taking advantage of a vast length of existing and underused natural gas pipeline, would wend through six provinces and four time zones. It would be Keystone on steroids, more than twice as long and carrying a third more crude.
Cramer: The bear market in oil is real - Is the oil thesis, the great American renaissance boom in oil, in trouble? You know that I am a huge believer in every aspect from the oil in the ground to the drilling and pipelines. But this sudden decline in oil prices is worrying some of the big oil-exploration companies, and not just because we have too much supply here, but because of what Saudi Arabia's doing. Last week the Saudis lowered the official cost of its crude, which marks the fourth straight month that they've cut the price, not the production. What does this mean? One could argue that the Saudis want to maintain their market share. I get that, and it makes sense, but I think it's something else. I think that the Saudis want to make our oil too expensive to keep drilling for. They recognize that there is a price where we will cut back operations. They are not afraid to drive oil down to that price to make the U.S. more dependent on the Saudis--we still use a lot of their oil. In short, they are trying to price us out of the game. There's plenty of cushion in all the big shale plays--Bakken, Niobrara, Eagle Ford and Permian--at these levels. This isn't a price where there's panic. The trajectory, however, is menacing, as is the velocity of the decline. It's a real bear market in oil. If the Saudis are just going to follow the price down, they will make it less economic to drill here, and some of the independents will have to think twice about adjusting their long-term budgets if they were based on ever-rising oil prices, as we know some of them are.
Fracking Firms Get Tested by Oil’s Price Drop - WSJ: Tumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump. Global oil prices have fallen about 8% in the past four weeks. The European oil benchmark closed Thursday at $90.05 a barrel, its lowest point in 29 months. The price of a barrel in the U.S. closed at $85.77, its lowest since December 2012. Weakening oil prices could put a crimp in the U.S. energy boom. At $90 a barrel and below, many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group Inc. While fracking costs run the gamut, producers often break even around $80 to $85. “There could be an immense amount of pain,” said energy economist Phil Verleger. “As prices fall, you will see companies slow down dramatically.” The fundamental problem is that the world is awash with oil, but demand for energy is growing more slowly amid tepid economic growth around the globe, especially in China. Companies are always reluctant to be the first to cut their energy output, hoping that others flinch first. And hedging can help companies weather temporary drops. The overall U.S. economy, and especially industries such as refining and air travel, would benefit from lower oil prices.
Oil price drop puts fracking to the test: A further slump in oil prices may dampen shale drilling's profitable run, according to a report from Goldman Sachs. In the past four weeks, global oil prices plunged eight percent. And a barrel in the U.S. is below $90, the first time in two years. On Thursday, shares of companies centered in North Dakota's Bakken Shale dropped more than 5 percent. Read MoreDon't panic over oil: T. Boone Pickens If prices drop any further, the Wall Street Journal reports, drilling activity would slow down drastically. The key issue lies in the overabundance of oil, with sluggish global demand to match it. Texas, Colorado and North Dakota shale-drilling has increased U.S. production by nearly three million barrels a day since 2011. And companies are playing a game of chicken—who will be the first to cut back? The least productive fringes of the Bakken would be the first drillers to react to price drops, said Paul Sankey, an energy analyst with Wolfe Research, to Wall Street Journal. Other analysts said it's still too early—a sustained, long term drop in prices is required to convince companies to cut back on supply.
With Oil Prices in Freefall, Morgan Stanley Can’t Close on an Oil Deal - In July 2013 and again this past January, the U.S. Senate’s Subcommittee on Financial Institutions and Consumer Protection, part of Senate Banking, convened hearings to get a handle on the extensive physical commodity holdings of Wall Street banks. At the January hearing, Senator Sherrod Brown, chair of the Subcommittee, told hearing participants that “the six largest U.S. bank holding companies have 14,420 subsidiaries, only 19 of which are traditional banks.” At the time of the July 2013 hearing, Morgan Stanley, one of the nation’s largest retail brokerage firms, an investment bank, as well as an FDIC insured depository bank, owned sprawling crude oil operations. Congress had been aware of Morgan Stanley’s foray into the oil business since at least 2009 when 60 Minutes reported that Morgan Stanley had acquired the capacity to store 20 million barrels of oil. Ostensibly as a result of the scrutiny, Morgan Stanley announced last December that it was selling its Global Oil Merchanting unit to a 100 percent subsidiary of Rosneft Oil Company, a large Russian crude oil producer. According to the press release Morgan Stanley issued at the time, the sale was to include an “international network of oil terminal storage agreements; inventory; physical oil purchase, sale and supply agreements; equity investments; and freight shipping contracts.” According to Morgan Stanley, it was also transferring to Rosneft its 49 percent stake in Heidmar Holdings LLC, which manages pools consisting of a fleet of 100 oil tankers. The deal was originally set to close in this year’s second quarter, then it moved to the third quarter. Now it’s the fourth quarter and the deal still hasn’t closed. In July the U.S. government imposed sanctions on Rosneft as a key player in the Russian economy, hoping to send a message to Moscow over its actions in the Ukraine. Being stuck in an oil deal that can’t close is not an ideal situation with crude oil in freefall and Saudi Arabia making overtures of waging an oil price war.
We're Sitting on 10 Billion Barrels of Oil! OK, Two - Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage. That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators. Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher. Goodrich Petroleum Corp.’s was 19 times. For Rice Energy Inc., it was almost 27-fold. Investors poured $16.3 billion in the first seven months of the year into mutual funds and exchange-traded funds focused on energy companies, including drillers that create fractures in rocks by injecting fluid into cracks to enable more oil and gas to flow out of the formation. That’s almost twice as much as in the same period last year, bringing total assets to $128.2 billion, according to New York-based Strategic Insight.
Is the U.S. Really on Track to Energy Independence? - I have been covering shale development since 2005, and it looks like we are on track for energy independence by 2020 or so. However, we’re never going to stop importing oil because supply diversity is prudent. Depletion rates are significant in every shale play. Some of the depletion rates are quite steep in the early years of a play, but wells tend to produce for 20 years or so at a lower rate, so overall production rates are still growing. The monthly U.S. Energy Information Administration (EIA) reports show that in H1/14, U.S. gas natural production alone increased by more than 4 billion cubic feet a day (4 Bcf/d). The bulk is coming from the Northeast, from the Marcellus and Utica plays in Pennsylvania, Ohio and West Virginia. Also, a lot of new natural gas is coming on, in association with oil production in West Texas, in the Permian Basin, and in south Texas, in the Eagle Ford play. While some gas areas might be declining, we’re getting enough new natural gas to offset that decline. In fact, both oil and natural gas production in this country are the highest they’ve been in about 35 years. Natural gas in storage was down last year, and now we’re refilling. Every summer and fall, you refill storage to prepare for winter. It looks like we’re going to have a lot of gas in storage. We’ve had a fairly mild summer and haven’t had a huge call for natural gas for air conditioning, compared to what it could have been. Between the production and the weather factors, it looks like we’ll have plenty of gas in storage for the fall.
Is the US economy finally about to break free of the Oil choke collar?: If you've read my Weekly Indicator columns, you know that I have frequently mentioned the Oil choke collar. By that I mean, in the aftermath of the Great Recession, every time the economy appeared to pick up steam, gasoline prices would rocket toward $4 a gallon. This slowed the economy down, as a result of which gas prices would fall, starting the cycle again. In other words, gas prices acted as a governor regulating the speed of the economy. Or, like a choke collar. To put this in perspective, here is how oil prices rose in the 1970s and early 1980s (blue) vs. in the 2000s (red): Now there are signs that the US may finally be breaking free, at least for awhile, of the Oil choke collar. On Monday, the E.I.A. reported that regular gas prices in the US were slightly under $3.30 a gallon, In 2011-12, gas prices were only lower than this for 5 weeks in December and January. In 2012-13, they were only lower than this for 3 weeks. Last year the lowest gas prices got was $3.19 on a weekly basis, in November. Here's how gasoline prices from 2011 to the present look: Back in early 2011, I wrote a piece entitled, How Oil's Choke Hold on the economy will end. In that article, I identified 3 trends that I expected to contribute:
- 1. alternative fuels and technology
- 2. conservation
- 3. increased exploration.
Now is a good time to re-examine how each of these trends is affecting the supply and price of energy:
Kuwait invites oil majors back to develop key fields -- Kuwait is in talks with five major oil companies to help boost crude production and develop some of its oilfields including Burgan, the world’s second largest, a move that has faced fierce political opposition in the past. Kuwait has invited Britain’s BP, France’s Total, Royal Dutch Shell, ExxonMobil and Chevron to bid for a so-called enhanced technical service agreement for the northern Ratqa heavy oilfield, Hashem Hashem, chief executive of state-run Kuwait Oil Co. told Reuters Thursday. “We’ve invited the major five international oil companies to show interest. This is our approach,” Hashem said in a phone interview, adding Exxon might not be interested in this bid. “We are trying by first or second quarter of next year to conclude this contract.” The plan is part of efforts to meet Kuwait’s target of producing 4 million barrels of oil per day by 2020. The OPEC member currently produces around 3 million bpd and exports around two thirds of that. KOC also plans to open up other oilfields, such as its North Kuwait fields and areas of the giant Burgan field, for foreign oil companies to develop, and will send a letter to the five majors seeking their interest in bidding, Hashem said. “We are starting first with the heavy oil and then will continue with north Kuwait and south-east Kuwait. We will take it in stages, one-by-one,” he said. It will be the first time KOC has developed such a big heavy oil reservoir and the plan is to produce 60,000 bpd from Ratqa, which lies close to the Iraqi border, by 2018-2019 in the first phase, and then ramp it up to 120,000 bpd by 2025,
Islamic State Battles Kurds Over Border Town To Maintain Oil Trade: Islamic State militants have been fighting for the past week for control of a key town straddling the Syrian-Turkish border. A victory by IS in Kobani, better known in the Arab world as Ain al Arab, would be a setback for the U.S.-Saudi-led alliance fighting the world’s most dangerous and most powerful terrorist organization. More importantly, a victory for IS would give the group prestige among the dozens of groups lined up in the fight against Syrian President Bashar Assad. It would also secure the terror organization’s flow of oil to a lucrative market – its link to the outside world via Turkey, as I reported last week. Proof that this conflict is far from being a religious war, as IS would have the world believe, is the current battle to the finish between the Sunni militant group and the Kurds in Kobani. The Kurds are overwhelmingly Sunni Muslim, yet IS is going after them with a vengeance. It’s a revealing detail about who’s in power in IS: former members of the regime led by Saddam Hussein, who, it should be recalled, used chemical weapons against the Kurds, gassing entire villages.
Michael Klare: Obama’s Oil Weapon - Naked Capitalism; Yves here. It really is remarkable to see the degree to which the Administration tries to, and succeeds in, convincing the public that our efforts to remake the Middle East are anything other than oil wars (well, maybe also about assuring that all guns v. butter budget fights go as much in favor of guns as possible). For instance, do you really think the failed effort of summer 2013 to go into Syria was really about our tender concern about Assad’s purported gassing of opponents? Or (if you weren’t paying attention all that closely) how about the way our intervention in Kurdistan seemed to be about the noble desire to protect religious sects no one had ever heard of before? How about looking at a map? Heard about the Mosul Dam? Controlling it gives ISIS the ability to flood a huge chunk of Iraq down to Baghdad. But the coverage of the rescue of the Yazidi refugees in Kurdistan occurred at roughly the same time that ISIS got control of the Mosul Dam and got vastly more attention in the Western media. And let us not forget that Iraq has the second largest supply of oil reserves, and like Saudi Arabia’s, it’s highly prized sweet crude. Here Michael Klare argues that the use of energy as a weapon has become even more central in US foreign policy under Obama.
VP Joe Biden Accidentally Tells A Little of the Awful Truth | Black Agenda Report: Vice President Joe Biden’s forced apology for speaking the partial truth about the origins of the Islamic State (IS) is the most dramatic – and, for a superpower, humbling – example yet of the absolute disarray in U.S. policy in the Arab and Muslim world. The man who is, technically, the second most powerful official in the empire, was compelled to retract his earlier assertion that “our allies in the region” created the conditions for the rise of IS by funding the “proxy Sunni-Shia war.” Turkish president Recep Tayyep Erdogan – whose border is the chief conduit for Islamist fighters into Syria, and who has openly abetted the unfolding IS conquest of the Kurdish border town of Kobani – exploded in rage at being out-ed by Obama’s number two, as did the foreign minister of the United Arab Emirates, which Biden named along with Saudi Arabia and Qatar. Biden might also have cited Jordan and Kuwait, but the biggest omission was the United States, which has on many occasions taken credit for “vetting” the dispersal of funds to “rebel” forces dominated by the al-Qaida affiliate al-Nusra, the Islamic Front, and the Islamic State. One can imagine the cursing out Biden got from his boss, the Jihadist Supporter-in-Chief, with Obama waving his Kill List at the VP while ordering him to recant by Tuesday, when decisions to terminate with extreme prejudice are handed down from the Oval Office.
Saudi Arabia Goes Rogue, Risking Oil Price War - Typically, cartels like OPEC are supposed to act in unison on prices. But last Wednesday, Saudi Arabia’s state-owned oil company, Saudi Aramco, stunned world oil markets by acting alone in cutting its official crude price by $1 per barrel for November deliveries to its Asian customers. It also dropped its price by approximately 40 cents per barrel to U.S. and European customers. If this is the opening salvo of a replay of 1986, be forewarned that crude oil prices plunged by over 50 percent in less than eight months in that era. Fast forward to 2014. The new players are King Abdullah and Saudi Arabian oil minister Ali al-Naimi. U.S. domestic crude, known as West Texas Intermediate or WTI is at 17-month lows while Brent, the international benchmark, is trading near 27-month lows. In early morning trade, WTI was below $90 at $89.39 with Brent at $91.79. Making the situation even more volatile today, the International Energy Agency, which has cut demand prospects in its last three monthly reports, is due out later today with a new assessment. In its September 11 report, it called the slowdown in demand “nothing short of remarkable.” Adding to concerns of a growing supply glut are the economic woes in Europe and China.
It’s a super market price war! (in oil) - That Saudi Arabia and the Opec cartel were going to be “disrupted” by North Dakota millionaires was hardly difficult to foresee. What was always harder to figure out, however, was how Saudi would react. Would Opec’s most important swing-producing state cave in and give up on market share for the sake of price control? Or, conversely, would it be more inclined to follow along the lines of the Great UK Supermarket Price War, and enter a clear-cut race to the bottom? So far, it seems, the strategy is focused on the latter course. Which means people are finally beginning to wonder just how sustainable a path that really is. More so, to what degree does such a price war potentially disrupt the average break-even rate for the entire industry and compromise energy security more widely? What exactly happens to prices when the cartel effect is stripped out? Ladies and gentlemen, it’s time to take your sides in the great oil price war of 2014. Gunning for Team Saudi Arabia (just about), we have the analysts under Seth Kleinman at Citi. As they note on Wednesday, they feel confident that Saudi Arabia has the stamina to go the distance to come out triumphant. That said, it could prove a “painful, pyrrhic and short-lived victory” as the price floor from shale should continue falling. The key point, the analysts say, is that oversupply in light sweet crude is being driven by Algeria, Angola, Libya and Nigeria, not Saudi Arabia. Crude exports from the “OPEC 4” are up about 0.9m barrels per day since January, having topped 5m barrels per day first time since June 2013. Since then the US has added around 1.5m barrels a day of light sweet crude output. That basically means a cut in Saudi output (which is not light and sweet) would do very little to address the light sweet crude overhang, a new phenomenon.
Why Oil Is Plunging: The Other Part Of The "Secret Deal" Between The US And Saudi Arabia - Two weeks ago, we revealed one part of the "Secret Deal" between the US and Saudi Arabia: namely what the US 'brought to the table' as part of its grand alliance strategy in the middle east. What was not clear is what was the other part: what did the Saudis bring to the table, or said otherwise, how exactly it was that Saudi Arabia would compensate the US for bombing the Assad infrastructure until the hated Syrian leader was toppled, creating a power vacuum in his wake that would allow Syria, Qatar, Jordan and/or Turkey to divide the spoils of war as they saw fit. The full answer comes courtesy of Anadolu Agency, which explains not only the big picture involving Saudi Arabia and its biggest asset, oil, but also the latest fracturing of OPEC at the behest of Saudi Arabia which however is merely using "the oil weapon" to target the old slash new Cold War foe #1: Vladimir Putin.
Crude Rises On News ISIS Has Entered One Of Baghdad's Suburbs - While the western world couldn't care less about the fate of some backwater town on the border between Syria and Turkey, it certainly cares about what happens to the Iraqi oilfields located south of Baghdad (which serve to determine the marginal price of oil around the world). Well, the world may not care, but crude traders certainly do, and the reason why oil appears to be rising in recent trade is due to news that ISIS militants have infiltrated one of Baghdad's outer suburbs, Abu Ghraib which is only eight miles from the runway perimeter of Baghdad's international airport.
World on the brink of an oil price war -- A group of the world’s most powerful oil ministers will soon gather in Vienna to take arguably one of the most important decisions that could affect the still fragile world economy: whether to cut production of crude to defend prices at $100 (Dh367) per barrel, or keep open the spigots as winter looms among the biggest energy-consuming nations? A sudden slump in the price of crude has exposed deep divisions within the Organisation of Petroleum Exporting Countries (Opec) ahead of its final scheduled meeting of the year next month to decide on how much oil to pump. Some members, led by Iran, have called for immediate action to stem the drop in oil prices, while Arab Gulf countries have so far argued that it could be another three months before it becomes clear whether the group should cut production for the first time since December 2008. Whatever they decide, oil remains the lifeblood of the global economic system due to its direct impact on inflation and input prices. Brent crude — a global benchmark of oil drawn from 15 fields in the North Sea, dipped last week to multi-year lows below $92 per barrel as a perfect storm of a strong US dollar, oversupply in the system and declining demand shattered confidence in the market. Brent has tumbled 20 per cent in the last three months after touching $115 per barrel in June. In the US — the world’s biggest consumer — crude for November delivery at one point last week dropped below the psychologically important $90 pricing level, raising fears that a prolonged slump could put many of America’s shale drillers out of business. Shale oil, which can cost up to $80 per barrel to produce, has spurred an energy revolution in the US, which has started to threaten the dominance of producers in the Middle East. However, at current price levels many of these new so called “tight oil” wells are approaching the point when they will soon become unprofitable.
Some Assembly Required: SAR #14283: Oil at the current +/- $90 a barrel ((splitting WTI at $86 and Brent just over $90) is or is not a good thing depending on its cause (above) and its effects: It is certainly good at the US gas pump. But $90 a barrel would make about 9% of US shale production unprofitable and if that level held for very long could drive many American fracking/shale operators out of business with their highly leveraged operations and $80/barrel production costs. Oil at $80 would put about 40% of fracking producers out of business. Ditto for the hoped-for expansion offshore of the Shetland Islands in the North Sea – and the British government is not prepared to take the budget hit that declining production tax revenues would yield. OPEC would seem immune because of their low production costs – with a Middle Eastern cost average of just over $16 a barrel. But most OPEC nations have budgets based on oil prices near or over $100: The UAE needs about $70 a barrel, the Saudi Arabia budget calls for $93, Iraq planned on $106 a barrel, Iran needs $130 a barrel (and isn't going to get it). (and isn't going to get it). How much swing does OPEC have? With about 30% of the world's traded production (ignoring domestic consumption), they have a strong influence but do not control prices unless they shut off their spigots which they cannot afford to do for long even though they have immense reserves of both cash and petroleum. The tensions within OPEC – the richer and better prepared vs the rest – will certainly add to the drama. Iraq is in the latter camp. How will OPEC enforce quotas when budgets need sales? How much longer can the shale industry survive? Does the price of oil still control the US economy? Will the dollar's strength continue? How far will China's economy fall? Will Europe go into recession? Place your bets.
Oil: More About Supply than the Dollar - The US dollar's upside momentum has faded, but oil prices remain depressed. Many observers try, too hard perhaps, to link the decline in commodity prices in general, and oil in particular, to the appreciation of the dollar. Yet the situation is considerably more complicated. There is a case that can be made that the decline in commodity prices reflects slower world growth prospects in general. Demand in China, the key consumer of commodities, has softened, and its crackdown on using commodities to disguise capital flows, or use as collateral for loans, may also be weighing on demand. This weakness in the global economy stands in contrasts to the US economy, which grew 4.6% in Q2, and appears to have been around 3% in Q3. This contrast, or divergence, has helped bolster the dollar. However, this conventional narrative does not do justice to the supply side. From a high level, more often than not, dramatic moves in commodities seem to be a reflection of supply shocks more than demand shocks. For example, record harvests in the US explain the decline in grain prices more than the dollar or a slowing of the world economy can. Oil prices have fallen by 17-20% since mid/late June. There may be some role for the global slowdown and the appreciation of the dollar, but these are not the main drivers. We see two main forces. The first is Saudi Arabia. It usually acts as the swing producer, cutting output when prices are low and increasing output when prices are high. It is not cutting output presently. To the contrary it looks to have stepped up its output.
Low Oil Prices Raise The Risk Of Recession In Russia -- Falling oil prices are inflicting deeper economic pain on Russia’s economy, which is already reeling from EU and U.S. sanctions.Russia is currently considering its budget for 2015-2017, and based on the numbers, the Kremlin is planning for leaner times. With oil revenue accounting for around half of the country’s budget, any dip in prices has a ripple effect. And in recent years, Russia’s economy has become more dependent on oil to meet its budget commitments. Excluding oil revenue, Russia has run a budget deficit that hit 10.3 percent in 2013, the highest level in three years. In other words, the government needs oil revenues to plug budget holes, and that need is growing. Russia occupies a strong economic position when oil prices are high, but for every $1 decline in the price per barrel of oil, Russia loses $2.1 billion in revenue on an annualized basis. Slumping oil prices in recent months could see revenues to the state decline by $30 to $40 billion. The Russian economy may only expand 0.4 percent this year, and just 1 percent in 2015. But even that meager growth rate is not a certainty. Russia is increasingly facing the possibility of recession, according to a Bloomberg survey of economists.
Ukraine Blowback: Will Australia, Brazil, and Russia Lose Out to Africa as Low Cost Suppliers of Iron Ore? -- The Ukrainian civil war, and its aftermath, economic warfare between the US, the European Union, and Russia, are transforming the global flows of the minerals from which steel is made. Starting with iron-ore, the future for steelmaking will start at the minehead, not in Australia, nor Brazil, but in West Africa. That is if Gennady Bogolyubov, the Ukrainian miner, can help to produce high-grade iron-ore at a cash cost of $20 per tonne. At that price, Bogolyubov and China’s iron-ore traders and bankers calculate, they will be able to break free of the global price-fixing for the mineral which has been dominated, until now, by BHP Billiton and Rio Tinto in the US camp, and Vale of Brazil. Ending commodity price-fixing by just three corporations whose governments are tied to the US and the NATO alliance is also a strategic objective of Russia, which has sizeable reserves of iron-ore to export to Europe and to China. But for the Kremlin, and for its favoured iron-ore exporter, Alisher Usmanov, controlling shareholder of Metalloinvest, there is difficulty in reaching the $20 threshold – and finding Chinese investment financing to open new, big-volume, low-cost, high-grade mines. Bogolyubov has been identified in the pre-war Ukrainian rich-lists among the five wealthiest figures in the country. Unlike his peers, Bogolyubov has remained personally outside the conflict, concentrating his assets in manganese mining in Australia and Ghana, iron-ore in Australia. Frequently mistaken for his one-time partner Kolomoisky, Bogolyubov has been the target of UK High Court claims by Pinchuk, which can be followed here. Bogolyubov is responding independently of Kolomoisky. On September 3, Bogolyubov announced that he is financing Sundance Resources with the option to convert into an 18% shareholding, priced at A$40 million (US$35 million). The Australian Stock Exchange (ASX)-listed company said that on approval by regulators and other shareholders, Bogolyubov would take a seat on the 8-seat board. The proceeds would be spent, the company said, on preliminaries for the Mbalam-Nabeba iron-ore project in Cameroon and the Republic of Congo
Hong Kong protesters pull back from some areas, fear crackdown in city center (Reuters) - Some Hong Kong pro-democracy protesters, many in tears, began leaving the Mong Kok area of the city late on Sunday, pulling back from the scene of recent clashes with those who back the pro-Beijing government. Fearing a police crackdown may come within hours, other protesters who have paralyzed parts of the Asian financial hub with mass sit-ins also pulled back from outside Hong Kong Chief Executive Leung Chun-ying's office, with police removing barricades nearby. Amid confusing signals, reports circulated on social media and by word of mouth that protest leaders had called on their supporters to rally at Admiralty, the main area they have occupied over the past week at the heart of the former British colony's government district. true Tens of thousands of protesters are demanding that Leung step down and that China allows them the right to vote for a leader of their choice in 2017 elections. The pro-democracy camp mixed defiance with pragmatism in the cramped streets of Mong Kok, a gritty, working class neighborhood where scuffles broke out between protesters and supporters of the government on Friday and Saturday - and where police used pepper spray and batons in sporadic clashes early on Sunday. "We want everyone to leave because we don't want to see any more bloody conflicts ... we will come back again if the government doesn't respond (to calls for direct talks),"
OccupyCentral Protesters End Government Building Blockade After Hong Kong Police Unleash Tear Gas, Pepper Spray "To Avoid Injuries" -- After a night of 'some' discussions and a re-escalation of violence - which saw police use tear gas and pepper spray (in their words avoiding the use of batons and "reducing injuries"), OccupyCentral protesters have decided to leave the area outside the Hong Kong office of Chief Executive Leung Chun-ying in Mong Kok. Protesters are reportedly moving back towards the Admiralty site where thousands remain ahead of tomorrow's deadline ultimatum from the HK leader. Officials are in full court press PR mode, explaining on every TV channel and media outlet just how significant the disruptions will be on Monday to the general public (notably the older generation as 95% of OccupyCentral protesters are between 15 and 25). Protest leaders have agreed to continue dialog with the government if protest sites are protected and while tomorrow's deadline may see more escalation (in the name of public order), as The Telegraph notes, given the age of the protesters, Hong Kong could face decades of protests. UPDATE: According to the latest feed from OccupyCentral, protesters are refusing to leave the Lung Wo Road government building blockade...
Chinese troops play symbolic role in Hong Kong drama over democracy (Reuters) - Major General Tan Benhong, the commander of the People's Liberation Army in Hong Kong, was a picture of uniformed calm as he shared champagne toasts with Chinese officials on Wednesday at local celebrations marking China's national day. The streets surrounding the bash at the Hong Kong Convention Centre presented a starkly different scene as thousands of protesters escalated the most sustained push for full democracy since China took Hong Kong back from Britain in 1997. As the protests enter their second week amid fresh signs of street violence, some demonstrators and ordinary Hong Kong citizens fear Tan's troops could eventually be ordered to crush a movement unthinkable on the mainland. true Thorny political, legal and strategic realities make any such involvement of the PLA exceptionally difficult, however, and Hong Kong's 27,000-strong police force is expected to remain in charge for the time being. Government advisers and experts believe leaders in both Beijing and Hong Kong understand the immense political costs of ordering the PLA out of their barracks, ending at a stroke Hong Kong's vaunted autonomy under the "one country-two systems" formula under which Britain agreed to hand over the Asian financial hub.
Hong Kong protests – looking for an endgame - Financial Times - With protests now into their second week in Hong Kong, many are asking what it will now take to get the city back to normal. While schools and government offices are back open, many key roads in three of Hong Kong’s main business districts remain behind the barricades. Though protester numbers have dwindled, previous efforts to remove them have merely served as a rallying cry. So what’s the likely endgame? Three possible outcomes have in effect been ruled out by the government, but they are worth mentioning briefly.
- 1. Protest victory – The Hong Kong government agrees to reopen the debate for electoral reform in 2017, paving the way for a move towards what the students call “true universal suffrage”. CY Leung steps down.
- 2. Partial protest victory – Leung steps down, and his replacement offers a dialogue on electoral reform, but stops short of promising any changes before 2017. A watered-down version of this would be for Leung himself to open a new dialogue on reform.
- 3. Violent crackdown – The Hong Kong government, feeling overwhelmed, calls in military support from China. A repeat of the Tiananmen massacre follows.
- With protesters’ numbers smaller, and some concessions on their part already made, the most likely scenario is likely to be one of the following.
- 4. Fatigue wins – Protesters, realising the government will offer them little or nothing, decide to call it a day. Their numbers drop even further, making it impossible to control their current protest areas. The streets reopen, and students go back to class.
- 5. Police crackdown – Protesters hold on for long enough, and with sufficient numbers, so that the government decides to act. Thousands of police are deployed with riot gear, tear gas, pepper spray and the threat of rubber bullets. Hundreds are arrested but the streets are cleared in hours.
- 6. A deal – The government offers small but significant concessions, such as a redrawing or expanding of the 1,200-strong nomination committee that will screen candidates for chief executive. Most expect it to be made up largely of tycoon-backed elites, giving plenty of wiggle room for a more “representative” body. This is beginning to look like the most likely scenario – offering a face-saving way out for all parties, without violence. For more on the deal option, read William Pesek’s piece on Bloomberg View.
The Adults Show Up in Hong Kong -- The student curtainraiser in Hong Kong appears to be over for now. A few hundred diehard students remain on post at the three main demonstration sites. In some places there are more journos than demonstrators. But don’t get the impression the movement has petered out. The grownups have appeared to take this political exercise to the next level. Alan Leung, no student, 56 years old, democracy activist, long time pol, one time candidate for Chief Executive, gave an interview to Malcolm Moore of the Daily Telegraph: “Almost 95 per cent of the crowd that has gathered every night for seven nights is between 15 to 25 years old,” said Alan Leong, 56, the leader of the pro-democratic Civic party. “These people will be around for a long time. They will be masters of Hong Kong for the next 40 to 50 years. “I challenge Xi Jinping (the Chinese president) to answer this question: even if you bring your weight to bear and somehow get your proposal passed, how are you going to govern Hong Kong when this is your public for the next five decades?”
Chinese Authorities Make Arrests in Attempt to Prevent Pro-Democracy Campaigns on Mainland - — The Chinese authorities, determined to prevent pro-democracy rallies in Hong Kong from spilling across the border into the mainland, have detained at least 10 people in recent days, including a group of artists who attended a poetry reading inspired by the protests in Hong Kong. In all, human rights advocates say that more than 40 people across the country have been taken into police custody since a campaign of civil disobedience over the pace of democratization in Hong Kong began nearly two weeks ago. Some of those arrested have already been charged with “picking quarrels and provoking trouble,” a charge that carries up to three years in jail. The detention of several people whose only apparent crime was to attend a private poetry reading underscores the anxieties of Chinese leaders over the standoff in Hong Kong, the former British colony at the southern tip of China that enjoys more expansive liberties than the mainland.Tensions are likely to remain high. On Thursday, Chinese activists on Twitter began circulating a call to converge on Tiananmen Square this weekend with umbrellas, the ubiquitous accessory and protest symbol adopted by the Hong Kong protesters.The most recent arrests took place in and around Songzhuang, an artists’ enclave on the outskirts of the capital and the setting for an Oct. 2 poetry recital that drew the attention of security officials. According to several artists and lawyers for those detained, seven of those taken into police custody had attended the poetry event, including an art curator and a Chinese news assistant employed by a German newspaper.
World Bank cuts China growth forecast for next three years: The World Bank has cut China's growth forecast for the next three years as the country tackles structural reforms. Growth in the world's second-largest economy will fall to 7.4% from a previous estimate of 7.6%, it said. "In China, growth will gradually slow, as efforts to address financial vulnerabilities and structural constraints increase," the lender said. Growth in 2015 will go down to 7.2% and then 7.1% in 2016 from a previous forecast of 7.5% for both years. The World Bank has become the latest in a series of major banks to downgrade their outlook for China on growth concerns. In September, US bank Goldman Sachs cut the country's growth forecast to 7.1% from 7.6% in 2015 and kept this year's forecast at 7.3%, below Beijing's target of 7.5%. "Unlike our previous expectations, the government is not extremely forceful in trying to meet its 7.5% growth target," Mr Kuijs said. "One of the key messages coming from these forecasts is that the government seems all right with a little bit weaker growth than its target, as long as things like the labour market are holding up."
China economy to continue slowdown into ’16 – World Bank - China’s economy is projected to continue slowing down into 2016, with annual expansion hitting below the country’s official target of 7.5% starting this year, the World Bank said on Monday. The country is the world’s second biggest economy and is the major import market for petrochemicals in Asia. The country is expected to post average GDP growths of 7.4% this year, 7.2% in 2015 and 7.1% in 2016 – down by 0.2 percentage points, 0.3 and 0.4 from its previous forecasts, respectively, the World Bank said in its East Asia and Pacific Economic Update released on Monday. Last year, the economy’s expansion stood at a 14-year low of 7.7%. “In China, growth will gradually moderate …. reflecting intensified policy efforts to address financial vulnerabilities and structural constraints, and place the economy on a more sustainable growth path, the World Bank said. “Measures to contain local government debt; curb shadow banking; and tackle excess capacity, high energy demand, and high pollution will reduce investment and manufacturing output,” it added. Manufacturing activities in China showed some stability in September, based on its official Purchasing Managers’ Index (PMI) for the month, which registered a reading of 51.1 – unchanged from August.
China’s Financial Floodgates -- As China’s economy starts to slow, following decades of spectacular growth, the government will increasingly be exposed to the siren song of capital-account liberalization. This option might initially appear attractive, particularly given the Chinese government’s desire to internationalize the renminbi. But appearances can deceive. A new report argues that the Chinese authorities should be skeptical about capital-account liberalization. Drawing lessons from the recent experiences of other emerging countries, the report concludes that China should adopt a carefully sequenced and cautious approach when exposing its economy to the caprices of global capital flows. The common thread to be found in the recent history of emerging economies – beginning in Latin America and running through East Asia and Central and Eastern Europe – is that capital flows are strongly pro-cyclical, and are the biggest single cause of financial instability. Domestic financial instability, associated with liberalization, also has a large impact on economic performance, as does the lack of control over non-bank financial intermediaries – an issue that China is now starting to face as the shadow banking sector’s contribution to credit growth becomes more pronounced. Most academic research also supports the view that financial and capital-account liberalization should be undertaken warily, and that it should be accompanied by stronger domestic financial regulation. In the case of capital flows, this means retaining capital-account regulations as an essential tool of macroeconomic policy.
China’s Balancing Act -- Adair Turner - China’s slowdown is the biggest short-term threat to global growth. Industrial value added fell in August, credit growth has slowed dramatically, and housing prices are falling, with sales down 20% year on year. Given stagnation in the eurozone and Japan’s uncertain prospects, a Chinese hard landing would be a big hit to global demand. Much attention is focused on likely GDP growth this year relative to the government’s 7.5% target. But the bigger issue is whether China can rebalance its economy over the next 2-3 years without suffering a financial crisis and/or a dramatic economic slowdown. Some factors specific to China make this outcome more likely, but success is by no means certain. Faced with the 2008 financial crisis, China unleashed a credit boom to maintain output and employment growth. Credit soared from 150% of GDP in 2008 to 250% by mid-2014. Multiple forms of shadow bank credit supplemented rapid growth in bank loans. The strategy worked, and China continued to create 12-13 million new urban jobs per year. But with investment rising from 40% to 47% of GDP, growth became dangerously unbalanced and heavily dependent on infrastructure construction and real-estate development. China is now struggling with a dilemma common to all advanced credit booms. The longer the boom runs, the greater the danger of wasted investment, huge bad debts, and a major financial crisis. But simply constraining new credit supply and allowing bad loans to default can itself provoke crisis and recession.
U.S. Business Group Calls on China to Quicken Pace of Reforms - China’s pledge to let the market play a decisive role in the economy is compelling, but there’s been little progress so far in turning this goal into reality, according to a U.S.-based business group. The U.S.-China Business Council said the needle on its reform scorecard released this week hasn’t moved from “limited” since its last quarterly survey in June. And reform-related policies introduced by Beijing since then — including proposals to allow greater labor mobility and ease foreign investment restrictions governing a Shanghai Free Trade Zone – don’t address its members concerns, it says. On being named to head the government in March 2013, Chinese President Xi Jinping and Premier Li Keqiang unveiled an ambitious structural reform agenda, driven in part by the need to reboot an economy slowing after decades of double-digit growth. Since then, however, some say forward movement has largely stalled. “There continue to be a plethora of reform policies coming out, but when we sit down with our members and try to discuss what it means for their business, the vast majority says it’s negligible,” said John Lenhart, the U.S.-China Business Council’s Beijing director. “Most are largely aspirational, or very regional in scope.”
Has China’s Economy Become More “Standard”? - FRBSF -Financial liberalization in China has broad implications, including changing how its central bank’s monetary policy affects the nation’s economy. An estimate of Chinese economic activity and inflation based on a broad set of indicators suggests that the way policy is transmitted to China’s economy has become more like Western market economies in the past decade. Although Chinese monetary policy may actually have exacerbated its economic downturn during the global financial crisis, a move toward stimulatory policy has helped ease its slower growth more recently.
Game Over Abenomics: "This Week Japan Will Acknowledge It Is In Recession", Goldman Reveals -- "The Cabinet Office makes an assessment of the state of the economy based on the trend in the coincident CI, using a set of objective criteria. The August coincident CI is set to print negative mom. In this case, the Cabinet Office’s economic assessment will likely shift downward to “signaling a possible turning point” from the current level of “weakening”. According to the Cabinet Office, such a change in assessment provisionally indicates a likelihood that the economy has already fallen into recession. This is effectively akin to the government acknowledging that the economy is in recession." - Goldman Sachs
Japanese data suggest recession may be near - --An index of data reflecting the current state of Japan's economy fell in August, prompting a downgrade in the assessment of the indicator and suggesting the nation is on the verge of a recession. The coincident composite index, consisting of 11 key indicators, including retail sales and industrial production, fell 1.4 points on month to 108.5, the Cabinet Office said Tuesday. That marked the first fall since June. The decline and assessment downgrade will likely add to calls for Prime Minister Shinzo Abe's administration and the Bank of Japan to come to the aid of Japan's sluggish economy, as the government weighs another sales-tax increase in 2015. Some economists have already suggested the economy may be on the verge of a recession. The economy contracted sharply in the three months through June after the national sales tax rose to 8% from 5% in April, and households and businesses reined in spending. Recent data have painted a similarly bleak picture of the third quarter. Industrial output fell 1.5% on month in August to its lowest level in over a year. Household spending fell 4.7% from the previous year in the same month, the fifth straight month of decline. The fall prompted the Cabinet Office to downgrade/upgrade its assessment of the index, saying the economy is "at a turning point" toward the downside, from "pausing." The Cabinet Office uses the indicator retrospectively to determine troughs and peaks in the business cycle. The language of the latest assessment is often used when the economy has peaked in preceding months, indicating the start of a recessionary phase.
Is Japan’s Economy on the Verge of a Recession? - The “r” word is on the lips of economists again in Japan: Did an April sales tax increase send the world’s third-largest economy into recession? If it did, it’s probably not the kind of recession that economists usually talk about–two consecutive quarters of contraction in gross domestic product, according to the textbook definition. Japan watchers are saying instead that Japan’s economy is now in the period between a peak and a trough in activity or keiki koutai–also often referred to as a recession. According to a monthly survey released Thursday by the Japan Center for Economic Research, a nonprofit research outfit, 11 of 41 economists said they thought economic activity had already peaked, up from four in the previous survey. Nine put the peak in January; two said March. That is a sign that economic activity is coming down from a high in a cycle fueled early in the year as businesses and consumers front-loaded spending before the national sales tax rose to 8% from 5% on April 1. The International Monetary Fund said Tuesday that Japan had a 24% risk of entering a recession by the textbook definition in the year ahead, up from roughly 20% in its April report. “I’d call it a mini-recession,” said SMBC chief market economist Mari Iwashita. “Economic activity likely bottomed out in August, but we’ll start to see brighter data for September.” Ms. Iwashita pointed to signs of export strength in the first part of September as well as a rise in machinery orders in August as reasons for some optimism.
Is Japan Back In Recession? -- “People should seriously consider that Japan’s economy may have fallen into recession despite the weaker yen and a stock rally from the BOJ’s easing and the flexible fiscal policy by Abe’s administration,” said Maiko Noguchi, senior economist at Daiwa Securities. “Initial expectations that the economy could withstand the negative effects of a sales tax hike through a virtuous circle seem to be collapsing.” “the risks are rising that the economy will later be determined to be in recession,” said Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities Co.As the authors of the Bloomberg report from which the above quotes are taken – Oops Japan Did It Again? Sales-Tax Spurs Recession Debate – put it: “Weak industrial production data from Japan today raises concern that the world’s third-largest economy may be back in recession, challenging Prime Minister Shinzo Abe’s growth strategy.” In fact, output which was down 1.5% between July and August (and down 2.9% over August 2013) has fallen in three of the past five months. Other indicators point in a similar direction. Household spending was down 4.7% year on year in August, and the coincident composite index, which consists of 11 key indicators, including retail sales and industrial production, fell 1.4 points to 108.5, according to the Cabinet Office this week. The August drop was the the first fall since June. Even corporates are becoming more gloomy. The latest Bank of Japan quarterly Tankan confidence survey fell back three points from June, the second successive fall since it peaked just before the tax hike.
Japan Admits It Has Entered A Triple-Dip Recession - The Cabinet Office revised down its economic assessment to “signaling a possible turning point” from “weakening” for the first time since April, as the 7-month average sign for the coincident CI changed, and the change swung by more than 1 standard deviation in the reverse direction. According to the Cabinet Office, such a change in assessment provisionally indicates a likelihood that the economy has already fallen into recession. This is effectively akin to the government acknowledging that the economy is in recession.
IMF nearly halves Japan's 2014 growth forecast — The International Monetary Fund has almost halved its 2014 growth projections for Japan, it said Tuesday, underscoring the damage that an April consumption tax hike inflicted on the world’s number three economy. The Washington-based IMF said it now expects the economy to expand 0.9% this year—against 1.6% growth forecast in July—after a sharp contraction in the second quarter. It also cut its 2015 growth projection to 0.8% from 1%, as it called for deeper reforms to the protected and highly regulated economy. But the Fund added that Japan’s economy would bounce back and pressed Tokyo to follow through on plans to raise consumption taxes again next year to contain a huge national debt. The fresh projections were outlined in the Fund’s latest World Economic Outlook, which acknowledged that Tokyo’s bid to boost the economy had been taking hold before the April 1 tax rise. “The negative effects on demand of the consumption tax increase were greater than previously expected,” the report said.
Demographic Trends and Growth in Japan and the US - NY Fed - Japan’s population is shrinking and getting older, with the population falling at a 0.2 percent rate this year and the working-age population (ages 16 to 64) falling at a much faster rate of almost 1.5 percent. In contrast, the U.S. population is rising at a 0.7 percent annual rate and the working-age population is rising at a 0.2 percent rate. So far, supporting the growing share of Japan’s population that is 65 and over has been the substantial increase in the share of working-age women entering the labor force. In contrast, U.S. labor force participation rates have been falling for both men and women. Japan’s labor market adjustments help explain the steady, albeit, modest growth in output per person despite the surge in the 65 and over cohort. Indeed, Japan has been able to match U.S. per capita growth since 2000. The United States and Japan are experiencing very different population trends. Organisation for Economic Co-operation and Development (OECD) data show that the U.S. population has increased 12 percent since 2000, while Japan’s population has fallen back to near where it was that year. The more striking development is that the working-age population in Japan is down 9 percent since 2000 while it is up 12 percent in the United States. As a consequence, the population share of those 65 and over has increased from 17 percent to 23 percent in Japan over this period while the U.S. share has increased from 12 percent to 14 percent. The difference in their labor forces, however, is narrower. (The labor force includes those with a job and those actively looking for work.) That is, the labor force is not falling as much as the working-age population in Japan and is not rising as much as that cohort in the United States.
Manufacturing Productivity Loss in LDCs Caused by Summer Heat: Don't Forget Human Capital Theory -- This paper examines how productivity in Indian manufacturing firms is affected by outdoor temperature. As reported in Table 1, controlling for many fixed effects a plant's output falls by 6% when the outdoor temperature is over 25 degrees Celsius as compared to what the plant's output is predicted to have been had it been less than 20 degrees Celsius outside. The authors seek to contribute to the recent "temperature economics" literature studying how our productivity is affected by heat. A growing agricultural literature examines this topic. But again, as an optimist look at Singapore and Hong Kong; rich and hot. Air conditioning mediates the relationship these guys are exploring. In their paper, I see no discussion of human capital theory and the work of Gary Becker and Sherwin Rosen. Permit me to explain how ideas of general human capital, firm specific human capital and theory of compensating differentials affects the reduced form parameters the authors estimate.
Narendra Modi’s American Exceptionalism --Indian Prime Minister Narendra Modi may simultaneously be the easiest and hardest kind of partner for the United States to deal with – the easiest because in some important ways he is so American in his outlook; the hardest for that very same reason. Like any good American politician, he understands that he should show that he has clout with a constituency that matters to his negotiating opposite number – in this case, President Obama. In his speech last month to thousands of roaring Indian Americans at Madison Square Garden, Modi did just that. With dozens of U.S. political leaders present as potential messengers, Modi galvanized the crowd with all the paraphernalia of American political campaigning, from jumbo video screens to balloons and t-shirts. In true American fashion, he relentlessly hammered the theme of individual contributions to the greater good of India. “How long can we live like this?” he asked as he called for growth and development to become a movement shared by all. “Mahatma Gandhi gave us independence, but what have we given Mahatma Gandhi?” Like many Americans, Modi believes in national “exceptionalism.” But for him the exceptional nation is India, not the United States. Modi shares the American trait of optimism. India’s population of 1.25 billion is not a burden of mouths to be fed and jobs that must be created, rather it is a blessing from the Gods. This is the “demographic dividend” that will propel India to lead “the Asian century.” Participation of the people in government gives India its strength because in India “democracy isn’t just a system, it is a faith.”
India’s Central Banker Highlights Inflation Progress - The Reserve Bank of India has made progress bringing inflation under control and is “on course” to meet its goal of reducing annual consumer price increases to 6% by early 2016, Raghuram Rajan, the central bank’s governor, said in an interview with The Wall Street Journal. “We’ve done a lot,” Mr. Rajan said Thursday in Washington, where he is participating in the semi-annual meetings of the International Monetary Fund. “We’ve been successful in getting public acceptance of the fact we need to bring down inflation.” The central bank’s effort has been aided by falling oil and food prices. Mr. Rajan said domestic services prices are also slowing. He described monetary policy as being in a neutral stance, with interest rate increases no more likely than interest rate cuts, as the central bank assesses a mixed economic landscape in which global economic growth is under pressure even as the domestic environment improves. A better inflation backdrop is one of several factors that have made the Indian economy more resilient, Mr. Rajan said. Its current account deficit is down below 2% of gross domestic product, its fiscal deficit is down, central bank reserves are up, and economic growth has picked up, he said. Moreover, India has required foreign investors in domestic government debt to hold securities with longer maturities, making it less exposed to sudden outflows of capital. “We have focused on putting our house in order,” he said.
Asian corporations increase their US dollar shorts - Residents of emerging markets owe hundreds of billions more dollars (and euros) than previously thought, because they have sold bonds offshore that don’t get counted in national statistics. An IMF study released at the beginning of the year measured the size of the discrepancy: This borrowing creates a currency mismatch. As long as the dollar (or euro) doesn’t appreciate too quickly against the borrowers’ local currencies, the debts can be easily serviced. The danger is that these large short positions could cause a squeeze and create a desperate search for scarce dollars — exactly what happened in 2008. This danger has only increased since then. Look at the boom in dollar-denominated bonds issued by borrowers based in Asia, excluding Japan. Issuance in the first nine months of the year has already surpassed the total from last year to hit a new record. Charts via CreditSights: More than half of these bonds (both investment-grade and high-yield) were issued by companies based in China, Hong Kong, Macau, or Taiwan. Korean issuers produced about 17 per cent of the new supply of highly-rated debt while India and Indonesia each issued about 11 per cent of the new junk bonds. Financial firms and real estate operators were the biggest borrowers.
Our Misplaced Faith in Free Trade - Trade is one of the few areas on which mainstream economists firmly agree: More is better. But as the Obama administration pursues two huge new trade deals — one with countries in the Asia-Pacific region, the other with the European Union — Americans are skeptical. Only 17 percent believe that more trade leads to higher wages, according to a Pew Research Center survey released last month. Just 20 percent think trade creates jobs; 50 percent say it destroys them. The skeptics are on to something. Free trade creates winners and losers — and American workers have been among the losers. Free trade has been a major (but not the only) factor behind the erosion in wages and job security among American workers. It has created tremendous prosperity — but mostly for those at the top.Little wonder, then, that Americans, in another Pew survey, last winter, ranked protecting jobs as the second-most-important goal for foreign policy, barely below protecting us from terrorism. Many economists dismiss these attitudes as the griping of people on the losing end of globalization, but they would do better to look inward, at the flaws in their models and theories. Since the 1970s, economic orthodoxy has argued for low tariffs, free capital flows, elimination of industrial subsidies, deregulation of labor markets, balanced budgets and low inflation. This philosophy — later known as the Washington Consensus — was the basis of advice the International Monetary Fund and the World Bank gave to developing countries in return for financial help. The irony is that during the Industrial Revolution, today’s rich countries — Britain, France and the United States — pursued the very opposite policies: high tariffs, government investment in industry, financial regulations and fixed values for currencies. Trade expanded, and capital flowed anyway.
Argentine government says will make soy producers sell more (Reuters) - Argentina will use "all the tools" at its disposal to end financial speculation by grains producers and exporters, Cabinet chief Jorge Capitanich said on Wednesday, in a further sign of state intervention in Latin America's No. 3 economy. Soy producers in Argentina, the world's No. 3 soybean exporter, have been holding onto the oilseed in view of low global prices and financial uncertainty at home, depriving the cash-strapped government of critical tax revenue from export charges. Argentina has long warned producers that they must sell more of their product without acting on its words. The country last month passed a controversial law enabling the government to intervene more in companies' pricing and supply. true "We believe it is necessary to use all the state's tools to guarantee that all speculative maneuvers are ended," Capitanich said in his daily news briefing, although he did not specify what the government would do. The government has already met with exporters but has not been able to reach a consensus on sales volumes, he said.
Argentina Bondholders Unnerved as Kicillof Amasses Power - Economy Minister Axel Kicillof spent eight months repairing Argentina’s ties with international markets, only to have the nation default in July when he refused to compromise with creditors to resolve its unpaid debts. Now, he’s taking a decidedly different tack. Instead of conciliation, the 43-year-old Kicillof has engaged in a campaign to weed out the administration’s opponents and tighten the government’s grip on the economy. Since the default, the minister has denounced businessmen and farmers for hoarding everything from cars to soybeans to spur a devaluation. On Sept. 30, his comments were echoed by President Cristina Fernandez de Kirchner when she publicly reprimanded central bank President Juan Carlos Fabrega for failing to rein in currency manipulation. He resigned the next day. While Kicillof’s influence has only increased as a series of cabinet changes swept political allies into power, the bond market has grown increasingly alarmed at the about-face. Faced with the prospect Kicillof will allow the decade-long creditor dispute to sink the economy deeper into recession and pursue policies that will further its financial isolation, Argentina’s debt securities suffered their biggest losses in seven weeks.
The 61% Devaluation That Venezuela Told No One About - The world’s steepest currency devaluation is happening with so little fanfare that you may have missed it. Venezuela is forcing companies to pay an average 61 percent more for dollars in government auctions compared with a year ago, according to estimates by Barclays Plc. The sales are the only way most of them can get their hands on scarce foreign currency to purchase goods from abroad without access to the official exchange rate of 6.3 bolivars per dollar. The South American nation is seeking to ease a chronic dollar shortage caused by years of increasing government control over the foreign-exchange market and economy. At the same time, President Nicolas Maduro may be reluctant to pursue a devaluation of the official rate out of concern it would add to the world’s highest inflation rate and deepen shortages that sparked deadly protests earlier in the year.
IMF trims global growth forecast: The International Monetary Fund trimmed its forecast for global economic growth on Tuesday, underscoring the widening divide between the accelerating U.S. recovery and stagnation or a slowdown in the euro zone and Asia. The disparity is likely to take center stage as 188 central bankers and foreign ministers gather at the IMF 's fall meeting in Washington this week. U.S. officials are withdrawing stimulus programs as job growth picks up while other nations are ramping them up, increasing currency volatility and sowing international tension. "There is a very unbalanced picture in the world economy," says Eswar Prasad, a professor of trade policy at Cornell University. The IMF projected the global economy will grow 3.3% this year, down from its 3.4% forecast in July. Growth of 3.8% is expected in 2015, vs. its previous 4% estimate. While the IMF partly attributed the downgrade to the weak, weather-tainted first quarter in the U.S., it noted that U.S. "activity picked up in the second quarter." The U.S .economy's first-quarter contraction will limit the nation's growth for the year to 2.2%, the IMF predicted, but that's 0.5% higher than its July forecast. Growth of 3.1% is forecast for 2015, making the US a shining star among world economies.
The Sky Is Not Falling, But the Calculus Has Changed: Although they comprise a small percentage of most leading indexes for developed countries, the equity markets take a more pronounced place in news reports when they sell-off. And over the last week, reports have focused on several aspects of stock performance including the degree of the sell-off in various indexes and news of several averages approaching key support areas. At times like this, gloom and doom commentary begins to take center stage as “sky is falling” headlines become click bait for various websites. Unfortunately for the bearish crowd a careful analysis indicates we are not near a major, cataclysmic market or economic event. However, it is clear that the underlying calculus regarding macro-economic analysis has changed, caused by a combination of increased geopolitical conflict, potentially higher interest rates in the US and UK and the ripple effects from this development, and growing economic concern regarding the EU, Japan and, to a lesser extent Australia.
IMF says economic growth may never return to pre-crisis levels -- The International Monetary Fund (IMF) has cut its global growth forecasts for 2014 and 2015 and warned that the world economy may never return to the pace of expansion seen before the financial crisis. In its flagship half-yearly world economic outlook (WEO), the IMF said the failure of countries to recover strongly from the worst recession of the postwar era meant there was a risk of stagnation or persistently weak activity. The IMF said it expected global growth to be 3.3% in 2014, 0.4 points lower than it was predicting in the April WEO and 0.1 points down on interim forecasts made in July. A pick-up in the rate of expansion to 3.8% is forecast for 2015, down from 3.9% in the April WEO and 4% in July. But the IMF highlighted the risk that its predictions would once again be too optimistic. “The pace of global recovery has disappointed in recent years”, the IMF said, noting that since 2010 it had been consistently forced to revise down its forecasts. “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialise or fall short of expectation.” The IMF’s economic counsellor, Olivier Blanchard, said the three main short-term risks were that financial markets were too complacent about the future; tensions between Russia and Ukraine and in the Middle East; and that a triple-dip recession in the eurozone could lead to deflation.
IMF warns period of ultra-low interest rates poses fresh financial crisis threat - A prolonged period of ultra-low interest rates poses the threat of a fresh financial crisis by encouraging excessive risk taking on global markets, the International Monetary Fund has said. The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment. In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public. José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” He added that traditional banks were safer after the injection of additional capital but not strong enough to support economic recovery.
IMF: Shadow Banks ‘Could Compromise Global Financial Stability’ -- A substantial portion of banks in the world’s most advanced economies aren’t healthy enough to support a global recovery, a problem that is shifting risks in the financial system to other types of lenders, according to a new report by the International Monetary Fund. The IMF’s Global Financial Stability Report released Wednesday said so-called shadow banks that operate outside the tightly regulated banking system are providing credit at a time when many banks aren’t strong enough to do so. “This is shifting the locus of risks to shadow banks,” IMF Financial Counsellor José Viñals said in remarks prepared for a press conference on the report Wednesday. “If left unaddressed, these risks could compromise global financial stability.” IMF researchers are only the latest group to raise concerns about risks building outside the banking system as global regulators adopt rules to make banks use tighter lending standards and fund their operations with less borrowed money. Federal Reserve Chairwoman Janet Yellen has acknowledged the trend. On Monday, the director of the U.S. Treasury’s Office of Financial Research, Richard Berner, announced a new initiative to collect data on opaque repurchase agreement (or “repo”) markets where firms that aren’t banks turn for overnight loans — a response to concerns about the lack of data on shadow banks. For Wednesday’s report, the IMF analyzed 300 banks in advanced economies around the world and found “banks representing almost 40 percent of total assets are not strong enough to supply adequate credit in support of the recovery,” Mr. Vinals said. At the same time, so-called shadow lenders are growing.
Debt: Global Economy’s Damnation or Salvation? - Debt may have dragged global economies into the worst recession since the Great Depression, but the International Monetary Fund believes it can now be the recovery’s salvation.“It is one of the ironies of macroeconomics,” said Olivier Blanchard, the IMF’s chief economist (minute 24). “Sometimes when you see people in trouble because they have too much debt, the solution is actually to create more debt somewhere, typically through government debt, in order to start the economy again.” Central banks have tried to rev up growth with cheap cash. But printing money can only go so far. And governments have failed to deliver on a sea of promises to overhaul their economies to make them more competitive as a way to boost potential growth and investment.That’s why the IMF is backing a major push for more debt-financed infrastructure projects. The fund says it may one of the last options available for some rich countries struggling in the mire of low growth and high unemployment: “Increased public infrastructure investment is one of the few remaining policy levers to support growth,” fund economists warn. Here’s the theory: by borrowing cash to invest in ports, highways, airports, and railways, a new government cash injection will raise employment levels and juice prices. At the same time, new infrastructure increases the efficiency and productivity of the economy as trade flows more freely along the arteries of commerce. This sort of spending also effectively shifts debt from household and corporate balance sheets to the government ledger, which ostensibly has a better chance of dealing with the debt load. The IMF even says the growth boost should more than offset the debt borrowed to finance the projects, eventually cutting debt levels by up to 8% of gross domestic product. “Public investment really is a free lunch,” former U.S. Treasury Secretary Lawrence Summers opined in the Financial Times.
Emerging markets adapt to ‘new normal’ as commodities cycle ends - FT.com: Emerging market investors are in the grip of their third taper tantrum in 18 months. This time, however, “tantrum” – suggesting an all-consuming but shortlived emotional fit – may no longer be the right word. What’s happening now is more akin to a lasting personality change as markets adapt to a “ new normal” resulting from what many think will be structural rather than cyclical changes in conditions.The demand from China that lifted commodity prices for a decade is a thing of the past. And with the shale revolution driving the US to “a multi-decade rebound in crude oil exports”, says Mr Costa, the global oil market is undergoing structural change that will keep oil prices low for years to come. It is not only a matter of commodities. The end of the US Federal Reserve’s asset buying programme, the prospect of rising US interest rates and a strengthening dollar will have a lasting impact on the liquidity that has helped sustain EM asset prices. At a country level, analysts say, many emerging markets that have relied on external demand for their commodities and other exports have failed to deliver productivity gains to drive growth at home and now face years of subpar performance. Researchers at the IMF recently warned that, overall, emerging markets would see GDP growth of about 5 per cent a year in future, down from 7 per cent before the global crisis. Not all EM assets will suffer equally. When the first taper tantrum struck in May 2013, sparked by news that the Fed was about to taper its $85bn a month quantitative easing programme, an initial across-the-board sell-off was narrowed as investors targeted the most vulnerable markets. They concentrated on those with current account deficits and picked out a “fragile five” of Brazil, India, Indonesia, Turkey and South Africa.
World's Busiest Freight Route Rates Plunge To 2014 Lows - Shipping freight rates for transporting containers from ports in Asia to Northern Europe - the world's busiest route - fell 10.2% to $738 per container in the week ended on Friday, according to Reuters. This is the 4th weekly drop in a row and is the lowest level since Oct 25th 2013. Confirming this global trade volume collapse, the Baltic Dry tumbled back below $1000, down 50% from a year ago, and is hovering once again at post-Lehman crisis lows. But apart from that, the global economy is doing great...
Global Economy, Labor Markets Improve, Say New Indexes - A measure of global economic conditions increased slightly in September, while global employment developments hit a new high, according to data released Tuesday. The Absolute Strategy Research/Wall Street Journal global newsflow composite index inched up to 58.2 last month, from 57.9 in August. The ASR/WSJ indexes, unveiled this month, are diffusion indexes that compare the number of positive news stories versus the number of negative ones on an economic topic. For individual-topic indexes, a reading above 0 indicates the coverage is more positive than negative. For the composite index–a compilation of the single-issue indexes–a reading above 50 indicates net positive economic coverage. According to Absolute Strategy Research, which calculates the indexes using Dow Jones’ Factiva database, the global labor-market newsflow index rose to a record high of 5 last month from -2 in August. The reading suggests global labor markets are tighter than monetary policymakers may believe. At the same time, the global inflation newsflow index fell sharply, to 10 from 18. That means more news coverage was focused on slowing inflation or falling prices, rather than an acceleration in price increases. “This highlights an apparent inconsistency in the consensus narrative–if labor markets are tightening, inflationary pressures should pick up,” the report said. “Yet the ‘chatter’ still seems to be more focused on deflationary fears.” In the U.S., the composite index edged up to 59.7 in September, from 59.5 in August. The U.S. labor market index jumped to 11 from 1. The U.S. jobs index has been above 0 for four consecutive months, an unusually long string of positives for that gauge. The upbeat news coverage on U.S. labor markets could suggest job markets are more improved than was indicated Monday by a weak reading of the Federal Reserve’s new labor-market conditions index.
Global Housing Prices: It’s a Tale of Two Worlds - An index tracking global property prices in 50 countries shows prices haven’t much risen over the past five years, but new research from the International Monetary Fund shows how averages can be misleading. The IMF divided those countries into two groups. The first group of 33 countries, which includes the U.S. and the United Kingdom, are those where prices are still recovering. Prices in this group ran up strongly before the 2008 financial crisis and dropped sharply after it hit. These countries have also witnessed a generally slower economic rebound. The second group of 17 countries, which includes Australia, Canada and China, had a smaller pre-crisis housing boom and have seen stronger post-crisis economic growth. The result shows a very clear tale of two recoveries. Home prices in the 33 “recovering” countries are around 20% below their 2008 levels, while prices in the 17 “rebounded” countries are roughly 25% higher. (The recovering countries are Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Iceland, India, Indonesia, Ireland, Italy, Japan, Korea, Latvia, Lithuania, Malta, Mexico, Netherlands, Poland, Portugal, Russia, Slovak Republic, Slovenia, South Africa, Spain, Thailand, United Kingdom, and the U.S. The rebounded countries are Australia, Austria, Brazil, Canada, China, Colombia, Germany, Hong Kong, Israel, Luxembourg, Malaysia, New Zealand, Norway, Philippines, Singapore, Sweden and Switzerland.)
"De-Dollarizing" Russia Pays Down Near-Record $53 Billion In Debt In Third Quarter - Despite the reassuring narrative from The West that Russia faces "costs" and is increasingly "isolated" due to sanctions for its actions in Ukraine, the most recent data suggests reality is quite different. First, capital outflows slowed dramatically in Q3 (from $23.7 billion in Q2 to $13 billion in Q3) with September seeing capital inflows for the first time since Sept 2013. Second, Russia's current account surplus was significantly stronger than expected ($11.4 billion vs $8.8 billion expected) driven by increased trade. Third, and perhaps most crucially, Russia paid down a massive $52.8 billion in foreign debt as Putin "de-dollarizes" at near record pace, reducing external debt to the lowest since 2012.
What Sky-High Jobless Rate? Job Seekers Find Spain Attractive, Survey Says - It might be hard to find a job in Spain, but the Mediterranean country apparently has a lot of other things going for it. Spain was the eighth-most popular destination for global job seekers in a recent survey by The Boston Consulting Group and The Network, an alliance of global recruiting Web sites. Twenty-six percent of respondents said they would be willing to move there.At 25%, Spain’s unemployment rate is one of the highest in the developed world. More than half of job seekers under the age of 25 can’t find work. But Spain boasts a sunny climate, lively cities and a proud culinary tradition. It is also Spanish-speaking, making it a magnet for Spanish-speaking immigrants from countries such as Honduras and Venezuela that are in even worse economic shape. Similarly, Spanish capital Madrid was the fifth-most popular city destination and Barcelona was No. 7. Both beat out more economically vibrant locales such as Toronto, Singapore or Los Angeles. Spain’s popularity ties in with another finding of the BCG study: The mostly white-collar and skilled-trades workers surveyed are not always motivated by economics when relocating. One of the top reasons given for moving was a desire to have new personal experiences.
Last German state to do away with university tuition fees - ALL GERMAN universities will be free of charge when term starts next week after fees were abandoned in Lower Saxony, the last of seven states to charge. “Tuition fees are socially unjust,” said Dorothee Stapelfeldt, senator for science in Hamburg, which scrapped charges in 2012. “They particularly discourage young people who do not have a traditional academic family background from taking up studies. It is a core task of politics to ensure that young women and men can study with a high quality standard free of charge in Germany.” The experiment with tuition fees, which began in 2006, was overturned by democratic pressure against the conservative-led state governments, all in the west of Germany, which decided to charge euros 1,000 ($A1436) a year. They were able to do so after a constitutional court ruling that moderate fees combined with loans did not contradict the country’s commitment to universal higher education. Within eight years, all the states have changed their minds, with Lower Saxony the last to give way after the defeat of its Christian Democrat rulers last year. It means that this autumn’s student intake will enjoy free university courses. “We got rid of tuition fees because we do not want higher education which depends on the wealth of the parents,”
German Factory Orders Slump 5.7 Percent - Orders, adjusted for seasonal swings and inflation, fell 5.7 percent in August, the Economy Ministry in Berlin said today. Economists predicted a 2.5 percent decline, according to the median estimate in a Bloomberg News survey. The data are volatile, and the drop followed a 4.9 percent increase in July that was the most in more than a year. Orders fell 1.3 percent from a year earlier. Export orders dropped 8.4 percent in August, while domestic demand slid 2 percent, the ministry said. Investment-goods orders plunged 8.5 percent and basic goods orders slid 3 percent, while consumer goods rose 3.7 percent. While August orders were weak partly because of school holidays, they were also affected by the slowing euro-area economy and geopolitical risks, the ministry said.
German factory orders suffer biggest fall since 2009 crisis - FT.com: German factory orders tumbled in August at their fastest rate since 2009, as geopolitical shocks and the stagnant eurozone caused demand to falter. Factory orders fell 5.7 per cent in August compared with the previous month, the biggest drop since January 2009 when demand slumped in the aftermath of the global financial crisis. However, Germany’s economy ministry, which released the figures on Monday, played down their significance, saying the timing of school holidays had influenced the result. Morgan Stanley cautioned clients against “reading too much into a single report” after factory orders rose by 4.9 per cent in July. Still, the data were worse than the 2.5 per cent decline economists had anticipated, according to a forecast compiled by Bloomberg, thereby casting a further shadow over Germany’s near-term economic prospects. Developments in Russia and Ukraine, a slowdown in China and deflation in the eurozone have dented confidence in recent months. German GDP fell 0.2 per cent in the three months to June, compared with the previous quarter.
Europe's Triple-Dip Recession Arrives: German Industrial Production Crashes Most Since February 2009 -- A few hours ago we finally got undeniable confirmation that Europe is once again in recession, its third since Lehman, only this one is worse: it is led by the "core" countries, with Germany in the forefront, a Germany which just reported industrial output which suffered its biggest monthly decline in more than five years in August. Specifically, German IP tumbled 4%, led by capital goods which crashed 8.8%; consumer goods sliding 0.4%, and basic goods dropping 1.9%, with the headline plunge far below the consensus of -1.5%, and below even the worst forecast of -3.0%, the biggest drop since February 2009, a result which according to the FT rose "fears that Europe’s biggest economy might be heading for recession and prompting renewed concern about the economic health of the eurozone."
Germany is stalling - Tuesday’s extremely weak German industrial production figures published for August have come an awkward time for the German government. An informal “employment conference” including some EU leaders has been called by Italian Prime Minister Renzi, and it is scheduled to take place, amid little advance publicity, in Milan on Wednesday. This will presumably set the stage for the next European Council meeting on October23. In between will be the International Monetary Fund/World Bank annual meetings in Washington, when the German approach to economic policy in the euro area will be heavily scrutinised. The official German line heading into these meetings is that the recovery is proceeding well, both in Germany and in the euro area as a whole, implying that the recent marked weakening in both gross domestic product and inflation data are just a temporary aberration. There is no sign that the Merkel administration is ready to change its longstanding formula for economic success in the eurozone: member states should stick to the fiscal targets in the Stability and Growth Pact, and should accelerate structural reforms, so that the expansionary monetary stance provided by the European Central Bank can bear fruit.Calls for fiscal easing, in the form of higher infrastructure spending, from the IMF, the ECB president and from other eurozone member states, have so far fallen on deaf ears in Berlin.This could change, however, if the German economy itself continues to weaken significantly. But how likely is this to happen? Although growth in the manufacturing sector has clearly fallen markedly since the start of the year, economic data from the services and employment sectors are not yet reporting the broad-based downward shift that is normally the hallmark of a recession.
German recession fears grow with latest industry data - Fears that Germany is on the brink of recession intensified after the eurozone’s largest economy suffered its biggest slump in industrial output since the beginning of the financial crisis. The Germany economy contracted in the second quarter and economists believe it will have struggled to grow in the third or may possibly have shrunk again. Concerns that it could have entered technical recession – defined by two consecutive quarters of contraction – were fanned by news on Tuesday that industrial output in August slumped 4%. That was more than twice the decline of 1.5% that had been forecast by economists in a Reuters poll. The drop was the biggest since January 2009, underlining the fact that, more than five years on from the financial crisis, Europe’s biggest economy is still struggling to shake off the damage done by recession. The German economy ministry sought to highlight the effect of later summer holidays, which boosted July, but admitted there was also underlying weakness. “Industrial production is currently going through a weak phase ... but the current decline is exacerbated by holiday effects,” the ministry said in a statement alongside its data. “All in all, one should expect weak production for the third quarter as a whole.”
German recession fears mount as exports plunge - (Reuters) - German exports plunged in August by their largest amount since the height of the financial crisis and leading institutes slashed their forecasts for growth, fuelling a debate on whether Berlin is doing enough to prop up Europe's economy and its own. Exports slumped by 5.8 percent, the biggest drop since January 2009, in the latest sign that Europe's largest economy is faltering amid broader euro zone weakness and crises abroad that have battered confidence and led German firms to postpone investment plans. "The economy seems to need a small miracle in September to avoid a recession in the third quarter," said Carsten Brzeski, an economist at ING. The Federal Statistics Office said late-falling summer vacations in some German states had contributed to a fall in both exports and imports, but the figures still painted a gloomy picture for an economy that until recently was hailed in Berlin as Europe's "growth locomotive". Earlier this week, industrial orders and output data suffered their steepest drops in more than five years.
Eurozone on cusp of triple-dip recession as German exports crumble - Germany’s exports are falling at the fastest rate since the global crisis in 2009, raising fears of a triple-dip recession and a disastrous relapse for the rest of the eurozone. The country’s five economic institutes - or "Wise Men" - slashed their growth forecast for Germany from 2pc to 1.2pc next year, warning that the latest measures unveiled by the European Central Bank will add “hardly any” extra stimulus to the real economy and may be unworkable. Christine Lagarde, the head of the International Monetary Fund, warned that the eurozone is at “serious risk” of falling back into recession if nothing is done, and is in danger of suffering a lost decade. “If the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable,” she said. The wording is a clear call to Germany for an immediate shift in policy. German exports slumped by 5.8pc in August as the crisis in Ukraine and Russia took its toll. “We’re no longer in a recovery,” said Volker Treier, head of the German Chamber of Industry and Commerce (DIHK). He said geopolitical upsets may have pushed the economy over the edge into a “technical recession”, but added that Germany itself is also to blame for failure to break out of a slow-growth trap. “We have too little investment. That’s been the case for years,” he said. The Wise Men said in a joint report that the German economy is now in “stagnation”, with unemployment likely to rise next year. “There are no signs of the long-awaited recovery yet. Corporate investment fell in the second quarter and there is hardly any evidence to suggest that this cautious approach to investment will change in the near future,” they said.
Germany needs ‘small miracle’ to avoid recession after exports fall by 5.8% - German exports suffered the biggest monthly fall in more than five and a half years in August, leaving Europe’s largest economy in need of “a small miracle” to avoid recession in the third quarter. Exports fell by 5.8% compared with July to €92.6bn (£72.8bn). The decrease is the latest sign of a sharp slowdown in Germany, which has been hit by sanctions between Russia and Europe and a flagging economy in the wider eurozone. The fall in August was the biggest since January 2009 when the global economy was in turmoil following the collapse of US investment bank Lehman Brothers. It was a sharper than the 4% forecast by economists, and followed a 4.8% rise in July. Germany’s economy shrank by 0.2% in the second quarter, so a second consecutive contraction in GDP in the third quarter would tip it into a technical recession. Carsten Brzeski, economist at ING, described the current situation in Germany as a “horror story”. He said: “The magnitude of the fall brings back memories of the peak of the financial crisis in early 2009. The economy seems to need a small miracle in September to avoid a recession in the third quarter.”
German model is ruinous for Germany, and deadly for Europe - The Kaiser Wilhelm Canal in Kiel is crumbling. Last year, the authorities had to close the 60-mile shortcut from the Baltic to the North Sea for two weeks, something that had never happened through two world wars. The locks had failed. Large ships were forced to go around the Skagerrak, imposing emergency surcharges. The canal was shut again last month because sluice gates were not working, damaged by the constant thrust of propeller blades. It has been a running saga of problems, the result of slashing investment to the bone, and cutting maintenance funds in 2012 from €60m (£47m) a year to €11m. This is an odd way to treat the busiest waterway in the world, letting through 35,000 ships a year, so vital to the Port of Hamburg. It is odder still given that the German state can borrow funds for five years at an interest rate of 0.15pc. Yet such is the economic policy of Germany, worshipping the false of god of fiscal balance. The Bundestag is waking up to the economic folly of this. It has approved €260m of funding to refurbish the canal over the next five years. Yet experts say it needs €1bn, one of countless projects crying out for money across the derelict infrastructure of a nation that has forgotten how to invest, sleepwalking into decline. France may look like the sick of man of Europe, but Germany’s woes run deeper, rooted in mercantilist dogma, the glorification of saving for its own sake, and the corrosive psychology of ageing.
Germany’s Bad Numbers Are Great News For All Of Us - Ilargi - Something’s happening in Europe that I would like to cheer and encourage at the top of my lungs. While only yesterday, most European leaders, the ECB and the IMF were busy chiding Germany for not lowering taxes or increasing government investment in its economy, today’s release of German economic data should either shut them up or drastically change their tune. Then again, they are to a (wo)man too self-obsessed and -important to keep their traps closed, and they know only the one tune. That should lead to some serious bitterness, of which I’m also full-heartedly in favor. For everyone’s good but that of the self-absorbed politicians, the eurozone should be demolished, and entirely new, far more modest treaties between the nations negotiated. If we can agree the single currency, and the legal settings it is caught in, have already done great damage to the over 50% of young people in Spain and Greece who may never find jobs at all, to the Italians and Irish who were keelhauled in the name of the greater good, and and and, and to all the millions in all the other eurozone member nations, if we can agree on that, things are going to get much worse if the euro project is not abandoned as soon as possible. The good thing about Germany’s bad, make that awful, numbers is that they will raise the voices of euroskeptics across the country. If there is to be a change in view or politics from Angela Merkel and her people, it’s not going to be what the rest of Europe wants, a softer stance on Mario Draghi’s ABS junk paper purchases. Quite the opposite: Germans will increase their calls for Deutschland first, and Merkel can no longer ignore them.
Draghi Policies Blunted in Berlin as German Protests Grow - Mario Draghi's policy tools are being blunted in Berlin. The European Central Bank president has stopped short of large-scale sovereign-bond purchases as efforts to mollify Germany’s political elite do little to silence criticism of his ever-more expansionary measures. Support for anti-euro groups such as Alternative for Germany has risen and the ECB’s latest plan to buy assets sparked an outcry within all major parties. “German public opinion matters an awful lot,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “Draghi wants the ECB to be a central bank like any other, one that can go and buy government debt. But he’s perfectly aware of Germany’s opposition, and the storm now is a clear signal that it’ll be much more difficult.”
France cautions Germany not to push Europe too far on austerity - France has denounced the eurozone’s austerity regime as deeply misguided and issued a blunt warning to Germany and the EU institutions that demands for further belt-tightening may set off a political backlash, endangering European stability. “Be careful how you talk to the countries in the South, and be careful how you to talk to France,” said the French premier, Manuel Valls. “The adjustment has been brutal and it has turned millions people against Europe. It is putting the European project itself at risk.” Mr Valls said Europe’s fiscal rules have been overtaken by deflationary forces and a protracted slump. “You cannot enforce the Treaty rigidly in these circumstances. The austerity policies are becoming absurd, and we have to examine the situation,” he told journalists in London. The reformist French premier said the eurozone’s failure to recover risked leaving the region on the margins of the world economy, stuck in a Japanese-style trap. France had pushed through €30bn of fiscal cuts from 2010 to 2012, and another €30bn since then in an effort to comply with EU deficit rules, only to see the gains overwhelmed by the economic downturn. The deficit will remain stuck at 4.3pc of GDP in 2015. A further €50bn of cuts are coming over the next three years. “If they make us reach a 3pc deficit, the country will be totally on its knees. It’s not possible,” he said. The warnings came amid reports the European Commission may strike down France’s draft budget for 2015, refusing to give Paris two extra years until 2017 to meet the 3pc limit. Brussels is also threatening “infringement proceedings”, a process that could ultimately lead to fines. This would put the new Juncker Commission on a dangerous collision course with both France and Italy, two of the eurozone’s big three, now closely aligned in a joint push for EMU-wide reflation and New Deal
French finance minister says not in EU's powers to reject budget (Reuters) - Europe's executive arm does not have the authority to reject France's budget over missed deficit-cutting targets, French Finance Minister Michel Sapin said on Tuesday as he announced that no further spending cuts would be made next year. Euro zone officials have told Reuters that the European Commission is likely to reject the French draft budget at the end of the month and ask for a new one that would be more in line with its commitments. French officials have said they did not expect the budget to be rejected. Sapin said the reports were "wrong". Rejecting the budget "is not within the powers of the Commission," he told RTL radio. "It cannot censure, it cannot reject the French budget or any other budget," he said. "Thankfully, in our democracies, the only place where we adopt, we reject, we censure, are the parliaments of the countries concerned."
Behold the Euroglut | FT Alphaville: What ails Europe is not “secular stagnation” or “normalisation”, but rather the much more specific problem of a “Euroglut”. So, at least, says George Saravelos at Deutsche Bank. His argument relates to the idea that the global imbalances which were created by Europe’s massive current account surplus are becoming the defining variables which will drive a weaker euro, low long-end yields and exceptionally flat global yield curves, as well as ongoing inflows into “good” EM assets. In short, Saravelos argues that Europe’s huge excess savings combined with aggressive ECB easing will lead to some of the largest capital outflows in the history of financial markets. As he explains on Monday: Euroglut is a global imbalances problem. It refers to the lack of European domestic demand caused by the Eurozone crisis. The clearest evidence of Euroglut is Europe’s high unemployment rate combined with a record current account surplus. Both are a reflection of the same problem: an excess of savings over investment opportunities. Euroglut is special for one and only reason: it is very, very big. At around 400bn USD each year, Europe’s current account surplus is bigger than China’s in the 2000s. If sustained, it would be the largest surplus ever generated in the history of global financial markets. This matters. Our premise is that the next few years will mark the beginning of very large European purchases of foreign assets. The ECB plays a fundamental role here: by pushing down real yields and creating a domestic “asset shortage”, it is incentivizing European reach for yield abroad.
Eurozone Faces a 1-in-3 Chance of Reentering Recession Soon, IMF Says -- The eurozone’s chances of re-entering a recession have roughly doubled to nearly 38% since April, the International Monetary Fund said in its latest global economic outlook on Tuesday, as the threat of deflation smothers growth prospects in the region. The higher chance of the eurozone’s economy contracting by the first half of 2015 is due in part to the three largest economies — Germany, France and Italy — facing lower growth prospects than the fund previously estimated. The weaker growth trajectory, the IMF said, would mean “a smaller negative shock is more likely to trigger a recession.”Regional powerhouse Germany is only expected to grow at 1.5% next year, down 0.2 percentage point from the fund’s July outlook. And Italy is expected to enter its third consecutive year of recession as the government fails restructure the Italian economy to boost competitiveness.The fund said there’s now a 30% chance that consumer prices in the currency union fall between now and next June. Inflation has drifted downward, “indicating risks of outright deflation or a protracted period of very low inflation,” the IMF said.The fund said the European Central Bank needs to be prepared to buy assets of eurozone nations if the inflation outlook worsens further, and Germany should boost demand through infrastructure investment.The IMF’s latest downgrade to its global economic outlook marked the fourth year of what it terms “serial disappointments” in global growth prospects.The IMF warned it may have to do it again next year. “The projected pickup in growth may again fail to materialize or fall short of expectations,” the fund said, particularly since “downside risks have increased.”
Euro-Area Yields Decline to Record Lows on Fed Rate Bets - Borrowing costs across the euro area dropped to record lows amid speculation sluggish global growth will prompt the Federal Reserve to keep interest rates near zero for longer than previously forecast. Yields on 10-year government bonds from Spain to Finland, including German securities, fell to all-time lows after minutes of U.S. policy makers’ most recent meeting said a slowdown and a stronger dollar posed potential risks to the outlook for the world’s largest economy. A gauge of inflation expectations in the euro area dropped to the least on record as European Central Bank President Mario Draghi said officials will lift inflation in the 18-nation currency bloc. “The rally is all about the dovish Fed,” “The Fed cites global risks but right now it’s the risks to Europe that are the center of the globe.” Spanish 10-year yields fell three basis points, or 0.03 percentage point, to 2.07 percent as of 4:34 p.m. London time and reached 2.03 percent, the least since Bloomberg began collecting the data in 1993. The 2.75 percent bond due in October 2024 rose 0.315, or 3.15 euros per 1,000-euro ($1,269) face amount, to 106.15. The yield on Germany’s 10-year bund, the euro region’s benchmark sovereign security, dropped as much as five basis points to 0.858 percent, the lowest on record. The rate on equivalent Austrian bonds fell to 1.062 percent and that on Belgian securities declined to 1.114 percent, both all-time lows.
European Inflation Expectations Collapse To New Record Lows - Despite all the 'promises', all the 'whatever it takes', all the jawboning... actions and words appear unable to shift the world away from its disinflationary spiral that Central Bankers are so afraid of... US forward inflation expectations have cratered in recent weeks (to levels that in the past have triggered money-printing largesse) but it is European forward inflation expectations that have collapsed to record lows leaving Draghi caught between a deflationary rock and a Bundesbank-bating, Treaty-busting sovereign QE hard place that he knows deep-down-inside (given the clear evidence from the US and The Fed) simply does not work how it is supposed to (in the textbooks). As Deutsche Bank warned, "QE in Europe will be ineffective, but it will happen anyway - it is the only tool the ECB has to protect its mandate."
The spectre of deflation - Olli Rehn - Europe’s still nascent economic recovery is in danger. Badly damaged by the financial and debt crisis since 2008, the European economy was stabilised in 2010-12 following inevitable consolidations in public finances and decisive action in containing financial market turbulence. Subsequently it has been in recovery mode, and since spring 2013 returned to growth. Challenges remain, especially high levels of unemployment in many countries. This is very worrying for social cohesion in Europe. And because the younger generation is the worst hit, it could seriously dent our growth potential for some time to come. We Europeans still have a fragmented financial system in which viable businesses, especially SMEs in some countries, find it very hard to obtain financing. Businesses and consumers also need affordable energy, while at the same time we must face up to the immense task of mitigating climate change and driving forward the use of renewable energy – the green economy is both a challenge and an opportunity. But the most pressing concern is the way Europe’s fragile recovery is now haunted by the re-born ghost of old-school geopolitics, and by the scary spectre of deflation. There’s no need to dwell on theories of secular stagnation, no matter how fascinating and perhaps even useful they might be, since the two factors are enough to do damage on their own and also reinforce each other. The conflicts in the Middle East and the fallout from the war in Ukraine – and from Russia’s economic stagnation – are weakening investor confidence and so dampening economic activity, thus exacerbating deflationary pressures. These deflationary pressures are in turn further depressing economic activity in Europe and aggravating unemployment.
Dam breaks in Europe as deflation fears wash over ECB rhetoric - Telegraph: A key gauge of deflation risk in Europe is flashing red, dropping to record lows on fears of fresh recession and lack of decisive action by the European Central Bank. The sudden lurch downwards came as Bank of America warned that France’s debt ratio could rocket to 120pc of GDP within five years, unless the EU authorities take radical steps to reflate the region’s economy. Italy’s debt could threaten 150pc even earlier. The 5-year/5-year forward swap rate monitored closely by traders plummeted beneath 1.77pc on Friday morning as a global growth scare drove European stock markets to a 12-month low. “This rate is the most important market signal on the planet right now. Everybody is watching the chart, and it has just gone off a cliff,” said Andrew Roberts, credit chief at RBS. Mario Draghi, the ECB’s president, has adopted the 5Y/5Y rate as the bank’s policy lodestar, used to distill expectations of future inflation. Any fall below 2pc is deemed a risk that expectations are becoming “unhinged” and could lead to a Japanese-style deflation trap.
It’s Draghi versus Weidmann on ECB QE - Last week’s press conference by ECB President Mario Draghi left the markets disappointed and somewhat perplexed about the shift towards quantitative easing that had just been sanctioned by the governing council (GC). Because this was focused on private sector assets, in the form of asset backed securities and covered bonds, there were doubts about whether the new policy could be implemented in sufficient size to deal with the deflationary threat in the euro area. Mr Draghi was noticeably hesitant about giving any firm indication about the likely scale of the programme. Although private sector quantitative easing (QE) is likely to suit the needs of the euro area rather well, as I argued here, the absence of any firm guidance on scale certainly undermined the beneficial announcement effects of the policy change. The ECB president addressed this issue on Thursday in an appearance at Brookings in Washington. This time, freed from the need to speak for the entire GC, he clearly changed his tune on the scale of the programme. But this highlighted the extent of the gap between his view and that of Bundesbank President Jens Weidmann, who presented his position in a revealing interview with the Wall Street Journal on Monday. It is far from obvious how this disagreement will be bridged.
Revealed – the Troika threats to bankrupt Ireland - Senior European and European Central Bank (ECB) officials agreed to threaten Ireland with national bankruptcy if the government made any attempt to burn bondholders, the Sunday Independent can reveal. The threat was made at a high-level teleconference meeting, details of which have been revealed for the first time by the Central Bank governor, Dr Patrick Honohan. Mr Honohan, who famously told the nation Ireland would be entering the Troika bailout programme live on radio as government ministers were publicly denying it, also revealed he was kept out of loop about the meeting. In a new book about the late Brian Lenihan, Mr Honohan said he only found out about the meeting after the Troika delivered the ultimatum to Mr Lenihan on November 26, 2010. "The Troika staff told Brian in categorical terms that burning the bondholders would mean no programme and, accordingly, could not be countenanced," Dr Honohan writes. "For whatever reason, they waited until after this showdown to inform me of this decision, which had apparently been taken at a very high-level teleconference to which no Irish representative was invited." Dr Honohan's revelations will add more fuel to claims that Ireland was "bullied" into the bailout. They are also likely to lead to growing demands here for former ECB president Jean-Claude Trichet, who played a central role in the Irish bailout and the handling of the Eurozone crisis, to appear before the banking inquiry over the coming months. -
Greek crisis was more painful than thought - --Greece's economy fell more sharply than previously thought in the midst of its five-year debt crisis--at one point plummeting almost 9% in a single year--but has since witnessed a slightly milder recession, according to fresh data from the country's statistics service. The revised data, released Friday, show that in 2010--the year Greece received its first international bailout--gross domestic product contracted by 5.4%, compared with a previous estimate of 4.9%, and in the following year by 8.9%. Earlier data had estimated a 7.1% contraction in 2011. Greece first entered into recession in 2008 amid a world-wide slowdown due to the global financial crisis. But successive waves of austerity measures demanded by its eurozone partners and the International Monetary Fund in exchange for some EUR240 billion in rescue aid have weighed heavily on the economy. From its peak, Greece's economy has shrunk by roughly a quarter in size, while unemployment reached a record 28% in September last year. Since then, however, the jobless rate has fallen slightly--to 26.4% in July--as Greece shows the first tentative signs of recovery. Greek GDP is forecast to grow 0.6% this year, and 2.9% next year.
French turn to UK for health care insurance - Tens of thousands of French people have quit the country's debt-ridden national health service and taken out private insurance with British companies, after losing faith in their "sick" welfare state. Growing numbers of French professionals, business owners and self-employed workers are refusing to pay expensive health service contributions, which the government says are compulsory. They are embroiled in a prolonged legal battle with the authorities, arguing that European agreements bar the French state from enforcing a "monopoly" on health insurance. Instead, French professionals have signed up for cheaper private health insurance with companies such as Bristol-based Amariz. Liberté Sociale, a group of professionals who are resisting state demands for payment of health contributions, estimates that at least 60,000 French people have quit the national system, the majority in the past two years since President Hollande introduced increases in taxes and health contributions. About 30,000 people have taken out policies with Amariz. The company has set up a website and a help line in French, and reimburses their medical expenses in France.
Update on the UK Recovery - From the The Courier, “Osborne defends austerity measures”: George Osborne, who has announced plans for a further £3.2 billion squeeze on welfare bill which will hit 10 million of the unemployed and working poor, warned they would be among the ones who would “suffer the most” if there was another crisis. In Europe, some nations had “backed off” austerity and “here we are in 2014 with a number of those countries facing economic crisis again”. I won’t recount in detail how misguided this analysis is — Simon Wren Lewis has ably detailed this in detail, most recently here, and earlier here and here. For now, I’ll just show two pictures — per capita income in the US and UK, normalized to the last peak, and last trough. In other words, while the UK downturn was bigger than the US, in per capita terms, the return of the UK economy to recession follows the implementation of austerity measures. Hence, despite the acceleration in UK GDP, from 2009Q2 to 2014Q2, US per capita income has grown a cumulative 3.5% more in the US than in the UK. As discussed in this post, divergent fiscal policies account for a large portion of the difference.
Millions face tax rises or 'derisory' state pension, report claims - Younger generations will receive a "derisory" state pension in retirement because the cash reserves that fund payouts to the elderly will run dry next year, a report will warn on Friday. A think tank claims to have discovered a "serious flaw" in the national accounts that within 12 months will leave the Government short of money to pay pensioners. As a result, the Treasury will be forced to raid income tax receipts to ensure old-age payouts continue, according to the influential Centre for Policy Studies. Michael Johnson, an academic at the think tank, which has links to the Conservative Party, said his research indicated the state pension was "unsustainable". Last night, a spokesman for the Department for Work and Pensions insisted the state pension "remains strong" but declined to comment on the alarming findings in the report.Mr Johnson claimed senior Westminster sources had privately admitted that state pension funding was in a perilous state, having viewed his research. He said the pension would need to be "watered down to a basic subsistence" in future years unless urgent action was taken. Millions of taxpayers under the age of 45 faced steep tax increases and would have to wait longer to collect a state retirement income, he claimed, while the under-35s should prepare for the state pension to be scrapped.