A Look at Reserves at the Fed -- The Federal Reserve has flooded the financial system with trillions of dollars as part of its effort to boost the economy. All that money out there presents the central bank with a challenge as it contemplates when and how to raise interest rates. And it has had unintended consequences, including a flood of deposits at the Fed by foreign banks, which earn interest on the money. The Fed created these reserves with its “quantitative easing” policy, which aims to hold long-term interest rates low. The Fed has accumulated more than $4 trillion of mortgage and Treasury bonds. When it buys bonds, it credits banks that sold the bonds with money, which they in turn can lend out. Much of these reserves have remained on deposit at the Fed. The central bank calls the money that isn’t required to be at the Fed “excess reserves.” Foreign banks currently face lower regulatory costs in the U.S. for having large balance sheets than domestic banks. That has made foreign banks more willing to borrow funds at very low interest rates near zero in public markets and deposit those funds at the Fed for 0.25% interest. Many foreign banks also found themselves short of U.S. dollars during the financial crisis and are eager to keep a large supply of dollars on hand.. Many other institutions–including money-market mutual funds, Fannie Mae, Freddie Mac and investment banks–have large cash holdings. Managing interest rates outside of the banking system presents the Fed with a challenge. Officials have designed a new instrument called overnight reverse repos in which it will pay nonbanks for their reserves, too. But it is an untested approach that officials are wary of using aggressively. Another challenge: When the Fed raises interest rates, its costs will go up, which could shrink the profit the Fed generates and hands over to the U.S. Treasury. And it could be politically unpopular for the Fed to make growing interest payments to foreign firms.
FRB: H.4.1 Release--Factors Affecting Reserve Balances--October 2, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks
Why is the Fed planning to fail? -- THE members of the Federal Open Market Committee are not overly fond of being stuck at the zero lower bound (ZLB). Since December of 2008, the Fed's preferred policy lever, the federal funds rate, has rested between 0% and 0.25%: effectively the lowest possible level, since the zero return on cash means that the central bank could not effectively deploy negative interest rates. Policy-making since then has been a monetary mess. Whether justified in their view or not, Fed members consider unconventional policy action, like asset purchases or promises to leave interest rates low for long periods of time, to be riskier than normal interest-rate policy. The FOMC fears that both encourage reckless borrowing and distort markets. The bar to easing via unconventional policy is therefore higher, and both the recession and recovery were more painful as a result. I'll put things more plainly. Central bankers should hate the ZLB. Whether or not policy at the ZLB tends to raise financial instability, the central bank simply can't do its job when its main interest rate is at zero. Since December of 2008 the Fed has failed miserably on both of its primary objectives: maximum employment and stable prices. The unemployment rate has at no point been anywhere near the Fed's estimate of the full-employment rate. And the Fed's preferred inflation gauge has spent most of the past six years either below or well below the 2% rate of annual growth the Fed claims to want. In a ZLB world the Fed does not do its job. That is a serious problem for the American economy and the Fed. It is quite possibly the most serious problem the Fed could conceivably have. So why is the Fed so determined to find itself right back at the ZLB in future, assuming it ever leaves it in the first place?
Fed’s Fisher Worries Fed May Be Behind Curve With Rate Hikes - Federal Reserve Bank of Dallas President Richard Fisher said in a television interview Sunday he is worried the U.S. central bank will raise interest rates too late and risk letting price pressures get out of control. The U.S. is “definitely pulling ahead of the rest of the world” in terms of growth, Mr. Fisher told Fox News Channel. “I worry we’re behind the curve at the Fed” when it comes to raising interest rates. When it comes to a quick wage-driven inflation pick up “I’m not worried about it yet, but I’ve seen it in my own Federal Reserve district, and I think it could happen to the nation as a whole” if the Fed doesn’t act in a timely manner, Mr. Fisher said. The Dallas Fed chief has been a consistent opponent of the Fed”s ultra-easy monetary policy stance. He’s long worried the Fed has supplied more than enough liquidity to the financial system, and that the money it has injected into the economy appears to be fueling increasing unstable financial markets. He opposed the Fed’s decision earlier this month to continue to pledge interest rates will stay near zero for a “considerable time” to come. Mr. Fisher noted “we’re seeing wage price pressures in our survey that are the highest since before the recession” in the Dallas Fed district. Mr. Fisher again warned about the current state of markets and fretted about the Fed’s relationship to the financial sector. “What bothers me is that the fixed-income markets have been awfully robust,” Mr. Fisher said. “We’ve been fueling the markets, and at some point trees just do not grow to the sky,” the official said. “I hope people are prepared for the fact that as we normalize policy, when we normalize policy, it’s not going to be an easy game anymore.”
Fed’s Evans: Hold Off on Rates Until Truly Confident in Recovery - —In a television interview Monday, Federal Reserve Bank of Chicago leader Charles Evans again said the U.S. central bank should hold off on raising interest rates until officials are truly confident of the recovery’s durability. Speaking to CNBC, Mr. Evans said, “I think there will be quite some time before it’s appropriate to raise rates.” Although the U.S. economy is “doing quite well,” officials need to be sure that when they raise rates off of what are currently near zero levels, that action will not occur prematurely. Mr. Evans said that the Fed should be willing to let inflation go a bit above the Fed’s 2% target as it seeks to spur growth, in part because inflation has been below the official goal for an extended period. Mr. Evans said he saw very little evidence of major financial market bubbles around the world right now. Mr. Evans is not currently a voting member of the monetary-policy setting Federal Open Market Committee. He has long been a strong supporter of using policy aggressively to help the economy grow.
Evans Says Future Fed Rate Hike Should Be Slow, Gradual - Federal Reserve Bank of Chicago President Charles Evans said Monday the U.S. central bank should be willing to let inflation modestly exceed the central bank’s target, if that’s what it takes to help to labor market heal. “I am very uncomfortable with calls to raise our policy rate sooner than later,” Mr. Evans said. “I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals,” he said. “We should err on the side of patience in removing highly accommodative policy” Mr. Evans said. “We should not shy away from policy prescriptions that generate forecasts of inflation that moderately overshoot our 2% target for a limited time. Such a policy strategy more properly balances expected costs and benefits,” the official said. Mr. Evans’ comments came from the text of a speech prepared for deliver before a gathering of the National Association for Business Economics in Chicago. Mr. Evans spoke in the wake of the recent Federal Open Market Committee meeting, where central bankers continued to say that interest rates will be held at near-zero levels for a “considerable time” to come. Most Fed officials believe the central bank will be able to hold off on raising interest rates until some time into 2015. Core officials have favored lifting rates around mid-year. But at the same time, a number of central bankers have been arguing that very buoyant price levels in financial markets, coupled with a faster-than-expected recovery in the job market, favor the Fed considering rate hikes sooner rather than later. Dallas Fed President Richard Fisher said in a television interview Sunday he worries the Fed may be behind the curve when it comes to raising rates, and that the institution might be risking an unwelcome inflation flare-up at some point in the future.
Fed’s Fisher: Fed Should Consider Raising Rates in Spring - Federal Reserve Bank of Dallas President Richard Fisher said Monday he might want to start raising interest rates next spring, rather than wait until later in the year as many of his colleagues prefer. In an interview with The Wall Street Journal Monday, Mr. Fisher said the timing of the first increase in short-term rates from near zero “really depends on how the economy evolves.” But he added, “the spring may be the right time raise rates rather than the summer.” Mr. Fisher is currently a voting member of the Fed’s policy committee. He has been a consistent opponent of the Fed’s aggressive actions aimed at boosting hiring and pushing inflation back up toward the institution’s 2% goal. He dissented at the committee’s meeting earlier this month, arguing the Fed should no longer say it expects to keep interest rates very low for a “considerable time.” Most Fed officials believe they will raise interest rates sometime in 2015. Top policy makers have encouraged a market perception that they won’t move until the middle of next year. Atlanta Fed President Dennis Lockhart, speaking to reporters last week, said he supports raising rates in mid-2015 or later because he wants ample evidence ensuring the economy is truly on the path to recovery. In a speech Monday, Chicago Fed President Charles Evans said he was “uncomfortable” with calls to raise rates sooner rather than later, telling reporters he believed 2016 would be the best time to act. Mr. Fisher is one of a small number of regional Fed bank presidents who want to raise rates before mid-2015. He repeatedly has said the Fed has done all it can to help the economy, and that the large amount of money it has printed is driving financial asset prices to worrisome levels
Fed’s Evans: Wait to 2016 to Consider Raising Interest Rates - Federal Reserve Bank of Chicago President Charles Evans said Monday he wouldn’t be comfortable with a move to start raising interest rates before the first quarter of 2016. “I am very uncomfortable with calls to raise our policy rate sooner than later,” Mr. Evans said in a speech in Chicago. “I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals.” Mr. Evans spoke before a gathering of the National Association for Business Economics. He made the comment about waiting until 2016 later, in remarks to reporters. The biggest mistake the Fed could make right now is to raise interest rates too soon, Mr. Evans said. And when the Fed does begin to raise rates, he believes those increases should be “shallow” so that officials can be sure the recovery will endure. Mr. Evans also said the Federal Reserve should be willing to let inflation modestly exceed the central bank’s 2% target, if that’s what it takes to help to labor market heal. And he told reporters policy makers had to be mindful of the impact of the strengthening dollar on inflation and trade flows. Mr. Evans spoke in the wake of the recent Fed meeting, at which policy makers repeated their assurance that interest rates will be held at near-zero levels for a “considerable time” to come. “We should err on the side of patience in removing highly accommodative policy” Mr. Evans said in his speech. “We should not shy away from policy prescriptions that generate forecasts of inflation that moderately overshoot our 2% target for a limited time. Such a policy strategy more properly balances expected costs and benefits.”
Fed Showing Lots of Patience Holding Off On Rate Hikes, Fed’s Bullard Says - Federal Reserve Bank of St. Louis President James Bullard said that by the yardstick the U.S. central bank adopted ahead of its latest round of bond buying, it should likely be quite near to raising interest rates. “A policy rate liftoff in the first quarter of next year would exhibit considerable patience relative to the plans laid out in September 2012,” Mr. Bullard said in slides to accompany a presentation he was to make Thursday evening in Tupelo, Miss. He added, “a liftoff date at the end of the first quarter of 2015 would already be well past what is called for by a standard monetary policy rule.” While Mr. Bullard did not say what he’d like to see happen with interest rates, he has in recent speeches signaled an appetite to raise short-term rates off of near zero levels sooner than many of his colleagues want. Mr. Bullard, who is not currently a voting member of the monetary-policy setting Federal Open Market Committee, agrees with most of the other Fed officials that rates should rise next year. But against the core of central bankers who favor a mid-year increase in rates, Mr. Bullard has been arguing in favor of boosting the cost of borrowing by the end of the first quarter of 2015. He’s even said he could get on board with an earlier move if the data surprised him in a positive fashion. Mr. Bullard’s assessment of monetary policy relied on what policymakers expected as they embarked on an open-ended campaign of bond buying aimed at stimulating growth and lowering the unemployment rate in late 2013. Officials have been winding down the pace of that program over the course of this year and are almost certain to stop the asset purchases this month. Mr. Bullard was upbeat about what the effort accomplished. “My assessment will suggest that the program has been more successful than the Committee anticipated, especially in terms of labor market outcomes,”
Business Economists See Lower Interest Rates than the Fed Sees in Late 2015 - Business economists are skeptical that the Federal Reserve’s benchmark interest rate will top 1% by the end of next year as central bank officials project. The poll of 46 professional forecasters by the National Association for Business Economics pegged the federal-funds rate target at 0.845% at the end of 2015. That reading is well below the median 1.25-to-1.50% range Fed officials themselves projected for the end of next year in forecasts released earlier this month. The Fed funds rate has been pegged near zero since the end of 2008. To top 1% in the next 15 months, the Fed would need to act fairly aggressively after the central bank moves to raise rates. Outside economists appear to betting on the central bank taking a more cautions path. “The economists surveyed appear to be more in line with the markets that aren’t pricing in as rapid of an increase.” Last week, New York Fed President William Dudley said “I think people shouldn’t overweight the value of those dots”” that indicate interest-rate forecasts. He echoed similar statements made earlier by Fed Chairwoman Janet Yellen. The difference between the economists and the Fed’s rate forecast comes despite very similar economic outlooks. The economists surveyed project U.S. gross domestic product will advance 2.9% during 2015 and project the unemployment rate to fall to 5.6% by the end of next year, from last month’s 6.1%.
The Federal Reserve is making a major shift in interest rate policy: The Federal Reserve may go from moving the goal posts to removing them altogether when it comes to setting interest rate expectations. Those goal posts have come in the form of economic numbers—more specifically, 6 percent unemployment and 2 percent inflation—that, if hit, would trigger interest rate increases. But many central bank watchers agree that the use of those targets—part of "forward guidance," in Fed parlance—is reaching an end. Chair Janet Yellen tipped her hand after the last Fed Open Market Committee meeting, and market participants believe the use of the unemployment and inflation targets is about to go away for good. Instead, the Fed is likely now to rely increasingly on the more-nebulous "data dependent" terminology for when it will lift its target funds rate off the floor, and won't wed itself to the specific targets first delineated in 2012."In effect, what we have seen is the rational abandonment of forward guidance as a useful policy tool in favor of discretion." For investors, the ramifications are a Fed that likely will be more flexible and able to retreat from its historically unprecedented level of cheap money at its discretion rather than being dictated to by arbitrary economic benchmarks.
Jobless Rate Still Key to Fed’s Timing - Here’s a simple way to think about the Federal Reserve’s timing for interest rate increases. Officials will want to start raising rates before the U.S. is at full employment, say by three to six months. Taking the Fed’s Summary of Economic Projections as a cue, you can say officials estimate full employment is reached with a jobless rate between 5.2% and 5.5%. Officials project the jobless rate will near 5.5% by the fourth quarter of 2015. Three to six months before then is the second or third quarter of 2015. Will the Fed move before then? In this simplified analysis, it will if the jobless rate approaches full employment sooner than expected. Yes inflation is a critically important part of officials’ thinking. If it is very low they face less pressure to act, and vice versa. Yes financial stability matters too. Yes officials have been downplaying the jobless rate this year. Yes they are looking at a broad array of labor market indicators. But the unemployment rate is still their favorite summary measure of job market slack. That makes Friday’s U.S. Labor Department report, just an hour away, the next important clue on the Fed’s path forward.
Why the rush to raise US interest rates, exactly? - For 28-straight months, the Fed’s preferred inflation gauge — the price index for personal consumption expenditures — has undershot the central bank’s 2% target. It advanced just 1.5% in August. Given what happened before the past three tightening cycles, should there be any rush to start raising rates? Some good points from Joseph LaVorgna at Deutsche Bank:
- 1.) What do the last three tightening cycles show? The 12-month change in core inflation averaged 1.9% at the time of the initial Fed tightening. In February 1994, the core PCE deflator was up 2.3% from its year earlier level. In June 1999, the core PCE deflator was up just 1.4% over the previous 12 months, and in June 2004, the core PCE deflator was up 2.0%.
- 2.) For the Fed to hike rates with the core PCE deflator well under 2%, policymakers would need to see some combination of the following: One, inflation expectations would need to be rising. Two, there would have to be noticeable signs of upward wage pressure. Three, the economy would have to be on very solid footing, meaning real GDP growth running well above 3%, monthly job gains averaging substantially above 200k, and the unemployment rate would have to be hovering around the non-accelerating inflation rate of unemployment, which the Fed estimates to be between 5.2% to 5.5%.
- 3.) The bottom line is that monetary policymakers have set a high bar for beginning the process of interest rate normalization. They want to be absolutely sure the economy can withstand the inevitable tightening of financial conditions that would accompany such a move.
Fisher Says Fed Must Weigh Wage Pressures in Setting Rate Policy - The Federal Reserve mustn’t “fall behind the curve” as it weighs when to start raising interest rates, Dallas Fed President Richard Fisher said, citing strengthening U.S. growth and building wage-price pressures. Fisher, a vocal advocate for tighter monetary policy to protect against inflation, also said today that two soon-to-be-released economic reports from his Fed district would “knock your socks off.” “I don’t want to fall behind the curve here,” Fisher said in a Fox News interview. “I think we could suddenly get a patch of high growth, see some wage-price inflation, and that is when you start to worry.” Fisher dissented on Sept. 17 at the last meeting of the Federal Open Market Committee, when the Fed retained a pledge to keep rates near zero for a “considerable time” after its asset purchases halt at the end of next month. He called U.S. second-quarter growth “uber strong,” referring to the upward revision last week to an annualized rate of 4.6 percent from 4.2 percent previously estimated, and said history had shown that wage pressures could accelerate when unemployment got below current levels of 6.1 percent. In addition, Fisher said surveys of wage-price pressures in the Dallas Fed’s district, which includes Texas, northern Louisiana and southern New Mexico, were the highest since before the recession, and other indictors were also buoyant.
The Fed would be crazy to worry about runaway wages - — Richard Fisher and Charles Plosser, the two biggest inflation hawks at the Federal Reserve, are retiring soon. But their pernicious ideas will stay alive at the Fed and elsewhere, threatening the middle class with another lost decade of underemployment and low wages.Fisher, Plosser and the other hawks say inflation is becoming our greatest economic worry. They want the Fed to raise interest rates soon to keep the unemployment rate from dropping too far and to prevent American workers from getting a raise. They would rather have you to stay jobless and poor.You may think I’m exaggerating their views, but I’m not. Fisher, the president of the Dallas Federal Reserve Bank, recently said that his worry is that wages are going up.“The unemployment rate comes down to below 6.1%, suddenly wage-price inflation goes up much steeper than people expected,” he told Maria Bartiromo of Fox Business. He says this as if higher wages would be a bad thing. In Fisher’s opinion, higher wages could force companies to raise their prices, thus loosening another plague of inflation upon the land. Plosser, who is president of the Philadelphia Fed, has a slightly different view. He thinks a little more inflation and a little bit more pay would be a good thing right now, but he doesn’t want inflation or wages to rise too fast, for fear that everyone in the economy would begin to plan on higher prices, thus loosening another plague of inflation upon the land.
PCE Price Index: Headline and Core Little Changed, Remain Below Target -- The Personal Income and Outlays report for August was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate of 1.46%, down from the previous month's 1.58%. The Core PCE index of 1.47% is fractionally lower the previous month's 1.49% YoY. As I've routinely observed, the general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since April of last year Core PCE had hovered in a narrow YoY range of 1.23% to 1.35%. The five most recent months have lifted the range slightly to 1.44% to 1.65%, but at this point we don't yet see evidence of an upward trend. The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I've highlighted the 12 months when Core PCE hovered in a narrow range around its interim low. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. I've calculated the index data to two decimal points to highlight the change more accurately.
Key Inflation Reading Slips Further Below Fed’s 2% Target - Consumer prices held flat in August, resulting in a closely watched inflation gauge slipping further below the Federal Reserve’s 2% target. The price index for personal consumption expenditures—the Fed’s preferred inflation measure—advanced just 1.5% in August from a year earlier, the Commerce Department said Monday. August was the 28th straight month the inflation reading undershot the Fed target. Excluding volatile food and energy prices, so-called core prices also advanced 1.5% year over year. The pace of overall price gains decelerated compared with July’s 1.6% pace, while the core price reading held steady for the fourth straight month. The data broadly indicates inflation pressures remained at bay. The Fed aims to set monetary policy so that prices will increase 2% a year. Consistently undershooting that target suggests slack remains in the economy, shown in part by weak wage growth and not enough demand for businesses to pass along price increases to customers. Weak inflation gives the Fed leeway to maintain its low-interest rate policy without causing the economy to overheat. The central bank’s benchmark interest rate has been pinned near zero since late 2008. The Fed intends to complete its bond-buying program this fall, turning policy makers’ attention to raising rates.
Two Measures of Inflation and Fed Policy - The BEA's Personal Consumption Expenditures Chain-type Price Index for August shows core inflation below the Federal Reserve's 2% long-term target at 1.47%, but for the past five months this indicator has hovered above its narrow range of the previous 12 months. The latest Core Consumer Price Index release, also data through August, is higher at 1.72%. The Fed is on record as using PCE as its primary inflation gauge. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. . [Source] Elsewhere the Fed stresses the importance of longer-term inflation patterns, the likelihood of persistence and the importance of "core" inflation (less food and energy). In the shorter term, however, the Fed has raised the top range of its inflation target by half a percent. The change was announced to the public in the December 12, 2012 FOMC press release. [Source] This close-up comparison gives us clues as to why the Federal Reserve prefers Core PCE over Core CPI as an indicator of its success in managing inflation: Core PCE is considerably less volatile than CPI. Given the Fed's twin mandates of price stability and maximizing employment, it's not surprising that in the past the less volatile Core PCE has been their metric of choice. On the other hand, the disinflationary trend in Core PCE in 2012 and 2013 cast doubt on the effectiveness of the Fed's monetary policy. That trend appears to have reversed in 2014.
Inflation Panic Will Kill the Recovery - When will central banks in the U.S. and U.K. start raising interest rates? The question preoccupies financial markets, and much turns on the answer. What's happening in the two countries' labor markets -- and what the Federal Reserve and the Bank of England think is happening -- is the crux of the matter. When, in due course, growing demand for labor bumps up against limited supply, wages will start to rise faster, and before long higher costs will be passed on to consumers. Inflation will be back. Ideally, the Fed and the Bank of England would like to get ahead of that, and squeeze demand before higher inflation arrives. Two questions arise: First, how close are the two economies to this takeoff in inflation? Second, how close is too close? In this sluggish and hesitant recovery, the first question is harder than usual to answer. Unemployment is the simplest measure of slack in the labor market, and it's fallen a lot in both countries. At about 6 percent of the labor force in each case, it's less than one percentage point above the rate central banks see as the long-term equilibrium -- the rate consistent with stable inflation. The turning point for inflation, according to this measure, is almost upon us, and the time for central banks to act is very soon. In a recent interview, Dallas Fed President Richard Fisher said, in effect, that the moment has arrived. The problem is, other measures of labor-market slack aren't in line. Above all, there's little sign yet of rising labor costs. In the U.K., make that no sign: There, real wages are falling, as David Blanchflower and Stephen Machin emphasize in an article for VoxEU. In the U.S., wages are rising only slowly; allowing for growth in productivity, the labor market is exerting no inflationary pressure.
Knaves, Fools, and Quantitative Easing - Paul Krugman -- When the going gets tough, the people losing the argument start whining about civility. I often find myself attacked as someone who believes that anyone with a different opinion is a fool or a knave; as I’ve tried to explain, however, that’s mainly selection bias. I don’t spend much time on areas where reasonable people can disagree, because there are so many important issues where one side really is completely unreasonable. Relatedly, obviously someone can disagree with my side and still be a good person. On the other hand, there are a lot of bad people engaged in economic debate — and I don’t mean that they’re wrong, I mean that they argue in bad faith. Which brings us to today’s installment of oh-yes-they’re-that-bad, courtesy of Bloomberg. You may remember the infamous open letter to Ben Bernanke warning that his efforts to boost the economy “risk currency debasement and inflation”; just in case you wondered about the political nature of the letter, among the signatories was that noted monetary expert William Kristol. So Bloomberg had the bright idea, now that almost four years of low inflation have passed, of asking the signatories whether they would concede that they were wrong. Not a chance. Hey, they only said there was a “risk” of inflation, and the economy hasn’t done well, so it’s all good! Just to say the obvious: if inflation had in fact risen, they would have claimed vindication. So it’s heads they win, tails they don’t lose.
The New Normal of Monetary Policy - Yves here. This post describes the "new normal" of the role bank reserves play in hitting short-term policy rate targets in the US. The author ends on a cheery note about how the abnormal-looking situation we have, in particular super-low interest rates, could persist for a very long time. The author contends that the way one reacts to these new procedures and their results will reflect your monetary aesthetics, as in your beliefs about the way central bank balance sheets and reserves should look. However, given the way that negative short-term real interest rates are stoking financial speculation at the expense of real economy investment (a trend that was already well underway even before the crisis containment program turbo-charged it), one can hardly see a continuation of the new normal of low growth and redistribution to top earners as a positive development.
Goldman: "Fed likely still holds $1 trillion MBS by the end of 2020" --Some interesting analysis from Goldman Sachs: Fed likely still holds $1 trillion MBS by the end of 2020: The QE program is set to end after the October FOMC meeting. In the updated exit strategy principles released on September 17, the committee announced that it anticipates (1) portfolio reinvestments will continue until after the first rate hike and (2) sales of MBS will not occur during the normalization process. The Federal Reserve currently holds close to $1.8 trillion agency MBS, accounting for one third of the total outstanding. Our US economics team forecasts the first Federal funds rate hike in 2015Q3 and the portfolio reinvestment continuing through 2015. This projection combined with the FOMC’s exit strategy principles suggests that the Federal Reserve is likely to remain the largest agency MBS investor for a long time....The speed of the portfolio rundown when the Fed stops reinvesting depends on the speed of principal payments, both scheduled (i.e., through amortization) and unscheduled (i.e., through refinancing, home sales, and defaults). Under our baseline scenario, the Federal Reserve continues reinvesting principal payments through 2015. After that, the Fed portfolio declines slowly, with the Fed still holding $1 trillion MBS by the end of 2020. Such a gradual pace suggests that Fed portfolio rundown is unlikely to create a surge in the net supply of agency MBS for private investors to absorb after the end of QE.
Why The Fed Is Full Of It: Reverse Repo Is A Fairy Tale -- As we explained previously, the end-of-quarter catastrophe in reverse-repo window-dressing malarkey between The Fed and The Banks (that own it) shows the Fed simply has no idea (once again) how financial markets really work in the modern era. As Alhambra Partners Jeffrey Snider explains, “We don’t exactly know how it will work” should be stamped upon every message coming from the policymaking apparatus from this point forward, and then retroactively applied to every message in the age of risk and rate repression. Action in short-term money markets has heated up yet again, and that is not a positive statement toward vital function.
Another Conspiracy Theory Becomes Fact: The Fed's "Stealth Bailout" Of Foreign Banks Goes Mainstream -- Back in June 2011, Zero Hedge first posted: "Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went" Of course, the conformist, counter-contrarian punditry promptly said this was a non-issue and was purely due to some completely irrelevant micro-arbing of a few basis points in FDIC penalty surcharges, which as we explained extensively over the past 3 years, has nothing at all to do with the actual motive of hoarding Fed reserves by offshore (or onshore) banks, and which has everything to do with accumulating billions in "dry powder" reserves to use for risk-purchasing purposes. Fast, or rather slow, forward to today when none other than the WSJ's Jon Hilsenrath debunks yet another "conspiracy theory" and reveals it as "unconspiracy fact" with "Fed Rate Policies Aid Foreign Banks: Lenders Pocket a Spread by Borrowing Cheaply, Parking Funds at Central Bank"
Q2 2014 GDP a Strong 4.6% - Q2 2014 real GDP was revised to 4.6%, a strong showing not seen since Q4 2011. Q2 Gross Domestic Product also cancels out the dismal Q1 -2.1% real GDP contraction for the year. Growth was across the board. Investment showed large growth. Personal consumption expenditures increased and were a large component of GDP. Changes in private inventories was a large GDP contribution, but so were exports. Overall Q2 GDP was a big bounce back from Q1. As a reminder, GDP is made up of: Y=C + I + G + (X-M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*. GDP in this overview, unless explicitly stated otherwise, refers to real GDP. Real GDP is in chained 2009 dollars. This below table shows the percentage point spread breakdown of Q1 from Q2 2014 GDP major components and their spread. Consumer spending, C in our GDP equation was 38% of GDP. Durable goods were almost an entire GDP percentage point and Motor vehicles & parts was 0.45 percentage points of GDP. Below is a percentage change graph in real consumer spending going back to 2000. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon).
More Jobs Follow More Q2 GDP -- The past week has seen upward revisions to the initial estimate of Q2 GDP: from 4.0% growth to 4.2% growth in the second estimate to 4.6% growth for the final estimate, following a negative growth rate in Q1. That report was followed today by the September Jobs report that showed an addition to total non-farm payroll employment of 248,0000. These are all positive signs. The key question is whether they show enough improvement in the labor market to stiffen the resolve of the Fed to ease its foot off the accelerator. The Establishment Survey from the BLS released on October 3 indicates that Total Nonfarm Employment increased 248,000 in September, slightly beating expectations that ranged from 200k to 220k. Private employment increased 236,000 and 207,000 of that was in service producing jobs. In addition, July employment was revised up by 31,000 and August up 38,000. The Fed has indicated that there is still slack in the labor market, evidently the sentiment reflects part-time workers. In Yellen’s speech at Jackson Hole on August 22, the word “slack” was used about 22 times and “part-time” 7 times. Indeed, those working part-time for economic reasons has fallen to its lowest level, (6.99 million) since November, 2008, roughly a 25% decline since the peak when nearly 9.2 million workers were employed part-time for economic reasons. However, the rate at which those workers are exiting into full time employment hasn’t shown any signs of recovery. In normal times that rate is around 0.45. Since the recession is has fallen and has stayed around 0.37. The employment to population ratio seems stuck at 59%…the third straight report with that reading. The size of the labor force shrank slightly, down 97,000. Combined with the employment increase, the unemployment rate nudged down to 5.9%. This is the first time below 6% since 2008 but it is partly due to the further drop in labor force participation. While a 5.9% unemployment is much closer to normal, the average time spent in unemployment remains elevated. Notice, the median unemployment duration more closely tracks the unemployment rate than the mean. This tells us that there remains a substantial pool of long-term unemployed.
Now as Provocateur, Summers Says Treasury Undermined Fed - Lawrence Summers, the former chief economic adviser to President Obama, said on Tuesday that the Treasury Department had undermined the Federal Reserve’s stimulus campaign and that doing so was a large and expensive mistake.The facts are straightforward: The Fed has been trying to reduce the supply of long-term Treasury securities. The Treasury, meanwhile, has been issuing relatively more long-term debt and less short-term debt. In effect, one arm of the government has been draining the bathtub while the other adds water. In a paper presented Tuesday at the Brookings Institution, Mr. Summers and three co-authors argued that the crosswinds had reduced the Fed’s impact by about a third, slowing growth and leaving more Americans jobless. Mr. Summers is not the first person to suggest this is a little crazy, but two things set him apart: The administration began the policy in question while he was still its top economic official. Moreover, since leaving the administration, he has campaigned loudly for the government to issue even more long-term debt, to support increased spending on roads, airports and other crumbling infrastructure. The Fed has sought to stimulate the economy by purchasing large quantities of long-term Treasury securities. During the same period, the Treasury has greatly increased its issuance of long-term debt. Mr. Summers and his co-authors calculate that the Fed’s campaign reduced long-term rates by 1.37 percentage points, but that the Treasury’s debt policies put back 0.48 of those points.
Powell Says Fed Should Shun Direct Treasury Ties - The Federal Reserve should continue to act fully independently from the U.S. Treasury even in times of crisis, Fed Gov. Jerome Powell said Tuesday in response to calls for closer cooperation between the two bodies in a Brookings Institution paper. The research, of which former Treasury Secretary Lawrence Summers is a co-author, suggests the Treasury’s debt management activities during and after the financial crisis, in particular its desire to extend the maturity of its portfolio, conflicted with the Fed’s policy of taking long-term securities out of the bond market through its asset purchase program. It argues that some level of cooperation during the crisis could have led to better policy outcomes, potentially stronger employment and economic growth. Mr. Powell strongly disagrees. “The authors’ proposals seem to me to be fraught with risk for the Federal Reserve,” he said. “There is considerable evidence that monetary policy independence leads to better macroeconomic outcomes. “Any active collaboration between debt management and monetary policy, even in a crisis, would risk calling into question that independence. That is a risk I would be very reluctant to take,” Mr. Powell added. He also said the study overstated the negative effect of the Treasury’s policies on the Fed’s bond buys.
Summers: U.S. Should Gradually Shift to More Short-Term Debt - The U.S. government over time should alter its debt policies and issue more short-term Treasury securities and fewer long-term securities, former U.S. Treasury Secretary Lawrence Summers argues in a new paper.. Such a shift could dramatically reduce the cost of funding government debt because interest on short-term debt is cheaper, he and a group of co-authors from Harvard University argue in the paper, released Tuesday by the Hutchins Center on Fiscal and Monetary Policy. The risks of adopting such a policy aren’t as great as is widely believed, they add. The proposal, coming from a former economic adviser to President Barack Obama who also served as Treasury secretary from 1999 to 2001, is sure to get noticed in Washington and on Wall Street. Investors are sensitive to the volume of long-term securities issued by the government. A shift toward more short-term debt issuance by the Treasury could push long-term rates lower, though Mr. Summers and his co-authors add the caveat that now is not the right time for a shift in strategy because demand for short-term government bills is not especially high. In making his proposal, Mr. Summers and his coauthors offer a sometimes stinging critique of how the Fed and Treasury did not coordinate their policies in recent years. While the Treasury was issuing more long-term debt in order to lock-in low interest rates for the future, the Fed was buying long-term debt to hold rates down and stimulate the economy.
Time for Treasury to Consider More Short-Term Debt? - The time might be approaching for the U.S. Treasury to rethink its strategy of issuing more long-term debt relative to short-term debt, a former senior U.S. Treasury official said Tuesday. The Treasury has been lengthening the average maturity of the debt it issues for several years. At 68.4 months as of June 30, the average maturity is well above its long-run average of 58.7 months and has been rising steadily since 2009. It is on pace to exceed 80 months by 2022. Interest rates are sensitive to the supply of debt the Treasury issues at different maturities. “For now the decision has been to continue on the path that we’re on,” said Mary Miller, who stepped down as undersecretary for domestic finance at the Treasury last month. “I wouldn’t be surprised if in the coming years (the policy) was revisited.” Her comments came at a conference hosted by the Hutchins Center on Fiscal and Monetary Policy, a center within the Brookings Institution. At the conference, former Treasury Secretary Lawrence Summers and three co-authors argued the Treasury should issue more short-term debt relative to long-term debt, because it would reduce the government’s financing costs with little risk. Mr. Summers also argued that the Treasury should cooperate more openly with the Federal Reserve on debt policy issues. Ms. Miller and other panelists were highly skeptical of Mr. Summers’ call for more cooperation between the Fed and Treasury, saying it could lead to interference with monetary policy. She called his proposal of more cooperation “highly problematic.” But she and others on the panel sounded notes of sympathy to his other idea that the Treasury might step back from its emphasis on long-term debt.
Americans have no idea how the government spends money - One third of Americans think the government spends more on foreign aid than on social security. The Pew Research Center recently polled Americans on how much they know about events in the news (want to test yourself? go take their quiz). People were generally knowledgeable about items related to current events and debates -- ISIS, Ukraine and the minimum wage. But when it comes to how much the government spends on various programs? Not so much. Pew asked respondents which program the government spent the most money on: Social Security, transportation, foreign aid, or interest on the national debt. Here's how they responded: The most popular answer was foreign aid at 33 percent, followed by interest on the debt, at 26 percent. Twenty percent named Social Security, and an additional 4 percent named transportation. For comparison, here's how much money we *actually* spend on those things: Social Security is the largest item in the list by far, at $773 billion in spending in fiscal year 2012. That's roughly 17 times the annual spending on foreign aid, 8 times the amount spent on transportation, and 3.5 times the amount spent on net interest on the debt.
The $300 Billion Question: How Should Congress Budget for Federal Lending Programs? -- Lending programs create special challenges for federal budgeting. So special, in fact, that the Congressional Budget Office estimates their budget effects two different ways. According to official budget rules, taxpayers will earn more than $200 billion over the next decade from new student loans, mortgage guarantees, and the Export-Import Bank. According to an alternative that CBO favors, taxpayers will lose more than $100 billion. Those competing estimates pose a $300 billion question: Which budgeting approach is best? As I document in a new report and policy brief, the answer is neither one. Each approach tells only part of the story. Congress would be better served by a new approach that fairly reflects all the fiscal effects of lending. If lending programs perform as CBO expects, they will bring in new money that the government can use to reduce the deficit, increase spending, or cut taxes. In that sense, taxpayers may come out more than $200 billion ahead. But these programs do not fully compensate taxpayers for their financial risk. If the government took the same risk by making loans and guarantees at fair market rates—perhaps by investing in publicly traded bonds—taxpayers would make much more. Taxpayers are subsidizing the students, homeowners, and companies that borrow through these programs. In that sense, taxpayers come out more than $100 billion behind.
Tax Tactics Threaten Public Funds - - When the European Commission charged this week that Ireland’s sweetheart tax treatment of Apple amounted to an illegal corporate subsidy, the company said that it had done nothing wrong. Apple executives might have added that whatever they did, they were not alone.Corporate tax strategies intended to minimize global taxes, by hook or by crook, are by now standard practice. Google and Facebook move money through Ireland to lower their taxes. Starbucks uses the Netherlands, a practice that is under review by Europe as well.“The commission picked up a case which is quite common in terms of tax planning,” said Pascal Saint-Amans, who runs the Center for Tax Policy and Administration at the Organization for Economic Cooperation and Development, the policy advisory organization of the world’s advanced nations. The question is whether this sort of strategy — as common to multinational companies as filing a tax return every year — can truly be stopped. What hangs in the balance is whether governments can continue to tax corporations beyond the barest minimum. Or whether globalization will make such taxation all but impossible.
The Ugly Face of Shareholder Value Exposed By Inversions - Something strange is happening to familiar American companies: Burger King has become Canadian, Pfizer seems to be trying to be British, and Walgreens has backed away from becoming Swiss only because of the outcry over their plan for a new nationality. Seeing what our companies are willing to do to escape paying income tax, people are beginning to wonder about how American our American companies are. And when, in addition, these corporate actions are praised, and are described as what American companies should do, or even must do, people begin to wonder if something is seriously wrong--and they are right to wonder. Inversions may or may not be important in themselves, but understanding the forces that drive corporate inversions reveals a surprising amount about the cause of two major problems; the problem of extreme income inequality and the problem of stagnating wages in America. The driving force behind inversions was described very clearly by George Will in a recent Washington Post column. Writing a defense of inversions, George Will stated, "A publicly held corporation's responsibility is to its shareholders; its fiduciary duty is to maximize the value of their holdings." From this statement it follows immediately that it is a corporation's "fiduciary duty" to do inversions, or for that matter, anything else, if it will lift share price. But George Will's statement, although it is widely believed, is not accurate. There is no legal obligation, no "fiduciary duty" requiring corporations to focus on maximizing shareholder value. The reality is quite different; the reality is that shareholders and their managements have freely chosen this corporate direction. And, as we will see below, there is considerable evidence that this direction has been devastating for the country.
Pass-Through Firms Report $800 Billion in Net Income, Can’t Be Ignored in Business Tax Reform - Washington is going through another one of its periodic calls for business tax reform. But new research by my Tax Policy Center colleague Joe Rosenberg shows just how hard it is to separate business taxation from the individual tax code. And it should serve as a warning to those who think Congress can enact corporate tax reform that ignores these firms. Using IRS data, Joe found that in 2012 more than 9 percent of Adjusted Gross Income (AGI) reported on individual returns —nearly $850 billion– came from business income. About $300 billion, or 3.3 percent of AGI, came from sole proprietorships. Their share of AGI is actually down a bit from 1988. To be sure, many of these taxpayers are wage earners who receive a small amount of business income on the side. Imagine a plumber who toils for a construction company during the day but moonlights on weekends. A 2011 Treasury Department study found that only about half of these taxpayers met its test for business activity. Still, 23 million returns included sole proprietorship income. The more interesting story is what’s happened with other forms of pass-through firms (also called flow-throughs) such as partnerships and S corporations. Income from these businesses tripled as a share of AGI since 1988, and in 2012 hit 6 percent of total AGI. More than 8.3 million filers reported $535 billion in net partnership and S corp income on their individual returns.
Our Invisible Rich, by Paul Krugman -- Half a century ago, a classic essay in The New Yorker titled “Our Invisible Poor” took on the then-prevalent myth that America was an affluent society with only a few “pockets of poverty.” For many, the facts about poverty came as a revelation... Instead, these days it’s the rich who are invisible. ... In fact, most Americans have no idea just how unequal our society has become. The latest piece of evidence to that effect is a survey asking people in various countries how much they thought top executives of major companies make relative to unskilled workers. In the United States the median respondent believed that chief executives make about 30 times as much as their employees, which was roughly true in the 1960s — but since then the gap has soared, so that today chief executives earn something like 300 times as much as ordinary workers. So Americans have no idea how much the Masters of the Universe are paid, a finding very much in line with evidence that Americans vastly underestimate the concentration of wealth at the top. ... So how can people be unaware of this development, or at least unaware of its scale? The main answer, I’d suggest, is that the truly rich are so removed from ordinary people’s lives that we never see what they have. We may notice, and feel aggrieved about, college kids driving luxury cars; but we don’t see private equity managers commuting by helicopter to their immense mansions in the Hamptons. The commanding heights of our economy are invisible because they’re lost in the clouds. ...
US Regulators Fear "Runs" From PIMCO's Systemic Risk As Outflows Soar To 12.5% Of Assets - Things are rapidly shifting from bad to worse for PIMCO. In a triple whammy this morning, Bloomberg reports the Total Return Fund ETF (managed previously by Bill Gross) has suffered $446 million outflows (or over 12.5% of assets) so far; Morningstar downgrades the fund from 'gold' to 'bronze' citing "uncertainty regarding outflows and the reshuffling of management responsibilities"; and perhaps most concerning - given our previous warnings over bond market illiquidity - The FT reports, US regulators are monitoring trading and fund flows surrounding PIMCO's Total Return Bond fund warning investors they should contemplate the unintended consequences of pulling their money and the possibility of systemic risk disruptions, fearful of "runs."
Revisiting the Lehman Brothers Bailout That Never Was - At issue that September, six years ago, was whether the Fed could save a major investment bank whose failure might threaten the entire economy.The firm was Lehman Brothers. And the answer for some inside the Fed was yes, the government could bail out Lehman, according to new accounts by Fed officials who were there at the time.But as the world now knows, no one rescued Lehman. Instead, the firm was allowed to collapse overnight, a decision that, in cool hindsight, let problems at one bank snowball into a full-blown panic. By the time it was over, nearly every other major bank had to be saved.Why, given all that happened, was Lehman the only bank that was not too big to fail? For the first time, Fed officials have offered an account that differs significantly from the versions that, for many, have hardened into history. Ben S. Bernanke, the Fed chairman at the time, Henry M. Paulson Jr., the former Treasury Secretary, and Timothy F. Geithner, who was then president of the New York Fed, have all argued that Lehman Brothers was in such a deep hole from its risky real estate investments that Fed did not have the legal authority to rescue it. But now, interviews with current and former Fed officials show that a group inside New York Fed was leaning toward the opposite conclusion — that Lehman was narrowly solvent and therefore might qualify for a bailout. In the frenetic events of what has become known as the Lehman weekend, that preliminary analysis never reached senior officials before they decided to let Lehman fail.
Make No Mistake: Eric Holder CHOSE Not to Jail the Bankers - Alexis Goldstein - In the wake of Eric Holder’s announcement that he’d be stepping down as U.S. Attorney General (once his replacement has been nominated and confirmed by the Senate, that is), various news outlets have looked back on his tenure, assessing his legacy as the nation’s chief law enforcement officer. But the coverage misses a key point: an Attorney General that’s ruthlessly pursued whistleblowers and fought hard to justify the extra-judicial killing of Americans abroad could have applied this same ferociousness to prosecuting Wall Street. But he chose not to. Some coverage ignored Holder’s legacy in (not) policing Wall Street altogether. Others mentioned the Justice Department’s lackluster record on policing financial fraud, but focused instead on the headline-grabbing settlement numbers negotiated during his tenure. Others still, like John Dickerson on Slate’s Political Gabfest, had an eager, credulous view of Holder’s legacy, repeating the Administration’s view that while populist anger is righteous, the blood-thirsty mobs calling for banker justice just don’t have the law on their side. This last point is most important to explore, as the Obama Administration wants us to believe that the Department of Justice really wanted to jail the bankers, but couldn’t. The Administration has forcefully maintained that a lack of clear legal authority, and blurred lines between unethical and illegal behavior during the crisis, thwarted their attempts. But despite the frequent invocation of this talking point, it remains wrong.
William R. Black on Prosecuting Criminal Banker CEOs: Obama and Holder Don’t Even Care Enough to Fake It -- Bill Black gives a fine and focused interview, with Sharmina Peries, Executive Producer at TRNN.
Bill Black Discusses “Too Big to Jail” on Bill Moyers via Yves Smith - Bill Black gives one of his best recaps ever of the "too big to jail" syndrome on Bill Moyers. For readers who missed the story, Black gave critical testimony in a Federal prosecution of small fry mortgage fraudsters. He helped persuaded the jury that in fact no fraud took place because the banks were willing to underwrite any predatory, poorly underwritten loan in the runup to the crisis. Black savages the posture of the Department of Justice in this case and in general.
The Secret Recordings of Carmen Segarra (audio) Ira introduces Carmen Segarra, a bank examiner for the Federal Reserve in New York who, in 2012, started secretly recording as she and her colleagues went about regulating one of the most powerful financial institutions in the country. The Fed had commissioned a highly confidential report, written by Columbia professor David Beim, that identified why the regulator failed in the years leading up to the crisis. Beim laid out specific recommendations for how the Fed could fix its problems. Carmen's recordings allow us to see if the Fed successfully heeded those recommendations more than two years later. What we hear is not reassuring. ProPublica's Jake Bernstein tells the story of Carmen's first months at the New York Fed, and how she came to start recording. And we hear the story of how the Fed examiners respond to an unusual, questionable deal that Goldman Sachs did — a deal that the top Fed guy stationed inside Goldman calls "legal but shady." We hear what the New York Fed and Goldman Sachs say about all this. We hear a Goldman Sachs supervisor tell Carmen Segarra how an examiner should talk and act to be successful at the Fed. And we hear what happens to Carmen when she does exactly what David Beim's confidential report told the Fed it needed to encourage its examiners to do in order to spot the next financial crisis. In the course of reporting our story with ProPublica, we sent lots of questions to the New York Fed and Goldman Sachs. We wanted to share those with you, along with the institutions' responses. Our questions to the New York Fed are here
Carmen Segarra: Wall Street’s Spy Vs Spy - If you missed our coverage in 2012 of the Lower Manhattan Security Coordination Center where Wall Street sleuths from those serially charged firms like Goldman Sachs and JPMorgan dunk donuts alongside New York’s finest in a $150 million spy center, keeping tabs on the comings and goings of their own Wall Street employees as well as innocent pedestrians, then you may not fully appreciate why Carmen Segarra has been celebrated all weekend for her temerity in taping her boss and colleagues at the New York Fed, as well as employees inside the cloistered bowels of Goldman Sachs. While Wall Street was spying on everyone else in lower Manhattan in a high tech center funded by the taxpayer, Segarra strolled over to a Spy Store, plunked down a modest sum and walked out with a tiny tape recorder. She then proceeded to capture the essence of the quintessential captured regulators who didn’t see the 2008 crash coming and won’t see the next one coming either – because their job is not to see too much. (We called the Spy Store on Saturday to ask if they had experienced an upsurge in sales of the tiny recorder. We were informed that sales were brisk but not unusual.) Segarra is a lawyer and former bank examiner at the Federal Reserve Bank of New York, one of Wall Street’s key regulators, who charged in a lawsuit filed in October 2013 that she was told to change her negative examination of Goldman Sachs by colleagues, who also obstructed and interfered with her investigation. According to her lawsuit, when she refused to alter her findings, she was terminated in retaliation and escorted from the Fed premises.
Fed Whistleblower Carmen Segarra, Snowden, and the Closing of the Journalistic Mind -- Yves Smith --The financial press has been awash with coverage of This American Life’s broadcast of key section of 46 hours of tapes made in secret by former New York Fed bank examiner Carmen Segarra. The broadcast and related reporting at ProPublica show how utterly craven the central bank was when it came to matters Goldman. Now you might say, isn’t this media firestorm a great thing? It’s roused Elizabeth Warren and Sherrod Brown to demand hearing. The Fed has been toadying up to Wall Street for years. Shouldn’t we be pleased that the problem is finally being taken seriously? Let’s look at this a tad more clinically. This press reaction is in fact proof that the financial media has been asleep at the switch and underreporting stories by whistleblowers and critics of regulators. The reason that this story is getting traction is the salaciousness of secret tape recordings, which also reduce the burden on reporters to do their job, namely, investigate. Michael Lewis alluded to that issue in his enthusiastic write up in Bloomberg on Friday: Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn’t pay it much attention.
Goldman Bans Employee Stock Trading Following “This American Life” Broadcast : Following a blockbuster report by ProPublica and This American Life alleging that the New York branch of the Federal Reserve, which supervises many of the largest banks, was meek, lackadaisical, and captured by the banks it was supposed to supervise, one of those banks, Goldman Sachs, has changed its policy on employees owning stocks and bonds. Goldman employees’ ownership of other companies’ shares has lead to accusations from critics and shareholders of companies working with Goldman Sachs of conflicts of interest. Investment bankers at Goldman will no longer be able to trade individual stocks or bonds or invest in so-called “event” driven hedge funds — hedge funds that buy up shares of a company speculating that the price will change because of an imminent corporate action like a merger, bankruptcy, or stock sale — or “activist” funds, hedge funds that buy up large stakes of a company and then try to overhaul their operations in order to drive up the stock price. Companies in disputes with activist investors often hire investment banks like Goldman to help advise them.
Why the Fed Will Always Wimp Out on Goldman – Poor Carmen Segarra. She thought she was dropping the goods on Wall Street, but no one cares. So now, thanks to secret tape recordings made by Carmen Segarra, a rightly disgruntled former employee of the Federal Reserve Bank of New York, the Fed has had its Ray Rice moment, as Michael Lewis suggested. You know, where the media gets all shirty with righteous indignation and won’t let go of the story until it has a serious scalp. For those of you who haven’t been paying attention, here’s the basic beef: After Segarra raised questions with her superiors at the Fed about its light-hands treatment of Goldman Sachs, she was fired. Segarra later passed over tape recordings of internal Fed conversations to ProPublica, the investigative reporting nonprofit, and alleged that the New York Fed was being pushed around and cowed by Goldman and other Wall Street banks rather than acting in its proper role as regulator.The sudden appearance of Segarra’s tape recordings in the news this week was reminiscent of the way that the NFL was embarrassed by the videotape that showed Rice, the now-suspended Baltimore Ravens running back, knocking out his girlfriend in an elevator – all of which suggested the NFL knew about the abuse but gave Rice kid-gloves treatment, as it does in many cases of abuse. The truth is, although both incidents do reveal something about the way the powerful and famous get away with more stuff than the rest of us, there’s no real comparison. The Segarra Tapes actually reveal little or nothing that was not already known, assuming you have a shred of understanding how the Federal Reserve banks actually work. Nor is William Dudley, the president of the Federal Reserve Bank of New York, about to get pilloried in public like NFL Commissioner Roger Goodell.
How Not to Regulate - A confidential internal report. Secret recordings. An award-winning journalist and the best radio show on the air. This weekend, Jake Bernstein of ProPublica and the team of This American Life presented a fantastic piece about how managers at the world’s most important financial regulator suppress dissent and ingratiate themselves to the big banks they are supposed to oversee. For those who follow the doings of the New York Fed, none of this will come as a great surprise. But it does add remarkable color and detail, thanks largely to the tape recordings of former New York Fed employee Carmen Segarra, to what was already widely known within the industry.The underlying point of the piece is that the very culture of the New York Fed ensures lax regulation—a scenario often called “regulatory capture,” defined by This American Life’s Ira Glass as “when a regulator gets too cozy with the company he’s supposed to be monitoring.” When senior New York Fed officials want their staff to go easy on Goldman Sachs they don’t even need to lift a finger. The institutional culture takes care of it for them. All of this is to say that the New York Fed is effectively captured. It consistently takes the side of the major banks it regulates, whatever the motives happen to be. Many have observed this before. For some people, like Tim Geithner, that’s justified, because what’s good for Wall Street (whether it be non-regulation of derivatives, emergency bailouts, or minimal capital requirements) is good for America. For others, like my colleague Simon Johnson (who has written about this repeatedly) and me, that’s a problem, because megabanks that can blow up the global financial system need closer and tougher supervision.
Game of Thrones, The Wire, and the New York Fed - I wrote a column that went up this morning at The Atlantic about the ProPublica/This American Life story about the New York Fed. The gist of the argument is that we all knew the New York Fed was captured; for people like Tim Geithner, that’s a feature, not a bug. There was a paragraph in my original draft that I really liked, but I can completely understand why the editors didn’t want it:“When Tyrion Lannister wants his son killed, he sentences him to death in public. When Avon Barksdale wants potential incriminating witnesses killed, he obliquely lets his lieutenant know that he’s worried about loose ends—because he doesn’t want his fingerprints (voiceprints, actually) visible. When senior New York Fed officials want their staff to go easy on Goldman Sachs—well, they don’t need to lift a finger. The institutional culture takes care of it for them.” In a less well developed political system, rich businessmen buy favorable policy by passing money under the table (or hiring politicians’ relatives, or giving them loans and then letting them default, and so on). In the United States, for the most part, you don’t have to do anything illegal: the system takes care of it for you, whether it’s bailout money from the Treasury Department or regulatory forbearance from the New York Fed. That system is a combination of personal incentives, cultural capture, and institutional sclerosis.
Bill Black: Fed Failure – A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Regulators - Yves here. In this post, Bill Black does the yeoman's work of stepping through one revelation in Fed whistleblower Carmen Segarra's tapes from some of her discussions with more senior colleagues at the New York Fed. A critical section involves how Fed officials became aware of the fact that Goldman had slipped language into an already-closed transaction with the Spanish bank Santander that indicated that the Fed had been informed of the deal and had not objected, neither of which was the case. The staffers tried to rouse themselves to challenge Goldman on this misrepresentation, and lost their nerve. But as bad as letting Goldman roll the Fed on the matter of non-existant non-objections is concerned, Black stresses the much more serious underlying failure: Goldman had created the impression that the Fed was kosher with Goldman helping Santander fool European bank regulators by pretending it was more solvent than it was. The effort to game banking regulations is an even bigger deal than the effort to pretend the Fed was all on board. Black blasts the clearly captured New York Fed "relationship manager" Mikel Silva in gratifying detail.
Boot-licking For Professionals - Faced with proof that her beloved financial industry was a naughty boy and managed to elude regulations long enough to crash the economy, Megan McArdle rushes to the rescue with excuses for criminal behavior. Please note that while these reasons appear to be negative they are not. It's just the way it is. For instance: Banks etc. are dishonest and will hide information. Regulators can, of course, insist that regulated industries provide extensive information, under pain of terrible penalties. What they cannot do is insist that the regulated industries provide information they would like to know but aren’t aware exists. Think of it as a giant game of hide-and-seek in which the seeker has a gun but the hider has the only accurate map of the premises. Regulators are afraid of bankers. For a banking regulator, unless there’s a financial crisis, the worst negative stimuli is likely to come from angry bankers, not consumers who are outraged about the decision to let Goldman Sachs hold some Santander Brasil stock for a while. This is one big reason that agencies that start out as fierce hawks intent on putting industry in their place end up as docile partners helping the incumbents shut out new competition.Regulators must be friendly to the industry they regulate if they want to cash in later. The only place where a longtime regulator can get a new job is in the regulated industry. Everyone laments the revolving door. No one proposes a realistic alternative. If you enact a life ban on employment in any regulated industry, you’re essentially telling regulators that staying in their job for longer than a couple of years is the next best thing to a prison sentence. This excuse speaks for itself. In the real world, regulators are people, too, and people are social animals. They want to be liked.
Fed’s Dudley Says Those Who See Lax Regulatory Oversight Are Wrong - Federal Reserve Bank of New York President William Dudley pushed back on Thursday against criticism his bank’s regulatory activities have fallen well short of the central bank’s ideals. “I completely stand behind the integrity and work of our supervision staff at the New York Fed. These people are completely dedicated to the goal of the safety and soundness of the financial system, and that’s it. They are operating completely in the public interest,” Mr. Dudley said. “We are going to keep striving to improve, but I don’t think anyone should question our motives or what we are trying to accomplish,” he said. What’s more, Mr. Dudley said “I don’t think anyone will dispute the fact that the U.S. banking system is much more robust and resilient” than it was ahead of the financial crisis, in large part due to Fed efforts. The central banker was countering reports and other developments that have portrayed his institution as a complacent and weak regulator unwilling to take tough stands with the financial firms its oversees. The bank has also been criticized for promoting groupthink among its staffers that compromised their ability to watch over the banking system. Much of the criticism now directed at the Fed stems from a report into its activities Mr. Dudley himself authorized when he became president of the bank in 2009.
Bill Dudley Responds To Charges NY Fed Is Controlled By Goldman Sachs: "Nobody Should Question Our Motives " -- Carmen Segarra's second (and this time almost certainly last) 15 minutes of fame, and 47.5 hours of humiliating "secret Goldman Sachs" recordings proving the NY Fed is merely yet another tentacle of Goldman Sachs, have come and gone, and nobody cares. But in the meantime, someone still remembered that the trading desk of the world's biggest hedge fund is merely a branch office of Goldman Sachs as we revealed in 2010 (and there are those who wonder why unlike JPM, BofA and Wells, Goldman has "no balance sheet"), and asked the head of the NY Fed, Bill Dudley whether there is any truth in Segarra's latest revelations, which one does not need an interpreter to comprehend: just listening to the public tapes is enough). This is what Dudley said:“I completely stand behind the integrity and work of our supervision staff,” he said after a speech today in New York. “They are operating completely in the public interest.”Dudley said there has been a “significant reorganization” following a report commissioned by the regional Fed bank, and that “improving supervision has been and remains an ongoing priority for me.” "I don’t think anyone should question our motives and what we are trying to accomplish,” Dudley said today in defense of his institution. “Examiner independence is completely paramount.” Oh, we forgot to mention one thing: "Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm's chief U.S. economist for a decade."
The U.S. Has No Banking Regulation, And It Doesn’t Want Any -- It is, let’s say, exceedingly peculiar to begin with that a government – in this case the American one, but that’s just one example - in name of its people tasks a private institution with regulating not just any sector of its economy, but the richest and most politically powerful sector in the nation. Which also happens to be at least one of the major forces behind its latest, and ongoing, economical crisis. That there is a very transparent, plain for everyone to see, over-sized revolving door between the regulator and the corporations in the sector only makes the government’s choice for the Fed as regulator even more peculiar. Or, as it turns out, more logical. But it is still preposterous: regulating the financial sector is a mere illusion kept alive through lip service. Put differently: the American government doesn’t regulate the banks. They effectively regulate themselves. Which inevitably means there is no regulation. The newly found attention for ProPublica writer Jake Bernstein’s series of articles, which date back almost one whole year, about the experiences of former Fed regulator Carmen Segarra, and the audio files she collected while trying to do her job, leaves no question about this. What’s going on is abundantly clear, because it is so simple. The intention of the New York Fed as an organization is not to properly regulate, but only to generate an appearance – or illusion – of proper regulation. That is to say, Goldman will accept regulation only up to the point where it would cut into either the company’s profits or its political wherewithal. What the ‘Segarra Files’ point out is that the New York Fed plays the game exactly the way Goldman wants it played. Ergo: there is no actual regulation taking place, and Goldman will comply only with those requests from the New York Fed that it feels like complying with.
Chase Data Breach Hit 76M Households, 7M Businesses; Account Info Not Stolen -- Remember that coordinated hack attack against JPMorgan Chase and other banks from August? Chase now says information — but apparently no payment data — on some 76 million households and 7 million small businesses was compromised. The bank announced late this afternoon that hackers were able to obtain names, addresses, phone numbers and email addresses of Chase’s websites (Chase.com, JPMorganOline.com) and its ChaseMobile and JPMorgan Mobile smartphone apps. Chase claims that account information was not accessed, nor was particularly sensitive personal data like Social Security numbers, passwords, or dates of birth. According to the megabank, it has not identified any unusual fraud stemming from the attack. Though of course, with massive data breaches seemingly occurring on a weekly basis, it might be hard to tell. The Wall Street Journal points out that while one couldn’t create a fake identity or steal someone’s cash with the information taken in the JPMorgan hack, a clever ID thief could use that info to send lookalike phishing e-mails to Chase customers with bogus password-reset links. If a person clicks that link and enters their actual Chase login info, the thief then has everything needed to access a Chase.com account, where havoc could be reached.
Hackers’ Attack Cracked 10 Companies in Major Assault - NYTimes.com: The huge cyberattack on JPMorgan Chase that touched more than 83 million households and businesses was one of the most serious computer intrusions into an American corporation. But it could have been much worse. Questions over who the hackers are and the approach of their attack concern government and industry officials. Also troubling is that about nine other financial institutions — a number that has not been previously reported — were also infiltrated by the same group of overseas hackers, according to people briefed on the matter. The hackers are thought to be operating from Russia and appear to have at least loose connections with officials of the Russian government, the people briefed on the matter said. It is unclear whether the other intrusions, at banks and brokerage firms, were as deep as the one that JPMorgan disclosed on Thursday. The identities of the other institutions could not be immediately learned. The breadth of the attacks — and the lack of clarity about whether it was an effort to steal from accounts or to demonstrate that the hackers could penetrate even the best-protected American financial institutions — has left Washington intelligence officials and policy makers far more concerned than they have let on publicly. Some American officials speculate that the breach was intended to send a message to Wall Street and the United States about the vulnerability of the digital network of one of the world’s most important banking institutions.
Hacking and Systemic Financial Armageddon - The revelation that 76 million JPMorgan Chase consumer accounts were compromised by hacking should be scaring the heck out of us. The Chase hacking is a red flag that hacking poses a real systemic risk to our banking system, and a national security risk as well. Frankly, I find this stuff a lot scarier than either ISIS or our still largely unregulated shadow banking space. Consider this nightmare scenario: what if the hackers had just zeroed out all of those 76 million Chase accounts and wipes out months of transaction history making it impossible to determine exactly how much money was in the accounts at the time they were zeroed out? The money wouldn't even have to be stolen. Just the account records changed. What would happen then?"Not to worry," you say, "Chase's equity will make things good. Jamie's got a fortress balance sheet." Perhaps. But 76 million accounts could be an awful lot of money, rendering Chase undercapitalized. And what if Chase's equity isn't enough? "Relax," you say, "the accounts are FDIC insured." But the FDIC can only pay insurance on account balances it can verify. If the FDIC can't determine account balances it's going to be hard to pay consumers without serious disruption."No problem," you say, "I've got my bank records to prove the balance." But do you? Where are they? "On line," you say. But that's just the bank's records, which were zeroed out.
Unofficial Problem Bank list declines to 432 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Sept 26, 2014. The FDIC provided us with an update on its enforcement action activities through August. The update led to five removals and two additions that leave the Unofficial Problem Bank List at 432 institutions with assets of $136.8 billion. A year ago, the list held 690 institutions with assets of $240.5 billion. For the month, the list declined by seven institutions after eight action terminations, two mergers, and three additions. Over the past 28 months, the list has been declining but the drop this month is the smallest over this period. Next week should be light in terms of changes to the list but we will bring an update to the problem bank transition matrix. CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 432.
Fannie Mae: Mortgage Serious Delinquency rate below 2% in August, Lowest since October 2008 --Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in August to 1.99% from 2.00% in July. The serious delinquency rate is down from 2.61% in August 2013, and this is the lowest level since October 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Freddie Mac has not reported for August yet. These are mortgage loans that are "three monthly payments or more past due or in foreclosure".The Fannie Mae serious delinquency rate has fallen 0.62 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in 2016 - although the rate of decline has slowed recently.Note: The "normal" serious delinquency rate is under 1%. Maybe serious delinquencies will be close to normal in 2016.
Freddie Mac: Mortgage Serious Delinquency rate below 2% in August, Lowest since January 2009 - Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 1.98% from 2.02% in July. Freddie's rate is down from 2.64% in August 2013, and this is the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. These are mortgage loans that are "three monthly payments or more past due or in foreclosure". Note: Fannie Mae reported earlier this week that the Single-Family Serious Delinquency rate declined slightly in August to 1.99% from 2.00% in July.Although this indicates progress, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.66 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until some time in 2016. Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed even in 2016 (mostly in judicial foreclosure states).
MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly SurveyMortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 26, 2014. ... The Refinance Index decreased 0.3 percent from the previous week. The seasonally adjusted Purchase Index remained unchanged from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 11 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 4.33 percent from 4.39 percent, with points decreasing to 0.31 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 76% from the levels in May 2013. Refinance activity is very low this year and 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 11% from a year ago.
Student Loan Bubble Blowback: Morgan Stanley Warns Average Debtor Can't Get A Mortgage - "Despite the low level of interest rates, mortgage affordability for first-time buyers remains roughly at the long-term average levels whereas the aggregate home buyer's affordability remains well below the long-term average. As the servicing of student loan debt is part of the Debt-To-Income calculation, the new regulatory (Bernanke-busting) regime compounds the already substantial challenges confronting the first-time home-buyer's access to mortgage credit. We believe the average student debtor is likely unable to secure a typical home mortgage due to their debt-to-income ratio."
You Know It’s a Tough Market When Ben Bernanke Can’t Refinance - Ben S. Bernanke said the mortgage market is still so tight that he’s having a hard time refinancing his own home loan. The former Federal Reserve chairman, speaking at a conference in Chicago, told moderator Mark Zandi of Moody’s Analytics Inc. -- “just between the two of us” -- that “I recently tried to refinance my mortgage and I was unsuccessful in doing so.” “The housing area is one area where regulation has not yet got it right,” Bernanke said. “I think the tightness of mortgage credit, lending is still probably excessive.”
Tight Credit? Why Ben Bernanke Couldn’t Refinance His Mortgage - Just how inflexible are lending standards these days? Ben Bernanke said at a conference Thursday that he’d been unable recently to refinance his mortgage. “It’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions,” he said at a conference in Chicago, according to Bloomberg News. But wait. Surely a man with high income, lots of equity in his home, good credit and a solid net worth must be able to get a mortgage. Mr. Bernanke stepped down as the chairman of the Federal Reserve in January and joined the Brookings Institution as a “distinguished fellow in residence.” He’s also writing a memoir and giving speeches (reportedly for hefty speaking fees). The broader point Mr. Bernanke was making isn’t that credit standards on their own are unnecessarily restrictive. Borrowers who can make a 3.5% down payment with a 650-ish credit score and two years of stable income can qualify for a loan backed by the Federal Housing Administration. Instead, the issue is one of nuance—or the lack thereof. Lenders have grown to rely heavily on automated underwriting systems and the requisite documentation of borrower incomes, the sources of their down-payment funds and anything else that’s fed into those computers to determine whether a borrower qualifies for a loan. This can result in the odd situation in which a perfectly qualified borrower might find a loan officer who’s unwilling to process a loan.
Um…maybe credit is a little too tight - As per Bloomberg, apparently no less then Ben Bernanke was recently unable to refi his mortgage. Now, I get that the dude left a good government job where you could print your own money, but still, is he really a credit risk? “The housing area is one area where regulation has not yet got it right,” Bernanke said. “I think the tightness of mortgage credit, lending is still probably excessive.” Ya think?
Black Knight (formerly LPS): House Price Index up 0.2% in July, Up 5.1% year-over-year -- The timing of different house prices indexes can be a little confusing. Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.From Black Knight: U.S. Home Prices Up 0.2 Percent for the Month; Up 5.1 Percent Year-Over-Year Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on July 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales...
- U.S. home prices now just 10.2 percent off 2006 peak
- Year-over-year increases in home appreciation continue to slow
- Seven of 20 largest states register monthly declines in home pricesThe year-over-year increases have been getting steadily smaller for the last 10 months - as shown in the table below: The Black Knight HPI is off 10.2% from the peak in June 2006 (not adjusted for inflation).
Case-Shiller: National House Price Index increased 5.6% year-over-year in July - S&P/Case-Shiller released the monthly Home Price Indices for July ("July" is a 3 month average of May, June and July prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities) and the new monthly National index. From S&P: Broad-Based Easing of Home Price Gains in July According to the S&P/Case-Shiller Home Price Indices Data through July 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... show a significant slowdown in price increases. Nineteen of the 20 cities saw lower annual returns in July. Las Vegas, Miami and San Francisco were the only cities to report double-digit annual gains. Cleveland’s rate remained unchanged at +0.9% for the 12 months ending July 2014. In July, the 10-City and 20-City Composites increased 0.6% and the National Index 0.5%. Although all cities but one gained on a monthly basis, 17 saw smaller increases in July as compared to last month. Although New York saw a lower gain this month, it was the only city where prices rose over one percent. San Francisco posted its largest decline of 0.4% since February 2012. ... The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.6% annual gain in July 2014. The 10- and 20-City Composites posted year-over-year increases of 6.7%. The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 18.7% from the peak, and down 0.5% in July (SA). The Composite 10 is up 23.1% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 17.9% from the peak, and down 0.5% (SA) in July. The Composite 20 is up 23.7% from the post-bubble low set in Jan 2012 (SA). The National index is off 11.4% from the peak, and up 0.2% (SA) in July. The National index is up 19.7% from the post-bubble low set in Dec 2012 (SA). The second graph shows the Year over year change in all three indices. Prices increased (SA) in 5 of the 20 Case-Shiller cities in July seasonally adjusted.
"Broad-Based Deceleration" - Case-Shiller Home Prices Tumble Most Since Nov 2011, 3rd Drop In A Row | Zero Hedge: For the 3rd month in a row, S&P Case-Shiller home prices fell MoM with July's 0.5% drop the biggest since November 2011. This dragged the YoY growth to 6.75% (missing expectations of 7.4%) and its slowest rate of increase since November 2012. Non-seasonally-adjusted the drop is even larger (-0.6% MoM). Perhaps most notably San Francisco was the biggest drag on the index. 4th miss in a row for YoY home price gains and weakest growth since Nov 2012... as prices fall for the 3rd month in a row... From the report:: “The broad-based deceleration in home prices continued in the most recent data,” “However, home prices continue to rise at two to three times the rate of inflation. The slower pace of home price appreciation is consistent with most of the other housing data on housing starts and home sales. The rise in August new home sales -- which are not covered by the S&P/Case-Shiller indices – is a welcome exception to recent trends. “The 10- and 20-City Composites gained 6.7% annually with prices nationally rising at a slower pace of 5.6%. Las Vegas, one of the most depressed housing markets in the recession, is still leading the cities with 12.8% year-over-year. Phoenix, the first city to see double-digit gains back in 2012, posted its lowest annual return of 5.7% since February 2012.
House Prices: Real Prices and Price-to-Rent Ratio decline in July - I started 2014 expecting a slowdown in year-over-year (YoY) prices as "For Sale" inventory increases, and the price slowdown is very obvious! The Case-Shiller Composite 20 index was up 6.7% YoY in July; the smallest YoY increase since November 2012 (the National index was up 5.6%, also the slowest YoY increase since November 2012. I expect YoY prices to slow further over the next several months. It is also important to look at prices in real terms (inflation adjusted). Case-Shiller, CoreLogic and others report nominal house prices. As an example, if a house price was $200,000 in January 2000, the price would be close to $280,000 today adjusted for inflation (40%). That is why the second graph below is important - this shows "real" prices (adjusted for inflation). The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through July) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to February 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to September 2004 levels, and the CoreLogic index (NSA) is back to February 2005. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to July 2002 levels, the Composite 20 index is back to June 2002, and the CoreLogic index back to March 2003. In real terms, house prices are back to early '00s levels.
A Look at Case-Shiller by Metro Area (interactive) The S&P Case-Shiller national home price index is up just 5.6% in the year ended in July, continuing a slowing trend since late 2013. The index covering 20 major U.S. cities is up just 6.7%, less than the 7.3% gain expected by economists. The easing in home prices reflects the weakening in demand seen in the housing market, but S&P says the rise in August new home sales is a “welcome exception” to recent housing trends. Here’s how metro areas fared.
Zillow: Case-Shiller House Price Index expected to slow further year-over-year in August --The Case-Shiller house price indexes for July were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. From Zillow: Find Out Next Month’s Case-Shiller Numbers Today The July S&P/Case-Shiller (SPCS) data out this morning indicated continued slowing in the housing market with the annual change in the 20-city index falling to 6.7 percent from 8.1 percent the prior month. Our current forecast for SPCS next month indicates further slowing with the annual increase in the 20-City Composite Home Price Index falling to 5.7 percent in August.The non-seasonally adjusted (NSA) monthly increase in July for the 20-City index was 0.6 percent, and we expect it to fall to 0.3 percent next month.All forecasts are shown in the table below. These forecasts are based on the July SPCS data release this morning and the August 2014 Zillow Home Value Index (ZHVI), released September 18. Officially, the SPCS Composite Home Price Indices for August will not be released until Tuesday, October 28. So the Case-Shiller index will probably show a lower year-over-year gain in August than in July (6.7% year-over-year for the Composite 20 in July, 5.6% year-over-year for the National Index).
NAR: Pending Home Sales Index decreased 1.0% in August, down 2.2% year-over-year -- From the NAR: Pending Home Sales Fall Slightly in August The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.0 percent to 104.7 in August from 105.8 in July, and is now 2.2 percent below August 2013 (107.1). Despite the slight decline, the index is above 100 – considered an average level of contract activity – for the fourth consecutive month and is at the second-highest level since last August... The PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but is still 1.6 percent above a year ago. In the Midwest the index fell 2.1 percent to 102.4 in August, and is 7.6 percent below August 2013. Pending home sales in the South decreased 1.4 percent to an index of 117.0 in August, unchanged from a year ago. The index in the West rose for the fourth consecutive month (2.6 percent) in August to 102.1, but still remains 2.6 percent below August 2013. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in September and October.
Construction Spending decreased 0.8% in August -- Earlier the Census Bureau reported that overall construction spending decreased in August: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2014 was estimated at a seasonally adjusted annual rate of $961.0 billion, 0.8 percent below the revised July estimate of $968.8 billion. The August figure is 5.0 percent above the August 2013 estimate of $915.3 billion. Both private and public spending decreased in August: Spending on private construction was at a seasonally adjusted annual rate of $685.0 billion, 0.8 percent below the revised July estimate of $690.3 billion. Residential construction was at a seasonally adjusted annual rate of $351.7 billion in August, 0.1 percent below the revised July estimate of $352.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $333.3 billion in August, 1.4 percent below the revised July estimate of $338.1 billion. ... In August, the estimated seasonally adjusted annual rate of public construction spending was $275.9 billion, 0.9 percent below the revised July estimate of $278.5 billion.
This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending has declined recently and is 48% below the peak in early 2006 - but up 54% from the post-bubble low. Non-residential spending is 20% below the peak in January 2008, and up about 48% from the recent low. Public construction spending is now 14% below the peak in March 2009 and about 7% above the post-recession low.
Housing sales and construction: August 2014 review: Let me start out by quickly explaining why I pay so much attention to the housing market. It is because no other single economic indicator so accurately foretells the health of the economy 12-18 months later than housing, and in particular new housing sales and construction. Both the Conference Board and ECRI include housing permits among their leading indexes. Professor Edward Leamer of UCLA has gone so far as to say that housing IS the economy. With yesterday's report on pending home sales, the first 2/3's of 2014 is in the books. Here's what housing permits (blue), new home sales (red), and existing home sales (green) all look like normed at 100 to their respective 2013 highs: As you can see, the overall appearance is one of stagnation, with a slight improving trend since the beginning of 2013. Only new home sales have made a new high this year, as of this month (and I expect that to be revised away next month). A more close up look shows that earlier this year was the trough of the housing slowdown, and that lower mortgage rates - down over .5% from the beginning of this year - are beginning to have a positive impact.In this installment, I'm going to focus on interest rates and sales. Here is a graph, covering the last 30 years, of the YoY% mortgage rates (inverted so that higher rates give a lower value, blue) vs. housing permits, YoY change in 100,000's (red): Here's a close-up of the last 5 years through August: Interest rates on mortgages went up from 3.4% in early May 2013 to a high of 3.6% in August of last year. On 16 of 19 occasions since the end of World War 2, that big a change led to a YoY decline of at least -100,000 in permits. In this case, housing permits remained slightly positive this year (with the exception of May, when they were -0.5% lower YoY). But the decline in interest rates from just over 3% to as low as under 2.4% earlier this year, and ultimately becoming less than they were a year ago suggested that we would start to see some improvement in permits, sales, and starts, although probably muted since rates have not returned to 2013 lows. In August, all three measures of new housing improved.
Reis: Apartment Vacancy Rate increased in Q3 to 4.2%, First quarterly increase since 2009 -- Reis reported that the apartment vacancy rate increased in Q3 to 4.2% from 4.1% in Q2. In Q3 2013 (a year ago), the vacancy rate was at 4.3%, and the rate peaked at 8.0% at the end of 2009. Some comments from Reis Senior Economist Ryan Severino: The national vacancy rate increased by 10 basis points to 4.2% during the third quarter. This is the first quarterly increase in vacancy since the fourth quarter of 2009. This is something that we have been warning about for some time. The national vacancy rate has been below 5.5% since the third quarter of 2011, a virtually unprecedented run. Ultimately, market conditions that tight were going to serve as a catalyst for new construction activity. New construction continues to increase over time and will likely reach a post‐recession high this year. Meanwhile, demand has clearly declined from levels observed during 2010 and 2011. This type of slowing is expected, but demand should remain robust. The number of 20‐ to 30‐year olds, the prime rental cohort, will not peak until 2018 which should keep demand rather stout. However, the apartment market, like virtually all property types, is cyclical, and has a propensity to overbuild, even when things are booming. With construction anticipated to outpace net absorption over the next four years, we expect the national vacancy rate to slowly drift upward. However, we do not foresee a massive expansion in vacancy rates of the sort that accompanies recessions. Nonetheless, 4.2% is still an incredibly tight market environment. Even as vacancy drifts slowly higher in the coming years, we do not anticipate that it will not surpass 5% by the end of the forecast horizon in 2018.
US Vacancy Rate Rises For First Time Since 2009 In Wake Of Apartment Building Construction Surge - Due to the trend of renting as opposed to buying by average citizens, there has been an enormous construction boom of apartment complexes across the U.S. However, as Bloomberg reports, the U.S. apartment-vacancy rate rose for the first time in almost five years. Rents are still rising, but for how long? Unless incomes rise substantially, it will be difficult to continue this trend, which is why so many of the financial players have already started bailing on the “buy-to-rent” strategy. And today's zero wage gains does not help support the positivity.
Reis: Office Vacancy Rate unchanged in Q3 at 16.8% - Reis released their Q3 2014 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged in Q3 compared to Q2 at 16.8%. This is down slightly from 16.9% in Q3 2013, and down from the cycle peak of 17.6%. From Reis Senior Economist Ryan Severino: The national vacancy rate once again held steady, registering 16.8% for the third consecutive quarter. Although this is superficially alarming, a few qualifications are necessary and important. First, net absorption technically outpaced new construction once again. However, much like last quarter, the difference was not sufficient enough to push the vacancy rate downward. Nonetheless, it is important to note that demand is not evaporating ‐ it is simply not producing a declining vacancy rate in recent quarters. Second, as we have observed in the recent past, construction and net absorption remain linked to each other due to the ongoing preleasing requirement in place for new construction financing. That has a tendency to keep supply and demand roughly in balance during weak recoveries such as this one when there is relatively little demand for existing inventory. Third, this pattern is not without precedent. Something similar occurred just last year. The national vacancy rate was identical during the first three quarters of 2013 before declining again during the fourth quarter. Therefore, this pause in vacancy compression needs to be examined in the proper context ‐ it is not signaling that the market recovery is going to reverse and vacancy rates will soon begin increasing. Net absorption increased by 7.157 million square feet during the third quarter. This is a rebound from last quarter's 3.171 million SF. Although this is far from a healthy level of demand, it is back closer to the trend in net absorption that has occurred in recent quarters. Therefore, last quarter's weak reading appears to be an anomaly and the longer‐term trend in increasing net absorption, though relatively tepid, remains intact.
Reis: Mall Vacancy Rate unchanged in Q3 - Reis reported that the vacancy rate for regional malls was unchanged at 7.9% in Q3 2014. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate was also unchanged at 10.3% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011. Comments from Reis Senior Economist Ryan Severino: The national vacancy rate for neighborhood and community shopping centers was unchanged at 10.3% during the third quarter. This is similar to last quarter when the vacancy rate did not change. The national vacancy is now down 80 basis points from its historical peak during the third quarter of 2011. Of course, this means the pace of improvement is slow and consistent. Completions during the quarter were low, even by the standards of this tepid recovery. Construction has yet to mount any meaningful recovery since the recession. Most of the construction occurring is small and almost always predicated on preleasing. There is still virtually no new speculative development five years removed from the start of the economic recovery. Much like with neighborhood and community centers, the regional mall vacancy rate was unchanged this quarter at 7.9%. Although this is down 30 basis points from the third quarter of 2013, that was the last quarter during which the national vacancy rate for malls declined. Malls have been stuck at 7.9% for a year.
Personal Income increased 0.3% in August, Spending increased 0.5% -- The BEA released the Personal Income and Outlays report for August this morning: Personal income increased $47.3 billion, or 0.3 percent ... in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $57.5 billion, or 0.5 percent. ... Real PCE -- PCE adjusted to remove price changes -- increased 0.5 percent in August, in contrast to a decrease of 0.1 percent in July. ... The price index for PCE decreased less than 0.1 percent in August, in contrast to an increase of 0.1 percent in July. The PCE price index, excluding food and energy, increased 0.1 percent, the same increase as in July. ... The August price index for PCE increased 1.5 percent from August a year ago. The August PCE price index, excluding food and energy, increased 1.5 percent from August a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through August 2014 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.
Despite 2nd Slowest Income Growth In 2014, Spending Rises Most Since March Driven By Subprime, Car Sales -- Mission releverage accomplished. Personal Income rose 0.3% in August (very slightly below Bloomberg's median estimate), the 2nd slowest growth of the year. Personal spending however jumped 0.5%, beating the 0.4% expectations, and its equal best growth since March. What was spending focused on? Why autosales, which accounted for about half of the spending. And what funded this spending? Why subprime car loans of course; it sure wasn't the real disposable income per capita which was a paltry $37,684 in August.
The Latest on Real Disposable Income Per Capita - With this morning's release of the August Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The August nominal 0.20% month-over-month change increases to 0.25% when we adjust for inflation, thanks to a fractional drop in the PCE price index. The year-over-year metrics are 3.43% nominal and 1.94% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Nominal disposable income is up 60.8% since then. But the real purchasing power of those dollars is up only 21.1%. Let's take one more look at real DPI per capita, this time focusing on the year-over-year percent change since the beginning of this monthly series in 1959. I've highlighted the value for the months when recessions start to help us evaluate the recession risk for the current level.
Consumer Debt Hits an All-Time High - - For many American households, the recession was a time to pay off debt and get their finances in order—whether they wanted to or not. But according to the latest data from the Federal Reserve’s Flow of Funds (PDF), Americans are taking on debt once again. The difference is that this time we’re borrowing to finance new cars, college tuition, and other consumer goods. As the figure above shows, American household debt peaked in 2007 and has since fallen 15 percent. Home mortgage debt accounted for much of the decline—it’s dropped 22 percent since 2007. Consumer debt, on the other hand, has continued to increase and just reached an all-time high of $3.2 trillion. Americans have added about $100 billion of student debt a year to their balance sheets since 2008. Credit cards and auto loans have also come roaring back, particularly auto loans. The amount of outstanding auto debt is the highest it’s ever been. Auto and credit card debt, while overall much smaller than student or mortgage loans, is in some ways more risky. Student loans and mortgage debt both finance an asset that’s expected to increase in value. A mortgage finances real estate, which has good odds of increasing in value or, at least, holding your housing costs stable for 30 years. Student debt is an investment in future earnings. There’s no guarantee, but the odds are if you finish college, your salary will, over time, recoup your investment. So while the explosion in student debt and the rising delinquency rate are troubling, at least some of the debt can be justified: It’s a leveraged investment that has a decent chance of paying off. That’s often not the case for auto loans and goods bought with a credit card. A reliable car may be a necessary expense for some, but as an asset it’s guaranteed to depreciate. Beyond safety and reliability, there’s little investment value in buying a new car.
Your Debt, Our Nation's Headache - Barry Ritholtz -- Consider an ordinary recession: The economy begins to heat up as wages rise and consumers borrow and spend. The Fed, concerned about increasing inflation, raises interest rates. As credit becomes more expensive, sales slow, putting the economy at risk of slipping into a recession. But fear not! After six months or so, the Fed then lowers rates, unleashing all that pent-up demand. Consumers and businesses begin spending again, folks get hired and the entire virtuous cycle begins anew. That approach is what we have seen in the 15 or so post-World War II recession-recovery cycles. An overheating economy leads to rising rates leads to a slowdown leads to falling rates. Rinse, lather, repeat. That isn't what occurs after a credit crisis such as the Great Recession. Assets purchased with cheap and widely available credit become worth significantly less once the bubble bursts. But the debt remains. All of that leverage used to purchase all of those assets -- regardless of whether it's subprime mortgages or dot-com stocks -- sticks around. Hence, a post-credit-crisis recovery is dominated not by the release of pent-up demand, but by massive corporate, household and government deleveraging. Even before the financial crisis, Reinhart and Rogoff were detailing how and why recoveries from such events were such slow, protracted and painful affairs. Until recently, most Wall Street analysts and economists misunderstood this. They used the wrong data set, looking at post-World War II recession recoveries as their frame of reference instead of post-credit-crisis recoveries. This is why their forecasts for the present recovery have been so wrong.
This Is No Economy For Americans -- The Dow Jones stock average closed early September Friday at 17,137, despite the fact that the payroll jobs report was a measly 125,000 new jobs for August, an insufficient amount to keep up with the growth in the working age population. The low 125,000 jobs figure is also inconsistent with the Bureau of Economic Analysis’ third estimate of second quarter 2014 US GDP growth of 4.6 percent–a figure beyond the capability of the present-day US economy. Clearly, the economic numbers are out of sync with one another. They are also out of sync with reality. One of the reasons the stock market average is high is the massive liquidity the Federal Reserve has pumped into the banking system since 2008. Instead of going into consumer inflation, the money went into stock and bond price inflation. Another reason for the artificial high stock market is the multi-trillion dollar buy-back of their own stock by US corporations. Many of these corporations have even borrowed from the banks in order to drive up their share prices with heavy purchases, thus maximizing executive bonuses and the values of stock options for board members. In effect, they are looting their own firms by loading the companies with debt in order to drive up executive and board incomes. The stock market’s rise is not because consumer incomes and real retail sales are growing. Real family median incomes have been falling, and real retail sales, at best, are flat.
Food Prices Post Strongest Annual Gain in More Than 2 Years - While overall inflation remains well in check, grocery shoppers—especially meat lovers—are seeing rising prices. Food costs increased 2.2% from a year earlier in August, the Commerce Department said Monday. That was the strongest annual gain in food prices since June 2012. On a monthly basis, food prices have increased in six of the past seven months. One category driving the gains: meat. Overall meat and poultry prices rose 7.8% in August from a year earlier. Specifically, beef and veal prices are up 15% during the 12-month span, and pork prices increased almost 12%. Other data show food prices continued to climb in September. U.S. food staples have increased in price by 0.9% over the past 30 days, according to Premise Data Corp., a firm that tracks food prices in real time. The more recent gains are led by processed meats—including bologna and hot dogs—which have increased in price by 6.9% in the past 30 days. Fresh meats increased a milder 0.2% on the month. Premise and Commerce categorize meat products slightly differently. But before you vegetarians laugh your way to the salad bar, be forewarned. Vegetables prices rose by 3.9% in the last 30 days, according to Premise. That was the second-strongest gain of any category since late August.
Inflation Data in the U.S. Is Built Around a Survey that People Increasingly Won’t Take - Economists and market participants in the U.S. like to fixate on every wiggle in consumption and inflation data. A tenth of a percentage point increase in the Consumer Price Index can spark fears that the Federal Reserve will raise interest rates, not to mention lead to repricing of the $1 trillion market in Treasury Inflation Protected Securities. Yet the foundation of this inflation data is a Bureau of Labor Statistics survey to which people increasingly do not respond. The Consumer Expenditures Survey is the only federal survey that documents the full range of consumers’ expenditures and incomes, and is used to determine the weights in the CPI. The survey’s data is built around an interview survey where workers from the U.S. Census Bureau ask households about their expenditures on big-ticket items, and a diary survey in which people are asked to track all their purchases over the course of two weeks. In recent years, the response rate has gone from slow deterioration to free fall. In 2011, more than 70% of people responded to both surveys, but as of 2013 the response has dropped to 66.7% for the interview survey and 60.8% for the diary survey, both the lowest on record.
Restaurant Performance Index Registers August Gain -- Driven by stronger same-store sales and customer traffic levels and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in August. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.9 in August, up 1.0 percent from July and its first gain in three months. In addition, the RPI stood above 100 for the 18th consecutive month, which signifies expansion in the index of key industry indicators. “The August gain in the RPI was fueled by stronger same-store sales and customer traffic results, aided by continued improving economic conditions,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Looking forward, restaurant operators remain generally optimistic about continued sales growth, while a majority plans to make a capital expenditure in the next six months. However, operators still report food costs and government among top challenges that continue to negatively affect the operating environment.”
At Last, More Consumers Say They Are Better Off Than a Year Ago Than Worse Off - A survey released Monday by Absolute Strategy Research shows U.S. households feel much better about their personal finances, job security and future economic prospects than they have at any point since mid-2009 when ASR began the survey, a time period that corresponds to the start of the current expansion. “The improvement is unambiguous,” write authors David Bowers and Sarah Franks. For the first time in this upturn, more consumers say they are better off financially now than a year ago compared with the share saying they are worse off. Plus, a high 83% of workers feel very or fairly secure in their current jobs. Like reports done by the Conference Board, Thomson-Reuters and the University of Michigan, the most encouraging facet is the optimism about the future. According to the ASR poll, 35% of consumers think they will be better off financially a year from now, outnumbering the 12% who expect to be worse off. Driving that hope is expectations about pay: 31% think their personal income will be higher over the next 12 months versus 14% who expect a pay cut. Consumers who expect bigger paychecks in the future are more willing to spend now. The shopping liftoff may have started in August. The Commerce Department reported Monday that household spending rose a solid 0.5% in August, offsetting a weak July. Chris Christopher, director of consumer economics at IHS Global Insight, calculates third-quarter real consumer spending is growing above a 2% annual rate and he says, “The positives are outweighing the negatives on the consumer front.”
Consumer Confidence Drops - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through September 18. The headline number of 86.0 was a surprising decline over the revised August final reading of 93.4, an upward revision from 92.4. Today's number was well below the Investing.com forecast of 92.5. The current level is a four-month-low. Here is an excerpt from the Conference Board press release. “Consumer confidence retreated in September after four consecutive months of improvement. A less positive assessment of the current job market, most likely due to the recent softening in growth, was the sole reason for the decline in consumers’ assessment of present-day conditions. Looking ahead, consumers were less confident about the short-term outlook for the economy and labor market, and somewhat mixed regarding their future earnings potential. All told, consumers expect economic growth to ease in the months ahead.” Consumers assessed current conditions less favorably in September compared to a month ago. Their view of business conditions was virtually unchanged: those saying conditions are “good” fell minutely, from 23.5 to 23.4 percent, while those claiming business conditions are “bad” held constant at 21.3 percent. Consumers’ appraisal of the job market declined more appreciably, with the proportion stating jobs are “plentiful” falling from 17.6 percent to 15.1 percent. Those claiming jobs are “hard to get” was barely changed, at 30.1 percent versus 30.0 percent in August. Consumers’ optimism about the short-term outlook declined considerably in September. The percentage of consumers expecting business conditions to improve over the next six months fell from 20.8 percent to 18.6 percent, while those expecting business conditions to worsen rose from 9.9 percent to 12.0 percent. Consumers’ outlook for the labor market likewise took a downturn. Those anticipating more jobs in the months ahead fell from 17.8 percent to 15.2 percent, while those anticipating fewer jobs rose from 15.2 percent to 17.8 percent. The proportion of consumers expecting growth in their incomes rose in September to 16.8 percent, compared to 15.5 percent in August.
U.S. Light Vehicle Sales decrease to 16.34 million annual rate in September - Based on an WardsAuto estimate, light vehicle sales were at a 16.34 million SAAR in September. That is up 7% from September 2013, but down 6% from the 17.4 million annual sales rate last month. This was below the consensus forecast of 16.8 million SAAR (seasonally adjusted annual rate). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for September (red, light vehicle sales of 17.34 million SAAR from WardsAuto). From WardsAuto: After an August sales spike that drove the monthly SAAR to 17.45 million, September U.S. light vehicle sales cooled somewhat, dropping to an annualized rate just below 16.4 million on deliveries of 1.24 million LVs. September's tally, nonetheless, represented a 4.7% uptick in daily sales compared with same-month year-ago, and brought year-to-date deliveries to 12.37 million units, a 5.4% improvement over the first nine months of 2013. The second graph shows light vehicle sales since the BEA started keeping data in 1967. This was the fifth consecutive month with a sales rate over 16 million.
Loan Fraud Inquiry Said to Focus on Used-Car Dealers -Lenders in the housing boom created so-called liar loans, which enabled borrowers, even those with no income or assets, to inflate their income. Government authorities are now taking aim at a new generation of liar loans. Only this time it is subprime auto loans. Federal and state authorities, a group that includes prosecutors in New York, Alabama and Texas, are zeroing in on the most powerful, and arguably the least regulated, rung of the subprime auto loan chain, used-car dealerships, according to people briefed on the investigations. Already, they have found hundreds of fraudulent loans that together total millions of dollars. At their center, the people said, the investigations are examining whether dealerships are inflating borrowers’ income or falsifying employment information on loan applications to ensure that anyone, no matter what their credit quality, can buy a car.Some of the same dynamics — the seemingly insatiable demand for loans as the market heats up and the dwindling pool of qualified borrowers — that helped precipitate the 2008 mortgage crisis are now playing out, albeit on a smaller scale, in the auto loan market. Under pressure to generate more and more loans, salesman at some used-car dealers are suspected of getting inventive. It is not known how many subprime auto loans have been made on the basis of falsified applications. Still, such loans can corrode confidence in the booming market for securities that are created from bundled subprime auto loans. If loan applications are falsified, leading borrowers to ultimately fall behind on their bills, that could spell trouble for investors, which include insurance companies and public pension funds.
Trade Deficit decreased in August to $40.1 Billion - Earlier the Department of Commerce reported: [T]otal August exports of $198.5 billion and imports of $238.6 billion resulted in a goods and services deficit of $40.1 billion, down from $40.3 billion in July, revised. August exports were $0.4 billion more than July exports of $198.0 billion. August imports were $0.2 billion more than July imports of $238.3 billion. The trade deficit was smaller than the consensus forecast of $40.7 billion and the trade deficit was revised down slightly for July. The first graph shows the monthly U.S. exports and imports in dollars through August 2014. Imports and exports increased in August. Exports are 19% above the pre-recession peak and up 4% compared to August 2013; imports are 3% above the pre-recession peak, and up about 4% compared to August 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through August. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $96.32 in August, down from $97.81 in July, and down from $100.27 in August 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $30.2 billion in August, from $29.8 billion in August 2013.
Study Confirms: Offshoring Sucks - According to a new report, ever since Bill Clinton granted permanent normal trade relations to the China, the U.S has lost over 64,000 manufacturing firms and at least 5.8 million manufacturing jobs. The main reason why America is still experiencing mass unemployment going into 2015 is because, for decades, our economy has transformed from a manufacturing economy (with good paying union jobs) into a service economy (with low paying "right to work" jobs) — mostly because of outsourcing and offshoring. Congress has passed trade agreements and wrote a tax code that actually encourages this. To make matters even worse, the government plans to redefine manufacturing that would artificially boost GDP and artificially lower the trade deficit, by reclassifying foreign made products made by American companies — such as Apple's iPhones that are manufactured in China. Betty Sutton (former U.S. Representative for Ohio's 13th congressional district ), by using data from the Bureau of Labor Statistics, had found that there were 398,887 private manufacturing establishments of all sizes in the United States during the first quarter of 2001. By the end of 2010 however, the number of factories had declined to 342,647, a loss of 56,190 facilities. Over a period of those 10 years, that worked out to be an average yearly loss of 5,619 factories. Since 2010, however, that number has fallen even further — from 342,647 in 2010 to 334,800 by the end of 2012 — for an additional loss of 7,847 more manufacturers in two years alone. That's over 64,000 lost manufacturers just since Bill Clinton signed into law the U.S.- China Relations Act of 2000, which granted permanent normal trade relations status to the People's Republic of China.
How Human-Robot Teamwork Will Upend Manufacturing -- Sometime in the next couple of years, if everything goes to plan, workers at BMW’s manufacturing plant in Spartanburg, South Carolina, will be introduced to an unusual new teammate—a robot arm that will roll around handing them tools and parts as they assemble the German carmaker’s luxury vehicles. Once isolated behind safety fences, robots have already become safe and smart enough to work alongside people on a few manufacturing production lines. By taking over tiresome and repetitive tasks, these robots are replacing some people. But in many situations they are augmenting the abilities of human workers—freeing them to do tasks that require manual dexterity and ingenuity rather than extreme precision and stamina. These robots are also increasing productivity for manufacturers and giving them new flexibility. BMW introduced robots to its human production line at Spartanburg in September 2013. The robots, made by a Danish company called Universal Robots, are relatively slow and lightweight, which makes them safer to work around. On the production line they roll a layer of protective foil over electronics on the inside of a door, a task that could cause workers repetitive strain injury when done by hand, says Richard Morris, vice president of assembly at the Spartanburg plant. Existing industrial robots could perform this work, and do it much more quickly, but they could not easily be slotted into a human production line because they are complicated to program and set up, and they are dangerous to be around.
Factory orders fall 10.1% in August - Orders for goods produced in U.S. factories fell 10.1% in August, the U.S. Commerce Department said Thursday. Economists surveyed by MarketWatch had expected orders to fall 9.7%. Factory orders grew 10.5% in July, unrevised from prior estimates. The volatility is mainly because of up-and-down demand for airplanes. Orders for durable goods -- products meant to last at least three years - fell a record 18.4% in August, down from prior estimate of an 18.2% drop. Orders for nondurable goods fell 0.4%.
U.S. factory orders post record decline on aircraft payback (Reuters) - New orders for U.S. factory goods posted their biggest decline on record in August, payback for an aircraft-driven jump a month earlier. The Commerce Department said on Thursday new orders for manufactured goods dropped 10.1 percent. That was the largest drop in records going back to 1992. Stripping out transportation orders which were depressed bya plunge in the volatile aircraft component, new orders were true down a more modest 0.1 percent. Economists polled by Reuters had forecast total new orders received by factories would decline 9.3 percent. The U.S. manufacturing sector continues to expand, although growth may be moderating. The Institute for Supply Management said on Wednesday that its gauge of factory activity showed slower growth in September. In August, orders for transportation equipment dropped 42.2 percent, a development already made clear in the government's report on durable goods orders released on Sept 25. In July, aircraft manufacturer Boeing (BA.N) had reported outsized orders, making the decline in August unsurprising.
August Factory Orders Miss, Plunge Most On Record -- Surprised? Following last month's 10.5% record rise in Factory Orders, August just printed -10.1% MoM - the biggest drop on record. While some give-back was excpected this is notably worse than the expected drop of -9.5% (the biggest miss since January 2014). Worse still durables orders cratered 18.4% (and non-durables dropped 0.4%) MoM and ex-transports dropped 0.1% - the 3rd drop in the last 4 months. So - in summary - last month saw a $56 billion rise and this month saw a $55.8 billion drop - 'economic growth' roundtripped... as inventories rose 0.1% and shipments fell 1%.
Dallas Fed: "Texas Manufacturing Strengthens" in September - From the Dallas Fed: Texas Manufacturing Strengthens Texas factory activity increased again in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose markedly from 6.8 to 17.6, indicating output grew at a faster pace than in August.Other measures of current manufacturing activity also reflected significantly stronger growth in September. The new orders index climbed 5 points to 7.5. The capacity utilization index surged to 20.2 after dipping to 3.6 in August, with nearly a third of manufacturers noting an increase. The shipments index rebounded to 15.9 after falling to 6.4 last month. Perceptions of broader business conditions were more optimistic this month. The general business activity index moved up to a reading of 10.8, nearly four points above its nonrecession average of 7. The company outlook index rose from 1.5 to 5.8, due to a larger share of firms noting an improved outlook in September than in August.Labor market indicators reflected continued employment growth and longer workweeks. The September employment index posted a fourth robust reading, holding fairly steady at 10.6. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:
Chicago PMI Misses As New Orders & Production Slump - US equity markets were sliding into the Chicago PMI print as early release indications proved correct and it missed expectations. Having flip-flopped from worst since July 2013 to almost cycle highs last month, Chicago PMI printed 60.5 (vs 62.0 expectations) hindered a drop in new orders and production. The silver lining, the employment index improved modestly. Prices Paid surged to its highest since 2012. Chicago PMI flip-flopped again... Not exactly the smoothest most consistent indicator of economic health?!
ISM Manufacturing index declines to 56.6 in September - The ISM manufacturing index suggests slower expansion in September than in August. The PMI was at 56.6% in September, down from 59.0% in August. The employment index was at 54.6%, down from 58.1% in August, and the new orders index was at 60.0%, down from 66.7%. From the Institute for Supply Management: September 2014 Manufacturing ISM® Report On Business® Economic activity in the manufacturing sector expanded in September for the 16th consecutive month, and the overall economy grew for the 64th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. "The September PMI® registered 56.6 percent, a decrease of 2.4 percentage points from August’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 60 percent, a decrease of 6.7 percentage points from the 66.7 percent reading in August, indicating growth in new orders for the 16th consecutive month. The Production Index registered 64.6 percent, 0.1 percentage point above the August reading of 64.5 percent. The Employment Index grew for the 15th consecutive month, registering 54.6 percent, a decrease of 3.5 percentage points below the August reading of 58.1 percent. Inventories of raw materials registered 51.5 percent, a decrease of 0.5 percentage point from the August reading of 52 percent, indicating growth in inventories for the second consecutive month. Here is a long term graph of the ISM manufacturing index.
This was below expectations of 58.0%, but still shows decent expansion in September.
ISM Manufacturing Index: Disappointing September Growth - Today the Institute for Supply Management published its monthly Manufacturing Report. The latest headline PMI at 56.6 came in lower the August 59.0 percent and below the Investing.com forecast of 58.5. The September level was the lowest since June. Here is the key analysis from the report: (ISM®) Manufacturing Business Survey Committee. "The September PMI® registered 56.6 percent, a decrease of 2.4 percentage points from August’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 60 percent, a decrease of 6.7 percentage points from the 66.7 percent reading in August, indicating growth in new orders for the 16th consecutive month. The Production Index registered 64.6 percent, 0.1 percentage point above the August reading of 64.5 percent. The Employment Index grew for the 15th consecutive month, registering 54.6 percent, a decrease of 3.5 percentage points below the August reading of 58.1 percent. Inventories of raw materials registered 51.5 percent, a decrease of 0.5 percentage point from the August reading of 52 percent, indicating growth in inventories for the second consecutive month. Comments from the panel reflect a generally positive business outlook, while noting some labor shortages and continuing concern over geopolitical unrest." Here is the table of PMI components.
ISM Biggest Miss Since January: Orders Tumble, Employment Slides, Backlogs Contract, Construction Spending Negative - So much for the string of near record ISM prints. Oh... and the recovery too. As we had been been warning all along looking at the unadjusted data (because for some reason surveys need a seasonal adjustment), US manufacturing was actually far weaker than expected. And sure enough, moments ago the ISM confirmed what we had been saying all along when it reported that the headline PMI dropped fromm 59.0 to only 56.6 which was the biggest miss since January, with the all important New Orders tumbling from 66.7 to only 60.0 and the unadjusted print matching the lowest since March, Employment sliding from 58.1 to 54.6, and Backlogs dropping back into contraction from 52.5 to 47.0. So much for the subprime autoloan driven renaissance: it appears that whoever could buy a Government Motors car with a 550 FICO, already has. And now...what? Charted: The breakdown:
ISM Non-Manufacturing: Somewhat Slower Growth in September - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 58.6 percent, down from last month's 59.6 percent, which was a record high for this relatively new indicator that only dates back to January 2008, the second month of the Great Recession. Today's number came in a tick above the Investing.com forecast of 58.5. Here is the report summary: "The NMI® registered 58.6 percent in September, 1 percentage point lower than the August reading of 59.6 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 62.9 percent, which is 2.1 percentage points lower than the August reading of 65 percent, reflecting growth for the 62nd consecutive month at a slower rate. The New Orders Index registered 61 percent, 2.8 percentage points lower than the reading of 63.8 percent registered in August. The Employment Index increased 1.4 percentage points to 58.5 percent from the August reading of 57.1 percent and indicates growth for the seventh consecutive month. The Prices Index decreased 2.5 percentage points from the August reading of 57.7 percent to 55.2 percent, indicating prices increased at a slower rate in September when compared to August. According to the NMI®, 12 non-manufacturing industries reported growth in September. Respondents’ comments indicate that business seems to be leveling off and there is a slight slowing in the momentum of the past few months of strong growth. They continue to remain optimistic about business conditions and the overall direction of the economy." Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.
Markit Services PMI Slides To 4-Month Lows As ISM Services Drops From 2005 Highs --ISM Services printed modestly better than expected but dropped down from last month's 2005 highs. Printing at 58.6 vs 58.5 expectations, the seasonally-adjusted ISM data shows business activity dropping and new orders at 4-mointh lows. Markit Services PMI fell for the 3rd month in a row to its lowest since May but Markit's chief economist sees "good reason to believe growth will pick up once again," from somewhere, despite maunfacturing PMI also fading. The divergence between Markit's and the Government's surveys of the Services industry in America remain large.
Weekly Initial Unemployment Claims decrease to 287,000 -- The DOL reports: In the week ending September 27, the advance figure for seasonally adjusted initial claims was 287,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 293,000 to 295,000. The 4-week moving average was 294,750, a decrease of 4,250 from the previous week's revised average. The previous week's average was revised up by 500 from 298,500 to 299,000. There were no special factors impacting this week's initial claims. The previous week was revised up to 295,000. The following graph shows the 4-week moving average of weekly claims since January 1971.
ADP Employment Report Shows Healthy Job Gains for September - ADP's proprietary private payrolls jobs report gives us a monthly gain of 213,000 private sector jobs for September 2014. August's ADP private payroll gains were 202,000. Manufacturing had the highest job growth by ADP's records since May 2010. By ADP's survey, this is the sixth consecutive month where their reported private job gains are above 200 thousand. This report does not include government, or public jobs. ADP's reports in the service sector alone job gains were 155,000 private sector jobs. The goods sector gained were 58,000 jobs with 20,000 of the goods sector jobs added being in construction. Professional/business services jobs grew by 29,000. Trade/transportation/utilities showed the strongest growth with 38,000 jobs. Financial activities payrolls added 5,000 jobs. & Manufacturing added35,000 jobs. Graphed below are the monthly job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange). As we can see manufacturing's figures are a rarity. ADP reports payrolls by business size as well. Small business, 1 to 49 employees, added88,000 jobs with establishments having less than 20 employees adding 48,000 of those jobs. ADP does count businesses with one employee in there figures. Medium sized business payrolls are defined as 50-499 employees, added 48,000 jobs. Large business added 77,000 to their payrolls. If we take the breakdown further, large businesses with greater than 1,000 workers, added 73,000 of those large business jobs. Below is the graph of ADP private sector job creation breakdown of large businesses (bright red), median business (blue) and small business (maroon), by the above three levels. For large business jobs, the scale is on the right of the graph. Medium and Small businesses' scale is on the left.
ADP: Private Employment increased 213,000 in September - From ADP: Private sector employment increased by 213,000 jobs from August to September according to the August ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Mark Zandi, chief economist of Moody’s Analytics, said, "Job gains remain strong and steady. The pace of job growth has been remarkably similar for the past several years. Especially encouraging most recently is the increasingly broad base nature of those gains. Nearly all industries and companies of all sizes are adding consistently to payrolls." This was slightly above the consensus forecast for 200,000 private sector jobs added in the ADP report. The BLS report for September will be released on Friday.
ADP reports sixth month of job gains above 200,000 - — Private-sector hiring picked up slightly in September, marking the sixth consecutive month of job gains above-200,000, a sign of strong and steady growth, according to a report released Wednesday. Last month, private-sector employers added 213,000 jobs, up from 202,000 in August, Automatic Data Processing Inc. said. Economists polled by Dow Jones Newswires had expected a September gain of 209,000, compared with an originally reported increase of 204,000 in August. “Especially encouraging most recently is the increasingly broad base nature of those gains. Nearly all industries and companies of all sizes are adding consistently to payrolls,” said Mark Zandi, chief economist of Moody’s Analytics, which prepares the report for ADP. A vibrant labor market is key for a strengthening economy. But certain sectors, like housing, won’t gear up until the employment environment delivers consistent and sustainable growth for jobs and wages, economists say. Economists use ADP’s data to get a feeling for the U.S. Labor Department’s employment report, which will be released Friday and covers government jobs in addition to the private sector. Economists polled by MarketWatch expect the government’s report to show that total nonfarm employment rose by 220,000 jobs in September, after adding just 142,000 positions in August.
ADP Private Payrolls Rise Modestly To 4-Year Average -- Despite Mark Zandi's promises that all is well in the US economy, ADP had dropped (and missed) two months in a row prior to today's print but a very small rise and beat this month (213k vs 205k expected and 205k previous) shows some stability. Of note is that this print is no better than the average ADP job change over the last four years. On the bright side small businesses add the most jobs while medium-sized businesses added the least. Of potential note to this somewhat 'meh' jobs data, yesterday's Consumer Confidence data showed a disappointing plunge in Jobs-Plentiful vs Jobs-Not-Plentiful which suggests Friday's all-important payrolls print may not be as exuberant as expected.
September Employment Report: 248,000 Jobs, 5.9% Unemployment Rate - From the BLS: Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9 percent, the U.S. Bureau of Labor Statistics reported today. ... The change in total nonfarm payroll employment for July was revised from +212,000 to +243,000, and the change for August was revised from +142,000 to +180,000. With these revisions, employment gains in July and August combined were 69,000 more than previously reported.The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes). Employment is now up 2.63 million year-over-year. Total employment is now 1.07 million above the pre-recession peak. The second graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate decreased in September to 62.7% from 62.8% in August. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio was unchanged at 59.0% (black line).The third graph shows the unemployment rate. The unemployment rate decreased in September to 5.9%.
Nonfarm Payrolls 248K; Unemployment 5.9%; Employed +232K; Labor Force -97K - The payroll survey shows a net gain of 248,000 jobs vs. an expectation of 215,000 jobs. Last month was revised up by 69,000 to 180,000. The six-month string of plus 200,000 jobs remains broken. Last month the household survey had a gain in employment of only 16,000. That number was not revised up. This month the household survey shows a respectable gain of 232,000, pretty much in line with the establishment survey. Nonetheless the household survey over the past six months has been much weaker than the establishment survey. One or the other is apt for some serious revisions. The labor force fell by 97,000. Those not in the labor force increased by 315,000. This follows last month's increase of those not in the labor force of 268,000. The civilian labor force rose by 217,000. It would take that increase in employment to hold the unemployment rate steady.Thus, the unemployment rate fell by 0.2% primarily on the basis of people dropping out of the labor force.All things considered, this was a pretty strong report. BLS Jobs Statistics at a Glance:
- Nonfarm Payroll: +248,000 - Establishment Survey
- Employment: +232,000 - Household Survey
- Unemployment: -329,000 - Household Survey
- Involuntary Part-Time Work: -174,000 - Household Survey
- Voluntary Part-Time Work: +35,000 - Household Survey
- Baseline Unemployment Rate: -0.2 at 5.9% - Household Survey
- U-6 unemployment: -0.2 to 12.0% - Household Survey
- Civilian Non-institutional Population: +217,000
- Civilian Labor Force: -97,000 - Household Survey
- Not in Labor Force: +315,000 - Household Survey
- Participation Rate: -0.1 at 62.7 - Household Survey
- In the past year the working-age population rose by 2,278,000.
- In the last year the labor force rose by 389,000.
- In the last year, those "not" in the labor force rose by 1,889,000
- In the past year, the number of people employed rose by 2,330,000 (an average of 194,1677 a month)
- 248,000 jobs added to the economy
- U3 unemployment rate declined from 6.1% to 5.9%
- Not in Labor Force, but Want a Job Now: up 45,000 from 6.304 million to 6,349 million
- Employment/population ratio ages 25-54: down -0.1% from 76.8% to 76.7%
- Average Weekly Earnings for Production and Nonsupervisory Personnel: minus -$.01 from $20.68 to $20.67, up 2.-% YoY
July was revised upward by 31,000 to 243,000. August was revised upward by 38,000 to 180,000. The net revision was thus 69,000. This means the "speed bump" that jobs hit last month has been almost renirely revised away. Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment. The headline numbers for August show a little progress on wages, and mixed results on participation. Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago. They have actually risen for the first eight months of this year. As noted above they are presently 6.349 million. This is almost certainly due to the cutoff in extended unemployment benefits by Congress at the end of last year. On the other hand, the participation rate in the prime working age group has made up 40% of its loss from its pre-recession high.
A September Surge in New Jobs with Unemployment Dropping to 5.9% - Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care. Today's report of 248K new nonfarm jobs was substantially better than the Investing.com forecast of 215K, and it was accompanied by a major upward revision of the August data from 142K to 180K new jobs. The unemployment rate dropped from 6.1% to 5.9%, beating the Investing.com expectation of no change. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It dropped below 3% in April of last year and is now at its post-recession low of 1.9%.
September payrolls: +248k, and jobless rate at 5.9% - The US employment situation report for September was better than expected but not quite as good as its headline numbers suggest.First the good news. We can take comfort that the August numbers were very likely anomalous, a blip of the kind that should be expected now and again. Jobs growth had slowed for two straight months prior to September, but the upward revisions now show that July and August were better than first believed, with a respective 243,000 and 180,000 jobs created. That brings the three-month average to 223,000. Looking further back, the average of 219,000 jobs created per month in the past year is the fastest pace for a twelve-month period since 2006.From the household survey, the unemployment rate fell from 6.1 to 5.9 per cent, and the broader U6 measure of underemployment also declined, from 12 to 11.8 per cent. This survey also showed employment growing by 232,000 in September. Now the bad news. Wages were yet again flat, with average hourly earnings actually declining very slightly. Furthermore, the labour force participation rate declined from 62.8 to 62.7 per cent, a marginal decline but still marking a new low point since the late 1970s.The protracted stagnancy of wages and the renewed decline in labour force participation, even as jobs growth has been more robust, suggests that labour market slack continues to be concentrated in the higher share of part-time workers than in cyclically depressed participation rate.
September Job Addition Of 248K Beats Expectations, Unemployment Drops To 5.9% --If the August payroll print was only +142, since revised to +180, it was largely offset by the September jump, which saw some 248K jobs added int he month, beating expectations of a 215K print, with a net prior revision of +69K jobs. And while with the revision of the August data the near-record streak of 200K+ jobs numbers was broken, we now have the longest running stretch of positive monthly job gains in history. On the other hand, the unemployment rate slid to jujst 5.9% from 6.1%, the lowest since July 2008.
September’s Jobs Report in 12 Charts - The headline figures in Friday’s report on job growth in September were positive. But the improvement in the unemployment rate came, in part, because more workers left the labor force. And despite a strong run in job growth this year, there are few signs yet that workers are taking home bigger paychecks. Several measures show that slack in the job market, while high, has been moving in the right direction. And despite improving labor markets, there are some sectors where job growth doesn’t appear to have ignited.
A solid jobs report as the recovery continues to lift employment…though not yet wages. September turned in strong jobs numbers as payrolls were up 248,000, surpassing expectations (sort of; see below), and the unemployment rate ticked down to a six-year low of 5.9%. August’s initially disappointing payroll count of 142,000 was revised up to a more respectable 180,000, and the average work-week ticked up to 34.6 hours, a post-recession high and a clear sign of an improving labor market. Analysts expected 215,000, but the BLS pointed out that about 20,000 grocery store workers were back on the payrolls in September after a work stoppage in August. Netting out this number, payrolls only slightly surpassed expectations.. It’s useful to average out the monthly bips and bops in payrolls, so below I give you this month’s version of JB’s Jobs Day Smoother, showing average monthly job growth over the past three, six, and twelve months. The underlying pace of payroll job growth is around 220,000 per month, with a very slight deceleration in recent months. That’s a solid, if not breakneck, pace that will continue to gradually tighten up the job market. The last time the unemployment rate was below 6% was in July 2008. Moreover, while the labor force fell slightly (though statistically insignificantly) last month, the decline in the jobless rate over the past year has come for the “right” reason: more people finding work, not leaving the job market (you’re only counted as unemployed if you’re actively looking for work).
Solid Jobs Growth in September, but Wages Need to Pick Up - Total payroll employment increased by 248,000 in September, according to the BLS Employment Situation report released this morning. This is a welcome increase after last month’s disappointing numbers. In addition, the August and July numbers were revised upwards by 38,000 and 31,000, respectively. It appears that last month’s reported numbers were both undercounted and simply a blip in the trend, as job growth has picked up again. One notable downside is that wages grew not at all in the last month. While one shouldn’t read too much into one month, wage growth has been hovering around a sluggish 2 percent over the last year. This is a clear indication that the Federal Reserve should hold off on any efforts to slow the economy down.
Strong Jobs Numbers for Teachers in September, but Large Jobs Gap Remains - In September, public-sector employment increased by 12,000, 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 K-12 education (the majority of which are teachers, but also teacher aides, librarians, guidance counselors, administrators, support staff, etc.).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. 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. Along with dismal trends in public sector employment in general, about a quarter million public education jobs were lost in the great recession and its aftermath. If we add to that the number of public education jobs that should have been added simply to keep up with growing enrollment, then we are currently experiencing a 377,000 job shortfall in local public education. The costs of a significant teacher gap are measurable: larger class sizes, fewer teacher aides, fewer extracurricular activities, and changes to the curriculum.
Quick Hits From the September Jobs Report - U.S. employers added 248,000 jobs last month, the fastest pace since June. Meanwhile, the unemployment rate fell below 6% for the first time since mid-2008. Details below the headline figures show wages fell by a penny and the number of people who have a job or are looking for one ticked down slightly. Here are other quick hits from the report from the Journal’s economics team:
- Falling Jobless Rate Keeps Early Fed Rate Hikes On Table: The U.S. jobless rate, at 5.9% in September, was already where Federal Reserve officials projected last month it would be by year end. Moreover payroll employment growth is robust, averaging more than 200,000 per month. That means early interest rate increases next year – though not the Fed’s expected path before today — remain on the table.
- Stagnant Wage Growth a Sign of Slack for Yellen and the Fed: For nearly five years, U.S. wage growth has hovered around 2% a year. In September, average hourly earnings for private-sector workers rose–you guessed it–2% from a year earlier, the Labor Department reported this morning. Fed Chairwoman Janet Yellen said last month that she believes “the very slow pace of wage increases does reflect slack in the labor market.”
- Payrolls Gains Not So Sluggish After All: After an especially strong stretch of hiring earlier this year, payroll growth appeared to slow starting in mid-summer. But July and August payroll numbers were revised up on Friday. Together with September’s solid gain, payroll growth has averaged roughly 224,000 over the last three months. That’s down just a bit from a monthly average of 228,000 in the first half of 2014.
- Labor-Force Participation Ticked Down in September The labor-force participation rate ticked down to 62.7% in September from 62.8% in August. The participation rate began falling long before the 2007-09 recession, but its descent steepened during the downturn and has only stabilized in the last year or so–at levels last seen in the late 1970s.
Labor-force participation hits a new 36-year low - — The last time fewer working-age Americans participated in the labor force, the U.S. Senate started broadcasting their proceedings. On the radio. The participation rate in September fell a tenth to 62.7%, marking the lowest level since February 1978. The falling participation rate has been a hotly debated topic for some time, but the puzzle is even more confusing given the string of solid jobs gains and the continued drop in the unemployment rate. Part of the story of course is simply demographic. A Federal Reserve paper puts half of the decline to the aging of the baby-boom generation. While there are more older workers than ever, due to increased longevity, better health, and the need to work due to destroyed wealth from the Great Recession, this cohort is still retiring in great numbers. That same Federal Reserve paper put as much as 1 percentage point of the decline from its 2000 peak of 67.3% due to cyclical factors — that is, people who previously wanted to work and now are discouraged. Alexandra Estiot of BNP Paribas notes another negative factor — the number of Americans who want to work more hours but are unable to do so.
Labor Participation Rate Drops To 36 Year Low; Record 92.6 Million Americans Not In Labor Force - While by now everyone should know the answer, for those curious why the US unemployment rate just slid once more to a meager 5.9%, the lowest print since the summer of 2008, the answer is the same one we have shown every month since 2010: the collapse in the labor force participation rate, which in September slide from an already three decade low 62.8% to 62.7% - the lowest in over 36 years, matching the February 1978 lows. And while according to the Household Survey, 232K people found jobs, what is more disturbing is that the people not in the labor force, rose to a new record high, increasing by 315,000 to 92.6 million!
The Magical Shrinking Unemployment Rate (25 graphs) The September current population survey unemployment report dropped to 5.9% and all sing hallelujah the job crisis is over. The unemployment rate hasn't been this low since July 2008. The unemployment rate dropped two tenths of a percentage point in a month, but why it dropped is more interesting. The main reason is the decline in those participating in the jobs market. The labor participation rate is the lowest rate in 36 years, not seen snce February 1978. The ranks of the employed has increased 2.3 million in the last year while those not in the labor force has swelled by almost 2 million. This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS. This survey tells us about people employed, not employed, looking for work and not counted at all. The household survey has large swings on a monthly basis as well as a large margin of error. Yet, it is our only real insight into what the overall population is doing for work, or not. The ranks of the employed increased by 232 thousand this month which is a great showing. From a year ago, the employed has increased by 2.33 million and now tallies 146,600,000 as shown in the below graph. These figures are good signs people really are getting jobs. Those unemployed stands at 9,262,000 a -329,000 decline from last month. Below is the change in unemployed and as we can see, this number normally swings wildly on a month to month basis generally. Those not in the labor force increased by 315,000 persons. The below graph is the monthly change of the not in the labor force ranks. Notice the increasing swells and wild monthly swings. Those not in the labor force has increased 1.9 million in the past year. The most frightening statistic of the household survey is the labor participation rate. The labor participation rate is at 62.7%, a record low, and is shown in the below graph.These are not all baby boomers and people entering into retirement. Below is a graph of the labor participation rate for those between the ages of 25 to 54. These are the prime working years, so once cannot blame retirement and college on the declining participation rate. As we can see, this 80.7% rate has dropped and is at lows not seen since the 1980's recession. This month's household survey makes it seems like the job market is perfectly fine. Yet if we look at labor participation rates, that is the reason the unemployment rate has dropped so much.
The Unemployment Rate Fails to Take into Account Missing Workers - Let’s put the pieces of the puzzle together. The unemployment rate fell in September by 0.2 percent points, from 6.1 to 5.9 percent. There was also a decrease in the sheer number of unemployed people—down 329,000 from August. On its face, this sounds like good news. At the same time, the employment-to-population ratio has remained 59.0 percent for four months running. If the unemployment rate dropped and the employment-to-population ratio remained the same, the missing part of the puzzle is the labor force participation rate. In September, the labor force participation rate dropped to 62.7 percent. The last time the labor force participation rate was this low was February 1978. And, the biggest drop in labor force participation was among prime-age workers, 25-54 years old. Over the last year, the labor force participation rate fell 0.5 percentage points. Therefore, it’s not surprising that missing workers—potential workers who are neither working nor actively seeking work due to the weak labor market—are at an all-time-high of 6.3 million. The vast majority of them (3.4 million) are 25 to 54 years old. To put the official unemployment rate in perspective, the figure below shows the actual unemployment rate and the unemployment rate if the missing workers were in the labor force looking for work and thus counted as unemployed. The unemployment rate including the missing workers sits at 9.6 percent, the same rate for the last four months. Perhaps, this is a better indication of the slack in the labor market and the reason why wage growth has remained so sluggish even with a falling unemployment rate.
The Wageless Recovery: Average Hourly Earnings Suffer First Monthly Decline Since July 2013 --The good news in today's jobs report is that at 248K, more jobs than expected were added in September. And now, the bad news: What happened in September when the BLS just reported that average hourly earnings for all private industries were $24.53, is that this was only one of 6 months since the failure of Lehman, when there a sequential decline in average hourly earnings, down from $24.54 in August.
"Hiring Grandparents Only": 230K September Jobs Added In 55-69 Age Group; 10K Lost In Prime, 25-54 Group - The further one digs into today's "blockbuster" jobs report, the uglier it gets. Because it is not only the participation rate collapse, the slide in average earnings, but, topping it all off, we just learned that the future of the US workforce is bleak. In fact, with the age of the median employed male now in their mid-40's, the US workforce has never been older. Case in point: the September data confimed that the whopping surge in jobs... was thanks to your "grandparents" those in the 55-69 age group, which comprised the vast majority of the job additions in the month, at a whopping 230K.This was the biggest monthly jobs increase in the 55 and over age group since February! What about the prime worker demographic, those aged 25-54 and whose work output is supposed to propel the US economy forward? They lost 10,000 jobs.
Comments on Employment Report: Party Like it's 1999! - (graphs) This was a solid report with 248,000 jobs added and combined upward revisions to July and August of 69,000. As always we shouldn't read too much into one month of data, but at the current pace (through September), the economy will add 2.72 million jobs this year (2.64 million private sector jobs). Right now 2014 is on pace to be the best year for both total and private sector job growth since 1999. A few other positives: the unemployment rate declined to 5.9% (the lowest level since July 2008), U-6 (an alternative measure for labor underutilization) was at the lowest level since 2008, the number of part time workers for economic reasons declined slightly (lowest since October 2008), and the number of long term unemployed declined to the lowest level since January 2009. Unfortunately wage growth is still subdued. From the BLS: "Average hourly earnings for all employees on private nonfarm payrolls, at $24.53, changed little in September (-1 cent). Over the year, average hourly earnings have risen by 2.0 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $20.67." With the unemployment rate at 5.9%, there is still little upward pressure on wages. Wages should pick up as the unemployment rate falls over the next couple of years, but with the currently low inflation and little wage pressure, the Fed will likely remain patient. Total employment increased 248,000 from August to September and is now 1.07 million above the previous peak. Total employment is up 9.78 million from the employment recession low. Private payroll employment increased 236,000 from August to September, and private employment is now 1,547,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment). Private employment is up 10.34 million from the low. Through the first nine months of 2014, the economy has added 2,040,000 payroll jobs - up from 1,736,000 added during the same period in 2013.
The Unemployment Rate is an 'Inadequate Measure of Slack' - Jared Bernstein says there's more slack in the labor market than you'd think from just looking at the unemployment rate: ..So why not just look at the unemployment rate and call it a day? Because special factors in play right now make the jobless rate an inadequate measure of slack. In fact, at 6.1 percent last month, it’s within spitting distance of the rate many economists consider to be consistent with full employment, about 5.5 percent (I think that’s too high, but that’s a different argument). There are at least two special factors that are distorting the unemployment rate’s signal. First, there are over seven million involuntary part-time workers, almost 5 percent of the labor force, who want, but can’t find, full-time jobs. ..The second special factor masking the extent of slack as measured by unemployment has to do with participation in the labor force. Once you give up looking for work, you’re no longer counted in the unemployment rate, so if a bunch of people exit the labor force because of the very slack we’re trying to measure, it artificially lowers unemployment, making a weak labor market look better. There's still plenty of room, and plenty of time for fiscal policymakers to do more to help the unemployed (and with infrastructure, our future economic growth at the same time). Unfortunately, Congress has been captured by other interests. As for monetary policy, let's hope that the FOMC listens to Charles Evans' call for patience. Raising rates too late and risking a temporary outbreak of inflation is far less of a mistake than raising them too early and slowing the recovery of employment.
Labour under-utilisation in America - Much of the attention at the last policy meeting at the Federal Reserve was focused on the FOMC’s indication that interest rates would stay unchanged for a “considerable time”. But a more fundamental issue concerns another key phrase in the statement, which is the FOMC’s assertion that “there remains significant under-utilisation of labour resources” in the US. If there is still a large margin of slack in the labour market, despite tumbling unemployment figures, the Fed is unlikely to tighten monetary conditions very much in the next couple of years. Slack will also keep the wages share in national income low, thus boosting the profits share further. The utilisation of labour resources in America is thus critical not only for monetary policy, but also for the outlook for US equities. The academic discipline of labour economics, which has not really been centre stage since the wage-push inflation of the 1970s, is therefore very much back in vogue. Empirical labour economists are needed to determine whether the decline in the official unemployment rate is providing the correct read on labour market slack and, if not, how to handle the problem. This was the subject of a very timely conference at the Peterson Institute last week, which brought together many leading labour market academics, as well as key officials from the policy establishment in Washington and the wider Fed. The debate is available on the web, and is worth watching in full. The overall message, which almost certainly reflects what the FOMC is being told by the academic and official economics community, was more dovish than I had expected.
Job Vacancies Are Up 18%. So Where Is the Hiring? - Washington Wire - WSJ: Good economic news has been rare enough the past few years that it’s easy to be skeptical when it appears. But data from the Bureau of Labor Statistics say job vacancies, economy-wide, rose 18% during the first half of 2014. And Gallup polling data show the same thing: a 20% increase in respondents who report that their company is hiring new people. Labor demand, however, is only one side of the market. Labor supply and other factors matter too. And, regrettably, the increase in job vacancies has not yet translated into equally strong employment or wage growth. The surprisingly strong vacancy rate raises two questions: Why did it occur in early 2014? And why hasn’t it been accompanied by a concomitantly strong increase in job creation? Economists at the New York Fed proposed an answer to the first question. The expiration of extended unemployment insurance benefits at the end of 2013, they say, made the job market more attractive for employers by reducing workers’ “reservation wages”–the amount companies need to pay to persuade them to accept the job. Lower labor costs encourage companies to increase hiring. That’s not just ex post rationalization. A rigorous 2013 paper models and quantifies the mechanism, and it predicts an increase in job vacancies of roughly the amount that occurred this year. The New York Fed hypothesis would also help explain why wage growth has been so weak in 2014. But the New York Fed researchers’ model also predicts more hiring than we’ve seen. So the second question remains unanswered.
Do Unemployment Benefits Expirations Help Explain the Surge in Job Openings? -- Job openings are arguably one of the most important indicators of recovery in the labor market, as they reflect employers’ willingness to hire. The number of job openings has recovered steadily since the recession, yet through the end of 2013, the openings rate was still substantially below its pre-recession peak (see chart below). Starting in January 2014, however, the number of job openings increased dramatically, up by 20 percent through June 2014, and job openings relative to employment jumped back to the peak of the previous expansion. In this post, we argue that the expiration of the Emergency Unemployment Compensation (EUC) program may have contributed to this rapid rise in 2014.
The Freelancer Economy is Here. Should We Celebrate? - Early this month, the Freelancers Union released the results of an Edelman study which found that an astounding 34 percent of the U.S. workforce is now comprised of “freelancers.” In considering the results of the co-commissioned study, the Freelancers Union was in an oddly celebratory mood:But this is more than an economic change. It’s a cultural and social shift on par with the Industrial Revolution. Just as the move from an agrarian to an industrial society had dramatic effects on social structures around civil rights, workforce participation, and even democracy itself, so too will this shift to a more independent workforce have major impacts on how Americans conceive of and organize their lives, their communities, and their economic power. This and countless other studies make it hard to contest the notion that the “end of jobs” is indeed nigh, and few would argue with the Freelancers Union’s assertion that this major labor shift will have a massive social impact. But whether we should happily embrace this shift is still up for debate. On one side of that debate is the Freelancers Union, which is eager to proselytize about the luxury of the freelancer lifestyle—even though the organization reports that many of its members suffer economic vulnerability and 12 percent receive food stamps. The announcement of the study comes on the heels of a report they released in July entitled “How to Live the Freelance Life—Lessons from 1,000 Independents,” an independently conducted survey of both FU members and non-members that found that 88 percent of freelancers wouldn’t take a traditional job if it were offered to them.
Study: Higher unemployment makes people way more miserable than higher inflation - From “The Happiness Trade-Off between Unemployment and Inflation” by David Blanchflower, David Bell, Alberto Montagnoli, and Mirko MaroUnemployment and inflation lower well-being. The macroeconomist Arthur Okun characterized the negative effects of unemployment and inflation by the misery index—the sum of the unemployment and inflation rates. This paper makes use of a large European data set, covering the period 1975–2013, to estimate happiness equations in which an individual subjective measure of life satisfaction is regressed against unemployment and inflation rate (controlling for personal characteristics, country, and year fixed effects). We find, conventionally, that both higher unemployment and higher inflation lower well-being. We also discover that unemployment depresses well-being more than inflation. We characterize this well-being trade-off between unemployment and inflation using what we describe as the misery ratio. Our estimates with European data imply that a 1 percentage point increase in the unemployment rate lowers well-being by more than five times as much as a 1 percentage point increase in the inflation rate.
Long-Term Jobless Perfectly Employable, New Report Finds -- U.S. workers who have been out of a job for six months or longer can and will reenter the labor market as the unemployment rate falls further, according to a new paper countering arguments that the long-term jobless are increasingly unemployable due to an erosion of skills.That doesn’t mean that long-term unemployment is not a severe problem, says Josh Bivens, author of the paper and economist at the Economic Policy Institute, a liberal think tank in Washington. It has remained unusually elevated during this recovery, leading to fears that the long-term jobless would suffer permanent difficulties in finding a job–either due to weaker skills or employer biases.Mr. Bivens argues that unemployment—whatever its length—creates a significant setback for those who lose their jobs. The overall U.S. jobless rate has fallen from a crisis peak of 10% in October 2009 to 6.1% in August, but remains high by historical standards.“Regardless of duration, involuntary job loss leads to significant and long-lasting economic damage to individuals and their families,” the report says. Federal Reserve officials have extensively discussed the potential damage to the economy from persistent long-term unemployment, and debated how much of it is amenable to help using low interest rate policies aimed at spurring stronger economic growth.The EPI study suggests most of the long-term unemployment problem is due to a weak economic backdrop, and will reverse once growth and the job market itself find themselves on a considerably stronger footing. “Despite the deep and obvious damage done by any spell of involuntary job loss, there is very little compelling evidence that the scarring effects are worse for longer spells,” the paper says.
One in 4 U.S. Metros Has Fewer Jobs than 5 Years Ago - Nearly a quarter of metropolitan areas had fewer jobs in August than five years earlier, showing that the national labor market recovery has missed broad swaths of the U.S. According to Labor Department data released Wednesday, 92 regions have experienced net job loss since August 2009 despite the country steadily adding jobs during much of that time. The Pine Bluff, Ark., area saw the steepest decline in employment, with total payrolls down 9.4% from five years earlier. Tucson, Ariz., region recorded the largest total decline with 23,500 fewer jobs there in August compared with the same month in 2009. Those figures stand in contrast to the country as a whole. Since August 2009, national employment has increased almost 7%. U.S. payrolls in May hit a new all-time high and have increased each month since then. Five years ago the country was nearing a post-recession low for jobs. (National employment bottomed out in December 2009.) Areas with fewer jobs this summer compared with five years earlier include mid-sized metros such as Hartford, Conn. (payrolls down 0.7%), Memphis, Tenn. (down 2.6%) and Buffalo, N.Y. (down 1.9%). Each of those regions has more than 500,000 workers. But areas hit the hardest are more lightly populated. Employment in the Brunswick, Ga., area fell 8.8%. As of August, there were about 44,000 workers there. The Pine Bluff region has about 36,000 workers. Many of the areas with the fastest job growth over the past five years are in Texas, including Midland where payrolls are up 36.5% and Odessa where employment increased 30.5%. Los Angeles added the largest total amount of jobs during the five-year span, almost 390,000. Houston, Miami and Dallas followed. See how your area ranks:
. The Obsolescence of U.S. Labor - In a speech yesterday at Northwestern University, President Obama said, "American manufacturing has added more than 700,000 new jobs." But since Obama first took office in 2009, we've actually had a NET LOSS of 400,000 manufacturing jobs. In December of 2009, the number bottomed out at 11.4 million (Source: BLS). We now have 12.2 million manufacturing jobs — for an actual gain of 681,000 manufacturing jobs since December 2009 — out of over 10 million jobs created since that time. While that's good news (that we have more jobs in manufacturing), most of the net new jobs created have been low-paying jobs in the service industry — and judging by past history, we can expect that trend to continue. In his remarks, Obama also praised the auto industry. But during the auto bailouts, the unions agreed to a new two-tiered pay system that paid new (second-tier) hires about $14/hr. (About half of what they used to earn). And manufacturing jobs (while maybe not as many) are still being offshored to low-wage countries (until robots can do most of the work). Domestic production might only increase in proportion to domestic consumption. As for the auto industry, many of their domestic manufacturing jobs have moved to low-paying non-union "right to work" Southern states (just like Boeing).Reshoring Or Offshoring: U.S. Manufacturing Forecast 2015-2016 (September 2014) " Looking forward, additional offshoring will be roughly offset by reshoring ... don’t expect manufacturing employment to grow along with production. The fastest-growing parts of manufacturing will be those that use the least labor. Productivity in factories continues to improve, so the best jobs picture we can hope for is flat. The peak year for U.S. manufacturing employment was 1979, and we’re not going back there."This is what "globalization" has really been all about for US-based multinationals for decades — not global competition, but destroying America's middle-class for corporate profits and higher stock prices.
The Pay Gap Is Much Wider Than Most Americans Think: Study: Democrats hoping to use income inequality to drive voters to the polls in November face a critical problem: Americans may not know just how well-off the nation’s rich are. In a recent study, Americans told researchers they thought CEO pay at major corporations was approximately 30 times more than their own. Actually, CEO pay averages 354 times what a worker earns at the same company. Americans also said they thought the pay gap between CEOs and workers should be approximately 7 to 1. To achieve that ratio, workers would have to make $1.8 million each year, a separate study concluded. Prominent Democrats, including New York Mayor Bill de Blasio and Sen. Elizabeth Warren of Massachusetts, have gained national attention for focusing on income inequality. Some states this year have put minimum wage referenda on their ballots in November, a move that could drive Democratic turnout in competitive races. The misperception of the pay gap may help explain why strategists have seen recently that income inequality is not an issue resonating with voters. “I think it doesn’t have a personal immediacy and there are lot of other things that speak to income inequality that are much more immediate and much more tangible and much more real to people,” Geoff Garin, a Democratic pollster, told The Washington Post in July.
Sadly, Ed Yardeni is the Wanker of the Day - wage stagnation edition - Dr. Ed Yardeni has some clickbait up at his blog titled, The Wage Stagnation Myth. Yardeni is a highly-regarded financial markets analyst, but this is just sad. He writes that There is a widespread myth that real incomes have been stagnating for many years. That's apparently true based on real median income for households.... [but] real pre-tax compensation per payroll employee (including wages, salaries, and supplements) is up ... 16.8% since the start of 2000. Real wages and salaries in personal income is ... up 14.6% since the start of 2000. Real average hourly earnings of production and nonsupervisory workers i sup ... 13.4% since the start of 2000. In the first place, like so many others, he starts by conflating wages and income, setting up a straw man. No, Dr. Ed, the fact of wage stagnation is not based on income metrics, but on wage metrics. To give you a head start, here are 7 of them I helpfully catalogued in a post only one month ago. Secondly, note that all of Yardeni's metrics appear to be mean, not median, measures. You remember the old saw about Bill Gates walking into a bar, and now the mean wealth of the patron is $1 billion. That's what Yardeni does. When you measure in median, not mean terms, wage stagnation is blazingly apparent.
Raising Most People's Wages - Robert Reich - I was in Seattle, Washington, recently, to congratulate union and community organizers who helped Seattle enact the first $15 per hour minimum wage in the country. Other cities and states should follow Seattle’s example. Contrary to the dire predictions of opponents, the hike won’t cost Seattle jobs. In fact, it will put more money into the hands of low-wage workers who are likely to spend almost all of it in the vicinity. That will create jobs. Conservatives believe the economy functions better if the rich have more money and everyone else has less. But they’re wrong. It’s just the opposite. The real job creators are not CEOs or corporations or wealthy investors. The job creators are members of America’s vast middle class and the poor, whose purchases cause businesses to expand and invest. America’s wealthy are richer than they’ve ever been. Big corporations are sitting on more cash they know what to do with. Corporate profits are at record levels. CEO pay continues to soar. But the wealthy aren’t investing in new companies. Between 1980 and 2014, the rate of new business formation in the United States dropped by half, according to a Brookings study released in May. Corporations aren’t expanding production or investing in research and development. Instead, they’re using their money to buy back their shares of stock/
L.A. Hotel Workers Set to Earn More than Most Workers in 15 States - Housekeepers, bellhops and other Los Angeles hotel workers are set to be paid more per hour than the majority of workers in 15 states, including Florida, South Dakota and Mississippi.The Los Angeles City Council approved a measure Wednesday to lift the minimum wage for workers at large hotels to $15.37 an hour. If the council and mayor give final approval, as expected, the starting pay for hotel workers in the city will exceed the median hourly wage paid last year in almost a third of states.In Florida last year, for example, half of all workers whose hourly rate could be calculated were paid $14.74 an hour or less, according to the Labor Department. In Mississippi, the state with the lowest median wage, the typical police officer, fire fighter and auto mechanic earned less per hour last year than Los Angeles hotel workers are expected to be paid.The disparity could widen further as cities and states in typically higher-cost areas, including California, Hawaii and New Jersey, have acted to raise the minimum wage. San Francisco and San Jose have raised local minimum wages even above the state level.In June, the Seattle City Council approved a gradual increase to a $15 an hour minimum wage for all workers, from the current state rate of $9.32 an hour. Weeks later, Massachusetts lawmakers approved an increase to an $11 an hour minimum wage by 2017 from the current $8 an hour floor. Meanwhile, states in the south and parts of the Midwest have stood pat, paying the federal floor of $7.25 an hour. The cost of living in California is 30% higher than in Mississippi, according to Commerce Department.
Minimum-Wage Workers Could See Big Raises in Chicago, L.A., N.Y., S.F. - Los Angeles officials are contemplating increasing the city’s minimum wage by 47% to $13.25 an hour, from $9 now. If the measure passed, Tinseltown’s pay floor would be among the highest in the country, along with Seattle and San Francisco. But Los Angeles is a much different place than those fellow West Coast cities. Poverty rates are higher and median wages lower—and growing more slowly. L.A. might have more in common with New York and Chicago, two other big cities considering large increases in their minimum wages. Los Angeles could prove to be a test case for whether a higher minimum wage helps or hurts the economy in large cities. The proposals have the “potential to more substantially reduce wage inequality and polarization—which are more pronounced in larger cities,” said Arindrajit Dube, an economist at University of Massachusetts-Amherst. The Los Angeles wage could have a stronger impact than those in San Francisco and Seattle because a larger share of workers currently earn less the proposed $13.25 level. As a result, more businesses will need to adjust to the higher wages, but more families could benefit from the higher pay. “However, it is important to stress that we don’t know very well what would happen from pushing the minimum wage envelope” to the levels under consideration, Mr. Dube said. Here’s how proposals for city-specific minimum wages stack up:
GOP senators: Don’t raise home care worker wages --Republican lawmakers urged the Department of Labor (DOL) to suspend an upcoming rule that would increase the wages of home care workers to $7.25 an hour. Sens. Mike Johanns (R-Neb.) and Lamar Alexander (R-Tenn.) led more than 20 Republicans in writing a letter to DOL Secretary Tom Perez asking him to cancel the new rule that is slated to take effect on Jan. 1, because they said it would “dramatically increase costs” for Medicaid services.“At a time when approximately 76 million baby boomers are reaching retirement, the federal government has a compelling interest in containing the cost of long term services and supports and expanding the low-cost care options available to this aging demographic,” the lawmakers wrote Tuesday. “We are deeply troubled that this rule runs contradictory to those goals. Therefore, we urge you to suspend the rule.” Their letter came the same day advocacy groups expressed concern that the new rules to extend federal minimum wage and overtime pay protections to home care workers could be delayed. Currently, states aren't required to pay home care workers the minimum wage because they fall under the Fair Labor Standards Act’s “companionship exemption,” under which they are denied the benefits. On Wednesday, the administration also issued regulations requiring companies that do business with the federal government to pay their workers at least $10.10 an hour, which would only benefit home care workers who are federal contractors once the regulation takes effect.
How Obama Is Caught Between Economic Growth and Shrinking Incomes - In President Barack Obama‘s big speech on the economy Thursday, the president touted his party’s economic agenda and repeated a claim similar to one he’s made before: “It is indisputable that our economy is stronger today than it was when I took office.” Then he added, “It is also indisputable that millions of Americans don’t yet feel enough of the benefits of a growing economy where it matters most — in their own lives.” Behind Mr. Obama’s frustration: A striking divergence between the growing economy and the share of that growth going as income to the median American household. In the economic expansions of the 1980s and 1990s, roughly coinciding with the presidencies of Ronald Reagan and Bill Clinton, the amount of gross domestic product for each person in the economy, or GDP per capita (red in all the charts), was growing. And the median household income — the earnings of the middle household (blue in all the charts) — was also growing. Then incomes slid during the 2001 recession at the beginning of George W. Bush‘s presidency and never quite recovered, even as GDP per capita continued to grow. The recession that began in December 2007 sent both measures falling. Since Mr. Obama took office, GDP per capita has reclaimed its lost ground. But these gains have not accrued to the median household. A look at the year over year change shows the breakdown. In the 1980s and 1990s, median incomes and GDP per capita both rose. But beginning around the year 2000, per capita GDP has posted a number of solid years, while median household income has had few years of positive growth.In 2013, median household income climbed for the first time since 2007, but by only a tiny bit — less than $200.
Bill Clinton shares his theories on why US incomes are stagnant: For former President Bill Clinton, host of the annual gathering of business and political leaders at the Clinton Global Initiative, the American economy isn't feeling as secure as it should.Median household income in 2013 was $51,900, according to recent reports from the U.S. Census Bureau, 8 percent lower than before the recession began in 2007. During the Clinton presidency from 1993 to 2001, median family income in the United States rose to $49,000 from $37,000. "Median income hasn't gone up for three reasons," Clinton said. "One is the labor markets aren't tight enough, and we haven't raised the minimum wage as we should. And the second reason is we haven't changed the job mix enough, to raise the median income and have more poor people working into it. The combination of jobs has to pay, on average, higher wages." Clinton said he believes the current business climate is also to blame for income stagnation. "Gross domestic product growth doesn't lead to growth in median incomes because company after company takes more of its profits and spends it on dividends, stock buybacks, management increases … and less on sharing it with the employees broadly," said Clinton, who is hopeful that corporate America is poised to change that view.
Are stagnant incomes a statistical artifact? -- The American middle class hasn't got a raise in 15 years. Median household incomes aren't moving. Canadian numbers tell a similar story. The market income (earnings, private pensions, investment income) of the median Canadian household is lower now, in real terms, than it was in 1976: But what happens if we break apart that median household, and see how various types of families are faring? To make the comparisons easier, I've normalized so that 1976=100 for all family types. Every type of couple family has done better than the typical family, with married "elderly" (Statistics Canada's term for the 65 and over) couples experiencing spectacular gains in market incomes. The next diagram shows trends in median market incomes for various uncoupled demographics. Elderly singles are enjoying four times the market incomes their counterparts received in 1976. (Note that this is before factoring in Canada and Quebec Pensions and Old Age Security). Another group that has done well is single moms: the market income of the median female lone parent has almost doubled, real terms, since 1976. Yes, the income of unattached women under 65 has decreased in constant dollars - but by basically the same amount as the median incomes of all household units have decreased. Only one major demographic - unattached non-elderly men - has seen their median income fall by more than that of the "typical" household. Even there, the difference is not large - median incomes, overall, have fallen 7 percent in real terms since 1976; median incomes of single non-elderly men have fallen 10 percent.
Contra Jared Bernstein: Stagnation, Spending, and The Velocity of Wealth — Five Graphs -- Steve Roth -- I’ve said many times: every economic assertion should be preceded by the words “by this measure.” For big economic questions, you need to look at lots of different measures, lots of different way, to get a feel for what’s going on.This has come home to me as I’ve considered Jared Bernstein’s ongoing takedown of liberal beliefs regarding inequality, marginal propensity to consume (MPC), and economic growth — epitomized in this remarkably weak-kneed December 2013 paper for the (supposedly) liberal Center for American Progress. Bernstein is a strong voice for progressive policies. But in this paper and widely elsewhere, he repeatedly pooh-poohs the MPC argument.That argument briefly stated: poorer people spend a higher percentage of their income/wealth each year, so if income and wealth are less concentrated, more widely distributed, there will be more spending.Even briefer: extreme wealth concentration strangles growth. I built a little model depicting that arithmetic effect here. But Bernstein repeatedly points to certain measures suggesting that things don’t seem to have worked out that way. Even as inequality has increased over the last 35 years, real per-capita consumer spending has continued to rise: But even as he puts great weight on this display, he acknowledges that it isn’t very good evidence. You need a counterfactual: Sure, spending went up, but if inequality had remained the same, would it have gone up faster?
A misleading critique of my inequality and growth work. - Jared Bernstein -- Sorry, but Steve Roth’s critique of my Inequality and Growth paper for CAP is misleading and inaccurate. Moreover, he had to work pretty hard to miss my points linking inequality to macro-instability and thus persistent periods of weak growth. Not only does Roth somehow miss my emphasis on what I think are critically important linkages between inequality and growth, ones I repeat below. What’s particularly unfortunate about his critique is that while he purports to solve the hard problem that I laid out in the piece–correlations over the long-term between inequality and macroeconomic growth are hard to find in the US data–he fails to do so. As I stressed in my piece, this is a key missing piece of evidence, and while I don’t see how he missed the other connections I did make in my piece, I read his critique with the expectation that he had found evidence tying inequality directly to slower growth through the consumption channel. He does not. Instead, Roth just throws up a few FRED charts that merely obfuscate, arguing that they reveal evidence of a “massive, three-decade secular decline in spending relative to wealth over 35 years — the very same period over which we’ve seen massive growth in wealth inequality.”
Rising Tides Lift All Yachts: Why the 1% Grabs all the Gains From Growth -- L. Randall Wray - You’ve probably seen references to the work of my colleague (and former student), Pavlina Tcherneva in recent days. If not, take a gander at this: Rising Tides Don’t Lift All Boats. Who wudduva thought? Actually, you have to conclude that economists and policy-makers are an optimistic lot. Going all the way back to the Kennedy days, it has been conventional wisdom that if you can boost economic growth, everyone wins. Actually, as I’ve long argued, that is remarkably naïve and counterfactual. In good times, the powerful grab the spoils. In bad times, they get government bail-outs.Why on earth would you want to be powerful if you could not protect and even enhance your well-being no matter what the economy does?Why do elites everywhere always clamor for economic growth? Every policy advocated by them is justified on the argument that it will boost growth. Cut taxes on the rich! Eliminate regulations! Free trade! Slash welfare! Balance the budget! Save Wall Street!Every policy they hate is said to hinder growth: raising minimum wages; environmental protection; school lunches for poor kids; vacations and sick leave for workers. Where such policies do enhance growth, the rich will get more than their fair share. Where the policies do not boost growth, they will increase the share of the rich. Heads they win and tails they win too.
The US Is Now 50% More Unequal Than Ancient Rome (And That Includes Slaves) -- As we previously noted, only the highest income earners have seen any gains in compensation since the crisis began around 2007 to the current 'recovery' tops. It is perhaps not entirely surprising then that, the total income controlled by the Top 1% is drastically above that of the slave-included times of Ancient Rome and as high as the peak in the roaring 20s. "The greatest irony is that the President is railing against inequality as one of the most important problems of the day, despite the fact that his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality. This simple truth cannot be repeated often enough."
Chart: The Typical White Family Is 20 Times Wealthier Than the Typical Black Family -- We're still posting a new chart on the current state of income inequality every day over the next week. Yesterday's looked at how top tax rates dropped as top incomes rose. Today, a closer look at how income inequality splits along racial lines. Whites' average household income is 56 percent larger than that of African Americans and 39 percent larger than that of Hispanics. But the discrepancy is even greater when it comes to wealth: The median white family holds nearly 20 times more assets than he median black family and 74 times more assets than the median Hispanic family.
Why inequality is such a drag on economies - FT.com: hen should growing inequality concern us? This is a moral and political question. It is also an economic one. It is increasingly recognised that, beyond a certain point, inequality will be a source of significant economic ills. The US – both the most important high-income economy and much the most unequal – is providing a test bed for the economic impact of inequality. The results are worrying. This realisation has now spread to institutions that would not normally be accused of socialism. A report written by the chief US economist of Standard & Poor’s, and another from Morgan Stanley, agree that inequality is not only rising but having damaging effects on the US economy. According to the Federal Reserve, the upper 3 per cent of the income distribution received 30.5 per cent of total incomes in 2013. The next 7 per cent received just 16.8 per cent. This left barely over half of total incomes to the remaining 90 per cent. The upper 3 per cent was also the only group to have enjoyed a rising share in incomes since the early 1990s. Since 2010, median family incomes fell, while the mean rose. Inequality keeps rising. The Morgan Stanley study lists among causes of the rise in inequality: the growing proportion of poorly paid and insecure low-skilled jobs; the rising wage premium for educated people; and the fact that tax and spending policies are less redistributive than they used to be a few decades ago. Thus, in 2012, says the Organisation for Economic Co-operation and Development, the US ranked highest among the high-income countries in the share of relatively low-paying jobs. Moreover, the bottom quintile of the income distribution received only 36 per cent of federal transfer payments in 2010, down from 54 per cent in 1979.
Walton Family Net worth Is a Case Study Why Growing Wealth Concentration Isn’t Just an Academic Worry - Earlier this year, economist Thomas Piketty caused a stir with a book arguing that the future in advanced economies could see a relentless concentration of wealth among a small sliver of families, whose fortunes would increasingly dwarf those of the typical citizen. The last couple of weeks have seen the release of a couple of key barometers of wealth inequality in America, and combining them, it’s easy to see that this hypothesis of ever-concentrating wealth seems likely indeed. In the past month, the Federal Reserve released its triennial Survey of Consumer Finance (SCF) for 2013, while Forbes magazine released their annual list of the 400 wealthiest Americans.There is plenty of material in these releases to assess the current state of wealth inequality in America. Take one example, that we’ve calculated before: comparing the family wealth of six of the wealthiest members of the Walton family (reported at just under $145 billion in 2013) with the number of American families that you could add together and still have their net worth come in less than the 6 Walton heirs: 52.5 million, or 42.9 percent of American families. Some have objected to this statistic on the grounds that the negative net worth families (11.5 percent of all American families) somehow shouldn’t count in this calculation. So, try another statistic: how many families that held the median wealth would you need to add together to equal the holdings of the six Walton heirs: more than 1.7 million. The median wealthholder in the United States, remember, has more wealth than half of all American families and less wealth than half (around $81,200 in 2013).
Exclusive: How Private Debt Strangles Growth, Stokes Financial Crises, and Increases Inequality - Yves here. Richard Vague has been kind enough to allow us to feature an extract from his recent book, The Next Economic Disaster: Why It's Coming and How to Avoid It. I first met Richard several years ago at the Atlantic Economy Summit. If my memory serves me correctly, he was then taken with the conventional view that debt was a dampener to growth...meaning government debt. The issue of what caused our economic malaise and what to do about it troubled him enough to lead him to make his own study, and he has come to reject the neoliberal view that government debt is problem and must therefore be contained. This view implies, as many readers have pointed out, that the great lost opportunity of the crisis was restructuring mortgage debt. That would also have allowed housing prices to reset to levels in line with consumer incomes. Vague also mentions a less-widely-commeneted on debt explosion prior to the crisis, that of business debt. One big contributor was an explosion in takeover debt for private equity transactions. Indeed, a lot of experts were concerned about a blowup due to the difficulty of refinancing these deals in the 2012-2014 time horizon. But ZIRP and QE produced enormous hunger among investors for any type of asset with non-trivial yield, so the Fed enabled the deal barons to refinance on the cheap.
Boeing moving 2000 jobs from Washington state - Via @BlogWood, I learned that Boeing is going to move 2000 skilled jobs away from Washington state, despite just receiving $8.7 billion (with a B) in subsidies for the years 2025-2040. Really, I’m speechless. “Chutzpah” is one of the more printable words I can think of to describe this. You will recall that the state’s legislators were angry when their $2 billion (present value of $3.2 billion over 20 years) 2003 subsidy for the Dreamliner did not stop Boeing from putting a Dreamliner assembly line in South Carolina. So the 2013 subsidy was supposed to guarantee that Boeing couldn’t do this again. Boeing’s response no doubt will be that these jobs are in the Defense division, not in civil aircraft. Thus they are not covered by either the 2003 or the 2013 subsidy. This has already been hinted at by a commenter on the Business Week article, firstname.lastname@example.org. This is true, but cold comfort: It’s still a reduction of Boeing’s footprint in Washington.
CAFTA and the Forced Migration Crisis - What does a trade agreement have to do with the thousands of unaccompanied children risking their lives to try to cross the U.S. southern border? Earlier this month Congresswoman Marcy Kaptur (D-Ohio) hosted a congressional briefing entitled "Economic Underpinnings Of Migration In The Americas," focusing on the role that the U.S.-Central America Free Trade Agreement (CAFTA) has played in contributing to the forced migration crisis. Watch Congresswoman Marcy Kaptur and GTW research director Ben Beachy explain how CAFTA has exacerbated the instability feeding this crisis in the video below. Ben's prepared remarks follow.
The Score: Why Prisons Thrive Even When Budgets Shrink -- Even as Ronald Reagan argued that “government is the problem” throughout the 1980s, the state imprisoned twice the percentage of Americans previously incarcerated. As Bill Clinton declared “the era of big government” over in the 1990s, incarcerations skyrocketed to almost five times their rate in the 1970s—a rate that had been stable across the twentieth century. How did this happen? Three actors determine daily incarceration rates: the police, prosecutors and judges. As shown in the graphic, a set of policies has increased the power of all three groups since 1982. They decide how often, and for what types of activities, people are arrested; how those arrests are turned into charges and convictions in a court of law; and how long the prison sentence is for each conviction. The interactions between these three groups have given us what the National Research Council calls a “historically unprecedented and internationally unique” explosion in incarcerations since the 1980s. Under the “war on drugs,” aggressive policing drove up the percentage of those in state prisons for drug offenses from 6.4 percent in 1980 to 22 percent in 1990. More minor drug charges made it easier for prosecutors to push felony charges by citing a defendant’s prior record. These convictions triggered harsh sentences under new guidelines like California’s “three strikes” law, passed during the same period. The enforcement of these punitive new laws was, and remains, racist: according to the ACLU, black people are 3.73 times more likely to be arrested for marijuana possession than whites, though they are equally likely to use. This, in turn, makes black people vulnerable to the rest of the criminal-justice system.
California bans prisons from sterilizing inmates without their consent: California Governor Jerry Brown signed a bill that bans prisons from sterilizing inmates without their consent, his office said on Thursday, after media reports and a later audit showed officials failed to obtain consent from dozens of incarcerated women. The bill prohibits sterilizations of inmates as a means of birth control in correctional facilities except for when a patient’s life is in danger or when there is a medical need and no less drastic alternatives are available. The bill passed both the state’s assembly and senate chambers unanimously last month. The measure was introduced earlier this year in the wake of allegations, first highlighted by the non-profit Center for Investigative Reporting, that the state failed to obtain informed consent from some female inmates who had their fallopian tubes tied.
California Spending More From Budget to Service Debt - Servicing California’s general-fund debt will take a bigger chunk of the state budget -- 7.2 percent -- this fiscal year compared with the 7.1 percent a year earlier, according to estimates from Treasurer Bill Lockyer. The most populous and most indebted U.S. state will sell $5.68 billion of bonds backed by the general fund, including $5.19 billion of voter-approved general-obligation bonds and $489 million of lease revenue bonds, Lockyer said today in his Debt Affordability Report. “The state has slowed issuance of new debt and made more efficient use of bond proceeds already in hand,” Lockyer said in the report. “We’ve also aggressively pursued opportunities to refinance outstanding bonds to reduce debt-service costs.” Moody’s Investors Service raised California’s credit rating in June by one step to Aa3, the fourth-highest level and the state’s highest mark since 2001. Governor Jerry Brown, a 76-year-old Democrat, has steered California to a projected surplus five years after it logged a record deficit.
Facing tax shortfall, Kansas approves online sex toy auction to recoup lost tax revenue: n an effort to make up for nonpayment of income, withholding and sales taxes, the state of Kansas has approved the online auction of sex toys and DVD’s by a businessman to bring his tax debt current. According to the Topeka-Capitol Journal, businessman Larry Minkoff, who did business under the ‘Bang’ name, had refused requests from the Kansas Department of Revenue for payment of over $163,986 in state taxes. In July agents from the state raided Minkoff’s multiple store locations, seizing the sex novelties, books, and DVDs.The Kansas City Star reports that Kansas Democrats are using the auction to mock straight-laced Gov. Sam Brownback who is reeling from a tax shortfall in his state. “Brownback is so desperate to fill the massive hole in the state budget caused by his reckless income tax cuts that the state of Kansas is now in the porn business,” said Senate Democratic Leader Anthony Hensley. “This is the same governor whose supporters spent this past week attacking his opponent for a strip club incident that happened 16 years ago.”
This Federal Program Lets Cops Seize Cash, Evade State Laws And Keep Over A Billion Dollars - - John Yoder and Brad Cates, who headed the Asset Forfeiture Office at the U.S. Department of Justice from 1983 to 1989, slammed civil forfeiture as a “complete corruption” and “fundamentally at odds with our judicial system and notions of fairness,” in an op-ed for The Washington Post. Thanks to civil forfeiture laws, police and prosecutors don’t need to charge someone with a crime to seize and keep their property. Yoder and Cates “were heavily involved in the creation of the asset forfeiture initiative at the Justice Department,” they write, but after seeing civil forfeiture become a “gross perversion of the status of government amid a free citizenry,” the two now believe it should be “abolished.” Their criticisms come on the heels of an extensive, three-part investigation by The Washington Post into highway interdiction. Since 9/11, without warrants and despite a lack of criminal charges, law enforcement nationwide has taken in $2.5 billion from 61,998 cash seizures under equitable sharing. This federal civil forfeiture program lets local and state law enforcement literally make a federal case out of a seizure, if they collaborate with a federal agency. Not only can they then bypass state forfeiture laws, they can pocket up to 80 percent of the proceeds. So of that $2.5 billion seized through equitable sharing, local and state authorities kept $1.7 billion for their own uses.
Police Want to Get Rid of Their Pentagon-Issued Combat Gear. Here's Why They Can't.-- An officer with the Chelan County Sheriff's Department in central Washington is offering me a tank. Three of them, actually. "We really want to get rid of these," Undersheriff John Wisemore says. "We've been trying to get the military to take them back since 2004." The tanks came from a vast Defense Department program that has furnished American police arsenals, at no charge, with $4.3 billion worth of combat equipment leftover from two foreign wars. The tanks are amphibious, capable of firing 107-mm mortars—and not remotely useful to Wisemore's rural police department. But the county can't seem to unload them. Back in June, Wisemore got an email from a Defense Department liaison promising to explain how Chelan County can get rid of the tanks. Then, nothing. Until further notice, Wisemore says, "they're just going to sit there." In the past eight years, the Pentagon program has loaned local law enforcement some 200,000 ammunition magazines, 94,000 machine guns, and thousands of armored vehicles, rifles, aircraft, land mine detectors, silencers, and grenade launchers—all at the request of the local agencies themselves. But images of the unrest in Ferguson, Missouri, of police in military gear cracking down on peaceful protesters, have turned many communities against a program critics say has eroded the line between police officers and soldiers.
Prison bankers cash in on captive customers | Center for Public Integrity: The Center for Public Integrity traveled around the U.S. to investigate the growing web of prison bankers, private vendors and corrections agencies … and how they profit off the innocent by shifting costs onto inmates’ families. Video by Eleanor Bell. . CNBC was a partner in this reporting and shot some of the general footage. Read the video transcript. Editor's note: This is the first in a two-part series examining how financial companies charge high fees to the families of prison inmates. The second part, which will run Thursday, focuses on no-bid deals between Bank of America and JPMorgan Chase & Co. and the U.S. Treasury, under which they provide financial services to the federal Bureau of Prisons.
Judge won't stop shut-offs, says no right to free water: U.S. Bankruptcy Judge Steven Rhodes on Monday refused to block the city from shutting off water to delinquent customers for six months, saying there is no right to free water and Detroit can't afford to lose the revenue. Rhodes's order served as a stinging rejection of arguments made by thousands of protesters who staged rallies last summer fighting shutoffs and argued that there is a fundamental right to water service. "There is no such right or law," Rhodes said.A six-month ban on water shut-offs would boost the rate of customer defaults and threaten Detroit's revenue, the judge added."The last thing (Detroit) needs is this hit to its revenues," the judge said. Rhodes issued his ruling after two days of hearings last week and said he lacked the power to issue a water shut-off moratorium. Regardless, a lawyer for 10 residents failed to convince him there was justification for such a drastic step, he said.
Why Universal Pre-K Makes Economic Sense—for Kids, and the Country - In his new book, From Preschool to Prosperity, Upjohn Institute Senior Economist Timothy Bartik makes a powerful case for the benefits of universal, versus targeted, pre-k. As decades of research affirm, all children benefit from stimulating early care and education provided by a credentialed, properly supported teacher, a small classroom, and an enriching, age-appropriate curriculum. But while high-income parents can provide or fund such experiences, middle-income parents, like their lower-income counterparts, cannot because at $10,000 per year or more, pre-k represents too hefty a proportion of their income. The figure below shows that quality pre-k programs deliver substantial earnings gains for middle-income participants, almost as large as those estimated for their lower-income peers.
Arkansas Internet Law Gouges Schoolkids - Democratic Governor Mike Beebe of Arkansas is having a tough time fixing an Arkansas state law that lets telecommunications companies charge K-12 schools sky-high prices to connect their students to the Internet. The state and federal governments have already paid for a fiber network that links Arkansas's colleges to the web. Connecting the K-12 schools to that network would save the state millions of dollars. But that's prevented by one of the most anti-competitive state laws in the nation, and changing it means beating an industry -- led by AT&T -- that is deeply interested in maintaining the status quo. Back in 2005, Arkansas funded a gigabit fiber network called ARE-ON. Today, thanks to an additional $102 million federal grant in 2010, that state network gives the Arkansas colleges a fast, fiber-optic connection to the nationwide Internet2 network, which provides high-capacity connectivity to research institutions. ARE-ON has plenty of unused capacity, and in a rational world the state's elementary and high schools would be part of this network. But the telecom arena doesn't work rationally -- unless you're a telecom company. This isn't a problem in Arkansas alone. Twenty states have laws making a public option for high-speed Internet access difficult or impossible. The Arkansas law, Act 1050 of 2011, includes a particularly pernicious section prohibiting ARE-ON from connecting up K-12 schools; among the states connected to Internet2, only Arkansas excludes those schools. Governor Beebe called Act 1050 a "sneaky amendment that was passed at the last minute without anyone's knowledge."
Is Repeating a Grade a Useful Practice? - Across the high-income countries of the world, about one student in eight will have repeated a grade before reaching age 15. Does it do any good? The OECD assembles some of the evidence in "Are disadvantaged students more likely to repeat grades?" published in PISA in Focus (September 2014). There's also a readable overview at the OECD blog here. For starters, here are some basic statistics about the amount of grade repetition across countries for the OECD countries. Some European countries which stand out with especially high rates of grade repetion include Belgium, Netherland, Portugal and Spain. The U.S. is roughly at the average for OECD countries. A number of other countries including Korea, Sweden, and the United Kingdom hold back students at less than half the average rates.Looking across these different national experiences, what is the evidence that holding students back is an effective approach? After all, there are a number of other ways to assist students performing below grade level, including tutoring, remedial classes, working with families, and classed that are "tracked" according to academic performance. The OECD writes: In practice, however, grade repetition has not shown clear benefits for the students who were held back or for school systems as a whole. And grade repetition is a costly way of handling underachievement: retained students are more likely to drop out, or to stay longer in the school system and spend less time in the labour force. As a result, some countries that had used grade repetition extensively have rejected that policy in favour of more intensive early support for struggling students. Moreover, the choice of which students are held back and which students get alternative forms of help seems to be heavily influences by socioeconomic factors about the family of the student. Here's a figure showing how often students in the bottom 20% of a measure of socioeconomic status are held back a grade--after adjusting for any differences in math, reading and science test scores.
Carceral Educations – The New Inquiry: For two years, I commuted to a ground-level room in a building in the Bronx a few days a week to teach GED preparation courses. My students were 17-to 24-year-olds with some sort of criminal record. We used to make jokes about the mice running across the ceiling tiles above us to lighten the mood. But we were hidden under an apartment building. I was teaching and my students were learning in a shithole. The clouded windows were covered by cracked venetian blinds and there was a poster on the wall with a handsome young man holding a baby that read, “Today’s a good day to be a dad.” I taught in one of the many social-service organizations known in the nonprofit industrial complex as “re-entry.” Re-entry’s primary goal is to induct people back into the workforce once they are released from prison or are mired in the bureaucracy of one of the state’s “community supervision” programs, which include jails, probation, parole, or ATIs (alternatives to incarceration). In practical terms, re-entry provides “services,” broadly construed, to economically disenfranchised people who are targeted by the police and as a result are under some form of surveillance by the carceral network. Re-entry programs aim to prevent recidivism despite the insurmountable bureaucracy of extra-penal surveillance that lands someone back in jail for technical violations, often as arbitrary as being arrested for not carrying an ID. The emphasis on “workforce development” as a solution to the crime of belonging to a population that suffered from widespread unemployment even before the recession is a type of victim-blaming sleight of hand, because the work that individuals within this “workforce” are trained for no longer exist or remain scarce in a postindustrial society. More troublesome is the fact that these few jobs remain off limits to people who must check a job application’s felony box, which has the same effect as a giant, flaming red A on their chest. Copious research shows that even black men without a criminal record are employed at a lower rate than white men with one.
The silver lining in falling college enrollment, by Mark Thoma - College enrollment "declined by close to half a million (463,000) between 2012 and 2013, marking the second year in a row that a drop of this magnitude has occurred," according to a report from the Census Bureau. And it's the largest two-year drop since Census began collecting enrollment data in 1966. Notably, the decline was concentrated in two-year colleges. It is, of course, desirable to have a more educated population, particularly in an era of globalization and technological change that makes it harder for low-skilled workers to find good jobs. But the report also has a silver lining. Education is countercyclical. That is, when healthy economic conditions, particularly employment opportunities, are scarce, both young and old workers seek more education to both improve their skills and provide a bridge to when job opportunities improve. A recent research paper from Harvard economist Bridget Terry Long documents that college enrollment also rose due to the Great Recession. Long found that "the net effect of the recession has been positive on college enrollment. While college enrollment increases generally each year, after the start of the Great Recession, there was an additional increase in attendance rates. The increase was concentrated among older, non-traditional students." Thus, enrollment rises when the economy is doing poorly, but this reverses when the economy begins to improve.
Higher Education’s Aristocrats -- The University of Chicago is the American university that perhaps most exemplifies higher education’s current crisis of mission. Rather than being institutions that prioritize free inquiry, research, and high-quality education, universities are increasingly acting like the worst of Wall Street, where anything goes in order make a buck for the people at the top.The latest sign of identity crisis at UChicago? Hefty pay raises to a large number of top staff, who have enriched themselves at great cost to their institution.New analysis of tax data from publicly available IRS 990 forms shows that eight high-level UChicago administrators have received more than $7.6 million in compensation increases since 2007-2008, even as the school moved toward and suffered a credit downgrade. Over five years, administrators enjoyed pay increases of between 40 percent and 135 percent, and as a result each received $450,000 to $3.3 million from cumulative increases by the end of 2012-2013, the most recent year for which tax data is available. UChicago thus ended up paying $2.5 million more annually for the combined services of these eight people — an increase from $3.4 to almost $6 million per year.
Rolling Jubilee: A Wolf in Sheep’s Clothing? - In recent weeks, much media attention has been focused on a project dubbed the “Rolling Jubilee”- an action whereby people’s defaulted student loans are purchased for “pennies on the dollar” with donated money, and the debt is extinguished. To date, the Jubilee claims to have forgiven some $4 million in defaulted student loan debt at a cost of about $100,000. Sounds like a great idea, right? After all, who would not want their student loan debt to be paid off for them? Looking at the board members for the Rolling Jubilee (which includes Occupy Wall Street pioneer David Graeber), one could only assume this would be a slam dunk for the 99%; however, Sallie Mae’s Douglas St. Peters believes the forgiveness of debt to be a bad idea. Surprisingly, however, it turns out that this project is, I am sorry to report, a terrible idea with troubling implications. Consider the following and see if you don’t agree:Putting aside the obvious criticisms- that the project only applies to private loans and does nothing to address the rising cost of college, skyrocketing debt loads, or the uniquely predatory nature of the debt due to the removal of fundamental consumer protections (like bankruptcy) that exist for all other loans, the most troubling aspect of this project lies in the systemic effect of the project- who it helps, and who it really doesn’t. Upon examination from this perspective, the project reveals itself to be, frankly, suspicious.Think about it. The RJ, by purchasing defaulted debt, only “feeds the beast”, and in fact makes defaulted debt more valuable on the market. This rewards the horribly predatory behaviors that the absence of bankruptcy protections and other factors have enabled in the private student loan industry. Since, after exhausting all existing opportunities for collection of these loans, the debt holders know there is a buyer for the “worst of the worst”, this only encourages the lenders and loan holders to inflate this debt as much as possible, with the knowledge that there is a willing buyer for even the worst performing loans! So that is quite a red flag,
US Government Promises To Forgive Student Debt... If You Work For Them- Today in the Land of the Free, everyone is required to pay into the Social Security system, and over 90% of students go to public schools. With the passage of the Affordable Care Act, the state is exerting its control over your medical care. And now with a new bill comes the crown jewel of state employment. Presenting Senate Bill 2726: the Strengthening Forgiveness for Public Servants Act. If passed, the bill aims to get young people into government employment by promising to forgive their student loan debt. Somewhere Otto von Bismarck is smiling.
In Ruling on California Town’s Bankruptcy, Judge Challenges Sanctity of Pensions - A federal bankruptcy judge on Wednesday upended the widely held belief that public workers’ pensions have a special status in California that makes them impossible to cut, further chipping away at the idea that pensions are sacrosanct in a municipal bankruptcy. The ruling, which came during a hearing on a plan by the City of Stockton to exit bankruptcy, did not order the city to cut its pension plan or take any specific action. The judge said that he needed more time to reflect on Stockton’s situation and that he would decide Oct. 30 whether the city could emerge from its two-year bankruptcy or whether it still had more work to do. But the decision, by Judge Christopher M. Klein of the Eastern District of California, dealt a blow to California’s giant state-led pension system, known as Calpers, which has been leading efforts to preserve defined-benefit pensions nationwide. Calpers had argued that if Stockton stopped making payments and dropped out of the state pension system, the lien would let it claim $1.6 billion of its assets. But Judge Klein said those statutory powers were suspended once a California city received federal bankruptcy protection.
Matt Taibbi on How Wall Street Hedge Funds Are Looting the Pension Funds of Public Workers | Democracy Now!: (video with transcript) In his latest article for Rolling Stone, Matt Taibbi reports that Wall Street firms are now making millions in profits off of public pension funds nationwide. "Essentially it is a wealth transfer from teachers, cops and firemen to billionaire hedge funders," Taibbi says. "Pension funds are one of the last great, unguarded piles of money in this country, and there are going to be all sort of operators that are trying to get their hands on that money."
Are hedge funds doomed? - The country's largest public pension has kicked hedge funds to the curb, said Mary Williams Walsh and Alexandra Stevenson at The New York Times. "Once the domain of the rich," hedge funds have lately gotten more and more of their investments from the pension funds of teachers, firefighters, and other public employees, which have looked to the industry to help close the growing gap between obligations to retirees and market returns. So Wall Street "took note" when the $300 billion California Public Employees' Retirement System (Cal-PERS) said last week it would move the $4 billion it had invested with hedge funds elsewhere, citing the funds' "high costs and complexity." It's not hard to read between the lines here, said Gretchen Morgenson at The New York Times. Not only are hedge funds "about as transparent as mud," but they have been abysmal market performers, "vastly" underperforming the S&P 500 index over the past one, three, and five years. Ultimately, CalPERS's move could be a "game changer" if other pensions follow its lead. It's about time, said Michael Hiltzik at the Los Angeles Times. With any luck, the rest of the investing world will finally see that the emperor "has no clothes." It's a mystery why pensions continue to throw money at hedge funds: The industry last beat the U.S. stock market in 2008, and even then, the sector still lost 19 percent. Where hedge funds excel is "collecting fees." They billed CalPERS for $115 million in fees in a single year — nearly 10 percent of all the fees the pension paid, despite managing just 2 percent of the pension's assets. There's also the fact that CalPERS's beneficiaries "simply didn't need a hedge," said Barry Ritholtz at Bloomberg View. The whole point of hedge funds, after all, is in the name: They limit short-term risk. But when the point is to fund a retirement in 20 or 30 years? "Buying an expensive and complex hedge for that investment horizon is a waste of money."
Here’s the Least Understood Cost of a 401(k) Loan -- A loan from your 401(k) plan has well-known drawbacks, among them the taxes and penalties that may be due if you lose your job and can’t pay off the loan in a timely way. But there is a subtler issue too: millions of borrowers cut their contribution rate during the loan repayment period and end up losing hundreds of dollars each month in retirement income, new research shows. Academics and policymakers have long fixated on the costs of moneyleaking out of tax-deferred accounts through hardship withdrawals, cash-outs when workers switch jobs, and loans that do not get repaid. The problem is big. Some want more curbs on early distributions and believe that funds borrowed from a 401(k) should be insured and that the payback period after a job loss should be much longer.Yet most people who borrow from their 401(k) plan manage to pay back the loan in full, says Jeanne Thompson, vice president of thought leadership at Fidelity Investments. A more widespread problem is the lost savings—and decades of lost growth on those savings—that result when plan borrowers cut their contribution rate. About 40% of those with a 401(k) loan reduce contributions, and of those a third quit contributing altogether, Fidelity found.
The Washington Post Is a Mess: Social Security Edition - Dean Baker -- The Washington Post brought its campaign against Social Security into the name-calling phase with a full page article headlined, "Social Security Is a Mess. How to Fix It." The piece includes a standard list of revenue and spending items that could close the shortfall that is first projected to arise in 19 years. Name-calling doesn't belong in a serious newspaper. The Social Security system faces problems, but so does the Justice Department and the Defense Department, or for that matter Amazon, the company controlled by Washington Post owner Jeff Bezos. It is unlikely we will ever see an article headlined "Amazon is a Mess." The Post should try at least a little bit to separate the views of the editors/publisher from the way it presents the news. The second point is that in the scheme of things Social Security is an incredibly effective program. It has kept tens of millions of people out of poverty. It is the main source of retirement income for current retirees and will grow as a share of most workers' retirement income in the years ahead. It has very little fraud and abuse. In fact, fraud is so rare that the Washington Post thought it was worth a front-page story to report that 0.006 percent of Social Security benefits over the prior three years had been paid out to dead people. And its administrative costs are less than one-tenth as large as those of private sector firms providing retirement accounts. If Social Security is a "mess," then the adjectives appropriate for other large institutions could not be printed in a family paper. The piece also wrongly asserts that the shortfall would be easier to solve if it were done sooner. That might be true if we envision that the gap would be closed entirely or in part on the benefit side. However if the gap is closed on the revenue side it doesn't follow that there is an special advantage to having a fix implemented sooner. For example, if we raise the cap on taxable wages and raise the payroll tax beginning in 2025, it is not clear that there is any big advantage to writing that into law in 2014 as opposed to 2024.
For Many New Medicaid Enrollees, Care Is Hard to Find, Report Says - Enrollment in Medicaid is surging as a result of the Affordable Care Act, but the Obama administration and state officials have done little to ensure that new beneficiaries have access to doctors after they get their Medicaid cards, federal investigators say in a new report.The report, to be issued this week by the inspector general at the Department of Health and Human Services, says state standards for access to care vary widely and are rarely enforced. As a result, it says, Medicaid patients often find that they must wait for months or travel long distances to see a doctor.The inspector general, Daniel R. Levinson, said federal and state officials must do more to protect beneficiaries’ access to care, in view of the program’s rapid growth. Just since October, the administration says, eight million people with low incomes have enrolled. By 2016, the Congressional Budget Office estimates, one in four Americans will be on Medicaid at some time during the year.Continue reading the main story Twenty-seven states have expanded Medicaid eligibility since the passage of the health care law in 2010, and President Obama is urging other states to do so.Most states hire insurance companies to manage care for Medicaid patients. In return for monthly fees, the insurers provide comprehensive services through networks of selected doctors and hospitals. Federal rules say managed-care organizations must “provide adequate access to all services covered,” but states can define what “adequate” means.
U.S. Cannot Subsidize Health Plans in States With No Marketplace, a Judge Rules - A federal district judge in Oklahoma dealt a blow to the Affordable Care Act on Tuesday, ruling that the federal government could not subsidize health insurance in three dozen states that refused to establish their own marketplaces. This appears to increase the likelihood that the Supreme Court will ultimately resolve the issue. Federal appeals courts in Washington and in Richmond, Va., split on this question in July. Judge Ronald A. White of the Federal District Court in Muskogee, Okla., said Tuesday that a rule issued by the Obama administration allowing subsidies in the 36 states was arbitrary and capricious, in excess of statutory authority or simply “an invalid implementation” of the 2010 health care law. The ruling, if ultimately upheld, could cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace. However, the judge stayed the effect of his decision to allow for an appeal, and Emily Pierce, a Justice Department spokeswoman, said the federal government would file one. Subsidies, in the form of tax credits, are at the heart of the health care law. Without them, many consumers would be unable to afford coverage.
Health Care Affordability Gap Widens between the Rich and the Poor -- Between 1991 and 2012, health care costs increased an average of 4.2 percent per year, while inflation increased an average of 2.5 percent per year. This increase in health care costs, together with an increase in income inequality, may have made health care unaffordable for lower-income groups, enlarging the medical consumption inequality between the rich and poor. To shed light on this issue, we examined annual survey data from the Behavioral Risk Factor Surveillance System (BRFSS) obtained from the Centers for Disease Control and Prevention. The BRFSS data are broken down by income group, and one of the survey questions asked, “Was there a time in the past 12 months when you needed to see a doctor but could not because of cost?” Therefore, the data are suitable for investigating the relationship between affordability of health care and income. We examined the data for the period 1995-2012, excluding 2001 and 2002 due to changes in the questionnaire, and we classified households into five groups according to their income quintile.1 Given each group, we computed the “unaffordability percentage,” or the percentage of interviewees who gave a positive answer to the above question, which indicates the unaffordability of health care for that income group. The figure below plots the unaffordability percentage for all households in each income quintile over time. The first quintile represents the poorest 20 percent of the population, and the fifth quintile represents the richest 20 percent.
Yes, the Health Care Industry Is Conspiring to Steal Your Money -- Here are two news stories from this weekend that belong together. First, the Los Angeles Times found that insurance networks on the California exchange are getting narrower. From the LA Times: The state’s largest health insurers are sticking with their often-criticized narrow networks of doctors, and in some cases they are cutting the number of physicians even more, according to a Times analysis of company data. And the state’s insurance exchange, Covered California, still has no comprehensive directory to help consumers match doctors with health plans. [...] Even as California’s enrollment grows, many patients continue to complain about being offered fewer choices of doctors and having no easy way to find the ones that are available. Then, the New York Times has an article about how “in network” hospitals emergency rooms are employing large numbers of out of network doctors to effectively steal money from people who narrow network insurance. From the NYT: Patients have no choice about which physician they see when they go to an emergency room, even if they have the presence of mind to visit a hospital that is in their insurance network. In the piles of forms that patients sign in those chaotic first moments is often an acknowledgment that they understand some providers may be out of network. [...] When emergency medicine emerged as a specialty in the 1980s, almost all E.R. doctors were hospital employees who typically did not bill separately for their services. Today, 65 percent of hospitals contract out that function. And some emergency medicine staffing groups — many serve a large number of hospitals, either nationally or locally — opt out of all insurance plans. We are expected to tolerate “consumer driven” insurance policies with high deductibles and narrow networks because in certain circumstances they can get people to shop around for a better deal or turn down necessary care. Exploiting these rules to increase profits in emergency rooms when shopping around is impossible, though, is akin to criminal extortion; and if we had non-corrupt politicians those involved would be subject to RICO-like investigations. They are preying on people in extreme distress to coerce them into signing contracts that come with unreasonable charges.
Fighting to Honor a Father’s Last Wish: To Die at Home - Joseph Andrey was 5 years old in 1927 when his impoverished mother sold him to the manager of a popular vaudeville act. He was 91 last year when he told the story again, propped in a wheelchair in the rehabilitation unit of a nursing home where it seemed as though age and infirmity had put a different kind of price on his head.Craning his neck, he sought the eyes of his daughter, Maureen Stefanides, who had promised to get him out of this place. “I want to go home, to my books and my music,” he said, his voice whispery but intense Now she was determined to fulfill her father’s dearest wish, the wish so common among frail, elderly people: to die at home.Continue reading the main story But it seemed as if all the forces of the health care system were against her — hospitals, nursing homes, home health agencies, insurance companies, and the shifting crosscurrents of public health care spending.This time she had fiercely opposed his being discharged to anywhere but home, a small walk-up apartment in Manhattan that her parents shared for half a century before her mother’s death. Yet over her protests and his own, he had been transferred here anyway, to Jewish Home Lifecare in Morningside Heights, a sprawling institution an hour from where she lived. Later, he would ask, “Are you sure you didn’t put me here?” “No matter what I do, they want you in a nursing home,” Ms. Stefanides told him, promising the placement would be temporary. “I think they’re making money off you.” Records would show that her father’s case let the nursing home collect $682.48 a day from Medicare, about five times the cost of a day of home care. By now Ms. Stefanides was a veteran of battles with the health care system, but it still baffled her. A public-school teacher, she could not afford out-of-pocket home care, and though her father qualified for both Medicaid and Medicare, the flow of money seemed to bypass what he actually wanted at the end of life.
What should the law do about out-of-network ER docs? - I wanted to join Aaron in venting some spleen about Elizabeth Rosenthal’s maddening story from this morning’s New York Times. How can it possibly be legal for your doctor to charge you out-of-network rates when you show at up an in-network emergency room? And how can we change the law to get at the problem? I answered the first question last week in response to an earlier installment in Rosenthal’s series. Briefly: when you show up at an ER, you’re given an incomprehensible contract to sign. Among the terms you don’t read, you agree to pay the on-call ER physician for her services, whether or not the physician happens to be in-network. Given this “agreement,” the out-of-network physician can name her price. Now, the courts won’t generally enforce contractual terms to the extent they deviate from what a reasonable person would agree to pay. That’s especially so if you were in medical distress when you signed the contract. It should be possible, especially in these ER cases, to persuade courts that the out-of-network doc should only be paid a reasonable fee—maybe the rate that the patient’s insured would have paid, maybe Medicare rates.But the amounts in dispute will rarely be large enough to justify litigating. From the patient’s perspective, the smartest thing would be to pay the damn bill.
Hospitals now asking patients to pay before surgery? — Get ready to whip out your credit card before you are wheeled into the operating room or undergo an MRI. Hospitals are increasingly asking patients to pay for procedures either upfront or before they are discharged. That’s because Americans are shouldering a greater portion of their health care bills, and medical centers don’t want to get stuck with patients that can’t pay. Traditionally, neither patients nor providers knew the exact price of procedures until after the insurer processed the charges. Now, however, new technology is allowing hospitals to determine the patient’s responsibility in advance of treatment. Starting the cost conversation early is especially important now because patients are facing higher deductibles and larger payments for services. Some are surprised to find out that they have to fork over thousands of dollars before their insurance even kicks in, hospital administrators said.
So why is our infant mortality so bad? - -- Everyone knows that in international comparisons, the infant mortality rate in the US is terrible. Some people think it’s because we code things differently and try harder to save premature babies. Others think that’s not true, and that this points to other problems in the health care system. As always, though, it’s probably a mixture of many things. A new NBER working paper gets at just that. “Why is Infant Mortality Higher in the US than in Europe?” The US has a substantial – and poorly understood – infant mortality disadvantage relative to peer countries. We combine comprehensive micro-data on births and infant deaths in the US from 2000 to 2005 with comparable data from Austria and Finland to investigate this disadvantage. Differential reporting of births near the threshold of viability can explain up to 40% of the US infant mortality disadvantage. Worse conditions at birth account for 75% of the remaining gap relative to Finland, but only 30% relative to Austria. Most striking, the US has similar neonatal mortality but a substantial disadvantage in postneonatal mortality. This postneonatal mortality disadvantage 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.
Sweet Dreams are Made of This? - The expression "sleep on it" acquires a menacing new meaning. Carcinogens, endocrine and neurological disruptors, and respiratory irritants, enfolded in satiny luxury. I was very pleased to find a handsome, solid memory foam pillow on sale at an excellent price a few weeks ago. It was "Made in America" by the international conglomerate Carpenter Co. When I removed it from its package, I was hit upside the head with a stunningly toxic, chemical odor. Undeterred, I put three pillowcases on it, and jumped into bed. Even with the cool, fresh air from the swamp cooler blowing over me, the poisonous fumes were intolerable. I didn't last five minutes. I thought airing out the pillow for a couple of days on my balcony would probably take care of the problem. Two weeks later, the stench was as bad as ever. I wrote to Carpenter Co. to lodge a complaint. What I learned within a few hours was a nightmare -- not what one might expect from a "respected innovator" in the "sleep comfort" industry. Consider wearing a gas mask to bed. And a Hazmat suit.
The Magic Number That Could End the Ebola Epidemic- There are a lot of scary numbers floating around about Ebola. Take 1.4 million: the CDC’s worst-case scenario for Ebola cases in Western Africa by the end of January. Or two: the approximate number of healthy people infected by each new Ebola patient. But perhaps the most important Ebola number right now is 70 percent. That’s the proportion of patients who need to be isolated -- in treatment centers or at least in their homes -- in order to put a quick end to the Ebola outbreak, according to the U.S. Centers for Disease Control and Prevention. “Once 70 percent of patients are effectively isolated, the outbreak decreases at a rate nearly equal to the initial rate of increase,” researchers wrote today in the CDC’s Morbidity and Mortality Weekly Report. If 70 percent of the current outbreak was achieved by late December, the epidemic “would be almost ended by January 20.” Seventy percent is a number full of hope and dread. Hope, because it’s a goal that feels attainable; a developed country would be able to handle 70 percent isolation on its own soil in short order. Dread, because in Ebola-swept regions like Liberia and Sierra Leone, we are nowhere near achieving it. Right now, only about 18 percent of Ebola patients in Liberia are being isolated. Each day the epidemic persists makes 70 percent more difficult to reach. More doctors, hospital beds and treatment centers will be needed, and more people must be educated about the disease. For every 30-day delay, the peak number of new daily cases triples, according to a model of the disease created by the CDC.
Placing the Blame for Africa's Ebola Outbreak - As most of us are aware, parts of western Africa are experiencing the largest outbreak of Ebola since it was first noted in 1976. A recent letter in the Liberian Observer, a newspaper in Monrovia, by Dr. Cyril E. Broderick, Sr., a Professor of Plant Pathology at Delaware State University lays the blame for the recent outbreak in an interesting direction. "The World Health Organization (WHO) and several other UN Agencies have been implicated in selecting and enticing African countries to participate in the testing events, promoting vaccinations, but pursuing various testing regiments. The August 2, 2014 article, West Africa: What are US Biological Warfare Researchers Doing in the Ebola Zone? by Jon Rappoport of Global Research pinpoints the problem that is facing African governments. Reports narrate stories of the US Department of Defense (DoD) funding Ebola trials on humans, trials which started just weeks before the Ebola outbreak in Guinea and Sierra Leone. The reports continue and state that the DoD gave a contract worth $140 million dollars to Tekmira, a Canadian pharmaceutical company, to conduct Ebola research. This research work involved injecting and infusing healthy humans with the deadly Ebola virus. Hence, the DoD is listed as a collaborator in a “First in Human” Ebola clinical trial (NCT02041715, which started in January 2014 shortly before an Ebola epidemic was declared in West Africa in March. Disturbingly, many reports also conclude that the US government has a viral fever bioterrorism research laboratory in Kenema, a town at the epicentre of the Ebola outbreak in West Africa. The only relevant positive and ethical olive-branch seen in all of my reading is that Theguardian.com reported, “The US government funding of Ebola trials on healthy humans comes amid warnings by top scientists in Harvard and Yale that such virus experiments risk triggering a worldwide pandemic. That threat still persists.' Dr. Broderick states that the United States, Canada, France and the United Kingdom are implicated in this Ebola outbreak and that African nations need to seek criminal and civil compensation for damages from these countries and the corporations that are responsible.
Nigeria’s Actions Seem to Contain Ebola Outbreak - With quick and coordinated action by some of its top doctors, Nigeria, Africa’s most populous country, appears to have contained its first Ebola outbreak, the United States Centers for Disease Control and Prevention said Tuesday. As the epidemic rages out of control in three nations only a few hundred miles away, Nigeria is the only country to have beaten back an outbreak with the potential to harm many victims in a city with vast, teeming slums.“For those who say it’s hopeless, this is an antidote — you can control Ebola,” said Dr. Thomas R. Frieden, director of the C.D.C. Although officials are pleased that success was achieved in a country of 177 million that is a major transport and business hub — and whose largest city, Lagos, has 21 million people — the lessons here are not easily applicable to the countries at the epicenter: Guinea, Liberia and Sierra Leone. Public health officials in those countries remain overwhelmed by the scale of the outbreak and are desperate for additional international assistance. While the danger in Nigeria is not over, the health minister, Dr. Onyebuchi Chukwu, said in a telephone interview that his country was now better prepared, with six laboratories able to make diagnoses and response teams and isolation wards ready in every major state. After the first patient — a dying Liberian-American — flew into Lagos on July 20, Ebola spread to 20 other people there and in a smaller city, Port Harcourt. They have all now died or recovered, and the cure rate — 60 percent — was unusually high for an African outbreak.
First Case of Ebola Diagnosed in the U.S., CDC Confirms -- The Centers for Disease Control and Prevention has confirmed the first patient to be diagnosed with Ebola in the United States is at a hospital in Dallas. Four other people with Ebola — all medical volunteers working in West Africa — have been evacuated to the U.S. for treatment, but this is the first case in a traveler. The patient is at Texas Health Presbyterian Hospital in Dallas. The CDC said it would release more details later Tuesday. Texas Health Presbyterian said in a statement late Monday that it had admitted a patient into strict isolation "based on the patient’s symptoms and recent travel history." It did not release further details, citing patient confidentiality. "The patient is an adult with a recent history of travel to West Africa. The patient developed symptoms days after returning to Texas from West Africa and was admitted into isolation on Sunday at Texas Health Presbyterian Hospital in Dallas," the state health department said in a statement. "The Texas Department of State Health Services is working with the CDC, the local health department and the hospital to investigate the case and help prevent transmission of the disease. The hospital has implemented infection control measures to help ensure the safety of patients and staff." CDC officials have said that most standard hospital infection control measures should be adequate to prevent the spread of the virus. Ebola is deadly but it's not necessarily easy to catch. It doesn't travel by air but is transmitted by direct contact with the bodily fluids of someone who has symptoms, such as vomit, diarrhea or blood.
Health officials tracing Dallas Ebola patient’s path - A man in a Dallas hospital has Ebola, the first human case of the deadly virus diagnosed in the United States, doctors at the Centers for Disease Control and Prevention said Tuesday. The patient, who is in an isolation unit at Texas Health Presbyterian Hospital, did not develop symptoms until four days after he arrived from West Africa, officials said at a hastily called press conference at the CDC’s headquarters in Atlanta. “He was checked for fever before getting on the flight,” said CDC Director Thomas Frieden. “There is no reason to believe anyone on the flight was at risk.” The Ebola virus is not spread through the air, but through contact with bodily fluids of victims — sweat, blood, saliva and other secretions. The patient, whom officials would not identify, flew to the United States on Sept. 20, and began feeling ill on Sept. 24, Frieden said. He sought care at the Dallas hospital on Friday and was sent home with antibiotics, Dr. Edward Goodman of Texas Health Presbyterian Hospital said at a separate press conference in Dallas. Goodman said the hospital is looking into why the patient was discharged. On Sunday, a Dallas Fire-Rescue crew transported the man to the hospital in an ambulance. This time, he was admitted to the hospital, Frieden said. The ambulance crew has been quarantined, and the ambulance taken out of service, according to a statement from the city of Dallas.
It's 'Not Impossible' Others in US Could Contract Ebola, CDC Head Says - The country's top medical official who has vowed to stop Ebola "in its tracks" in the U.S., conceded today that it's "not impossible" that others will contract the disease. Dr. Tom Frieden, director of the Centers for Disease Control and Prevention, said an extensive tracking process is underway in the wake of the first Ebola diagnosis in the United States, with special focus on the patient’s family and health staff. “We have a seven-person team in Dallas working with the local health department and the hospital, and we will be identifying everyone who may have come in contact with him and then monitoring them for 21 days,” Frieden said. Frieden believes the disease will be “stopped in its tracks” in this country. The unidentified man’s safety, along with the well-being of the medical people treating him, is a primary focus, Frieden said. “What we need to do first in this particular instance is do everything possible to help this individual who’s really fighting for their life, and then make sure that we’re doing that, that we don’t have other people exposed in the hospital, identify all those contacts and monitor them for 21 days. It’s not impossible that one or two of them would develop symptoms and then they would need to be isolated,” he said.
Scores possibly exposed to U.S. Ebola patient; four isolated (Reuters) - Up to 100 people may have had direct or indirect contact with the first person to be diagnosed with the deadly Ebola virus in the United States, and four of his relatives have been quarantined in their homes as a precaution, health officials said Thursday. Dallas County officials said 12 to 18 people had direct contact with the Texas patient, and they in turn had contact with scores of others. Officials said none of those thought to have had direct or indirect contact with the patient, who was being treated at a Dallas hospital, were showing symptoms of Ebola. The disease has killed at least 3,338 people in West Africa in the worst such outbreak on record. true A top health official urged U.S. hospitals to heed lessons from Dallas, where the hospital initially sent the ailing patient home, despite information that he had recently visited West Africa, potentially exposing more people to the virus. U.S. officials initially described the number of people potentially exposed as a handful, and on Wednesday said it was up to 18.
Man in U.S. With Ebola Had Been Screened to Fly, but System Is Spotty - As he was preparing to leave Liberia for Dallas two weeks ago, Thomas E. Duncan, the man confirmed to be the first Ebola case in the United States, was checked at the airport for signs of the disease. He was determined to have no fever and allowed to board his flight, American officials say. Since the deadly Ebola virus began spreading rapidly through West Africa, the Centers for Disease Control and Prevention has been pushing the authorities in the worst-hit countries, including Liberia, Sierra Leone and Guinea, to implement just that type of screening for departing passengers. In early August, the C.D.C. sent medical workers to the region to train local government officials and airport workers in Ebola screening, according to Dr. Nicole Cohen, an infectious disease specialist with the agency’s Division of Migration and Quarantine. As part of that process, the agency advises that airport workers ask travelers if they have been exposed to Ebola in the last 21 days, have had a fever, and have had any symptoms including severe headache, muscle ache, abdominal pain, unusual bruising or bleeding, vomiting and diarrhea. The screener is expected to use a hand-held non-contact temperature monitor, a few inches from the travelers’ forehead, to check for fever. But the system has its limits, relying on the traveler to reveal whether he or she has been exposed. And it leaves it to local officials to conduct the screening as they see fit, Dr. Cohen said. It is unclear how consistently or effectively those screenings are conducted across West Africa, and Dr. Cohen said she did not know how many potential travelers had been caught by screeners — if any.
U.S. Patient Aided Ebola Victim in Liberia - — The man who has become the first Ebola patient to develop symptoms in the United States told officials at Texas Health Presbyterian Hospital last Thursday that he had just arrived from West Africa but was not admitted that day because that information was not passed along at the hospital, officials acknowledged Wednesday.The man, Thomas E. Duncan, was sent home under the mistaken belief that he had only a mild fever, a hospital administrator said; the information that he had traveled from Liberia, one of the nations at the heart of the Ebola epidemic, was overlooked.Mr. Duncan came back to Texas Health Presbyterian Hospital on Sunday and was admitted for treatment, but in those three days in between, his contacts with a number of people — including five schoolchildren and the medics who helped transport him to the hospital — potentially exposed them to Ebola, forcing officials to monitor and isolate them in their homes and to begin a thorough cleaning of the schools the students attended. Mr. Duncan is now in serious but stable condition.
Ebola Patient's Family Ordered To Stay Inside After Trying to Leave - The family of the Texas Ebola patient Thomas Eric Duncan have been ordered to stay in their home after violating official's initial request not to leave. "There were violations of the request to not leave their premises," Dallas judge Clay Jenkins said of the breach that prompted the Texas Department of State Health Services to order the quarantine. Duncan was staying with family members in Dallas when he became ill and was confined to an isolation unit at Texas Health Presbyterian Hospital Dallas. His family members, including five school age children, were told to remain at home. The entire apartment complex is being power washed today. The order came as authorities track all the people who Duncan is believed to have come in contact with since his arrival. The circle of people who have come into contact with him has grown rapidly from 18 Wednesday night to 100, according to Texas health officials.
Fracking Ebola - What does ebola have to do with fracking ? Not a hole fracking lot. Until you read the list of denials from state and federal officials. Then you see the trend – they are paid to deny that there’s a problem. They minimize, deny, dodge responsibility and above all – do not confront the problem in a forthright way. When it’s easier to lie about it. For awhile. The state and federal officials have been denying that the previously unnamed ebola carrier could have potentially have contaminated anyone. Now the investigative news reporters (like Ian Urbina at the New York Times did with fracking) have found who this 21st century Typhoid Mary is – Thomas Duncan from Liberia – and are finding out that he may have contaminated as many as 100 people including children in 4 separate schools – while he was throwing up, etc. He left Liberia because his family was dying of ebola. He figured he’d get better care in the US – for the price of a plane ticket. Clever fellow.
Top doc: 'Several people were exposed,' more will be infected by Dallas Ebola case -- A former Food and Drug Administration chief scientist and top infectious disease specialist said that several people were exposed to the Ebola virus by the unidentified patient in Dallas, America’s first case, and it’s likely that many more will be infected. Dr. Jesse L. Goodman, now a professor of medicine at Georgetown University Medical Center, said while the nation shouldn’t panic, it’s best to prepare for the worst. “It is quite appropriate to be concerned on many fronts,” he said in a statement provided to Secrets. “First, it is a tragedy for the patient and family and, as well, a stress to contacts, health care workers and the community at large. Second, it appears several people were exposed before the individual was placed in isolation, and it is quite possible that one or more of his contacts will be infected,” he added. What’s more, he conceded that it was “only a matter of time” that the swift-killing African virus arrived in the U.S. “If anyone did not agree before, bringing the epidemic in Africa under control is an absolute emergency and requires a massive effort and global commitment now long overdue. This is a matter not just of preventing death and suffering in Africa, but, as this case brings home to the U.S., of global safety and security,” he warned. He also strongly suggested that the one case will not be the end.
Dallas Hospital Alters Account, Raising Questions on Ebola Case - Health officials’ handling of the first Ebola patient diagnosed in the United States continued to raise questions Friday, after the hospital that is treating the patient and that mistakenly sent him home when he first came to its emergency room acknowledged that both the nurses and the doctors in that initial visit had access to the fact that he had arrived from Liberia. For reasons that remain unclear, nurses and doctors failed to act on that information, and released the patient under the erroneous belief that he had a low-grade fever from a viral infection, allowing him to put others at risk of contracting Ebola. Those exposed included several schoolchildren, and the exposure has the potential to spread a disease in Dallas that has already killed more than 3,000 people in Africa. On Thursday, the hospital, Texas Health Presbyterian Hospital in Dallas, released a statement essentially blaming a flaw in its electronic health records system for its decision to send the patient — Thomas E. Duncan, a Liberian national visiting his girlfriend and relatives in the United States — home the first time he visited its emergency room, Sept. 25. It said there were separate “workflows” for doctors and nurses in the records so the doctors did not receive the information that he had come from Africa. But on Friday evening, the hospital effectively retracted that portion of its statement, saying that “there was no flaw” in its electronic health records system. The hospital said “the patient’s travel history was documented and available to the full care team in the electronic health record (E.H.R.), including within the physician’s workflow.”
Exclusive: U.S. nears solution for safe disposal of Ebola waste (Reuters) - The United States is days away from settling the critical question of how hospitals should handle and dispose of medical waste from Ebola patients, a government official said on Wednesday. Experts have warned that conflicting U.S. regulations over how such waste should be transported could make it very difficult for U.S. hospitals to safely care for patients with Ebola, a messy disease that causes diarrhea, vomiting and in some cases, bleeding from the eyes and ears. Safely handling such waste presents a dual challenge for regulators, who want to both prevent the accidental spread of the deadly disease and avert any deliberate attempts to use it as a bioweapon. true Most U.S. hospitals are not equipped with incinerators or large sterilizers called autoclaves that could accommodate the large amounts of soiled linens, contaminated syringes and virus-spattered protective gear generated from the care of an Ebola patient, said Dr. Jeffrey Duchin, chair of the Infectious Diseases Society of America's Public Health Committee. Sterilizing Ebola waste before it is transported is important not only to protect waste haulers but to guard against someone using the waste "for nefarious purposes," The matter, which was first reported by Reuters last month, may pose a significant challenge for Texas Health Presbyterian Hospital in Dallas, which is now treating the first Ebola patient to be diagnosed on U.S. soil.
The Airborne Transmission of Ebola - An interesting 2012 study by scientists at the Canadian Food Inspection Agency (CFIA) entitled "Transmission of Ebola Virus from pigs to non-human primates" takes an interesting look at how the Zaire variant of the Ebola virus can be transmitted between pigs and from pigs to macaques without direct contact. One of the Ebola viruses that has already made it to North America, the Reston variant/subspecies, does not seem to be a cause of the disease in humans and was the cause of the outbreak of Ebola in Reston, Virginia in 1989 and discussed in this posting. The Reston subspecies appears to have resulted from a mutation of the Ebola virus and this particular virus causes hemorrhagic fever in monkeys and can be transmitted to humans who remain asymptomatic. The same cannot be said for the Zaire subspecies (aka Ebola) which is quite lethal as you can see on this chart from the Centers for Disease Control: Coincidentally, it also happens that the current Ebola outbreak has been caused by the Zaire subspecies."The present study provides evidence that infected pigs can efficiently transmit ZEBOV to NHPs in conditions resembling farm setting. Our findings support the hypothesis that airborne transmission may contribute to ZEBOV spread, specifically from pigs to primates, and may need to be considered in assessing transmission from animals to humans in general. You'll note that the study concluded that airborne transmission may contribute to the spread of ZEBOV (Zaire Ebola virus). Why is it then that the CDC says this: Ebola is not spread through the air or by water, or in general, food. However, in Africa, Ebola may be spread as a result of handling bushmeat (wild animals hunted for food) and contact with infected bats.” It certainly would appear that at least some governments are ignoring science in their efforts to calm the masses, doesn’t it?
Airborne Transmission of Ebola is a Possibility -- The idea of the Ebola virus becoming airborne is not far-fetched as its ability to enter cells that line the trachea and lungs has been shown under controlled laboratory conditions, a Purdue Univ. virus expert says. David Sanders, an associate professor of biological sciences who has studied the Zaire strain of Ebola virus that is responsible for the current outbreak in West Africa, says the possibility of the virus becoming airborne should not be discounted. "It is not unprecedented for a virus to change its mode of transmission," he says. "Ebola does share some of the characteristics of airborne viruses like influenza, and we should not disregard the possibility of it evolving into something that could be transmitted in this way." A research team led by Sanders and collaborators from the Univ. of Iowa established that the Zaire strain of Ebola virus could enter the epithelial cells that line the human airway in a paper published in the Journal of Virology in 2003. The experiment used a pseudotyped virus, which was built with the Ebola virus envelope proteins, or outer shell. The inside of the virus was that of a retrovirus to prevent replication of the Ebola virus and to more easily separate the functions of the outer and inner portions of the virus, he said.
How Bad Could It Get? US Government Order Of 160,000 HazMat Suits Gives A Clue -- Now that Ebola is officially in the US on an uncontrolled basis, the two questions on everyone's lips are i) who will get sick next and ii) how bad could it get? We don't know the answer to question #1 just yet, but when it comes to the second one, a press release three weeks ago from Lakeland Industries, a manufacturer and seller of a "comprehensive line of safety garments and accessories for the industrial protective clothing market" may provide some insight into just how bad the US State Department thinks it may get. Because when the US government buys 160,000 hazmat suits specifically designed against Ebola, just ahead of the worst Ebola epidemic in history making US landfall, one wonders: what do they know the we don't?
A Hospital From Hell, in a City Swamped by Ebola - — “Where’s the corpse?” the burial-team worker shouted, kicking open the door of the isolation ward at the government hospital here. The body was right in front of him, a solidly built young man sprawled out on the floor all night, his right hand twisted in an awkward clench.The other patients, normally padlocked inside, were too sick to look up as the body was hauled away. Nurses, some not wearing gloves and others in street clothes, clustered by the door as pools of the patients’ bodily fluids spread to the threshold. A worker kicked another man on the floor to see if he was still alive. The man’s foot moved and the team kept going. It was 1:30 in the afternoon. In the next ward, a 4-year-old girl lay on the floor in urine, motionless, bleeding from her mouth, her eyes open. A corpse lay in the corner — a young woman, legs akimbo, who had died overnight. A small child stood on a cot watching as the team took the body away, stepping around a little boy lying immobile next to black buckets of vomit. They sprayed the body, and the little girl on the floor, with chlorine as they left.As the Ebola epidemic intensifies across parts of West Africa, nations and aid agencies are pledging to respond with increasing force. But the disease has already raced far ahead of the promises, sweeping into areas that had been largely spared the onslaught and are not in the least prepared for it.The consequences in places like Makeni, one of Sierra Leone’s largest cities, have been devastating.
Uncharted Territory For A System In Overshoot --We are in uncharted territory with the Ebola virus disease (EVD). The last time we had a plague that was this deadly was the Black Death in the 14th century, when there were only 450 million people in the world. That pandemic killed 30% to 70% of the population. There is no benchmark for EVD, which kills 3 out of 4 people it touches, and is emerging into a global population of 7 billion. This pandemic signifies a turning point for society in response to peak oil, highlighting the problem of globalization for a planet of 7 billion people. We have lost control of a deadly outbreak, and our responses to its exponential growth are linear at best, ensuring that this plague will most likely spread further. Many in first world countries think we are immune to plagues. How might transmission of EVD change as it moves from a low-resource or low-transformity setting in West Africa to resource-rich (high-transformity) countries? How might the battle against this epidemic change as it breaks out into different environments? Public health has gotten a free ride in the fossil fuel era, as everyone’s socioeconomic status, including sanitation, clean water, and healthy, safe food improved. That process of rising socioeconomic status during the last 200 years occurred because of fossil fuels, but because fossil fuels have been ubiquitous, we did not see it. Rosling’s video from Gapminder on 200 Years That Changed the World identifies the trend, but misses the cause. His plots could be better expressed by plotting life expectancy against global per capita fossil fuel use. Our first world exceptionalism is a function of fossil fuels and the hierarchy of complexity and not some special character trait.
The Economic Impact of the Ebola Epidemic - The outbreak of Ebola in Western Africa has had a significant impact on the area, particularly the nations of Guinea, Liberia and Sierra Leone that are at the forefront of the infected zone. One thing that has received little attention is the impact of the unprecedented Ebola epidemic on the area's economy. A report by the World Bank suggests the following: Short-term impact on the economy (2014):
- Guinea - growth reduced from 4.5 percent to 2.1 percent
- Liberia - growth reduced from 5.9 percent to 2.5 percent
- Sierra Leone - growth reduced from 11.3 percent to 8.0 percent
In total, $359 million worth of output will be lost during 2014 by all three nations combined. If the epidemic is not contained by the end of December 2014, a scenario that appears to be quite likely, there will be a medium-term impact on the economies of all three nations for the calendar year 2015. The World Bank ran two scenarios; a "Low Ebola" scenario where there is rapid containment in the three core nations and a "High Ebola" scenario where the containment in the three core nations is slower and the epidemic spreads to a wider region and for a longer period of time. Here is a chart showing the medium-term impact on the economy for both Low and High Ebola scenarios in percentage points of GDP:
Mosquito Virus That Walloped Caribbean Spreads in U.S. - A mosquito-borne virus that can cause debilitating joint pain lasting for years has spread to the continental U.S. after infecting hundreds of thousands of people in the Caribbean and Central America. The virus is called Chikungunya, an African name meaning “to become contorted.” While the illness, first identified in Tanzania in 1952, has long bedeviled Africa and Asia, the only recorded cases in the U.S. before July involved patients who contracted the virus abroad. Now, 11 cases have been confirmed as originating in Florida, spurring concern this may be the beginning of the type of explosive growth seen elsewhere from a disease that has no vaccine or cure. Medical and environmental experts are debating how best to quell the outbreak before it takes off. Now that Chikungunya is in Florida, it could infect 10,000 people in that state alone, according to Walter Tabachnick, the director of the Florida Medical Entymology Laboratory, who said his estimate is based on the exponential growth of other outbreaks. More than 700,000 people, for instance, are suspected of being infected with the virus in South America, Central America and the Caribbean since it appeared there, according to the Pan American Health Organization. An outbreak of several thousand people in Florida could swamp existing medical facilities, putting at risk the state’s large elderly population, according to Tabachnick.
Lyme Disease Surges North - Scientific American: Vett Lloyd saved the tick that latched onto her while she was gardening outside her home in New Brunswick, Canada in 2011.. But officials told her not to worry, Lloyd said. Lyme disease was exceedingly rare in the forested maritime province northeast of Maine. The tick was tossed untested. The next year brought agony: Fatigue, fevers that would come and go, aching joints, and finally, trouble lifting her arms or walking. Lloyd indeed had Lyme disease, but as with many Canadians felled by the tick-borne illness, her diagnosis and treatment were delayed because of a system slow to acknowledge that public health risks were changing as the climate warmed. In a concession that many patients say is overdue, Canadian authorities now admit that the most common vector-borne disease in the United States is an "emerging" threat north of the border. "It's living hell," Lloyd said of her experience with Lyme. "Every day you wake up with less of your body working.... You are desperately sick, and then you have to fight for care."
Earth has lost half of its wildlife in the past 40 years, says WWF -- The number of wild animals on Earth has halved in the past 40 years, according to a new analysis. Creatures across land, rivers and the seas are being decimated as humans kill them for food in unsustainable numbers, while polluting or destroying their habitats, the research by scientists at WWF and the Zoological Society of London found. “If half the animals died in London zoo next week it would be front page news,” said Professor Ken Norris, ZSL’s director of science. “But that is happening in the great outdoors. This damage is not inevitable but a consequence of the way we choose to live.” He said nature, which provides food and clean water and air, was essential for human wellbeing. “We have lost one half of the animal population and knowing this is driven by human consumption, this is clearly a call to arms and we must act now,” said Mike Barratt, director of science and policy at WWF. He said more of the Earth must be protected from development and deforestation, while food and energy had to be produced sustainably. The steep decline of animal, fish and bird numbers was calculated by analysing 10,000 different populations, covering 3,000 species in total. This data was then, for the first time, used to create a representative “Living Planet Index” (LPI), reflecting the state of all 45,000 known vertebrates. “We have all heard of the FTSE 100 index, but we have missed the ultimate indicator, the falling trend of species and ecosystems in the world,”
Half the World’s Animal Population Vanished Since 1970 - The just-released tenth biennial edition of the World Wildlife Fund (WWF) Living Planet report found that between hunting, habitat destruction, environmental degradation and the effects of climate change, the world’s animal populations of mammals, birds, reptiles, amphibians and fish has dropped 52 percent since 1970. The study, produced in partnership with the Zoological Society of London, Global Footprint Network and Water Footprint Network, measured 10,000 species. Freshwater species are particularly endangered, losing 72 percent of their numbers in that time. Tropic marine populations, including species of sharks and turtles, as well as seabirds such as petrels and albatross, are also in danger, primarily due to the impacts of overfishing. It found that animals like the African rhino were declining due to poaching for their valuable horn. “We are using nature’s gifts as if we had more than just one Earth at our disposal,” said WWF International general director Marco Lambertini in the report’s introduction. “By taking more from our ecosystems and natural processes than can be replenished, we are jeopardizing our very future. Nature conservation and sustainable development go hand-in-hand. They are not only about preserving biodiversity and wild places, but just as much about safeguarding the future of humanity—our well-being, economy, food security and social stability—indeed, our very survival.
Human Activities Have Cut Animal Populations In Half Since 1970 -- According to a new report, the Earth has lost half its vertebrate species — mammals, birds, fish, reptiles, and amphibians — since 1970. The latest Living Planet Report, put out by a joint research effort between the World Wildlife Fund and the Zoological Society of London, found a stunning drop of 52 percent in the population of wild animals on the planet over the last 40 years. The most catastrophic drop was among the inhabitants of freshwater ecosystems — the last stop for much of the world’s pollution from road run-off, farming, and emissions — whose numbers declined 75 percent. Oceanic and land species both dropped roughly 40 percent. The researchers analyzed 10,000 different animal populations encompassing 3,000 different species. The data was then used to create the Living Planet Index (LPI) to represent the situation of the globe’s 45,000 known species of vertebrates. The LPI has also been adopted by the United Nations’ Convention on Biological Diversity as an effective metric of biodiversity.
60 Members Of Congress Urge EPA To Protect Pollinators - Sixty members of the House of Representatives want the Environmental Protection Agency to get serious about protecting pollinators.On Tuesday, the lawmakers sent a letter to EPA Head Gina McCarthy urging her agency to consider banning or restricting the use of neonicotinoid pesticides on crops, due to scientific evidence that these pesticides have adverse effects on bees, butterflies and birds. The letter notes that the Fish and Wildlife Service recently announced that it planned to phase out neonic use in National Wildlife Refuges by 2016, due to to the pesticides’ ability to potentially affect “a broad spectrum” of species in the refuges.“We encourage you to follow the lead of FWS and respond to this troubling situation swiftly and effectively,” the lawmakers write in their letter. Besides a call to restrict use of neonics on crops, the letter contains multiple policy recommendations for the EPA, including a request that the agency consider impacts on the more than 40 pollinator species listed as threatened or endangered by the federal government before registering new neonic pesticides. The lawmakers also say the EPA should restrict use of neonics in commercial pesticides, which can be applied by anyone, regardless of whether they have a pesticide licence or not. “Protecting our pollinators is essential to the health and future of our environment and our species,” Rep. Earl Blumenauer (D-OR), who was a signatory on the letter, said in a statement. “I’m going to keep hammering away on this issue until we can ensure that the products we are using in our backyards and on our farms are not killing pollinators.”
Monsanto Announces ‘Global Center’ for Developing GMO Corn -- Monsanto announced this week that it is opening a new facility in Mexico to research and develop new genetically modified versions of corn. On the other side of the globe, the Chinese government has launched a media campaign on TV, in newspapers and on the Internet to convince a skeptical population that GMOs are beneficial. While the Chinese government has long been pro-GMO and sees these crops as the key to feeding its large population, the public has been less than receptive. China imports millions of tons of GMO soybeans each year to feed pigs and make vegetable oil but has yet to cultivate its own GMOs. Scientific American reports that while the country has poured money into developing GMO varieties of corn and rice, they never went into production due in part to opposition and their safety certificates, issued in 2009, expired last month. The Chinese military banned GMOs from its food supply chain last spring.
GMO Crops Accelerate Herbicide and Insecticide Use While Mainstream Media Gets It Wrong -- Dr. Ramon J. Seidler, Ph.D., former Senior Scientist at the U.S. Environmental Protection Agency (EPA), has recently published a well-researched article documenting the devastating facts, Pesticide Use on Genetically Engineered Crops, in Environmental Working Group’s online AgMag. Dr. Seidler’s article cites and links recent scientific literature and media reports, and should be required reading for all journalists covering GMOs, as well as for citizens generally to understand why their right to know if food is genetically engineered is so important. The short discussion below summarizes the major points of his five-page article. More than 99 percent of GMO acreage is engineered by chemical companies to tolerate heavy herbicide (glyphosate) use and/or produce insecticide (Bt) in every cell of every plant over the entire growing season. The result is massive selection pressure that has rapidly created pest resistance—the opposite of integrated pest management where judicious use of chemical controls is applied only as necessary. Predictably, just like overuse of antibiotics in confined factory farms has created resistant “supergerms” leading to animals being overdosed with ever more powerful antibiotics, we now have huge swaths of the country infested with “superweeds” and “superbugs” resistant to glyphosate and Bt, meaning more volume of more toxic pesticides are being applied.
U.S. river freight system near breaking point as huge harvest looms (Reuters) - With a record U.S. harvest just coming in, the river transportation system that is at the heart of the nation's farm economy is overstrained by rising demand for shipping capacity, a low barge inventory, and a dilapidated lock system. The pressure is building on an inland waterways network that is just one flood, drought or mechanical breakdown from calamity after decades of neglect, industry sources say. Looming bumper corn and soybean crops are bringing to light issues that have built for years and which have been exacerbated by new entrants to the marketplace for river logistics, such as producers of crude oil from the nation's shale boom. true Rail congestion and truck shortages are shifting more cargo to the creaking infrastructure for floating heartland goods to market. As a result, the U.S. Agriculture Department expects the cost to move grains from the Midwestern crop belt to export facilities along the Gulf Coast to reach a six-year high during October, the busiest harvest month of the year. Concerns about transportation bottlenecks have eroded prices that farmers receive for their grain, reduced the competitiveness of U.S. supplies in the global marketplace and elevated expenses for food and energy producers who could ultimately pass the higher prices on to consumers.
California harvest much smaller than normal across crops: It’s harvest time in much of California, and the signs of drought are almost as abundant as the fruits and nuts and vegetables. One commodity after another is feeling the impact of the state’s epic water shortage. The great Sacramento Valley rice crop, served in sushi restaurants nationwide and exported to Asia, will be smaller than usual. Fewer grapes will be available to produce California’s world-class wines, and the citrus groves of the San Joaquin Valley are producing fewer oranges. There is less hay and corn for the state’s dairy cows, and the pistachio harvest is expected to shrink. Even the state’s mighty almond business, which has become a powerhouse in recent years, is coming in smaller than expected. That’s particularly troubling to the thousands of farmers who sacrificed other crops in order to keep their almond orchards watered. While many crops have yet to be harvested, it’s clear that the drought has carved a significant hole in the economy of rural California. Farm income is down, so is employment, and Thursday’s rain showers did little to change the equation. An estimated 420,000 acres of farmland went unplanted this year, or about 5 percent of the total. Economists at UC Davis say agriculture, which has been a $44 billion-a-year business in California, will suffer revenue losses and higher water costs – a financial hit totaling $2.2 billion this year.
California Faces A Record-Breaking October Heat Wave --California finds itself in yet another heat wave, with record-breaking temperatures reported in several cities and hotter-than-usual temperatures across the state. The National Weather Service has put the San Francisco Bay area and San Diego under a heat advisory and has issued a hazardous weather outlook for the Los Angeles area. On Thursday, the Los Angeles Unified School District cancelled outside activities and sports for the rest of the week due to the heat. This is the second time this school year that LAUSD has had to cancel activities because of high temperatures. All schools in the Long Beach School District had shortened days on Thursday and today because of the hot weather; about 70 percent of schools in the district do not have air conditioning. On Thursday, downtown Los Angeles reached 92 degrees by noon. The average October temperature for Los Angeles is 79 degrees. Several cities in Southern California broke record temperatures. Oxnard reached 98 degrees on Thursday, breaking an almost 70 year old record, while Santa Barbara saw a new high of 94 degrees. Inland temperatures are expected to be as high as 106 over the weekend. The record high temperature for the Los Angeles area is 108 degrees, which occurred in 1987.
With Dry Taps and Toilets, California Drought Turns Desperate - — After a nine-hour day working at a citrus packing plant, her body covered in a sheen of fruit wax and dust, there is nothing Angelica Gallegos wants more than a hot shower, with steam to help clear her throat and lungs. But she has not had running water for more than five months — nor is there any tap water in her near future — because of a punishing and relentless drought in California. In the Gallegos household and more than 500 others in Tulare County, residents cannot flush a toilet, fill a drinking glass, wash dishes or clothes, or even rinse their hands without reaching for a bottle or bucket. Unlike the Okies who came here fleeing the Dust Bowl of the 1930s, the people now living on this parched land are stuck. “We don’t have the money to move, and who would buy this house without water?” said “When you wake up in the middle of the night sick to your stomach, you have to think about where the water bottle is before you can use the toilet.”Now in its third year, the state’s record-breaking drought is being felt in many ways: vanishing lakes and rivers, lost agricultural jobs, fallowed farmland, rising water bills, suburban yards gone brown. But nowhere is the situation as dire as in East Porterville, a small rural community in Tulare County where life’s daily routines have been completely upended by the drying of wells and, in turn, the disappearance of tap water.
California Drying: Satellite images reveal how record-breaking drought has browned the Golden State - Satellite images released by NASA show the shocking extent of water shortage in California as it's revealed that some communities have been left without water for five months during the record-breaking drought.The colors in the 'California Drying' images, released by the GRACE program, progress from green to orange then red, showing how much the water storage has dried up in the region since 2002.According to the space agency, California's Sacramento and San Joaquin River basins, including the Central Valley, have suffered the greatest losses. Part of this is due to increased groundwater from reservoirs and rivers being pumped to support agricultural production. Between 2011 and 2014, the combined river basins have lost four trillion gallons (15 cubic kilometers, or 12 million acre-feet) of water each year. The amount far exceeds the amount California's 38 million residents use in cities and homes annually. Across the whole of the state, 63 trillion gallons have been lost since 2013 - the equivalent of having the US west of the Rocky Mountains flooded in four inches of water.
El Niño Could Put an End to California's Drought Late This Year -- As California announces plans to address the drought through $200 million of relief aid— with more to come — far-sighted thinkers are left asking themselves … will the drought continue through next year? Fact of the matter is, California’s economy may not survive another year of drought. It’s projected that the state will suffer a $2.2 billion hit as crops die off and thousands lose their jobs. Water is a necessary resource to keep livestock hydrated — not to mention people — as well as to cool power plants, grow fields and enable everyday life in general. There are some ugly rumors floating around that California’s drought will continue next year. If the rumors are indeed true, it will decimate agriculture and a variety of other industries and continue to eat away at the water supplies of local towns. When I wrote about California’s third-worst drought since 1890 earlier this year, I expected this past summer to be dry as El Niño deprived it of necessary water. Indeed, this year has been one of the driest on record. Farmers have responded to the drought by making their operations smaller to manage water supplies, and early in the summer municipalities went so far as to mandate water restrictions within their districts. But the question remains — can farmers keep this up for another year? Based on my predictions, I don’t think they’ll have to. El Niño may have ravaged their crops and their economy with drought, but it may also bring the saving grace California needs to get the state back on track.
El Nino and warm water 'blob' affecting Northwest weather: - The National Climate Prediction Center says a weak El Nino should be with us through December at least. El Nino has the effect of keeping the fall and winter climate in the Pacific Northwest warmer and drier than normal. El Nino forms when a warm pool of water at the surface of the Pacific Ocean along the equator builds up along the west coast of South and Central America. This El Nino is expected to be weak. The bigger effect is coming from something like El Nino and much closer to the Pacific Northwest. It's called "the blob," another big pool of warmer than normal water. The blob is off the Washington coast and goes north, pretty much filling the Gulf of Alaska. At its warmest point, it's five degrees warmer than normal, and as the air blows across it, that air also becomes warmer as it heads over land. El Nino's effects are largely confined to the fall and winter months, but "the blob" helped create a warmer summer than normal. In May, Washington state climatologist Nick Bond with the University of Washington had forecast a warmer and more humid summer for 2014 because of the blob. And now looking back? "Clearly, it's a warmer than normal summer." he said. He said summer temperatures were four degrees higher than average. Bond also had fears about what the blob would do, and in that same May interview remarked that the summer could bring an active fire season. As it turned out, the fire season set a new record for the largest fire in state history.
Unchecked Warming To Dust-Bowlify Southwest, Central Plains, Amazon, Europe For Centuries -- The unprecedented drought in California will become commonplace for the Southwest, Central Plains, and much of the currently inhabited and arable land around the world in the second half of the century — if humanity stays anywhere near our current path of carbon pollution emissions. Several recent studies spell this out in great detail. These latest studies confirm a large and growing body of scientific literature that dates back to a 1990 (!) NASA analysis, “Potential evapotranspiration and the likelihood of future drought.” I spoke to Dr. Benjamin Cohen of Columbia, a top drought expert and the lead author of the recent study, “Global warming and 21st century drying.” I first wrote about his work in my post “Climate Change Drying Out Southwest Now, With Worse To Come For A Third Of The Planet.” Cohen warns we are headed into a “fundamental shift in Western hydro-climate.” This drying includes the Central Plains, one of the breadbaskets of the world. Given how rapidly growing the population of the West is, I asked him if there would be enough water for everyone there. He said “we can do it,” but only “if you take agriculture out of the equation.”
Shocking NASA pics show Aral Sea basin now completely dry — RT News: Once the fourth-biggest lake in the world, the eastern basin of the Aral Sea in central Asia is now completely dry. It is the result of a Soviet-era project to divert rivers for agriculture and a lack of rainfall at its source. “This is the first time the eastern basin has completely dried in modern times,” Philip Micklin, an Aral Sea expert from Western Michigan University told NASA’s Earth Observatory, which captured fresh satellite images of the lake. “And it is likely the first time it has completely dried in 600 years, since Medieval desiccation [drying out] associated with diversion of Amu Darya to the Caspian Sea.” In a bid to drive up production of cotton in nearby steppes, Soviet engineers diverted the Amu Darya and the Syr Darya, the two rivers flowing into the lake, as part of massive irrigation projects for water-hungry crops in the 1950s and ’60s. As a result, the bed of the lake – polluted by the chemicals used in crop-growing – has become exposed, while the water has turned increasingly salty, killing off the majority of wildlife, and decimating the fishing industry in the region.
Greenhouse Emissions from Agriculture | Big Picture Agriculture: The recent United Nations Climate Summit put agriculture’s greenhouse emissions estimate at around 50 percent of global emissions when land use changes, deforestation, and food processing, packaging, and distribution are taken into account. Without those things, emissions from the agricultural production fields alone is estimated to be about 14 percent. This above graphic breaks down the emissions which stem from the different categories involved in the global food production system. A United Nations Council on Trade and Development paper helps sort out the emissions numbers (below): There are an enormous number of complexities involved in understanding agriculture’s role in greenhouse emissions. Each region and each farmer’s method varies widely, so we must attempt to make generalizations. Agriculture is the number one global land use-changer, water user, and destroyer of biodiversity.
Drowning Farms - Submerged in the water, which is essentially the flooded Krishna river, are mango, guava and pomegranate orchards. Entire towns are underwater. It is August, the tail-end of monsoon, and the river is at its fullest. In just a few short months, the water will recede, exposing waterlogged farmland where maize, millets, cotton, oilseeds, and sugarcane were once cultivated.The flood is the backwater of the one of the biggest dams in Indian history – the Upper Krishna Project in Karnataka State. Although its foundation was laid in 1964, the dam wasn’t actually built until 2002. The reason for the construction delay was a water dispute among three states – Karnataka, Maharashtra and Andhra Pradesh – through which the 900-mile-long Krishna flows.Close to half a million people are being forced to leave their homes and settle elsewhere. It is a complicated and emotional time, exacerbated by a poorly-organized rehabilitation program.As a child, I remember my grandfather discussing the dam – how we should be prepared for the day our house and land would be submerged. Yet, nothing happened for almost 40 years while an entire generation spent its time wondering when the dam would be built, if at all.
Testing Future Conditions for the Food Chain - The injured leaves signaled trouble down the road, and not just for a single plot of corn a few miles from the main campus of the University of Illinois. By design, the scientists were studying the type of damage that could put a serious dent in the food supply on a warming planet.The fields here are among a handful of places in the world where researchers are trying to mimic the growing conditions expected to arise decades in the future as the air fills with heat-trapping gases and other pollutants from human activity. A network of pipes sprays extra carbon dioxide and a corrosive pollutant, ozone, into the air. Lamps and other equipment mimic future droughts and heat waves. The work has been going on in some form for nearly a decade, and the answers so far have been worrisome. Earlier this year, for instance, researchers at Harvard and elsewhere pooled data from the Illinois project with findings from scientists in three other countries. In a high-profile paper, the experts reported that crops grown in environments designed to mimic future conditions have serious deficiencies of certain nutrients, compared with crops of today.
Floods, forest fires, expanding deserts: the future has arrived - Climate change is no longer viewed by mainstream scientists as a future threat to our planet and our species. It is a palpable phenomenon that already affects the world, they insist. And a brief look round the globe certainly provides no lack of evidence to support this gloomy assertion. In Bangladesh, increasingly severe floods – triggered, in part, by increasing temperatures and rising sea levels – are wiping out crops and destroying homes on a regular basis. In Sudan, the heat is causing the Sahara to expand and to eat into farmland, while in Siberia, the planet's warming is causing the permafrost to melt and houses to subside. Or consider the Marshall Islands, the Pacific archipelago that is now struggling to cope with rising seas that are lapping over its streets and gardens. Even the home of the country's president Christopher Loeak is feeling the effects. "He has had to build a wall around his house to prevent the salt water from inundating," Tony de Brum, the islands' foreign minister, revealed recently. "Our airport retaining wall that keeps the saltwater out of the landing strip has also been breached. Even our graveyards are also being undermined – coffins and bodies are being dug out from the seashore." Across the planet, it is getting harder and harder to find shelter from the storm. And things are only likely to get worse, say researchers.
Crazy weather traced to Arctic's impact on jet stream --The rapid retreat of Arctic sea ice caused by climate change may be to blame for more frequent prolonged spells of extreme weather in Europe, Asia and North America, such as heat waves, freezing temperatures or storms. These are relatively short-term periods of bizarre weather, like the cold snap that paralysed North America earlier this year, rather than longer-term rises in temperature. They are related to "stuck" weather patterns, Jennifer Francis of Rutgers University told a conference on Arctic sea ice reduction in London on 23 September. "Is it global warming? I think it's safe to answer yes," she told the meeting. Francis said a growing number of studies, including her own, suggest that the melting Arctic is having knock-on effects on the jet stream, the river of air that snakes around the northern hemisphere at an altitude of around 5 to 6 kilometres, and which has a profound impact on the world's weather. The jet stream is driven by the flow of air between the cold Arctic pole and warmer air that moves upwards from nearer the equator. As the warmer air advances polewards, it is swung eastwards by the Coriolis force which comes from Earth's spin, creating a snake-like stream. "It's a fast-moving river of air, a very messy creature," says Francis. The strength of the jet stream depends on the temperature gradient between the regions of cold and warm air – the wider the difference, the faster and stronger the jet stream. Francis thinks that, as the cool air of the Arctic becomes warmer, the jet stream is slowing down, almost to the point of stopping trapping weather systems in one place for prolonged periods. Instead of swirling round the world, winds reverberate back and forth in the same place, creating what she calls "extreme waves".
Jason Box: Greenland is the new black - Jason Box returned to Greenland for a few days late in August, and was able to shoot the video above. Newest observations show the lowest reflectivity on record for Greenland’s Upper elevations. And there’s this. NBC News: Spongy sediments under Greenland’s ice sheet may accelerate its flow into the sea — an effect that previous estimates of ice loss failed to account for, according to University of Cambridge researchers. They said that means the ice sheet may be more sensitive than previously thought to overall climate change, along with short-term events like heavy rain and heat waves. The researchers said it was thought that Greenland’s extensive ice fields rested on hard bedrock, but new evidence shows that soft sediments also are present. Those sediments weaken as they soak up water from seasonal melt, allowing the sheet to move faster to the sea, the researchers said. Greenland’s ice sheet covers 660,000 square miles (1.7 million square kilometers) to a depth of nearly 2 miles (3 kilometers) at its thickest. A 2012 study found that the sheet’s melting was accelerating, and a 2013 study estimated that because of melting in Greenland and Antarctica, sea levels could be 2 feet higher when today’s preschoolers are grandparents. The research was funded by the Natural Environment Research Council and published Monday in the journal Nature Communications.
VIDEO! Sea floor methane hydrate climate hazard - World methane hydrate expert explains the dangers from methane hydrate under global (ocean) warming.
Scientists: Why clinging to a two degree limit may harm meaningful climate action -- - Hopes of keeping global warming below the long-established target of two degrees above pre-industrial levels are rapidly eroding, according to a collection of papers in two Nature journals today.That might sound like a gloomy backdrop to this week's climate summit, convened by UN director-general Ban Ki Moon to refocus world leaders' attention on climate action.But chalking up the two degrees target as a political failure is a "naive" way to look at climate ambition and could even obstruct future negotiations, the authors argue.Scientifically-speaking, there's no definitive threshold beyond which climate change tips the balance into being "dangerous". But as temperatures rise, so do the risks.Curbing temperature rise to two degrees above pre-industrial levels has become the most widely accepted point beyond which climate change risks are considered unacceptably high. As the recent report on climate change impacts from the Intergovernmental Panel on Climate Change (IPCC) puts it:"Increasing magnitudes of warming increase the likelihood of severe, pervasive, and irreversible impacts. Some risks of climate change are considerable at 1 or 2°C above preindustrial levels …The precise levels of climate change sufficient to trigger tipping points… remain uncertain, but the risk ... increases with rising temperature". A two degree limit has been a symbolic focus of climate ambition for the past two decades - it is the limit recommended by the UK's Committee on Climate Change, for example.
On a Warmer Planet, Which Cities Will Be Safest? - Alaskans, stay in Alaska. People in the Midwest and the Pacific Northwest, sit tight.Scientists trying to predict the consequences of climate change say that they see few havens from the storms, floods and droughts that are sure to intensify over the coming decades. But some regions, they add, will fare much better than others.Forget most of California and the Southwest (drought, wildfires). Ditto for much of the East Coast and Southeast (heat waves, hurricanes, rising sea levels). Washington, D.C., for example, may well be a flood zone by 2100, estimate released last week.Instead, consider Anchorage. Or even, perhaps, Detroit.“If you do not like it hot and do not want to be hit by a hurricane, the options of where to go are very limited,” said Camilo Mora, a geography professor at the University of Hawaii and lead author of a paper published in Nature last year predicting that unprecedented high temperatures will become the norm worldwide by 2047.“The best place really is Alaska,” he added. “Alaska is going to be the next Florida by the end of the century.”
Norfolk sea level rise takes shine off waterfront homes -- Soon after Mary-Carson and Josh Stiff got married last year, they began talking about buying a house. Josh, 30, wanted to live in Norfolk to be near his law office. Mary-Carson, 28, wasn't so sure. Sea level rise and the chronic flooding that plagues the city worried her. "My concern was, it might not be a wise place to invest in general," she said. Her worry was grounded in her work. A consultant at the College of William & Mary Law School's Virginia Coastal Policy Clinic who now works part time as policy director for the local environmental group Wetlands Watch, Mary-Carson has been immersed in sea level rise policy work for months. She's well-acquainted with the piles of studies, reports and charts that show Norfolk is one of the country's most vulnerable cities.Committed to living in Norfolk, the Stiffs set out on a mission to find a home they loved away from the threat of water, a surprisingly challenging quest. Real estate agent Kathy Heaton found herself on the flip side of the growing concern, and perhaps at the forefront of a new trend. For months, the Nancy Chandler and Associates agent had been trying to sell a home in the desirable Norfolk neighborhood of Larchmont. The problem: Like many homes in that area, it's in a high-risk flood plain. Flood insurance could run up to $3,500 based on estimates she's seen. That would add almost $300 to a monthly mortgage, an amount many buyers Heaton has encountered would rather put into the cost of a home.
Venice on the Charles? Boston’s solution to rising seas includes novel canal system in Back Bay Canals - By the end of this century, the romance of Venice might be a lot closer to Boston than you’d expect — like just off Storrow Drive. A report scheduled to be released Tuesday about preparing Boston for climate change suggests that building canals through the Back Bay neighborhood would help it withstand water levels that could rise as much as 7 feet by 2100. Some roads and public alleys, such as Clarendon Street, could be turned into narrow waterways, the report suggests, allowing the neighborhood to absorb the rising sea with clever engineering projects that double as public amenities. The canal system was among the more imaginative solutions offered by some of the city’s leading planning, architecture, and engineering firms in a report compiled by the local chapter of the Urban Land Institute. Other suggestions include raising the Harborwalk, which rings the waterfront, to act as a stronger barrier for nearby buildings, adding breakwaters in the harbor, and creating wetlands that would act as sponges during periods of high water.
The Wall Street Journal downplays global warming risks once again - As has become the norm for media outlets owned by Rupert Murdoch, just before a half million people participated in the People’s Climate March around the world, The Wall Street Journal published an opinion piece downplaying the risks and threats posed by human-caused global warming. The editorial was written by Steven Koonin, a respected computational physicist who claims to have engaged in “Detailed technical discussions during the past year with leading climate scientists,” but who is himself not a climate scientist. Koonin did admit that the climate is changing and humans are largely responsible, and noted, There is well-justified prudence in accelerating the development of low-emissions technologies and in cost-effective energy-efficiency measures.. Unfortunately, Koonin’s editorial focused almost exclusively on the remaining uncertainties in climate science. Ironically, he stated, Any serious discussion of the changing climate must begin by acknowledging not only the scientific certainties but also the uncertainties, especially in projecting the future. But Koonin himself got the certainties wrong. For example, Koonin’s editorial claimed, The impact today of human activity appears to be comparable to the intrinsic, natural variability of the climate system itself. This is simply incorrect. As climate scientist Michael Mann told Climate Science Watch in their thorough response to Koonin’s piece, The fact is that the actual peer-reviewed scientific research shows that (a) the rate of warming over the past century is unprecedented as far back as the 20,000 years paleoclimate scientists are able to extend the record and (b) that warming can ONLY be explained by human influences.
People's Climate March NYC photos - There's no way around it. The People's Climate March in NYC on 9/21/2014 was massive! It was the largest climate march in history. Drone footage of the NYC march staging area (Youtube) The river of humanity that flooded through the streets of Manhattan on Sunday sounded the alarm on climate change for politicians in the US and across the world to heed. Organizers estimate that more than 400,000 people marched in New York, well over triple estimates made just a couple of days before. The NYC march was just one of many climate change protests across 166 countries as a coordinated message to world leaders ahead of the UN summit on climate change. The event was covered by mainstream media, so what follows are a few anecdotes and photos from my personal experience on the march.
Can Money Save The Climate? - Ilargi: -- If you would want to prevent a war, or you want to stop the destruction of rivers and seas through pollution, or for the earth’s climate from entering a cycle that neither we nor the climate itself can control, would you think first of people like Bill Gross when you’re looking for support? If you do, that would not be wise. Nevertheless, at every single climate conference it’s people just like him, such as Bill Clinton and Bill Gates, who made sure they’re in the spotlight. People who’ve never done anything in their lives that was not directed at self-gratification. People who cause, not prevent, the mayhem. Even the big demonstrations last week were shrouded in a veil of corporatism, not unlike the one Greenpeace has been enveloped in for many years. But still, if millions of dollars have to be spent to make a few hundred thousand people in New York leave their homes, what exactly are we doing? Where does that money come from? Does anyone want to deny that in general the richer people in the world are the ones responsible for the destruction? That we ourselves cause more damage than the average Bangla Deshi or Senegalese, and that the richest and most powerful people in our own societies do more harm than the poorset? If you don’t want to deny that, why do you walk in a heavily sponsored protest march? Or does anyone think those marches are spontaneous eruptions of people’s true feelings anymore? Why then do they feel scripted, in a way the anti-globalization ones (Seattle) absolutely did not?There is no doubt that there are well-meaning people involved, and a lot of grass-roots identity, but isn’t there something wrong the very moment money becomes a factor, if and when we can agree that the pursuit of money is the 8 million ton culprit in the room in the first place? Do we really feel like we can’t achieve anything without money anymore? And moreover, shouldn’t we, as soon as we feel that way, start doing something about it? There’s a nice interview in Slate with Naomi Klein, who says capitalism is the bogey man. I find that a little easy; in the end man him/herself is the bogey man. Klein sits on the board of Bill McKibben’s 350.org, which I have no doubt is full of people full of best intentions, but which also sees money as way to achieve things:
The UN Climate Summit and a Key Issue for the 2015 Paris Agreement - Stavins - World leaders converged at the United Nations in New York City this past week for Secretary-General Ban Ki-moon’s much anticipated Climate Summit, a lead-up to global negotiations that will take place in Lima, Peru, in December of this year, and culminate a year later in Paris. The challenge before negotiators is great, because there are significant obstacles to reaching a meaningful agreement, as I describe in an Op-Ed that appeared in The New York Times on Sunday, September 21st, “Climate Realities.” However, partly because of the new path that is being taken under the Durban Platform for Enhanced Action, in which all countries will be included under a common legal framework in a politically realistic hybrid policy architecture, the prognosis for a meaningful international agreement is better now than it has been in decades. I discuss this briefly at the end of the Times article, and emphasize it in a follow-up Op-Ed that appeared in The Boston Globe on September 23rd, “UN summit can accelerate momentum to a new approach to climate change.” (Also, for my overall assessment of the UN Climate Summit, see this interview carried out by the Harvard Kennedy School’s Doug Gavel.)
Climate Summit: Much Talk, A Bit of Walk - Speaking to more than 120 heads of state at the U.N. Climate Summit, actor and newly appointed U.N. Messenger of Peace Leonardo DiCaprio made clear the long-ranging impact of the attendees’ decisions.“You will make history,” he said, “or you will be vilified by it.”In three simultaneous sessions, world leaders announced national action and ambition plans to combat climate change. These announcements included pledges to cut emissions, donate money to the Green Climate Fund, halt deforestation and undertake efforts to put a price on carbon. Representatives from small island states lamented that their countries would be underwater in only a few decades, while African leaders pointed out the growing number of climate refugees. All eyes were on China and the United States, respectively the number one and number two carbon emitting countries in the world. U.S. President Barack Obama announced that all future U.S. investments in international development would consider climate resiliency as an important factor. He also said that the U.S. would meet its target of reducing carbon emissions in the range of 17 percent below 2005 levels by the year 2020. “We recognise our role in creating this problem. We embrace our responsibility to combat it,” Obama said. “We will do our part and we will help developing nations to do theirs.” “But we can only succeed in combating climate change if we are joined in this effort by every nation, developed and developing alike. Nobody gets a pass.” Chinese President Xi Jinping did not attend the climate summit, but instead sent Vice Premier Zhang Gaoli.
UN Climate Summit achieves successes, but does it really matter? -- At the end of his summit meeting on the climate crisis, UN Secretary General Ban Ki-moon put out a list of accomplishments festooned with 46 bullet points, some of them marking concrete new pledges, others diaphanous phrases. Among the most notable were two separate pledges on forests, which if followed through could eliminate deforestation by 2030, and end deforestation at the hands of the palm oil industry even sooner.Other announcements, such as promises by France and Germany that each would commit $1 billion to a fledgling fund to assist poorer nations, lent support to existing UN arrangements that have been slow to mature. And there were also agreements that could help hold down emissions with or without a new treaty. These included pledges by dozens of big corporations to price the cost of carbon into their business decisions and force governments to follow suit; the formation of a compact among cities to track and reduce their own emissions; and new steps to make it easier for municipalities to borrow for projects like energy efficiency, a key to reducing their carbon footprints. But would all of this really enhance the likelihood of a successful treaty negotiation?
President’s Drive for Carbon Pricing Fails to Win at Home - President Obama stood in the chamber of the United Nations General Assembly last week and urged the world to follow his example and fight global warming. But a major new declaration calling for a global price on carbon — signed by 74 countries and more than 1,000 businesses and investors — is missing a key signatory: the United States.The declaration, released by the World Bank the day before Mr. Obama’s speech at the United Nations Climate Summit, has been signed by China, Shell, Dow Chemical and Coca-Cola. It calls on all nations to enact laws forcing industries to pay for the carbon emissions that scientists say are the leading cause of global warming.The United States, which is under growing international pressure to price carbon, is missing from the declaration for a key reason: conservative opposition to Mr. Obama’s climate change proposals, specifically a carbon tax. The opposition will only intensify if Republicans win control of the Senate in November and the new majority leader is Senator Mitch McConnell of Kentucky, where coal — the world’s largest source of carbon pollution — is the lifeblood of the state’s economy.“It’s time for the global elites to face facts,” Mr. McConnell said in a statement. “President Obama’s war on coal won’t have any meaningful impact on global carbon emissions. What it will do is ship American jobs overseas, raise the cost of living substantially for middle and working-class families and throw thousands more Kentuckians out of work.”Although the nonbinding World Bank declaration is meant largely as a show of resolve ahead of a 2015 climate summit in Paris, it signals the broadest, most explicit effort to date of world leaders and financial institutions to push all nations to enact new taxes on old forms of energy. The declaration notes that governments can either directly tax carbon pollution or create market-based cap-and-trade systems, which force companies to buy government-issued pollution permits.
In Historic Visit To D.C., Obama Offers Indian Prime Minister $1 Billion In Financing For Clean Energy - On Tuesday, President Obama and newly elected Indian Prime Minister Narendra Modi met for over an hour in the Oval Office. While they announced agreements on a number of issues, climate change and clean energy were two of the foremost. The two leaders released a detailed statement committing to future cooperation on energy and climate issues. This comes during a key turning point in global climate change discussions, and gives a boost of momentum for the two countries after India displayed wavering commitment during September’s United Nations Climate Summit. Modi didn’t attend the summit and his environment minister said India would not offer a plan to cut its greenhouse gas emissions ahead of a climate summit next year in Paris. The minister, Prakash Javadekar, placed the responsibility for mitigating emissions on developed countries, saying that India’s main priorities were alleviating poverty and growing the economy. The tone at this week’s meeting was quite different as the leaders toured the MLK monument and shared a White House dinner at which Modi, observing a religious holiday, fasted. While the new partnerships are not game-changing they offer the promise of cooperating between the world’s second and third largest GHG emitters. Termed a “New Era of Cooperation” the joint statement pledges to expand the U.S.-India Partnership to advance clean energy, work together toward a successful outcome of U.N. climate negotiations in Paris in December 2015, and to expand bilateral cooperation on climate change. This includes the Obama administration allowing $1 billion in financing from the U.S. Export-Import Bank to help India purchase American technology for clean energy projects.
Proposed Trade Agreements Would Make Policy Implications of Environmental Research Entirely Irrelevant - Environmental Science & Technology (ACS Publications) We feel that the prospect of environmental research becoming entirely irrelevant in the political arena should mobilize every environmental scientist. That threat, unfortunately, appears very real at the moment, because of several trade partnership agreements that are being negotiated secretly.(1, 2) Inspired by the North American Free Trade Agreement (NAFTA) of 1994, negotiations started in 2010 on a Trans-Pacific Partnership (TPP) agreement among a number of countries around the Pacific Ocean, and in July 2013, similar discussions were initiated about a Trans-Atlantic Trade and Investment Partnership (TTIP) agreement between the U.S. and EU. In spite of several studies(2, 3) demonstrating that neither of these agreements would lead to significant economic benefit for the overwhelming majority of people, except the wealthiest of investors, the agenda is being pushed forward. To avoid public opposition from the onset, little detail about the negotiations has been made public, until leaks from different sources revealed the issues being considered, as well as the heavy presence of major corporations at the negotiation table.
Solar could beat coal as world's top power source by 2050, says IEA - Telegraph: Solar power will reach commercial “take-off” within a decade and could displace fossil fuels to become the world’s biggest source of electricity by 2050, according to a stunning report from the International Energy Agency. The IEA said the cost of photovoltaic panels would continue to plummet, falling by a further 60pc for household rooftops and 70pc for power companies even after the dramatic gains of the recent years. Solar has already achieved “socket parity” for consumers in a string of countries, including Australia, Germany, Italy, and Holland, chiefly due to a fall in the price of solar cells to $0.80 a watt from $4 in 2008. The agency expects prices to reach $0.30 by 2050 with enough investment, though what increasingly matters is the rapid fall in “soft costs” for installation as solar goes mainstream. The gains will happen just as carbon pricing pushes up costs for fossil fuels, creating a scissor action in the global energy market. “The take-off is around 2025 to 2030. By then the cost of solar will be $100 per megawatt/hour and will compete with fuels facing carbon prices of $50 a tonne,” said the agency.
Fossil Fuels Get Huge Master Limited Partnership Tax Breaks - “Green” Energy Shut Out - Since 2008, investors have poured several hundred billion dollars into fossil fuel-related master limited partnerships that shield income from virtually all corporate taxation. The MLP tax loophole — a sort of reverse carbon tax — has heavily subsidized the nation’s ongoing oil and natural gas fracking boom. Solar, wind and other renewable energy companies are not eligible for the MLP tax dodge. Although bipartisan support is building in Congress to extend the tax deductions to them, insiders say legislation to do so will most likely have to wait for and be a part of a comprehensive tax reform package, which has proven elusive. Until then, existing incentives will serve as a drag on the U.S. economy’s transition from fossil fuels to renewable energy sources. As long as Congress fails to act, fossil fuels will continue to exploit their government-approved competitive advantage even as mounting evidence shows their use accelerates global warming and prompts calls to tax carbon. Even from a strictly financial perspective, tilting future U.S. taxpayer-funded energy subsidies toward fossil fuels might be a poor bet. Several major investment banks, including Morgan Stanley and Barclays, have warned that rapidly falling prices for renewable energy pose an existential threat to traditional electric utilities powered by coal, oil and natural gas.
Federal Court Backs EPA’s Veto Of One Of The Largest Surface Mines Ever Proposed In Appalachia -- At 2,278 acres acres, down from an original 3,100 acres, the Spruce No. 1 Mine was one of the largest surface mining operations ever authorized in Appalachia. That was, until the EPA vetoed it. On Tuesday, a federal District Court judge upheld the EPA’s revocation of the West Virginia surface mine’s Clean Water Act (CWA) permit, calling it “reasonable, supported by the record, and based on considerations within EPA’s purview.”At issue was the agency’s veto of a permit that had previously been issued by the U.S. Army Corps of Engineers. The drawn-out case — the mine was first proposed in 1997 — received national attention for its potential implications. With this latest development, the Corps may be more hesitant to grant mountaintop removal permits in the future. The EPA vetoed portions of the Corps’ dredge-and-fill permit issued in January 2007. The permit would have allowed Mingo Logan Coal Company, Inc., a subsidiary of Arch Coal Inc., to bury 6.6 miles of natural headwater streams with mining waste. . “To its credit, the EPA finally recognized that this harm would really be unacceptable.”
EPA says greenhouse gas releases from wells, pipelines decline -- The U.S. oil and gas sector reduced greenhouse gas emissions from well sites, pipelines and processing facilities last year despite the industry's continued growth, the Environmental Protection Agency said Tuesday. Use of technology and improvements in hydraulic fracturing techniques in natural gas production led the way, accounting for a 73 percent decrease in methane released by that process since 2011, the EPA said. The industry as a whole reduced methane emissions by 12 percent in two years, even as the number of sources reported to the government grew by 13 percent. Carbon dioxide emissions from the industry increased by 2.5 percent last year, but the methane reduction brought the overall number down by 1 percent. The methane numbers continue a five-year trend in reductions that the EPA expects to continue with implementation of a 2012 rule requiring “green completions” of wells. Drillers must capture gas stored in flowback — the liquids that return to the surface during drilling and fracking — which prevents its release into the air.
Meeting Sunday in Gates Mills states case for 'no' vote on Issue 51; fracking also not supported -- A crowd of about 70 people attended a Neighbors for Responsible Government meeting Sunday at the village's Community House in which evidence was presented as to why voters should vote no on Issue 51 on Nov. 4. Issue 51 centers on fracking for natural gas in Gates Mills. Those who urge against the charter amendment's passage, while not supporting fracking themselves, said the changes would go far beyond the subject of fracking. "It's interesting language, it's scary language," said Lawyer James F. Lang, one of three speakers at the afternoon event and an attorney for Calfee, Halter and Griswold. "After I read it I said, 'Wow,'" he said of the issue's proposed charter amendment. There are now 43 fracked, shallow wells in Gates Mills. . Concerns have developed among some after news in recent years that fracking has been the cause of pollution, explosions and excessive noise. The local movement against the wells began when Mayor Shawn Riley spoke of possibly assembling a land trust to prepare for the coming of gas wells to Gates Mills. The group that formed in protest is known as Citizens for the Preservation of Gates Mills.
Fearing pollution, some local governments are demanding back zoning control over oil and gas - Kathleen Chandler, a County Commissioner in Portage County, Ohio, worries when she sees truck after truck carrying waste into the county. An estimated 500 million gallons of fracking wastewater will be dumped in the county this year — and there’s nothing she can do to about it. “We have no control at the local level,” she explains. “The state took away our control.” Ten years ago, Ohio changed its zoning laws. It took zoning control of oil and gas operations away from local communities and gave the authority to the state department of natural resources. In 2012, Pennsylvania also tried to limit local zoning rights around oil and gas operations, as part of the controversial Act 13. But late last year, the state Supreme Court struck it down, maintaining local control. New York courts have also upheld the rights of local governments to regulate fracking. Randy Roberts, an attorney for Houston-based Stallion Oilfield, which owns three injection wells in Ohio’s Portage County, says it makes sense to decide energy development at the state level. “It’s akin to the federal government regulating drugs,” he says. “The FDA regulates drugs; each county doesn’t regulate what drugs you can take. It makes more sense for the state to do it than to have part-time zoning board[s] deciding whether someone can drill for oil and gas. They’re not educated in that area, and they don't have time to get educated in that area.” Some Ohio communities are trying to reassert their rights. People in the city of Kent, in Portage County, will vote on something called a "community bill of rights" this November. It’s an attempt to regain local rights around energy production sites. Five miles east, the city of Munroe Falls has a case pending before the Ohio Supreme Court. They’ve argued that the Home Rule law in the Ohio constitution overrides the state’s zoning law.
Steady Oil Prices Prompt More Fracking Activity In Ohio - The Ohio Department of Natural Resources says it has permitted 17 more horizontally-fracked wells in five eastern counties.The state permits allow for more oil and gas development in an area known as the Utica shale. Youngstown State University geologist Jeffrey Dick says oil and gas reserves in the region are plentiful. He expects drilling activity in Ohio to last decades.“Given the amount of reserves that are down there and the acreage that’s left to be drilled, I think you’re easily looking at 20 to 40 years easily,” says Dick. Dick estimates that only 4 percent of the acreage in the Ohio’s Utica Shale has been drilled. He says that means continued fracking activity as long as crude oil prices remain stable.“But as long as the economy across the planet is doing fairly well and India and China continue to expand I don’t think we’re going to see any drop in the price of a barrel of oil anytime soon,” Dick says. ODNR says more than 1,000 fracked wells have been drilled and nearly 600 are now producing oil and gas. With more production comes more toxic wastewater. ODNR says the volume of drilling site wastewater injected into underground wells rose 15 percent from 2012 to 2013. The agency is investigating seismic activity around two injection wells after reports of earthquakes near those sites.
Professor co-authors study on fracking concerns - Community residents raised concerns about potential health impacts of unconventional natural gas-drilling methods in a study co-authored by a University of Cincinnati assistant professor at the College of Medicine. Erin Haynes, an assistant professor in the environmental health department, has spent over 10 years working with rural Ohio communities to better understand their health concerns, including those raised by fracking. In September, Haynes and other authors published “Health impacts of unconventional natural gas development,” a comparative assessment of communities considering and implementing fracking. Unconventional natural gas-drilling refers to the process of shale gas extraction that includes horizontal drilling and hydraulic fracturing, or fracking, to extract natural gas. Residents in Ohio, where fracking is rapidly expanding, asked Haynes to help address their concerns about unconventional natural gas drilling in their community. The study revealed a number of public health concerns from three states — Ohio, New York and North Carolina — that are each in different stages of natural gas extraction development. New York has suspended its fracking development to study health and environmental impacts, and North Carolina is still under debate on whether or not to start fracking. “Research is sorely needed, and Ohio is ripe for such environmental epidemiologic studies,” Haynes said. “Ohio is a beautiful state, and we could be one of the first states to pro-actively study exposures associated with the fracking process. This information would be helpful to inform other states considering fracking and how to protect our own state and its residents.”
A fight to control disposal of fracking waste - Wastewater from fracked wells that produce gas and oil in Pennsylvania and West Virginia is coming to Ohio. Julie Grant, a reporter who has been researching this issue, says Ohio has become a go-to place for the nation's fracking waste disposal. Grant reports on environmental issues in Ohio and Pennsylvania for the program The Allegheny Front. "Energy companies say the layers of underground rock that are better for wastewater storage are easier to access in Ohio, than in Pennsylvania’s hilly Appalachian basin," Grant says. Pennsylvania is one of the top natural gas producers in the nation, but it’s more difficult to permit a disposal well there. Grant says there are only a few waste disposal wells in the whole state. Ohio also has industry-friendly regulations. Oil and gas companies need permits to dispose of fracking waste underground. In other states around the region, including Michigan and Pennsylvania, the Environmental Protection Agency has authority over those permits -- and the process can take a year or more. But in Ohio, the same permits can be issued in a matter of months. That's because Ohio has primacy over injection wells, so the state, not the federal government, issues the permits and the process is often faster.
Ohio Singled Out for Worst Fracking Waste Disposal Practices --The Government Accountability Office (GAO) released a new report this week showing that Ohio was the only state among eight studied that allows waste fluids from oil and gas wells to be disposed of without disclosure of the chemicals it contains.The report, created as a request by seven Democratic U.S. Senators and Congresspersons, studied eight states where fracking has become widespread—California, Colorado, Kentucky, North Dakota, Ohio, Oklahoma, Pennsylvania and Texas. All but Ohio required waste disposal companies to provide information on the waste content before getting a permit to dispose of it, primarily in injection wells deep underground. Many of the states studied, including North Dakota, Pennsylvania and Kentucky, have stringent disclosure requirements before a permit for disposal is issued. Ohio, however, has no disclosure requirements before or after a permit is issued by the Ohio Department of Natural Resources (ODNR). “According to officials, class II injection well operators [in Ohio] are not required to analyze the chemical composition of injected fluids,” says the GAO report. “The division has supported research to analyze produced water samples from oil and gas producing formations. In addition, operators may monitor the specific gravity of fluids when applying to increase permitted injection pressure limits. The division may sample injection fluids at any time during injection operations.”
Ohio fracking waste issues go beyond chemical disclosure - While a recent federal study singles out Ohio for limited information requirements in permitting for fracking wastewater disposal, advocates in the state say the issue is much broader. Ohio requires fewer details about the liquid fracking wastes going into its underground wells than other states do, says the General Accounting Office. Environmental groups say the situation is even worse because the state’s inspection and enforcement practices are lax. Meanwhile, “solid” waste from shale oil and gas operations raises concerns. Ohio law already exempts tons of deep shale drilling waste from landfill regulations meant to protect the public from elevated levels of heavy metals and radioactivity. Now the Ohio Environmental Protection Agency is considering whether to allow “beneficial reuse” of those shale drill cuttings, including on roads and in wetland restoration. Underground injection wells dispose of millions of gallons of wastewater from fracking. The fracking process uses millions of gallons of treated water to crack shale rock formations so oil and gas can flow out. The waste fluid that flows back afterward and during well production can be more than six times as salty as seawater, according to the Ohio Department of Natural Resources (ODNR). Deep shale layers in Ohio can also contain elevated levels of heavy metals. Radioactivity from radium is also a concern. Liquids can become contaminated by coming into contact with both types of materials.
West Virginia Plans To Frack Beneath Ohio River, Which Supplies Drinking Water To Millions --Nine citizen and environmental groups are urging West Virginia Gov. Earl Ray Tomblin to reconsider his plans to let companies drill for oil and natural gas underneath the Ohio River, citing concerns that drilling and fracking could contaminate the drinking water supply and increase the risk of earthquakes in the region. In a letter sent to the governor this month, the coalition of Ohio- and West Virginia-based groups said Tomblin’s Department of Environmental Protection has not proved that it can adequately protect the Ohio River, which supplies drinking water to more than 3 million people. The groups cited drilling currently taking place in a state-designated wildlife area, which some have complained is unacceptably disrupting the nature preserve, and a chemical spill in January that tainted the drinking water supply for 300,000 people. “The well-documented deficient enforcement capability of the West Virginia Department of Environmental Protection’s Office of Oil and Gas has been on public display for years,” the letter reads. “How are we ever to believe that the state has the political will, technical capability and community commitment to guarantee that adequate controls, timely supervision and, when needed, ruthless enforcement would occur on well pads that close to the Ohio River?”On Friday, Tomblin’s administration opened up the process for companies to bid on oil and gas leases located 14 miles underneath West Virginia’s section of river, which also acts as a natural border with Ohio. The bids would allow for companies to use the controversial process of hydraulic fracturing, or fracking, to stimulate the wells.
West Virginia Plans to Solve Money Woes by Allowing Fracking under Ohio River - Short on cash, the state of West Virginia has decided one solution to its monetary problems lies beneath the Ohio River. Officials there have opened the bidding process for companies to sink oil and natural gas wells along a 14-mile stretch of the river. One bidder has already offered $17.8 million over five years plus 18% royalties on extracted oil for the right to frack under the river. Three other bidders offered 20% royalties. Fracking, or hydraulic fracturing, involves injecting fluid which is often toxic into a well to break loose deposits of oil and gas. The fluid is later injected into spent wells and can contaminate ground water. State leaders said the move was necessary after lawmakers had to use $100 million from the Rainy Day Fund to avoid a budget deficit earlier this year. Revenue projections show West Virginia falling short again next year by about the same amount unless new sources of funding are identified. In addition to drilling in the Ohio River, the state may also open up a wildlife management area to drilling.
Editorial: Let them drill the Ohio and save the state - Charleston Daily Mail -- In 2000, Cotulla was a small town in southern Texas of 3,614 people. The median income was $10,856 a year, according to the Census Bureau. And 30 percent of the people lived in poverty. In other words, it was like your typical town in West Virginia. But 14 years later, that’s changed. City officials estimate the population has doubled and income has tripled, as hydraulic fracturing has swung the Texas town’s economy into overdrive. In our region, Marcellus shale natural gas production also is taking off, averaging 15 billion cubic feet per day, according to the U.S. Energy Information Administration. Last week, the Division of Natural Resources opened bids for leasing drilling sites in the Ohio River. Proceeds would go to support the state’s parks. The state would collect $17 million upfront and royalties of between 18 percent and 20 percent, state Commerce Secretary Keith Burdette told MetroNews. Earlier this year, legislators had to make an emergency appropriation of $3.7 million to the state parks. The state has leased mineral rights to the Ohio for 100 years and oil rights for 25. Fracking thus far has proved to be safe. It’s time to turn our own communities from typical West Virginia towns into Cotulla.
Well Water Contamination Possible After Drilling Mishap -- Drilling for shale gas went wrong last week when operators accidentally drilled into one of their own wells that was engaged in production. The result is possibly contaminated drinking water from at least 12 homes. The West Virginia Department of Environmental Protection issued citations to Antero Resources for breaching of their own wells. The incident occurred at Anteors five-well Primm Pad in Doddridge County, WV near West Union last week. The DEPs citation indicates that the rupture happened at a drilling depth of 641 feet, and that several water wells, an existing gas well, and an abandoned well in the area appear to be affected. Antero was given until October 1st to get the situation under control. DEP reports the 12 private water wells in the area are having their water sampled. No results are available yet. Of those 12 water wells, the three closest to the Primm Pad have been disconnected from the homes as a precaution to ensure no gas gets into the homes. Antero and DEP are still trying to locate the owner of the 12th water well.
Pennsylvania man faces sentencing for falsifying abandoned oil well plugging reports -- A man who falsely certified that he had properly plugged abandoned oil wells in Pennsylvania’s Allegheny National Forest faces sentencing in federal court in December. The Environmental Protection Agency relied on the falsified certificates in issuing permits for injection wells under the Safe Water Drinking Act, a law intended to safeguard underground sources of drinking water, according to the U.S. attorney’s office in Pittsburgh. And Karen Johnson, the regional chief of EPA’s groundwater enforcement branch, said, “Our main concern is protection of the underground supply of drinking water.” EPA inspectors conducting an inspection test in 2012 discovered that injected fluid had entered the bottom of an abandoned well in Elk County. That triggered an investigation by EPA, the U.S. Forest Service and the Pennsylvania attorney general’s office, which determined that Ronald Wright had falsified reports submitted to the state, requiring the re-inspection of 95 wells in the national forest.
Pa. Official Admits Errors In Investigation Of Whether Fracking Waste Spoiled Drinking Water - A Pennsylvania official has admitted that he may have used faulty information to determine that fracking waste was not poisoning the drinking water supply at a man’s property in Washington County, according to a Pittsburgh Post-Gazette report. During his sworn testimony at a trial before the Pennsylvania Environmental Hearing Board, Department of Environmental Protection water quality specialist Vincent Yantko said that his 2011 investigation of landowner Loren Kiskadden’s contaminated drinking water “did not follow its regulations to determine whether [chemical] leaks had occurred” at a nearby fracking site, the Post reported. Kiskadden is one of three landowners who say they have experienced health problems due to water pollution from the waste pit at the Yeager drilling site, owned by Range Resources Corporation.The case happening now is an appeal of a complaint filed by Kiskadden, whose drinking water allegedly turned grey and foamy at his property in Amwell Township. In his original 2011 complaint, Kiskadden claimed that he had used the water there for decades without incident. The only change was heightened operations at the Yeager wastewater site, he said.In response, the DEP conducted an investigation by collecting water samples from Kiskadden’s property. The DEP found that Kiskadden’s water had elevated levels of hydrogen sulfide odor, acetone, chloroform, and “explosive levels of methane.” However, the DEP also determined that the water contamination was not the result of fracking waste or any gas well-related activities.
Study: More gas wells in area leads to more hospitalizations - The more natural gas wells in an area, the more of its residents end up in the hospital.So indicate the results of an unreleased study that was revealed at a state Senate Democratic Policy Committee hearing at King’s College on Wednesday on the subject of tracking, reporting and acting on public health concerns related to natural gas drilling. State lawmakers believe there needs to be better collection and sharing of health data in Marcellus Shale drilling areas, and state Sen. John Yudichak, D-Plymouth Township, has sponsored a bill that would dedicate $3 million in drilling impact fees to the state Department of Health to conduct the needed research. However, there needs to be “consistent, constant communication” between the Department of Health and the state Department of Environmental Protection, which state Auditor General Eugene DePasquale says does not have the resources and technology to effectively do its job. DePasquale said there should be a dedicated staff person in each of the two departments — Health and Environmental Protection — to keep in touch with each other. Wednesday’s hearing included testimony by Trevor M. Penning, professor of pharmacology and director of University of Pennsylvania’s Center of Excellence in Environmental Toxicology. Since 2011, the center has had a Marcellus Shale working group to address the public health impact, he said. The center did a study focusing on two counties where natural gas drilling has grown dramatically between 2007 and 2013: Bradford and Susquehanna. Wayne County, where no gas drilling is taking place, was used as a control.
Study Finds Treated Fracking Wastewater Still Too Toxic -- One of the biggest concerns about hydraulic fracturing, or fracking, is that the vast amount of wastewater produced by the process of extracting oil and gas from shale rock deep underground is incredibly toxic. Most often, the wastewater is injected into disposal wells deep underground. But a process does exist to convert contaminated water into drinking water that involves running it through wastewater treatment plants and into rivers. Now a new report says that treated wastewater could be fouling drinking water supplies. The wastewater left over from the process is not only highly radioactive, but also is contaminated with heavy metals salts known as halides, which are not suitable for consumption, according to the scientists.The researchers found that the chlorine and ozone – used to rid samples of fracking wastewater containing as little as 0.01 percent and up to 0.1 percent of halides per volume of water – also formed an array of other toxic compounds known as “disinfection byproducts,” or DBPs. As Climate Progress pointed out, “these chemicals — trihalomethanes, haloacetic acids, bromate, and chlorite — are formed when the disinfectants used in water treatment plants react with halides, according to the Environmental Protection Agency.” All are potentially dangerous to humans, not to mention wildlife.
Backlash as EPA considers fracking chemicals disclosure rules -- The US Environmental Protection Agency (EPA) is considering introducing new regulations that would require companies to disclose the composition of chemicals used in hydraulic fracturing (fracking), but the Society of Chemical Manufacturers and Affiliates (SOCMA) is warning that such a rule could jeopardise the trade secrets of its members, which include small businesses that manufacture chemicals used in oil and gas exploration. Back in May, EPA sought public comment on what information could be reported and disclosed for fracking chemicals, and said the mechanism for obtaining this information could be regulatory, voluntary, or a combination of both. However, SOCMA is now arguing that this plan could lead to ‘mining from foreign competitors’ before chemicals enter commerce. The consequent offshoring could lead to lost jobs and product manufacture outside the reach of US law, the trade group suggests in comments submitted to EPA.
Senate Dems call for 'strongest possible' fracking regs - A group of Senate Democrats called for the Office of Management and Budget (OMB) on Friday to issue the "strongest possible" safety standards for fracking operations on public lands. The Interior Department recently sent its rule on fracking, a horizontal drilling method for oil and gas that pumps chemicals and water into the ground to break up deposits, to the OMB for final review. Sen. Ed Markey (Mass.) led the letter signed by 11 other Democrats to OMB Director Shaun Donovan on Tuesday. “As OMB finalizes this rule we urge you to issue the strongest possible safeguards to ensure that public health, safety and our environment are protected,” the letter states. “As stewards of these lands and resources for the American people it is therefore critical that the final rule for hydraulic fracturing on public lands offers stringent protections for the safety of workers, our water, air, lands and public health," it adds. Markey joined Sens. Sheldon Whitehouse (R.I.), Dick Durbin (Ill.), Elizabeth Warren (Mass.) and others telling the OMB it should ensure the final rule includes "public disclosure of all chemicals and other additives." The proposed rule does not include such disclosures.
Colorado Fracking Task Force Opens - Colorado has launched its newly formed hydraulic fracturing task force as fracking is hotly debated in the state. A highly anticipated first public meeting Thursday gave a glimpse into what critics have lambasted as an anti-industry bias from one of the task force’s leaders. Just hours earlier, Democratic Gov. John Hickenlooper said he couldn’t imagine not supporting whatever recommendations the Oil and Gas Task Force puts forward to the state legislature. “I can’t imagine something I wouldn’t support,” Hickenlooper told The Daily Caller News Foundation when asked if he would back the task force’s recommendations on drilling regulations. “If they can get it through here, then it’s probably good policy.” The Oil and Gas Task Force was created by Hickenlooper earlier this month as a compromise with Congressman Jared Polis, a Colorado Democrat, who has funneled lots of money into anti-fracking ballot measures. In return, Polis and his environmentalist allies agreed to drop ballot state measures aimed at allowing local governments to ban fracking. The task force has been attacked by critics who say it displays weakness on the part of Hickenlooper and that environmentalists will control the task force’s agenda.
“The roads were cracking, the crime rate was rising”: What happens when fracking takes over your town - North Dakota is sitting on gold. The oil-rich Bakken formation, thanks to the advent of hydraulic fracturing, or fracking, produces hundreds of thousands of barrels of oil each day; in one month this year, it produced as much oil as it had in all of 2004. Change this drastic doesn’t come without its conflicts and complications, as director Jesse Moss found in Williston, a city in the western part of the state. Since 2008, workers have been streaming into the city, overwhelming its capacity to house them and testing the locals’ ability to be welcoming. The stand-out exception to the prevailing “us versus them” attitude is Pastor Jay Reinke, who fills his church — its pews, its hallways, its parking lot — with migrants. Moss’s resulting documentary centers around Pastor Jay’s efforts to keep his makeshift community running, despite being nearly constantly at odds with the city council, the local newspaper and his neighbors. But it also spends time with the men who seek shelter under his roof, asking important and hard-to-answer questions about the promises that drew them to Williston in the first place, which more often than not seem to stand in stark contrast to how their lives there end up playing out. “The Overnighters,” which premiered this year at Sundance, will be making its theatrical debut on Oct. 10. Salon spoke with Moss about life in a city destabilized by the oil industry and the ambiguities of America’s energy explosion. This interview has been lightly edited for length and clarity.
Millions Of Tons Oil And Gas Waste: Hazardous Or Not? - The United States is on the verge of becoming the world’s top producer of oil – that’s according to the International Energy Agency. But the oil boom is also leading to a boom in toxic oil field waste that can end up in open pit disposal sites. There are increasing concerns over the dangers these disposal sites pose for air quality. All energy producing states have to deal with an ever escalating amount of waste. In Wyoming, there are 35 commercial waste pits and permits pending on six more. North Dakota shipped 1.75 million tons of oil and gas waste to landfills in 2013. And, while Colorado - like North Dakota - has been tightening regulations on the waste water resulting from drilling operations, the state's solid waste pits are still left uncovered. None of these states have conducted studies to determine if the air coming off those pits is safe. A recent investigation in Texas by InsideClimate News and the Center for Public Integrity uncovered a troublesome gap in oversight by state and federal regulators over these giant pools of oil field muck.
Open Pits Offer Cheap Disposal for Fracking Sludge, but Health Worries Mount - School Superintendent Kevin Wilson gestured toward a field less than a mile from Nordheim School, where 180 children attend kindergarten through 12th grade. A commercial waste facility that will receive millions of barrels of toxic sludge from oil and gas production for disposal in enormous open-air pits is taking shape there, and Wilson worries that the ever-present Texas wind will carry traces of dangerous chemicals, including benzene, to the school. "Many of these students live outside of where they could be exposed," said Wilson, a contemplative man with a soft Texas accent. "But we are busing them to the school, putting them in the direct path of something that could be harmful to them. It makes you think: Are we doing what's best for the students?" Along with Nordheim's mayor and other angry residents, Wilson is trying to stop the 204-acre facility, but he faces an uphill battle. In Texas, as in most states, air emissions from oil and gas waste are among the least regulated, least monitored and least understood components in the extraction and production cycle. Although the wastewater and sludge can contain the same chemicals used in hydraulic fracturing and other processes—chemicals known to affect human health—little has been done to measure waste emissions or determine their possible impact on nearby residents.
Fracking Emission Carcinogens Found in Denton Playgrounds - A new report published by ShaleTest, an independent environmental research agency in Denton, found levels of benzene in several Denton parks that exceed the Texas Commission on Environmental Quality's long-term exposure limitations. Benzene is a carcinogen found in cigarettes, gasoline and is a common byproduct of oil and gas drilling sites. McKenna Park is one of the playgrounds where unsafe levels of the chemical were found. The playground is located next to Texas Health Presbyterian Hospital of Denton, within a neighborhood, next to several churches and across the street from one of Denton's many Rayzor Ranch gas wells. "The effects of benzene are well-known. It causes cancer at low exposure rates, in adults. And we're talking about a playground where children are going to play. So that's very concerning," says Calvin Tillman, a spokesman for ShaleTest. As a part of the Project Playground national initiative, the group collected air samples from several DFW playgrounds to test for potentially harmful air quality.
Poisoned Fracking Playgrounds a Threat to Texas Kids --The air at Texas playgrounds could be hazardous to children’s health. That’s what nonprofit environmental testing group ShaleTest, which tracks the impact of shale oil and gas extraction for communities which can’t afford such tests, found as part of its Project Playground: Cleaner Air for Active Kids funded by Patagonia. The group ran air quality tests at five recreational parks and playgrounds in the north Texas, located near natural gas processing plants in the Barnett shale fracking area. It found harmful chemicals, including carcinogens, at all five. “The oil and gas industry claims that they’re drilling responsibly,” said ShaleTest president Tim Ruggiero. “These tests show they’re not.” The story was featured on the cover of the alternative newsweekly Fort Worth Weekly this week under the headline “Bad Air Day.” It described a deserted Delga Park in Fort Worth next to a huge natural gas compressor station run by Chesapeake Energy, which reporter Peter Gorman had to leave after two hours because his eyes were tearing and he had difficulty breathing.
Cracks seen in fracking-disclosure report process - A recent California law that requires oil companies to disclose key details of fracking operations has so far failed to ensure that all the required information reaches the public. Under the law, an oil company that fracks a well in California must tell state regulators within 60 days the amount of water used and the chemicals involved. Fracking involves pumping pressurized water, sand and chemicals underground to crack rocks, and many environmentalists fear it could taint precious water supplies. Officials post the reports on a state website, accessible to anyone who wants to read them. Some oil companies, however, have submitted incomplete reports to the state. Others mistakenly assumed they could post the reports to a nationwide fracking information website until California regulators told them otherwise.
Baker Hughes Implements New Policy of Full Chemical Disclosure for Fracturing Operations: Baker Hughes announced today that it has implemented a new policy of disclosing 100% of the chemistry contained within its hydraulic fracturing fluid systems, without the use of any trade secret designations. The company announced in March of this year its plans to provide complete lists of all of its products and chemical constituents for all wells it fractures using its hydraulic fracturing fluid products, without detailing specific product formulations. In so doing, Baker Hughes hopes to increase public trust in the process of hydraulic fracturing, while still protecting the market-driven commercial innovation that has helped the company become a global industry leader. "The policy we are implementing today is consistent with our belief that we are partners in solving industry challenges, and that we have a responsibility to provide the public with the information they want and deserve. It simultaneously enables us to protect proprietary information that is critical to our growth." For each fracturing job the company performs on or after October 1, 2014, the policy mandates that Baker Hughes will disclose a single list of all of the chemical constituents of its products used, while also specifying their maximum concentrations.Baker Hughes' policy is fully compatible with the online national hydraulic fracturing chemical registry known as FracFocus. All of the company's disclosure forms can be found at www.fracfocus.org.
New York, drillers agree on increased risk-disclosure to investors - - Attorney General Eric T. Schneiderman today announced agreements with two natural gas development companies that will ensure the public disclosure of information on the financial risks that hydraulic fracturing – commonly referred to as fracking – poses to their investors. Under the agreements, Anadarko Petroleum Corp. (Anadarko) and EOG Resources, Inc. (EOG) commit to providing publicly accessible information on the financial effects of regulation, litigation, and environmental impacts of their fracking operations. “Investors and the public have a right to know all relevant information about the environmental, financial, and regulatory risks associated with the companies they are considering investing in,” said Attorney General Schneiderman. “By joining with my office to commit to greater public disclosure of the environmental and financial risks associated with their actions, these companies are setting a strong example for the rest of their industry.” In their agreements with Attorney General Schneiderman, Anadarko and EOG committed to disclose certain detailed information related to fracking operations in their federal securities law filings such as the Form 10-K, the annual summary report on a company’s performance required by the Securities and Exchange Commission (SEC). The agreements also committed the companies to make certain additional information related to their fracking operations available through other publicly accessible sources such as company websites, annual reports to shareholders, and environmental or safety reports.
Polarization in New York state over fracking: Fracking has been around for some time, but only in the past several years has the issue come into the public eye. It's a highly contentious political issue because of the high volume of water it uses, the types of chemicals used, and the unknown health and environmental impacts. In fact in New York, there was a pause on gas drilling permits that utilize fracking. This has become known as the "de facto moratorium," and has put the state in somewhat of an area of uncertainty. There have been a number of debates at the local level around fracking, the moratorium, and what should be done next. This Sloan Foundation study focused on providing an impartial lens on the politics of the issue through a series of surveys and interviews with "policy actors." Policy actors were defined as anyone who regularly seeks to influence the politics on hydraulic fracturing, whether from government, NGOs, industry, or academia. Overall, respondents offered a wide range of positions on what they thought New York State government should do – everything from banning the practice to permitting fracking statewide. To simplify the presentation of the results, policy actors were split into two groups based on their position – essentially pro-fracking and anti-fracking groups.While public opinion is fairly skewed against the fracking process, policy actors in New York State can best be described as polarized. Predictably, the pro-fracking group generally disagrees with environmental groups while the anti-fracking group generally disagrees with the oil industry. Policy actors in New York had stark differences in answers on a wide variety of questions.
Putting Lipstick on the Fracking Pig — The shale gas industry is making a new gambit to reclaim the word “fracking.” Fracking is short-hand for the extraction process technically known as horizontal hydraulic fracturing, or “frac”. This week, the industry launched a new television and radio advertising campaign in Pennsylvania, where hydraulic fracturing is permitted by state government. The ads are aimed, in part, at taking back the word “fracking” from the opposition and trying to convince the public that the drilling technique is responsible for economic growth in the Keystone State. “Fracking is a good thing,” actors reciting a script say in the ads. One girl states in the ads, “Fracking rocks.” Further emphasis is added at the conclusion of the ad with the words: “Fracking: Rock solid for PA.” n The ads were unveiled this week at a Marcellus Shale Coalition conference in Pittsburgh, where industry officials refused to tell reporters how much will be spent on the new campaign.
No Shale Gas ? Ban Fracking Anyway -- It sends a message: Your town does not want to be fracked, dumped on, poisoned or gassed. There may not be any natural gas worth drilling beneath the Town of Mamakating in eastern Sullivan County — if there’s any gas located there at all. And Gov. Andrew Cuomo may have put the natural-gas extraction method of hydraulic fracturing, or fracking, on indefinite hold while the state studies its impact on health — and waits for the November election to be over. But that didn’t stop Mamakating from banning fracking — and related fracking activities — at a Town Board meeting a few weeks ago. That makes it the sixth Sullivan County town — along with Tusten, Lumberland, Bethel, Highland and Forestburgh — to do so. Mamakating Supervisor Bill Herrmann said it was unlikely that any gas company would set sights on his town. “We really don’t think it would happen here,” he says. But if it does occur anywhere in the region, he and other board members don’t want the chemically-laced fracking fluids to be transported on town roads.They also didn’t want fracking byproducts such as brine to be used as a de-icer on those roads or parking lots. “So we passed the ban,” he says.
Fracking Collateral Damage Conference -- Most New Yorkers won’t get fracked, they’ll just have frack slime slathered on their roads as de-icer, or have toxic radioactive frack sludge pumped into a local landfill or frack flowback dumped into a municipal water plant or have a shale oil bomb train blow up in their neighborhood or get gassed by a gas pipeline compressor station. Unless they do something about it. Because Cuomo won’t and Obama won’t and Hillary won’t. You do something about it. Or get slimed, bombed, poisoned or gassed. Conference on November 15th explains how you can avoid becoming a victim of fracking collateral damage. Conference on the collateral damage of fracking in New York, November 15th 9pm -5pm in Textor Hall, Ithaca College. Registration will be opening soon, and check our website www.stopfrackgasdamageny.org for updates on speakers, registration, and event schedule. All groups and individuals are invited to register!Sponsored by the Coalition to Protect Communities from Fracking’s Collateral Damage An interactive map shows the pipelines, compressor stations and other infrastructure coming to a town near you. Collateral damage includes:
- Waste disposal – wastewater disposal, landfills, brine spreading on roads
- Infrastructure for transporting and storing gas – pipelines, compressor stations, export facilities, underground storage
- Air pollution – methane, ozone, vehicle emissions, radon, and other toxic substances
- Transportation – road use, rail transport
US Oil & Gas Fracking Boom Could Drive Silica Sand Mining Operations In 12 More States, Environmental Groups Say --Silica sand is one of many ingredients used in the hydraulic fracturing process. As fracking accelerates in the United States, demand for "frac sand" could climb 30 percent from 2013 to 2015, an increase of about 95 billion pounds of sand, according to industry projections. Sand miner U.S. Silica Holdings Inc. said demand for its own volumes of sand could double or triple in the next five years, Reuters reported last week.In a report released Thursday, environmental groups and residents like Trinko said they are worried that expanding sand production will lead to increased health, air and water complications in communities near the mines. In Wisconsin and Minnesota, the states where most silica sand is produced, regulations are fairly lax for monitoring air pollution and water contamination at these sites, the groups said. Those states have more than 160 active fracking sand facilities combined, and another 20 projects are in the works.
Oil, gas emissions can create ‘extreme’ ozone pollution, study finds | canada.com: Emissions wafting out of oil and gas operations can trigger “extreme” ozone pollution events that rival those seen in congested cities like Los Angeles, according to an international study. Extraordinary levels of ozone, which can exacerbate asthma and other respiratory problems, have been seen in rural areas of Utah and Wyoming where oil extraction and fracking have taken off. Scientists say the same phenomena may also be occurring near oil and fracking operations in Canada — especially in mountainous regions where winter weather can trap and concentrate the emissions emitted by wells and extraction processes. “I would expect any mountain basin that has oil and gas development in it and winter weather conditions to be subject to the same phenomenon,” Steven Brown, an atmospheric scientist at the U.S. National Oceanic and Atmospheric Administration, told Postmedia News.
Oil giant defends fracking - Radio New Zealand News - An energy industry conference in Auckland has heard a robust defence of fracking from the oil industry company Halliburton. Delegates have been told the process has strong economic benefits and can actually improve the environment. A pump jack and frack tanks in a field being developed for drilling in California. The Australian manager of Halliburton, David Guglielmo, said today that many of the attacks on fracking were unsound. Fracking is a process of expanding cracks in the earth's crust to get to more oil and gas and this is sometimes charged with polluting underground water supplies. But Mr Guglielmo said more than one million wells fracked in the United States and 2.5 million fracked worldwide had not produced one confirmed case of water aquifer contamination.
Fracking trespass law changes move forward despite huge public opposition -- Fracking will take place below Britons’ homes without their permission after ministers rejected 40,000 objections to controversial changes to trespass laws. The UK government argued that the current ability for people to block shale gas development under their property would lead to significant delays and that the legal process by which companies can force fracking plans through was costly, time-consuming and disproportionate. There were a total of 40,647 responses to a consultation on the move to give oil and gas companies underground access without needing to seek landowners’ permission, with 99% opposing the legal changes. Setting aside the 28,821 responses submitted via two NGO campaigns, 92% of the remaining responses objected to the proposals. The government response to the consultation, published online on the eve of the parliamentary vote on military strikes against Islamic militants in Iraq, concluded: “Having carefully considered the consultation responses, we believe that the proposed policy remains the right approach to underground access and that no issues have been identified that would mean that our overall policy approach is not the best available solution.” New laws will now be passed giving automatic access for gas and oil development below 300m and a notification and compensation scheme will be run by the industry on a voluntary basis.
The Explosive Debate Over A New Natural Gas Pipeline Through The Northeast - Northeast Energy Direct has drawn critics from across the states it impacts, especially for its large size, which many say allows it to ship more gas into the Northeast than the region needs. The gas is slated for use in Northeastern states and the eastern provinces of Canada, but Kinder Morgan notes that “the ultimate destination of the gas is the purview of NED Project customers that subscribe to project capacity.” The project is just one of several natural gas lines proposed in recent years as companies try to ramp up pipeline capacity to deal with the natural gas boom. But to residents whose property stands in the way of the proposed route — and for others in Massachusetts and New York who are concerned about the impact it may have on their states — the pipeline represents both the larger concerns that come along with America’s increasing focus on natural gas and the personal struggle to protect local land and quality of life. “Before we sink more money in gas infrastructure, we have an obligation wherever possible to focus our investments on the clean technologies of the future — not the dirty fuels of the past — and to minimize the environmental impact of all our energy infrastructure projects,” Sen. Elizabeth Warren (D-MA) wrote in an op-ed in August. “We can do better — and we should.”
Dominion Cove Point LNG Terminal Wins Federal Approval - Dominion Resources Inc. (D:US) won final U.S. approval to export liquefied natural gas from an East Coast terminal it intends to place in a publicly traded partnership. The U.S. Federal Energy Regulatory Commission issued the permit for the Cove Point terminal in Maryland, according to a statement yesterday. Dominion has proposed a tax-advantaged master limited partnership, or MLP, to own the terminal and use proceeds from a planned initial public offering to help fund construction estimated to cost as much as $3.8 billion. Dominion, of Richmond, Virginia, is seeking to take advantage of a boom in U.S. natural gas production, driven by advances in drilling techniques including hydraulic fracturing, or fracking. Cove Point is scheduled to begin shipments from the 5.25 million tons a year capacity plant in 2017. The U.S. Energy Department has approved Cove Point’s exports to both free-trade and non-free trade agreement countries, according to FERC’s statement. Dominion expects to begin construction immediately upon FERC approval, Chief Financial Officer Mark McGettrick said at a Sept. 17 financial conference in New York. The partnership IPO also awaited FERC approval for the project, he said. Cove Point would be the nearest export terminal to the Marcellus Shale, the most productive U.S. natural gas deposit. Cheniere Energy Inc. (LNG:US)’s Sabine Pass and Sempra Energy (SRE:US)’s Cameron terminal in Louisiana are the only U.S. export projects so far to win approval from the FERC and Energy Department.
Final hurdle cleared for Marcellus gas exports - A federal regulatory agency has approved plans to ship Marcellus Shale gas from Pennsylvania overseas. The decision clears the way to begin converting a former import terminal in the Chesapeake Bay to export liquefied natural gas. Dominion Energy’s Cove Point plant can now move forward with plans to export more than 5 million metric tons of liquefied natural gas each year. Cove Point is the fourth export terminal approved by the Federal Energy Regulatory Commission, or FERC. It will be the first connected to the Marcellus Shale by pipeline. The switch from an idled import terminal to an export facility results from a domestic shale boom, and greater need for energy abroad. Dominion has agreements with energy companies in India and Japan to liquefy natural gas, and ship it overseas. The Japanese company, Sumitomo, made a deal with Cabot Oil and Gas last December to purchase 350,000 MMBtu per day of natural gas from Cabot’s Marcellus wells and send it through pipelines to plant on Maryland’s Eastern Shore. That agreement is to last 20 years, signaling how much gas Cabot has within its holdings in Northeast Pennsylvania. Figures released in August by Pennsylvania Department of Environmental Protection show Cabot’s wells to be some of the most productive in the state.
First East Coast Liquefied Natural Gas Export Terminal Approved On Chesapeake Bay -- On Monday, federal regulators approved construction of a liquefied natural gas (LNG) facility in Cove Point, Maryland. After two years of review and sustained pushback from concerned community members and environmental groups, the Federal Energy Regulatory Commission (FERC) gave Dominion Resources Inc. the go-ahead to begin construction as part of an existing LNG import facility in southern Maryland. The Richmond, Virginia-based company will now review the order, which includes 79 conditions the company must follow. In June, FERC had denied a request by several environmental groups and lawmakers to extend the comment period before making a decision. The Cove Point LNG liquefaction and export project is the fourth LNG export terminal to receive approval in the U.S. to site, construct, and operate. It is the first such project on the east coast and the closest to the Appalachian-based Marcellus Shale, the largest natural gas producing region in the United States. The domestic shale gas boom, catalyzed by the proliferation of fracking, has increased natural gas supply and caused prices to drop. Until only a few years ago companies were looking to build LNG import, rather than export, terminals. The lay of the land has changed dramatically since then and Calvert County on the western shore of the Chesapeake Bay embodies this shift.
Feds Approve Cove Point Fracked Gas Export Facility - Despite ongoing opposition from area residents, the Federal Energy Regulation Commission (FERC) has approved the conversion of the Dominion Cove Point liquified natural gas (LNG) facility in southern Maryland from an import to an export facility. The decision also authorizes the installation of additional compression at Dominion’s Pleasant Valley Compressor Station and related facilities in Northern Virginia. This decision now allows the facility pipe fracked gas from across the region to the area, liquify it and to ship the LNG overseas to China and India. Opponents say this would encourage the spread of fracking and fueling climate change. “FERC’s decision to allow LNG exports from Cove Point is fundamentally flawed because the agency failed to consider the simple fact that exporting LNG will mean more drilling and fracking, and that means more climate pollution, more risk of contaminated groundwater, and more threats to the health of people who live near gas wells,” said Deb Nardone, director of the Sierra Club’s Beyond Natural Gas campaign. “FERC should be standing up for the public good, not the interests of dirty polluters.”
Feds Promote Depletion of US Gas Reserves -- The US has never been a big exporter of oil and gas. Exportation implies that a county is a net producer of hydrocarbons – both oil and gas, which is not the case with the US, we’re a net consumer. Traditionally, the Texas Railroad Commission would limit supply (pumping) of oil to conserve the resource. The notion that it would be over-produced and to be exported overseas, except to our allies in time of war, was never a consideration – because that simply squanders the resource and increases the price domestically. It has always been national policy to conserve domestic supplies – hence the naval oil stockpile in California, which was privatized. Now the Feds can’t wait to ship gas overseas. Not a good plan for the near term, since that simply drives up the cost of gas domestically, depletes the reserves and adds to pollution. And ruinous for the long term – both from a domestic energy policy perspective and from an environmental perspective. An all-round bad idea, brought to you by Obama & Hillary at the behest of the gas lobby on K Street. As noted by Rich Cowan below, this impact on domestic supply will be most acute on the east coast, where gas that would have been stored for winter use ends up on an LNG tanker bound for South America: The exports from Cove Point would take place in summer months. Traditionally those summer months are used to replenish natural gas reserves. If the gas does not go to replenish the storage caverns in the midwest, and instead goes to Brazil (Guanabara Bay LNG terminal), we will end up with a situation where gas in storage in the “East Region” is depleted. It is irresponsible for the FERC to approve export when we are already running almost 300 million cubic feet (just for eastern US) below where we were at this time last year. The lack of gas in storage won’t affect the warm parts of the US much but it will be devastating to the midwest and the northeast, leading to gas prices that could be 50 to 100% higher for the 5 coldest months of the year than they would be otherwise.
In FERC's Approval of Gas Exports, Climate Effects Get Glossed Over -- Environmental and community groups on Tuesday assailed federal approval of the Cove Point liquefied natural gas export project, arguing that regulators glossed over the climate change consequences. They vowed to challenge the decision through a regulatory appeal or in the courts. "The groups that have been opposing this facility for more than a year have no intention of quitting and conceding this," said Mike Tidwell, director of the Chesapeake Climate Action Network, one of several nonprofit groups fighting the Lusby, Md. LNG project. "There are legal steps before us next." The Federal Energy Regulatory Commission (FERC) approved the Cove Point LNG export project late Monday. It imposed 79 conditions on its construction that regulators said would mitigate potential adverse environmental impacts. Those conditions were based on an environmental assessment of the project, a less-rigorous review than what is called for in an environmental impact statement. FERC's action allows Dominion Cove Point to liquefy and export as much as 5.75 million metric tons of U.S. gas per year from the terminal. The commission said project owner Dominion Resources Inc. proposes to complete construction in time to begin exports in June 2017. In separate actions, the Department of Energy conditionally approved gas exports from the terminal to any country, providing there are no U.S. trade prohibitions.
A U-Turn for a Terminal Built in Texas to Import Natural Gas - The giant Golden Pass natural gas import terminal here, meant to bring Middle Eastern gas to energy-hungry Americans, sits eerily quiet these days, a sleepy museum to a bygone era.Its 5,000 valves, 50 million pounds of steel and ship berth as big as 77 football fields — representing a $2 billion investment by Qatar Petroleum, Exxon Mobil and Conoco Phillips — have been dormant for nearly three years. The unexpected American shale fracking frenzy produced such a glut of domestic gas that the United States does not need Qatari gas anymore.But the Golden Pass story is only beginning.Qatar Petroleum, the state oil company, is now requesting permission to export American gas, proposing with its partner Exxon Mobil an audacious conversion of the facility to export from import. The additional estimated cost: $10 billion, if not more. Conoco Phillips has bowed out of the export project, deciding not to double down. For Qatar Petroleum and Exxon Mobil, the retooled plan represents a grand improvisation and a plan to export a sizable share of the new American bonanza.
Oilprice Intelligence Report: Panama Canal Expansion to Grow LNG Trade: The U.S. is in a relatively strong position to take advantage of Asian demand for natural gas. There are now a total of three proposed export terminals for liquefied natural gas (LNG) in the U.S. that have achieved all the necessary permits. With full federal approval, political risk for LNG exports can be laid to rest. Now, the bigger challenge for LNG exporters is finding and securing a captive market for their product. In this regard, there is a lot to be excited about as well. But investing in U.S. LNG exporters is not without risks. For one, a rapid rise in demand for LNG in Asia is suddenly looking a bit less of a sure thing. That is largely due to China’s flagging growth rate. More importantly, American producers will face stiff competition from their Australian counterparts. A massive volume of liquefaction capacity is set to come online over the next several years. Australia is bringing online 62 million tonnes per year (mtpa) of LNG export capacity by 2018, which is a staggering figure considering the country only has 22.2 mtpa today. And they are much closer to the markets of China, Japan, and South Korea. That proximity lowers shipping costs, which may seem nominal considering the cost of production, liquefaction and regasification. But lower shipping costs could be just enough to make the difference in winning long-term contracts. Australia, therefore, is sitting in the best possible spot to serve the hungry consumers in East Asia.
Sumitomo’s US shale oil foray turns sour - FT.com: Sumitomo Corp of Japan has drawn a line under its disastrous two-year foray into shale oil in the US, with writedowns connected to the project almost completely erasing its full-year earnings. On Monday, Sumitomo, the fourth biggest of Japan’s trading companies by market capitalization, said that an impairment loss of Y170bn ($1.6bn) on a “tight oil” project in west Texas would form the bulk of Y240bn of charges for the fiscal year to March 2015. It also flagged a Y30bn charge on coal-mining assets in Australia and a Y50bn impairment on an iron-ore mining project in Brazil. Combined, Sumitomo said the losses would cut its full-year profit forecast by 96 per cent, from a projected Y250bn to Y10bn. That would mark the 95-year-old company’s worst result since a Y23bn loss in the 1998 fiscal year, when it paid fines to atone for a copper-trading scandal that rocked world markets two years earlier. “Even by the standards of trading companies, this is not good,”
US Poised to Become World’s Leading Liquid Petroleum Producer -- The US is overtaking Saudi Arabia to become the world’s largest producer of liquid petroleum, in a sign of how its booming oil production has reshaped the energy sector. US production of oil and related liquids such as ethane and propane was neck-and-neck with Saudi Arabia in June and again in August at about 11.5m barrels a day, according to the International Energy Agency, the watchdog backed by rich countries.With US production continuing to boom, its output is set to exceed Saudi Arabia’s this month or next for the first time since 1991.Riyadh has stressed that the rise of the US should not detract from its own critical role in oil markets. It says it has the ability to increase its output by 2.5m b/d if needed to balance supply and demand. Prince Abdulaziz Bin Salman Bin Abdulaziz, Saudi Arabia’s deputy oil minister, said earlier this month that the kingdom was the “only country with usable spare oil production capacity”.However, even Saudi officials do not deny that the rise of the US to become the world’s largest petroleum producer – with an even greater lead if its biofuel output of about 1m b/d is included – has played a vital role in stabilising markets. Brent crude hit its lowest level in more than two years last week at about $95.60 a barrel, down from a peak of over $125 a barrel early in 2012.
Questions mount about the safety of shipping North Dakota crude oil | Minnesota Public Radio News: Hundreds of rail cars filled with North Dakota crude oil pass through Minnesota each day. That reality has state and federal leaders worried about safety. Some — including Gov. Mark Dayton — argue oil companies should take steps to reduce the oil's volatility before loading it onto train cars. Proponents say that would minimize the chance for explosions if a train were to derail or crash. Dayton sent a letter to North Dakota's governor this week calling for stricter standards on the quality of oil shipped by rail. But industry reps say that simply isn't necessary — that their oil is safe to ship. MPR's Cathy Wurzer spoke with Chester Dawson, a senior correspondent at the Wall Street Journal, who has been covering this issue from North Dakota.
Fracked Oil Bomb Trains at Center of Federal Rules Debate -- The U.S. Department of Transportation (DOT) has just closed comments on its proposed new rules for tanker cars carrying explosive fracked oil. And while environmental and citizen groups say they don’t go far enough in protecting communities from potential disaster, the oil industry wants many more years to comply. The need for new rules was driven home by the July 2013 disaster in Lac-Megantic, Quebec, when a failed braking system sent a train carrying fracked oil from North Dakota’s Bakken shale formation roaring into the heart of town where it derailed, exploded and killed 47 people. But it’s not the only recent accident involving railroad cars loaded with flammable oil or natural gas, and their numbers have increased as the amount shipped by rail has increased exponentially. In 2013, railroads carried more than 400,000 carloads of crude oil, up from 9,500 in 2008, when the fracking boom began. As shipments have increased, so have derailments and fires. Five occurred in 2013 and five have already occurred this year. In early May, a train derailment in Colorado spilled thousands of gallons of crude oil into groundwater, less than two weeks after a derailment in Lynchburg, Virginia spewed flames and thick black smoke into the air, poured oil into the James River and forced evacuations.
North Bay residents up in arms over TransCanada plan to switch crude oil for gas in local pipeline - “If something happens to Energy East here, if there is a spill, we’ll be ruined,” he says. “Who would want to come here then?” Somewhere near the escarpment and Trout Lake, there is a natural gas pipeline. It has been there for four decades, but has become a source of concern in this northeastern Ontario city. TransCanada Corp., the Alberta-based oil giant, wants to repurpose the pipeline, now carrying natural gas, to transport crude oil from Alberta’s oil sands to New Brunswick. Dubbed Energy East, the project is TransCanada’s $12-billion oil dream. If the company got the go-ahead, it would be the largest and longest oil pipeline in North America. And if North Bay had its way, that would never happen. Most of the city of 55,000 is united in its opposition to Energy East: the mayor, professors at local Nipissing University, farmers, landowners and, of course, environmentalists are worried about crude running so close to Trout Lake, the city’s only source of drinking water, and about the impact of a potential spill on the environment.
The Alberta Tar Sands -- (photos) Buried just beneath a layer of muskeg and forest in northern Alberta, Canada, lies a 50,000 square mile reservoir of heavy crude oil, possibly holding 2 trillion barrels of recoverable oil. These bitumen deposits require a lot of effort to extract, recover, and pre-process before the oil can be sent to conventional refineries. Most of the current extraction process takes place in open-pit mines, with massive machinery scraping up the tarry sandstone and moving it to facilities for processing. As the name "tar sands", or oil sands, implies, the heavy crude is found mixed in with sand, clay, and water, which must be removed, then the heavy crude must be "upgraded" to reduce viscosity and improve quality. Environmental activists have expressed concerns about the mining for years, citing destructive impacts on the land, the heavy carbon footprint of the laborious extraction and upgrade process, massive amounts of toxic byproducts, and studies that show oil sands crude emits more greenhouse gases than conventional crude oil. Oil companies continue to make efforts to reduce carbon emissions, manage toxic byproducts, and reclaim mined land, while ramping up production. The Alberta tar sands are currently producing around two million barrels of oil per day, with plans to increase that to nearly four million barrels per day by 2022. Reuters photographer Todd Korol recently traveled to Alberta to photograph some of the mines, facilities, and surrounding landscape. [26 photos]
‘Peak oil’ will return, just not how the energy worriers imagine -- As reporter Russell Gold points out in the WSJ today, US oil production began to rise in 2009 and continues to rise today thanks to the oil field innovation of hydraulic fracturing and horizontal drilling. Innovation met scarcity and innovation won. And there are more innovations on the way, according to Gold. But won’t we one day run out of oil? It’s not infinite, after all, right? Actually price and technological advances rather than petroleum supply is more likely to keep plenty of oil in the ground forever. Gold: Despite the abundance of oil that fracking has delivered, global oil prices remain high. This has kept the door wide open for alternative sources of energy and spending on energy efficiency. Natural gas has been grabbing market share from oil for years. A few decades ago, heating oil kept American homes snug; now it’s natural gas. And gas is making inroads in transportation—trucks and trains—as are electric cars.What’s more, climate change has altered the calculus. More advocates are pushing for alternative, low-carbon fuels to slow the rising level of carbon dioxide in the atmosphere. They argue that the possibility of running out of oil isn’t the only reason to reduce its use; in fact, they worry that the expansion of supply is dangerous, hindering efforts to take action on the long-term threat of climate change. "There will be peak oil, but it will be [because of] peak consumption,” says Michael Shellenberger, president of the Breakthrough Institute, an energy and climate think tank in Oakland, Calif. “What we all want is to move to better, cheaper and cleaner sources of energy.”
Drill Baby Drill! In the Philippines' Disputed Waters - The mother of all "political risk"-laden investments is probably this one: Say a country embroiled in territorial disputes over potentially oil- and gas-rich waters auctions blocks for exploration. If you were an energy firm, would you dare bid and, more bravely, invest in disputed waters? Let's also add this complication: exploring these areas may anger the region's strongest power with its largest military. It's just asking for trouble, right? Better safe than sorry, eh? This situation is exactly what faces the Filipino-British concern Forum Energy PLC, whose chairman is one of the Philippines' savviest businesspersons, Manuel Pangilinan. After putting in a winning bid during auctions that most international energy majors stayed away from for reasons given above--offending China may not be a path to success in the 21st century world economy--Philex is being pressured by the Philippine government to commence with drilling. Earlier on, Pangilinan made a "conciliatory" gesture by offering joint exploration to China's CNOOC. Commercial prospects aside, the latter state-owned firm did not realistically consider this offer for the obvious reason that it would have lent legitimacy to the Philippines' ownership of these disputed areas in auctioning exploration rights:The 11-point proposal includes a Framework Agreement between Philex and CNOOC “relating to an area of mutual interest which will be defined as the area covered by SC 72.”“Other disputed areas (such as the Spratlys) could be included by agreement,” wrote Pangilinan. SC 72 refers to Service Contract 72, signed in 2010, in which the Philippine government awarded Forum Energy Plc. (FEP) exploration rights to a basin within Reed Bank. Philex owns 64.45 percent of FEP, a London-based listed oil and gas exploration firm focused on the Philippines. FEP in turn owns 70 percent of SC 72.
Russia Says Arctic Well Drilled With Exxon Strikes Oil - Russia, viewed by the Obama administration as hostile to U.S. interests, has discovered what may prove to be a vast pool of oil in one of the world’s most remote places with the help of America’s largest energy company. Russia’s state-run OAO Rosneft said a well drilled in the Kara Sea region of the Arctic Ocean with Exxon Mobil Corp. struck oil, showing the region has the potential to become one of the world’s most important crude-producing areas. The announcement was made by Igor Sechin, Rosneft’s chief executive officer, who spent two days sailing on a Russian research ship to the drilling rig where the find was unveiled today. The well found about 1 billion barrels of oil and similar geology nearby means the surrounding area may hold more than the U.S. part of the Gulf or Mexico, he said. “It exceeded our expectations,” Sechin said in an interview. This discovery is of “exceptional significance in showing the presence of hydrocarbons in the Arctic.” The discovery sharpens the dispute between Russia and the U.S. over President Vladimir Putin’s actions in Ukraine. The well was drilled before the Oct. 10 deadline Exxon was granted by the U.S. government under sanctions barring American companies from working in Russia’s Arctic offshore. Rosneft and Exxon won’t be able to do more drilling, putting the exploration and development of the area on hold despite the find announced today.
Exxon Found Oil Trove In Russian Arctic Before Halting Work: Last week, the largest U.S. energy company, ExxonMobil, bowed to Western sanctions against Russia and withdrew from a joint venture with the Kremlin-owned oil giant Rosneft in the Russian Arctic, but not before it discovered what may be a vast amount of oil. Rosneft CEO Igor Sechin said Sept. 27 that the finding shows the Arctic Ocean’s Kara Sea north of Russia could become one of the world’s richest sources of crude oil. Before Exxon was forced to withdraw, he said a well containing around 1 billion barrels of oil was found. He added that neighboring geological formations may contain more oil than in the U.S.-controlled area of the Gulf of Mexico. Sechin told Bloomberg News that the discovery “exceeded our expectations.” Exxon’s reaction was more measured. “We have encountered hydrocarbons, but it is premature to speculate on any potential outcome,” Alan Jeffers, an Exxon spokesman, told The Wall Street Journal. The European Union and United States have imposed economic sanctions on Russia for what they see as Moscow’s aggressive involvement in the affairs of neighboring Ukraine, unilaterally annexing the Crimean peninsula in March and reportedly providing support in personnel and equipment to Ukraine’s pro-Russian separatists. The sanctions forbid Western banks to provide long-term financing to Russian oil companies and bar the sale of Western technology to Russian firms. As a result, Rosneft and Exxon can conduct no further drilling, leaving development of the Kara Sea field in limbo.
Ukraine backs off from EU-backed Russia gas deal - (AFP) - War-torn Ukraine on Saturday distanced itself from an EU-brokered agreement with Russia that would have restored its gas supplies during winter and helped rebuild trust between the neighbouring foes. The European Union's energy commissioner emerged from hours of acrimonious negotiations in Berlin on Friday to pronounce the three month dispute on the verge of being resolved. "We have developed a workable design for a winter package," Guenther Oettinger said. Both he and Russia's energy minister added that a final agreement could be signed after consultations in Moscow and Kiev next week. A compromise would not only save the westward leaning nation from adopting drastic energy savings measures in freezing weather but also make sure that Russian gas flowed uninterrupted to European homes. Yet the meeting came with trust between all sides lacking and any remaining good will between Moscow and Kiev dependent on the fate of a fragile truce in a pro-Russian uprising that has claimed more than 3,200 lives. And Ukraine's top energy officials vowed on Saturday to keep fighting over both the gas price and Moscow's claim that Kiev owed it billions of dollars in debt. "No final decision was adopted. Not a single document was signed -- period," Naftogaz state energy firm chief Andriy Kobolev wrote in a Facebook post.
Russia Tells Ukraine to Pay $3.9 Billion to Resume Gas Supplies - Ukraine must pay $3.9 billion if it wants Moscow to resume supplies of natural gas, Russia's Energy Minister Alexander Novak said Tuesday, Interfax news agency reported. Russia stopped gas deliveries to Ukraine in mid-June and switched to a system of prepayment after Kiev failed to pay for gas at a price demanded by Moscow. Kiev has said it was ready to pay Russia for its previous deliveries if Russia's gas monopoly Gazprom would guarantee that it wouldn't raise the gas price for 2014 from the level agreed in late 2013 between President Vladimir Putin and his ousted Ukrainian counterpart Viktor Yanukovych. Mr. Novak said that Moscow awaits $1.9 billion from Kiev as a prepayment for new deliveries, as well as $2 billion for already supplied gas, Interfax reported. Ukraine and Russia held talks last week in Berlin where the two sides tentatively agreed that Ukraine would pay $3.1 billion in debt by the end of the year in return for the resumption of some gas deliveries—but only for the winter months and at an above-average price, according to European Union and Russian energy officials. With gas supplies from Russia already halted and reverse gas flows from Hungary now stopped, Ukraine is facing critical energy shortages this winter. Kiev had partly acknowledged this debt but said the bill should be calculated on the old price of $268.5 per 1,000 cubic meters, rather than under an increased April price of $485.50 per 1,000 cubic meters.
Did The Winter War Just Begin? Russian Gas Supplies To Europe Plunge 15%, Ukraine Transit Slashed 54% - Just a week ago, the Russian energy minister made the first public 'threat' of gas supply "throttling" disruptions to Europe but judging by the data that has just been released, it appears the 'throttling' has begun. Bloomberg reports that Russian gas supplies to Europe fell 15% year-over-year in Q3 - the most in over two years - as natural gas transit through Ukraine plunged 54% year-over-year. In 2013, Gazprom sent 60% of its supply via Ukraine pipelines, in August that dropped to 39%, and in September only 34%. Of course, Europe remains confident its storage efforts will buffer any "Winter War" disruptions, as we noted here, but as Citi warned previously, "if colder weather arrives, storage levels will be drained," and then there is the Spring (and German industry needs).
Gas war escalates as Russia halves Slovakia supplies: Russia has cut gas deliveries to Slovakia by half in a bad sign for EU efforts to broker a deal on Ukraine. Prime minister Robert Fico told press after a cabinet meeting in Bratislava on Wednesday (1 October) that the drop came without any warning. He said his national distributor, SPP, can still "fulfill its commitments" on “reverse flow” to Ukraine and supply customers in Slovakia and the Czech Republic by buying extra volumes on the spot market. But he criticised Russia, saying: "Gas has become a tool in a political fight … This isn't about a lack of gas, it’s about playing with gas supplies as an instrument of political posturing”. He said he does not expect a gas crisis this winter because it would cause too much “economic damage on both sides”. But he called for EU help in dealing with Moscow. “We want to co-ordinate this situation with the European Commission … Slovakia will need co-operation in the European sphere”. Slovakia, Hungary, and Poland started selling Russian gas back to Ukraine after Russia cut off its neighbour in a price dispute in June. But Hungary also cut off Ukraine after the CEO of Russian gas firm Gazprom visited Budapest last week.
As WTI Drops Under $90, Russia Prepares For Great Financial Crisis With $60 Oil "Stress Case" -- The plunge in the price of crude oil in the last few months has many global-recovery-truthers questioning their assumptions. Between slowing growth expectations, US (and Libya and Iraqi Kurds and Russia) supply, and Saudi Aramco cutting prices (argued as maintaining market share but has the smell of a quid pro quo over Syria), oil prices have broken below $90 today to 17-month lows. However, for some major suppliers there is concern that more pressure is to come, as Reuters reports, Russia's central bank is working on measures to support the economy should oil prices fall by as much as a third or more, as First Deputy Governor Ksenia Yudayeva as saying the central bank was working on a "stress scenario" that was likely to envisage an oil price of $60 per barrel. Of course, as we noted previously, there is always the 'oil-head-fake' and as one analysts noted, "the main OPEC countries would experience budget difficulties long before that and would have to take action to cut supply."
Obama’s Faustian pact with the Saudis - FT.com: You go to war with the allies you have, not the ones you wish for, to paraphrase Donald Rumsfeld. President Barack Obama’s war on the Islamic State of Iraq and the Levant (Isis) is a good example. His Middle East coalition comprises five autocracies, four of which are monarchies. To one degree or another, each represses dissent. Each, indirectly or inadvertently, has helped spawn groups such as Isis, Khorasan, Jabhat al-Nusra and, of course, al-Qaeda. Each will reap longer-term profit from assisting the US in its hour of emergency. Things have worked this way in the Middle East for decades. At a moment like this, it would be naive to expect Mr Obama to change that. At the heart of this Faustian pact is Saudi Arabia. Americans have not forgotten that 15 of the 19 hijackers on September 11 2001 were Saudi citizens. Nor have they forgotten the mistaken 2003 US pivot to Iraq. Today, much like the day the Twin Towers fell, the most direct global threat to the US comes from Islamist terrorism – the Sunni variety, to be precise. None of the terrorist plots in the US and Europe since 9/11 have been devised by Shia groups. Yet the one ally that is off-limits to Mr Obama is Iran – Saudi Arabia’s Shia counterpart and its greatest foe. Given his constraints, Mr Obama has cobbled together the best alliance of expediency he can find. But his mission targets a symptom rather than the causes of Salafi extremism. The trade-off has deep precedent. In the 1980s the US joined Pakistan, the Saudis and other Gulf states to back the mujahideen against the Soviet Union in Afghanistan. That war provided the crucible for the Taliban and al-Qaeda, both of which are resurgent today. The US also backed Saddam Hussein’s Iraq in its long and bloody war with Iran. That did not work out too well either. In the 2000s the US diverted itself into invading Iraq – no friend of al-Qaeda, but an enemy of the Gulf states. In most of these cases, a US led-war succeeded in the short term but sowed the seeds for greater problems later on. Why should the fight against Isis be any different?
Kingdom in debt, Kingdom in danger: Saudi Arabia's pending deficit raises frightening possibilities - The Kingdom of Saudi Arabia (KSA) could be heading for financial turmoil, potentially posting a deficit in 2015. For the Al-Saud monarchy, which depends on its massive cash reserves to quell dissent against the regime, recent warnings from the International Monetary Fund (IMF) are not to be taken lightly. Reuters reported Friday that a recent IMF report “painted the most ominous picture yet of looming financial pressures on the Kingdom.” According to the IMF, the country could post a deficit as early as 2015, nearly three years earlier than previous estimates. Following years of warnings to cut down on massive state spending, the IMF expected Saudi Arabia to undertake financial consolidations in 2013, but these never materialized. To the contrary, continued domestic dissent and increased military involvement in regional affairs demanded an increase in government spending, and a global rise in oil prices facilitated this. If spending continues at this rate, Saudi Arabia needs an oil price of $89 a barrel to balance its budget, up $13 a barrel from what it required in 2012. Unfortunately for the Al-Saud family, oil prices seem to have reached their peak, and are moving in the opposition direction from what an oil-backed monarch would hope. Saudi Arabia has a history of purchasing stability, (often defined as temporarily quelling dissent) both domestically and abroad. For years, Al-Saud has been able to sustain its cash-for-loyalty contract with citizens because oil prices were high and the country was running a surplus. But even the wealthiest of monarchs should know that “stability” built on social handouts is only as sustainable as the nation’s budget. And Saudi’s massive cash reserves are in jeopardy.
Air strikes said to hit Islamic State oil refineries in Syria (Reuters) - Air raids believed to have been carried out by U.S.-led forces hit three makeshift oil refineries in northern Syria on Sunday as part of a campaign against Islamic State, a human rights group said. The United States has been carrying out strikes in Iraq since Aug. 8 and in Syria, with the help of Arab allies, since Tuesday, with the aim of "degrading and destroying" the militants who have captured large areas of both countries. U.S. President Barack Obama has been seeking to build a wide coalition to weaken Islamic State, which has killed thousands and beheaded at least three Westerners. true In a potential boost for the United States, a jihadist Twitter account said the leader of an al Qaeda-linked group had been killed in a U.S. air strike in Syria, the SITE service said. A U.S. official said on Sept. 24 that the United States believed Mohsin al-Fadhli, leader of the Khorasan group, had been killed in a strike a day earlier, but the Pentagon said later it was still investigating.
US Bombed Wrong Refineries in Syria; Iran Seeks to Stop Oil Price Slide; Sanctions Won't Impede Arctic Drilling -- Oil is in the news in many countries in many ways. Let's take a look starting with a couple of paragraphs buried in the Financial Times report Barack Obama Admits US Underestimated Isis. Allied aircraft on Sunday struck three makeshift oil refineries in an area controlled by Isis in an expansion of attacks intended to damage the militant Islamist group’s financial infrastructure.Oil has proved crucial to financing Isis’s operations, netting several million dollars a day. But the observatory said the refineries struck early on Sunday, in and around Raqqa, were owned by civilians and not Isis. A separate air strike on a plastics factory on the outskirts of Raqqa resulted in the death of a civilian, the group said. So, we blow up refineries owned and operated by civilians and it is buried in the news, with no hint of an apology or restitution offered to the refinery owners or to Syria.Two days ago, Russia announced Arctic Well Drilled With Exxon Strikes Oil. Russia’s state-run OAO Rosneft said a well drilled in the Kara Sea region of the Arctic Ocean with Exxon Mobil Corp. struck oil, showing the region has the potential to become one of the world’s most important crude-producing areas.Bloomberg reports Russia Oil Chief Says Sanctions No Bar to Arctic Drilling. The most powerful man in Russia’s oil industry says U.S. sanctions won’t prevent the development of discoveries in the Arctic Ocean.Igor Sechin, chief executive officer of state oil producer OAO Rosneft (ROSN) and a long-time ally of President Vladimir Putin, spent two days traveling by plane, ship and helicopter last week to announce a billion-barrel crude strike in the iceberg-prone Kara Sea region of Russia’s Arctic Ocean.
Arabs Bomb Islamic Teen Death Cult Over a Gas Pipeline -- The Islamic teenage death cult “ISIS” (think Columbine meets the Koran) has unwittingly given the Arabs a pretext to enter the Syrian civil war directly, on the side of their proxies that have been fighting to secure the Arab Sunni Gas Pipeline to Europe (as opposed to the Shiite Iranian Gas Pipeline to Europe). Yes, that’s what this fracking charade really boils down to – who gets the pipeline concession through Syria. The ISIS fauxdamentalists have given the Arabs the excuse they needed to send warplanes into Syria on the side of their own proxies. The line-up of Arab states using ISIS as target practice is a who’s who of players in the gas concession. Maybe they miss their targets now and then and bomb Syrian army positions or Assad. Quien sabe ? Saudi Arabia, United Arab Emirates, Bahrain, Jordan and Qatar – all of whom have a stake in the proposed Arab Gas Line Through Syria. You read it here last
Who Is Buying The Islamic State's Illegal Oil? -- In June 2014, computer files captured from a courier for the Islamic State shortly after the fall of Mosul revealed that the group had assets of $875 million, largely gained in the sacking and looting of Mosul and its central bank. The size of the group’s bank account has now risen to an estimated $2 billion dollars, thanks in part to revenues from ransom paid for kidnapped foreigners and more pillaging. However, oil remains the group’s primary source of income. The 11 oil fields that IS controls in Iraq and Syria have made it a largely independent financial machine. Reports show that IS-controlled fields in Iraq produce between 25,000 and 40,000 barrels of oil per day, at an estimated value of approximately $1.2 million, before being smuggled out to Iran, Kurdistan, Turkey and Syria.That doesn’t account for revenue from oil fields that IS has held much longer in Syria, which take the Islamist group’s daily profit to just under $3 million. “The crude is transported by tankers to Jordan via Anbar province, to Iran via Kurdistan, to Turkey via Mosul, to Syria's local market and to the Kurdistan region of Iraq, where most of it gets refined locally,” Khatteeb explained. “Turkey has turned a blind eye to this and may continue to do so until they come under pressure from the West to close down oil black markets in the country's south.”
Bordier — A Bottom-Up Solution to Cross-Border Conflicts: The Case of the Middle East and ISIL - The outbreak of another Western-led military conflict in the Middle East is widely viewed as unwinnable. It is also viewed as counterproductive because of its potential to help its target, ISIL, the anti-Western fanatical social movement, recruit new volunteers in its crusade to topple Middle East regimes. My view, as a political scientist, is that none of the players currently involved can bring peace or stability to the region. The “perpetual war” the protagonists appear to be unleashing is more likely to cause even more human suffering and displacement in the region on a scale previously unimaginable. It is also my view that the failure of Middle East regimes to create functioning democracies that accord fundamental civil and political liberties to their populaces has created a barbaric monster born of hatred and rage for the regimes and their Western allies. ISIL’s leadership is using its misrepresentation and misappropriation of Islam to recruit aggrieved and in certain cases mentally deranged individuals to its cause, instigating them to commit acts of barbarism not only in Iraq and Syria but throughout the world. Since war is not the answer, and the majority of the regimes involved do not have functioning democracies enabling their citizens to govern their countries, what I and many others foresee is perpetual internecine warfare among the players until the entire region is devastated. The only solution I can envisage to preventing this region-wide quagmire of human misery is the bottom-up technological solution that I propose below. First, let me explain why I believe it may well provide the only possibility for ending the conflicts and bringing peace to the region and the world.
Tear Gas, Arrests Mark Beginning of Hong Kong’s Occupy Central Protests - “The government is really ridiculous — we have no weapons and they still attack us,” says 19-year-old student Jimmy Tang. At noon on Sunday, Tamar Park brimmed with protesters, many of whom had braved pepper spray and arrests the night previous. By 9pm, the streets surrounding Tamar all the way to Wanchai station on Lockhart Road were thronged with protesters — with phalanxes of police charging down the street. On September 5, after the National People’s Congress decision concerning universal suffrage in 2017, the Hong Kong edition of China Daily pronounced Occupy Central with Peace and Love at a dead end; others agreed, including Chan ki-man, one of Occupy’s founders whose faith began to flounder.It now appears reports of Occupy Central’s death have been greatly exaggerated, to coin a phrase. On Saturday students managed to hop the barricades around Civic Square, a site once known as a symbol of peaceful protest but off limits since the July protests. Around 50 students made it in and were cordoned off by police; the students, low on supplies, traded plastic bottles for pepper spray. At 1:00 am Sunday morning, Occupy, bolstered by the student protest, officially began with an announcement on the OCPLHK website. There were 74 arrests overnight — ahead of the Wednesday schedule. The Sunday protests, early on, could not have been more tame. Stalls were set up handing out masks and goggles to deal with the expected onslaught from police as concerned participants offered water and fruit. That was the beginning of Occupy Central, but within a few hours (by 5 pm) it would morph into a protest shutting down the streets. Gridlock and protests expand to surrounding areas with the main force breaking through police cordons. At 8 pm, after the protesters had taken most of Admiralty, a Hong Kong protester named Marco who had been on the front lines for two days said, “Students are still inside there… we want to go through to save them, because they’ve been there for the whole day.” On the ground, police had retreated to cordons inside buildings.
The Hong Kong Protest: What It's All About -- Considering that as recently as 3 weeks ago the leader of the Occupy Central movement in Hong Kong decided to throw in the towel, after admitting that his civil disobedience movement’s pursuit of democracy had “failed” as a result of waning public support, many are shocked by how aggressively Hong Kong's students took up the baton: almost as if the mystery sponsor behind the ISIS blitz-ascent from obscurity had decided to "destabilize" yet another region. Tongue-in-cheek kidding aside, for everyone confused about the context of this weekend's at time very violent student protests, here is Evergreen GaveKal with its wrap up of the "Hong Kong Democracy Protests."
A Turning Point in the Fight for Hong Kong -- Future generations may well commemorate Sept. 28, 2014 in the history of Hong Kong as the day when the famously apolitical city turned unmistakably political. Tens of thousands of protesters, calling for "true democracy" -- that is, no Beijing-led nomination process in the planned 2017 election for the city's chief executive, its top government official -- confronted the police in the heart of Hong Kong. The smell of tear gas hung in the air near Prada and Gucci shops in glitzy Central area. Police in full riot gear marched on thoroughfares normally congested with traffic in the Admiralty district, where the government is headquartered. Even a day earlier, it had not seemed that Beijing's relationship with Hong Kong, a former British colony and now a special administrative region of China, would deteriorate this quickly. On Sept. 27, university students, joined by some high school students, had called for a school strike and stormed a small plaza in front of the Hong Kong government headquarters, which resulted in forcible removal by police and arrest of dozens. But most protesters were unharmed and were released within hours. Matters escalated with shocking speed when protesters began to block roads in the Admiralty district on the afternoon of Sept. 28. Riot police arrived en masse and deployed tear gas against the gathering crowd in the early evening. The police even held up signs warning the protesters that they would be fired upon if they did not disperse. The protesters were brought together by the student organizers and the Occupy Central campaign, a civil disobedience movement that had threatened to shut down Hong Kong's financial district in order to pressure Beijing into giving Hong Kong open nomination rights in the 2017 chief executive election. Occupy Central was highly controversial, with many worried that such a movement would taint Hong Kong's business-friendly reputation and negatively affect its freewheeling markets. . Two separate surveys released in August 2014 showed that more than half of Hong Kongers were willing to accept the flawed nomination process.
Crackdown on Protests by Hong Kong Police Draws More to the Streets - — Downtown Hong Kong turned into a battlefield of tear gas and seething crowds on Sunday after the police moved against a student democracy protest, inciting public fury that brought tens of thousands of people onto the streets of a city long known as a stable financial center. Hours after the riot police sought late Sunday to break up the protest, large crowds of demonstrators remained nearby, sometimes confronting lines of officers and chanting for them to lay down their truncheons and shields. Police officers were also injured in skirmishes with protesters. The heavy-handed police measures, including the city’s first use of tear gas in years and the presence of officers with long-barreled guns, appeared to galvanize the public, drawing more people onto the streets. On Monday morning, protesters controlled major thoroughfares in at least three parts of the city. A few unions and the Hong Kong Federation of Students called for strikes, and the federation urged a boycott of classes.. Late Monday morning, the Hong Kong government said it had pulled back the riot police from roads where protesters had blocked traffic. The government urged protesters to end their sit-in demonstrations.The confrontation threatened to tarnish Hong Kong’s reputation as a safe enclave for commerce, and immediately raised the political cost of Beijing’s unyielding position on electoral change here; footage and photos of unarmed students standing in clouds of tear gas facing off with riot police officers flashed around the world on Sunday. It also set the stage for a prolonged struggle.
Stunning Drone Clip Reveals Massive Size Of Hong Kong Protest - For those curious why the Hong Kong protests over the weekend have sent shivers across the world's capital markets, pushed the Hang Seng 2% lower, and impacted both European and US futures, not to mention leading to worries that China may get involved any second and result in another Tiananmen square event, the following clip from HK's Apple Daily, taken by a drone, shows just how massive the demonstrations, which according to some estimates involved just why of 100,000 people, taking place in Hong Kong are. As Mashable adds, "far from a small protest by a limited number of outspoken citizens, the video shows just how large the movement to preserve Hong Kong's democratic elections has become. Currently, the protests have grown so large that parts of Hong Kong's business district have been brought to a standstill, prompting the temporary closure of 17 local banks. In addition to the drone footage, Apple Daily has also posted a live video stream of the protests, allowing the world to watch as events develop in real time."
For Hong Kong Retailers, Protests Another Blow - Pro-democracy protests paralyzing the center of Hong Kong will deal another blow to retailers already suffering as wealthy mainlanders pare their spending. Hong Kong’s economy relies on spending from rich Chinese to keep it ticking along. But a crackdown on corruption led by President Xi Jinping has led to a slowing in the kind of conspicuous consumption that led to sky-high sales of Gucci bags and Prada shoes in Hong Kong in recent years. So far in 2014, retail sales have been contracting. The ratcheting up of anti-Beijing protests in Hong Kong this weekend and into Monday couldn’t have come at a worse moment for the retail industry. Much of this week is a national holiday in China, around the national day, and mainlanders typically flock to the territory for shopping. That spending is likely to be much curtailed given the difficulties of moving around the main shopping districts and likely cancellations by tourists who were planning to come here this week. Hong Kong will release retail data for August at 4.30 pm local time today. It’s likely to show a fall of 2% on year for sales value and 3.3% for volume, according to a consensus published by ING. And that’s even before the latest political drama kicked in. “We expect the battleground atmosphere on Hong Kong’s streets to add to the drag on retail sales in September,” ING said in a note to clients.
37 bank branches closed in Hong Kong -- Bank customers were this morning reminded by Hong Kong’s monetary authorities that many bank branches in protest zones remained closed while ATM machines in these areas will likely run out of cash ahead of a two-day public holiday. In a press release, the Hong Kong Monetary Authority also appeared to address concerns that any panic outflow of funds would destabilise the currency peg by stating that “trading was normal” with “ample liquidity in the banking system”, but that the “HKMA is also prepared to inject Hong Kong dollar and [yuan] liquidity into the banking system as and when necessary”. It is the second day bank services in parts of Hong Kong Island and Kowloon were suspended as a result of ongoing protests by tens of thousands of demonstrators calling for the resignation of Chief Executive Leung Chun-ying and a renegotiation of a Beijing-imposed democratic reform package. As of 9am on Tuesday, 37 bank branches and offices of 21 banks were closed, according to the HKMA, and bank note distribution and cheque clearing operations are delayed.
Some financial firms moving to back-up sites amid Hong Kong protest fears: (Reuters) - Some banks and other financial firms have begun moving staff to back-up premises on the outskirts of Hong Kong to prevent growing unrest in the financial hub from disrupting trading and other critical functions, two business services firms said. Thousands of pro-democracy protesters have blocked parts of the Central financial district since Friday in protest against Beijing's decision to limit voters' choice in elections due in 2017. The protests, that have been largely peaceful, represent the biggest potential business disruption since the outbreak of SARS in 2003, when several banks moved some of their dealing operations to other Asian trading hubs. While business disruption has been limited to the temporary closure of a few bank branches, the decision by some firms to move or prepare moving staff to peripheral locations highlights deeper concerns that the protests could have wider repercussions in Asia's biggest financial centre.
Hong Kong Protest's Student Leader's Arrest Galvanizes Protesters - A veteran activist, at 17 years old, has emerged as the face of Hong Kong's pro-democracy demonstrations. Joshua Wong is a student leader whose group Scholarism led the fight in 2012 against a plan by the Hong Kong government to implement so-called patriotic education classes in schools. Protesters turned out in the streets, and the government eventually shelved the plan. At a meeting in July, when asked what he thought Hong Kong would be like in a decade, Mr. Wong said, "it will have universal suffrage." Now, the arrest and detention of Mr. Wong over the weekend has become a rallying cry among protesters who have brought parts of this city to a standstill as they call for the democratic election of the city's top leader, a move Beijing opposes. Mr. Wong was among 13 people arrested Friday after he and other protesting students scaled a fence to enter a square next to government headquarters. On Saturday, thousands of students turned out to occupy the area outside government headquarters. The movement spilled out into Hong Kong's busiest streets on Sunday, prompting police to use tear gas to disperse crowds.
The Geography of Hong Kong's Protests - -- Hong Kong's "umbrella revolution"—an anticipated protest movement with unanticipated mass turnout—is currently spreading across an island slightly bigger than Manhattan. The Occupy Central with Love and Peace (OCLP) campaign, whose main demands are the resignation of Chief Executive CY Leung and true democracy for Hong Kong, announced months ago that it planned to shut down Hong Kong's Central District—the city's financial hub, which also houses government offices (including the Legislative Council's buildings and the chief executive's residence) and a luxury-shopping strip featuring a city block-wide Louis Vuitton store (by night it's where tourist and locals go drinking and clubbing, especially in the Lan Kwai Fong area). Beginning with British colonial rule in 1841, the district has gradually become the main artery of Hong Kong's business and social life. But the protest movement, of which the OCLP is now just one part, has expanded in the last few days to the districts of Admiralty, Causeway Bay, and Mongkok—some of the city's most bustling commercial sectors. On Tuesday, the protests encompassed the areas of Tsim Sha Tsui and Wan Chai. And, in a twist on the 'Occupy' movement in the United States, the demonstrations haven't been confined to public squares; they've also spread to intersections, forcing road closures. Protesters, for instance, are currently holding their positions on Connaught Road Central, a major six-lane throughway that connects four districts on the island.
How Did We Get Here? A Timeline of Hong Kong’s Civil-Disobedience Movement - WSJ - As residents continue to pour into Hong Kong's streets, we look at what ignited the protests.
Occupocalypse Now! © in Hong Kong » Interesting that the United States, the United Kingdom, and the UN General Secretary have all voiced concern about developments in Hong Kong and called for restraint. In other words, what we see is creeping internationalization of the Hong Kong issue. Given the relatively minor and local character of the matter to date, at least, it makes one pause. After all, the current toll in Hong Kong is a few dozen injured after some confrontational street protests, some tear gas got fired, now everybody’s sitting around waiting for Occupy Hong Kong’s latest move. Why give a sh*t about a currently fatality-free civic ruckus inside China’s sovereign territory even as the US refeeds the Middle East through the military meatgrinder for the umpteenth time, mass graves of slaughtered civilians are uncovered in eastern Ukraine, and the U.S. can’t bring itself to censure Israel for a disproportionate military operation in Gaza that killed 2000 including 500 children? Hate to say it, but the inference that the U.S. sees profitable mischief to be made in Hong Kong is inescapable.
Hong Kong surprises itself with the exuberance and spontaneity of protests -- “Did you ever think you would see anything like this in Hong Kong? I never thought I would see anything like this in Hong Kong,” a resident marvelled as we rounded the corner of the flyover and saw for the first time just how many people had flowed into the roads around the government offices at Admiralty. Hong Kong is no stranger to large-scale protests pushing back against Beijing: huge numbers took to the streets over controversial security laws in 2003 and plans for compulsory “patriotic education” two years ago – on both occasions prompting backdowns, though few expect a similar outcome this time. Nor was Sunday night exactly chaotic, despite the bursts of teargas from police and the impromptu protests that sprang up at fresh locations. There were first-aid stations, litter-collection points and frequent bursts of applause: for people delivering water, or police helping an unconscious protester. The crowds swarmed around small numbers of officers repeatedly, trying to stop them moving in, but held their hands in the air to indicate they intended no malice. Upturned umbrellas blossomed across sections of the crowds to ward off pepper spray and more teargas. In many ways it was a very Hong Kong protest, down to the protesters who politely explained that they would not be present the next day as they needed to go to work. But the resident saw something unique in the exuberance and spontaneity of the peaceful crowd – preempting plans to launch the civil-disobedience movement on Wednesday, a national holiday – combined with the tough tactics of the police. It is the first time officers have fired teargas in Hong Kong for almost a decade.
Hong Kong crisis exposes impossible contradiction of China's economic growth - China's Xi Jinping cannot make any serious concessions to Hong Kong's democracy movement. The Umbrella Revolution spreading from the affluent Island to the poorer quarters of Kowloon is an existential threat to the Chinese Communist Party. "If he were to give way, it would set off contagion across the mainland," said George Walden, a veteran British diplomat who survived the Cultural Revolution inside China and later negotiated Hong Kong's future with Deng Xiaoping. Beijing has already blocked all images of the protests in the Chinese media as a political quarantine measure. "Xi Jinping has a horror of what happened to the Communist Party in the Soviet Union. If things get seriously out of hand, he may mobilise 'patriotic compatriots' (Beijing-controlled agitators) on the streets. In the end he will bring out the troops, if he has to," he said. President Xi will surely play for time, hoping the protests will fizzle as Hong Kong's business elites try to rein in their unruly children, or try to buy them off quietly. But he cannot yield. "The authorities see this as a matter of life and death, a fuse that can take down their world," said Zhao Chu, a Chinese columnist and star on Weibo - China's Twitter. Whether it escalates to full coercion depends on whether Hong Kong's poor join the students in serious numbers. We know from the "Tiananmen Papers" that Deng Xiaoping was willing to let the democracy protests run for a while in 1989, until workers threatened a general strike and set up their own blockades. The real massacre was at Beijing's Gongzhufen and Muxidi crossroads, three miles west of Tiananmen Square, where the students were gathered.
Hong Kong Protesters Give Wednesday Deadline For Reform As Chinese Army Watches From Above -- The crowds of protesters in Hong Kong swelled overnight with some estimates that 3-400,000 "will join in a show of people's power," on the eve of the two-day National Day holiday. With neither side showing any signs of backing down, protestors remain calm and police keeping their distance - though monitoring from on high - as the Occupy Central group said it will announce plans for its next stage of civil disobedience on Wednesday if Hong Kong Chief Executive Leung Chun-ying does not meet their demands for democratic reform, including true universal elections by October 1 and Leung's resignation. Leung has called for Occupy Central leaders to "fulfill the promise they made to society" and immediately stop the protests, which he said have gotten "out of control," adding that, for now, they could keep control without the help of the People's Liberation Army (PLA). The protest meme remains one heard around the world - in addition to their concerns about democracy and out of control local government, Hong Kong’s younger generation are worried about low-paying jobs.
Hong Kong leader’s daughter mocks taxpayers amid protests: Thank you for funding ‘all my beautiful shoes and dresses’ -- While Hong Kong protesters fight for democratic reform, the daughter of the territory's most hated leader "thanked" taxpayers for funding her extravagant shopping sprees.A day before pro-democracy protesters demanded Chief Executive Leung Chun-ying step down, his daughter Chai Yan Leung posted a nasty rant on Facebook bullying the general public, Coconuts Hong Kong reported.The Wednesday outburst started as a response to commenters who called the jeweled necklace in her profile photo a dog collar. "This is actually a beautiful necklace bought at Lane Crawford (yes - funded by all you HK taxpayers!! So are all my beautiful shoes and dresses and clutches!! Thank you so much!!!!)" she wrote. The post then took a vicious turn when she mocked Facebook commenters' employment and education "Actually maybe I shouldn't say 'all you'- since most of you here are probably unemployed hence all this time obsessed with bombarding me with messages," she wrote. She continued: "Actually, considering the standard of the English I've skimmed through at times, I doubt you'd even understand…."
As Deadline Passes, Hong Kong Pro-Democracy Protesters Attacked By "Pro-Government" Mob (131 Injured) - Caught On Tape -- It appears the government's "wait-'em-out" tactic is working (optically) as The WSJ reports, angry crowds (of pro-government gangs) descended on pro-democracy protesters in Hong Kong on Friday, causing clashes and have derailed talks with the government. After Leung's refusal to step-down ahead of the protesters' deadline, government officials called for dialog but OccupyCentral exclaimed "if the government does not immediately prevent the organized attacks on supporters of the Occupy movement, the students will call off dialogue on political reform with the government." Some protest opponents tore down banners with words calling for Mr. Leung to resign, while others removed tents set up by pro-democracy crowds to shelter themselves. The optics of Chinese police tear-gassing young Hong Kong protesters did not play well on the world stage but pro-government-gangs (a la Tahrir Square) are exercising free-well to stop the protesters' disruption... we are sure they are handsomely paid...
Mainlanders Protest Hong Kong Shopping Disruption - There's interesting side commentary on the ongoing Hong Kong protests that focuses on the responses of visiting mainlanders to ongoing events there. Instead of having a nice, restful holiday on the first of October in Hong Kong as they planned a few weeks ago, they are instead confronted by the sight of protesting bourgeoisie. Aside from the lack of a hard crackdown apart from the first few hours when students were tear-gassed, other commentary concerns how well-behaved the mainlanders have found the protesters. As it turns out, they are following a script on civil disobedience that does not give the authorities grounds to crack down hard. Being a rather shallow, sort, however, I was more intrigued by the annoyance caused to the mainlanders on shopping trips to Hong Kong. While Hong Kong shops aren't exactly cheap due to the rents they have to pay, taxes are generally lower than on the mainland, making HK shopping a relative "bargain." Meanwhile, those damn protesters prevent you from going from Tsim Sha Tsui to Central easily as they clog the road and slow down public transportation. How dare them! Chinese tourists pouring into Hong Kong this week for a shopping holiday are getting an unexpected lesson in democracy from the city’s tens of thousands of protesters demanding free elections. So far, most of them are unimpressed. “We’re just here to go shopping,” says a young woman from Guangzhou, standing with a friend outside of a jewelry store on a shopping street in Mongkok, Kowloon that has been turned into one of several protest sites for demonstrators of Hong Kong’s so-called “Umbrella Revolution.”
Occupy Central Is Doomed to Fail -- As covered extensively in The Diplomat, tens of thousands of protesters have taken to the streets of Hong Kong demanding democratic reforms. Specifically, the protesters want free and fair elections and universal suffrage to select the city’s government, which Beijing promised as part of the condition for the U.K. handing back the city to mainland China. Sadly, Occupy Central is doomed to fail. The Chinese government will not accept the protesters’ demands. Beijing has already made it clear that it views free and fair elections in Hong Kong to be a threat to one-party rule in the country. At most, it will allow Hongkongers to select one of the candidates that it pre-approves. It has also deemed Occupy Central illegal. In other words, the Chinese Communist Party views the issue as one of its “core interests,” and it hasn’t stayed in power this long by compromising on issues that it views as threats to its survival. This was perhaps best demonstrated by Deng Xiaoping’s time in power. To be sure, China liberalized politically and economically to a significant extent during Deng’s tenure. However, what is too often underappreciated is that this liberalization was not an end in itself. Rather, Deng viewed it as necessary to bolster the CCP against threats both domestic and foreign.
A Look at Just How Much China’s Housing Downturn Could Hurt GDP - Just how much will a downturn in China’s property market hurt the economy? A new analysis by analysts at Japanese bank Nomura sheds some light. China’s property market won’t recover any time soon, say the analysts, who figure the downturn will shave the country’s GDP growth by 1.4 percentage points in 2014 and 0.6 percentage points in 2015 if there are no drastic changes to policy. In the worst-case scenario , GDP growth could plunge by 4 percentage points. The analysts came up with three scenarios. If government policy continues at its current pace—piecemeal targeted easing—GDP growth will drop by 1.4 percentage points this year because property takes a big bite out of industries like steel, construction, chemicals and transport. If the government eases monetary policy by lifting credit curbs, cutting banks’ reserve requirement ratios and interest rates, and rolling out large stimulus packages, the impact on GDP would be smaller this year and next, shaving growth by 1.1 percentage points in 2014 and 0.3 percentage points in 2015. But in the longer term, it could be worse than continuing current policy because debt levels would be pushed higher and the oversupply situation would worsen, the analysts say. “This is a risky strategy as it could eventually lead to an even sharper correction in the sector, and indeed in the wider economy, ahead.” The third scenario is if the government does nothing and a housing crash ensues. In that case, GDP growth could fall 4 percentage points, the investment firm said. In any case, the downturn could last between two to four years.
Chinese house prices tumble for fifth month in a row -- China’s home prices fell at a faster pace last month than the previous month, a survey showed on Monday, as the central bank announced looser credit policies to try to avoid a sharp decline. The average price of a new home in 100 major cities was 10,627 yuan (US$1,730) per square meter last month, down 0.92 percent from August, the China Index Academy said in a statement. It was the fifth month-on-month fall in a row, as analysts warn that China’s flagging property sector is contributing to slowing growth in the world’s second-largest economy. All of China’s 10 biggest cities continued to post month-on-month decreases, with the average price in Beijing dropping 1.34 percent to 32,281 yuan per square meter. “The market trend is clearly downward” said the academy, the research unit of real estate Web site operator Soufun.“Potential buyers expect the market to decline, and there is not enough credit to support demand,” it said. In recent years China has sought to rein in runaway property prices — a source of discontent among ordinary citizens — by introducing market control measures, including buying limits on second and third homes. However, local governments make much of their income from land sales to developers and have tried to find ways to ease the restrictions as property prices have fallen in recent months.
Economists React: Weak Domestic Demand Still Hurting China - Steady and slow expansion of China’s economic activity might be what officials call the “new norm.” But when what’s driving growth is stronger demand from foreign businesses than domestic firms, the real economic situation may not be as stable as it looks. Two surveys of factory activity—an official one tilted toward large companies and a private one toward smaller ones—both held steady in September, owing to strengthened external demand. Business sentiment remains subdued, hit by an ailing property market, industrial overcapacity and high levels of corporate debt. The sub-indexes measuring new export orders of the HSBC and official manufacturing purchasing managers indexes accelerated in September, suggesting improved external demand, while both surveys’ input-price subindexes fell at a faster pace, signaling softening domestic demand for raw materials, economists said. In a further sign of weakness, enterprises reported in the two polls shedding jobs for the better part of a year, or longer. Economists weighed in on whether Beijing needs to turn to more aggressive easing measures to spur domestic demand and boost business sentiment. Edited for style.
Yuan to Start Direct Trading With Euro as China Pushes Usage - China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency. The move will lower transaction costs and so make yuan and euros more attractive to conduct bilateral trade and investment, the People’s Bank of China said today in a statement on its website. HSBC Holdings Plc said separately it has received regulatory approval to be one of the first market makers when trading begins in China’s domestic market. The euro will become the sixth major currency to be exchangeable directly for yuan in Shanghai, joining the U.S., Australian and New Zealand dollars, the British pound and the Japanese yen. The yuan ranked seventh for global payments in August and more than one-third of the world’s financial institutions have used it for transfers to China and Hong Kong, the Society for Worldwide International Financial Telecommunications said last week.
New Japan Price Index Shows Deflation Lingers - The Bank of Japan is sticking to its bullish forecast that it can vanquish 15 years of falling prices for good. But by some measures, deflation in Japan is not gone yet.An alternative price index developed by academics at the University of Tokyo—arguably the nation’s top academic institution—has shown a decline in prices in recent months, raising concerns among some economists about the BOJ’s success in achieving its 2% inflation target.On Monday, another index developed by yet another prestigious school known as one of Japan’s best in economics, was officially released. And the numbers don’t bode well for the BOJ.Hitotsubashi University’s weekly consumer price indices showed prices for processed food and daily necessities falling at supermarkets and drugstores. A test run of the indices, a collaboration with the New Supermarket Association of Japan and Intage Holdings Inc., had been available since the summer.In contrast, the government’s official CPI – which includes items such as rent and service prices not included in Hitotsubashi’s numbers – has risen for 15 straight months. Hitotsubashi’s indices chart year-on-year changes in prices using barcode data from about 4,000 retailers nationwide and cover basic items such as light bulbs, yogurt and cigarettes. That’s similar to the University of Tokyo index, but the Hitotsubashi numbers offer a breakdown by types of retailers and regions.
Japan’s Anemic Production Data: Economists React -- A raft of economic data released Tuesday continues to paint a picture of sluggish growth for the third quarter in Japan, despite a tight labor market and rising wages. Industrial production fell a surprising 1.5% on month in August. Retail sales grew 1.9% on month, but separate data adjusted for inflation and expenditure on services showed household spending fell 4.7% on year. At the same time, the unemployment rate fell to 3.5%, a 17-year low. The tightening labor market has contributed to a run of year-on-year wage increases not seen in six years. But those wage gains are outpaced by inflation, meaning real wages are still down 2.6% on year. The government and the Bank of Japan believe wage growth will eventually filter through the economy and start a virtuous cycle of higher private spending and increased production and investment. But some private economists are skeptical about this rosy scenario. Others say that even if such a virtual cycle eventually materializes, the economy will likely lack a robust growth engine for some time. The following are edited excerpts of economists’ reactions to the data:
BOJ Beat: Officials’ Confidence Shaken By Bad Numbers - Bank of Japan officials are losing their hopes for a quick rebound of the economy, their confidence further shaken by a slew of poor indicators released on Tuesday, according to people familiar with the central bank’s thinking.While the BOJ’s policy board isn’t expected to decide on any additional measures when it meets next Monday and Tuesday, it may make various changes to its assessment of the economy following what is likely to be intense debate among board members.“There is no arguing” that it is taking longer than officials initially thought for the economy to pull out of the weakness caused by the April increase in the sales tax to 8% from 5%, one of the people said.He cited falling industrial production—which showed an unexpected fall in August—and continued sluggishness in consumer demand for autos, housing and home electronics. The timing of the recovery from the tax impact is “being delayed,” two others also said. According to the people, here are some options being discussed at the central bank over how it should change the language of its economic assessment due next Tuesday:
- •Leave unchanged the core part of the overall assessment that the economy “continues to recover moderately,” but add language mentioning that industrial production is in an adjustment mode or that it is taking the economy longer to exit the post-tax-increase weakness.
- •Downgrade the view of industrial production, as it is likely to fall for a second straight quarter in the July-September period, weighed by a build-up in inventories.
- •Upgrade its assessment of consumer spending, as August retail sales data showed signs of a rebound in sales at department stores and supermarkets.
- •Upgrade the view on exports as being flat from showing “some weakness.”
Tokyo trader has £381bn share orders cancelled after a spectacular 'fat finger' error - Share trades worth more than the size of Sweden’s economy had to be cancelled in Tokyo after what is believed to be the biggest “fat finger” error on record.It is thought to be the most extreme example of a trader in financial markets inputting hopelessly wrong figures while working under intense pressure. The identity of the trader is not yet known. Mistaken orders for shares in 42 major Japanese companies, including household names such as Toyota, Honda, Canon and Sony, totalling ¥67.78trn (£381bn) were overturned, according to data from the Japan Securities Dealers Association. The biggest single order was for 1.96 billion shares of Toyota, the world’s biggest car maker, worth ¥12.68trn.
Japan household spending keeps falling after tax hike - Spending among Japanese households fell a steeper-than-expected 4.7 per cent in August, logging a year-on-year drop for the fifth straight month since a sales tax rise, official data showed on Tuesday (Sep 30). The fall was sharper than the market median forecast of a 3.6 per cent drop and came after a 5.9 per cent plunge in July. Retail sales had got a boost ahead of the Apr 1 sales tax rise - Japan's first in 17 years - as shoppers made a last-minute dash to buy staples and big-ticket items such as cars and refrigerators. But spending turned down right after the levy hike, weighing on activity and exacerbating worries that the higher tax would weigh on consumer spending and a wider economic recovery. The unemployment rate has been staying low. Data released also from the internal affairs ministry on Tuesday showed the jobless rate fell to 3.5 per cent in August from 3.8 per cent in July. The tax rise was seen as crucial for shrinking Japan's mammoth national debt, proportionately the worst among wealthy nations. But the recent lacklustre data was forcing policymakers to take a hard look at whether to go head with earlier plans to raise sales taxes again next year.
Japan real wages fall at faster pace, cast doubt on consumption (Reuters) - Japan's real wages fell at a faster annual rate in August, government data showed, in a discouraging sign that consumer spending could suffer as salary gains fail to keep up with inflation. Real wages, which are adjusted to reflect changes in consumer prices, fell 2.6 percent in August from a year earlier, following a revised 1.7 percent annual decline in July, data from the labor ministry showed on Tuesday. The wage report is likely to be a cause of concern for Prime Minister Shinzo Abe after recent weak economic data suggested that soft exports and a sales tax increase in April could drag on the economy longer than expected. Falling real wages could make politicians reluctant to go ahead with another sales tax hike scheduled for next year. true The Bank of Japan will also take note because it considers wage growth as crucial to achieve its 2 percent inflation goal sometime in the next fiscal year starting in April. Overtime pay, a barometer of strength in corporate activity, rose 1.8 percent in August from a year earlier, the data showed. That was slower than a revised 3.6 percent annual gain in July. Total cash earnings rose 1.4 percent in the year to August, also slower than a revised 2.4 percent annual increase in the previous month.
Economists Lower Japan Growth Estimates - At least two private economists are marking down their growth estimates for a quarter that is set to shape the government’s decision on whether to raise the national sales tax next year.A number of projections now put Japan’s growth in the third quarter of 2014 at around 2% to 3%, instead of the 4.0% economists expected on average just a month ago. Such mediocre growth, after a 7.1% fall in the second quarter, could prompt doubts about whether the nation is strong enough to withstand a second sales tax increase in as many years.Japan implemented the first of a two-stage sales tax rise, to 8% from 5%, in April. In the second stage, the tax would rise to 10% in October 2015, but that requires authorization by Prime Minister Shinzo Abe upon examination of third-quarter GDP figures.The economists’ revisions followed surprisingly weak industrial production data for August, released Tuesday. Output fell 1.5% on month, instead of a 0.3% rise expected by economists. Output is now projected to fall 0.7% in the quarter.The weak April-June GDP might written off as an inevitable pullback after a rush of consumption in the first quarter of this year ahead of the first tax increase. It’s harder to explain the sluggishness in July-September as a short-term blip. Credit Suisse previously predicted that the economy would grow 3.4% in the third quarter. But it’s likely to lower the forecast to around 2%, according to economist Takashi Shiono.Capital Economics also says that its current growth projection of about 2% will likely be lowered. Economist Marcel Thieliant predicts “a slightly positive number” for the third quarter.
Japan's September monetary base hits record high -- Japan's monetary base stood at JPY 252.58 trillion (USD 2.32 trillion) at the end of September, marking an all-time high since comparable data available since July 1996, the central bank said Thursday. The monetary base comprises money supplied to the markets by the Bank of Japan (BOJ), including cash in circulation and commercial banks' deposits held at the BOJ's current accounts. An expansion in the monetary base has inflationary effect. In April last year, the BOJ introduced drastic measures to double the monetary base in two years by pumping large amounts of money into financial markets to pull Japan out of deflation that has lasted for nearly 15 years.It aims to increase the monetary base at an annual pace of about JPY 60-70 trillion (USD 550-640 billion), hoping the measure will help firms expand business operations. The monetary base is projected to rise to JPY 270 trillion (USD 2.48 trillion) at the end of this year if the central bank conducts its monetary operations as planned.. BOJ Governor Haruhiko Kuroda said last month that the Japanese economy is on course to achieving BOJ's 2-percent inflation goal, but still halfway to attaining the target. The central bank will continue its massive monetary easing program to achieve an inflation target of 2 percent in a stable manner, Kuroda said, adding that the BOJ will adjust monetary policy without any hesitation if the inflation goal becomes difficult to achieve.
Bank of Japan Buys Record 3.5 Trillion Yen in Treasury Bills - The Bank of Japan purchased a record 3.5 trillion yen ($32 billion) in treasury bills today as the central bank pushes forward with unprecedented monetary easing to reach its 2 percent inflation target. The amount exceeded the previous records of 3 trillion yen on Aug. 22 and Aug. 1. The BOJ also scooped up 530 billion yen in government bonds from the market today as part of its 7 trillion yen in monthly debt buying, which has drained the availability of sovereign bills and bonds for investors. “That was a big treasury bill operation,” said Toshiaki Terada, a researcher at Totan Research Co., a money-market brokerage in Tokyo. “The banks were wanting to sell, so that’s probably why the BOJ increased its buying.” Japan’s three-month treasury bills traded with yields at minus 0.02 percent as of 10:23 a.m. in Tokyo, while the one-year bill yield was at negative 0.005 percent, according to Japan Bond Trading Co. The two-year note yield fell half a basis point to 0.06 percent, the lowest since Sept. 26. A basis point is 0.01 percentage point.
India-Pakistan Economic Comparison 2014 - India and Pakistan are running neck and neck in per capita GDP in both nominal US dollar terms and purchasing power parity terms, according to data available from multiple sources. CIA World Factbook reports that the 2013 official exchange rate GDP of India is $1.67 trillion while that of Pakistan is $237 billion. It's a ratio of 7, about the same as the population ratio between the two countries. World Bank's International Comparison Program (ICP) 2011 did a detailed cross-country purchasing power comparison and estimated $778 billion PPP GDP for 2011. It put India's GDP at $5,757 billion, about 7.4 times Pakistan's. It makes India's economy the third largest and Pakistan's economy 23rd largest in the world in PPP terms. The ICP findings conclude that Pakistan's per capita income is US$4,450.00, just slightly below India's US$4,735.00. The number of Pakistanis living below the 2005 $1.25 poverty line (set at $1.44 for 2011) is 4.8 million, less than one-seventh of the 35.1 million reported earlier., according to Center for Global Development (CDG). It is a huge drop from about 20% of the population to 3% of the population living below the international poverty line.Poverty rates for many other nations, including India and Bangladesh, have also seen dramatic downward revisions. As a result, India now has 102 million poor, just slightly above China's 99 million. In fact, the new report has cut the world poverty rate in half from 19.7% to 8.9%. Reduction from 21% to 3% for Pakistan poverty is much sharper than the rest of the world because ICP 2011 found it to be the second cheapest in the world. The revision became necessary after the World Bank's International Comparison Program (ICP) completed a detailed study of a list of around 800 household and non-household products to compare real purchasing power for trans-national income comparison program (ICP). The CDG explained that the revision in poverty rate was necessitated by the results of latest ICP. It said: "Pakistan’s PPP conversion rate for GDP was 19.1 Rupees to the dollar in 2005 and 24.4 in 2011 — a gentle increase of 28 percent. The Consumer Price Index in Pakistan has gone up 102 percent over that same period.
India's Modi Talks Toilets - "The poor need respect and it begins with cleanliness. I, therefore, have to launch a ‘clean India’ campaign from 2nd October this year and carry it forward in 4 years. The government should utilize its budget on providing toilets. I call upon the corporate sector also to give priority to the provision of toilets in schools with your expenditure under Corporate Social Responsibility. This target should be finished within one year with the help of state governments and on the next 15th August, we should be in a firm position to announce that there is no school in India without separate toilets for boys and girls."-- Prime Minister Narendra Modi After blogging about it (here and here) and suffering nationalistic Indians slings and arrows, it's refreshing to see a top Indian leader finally acknowledge the serious problem of of hygiene in India. India's rivers have been turned into open sewers by 638 million Indians without access to toilets, according to rural development minister Jairam Ramesh. He was reacting a UNICEF report that says Indians make up 58% of the world population which still practices open defection, and the sense of public hygiene in India is the worst in South Asia and the world.India(638m) is followed by Indonesia (58m), China (50m), Ethiopia (49m), Pakistan (48m), Nigeria (33m) and Sudan (17m). In terms of percentage of each country's population resorting to the unhygienic practice, Ethiopia tops the list with 60%, followed by India 54%, Nepal 50%, Pakistan 28%, Indonesia 26%, and China 4%. 18 percent of urban India still defecates in open while the percentage of rural India is as high as 69 percent of the population. It is the key reason why India carries among the highest infectious disease burdens in the world. The number of open defecators in rural India alone is more than twice those in the whole of sub-Saharan Africa, according to a report by DFID, the UK's Department for International Development.
U.S.-India Ties Expand, But Huge Opportunities Remain -- Subsisting on water during a nine-day fast, Indian Prime Minister Narendra Modi has used his high-voltage visit to repair ties with Washington and win support for his ambitions back home. In New York, he held a one-man show at Madison Square Garden, where he told the chanting crowd: “I will make the India of your dreams.” He shared a stage with rock stars and actors at a huge concert in Central Park. He vowed at the Council on Foreign Relations to wean India off the populist economics of the past. Animating all this: Mr. Modi’s desire—four months after his landslide election—to breathe new life into relations between his country and the U.S. By nearly all accounts, ties between the two have fallen foul of expectations. Experts blame the prevailing sourness on a slew of factors: U.S. entanglements in the Middle East and Afghanistan; the relative economic pre-eminence of China; India’s own protectionist impulses. As the Carnegie Endowment’s Ashley Tellis put it, “the U.S.-Indian strategic partnership is in a rut.” Mr. Modi, though, has big plans to expand India’s manufacturing base and to modernize its infrastructure and military. And for that he wants much more U.S. involvement and investment.In meetings with U.S. businesses, he has promised to simplify India’s regulatory bureaucracy and to improve its unpredictable tax structure. His push to boost manufacturing foresees a large uptick in Indian exports to the U.S.. Total bilateral trade in goods and services topped $93 billion in 2012, up 269% in a decade.At the same time, that’s a shadow of what now moves between the U.S. and China, whose total trade hit $579 billion in 2012. And India’s shipments to the U.S. aren’t exactly heavy on value-added goods. Outside of drugs and apparel, its top exports to the U.S. are petroleum products, tobacco and gemstones.
When Trade Treaties Pose a Sovereign Threat - I’m rushing out but allow me to refer you to this weedy but important piece from Harold Meyeson in this AMs WaPo. Harold’s piece is about these “Investor-State Dispute Settlement (ISDS) provisions included in every significant trade deal the United States has signed since Ronald Reagan’s presidency. Under ISDS, foreign investors can sue a nation with which their own country has such treaty arrangements over any rules, regulations or changes in policy that they say harm their financial interests.” Imagine a foreign firm from country B with a factory in country A. If the firm objects to one of country A’s environmental (or any other) regulations, and A and B are signatories to a trade treaty with ISDS provisions, then B can sue A for damages, i.e., the added costs of meeting the standard. Moreover, and this is critical, the case in not heard in country A’s courts, where it would have a low chance of success. It is tried in “extra-governmental tribunal of three extra-governmental judges engaged just for that case — and the judges’ ruling can’t be appealed to a higher court. Under ISDS, there are no higher courts.” What’s that? Sounds hypothetical and unreal? Read the piece. Not only does Meyerson present cases exactly like the A/B one described above, but he has evidence of countries deciding not to regulate based on fears of ISDS actions. A key point here–one Germany is finally pursuing, and we should follow their lead–is that you don’t need ISDS to have a trade treaty. Cheerleaders for the TPP, for example, may argue that such dispute settlement procedures are essential for closing deals, otherwise multinationals won’t support the treaty. Well, as the German case suggests, if companies won’t support the treaty because it facilitates our sovereign, democratic rights to regulate as we see fit, then good riddance.
Politics, Not Economics, Impede U.S. Trade Deals, Former Officials Say - Real Time Economics - WSJ: Six years after the financial crisis arrived in earnest, much of the public and its elected representatives remain suspicious about opening up barriers to trade and investment out of fear American jobs will leak to low-wage countries. Those concerns have complicated the job of President Barack Obama and his economic team, who are seeking to negotiate deep trade agreements with Asia-Pacific countries and the European Union and sell them to a divided Congress. Some Republicans say Mr. Obama hasn’t done enough to convince members of his own party of the broad economic benefits that could come from negotiating and signing the agreements, called the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. Mr. Obama mentioned trade only once in a 5,000-word economic speech Thursday outside Chicago: “We’ve worked to grow American exports, open new markets, and knock down barriers to trade, because businesses that export tend to have better-paying jobs,” he said. Still, U.S. Trade Representative Michael Froman has met lawmakers hundreds of times on Capitol Hill to discuss the TPP, and Mr. Froman plans to tour Baltimore circuit-board manufacturer ZenTech Manufacturing on Friday, part of a nationwide tour to show how working to lower trade barriers overseas can boost exports and create jobs. “We know how hard it is to achieve structural reform,” Mr. Froman said at the HSBC event, citing economic policy changes in the U.S. and Japan, a key partner in the TPP. “It’s challenging, it’s difficult, but achieving it is absolutely critical to getting back on the path towards sustainable growth, Some experts say Congress may come up with the votes after the election to pass stalled legislation that would streamline approval of the TPP and TTIP.
Brazil government deficit spending leaps as election nears (Reuters) - Brazil posted its fourth straight primary budget deficit in August, making it nearly impossible for President Dilma Rousseff's administration to achieve a key fiscal target this year as spending picks up before next month's elections. The consolidated public sector primary deficit reached 14.460 billion reais ($5.89 billion) in August, its biggest deficit for that month since at least 2001 and a far wider gap than the 5.1 billion reais expected by the market, central bank data showed on Tuesday. true Closely watched by investors, the primary balance excludes interest payments. As such, it is considered a gauge of a country's ability to service its debt. The public sector's overall budget deficit -- which incorporates the interest payment burden -- was 31.5 billion reais. It nearly matched the 32.71 billion reais deficit in July, the widest posted in over five years. In the first eight months of the year, the government has only been able to reach 10 percent of its 2014 primary surplus goal of 99 billion reais, or about 1.9 percent of gross domestic product. The overall budget deficit also soared between January and August, reaching 155.1 billion reais compared with 109.3 billion reais in the year-earlier period, the central bank said.
Brazil Magic Lost by Rousseff as $300 Billion Evaporates - Minutes after being sworn in as president of Brazil in January 2011, Dilma Rousseff delivered an emotional inaugural address in which she proclaimed the country was at the “beginning of a new era.” For investors, she was right for all the wrong reasons. The Rousseff era has ushered in year after year of declines in financial markets, a stark contrast to the go-go days overseen by her predecessor and mentor, Luiz Inacio Lula da Silva, that made Brazil a market darling. She is seeking re-election this weekend after a first term in which the country’s benchmark stock index plunged 22 percent, erasing about $300 billion of market value, and the real sank 33 percent. It’s a grim snapshot for a president who took over what Lula said in November 2010 was a country enjoying a “magical moment,” posting the fastest expansion in a quarter century and helping lead the global economy out of recession following the financial crisis. After four years of Rousseff’s intervention across the economy and a slump in prices for Brazilian commodity exports, the country is mired in something akin to stagflation as growth weakens to the slowest pace in two decades and inflation surges.
Argentine Businessmen Plot Government Overthrow, Fernandez Says - Argentine businessmen, farmers and bankers are plotting the government’s downfall by hoarding crops, stockpiling cars and speculating on the peso, President Cristina Fernandez de Kirchner said. The government will investigate brokerages and banks operating in the blue chip currency market that threatens to destabilize the economy, Fernandez said in a speech at the presidential palace yesterday. The exchange rate for the peso on the blue chip market, where traders swap peso securities for dollar equivalents to skirt currency controls, has weakened 32 percent since a blocked payment to restructured bondholders caused Argentina to default for a second time in 13 years on July 30. “The problem isn’t the economy or society, it’s located precisely in some economic sectors that want -- and I hope I’m wrong -- to overthrow the government and do it with foreign help,” Fernandez said. Argentina was declared in contempt of court by U.S. District Judge Thomas Griesa on Sept. 29 after refusing to abide by a ruling to pay in full a group of hedge funds led by billionaire Paul Singer’s Elliott Management Corp that held out from restructuring of the nation’s debt following a default in 2001.
Argentina found to be in contempt of court by US judge: A US judge has ruled that the Republic of Argentina is in contempt of court for refusing to obey an order to repay the debt it owes to two US hedge funds. Argentina has been mired in a US court dispute with the funds, which bought the country's debt at a discount after its default in 2001. In July, Judge Thomas Griesa ruled that Argentina must repay the funds before it can repay other bondholders. Argentina refused, sending the country into default. Earlier on Monday, Argentina's ambassador to the US warned in a letter to US Secretary of State John Kerry that if the country was found to be in contempt of court, it would represent "unlawful interference" in Argentina's domestic affairs. And in a strong statement, the Argentine Foreign Ministry in Buenos Aires said Judge Griesa's ruling "violates international law" and "has no practical effect other than to provide new elements helpful to the slanderous political and media campaign conducted by vulture funds against Argentina". It added: "Griesa holds the sad record of being the first judge to declare a sovereign state in contempt for paying a debt, after failing in his attempt to block the restructuring of the foreign debt of Argentina." Judge Griesa said he would decide on a penalty at a later date.
Here's the Contempt Order - At a hearing on September 29, Judge Griesa indicated that he would hold Argentina in contempt of court but deferred his ruling on what the sanction would be. He has now issued the sanctions order. Somewhat surprisingly, the order does not impose even a monetary fine. (Perhaps the judge is not eager to deal with Argentina's inevitable noncompliance?) Instead, the order simply declares that Argentina will remain in contempt until it (i) "reaffirms and confirms" BNY-Mellon as trustee and (2) terminates any local trustee appointed as part of the already-not-too-attractive plan to let investors swap into local bonds. The order concludes by noting that the court "will consider the imposition of sanctions upon further application by Plaintiffs." This is clearly an intermediate step, certainly as the plaintiffs view it. Footnote 5 of their contempt brief noted that Argentina would probably defy any order to pay a monetary fine and alluded to the possibility of additional, unspecified "non-monetary sanctions." What those sanctions might be is anybody's guess for now, but the real fireworks will begin when the plaintiffs propose them. For now, the judge has already ruled that the planned swap violates the injunction, so I don't expect this current order to make much difference
Venezuelan stores fingerprint shoppers to stop hoarding: — The government has begun implementing a novel solution to chronic short supplies of basic goods at its supermarkets: fingerprinting shoppers to prevent hoarding. Starting in September, consumers at six state-run stores must register their fingerprints, which are scanned to keep track of what they buy. The aim is to limit bulk purchases of 23 basic goods, including flour, rice, milk, sugar, toilet paper, coffee, margarine, oil, chicken, meat, shampoo and detergent. So far, around 800,000 people have registered their fingerprints, and the government plans to expand the program to other stores. The initial announcement of the fingerprinting scans was greeted by some protests from consumers fed up with an economy wracked by high inflation and shortages stemming in part from currency controls that have deprived importers of dollars they need to pay for foreign goods. However, since the system went into effect, it has won praise in some quarters for shortening lines, distributing scarce goods more equitably and preventing profiteers from buying large quantities of popular goods and reselling them on the black market at huge markups. "It's marvelous," said shopper Luis Senorelli, 45, as he packed onions into a small bag at Bicentenario, a huge government-run supermarket in Caracas. "By taking our fingerprints, they can control the people who buy at fair prices and resell products at three times the price."
Mexican Government Takes Hands-On Approach to Economic Development - With the ink just dry on a series of economic measures, including opening the country’s state-run oil and gas industry to private investment, Mexico’s government is taking on a bigger role in efforts to channel the country’s economic resources into a more productive whole. Twice in two days, the ministers of economy and finance got together with leaders of the country’s main business groups to showcase cooperation they hope will contribute to solving subpar economic growth. On Wednesday, producers, retailers and government officials made an early start unveiling preparations for this year’s Buen Fin—the Mexican version of Black Friday—in hopes that sales over the four-day weekend in November will reach 200 billion pesos ($14.9 billion), up from last year’s 173 billion pesos. On Thursday, some of those same business leaders attended a press conference in which Finance Minister Luis Videgaray and Economy Minister Ildefonso Guajardo outlined a proposed law to raise productivity and competitiveness, an initiative that calls for longer-term planning and greater cooperation between the private and public sectors. The proposal by no means implies a return to the policies of the 1960s and 1970s, where the state controlled means of production or substituted the private sector through economic activism, Mr. Videgaray said. It seeks a “modern economic development policy” where the private sector provides jobs, generates capital and creates value. “But the private sector can do that better when it teams up with the public sector, particularly the government,” he said.
Record world debt could trigger new financial crisis, Geneva report warns -- Global debts have reached a record high despite efforts by governments to reduce public and private borrowing, according to a report that warns the “poisonous combination” of spiralling debts and low growth could trigger another crisis. Modest falls in household debt in the UK and the rest of Europe have been offset by a credit binge in Asia that has pushed global private and public debt to a new high in the past year, according to the 16th annual Geneva report. The total burden of world debt, excluding the financial sector, has risen from 180% of global output in 2008 to 212% last year, according to the report. The study by a panel of senior academic and finance industry economists accuses policymakers in many countries of failing to spur sustainable growth by capitalising on historically low interest rates while deterring exuberant lending. It called for Brussels to write off the debts of the eurozone’s worst-hit countries and urgently embark on a “sizeable” programme of electronic money creation or quantitative easing to push down long-term interest rates. It said unless policymakers kept a lid on risks in the financial system, especially overvalued property and stock markets, a trend for investing in assets with borrowed money could run out of control. The Geneva report, which is commissioned by the International Centre for Monetary and Banking Studies, follows a study earlier this year by the Bank of International Settlements (BIS), which diagnosed the same problem, but said risky borrowing could only be discouraged by higher interest rates.
Overseas Stimulus Moves Drive Yen, Euro and Renminbi Down Against Dollar - — As the growth of the United States economy outstrips the rest of the developed world, American policy makers are allowing Europe, Japan and even China to seek a little more prosperity — at the expense of Americans.The Obama administration and the Federal Reserve have watched quietly in recent years as foreign governments and central banks have chipped away at the dollar value of their currencies, strengthening their export industries in the hope of stimulating their economies. The trend is likely to intensify over the next year as the Fed retreats from its own stimulus campaign while the European Central Bank and the Bank of Japan expand their efforts. Mario Draghi, the head of the European Central Bank, said on Thursday that it would begin a new round of bond purchases this month. The United States has long argued that markets should determine the value of currencies and criticized nations that try to manipulate exchange rates. The current silence reflects both the simple reality that the American economy needs less help than the rest of the developed world and the judgment of officials that the United States would benefit greatly from stronger global growth. That, they say, would be true even if, in the short term, it makes the country’s goods a little harder to sell and jobs a little harder to find. “You’re seeing American officials turn a blind eye to Mario Draghi talking down the euro, and turn a blind eye to interventions by the Chinese, because in both cases they’re making the judgment that having a stabilized situation and decent growth prospects in these countries is far more important,”
The dollar is now everyone's problem — That significant parts of the global financial system are running on dollars is no surprise. We discussed some of the basics – the fact that the dollar accounts for 80% of trade finance and 87% of foreign currency market transactions – in an earlier post on the reserve currencies. But there is more, much more.The fact of the matter is that there is a parallel dollar-based financial system – call it the "Global Dollar system" – that operates outside the United States.Using data from the BIS, we can estimate the size of this Global Dollar system. Starting with U.S. dollar liabilities of banks outside the United States, we quickly get around $13 trillion. (If you have a dollar-denominated account in a bank in London, Zurich or Hong Kong, it would be included in this sum.) Now, not all countries report to the BIS, so this subtotal is incomplete. China and Russia are missing, for example. In addition, Ecuador, El Salvador and Panama are dollarized, so their banks are issuing dollar liabilities. Tallying these non-reporting sources may add another $1 trillion. Next come a few trillion dollars more from dollar-denominated securities that are issued outside the United States (mostly in London). All of this leads us to conclude that there is a second dollar-based financial system in which firms – mostly financial institutions – have issued dollar liabilities of more than $15 trillion. This volume of Global Dollars exceeds the total liabilities of banks operating within the United States.
IMF World Economic Outlook: “Are Global Imbalances at a Turning Point?” -- From Chapter 4 of the IMF’s World Economic Outlook, released today: Global current account (“flow”) imbalances have narrowed significantly since their peak in 2006, and their configuration has changed markedly in the process. The imbalances that used to be the main concern—the large deficit in the United States and surpluses in China and Japan—have more than halved. But some surpluses, especially those in some European economies and oil exporters, remain large, and those in some advanced commodity exporters and major emerging market economies have since moved to deficit. This chapter argues that the reduction of large flow imbalances has diminished systemic risks to the global economy. Nevertheless, two concerns remain. First, the nature of the flow adjustment—mostly driven by demand compression in deficit economies or growth differentials related to the faster recovery of emerging market economies and commodity exporters after the Great Recession—has meant that in many economies, narrower external imbalances have come at the cost of increased internal imbalances (high unemployment and large output gaps). The contraction in these external imbalances is expected to last as the decrease in output due to lowered demand has likely been matched by a decrease in potential output. However, there is some uncertainty about the latter, and there is the risk that flow imbalances will widen again. Second, since flow imbalances have shrunk but not reversed, net creditor and debtor positions (“stock imbalances”) have widened further. In addition, weak growth has contributed to increases in the ratio of net external liabilities to GDP in some debtor economies. These two factors make some of these economies more vulnerable to changes in market sentiment. To mitigate these risks, debtor economies will ultimately need to improve their current account balances and strengthen growth performance.
Lagarde warns of ‘new mediocre’ era - FT.com: The world economy is threatened by a mediocre era of low growth for a long time, warned Christine Lagarde as she signalled cuts to the global outlook for 2015. Ms Lagarde, managing director of the International Monetary Fund, said in a speech on Thursday that the global economic recovery is “brittle, uneven and beset by risks”. Her remarks highlight a steady weakening of the global outlook in recent months as emerging economies, in particular, suffer a slowdown that threatens to damp already sluggish growth in advanced countries as well. “Overall, the global economy is weaker than we had envisaged even six months ago,” Ms Lagarde told an audience at Georgetown University. “Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down.” The IMF’s most recent forecasts in July called for global growth of 3.4 per cent this year and 4 per cent in 2015, but those numbers are likely to be slashed when the Fund releases its new estimates next week. Among advanced economies, Ms Lagarde said she expected the strongest growth in the US and the UK, and the weakest expansion in the eurozone. She said that emerging economies would remain the main source of global growth but at a slower pace than before. “Six years after the financial crisis began, we see continued weakness in the global economy,” she said. “Countries are still dealing with the legacies of the crisis, including high debt burdens and unemployment.”
Now Is a Good Time to Invest in Infrastructure - The IMF Blog: Infrastructure is the backbone of well-functioning economies. Unfortunately, that backbone is becoming increasingly brittle in a number of advanced economies. For example, there has been a decline in the overall quality of infrastructure in the United States and Germany (Figure 1; see the FT 2014 and ASCE 2013 for more in infrastructure in the U.S., and Der Speigel 2014 and Kunert and Link 2013 for Germany). In many emerging market and developing economies, the expansion of the backbone has not kept pace with the broader economy, and this is stunting the ability of these economies to grow. Our study—Chapter 3 in the October 2014 World Economic Outlook— examines the macroeconomic effects of public investment in a large number of countries and finds that in the current global environment of sub-par growth, there is a strong case for increasing public infrastructure investment in countries where conditions are right.
It’s Time to Build Roads to Prosperity, Literally, IMF Says - Infrastructure investment is the antidote to serial disappointments in global growth. That’s what the International Monetary Fund is touting ahead of a gathering of top finance officials from around the world. Especially for advanced economies, infrastructure investment “is one of the few remaining policy levers available to support growth, given already accommodative monetary policy,” the fund argued. The IMF plans to again revise down its outlook for the global economy next week. Central banks have tried to rev up growth with cheap cash.. But printing money can only go so far. And bloated balance sheets and ultra-low borrowing rates risk creating new crises. Governments, the IMF has long argued, must restructure their economies to make them more competitive and capable of consistence growth. And the IMF says now’s the time to pounce on investing in roads, bridges, power plants, ports and a host of other expensive projects.Taking advantage of low borrowing costs to finance infrastructure can boost near-term growth with cash injections and long-term output by increasing the efficient flow of commercial goods, the IMF argues.
The permanent scars of fiscal consolidation - The effect that fiscal consolidation has on GDP growth has probably generated more controversy than any other economic debate since the start of the 2008 crisis. How large are fiscal multipliers? Can fiscal contractions be expansionary?Last year, Oliver Blanchard and Daniel Leigh at the IMF produced a paper that claimed that the IMF and other international organizations had underestimated the size of fiscal policy multipliers. The paper argued that the assumed multiplier of about 0.5 was too low and that the right number was about 1.5 (the way you think about this number is the $ impact on GDP of a $1 fiscal policy contraction). While that number is already large, it is possible that the true costs of fiscal consolidations are much larger. In a recent research project (draft coming soon) I have been looking at the effects that fiscal consolidations have on potential GDP. Why is this an interesting topic? Because it happens to be that during the last 5 years we have been seriously revising the level (and in some cases the growth rate) of potential GDP in these economies. And while there might be good reasons to do so, the extent to which we have done this is dramatic and one gets the sense by analyzing the data that what is really happening is that the cyclical contraction is just leading to a permanent revision of long-term GDP forecasts (I wrote about this in my latest post).
Helicopter money: Today’s best policy option -- High debt and deflation have afflicted Japan, the Eurozone, and the US. However, the implemented so far monetary and fiscal policies have been disappointing. This column discusses the importance of helicopter money in the form of overt monetary financing in addressing these problems. The overt money financing is the policy with highest impact in raising demand and output without increasing public debt and interest rates.
Thinking the Unthinkable: The Effects of a Money-Financed Fiscal Stimulus -- Many unconventional policies adopted by central banks in response to the Crisis failed to boost the economy. This column discusses the effects of a temporary money-financed fiscal stimulus. When a more realistic model is allowed, such a stimulus can have a strong effect on output and employment, and a mild effect on inflation. A fiscal stimulus programme that focuses on productivity-enhancing public investment projects would likely have even more desirable effects. The previous predictions contrast with the experience with quantitative easing and other unconventional monetary policies, which do not affect aggregate demand directly and which, as a result, have failed to jumpstart the depressed economies of many countries, especially in the Eurozone. An additional advantage of a money-financed fiscal stimulus, particularly relevant for a monetary union, is that the associated increase in government purchases may be targeted at the regions with higher unemployment and lower inflation (or higher risk of persistent deflation). The time may have come to leave old prejudices behind and come to terms with the urgent need to increase aggregate demand in a more foolproof way than tried up to now, especially in the Eurozone. The option of a money-financed fiscal stimulus should be considered seriously.
Putin Ready to Borrow Above 9% Amid Bonds’ Worst Quarter - After shunning bond auctions for nine weeks amid the worst quarter for ruble debt since 2011, Russia indicated it’s prepared to borrow at more than 9 percent for the first time in almost five years. In its first auction since July 16, the Finance Ministry sold all 10 billion rubles ($262 million) of August 2023 notes on offer to a single bidder on Sept. 24 at an average yield of 9.37 percent. Current yields are “acceptable” and the finance ministry plans to fulfill this year’s bond sale plan, it said in an e-mailed response to questions on Sept. 26. “The auction results and the ministry’s statement essentially say that it’s now prepared to pay more than 9 percent,” . “That means there will be more supply coming, though not necessarily with demand like we saw at this sale.” With the government budget surplus running at $23 billion in the first eight months of 2014, Russia refrained from borrowing because of the political premium in the market, where a large supply of new bonds could send borrowing costs still higher, Finance Minister Anton Siluanov said on Sept. 11. Yields surged in the third quarter as President Vladimir Putin’s standoff with Europe and the U.S. over Ukraine sparked escalating sanctions and a market selloff.
Russia defence spending facts of the day -- From a summary of Russia’s proposed new budget, by Free Exchange: The budget shows how much trouble the Russian economy is in—and how unwilling the government is to face up to reality. It’s an austere affair: 700 billion roubles ($17.8 billion) of previous spending plans have been axed. New taxes on tobacco and alcohol will probably come in. These measures are partly to do with Russia’s poor economic growth, which has crimped tax revenues. … But among the austerity there are some winners. Mr Putin wants to make good on an electoral promise to hike social spending (say, in the form of higher public-sector wages). Defence, with a 20% rise, is another. According to Julian Cooper, of Birmingham University, this largesse is little to do with the recent Ukraine crisis, but rather part of a long-term plan to modernise the military. Spending on defence will rise by 85% between 2012 and 2017. See also The Moscow Times, which further details how even this tighter budget rests on optimistic assumptions of faster growth and lower inflation than are likely. In the meantime the rouble continues plummeting, reports have cited unidentified sources saying that the Bank of Russia is contemplating capital controls on outflows (since denied), and the price of oil is falling. The economy is flirting with recession and dealing with 7 per cent inflation, while the severity of the damage from western sanctions remains tough to predict…
TASS: Falling oil prices, geopolitics cost Russian budget 4% GDP — minister: TASS/. Falling world oil prices, geopolitics and the curtailment of the US Federal Reserve’s stimulus program have cost the Russian budget 4% of GDP, Finance Minister Anton Siluanov said on Thursday. “The current year was uneasy from the viewpoint of external factors and shocks. This refers to the expectations of the curtailment of quantitative easing, geopolitical changes and risks. This has affected the investor behavior,” Siluanov said at an investment forum organized by Russia’s VTB Bank. A plunge in world oil prices has also affected Russia’s economic growth, the finance minister said. “The oil price was $105-110 per barrel in the first half whereas now it stays at $101 per barrel,” the minister said. However, the Russian government’s restrained policy has helped the country withstand all these external shocks, he said. “We’ll continue to pursue such policy,” the finance minister said.
Russia Central Bank Intervenes First Time Since May to Aid Ruble - The Bank of Russia intervened for the first time since May to stem the world’s worst currency slide, only to see the ruble extend losses after the central bank shut its market operations for the day. The ruble weakened to 44.4063 against the central bank’s basket of dollars and euros at 7:57 p.m. in Moscow, beyond the 44.4 level at which the monetary authority said it would intervene to slow the currency’s decline. When the Bank of Russia stopped its daily activity at 6 p.m., the ruble was less than 0.1 percent stronger at 44.3419. The central bank sold “slightly more than” $4 million on the currency market yesterday as the ruble approached the end its trading band, Chairman Elvira Nabiullina told reporters in Moscow today. Russian assets are under pressure since President Vladimir Putin’s annexation of Ukraine’s Crimea region in March sparked a standoff with the U.S. and its allies, triggering escalating sanctions that curb access to foreign financing. “The central bank is like a cement wall,” “It can be broken, but it will come at a cost.” Russia moved away from drawing on reserves to support the currency since the previous intervention on May 8 brought the total spent this year to $40 billion. Nabiullina widened the ruble’s trading band in August, taking the upper boundary to 44.40, amid a push to adopt a free float by year-end.
Putin Rules Out Capital Controls As Ruble Hits Record Lows, "Curbs Risk" By Shifting To Non-Dollar Settlements -- Despite ongoing outflows, Russian President Vladimir Putin confirmed earlier statements by the Central Bank ruling out any measures to stop the flow of money from his nation (following rumors that they were weighing capital controls sent the Ruble to fresh record lows against the USD). The central bank continues to make "small interventions" but the Ruble has pushed to new record lows this morning nevertheless, as Bloomberg reports, restating "the first principle is the lack of limits on capital movements." In order to "curb risks" from ongoing outflows, Putin said on Thursday that Russia wants to shift to national currencies in trade deals with China and other countries, implying a shift away from the U.S. dollar. That appears to be strengthened further this morning as Putin signs law ratifying a Eurasian economic union.
Russia could ditch US dollar in 2-3 years – head of Russia's #2 bank — Two to three years would be enough time for Russia to switch to international settlements to the ruble, Andrey Kostin, head of Russia’s second-biggest bank VTB, said. “Two to three years is enough, not only to launch [settlements in rubles], but also to complete these mechanisms. But much will depend on how banks will cope with the task,” Kostin said in an interview with Izvestia newspaper. Kostin first put forward the idea of switching to national currencies in international settlements about a decade ago, which means a move to the ruble shouldn’t be considered a counter-sanction measure. "I did not find understanding in this matter with the previous leadership of the Central Bank [10 years ago ] They believed that since the [US] dollar works, we shouldn’t do anything, and settlements in rubles will just bring additional risks. Under the new leadership the position of the Central Bank changed. I think that soon we will achieve a major breakthrough,” Kostin said. Creating a national payment system and establishing a domestic rating agency are among other priorities for the bank, the VTB head added.
Former Czech President Blasts "The West's Lies About Russia Are Monstrous" - Václav Klaus has made a habit of saying things others shy away from saying, but it doesn’t seem to have done him much harm in the popularity stakes. As Klaus describes the absurdities of the EU, it’s hard to think why any sane individual - on left or right - would want their country to stay in it. "I am really shocked to see leading EU and European politicians pretending that everything is OK, which is ridiculous and funny," Klaus believes "the EU is beyond reform" and has called for it to be replaced with an 'Organization of European States' - a simple free trade association which would not pursue political integration. But he saves his most strident comments for Russia - "those who are not able to understand the difference (between the Soviet Union and Russia) are simply not looking with open eyes... The US/EU propaganda against Russia is really ridiculous." Yet he feels the freedom to hold - and express - ‘unfashionable’ views in the West is now under increasing threat.
Poland Revises 2013 Growth to Account for Illegal Activities - - Poland has revised its 2013 growth to 1.7% from 1.6% reported earlier in order to account for illegal activities and the introduction of the European Union's latest methodology. As a result of the changes the economy's size increased by 26 billion zlotys ($7.9 billion), or 1.6% of its earlier size, with illegal activities such as drug and cigarette trafficking and prostitution adding around PLN13 billion. The revisions are a part of an EU-wide shift to new accounting standards for public statistics called ESA 2010. Thanks to the increased size of the economy, the country's public debt and deficit ratios will improve, making it easier for the government to reduce the deficit below the EU's 3% requirement. After the revision Poland's public debt dropped to 56% of gross domestic product and its deficit remained unchanged at 4.3%, according to The Wall Street Journal's calculations.
ECB will buy 200 billion euros of ABS and covered bonds in a year: Reuters poll (Reuters) - The European Central Bank will buy a total of 200 billion euros of asset-backed securities (ABS) and covered bonds in the span of a year, a Reuters poll of euro money market traders found on Monday. That is a sharp fall from the 300 billion euros expected in a similar poll on September 8 and a Reuters survey of economists last week. After surprising markets with interest rate cuts last month and offering banks more cheap loans to boost lending, the ECB is due to give more details of its plan to buy repackaged loans following its monthly policy meeting on Thursday. true Traders said lackluster demand from banks earlier this month for the ECB's low-interest long-term loans, known as TLTROs, and the risks of deflation and weak economic growth across the region, will push the central bank to buy government bonds.
Leader of Catalonia Calls for Independence Vote - — The regional leader of Catalonia signed a decree on Saturday to hold an independence vote, which the Spanish government has promised to block, pushing his northeastern region into a risky and direct confrontation with the central government in Madrid. After signing the decree, the regional leader, Artur Mas, said the independence vote would show that “Catalonia wants to decide pacifically and democratically its political future.” He added, “Nobody should fear that somebody expresses his opinion by placing a vote in a ballot box.”The vote is scheduled for Nov. 9.Spain’s prime minister, Mariano Rajoy, has vowed to block the Catalan secessionist drive and to push the nation’s constitutional court to rule swiftly that such an independence vote would breach the Constitution.Continue reading the main story Mr. Rajoy was returning to Spain on Saturday from an official visit to China. He told Spanish reporters before leaving Beijing that Mr. Mas had acted irresponsibly and “put himself into a mess,” probably because “he thought we would step back.”Mr. Mas is pushing ahead with his independence plan after voters in Scotland rejected their own referendum this month on separating from the United Kingdom. While Scotland’s independence would have been welcomed as a significant precedent, Mr. Mas has called the Scottish vote a “great lesson in democracy” that Mr. Rajoy should heed.
Catalonia defies Spanish government and makes independence vote official: CATALONIA’S PRESIDENT HAS formally called a referendum to decide whether Spain’s richest region should be independent, defying Madrid which has vowed to block the move. The Spanish government has said it will appeal to the Constitutional Court which is expected to annul the decree signed by Catalan leader Artur Mas. Fired by the independence referendum in Scotland this month, 1.8 million people protested in Barcelona on September 11 to be allowed to hold their own vote. “We want to vote,” Mas said after he inked the decree calling a referendum in a ceremony at the Generalitat Palace in Barcelona. Catalonia is Spain’s economic powerhouse, although it too suffered in the property crash and resulting crisis that gripped the rest of the country from 2008 to 2012. Proud of their Catalan language and culture, many of the region’s 7.5 million inhabitants feel short-changed by the government in Madrid, which redistributes their taxes. Catalonia formally adopted the status of a “nation” in 2006 but Spain’s Constitutional Court overruled the claim.
Spanish court suspends Catalonia independence vote - CNN.com: A referendum over Catalonia's future as a part of Spain has been put on hold. Spain's Constitutional Court on Monday suspended the planned referendum on independence for Spain's Catalonia region set to happen on November 9, a court spokeswoman told CNN. The court has suspended the referendum as it consider the grounds of a lawsuit issued by Spain's federal government that challenged the planned independence vote as "unconstitutional." The President of the Catalonia region, Artur Mas, on Saturday had signed a decree setting the date for the vote. Even before the Constitutional Court suspended the plan, the federal government had made it clear that it any such referendum. A legal and political confrontation was expected. The next move is in Catalonia's hand -- and whether its leaders decide to go ahead with the vote anyway.
ECB Faces Inflation Expectations Test - The European Central Bank has suffered an early setback in its battle to persuade households and businesses that inflation will pick up over coming months and years. The ECB sets great store by “anchoring” inflation expectations to its target of just below 2%. It wants households, businesses and investors to disregard short-term variations and remain convinced that policy makers will do their job and succeed in hitting the target more times than not over the medium term. Until recently, ECB policy makers believed inflation expectations were anchored, despite the actual annual inflation rate having fallen below 1% in October 2013, and then below 0.5% in July. But in August, ECB President Mario Draghi raised the alarm, acknowledging that inflation expectations had begun to fall. That was one of the factors that prompted the central bank to announce its second wave of stimulus measures in four months on Sept. 4. Policy makers hope their recent activism will ensure expectations are once again “firmly anchored” to their target.
Eurozone inflation falls further below ECB target - The annual rate of inflation in the eurozone fell further below the European Central Bank's target in September, and to its lowest level since October 2009. The decline is a setback to the ECB which, earlier this month, launched a series of measures designed to boost growth and start to move the inflation rate back toward its goal of just below 2.0%. It is too soon for those measures to have had an impact, but the further drop in the rate at which consumer prices are increasing underlines the severity of the threat confronting policy makers. The European Union's statistics agency said consumer prices were just 0.3% higher than in September 2013, as the inflation rate slowed from 0.4% in August. The inflation rate has now been below 1.0% for 12 straight months. Figures released by Eurostat also showed that the jobless rate was unchanged at 11.5% in August from in July, while the number of people without work fell by 137,000, leaving 18.35 million unemployed. More up-to-date figures for September, released by Germany's labor agency Tuesday, recorded a surprise 12,000 rise in the number of people without work. The decline in the inflation rate was expected by forecasters and is unlikely to prompt an immediate response from the ECB when its governing council meets on Thursday in Naples, Italy.
Eurozone Inflation Drops To Fresh 5 Year Low, EURUSD Tumbles -- Anyone confused why futures are doing their best to surge in the overnight session, the answer is simple: first it was Japan reporting the latest batch of atrocious economic data, which an hour ago was followed by Europe own abysmal econofreakshow, where Eurostat just reported that in September Eurozone inflation rose a meager 0.3% from a year ago, the lowest annual increase since October 2009.This marks the 12th straight month that Euro inflation has been below 1%, and far below the ECB's goal of 2% inflation.
Italy's CPI falls, confirms deflationary trend - --Italy's consumer price index fell for a second time in a row on a yearly basis in September, driven mainly by falling prices in the energy sector, statistics institute Istat said Tuesday, confirming a deflationary trend in the eurozone's third largest economy. Italy's national inflation index fell 0.3% from August and dropped 0.1% from September last year, Istat said, citing preliminary data. The year-on-year drop is the second consecutive one since August, when the index dropped by 0.1% for the first time since September 1959, raising concerns of deflation. The annual decline in September was again led by an increased drop in the prices of energy, which fell by 2.8% after a 1.2% contraction in August. Core inflation, which excludes volatile fresh food and energy prices, remained stable in September at an annual rate of 0.5%. Italy's Harmonized Index of Consumer Prices, a European Union measure that gives more weight to sales and discounts, rose 1.8% from August, while it decreased by 0.2% on the year, Istat said.
French debt passes two trillion euro mark for first time - France's public debt topped the symbolic level of 2.0 trillion euros for the first time, according to quarterly data published by the national statistics agency INSEE on Tuesday. The total national debt amounted to 2.023 trillion euros ($2.57 trillion) in the second quarter of the year, INSEE said, which represents 95.1 percent of gross domestic product (GDP). European Union rules limit debt to 60 percent of GDP. In the first quarter of the year, the debt stood at 1.995 trillion euros, or 94.0 percent of GDP, INSEE said. France is already on a collision course with the EU over its budget deficit, which is supposed to be kept under three percent of GDP. Paris promised to bring the deficit under three percent by next year but, in a stunning about turn, announced earlier this month that it was pushing back this target until 2017. France is struggling with an economy at a standstill and sky-high unemployment.
Record French debt burden adds to strain on public finances (Reuters) - France's national debt rose to a record 95.1 percent of annualized economic output in the second quarter, data showed on Tuesday, underlining the country's struggle to rein in its public finances a day before the 2015 budget is presented. In the second quarter, the national debt topped two trillion euros for the first time as it rose to 95.1 percent of GDP from 94.0 percent in the first quarter, according to the official statistics agency INSEE's figures. The news follows the latest evidence of the sacrifices necessary to get France's finances in order. Late on Monday the government announced plans to cut health spending and pare family benefits. true The Socialist government will cut social security spending by 9.5 billion euros ($12.05 billion) next year, officials said, in an attempt to rein in a welfare system deficit that is set to come in at a bigger-than-expected 11.7 billion euros in 2014. That means the welfare and health systems make up nearly half the 21 billion euros in overall budget savings the government aims to make in its 2015 budget.
France Produces ‘No Austerity’ Budget, Defying E.U. Rules - — France intensified a showdown with its European Union partners on Wednesday by unveiling a “no austerity” budget that aims to bring its deficit within European guidelines two years later than previously promised. Moving any faster to satisfy the bloc’s budget rules, the government said, would weaken the country’s already feeble economy.“No further effort will be demanded of the French, because the government — while taking the fiscal responsibility needed to put the country on the right track — rejects austerity,” the government said in a statement accompanying the budget. The announcements amounted to a new challenge of Germany and the austerity movement at a time when France’s new economy minister, Emmanuel Macron, has admitted that the eurozone’s second-largest economy after Germany’s is “sick.” The French budget detailed 50 billion euros, or about $63 billion, in spending cuts to be made over the next three years, which President François Hollande’s critics say does amount to an austerity plan. But as Mr. Hollande tries to walk a fine line between promoting economic growth and appeasing European officials who want countries to reduce deficits, less than half of those cuts will be unrolled in the next year. France is demanding leniency from Brussels to meet European Union deficit targets in a bid to avoid slipping into an outright recession, after Paris already missed two deadlines in the last three years.
Risk of third German recession pressures Europe - Germany risks slipping into its third recession since the global financial crisis, piling pressure on Europe to do more to stimulate its stagnant economy. Tensions with Russia, slowing global growth and falling consumer confidence mean the region's biggest economy struggled to grow in the past three months, and may turn out to have shrunk for a second quarter running. The mood among German businesses has sunk to its lowest level since April 2013, and expectations for the next six months are the weakest they've been since December 2012. Across the eurozone as a whole, data released Monday showed that economic sentiment dipped in September for a fourth month in a row. Data on prices and the labor market added to the gloom Tuesday. Prices rose by just 0.3% in the eurozone in September -- the weakest inflation has been for nearly five years. And more than 18 million people are still looking for work across the 18 eurozone states.
Germany Replaces China as World’s Trade-Surplus Boogeyman - China’s devalued exchange rate has made it a pariah of U.S.-based manufacturing and a beloved target of countless U.S. political diatribes and bills seeking to censure Beijing for its currency policy. But it is key U.S. ally Germany that’s sapping growth from the global economy, according to the latest tally of trade surpluses by the International Monetary Fund. Germany has replaced China as the largest surplus economy in the world. Why does that matter? Fostering growth where exports far outweigh imports means that expansion comes at the expense of other economies. Instead of encouraging German domestic consumers to boost growth in its weaker eurozone members, for example, Berlin’s economic policies have hindered Europe’s recovery, the IMF and U.S. officials have repeatedly warned. Concern over global trade imbalances is why finance leaders from the world’s top economies have vowed not to use their exchange rates to gain a competitive advantage over other countries. That’s why the U.S. took Germany to task late last year in its semiannual currency report, and is why Berlin is likely to be targeted in the next review due out in a few weeks. Under pressure from the U.S., China has appreciated its currency by around 30% since 2006, not including inflation. Although the IMF says China’s yuan is still between 5%-10% undervalued, it estimates the euro to be up to 15% undervalued for Germany’s economy.
Mario Draghi pushes for ECB to accept Greek and Cypriot ‘junk’ loan bundles - Mario Draghi is to push the European Central Bank to buy bundles of Greek and Cypriot bank loans with “junk” ratings, in a move that is set to exacerbate tensions between Germany and the bank. The ECB’s executive board will propose that existing requirements on the quality of assets accepted by the bank are relaxed to allow the eurozone’s monetary guardian to buy the safer slices of Greek and Cypriot asset backed securities, or ABS, say people familiar with the matter. However, the idea is likely to face staunch opposition in Germany, straining already tense relations between the ECB and officials in the eurozone’s largest economy. Bundesbank president Jens Weidmann, who also sits on the ECB’s policy making governing council, has already objected to the plan to buy ABS, which he says leaves the central bank’s balance sheet too exposed to risks. Wolfgang Schäuble, Germany’s finance minister, has also voiced his opposition, saying purchases would heighten concerns about potential conflicts of interest between the ECB’s role as monetary policy maker and bank supervisor.
The New York Times’ Thinks the EU Can “Afford” Mass Unemployment but Not “More Government Spending” -- William K. Black -- Regular readers understand the three dynamics that drive economists crazy about the New York Times’ coverage of the troika’s infliction of austerity on the Eurozone. The troika consists of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).
- NYT reporters treat austerity as a response to the eurozone’s Great Recession as obviously the only possible response – they rarely discuss alternative policies or views
- The NYT refuses to inform its readers that economists overwhelmingly consider this malpractice and that it has caused catastrophic and gratuitous harm
- All of this is particularly bizarre given the NYT’s economist, the Nobel Laureate Paul Krugman, who writes regularly in the paper to explain why austerity is a disastrous response to the Great Recession. The NYT eurozone writers routinely ignore Krugman (and anyone else who makes the same point).
The massive, wholly avoidable harm caused by “bleeding the patient” to make him well (austerity in response to a recession) for the people of the eurozone is stark, but typically minimized or wholly ignored by the NYT reporters. Roughly one-third of the population of the eurozone lives in nations with Great Depression levels of unemployment.
European Bond Yields Go Negative - WSJ: Record-low interest rates in Europe have flipped bond investing on its head. Some bond buyers, typically paid for lending out their money, have begun paying borrowers to look after their cash. In September, yields on two-year Irish government debt dipped below zero for the first time, just four years after the country needed a €67.5 billion ($85.6 billion) bailout to avert a banking-system collapse. At the height of the eurozone's debt crisis, Ireland's two-year bonds were yielding more than 14%. Now, they are yielding about minus 0.01%. Yields move inversely to prices. The sharp drop in Ireland's borrowing costs marks a rapid return of investor confidence, but the recovery is also part of a wider theme in Europe: central-bank policy pushing interest rates ever lower, and in some cases, turning bond yields negative. Germany, the Netherlands, Austria, Finland, Belgium and France had already seen their two-year borrowing costs drop below zero amid a move by the European Central Bank to start charging eurozone banks for keeping deposits at the ECB. That policy shift is encouraging lenders to look for cheaper ways to park their surplus cash.
Will the European economy’s summer squalls turn into an autumn tempest? | Anatole Kaletsky: Following the grim market response to European Central Bank President Mario Draghi’s latest monetary policy pronouncements, Europe is approaching another make-or-break moment comparable to the crisis of 2012. The summer quarter ended this week, and financial markets delivered their judgment on just how bad things are, pushing the euro down to its lowest level since September 2012. Europe’s quarterly stock market performance was the worst since the nadir of the euro crisis. The question is whether the miserable summer will give way to a milder autumn. Or whether the summer squalls will turn into a catastrophic tempest. Given the absence of any decisive action at this week’s European Central Bank meeting, the answer will depend on three events in the month ahead: the Ukrainian elections on Oct. 26; the bank stress tests due to be finalized in late October by the central bank, and the judgment on French and Italian budget plans due to be delivered in outline by Europe’s political leaders at the Milan “growth summit” on Oct. 8 and then in detail by the European Commission at the end of the month. To understand the significance of these events for the European economy and financial markets we must consider the causes of Europe’s summer slump. Not just the general lack of competitiveness or dynamism often blamed for Europe’s economic problems — but the specific things that went wrong since early May, when the euro peaked at 10 percent above its current dollar level and the ratio between euro zone and U.S. stock markets was 18 percent higher than it is today.
Mario Draghi's QE: too little for markets, too much for Germany - European stocks have suffered the steepest one-day fall in 15 months after the European Central Bank retreated from pledges for a €1 trillion blitz of stimulus and failed to clarify the scale of quantitative easing. The sell-off came amid a mounting political storm in Europe as leading German economists and jurists reacted with fury to the ECB’s first asset purchases, denouncing the move as monetary debauchery, and threatening a blizzard of lawsuits in the German courts. Mario Draghi, the ECB’s president, seemed unable to secure backing for far-reaching measures from Germany’s two ECB members or from the German finance ministry, forcing him to play down earlier hints for a €1 trillion boost to the ECB’s balance sheet. As he spoke inside a renaissance palace in Naples, riot police doused crowds of protesters on the street outside with water cannon. The city has become a political cauldron, with the highest “misery index” Europe. Youth unemployment in Italy's Mezzogiorno is still rising, topping 56pc in the second quarter. Mr Draghi said the ECB would start to buy covered bonds and asset-backed securities (ABS) as soon as this month, but gave no concrete figure and deflected all questions on the scope of stimulus. “I wouldn't want to emphasise the balance sheet size per se,” he said. Sovereign bond strategist Nicholas Spiro said the ECB was “backtracking” on earlier pledges and seemed to be losing confidence in its ability to halt deflation at all. “Mr Draghi is facing a severe credibility problem,” he said.
Draghi Dithers as Europe Deflates -- European Central Bank President Mario Draghi had nothing new to say at his news conference yesterday, which is a pity. Mainly, he confirmed measures previously announced to stimulate Europe's flatlining economy -- steps that looked too timid even before the latest dire news on euro-area inflation. Inflation in the euro area has fallen yet again and now stands at 0.3 percent. Prices are already falling in several of the European Union's weaker economies. Even so-called core inflation, which excludes temporary factors and reveals the underlying trend, stands at less than 1 percent, a full percentage point below the ECB's target. This steady drift to deflation entrenches Europe's financial problems by clobbering investors' confidence, such as it is, and adding to the burden of debt. It's an alarming situation and calls for a proportionately dramatic response. With short-term interest rates at zero, what would that entail? The answer is outright quantitative easing, of the sort deployed by the U.S. Federal Reserve, the Bank of England and the Bank of Japan. The ECB should buy government bonds in impressively large numbers and aggressively expand its balance sheet (and hence the money supply).
Ilargi: Europe Is Crumbling Into Collapse -- Yves here. The word "collapse" may seem overwrought when applied to Europe, but cold-blooded, clear eyed colleagues who have good connections and have spent a bit of time there recently say things that are broadly similar to Ilargi's take. Despite the conventional wisdom that the cost of a Eurozone breakup is catastrophically high and thus will never take place, that confidence may prove to be the currency union's undoing. Ideological rigidity about austerity is leading to policies that are crushing large swathes of the population. And Europe, unlike the US, had enough of a tradition of popular revolt that that uprisings, either on the street or in the ballot box, are real possibilities, as the sudden rise of the anti-EU right shows. My sources, who also read the foreign language press, say that political fracture is underway and the Eurozone leadership is not taking anything remotely resembling adequate measures to halt its progress. That does not mean upheaval is imminent. But the flip side is this sort of unraveling tends to progress not via an clearly discernible decay path, but through sudden state changes.
- The ECB gave too much liquidity to banks in peripheral EMU countries since 2008, thus fueling a spending boom.
- Then, with the SMP and the OMT programs it “lowered the interest rates at which overstretched eurozone members could obtain credit and reversed the losses of their foreign creditors, triggering another borrowing binge”
- Finally, “The ECB’s plan to purchase [private borrower's] debt could end up transferring dozens if not hundreds of billions of euros from eurozone taxpayers to the creditors of these hapless individuals and companies.”
- Last (but not least!!) he claims that deflation is necessary in EMU peripheral countries to restore competitiveness
I am shocked. Let me start from the last point. Even assuming that competitiveness only had a cost dimension, what would be required is that the differential with Germany and core countries were negative. Deflation in the periphery is therefore only necessary because Germany stubbornly refuses to accept higher inflation at home. And no, the two things are not equivalent, because deflation in a highly leveraged economy increases the burden of debt, and triggers a vicious circle deflation-high debt burden-consumption drop-deflation.
U.K.'s economy hit by eurozone woes - Business activity in the U.K. manufacturing sector slowed again in September as exporters struggled with weak demand for their products in the neighboring eurozone. Financial information firm Markit and the Chartered Institute of Purchasing and Supply said their purchasing managers index for the manufacturing sector slipped to 51.6 in September from 52.2 a month earlier, confounding expectations for a rise to 53. A reading above 50 indicates activity in the sector is expanding. September's figure represents the feeblest pace of expansion for 17 months, Markit said. The slowdown pushed the pound to a three-week low against the dollar of $1.6163, from $1.6196 previously. The survey found growth in new business for export was the weakest for 18 months. Growth has stalled in the 18 nations that use the euro , which together represent the biggest market for U.K. goods and services. Sterling's recent strength against the euro has further dented sales, Markit said. The slowdown in manufacturing comes as Bank of England officials weigh when to raise interest rates after a year-and-a-half of strong growth, which has sent unemployment tumbling. The BOE's benchmark rate has been pinned at a 320-year-low of 0.5% since March 2009.
Apple set to lose billions in EU state aid case -The Financial Times writes today that the European Commission has decided to open a formal investigation into whether Apple received illegal subsidies ("state aid," in EU-speak) from Ireland going as far back as 1991. The FT quotes "people involved in the case" as saying that this can cost Apple billions of euros.What the decision technically does is establish what is known as an "Article 108(2)" investigation, which means that the Commission has concluded from its preliminary investigation that state aid has been granted in violation of the EU's competition policy rules. It is therefore opening a more comprehensive investigation. It is worth noting that if the Commission opens an Article 108(2) investigation, it almost always decides that illegal state aid was given. The only recent exception I can think of is state aid from Poland to relocate Dell computer manufacturing from Ireland in 2009, and I actually think the Commission should have ruled against that as well, as I discussed in my book Investment Incentives and the Global Competition for Capital. As I speculated in June, one issue raised by the Commission is Apple's "nowhere" subsidiaries created under Irish law. Both Apple Operations Europe (AOE) and its subsidiary, Apple Sales International (ASI), are incorporated in Ireland, hence not immediately taxable by the United States until they repatriate their profits to the U.S. However, they are managed from the U.S., which by the provisions of Irish tax law makes them not taxable in Ireland. It is these provisions that are at issue in the case. "According to the information provided by the Irish authorities, the territory of tax residency of AOE and ASI is not identified." Richard Murphy suggests today that these corporate provisions account for the largest proportion of Apple's tax risk.