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

Saturday, November 15, 2014

week ending Nov 15

As QE3 Ends, Fed Reserves Have Biggest Drop Since Start Of QE -- While we understand the Fed's desire to pass the monetization baton seamlessly from the end of QE3 in the US, to the expansion of QE in Japan first, and then the launch of public QE by the ECB, things may not be quite as smooth as desired . Because a quick glance at the latest Fed H.4.1 statement reveals something unexpected: in the past 4 weeks, the level of total reserves with Fed banks (i.e., excess reserves created by QE), have seen their biggest plunge since the launch of QE in March of 2009. As of November 5, the total amount of outstanding reserves tumbled to $2.561 trillion, down a whopping $188 billion in the past 4 week, well below the $2.8 trillion recorded in August, and at a level last seen in February 2014. Yet when looking at the corresponding cash balances of banks, something which as we have shown in the past is directly driven by the total amount of systemic reserves, there is no comparable drop in total cash, as can be seen on the chart below. Unexpectedly, the difference between total bank cash balances as reported weekly by the Fed's H.8 statement, and the total amount of excess reserves has blown out the most observed under the Fed's central planning regime starting in 2009. Digging into the components reveals what most should expect: the cash balances of foreign banks operating in the US suddenly soared to a record high $1.537 trillion even as the cash of large domestic banks operating in the US tumbled to $1.1 trillion, accounting for almost the entire drop in Fed reserves! In fact, the total cash parked at foreign banks is greater than that located at domestic (large and small) banks by $100 billion, clost to the highest ever.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--November 13, 2014: The Board's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to reflect the removal of table 5 "Information on Principal Accounts of TALF LLC" and the line "Asset-backed securities held by TALF LLC" from table 2 "Maturity Distribution of Securities, Loans, and Selected Other Assets and Liabilities." Both have been removed because the final Term Asset-Backed Securities Loan Facility loan was repaid on October 29, 2014, and the net portfolio holdings of TALF LLC were reduced to zero on November 6, 2014. In order to provide information on amounts from the previous year, amounts for the "Term Asset-Backed Securities Loan Facility" and the "Net portfolio holdings of TALF LLC" continue to be shown on table 1 "Factors Affecting Reserve Balances of Depository Institutions,"

Yellen Says Rate Rises Could Increase Financial Volatility - WSJ - Federal Reserve Chairwoman Janet Yellen said Friday the central bank could trigger some financial turbulence when it starts raising short-term interest rates from near zero, where they have been pinned for six years. The Fed will try to limit such volatility by communicating its interest rate plans clearly, Ms. Yellen said in remarks prepared for delivery at a central banking conference in Paris. The central bank “will strive to clearly and transparently communicate its monetary policy strategy in order to minimize the likelihood of surprises that could disrupt financial markets, both at home and around the world,” she said. But “more importantly,” she said, the decision to start raising rates “will be an important sign that economic conditions more generally are finally emerging from the shadow of the Great Recession.” Ms. Yellen didn’t discuss when the Fed is likely to raise interest rates. Many market participants and central bank officials expect that move around the middle of next year. She did say, “given the slow and unsteady nature of the recovery, supportive policy remains necessary.”

Fed’s Plosser: Raise Rates Soon or Risk Falling Behind the Curve - Federal Reserve Bank of Philadelphia President Charles Plosser said Wednesday the U.S. central bank needs to raise short-term interest rates “sooner rather than later,” in a speech that praised the Fed’s recent move closer toward ending its easy-money policy stance. Raising rates off of the current near-zero levels “may allow us to increase rates more gradually as the data improve, rather than face the prospect of a more abrupt increase in rates to catch up with market forces, which could be the outcome of a prolonged delay in our willingness to act,” Mr. Plosser said. “Waiting too long to begin raising rates–especially waiting until we have fully met our goals for maximum employment or attained our inflation target of 2%–is risky because doing so could put monetary policy behind the curve,” he said. Mr. Plosser, a voting member of the policy-setting Federal Open Market Committee, made his comments in the text of a speech prepared for delivery in London. He spoke in the wake of the recent gathering of the FOMC. Then, officials continued to pledge that short-term rates will stay at near-zero levels for a “considerable time” to come. But other changes in the statement suggested more optimism about the outlook, and many interpreted the statement as moving the Fed a step closer to raising rates. Most expect that to happen some time next year. Mr. Plosser said in his speech that while he had wished the Fed would have made more substantial changes in the policy statement, it nevertheless was an improvement. “While the Committee retained the ‘considerable time’ language, it added clarity by stressing the fact that the decision to lift the interest rate target would be driven by the data,” Mr. Plosser said.

Fed’s Fisher Says Delay in Raising U.S. Interest Rates Could Cause Recession -  Dallas Federal Reserve President Richard Fisher said he’s concerned that if the central bank waits too long to raise interest rates it could throw the U.S. economy into recession, speaking in an interview in the German daily Handelsblatt. If the Federal Reserve acts too late, inflation, and the economy’s reaction, could be all the stronger, “plunging the economy into the next recession,” he said. “It’s like duck hunting, you need to aim ahead of the target, otherwise you miss,” he said. Mr. Fisher said interest rates could move higher sooner than markets anticipate. “The markets assume that it will happen in summer. I think it could happen earlier—but of course I could be wrong,” he said. On banking reform, Mr. Fisher said banks need to be told that the state will only protect insured deposits, and shouldn’t expect further assistance in a crisis. That would cause banks to downsize of their own volition, he said. In addition, Mr. Fisher expressed respect for his colleagues at the European Central Bank, in coping with the many governments of the eurozone. “We have enough problems dealing with a single government,” he said.

Fed’s Dudley: Still too early to raise rates: It's still too early to raise interest rates given below-target inflation, New York Federal Reserve President William Dudley said, noting there could be a significant benefit from letting the economy run "slightly hot." Speaking at the Central Bank of the United Arab Emirates in Abu Dhabi on Thursday, Dudley called for "patience" on an increase in the Fed funds rate as the risk of tightening prematurely is greater than the risk of tightening too late. He expects rates to rise sometime next year if economy grows as expected. Inflation remained subdued in September. Core consumer prices rose 1.7 percent on year, unchanged from August and below the Fed's 2.0 percent target.  Dudley also cited a "meaningful gap" between the current unemployment rate and full employment for his rate outlook. In October, employment gains topped 200,000 for the ninth straight month – the longest stretch since 1994, while the unemployment rate fell to a six-year low of 5.8 percent. But that remained above the 5.2 percent to 5.6 percent range that the Fed considers full employment.

Fed’s Kocherlakota Says Raising Rates in 2015 Would Be a Mistake - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said on Wednesday financial markets could face less than placid waters in coming years. “I would expect that as we move forward, we’re going to see low interest rates by historic standards,” Mr. Kocherlakota said in response to audience questions . “That’s going to translate into more volatility in asset prices,” he said.The official’s view that historically low rates could unsettle stock and bond markets has been aired before in speeches by Mr. Kocherlakota. The official said in remarks last week that right now, he sees nothing in asset markets that would warrant the Fed following a different path when it comes to its interest-rate policy.Mr. Kocherlakota also said in response to audience questions that he doesn’t believe the sharp drop in gasoline prices will be sustained at its current pace.In his formal remarks, Mr. Kocherlakota repeated his belief that a U.S. central bank rate increase next year would be a mistake. Inflation is unlikely to reach the Fed’s 2% target until 2018, and because of this outlook, “it would be inappropriate for the [Federal Open Market Committee] to raise the target range for the fed funds rate at any such meeting” occurring in 2015, he said.Mr. Kocherlakota is a voting member of the monetary policy-setting FOMC, which met at the end of October in a meeting that saw officials continue to predict short-term rates will stay very low for a “considerable time.” Officials also changed their economic outlook in a way that suggested the Fed is getting closer to raising interest rates. Mr. Kocherlakota dissented against the FOMC decision.

Fed’s Bullard Still Wants Fed Rate Rise in Late First Quarter 2015 - Federal Reserve Bank of St. Louis President James Bullard said low inflation in the U.S. economy is no longer enough to justify the current rock bottom setting for short-term interest rates, and he repeated his view that rates should be lifted off their current near zero levels early next year. “Inflation at the current level is not enough to justify remaining at a near-zero policy rate,” Mr. Bullard said in a speech in St. Louis. “Low inflation can justify a policy rate somewhat lower than normal, but not zero.” “Labor markets continue to improve and are approaching or even exceeding normal performance levels,” Mr. Bullard said. “Over the next year, it will become more and more difficult to point to labor market performance as a rationale for a near-zero policy rate.” He told reporters after his formal remarks that his continued expectation of 3% growth and job gains through next year means “that the best time to raise the policy rate will be at the end of the first quarter of 2015.” Mr. Bullard added, “That’s based on a forecast; data could come in differently.” In his speech, Mr. Bullard took stock of the robust gains seen in the job market, which have come at a time where inflation has run persistently below the Fed’s 2% price rise target.

Fed’s Dudley: It Would Be ‘Premature’ to Hike Interest Rates Soon - Federal Reserve Bank of New York President William Dudley said Thursday the time hasn’t yet arrived for the U.S. central bank to begin raising short-term interest rates. While there’s been considerable improvement in the U.S. economy, “it still is premature to begin to raise interest rates–there remains slack in the labor market and the inflation rate is still too low,” Mr. Dudley said. The economy’s current and expected state “argues for patience with respect to the timing of liftoff of the federal funds rate and the beginning of the normalization of monetary policy,” Mr. Dudley said. “If all goes well, I anticipate that we will begin to raise short-term rates sometime next year,” he added. “Monetary policy needs to be very accommodative” to help the economy heal further, and any push to raise rates too early could be very damaging for growth, Mr. Dudley said. He added, “given the still high level of long-term unemployment, there could be a significant benefit to allowing the economy to run ‘slightly hot’ for a while in order to get these people employed again.” Mr. Dudley, who serves as vice-chairman of the monetary-policy setting Federal Open Market Committee, is a highly influential member of the central bank and a close ally of Fed Chairwoman Janet Yellen. Mr. Dudley has been a steadfast supporter of using central bank policy aggressively to help spur better rates of growth and higher rates of employment.

Rosengren: Fed Should Remain ‘Patient’ on Rates Until Inflation Begins to Rise -  Federal Reserve Bank of Boston President Eric Rosengren said Monday the U.S. central bank should refrain from raising short-term term interest rates until there is “stronger evidence” price pressures are beginning to rise. "Monetary policymakers should remain patient about removing accommodation until it is clear that we are on the path to achieving both our 2% inflation target and maximum sustainable employment,” Mr. Rosengren said in the text of a speech to be delivered before an audience at Washington & Lee University, in Lexington, Va. While Mr. Rosengren didn’t say when he expects the Fed to raise short-term interest rates from what are now near-zero levels, he warned that falling energy and commodity prices, tepid wage gains and a resurgent dollar could make it difficult to see inflation rise toward the 2% mark central bankers have defined as their official target. He said actual levels of inflation are likely to be “well below the target” for a while to come.

Kocherlakota Says Low Inflation Should Keep Fed on Hold - The Federal Reserve could move further away from its 2% inflation target if it decides to raise interest rates next year, as many Fed officials have suggested and market participants expect, Minneapolis Fed President Narayana Kocherlakota said Thursday. Mr. Kocherlakota, who has become perhaps the most vocal advocate for aggressive Fed action in meeting both its employment and inflation mandates, told a conference at Stanford University that the Federal Open Market Committee has been missing its two targets for far too long. “Labor market outcomes, while improving, have been distressingly weak since 2007. So, employment has been below its maximum level over the past seven years,” he said. “Inflation has also been low relative to the FOMC’s target. And there is little sign of an uptick–over the past 12 months, inflation has been 1.4%.” Mr. Kocherlakota dissented at the Fed’s October meeting, preferring to keep buying bonds and pushing for the Fed to promise zero rates until the one- to two-year-ahead inflation forecast has returned to 2%. He said he doesn’t expect the Fed to hit its target until 2018 at this rate. “Monetary policy has proven to be insufficiently accommodative to offset either the price or employment effects of this large shock,” he said, referring to the Great Recession.

Former Fed Chief at Odds With How Central Bank Now Makes Policy - Paul Volcker, the man who broke the back of inflation in the opening years of the 1980s, is a man at odds with what Federal Reserve policy making has become. A 2% inflation target? Long-term, detailed forecasts of activity? Pledges to keep rates very low well into the future? For Mr. Volcker, who led the Fed from 1979 to 1987, these are all overly precise policy choices that promise more than any central bank can deliver. What’s worse, the policies that have come to define modern Fed policy can even be counterproductive, making central bank goals harder to achieve. Mr. Volcker, 87, weighed in on monetary policy while participating at a conference held at the Federal Reserve Bank of Philadelphia on Thursday. The former central banker occupies a hallowed place in the institution’s history, having helmed the effort that decisively killed the high inflation that boiled out of the 1970s, albeit by way of creating a sharp economic downturn. His blunt-force approach to central bank policy making stands in sharp relief to the increasingly complex web of communications and tools that have come to define the Ben Bernanke and Janet Yellen eras of central bank leadership. Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, “Do we want prices to double every generation?” Mr. Volcker said that “any price index is an approximation of reality,” and it would be better if the Fed was “fuzzy” about what level of prices it wished to achieve. What’s more important, he said, is that “you want a situation where people generally expect prices will be stable,” and the Fed appears to have that right now.

The Mysterious Fed - Paul Krugman -- As usual, my inbox is full of speculations about when the Fed will raise interest rates. June 2015? Earlier? Has it already waited too long?  And as usual, I wonder why anyone is talking about this at all. Yes, unemployment has fallen. But there is huge ambiguity about what level of unemployment is sustainable given changing demography, the uncertain degree to which people might return to the work force given better job availability, and so on. There’s also a huge asymmetry in risks between raising rates too soon — which can leave us stuck in a low inflation or deflation trap for a very long time — and raising rates a bit too late, which at worst means temporarily overshooting an inflation target that’s arguably too low anyway.  Meanwhile, both the Fed’s preferred measure of inflation and wages are showing no hint of an overheating economy:  So what the heck is going on? Maybe it’s just pluralistic ignorance?

Fed’s Rate View Being Pulled In Two Directions By Jobs, Inflation - The Federal Reserve’s interest rate outlook is being pulled in two different directions. Thursday brought more information that the labor market – a centerpiece of Chairwoman Janet Yellen’s concerns – is rapidly moving closer to the Fed’s goal of full employment. But falling oil prices and a soft global economic outlook mean the path to 2% inflation is looking longer. Over 5 million people were hired in September, according to the Labor Department’s monthly Job Openings and Labor Turnover Survey, known as JOLTS. That’s the first time hiring crossed the 5 million threshold since December 2007, the month the recession officially started. In addition, 2.8 million people voluntarily quit their jobs, the most since April 2008. Quitting has been singled out by Ms. Yellen as an indicator she watches closely. When Fed officials update their economic forecasts in December, they could be shading down their unemployment rate forecasts. Yet look at the Wall Street Journal’s latest survey of private forecasters to see where the inflation forecast is going. According to the panel of 44 economists, yearly inflation as measured by the consumer price index will end 2014 at 1.6%. As recently as the September survey, the consensus view was that inflation would accelerate and end the year at 2.1%. It is getting harder every month to make that argument on the full employment goal, but not so much inflation. New York Fed president William Dudley suggested Thursday he’d like to be opportunistic about soft inflation and let the job market run even hotter. Mr. Dudley’s view won’t go unchallenged inside the Fed.  Its patience will be tested if the job market keeps improving as quickly as it has been of late.

Fed’s Plosser: Too Soon to Say There’s a ‘New Normal’ for Economy - Federal Reserve Bank of Philadelphia President Charles Plosser said Thursday he’s not that worried about the U.S. central bank falling short on hitting its 2% inflation target. Speaking to reporters after a speech on long-term monetary policy issues, Mr. Plosser said, “I don’t believe our 2% target is something we are going to hit precisely” at any point. “The key for me is maintaining inflation expectations,” and in this case, while actual inflation is low, expectations have been steady in the way central bankers would like to see, the official said. The Fed has been bedeviled for an extended time by inflation that has fallen persistently short of its 2% goal. In September annual inflation came in at a tepid 1.4%, amid signs financial market participants are beginning to expect even lower inflation going forward. Some on the Fed have been alarmed at the central bank’s move toward interest-rate increases given how far short inflation is of Fed goals. Most Fed officials expect the central bank to raise interest rates next year. But others would like the Fed to hold off until it has better evidence price pressures are moving back toward the 2% target. Mr. Plosser said he doesn’t believe the Fed has much power at the moment to push prices higher given that all the stimulus of recent years still hasn’t delivered the desired level of price pressures. Adding more stimulus by “creating more reserves won’t change any outcomes right now for inflation,” Mr. Plosser said. Part of this situation owes to changes in how monetary policy actions are translated by the financial system into the broader economy, he said. In his formal speech, Mr. Plosser said those who believe changes in the economy argue for easier setting of central bank policy over the long run are getting ahead of themselves.

QE isn’t dying, it’s morphing - Thoughts - Nomi Prins - A funny thing happened on the way to the ‘end’ of the multi-trillion dollar bond buying program known as QE - the Fed chronicles.esAside from the shift to a globalization of QE via the European Central Bank (ECB) and Bank of Japan (BOJ) as I wrote about earlier, what lingers in the air of “post-taper” time is an absence of absence. For QE is not over. Instead, in the United States, the process has simply morphed from being predominantly executed by the Federal Reserve (Fed) to being executed by its major private bank members. Fed Chair, Janet Yellen, has failed to point this out in any of her speeches about the labor force, inflation, or inequality.  The financial system has failed and remains a threat to us all. Only cheap money and the artificial inflation of asset values can make it appear temporarily healthy. Yet, the Fed (and the Obama Administration) continue to perpetuate the illusion that making the cost of (printed) money zero by any means has had a positive effect on the population at large, when in fact, all that has occurred is a pass-the-debt-ponzi-scheme co-engineered by the Fed and big US bank beneficiaries. That debt, caught in the crossfires of this central-private bank arrangement, is still doing nothing for American citizens or the broader national or global economy.  The Fed is already the largest hedge fund in the world, with a book of $4.5 trillion of assets. These will plummet in value if rates rise.  Cue the banks that are gearing up their own (still small in comparison, but give them time) role in this big bamboozle. By doing so, they too are amassing additional risk with respect to interest rates rising, on top of all their other risk that counts on leveraging cheap money.

Yellen Says Fed Can’t Ignore World Economy -  The Federal Reserve must keep a close eye on developments overseas and their impact on the U.S. economy as they set the future course of interest rates, Fed Chairwoman Janet Yellen said Thursday. “As all of you know the Federal Reserve is focused on achieving its Congressionally-mandated objectives of full employment and price stability,” Ms. Yellen said in introductory remarks to a conference on international macroeconomics and finance hosted by the Fed. Ms. Yellen didn’t comment on the current state of the economy or monetary policy. “Because the economy and financial system are becoming increasingly globalized, fulfilling these objectives requires us to achieve a deep understanding of how evolving developments and financial markets and economies around the world affect the U.S. economy, and also how U.S. policy actions affect economic and financial development overseas,” she said.

Fed Officials Say They Are Watching Overseas Risks - Federal Reserve officials are closely watching financial developments overseas, where economic growth has been soft, since they can have a significant effect on the U.S. economy, top Fed officials said Friday.  Fed Governor Jerome Powell didn’t directly address the outlook for monetary policy, saying simply “the path of policy will depend on progress of the economy toward fulfillment of the dual mandate” of stable prices and full employment. He also said monetary policy appears to have provided significant support to economic growth. The focus of his remarks, which were made during a Fed conference on international economics and finance, was the potential for excessive risk-taking in financial markets due to low interest rates globally. He said Fed research suggests U.S. investors in foreign bond investors don’t appear to be taking undue risks. “Taken together, developments in U.S. bond portfolios do not indicate a worrisome pickup in risk-taking in external investments,” said Mr. Powell, previously a private-equity investor as a Carlyle Group CG -0.30%partner. “But it is important to recognize that portfolio re-allocations that seem relatively small for U.S. investors can loom large from the perspective of the foreign recipients of these flows.” He said part of the point of the Fed’s low interest rate policy was to stimulate greater risk-taking, adding that it was difficult to distinguish appropriate levels of such investments from dangerous ones in advance.

The Two New Tools of Monetary Policy - Every basic exposition of how monetary policy is conducted before about 2008 is soon to become obsolete. The three basic monetary policy tools that used to be taught in almost every introductory economics course were changing reserve requirements, changing the discount rate, and conducting open market operations. Because of the way in which monetary policy was conducted during the Great Recession, all three tools have become essentially irrelevant. In the future, The Federal Reserve will mainly influence interest rates through two quite different tools that didn't even exist before 2008: primarily by using the rate of interest that it chooses to pay on bank reserves, and secondarily using its new reverse repo facility. There's no secret about these new tools.  For example, here's an explanation from September 16-17 meeting of Federal Open Market Committee

  • When economic conditions and the economic outlook warrant a less accommodative monetary policy, the Committee will raise its target range for the federal funds rate. 
  • During normalization, the Federal Reserve intends to move the federal funds rate into the target range set by the FOMC primarily by adjusting the interest rate it pays on excess reserve balances. 
  • During normalization, the Federal Reserve intends to use an overnight reverse repurchase agreement facility and other supplementary tools as needed to help control the federal funds rate. The Committee will use an overnight reverse repurchase agreement facility only to the extent necessary and will phase it out when it is no longer needed to help control the federal funds rate. 

Let's do a quick review of the old monetary policy tools, explain why they no longer work, and then introduce the new monetary policy tools.

The Labor Market is Recovering Well and the Case Strengthens for the Fed to Normalize « (12 graphs) The Bureau of Labor Statistics release of the October jobs report showed continued steady improvement in the US labor market. Total non-farm payroll employment increased by 214,000, just slightly below the average monthly gain of 222,000 observed over the previous twelve months. Moreover, September employment gains were revised up by 8,000.  While the gains were broad-based, the bulk of the increase occurred in private service sector at 181,000. Employers are increasing their work force at both the extensive margin (jobs) and the intensive margin (hours). Average weekly hours increased slightly as did average hourly earnings. The official unemployment rate moved down to 5.8%, the lowest rate since July, 2008, and the U-6 rate (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force) fell to 11.5%. The employment to population ratio and labor force participation increased. Transition Rate Up for Long-term Unemployed… While the median unemployment duration ticked up in October from 31.5 to 32.7 weeks, the rate at which workers are finding jobs has shown steady improvement. Since early 2014, the unemployment to employment transition rate has increased for all workers, particularly for those unemployed less than 14 weeks. The number of employees working part-time for economic reasons (PTER) has also declined as the number of persons stating they could only find part-time employment fell by 115,000. This group of workers has been a focus of the Fed in describing the ‘slack’ still existent in the labor market. In the figures below, we show the rate at which these workers either return to unemployment or find full-time work. The transition rate into unemployment has entirely returned to its pre-recession level. PTER workers are not losing their jobs as frequently as during the depths of the recession. However, we do still see that these workers aren’t finding full-time employment at the rate they once did before 2007. In fact, the transition rate from PTER into full-time employment hasn’t shown any signs of improving in the previous 5 years, despite accommodative monetary policy.

Why the Fed is Flummoxed by the U.S. Labor Market - At times I imagine Fed Chair Janet Yellen ‎walking purposefully within the cloister of the Fed’s Eccles Building in Washington muttering ”Something is not right!”…‎as she moves from meeting to meeting.  A few months ago Chair Yellen revealed that she had misgivings about the jobs market―citing evidence of “labor slack.”  More recently, as equity markets gyrated wildly in October, she focused on global deflationary concerns.  By the end of the month, however, she crafted a post-meeting statement from the Federal Open Market Committee, taking comfort in a lower unemployment rate and a number of other data points indicating economic improvement.  Yet we are left with the feeling that Yellen is profoundly uncomfortable about declaring victory over a seven year economic slump and moving on to monetary business as usual.  Our Federal Reserve Board chair is, after all, one of the best labor economists in the profession and must see that present circumstances in the jobs market just don’t feel like anything approaching normal. One elephant in the room is a set of statistics describing the participation in the labor force of those who are employable―the so-called Labor Force Participation Rate (LFPR)―which remains at low levels unseen since the early 1970’s, when two income families were not yet the norm.   The LFPR, together with the ratio of employed individuals to the population of employable people (the Employment-Population Ratio), are flashing bright red warnings about substantial slack in the U.S. labor force.  Such slack would seem to indicate that there is little concern to be had about sustainable inflation in wages and, moreover, that the increased wages that are necessary for the vibrant recovery and reflation of the U.S. economy are not likely to manifest themselves any time soon. 

Monetary Policy: A Lesson Learned —The Federal Open Market Committee (FOMC) recently ended another round of large-scale asset purchases, so now is a good opportunity to take stock of what Fed policy has achieved since the peak of the financial crisis in fall 2008. Back in 2002, then-Governor Ben Bernanke gave a speech entitled “Deflation: Making Sure "It" Doesn't Happen Here.” His message was that the experience of the 1930s taught us the importance of using aggressive monetary accommodation to avoid deflation. As Chairman of the Federal Reserve Board during the financial crisis of 2007-2009, Bernanke and his colleagues took actions that their 1930s predecessors had not. The result was a Great Recession, not another Great Depression.The depth and duration of these “Great” downturns differ markedly. During the Great Depression, consumer prices and output each plunged by nearly 30% from their 1929 peak to their 1933 trough. And, it took until 1936 for real GDP to regain its pre-Depression level. By contrast, in the Great Recession, the consumer price index fell by 3.2% during the second half of 2008, but then quickly regained its previous level in less than a year. Output fell by 4.2% from end-2007 to mid-2009, but again it regained its pre-crisis peak by late 2010. We credit the Federal Reserve with preventing another depression, and thank them for it. To see why, let’s compare the evolution of reserves in the U.S. banking system over the two periods. Reserves are the deposits of commercial banks at the Federal Reserve. The Fed controls the volume of aggregate reserves through its purchase and sale of securities.

The Fed Won: America's 0.1% Are Now Wealthier Than The Bottom 90% - Game over, man: the Fed won.  As the Economist reports, according to a new paper by authors at liberal bastion UC Berkeley and the LSE, US inequality in wealth is approaching record levels (actually it already surpassed it as reported long ago).  "The authors examine the share of total wealth held by the bottom 90% of families relative to those at the very top. In the late 1920s the bottom 90% held just 16% of America’s wealth—considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929. From the beginning of the Depression until well after the end of the second world war, the middle class’s share of total wealth rose steadily, thanks to collapsing wealth among richer households, broader equity ownership, middle-class income growth and rising rates of home-ownership. From the early 1980s, however, these trends have reversed. The top 0.1% (consisting of 160,000 families worth $73m on average) hold 22% of America’s wealth, just shy of the 1929 peak—and almost the same share as the bottom 90% of the population."  That was as of 2013. By now the wealth of the top 0.1% is not only well above that of the "bottom 90%" but higher than it has ever been.

Rage of the Traders - Paul Krugman - Sometimes the absurdity of what passes for economic wisdom surpasses even my highly adapted expectations. I really, truly expected that even Wall Street would consider PeterPaul Singer’s hyperinflation in the Hamptons rant embarrassing, and try to pretend that it never happened. But no; apparently it’s being passed around eagerly by traders and big shots who think it’s the greatest thing since sliced foie gras.   So what’s this about? Jesse Eisinger at ProPublica tries to make a case for the rage of the hedgies; Eisinger argues that while it’s foolish to claim that the inflation books are cooked, the government and the Fed have created a fake sense of financial health, so the overall perception that it’s some kind of illusion is right. Sorry, but I don’t buy that. For one thing, if you want to claim that the stress tests were all fake and the banks were truly insolvent, shouldn’t we have seen a reckoning by now? Beyond that, Eisinger is imputing a reasonable analysis to the likes of Singer based on no evidence I can see. I’d suggest that when Singer talks about a debased currency and fake economic growth, that’s because he really believes that we have a debased currency and fake growth, not as a metaphor for some other kind of economic deception.  What we’re looking at here are traders who looked at historical correlations — while disdaining macroeconomics — and concluded that low interest rates would surely rise back to historical norms. When those rates did no such thing, they looked at the Fed’s intervention — and to them it looked like a big trader distorting markets, London Whale-style, by making huge bets that would surely go bad. So they sat back and waited for the collapse.  And the collapse keeps not happening, because the Fed is not a rogue trader and historical norms for interest rates aren’t relevant in a persistently depressed, deleveraging economy. But rather than acknowledge that they were wrong, let alone that, er, Keynesian macroeconomics has something to teach them, these guys lash out: It’s all fake!

Printing money to fund deficit is the fastest way to raise rates - - Adair Turner - What is the right course for monetary policy? The International Monetary Fund seems to answer with forked tongue. Its latest World Economic Outlook urges that monetary policy should stay loose to stimulate growth. Yet its Global Financial Stability Review warns that loose monetary policy risks creating financial instability, which could crimp growth. In fact the best policy is to print money and raise interest rates. That sounds contradictory, but it is not. The global economy is suffering the hangover from many decades of excessive private sector credit growth. In 1950 private credit in advanced economies was 50 per cent of gross domestic product; by 2007 it was 170 per cent. Debt owed by the public and private sectors has actually increased as a proportion of GDP, from 170 per cent five years ago to 200 per cent today. Weak demand has led to below-target inflation in all major economies. Economists agree that this is how we got into the current mess, but they disagree about how to get out of it. Some, such as Paul Krugman and Lawrence Summers, argue for more relaxed fiscal policies. Cutting taxes or increasing public expenditure is the most certain way to stimulate demand. In Milton Friedman’s words it is an injection directly “into the income stream”. But this route out of recession would increase public debt even further. It seems blocked. Instead, most countries have opted to combine fiscal tightening with ultra-loose monetary policy, setting short-term interest rates close to zero and using quantitative easing to reduce long-term rates and boost asset prices. We should indeed seek a swift return to higher interest rates, to remove the dangerous subsidy to high leverage. But paradoxically, the best way to do that, particularly in Japan and the eurozone, would be to deploy a variant of Friedman’s idea of dropping money from a helicopter. Government deficits should temporarily increase, and they should be financed with new money created by the central bank and added permanently to the money supply. Money-financed deficits would increase demand without creating debts that have to be serviced. This would lift either real output or inflation and allow interest rates to return to normal more quickly. True, banks might amplify the stimulus by creating additional private credit, but they can be restrained with higher reserve requirements.

Helicopter drops: A dare from Turner - Adair Turner’s FT piece urges the central bank/government to finance future debt with helicopter money.  Leaving aside the merits of helicopter money, I found his argumentation unusual.  It’s a piece worth taking seriously, because one presumes there must be a high chance still that he gets a post on the MPC in some capacity in the not too distant future. One of his reasons is that helicopter money, unlike QE, would not affect asset prices.  Three problems with this.

  • i) People should not take it as axiomatic that QE had a greatly material effect on asset prices.  The research is much less clear-cut.  For example, Vissing-Jorgensen and Krishnamurthy find that the Fed’s QE just pushed up spreads between government and private sector yields.
  • ii) Helicopter money-financed debt is fiscal policy but depriving the market of long dated securities, and giving instead reserves.  ie, it’s like the first leg of QE.  [Joining up the DMO debt issue and the declared temporary debt purchase by the BoE into one operation].  The BoE have said that QE will be reversed, so at some point the two policies will become different when the promise is kept.  But right now, they aren’t.  And maybe – HMT’s 2012 asset purchase facility profits grab is indicative – they won’t ever be.  In which case how is QE supposed to bloat asset prices but HM not?
  • iii)  Affecting asset prices is not all bad!  That could be the price to pay for encouraging spending, increasing demand and employment.

Turner also says that helicopter money would lead to rates being higher than otherwise more quickly.  I can see that one might argue that HM might stimulate more strongly, and so lead to the MPC later choosing, naturally, to raise rates back to normal.  But he doesn’t seem to mean that.  Other things equal [they aren't, but never mind] dropping reserves out there means lower interest rates to clear the money market, initially.

SF Fed Flags Frictions Over Outlook for Long-Term Rates - Federal Reserve Bank of San Francisco economists warned Monday that expectations that interest rates may be lower in the future relative to years past may be setting the economy up for potential trouble. The economists were taking stock of an emerging view that the economy is undergoing changes that will lead to a lower potential rate of growth over coming years. The diminished growth outlook, driven by shifts in the size of the working-age population, productivity trends and ongoing damage from the financial crisis, is creating rising expectations that interest rates in the future will not, on balance, need to be as high as they were. Writing for the bank, Sylvain Leduc and Glenn Rudebusch say this line of thinking could create problems down the road. They wrote that while forecasters at the Congressional Budget Office and the Federal Reserve “expect weaker long-run growth to translate into lower interest rates, private-sector forecasts do not seem to share this view.” The divergent outlook could mean “future downward pressure on interest rates may be more muted than indicated by current monetary and fiscal policy projections, which would translate into an upside risk to these longer-term interest rate forecasts.” Put another way, if the private-sector economists have a better handle on the long-term outlook relative to their colleagues in the government, it may mean projections of government-bond yields and central bank interest-rate policy are wrong. Treasury yields and the rates set by the Fed may prove to be higher than currently projected.

NY Fed Says Public’s Inflation Outlook Steady At 3% In October --Consumers’ outlook on inflation held steady in October, suggesting recent market signals pointing to a further ebbing in price pressures may have sent a misleading message about the economy’s future path. The Federal Reserve Bank of New York said Monday in its latest survey of consumer expectations that households’ one- and three-year outlook was unchanged in October at a 3% rise. The public’s expected path of inflation comes amid continued weak readings in actual levels of inflation, with September prices up a mere 1.4% from the year before. The steady state of expected inflation shown in various surveys has helped Fed officials remain confident that price pressures, while very low, will eventually move back to their official 2% price target. Central bankers have faced an extended period of inflation that has fallen short of their goal, in a situation that’s far from unique to the U.S. The recent monetary-policy setting meeting of the Federal Reserve Open Market Committee drew a dissenting vote from Minneapolis Fed President Narayana Kocherlakota. He believes it is wrong for the central bank to be edging toward rate increases when inflation has been so persistently under a target the Fed has promised to defend from both the high and low side. Most Fed officials have remained steadfastly confident price pressures will increase as the economy grows and add jobs, which they believe will generate wage gains that will lift price pressures higher. Policy makers have been able to shrug off weak current inflation data in large part because inflation expectations have been largely steady. Richmond Fed President Jeffrey Lacker said recently that expected inflation exerts a strong “gravitational pull” on actual inflation readings as a reason to be confident price pressures will rise, reflecting a view held by many central bankers and private-sector economists.

Dollar rises to seven-year high against yen - The dollar reached a fresh seven-year high against the yen Tuesday, bolstered by reports that Japanese Prime Minister Shinzo Abe is considering holding a snap election and posting, or cancelling, a sales tax increase expected in 2015. The dollar traded as high as 116.1050 yen early Tuesday, it’s highest level since Oct. 17, 2007, before falling back to ¥115.70. It traded at ¥114.94 late Monday. “At the moment, these reports are just rumours, but we could be in for an interesting trading session in Asia later if the story escalates further,” said Jameel Ahmad, chief market analyst at Forex Time, in a research note. The dollar is poised to break above the ¥120 level during the next few months, said from Nour Al-Hammoury, chief market strategist at ADS securities. Elsewhere, the greenback traded higher against the ruble as Brent crude futures for December declined. The dollar traded at 46.6628 rubles, compared to 45.9860 Monday. Russia’s economy is heavily dependent on oil exports. The pound traded slightly higher against the greenback ahead of Wednesday morning’s U.K. labor market report, which is expected to provide insight as to when the Bank of England plans to raise its key interest rate.

The Return of the Dollar -  Mohamed A. El-Erian - The US dollar is on the move. In the last four months alone, it has soared by more than 7% compared with a basket of more than a dozen global currencies, and by even more against the euro and the Japanese yen. This dollar rally, the result of genuine economic progress and divergent policy developments, could contribute to the “rebalancing” that has long eluded the world economy. But that outcome is far from guaranteed, especially given the related risks of financial instability. Two major factors are currently working in the dollar’s favor, particularly compared to the euro and the yen. First, the United States is consistently outperforming Europe and Japan in terms of economic growth and dynamism – and will likely continue to do so – owing not only to its economic flexibility and entrepreneurial energy, but also to its more decisive policy action since the start of the global financial crisis. Second, after a period of alignment, the monetary policies of these three large and systemically important economies are diverging, taking the world economy from a multi-speed trajectory to a multi-track one. Indeed, whereas the US Federal Reserve terminated its large-scale securities purchases, known as “quantitative easing” (QE), last month, the Bank of Japan and the European Central Bank recently announced the expansion of their monetary-stimulus programs. In fact, ECB President Mario Draghi signaled a willingness to expand his institution’s balance sheet by a massive €1 trillion ($1.25 trillion). With higher US market interest rates attracting additional capital inflows and pushing the dollar even higher, the currency’s revaluation would appear to be just what the doctor ordered when it comes to catalyzing a long-awaited global rebalancing – one that promotes stronger growth and mitigates deflation risk in Europe and Japan. Specifically, an appreciating dollar improves the price competitiveness of European and Japanese companies in the US and other markets, while moderating some of the structural deflationary pressure in the lagging economies by causing import prices to rise.

Predictors of ’29 Crash See 65% Chance of 2015 Recession - In 1929, a businessman and economist by the name of Jerome Levy didn’t like what he saw in his analysis of corporate profits. He sold his stocks before the October crash. Almost eight decades later, the consultancy company that bears his name declared “the next recession will be caused by the deflating housing bubble.” By February 2007, it predicted problems in the subprime-mortgage market would spread “to virtually all financial markets.” In October 2007, it saw imminent recession -- the slump began two months later. The Jerome Levy Forecasting Center, based in Mount Kisco, New York, and run by Jerome’s grandson David, is again more worried than its peers. Its half-dozen analysts attach a 65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year. That call runs counter to the forecasts of Morgan Stanley and Goldman Sachs Group Inc. The two banks posit an expansion that has plenty of room to run.

U.S. budget deficit widens in October -  The federal government’s budget gap widened in October, the Treasury Department said Thursday, but the higher figure was a result of calendar shifts and not a worsening fiscal picture. In October, the deficit was $122 billion, an increase of $31 billion, or 34%, from the same month a year ago. October is the first month of the 2015 fiscal year. A Treasury official said the October deficit would have been $84 billion, or $6 billion lower than the October 2013 shortfall of $91 billion, if not for calendar adjustments. For example, $41 billion in benefit payments that would normally have been made in November were made in October because Nov. 1 fell on a Saturday. The government spent $334 billion in October, as outlays on defense, education and veterans programs climbed. Spending was 16% more than October last year. Receipts were $213 billion, up 7% from a year ago. Receipts of individual withheld taxes, payroll taxes and corporate taxes all rose from last October. The federal government’s budget year runs from October through September.

Pentagon says billions needed for neglected U.S. nuclear force (Reuters) - Defense Secretary Chuck Hagel told troops responsible for U.S. nuclear bombers and missiles on Friday he was committed to revitalizing their force with millions of dollars in new funding after years of neglect. Hagel, visiting Minot Air Force Base in North Dakota hours after announcing an overhaul of U.S. nuclear forces, promised additional money to improve their jobs and work conditions, including curbing an excess focus on perfection that helped spark a cheating scandal at a sister base this year. "You are an indispensable element of our national security," Hagel told the airmen and missileers. "You are the main deterrent for the security of this country." true The review released by the Pentagon on Friday found a nuclear force "understaffed, under-resourced and reliant on an aging and fragile supporting infrastructure in an over-inspected and overly risk-averse environment." At the announcement earlier in Washington, Hagel referred to a situation in which a single wrench needed to attach warheads to missiles had to be sent by Federal Express from one base to another. "We now have a wrench for each location. We're going to have two wrenches for each location soon," Hagel said.

Top 1% of Americans Earned 15% of Income, Paid 24% of Federal Taxes in 2011, CBO Says -- The top 1% of U.S. households earned 14.6% of all income and paid 24% of all federal taxes in 2011, up from 8.9% and 14.2% in 1979, according to new data released by the Congressional Budget Office. The new report sheds light on the evolving U.S. economic landscape, which has drawn attention in Washington and around the country in recent months amid a focus on wage stagnation and uneven growth. The tax figures represent the lion’s share of government revenue but do not include things like estate taxes and certain fees. The report also finds that tax rates for all income groups have fallen since 1979. The total average federal tax rate fell for the top 1% of earners from 35.1% in 1979 to 33.3% in 2013. The total average federal tax rate for the bottom 20% of households fell from 7.5% in 1979 to 2.9% in 2013. Other income groups saw small declines. Many of the tax and income changes come as a result of economic and policy forces that have taken place over the past several decades. Tax cuts and tax increases have adjusted how much money is paid by different income groups. Meanwhile, income growth has become more concentrated among certain U.S. households. Inflation-adjusted after-tax income was 200% higher for the top 1% of households in 2011 compared with 1979. But households in the bottom 20% of earners saw inflation-adjusted after tax income grow 48%. CBO found that average household income in 2011 was $93,900, with $13,300 of that coming from government transfers. The majority of those transfers are income from programs like Medicare and Social Security.

AIG Bailout Trial Revelation: Morgan Stanley Told Geithner it Would File for Bankruptcy the Weekend it Became a Bank - Yves Smith - I’m still hugely behind on the AIG bailout trial, and hope to show a ton more progress in the next week. I’m posting the transcript for days three the trial; you can find the first two days here and other key documents here.  The first week was consumed with the testimony of the painfully uncooperative Scott Alvarez, the general counsel of the Board of Governors, who Matt Stoller argued needs to be fired, and the cagier-seeming general counsel of the New York Fed, Tom Baxter. Unlike Alvarez, Baxter at least in text seemed to be far more forthcoming than Alvarez and more strategic in where he dug in his heels. But the revelations about the Morgan Stanley rescue alone are juicy. The main actors have sold a carefully concocted story for years.  One of the hopes was that this trial would unearth new information about how the crisis was handled by the officialdom. Just as in wars, the history has been written by the victors. Here conventional wisdom was set in place by what amounted to an authorized narrative, Andrew Ross Sorkin’s Too Big to Fail.  Now understand how this reads if you don’t know that it was Morgan Stanley that told the New York Fed that it would not be able to open on Monday. Mack is presumably relaxing, watching football and is ambushed by Geithner, Bernanke, and Paulson to do a deal and manfully wards them off. Remember, we’ve just seen Paulson successfully browbeat both Freddie Mac and Fannie Mae’s boards into accepting a resolution, when Fannie was less sick. Paulson even acknowledged that Fannie didn’t technically warrant being put into resolution, but the markets weren’t savvy enough to differentiate between the two GSEs, and if Freddie was put down, the same had to be done to Fannie.

Banks Reach Settlement in Foreign-Exchange Probe - WSJ - - Six banks agreed Wednesday to pay a total of about $4.2 billion to U.S., British and Swiss regulators to resolve allegations that for years they worked together to try to manipulate the vast foreign-exchange market to boost their profits. The settlements indicate that the banks were engaged in activities designed to move one of the world’s largest and most interconnected markets, sometimes at the expense of their clients. Even though some bank employees blew the whistle on the behavior years ago, the misconduct persisted until 2013, after banks were punished for trying to manipulate other financial benchmarks. The U.K.’s Financial Conduct Authority and the U.S. Commodity Futures Trading Commission reached settlements with HSBC Holdings PLC, Royal Bank of Scotland Group PLC, UBS AG , Citigroup Inc. and J.P. Morgan Chase & Co. The CFTC settlement was for a total of about $1.4 billion, while the FCA portion was £1.1 billion ($1.75 billion). The Office of the Comptroller of the Currency, a U.S. bank regulator, fined Citigroup, J.P. Morgan and Bank of America Corp. a total of $950 million. Swiss markets regulator Finma separately ordered UBS to pay 134 million Swiss francs ($139 million) to settle its probe. The Swiss regulator is also capping the variable compensation of UBS’s foreign-exchange and precious-metals staff to 200% of base salary for two years, obliging the bank to automate at least 95% of its foreign-exchange trading and appointing a third party to ensure it sticks to the rules. Finma added that it was investigating 11 current and former UBS employees.

Cartels R Us: Tab for Rigging Foreign Exchange $3.3 Billion and Rising: Two U.S. and three foreign banks have been charged with rigging the foreign exchange market where $5.3 trillion changes hands daily and have settled civil claims for $3.3 billion. (The charges are very similar to those in the rigging of the international interest rate benchmark known as Libor.) Additional charges and settlements by other regulators are expected to follow before the end of the year. The U.S.-based Commodity Futures Trading Commission (CFTC) levied a total of over $1.4 billion in fines against JPMorgan, Citigroup, UBS, HSBC and RBS. The same five banks were fined $1.7 billion by the U.K.’s Financial Conduct Authority (FCA). Swiss regulator FINMA charged only UBS with a fine of $139 million and included rigging of precious metals trading along with rigging foreign exchange. While the details that were released are skimpy and the Financial Conduct Authority is already being criticized in London for essentially allowing the banks’ lawyers to conduct their own investigations and hand over their findings to the regulator, no bank comes out looking worse than JPMorgan – which has serially promised to beef up its internal controls and compliance while serially being charged with ongoing, serious crimes. The FCA said the foreign exchange market rigging occurred between January 1, 2008 through October 15, 2013 while the CFTC fines and investigation covered a shorter period from 2010 through 2012, according to documents released by the regulators this morning. The important takeaway from these dates is that the corrupt banking culture that crashed global economies in 2008, and then received taxpayer bailouts to resurrect these same institutions, still poses a serious financial threat to investors and taxpayers.

In market-rigging case, US Justice Department treats corporate criminals like juvenile offenders - David Dayen -Another set of damning bank-chat transcripts led to a $4.25bn fine for the world’s biggest banks: JP Morgan Chase, Citigroup, Bank of America, Royal Bank of Scotland, HSBC and UBS. Authorities in the US, Britain and Switzerland charge that the bank traders conspired with one another in Internet chat rooms to manipulate benchmark currency prices for the euro, dollar and Swiss franc.  Like so many other cases of egregious financial fraud over the past several years, regulators used softball tactics to go easy on the banks. No bank was even forced to admit wrongdoing in the orders by the US Commodity Futures Trading Commission and the Office of the Comptroller of the Currency. Regulators avoided court and settled for cash, which the traders won’t pay – the bank’s shareholders will. Officials presented a minimal amount of evidence, lacking the full details of the traders’ misconduct. They sought no judicial review.  In short, banks got away with their crimes for a pittance; their stocks even rose on the news of the settlements because the market believes the trouble is over.  The banks are right. The trouble is over. The US Justice Department, which actually has the power to put people in jail, has opened criminal investigations into the currency rigging.   The DoJ has increasingly used a relatively new and declawed method to deal with the aftermath of the financial crisis: the deferred prosecution agreement (DPA). These agreements were created 100 years ago to give juvenile defendants and first-time offenders a chance to for rehabilitate themselves. Only in the last 20 years have DPAs migrated to the field of corporate criminals, treating them like kids who’ve just gone down a bad path in life.

The forex scandal proves fines don’t deter bad banks. So ban them from trading  - The rigging of foreign exchange markets is a bigger scandal than Libor. It lacks the element of surprise since it is no longer news that some traders will lie and cheat when inadequately supervised. But that’s what makes it bigger. Forex-rigging continued to happen after the Libor scandal broke. Note the end-date of the investigations overseen by the UK’s Financial Conduct Authority (FCA) and the US’s commodities futures and trading commission: 15 October 2013. The deterrent impact of Libor seems to have been zero. What were these banks’ managements doing to honour their worthy words about cleansing the rotten culture in trading rooms? As FCA chief executive Martin Wheatley noted wearily, monitoring employees’ chat rooms “is not a complex thing to do”. Quite. The existence of potential conflicts of interest between a bank and its clients is obvious in currency markets. So too is the scope for collusion. You do not have to be Sherlock Holmes to suspect that chat-room exchanges such as these might indicate dodgy practices: “how can I make free money with no fcking heads up”; “just about to slam some stops”; “lets double team em”. Yet this garbage was bandied about for years. Did managements really not know, or even suspect, something was wrong? Did they just turn a blind eye? Or did they take comfort in the false notion that the forex market is so big and so liquid that it would be impossible to rig? All possible explanations are alarming.

Bill Black and Marshall Auerback Discuss Why Economists and Regulators Don’t Use “Fraud” -- Yves here. Bill Black discusses his favorite topic, fraud, with Marshall Auerback of the Institute of New Economic Thinking. Some of this talk is familiar terrain for those who know Black's work, such as Black's well-argued criticism of the failure of financial regulators to make criminal referrals for misconduct in the runup to the financial crisis. Even so, many readers are likely to find new information here, such as the number of FBI agents assigned to handle white collar fraud, and how some regulators during the savings & loan crisis defied Congressional pressure to go easy on failing and defrauded banks, and the career costs they paid.

Fewer active managers beat market than at any time in decade - Fewer fund managers are beating the market this year than at any time in over a decade, piling further misery on a profession that faces increasing investor scepticism. Fewer than one in five active managers outperformed the stock market in the year to the end of October, according to figures compiled by Bank of America. Some of the most widely held shares have been weak this year, amid an equity market rally powered by less well-loved blue-chip companies, and managers appeared to compound their poor decisions during last month’s volatility. The largest active fund managers have been losing market share to low-cost index trackers and exchange traded funds (ETFs) after academic studies showed them perennially underperforming the stock market after fees. “It has been an abysmal year,” said Savita Subramanian, head of US equity and quantitative strategy at Bank of America. “Large-cap mutual funds have a chronic bias towards smaller stocks, since it is hard to overweight the very largest stocks, but these stocks have actually outperformed by a pretty large margin this year. The smaller-cap bias has hurt quite a bit.” In addition, widely held technology and energy stocks had a dismal October, amid concerns about global growth, potentially extended stock valuations and a sliding oil price.

 SEC Commissioners Kara Stein, Luis Aguilar Hit Bank of America Where it Hurts, in a Revenue Stream - Yves Smith - SEC Commissioners Kara Stein and Luis Aguilar have found a weapon that looks to have financial firms more worried than being whacked with one-time fines. They are threatening to hit Bank of America in an ongoing revenue stream. By way of background, Kara Stein, who joined the SEC in April, has gone to war with SEC chairman Mary Jo White over lax enforcement and other types of overly-financial-firm-friendly conduct. It’s virtually unheard of for a commissioner to cross swords with a chairman from the same party.  Stein and her fellow Democratic party commissioner Luis Aguilar have joined forces to stymie a Bank of America settlement they saw as too generous by virtue of waving certain sanctions that would otherwise automatically kick in. Note that it had become routine to issue these “get out of jail free” cards; Stein wanted to see that practice end. We gave an overview in a recent post: Stein this time has managed to do more than just make speeches about not giving these waivers freely. She’s created some consternation by a bureaucratic maneuver to stymie giving Bank of America one for its $16.7 billion settlement for selling toxic mortgages. First, she and her pro-reform fellow Democratic commissioner Luis Aguilar forced a change in internal policies so that staff could no longer grant these waivers unilaterally; the commissioners had to sign off on them. Normally, that would be a no-brainer, since pro-industry Chairman Mary Jo White plus the two Republicans could be relied upon to approve them. But Mary Jo White has had to recuse herself for having represented the Charlotte bank. Stein and Aguilar teamed up to demand tougher punishments for this recidivist lawbreaker.   The sanction that Stein and Aguilar want to impose is that of barring Bank of America from fundraising for private concerns. That stings because Merrill, now Bank of America, has long been a leader in the low-risk, lucrative business of raising money for hedge funds and private equity funds. Of course, if you didn’t know better, you’d think this was a grave injustice being visited upon American engines of growth.

A Blank Page in the S.E.C. Rule Book, Four Years Later -- It’s something that almost everyone can agree on: Executives should return compensation earned improperly as a result of accounting shenanigans at their companies.But four years after Congress told the Securities and Exchange Commission to write a rule making it easier to recover unearned pay, that rule remains unwritten. Compensation clawbacks, therefore, are all too rare.The S.E.C. had much work to do under the Dodd-Frank law of 2010. Of the 102 regulations it had to write, the agency says it has completed all but eight. Still, the S.E.C.’s inertia on compensation recovery seems odd, given that this issue was among the least complex in Dodd-Frank.Dennis M. Kelleher, chief executive of Better Markets, a nonprofit organization that promotes the public interest in financial reform, has a theory about why it’s taking the S.E.C. so long to write this rule.“On the one hand, it’s not a very complicated rule,” he said in an interview last week. “But on the other hand, the industry and its lawyers have made it incredibly complicated. Anything that touches on compensation always generates a huge fight.”Mr. Kelleher may be right. Of the eight Dodd-Frank rules still to be written at the S.E.C., three relate to executive compensation.Under the law, the S.E.C. was supposed to direct the stock exchanges to bar securities from trading if they were issued by companies with no clawback policies. That should be a huge incentive for companies to write such policies. But what those policies should include seems to be stymieing the S.E.C.’s rule writers.

Regulators Want Banks to Rescue Themselves Next Time -- I suppose we should talk about the Financial Stability Board's new global anti-too-big-to-fail proposal? Here it is. The basic theory makes sense. You have a bank. A bank is a collection of probabilities. You can estimate how much its assets are worth. But the assets may be worth much more, or much less, than you think.1  People have claims on the bank's assets. If the assets are worth less than you think, then those claims are worth less than you think. Some of those claims are Important: It would be Bad, for the world, for some definition of the world, if those claims were worth less than you think. Bank deposits are, classically, Important; so are other bank liabilities that are necessary for the functioning of markets and the monetary system. There are various ways to guarantee against those claims being impaired when the bank loses money. One is, if the Important claims are impaired, the government will just step in and make the Important claimants whole. This is called a "bailout," more or less, and is widely perceived as Bad.  A possibly more sensible way to guarantee against impairment of Important claims is to make sure that

  1. there are a lot of Unimportant claims,2 and
  2. the Unimportant claims are impaired before the Important ones.

This is basically how capital regulation works. Some claims on a bank's assets are called "capital," and the defining feature of capital is that if it loses value no one will be that fussed about it.3 The people who own bank shares know what they're getting into: They know that those shares can lose value, so they're prepared for the worst.

New Plan to End Too Big to Fail Banks Previously Failed Spectacularly -- Apparently, not one of the global regulators pushing the latest plan to prevent another taxpayer bailout of the over-leveraged, globe-trotting banking behemoths that crashed the financial system in 2008 ever worked a day on Wall Street or sat behind a trading terminal during the crisis. If one had, he would have exposed this plan immediately as an exercise in illusory thinking – effectively, the same framework on which global banking currently exists. Yesterday, the Financial Stability Board, established in 2009 to coordinate financial regulatory proposals on behalf of the Group of 20 major economies (G-20), released a proposal that is being promoted as a means of ending taxpayer bailouts of too-big-to-fail banks. These 30 banks are known as G-SIBs, or Global Systemically Important Banks. But the proposal does nothing to address the “systemic” danger of these banks, thus the proposal is nothing more than captured regulators floating another useless trial balloon for reform because they lack the political courage to admit the only solution is to break up these bloated financial institutions that regularly function variously as crime syndicates and institutionalized wealth transfer systems. Mark Carney, head of the Bank of England, who also chairs the Financial Stability Board, touted the plan as a “watershed” moment. The plan calls for the 30 global banks to hold somewhere between 16 to 20 percent of their risk-weighted assets in loss absorbing capital. In addition to issuing additional equity (which would be dilutive to existing shareholders), the plan calls for at least one-third of the new funding to consist of unsecured long-term debt held at the holding company level so that bond investors would experience the losses while other parts of the bank remain functioning if regulators have to place the bank in resolution.

Credit to Noncorporate Businesses Remains Tight - St. Louis Fed An article from the most recent issue of The Regional Economist, published by the Federal Reserve Bank of St. Louis, discusses how the uses of credit by corporate businesses and by noncorporate businesses have evolved in very different ways in the past few years. Juan Sanchez, a senior economist with the St. Louis Fed, used the version of the Financial Accounts of the United States published June 5 to examine the use of credit by nonfinancial businesses since the recent financial crisis.1 Since their peaks during the financial crisis:

  • Liabilities of corporate businesses have increased about 20 percent.
  • Liabilities of noncorporate businesses have increased only 4 percent.

Among other distinctions, Sanchez notes that the ability to borrow or lend through the use of bonds is a key characteristic that helps explain the divergence in the use of credit between corporate businesses and noncorporate businesses. Namely, corporations can borrow and lend by issuing bonds, while noncorporations cannot.

Unofficial Problem Bank list declines to 419 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Nov 7, 2014.  Surprising these days to have a bank failure in three out of the past four weeks, but that is just what happened. Along with the failure there were two other removals this week that push the Unofficial Problem Bank List count down to 419 institutions with assets of $131.9 billion. A year ago, the list held 661 institutions with assets of $228.8 billion. Frontier Bank, FSB, Palm Desert, CA ($88 million) became the 17th failure this year and 40th institution headquartered in California to fail since the on-set of the Great Recession. Other removals include an action termination at Carver Federal Savings Bank, New York, NY ($648 million) and a change in control and recapitalization of Michigan Commerce Bank, Ann Arbor, MI ($922 million). Next week should be quiet as the OCC likely will not provide an update on its latest enforcement action activity until November 21st.  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 419.

Regulator Seeks to Allay Fears of Risky Mortgage Lending - A top housing regulator on Friday said that a lack of demand to buy homes might be slowing the housing recovery, while providing slightly more details about a program that some critics have said could open the door to risky lending practices. Mel Watt, the director of the Federal Housing Finance Agency, said that new Fannie Mae and Freddie Mac programs to guarantee mortgages with down payments of as little as 3% will require borrowers to have housing counseling, lower debt-to-income ratios and stronger credit histories than borrowers who put more money down. He spoke at a National Association of Realtors conference. The FHFA regulates Fannie and Freddie, mortgage-finance giants that buy loans from lenders, securitize them and provide guarantees to repay investors if the mortgages default. In October, Mr. Watt first unveiled the low-down-payment program. The announcement prompted a flurry of criticism that Fannie and Freddie were moving toward the lending practices that in part led to their takeover by the government. Fannie and Freddie already guarantee loans with down payments of as little as 5%, though any loan with a sub-20% down payment typically requires the borrower to pay for private mortgage insurance. The Federal Housing Administration also already insures loans with down payments of as little as 3.5% for some borrowers. That makes the new Fannie and Freddie programs, whose details are yet to be announced, more of a path for some borrowers to pay less on their mortgage than a broad expansion of credit access. The cost of FHA insurance has risen steeply over the last few years.

Republicans "Extremely Concerned" At Mel Watt's Taxpayer-Backed Risky-Home-Loan Reforms -- When we commented on Mel Watt's Einsteinianly-insane plans to reform FHFA, allowing bad creditors to buy houses (again) with only 3% down-payments (again), we expected nothing but echoes as the "it's everyone's 'right' to own a home"-meme gets played out for all to see in this goldfish-like societal memory that has entirely lobotomized the actions (and impact) of when this idiocy was trued before. However, a funny thing happened this week... called an 'election'. And The Republicans have been quick to take note of Obama-appointee Mel Watt's (replacing acting director Ed Demarco - who had some less-politik plans for real reform) plans with House Financial Services Committee Chairman Jeb Hensarling exclaiming he was "extremely concerned," about Watt's "efforts to force taxpayers to back high-risk mortgages with ultra-low down payments," concluding this plan "must be rejected."

MBA: Mortgage Delinquency and Foreclosure Rates Decrease in Q3, Lowest since 2007 - From the MBA: Mortgage Delinquencies Continue to Decrease in Third Quarter The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.85 percent of all loans outstanding at the end of the third quarter of 2014. The delinquency rate decreased for the sixth consecutive quarter and reached the lowest level since the fourth quarter of 2007. The delinquency rate decreased 19 basis points from the previous quarter, and 56 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.  The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 2.39 percent, down 10 basis points from the second quarter and 69 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since the fourth quarter of 2007... “Delinquency rates and the percentage of loans in foreclosure fell to their lowest levels since 2007,” said Mike Fratantoni, MBA’s chief economist. “We are now back to pre-crisis levels for most measures. Foreclosure starts were unchanged on a seasonally adjusted basis, but increased slightly in the raw data. Given that this measure reached the lowest level in eight years last quarter, and given the continued decline in delinquency and foreclosure inventory rates, we expect that the increase in the unadjusted starts rate is just regular seasonal fluctuation.” .. “On an aggregated basis, both judicial and non-judicial states saw decreases in loans in foreclosure, although the judicial states continue to have a combined foreclosure inventory rate that is around three times that of non-judicial states. New Jersey continues to lead the nation in loans in foreclosure, although it saw another decrease from the previous quarter. Florida, once with the highest percentage of loans in foreclosure, experienced a significant decrease in the third quarter."  This graph shows the percent of loans delinquent by days past due. The percent of loans 30 days and 60 days delinquent are back to normal levels. The 90 day bucket peaked in Q1 2010, and is more than two-thirds of the way back to normal. The percent of loans in the foreclosure process also peaked in 2010 and is two-thirds of the way back to normal. So it has taken about 4 years to reduce the backlog of seriously delinquent and in-foreclosure loans by two-thirds, so a rough guess is that serious delinquencies and foreclosure inventory will be back to normal in a couple more years.

MBA National Delinquency Survey: Judicial vs. Non-Judicial Foreclosure States in Q3 2014 -- Earlier I posted the MBA National Delinquency Survey press release and a graph that showed mortgage delinquencies and foreclosures by period past due. There is a clear downward trend for mortgage delinquencies, however some states are further along than others. From the press release: “On an aggregated basis, both judicial and non-judicial states saw decreases in loans in foreclosure, although the judicial states continue to have a combined foreclosure inventory rate that is around three times that of non-judicial states. New Jersey continues to lead the nation in loans in foreclosure, although it saw another decrease from the previous quarter. Florida, once with the highest percentage of loans in foreclosure, experienced a significant decrease in the third quarter. The foreclosure inventory in Florida has declined steadily for over two years now, and the percentage of loans in foreclosure is currently less than half of its peak in 2011. State level trends continue to be driven by local economic factors and state law. For example, a change in DC foreclosure mediation requirements was the likely cause of a shift of loans from the 90 days or more past due status to having the foreclosure process initiated,” [Mike Fratantoni, MBA’s chief economist] said.This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Blue is for judicial foreclosure states, and red for non-judicial foreclosure states.The top states are New Jersey (7.96% in foreclosure, down from 8.10% in Q2), Florida (6.12%, down from 6.81%), New York (5.72%, down from 5.89%), and Maine (4.29% down from 4.51%).  Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures (D.C added some new foreclosure mediation requirements).

Foreclosures Surge? Take a Closer Look  -- The share of soured home loans outstanding fell again during the third quarter to the lowest level since 2007. Every few months, there are rumblings about a new “surge” in foreclosures and bad debt. But data released by the Mortgage Bankers Association on Friday show that those reports are greatly exaggerated. The MBA’s survey covers 41 million mortgages, or 90% of first-lien mortgages on one-to-four unit buildings.  By almost every measure, the foreclosure picture is looking better, not worse, than it was one year ago. The share of loans in the foreclosure process during the July-to-September period fell to 2.4% of all loans, from 3.1% one year earlier. The share of loans that were 30 days or more past due but not in foreclosure fell to 5.9%, from 6.4% one year ago. The share of loans on which lenders initiated foreclosure ticked up slightly, to 0.44% from 0.4% in the second quarter. But that’s the second-lowest level since 2006.

Freddie Mac: "Fixed Mortgage Rates Hovering Near 2014 Lows" -From Freddie Mac: Fixed Mortgage Rates Hovering Near 2014 Lows Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates little changed from the previous week with the 30-year mortgage still hovering around 4 percent. 30-year fixed-rate mortgage (FRM) averaged 4.01 percent with an average 0.5 point for the week ending November 13, 2014, down from last week when it averaged 4.02 percent. A year ago at this time, the 30-year FRM averaged 4.35 percent. Here is a graph of 30 year fixed mortgage rates - according to the PMMS® - for 2010 through 2014 (red).  Mortgage rates are lower this year than last year (blue), and at about the same level as in 2011.

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in October - Economist Tom Lawler sent me the table below of short sales, foreclosures and cash buyers for a few selected cities in October. On distressed: Total "distressed" share is down in these markets mostly due to a decline in short sales.  Short sales are down significantly in these areas.  Foreclosures are up slightly in several of these areas. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Decrease Slightly in Latest MBA Weekly Survey Mortgage applications decreased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 7, 2014. ...The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.19 percent from 4.17 percent, with points increasing to 0.26 from 0.22 (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 71% from the levels in May 2013. Even with the recent slight small increase in activity - as people who purchased in the last year or so refinance - refinance activity is very low this year and 2014 will be the lowest since year 2000. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 11% from a year ago.

They’re Still Redlining - Over the last two years, investors have purchased more than two hundred thousand homes — most of which were foreclosed — with plans to convert them into rental properties. A new single-family home rental empire, controlled primarily by major investment groups such as the Blackstone Group, is poised to take advantage of growing rental demand in the wake of the foreclosure crisis. In addition to understandable alarm, Wall Street firms’ new role as landlords has inspired a good deal of nostalgia for the days when the rental market was overseen by supposedly beneficent mom-and-pop outfits. But Wall Street’s new rental empire is less a game-changer than an intensification of longstanding patterns of exploitation in the housing market. Just as not all communities suffered the same level of devastation as the result of foreclosures, not everyone is equally likely to be swept into this new “rentership society.” Thus far, it appears people of color make up the majority of those at the mercy of the new Wall Street landlords. A survey by the Right to the City Alliance suggests that in California, those renting from Invitation Homes — a subsidiary of the Blackstone Group, and the largest owner of single-family homes in the US — are overwhelmingly people of color. In Los Angeles, that number is a staggering 96 percent. In addition, my reporting from Chicago indicates that many have already gone through foreclosure, and thus have few alternative housing options. Consequently, the single-family home rental market is best understood not as a brand new development but as the latest manifestation of a longstanding feature of urban life: a dual housing market that locks people of color out of the most secure means of accessing housing, thereby pushing them into substandard options often offered at a significantly higher cost.

Housing Update: It Appears Inventory build is Slowing in Previous Distressed Markets - I don't have a crystal ball, but watching inventory helps understand the housing market.   If inventory kept increasing rapidly in certain markets, then we would eventually see price declines.  However it now appears the inventory build is slowing in some former distressed markets.    The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento.  Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It now appears the inventory build is slowing in these markets - and might even flatten or decline year-over-year soon in Las Vegas and Phoenix. This makes sense.  Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory).  Higher prices attracted more people to list their homes.  But now that prices have flattened out - and there is plenty of inventory - potential sellers aren't as motivated to list their homes.  Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings will not grow to the moon! I still expect overall nationwide inventory to continue to increase, but this is something to watch.

FNC: Residential Property Values increased 6.3% year-over-year in September - In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes. FNC released their September index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values decreased 0.3% from August to September (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) decreased between 0.4% and 1.0% in September. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.The year-over-year (YoY) change was lower in September than in August, with the 100-MSA composite up 6.3% compared to September 2013.   In general, for FNC, the YoY increase has been slowing since peaking in February at 9.3%. The index is still down 19.3% from the peak in 2006.

How Home Prices Are Faring In Your City - The National Association of Realtors this week released data showing how home prices have changed in 172 metropolitan areas. The median, existing single-family home price rose 4.9% to $217,300 between the third quarters of 2013 and 2014, but there was a big disparity between some cities.Regionally, home prices grew the slowest in the Northeast, rising about 2.2%, versus 5% for the Midwest. Some of the biggest slowdowns in home price growth occurred in metros like Phoenix and Miami, where prices had soared not so long ago.  Some economists say that the housing market in those areas seems to be transitioning from one marked by a “rebound” from lows to one driven by economic fundamentals, such as job growth and wages.The mix of homes sold in a particular quarter can have heavy influence on home-price changes, especially for small cities. See how individual cities fared.

Walmart and its Impact on Housing Prices --In many communities, the building of a new Walmart is far from welcome.  Some of the complaints include increased traffic volumes, pricing that puts local merchants out of business, lower wages that push down wages for those working at competitors and downward pressure on the price of housing because of the visually unappealing prospect of having another big box store plus the accompanying retail outlets as a neighbour.  There has been substantial research regarding the labor-effects of Walmart but there has been little actual study on the impact of Walmart on local housing prices.  A study by Devon Pope at the University of Chicago and Jaren Pope at Brigham Young University looked at over a million housing transactions that took place near 159 new Walmart stores that opened between 2000 and 2006 to see if the opening of a Walmart really did have an impact on the price of nearby housing.    Here are their conclusions.

A House Is Not a Credit Card - THIS fall, federal regulators made a controversial decision to back down from tough new underwriting standards for mortgages. Some affordable-housing advocates, allied with parts of the corporate housing industry, had successfully argued that the proposed standards would make it too hard for people to qualify, thereby reducing homeownership and hurting the housing market. Last summer, that same trump card stopped a bipartisan bill to reform the mortgage market, more than six years after Fannie Mae and Freddie Mac had to be taken over by the government.All of this ignores a crucial fact: Much, and at times most, of what happens in the mortgage market doesn’t have anything to do with homeownership. A sizable percentage of mortgages — including most of the risky ones that were made in the run-up to the financial crisis — are not used to buy a home. They’re used to refinance an existing mortgage. When home prices are rising and mortgage rates are falling, many homeowners choose to replace their mortgage with a bigger one, taking the difference in cash. In other words, mortgages are a way to provide credit.Refinancing is a relatively modern phenomenon. According to Joshua Rosner, a managing director at the research consultancy Graham Fisher & Company, by 1977, only 8 percent of homeowners had ever refinanced. By 1999, 47 percent had refinanced at least once. By the peak of the bubble, homeowners were extensively using refinancings to extract cash. Mr. Rosner also points out that while homeownership peaked in 2004, home prices peaked in 2006, because refinancing drove up prices.Modern subprime lending was not about homeownership. Instead, the 1990s crop of subprime mortgage makers allowed people with bad credit to borrow against the equity in their existing homes. According to a joint HUD-Treasury report published in 2000, by 1999, a staggering 82 percent of subprime mortgages were refinancings, and in nearly 60 percent of those cases, the borrower pulled out cash, adding to his debt burden. The report noted that “relatively few subprime mortgages are used to purchase a house.”

Wealth of Most US Households Has Fallen Over the Last 25 Years --Yves here. This Real News Network interview on the results of the latest Survey of Consumer Finances paint a picture familiar to most readers: the rich are becoming richer while those with less wealth are falling further and further behind. David Rosnick of CEPR makes an important observation in passing. The decline in the position of typical households is even worse the the Consumer Finances survey indicates. In 1989, many workers had pensions. Far fewer do now. The value of pensions isn't included in these surveys due to the difficulty of determining what they are worth on a current basis. But they clearly are significant assets that relatively few working age people have now.

The Typical Household, Now Worth a Third Less - Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation.. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.The Russell Sage study also examined net worth at the 95th percentile. (For households at that level, 95 percent of the population had less wealth.) It found that for this well-do-do slice of the population, household net worth increased 14 percent over the same 10 years. Other research, by economists like Edward Wolff at New York University, has shown even greater gains in wealth for the richest 1 percent of households.For households at the median level of net worth, much of the damage has occurred since the start of the last recession in 2007. Until then, net worth had been rising for the typical household, although at a slower pace than for households in higher wealth brackets. But much of the gain for many typical households came from the rising value of their homes. Exclude that housing wealth and the picture is worse: Median net worth began to decline even earlier.“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.

76% of Americans are living paycheck-to-paycheck - Jun. 24, 2013: Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings, according to a survey released by Monday. Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.  Even more disappointing; The savings rates have barely changed over the past three years, even though a larger percentage of consumers report an increase in job security, a higher net worth and an overall better financial situation.

More Than Half Of Americans Can’t Come Up With $400 In Emergency Cash: Count yourself fortunate, or something, if you’re among the 48 percent of Americans who can cough up a spare $400 in emergency cash without having to beg, borrow or steal. According to a Federal Reserve report on American households’ “economic well-being” in 2013,  fewer than half of all Americans said they’d be able to come up with four Benjamins on short notice to deal with an unexpected expense.The report, released last week by the Board of Governors of the Federal Reserve, indicates a disparity between how Americans view their financial situation and the reality of where their finances actually stand — a signal that the recession of the late 2000s fundamentally altered the concept of doing well for many, as well as an indication that the subsequent recovery may yet be more nominal than real. Under a section titled “Savings,” the report notes that “[s]avings are depleted for many households after the recession,” and lists the following findings:

  • Among those who had savings prior to 2008, 57 percent reported using up some or all of their savings in the Great Recession and its aftermath.
  • 39 percent of respondents reported having a rainy day fund adequate to cover three months of expenses.
  • Only 48 percent of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.

Dinged credit? Card issuers are happy to lend: Consumers with dinged credit are back in a borrowing mood, and lenders are more than happy to give them new credit cards, according to new data. Since the Great Recession ended five years ago, consumers have been gradually taking on more debt and lenders have been accommodating them, easing up on tighter standards. Much of the growth has been in so-called non-revolving credit, especially car loans, thanks to record low interest rates. But revolving credit—mainly in the form of credit cards—is picking up. And the biggest growth in new credit cards is coming from so-called subprime borrowers whose credit scores are less than 660, according to the latest Equifax data. Through July of this year, banks handed out cards to 9.8 million subprime consumers, a six-year high and an increase of 43 percent from the same period last year. Another 7.8 million cards have been issued to subprime borrowers by retailers this year, up 13 percent from 2013 to an eight-year high. Lenders are also giving subprime borrowers higher credit limits. Bank-issued card limits jumped to $12.7 billion for the first seven months of the year—up 4 percent from the same period a year ago to a six-year high. Retailers lifted their card limits by 16 percent to $6.8 billion, an eight-year high.

The Last Nail In The Millennials' Coffin: A Negative 2% Savings Rate -- We have extensively covered the economic devastation that currently plagues the largest.... and most important age for the future of the nation cohorts in the US: adults under 35, also known as Millennials. For a refresher see Millennials Devastated As American Dream Becomes Nightmare For Most, On Crushing Student Loans, Worthless College Degrees And The Millennials, Dear Recently Graduated Millennials: Prepare To Work Until You Are 73, and of course, Meet The Millennials: All You Ever Wanted To Know About America's Youth, In Charts.  Today, we present the latest nail in the coffin of the generation which none other than Obama said he is betting on to "Help Shape the New American Economy."  The bottom line, or rather, negative line, is the Millennials' savings, because "after a flirtation with thrift after the recession, young Americans have stopped saving. Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older."

Why Aren't Milennials Saving Money? -- Talking about how much savings one has is probably on par with comparing salaries in terms of social faux pas. That said, it might be motivating, if a bit embarrassing, when your peers have a bigger salary or savings account than you do.   But perhaps for Millennials, as compared to previous generations, this conversation is easy, because the common answer to that question is: zilch. Commiserating about how to work and live in an expensive city while traveling and trying to save money is practically a Millennial pastime. Earlier this week, The Wall Street Journal reported that adults under 35 have a savings rate of -2 percent, according to Moody's Analytics. The report said that in 2009, the savings rate of those under 35 was 5.2 percent.That Americans don't save enough is certainly true: the U.S. personal savings rate has been plummeting since the early 1980s. For Millennials, their debt makes it even harder to save. A Wells Fargo survey of Millennials reported that 47 percent spend at least half their paychecks relieving various kinds of debt (credit card, mortgage, student loan, etc.). With student loan debt in the U.S. hitting the $1 trillion mark, Pew reports that 37 percent of U.S. households have student debt, with the median debt standing at $13,000. This is paired with the fact that Millennials are more skeptical than ever of banks—perhaps not surprising for a generation that came of age during the Great Recession and Occupy Wall Street. One study named the financial industry as one least liked by Millennials—with Bank of America and Citigroup being the most hated.

Retail Sales increased 0.3% in October -- On a monthly basis, retail sales decreased 0.3% from September to October (seasonally adjusted), and sales were up 4.1% from October 2013. Sales in September were unrevised at a 0.3% decrease.From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $444.5 billion, an increase of 0.3 percent from the previous month, and 4.1 percent above October 2013. ... The August to September 2014 percent change was unrevised from -0.3%. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline increase 0.5%. Retail sales ex-autos increased 0.3%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 5.1% on a YoY basis (4.1% for all retail sales). The increase in October was above consensus expectations of a 0.2% increase. .

Retail Sales: Americans Save on Gas, Spend at Restaurants in October - U.S. consumers are spending more at restaurants as gas prices fall. Department stores, not so much. The national average price for a gallon of regular gas was $2.91 on Friday, according to auto club AAA. That was down from $2.95 a week earlier and $3.19 a month ago. A sustained decline in gas prices should free up money for Americans to spend on other items, providing a boost to the retail sector headed into the holiday shopping season. Restaurants did well in October. Seasonally adjusted sales at food services and drinking places rose 0.9% from the prior month, up from a 0.7% gain in September and the category’s biggest one-month gain since May, the Commerce Department said Friday in its monthly retail sales report.  Not feeling the love: department stores, where sales last month fell 3.5% from a year earlier. Sales dropped 0.3% in October on top of a 1.1% decline in September.

Gas price declines offset consumer stagnation: At the beginning of this year, noting the increase in interest rates, and the stalling of the housing market, together with "less positive" corporate profits and real money supply, i.e., a flattening of the long leading indicators, which take a year or more to filter through to the economy as a whole, I wrote that I expected 2014 to be a year of deceleration. On the other hand, gasoline prices have declined in the last few months to near 4 year lows. This frees up money for consumers to spend on other goods and/or to save. So have we seen deceleration? Or have declining gas prices freed the consumer? The answer appears to be, both. This morning's retail sales report shows that, over the last two months, total retail sales have increased by 0.1%: After inflation, this is going to be basically unchanged (as inflation will be approximately zero for October. The below graph shows real retail sales through September: Gasoline sales, however, have declined by -2,5% in that same time. So consumer spending on all other products and services over the last two months has increased by 0.3%. There has been some concern that rising food costs would eat up all of the savings from declining gas prices; however, while over other the last two months grocery spending has increased by $300 million, gasoline purchases have declined by $1.1 billion. In short, the increased money in consumers' pockets from declining gas prices has offset the deceleration in spending due to other factors in the economy, maintaining the upward trend.

Falling Gas Prices Boost October Retail Sales Despite Electronic Sales Slump -  Retail Sales headlines, sliced and diced whichever you like, modestly beat expectations. Ex Autos & Gas, retail sales rose 0.6% against an expectation of a 0.4% rise as falling gas prices provided some support for sales. However, more troubling for the US economy is the 1.6% tumble in 'electronics and appliances stores' sales. This is the biggest MoM drop since Dec 2013. The big question is "are iPhones part of the 'electronics and appliances stores' category?" Headline beast as the gains and losses continue to flip-flop... The retail "control group" that plugs into the GDP number saw a 0.5% increase, just above the 0.4% expected, and up from an upward revised 0.0% in September. But Electronics tumbled... By the most MoM since Dec 2013...

Apple’s iPhone Complicates Retail Sales Reading, Again - The late September release of two new iPhones from Apple Inc. had ripple effects in October’s retail sales report. Sales at electronics and appliance stores fell 1.6% in October after rising 4.7% in September from August levels. Customers lining up for the latest Apple gadget likely provided the September boost in the category, and account for the October fall. Overall sales at retailers and restaurants rose 0.3% last month after a 0.3% decline in September, the Commerce Department said Friday. But the iPhone’s influence on total sales could be limited for several reasons. First, electronics and appliance sales only account for about 2% of overall retail sales. Second, sales at nonstore retailers, including online sales, are also influenced by the phones. Sales in that category rose 1.9% in October after a 0.3% decline the prior month. The Commerce Department books a sale when the product is delivered, not ordered. So a customer who ordered a phone when it went on sale Sept. 20 but didn’t receive it until Oct. 1 had that sale count in October figures. Third, Apple has released a new iPhone in September for three straight years. Any boost the phones provided to 2012 and 2013 figures are considered in seasonally adjusting the most recent data. If Apple continues the pattern, seasonal adjustments would eventual level out any effect. Finally, on a non-seasonally adjusted basis, September tends to be a down month for electronics stores compared with August, when parents and students readying computers and phones for the upcoming school year. In fact, 2014 was the first time in more than 20 years that unadjusted electronics sales rose in September.

Apple Could Swallow the Whole Russian Stock Market. Take a Look - If you owned Apple Inc. (AAPL), and sold it, you could purchase the entire stock market of Russia, and still have enough change to buy every Russian an iPhone 6 Plus. The CHART OF THE DAY shows the total market capitalization of all public companies in the world’s largest country slipped below that of the world’s most-valued company for the first time on record. The gap, at $121 billion on Nov. 12, is about the price of 143 million contract-free 64-gigabyte iPhones, based on Apple Store prices. The value of Russian equities has slumped $234 billion to $531 billion this year, while Apple gained $147 billion to $652 billion, according to data compiled by Bloomberg. The technology company’s innovation and brand value attract investors, while Russia’s political conflicts, sanctions and the threat of economic stagnation next year make them nervous,

Mach Consumer Inflation Expectations Crash To 12-Year Lows -- Last month's 7-year high UMich consumer confidence came amid an Ebola scare and collapsing stock market...with surveyers actually noting their own surprise, "it would be surprising if recent declines in household wealth did not reverse some of the recent gains in optimism in the months ahead." So when November's preliminary print hit 89.4 - smashing expectations of 87.5 - to its highest since July 2007. For the first time since Dec 2011, UMich has risen 4 months in a row. The main driver of the exuberance is 'current conditions' which surged to 103 - the highest since Jul 2007 as the outlook barely budged. However, despite Bullard's comments about a rebound in inflation expectations, with 5Y expectations collapsing to the equal lowest since Sept 2002.

How Much Does The CPI Understate Inflation? - Estimating the Effect of Hedonic Quality Adjustments on the Consumer Price Index Having an informed debate over Hedonic Quality Adjustments is difficult due to the lack of comparable consumer price indices. A few exist, however, and today we will look at an index compiled by PriceStats, an off-shoot of MIT’s Billion Prices Project, which scrapes the internet for prices and compiles a daily index that aims to track inflation in real-time. The time series eschews hedonic and seasonal adjustments and relies on sampling over 5 million products to produce a very different look at inflation (CPI included for comparison): Since starting calculation of the index in mid-2008, PriceStats inflation series has remained consistently above the CPI as reported by the BLS. Considering the differences in methodology this provides an estimate to how much Hedonic Quality Adjustments have been used to understate the head-line CPI figures. Currently, the CPI uses quality adjustments on over 32% of the items used in its calculation. Annual inflation figures show a similar story, occasionally showing divergences greater than 1.5% in the two measures of annual inflation:

Hotels: Occupancy Rate Finishing 2014 Strong - From STR: US results for week ending 8 November The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 2-8 November 2014, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy rose 3.5 percent to 66.2 percent. Average daily rate increased 5.4 percent to finish the week at US$117.48. Revenue per available room for the week was up 9.1 percent to finish at US$77.74. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. Business travel has peaked for the Fall season, and now hotels are heading into the slow period.

Walmart Memo Orders Stores to Improve Grocery Performance - The disarray and out-of-stock items at just one store appear to be examples of wider problems that Walmart is pressing store managers to address.  Last month, the retailer issued an “urgent agenda” memo to managers across the country pushing them to improve performance on “Chilled and Fresh” items in its dairy, meat and produce departments, part of an effort by Walmart to stem long-sluggish sales. It also reflected customer complaints that Walmart has received in recent years as it has expanded offerings of organic foods and produce, often at cheaper prices than its competitors.The memo, marked “highly sensitive,” tells Walmart marketing managers to make sure that the company’s 4,965 United States stores discount aging meat and baked goods to maximize the chance that those items will sell before their expiration dates. The memo — leaked for public use by a Walmart manager unhappy about understaffing — also tells stores to be sure to “rotate” dairy products and eggs, which means removing expired items and adding new stock at the bottom and back of display cases.In discussing produce, the memo tells managers to “validate that stores are fully executing on ‘Would I Buy It?’ ” — a plea to make sure that every store removes moldy or rotting fruits and vegetables. Sent on Oct. 2, the memo reminds managers that their No. 1 concern must be sales. For the last 18 months, Walmart’s sales have been sluggish in stores open at least a year. The memo also urges managers to reduce backup inventory to trim costs, and warns them not to exceed budgets for their stores. Some retail analysts say these problems stem from Walmart’s failure to have enough employees in its stores to do the many chores needed, like marking down aging items, rotating milk or getting needed goods from the back room to stock shelves.

Food costs eating into consumers' saving at the pump as holidays near -- "Meat and grains. Actually it seems like the price of everything is going up," Franco, 30, said following a visit to a Kmart discount store on the outskirts of Chicago, with her two youngest children and a bag of groceries in the shopping cart. Retailers hoping for a lift to the year-end shopping season see promise in gas prices, which last week fell below $3.00 for the first time since 2010. Those savings, along with the effect of lower heating fuel, could amount to more than $2 billion extra per month for consumers, analysts calculate, enough to buy a lot of holiday gifts. Franco's attitude is a reality check on those hopes, though: higher food costs are eating into or eclipsing savings from gasoline, and a $2 billion jump in spending could be a much smaller bump after food inflation is taken into account. "People talk about gasoline prices but you can't look at them in isolation,"  "We think the psychological effect of record food inflation, because it's a bigger part of the family budget, is a key behavioral driver here." Food prices, which the U.S. Department of Agriculture predicts will rise 2.5 to 3.5 percent this year, is one of the main reasons CGP forecasts holiday spending to rise only 3.4 percent. Most other forecasts call for growth above 4 percent.

U.S. gasoline prices fell 13 cents in past 2 weeks-Lundberg (Reuters) - The average price of a gallon of gasoline in the United States dropped 13 cents in the past two weeks to its cheapest in nearly four years, according to the latest Lundberg survey released on Sunday. Gasoline prices fell to $2.94 per gallon of regular grade gasoline, its lowest level since December 2010, according to the survey conducted on Nov. 7. The decline in price is largely driven by lower crude oil prices, which declined further during the period, said Trilby Lundberg, publisher of the survey. "Crude oil dominates what gasoline prices are and what gasoline prices will do," Lundberg said, noting that the direction of crude oil prices in the coming weeks and months will dictate whether gasoline prices will continue to fall further or begin trending upward. "If they don't decline further, then this will be the end or nearly the end of this very steep price drop," she said. The gasoline price is down about 28 cents from a year ago, and has dropped 78 cents from a 2014 peak of $3.72 in May. The highest price within the survey area was recorded in San Francisco at $3.27 per gallon, with the lowest in Memphis at $2.65.

Weekly Gasoline Price Update: Down Another Nickel -- It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny Regular and Premium both dropped another five cents. Regular is now at its lowest price since November 2010. Will the price decline in gasoline boost discretionary spending as we approach the holiday season? We'll get some clues on Friday with the Census Bureau's the first estimate of October Retail Sales. According to, even Hawaii has an average cost under $4.00 per gallon. The highest continental average price is in New York at $3.28. South Carolina has the cheapest Regular at $2.66.  The next chart is a weekly chart overlay of West Texas Intermediate Crude, Brent Crude and unleaded gasoline end-of-day spot prices (GASO). WTIC closed today at 77.40, down from 0.79 over the past five sessions.

Wholesale Inventories & Sales Weak Trend Continues, Petroleum Inventories Plunge 13.2% YoY -- Wholesales Inventories and Sales beat expectations (+0.3% and +0.2% respectively) but, thanks to significant downward revisions in August, hope for a Q3 GDP boost are dashed. Sales growth remains near 2014 lows and inventory growth hovers near 14 month lows. Inventories-to-Sales ratios were flat in September at 1.19 months. Petroleum inventories plunged 5.3% MoM and down 13.2% YoY - the largest since Jul 2009.

Now is the Perfect Time to Raise Gas Taxes - Let’s see if I have this right: Congress needs to finance highway and transit projects but can’t agree on how. The traditional revenue source is the gasoline tax. Gas prices are at their lowest levels in years and dropping. Consumers would barely notice if they had to pay a bit more now at the pump. And it might eventually mean less time sitting in traffic.So will Congress take a perfect opportunity to raise the gas tax and fund these projects? Probably not. But if it doesn’t, it will fumble one of those rare opportunities when the economic and policy stars align almost perfectly.There is little doubt Congress needs to do something. A few Republicans would scrap the federal system entirely and turn infrastructure over to the states (though they’d still have to pay somehow). But most in Congress want the feds to finance those roads and bridges. They just don’t want to pay for them. This has been going on for years. As a result, the Highway Trust Fund is, not to put too fine a point on it, broke.  In August, CBO estimated that between now and 2024 outlays will exceed revenues by $157 billion. Congress has not increased the gas tax since 1997. And, at the moment,  lawmakers are keeping the trust fund going by resorting to gimmicks such as cutting employer contributions to their worker’s pensions (don’t even ask, but if you must know, here’s how that one works).  Their temporary patch is due to last only until May.  Adjusted for inflation (using 1979 dollars), regular gas costs about 90 cents a gallon, roughly the same as in the mid-1980s.

Light Vehicle Sales Per Capita: A Better Look at the Long-Term Trend - For the past few years I've been following a couple of transportation metrics: Vehicle Miles Traveled and Gasoline Volume Sales. For both series I focus on the population adjusted data. Let's now do something similar with the Light Vehicle Sales report from the Bureau of Economic Analysis. This data series stretches back to January 1976. Since that first data point, the Civilian Noninstitutional Population Age 16 and Over (i.e., driving age not in the military or an inmate) has risen 60.6%. Here is a chart, courtesy of the FRED repository, of the raw data. This is a quite noisy series, to be sure.  The next chart does a few things to help us understand the long-term trend.

  • I've created a per-capita version using the FRED's CNP16OV series for the adjustment.
  • I've added a 12-month moving average to smooth the noise and help visualize the trend.
  • I've indexed the numbers so that the first data point, January 1976, equals 100.
  • I've overlaid a linear regression (the red line) to further illustrate the long-term trend.

The moving-average for the per-capita series peaked in February 1979. Thirty-five-plus years later, it is now down 29.8% from that late 1970's peak month.

"Brutally Callous" Emails Show GM Ordered New Ignition Switches Months Before Alerting Regulators -- Despite testifying that she wasn’t informed of the deadly ignition-switch problem until late December 2013, The Wall Street Journal reports that, according to emails it has obtained, GM ordered a half-million replacement ignition switches almost two months before it alerted federal safety regulators to any problems. Who was in charge of GM purchasing at this time? Mary Barra. As WSJ concludes, the switch order, nearly two months before GM told NHTSA of the need for recall in early February, suggests the company took initial concrete action to address the defect, but outside of scrutiny by regulators and vehicle owners.

U.S. Postal Service Says Data on Up to 800,000 Workers Hacked -- Some customer information may have been compromised as well. The U.S. Postal Service (USPS) revealed Monday that data on its employees may have been compromised in a “cyber intrusion incident.”USPS said it recently learned of a data breach affecting the names, dates of birth, Social Security numbers, addresses, employment dates and emergency contact information of up to 800,000 employees.Post office customers who contacted the Postal Service Customer Care Center via telephone or e-mail between Jan. 1 and Aug. 16 may have had their names, addresses, telephone numbers or e-mail addresses compromised, the USPS said, but added there’s no evidence to suggest customers’ credit card information was stolen or hacked.“The intrusion is limited in scope and all operations of the Postal Service are functioning normally,” said USPS media relations manager David Partenheimer in a statement. “We began investigating this incident as soon as we learned of it, and we are cooperating with the investigation, which is ongoing. The investigation is being led by the Federal Bureau of Investigation and joined by other federal and postal investigatory agencies.”Employees possibly affected by the data breach have been notified, and will receive credit monitoring services for one year at no charge, USPS said.The mail service did not identify suspects in the investigation, but Partenheimer told the Washington Post that the intruder may be “a sophisticated actor that appears not to be interested in identity theft or credit card fraud.”

Banks take on retailers over who foots cyber attacks bill - Banks are gearing up for a big fight with retailers over who covers the cost of cyber attacks, after they paid most of the bill for breaches that they blamed on retailers’ own security deficiencies. In a rare show of unity, industry bodies that represent banks are banding together to urge lawmakers to introduce legislation that would force retailers to pay for the clean-up themselves during the new session of Congress next year. The tussle between the two sectors comes as cyber attacks become an increasingly common problem for companies and highlights the difficulties in deciding who is responsible for the costs. Cyber attacks on retailers Home Depot and Target, for example, affected almost 100m credit cards in the past year. “This is an equity argument,” said Cam Fine, head of the Independent Community Bankers of America, which has about 5,000 members. “If it was Home Depot’s data security system that was breached, shouldn’t they have to reimburse banks for all of the costs since it wasn’t the banks’ fault? That’s just common sense.” The data breach at the retailer, which the company reported in September, cost community banks and credit unions at least $160m to reissue cards and pay for other services related to the attack. Home Depot estimated that the breach cost the company at least $62m. “The weak link in the system today is on the merchant end,” the National Association of Federal Credit Unions and the Credit Union National Association said last week in a letter to retailer and grocer groups. “As long as the security standards on the merchant side of the system are weaker than those on the financial institution side of the system, the vulnerability for consumers and financial institutions will be at your feet.”

Obama says FCC should reclassify internet as a utility -- President Obama has come out in support of reclassifying internet service as a utility, a move that would allow the Federal Communications Commission to enforce more robust regulations and protect net neutrality. "To put these protections in place, I'm asking the FCC to reclassifying internet service under Title II of a law known as the Telecommunications Act," Obama says in a statement this morning. "In plain English, I'm asking [the FCC] to recognize that for most Americans, the internet has become an essential part of everyday communication and everyday life." There's been a growing battle around protecting net neutrality — the principle that all internet traffic, no matter what it is or where it comes from, should be treated equally — ever since the FCC's original protections were struck down in court earlier this year. Those protections were able to be struck down because the commission didn't make the rules in a way that it actually had authority over, so it's been trying to create new rules that it will definitely be able to enforce. It hasn't chosen to use Title II so far, but net neutrality advocates, now including President Obama, have been pushing for its use.Regulating internet service under Title II would mean reclassifying it as a utility, like water. This means that internet providers would just be pumping internet back and forth through pipes and not actually making any decisions about where the internet goes. For the most part, that's a controversial idea in the eyes of service providers alone. It means that they're losing some control over what they sell, and that they can't favor certain services to benefit their own business. Instead, providers would be stuck allowing consumers to use the internet as they want to, using whatever services they like without any penalty. If that sounds pretty great, it's because that's basically how the internet has worked up until now.

President Obama Urges FCC to Make Internet a Utility -- President Obama argues that ”An open Internet is essential to the American economy, and increasingly to our very way of life” and should therefore be regulated like a public utility. Therefore:I believe the FCC should create a new set of rules protecting net neutrality and ensuring that neither the cable company nor the phone company will be able to act as a gatekeeper, restricting what you can do or see online. The rules I am asking for are simple, common-sense steps that reflect the Internet you and I use every day, and that some ISPs already observe. These bright-line rules include:

  • No blocking. If a consumer requests access to a website or service, and the content is legal, your ISP should not be permitted to block it. That way, every player — not just those commercially affiliated with an ISP — gets a fair shot at your business.
  • No throttling. Nor should ISPs be able to intentionally slow down some content or speed up others — through a process often called “throttling” — based on the type of service or your ISP’s preferences.
  • Increased transparency. The connection between consumers and ISPs — the so-called “last mile” — is not the only place some sites might get special treatment. So, I am also asking the FCC to make full use of the transparency authorities the court recently upheld, and if necessary to apply net neutrality rules to points of interconnection between the ISP and the rest of the Internet.
  • No paid prioritization. Simply put: No service should be stuck in a “slow lane” because it does not pay a fee. That kind of gatekeeping would undermine the level playing field essential to the Internet’s growth. So, as I have before, I am asking for an explicit ban on paid prioritization and any other restriction that has a similar effect.

Obama's Net Neutrality Statement Will Start a War on K Street -  Obama hit the issue directly. He said:  So the time has come for the FCC to recognize that broadband service is of the same importance and must carry the same obligations as so many of the other vital services do. To do that, I believe the FCC should reclassify consumer broadband service under Title II of the Telecommunications Act—while at the same time forbearing from rate regulation and other provisions less relevant to broadband services. This is a basic acknowledgment of the services ISPs [Internet Service Providers] provide to American homes and businesses, and the straightforward obligations necessary to ensure the network works for everyone—not just one or two companies. . The new rules would apply to wireless broadband (with some allowance for preventing bottlenecks). Companies would not be allowed to block a website or service or “slow down some content and speed up others,” and “no service should be stuck in a ‘slow lane’ because it does not pay a fee.” Some details remain unclear, but these rules, combined with the reclassification of broadband, would insure that the internet remains a democratic medium.  Wheeler and the commission are expected to issue their recommendations in December. In the meantime, the big companies and their lobbies will do what they can to block the FCC from following Obama’s advice. Verizon warned that reclassifying broadband would be “a radical reversal of course.” I would expect that Republicans in the House and Senate will threaten to cut the FCC’s funding if the commission adopts Obama’s proposal. Obama’s statement will, perhaps, cause World War III on Capitol Hill and K Street, but if there are political battles worth fighting in Obama’s last two years, this is certainly one of them.

Something Called ‘The Race To Zero’ Is Scaring A Lot Of Tech Companies -  Cloud computing has completely changed the tech industry, but it's got a dark side for the companies competing in the market, something those in the industry call "the race to zero." There's so much competition in the cloud industry that cloud companies keep cutting their prices, even while they increase their storage limits. There's a couple of reasons for this. For one, computer storage keeps getting cheaper. A gigabyte's worth of storage on a hard drive in 1993 cost over $9,000, but it cost a mere 4 cents in 2013. But you can really thank Amazon for making sure that cloud computing companies pass those savings along to customers. As its costs drop, Amazon cuts its prices for its cloud. Amazon Web Service had 44 price cuts in about the last six years, it says, thanks to a culture of "frugality." Amazon is increasing revenue by gaining more customers and adding ever more services for which they are willing to pay, even though they'll pay less for each as time goes on. They're treating computer services like their retail store. You're likely to stock up your cart with more stuff if you're getting a bargain on every item you buy. Microsoft and Google have vowed to keep up matching Amazon's prices while beefing up their own selection of services. And that means the whole cloud industry has to cut prices as time goes on, not raise them.

On LinkedIn, a Reference List You Didn’t Write -- LinkedIn is the industry leader in helping people make work connections. Log on, and this professional-networking site displays a sampling of “people you may know” — often including colleagues at a user’s own workplace — with whom to start hobnobbing.  Now, however, four people are suing LinkedIn, contending that one of the site’s networking features cost them job opportunities. The LinkedIn service in question is called “Reference Search.” It is available only to premium account holders, who pay a monthly fee. An employer or recruiter can use it to generate a list of people in its own network who worked at the same company at the same time as a job candidate. It also allows premium members to use the site’s messaging system to contact people who appear on those lists, without notifying a job candidate. In Sweet v. LinkedIn, a class-action suit filed last month in Northern California, the plaintiffs contended that LinkedIn, in providing the job reference material, enabled potential employers to “anonymously dig into the employment history of any LinkedIn member, and make hiring and firing decisions based upon the information they gather,” without ensuring that the information was accurate. This, they said, is a violation of the Fair Credit Reporting Act. Today, it is standard practice for employers and job recruiters themselves to scour social media to identify job candidates. But the situation becomes more complicated when they hire outside firms to compile reports on potential employees. Over the last few years, federal regulators have been looking into online intelligence brokers that compile dossiers on consumers that could be used to disqualify someone from being hired — a practice industry professionals refer to as “knockout” screening.

The Vicissitudes of the Market Would Be a Big Improvement -- Dean Baker -- Bob Kuttner has a good column in the Huffington Post comparing the progress made in improving the living standards of ordinary people in the forty years following the New Deal with the deterioration of the last three decades. However the piece doesn't go far enough in contrasting the former period with the latter period. After noting the lack of progress in recent years he comments: "You wonder why people are turning away from the Democrats' proposition that affirmative government can buffer people from the vicissitudes of the marketplace? You wonder why millennials are attracted to the libertarian proposition that we're all on our own anyway?" Of course the problem of the last three decades is not the "vicissitudes of the marketplace," but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy .The government has strengthened and lengthened patent and copyright monopolies. This allows for absurdities like a treatment with the hepatitis C drug Sovaldi costing $84,000 when the drug would sell on the free market for less than $1,000. There would be no hand-wringing moral dilemmas about treating people with hepatitis C at less than $1,000 per person. If we just had a free market the government would not be putting people behind bars for 16 months for allowing people to download recorded material. 

WSJ Survey: Hopes for Capital Spending Surge Disappear -- What happened to the 2014 capital spending rebound? Economists are wondering the same thing. At the end of 2013 and through much of 2014, a significant share of economists surveyed each month by The Wall Street Journal cited capital spending as a sector that could surprise on the upside, boosting economic growth this year. In February this year, Joseph Carson of AllianceBernstein said a sharp increase in capital spending could be “potentially tied to a sharp drop in energy prices.” Energy prices did fall, but the capex surge hasn’t materialized. Nonresidential investment in structures and equipment are on track to grow somewhere between 2013’s dismal 3% pace and 2012’s modest 7.2% rise, according to Commerce Department data. New orders for nondefense capital goods excluding aircraft also have made little headway. No surprise that hopes for a capex growth spurt have dwindled. In November, only 5% of respondents mentioned business spending as a possible upside risk to growth. The December survey will ask economists for the upside and downside risks to the 2015 economy. Perhaps hopes for capital spending will reappear.

Optimism Rebounds Among Small-Business Owners in October - Small-business owners were more upbeat about hiring, capital spending and sales expectations in October, lifting overall business confidence, according to a report released Tuesday. The National Federation of Independent Business’s small-business optimism index increased 0.8 point to 96.1 in October. It was one of the highest readings so far in this expansion, although the level remains below that usually seen in an expansion. Economists surveyed by The Wall Street Journal expected the latest index to edge up to 95.5 from 95.3 in September. Many of the components of the index reversed declines posted in September. Most importantly, the subindex covering real sales expectations increased 4 percentage points to 9% last month. In turn, small-business owners are interested in expanding. The subindex on hiring plans increased 1 point to 10% and the capital-spending index rose 4 points to 26%. The index covering inventories increased 1 point to 3%. On net, the small-business sector had no change in payrolls, according to the NFIB October data. Seasonally adjusted, 13% of the owners reported adding an average of 2.7 workers per firm over the past three months, while 10% cut staff by an average of 2.9 workers, producing the seasonally adjusted net gain of 0.0 workers per firm overall. One challenge is finding qualified workers, according to the data. The subindex covering hard-to-fill job openings increased 3 points to 24%. And 53% of owners “complain of having few or no qualified applicants for positions,” the NFIB said.

NFIB: Small Business Optimism Index Increases in October - From the National Federation of Independent Business (NFIB): More owners plan to make capital expenditures, expect sales to increaseThe NFIB Small Business Optimism Index crept back to its August level of 96.1 with a gain of 0.8 points led by a modest increase in the net percent of owners who plan to increase capital spending and more who expect higher sales in the next 3 months. ...Job creation plans improved a point to a seasonally adjusted net 10 percent. And in another positive sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 12, down from 17 last year - and "taxes" at 21 and "regulations" are the top problems at 22 (taxes are usually reported as the top problem during good times). This graph shows the small business optimism index since 1986. The index increased to 96.1 in October from 95.3 in September. Note: There is high percentage of real estate related businesses in the "small business" survey - and this has held down over all optimism.

“What Do Small Businesses Do?,” - There are a huge number of policies devoted toward increasing the number of small businesses. The assumption, it seems, is that small businesses are generating more spillovers than large businesses, in terms of innovation, increases in the labor match rate, or indirect welfare benefits from creative destruction. These policies beg the question: are new firms actually quick-growing, innovative concerns, or are they mainly small restaurants, doctor’s offices and convenience stores? The question is important since it is tough to see why the tax code should privilege, say, an independent convenience store over a new corporate-run branch – if anything, the independent is less innovative and less likely to grow in the future. The evidence is pretty overwhelming that most new firms are not the heroic, job-creating innovator. Among firms with less than 20 employees, most are concentrated in a very small number of industries like construction, retail, restaurants, etc, and this concentration is much more evident than among larger firms. Most small firms never hire more than a couple employees, and this is true even among firms that survive five or ten years. Among new firms, only 2.7% file for a patent within four years, and only 6-8% develop any proprietary product or technique at all.  It is not only in outcomes, but in expectations as well where it seems small businesses are not rapidly-growing innovative firms. At their origin, 75% of small business owners report no desire to grow their business, nonpecuniary reasons (such as “to be my own boss”) are the most common reason given to start a business, and only 10% plan to develop any new product or process.  They are small and non-innovative because they don’t want to be big, not because they fail at trying to become big. It’s also worth mentioning that hardly any small business owners in the U.S. sample report starting a business because they couldn’t find a job; the opposite is true in developing countries.

October's Payroll Gains Are Primarily in Low Paying Jobs  -- The BLS employment report shows total nonfarm payroll jobs gained were 214,000 for Cctober 2014, with private payrolls adding 209,000 jobs and government jobs gaining 5,000.  This article graphs the jobs gained since the recession.  The job gains this month sound great until one realizes 52,000 of those jobs were in notoriously low paying Leisure and Hospitality and yet another 27,100 of those jobs were in loaded with low paying jobs retail trade sector  While jobs are consistently being added each month, the quality of jobs still is fairly poor.   The BLS employment report is actually two separate surveys and we overview the current population survey in this article.  Both August and September payrolls were revised upward to 203.000 and 256,000 respectively.  The start of the great recession was declared by the NBER to be December 2007.  The United States is now up 1.33 million jobs from December 2007, but this change has just happened this year.  Notice population has increased and thus America needs jobs for those new people. &nbspYet almost seven years have passed and the U.S. has only a 1.33 million job increase. Below is a bar chart showing the employer's payroll growth since January 2008.  This shows major sectors like manufacturing and construction have not recovered from the recession.  In fact, many of the new jobs are low paying ones.  Within health care are many low paying jobs working as attendants and unskilled labor.  Professional and business also holds the temporary jobs.  Job gains for the past year are 2.643 million and the breakdown is shown below.   While one might think professional and business jobs are good jobs, this isn't quite true.  There are many low paying office worker and waste management services jobs in this category.  Additionally the BLS counts foreign guest workers in their employment statistics, so in the Science & Technology fields, don't assume those jobs went to Americans.  Finally, the professional jobs includes temporary ones and without temporary jobs the annual gain was 419,300.

Employment: Party Like It's 1999! - As of the October BLS report, the economy has added 2.225 million private sector jobs, and 2.285 million total jobs in 2014. To be the best year since 1999, the economy needs to add an additional 176 thousand private sector jobs (probably happen in November), and 222 thousand total nonfarm jobs. Also interesting: For the first time since 2008, the public sector will add jobs in 2014.  State and local governments started adding a few jobs last year, but austerity has been ongoing at the Federal level.  According to the WSJ The Federal Government Now Employs the Fewest People Since 1966 Not since July 1966 has the federal government’s workforce been so small. ... But that’s only the raw numbers! As a share of the total workforce ... data going back to 1939 would show no point where the federal government’s share of employment was so low. In the last 75 years (when the BLS started tracking the data), the public sector (non-military) shed jobs in 12 years. Three of those years were at the end of WWII, two in the early '80s, and the last five consecutive years (unprecedented streak since the Great Depression). Here is a table of the annual change in total nonfarm and private sector payrolls jobs since 1999.  The last three years have been near the best since 1999 (2005 was the best year for total nonfarm, and 2011 the best for private jobs). It seems very likely that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes --By request, a few more employment graphs that I haven't posted in a few months ...This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels. The long term unemployed is just below 1.9% of the labor force - the lowest since January 2009 - however the number (and percent) of long term unemployed remains a serious problem. Unemployment by Education This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed". This graph shows total construction employment as reported by the BLS (not just residential). Since construction employment bottomed in January 2011, construction payrolls have increased by 663 thousand.The BLS diffusion index for total private employment was at 62.3 in October, up from 60.4 in September. For manufacturing, the diffusion index increased to 58.6, up from 53.1 in September. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

About America's Sudden Fascination With Hiring Young Women -- Yesterday, when we presented what we thought at the time was "The Strangest Number In Today's Jobs Report" namely the near record surge in workers aged 16-24, which amounted to 528K, or the vast majority of job additions in the month of October we may have been a bit premature. As it turns out breaking down the job surge from September to October by gender provides an even more peculiar result then an age distribution. Because as the chart below shows, of the 416K jobs added in the 20 and over category, a meager 10% of these went to men: some 90%, or 370,000, went to women! Men aged 20 and over were the recipients of a paltry 48,000 jobs, or 10% of the total increase.

Estimates of Unemployment Rates by Race & Ethnicity at the MSA level for the Third Quarter of 2014 - This table shows EPI estimates1 of unemployment rates for the third quarter of 2014 by race & ethnicity in each of the 12 Metropolitan Statistical Areas (MSAs)with a Federal Reserve Bank. The estimates are calculated on a quarterly basis in order to generate a sample size large enough to create current, yet reliable, estimates of unemployment rates by race & ethnicity at the MSA level. We only report estimates for MSAs where the sample size of these subgroups is large enough to create an accurate estimate.It’s important to remember that the unemployment rate is just one way of assessing the health of local labor markets. For example, because only people who are actively looking for work are counted as unemployed, the unemployment rate can underestimate the full extent of labor market slack in an economy that is still below full employment if many potential workers have stopped active search but would return in the event that job opportunities became more plentiful.

October jobs data suggest American retailers are looking forward to the holidays - Last week’s US jobs report contains a nugget of data indicating a high level of confidence on the part of American retailers: ignoring seasonal adjustments, more retail jobs were added in October than in any previous October ever.  This chart from CreditSights puts it in perspective: As you can see, retailers don’t make most of their holiday hires in October — a little less than one fifth of the total retail jobs added at the end of the year are added in October, on average, so the latest data suggest that retailers will add a total of about 900,000 – 1,000,000 workers to meet demand over the 2014 holiday shopping season.If that happens, it would only be justified by a massive spike in spending. Assuming the data are accurate, retailers are probably feeling very confident that growth is going to accelerate dramatically. (Bill McBride of Calculated Risk noted that this was something to watch several days before the jobs report came out.) To get a sense of what that would mean for spending, we compared historical annual changes in total retail spending in the last three months of the year to the number of jobs added in retail during the same periods. The relationship isn’t perfect, but there is a clear connection between faster job growth and higher real retail spending. If the pickup in hiring observed in October persists through November and December (indicated by the dashed orange line), real retail sales growth could accelerate to its fastest pace in more than two decades:

September JOLTS come in strong  -- September JOLTS confirm recent strength in employment.  Hires and quits jumped and job openings remained strong.  Taken together, openings and quits suggest a labor market similar to mid-2005, when the unemployment rate was at about 5%.  Recent strength in both of these measures suggests to me that the approx. 0.8% of the unemployed who are very long term unemployed (VLTUE) are not aggressively involved in the labor market.  The strong trends in quits and openings makes me more confident that the slow decline in VLTUE will continue and also that recent trends in regular unemployment declines will continue.  We might see the current pace of a monthly drop of 0.1% or more continue for a few more months before the trend flattens out. After the June employment report, I argued that quits and openings pointed to an unemployment rate just about where we were at the time (6.1%), once adjustments were made for demographic comparisons and the remaining inflation in the unemployment rate stemming from VLTUE.  Since then, the unemployment rate has dropped 0.3% and momentum in hires, quits, and openings confirm the strength of that drop.

BLS: Jobs Openings at 4.7 million in September, Up 20% Year-over-year -- From the BLS: Job Openings and Labor Turnover Summary There were 4.7 million job openings on the last business day of September, little changed from 4.9 million in August, the U.S. Bureau of Labor Statistics reported today. ....Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits increased from 2.5 million in August to 2.8 million in September. This was the highest level of quits since April 2008.The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for September, the most recent employment report was for October.
Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings decreased in September to 4.735 million from 4.853 million in August. The number of job openings (yellow) are up 20% year-over-year compared to September 2013. Quits are up 16% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Jobs Openings are Down, but the Quits Rate is Up - The September Job Openings and Labor Turnover Survey (JOLTS) data released this morning from the Bureau of Labor Statistics showed mostly positive news. The one bleak spot was job openings, which fell by 118,000 jobs, to 4.7 million. On the other hand, the hires rate and the quits rate both increased, while the layoffs rate held steady. The figure below shows the hires rate, the quits rate, and the layoffs rate. Layoffs, which shot up during the recession, recovered quickly once the recession officially ended. Layoffs have been at prerecession levels for more than three years. This makes sense—the economy is in a recovery and businesses are no longer shedding workers at an elevated rate. The fact that this trend continued in September is a good sign.But two things need to happen before we see a full recovery in the labor market: Layoffs need to come down and hiring needs to pick up. While it’s been generally improving, the hires rate, , has not yet come close to a full recovery—it’s well below its prerecession level.The voluntary quits rate, which has been flat for the last seven months, saw a spike up in September. A larger number of people voluntarily quitting their job indicates a labor market in which hiring is prevalent and workers are able to leave jobs that are not right for them, and find new ones. While these series are somewhat volatile, the sharp increase in the quits rate is a positive sign. That said, there are still 5 percent fewer voluntary quits each month than there were before the recession began. A return to pre-recession levels of in voluntary quits would indicate that fewer workers are locked into jobs they would leave if they could.

Number of People Starting and Quitting Jobs Climbs to Highest in More Than Six Years -The number of people being hired for jobs and the number of people voluntarily quitting their jobs each climbed to the highest level in more than six years, according to a Labor Department report this morning. Over 5 million people were hired in September, according to the Labor Department’s monthly Job Openings and Labor Turnover Survey, known as JOLTS. That’s the first time hiring crossed the 5 million threshold since December 2007, the month that the recession officially started. Last month, 2.8 million people quit a job, the most since April 2008.  The report on labor market turnover is closely followed by the Federal Reserve, where the report is watched for signs that the labor market is finally healing. The level of quits has been singled out by Federal Reserve Chairwoman Janet Yellen as an indicator of worker’s confidence in the economy. The report tracks the various reasons people leave jobs, and this shows an increasingly favorable mix. In September, 57.5% of people who left their jobs did so of their own volition. Only 34.4% were laid off. An additional 8.1% left their jobs either due to retirement, death or disability, a share that’s held roughly constant for the past decade.  That’s a sharp turnaround from a few years ago. During the worst of the recession, more than 55% of job separations were involuntary layoffs and discharges and as few as 37% of departures were voluntary. The number of people laid off from jobs remained near record lows in September, with about 1.6 million laid off, according to the report. That corresponds with a separate report this morning from the Labor Department, showing initial weekly jobless claims for the week of Nov. 8 of 290,000. Jobless claims have recorded the longest stretch since 2000 of claims below 300,000.

Hurray! Americans Are Quitting Their Jobs -- In good news for the U.S. economy, the Labor Department reported that 2.8 million workers, or 2% of U.S. employees, voluntarily left their jobs in September — the fastest rate since 2008.It might sound strange, but Janet Yellen, Federal Reserve Chair, has zeroed in on the quits rate as a progress marker for returning to a healthy labor market, reports Reuters.The 2007-09 recessions saw a decrease in the quits rate, with most workers not optimistic enough about the economy to seek opportunities elsewhere. Analysts feared that this had created wage stagnation.Although joblessness has been decreasing, the lack of worker turnover meant employers had no reason to increase salaries. But according to this latest report, hiring rates are now increasing, giving people more employment options.The report also highlighted that the job openings rate has fallen, but still remained above pre-recession levels. In the first week of November, the Labor Department reported 278,000 claims for unemployment benefits from the state.

Jobs Seekers Ratio Holds Steady at 2-To-1 -- This morning’s Job Openings and Labor Turnover Summary (JOLTS) shows that  the total number of job openings in September was 4.7 million, down 118,000 since August. Meanwhile, there were 9.3 million job seekers (unemployment data are from the Census’s Current Population Survey), meaning that there were 2.0 times as many job seekers as job openings in September. Put another way, job seekers so outnumbered job openings that about half of the unemployed were not going to find a job no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. While the jobs-seekers-to-job-openings ratio held steady, it has otherwise been steadily declining since its high of 6.8 to 1 in July 2009, as you can see in the figure below. The ratio has fallen by 0.9 over the last year. At the same time, the 9.3 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 6.3 million would-be workers (in September) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will become job seekers when we enter a robust jobs recovery, so job openings will be needed for them, too.

The Number of Unemployed Exceeds the Number of Available Jobs Across All Sectors -- The figure below shows the number of unemployed workers and the number of job openings in September, by industry. This figure is useful for diagnosing what’s behind our sustained high unemployment. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are more unemployed workers than job openings, and others where there are more job openings than unemployed workers. What we find, however, is that unemployed workers exceed jobs openings across the board. Some sectors have been closing the gap faster than others. Health care and social assistance, which has been consistently adding jobs throughout the business cycle, has a ratio quickly approaching 1-to-1. On the other end of the spectrum, there are 6.5 unemployed construction workers for every job opening. Removing those two extremes, there are between 1.1 and 3.1 as many unemployed workers as job openings in every other industry. This demonstrates that the main problem in the labor market is a broad-based lack of demand for workers—not, as is often claimed, available workers lacking the skills needed for the sectors with job openings.

Parsing the Skills Gap in Job Openings and Hires Data  -The September Job Openings and Labor Turnover Survey (JOLTS) data released yesterday showed job openings falling as hires rose. Over the business cycle thus far, both opening and hires fell dramatically over the recession, then have been climbing back up throughout the recovery. What’s striking from the first figure below is that openings fell at a faster rate than hires during the recession and have also returned at a faster rate over the recovery. Both are now at least back to their prerecession levels, and growth in openings has now overtaken growth in hires.  However, returning to their immediate prerecession levels is not a particular milestone, because it fails to take into account the growth in the working age population.The recent excess of openings over hires has led some to infer that this suggests a shortage for some types of workers, and evidence that a mismatch between workers’ skills and employers’ demands has become a key labor market problem. We should note that there are substantial other pieces of evidence that are inconsistent with this “skills mismatch” theory. For example, there are still 2 unemployed workers for every job opening in the economy. And, there are no sectors where jobseekers outnumber job openings. That is pretty strong evidence against any shortage of skills in the economy today, but the gap in the growth of opening and hires have led some to suggest that there is a one.

2 in 5 Young Americans Don’t Have Jobs and Aren’t Looking -- 93% of Americans who aren't looking for work say they don't want a jobNearly 40% of people in the United States ages 16 to 24 don’t have a job, and are fine with it. They say they’re happy not to be employed and don’t plan to find a job anytime soon, according to a Pew Research Center analysis of Bureau of Labor Statistics data.The figures do not include young people who aren’t working, but are actively seeking employment. About 10% of Americans aged 20 to 24 and 19% of those aged 16 to 19 are considered unemployed, which means they are actively seeking work.However, most Americans who are of working age and don’t have jobs are not actively seeking employment. Overall, 93% of the 86 million Americans 16 and older who aren’t looking for work say they don’t want a job. The total figure is up from a decade ago, and the change is most stark for young people. Around 30% of young Americans of working age in 2000 said they weren’t looking for work, compared to nearly 40% today. People over 55 are much more likely not to look for work, the data shows.Individuals who aren’t looking for work do not count as unemployed for statistical purposes. The U.S. unemployment hit 5.8% last month, the lowest number since 2008

Weekly Initial Unemployment Claims increased to 290,000  -- The DOL reported: In the week ending November 8, the advance figure for seasonally adjusted initial claims was 290,000, an increase of 12,000 from the previous week's unrevised level of 278,000. The 4-week moving average was 285,000, an increase of 6,000 from the previous week's unrevised average of 279,000.  There were no special factors impacting this week's initial claims.  The previous week was unrevised at 278,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

Updating the Major Trends for New Jobless Claims -- A new trend for new jobless claims has become established since the end of June 2014. We believe the sustained break in oil and gasoline prices in the U.S. that began in late June 2014 accounts for what appears to be a step-change in the number of initial unemployment insurance claims being filed, as the number of new jobless claims being filed each week began to fall more steeply than it had during the previous trend. To put this new trend into full context, the chart below shows each of the major primary trends we've tracked since January 2006. The chart below adjusts for the volatility in the data that is attributable to the rising or falling trends that have existed, showing the residual distribution that best describes the variation of the data about their primary trend trajectory.

U.S. Economy’s Job Creators Aren’t Growth Engines -  The mystery around why the U.S. produces consistent job gains but uneven economic growth could be explained by a simple fact: The sectors leading recent hiring don’t contribute much to output. Turnarounds in two sectors—manufacturing and finance—were major drivers of the economy’s second-quarter surge after a first-quarter contraction,  according new industry-level data the Commerce Department released Thursday. But both those fields are adding jobs at a slower pace than the overall economy. Meanwhile, two big job-creators, retailers and the leisure and hospitality field, steadily added jobs but don’t move the economic-growth needle as much as factories do. The manufacturing sector grew at an 8% annual rate in the second quarter, a rebound from a 4.5% decline to start the year. That was a significant contributor to the overall gross domestic product growing at a 4.6% pace during the spring, compared with a 2.1% winter contraction. Economic growth eased slightly in the third quarter to 3.5% pace, while U.S. employers have added better than 200,000 jobs in 12 of the past 15 months through October.Manufacturing employment expanded 1.2% in June from a year earlier, compared with a 1.8% growth rate for overall payrolls, according to Labor Department data. Output in the finance, insurance and real estate field—20% of the overall economy—grew at a 2.7% pace in the second quarter after a 4.1% drop the prior quarter. Job growth in that field was just 0.7% in June from a year earlier.  In contrast, leisure and hospitality payrolls, a field that includes restaurant and hotel workers, grew 2.6% over 12 months through June, but economic gains were nearly flat. Sector output rose at a 0.11% pace in the second quarter and 0.01% in the first.

The It's Hard to Get Good Help Crowd Promotes Population Growth - Dean Baker - Tyler Cowen is worried that rich countries won't have enough people to do the work. This concern seems more than a bit off the mark given that almost every rich country continues to have large numbers of unemployed and underemployed workers, but I suppose pondering this question can at least create some jobs for economists. Anyhow, two of the countries Cowen highlights are Japan, which he tells us has seen a declining working age population since 1997 and China, where he warns about the difficulties that working couples will face supporting four parents as well as their own children. Taking these in turn, a key part of the story that Cowen leaves out is hours worked. These vary hugely across countries and across time within countries. For example, the OECD reports the average work year in Germany at 1388 hours in 2013. By comparison South Korea, which has a comparable per capita income, had an average work year of 2163 hours in 2012. This means that in terms of hours worked, each worker in Korea puts in 55 percent more hours than a worker in Germany. If Germany felt it was short of workers, obviously they could try to encourage their workforce to put in more hours. If they just made up half the difference with Korea it would be equivalent to a 28 percent increase in their workforce. That is equivalent to an awful lot of additional kids. This is directly relevant to the Japan story, since the OECD reports that the average work year in Japan has declined by 7.0 percent since 1997, the year its working age population began to decline. This doesn't suggest that a shortage of workers has been a major problem for Japan.  Turning to China, we should first recognize that Cowen is using a bit of hyperbole. He doesn't really think that the typical Chinese couple will be supporting four parents. However China is seeing a rapidly aging population, so somewhere in the next two decades, the ratio of workers to retirees may fall to near two to one, which will also be the ratio in the United States at that time.

Fast Track to Lost Jobs: Free Trade Agreements Are Bad Deals for Working Americans - President Obama is currently negotiating two massive new free trade agreements that, if enacted, are likely to result in increased outsourcing and growing job losses, especially in the manufacturing sector. He has asked Congress for “Fast Track” authority, which would allow him to submit trade agreements to Congress without giving members of Congress the opportunity to amend the deal. Experience has shown that these trade deals have resulted in massive job losses for American workers, as shown in the infographic below. Fast track trade legislation will speed the ratification of more job-destroying trade deals.  As the infographic shows, the North American Free Trade Agreement (NAFTA) resulted in growing U.S.-Mexico trade deficits that caused nearly 700,000 lost U.S. jobs between 1993 and 2010.   Likewise, in the first two years the Korea-U.S. Free Trade Agreement (KORUS) took effect, U.S. exports to Korea declined, and growing trade deficits with that country resulted in nearly 60,000 lost U.S. jobs.

The Rise Of Invisible Unemployment - In the last year, the most important question for U.S. economists and economic journalists has changed from Where are the jobs? to Where are the wages? It's a problem best summed up by Matthew O'Brien in the Washington Post. As the labor market approaches full employment, there should be more pressure on wages to rise. In the graph below, that would look like a trend-line pointing up and to the left. Instead, as you can see in a half-a-second glance, the trend-line is a blob and it's certainly not pointing up. The unemployment rate has fallen below 6 percent, and earnings growth is flat.  Here are three theories for why.

  • 1. Wage growth and job growth are happening in different places. When economists and writers say "wages aren't growing," we're making a blanket statement that hides the fact that some wages are growing somewhere. Mining and energy jobs have had a fantastic few years, while retail and food service wage growth has been awful. The problem is that there are far more retail and food service workers than mining and manufacturing employees.
  • 2. The rise of invisible unemployment is too large to ignore.  What is "invisible unemployment"? It's discouraged workers and part-timers who want more hours. The official unemployment rate doesn't consider them unemployed. So when we talk about the official unemployment rate—now at a lowish 5.8 percent—we're ignoring these workers. They're statistically invisible. Here's a picture of invisible unemployment (in blue) vs. official unemployment (in red). Since early 2010, the number of unemployed Americans has declined by twice as fast as the number of discouraged/part-timers (42 percent vs. 21 percent).
  • 3. The rise of invisible work is too large to ignore. By "invisible work," I mean work done by American companies that isn't done by Americans workers. Globalization and technology is allowing corporations to expand productivity, which shows up in earnings reports and stock prices and other metrics that analysts typically associate with a healthy economy. But globalization and technology don't always show up in U.S. wage growth because they often represent alternatives to U.S.-based jobs. Corporations have used the recession and the recovery to increase profits by expanding abroad, hiring abroad, and controlling labor costs at home. It's a brilliant strategy to please investors. But it's an awful way to contribute to domestic wage growth.

The Desperate Hustle As A Way Of Life -- Here is the future: nobody gets any job security. Nobody gets a fair wage while they have a job. Nobody gets a retirement fund or even any guarantee they’ll be able to eat tomorrow. And almost everyone is doing everything they can just to get by—and paying some substantial portion of their earnings to a pimp or “platform” which controls the business they are in. And ain’t life a grand adventure? Isn’t it all so fun? This is the model of the new economy, where anyone with a car ought to be a Lyft contractor (your fare pays what he or she thinks is right but the company is tweeting out “we’ve slashed prices 20 percent”) and anyone with a house or apartment is renting it out on Air BnB and crashing at their boyfriend’s parents’ place. All of this came about by design. The world is arranged according to the people who arrange things—the people who make money by this arrangement. We’re in our fourth decade of this. The Times reported this week that the American middle class has been surpassed by Canada’s. And it’s much worse than the New York Times imagines. As Dean Baker points out, the middle classes in most other countries have increased their incomes while getting longer vacations. In the U.S.A.? Not so much.

Ratio of Part-Time Employed Remains Substantially Higher Than the Pre-Recession Level - Let's take a close look at last week's employment report numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the government's Employment Situation Summary are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The focus is on total hours worked: Full-time status may result from multiple part-time jobs.The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20.1% in January 2010. The latest data point, over four-and-a-half years later, is only modestly lower at 18.8% last month. If the pre-recession percentage is a recovery target, we still have a long way to go. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during Great Recession. Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in January of 2010. The two charts above are seasonally adjusted and include the entire workforce, which the CPS defines as age 16 and over. A problem inherent in using this broadest of cohorts is that it includes the population that adds substantial summertime volatility to the full-time/part-time ratio, namely, high school and college students. Also the 55-plus cohort includes a subset of employees that opt for part-time employment during the decade following the historical peak spending years (ages 45-54) and as a transition toward retirement. The next chart better illustrates summertime volatility by focusing on the change since 2007 in full- and part-time employment for the 25-54 workforce. Note that the government's full-time/part-time data for this cohort is only available as non-seasonally adjusted. To help us recognize the summer seasonality, I've used a lighter color for the June-July-August markers, which are the most subject to temporary shifts from part-time to 35-plus hours of employment. I've also included 12-month moving averages for the two series to help us identify the slope of the trend in recent years.

Why Are So Many Workers Still Part Time? Seven Charts - Are American businesses going to rely more heavily on part-time workers long after the recession has ended? The unemployment rate has dropped sharply over the past year, but the share of Americans working part time because they can’t find full-time work remains very high by historical standards. And while the number of these so-called involuntary part-time workers has been trending down, a few charts show why there’s considerable debate over whether the increased reliance on part-time labor is cyclical, meaning it will improve as the economy gets better, or structural, in which something else has encouraged businesses to rely more on part-time workers than before the recession. First, data from the Labor Department shows that the decline in the number of those working part-time for economic reasons has resulted from fewer workers who are part time because of slack business conditions. Meanwhile, the level of workers who are part time because they can’t find full-time work is actually higher now than it was before the recession.Second, the level of involuntary part-timers has declined sharply for workers in goods-producing industries such as manufacturing and construction. Industries that typically rely on a larger part-time workforce, such as the retail and hospitality sectors, have seen little improvement. Also, the share of part-time workers who are finding full-time work one year later is low historically across both the goods-producing and the service sector, but it has shown more improvement for goods than for services, according to data compiled by the Federal Reserve Bank of Atlanta. If this is a structural change, what’s behind it? One potential culprit that comes up often in this discussion is the Affordable Care Act, which requires employers with 50 or more full-time-equivalent workers to offer affordable insurance to employees working 30 or more hours a week or face fines. There have been some anecdotal reports about businesses, such as restaurants, gas stations and convenience stores, cutting their employees’ hours back to avoid those fines.

Wage Growth of Part-Time versus Full-Time Workers: Evidence from the CPS -- Atlanta Fed's macroblog --Last week, our Atlanta Fed colleagues Lei Fang and Pedro Silos highlighted the wage growth trends of full-time and part-time workers in recent years. Using data from the U.S. Census Bureau's Survey of Income and Program Participation (SIPP), they showed relatively weak growth in hourly wages of part-time workers between 2011 and 2013. The Current Population Survey (CPS)—administered jointly by the Census Bureau and the U.S. Bureau of Labor Statistics—also contains wage information and has data through September 2014. We thought it would be interesting to see if the CPS data revealed a similar post-recession pattern, and if the more recent data show any sign of improvement. The short answer is that they do.  The following chart displays the median year-over-year growth in hourly earnings of wage and salary earners (shown as quarterly averages). The wage data are constructed using a similar methodology to that outlined in this paper by our San Francisco Fed colleagues Mary Daly and Bart Hobijn. The orange line is the median year-over-year growth in the hourly wages of all workers. The green line is the median wage growth of workers who worked full-time in both the current month and 12 months earlier (it is close to the orange line because most workers work full-time hours). The blue line is the median wage growth of workers who were part-time in both periods. Note that the median part-time wage growth is less precisely estimated (and thus demonstrates relatively more quarter-to-quarter variation) than its full-time counterpart because the CPS's sample size of wages for part-time workers is much smaller than for full-time workers

The Choice of the Century - Robert Reich  -- If you want a single reason for why Democrats lost big on Election Day 2014 it’s this: Median household income continues to drop.  This is the first “recovery” in memory when this has happened. Jobs are coming back but wages aren’t. Every month the job numbers grow but the wage numbers go nowhere. Most new jobs are in part-time or low-paying positions. They pay less than the jobs lost in the Great Recession. This wageless recovery has been made all the worse because pay is less predictable than ever. Most Americans don’t know what they’ll be earning next year or even next month. Two-thirds are now living paycheck to paycheck. So why is this called a “recovery” at all? Because, technically, the economy is growing.  But almost all the gains from that growth are going to a small minority at the top.  In fact, 100 percent of the gains have gone to the best-off 10 percent. Ninety-five percent have gone to the top 1 percent. The stock market has boomed. Corporate profits are through the roof. CEO pay, in the stratosphere.  Yet most Americans feel like they’re still in a recession. And they’re convinced the game is rigged against them.

Corporate Profit Margins vs. Wages in One Disturbing Chart - Yves here. This brief post by Doug Short is even more important than it appears to be. We had an outburst of neoliberal orthodoxy in comments yesterday on a post that discussed how wealth of most households had fallen since 1987. Some readers assigned blame for stagnant average worker wages (which was a big contributor to the lack of growth in household wealth) to immigrants, particularly Mexicans and H1-B visa workers. The Doug Short chart below looks at corporate profit share versus labor share. This pinpoints the degree to which wage stagnation is the result of corporate managers and executives succeeding in cutting the pie to favor themselves (executive pay has become increasingly linked to stock prices, and relentless focus on short-term earnings, as well as stock buybacks, do wonders for earnings per share).

On Income Stagnation - Paul Krugman --- I want to share a couple of thoughts on the income stagnation issue, where a piece by David Leonhardt has been deservedly getting a lot of attention.The first point is that although Leonhardt talks about wages, the chart he shows is median income, which is a somewhat different story. Wages for ordinary workers have in fact been stagnant since the 1970s, very much including the Reagan years, with the only major break during part of the Clinton boom. My first chart shows wages of production and nonsupervisory workers in 2014 dollars; we have never gotten back to 1973 levels. The second point is that rising inequality is a big part of the story for stagnating household incomes. My second chart shows real GDP per household — nominal GDP, deflated by the consumer price index, divided by the total number of households; and compares it with median household income, both expressed as indexes with 1979=100. We’ve had substantial income growth since then, but very little for the median household, because so much of it has gone to the top. So if Republicans are gaining from public frustration here, it is ironic. After all, the GOP is systematically opposed to anything that would increase workers’ bargaining power, and bitterly opposed to any suggestion that inequality is an issue — what we need, they say, is growth, which will raise all incomes (even though it hasn’t).

The Silver Lining Of Stagnant US Incomes: Half-Price Hookers --- This week's 'shellacking' of the administration suggests all is not well among the people of the Land of the Free. While headlines crow of plunging unemployment rates and record high stock prices, middle-class incomes remain stagnant at best (and sliding in most cases) and job quality continues to tumble. There is, however, a silver lining... as Bloomberg reports, "in a sign of lower income and middle income consumer stress, some prostitutes are dropping prices." Of course, this is terrible news for GDP (now what happens if the price of 'blow' also drops). This confirms our previous note on the deflation of prices in the oldest profession in the world... question is, will Yellen abhor this price drop too?

Information Technology Agreement is Another Job Killer  - This week, U.S. Trade Representative Michael Froman announced a “breakthrough” agreement between the United States and China to expand the World Trade Organization’s (WTO) Information Technology Agreement (ITA), which eliminates tariffs among 54 countries in high-tech products. Froman enthusiastically noted that the ITA was last amended in 1996, when “most of the GPS technology… [and] high-tech gadgetry that we rely on in our lives didn’t even exist.”  The United States has a massive and rapidly growing trade deficit in computers and electronic products and related electronic “gadgets.” The proposed expansion of the Information Technology Agreement will open the door to a massive increase in job-destroying imports of Chinese high-tech products.  The U.S. trade deficit in computers and parts increased from $19.9 billion before China entered the WTO in 2001, to an estimated $160 billion in 2014, as shown in the figure below. Job-destroying imports exceed job-supporting exports in this industry by more than 15 to 1. Further opening of the U.S. market to Chinese high tech products will cost hundreds of thousands of jobs. Growing U.S. trade deficits in computers and electronic products eliminated more than 1 million U.S. jobs between 2001 and 2011 alone. Currency manipulation by China (and other countries) acts as a subsidy to all of China’s exports of computers and other products, and as a tax on U.S. exports to China, and every country where U.S. firms compete with Chinese products. Froman is giving away access to U.S. hi-tech markets and seems unaware that the U.S. computer manufacturing and parts industry has been decimated by cheap, subsidized Chinese imports.

Little-known temporary visas for foreign tech workers depress wages -  At least 650,000 college-educated temporary foreign workers are employed in the United States through the H-1B visa program, mostly in the high-tech industry. The H-1B is a well-known guestworker program that is inadequately — but at least minimally — regulated, with an annual limit and a requirement that employers pay a "prevailing" wage. Other visa programs, like the L-1 and the F-1 Optional Practical Training (OPT) program, have almost no rules and receive little scrutiny, but are used to employ hundreds of thousands of foreign tech workers. Multinational companies use the L-1 visa to transfer employees from their foreign offices to offices in the United States. Over the past five years, an average of 68,000 L-1 visas have been issued per year, but there is no annual limit. There are two types: the L-1A for managers or executives (valid for seven years), and the L-1B for employees that have qualifying "specialized knowledge" (valid for five years). According to government audits, the majority of L-1 workers are in occupations related to computers and information technology (IT), and the biggest users of the L-1 are also the biggest users of the H-1B — outsourcing tech firms like Tata, Cognizant and Infosys — firms whose business model focuses on sending jobs overseas.  While multinational companies need flexibility to move key employees to the United States, employers take advantage of inadequate regulatory guidance, oversight and enforcement of the L-1 visa. The media have reported on major companies laying off U.S. tech workers and replacing them with L-1s (legally), after first forcing the U.S. workers to train their own replacements. And there is no requirement that employers pay L-1s the prevailing wage for the specific job they will fill, which allows employers to pay far below the market rate. This practice takes advantage of the foreign worker and hurts U.S. workers by pushing down wages for everyone employed in similar occupations.

Obama Said to Plan Moves to Shield 5 Million Immigrants — President Obama will ignore angry protests from Republicans and announce as soon as next week a broad overhaul of the nation’s immigration enforcement system that will protect up to five million undocumented immigrants from the threat of deportation and provide many of them with work permits, according to administration officials who have direct knowledge of the plan.Asserting his authority as president to enforce the nation’s laws with discretion, Mr. Obama intends to order changes that will significantly refocus the activities of the government’s 12,000 immigration agents. One key piece of the order, officials said, will allow many parents of children who are American citizens or legal residents to obtain legal work documents and no longer worry about being discovered, separated from their families and sent away.That part of Mr. Obama’s plan alone could affect as many as 3.3 million people who have been living in the United States illegally for at least five years, according to an analysis by the Migration Policy Institute, an immigration research organization in Washington. But the White House is also considering a stricter policy that would limit the benefits to people who have lived in the country for at least 10 years, or about 2.5 million people.Extending protections to more undocumented immigrants who came to the United States as children, and to their parents, could affect an additional one million or more if they are included in the final plan that the president announces.Mr. Obama’s actions will also expand opportunities for immigrants who have high-tech skills, shift extra security resources to the nation’s southern border, revamp a controversial immigration enforcement program called Secure Communities, and provide clearer guidance to the agencies that enforce immigration laws about who should be a low priority for deportation, especially those with strong family ties and no serious criminal history.

10 Economic Trends that Spell Doom for America’s Workers -  Official government unemployment figures for the United States never tell the whole story. They don’t take into account all the Americans who have been out of work for so long that the Bureau of Labor Statistics (BLS) no longer treats them like part of the work force. Nor do they factor in widespread underemployment and the fact that so many formerly middle class Americans have joined the ranks of the neo-poor, or the fact that millions of Americans who made too much to qualify for food stamps ten years ago are poor enough to receive them now. And for them, figures recently released by the Bureau of Labor Statistics (BLS) are of little or no consolation.  On Friday, the BLS reported that the U.S.’ official unemployment rate had fallen to 5.8% which is the lowest in six years. A total of 214,000 payroll jobs were added in October, according to the BLS. And some Wall Street employees who have escaped the sting of the Great Recession will point to that 5.8% figure (which is for what the BLS’ calls its U-3 rate) as evidence of economic recovery. But economic recovery is something that millions of other Americans can only dream about. And the reality is that if the U.S. continues on its current economic trajectory, it will end up looking more and more like Brazil or Mexico—that is, an industrialized country in which one finds an ultra-wealthy minority, widespread poverty and not enough in between.   Below are ten disturbing trends that illustrate the severity of the U.S.’ economic decline.

Minimum-Wage Workers Just Got a Raise, but Will Bosses Steal It? - Amid a pile of Election Day defeats, one bright spot was a set of ballot initiatives for minimum wage increases, which voters approved in four states and two cities. But now the real work begins. With several thousand workers slated for a raise in Alaska, Arkansas, Nebraska, South Dakota, San Francisco and Oakland—plus a slew of other state and local wage-hike proposals in the pipeline—the pressure is on to ensure they actually get paid in full.  Regardless of what the minimum wage law says, many workers inevitably end up earning less. Employers get away with rampant wage theft because of ineffective, understaffed regulatory agencies, or because workers are fearful about complaining, or just unaware of their legal entitlements. The central problem in minimum-wage enforcement is that it tends to be complaint driven, which puts the burden of reporting on the worker. If you’re earning less than minimum wage, you’re likely severely poor by definition, and have little incentive to risk your job to just claim the couple of dollars a day your boss skims off your paycheck. But those little pay gaps add up. The Economic Policy Institute calculates: “When a worker earns only a minimum wage ($290 for a 40-hour week), shaving a mere half hour a day from the paycheck means a loss of more than $1,400 a year, including overtime premiums. That could be nearly 10 percent of a minimum-wage employee’s annual earnings—the difference between paying the rent and utilities or risking eviction and the loss of gas, water, or electric service.” Overall, according to projections based on surveys of low-wage workers, “wage theft is costing workers more than $50 billion a year.”

The secret to raising the minimum wage may be to stop trusting Democrats -  In too many places, elected Democrats have failed – with or without Republican obstruction – to stand up for working people, especially when it comes to raising the minimum wage.  But if you think it’s weird that voters turned out last week to support liberal ballot initiatives like minimum-wage increases and paid sick-time laws – even in red states like Arkansas and Alaska – while simultaneously casting their ballots for all those Republican legislators and governors, think again: the devil is really in the details – and the GOP just pulled a fast one on worker’s rights. Democrat Mark Pryor, who lost his race to stay Arkansas senator, opposed a federal minimum-wage increase, calling $10.10 an hour “too much too fast”. (And, in case you’re wondering, the National Restaurant Association and the National Retail Federation, which lobby against wage increases, donated to his campaign.) In Alaska, liberal columnist Shannyn Moore opined that, “When Alaskans are asked to vote their values, and they’re given a clean, non-partisan choice, they seem to prefer the more progressive path: higher minimum wage, environmental protection, fair treatment of public employees, a rational position on drugs.” Yet those same Alaskans may have voted out their Democratic senator – Mark Begich remains in a race too close to call. But once again, if an Alaskan was looking for a clear signal to voters from Democratic politicians that this is the party of higher minimum wages, she might well have been confused by that time Alaska Republicans tried to pass legislation to increase the state’s minimum wage, only to have Democrats vote it down in order to keep the issue on the ballot last week. In Massachusetts, where 60% of voters supported a paid sick leave measure, Republican Charlie Baker, now the governor-elect, even introduced his own proposal for paid sick days (limiting them to employees at bigger firms, but still) after Democrat Martha Coakley tried to use the issue to drum up support.

California enjoys big revenues but warns of retiree benefit costs - (Reuters) - The California State Controller's Office on Monday reported revenues for October were $662.2 million, or 12.3 percent, above budget estimates but warned that the state still needed to tackle the growing cost of retiree health benefits. Overall, the state's coffers saw $1.2 billion overflow for the first four months of the new fiscal year, beating estimates by 4.5 percent. The news comes on the heels of a credit upgrade last week by Standard & Poor's Ratings Services, which cited a strengthened budget after voters agreed to set aside surplus revenues for the rainy day fund. State Controller John Chiang reported that while the surplus revenues bode well, the state needed to address "the growing $64 billion unfunded liability stemming from providing health benefits to our retired public workforce."

Utility Regulator in More Legal Trouble Over Emails? -- Legal trouble appears to be mounting for Michael Peevey, the outgoing president of the California Public Utilities Commission.  An NBC Bay Area investigation has uncovered apparent violations of state law at the Commission, even as Peevey is under fire for his overly cozy relationship with Pacific Gas & Electric Company, and under investigation by the U.S. Attorney and the state Attorney General.  The NBC Bay Area Investigative Unit has confirmed Peevey failed to file required disclosure forms for hundreds of thousands of dollars he successfully requested from PG&E, the company he is supposed to regulate. This new revelation begins with a May 2010 email from Brian Cherry, then vice-president of regulatory affairs at PG&E. The email details a Memorial Day weekend dinner Cherry had with Peevey where promises were apparently made in exchange for favors.  According to the email, the two discussed Proposition 23, a measure that would have suspended the law governing California’s fight against global warming. Peevey wanted it to go down and the email shows he wanted help from PG&E.  Cherry writes that Peevey “stated very clearly he expects PG&E to step up big” and contribute to a campaign to defeat the proposition.  “We need to spend at least $1 million,” Cherry writes, adding “I asked for clarification and [Peevey] said ‘at least’ doesn’t mean $1 million, it means a lot more.”

State Street, Governor Elect Rauner Both Implicated in Pay-to-Play Scandals - Yves Smith - It seems the more rocks you turn over in public pension land, the more creepy crawlies crawl out. No wonder private equity has such a secrecy fetish. The most obvious, and most offensive to the public, are so-called pay-to-play scandals, in which public officials who are in a position to influence how funds are invested, take campaign funding from individuals or firms who are currently managing government funds or in short order get a mandate.  David Sirota, who has been all over this beat, explains why taking campaign donations from parties currently running public monies is sus. In a new story, Sirota describes how Illinois governor elect Bruce Rauner, who comes out of the private equity industry, took over $140,000 in campaign contributions from executives at funds that manage state money, which violates state and federal laws, since Rauner will be appointing pension system trustees. Rauner’s aides tried dismissing the revelation arguing that these firms were already feeding at the public fund management trough. That argument doesn’t cut it from a legal or common sense standpoints, as Sirota explains: But legal experts, former SEC officials and campaign finance lawyers interviewed by IBTimes said the [SEC] rule applies over the entire life of a pension fund investment because those investments can be terminated, sold off or extended at any time. The point is to prevent political contributions from influencing not just the original decision to invest, but the ongoing choice to continue or terminate the investment.

You Can’t Always Get What You Want, But If You Tax Sometimes… Taxes are going up in the Windy City… again. The Chicago city council is about to approve a $62.4 million tax hike on everything from parking and auto leases to cable TV and tickets to live sports and entertainment. Yesterday, the City Council’s finance committee approved a host of targeted increases designed to fund the city’s 2015 budget and the full council is expected to give final approval today. Those hikes come on top of a telephone tax increase approved last summer which was aimed at funding city pensions. The problem: Those new revenues still won’t fund the city’s growing obligations to retirees and The Chicago Sun Times reports that Mayor Rahm Emanuel won’t say how he’ll close that gap. Wonder what they’ll tax next. Philadelphia’s cigarette tax is a bit of a biz-kill for city retailers. On October 1, the city started taxing cigarettes at $2 per pack to help fund public schools. The Pennsylvania Department of Revenue collected $8.09 million from the tax in its first month and the city’s school district expects to receive $49 million in fiscal year 2015. But local merchants’ cigarette sales are down, while sales are booming in neighboring counties. The state revenue department did anticipate this to an extent: It estimated a drop in city sales of about 13.8 million packs in the tax’s first year, due in part to smokers buying their cigarettes elsewhere. Officials won’t be able to determine the actual impact of so-called “border bleed:” Some smokers may smoke less or quit because of the higher prices. (more)

Finding $816 Million, and Fast, to Save Detroit - — Late one afternoon last November, leaders of some of the nation’s top foundations were invited into a private meeting in a courthouse conference room here as Judge Gerald E. Rosen, the appointed mediator in this city’s federal bankruptcy case, made an unheard-of request.  He wanted the philanthropic groups, some with ties to the city, to help rescue Detroit from bankruptcy by donating hundreds of millions of dollars to spare retirees from deeper pension cuts and protect the city’s famed art collection.The pitch went on for about three hours.“My initial reaction was, this is a crazy idea,” Darren Walker, the president of the Ford Foundation, remembered thinking as he listened that afternoon. “Eight hundred million dollars from a group of foundations? I thought it was rather over the top in its boldness,” Mr. Walker said, adding of the mood in the room: “I think there was a collective gulp.” At the center of Detroit’s swift exit on Friday from the nation’s largest-ever municipal bankruptcy is a $816 million deal that has come to be known as “the grand bargain,” an improbable arrangement hashed out in many months of behind-the-scenes negotiations with foundations, the State of Michigan and the Detroit Institute of Arts.

How Many People Does the War on Drugs Put in Prison? - There are over 1.5 million people in American jails and prisons.  Why are they there?  Take a look at the latest numbers from the Bureau of Justice Statistics.    Here is the offense breakdown for state-level incarceration for 2012, which continues to outnumber federal incarceration by a factor of 6:1 or so: Here's the federal breakdown for 2012: Most libertarians blame the massive U.S. incarceration rate on the War on Drugs.  At the federal level, this is hard to deny.  But the federal level remains a small slice of the pie.  At the state level, drug offenses are only 16% of the story.  In absolute terms, of course, that's tons of people.  Drug offenders outnumber murderers.  They outnumber rapists.  They outnumber robbers.  Indeed, they are only slightly outnumbered by all property criminals combined.  But at first glance, blaming the War of Drugs for mass imprisonment runs afoul of basic facts.What about at second glance?  Econ 101 warns us against using mere accounting to resolve causation.  In the absence of the War on Drugs, many non-drug offenses would never have been committed.  Without prohibition, gang-related violence - and related weapons charges (subsumed under "Public-order" at the state level) - would plummet.  Habit-related property crimes would probably do the same, albeit to a smaller degree.  Theoretically, drug offenders might simply switch into other illegal activities once drugs were legal, but it's hard to believe this effect would be sizable.

Suburban DC school district takes Christmas off calendar after Muslims complain - – Christmas is now just December 25th in the Montgomery County school district. The suburban DC district stripped Christmas and Jewish holy holidays from its official calendar after Muslim parents complained. But that’s not good enough as they say the move does “nothing to gain parity and a day off for the Muslim holiday of Eid,” according to WTOP. “Equality is really what we’re looking for,” Saqib Ali, co-chair of Equality for Eid, says. “Simply saying we’re not going to call this Christmas, and we’re not going to call this Yom Kippur, and still closing the schools, that’s not equality.” CAIR isn’t happy either. “What’s really concerning to us is that similar conditions weren’t placed on any other faith community,” a representative of the group, Zainab Chaudry, says, the station reports. The district is attempting to decouple the breaks from school and religious holidays by calling them “winter break” and “student holidays.” But school board member Michael Durso says unless the Muslim’s complaints aren’t addressed, “it comes off as insensitive, and I just think we cannot afford to be in that light.” According to NBC 4, school employee Samira Hussein has campaigned for 20 years to have the Muslim holiday added to the school calendar. “The Eid is just the same exact as Christmas day or Easter day or Yom Kippur,” she says.

Did School Districts Offset State Education Funding Cuts? -- It’s well known that the Great Recession led to a massive reduction in state government revenues, in spite of the federal government’s attempt to ease budget tightening through American Recovery and Reinvestment Act aid to states. School districts rely heavily on aid from higher levels of government for their funding, and, even with the federal stimulus, total aid to school districts declined sharply in the post-recession years. But the local school budget process gives local residents and school districts a powerful tool to influence school spending. In this post, we summarize our recent study in which we investigate how New York school districts reacted when state aid declined sharply following the recession.  We use school district financial reports and local property tax levy data for New York, one of the many states that cut education funding after the recession. New York is of particular interest because it has the country’s largest school district (New York City) and it contains a range of urban, suburban, and rural districts, across a wide distribution of income levels. Our data set covers 632 school districts from the 2004-05 to the 2011-12 school year. Just before the recession, New York districts received approximately 3 percent of their funding from federal aid, 40 percent from state aid and 57 percent from local revenue. In New York, local revenue is predominantly school district property tax revenue. In contrast, the national averages were 8 percent from federal, 52 percent from state, and 40 percent from local sources.

Education Policy is Civil Rights Policy -  In an article just published in the journal Race and Social Policy, I reviewed why education policy is inseparable from civil rights policy. Failure to recognize this connection is the greatest impediment to improving the academic performance of disadvantaged African American and other minority and low-income children.  For years now, education policymakers and advocates have attempted to close the black-white achievement gap by reforming schools. The primary vehicles have been greater accountability for schools and teachers, higher expectations for students, deregulation and semi-privatization by charter schools, and more recently, curricular reform with the Common Core. All efforts, however, have come up short. The racial achievement gap remains.

Financial Pressures Ease on Students, Studies Say - After years of steep increases in college prices and student debt, turning both into major economic and public policy concerns, the real costs of college and student borrowing have leveled off, according to three studies being released on Thursday.The authors said they could not tell whether the changes marked the start of a shift toward better news on the economics of higher education or just a temporary pause in more worrisome trends. And they cautioned that costs and debt remained near their all-time peaks, dauntingly high for many students, and would for the foreseeable future.At four-year state colleges, declining state aid contributed to tuition doubling between 2001 and 2013, to an average approaching $9,000 for in-state students. But those schools have come under tremendous political pressure to limit price increases, leading to tuition freezes in places like the University of California and the University of Texas, and states have restored some of the support they cut during the severe recession that began at the end of 2008.As a result, public colleges’ average published prices rose just 1 percent, after inflation, in each of the last two years, according to a report from the College Board based on surveys of colleges. Those “sticker prices” tend to dominate perceptions and the debate over college costs, but they do not reflect factors like the discounts colleges give, in the form of financial aid. Average net prices — what people really pay, after accounting for grants from colleges and the government — at four-year public colleges actually dropped in 2013-14, the College Board found, and are expected to rise slightly this year. The report projects net tuition and fees of about $3,000 this year, down about 4 percent, after inflation, from two years ago; with room and board, the average net price is expected to top $12,800, up just 1 percent from two years ago.

One Lesson People Increasingly Learn in College: Saving - In 2002, savings rates for people of all education levels was hovering between 1% and 3%. Your education didn’t have much to say about how you saved money. In early 2003, college graduates even briefly had negative savings rates, while everyone else was dutifully setting some cash aside. What a difference a decade and a recession make. Savings rose for everyone during the recession. But in the years since, savings rates are again diverging. It’s not surprising that college graduates can save more than high school graduates. (Just as it’s not stunning that older workers could save more than the young.) On average, their earnings are much higher. And the more money you have, the easier it is to save some of it. But over the past 10 years, the savings behavior of college graduates has significantly outpaced everyone else. As of the second quarter of 2014, college graduates were saving about 10.9%, compared with 5.4% for people with some college, and negative savings for high school graduates and high school dropouts, according to data from Moody’s Analytics. In the five years since the recession ended, college grads have been saving an average of 10%, compared to 4% for high school grads. The longer this continues, the more significant the implications for the wealth divide. According to the Federal Reserve‘s Survey of Consumer Finances, the median family headed by a college graduate earned $80,000 in 2013 while the median family headed by someone who finished with a high school diploma earned $37,000.

Obama Administration Explores Ways To Collect Student Loan Payments Without Middlemen - The U.S. Treasury Department soon will take some student borrowers' accounts away from private debt collectors and give them to federal workers, an ambitious new pilot project that may result in the government cutting out the student loan middlemen who have gotten rich targeting distressed borrowers. The federal employees will be charged with finding ways to help troubled borrowers make good on their delinquent debts, according to borrower advocates and Obama administration officials who have been briefed on the project. The project may start early next year.  Private debt collectors working for the Education Department have been paid billions of dollars over the last few years, while racking up complaints that they routinely violated the law and mistreated borrowers who had defaulted on federal student loans. The Treasury Department project aims to change the process, which has become a nightmare for some borrowers.  After President Ronald Reagan, the federal government privatized and outsourced many services, guided by the theory that taxpayers would save money and get more efficient and accountable work. But as some contractors tasked with carrying out public responsibilities cut corners or became mired in scandal, the joke has lost a bit of its punch. At least when it comes to federal student loans, the government may actually be here to help. Policymakers told The Huffington Post they would study the results of the project, which may give the Education Department evidence to justify cutting private firms from much of the federal student loan system. There also is a separate review of a proposal to have government employees service federal student loans that borrowers are faithfully repaying, according to sources.

U.S. Treasury to Service Some Student Loans in Pilot Program - The U.S. government will begin a pilot program early next year that seeks to collect delinquent student loans through the Treasury Department, exploring whether it should halt using private debt-collection companies, a person familiar with the matter said. The pilot program will likely be administered by Treasury’s fiscal service bureau, which already collects payments for other federal programs. The move comes as the Obama administration focuses on addressing mounting student debt and difficulties borrowers face in paying back loans. The federal government makes more than 85% of student loans but delegates collection of payments to outside servicers. In a speech last week, Deputy Treasury Secretary Sarah Bloom Raskin raised concerns about the practices of private collection firms used by the federal government to collect on defaulted loans. “Federal student loan debt collectors need to be encouraged to remove loan accounts from default when possible, as well as deal fairly with borrowers, and the incentive structures in debt collector contracts should convey these priorities,” Ms. Raskin said. Ms. Raskin also cited problems such as firms not providing student-loan borrowers with enough flexibility if they get into financial trouble and charging late fees during a grace period. The Federal Reserve Bank of New York estimates that roughly one in four student loan borrowers is at least 90 days behind on a payment. There is more than $1 trillion in outstanding student loans, and many were originated by the U.S. Department of Education through various programs.

24% Of Millennials "Expect" Student Loan Forgiveness -- It appears the concept of no consequences is now deeply embedded in the American society. As Student loan debtloads surge ever higher - and opportunities grow ever lower - NBC News reports a rather stunning 24% of Millennials said they expect their loans will ultimately be forgiven, according to study released Wednesday by Junior Achievement and PwC US. That helps to explain why delinquency rates are at record highs - aside from the massive debtloads and no high-paying jobs - as students see bankers rigging every market in the world with little to no consequence, one can only imagine the lessons being learned.

The foolishness of the old -- Most people want government to spend more money on them than on anyone else. This applies regardless of their tax contributions (those who don’t pay tax often demand more than those who do). And it is completely understandable. After all, charity begins (and when times are hard, ends) at home.So when voters in the US were asked what the government’s spending priorities should be, it comes as no surprise to discover that their preferences varied by age: As we would expect, the priorities of the young are education and jobs, the priorities of those of working age are jobs and benefits, while the priorities of the middle-aged and old are pensions and associated benefits (US pensions, pensioner benefits, Medicare, disability benefits and family support are all bracketed together as “social security”, but pensions are by far the largest proportion). Older people are also much more concerned about defence, no doubt because they have lived through successive wars and threats of war that the young have yet to experience. But I was frankly shocked by the attitude of the middle-aged and old towards education. Only 5% of middle-aged and old people think education should be a priority. I suppose their response would be to point out that only 7% of young people think pensions should be a priority. But this is comparing apples and pears. Pensions are paid to people who will never again be economically productive*. Education improves the productivity of future workers. Pension payments are therefore consumption spending, whereas education is investment. So middle-aged and old people want the government to prefer consumption spending over investment. Where is the fiscal rectitude in that?

Chicago Mayor Rahm Emanuel Accepted Campaign Contributions From Financial Firms Managing City Pension Money: Executives at investment firms that manage Chicago pension funds have since 2011 poured more than $600,000 in contributions into Mayor Rahm Emanuel's campaign operation and political action committees (PACs) that support him, according to documents reviewed by International Business Times. These contributions appear to flout federal rules banning companies that manage pension funds from financing the campaigns of officials with authority over pension systems, say legal experts.  The contributions also potentially conflict with an executive order Emanuel himself signed in 2011 prohibiting city contractors and subcontractors from making campaign donations to city officials. A former chief of staff to President Obama, Emanuel, a Democrat, was elected Chicago mayor three years ago with a substantial boost from financial services executives. Since 2011, at least 31 executives at firms that harvest fees by managing city pension funds have contributed to his campaign and associated PACs. That list of donors includes Kelly Welsh, a Northern Trust executive who was recently appointed by President Obama to the top legal position in the U.S. Commerce Department. (See related story here.) Former prosecutors, corporate compliance attorneys and erstwhile officials at the Securities and Exchange Commission describe the donations as a clear breach of the spirit -- and perhaps the letter -- of the SEC's so-called pay-to-play rule, which seeks to prevent pension investments from being doled out as a form of patronage to those who contribute to campaigns.

Bankruptcy protesters call pension cuts ‘mass robbery’: A group opposed to emergency management and the treatment of pensioners in the city’s newly confirmed debt-cutting plan hosted a news conference Monday, vowing a continued fight against the “mass robbery.” Representatives of Detroiters Resisting Emergency Management assembled at St. Peter’s Episcopal Church along with a handful of residents and city pensioners to voice concerns over the impact of the plan that’s designed to shed $7 billion in debt and free up $1.7 billion over the next decade to restructure and improve city services. Wearing a T-shirt that read “Hands Off My Pension,” retiree William Davis proclaimed the cuts are “illegal” and mainly on the backs of pensioners. Davis, a member of the Detroit Active and Retired Employees Association, added that the group and others plan to file an appeal. “It’s illegal, immoral and it’s definitely a crime,” said Davis, who worked 34 years for the city at the wastewater treatment plant. “There were thousands of people who voted no. We have no choice but to pursue this. I will not agree to being robbed.” The news conference comes days after U.S. Bankruptcy Judge Steven Rhodes ruled that the city’s plan is fair and feasible and in the best interest of creditors. Rhodes’ Friday decision capped Detroit’s nearly 16-month trip through the largest municipal bankruptcy in U.S. history. It’s a journey that began with fear and anger, and ended with the majority of retirees and other major creditors accepting concessions that spared the city and region a lengthy legal battle.

Detroit Emerges From Bankruptcy, Pension Risk Still Intact -- When the judge in Detroit’s historic bankruptcy case approved the city’s exit plan on Friday, he said the deal Detroit cut with its retirees bordered on “miraculous.”Under the so-called grand bargain, foundations, the state of Michigan, the Detroit Institute of Arts and even the city’s water and sewer system have pledged hundreds of millions of dollars to bolster the municipal pension system and give the art collection new, bankruptcy-proof ownership. In return, retired workers accepted reductions to their monthly checks and other cutbacks. If all goes as planned, the grand bargain will keep the retirees’ reduced pension checks coming for the rest of their lives.But the pension system that the settlement leaves behind has some of the same problems that plunged the city into crisis in the first place — fundamental problems that could also trip up other local governments in the coming years. Like many other public systems, it relies on a funding formula that lags the true cost of the pensions, and is predicated on a forecast investment return that the judge, Steven W. Rhodes, himself sharply questioned during the trial on Detroit’s bankruptcy plan.Moreover, if Detroit finds itself confronting another fiscal crisis in the near future, it can no longer tap the museum’s art collection, which many saw as its top asset. These risks might not matter if Detroit’s pension obligations were just a marginal part of the city’s finances. But they are not. Even after the benefit cuts, the city’s 32,000 current and future retirees are entitled to pensions worth more than $500 million a year — more than twice the city’s annual municipal income-tax receipts in recent years. Contributions to the system will not be nearly enough to cover these payouts, so success depends on strong, consistent investment returns, averaging at least 6.75 percent a year for the next 10 years. Any shortfall will have to ultimately be covered by the taxpayers.

Why Detroit’s Pension Deal Is a Warning to Retirement Savers -- Guaranteed lifetime income has become the obsession of retirees, policymakers and the financial industry. Yet as the public pension debacle in bankrupt Detroit shows, we may never find a solution that completely eliminates the risk of your money running out. The deal still left the city’s 32,000 current and future retirees with diminished benefits and no certainty that they won’t be asked to give up more down the road. Their fate is largely in the hands of the markets—as is the case for millions of workers saving in 401(k) plans, and even many of those still covered by a private pension. The problem is that there is only so much money we are willing to throw at the retirement savings crisis, an issue that has been exacerbated by an economy that until recently was growing far below potential. Every leg of the retirement stool is underfunded, including private pensions, though they are in the best shape. Many public pensions are in deep trouble. Social Security is on course for a funding shortfall. Personal savings are abysmal.When government revenue or corporate profits or personal income are too low to allow for setting aside enough money for the future, we can only hope that the markets bail us out. In Detroit’s case, pension managers are counting on average annual returns of 6.75% for the next 10 years. That might happen, and it’s a lower expected rate of return than many public pensions are counting on. But given that stocks have already had a nice run, and that the bond portion of any portfolio will almost certainly come up far short of that mark, it’s probably an optimistic target. That means the city will likely have to raise taxes or cut pension benefits at some later date.Private pensions face similar math, which is why many companies have frozen their plans or dropped them.  The equation became more difficult recently, now that the Society of Actuaries has updated its mortality tables, which added a couple years to the life expectancy of both men and women at age 65.

Ohio's unfunded pension liability more than $25K per resident « Ohio’s public pension plans have so much debt that paying it off today would cost each resident $25,080. According to a new report, “Promises Made, Promises Broken 2014,”by nonprofit State Budget Solutions, the amount of unfunded pension obligations in Ohio has grown to nearly $290 billion, fifth highest in the nation. That’s despite recent changes in the pension plans that were supposed to address the unfunded liability. “That’s a very scary place for Ohio. The national average is $15,000, so $25,000 is just terrible,” said Joe Luppino-Esposito, SBS editor and general counsel and the author of the report. He said the $25,080 places Ohio third regarding highest per capita debt. Alaska, due in part to its low population, was first, in front of Illinois. Ohio has several individual plans — for teachers, police and fire, state employees, school employees and the State Highway patrol. Participants and the public employer contribute to the plans like non-public workers, and employers contribute to Social Security. The plans are categorized as defined benefits, with the amount of payment upon retirement based on the three highest years of earnings while working. That’s part of the problem, Luppino-Esposito said. It’s hard to know the exact amount the plans will have to pay out years in the future when current employees retire, because there is no way to know for sure how much will be owed, he said. People are working longer and more likely to have higher earnings. They’re also living longer, so they’re collecting pensions longer.

Surprise: Obamacare Enrollment 30% Less Than Previously Expected; Spike In 2015 Premiums Imminent -- Moments ago the Obama administration revised its estimate for Obamacare enrollment, now saying - with the bruising midterms safely in the rearview mirror - that it expects some 9.9 million people to have coverage through the Affordable Care Act’s insurance exchanges in 2015, millions fewer than outside experts predicted.  And actually it is not even 9.9 million: "Health and Human Services Secretary Sylvia Mathews Burwell said Monday the administration was aiming for 9.1 million paid-up enrollees for 2015, though the range could extend to 9.9 million, according to the agency’s analysis. Ms. Burwell said she respected the work of the Congressional Budget Office and its projections but that she believed HHS figures were based on the best and most up-to-date information." So really 8 million, or less?

Obamacare 2015: Higher costs, higher penalties - With the Affordable Care Act to start enrollment for its second year on Nov. 15, some unpleasant surprises may be in store for some. That's because a number of low-priced Obamacare plans will raise their rates in 2015, making those options less affordable. On top of that, penalties for failing to secure a health-insurance plan will rise steeply next year, which could take a big bite out of some families' pocketbooks. "The penalty is meant to incentivize people to get coverage," said senior analyst Laura Adams of "This year, I think a lot of people are going to be in for a shock." In 2014, Obamacare's first year, individuals are facing a penalty of $95 per person, or 1 percent of their income, depending on which is higher. If an American failed to get coverage this year, that penalty will be taken out of their tax refund in early 2015, Adams noted. While that might be painful to some uninsured Americans who are counting on their tax refunds in early 2015, the penalty for going uninsured next year is even harsher. The financial penalty for skipping out on health coverage will more than triple to $325 per person in 2015, or 2 percent of income, depending on whichever is higher. Children will be fined at half the adult rate, or $162.50 for those under 18 years old

Surprises Lurk for People Re-Enrolling on - WSJ - In a twist, an influx of lower-priced health plans on could lead many Americans to pay more for coverage next year thanks to smaller insurance tax credits. A handful of insurers in 14 states are offering aggressively low premiums on the federal insurance enrollment site, which reopens Saturday, in a bid to undercut big rivals who snapped up customers last year. The move is pulling down the value of federal tax credits that consumers get to offset the cost of their coverage under the Affordable Care Act. The credits are pegged to the price of the second-lowest-cost midrange plan in a given geographic area, as well as an enrollee’s income. The reduced tax credits are good news for the federal government, which stands to pay less to subsidize people’s premiums. The influx of new low-cost plans is also a plus for the millions of uninsured people expected to look for 2015 coverage through the law’s insurance exchanges. But many people who re-enroll in their 2014 plans face higher insurance costs even if their premium remains flat. To avoid paying more, they would have to switch plans, which many consumers don’t do. “If you shop, there are big savings to be had,” said Jon Kingsdale, managing director at the Boston office of Wakely Consulting Group, an actuarial firm. “If you don’t, you could be in for a rude shock.”

U.S. officials hope new avoids last year's problems (Reuters) - U.S. officials planned to unveil an improved healthcare insurance website on Sunday they hope will allow the second enrollment period under President Barack Obama's health reform plan to avoid the technical meltdown that plagued its launch last year. The reconfigured insurance marketplace will go live Sunday night before a three-month open enrollment period that begins Nov. 15, during which existing policyholders can change their coverage. Administration officials said on Sunday they will get it right this time, with a website that will make it easier to shop for coverage, and enough computing capacity, call-center help and other resources to handle re-enrollment of all current policyholders. true "We are strongly encouraging our customers to return to ... Shop and compare. The majority will be able to save money," particularly those who may have overlooked available federal tax credits last year, said Kevin Counihan, chief executive officer of the federal health insurance marketplace.

Most Aren’t Going to Use the Insurance Exchanges Correctly - The vast majority of people who get insurance on the Affordable Care Act exchanges last year aren’t planning to shop around again this year according to Gallup. More than two thirds are planning to renew their current policies.This result shouldn’t be surprising. Comparison shopping for insurance policies is extremely difficult. Switching policies can also carry the huge opportunity cost of finding new providers covered by the new policy. In addition, people are creatures of habit. That is why we have seen, in countries like Switzerland, people rarely switch insurance policies even when it would clearly be to their financial benefit. Still this is bad news for the program and the people using it. The Affordable Care Act was designed around strongly encouraging people to frequently shop around for insurance. The “market magic” this was meant to unleash doesn’t really work if no one is actually using the market. This also means a lot of these people on the exchanges could be hit with some big surprise costs next year if they just let their policies automatically renew. The tax credits on the exchange are based off the price of the second-cheapest silver plan. If some new cheaper plan enters your exchange the size of your tax credits will drop. So even if the official premiums for your policy don’t change much, the amount you are required to pay could increase noticeably.

Obamacare Architect Jon Gruber Says Deceiving Americans Necessary to Pass Bill - Yves Smith - Nothing like the American policy elite showing its true colors.  This recently-posted video (hat tip Daily Signal) shows Obamacare architect Jonathan Gruber matter-of-factly stating that an honestly and simply described Obamacare would not have passed Congress. Preying on “the stupidity of the American voter” was necessary to get the bill passed. Of course, Gruber deems that to be a good thing. And similar well-intentioned policy wonks brought us bank deregulation, which ultimately produced the financial crisis, “free trade,” which is actually managed trade designed around the interests of American multinationals, and our Middle Eastern adventurism, among other things.  Gruber is yet another case study in the Upton Sinclair saying, “It is difficult to get a man to understand something if his salary depends on his not understanding it.” In Gruber’s case, a “transparent” Obamacare bill would have made the enrichment of Big Pharma and the health insurers more visible. The idea of universal healthcare, which also involves the healthy paying for the sick, is popular all over the world. Most people understand that even if they are healthy now, they can in short order be among those needing big ticket health care if they have a too-close encounter with a rapidly moving vehicle. So Gruber’s excuse ins’t just patronizing, it’s dishonest.

Obamacare Architect Explains "Stupidity of American Voter" Needed to Pass ACA  -- The truth on Obamacare is finally out: The bill was purposely written to trick the CBO (congressional Budget Office) into believing the bill was not a tax. Moreover, the bill also depended on the "Stupidity of American Voter". Many of us knew that long ago. But those are the words of Jonathan Gruber, a numbers wizard at M.I.T., who was courted by the Obama administration, and paid $400,000 for his efforts to see that the bill made its way through Congressional obstacles.  The following short video explains the setup.

Key Obamacare architect regrets calling voters stupid - A key architect of President Barack Obama’s landmark health-care law said he regretted calling voters “stupid” but said the bill was structured as it was to win Congressional approval. Jonathan Gruber, a Massachusetts Institute of Technology professor, has been the topic of debate since a video emerged of him saying last year that the bill passed Congress because of a lack of transparency and the stupidity of the American voter. He said the bill was written in a “tortured way” to ensure the Congressional Budget Office didn’t refer to the mandate as a tax. The entire video of Gruber’s comments at a health conference can be seen here.

ObamaCare Creator Admits If He Had Told The Truth "It Would Not Have Passed" -- Having exposed the disgraceful reality of ObamaCare's passage into law (and then apologized for being caught saying that "stupidity of the American voter" helped Congress approve the bill); a 3rd and 4th clip of the healthcare law's architect Jonathan Gruber (who Nancy Pelosi says she has never heard of despite her role in the law's birth) have surfaced... and it's not pretty.  As CNN reports, the emergence of this video with Gruber repeatedly suggesting that "stupid" voters were misled for their own good by Obamacare supporters is a political problem for Obama as the Supreme Court is set to rule on subsidies. The 3rd video..."It's a very clever, you know, basic exploitation of the lack of economic understanding of the American voter," Gruber said at the Honors Colloquium 2012 at the University of Rhode Island.  If you had a law which said healthy people are going to pay in -- if you made it explicit that healthy people pay in and sick people get money, it would not have passed, OK? Just like how people -- transparent -- lack of transparency is a huge advantage. And basically, you know, call it the stupidity of the American voter or whatever. But basically that was really, really critical to getting the thing to pass."

Health Care Reform Imperiled - Will five Supreme Court justices eliminate essential health care subsidies for more than four million lower-income Americans, based on a contorted reading of four words? It sounds inconceivable, but that would be the effect of a ruling in favor of the latest legal challenge to the Affordable Care Act. On Friday, the justices announced that they would hear that case, King v. Burwell, a dispute over the meaning of a single phrase — “established by the State” — in the 900-page health-care reform law. The law, which has been under constant assault since its 2010 passage, has made health-care coverage newly available for between 8 and 11 million people this year alone. This unprecedented achievement in social policy has improved, and surely saved, many lives. But, to the law’s implacable opponents, it represents nothing more than an oppressive big-government program that must be stomped out. The opponents lost before the Supreme Court in 2012 in an effort to kill the law on constitutional grounds. Now they are taking aim at the tax-credit subsidies that are central to the success of health reform. Because one subsection of the law says these subsidies are available on an exchange “established by the State,” the plaintiffs claim there can be no subsidies for anyone living in the 36 states where the federal government established a health exchange after state officials did not. It is a superficially simple argument, which most federal judges who have considered the claim have rejected. That is because it runs counter to the explicit purpose and structure of the Affordable Care Act. As everyone involved in the law’s creation understood at the time, its success depends on making coverage both required and available to as many people as possible. As a Senate staff member told recently, “We certainly wanted every individual in every state, regardless of their federal or state exchange status, to receive the same subsidies.”

Death by Typo, by Paul Krugman-  It  now appears possible that the Supreme Court may be willing to deprive millions of Americans of health care on the basis of an equally obvious typo. And if you think this possibility has anything to do with serious legal reasoning, as opposed to rabid partisanship, I have a long, skinny, unbuildable piece of land you might want to buy.Last week the court shocked many observers by saying that it was willing to hear a case claiming that the wording of one clause in the Affordable Care Act sets drastic limits on subsidies to Americans who buy health insurance. It’s a ridiculous claim... But the fact that the suit is ridiculous is no guarantee that it won’t succeed — not in an environment in which all too many Republican judges have made it clear that partisan loyalty trumps respect for the rule of law. ...Now, states could avoid this death spiral by establishing exchanges — which might involve nothing more than setting up links to the federal exchange. But how did we get to this point?Once upon a time, this lawsuit would have been literally laughed out of court. Instead, however, it has actually been upheld in some lower courts, on straight party-line votes — and the willingness of the Supremes to hear it is a bad omen. So let’s be clear about what’s happening here. Judges who support this cruel absurdity aren’t stupid; they know what they’re doing. What they are, instead, is corrupt, willing to pervert the law to serve political masters. And what we’ll find out in the months ahead is how deep the corruption goes.

Why Obamacare risks falling into a ‘death spiral’ - So it turns out there is an Obamacare death panel after all. It has nine members and it operates out of a marble building directly across the street from the Capitol.  When the Supreme Court on Friday announced that it would take up another challenge to the Affordable Care Act in March, it delivered the threat of two mortal blows to the signature achievement of the Obama presidency.  First, it raised the possibility that the justices, who narrowly spared the law in 2012, will in June come out with a new ruling that would dismantle the law on different grounds. But even if the justices make no such ruling, the very act of taking up the challenge to the law will itself undermine the law. The justices announced their decision just a week before the open-enrollment period for 2015 begins — and the looming possibility that the high court will strike down the law will probably deter those who are considering signing up for its coverage. Thus did Sylvia Mathews Burwell, the new secretary of health and human services, find herself in a defensive posture Monday afternoon, even though she was in the friendly environs of the liberal Center for American Progress. An event had been scheduled to generate enthusiasm for the new open-enrollment season, but the host, former Ohio governor Ted Strickland, had little choice but to acknowledge the elephant that John Roberts had led into the room.

Economic arguments for and against the medical device tax - If you’re interested in the Affordable Care Act’s 2.3% medical device excise tax (pro, con, or neutral), you should read the Congressional Research Service’s economic analysis of it. You might also want to pay attention to The Center on Budget and Policy Priority’s take. Though no stranger to the limelight, repeal of the tax has received growing attention in wake of the midterm election that will bring a Republican majority to the Senate. But the politics of the tax has far outpaced its economic import. There are reasons to dislike the tax. It’s not a particularly efficient one since it is levied on a narrow base. And, it’s not a particularly socially important tax. After all, the intent of medical devices is to help, not harm, individuals. Therefore, discouraging the use of them with a tax isn’t something that we, in general, should welcome. But we shouldn’t get too worked up. In the scheme of things, it’s not a large tax. CRS estimates the net effect on the industry is $29B over 10 years. It therefore won’t have a large effect on health care spending, estimated to be about $40T over that span. ($29B is less than 0.1% of $40T.) By the nature of the market and the fact that half of it is exempt from the tax, it won’t lead to substantial job losses, 0.2% of medical device industry jobs at most. Still, if the tax is repealed, we’d need to make up the $29B loss somehow. And it is true that additional spending on medical devices is likely with coverage expansion, which is a typical justification for taxing the industry. But who really pays this tax? CRS makes a very good argument that it’s not the industry, but consumers, through higher medical bills and insurance premiums. Abstracted from any particular industry, Mike Piper and I made the same argument in our book.

Fully-Insured Woman Faces Bankruptcy After Being Taken to Wrong Hospital: A woman who nearly died of cardiac arrest last year is now facing bankruptcy because she was taken to the "wrong" hospital while unconscious. Although she has insurance, the medical center that saved her life is out-of-network. For Megan Rothbauer, the difference between a $1,500 bill and a $50,000 one was roughly three blocks. The 29-year-old was treated at St. Mary's Hospital in Madison, Wis. Meriter Hospital, which was in her insurance network, is just down the street. "I was in a coma. I couldn't very well wake up and say, 'Hey, take me to the next hospital.' It was the closet hospital to where I had my event, so naturally the ambulance took me there," she told News 3. Her hospital bill, after being in a medically-induced coma for 10 days, was $254,000. Thanks to the Affordable Care Act, Blue Cross Blue Shield had to pay its in-network rate, which covered more than half of that. She also negotiated with the hospital to cut the remainder by 90 percent. That's huge, but it's still several times the $1,500 maximum she would have paid at the "right" hospital. And it doesn't include the bills from doctors, therapists and the ambulance, which bring her total out-of-pocket expenses up over 50 grand. Rothbauer and her fiancé have postponed their wedding and are seriously considering filing for bankruptcy. Her insurance company says there's nothing else it can do, as it has no contract with the hospital that treated her. And the hospital says that instead of focusing on her medical bills, she should just be grateful to be alive.

Medical-bill mess is worse than you thought -- Seems like every other day, there’s a story about how health care costs are absurd or confounding. You may have seen the powerful 60 Minutes story recently on how cancer drugs are regularly priced at $100,000 a year, suggesting that pharmaceutical companies essentially charge whatever they think they can get away with. Now comes a study and related research from NerdWallet Health showing just how out of whack medical billing has become, especially for people in their 40s, 50s and 60s. The site found that American consumers are confused about their medical bills, often owe more than they expect and that there’s massive overcharging by hospitals.  Highlights from the NerdWallet Health and Harris Poll survey of 2,016 adults:

  • 57% said they’d receive medical bills that confuse them; 64% of those ages 45 to 54 and 61% of those 55 to 64.
  • 63% said they’ve received medical bills that cost more than they expected. The figure was 68% among those ages 45 to 54 surveyed.
  • 73% said they could make better health decisions if they knew the cost of medical care before receiving a treatment; 80% of those ages 45 to 54 said so.

NerdWallet Health also studied hospitals’ Medicare billing data compiled by Medicare’s Office of the Inspector General in 2013 and discovered that all of the hospitals had billing errors. That’s right, all of them. In every case, the erroneous billing practices led to overpayments by Medicare (the hospitals were ordered to repay the government once their overcharges were discovered).

A Push to Back Traditional Chinese Medicine With More Data - WSJ - Traditional Chinese medicine teaches that some people have hot constitutions, making them prone to fever and inflammation in parts of the body, while others tend to have cold body parts and get chills. Such Eastern-rooted ideas have been developed over thousands of years of experience with patients. But they aren’t backed up by much scientific data. Now researchers in some the most highly respected universities in China, and increasingly in Europe and the U.S., are wedding Western techniques for analyzing complex biological systems to the Chinese notion of seeing the body as a networked whole. The idea is to study how genes or proteins interact throughout the body as a disease develops, rather than to examine single genes or molecules. “Traditional Chinese medicine views disease as complete a pattern as possible,” says Jennifer Wan, a professor in the school of biological sciences at the University of Hong Kong who studies traditional Chinese medicine, or TCM. “Western medicine tends to view events or individuals as discrete particles.” But one gene or biological marker alone typically doesn’t yield comprehensive understanding of disease, she says. To reach these goals, the overall quality of research on traditional Chinese medicine must improve. With studies of Chinese herbal remedies, for instance, rarely are scientists expected to provide authentication of herbs they’re studying, which makes it difficult to know what’s really in the concoctions. This hurdle also makes it harder for other scientists to replicate the findings

Mind-control device lets people alter genes in mice through power of thought - Scientists have created a mind-control system that allows a person to alter the genes in a mouse through the power of thought alone. The approach fuses the latest advances in cybernetics with those in synthetic biology by connecting a wireless headset that monitors brainwaves to an implant in the mouse that can change the rodent’s genes. A person wearing the device could alter how much protein was made from a gene in the mouse by changing his or her state of mind from concentrating to relaxed or vice-versa. With practice, volunteers found that they could turn the gene on or off in the mouse at will, and thereby raise or lower the levels of protein circulating in the animal’s blood system. The experiment could lead to the development of a radical new approach to the treatment of diseases. Scientists hope it is a first step towards the development of a system that will monitor brainwaves for signs of illnesses and automatically release medicines into the body to treat them.

Children's Attention Deficit Linked to Air Pollution - Scientific American: New York City children exposed in the womb to high levels of pollutants in vehicle exhaust had a five times higher risk of attention problems at age 9, according to research by Columbia University scientists published Wednesday. The study adds to earlier evidence that mothers' exposures to polycyclic aromatic hydrocarbons (PAHs), which are emitted by the burning of fossil fuels and other organic materials, are linked to children's behavioral problems associated with Attention Deficit Hyperactivity Disorder (ADHD). “Our research suggests that environmental factors may be contributing to attention problems in a significant way,” said Frederica Perera, an environmental health scientist at Columbia’s Mailman School of Public Health who was the study's lead author. About one in 10 U.S. kids is diagnosed with ADHD, according to the Centers for Disease Control and Prevention. Children with ADHD are at greater risk of poor academic performance, risky behaviors and lower earnings in adulthood, the researchers wrote. “Air pollution has been linked to adverse effects on attention span, behavior and cognitive functioning in research from around the globe. There is little question that air pollutants may pose a variety of potential health risks to children of all ages, possibly beginning in the womb,”

TED Talk on the Coming Antibiotic Crisis | Big Picture Agriculture: This 14-minute TED talk by Ramanan Laxminarayan discusses the history, the challenges, and the squandering of antibiotic use, beginning with the story of penicillin. “To save a few pennies” for our meat, we’ve used antibiotics sub-clinically for growth-promotion, not for treatment. Now, bacterial resistance has become common. Included in the talk is a stunning must-see U.S. map showing the progression of Carbapenem-resistant Acinetobacter baumannii across the states from 1999 to 2012.  Every time an individual misuses an antibiotic, it affects humanity as a whole, which is “a problem of the commons”. Laxminarayan describes this as a problem of co-evolution, and compares it to using oil appropriately – related to climate change. He suggests an antibiotic tax just like people have suggested emissions taxes. The newer antibiotics are becoming much more expensive, too. He tells us that this newer higher price is a signal that we need to practice conservation of antibiotics, just as high priced gasoline signals to us that we need to switch to methods that conserve gasoline. He mentions newer avenues and investments in antibiotic technologies, but says that these need to be balanced by investing in the proper use of antibiotics.

New York Ebola doctor 'virus free': An American doctor who became the first person to be diagnosed in New York with Ebola is to be released from hospital on Tuesday after he recovered. A statement from city health officials declared that Craig Spencer "has been declared free of the virus". He worked for Medecins Sans Frontieres (MSF) in Guinea and tested positive for Ebola on 23 October after he returned. The news that he went on the subway and went bowling the night before falling ill had officials retracing his steps. Dr Spencer is one of several Americans to have recovered after being treated at a specialist unit in the US. A Liberian man died in Dallas after contracting the virus before coming to the country. But the fatality rate in West Africa is much higher, where nearly 5,000 people have died.

Are we asking the wrong questions about Ebola?: The Ebola virus has killed about 5,000 people since March - but one scientist who is studying the statistics says this is not the best figure to consider if we really want to understand the current state of the outbreak and how to beat it. A total of 4,960 people have died from Ebola this year according to statistics released by the World Health Organisation on 4 November. More than half of those cases - 2,766 - were in Liberia. But this cumulative figure, which is widely reported, can only go one way - up. It gives no meaningful insight into how the outbreak has developed says Hans Rosling, professor of global health at the Karolinska Institute in Sweden. "It's a bad habit of media. Media just want as many zeroes as possible. They'd prefer to say in Liberia we've had about 2,700 cases or 3,000 cases," he says. Last month Rosling moved to the Liberian capital, Monrovia to work with the Ministry of Health where his task is to analyse the statistics to see how the virus is spreading and find the best way to tackle it. He says that the number of new daily cases has dropped dramatically over the past few months and has plateaued in recent weeks.

Liberia ends Ebola emergency; Mali cluster grows -- Liberia's president today announced that a state of emergency called in August to address the country's Ebola outbreak would be allowed to expire, signaling a shift in the fight against the virus amid a recent real but fragile drop in cases. In Mali, a doctor tested positive for Ebola, part of an illness cluster linked to a clinic in Bamako, the country's capital. Local media reports also hint at another case in the city, in a young girl who was brought to a local hospital, where she died shortly before initial tests reportedly came back positive for the virus.  Liberian President Ellen Johnson Sirleaf said on the state-run ELBC radio that she decided to let the emergency declaration expire not because the battle against Ebola is over but because recent progress allows the country to refocus its efforts, Agence France-Presse (AFP) reported today. Sirleaf called the 90-day state of emergency on Aug 6, allowing the country to take extraordinary steps to help battle the disease, including measures that suspended certain rights and privileges, according to earlier reports. The steps included border closures, curfews, quarantines, shutting schools, and restricting public gatherings.  Liberia has been the hardest hit of the three West African countries most affected by the outbreak, with 6,822 Cases and 2,836 deaths reported so far, according to the latest update from the World Health Organization (WHO). The WHO has said that on a national level, case numbers have decreased in Liberia and Guinea, though disease transmission is still high in some districts. Other experts have warned that Ebola activity could surge again, fueled by weak health systems and pockets of denial that still persist.

Ebola and Inequality by Joseph E. Stiglitz - – The Ebola crisis reminds us, once again, of the downside of globalization. Not only good things – like principles of social justice and gender equality – cross borders more easily than ever before; so do malign influences like environmental problems and disease. The crisis also reminds us of the importance of government and civil society. We do not turn to the private sector to control the spread of a disease like Ebola. Rather, we turn to institutions – the Centers for Disease Control and Prevention (CDC) in the United States, the World Health Organization (WHO), and Médecins Sans Frontières, the remarkable group of doctors and nurses who risk their lives to save those of others in poor countries around the world. Even right-wing fanatics who want to dismantle government institutions turn to them when facing a crisis like that caused by Ebola. Governments may not do a perfect job in addressing such crises, but one of the reasons that they have not done as well as we would hope is that we have underfunded the relevant agencies at the national and global level. The Ebola episode holds further lessons. One reason that the disease spread so rapidly in Liberia and Sierra Leone is that both are war-ravaged countries, where a large proportion of the population is malnourished and the health-care system has been devastated.Moreover, where the private sector does play an essential role – vaccine development – it has little incentive to devote resources to diseases that afflict the poor or poor countries. It is only when advanced countries are threatened that there is sufficient impetus to invest in vaccines to confront diseases like Ebola.

Cancer Alley Louisiana: The 'Mother of All Sinkholes': Cancer Alley, a stretch of about 100 miles between New Orleans and Baton Rouge, is home to some 150 petrochemical plants, making these swamplands perhaps the most industrialized (and polluted) region in the United States. The latest plague ravaging Cancer Alley is that enormous sinkhole in Assumption Parish, a burgeoning cavity that is a pestilence both real and symbolic, relentlessly swallowing land while reminding residents of the despoliation the past 60 years have inflicted on their sinuous bayous and fulsome cypress groves. As Bayou Corne’s citizens abandon their homes, fleeing the specters of methane and vandals and depressed home values, they stand to become yet another Louisiana community sacrificed to the twin gods of oil and gas. Film Produced by Storyhunter:

Cod fishery in crisis - The federal government this week enacted what amounts essentially to a 6-month pause in commercial cod fishing in the Gulf of Maine, according to a report by David Abel in the Boston Globe yesterday. This is a sad day for New England's most famous fishery.  Cod fishing is a classic example of a situation where free markets would be devastating for everybody, including fishermen and their families. Because overfishing in the past has pushed stocks far below maximum sustainable levels, each fishing boat harms the economic interests of the next. Economists believe that liberated markets serve environmental goals wonderfully in many situations, where property rights to natural resources are well defined, but free markets are a disaster when each producer is chasing a common resource.  Nobody thinks the New England cod fishery should be unregulated. Yet, cod fishermen complain about the National Oceanic and Atmospheric Administration (NOAA) regulators who took action this week. Many fishermen believe the scientific estimates are overly pessimistic, leading regulators to be overly cautious. Here you can inspect the evidence for yourself, in NOAA's report this past August. Using two different models of cod mortality (on the left and right), the figure reproduced here shows the downward trend over time in estimated spawning stocks biomass (top row) and the upward trend in estimated recent fish mortality (bottom row).

Gov. Brown signs bill banning commercial production of genetically modified salmon -- Gov. Jerry Brown signed a North Coast lawmaker’s bill banning the commercial production of genetically altered salmon. AB 504, authored by Assemblyman Wes Chesbro, D-Arcata, extends the prohibition of spawning or cultivating so-called “transgenic salmonids” in the Pacific Ocean to all waters of the state. The hatchery production and stocking of such fish also is prohibited. The legislation protects the state’s native steelhead trout and salmon populations, Chesbro said. He noted that federal food and drug regulators are reviewing an application by a company, AquaBounty Technologies, that seeks to raise genetically altered salmon in the United States. “If these ‘frankenfish’ were to escape into our waters, they could destroy our native salmonid populations through interbreeding, competition for food and the introduction of parasites and disease,” Chesbro stated in a news release. “The only way to ensure this never happens is to ban commercial hatchery production, cultivation or stocking of transgenic salmonids in California.” The legislation prohibits research or experimentation for the commercial production of genetically-altered salmonids. The bill was sponsored by the Pacific Coast Federation of Fishermen’s Associations.

The first genetically modified potato - In the modern sense that is, of course potatoes have been genetically modified for a long time: The Agriculture Department on Friday approved the first genetically modified potato for commercial planting in the United States, a move likely to draw the ire of groups opposed to artificial manipulation of foods.The Innate potato, developed by the J.R. Simplot Co., is engineered to contain less of a suspected human carcinogen that occurs when a conventional potato is fried, and is also less prone to bruising during transport. Boise, Idaho-based Simplot is a major supplier of frozen french fries to fast-food giant McDonald’s. The story is here, and you will note that on Tuesday the mandatory GMO-labeling initiatives failed in Oregon and Colorado, the second failure in Oregon and that means failures in four states overall.  Less positively, voters in Maui County, Hawaii chose to restrict GMO cultivation altogether.  And now McDonald’s is under pressure not to use these new potatoes for its french fries.  But of course you can understand the marketing dilemma of McDonald’s here — they can’t just come out and say “these french fries won’t give you cancer.”

Why GMO labeling in the U.S. needs to win only once - There were no doubt celebrations last week in the boardrooms of corporations that own patents to the world's genetically engineered crops. Proposals to label foods containing these crops--commonly called GMOs for genetically modified organisms--were defeated soundly in Colorado and barely in Oregon. That makes for a perfect record in the United States for the GMO purveyors who have beaten back every attempt to mandate labeling of foods containing GMO ingredients. But, I think the celebrations may be premature. For the advocates of labeling have vowed to fight on. They came within a hair's breadth of reaching their goal in Oregon. Who is to say that another round of voter education might not put them over the top?  And, that is the danger for the GMO patent holders. If just one state requires labeling, the food companies will have to make a choice: Special handling and labels for one state or one label for the entire country that also meets that state's standards.* If the first state to implement a GMO labeling requirement is populous, say, California or New York, the decision will be made for the food companies. It won't be sensible to segregate supplies for that state. And, even a less populous state might tip the balance. Some states have passed GMO labeling laws that require enough other states to pass such laws to reach a minimum population threshold of in one case 20 million before the law goes into effect. What complicates matters further is that an increasing number of food processors are opting to exclude GMO ingredients from their products. Many processors proudly display this choice by using the emblem of the Non-GMO Project on their foods (meaning that their GMO-free formulation has actually been verified).Many others will find ways to eliminate GMO ingredients, especially if they represent a small proportion of the total for any product, just to avoid mandatory labeling. All this means that as the momentum for labeling continues to build, the opponents of labeling will have fewer and fewer allies. And, if just one state adopts labeling, those allies will shrink appreciably as more and more food processors abandon the GMO bandwagon just to avoid the labeling requirement.

Best way to get pesticides banned is to claim they’re legal highs: ENVIRONMENTAL campaigners are claiming to get a massive buzz off harmful pesticides in order to get them banned. More than 40 pesticides have been labelled as plant food, given suggestive new names like Gaboon Viper, Wow-Wow Party and Sherbet Revolver, and immediately reclassified as controlled substances. Green activist Susan Traherne said: “Lidilcarb is one of the most dangerous pesticides around, killing swathes of woodland animals and causing calves to be born with five legs, and nobody gives a shit. “But when I claimed me and my mate Skins had done two lines of it on Saturday night and were so spannered we buried ourselves up to the knees, it was illegal before I’d finished talking.” Police are already planning raids on large farming cartels around the country, causing the farmers to flush their stashes and kill every living thing downstream for 100 miles.

Monsanto Reaches $2.4M Settlement With U.S. Wheat Farmers - Monsanto agreed Wednesday to pay almost $2.4 million tosettle a lawsuit filed by U.S. wheat farmers, after a genetically modified strain of the grain was found in an Oregon field and spooked importers of American wheat.No genetically engineered wheat has been approved in the U.S., but in 2013 wheat matching a strain of an experimental type developed and tested by Monsanto a decade earlier was found growing in a field in Oregon, the Associated Press reports. The modified wheat was not approved by federal regulators, and the seed juggernaut had said it had destroyed the crop.A government report judged the incident to be an isolated case, but it did not conclude how the errant wheat had come to be in the field. Nations wary of genetically modified crops were alarmed: Japan and South Korea briefly stopped importing American wheat, and American farmers cried foul over the damage done to their revenues and reputations.The St. Louis–based company’s settlement includes giving $2.1 million to farmers in the states of Washington, Oregon and Idaho who sold soft white wheat between May 30 and Nov. 30 of 2013, as well as paying $250,000 to multiple wheat growers’ associations.

Soybean Demand in China Set to Exceed Supply -  Investors by now are well aware of China’s hunger for all sorts of commodities, including food. Nonetheless, recent research from the agribusiness consultancy LMC International revealed some shocking information. LMC’s senior economist Julian McGill, as reported by Agrimoney, said that the growing pace of China’s demand for soybeans will result in the country “trying to import more soybeans than the major producing countries are exporting.” The research forecast’s Chinese import demand to reach 180 million tons of soybeans by 2024. That’s more than the soy production of the biggest producers – United States, Brazil, and Argentina – combined! It doesn’t take an investing genius to realize this supply-demand situation will open up new opportunities for investors.  The reason for increased demand is the rising consumption of soybean meal used to feed livestock. China’s huge population is steadily increasing its wealth and socioeconomic standing and thus wants to eat better. That means there’s more demand for meat, poultry, and fish on the average Chinese dinner plate. China’s pork production has increased by 38% since 2000, and the country now houses over half of the world’s pig population. In fact, the pig population there is twice the population of the United States! And in 2013, China produced 55 million metric tons (mt) of pork, five times the amount produced in the United States. Hogs consumer 30% of China’s overall livestock feed. On top of pork, poultry constitutes about 40% of China’s animal feed and production reached 18 million mt last year. Farmed fish accounts for 30% of the feed and produced 45 million mt in 2013.

The TPP: What Might it Mean for Agriculture? - Big Picture Agriculture - The proposed Trans-Pacific Partnership (TPP) is a trade and investment agreement under negotiation by 12 countries in the Pacific Rim, including the United States. The twelve countries are Australia, Brunei Darussaiam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam. With a combined population of about 800 million and a combined gross domestic product (GDP) of about $28 trillion, these 12 countries encompassed 11 percent of global population and almost 40 percent of global GDP in 2012. The total size of their market for agricultural imports averaged $279 billion over 2010-12, 51 percent of which was sourced from TPP partners. The TPP accounts for 42 percent of the global agricultural exports of the United States and 47 percent of its agricultural imports. [...] Cutting tariffs is only one of the many goals of the TPP negotiations, but it is an important one for agricultural trade. The value of intraregional agricultural trade in 2025 under a tariff-free, TRQ-free scenario is estimated to be 6 percent, or about $8.5 billion higher (in 2007 U.S. dollars) compared with baseline values. U.S. agricultural exports to the region will be 5 percent, or about $3 billion higher, and U.S. agricultural imports from the region in 2025 will be 2 percent, or $1 billion higher in value compared with the baseline.

Britain had one of warmest and wettest years on record - The UK is on course to experience the warmest and one of the wettest years since records began more than a century ago, feeding fears that future droughts and flash floods could cost lives. Figures from the Met Office show January to October has been the warmest since records began in 1910, and also the second-wettest. Unless November and December are extremely cold, 2014 will be the hottest year on record. Experts say this the result of climate change, which they warn could place a burden on the NHS as Britons struggling to cope with future heatwaves end up in hospital. Bob Ward, policy director at the Grantham Research Institute on Climate Change at the London School of Economics, said the elderly and those with health problems are particularly at risk and could end up dying in the heat. He warned that as Britain warms it will also grow wetter – raising the spectre of flash floods that could cost lives and cause billions of pounds of damage to households and businesses. Ward said: “A large part of the population is unaware that this risk is increasing, and that is a problem because people are not then able to take the necessary precautions.

El Niño prediction 2014: Why weather forecasters were wrong about a super El Nino. I was wrong. Despite my predictions earlier this year, I’ve already admitted there will be no super El Niño this winter. In fact, according to new information released Thursday, the odds are increasing that there may not even be an official El Niño at all.Given the ridonculous model forecasts back in April, a lot of forecasters (count them: 1,2,3,4 …) took the bait. (Some, to their credit, were more restrained.) First, a quick explanation: For a major El Niño event, the atmosphere and ocean have to join forces. The Pacific trade winds can actually reverse direction during strong El Niños, pulling reinforcing shots of warm water to the surface and initiating a global chain reaction of abnormal weather. In the end, a big El Niño just never happened. And now it looks like even a small one is iffy. What gives?  On the National Oceanic and Atmospheric Administration’s official El Niño blog, Emily Becker writes that weaker events, like the one shaping up this year, are harder to predict. Even though seasonal climate forecasting has been quite good for decades, the majority of missed events have occurred more recently, since 2000, when weaker events have been the rule. Seasonal climate forecasts have a tendency to focus on the telltale central Pacific warming signal that defines El Niño. But this year, the Pacific was warm pretty much everywhere, perhaps throwing the crucial atmosphere-ocean linkage necessary for a mature El Niño out of kilter.  In essence, a gradually warming Pacific Ocean is at once reducing our ability to predict Earth’s single most important seasonal climate phenomenon, and tampering with it as well. For forecasters, that means this year’s El Niño tease has been “rather frustrating.” It mirrors another flash-in-the-pan-and-fizzle just two years ago.

The Planet Just Had Its Hottest October On Record --The Japan Meteorological Agency (JMA) reports that last month was the hottest October in more than 120 years of record-keeping — by far. This follows the hottest September, August, June, and March-May in JMA’s records! Projections by NOAA make clear 2014 is increasingly likely to be hottest year on record. And these records occurred despite the fact we’re still waiting for the start of El Niño. It is usually the combination of the underlying long-term warming trend and the regional El Niño warming pattern that leads to new global temperature records. The JMA is a World Meteorological Organization Regional Climate Center of excellence. NASA reported Friday very similar observations. In the NASA dataset, last month was tied for hottest October on record with 2005.  In this country, temperatures were quite hot in the West, and the fourth-warmest on record for the lower 48. Here is the NASA chart for global temperatures last month:

Climate Model Predicts Very Cold Winter in Northern Hemisphere - About 14.1 million square kilometers of snow blanketed Siberia at the end of October, the second most in records going back to 1967, according to Rutgers University’s Global Snow Lab. The record was in 1976, which broke a streak of mild winters in the eastern U.S. In addition, the speed at which snow has covered the region is the fastest since at least 1998. Taken together they signal greater chances for frigid air to spill out of the Arctic into more temperate regions of North America, Europe and Asia, said Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research in Lexington, Massachusetts, who developed the theory linking Siberian snow with winter weather. “A rapid advance of Eurasian snow cover during the month of October favors that the upcoming winter will be cold across the Northern Hemisphere,” Cohen said in an interview yesterday. “This past October the signal was quite robust.” Cold air builds over the expanse of snow, strengthening the pressure system known as a Siberian high. The high weakens the winds that circle the North Pole, allowing the cold air to leak into the lower latitudes. The term Polar Vortex actually refers to those winds, not the frigid weather. Last year, 12.85 million square kilometers covered Eurasia at the end of October. By January, waves of frigid air were pummeling the U.S. Prices for natural gas, a heating fuel used by half of American households, rose to a five-year high in February.

New study questions the accuracy of satellite atmospheric temperature estimates -- Over the past decades, scientists have made many measurements across the globe to characterize how fast the Earth is warming. It may seem trivial, but taking the Earth’s temperature is not very straightforward. You could use temperature thermometers at weather stations that are spread across the globe. Measurements can be taken daily and information sent to central repositories where some average is determined.  A downside of thermometers is that they do not cover the entire planet – large polar regions, oceans, and areas in the developing world have no or very few measurements. Another problem is that they may change over time. Perhaps the thermometers are replaced or moved, or perhaps the landscape around the thermometers changes which could impact the reading. And of course, measurements of the ocean regions are a whole other story.  An alternative technique is to use satellites to extract temperatures from radiative emission at microwave frequencies from oxygen in the atmosphere. Satellites can cover the entire globe and thereby avoid the problem with discrete sensors. However, satellites also change over time, their orbit can change, or their detection devices can also change. Another issue with satellites is that the measurements are made throughout the atmosphere that can contain contaminants to corrupt the measurement. For instance, it is possible that water droplets (either in clouds or precipitation) can influence the temperature readings. So, it is clear that there are strengths and weaknesses to any temperature measurement method. You would hope that either method would tell a similar story, and they do to some extent, but there are key differences. Basically, the lower atmosphere (troposphere) is heating slower than the Earth surface.

Amazon rainforest losing ability to regulate climate, scientist warns -- The Amazon rainforest has degraded to the point where it is losing its ability to benignly regulate weather systems, according to a stark new warning from one of Brazil’s leading scientists. In a new report, Antonio Nobre, researcher in the government’s space institute, Earth System Science Centre, says the logging and burning of the world’s greatest forest might be connected to worsening droughts – such as the one currently plaguing São Paulo – and is likely to lead eventually to more extreme weather events. The study, which is a summary drawing from more than 200 existing papers on Amazonian climate and forest science, is intended as a wake-up call. “I realised the problem is much more serious than we realised, even in academia and the reason is that science has become so fragmented. Atmospheric scientists don’t look at forests as much as they should and vice versa,” said Nobre, who wrote the report for a lay audience. “It’s not written in academic language. I don’t need to preach to the converted. Our community is already very alarmed at what is going on.” A draft seen by the Guardian warns that the “vegetation-climate equilibrium is teetering on the brink of the abyss.” If it tips, the Amazon will start to become a much drier savanna, which calamitous consequences.

Millions of Asians exposed to big climate disasters - Oxfam  - Millions of people in Asia, the world's most disaster-prone region, face the threat of major climate-linked disasters and food crises because government policies fail to protect them, Oxfam warned on Thursday. A year after Typhoon Haiyan wreaked havoc in the Philippines, the aid and development charity warned that governments needed to do more to prevent people losing their lives and homes to extreme weather. Asia, with 4.3 billion people or 60 percent of the global population, has borne almost half the estimated economic cost of all disasters over the past 20 years, amounting to around $53 billion annually, Oxfam said. "Without greater investment in climate and disaster-resilient development and more effective assistance for those at risk, super-typhoon Haiyan-scale disasters could fast become the norm, not the exception," Oxfam said in a report. Scientists say climate change is causing more frequent and intense weather events, and warn current levels of greenhouse gas emissions will push global temperature up by more than 2 degrees Celsius (3.6 degrees Fahrenheit), an internationally agreed limit. "This will be a global disaster, to be borne disproportionately by Asia's growing population," Oxfam said.

Climate Change: Afghanistan on Front Line (& You Thought the Taliban were Bad) - In northern Afghanistan, the residents don’t often use the phrase – most don’t even know it. But as they describe how increasingly extreme weather patterns are making their lives harder every year, they map out many of the symptoms of climate change. As a new UN report warns that “irreversible” climate change is affecting more people than ever, these Afghans are on the front line.Naim Korbon says he is 90 years old, though he admits he does not really know. Either way he is too old to be carrying cement. Earlier this year his life’s work was destroyed as vicious floods cascaded through the area. It was, local experts say, the worst to hit the region in 42 years. Nearly half of the village was swept away, including Korbon’s home. All down his street buildings – many of them over 50 years old – are slumped; roofs sliding off, surrounded by piles of debris.   Floods are not the only weather making the residents’ lives harder. In the nearby village of Baghacha Khan Mula local representative Abdul Jalote Mufakar pointed at the barren earth with a sense of resignation. “In recent years, there are no crops. Only almonds grow any more,” he said.This pattern of long droughts, poor harvests and flash floods has been a growing trend for the people of northern Afghanistan, with experts largely in agreement that the climate is becoming more extreme. A new report identified Afghanistan as one of 11 countries globally at extreme risk of both climate change and food insecurity.

Groundbreaking Maps Detail Acidity of the Earth's Oceans - A team of scientists at Columbia University’s Lamont-Doherty Earth Observatory and the University of Colorado at Boulder have published a groundbreaking set of maps that offer a comprehensive picture of the acidity of the Earth’s oceans as they absorb climate change-causing carbon emissions, causing changes to marine ecosystems. “We have established a global standard for future changes to be measured,” said Lamont-Doherty geophysicist Taro Takahashi, one of the team that developed the maps, which were published in Marine Chemistry. The maps take a month-by-month look at the increases and declines in ocean acidity in different seasons and locations, as well as  saturation levels of calcium carbonate minerals used by shell-building organisms. They utilize four decades of measurements by Lamont-Doherty researchers and others.  Among other things, the maps show that the northern Indian Ocean is 10 percent more acidic than the Atlantic and Pacific Oceans, and that ocean water as far north as Iceland and as far south as Antarctica are acidifying by about 5 percent per decade, corresponding to the increase in carbon emissions.

Study: Global warming worsening watery dead zones - Global warming is likely playing a bigger role than previously thought in dead zones in oceans, lakes and rivers around the world and it’s only going to get worse, according to a new study. Dead zones occur when fertilizer runoff clogs waterways with nutrients, such as nitrogen and phosphorous. That leads to an explosion of microbes that consumes oxygen and leaves the water depleted of oxygen, harming marine life. Scientists have long known that warmer water increases this problem, but a new study Monday in the journal Global Change Biology by Smithsonian Institution researchers found about two dozen different ways — biologically, chemically and physically — that climate change worsens the oxygen depletion. “We’ve underestimated the effect of climate change on dead zones,” The researchers looked at 476 dead zones worldwide— 264 in the United States. They found that standard computer climate models predict that, on average, the surface temperature around those dead zones will increase by about 4 degrees Fahrenheit (slightly more than 2 degrees Celsius) from the 1980s and 1990s to the end of this century. The largest predicted warming is nearly 7 degrees (almost 4 degrees Celsius) where the St. Lawrence River dumps into the ocean in Canada. The most prominent U.S. dead zones, the Gulf of Mexico and the Chesapeake Bay, are projected to warm 4 degrees (2.3 degrees Celsius) and nearly 5 degrees (2.7 degrees Celsius) respectively. Warmer water holds less oxygen, adding to the problem from runoff, said co-author Keryn Gedan, who is at both the Smithsonian and the University of Maryland. But warmer water also affects dead zones by keeping the water more separate, so that oxygen-poor deep water mixes less.

Warmest oceans ever recorded: "This summer has seen the highest global mean sea surface temperatures ever recorded since their systematic measuring started. Temperatures even exceed those of the record-breaking 1998 El Niño year," says Axel Timmermann, climate scientist and professor, studying variability of the global climate system at the International Pacific Research Center, University of Hawaii at Manoa. From 2000-2013 the global ocean surface temperature rise paused, in spite of increasing greenhouse gas concentrations. This period, referred to as the Global Warming Hiatus, raised a lot of public and scientific interest. However, as of April 2014 ocean warming has picked up speed again, according to Timmermann's analysis of ocean temperature datasets. "The 2014 global ocean warming is mostly due to the North Pacific, which has warmed far beyond any recorded value (Figure 1a) and has shifted hurricane tracks, weakened trade winds, and produced coral bleaching in the Hawaiian Islands," explains Timmermann. He describes the events leading up to this upswing as follows: Sea-surface temperatures started to rise unusually quickly in the extratropical North Pacific already in January 2014. A few months later, in April and May, westerly winds pushed a huge amount of very warm water usually stored in the western Pacific along the equator to the eastern Pacific. This warm water has spread along the North American Pacific coast, releasing into the atmosphere enormous amounts of heat--heat that had been locked up in the Western tropical Pacific for nearly a decade.

Salt-Water Fish Extinction Seen By 2048 - CBS News: The apocalypse has a new date: 2048. That's when the world's oceans will be empty of fish, predicts an international team of ecologists and economists. The cause: the disappearance of species due to overfishing, pollution, habitat loss, and climate change. The study by Boris Worm, PhD, of Dalhousie University in Halifax, Nova Scotia, -- with colleagues in the U.K., U.S., Sweden, and Panama -- was an effort to understand what this loss of ocean species might mean to the world. The researchers analyzed several different kinds of data. Even to these ecology-minded scientists, the results were an unpleasant surprise. "I was shocked and disturbed by how consistent these trends are -- beyond anything we suspected," Worm says in a news release. "This isn't predicted to happen. This is happening now," study researcher Nicola Beaumont, PhD, of the Plymouth Marine Laboratory, U.K., says in a news release. "If biodiversity continues to decline, the marine environment will not be able to sustain our way of life. Indeed, it may not be able to sustain our lives at all," Beaumont adds. Already, 29% of edible fish and seafood species have declined by 90% -- a drop that means the collapse of these fisheries. But the issue isn't just having seafood on our plates. Ocean species filter toxins from the water. They protect shorelines. And they reduce the risks of algae blooms such as the red tide.

World losing battle against global warming: In the battle to combat global warming, the world isn't moving fast enough to stay in the fight. The United Nations' Intergovernmental Panel on Climate Change (IPCC) — which releases a new report every few years — again gave grim news last week as emissions rose 2.3% to a record in 2013, marking the largest year-to-year change in three decades. "We're about at a 3" on a scale of 0 to 10 in reducing emissions that cause global warming, said Michael Oppenheimer, a Princeton University geoscientist and contributing author of an international report out earlier this week that warned of "severe, pervasive and irreversible" damage if nations fail to corral greenhouse gases. Meanwhile, Earth is also on target for its hottest year ever recorded, according to the National Oceanic and Atmospheric Administration, as well as reaching the highest level of atmospheric carbon dioxide in at least 800,000 years. And in the U.S., emissions rose 2.9% in the past year — after several years of declines. "The pace and scale (of efforts to fight warming) needs to increase dramatically," said Jennifer Morgan, director of the climate program at the World Resources Institute (WRI), a global research organization in Washington, D.C. "It is clear that despite all current efforts, much more action is needed to avoid the worst impacts of climate change." Perhaps most stunning in this year's IPCC report was scientists' certainty that humans are behind the warming: 95%. Previous reports by the group didn't provide such harsh language to describe future consequences or such high confidence about humanity's role.

Naomi Klein’s “Hard-Money” Ideas Undermine Her Laudable Climate Action Goals - This is the first of at least two book reviews that I am planning to write about Naomi Klein’s important and occasionally frustrating, quite-large book (466 page) This Changes Everything: Capitalism vs. the Climate (which I will abbreviate as TCE). The reasons for more than one book review are several. TCE contains a number of important ideas and insights that are not tightly tied together in one argument. Naomi Klein happens to be one of the more politically-savvy and widely-read public intellectuals currently writing about social, political, and economic issues and TCE dives into a central complex of issues surrounding the gravest and most massive challenge we face as a species, the fight against human-caused climate change. Her previous work in Shock Doctrine and related articles, is “must-read” if you want to understand the predatory nature of neoliberal elites, a feature of our current age which she at least popularized, if not discovered. Naomi Klein is also a leading activist on this and other issues, including her work with and help in co-planning the People’s Climate March in September of this year. The book is varied in content and focus, therefore the plan to write more than one review of the book, rather than write one very long one. As implied in the last sentence above, TCE is not tightly structured around her central argument, which shifts in its focus as well as in whom she is attempting to address. However what follows here is one, perhaps biased, overview of TCE’s main arguments.

Why two crucial pages were left out of the latest U.N. climate report - Last Sunday, the United Nations' Intergovernmental Panel on Climate Change, the world's leading authority on the science of global warming, released its latest "Synthesis Report." And it painted a pretty dire picture. Significant global warming, the report said, is already "irreversible" -- and if policymakers don't act, a dangerous 2 degrees Celsius (3.6 degrees Fahrenheit) warming threshold will be breached. That's a strong message -- but it might have been even stronger. You see, one of the report's more powerful sections wound up being left out during last minute negotiations over the text in Copenhagen. And it was a section that, among other matters, tried to specify other measures that would indicate whether we are entering a danger zone of profound climate impact, and just how dramatic emissions cuts will have to be in order to avoid crossing that threshold. This outcome -- and the divergent national views underlying it -- is a prelude to the political tensions we can expect at next month's mega climate change meeting in Lima, Peru, and then especially in Paris at the end of 2015, when governments will gather to try to negotiate a global agreement to reduce greenhouse gas emissions. The dropped section in question appeared in an August 25, 2014 draft of the synthesis report, but not in the final version. It was a box entitled "Information Relevant to Article 2 of the UNFCCC" or United Nations Framework Convention on Climate Change, a global treaty signed in 1992-93 by over 160 nations of the world, including the United States. The box would have comprised two pages in the final report, and was worked on by a team of scientists for nearly three years, according to Jean-Pascal van Ypersele, a Belgian climate researcher who is vice-chair of the IPCC.

There Should Be No More International Reports on Climate Science - The more things change, the more they stay the same. Scientists are in the news, warning about the dangers of escalating fossil fuel emissions:

  • “Emissions resulting from human activities are substantially increasing.”
  • “These increases will enhance the greenhouse effect, resulting on average in an additional warming of the Earth’s surface.”
  • “Continued emissions of these gases at present rates would commit us to increased concentrations for centuries ahead.”
  • “The longer emissions continue to increase at present day rates, the greater reductions would have to be for concentrations to stabilise at a given level.”
  • “The long-lived gases [like carbon dioxide] would require immediate reductions in emissions from human activities of over 60% to stabilise their concentrations at today’s levels.”

Only thing is, the above statements were written in 1990. Well, we all know what happened next: Greenhouse gases have continued to skyrocket (up 34 percent since 1990—above even the previous worst-case scenario), the Intergovernmental Panel on Climate Change’s projections of rising temperatures have been exceptionally accurate, “irreversible” change is underway, and still the world has responded with a collective “meh.” On Sunday, the world’s best climate scientists were back at it, gathering in Copenhagen to deliver another report, the culmination of the most comprehensive study ever assembled on global warming. There’s no indication that this week’s report substantially changes the basics we knew back in 1990—though there have been huge advances over the past quarter-century in eliminating the remaining shreds of uncertainty in just how fast we’re screwing ourselves over.

Michael Mann Interview: Very Little “Burnable Carbon” In Our “Budget”; Emissions Ramp-down Must Start Now - One of my hats is as a climate interpreter to the interested lay person. I have something of a science background and can read the papers “in the original.” Another hat is as an occasional interviewer for Virtually Speaking. This month the two hats merged on the same head, and I got to interview the “Hockey Stick graph” climate scientist, Dr. Michael Mann.  For this interview I focused on the basics:

  • Can humans burn more carbon, create more emissions, and still stay below the IPCC’s “safe” +2°C warming target?
  • Is the IPCC’s +2°C warming target truly “safe” at all?
  • We’re already experiencing warming of about +1°C above the pre-industrial level. Even if we stop now, how much more is “in the pipeline,” guaranteed and unavoidable?
  • How do we defeat the Big Money ogre that stands in our way?

And my personal favorite:

  • Will the answer to global warming come from the “free market”?

The always-defended, sacred “free market” — as close to a religion as you’ll find in modern thought. I’ll have more about the nonexistent “free market” (you read that right) shortly. For now I want to present what Dr. Mann has to say. He was surprisingly plain-spoken, understands the urgency, and says so. I found the interview fascinating, and I hope you do as well.

NYT: U.S. and China Reach Deal on Climate Change in Secret Talks — China and the United States made common cause on Wednesday against the threat of climate change, staking out an ambitious joint plan to curb carbon emissions as a way to spur nations around the world to make their own cuts in greenhouse gases. The landmark agreement, jointly announced here by President Obama and President Xi Jinping, includes new targets for carbon emissions reductions by the United States and a first-ever commitment by China to stop its emissions from growing by 2030. Administration officials said the agreement, which was worked out secretly between the United States and China over nine months and included a letter from Mr. Obama to Mr. Xi proposing a joint approach, could galvanize efforts to negotiate a new global climate agreement by 2015. It was the signature achievement of an unexpectedly productive two days of meetings between the leaders. Mr. Obama and Mr. Xi also agreed to a military accord designed to avert clashes between Chinese and American planes and warships in the tense waters off the Chinese coast, as well as an understanding to cut tariffs for technology products. A climate deal between China and the United States, the world’s No. 1 and No. 2 carbon polluters, is viewed as essential to concluding a new global accord. Unless Beijing and Washington can resolve their differences, climate experts say, few other countries will agree to mandatory cuts in emissions, and any meaningful worldwide pact will be likely to founder.

US and China strike deal on carbon cuts in push for global climate change pact --  The United States and China have unveiled a secretly negotiated deal to reduce their greenhouse gas output, with China agreeing to cap emissions for the first time and the US committing to deep reductions by 2025. The pledges in an agreement struck between President Barack Obama and his Chinese counterpart, Xi Jingping, provide an important boost to international efforts to reach a global deal on reducing emissions beyond 2020 at a United Nations meeting in Paris next year. China, the biggest emitter of greenhouse gases in the world, has agreed to cap its output by 2030 or earlier if possible. Previously China had only ever pledged to reduce the rapid rate of growth in its emissions. Now it has also promised to increase its use of energy from zero-emission sources to 20% by 2030. The United States has pledged to cut its emissions to 26-28% below 2005 levels by 2025. The European Union has already endorsed a binding 40% greenhouse gas emissions reduction target by 2030.

We Have A Deal: The U.S. And China Agree To Historic Emission Reduction Targets -- The United States and China, the world’s two biggest contributors to climate change, have struck a new, more ambitious deal to cut their greenhouse gas emissions.President Barack Obama and President Xi Jinping jointly announced the deal Wednesday morning, the New York Times reported. The agreement marked the culmination of nine months of quiet dialogue between the two countries, capped off in recent days by Obama’s visit to China.The pledge commits the U.S. to cut its emissions 26 to 28 percent below their 2005 levels by 2025. This builds on the current target of a 17 percent reduction below that baseline by 2020, and could actually double the pace of emission cuts set by that initial goal — from 1.2 percent a year to as high as 2.8 percent per year. The White House has actually been looking into the possibility of expanding beyond the 2020 target since 2013, and has been involved in occasional interagency meetings to that effect. For its part, China is committing to get 20 percent of its energy from non-fossil-fuel sources by 2030, and to peak its overall carbon dioxide emissions that same year. China’s construction of renewable energy capacity is already proceeding at a furious pace, and this deal will require the country to deploy an additional 800 to 1,000 gigawatts of zero-carbon energy by 2030. For comparison, 800 to 1,000 gigawatts is close to the amount of electricity the U.S. current generates from all sources combined.

Is the U.S.-China Climate Announcement as Big a Deal as It Seems? -- I am just now seeing the announcements from Beijing. The United States and China have apparently agreed to do what anyone who has thought seriously about climate has been hoping for, for years. As the No. 1 (now China) and No. 2 carbon emitters in the world, and as the No. 1 (still the U.S.) and No. 2 economies, they've agreed to new carbon-reduction targets that are more ambitious than most people would have expected.  We'll wait to see the details—including how an American president can make good on commitments for 2025, when that is two and possibly three presidencies into the future, and when in the here-and-now he faces congressional majorities that seem dead-set against recognizing this issue. It's quaint to think back on an America that could set ambitious long-term goals—creating Land-Grant universities, developing the Interstate Highway System, going to the moon—even though the president who proposed them realized that they could not be completed on his watch. But let's not waste time on nostalgia. Before we have all the details, here is the simple guide to why this could be very important.

US – Chinese Announcement on Climate Change -President Obama Announces Ambitious 2025 Target to Cut U.S. Climate Pollution by 26-28 Percent from 2005 Levels. Building on strong progress during the first six years of the Administration, today President Obama announced a new target to cut net greenhouse gas emissions 26-28 percent below 2005 levels by 2025.  At the same time, President Xi Jinping of China announced targets to peak CO2 emissions around 2030, with the intention to try to peak early, and to increase the non-fossil fuel share of all energy to around 20 percent by 2030. Together, the U.S. and China account for over one third of global greenhouse gas emissions.  Today’s joint announcement, the culmination of months of bilateral dialogue, highlights the critical role the two countries must play in addressing climate change.  The actions they announced are part of the longer range effort to achieve the deep decarbonization of the global economy over time.  These actions will also inject momentum into the global climate negotiations on the road to reaching a successful new climate agreement next year in Paris.The new U.S. goal will double the pace of carbon pollution reduction from 1.2 percent per year on average during the 2005-2020 period to 2.3-2.8 percent per year on average between 2020 and 2025.  This ambitious target is grounded in intensive analysis of cost-effective carbon pollution reductions achievable under existing law and will keep the United States on the right trajectory to achieve deep economy-wide reductions on the order of 80 percent by 2050.  The Administration’s steady efforts to reduce emissions will deliver ever-larger carbon pollution reductions, public health improvements and consumer savings over time and provide a firm foundation to meet the new U.S. target.

The climate breakthrough in Beijing gives the world a fighting chance: Today’s US-China joint announcement on climate change and energy is the most important advance on the climate change agenda in many years. ... What they’ve said gives the world a fighting chance – and no doubt the last one – for climate safety. ...  An announcement is just an announcement, of course. .. The US and China have yet to put their cards on the table on how they intend to achieve deep decarbonization. ...  Not surprisingly, the incoming Republican Senate majority leader Mitch McConnell piped up immediately that he and his colleagues would oppose the deal. No doubt they will try. Yet my guess is that Mr McConnell and his buddies are soon going to learn a lesson in real democracy.  While the fossil fuel lobby may have helped finance the Republican victories last week, the US public cares about its own survival and the world that their children will soon inherit. ... The Koch brothers may have bought some 44,000 paid ads this fall to help put favoured coal and oil candidates over the top, but they did not buy the souls of the American people, who by a large majority will be gratified today by the announcements from Beijing. ...

U.S.-China climate deal isn’t enough to avert effects of global warming, experts say -- Climate experts on Wednesday said the historic agreement between the United States and China to curb greenhouse gas emissions, though a major breakthrough, still will likely not move the world back into a climate safe zone that would avert the worst effects of global warming. According to the deal, the United States will reduce its greenhouse gas emissions by up 28 percent below their 2005 level. It would do so by 2025. China, meanwhile, pledges to limit its fast-rising carbon dioxide emissions to the level reached in 2030 and no higher. It will also try to get 20 percent of its energy from non-fossil fuels sources by then, if not earlier. The agreement comes after another similar announcement recently by the European Union. EU members committed to reduce their collective emissions by 40 percent below their 1990 level. They are promising to do that by 2030. With Europe, China and the United States all pledging to take action, the world's three largest sources of emissions are for the first time working to significantly prevent the warming of the planet. "If China, the U.S., and the E.U .… got in a room, that's about 60 percent of global emissions right there,"... Despite the burst of activity, however, climate experts warn that even these ambitious efforts are unlikely -- without concerted further action -- to solve the world's climate challenges. On Wednesday, for example, a grim report released by the International Energy Agency suggested that the world is on track to pump so much carbon dioxide into the atmosphere by 2040 that it will cause irreparable harm to the planet's ecosystems.

China’s Climate Change Plan Raises Questions --  When the presidents of China and the United States pledged on Wednesday to reduce or limit carbon dioxide emissions, analysts and policy advisers said, the two leaders sent an important signal: that the world’s largest economies were willing to work together on climate change. “This is a very serious international commitment between the two heavy hitters,” said Li Shuo, who researches climate and coal policy for Greenpeace East Asia.  Still, many questions surround China’s plans, which President Xi Jinping announced in Beijing alongside President Obama after months of negotiations. In essence, experts asked, do the pledges go far enough, and how will China achieve them? Mr. Xi said China would brake the rapid rise in its carbon dioxide emissions, so that they peak “around 2030” and then remain steady or begin to decline. And by then, he promised, 20 percent of China’s energy will be renewable. Analysts said that achieving those goals would require sustained efforts by Beijing to curb the country’s addiction to coal and greatly increase its commitment to energy sources that do not depend on fossil fuels. Many scientists have said that 2030 may be too long to wait for China’s greenhouse gas emissions to stop growing, if the world is to keep the average global temperature from rising more than 3.6 degrees Fahrenheit (2 degrees Celsius) above the preindustrial average. That goal was adopted by governments from around the world at talks in Copenhagen in 2009. Almost no country has done enough yet to reach that goal, but because of its size and industrial development, China is crucial to any effort to even come close. (So is the United States, which promised on Wednesday to emit 26 percent to 28 percent less carbon dioxide in 2025 than it did in 2005.)

Historic Hype Over Global Warming Agreement With China; CO2 vs. Death-by-Pollution --On Tuesday, China and US Struck Deal on Carbon Cuts in Push for Global Climate Pact.   In a New York Times Op-Ed, Secretary of State John Kerry reflected on Our Historic Agreement With China on Climate Change.  Agreement Summation:

  1. President Obama pledged to cut US carbon emissions by 26-28% of 2005 levels by 2025
  2. China agreed to cap its emissions by 2030 (earlier if possible, but no guarantees)
  3. China will expand zero-emission sources to 20% by 2030.

Here is a little perspective on the agreement. Carbon Emissions by Country Under the agreement, the US needs to act now. China can delay for 5-10 years or more.  What will China's emissions be in 2030 by the time China's cap kicks in? Is this deal worth the accompanied hype? Some of the comments on the Guardian Live Blog are ridiculous. For example: "Today’s deal puts intense pressure on Australia to announce a target for post-2020 greenhouse gas reductions," Please look at the above map. Would it matter one iota if Australia cut emissions 20% by overnight? Heck, would it matter if Australia cut emissions to zero? From a carbon perspective the answer is no. Actually, I am all in favor of China reducing pollution. The sooner the better, but without so much hype over "global warming". China is literally killing hundreds-of-thousands of people each year with air and water pollution. Smog is so bad in China that discounting cultural issues and love of homeland, no one in their right mind would choose to live there if they had other options.

Why The U.S.-China CO2 Deal Is An Energy, Climate, And Political Gamechanger -- The historic new U.S.-China climate deal changes the trajectory of global carbon pollution emissions, greatly boosting the chances for a global deal in Paris in 2015. The deal would keep, cumulatively, some 640 billion tons of CO2 emissions out of the air this century, according to brand new analysis by Climate Interactive and MIT, using their C-ROADS model.  The U.S.-China deal is truly a gamechanger. In fact, you could make a strong case that prior to this deal, neither the U.S. or China were seriously in the game of trying to stave off climate catastrophe. Now both countries are. When you add the recent European Union (EU) pledge to cut total emissions 40 percent below 1990 levels by 2030, we now have countries representing more than half of all global emissions making serious commitments — and that in turn puts pressure on every other country. If the developing countries were to all follow China’s lead, and the non-EU developed countries follow ours, a 2015 global deal would slash carbon pollution this century by a whopping 2500 billion tons of CO2 (see figure below).   The Chinese commitment to more than double carbon-free electricity generation is also a gamechanger. It guarantees that the recent explosive growth — and amazing price drops — experienced by renewables like solar and wind will continue for decades to come. And that means the long-predicted ascendance of carbon-free energy has now begun in earnest.  Finally, the political implications of this deal can’t be overstated. Conservatives have been attacking EPA climate standards as government over-reach that supposedly harms the U.S. economy, while assuring us over and over and over again that the world’s biggest polluter (China) won’t act. That attack has not merely been rendered impotent. Now efforts to stop EPA can clearly be seen for what they really are — an effort to kill any deal with China and stop the nations of the world from coming together to prevent catastrophic climate change.

When will China reverse its carbon emissions? -- No one knows for sure, you will find a brief survey of some estimates here.  Let’s start with a few simpler points, however. First, China is notorious for making announcements about air pollution and then not implementing them.  This is only partially a matter of lying, in part the government literally does not have the ability to keep its word.  They have a great deal of coal capacity coming on-line and they can’t just turn that switch off.  They’re also driving more cars, too. Second, China falsifies estimates of the current level of air pollution, so as to make it look like the problem is improving when it is not.  Worse yet, during the APEC summit the Chinese government blocked the more or less correct estimates coming from U.S. Embassy data, which are usually transmitted through an app.   Third, a lot of the relevant Chinese regulatory apparatus is at the local not federal level (in fact it should be more centrally done, even if not fully federalized in every case).  There are plenty of current local laws against air pollution which are simply not enforced, often because of corruption, and often that pollution is emanating from locally well-connected, job-creating state-owned enterprises.   Fourth, if you look at the history of air pollution, countries clean up the most visible and also the most domestically dangerous problems first, and often decades before solving the tougher issues.  For China that highly visible, deadly pollutant would be Total Particulate Matter, which kills people in a rather direct way, and in large numbers, and is also relatively easy to take care of.  When will China cap carbon emissions?  “Fix TPM and get back to me in twenty years” is still probably an underestimate.  Don’t forget that by best estimates CO2 emissions were up last year in China by more than four percent.  How many wealthier countries have made real progress on carbon emissions?  Even Denmark has simply flattened them out, not pulled them back.

How the Chinese view their own climate agreement -- Both sides put out their joint statement, the U.S. issuing it via the White House and China releasing it through the official Xinhua News Agency. But whereas one side gave it a high gloss, the other seemed to be trying to bury it under the rug. The top story on the website affiliated with the Communist Party flagship paper The People’s Daily was about Xi and Obama meeting the press  – but the article made no reference to the climate agreement. Other stories on the homepage touched on the climate statement but tended to relegate it to the latter half of the article, and omitted the American-style superlatives. The popular Beijing News, a state-run paper known for gently testing the editorial boundaries, also didn’t mention the climate deal in its Nov. 12 cover story on the APEC meeting that brought Obama to China. It focused instead on the meeting’s anti-corruption accord and progress on plans for a pan-Asian free trade zone spearheaded by China.  Here is one reason why:  Beijing is under fire domestically for its unsuccessful efforts to curb local air pollution, noting that people were furious that authorities managed to clear the air for the visiting APEC dignitaries but can’t do it on a daily basis for their own citizens. ” There may be worries that focusing on climate change rather than air pollution doesn’t meet the public’s main concerns,” Seligsohn said via email.  That is all from a good piece by Alexa Olesen at Foreign Policy.

Top GOP Lawmakers Denounce U.S.-China Climate Deal -- Top Republicans in Congress railed against the U.S.-China climate deal reached at the Asia-Pacific Economic Cooperation in Beijing.   GOP leaders in both the House and Senate accused President Barack Obama of ignoring the will of the voters, circumventing Congress and cutting a deal with an unreliable foreign partner that will raise the cost of energy for millions of Americans. “The American people spoke against the president’s climate policies in this last election. They want affordable energy and more economic opportunity, both which are being diminished by overbearing EPA mandates,” Sen. Jim Inhofe (R., Okla.) said in a statement, calling the deal “a non-binding charade.”Mr. Inhofe, the likely chairman of the Senate Environment and Public Works Committee and a longtime skeptic of the science on global warming, vowed to use his perch in Congress to restrain the administration on energy and climate policy. In the midst of a weeklong swing across Asia and the Pacific, Mr. Obama announced the climate deal in a joint appearance on Wednesday with Chinese President Xi Jinping.  The deal includes major commitments from both countries to curb greenhouse gas emissions. Incoming Senate Majority Leader Mitch McConnell (R., Ky.) accused Mr. Obama of taking unilateral action that would significantly impact energy prices and affect jobs and the economy.  “This unrealistic plan, that the president would dump on his successor, would ensure higher utility rates and far fewer jobs,” said Mr. McConnell, who accused the president of waging a “war on coal” that will increase energy prices for middle-class Americans.

Senate Republicans Vow To Dismantle Carbon Emissions Rules - Just days after the midterm elections, Republicans are picking the big targets at which to aim their new majorities, and the federal effort to cut carbon emissions is one of them. Earlier this year, the Environmental Protection Agency (EPA) unveiled regulations cutting greenhouse gas (GHG) emissions from new and existing power plants, respectively. President Obama has laid out a plan to honor the United States’ international commitment to reduce its GHG emissions 17 percent below their 2005 levels by 2020, and those two regulations form the core of that effort.  They also appear to be near the top of the list of things the Republicans’ wish to dismantle, once they come into Congress in January with a newly-solidified grip on the House of Representatives and a new majority in the Senate.  On Thursday, Senator Mitch McConnell (R-KY) — who will likely become Senate Majority Leader when the new Congress enters in January — said he feels a “deep responsibility” to stop the power plant regulations, and that his top priority will be “to try to do whatever I can to get the EPA reined in.” Then on Sunday morning, newly-minted Senator Shelley Moore Capito (R-WV) told Fox News Sunday’s Chris Wallace that she will be “extremely aggressive” in her attempts to roll back the EPA rules. “The president’s policies are disenfranchising my part of the country,” Capito continued. “We’ve been picked as a loser, and I’m not going to stand for it. Rolling back the EPA regulations is the way to do it.”

China Deals - Paul Krugman --I wish that I believed that logic and reason played any role in the politics of climate change. Because if I did, the news of the US-China deal on carbon emissions would be a moment for sudden new optimism. After all, one of the main arguments the usual suspects make against action — after arguing that it’s all a gigantic hoax, any limits on emissions will destroy the economy, and liberals are ugly — is that nothing the US does can matter, because China will just keep on emitting. Some of us have long argued that this is way too pessimistic — that the advanced countries, if they are willing to limit their own emissions, can have a lot of leverage via the threat of carbon tariffs. But now China is showing itself willing to deal even without that. So you could say that a major prop of the anti-climate-action campaign has just been knocked away. But as I said, it probably won’t matter; they’ll just come up with another excuse.

U.S.-China Climate Deal Another Blow To Big Coal  -- The agreement between the U.S. and China to significantly cut their carbon emissions likely represents another blow to Big Coal and its hopes of overcoming a decline in its share of the U.S. energy market with a surge in exports to Asia.  China is the 800-pound gorilla in the international market for thermal coal, and its pledge to get 20 percent of its electrical power from renewable sources by 2030 and to hit its peak greenhouse gas emissions the same year will have big implications for coal producers in Australia and the United States.   “This announcement raises the financial risks for coal exporters,” said Clark Williams-Derry, deputy director of the Sightline Institute, a Seattle nonprofit research center, in an email. “It will make it even harder for them to raise the capital that would be required to build massive coal terminals in the Pacific Northwest.”  Noting that the coal industry has frequently asserted that developing economies will be a growth area for coal, Ross Macfarlane, who directs the business partnership program at Climate Solutions, said “that story is no longer reflecting reality.”  The carbon emissions announcement comes on the heels of a recent decision by China to once again impose an import tax on foreign coal. At the same time, China has been modernizing its own coal industry, and importing less this year, with imports down nearly 8 percent through the first ten months of 2014.

China, Coal, Climate, by Paul Krugman -It’s easy to be cynical about summit meetings. Often they’re just photo ops, and the photos from the latest Asia-Pacific Economic Cooperation meeting, which had world leaders looking remarkably like the cast of “Star Trek,” were especially cringe-worthy. At best — almost always — they’re just occasions to formally announce agreements already worked out by lower-level officials. Once in a while, however, something really important emerges. And this is one of those times: The agreement between China and the United States on carbon emissions is, in fact, a big deal. To understand why, you first have to understand the defense in depth that fossil-fuel interests and their loyal servants — nowadays including the entire Republican Party — have erected against any action to save the planet.The first line of defense is denial: there is no climate change; it’s a hoax concocted by a cabal including thousands of scientists around the world. ... Indeed, some elected officials have done all they can to pursue witch hunts against climate scientists. The second line of defense involves economic scare tactics: any attempt to limit emissions will destroy jobs and end growth. ... Like claims of a vast conspiracy of scientists, however, the economic disaster argument has limited traction beyond the right-wing base. ... Which brings us to the last line of defense, claims that America can’t do anything about global warming, because other countries, China in particular, will just keep on spewing out greenhouse gases. ... But ... China has declared its intention to limit carbon emissions. ...But the principle that has just been established is a very important one. Until now, those of us who argued that China could be induced to join an international climate agreement were speculating. Now we have the Chinese saying that they are, indeed, willing to deal — and the opponents of action have to claim that they don’t mean what they say.

Post climate pact, IEA warns fossil fuel trends dire -- The odds that any climate change agreement among the world’s biggest greenhouse gas emitters will succeed became a little greater on Tuesday as China and the U.S. committed to slash carbon pollution in the coming decades.It was a critical move because the world’s thirst for fossil fuels continues unabated even as wind, solar and other low-carbon energy sources are coming into their prime.That message was hammered home a day after the pact was struck in the form of a dire warning from the International Energy Agency in its annual World Energy Outlook, which was released on Wednesday. The IEA said the U.S., China and the rest of the world’s biggest carbon dioxide emitters are going to have to do a lot to put the brakes on climate change because the globe is still hooked on fossil fuels, and there’s little indication that will change much over the next 25 years.Conservation efforts and more use of wind and solar power probably won’t slash emissions quickly enough to keep catastrophic consequences of climate change from happening even if renewables overtake coal as the leading source of electricity by 2040, which the IEA sees as one possible scenario.The IEA did not account for any greenhouse gas emissions cuts that could come from the deal struck between the U.S. and China on Tuesday.The agency sees global energy demand growing by 37 percent and carbon dioxide emissions from burning fossil fuels increasing by one-fifth between now and 2040 mostly because of crude oil and coal burning in Asian countries and Africa. That increase in CO2 emissions will make it extraordinarily difficult to avoid the dangerous consequences from global warming outlined by the Intergovernmental Panel on Climate Change in its latest assessment, the IEA warns.

Fossil Fuels With $550 Billion Subsidies Hurt Renewables -- Fossil fuels are reaping $550 billion a year in subsidies and holding back investment in cleaner forms of energy, the International Energy Agency said. Oil, coal and gas received more than four times the $120 billion paid out in incentives for renewables including wind, solar and biofuels, the Paris-based institution said today in its annual World Energy Outlook. The findings highlight the policy shift needed to limit global warming, which the IEA said is on track to increase the world’s temperature by 3.6 degrees Celsius by the end of this century. That level would increase the risks of damaging storms, droughts and rising sea levels. “The huge subsidies fossil fuels enjoy worldwide gives incentives to their consumption, which means that I’m paying you to pollute the world and use energy inefficiently,” Fatih Birol, chief economist at the IEA, said at a news conference in London today. Renewable use in electricity generation is on the rise and will account for almost half the global increase in generation by 2040, according to the report. It said about 7,200 gigawatts of generating capacity needs to be built in that period to keep pace with rising demand and replace aging power stations.

Exclusive: Controversial U.S. energy loan program has wiped out losses (Reuters) - The controversial government program that funded failed solar company Solyndra, and became a lighting rod in the 2012 presidential election, is officially in the black. According to a report by the Department of Energy, interest payments to the government from projects funded by the Loan Programs Office were $810 million as of September - higher than the $780 million in losses from loans it sustained from startups including Fisker Automotive, Abound Solar and Solyndra, which went bankrupt after receiving large government loans intended to help them bring their advanced green technologies to market. The report's findings are more of a political victory than a financial one. It took the program three years to break even after Solyndra's failure, while during that same time the Standard & Poor's 500 index increased 67 percent. Still, the federal loans program is a success for taxpayers, judging by the numbers in the new report, the DOE said. After Solyndra's 2011 collapse, the program was sharply criticized by Republican lawmakers as a waste of public money and a fountain of cronyism. The outcries mounted as others in the program failed, and the DOE issued no new loans between late 2011 and this year. "Taxpayers are not only benefiting from some of the world's most innovative energy projects... but these projects are making good on their loan repayments,"

Denmark Aims for 100 Percent Renewable Energy - Denmark, a tiny country on the northern fringe of Europe, is pursuing the world’s most ambitious policy against climate change. It aims to end the burning of fossil fuels in any form by 2050 — not just in electricity production, as some other countries hope to do, but in transportation as well.Now a question is coming into focus: Can Denmark keep the lights on as it chases that lofty goal?Lest anyone consider such a sweeping transition to be impossible in principle, the Danes beg to differ. They essentially invented the modern wind-power industry, and have pursued it more avidly than any country. They are above 40 percent renewable power on their electric grid, aiming toward 50 percent by 2020. The political consensus here to keep pushing is all but unanimous.Their policy is similar to that of neighboring Germany, which has spent tens of billions pursuing wind and solar power, and is likely to hit 30 percent renewable power on the electric grid this year. But Denmark, at the bleeding edge of global climate policy, is in certain ways the more interesting case. The 5.6 million Danes have pushed harder than the Germans, they have gotten further — and they are reaching the point where the problems with the energy transition can no longer be papered over. The trouble, if it can be called that, is that renewable power sources like wind and solar cost nothing to run, once installed. That is potentially a huge benefit in the long run. But as more of these types of power sources push their way onto the electric grid, they cause power prices to crash at what used to be the most profitable times of day. That can render conventional power plants, operating on gas or coal or uranium, uneconomical to run. Yet those plants are needed to supply backup power for times when the wind is not blowing and the sun is not shining.

Japan's nuclear cleanup stymied by water woes - More than three years into the massive cleanup of Japan's tsunami-damaged nuclear power plant, only a tiny fraction of the workers are focused on key tasks such as preparing for the dismantling of the broken reactors and removing radioactive fuel rods. Instead, nearly all the workers at the Fukushima Dai-ichi plant are devoted to an enormously distracting problem: a still-growing amount of contaminated water used to keep the damaged reactors from overheating. The amount has been swelled further by groundwater entering the reactor buildings. Hundreds of huge blue and gray tanks to store the radioactive water, and buildings holding water treatment equipment are rapidly taking over the plant, where the cores of three reactors melted following a 2011 earthquake and tsunami. Workers were building more tanks during a visit to the complex Wednesday by foreign media, including The Associated Press. "The contaminated water is a most pressing issue that we must tackle. There is no doubt about that," said Akira Ono, head of the plant. "Our effort to mitigate the problem is at its peak now. Though I cannot say exactly when, I hope things start getting better when the measures start taking effect."  The work threatens to exhaust the supply of workers for other tasks, since employees must stop working when they reach annual radiation exposure limits. Experts say it is crucial to reduce the amount and radioactivity of the contaminated water to decrease the risk of exposure to workers and the environmental impact before the decommissioning work gets closer to the highly contaminated core areas.

Sunken Soviet Submarines Threaten Nuclear Catastrophe in Russia's Arctic - Moscow Times: While Russia's nuclear bombers have recently set the West abuzz by probing NATO's air defenses, a far more certain danger currently lurks beneath the frigid Arctic waters off Russia's northern coast — a toxic boneyard for Soviet nuclear ships and reactors whose containment systems are gradually wearing out. Left to decay at the bottom of the ocean, the world is facing a worst case scenario described as "an Arctic underwater Chernobyl, played out in slow motion," according to Thomas Nilsen, an editor at the Barents Observer newspaper and a member of a Norwegian watchdog group that monitors the situation. According to a joint Russian-Norwegian report issued in 2012, there are 17,000 containers of nuclear waste, 19 rusting Soviet nuclear ships and 14 nuclear reactors cut out of atomic vessels at the bottom of the Kara Sea. When the Soviets first began dumping the spent nuclear fuel, the disposal method was standard practice across the globe.  "Most nuclear states had similar practices before the early 1970s," including the U.S. navy,   But while other nations abandoned the practice of dumping radioactive waste at sea, the Soviet Union continued to do so until its collapse in 1991, and  did so in larger volumes than other nuclear powers.

GOP Has Big Plans For Energy, But Are The Numbers Right? -- It’s no secret that Republicans will look to strike quickly on the Keystone XL Pipeline Project. Phases one through three are complete and the pipeline already stretches from Hardisty, Alberta to Port Arthur, Texas. The controversial fourth and final phase will nearly double the initial capacity and will connect the oil sands in Alberta with North Dakota’s own rich reserves en route to Steele City, Nebraska. Political will has largely misshapen the debate, however. Producers have long given up waiting and oil is finding its – more carbon intensive – way to American refiners via barge and train. Oil sands production in Canada appears ready to grow with or without President Obama’s approval, but simple math debunks claims that the pipeline is the path toward North American energy independence. Current combined oil production in Canada and the United States is 15.6 million barrels per day (mmbpd). Combined consumption is 20.8 mmbpd, leaving a deficit of roughly 5 mmbpd that must be sourced externally. Despite its prominence on the Republican agenda, the Keystone XL is little more than a stepping-stone to larger issues for the newly empowered GOP. Energy exports, coal, and EPA regulations will highlight the docket. The case for energy exports will gain momentum as Alaskan Senator Lisa Murkowski assumes leadership of the Senate Energy and Natural Resources Committee. Murkowski brings to her new role vocal support for oil and gas exports in addition to onshore and offshore drilling in Alaska. Murkowski and the GOP argue that lifting the ban on oil exports will contribute to an increase in oil production, economic growth, and lower gasoline prices. Similar arguments are made for liquefied natural gas exports (LNG), which provide the added geopolitical bonus of easing European dependence on Russian piped gas. The net numbers do not change however, and our production to consumption deficit ensures that any exports must be compensated by corresponding imports. Regarding LNG, the math again doesn’t add up.

Here We Go Again: The Polluters and Poisoners Gear Up for the Next Congress --  Twenty years ago, the radical wing of the Republican Party announced its “Contract With America,” a set of policies and actions Rep. Newt Gingrich and his caucus pledged to accomplish if they were elected to a majority in Congress. Gingrich’s early battles ultimately ended in victory for the public and for the environmental and consumer protections he wanted to undo. Gingrich’s bills were made worse as they moved through committee and were amended in the House and Senate, finally resulting in what one senior Republican Senate staffer called “a revolution”—a system that would allow any corporation to escape enforcement through legal or procedural loopholes. Every regulation would be effectively voluntary, and the polluters and producers of unsafe products would have nothing to fear from the EPA, the Consumer Product Safety Commission, OSHA, or any other regulatory agency. The vehicle for this revolution was one of the first bills considered and passed in the House in 1995, “The Job Creation and Wage Enhancement Act.” Its goal was to subject federal regulations—regardless of statutory mandates to the contrary—to new risk assessment and cost-benefit analysis requirements and to create multiple opportunities for businesses to block federal rules and interfere with their enforcement. Big chemical and pharmaceutical manufacturers didn’t want clean water laws interfering with their profits, the meat industry wanted to prevent new rules about bacteria and contamination, and construction companies didn’t want to have to comply with new workplace safety standards. The legislation would have stopped new rules in their tracks.

Trading Oil For Coal -  The environment could again be on the agenda. As with on tax reform and trade agreements, Republicans feel there’s a chance for agreement with President Obama on the Keystone XL pipeline: John Boehner and Mitch McConnell specifically called for its construction in a Wall Street Journal op-ed yesterday. The northern leg of the pipeline, which would carry more than 800,000 barrels a day of carbon-heavy crude from Alberta’s oil sands to Nebraska (before it heads for the Gulf Coast), has been held up for years by political and environmental concerns. Because it would cross the border from Canada, the pipeline requires a permit from the State Department. The energy company TransCanada first applied for a permit in 2008; in 2012, before the elections and after Congress set a tight deadline, Obama rejected the $8 billion project. But TransCanada reworked the application and the State Department completed its environmental review. Technically, Secretary of State John Kerry will make the call as to whether the pipeline is in the “national interest,” and Obama says it’s an “independent process” that he’s going to allow to play out, but it’s hard to imagine President Obama not having the final say on an issue of such political and policy significance. Some legislators want to wrest that decision away. The House has previously voted to approve the pipeline over the president’s head. In May, Harry Reid actually offered Republicans a vote on a stand-alone Keystone bill if they passed a bipartisan energy-efficiency bill. Republicans demanded amendments on increasing liquefied natural-gas exports, Reid shut them down, and Republicans blocked the bill in another example of the procedural battles that have plagued the Senate for most of Obama’s presidency.

Depression-Level Collapse In Demand: In Historic First, Glencore Shuts Coal Mines For 3 Weeks -- In a historic move showing just how profound the collapse in global commodity demand and trade is, earlier today the Sydney Morning Herald reported that Australia's biggest coal exporter Glencore, which last year concluded its merger with miner Xstrata creating the world's fourth largest mining company and world's biggest commodity trader, will suspend its Australian coal business for three weeks "in a move never before seen in the Australian market, to avoid pumping tonnes into a heavily oversupplied market at depressed prices." Putting this shocking move in context, it is something that was avoided even during the depths of the global depression in the aftermath of Lehman's collapse, and takes place at a time when the punditry will have you believe that the US will decouple from the rest of the world and grow at 3% in the current quarter and in 2015.

BREAKING: West Virginia Coal Boss Indicted --  Don Blankenship, the former chief executive of Massey Energy, was indicted on Thursday afternoon for charges relating to the April 2010 Upper Big Branch coal mine explosion that killed 29 miners. The worst mining disaster in decades, the methane-fueled blast killed miners over a mile away. Blankenship, who retired from the company less than a year after the disaster, has previously denied wrongdoing. The indictment charges that he violated federal mine safety laws and alleges that he caused routine, willful violations of mandatory federal mine safety and health standards at Upper Big Branch during a period from Jan. 1, 2008, to April 9, 2010, according to a notice sent to the families as reported by the Charleston Gazette. The indictment further alleges that during this same period of time, Blankenship was “part of a conspiracy to impede and hinder federal mine safety officials from carrying out their duties” by providing advance warning of federal mine safety inspection activities, so their underground operations could conceal and cover up safety violations that they routinely committed. Earlier this year U.S. Attorney R. Booth Goodwin II told ABC News that his office has been methodically going “up the line, and consistently so” in assessing whether conduct by mine operators may have led to the explosion. “What we have seen is a conspiracy to violate mine safety and health laws,” Goodwin said. “And that conspiracy was very pervasive.”

Longtime Massey Energy CEO Don Blankenship indicted: Don Blankenship, the longtime chief executive officer of Massey Energy, was indicted Thursday on charges that he orchestrated the routine violation of key federal mine safety rules at the company’s Upper Big Branch Mine prior to an April 2010 explosion that killed 29 miners. A federal grand jury in Charleston charged Blankenship with conspiring to cause willful violations of ventilation requirements and coal-dust control rules — meant to prevent deadly mine blasts —during a 15-month period prior to the worst coal-mining disaster in a generation. The four-count indictment, filed in U.S. District Court, also alleges that Blankenship led a conspiracy to cover up mine safety violations and hinder federal enforcement efforts by providing advance warning of government inspections. “Blankenship knew that UBB was committing hundreds of safety-law violations every year and that he had the ability to prevent most of the violations that UBB was committing,” the indictment states. “Yet he fostered and participated in an understanding that perpetuated UBB’s practice of routine safety violations, in order to produce more coal, avoid the costs of following safety laws, and make more money.” The indictment also alleges that, after the explosion, Blankenship made false statements to the U.S. Securities and Exchange Commission and the investing public about Massey’s safety practices before the explosion. The three felonies and one misdemeanor carry a maximum combined penalty of 31 years imprisonment, U.S. Attorney Booth Goodwin said in a prepared statement. He would not comment beyond the prepared statement.

Disagreement on legal authority complicates local fracking bans: Last week in eastern Ohio, where natural gas production in the Utica Shale has been booming, voters in three towns rejected ballot proposals to ban hydraulic fracturing. While Athens overwhelmingly passed a fracking ban, Gates Mills, Kent and Youngstown voted down their measures. The ballot issues highlight the disparity in responses among local officials who are befuddled by the complicated legal baggage of prohibiting a practice that some say is solely regulated at a state level. Bans could legally embroil areas where drilling companies operate, especially with the Ohio Supreme Court soon to rule on the ability of local authorities to regulate fracking. Local authority to regulate fracking is a central issue in the case that the Ohio Supreme Court is reviewing: Munroe Falls v. Beck Energy. In 2011, a state court backed the town’s right to zone and issue permits to the oil and gas drilling company. An appellate court in February sided with the company. Oral arguments were heard by the state Supreme Court earlier this year. The Ohio Oil and Gas Association is closely watching for a decision, said spokeswoman Penny Siepel. “Once that court case is decided, I think it will probably help ... reaffirm that the state ultimately has control over the oil and gas industry,” Ms. Seipel said. Shawn Bennett, senior vice president of the industry group, said his member companies answer solely to the Ohio Department of Natural Resources. “These bans are, and will remain, without any teeth,” Mr. Bennett said. “When (companies) submit their permit, that permit will go to the division and the division will choose whether to accept or deny the permit.”

Fracking on hold in Ashtabula County - The future of drilling in Ashtabula County shale deposits is on hold because of basic economics, according to area political leaders keeping an eye on the issue that could eventually bring dollars into the area. The controversial process known as fracking — horizontal drilling with high-powered water being pumped into shale deposits and oil and other petroleum residue then collected — has gotten a foothold in southern Ohio but been on hold here since spring. There were tentative plans to begin exploratory wells in the spring of 2014 but lack of demand scuttled the plans, area leaders said at the time. Geographic studies have indicated there are large deposits of shale throughout Ashtabula County. Some area residents have already benefited by selling drilling rights on their property but would receive ongoing payments if their land is successfully drilled, according to those familiar with drilling contracts.

Low oil prices delay fracking in NE Ohio county: – Officials in northeast Ohio say drilling in shale deposits is on hold due to decreasing oil prices. The Star-Beacon in Ashtabula reports that although geographic studies have shown there are large shale deposits throughout Ashtabula County, hydraulic fracturing, or fracking, is on hold due to economic reasons. State Rep. John Patterson of Jefferson tells the newspaper that a decrease in oil prices has reduced the demand for fracking over the short term. Officials are also looking into potential problems with fracking in the area, specifically earthquake risks and how to transport the oil once it's taken from the ground. Some residents have already sold drilling rights on their property, and county officials are working to ensure regulations are in place in case drilling in the area becomes a reality.

Falling oil prices slows shale expansion in Ohio | Shale Energy Insider: The future of drilling in north Ohio shale deposits is on hold because of basic economics, according to local political leaders. There were tentative plans to begin exploratory wells in the spring of 2014, but a lack of demand and increased production in the south of the state, elsewhere has stalled progress. Geographical surveys have indicated there are large deposits of shale throughout Ashtabula County, although the exact size and monetary value of the resource has not yet been disclosed. BP has pulled out of some of their wells because of a lack of production but residents have already negotiated drilling rights with shale extraction companies. “Most of the exploratory drilling just did not materialize,” said Ashtabula County Commissioner Joe Moroski. “We are still going to be on hold for a while,” said State Rep. John Patterson who said with the falling price of oil there was a slowdown in demand but hoped it would be “temporary”. “The bulk of the extraction wells are still being drilled in south-eastern Ohio,” Patterson said One of the issues in south-eastern Ohio was the lack of transportation and infrastructure once it had been extracted. County officials have been working for more than a year to ensure laws and regulations are in place to ensure roads are properly maintained, or replaced, in case drilling become a reality. In the meantime, Patterson said the state Agricultural Committee will be reviewing wells and drilling methods with an intention to “definitely looking into examining their safety”.

Worker killed in explosion at Noble County oil and gas facility - Columbus Dispatch: Fracking sites claimed lives in Ohio and Colorado this week, bringing home concerns about worker safety that have grown as the controversial method of collecting oil and gas has increased. A Virginia man working on an oil and gas pump at a fracking site in Noble County in eastern Ohio died in an explosion on Wednesday. Norman Butler, 48, was an electrical contractor working on a pump operated by Blue Racer Midstream. The pump moves condensate, a toxic liquid that is a byproduct of oil and gas production, from oil and gas wells into pipelines that lead to processing facilities. Butler would have been testing and calibrating electrical components on the pump, said Bill Strickland, vice president of Buffalo Gap Instrumentation and Electrical, the company that employed Butler. Buffalo Gap, based in Texas, does most of its business with the oil and gas industry, Strickland said. “We have never had anything like this (death) before,” he said. “It is very sobering.” In northern Colorado yesterday, a man was killed and two others were seriously injured when a frozen high-pressure waterline ruptured. One man was hit by a stream of water or fracking fluid and was killed by the impact. The Colorado men were working for Halliburton, which had been hired to perform fracking operations at the well. A Halliburton spokeswoman said the injured men were flown to nearby hospitals. The explosion that killed Butler occurred about 4:15 p.m. near a CONSOL Energy wellhead in Marion Township, near Summerfield, about 100 miles east of Columbus and about 25 miles north of Marietta.  The well had been fracked earlier this year to access oil and gas in the Utica shale deep underground.

Fracking School Children: Frackers Stopped Near School - Because the parents did not want their children’s health sacrificed so that some fracking Okie could export LNG to China. Imagine that. The local town council had gutted the town’s zoning law at the behest of the frackers. Including allowing fracking within a half mile of a school. Close enough to gas the kids when they came out to play. Or blow them to kingdom come when the well explodes. Rex Energy will not proceed with drilling operations on their Geyer well pad, a controversial cluster of six wells located about a half mile away from 3,200 students at the Mars Area School District campus. Rex Energy recently sent gas lease holders a letter explaining how the stay will prevent the company from further development of the Geyer well pad during the time that the legal challenges are heard. Last month, parents in Middlesex Township, along with environmental groups Clean Air Council and Delaware Riverkeeper Network, filed multiple challenges related to the Geyer well. The parents and groups filed a substantive validity challenge to an overhaul of Middlesex Township’s zoning, which opens up the Township to drilling and related facilities. The challengers appealed the land use permit issued by Middlesex Township, and the well permits issued by the Pennsylvania Department of Environmental Protection (PA DEP).  The challengers argued that the amendment and related permits violate the people’s right to pure water, clean air, a healthy environment, and fail to protect public health, safety, and welfare. The challenge to the ordinance and land use permit automatically imposed a stay on further site development. According to area residents, Rex Energy violated the stay shortly after October 10th.

How to Frack a Duck -- With open frack ponds. In New Mexico, we had to cover all our frack pits with nets in case some duck got the bright idea of landing in one. And not live to tell the tale. No such luck in Pennsylvania, where open pits are proliferating at frack sites at such a rate that the DEP (Department of Environmental Predation) does not bother to keep track of them.  In 2005, Pennsylvania had 11 frack water pits. Just eight years later, aerial maps show that number has jumped to 529. It’s unclear how many of these sites store fresh water used for fracking, and how many store the toxic wastewater that results from oil and gas drilling operations. The Department of Environmental Protection could not provide the data to public health researchers working with Geisenger on an NIH funded health impact study. So the researchers turned to the nonprofit data sleuths from SkyTruth, who have documented the impoundents with the help of NASA’s satellite imagery and citizen scientists from around the world. recently reported on how the project was initiated by public health researchers from Johns Hopkins:  Brian Schwartz his colleagues have teamed up with Geisinger Health System, a health services organization in Pennsylvania, to analyze the digital medical records of more than 400,000 patients in the state in order to assess the impacts of fracking on neonatal and respiratory health. While the scientists will track where these people live, says Schwartz,state regulators cannot tell them where the active well pads and waste pits are located. Officials at Pennsylvania’s Department of Environmental Protection (DEP) say that they have simply never compiled a comprehensive list. A spokesman for DEP told the Observer-Reporter that the department can’t produce a list of impoundments that include smaller wastewater storage sites because they have a different classification. The DEP sent the reporter to another nonprofit that tries to fill the state’s data and information gap – FracTracker.

Frackers Run But Can’t Hide From SkyTruth Project -- Ever since the natural gas boom took off in Pennsylvania in 2006, some people living near the drilling rigs have complained of headaches, gastrointestinal ailments, skin problems and asthma. They suspect that exposure to the chemicals used in the drilling practice called hydraulic fracturing, or fracking, triggers the symptoms. But there’s a hitch: the exact locations of many active fracking sites remain a closely guarded secret. So the Johns Hopkins researchers turned to a small nonprofit called SkyTruth, which scrutinizes satellite and other aerial imagery to figure out what is happening down here on Earth. The scientists traveled to the group’s headquarters in West Virginia in September 2013 to ask SkyTruth to help them locate Pennsylvania’s fracking wastewater ponds. To pinpoint the location of these ponds, SkyTruth launched a project called FrackFinder. They enlisted more than 200 volunteers in public meetings and on social media from as far away as Japan, who have collectively spent thousands of hours poring over satellite images of Pennsylvania’s bucolic landscape. SkyTruth trained its recruits online and with specially designed apps to distinguish regularly-shaped waste ponds from natural ponds and wetlands. Ten different volunteers examined each image to ensure the accuracy of the data.   SkyTruth just released its crowdsourced map, which shows over 500 fracking ponds in Pennsylvania, up from a mere 11 located in photographs taken in 2005. 

Kerosene in fracking fluid: Toxic but legal - - In the last three years, 230,171 gallons of kerosene, a petroleum distillate with chemical components that are toxic to humans and wildlife, were used in fracking fluid in 129 wells throughout Fayette County, and it was all within the letter of the law. “They are environmental terrorists,” according to Ken Dufalla, president of the Greene County chapter of the Izaak Walton League of America (IWLA), a grassroots natural resource conservation society. While the industry reports that the pressurized fluid used to create fractures in a layer of shale some 6,000 to 8,000 feet beneath the earth’s surface is safely contained in the steel- and cement-cased wells, Dufalla, who has a degree in chemistry, says over the last four years he’s collected data from waterways in Fayette and surrounding counties showing flowback has entered the waters. “It is a problem, and it’s going to get worse.” In February, the US Environmental Protection Agency (EPA) clarified its position on the use of diesel fuel, saying that no diesel fuel may be used in fracking fluid without a permit from the federal government. The EPA specifically outlined five additives according to chemical abstract service (CAS) number that require permits, and all are variants of diesel fuel. Diesel fuels are considered particularly dangerous by the EPA because all variants contain some amount of benzene, toluene, ethylbenzene and xylenes (BTEX), which are highly toxic even in small amounts. According to the chemical disclosure registry FracFocus, companies who are drilling in Fayette County are using another petroleum distillate or diesel fuel variant, a type of kerosene identified as CAS #64742-47-8, in nearly every well that’s been fracked and reported to FracFocus. That CAS number is not among the five which are regulated by the EPA.

America’s Biggest Fracker Fracks Landowners Chesapeake Faces Subpoena on Royalty Scam.  The Justice Department’s inquiry comes after a ProPublica investigation and years of complaints from landowners who say they have been underpaid for leasing land to the energy giant for drilling. The U.S. Department of Justice is investigating how Chesapeake Energy pays landowners for the natural gas it drills on their property, according to disclosures made earlier this month in the company’s filings with the Securities and Exchange Commission. The probe comes after years of complaints by landowners that they are being underpaid, and an investigation by ProPublica, which found the company was using the fees it had been been paying those landowners to repay billions of dollars of hidden corporate debt instead.  In mid-2013, landowners in Pennsylvania who had leased their gas rights to Chesapeake saw the payments they were receiving abruptly slashed by as much as 97 percent. In some cases checks for thousands of dollars a month were replaced with payments for less than a dollar. Those early complaints prompted a probe by Pennsylvania’s Attorney General and a letter from the state’s governor, Tom Corbett, to Chesapeake’s chief executive calling the practices “unfair and perhaps illegal". Chesapeake received subpoenas about its royalty practices from the federal government and several states, the company stated Nov. 6. The company did not respond to a request for comment from ProPublica.In lawsuits filed in several states, Chesapeake has been accused of inflating its operating expenses and then deducting those expenses from the share of income it pays for the right to drill on peoples’ land. Chesapeake has paid hundreds of millions of dollars in judgments and to settle some of these cases.

New York’s oil and gas producers hail election’s outcome - Brad Gill, executive director of the Independent Oil and Gas Association of New York, says Tuesday's election results, which gave Republicans control of the New York State Senate, are a good thing for his industry."We came out of the election very slightly better than before because of the total control that the GOP has of the Senate now," Gill said.  He said that a Republican-controlled Senate will provide a stronger buffer against Assembly bills targeting oil and gas."This makes us marginally better off than we were a few days ago," he said. "Primarily, it's the Assembly that generates the bills that decimate the oil and gas industry. And the best defense against those damaging bills is the Senate. I hope we have a little better insulation toward ridiculous legislation." Gill is displeased that the state has been dragging its feet and has yet to issue regulations on hydrofracking, a drilling method to extract natural gas from the Marcellus Shale, which runs through New York State.

NYS moves ahead on Finger Lakes gas storage plan -  The state Department of Environmental Conservations has issued draft permit conditions for a long-planned and increasingly controversial underground natural gas and propane storage facility in the Finger Lakes region near Watkins Glen. The site has been the site of civil disobedience by protests during the last several weeks, leading to mass arrests. DEC was careful to say in its press release _ issued late Monday after regular business hours _ that draft conditions “in no way indicate that the project will ultimately be approved.” A planned meeting in February by DEC called an “issues conference” could “result in a determination that denial of the permit is warranted, or that additional conditions may be necessary,” according to the DEC press release. Texas-based Crestwood-Inergy wants to pump about 88.2 million gallons both liquefied natural gas and propane for storage into caverns near Seneca Lake that were left behind from salt mining decades ago. The project has been under DEC review for five years.

Why New York Is Getting Infracstructured Instead of Fracked - Despite What Cuomo Does, New York Not Likely to Get Fracked.   Because there’s not much worth fracking. Not at current prices, nor at any prices that are reasonably expected for years. Not the Marcellus, not the Utica, not nothing.  What will happen is that many New Yorker’s could get infracstructured to death – gassed by compressor stations on gas pipelines taking the gas elsewhere, dumped on with frack waste on roads and poisoned by processed frack sludge in landfills.  Oh, and the planet is getting cooked with clean burning methane. That should be the focus of the debate, not which New Yorkers might get fracked where. Time to shift gears on this. Want more home grown energy in New York ? Try solar, wind, and hydropower. ABS = Anything But Shale.  New Yorkers can make more money out of solar panels, wind farms, growing grapes, legalizing marijuana, licensing casinos, building hydropower, making nano particles, producing TV shows, suing each other, making yogurt or selling baseball cards than they can out of shale gas: because there’s not enough commercially viable shale gas in the state to fill a large balloon. Jerry Acton has updated his Marcellus shale gas production model based on the latest production numbers from Pennsylvania. As the shale wells have moved up to the border, the initial production rates have dropped precipitously as the shale thins and go shallows, leaving the northernmost tier of Pennsylvania townships uneconomic at current or projected prices. And what about the vaunted Utica ? Turns out it’s about where it was predicted to be south of the New York border. And probably nowhere else in New York. 

Commentary: Impact of fracking eludes us - While the gas industry continues to mislead the public about the harmful health and environmental impacts of unconventional natural gas development (also called hydraulic fracturing or fracking), evidence of its dangers is mounting. The latest revelation comes with the publication last week of a report on the impact on air quality from gas and oil extraction, processing and distribution in six states, including our own. The report, convened by Coming Clean, a collaborative of more than 200 groups working on environmental health issues, presents data from air samples collected around natural gas compressor stations and other facilities in New York, Arkansas, Colorado, Pennsylvania, Ohio and Wyoming, using the same equipment and methods that federal and state agencies use. The results document an array of hazardous chemicals in the air around these sites, often at levels far higher than traditional federal health and safety standards, and in some cases in concentrations that pose an immediate health threat to anyone exposed. Data collected around a blowdown incident at a compressor station in Hancock, N.Y., showed elevated levels of benzene, a carcinogen, and various petroleum gases. Samples collected around compressor stations in Pennsylvania contained formaldehyde at more than 7,000 percent above the Environmental Protection Agency's acceptable cancer risk levels.

Fracking numbers add up to environmental nightmare -  New Yorkers continue to wait with bated breath for the Health Department's study on fracking, which Gov. Andrew Cuomo says will come by year's end. But does New York really need this study to decide its fate? Scarcely a month goes by without some new fracking incident adding to the toll of damage done. Just over a year ago, we published our findings in a report called "Fracking by the Numbers." In the report, we looked at key measures of risks to our water, air, land and climate. Contamination of drinking water is one of the key threats posed by fracking. In reviewing state records, we found more than 1,000 documented cases where dirty drilling has contaminated groundwater or other drinking water sources. While such contamination can happen at several points in the fracking process — spills of fracking fluid, well blowouts, leaks around the well bore — perhaps the greatest threat to our water comes from the toxic waste that fracking generates. Often laced with cancer-causing and even radioactive material, this fracking waste has leaked from waste pits into groundwater, has been dumped into rivers and streams, and spread onto roadways.Using state and industry-submitted data, we calculated that fracking generated 280 billion gallons of toxic wastewater in 2012 alone. That's enough to flood all of New York City in a four-foot toxic lagoon, or fill the Empire State Building more than 1,000 times over. And yet, this toxic fracking waste is exempt from our nation's hazardous waste laws.

No Frackin’ Way Wine! -- You like the blog, you’ve love the wine! Eagles Crest Vineyards is now offering an un-fracked wine for those oenophiles that disdain the odor of diesel fuel, kerosene and arsenic in their merlot. Eagle Crest Vineyards in Conesus, Livingston County, has released No Frackin’ Way, a series of wines aimed at helping environmental groups carry on their opposition to hydraulic fracturing and related activities in New York state.  “These are not new wines,” says Eagle Crest co-owner Will Ouweleen. Instead, the Hemlock Lake winery chose to feature its three best sellers in the series: Midnight Moon, a red blend made from Noiret, Marechal Foch and Chancellor grapes; On-no-lee, a Cayuga White wine; and Queen of the Vine, a blush made from Isabella and Iona. “I wasn’t sure if we would be granted federal label approval,” adds Ouweleen, referring to the anti-fracking label. “But we were – without issue, in a speedy fashion.”

“Fracturing” vs “Fracking” in CongressA website tracks work usage in Congress, and can compare word usage, by prevalence and by party affiliation. Here’s how “fracking” fairs against “fracturing.” (“fraccing” is evidently not used at all anymore, even by corrupted politicians.)  “Fracturing” in ascendant going into the mid-terms, and heavily used by Republicans, who are evidently paid more to use it:

FracTracker Alliance launches oil, gas tracking app - - FracTracker Alliance announces the release of their free iPhone app – designed to collect and share experiences related to oil and gas drilling across the United States. As unconventional drilling or “fracking” intensifies, so too do the innovative ways in which citizens can track, monitor, and report potential issues from their smart phones. The app allows users to submit oil and gas photos or reports. Users can also view a map of wells drilled near them and user-submitted reports. This map shows wells that have been drilled both unconventionally and conventionally. “FracTracker’s app contributes to the collective understanding of oil and gas impacts and provides a new opportunity for public engagement,” explains Brook Lenker, Executive Director of the FracTracker Alliance. “We hope that our mobile app will revolutionize how people share oil and gas information.” Several organizations and community groups helped to test and improve the app during its development. To address questions about the impacts of oil and gas development across landscapes, FracTracker joined with the National Parks Conservation Association (NPCA) to create a crowd-sourced digital map with photos detailing the scale of oil and gas development near North Dakota’s Theodore Roosevelt National Park using the app. The photo map is part of a NPCA’s campaign designed to educate citizens about the cross-landscape impacts of oil and gas development near America’s national parks. NPCA is hosting two events this week in support of this campaign work – in Pittsburgh and Philadelphia.

Commission ignores public request on fracking -- Since July, the N.C. Mining and Energy Commission has received more than 200,000 public comments about its proposed fracking regulations. But when members finalize their rules this week, they will likely approve fewer than a dozen major changes. With permitting for natural gas drilling expected to begin next spring, appointed members of the regulatory panel say they are nearly finished with their rule-making. Members held four public hearings on their regulations this year and allowed residents more than two months to submit comments online. Commission members will consider increasing buffers between drill pads and drinking-water sources from 650 feet to 1,500 feet. They may also allow regulators to set up unannounced inspections at drill sites and order stoppages for drillers who violate state rules. However, based on last week's meetings, members seem unlikely to heed one common request inspired by Duke Energy's coal ash spill in the Dan River in February. Many urged the regulators to ban outdoor pit storage of fracking fluids, which contains industrial chemicals that are key to the drilling process. Opponents pointed to reports of leaking pits in other states, but members indicated any such "substantive" changes to the rules, based on state law, might force the commission to schedule further public hearings and delay future drilling.

Kale or fracking? Farmers and corporations fight it out for water -  Which would you rather have: lettuce and carrots for your salads, or affordable gasoline for your car? Affordable food prices or affordable electricity?You’ll have to make the choice. In fact, if you like a ready supply of tasty, affordable produce – and low food prices generally – this may be the time to start worrying. And not just about the drought in California, where desperate, panicky farmers are responding to the years-long dry spell by hiring dowsers – water witches – to scour their land for hidden wells, or the the south-west, which is in the grip of a “megadrought”.   Even in areas where drought isn’t a problem, the stress on limited water resources is approaching perilous levels, according to a new report from MSCI Inc. Rainfall levels may be just fine in areas like Boston or Long Island, but these regions rely heavily on irrigation to keep crops growing, and competition for those water resources just keeps growing from big industries. There are simply too many water-intensive industries competing for increasingly scarce water resources. “And now there are conflicts looming,” says Linda-Eling Lee, global head of ESG research for MSCI Inc in New York, who has delved into what this means for all of us.  “Right now in the United States there is a lot of attention to the problems that water shortages are causing for farmers and for residential users,” says Lee. California farmers have stopped growing avocadoes; house-proud residents of drought-stricken areas are banned from watering their lawns. “But there’s less attention to the conflict looming between industry and agriculture.”

Waste Water from Oil Fracking Injected into Clean Aquifers | NBC Bay Area: State officials allowed oil and gas companies to pump nearly three billion gallons of waste water into underground aquifers that could have been used for drinking water or irrigation. Those aquifers are supposed to be off-limits to that kind of activity, protected by the EPA. “It’s inexcusable,” said Hollin Kretzmann, at the Center for Biological Diversity in San Francisco. “At (a) time when California is experiencing one of the worst droughts in history, we’re allowing oil companies to contaminate what could otherwise be very useful ground water resources for irrigation and for drinking. It’s possible these aquifers are now contaminated irreparably.” California’s Department of Conservation’s Chief Deputy Director, Jason Marshall, told NBC Bay Area, “In multiple different places of the permitting process an error could have been made.”  Marshall said that often times, oil and gas companies simply re-inject that waste water back deep underground where the oil extraction took place. But other times, Marshall said, the waste water is re-injected into aquifers closer to the surface.

Fracking sand in oilfields stirs up a serious health risk for workers - Health concerns about oil field fracking have been focused on the mixed brew of chemicals injected into wells. But it is another innocuous-sounding substance — sand — that poses a more serious danger to workers. Government overseers of workplace safety first highlighted the problem three years ago and issued a hazard alert a year later warning that high levels of fine quartz sand around fracking operations could lead to silicosis and other lung illnesses. Health, science, regulation But efforts to update the 44-year-old exposure limits on sand dust are dragging on. Engineering solutions to the problem are still being researched. And, while many energy companies are taking steps to lessen the amount of what is referred to as "respirable crystalline silica" by scientists or "frac sand" by oilfield workers, the industry, with support from the U.S. Chamber of Commerce, is also opposing much in proposed new regulations. "The proposed rule does not address significant risks, nor provide significant benefits, and is neither technologically nor economically feasible. Accordingly, the Chamber believes the proposed rule must be withdrawn," reads a 33-page comment letter from the chamber to the Department of Labor.

Are Fracking Workers Being Poisoned on the Job? -- Last week’s Republican election victories will set the stage for more stagnation in Washington, but might also grease the skids for some of the most controversial energy ventures at ground zero in the climate change debate: the long-stalled Keystone XL Pipeline project, and the booming hydraulic fracturing, or "fracking," industry. But one thing that might put the brakes on the dirty fuel rush is the mounting research evidence linking oil and gas extraction to massive health risks for workers and communities.  A new study published in Environmental Health reveals air pollution data on major, in some cases previously underestimated, health risks from toxic contamination at gas production sites related to fracking. Air samples gathered around “unconventional oil and gas” sites by community-based environmental research teams contained unsafe levels of several volatile compounds that “exceeded federal guidelines under several operational circumstances,” and that “Benzene, formaldehyde, and hydrogen sulfide were the most common compounds to exceed acute and other health-based risk levels.”This suggests fracking may bring risk of cancer, birth defects and long-term respiratory and cellular damage to local towns and farms. Building on other studies on drilling-related water contamination, the air pollution research may stoke growing opposition from communities near drilling sites, who must weigh the industry’s promises of new investment and jobs against the potential cost to the human health.The findings also raise questions about the safety of fracking-site workers, who may have far less legal recourse over potential health damage than do local homeowners. Many work contract jobs under harsh, isolated conditions, in a volatile industry where pressure to pump profits is high and labor protections weak. In contrast to other forms of oil and gas extraction, fracking is a particularly murky field because the process uses massive volumes of chemicals, with little regulatory oversight or corporate transparency.

Frackquake: 4.8 Magnitude Earthquake Felt Throughout Kansas -- While it is unclear if moments ago the Mississippian Lime Play under south Kansas was the first major shale quake to hit Kansas, or this was simply the first yet to be named shale company going Chapter 11, but moments ago the USGS reported that a 4.8 quake located 30 miles SSW of Wichita as well as a various other smaller quakes in north Oklahoma,shook the two states.  From KWCH: KWCH has received numerous reports of an earthquake felt throughout the state.  The U.S. Geological Survey has confirmed the epicenter of the quake as 8 miles south of Conway Springs, Kansas.  The earthquake was felt near Haysville, Derby, Wichita, and Oklahoma City. So far, there have been no reports of damage or injuries due to this earthquake. That said, it will likely take a few more, substantially stronger frackquakes in shale regions, before the popular mood turns against America's shale revolution which has been blamed - in Ohio and elsewhere- on an increased incidence of tremors.

4.8-magnitude quake rattles Kansas and Oklahoma (+video) - — An earthquake with a preliminary magnitude of 4.8 shook parts of Kansas and Oklahoma on Wednesday, the largest since a series of temblors began rattling Kansas a little more than a year ago. The quake's epicenter was near the town of Conway Springs, about 25 miles southwest of Wichita, according to the U.S. Geological Survey said. It came at 3:40 p.m., less than a day after a magnitude 2.6 earthquake was recorded near the southern Kansas town of Anthony. Kansas began experiencing an upsurge in earthquakes starting in fall 2013. So far in 2014, the state has experienced more than 90 earthquakes, with the smallest registering only on monitors, said Interim Kansas Geological Survey director Rex Buchanan. Studies have shown earthquakes can be caused when fluid, which is byproduct of various methods of oil and gas production, is injected into disposal wells. But a panel commissioned by Kansas Gov. Sam Brownback found there wasn't enough evidence to link the Kansas quakes to oil and gas exploration.

4.8 quake shakes Kansas, Oklahoma, Arkansas -- A magnitude-4.8 earthquake Wednesday shook up parts of Kansas, Oklahoma and Arkansas, the strongest of eight temblors that rattled the seismically active region over 24 hours. The moderately strong quake, which was relatively shallow at 3.4 miles deep, struck at 3:40 p.m. CT near the Sumner County community of Conway Springs, about 30 miles southwest of Wichita along the Oklahoma border, the U.S. Geological Survey said. The jolt was felt across much of the state and as far away as Tulsa, Okla., about 170 miles away. Some Arkansas residents also reported the shaking.Some structural damage was reported, mostly in nearby Milan, Kan., but no injuries. One Sedgwick County resident told a 911 dispatcher that the quake "moved me and my recliner about eight inches across the floor." The region is at the heart of the state's mini oil-and-gas boom involving hydraulic fracturing, commonly known as fracking, and state and federal agencies are trying to determine whether the controversial technique is responsible for a significant increase in earthquakes over the past two years. Energy companies deny the connection, saying the state has always had earthquakes. Just hours before Wednesday's jolt, Kansas Gov. Sam Brownback announced that the state would deploy six portable monitors to track the upswing in ground movement in Sumner County and its fracking neighbors Harper and Barber counties. The $85,000 network, which was recommended in September by a task force Brownback appointed to study the escalating seismic activity, is expected to be operating early next year.

Scientists see fracking as cause of quakes -- — Evidence is growing that fracking for oil and gas is causing earthquakes that shake the heartland.States like Oklahoma, Texas, Kansas and Ohio are being hit by earthquakes that appear linked to oil and gas activity. While the quakes are far more often tied to disposal of drilling waste, scientists also increasingly have started pointing to the fracking process itself.“Certainly I think there may be more of this that has gone on than we previously recognized,” Oklahoma Geological Survey seismologist Austin Holland told colleagues last week.In addition to what Holland has seen in Oklahoma, a new study in the journal Seismological Research Letters concludes that fracking caused a series of earthquakes in Ohio a year ago. That follows reports of fracking leading to earthquakes in Canada and across the Atlantic in the United Kingdom.Before 2008 Oklahoma averaged just one earthquake greater than magnitude 3.0 a year. So far this year there have been 430 of them, Holland said.Scientists have linked earthquakes in Oklahoma to drilling waste injection. Shale drilling produces large amounts of wastewater, which then is often pumped deep underground as a way to dispose of it without contaminating fresh water. Injection raises the underground pressure and can effectively lubricate fault lines, weakening them and causing earthquakes, according to the U.S Geological Survey.

Fracking Boom Spurs Demand for Sand and Clouds of Dust - Add sand mining to the list of industries transformed by the U.S. oil boom. The tiny grains of silica are what keep frackers fracking, propping open cracks punched into rock so oil and natural gas can flow. As drilling surged, so has demand for sand. Sand production has more than doubled in the U.S. over the past seven years. By the end of 2016, oil companies in North America will be pumping 145 billion pounds (66 billion kilograms) of it down wells annually. That’s enough to fill railcars stretching from San Francisco to New York -- and back. That’s triggering complaints from local communities, according to a Grant Smith, senior energy policy adviser at the Civil Society Institute. Dust from sand can penetrate deep into lungs and the bloodstream; mines consume massive amounts of water; sand-laden trucks are damaging roads; and property values can be affected. The surge in mining is a “little-understood danger of the fracking boom,” Smith said in a September call with reporters.Fracking companies are struggling to get enough sand because there aren’t enough trucks and railcars to deliver it. Higher transportation costs are eating into profits at oil-services companies like Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc. (BHI) Halliburton CEO Dave Lesar said the world’s biggest provider of fracking services has had to delay work waiting for sand.  “We did in fact miss some jobs, as did nearly every other service company,” Lesar said on a conference call last month.

Democracy at Its Best: Boulder County Extends Fracking Ban » In a unanimous vote, three Boulder Colorado County Commissioners voted to extend the moratorium on oil and gas drilling in the county for the next three-and-a-half years. The three Democratic party women not only voted against fracking until July 1, 2018, they did so with strong language and gusto as tens-of-thousands of wells loom just across the border in neighboring Weld County waiting to invade the Boulder County landscape.  Commissioner Cindy Domenico started off the discussion with references about the increasing concerns and impacts of fracking on the public’s health. Commissioner Deb Gardner followed up by pointing out how fracking is related to climate change, and how Boulder County wants to be at the forefront of protecting the planet for future generations. Commissioner Elise Jones batted cleanup and knocked it out of the park with a discussion about the “industrialization of well pads in suburban housing communities” that she witnessed during her fracking tours in Weld neighboring county. For their action, the commissioners will likely get sued by the oil and gas industry. Encana, one of the biggest oil and gas driller/frackers in the U.S., has several well permits hanging in limbo in Boulder County, as do other drillers eyeing the “Niobrara Shale” that underlies this suburban landscape.

A Tale of Two Oil Companies - On Election Day, voters in a number of cities and counties voted on whether to severely restrict or ban oil and gas development -- the oil industry poured millions of dollars in an effort to avoid these restrictions.  Oil industry reactions varied.  The CEO of Chesapeake Energy warned his colleagues, "At least some of the oil companies that drilled the 272 active wells in Denton seemingly turned a deaf ear to community concerns about traffic, well location, and other issues not specifically related to fracking. Cathy McMullen, a nurse who headed an anti-fracking group and got the issue on the ballot said, 'It [the ban] says that industry can't come in and do whatever they want to do to people. They can't drill a well 300 feet from a park anymore'. Oil companies would do well to take McMullen's words to heart: 'If you want to prevent more bans, do yourselves a favor and listen to concerned citizens. Because if you don't you may wind up reaping what you've sown.'" But this commonsense message didn't resonate with much of the industry. The Texas Railroad Commission blithely declared it would simply continuing giving permits in Denton, because it didn't recognize the right of local officials to regulate oil and gas.And Chris Faulkner, the CEO of Breitling Energy, emailed me this absolutely stunning message:"The citizens of Denton, Texas have voted themselves into what will most definitely end up as the legal equivalent of a field of quicksand. The ground-rumbling they will hear won't be earthquakes, but the stampede of lawyers running to the area to join in the plethora of lawsuits...."The real losers here are the citizens of Denton who.... now face a future of nothing on their land but tumbleweeds and crickets."

As US Fracking Bans Increase, So Do Lawsuits  -- Legal skirmishes are mounting as more U.S. municipalities, including four in Tuesday’s midterm elections, ban the controversial oil and natural gas drilling technique known as hydraulic fracturing or fracking. Two lawsuits were filed Wednesday, only hours after 59% of voters in Denton, Texas, adopted the Lone Star state’s first fracking ban. The city, a 45-mile drive northwest of Dallas, sits atop the Barnett Shale, one of the nation’s largest natural gas fields and a prime fracking site. Fracking blasts huge volumes of water, mixed with sand and chemicals, deep underground to blast apart shale rock and release oil and gas molecules trapped in the ore. The Texas Oil and Gas Association and the Texas General Land Office filed suit to prevent the city from enacting the ordinance, which could take effect as early as Dec. 2. Also, state lawmakers say they will propose legislation to make such bans illegal. The association’s legal challenge says the ban violates Texas law, arguing state agencies have the power to regulate drilling and fracking. From coast to coast, as thousands of new fracking wells have led to a boom in energy production, dozens of municipalities have approved fracking bans or temporary moratoriums. Aside from 80 bans and 100 moratoriums in New York, some of which have expired, about 29 other local, tribal or state bans have passed in the United States, says Karen Edelstein of FracTracker Alliance. (See: “Battles Escalate Over Community Efforts to Ban Fracking.”) A record number of anti-fracking measures appeared on Tuesday’s ballots, and four passed — in Denton, the southeastern Ohio city of Athens and the northern California counties of San Benito and Mendocino. Not surprisingly, energy-industry groups are challenging some of these measures in court, and they’ve seen success. The Colorado Oil and Gas Association filed a lawsuit against a fracking ban passed by the city of Longmont in November 2013. In July, Boulder County District Judge Dolores Mallard struck down the ban, saying Colorado law gives the state the primary regulatory authority over oil and gas operations.

Further fallout follows ban -- Fallout continued at the state level over the landslide vote Tuesday that banned hydraulic fracturing in Denton city limits. During a media event sponsored by the Texas Tribune on Thursday morning in Austin, Christi Craddick, chairwoman of the Texas Railroad Commission, called the vote a disappointment. “We’re going to continue permitting up there because that’s my job,” she said. The Houston Chronicle reported pressure on the Texas Legislature, including quoting James Keffer, R-Eastland, about a possible “compromise” to the two lawsuits already filed challenging the city’s ordinance. The Texas Oil and Gas Association has asked a Denton district court for an expedited schedule in order to block the ban before it is scheduled to take effect Dec. 2. But in an interview Thursday afternoon, state Rep. Myra Crownover, R-Denton, said she hears Denton voters and respects the outcome. “We need to take a breath,” Crownover said. Both the Texas General Land Office, a state agency, and the Texas Oil and Gas Association, a trade association, sued Denton in separate actions Wednesday. Both are claiming the ordinance, a citizen initiative under the city charter, is unconstitutional. Crownover also said she didn’t agree with calls for a legislative compromise. “I don’t think that’s appropriate,” Crownover said. “Once something gets into court, we need to respect that and let it play out.”

Texan mayor vows to defend fracking ban after vote: There will be no more hydraulic fracturing in the city of Denton, Texas, if voters and the city's mayor have their way. This week, citizens approved a ban on the controversial technique that extracts oil and natural gas from the Barnett Shale formation on which the city sits. It is the first town in the Lone Star State to outlaw the practice best known as fracking, which has led to a huge upswing in U.S. oil and gas production but has unsettled conservationists around the country. "The noise, the nuisance, the light, and some of the smells and fumes just really provided the impetus for this movement to swell and explode," Denton Mayor Chris Watts said in an interview with CNBC's "Street Signs." He added that wells were being drilled and fractured about 180 to 200 feet from residential communities.So citizens who support fracking presented the city with a petition, which the mayor and city council denied. That led to the issue winding up on Tuesday's ballot. All told, 59 percent of voters approved the ban.   However, the issue is far from over. Two lawsuits have already been filed against the city of Denton, and the Texas Oil and Gas Association and the General Land Office both allege the ballot initiative was unconstitutional. Watts said it remains to be seen if other lawsuits will follow and vowed to defend the city's ordinance.  "The citizens exercised their right of self-help through the Denton city charter," Watts said. "I've vowed then and even in my oath I'm vowed to uphold the ordinances and the charter of the city of Denton. So we will certainly be defending our ordinance," he added.

Texas Oil Regulator Says It Will Not Honor Town’s Vote To Ban Fracking - On Tuesday, the town of Denton, Texas, voted by a wide margin to ban fracking within the city limits. Two days later, the chairwoman of Texas’ oil and gas regulator said she would not honor the ban.  Texas Railroad Commission Chairwoman Christi Craddick told the Dallas Morning News that she would continue giving permits to oil and gas companies seeking to frack in Denton. Craddick asserted she could override the ban because Denton does not have authority over drilling activity in the state. “It’s my job to give permits, not Denton’s,” Craddick said. “We’re going to continue permitting up there because that’s my job.”   Fracking has a long history in Denton, one of the most heavily-fracked towns in Texas. At the same time, residents have complained of poor air quality, disruptive noise in residential areas, and an increase in low-magnitude earthquakes.  Those were some of the reasons voters decided by a 59 to 41 margin on Tuesday to ban the practice. Explaining her decision to continue giving oil and gas companies permits to drill in Denton, Railroad Commission Chairwoman Craddick also voiced opposition against the ban. She told the Dallas Morning News that the voters’ decision was likely based on “misinformation” about the potential dangers of fracking, and that the oil and gas industry should have done more to communicate with locals.“We missed as far as an education process in explaining what fracking is, explaining what was going on,”

Denton’s ban won’t stop fracking permits, Railroad Commission chairwoman says — Despite Denton’s vote to prohibit fracking, the state Railroad Commission plans to continue giving permits to companies wanting to drill there, the agency’s chairwoman said Thursday. Christi Craddick, a Republican, said she was disappointed that voters adopted the ban on hydraulic fracturing — a technique of drilling deep into the ground to release oil and gas. But she took a confrontational swing in response: “I believe it's my job to give permits, not Denton’s. ... We’re going to continue permitting up there because that’s my job.” Adam Briggle, vice president of the Denton Drilling Awareness Group, said that outcome should have prodded the commission to “adopt a more conciliatory tone” and to reflect on why citizens were opposed to fracking. But, from the state, “it’s still just a heavy-handed, push-our-agenda-through approach,” he said. “They should have got a wake-up call, but it’s like they’re still just sleeping.” Craddick’s remarks, at an event sponsored by the Texas Tribune, came a day after the Texas Oil and Gas Association and the Texas General Land Office sued to prevent Denton from enacting the ordinance in 30 days. Also, GOP legislators already are considering bills to make such bans illegal. Craddick said the commission, which regulates the oil and gas industry, and fracking advocates could have done a better job explaining the process. Drilling increasingly is taking place near homes and schools as energy production spikes and communities grow.

Texas Ignoring Voters' Fracking Ban Decision - Petition Enclosed! -  At the risk of depressing you all over again, we have an unfortunate update on Denton, Texas, the first place in the state to democratically opt to put an end to fracking within the city: Texas officials are choosing to flagrantly ignore Denton’s vote. Before you give up all hope, please sign this petition telling Texas to abide by Denton’s decision and stop fracking in the city. As Insurance Journal reports, Christi Craddick, the chief regulator for the oil and gas industries in Texas, has stated in no uncertain terms that she will override the vote and continue with business as usual. “It’s my job to give permits, not Denton’s. We’re going to continue permitting up there because that’s my job,” said Craddick. On the flipside, it’s also Craddick’s job to deny permits when warranted. The fact that she believes there’s only one rubber stamp she can use (not to mention her steadfast commitment to blindly using it) goes to show how backwards Texas is when it comes to environmental policies. State officials are standing by non-renewable energy companies no matter what, not “regulating” as their jobs dictate. Because of its heavy supply of natural gas, Denton has one of the most mined cities in all of Texas. Altogether, corporations have pumped more than $1 billion in gas from underneath Denton. However, as a result of all of the fracking, the residents experienced firsthand the consequences of the destructive process. In addition to the negative health effects, fracking has brought earthquakes, dirtier air and constant noise pollution to the community.

Courts Will Take Up Case of Fracking v Drilling -- Denton’s vote last week to ban hydraulic fracturing within city limits drew a national spotlight, but resolved little in the bitter Barnett Shale dispute. Just hours after health and environmental advocates proclaimed victory, two opponents – the Texas Oil and Gas Association and Texas Land Commissioner Jerry Pattersonchallenged the ban in court.But this much is clear: The legal wrangling will give Texans a free course on the widely misunderstood oilfield technique that put Texas at the forefront a national energy boom.  Approved with 59 percent support, the Denton measure does not prohibit drilling outright; it would only ban fracking, which involves blasting apart underground rock with millions of gallons of chemical-laced water injected at high pressures. A frack job can take as long as 10 days, and wells are often fracked more than once.  But without fracking, opponents of the ban say, there's no profit in drilling for gas beneath the city, so in effect a fracking ban is a drilling ban. The lawsuits argue that the ban violates the state’s right to regulate oil and gas production, and mineral owners’ rights to tap those underground resources.  Texas law says the state intends its mineral resources to be “fully and effectively exploited,” but courts have said the power is not absolute. The Railroad Commission has jurisdiction over all oil and gas wells in the state, with authority to adopt “all necessary rules for governing and regulating persons and their operations.” Local governments have the right to impose reasonable health and safety restrictions, and the Legislature has granted most Texas cities, including Denton, the power to “regulate exploration and development of mineral interests.”  A key question is where fracking falls on that spectrum.

The Jessica Wins Right To Sue Frack Shills -- My pal Jessica Ernst just won the right to take the regulators that have been in bed with the frackers to court. For being in bed with the frackers. Imagine that.A landmark lawsuit that challenges the lax regulation of hydraulic fracturing in Canada has just scored a major victory. In a lengthy decision, Alberta Chief Justice Neil Wittmann dismissed all key arguments made by the government of Alberta against the lawsuit of Jessica Ernst, including the fear that it may unleash a flood of lawsuits against a government that is heavily dependent on hydrocarbon revenue.The Alberta government argued that Ernst’s $33-million lawsuit had no merit; that the government owed no duty of care to landowners with contaminated water; and that the government had statutory immunity.But Wittmann’s ruling disagreed on all major counts and ordered the lawsuit against the government to proceed. “While this is a novel claim, I find there is a reasonable prospect Ernst will succeed in establishing that Alberta owed her a prima facie duty of care,” Wittmann wrote.The lawsuit alleges that Encana was negligent in the fracking of shallow coal seams near her property, and that the regulator breached Ernst’s freedoms by banishing all contact with the landowner on the grounds that Ernst was a terrorist.  .  In particular, the Ernst lawsuit alleges that Alberta Environment’s investigation into the contamination of her well was botched. A legal brief filed by her lawyers details a list of alleged incompetencies.The Alberta government made an application to strike the entire claim after Wittmann ruled last fall that the lawsuit against Encana and Alberta Environment could proceed, but that the energy regulator was exempt from civil action due to its immunity clause. But Wittmann’s most recent decision firmly denies that application.

Bluefield Research releases a new report on U.S. hydraulic fracturing - — A new report released by Bluefield Research, “Water for U.S. Hydraulic Fracturing: Competitive Strategies, Solutions, & Outlook, 2014-2010,” stated that water treatment and reuse are expected to significantly increase, accounting for 27 percent of total produced and flowback water by 2020, as a result of water supplies at risk, tighter regulations and increased costs of disposal, according to a press release.  Bluefield reported that wastewater treatment spending for fracking is expected to rise almost three-fold, from $138 million in 2014 to $357 million in 2020, stated the release.   The release continued that the U.S. fracking industry overall will spend $6.38 billion in 2014 on water management — water supply, storage, transport, treatment and disposal; and water transport and disposal costs will account for 66 percent of the total water management spent this year. State regulators are starting to tighten the control of produced water disposal and in Pennsylvania, statewide treatment and reuse rates for the Marcelllus Basin have jumped to 90 percent in 2014, noted the release. Read the entire release here.

Shale Firms Brace For Oil Price War As Crude's Drop Halts Growth Plans - After unlocking once-unobtainable energy reserves with hydraulic fracturing, U.S. shale companies must pull off another difficult feat: enduring lower oil and stock prices while reassuring investors used to strong returns that the future is still bright. So far, companies are optimistic — and, in the case of Continental Resources (CLR), bullish — on oil prices even as they have stopped new projects in Colorado, North Dakota and Texas. The scaled-back expansion plans appear to be a victory for Saudi Arabia, whose price war with U.S. producers has helped sink crude futures more than 25% since June. U.S. benchmark prices settled at $78.65 a barrel on Friday. Continental CEO Harold Hamm remains defiant and called the Organization of the Petroleum Exporting Countries, whose dominant producer is Saudi Arabia, a "toothless tiger. "What we're dealing with here is a renaissance (that) is going to be very long-lasting here in the U.S.," . "And we see OPEC worried about that and want to slow down what we're doing over here. The company, a pioneer in the massive Bakken shale play, sees a cooling-off period as a good thing for everybody and won't add drilling rigs next year. Slower growth in its operations will be an opportunity to improve efficiencies, while a slowdown in oil production should give world demand a chance to catch up, preventing oversupply, Hamm said.   Sanchez Energy (SN) slashed its 2015 capital spending forecast to $850 million-$900 million from a prior outlook of $1.1 billion-$1.2 billion, citing lower oil prices. EOG Resources (EOG) said it could reduce its exploration in the Wolfcamp and Barnett formations of Texas, which aren't as lucrative as the Eagle Ford play.  Analysts disagree on the exact point at which low oil prices will make drilling in shale formations unprofitable. The International Energy Agency estimates the vast majority of shale oil production is robust at $80 a barrel.  A more bearish view comes from Sanford C. Bernstein & Co., which estimated last month that one-third of U.S. shale oil production is uneconomical at that price. But it stressed, "We continue to believe we are near the bottom of the oil price cycle.

Shale gas: boom or bubble? — Countries are apparently eager to inflate the size of their shale gas reserves to attract investment, but the actual figures are spectacularly off. Millions of dollars are being shelled out for shale exploration by countries across Europe, often to confirm what they knew all along- there is no shale gas. Romania has been forced to face the facts when it comes to the fracking, or lack thereof. It had hoped to seal a lucrative deal to extract 1.4 trillion cubic meters of gas, which has now turned to out to be zero. “It looks like we don’t have shale gas, we fought very hard for something that we do not have,” Victor Ponta, Romanian Prime Minister said. Chevron, one of the ‘Big 6’ oil companies, has spent over $500 billion in searching for shale gas in Romania, and has the rights to over 9,000 square kilometers of land to drill, according to unconfirmed reports. The American oil giant’s huge investment in the country caused anti-fracking protests to erupt in December 2013. Poland, heavily dependent on dirty coal, also placed high hopes on shale discoveries. The 5 trillion cubic meter estimate has been slashed to 768 billion cubic meters. An example outside the EU is India, which at first was estimated to contain 63 trillion cubic feet of shale gas, a forecast that was slashed by 90 percent to 6.1 trillion cubic feet.

Early Signs Of A Pullback In Drilling Activity -- With oil prices low and showing no sign of an immediate rebound, the industry is beginning to pull back on spending.  Oil prices have dropped around 30 percent since summer highs, raising fears among producers across the globe. Yet, many oil majors are relatively diversified, with large holdings downstream. For example, ExxonMobil and Chevron have been insulated in the third quarter because of their large holdings in refining. Steep declines in oil prices may hurt their production sectors, but with lower priced oil as an input, big oil’s refining assets become more profitable.  Other companies that are not as large or integrated across various subsectors of the oil industry are not as shielded from the current soft price environment. And there are signs that a slowdown is beginning to take shape.  Oil services firm Baker Hughes reported another drop in the active rig count in early November, with oil rigs declining by 14. With 1,568 rigs in operation, the oil rig count is now at its lowest level since August, and down 49 rigs since a peak in October. Rigs could decline to 1,325 in 2015, according to some projections. While some companies appear undaunted, vowing to maintain or even increase production, others are beginning to pare back spending plans. Continental Resources, a major oil producer in North Dakota’s Bakken play, has stated that it won’t deploy more drilling rigs next year. Pioneer Natural Resources, with large holdings in the Eagle Ford and Permian basin, has hinted at more modest plans for 2015 due to lower oil prices.

US shale pioneers circle the wagons - If there is “price war” in the oil market, as Adel Abdul Mahdi, Iraq’s oil minister, has suggested, the US shale industry is refusing to take flight at the first sound of gunfire. As the International Energy Agency, the watchdog backed by developed economies, said on Wednesday, the fall in oil prices by more than 25 per cent since June is set to cause a cut in investment by US shale companies. Some that have not yet decided their 2015 capital spending budgets have said that they are reassessing their drilling programmes. A few that had already set out spending plans have in the past couple of weeks announced cuts. So far, though, they look like tactical withdrawals to concentrate their efforts where they will be most effective, rather than admissions of defeat. Activity is already starting to slow. There were 1,568 rigs drilling for oil onshore in the US last week, 41 fewer than in mid-October, according to Baker Hughes, the oil services group. That figure is likely to fall further over the coming months. Halcon Resources, which operates in the Eagle Ford shale of south Texas and the Bakken of North Dakota, said on Monday it planned to run just six rigs next year, compared with the eight it is running now and the 11 it had previously planned for 2015. Other leading shale oil companies have announced reductions in their capital spending plans: Continental Resources cut its 2015 budget from $5.2bn to $4.6bn; Rosetta Resources said it would spend about $950m next year, down from $1.2bn in 2014; and ConocoPhillips said it planned to spend less next year than the $16bn it is spending this year. Other companies have suggested they are likely to follow suit. EOG Resources, one of the most successful shale oil producers, said at the time of its third-quarter results last week that it planned to ensure that its capital spending plus its dividend payments were in line with the cash flow it has coming in, and that would probably mean reduced activity in some areas.

North Dakota drilling rig count drops - WSJ: The number of rigs drilling for Bakken Shale oil in North Dakota has dropped sharply as a result of the decline in crude oil prices, a development that may affect the state’s budget, the head of the North Dakota Department of Natural Resources said Friday. North Dakota has been one of the biggest beneficiaries of a boom in North American crude oil output, becoming the country’s second-largest producer after Texas. But a slide in crude prices threatens to slow the pace of drilling in the Bakken, where production costs are higher than for many other oil plays. Crude oil output in the state hit a record 1.18 million barrels a day in September, the latest figure available, but the number of drilling rigs has dropped from 195 that month to 186 currently, according to state data. That was down from a high of 218 rigs in May 2012. “The number one reason for the rig count drop is the lower oil price,” said Lynn Helms, director of the North Dakota Department of Natural Resources, at a news conference. Mr. Helms also told reporters that fall in the number of rigs may be factored into decisions by state lawmakers on next year’s budget. North Dakota receives royalty payments from oil and gas development, which have bolstered state coffers in recent years as production has surged. The state’s rig count may drop further as contracts aren’t renewed over the next few months if oil prices remain at current levels or fall further, Mr. Helms said, adding that major rig operators already expect to deploy fewer rigs next year. “Many of them are scaling their plans back at this point,” he said.

The Detailed US Shale Oil Cost Curve: Where Is The Line In The Sand? - On an almost daily basis, investors are reassured that a falling oil price is "unequivocally good" for the US economy. The "It's like a tax cut for the consumer"-meme dominates financial media while the impact on the Shale (or tight) oil industry is shrugged off blindly with "well breakevens are low, right?" As Barclays shows in the chart below, the breakeven price for oil to shut-in tight-oil supply varies by region (and corporation) adding that at $80/b WTI, most producers will sweat it out. But, they warn, if prices remain at these levels through 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016 (with a 17-25% plunge in earnings which would drastically reduce capex... and thus The US Economy). As Barclays notes, As oil prices continue to fall, we review the likely supply response of tight oil supplies. Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices remain at these levelsthrough 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016.

Global Debt Growth Kept Oil Prices High And Delayed The Bakken “Red Queen” - What makes extraction from source rock in Bakken attractive (as in profitable) is/was the high oil price and cheap debt (low interest rates). The Bakken formation has been known for decades and fracking is not a new technology, though it has seen and is likely to see lots of improvements.LTO extraction in Bakken (and in other plays like Eagle Ford) happened due to a higher oil price as it involves the deployment of expensive technologies which again is at the mercy of:

  • • Consumers affordability, that is their ability to continue to pay for more expensive oil
    • Changes in global total debt levels (credit expansion), like the recent years rapid credit expansion in emerging economies, primarily China.
    • Central banks’ policies, like the recent years’ expansions of their balance sheets and low interest rate policies
  • o Credit/debt is a vehicle for consumers to pay (create demand) for a product/service
    o Credit/debt is also used by companies to generate supplies to meet changes to demand
    o What companies in reality do is to use expectations of future cash flows (from consumers’ abilities to take on more debt) as collateral to themselves go deeper into debt.
    o Credit/debt, thus works both sides of the supply/demand equation
  • • How OPEC shapes their policies as responses to declines in the oil price
  • o Will OPEC establish and defend a price floor for the oil price?

Fracking Industry Damaged by Saudi Arabia Oil Pricing -- The U.S. oil industry has taken a beating from the recent drop in oil prices, which have plunged more than 25% since the summer. Oil and oil service stocks across the board have been bruised… but none more so than those related to the fracking industry. You see, fracking is an expensive process compared to conventional oil extraction techniques – a situation that became grave three weeks ago, when Saudi Arabia decided to try to run U.S. oil out of business by dropping the price of its crude oil. Now, it looks like fracking may be the first casualty in this worldwide oil war.  In conventional oil exploration and production, most of the cost is incurred before the first barrel of oil is even extracted. But in fracking, the cost is upfront for both the land and the operation of each well. Fracking also requires chemicals, vast amounts of water, and power to release oil from shale. The more complex the shale formation, the more expensive each barrel of oil is. And unlike conventional drilling, which looks for vast oil reservoirs that can be exploited for decades, fracked oil formations yield big returns for just a few months before they’re quickly used up. Thus, resources are frequently moved to new wells in order to keep production flowing.

KunstlerCast 260 — Petroleum Geologist Art Berman on Shale Oil and Gas - Kunstler - Original audio source - mp3 - Independent petroleum geologist Arthur Berman says of the shale oil and shale gas scene: “What we’re reading in the newspapers everyday is completely distorted. It couldn’t be more wrong and delusional.” JHK and Art delve into the finer points of the so-called shale oil miracle. Can anybody actually make any money in it? What are the long-term prospects? How are they raising capital to do it? We explore some deep, dark corners of this largely misunderstood phenomenon and its relation to the wishful thinking economy of our time. Direct download:

There Will Be Blood - How The Fed Has Flooded The Shale Patch With Junk Debt -  US light sweet crude last traded at $76.90 a barrel, down 26% from June, a price last seen in the summer of 2010. But this price isn’t what drillers get paid at the wellhead. Grades of oil vary. In the Bakken, the shale-oil paradise in North Dakota, wellhead prices are significantly lower not only because the Bakken blend isn’t as valuable to refiners as the benchmark West Texas Intermediate, but also because take-away capacity by pipeline is limited. Crude-by-rail has become the dominant – but more costly – way to get the oil from the Northern Rockies to refineries on the Gulf Coast or the East Coast. These additional transportation costs come out of the wellhead price. So for a particular well, a driller might get less than $60/bbl – and not the $76.90/bbl that WTI traded for at the New York Mercantile Exchange. Fracking is expensive, capital intensive, and characterized by steep decline rates. Much of the production occurs over the first two years – and much of the cash flow. If prices are low during those two years, the well might never be profitable. Meanwhile, North Sea Brent has dropped to $79.85 a barrel, last seen in September 2010.  So the US Energy Information Administration, in its monthly short-term energy outlook a week ago, chopped down its forecast of the average price in 2015: WTI from $94.58/bbl to $77.55/bbl and Brent from $101.67/bbl to $83.24/bbl. Independent exploration and production companies have gotten mauled. For example, Goodrich Petroleum plunged 71% and Comstock Resources 58% from their 52-week highs in June while Rex Energy plunged 65% and Stone Energy 54% from their highs in April.

If WTI Drops To $60, It Will "Trigger A Broader HY Market Default Cycle", Says Deutsche - Suddenly it is not just the shale companies that are starting to look impaired as a result of tumbling energy prices. According to a Deutsche Bank analysis looking at what the "tipping point" for highly levered companies is in "oil price terms", things start to get really ugly should crude drop another $15 or so per barrell. Its conclusion: "we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized. "

EU Fracking Boom Becoming Less Likely -- Pro-fracking campaign in the global media is fading fast. A year or two ago the extraction method suitable for the Arizona desert was presented as a key component of the EU's energy security policy by high-ranking officials in the European Commission. Many large corporations that announced an influx of investment into Eastern European fracking projects between 2010 and 2013 are now gradually reducing the scope of their planned work. Their decision was prompted by environmental and political problems that receive insufficient coverage in the industry media. It’s becoming clear that fracking technology can’t be brought to the EU “as is” from the United States. Recently published data by Rice University, Texas indicates that simple recycling of the tainted waste water is not safe, writes. A year or two ago supporters of hydraulic fracturing used to preach about “green innovations in the shale revolution” with the passion of small-town televangelists, but now, after the publication of new data, they have switched tactics and simply remain silent about environmental problems.. "Making fracking safe is simply not possible, not with the current technology, or with the inadequate regulations being proposed," Louis Allstadt, former executive vice president of Mobil Oil, said. What did the U.S. State Department do with a not-so-green technology that is too dangerous to use at home? Export it to the closest allies in Europe, of course. Nor should one forget that in the United States itself, the “shale bubble” would have been impossible without the direct support of U.S. Dept. of Energy programs, as well as the backing of Hillary Clinton’s State Dept., which pushed the issue on an international, political level.

Polish fracking: Shale fail | The Economist: Poland would become "a second Norway”, as Radek Sikorski, the former foreign minister, put it in 2010. All that was needed was to open the country to foreign drilling firms, set up a regulatory and profit-sharing structure, open the taps, and watch the methane (and the dollars) flow. Four years later, those dreams are sputtering out. International companies are fleeing Poland, government efforts to create regulations for the sector are flailing, and while a few test wells have been drilled (including the one pictured above, in the eastern village of Grzebowilk), they show disappointing results. “It’s clearly developing below expectations,” says Pawel Poprawa, an oil and gas expert at Poland’s Energy Studies Institute, an advisory firm. Mr Poprawa puts much of the blame on a “slow and incompetent” bureaucracy, which has made life difficult for gas prospecting firms. Despite years of government promises, Poland’s administration is one of the most sluggish in Europe. It takes about seven months to get the permits needed to start drilling, six months to amend the drilling concession and nine months to obtain an environmental decision, according to Kamlesh Parmar, head of the Polish Exploration and Production Industry Association.

Let Shale Gas Firms Create Bigger Tremors, Say Academics: If the shale gas industry is to succeed in Britain, the government must relax regulations on the severity of tremors that fracking can cause, two academics have warned. They liken the current limit of 0.5 on the Richter scale to that of banning buses from driving past houses, or slamming wooden doors, the Telegraph has reported. Dr Rob Westaway and Professor Paul Younger, both of the University of Glasgow’s School of Engineering have warned that the stringent regulations are deterring would-be investors from undertaking shale gas extraction in Britain. “The present regulation is a deterrent to investment and will need to be changed before energy companies are willing to invest the large sums that will need to be spent to develop shale gas in the UK,” said Dr Westaway. "If regulations for other vibration-causing activities were similarly restrictive you'd have to prevent buses from driving in built-up areas or outlaw slamming wooden doors." The regulations were introduced following a moratorium on fracking, the process used to extract shale gas, after fracking firm Cuadrilla caused two small tremors – one measuring 1.5 on the Richter scale and the other 2.3 – whilst fracking near Blackpool in 2011.

Fracking won't cut bills and ministers 'oversold' shale gas benefits, experts say -  Fracking won’t cut energy bills and ministers have “oversold” the benefits of UK shale gas exploration, Government-funded experts have warned. In a report on Wednesday, academics at the UK Energy Research Centre (UKERC) said shale gas had been wrongly “heralded as the solution to our security of supply concerns”. Instead of “banking on shale” the Government should support investment in more gas storage facilities to prevent prices spiking in the event of supply crises, the experts, who are independent but taxpayer-funded said. Speaking ahead of the report’s launch, Professor Jim Watson, UKERC director, said: “Where the government has gone wrong is just talking this whole thing up… as if it was going to reduce consumer bills and tackle our energy security problems in a substantial way any time soon. I think that was very premature. The framing of it was oversold.” Prime Minister David Cameron declared last year that fracking had “real potential to drive energy bills down” and that Britain was going “all out for shale”, while the Chancellor George Osborne has been similarly enthusiastic and last weekend announced plans for a sovereign wealth fund.

Oil Price Slide – No Good Way Out -- The world is in a dangerous place now. A large share of oil sellers need the revenue from oil sales. They have to continue producing, regardless of how low oil prices go unless they are stopped by bankruptcy, revolution, or something else that gives them a very clear signal to stop. Producers of oil from US shale are in this category, as are most oil exporters, including many of the OPEC countries and Russia. Some large oil companies, such as Shell and ExxonMobil, decided even before the recent drop in prices that they couldn’t make money by developing available producible resources at then-available prices, likely around $100 barrel. See my post, Beginning of the End? Oil Companies Cut Back on Spending. These large companies are in the process of trying to sell off acreage, if they can find someone to buy it. Their actions will eventually lead to a drop in oil production, but not very quickly–maybe in a couple of years.  So there is a definite time lag in slowing production–even with very low prices. In fact, if US shale production keeps rising, and Libya and Iraq keep work at getting oil production on line, we may even see an increase in world oil production, at a time when world oil production needs to decline.  At the same time, demand doesn’t pick up quickly as prices drop. We are dealing with a world that has a huge amount of debt. China in particular has been on a debt binge that cannot continue at the same pace. Furthermore, the Federal Reserve’s discontinuation of quantitative easing has cut off a major flow of funds to emerging markets. Because of this change, emerging market demand for oil has dropped. This has happened partly because of the lower investment funds available, and partly because the value of emerging market currencies relative to the dollar has fallen. Again, a decrease in oil price is not likely to fix this problem to a significant extent.

IEA Warns That Pricier Oil is In Your Future -- In its latest annual World Energy Outlook, the International Energy Agency (IEA) warned that the current period of oil abundance may be fleeting, and in fact, without heroic levels of production increases, oil markets will grow dangerously tight in the coming years.  Global oil demand is expected to increase by 37 percent by 2040, with a dominant proportion of that coming from developing countries – i.e. China and India. In fact, the IEA says that for every barrel of oil the industrialized world expects to eliminate from demand through efficiency or other ways of reducing demand, developing countries will burn through two additional barrels. The IEA predicts that the world will need to extract an additional 14 million barrels of oil per day (bpd) by 2040, which comes on top of today’s production levels of about 90 million bpd. While there is a lot of triumphalism in the United States about shale oil production and how places like the Bakken and the Eagle Ford have ushered in an era of abundance, the IEA says that tight oil production in the U.S. – along with Canadian oil sands – will only last until the mid-2020’s.  After that point, when the shale revolution peters out, oil markets revert to their old ways – that is, looking to the Middle East once again to meet global demand. And that should raise some alarm. Saudi Arabia will remain one of the largest and most important oil producers in the world, but it probably won’t be able to ramp up production much beyond its current levels. There is some slack production in Iran, due to western sanctions, but even when it returns to the fold it likely will only make a small contribution to oil production growth in the long-term.

Plunging crude paving way to oil shortages, price spikes: IEA - Global energy consumers are enjoying lower prices today but the plunge in crude costs – coupled with rising geopolitical tensions – is setting the stage for future supply shortages and price spikes, the International Energy Agency says in its annual World Energy Outlook. “The global energy system is in danger of falling short of the hopes and expectations placed upon it,” said the Paris-based group that advises richer countries on energy policy. Its annual survey was released Wednesday, and provides a stark warning that the world is falling short of the investment required to meet energy demand and reduce greenhouse gas emissions from fossil fuels.The challenges lie across the energy spectrum but are particularly acute in the global oil market, where the recent plunge in prices will deter capital expenditures that are needed to offset declining production from aging fields, even as lower pump prices spur demand growth. That decline in supply and increase in demand would drive prices higher in the coming years than they would be under a stable price scenario. “The short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers,” primarily in the Middle East, it said. In an interview from Paris, IEA chief economist Fatih Birol said Canada’s oil sands are an important source of secure supply as other major producing regions – from Russia and the Middle East – face political upheaval. “We expect Canadian production will be a very important cornerstone of the security of global oil markets,” Mr. Birol said. The IEA forecasts that Canadian production will grow from four million barrels a day currently to 7.4 million by 2030, with virtually all of that growth coming from the oil sands.

Republicans Vow to Fight E.P.A. and Approve Keystone Pipeline - — The new Republican Congress is headed for a clash with the White House over two ambitious Environmental Protection Agency regulations that are the heart of President Obama’s climate change agenda. Senator Mitch McConnell, the next majority leader, has already vowed to fight the rules, which could curb planet-warming carbon pollution but ultimately shut down coal-fired power plants in his native Kentucky. Mr. McConnell and other Republicans are, in the meantime, stepping up their demands that the president approve construction of the Keystone XL pipeline to carry petroleum from Canadian oil sands to refineries on the Gulf Coast.At this point, Republicans do not have the votes to repeal the E.P.A. regulations, which will have far more impact on curbing carbon emissions than stopping the pipeline, but they say they will use their new powers to delay, defund and otherwise undermine them. Senator James M. Inhofe of Oklahoma, a prominent skeptic of climate change and the presumed new chairman of the Senate Environment and Public Works Committee, is expected to open investigations into the E.P.A., call for cuts in its funding and delay the regulations as long as possible.The Republicans’ new majority in the Senate also increases their leverage in pushing Mr. Obama to approve the pipeline, although it is still unclear if he will do so.The White House vowed to fight back. “We know that there will be attempts to impede or scale back our actions,” John D. Podesta, the senior White House counselor who is leading Mr. Obama’s climate agenda, said in a statement on Monday. But he added, “We’re confident we can prevail.”For Mr. McConnell, fierce opposition to the E.P.A. regulations is more than just a political priority. Kentucky is one of the country’s top coal producers, and coal generates over 90 percent of the state’s electricity. His re-election campaign was driven by a promise to protect Kentucky from what Republicans called Mr. Obama’s “war on coal.”

White House would 'consider' Keystone bill - The White House said Thursday it would "consider" a rider approving construction of the Keystone XL oil pipeline if it was offered in legislation that was able to pass both houses of Congress. But press secretary Josh Earnest also emphasized that the administration was "committed" to the "firmly established precedent" for such transnational projects, which includes the ongoing review at the State Department.  "We’ll consider any sort of proposals that are passed by Congress, including a rider like this, that, you’re right, does seem to pretty directly contradict the position that’s been adopted by this administration," Earnest said. Asked directly if the president would veto legislation requiring approval of the controversial construction project, Earnest sidestepped. "I guess my point is they haven’t put forth something like that that has gotten the majority of both houses of Congress," Earnest said. He added that "we'll see" if such legislation could pass in the upcoming Republican-led Senate. "At that point, we’ll be able to give you a more specific reaction to it."

Lame Duck Senate Will Vote To Approve Keystone Pipeline: Senate Democratic leaders have agreed to hold a vote on approval of the Keystone pipeline as early as next week, dropping their longstanding objections after losing their majority last week. A vote is tentatively scheduled for Tuesday, according to the offices of Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY), who are poised to trade titles in January. The deal was announced within an hour of Sen. Mary Landrieu (D-LA) demanding a vote. She faces a tough runoff election on Dec. 6. McConnell attributed the Democrats' change of heart to the election. "The American people have elected a new Republican Majority in the Senate and that has already made a difference," he said. "I was glad to see that Senate Democrats have finally backed off trying to obstruct construction of the Keystone XL Pipeline, the single largest shovel-ready project in America." Legislation to approve the pipeline has broad support in the Senate and was all but guaranteed to pass under the coming Republican majority if Democrats resisted a vote on it during the lame duck session. The House is planning to vote on Thursday for legislation to approve by pipeline, offered by Rep. Bill Cassidy (R-LA), Landrieu's opponent in the runoff.

U.S. House passes Keystone bill (Reuters) - The Republican-led U.S. House of Representatives approved the Keystone XL pipeline on Friday, but a similar measure struggled to get enough support in the Senate and President Barack Obama indicated he might use his veto if the bill does get through Congress. The legislation, approved by 252 votes to 161, circumvents the need for approval of TransCanada Corp's $8 billion project by the Obama administration, which has been considering it for more than six years. No Republicans voted against the measure, while 31 Democrats voted for the bill. It was the ninth time the House has passed a Keystone bill, and supporters were confident that this time the Senate would follow suit and pass its version. But passage was not assured in the Senate, which is expected to take up the measure next Tuesday. Supporters were still one vote shy of the 60 needed to overcome a filibuster, a blocking procedure, an aide to a Keystone supporter said on Friday. The aide spoke on condition of anonymity. Approval for the pipeline, which would help transport oil from Canada's oil sands to the U.S. Gulf coast energy hub, has rested with the Obama administration because it crosses an international border.The decision has been pending amid jousting between proponents of the pipeline who say it would create thousands of construction jobs and environmentalists who say it would increase carbon emissions linked to climate change.  If the measure did pass Congress Obama would have to decide whether to make rare use of his veto power.

Time for Democrats to stand up to big oil: It was the tale of two Democratic parties. Early Wednesday morning, President Obama stood with President Xi of China and announced a historic climate pledge to cut greenhouse gas emissions and promote clean energy. Just hours later, Mary Landrieu, the Democratic Senator from Louisiana, stood up on the floor of the Senate and introduced another bill to force approval of the climate-destroying Keystone XL pipeline. It’s time for the Democratic Party to make a choice. Either they can be the party that stands up to Big Oil, combats climate change, and protects America’s future. Or they can be a party of melts away every time the fossil fuel industry applies a little heat. This is one place where an “all of the above” strategy isn’t going to work. Sen. Mary Landrieu represents the worst of the Big Oil Democrats. Her home state of Louisiana is losing a football field worth of land into the Gulf of Mexico every hour. New Orleans was ground zero for Hurricane Katrina, one of the worst extreme weather events in U.S. history. Yet when it comes time to choose between protecting the environment or pleasing her Big Oil donors, the money comes out on top every single time. The Democrats didn’t get a thumping in the midterm elections because they confidently ran on a bold set of principle and voters rejected them. They lost because voters had no sense of their vision. People are sick and tired of Washington and they took it out on the party in power. If Democrats want to energize their base for 2016, they’re going to have to start showing a bit more spine — especially when it comes to the fossil fuel industry.

Oil prices, not Obama’s veto, may block Keystone - — As victorious Republicans gleefully anticipate quick congressional approval of the Keystone XL pipeline after their gains in midterm elections, plunging oil prices threaten to make the project to transport Canada’s oil sands production a white elephant before it can ever be built. Republicans are already counting on filibuster-proof support in the Senate with some Democrats joining the cause. . They may even be able to get to the 67 votes to override a presidential veto if President Barack Obama should choose to oppose it — though he has given little indication that he would do so and may well plan on using Keystone as a bargaining chip to get Republican assent to some of his proposals. In the meantime, however, oil prices are falling below the price at which the high-cost extraction of this heavy crude oil can be profitable.   A report out this week from the Organization of Petroleum Exporting Countries cut that group’s forecast for global demand and prices over the next five years, pushing U.S. oil prices down closer to $75 a barrel and international benchmark Brent Crude to near $80, a drop of more than $30 from its 52-week high. Earlier this week, Saudi Arabia, the biggest OPEC producer, cuts its oil prices to U.S. customers, signaling it was ready to let prices decline in order to preserve market share. But the Canadian Energy Research Institute estimates that oil-sands projects need a price of $85 a barrel to be profitable in the current cheapest (in situ) method and new standalone mines will require $105 a barrel to make a reasonable return.

'Keystone XL Clone' to Pump Tar Sands Oil Starting Next Year »  As Republicans get set to test their new majority in the U.S. Senate and their complete control of Congress to push through approval of the Keystone XL pipeline, a new investigative report by editor Lou Dubose at the Washington Spectator reveals that the construction of a “Keystone XL clone” pipeline with almost the same capacity is already taking place. While TransCanada continues to battle the public outcry against its Keystone XL project, another company, Enbridge, is quietly building the Alberta Clipper pipeline. Like Keystone XL, it will pumped 830,000 oil barrels (bbl) a day of tar sands bitumen crude oil from the Alberta oil fields to U.S. refineries. “In six to eight months the Canadian tar-sands spigot opens to full capacity,” wrote Dubose. “Barring litigation or action by the State Department, Enbridge will achieve what has eluded TransCanada. And it will have done so with scant attention from the media and without the public debate generated by campaigns against the Keystone XL.”

Groups Sue U.S. State Dept. to Stop Alberta Clipper Tar Sands Pipeline » Yesterday the Washington Spectator ran an investigative piece tearing the veil of secrecy from the Alberta Clipper pipeline project, a plan by Canadian mining company Enbridge to build a pipeline nearly equal in length and capacity to the Keystone XL to transport tar sands crude oil to the Gulf of Mexico for refining and exporting. With the U.S. State Department’s cooperation, Enbridge found a loophole to circumvent the legal approval process needed to cross the international Canadian/U.S. border. And, by keeping a low profile, it managed to avoid the public outcry that has stalled Keystone XL for six years.  That period of operating off the public radar may be coming to an end. Today a coalition of eight environmental, conservation and indigenous groups announced that they have filed a lawsuit against the U.S. State Department and Secretary of State John Kerry in a Minneapolis federal court. The suit charges that approval was granted despite lack of public notice or the legally required review of environmental and public health impacts. The groups filing the lawsuit include White Earth Nation, Sierra Club, Center for Biological Diversity, Honor the Earth, National Wildlife Federation, Minnesota Conservation Federation, Indigenous Environmental Network and MN350, being represented by the Vermont Law School Environmental and Natural Resources Law Clinic. Their intention is intended to force the State Department to reverse its approval and ensure that a full environmental review takes place. “This lawsuit challenges the State Department’s illegal approval of Enbridge’s tar sands expansion plans,” said Sierra Club staff attorney Doug Hayes. “Rather than stick to its ongoing review process that the National Environmental Policy Act requires, the State Department green-lighted the expansion before the process is complete.”

Former Treasury Secretary Timothy Geithner’s Warburg Pincus to Profit from Tar Sands Exports -- Steve Horn -- Several environmental groups have filed a lawsuit against the U.S. Department of State and Secretary John Kerry over the permitting of a controversial border-crossing northern leg of a pipeline system that DeSmogBlog has called Enbridge's “Keystone XL Clone.” The Keystone XL Clone is designed to accomplish the same goal as TransCanada's Keystone XL: bringing Alberta's tar sands to Gulf coast refineries and export market. It consists of three legs: the Alberta Clipper expansion as the northern leg, the Flanagan South middle leg and the Seaway Twin southern leg. Green groups have called the northern leg an “illegal scheme” because the Enbridge Alberta Clipper expansion proposal didn't go through the normal State Department approval process. Instead, State allowed Enbridge to add pressure pumps to two separate-but-connected pipelines on each side of the border and send Alberta's diluted bitumen (“dilbit”) to market. Enbridge dodged a comprehensive State Department environmental review, which involves public hearings and public commenting periods. The groups say this is illegal under the National Environmental Policy Act (NEPA) and have demanded a re-do for Enbridge's application process. The maneuver has a key beneficiary: former Obama Administration Secretary of the Treasury, Timothy Geithner, who now serves as President of the private equity giant Warburg Pincus.  Geithner's connection to the lawsuit not only adds intrigue, but also reveals the purpose of Enbridge's Keystone XL Clone: an export fast-track to the global market.

Falling oil prices and Keystone: that goop might stay in the ground after all… --Back when the idea for the Keystone XL pipeline first came out, I wrote numerous pieces suggesting that while I worried about the environmental impact of extracting and refining oil from tar sands–a particularly dirtier process–I figured that it was likely coming out of the ground, regardless of whether it ultimately went south through the US or west through Canada.  Now I’m not so sure. The sharp decline in oil prices change the calculus, as noted in this Marketwatch analysis: the Canadian Energy Research Institute estimates that oil-sands projects need a price of $85 a barrel to be profitable in the current cheapest…method and new standalone mines will require $105 a barrel to make a reasonable return.  Crude is trading at $75/barrel as we speak, and the EIA just cut its year-ahead forecast by $18 to $85/barrel.  Of course, they could be wrong and oil could climb to a high-enough perch to make tar sand extraction profitable. Meanwhile, the timing of the politics could easily push Congress to offer bipartisan support for Keystone this week, as Louisiana Sen. Mary Landrieu wants this behind her in her upcoming runoff election.  But for now, the economics may be doing the environment a favor by pricing oil at a level that could keep the tar sands underground.

Anti-pipeline protesters post snarling selfies online after lawyer says facial expressions constitute assault - Bulging eyes, scrunched noses, bared teeth — anti-oil pipeline protesters are facing off against energy giant Kinder Morgan with the meanest mugs they can muster. Scores of people are posting snarling selfies online after legal arguments made in B.C. Supreme Court last week that facial expressions constitute assault. Kinder Morgan lawyer Bill Kaplan told the court that activists who have blocked a subsidiary pipeline builder in a Metro Vancouver conservation area obstructed workers in part by making faces. Millions in damages are being sought. A social media meme poking fun at the assertion has gone viral. Professed environmental advocates, random members of the public, at least one of the defendants and Vancouver Mayor Gregor Robertson have uploaded interpretative photos dubbed the “Kinder Morgan face.”

Ecuador tribe winning in court, but still losing at home -- An anecdotal article by freelance writer Alexander Zaitchik puts a sad reality to a very real truth — defeating Big Oil in court doesn’t get your land back, doesn’t clean your water and doesn’t revive lost lives.  The Indigenous Peoples of Guiyero, Ecuador, fought and beat Chevron in New York courts after the oil company left behind massive amounts of oil and toxic wastewater when it pulled out of the town in the mid-1990s. The Guiyero’s land and water became another casualty of corporate greed, a giant sludge of pollutants and slime. Meet the Amazon Tribespeople Who Beat Chevron in Court—but Are Still Fighting for Clean Water My destination was the village of Guiyero, a remote dot of an Indian community more than a hundred miles downriver from the oil city of Lago Agrio. The riverside hamlet is at the eastern edge of territory deeded to the Waorani, one of the largest tribes in the region. Situated where some of Ecuador’s last unspoiled wilderness meets its oil frontier, it is a good place to see what a resource extraction boom entering its sixth decade can do to a rainforest.  Get the rest of the story.

Shell Ignored Faulty Pipeline Warnings Before Massive Nigeria Oil Spills, Documents Show -- Long before a Shell Petroleum Development Company pipeline spilled up to 21 million gallons of oil in southern Nigeria, employees warned the company that the same pipeline was at risk of leaking, according to internal documents seen by the BBC and reported Wednesday.   The documents, also seen by The Guardian, show that the company received warnings at least two years before the spills that the Trans Niger Pipeline — then more than 30 years old — was of “immediate and utmost concern” and should be replaced. “There is a risk and likelihood of rupture on this pipeline at any time, which if it happens, could have serious consequences for the safety of life, the environment and the nation’s economy,” read a 2006 letter from Basil Omiyi, managing director of Shell’s Nigeria business.  A Shell spokesperson dismissed the accusation that it ignored warnings about the pipeline before the devastating spills, which severely disrupted the lives of approximately 69,000 people living in Bodo, Nigeria. “[Shell] dismisses the suggestion that it has knowingly continued to use a pipeline that is not safe to operate,” it told the BBC.   Shell has long been accused of trying to downplay and cover up its spills in Nigeria, most notably by maintaining that much of the damage was caused by locals sabotaging its pipeline. Shell has also blamed amateur and illegal oil refiners for some of the damage.  Still, where to place the blame does not take away from the suffering of the Niger Delta region, particularly Bodo, at the hands of the two 2008 oil spills. According to a 2011 Amnesty International report, the spill severely impacted the price and availability of food, and the quality of drinking water. Immediately following the spill, villagers were bathing children in water contaminated by crude oil.

Peak Cheap Oil -- Energy is the lifeblood of any economy. But when an economy is based on an exponential debt-based money system and that is based on exponentially increasing energy supplies, the supply of that energy therefore deserves our very highest attention. But we need to be careful here because it’s a mistake to lump all types of energy together because they have very different uses in our economy and they are not interchangeable. What we’re going to examine in this chapter on Peak Cheap Oil is transportation fuels. The liquids we put in our trucks and cars and airplanes. Why? Because 95% of everything that moves from point A to point B across the globe does so based on petroleum derived liquid fuels. This makes petroleum quite special and unique. And despite vastly increasing the global spend on oil operations, despite the shale oil "miracle" so loudly touted by the press -- global production remains nearly unchanged. In just a few short years, it’s now costing us double to extract roughly the same amount of oil out of the ground. What’s clearly at work here is that we’re finding more oil, but it’s expensive. Yet total global demand for oil will climb as developing countries expand their economies and world population continues to grow. Competition for hydrocarbons will become more fierce than it has ever been. I’m soft-pedaling this to an enormous degree. Let me be blunt. If we are already at peak, as the data suggest is possible, then we are all in trouble.

Zero Rates, Resource Misallocation, and Shale Oil - Ed Harrison - The nexus of zero rates, resource misallocation, and risk on has favoured shale oil. But the drop in oil prices will call many of these projects into question precipitating a high yield energy funding crisis and a panic dash for the exits. There will be carnage and the question will be whether this carnage causes contagion into other markets. The catalyst for many market gyrations, as I predicted them in late September, is the global growth slowdown, especially in China. And the most important immediate result is a weakening oil price, which is why I want to concentrate on shale oil in the US.  Here’s the macro story as it concerns shale:

  • The Fed lowered the fed funds rate to effectively zero percent in the wake of the subprime crisis. With the financial system still in disarray, the Fed began quantitative easing and forward guidance initiatives as a way to re-animate dislocated markets.
  • Lower interest rates and forward guidance signals of continued low rates shifts private portfolio preferences toward riskier projects and projects with longer payback periods because lower risk premia and lower discount rates make these projects more attractive in relative terms to other projects.
  • Shale oil exploration and production fits the bill perfectly for the type of investment that easy money should favour: oil exploration and production is risky in general and fracking is considered even riskier. Moreover, low discount rates help because many of the shale oil companies are cash flow negative because the payback period on their investment is long. And finally, shale oil production is very capital intensive, requiring lots of debt financing because the scale of the investment cannot be financed with equity alone.
  • But shale oil is not profitable at low oil prices, creating a tension for investors. If shale oil investment is successful, a lot of oil will flood onto the market, driving down prices. But if shale oil is unsuccessful, then the oil produced will not be enough to recoup high capital investments. Clearly then, the sweet spot for this market is one in which production costs drop over time, well depletion rates drop and oil production levels remain high enough for profits but low enough not to crater the market.

Putting this all together says that the huge investment in shale oil is in part an artefact of Fed policy because of the unique investing pre-conditions low interest rates, quantitative easing and forward guidance have created.

Dollar reserves as goodwill oil-product claims --- A while back we proposed that oil prices are more interest-rate sensitive than most people appreciate. The logic goes as follows. When interest rates are low it makes more sense for producers and commodity owners to hold their wealth in commodity-form rather than in money-form — especially if speculators are prepared (via the forward curve) to compensate them for the cost of storing these commodities in terminals, tanks or even in the ground. Low interest rates thus support commodity prices because they encourage commodity owners to sell only what they need for financial liquidity purposes and little more, a fact which naturally keeps the market tight. The more generous speculators get, however — by means of the contango payments they offer to commodity producers or holders — the greater the incentive to dig up commodities for store-of-value purposes rather than consumption purposes, and to withhold that supply from the market. The inverse is true if interest rates are on the rise. During such periods it makes much more sense for commodity producers and owners to transform as much commodity stock into monetary claims and park it in the bank. But this is also the case whenever speculators decide to stop compensating the industry for holding commodities in physical form, and the costs of storage become too great. And, what factor is likely to woo speculator money away from forward commodity claims and back over to claims over real economy product? Well, we’d propose, the compensatory rate they are likely to receive from the real economy for deferring consumption until tomorrow — also known as the interest rate.

Large global benefits from the 2014 oil shock - The most significant economic shock in the global economy so far in 2014 has been the drop of more than 25 per cent in spot oil prices since the end of June. Since this shock is attributed by most energy analysts to an increase in oil supply, and not to a decline in global oil demand, this should have led to a significant decline in near-term world inflation forecasts, and to upgrades in global economic growth forecasts. The disinflationary effects are uncontroversial. Lower oil prices have obvious direct and indirect effects on consumer prices. But the boost to growth is more debatable, since lower oil prices involve a redistribution of income from oil producers to oil consumers. Why should this reallocation of resources lead to a rise in real gross domestic product? It is because of time lags. Oil consumers, which are mainly households, have seen their real incomes rise, perhaps permanently, and they are assumed to allocate part of this gain quite quickly to increased real expenditure on other goods and services. Oil producers, on the other hand, are mainly rich governments and corporates, and they may take much longer to reduce their expenditure in line with their lower real incomes. That, anyway, is what economic models tend to assume when oil prices decline for supply-related reasons. However, as Bruce Kasman of JPMorgan Chase pointed out to me in a conversation yesterday, this is not what has actually happened since the 2014 oil shock occurred. Inflation forecasts have been revised down as expected, but GDP growth projections have also been revised downwards, not upwards. What is this telling us?

Oil prices likely to fall further, says IEA: The IEA, a consultancy to 29 countries, said weak demand and the US shale gas boom meant crude’s recent fall below $80 a barrel was not over. On Friday, Brent crude, one of the major price benchmarks, traded at $78.13 a barrel, near a four-year low. “It is increasingly clear that we have begun a new chapter in the history of the oil markets,” the IEA said. “Barring any new supply problems, downward price pressures could build further in the first half of 2015.” The organisation, set up after the "oil shock" of the early 1970s to advise major oil importing countries, said that pressure was building on the Opec oil producers' group to restrict supply to bolster prices. However, there have been reports that Saudi Arabia, Opec's key member, is not yet willing to turn off the taps. Opec members are due to meet on 27 November to discuss the supply and demand issues. Most Opec members rely on oil revenues to support economic growth and spending. Also, it is likely that oil and gas explorers will become increasingly worried that falling prices will make exploration uneconomical. Brent has fallen for eight weeks in a row, its longest losing streak since 1988, according to Reuters' data.

Falling Oil Prices Strengthen Obama’s Hand Globally --President Barack Obama is traversing the world stage this week carrying something unusual for an American president: An oil weapon that he can wield to his benefit.  Recent weeks haven’t been an easy stretch for Mr. Obama, at home or on the international front, so this weapon, in the form of plunging world oil prices, represents a welcome if underappreciated development. The effect is likely to be more subtle than obvious this week, but it’s a significant change that affects the presidents’ endeavors on several key fronts. The president is spending the week in Asia, first in China for a meeting of the Asia-Pacific Economic Cooperation forum and a bilateral meeting with China’s leaders. He then travels to Myanmar, and on to Australia for an economic summit of the Group of 20 industrialized nations.  Along the way, Mr. Obama will be having talks with fellow world leaders about the problems that doubtless do the most to keep him up at night: Iranian behavior, Russian misbehavior, the threat from Islamic State militants and the overall sluggishness of the economy. On each front, low oil prices—they have dropped to about $82 a barrel from about $110 in midsummer–strengthen the president’s hand. Better yet for Mr. Obama, the perception, and to some extent the reality, is that the oil-shale boom in the U.S. has helped create the global surge in oil supplies that is driving down prices, creating a sense that the U.S. is for once in control of the energy dynamic.  To see the consequences, start with Islamic State militants. As they have gobbled up land in Syria and Iraq, Islamic State leaders increasingly have been financing their operations by smuggling out and selling crude oil stolen from Syrian refineries. But the value of that asset is plunging, and that fact, combined with Turkey’s growing willingness to clamp down on the flow of black-market Islamic State oil across its border, appears to be pinching the Islamic State’s wartime budget.

Countries Are Spending $88 Billion A Year On Finding New Fossil Fuel Reserves -- Some of the world’s largest economies are spending billions each year to find new regions to drill, frack and mine for fossil fuels, according to a new report. The report, published Tuesday by Oil Change International and British think tank Overseas Development Institute (ODI), found that G20 nations — a group of major developed and developing economies that includes the U.S., China, India and the E.U. — are spending $88 billion annually on fossil fuel exploration. That’s more than double the $37 billion spent on fossil fuel exploration — a term that includes finding new reserves of fossil fuels as well as expanding existing drilling and mining sites — by the world’s largest 20 oil and gas companies in 2013. It’s also almost double the investment that the International Energy Agency says is needed to power the world by 2030.   And, the report notes, this type of investment is unwise if the world wants to keep warming to 2°C, a target that will require leaving at least two-thirds of untapped fossil fuel reserves in the ground.   By providing subsidies for fossil-fuel exploration, the G20 countries are creating a ‘triple-lose’ scenario,” the report’s authors write. “They are directing large volumes of finance into high-carbon assets that cannot be exploited without catastrophic climate effects. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power. And they are undermining the prospects for an ambitious climate deal in 2015.”

The $88 Billion Fossil Fuel Bailout for Oil, Gas and Coal Exploration -- Despite repeated pledges to end subsidizing fossil fuels, governments are still spending billions doing so. Five years ago, the G20 pledged to the phase out of ‘inefficient’ fossil fuel subsidies and re-iterated the call last year in Saint Petersburg in 2013. Yet a new report by the Overseas Development Institute and Oil Change International, published on the eve of this year’s G20 Leaders’ Summit, on Nov. 15 -16 in Australia, has found that governments are still spending a whopping $88 billion every year supporting fossil fuel exploration. Amazingly, this is over double what the oil and gas companies themselves are investing. In 2013, the top 20 private oil and gas companies invested just $37 billion in exploration across the globe, less than half of that being ploughed in annually by G20 governments.  The madness of the situation is that the governments know that the majority of the oil and gas that is discovered needs to be kept in the ground if we are to avoid dangerous runaway climate change.  The worst villain is, not surprisingly, the U.S. which splashed out $5.1 billion annually in subsidies for fossil fuel exploration in 2013—ironically almost double the level in 2009 when the G20 pledged to phase out fossil fuel subsidies. Although President Obama has proposed to cut subsidies, the oil-washed Congress has failed to pass any subsidy cuts.

Russia Signs Deal With Iran To Build 8 Nuclear Power Units - With this year's APEC meeting in China having just barely concluded, where the biggest news was not the inability of the US to make any material headway in trans-Pacific trade (who needs trade when you have a printer?) or that China is "willing" to import even more NSA bugs courtesy of Cisco and Qualcomm, but Russia's second "western" mega gas deal with China, as well as the following photo-op of course and with the WSJ reporting that in the now year-old "nuclear"negotiations between the west and Iran, there has been no progress, it was once again Putin's turn to turn the screws on the lame duck president following a report moments ago that Russia inked a deal to build eight nuclear power units in Iran, as a new partnership agreement, guaranteed by the IAEA.

Russia To Build As Many As Eight Nuclear Power Plants For Iran - Moscow and Tehran have signed two contracts under which Russia will build as many as eight nuclear power plants in Iran. One contract says two reactors will be built at the Bushehr nuclear power plant on Iran’s Persian Gulf coast, the Russian nuclear energy company Rosatom said. Under a second contract, two more units eventually may be built at Bushehr and perhaps four more at sites that haven’t yet been selected. All construction would be monitored by the UN’s International Atomic Energy Agency (IAEA). Rosatom’s statement said all the plants would be under the same constraints as Bushehr is today. The IAEA has mandated that all nuclear fuel at the plant be produced in Russia and returned there for reprocessing after it is spent to ensure that the material can’t be diverted for a weapons program. Russia didn’t give a timetable for any of the construction, but AEOI Spokesman Behrouz Kamalvandi said construction of the first two plants would begin in the current Iranian year, which ends March 20, 2015. At the signing ceremony in Moscow on Nov. 11, Ali Akbar Salehi, the director of the Atomic Energy Organization of Iran (AEOI), and Rosatom CEO Sergei Kiriyenko agreed that the deals would expand relations between their two countries for years.

Russia-Iran Nuclear Reactor Deal Raises Eyebrows - Russia has agreed to build eight new nuclear reactors in Iran in a deal raising eyebrows in Washington and Europe as fraught international talks to curb Tehran’s atomic ambitions near their deadline.  Meeting in Moscow on Tuesday, Iranian and Russian officials said they had negotiated terms for the construction by Russia’s state nuclear power company Rosatom of four new reactors at the Islamic republic’s existing Russian-built Bushehr facility, and four more at another site in the country. Russian officials said their eight-plant nuclear deal – the broad terms of which were first laid down in a 1995 agreement – could boost efforts to make Iran’s nuclear activities more transparent and would benefit the Vienna discussions. “The entire construction project of the nuclear power units in Iran, including equipment and nuclear fuel supplies, will be under International Atomic Energy Agency safeguards and fully meet the nuclear non-proliferation regime the same way as during construction of the first power unit of Bushehr,” Rosatom said in a statement.

Russia to increase gas supply to China - Russia and China have signed a memorandum of understanding to supply gas from western Siberia to China. It is the second big gas deal to be sealed this year as President Vladimir Putin builds investment ties with China to counter increasing isolation from the west.  The framework agreement between China National Petroleum Corporation and Russian energy group Gazprom is for an additional 30bn cubic metres of gas per year. It follows a $400bn agreement in May for Russia to sell up to 38bcm of gas per year from eastern Siberia to northeastern China. The deals represent welcome diplomatic and financial support for Mr Putin, whose regime is under fire from the west over its support for Russian separatists in Ukraine. Energy exports are Russia’s primary source of hard currency and the expectation is that the Chinese would help with the expensive task of building and financing the pipelines. Russia has long looked to Asia as a potential alternative energy customer to reduce its dependence on Europe. Western Siberia is roughly equidistant from Europe and Asia so, given the right infrastructure, gas produced there could be shipped to whichever market was more attractive.

Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas -- As we previewed on Friday, when we reported that "Russia Nears Completion Of Second "Holy Grail" Gas Deal With China", moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, grenlighting a second "mega" Russian natural gas to China via the so-called "western" or "Altay" route, which as previously reported, would supply another 30 billion cubic meters (bcm) of gas a year to China. Gazprom CEO Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia's biggest, and most strategic natural gas client.

Sinking Ruble Drags Down Global Companies That Lean on Russian Business - Russia’s political travails are taking a toll on stocks beyond its borders, from a Finland tiremaker to a U.K. event organizer and a German drug company. Nokian Renkaat Oyj (NRE1V), ITE Group Plc (ITE) and Stada Arzneimittel AG (SAZ) are among 29 non-Russian companies worldwide that count the country for at least 10 percent of sales, financial filings from companies that disclosed any revenue breakdown from the country compiled by Bloomberg show. Their stocks have slumped 21 percent on average this year in dollar terms, compared with a 2.3 percent gain in the MSCI All-Country World Index and a 8 percent drop in the STOXX Europe 600 Index. Investors are dumping the stocks as the ruble weakened by 22 percent in the past three months against the dollar amid sanctions imposed by the U.S. and its allies tied to the conflict in Ukraine. The U.S. and European Union have sought to punish Russian President Vladimir Putin for supporting pro-Russian rebels in eastern Ukraine. “There are certain things that you’d put off limits because the outcome is difficult to predict and one of those areas is Russia,” Nicholas Reitenbach, a New York-based international fund manager at Wilkinson O’Grady & Co., said in a telephone interview. The firm oversees about $2 billion. “I’m very uncomfortable with the whole situation in Russia. I’m staying away.”

Putin Says Russia and China Will Expand Trade in Yuan - Russia and China intend to increase the amount of trade settled in the yuan, President Vladimir Putin said Monday in remarks that would be welcomed by Chinese authorities who want the currency to be used more widely around the world. Speaking at an Asia Pacific Economic Cooperation summit in Beijing, Putin also ruled capital controls for Russia and vowed to keep its foreign debt level below 15 percent of gross domestic product, or GDP. "As part of our cooperation with this country [China], we intend to use national currencies in mutual transactions," Putin said. "The initial deals for ruble and yuan are taking place. I want to note that we are ready to expand these opportunities in [our] energy resources trade." Spurred on by their often testy relations with the United States, Russia and China have long advocated reducing the role of the dollar in international trade. Curtailing the dollar's influence fits well with China's ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32 percent of its $4 trillion foreign exchange reserves invested in U.S. government debt, China wants to curb investment risks in dollar.

Michael Hudson: Putin’s Pivot to Asia -- Yves here. Understandably, US reporting on the just-finished APEC summit focused on Obama's objectives and supposed achievements. Russia has historically not been a major force in the region and thus received less coverage here. It was therefore surprising to see our man in Japan Clive tell us that Japanese media coverage of Putin at APEC was on a par with the column-inches given to Obama. On Real News Network, Michael Hudson describes how Putin is shifting Russia's export focus and economic alliances towards Asia, particularly China. Putin did better at the APEC summit than most Western sources acknowledge, and that could have longer-term ramifications for the US.

Angola on the road of de-dollarization: Despite being the fifth largest economy in Africa, ordinary Angolans have seen little change in their standard of living. Only 37.8% of country's 21 million people have access to electricity. While about half of the population has access to safe drinking water, this number falls to 34% in rural areas ...” “There are few jobs for the unemployed, mostly under 25 years, who make up 60% of the population.” “Angola is Africa's second biggest oil producer after Nigeria. [...] Last year, according to the US Energy Information Administration, an agency that provides statistics and analyses on energy, Angola produced 1.85 million barrels of petroleum per day, and oil revenues could top $60 billion this year, [...] But as with other oil-producing countries in Africa, oil has not proved to be a benefit to Angolans. If anything, say analysts, it has produced few jobs, increased inequality and allegations of corruption.” “Oil production and its supporting activities contribute about 45% to the nation's gross domestic product (GDP) and 80% to government revenues. With little diversification, the Angolan economy has limited investment and job opportunities, and generates growth only for a small group of elites, economists say." “Chinese investors are heavily involved in Angola's large-scale public works such as roads, rails, and other infrastructure (see Africa Renewal January 2013). But critics say these investors do not create sufficient jobs because they bring most of their workers from China. In 2008 alone, the Angolan consulate in China issued more than forty thousand visas to Chinese workers, reports the bimonthly global affairs journal, World Affairs. For example, the China International Trust and Investment Corporation employed 12,000 Chinese workers and only a handful of Angolans during the peak of the Kilamba Kiaxo social housing development project in Luanda. In addition, the journal states that while the majority of Chinese in Angola work in the construction sector, thousands later branch out into real estate, retail, street hawking, etc.” This year, Angola's central bank plans to de-dollarize the foreign exchange market to limit the use of foreign currency in local transactions. In the past, most oil receipts were conducted offshore; the new laws require transactions to be handled onshore.”

Petrodollar Panic? China Signs Currency Swap Deal With Qatar & Canada - The march of global de-dollarization continues. In the last few days, China has signed direct currency agreements with Canada becoming North America's first offshore RMB hub, which CBC reports analysts suggest "could double maybe even triple the level of Canadian trade between Canada and China," impacting the need for Dollars.But that is not the week's biggest Petrodollar precariousness news, as The Examiner reports, a new chink in the petrodollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petrodollar system. As Simon Black warns, "It’s happening... with increasing speed and frequency."

China's growth in exports and imports slows, adding to signs of fragility - Annual growth in China's exports and imports slowed in October, data showed yesterday, reinforcing signs of fragility in the world's second-largest economy that could prompt policymakers to roll out more stimulus measures. Exports rose 11.6 per cent last month from a year earlier, slowing from a 15.3 per cent jump in September, the General Administration of Customs said. The figure was slightly above market expectations in a Reuters poll of a 10.6 per cent rise. A decline in China's leading index on exports in October pointed to weaker export growth in the next two to three months, the administration said. "The economy still faces relatively big downward pressure as exports face uncertainties while weak imports indicate sluggish domestic demand," "The central bank may continue to ease policy in a targeted way." Imports rose an annual 4.6 per cent in October, pulling back from a 7 per cent rise in September, and were weaker than expected. That left the country with a trade surplus of US$45.4 billion for the month, which was near record highs. Annual growth slowed to 7.3 per cent in the third quarter - the weakest since the height of the global financial crisis - as a cooling property sector weighs on domestic demand.

China's exports spike but data unreliable -- Yesterday’s trade report out of China showed stronger than expected export growth, with trade surplus surging. While some of that can be explained by rising  trade with the US, China's exports to Hong Kong in particular grew by 24% YoY. This is indication that the export data may once again be suspect. With China’s currency appreciating against the dollar since June, it is likely that some exporters were placing FX bets (long CNY, short HKD) disguised as export proceeds.  There is little evidence of renewed export-driven economic acceleration. Market indicators from China continue to show growth moderation. Here are iron ore prices at China’s ports (via Jan 2015 iron ore futures).  Moreover, the yield curve remains inverted with longer-dated rates declining - an indication that the market is not betting on strengthening growth. It is possible that China may once again begin to depreciate the yuan (as it did early this year) in order to keep the real exports humming while shaking out some of the speculative FX trading activity.

China Approved More Than $100 Billion In Infrastructure Projects To Boost Economy -- In an effort to boost its slowing economy, China approved 693.3 billion yuan ($113.24 billion) worth of infrastructure projects in recent weeks, Reuters reported, citing accounts by state media outlets. The projects will encompass new airports and railways as the world’s No. 2 economy seeks to deal with a decline in real-estate investment.  The investment in infrastructure projects OK’d by the National Development and Reform Commission was announced on the state-run China National Radio, the official Xinhua News Agency reported. Overall, five airports and 16 railways will be built in an attempt to revive sluggish property investment. Xinhua cited falling sales and high inventory in the real-estate market as two reasons for the projects. “We have also noticed that infrastructure projects rolled out some years ago have been basically completed by 2014, but new infrastructure projects for next year are not adequate,” He said new airports and railways would be beneficial to local economies, while also improving the long-term growth of the national economy. Work on the new infrastructure projects could begin next year. In a separate attempt to boost slowing growth in the region, China’s President Xi Jinping announced a $40 billion Silk Road Fund for infrastructure Saturday, Xinhua reported. The fund was discussed at a meeting with leaders from Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan and Tajikistan.

Xi who must keep you employed  -- This man is in charge of China. Like, really in charge:  And he wants to make sure everyone he’s in charge of remains nice and calm. So he’d like them kept busy. That, for the most part, means they should be working — call it a social compact or call it a security measure, it doesn’t really matter.As JCapital’s Anne Stevenson-Yang puts it: The reality of employment in China is that no one actually counts it, and the popular idea that the Chinese nomenklatura worries day in and day out about creating jobs is simply false. Employment in China is about social security with an emphasis on “security,” Communist style. For the Chinese bureaucracy, the general population is not so much employed or unemployed as inside or outside the system. People outside the system are a security concern, not an economic concern, because, without the supervisory role of a State-owned employer there is no one keeping tabs on people to make sure they do not join a protest, have an extra child, leave home and create an urban slum in another locality, or, God forbid, go to the capital to seek redress for something, thus bringing political ire raining down on the hometown authorities. And that fear of social upheaval is especially true at the moment as China rebalances its economy away from investment and towards consumption. In so doing the more likely scenarios involve some sort of surge in unemployment even if, due to the nature of the rebalancing away from corporate cosseting, the household sector will, in the words of Pettis, “bear less that its share of the contraction of growth”.

China Gears Up for World’s Biggest Shopping Day -- China’s e-commerce firms are getting ready for the country’s biggest online shopping day Tuesday by hiring temporary staff and renting more warehouse space to deal with high volumes of orders.The day known as Singles’ Day saw more than twice as much merchandise sold than on Cyber Monday in the U.S. last year. Singles’ Day—so called because the date 11/11 uses four “1”s to represent single people—began in 1993 at Nanjing University as a celebration of being single but gradually became a day when singles and couples alike could buy things for themselves.  Chinese e-commerce giant Alibaba began to capitalize on the shopping fervor five years ago, offering staggering discounts to entice more customers. Last year Alibaba said it processed 254 million orders on the day worth $5.8 billion, The Financial Times reports.After posting its $25 billion record-breaking IPO back in September, this year Alibaba aims to boost Singles’ Day sales by partnering with global brands and turning Singles Day into a worldwide event. This year is expected to be even bigger thanks to a 20%-increase in the total number of shoppers online, according to Boston Consulting Group.

Deflation, deflated --- WHEN people think of a large Asian country on the brink of deflation, they probably have Japan in mind. But China, the biggest of them all, is now skirting close to outright falls in prices across a wide swathe of the economy. Producer prices have been declining for nearly three years and consumer price inflation is mired at its lowest level since 2010.  Deflation is rightly feared by central bankers around the world as a most destructive economic force, making debts more expensive in real terms and leading to a vicious cycle of contraction as consumers delay purchases and companies put off investments. Yet the Chinese central bank has been remarkably laid-back about the downward lilt in prices. The most obvious tool in its kit to arrest the slide would be to cut interest rates, but it has not done so since July 2012; the benchmark one-year lending rate remains lofty at 6%. What explains the central bank’s calm in the face of falling prices, and is it making a big mistake?  Inflation data published on Monday provide the latest evidence of China’s descent towards deflation. The consumer price index (CPI) rose 1.6% in October from a year earlier, the lowest since the start of 2010. Month-on-month CPI inflation was flat, falling back from September’s 0.5% increase. Core inflation, stripping out volatile food and energy prices, ticked down to 1.4% year-on-year in October, below the 1.7% average over the previous nine months. Meanwhile, the producer price index (PPI) ran deeper into negative territory. Prices of goods as they left factory gates fell 2.2% in October from a year earlier, steeper than the 1.8% decline in September. PPI has been in deflation for 32 straight months.

Inflation is falling even in China --  Core inflation is low in China… 1.4%. (link) Inflation is always pretty low in China due to weak labor share and weak domestic demand. But there is a concern that inflation will continue to fall as over-productive capacity reveals itself more and more. China is able to produce much more than there is demand for. Capacity utilization continues to fall.  The benchmark interest rate in China, which is like our Fed rate in the US, has been constant at 6% since mid-2012. Keep an eye on China… They are having problems. I wrote about China having problems this year, first back in January, then back in June. I see their inflation falling further. There will be pressure to lower their benchmark interest rate. But China may want to keep the benchmark up as part of their re-balancing program to discipline investment. Weak inflation pressures in China are part of weak inflation pressures globally. Labor share has fallen this century from China to many advanced countries, Japan, Europe, US and … does it matter who else? The biggest consuming economies are lowering their domestic demand potential by lowering labor share… Is it any surprise that low nominal rates are ineffective to raise inflation?

APEC Blue Has Chinese Factories Bleeding Red, Economists Say - You might think that hosting a big fancy global meeting would be a boon to the local economy. For Beijing, though, it’s been a decided drain. In Beijing’s haste to try and clean up its skies, it shuttered factories both in the city and in five neighboring provinces both before and during the Asia-Pacific Economic Cooperation meeting, which runs November 5-11. Its goal? To reduce carbon emissions by at least 30% as 21 visiting leaders from economies around the world descended on the city. In the process, economists say, such moves have threatened to undercut China’s factory output, investment and trade growth at a time when the economy – the world’s second-largest — is struggling to regain momentum. In addition to closing factories, the government also gave a holiday to students, government workers and state-run company employees. As well, the number of vehicles on the street were restricted and various construction projects delayed. According to one estimate by Credit Suisse, such measures have affected an estimated one-quarter of China’s steel, 13% of its cement and 3% of its industrial output, which could shave 0.2 to 0.4 percentage points off China’s November industrial production figure. That would bring headline industrial production growth down to the low 7% range, year on year, from 8% in September. APEC measures have had “a meaningful negative impact on short-term growth,” said Goldman Sachs economist Yu Song.

China's economy shows more signs of weakness -- A slew of economic data out of China, which came in below forecasts on Thursday, has highlighted the continuing downward pressure facing the Asian giant. China's industrial output rose 7.7% in October from a year ago, while retail sales grew 11.5% in the same period. Economists were expecting growth of 8% and 11.6% respectively. Another important economic indicator - fixed asset investment - fell to 15.9% in October from 16.1% in September. This, added to the fact that China's growth slowed to a more than five-year low in the third quarter from a year earlier, is building the case for more stimulus from the government to prevent a even sharper slowdown. "Chinese core October data came in uniformly softer and below consensus. Industrial output slowed to 7.7% year-on-year, the second weakest pace since the Lehman crisis, likely on pre-Apec factory closures," said Dariusz Kowalczyk, economist at Credit Agricole. "The data highlights downward pressure on the mainland economy. It will encourage further monetary easing."

China slowdown deepens, factory and investment growth dip - China’s economic growth continues to cool with the latest figures showing it is on track to expand at its weakest pace in 24 years. In October factory output rose 7.7 percent, not as low as August’s 6.9 percent but still below forecasts. The last time it was near that low was at the height of the global financial crisis. November’s reading could be weaker still, as many factories in northern China shut early in the month to reduce air pollution as Asia-Pacific leaders met in Beijing. Fixed-asset investment, which is an important driver of growth, grew 15.9 percent in the first 10 months of the year compared to the same period a year earlier. That was the weakest pace since December 2001.  Despite the soft economic performance China’s leaders remain reluctant to use full-blown stimulus measures, such as cutting interest rates. Growth in real estate investment, which affects about 40 other industries in China, cooled to 12.4 percent in the first 10 months of 2014 from a year earlier. October retail sales growth eased to 11.5 percent, the slowest pace since early 2006. An anti-corruption drive spearheaded by President Xi Jinping has hit sales of luxury goods and expensive dining and also cooled the enthusiasm among local governments for the launching of new investment projects.

Slowing Chinese economy prompts rise in bad loans: Combined with the property slowdown, nonperforming bank loans are among the things that will keep a Chinese policymaker awake at night, so the past week will not have been particularly restful one in Beijing after China’s top five banks reported sharp rises in bad loans. Sixteen listed Chinese banks reported nonperforming loans totalling 604.65 billion yuan (€79.25 billion) as of the end of September this year, up 31.7 per cent from a year ago, the Xinhua news agency reported, citing data from the banks’ quarterly business reports. China’s five biggest banks are the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China, Bank of China, China Construction Bank, and the Bank of Communications (Bocom); and four of these, including the sector leader ICBC, reported their largest quarterly rise in bad loans in two years as the slowing economy made it more difficult for companies to repay their debts. Data last month showed China’s gross domestic product expanded by 7.3 per cent in the third quarter from a year earlier, the lowest rate since the global financial crisis. According to the central bank, falling deposits marked the first quarterly decline for China’s banking industry since at least 1999. The levels of bad loans remain very low and the banks themselves do not see the nonperforming loans spiralling out of control. Bocom, China’s fifth-largest bank, said its bad loans came mostly from the east of the country and were due to economic restructuring.

Hong Kong Police Get Ready to Clear Occupy Protest Sites -- The Hong Kong government is ratcheting up pressure on pro-democracy protesters amid increasing signs that police will try to clear the three sites that students have occupied for more than 40 days. As the WSJ reports: The Hong Kong government and police are working on plans to clear the sites, possibly in the coming days, after world leaders depart from the Asia-Pacific Economic Cooperation summit in Beijing, people familiar with the planning said.Police have been put on special schedules with longer shifts and overnight hours beginning on Wednesday, and are planning to remove protesters from the sites to enforce court injunctions, a person familiar with the planning said. The priority isn’t to use force but police will do so if protesters resist, the person said.Student leaders and the government have been at a stalemate for weeks amid rising public frustration with the protests. Students have continued to occupy the three protest sites, with tents and other comforts, and police have largely stood by for the past few weeks.The sides met once since the occupation began on Sept. 28 and neither side has changed its position. The government is offering universal suffrage for the election of Hong Kong’s top official in 2017, but requires that candidates be approved by a nominating committee that is largely loyal to Beijing. The students want public nomination of candidates.The trigger for the increasing pressure is a decision by Hong Kong’s High Court Monday to extend injunctions filed over two out of the three protest sites.

China's Industrial Output Growth In 2014 Worst In Over A Decade - Having told the world that it will not be undertaking system-wide rate cuts or stimulus - focusing more on idiosyncratic safety nets - last night's data from China is likely to have the PBOC frowning.  Fixed Asset Investment (lowest growth since Dec 2001) and Retail Sales (lowest growth since Feb 2006) missed expectations, but it was the re-slump in Industrial Production (after a small 'huge-credit-injection-driven' bounce in September) that is most worrisome as China's 2014 output is growing at its slowest since at least 2005. As Michael Pettis previously noted "China will be no different... growth miracles have always been the relatively easy part; it is the subsequent adjustment that has been the tough part." Of course, this is not the 'soft-landing' so many bulls have expected, which, if enabled by moar credit, as Pettis warned "will inevitably lead to a very brutal hard landing."

China’s Military Budget Could Soon Be As Big as America’s --  Frank Kendall – the Pentagon’s undersecretary of defense for acquisitions, technology, and logistics – has repeatedly warned that America’s military advantage over China is evaporating.The Weekly Standard reportsWhile the U.S. military’s budget is being cut, China’s budget has been growing at about 12 percent annually, Kendall said, and may soon be as large as the U.S.’s. China is of particular concern according to the under secretary because “no one’s studied us more — including immediately after the first Gulf War — than the Chinese. And they have been building systems since then designed to counteract some of the things that we have.”  Last month, the Washington Free Beacon reported on a draft of the annual report of the congressional, bipartisan U.S.-China Economic and Security Review Commission which found:  China’s rapid military modernization is altering the military balance of power in the Asia Pacific in ways that could engender destabilizing security competition between other major nearby countries, such as Japan and India, and exacerbate regional hotspots such as Taiwan, the Korean Peninsula, the East China Sea, and the South China Sea.

Why China is creating a new “World Bank” for Asia -- TO THE alphabet soup of international development banks (ADB, AfDB, CAF, EBRD, IADB), add one more set of initials: AIIB, or for the uninitiated, the Asian Infrastructure Investment Bank. On October 24th, representatives from 21 Asian nations (pictured above) signed an agreement to establish the AIIB, which, as its name suggests, will lend money to build roads, mobile phone towers and other forms of infrastructure in poorer parts of Asia. China spearheaded the bank and hopes to formally launch it by the end of next year. More money for critical projects might seem unambiguously good, but the AIIB has stoked controversy because Asia already has a multilateral lender, the Asian Development Bank (ADB). Why is China creating a new development bank for Asia?  China’s official answer is that Asia has a massive infrastructure funding gap. The ADB has pegged the hole at some $8 trillion between 2010 and 2020. Existing institutions cannot hope to fill it: the ADB has a capital base (money both paid-in and pledged by member nations) of just over $160 billion and the World Bank has $223 billion. The AIIB will start with $50 billion in capital—hardly enough for what is needed but still a helpful boost. Moreover, while ADB and World Bank loans support everything from environmental protection to gender equality, the AIIB will concentrate its firepower on infrastructure. Officially at least, ADB and World Bank officials have extended a cautious welcome to the new China-led bank, saying they see room for collaboration.  Behind the scenes, though, the Chinese initiative has set off a heated diplomatic battle. America has lobbied allies not to join the AIIB, while Jin Liqun, the Chinese official who will head the bank, has shuttled between countries to persuade them to sign up. At the bank’s inauguration ceremony, Australia, Indonesia and South Korea were conspicuously absent. Critics warn that the China-led bank may fail to live up to the environmental, labour and procurement standards that are essential to the mission of development lenders. However, China has insisted that AIIB will be rigorous in adopting the best practices of institutions such as the World Bank.

We need China inside the global economic tent -- China has been a passive participant in the international economic governance order since the late 1970s when Beijing ended its isolationist policy. It has to a large extent accepted and acknowledged the Western dominated international economic order. The Chinese government has embraced and accepted a multitude of international organisations such as the World Bank, International Monetary Fund and the World Trade Organisation. Joining the WTO is arguably one of the single most transformative events in modern Chinese economic history; signalling the country’s willingness to join a rule-based international trade system. In recent years, a plethora of Chinese nationals have served as senior executives at leading economic organisations such as the IMF and the World Bank. Min Zhu, a former deputy governor of China’s central bank is serving as deputy managing director of the IMF. Justin Yifu Lin, a prominent Chinese economist recently served as chief economist at the World Bank. However, China is only a marginal player at these important multilateral organisations. To use the World Bank as an example, China’s voting shares at the World Bank was only increased from 2.8 per cent to 4.2 per cent in 2010 after years of haggling. This still left it trailing Japan at 6.8 per cent and the US on 15.8 per cent. This is not to mention that Americans have always served as the president of the World Bank since its inception.  For years, Beijing has reluctantly accepted this state of affairs. However, recent evidence suggests that China is increasingly unwilling to accept the American dominated international economic order and is prepared to flex its muscle.

The risks of getting too close to China - Thailand is dependent on Beijing for infrastructure development, but too much reliance threatens our relations elsewhere Dealing with China might be a comforting prospect for Thailand's military-dominated government, but Prime Minister Prayut Chan-o-cha must watch his step amid the international gathering of leaders in Beijing. Prayut attended the Asia Pacific Economic Cooperation (Apec) summit in China this week, where global issues are up for discussion. The Thai leader is rubbing shoulders with his counterparts from the world's powers, including the United States, China and Japan. Thailand, and even Asean, are likely playing a minor role amid a summit dominated by the problems facing major powers. Host Beijing is taking the opportunity to promote its economic projects by highlighting its Silk Road projects for trade routes that unite the continent, and its own version of an international free-trade arrangement. The US is competing with China to maintain its economic opportunities and political power in Asia-Pacific. Washington has for years promoted a comprehensive trade deal known as the Trans Pacific Partnership (TPP), but China has declared from time to time that it has no faith in the US-sponsored scheme.

Lessons for China from Japan - The Economist's chart shows how much the Tier 1 capital of the global banking system has increased in the last 10 years. The size of the circle indicates the size of the capital base of the bank concerned. In 2007 the largest bank in the world by capital was the British bank RBS, which was also at the time the largest bank in the world by assets.  European banks generally feature highly in the earlier years of the chart: French banks, and even Spanish banks, were in the top 10 banks in the world by Tier 1 capital. All have now disappeared from the list.   What has replaced them? Chinese banks. In 2004, Chinese banks were nowhere to be seen. Now, four of the largest banks in the world both by Tier 1 capital and by assets are Chinese. In fact of the largest 50 banks in the world, 17 are Chinese.   On Twitter, The Economist's chart was accompanied by a tweet that asked "How long before all the top 10 are Chinese?" It seems a reasonable question. After all, the Chinese economy will soon be the largest in the world, so it should have the largest banks - shouldn't it? But we have played this scene before. Roll back the years to 1989, and we find this from the Chicago TribuneFor the first time, the 10 largest banks in the world are all Japanese as Citicorp, the biggest U.S. bank, has fallen out of the top ranks, according to American Banker. Dai-Ichi Kangyo Bank Ltd. is Japan`s and the world`s biggest banking company, with assets of $387 billion at the end of March.  The remarkable growth of Dai-Ichi Kangyo Bank (DKB) came from increasingly risky real estate and construction loans made on the assumption that land prices would continue to rise. Yet by 1989, land prices were already falling in Tokyo - a sign of trouble to come. When the Japanese real estate bubble burst in 1991, DKB found itself with high levels of non-performing loans. Nor was it alone. Almost all of the large Japanese banks ended up with disastrously high levels of non-performing loans, mostly real estate, after the 1991 crash. They limped along until 1997, hiding the true state of their balance sheets, until the Asian crisis hit in 1997. That was enough to cause the failure of the most vulnerable banks, notably Hokkaido Tagushoku Bank, Long Term Capital Bank, and Nippon Credit, along with securities companies Sanyo Securities and Yamaichi Securities and a number of smaller institutions. The rest, including DKB, were forcibly restructured by the Japanese authorities.

An awkward handshake: Leaders of China, Japan meet -(AP) - An uneasy handshake Monday between Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe marked the first meeting between the two men since either took power, and an awkward first gesture toward easing two years of high tensions. As the two men approached each other, stern-faced, to shake hands in front of cameras, Abe briefly tried to say something to Xi, who gave no response and turned away, appearing distinctly uncomfortable, to fix his gaze toward the cameras for the rest of the handshake. The tense moment seemed to show how far apart the two sides remain. But their meeting afterward in a closed room at Beijing's Great Hall of the People lasted 30 minutes, giving some hope that the two countries could smooth the friction in talks arranged on the sidelines of this week's Asia-Pacific Economic Cooperation summit. The spat between China and Japan over uninhabited East China Sea islands and other contentious issues has raised concerns of a military confrontation between Asia's two largest economies, which could draw the U.S. into the fray alongside ally Japan. Although core divisions won't be resolved soon, Abe told reporters afterward that the countries made a "first step" toward reconciliation.

Xi urges Japan to take cautious approach on military and security issues  -- Chinese President Xi Jinping called on Japan to be cautious in its military and security policies and abide by the four accords reached between the two nations for improving the Sino-Japanese relationship. Xi made the remarks in an ice-breaking meeting with Japanese Prime Minister Shinzo Abe on the sidelines of an Asia-Pacific conference in Beijing, following more than two years of deep tensions over an island dispute. Both sides need to “move ahead with the trend for constructing healthy Sino-Japanese ties”, Xi was quoted as saying by state-run China News Service. “We hope that Japan can continue being on the path of peaceful development, adopt cautious military and security policies and take actions that are conducive to building trust with neighbours and constructive role in regional peace and stability,” he said. “The truth and facts facing the problems of their bilateral ties are clear,” Xi said, adding that the four accords agreed between the two nations should be followed, and Tokyo has to deal with historical issues seriously. “I hope Japan will tackle the problems based on the spirit of the agreement,” he said. For his part, Abe said the meeting was a first step for improving Sino-Japanese relations and he had proposed to Xi to establish a maritime communication mechanism to reduce tension between the two nations, Kyodo News reported.

Has The Bank Of Japan Started Another Round Of Central Bank Wargames? - Japan’s central bank is buying large amounts of assets as part of the Japanese government’s combined monetary and fiscal stimulus program designed to end Japan’s long-standing economic stagnation. Here’s what happened to the yen today (chart from Bloomberg Bloomberg):  That sharp drop occurred when the Bank of Japan announced a massive expansion of its asset-buying program. On its website, the Bank of Japan states that the purpose of the asset-buying is to maintain inflation at the Bank’s target of 2%. But the immediate effect was to devalue the yen and raise stock and bond prices. Inevitably, the Bank of Japan’s action was hailed as “currency war”. In the Wall Street Journal, Michael Casey writes: A currency war looms – not a 1930s-style scorched-earth conflict, but a damaging stealth war that will exacerbate the global economy’s woes and distort domestic political agendas….. As a weakening exchange rate drives down the price of its cars and electronic goods overseas, Japan creates competitive challenges for other countries’ producers, putting jobs at risk and policymakers in those places under political pressure to respond. And he warns: The biggest players in the global monetary system have mostly resisted direct tit-for-tat responses to Japan’s yen-weakening moves over the past two years. But it’s only a matter of time before their policymakers use words or actions to combat its effect. The upshot: even more global deflation and sluggish growth. Aha. So it is not quite true that a currency-issuing central bank has no opponents. No-one in the private sector will oppose it, unless they have a deathwish. But other currency-issuing central banks might, if they perceive its actions as threatening to their own economies. Economic wars are played out between central banks. Market participants will co-operate with the central bank that adopts the game strategy that best fits their own interests. And as each central bank defends its own economy, when central banks are fighting, markets fragment along national lines. As Casey says, central bank wars can be very damaging.

Monetary vs. fiscal credibility in Japan - (blog review) The damage inflicted by the introduction in April of the first major tax increase in 17 years has led to calls for postponing the next scheduled raise in the consumption tax for fear that it would, otherwise, affect the credibility of the monetary regime change. But with a debt load that exceeds 240% of GDP, several commentators believe that backtracking on the consumption tax could cause a fatal loss in Japan’s fiscal credibility. Paul Krugman writes that the funny thing is that both sides of this debate believe that it’s about credibility; but they differ on what kind of credibility is crucial at this moment. Right now, Japan is struggling to escape from a deflationary trap; it desperately needs to convince the private sector that from here on out prices will rise, so that sitting on cash is a bad idea and debt won’t be so much of a burden. The pro-tax-hike side worries that if Japan doesn’t go through with the increase, it will lose fiscal credibility and that this will endanger the economy right now.

How Would Japan PM Abe Stop the Sales-Tax Increase? - Japanese Prime Minister Shinzo Abe is feeling heat from all sides as he mulls whether to raise the national sales tax to 10% next year. Those who want him to postpone the increase say the country’s economic recovery is too fragile to withstand another blow to consumer sentiment. Others want him to go ahead with the increase, saying not doing so could lead to a fiscal disaster. But if he decides to postpone or cancel the second part of the two-stage tax increase, what exactly would he have to do? First, he would have to introduce legislation to parliament in January, and have it passed before the tax increase would take effect. Under Article 84 of the Constitution, no new taxes can be imposed, or existing ones modified, except by law, points out Hideki Takada, head of public affairs at the Ministry of Finance. Theoretically, the tax rise could be repealed if the change is approved by parliament on Sept. 30, the day before the tax is scheduled to go up on Oct. 1. Practically speaking, however, such a decision should be made at least six months in advance. Mr. Abe knows this, Mr. Takada says. His advisers have also said they want new legislation to postpone the increase until 2017. Mr. Abe has said he will make a decision after seeing revised gross-domestic product data for July-September due out Dec. 8. But consensus-building within the ruling Liberal Democratic Party would have to start much sooner.

Japan sentiment tumbles, bolstering calls for sales tax hike delay (Reuters) - Sentiment among Japanese households and service sector companies tumbled in October as a sales tax hike in April and worries about another tax increase next year prompted consumers to slash spending. true The grim data will likely fuel speculation that Prime Minister Shinzo Abe will delay next year's sales tax increase to 10 percent because the economy is not strong enough. Worsening sentiment is also a stark reminder of how far the economy has veered off course compared to the beginning of the year when the government claimed its fiscal stimulus spending would easily offset the impact of higher taxes. "The sales tax hike is causing a lot of uncertainty," said a worker at a supermarket in northeastern Japan. "The cost of daily goods is rising. Heating oil costs are still high. People are cutting spending." The service sector sentiment index fell to 44.0 in October from 47.4 in September, a Cabinet Office survey showed on Tuesday, which was the lowest level in two years. The survey focuses on workers such as taxi drivers and restaurant staff - called "economy watchers" for their proximity to consumer and retail trends. Those surveyed also turned more pessimist about the outlook two to three months from now.

Abe to postpone tax hike, call December election - media (Reuters) - Japanese Prime Minister Shinzo Abe will postpone a planned tax increase and call a general election for December, a newspaper said on Wednesday, in an effort to lock in his grip on power before his voter ratings suffer a slide. Abe said on Tuesday he had not decided on the timing of an election and his top government spokesman said on Wednesday that a decision on the national sales tax hike, which could derail a promised economic recovery, had yet to be made. But the conservative Sankei newspaper said Abe would delay the tax increase by a year and a half to April 2017 and call a snap election for parliament's lower house. true A government official close to the prime minister's office told Reuters on Tuesday that Abe was likely to delay the tax hike. Major political parties have already begun gearing up for a possible election. No election need be called until 2016, but political insiders said Abe, whose support is relatively robust but falling, might seek to renew his mandate for another four years before taking unpopular steps such as restarting nuclear reactors and passing legislation to allow Japanese troops to fight abroad for the first time since World War Two.

Larry Summers Joins Japan’s Anti-Tax Bandwagon - As prominent economists from around the world take sides in Japan’s intensifying sales tax debate, one of America’s most influential policy thinkers, Harvard’s Lawrence Summers, has joined the antitax camp. “I welcome the decision to delay the consumption tax increase,” Mr. Summers told The Wall Street Journal, referring to reports that Prime Minister Shinzo Abe will announce next week plans to push back a scheduled increase. “The most important determination to fix Japan’s longer-term debt situation is its growth rate,” Under current law, Japan’s national sales tax is scheduled to rise to 10% in October 2015, following an increase to 8% from 5% in April 2014. Parliament approved the move in 2012 in a bid to curb Japan’s swollen sovereign debt, which, at more than twice the size of the economy, is the largest in the world. But the April increase stalled Mr. Abe’s moves to end Japan’s long slump. Aides say that, upon his return from an overseas trip Monday, the premier will likely call for a tax delay and set elections for December to seek voter support. The International Monetary Fund and the Organization for Economic Cooperation and Development have both urged Japan to stick to the tax increase. Joining them is Adam Posen, a long-time Japan economy watcher and president of the Peterson Institute for International Economics.  Nobel economist Paul Krugman has taken the opposite side, and he made the antitax case directly to Mr. Abe during a recent Tokyo visit.

Japan's QE-driven inequality will continue to grow --- Yesterday the Bank of Japan announced that it will be buying Japanese equity ETFs as well as property funds (REITs) to boost demand for risk assets. The BoJ has done this before but the timing of this announcement suggests a new push to accelerate monetary easing. This action was in addition to the Government Pension Investment Fund' (GPIF) recent announcement that it will increase its allocation to Japanese and foreign shares to 25% each from 12%. The yen continued to sell off as a result of this accelerated easing and is now hovering around a 7-year low.  With the support from weaker yen and the official sector's renewed demand for shares, the equity markets had one way to go. The Nikkei 225 broke through 17k - a levels we haven't seen since 2007. But while investors cheer this flood of liquidity, Japan’s lower wage workers are being left behind. Wage increases in Japan are simply not keeping up with rising import prices due to weaker yen as well as with risingr consumption taxes. And as the yen takes another leg down, many of Japan's workers, especially those who are non-union and part-time, will see their real wages decline further. Meanwhile, financial assets will be hitting new highs. Source: Natixis For those who believe that "unconventional" monetary easing widens the gap between the wealthy and the poor (and there has been plenty of debate around the topic), Japan could become a prime (and possible extreme) example of QE-driven inequality. As a further confirmation of this trend, today's report on household sentiment was worse than expected. Negative real wage growth is just not being offset by rising share valuations - especially for households that simply have not participated in the rally. With no end in sight for BoJs unprecedented monetary expansion, the nation's households are likely to face more hardships ahead.

Japan actions risk igniting currency war - Last month the Bank of Japan boosted its quantitative easing efforts to try to revive sagging growth. But it has prescribed the wrong medicine. Worse still, its misguided policy risks sparking dangerous currency wars. The yen has plunged 20 per cent against a trade-weighted basket of currencies since Prime Minister Shinzo Abe unveiled his plans to breathe life into the economy in late 2012. Since the BoJ’s unexpected announcement of extra QE on October 31, the currency is down 5 per cent against the dollar and the renminbi. Devaluation is becoming a serial habit in an economy that over the past 20 years has lost half of its global export market share. But the demise of Japan’s world-class export machine does not stem from an overvalued exchange rate. The economy has lost its edge in innovation. Industry is saddled with a bloated, obsolescent capital stock. Ageing employees swell the corporate ranks. Deflation in Japan is the symptom of this structural malaise, not its cause. If anything, falling prices have supported real consumer incomes. Deflation has also allowed the government to prop up the economy by running big deficits without the bond market punishing its profligacy with higher yields. Consumer demand in Japan is weak because too much income flows to companies and not to households. Corporate profits as a share of GDP in Japan are much higher than in the US, while companies enjoy abnormally large depreciation allowances. They are flush with cash that employees, shareholders and the taxman could put to better use. Abenomics, the prime minister’s solution to Japan’s stagnation, consists of monetary reflation, yen devaluation, fiscal stimulus and structural reforms. The latter, Abe’s “third arrow”, remains so far in its quiver, while more QE and a weaker currency do not address Japan’s core problems. As for QE, printing ever more money to buy government bonds has little chance of generating real growth without structural reforms. Nor is QE needed to ease the paydown of private sector debt, which is not excessive in Japan. The upshot is that Japan risks generating cost-push inflation but no growth, a dangerous mix. With most of Japan’s government debt owned internally, Abe’s folly would not matter much to the rest of the world if global consumer demand were not so weak. But that is not the case.

Japan Rakes in Income From Overseas, and Weak Yen Helps - In the 1980s and 1990s, Japan’s trade surpluses attracted the ire of U.S. and European companies. Now, a weaker yen is helping the nation rack up near-record surpluses of a different kind. Although Japan’s trade balance has slipped into the red, the fall in the yen is pushing up the value of Japan’s sizable overseas investments when measured in yen terms. That’s a sign Japan has shifted from an export powerhouse to an investment powerhouse, economists say. In September, Japan posted a ¥714.5 billion ($6.24 billion) trade deficit but a ¥2.04 trillion surplus in its primary income account, which measures income from investments overseas. That was the second largest primary-income surplus in a month on record and bigger than any trade surplus Japan has seen in the last two decades. Thanks to such income–which comes from sources such as interest on foreign bonds and dividends on foreign stocks–Japan posted a surprisingly large ¥963 billion current account surplus in September. The current account is the broadest measure of money flows into and out of the country. “We expect the yen to depreciate further against the dollar over the coming year, so the income surplus should climb to fresh highs,” . Mizuho Research Institute economist Kaori Yamato said it was natural that Japan would rely more on income from its overseas investments as its working population falls.

Japan economy minister says TPP agreement difficult by year-end: report (Reuters) - Japan's Economy Minister Akira Amari said on Saturday he saw progress in Asia-Pacific regional trade negotiations, although it would be difficult to reach an agreement by the end of the year, according to Jiji press. Trade ministers from the 12 nations participating in the Trans-Pacific Partnership (TPP) pact held talks on the sidelines of an annual Asia-Pacific Economic Cooperation Forum (APEC) meeting in Beijing. The regional trade pact was stalled in September, as the U.S. and Japan, the two biggest economies participating in the trade deal, blamed the other for a stalemate over tariffs on farm products. Japan wants to protect sensitive goods, including beef, pork, rice and dairy, which are important to its farming sector, while the United States seeks to protect U.S. carmakers from increased Japanese competition. The United States insists that Japan lower barriers to agricultural imports.

Korea Promotes Offshore Yuan Center -- South Korea is making big efforts to boost its trade with China, and a key part of this is increasing the use of the Chinese currency in Korea.  On Monday, the leaders of South Korea and China announced the broad brushstrokes of a trade deal, which they hope to complete in 2015. The pact will give Korean firms enhanced access to China’s consumers.China already is Korea’s largest trading partner, with two-way trade of $230 billion in 2013. And Korea runs a trade surplus with China, one of the few countries to do so.The prospect of even larger flows is giving impetus to Korea’s efforts to build an offshore trading hub in Seoul for China’s yuan currency.Many countries, following Hong Kong’s lead, want to capture more of the fast-growing market for offshore trade in yuan, which is also known as the renminbi.For Korea, the huge trade volumes with its neighbor make an offshore yuan market particularly attractive.Jung Eunbo, Korea’s deputy finance minister, said increasing the use of yuan for trade settlement will reduce transaction costs for local exporters. Currently 85% of Korea’s trade is settled in U.S. dollars. That means exporters need to sell yuan for dollars before turning them into Korean won. Mr. Jung, in an interview, acknowledged that greater use of the yuan in Korea also would reduce appreciation pressures on the won. That’s because Korea over time hopes to develop a deep offshore market for yuan-denominated bonds and other financial instruments. Then Korean exporters won’t need to convert their overseas earnings into won at all.

Korea, China agree to sign FTA: South Korea and China have "virtually" reached a free trade deal on Monday during a meeting between their leaders, a South Korean official said. South Korean President Park Geun-hye and her Chinese counterpart Xi Jinping plan to observe the signing of a free trade deal after their summit in Beijing, the official said. Still, he did not elaborate on what he meant by a virtual agreement.A successful conclusion of a free trade deal between South Korea and China could further boost discussions on economic integration in Asia and the Pacific region, Park said in an interview with China's BTV aired late Sunday. When they met in Seoul in July, Park and Xi had agreed to strengthen efforts to achieve a deal before the end of the year. China is South Korea's largest trading partner.

Battle of the Asia-Pacific FTAs --  The race is on between the US and China to dominate the rules-setting game for trade by being the first to be able to announce plans for a free trade area in the Pacific Rim. China hopes to use its position as this year’s chair of the Asia-Pacific Economic Cooperation (APEC) forum to propose a feasibility study on a Free Trade Agreement for the Asia-Pacific (FTAAP), first mooted in 2006.  In other words, negotiations towards an FTAAP that would cover more than 60 percent of the world economy would commence, for all practical purposes. But if the Trans Pacific Partnership (TPP) can be concluded, or substantial and credible progress demonstrated so that an impressive announcement can be made at the APEC meeting in Beijing in November 2014, the US would steal China’s thunder. If such an announcement is not forthcoming or not credible, China will likely announce a ‘Beijing Road Map’ for a free trade agreement (FTA) of the Pacific Rim, building on APEC rather than the TPP. Billions of dollars in trade are potentially at stake. This column argues that China and the US are pushing competing visions for free trade in Asia-Pacific. The US-led Trans-Pacific Partnership, TPP, could be challenged by a China-led ‘Beijing Road Map’ that may be announced at this week’s APEC summit. Neither vision is an end-game but merely one more stroke on an ugly picture of trade agreements characterised by an unsustainable amount of disorder and incoherence.

Xi Upstages Obama, Puts Another Nail in TransPacific Partnership Coffin - - Yves Smith --While the Administration may indeed be hopeful of using the Republican midterm success to steamroll largely Democratic party opposition, the state of play overseas is another matter. Japan is an absolutely essential participant in the TransPacific Partnership. And the US has completely mishandled the island nation. The Japanese have made clear that the US needs to stop trying to dictate terms and instead needs to negotiate. The US Trade Representative, Michael Froman, has instead taken the worst course he possibly could with the Japanese, that of repeatedly criticizing Japan in public (see here and here). In addition to being able to convince prospective trade partners that the Administration could overcome Congressional gridlock and get “fast track” authorization, Obama had planned to give a big push to the TransPacific Partnership, and his Asian agenda generally, at the APEC summit last week.  Filtering what is going on in Japan through the Western media is hugely unreliable. Even so, a story in Reuters last week, that the Japanese economics minister said it would be difficult to conclude the TransPacific Partnership by year end. “Difficult” is a third-rail word in Japanese; “impossible” is a more accurate translation.  The remarkable thing about this is that the Administration so believes its own PR that is it almost certainly incapable of admitting how it is making it easy for China to end run the US in the region, the exact opposite of what Obama’s famed “pivot to Asia” was meant to achieve. The big thing that the US had going in its favor was China’s belligerence as far as its territorial claims are concerned. That made China look reckless and dangerous enough for the US to look like the less bad hegemon. If China can manage to contain those impulses, it is positioned to score lasting gains against the US.

Why You Should Care About Obscure Asian Trade Pacts -- As the very name tells you, the Asia-Pacific Economic Cooperation (APEC) summit in Beijing this week was mostly about business. And for good reason. Cross-Pacific trade — especially between Asia and the U.S. — is what made countries like China, Japan and South Korea as rich as they are today. So all of the national leaders who attended — from U.S. President Barack Obama to Russian President Vladimir Putin to China’s President Xi Jinping — are incentivized to promote freer exchange between their economies, and as a result, much of the talk at the summit regarded pacts aimed at further reducing barriers to exports and imports.  But these days, trade has also become a tool of geopolitical strategy, and that, too, showed itself at APEC. Different Pacific powers are pushing for different trade deals. How that competition plays out in coming years will help shape the region’s political and economic future — and most of all, the role the U.S. may play in Asia for decades to come. China’s Xi is promoting a regional pact called the Free Trade Area of the Asia Pacific (FTAAP), which would build on the many overlapping free-trade agreements in East Asia. On Tuesday, he said that APEC countries “should vigorously promote” the FTAAP and “turn the vision into reality as soon as possible.” China made a bit of progress on this agenda. In their official communique, the APEC leaders pledged “to kick off and advance the process in a comprehensive and systematic manner” and set up a committee to undertake a two-year study on forming the FTAAP. Meanwhile, Washington is advocating a rival trade deal, the Trans-Pacific Partnership (TPP), a 12-nation agreement that includes countries as far-flung as Japan and Chile — but, most importantly, excludes China. The U.S. sees the TPP as a way of redirecting trade towards America, while pressuring China to eventually conform to more market-oriented trade and business practices. Obama on Monday said that he saw “momentum building” towards the completion of the TPP.

APEC Vaporware: Free Trade Area of the Asia-Pacific -- This is a quick interjection since I've already made a lengthier post on the unlikely resurrection of an APEC-based Free Trade Area of the Asia-Pacific (FTAAP) proposal originally dreamed up by the Americans that got nowhere...only to be revived by the Chinese to counter another American-led FTA initiative in APEC, the Trans-Pacific Partnership (TPP). To be sure, Beijing has scored some cheap PR points that the media has mistakenly picked up by flogging FTAAP anew: "APEC Leaders Endorse China-Led Free Trade Zone" says the Voice of America. "APEC Summit: Chinese Trade Pact Plan Backed by Leaders," the British Broadcasting Corporation chimes in. If you actually read the text of the leaders' declarations, however, the FTAAP reality is much more modest. What APEC leaders have actually said is that they will commission a study that will be done by 2016 on the prospects for an FTAAP:  Launch a collective strategic study on issues related to the realization of the FTAAP by building on and updating existing studies and past work, providing an analysis of potential economic and social benefits and costs, performing a stocktake of RTAs/FTAs in force in the region, analyzing the various pathways towards the FTAAP, assessing impacts of the “spaghetti bowl” phenomenon on economies, identifying trade and investment barriers, identifying challenges economies may face in realizing the FTAAP, and considering any recommendations based on the study’s findings.  The CTI and SOM will review progress annually, finalize the report, along with any recommendations, arrived at by consensus, and submit them to Ministers and Leaders by the end of 2016.   All the APEC honchos agreed to, then, is to ask a bunch of folks in an alphabet soup of APEC-related bodies to write some report due at the end of 2016. Big deal. There is no guarantee that they will act on the completed report, let alone begin negotiations for an FTAAP. To consider this statement on the FTAAP as a "victory" for China is stretching matters very far indeed.

Could China Deal Mark Turnaround for U.S. Trade Policy? -  It’s been an ugly year for trade policy, and the Obama administration is hoping a tariff deal with China will mark the end of a drought. In Beijing, where President Barack Obama is visiting to emphasize a rebalance toward Asia, U.S. officials announced Tuesday that they cleared a roadblock with China on eliminating tariffs for high-tech items ranging from medical imaging products to advanced semiconductors. If trade negotiators sign a final deal with China and other countries at the World Trade Organization, it would mark the end of an uncomfortable drought in trade-policy accomplishments for a Democratic president who backs lowering barriers at the border to juice economic growth, despite entrenched opposition from lawmakers in his party. Since he was confirmed as Mr. Obama’s trade czar last year, U.S. Trade Representative Mike Froman has crisscrossed the globe to negotiate everything from rice tariffs in Japan to the inviolability of French film subsidies. While Mr. Froman’s office and the Commerce Department have launched enforcement cases against China and other countries blamed for breaking trade rules, they’ve found that agreeing on new rules for trade has proven especially difficult due to determined political opposition in the U.S. and abroad.

India wins U.S. support for food scheme, ends WTO blockade (Reuters) - India won U.S. support for a massive domestic food stockpiling scheme on Thursday, rescuing the biggest global trade deal in two decades and giving new Prime Minister Narendra Modi a victory without major concessions. Under the pact with Washington, India will lift a veto on a global agreement on streamlining customs rules that is likely to add $1 trillion to the world economy as well as 21 million jobs, 18 million of them in developing countries. Modi, elected in May, had pulled the plug on the World Trade Organization (WTO) agreement four months ago because he objected to a related deal on food security. Washington, which was the principal opponent of India's food scheme on the grounds that it distorted trade, hailed Thursday's deal. Trade Representative Michael Froman said it would "give new momentum to multilateral efforts at the WTO" and predicted the Trade Facilitation Agreement (TFA) struck by the WTO last year in Bali, Indonesia, would now win quick ratification.  In talks to break the deadlock, India stressed the importance of ensuring that its 1.25 billion people, many of them poor, have enough to eat. It won an open-ended commitment from Washington to protect its food purchase and distribution scheme from any challenge under WTO disputes procedures. Yet, at a conference call to brief reporters on the deal, Froman declined to answer questions on what concessions India had given in return.

Two-Child Policy & China's 'Asian Tigerization' -- That the world's lowest fertility rates belong to Asian tiger economies belies the saying about "being a tiger in bed" to denote virility. In development studies, we are taught about the demographic transition in which large, predominantly rural families make way for small, predominantly urban families. Not only is real-estate and life in general more expensive in cities. but there is less time available to care for the young'uns. The end result is a decline in total fertility rates or the number of live births expected per woman. Apparently, the Asian tigers have taken this lesson to heart since they are at the foot of the world league tables in fertility. They have tons of money anyway, so why complain, right? The CIA World Factbook indicates that the Asian tigers plus Macau are the countries or territories with the world's lowest fertility rates:  Being so far below the replacement of 2.10 to keep a steady population size, depopulation is inevitable in these places absent mass inward migration. Which brings us to China, ranked 185th in the world at 1.55 according to the same source. Recently, Chinese apparatchiks relaxed infamous one-child policy controls on births given certain conditions such as at least one of the spouses--bastardy is relatively uncommon in China--being an only child. Somewhat surprisingly, the number of applications far undershot projectionsAround 804,000 couples applied by the end of September to have a second child, the National Health and Family Planning Commission said in a statement, dramatically short of the annual two million new births projected by health officials as a result of the policy shift announced last November. The shortfall has wide implications for China—from investment by businesses to the country’s tightening labor supply and the vitality of its economy.

Pakistan wins China investment worth $42 billion - China on Saturday promised neighbouring Pakistan investment worth $42 billion, an official said, as Islamabad promised to help Beijing fight what it calls a terrorist threat in its far-west. Pakistan's Prime Minister Nawaz Sharif oversaw the signing of 19 agreements and memorandums mostly centred on the energy sector as he met Chinese President Xi Jinping in Beijing. Pakistan, a close ally of China, suffers from chronic electricity shortages and Islamabad has long sought investment in coal-fired power stations which it sees as a solution to the problem. Other countries have balked from such investments, sometimes on environmental grounds. The new agreements pave the way for Chinese state-owned companies to help build at least four new power stations in Pakistan, while the deals also cover the supply and mining of coal, the prime minister's press office said. "The deals being signed between China and Pakistan are worth $42 billion. The whole investment is being made by China," said Amir Zamir, spokesman for Pakistan's ministry of planning and development.

Modi's Pakistan Redline; Pentagon's Afghan Report; Murder and Terror in Punjab -- Is Pentagon report on Afghanistan justified in accusing Pakistan of proxy war against India?   Why is there so much impunity for killers of minorities in Pakistan's Punjab province? How to end impunity and promote tolerance?  What was the objective of terrorists at Wagah border crossing between India and Pakistan? Could it have sparked India-Pakistan war? How to interpret US mid-term elections' impact on minorities, particularly South Asians?

Imran Khan Arrest Warrant, Modi's Absence From APEC, Robin Raphel Investigation  --Will Asma Jahangir vs Imran Khan war of words escalate? Will it lead to more insults in public discourse? Why is veteran US diplomat Robin Raphel being investigated by the FBI? Did her views considered "pro-Pakistan" contribute to her dismissal? Why was Indian Prime Minister Modi absent from APEC Summit in Beijing? What did Prime Minister Nawaz Sharif accomplish in China? How will $43 billion Chinese investment help Pakistan?  Why are some Pakistani private schools celebrating "I'm Not Malala" day in Pakistan?  ViewPoint from Overseas host Faraz Darvesh discusses these questions with Ali H Cemendtaur and Riaz Haq (

Coalition Launches World War on Youth --Yves here. I must confess to not being anywhere near as on top of Australian politics as I'd like to be, and I have a great deal of difficulty understanding the ascendancy of Liberal leader and now Prime Minister Tony Abbott, save that in a parliamentary system, who winds up on top often has more to do with infighting skills than real leadership. This post shows that the latest Abbot scheme for addressing youth un and under employment is a serious contender for Worst Neoliberal Post-Crisis Policy Evah. And recall it has QE as a competitor. So this post serves to launch a watch for Really Horrid Neoliberal Policies so we can start creating a taxonomy, which helps in making fun of them. For starters, how smart is it to throw young people under the bus in an economy that has become almost entirely a real estate one trick pony? Where is household formation going to come from, exactly? Chinese investors and Chinese-driven extraction boom have both provided a big lift to Oz over most of the last decade. Deflation across non-agricultural commodities is a strong tell that that game is past its sell-by date. One of the things I noticed briefly about Australian policies when I lived there is that they were weirdly bimodal, as in either really well thought out or terrible. This was confirmed by some Canadian policy wonks I met who said when they were looking for policy ideas from other countries, they'd look at Australia first because they were most likely to have gotten it right. The new Abbott policy suggests that capability is being destroyed.

US–China emissions deal will put pressure on Australian growth - While most of the world is celebrating the US–China pact on climate change, the deal puts pressure on the Australian government and resources companies to rethink relations with China. The deal, signed at the APEC summit in Beijing this week, includes agreement to cut emissions and work together to mitigate the impact of climate change. For the first time China has set 2030 as the year in which its emissions are expected to peak. The deal creates a common framework with the United States, the other largest greenhouse gas producer in the world, to take action. Chinese President Xi Jinping started the APEC summit hoping for blue skies in the capital. With this deal, he is showing he is prepared to take action to achieve this. For Australia this means that environmental compliance costs in China will rise. Australian companies will have additional costs of doing business there. Meanwhile Chinese companies will drive a harder bargain as their cost base lowers. Australian resource companies, which are already suffering a dip in their relations with their largest clients, will experience more of a squeeze on their profits. This will impact Australia’s overall growth rate. News of the agreement comes as India announces plans to stop thermal coal imports in three years. Australian coal companies will not even have a significant alternative export market to China.

A Strategy for Rich Countries: Absorb More Immigrants - Economic debate since the financial crisis and Great Recession has often focused on issues like monetary policy, fiscal stimulus, unemployment and financial regulation. Yes, these are all important, but in the future we will need to pay much more attention to a relatively neglected field: population economics. It’s an area that will prove central to understanding whether nations will grow richer — or will stagnate and lose global importance.  Consider that perhaps the biggest economic news of the year has gone largely unanalyzed. In an article published recently by the journal Science, Patrick Gerland, a United Nations researcher, along with co-authors, developed a radical revision of global population projections. They argued that, contrary to previous estimates, global population was unlikely to peak anytime soon.To the contrary, they see an 80 percent probability that the world’s population, now 7.2 billion, will rise to as much as 12.3 billion by 2100. One reason, they say, is that a decline of Africa’s fertility rate is proceeding at a slower pace than had been expected.   Unfortunately, regions with rapidly growing populations, like Africa and South Asia, often have lower living standards. In our likely global future, these regions will have more people than they can comfortably support, while many countries in the West and in East Asia will have too few young people for prosperous economies. As an economist, I see an obvious solution: Relatively underpopulated and highly developed countries could profitably take in young Africans and South Asians — and both sides would gain. Yet it’s far from clear that all nations that could benefit from this policy would entertain it, partly because of persistent racial and cultural bias. There is also the legitimate question of how quickly immigrants can adjust to new environments, especially if they are arriving with weak educational backgrounds as the job market demands ever-stronger skills.

Brazil sheds jobs in October as economy feels recession's pinch (Reuters) - Brazilian companies shed jobs in October for the first time in at least 15 years, revealing the delicate state of the economy ahead of potential tax hikes and government austerity. Latin America's largest economy unexpectedly trimmed 30,283 net payroll jobs in October, Labor Ministry data showed on Friday, the worst reading for the month since the data series began in 1999. The numbers point to a likely increase in the jobless rate, a potential blow to newly re-elected President Dilma Rousseff, who has pledged to shore up government finances and stem inflation without increasing unemployment. true The October job losses were widespread, but more common among builders and manufacturers. Retailers did not pick up the slack despite preparations for the holiday shopping season, hiring about half as many people as in the same month a year earlier. Labor Minister Manoel Dias blamed the October election for the surprisingly weak numbers, suggesting companies might have put off hiring plans as they waited to see who would win the country's tighest presidential race in decades. "We expect better results in November as we have news of many new building contracts and extensive hiring in construction,"

More Cuban Doctors Than Ever Defecting From Venezuela To South Florida -- How bad are things in Venezuela? Even doctors from Cuba – one of the hemisphere’s most economically deprived countries – want out of Hugo Chávez's revolution. And now we know just how many are defecting. Communist Cuba sends tens of thousands of doctors and other medical personnel to Venezuela, its key South American ally. In return, Cuba gets oil at a deep discount. That was a good deal for Cuban doctors when Venezuela’s economy was healthy. But Venezuela’s own socialist blunders have brought the country to one of its worst economic crises. Shortages of food, basic products and especially medical supplies have gotten critical even by Cuban standards. Now those doctors are bolting Venezuela through neighboring Brazil and Colombia to come to the U.S. In fact, the number of defections in the past year has more than doubled from the previous year to 700. That’s according to the Venezuelan newspaper El Universal. Solidarity Without Borders, a Miami group that helps those doctors, says almost all of them come to South Florida.

Global Economic News Coverage Shows Less Optimism in October - In another sign of the slowdown around the world, a measure of global economic conditions fell to a 15-month low in October. Even the U.S. didn’t avoid some decline in sentiment. The Absolute Strategy Research/Wall Street Journal global news flow composite index declined to 54.7 last month from 58.2 in September, according to data released Tuesday. October’s was the lowest reading since July 2013. An index above 50 denotes positive news coverage on economic topics. The index’s decline “is somewhat less supportive for equities relative to bonds,” the Absolute Strategy Research report said. All six regional areas covered by the ASR research posted declines last month, a sign of the increased media reporting on weaker demand and labor markets across the globe. China’s composite index fell to 49 in October, a sign that news coverage was more negative than positive in the world’s second-largest economy. The ASR/WSJ indexes, unveiled in September, are diffusion indexes that compare the number of positive news stories versus the number of negative stories on an economic topic. For individual-topic indexes, a reading above zero indicates more coverage is positive than negative. For the composite index, a compilation of the single-issue indexes, a reading above 50 indicates net positive economic coverage. Even the U.S., which has seemed to be bypassing problems seen elsewhere, couldn’t avoid more cautious coverage of the economy. The U.S. composite news flow index slipped to 55.8 last month from 59.7 in September and a recent high of 61.3 in July.

IMF’s Post-Crisis Austerity Call Mistaken, Watchdog Says - The verdict is in on the International Monetary Fund’s call for government austerity in the aftermath of the 2008 financial crisis: bad idea. Where the fund went awry was in its 2010 shift away from recommending government stimulus to calling for budget cuts in the biggest advanced economies, according to a report released today by the IMF’s internal watchdog, the Independent Evaluation Office. That turn was inappropriate given the global recovery’s modest pace, the report said. The findings add credence to views of critics such as Nobel economics laureate Paul Krugman, who said in 2010 that austerity was a “terrible idea” at the time. The IMF has since shifted its position, calling on countries to step up infrastructure spending at its annual meeting last month. “The recommended policy mix was not appropriate, as monetary expansion is relatively ineffective in boosting private demand following a financial crisis,” according to the report. “Also, the IMF did not sufficiently tailor its advice to countries based on their individual circumstances and access to financing when recommending either expansion or consolidation.” The policies resulted in “destabilizing spillover effects” in emerging markets including volatility in capital flows and exchange rates, and subsequent analysis including from the IMF has indicated that fiscal policy would have better boosted demand, the watchdog said.

New rules proposed to put an end to 'too big to fail' banks (Reuters) - Global regulators on Monday proposed new rules to ensure that bank creditors rather than taxpayers pick up the bill when a big lender collapses. Mark Carney, chairman of the Financial Stability Board and Bank of England governor, said the plans marked a watershed in ending banks that are too big to be allowed to fail. "Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved (wound down) without recourse to public subsidy and without disruption to the wider financial system," Carney said in a statement. true After the financial crisis in 2007-2009, governments had to spend billions of dollars of taxpayer money to rescue banks that ran into trouble and could have threatened global financial system if allowed to go under. Since then, regulators from the Group of 20 economies have been trying to find ways to prevent this happening again. The plans envisage that global banks like Goldman Sachs (GS.N) and HSBC (HSBA.L) should have a buffer of bonds or equity equivalent to at least 16 to 20 percent of their risk-weighted assets, like loans, from January 2019. These bonds would be converted to equity to help shore up a stricken bank. The banks' total buffer would include the minimum mandatory core capital requirements banks must already hold to bolster their defences against future crises.

Moody's: Global growth recovery to take two years -- Global growth is not expected to recover for the next two years, credit rating agency Moody’s said on Monday. Slow growth in China, stagnating economic performance in the Eurozone and structural problems in Brazil and South Africa are holding back growth, the agency said In a report released in its website. The slowdown in China is one of the most important factors weighing on global growth, according to the report. "The downturn in China’s property sector is underway, and the correction could be deeper and longer than currently assumed, with significant effects on the rest of the Chinese economy. A protracted period of lower growth in China would affect the rest of the world by dampening trade. These effects would unfold over several years," the report said. The agency forecast that the G-20 countries would grow around 3 percent in 2015 and 2016. However, Moody’s predicted stronger economic growth in U.S., U.K. and India. The European Union is to grow 1 percent in 2015, and less than 1.3 percent in 2016, the report said. Tightening money policy at the U.S. Federal Reserve would limit capital inflows to emerging markets like Turkey, Brazil and South Africa, and would drive inflation to higher levels in those countries.

World Economy Worst in Two Years, Europe Darkening, Deflation Lurking: Global Investor Poll - The world economy is in its worst shape in two years, with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors. A plurality of 38 percent of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession. Much of the concern is again focused on the euro area: Almost two-thirds of those polled said its economy was weakening while 89 percent saw disinflation or deflation as a greater threat there than inflation over the next year. Respondents said the European Central Bank and the region’s governments are making the situation worse by pursuing too-tight policies, and fewer expressed confidence in ECB President Mario Draghi and German Chancellor Angela Merkel.

Obama and Lagarde Head to the G-20 Facing a Shaky Global Economy ---President Barack Obama and International Monetary Fund chief Christine Lagarde arrive in China and Australia for major leaders’ summits this week with a clear directive: The world’s largest economies must do more to stimulate growth.The (politically bruised) leader of the world’s largest economy and the head of the global financial counselor honed their message coordination at a White House meeting last week ahead of the Asia-Pacific Economic Cooperation forum in Beijing and a meeting of the the Group of 20 largest economies in Brisbane. The Obama administration and the IMF are worried Europe, Japan, China and other major emerging markets aren’t doing enough to spur growth. Just as the U.S economy shows signs of gathering steam, they’re concerned that dimming overseas demand and a strong dollar will put the brakes on American growth.The eurozone faces rising risks of a third recession in five years. China is trying to balance a slowdown with the need to overhaul its economy. Japan’s central bank is being forced to goose growth with more easy-money policies because other government efforts aren’t enough to juice inflation and revive prospects. Emerging markets are facing dwindling growth outlooks, failing to live up to vows to restructure their economies. And the economic and political crises in Ukraine and the Middle East, which threaten to turn into much more dangerous regional conflagrations, are fueling investor anxieties. That leaves the U.S. doing the heavy lifting for the global economy

Russia to Launch New Payments System to Circumvent SWIFT Network -- Yves Smith -- Many observers have become unduly excited about what they depict as efforts to break the dollar hegeomony, such as the joint effort by the so-called BRCS nations to form a development bank. While having a suite of internationals funding entities, particularly ones focused on activities that in theory increase the collective benefits of relying on a reserve currency, are seen to be important, it does not follow that launching useful new funding institutions will break dollar dominance. As much as US abuse of its position as issuer of the reserve currency is correctly resented, there isn't a competitor waiting in the wings. The Eurozone has blown it with its failure to clean up even sicker banks than the US has, and by compounding a bad situation with its adherence to destructive austerity policies. China clearly has the potential to displace the US longer-term, but it is unwilling to run the requisite trade deficits, since that means exporting demand and hence jobs. And no country had made the transition from being a major exporter to being consumer-driven smoothly; a crisis or protracted malaise would also delay China displacing the US as currency top dog. But not being able to get rid of the dollar any time soon does not mean that countries that the US is trying to punish by using its influence over international payments system won't find nearer-term escape routes.

Screw SWIFT; Russia's Money Transfer of Its Own Those who've sent money through banks internationally are undoubtedly familiar with the Society for Worldwide International Financial Transfers or SWIFT. Quibble if you may with the bank charges and the process being less than instantaneous--money takes a day or two to arrive--but there is no real alternative since it's the standard being used by nearly all banks worldwide. Or, make that was the only standard being used by nearly all banks worldwide. Because of its rogue status in the West, there have been proposals to not only freeze Russian state-affiliated banks out of Western credit markets but to ban all Russian banks from using SWIFT. You know, to "Iran-iate" [the act of isolating a country, Iran-style] Russia:  Since these mooted sanctions have not really gone away, Russia has been mulling the creation of its own international fund transfer system. The latest from the Russian government-friendly RT is that this system is going to be in place by the middle of next year: My eyebrows are furrowed here: sure a propriety money transfer system among Russia financial services providers could function in the face of Western sanctions, but how does that solve the problems of obtaining financing in foreign exchange or transferring money to other banks which are not Russian? It sounds like a partial workaround to me--especially if no one else signs up to use the Russian system aside from a few sympathetic states. 

Russia braces for long economic war with the West - Russia is battening down the hatches for a long battle with the West, expecting sanctions to last until at least 2017 and admitting that capital flight has been significantly higher than previously claimed. The central bank slashed its growth forecast for next year to zero and warned of near-recession conditions until late in the decade. It said capital outflows would reach $128bn this year. The new realism ends the pretence that Russia is strong enough to weather the end of the commodity supercycle without suffering serious damage, or that Western sanctions are little more than an irritation. President Vladimir Putin had previously said the effect would dissipate within months. It comes as the ceasefire in eastern Ukraine disintegrates and international monitors (OSCE) report large incursions of heavy weapons, tanks and troops moving into the Donbass region, clearly from Russia. The White House called it a “blatant violation” of the Minsk accord agreed in September. The rouble soared 3pc despite the bad news after Mr Putin vowed to “take action” to stabilise the currency and denied any plans to impose capital controls. The rouble closed at 45.74 against the dollar, still down 32pc this year and clearly still in danger.

Russia Is Preparing For A "Catastrophic" Oil Price Collapse - Vladimir Putin told the state-run TASS news agency that Russia's economy faces a potential "catastrophic" slump in oil prices, saying, as Bloomberg reports, such a scenario is "entirely possible, and we admit it." However, Putin reassures that with reserves at more than $400 billion, the country will weather such a turn of events because "we handle our gold and currency reserves and government reserves sparingly."We’re considering all the scenarios, including the so-called catastrophic fall of prices for energy resources, which is entirely possible, and we admit it,” Mr Putin told the state-run Tass news service before attending the G20 summit. “Our reserves are big enough and they allow us to be sure that we will meet our social commitments and keep all the budgetary processes and the entire economy within a certain framework”Russia's Largest Bank Alfa Bank Plans Eurobond Issue in Dollars, Sources Say - The Moscow Times: Russia's largest private bank, Alfa Bank, is planning to issue subordinated Eurobonds in U.S. dollars, two sources close to the plans said Wednesday. Alfa Bank said in August it was planning to issue subordinated Eurobonds worth at least $500 million in September, but suggested at the time that the issue depended on market conditions.

A terrible stability -- One of the things that struck me about the EU's stress tests was the high levels of unemployment in the baseline conditions for the tests. Levels were elevated across not only the Eurozone, but the entire EU: the aggregate baseline unemployment level for the Eurozone was 12%, largely because of very high unemployment in some Eurozone periphery countries, but that for the entire EU was not far behind at 10.7%.  The baseline conditions did assume that unemployment would reduce. But the forecast was for a drop of less than one percentage point in three years: in the Eurozone it would drop to 11.3% and in the EU to 10.4%. If these baselines are at all realistic, then unemployment is a HUGE problem in the EU. The baselines came from the EU's 2014 Winter Forecast. In that forecast, the EU congratulated itself that labour market conditions had “stabilised” since the second half of 2013: In the second half of 2013, the unemployment rate remained broadly unchanged in the EU and the euro area, after being on the rise for the last five years. In December, the unemployment rate declined very timidly in the EU to 10.7% (from 10.8% in November) while it stood unchanged at 12.0 % in the euro area (after peaking at 12.1% in the summer), remaining in both areas at historically high levels.  It added that youth unemployment had also stabilised. But youth unemployment remains appallingly high at over 23% across both the Eurozone and the EU. In some countries it is much higher – over 50% in Greece and nearly as high in Spain. This is a terrible waste of human capital.

The Broken Model of the Eurozone – Ilargi -- I stumbled upon these few words in an Ambrose Evans Pritchard article the other day, and they hit me almost like some sort of epiphany, which in turn made me feel a little stupid, because it’s all so obvious. What Ambrose wrote (and this time I’m not making fun of him), was about the eurozone (EMU), of which he said: The North is competitive. The South is 20% overvalued.  And I realized that’s all you need to know about the eurozone, and about why it will fail. Or has already failed, to put it more accurately. There’s no other information required. Other than a bit of context perhaps to clarify. Before the euro, and the eurozone, countries like Greece, Spain, Italy, Portugal, would perform 20% or more lower economically than Germany or Holland would. And that was kind of alright, because periodically, their governments and central banks would revalue (devaluate) their currencies down against for instance the Deutschmark by those same 20% or so. Of course Germany hated this to an extent, since it made it harder for its industries to compete against Greek and Italian companies. Which may by the way well be a mostly hidden reason for them to push the eurozone on the Mediterranean. Devaluation still worked for many years, though, and as we presently find, it was the only thing that could have worked. Today, because they now have the same currency, and devaluation is thus impossible, and southern Europe also still underperforms the north, there’s only one possible outcome: the south keeps getting poorer all the time. It’s inevitable. Unless Greece starts outproducing the Germans, and we all start driving Hellas quality cars, but that’s not in the cards. The fatal flaw in the eurozone model is that there’s no way, no escape clause, to rectify the inherited differences between north and south. Moreover, because there isn’t, the differences must and will get bigger. There’s nothing any kind of stimulus by the ECB or EU can do about that.

ECB’s Balance-Sheet Goal Takes a Hit - The ECB’s climb to €3 trillion just got a little steeper. According to the European Central Bank’s weekly update, its balance sheet—the value of assets it holds—fell by about €22 billion last week, settling at €2.03 trillion. This came despite new purchases of covered bonds under a new plan. The reason for last week’s drop: Banks paid back far more in ECB loans than the ECB bought in assets. At his most recent press conference, held last Thursday, ECB President Mario Draghi said that the ECB expects its latest measures, including four-year bank loans and purchases of covered bonds and asset-backed securities, to push the balance sheet back to early 2012 levels. Pressed for the specific period the ECB had in mind, Mr. Draghi responded March 2012, when the balance sheet was around €3 trillion. The size of the balance sheet is a rough proxy for the level of accommodation of the central bank. As the ECB buys more assets and lends more funds to banks, its balance sheet expands. It hopes in turn that these new funds are passed on to consumers and firms, who will invest, creating economic growth and raising inflation. Both these things desperately need to happen in the eurozone, and soon. The economy is stagnating and inflation is at rock-bottom levels, coming in at only 0.4% in October, way off of the ECB’s just-below-2% target.

Catalans vote in symbolic referendum on independence in defiance of Madrid -- Residents in Spain’s north-eastern region of Catalonia cast their ballot in a symbolic referendum on Sunday in defiance of the central government in Madrid and Spain’s constitutional court. The Catalan government said that more than , 2 million residents had voted, out of an eligible 5.4 million in 1,200 polling stations. The results are expected on Monday morning. “Despite the enormous impediments, we have been able to get out the ballot boxes and vote,” the Catalan leader, Artur Mas, said on Sunday, after months of tense legal wrangling between Madrid and Barcelona forced Catalan leaders to water down their plans for a formal referendum. The result was the symbolic vote, staffed by about 41,000 volunteers who registered voters on the spot in the absence of formal electoral rolls.  After the country’s constitutional court suspended all preparations and campaigning related to the vote last week for the second time, doubt loomed over whether it would take place.

Portugal’s public debt exceeds estimate for full year in September - Portugal’s public debt in September exceeded the amount expected for the full year by almost 6 billion euros, the Technical Unit for Budgetary Support (UTAO) said Monday in Lisbon. According to the independent parliamentary support unit, citing figures from the Bank of Portugal, in late September the public debt stood at 229.15 billion. This figure represents an increase of 9.9 billion euros against the end of 2013 and “is 5.9 billion euros more than the target for the end of the year.” The UTAO also said that public debt could remain above the 60 percent set in the Budget Treaty until at least 2045 and that if average budget deficits since the creation of the euro continue, there will be an “unsustainable trajectory.” The parliamentary technical support unit also estimated that “maintaining a public deficit of around 3 percent would lead to a relatively limited debt reduction, and a value of below 110 percent of GDP will only be achieved in 2040.” “It won’t be possible to reduce public debt significantly in a context that does not change the current budget policy since joining the euro.”

Germany’s Secret Credit Addiction by Adair Turner - Project Syndicate: – With recent data showing that German exports fell 5.8% from July to August, and that industrial production shrank by 4%, it has become clear that the country’s unsustainable credit-fueled expansion is ending. But frugal Germans typically do not see it that way. After all, German household and company debt has fallen as a share of GDP for 15 years, and public debt, too, is now on a downward path. “What credit-fueled expansion?” they might ask. The answer lies in the reality of our interconnected global economy, which for decades has depended on unsustainable credit growth and now faces a severe debt overhang. Before the 2008 financial crisis hit, the ratio of private credit to GDP grew rapidly in many advanced economies – including the United States, the United Kingdom, and Spain. Those countries also ran current-account deficits, providing the demand that allowed China and Germany to enjoy export-led expansion. Credit-driven growth enabled some countries to pay down public debt. The ratio of Irish and Spanish public debt to GDP, to cite two examples, fell significantly. But the overall advanced-economy debt/GDP ratio, including public and private debt, grew from 208% in 2001 to 236% by 2008. And total global debt rose from 162% of world GDP to 175%. Credit growth fueled asset-price increases and further credit growth, in a self-reinforcing cycle that persisted until the bubble burst and confidence collapsed. Faced with falling asset prices, households and companies then attempted to deleverage. The ratio of household debt to GDP in the US has indeed fallen – by 15% since 2009. But the debt did not go away; it simply moved from the private sector to the public sector.

Germany doesn’t understand that it has a responsibility to the rest of Europe -  A funny thing happens anytime you say Germany should spend more money on its own economy. People start shrieking that it shouldn't have to keep bailing the rest of Europe out, or that it wouldn't do any good anyway. It's bizarre. Now, as far as I can tell, there are two distinct anti-spending groups: the austerity proponents, and, well, the Germans. (And no, that's not completely redundant). The first thinks that debt is always and everywhere a bad thing, even when you're using it on stuff you need — like roads, bridges, and schools. They tend to say things like, It's responsible to only spend the money you have, and not incur debt. This is the old government-as-a-household fallacy. There are plenty of times when it makes sense for a family to borrow money—like for college—to, yes, invest in its future. And that's even more true for governments, which, unlike households, can borrow for almost nothing, never have to pay back what they owe, and can print money. More sophisticated are German economists. They at least acknowledge that debt can be useful, but quickly denounce the idea that it would be useful right now. Otmar Issing, the former chief economist of the ECB, doesn't think that Germany needs any more spending since it "enjoys near-full employment," "its growth is above, or at least near potential," and "monetary policy is extremely loose." The only problem with this analysis is ... everything. In reality, Germany's economy shrank at an 0.8 percent annual pace in the second quarter, its exports and industrial production are still falling at alarming rates, and it only has 0.8 percent inflation, hardly what you'd expect if money were really too loose.

Fears of German recession as moment of truth looms: Just days before Germany's much anticipated third quarter gross domestic product (GDP) data is released, business leaders and policy makers warn that the euro zone's largest economy has lost its competitiveness and is on the brink of a recession. The chair of the German Banking Association, Juergen Fitschen, told CNBC on Monday that it was "undeniable that we have slowed down recently." "We cannot insulate ourselves against the factors that have contributed to the current state of affairs…But, also, [there is a] slow recovery in some of our neighboring countries and also a lack of demand to finance infrastructure projects in Germany itself," he said. Read MoreUBS Chairman: Don'tgive Germany the wrong diagnosis Speaking to CNBC on the sidelines of a press conference held by the association, he said: "We have to remind ourselves that we have not spared continuing efforts to renew our competitiveness and that is something that applies obviously to our neighboring countries as well," he continued.

Eurozone economy returns to growth - The eurozone’s economy expanded only slightly between the second and third quarters, keeping the pressure on policy makers to take further steps to revive a region that remains mired in stagnation. Output in the currency bloc expanded 0.2 per cent over the three months to September after failing to grow at all over the previous quarter. The official figure, published by Eurostat on Friday, narrowly beat analysts’ expectations. France’s economy grew for the first time this year during the third quarter and Germany, the eurozone’s powerhouse, narrowly avoided sliding into recession, a better outcome than many economists had feared. Figures from Italy confirmed expectations of a 0.1 per cent fall in gross domestic product in the third quarter, showing that the eurozone’s third-largest economy remains a laggard that is struggling to recover. Italian output has failed to register a quarter of growth since 2011. Other parts of the currency area’s periphery performed well, however. Greece’s economy expanded 0.7 per cent. Spain, the area’s fourth-largest economy, has already reported growth of 0.5 per cent for the quarter, making it among the strongest performing economies in the region. “There’s evidence that reforms in the periphery are starting to pay off,” said Christian Schulz, economist at Berenberg Economics. “That shows the eurozone’s response to the crisis wasn’t a complete disaster.” The sluggish performance of the single currency bloc’s three biggest economies will, however, reinforce calls for radical monetary measures from the European Central Bank, reform from Paris and Rome and for a fiscal stimulus from Berlin. The figures could strengthen the hand of Mario Draghi, ECB president, if he decides to expand his controversial €1tn plan to swell the ECB’s balance sheet to include purchases of corporate bonds and sovereign debt.

Eurozone dodges triple-dip recession but submerges in 'lost decade' -  The eurozone has averted a triple-dip recession but remains stuck in a deep structural slump, with too little momentum to create jobs or to stop a relentless rise in debt ratios. The region eked out growth of 0.2pc in the third quarter, yet Italy’s economy shrank again and has now been in contraction for over three years. Stefano Fassina, the former deputy Italian finance minister, said “Titanic Europe” is heading for a shipwreck without a radical change of course. He warned that contractionary policies are destroying the Italian economy and called on the country’s leaders to “bang their fists of the table”. He said they should threaten an “orderly break-up” of the euro unless policies change. His comments have made waves in Rome since he is a respected figure in the ruling Democratic Party of Matteo Renzi. While France rebounded by 0.3pc, the jump was due to a rise in inventories and a 0.8pc spike in public spending, mostly on health care. The previous quarter was revised down to minus 0.1pc.

Eurozone growth figures: Germany narrowly avoids triple-dip recession -- Germany and France, the eurozone’s two largest economies, have narrowly avoided recession – Germany scraping past with 0.1% growth and France recording 0.3%, mainly due to public spending. France’s growth in the third quarter came after the economy contracted 0.1% in the previous three months, revised figures showed. Germany also contracted 0.1% in the previous quarter. But Italy, the currency bloc’s number three economy, slid back into its third recession since the financial crisis struck. The eurozone as a whole beat expectations with 0.2% growth between July and September according to the EU’s statistics office, Eurostat. It represented a slight acceleration of growth, following a 0.1% increase in GDP in the second quarter.  Europe breathed a collective sigh of relief that Germany had escaped a technical recession. The second quarter was also revised up slightly to show a contraction of 0.1% in the region’s largest economy, rather than 0.2% as previously estimated, Germany’s Federal Statistics Office (Destatis) said. Many economists had feared the country would slip back into a technical recession, defined as two or more consecutive quarters of contraction, after various data suggested the economy had weakened further over the quarter.

Greece is eurozone’s top Q3 performer - After years as Europe’s economic basket case, Greece has found itself in an unfamiliar position: star performer. On Friday the country reported the eurozone’s highest economic growth in the third quarter thanks to a record summer tourist season, raising hopes it is heading for a sustained recovery after almost six years of recession. Output rose by 0.7 per cent in the three months to September, after expanding 0.4 per cent in the second quarter, according to a seasonally adjusted flash estimate by Elstat, the country’s independent statistical agency. Greece is now on track to surpass this year’s 0.6 per cent growth target, said Platon Monokroussos, chief market economist at Eurobank in Athens. “We’re convinced that full-year growth will exceed the target and could reach 1 per cent,” Mr Monokroussos said. “Confidence in the economy is returning.” The new quarterly figures, confirmed by Eurostat, the EU statistics agency, showed that Greece emerged from recession by March, three months earlier than previously thought, with output expanding by 0.8 per cent.

Italy’s Slump Enters Fourth Year, Complicating Renzi’s … Italy’s economy shrank in the third quarter pushing the nation into a fourth year of a slump that has complicated Prime Minister Matteo Renzi’s efforts to revive growth and keep public finances in check. Gross domestic product fell 0.1 percent from the previous three months, when it declined 0.2 percent, the national statistics institute Istat said in a preliminary report in Rome today. That matched the median forecast in a Bloomberg survey of 22 economists. Output was down by 0.4 percent from a year earlier. GDP in the euro region’s third-biggest economy has fallen in all but two of the last 13 quarters as the jobless rate rose to the highest on record. Renzi is relying on estimated 0.6-percent growth next year to rein in a public debt of more than 2 trillion euros ($2.50 trillion) and preserve a tax rebate to low-paid employees aimed at reviving consumer demand. The Bank of Italy said yesterday in a report that the country needs to avoid a “recessionary demand spiral” due to the “persistence of economic difficulties, which have been exceptional in terms of duration and depth.” Italians rallied in Rome last month to protest an overhaul of labor market rules tha Renzi proposed to make it easier for businesses to hire and fire workers. The premier has repeatedly said the plan is a way to attract investments and that its framework will get parliamentary approval by year’s end before being fully implemented in 2015.

Italy’s Crazy New Economy from Hell -- Wolf Richter - Italy is a country of entrepreneurs and of vibrant small enterprises. Or was. Now these businesses are dying.Of its 5.3 million companies (as of December 31, 2013), 3.3 million are small, often family-owned outfits, according to Rome-based credit information provider Cerved Group. And another 900,000 are sole proprietorships, or 17% of all companies, a larger percentage than anywhere else in the EU, ahead of France (12%), Spain (10%), and Germany (10%). The remaining 1 million companies are corporations of all sizes. And life in Italy has been exceedingly tough for small outfits.Consumer spending has dropped sharply since the onset of the crisis. Industrial production continued its downward spiral in September and is down 0.5% for the first nine months of 2014 over the same period a year ago. Unemployment is 12.6%, and rising. Youth unemployment is at a catastrophic 43%, up from an already terrible 26% in 2010.  It doesn’t help that the government refuses, and I mean refuses – due to “technical” problems, as a minister explained – to pay its long overdue bills to these already strung-out businesses. It’s a shell game to lower Italy’s overall indebtedness and thus pacify the financial markets and Italy’s masters in Brussels [Italy “Would Love To” But Can’t Pay Its Bills This Year].So this shouldn’t come as a surprise, given that the largest customer in the country, the government, refuses to pay its bills to the members of the private sector which then can’t pay their own bills: in September, non-performing loans held by Italian banks jumped 19.7% from a year ago, according to the Bank of Italy. At the same time, loans to the private sector dropped 2.3%.It’s a mess.

Italy's Grillo Rages "We Are Not At War With ISIS Or Russia, We Are At War With The ECB" -- Next week, Italy's Beppe Grillo - the leader of the Italian Five Star Movement - will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro "as soon as possible," just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, "we will leave the Euro and bring down this system of bankers, of scum." With two-thirds of Parliament apparently behind the plan, Grillo exclaims "we are dying, we need a Plan B to this Europe that has become a nightmare -  and we are implementing it," raging that "we are not at war with ISIS or Russia! We are at war with the European Central Bank," that has stripped us of our sovereignty.

Tim Geithner reveals in the raw how Europe's leaders tried to commit financial suicide - So now we know: Europe’s leaders did indeed attempt to smash Greece back into the Stone Age out of vindictive rage; conspired to withhold debt support for Italy unless the elected leader was forced out; and mismanaged the EMU crisis for three years with a level of stupidity that makes you want to weep. Timothy Geithner has revealed the details, unpleasant and alarming in equal measure. The former US Treasury Secretary hinted at some of these “short-comings” in his memoir, Stress Test: Reflections on Financial Crises. Peter Spiegel, from the Financial Times, has now obtained the raw transcripts, laced with expletives. The verdict is brutal. “I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did,” Mr Geithner said. He discovered what he was up against as early as February 2010 at a G7 gathering in the Canadian town of Iqaluit, in Frobisher Bay (of all places). By then it had already come out that Greece’s budget deficit was 12pc of GDP – not 6pc as previously claimed – and the wheels were coming off the Greek bond market. Geithner: It was a f***ing disaster in Europe. French bank stocks were down 7pc or 8pc. That was a big deal. For me it was like, you were having a classic complete carnage because of people saying: crisis in Greece, who’s exposed to Greece?  The Europeans came into that meeting basically saying: 'We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.' [That] was their basic attitude, all of them.  But the main thing is I remember saying to these guys: 'You can put your foot on the neck of those guys if that’s what you want to do. But you’ve got to make sure that you send a countervailing signal of reassurance to Europe and the world that you’re going to hold the thing together and not let it go.

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