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

Saturday, November 8, 2014

week ending Nov 8

Signs and Wonders  -  Kunstler - “Holy smokes,” Janet Yellen must have barked last week when Japan stepped up to plug the liquidity hole left by the US Federal Reserve’s final taper trot to the zero finish line of Quantitative Easing 3. The gallant samurai Haruhiko Kuroda of Japan’s central bank announced that his grateful nation had accepted the gift of inflation from the generous American people, which will allow the island nation to fall on its wakizashi and exit the dream-world of industrial modernity it has struggled through for a scant 200 years. Money-printing turns out to be the grift that keeps on giving. The US stock markets retraced all their October jitter lines, and bonds plumped up nicely in anticipation of hot so-called “money” wending its digital way from other lands to American banks. Euroland, too, accepted some gift inflation as its currency weakened. The world seems to have forgotten for a long moment that all this was rather the opposite of what America’s central bank has been purported to seek lo these several years of QE heroics — namely, a little domestic inflation of its own to simulate if not stimulate the holy grail of economic growth. Of course all that has gotten is the Potemkin stock market, a fragile, one-dimensional edifice concealing the post-industrial slum that the on-the-ground economy has become behind it. Then, as if cued by some Satanic invocation, who marched onstage but the old Maestro himself, Alan Greenspan, Fed chief from 1987 to 2007, who had seen many a sign and wonder himself during that hectic tenure, and he just flat-out called QE a flop. He stuck a cherry on top by adding that the current Fed couldn’t possibly end its ZIRP policy, either. All of which rather left America’s central bank in a black box wrapped in an enigma, shrouded by a conundrum, off-gassing hydrogen sulfide like a roadkill ‘possum. Incidentally, Greenspan told everybody to go out and buy gold — which naturally sent the price of gold spiraling down through its previous bottom into the uncharted territory of worthlessness. Gold is now the most unloved substance in the history of trade, made even uglier by the overtures of Mr. Greenspan.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--November 6, 2014: Federal Reserve statistical release H.4.1: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

What Quantitative Easing Did Not Do: Three Revealing Charts - The Fed has declared an official end to quantitative easing. It is a logical time to ask, did QE work? Danielle Kurtzleben gives the honest answer in a recent post on Vox: “It’s very, very hard to know.” Still, we do know three things that QE did not do. These are worth pointing out, especially since back when QE was just getting under way, there were people who expected that QE 2 would do all of them.

  • 1. QE did not work according to the textbook model.  One thing was never in doubt.  As the Fed added massively to its assets, QE would cause an equally massive increase in the monetary base—the sum of bank reserves and currency that accounts for the bulk of its liabilities. Some economists used to refer to the base as high powered money. It got that name from a familiar textbook model, according to which two simple ratios link the monetary base to the rest of the economy. One is the money multiplier, which is the ratio of ordinary money (M2) to the monetary base. The other is the ratio of nominal GDP to the M2 money stock, known as the velocity of circulation of money, or just velocity, for short.  When QE came along, though, and when short-term interest rates fell effectively to zero, all hell broke loose with those deceptively stable ratios. Take a look at the following chart, which shows data for the monetary base, the M2 money stock, and nominal GDP. To make it easier to compare their trends, all three series are plotted with their value as of the first quarter of 2008 is set equal to 100.
  • 2. QE did not cause inflation The sluggish reaction of nominal GDP to an increase in supposedly “high powered” money can be viewed as either a good or a bad thing, depending on your perspective. Back at the start of QE, not a few observers warned that QE would quickly lead to hyperinflation. That did not happen, and we can be glad it did not. However, it would have been nice if QE had boosted the growth of GDP by enough to bring inflation at least up to the Fed’s modest 2 percent target and, at the same time, to pull real output back to its potential and the job market back to full employment.Instead, as the next chart shows, what we got was a painfully slow recovery of the real economy. The unemployment rate is still not all the way back to the 5.25-5.75 percent range that the Fed considers “full employment.” Meanwhile, inflation, as measured by the Fed’s preferred indicator, the deflator for personal consumption expenditures, peaked three years ago. Since then it has fallen well below its 2 percent target. When it looks at these data, the Fed sees enough progress to call an end to QE, but it is not as much or as fast as many of us would have liked.
  • 3. QE was not powerful enough to overcome fiscal restraint The policy experiments of recent years have given us a test of the relative strength of monetary and fiscal policy. Expansionary monetary policy and contractionary fiscal policy have gone at it head to head, with the outcome pretty much a draw. Fiscal policy has not been restrictive enough to derail the recovery completely, but neither has quantitative easing proved powerful enough to break decisively through the fiscal restraint.Just how tight has fiscal policy been? The next chart shows the best overall indicator of the stance of fiscal policy, the structural primary balance, shown as a percentage of GDP. The structural primary balance is the deficit or surplus of the consolidated budgets of all levels of government as they would look at full employment, under current law and excluding interest on government debt. The current budget deficit—the indicator political discussions usually focus on—can be misleading, since it tends to increase automatically in a recession and decrease in an expansion even if there is no change in policy. The structural primary balance filters out cyclical effects to reveal underlying policy changes. A movement toward deficit shows added fiscal stimulus, while a movement toward surplus shows fiscal tightening.

Fed Fisher Is Copacetic With FOMC Direction, Stays Dissent Hand For Now - –Federal Reserve Bank of Dallas President Richard Fisher had been widely expected to dissent at last week’s central bank policy meeting if officials continued to pledge interest rates would stay very low for a “considerable time” to come, which they did. Mr. Fisher decided to hold his fire, however, using a speech Monday to explain why. For the veteran policymaker, it came down to changes in the official Federal Open Market Committee statement he saw as further opening the door to interest rate increases. Mr. Fisher noted he continues to believe financial markets may be expecting rate increases to come later than they actually will in an economy that is growing and increasingly seeing the sort of drivers than will contribute to higher inflation over time. “I was encouraged by the wording” Fed officials agreed on last Wednesday, Mr. Fisher said. The FOMC statement signals agreement there’s been real improvement in the job market, and that view, as well as other changes, “neutered the adjective ‘considerable’ in stating the time frame under which we might act” to raise rates, he said. Importantly, the revised statement now indicates “we might well move to raise rates sooner than thus far assumed, should the economy proceed along the trajectory I think we are on,” Mr. Fisher said. “This is why this particular hawk voted ‘yes’ in support” of the FOMC statement, he said. Mr. Fisher has long been an opponent of aggressive Fed stimulus, dissenting at the September FOMC meeting. Many had thought he would vote against the consensus again if officials continued to signal they would maintain near zero interest rates for a long time to come.

Fed’s Bullard Upbeat on Economy, Sees No Need for New Stimulus - Federal Reserve Bank of St. Louis President James Bullard said in a television interview Tuesday that he is upbeat about the economy and doesn’t think any new central bank stimulus is needed to help keep the U.S. on track for 3% growth. The Fed’s decision last week to end its bond-buying program was “probably the right judgment for that meeting,” Mr. Bullard told Fox Business Network. Mr. Bullard rattled markets and central-bank watchers going into the Fed meeting, saying in an interview that falling inflation expectations might argue for the Fed to continue its bond-buying effort for a bit longer. At the gathering, the central bank shut the program down, as many had expected. Mr. Bullard cautioned in the interview Tuesday that he said a pause in the wind-down of bond-buying was something he believed should be considered, but it wasn’t something he said should happen. He noted that when he made the comments about Fed policy, financial markets were in turmoil as investors fretted over global growth issues and inflation undershooting central bank targets across much of the world. Ahead of the Federal Open Market Committee meeting, “we certainly had markets thinking that global recession was on the horizon and, you know, if there was ever a time to be staying contingent, that’s it. And as it turns out, that kind of evaporated” and markets became refocused on the positive outlook for the U.S., which helped reduce the need for a change in course for the Fed, Mr. Bullard said. He said the Fed remains on track to consider raising interest rates “next year.”

Fed’s Lacker Tells Bloomberg Radio U.S. Can Take Rate Rises Well - Federal Reserve Bank of Richmond President Jeffrey Lacker shrugged off weak inflation readings and said the U.S. economy can easily deal with central bank interest rate increases when they arrive. In an interview on Bloomberg Radio Friday, the official said he didn’t think the risk of raising rates too early is “gigantic” for the economy. He didn’t say he would like to see short-term rates boosted off of near-zero levels soon, however, and explained the timing of interest-rate increases would be governed by the performance of the economy, which he said has been enjoying a “solid” performance. Mr. Lacker isn’t currently a voting member of the monetary policy setting Federal Open Market Committee. He was one of the first Fed officials to speak in the wake of FOMC meeting this week. At that gathering, policy makers said they expected interest rates to stay very low for a “considerable period.” But even as they pledged to maintain their very easy money policy stance for months to come, they concluded their bond-buying stimulus effort and offered a slightly more upbeat economic outlook. The meeting had one dissenting vote, from Minneapolis Fed leader Narayana Kocherlakota. He opposed the Fed’s decision because inflation remains well short of the central bank’s 2% target. In a statement released earlier Friday, the official explained his stance in greater detail.

Fed’s Kocherlakota: Raising Rates in 2015 Would Be a Mistake - The president of Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, on Wednesday repeated his view that the U.S. central bank needs to clarify its inflation goals and that any move to raise interest rates next year would likely be a mistake. Mr. Kocherlakota, speaking before a local group in Virginia, Minn., largely was reiterating views made in recent speeches. Mr. Kocherlakota cast the sole dissenting vote at last week’s monetary-policy meeting, believing the Fed actions that are preparing the way for rate rises will make it harder to achieve its 2% inflation target. Most Fed officials expect the first boost in rates from current near-zero levels will come some time next year, with key officials and many market participants predicting the move for the middle of the year. The problem for central bankers is that inflation continues to run well below the Fed’s official 2% target rate. Officials have consistently expected recovering labor markets and solid economic growth to push inflation back toward the desired level, only to see those forecasts dashed repeatedly. Mr. Kocherlakota said in his speech that changes in inflation tend to come slowly, so the weakness seen now will have a strong influence over what is to come. The “sluggish inflation outlook implies that, at any FOMC [Federal Open Market Committee] meeting held during 2015, inflation would be expected to be below 2% over the following two years.” He explained “it would be inappropriate for the FOMC to raise the target range for the fed funds rate at any such meeting,” echoing comments he’s made before. “With inflation as low as it is why is it that accommodation is being reduced? I think that’s a question that’s hard to answer,” the official said.

The decline of U.S. labor under-utilization - Business Insider write that Fed-watchers noticed that a word was missing from the most recent characterization of the labor market. Back in September, the FOMC wrote in its statement that “a range of labor market indicators suggests that there remains significant underutilization of labor resources”. On Wednesday, the FOMC upgraded its language to “underutilization of labor resources is gradually diminishing”. The exclusion of the word "significant" was no accident, and for monetary policy experts it was a signal that the labor market has improved so much that an initial interest rate hike would come sooner than later.  Brad DeLong writes that the Federal Reserve policy right now is reasonable only if the unemployment rate is taken as a sufficient statistic for the state of the labor market. Jan Hatzius writes that the explicit phrase in the FOMC statement that 'underutilization of labor resources is gradually diminishing' is factually correct, but the implicit notion that underutilization is no longer 'significant' — the term used in the July and September statement — looks inconsistent with the employment and wage data. Gavyn Davies writes that until recently the focus for was mainly on the falling participation rate as the chief reservoir of under-utilized labor, but the center of gravity of Fed thinking on this now seems to have changed towards the more hawkish view that most of this decline is structural. However, this shift is more than compensated by increasing conviction that another reservoir of under-utilized labor exists, in the form of people who are forced to work part time when they would prefer to work full time.  Mark Zandi writes that the perspective that the amount of slack is still considerable because we don’t see wage growth is challenged by recent data collected from payroll processing records for about one-fifth of all US workers, which show a definitive, broad acceleration in wage growth. The hourly wage rate for jobholders is the most telling. It is up 4.5% from a year ago in the third quarter, a strong and steady acceleration from its low two years ago.

Fed Watch: Employment Report, Yellen Speech -- The October employment report was another solid albeit not spectacular read on the labor market. Job growth remained above the 200k mark, extending the ever-so-slight acceleration over the past year: Upward revisions to the previous two months added another 31k jobs. The acceleration is a bit more evident in the year-over-year picture, albeit still modest: The unemployment rate fell to 5.8% while the labor force participation rate ticked up. The labor market picture in the context of indicators previously cited by Federal Reserve Chair Janet Yellen looks like this: Looks like steady, ongoing progress to meeting the Federal Reserve's goals that remains fairly consistent with expectations for a mid-year rate hike. Wage growth remains anemic, but as regular readers know I believe we are just entering the zone where we might expect upward pressure on wage growth: I am wondering what the Fed will do if the unemployment rate touches 5% and wage growth and inflation remain anemic? Not my baseline scenario, but I am wondering how patient they will be before moving further along the normalization process.  Speaking of policy normalization, Yellen made some interesting remarks this morning:  As employment, economic activity, and inflation rates return to normal, monetary policy will eventually need to normalize too, although the speed and timing of this normalization will likely differ across countries based on differences in the pace of recovery in domestic conditions. This normalization could lead to some heightened financial volatility. But as I have noted on other occasions, for our part, the Federal Reserve 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. More importantly, the normalization of monetary policy will be an important sign that economic conditions more generally are finally emerging from the shadow of the Great Recession.

Fed to release $600bn of treasuries into reverse repo market at year-end -- Staying with the theme of the Federal Reserve's experimentation with new policy tools, the central bank is expected to introduce a term (vs. overnight) reverse repo (RRP - see overview). This offering will be specifically targeting the year-end (the so-called "turn"of the year). The amount of term reverse repo is expected to be $300bn - effectively doubling the total RRP available.  The Fed has been surprised with the degree to which "window dressing" activities' played a role in money markets (see post). The demand for RRP at quarter-ends (paying 5 basis points on overnight money) has been higher than expected. The Fed ended up capping the overall size of the program to $300bn in order to avoid disrupting the repo markets.(note that the decline between Q2-end and Q3-end has to do with the introduction of $300bn verall cap)   The point was driven home at the end of September, when quarter-end driven demand for quality collateral resulted in over $400bn in bids. The final transaction was executed at zero rate (as opposed to the usual 5bp). Participants were willing to park quarter-end overnight cash with the Fed for free (in fact the low bid was -20bp) in order to maximize riskless assets on their reported financials.

Fed’s Rosengren Says More Public Disclosure Needed in Repo Market - Federal Reserve Bank of Boston President Eric Rosengren said Wednesday that a key market where financial firms go to meet their short-term borrowing and lending needs remains a risky sector in need of further reform. “There has not been a significant focus on public and more timely disclosure of broker-dealers’ financing activities” in short-term funding markets like the repurchase-agreement market, Mr. Rosengren said in the text of a speech to be presented in Lima, Peru. Mr. Rosengren didn’t comment on monetary policy or the economy in his prepared remarks. Mr. Rosengren has been one of the Fed’s foremost advocates for further reforms of short-term funding markets, the breakdown of which played a significant role in fueling the financial crisis. Mr. Rosengren has noted that the business of reform is incomplete, especially when it comes to the activities of financial firms that aren’t banks. These firms also had a lot to do with the financial crisis and exist largely outside the conventional safety net, so problems there can create significant issues for the financial sector as a whole. Mr. Rosengren noted in his speech that basic information about the repo sector isn’t available, which prevents participants from accurately gauging the risk held by firms they trade with. He said making more information publicly available will likely be a good step to improving conditions in those markets.

Evaluation of quantitative easing -- Last week the U.S. Federal Reserve closed a chapter on the experiment with quantitative easing, just as the Bank of Japan opened a new one. Seems like a good time to comment on some of what we’ve learned so far. The conventional way that monetary policy was used to provide more stimulus to a weak economy was to lower the short-term interest rate. The Federal Reserve brought the fed funds rate essentially to zero at the end of 2008, but the economy continued to worsen. So the Fed tried to see what it could accomplish by buying huge quantities of longer-term securities. One theory was that by taking enough of the supply of these assets out of the hands of private investors, the price might be driven up and the long-term interest rate would come down, providing some stimulus to investment and borrowing. The Federal Reserve’s large-scale purchases of long-term securities came in three distinct phases, popularly described as QE1, 2, and 3. During QE1, the Fed increased its holdings of Treasury, agency, and mortgage-backed securities from $584 B on March 11, 2009 to $2,012 B by March 24, 2010. Those holdings still stood at $2,033 B on October 27 of that year, but rose under QE2 to $2,626 by June 22 of 2011. After another pause, the Fed resumed large-scale purchases with QE3, under which its net holdings increased on average by $20B a week between November 2012 and December 2013. At that point the Fed announced its dreaded “taper”, initially a barely perceptible decrease in the rate at which the Fed would continue to add to its holdings, but which finally brought net new purchases down to zero with the Fed’s announcement last week. I’ve associated the start of the taper in the graph below with April 30 of this year, the date by which net purchases had fallen to about half the pace of 2013.

Some thoughts on QE - On Wednesday, US Federal Reserve completed a gradual “taper” of its program to exchange new base money for US government and agency debt. Two days later, the Bank of Japan unexpectedly expanded its QE program, to the dramatic approval of equity markets. I have long been of two minds regarding QE. On the one hand, I think most of the developed world has fallen into a “hard money” trap, in which we are prioritizing protection of existing nominal assets over measures that would boost real economic activity but would put the existing stock of assets at risk. My preferred policy instrument is “helicopter drops”, defined as cash transfers from the fisc or central bank to the general public, see e.g. David Beckworth, or me, or many many others. Why is QE really pretty awful, by my lights, even as it is better than the available alternatives? First, there is a question of effectiveness. Ben Bernanke famously quipped, “The problem with QE is that it works in practice, but it doesn’t work in theory.” If it worked really well in practice, you might say “who cares?” But, unsurprisingly given its theoretical nonvigor, the uncertain channels it works by seem to be subtle and second order. Under current “liquidity trap” conditions, where the money and government debt swapped during QE offer similar term-adjusted returns, a very modest stimulus (in my view) has required the Q of E to be astonishingly large. The Fed’s balance sheet is now more than five times its size when the “Great Recession” began in late 2007, yet economic activity has remained subdued throughout. I suspect activity would have been even more subdued in the absence of QE, but the current experience is hardly a testament to the technique’s awesomeness.

The zero lower bound has not been very severe - In December 2008, the Fed lowered the federal funds rate to essentially zero and has kept it there since then. This column argues that, contrary to traditional macroeconomic thinking, monetary policy has not been severely constrained by the zero bound until mid-2011. The results imply that the Fed could have done more to ease monetary policy between 2009 and 2011. These findings could also help explain why the fiscal stimulus package adopted in 2009 did not bring the expected success.

Is the Fed really losing its street cred? -- Ryan Avent posts an incisive and compelling critique of the US Federal Reserve, largely around their decision to end their quantitative easing (QE, or large-scale asset purchases) program even while their benchmark inflation rate remains consistently below its target rate of 2 percent. I disagree with the vehemence of the argument—the idea that ending the asset buys is “shortsighted and dangerous” or what he calls “the most basic argument of all: the Fed is taking a serious risk in undermining the credibility of its nominal [inflation] anchor.” Also, I think he’s wrong re fiscal policy. But it’s still smart and muscular argument, well worth reading. Avent’s argument rests of two incontrovertible points: first, the Fed, as I’ve shown in various posts, has consistently overestimated the future growth of the US economy. In this, they are not alone. These days a good economic forecaster is the one who can convincingly explain why she has consistently had to mark down her forecasts. And in fact, the Fed’s US forecasts look relatively competent compared to European counterparts. Still, Avent’s on solid ground here.   Second, and more importantly, the Fed’s benchmark inflation rate has consistently run below its 2 percent target, leading Avent to raise credibility questions: What should the central bank be doing in Avent’s opinion? Keep QE going, for one. For the Fed to be moving into tightening mode now makes little sense. As long as they’re missing their inflation target so consistently, they should keep using whatever tools they have at their disposal until they reach it.

Data Dependence and Liftoff in the Federal Funds Rate - Atlanta Fed's macroblog -- When asked "at which upcoming meeting do you think the FOMC [Federal Open Market Committee] will FIRST HIKE its target for the federal funds rate," 46 percent of the October Blue Chip Financial Forecasts panelists predicted that "liftoff" would occur at the June 2015 meeting, and 83 percent chose liftoff at one of the four scheduled meetings in the second and third quarters of next year.Of course, this result does not imply that there is an 83 percent chance of liftoff occurring in the middle two quarters of next year. Respondents to the New York Fed's most recent Primary Dealer Survey put this liftoff probability for the middle two quarters of 2015 at only 51 percent. This more relatively certain forecast horizon for mid-2015 is consistent with the "data-dependence principle" that Chair Yellen mentioned at her September 17 press conference. The idea of data dependence is captured in this excerpt from the statement following the October 28–29 FOMC meeting:[I]f incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.  If the timing of liftoff is indeed data dependent, a natural extension is to gauge the likely "liftoff reaction function." In the current zero-lower bound (ZLB) environment, researchers at the University of North Carolina and the St. Louis Fed have analyzed monetary policy using shadow fed funds rates, shown in figure 1 below, estimated by Wu and Xia (2014) and Leo Krippner.

Fed’s Kocherlakota: Expects Low Interest Rates Potentially For ‘Many’ Years - —Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Friday very low interest rates will likely persist in the U.S. for a long time to come. “I expect low interest rate policy for several (maybe many) years,” the official said in comments that came from slides prepared for the 2014 Bank of Canada Annual Conference. His presentation was largely technical in nature and went over themes the official has addressed in past remarks. The policymaker said against the current near-zero level of the Fed’s short-term interest rate target he expects the long-run level of rates to stand at about 3.25%. He added he expects the Fed to achieve its 2% price target and job goals before beginning to raise rates. Mr. Kocherlakota is a voting member of the monetary policy setting Federal Open Market Committee. He cast the sole dissenting vote at last week’s policy meeting, believing the Fed move toward the day it will raise interest rates is inconsistent with the persistence of inflation that’s well short of the Fed’s 2% price target. Most on the Fed expect that the U.S. central bank will raise interest rates next year, with the path of increases after that coming gradually. The official noted that “low interest rate policy could create the risk of financial instability.” But based on current conditions, the probability of a crisis “is too small to affect monetary policy choices materially,” Mr. Kocherlakota said.

Sisyphean Fed Struggle to Create Inflation; Faber on Gross' Deflation Theory, Japan's Bond Ponzi Scheme, and Gold - Earlier today in The Trouble with Porosity and Prosperity Bill Gross mentioned the possibility of deflation in the US and spoke of the Fed's Sisyphean struggle to create inflation.  Before the advent of central banks in the early 20th century, prices were just as likely to go up as down. The world of the 1930s and the more recent lost decades of Japan give testament. Prices change – and while they usually go up these days, sometimes they do not. We are at such a moment of uncertainty. That one or the other should be favored, is a fascinating debate. Currently, almost all central bankers have a targeted level of inflation that approaches 2%. Some even argue for higher levels now that deflationary demons approach in peripheral Euroland. They argue that the 2% level is sort of like a firebreak. Once inflation approaches zero, goes their theory, the deflationary firestorm is difficult to stop.  Best then to keep inflation at a reasonable 2% so that the zero hour never comes. They have a point, but then how to explain to the average 30-year-old citizen that if so, his/her retirement dollar will only be worth half as much come 65, and if inflation averages 3%, it will only be worth a third. Jim Grant, one of the most gifted financial historians of our day, has long argued that economies did just fine during bouts of deflation in the 18th and 19th centuries – in fact, in many cases, they did better. America in the 1880s was a period of good deflation with output rising by 2% to 3% from 1873 to 1893.  But Grant must know, I suspect, that our modern finance based economy is not your 19th century Oldsmobile, if there had been one. Stopping the printing press sounds like a great solution to the depreciation of our purchasing power but today’s printing is simply something that the global finance based economy cannot live without. 

Forecasting Inflation with Fundamentals . . . It’s Hard! – NY Fed - Controlling inflation is at the core of monetary policymaking, and central bankers would like to have access to reliable inflation forecasts to assess their progress in achieving this goal. Producing accurate inflation forecasts, however, turns out not to be a trivial exercise. This posts reviews the key challenges in inflation forecasting and discusses some recent developments that attempt to deal with these challenges.    The behavior of U.S. inflation measures has changed substantially over time. The chart below plots the inflation rates measured by the deflators for personal consumption expenditure with and without food and energy expenditures—or PCE and core PCE, respectively. Inflation rates have varied over the past five or so decades, averaging about 3 percent in the 1960s, 8 percent in the 1970s, 4 percent in the 1980s, and 2 percent since the 1990s. Essentially, the long-run trend in inflation increased during the 1970s, reaching peaks around 1974-1975 and 1980; decreased after 1982-1983; and stabilized at about 2 percent in the early 1990s, where it has remained. (See Cogley and Sargent [2005] and Cogley, Primiceri, and Sargent [2010] for reviews of past inflation behavior.)

Fed’s Lacker Says Inflation Is Low and Not a Problem -  U.S. inflation pressures remain subdued despite solid improvement in the job market, Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said Sunday. The outlook gives the central bank room to remain patient about when to begin raising interest rates, Mr. Lacker said. “Next year sometime it looks plausible that we’ll start needing to increase interest rates,” said Mr. Lacker, who will have a vote on the policy-setting Federal Open Market Committee in 2015, in an interview with Fox News Channel. “We’ll try to time that carefully given what the economy needs.” Mr. Lacker, a skeptic of the central bank’s more unconventional policies, was fairly optimistic on the economy. “Given the economic challenges we’ve faced, I think this economy has turned in an excellent performance,” he said. “This is the sixth year of our recovery, we’ve grown at about 2-1/4% at an annual rate, the unemployment rate has come down from 10% to 5.9%, and inflation is low and not a problem,” he said. “I think it’s likely to continue at about that pace and I think we’re poised for growth ahead.” Mr. Lacker said he was not too worried about signs of softer growth overseas, including places like Europe, China and Japan. “Stagnant growth abroad wouldn’t change the outlook much. We’ve been getting that for the last couple of years and seem to have managed to cope pretty well nonetheless,” he said.

Interest Rates Cannot Rise - Here's Why - What I have laid out here is a green line that represents our total debt as a percentage of GDP. The purple line is the historic 10 yr Treasury Note rate which we are using as a proxy for the average interest rate on total debt (AIR). And the blue line is the interest payment on our total debt as a percentage of GDP (again using the 10 yr rate as a proxy for average interest rate on total debt) let’s call it DSGDP. Do note that total debt as a percentage of GDP (green line) recently exceeded 100%. Also note that as the green line increases the spread between the purple and blue lines gets smaller. This is really just an algebraic principle. Historically the blue line is essentially a fixed rate (within a range) and so as the green line moves up the purple line (AIR) must move down so the DSGDP stays within the fixed range. As total debt became a higher percentage of GDP the average interest rate on debt must move down toward that 2.5% line that we’ve held for 15 years. As the total debt to GDP moves above 100% we should start to see the average interest rate on total debt (the purple line) move below 2.5% in order to keep the DSGDP around the 2.5% 15 year average. As a side, I did regress these relationships and found both statistical significance and good explanatory properties. Now even the CBO is forecasting debt to GDP to continue rising for as far as the eye can see and so there must be a negative slope on interest rates. If average interest rates on debt were to move back to let’s say the 20 yr average of 7.5% our interest payments would take up 7.5% to 10% of our GDP. And that is something we simply cannot afford. The most our average interest on total debt can move in the near term is to around 4% which would take us to the high end of the historic DSGDP range. Fortunately I suppose that would also crush what little demand is left in the economy and so there is much incentive to do so.  In 5 or 10 years time total debt will be sufficiently more than GDP that even 4% will be unsustainably high.

Q3 GDP: Continued (Sporadic) Recovery (see graphs)The BEA announced in the advance estimate that real GDP increased at a s.a.a.r. of 3.5% for 2014 Q3. The estimate is down over a percentage point from the 4.6% growth rate in the second quarter, although it is still in line with the average pace of growth during the current recovery of 2.16%. The growth in GDP was led by an increase of 1.8% in personal consumption expenditures which also cooled off from its 2.5% rate in the second quarter. Other components contributing to the increase were exports (7.8%), nonresidential fixed investment (5.5%), and both federal (10.0%) and state and local (1.3%) government spending. The increase in federal defense spending (16.0%) was the largest since 2009 Q2. Defense spending and inventories have a habit of reversing in subsequent quarters so it is not necessarily a robust improvement in the outlook. Real personal income increased at an annual rate of 3.2%, up slightly from its second quarter growth rate of 2.9%.  A day before the BEA release, the FOMC released this statement on October 29. The FOMC ended Q3, but kept the possibility that if things deteriorated they could drag it out again. The statement was guarded when talking about recent conditions (highlighted text is ours): …economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow.

Fed’s Evans Expects 3% U.S. GDP Growth Over Next 18 Months - Central bank policy makers should be wary about raising interest rates even though slack in the labor market is diminishing, a senior Federal Reserve official said Friday. Chicago Fed President Charles Evans welcomed the latest jobs data, but said a rush to raise rates from near zero was the greatest risk to the U.S. economy. Mr. Evans said he expected the U.S. economy to grow at a 3% annual pace over the next 18 months, while inflation would remain below the Fed’s 2% target. “I’m optimistic, but I want to be careful,” he said during a speech at a community banking conference. Mr. Evans said in response to audience questions that he was mindful of the risks to the U.S. recovery from instability in the Middle East and Ukraine, as well as the slowdown in China and Europe’s latest travails. He said Congress could foster growth with increased infrastructure spending and tackling regulatory uncertainty, though didn’t expect either to be a priority. Mr. Evans had earlier said he would be comfortable with inflation overshooting the 2% target for a short period. “That’s simply the flip side of our recent inflation experience,” he said.

American Voters Very Skeptical of Economy’s Strength -- Many American voters are wary of the current economic recovery, voicing concerns that an economy they find not so great won’t improve or could worsen in the next year, according to national exit poll data from Tuesday’s election.  Voter concerns about the economy’s long-term trajectory were even more severe. Roughly half of the people interviewed as they left the polls said they expected life for the next generation of Americans to be “worse than life today.”  White House officials have spent several months touting the economic recovery, noting the lengthy string of monthly job gains, two quarters of stronger-than-expected growth, and a shrinking budget deficit. The White House has tried to use these data points to draw a stark contrast between now and the state of the economy during the financial crisis. Likewise, many incumbent GOP and Democratic governors touted economic recoveries in their states. The arguments seemed to have been persuasive enough to help many governors win re-election, but a large number of Americans remain very unsettled about the state of the economy. The stock market has reached record levels, but wages remain flat or have fallen for many Americans. There are large numbers of workers in part-time or temp jobs. Those trends could help explain why more than 60% of voters polled said they felt the U.S. economic system “favors the wealthy.” Roughly four out of every five America voters were either “very worried” or “somewhat worried” about the direction of the economy in the next year, and just 22% said they were “not at all worried” or “not too worried,” the results show.

Doubting the Economic Data? Consider the Source - The economic statistics are fake. There is no real economic recovery.  That refrain was heard in 2012, when Jack Welch, the former chief executive of General Electric, claimed that a reported decline in unemployment was “unbelievable.” He added, “These Chicago guys will do anything,” referring to the Obama administration.That came just before the election, in which voters returned President Obama to the White House. On the day of the midterm elections came the news that Paul Singer, a hedge fund billionaire and top Republican donor, thinks there is a lot of faking going on now. He sees economic disaster ahead. “Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth,” Mr. Singer wrote to his investors, according to a report by Bloomberg News. I cannot recall an economic recovery that was more widely doubted than the current one. On the left, the response has often been to cite statistics indicating that benefits have largely gone to the wealthy and not spread down the economic ladder. There is something to that, but it is always true that recoveries, like recessions, are spread unevenly throughout the economy. On the right, the claim has more often been that the numbers are manipulated by the Obama administration to fool the public. Is that true? I doubt it. The idea that politicians could force government bureaucrats to fake the statistics, and do so without any leaks, is hard to believe. Such a conspiracy, if it managed to exist for long, would be a marvel of organization. But those who believe in the conspiracy theory also tend to subscribe to the theory that governments are generally incompetent and unable to do anything right. Those two beliefs do not correspond.

Secular Stagnation" Is Progress, Now Can We Talk About the Trade Deficit? - Dean Baker - Matt O'Brien has a nice piece presenting charts from Larry Summers (yes, the rest of us had made this point long ago) showing that estimates of potential GDP have dropped as the economy has remained weak since 2007. The point is that a temporary downturn can have lasting economic consequences. Unemployed workers lose skills and can become permanently unemployed. And, by having a long period of weak investment, the economy's capacity will be expanding less rapidly than would otherwise be the case. As the piece notes, this means that current obsession with deficits is not just lowering output and raising unemployment in the present, it is likely to have a lasting impact on the economy. However there is still one additional step that they must take to get the full picture. As every intro textbook tells us, Y = C+I+G+(X-M). That means the level of demand in the economy is equal to the sum of consumption, investment, government spending, and net exports. This is an accounting identity -- it is true by definition. It cannot be wrong, if you don't like it then it's your problem. The significance of this simple identity is that net exports have been a large negative since the late 1990s.  This matters hugely for the secular stagnation story because this 3.0 percent of GDP is demand that must be made up by the other components of GDP. We must either have more consumption, more investment, or more government spending, or some combination, than would normally be the case because we have a trade deficit of 3.0 percent of GDP. Again, this is accounting identity stuff, it has to be true. If you disagree, read this as many times as necessary until you understand. We don't have any good ways of substantially boosting investment.  We can't boost consumption too much without asset bubbles. The problem is that people insist on trying to save for retirement.  This leaves government spending. Unfortunately, our politicians are religiously opposed to budget deficits in the same way that many question evolution. That means we have no good way of offsetting the demand lost due to the trade deficit, end of story, game, set, and match.

A little post-election-day economic balm -- If Washington can simply manage to do absolutely nothing to the economy in the next two years, except to agree to pay already incurred debts (a/k/a lift the debt ceiling), then we are in the best position we have been in for nearly a decade for the economy by itself to improve the lot of the working and middle class appreciably. Here's why:

• there is nothing in the long leading indicators to suggest that we are going to enter an economic downturn at any point in at least the next 9 months. If interest rates continue to drift lower and housing starts improve as a result, you can extend that forecast into 2016.
• continuing economic growth means continuing positive monthly jobs reports
• so long as there is positive jobs growth, and initial jobless claims stay at or near their current levels, the unemployment rate is going to continue to decline -- and that's not just the usual rate, but all the other variations on the unemployment rate as well.
• Because the unemployment rate should remain below 6.5% for the foreseeable future, that means that nominal wage growth, which has been improving for the last 18 months, will continue to improve further - i.e., to 2.5% YoY or 3.0% YoY.
• Also, incremental tightness in the labor market is going to mean that better paying jobs become an increasing share of employment - my hypothesis is that this recovery is no different from previous recoveries, where low wage jobs get added first, and higher wage jobs get added later. Like the expansion after the deep 1982 recession, there was so much slack that it took a long time for those higher paying jobs to show up. There is evidence from the last few jobs reports that it is beginning to happen.
• Unless there is a reversal in gas prices, this is going to mean significant real wage growth to the average working family.

Q3 GDP Alert: US Trade Deficit Worse Than Expected As Exports, Goods Imports Drop -- This could be a problem for the escape velocity believers... The US trade balance printed its biggest deficit since April at -$43.0bn (missing expectations of -$40.2bn) bn. This mainly reflected a decrease in exports (but, but decoupling!?) though imports also slid.  And the detailsThe U.S. monthly international trade deficit increased in September 2014 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $40.0 billion in August (revised) to $43.0 billion in September, mainly reflecting a decrease in exports. The previously published August deficit was $40.1 billion. The goods deficit increased $2.4 billion from August to $62.7 billion in September; the services surplus decreased $0.6 billion from August to $19.6 billion in September.

Oil price drop could have perverse braking effect on economy (Reuters) - A falling oil price could hamper rather than aid economic recovery as lower export revenues for energy producers will mean fewer petrodollars propping up markets and keeping a lid on the cost of capital. Research by BNP Paribas published this week found energy exporting countries are set to pull more money out of world markets than they put in for the first time in almost two decades. true This, BNP said, amounts to less liquidity in financial markets -- effectively less money chasing assets and propping up prices which, in turn, potentially means a higher cost of capital and weaker market prices. Many investors expect this to contribute to upwards pressure on real interest rates in the United States. According to U.S. government data, members of the oil exporters club OPEC are the fourth largest foreign owner of U.S. Treasury bonds, holding $268 billion, which makes them a key pillar of demand. For a graphic showing foreign Treasury holdings, see: "Oil producers were exporters of savings. Most of that money, at least what was put in FX reserves and Sovereign Wealth Funds, went to U.S. Treasuries," said David Spegel of BNP.

U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn - Robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008, marking the sharpest turnaround in the government’s fiscal position in at least 46 years. The shortfall of $483.4 billion in the 12 months ended Sept. 30 was 2.8 percent of the nation’s gross domestic product of $17.2 trillion over the same period, according to data compiled by Bloomberg using Commerce Department figures. The figure peaked at 10.1 percent of GDP in December 2009. “That’s what happens when the government is holding itself back on spending and the economy is improving,”  “The question is, is that as good as it gets or will the deficit continue to shrink?”  The narrowing budget deficit has bought time for lawmakers to solve long-term threats to the economy such as the cost of retirement benefits. Gregory Valliere, chief political strategist for Potomac Research Group, said the fiscal relief may be short lived as austerity-weary lawmakers eventually boost spending on defense and other programs.

$400 Billion of Deficit Reduction Comes from those Savvy Traders at the New York Fed -- Economist and New York Times columnist Paul Krugman has been showering praise on the current administration for shrinking the budget deficit while scolding the press for failure to adequately report it: “where are the front-page news reports?” he writes on October 9.  The media has been duly pressed into action with Bloomberg News reporting a big headline today on its digital front page: “U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn.” But here’s a missing detail that carries a dark side: Over the past six years, $400 billion of deficit reduction has had nothing to do with Congress or the President and everything to do with those savvy traders sitting behind their Bloomberg terminals with their speed dials to Wall Street at the New York Fed. Like every other regional Federal Reserve Bank, the New York Fed, by law, hands over its surplus profits to the U.S. Treasury weekly. But as Table 7 at the attached Federal Reserve link shows, the bond holdings of the New York Fed dwarf those of any of the other 11 regional Fed banks; thus its interest income contributions to shrinking the deficit are also outsized. According to the 2013 annual report of the System Open Market Account (SOMA), the New York Fed group that carries out monetary policy on instruction from the Federal Open Market Committee (FOMC) of the Federal Reserve, here’s what has happened since 2008: That $400 billion flowing into the U.S. Treasury that has helped shrink the budget deficit has carried a hefty price tag. The Federal Reserve’s balance sheet, through bond purchases known as QE1, QE2 and QE3, has ballooned from $869 billion in August 2007 to $4.45 trillion as of October 30, 2014. How the Federal Reserve will normalize that balance sheet to pre-crisis levels is uncharted waters and carries significant risks to the markets and the economy when unwinding begins.

U.S. Treasury expects to borrow $232 bln in fourth quarter (Reuters) - The United States said on Monday it will borrow $232 billion in net marketable debt between October and December, the smallest level of borrowing for a fourth quarter since 2007 and a reflection of an improving U.S. economy. The Treasury said it expects to issue $209 billion in net marketable debt during the January-March period. The Treasury had previously forecast borrowing $169 billion in debt markets in the current quarter, but changed course due to plans to hold a larger cash balance of $200 billion at the end of the year. true The department said it would reduce its cash balance in the first quarter of next year, which is required by legislation passed early last February to suspend a legal limit on U.S. government borrowing.

The Latest Debate Over Taxing the Rich Misses One Crucial Fact - Hard work. Technology. Globalization. Skills. Grit. These are just some of the reasons used to explain why the top 1 percent has more than doubled its share of the national income in the past thirty years. Whatever the cause, progressives have historically responded to inequality by advocating higher taxes on the wealthy. Now some progressive economists are arguing that increasing taxes on the wealthy is the wrong focus for an inequality agenda: only by taxing everyone more, these economists argue, can we produce enough revenue to provide better services and stronger social insurance. This argument is put forward by several recent influential works, including Lane Kenworthy’s Social Democratic America and Edward Kleinbard’s We Are Better Than This. But while there’s a grain of truth in this argument, it reveals a fundamental misunderstanding of what taxes do. Taxes don’t just produce revenue; they are capable of restructuring how the whole economy works. That the decline in the highest tax rates has insidiously created our runaway inequality is explored in a recent paper by economists Thomas Piketty, Emmanuel Saez and Stefanie Stantcheva, who set out to investigate the relationship between tax rates and the top 1 percent in several key countries. For example, the top marginal tax rate in the United States was over 70 percent between the New Deal and the Reagan Revolution, but has been below 40 percent since then. The top tax rate in England went from 80 percent to 40 percent during the 1980s. These are also the two countries with the largest growth in inequality.

Understanding and Overcoming America's Plutocracy - Jeff Sachs -- Pity the American people for imagining that they have just elected the new Congress. In a formal way, they of course have. The public did vote. But in a substantive way, it's not true that they have chosen their government.  This was the billionaires' election, billionaires of both parties. And while the Republican and Democratic Party billionaires have some differences, what unites them is much stronger than what divides them, a few exceptions aside. Indeed, many of the richest individual and corporate donors give to both parties. The much-discussed left-right polarization is not polarization at all. The political system is actually relatively united and working very effectively for the richest of the rich. There has never been a better time for the top 1%. The stock market is soaring, profits are high, interest rates are near zero, and taxes are low. The main countervailing forces -- unions, antitrust authorities, and financial regulators -- have been clobbered.  Think of it this way. If government were turned over to the CEOs of ExxonMobil, Goldman Sachs, Bechtel, and Health Corporation of America, they would have very little to change of current policies, which already cater to the four mega-lobbies: Big Oil, Wall Street, defense contractors, and medical care giants. This week's election swing to the Republicans will likely give these lobbies the few added perks that they seek: lower corporate and personal tax rates, stronger management powers vis-à-vis labor, and even weaker environmental and financial regulation.

The Uses of Ridicule - Paul Krugman -- Matt O’Brien has a lot of fun with Paul Singer, a billionaire inflation truther who is sure that the books are cooked because of what he can see with his own eyes: … check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like Hyperinflation in the Hamptons; hard to beat that for comedy, although Matt adds value with the Billionaires Price Index. But Singer will get very angry if you make fun of him; in fact, he denounces reporting that points out how wrong he and others have been as the “Krugmanization” of the media, a term I’ll adopt with pride. It’s yet another illustration of one of the remarkable revelations of recent years, the incredibly sensitive feelings of the superrich, who are so hurt at any suggestion that great wealth does not also go with great wisdom and great virtue that they threaten to take the economy with them and go home.  But we must make fun of such people — and not just because, I admit, it’s one of the pleasures of life. Let me quote from a wonderful essay by Molly Ivins (read the whole thing): Satire is a weapon, and it can be quite cruel. It has historically been the weapon of powerless people aimed at the powerful.  Making fun of billionaires who are clueless about economics, and lack the menschood to admit their mistakes, serves a couple of functions. It reminds the audience that being rich doesn’t mean that you know what you’re talking about; it also provides other rich people some incentive to think before they speak, and maybe even do some homework before preaching to the rest of us. I’m snarky for a reason.

Frenzied Financialization -  If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector—the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities—relative to the rest of the economy. The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders. The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector’s yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits—meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn’t just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

JP Morgan Under Criminal Investigation for Foreign Exchange Trading Abuses - Yves Smith - Regulators look to be getting more serious about financial firm misconduct, as witness their new-found willingness to file criminal charges against banks. Not that has happened yet as regards JP Morgan, the US bank with far and away the biggest rap sheet of all US financial firms. But as we’ll discuss, while it is good to see regulators getting tougher with banks, this move still falls in the category of “too little, too late,” particularly since it looks to a last-ditch effort to improve departing attorney general Eric Holder’s file of media clips.  Here is an overview of the JP Morgan investigation from the Wall Street Journal: J.P. Morgan Chase & Co. said the Justice Department is conducting a criminal investigation of its foreign-exchange-related matters and bumped up a figure measuring the bank’s potential legal costs by $1.3 billion, according to a regulatory filing that the bank released Monday. The Justice Department is working alongside other regulators focusing on civil enforcement, as talks on foreign-exchange settlements heat up with several banks and regulators across the U.S. and Europe, people familiar with the matter said. J.P. Morgan, the largest U.S. bank by assets, said the investigations focus on its foreign-exchange trading activities and controls related to those activities.  JP Morgan isn’t the only bank under the hot lights. That’s not news per se. As we wrote last week, on a New York Times story about how regulators were getting peeved with bank recidivists: The second groups of cases, in which foreign banks are most prominent, is foreign exchange manipulation, which would violate previous settlement related to Libor manipulation. The miscreants flagged in the current New York Times account are Barclays and UBS; the other players under investigation are Deutsche, JP Morgan, and Citigroup. This is a straight-up Department of Justice deal, an apparent last-ditch effort to help burnish Holder’s legacy.

The New York Fed Has Contracted JPMorgan to Hold Over $1.7 Trillion of its QE Bonds Despite Two Felony Counts and Serial Charges of Crimes -  The Federal Reserve Board of Governors in Washington, D.C., which functions as the central bank of the United States, has farmed out much of its Quantitative Easing (QE) programs to the Federal Reserve Bank of New York since the financial crisis of 2008. The Federal Reserve Bank of New York has, in turn, contractually farmed out a hefty chunk of the logistics of that work to JPMorgan Chase in the last six years. Sitting quietly on the Federal Reserve Bank of New York’s web site is a vendor agreement and other documents indicating that JPMorgan Chase holds all of the Mortgage Backed Securities (MBS) that the New York Fed has purchased under its various Quantitative Easing programs. As of last Wednesday, that figure was $1.7 trillion dollars. (The New York Fed has confirmed that JPMorgan is custodian for these assets.) In addition to holding the MBS, JPMorgan also has a contractual agreement to exercise discretion (its own judgment) in trading the surplus cash that sits in the New York Fed’s cash account. While JPMorgan is restricted to holding collateral backed by U.S. government securities for these cash trades in Repurchase Agreements, its approved list of counter parties include global banks variously charged with rigging the international interest rate benchmark known as Libor, money laundering, aiding and abetting tax evasion, and defrauding clients.

The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare --She tried to stay quiet, she really did. But after eight years of keeping a heavy secret, the day came when Alayne Fleischmann couldn't take it anymore.   "It was like watching an old lady get mugged on the street," she says. "I thought, 'I can't sit by any longer.'"   Fleischmann is a tall, thin, quick-witted securities lawyer in her late thirties, with long blond hair, pale-blue eyes and an infectious sense of humor that has survived some very tough times. She's had to struggle to find work despite some striking skills and qualifications, a common symptom of a not-so-common condition called being a whistle-blower.  Fleischmann is the central witness in one of the biggest cases of white-collar crime in American history, possessing secrets that JPMorgan Chase CEO Jamie Dimon late last year paid $9 billion (not $13 billion as regularly reported – more on that later) to keep the public from hearing.  Back in 2006, as a deal manager at the gigantic bank, Fleischmann first witnessed, then tried to stop, what she describes as "massive criminal securities fraud" in the bank's mortgage operations.  Thanks to a confidentiality agreement, she's kept her mouth shut since then. "My closest family and friends don't know what I've been living with," she says. "Even my brother will only find out for the first time when he sees this interview." 

Taibbi: Ex-JP Morgan Lawyer With Smoking Gun on Mortgage Fraud Stymied by Holder Cover-Up - Yves Smith - Matt Taibbi has pulled the curtain back on an offensive and obvious bit of Obama administration bank cronyism that disappeared too quickly from public attention. Earlier this year, JP Morgan settlement negotiations over mortgage misconduct had broken down over price. When word got out that the Department of Justice had a criminal suit that it was ready to file, Jamie Dimon called the DoJ and went to Washington to negotiate a deal. The criminal case went on hold. The settlement was structured to avoid court approval. Taibbi does not mention that the Administration acted as if it had really gotten a great deal by getting what looked like a really big dollar amount, but that was achieved via sleight of hand. The total was goosed up via throwing in a boatload of other claims, the biggest of which was Fannie/Freddie putback claims that constituted $4 billion of the $9 billion in total cash value of the deal. Holder took credit for that, when in fact that suit was launched by the much-pilloried Ed DeMarco of the FHFA (Taibbi correctly points out that the $4 billion of “consumer relief” that brought the headline total to $13 billion was show for the rubes). And JP Morgan admitted to pretty much nothing. We now learn from Taibbi’s story that a whistleblower, Alayne Fleischmann, a securities lawyer who’d been hired by JP Morgan to help supervise the review of mortgages that were sold into securitizations. Shortly after she joined, the bank brought in a new manager for “diligence” who was technically senior to her. He focused on getting product out the door, no matter how toxic it was, browbeat managers who rejected clearly misrepresented loans, and implemented a “no email” policy to cover up what he was up to.

Why Matt Taibbi Thinks This Woman Is JPMorgan's "Worst Nightmare" -- In reality, there is nothing surprising in Matt Taibbi's latest piece since returning to Rolling Stone from the Intercept, as it tells a story everyone is by now is all too familiar with: a former bank employee (in this case Alayne Fleischmann) who was a worker in a bank's (in this case JPM) mortgage operations group, where she observed and engaged in what she describes as "massive criminal securities fraud" and who was fired after trying to bring the attention of those above her to said "criminal" activity. The story doesn't stop there, and as Carmen Segarra already showed, when she revealed that Goldman runs the NY Fed, once Alayne was let go and tried to "whistleblow" on the house of Jimon from the outside, she found the that US Department of Justice headed by Eric Holder is just as, if not more, corrupt, and in his desperate attempt to prevent discovery and bring JPM et al to justice, he would stretch the statue of limitations on frauds committed during the crisis long enough to where nobody had any legal recourse any more, up to and including the US taxpayer.

Matt Taibbi and Alayne Fleischmann Discuss JP Morgan Mortgage Fraud, Eric Holder CoverUp on Democracy Now - Yves Smith - Even though many readers have already read Matt Taibbi's new article on how Attorney General Eric Holder acceded to Jamie Dimon's efforts to squelch a criminal prosecution of JP Morgan's securitization of toxic mortgages, I thought it would be useful to present the Democracy Now discussion of the story, particularly since the whistleblower, Alayne Fleischmann, discusses the case in her own words. Amy Goodman also asks Tabbi late in the broadcast about his departure from First Look.

Wall Street Regulators: Whatever, We Give Up ¯\_(ツ)_/¯ - On Nov 7, Zachary Warmbrodt reported for Politico Pro (paywalled) that top lawyers at two Wall Street regulators agreed there were limits to their ability to change culture at the banks they regulate. That’s right! The Federal Reserve’s Scott Alvarez and the OCC’s Amy Friend, two of the people with the most power to change bank behavior just said, basically: ¯\_(ツ)_/¯  The comments came from two regulators who spoke at an American Bar Association’s “Banking Law Committee Meeting" at D.C.’s Ritz Carlton (the conference cost between $180-$355 to attend, though free for law students). Wambrodt quotes the General Counsel of the Fed, Scott Alvarez, first: “From our perspective, culture is not something that we feel we can regulate in the sense we put out a rule that says what a culture should be like or what the principles should be in designing culture”  This is an odd thing for Alvarez to say, given that two Fed officials (NY Fed chief William Dudley and Fed Governor Dan Tarullo) gave speeches last month pointing to ways the regulators could work to influence culture. Alvarez seemed to be trying to distance himself, and the Fed, from the comments of his colleagues, saying: "The idea of the discussion isn’t to suggest the Fed suddenly has some view on how to shape culture and what culture should be” Also present at the conference was Amy Friend, the chief counsel of the Office of the Comptroller of the Currency (another bank watchdog, that goes by “OCC” for short). According to Warmbrodt’s article, Friend agreed you can’t really regulate an “amorphous thing” like bank culture, that there is a “tone at the top that permeates,” and that the existing culture is “something that won’t go away any time soon.”

The great financial crisis: The guilty men -- WHO was to blame for the great financial crisis? How effective was the response of the authorities? And how can we stop it happening again? Those questions are at the heart of a fascinating new book of essays by prominent economists and regulators, well-worth reading by anyone with an interest in such topics, and free to download from the Hoover Institution.  Readers won't be surprised to find that the economists disagree; Larry Summers restates his secular stagnation thesis and John Taylor says his argument is "inconsistent with some important facts"; Taylor blames lax Fed policy before the crisis but Alan Blinder says any mistake was "small, forgivable under the circumstances and may not have done much harm"; Allan Meltzer blames the sluggish US recovery on the "mistaken policies and anti-business rhetoric of the administration", even though the US has recovered much faster than the rest of the developed world, profits have been at all-time highs relative to GDP, stockmarkets have also hit record highs and in the first four years of the Obama administration, the top 1% of Americans made real income gains of 31% and the bottom 99% gains of just 1%. Short of the return of serfdom, conditions could hardly have been more favourable to the business elite. So let us deal with the opening two questions (to save the post from being excessively long, the third question will be left for later). Your blogger emitted a little cheer when he read, in the very first essay by Sheila Bair and Ricardo Delfin, that Given the very long-run up in asset prices - and the cushioning provided by the Federal Reserve to downside shocks - it is not surprising that a bias towards risk-taking and an overconfidence would develop in our financial markets and institutions over time Precisely! As I have argued for several years, when central banks cut rates in 1987, 1998, and the early 2000s, investors were encouraged to believe in the Greenspan put. Those who rose to the top of the big banks like Jimmy Cayne and Dick Fuld were risk-takers who had done well out of the cycle, and who thought it would continue.

Study: Most published results in financial economics are wrong - Why does one investment outperform another? Economists and investment firms have been studying this for centuries. But it turns out many of their most recent findings may just be wrong.  In a new NBER paper, Duke University Finance Professor Campbell R. Harvey, University of Oklahoma Assistance Finance Professor Heqing Zhu, and Texas A&M Assistant Professor of Marketing Yan Liu come to the conclusion that a majority of papers in financial economics are wrong.  It means, first of all, that Harvey's colleagues in the finance field may have to change the way they do their studies. Not only that, but it would mean they will have to up the significance test standard as time goes on, as researchers test more and more factors. But the implications are far more far-reaching. For one thing, it confirms what many investors may have already suspected. "The broader insight is that some investment managers will appear to outperform — purely by luck," he says in an email to Vox.

Prepaid Card Use on the Rise Among Unbanked and Underbanked -- Last week, the FDIC released its 2013 National Survey of Unbanked and Underbanked Households. Some of the Survey's results were similar to the FDIC's 2009 and 2011 surveys. 7.7% of households were unbanked. Another 20% of households were underbanked. I took note of the Survey because its maps of unbanked and underbanked rates by state have been receiving some attention online. But what I think is more intriguing are the Survey's questions about prepaid cards. General purpose reloadable prepaid cards, though still a small segment of the consumer financial products market, have grown rapidly in past years -- from $28.6 billion in 2009 to close to $65 billion in 2012 (as previously discussed). Consistent with this growth in dollars, the Survey found that prepaid card use had increased among all households from 2009 to 2013 -- from 9.9% to 12%. More interestingly, the share of unbanked households that used prepaid cards had increased more dramatically -- from 12.2% in 2009 to 17.8% in 2011 to 27.1% in 2013. By comparison, 19.6% of underbanked households and 8.8% of fully banked households had used prepaid cards in 2013. When combined, unbanked and underbanked households comprised the majority (55%) of prepaid card users in the previous 12 months. What unbanked and underbanked households used prepaid cards for also differed from banked households. Prepaid cards could function as a substitute for bank accounts, providing the unbanked and underbanked with a safe place to receive and store money. (Caveat is that accompanying fees are understandable and "reasonable" -- see post from several years ago) And this is how unbanked and underbanked households reported using prepaid cards: for financial transactions, such as "to pay for every day purchases or bills," "to receive payments," and "to put money in a safe place." In contrast, banked households were more likely to use the cards "to send or give money" or for some other reason, and also less likely to reload the cards.

Bankruptcy Filings declined 13% in Fiscal 2014, Lowest Filings in Seven Years --From the US Court: Fiscal Year Bankruptcy Filings Lowest in Seven Years Bankruptcy cases filed in federal courts for the fiscal year 2014—the 12-month period ending September 30, 2014—totaled 963,739, down 13 percent from the 1.1 million bankruptcy filings in FY 2013, according to statistics released today by the Administrative Office of the U.S. Courts. This is the lowest number of bankruptcy filings for any 12-month period since 2007. The number of filings for the fiscal year ending Sept 2014 were the lowest since 2007. The New Loan Sharks - Before World War I, American wage earners who couldn’t make ends meet before their next paycheck relied on an insidious form of loan sharks known as salary lenders. These predators lent money at an illegal rate of interest and without collateral. They often charged annual interest rates in excess of 1,000 percent. Fast-forward one hundred years, and salary lending has expanded, but under a different name: payday lending, a wildly lucrative industry that occupies more storefronts than McDonald’s and Starbucks combined. These new loan sharks operate under the same logic as salary lenders, but specifically target more vulnerable populations like welfare recipients, and are armed with new techniques to squeeze as much surplus as possible from debtors. Payday loans are small, short-term, unsecured cash advances that are due on the borrower’s next payday (usually two weeks) or government benefit (e.g. social security or welfare check). The average profile of a payday borrower is a single mother with young children earning approximately $40,000 who lives an economically precarious life in which an additional expense — such as an illness, divorce, or seasonal financial pressures (think back-to-school supplies or Christmas expenses) — is too much. For those struggling to get by, the industry is ready to lend, at a cost. The dependence of the poor on this privately created money (aka “credit”) is neither natural nor inevitable. It is a social reality manufactured by neoliberal policies. In particular, payday lending has been facilitated by an important yet largely neglected component of neoliberal governance: the debtfare state.

Fed Survey: Banks "eased standards for construction and land development loans"  -- From the Federal Reserve: The October 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices: Regarding loans to businesses, the October survey results indicated that only a modest net fraction of banks eased their standards for commercial and industrial (C&I) loans to firms of all sizes, but generally larger net fractions of banks eased each of the pricing terms listed in the survey and some non-price terms. Banks also reported having eased standards for construction and land development loans, a category of commercial real estate (CRE) loans included in the survey. On the demand side, modest net fractions of banks reported stronger demand for C&I loans to larger firms; similar net fractions experienced stronger demand for all three categories of CRE loans covered in the survey. ...Regarding loans to households, some large banks reported having eased standards on closed-end mortgage loans, but respondents generally indicated little change in standards and terms for other types of loans to households. Reported changes in loan demand were mixed. Moderate net fractions of banks reported stronger demand for auto loans and weaker demand for nontraditional closed-end mortgage loans. Demand for other types of loans to households was about unchanged at most banks.

Fed’s Tarullo Calls on Congress to Raise Threshold for Small Banks Financing Acquisitions With Debt -  Federal Reserve governor Daniel Tarullo called on Congress to make a series of legislative changes that would ease the regulatory burden for community banks. Mr. Tarullo, the Fed’s regulatory czar, reiterated his call for lawmakers to pass legislation that would exempt community banks from two elements of the 2010 Dodd-Frank law: the so-called Volcker Rule, designed to rein in banks’ risky trading activities, and the still-unfinished incentive compensation rules, which apply to all bank holding companies with $1 billion in assets or more. In a speech in Chicago Friday, he added to the list a request that Congress raise the asset size threshold for community bank holding companies using debt when financing an acquisition. The current threshold as set out in the Fed’s Small Bank Holding Company Policy Statement is $500 million in total assets. Mr. Tarullo proposed raising it to cover banks with $1 billion or less in assets, which would cover 89% of all U.S. bank holding companies, he said. Raising the threshold would allow those banks to use more debt to finance acquisitions than they are currently allowed under the existing policy. The policy was created to help maintain local ownership of community banks, and it also exempts covered banks from having to meet certain hefty reporting requirements and from having to meet regulatory capital minimums at the parent company level.

Unofficial Problem Bank list declines to 422 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Oct 31, 2014.  Changes and comments from surferdude808:  As expected, the FDIC provided an update on its enforcement action activities. Their disclosure has to be the shortest list of new actions and terminations since the on-set of the Great Recession. In all, there were three removals and two additions to the Unofficial Problem Bank List this week. After the changes, the list holds 422 institutions with assets of $133.5 billion. For the month of October, the list declined by a net 10 institutions after eight action terminations, three mergers, two failures, and three additions.The FDIC terminated actions against Decatur State Bank, Decatur, AR ($144 million); Lone Star Bank, Houston, TX ($106 million); and The Bank of Kaukauna, Kaukauna, WI ($84 million).New to the list is Polonia Bank, Huntingdon Valley, PA ($300 million Ticker PBCP) and Proficio Bank, Cottonwood Heights, UT ($199 million).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 422.

Lawler: Fannie, Freddie in Q3 - From housing economist Tom Lawler: Fannie Mae reported that GAAP net income in the quarter ended September 30, 2014 was $3.9 billion, while “comprehensive income” was $4.0 billion. As a result, in December Fannie Mae will make a dividend payment to the US Treasury of $4.0 billion, bringing total dividend payments to $134.5 billion, compared to $116.1 billion in previous “draws” from the Treasury. Dividend payments do not reduce the Treasury’s senior preferred stock balance. Freddie Mac reported that GAAP net income in the quarter ended September 30, 2014 was $2.0 billion, while “comprehensive income” was $2.8 billion. As a result, in December Freddie Mac will make a dividend payment to the US Treasury of $2.8 billion, bringing total dividend payments to $91.0 billion, compared to $71.3 billion in previous “draws” from the Treasury. Dividend payments do not reduce the Treasury’s senior preferred stock balance.  Fannie’s average charged Gfee on new SF acquisitions last quarter was 63.5 bp, up from 25.7 bp in 2010. Freddie’s average charged Gfee on new SF acquisitions last quarter was 57.2 bp, up from 25 bp in 2010. Freddie’s regulator instructed the GSEs to raise base fees several times over the last four or so years. In addition, pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, both Fannie and Freddie increased their guaranty fee on all SF residential mortgages delivered to them on of after April 1, 2012 by 10 basis points, with the incremental revenue being remitted to Treasury.

Black Knight releases Mortgage Monitor for September -- Black Knight Financial Services (BKFS) released their Mortgage Monitor report for September today. According to BKFS, 5.67% of mortgages were delinquent in September, down from 5.90% in August. BKFS reported that 1.76% of mortgages were in the foreclosure process, down from 2.63% in September 2013. This gives a total of 7.43% delinquent or in foreclosure. It breaks down as:
• 1,760,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,118,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 893,000 loans in foreclosure process.
For a total of ​​3,711,000 loans delinquent or in foreclosure in September. This is down from 4,593,000 in September 2013.This graph shows the percent of borrowers and the amount of equity. Black Knight notes: "Only 8 percent of borrowers remain “underwater” on their mortgages, down from a level of 33 percent at the end of 2011, and to the lowest point since 2007"  More from Black Knight:  “Before the most recent reductions in the average 30-year mortgage interest rate, approximately six million borrowers met broad-based ‘refinancibility’ criteria,” said Barnes. “These criteria assume loan-to-value ratios of 80 percent or below, good credit, non-delinquent loan status and current interest rates high enough that borrowers have an incentive to refinance. In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million – almost a 25 percent increase. This is a relatively conservative assessment though, as those with current rates of 4.25 to 4.5 percent could arguably benefit from refinancing as well. That group adds another 1.7 million borrowers to the population.

Fannie Mae: Mortgage Serious Delinquency rate declined in September, Lowest since October 2008 - Fannie Mae reported yesterday that the Single-Family Serious Delinquency rate declined in September to 1.96% from 1.99% in August. The serious delinquency rate is down from 2.55% in September 2013, and this is the lowest level since October 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 1.96% from 1.98% in August. Freddie's rate is down from 2.58% in September 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".The Fannie Mae serious delinquency rate has fallen 0.59 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in 2016 - although the rate of decline has slowed recently.

Many Households Remain Underwater on Their Mortgages - St. Louis Fed - Default on mortgage debt played an important role in the recent financial crisis. Research at the Federal Reserve Bank of St. Louis shows that the decline in house prices was the fundamental driving force behind the increase in defaults. After the decline in house prices, many households owned homes worth less than their mortgage. (That is, they had negative home equity.) In general, while only a small fraction of households with negative equity actually default on their mortgages, negative equity is a necessary condition for default. Otherwise, households would sell their houses, pay back their mortgages and keep any remaining funds. The Federal Reserve Board of Governors collects data every three years regarding family incomes, net worth, balance sheet components, credit use and other financial outcomes. We used the recently released 2013 Survey of Consumer Finances to compute the percent of households with higher risk of default:

  • Those underwater (or those with negative home equity)
  • Those with home equity smaller than 10 percent of the value of the house.1

Since the values of the houses included in the survey are self-reported, the numbers should be interpreted carefully, because households living in their houses for long time may not have a good estimate of their house’s value.

Mortgage bond issuance the lowest since 2000 - The availability of residential mortgage bonds in the United States has been shrinking. Private mortgage securitization markets are nonexistent since the financial crisis and the GSEs are not generating enough new supply. The reason of course is the lack of mortgage loan growth in the US. While corporate, consumer, and commercial real estate loan balances are rising, residential loans have stalled. On the supply side here are some reasons for the weakness in mortgage loan origination:Scotiabank: - ... banks have been more stringent with lending standards since they were forced to buy back soured mortgages from Fannie Mae and Freddie Mac [putbacks] which led to significant losses in 2012 and 2013. Then, last year, Fannie Mae Fannie Mae stopped guaranteeing mortgages with down payments of 3% or less. Plus, in early January, the Consumer Financial Protection Bureau implemented its Ability-to-Repay and Qualified Mortgage Standards rules [see post] which tightened regulation surrounding mortgage securitization. In a special section of the Federal Reserve’s July Senior Loan Officer Survey, 36% of respondents said their approval rate was lower than it would be without the rule for those with lower credit scores (less than 680), and 31% of respondents replied that it was lower for those with higher credit scores (greater than 680). Add to that the recent increases in FHA mortgage insurance premiums (needed to replenish the FHA reserves - discussed here) for high LTV loans. Many potential first-time buyers with no ability to come up with sufficient down payment are shut out of the market.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey  Mortgage applications decreased 2.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 31, 2014. ...The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.17 percent from 4.13 percent, with points increasing to 0.22 from 0.21 (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 70% from the levels in May 2013. Even with the recent slight 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 13% from a year ago.

CoreLogic: House Prices up 5.6% Year-over-year in September - Notes: This CoreLogic House Price Index report is for September. The recent Case-Shiller index release was for August. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rose by 5.6 Percent Year Over Year in September 2014 Home prices nationwide, including distressed sales, increased 5.6 percent in September 2014 compared to September 2013. This change represents 31 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, dropped by 0.1 percent in September 2014 compared to August 2014...Excluding distressed sales, home prices nationally increased 5.2 percent in September 2014 compared to September 2013 and 0.1 percent month over month compared to August 2014. Also excluding distressed sales, 49 states and the District of Columbia showed year-over-year home price appreciation in August, with Mississippi being the only state to experience a year-over-year decline (-0.9 percent). Distressed sales include short sales and real estate owned (REO) transactions. ...This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was down 0.1% in September, and is up 5.6% over the last year. This index is not seasonally adjusted, and - as I predicted last month - the index turned slightly negative month-to-month in September (this is the beginning of the seasonally weak period for house prices). The second graph is from CoreLogic. The year-over-year comparison has been positive for thirty one consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

Trulia: Asking House Prices up 6.4% year-over-year in October --From Trulia chief economist Jed Kolko: What Home Price Slowdown? Some Markets Buck the Trend Nationally, the month-over-month increase in asking home prices rose to 1.0% in October. Year-over-year, asking prices rose 6.4%, down from the 10.6% year-over-year increase in October 2013. Asking prices rose year-over-year in 91 of the 100 largest U.S. metros. Nationally, year-over-year price gains have slowed from a year ago. In some markets, this price slowdown has been precipitous. In the most extreme case, Las Vegas prices rose 10.1% in October 2014 versus 31.9% in October 2013, a drop of 21.8 percentage points. Price gains have slowed by almost 20 percentage points in both Northern California (Sacramento, Oakland) and Southern California (Riverside-San Bernardino, San Diego) markets. Among the 10 markets with the largest price slowdowns, only one – Warren-Troy-Farmington Hills, next to Detroit – is outside California or the Southwest. Nationally, price gains have slowed in 60 of the 100 largest metros, although prices are actually falling year-over-year in only nine metros. Nationally, rents rose 6.2% year-over-year in October. But in the markets where renters are stretched thinnest, rents are rising even faster. In Miami, Los Angeles, and New York, the median rent on a 2-bedroom unit equals more than half of the average monthly wage, and it’s nearly that much in Oakland and San Francisco. In all five of these least-affordable markets, rents rose 7.8% or more year-over-year. Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases have slowed, the month-to-month increase suggests further house price increases over the next few months on a seasonally adjusted basis. There is much more in the article.

Lawler on NAR 2014 Profile of Home Buyers and Sellers - The National Association of Realtors released the results of its 2014 Profile of Home Buyers and Sellers, which are based on a survey of buyers who purchased a home between July 2013 and June 2014. The survey is sent to the address of the home purchased, and the virtually all respondents purchased a home for their primary residence. Thus, characteristics of buyers from the survey reflect characteristics of primary residence purchases, and not all home purchases. According to the 2014 survey, the first-time home buyer share of primary residence home purchases over the 12 month period ending June 2014 was 33%, down from 38% a year earlier and the lowest share since the NAR has attempted to measure the share. The first-time buyer share from this survey includes both new and existing homes. As noted above, the first-time buyer share from the Profile of Home Buyers and Sellers is an estimate of the first-time buyer share of primary residence purchases. The first-time buyer share reported in the NAR’s monthly existing home sales press release, in contrast, is an estimate of the first-time buyer share of total existing home sales, and is based on the buyer characteristics of the last home transaction in a given month of realtors who respond to the survey. When folks say that the “normal” first-time home buyer share is around 40%, they either are or should be referring to the first-time buyer share of homes sold to buyers of their primary residences. Obviously, the “normal” first-time buyer share of total home sales is lower, though it is not clear by how much, because there are no good, reliable data on the investor/second home share of total home sales.

Wolf Richter: After Messing up the Housing Market, the “Smart Money” Bails Out -- Wall Street money entered the housing market gingerly in 2010 and 2011, then piled helter-skelter into select metro areas over the next two years, grabbing vacant single-family homes out of foreclosure with the goal of first renting them out, then selling to yield-desperate investors and unsuspecting mutual-fund holders their latest toxic concoction: rent-backed structured securities that are even worse than the mortgage-backed structured securities that helped take down the financial system only a few years ago.  It worked. Each wave of buying ratcheted up prices via the multiplier effect, not only in the neighborhood but beyond. It created instant and juicy paper gains on all prior purchases. In this way, the same companies, now mega-landlords, were able to push up the value of their own holdings with new waves of purchases. It was a wonderful game while it lasted. And it was funded with nearly free money the Fed graciously made available to the largest players. Housing Bubble 2 came into full bloom.But these billions of dollars being pumped into the housing market had the effect of pushing prices out of reach for many potential homeowners who’d actually live in these homes. And first-time buyers, the bedrock of the housing market? Well, forget it. Their share of purchases dropped to 33%, the lowest since 1987.  These inflated prices had another effect: the buy-to-rent business model collapsed. Rents were rising, but people are strung out, and so rents couldn’t rise fast enough to keep up with soaring home prices. At some point, depending on the dynamics of the metro area, the buy-to-rent equation stopped working. And now institutional investors have massively thrown in the towel:  Sales to institutional investors in the third quarter plunged to 4.3% of all sales, RealtyTrac reported. It was the lowest level since Q4 2010. The big unwind.This is how the “smart money,” coddled by the Fed and encouraged to do just these sorts of things, has reacted to the recent home prices that it so strenuously inflated: It bailed out.

First-time buyers' share of home sales hits 27-year low - - The share of homes sold to first-time buyers dropped to 33% in 2014 -- the slimmest portion in 27 years -- down five percentage points from 2013, the National Association of Realtors reported Monday. First-time buyers have been playing a weak role in the housing market's rebound, making it tougher for other families to move into a new place. Historically, first-time buyers' share of home sales is closer to 40%. Rising housing costs and strict mortgage standards are making it tough for young families and other first-time buyers to jump into the market, analysts say. "Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years," said Lawrence Yun, NAR's chief economist.

Inside San Francisco's housing crisis — Vox: On a typical day, St. Anthony's, a soup kitchen in San Francisco, serves up to 2,400 meals. Though the city is in the midst of an economic boom, the line for the dining room is often so long that guests have to wait in a nearby auditorium. The people coming through St. Anthony's are increasingly diverse. When the soup kitchen first started serving free meals in the 1950s, most of the clientele consisted of middle-aged white men, many of whom were recovering from experiences sustained during the Great Depression and World War II. Today, people young and old of all ethnicities stand in the dining room line. Some carry iPods and smartphones, others come in suits. There are moments throughout the day where the dining room resembles a shopping mall food court — the only giveaway is that everyone has the same tray of food.  Many of the people who come through St. Anthony's for a meal have jobs, but the minimum wage doesn't allow them to pay for rent in San Francisco and still be able to afford food. Some work full-time but are homeless because they can't find affordable housing in the city.

Why Housing Is Dead: First-Time Buyers Collapse To 27-Year Lows -- The Millennials (one of the biggest generations in US history) are just not getting with the status quo program. As we detailed previously, with lower credit scores, less disposable income, and a soaring number of people living with their parents; so it should be no surprise that The National Association of Realtors (NAR) today admitted that first-time homebuyers plunged to the lowest level in 27 years. The blame - of course - rather than low/no-growth fiscal policies, student debt servitude, and inequality-driving cheap-funding monetary policy, is price comnpettion from 'investors' and too "stringent credit standards," perfectly mirroring FHFA's Mel Watt's Einsteinian insanity desire to dramatically ease lending standards and slash minimum down-payments (as we noted previously). Perhaps NAR accidentally stumbles on the biggest reason no one is buying in their profiling: the typical first-time buyer was 31-years-old, while the typical repeat buyer was 53 - smack in the middle of the Millennial collapse.

Living with roommates, parents way up in Philadelphia area --The percentage of Americans living with friends, family or roommates is up sharply this century, according to Zillow, an online real estate database. The analysis focuses on what it calls “doubled-up households ... in which at least two working-age (23-65), unmarried or un-partnered adults live together,” according to Zillow’s news release.  Think roommates, people staying with friends, and children living with parents, not people in romantic relationships or ailing retirees cared for by their aging kids.Nationwide, the percentage of doubled-up households rose from 25.4 percent in 2000 to 32 percent in 2012, led by metropolitan areas where housing costs have risen faster than income, primarily in California and Florida.The Top 5 in terms of percentage, as of 2012:

  • Los Angeles, 47.9 percent.
  • San Jose, 39.4 percent.
  • New York, 42.4 percent.
  • San Francisco, 39.2 percent.
  • Miami-Fort Lauderdale, 44.5 percent.

Out of 32 U.S. cities, only two – Kansas City and Minneapolis-St. Paul – fell short of having doubled-up households account for a quarter of all households, and they were close, with 24.2 percent each. Among Northeast cities, Philadelphia has seen the highest rate of increase, from 27.9 percent of households to 35.2 (No. 13 nationally), a rise of more than 26 percent.

NAHB: Builder Confidence improves for the 55+ Housing Market in Q3 - This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008 (during the housing bust), so the readings were initially very low.  Note that this index is Not Seasonally Adjusted (NSA), From the NAHB: Builders Gain Confidence in the 55+ Housing Market Builder confidence in the 55+ housing market was up again in the third quarter, according to the latest release of NAHB’s 55+ Housing Market Index (55+HMI). The 55+ HMI release contains separate indices for single-family homes and multifamily condominiums. Each is a weighted average of three components: present sales, expected sales, and traffic. The numbers are not seasonally adjusted, so they should only be compared year over year. On that basis, both were up in the third quarter. The single-family 55+ HMI jumped nine points from the third quarter of 2013, to 59—the highest third-quarter reading since the inception of the index in 2008 and the 12th consecutive quarter of year over year improvements. All three components posted year-over-year increases: present sales jumped 13 points to 65, expected sales for the next six months climbed 10 points to 63 and traffic of prospective buyers rose three points to 46.

Construction Spending decreased 0.4% in September - Earlier the Census Bureau reported that overall construction spending decreased in September:  The U.S. Census Bureau of the Department of Commerce announced today that construction spending during September 2014 was estimated at a seasonally adjusted annual rate of $950.9 billion, 0.4 percent below the revised August estimate of $955.2 billion.. The September figure is 2.9 percent (±2.1%) above the September 2013 estimate of $924.2 billion. Both private and public spending decreased in September: Spending on private construction was at a seasonally adjusted annual rate of $680.0 billion, 0.1 percent below the revised August estimate of $680.8 billion. Residential construction was at a seasonally adjusted annual rate of $349.1 billion in September, 0.4 percent above the revised August estimate of $347.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $331.0 billion in September, 0.6 percent below the revised August estimate of $333.0 billion. ... In September, the estimated seasonally adjusted annual rate of public construction spending was $270.9 billion, 1.3 percent below the revised August estimate of $274.4 billion. Non-residential for offices and hotels is increasing, but spending for oil and gas is declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

Update: Framing Lumber Prices down Year-over-year - Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs. The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).  Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand), however prices didn't fall as sharply either. This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures. Right now Random Lengths prices are down about 5% from a year ago, and CME futures are down 12% year-over-year.

The Magic Of CPI: Watch How Economists Transform A 400% Price Increase Into A 7.1% Decline -- Suppose that a TV manufacturer retires a product and replaces it with a newer, better, and much more expensive one. If the new TV costs 5 times more than the old one, how can we manipulate the hell out of massage the price of the old TV to make it look like the price fell? By using the dark arts of econometrics, my son!  If you believe the public comments made by the world’s central bankers, the prices that consumers pay for items are not rising fast enough; in some places like Europe they worry that prices might actually fall (a tragedy for the possessing classes, as their manic one-way long bets might not work then). Central bankers are terrified of this outcome. Setting aside for a second the apparent insanity of this logic for your average consumer, who experiences price rises on a near continuous basis, let’s examine in detail one of the jokes gauges economists use for measuring prices: the Consumer Price Index (CPI).  The main problem here is that the “prices” used are not the prices a consumer would actually pay; instead the real price for an item is scaled by what the BLS calls a “Hedonic Quality Adjustment (HQA)”. The HQA was designed to solve a real world problem economists face: the market keeps pumping out new and better devices. In practice the HQA is used to artificially depress the prices used in the calculation of the CPI. This means that as far as the CPI is concerned, prices can “decrease” for three reasons:

  • The price actually decreases, holding quality constant
  • The “quality” as measured by the Hedonic Quality Regression (HQR) could go up, holding price constant
  • The “quality” goes up by more than prices go up.

U.S. Consumer Credit Growth Picked Up in September -- Americans took on more debt in September, but sluggish growth in credit-card balances reflected weak consumer spending during the month. Total outstanding consumer credit, excluding mortgages and other loans secured by real estate, rose in September at a seasonally adjusted annual rate of 5.9% to $3.267 trillion, the Federal Reserve said Friday. That was up from August’s 5.2% growth pace, revised from an earlier estimate of 5% growth. Outstanding credit increased $15.92 billion from August. Economists surveyed by The Wall Street Journal had predicted a smaller increase of $15.7 billion. Credit-card debt rebounded after declining slightly in August. Total outstanding revolving credit, mostly credit-card debt, rose at a 2% pace in September to $881.76 billion. The category declined at a 0.3% pace in August after jumping at a 7.4% pace in July.  Total outstanding nonrevolving credit, including auto and student loans, rose at a 7.3% pace from August to $2.385 trillion. Nonrevolving credit increased at a 7.9% annual rate in the third quarter, while revolving credit grew at a more sluggish 3% pace. Overall, credit increased at a 6.6% pace during the three months ended September, matching the first quarter’s pace and down from an 8.2% growth rate in the second quarter. Sluggish growth in revolving credit during September jibes with weak consumer spending during the month. Household spending fell 0.2% from the prior month, according to the Commerce Department, and retail sales fell 0.3% in September.

Student And Car Loans Go Exponential, Courtesy Of Uncle Sam -- Another month, another $14.5 billion increase in student and car loans, offset by a measly $1.4 billion in credit card debt, following last month's upward revised $200 million drop in revolving debt. Total consumer debt in September increase by $15.9 billion, just below the $16.0 billion estimate, and the problem is that with the Fed's credit injection fading, someone has to step on the borrowing pedal. Alas, if one takes away student and car loans, the credit creation is not nearly enough to push US consumption higher. In any event, the most amusing chart is the following. It simply screams sustainable.

Consumers wasted at least $300 million paying for AT&T’s ‘unlimited’ data - By now, you've probably heard that the Federal Trade Commission is suing AT&T for how it treats its unlimited data customers. Despite paying for an unlimited plan, these subscribers had their mobile Internet slowed to dial-up speeds, or "throttled," once AT&T decided they had surfed the Web too much. If that sounds nonsensical to you, you're not alone: Tens of thousands of consumers have complained about the practice, saying "unlimited" should mean just that — without limits. Just how big a deal is this? At the very least, we're talking about hundreds of millions of dollars in potential losses to consumers. Although federal regulators haven't disclosed how much they're seeking in damages from AT&T, we can do some math to put a rough dollar value on AT&T's throttling practices. I asked a number of economists, antitrust lawyers and former FTC officials familiar with the process of calculating damages to help give a rough idea of the money that may be at stake here. First, here's the quick summary. AT&T may have lost consumers anywhere from $300 million to over $1 billion or more. That $300 million figure may not sound like much, considering the company allegedly misled 3.5 million customers a total of 25 million times over the course of three years. Indeed, $300 million is just a fraction of AT&T's annual revenue — two-tenths of a percent, to be exact. But what's pocket change to a wireless company is big money to consumers and for the FTC: $300 million is 13 times greater than the biggest fine the FTC has ever levied and (for a more apples-to-apples comparison) nearly four times greater than the agency's biggest restitution award against a wireless carrier.

Retail: October Seasonal Hiring vs. Holiday Retail Sales  -- Every year I track seasonal retail hiring for hints about holiday retail sales. At the bottom of this post is a graph showing the correlation between October seasonal hiring and holiday retail sales. First, here is the NRF forecast for this year: Optimism Shines as National Retail Federation Forecasts Holiday Sales to Increase 4.1  [T]he National Retail Federation ... expects sales in November and December (excluding autos, gas and restaurant sales) to increase a healthy 4.1 percent to $616.9 billion, higher than 2013’s actual 3.1 percent increase during that same time frame.  According to NRF, retailers are expected to hire between 725,000 and 800,000 seasonal workers this holiday season, potentially more than they actually hired during the 2013 holiday season (768,000). Seasonal employment in 2013 increased 14 percent over the previous holiday season. Note: NRF defines retail sales as including discounters, department stores, grocery stores, and specialty stores, and exclude sales at automotive dealers, gas stations, and restaurants.m Here is a graph of retail hiring for previous years based on the BLS employment report:

Middle-class troubles in one chart - If you want to know how the economy’s doing, it’s helpful to ask, “Which economy?” In the aggregate, the economy is doing fine (but not great). Job growth has been steady, spending and investment are rising, and the wealth lost in the recession has been restored. The pie is getting bigger. But if you look at it from the perspective of the typical worker, it’s not so hot. Their share of the pie is shrinking. Here’s one chart that sums up what’s wrong with the economy of the middle class. It comes from the quarterly productivity data released Thursday. It shows that working people are getting a smaller share of the pie. Specifically, it shows that the share of the output of the nonfarm business sector that’s paid to workers is near the lowest level on record, and is down sharply in the past 13 years. From the 1960s to the 1980s, workers typically got paid about 63 cents for every dollar of output of their company. Now, that’s fallen to less than 57 cents. That may not seem like such a big drop, but it means that workers are getting paid about $800 billion less than they’d be getting if their share were still 63 cents. The typical full-time worker making $40,000 a year would be making $44,000 a year.

Trade Deficit increased in September to $43.0 Billion -- Earlier the Department of Commerce reported[T]otal September exports of $195.6 billion and imports of $238.6 billion resulted in a goods and services deficit of $43.0 billion, up from $40.0 billion in August, revised. September exports were $3.0 billion less than August exports of $198.6 billion. September imports were $0.1 billion more than August imports of $238.6 billion. The trade deficit was larger than the consensus forecast of $40.7 billion and the trade deficit was revised down slightly for August. The first graph shows the monthly U.S. exports and imports in dollars through September 2014.Imports increased slightly and exports decreased in August. Exports are 18% above the pre-recession peak and up 3% compared to September 2013; imports are 3% above the pre-recession peak, and up about 3% compared to September 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through September. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $92.54 in September, down from $96.32 in August, and down from $102.00 in September 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. Oil prices will really decline in the October and November reports! The trade deficit with China increased to $35.6 billion in September, from $30.6 billion in September 2013. The deficit with China is almost all of the overall deficit.

U.S. Trade Gap with China, 80% of Trade Deficit, Hits Historic High - Americans bought record amounts of goods from China in September, pushing the trade gap between the world’s largest economies to a historic high, according to U.S. Commerce Department data published Tuesday.  September imports from the Asian giant hit $44.9 billion, up nearly 13% on the month, as the U.S. economy gained steam. The import and trade gap numbers—unadjusted for inflation and exchange rates–are the largest since Commerce started collecting trade data with China in the early 1970s.  Most of the $5 billion increase in imports was fueled by a $3 billion surge in buying of cell phones. In September, Apple released the iPhone 6 and 6 Plus, both of which are assembled in China.  Exports to China fell 3% on the month to $9.3 billion as China’s economy showed more signs of slowing. At $35.6 billion, the trade gap with China represents more than 80% of the total U.S. trade deficit of $43.0 billion. The data’s likely to revive U.S. lawmaker calls to penalize Beijing for keeping a lid on the value of its currency. U.S. manufacturers complain the policy gives Chinese companies an unfair advantage, especially as the value of the dollar appreciates.

How the iPhone 6 Fueled a Record U.S. Trade Gap With China - Just one more feature of the iPhone 6: It helped fuel a record U.S. trade gap with China in September. Call it the #iPhoneEffect. Imports from the Asian giant hit $44.9 billion, up nearly 13% on the month. Most of the $5 billion increase in imports was fueled by a $3 billion surge in buying of cell phones, a deluge that coincided with Apple AAPL +0.24%’s release of the iPhone 6 and 6 Plus, both of which are assembled in China. It’s not the first #iPhoneEffect: In 2012, iPhone 5 sales were seen boosting U.S. economic growth, a feat that Congress, the White House and the Federal Reserve had difficulty replicating at the time.

About That Soaring Dollar: US Trade Deficit Excluding Oil Has Never Been Worse -- Remember that in a beggar thy neighbor world, where currency warfare has once again broken out between the US, Europe and Japan, for every winner there is a loser. In this case, the loser is the one country that has decided that a strong currency is a great thing for its economy (if only for the time being): that would be the US. There is a problem with that, however: because in Q3 the trade deficit rose by 7.6%, virtually identicaly to how much stronger the US Dollar basket, the DXY, increased by in the same period which surged by 7.7% the most since Q3 2008 when Lehman blew up!  So why is this relevant? Because as the chart below shows, US trade excluding Petroleum, just tumbled to $48.3 billion, essentially matching the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services, aside from the Shale revolution of course, as ever.

What Falling Exports Mean for U.S. Economic Growth -- Third-quarter U.S. economic growth is set to get an extreme makeover. The unexpectedly large widening in the September U.S. trade deficit has economists thinking  the Commerce Department will make a steep downward revision to third-quarter gross domestic product growth from the initially reported 3.5% annual rate. Commerce will release its second reading of summer GDP on Nov. 25. In its Oct. 30 report, Commerce said the net exports deficit for all of the third quarter narrowed sharply from its second-quarter level, contributing 1.32 percentage points to GDP growth. But Commerce had estimated the September trade deficit would be little changed from its August level. Instead, the nominal gap widened from $43.0 billion in September from $40.0 billion. The widening reflects the decoupling of economies: Faster U.S. growth is drawing in more nonpetroleum imports, while the global slowdown helped to reduce U.S. exports by a large 1.5%. In response to Tuesday’s trade report (in addition to weak construction and factory orders data), economists are reducing the estimates for third-quarter real GDP growth. Economists at BNP Paribas now track third-quarter GDP at 2.8% and J.P. Morgan forecasters think the rate will be revised to 2.9%, while the econ shops at Goldman Sachs, Royal Bank of Scotland, & Capital Economics think the rate will fall to about 3%. (New and revised monthly data released this month could change the estimates further before the Nov. 25 reveal.) Economists are split on what the trade situation means for fourth-quarter growth now expected at 3.0%, according to forecasters surveyed by the Wall Street Journal. The J.P. Morgan economists think the drag from net exports could continue into the fourth quarter. But Paul Ashworth, chief U.S. economist at Capital Economics argues the collapse in crude oil prices means that the trade deficit will narrow again.

U.S. Light Vehicle Sales unchanged at 16.35 million annual rate in October -- Based on an WardsAuto estimate, light vehicle sales were at a 16.35 million SAAR in October. That is up 7% from October 2013, and unchanged from the 16.34 million annual sales rate last month. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for October (red, light vehicle sales of 16.35 million SAAR from WardsAuto). This was below the consensus forecast of 16.6 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. This was the sixth consecutive month with a sales rate over 16 million.

US Factory Orders Slip in September - Orders to U.S. factories declined in September, dragged by falling demand in the volatile aircraft category. The Commerce Department said Tuesday that orders retreated 0.6 percent in September, after having plunged 10 percent in August, also due largely to plummeting demand for aircraft. There are usually dramatic monthly swings in demand for aircraft, which before falling in September and August had soared by 315.6 percent in July. Excluding the volatile transportation sector, factory orders have been flat for the past two months. Orders at aluminum, iron and steel mills rose in September, as did demand for furniture and motor vehicles. But those gains were offset, in part, by declining orders for construction machinery, electronics products and consumer goods. Despite the decrease in orders, other manufacturing indicators point toward strengthening factories. The Institute for Supply Management, a trade group of purchasing managers, reported Monday that its manufacturing index climbed to 59 in October from 56.6 in September. Any reading above 50 signals expansion. The gains match a three-year high previously reached in August and marks a solid rebound from a September decline. The survey behind the index showed that orders, productivity and hiring each improved at a faster clip in October than the prior month. Separately, the Federal Reserve reported last month that U.S. manufacturing output rose in September. Factory production rose 0.5 percent in September after falling 0.5 percent in August.

US factory orders fall, but unfilled orders still rising -  New orders for U.S. factory goods fell for second straight month in September, a temporary setback for the manufacturing sector. The Commerce Department said on Tuesday orders dropped 0.6 percent. August's orders were slightly revised to show a 10.0 percent fall instead of the previously reported 10.1 percent decline. September's fall was in line with Wall Street's expectations. The almost broad-based decline in orders, which was led by aircraft, machinery, capital goods and computers and electronic products, is likely to be short-lived. A survey of national factories published on Monday showed a strong rebound in new order growth and backlogs in October. The increase was largely driven by domestic demand. In September, orders excluding the volatile transportation category were flat for the second month. There were signs of underlying strength in September's factory report. Unfilled orders at factories rose 0.3 percent after increasing 0.6 percent in August. Order backlogs have increased in 17 of the last 18 months. Shipments rebounded slightly after falling in August, while inventories rose marginally. The inventories-to-shipments ratio was at 1.30, unchanged from August.

ISM Manufacturing index increases to 59.0 in October - The ISM manufacturing index suggests faster expansion in October than in September. The PMI was at 59.0% in October, up from 56.6% in September. The employment index was at 55.5%, up from 54.6% in September, and the new orders index was at 65.8%, up from 60.0%. From the Institute for Supply Management: October 2014 Manufacturing ISM® Report On Business® Economic activity in the manufacturing sector expanded in October for the 17th consecutive month, and the overall economy grew for the 65th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.  "The October PMI® registered 59 percent, an increase of 2.4 percentage points from September’s reading of 56.6 percent, indicating continued expansion in manufacturing. The New Orders Index registered 65.8 percent, an increase of 5.8 percentage points from the 60 percent reading in September, indicating growth in new orders for the 17th consecutive month. The Production Index registered 64.8 percent, 0.2 percentage point above the September reading of 64.6 percent. The Employment Index grew for the 16th consecutive month, registering 55.5 percent, an increase of 0.9 percentage point above the September reading of 54.6 percent. Inventories of raw materials registered 52.5 percent, an increase of 1 percentage point from the September reading of 51.5 percent, indicating growth in inventories for the third consecutive month. Comments from the panel generally cite positive business conditions, with growth in demand and production volumes." Here is a long term graph of the ISM manufacturing index. This was above expectations of 56.0%, and indicates solid expansion in October.

ISM Manufacturing Index: Continued Expansion -- Today the Institute for Supply Management published its monthly Manufacturing Report for October. The latest headline PMI was 59.0, a rise from Septembers 56.6 percent and above the forecast of 56.2. Here is the key analysis from the report:  "The October PMI® registered 59 percent, an increase of 2.4 percentage points from September’s reading of 56.6 percent, indicating continued expansion in manufacturing. The New Orders Index registered 65.8 percent, an increase of 5.8 percentage points from the 60 percent reading in September, indicating growth in new orders for the 17th consecutive month. The Production Index registered 64.8 percent, 0.2 percentage point above the September reading of 64.6 percent. The Employment Index grew for the 16th consecutive month, registering 55.5 percent, an increase of 0.9 percentage point above the September reading of 54.6 percent. Inventories of raw materials registered 52.5 percent, an increase of 1 percentage point from the September reading of 51.5 percent, indicating growth in inventories for the third consecutive month. Comments from the panel generally cite positive business conditions, with growth in demand and production volumes."  Here is the table of PMI components.

ISM Manufacturing Shows Highest Production in a Decade and New Orders On Fire - The October ISM Manufacturing Survey recovered from last month's plunge.  PMI rose by 2.4 percentage points to 59%.  New orders caused the overall gain and by themselves jumped up 5.8 percentage points to the 60's level.  Production is at highs not seen in a decade.  This is a great report, even with declines in petroleum and coal.  This is a direct survey of manufacturers and every month ISM publishes survey responders' comments.  Most of the sectors implied strong growth but this one from the Food, Beverage & Tobacco Products industry below shows how lower gas prices results in more purchases elsewhere:  Holiday orders are exceeding seasonal forecasts. Customers are demanding additional quantities above prior orders. Fuel costs and other positive signals appear to be creating demand above normal.  New orders are now in the solid 60's.  The 5.8 percentage point shoot up from last month gives a level of 65.8%.  The Census reported September durable goods new orders declined by -1.3%, where factory orders, or all of manufacturing data, will be out later this month, but note the one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark:  A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.

ISM Manufacturing Surges To 3 Year Highs; Ignores PMI, Construction Spending Plunge -- US manufacturing both declined (PMI) and rose (ISM) in October as the divergence  between the two soft-survey-based data streams is as ridiculous as it was in the second half of last year. ISM printed a cycle high 59.0 (highest since March 2011) smashing the 56.1 expectations (the biggest beat since July 2013). While the headline print was exuberant, New orders fell, as did new export orders. Construction spending fell for the 2nd month in a row, dropping 0.4% against expectations of a 0.7% rise.

Construction vs. Industry, the plot thickens --Two charts from Calculated Risk today.  First, the ISM Manufacturing Index reaching the top end of its long term range. "The PMI was at 59.0% in October, up from 56.6% in September. The employment index was at 55.5%, up from 54.6% in September, and the new orders index was at 65.8%, up from 60.0%." Then, Construction Spending. "On a year-over-year basis, private residential construction spending is now up 1%. Non-residential spending is up 6% year-over-year. Public spending is up 2% year-over-year." And growth trends look terrible. So, where is the most likely source of financial instability?

  • 1) Industrial output growth at cyclical peaks in spite of extremely low corporate leverage and high risk premiums.
  • 2) Private construction spending growth rapidly falling while institutional buyers decline, home owners continue to deleverage, and banks hold real estate assets below the levels of 7 years ago.
    3) Monetary and regulatory policies aimed at thwarting financial instability.

ISM Non-Manufacturing Index decreased to 57.1% in October -- The October ISM Non-manufacturing index was at 57.1%, down from 58.6% in September. The employment index increased in October to 59.6%, up from 58.5% in September. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: October 2014 Non-Manufacturing ISM Report On Business® Economic activity in the non-manufacturing sector grew in October for the 57th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.  "The NMI® registered 57.1 percent in October, 1.5 percentage points lower than the September reading of 58.6 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 60 percent, which is 2.9 percentage points lower than the September reading of 62.9 percent, reflecting growth for the 63rd consecutive month at a slower rate. The New Orders Index registered 59.1 percent, 1.9 percentage points lower than the reading of 61 percent registered in September. The Employment Index increased 1.1 percentage points to 59.6 percent from the September reading of 58.5 percent and indicates growth for the eighth consecutive month. The Prices Index decreased 3.1 percentage points from the September reading of 55.2 percent to 52.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 16 non-manufacturing industries reported growth in October. The majority of the respondents’ comments reflect favorable business conditions; however, there is an indication that there continues to be a leveling off from the strong rate of growth of the preceding months."

US Services Sector Slumps As Business Outlook Nears 2-Year Lows -- US Services dropped modestly from the 58.9 in September to a final print at 57.1 in October - the lowest since April. This should be no surprise as for the last 5 years, H2 has seen a notable decline in the soft-survey-based data. Despite the plunge, employment remained solid even as the business outlook neared 2-year lows. As Markit notes, the survey "warns of a slowdown as move towards the end of the year," which is odd because the world and his pet rabbit said US was decoupling. For a change ISM Services actually agreed with Markit and printed 57.1, missing by the most since Feb 2014 with New Orders and Prices Paid down.

Self-imposed corporate regulations control workers but choke productivity Two new industries have emerged in this neo-liberal era. The first is what I call the ‘unemployment’ industry, which operates to case manage the unemployed that poorly crafted fiscal policy has deliberately created and entrenched into our modern societies. A whole parasitic array of private providers get paid by the government to coerce and threaten the unemployed under the guise of retraining them for jobs. I wrote about this scandal in this blog – Why we should close the ‘unemployment industry’. In the last few days, a new industry has been identified which employs over a million people in Australia, making it one of the largest sectors, although no official data is published on it. This sector has been labelled in the press this week – the ‘red tape’ industry or the ‘compliance sector’. It is growing faster than any other industry in Australia and probably elsewhere, although there is no data available that can tell us that. It is largely unproductive because it undermines the productivity of other workers. Red tape, compliance, must be the public sector once again imposing its heavy hand on private endeavour, right? Wrong, the neo-liberals not only created and expanded a moribund and dysfunctional financial sector but has also created the red tape industry as it seeks to control workers down to the smallest degree. Hilarious really if it wasn’t so wasteful and hypocritical. The typical narrative from those that hate government involvement in the economy is that there has to be more deregulation. The extremists claim that a self-regulating private market place will deliver the best outcomes for all.

Weekly Initial Unemployment Claims decreased to 278,000, 4-Week Average lowest since April 2000 -=The DOL reported:In the week ending November 1, the advance figure for seasonally adjusted initial claims was 278,000, a decrease of 10,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 287,000 to 288,000. The 4-week moving average was 279,000, a decrease of 2,250 from the previous week's revised average. This is the lowest level for this average since April 29, 2000 when it was 273,000. The previous week's average was revised up by 250 from 281,000 to 281,250. There were no special factors impacting this week's initial claims.  The previous week was revised up to 288,000.The following graph shows the 4-week moving average of weekly claims since January 1971.

The Civilian Labor Force, Unemployment Claims and Recession Risk - Every week I post an update on new unemployment claims shortly after the BLS report is made available. My focus is the four-week moving average of this rather volatile indicator. The financial press generally takes a fairly simplistic view of the latest number, and the market often reacts, for a few minutes or a few hours, to the initial estimate, which is always revised the following week. One of my featured charts in the update shows the four-week moving average from the inception of this series in January 1967. The chart, above, however, gives a rather distorted view of Initial Claims. Why? Because it's based on a raw, albeit seasonally adjusted, number that doesn't take into account the 104% growth in the Civilian Labor Force since January 1967, as illustrated here:   The Civilian Labor Force in the chart above has more than doubled from 76.5 Million in January 1967 to 156.3 Million today. The curve of the line, which the regression helps us visually quantify, largely reflects the employment demographics of the baby boom generation, those born between 1946 and 1964. In 1967 they were starting to turn 21. The oldest are now eligible for full retirement benefits. Another factor is the curve is the rising participation of women in the labor force (see this illustration).  For a better understanding of the weekly Initial Claims data, let's view the numbers as a ratio of the Civilian Labor Force.   The latest ratio of 0.18% means that out of 10,000 workers, eighteen made an initial application for unemployment insurance payments in the latest data, an interim low. The latest ratio is an all-time low. What about Continued Claims? Here is the ratio to the Civilian Labor Force. Likewise with this indicator, we're at the low end of the historic range (1.24% to 4.85%). The latest reading, 1.53%, an interim low, means that approximately fifteen persons per 1,000 are receiving continuing unemployment insurance benefits.  A particularly interesting feature of this Unemployment Claims ratio series is its effectiveness in the past as a leading indicator for recession starts and a virtually dead-on coincident indicator for recession ends. In both of the ratio charts above, I've highlighted the value at the month a recession starts. In every instance the trough in claims preceded the recession start by a few to many months, but the claims peaks were nearly identical with recession ends. Here is a table showing the actual numbers.

ADP: Private Employment increased 230,000 in October -- From ADP: Private sector employment increased by 230,000 jobs from September to October according to the October ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.  Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is steadily picking up pace. Job growth is strong and broad-based across industries and company sizes. At this pace of job growth unemployment and underemployment is quickly declining. The job market will soon be tight enough to support a meaningful acceleration in wage growth.” This was above the consensus forecast for 212,000 private sector jobs added in the ADP report.   

October Employment Report: 214,000 Jobs, 5.8% Unemployment Rate -- From the BLSTotal nonfarm payroll employment rose by 214,000 in October, and the unemployment rate edged down to 5.8 percent, the U.S. Bureau of Labor Statistics reported today.... The change in total nonfarm payroll employment for August was revised from +180,000 to +203,000, and the change for September was revised from +248,000 to +256,000. With these revisions, employment gains in August and September combined were 31,000 more than previously reported. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes). Employment is now up 2.64 million year-over-year. Total employment is now 1.3 million above the pre-recession peak. The second graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate increased in October to 62.8% from 62.7% in September. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio increased to 59.2% (black line).The third graph shows the unemployment rate.  The unemployment rate decreased in October to 5.8%.

October jobs report: solid improvement, except for discouraged workers - HEADLINES:

  • 214,000 jobs added to the economy
  • U3 unemployment rate fell from 5.9% to 5.8%
  • Not in Labor Force, but Want a Job Now: rose 188,000 from 6.349 million to 6.537 million
  • Employment/population ratio ages 25-54: up 0.2% from 76.7% to 76.9%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 to $20.70 up 2.2% YoY
August was revised upward by 23,000 to 203,000. September was also revised upward by 8,000 to 256,000. The net revision was +31,000. Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment.  The headline numbers for August show a little progress on wages, and mixed results on participation. Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago.  Since Congress cut off extended unemployment benefits at the end of last year, they have actually risen by over half a million, and this month were 6.537 million. On the other hand, the participation rate in the prime working age group has made up ***40%*** of its loss from its pre-recession high. After inflation, real hourly wages for nonsupervisory employees probably rose from September to Ocotbe. The  nominal YoY% change in average hourly earnings is 2.2% somewhat better than the inflation rate.

US Adds 214K Jobs In October, Below Expectations, Unemployment Rate Drops To 5.8% - Following the gross distortions of the ISM Services Employment index, which printed at a seasonally adjusted near record high, the whisper number for today's NFP was well above the official consensus estimate of 235K. Instead what happened was, naturally, what nobody expected: a miss, with the headline print coming in at 214K, well below the 235K expected, and down substantially from last month's upward revised 256K. Looks like the momentum is stalling fast. And  just to complete the farce, the unemployment rate of the nation that just threw out democrats in protest over the economy.... dropped to 5.8%

Nonfarm Payrolls +214K (Led by 52,000 Leisure Jobs); Unemployment 5.8%; Labor Force +416,000 -- The payroll survey shows a net gain of 214,000 jobs vs. an expectation of 240,000 jobs. Last month was revised up from 248,000 to 256,000. The labor force rose by a solid 416,000.  The unemployment rate fell by 0.1% on the basis of increased employment (+683,000) instead of the more typical reason that people dropped out of the labor force. Swings in employment and the labor force have been wild lately. All things considered, this was a pretty strong report.  The one drawback is where the job gains came from. 52,000 of those jobs came in the leisure and hospitality category. Of them, 42,000 were in food and drinking services. These are typically low-pay if not minimum wage jobs. BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +214,000 - Establishment Survey
  • Employment: +683,000 - Household Survey
  • Unemployment: -267,000 - Household Survey
  • Involuntary Part-Time Work: -76,000 - Household Survey
  • Voluntary Part-Time Work: +208,000 - Household Survey
  • Baseline Unemployment Rate: -0.1 at 5.8% - Household Survey
  • U-6 unemployment: -0.3 to 11.5% - Household Survey
  • Civilian Non-institutional Population: +211,000
  • Civilian Labor Force: +416,000 - Household Survey
  • Not in Labor Force: -206,000 - Household Survey
  • Participation Rate: +0.1 at 62.8 - Household Survey

October Household Survey Shows Employment Situation Truly Improving - The BLS October current population survey unemployment report shows steady improvement in the unemployment situation continuing in 2014.  The unemployment rate dropped to 5.8%, a rate not seen since July 2008.  The unemployment rate dropped another one tenth of a percentage point on a dramatic monthly increase in employed as well as a drop in those unemployed.  Those not in the labor force also declined for the month.  The labor participation rate is still very low, 62.8%.  From a year ago, the number of people employed has increased by 3.8 million.  This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS.  This survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of error.  The CPS has severe limitations, yet, it is our only real insight into what the overall population are doing for work.  The ranks of the employed swelled by a whopping 683 thousand this month.  Part of this figure is assuredly due to survey fluctionations.  From a year ago, the employed has increased by 3.798 million and now tallies 147,283,000 as shown in the below graph.  The increases over time show people really are getting jobs in 2014.  Those unemployed finally broke the 9 million barrier and now stands at 8,995,000.  This is a -267,000 monthly decline.  Below is the month change in unemployed and as we can see, this number normally swings wildly on a month to month basis generally, so a pattern of consecutive monthly declines is a very good sign.   Those not in the labor force decreased by -206,000 persons and now stands at 92,378,000.  The below graph is the monthly change of the not in the labor force ranks.  Notice the increasing swells and wild monthly swings.  Those not in the labor force has increased by 622 thousand in the past year.  The most frightening statistic of the household survey is the labor participation rate, month after month.  The labor participation rate is at 62.8%, a 0.1 percentage point increase from last month but still at record lows, as shown in the below graph.

America's jobs report: Deceptively dull - The Economist -- America's monthly job reports this year have been so predictable that they have started to become boring. Today, the federal government reported that non farm payrolls rose 214,000 in October from September, the ninth consecutive month above the 200,000 mark. Economists, who tend to extrapolate the latest trend, had actually expected a bit more; on that narrow grounds, the report was a disappointment (though revisions added 31,000 to prior months' growth) and market reaction was subdued. But stepping back for a moment, today’s numbers are anything but boring. Demographic trends suggest that to keep up with the long-term underlying growth in the labour force, payrolls need only grow 50,000 to 60,000 per month, Morgan Stanley reckons. America has been consistently creating jobs at four times that rate this year. The steadiness of the gains – this is the 56th straight month of private sector job growth – belies the fact that they have also been accelerating. This year's average of 228,000 is up from 194,000 in 2013 and 186,000 in 2012. That demonstrates increasing cyclical economic momentum. That is also evident in the unemployment rate which continued to drop in October, to 5.8%, another six-year low, from 5.9%. It has now fallen 1.4 points in the last year, one of the fastest 12-month drops in 30 years.

October Jobs Report – The Numbers -- U.S. payrolls grew modestly in October but the unemployment rate fell and wages edged up, signs the labor market is strengthening. U.S. employers added 214,000 jobs in October, while the unemployment rate dropped to 5.8%, the Labor Department said Friday. Economists surveyed by The Wall Street Journal had expected payrolls to increase by 233,000 in October and the unemployment rate to remain 5.9%. Here are highlights from the report. The economy added an average of 224,000 jobs over the past three months. That’s roughly in line with the average 222,000 positions created in the 12 months prior to October.   One big bright spot in this report is that revisions showed the economy added 31,000 more jobs in August and September than the government previously estimated. With the August revision, the economy has added better than 200,000 jobs each month since February.  A broader measure of unemployment fell sharply last month to the lowest level since September 2008, when the U.S. was in the thick of recession. The so-called U-6 rate—which includes reluctant part-time workers and those who have become discouraged to search—stood at 11.5% in October, down from 11.8% in September and 13.7% a year earlier. The year-over-year increase in hourly earnings for private nonfarm employees was 2% in October. That’s in line with sluggish wage growth characterized throughout the recovery. But the gains are stronger among nonsupervisory and production workers, which some economists consider a leading indicator of where wages are headed. From a month earlier, hourly earnings rose 3 cents in October for all employees and 4 cents for nonsupervisory and production workers.  The jobless rate fell to 5.8% for the right reasons —more Americans joined the labor force, more workers got jobs and fewer workers were unemployed. The labor-force participation rate rose to 62.8% from 62.7% a month earlier. Still, participation hovers near three-decade lows. Just before the recession, the rate stood at 66%.

Fourth Quarter Off to a Good Start with Strong Job Gains, Falling Unemployment - The first major report on the health of the US economy for the fourth quarter of 2014 showed continued gains in the job market. Payroll jobs were up by more than 200,000 for the ninth month in a row. With upward revisions to August and September data, the twelve-month jobs gain was 2,646,000. Annual job gains are now running at their strongest level since the peak of the pre-recession boom. The gains were broadly based, with construction, manufacturing, services and government all adding workers.  A separate survey of households also showed strong gains, with the unemployment rate falling to 5.8 percent. A broader measure of unemployment, U-6, which takes into account involuntary part-time workers and discouraged workers, fell to 11.5 percent. Both figures were new lows for the recovery. The civilian labor force grew by 416,000. Involuntary part-time workers, which the BLS refers to as “working part-time for economic reasons,” include two groups. Some hold jobs that would normally be full-time except that their employers have cut their hours due to slack demand. Others hold jobs that are part-time by design, but have taken them only because they are the only work they can find. In October, the number of workers in the first category increased but the number in the second category fell by enough to bring the total down. Taking the two categories together, the share of involuntary part-time workers in the labor force fell below 4.4 percent for the first time in six years. Today’s employment report comes on the heels of last week’s advance estimate of GDP for the third quarter, which showed continuation of strong economic growth that began in the spring. It will be almost three months before the advance estimate of fourth quarter GDP is released, but today’s jobs numbers provide at least one reason to think the economy will continue to expand at a reasonably good pace in the final three months of 2014.

Job Growth Is Picking Up. But What About All the Sidelined Workers? - The labor market’s improvement seems to have accelerated in 2014. Non-farm payrolls increased by 214,000  positions last month, unemployment ticked down, the employment-to-population ratio rose, and more jobless people went looking for work. All this good news continues a trend of stepped-up labor market gains. But it’s not just the monthly change in employment (also called the “flow”) that determines how much “slack” remains in the labor market. Slack is economists’ bloodless term for people who would like to work but have been sidelined by the weak economy over the past seven years; those who would come into the labor market should job gains be sustained each month. The stepped-up pace of job gains since the start of 2014 is reducing slack. But the labor market is still far from fully recovered: The chart below (also here) shows the jobs added since the Great Recession’s trough–and how many are needed to restore the labor market to pre-Great Recession health (which was, by the way, hardly perfect).  There is a large outstanding stock of workers who lost jobs during the Great Recession, plus all the new potential labor-market entrants who have appeared each month over the past seven years (just under 100,000 in a normal month), that must be worked off before slack in the labor market is reduced and workers start seeing better wage growth. The labor market’s stepped-up pace of job growth (or faster flow) over the past year needs to continue for some time before all potential workers are reabsorbed into the market, taking up the remaining slack and pushing up wage growth again.

A Good Jobs Report, But We’re Still Waiting For The “Great” One -- For the most part, the monthly jobs reports issued by the Bureau of Labor Statistics for the balance of 2014 have been fairly good. With few exceptions, they have exceeded expectations and been about the level of 200,000 net jobs created that, while not really anything spectacular to write home about, at least seemed to be trending upward and indicating that the underlying economy itself was steadily improving as we work our way through the fifth year of the recovery from the Great Recession. Heading into today’s release of the October report, the consensus forecast seemed to place job growth somewhere north of 210,000 net new jobs which is basically right where we ended up:Total nonfarm payroll employment rose by 214,000 in October, and the unemployment rate edged down to 5.8 percent, the U.S. Bureau of Labor Statistics reported today.  Employment increased in food services and drinking places, retail trade, and  health care.Both the unemployment rate (5.8 percent) and the number of unemployed persons (9.0 million) edged down in October. Since the beginning of the year, the unemployment rate and the number of unemployed persons have declined by 0.8 percentage point and 1.2 million, respectively. (See table A-1.) (…)Total nonfarm payroll employment increased by 214,000 in October, in line with the average monthly gain of 222,000 over the prior 12 months. In October, job growth occurred in food services and drinking places, retail trade, and health care. (See table B-1.) Food services and drinking places added 42,000 jobs in October, compared  with an average gain of 26,000 jobs per month over the prior 12 months.Employment in retail trade rose by 27,000 in October. Within the industry, employment grew in general merchandise stores (+12,000) and automobile dealers (+4,000). Retail trade has added 249,000 jobs over the past year. Health care added 25,000 jobs in October, about in line with the prior 12-month average gain of 21,000 jobs per month. In October, employment rose in ambulatory health care services (+19,000).

October New Jobs Disappointment Offset by Upward Revisions; Unemployment Rate Drops to 5.8% -- Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment rose by 214,000 in October, and the unemployment rate edged down to 5.8 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in food services and drinking places, retail trade, and health care.  Today's report of 214K new nonfarm jobs in October was below the forecast of 231K, but the lower number was more than offset by upward revisions to the new jobs for August (from 180K to 203K) and September (from 248K to 256K). The unemployment rate dropped a notch from 5.9% to 5.8%. expected no change. The 5.8% unemployment rate is the lowest since the 5.6% rate in June 2008.  The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982.  The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It dropped below 3% in April of last year and is now at its post-recession low of 1.9%.

October jobs report: first impressions - The US job market continues to truck along at a solid clip, with payrolls adding over 200,000 jobs for the ninth straight month—including 214,000 last month—the unemployment rate ticking down to 5.8%, the closely watched participation rate ticking up a tenth, positive payroll revisions of 31,000 for August and September, and a slight bump up in average weekly hours worked.Yet wage growth is still stuck at 2% on a yearly basis, just slightly ahead of inflation. In other words, while the job market is unquestionably tightening, it’s still not tight enough to boost the bargaining clout of most workers. More jobseekers are finding work, more incumbent workers are getting the extra hours they seek—involuntary part-time work is down by about one million workers over the past year. Even the long-stagnant employment rate (the share of the population with a job) is showing a bit of muscle, up 20 basis points last month and one percentage point compared to year ago.But wage growth has been stuck at about 2% since late 2009, standing out as the most important piece of unfinished business in the labor market.Turning briefing to the payroll numbers, my patented jobs day smoother, which averages monthly gains over different intervals, tells the story of how employers are adding jobs at a fairly steady pace now between 220K and 230K per month (see figure below). Not breakneck job growth, but steady and fast enough to lead to steady ticks down in the jobless rate.In fact, at 5.8%, unemployment is the lowest it’s been since the summer of 2008 and the more comprehensive measure of underemployment, at 11.5%, has fallen steeply off of its peak rate of 17.1% back in late 2009, amidst the worst of the downturn.Today’s report also offers another data point in another important trend: the stabilization of the labor force participation rate, which has wiggled within a narrow range between 62.7% and 63.2% since last August. This suggests that working-age people are increasingly less likely to drop out of the job market due to their perceived lack of adequate opportunities.

Jobs Data Show Steady Gains Even as Voters Signal Anxiety - Only days after many voters complained that the economy was getting worse, the latest government report on jobs, released Friday, provided fresh evidence that it was getting better. Employers added an estimated 214,000 jobs in October, the Labor Department found, and the official jobless rate, bolstered by a big rise in the number of people finding jobs, dropped to 5.8 percent, down sharply from 7.2 percent last October.The increase, combined with a revision that showed 31,000 jobs were added to the numbers previously reported for August and September, puts the average monthly employment gain for the past six months at 235,000 — an indication, analysts said, that the economy’s progress was gaining momentum.  A range of other job measures all improved. More than 683,000 people reported that they found a job last month, according to a separate survey by the Labor Department. And the number of people walking away from the labor market has halted, while the average number of hours worked ticked up.  President Obama said that the economy had experienced the strongest job growth since the 1990s, and that the unemployment rate was at a six-year low.The primary disappointment was the lack of wage growth. Hourly average earnings have remained stuck, rising only 0.1 percent in October, on the heels of no gain in September. For the year, wage gains are up just 2 percent, barely ahead of the pace of inflation. That lack of progress is likely to cause the Federal Reserve to move cautiously before raising interest rates from their near-zero level.Still, several economist were encouraged by the October numbers.“Labor force participation actually rose” to 62.8 percent,  “We didn’t see a drop in employment because people dropped out of the work force. “Looking back at the changes since last year, Mr. Tannenbaum noted that there had been a sizable decrease in the number of discouraged workers, who have given up hope of finding a job — down 1.2 million — and of part-time workers who wanted full-time employment, down 1 million.A broader measure of unemployment that includes discouraged job seekers or those stuck in part-time jobs dropped to 11.5 percent, down more than 2 points from the seasonally adjusted figure from a year ago. The 5.8 percent official unemployment rate is the lowest since the summer of 2008.

The October Jobs Report in 13 Charts -  WSJ: The unemployment rate fell to 5.8%, its lowest level since 2008. And the economy has added more than 2.6 million jobs over the past twelve months, the best level since early 2006. For the first 10 months of the year, job growth has averaged 229,000 jobs per month. If that pace holds through the last two months of the year, it would make this the best year for job growth since 1999. There are still few signs of liftoff in wages. The number of Americans in the labor force ticked up slightly from the previous month. And the employment-to-population ratio, a measure of the share of Americans who are working, rose slightly to a five-year high. After declining for the last few months, the share of Americans who’ve been out of work for at least six months edged up. Long-term unemployment remains significantly above its prerecession level, even as those out of work for shorter periods has returned to normal. And the median duration of unemployment edged up to 13.7 weeks in October. The share of workers who are employed part time because they can’t find full-time work is declining but still historically high. Construction hiring remains significantly below its pre-recession levels. And government payrolls have fallen. The business services and education and health-care industries have added the most jobs over the past year.

In October Jobs Report, Clear Evidence of Wage Growth Still Elusive - The big missing ingredient of the recovery has been stronger wage growth. Friday’s jobs report and other gauges show that improvements in worker pay remain ambiguous. Among all private sector workers, average hourly earnings grew 2% in October from a year earlier—in line with the broader trend and only slightly higher than inflation. Other measures of worker pay do point to some pickup. Annual increases in hourly earnings among nonsupervisory and production staff—think factory workers and nonmangement employees in service industries—have clearly edged up from their lows in 2012. But they’ve shown little momentum of late. A separate measure of total worker wage and salary income, from the Commerce Department’s monthly “personal income” report, shows a clearer upward trend this year. This indicator is broader, covering all workers as well as incentive pay, and is moving in part because of increased hiring and hours worked. Then there’s the Labor Department’s Employment Cost Index, which includes a measure of wages and salaries from the perspective of employers. It also is edging higher. The takeaway: There are tentative signs of rising wages for the typical worker. But the signs are hardly uniform. Moreover, to the extent that workers are bringing home more money, much of it appears to be showing up because more are employed or working longer hours. Compensation increases also could be showing up in bonuses and benefit increases. The data in coming months will show whether the trend is sustaining.

Economic Growth not Reflected in Workers’ Paychecks - Today’s jobs report showed the economy added 214,000 jobs in October, and the unemployment rate edged down slightly to 5.8 percent. While this is a sign that the economy is slowly moving in the right direction, if you look below the headline numbers, it’s obvious that today’s labor market is still far from normal. Private sector nominal average hourly earnings grew 2.0 percent annually in October—consistent with what we’ve seen this year so far. This lackluster wage growth is a clear indicator that there’s still considerable slack in the labor market. With so many Americans looking for work—and millions more who would be looking for work if job opportunities were stronger—employers simply don’t have to offer wage increases to get and keep the workers they need. Until hiring rates and net job creation pick up and wage growth reaches and stays above the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent and 1.5 percent productivity growth assumption, it’s clear that Fed policymakers should abandon notions of slowing economic growth. The economy may be growing, but not enough for workers to feel the effects in their paychecks.

Economy Adds Jobs but We Need to Raise America’s Pay -Economic Policy Institute: In the BLS report this morning, overall jobs numbers were solid and the unemployment rate continued to show signs of improvement. However, the unfortunate downside of this morning’s release is that wage growth has continued to be sluggish. Average hourly earnings of all employees on nonfarm payrolls and average hourly earnings of production and nonsupervisory employees on private nonfarm payrolls saw 2.0 percent and 2.2 percent growth, respectively, over this last year. Despite fears from some inflation hawks, the fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant pickup in nominal wage growth in recent years. Wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent, and far below the 4 percent rate that could easily be absorbed for a while to restore labor’s share of national income from its current historic lows. This lackluster wage growth is a clear indicator that there’s still considerable slack in the labor market. With so many Americans looking for work—and millions more who would be looking for work if job opportunities were stronger—employers simply don’t have to offer wage increases to get and keep the workers they need. It’s a positive sign that the economy is growing, but it’s simply not enough for workers to feel the effects in their paychecks.

Comments: Solid Employment Report, Seasonal Retail Hiring at Record Level -- Earlier: October Employment Report: 214,000 Jobs, 5.8% Unemployment Rate: This was another solid report with 214,000 jobs added, and job gains for August and September were revised up.  This was the ninth consecutive month over 200,000, and an all time record 49th consecutive month of job gains.   As always we shouldn't read too much into one month of data, but at the current pace (through October), the economy will add 2.74 million jobs this year (2.67 million private sector jobs). Right now 2014 is on pace to be the best year for both total and private sector job growth since 1999.A few other positives:  the unemployment rate declined to 5.8% (the lowest level since July 2008), U-6 declined to 11.5% (an alternative measure for labor underutilization) and was at the lowest level since 2008, the number of part time workers for economic reasons declined slightly (lowest since October 2008).  And the number of long term unemployed declined to the lowest level since January 2009.Also seasonal retail hiring was at a record level. See the first graph below - this is a good sign for the holiday season ("Watch what they do, not what they say") Unfortunately wage growth is still subdued.   From the BLS: "Average hourly earnings for all employees on private nonfarm payrolls rose by 3 cents to $24.57 in October. Over the year, average hourly earnings have risen by 2.0 percent. In October, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $20.70." With the unemployment rate at 5.8%, there is still little upward pressure on wages. Wages should pick up as the unemployment rate falls over the next couple of years, but with the currently low inflation and little wage pressure, the Fed will likely remain patient. (see more graphs)

Participation Rate Rebounds From 36 Year Low, Only 92.4 Million Americans Not In Labor Force -- Following last month's total collapse in the participation rate, dropping to 36 year lows, this month there was a modest improvement in the composition of the labor force, with the Household Survey suggesting the ranks of the Employed rose by 683K people, while the Unemployed actually declined by 267K, leading to a drop of the people not in the labor force to 92.378MM from 92.584MM. In other words, a little over 101 million Americans are unemployed or out of the labor force. Still, if only looking at this metric, the Fed would likely have no choice but to proceed with a rate hike in the first half of 2015.

Economist on the Jobs Report: ‘These Numbers Will Be Revised Up’ - An unusually large seasonal adjustment by the Bureau of Labor Statistics has led some economists to argue that the unexpectedly small 214,000 October increase in nonfarm payrolls may be significantly understating the underlying trend in jobs growth.If they’re right, we could see some large upward future revisions in this data, which would bolster the impression of an improving labor market and put greater pressure on the Federal Reserve to raise rates. One of the first to pick up on this was Ian Shepherdson, chief economist at Pantheon Macroeconomics, who shared his observations in a tweet that drew some attention.  He pointed out that if the BLS had applied the same adjustment factor as they did last October, the latest nonfarm payrolls number would have been 373,000 – a number far above the consensus forecasts for a 233,000 gain. The BLS uses seasonal adjustments to smooth out month-to-month swings in the data in search of a reasonable estimate of the underlying trend in the labor market.  October is traditionally a very good month for hiring, mostly because teachers are returning to work, retailers are gearing up for holiday shopping  and it’s not yet cold enough for construction workers to go into hibernation.  It’s why raw data on payroll increases for October are nearly always high.  To adjust for such effects, the BLS’s seasonal adjustment factor, which is built upon some sophisticated analysis of historical month-to-month patterns, traditionally subtracts from the raw data in October and from other traditional strong hiring months, such as September, February, March, April and May. What’s striking to Shepherdson is that the factor used last month was the biggest ever applied to October since the BLS data began in 1949. What’s more, he adds, the so-called “birth-death” adjustment to account for flaws in measuring hiring patterns at newly formed or recently closed firms was especially large at minus-22,000.

The Federal Government Now Employs the Fewest People Since 1966 -- Given the grinding budget battles of recent years, it’s almost hard to believe the federal government now employs the fewest people since the mid-1960s. Yet according to Friday’s jobs report, the federal government now employs 2,711,000 people (excluding non-civilian military). Among the economy’s largest job sectors, it was the only one to shrink over the past year. Not since July 1966 has the federal government’s workforce been so small. (The spikes every decade are the hiring of several hundred thousand temporary workers to conduct the census.) Federal government hiring climbed in the 1960s, moved sideways in the 1970s, climbed to the highest level ever outside of a census in the 1980s, declined in the 1990s and then again held steady for most of the 2000s. Federal employment initially rose during the recession and climbed further in 2009 and 2010 with the stimulus package (and, again, the especially sharp spike for the census). The federal government has since shed about 200,000 jobs.  But that’s only the raw numbers! As a share of the total workforce, the federal government’s share of civilian employment is the lowest since World War II.

America Will Soon Have More Waiters And Bartenders Than Manufacturing Workers - While the headline jobs print was a modest kneejerk disappointment at least until it is appropriately spun in some sort of "goldilocks" frame, where the October jobs report was a true disappointment, was in the report of average hourly earnings: rising at just 0.1% for the month and 2.0% Y/Y, it missed expectations across both metrics. As a reminder, even Janet Yellen has observed that with the unemployment rate ridiculously low and thus meaningless to shape policy, the key thing the Fed head is watching is any changes in wages to determine where benign wage inflation is headed. Well, as the chart below shows, it is headed exactly nowhere, because 6 years after the recovery, wages simply refuse to rise. And while there are many reason to explain this phenomenon, most of which have been covered here in the past, here is the easiest explanation of why wages have, and will continue to disappoint to the downside. From the report:

  • Food services and drinking places added 42,000 jobs in October, compared  with an average gain of 26,000 jobs per month over the prior 12 months.
  • Employment in professional and business services continued to trend up over  the month (+37,000).  Over the prior 12 months, job gains averaged 56,000 per  month. In October, employment continued to trend up in temporary help services  (+15,000).

In brief: well-paying jobs lower, low-paying jobs much higher. And to visualize it: in October the US economy added the most waiters and bartenders in over a year. In fact at 42K, one in every five jobs "created" in the US economy went to a bartender, or a waiter.

The Strangest Number In Today's Jobs Report -- Of the whopping nearly 700K increase in October jobs according to the Household survey, a whopping 528K jobs were as a result of (seasonally-adjusted) workers aged 16-24 finding a job. This is shown in the chart below: it is also the biggest monthly jump in young workers in the past decade, and one of the highest in history.

Prime-Age Workers in America - The Employment-to-Population Dilemma - While the headline U-3 unemployment rate has shown improvements since the Great Recession, in large part, unemployment has fallen because job-seekers are giving up hope and leaving the labor force.  According to David Cooper at the Economic Policy Institute, the best measure of labor market health is the prime-age (i.e. 25 to 54 years of age) employment-to-population ratio or EPOP.  This measure provides us with the percentage of prime-age workers that are employed.  By using a specific age range, we eliminate the problem of changes in the size of the workforce that are related to younger adults leaving the workforce to attend school or older adults retiring from the workforce. Mr. Cooper goes on to look at the changes in the difference in the prime-age employment-to-population ratio for each state from the third quarter of 2007 when the Great Recession was just around the corner to the third quarter of 2014.  Here is a bar graph showing the results: You will notice that, as a whole, the United States saw the prime-age EPOP ratio drop by 3 percentage points between 2007 and 2014.  Some states saw a significant decline in the percentage of prime-age adults that were working over the seven year time span; Georgia, Kentucky and New Mexico saw their EPOP ratio drop by 7 percentage points or more.  In addition, Arkansas, Rhode Island, Alabama, Nevada and Hawaii saw their EPOP ratio drop by 5 percentage points or more.  Even the states with relatively healthy oil-driven economies like Texas and North Dakota saw small declines, seeing drops of 0.7 and 1.6 percentage points respectively.  If the economy was in normal mode, one would expect that the prime-age employment-to-population ratio would increase.  Looking at the graphic, you will note that there was an increase in the share of prime-age adults that were working in only two states; Oklahoma and Michigan.  Unfortunately, in both cases, the population of 25 to 54 year olds had decreased in both states; by 2.8 percent in Oklahoma and by 12.5 percent in Michigan over the seven year period.  In other words, the only two states that saw an improvement in the percentage of adults that were working between 2007 and 2014 were because the number of adults in both states declined.  It had absolutely nothing to do with job creation.

Unit labor costs flat: This morning the BLS reported Unit Labor Costs. This measures how productive labor is, by measuring it per unit of production. The index rose slightly in the 3d Quarter, but 2nd Quarter ULC were revised downward, making the index essentially flat this year: Note that over the last few years, however, unit labor costs have risen slowly (which is good for labor). This is also shown when we measure ULC by their YoY% growth: (ignore the upward and downward spikes from 4Q 2012 and 2013, which were due to tax strategies by corporations in anticipation of the ending of the Bush tax cuts). Finally, corporate profits deflated by unit labor costs is a long leading indicator. Here it is measured YoY for the last 65 years: A negative number doesn't guarantee a recession in the next year or so, but it does most of the time, and further, there has almost never been a recession without being preceded by a negative number. Finally, let's zoom in on the last 10 years (note this only goes through Q2, but corporate profits have generally been positive, so we should see another positive number when this is reported next month). This shows ULC growing slightly less than profits for the last several years. While I'd like to see better improvement in labor's position, this does suggest strongly that 2015 will be another positive year for jobs.

Labor Productivity Increases 2.0% for Q3 - The BLS Productivity & Costs report for Q3 2014 shows labor productivity increased 2.0% annualized.  Output increased 4.4% and hours worked increased 2.3%.  Unit Labor costs increased only 0.3% in Q3 2014.  The reason labor productivity rose was because economic output grew more than worker hours.  Overall labor is still getting squeezed for more efficiency and wages are still repressed.  The mediocre Q3 productivity results also imply corporations can rake in the profits and not raise prices.  Below is a graph of the quarterly change in labor productivity.  The basic equation for labor productivity is:   Q/L,   where Q is the total output of industry and L stands for labor. Output can be thought of what is produced from the fruits of labor.  Examples would be the cars which come off the assembly line and burgers & fries being served up at McDonald's.  Here is the BLS labor productivity formula: Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors, and unpaid family workers.Labor, is measured in hours only.  Nonfarm Business Output directly correlates to real GDP, minus the government, farms,all of those nonprofits and our infamous, often illegal nannies and gardeners, and equivalent rent of owner occupied properties.   The output, or Q is about 74% of real GDP reported.  Farms, if you can believe this, only represent about 1% of output.   Labor productivity is reported as annualized figures and both indexes are normalized to the year 2009.  The main productivity numbers above are all business, no farms, where labor costs have a high ratio, about 60%, to output.  These productivity statistics are referred to as nonfarm business.  From Q3 2013, a year ago, annual productivity increased 0.9%, output increased 3.0%, and hours worked rose by 2.1%.  That is fairly sluggish productivity growth.  Labor productivity changes from a year ago is shown in the below graph.

Wage Growth of Part-Time versus Full-Time Workers: Evidence from the SIPP -  Debates about the sluggish recovery in output, the low growth in labor productivity, and the actual level of slack in the U.S. economy are common within policy circles (see, for example, this speech by Fed Chair Janet Yellen and previous macroblog posts—here and here). One of the defining features of the recovery from the Great Recession has been the rise in the number of people employed part-time. As reported by the U.S. Bureau of Labor Statistics, roughly 10 percent more people are working part-time in September 2014 than before the recession. Part-time workers generally earn less per hour than full-time workers, so lower hours and lower per-hour earnings both contribute to their lower incomes. Despite those differences in wage levels, less is known about wage growth of part-time relative to full-time workers. Has wage growth been different? Has wage inequality increased across the two groups of workers? To find out, we employ data from the Survey of Income and Program Participation (SIPP) to analyze the wage growth of part-time and full-time workers. The SIPP is a longitudinal survey designed to be representative of the U.S. labor force. It is constructed as a sequence of panels of households who are interviewed for three to five years.  Overall, we find that part-time workers as a group appear to experiencing a lower average wage growth rate than full-time workers during the recovery from the Great Recession. Education matters for wage growth, but the pattern of lower wage growth for part-time workers persists for people with broadly similar educational attainment.

The Wealth Gap Preoccupies Wall Street -- Once the concern of idealistic do-gooders and obscure academics penning scary equations with squiggly symbols, the growing difference between the super-rich and what the World Bank estimates is 2 billion people living on less than $2 a day is increasingly grabbing the attention of those once likely to ignore it.   Wall Street banks, at least one financial-ratings agency, the Federal Reserve and American and European economic policymakers aren’t interested in the wealth gap for moral or ethical reasons: amid a tepid economic comeback from the biggest financial crisis since the Great Depression, the hotly disputed question is whether income and wealth inequality exacerbate financial crashes and impede economic recovery.  The emergence in recent years of an ultra-wealthy elite—particularly in the United States, home to 41 percent of the world’s millionaires, or 14.2 million Americans, according to big Swiss bank Credit Suisse—is not news, of course. What is new is the attention the phenomenon is getting from banks and institutions involved in the recent financial meltdown. “The changing distribution of wealth is now one of the most widely discussed and controversial of topics,” Credit Suisse wrote in its annual Global Wealth Report last month.

Wages, full employment and reducing inequality - The Washington Monthly magazine earlier this week published their latest issue, which focuses on equitable growth across generations of families in the United States. Figuring out how inequality interacts with economic growth and how to promote equitable growth requires looking at how an individual’s economic decisions and experiences change over a lifetime. The issue looks at a variety of issues at different times along this generational arc, including early childhood, K-12 education, higher education, and retirement. A few of the pieces take a more overarching look at these issues, including the essay by Alan Blinder on raising wages. Blinder, a professor of economics at Princeton University and former Vice Chairman of the Federal Reserve Board, looks at the current state of wage growth in the United States. Unsurprisingly, the state of wage growth is not strong. From 1979 to 2012, inflation-adjusted wage growth for the median worker was only 5 percent. Compare that to wage growth at the 99th percentile, the lower bound of the top 1 percent, which was 154 percent over that same period. How can we boost wage growth for a broad section of U.S. workers? Blinder proposes seven policy responses that would boost the productivity of workers, reduce the gap between productivity and wages, and raise net wages relative to gross wages. But one solution deserves a bit more inspection: a call for a high-pressure economy. Blinder shows the unemployment rate, as a measure of the tightness of the labor market, is strongly related to wage growth and income inequality. Reductions in unemployment are associated with stronger growth in wages and compensation. This relationship is known as the wage Phillips curve. Recent research has shown that the relationship is stronger for low-wage workers.

Seeking New Tools to Address a Wage Gap - What can be done about income inequality? For all the attention devoted to the widening chasm between the very rich and the rest of American society, perhaps the most urgent question is whether the trend can realistically be turned around within, say, the next two or three decades.The answer may well be no.“I am very pessimistic about the capacity of the American political system to redistribute income within a reasonable period of time,” said Robert Solow, the Nobel laureate economist from the Massachusetts Institute of Technology, in concluding comments at a seminar on inequality that drew some of the top scholars on the subject to New York last month.“I simply don’t think that legislation either to support the safety net or to tax high incomes stands a chance in the Congress,” Mr. Solow told me in a follow-up interview last week, particularly given the likelihood that the midterm election will lead to a more conservative Senate next year.If further redistribution turns out to be politically impossible, the question is whether any better tools are available.Washington already redistributes income from the rich to the poor. Richard Burkhauser et al from the Joint Committee on Taxation have become heroes to the right by trying to establish that government redistribution has, in fact, erased the trend of increasing inequality. While these claims rest on fanciful assumptions about what counts as income, their analysis of taxes and government programs does support the argument that the government does more than it has in a long time to protect lower-income Americans from the blows of the market economy.

What Democrats Don’t Get About the Minimum Wage - Democrats have greatly misunderstood the politics of the minimum wage in a way that hurt them in the 2014 elections.They’re right about one big thing: Minimum wage increases are popular, at least to modest levels under $10, even in red states where Republican lawmakers have blocked them. Voters in four red states voted on minimum wage increases Tuesday and they all passed, three of them by wide margins. If what Democrats want is a higher minimum wage, they can keep putting the issue on ballots and most likely keep getting their wish.What fights over the minimum wage did not do is deliver any advantage to Democratic candidates for office. Perhaps the best example of this comes from Illinois. The state has a Democratic governor and a Democratic-held legislature. If Democrats wanted to raise the minimum wage to $10 an hour from its current $8.25, they could have. Instead, they put an advisory question on the ballot, asking voters for nonbinding guidance about whether the minimum wage should be $10. The idea was to fire up liberal voters by asking about popular Democratic positions; the ballot also included nonbinding questions about taxing millionaires to pay for education and requiring health plans to cover contraception. Here’s the thing about the minimum wage: Most voters don’t live in households where anyone earns it, or are even close enough to it to get a raise when it goes up. If you ask people whether they favor a higher minimum wage, most will say yes, and even vote that way on a binding referendum. But if a politician opposes raising it, middle-class voters won’t necessarily get angry, and their votes may not be moved.

This Won’t Be the Last You Hear of Minimum Wage -  Minimum-wage increases spread deeper into conservative areas of the U.S., with ballot measures winning in four states despite widespread losses for Democrats who attempted to make inequality a key campaign issue. Voters in Arkansas, Nebraska and South Dakota raised their state’s pay floors above the federal level Tuesday, while at the same time electing Republicans to the Senate. Republican leaders in Congress have squarely rejected efforts to raise the federal minimum wage from $7.25 an hour. Alaska voters approved of an increase to $9.75 an hour by 2016 from the current $7.75. With passage of the four initiatives, 29 states will have minimum wages above the federal level next year, and the average state-level minimum wage in 2018 will be about $8.30 an hour. A fifth state, Illinois, approved a nonbinding measure to increase the wage to $10, which may motive state lawmakers but must survive a skeptical new GOP governor. The results show that “regardless of political persuasion, voters are reaching for policies that will reconnect their economic fortunes to the overall economy,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and former economic adviser to Vice President Joe Biden. “It makes you wonder if ballot initiatives could pass in places you’d never guess before,” including Alabama and Louisiana, he said.

American Middle Class "Wealth" Worse Than Every Nation But Russia & Indonesia -- We are number 1 right? USA! USA! No one can beat our wealth creation machine, our economic dynamism, our level playing field and our bastions of higher education. We have a middle class that is the envy of the world, right? Well, like so much of the “American dream” we have been force fed for a generation or more, this perception is not based in reality whatsoever. Sure it may have been the case for a couple of decades immediately after World War 2. Before the military-industrial-Wall Street complex fully took over the political process, but it certainly isn’t true any longer. Myths die hard and this one is particularly pernicious because it prevents people from changing things.  A recent posting detailed how upper middle class Americans are rapidly losing ground to the one-percenters who averaged $5 million in wealth gains over just three years. It also noted that the global 1 percent has increased their wealth from $100 trillion to $127 trillion in just three years. The information came from the Credit Suisse 2014 Global Wealth Databook (GWD), which goes on to reveal much more about the disappearing middle class. The upper middle class in the US, defined as everyone in the top half below the richest 20 percent, owns 11.9% of the wealth. Indonesia at 10.5% and Russia at 7.5% are worse off, but in all other nations the corresponding upper middle classes own 12 to 27% of the wealth. America’s bottom half compares even less favorably to the world: dead last, with just 1.3% of national wealth.

No one really believes in ‘equality of opportunity’ - In the National Review, Avik Roy writes that everyone is missing the point of the conservative reformers. The changes aren't happening, or aren't mainly happening, at the level of policy. They're happening at the level of principle. "Where many reformers differ from their ancestors is in the philosophical source of their support for free markets," he writes.  "The older, libertarian-flecked strain of American economic conservatism appreciates liberty as an end in itself," he writes. But the new conservatives see it differently. "For many of today’s conservative reformers, equality of opportunity — especially for the poor — is the highest moral and political priority."  Whenever people turn a discussion of policy into a discussion of principle, it's wise to check your pockets. Principles matter, of course. But they're also the vehicle in which motivated reasoning has the easiest time taking the wheel. A single principle can easily be used to justify starkly opposite policies. Take equality of opportunity. Everyone in American life professes to believe in equality of opportunity. But nobody really believes in it. Equality of opportunity is often set in opposition to equality of outcome. Communists believe in equality of outcome. Capitalists believe in equality of opportunity. In truth, equality of opportunity and equality of outcome aren't opposites. They're partners. Companions. Inseparable amigos. You can't have real equality of opportunity without equality of outcome. A rich parent can purchase test prep a poor parent can't. A rich parent can usher their children into social networks a poor parent can't. A rich parent can make donations to Harvard that a poor parent can't.

Labor Unions and the Rust Belt-  I’ve got two nice papers for you today, both exploring a really vexing question: why is it that union-heavy regions of the US have fared so disastrously over the past few decades? In principle, it shouldn’t matter: absent any frictions, a rational union and a profit-maximizing employer ought both desire to take whatever actions generate the most total surplus for the firm, with union power simply affecting how those rents are shared between management, labor and owners. Nonetheless, we notice empirically a couple of particularly odd facts. First, especially in the US, union-dominated firms tend to limit adoption of new, productivity-enhancing technology; the late adoption of the radial tire among U.S. firms is a nice example. Second, unions often negotiate not only about wages but about “work rules”, insisting upon conditions like inflexible employee roles. A great example here is a California longshoremen contract which insisted upon a crew whose sole job was to stand and watch while another crew did the job. Note that preference for leisure can’t explain this, since surely taking that leisure at home rather than standing around the worksite would be preferable for the employees!

Are Immigrants Bad for Government Budgets? -  One of the major charges leveled at immigrants in the US is that they use public services (the stereotype is that they show up in emergency rooms, which are not a taxpayer expense,* as well as send children to school) and don't provide anywhere near the contribution to the economy in terms of tax contributions relative to what they extract. Notice that that charge is implicitly made of illegal immigrants, who presumably don't pay income taxes (although I personally know one who does, by virtue of being in an immigration Schrodinger's cat uncertainty state and having a Social Security card and meticulously paying taxes for 15 years while no longer having a visa and not having become a citizen. Will not bore you whit his shaggy dog story). But their incomes are often so low that it's not clear they'd pay much even if their taxes were reported, save regressive FICA taxes. Yet they do pay other taxes: sales taxes, gasoline taxes, and property taxes embedded in their rents. There is a separate public policy argument about immigration and foreign guest workers on H1-B visas, which is that at least the way it is conducted in America, that in combination with an anti-labor-bargaining policies, cheap immigrant labor gives employers even more leverage against workers. This post focuses narrowly on the "are they worse than natives in terms of impact on the public purse?" The study focuses on the UK. One of the striking revelations is how little decent data there is on this topic, particularly in a country that has no where near the number of unofficial immigrants as the US.

Local and State Treasurers Can Build Wealth in Struggling Communities -- Sometimes you can beat the door down with efforts to get Federal and State officials to tackle problems, but at the end of the day, locals can best get the job done, quietly and quickly. A story in Monday’s New York Times bears this out.  For example, San Francisco City Treasure Jose Cisneros noticed that families who finally took advantage the of the earned income credit, the country’s largest public benefit program, often had no bank accounts in which to deposit their refunds. This meant losing a portion of this important public benefit to check cashers and others. Because of this problem, Treasurer Cisneros started a program called Bank On, that helps people on the financial fringes open bank accounts and develop credit histories. This model has spread across the country, leading the Treasury Department to conclude that Bank On has “great potential” to “create a nationwide initiative that attends to the needs of underserved families and works to eradicate financial instability throughout the country.” In 2010, Mr. Cisneros also started Kindergarten to College, a program that automatically opened a bank account with $50 ($100 for low-income families) for every kindergartner in public schools. The city pays for the administration and initial deposits, while corporate, foundation and private donations provide matching money to encourage families to save more. His office even figured out how to open bank accounts for thousands of children without social security numbers.

California Voters Deal Blow To Prisons, Drug War - California approved a major shift against mass incarceration on Tuesday in a vote that could lead to the release of thousands of state prisoners. Nonviolent felonies like shoplifting and drug possession will be downgraded to misdemeanors under the ballot measure, Proposition 47. As many as 10,000 people could be eligible for early release from state prisons, and it's expected that courts will annually dispense around 40,000 fewer felony convictions. The state Legislative Analyst's Office estimates that the new measure will save hundreds of millions of dollars on prisons. That money is to be redirected to education, mental health and addiction services -- a novel approach that reformers hope will serve as a model in the larger push against mass incarceration. The approval of the ballot measure could also help California grapple with massive overcrowding in its state prisons, which are still struggling to release enough inmates to comply with a 2011 U.S. Supreme Court order.

Ninety-year-old man faces jail for giving food to homeless people -  A 90-year-old man is facing up to 60 days in jail for feeding the needy due to a new law that bans people in Fort Lauderdale, Florida, from meal-sharing with the public.  Arnold Abbott risks being fined $500 and spending time in prison after police officers apprehended him while he was handing out meals to homeless people in a park on Sunday. He was arrested and charged along with two ministers from the Sanctuary Church, which prepares hundreds of meals to dish out every week in their kitchen, while onlookers shouted to officers "shame on you!" Mr Abbott said: "One of police officers came over and said ‘Drop that plate right now,’ as if I was carrying a weapon." He added: "These are the poorest of the poor, they have nothing, they don't have a roof over their heads. How do you turn them away?"

Learning from the variation in the effectiveness of Head Start - Economists and policymakers alike are increasingly realizing the vital importance of children’s early development on not only the future success and prosperity of the child, but that of the United States as well. The United States, of course, has a widely implemented, low-cost early-childhood education program, known as Head Start, but studies of the program don’t find it to be nearly effective as the “high-equality” programs such as the Perry Preschool program, a project that provided high-quality, high-cost preschool to a small group of low-income children. Now, though, a new working paper shows that there are large variations in the methods and resources of different Head Start programs as well as differences in the short-term effectiveness of different programs. These variations can help us better understand how to best improve early childhood programs for the broad swath of children in the United StatesThe new paper, by Christopher Walters of the University of California-Berkeley, uses data from the Head Start Impact study, which randomly assigned students to Head Start centers to measure the effectiveness of the program. The headline result is that Head Start programs barely outperformed the control group of standard childcare centers. Yet Walters finds substantial variation in the outcomes of centers and their methods and means—findings that point to ways the program can be improved upon.When it comes to the variation of outcomes, Walters finds that the variation of test scores is larger than the usual dispersion found for teachers or schools. He estimates that a move to a Head Start center that is one standard deviation above average in test scores would result in a $3,400 boost in adult-earnings per child.

We must still hate our kids: Philadelphia and “education reformers” fight demented war on elementary schools - Imagine sending your child to a school with a leaky roof, busted windows and a rodent infestation. Or worrying whether the elementary school where you take your daughter every day is really a health hazard. Or telling your teenager to feel good about attending a school with no sports or athletic programs of any kind in winter or summer and no instrumental music classes. Imagine a school system where class sizes have gotten beyond ridiculous with one school so overcrowded that first, second and third graders are packed into a single classroom. In another school, classes overstuffed with 50 students or more are herded into the auditorium. This is not made up, nor is this a third-world country. This is America. This is Philadelphia. And it is rapidly becoming the norm for schools in many more large, urban communities across the nation. Yet this crime is being completely neglected by people leading education policy – from the Obama administration all the way down. Yet, most glaringly absent from making an adequate response are the voices of those who claim they are architects of an education “reform movement” and claim to be the ones who care most about the lives of underserved black and brown school children.

Alabama school system paid former FBI agent $157,000 to spy on black students: critics: Huntsville City Schools (HCS) paid a former Federal Bureau of Investigations agent $157,000 to direct security last year, but critics contend that the system he implemented is designed to monitor the social media activity of black students, according to to  Chris McRae, the agent in question, was brought in to oversee the Students Against Fear (SAFe) program, which works by allowing students and teachers to provide anonymous tips to security personnel, who then scour social media sites like Facebook to determine the credibility of the threat. Over 600 Huntsville City School students had their social media presence monitored last year. Of the students expelled last year for reasons related to social media, 86 percent were African-American. The school system as a whole is 40 percent black — but 78 percent of all students expelled are black.

Kentucky Teacher Resigns Over Dumb Ebola Fears -- A teacher at St. Margaret Mary Catholic School in Louisville, Kentucky, who recently returned from a medical mission trip to Africa has resigned rather than submitting to a paid 21-day leave and producing a doctor's note that says she is in good health. The school's request was a reaction to "strong parent concerns" about Susan Sherman exposing students to Ebola — though she was in Kenya, which is separated from the Ebola outbreak by at least five countries. Sherman, who is a registered nurse, has traveled to Kenya four times with her husband, Paul, a retired orthopedic surgeon. Last week Paul Sherman sent a letter to the Archdiocese of Louisville, complaining that the "unfounded fears" of some parents and staffers were "triumphing over truth and reason." Sherman added that he and his wife had offered to hold an informational meeting about their work in Africa and how one goes about catching Ebola, but they "were put off until our 'quarantine' is over."

Biology Textbook Censored by Arizona School Board - An Arizona school board has voted to remove information about contraception methods from a biology textbook after a conservative majority decided it fell afoul of a state law that says materials should give a preference to childbirth or adoption over abortion. The members of the Gilbert Public Schools board, which covers at least 38 schools and 39,000 students mostly in Chandler and Mesa, voted 3-2 on Tuesday night to excise two pages from “Campbell Biology: Concepts and Connections.”  "By redacting, we are not censoring," board member Julie Smith told 12 News in Phoenix. "This school district does offer sexual education classes. If we were censoring, we would not offer anything on this topic whatsoever." The question of how to teach U.S. teens about sexual health and reproduction in public schools is the latest flashpoint in a broader liberal-conservative fight over control of curricula that also flared up last month in Colorado in a fight over the content of an advanced history course.

Among Rich Countries, America’s Youth Took the Recession Especially Hard -- Roughly 15% of U.S. youth aged 15 to 24 were not in school, a job or training in 2013, up from 12% in 2008—a bigger jump than in many other wealthy countries, according to a recent UNICEF report. The figures underscore how much the recession, which lasted from December 2007 through June 2009, interrupted the lives of America’s children and young adults. Economists have long worried the recession would result in a “lost” generation of U.S. youth, one scarred by everything from parental neglect to downsized professional aspirations. While hard economic times hurt everyone, having school and early professional years interrupted is especially destructive: When kids are detached from both school and work for long stretches, they risk harming their future prospects, and society’s. Even young people who aren’t interrupted suffer long-term effects. Research by Lisa Kahn of Yale University shows young people who graduate and enter the workforce during recessions earn less over their lifetimes.UNICEF’s report shows American children were hit relatively hard. The U.S. saw the biggest jump in the so-called “NEET” rate (“not in education, employment or training”) among non-European Union nations in the Organization for Economic Cooperation and Development, a club of mostly wealthy nations. Germany, Japan and Mexico saw their NEET rates fall, while Korea and the U.K. saw relatively mild increases. Even France and Ireland’s NEET-rate rises were modest compared to the U.S.’s.

Millennials look to tech stars as finance careers leave them cold - “It wasn’t that I couldn’t cope. It’s that I didn’t want to cope.” So says a twenty-something year old who left Goldman Sachs after two years on its graduate scheme. “I didn’t see why I ought to.” This young graduate is a “millennial”, one of the generation born between the early 1980s and the late 1990s. Now they are aged between 18 and 33 years, in the early part of their career. It is a generation that appears to put a higher value on fulfilment, entrepreneurialism and a good work-life balance than cash. The implications for the investment banks and City firms who are trying to hire and hold on to them are serious. “To motivate my generation was easy, you threw scraps of cash at us and kicked us,” says Simon Collins, UK chairman of KPMG. “This generation is looking for meaning in life, which candidly and shamefully I don’t think our generation was.” At London Business School , the percentage of MBA graduates going into the financial services industry fell from 46 to 28 per cent between 2007 and 2013. The percentage going into technology companies more than tripled in that time, from 6 to 20 per cent. And the fast-moving consumer goods sector has knocked banking off the top spot for the first time as the profession of choice for business graduates, according to a survey by consultancy Deloitte.

U.S. student debt burden falling more on top earners, easing bubble fears  (Reuters) - Young Americans with big college debts are often portrayed as struggling to pay their bills. The reality is somewhat different - those owing super-sized student loans tend to be higher paid. A Reuters analysis of Federal Reserve data shows that over the past two decades the young with higher incomes have gone from owing less of the debt than the average household to owing considerably more. U.S. student loan balances have quadrupled since 2004 to $1.1 trillion (688.84 billion pounds), prompting credit rating agency Standard & Poor’s and others to express fears the borrowing could crimp consumer spending, especially home buying, and eventually lead to the painful bursting of a bubble. Worries over high loan levels have also been voiced by President Barack Obama and more recently, Federal Reserve Chair Janet Yellen. true Without doubt, many families struggle to pay the rising costs of college, and high levels of unemployment have only added to the distress. Delinquency rates on student loans remain well above historically average levels. But the analysis of the Federal Reserve’s Survey of Consumer Finances, a triennial survey published in September with 2013 data, makes it clear that heavy borrowing is usually rewarded with big salaries. The increased concentration of debt among the well-paid should ease concerns that the surge in debt is a wider economic threat. The data show that most of the nation’s overall loan balances are held by those earning more than $60,000. Moreover, among households that owed at least $60,000 and were young, defined as those headed by someone between 20 and 40 years of age, average income last year was $82,000.

Student-Loan Market Recalls Subprime Crisis for U.S. Treasury - The Treasury Department is looking at the rise of American student-loan debt and seeing worrying similarities to the U.S. housing-market bubble. Deputy Secretary Sarah Bloom Raskin today voiced concern that education-loan borrowers could turn to repayment scams resembling mortgage-payment schemes from 2009 and 2010. Her remarks come a day after a Treasury committee report drew parallels between student-loan default risks and the mortgage market before housing collapsed starting in 2006. “Millions of student-loan borrowers are in default on their student loans; many more could face default in the near future,” Raskin said today in Tampa, Florida, during her third public speech on student debt since becoming the Treasury’s No. 2 official in March. “I worry about the emergence of a student loan ‘debt relief’ industry.” High default rates and delinquencies have been a focus for Raskin, in part because they may damage Americans’ creditworthiness and curtail their ability to invest in homes and businesses. They also create uncertainty for the Treasury, which finances about $100 billion of new student loans each year. “To the extent the government doesn’t get repaid, that boosts Treasury borrowing needs,”

State begins review of Pittsburgh's underfunded pension - Pennsylvania’s auditor general has launched an audit of Pittsburgh’s municipal pension funds, with Mayor Bill Peduto and Auditor General Eugene DePasquale marking the routine review with a news conference Wednesday that called for statewide pension reform. “Bringing about a systematic change in our pension system is absolutely required, not just for Pittsburgh but for every other older city throughout the state of Pennsylvania,” the mayor said. With assets of about $675 million and liabilities of about $1.2 billion, Pittsburgh’s funds for retired police, firefighters and other municipal employees is considered “moderately distressed” by the state Public Employee Retirement Commission. Pittsburgh’s pension went from nearly 62 percent funded in 2013 to 58 percent in 2014, Mr. DePasquale said, partly due to market conditions and partly because of a reduced expected rate of return pushed through by outgoing Mayor Luke Ravenstahl’s administration late last year. Though lowering the rate of return may have been prudent, not budgeting money to account for the gap was not, Mr. Peduto said. “We basically shorted our pension fund under the guise of good government,” he said.

US Pension Plans Need Massive $110 Billion In 7 Years, Moodys Warns - Thanks to improving life expectancy and the Federal Reserve's financial repression lowering yields, US company pension funds have been hit by a double whammy. As Moody's warns, companies will have to find $110 billion in the next seven years to fund pension liabilities shortfalls. Moody's adds, "given these increasing liabilities and cash drains, we expect to see an acceleration in lump sum offers," as firms try to derisk. As Chief Investment Officer reports,Improving life expectancy is expected to add billions to the amount companies must pay into their defined benefit plans.US companies will have to find $110 billion in the next seven years to fund pension liabilities as life expectancy increases, according to ratings agency Moody’s.Using data from new mortality tables published by the Society of Actuaries last week, Moody’s calculated significant increases in the amount of cash US firms would have to contribute to their defined benefit pensions in order to match growing liabilities. The new mortality tables show male life expectancy at age 65 in the US has improved by two years since 2000, when the Society of Actuaries last updated its assumptions. For women, life expectancy at age 65 has improved by 2.4 years. This has resulted in an estimated increase of between 4% and 8% in company pension obligations.

Bracing For The Falls Of An Aging Nation -  As the population ages and people live longer in bad shape, the number of older Americans who fall and suffer serious, even fatal, injuries is soaring. So the retirement communities, assisted living facilities and nursing homes where millions of Americans live are trying to balance safety and their residents’ desire to live as they choose. Those who study and manage retirement facilities and nursing homes say there is heightened attention to preventing falls. Trying to anticipate hazardous conditions, retirement facilities like The Sequoias hire architects and interior designers, some of whom wear special glasses that show the building as an old person would see it. The dangers are real. The number of people over 65 who died after a fall reached nearly 24,000 in 2012, the most recent year for which fatality numbers are available — almost double the number 10 years earlier, according to the Centers for Disease Control and Prevention. And more than 2.4 million people over 65 were treated in emergency departments for injuries from falls in 2012 alone, an increase of 50 percent over a decade. All told, in the decade from 2002-2012, more than 200,000 Americans over 65 died after falls. Falls are the leading cause of injury-related death in that age group.

Covered California says small business health premiums will rise 5.2 percent statewide - Mom and pop businesses with 50 or fewer employees that buy health insurance plans through California's state-run marketplace can expect an average premium increase of 5.2 percent in 2015, Covered California officials announced Monday. The Small Business Health Options Program, or SHOP, allows small business owners to compare and buy employee insurance plans similar to those offered to large companies.  And it offers tax credits to qualifying businesses that do provide health insurance to workers.   Unlike Covered California’s exchange for individual plans, SHOP offers business owners year-round enrollment and payment and start-date deadlines. There are six  insurers selling insurance through California's SHOP marketplace; three are in Southern California: Kaiser Permanente, Health Net and Blue Shield. 

Who Would Have Health Insurance if Medicaid Expansion Weren't Optional - In 2012, the Supreme Court ruled that a cornerstone of the Affordable Care Act — its expansion of Medicaid to low-income people around the country — must be optional for states. But what if it had ruled differently?  More than three million people, many of them across the South, would now have health insurance through Medicaid, according to an Upshot analysis of data from Enroll America and Civis Analytics. The uninsured rate would be two percentage points lower.  Today, the odds of having health insurance are much lower for people living in Tennessee than in neighboring Kentucky, for example, and lower in Texas than in Arkansas. Sharp differences are seen outside the South, too. Maine, which didn’t expand Medicaid, has many more residents without insurance than neighboring New Hampshire. In a hypothetical world with a different Supreme Court ruling, those differences would be smoothed out.   In many ways, as the Enroll/Civis data highlights, the law has succeeded in bringing health insurance to the disadvantaged populations who have historically lacked it. Its model shows that the biggest beneficiaries of the law have been the very groups that tend to suffer in today’s economy: blacks and Hispanics; young adults; people living in rural areas; women; and those earning the lowest incomes. But the uneven Medicaid expansion, largely a result of Republican politicians’ dislike of the program and their concern that their states might get stuck with the costs, has limited the law’s ability to cover poor Americans living in many of the poorest states in the country. Currently, 26 states and the District of Columbia have expanded their programs. In the country’s two poorest states, Mississippi and Louisiana, more than 15 percent of the population between 18 and 65 remains uninsured in 2014, the data show.

The decline in the share of uninsured Americans -- Jason Furman chairs the president’s Council of Economic Advisors and therefore has an obvious incentive to present the Obama administration’s policy outcomes in the best light, but nonetheless this chart from his recent speech is striking: The decline in the share of uninsured Americans represents about ten million more adults gaining coverage this year relative to the baseline trend of prior years — or about a 26 per cent relative decline in the uninsured rate compared with the prior year. For the data used in the chart, Furman cites a report in the New England Journal of Medicine published in late August. A similar chart included in the NEJM report appears less dramatic because of the different scaling of the y-axis. But it does clearly show that the big decline in the uninsured coincided with the open-enrollment period for the health insurance marketplace set up under the Affordable Care Act (Obamacare), which is bracketed by the dotted lines:

Providing Health Insurance Still a Struggle for Small Business - Brian Adams, who sells fireplaces in Indianapolis, is like many of the nation’s small-business owners. As the cost of providing health benefits has climbed, he has struggled to afford coverage for his employees — a problem the new health care law was designed, in part, to address. But a year after the law’s introduction of the insurance exchanges, provisions that were supposed to help small businesses offer employee health benefits are largely seen as a failure. And Mr. Adams, like many of his fellow business owners, is sending employees to the exchanges to buy their own coverage instead.  Nancy Smith, who runs the Great Arizona Puppet Theater in Phoenix, made a similar decision. Her business employs only a handful of people who need insurance, and she was able to offer only plans with high deductibles. She and her employees decided buying individual policies made the most sense.  Most of the focus on the Affordable Care Act has been on whether individuals can find affordable coverage through the online marketplaces. But the law also had the goal of creating a robust insurance market for small businesses by making tax credits available to businesses that provide coverage and creating small-business exchanges where companies could more easily find low-cost plans.The small-business exchanges were barely functional in most states last year, and it remains to be seen whether the Obama administration will manage to stop the steady decline in the number of employers offering coverage to their workers. The administration is poised to try again when open enrollment begins on Nov. 15.

There, there, get it all out. -- My best guess is that despite the NYTimes and the entire Democratic party being in denial about this, voters really HATE Obamacare.  It’s the cheap airlines special of healthcare where you have no idea what the guy sitting next to you paid for the same seat but you’re pretty sure he got a better deal than you did. Oh sure, there are always going to be a few people who scored the deal of a lifetime, but that only means that the rest of the poor slobs in economy subsidized their ticket. Meanwhile, business class is enjoying extra legroom because their employers used CliqBook to negotiate better deals.  Then there is the problem of being forced to buy a ticket in economy where there is zero legroom and you could swear the airline shrank your personal space by another 25%, and there are no snacks but some grumbling flight attendant who just lost her pension is walking up and down the aisle with pony bottles of water that sell for 5 times what you would pay on Air France. Then you realize that this flight is 14 hours long and you have to pee but YOU had to buy the cheapest seat you could find so you’re crammed in to the window seat and have to climb over other people to get out.  And there’s Paul Krugman sitting in a business class upgrade saying you’re ungrateful if you complain about your seat because the morbidly obese passenger whose excess girth is spilling over your armrest is finally able to afford his insulin.  Did I mention that you have to pay full price tickets for a long time before you can use your frequent flyer miles?  In fact, you may never get a chance to use them  I take back that extended metaphor because some of us are not on that plane.  Noooo, we’re the ones whose careers were ended by the financial catastrophe and haven’t been able to afford a ticket and can’t get a subsidy because we make too little money.  So, we’re stuck there on the tarmac, paying a penalty for being deadbeats, except we’re not deadbeats.  We’re just invisible to the Krugman types and the nation’s elderly who just can’t understand what horrible thing we must have done if we can’t find new jobs.  

Why the GOP Won't Touch Obamacare - By now, most of us are expecting widespread GOP victories in the midterm elections that will give Republicans complete control of Capitol Hill come January. But Tuesday will also deliver an inconvenient truth: The single item at the top of the Republican legislative agenda, the signature talking point of the last four years, is likely to go nowhere. Even Mitch McConnell admits it. After six years of railing against Obamacare, here’s the sum total of what Republicans are likely to do if they win control of the Senate: Little, if anything. Obamacare has been Republicans’ favorite whipping boy even before it became law in 2010. They’ve used it time and again on the campaign trail to fire up voters against the White House and Democrats in Congress. But now that they seem poised to begin doing something about it, they will have to face a new reality: The Affordable Care Act is here to stay and Republicans will be political losers if they mess with it too much. But you wouldn’t know that from listening to the talking points. In a Wall Street Journal column, Karl Rove wrote that “Obamacare is re-emerging as a major liability for the Democratic Senate that passed it.” (Never mind that he distorted the results of a Gallup poll, inaccurately claiming that 54 percent of respondents said the Affordable Care Act has hurt their families when what they said, in fact, was that the ACA thus far has had no effect on their families. This week McConnell admitted that repealing Obamacare is impossible, in the face of a likely Democratic filibuster and a certain presidential veto. But McConnell didn’t tell the whole story. That was left to Ohio’s Republican Governor John Kasich, when he pointed out last week that the “political and ideological opposition” to the ACA won’t hold water “against real flesh and blood and real improvements in people’s lives.”

Supreme Court agrees to hear new challenge to Obamacare (+video) - The US Supreme Court has agreed to wade back into the contentious national debate over President Obama’s health-care reform law, once again examining a dispute that poses a threat to the very survival of Obamacare. The action came in a one-line order issued Friday. The justices offered no further explanation. It comes 2-1/2 years after the high court upheld the Affordable Care Act in a 5 to 4 vote, in a challenge to the law's individual mandate. Friday's order means the court will take up a potential landmark case testing whether the Internal Revenue Service usurped the powers of Congress when it passed a regulation permitting the awarding of billions of dollars in tax subsidies to Americans signing up for health-care plans under the ACA. . Specifically at issue is a controversial and disputed provision within the ACA that appears to restrict the awarding of tax subsidies to only those consumers who purchase health-care policies on a health-care exchange established by a state.  Such tax subsidies are intended to help low- and moderate-income consumers buy health insurance.

The Supreme Court will hear King. That’s bad news for the ACA. -- In a significant setback for the Obama administration, the Supreme Court just agreed to review King v. Burwell, the Fourth Circuit’s decision upholding an IRS rule extending tax credits to federally established exchanges. The government had asked the Court to take a pass because there’s no split in the circuit courts over whether the IRS rule is valid. At least four justices—it only takes four to grant certiorari—voted to take the case anyhow.As I see it, what’s troubling here is not that the Court took King in the absence of a split. Its rules permit it to hear cases involving “important question[s] of federal law that ha[ve] not been, but should be, settled by this Court.” It’s not remotely a stretch to say that King presents one such important question. On this, I part ways with those who claim that granting the case marks a clear departure from the Court’s usual practices. No, what’s troubling is that four justices apparently think—or at least are inclined to think—that King was wrongly decided. As I’ve said before, there’s no other reason to take King. The challengers urged the Court to intervene now in order to resolve “uncertainty” about the availability of federal tax credits. In the absence of a split, however, the only source of uncertainty is how the Supreme Court might eventually rule. After all, if it was clear that the Court would affirm in King, there would have been no need to intervene now. The Court could have stood pat, confident that it could correct any errant decisions that might someday arise.

Obama's Week Just Got Worse: Supreme Court To Rule On ObamaCare Subsidies -- Getting 'shellacked' in the Midterms, coming 2nd to Putin as the world's most powerful person, and now, as AP reports, The Supreme Court agrees to rule on insurance subsidies in a new challenge to ObamaCare. Simply put they will judge whether subsidies for middle- and lower-income people are legal... As AP reports, The Supreme Court has agreed to hear a new challenge to President Barack Obama's health care law. The justices on Friday say they will decide whether the law authorizes subsidies that help millions of low- and middle-income people afford their health insurance premiums. A federal appeals court upheld Internal Revenue Service regulations that allow health-insurance tax credits under the Affordable Care Act for consumers in all 50 states. Opponents argue that most of the subsidies are illegal. The long-running political and legal campaign to overturn or limit the 2010 health overhaul will be making its second appearance at the Supreme Court. The justices upheld the heart of the law in a 5-4 decision in 2012 in which Chief Justice John Roberts provided the decisive vote.

You Are Probably Getting Screwed By Your Hospital - When it comes to healthcare, America ranks dead last among industrialized nations in affordability and patient access. And while the Affordable Care Act (aka: Obamacare) has made strides in reducing the number of Americans who are uninsured, healthcare costs are expected to grow another 6.8% in 2015 due to an influx of new patients covered (many of whom have delayed procedures and check-ups because times were tough). A Commonwealth Fund survey found that Americans on average spend $4,000 more in healthcare costs than their European counterparts. What's worse-- the exorbitant price of medication has discouraged 40% of Americans from filling their prescriptions. How is this happening? One particular problem in the system is the variation in pricing for procedures from one hospital to the next. In light of this issue, many have began to investigate the role and efficacy of the chargemaster, or the "lengthy list of a hospital's prices for every single procedure performed in the hospital and for every supply item used during those procedures." If the hospital is a restaurant, think of the chargemaster as the really long menu.  Currently, the same procedure may differ egregiously from one part of the country to the next. In Ada, Oklahama a joint replacement surgery costs around $5,300 but in Monterey Park, California the same procedure costs upwards of $223,000. But this inconsistency is not solely a result of geographic factors. Even within the city of Denver, treatment for heart failure ranges from $21,000 to $46,000. It is clear we need a more streamlined system.

Americans’ Obesity, Drug Use Cancels Gains From Less Smoking, Safer Cars - Americans are smoking less, driving safer and have cut back on heavy boozing, leading to healthier and longer lives over the past half-century. Unfortunately, Americans also are getting fatter, overdosing on drugs and getting shot more frequently, factors which have all but wiped out those positive trends, according to a paper by Susan Stewart, a researcher at the National Bureau of Economic Research, and David Cutler, an economics professor at Harvard University. The two examine the contribution of behavioral change to public health from 1960 to 2010. “While health is often thought of in terms of diagnosed medical conditions, it is modifiable behavioral risk factors such as obesity and smoking that account for the largest portion of deaths each year,” Stewart and Cutler write. Smoking and automobile-related deaths showed the biggest improvements in the research. The prevalence of smoking fell by more than half over the 50-year period studied, likely a result of smoke-free laws, higher taxes, educational campaigns and advertising restrictions. That’s a big deal for an affliction that remains the leading preventable cause of death in the U.S. According to the U.S. Surgeon General, smoking accounts for more than 480,000 premature deaths a year. Motor vehicle-related deaths also showed a big improvement despite more people driving more miles.

The Red Cross’ Secret Disaster - In 2012, two massive storms pounded the United States, leaving hundreds of thousands of people homeless, hungry or without power for days and weeks. Americans did what they so often do after disasters. They sent hundreds of millions of dollars to the Red Cross, confident their money would ease the suffering left behind by Superstorm Sandy and Hurricane Isaac. They believed the charity was up to the job. They were wrong. The Red Cross botched key elements of its mission after Sandy and Isaac, leaving behind a trail of unmet needs and acrimony, according to an investigation by ProPublica and NPR. The charity’s shortcomings were detailed in confidential reports and internal emails, as well as accounts from current and former disaster relief specialists. What’s more, Red Cross officials at national headquarters in Washington, D.C. compounded the charity’s inability to provide relief by “diverting assets for public relations purposes,” as one internal report puts it. Distribution of relief supplies, the report said, was “politically driven.” During Isaac, Red Cross supervisors ordered dozens of trucks usually deployed to deliver aid to be driven around nearly empty instead, “just to be seen,” one of the drivers, Jim Dunham, recalls. “We were sent way down on the Gulf with nothing to give,” Dunham says. The Red Cross’ relief effort was “worse than the storm.” During Sandy, emergency vehicles were taken away from relief work and assigned to serve as backdrops for press conferences, angering disaster responders on the ground.

The Psychology of Irrational Fear - It’s a big time of the year for fear. Not only is it Halloween, a holiday more recently known for sexy hamburgers but originally famous for its spookiness, but also because the U.S. has had four (now one) cases of Ebola diagnosed on its soil. Maybe it’s the combination of the two that helps explain the abundance of ridiculous statements like the above in recent weeks. Call it Ebolanoia. A recent CBS poll found that 80 percent of Americans now think U.S. citizens who travel to West Africa should be quarantined upon their return, even though most health experts think that would only make Africa’s Ebola outbreak worse. Of course, Ebola is partly a stand-in for our ongoing collective anxieties, ever simmering and child-leash-purchase inducing. In calmer times, we might instead be wringing our hands over gluten, swine flu, or that illegal immigrants are coming here to “steal our jobs.” A recent survey from Chapman University found that Americans are most afraid of walking alone at night, identity theft, safety on the Internet, becoming the victim of a mass shooting, and having to speak in public. The study also found that Democrats were most likely to be worried about personal safety, pollution, and man-made disasters. Republicans, meanwhile, had the highest levels of fear about the government, immigrants, and “today’s youth.” It also found that having a low level of education or watching talk- or true-crime TV was associated with harboring the most types of fear. Despite the fact that crime rates have decreased over the past 20 years, most Americans, the survey found, think all types of crime have become more prevalent.

How To Profit Off Your Ignorance - Susan Of Texas -Not only did Canada develop an Ebola vaccine some time ago, they sold it to a US firm for manufacturing. But the Free Hand of the Marketplace let it slip through its fingers, because the Free Hand must be crossed with silver before it markets anything. Canada’s outstanding work to invent one of the world’s most promising vaccines against Ebola perfectly epitomizes both the promise of public research, and the perverse incentives of the for-profit industry. Early this century Health Canada recognized the need for an Ebola vaccine, and assigned scientists with the Public Health Agency of Canada to find one. Almost a decade ago they patented a vaccine that prevents Ebola in monkeys. Canadian researchers should have been hailed as heroes.  Unfortunately, the government snatched defeat from the jaws of victory by handing over this important invention to the private sector – for a pittance. In 2010 Ottawa licensed the Ebola vaccine to a small U.S. firm called NewLink Genetics. I’ve been asking Health Canada to explain how the licensing was negotiated, and how much Canada was paid; I have yet to receive an answer. NewLink’s financial filings report it paid Canada an initial patent and signing fee, and a “milestone” payment of up to $205,000; “low single-digit” royalty fees will be payable on future commercial sales. Most distressingly, guided by the profit-maximizing calculations of NewLink’s executives, the promising vaccine languished for years with no human testing – until this year’s outbreak. 

W.H.O. Assails Delay in Ebola Vaccine - The leader of the World Health Organization criticized the drug industry on Monday, saying that the drive for profit was one reason no vaccine had yet been found for Ebola.  In a speech at a regional conference in Cotonou, Benin, Dr. Margaret Chan, the director general of the W.H.O., also denounced the glaring absence of effective public health systems in the worst-affected countries. At least 13,567 people are known to have contracted the Ebola virus in the latest outbreak, and 4,951 have died, according to the latest dataon the W.H.O. website, which was updated on Friday. All but a few of the cases have been in Guinea, Liberia and Sierra Leone.Dr. Chan said her organization had long warned of the consequences of greed in drug development and of neglect in public health.In the midst of the Ebola crisis, she said, these “two W.H.O. arguments that have fallen on deaf ears for decades are now out there with consequences that all the world can see, every day, on prime-time TV news.”

Contained? NYC Department Of Health Actively Monitoring 357 Individuals For Ebola -- The good news is that New York's first Ebola patient, Dr. Spencer, is "showing improvement." The bad news is:  357 individuals are being actively monitored as of Nov 5.  Contained indeed and "hard to catch." Perhaps that explains why Obama just asked for $6.2 billion to manage this monster.Via NY DOH,The City is announcing that, after an additional physician review, one individual under quarantine because of contact with Dr. Spencer will now be subject to direct active monitoring. The individual poses no public health threat and is showing no symptoms.  This person's daily movements in New York City will no longer be restricted, and the individual will be assessed twice each day by Health Department staff.  One individual in New York City currently remains under quarantine. The patient being treated for Ebola at HHC Bellevue Hospital Center continues to show improvement and is stable. He remains in isolation and is receiving treatment.The City is also providing an update on the number of individuals under active monitoring in New York City. As of Wednesday, November 5th, 357 individuals are being actively monitored by the Health Department. The vast majority of these individuals are travelers arriving in New York City within the past 21 days from the three Ebola-affected countries who are being monitored post-arrival, as well as Bellevue Hospital staff caring for Dr. Spencer.  The list also includes FDNY EMS staff who transported Dr. Spencer to Bellevue and the lab workers who conducted Dr. Spencer's blood test.

Better Staffing Seen as Crucial to Ebola Treatment in Africa - Dr. Rick Sacra, a missionary who contracted Ebola in Liberia this August, was first treated there. Each nurse on the ward cared for 15 or 20 patients, and none could work for more than an hour at a time because the protective gear was so suffocatingly hot. They never drew his blood for lab tests. There was no lab.“A nurse makes rounds maybe once every eight hours,” Dr. Sacra said. A doctor came by once a day. “The staff is so few.”After he was evacuated to Nebraska Medical Center, a nurse stayed in his room all the time, and dozens of people were involved in his care. He had daily blood tests to monitor his electrolytes, blood count, liver and kidneys, and doctors used the results to adjust what went into his intravenous lines. The stark difference in the care available in West Africa and the United States is reflected in the outcomes, as well. In West Africa, 70 percent of people with Ebola are dying, while seven of the first eight Ebola patients treated in the United States have walked out of the hospital in good health. Only one died: Thomas Eric Duncan, a Liberian, whose treatment was delayed when a Dallas hospital initially misdiagnosed his illness.

Ebola Infections Dropping With Safer Burials, Power Says - An Ebola burial team carries the body of a woman through the mud in the New Kru Town suburb of Monrovia, Liberia, on Oct. 10, 2014. New Ebola infections in west Africa, the epicenter of the disease outbreak, have dropped in places where U.S. and British aid workers encourage safe burial practices, according to Samantha Power, U.S. ambassador to the United Nations. Power recently returned from a tour of Liberia, Sierra Leone and Guinea, where Ebola has infected about 13,500 people, killing almost 5,000. In an interview on CBS’s “Face the Nation,” Power said that 90 percent of people in Liberia’s capital Monrovia are now safely burying the dead, while in Sierra Leone almost 100 percent are buried properly. She credited the improvement to efforts by U.S. and British troops and aid workers to direct treatment and monitor burials. “The rate of improvement in safe burial came over a four-or five-day period just because of the injection of command and control, frankly, by the United States and by the British and the Sierra Leonean context,” Power said. “More and more people are getting educated.” The U.S. Centers for Disease Control and Prevention has said that 50 percent to 70 percent of new infections occur during burial of people killed by Ebola because their body fluids still have the virus. There were 2,966 confirmed or suspected new cases of Ebola in west Africa in the 21-day period ending Oct. 27, according to the World Health Organization.

S.Leone Ebola outbreak 'catastrophic': aid group MSF - (AFP) - Ebola has wiped out whole villages in Sierra Leone and may have caused many more deaths than the nearly 5,000 official global toll, a senior coordinator of the medical aid group MSF said Friday. Rony Zachariah of Doctors Without Borders, known by its French initials MSF, said after visiting Sierra Leone that the Ebola figures were "under-reported", in an interview with AFP on the sidelines of a medical conference in Barcelona. "The situation is catastrophic. There are several villages and communities that have been basically wiped out. In one of the villages I went to, there were 40 inhabitants and 39 died," he said. The World Health Organization (WHO) published revised figures on Friday showing 4,951 people have died of Ebola and there was a total of 13,567 reported cases. "The WHO says there is a correction factor of 2.5, so maybe it is 2.5 times higher and maybe that is not far from the truth. It could be 10,000, 15,000 or 20,000," said Zachariah. He stressed that "whole communities have disappeared but many of them are not in the statistics. The situation on the ground is actually much worse." He added that in some places the local healthcare systems were overwhelmed. "You have one nurse for 10,000 people and then you lose 10, 11, 12 nurses. How is the health system going to work?"

New Ebola outbreak in Sierra Leone raises fears of new infection chain - A fresh outbreak of Ebola in a part of Sierra Leone where the virus was thought to have been contained has raised fears of a new, uncontrolled infection chain that could send the death toll soaring. A Red Cross ambulance team was sent to the remote district of Koinadugu, which had prided itself on being the only area to have kept Ebola at bay, on Tuesday to urgently collect 30 corpses for medical burial. The outbreak is a major setback for the Ebola response force and the district, which two weeks ago remained resolved to control the spread of the virus that has officially infected 5,338 people and claimed 1,510 lives in the country.  Koinadugu has been operating a self-imposed quarantine for four months, thanks to the intervention of an expat businessman, Momah Konte, who returned from Washington and worked with local officials and tribal chiefs to try to prevent the spread. The Red Cross said the emergency burial team was making the five-hour journey from Freetown on Tuesday to collect the bodies in the Nenie chiefdom east of the district’s capital Kabala. A spokesman said that there were reports of a further 25 ill with Ebola and another 255 being monitored after coming into contact with the dead and the sick.

ISIS May Be Weaponizing Ebola, Spanish Government Warns -- In a somewhat stunning announcement, Spain’s State Secretary for Security, Francisco Martinez, said in an address to the parliament, that extremists connected to the Islamic State (the terrorist organization formerly known as ISIS) have been considering using Ebola as a weapon against the West. As RT reports, Martinez notes a close eye is being kept on online chat rooms, where such attacks are reportedly discussed among jihadist groups where “The use of Ebola as a poisonous weapon against the United States” was the topic of conversation. So far US Homeland Security Secretary Jeh Johnson denied these allegations citing "no specific credible intelligence."

Bill Gates Warns: The World Is Not Prepared For Epidemics - The Bill & Melinda Gates Foundation has committed $50 million to fight Ebola.  That’s a lot of money, but not when you consider what Bill Gates is spending to fight the preventable and treatable disease malaria: $200 million this year, reports the Wall Street Journal.  Malaria struck down 207 million people in 2012 and killed 627,000, many of them also in West Africa, where Ebola has reached epidemic proportions (over 13,000 cases and growing by thousands a week, the CDC reports).  Gates is working to eradicate malaria. So he was in New Orleans at the American Society of Tropical Medicine and Hygiene conference this week to talk about those efforts. Naturally the talk at the conference quickly turned to his thoughts on Ebola. Gates said he views this outbreak as a warning that the world needs to get its act together to prevent something even more deadly from spreading. The world as a whole doesn’t have the preparedness for epidemics, and we’ve had a few flu scares that got us to do some minor things, but not enough. If this thing had been twice as transmissive, we’d be in a lot of trouble, and there are agents that have a real chance of coming on in the next several decades that are far more transmissive than this is. What’s to stop some form of SARS showing up?

How to Mend the Conservation Divide - A SCHISM has recently divided those who love nature. “New conservationists” have been shaking up the field, proposing new approaches that break old taboos — moving species to new ranges in advance of climate change, intervening in designated wilderness areas, using nonnative species as functional stand-ins for those that have become extinct, and embracing novel ecosystems that spring up in humanized landscapes. Some “old conservationists” have reacted angrily to this, preferring to keep the focus on protecting wilderness and performing classical restoration that keeps ecosystems as they were hundreds of years ago. Editorials, essays and books have been lobbed back and forth, feathers have been ruffled and conservation groups and government officials have felt pressure from both sides. The truth is, despite the disagreements, both groups love nature and want to protect it. These seemingly competing alternatives are really complementary parts of the smartest strategy: We should try everything. Conservation used to seem pretty straightforward: set aside tracts of nature and they will take care of themselves. It is not so simple anymore. Nature left unmanaged is changing in surprising ways because of the great and accelerating human influences of what is being called the Anthropocene — the new epoch of climate change, species movements and global-scale land-use change. Today, keeping nature functioning the way it did before the Industrial Revolution requires increasingly hard and expensive work.

Unapproved GMO wheat grows mistrust in USDA - An unapproved variety of GMO wheat was found in Montana, proving once again that little to no regulation is actually being enforced against Big Ag and biotech companies. It’s no secret that the USDA consistently turns its head while GMO-related rules and regulations are repeatedly broken. According to an article on USA Today, the U.S. is the leader in GMO crops, particularly in Iowa, where 95 percent of the corn planted this past year came from genetically modified seeds. GMO wheat mishaps foster skepticism of USDA: In September, the Agriculture Department’s Animal and Plant Health Inspection Service, which oversees biotech crops, said it found the Monsanto wheat two months earlier on a research field at Montana State University, more than a decade after the crop was legally tested there between 2000 and 2003.The finding came as the USDA concluded a nearly yearlong probe into a similar wheat discovery in Oregon in May 2013. In that case, the government was unable to determine how the modified seeds developed by Monsanto appeared eight years after testing ended for the biotech variety. Neither wheat strain has been approved for sale or consumption. Each year, hundreds of tests are conducted around the United States, mostly on corn, soybeans and alfalfa by seed giants including Monsanto, Syngenta and DuPont Pioneer. In the fiscal year that ended Sept. 30, the Animal and Plant Health Inspection Service authorized the planting of more than 500 crops that could be tested on as many as 11,300 sites across the nation.

The Browbeat and Baffle Political Battle  -- It never ceases to disgust, horrify and amaze how people are hoodwinked by marketing, media and advertizing.  A textbook case is election 2014.  States have measures on the ballot, and Oregon has one that big business in particular doesn't like.  As a result the campaign to defeat it has become the costliest in Oregon history as big business pounds the airwaves with their deep pocket funded misleading and manipulative ads.   A nearly half-million dollar contribution from soft-drink giant Coca-Cola appears to have put Oregon's mandatory GMO-labeling measure over the top as the costliest ballot measure in state history. Coca-Cola, while donating large sums of money in helping defeat similar labeling measures in California in 2012 and Washington in 2013, had sat out the fight over Measure 92.  Measure 92 was polled last June as 77% of Oregonians voting for it.  Now, it is about to go down in defeat.  This change is the result of pure pounding the airwaves with false political ads, one every commercial break, about every two minutes.  Big food and big chemical have put their big thumb on the political scale:  The Oregonian has been keeping tabs on how Yes on Measure 92 is being outspent and by whom.  The special interests have poured so much money into defeating this measure, the money is currently $20 million to a $6.8 million, almost 3 to 1.  That is one measure in one state.  The contribution donor list is also very depressing.  A woman who owns a coastal fishery gives $200 to label GMO foods, a public defender offers $400 to pass measure 92.  Compare that to the $4.5 million poured in by Dupont as Monsanto contributes half a million there, 2.5 million over there, all to stop Oregonians from knowing what is in their food.

Genetically modified escalation -- Vandana Shiva, despite her exceptional public speaking skills, is not without her critics. Several articles over the past year, among them one in the New Yorker and another in Grist, attack various facts upon which she bases her anti-GMO platform. As best I can tell these pieces had no discernible impact on her popular support, nor did they shift the greater debate over the regulation and labeling of GM foods.  This frightens me. In the GMO debate, the rift between the two opposing sides grows wider by the day and shows no sign of narrowing. Opponents in the debate can’t even agree on the most basic facts relevant to their issue. Do genetically modified crop varieties deliver higher yields? Do they contribute to negative health effects in people and livestock? Do they lead to negative environmental consequences? There are studies that take opposing sides on all of these issues and, sadly enough, their findings are often predictable given their funding sources and the ideological predilections of the researchers involved.The greater debate around the regulation and labeling of GMOs is caught in a trap of escalation. Both sides in the debate – the anti-GMO activists like Vandana Shiva on one side and the biotech firms and their pro-GMO allies on the other – take turns contorting facts and twisting statistics in their favor, coming up with ever more extreme arguments to bolster their respective cases. They appeal to emotion, to fear, to belief, to tradition; they mount character attacks and smear campaigns, demonize each other, and attempt to use political clout to force people out of their jobs and win underhanded legal battles. As their rhetoric grows ever more fierce and wanders further from reality, it becomes nearly impossible to ground their debate in fact and find the common ground needed to end the conflict. Every day the stakes get higher, and higher, and higher…

Landmark 20-Year Study Finds Pesticides Cause Depression In Farmers - Earlier this fall, researchers from the National Institute of Health finished up a landmark 20-year study, a study that hasn’t received the amount of coverage it deserves. About 84,000 farmers and spouses of farmers were interviewed since the mid-1990s to investigate the connection between pesticides and depression, a connection that had been suggested through anecdotal evidence for far longer. We called up Dr. Freya Kamel, the lead researcher on the study, to find out what the team learned and what it all means. Spoiler: nothing good. Because the data is so excessive, the researchers have mined it three times so far, the most recent time in a study published just this fall. The first one was concerned with suicide, the second with depression amongst the spouses of farmers (Kamel says “pesticide applicators,” but most of the people applying pesticides are farmers), and the most recent with depression amongst the farmers themselves. There’s a significant correlation between pesticide use and depression, that much is very clear, but not all pesticides. The two types that Kamel says reliably moved the needle on depression are organochlorine insecticides and fumigants, which increase the farmer’s risk of depression by a whopping 90% and 80%, respectively. The study lays out the seven specific pesticides, falling generally into one of those two categories, that demonstrated a categorically reliable correlation to increased risk of depression.

Salt's poisonous effect is growing threat to crop yields− Salt is poisoning around 2,000 hectares of irrigated farm land every day – and has been doing so for the last 20 years, according to new research. Think of an area about the size of 3,000 football fields that can no longer be used to produce food each day. And then remember that the global population actually grows by around 200,000 people every day. Manzoor Qadir, senior research fellow at the United Nations University’s Institute for Water, Environment and Health, and colleagues report in the journal Natural Resources Forum that an area of farmland the size of France – 62 million hectares – has been affected by the build-up of salts in irrigated soil. This is one-fifth of all irrigated land. “To feed the world’s anticipated nine billion people by 2050, and with little new productive land available, it’s a case of all lands needed on deck,” says Dr Qadir. “We can’t afford not to restore the productivity of salt-affected lands.” Salts degradation is an ancient hazard in arid and semi-arid lands, where groundwater is pumped from aquifers below the bedrock and used to grow crops. Evaporation and transpiration leave precipitated salts around the roots of each crop and – since there is no fresh rainwater to wash away the salts − sooner or later the levels build up to intolerable scales, and the land becomes increasingly unproductive.

Europe sees big declines in common bird species - Using data from 25 countries, scientists estimate that European bird populations have declined by more than 420 million over 3 decades, with some of the biggest losses coming from common species such as house sparrows, skylarks, and starlings. The Guardian reports that some rarer birds have seen their numbers increase thanks to conservation efforts, but the more robust species have not received the same attention and have suffered for it. Scientists say the declines are largely caused by habitat loss and that broader, more comprehensive approaches will be required to target these common species because of their widespread distribution and abundance.

Climate change is disrupting flower pollination, research shows: Sexual deceit, pressed flowers and Victorian bee collectors are combined in new scientific research which demonstrates for the first time that climate change threatens flower pollination, which underpins much of the world’s food production. The work used museum records stretching back to 1848 to show that the early spider orchid and the miner bee on which it depends for reproduction have become increasingly out of sync as spring temperatures rise due to global warming. The orchid resembles a female miner bee and exudes the same sex pheromone to seduce the male bee into “pseudocopulation” with the flower, an act which also achieves pollination. The orchids have evolved to flower at the same time as the bee emerges. But while rising temperatures cause both the orchid and the bee to flower or fly earlier in the spring, the bees are affected much more, which leads to a mismatch. “We have shown that plants and their pollinators show different responses to climate change and that warming will widen the timeline between bees and flowers emerging,” said Dr Karen Robbirt, at the Royal Botanic Gardens, Kew and the University of East Anglia (UEA). “If replicated in less specific systems, this could have severe implications for crop productivity.” She said the research, published in Current Biology on Thursday, is “the first clear example, supported by long-term data, of the potential for climate change to disrupt critical [pollination] relationships between species.”

TED Talk by Nina Fedoroff on Global Food Production - K. McDonald -  This 18-minute talk is by noted food system expert Nina Fedoroff, Pennsylvania State Professor and scientist. It begins with a discussion of the drivers behind affordability and food price swings. She discusses whether there are limits to feeding growing populations during climate change, and with depleting aquifers. In the last eight minutes of the talk, she discusses how we will be growing food in the future, a future in which she supports genetic modification as a tool to making food production more secure.

NASA Bombshell: Global Groundwater Crisis Threatens Our Food Supplies and Our Security - An alarming satellite-based analysis from NASA finds that the world is depleting groundwater — the water stored unground in soil and aquifers — at an unprecedented rate. A new Nature Climate Change piece, “The global groundwater crisis,” by James Famiglietti, a leading hydrologist at the NASA Jet Propulsion Laboratory, warns that “most of the major aquifers in the world’s arid and semi-arid zones, that is, in the dry parts of the world that rely most heavily on groundwater, are experiencing rapid rates of groundwater depletion.”   The groundwater at some of the world’s largest aquifers — in the U.S. High Plains, California’s Central Valley, China, India, and elsewhere — is being pumped out “at far greater rates than it can be naturally replenished.” The most worrisome fact: “nearly all of these underlie the world’s great agricultural regions and are primarily responsible for their high productivity.”And this is doubly concerning in our age of unrestricted carbon pollution because it is precisely these semiarid regions that are projected to see drops in precipitation and/or soil moisture, which will sharply boost the chances of civilization-threatening megadroughts and Dust-Bowlification. As these increasingly drought-prone global bread-baskets lose their easily accessible ground-water too, we end up with a death spiral: “Moreover, because the natural human response to drought is to pump more groundwater continued groundwater depletion will very likely accelerate mid-latitude drying, a problem that will be exacerbated by significant population growth in the same regions.”

Biggest Brazil Metro Area Desperate for Water - Brazil is approaching the December start of its summer rainy season with its water supply nearly bare. More than 10 million people across Sao Paulo state, Brazil's most populous and the nation's economic engine, have been forced to cut water use over the past six months. A reservoir used by Itu has fallen to 2 percent of capacity and, because its system relies on rain and groundwater rather than rivers, the city is suffering more than others. In Itu, desperation is taking hold. Police escort water trucks to keep them from being hijacked by armed men. Residents demanding restoration of tap water have staged violent protests. Restaurants and bars are using disposable cups to avoid washing dishes, and agribusinesses are transporting soybeans and other crops by road rather than by boat in areas where rivers have dried up. "We are entering unknown territory," said Renato Tagnin, an expert in water resources at the environmental group Coletivo Curupira. "If this continues, we will run out of water. We have no more mechanisms and no water stored in the closet." The Sao Paulo metropolitan area ended its last rainy season in February with just a third of the usual rain total — only 9 inches (23 centimeters) over three months. Showers in October totaled just 1 inch (25 millimeters), one-fifth of normal. Only consistent, steady summer rains will bring immediate relief, experts say.

These Maps of California's Water Shortage Are Terrifying - Just how bad is California's water shortage? Really, really bad, according to these new maps, which represent groundwater withdrawals in California during the first three years of the state's ongoing and epochal drought: The maps come from a new paper in Nature Climate Change by NASA water scientist James Famiglietti. "California's Sacramento and San Joaquin river basins have lost roughly 15 cubic kilometers of total water per year since 2011," he writes. That's "more water than all 38 million Californians use for domestic and municipal supplies annually—over half of which is due to groundwater pumping in the Central Valley." Famiglietti uses satellite data to measure how much water people are sucking out of the globe's aquifers, and summarized his research in his new paper. More than 2 billion people rely on water pumped from aquifers as their primary water source, Famiglietti writes. Known as groundwater (as opposed to surface water, the stuff that settles in lakes and flows in streams and rivers), it's also the source of at least half the irrigation water we rely on to grow our food. When drought hits, of course, farmers rely on groundwater even more, because less rain and snow means less water flowing above ground.  The lesson Famiglietti draws from satellite data is chilling: "Groundwater is being pumped at far greater rates than it can be naturally replenished, so that many of the largest aquifers on most continents are being mined, their precious contents never to be returned."

There’s A 99 Percent Chance 2014 Will Be The Hottest Year California Has Ever Seen -- California is on course to have its hottest year ever, Climate Central reported on Wednesday.  The state has ben buffeted by recurring heat waves for several years, and has been in a near ceaseless state of drought since 2011 — with every inch of the state in at least “moderate” drought, and most of it in “extreme” to “exceptional” drought, as recently as September. But things worsened in 2014, as the recurring heat waves shifted into one continuous bake of high temperatures that hasn’t let up. California set another record this year for the hottest first six months ever recorded, Los Angeles endured a record-breaking heat wave in October that forced a number of school closures, and the city faces another bout of extreme heat this week. “It’s just been very consistently warm throughout the year,” With 2014 almost concluded, the chances now top 99 percent that it will beat out 1934 as the hottest year ever recorded in California, according to records going back to 1895. At this point, to fall short of the mark, the state “would have to have a December that’s basically colder than anything we’ve had in California,” Iniguez continued. “Which isn’t going to happen.”

Election Divides GOP On Whether To Seize And Sell America’s Public Lands - In the run-up to Tuesday’s elections, each week seemed to bring a new Republican candidate for federal and state office advocating for America’s national forests, wildlife areas and other public lands to be seized by the states or auctioned off to the highest bidder. Even the Republican National Committee (RNC) passed a resolution endorsing these extreme proposals earlier this year. Not all western state Republicans stood by their party’s platform in this election cycle, however. High-profile candidates who won competitive races in the West deliberately distanced themselves from their party’s platform, or avoided taking a stance on the issue altogether during their campaigns. At the same time, a number of western Republicans in competitive races who chose to embrace their party’s extreme stance came up short on Election Night. Proposals to seize and sell federal land are not only fundamentally unconstitutional, but also would cost state taxpayers millions of dollars, and in many cases, force the sale of public lands to the highest bidder.  Land grabs are also deeply unpopular among voters. Recent public opinion research, conducted by a bipartisan polling team, found that the majority of Western voters firmly oppose proposals to transfer America’s national forests and public lands to state ownership.

Why Sand Is Disappearing -  TO those of us who visit beaches only in summer, they seem as permanent a part of our natural heritage as the Rocky Mountains and the Great Lakes. But shore dwellers know differently. Beaches are the most transitory of landscapes, and sand beaches the most vulnerable of all. During big storms, especially in winter, they can simply vanish, only to magically reappear in time for the summer season.  It could be said that “a beach is a place where sand stops to rest for a moment before resuming its journey to somewhere else,”  Sand moved along the shore and from beach to sea bottom and back again, forming shorelines and barrier islands that until recently were able to repair themselves on a regular basis, producing the illusion of permanence. Today, however, 75 to 90 percent of the world’s natural sand beaches are disappearing, due partly to rising sea levels and increased storm action, but also to massive erosion caused by the human development of shores. Many low-lying barrier islands are already submerged. Yet the extent of this global crisis is obscured because so-called beach nourishment projects attempt to hold sand in place and repair the damage by the time summer people return, creating the illusion of an eternal shore.Before next summer, endless lines of dump trucks will have filled in bare spots and restored dunes. Virginia Beach alone has been restored more than 50 times. In recent decades, East Coast barrier islands have used 23 million loads of sand, much of it mined inland and the rest dredged from coastal waters — a practice that disturbs the sea bottom, creating turbidity that kills coral beds and damages spawning grounds, which hurts inshore fisheries.

Reinert Interview: Overfishing - K. Mcdonald - K.M.: You have some thoughts about overfishing. Please share them with us. Reinert: This subject really scares me.  I did some work for ten or more years down in the Galápagos Islands and part of what I saw down there was how the overfishing supply chain works. First, the artisanal fisherman, who rents his boat and his motor from importers in mainland Ecuador and Peru, pays his lease back with fish. It’s so horrible, because these boat owners put pressure on the small fisherman for bigger catches, all season catches, shark fins, sea bass, sea cucumbers, and the like. Big fishing boats from China, Korea, and Japan come sit just outside the protected limits and the artisanal fishermen bring them their catches.  Longer ago, these big Asian fishing boats would actually come into the protected waters of the Galápagos National Park, and I’ve seen them caught and put in jail for it, and you just know that for every incident in the Galápagos, there must be a thousand incidents elsewhere.  It is all so cold blooded. Money flows from brokers in the Far East into Ecuador, Peru, and Latin America to the intermediaries of these fishing operations.  To complete the picture, I’ve seen the unimaginably large fish markets in Tokyo and the enormous volumes of fish that come in and out of there every day. So I’ve seen this thing in operation from the little guy in Ecuador who’s illegally harvesting the sea cucumbers to that cucumber in the market in Tokyo and it makes me realize how huge and unstoppable it is and what an insatiable appetite there is in this world for fish.

New research quantifies what's causing sea level to rise - There have been a number of studies that have come out recently on ocean warming and sea-level rise. Collectively, they are helping scientists coalesce around an emerging understanding of climate change and its impact on the Earth. Most recently,a study by scientists Sarah Purkey, Gregory Johnson, and Don Chambers was published. This team was responsible for a 2010 paper that was groundbreaking in that it quantified very deep (abyssal) sea warming. This latest paper is, in some respects, a continuation of that work. The researchers recognized that changes to the sea levels are mainly caused by thermal expansion of ocean waters as they heat, changes to the saltiness of water, and by an increase in ocean waters as ice melts and flows into the sea. The total annual sea level rise is about 3 mm per year – the question is, how much of that is from expansion and how much is from melting? The researchers used a few tools to answer this question. One tool was ocean bottom pressure measurements. If you can measure changes to ocean pressure, you can deduce how much water is in the ocean. Another tool is through an inventory approach. This inventory method quantifies how much glaciers retreat, polar ice melts, and changes to water storage on land. The paper reports that both methods agree with each other. They conclude that increased water in the oceans is causing about 1.5–1.8 mm per year of sea level rise. The actual value depends, in part, on which years are under consideration. The authors don’t just consider the ocean as a whole. They break the ocean regions into seven different sections. The reason for this subdivision is that the change to ocean levels is not uniform. In some reasons, waters are rising quickly, in other regions, the rise is much slower or zero. One region for regional variability is that the Earth’s gravity is changing.

When thawing glaciers release pollutants: As glaciers increasingly melt in the wake of climate change, it is not only the landscape that is affected. Thawing glaciers also release many industrial pollutants stored in the ice into the environment. Now, within the scope of a Swiss National Science Foundation project, researchers from the Paul Scherrer Institute (PSI), Empa, ETH Zurich and the University of Berne have measured the concentrations of a class of these pollutants – polychlorinated biphenyls (PCB) – in the ice of an Alpine glacier accurately for the first time. The measurements reveal that the PCB levels in the atmosphere have decreased since the 1970s thanks to the meanwhile global ban on PCBs. Through the progressive melting of the glaciers, however, this residual waste risks being released back into the atmosphere. Climate change has altered the glacier landscape of the Alps dramatically in recent decades. Where long glacier snouts once extended, there are often only scattered ice fields now and mountain lakes are forming in their place. Fuerthermore the glaciers have melted away in low-lying areas. Not only does this change the face of the Alps; it also influences the water balance as glaciers are a major freshwater source in the Alpine region. Moreover, the thawing glaciers release pollutants that have been stored inside them for considerable periods of time.

The Economist explains: Why scientists are (almost) certain that climate change is man-made | The Economist --ON NOVEMBER 2ND the Intergovernmental Panel on Climate Change (IPCC), which represents mainstream scientific opinion, said that it was extremely likely that climate change is the product of human activity. Extremely likely in IPCC speak means having a probability of over 95%. The claim forms part of its fifth assessment on the state of the global climate. In its first assessment, in 1990, the IPCC had said that "the observed increase [in air temperatures] could be largely due to natural variability." Why have climate scientists become so much more certain that climate change is man-made, not natural? Many factors influence the climate but perhaps the single most important is carbon dioxide (CO₂). CO₂ absorbs infra-red heat at a constant rate and at a higher rate than nitrogen and oxygen—the main constituent parts of the atmosphere—so the more CO₂ in the air, the more the atmosphere will tend to warm up. Scientists attribute climate change to human activity mainly because people have been responsible for large increases in CO₂. At the start of the industrial revolution, in about 1800, there were 280 parts per million (ppm) of CO₂ in the atmosphere. That had been the level for most of human history. This year, however, concentrations exceeded 400 ppm, the first time it had reached that level for a million years. Most of the increase has been caused by people burning fossil fuels. In the United States, for example, 38% of the CO₂ produced in 2012 came from generating electricity and 32% came from vehicle emissions (the rest came from industrial processes, buildings and other smaller CO₂ production). People also produce CO₂ when they cut down forests for farmland and pasture. But the rate at which CO₂ absorbs heat—which has been established accurately in laboratories—does not explain all the increase in global temperatures. . If CO2 concentrations were to double from 1800 levels, global temperatures would rise by roughly 1°C. But there are many other influences upon the climate.

U.N. Panel Warns of Dire Effects From Lack of Action Over Global Warming - A core finding of the new report is that climate change is no longer a distant, future threat, but is being felt all over the world already. The group cited mass die-offs of forests, including those in the American West; the melting of land ice virtually everywhere in the world; an accelerating rise of the seas that is leading to increased coastal flooding; and heat waves that have devastated crops and killed tens of thousands of people. The report contained the group’s sharpest warning yet about the food supply, saying that climate change had already become a small drag on overall global production, and could become a far larger one if emissions continue unchecked. The reported noted that in recent years the world’s food system had shown signs of instability, with sudden price increases leading to riots and, in a few cases, the collapse of governments. Another central finding of the report is that climate change poses serious risks to basic human progress, in areas such as alleviating poverty. Under the worst-case scenarios, factors like high food prices and intensified weather disasters would most likely leave poor people worse off. In fact, the report said, that has already happened in some places.

World’s Scientists Warn: We Have ‘High Confidence’ In The ‘Irreversible Impacts’ Of Climate Inaction -- The world’s top scientists and governments have issued their bluntest plea yet to the world: Slash carbon pollution now (at a very low cost) or risk “severe, pervasive and irreversible impacts for people and ecosystems.” Scientists have “high confidence” these devastating impacts occur “even with adaptation” — if we keep doing little or nothing.On Sunday, the U.N. Intergovernmental Panel on Climate Change (IPCC) released the “synthesis” report of their fifth full scientific climate assessment since 1990. More than 100 governments have signed off line by line on this review of more than 30,000 studies on climate science, impacts, and solutions. Like every recent IPCC report, it is cautious to a fault — as you would expect from “its consensus structure, which tends to produce a lowest common denominator on which a large number of scientists can agree,” as one climatologist explained to the New York Times. And that “lowest common denominator” is brought to an even blander and lower level in the summary reports since they need to end up with language that satisfies every member government.The authors clearly understand this is the last time they have a serious shot at influencing the world’s major governments while we still have a plausible chance of stabilizing at non-catastrophic levels. IPCC chairman Rajendra Pachauri said this report will “provide the roadmap by which policymakers will hopefully find their way to a global agreement to finally reverse course on climate change.” That global agreement is supposed to be achieved over the next year and finalized at the December 2015 international climate talks in Paris.

U.N. talks of tough global climate targets, vague on national action: (Reuters) - A draft U.N. guide for slowing climate change says world greenhouse gas emissions may have to fall to a net zero this century but is vague about what each nation should do now. About 500 delegates, including scientists and government experts, are meeting in Copenhagen to edit the report, which is meant to guide policymakers in setting national goals for a global climate deal at a U.N. summit in Paris in late 2015. The draft synthesis report by the U.N.'s Intergovernmental Panel on Climate Change (IPCC) says rising world emissions will have to peak soon and then fall fast to limit risks of what could be "irreversible" damage. "Somewhere after the middle of this century human-caused emissions will have to come down to a net zero," Achim Steiner, head of the U.N. Environment Programme, told Reuters. "That in essence is going to design the arithmetic of national actions," he said of efforts to limit rising temperatures to avert desertification, mudslides, heatwaves, more powerful storms and rising sea levels. Net zero means that any emissions, for instance from burning fossil fuels, would be balanced by other measures such as extracting carbon dioxide from the air and burying it. The report indicates that net zero emissions would give a strong chance of achieving a U.N. goal of limiting a rise in average temperatures to 2 degrees Celsius (3.6F) above the temperatures in pre-industrial times.

Bill McKibben: IPCC Report Says Climate Change Is 'Severe, Widespread and Irreversible' » At this point, the scientists who run the Intergovernmental Panel on Climate Change (IPCC) must feel like it’s time to trade their satellites, their carefully calibrated thermometers and spectrometers, their finely tuned computer models—all of them for a thesaurus. Surely, somewhere, there must be words that will prompt the world’s leaders to act.  This week, with the release of their new synthesis report, they are trying the words “severe, widespread and irreversible” to describe the effects of climate change—which for scientists, conservative by nature, falls just short of announcing that climate change will produce a zombie apocalypse plus random beheadings plus Ebola. It’s hard to imagine how they will up the language in time for the next big global confab in Paris. But even with all that, this new document—actually a synthesis of three big working group reports released over the last year—almost certainly underestimates the actual severity of the situation. As the Washington Post pointed out this week, past reports have always tried to err on the side of understatement; it’s a particular problem with sea level rise, since the current IPCC document does not even include the finding in May that the great Antarctic ice sheets have begun to melt. (The studies were published after the IPCC’s cutoff date). But when you get right down to it, who cares? The scientists have done their job; no sentient person, including Republican Senate candidates, can any longer believe in their heart of hearts that there’s not a problem here. The scientific method has triumphed: over a quarter of a century, researchers have reached astonishing consensus on a basic problem in chemistry and physics.

'All We Need Is the Will to Change' -- A new report from the United Nation's panel of climate scientists offers little in the way of surprises: Climate change, it says, is almost entirely man-made; it will be irreversible if nothing is done soon; and reducing greenhouse gases to zero this century may be necessary to reverse its effects. This isn't surprising. The Intergovernmental Panel on Climate Change's final volume, dubbed the "Synthesis Report," echoes the previous three reports that relied on the findings of more than 800 scientists released over the previous 13 months. "Science has spoken," U.N. Secretary-General Ban Ki-moon declared at the launch of the report in Copenhagen. "There is no ambiguity in their message. Leaders must act. Time is not on our side." The report makes it clear that scientists are more certain than ever before that human activity is responsible for climate change. "Human influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history," the report says. To keep the the global temperature rise from reaching what the panel views as a dangerous level, emissions from fossil fuels may need to drop to zero by the end of the century. The report cites increasingly frequent and severe heat waves, melting glaciers, and dramatically changing sea levels as indicators of the accelerating rate of climate change.  Although the report by and large has a bleak outlook, it also strikes a hopeful tone, saying that educating the general public about climate change is the key to reversal.

Arctic Methane Emissions ‘Certain to Trigger Warming’ -- As climate change melts Arctic permafrost and releases large amounts of methane into the atmosphere, it is creating a feedback loop that is "certain to trigger additional warming," according to the lead scientist of a new study investigating Arctic methane emissions.   The study released this week examined 71 wetlands across the globe and found that melting permafrost is creating wetlands known as fens, which are unexpectedly emitting large quantities of methane. Over a 100-year timeframe, methane is about 35 times as potent as a climate change-driving greenhouse gas than carbon dioxide, and over 20 years, it's 84 times more potent.   Methane emissions come from agriculture, fossil fuel production and microbes in wetland soils, among other sources. The study says scientists have assumed that methane emissions from wetlands are high in the tropics, but not necessarily in the Arctic because of the cold temperatures there.  But a spike in global methane concentrations in the atmosphere seen since 2007 can be partly traced back to the formation of fens in areas where permafrost once existed, according to the study, led by University of Guelph (Ontario, Canada) biology professor Merritt Turetsky. The methane emissions stemming from melting permafrost could be critical to determining how fast the climate will change in the future.

Snowden documents reveal British climate espionage – Copenhagen climate summit targeted Against the backdrop of UN delegates gathering at the UN Intergovernmental Panel on Climate Change meeting this week in Copenhagen, Dagbladet Information today documents systematic intelligence operations against international climate negotiations by the British Government Communications Headquarters (GCHQ). Among others, the intelligence service targeted the most recent major UN Climate Change Conference in Copenhagen, the COP15, held in December 2009.  As reported earlier by Dagbladet Information, NSA, the US intelligence service, carried out intelligence operations against the COP15. The new documents, however, provide an insight into climate espionage of a more systematic and far-reaching nature than what is currently known about the operations of the NSA.  The climate espionage is a fresh example that modern intelligence services such as GCHQ and NSA are deployed with the purpose of securing advantages for their governments in international negotiations through the collection of intelligence on the confidential negotiation strategies of other countries. Among a number of other examples is the espionage carried out by GCHQ against participants in the economically decisive G20 summit in London in the spring of 2009, which has been uncovered by the British newspaper the Guardian.

Scotland’s Wind Energy Production In October Enough To Power Every Home - According to new numbers published by WWF Scotland this week, wind turbines generated enough electricity in October to power 3,045,000 homes in the U.K. — more than enough for all the homes in Scotland.  Referring to it as a “bumper month” for renewable energy, WWF Scotland’s director Lang Banks said in a statement that “while nuclear power plants were being forced to shut because of cracks, Scotland’s wind and sunshine were quietly and cleanly helping to keep the lights on in homes across the country.” Based on figures provided by WeatherEnergy, part of the European EnergizAIR project, the data also showed that for those homes fitted with solar panels, there was enough sunshine to meet around 40 percent of the electricity needs of an average home. Wind energy has been thriving in the U.K. in recent months. In August the U.K set a new record for wind power generation, with wind accounting for seventeen percent of national demand. This came around the time that EDF Energy announced it was temporarily shutting down four of its U.K. reactors, or around a quarter of its total nuclear generating capacity, due to longevity issues. The four EDF reactors under investigation were commissioned in 1983 and are officially scheduled to be taken out of service in 2019.

G20: Australia makes token concession on climate change after US lobbying -- Australia has reluctantly conceded that climate change can be included in a single brief paragraph of the G20 leaders’ communique after heavy lobbying by the US and European nations. The government had resisted any discussion of climate at the Brisbane meeting on the grounds that the G20 is primarily an economic forum, but other nations argued leaders’ agreements at meetings like the G20 are crucial to build momentum towards a successful international deal at the United Nations conference on climate change in Paris next year. The final wording of the leaders’ statement after the meeting is still being finalised but it is believed to simply recommit to addressing climate change through UN processes. The outcome – and Australia’s resistance – have been attacked by the leading climate economist Lord Nicholas Stern, who has written for Guardian Australia that the latest “synthesis” report by the Intergovernmental Panel on Climate Change (IPCC) should be “high on the agenda” for the G20 meeting.“The G20 is the most effective forum for the discussion of the growth story of the future, the transition to the low-carbon economy. Yet the local politics of a country of less than 25 million is being allowed to prevent essential strategic discussions of an issue that is of fundamental importance to the prosperity and well-being of the world’s population of 7 billion people,” he writes. Australia has agreed the G20 should discuss climate-related issues as part of its deliberations on energy efficiency, but this also appears to be wrapped up in a general commitment that countries consider taking action in the future on some of a long list of areas where energy efficiency improvements might be made.

Poor Countries Tap Renewables at Twice the Pace of Rich - - Emerging markets are installing renewable energy projects at almost twice the rate of developed nations, a report concluded. A study of 55 nations -- including China, Brazil, South Africa, Uruguay and Kenya -- found that they’ve installed a combined 142 gigawatts from 2008 to 2013. The 143 percent growth in renewables in those markets compares with an 84 percent rate in wealthier nations, which installed 213 megawatts, according to a report released today by Climatescope. The boom in renewables is often made for economic reasons, Ethan Zindler, a Washington-based Bloomberg New Energy Finance analyst, said in an interview. An island nation like Jamaica, where wholesale power costs about $300 a megawatt-hour, could generate electricity from solar panels for about half as much. Similarly, wind power in Nicaragua may be half as expensive as traditional energy. “Clean energy is the low-cost option in a lot of these countries,” Zindler said by telephone. “The technologies are cost-competitive right now. Not in the future, but right now.”

How Global Fossil Fuel Dependence Hasn’t Changed In 20 Years -- Whilst enjoying the good natured exchanges on this blog concerning the pros and cons of new renewable energy sources I decided to dig deeper into the success of Green energy policies to date. Roger Andrews produced this chart the other day and the low carbon energy trends caught my eye. It is important to recall that well over $1,700,000,000,000 ($1.7 trillion) has been spent on installing wind and solar devices in recent years with the sole objective of reducing global CO2 emissions. It transpires that since 1995 low carbon energy sources (nuclear, hydro and other renewables) share of global energy consumption has not changed at all (Figure 1). New renewables have not even replaced lost nuclear generating capacity since 1999 (Figure 2). ZERO CO2 has been abated and the world has done zilch to prepare itself for the expected declines (escalating costs) of fossil fuels in the decades ahead. If this is not total policy failure, what is?

Fossil fuels should be phased out by 2100 says IPCC: The unrestricted use of fossil fuels should be phased out by 2100 if the world is to avoid dangerous climate change, a UN-backed expert panel says. The Intergovernmental Panel on Climate Change says in a stark report that most of the world's electricity can - and must - be produced from low-carbon sources by 2050. If not, the world faces "severe, pervasive and irreversible" damage. The UN said inaction would cost "much more" than taking the necessary action. The IPCC's Synthesis Report was published on Sunday in Copenhagen, after a week of intense debate between scientists and government officials. It is intended to inform politicians engaged in attempts to deliver a new global treaty on climate by the end of 2015. The report says that reducing emissions is crucial if global warming is to be limited to 2C - a target acknowledged in 2009 as the threshold of dangerous climate change. The report suggests renewables will have to grow from their current 30% share to 80% of the power sector by 2050. In the longer term, the report states that fossil fuel power generation without carbon capture and storage (CCS) technology would need to be "phased out almost entirely by 2100".

Coal is the future, insists Tony Abbott as UN calls for action on climate change --The Australian prime minister, Tony Abbott, has stood by his defence of coal, saying it is the foundation of Australia’s foreseeable future, just days after a United Nations climate report called for an urgent reduction in carbon emissions. “For the foreseeable future coal is the foundation of our prosperity. Coal is the foundation of the way we live because you can’t have a modern lifestyle without energy,” the prime minister said on Tuesday. “You can’t have a modern economy without energy and for now and for the foreseeable future, the foundation of Australia’s energy needs will be coal. The foundation of the world’s energy needs will be coal.” Abbott said coal increased the prosperity of people in developing countries. “If we are serious about raising people’s living standards in less-developed countries, if we are serious about maintaining and improving living standards in countries like Australia we have to be serious about making the best use of coal.” Last month at the opening of a coalmine in central Queensland, the prime minister warned against the “demonisation” of fossil fuel. “Coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future, here in Australia, and right around the world,” he said.

Ohio Company Wants To Mine For Coal Under A State Park --A major Ohio coal company is trying to get permission to mine beneath an eastern Ohio state park.As the Columbus Dispatch reports, Ohio Valley Coal Co. has sent an application to the Ohio Department of Natural Resources to expand an existing mine into Barkcamp State Park. The expanded section would run 16 acres into the park, and include another 314 acres outside of the park. The company would be doing room-and-pillar mining, a process in which underground “rooms” are excavated for coal, while chunks of undisturbed land are left around the rooms as “pillars” in order to hold the land up.Robert Shields, chair of the Ohio chapter of the Sierra Club, told ThinkProgress that this method of mining is concerning to him. He said room and pillar mining leaves land vulnerable to subsiding, which could be dangerous for visitors in the state park. But he said he’d be concerned about any mining taking place in a state park — whether it was room-and-pillar or some other method. “We at the Sierra Club do not support any surface or subsurface mining or metal extraction in state parks. They are there for the enjoyment of people, and this does not contribute to that,” he said. “As a matter of fact, it detracts.” Shields is concerned for the park, but he’s more concerned about the fact that Ohio is still treating coal as a viable energy source.

The Impact of Fracking in the United States -  teleSUR - A boon for the U.S. domestic oil and gas production or an environmental menace to local populations? A natural gas explosion rocked eastern Ohio on Tuesday. In the town of Beallsville , located in Jefferson County , a well ruptured, sending methane gas into the air. Four hundred families had to be evacuated, according to The Columbus Dispatch, an Ohio newspaper, and a specialty company had to be brought in to shut down the well and prevent gas from leaking into the air. Ohio is one of several states in the union that has become a hot spot for hydraulic fracturing, or “fracking,” which is a natural gas and oil extraction method that involves horizontal drilling to shatter the deep shale layer to release natural gas. Along with eastern Ohio , fracking is most common in the states of Texas , Louisiana , Pennsylvania , North Dakota , and North York , all regions where there is a significant presence of shale bedrock layer. While there is no comprehensive national database tracking air or water contamination complaints due to fracking in the United States , the states of Pennsylvania , Ohio , Texas and West Virginia have filed complaints the most, with more than 100 cases in the last five years verified in Pennsylvania . Russia Today reported that in the last two years alone, the state has fielded nearly 900 complaints. Meanwhile, Ohio has certified six cases of contaminated water out of 190 complaints to that effect since 2010. Over the last four years, West Virginia has received 122 complaints, four of which were deemed severe enough to warrant “corrective action.” But despite the widespread outcry in many communities across the United States against the natural gas and oil extraction procedure, the U.S. oil industry sees fracking as a boon for its economy.

Athens votes to ban fracking | The Columbus Dispatch: — Athens became Ohio’s fifth city to ban fracking Tuesday when voters approved a local ordinance to keep the controversial practice outside the city limits. Similar measures were voted down yesterday in Youngstown, Kent and Gates Mills, a village outside Cleveland. The Athens Community Bill of Rights passed with about 78 percent of voters casting ballots in favor. The measure modifies Athens municipal laws to prohibit shale gas and oil extraction and related activities. To pull oil and natural gas from shale, companies drill vertically and turn sideways into the rock. Then they blast millions of gallons of water, sand and chemicals into the shafts to free trapped oil and gas. The process is hydraulic fracturing, commonly called fracking. During the process, fluids bubble back up to the surface with the gas. Fracking chemicals include ethylene glycol, which can damage kidneys; formaldehyde, a known cancer risk; and naphthalene, considered a possible carcinogen. The waste that bubbles up also includes radioactive material. According to the state of Ohio, at least 2 billion gallons of wastewater are injected every day into wells throughout the country. Community Bills of Rights, designed by the national nonprofit Community Environmental Legal Defense Fund, have been proposed around the country to try and keep environmental threats, perceived or real, out of municipalities. In Ohio, such measures have passed in Oberlin, Yellow Springs, Broadview Heights and Mansfield.

Athens anti-fracking bill of rights gets thumbs up from voters - Athens city voters overwhelmingly supported a measure to establish a citizens’ bill of rights to restrict fracking and associated practices in the city limits. Issue 7 passed with 78 percent, or 2,245 votes, according to unofficial results Tuesday evening. The measure restricts fracking, drilling, and the transportation of fracking waste within the city and purports to protect water quality. The issue was placed on the ballot by the Athens Community Bill of Rights Committee. The group attempted to place a ban on fracking and associated practices on the city ballot last year. The group had collected enough signatures to get an initiative on the November 2013 ballot, but the initiative was challenged by a group of residents represented by attorney Rusty Rittenhouse of Lavelle and Associates. The elections board voted to uphold the challenge, preventing it from being placed on the 2013 ballot. The first initiative proposed a ban on fracking and associated practices in the city limits and the city’s “jurisdiction.” The initiative approved by voters on Tuesday pertains only to the Athens city limits. The initiative also included a bill of rights, which invalidates the state’s pre-emptive laws granting special privileges to for-profit corporations over the rights of people to a healthy, clean and safe environment, according to BORC. On Tuesday evening, BORC member Jeff Risner called the support from voters “overwhelming.” “We were hoping to get at least 60 percent because we wanted a really good turnout,” he said.

Corbett Out !  -- Tom Corbett, who single handily handed Pennsylvania over to the frackers is out as governor. Corbett tuned the state into a fracking 3rd World gas colony. No state severance tax, no environmental oversight.  He even tried to disarm municipalities by taking away Home Rule Good fracking riddance. Sic Semper Gasholes “Democratic businessman Tom Wolf has won the Pennsylvania governor’s race, defeating incumbent Republican Gov. Tom Corbett, according to a CNN projection.”

New York State Allows Water Grab — Barely a football field away from John Marvin’s modest house, 42 black railcars full of water sit waiting for the signal to begin rolling south to supply fracking drill pads across the Pennsylvania border. When the water train lurches and clanks through the village — often at pre-dawn hours — it sounds ear-splitting whistles at each street crossing. Painted Post siphons water from a shallow, rain-dependent aquifer it shares with several neighboring communities, including the town of Corning. In 2012 the village signed a five-year deal reportedly worth up to $20 million with a subsidiary of Royal Dutch Shell to sell up to 1 million gallons a day used to frack Shell’s natural gas wells in Pennsylvania. The village has called the sale a routine disposal of “surplus property.”  Marvin is the unlikely linchpin in one of a pair of lawsuits that seek to compel the state to enforce its tough environmental law amid a statewide scramble for water rights. Corporations and municipalities are now trying to lock in rights to withdraw water and in some cases sell water to the highest bidder, and they do not want environmental reviews to slow them down.  . “It is an extremely dangerous practice to allow the commercial sale of public water and sets a precedent for the commodification of our water supplies,”  “Water is a public trust, in law and in practice. When fracking or other private interests get the green light to buy water, the nature of this public trust is violated.”  Marvin, the Sierra Club and others filed a suit against Painted Post and Shell, arguing that state law requires an environmental review of bulk water withdrawals, especially since the preservation of one of the state’s 18 primary aquifers is at stake. Last week Marvin’s case headed to the Court of Appeals, the state’s highest court, where the outcome could have sweeping implications for many New York municipalities.

Houston company’s fracking plans near W.Va. chemical plant on hold: A Houston company’s plans to drill for natural gas near a Marshall County chemical plant are on hold. A Marshall County circuit judge late last week issued a temporary restraining order blocking gas drilling, or fracking, by Gastar Exploration Inc. near Axiall Corp.’s chemical manufacturing plant at Natrium. A full hearing on the matter is scheduled for Nov. 12. The Charleston Gazette reports that the judge noted previous fracking there “did cause significant harm” to Axiall, and that the chemical maker faced “significant” likelihood of “irreparable harm.” The judge’s order is the latest move in an ongoing effort by Axiall to stop or at least slow down more natural gas development near the site. An incident last year damaged brine wells Axiall uses to obtain saltwater.

Scientists see fracking as cause of earthquakes in heartland - Evidence is growing that fracking for oil and gas is causing earthquakes that shake the heartland. States such as 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.

'The Simpsons' Targets Evil Fracking: (video) Watch out, because greedy businessmen might start fracking under your neighborhood, making your drinking water flammable and causing earthquakes. The popular, animated satire “The Simpsons” made fun of hydraulic fracturing on its November 2 episode. More commonly called fracking, hydraulic fracturing is a process used to extract natural gas from shale buried deep underground. However, the show portrayed it as the dangerous venture of devious capitalists.At the climax of the episode, during an earthquake caused by Mr. Burns’ fracking, Marge persuaded Homer to “turn off that horrible machine” by reminding him that “our water was on fire.”  Homer then had an epiphany, albeit a cynical one. “Wait, I finally get what you're saying. Fracking is great, but the only place it should happen is in other people's towns,” he said.

EPA Further Delays Hydraulic Fracturing Study as Controversy Builds -- EPA’s current estimate of the completion time for a draft of its study of the risks posed by hydraulic fracturing (“fracking”) to drinking water is now projected by the agency to be developed in early 2015. This is based on comments in a letter originating from EPA’s Region 8 office stating that the study on the risks posed by fracking to drinking water won’t reach draft final form until “early 2015”. [Region 8 Letter] The study was undertaken at the direction of Congress in 2009 when Congress requested EPA to conduct scientific research to examine the relationship between hydraulic fracturing in drinking water resources. Background and details of the study can be found at EPA’s website [here]. The initial plan was to issue initial results in 2012 and provide a final report in 2014, but EPA has regularly pushed back its timeframe projections. The idea of the study has been controversial from the start and has prompted controversy and criticism by interest groups and elected officials. See, for example, the objections raised in December 2013 by U.S. Chamber of Commerce President Thomas Donohue [here]. More recently, the Republican staff of the U.S. Senate’s Environment and Public Works Committee has issued a minority report which asserts that the impetus for the study was urged by “far left” interests intent on fighting against accessing domestic energy sources. [Link to Minority Staff Report]. Fracking has clearly expanded the availability of energy resources in the nation, but the concerns about potential impacts on drinking water and other resources remain unclear and have prompted substantial concerns. Over 30 states have moved to exercise some regulatory control over hydraulic fracturing activities, and EPA’s prolonged delay in pulling together any substantive scientific evidence regarding potential risks is simply making the controversy worse.

Illinois Just Approved Fracking, But Will Not Yet Disclose Regulations -- Illinois is now the latest state to officially approve hydraulic fracturing, or fracking, after lawmakers on Thursday signed off on long-awaited rules governing the controversial oil and gas drilling technique.However, it might be another week before Illinois residents know the details of those rules; while oil and gas drillers can now begin to apply for fracking permits, the final rule isn’t expected to be made public until November 15 at the latest.The secrecy is sparking outrage from environmentalists.“The rules were negotiated behind closed doors, without meaningful scientific review,” Annette McMichael of the group Southern Illinoisans Against Fracturing Our Environment told the Huffington Post. “There is no doubt they will be woefully inadequate to protect Illinois residents from the known harms horizontal fracking has brought to residents across America.”It’s been a long road to get fracking regulations approved in Illinois, even though the process has already started in some parts of the state. In June 2013, Gov. Pat Quinn proposed and signed into law what some considered to be the strictest rules for high-volume oil and gas drilling in the nation. After that law passed, the Illinois Department of Natural Resources (DNR) was required to develop its own regulations to be able to enforce Quinn’s law. But when the DNR proposed its fracking regulations in November 2013, environmentalists were surprised to find that they did not include — and in some cases undercut — some of the key protections in Quinn’s law. Specifically, the DNR’s regulations were easier on wastewater disposal, which is widely considered to be one of the biggest environmental threats that fracking poses.

Can American Indian reformers slow an oil boom? (Reuters) - A change in leadership at an American Indian reservation in North Dakota wouldn't normally get a whole lot of attention. But come Tuesday, the oil industry will be watching this dusty area of the state as two reformers vie to become tribal chairman, an office with outsized power over the course of the state's booming oil industry. That's because the reservation's Three Affiliated Tribes of Mandan, Hidatsa and Arikara (MHA) Nation control roughly a third of North Dakota's oil output. In the past two years alone, production on the MHA Nation has jumped 145 percent, cementing the state's role as the second-largest U.S. oil producer after Texas. The reformers, Damon Williams, the tribal attorney, and Mark Fox, the tax director, each propose tighter environmental regulations. They also promise to ensure more money goes directly to projects that improve life for the 12,000 tribal members on the 980,000-acre reservation. In other words: this stands to make things more complicated for the oil industry. So far, oil companies aren't saying a whole lot about the leadership change. EOG Resources Inc, the largest oil producer on the reservation, said its goal is "to maintain good relationships with tribal members regardless of the election's outcome."   Lynn Helms, head of North Dakota's Department of Mineral Resources, the state's oil regulator, is blunter: Oil producers are "deeply concerned," he said, adding: "drilling on the reservation could be slowed." That's because if the tribes give stricter scrutiny to environmental issues, more stringent rules could mean more obstacles for new drilling permits.

Fracking pollution just went airborne -- From contaminated groundwater to polytechnic displays at the kitchen faucet, most of the major concerns around fracking have centered around how fracking fluids and methane could be polluting our water supply. But we’ve started to suspect that fracking impacts the air, too, and a new study published this week in the journal of Environmental Health adds one more piece of evidence to the pile. David Carpenter, director of the Institute for Health and the Environment at University at Albany, State University of New York —  and the lead author of this study — says his findings support mounting evidence that fracking is a significant public health risk. Of particular concern is that fracking sites could become cancer clusters in years to come. Carpenter’s study found eight different poisonous chemicals near wells and fracking sites throughout Arkansas, Colorado, Pennsylvania, Ohio, and Wyoming that exceeded federal limits, including levels of benzene and formaldehyde — both known carcinogens, Carpenter told reporter Alan Neuhauser for U.S. News and World Report: “Cancer has a long latency, so you’re not seeing an elevation in cancer in these communities. But five, 10, 15 years from now, elevation in cancer is almost certain to happen … I was amazed,” Carpenter says. “Five orders of magnitude over federal limits for benzene at one site — that’s just incredible. You could practically just light a match and have an explosion with that concentration.” Around half of the air samples Carpenter analyzed exceeded federally recommended limits: Benzene levels were 35 to 770,000 higher than normal; hydrogen sulfide levels were 90 to 60,000 times higher; and formaldehyde levels were 30 to 240 times above a safe threshold.

Toxic Chemicals Found in Air Near Oil and Gas Wells - The Weather Channel -Oil and gas development sites are spewing toxic, cancer-causing gases into the air, according to new research, which adds to the limited, yet growing, evidence that these sites affect not only area nearby water quality, but also that of the air."This is a significant public health risk," Dr. David Carpenter, director of the Institute for Health and the Environment at the University at Albany-State University of New York and lead study author, told U.S. News, referring to the possibility of cancer cases linked to these sites 10 or 15 years down the line. For the data, community members from Arkansas, Colorado, Pennsylvania, Ohio and Wyoming tested the air around eight sites, showing in some cases chemical levels hundreds of times beyond what the federal government deems safe, according to a press release. "Benzene, formaldehyde and hydrogen sulfide were the most common compounds to exceed acute and other health-based risk levels," Carpenter wrote in the study, which was published in the journal Environmental Health. Benzene is a known carcinogen and formaldehyde has also been linked to cancer. "I was amazed," Carpenter told U.S. News. "Five orders of magnitude over federal limits for benzene at one site — that's just incredible. You could practically just light a match and have an explosion with that concentration."Previously, according to the study, research on the health effects of fracking had largely zeroed in on water quality; information about how fracking affects air safety is new and emerging, though environmentalists have long opposed evaporation ponds as a method of wastewater disposal for fears over the release of chemicals into the air.

Cancer causing air toxins detected at frack sites -- A peer reviewed study published Thursday in the journal Environmental Health reveals dangerous levels of air toxins near fracking operations. The carcinogen formaldehyde was the most common chemical found to exceed federal safety levels, according to Denny Larson, one of the report’s authors. Larson works with the nonprofit Global Community Monitor.  “The number of [chemicals] that we found near these sites are alarming,” said Larson in a call with reporters. “They are, as the title of our report clearly says, a warning sign.”The deadly chemical hydrogen sulfide was also found in high levels in Wyoming samples. Hydrogen sulfide is known to kill oil field workers. A recent report by EnergyWire documents the dangers to shale oil production workers from air toxins.Volunteers in six states, including Pennsylvania, took air samples for the study. Pennsylvania’s samples show high levels of formaldehyde near compressor stations. The research was led by David Carpenter, a physician and director of the Institute for Health and the Environment at New York State University at Albany. Carpenter says he’s most concerned about the high levels of benzene and formaldehyde measured by the volunteers.“One thing about cancer is that it doesn’t happen tomorrow after exposure,” said Carpenter. “Cancer ususally takes at least five, but more often 10, 20 or even 30 years to develop. So our concern is that these carcinogens that were monitored near homes, near schools, near farms with animals, the people that are exposed are going to be at risk of developing cancer. But it will only appear in the future.”  He says the formaldehyde is formed in two ways. One by combustion at compressor stations, but also as a byproduct of methane leaks, when exposed to the sun.

Study finds toxins, cancer-causing air pollution at oil, gas wells: A cadre of citizens taking air samples for a scientific study has found toxic emissions from Wyoming oil and gas operations, some that are many, many of times above federal health standards. In a six-state study published in Environmental Health, authors say the Wyoming samples show high concentrations of benzene, hydrogen sulfide, formaldehyde and more. Air samples taken in 13 of 15 sites in Park and Fremont counties exceeded the standards, prompting a call to action. Deb Thomas of Clark, one of the co-authors of the study, said residents close to increasing oil and gas developments are in peril and have been abandoned by government watchdogs. She is a director of the group ShaleTest, and formerly worked with the Wyoming-based landowner advocacy group Powder River Basin Resource Council. “They’re fighting for their lives,” she said. “Fracking not only fractures rock it fractures communities.” The groups Coming Clean and Global Community Monitor announced the results today, saying “The natural gas industry often claims that it provides ‘cheap energy,’ but we are paying the price with the endangerment of public health.” While reports of illnesses are not tied scientifically to oil and gas field emissions, the groups called for protection before severe harm occurs to the environment and people.  Neighbors to oil and gas facilities suffer from headaches, rashes, loss of smell and taste, nosebleeds, neuropathy, kidney problems, pain, miscarriages and cancers, Thomas said. “People who are very eloquent can’t form their words any more,” she said of some effects.

Texans Vote To Ban Fracking  --On Tuesday, voters in Denton, Texas, banned fracking within the city limits by a large margin of 59 to 41. The first such restriction in energy-giant Texas, Denton has been a hotly contested site for the industry and one of eight locales with fracking bans on the ballot this election.  A city of about 125,000 residents located 35 miles northwest of Dallas, Denton sits atop the Barnett shale and already has some 275 fracked wells.  “Hydraulic fracturing, as determined by our citizens, will be prohibited in the Denton city limits,” Mayor Chris Watts said in a statement, “the City Council is committed to defending the ordinance and will exercise the legal remedies that are available to us should the ordinance be challenged.” Those who voted for the ban worry about water and air pollution, the heavy demand for water, and the possibility that the process causes earthquakes. Researchers recently found alarming amounts of heavy metals such as arsenic in groundwater near fracking sites in Texas.  Another high-profile fracking ban in Santa Barbara County, California failed to pass on Tuesday after the oil and gas industry spent close to $6 million opposing it. However a similar version in California’s San Benito County overcame oil and gas opposition and passed by a large margin, 57 percent to 43 percent. As of late Tuesday night, the third fracking ballot ban in California’s Mendocino County was leading by a large margin.  In Ohio, voters in Athens approved a fracking ban, while those in three other communities defeated their own ban ballot measures, according to preliminary results reported by the Wall Street Journal.

Texas Town Passes Ban On Fracking In Its Birthplace - (Reuters) - Voters approved a ban on hydraulic fracturing in the North Texas town of Denton on Tuesday, making it the first city in the Lone Star State to outlaw the oil and gas extraction technique behind the U.S. energy boom. The vote in the city of 123,000 was highly symbolic because hydraulic fracturing, better known as fracking, is widely used in Texas, the top crude producer in the United States. Green groups said the result, which is sure to face legal challenges, served as a wake-up call to the industry. But several similar measures failed in cities and counties in Ohio and California. "Denton, Texas is where hydraulic fracturing was invented," said Bruce Baizel, Earthworks energy program director. "If this place in the heart of the oil and gas industry can’t live with fracking, then who can?"  Fracking was pioneered in Texas at the Barnett shale formation where Denton is located. Exxon Mobil's XTO unit honed its shale expertise in the natural gas-rich Barnett. Exxon's headquarters are a short drive away in Irving, though most of the crude output in Texas comes from the growing Eagle Ford and Permian fields to the south and west.

Texas Town Bans Fracking ! - More towns and counties throughout the nation banned fracking yesterday, including Denton, where the voters told frackers to go back to Texas. Except that Denton is in Texas . . .  Despite a dirty tricks campaign by the frackers to label local fractavists as puppets of the Kremlin, and being outspent 10 to 1 , the anti fracking vote was overwhelmingly in favor of a ban.   Evidently what’s good for Exxon’s CEO is good for Denton.  Or, for that matter, anybody.   With 37 of 39 precincts reported by late evening, about 59 percent of voters in this college town of 123,000 had cast ballots for an ordinance that will drastically restrict drillers’ attempts to tap the rich natural gas reserves within the city limits. Calling the ordinance unconstitutional, state and industry officials have pledged to contest it in court and state lawmakers have said they may pass legislation to block it.  Cathy McMullen, a home health nurse and leader of the Denton Drilling Awareness Group, which collected nearly 2,000 petition signatures to place the issue on the ballot, choked up, wiped away tears and hugged her husband as she celebrated Tuesday night at Dan’s Silverleaf, a downtown bar and concert venue not far from City Hall.“It says that industry can’t come in and do whatever they want to do to people,” McMullen said over the cheers of the 200 people jammed in the bar. “They can’t drill a well 300 feet from a park anymore. They can’t flare 200 feet from a child’s bedroom anymore.”

If adopted, Denton fracking ban would face legal tests -- Denton Mayor Chris Watts says that if his city adopts a fracking ban Tuesday, it won’t be the end of the story, but the beginning. The oil and gas industry, the state and landowners are already threatening to try to block enactment of the anti-hydraulic-fracturing measure — the first proposed in Texas — if voters approve it Tuesday…Attorneys experienced in municipal law, particularly oil and gas drilling ordinances, say the situation in Denton presents unique legal challenges and may ultimately answer questions about how far a city can go in regulating rigs before and after they’ve moved into neighborhood. Cities in other states have had varied success in banning fracking. In New York , a state appeals court ruled that towns can use zoning rules to prohibit hydraulic fracturing. But in Colorado , similar ordinances were struck down by lower courts and are now on appeal.

Texas Fracking Ban Faces Industry Challenge - WSJ -- Hours after voters here adopted the first hydraulic-fracturing ban in Texas, an energy-industry group filed a court challenge contending that the measure violates the state constitution.But in the city’s coffee shops and meeting places, many residents continued to express support for the ban on fracking, which backers said was necessary to halt industrial activities in residential neighborhoods. The ban was approved 59%-41%, passing even in some precincts where residents voted overwhelmingly for Republican candidates on the state and local level.  Similar bans were adopted in an Ohio town and two counties in California, but were rejected by voters in Santa Barbara County, Calif., which has a long history of oil and gas activity. The Texas Oil and Gas Association’s lawsuit against the city, filed minutes after the courthouse opened Wednesday morning, contends that Texas law gives state agencies the responsibility for regulating drilling and fracking, in which water, sand and chemicals are used to free oil and natural gas from shale formations. The city’s ban pre-empts those laws, so is unconstitutional, according to the association.  “Many of the wells in Denton cannot be produced without hydraulic fracturing, so a ban denies many mineral-interest owners the right to gain value from their property, despite the state’s public policy in favor of developing natural resources,” Thomas Phillips, the group’s lawyer, said in a written statement.

Oil and gas industry, Texas Land Office sue over Denton fracking ban -- Litigation over the passage of a hydraulic fracturing ban in Denton Tuesday night has already begun. The Texas Oil and Gas Association filed for an injunction in state court in Denton Wednesday morning to stop the ban from being implemented. And the Texas General Land Office, which controls oil and gas leases that fund public education, has sued the town too, calling the ban, “arbitrary, capricious and unreasonable.” “TXOGA believes that the courts of this State should give a prompt and authoritative answer on whether Denton voters had the authority under state law to enact a total ban on hydraulic fracturing within the city limits,” attorney Thomas R. Phillips, former Chief Justice of the Supreme Court of Texas said in a statement. “A ban on hydraulic fracturing is inconsistent with state law and therefore violates the Texas Constitution.” Denton is the first municipality in Texas to vote in a ban prohibiting hydraulic fracturing, which is used to extract oil and natural gas from shale formations. Similar ordinances in other parts of the country have met with limited success in the courts. One exception is New York where the state supreme court recently upheld towns’ rights to prohibit oil and gas drilling. Litigation over the fracking ban has been widely anticipated. And Denton city officials have said they are prepared to defend the ordinance in court.

Bush Family and Its Inner Circle Play Central Role in Lawsuits Against Denton, Texas Fracking Ban -- On November 4, Denton, Texas, became the first city in the state to ban the process of hydraulic fracturing (“fracking”) when 59 percent of voters cast ballots in favor of the initiative. It did so in the heart of the Barnett Shale basin, where George Mitchell — the “father of fracking” — drilled the first sample wells for his company Mitchell Energy.  As promised by the oil and gas industry and by Texas Railroad Commission commissioner David Porter, the vote was met with immediate legal backlash. Both the Texas General Land Office and the Texas Oil and Gas Association (TXOGA) filed lawsuits in Texas courts within roughly 12 hours of the vote taking place, the latest actions in the aggressive months-long campaign by the industry and the Texas state government to fend off the ban.  The Land Office and TXOGA lawsuits, besides making similar legal arguments about state law preempting local law under the Texas Constitution, share something else in common: ties to former President George W. Bush and the Bush family at large.  George Prescott Bush — son of former Florida Governor and prospective 2016 Republican Party presidential nominee Jeb Bush and nephew of former President George W. Bush, won his land commissioner race in a landslide, gaining 61 percent of the vote. Given the cumbersome and lengthy nature of litigation in the U.S., it appears the Land Office case will have only just begun by the time Bush assumes the office.  The TXOGA legal complaint was filed by a powerful team of attorneys working at the firm Baker Botts, the international law firm named after the familial descendants of James A. Baker III, a partner at the firm.  Baker III served as chief-of-staff under both President Ronald Reagan and President George H.W. Bush, Secretary of State under George H.W. Bush and as a close advisor to President George W. Bush on the U.S. occupation of Iraq. He gave George P. Bush a $10,000 donation for his campaign for his race for land commissioner.

A County Resents Oil Drilling, Despite the Money It Brings In - — Dennis Seidenberger has farmed cotton for 49 years in this close-knit community 40 miles southeast of Midland. Farming is a way of life that he passed on to his son, and one that he hopes will stay in the family for generations. But his outlook has changed over the past three years as a surge in oil drilling has transformed Glasscock County, where he lives.“They’ve totally ruined our way of life here,” Mr. Seidenberger said. “I don’t know if I’ll ever get over it.”His sentiments sum up how many residents throughout the county view the drilling boom, despite the boost it has given to both the local economy and the county’s coffers.“If something happened and oil went to $50 a barrel and everything moved out of here tomorrow, I don’t think it would hurt anybody’s feelings in Glasscock County,” said  One fact is crucial in understanding the anger toward the drilling that is pervasive among Glasscock County’s 1,251 residents: Most cotton farmers here do not own the mineral rights for the land that they farm. Under Texas law, the rights of mineral owners trump the rights of surface owners, meaning most Glasscock County farmers are powerless to stop energy developers from drilling wells, even as it destroys valuable crop land.

San Benito County's Measure J: Voters back anti-fracking plan - San Benito County voters on Tuesday approved a groundbreaking ballot measure that outlaws the controversial oil extraction technique known as fracking. San Benito County residents heavily supported Measure J, overcoming the oil industry's well-funded opposition campaign. A similar measure in Santa Barbara County, backed by environmentalists there, appeared to be heading to defeat. San Benito County attracted attention across California by placing the closely watched measure on the ballot to outlaw hydraulic fracturing, the oil-extraction technique known as fracking that has stirred environmental debate nationwide. The measure was fueled by supporters frustrated by the fact that Gov. Jerry Brown and state lawmakers have not banned fracking, a process that involves pumping water and chemicals underground to release oil and gas. The ballot pitch was an end-run around the politicians. San Benito's measure spawned similar measures elsewhere in California, including Santa Barbara and Mendocino counties, where voters were also asked to ban fracking. Butte County has proposed an anti-fracking measure for the 2016 election.  The oil industry, worried about such copycat measures, fought back hard against San Benito County's proposal, pouring about $1.8 million into the opposition campaign. With Chevron, ExxonMobil, Occidental Petroleum and other oil giants writing checks, the opposition outspent Measure J supporters 15-1 during the campaign.

Frack Ban Votes - With a record number of fracking issues on local ballots in California, Texas and Ohio, the outcome was decidedly mixed. Of the eight measures—three in California, four in Ohio and one in Texas—four passed and four failed.  Denton became the first city in Texas—a state where fracking has become big business—to pass such a ban, despite threats from the oil and gas industry to sue to overturn it. And it passed overwhelmingly, 59-41 percent, despite heavy spending by the industry. And the oil and gas industry has no one but itself to blame. Perhaps banning fracking in Denton, Texas will finally force the oil and gas industry to clean up its act. Because blaming the impacted community is a losing strategy. It lost them Denton, and it will lose them the hearts and minds of the country.”  It has also lost the hearts and minds of Mendocino and San Benito counties in California and Athens, Ohio, while California’s Santa Barbara County and the cities of Kent, Gates Mills and Youngstown, Ohio weren’t ready to put a ban in place.

Fracking & Agriculture Clash In Colorado's North Fork Valley -- The United States is the world’s largest oil and natural gas producer. North Dakota and Texas are experiencing an oil boom. And many other states are seeing natural gas production increase through hydraulic fracturing.Colorado has nearly 53,000 active wells. But, the state’s energy boom is a source of tension. There's a new alliance of farmers and food producers trying to keep fracking from taking place in the North Fork Valley, an agricultural area in Western Colorado known for its organic farms, orchards, and vineyards.  Brent Helleckson and his wife have been growing grapes in this area for 20 years.  He says the microclimate of the area is unique. It’s compared to other agricultural hubs throughout the world, like the Hindu Kush region of Afghanistan or Provence in France.  "The North Fork is also home to the West Elk American Viticultural Area, which is a geographic area designated by the federal government that has a unique climate, geology, geography that results in wines that have a unique character that can be identified," Helleckson says. 

Mixed results for local anti-fracking measures -  Voters in some localities in Texas, Ohio and California voted to ban or put new restrictions on hydraulic fracturing for oil and natural gas, though other ballot measures in those states failed. Denton, Texas; Athens, Ohio; and San Benito and Mendocino counties in California passed ballot measures to restrict fracking, the controversial method of injecting fluid into wells to extract more oil and gas.  The Natural Resources Defense Council (NRDC) said the passed measures show a growing trend of localities opposing fracking. “Whether this happens at the polls, through local governments or in the courts, the message is clear: Americans are demanding the right to determine their own fracking fate,” Kate Sinding, director of the NRDC’s Community Fracking Defense Project, said in a statement. She put the blame for the defeated measures solely on the industry.

Energy seen getting biggest boost from Republican Senate - (Reuters) - While the Republican Party won't assume its Senate majority until January, U.S. stock investors are already betting the new congressional makeup could lead to faster action on pipelines and trade agreements, sending energy shares higher on Wednesday. Wall Street rose broadly in its first session after midterm elections, but energy and medical device companies - two sectors that could see a more direct impact from legislative measures - had outsized moves. Part of the broader market's move came on relief that the Senate majority party was not in doubt; investors had been concerned some close races would be forced into run-offs, an outcome that could have delayed knowing who would control Congress's upper chamber for weeks. "It had looked like some of the races would be very close and that we might not know who controlled the Senate, but in the end, the results were pretty decisive," said John Carey, portfolio manager at Pioneer Investment Management in Boston. "That's good news for the industries that had been subject to regulatory issues."

The GOP has a legislative plan for Washington. It has some problems. -- There may be some cracks in the concrete plans that GOP congressional leaders say they are laying for the new era of Republican control. Senate Republican leader Mitch McConnell (Ky.) and House Speaker John A. Boehner (Ohio) have plans to send President Obama bills with bipartisan support, but it isn’t clear that they can command the support of all Republicans, much less Democrats, or whether the measures would have the desired effect after passage. McConnell and Boehner are looking at sending the president bills that would approve the Keystone XL pipeline, give him fast track authority to negotiate international trade agreements, repeal an unpopular medical device tax and change the definition of a full-time worker under the Affordable Care Act. Each of those faces hurdles.  The permit application for the Keystone XL pipeline, which would carry Canada’s oil sands to the Texas Gulf Coast, has been languishing for six years while awaiting the outcome of a State Department process. Obama has refused to let himself be forced into a decision, but he has left open the door for approval. If Obama wants, he could veto a Keystone bill and it would probably stick, albeit not by much. A non-binding resolution last year fell five votes short of the number needed to override a veto. And while the GOP picked up several Senate seats, at least four ousted or retiring Democrats were in favor of the pipeline anyway. On May 22, 2013, the last time the House voted on a pro-Keystone amendment, it passed by a 241-175 margin, not enough to override a veto. More importantly, the pipeline has also been held up by a lawsuit in Nebraska that says the state did not follow the correct process because it tried to short-circuit the approval process. The state legislature passed a bill giving the governor approval authority instead of the state’s department of environmental quality.

In North Dakota, Oil Industry Will Now Have A Harder Time Drilling On Tribal Land  -- On Tuesday, tribal residents in North Dakota elected a leader who is committed protecting the environment from the industry’s rapid expansion. At the same time, North Dakotans voted strongly against a measure that would have redirected five percent of the state’s oil extraction tax revenue toward conservation activities.  The “North Dakota Clean Water, Wildlife and Parks Amendment,” otherwise known as Measure 5, was defeated by a wide margin, with around 80 percent voting no. The fossil fuel industry vehemently opposed the measure, with Steve Adair, campaign chairman for Measure 5, telling ThinkProgress last week that outside oil groups such as the Washington-D.C. based American Petroleum Institute, were running their opposition “like a U.S. Senate campaign.”   North Dakota has been transformed in the last few years by the oil industry, and proponents of the measure saw it as a way of guaranteeing the long-term interests of the state are maintained even as the industry is accommodated. The proposal would have required North Dakota to use five percent of the state’s oil and gas extraction taxes — as much as $150 million a year — for creating parks, improving fish and wildlife habitats, preventing flooding, and maintaining water quality.   “There’s no more cogent opposition to Measure 5 than oil companies wanting to make more money. Careful reading of Measure 5, and common sense, led the Environmental Law Society to the conclusion that this is the right action and the right time.”

Feds Approve Plan To Send Trains Through D.C. Neighborhood, Despite Fears Of Hazardous Materials - A group of southeast D.C. residents have lost a key battle in their fight against the reconstruction and expansion of a freight train tunnel in their neighborhood, which they fear will bring an unnecessary risk of freight car derailment and explosion just one mile from the U.S. Capitol. The Federal Highway Administration (FHWA) on Tuesday approved the proposal from CSX Corp. to reconstruct the Virginia Avenue Tunnel, a 3,800-foot-long tunnel that runs trains beneath Virginia Avenue SE. The purpose of the project is not only to update the tunnel’s 110-year-old infrastructure, but also to expand it, converting the single-track tunnel into two tracks and allowing for double-stacked cars. Residents are not unilaterally opposed to CSX updating its infrastructure, but they are concerned about what will happen with trains during the estimated three to four years of construction. During reconstruction of the tunnel, CSX plans to run its trains through an open trench located directly next to its construction of the old tunnel, next to an elevated highway, and next to residents’ homes.  The main issue residents have is whether CSX will transport oil or hazardous materials through that open trench, increasing the risk of a dangerous derailment. But in its decision approving the project, the FWHA said the concern was “not relevant.”  “The issue of what types of freight CSX should be allowed to transport through the District is not relevant to the Project,” the decision reads.

Total of 125 Arrested Protesting Infrackstructure (photos)

  • Trade blog notes trend of heat turned up on FERC, even publishes the FERC Rubber Stamp song: click here.
  • Reportback on 124 cumulative arrests in 5 actions: click here.
  • EcoWatch covers the MondayMorning arrests at FERC in DC: click here.
  • Photos from Monday at FERC in DC: click here.
  • Democracy Now features the arrests at Seneca Lake: click here.
  • Reportback on Monday arrests at Cove Point construction site in Maryland: click here.
  • Capitol NY article on Port Ambrose opposition gearing up on Long Island: click here.
  • Vermont Governor buys pizza for protestors before arresting them:click here.
  • Climate marchers arrive in DC after 8 months and 3000 miles:click here.
  • Reportbacks on three arrested in Rhode Island for sit in at Senator Reed’s office: click here.

“Win ugly or lose pretty”: Secret tape reveals Big Oil’s sleazy P.R. pep talk - How do you take on a growing popular movement that’s figured out the link between the fossil fuel industry and the destruction of our planet? According to a secret recording obtained by the New York Times, lobbyist Rick Berman told Big Oil to do what it does best: play dirty. “Think of this as an endless war,” Berman, the man once dubbed “Dr. Evil” by “60 Minutes,” told a roomful of gas and oil executives this past June in Colorado Springs. “You can either win ugly or lose pretty.” That we know all this is courtesy of one of Berman’s audience members, who was so skeeved out by the proposed smear tactics that he went running to the liberal media. “It just left a bad taste in my mouth,” the unnamed executive told the Times. Here, from the complete transcript of “Big Green Radicals: Exposing Environmental Groups,” are some of the hot tips inspired from his history taking on healthcare, labor unions and the Humane Society while representing the soda industry, the food industry and alcohol manufacturers.  Big Oil can learn from the tactics Berman’s used to attack Obamacare: His P.R. firm, Berman and Co., influenced public opinion in the absence of facts by taking out an ad in the New York Times telling people, “Hey, you ought to be concerned about the health care bill.” They didn’t bother to explain why. Berman calls this going on the offensive, and it’s useful in a variety of situations: “I get up every morning and I try to figure out how to screw with the labor unions — that’s my offense,” he said.

Federal Reserve Policy Keeps Fracking Bubble Afloat and That May Change SoonSteve Horn: While the “Halliburton Loophole” is well-known to close observers of the hydraulic fracturing (“fracking”) issue, lesser known is another blessing bestowed upon shale gas and tight oil drillers: near zero-percent interest rates for debt accrued during the capital-intensive oil and gas production process. Or put more bluntly, near-free money from the U.S. Federal Reserve Bank. In response to the economic crisis and near collapse of the global economy, the Federal Reserve dropped interest rates to between 0% and 0.25% on December 16, 2008, a record low percentage. It also began its bond-buying program, described in a recent Washington Post article as implemented to provide a “booster shot” to the economy. That free money, known by economics wonks as quantitative easing, helps drilling companies finance fracking an increasingly massive number of wells to keep production levels flat in shale fields nationwide. But even with the generous cash flow facilitated by the Fed, annual productivity of many shale gas and tight oil fields have either peaked or are in terminal decline. This was revealed in Post Carbon Institute's recently-published report titled, “Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom.”   Were it not for the Federal Reserve's policy, the ever-accelerating drilling treadmill would likely slow down, making shale oil and gas production a far less lucrative endeavor for oil and gas companies and the financiers bankrolling it. Some articles in the business press, including in the Houston Chronicle and Bloomberg, speculate the Fed could lift interest rates on debt in 2015. That would sharply hinder many smaller and mid-level independent oil and gas companies.

Falling Oil Prices Make Fracking Less Lucrative : NPR: Oil prices are down than more than 25 percent since June and are staying low for now. Drivers may appreciate that, but for oil companies, it's making some of the most controversial methods of producing oil less profitable — and in a few cases, unprofitable.Most of the world's oil is selling for about $80 to $85 a barrel now. But not all oil is created equal. In the Middle East, it's cheaper to produce, at a cost of less than $30 a barrel on average, according to the Norwegian firm Rystad Energy.But in the Arctic, producing a barrel costs $78 on average. From Canada's oil sands, it's an average of $74 a barrel. And because those are averages, some companies have costs that are higher — which means there could be drillers currently producing crude at a loss.Here in the U.S., the oil drilling boom is due largely to technologies like hydraulic fracturing, or fracking, used to force oil from shale formations deep underground. Producing this oil, Rystad figures, costs an average of $62 a barrel."What is really interesting for the U.S. drillers and producers is how long they are going to continue the high activity levels that they have, now that prices are going down,"

About That Shale Oil 'Miracle'......people love to hear about how technology always saves the day... "Among the thousands of shale producers, you can guarantee there are pioneers just like those who started the shale revolution. As profit margins erode due to low or even lower future prices, the pioneers will try out the revolutionary new shale techniques that have yet to be deployed." It sounds good in the same way that Twinkies taste good. We would remind people here that back in the 1700's the South Sea company, the stock shares of which bubbled up enormously - even causing Isaac Newton himself to lose the then-staggering sum of 20,000 pounds - was billed as “a company for carrying out an undertaking of great advantage, but nobody to know what it is". Would it be unreasonable to restate the author's claim as "shale operators to deploy new technology of great advantage, but nobody to know what it is?".  Ungrounded hype is the same thing no matter when or where it happens.

The Threat from Saudi Arabia’s Oil Power Play -- We’ve been here before. By “here,” I mean Saudi Arabia throwing its weight around in the global oil markets and triggering what we can only call a kind of reverse oil shock as a result. The consequences were particularly visible on Tuesday, when Saudi Arabia slashed the price at which it is willing to export crude oil to the United States, even as it boosted prices to buyers in Europe and Asia. That sent the benchmark U.S. crude oil price — West Texas Intermediate — skittering down to $76.45 a barrel, a level not reached in three years.  If you thought that crude oil prices were set simply by what is happening to the global economy — the forces of supply and demand, and the answers to pressing questions such as whether China’s economy can struggle back to health — then you’ve simply been reading too much Adam Smith lately. Or else you have forgotten the history of the oil market.When the magnitude of the U.S. shale oil boom began to become clear and forecasts put U.S. energy output on track to outpace that of both Russia and Saudi Arabia by 2020, it seemed as if the limiting factors were the global economy (demand) and technology (supply).  Clearly, those are still crucial, and have played a role in the deflation of what some have labeled a shale oil bubble. This isn’t the first time that Saudi Arabia, with the help of its friends in OPEC, has used the cartel to keep its own market clout more or less intact and its own revenues flowing, sacrificing higher prices to that end. If it succeeds, it can dampen investor enthusiasm for shale oil in the U.S. and starve companies of the capital they need, forcing them to shut down wells in response to lower prices.

Shale Drillers Idle Rigs From Texas to Utah Amid Oil Rout -  The shale-oil drilling boom in the U.S. is showing early signs of cracking. Rigs targeting oil sank by 14 to 1,568 this week, the lowest since Aug. 22, Baker Hughes Inc. (BHI) said yesterday. The Eagle Ford shale formation in south Texas lost the most, dropping nine to 197. The nation’s oil rig count is down from a peak of 1,609 on Oct. 10. Drillers are slowing down as crude prices tumbled 24 percent in the past four months. Transocean Ltd. (RIG) said yesterday that its earnings would take a hit by a drop in fees and demand for its rigs. The slide threatens to curb a production boom in U.S. shale formations that has helped bring prices at the pump below $3 a gallon for the first time since 2010 and shrink the nation’s dependence on foreign oil imports. “We are officially seeing the slowdown in oil drilling,”

When the Shale Runs Dry: A Look at the Future of Fracking -- If you want to see the future of the shale industry — what today's drilling rush will leave behind — come to Bradford, Pennsylvania. A small city, it was home to one of America's first energy booms, producing over three quarters of the world's oil in 1877. A wooden oil rig towering over a local museum  commemorates those heady days, marking the first “billion dollar oil field” in the world.  But times have changed dramatically in Bradford. Most of the oil has been pumped out, leaving residents atop an aging oil field that requires complicated upkeep and mounting costs. Since its  height in the 1940's, Bradford's population has steadily declined, leaving the city now home to only 8,600 people, down from over 17,000.   The story of Bradford these days is a story of thousands of oil and gas wells: abandoned, uncapped, and often leaking.  Rusted metal pipes — the old steel casings from long abandoned wells — jut from lawns and roadsides. Mailboxes are strapped to some of the taller pipes. In autumn, abandoned wells are tucked behind Halloween props and hay bales in front yards. The aging steel pipes aren't just on land. They line creek beds, water flowing around one rusted pipe then another.  Hundreds are even submerged in the  Allegheny Reservoir, small bubbles of methane gas the  only visible sign of their existence. But in many cases, these rusted top hats from now deceased wells simply protrude from locals' lawns.  They are visual reminders that, for local communities where mining or drilling happens, fossil fuel wealth burns hot and short. Where there's a boom, there's bound to be a bust.

Landowners upset about delays in property restoration as new Enbridge pipeline opens -- Oil is flowing through Enbridge’s new pipeline in southern Michigan, but people who live along the pipeline say the job isn’t done yet. Enbridge’s new Line 6B pipeline is in the ground and in service.  It runs for 285 miles across the state from Griffith, Indiana to Marysville, Michigan. The company installed this new pipeline after their old pipeline burst and caused a massive oil spill in 2010.  To replace it, they had to cut down trees and tear up people’s land. Enbridge has hired contractors to restore those properties in phases.  But some landowners in the first phase of the project say they’re still waiting for work to be wrapped up. Jeff Insko and his wife Katy Bodenmiller also live along the pipeline, near Holly. Insko writes a blog about the pipeline project.  He says he’s heard from at least 15 other landowners who say Enbridge still has work to do on their properties.“Virtually every landowner that I’ve spoken to has some small or large matter that is incomplete, whether it’s a basement that is flooding because of the re-grading that happened when they filled in the trench, or a promise that trees will be planted that have yet to be planted. Countless landowners up and down this pipeline have a story like that,” he says. Some promises from Enbridge are in signed documents, but others were made over the phone, or by email.

How Will Fracking Affect Your Homeowners Insurance? - The method of natural gas drilling known as hydraulic fracturing, or “fracking,” has caused controversy across the U.S. Advocates argue that it promises increased energy independence. For others, it means environmental catastrophe. In the ongoing debate, two things are for sure. The practice is responsible for much of the recent spike in natural gas production in the United States, and homeowners are often caught in the middle. Those who lease their land for drilling can see huge profits, but some reports suggest that these profits come with risk for both lessors and their neighbors – and who pays for these risks can be a complicated question. Nationwide Insurance made headlines in 2012 when an internal memo stating that its policies did not cover homeowners for fracking damage was leaked. In response to the fallout, Nationwide said that this was business as usual. Bob Hartwig of the Insurance Information Institute agrees: “All homeowners insurance policies exclude damage from such things as environmental contamination. This is nothing new.” Of course, pollution isn’t the only risk from fracking that activists have cited – and some of these risks may be covered. Homeowners with an earthquake endorsement can get coverage for earthquake damage, even if the quake is linked to fracking. “If there’s a fire or explosion, as a general rule, that would be covered,” Hartwig adds. This only applies to homeowners who live near fracking sites. For those who’ve leased their land – in effect, making it a business – insurance is more complicated.

New Oil Train Safety Rules Divide Rail Industry: Three days after an oil train derailed and exploded in 2013 in Lac-Mégantic, Quebec, killing 47 people, Greg Saxton wandered through the disaster site inspecting tank cars. For Saxton, the damage was personal. Some of the tank cars were built by Greenbrier, an Oregon-based manufacturer where he's chief engineer. Almost every car that derailed was punctured, some in multiple places. Crude oil flowed from the gashes, fueling the flames, covering the ground, and running off into nearby waterways. Each day, as Saxton returned to the disaster zone, he passed a Roman Catholic church. "We never came and went when there wasn't a funeral going on," he said. In the wake of this and other recent accidents as energy production soars in North America, Canadian and U.S. regulators are proposing new safety rules for tank cars that carry oil, ethanol, and other flammable liquids. Saxton and Greenbrier have pushed for swift changes, but others in the industry are asking for more time to retrofit cars like the type that exploded at Lac-Mégantic. "We've been frankly just perplexed and confused by the resistance." The tank cars that derailed at Lac-Mégantic were built before October 2011, when the Association of American Railroads mandated safety enhancements to the oil and ethanol tankers known in the industry as DOT-111 cars. The cars lacked puncture-resistant steel jackets, thermal insulation, and heavy steel shields, all of which could have lessened the destruction, experts say.

Obama May Have To Shut Down Government To Halt The Keystone Pipeline -- It would appear the first big test for President Obama's 'veto' pen will be no lesser issue than the Keystone Pipeline. Reuters reports that Republicans will quickly introduce stand-alone legislation in the first quarter of 2015 that would approve the Keystone XL crude oil pipeline from Canada, Republican Senator John Hoeven said in an interview. "It's really a good chance to see if the president's willing to work with us," Hoeven said, suggesting they would pressure Obama to act one way or another by attaching the bill to some must-pass legislation leaving Obama's only option but to fold or shut down the government. As Reince Priebus exclaimed, "he's going to be boxed in."

How Oil Companies Lost $17 Billion Defying Environmental Activists Over Canada’s Tar Sands - If oil companies are rational economic actors, and climate activists want to keep them out of Canada’s tar sands, it’s worth asking just what cost those companies have suffered for trying to produce that oil over the environmental community’s objections. Thanks to a new study by the Institute for Energy Economics and Financial Analysis (IEEFA), and Oil Change International, we now may have a dollar figure: $17 billion. The report — Material Risk: How Public Accountability Is Slowing Tar Sands Development — looked into the delays and project cancellations that have been caused by public opposition to the development of the tar sands. The ongoing battle over the Keystone XL pipeline is the most prominent example. But what it all adds up to is transportation bottlenecks, and falling profits for the industry even as crude oil has kept flooding in from Canada’s tar sands fields. That difference between what oil companies have sold and what they could have sold in the absence of the bottlenecks amounts to $30.9 billion from 2010 through 2013, according to the analysis. A good portion of that is from the inevitable changes and risks that come along with any marketplace. But after going through the various circumstances of the last few years, and teasing out various signals in the data, the researchers concluded that $17.1 billion (or 55 percent) of that “can be credibly attributed to the impact of public accountability campaigns.” The researchers also note that nine of the ten leading oil producers in the Canadian tar sands have underperformed that stock market in the last five years, and that industry observers have begun downgrading their projections for future production in the tar sands.

Is there really an oil glut? -- The swift price decline of Brent Crude from $110 on July 1 to about $85 today has the media buzzing about a glut. But can oil which now trades at eight times its price in 1998--when there really was a glut--be said to be experiencing a glut now?  Certainly, there is more oil available than people are willing to pay $100 per barrel for. While there have been many explanations for the downward move in price, all we can say for sure is that recently there were more sellers than buyers; and so, the price slid as the buyers stepped away, waiting for the price to come down. But, is this really a glut? In 1998, even what poor people were paying for oil and oil products was relatively affordable, making it easier for them to enjoy the power and comforts that cheap oil and cheap energy in general make available to individuals.  Now, the price of energy and oil, in particular, is leading some of the newly poor in Greece (made so by that country's ongoing economic depression) to seek out firewood--both legally and illegally obtained--to heat their homes instead of heating oil. The drop in vehicle miles traveled in the United States in recent years suggests that high gasoline prices are in part responsible for fewer miles traveled. When it comes to total U.S. petroleum consumption, the top 10 weeks for consumption occurred from 2005 to 2007. The most recent consumption number (week ending October 24) remains 2 million barrels per day below the peak reading in 2005. European petroleum consumption remains in a downward trend as well. All this suggests a decline in the standard of living for most Americans and Europeans, at least, when it comes to oil and its benefits. (One colleague of mine now speaks of peak benefits from oil rather than peak oil.)

OilPrice Intelligence Report: Escaping Russia’s Natural Gas Stranglehold -- A small nation is standing up to the bullying tactics of its would-be oppressor. It’s an engaging narrative that is playing out in the Baltics as Lithuania is seeking to break free of its reliance on Russian energy. Foreign Policy reports that the presence of a new LNG terminal at the Lithuanian port of Klaipeda means the “Baltic countries have thrown up a gleaming steel gibbet to dissuade Russia from using energy to hold the region hostage.” After all, even the name of the terminal, Independence, screams defiance. In the wake of the Ukrainian crisis and protracted Russian threats to suspend the delivery of gas to Europe, this is an important step in defusing this option. The 1,000-foot terminal will allow Lithuania, Latvia and Estonia to break their utter dependence on Gazprom for gas. Alone, Independence could supply 4 billion cubic meters of gas a year, providing more than 75 percent of the current demand in all three nations. This sends a clear message to Moscow that its intention to use natural gas as a geo-political weapon can be thwarted. If evidence of this was needed, Lithuanian President Dalia Grybauskaite explained that his country had made a “bold yet timely decision to begin an independent and fast construction of the LNG terminal” to no longer pay the highest rates in the EU for Gazprom gas.  The New York Times calls Lithuania an example of how to break Russia’s grip on energy and that “even countries that are bound by geography and history to Russia’s energy behemoth can find alternatives.” It goes on to explain how Grybauskaite already won significant concessions from Gazprom in May, when the Russian firm agreed to slash gas prices for Lithuania by 20 percent. This was not enough for Vilnius, who can now completely free themselves from Gazprom’s grip, should they so choose.

Hungary Is Helping Putin Keep His Chokehold on Europe's Energy: Europe and the United States are trying to build a common front to push back against Russian aggression, and especially to pry the energy weapon out of Russian president Vladimir Putin's hand. But one member of the team seems to be switching jerseys. Hungary, under the leadership of Prime Minister Viktor Orban, has increasingly hewed to a more pro-Russian policy in recent months by doing huge deals with Moscow and criticizing Western sanctions on Russia, which is prompting angst from Brussels to the Beltway. The tilt toward Moscow is especially apparent when it comes to energy, which is itself at the root of European fear about what Russia has done in the past and could do again. Hungary's latest move was to authorize construction Monday of the South Stream pipeline, a pet project of Putin's which is meant to offer an end-run around Ukraine for Russian natural gas exports headed for Europe. In the wake of the annexation of the Crimean peninsula and Russian armed disturbances in the eastern part of Ukraine, Europe slammed the brakes earlier this year on the $70 billion project. Europe is afraid the pipeline violates EU competition law and will only serve to increase reliance on Russian gas. South Stream is meant to pump gas from Russia under the Black Sea through Bulgaria, Serbia, Slovenia, Hungary and eventually to Austria. The project is meant to provide another alternative pipeline from Russia to Europe while bypassing Ukraine.

Statoil's Sverdrup development could cost up to $32.5bn: The full development of Norwegian energy company Statoil's giant Johan Sverdrup field could cost up to $32.5 billion, it said on Monday, providing the first full cost estimate for its single biggest investment. The field, which could hold up to 2.9 billion barrels of oil equivalents is scheduled to start up in late 2019 and will produce up to 650,000 barrels per day at its peak, Statoil said. Discovered in 2010, Sverdup is the biggest North Sea find in decades, reinvigorating Norway's oil sector which has struggled with falling production since its peak more than a decade ago. Statoil, like is peers around the globe, has been cutting capital spending this year to save on costs, but has given priority to Sverdrup as its cash-flow break even level is estimated to be less than $40 per barrel of oil, providing ample returns even if oil prices stay low.

Venezuela, with world's largest reserves, imports oil — For the first time in its 100-year history of oil production, Venezuela is importing crude — a new embarrassment for the country with the world's largest oil reserves. The nation's late president Hugo Chávez often boasted the South American country regained control of its oil industry after he seized joint ventures controlled by such companies as ExxonMobil and Conoco. But 19 months after Chávez's death, the country can't pump enough commercially viable oil out of the ground to meet domestic needs — a result of the former leader's policies. The dilemma — which comes as prices at U.S. pumps fall below $3 per gallon — is the latest facing the government, which has been forced to explain away shortages of basic goods such as toilet paper, food and medicine in the past year.  "How much longer do we have to hear that the government's economic policies are a success when all we see is one industry after another being affected?"  While Venezuela has more than 256 billion barrels of extra-heavy crude, the downside is that grade contains a lot of minerals and sulfur, along with the viscosity of molasses. To make it transportable and ready for traditional refining, the extra-heavy crude needs to have the minerals taken out in so-called upgraders, or have it diluted with lighter blends of oil. The latter tactic is what state oil company Petroleos de Venezuela SA (PDVSA) is using since it doesn't have the money to build upgraders, which perform a preliminary refining process, and its partners have been unwilling to pony up cash because of the risk of doing business in the country.

Saudi Arabia Raises Asia, Europe Prices; Cuts US Prices -- It appears, just as we warned two weeks ago, that the 'dumping strategy' designed to punish Obama's nemesis Putin could have morphed into a Saudi Arabian strategy to keep its foot on the neck of the US Shale Oil industry. In an awkward headline for mainstream media to explain, The Kingdom has raised prices of its Arab Light crude exports to Asia and Europe but cut prices to the USA significantly, potentially pressuring domestic suppliers with foreign 'cheap' imports. While not a primary course of US oil, we suspect the signaling of this move is more worrisome for Shale capex  (especially as we noted Saudi Arabia can survive 7.9 years at lower prices) Forget currency wars, meet oil wars...

WTI Tumbles To 29-Month Lows After Saudi Price Cut -- After initially jerking higher after Saudi Arabia released its new 'lower-prices-for-the-US' strategy, it appears the market began to realize that in fact - as we warned - Saudi Arabia may be willing to accept prices "lower for longer." WTI futures are trading below $78.50 - the lowest since June 2012 (and its dragging Trannies lower today)... As Bloomberg reports, confirming our note over the weekend, Saudi Arabia, the world’s biggest oil exporter, is telling the market it won’t cut output to lift crude back to $100 a barrel and that prices must fall further before it does so, according to consultant FACTS Global Energy. Swelling supplies from non-OPEC producers drove Brent crude into a bear market on Oct. 8 amid waning demand from China, the world’s second-largest importer. The Organization of Petroleum Exporting Countries meets Nov. 27 to consider changing its production target in the face of the highest U.S. crude output in almost 30 years. “Production of shale oil in the U.S. will not be hit as hard as the Saudis think” by the price decline, FGE Chairman Fereidun Fesharaki said at a conference today in Doha, Qatar. Producers in the U.S. “can withstand a lot of pressure” by reining in their operating costs before they curb investment in new wells and production, he said.

OPEC shaken by Saudi price move - (AP) — Saudi Arabia showed little concern for fellow OPEC members by unilaterally cutting its oil prices to the U.S. this week, a move that casts doubts on the cartel's credibility and its ability to find a common plan to stabilize the slumping energy market. And while OPEC struggles to find consensus, oil prices risk remaining low — or falling further — to the benefit of consumers and businesses in the U.S. and worldwide. OPEC is already riven by differences among its members on what the ideal price level should be. That is exemplified in the rivalry between heavyweights Saudi Arabia, which can withstand lower prices, and Iran, which relies on a stronger market to remain profitable. The Saudis' unexpected move on Monday to cut prices to the U.S., aimed at protecting their market share there, will exacerbate those conflicts — weighing on the market and hurting most other OPEC members economically. "At the end of the day, this is still the Saudis' cartel for better or worse, and for smaller members this is definitely worse,"

Saudi Cut In Oil Price for US May Lead To Price War - Saudi Arabia’s move to cut the cost of its oil to US customers has injected fear into the oil markets, bringing the price of OPEC crude below $80 and suggesting to some observers that the cartel is preparing for a global price war.  OPEC production has remained level despite worldwide demand, and as a result, on Nov. 5, the cartel reported that its basket price – the average price of its leading grades of crude oil – had dropped to $78.67 a barrel the day before, the lowest in about four years. And US production has reached its highest level in more than three decades, creating a buyer’s market for oil. Saudi Arabia cut its price for US customers on Nov. 3. Meanwhile, along with Saudi Arabia, Iraq and Iran, two other major OPEC producers, also are cutting prices to Asian customers this month.  The reason for the Saudi move is a matter of some dispute. Some observers of the global oil market view the Saudi price cut to US customers as an effort to undermine the boom in American production of oil from shale.“The market reacted to it very negatively, thinking, ‘Here we go, we’re going to have a price war in the United States,’ ” But another person familiar with the Saudi decision, whose name was not disclosed, told the newspaper that the aim was merely to lure US refiners to buy cheaper oil from Saudi Arabia and thus increase their profits. Whatever the Saudi motivation, industry insiders and observers from OPEC officials to oil price news services view these actions as leading to a price war. In Baghdad, for example, Iraqi Oil Minister Adel Abdul Mahdi told parliament on Oct. 30 that the struggle is internal in OPEC, with members fighting one another to hold on to their shares of the petroleum market.

Crude oil hasn’t bottomed yet, traders say: Crude oil may have found its way off of the multiyear low it hit on Tuesday. But according to two traders, bearish dynamics on the supply and demand sides mean it's too early to call the bottom just yet. "There are so many factors in the equation that are putting downward pressure," on crude oil, Brian Stutland said Thursday on CNBC's "Futures Now. "In the U.S., our oil drums are almost starting to fill up and hit max capacity. You have the Saudis now saying they're going to lower prices in the United States. You have weaker demand in China. And on top of that, a stronger dollar, and crude oil trades in U.S. dollars." Read More U.S. crude settles above $77 after hitting 3-year low "I think you have to be careful trying to buy bottoms here on such a volatile asset class right now," Stutland concluded. In fact, he favors making a bearish play on oil futures. Specifically, he advocates selling December crude oil futures at $77.50 per barrel, with a target of $74.50. "We are just pumping more oil out of the shale plays here in the United States than you can imagine, and that is really putting pressure on oil," Scott Nations agreed. "$75, $74.50 is completely doable."

"Saudis Have Good Reason To Be Concerned" Warns Ex-CIA Officer, As ISIS Enters World's Largest Oil Exporter -- For the longest time there has been speculation whether Jihadist forces, be they ISIS, Nusra or other regional groups, had managed to spread beyond the Iraq conflict zone and infiltrate the world's oil mecca: Saudi Arabia. We now know the answer: according to Bloomberg, a Saudi citizen suspected of organizing the attack on Shiite worshipers in the oil-rich Eastern Province returned from fighting in Iraq and Syria, according to Saudi-owned newspapers. In short, ISIS has arrived in the world's largest oil exporter, which begs the question: was yesterday's news of an oil pipeline explosion, quickly downplayed by Saudi sources as "maintenance-related", in fact what most assumed at first, namely an act of sabotage? And how long until the next "planned maintenance" pipeline explosion?

Obama's Secret Letter to Iran About ISIS: Good Idea? Foolish Cooperation? Hidden Agenda?  -- Big splash in the news today following the Wall Street Journal report Obama Wrote Secret Letter to Iran’s Khamenei About Fighting Islamic State.  Obama's exact letter has not been published (yet), but the subject matter includes shared interests in combating ISIS coupled with hope of progress on nuclear talks. The Journal reports "cooperation on Islamic State was largely contingent on Iran reaching a comprehensive agreement with global powers on the future of Tehran’s nuclear program by a Nov. 24 diplomatic deadline" according to correspondents briefed on the letter.  As with Russia more recently, the sanctions against Iran did not work, and will never work. Sanctions in general don't work, period.  The Republican response is as one might expect. Worse yet, Senators Mark Kirk (R., Ill.) and Robert Menendez (D., N.J.) introduced bipartisan legislation to intensify sanctions. “The best way to prevent Iran from getting a nuclear weapon is to quickly pass the bipartisan Menendez-Kirk legislation—not to give the Iranians more time to build a bomb,” Mr. Kirk said Wednesday. Was Obama's letter to Iran a good idea? Of course it was. Dialog is generally a good idea. Obama's letter opening up discussions with Iran is one of the few things he has done right.  Of course, this dialog comes on the heels of unwise sanctions, so all it does is get us back to where we should have been years ago.

Oil: "It's The Economy, Stupid" -- The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices... "it's the economy, stupid!" Correlation is not causation but.. well in this case, it is! * * * But while this chart is an inconvenient truth, we are sure the meme of US growth saving the world will continue to be spewed as gospel (oh wait a minute... isn't the entire sell-side now taking a chainsaw to their Q3/Q4 GDP growth estimates after construction spending and trade deficit data?)

As Oil Falls, Asia Has Room to Support Economies - Weaker oil prices are coursing through Asian economies, lowering inflation and giving central banks room to loosen monetary policy at a time of uncertain growth prospects. Inflation in Taiwan and the Philippines in October was subdued, data released Wednesday showed. Both are among Asia’s better performing economies and analysts had been talking of rate hikes. While demand and wages are rising in both places, lower oil prices are a counterbalance. Now, many economists are pushing back calls for a rate hike. Demand for Apple Inc.’s iPhone has powered exports from Taiwan, a major semiconductor manufacturer, spurring inflation. Barclays had been forecasting a rate hike this year, but is now calling for a tightening of monetary policy in the first quarter of 2015. The Philippines increased rates earlier this year to temper growing domestic demand, and economists expected a further tightening of monetary policy in December. Many analysts now don’t expect the bank to act until next year. In economies that have been faring less well, the falling oil prices offer an opportunity to cut rates.  In China, the government could miss its target of around 7.5% growth in 2014, in part due to a slowdown in the property sector.

Qatar to become first Middle East clearing hub for China's yuan (Reuters) - Qatar will become the Middle East's first hub for clearing transactions in the Chinese yuan, in a step that could over the long run help Gulf oil exporting countries reduce their dependence on the U.S. dollar. Industrial and Commercial Bank of China's Doha branch has been appointed as the clearing bank for yuan deals in Qatar, China's central bank said on Tuesday. "The signing of the MoU and the appointment of the renminbi clearing bank will increase the strong ties between China and Qatar and position Qatar as the regional centre for renminbi clearing and settlement," the Qatari central bank said. Seeking to promote global use of the yuan, China has in the past two years appointed clearing banks for Taiwan, Singapore, London, Frankfurt, Paris, Luxembourg and Seoul. Kong Kong and Macau had clearing banks earlier; Sydney is expected to join the list under a deal to be signed later this month. A clearing bank can handle all parts of a transaction from when a commitment is made until it is settled; having such a bank can reduce costs and time taken for trading, boosting activity in a financial centre.

How The Petrodollar Quietly Died, And Nobody Noticed -- The Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance. A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall.  This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling. But no more: "this year the oil producers will effectively import capital amounting to $7.6 billion.

Russia Nears Completion Of Second "Holy Grail" Gas Deal With China - Today, with little fanfare, Russia's president Putin - whose economy is said to be reeling as a result of a plunging currency, paradoxically something Japan would love to be able to achieve on such short notice - told the media ahead of his visit to the Asia Pacific Economic Conference on November 9-11, that Moscow and Beijing have agreed many of the aspects of a second gas pipeline to China, the so-called western route, or as some already are calling it, the "second holy grail." “We have reached an understanding in principle concerning the opening of the western route,” Putin said. "We have already agreed on many technical and commercial aspects of this project laying a good basis for reaching final arrangements,” the Russian President added.

How China’s “Rare Earth” Weapon Went From Boom To Bust Not so long ago, the U.S. went into full panic mode. China had reached the point where it controlled 97% of the world's rare earth elements—minerals that play a crucial role in manufacturing high-tech products. Were they right to fear that Beijing has a stranglehold over the global economy?Rare earth elements (REE) are a group of 17 chemically similar metallic elements in the periodic table, plus yttrium and scandium. Despite their name, REE are not rare. In fact, they're rather plentiful in the Earth's crust. But, tremendous effort and investment are required to extract, refine and process them.  As such, they are used in materials for multiple high-tech products (see table below). And, REE are widespread in U.S. defense systems, including: precision-guided munitions, lasers, communication systems, radar systems, avionics, night vision equipment and satellites. Congress convened a special hearing. Four years later, China's rare earth weapon has turned out to be a dud.So, what happened? How did China suddenly lose its status as the Master of the Earth's Crust, poised to blackmail the U.S. economy? Well, for starters, there might not have been a crisis to begin with. What the Chinese government says and what Chinese companies do are often two different things. Chinese producers found various loopholes to evade the embargo on Japan. For instance, they were able to export REE that were combined with small amounts of other alloys. And smuggling in China is rampant, with small mining companies, sometimes assisted by crime networks, illegally exporting as much as 20,000 to 30,000 tons of REE per year. Compare that with the fact that only a small amount of REE are required for consumer products—roughly a kilogram of neodymium for each Toyota Prius and a few grams in each cell phone. It would take a long time for an embargo to have an effect, especially when a hefty amount of rare earths are still being exported.

China Factory Gauge Rises as Global Recovery Buoys Manufacturing -  A gauge of China’s manufacturing rose last month as a global recovery helps the nation’s factories, underpinning an economy weighed by a property slump. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics for October was at 50.4, unchanged from the preliminary figure and up from September’s final reading of 50.2. Numbers above 50 indicate expansion. Demand from the U.S. is supporting manufacturing in China. Even still, the world’s second-largest economy is headed for the slowest full-year expansion since 1990, based on the median estimate of economists surveyed by Bloomberg. Average input costs and prices charged both declined at the fastest rates since March, the report showed, suggesting factory-gate deflation is deepening. Higher new-export business was attributed to stronger demand from customers across a number of key export markets, it said.

Weaker China PMI, Especially New Orders and Exports - The HSBC China Manufacturing PMI shows weaker expansions of output and new orders. Key points:

  • Output and new order growth weakens to five-month low
  • New export business expands at slowest pace since June
  • Input costs and output charges both fall markedly

Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "The HSBC China Manufacturing PMI rose to 50.4 in the final reading for October, up from 50.2 in September, and unchanged from the flash reading released earlier. Compared to the flash readings, the new orders and new export orders sub - indices saw small downward revisions, but both remained in expansion territory"

China official manufacturing PMI hits 5-month low - --A gauge of China's manufacturing activity fell to a five-month low in October, despite a series of government support measures aimed at aiding growth, suggesting that more help may be needed to boost the world's second largest economy. Analysts said factory data released Saturday kicked off the fourth quarter of the year on a surprisingly weak note and revealed particular problems among smaller and midsize companies. "We can expect more targeted [support] measures and the government may have to step in more forcefully," said Andrew Polk, economist at the Conference Board. China's official Manufacturing Purchasing Managers' Index dropped to 50.8 in October from 51.1 in September, according to the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics. The index remained above the key 50 level, which separates expansion from contraction compared with the previous month, but was below expectations of a reading that matched September's tally of 51.1. China's economic growth has been sluggish this year, pulled down by a weak property sector and tight credit conditions. Some analysts have questioned whether growth will reach the government's target of about 7.5% this year. Growth slipped to 7.3% year-to-year in the third quarter from 7.5% in the second quarter and 7.7% for all of last year. The third quarter pace was the slowest since the first quarter of 2009.

China Services Gauge Joins Manufacturing in Showing Slowdown -  A gauge of China’s services industry fell to a nine-month low in October, joining manufacturing in signaling a broadening economic slowdown. The government’s non-manufacturing Purchasing Managers’ Index  fell to 53.8 last month from 54 in September. The official manufacturing PMI released Nov. 1 was at 50.8 in October compared with September’s 51.1. Readings above 50 for both measures indicate expansion. The pullback in services and manufacturing will test the government’s determination to refrain from increased stimulus as the world’s second-largest economy heads toward the slowest full-year growth since 1990. The economy expanded 7.3 percent in the third quarter, the weakest pace in more than five years. “The momentum looks weak,” said Hua Changchun, a China economist at Nomura Holdings Inc. in Hong Kong. The effectiveness of the government’s targeted measures to boost the economy has waned, Hua said. The non-manufacturing PMI report showed a measure of expectations dropped 1 point from a month earlier, while readings of new orders, input prices and prices charged all increased from September, the report showed. Both PMI gauges are released by the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing.

Weaker Orders At Canton Fair Signal China Export Boost May Not Be Sustainable - (Reuters) - China's bellwether import-export trade fair showed a decline in orders year-on-year, indicating that strong external demand which helped buoy growth in the third quarter may not be sustainable in the final three months of the year. The China Import and Export Fair, popularly known as the Canton Fair, generated 179.2 billion yuan ($29.30 billion), organizers said in a statement on Tuesday, the final day of the event that began on Oct. 15. That's 8.6 percent less than last fall's fair after accounting for currency fluctuations. The twice-yearly event is China's biggest trade exhibition and is seen as a forward indicator of demand for the country's exports. The importance of the fair has declined as the world's second-largest economy seeks to shift away from exports and manufacturing toward consumption and services to find new drivers of growth. Despite the desire to pivot away from trade, analysts said strong export growth contributed significantly to China's 7.3 percent growth in the third quarter from a year earlier, beating expectations of 7.2 percent. September exports increased 15.3 percent year on year, far higher than predictions of 11.8 percent growth. Attendance at the fair declined by a slim 1.9 percent from the same period a year earlier with worries over the Ebola virus epidemic potentially leading some to stay home. State-run China Daily quoted the fair's spokesman in mid-October saying Ebola and domestic dengue fever epidemics would likely affect attendance and that Africans would not be barred from the event.

PBOC Dashes Hope/Hype For System-Wide Chinese Rate Cuts -- Following the release of the quarterly monetary policy report from the People’s Bank of China, it is becoming clear, as Goldman Sachs notes, that stimulus - via cuts to system-wide RRR and/or benchmark interest rates - is becoming less and less likely. The PBOC's introduction of a new facility called the medium-term lending facility (MLF) allows 'targeted' easing, and as one local economist noted, "it shows the central bank is very reluctant to loosen monetary policy." The PBOC has broadened its toolkit to arrest an economic slowdown, while seeking to avoid adding financial risks, as The PBOC said it would "continue to implement a 'prudent' monetary policy and use various tools to manage liquidity." Not the exuberant stimulus-fest the talking-heads are calling for reminding us, as Pettis previously concluded, "In China, it will be no different. Growth miracles have always been the relatively easy part; it is the subsequent adjustment that has been the tough part."

China central bank pumps more money into system - China’s central bank vowed to lower funding costs for corporate borrowers amid increasing pressure on the nation’s slowing economy. In a report published Thursday on third-quarter monetary policy, the People’s Bank of China also confirmed it had already conducted two rounds of liquidity injections into the country’s banking system in September and October totaling 769.5 billion yuan ($125.9 billion) in a bid to guide interest rates lower and support economic growth. The central bank said it had pumped the funds with a tenor of 3 months at an interest rate of 3.5% into the country’s state, midsize and smaller lenders, according to the report on the central bank’s website. Beijing has been pledging to lower funding costs for the economy as growth continues to slow this year and domestic firms struggle to get access to bank loans. The central bank suggested its policies had already achieved some success in bringing down borrowing costs. “Interest rates offered by financial institutions have come down and there has been an easing of high funding costs for enterprises,” said the central bank.

In Praise of Global Imbalances -  In recent weeks, there has been a chorus of opinion arguing for a sharp increase in global investment,  In fact, according to International Monetary Fund data, the current overall global investment rate, at 24.5% of world GDP, is near the top of its long-term range. The issue is not a lack of overall investment, but the fact that a disproportionate share of it comes from China. China’s share of world investment has soared from 4.3% in 1995 to an estimated 25.8% this year. By contrast, the United States’ share, which peaked at 36% in 1985, has fallen to less than 18%. The decline in Japan’s share has been more dramatic, from a peak of 22% in 1993 to just 5.7% in 2013. China dominates global investment because it saves and invests nearly half of its $10.5 trillion economy. But this investment rate is likely to decline sharply over the next 5-10 years, because the country already boasts new infrastructure, has excess manufacturing capacity in many sectors, and is trying to shift economic activity to services – which require less investment. Moreover, China’s rapidly aging population and declining working-age population will reduce long-term investment demand. Because the current-account balance is the difference between the investment and savings rates, the decline in investment will generate large surpluses unless savings also decline. Thus, China can expect large external surpluses to transform the country from the world’s workshop into its main financier. Indeed, the scale of capital outflows could be so large that long-term capital will remain cheap even after the world’s major central banks tighten monetary policy. How the world absorbs those surpluses will define the next period of global economic expansion.

For Whom Are the Japanese Leaders Kuroda and Abe Making Their Monetary and Fiscal Policy? -- The expansion of the BOJ asset purchase program was timed to start with the end of the Fed's asset purchase program.  I mean, come on.  Could it have been any more obvious? There is no big question that the Bank of Japan has been acting in concert with the Fed for the better part of this century at least.  And politically, Japan is a client state of the US.  And reader know that I have a long standing observation that one of the great difficulties in recovering from the long period of Japanese economic stagnation since the collapse of their great real estate and stock market bubble has been the inability to clean up their interlocking financial system dominated by industrial combines called keiretsus and a closely associated political system run by a surprisingly well connected minority of insiders.Beyond that I wondered why was Japan pursuing the purchase not only of domestic equities and non-sovereign paper, but foreign equities as well with their very large pension fund?  Are these intended as 'investments?'  Or are they a form of cross subsidies in support of a more global agenda? It makes me wonder if the policy being pursued by the BOJ is not designed to help the people of Japan now, so much as to support the requests of the international banking concerns, more specifically the US Federal Reserve.

Why Hasn’t Inflation Picked Up in Japan? - The Kuroda Bazooka fired again on Friday when the Bank of Japan expanded its already massive easing program for the first time in over a year and a half, reflecting its concern that the recent weakness in the economy may endanger its efforts to overcome deflation.  The central bank also cut its closely watched inflation projection after the government earlier in the day released data that showed consumer inflation in September falling to its lowest in nearly a year, moving further away from BOJ governor Haruhiko Kuroda’s price target of 2%. Why hasn’t inflation picked up? Several factors are behind the trend. The main problem is that wage growth has fallen behind price increases driven by the BOJ’s aggressive easing, sapping consumers’ purchasing power. The BOJ considers wage growth crucial to achieving its inflation target, but real wages have been sagging, including 2.6% in August year-on-year. The government and the BOJ hope wage growth will eventually filter through the economy and start a virtuous cycle of higher private spending and increased production and investment. Prime Minister Shinzo Abe has been talking up measures to promote this, but some economists are skeptical.

Business vs. Economics, by Paul Krugman - The Bank of Japan, this country’s equivalent of the Federal Reserve, has lately been making a big effort to end deflation, which has afflicted Japan’s economy for almost two decades. At first its efforts — which involve printing a lot of money and, even more important, trying to assure investors that it will keep printing money until inflation reaches 2 percent — seemed to be going well. But more recently the economy has lost momentum, and last week the bank announced new, even more aggressive monetary measures. I am, as you might guess, very much in favor of this move, although I worry that the policy might nonetheless fail thanks to fiscal mistakes. (More about that later.) While the bank did the right thing, however, it did so amid substantial internal dissent. In fact, the new stimulus was approved by only five of the bank board’s nine members, with those closest to business voting against. Which brings me to the subject of this column: the economic wisdom, or lack thereof, of business leaders. Some of the people I’ve spoken to here argue that the opposition of many Japanese business leaders to the Bank of Japan’s actions shows that it’s on the wrong track. In saying this, they’re echoing a common sentiment in many countries, including America — the belief that if you want to fix an ailing economy, you should turn to people who have been successful in business, like leaders of major corporations, entrepreneurs and wealthy investors. After all, doesn’t their success with money mean that they know how the economy really works? Actually, no. In fact, business leaders often give remarkably bad economic advice, especially in troubled times. And I think it’s important to understand why.

Flattening Flattens - Paul Krugman -- Justin Fox notes that the world is still not flat, and in fact doesn’t seem to be getting flatter; global “connectedness”, by various measures, seems to have leveled off. In particular, north-north trade doesn’t seem to be going much of anywhere. I’ve tried to make something like the same point. As I see it, “hyperglobalization” — the big increase in trade relative to GDP in the two decades after 1990 — was a one-off affair, driven by trade liberalization in developing countries and the rise of containerization, which led to a breakup of the value chain, with labor-intensive segments of production moving to China and other emerging economies. There wasn’t any comparable boom in trade or abolition of distance between economies at similar wage levels; if anything, interregional trade and specialization within the US may have declined. The flattening out of flattening is neither good nor bad, it’s just what happens when a particular trend reaches its limits. What is important to realize, however, is that trends do tend to do that.

Japan on the Brink - Paul Krugman --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. At the same time, Japan has huge public debt and lousy demography, which implies large implicit liabilities too. 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 — basically, that the bond vigilantes will attack. Why don’t I share that view?Partly because I don’t see how this supposed crisis of confidence is supposed to work. This was the point of my Mundell-Fleming lecture (pdf) at the IMF last year: when a country borrows in its own currency and doesn’t face inflationary pressure (quite the contrary), it’s very hard to see how a Greek-style crisis is even possible. Short-term interest rates are controlled by the Bank of Japan; long-term rates mainly reflect expected short rates. Yes, investors could push the yen down, but that would be a good thing from Japan’s point of view. Posen says stocks could crash, but I guess I don’t see why if interest rates stay low and corporate Japan becomes more competitive thanks to a weaker yen. Seriously: tell me how this is supposed to work. In fact, tell me how a loss in fiscal confidence — fear that Japan might eventually monetize some of its debt — isn’t actually a positive development. Meanwhile, it seems to me that Japan should be very, very afraid of losing momentum in the fight against deflation. Suppose that a second tax hike causes another downturn in real GDP, as I predict it would, and that all the progress made against inflation so far evaporates, which is surely a real possibility. How likely is it that the Bank of Japan could come back after that, saying “Trust us — this time we really will get inflation up to 2 percent in two years, no, really” — and be believed? I’d argue that stalling the current drive would cause a fatal loss of credibility on the deflation front. And this would, by the way, do huge fiscal damage too.

Why Don’t We See More Macroeconomic Populism? - Paul Krugman -- As I’ve been noting recently, there’s a lot of opposition within Japan to the Bank of Japan’s policy of printing more money; there’s also a lot of pressure on the government to raise taxes. And that’s not really very different from what has been happening in the rest of the advanced world: central banks that have pursued quantitative easing have done so despite political pressure, not because of it, and fiscal austerity has been imposed almost everywhere. The funny thing is that when you ask for justifications for pursuing hard money and tight budgets in a depressed, low-inflation economy, the answers you get often start from the presumption that money-printing and deficit finance are immensely tempting to politicians, so that you don’t dare let them get even a slight taste of these addictive drugs. This is often said in a tone of great wisdom, and presented as the lesson history teaches us. Now, as Simon Wren-Lewis points out — and as I’ve pointed out in the past — history actually teaches us no such thing. But populist politicians should love it when people tell them that printing money and running big deficits is OK — seems plausible. And things like this have happened in Latin America — indeed are happening again today in Venezuela and Argentina. So why don’t they ever happen in America, Europe, or Japan? Why, in a time of deflationary pressure, have calls for belt-tightening dominated the political scene?

Japan's Wealthiest Reap $3 Billion Windfall in Kuroda's October Surprise - The Bank of Japan’s unexpected stimulus has already made the country’s richest even wealthier, adding more than $3 billion to the four top billionaires’ net worth. Fast Retailing Co. (9983) Chairman Tadashi Yanai, Japan’s richest person, saw his fortune grow by about $2 billion in the three trading days since the central bank’s Oct. 31 announcement that sparked a plunge in the yen and a rally in stocks. While billionaires such as Yanai gained, the central bank’s unprecedented asset purchases to support economic growth have yet to show evidence of spreading beyond Japan’s wealthiest people and corporations. Toyota Motor Corp. (7203), the country’s biggest company, yesterday cited the weaker yen in raising its annual profit forecast to a record 2 trillion yen ($17 billion). “The top 10 percent or 20 percent are getting richer, on the other hand the bottom 20 percent to 30 percent are becoming poorer,”
Masayoshi Son, founder of SoftBank Corp. and Japan’s second-richest person, is up by $182 million since the BOJ decision, according to the Bloomberg Billionaires Index.  Keyence Corp.Chairman Takemitsu Takizaki, the country’s No. 3 billionaire, added $434 million to his fortune and Rakuten President Hiroshi Mikitani, the next richest, saw an extra $393 million, based on closing prices yesterday.

Dollar hits fresh seven-year high against yen - The dollar hit a fresh seven-year high against the yen in Asian trade Wednesday, buoyed by U.S. midterm election results, as the Japanese currency fell against its major peers, hitting a seven-month low against the euro ahead of a European Central Bank policy meeting. Selling pressure in the wake of the Bank of Japan’s surprise move to expand its easing measures last week also continued to favor the dollar against the yen. The dollar USDJPY, +0.90% hit ¥114.30, its highest since December 2007, compared with ¥113.68 late Tuesday in New York. After experiencing some adjustment in the morning, the dollar quickly gained momentum mid-afternoon, breaking through the ¥114 mark after news that Republican Senate candidates won sweeping victories Tuesday, capturing Democratic-held seats. The results will give the party control of both houses of Congress for the first time in eight years. Since the BOJ’s move on Friday, the dollar has rapidly gained by about ¥5 against the Japanese currency. The downside seems much more firmly supported in the latest rally, compared with gains seen between August and October that took the dollar about ¥7 higher to ¥110,

Japan’s Abe says Trans-Pacific Partnership trade talks with U.S. are near ‘final stage’ - — Japan’s prime minister has affirmed his commitment to reaching a broad trade deal with the United States and 11 other Pacific Rim nations, even as Tokyo stands accused of refusing to budge on the thorny issue of agricultural tariffs. The Trans-Pacific Partnership free-trade agreement is a crucial component of Shinzo Abe’s plans to revive Japan’s economy after two “lost decades” of stagnation and falling prices, and the prime minister says reviving the economy is his top priority. “My mission is to make sure that the Japanese economy really gets out of the deflation that has continued for more than 15 years,” Abe said this week during a wide-ranging interview with Lally Weymouth, The Washington Post’s senior associate editor, in which he talked about relations with China and the United States and his vision for the economy. The economy is a political life-or-death issue for Abe, who has been able to advance his foreign policy agenda — including plans to allow Japan’s military to shake off some of its post-war shackles — partly because the economy was improving.  But boosting growth through freer trade has proven elusive for Abe. With both sides set to meet again Saturday ahead of the Asia Pacific Economic Cooperation meetings in Beijing, Abe voiced optimism that the negotiations were nearing an end. “I think it is arriving at the final stage,” Abe said, adding that he has instructed his trade minister, who walked out of a meeting with his U.S. counterpart in September, to work toward closing the deal. On the U.S. side, prospects for political approval of the agreement are widely viewed as having improved this week after Republicans won control of the Senate. The party traditionally supports such trade deals and is considered more likely to give President Obama “fast track” authority to proceed.

Central Bank Duel Spurs Korea Rate-Cut Bets After Japan Easing - Fixed-income traders are stepping up bets that South Korea will cut interest rates to a record low to curb gains in the won versus the yen. The difference in yield between South Korea’s three-month certificates of deposit and where forward contracts signal they will be in six months fell to minus 15 basis points yesterday, a threshold reached in the month leading up to to rate cuts in August and October, according to data compiled by Bloomberg. The benchmark three-year bond yield held at an all-time low today after the Bank of Japan said Oct. 31 it will increase its annual target for enlarging the monetary base. The won climbed to a six-year high against the yen this week, threatening to damp overseas sales by companies such as Samsung Electronics Co. that compete against Japanese rivals. Finance Minister Choi Kyung Hwan warned Oct. 27 that the economy, which is expanding at the slowest pace in more than a year, will face deflation if subdued growth and consumer-price gains persist. “We’re seeing a weak yen at a time when South Korea’s export momentum isn’t strong, and the uncertainty in currency markets may further deter local companies’ investments,”  “We see increasing risks of BOK cutting rates to 1.75 percent in the next few months.”

Asia Factory Conditions Worsen - Purchasing managers’ indexes, which assess conditions in manufacturing, showed weakness in China, South Korea, Taiwan and Indonesia. There was some improvement in India, but overall the data instilled a somber mood among economists. Across the data, there was little good news for exporters. HSBC’s final PMI for China stood at 50.4, up from 50.2 in September. (A reading above 50 signals an expanding manufacturing sector.) But new export business growth was at its slowest since June.  In South Korea, the reading was 48.7, the seventh consecutive month that manufacturers signaled a decline in output. New export orders fell at their fastest pace in over a year. Korea’s exports have been subdued this year, reflecting lackluster growth in the U.S. and Europe – key engines of demand for Asia’s output of electronics and other products. China has become a bigger market for goods made in other parts of Asia, and slower growth there has also rippled through the region. Taiwan, another big electronics exporter, has fared somewhat better. Some economists say that’s because its manufacturers of semiconductors and other electronic components have benefited from the success of Apple Inc.’s iPhone. Taiwan’s HSBC PMI stood at 52 — in expansion territory. But this was down from 53.3 in September and export orders grew at a weaker rate. Indonesia’s index fell to 49.2 – a 14-month low – from 50.7 in September. Again, manufacturers complained of decreasing business from abroad. India was a rare bright spot. The PMI rebounded to 51.6 from 51 in the previous month, driven by better orders from overseas clients. Still, India’s headline number was still down on July and August.

NCAER lowers India GDP growth forecast for this year to 5% -  The National Council of Applied Economic Research (NCAER) has lowered India's GDP growth forecast to 5 per cent in the current financial year on weak economical fundamentals and uncertainties in growth prospects. The economic think-tank in its earlier projection had suggested that the Indian economy was likely to grow at 5.7 per cent in 2014-15. "NCAER is predicting a slower growth for the economy unlike other forecasts. The fundamentals of the economy remain weak with uncertainties prevail. The only redeeming feature is the weakening of inflation and FDI inflows. "Whether that will help us revive our growth prospects will depend on a number of factors including revival of the external economy and the extent of damage on agriculture due to deficit rainfall," it said in a release today. NCAER said that the overall economy is looking weak with uncertain growth prospects.

Hindu right rewriting Indian textbooks - You cannot blame Bhavana Vaja, 12, for telling you that the first aeroplane was invented during the mythical Dvapara Yuga, when the Hindu God Ram flew from Sri Lanka to Ayodhya in India with his wife Sita and brother Laxman in a Pushpaka Vimana - a swan­-shaped chariot of flowers. By claiming that they familiarise students with India's ancient heritage, some books printed by the education department of western Gujarat state teach children that aeroplanes existed in India since Lord Ram's era. And that is just a sample of how religious content is included in science, history, environment, and mathematics books. "Every week we are asked to do projects in our science and social studies classes. We refer to these books then," says Saras Solanki, age 9. The Gujarat government has introduced nine new books this academic year for classes 1 to 12. These books, written by Hindu nationalist ideologues, have been delivered to 42,000 elementary schools across the state free of cost. Eight out of the nine books have been penned by Dina Nath Batra, founder of the Hindu nationalist organisation, Shiksha Bachao Andolan Samiti. Batra was responsible for forcing Pengiun India Publishers to withdraw all copies of Wendy Doniger's book The Hindus in February this year. Enthused by its success, Batra went on to force two other publishers - Aleph and Orient Blackswan - to withdraw books that he deemed "hurtful to Hindu religious sentiments".  Taking a leaf from Batra's book, India's prime minister and former chief minister of Gujarat state, Narendra Modi, last week said that genetic science existed in ancient India.

      RBA Held Rates Says Current Stimulus is Justified - Australia’s central bank kept interest rates at record lows for a 14th straight policy meeting on Tuesday, saying the stimulus was justified given the outlook for sub par growth even as consumers showed signs of opening their wallets. The result surprised no one but the local dollar did edge higher as the Reserve Bank of Australia (RBA) refrained from escalating its verbal campaign for a lower currency. “Overall, the Bank still expects growth to be a little below trend for the next several quarters,” said RBA Governor Glenn Stevens, in what was a carbon copy of recent statements. “On present indications, the most prudent course is likely to be a period of stability in interest rates.”

      Morgan Stanley Turns Mega-Bear on Australia -- Economists don’t ever agree on much, but they certainly don’t agree on the prognosis for Australia’s economy. A bump in retail-sales data in September gave ballast to the argument that Australia is transitioning away from mining, a sector which is suffering amid weak commodity prices. But less sanguine observers say the nation is far from making the switch away to a more locally driven economy. Count Morgan Stanley among the naysayers. On Wednesday, the bank poured a cold warning on any optimism, saying the country may be on track for its first recession in more than two decades—unless the government takes action. Morgan Stanley revised lower its forecast for economic growth this year to 3.2% from 3.4%. In 2015, it now expects growth of only 1.9%, down from an earlier forecast of 2.5%. That compares with the current central bank forecast of around 3%. Some economists saw a rise in retail sales in September as signaling that record low interest rates, in place for over a year, are starting to help demand. They also cite a falling Australian dollar, which helps commodity exporters, local manufacturers and retailers, as reason to take hope.Morgan Stanley begs to differ.“The economic transition in Australia from the resources boom to east coast recovery has stalled,” it said.Morgan Stanley says most commentators are underplaying the impact of falling commodity prices on the economic outlook.  The price of iron ore, the country’s biggest export, has dropped 40% this year, and coal also is sliding. An end to an investment boom in mining has thrown many Australians out of well-paid jobs. The bank notes the Australian dollar’s fall hasn’t kept pace with the decline in commodity prices.

      Australia’s Jobless Rate: Another Sour Note -- Australia’s stubbornly high jobless rate is yet another tick in the column for a dour outlook on its economy, as the country pries itself from a fading mining boom and China’s slowing demand.At 6.2%, October’s jobless rate —its highest in more than a decade—also takes the sheen off recent retail sales data, which some saw as a rare bright spot.The tug-of-war between good news and bad has pushed some analysts to question if and when the Reserve Bank of Australia would make a move—in either direction. The central bank stepped in just over a year ago to cut rates to a record low 2.5% and kept rates unchanged on Tuesday.Some analysts expect the central bank would raise rates. Beyond rosy retail sales data, concerns over surging home prices, up almost 10% in the past year, and a falling Australian dollar could number among a string of data points supporting that move.The bank has worried that housing prices aren’t in line with the broader economy and could signal a bubble. In a meeting last month, the central bank stressed the importance of rigorous lending standards, which reflects a festering concern about property-market speculators.A weaker Australian dollar, meanwhile, would make exports more affordable and domestic retailers more competitive. Lower oil prices have also reduced costs. In tandem, these forces put more money in consumers’ pockets and offer a brighter picture of the economy.  But others contend the recovery is far off and argue that a rate cut is more likely in the cards.

      New Zealand's Trade Minister Admits They Keep TPP Documents Secret To Avoid 'Public Debate' - A couple years ago, then US Trade Representative Ron Kirk explained why the negotiating text of trade agreements like the TPP needed to be kept secret: because if the public debated it, the agreement probably wouldn't be approved. He used, as an example, a failed trade agreement where the text had been public. Beyond the "small sample size" problem of this explanation, the much more troubling aspect is the obvious question of recognizing that if public debate would kill the agreement, perhaps it's the agreement that's the problem and not the public.  Apparently, New Zealand's current Trade Minister, Tim Groser, feels similar to Kirk on this issue. During a question and answer period, he was asked why he won't share the draft texts with, say, medical professionals for input, given that the current leaks suggest it would be a disaster for public health. Groser's answer is quite telling, in that he admits that he fears the public debate, because it would be "misinformed."

      Food Bank Canada report: 'Alarming' number of Canadians seek help - Food bank use in Canada increased slightly this year in comparison to 2013, and it remains significantly higher than it was before the economic recession, according to a report released Tuesday by Food Bank Canada. In the month of March 2014, more than 840,000 people received food bank assistance, one per cent higher than the same snapshot period last year. More than a third of them were children, and nearly half of households helped were families with children. Five years after the economy’s downturn, 170,000 more people per month were walking through the doors of food banks than was the case before the recession. The annual HungerCount study provides one of the most up-to-date national indicators of poverty. The study highlights the factors driving the need for food banks and the continued high use of food banks in Canada, calling the 840,000-figure "alarming."

      International Mensch Fund - Paul Krugman -- The IMF has released an audit of its own response during the aftermath of the financial crisis, which concludes that it messed up by embracing fiscal austerity in 2010. It failed to understand that you need to differentiate between economies that borrow in someone else’s currency and those that don’t; it failed to appreciate that the negative effects of fiscal contraction would be much larger in a zero-lower-bound environment than historical patterns might suggest. Well, I could have told you all of that at the time — and in fact I did, over and over again.  But let us nonetheless celebrate the IMF’s willingness to look honestly at its own record and learn from it. Taking responsibility for your actions and statements — being a mensch, as my father would have said — is all too rare in modern economic discourse, as the comedic evasions of the open-letter crew demonstrate. The Fund, it turns out, is better than that, and deserves praise.

      Child Poverty Jumps 2.6 Million Since 2008, While Number Of Billionaires Doubles - Two headlines came across my screen today, which taken together pretty much sum up the effects of policy decisions made by Central Bankers and politicians since the financial crisis. The financial oligarchs got bailed out, and the rich got richer due to decisions made by “leaders” around the globe. As such, the entire planet has now been transformed into a neo-feudal tinderbox.

      85 richest now have as much money as poorest 3.5B: "There's been class warfare going on for the last 20 years, and my class has won." Billionaire investor Warren Buffett made that remark more than three years ago and it still holds true today — only the gap between the richest and the poorest has gotten even wider. Here's how bad it is: Oxfam now calculates that the 85 richest billionaires on the planet, including the likes of Carlos Slim, Bill Gates and Mark Zuckerberg, have as much money as the 3.5 billion poorest people. And for all the talk about the urgent need to address income inequality, the mega-rich just keep on getting richer. How much richer? Oxfam estimates that between March 2013 and March 2014, those same 85 billionaires saw their wealth grow by $668 million every day. These people are so grotesquely rich that if Bill Gates, for example, spent $1 million every day, it would take him 218 years to exhaust his funds. That, of course, would never happen because Gates would be earning millions of dollars a day in interest on the rest of his wealth. When you have more money than you could possibly spend in several lifetimes, you can afford to do some pretty crazy things.

      Nouriel Roubini | The single-engine global economy - The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, only one of its four engines is functioning properly: the Anglosphere (the US and its close cousin, the UK). The second engine—the euro zone—has now stalled after an anaemic post-2008 restart. Indeed, Europe is one shock away from outright deflation and another bout of recession. Likewise, the third engine, Japan, is running out of fuel after a year of fiscal and monetary stimulus. And emerging markets (the fourth engine) are slowing sharply as decade-long global tailwinds—rapid Chinese growth, zero policy rates and quantitative easing by the US Federal Reserve, and a commodity super-cycle—become headwinds. So the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken US growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the US will be able to decouple from the funk everywhere else, even if domestic demand seems robust. Falling oil prices may provide cheaper energy for manufacturers and households, but they hurt energy exporters and their spending. And, while increased supply—particularly from North American shale resources—has put downward pressure on prices, so has weaker demand in the euro zone, Japan, China, and many emerging markets. Moreover, persistently low oil prices induce a fall in investment in new capacity, further undermining global demand.

      Argentina accuses Procter & Gamble of tax fraud, says suspends operations (Reuters) - Argentina has accused Procter & Gamble, the world's No. 1 household products maker, of tax fraud and said it suspended its operations in the South American country, according to a statement issued on Sunday by the country's AFIP tax authority. It was unclear what the government meant by suspended, and the company declined to comment on whether its operations had been halted. Argentina accused the company of over-billing $138 million in imports to get money out of the country, according to the statement, which was published on Argentina's presidential website ( "P&G funneled currency abroad and hid income that was subject to tax in Argentina," it said. "We have to put an end to these tricks used by international companies," the statement added. Procter & Gamble spokesman Paul Fox said the company is working to understand fully the allegations and resolve them. "We don't pursue aggressive tax/fiscal planning practices as they simply don't produce sustainable results," he said adding the consumer products maker values its relationship with the country and its consumers.

      Dependencia 2014: Argentina Kicks Out Procter & Gamble - Talk about an odd fixation. There is something about the Latin left and diapers. In Venezuela nappies are a scarce luxury item which you cannot find in most stores. Apparently, the Argentinians wish to replicate this state of affairs in envy of their self-styled socialist neighbors. Even if the market for these items is not very large due to communistic excesses you are well aware of, P&G dominates--make that used to dominate--this market. Like Venezuela, Argentina has implemented draconian foreign exchange controls to stem the outflow of foreign exchange from the country. With such controls in place, multinationals have a difficult time operating. Well, for Procter & Gamble, finding ways of serving the Argentinian market is no longer a problem from this day forward since P&G has now been accused of tax fraud and has been told to suspend operations in the country: Argentina has accused the world's No. 1 household products maker, Procter & Gamble, of tax fraud and suspended its operations in the South American country, according to a statement issued on Sunday by the AFIP tax authority. The accusation is that the company over-billed $138 million in imports to get money out of the country, according to the statement, which was published on Argentina's presidential website ("P&G funneled currency abroad and hid income that was subject to tax in Argentina," it said. "We have to put an end to these tricks used by international companies,"

      Mexico scraps high-speed rail project won by China over corruption worries -- Perceptions that Mexican President Enrique Peña Nieto rewarded friends with a share of a $4.3 billion high-speed rail contract won by a Chinese-led consortium led this week to a stunning decision by Mexico to scrap the deal and start over with new bidding.The move rocked Mexico’s relations with China on the eve of a visit there by Peña Nieto and caused the stock price of China Railway Construction to plunge 5.8 percent Friday on the Hong Kong stock exchange. Peña Nieto is to leave Sunday for Beijing for a summit of Asian Pacific leaders and a state visit with his Chinese counterpart. He will then travel on to Australia for a G20 summit of global economic powers.State-owned China Railway Construction, the world’s largest construction contractor, had allied with four Mexican companies, three of which are owned by friends or allies of Peña Nieto, for the award to build a 150-mile high-speed rail link between Mexico City and Querétaro, a booming center of the aerospace industry.The China Railway consortium was the sole bidder. Other potential bidders complained of corruption and said the time allowed to prepare bids was far too short.Secretary of Transportation and Communications Gerardo Ruiz Esparza announced the decision to cancel the contract late Thursday night. On Friday, he told Mexico’s Radio Fórmula that the bidding was done legally but that Peña Nieto “is very sensitive right now that there be doubts or questions about the government of China’s first investment in Mexico.”

      Missing Nigerian schoolgirls 'married off' - Africa - Al Jazeera English: Boko Haram's leader, Abubakar Shekau, has said the 219 schoolgirls kidnapped from the remote town of Chibok in Nigeria's northeast in April have converted to Islam and been married off. Shekau made the remarks in a video obtained by the AFP news agency on Friday. "Don't you know the over 200 Chibok schoolgirls have converted to Islam? They have now memorised two chapters of the Koran," he said. "We have married them off. They are in their marital homes," he added. In a previous statement the group's leader threatened to sell the girls as slave brides and also suggested that he would be prepared to release them in exchange for Boko Haram prisoners.

      Russia’s central bank withdraws support for the rouble - Russia’s central bank on Wednesday abandoned its policy of unlimited foreign currency interventions to support the rouble, accelerating moves towards floating the Russian currency following recent steep falls. The Bank of Russia said it would dramatically reduce support for the rouble and spend no more than $350m a day to intervene in the domestic foreign exchange market. Previously, there was no set limit for such interventions, and the bank had been selling up to $2.5bn a day in recent weeks to support the Russian currency. Originally, the bank had planned to release the rouble into full flexibility by the end of the year. But the recent steep slide of the currency, driven by the drop in oil prices and western sanctions against Russia, forced the policy makers to move earlier. Analysts said the move put to rest for now concerns that Moscow might resort to currency controls to fight the rouble’s rapid devaluation. The rouble has lost almost 25 per cent of its value since the middle of the year. In general, Russian economic policy makers and analysts say the devaluation is not hurting the economy as it helps buffer the fiscal effect of lower oil prices. But steep drops over the past month have triggered warnings that the currency was under speculative attack. Last Friday, even the central bank’s drastic move to increase interest rates by 150 basis points to 9.5 per cent failed to halt the currency’s drop for long. Mr Shearing said the foreign exchange policy adjustment “should help to limit the risk that the plunge in the rouble over the past month develops into a self-fulfilling currency crisis”.

      Fitch: Russian Central Bank Move Partly Eases Reserve, Oil Risks (Fitch) The decision by the Central Bank of Russia (CBR) to limit its currency market intervention should ease immediate pressure on reserves and counteract the negative fiscal impact of lower oil prices, Fitch Ratings says. However, pressure on reserves is unlikely to abate fully, and falling oil prices and higher interest rates present risks to growth. The CBR said on Wednesday that it would widen the rouble's exchange-rate corridor and limit its daily interventions to a maximum of USD350m. This followed last week's 150bp increase in the main interest rate, to 9.5%. Accelerated transition to a floating exchange rate should put a brake on reserve depletion (the CBR said on Thursday that reserves had fallen by a further USD10.5bn to USD428.6bn in the week to 31 October) and reduce the risk of a self-fulfilling currency crisis. The sharp decline in international reserves has been partially offset by comparable declines in external debt. CBR statistics showed Russia's gross external debt fell by USD52.7bn in the third quarter to USD678.4bn. Deleveraging on this scale implies that Russia's net external creditor position is eroding less quickly than headline reserve numbers would suggest. The move toward greater exchange-rate flexibility is in line with the CBR's aim of a freely-floating rouble in 2015, which should cushion public finances against falling oil prices and other external shocks.

      Russia’s Economic Woes Are Hitting More of Its Neighbors, the IMF Says -- Russia’s sanctions-fueled economic slowdown is sapping growth in the Central Asian and the Caucasus satellite nations that rely on their neighbor, the International Monetary Fund said in its latest regional outlook. The IMF cut its 2015 growth forecast for the region to 5.6%, down 0.8 percentage point from its last estimate in May. “Risks are tilted to the downside,” the IMF said. “In particular, a deeper or more protracted Russian slowdown could further weaken remittances, exports, and investment.” Russia is a key trading partner, financier and remittance source for countries such as Kazakhstan, Uzbekistan, Georgia and the Kyrgyz Republic. Russia’s sanctions battle with the West over Ukraine has scared off investors and sent the ruble into a nosedive. Combined with falling investment levels and plummeting oil prices, the former Soviet nation’s economy is now stalling. Russia’s woes are bleeding into the surrounding countries, slashing investment into the region and undercutting cash flows that migrant workers send back to their home countries. The depreciating ruble is also feeding inflation pressures in some of the region’s economies. Europe’s funk and China’s growth challenges also could overshadow the region’s prospects. “A protracted period of slower growth in other trading partners, particularly Europe or China, would also affect external demand,” the IMF said.

      Ruble Slide Continues; Russia Forced to Abandon Currency Intervention as Reserves Dwindle -- In the wake of falling oil prices, tensions in Ukraine, and sanction madness that hurts both Russia and the Eurozone, the ruble has been on a huge slide.   Since June the Ruble has slid from about 34 to the US dollar to 44.9 to the US dollar. That is a decline of 24 percent. A long-term chart shows an even bigger decline.  Since the beginning of 2011 the Ruble has gone from 28 to the US dollar to 44.9 to the US dollar. That's a decline of 37.6 percent. Russia's Attempts to Stabilize the Ruble Fail The decline has been pretty orderly until about June of this year. To halt recent decline, Russia hiked interest rates on October 31 to 9.5% from 8.5%. As the first chart shows, that huge rate hike did not halt the slide. Russia had also been intervening in the currency markets to the tune of about $2.5bn a day, but that's not a sustainable action. Indeed, declining reserves forced  the Russian Central Bank to Abandon Ruble Support. The Central Bank of Russia announced an effective free float of the rouble on Wednesday, a step which triggered a fresh plunge in the currency but is intended to eventually stabilise it. The rouble’s slide has accelerated in recent weeks, partly because the central bank’s policy of automatic intervention was an easy target for speculators making one-way bets. Previously, the bank had been committed to interventions worth $350m each time the rouble fell outside the band – a policy that was easy for speculators to exploit and in recent weeks had cost it up to $2.5bn a day.

      The Return of the Trade Cold War? - Yves here. With an active US effort to isolate Russia, which Russia is seeking to undermine (with only limited success so far) in strengthening ties with China and other emerging economies, most analysts have seen the geopolitical struggle in terms of short-term effects, such as on Russia’s and Europe’s growth rates over the next year. At the same time, the Chinese initiative to create a development bank, meant to rival the World Bank, is seen by many as an important step in breaking the dollar hegemony, along with moves by China and Japan to enter into oil contracts denominated in currencies other than the greenback. As we’ve discussed in previous posts, we believe the frisson over the demise of the dollar as the world’s reserve currency is greatly overdone. As much as the US is abusing its role, particularly in its aggressive use of its influence over the dollar payments system as a weapon, there are simply no viable candidates for replacement on the horizon.  However, this post examines a consequence of US economic aggression against Russia that has not rceived the attention that it merits: that of reducing the amount of international trade, something economists see as a driver of growth. Note that per the Lipsey Lancaster theorem, there is ample reason to doubt the near-religious belief that more open trade is always a good thing. However, sudden restrictions in trade, which is what is taking place with US/European sanctions on Russia and Russia implementing counter-sanctions, is certain to cause short-term dislocations. And as we noted in a recent post, the cordon sanitaire being placed around Russia will led it to operate more as an autarky, which may not necessarily be a negative in the medium to long term.

      Finland warns of new cold war over failure to grasp situation in Russia --- Western countries are at the gates of a new cold war with Russia, sparked by the Ukraine crisis and a continuing failure to grasp the depth and seriousness of Vladimir Putin’s grievances with the US and EU, the Finnish president, Sauli Niinistö, has warned. Speaking to the Guardian at his official residence before Thursday’s conference in Helsinki attended by the UK prime minister, David Cameron, and Nordic and Baltic state leaders, Niinistö said Finland had a long tradition of trying to maintain friendly relations with Russia. But it would not be pushed around. “The Finnish way of dealing with Russia, whatever the situation, is that we will be very decisive to show what we don’t like, where the red line is. And that is what we are prepared to do,” Niinistö said, referring to recent violations of Finnish airspace by Russian military aircraft. “We put the Hornets [US-made Finnish air force F-18 fighter aircraft] up there and the Hornets were flying alongside the Russian planes … The Russians turned back. If they had not, what would we have done? I would not speculate.” Cameron will join eight Nordic and Baltic leaders at the one-day Northern Future Forum hosted by Alexander Stubb, Finland’s prime minister. Sources said they will discuss a response to Moscow’s official recognition of “illegitimate” weekend elections at the weekend that were won by pro-Russia separatists in eastern Ukraine, at a private dinner at Stubb’s residence at Kesäranta.

      Putin Signs Secret Pact To Crush NATO -- Back in September, there was a summit meeting in a city that involved an organization that most Americans have never heard of. Mainstream media coverage was all but nonexistent. The place was Dushanbe, the capital of Tajikistan, a country few Westerners could correctly place on a map. But you can bet your last ruble that Vladimir Putin knows exactly where Tajikistan is. Because the group that met there is the Russian president’s baby. It’s the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. We should care what’s going on inside the SCO. Once India and Pakistan get in (and they will) and Iran follows shortly thereafter, it’ll be a geopolitical game changer.

      Europe's bond yields lowest since 15th century Genoa on deflation, Russia risk - Telegraph: Bond yields have fallen to the lowest level in modern history in Germany, France and the eurozone’s core states, signalling a high risk of deflation and mounting concerns about sanctions against Russia. The yield on German 10-year bonds fell to a record low of 1.11pc in intra-day trading, partly on safe-haven flows. French yields dropped in tandem to 1.5pc. These levels are far below rates hit during the 1930s or even during the deflationary episodes of the 19th Century. “Yields fell this low in Genoa in the 15th century but there has been nothing like this in Europe in modern times,” said professor Richard Werner, from Southampton University. “This reflects the weakness in nominal GDP and a slow economic implosion caused by credit contraction. The European Central Bank is at last starting to act but it is only scratching the surface.” German, French and Dutch yields have been sliding for months as the eurozone recovery wilts and several countries flirt with recession, but the latest plunge reflects a confluence of forces. “Investors may fear that the worsening tensions with Russia could be the external shock that finally pushes the eurozone into a deflation trap,” said Simon Tilford, from the Centre for European Reform. Bond yields have also fallen to all-time lows in Spain and Italy but the “risk-spread” over German Bunds has been widening over recent weeks. The cost of insuring Italy’s debt through credit default swaps has risen by a third since June.

      European growth as elusive as quicksilver (Reuters) - Data from both sides of the Atlantic will give clues in the coming week on just how bad the euro zone economy is and just how sustainable is its U.S. counterpart. Europe offers a rate meeting from the European Central Bank and a new slate of economic forecasts; the United States will release its influential monthly jobs data. Purchasing manager indexes for the past month will also show how businesses see things shaping up in the United States and Europe. One for China's has already come in lower than expected. For many, the ECB meeting on Thursday will be the main money event – despite the fact that it is not likely to be one of action or suspense. As usual, the attention will be on ECB President Mario Draghi’s nuances at the news conference that follows the likely non-move on rates. When it comes to the ECB, the news is often all about the journey rather than the destination. This week’s inflation data let the ECB off the hook on taking any immediate additional action to combat the threat of deflation. At 0.4 percent in October, inflation is worryingly slight, but it is higher than it was a month earlier.

      Greece unlikely to end bailout without new help: EU official  (Reuters) - Greece is "highly unlikely" to end its euro zone bailout programme without some new form of assistance that will require it to meet targets, a senior EU official said on Monday. "A completely clean exit is highly unlikely," the official told reporters, on condition of anonymity. "We will have to explore what other options there are. Whatever options we may be adopting, it will be a contractual relationship between the euro area institutions and the Greek authorities," the official said. The euro zone/IMF bailout support of 240 billion euros began in May 2010. Greece is in negotiation with EU institutions and the International Monetary Fund ahead of the expiry of its bailout package with the European Union on Dec. 31. Athens has said it wants its bailout to finish when EU funding stops, though the IMF is scheduled to stay through to early 2016. The EU official said he expected euro zone ministers and Greece to decide on how best to help Athens at a meeting of finance ministers in Brussels on Dec. 8. That should give time for parliamentary approval before the December recess. The official gave no details of what new aid might look like, but policymakers have said that the most likely tool is an Enhanced Conditions Credit Line, or ECCL, from the European Stability Mechanism.

      Deep Divisions Emerge over ECB Quantitative Easing Plans -  At first glance, there's little evidence of the sensitive deals being hammered out in the Market Operations department of Germany's central bank, the Bundesbank. The open-plan office on the fifth floor of its headquarters building, where about a dozen employees are staring at their computer screens, is reminiscent of the simple set for the TV series "The Office". There are white file cabinets and desks with wooden edges, there is a poster on the wall of football team Bayern Munich, and some prankster has attached a pink rubber pig to the ceiling by its feet. The only hint that these employees are sometimes moving billions of euros with the click of a mouse is the security door that restricts access to the room. They trade in foreign currencies and bonds, an activity they used to perform primarily for the German government or public pension funds. Now they also often do it for the European Central Bank (ECB) and its so-called "unconventional measures." Those measures seem to be coming on an almost monthly basis these days. First, there were the ultra low-interest rates, followed by new four-year loans for banks and the ECB's buying program for bonds and asset backed securities -- measures that are intended to make it easier for banks to lend money. As one Bundesbank trader puts it, they now have "a lot more to do."

      The ECB should stop fearing the Germans - THE CONTRAST between the monetary policies pursued in America and the euro zone since 2012 could not be greater. Since 2012 the Fed has continued to expand its balance sheet dramatically. From 2012 to 2014 the Fed added $1 trillion to its balance sheet. In doing so, it increased the American money base (liquidity) by approximately the same amount. Exactly the opposite occurred in the euro zone. After having expanded its balance sheet during the period 2008-11, pretty much as the Fed had done, the ECB started a period of dramatic contraction in its balance sheet (and thus in the euro money base) from 2012 onwards. As a result, in 2014 the ECB had reduced the money base by €1 trillion. This was the period during which the Fed added $1 trillion to the money base, an increase of 25%. There can be little doubt that the decision of the ECB to reduce the money base by 30% at a time when the euro zone had not recovered from the sovereign-debt crisis contributed to pushing the euro zone into a deflationary dynamic, out of which it still tries to extricate itself.

      Cracks in the Stress Tests of European Banks --The sigh of relief was almost audible last week when the European Central Bank published its long-awaited safety and soundness report on 130 banks in 19 countries in the region. Many investors seemed comforted that just 13 banks had failed the comprehensive exam.  But there is much more to the report than a pass/fail grade for Europe’s banks. And some of the findings should trouble any investor interested in the accuracy and comparability of European banks’ financial statements.  A crucial aspect of the examination was an analysis of how each bank valued its assets, such as loans and interest-rate swaps and other derivatives holdings.  The derivatives holdings on these institutions’ books total hundreds of billions of euros. So it’s critical that banks accurately assess the risks that arise in these holdings when a trading partner gets into financial trouble. The analysis was discomfiting. The European Central Bank concluded that fully half of the sampled banks had inadequate practices when it came to calculating and adjusting their holdings for credit risks associated with derivatives trading partners.   Here is another disturbing data point: More than one-quarter of the banks — 28 percent — were found to be less conservative in their classifications of nonperforming loans than the central bank’s definitions required. And roughly a quarter of the banks had substandard processes related to independent price assessments of assets.The problems were not inconsequential, the report concluded. Improper valuations of bank assets required adjustments of 48 billion euros ($60.5 billion) at the institutions, and the capital shortfalls identified at 25 banks under an adverse economic scenario totaled €25 billion as of year-end 2013. Twelve of the banks raised capital this year, reducing the shortfall figure.

      Central bankers are caught in their own trap - You can almost hear the great wheels of global monetary policy making turning: change is afoot in each leading central bank. The US Federal Re­serve has bought its last long-term bond. The Bank of England is talking down the prospect of rate rises (after talking it up not long ago). The Bank of Japan is speeding up money creation. Even the European Central Bank is creeping towards asset purchases. This is not a bad time to assess how much we can demand from central banks. It is fashionable to say monetary policy is “overburdened” and only fiscal policy can help depressed economies out of their rut. I do not dispute the importance of using fiscal policy where there is room for manoeuvre (as in the eurozone as a whole, where the fiscal deficit is only 2.5 per cent of output). Structural reforms are needed, too. But we should take issue with the idea monetary policy has done as much as it can. The notion that developed economies are in a “liquidity trap” – where printing money no longer has any effect – is treacherous. The problem is partly semantic but semantics can shape politics. A trap is hard to spot and difficult or impossible to escape. The implication is that monetary policy makers have done everything possible. In liquidity trap models of the economy, the central bank is impotent. Although it can create money at will, this power no longer provides influence over interest rates or the ability to give the economy a boost. The reason this is said to happen is a supposed “zero lower bound” on interest rates. Central banks stimulate spending and investment by increasing the money supply. With more liquidity in the economy than people want to hold, they try to buy profitable assets for their cash. This drives market interest rates down. But when nominal rates are (near) zero, investors can hold all the liquidity the central bank throws at them without missing out on returns elsewhere, so money printing loses its power to pull market rates further down – even if that is what the economy needs fully to employ its resources. If that is the situation we have been in, we can hardly blame central banks for failing to deliver more monetary stimulus. The best they can do is promise higher inflation in future, so as to make real interest rates – which take account of inflation and shape people’s decision whether to borrow or save – fall further below zero. But who would believe such a promise from a bank unable to create inflation now? A central bank’s power to change expectations relies on its power to make them come true.

      51 countries declare banking secrecy ‘obsolete’, sign pact in Berlin — Finance ministers from over 51 countries signed an agreement in a step closer to ending the dark financial underworld of tax-evasion and money-laundering. Another 30 countries pledged to join by 2018. The deal is called the Multilateral Competent Authority Agreement and will look to build a collective exchange of bank accounts, taxes, assets, and income held outside local tax jurisdictions. The two-day summit was organized by the Organization for Economic Cooperation and Development (OECD) and the Global Forum on Transparency and Exchange of Information for Tax Purposes. It was hosted by German Finance Minister Wolfgang Schauble and held in Berlin. "Banking secrecy, in its old form, is obsolete," German Finance Minister Wolfgang Schaeuble said in an interview in Bild on Wednesday. The practice is "no longer appropriate at a time when people can transfer their money all over the world at the press of a button via the internet," said Schaeuble.

      European Union Lowers Growth Forecasts as Business Confidence Sags - European Union officials on Tuesday sharply lowered growth forecasts as member states like France, Germany and Italy showed weak economic performance, and as business confidence suffered from heightened geopolitical risks.Growth is expected to be a meager 1.3 percent in the 28-member bloc this year, instead of the 1.6 percent predicted in the spring, said the European Commission, the union’s executive arm. And the economy is not expected to get much better in 2015, when growth in Germany, the region’s economic engine, is expected to grind down to about 1 percent.“The economic and employment situation is not improving fast enough,” Jyrki Katainen, the European Commission vice president for jobs and growth, said in a statement accompanying the closely watched economic forecast.  Unless there are additional signs of growth and job creation in the next five years, “people could despair of the European project,” Pierre Moscovici, the European commissioner for economic and monetary affairs, said at a news conference on Tuesday.The recovery on the Continent continues to lag those in the United States and Britain. Over the next two years, annual growth in Britain is expected to be close to 3 percent, and the unemployment rate is projected to be 5.5 percent in 2016, according to the data released Tuesday. The unemployment rate in the European Union is not expected to fall below double digits, where it has been since 2012, until 2016.

      EU Cuts Growth Forecasts as Big Economies Falter - The European Union cut its already low economic growth forecasts further on Tuesday, indicating the recovery will remain sluggish amid problems for the bigger countries, particularly France and Germany. The official forecast for growth this year in the 18-country eurozone was cut to 0.8 percent from a prediction of 1.2 percent made in the spring. Indicating little good was expected next year too, it reduced the 2015 prediction from 1.7 percent to 1.1 percent. "The situation in the euro area remains extremely fragile," said German Chancellor Angela Merkel. Unemployment in the currency union was forecast to decrease at a painfully slow rate — after 11.6 percent this year, it is expected to dip to 11.3 percent next year and 10.8 percent in 2016. The broader 28-nation EU, which includes non-euro members like Britain and Sweden, was expected to grow 1.3 percent this year from a previous 1.6 percent forecast. To help speed up the recovery, EU Financial Affairs Commissioner Pierre Moscovici said the bloc should focus on spending on special projects, for which the EU Commission has a 300 billion euro ($375 billion) plan. He said the plan would be presented to the EU parliament before the end of the year. "There is a real sense of urgency."

      European Commission cuts forecasts, euro zone recovery delayed (Reuters) - The euro zone will need another year to reach even a modest level of economic growth, the European Commission said on Tuesday, calling on Germany to help as Chancellor Angela Merkel again rejected a spending spree. The EU executive cut its forecasts, saying the euro zone economy would expand by 0.8 percent this year, 1.1 percent next year and by 1.7 percent in 2016 -- a level the Commission said six months ago would be achieved next year. The delay in the upturn was due to drag on the economy from France and Italy. "There is no single and simple answer. The economic recovery is clearly struggling to gather momentum," the EU's economics commissioner, Pierre Moscovici, told a news conference. Fellow European Commissioner Jyrki Katainen said Germany, Europe's biggest economy, should invest more to help the recovery. true German economic growth will be slower than the Commission had hoped, expanding 1.1 percent in 2015, not the 2 percent level the EU executive had foreseen in its Spring forecasts.

      Europe In Triple-Dip Recession, Goldman's Internal Model Finds -- Here is Goldman with the loudest warning yet, courtesy of its internal RETINA model, that Europe is now effectively in a triple-dip recession, with Q3 GDP for the Euro area at -0.2%: "We are less than a fortnight away from Eurostat's publication of its flash estimate of Q3 GDP growth in the Euro area. In today's Daily, we look through the lens of our contemporaneous tracker of real-time inflation and activity. Since our previous update in mid-October, RETINA's median estimate of Q3 GDP growth has moved deeper into negative territory, driven largely by a disappointing print for area-wide industrial production in August. The downside risks to our +0.1%qoq judgemental forecast for Q3 GDP now look skewed to such an extent that our point estimate no longer falls within a 50% confidence interval around RETINA's median reading."

      Euro Woes Pressuring Eastern EU States Into More Easing - Low inflation, flagging growth, and the European Central Bank’s stimulus bias will probably force eastern members of the European Union to cut interest rates to record lows this week. Romania took the first step today, lowering its benchmark rate to 2.75 percent from 3 percent. Poland will reduce rates tomorrow, while Czech officials will maintain their own benchmark close to zero a day later as they ponder their stance on stemming gains in the koruna, economists predict. The ECB meets Nov. 6 to deliberate on monetary policy. Prone to contagion from economic woes in the euro region, their main export market and source of funding, eastern European countries keep a close eye on policy moves in the single currency area. Now they’re facing border-jumping deflation and ECB loosening that are making the leu, the zloty and their peers stronger and endangering slowing growth. “You have the disinflation trend passing through, you have the ECB policy driving the currency side,” . “If central banks were not to react correspondingly, you’d have downside pressure on growth appearing as well. We don’t really see any major inflation pressure, so there is no real need to keep rates on hold at these sorts of levels.”

      Economists' roundtable on the euro zone: QE is no silver bullet | The Economist - One could list several reasons why full-blown quantitative easing (QE) cannot save the euro. First, in the short term falling oil prices are likely to cause a further round of deflationary pressure. That is because favourable supply shocks tend to be recessionary when constrained by the zero lower bound of nominal interest rates, just as adverse ones are likely to be expansionary. Falling input prices results in lower expected inflation, driving up short-term real interest rates as the policy rate cannot adjust. Hence, the ECB’s timing occurs at the wrong point in the global oil and commodity cycle: adopting full-blown QE now may amplify deflationary tendencies.  Second, in the medium term the euro-zone banking system remains very fragile compared to America’s, and no amount of QE can fix that. If a contagious banking crisis is to be avoided, the 5% leverage ratio being implemented in America will soon have to be adopted by systemically important European banks whose ratios stand closer to 3%. In that respect, the recent bank “stress tests” amount to mere window-dressing because, unlike the Fed/FDIC regulatory framework, the ECB is only empowered to supervise financial institutions, not to resolve failed banks. Markets understand this to mean that the clean-up costs of a banking crisis will inevitably land on euro-zone taxpayers. In turn, this amplifies deflation/recession dynamics. Third, in the long term a fiscal transfer union is a necessary condition for the euro zone to survive—as argued by countless analysts since before the single currency’s launch, monetary and currency union alone are insufficient. Moreover, there is currently even less appetite for a fiscal union as the core member states (Germany and France) cope with their own slowdowns. There may also be a vicious circle at work, whereby the alarming increase in votes for far-right parties—deeply anti-Europe and anti-immigration—coupled with entrenched high unemployment fuel anti-euro resentment.

      Draghi Reinforces ECB Stimulus Momentum to Assuage Investors - Having already cut interest rates to record lows and saying they can go no lower, Draghi is now focused on boosting the ECB’s balance sheet. He told reporters today that he expects to increase assets back toward March 2012 levels. That’s 3 trillion euros, or about 1 trillion euros [$1.2 trillion] more than the current level.The ECB has issued long-term loans to banks and started buying covered bonds in the hope of flooding the economy with enough liquidity to ease credit constraints. Purchases of asset-backed securities are due to start this month. “We are quite confident that the impact on our balance sheet size will be adequate, will be significant, will be sizable,” Draghi said. “The main message is that our balance sheet will keep expanding in the coming months and will continue expanding while the balance sheets of other central banks is bound to contract.”  Berenberg Bank economist Christian Schulz said he sees a 60 percent chance the ECB will enter the 1.4 trillion euro market for investment grade non-financial corporate bonds next month.

      Euro Falls to 2-Year Low on Draghi’s Stimulus Pledge - The euro fell to a more than two-year low as European Central Bank President Mario Draghi deepened his commitment to stimulus and signaled policy makers are ready to implement additional measures if needed. Europe’s shared currency fell for the first time in six days versus the yen as Draghi told reporters in Frankfurt that the central bank’s bond-buying program will last at least two years and, together with targeted loans, move its balance sheet toward early-2012 levels. The dollar erased losses after first-time jobless claims dropped more than forecast. The pound weakened to a 14 month-low as the Bank of England left interest rates unchanged. Russia’s ruble and the Brazilian real slid. “Draghi’s trying to prepare the market for what he sees as a very likely expanded program of quantitative easing, maybe not in size but in terms of the assets purchased,” said Collin Crownover, the head of currency management at State Street Global Advisors Inc. “The fall in the euro, while not massive in historical terms, has been pretty significant. I think we drift a little bit lower but I think we’ll struggle to touch $1.20 this year.”

      Economists' roundtable on the euro zone: A QE proposal for Europe’s crisis | The Economist: Up next on our economists' roundtable is Yanis Varoufakis, of the University of Athens. The other contributions to the roundtable are here, here, here and here. In the absence of eurobonds, the ECB is bound to step into a political quagmire if it were to purchase government bonds. The current pre-occupation with engendering a new ABS market so as to buy its, currently, non-existent wares smacks of desperation. While the ECB’s board is seeking ways to overcome this operational problem, opponents of QE throw another spanner in the works. They argue, not without justification, that the experience of Britain and America has demonstrated that QE is ineffective in fostering real investment but effective at inflating asset bubbles. Thus, caught between its operational problem and macroprudential concerns, the ECB seems confined to the role of a spectator of unimpeded deflationary forces. It is easy to resign ourselves to this paralysis. But it is wrong and unnecessary. Here is something that the ECB could do that overcomes its twin problems (the operational constraint and macroprudential concerns regarding QE) while spearing investment-led recovery without new government debts and without violating any treaties (including the ECB’s own charter).  The proposal is for QE to focus exclusively on European Investment Bank (EIB) bonds.* The idea is simple:

      • Europe desperately needs large-scale, growth-inducing investment.
      • Europe is replete with idle cash which people are scared to invest into productive activities, fearing lack of aggregate demand once the goods roll off the production line.
      • The ECB wants to buy high-quality paper assets in order to stem the deflationary expectations that are the result of the above.
      • The ECB does not want to have to buy German, Italian or Spanish assets lest it be accused of favouring one of those countries.

      For Draghi, Promises Are Still His Main Policy Option - — Mario Draghi may have invented a new kind of policy tool. Call it verbal quantitative easing.  With some well-chosen words, Mr. Draghi, the president of the European Central Bank, sent a strong message on Thursday that more aggressive measures were in the works, even possibly the large-scale bond purchases known as quantitative easing.“The governing council is unanimous in its commitment to using additional unconventional instruments within its mandate,” Mr. Draghi said.Two years ago, Mr. Draghi turned the tide in the eurozone crisis merely by promising to do “whatever it takes” to preserve the currency bloc. He is now soothing the markets again with the promise of stronger economic medicine. He also addressed concerns about the divisions in the E.C.B. over its next steps.But the question remains: How long will Mr. Draghi be able to appease the markets with incremental measures and updates that end with the effective equivalent of “tune in next month.” Even if markets remain calm, the larger issue is whether the E.C.B. will be able to reverse the worrisome deflationary trend that has plagued the economy. Mr. Draghi offered little specifics about how the E.C.B. would inject more stimulus into the economy. A large bond-buying program — like the six-year campaign the Federal Reserve just ended — faces significant legal and political challenges in Europe.

      Euro Zone Sept Retail Sales Much Weaker Than Expected - (Reuters) - Euro zone retail sales were much weaker than expected in September, data showed on Wednesday, and the monthly August rise was revised downwards, pointing to soft household demand in the third quarter. The European Union's statistics office said retail sales in the 18 countries sharing the euro fell 1.3 percent month-on-month in September for a 0.6 percent year-on-year rise. Economists polled by Reuters had expected a 0.8 percent monthly fall and a 1.2 percent year-on-year rise. Eurostat also revised downwards the August monthly rise to 0.9 percent from the previously reported 1.2 percent and confirmed the 1.9 percent annual increase. Retail sales are a proxy for household demand and underline the forecast from the European Commission that the euro zone economy will stagnate quarter-on-quarter in the July-September period after expanding 0.3 percent in the first quarter and 0.1 percent in the second.

      Greece Is Number One In Childhood Poverty, But The US Isn't Much Better -- When it comes to being number one, Greece has a truly spectacular track record: first to riot, first in the Eurozone to hit two-thirds youth unemployment, first (but not last) in the Eurozone to default, and now another less than impressive achievement: according to Unicef, Greece is the place where over 40% of children live below the poverty line.This makes it first in the developed world in childhood poverty. Or last, depending on one's perspective. That said, the US, ranking just 5 spots below Greece, where 32.2% of children also live in poverty, isn't a hotbed of prosperity either. Furthermore,  according to WaPo, the share of U.S. children living in poverty has actually increased by 2 percentage points since 2008. Overall, 24.2 million U.S. children were living in poverty in 2012, reflecting an increase of 1.7 million children since 2008. "Of all newly poor children in the OECD and/or EU, about a third are in the United States," according to the report. On the other hand, 18 countries were actually able to reduce their childhood poverty rates over the same period.

      Riots in Brussels: 100,000 Protest Austerity, Overturn Cars, Throw Fire Bombs; Wherefore Art Thou Austerity?  - In spite of the fact there has been little-to-no austerity to speak of in Europe, or anywhere else in the world for that matter, (rising government debt proves that claim), France moans about austerity, Spain moans about austerity, Italy moans about austerity, and economists like Krugman moan about austerity. There is certainly no austerity in Belgium either. Nonetheless, the BBC reports 100,000 Protest Austerity in Brussels. Riot police have fired tear gas and water cannon during clashes with demonstrators as at least 100,000 people marched through Brussels in the first mass protests against government austerity measures.Protesters overturned cars and threw paving stones and fireworks during the protest against economic reforms that will extend the pension age, contain wages and cut public services.The government says the austerity measures are essential to keep the budget deficit within European Union constraints.In the above link, the BBC has a nice video of overturned cars and trucks. The riots are actually far worse as the following images show. Please check out the Sky News Gallery of Riot Images:

      French 'mess' threatens real civil strife: To grasp the extent of the shambles that is French politics today, take the story of the "eco-tax". It could be a case study in how to induce paroxysms of voter fury. The eco-tax was a levy, agreed on by all France's main parties, which would charge goods vehicles for using the roads. The money raised would help fund infrastructure and encourage other, cleaner, means of transport. But some French people decided they didn't like it. They tore down the metal bridges where cameras for road-monitoring had been installed. They threatened to march on Paris. The Socialist government, whose ministers had previously extolled its virtues, suspended the eco-tax. Then they binned it for good. The end result is this. The private company contracted to organise the tax is claiming 1bn euros in damages from the state. It has built a nationwide grid of electronic monitors - destined now to rust - and employs hundreds of people. At the same time, the money that would have been gathered from the tax - some 400m euros a year - is missing from the budget. To replace it, the government has ruled that the price of diesel will go up - for all drivers. In other words, ordinary householders will foot part of a bill that was intended for the big polluters. As for the rest of the shortfall, the government is casting about for ideas. One day, Ecology Minister Segolene Royal calls for a tax on all foreign lorries that drive through France. The next, Finance Minister Michel Sapin scotches her proposal because it is against European law. So there you have it - all the ingredients of a modern French mess.

      Young and Under Pressure – Europe’s Lost Generation  - naked capitalism - Yves here. Even though this post hews to the convention of a describing the labor market conditions in Europe in clinical terms, the data reveals deeply troubling conditions, such as a high and in some countries rising level of families with no wage earner, which sets the stage for the continuation of poverty, as well as putting them in danger of becoming homeless. "Lost generation" is too kind a term to depict the conditions facing the young. Instead of being able to make choices and at least to a degree, shape their future, they are desperately trying to find a foothold of any kind.

      Ireland Seen as Fastest-Growing EU Economy Through 2015 - The European Commission on Tuesday said it expects Ireland’s economy to grow more rapidly than that of any other European Union member this year and in 2015, and slashed its forecasts for government debt over coming years. In its twice-yearly assessment of the outlook for the bloc’s economies, the Commission said it now expects Ireland’s economy to grow 4.6% this year and 3.6% in 2015. In May, it forecast growth of just 1.7% this year and 3.0% next. It forecast growth of 3.7% in 2016. The Commission isn’t alone in having been surprised by the speed of Ireland’s economic recovery in 2014, after several years in which growth disappointed, with the government having raised its forecasts on several occasions over recent months. While it said the export surge that has driven strong growth this year probably won’t be sustained, the Commission said there are signs domestic demand is picking up after years of suffering from austerity measures that began in 2008. “Ireland is decoupling from the euro area, as its recovery broadens and gathers firm momentum,” the Commission said. “This robust and faster-than-expected expansion should bolster government revenues and facilitate a reduction of the deficit.” The Commission now expects the government’s budget deficit to fall to 2.9% of gross domestic product in 2015, having previously forecast it would be above 4% of GDP. That would bring the deficit below the maximum allowed under EU rules, having been almost a third of GDP in 2010.

      The “Magical Fairyland” of Corporate Tax Scams -- William K. Black -- I’m in Kilkenny, Ireland where Kilkenomics V begins tonight. Kilkenomics is the economics festival in which economists and professional comedians combine to produce a blunt presentation of issues involving economics that have enormous effects on our lives. One of the traditions of Kilkenomics is that the travesty of some act by the Troika (the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC)) is revealed just in time to kick off the festival. This year, the Troika produced a double-barreled blast. First, the ECB’s November 2010 letter extorting the Irish government to inflict austerity and produce a second Great Recession in Ireland was leaked. But it was a second leak that revealed a scam that could have even more critical political implications for Ireland, the EU, and the UK. The scam is what a former senior U.S. tax official aptly labeled the “magical fairyland” that is Luxembourg when it comes to corporate (non) taxation. Luxembourg is one of the most notorious tax havens in the world. While U.S. firms are the worst actors in this (im)morality play, UK firms are also huge players. But Ireland also plays a role in which massive corporations reduce their taxes to single digits by combining Ireland’s and Luxembourg’s penchant for aiding foreign corporations to evade nearly all taxes.

      Iceland Cuts Interest Rates - Iceland became the latest country to join the international struggle against low inflation Wednesday, cutting interest rates for the first time in two years to boost the rate of price increases in the North Atlantic island state. The central bank of Iceland, Sedlabanki, said it would cut its benchmark seven-day collateralized lending rate to 5.75% from 6%, the level it has been since November 2012. The tiny nation’s inflation rate, measured by increases in the consumer price index, was 1.9% in October and has been below the central bank’s 2.5% target for nine consecutive months.Inflation is expected to fall further over coming months and remain at or below the central bank target until mid-2015, the central bank said. It is a sign of how widely the problem of too-low inflation has spread across Europe that even this tiny island outpost of 320,000 people has now seen a need to respond with looser monetary policy in this way.The move follows a more drastic step by Nordic neighbor Sweden, where the central bank cut its benchmark rate to zero last week, to ward off potentially damaging deflation–a situation where prices fall consistently. Deflation can damage an economy by making consumers less willing to spend and debts harder to pay off.

      Germany 'would accept UK exit from EU' to protect migration rules: Chancellor Angela Merkel has reportedly warned David Cameron she would rather see the UK leave the EU than compromise over the principle of free movement. Der Spiegel news magazine quotes German government sources as saying she feared the UK was near a "point of no return". Chancellor George Osborne dismissed the story as speculation about how Germany may react to a future UK policy shift. But he insisted ministers would act in the national interest in addressing public concerns about immigration. He told BBC Breakfast that concerns about abuses of the benefit system were causing "great unhappiness" but the UK would approach future negotiations in a "calm and rational" way. Mr Cameron wants to renegotiate the terms of the UK's continued membership before holding an in-out referendum. The prime minister has insisted that freedom of movement of workers would be "at the very heart of my renegotiation strategy for Europe". But Mrs Merkel is said by the magazine to have made clear she will withdraw her support for the UK's continued EU membership if he continues to push for migration reform which requires fundamental changes to the principles of the organisation.

      MPs to escape expenses investigations after paperwork destroyed by Parliament - Telegraph: MPs accused of abusing the unreformed expenses system will escape official investigation after the House of Commons authorities destroyed all record of their claims, the Telegraph can reveal. John Bercow, the Speaker, faces accusations he has presided over a fresh cover-up of MPs' expenses after tens of thousands of pieces of paperwork relating to claims made before 2010 under the scandal-hit regime were shredded. Members of the public who have written to Kathryn Hudson, the standards watchdog, to raise concerns about their MP’s claims have been told there can be no investigation due to lack of evidence. Under the House of Commons' "Authorised Records Disposal Practice", which is overseen by Mr Bercow’s committee, records of MPs’ expenses claims are destroyed after three years. The move is necessary to comply with data protection laws, a Commons spokesman said. However, under that same set of guidelines, the pay, discipline and sickness records of Commons staff are kept until their 100th birthday. Health and safety records are kept for up to 40 years, while thousands of other classes of official documents on the day-to-day running of the House are stored indefinitely in the Parliamentary Archive.  It means that the Telegraph, which exposed the scandal that rocked Parliament in 2009 after obtaining a leaked CD, holds the only unredacted record of claims made under the unreformed system. That leak followed a High Court battle by the Commons authorities to prevent the release of the information.

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