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

Saturday, December 13, 2014

week ending Dec 13

Econoday Economic Report: Fed Balance Sheet December 11, 2014: For the December 10 week, the Fed balance sheet rose $2.7 billion after edging up $0.3 billion the week before. In the latest week, foreign currency denominated assets increased $2.8 billion. Treasury holdings were flat while mortgage-backed securities were little changed. Total assets for the December 10 week posted at $4.489 trillion. Reserve Bank credit for the December 10 week rose $1.8 billion after falling $7.6 billion in the December 3 week. The Fed's balance sheet is a report showing factors supplying reserves into the banking system and factors absorbing (using) reserve funds. Essentially, the balance sheet shows the various Fed programs for injecting liquidity into the economy and how much the Fed has used each for adding or withdrawing reserves.

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, December 11, 2014: Federal Reserve statistical release: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed’s Lockhart Still Favors Mid-2015 for First Fed Rate Increase - In a speech brimming with optimism about the economic outlook, Federal Reserve Bank of Atlanta President Dennis Lockhart said Monday he’s sticking with his long-held view that the U.S. central bank should hold off on raising rates until the middle of next year or later. “The momentum I perceive in the economy gives me confidence that the Federal Open Market Committee can consider beginning to normalize interest rates in 2015,” Mr. Lockhart told a local group here. What the Fed does with short-term rates will be driven by how the economy performs, but he added “my publicly stated projection of liftoff is mid-year or later.” Mr. Lockhart, who doesn’t currently hold a voting role on the interest rate-setting FOMC, has been arguing for some time in favor of taking a patient view on boosting rates off their current near-zero levels in order to ensure that the growth that’s been seen recently endures. He will have a vote on the FOMC next year. Broad-based improvements in hiring and steady economic growth have heated up the debate over the timing of interest rate increases, although most key officials have argued in favor of holding off on rate increases until at least the middle of next year. Mr. Lockhart is widely looked to as a centrist on the FOMC and a bellwether of policy makers’ consensus outlook. His comments Monday reaffirm higher borrowing costs still lie some distance in the future, even as some regional Fed officials agitate for an earlier course of rate rises.

The Fed’s plan to “normalise” interest rates - Whenever there has been a scare that the Fed might move in a hawkish direction, this has quickly proven to be a mistake. Forward curves for short term interest rates have consistently moved “lower for longer”, and incoming economic data have always ensured that the Federal Open Market Committee (FOMC) has remained comfortable with this tendency.  In recent months, however, the markets may have become over confident about the Fed’s dovishness in the face of a large and persistent decline in the US unemployment rate. The forward interest rates now priced into the bond market are much lower than the FOMC’s “dots” chart, which shows the interest rate expectations of individual FOMC members. Even after the market’s upward adjustment in rates following Friday’s strong labour market data, that remains the case. The “dots” will be updated at the next FOMC meeting on 16/17 December, and it is unlikely they will be revised downwards towards the market’s view. “Normalisation” is the new buzzword. Fed Vice Chairman Stanley Fischer made it clear in an interview with Jon Hilsenrath of the Wall Street Journal last week that he believes that interest rates are far below normal, even if inflation stays low. A further upward adjustment in market rates may become necessary soon, unless inflation greatly surprises the Fed on the downside. The relationship between the forward rates and the “dots” published at the September FOMC meeting, is shown in graph below. The market’s forward path has, of course, been below the median “dot” for quite a while, partly because the controlling group on the FOMC, all close supporters of Chair Janet Yellen, are thought to be far more dovish than the committee as a whole. But the situation is fairly extreme, with the market’s path remaining more dovish than the 90th percentile of the FOMC’s range in its last meeting:

Fed Watch: Fed Updates Ahead of FOMC Meeting - I have tended to think that there is a tendency to underestimate the potential for a more hawkish Fed. From last week: Dudley appears to be increasingly concerned that the evolution of financial conditions this year suggests the Fed needs to pursue a more aggressive policy stance or else risk a repeat of 04-07. If this concern is being felt more generally within the Fed, it clearly puts a more hawkish bias to the Fed's reaction function. And, in my opinion, I think the risk of a more hawkish Federal Reserve is under-appreciated. I think policymakers have been falling in line with the idea of a mid-2015 rate hike, somewhat earlier than market expectations. In a great piece, Gavyn Davies concurs: One of the most successful rules for investors in the past few years has been never to underestimate the innate dovishness of the Federal Reserve. Whenever there has been a scare that the Fed might move in a hawkish direction, this has quickly proven to be a mistake. Forward curves for short term interest rates have consistently moved “lower for longer”, and incoming economic data have always ensured that the Federal Open Market Committee (FOMC) has remained comfortable with this tendency....The controlling group may be shifting towards the median dot, rather than the dovish end of the spectrum. This may even include Ms Yellen herself, if the Stanley Fischer interview is any guide.  Davies summarizes Federal Reserve Vice Chair Stanley Fischer's recent interview and concludes that "Mr Fischer is building a high hurdle to any delay in lift-off beyond mid 2015." Many policymakers are ready and eager to normalize policy, and they see economic improvements as consistent with normalization. Just like they wanted out of the asset purchase business, they want out of the zero rate business, and they see fewer and fewer reasons why this isn't possible.

Fed Watch: Data Supportive of Fed Plans -- Incoming data in the second half of this week continues to support the Federal Reserve's plans to begin normalizing policy in the middle of next year, with the removal of "considerable time" language next week a likely first step. Retail sales for November were unquestionably strong and reveal an acceleration in the pace of core sales: You were right if you dismissed the early earnings on the holiday shopping season as useless noise. Similarly, consumer confidence is pushing to pre-recession levels: And note this from Reuters:"Expected wage gains rose to their highest level since 2008, and consumers voiced the most favorable buying attitudes in several decades,"As I have said before, nothing interesting happens until we get unemployment below 6%. Be prepared for a better equilibrium.Even as the economic data improve, however, Wall Street remains on edge. Lower oil prices and the resulting impact on high yield bonds are resonating throughout credits markets while equity prices struggle. Despite warnings from Fed officials about the likely path of policy, long-dated US Treasury yields continue to remain under pressure. It is difficult to assess the impact on policy-making at this point. Fed officials will be torn between the market turmoil and expectations that lower energy prices will boost an already accelerating economy. And note that New York Federal Reserve President William Dudley was very dismissive of the idea that the Fed would respond to every financial market disruption as policy moved toward normalization: We should not respond until we become convinced that the movements will likely, without action on our part, prove sufficiently persistent to conflict with achievement of our objectives. Often, financial markets can be quite volatile and move a lot without disturbing underlying economic performance. Similarly, he has been dismissive of market-based measures of inflation expectations

Monetary policy: The Fed prepares to make a mistake | The Economist: ON FRIDAY my colleague noted that while job growth in America is hustling along, inflation remains well below the Fed's target rate. He adds: Inflation has already persisted below target longer than the Fed expected, and the latest data suggest that it is the public's expectations of inflation that are converging towards actual inflation, rather than the other way around.This makes it all the more likely that expectations, and thus actual inflation, will become entrenched below target. Against a backdrop of full employment, this may seem acceptable. It isn’t. Too-low inflation means that the next time the economy falls into recession, interest rates will once again probably fall to zero, which may be too high in real terms to adequately restore growth. The risk, then, is that inflation grinds even further below target.I would just add that my colleague may be a bit too optimistic regarding just how close the economy is to full employment. It is true that the unemployment rate, at 5.8%, is within hailing distance of the Fed's projected full-employment rate, of between 5.2% and 5.5%. But there are many margins along which the labour market can adjust in addition to the unemployment rate. Participation rates can and should rise. So too should hours, effort, and productivity. Given the slow growth in wages over the last year it is hard to conclude that the American economy is close to maxxing out its labour-force potential. That apart, I think my colleague is exactly right and the Fed is close to making a big mistake. The wires are alive this morning with reports from Fed watchers, who are presumably taking their cues from Fed officials themselves, writing that the Fed will almost certainly adjust its language in a more hawkish fashion at the December or January meeting and is on track for an initial rate increase in the middle of 2015. I cannot fathom what the Fed is thinking.

Jean-Claude Yellen - Paul Krugman -- The Fed definitely seems to be gearing up for monetary tightening, even though inflation remains below target. And I’m with Ryan Avent: this will, if it happens, be a big mistake — just as Jean-Claude Trichet’s decision to raise rates in Europe in 2011 was a big mistake, just as the Swedish Riksbank’s early rate hike was a mistake, just as Japan’s rate hike in 2000 was a mistake. And you would think that the Fed would understand that. In fact, I suspect it does, and is somehow letting itself be bullied into doing the wrong thing anyway. The point is not that we know that we’re still far from full employment. I think we are, but the truth is that I don’t know, you don’t know, and Stan Fischer doesn’t know. So the question is one of weighing the risks. Suppose the Fed waits too long. Well, inflation ticks up — probably not much, since the short-run Phillips curve looks very flat. And the Fed has the tools to rein the economy in. It would be annoying, unpleasant, and no doubt there would be Congressional hearings berating the Fed for debasing the dollar etc.. But not a really big problem.Suppose, on the other hand, that the Fed raises rates, and it turns out that it should have waited. This could all too easily prove disastrous. The economy could slide into a low-inflation trap in which zero interest rates aren’t low enough to achieve escape — which has happened in Japan and is pretty clearly happening in the euro area. Also, there is now very strong reason to suspect that a protracted slump will inflict large losses on the economy’s future productive capacity.

Fed Watch: Challenging the Fed - Both Paul Krugman and Ryan Avent are pushing back on the Federal Reserve's apparent intent to raise rates in the middle of next year. Why is the Fed heading in this direction? Krugman offers this explanation:  My guess — and it’s only that — is that they have, maybe without knowing it, been bludgeoned into submission by the constant attacks on easy money. Every day the financial press, many of the blogs, cable financial news, etc, are full of people warning that the Fed’s low-rate policy is distorting markets, building up inflationary pressure, endangering financials stability. Hard-money arguments, no matter how ludicrous, get respectful attention; condemnations of the Fed are constant. If I were a Fed official, I suspect that I would often find myself wishing that the bludgeoning would just stop, at least for a while — and perhaps begin looking for an opportunity to prove that I’m not an inflationary money-printer, that I can take away punchbowls too.  I don't think that the Fed is reacting to external criticism. What I think is that there are two basic views of the world. In one view, the post-2007 malaise is simply the hangover from a severe financial crisis. Time heals all wounds, including this one, and the recent data suggests such healing is underway. The alternative view is that the economy is suffering from secular secular stagnation similar although not to the same extreme as Japan. The latter view suggests the need for a very low or negative real interest rates to maintain full employment, the former view suggests a fairly significant normalization of monetary policy. I believe that the consensus view on the Fed is the former, that the malaise is simply temporary ("a temporary inconvenience") and now ending.

ECB vs Fed stimulus in two charts -- CreditSights points out today that changes in gross ECB liquidity provided to the euro area’s banking sector closely track changes in 10 year Bund yields: As CreditSights notes, some of this is a coincidence: when there is a panic in the banking system necessitating a response, investors want to own safe government bonds. But they argue that there could be a causal connection as well. Shoving low-yielding reserves at banks encourages them to replace their other assets with higher-yielding assets with low risk weights, such as Bunds. But that’s not necessarily how the system works everywhere. For a counterexample, we tried to recreate a similar chart for the Fed and 10-year Treasury yields. To the extent that there is a relationship at all, it runs backwards! One possible explanation for this inverse relationship is that the US financial system has been less capital-constrained than in the euro area, primarily because banks are less important than the capital markets but also because US banks are better-capitalised. As a result, stimulus feeds more directly into expectations of inflation and growth, raising nominal bond yields. Another possibility is that there is no connection between the size of the balance sheet and bond yields, since the Fed and the ECB are both relatively small players in markets worth tens of trillions of dollars (or euros). Either way, it’s interesting to see the differences.

Here’s How to Read a Patient Fed - - As we report in today’s Wall Street Journal, Federal Reserve officials next week might drop their assurance that short-term interest rates will stay near zero for a “considerable time” and replace it by saying they’ll be patient before moving rates. It begs a question: What would they mean by patient? A review of the Fed’s communications in 2004 provides some clues. The Fed in January 2004 dropped an assurance it would keep rates low for a considerable period and instead said it would be patient before raising rates. It repeated the patience assurance in March. In May it dropped patience and said it would raise rates at a measured pace and then it moved in June. So two meetings transpired between its last assurance of patience and an actual rate increase. The assurance of patience was essentially a buffer zone, a promise investors would get plenty of notice before action. It seems likely that is how officials would use the term this time. As long as patience is in the statement, it won’t raise rates for two meetings. The far more essential question is how long patience will stay in the statement. In 2004 it stayed in the statement for two meetings, but there is no guarantee it won’t stay longer this time around, or shorter if the U.S. economy goes gangbusters. If things go as officials like New York Fed President William Dudley expect and the Fed moves in June, patience would stay in the statement for three meetings this time. Fed officials will surely say the answer to that question ultimately depends on the how the economy unfolds in the months ahead, and more specifically how it progresses toward its goals of full employment and 2% inflation.

The Fed's policy trajectory is tied to global recovery -- The latest US payrolls report presents a challenge for the Fed. As discussed back in April (see post), US labor markets are continuing to heal, suggesting that the rate "normalization" should be a serious consideration for the central bank. However the recent deterioration in commodities, especially energy, is "importing" global disinflation to the US (see post). In particular, the Saudi commitment to retake lost market share has sent shock waves through the oil markets (see post). As a result, longer-term market-implied inflation expectations have fallen substantially. The latest declines in expectations came after the recent FOMC minutes already showed increasing concerns at the central bank: “Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations.” At the same time payrolls in the US are growing at the rate approaching the pre-recession peak (though still materially below what we saw in the 90s). In fact the divergence between payrolls growth and inflation expectations is unusually high. Payrolls are driven by stronger US domestic economy, while inflation expectations are impacted by external factors, which creates this disconnect.

Bank Of America Says Fed Needs To Test Interest On Reserves Power - Bank of America /Merrill Lynch analysts are warning the one tool the Federal Reserve plans to rely on most when it begins raising short-term rates is the one thing that hasn’t really been put through its paces. “We believe the Fed’s exit toolkit is not ready for primetime,” bank analysts wrote in research Wednesday. Importantly, the Fed has not truly explored the effects of adjusting the interest rate it pays banks for reserves parked on its books as it has tested other new tools designed to help it raise rates when the time comes, the firm said. The Fed gained the power to pay interest on reserves in 2008. Since then, the central bank has created trillions of dollars in new reserves through various programs aimed at stabilizing the financial system and spurring a stronger recovery. The Fed says the large amount of reserves in the system mean it will not be able to adjust its benchmark short-term rate, the federal funds rate, as it has in the past. Instead, it will use the rate paid for reserves its primary tool for lifting short-term rates from zero, likely sometime next year.

Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets - The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year. “Anything that becomes a mania -- it ends badly,” . “And this is a mania.” The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis. Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44 percent to $60.46 a barrel since reaching this year’s peak of $107.26 in June. Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7 percent in June, according to Bank of America Merrill Lynch index data.

Drop in Inflation Gauge May Complicate Outlook for Interest Rates - An inflation gauge closely watched by Federal Reserve officials has fallen to the lowest level since the financial crisis, potentially complicating the interest-rate outlook as investors brace for a likely Fed rate increase as soon as mid-2015. The five-year forward five-year inflation breakeven rate hit 2.0185% this month, the lowest since Dec. 31, 2008, according to the latest data provided by Rabobank. The gauge measures what the average inflation rate will be during a five-year period starting from five years from today, in this case between 2019 and 2024. Inflation expectations are tumbling amid uncertainty over the economic outlook in China, Europe and Japan. While investors generally prefer lower inflation because it helps preserve the value of their assets, officials around the globe are wary of deflation, a damaging cycle of falling prices and reduced spending that can hamstring economic growth. The falling inflation expectations help to explain the sharp decline this year in benchmark Treasury yields. The 10-year U.S. note on Tuesday yielded 2.22%, down from 3% at the end of 2013 and far below the forecasts that many Wall Street strategists started the year with. Many investors and analysts continue to expect yields to rise this year as U.S. growth picks up, though falling inflation readings have softened many of the most aggressive forecasts. Adding to the swirl, a broad selloff in the energy markets since the summer has further reduced inflation readings. Many economists expect lower oil prices to boost growth in the U.S. and elsewhere, but the timing of the gains is unclear.

Inflation Targeting's Big Wrinkle - Inflation-targeting central banks are in an awkward position. Their objective is to stabilize the rate of inflation, but they now face a development that could jeopardize it: the surge in oil production that is driving down oil prices. The decline in oil prices is a much-needed boon to the global economy, but it may also mean inflation temporarily drops beneath its targeted value.  What to do? David Wessel calls this development a wrinkle for central bankers: On balance, falling oil prices are welcomed by the world’s major central banks, but there is a wrinkle. Lower oil prices are good for growth in the U.S., Europe, and Japan. But they’ll also reduce the headline inflation rate at a time when the central banks, particularly the Bank of Japan and the European Central Bank, are struggling toraise the underlying inflation rates in their economies and keep public and investor expectations of inflation from falling. That involves a lot of psychology as well as economics. While central bankers often look beyond volatile food and energy prices to gauge the underlying inflation rate, they know that ordinary consumers don’t. “It’s important that [the drop in oil prices] … doesn’t get embedded in inflation expectations,” the ECB’s Mario Draghi said last week. This wrinkle has generated a lot discussion on how the Fed should respond. As noted by Cardiff Garcia, both Fed officials and commentators are divided over it. This wrinkle, in short, is adding some uncertainty about the future path of monetary policy.The interesting thing about this wrinkle is that it is not a new problem. It is just the latest supply shock which always have been problematic for inflation-targeting central banks. Supply shocks push output and inflation in opposite directions and force central banks into these awkward positions.

Deflation Is Winning (And Central Banks Are Running Scared) - The simple message: Quantitative Easing has failed to generate inflation. Stated alternatively: QE has not been able to overcome still extant deflationary pressures. Global central banker actions in printing over $13 trillion of new money over the last 6 years have been insufficient to surmount still existing deflationary forces.  It tells us the probability of further global deflationary impulses are very real.  This has direct implications for any sector of the economy or financial markets whose fundamentals are negatively leveraged to deflationary pressures (think banks, real estate, etc.)  Be assured the central bankers are more than fully aware of this.

Bank for International Settlements sounds alarm over dollar - Global financial policy makers have sounded the alarm about the impact of a resurgent US dollar on emerging markets, where companies have racked up large debts denominated in the American currency. The Bank for International Settlements, known as the central bankers’ bank, warned on Sunday in its Quarterly Review that a prolonged rally in the dollar could expose financial vulnerabilities in emerging markets by damaging some companies’ creditworthiness.  The Basel-based organisation added that there were increasing signs of fragility in financial markets, despite renewed hopes for economic growth, pointing to the recent stress in the $12.3tn US Treasury market that serves as the bedrock of the global financial system. “To my mind, these events underline the fragility — dare I say growing fragility — hidden beneath the markets’ buoyancy,” said Claudio Borio, the head of the BIS’s monetary and economic department. The main dollar index — measuring the currency versus its biggest trading counterparts — closed at an eight-year high on Friday after a US employment report that showed 321,000 jobs had been created in November. A stronger dollar has historically proved to be a harbinger of turmoil for the developing world, leading to crises in Latin America in the 1980s and Asia in the 1990s. Governments have as a result largely severed their currency pegs to the dollar, weaned themselves off foreign borrowing and bolstered central bank reserves. However, companies in emerging markets have been borrowing heavily via the issuance of dollar securities in recent years, a phenomenon the BIS has been following closely.

How the Rising Dollar Could Trigger the Next Global Financial Crisis --Hyun Song Shin, who is on leave from Princeton while chief economist at the Bank for International Settlements in Basel, spends a lot of time wondering what could cause the next financial crisis. He suspects it will be something different from the leveraged bets on housing that were at the root of the last crisis.   So, what might it be? Perhaps the steady rise of the U.S. dollar on global currency markets.  In recent presentations at the Brookings Institution, Mr. Shin documented the growing use of the U.S. dollar by borrowers and lenders outside of this country. U.S. banks and bond investors have lent $2.3 trillion outside the U.S. Foreign banks and foreign bond investors have lent much more: $6.5 trillion. (Mr. Shin and colleagues at the Bank for International Settlements elaborated on his latest analysis in the bank’s new Quarterly Review posted Sunday.) Here’s how Mr. Shin sees the world: A manufacturer in an emerging market borrows in dollars, perhaps because it sells a lot of goods in dollars and sees borrowing in dollars as a hedge. A local bank lends the dollars, borrowing from some big global bank. When the emerging-market currency is strong and the dollar is weak, that manufacturer’s balance sheet looks sturdier–and the local bank sees that and lends more readily. Thus a weak dollar can lead to a global credit boom.  When the dollar rises, though, all this runs in reverse, effectively tightening global financial conditions, particularly in emerging markets. The emerging-market currency falls. The manufacturer has trouble making payments on its dollar loans;  so do its peers. Banks lend less readily. Capital investment stalls.  Global money managers–the ones with lots of short-term wholesale deposits that search the world for the best yields–see a falling local currency and a weakening economy and pull money from the emerging-market banks.

Central-Bankers Have Their Hands Full As 30 Year Yield Falls Below 2014 Lows -- Not quite as many fireworks overnight, in another session dominated by central banks. First it was revealed that China had injected CNY400 billion into the banking system to add liquidity as the economy slows, which is ironic because on the other hand China is also seemingly doing everything in its power to crash its nascent stock market bubble mania, following the latest news that China’s CSRC approved 12 IPOs ahead of schedule which is seen as a pre-emptive step to tighten interbank liquidity amid the recent rise in margin trading. Another central bank that was busy overnight was Russia's, which proceeded with its 5th rate hike of the year, pushing the central rate up by 100 bps to 10.50% as expected. Elsewhere, the Bank of England wants to move to a Fed-style decision schedule and start releasing immediate minutes as Governor Mark Carney overhauls the framework set up more than 17 years ago. The Swiss National Bank predicted consumer prices will drop next year and said the risk of deflation has increased as it vowed to defend its cap on the franc. Finally Norway’s central bank cut its main interest rate for the first time in more than two years and signaled it may ease again next year as plunging oil prices threaten growth in western Europe’s biggest crude exporter.

Most Households Expect Interest Rates to Increase by May - Two new posts on the New York Federal Reserve's Liberty Street Economics Blog describe methods of inferring interest rate expectations from interest rate futures and forwards and from surveys conducted by the Trading Desk of the New York Fed. In a post at the Atlanta Fed's macroblog, "Does Forward Guidance Reach Main Street?," economists ask, "But what do we know about Main Street’s perspective on the fed funds rate? Do they even have an opinion on the subject?"  To broach this question, they use a special question on the Business Inflation Expectations (BIE) Survey. A panel of businesses in the Sixth District were asked to assign probabilities that the federal funds rate at the end of 2015 would fall into various ranges. The figure below compares the business survey responses to the FOMC's June projection. The similarity between businesspeoples' expectations and FOMC members' expectations for the fed funds rate is taken as an indication that forward guidance on the funds rate has reached Main Street. What about the rest of Main Street-- the non-business-owners? We don't know too much about forward guidance and the average household. I looked at the Michigan Survey of Consumers for some indication of households' interest rate expectations. One year ago, in December 2013, 61% of respondents on the Michigan Survey said they expected interest rates to rise in the next twelve months. Only a third of consumers expected rates to stay approximately the same. According to the most recently-available edition of the survey

Recovery at Last?, by Paul Krugman -  Last week we got an actually good employment report — arguably the first truly good report in a long time. The U.S. economy added well over 300,000 jobs; wages, which have been stagnant for far too long, picked up a bit. Other indicators, like the rate at which workers are quitting (a sign that they expect to find new jobs), continue to improve. We’re still nowhere near full employment, but getting there no longer seems like an impossible dream.And there are some important lessons from this belated good news. It doesn’t vindicate policies that permitted seven years and counting of depressed incomes and employment. But it does put the lie to some of the nonsense you hear about why the economy has lagged. Let’s talk first about reasons not to celebrate. Things are finally looking better for American workers, but this improvement comes after years of suffering, with long-term unemployment in particular lingering at levels not seen since the 1930s. Millions of families lost their homes, their savings, or both. Many young Americans graduated into a labor market that didn’t want their skills, and will never get back onto the career tracks they should have had. And the long slump hasn’t just scarred families; it has done immense damage to our long-run prospects. Estimates of the economy’s potential — the amount it can produce if and when it finally reaches full employment — have been steadily marked down in recent years, and many researchers now believe that the slump itself damaged future potential. So it has been a terrible seven years, and even a string of good job reports won’t undo the damage.

Third-Quarter GDP Could Get a Late Boost From Higher Inventories -- The U.S. economy may have posted even stronger growth last quarter thanks to higher-than-expected growth in business stockpiles.  Wholesale inventories rose a seasonally adjusted 0.4% in October from the prior month, the Commerce Department said Tuesday. Economists surveyed by The Wall Street Journal had predicted a 0.3% gain.  September inventories also were revised up by $887 million from an initial estimate, which could boost growth estimates for the third quarter.  The Commerce Department last month said output expanded at a 3.9% seasonally adjusted annual rate in July through September, up from an initial estimate of 3.5% growth. One big factor in the upgrade was a smaller drag from inventories.  The agency will release its third estimate of GDP growth in the third quarter on Dec. 23, incorporating new and revised data including the latest inventory figures. Macroeconomic Advisers raised its estimate for third-quarter GDP growth to 4.2% from 4.1% following Tuesday’s report. J.P. Morgan Chase bumped up its estimate to 4.3% from 4.2%. Barclays left unchanged its estimate of 4.1% growth for the third quarter, but boosted its estimate for the fourth quarter to 2.5% from 2.3%.  But J.P. Morgan Chase economist Daniel Silver warned in a note to clients that “a larger inventory accumulation in the third quarter is a negative development for GDP growth in the fourth quarter, adding a touch more to the already sizable downside risk to our forecast for 2.5%” growth in the final three months of the year.

U.S. Economic Growth Could Get Boost From Services Spending - The U.S. economy could get a small boost from spending that helped accelerate revenue growth on an annual basis in the health-care industry and other sectors. Health care and social assistance firms saw revenues rise 0.5% in the third quarter from the prior quarter, slowing from the second quarter’s 3% growth, the Commerce Department said Wednesday in its Quarterly Services Survey. But revenues in the sector were up 5.3% last quarter from a year earlier, rising from 3.7% annual growth in the second quarter. Quarterly revenue growth also slowed in other industries, including transportation and warehousing; arts, entertainment and recreation; real estate; and professional, scientific and technical services. Revenues fell from the second quarter at information and educational-services firms. But annual revenue growth picked up in several of those sectors, including transportation and warehousing, real estate and professional services. Those figures weren’t adjusted for seasonal variations or price changes. The Commerce Department will incorporate data from the survey, known as the QSS, into its next estimate for third-quarter gross domestic product growth, due out on Dec. 23. The agency’s last official estimate pegged GDP growth last quarter at a 3.9% seasonally adjusted annual rate. Macroeconomic Advisers said Wednesday the QSS revealed “unexpected strength in health-related services” spending and more business investment in intellectual property, and raised its GDP growth prediction for the third quarter to 4.6% from 4.2%. J.P. Morgan Chase raised its estimate to 4.4% from 4.3%. Barclays raised its prediction for the third quarter to 4.2% from 4.1%.

Quarterly Services Survey suggests upward revision to Q3 GDP close to 4.4%  -- From Reuters: U.S. services data point to upward revision to third-quarter GDP - Economists said the data suggested third-quarter consumer spending could be raised by at least two-tenths of a percentage point from a 2.2 percent annual rate when the government publishes its third estimate later this month.  That combined with data on wholesale inventories and construction spending could see third-quarter GDP revised up to a 4.4 percent annual pace from the 3.9 percent rate reported last month.  From the WSJ: U.S. Economic Growth Could Get Boost From Services Spending J.P. Morgan Chase said Wednesday it expected the QSS will lead to stronger estimates for spending, raising the GDP growth rate to 4.4% from an earlier prediction of 4.3%. Barclays raised its GDP prediction for the third quarter to 4.2% from 4.1%.  Here is the Q3 Quarterly Services Press Release The U.S. Census Bureau announced today that the estimate of U.S. information sector revenue for the third calendar quarter of 2014, adjusted for seasonal variation but not for price changes, was $336.5 billion, an increase of 1.0 percent (± 0.8%) from the second quarter of 2014 and up 5.0 percent (± 0.8%) from the third quarter of 2013.

WSJ Survey: Housing Dinged 2014 Economic Growth - What was the biggest disappointment for the economy as 2014 unfolded? It was housing, most economists surveyed by The Wall Street Journal say. Instead of housing starts jumping 20% this year to an annual rate of 1.11 million, as forecasters expected in January, it now looks as if starts will total 1.05 million. The shortfall in housing is one reason why the U.S. economy will probably grow just 2.2% over the four quarters of 2014, instead of the robust 2.8% forecasters expected last January. Recent gains in starts helped push the number up from the barely above 1-million mark seen over the summer, but the sector didn’t fulfill the hopes economists had when 2014 kicked off. “We just can’t seem to catch a break in the market that put us here,” said Diane Swonk of Mesirow Financial. Weak household formation and the lack of first-time home buyers hurt overall demand. As Michael Fratantoni of the Mortgage Bankers Association noted, tight credit conditions, weak entry-level job markets and high levels of student debt kept many younger consumers out of the housing market. Housing should do better in 2015, the forecasters say. Faster job growth and rising wages should pull more house hunters into the market. Housing starts are forecast to rise to 1.22 million next year.

Goldman Sachs: Falling oil price is a big, fat $125 billion tax cut -- Oil prices are now at five-year lows. From a morning note by Goldman Sachs on America’s energy windfall:

    • – Before the November OPEC meeting, we estimated that lower gasoline prices would be equivalent to a roughly $75bn tax cut for US households. With oil prices continuing to drop sharply, the size of the tax cut now looks likely to be $100 – $125bn.
    • – Based on our estimates, higher consumer spending should boost real GDP by four- to five-tenths of a percentage point over the coming year, although lower US energy production will partly offset this benefit.
    • – Within consumer spending, we would expect to see the largest positive effect on auto sales and (real) gasoline sales, with smaller proportional effects in other areas of spending. History suggests that higher gasoline consumption should show up quickly, while the boost to other categories of spending may take a bit longer to materialize. We see some very tentative evidence that incoming data are consistent with a positive effect from lower gasoline prices.
    • – Households at all income levels devote a sizable share of their budget to gasoline each year. Middle-class households devote the largest share of expenditures to gasoline. Historically, real spending on gasoline among the lowest income households has been most sensitive to changes in gasoline prices, while spending on autos has been most sensitive among upper middle- to higher-income households.

Profit Recession On Deck Due To Surging Dollar And Plunging Crude, Deutsche Warns -- While there will be much debate over the economic pros and cons to tumbling oil prices (there is no debate if the plunge is confirmed to be the result of a global collapse in demand: that would scream global recession) with a definitive answer unlikely to be forthcoming for at least several quarters, when it comes to corporate profitability the outcome is already known, because between plunging oil prices and the soaring dollar, what is most likely next in store for the US economy may or may not be a full-blown economic recession, but a profit recession seems virtually inevitable.

Do Not Underestimate How Low Treasury Yields Can Fall - Do not underestimate just how low Treasury Yields can fall this week. Many global macro factors are coming to a head. Downside in Treasury prices are at minimum limited this week.   My flattening call the past few days has worked well, but while I am not sure what the curve will do the next few days, I am confident that rates will fall and possibly by a lot more.  Treasuries are a safe haven, under-owned, under-loved, with pick up in yield to other sovereigns and denominated in a safer currency. A few bullets (not a complete list):

  • The Chinese Securities Depository Corporation announced it will no longer accept corporate bonds rated lower than AAA for repo transactions. 
  • Germany and France are bickering in the press.  
  • The JPM Emerging Currency Index has fallen to an all-time low.
  • Oil dropped 4% yesterday.   Ruble is down almost 50% this year, Nigeria Naira at all-time low, CononoPhillips said it scale back capital expenditure plans next year and spend 20% less – this is an example of oil price drops impact on the energy and shale industry. 
  • Equity indices are near highs, but have negative breasth, rising VIX, and divergences with HY.  Defensive sectors have been the stars such as Health Care and Utilities while Industrials and Consumer Discretionary have lagged.
  • VIX was up 20% yesterday.
  • Greece has called a snap presidential election next week. 
  • Italy was downgraded last week.  
  • The yen traded almost 122 Sunday night and now around 119.50 (118 lows earlier).   $ in general is off highs today.  As global events look uglier, investors play for a less hawkish fed and the dollar falls.  When things simmer down and US economic data continues to print healthy, the dollar rallies.

Congress races to reach spending deal before shutdown deadline -  With the clock ticking before a government shutdown takes effect at midnight on Thursday, House and Senate negotiators spent Monday hammering out a spending deal to keep the doors open through next year. Legislation funding the government expires on Dec. 11. House Speaker John Boehner already defused the biggest threat to a spending deal by electing not to include a provision blocking executive action by President Obama that’s expected to shield millions of undocumented immigrants from deportation. Instead, he passed a separate bill last week restricting the White House’s ability to act that will die in the still-Democratic Senate, allowing Republicans to cast a symbolic vote without jeopardizing spending talks. Even with the immigration issue resolved for now, however, Democrats and Republicans still have to come to a final agreement. Potential roadblocks that have surfaced in the negotiations include Republican measures to restrict the Environmental Protection Agency and roll back financial regulations under Dodd-Frank, the 2010 Wall Street reform legislation. Specifically, lawmakers are considering a delay to a new rule restricting risky derivatives trading, according to Capitol Hill sources. The proposal has attracted some Democratic support but risks a backlash from liberal Democrats both in the House and Senate. Republicans could potentially smooth things over by offering higher funding levels for Democratic priorities in exchange for regulatory changes.

House-Senate negotiators near spending deal - House-Senate negotiators neared agreement Sunday on the last pieces of a $1.1 trillion spending bill designed to avert any shutdown this week and put most government agencies on firm footing through next September. Building on a long weekend of talks, the goal was to file the giant measure by late Monday and then push for quick floor action before the current funding runs out Thursday night. Story Continued Below Details were closely held given the tense political climate. But the formula for the compromise was direct: Freeze domestic appropriations at home and direct the most dollars and punch to counter new threats from overseas. Almost all the big initiatives begin at the water’s edge: containing Ebola in West Africa, fighting the Islamic State of Iraq and the Levant in the Mideast, shoring up Europe against Vladimir Putin’s Russia, helping Central America counter the violence and poverty that sent thousands of children across the Rio Grande into Texas last spring. By comparison, President Barack Obama’s domestic agenda — like Alice’s Red Queen — will have to run hard just to stay in place. Even the president’s popular TIGER transportation grants are reduced to $500 million, $100 million below 2014 and less than half of what Obama wanted in 2015. The National Institutes of Health will benefit from new Ebola funds for clinical trials, but its core $29.8 billion budget is expected to grow by just $150 million — not enough to keep pace with inflation. Indeed, from Amtrak to Head Start and low-income fuel assistance, much of the domestic budget is flat.

Congress Agrees on Details of $1.1 Trillion Spending Bill to Avoid Government Shutdown -  On Tuesday night, the House of Representatives and the U.S. Senate agreed to terms on a spending bill that will fund the federal government through September 30, 2015. Congress must pass the bill by Thursday to avoid a government shutdown.  The house is expected to hold a vote on the bill on Thursday and the Senate will likely take up the measure this weekend, according to reports. In this case, the House is likely to pass a stop-gap bill to avoid a government shutdown while the Senate considers the bill.  The spending bill introduced by the House includes 11 appropriations bill that fund their respective agencies through the end of the 2015 fiscal year, and a 12th measure that funds the Department of Homeland Security “under a temporary 'Continuing Resolution' mechanism that expires on February 27, 2015." The “Omnibus” bill includes $521 billion in defense funding, $492 billion in non-defense spending, and additional funding related to the U.S. Ebola response ($5.4 billion) and funds related to combatting ISIS ($64 billion). For highlights of the bill, see here. For all the details on the bill, see here.

Congress Reaches Budget Deal, Delays Immigration Fight For Another Day -- With the current Continuing Resolution set to expire at midnight on Thursday, it looks as though Congress has reached a budget deal, although as expected its a deal that will put off a future fight over immigration in general, and President Obama’s executive action in particular, off until shortly after the 114th Congress takes office:  Congressional leaders unveiled a massive $1.01 trillion spending bill Tuesday night that will keep most of the federal government funded through September.  The legislation is expected to pass in the coming days and will allow the incoming Republican-controlled Congress to clear the decks of lingering spending issues while setting the stage for a prolonged fight with President Obama over immigration policy.At 1,603 pages, the bill includes at least $1.2 billion for agencies to deal with the influx of unaccompanied immigrant children who crossed the U.S.-Mexico border. There’s also money to fight the rise of the Islamic State and $5.4 billion to fight the threat of Ebola. But there are also significant changes to campaign finance laws and potential cuts to retiree pension plans. Democrats were cheering bigger budgets for enforcement at agencies created after the 2008 economic collapse. House leaders are planning to introduce a stopgap bill to give the House and Senate a few more days to pass the final measure and avoid a government shutdown Thursday night. Extending current funding for a short period has happened before, but doing so this year will provide an embarrassing climax to one of the most fruitless congressional sessions in history.

Congressional leaders hammer out deal to allow pension plans to cut retiree benefits - The Washington Post: A bipartisan group of congressional leaders reached a deal Tuesday evening that would for the first time allow the benefits of current retirees to be severely cut, part of an effort to save some of the nation’s most distressed pension plans. The measure, attached to a massive $1.01 trillion spending bill, would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets. “We have to do something to allow these plans to make the corrections and adjustments they need to keep these plans viable,” said Rep. George Miller (D-Calif.), who along with Rep. John Kline (R-Minn.) led efforts to hammer out a deal. The idea is reluctantly supported by some unions and retirement fund managers who see it as the only way to salvage pensions in plans that are in imminent danger of running out of money. But it also has stirred strong opposition from retirees who could face deep pension cuts and from advocates eager to keep retiree pensions sacrosanct, even in cases when funds are in a deep financial hole. The advocates argue that allowing cuts to plans would open the door to trims for other retirees later.

Congress Deal to Avoid Shutdown Includes Victory for Banks -  Congress will vote this week on a $1.1 trillion spending plan that would avert a U.S. government shutdown as Democrats agreed to roll back rules affecting banks, clean water and rest for truckers. The House will vote on the plan tomorrow, Speaker John Boehner told reporters today. The Ohio Republican said he looks “forward to it passing with bipartisan majorities in the House and the Senate in the coming days.” The deal was announced late yesterday after Democrats accepted Republican demands to ease regulations including the banking provision, a significant victory for big banks. It lets JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and other lenders keep swaps trading in units with federal backstops. The measure is a compromise “that can and should have wide bipartisan support,” House Appropriations Chairman Hal Rogers, a Kentucky Republican, said in a statement yesterday. “Passage of this bill will show our people that we can and will govern responsibly.” While Democrats aren’t pleased about the policy changes, they said they beat back dozens of other provisions that Republicans had sought in the measure. “This agreement means no government shutdown and no government on autopilot,” said Senate Appropriations Chair Barbara Mikulski of Maryland, a Democrat who negotiated the plan with Rogers.

Rank and file split on funding bill - Both House Democrats and Republicans are split over whether to support a $1.1 trillion spending bill that would keep the government open. Republicans emerged from a conference meeting Wednesday where the bill was presented predicting significant defections on their side of the aisle.  Separately, House Democrats left their own meeting split over whether to support a bill crafted by House Republican appropriators, who negotiated with their Senate Democratic counterparts. House Appropriations Committee Chairman Hal Rogers (R-Ky.) predicted a majority in both parties would ultimately support the measure. “I think there'll be a majority on both sides,” Rogers said. The government will shut down on Friday without a new funding measure. The House is also considering passage of a funding measure that would last two or three days to provide more time for the Senate to consider the larger package. That bill, released late Tuesday, has been dubbed a “cromnibus” because it includes an omnibus spending bill funding most of the government through September and a continuing resolution, or CR, that would fund the Homeland Security Department through Feb. 27.

‘Cromnibus’ Highlights: IRS Cuts; No Raise for Biden; Break on School Lunches — Congress boosted spending on fighter jets, cut funding for the Internal Revenue Service and gave schools a temporary reprieve from school-meal rules advocated by First Lady Michelle Obama. Those are among the provisions of a measure to fund most of the government through September 2015. The package was released late Tuesday and follows weeks of intense negotiations designed to avoid a government shutdown at midnight on Thursday, when current funding expires.  Many conservatives already reject the measure because it would not block President Barack Obama‘s action to shield millions of illegal immigrants from deportation, so House Speaker John Boehner (R., Ohio) will need Democrats to pass the bill. Here are some of the provisions that lawmakers will be evaluating as they decide whether to vote yes or no on the package, known as the “Cromnibus.”

  • –Vice President Joe Biden and other Obama administration officials won’t get raises next year, thanks to a pay freeze for the vice president and senior political appointees.
  • –The three million Defense Department active-duty, civilian employees and reservists will receive a 1% pay raise.
  • – The measure significantly expands the size of contributions individuals can make to national party committees.
  • –The measure attempts to override voters in the District of Columbia with a rider that bans federal and local funds from being used to implement a referendum that legalized marijuana use.
  • –Some $5.5 billion would be made available to respond to the Ebola outbreak.
  • –Some $5 billion would be used to fight Islamic State extremists.
  • –States would be able to get an exemption from a requirement for whole-grain foods in school lunches if they could show financial or other hardship in procuring the products. Mrs. Obama has promoted such standards on the grounds that they are healthier.
  • –The spending bill includes provisions to stop the transfer or release of Guantanamo detainees into the U.S.
  • –The sage grouse will lose out on protected status under a provision that bans funding for the Fish and Wildlife Service to issue further rules to put the chicken-like bird on the Endangered Species list. The federal government had said the bird was at risk from increased oil- and gas-drilling and habitat loss from farms and subdivisions, but Republicans warned of adverse effects on economic development.
  • –The Pentagon won funding for 38 F-35 Joint Strike Fighters — nine more than were funded in fiscal 2014.
  • –Banks won a measure easing restrictions on their derivative-trading activities. The change would affect requirements under the Dodd-Frank law that banks spin off certain derivatives-trading activities into units that don’t enjoy access to the government safety net.
  • –Appropriators steered some $619.8 million to Israeli programs, including $175 million for the Iron Dome missile-defense system. That is on top of the $225 million for Iron Dome that Congress approved roughly four months ago.
  • –The measure would make a $345.6 million cut to the Internal Revenue Service budget and provided no funding for the International Monetary Fund.
  • –The spending bill continues a longstanding ban on federal funding for abortions except in cases of rape, incest or endangerment of the life of the mother.

Inversion Curb Democrats Sought ‘Watered Down’ in New Bill - Democratic lawmakers wanted to use a year-end spending bill to punish U.S. companies that moved their tax addresses overseas by barring them from getting government contracts. It didn’t work. In the end, all the Democrats got was new language that may not affect any companies and a renewed provision that has proved ineffective in the past. “It’s fairly watered down,” Representative Ander Crenshaw, a Florida Republican, said of the corporate tax inversion language that applies across the U.S. government. Democrats “wanted to strengthen that, and I think most people are happy that that didn’t happen.” The policy is a victory for companies including Medtronic Inc. (MDT) and Tyco International Plc (TYC), which have millions of dollars in U.S. contracts and will be able to keep their business with the government. Medtronic is moving its tax address to Ireland next year and Tyco completed an inversion in 1997. The language in the 1,603-page spending plan to fund the government represents the latest setback to Democrats’ efforts to prevent companies from inverting or punish them if they do. Inversion plans by companies such as Burger King Worldwide Inc. and Pfizer Inc. (PFE) have brought national attention to the issue.

Democrats Revolt Against 'Wall Street Giveaway' In Deal To Prevent Government Shutdown: Democrats on Wednesday raged against a government funding bill that would provide taxpayer subsidies to risky Wall Street derivatives trading. "The House of Representatives is about to show us the worst of government for the rich and powerful," said Sen. Elizabeth Warren (D-Mass.) on the Senate floor. She urged her colleagues not to support a "deal negotiated behind closed doors that slips in a provision that would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten to blow up our financial system." News of the deal, first reported by HuffPost on Monday, has prompted a bitter bicameral feud. The dispute highlights a major divide among Democrats leading up to the 2016 elections over Wall Street's role in the party platform. "[It's] an awful invitation for another financial disaster," Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, told reporters Wednesday. "A number of us are very concerned." With Senate Democrats having already largely agreed to the House package, the only viable route Democrats have to strip the provision is in the House, where dozens of Republicans plan to oppose the package, meaning GOP leadership needs Democratic votes to approve it. House Minority Leader Nancy Pelosi (D-Calif.) has been pushing her caucus hard to stand strong against it and another provision that would increase the role of big money in campaigns. "The public awareness among our base is very high on this swap and on this money," Pelosi told her whip team at a private meeting Thursday morning, sources told HuffPost. "And all of the idealism that people have who support us – both as small donors and as major supporters – has always been about reducing the role of money in politics."

Warren leads liberal Democrats’ rebellion over provisions in $1 trillion spending bill - Congressional liberals rebelled Wednesday against a must-pass spending bill that would keep the government open past midnight Thursday, against a must-pass spending bill that would keep the government open past midnight Thursday, complaining that it would roll back critical limits on Wall Street and sharply increase the influence of wealthy campaign donors. Sen. Elizabeth Warren (D-Mass.), a popular figure on the left, led the insurrection with a speech on the Senate floor, calling the $1.01 trillion spending bill “the worst of government for the rich and powerful.” Warren urged House Democrats to withhold their support from the measure in a vote scheduled for Thursday. But the fear of shutting down federal agencies for the second time in just over a year appeared to weigh more heavily on Democratic leaders than liberal outrage. House Minority Leader Nancy Pelosi (D-Calif.) and Whip Steny H. Hoyer (D-Md.) both expressed concerns about the measure but were not mobilizing members to vote against it. Meanwhile, White House press secretary Josh Earnest said that “it is certainly possible that the president could sign this piece of legislation,” even though it would undo a pillar of the Dodd-Frank financial regulatory overhaul by freeing banks to more readily trade the exotic investments known as derivatives. The legislation ranks among the administration’s biggest domestic achievements.

Spending deal to avert shutdown held up by GOP effort to gut Wall Street reform -- Early Monday it looked like a deal was near for the spending bill Congress must pass within days to avert a government shutdown. Then it hit a snag, because Republicans can't resist trying to write poison pills into everything they touch. In this case, Democratic Sen. Chuck Schumer and Republican Rep. Jeb Hensarling have been working on an extension of a terrorism insurance program, and appeared to be close to a deal. But: Rep. Jeb Hensarling (R-Texas), a frequent foe of big business who chairs the Financial Services Committee, is trying to use the negotiations over renewing the Terrorism Risk Insurance Act to enact changes to Dodd-Frank, the 2010 banking regulation law Republicans have tried to dismantle. Why not just stick in an Obamacare repeal vote, too?  Schumer and Hensarling continue to talk, but time is getting short. Really short: Leaders still hope to release the bill Tuesday, giving Congress less than 48 hours to beat the deadline. While the GOP-controlled House would be able to move quickly to pass the bill, Democrats in charge of the Senate would need to secure an agreement from Republicans to skip procedural rules and pass the bill by Thursday night. In short, if Republicans can gut Wall Street reform passed in 2010 and make a solid attempt at blocking Obama's recent immigration action from being enforced, they might be willing to fund the government before it shuts down. And they still might need Democratic votes in the House. Responsible governance, y'all!

New Spending Bill Puts Pensions at Risk -- In a 219-206 vote, the House passed a new spending bill that the progressive wing of the Democratic party and the Tea Party wing of the GOP had opposed. The bill, which Obama had been pitching for, will now be headed to the Senate for a vote.  The new spending bill contains a measure that would allow (for the very first time) pension benefits of current retirees to be severely cut. The rule would alter 40 years of federal law and could affect millions of workers, many of them who are part of a shrinking group of middle-income employees (i.e. truckers, construction workers, supermarket employees, etc.) If the spending bill (as is) is passed in the Senate and signed by Obama, the change in the federal ERISA law would apply to multiemployer pensions, where a group of businesses in the same industry join forces with unions to provide pension coverage for millions of employees. The Pension Benefit Guaranty Corp. (PBGC) has warned it may run out of funds unless Congress implements "reforms".L.A. Times: "Thanks to changes in the workplace, the 2008 crash, and the long recession, many--but by no means most--of these plans are underfunded and in danger of going bust sometime in the next decade or two. In those cases, the pensions will become the responsibility of the federal Pension Benefit Guarantee Corp.That's a concern for two reasons: First, the PBGC, which also takes over single-employer plans that run out of money, is already in serious financial trouble. Second, although the PBGC guarantees single-employer pension benefits up to about $59,318 a year (as a straight-life annuity for someone retiring this year at 65), the ceiling is much lower for multiemployer plans--for a worker with 30 years of pension credits, the maximum PBGC guarantee is $12,870. (The guarantees are adjusted each year for inflation.) That would be a huge cut for many workers with long years on the job.

New spending bill allows wealthy donors to give more — lots more — to political parties: Tacked at the end of the 1,603-page government spending bill released by the U.S. House of Representatives late Tuesday is a provision that would enable wealthy individuals to make significantly larger contributions to political parties. Under current campaign finance law, individuals cannot give more than $32,400 a year to the Democratic National Committee or the Republican National Committee. But a section on “other matters” on page 1,599 of the spending bill sets separate limits for donations earmarked for the national parties’ political conventions, buildings and potential recount efforts. Individuals would be allowed to donate three times the annual party contribution limit to each of the earmarked efforts in addition to the party itself, effectively allowing one person to funnel $324,000 a year to party efforts.

Tea Party Angered by Fundraising Change in Spending Bill -- It’s not often that Democrats and the tea party end up on the same side of a debate. But a hotly contested clause in the spending bill lawmakers revealed Tuesday, which would effectively allow individuals to contribute 10 times the current limit to national parties, is creating unlikely allies. A string of tea-party groups are protesting the clause—which would allow national party committees to raise money for conventions, building renovations and election recounts under higher contribution limits—for returning too much power to the “Washington establishment,” highlighting the rift that has emerged in the Republican Party in recent years between its conservative wing and pro-business incumbents. The 2014 election saw nearly across-the-board victories for the latter group. David Bossie, president of Citizens United—a tea-party group behind the lawsuit that resulted in the Supreme Court striking down decades-old limits on corporate political expenditures—said in a statement, “What congressional leaders are doing is what they do best: protecting incumbents and the two-party system. The Omnibus rider will only strengthen the Washington Establishment in both parties and not create a level playing field for candidates who are outside the beltway.” He called for the limits on contributions to PACs to be raised. Ken Cuccinelli, president of the tea-party group Senate Conservatives Fund and former attorney general of Virginia, offered similar criticism. “The new limits included in the omnibus only increase political speech for party insiders while silencing the majority of Americans who are fed up with Washington,” he said. “The First Amendment wasn’t written to protect political insiders from the American people – it was written to protect the rights of all Americans.”

Who you callin’ massive? The CRomnibus actually cuts discretionary spending to historic lows as share of GDP. - If you Google “massive budget bill” you get a lot of hits. I fear such language is massively misleading.True, the CRomnibus, the nickname of the bill to fund the federal government through next September, runs to over 1,600 pages. But I suspect most readers will associate the “m” word with massive amounts of government spending, and that’s just plain wrong. The budget bill that passed the House would appropriate $1.10 trillion, which is actually a slight cut from CBO’s most recent estimate of this type of spending for FY 2014 ($1.13 trillion), and that’s before accounting for inflation.  More important, as the figure below shows, scaled by the size of the economy, this proposed appropriation for 2015 is an historical low point.And I’d strongly argue that such context—scaling by GDP as opposed to citing “trillions”—is essential. This bill funds both defense and non-defense discretionary programs, the latter of which we rely upon for “a wide range of functions and services, including law enforcement and courts, homeland security, veterans’ medical care, scientific and medical research, public health, education, housing assistance, national parks, environmental protection, basic operations of government such as tax collection and personnel management, and many others.” As the economy grows, the magnitude of many of these challenges grows as well, so we’d expect the dollar value of what we spend on them to go up. So I’d urge fellow scribblers about these matters to retire “massive” and place these expenditures in both historical and GDP contexts.

Obama signs $10.8B highway bill - President Obama on Friday signed a $10.8 billion measure that will fund highway and bridge repairs for the next ten months. The short-term measure, approved by lawmakers last month, is paid for using a budgeting maneuver called pension smoothing, which allows corporations to reduce their contributions to employee retirement plans. By allowing companies to do so, the government can boost tax revenues since companies are no longer eligible for tax deductions. The Highway Trust Fund risked running out of money this month had lawmakers not approved additional funding, endangering thousands of construction projects and jobs. While the president supported the measure, he also told Congress it "shouldn't pat itself on the back for averting disaster for a few months, kicking the can down the road for a few months, careening from crisis to crisis when it comes to something as basic as our infrastructure" during a speech last month. During a speech earlier this week, Vice President Biden bemoaned that lawmakers had not passed a long-term solution. “Hell, Congress can’t even decide on a gas tax to keep the highway system going,” Biden said.

Reps press for gas tax hike -- A bipartisan pair of lawmakers pushed Wednesday for a 15-cent increase in the tax that is paid by drivers when they fill up at the pump. Drivers have been charged an extra 18.4 cents per gallon at the pump to help pay for transportation projects since 1993 under the federal gas tax. Reps. Tom Petri (R-Wis.) and Earl Blumenauer (D-Ore.) said Wednesday that it was time to ask drivers to pay more to help improve the roads they drive on everyday.  “I am co-sponsoring Rep. Blumenauer's bill because we need a first-rate transportation system and the responsible thing to do is pay for it,” Petri said at a press conference on Wednesday. Petri and Blumenauer are offering legislation now that would phase in the gas tax increase over the next three years.

Highway Funds Fall Low Enough That Republicans Seek Taxes - Falling fuel prices, crumbling roads and bridges and a gridlocked Congress have U.S. states, even those run by Republicans, debating higher taxes. States including Iowa, Michigan and New Jersey are considering higher levies at the pump, borrowing more or other money-generating maneuvers to improve infrastructure. Prices at the pump falling by more than $1 per gallon since April may help ease opposition. “The timing is right in light of the fact that fuel prices have dropped significantly,” Iowa Governor Terry Branstad, a Republican re-elected last month, said during a Dec. 8 news conference in Des Moines. “This is a difficult and challenging issue, but if we work together, I think we can get something done.” The American Society of Civil Engineers estimates that the U.S. requires $3.6 trillion in infrastructure investment by the decade’s end. Congress hasn’t raised the gasoline tax since 1993, allowing the Highway Trust Fund to reach the brink of insolvency this year before approving a solution that will sustain it only through May. Meanwhile, federal and state levies raise less as vehicle fuel efficiency has increased.

Corporate profits are sky high, wages down. Yet extending corporate tax breaks is an urgent issue? -- Maybe I'm an idiot. But there's something I just don't understand, and perhaps one of you good people can help me make sense of it. If Congressional Republicans are to be believed, the most serious crisis facing our government right now is that a bunch of corporations might not be able to take advantage of tax deductions that they've been taking advantage of for quite a few years now. Yes, the end of the calendar year is coming and if it passes without the extension of these tax breaks then, poof, the deductions will be unavailable, at least for the 2014 tax year.   Bear in mind that the deductions—in theory—exist to give an incentive to businesses to make productive decisions. Well, the year is just about over, and companies have made whatever decisions they are going to make for 2014. That's why passing the tax cut at the 11th hour is truly nothing but a giveaway to corporations. Oh, and unlike, say, extending long-term unemployment insurance, Republicans aren't insisting that the cost be offset. I guess only government spending that goes to the little people has to be paid for.

Congress Again Rewards Tax Dodgers with a Tax Cut - Congress has agreed to reduce the Internal Revenue Service’s fiscal year 2015 budget by about 3 percent (from almost $11.3 billion in fy2014 to $10.9 billion), with over half coming from the enforcement budget. The reduction is even larger after adjusting for inflation (almost 5 percent). This is just the latest IRS budget reduction; in inflation-adjusted terms the IRS budget has been cut by almost 18 percent since 2010. Interestingly, earlier this week the IRS Oversight Board released the results from a survey of public attitudes on the IRS. Overall, the public appears to be satisfied with their personal interactions with the IRS—74 percent are either very or somewhat satisfied. Only 61 percent of respondents (still a majority) trust the IRS to fairly enforce the tax laws, and this number could plausibly be depressed as a result of the House GOP hearings on the possible IRS mishandling of some tax-exemption applications from conservative groups. (more…)

Wall Street's Democrats - Robert Reich -  In Washington’s coming budget battles, sacred cows like the tax deductions for home mortgage interest and charitable donations are likely to be on the table along with potential cuts to Social Security and Medicare. But no one on Capitol Hill believes Wall Street’s beloved carried-interest tax loophole will be touched. Don’t blame the newly elected Republican Congress. Democrats didn’t repeal the loophole when they ran both houses of Congress from January 2009 to January 2011. And the reason they didn’t has a direct bearing on the future of the party. First, let me explain why this loophole is the most flagrant of all giveaways to the super-rich. Carried interest allows hedge-fund and private-equity managers, as well as many venture capitalists and partners in real estate investment trusts, to treat their take of the profits as capital gains — taxed at maximum rate of 23.8 percent instead of the 39.6 percent maximum applied to ordinary income. It’s a pure scam. They get the tax break even though they invest other peoples’ money rather than risk their own. The loophole has no economic justification. As one private-equity manager told me recently, “I can’t defend it. No one can.” It’s worth about $11 billion a year — more than enough to extend unemployment benefits to every one of America’s nearly 3 million long-term unemployed.  The hedge-fund, private-equity, and other fund managers who receive this $11 billion are some of the richest people in America. Forbes lists 46 billionaires who have derived most of their wealth from managing hedge funds. Mitt Romney used the carried-interest loophole to help limit his effective tax rate in 2011 to 13.9 percent.

Will Immigrants Get A Tax Windfall From Refundable Credits? -- In the end-of-the-year congressional scramble, lawmakers scuttled an effort to permanently extend a number of tax breaks—largely because many feared it would open the door to widespread use of refundable tax credits by undocumented immigrants covered by President Obama’s recent executive order.  But is their concern justified? Three sets of rules related to residency and citizenship govern eligibility for the three primary tax benefits for families with children – the dependent exemption, the Child Tax Credit (CTC), and the Earned Income Tax Credit (EITC). President Obama’s recent executive action will allow some parents of U.S. citizens or lawful permanent residents who have been in the country for at least five years to apply for limited work authorization. His initiative will not affect the dependent exemption or CTC but it will increase the number of parents who meet the citizenship and residency requirements for the EITC.  The dependent exemption has the most liberal eligibility requirements. If you have an ITIN and are the parent of a U.S. citizen child who lives with you in the U.S., Mexico, or Canada, your child qualifies. The same tests apply to the CTC (including the Additional Child Tax Credit—ACTC—which is the refundable portion of the CTC), except both parent and child must live in the U.S. EITC rules are most restrictive: The taxpayer and child must live in the U.S. and the taxpayer must have a Social Security number valid for work.

The House cuts funding for the IRS. That’s a big mistake. - I’ll give Congress some credit for appropriating funds to 11 out of 12 agencies through next September, though frankly, that’s their job, so keep the champagne on ice. And, of course, when you’re talking federal budgets, the devil’s in the details. And there are some ugly details in this budget. For example, in addition to language that would weaken aspects of Dodd-Frank, the proposed legislation cuts the IRS budget. Recent House Republican budgets have called for large, deep tax cuts that thankfully – as our future challenges are much more likely to call for more, not less, revenue – haven’t been legislated. In that regard, one way to view these IRS cuts, especially given some of the facts I report below, is as a back door way to reduce taxes, not by policy, but by undermining the agency’s ability to reduce tax evasion (not to mention, its role in implementing Obamacare). IRS funding levels have been slashed dramatically in recent years, down nearly $2 billion in real terms between fiscal years 2010 and 2014. As shown in the chart below, the House budget would cut the agency’s budget even further. Why is reduced IRS funding a problem?  As my CBPP colleagues report: …vital federal services [have] suffered as funding has declined.  The IRS faces cost pressures common to most programs, such as a growing workload and the effects of inflation.  But it also faces unique demands, such as the growing problem of identity theft and the tax compliance issues associated with offshore accounts.  Demands will only grow in coming years, as the IRS implements the Affordable Care Act and the Foreign Account Tax Compliance Act, which is designed to avert illegal tax evasion that occurs through the use of offshore accounts.

Bill Moyers on The Lives of the Very Very Rich - naked capitalism. Yves here. While this site talks regularly about the 1% and the 0.1%, we don't often give a more specific idea of who they are. A recent Bill Moyers show gave a vignette of the super-rich, not just the 0.1%, but the 0.01%, who as we know all too well are playing a vastly disproportionate role in reshaping politics and our society.  The video is important, not only because it’s well done and very watchable, but because it’s about something almost entirely invisible — the lives of the very very rich — and that invisibility has important political consequences. Most people don’t have any idea what the lives of the very very rich — the “billionaire class” as Bernie Sanders calls them — are actually like. Consider this chart, starting from the bottom:

Let the Fed Lend Directly to Cities and States to Save Taxpayers BillionsThe Federal Reserve should be allowed to make long-term loans directly to cities, states, school districts, and other public agencies so taxpayers can get low interest rates and avoid predatory Wall Street fees. Currently, banks borrow money at near-zero interest rates from the Fed while public entities are forced to pay billions in fees and interest each year. Cities and states should have access to the same low interest rates that banks enjoy so that taxpayer money earmarked for infrastructure improvement and other public goods will no longer be spent subsidizing corporate profits. If the Fed lent directly to cities and states at low interest, it would free up public dollars for services like education and mass transit. Direct loans from the Fed could also help alleviate fiscal crises and become a tool for promoting stronger environmental and labor protections.

House GOP Rejects IMF Governance Changes, Again -  Any hopes that U.S. lawmakers might ratify a five-year-old deal to boost the International Monetary Fund’s war chest and overhaul its antiquated governance structure by the end of the year were washed out late Tuesday. In a summary of the latest government funding bill released Tuesday night, House Appropriations Committee Chairman Hal Rogers, (R., Ky.), said there’s “no funding for the International Monetary Fund.” The Senate could add the funding into its own budget bill, forcing the issue with the House as the two chambers negotiate a consensus bill. But, as numerous previous efforts have shown, that’s highly unlikely. “It appears to be dead,” The deal agreed in 2010 would restructure the emergency lender by giving emerging markets greater power at the fund more in line with their burgeoning economic heft in the world. It would also shift short-term emergency reserves loaned to the IMF by major economies during the global financial crisis into the fund’s regular lending account. Because of the way the deal was structured, deciding not to allow the Treasury to shift the U.S. share of the crisis loan into the IMF’s regular account also prevents U.S. approval of the governance changes.

The House and the Fed go in opposite directions on financial market oversight. -  Jared Bernstein -- Ensuring that financial institutions have adequate capital buffers is an essential line of defense against the bubbles and busts that have characterized the US business cycle in recent decades, at great cost to the living standards of most households. So I was happy to see the Fed’s proposal to kick up banks’ reserve requirements, especially for the ones involved in more complex, riskier trades. And then there’s the House. I give them some credit for coming up with a 92% omnibus budget bill, where, unlike the continuing resolutions they’ve relied on in recent years, they appropriated new spending levels for 11 out of 12 agencies through next September. The exception is Homeland Security, which just gets a CR through February—their way of complaining about the President’s recent immigration action.  But they also jammed in some language to weaken aspects of Dodd-Frank, most notably a measure intended to hive off derivative trading from the part of the bank that’s insured by taxpayers. According to the NYT, this attack on the “Volcker rule” was largely written by Citibank…not good.  The bill that Citigroup helped draft: This bill would repeal one of the more contentious provisions in Dodd Frank, requirement that banks “push out” some derivatives trading into separate units that are not backed by the government’s deposit insurance fund. The proponents of the push­out rule argued that it would isolate risky trading from parts of a bank eligible for a government bailout.

NYTimes Dealbook’s Dishonest Salvo at Elizabeth Warren Over Calling Out an Unqualified Nominee for Treasury Post --  Yves Smith  -- Even though Andrew Ross Sorkin and his mini-empire, the New York Times Dealbook, are reliable defenders of their Big Finance meal tickets, they've managed to skim above, if sometimes just barely above, abject intellectual dishonesty. But Dealbook has published not one but three pieces in as many weeks in defense of an unacceptably weak Obama Administration nominee for an important Treasury post, the Under Secretary of Domestic Finance. The candidate is Antonio Weiss, a Lazard mergers and acquisitions professional who was elevated to head of investment banking in 2009. There's no doubt that Weiss is accomplished. The non-trivial problem, as Elizabeth Warren and others have pointed out, is that Weiss' experience and skills have absolutely nothing to do with the Treasury role. What is striking is the way that Sorkin and his colleagues have launched what amounts to a media war against Warren in defense of Weiss, and have shameless resorted to a drumbeat of Big Lies in the hope that their messaging will stick. The fact that they can't even mount a proper case on its merits speaks volumes about Weiss' qualifications for the job.

Elizabeth Warren Escalates Fight over Treasury Nominee Antonio Weiss, Goes to War with Wall Street Wing of Democratic Party  -- Yves Smith -  Earlier this week, we wrote about how the New York Times' Dealbook, the creature of Wall Street sycophant Andrew Ross Sorkin, had launched a fierce campaign against Elizabeth Warren's latest move, her opposition to the Obama administration's nomination of Lazard's Antonio Weiss, a mergers and acquisitions banker. Warren's grounds for objecting to Weiss were straightforward: his experience was no fit for the requirements of his proposed Treasury role. On top of that, he had been involved in and therefore profited from acquisitions called inversions that Treasury opposes because they reduce the taxes paid by the acquirer, which uses the acquired company to move its headquarters to a lower-tax jurisdiction. Dealbook published three Warren-bashing columns in as many weeks; the Washington Post and Wall Street Journal ran editorials making similar arguments, suggesting that all were picking up on the same talking points out of Treasury. One tell: the Times had to issue a correction on one of its pieces because it relied on a Treasury document that exaggerated Weiss' accomplishments. Warren upped the ante in a speech on Tuesday, making Weiss, who is now head of investment banking at Lazard, a symbol of what is wrong with the relationship between the government and Big Finance: that of far too much coziness between the large, influential players and financial regulators. And in sharpening and further documenting her critique, she has put the Robert Rubin wing of the Democratic party in her crosshairs.

Citigroup Wrote the Wall Street Giveaway Congress Just Snuck Into a Must-Pass Spending Bill -- A year ago, Mother Jones reported that a House bill that would allow banks like Citigroup to do more high-risk trading with taxpayer-backed money was written almost entirely by Citigroup lobbyists. The bill passed the House in October 2013, but the Senate never voted on it. For months, it was all but dead. Yet on Tuesday night, the Citi-written bill resurfaced. Lawmakers snuck the measure into a massive 11th-hour government funding bill that congressional leaders negotiated in the hopes of averting a government shutdown. President Barack Obama is expected to sign the legislation.As I reported last year, the bill eviscerates a section of the 2010 Dodd-Frank financial reform act called the "push-out rule":Banks hate the push-out rule…because this provision will forbid them from trading certain derivatives (which are complicated financial instruments with values derived from underlying variables, such as crop prices or interest rates). Under this rule, banks will have to move these risky trades into separate non-bank affiliates that aren't insured by the Federal Deposit Insurance Corporation (FDIC) and are less likely to receive government bailouts. The bill would smother the push-out rule in its crib by permitting banks to use government-insured deposits to bet on a wider range of these risky derivatives. The Citi-drafted legislation will benefit five of the largest banks in the country—Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Wells Fargo. These financial institutions control more than 90 percent of the $700 trillion derivatives market. If this measure becomes law, these banks will be able to use FDIC-insured money to bet on nearly anything they want. And if there's another economic downturn, they can count on a taxpayer bailout of their derivatives trading business.

Financial Collapse: The Sequel?: Wall Street lobbyists have snuck into the budget package an amendment that would repeal the part of Dodd-Frank that reins in the financial weapon of mass destruction called Credit Default Swaps. Per usual, it is Elizabeth Warren that explains this best: You will hear a lot of folks say that the rule that will be repealed in the Omnibus is technical and complicated, and that you shouldn't worry about it because smart people who know more than you about financial issues say that it's no big deal. Don't believe them. Actually, the rule is pretty simple. Here's what it's called - the rule that the House is about to repeal - and I'm quoting from the text of Dodd-Frank - "PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS ENTITIES." What does it do? The provision that's about to be repealed requires banks to keep separate a key part of their risky Wall Street speculation so that there's no government insurance for that part of their business. As the New York Times has explained, "the goal was to isolate risky trading and to prevent government bailouts" - because these sorts of risky trades - called 'derivatives' trades - were "a main culprit in the 2008 financial crisis."

Why Citi May Soon Regret Its Big Victory on Capitol Hill -- On its face, the House vote late Thursday to approve a spending bill that included an unrelated provision written by Citigroup was a big legislative victory for the bank and its fellow Wall Street behemoths. Yet it's also a victory that may soon come to haunt the largest institutions. What they won was the repeal of a Dodd-Frank Act provision that requires them to push out a portion of their derivatives business into subsidiaries. Big banks fought against its inclusion in the 2010 financial reform law and have been steadily fighting to repeal it ever since. The spending bill is expected to pass the Senate in the coming days. But in finally getting what they wanted, big banks also thrust themselves back into the limelight in the worst possible way, simultaneously reminding the public of their role in causing the financial crisis and in their continuing influence over the various levers of the U.S government. In one fell swoop, they undid whatever recovery to their battered reputation they'd made in the past four years and once again cast themselves as the prototypical supervillain in a comic book movie. Observers said the fight was a public relations nightmare for Citigroup and the big banks. "They've taken a lot of reputational hits now, a lot of people saying, 'You're trying to blackmail us and not fund our government until you get your way,'" said Sheila Bair, the former chairman of the Federal Deposit Insurance Corp., in an interview on CNBC before the House vote. "It's terrible publicity and I just hate to see that because I think the industry needs to be rebuilding trust with the American people right now. You do stuff like this, it just adds to the cynicism about banks, especially big banks."

Can Anyone Transplant a Spine into Obama to Kill Citi’s Bailout Bill? --  William K. Black -- President Obama is a terrible negotiator and if Senator Warren and Representative Pelosi are unable to save him from himself he will effectively end his presidency as even an episodic force for good.  Yes, the Republican legislators will have more power in Congress next month.  Obama’s justification for supporting the odious omnibus budget bill is avoiding that danger.  No, the fact that the Republican will take control of both houses in January does not mean that Obama would be forced into approving an even worse budget bill next year.  Obama needs to do three things to succeed in the negotiations.  First, state they he will sign only a clean bill that has nothing in it other than the spending authorization.  Second, veto anything other than a clean bill.  If the Republicans want to force the U.S. government to shut down so that they can deliver special favors to the five largest U.S. banks (that’s what the current bill that Obama is urging Democrats to agree to does), then they can do so.  If Obama does not blink, the Republicans will lose and look terrible in the process because their actions are indefensible.  Third, pound away at indefensible portions of the Republican demands such as the giveaway on derivatives to the five biggest banks.  The Republicans have presented Obama with a Christmas gift by making their policy demand a policy surrender to the five largest banks.  Note that the surrender is so unprincipled that no Republican is publicly supporting the case for gifting the five largest banks with a promise to bailout their future financial derivative losses.  With luck, Obama’s opposition would smoke out Citicorp, which drafted this giveaway, and lead the big banks to attack Obama.  That would be a second political gift just before Christmas.  An element of this strategy is rallying Congressional Democrats to forcefully and publicly oppose such subsidies to the banks.  That opposition might cost them some campaign contributions, but it would greatly add to public support for the Congressional Democratic stalwarts.

Slain MassMutual Executive Held Wall Street “Trade Secrets”: On Thursday, November 20, 2014, the body of 54-year old Melissa Millan, a divorced mother of two school-age children, was found at approximately 8 p.m. along a jogging path running parallel to Iron Horse Boulevard in Simsbury, Connecticut. Police ruled the death a homicide....Information has now emerged that Millan had access to highly sensitive data on bank profits resulting from the collection of life insurance proceeds from her insurance company employer on the death of bank workers – data that a Federal regulator of banks has characterized as “trade secrets.” Millan was a Senior Vice President with Massachusetts Mutual Life Insurance Company (MassMutual) headquartered in Springfield, Massachusetts and a member of its 39-member Senior Management team according to the company’s 2013 annual report. Millan had been with the company since 2001. According to Millan’s LinkedIn profile, her work involved the “General management of BOLI” and Executive Group Life, as well as disability insurance businesses and “expansion into worksite and voluntary benefits market.” BOLI is shorthand for Bank-Owned Life Insurance, a controversial practice where banks purchase bulk life insurance on the lives of their workers. The death benefit pays to the bank instead of to the family of the deceased. According to industry publications, MassMutual is considered one of the top ten sellers of BOLI in the United States. Its annual reports in recent years have indicated that growth in this area was a significant contributor to its revenue growth.

Total Derivatives Decline By 3% In Q2 To Only $691 Trillion - Who says macroprudential regulation doesn't work: according to the BIS, notional amounts of outstanding OTC derivatives contracts fell by 3% to "only" $691 trillion at end-June 2014. This is also roughly equal to the total derivative notional outstanding just before the Lehman collapse, when global central banks volunteered taxpayers to pump a few trillion in capital to meet global variation margin calls. Clearly the system, in the immortal words of Jim Cramer, is "fine." From the BIS: The contraction in aggregate notional derivatives positions was largely driven by the interest rate segment. Notional amounts of interest rate derivatives contracts stood at $563 trillion at mid-2014, about $20 trillion below the volume recorded at end-2013. Outstanding volumes of interest rate swaps fell by 8% to $421 trillion... The contraction in swap positions was partly offset by rising activity in the forward rate agreement segment, where notional contract volumes expanded by 17% to $93 trillion. Outstanding amounts of fixed income options, by contrast, remained largely unchanged.

Swap Talk: Why Are People Fighting Over Dodd-Frank and Derivatives? -- A fight over a change to an obscure-sounding derivatives rule is roiling the prospects for the $1.1 trillion spending bill negotiated by Congress. Here’s what you need to know. What the heck is this derivatives thing in the spending bill that everyone is talking about? The 2010 Dodd-Frank law contains a provision that forces banks to spin off certain of the derivatives trading activities into units that don’t enjoy access to the government safety net (like federal insurance on bank deposits and the ability to tap the Fed for emergency loans). The idea is to protect taxpayers from having to bail out banks the next time bets made with these complex products sour — as happened in the 2008 crisis. The law specifically targets swaps, which are a type of derivative product that allow financial firms and their clients to hedge against risks or wager on an asset’s value. The provision is the work of former Democratic Sen. Blanche Lincoln of Arkansas. Originally, she proposed that banks push out all of their swaps, but a group of moderate House Democrats fought back and a 11th-hour compromise resulted in banks being able to keep certain swaps operations in house – including those for interest-rate swaps, foreign-exchange swaps, and gold and silver swaps, among others. (Related: Barney Frank Criticizes Planned Roll-Back of Namesake Financial Law ) So what’s does this have to do with the spending bill? The spending bill is considered must-pass legislation since failure to get it approved would lead to a government shutdown. Congressional Republicans included legislative language in the spending bill that would ease the swaps restrictions on banks. It is one of many nonspending related measures in the bill, but it’s getting a lot of attention because it would be the biggest, most substantive change to Dodd-Frank since the president signed it into law.

Don’t Repeal Swaps Push-Out Requirements (Section 716 of Dodd-Frank) - Simon Johnson - Section 716 of the Dodd-Frank financial reform act requires that some derivative transactions be “pushed-out” from those part of banks that have deposit insurance (run by the Federal Deposit Insurance Corporation) and other forms of backstop (provided by the Federal Reserve). This is a sensible provision that, if properly implemented, would help keep our financial system safer, protect taxpayers and reduce the likely need for bailouts. Now, at the behest of the biggest Too Big To Fail banks and as part of the House’s spending bill (to be voted on tomorrow or in coming days), this “push out” requirement is on the verge of being repealed. Democrats and Republicans should refuse to vote for the spending bill as long as it contains this requirement. This is not a left vs. right issue. It is a fundamental systemic risk issue, on which people across the political spectrum who want to lower those risks can agree – Section 716 should not be repealed. In fact, some of the sharpest voices on this issue come from the right.

For the Soul of the Party: the Budget Showdown and Financial Reform -  The fight over the 2015 Appropriations Bill is now focused on one of the non-appropriations measures stuck onto the bill by the House GOP. That provision would repeal section 716 of the Dodd-Frank Act, which prohibits bailouts of swap entities and pushes certain types of particularly risky swaps out of insured depositories. Section 716 might be thought of as the "Banks Aren't Casinos" provision of Dodd-Frank.  On the surface, the fight about section 716 looks like a partisan squabble. But the real issue is the internal Democratic Party struggle going on because if the Democratic leadership doesn't force party discipline in opposing the appropriations bill with this provision, the appropriations bill will likely pass. The outcome of the internal Democratic debate is frankly more important than whether section 716 gets rolled back. (I write that because I don't think the no-bailouts prohibition in section 716 is credible or that any prohibition on bailouts can be credible. When things get hairy, we'll bail, law be damned.) No, what matters here is how Democrats line up. The fight over section 716 is a struggle for the soul of the Democratic Party. Like the Antonio Weiss nomination, this is a test of the Democratic congressional delegation. Will they insist on no repeal? That's really a question of whether the Congressional Democrats are with Wall Street or Main Street. The last election should have been a strong signal that Democrats need to return to Main Street if they want to get reelected. If the Democrats continue to try to be the party of Silicon Valley, Wall Street, and the poor, they will continue lose elections; the party needs middle class buy-in to win elections, and that means championing not just important civil rights and welfare issues, but also the issues that affect the economic security of the middle class, such as consumer protection, financial stability, pension security, tax fairness, and trade agreements.

What is Congress Trying to Secretly Deregulate in Dodd-Frank?, by Mike Konczal: There are concerns that the budget bill under debate in Congress will eliminate Section 716 of Dodd-Frank, using language previously drafted by Citigroup. So what is this all about? Section 716 of Dodd-Frank says that institutions that receive federal insurance through FDIC and the Federal Reserve can’t be dealers in the specialized derivatives market. Banks must instead “push out” these dealers into separate subsidiaries that don’t benefit from the government backstop. They can still trade in many standardized derivatives and hedge their own risks, however. This was done because having banks act as swap dealers put taxpayers at risk in the event of a sudden collapse. That’s it.  Why would you want a regulation like this? The first is that it acts as a complement to the Volcker Rule. ... A second reason is 716 will also prevent exotic derivatives from being subsidized by the government’s safety net. ... The third reason is for the sake of financial stability. ...  Stiglitz reiterated this point today, saying “Section 716 facilitates the ability of markets to provide the kind of discipline without which a market economy cannot effectively function. I was concerned in 2010 that Congress would weaken 716, but what is proposed now is worse than anything contemplated back then.”

Why D.C. is up in arms about derivatives ... again - The most controversial provision of the 1,600-page, $1.1 trillion spending bill currently before Congress could be the proposed roll-back of Section 716 of the Dodd-Frank financial regulatory reform bill:  It's also known as the "Lincoln Amendment," after its original sponsor, Sen. Blanche Lincoln, or as the "swaps push-out rule," but what does it actually do? It was first proposed to push all derivatives off the balance sheets of FDIC-insured banks – what Michael Greenberger, professor of law at the University of Maryland, calls a "hundred trillion-dollar market in notional value." Mike Konczal, who writes about financial reform for the Roosevelt Institute, says the "push-out rule" has since been scaled back to apply to only its riskiest segment, like the kind of credit default swaps that brought down AIG. Aaron Klein at the Bipartisan Policy Center, who supports the roll-back of this rule, says pushing derivatives off of the banks' balance sheets into hedge funds and bank subsidiaries won't necessarily keep the financial system safe.

The Bipartisan Policy Center Gets It Wrong: The Lincoln Amendment Is Critical to Financial Reform -- A wide variety of people, ranging from Senators Elizabeth Warren and David Vitter to Representative Maxine Waters and FDIC’s Thomas Hoenig, are trying to stop a last-minute attempt to remove an important piece of financial reform. They are all speaking up against a move to repeal the Lincoln Amendment using language written by Citigroup in the year-end budget process. Given the wide variety of people against it, it’s interesting how few people are for it. One of the few institutions that has defended it is the Bipartisan Policy Center (BPC), whose Financial Regulatory Reform Initiative released a statement saying:“The Consolidated and Further Continuing Appropriations Act is consistent with BPC’s recommendations to repeal the Lincoln Amendment and to substantially increase funding for the SEC and CFTC.” These recommendations they cite date back to a 2013 paper that included arguments against pushing out swaps. What’s their case, and does it hold up under scrutiny? We argue it does not. It misreads the purpose and scope of the Volcker Rule, disregards their own analysis on how financial reform should proceed, misses recent developments in the derivatives market, and ignores the issue of what an implicit government support means for exotic derivatives.

Please Sign Urgent Occupy the SEC Petition on Against Derivatives Deregulation - Yves Smith - Text and links from Occupy the SEC follow: Dear Friends, This bulletin contains an update on what Occupy the SEC ( has been up to lately, and what you can do to get involved. Congress is on the verge of deregulating derivatives TODAY - Sign our petition to stop them. Congress has historically used the end of the year as an opportunity to pass controversial legislation with little publicity, often using amendments to unrelated bills. This year is no different. TODAY (December 10, 2014) our legislators are on the verge of approving two key provisions that would significantly roll back crucial parts of the Dodd-Frank Act's derivatives (swaps) restrictions. Those provisions are Section 630 of the Senate Amendment to H.R. 83 (Omnibus Bill) and Title III of the House's current version of the Terrorism Risk Insurance Act of 2014 (TRIA). These provisions are nothing more than an attempt by Wall Street lobbyists and their friends in Congress to eviscerate important derivatives reforms implemented by the Dodd-Frank Act. We need YOU to contact your legislators as soon as possible and tell them that you OPPOSE these sneaky deregulatory moves. If passed, these provisions would pave the way for further gutting of Dodd-Frank, which in turn would surely jeopardize our nation's economy, line the pockets of wealthy financiers, and damage the fiscal health of every day Americans. Please sign our petition now by clicking on the following link, which will allow you to send automatic emails to your Congressional Representative and Senators.

Fed’s Stanley Fischer Discusses Big-Bank Political Influence - Did the political influence of big Wall Street banks wane after the financial crisis? Not according to the vice chairman of the Federal Reserve. Stanley Fischer gave some unscheduled remarks Friday morning at the Peterson Institute for International Economics, waxing philosophic about the global process for setting financial-system rules. Mr. Fischer suggested rules set directly by legislatures can be imperfect, lamenting the role of Wall Street banks in shaping the 2010 Dodd-Frank financial overhaul law.  “I thought that when Dodd-Frank started, that the banks would not succeed in influencing it, having lost all the prestige they lost,” he told a crowd of several dozen at the Washington, D.C., think tank. “Boy, was I wrong.” His remarks came less than a day after the House passed a spending bill that included a provision, long sought by banks, to scale back a Dodd-Frank requirement.

Citigroup Will Be Broken Up - Simon Johnson -- Citigroup is a very large bank that has amassed a huge amount of political power. Its current and former executives consistently push laws and regulations in the direction of allowing Citi and other megabanks to take on more risk, particularly in the form of complex highly leveraged bets. Taking these risks allows the executives and traders to get a lot of upside compensation in the form of bonuses when things go well – while the downside losses, when they materialize, become the taxpayer’s problem. Citigroup is also, collectively, stupid on a grand scale. Now the supposedly brilliant people who run Citigroup have, in the space of a single working week, made a series of serious political blunders with long-lasting implications. Their greed has manifestly proved Elizabeth Warren exactly right about the excessive clout of Wall Street, their arrogance has greatly strengthened a growing left-center-right coalition concerned about the power of the megabanks, and their public exercise of raw power has helped this coalition understand what it needs focus on doing – break up Citigroup. In a blistering speech on Tuesday, December 9th, Senator Warren emphasized how much power large Wall Street banks have in Washington. The pushback from those banks’ supporters was, not surprisingly, to deny any special rights and privileges. On Wednesday, a provision — drafted by Citigroup — to repeal part of the Dodd-Frank financial reforms (Section 716) was added by House Republicans to their spending bill. On Thursday, Citigroup led the charge to persuade enough Democrats to vote for that bill. The repeal of Section 716 stayed in the spending bill only because Wall Street brought so much pressure and influence to bear. In arguing against the repeal of Section 716, Senator Warren was supporting arguments put forward by Thomas Hoenig (a Republican appointee at the Federal Deposit Insurance Corporation), Sheila Bair (Republican and former chair of the FDIC), and Senator David Vitter (R., Louisiana). On Friday, the Systemic Risk Council – chaired by Sheila Bair – put out a statement against the repeal of Section 716.

Oil Pressure Could Sock It To Stocks - With crude sliding through the key $60 level, oil pressure could stay on stocks Friday. West Texas Intermediate futures for January closed at $59.95 per barrel, the first sub-$60 settle since July 2009. The $60 level, however, opens the door to the much bigger, $50-per-barrel level. Besides oil, traders will be watching the producer price index Friday morning, and it’s expected to be off 0.1% with the fall in energy. “The big level is going to be $50 now in terms of psychological support. Much as $100 is on the upside,” said John Kilduff of Again Capital. Oil stands a good chance of getting there too. Tom Kloza, founder and analyst at Oil Price Information Service, said the market could bottom for the winter in about 30 days, but then it will be up to whatever OPEC does. It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.” “Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday. “In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

"Massive Correction" In Energy Stocks Coming; Why The US Won't Bail Out Its Oil Industry -- Having predicted oil prices below $80 in 2014 at the beginning of the year, Saxobank's Steen Jakobsen has a leg or two to stand on when he warns of a "massive correction" in energy stocks and the drop in prices will rapidly become a headwind for the US economy, adding that "it will subtract 0.5% from GDP, bare minimum." He further notes that due to the strategic importance of the oil industry to America, he suspects the government will attempt (a likely highly unpopular) bailout of the Shale sector. However, as Raul Ilargi Meijer notes, there is a problem for any bailout (aside from public angst), in that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil...And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet.

Ilargi: Will the Oil Collapse Kill Energy Junk Bonds?  - naked capitalism -  Yves here. Some ahead-of-the-curve analysts have warned of the magnitude of energy debt, mainly junk bonds issued to fund shale gas projects, that are now at risk thanks to plunging oil prices whacking the entire energy complex. We've heard over the last few weeks sunny proclamations of how many shale players have lower cost structure than commonly thought and could ride out weak prices. The supposedly super bearish Bank of America report published earlier in the week called for oil prices to drop to a scary-sounding $50 a barrel. But the document sees that aa a short-term phenomenon. As supply and demand equilibrates (shorthand for "of course some people will drive more, and a lot of wells will get shut down"), it anticipates that oil prices will rebound to $80 to $90 a barrel in the second half of 2015.  The problem with conventional wisdom, even pessimistic-looking conventional wisdom, is that the noose of a lot of borrowings is likely to change the decision-making process of those producers. As the Financial Times’ John Dizard pointed out, companies with a lot of debt are likely to keep pumping, profits be damned, until the money guys choke them off. Banks are already signaling that they will be lenient, but that’s not the same as extending new loans. Nevertheless, the perverse incentive for producers with high debt levels is to keep pumping, even at a loss, in order to generate enough cash flow to keep servicing the debt. That means that wells won’t be shut off as soon as a P&L calculus would indicate, which in turn means the energy oversupply is likely to continue longer than many experts anticipate. Whether that is a mere couple of months or a more dislocating six months plus remains to be seen.

Junk-Bond Well Runs Dry as Oil Shock Quells Debt Supply - The market for new junk bonds has all but shut as plunging oil prices and borrowing costs at an 18-month high deter issuers. Even as sales of high-yield, high-risk notes in the U.S. reached a record $353.1 billion this year, offerings have stalled this month with the slowest pace for a December since 2011. Junk is on track to deliver its second straight quarterly loss, the first time that’s happened since 2008, and trimming gains for the year to 1.47 percent, according to Bank of America Merrill Lynch index data. Issuers see little reason to test investor appetite as markets get whipsawed by a tumble in commodity prices led by oil falling below $60 a barrel for the first time since 2009 and a slowdown in global economic growth. The pain is being felt most by energy companies, which make up 17 percent of the high-yield bond market. “Momentum in high-yield is coming to a halt,” . “We are still seeing the results of oversupply, most of which comes from the sector that has been disproportionately impacted by big changes in energy prices, along with global growth worries that have caught the market wrong-footed.”

Oil Rot Spreading in Credit  - Credit investors are preparing for the worst. They’re cleaning up their portfolios, selling riskier debt that’s harder to trade in bad times and hoarding longer-term government bonds that do best in souring markets. While investors have pruned energy-related holdings in particular as oil prices plunge, they’re also getting rid of other types of corporate bonds, causing yields to surge to the highest in more than a year. “We believe the pervasive nature of the sell-off is more reflective of overall liquidity concerns in the cash market than of fundamental deterioration,” Barclays Plc (BARC) analysts Jeffrey Meli and Bradley Rogoff wrote in a report today. “The weakness, while certainly most pronounced in the energy sector, has been broad based.” Rather than waiting around for a trigger to escalate this month’s selloff, investors are pulling out of dollar-denominated corporate debt now, causing a 0.8 percent decline in the notes this month, according to a Bank of America Merrill Lynch index that includes investment-grade and junk-rated securities. This would be the first month of losses since September. Yields on the debt have surged to 2.21 percentage points more than benchmark rates, the highest premium in 14 months.

Hilsenrath’s Take: Rising Dollar and Falling Oil Could Be Recipe for a U.S. Asset Boom - The shifting global economic landscape has important implications for how the U.S. recovery – and the trajectory of U.S. dollar asset prices – will evolve in 2015. A strong dollar and weak growth overseas portend downward pressure on U.S. exports. At the same time, these forces combined with falling commodities put downward pressure on domestic inflation. That could restrain interest rates even if the Federal Reserve wants to start nudging them higher. A strong dollar also points to increased capital flows into the United States. Capital flows and low interest rates, in turn, could be a formula for more consumer spending and asset price appreciation in stocks, real estate and other investment markets. Some evidence of these trends is already accumulating, such as this WSJ story detailing a surge of Chinese investment in the New York real estate market.Could that be the start of a new asset boom in the U.S. and a source of future financial instability? It is too soon to say, but it’s something Fed officials will likely be watching for.Though this is surely no return to the booming 1990s, there are some echoes. In the late 1990s,  during the Asian financial crisis, oil prices tumbled, the dollar rose, and the U.S. economy and stock prices accelerated.

Oil Shock – More Than A Quantum Of Fragility -  Yves Smith  We've written that the sudden decline in the price of oil has the potential to deliver some nasty financial shocks, given that shale companies and even the majors have been financing exploration and development with debt. But while concerns about fragility are well warranted, we wanted to make sure a mention made in this article is not treated with undue alarm. It points out that the BIS is concerned that an unprecedented portion of CDOs are now made of leveraged loans. The problem is that the term "CDO" has been used inconsistently in the financial media. The CDO that you learned to hate in the wake of the crisis and blew up AIG, monoline insurers, and did a lot of damage to big banks were more formally called "asset backed securities CDOs" or "ABS CDOs" But that was too much of a mouthful, so they were referred to as "CDOs" in the press. There were two periods when that type of CDO existed, the late 1990s, and from the mid 2000 to mid-2007. In  both cases, that market was a Ponzi, used to make the unwanted parts of subprime securitizatons saleable by making them into financial sausage, with some better assets thrown in, and then re-tranched again. The Ponzi part came about from the fact that these CDOs also had unsaleable parts, which were either put into first generation CDO sausage (CDOs allowed a certain portion of CDOs to be included) or sold into CDO squareds (which were hard to sell). But the more mainstream type of CDO was one made of credit defaults swaps on corporate credits. That was the original CDO done in the famed JP Morgan Bisto deal in the mid-1990s. Indeed, when I first started researching subprime (ABS) CDOs, and just called them "CDOs" some experts assumed I meant the corporate loan type, since that was prevalent. During the crisis, possibly to make sure no one confused these CDOs with the ones that were blowing up, they were increasingly called CLOs, or "collatearlized loan obligations." They were also legitimately less risky than the subprime CDOs, since their value didn't suddenly collapse when a certain level of loan losses was breached. The cause for pause is that CLOs, which are indeed a type of CDOs have traditionally been made mainly or entirely of investment grade credits. It now appears that junk credits predominate. While their structures and diversification will keep ABS CDO-type total wipeouts from happening, they could still deliver some nasty surprises.

Insider Trading Prosecutions Just Got Harder as Court Raises Bar -  Insider trading cases just got harder to make after a key federal court raised the bar on what prosecutors must prove, in a ruling that also imperils a handful of victories for the Justice Department in its multiyear probe. Traders must know their tip came from someone who not only knew it was secret, but got something for leaking it, the U.S. Court of Appeals in New York said. In doing so, it threw out convictions of hedge fund managers central to Manhattan U.S. Attorney Preet Bharara’s investigation of illicit trading. “This ruling looks like a free pass for those trading on inside information,” said Peter Henning, a law professor at Wayne State University and ex-Securities and Exchange attorney. “It’s going to make prosecutors’ jobs more difficult.” Level Global Investors LP co-founder Anthony Chiasson and ex-Diamondback Capital Management LLC portfolio manager Todd Newman argued their verdicts should be overturned because jurors weren’t told that, to find them guilty, prosecutors must show the additional element that they knew the original source received a benefit.

Bill Black: Second Circuit Decision Effectively Legalizes Insider Trading - naked capitalism - Yves here. Bill Black is so ripshit about a Second Circuit court of appeals decision that effectively legalizes insider trading that he doesn't unpack the workings until later his his important post. Let's turn to Reuters (hat tip EM) for an overviewA U.S. appeals court dealt federal prosecutors a blow in their crackdown on insider trading on Wall Street on Wednesday, overturning the convictions of two former hedge fund managers charged with making illegal trades in technology stocks. The 2nd U.S. Circuit Court of Appeals in New York said prosecutors presented insufficient evidence to convict Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors. The court held that defendants can only be convicted of insider trading if the person trading on confidential information knew the original tipper disclosed it in exchange for a personal benefit. What does this mean in practical terms? The court has just provided a very-easy-to-satisfy roadmap for engaging in insider trading legally.

Civil Forfeiture and Accountability - PROSECUTION is becoming a lucrative business. In the last fiscal year, the Justice Department collected $24.7 billion from civil and criminal actions (including $20 billion from JPMorgan Chase and Citigroup over their handling of mortgage-backed securities before the financial crisis). Recently, the Manhattan district attorney’s office kept $449 million of an $8.9 billion settlement between the French bank BNP Paribas and federal authorities over sanctions violations. Another growing revenue source is civil forfeiture, which allows the authorities to seize cash, cars and even homes from people who haven’t been charged with wrongdoing, who in order to get the property back must prove that it was legally acquired. In September, The Washington Post reported that more than $2.5 billion had been seized from motorists and others since 9/11, without search warrants or indictments, under a program that targets cash that moves along highways. In many cases, local prosecutors are spending the money as they wish, without adequate oversight or accountability.  The Massachusetts state auditor’s office discovered that a local district attorney had used confiscated funds to purchase an ice-resurfacing machine and lawn equipment, and to refurbish a school basketball court, in the name of crime prevention. In Connecticut, police used forfeited money to buy undercover vehicles and fitness equipment and pay for training trips. The district attorney in Montgomery County, Tex., used funds to purchase liquor for a cook-off for workers.

Citi Pays $3.5 Billion To Keep Its Employees Out Of Jail For Yet Another Quarter - Alongside the just announced revenue warning, Citi's CEO Corbat also announced yet another $2.7 billion in legal, related charges in 4Q, as well as another $800 million in repositioning expenses. This simply means that for yet another quarter Citi will be charged with billions in recurring, non-one time "one-time, non-recurring" charges which will be dutifully added back to non-GAAP EPS by analysts at all the other banks (whose criminal employers are now engaged in the same racket with the US government). But what it really means is that it cost Citi some $3.5 billion to keep its employees out of jail for yet another 3 months.

Why Is The US Treasury Quietly Ordering "Survival Kits" For US Bankers? -- The Department of Treasury is spending $200,000 on survival kits for all of its employees who oversee the federal banking system, according to a new solicitation. As FreeBeacon reports, survival kits will be delivered to every major bank in the United States and includes a solar blanket, food bar, water-purification tablets, and dust mask (among other things). The question, obviously, is just what do they know that the rest of us don't?

Large Banks Face U.S. Tougher-Than-Global Capital Rule - Eight of the biggest U.S. banks are about to find out just how risky the Federal Reserve thinks they really are. Global regulators have already agreed that the world’s biggest banks, including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), need to have extra capital to absorb losses in a crisis. Fed Governor Daniel Tarullo has said the U.S. requirement should be more stringent than the international standard and take into account how banks borrow money to determine how much more capital they need. The Fed proposal, to be announced today, may lower returns for shareholders of U.S. banks compared with firms in other parts of the world, according to analysts. The extra capital requirement could be heavier for firms such as Goldman Sachs Group Inc. and Morgan Stanley that rely more on markets for short-term funding, instead of looking to depositors. “The U.S. once again chooses to go its own way and exceed international minimums,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc. “We don’t know yet how it’s going to be structured, but if they squeeze the big banks too much, they’ll force some out of some businesses.” In the wave of rules meant to prevent a repeat of the 2008 financial crisis, the Fed has made global agreements tougher when applying them to U.S. lenders. This rule will see the same treatment, according to Tarullo, the Fed governor in charge of bank supervision. Banks should consider whether it makes sense to reduce their “systemic footprint” to minimize the extra capital requirement, Tarullo said in September. He said the Fed was putting emphasis on banks that rely the most on short-term funding because they are vulnerable to runs in a crisis.

Fed Sets Tough New Capital Rule for Big Banks - WSJ: —Eight of the largest U.S. banks will need fatter capital cushions as part of U.S. regulators’ latest efforts to make the financial system less risky. The biggest impact will be felt by J.P. Morgan Chase & Co., the nation’s largest bank by assets, which is $21 billion short of the requirement, according to Fed officials. Fed Vice Chairman Stanley Fischer —in an apparent misstep—disclosed during an open meeting that J.P. Morgan is the only one of the eight banks to face a shortfall under the proposed rule. Fed staff had closely guarded details of the proposal’s impact on specific firms. The proposal, which will be phased in starting in 2016 and take full effect in 2019, is aimed squarely at pushing big banks to shrink, an outcome regulators were explicit in saying they hope to encourage to reduce the likelihood a firm’s failure could require bailouts or damage the broader economy. To meet the new capital charge, banks can either fund themselves with significantly more equity—which tends to be more expensive than deposits or borrowed money—than their smaller peers. Or they can get smaller and make other changes that would reduce the size of their extra capital levy. Fed Chairwoman Janet Yellen said the rule “would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability.”

JPMorgan faces $22bn capital hole under new Fed rules - JPMorgan Chase has a $22bn capital hole under new rules proposed by the Federal Reserve on Tuesday, a blow to a bank which has long boasted of a “fortress balance sheet”. The Fed is introducing new capital requirements for systemically important banks, which go beyond the minimum international standards in an effort to protect the US financial system from the collapse of a large institution. Officials had not intended to release the fact that JPMorgan had a large capital hole under the new framework. They said only that there was an aggregate shortfall of $21bn from eight banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, Bank of New York Mellon and State Street. But at a Fed meeting, during an exchange with Stanley Fischer, the vice-chairman of the Fed, and Fed staff, it emerged that JPMorgan accounted for the entire shortfall and every other bank already met the estimated requirement with room to spare. “[It is] the firm that is actually going to have to come up with more capital,” said Mr Fischer. He said “that seemed a pretty impressive shortfall”. JPMorgan has until 2019 to reach the new buffer and it should be able to avoid the embarrassment of raising equity in the market. The bank makes about $20bn in net income every year and could retain earnings to meet the new requirements. Shares in JPMorgan fell a modest 0.35 per cent on Tuesday and a further 0.6 per cent after hours to $62.10. The target is also approximate and could change — reducing or increasing the capital levels required for each bank.

NIRP Arrives In The US: TBTF Banks Tell Customers To Move Their Cash Or Be Charged Fees   Back in June, the world was speechless when Goldman's head of the ECB, Mario Draghi, stunned the world when he took Bernanke's ZIRP and raised him one better by announcing the ECB would send deposit rates into negative territory, in the process launching the Neutron bomb known as N(egative)IRP and pushing European monetary policy into the "twilight zone", forcing savers to pay (!) for the privilege of keeping the product of their labor in the form of fiat currency instead of invested in a global ponzi scheme built on capital market so broken even the BIS can no longer contain its shocked amazement. Well, the US economy may be "decoupling" (just as it did right before Lehman) and one pundit after another are once again (incorrectly) predicting that the Fed may raise rates, but when it comes to the true "value" of money, US banks have just shown that when it comes to spread between reality and the economic outlook, the schism has never been deeper.  As the WSJ reports, far from paying for the privilege of holding other people's cash (and why would they with nearly $3 trillion in positive carry excess reserves sloshing around) US banks - primarily of the TBTF variety - "are urging some of their largest customers in the U.S. to take their cash elsewhere or be slapped with fees, citing new regulations that make it onerous for them to hold certain deposits." The banks, including J.P. Morgan Chase & Co., Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and Bank of America Corp. , have spoken privately with clients in recent months to tell them that the new regulations are making some deposits less profitable, according to people familiar with the conversations. In some cases, the banks have told clients, which range from large companies to hedge funds, insurers and smaller banks, that they will begin charging fees on accounts that have been free for big customers, the people said. Bank officials are also working with these firms to find alternatives for some of their deposits, they said.

Big Banks Will Take Depositors Money In Next Crash: Ellen Brown -- The G-20 met recently in Australia to make new banking rules for the next financial calamity.  Financial reform advocate Ellen Brown says these new rules will allow banks to take money from depositors and pensioners globally.  Brown explains, “It became rules we agreed to actually implement.  There was no treaty, and Congress didn’t agree to all this.  They use words so that it’s not obvious to tell what they have done, but what they did was say, basically, that we, the governments, are no longer going to be responsible for bailing out the big banks.  These are about 30 international banks.  So, you are going to have to save yourselves, and the way you are going to have to do it is by bailing in the money of your creditors.  The largest class of creditors of any bank is the depositors.”  It gets worse, as Brown goes on to say, “Theoretically, we are protected by deposit insurance up to $250,000 in the U.S. and 100,000 euros in Europe.  The FDIC fund has $46 billion, the last time I looked, to cover $4.5 trillion worth of deposits.  There is also $280 trillion worth of derivatives that the five biggest banks in the U.S. are exposed to, and under the bankruptcy reform act of 2005, derivatives go first.  So, they are basically exempt from these new rules.  They just snatch the collateral.  So, if you had a big derivatives bust that brought down JP Morgan or Bank of America, there is no way there is going to be collateral left for the FDIC or for the secured depositors.  This would include state and local governments.  They all put their money in these big banks.  So, even though we are protected by the FDIC, the FDIC is not going to have the money. . . . This makes it legal for these big 30 banks to take our money when they become insolvent.  They are too-big-to-fail.  This was supposed to avoid too-big-to-fail, but what it does is institutionalizes too-big-to-fail.  They are not going to go down.  They are going to take our money instead.”  (There is much more in the video interview.) Join Greg Hunter as he goes One-on-One with Ellen Brown from the Web of Debt Blog.

Unofficial Problem Bank list declines to 407 Institutions  This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Dec 5, 2014.  Very quiet week for changes to the Unofficial Problem Bank List as there was only one removal that pushed the list total down to 407 institutions with assets of $124.0 billion. A year ago, the list held 643 institutions with assets of $219.8 billion. The Federal Reserve terminated the Written Agreement issued against United Security Bank, Fresno, CA ($693 million Ticker: UBFO). We expect for minimal changes to the list next week. 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 407. The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)  As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

Serious Mortgage Delinquencies Fell during Third Quarter - St. Louis Fed - The latest issue of Housing Market Conditions, produced by the Federal Reserve Bank of St. Louis, reported that 4.07 percent of mortgages in the United States were seriously delinquent in September. (These are mortgages delinquent 90 days or more or in foreclosure.) The figure below shows the percent of seriously delinquent mortgages by county for September.  The share of seriously delinquent loans in the U.S. decreased 16 basis points (bps) between June and September. Loans that were delinquent 90 days or more decreased 4 bps, while foreclosures decreased 10 bps. The figure below shows the change in seriously delinquent mortgages by county over this period.  The next image shows changes in U.S. house prices since 2000 according to two indexes: the Federal Housing Finance Agency Seasonally Adjusted Expanded HPI (FHFA) and the CoreLogic Seasonally Adjusted HPI (CoreLogic). For the third quarter of 2014, house prices in the U.S. were 1.5 percent higher according to FHFA and 1.4 percent higher according to CoreLogic when compared with the second quarter of 2014.

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

The biggest drag on homebuying is... - Ever since the housing crash, the recovery in housing can be described, at its most charitable, as “lackluster.” Bankers, regulators, policymakers, the Federal Reserve – everyone has been going out of their way to figure out how to kickstart housing – the $8,000 first-time home buyer tax credit, QE, near zero interest rate policies, and the GSEs revising lending policies to make it easier for home buyers to obtain financing even as bank lending dried up. And yet, goose egg. Motley Fool now says that a report out from the New York Fed says that the real problem is the down payment. When it comes to home sales, the conversation usually starts with mortgages. The vast majority of Americans need a loan to buy a house. Obtaining that loan can be the most difficult hurdle to overcome in the home buying process. The interest rate that banks charge for the loan (plus any fees) is the cost of that loan. Therefore supply and demand tells us that lower mortgage rates will boost home sales by making home ownership more affordable -- and the Fed's new research report confirms this. Using a complex survey technique, Fed researchers conclude that a 2% drop in mortgage rates will increase a potential home buyer's "willingness to pay" by 5%. "Willingness to pay" is used as a proxy for housing demand in this research. What mattered even more, though, was the required down payment, particularly for lower-income borrowers. In the study, consumers' "willingness to pay" increased by about 15% when the required down payment decreased from 20% to 5%. For buyers who are currently renting, "willingness to pay" spiked 40% with the decreased down-payment requirement.  This suggests that the best tool to increase home ownership, particularly among individuals and families who don't currently own a home, is to reduce the down payment requirements on mortgage loans.

Fannie Approves 3% Down Payments | Fox Business: Fannie Mae and Freddie Mac on Monday announced details of a controversial plan to allow some first-time homeowners to obtain a mortgage while putting down just 3% of the price of the home. The shift back toward low down payments has drawn intense criticism from an array of legislators and lending and housing experts who say the plan revives the same lax lending practices that led to the 2008 financial crisis. In a statement, Fannie Mae said the loans that allow for 3% down payments will be held to the same eligibility requirements as other Fannie loans, including underwriting, income documentation and risk management standards. In addition, Fannie said the loans will require mortgage insurance “or other risk sharing,” the same as Fannie loans that require a 20% down payment. “This option alone will not solve all the challenges around access to credit. Our new 97 percent LTV offering is simply one way we are working to remove barriers for credit-worthy borrowers to get a mortgage,” Andrew Bon Salle, Fannie Mae Executive Vice President said in the statement. “We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.” Critics of the plan aren’t as confident. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, said after the plan was announced earlier this year that lowering down payment standards for government-backed mortgages is “an invitation by government for industry to return to slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy.”

If At First You Fail Miserably & Blow Up The Financial System, Do It Again! -- Here we go again! Mortgage giants Fannie Mae and Freddie Mac have now officially approved 3% down payment mortgages. Having government entities provide low down payment mortgages to people who can’t afford to buy a house is always a good move. Keynesians like Krugman approve wholeheartedly. The housing market will get a nice boost and the working taxpayers will fund the bad debt through Fannie and Freddie. You own Fannie and Freddie. Everyone wins. In case you forgot, the closing costs to sell a house are usually 8% of the home price. So these home buyers are immediately 5% underwater when they move in... "Sometimes I can’t believe I live in a world this f##ked up. And no one notices and no one cares."

MBA: Mortgage Applications Increase in Latest MBA Weekly Survey --From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 5, 2014. ... The Refinance Index increased 13 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.11 percent from 4.08 percent, with points remaining unchanged from 0.28 (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 72% from the levels in May 2013. Even with the general decline in mortgage rates, refinance activity is very low this year and 2014 will be the lowest since year 2000. As I've noted before - rates would have to decline significantly for there to be a large refinance boom. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 4% from a year ago.

FNC: More Long Term Home Owners selling in 2014 -- FNC released an interesting report today: Larger Homes Show Faster Appreciation than Smaller Homes Over the Past Decade. According to FNC, in 2004, about half of existing home sales were homes held 5 years of less. In 2014, only about one-fourth of home sales were held 5 years or less. And in 2004, just 10% of home sales were held for more than 15 years. In 2014, that has doubled (more long term owners are selling now). From FNC on the composition of existing home sales:

    • • A 10-year comparison of ownership duration on existing-home sales reveals a significant decline in the turnovers of homes held for short periods.
      • • 2004: 11.9% held for 18 months or less & 18.1% between 18-36 months
        • 2014: 5.8% held for 18 months or less & 7.6% between 18-36 months
    • • Rising share of homes held for longer periods:
      • • 2004: 5.7% for 12-15 years & 10.0% above 15 years
        • 2014: 9.6% for 12-15 years & 19.3% above 15 years
    • • Median ownership duration currently stands at eight years, double the number from the pre-2009 periods.

Trulia: Asking House Prices up 7.4% year-over-year in November  --From Trulia chief economist Jed Kolko: Housing’s Millennial Mismatch Nationwide, asking prices on for-sale homes jumped 1.5% month-over-month in November, seasonally adjusted — a surprisingly large increase. Future months will tell whether this was a blip or the beginning of a sustained climb. Year-over-year, asking prices rose 7.4%, down from the 10.3% year-over-year increase in November 2013. Asking prices rose year-over-year in 98 of the 100 largest U.S. metros — everywhere but Little Rock and New Haven.Four of the 10 metros where asking prices rose most year-over-year were in Florida. These Sunshine State markets have older populations, and they all have a lower share of millennials than the national average of 21% and a higher share of baby boomers than the average of 24%. In fact, only one of the 10 markets with the largest price increases in November has a higher share of millennials than the national average—and only slightly (Las Vegas, at 22%).Rents continued to climb. Nationwide, rents rose 6.1% year-over-year in November. Still, rent gains have cooled since August in 14 of the 25 largest rental markets, including the Northern California markets of San Francisco, Oakland, and Sacramento.   Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases had been slowing, the year-over-year change increased in November. 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.

FNC: Residential Property Values increased 5.7% year-over-year in October -- FNC released their October index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values decreased 0.1% from September to October (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) decreased between 0.1% and 0.3% in October. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).  Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The year-over-year (YoY) change was lower in October than in September, with the 100-MSA composite up 5.7% compared to October 2013.   In general, for FNC, the YoY increase has been slowing since peaking in February at 9.0%. The index is still down 19.6% from the peak in 2006.This graph shows the year-over-year change based on the FNC index (four composites) through October 2014. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals. All of the price indexes have been showing a slowdown in price increases.

Mortgage Equity Withdrawal Still Negative in Q3 2014 -- The following data is calculated from the Fed's Flow of Funds data (released this morning) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation. For Q3 2014, the Net Equity Extraction was minus $26 billion, or a negative 0.8% of Disposable Personal Income (DPI).  This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.  There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now). The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $12 billion in Q3. This was only the second quarterly increase in mortgage debt since Q1 2008. The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again soon.

Fed's Flow of Funds: Household Net Worth "dipped slightly" in Q3  -- The Federal Reserve released the Q3 2014 Flow of Funds report today: Flow of Funds. According to the Fed, household net worth decreased slightly in Q3 compared to Q2: The net worth of households and nonprofits dipped slightly to $81.3 trillion during the third quarter of 2014. The value of directly and indirectly held corporate equities decreased $0.7 trillion and the value of real estate rose $245 billion. Prior to the recession, net worth peaked at $67.9 trillion in Q2 2007, and then net worth fell to $54.9 trillion in Q1 2009 (a loss of $13.0 trillion). Household net worth was at $81.3 trillion in Q3 2014 (up $26.4 trillion from the trough in Q1 2009). The Fed estimated that the value of household real estate increased to $20.4 trillion in Q3 2014. The value of household real estate is still $2.2 trillion below the peak in early 2006. The first graph shows Households and Nonprofit net worth as a percent of GDP. Household net worth, as a percent of GDP, is above peak in 2006 (housing bubble), and above the stock bubble peak. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations. This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up but decreased slightly in Q3. This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q3 2014, household percent equity (of household real estate) was at 53.9% - up from Q2, and the highest since Q1 2007. This was because of an increase in house prices in Q3 (the Fed uses CoreLogic).

After 11 Quarters In A Row, US Households See Net Worth Tumble $141 Billion In Q3 -- US Household net worth dropped $141 billion in Q3 2014 after rising non-stop on the heels of various QE-inflated stock and real-estate prices for 11 quarters in a row. charts

Retail Sales increased 0.7% in November -- On a monthly basis, retail sales increased 0.7% from October to November (seasonally adjusted), and sales were up 5.1% from November 2013. Sales in October were revised up from 0.3% to 0.5%. From the Census Bureau reportThe U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $449.3 billion, an increase of 0.7 percent from the previous month, and 5.1 percent above November 2013. ... The September to October 2014 percent change was revised from +0.3 percent to +0.5 percent.This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline increase 0.9%. Retail sales ex-autos increased 0.5%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 6.0% on a YoY basis (5.1% for all retail sales). The increase in November was above consensus expectations of a 0.4% increase. Both September and October were revised up. This was a strong report.

Car-Buying Surge Sparks Best Retail Sales Rise Since April -- It's a miracle... give the worst creditors access to cheap money for longer-and-longer terms and hey presto... 'expensive' stuff is available to everyone. Retail sales modestly beat expectations in November (+0.7% vs +0.6% expectations) - sending USDJPY spiking to confirm what great news this is. The driver of all this exuberance... Vehicle sales +1.7% MoM. Oddly, for all those prognosticators looking for windfall tax cuts from the oil price plunge, gasoline station sales dropped only 0.8% MoM - not exactly the consumption-boosting exuberance every talking head proclaims.. These numbers appear to be clearly in the "Fed wants to hike" narrative

November Retail Sales Solid on Autos, Up 0.7% -- The November 2014 Retail Sales report shows retail sales increased 0.7% for the month.  This is when gasoline prices have plunged, pulling down retail gas sales.  October retail sales were revised upward by 0.2 percentage points to a 0.5% increase.  Retail sales have now increased 5.1% from a year ago.  November's increase was due to auto sales, although other retail sales categories increased.  Without autos & parts sales, retail sales still increased 0.5%.  Retail trade sales are retail sales minus food and beverage services and these sales increased 0.7% for the month..  Retail trade sales includes gas.  Total retail sales are $449.3 billion for November.  Below are the retail sales categories monthly percentage changes.  These numbers are seasonally adjusted.  General Merchandise includes super centers, Costco and so on.   Below is a graph of just auto sales. Kind of amazing, but motor vehicle sales have increased 9.5% for the year. Autos have been going strong for some time now. Below are the retail sales categories by dollar amounts. As we can see, autos rule retail sales. We also see online retailers continue to expand. Graphed below are weekly regular gasoline prices, so one can see what happened to gas prices in November. Believe this or not, but gasoline station sales are down -2.1% from a year ago. The below pie chart breaks down the monthly seasonally adjusted retail sales by category as a percentage of total November sales by dollar amounts. One can see how dependent monthly retail sales are on auto sales by this pie chart. We also see non-traditional retailers making strong grounds on traditional general merchandise stores and almost equal to gasoline sales in terms of importance. Retail sales correlates to personal consumption, which in turn is about 70% of GDP growth. Yet GDP has inflation removed from it's numbers. This is why Wall Street jumps on these retail sales figures. Below is the graph of retail sales in real dollars, or adjusted for inflation, so one gets a sense of volume versus price increases. Below is the annualized monthly percentage change in real retail sales, monthly, up to October 2014. This is a crude estimate since CPI is used instead of individual category inflation indexes. The below graph can give some insight as to what consumer spending might shape up to be for Q4 2014.

WTF Chart Of The Day: Explaining The Surge In US Retail Sales - Confused at how such awesome retail sales headlines can lead to the kind of weakness we are seeing in stocks now that Lending Club's IPO has started trading? Wondering why bonds are now lower in yield on the day in the face of 'proof' that the US consumer is back? Wonder no more, as STA Wealth Management's Lance Roberts points out, November's seasonal adjustment for retail sales was - drum roll please - the 3rd largest on record... so maybe, just maybe, the 'market' is seeing through that pure riggedness, wondering about the huge surge in continuing claims, and agog at the blowout in credit spreads and collapse in crude... Seriously?!! The 3rd largest November seasonal adjustment on record... why? and remember retail sales only beat by 0.1ppt! Speechless, yet? Well look at this... Rigged much?

The Lie Factory In The Media --  Does it ever end? This morning's retail sales report was a disaster. Yes, the headline number was up 0.46%. Last year, same month comparison, it was up 1.91%, both unadjusted. Down the line it's the same story. Last year autos were down 3.76% this month. This year they were down 6.18%! Last year furniture was up 10.3% on the month. This year it was up 7.7%. Last year electronics were up 28.98%. This year 32.32%, heh, a brighter light. Guess what - that's because there were basically no deals to be had on so-called "Black Friday." Last year building materials were down 8.878%. This year it was down 9.44%. Last year food and beverage stores (for home consumption) were up 1.67%. This year? 0.32%. Are people are out of money for entertaining at home? Last year health and personal care (usually a bad category in November) was down 3.82%. This year? Negative 5.1%. Last year gasoline was down 9.29%. This year it was down 9.4%. No, gentlemen, the collapse in gas prices over the last month did not translate. Last year clothing stores were up 13.3%. This year? 14.23%. Ok, make it two (somewhat) brighter lights. Last year sporting goods (always a common gift) were up 25.67%. This year? 21.62%. Last year general merchandise stores (e.g. department stores) were up 14.12%. This year? 13.17%. Last year miscellaneous store retailers were down 8.46%. This year sales collapsed by 12.31%. Last year, the Internet will save us sellers (non-store retailers) were up 11.81%. This year? 9.71%, a big miss over last year as well. Finally, people generally don't drink as much in bars and restaurants in November, probably because they're too schnocked to get out of the house over Thanksgiving. Ok, last year that category was down 1.59% on the month. This year it was down 4.2%. Where's the "strong" in that report, eh?

'Survivalists' make up growing percentage of US holiday shoppers -- Wages haven’t increased along with job creation – and some economists say the unemployment rate may have to decline a lot more in order for that to happen. Some say we may need unemployment to hit 5% before we see a significant and lasting improvement in incomes across the board. As in past recessions, many of the jobs that were lost were in relatively high-paying sectors of the economy, such as manufacturing and construction. Those that were created tended to be concentrated in the services sector: hospitality, fast food and, yes, retail. Those jobs paid an average of only $21,000 a year, and in aggregate the new jobs created pay 23% less than the jobs lost, according to a study by IHS Global Insight for the US Conference of Mayors.  Those are the kinds of numbers that are almost certainly going to spawn a lot of survivalists.   It’s one thing to have a bad year, income-wise. But after you’ve had a succession of them, drawing down family savings and selling off assets ranging from retirement plans to jewelry or electronics to pay the bills, holiday spending falls into the category of a luxury rather than a necessity.  Only days before Black Friday, the Conference Board announced a surprise in the form of a big drop in consumer confidence levels in November, to 88.7 from 94.5 in October.

Looking for the Effects of the Black Friday Boycott - Waves of demonstrations aimed at eliminating racial injustice have been sweeping through much of the United States just as the holiday shopping season has begun. And early numbers indicate that retail sales have been disappointing.Both developments have attracted considerable attention. But for the most part, major media outlets have treated them as separate phenomena — like events taking place on two different continents — even though thousands of protesters declared explicitly that they were boycotting stores on Black Friday.So, what about the obvious question: Have the protests contributed to the sales decline?Last Sunday the National Retail Federation, a trade association, released its annual survey of holiday shopping. As usual, it was heavily covered.  The federation announced that for the holiday weekend through Saturday, nationwide year-over-year sales had dropped 11 percent, a startlingly big number. The extensive survey data, along with anecdotal information compiled by the federation’s chief executive, Matthew R. Shay, suggested a variety of reasons for the sales decline. These included pre-Thanksgiving discounts by retail chains, ever-present cheap deals on the Internet and the still-shaky fiscal condition of many Americans who have not entirely recovered from the recession. But when I listened to a recording of the conference call held by the federation with reporters on Sunday afternoon, I found that the conversation didn’t include a single word about the nationwide protests that closed some malls over the holiday weekend, obstructed traffic in big cities and flooded social media with appeals for Americans to stop shopping. Events like those weren’t examined by the survey. Protest wasn’t on the federation’s radar.

McDonalds Implodes, Reports Worst US Sales In Over A Decade -- For those, who are leery of seasonally-adjusted government data (showing soaring low-wage jobs offset by crashing employment in the energy sector and M&A synergies which mysteriously are never captured), or sentiment surveys and confidence polls (of Wall Street executives and government workers), here is the latest data from McDonalds. Showing the worst US comp store sales in nearly 12 years at -4.6%, one does wonder if following America's inability to even pay for sub-$1 meals, mass starvation will follow?

Mexican labor issues in U.S. food retail markets - To understand food policy in the United States, one must pay attention to Mexican and Central American farmworkers in this country, but also to farm labor in Mexico.  The Los Angeles Times today has started an article series and a remarkable video series on the Mexican workers who produce in Mexico for export to the United States. The tomatoes, peppers and cucumbers arrive year-round by the ton, with peel-off stickers proclaiming "Product of Mexico."  Farm exports to the U.S. from Mexico have tripled to $7.6 billion in the last decade, enriching agribusinesses, distributors and retailers.   American consumers get all the salsa, squash and melons they can eat at affordable prices. And top U.S. brands — Wal-Mart, Whole Foods, Subway and Safeway, among many others — profit from produce they have come to depend on.   These corporations say their Mexican suppliers have committed to decent treatment and living conditions for workers.  But a Los Angeles Times investigation found that for thousands of farm laborers south of the border, the export boom is a story of exploitation and extreme hardship. One future contributor to a more just food system could be policies that U.S. importers and supermarkets may adopt, stipulating standards for farm labor in the upstream supply chain. To some extent, such policies are being developed. The LA Times article reminds us that these policies are not yet working smoothly.

Hotels: Occupancy Rate Finishing 2014 Strong - From STR: US results for week ending 6 December The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 30 November through 6 December 2014, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy rose 3.1 percent to 57.1 percent. Average daily rate increased 4.5 percent to finish the week at US$114.73. Revenue per available room for the week was up 7.7 percent to finish at US$65.48.   Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. Hotels are now in the slow period of the year.

U.S. Gas Prices Have Hit a 4-Year Low - The average price of a gallon of regular gasoline in the U.S. has dropped 12¢ over the past two weeks, reaching a four-year low, a national survey finds.Lundberg Survey said Sunday that the average price of regular gasoline has reached $2.72 per gallon, the lowest price since November 2010, Reuters reports.Lundberg in part attributed the dramatic falloff to a spike in crude-oil production in North America. The Organization of Petroleum Exporting Countries last month decided not to cut crude-oil production to contend with a U.S. shale-gas boom and falling oil prices.Other factors include a slowdown in demand for gas and a strengthening of the U.S. dollar, Lundberg found.The most expensive gas in the lower 48 states was in San Francisco, where it goes for $3.04 per gallon. The lowest price was in Albuquerque, N.M., where it’s $2.38 per gallon.

Consumer Sentiment: Confidence Surges to New Postrecession High - Americans’ confidence surged to a new postrecession high this month, a survey showed Friday, boosting hopes for stronger consumer spending in coming months as gasoline prices tumble. The Thomson-Reuters/University of Michigan preliminary index of consumer sentiment rose to 93.8 in early December–the highest level in eight years–from a final reading of 88.8 in November, analysts said. Economists surveyed by The Wall Street Journal had expected the index to climb to 90.0. The improvement follows other reports showing growing optimism among consumers, boding well for retailers during the crucial holiday shopping season and the broader economy. Americans are typically more likely to spend when they feel better about the current and future state of the economy. “The ongoing improvement in sentiment continues to suggest that consumers remain more optimistic on the economy as labor-market slack declines, equity prices continue to march higher, and gasoline prices decline,”  Consumer spending represents about two-thirds of U.S. economic output. Economists said they expect the higher optimism to translate into a pickup in spending in the fourth quarter, keeping the U.S. economy growing at a steady pace despite mounting threats to overseas economies. Friday’s report from the University of Michigan showed a gauge of Americans’ outlook rose sharply to 86.1 from 79.9 in November, economists said. Their assessment of current conditions also climbed to 105.7 from 102.7 in November.

Producer Price Index: Inflation Remains Tame - Today's release of the November Producer Price Index (PPI) for Final Demand came in at -0.2% month-over-month seasonally adjusted. That's down from the previous month's 0.2% increase. Core Final Demand (less food and energy) was unchanged from last month. The year-over-year change in Final Demand is up 1.4%, the lowest since 1.2% in February. Here is the essence of the news release on Finished Goods: The Producer Price Index for final demand fell 0.2 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease followed a 0.2-percent rise in October and a 0.1-percent decline in September. On an unadjusted basis, the index for final demand advanced 1.4 percent for the 12 months ended in November, the smallest 12-month increase since a 1.2-percent rise in February 2014....  In November, the 0.2-percent decline in final demand prices can be traced to the index for final demand goods, which decreased 0.7 percent. In contrast, prices for final demand services advanced 0.1 percent. More…  The Headline Finished Goods for November dropped 0.65% MoM and is up 1.01% YoY, down from last month's 1.67% YoY. Core Finished Goods rose were unchanged MoM and is up 1.94% YoY. Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increased in 2011 and then eased during 2012 and most of 2013, falling as low as 1.15% last August. It shot up in the early winter near the 2% benchmark and has hovered below that level for the past six months.

PPI Slides, Misses Estimates, After Finished Goods Prices Tumble Most Since July 2009 -- Final Demand Producer Prices fell 0.2% in November, more than the expected 0.1% drop, for the largest deflation since October 2011. This leads to a 1.4% YoY PPI, the weakest since March and has fallen for 7 straight months. The driver - unsurprisingly - Energy prices fell 3.1% MoM (5th monthly drop in a row) with fuels & lubricants plunging 7.7% MoM and there is more good news - alcohol fell 0.1% YoY for the 2nd month. Beef/Veal prices continue to surge (+28.6% YoY). Core PPI was unchanged on the month, also missing expectations. Prices for finished goods moved down 0.7 percent in November, the largest decrease since a 1.2-percent drop in July 2009.

Oil Prices Pushing Down Business Costs, Not Just for Airlines, Shippers - Businesses are paying less for everything from air freight to lubricants, showing that the steep drop in global oil prices is benefiting more than just consumers at the gas pump.The savings have the potential to bolster profits and could eventually trickle down to consumers. For now, energy-related costs are posting the largest drops. The price one business charges another for gasoline fell 14% from a year earlier in November, the Labor Department said Friday. Jet fuel is down 10% and diesel fuel has fallen 11%. That’s a positive sign for airlines, shipping firms and other companies that depend heavily on fuel.“These oil prices, if they continue…our operating costs will be lower than we thought,” Prices for certain business services are also easing.Air freight costs are down 2.6% from a year earlier. Truck transportation costs fell the past two months, offsetting gains earlier in the year. Airline passenger prices have fallen for three straight months, though were still up 2.6% from a year earlier.Prices of several commodities derived from oil are down from a year ago. Lubricating oil base stocks have fallen by 21%, synthetic rubber costs are down 2.7% and plastic packing prices fell 1.2%. How much of those savings will be passed along to consumers is difficult to judge given that labor costs, customer preferences and competition have a greater sway on most consumer goods—including airfares, clothing and tires—than on gasoline.

America's Manufacturing Trade Deficit Just Set Another Record : The U.S. trade deficit in manufactured products hit $71.2 billion in October, according to data released today by the U.S. Bureau of Economic Analysis (pdf). That is the highest ever, says Alan Tonelson, a blogger who compiles government data. The year-to-date deficit is running 12 percent ahead of what it was in 2013, putting it on track to set an annual record as well, Tonelson says. The bad trade numbers don’t match up neatly with today’s jobs report from the Bureau of Labor Statistics, which said that manufacturing added 28,000 jobs in November after a 20,000 gain in October. The manufacturing workweek rose 0.2 hour, to 41.1 hours, and factory overtime edged up 0.1 hour, to 3.5 hours, the BLS said. It said the number of unemployed people in the manufacturing sector fell over the past year from 984,000 to 640,000. One explanation for the discrepancy is that a stronger U.S. economy is putting people back to work in U.S. factories but simultaneously sucking in more imports, which raises the trade deficit. The numbers bear that out: According to Tonelson’s calculation from government data, manufacturing imports rose 5 percent in the year to date, vs. export growth of just over 1 percent.

America should be more like Disneyland - Were Disneyland a person, it would be eligible next month to take funds out of a retirement account, yet after almost six decades, in which more than 600 million visitors walked down Main Street and over the moat to Sleeping Beauty’s Castle, it still looks brand new. Indeed, it looks better than that hot Monday, July 18, 1955, when my Norwegian grandmother and I were among the first paying visitors. Every night Disneyland gets freshened up. When the park closes at midnight, the lights go up, and crews steam gum off the sidewalks, daub fresh paint where needed, water the flowers, polish the streetlights and examine the walkways. I had to look hard just to find unrepaired cracks on Main Street and the paved walkways. By chance, I got to walk backstage, where the asphalt and concrete surfaces were in near perfect shape, the walls painted, the handrails free of rust. The Walt Disney Co. invests in infrastructure because it makes the company money. The park draws on average 43,000 people a day willing to bear a basic ticket price of $92 for those 10 or older. Yet outside the gates, America fails to invest in its infrastructure, costing us lives from accidents, floods, sinkholes from water-main failures and explosions from faulty natural gas lines. Sidewalks buckle or heave after winter freezes, making many hazardous to walk on. America’s roads deteriorate, costing the economy in efficiency, though the front-end-alignment shops and tire dealers do well. How strange that the roads I traveled this year in the impoverished Honduran capital of Tegucigalpa were smoother than those I drove in Atlantic City, New Jersey; Boston; Cleveland; New Orleans; Syracuse, New York; and Los Angeles.

How Superstar Companies Like Apple Are Killing America’s High-Tech Future - Yves Smith - Few would argue that America’s fortunes rise and fall on its ability to generate technological innovations — to put bold ideas to work and then bring them to market. William Lazonick, professor of economics at the University of Massachusetts Lowell, and Matt Hopkins, research associate at the Academic-Industry Research Network, have investigated how the technology knowledge base gets created, what has gone wrong in America’s approach to innovation, and why the truth about who invests in the process is poorly understood. In the interview that follows, Lazonick shares findings from two recent papers that are part of the Institute for New Economic Thinking’s project on the “Political Economy of Distribution.” He explains why successful companies like Apple need to make fundamental changes to the way they allocate resources and stop throwing away America’s most valuable asset for future innovation — you.

Where U.S. Factories Have the Most to Gain From Cheap Oil - Anyone who drives a car or truck that isn’t a plug-in electric benefits from cheaper oil every time they pull up to the gas pump. But for manufacturers, the benefits are far more unevenly distributed. Consider tiremakers and steel plants. Both use lots of petroleum-derived raw materials and are already counting big savings from this year’s rapid fall in oil prices. U.S. oil prices continued to swoon on Thursday, nearing $60 a barrel for the first time in five years. The slide is driven by a glut of supply that’s expected to endure well into next year. Cheaper oil is usually good for the economy—and for domestic manufacturers. But not everyone gets the same boost and some are outright burned when oil falls. For those who don’t use much oil, such as apparel or computer makers, the benefits are more muted. And at the other extreme are producers of the valves, pipes and other equipment used to explore and process oil, who are feeling the squeeze as customers cut back investments. To be sure, the global economy and its manufacturers aren’t as dependent on oil as they used to be. Oil consumption by the 34 members of the OECD in 2013 was roughly equal to its 1996 level. But real GDP for the group was 40% higher. A recent report by UBS notes that means it “takes almost 30% less oil to produce a dollar of OECD GDP today than was the case in 1996, and all things being equal this means that the economic impact of an oil price change today is 30% less than was the case in 1996.”

Cheaper Oil Will Actually Hurt Factory Sector’s Growth, Manufacturers Say - Low oil prices are going to end up costing U.S. factories some of their growth next year. Cheaper oil is a two-edged sword for manufacturers. On one hand, factories that use oil and products derived from it save big money and it’s good for consumers, who end up with more cash to spend on things other than gasoline. But it also means big cutbacks in U.S. oil development that will reverberate back to makers of everything from steel pipes to earthmovers. Those companies are already feeling the squeeze. The upshot is going to be less manufacturing growth next year, according to new projections from the MAPI Foundation, the research arm of the Manufacturers Alliance for Productivity and Innovation. The group, based in Arlington, Va., says factory output will grow by 3.4% in 2015, rather than the 3.8% projected in early November. “It’s kind of surprising,” because you’d expect cheaper oil to be a net positive, says Don Norman, MAPI’s director of economic studies. The problem is investments in shale development have grown so large that cutbacks there will overwhelm the gains. Mr. Norman estimates a quarter of the $1.02 trillion U.S. businesses poured into capital equipment this year went into oil and gas. This is only the second time MAPI has revised a quarterly growth estimate since it began doing them in 2004.

US business inventories rise in October, sales slip: U.S. retail inventories excluding automobiles picked up in October, which could affect fourth-quarter growth estimates. The Commerce Department said on Thursday retail inventories excluding autos, which go into the calculation of gross domestic product, increased 0.3 percent in October. They had gained 0.2 percent in September. Overall business inventories increased 0.2 percent, in line with economists' expectations, after a 0.3 percent gain in September.Inventories were previously reported to have been a mild drag on GDP growth in the third quarter. Data on wholesale stocks released earlier this week, however, suggested restocking likely contributed to growth during the third quarter and could add to output in the fourth quarter. In October, business sales dipped 0.1 percent after being flat the prior month. At October's sales pace, it would take 1.30 months for businesses to clear shelves, unchanged from September.

Businesses See Revenues, Employment Growing in 2015, ISM Says - The U.S. expansion is expected to strengthen in 2015, according to surveys released Tuesday by the Institute for Supply Management. The semiannual forecasts of manufacturing and nonmanufacturing supply executives show revenues, capital investment and employment are expected to grow at solid paces next year. Nonmanufacturers–mainly service providers–are especially upbeat about revenue prospects. “Our panelists expect a very good year next year,” said Bradley J. Holcomb, who oversees the manufacturing side of the ISM surveys. “That follows a decent year this year.” Among manufacturers, revenues are expected to rise 5.6% next year, up from the 4.4% projected for 2014 when the ISM did a previous outlook survey in December 2013. Looking at 2015, 15 of the 18 industries expected revenues to increase. Manufacturers also expect only modest growth in their costs. Prices paid for raw materials are expected to increase 1.5% for all of 2015. Labor and benefits costs are projected to increase 3.2%. The expected relatively low rise in materials prices and labor costs at a time of projected faster revenue growth “offers room for margin enhancement,” Mr. Holcomb said. With profitability set to rise, manufacturers are looking to expand both facilities and payrolls next year. Factory capital investment is projected to increase 3.7% in 2015, on top of the 14.7% gain estimated for 2014. Factory employment is forecast to grow 1.5% in 2015.

NFIB: Small Business Optimism Index Increases in November - From the National Federation of Independent Business (NFIB): Small Business Optimism Perks Up in December The NFIB Small Business Optimism Index jumped up 2.0 points to 98.1, just a tick lower than its historical average before the Great Recession. ... Fifty-seven percent reported outlays, 1 point better than October. The percent of owners planning capital outlays in the next 3 to 6 months fell 1 point to 25, a strong reading ...And in another positive sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 12, down from 15 last year - and "taxes" at 23 and "regulations" at 22 are the top problems (taxes are usually reported as the top problem during good times - there always has to be a "top problem"!).This graph shows the small business optimism index since 1986. The index increased to 98.1 in November from 96.1 in October.

Small-Business Owners Feel More Upbeat in November - Confidence among small-business owners tipped up last month above its long-run average, according to a report released Tuesday. The gain could reflect optimism related to the coming change in congressional leadership. The National Federation of Independent Business’s small-business optimism index increased a large 2.0 points to 98.1 in November. That puts the index a hair above its average of 98.0 from 1974 to 2014. Economists surveyed by The Wall Street Journal expected the index to rise to 96.5 in November from 96.1 in October. The federation downplayed the large increase in the index, saying two subindexes accounted for the increase. The subindex covering real sales expectations increased 5 percentage points to 14% last month. The subindex covering business conditions expectations jumped 16 points to 13%. These subindexes cover what small-business owners think will happen in the future. The NFIB said the gains are “perhaps a response to the November election results.” Republicans won enough seats to take control of the House and Senate next year.

November Employment Crushes Estimates (10 graphs) The Employment Situation released Friday by the Bureau of Labor Statistics reported that payroll employment increased 321,000 in November, beating the “best guesses” by roughly 100,000 jobs! This represents the largest gain since May, 2010. Moreover, the number of jobs have been revised up for the previous two months: 23,000 more in September and 29,000 more in October. Indeed, revisions to employment have been positive for almost all of the last year! According to the household survey the unemployment rate was unchanged at 5.8%; however, the unemployment rate actually rose from 5.67% to 5.82% as there were only 4,000 more employed according to the household survey while the labor force expanded by 119,000. The employment to population ratio was unchanged at 59.2 and the labor force participation rate was also unchanged, remaining at 62.8. The number of persons working part time for economic reasons (PTER) fell by 177,000 and most of that decline (150,000) came from a reduction in those reporting slack work or business conditions. However, while the latest report is the strongest in some time, the transition rates we calculate from CPS microdata illustrate that these part-time workers are still having trouble finding full-time work. There are still 6.9 million PTER workers that would like to be working full-time; nearly two million more than there where pre-Great Recession. Given that the transition rates slow little signs of improvement, we expect the number of PTER workers to decline slowly. Further evidence that the labor market is strengthening is that average hours of work increased as did average hourly earnings. The stronger labor force was a reflection of the stronger economy overall that we discussed in our last report. The fall in people working part time for economic reasons is another sign that constraints are easing. The strength of the report adds strength to the argument for the Fed to begin increasing rates sooner rather than later.

Labor Department Jobs Report: Take a Closer Look at the Numbers - As usual, a closer look at the U.S. Labor Department jobs report for November shows things aren’t as rosy as they first seem… First, the big news. The jobs report showed employers added 321,000 jobs last month, crushing consensuses estimates of 230,000. The unemployment rate remained unchanged from the prior month at 5.8%, however, as more people entered the workforce, the Labor Department said Friday. November’s gain was the largest monthly jump in payroll in nearly three years. The Labor Department jobs report also showed the first signs of wage growth since the economic recovery of 2009. “Perhaps more important than the hiring figures, the jobs report provides the first sign that worker incomes may start to increase after several decades of stagnation,” Steven Pressman, professor of economics and finance at Monmouth University in West Long Branch, NJ, told Money Morning. “Both hours worked and real wages increased in November according to the report. While promising, we will need to see these two labor market indicators increase for several months before we can conclude that the economy has reached the next stage of its economic expansions following the Great Recession – where workers receive higher pay, spend more, and stimulate further economic growth.” But it’s far from “all clear” on the jobs front. “Not to be a Grinch at this time of cheer, the household survey was good, but not nearly as positive as the firm survey,” Pressman added. “The U.S. unemployment rate remained unchanged and employment growth was under 200,000 according to the household survey. In addition, the unemployment rate for adult males rose by 0.3 of a percentage point.” Also, the types of jobs added were not all high-paying ones. The biggest job gains were in business services, retail trade, education and health, and leisure and hospitality.  Finally, as the Zero Hedge blog pointed out, part-time jobs rose 77,000 while full-time jobs fell by 150,000.

November Employment Report Household Survey Shows Static Statistics - The BLS November current population survey unemployment report shows almost a static situation from last month, unlike the reported payroll gains portion of the jobs report.  The unemployment rate did not change and is still 5.8%.  The labor participation rate also did not change from the very low, 62.8%.  Even the unemployed's increase of 115,000 is statistically insignificant.  Generally speaking, the report is static from October.  From a year ago, the number of people considered not in the labor force has increased by 1.164 million and of those, people who say they want a job has dramatically increased.This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS.  The CPS 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 sampling 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 grew by only four thousand this month.  We can assume there is sampling error due to survey fluctuations.  From a year ago, the employed has increased by 2.844 million and dramatic change from last month's year ago tally.  This isn't really a large increase in annual employed if one takes increased population growth into consideration.  Those unemployed increased 115,000 to stand at 9,110,000.  Below is the month change in unemployed and as we can see, this number normally swings wildly on a month to month basis.  Those not in the labor force increased by 69,000 persons and to bet 92,447,000.  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 1,164,000 in the past year.  The labor participation rate is at 62.8%, and this is no change from last month.  Those aged 16 and over either working or looking for work is still at record lows, as shown in the below graph.

Those Fabricated Jobs - Last Friday’s payroll jobs report is another government fairy tale or, to avoid polite euphemisms, another packet of lies.  Washington is averse to truth.  Washington can only lie.First let’s pretend that the 321,000 new jobs that the government claims the economy created in November are true, and let’s see where these jobs are.Specialty trade contractors, which I think are home and office remodelers, accounted for 20,000 jobs.  I doubt that people are putting money into houses and buildings that are worth less than the mortgage.Manufacturing accounted for 28,000–a very high monthly figure for recent years, one that is unbelievable in view of the rise in the trade deficit and declines in consumer spending on furniture (-3.8%), major appliances (-8.3%), women’s apparel (-17.7%), and household textiles such as towels and sheets (-26.5%), and when US business investment consists of corporations repurchasing their own stocks.The rest of the claimed jobs are in private domestic services, that is, they are third world jobs.  Retail trade claims 50,200 and transportation and warehousing claims 16,700.  These numbers are impossible to believe in view of the closings of middle class department stores and Black Friday and Cyber Monday sales flops.Financial activities claims 20,000, most of which appear to be insurance related–perhaps the growth of Obamacare bureaucracy.Professional and business services claims 86,000, a very large number for recent years.  What are professional and business services? Professional and business services are “accounting and bookkeeping services” (16,400 jobs) – a possible (temporary) increase as W2s for 2014 are coming due to be issued – and ”administrative and support services (40,600 jobs) – mainly temps. Next we come to “health care and social assistance” with 37,200 jobs concentrated in “ambulatory health care services” and “social assistance.”  Then we have “food services and drinking places” with 26,500 claimed jobs.  Bringing up the rear is Government employment with 7,000 jobs.

More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes  - By request, a few more employment graphs ...This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels.  The long term unemployed is just below 1.8% of the labor force - the lowest since January 2009 - however the number (and percent) of long term unemployed remains a serious problem. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment.Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".This graph shows total construction employment as reported by the BLS (not just residential).Since construction employment bottomed in January 2011, construction payrolls have increased by 677 thousand.The BLS diffusion index for total private employment was at 69.7 in November, up from 63.8 in October.

Economics for Economic Reporters Lesson 34,721: Monthly Wage Data Are Erratic - Okay boys and girls, today we learn about the erratic pattern of wage data. Ideally the Bureau of Labor Statistics (BLS) would tell us exactly how much hourly wages rose each month. Unfortunately, BLS doesn't have that ability. It has a very good survey of establishments that gives a reasonably close estimates of current hourly and weekly wages, but these numbers are not exact. And, since each month's wage estimate includes a component of error, the changes from one month can contain a very large component of error. To see the logic, imagine that the 95% confidence interval is +/- 0.1 percent. (I haven't checked this, but 0.1 percent would be pretty good.) Suppose that one month it underestimates the average wage by 0.1 percent. Suppose the next month it overestimates the average wage by 0.1 percent. This would lead to a wage growth number from one month to the next that was 0.2 percentage points above the true number. In a context where monthly wage growth has been averaging less than 0.2 percent, this would be a very large error. That is why it is always advisable to take a longer period than a single month to assess wage growth. (My preferred measure is taking the rate of change for the most recent three months compared with the prior three months.) Many foolish comments about the November employment report could have been avoided if reporters recognized the erratic nature of the monthly data. The 9 cent gain (0.4 percent) reported in the average hourly wage for November was widely touted. Unfortunately, reporters did not bother to note that BLS reported a gain of just 0.1 percent in October and 0.0 percent in September. As a result of the weak wage growth the prior two months, the average wage for these three months grew at just a 1.8 percent annual rate compared with the average of the prior three months. That is somewhat below the 2.1 percent increase over the last year.

Weekly Initial Unemployment Claims decreased to 294,000 - Earlier from the DOL reportedIn the week ending December 6, the advance figure for seasonally adjusted initial claims was 294,000, a decrease of 3,000 from the previous week's unrevised level of 297,000. The 4-week moving average was 299,250, an increase of 250 from the previous week's unrevised average of 299,000.   There were no special factors impacting this week's initial claims.The previous week was unrevised at 297,000.The following graph shows the 4-week moving average of weekly claims since January 2000.

Little Change in the Job Openings Data for October 2014 - After a larger than usual uptick in September, the quits rate fell slightly in October, while the hires and layoffs rates continued to hold steady, according the October Job Openings and Labor Turnover Survey (JOLTS)  The figure below shows the hires rate, the quits rate, and the layoffs rate. Layoffs, which shot up during the recession, recovered quickly once the recession officially ended—they’ve been at prerecession levels for more than three years. This makes sense. The economy is in a recovery and businesses are no longer shedding workers at an elevated rate. The fact that this trend continued in October is a good sign. But not only do layoffs need to come down before we see a full recovery in the labor market, hiring needs to pick up. While the hires rate has been generally improving, it’s still well below its prerecession level.  Meanwhile, the voluntary quits rate, which has been flat since February (1.8 percent), saw a modest spike up in September to 2.0 percent, then fell to 1.9 percent in October. The overall trend in the recovery has been positive. A larger number of people voluntarily quitting their job indicates a labor market in which hiring is prevalent and workers are able to leave jobs that are not right for them, and find new ones. While there was a drop in October, these series are somewhat volatile and one should not rely too much on a one-month trend. There are still 5.6 percent fewer voluntary quits each month than there were in 2007, before the recession began. A return to pre-recession levels of in voluntary quits would indicate that fewer workers are locked into jobs they would leave if they could. Interactive

BLS: Jobs Openings at 4.8 million in October, Up 21% Year-over-year - From the BLS: Job Openings and Labor Turnover Summary There were 4.8 million job openings on the last business day of October, little changed from 4.7 million in September, the U.S. Bureau of Labor Statistics reported today. ......Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits was unchanged at 2.7 million in October, maintaining the prior month’s increase.  The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for October, the most recent employment report was for November. Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.  Jobs openings increased in October to 4.834 million from 4.685 million in September.  The number of job openings (yellow) are up 21% year-over-year compared to October 2013. Quits are up 12% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

There Were 1.9 Persons Per Job Opening in October 2014 - The BLS JOLTS report, or Job Openings and Labor Turnover Survey shows there are 1.9 official unemployed per job opening for October 2014.  Job openings were around 4.8 million.   Job openings returned to pre-recession levels while hires has increased 33% since June 2009.  In just the private sector job openings have also recovered to precession levels while private hires have increased 40% from their 2009 lows.  There were 1.8 official unemployed persons per job opening at the start of the recession, December 2007.  Below is the graph of the official unemployed per job opening, currently at 1.9 people per opening.  If one takes the U-6 broader measure of unemployment that includes people who are forced into part-time work and the marginally attached, the ratio is 3.8 people needing a job to each actual job opening. In December 2007 this ratio was 3.2. Job openings have not been this high since January 2001, the height of the dot con bubble. By either measure it is clear job openings have finally returned to pre-recession levels. Graphed below are raw job openings. Currently job openings stand at 4,834,000. Since the July 2009 trough, actual hires per month have only increased 32.8%, Total hires are still below pre-recession levels, but not by much, about 2.4%. In the private sector hires are about 2.1% below their pre-recession levels. Bear in mind on levels the working population has increased significantly since 2007, so the lack of a hiring boom shows sluggish work opportunities. Additionally, Businesses can say there are job openings, but if they do not hire an American and fill it, that doesn't help the labor situation. In truth, businesses are trying to squeeze workers and import cheap labor instead of hiring Americans at middle class wages and benefits. Below is the graph of actual hires, currently 5,055,000. Graphed below are total job separations, currently at 4,824 million. The term separation means you're out of a job through a firing, layoff, quitting or retirement and is also called turnover. Layoffs and firings were 1.7 million, which is a return to July levels. Below is a graph of just layoffs and firings. One can see from labor flows businesses are not trashing their workforce like they did in past years.

Job Turnover Climbs While Hiring Remains Near Fastest Pace Since 2007 -  The number of people leaving jobs climbed to the highest in more than five years in October, according to the Labor Department, another sign of a labor market gradually returning toward normal more than five years after the official end of the recession. The number of people hired to new jobs was little changed from the previous month. Some 4.8 million people left a job in October–including 1.7 million layoffs and 2.7 million voluntary separations–while 5.1 million began a new job. Along with last month, that’s the highest hiring level recorded since 2007, according to the Job Openings and Labor Turnover Survey, known as JOLTS. “Overall, the report is consistent with a gradually tightening labor market,” said Ian Shepherdson, the chief U.S. economist for Pantheon Macroeconomics, in a research note. The report comes on the heels of the Labor Department’s November jobs report, showing the economy added 321,000 jobs last month, putting 2014 on pace to be the best year for job growth since 1999.The JOLTS report provides another perspective on the nature of the labor market’s recovery. The American economy is characterized by high levels of churn, with millions of workers entering the labor force, quitting old jobs and starting new ones every month. The rate of churn plunged in the recent recession and has only slowly returned toward its previous levels. The report is closely tracked by policy makers at the Federal Reserve, who use it to help gauge whether the labor market is healing. Fed Chairwoman Janet Yellen has pointed to the level of voluntary quits as a measure to watch as the economy recovers.

Still No Skills Mismatch in the Economy: The Number of Unemployed Exceeds the Number of Available Jobs Across All Sectors --  The figure below shows the number of unemployed workers and the number of job openings in October, by industry. This figure is useful for diagnosing what’s behind our sustained high unemployment. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are more unemployed workers than job openings, and others where there are more job openings than unemployed workers. What we find, however, is that unemployed workers exceed jobs openings across the board. Some sectors have been closing the gap faster than others. Health care and social assistance, which has been consistently adding jobs throughout the business cycle, has a ratio quickly approaching 1-to-1. On the other end of the spectrum, there are 6.2 unemployed construction workers for every job opening. Removing those two extremes, there are between 1.1 and 3.1 as many unemployed workers as job openings in every other industry. This demonstrates that the main problem in the labor market is a broad-based lack of demand for workers—not, as is often claimed, available workers lacking the skills needed for the sectors with job openings.

JOLTS Report Mostly on Trend: Jobs-Seekers-To-Job-Openings Ratio Falls Below 2.0 for the First Time Since the Great Recession - This morning’s Job Openings and Labor Turnover Summary (JOLTS) shows that the total number of job openings in October was 4.8 million, up 149,000 since September. Meanwhile, according to the Census’s Current Population Survey, there were nearly 9.0 million job seekers, which means there were 1.9 times as many job seekers as job openings in October. This is the first time since the Great Recession that the jobs-seekers-to-job-openings ratio fell below 2.0. While we are moving in the right direction, keep in mind that in a labor market with strong job opportunities, there would be roughly as many job openings as job seekers, while in October, job seekers still so outnumbered job openings that nearly half of the unemployed were not going to find a job no matter what they did.  The slight decline in the jobs-seekers-to-job-openings ratio in October comes on the heels of a steady decrease since its high of 6.8-to-1 in July 2009, as you can see in the figure below. The ratio has fallen by 0.9 over the last year. At the same time, the 9.0 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.8 million potential workers (in October) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will go back to looking for a job when the economy really picks up, so job openings will be needed for them, too.

October JOLTS and a Rant about Risk & Recovery -- JOLTS data continues to signal strength in the labor market. As with the regular employment data, this probably will be less important in the near term. Strength in the labor market seems persistent, and at the top of the cyclical range. Now it is just a matter of remaining in this range. Eventually, JOLTS might be an early signal of a cyclical downturn, but that seems to be a distant issue for the time being. Hires, openings, and quits continue to accelerate. Not only the levels, but the trend growth rates are as strong as they have been in this recovery. We should be very optimistic about near term real economic growth. Openings per unemployed worker continues to recover. I think the Beveridge Curve will continue to persist with this rightward shift, partly as a result of persistence in the inflated unemployment rate, and partly because of a higher openings rate, related to the aging labor force. An older labor force should also tend toward a lower unemployment rate, so if we can manage to extend this recovery for another five years and work off the persistent cyclical unemployment, this relationship might move back to the previous trend. The next graph demonstrates some of these labor force changes (some of which are simply demographic). We can see that, compared to the early 2000's, the Quits Rate has declined relative to the Job Openings Rate. Older workers tend to have a lower Quits Rate, so this shift will probably remain in place for some time, and then begin to shift back as baby boomers retire.

Jobless Rate and Labor Force Decline in Hard-Hit Cities -  Jobless readings are rapidly improving in some of the regions hit hardest during the recession, but in many cases for the wrong reasons. As of October, just 27 metro areas had unadjusted unemployment rates above 8%, down from 77 a year earlier, the Labor Department said Tuesday. Many of the regions with still-elevated rates are improving the fastest. However, the better figures often reflect fewer people looking for work in those areas. The Labor Department tracks the jobless rate in 372 metro areas, with no seasonal adjustment. Once again, Yuma, Ariz., topped the list with an unemployment rate of 24.7%. That’s astronomical compared with the 5.8% seasonally adjusted unemployment rate for the nation as whole in October, but down 5.5 percentage points from a year earlier. The nation’s adjusted unemployment rate was 7.2% in October 2013. Yuma’s improvement was the best improvement of anywhere in the country, but the gain reflects a smaller labor force, not more people holding down jobs. The Decatur and Danville, Ill., regions each saw their rates fall by more than 4 percentage points in the past year, from more than 12% to just above 8% in October. But both cities had smaller work forces than a year earlier. Meanwhile, Bismarck, N.D., had the nation’s lowest unemployment rate at 2% in October. That reading is up 0.2 percentage point from a year earlier.

The Vanishing Male Worker: How America Fell Behind - Working, in America, is in decline. The share of prime-age men — those 25 to 54 years old — who are not working has more than tripled since the late 1960s, to 16 percent. More recently, since the turn of the century, the share of women without paying jobs has been rising, too. The United States, which had one of the highest employment rates among developed nations as recently as 2000, has fallen toward the bottom of the list. As the economy slowly recovers from the Great Recession, many of those men and women are eager to find work and willing to make large sacrifices to do so. Many others, however, are choosing not to work, according to a New York Times/CBS News/Kaiser Family Foundation poll that provides a detailed look at the lives of the 30 million Americans 25 to 54 who are without jobs. Many men, in particular, have decided that low-wage work will not improve their lives, in part because deep changes in American society have made it easier for them to live without working. These changes include the availability of federal disability benefits; the decline of marriage, which means fewer men provide for children; and the rise of the Internet, which has reduced the isolation of unemployment. At the same time, it has become harder for men to find higher-paying jobs. Foreign competition and technological advances have eliminated many of the jobs in which high school graduates like Mr. Walsh once could earn $40 an hour, or more. The poll found that 85 percent of prime-age men without jobs do not have bachelor’s degrees. And 34 percent said they had criminal records, making it hard to find any work

China Trade, Outsourcing and Jobs: Growing U.S. trade deficit with China cost 3.2 million jobs between 2001 and 2013, with job losses in every state - Since China entered the World Trade Organization in 2001, the massive growth of trade between China and the United States has had a dramatic and negative effect on U.S. workers and the domestic economy. Specifically, a growing U.S. goods trade deficit with China has the United States piling up foreign debt, losing export capacity, and losing jobs, especially in the vital but under-siege manufacturing sector. Growth in the U.S. goods trade deficit with China between 2001 and 2013 eliminated or displaced 3.2 million U.S. jobs, 2.4 million (three-fourths) of which were in manufacturing. These lost manufacturing jobs account for about two-thirds of all U.S. manufacturing jobs lost or displaced between December, 2001 and December 2013.  Among specific industries, the trade deficit in the computer and electronic parts industry grew the most, and 1,249,100 jobs were lost or displaced, 39.6 percent of the 2001–2013 total. As a result, many of the hardest-hit congressional districts were in California, Texas, Oregon, Massachusetts, and Minnesota, where jobs in that industry are concentrated. Some districts in New York, Georgia, and Illinois were also especially hard-hit by trade-related job displacement in a variety of manufacturing industries, including computer and electronic parts, textiles and apparel, and furniture. The growing trade deficit with China has cost jobs in all 50 states and the District of Columbia. Using a new model and new congressional district data to estimate the job impacts of trade for the 113th Congress, this study also finds that job losses occurred in every congressional district but one.1

Obama’s immigration policy leaves companies exposed - Businesses that employ low-skilled immigrants are worried that President Barack Obama’s immigration policy will expose them to new legal risks by encouraging employees to confess that they are working on false documents. Mr Obama is using his executive powers to shield more than 4m unauthorised immigrants from deportation and offer them work permits, a move that highlights the US’s reliance on a black market labour force that accounts for 5 per cent of all workers. The president’s action marks the biggest change to immigration policy in decades and has thrown up legal uncertainties for employers — as well as immigrants themselves — as unprecedented numbers of people prepare to move from illegal to legal status. Businesses are worried that if a worker tells them they are applying for the president’s programme — thereby admitting he or she is working illegally — the companies will immediately be breaking a federal law against “knowingly” employing an unauthorised worker. Mr Obama’s executive action has also sparked fury among Republicans. They are planning ways to block it in the early months of next year when they take control of both chambers of Congress. The corporate concerns are acute in construction, agriculture, food processing, cleaning and hospitality where low-skilled Hispanic immigrants make up a large proportion of the workforce, said Tamar Jacoby, president of ImmigrationWorks USA, an alliance of small businesses.

Displaced IT workers are being silenced - A major problem with the H-1B debate is the absence of displaced IT workers in news media accounts. Much of the reporting is one-sided -- and there's a reason for this.  An IT worker who is fired because he or she has been replaced by a foreign, visa-holding employee of an offshore outsourcing firm will sign a severance agreement. This severance agreement will likely include a non-disparagement clause that will make the fired worker extremely cautious about what they say on Facebook, let alone to the media.  On-the-record interviews with displaced workers are difficult to get. While a restrictive severance package may be one handcuff, some are simply fearful of jeopardizing future job prospects by talking to reporters.  Now silenced, displaced IT workers become invisible and easy to ignore.  This situation has a major impact on how the news media covers the H-1B issue and offshore outsourcing issues generally. To illustrate, The New York Times published a story Nov. 23, "Workers in Silicon Valley Weigh In on Obama's Immigration Action," which looked at the reaction to President Barack Obama's executive actions on immigration.  The employee stories that the newspaper reported on are an important dimension of the H-1B story, but it's not the major issue. It is not what makes people angry or tugs at the soul. (See: This IT worker had to train an H-1B replacement). The H-1B visa program is used as an engine of displacement by offshore outsourcing companies that employ visa-holding workers by the thousands. From the government data Computerworld has collected in recent years, these firms are applying for visas in ever-increasing shares squeezing out smaller firms. The tech industry's solution is simple: Significantly raise the H-1B cap or remove it entirely.

How Technology Could Help Fight Income Inequality -  Tyler Cowen - Rising income inequality has set off fierce political and economic debates, but one important angle hasn’t been explored adequately. We need to ask whether market forces themselves might limit or reverse the trend. Technology has contributed to the rise in inequality, but there are also some significant ways in which technology could reduce it.  We can easily imagine medical diagnosis by online artificial intelligence, greater use of online competitive procurement for health care services, more transparency in pricing and thus more competition, and much cheaper online education for many students, to cite just a few possibilities. In such a world, many wage gains would come from new and cheaper services, rather than from being able to cut a better deal with the boss at work.  It is a bit harder to see how information technology can lower housing costs, but perhaps the sharing economy can make it easier to live in much smaller spaces and rent needed items, rather than store them in a house or apartment. That would enable lower-income people to live closer to higher-paying urban jobs and at lower cost. Another set of future gains, especially for lesser-skilled workers, may come as computers become easier to handle for people with rudimentary skill. Not everyone can work fruitfully with computers now. There is a generation gap when it comes to manipulating electronic devices, and many relevant tasks require knowledge of programming or, more ambitiously, the entrepreneurial skill of creating a start-up.

The current wage story as I see it. - Jared Bernstein - There was a fair bit of excitement and commentary about nine cents last week.  I’m talking about the increase in the average hourly wage from November’s strong jobs report, an increase in 0.4%, which is, in fact, a sizable bump for these monthly data. But the monthly data are noisy, and the prior few months this hourly wage measure had been pretty stagnant, so some of what we saw in November was just catch up to the not-so-impressive wage growth trend that has persisted for years now. The much better way to get at that underlying wage growth trend is to look at the year-over-year percent changes. Since 2010, average wage growth has averaged 2% with a standard deviation of 0.2%, meaning that trend has been pretty steady. In fact, when you measure the November wage gain compared to November 2013, the increase is…wait for it…2.1%, right on trend. That’s just a bit better than the rate of inflation, meaning worker buying power has been pretty stagnant in real terms. To the extent folks are getting ahead, it’s been coming from more work at flat real hourly wages. I’ve made all these points before in lots of different places, but here are the bullets:

  • –Given the fact of the Fed’s 2% inflation target and productivity growth of something like 1.5%, nominal wage growth of 3.5% is not inflationary, so there’s at least that much room to grow.
  • –One outcome of higher inequality has been more of the nation’s income going into business profits and less into workers’ paychecks. So compensation as a share of national income, a variable that was pretty stable for decades, is down five percentage points since 2000.
  • –Much like the mechanisms that translate diminished labor market slack into faster wage growth, the ones that channel wage growth into price growth are also operating below their usual levels.

Welcome To The Recovery: 40% of Americans Live Paycheck To Paycheck (Up From 30% In 2012) -- Nothing screams economic recovery like 2 out of every 5 Americans living paycheck to paycheck. Especially when that number has reportedly increased by 33% since 2012. Perhaps someone should inform these destitute plebs that the stock market is up nearly 45% over the past two years, and after all, nothing says economic success like the 0.01% enriching themselves via fraud and financial engineering. Here are two of the most sobering findings from the survery:

  • 40 percent of the consumers we surveyed said they are coping with the challenge of living paycheck to paycheck, up from 31 percent in 2012.
  • Today just 23 percent say they are optimistic about the economy, down from 27 percent at the beginning of the recession in 2009.

If that’s not enough for you, check out these additional excerpts from the summary: Our report in September 2012 showed that things were looking up for most Americans. Many aspects of consumer sentiment indicated marked improvement. Yet from there, things have either plateaued or gotten worse. Consumers are still worried about losing their jobs (39 percent in 2014), and 40 percent of the consumers we surveyed said they are coping with the challenge of living paycheck to paycheck, up from 31 percent in 2012.

New estimates of the effects of the minimum wage - A large literature has examined the effects on employment of raising the minimum wage, with different researchers arriving at conflicting conclusions. The core reason that economists can’t answer questions like this better is that we usually can’t run controlled experiments. There is always some reason that the legislators chose to raise the minimum wage, often related to prevailing economic conditions. We can never be sure if changes in employment that followed the legislation were the result of those motivating conditions or the result of the legislation itself. UCSD Ph.D. candidate Michael Wither and his adviser Professor Jeffrey Clemens have some interesting new research that sheds some more light on this question. Clemens and Wither study the effects of a series of hikes in the federal minimum wage signed into law in May 2007. The first of these raised the minimum rage from $5.15 to $5.85 effective July 2007, the second from $5.85 to $6.55 effective July 2008, and the third from $6.55 to $7.25 in July 2009. They note that such legislation would be expected to affect some states more than others, since many states already had a state-mandated minimum wage that was higher than the federal. They therefore chose to compare two groups of states, the first of which had a state-mandated minimum wage of $6.55 or higher as of January 2008, with all other states included in the second group. The hope is that this gives us a kind of controlled experient, with the federal legislation effectively raising the minimum wage for some states but not others.

Study: Minimum Wage Workers Ripped Off Even More Than We Thought - Bill Moyers -  Wage theft — employers taking money out of their workers’ pockets — has been estimated to cost society three times as much as all robberies, burglaries, larcenies and motor vehicle thefts combined, according to the Economic Policy Institute (EPI). A 2009 study cited by EPI estimated that in Chicago, Los Angeles and New York City, two-thirds of all wage and salary workers experienced some form of wage theft, and that on average it cost them $2,634 per year out of an annual income of just $17,616.  But according to new data from the Department of Labor, one kind of wage theft — minimum wage violations — may be even more prevalent than previous estimates suggested. New York Times labor reporter Steven Greenhouse wrote about the results of the study last week. Greenhouse: The United States Labor Department says that a new study shows that between 3.5 and 6.5 percent of all the wage and salary workers in California and New York are paid less than the minimum wage. The study, which examined work force data for the two states, found that more than 300,000 workers in each state suffered minimum-wage violations each month. Labor Department officials said that even if one assumed a violation rate half that nationwide, that would mean more than two million workers across the nation were paid less than the federal or state minimum wage.  Violations were most common in the restaurant and hotel industries, the study found, followed by educational and health services and retail and wholesale.

Paid or not? What is part of your job? -- In its recent decision in Integrity Staffing Solutions v. Busk, 13-433, a decision released this week, the Court sagely decided that waiting in line is not compensable work related activity. You may spend half an hour at the end of a 12 hour shift waiting to shuffle through a metal detector, but it’s not work. And, your employer doesn’t owe you a nickle for your time. And, no you don’t get to leave if you don’t want to wait. And, no you can’t slip out the back because you’re in a warehouse the size of 7 football fields. And, yes, you gotta do it because your boss tells you to. But, no pay for you even though your employer’s security process is a regular part of your daily activities.  This case is a classic “portal to portal” case of the type litigated and relitigated in the 30′s and 40′s after passage of the Fair Labor Standards Act. For decades, the FLSA helped to improve the compensation and working conditions of millions of American workers by insuring fair compensation for longer hours of work required by some employers on an irregular basis. That overtime pay went straight into the economies of the local communities where hourly employees worked. Result–everyone benefited. But during the past 30 or so years, employers across the country have decided the FLSA is an unnecessary inconvenience in extracting the maximum labor from minimally paid employees. Wage theft, including the failure to pay overtime when due, is now as common as identity theft, and that’s saying a lot. Thus, this suit.

Suit on Animator Wage Suppression Shows Another Face of How Capital Squeezes Labor - Yves Smith - Mark Ames reports on the latest revelations in a major anti-trust case against Silicon Valley giants including Disney, Sony, Dreamworks, Lucasfilm, and Pixar. For tech titans, enough is apparently never enough. The earlier chapters of this sorry saga exposed a long-standing scheme by which major tech companies including Apple, Google, Adobe, Intuit, Intel, Lucasfilm and Pixar colluded to suppress wages of an alleged one million workers. The collusion was agreed at the CEO level of all the participants and memorialized through written agreements. A related private suit was filed last September by animator against nine movie industry heavyweights including Walt Disney Animation, Dreamworks Animation, Sony Pictures, LucasFilm and Pixar. It alleged similar conduct to the bigger Silicon Valley wage-suppression suit. Among other things, the companies not just compared pay levels but agreed to fix them, and also signed agreements not to recruit from each other. An amended complaint in the animator suit added two studios to the complaint and far more important, exposed that the wage-fixing scheme was far longer standing that previously thought.

How income inequality holds back economic growth -- Rising income inequality has “a negative and statistically significant impact” on economic growth, according to a report released Tuesday by the Organization for Economic Cooperation and Development (OECD) that examined the link between wealth divide and GDP growth in member countries. Out of the 21 OECD countries — which include much of Europe and the United States — 16 were found to have grown more unequal from the mid-1980s to 2012, using the economic measure known as the Gini coefficient. Authors of the report estimate that rising inequality had knocked more than 10 percentage points off Mexico’s GDP between 1990 and 2010. Over the same period, the U.S. economy was hit by roughly 7 percentage points, and the United Kingdom lost 9 points, according to the OECD study. The figures were based on model using theoretical and empirical analysis.

Inequality Hurts Economic Growth, for All of Us -- It’s official, at least according to the OECD.  Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico, New Zealand, Sweden, Finland and Norway over the past two decades. In Italy, the United Kingdom and the United States, the cumulative growth rate would have been six to nine percentage points higher had income disparities not widened. On the other hand, greater equality helped increase GDP per capita in Spain, France and Ireland prior to the crisis.  It makes sense: if more and more wealth is concentrated in a smaller number of hands, then there is hardly likely to be sufficient collective spending power in the economy (what economists call “aggregate demand”) to generate rising prosperity for all. In fact, the current evolution of Capitalism is taking the world back to where it was in the early 20th century, before trade unions were strong enough to protect workers’ rights, before central governments were willing to mediate the class struggle and step in to make sure workers had the means to enjoy the material prosperity that the system generated, before wages growth allowed workers to share in productivity growth and build a modicum of material wealth. That is an ominous development as far as future growth prospects go if we are to take the conclusions of the OECD study seriously.   For those who would decry the traditional policy response of introducing some form of wealth redistribution via taxation, the OECD study has a ready response as well: The paper finds no evidence that redistributive policies, such as taxes and social benefits, harm economic growth, provided these policies are well designed, targeted and implemented.

You’re Likely to Be a Lot Poorer Than You Were a Few Years Ago—And It’s All By Design - The typical American is even poorer than his or her equivalent in Greece. The median Australian is four times wealthier. The Canadians are twice as wealthy. The U.S. continues to lead the world in billionaires (571 in 2014, with China a distant second at 190). But after decades of financial deregulation and attacks on employee rights, Americans rank 26th in median wealth (defined as assets owned, minus debts owed for the person on the middle rung of the wealth ladder).   During the Cold War, our working class was the envy of the world. Most importantly, the children of working people could climb the economic ladder—upward mobility was real.  Today, by almost every measure, none of this is true. Not only do we rank 26th in median wealth, we also are the most anti-employee country in the developed world. Actually, the two go together, because rising inequality results from our pro-Wall Street and anti-worker policies.  The Organization for Economic Cooperation and Development (OECD) ranks 43 nations by the degree of employee protection provided by government. The 21 indicators used include such items as laws and regulations governing unfair dismissals, notifications and protections during mass layoffs, the use and abuse of temporary workers, and the provision of severance based on seniority. Countries are ranked on a scale of 0 to 6 with 6 going to those who provide the most legal protections for employees and zero for those with the least. As the chart below reveals, we're second to last, meaning that we have among the fewest regulations to protect employees—union, non-union, management, full-time and temporary workers alike.

Why Poor People Stay Poor - Linda Tirado on the realities of living in bootstrap America: daily annoyances for most people are catastrophic for poor people.: It’s amazing what things that are absolute crises for me are simple annoyances for people with money. Anything can make you lose your apartment, because any unexpected problem that pops up, like they do, can set off that Rube Goldberg device. One time I lost an apartment because my roommate got a horrible flu that we suspected was maybe something worse because it stayed forever--she missed work, and I couldn’t cover her rent. Once it was because my car broke down and I missed work. Once it was because I got a week’s unpaid leave when the company wanted to cut payroll for the rest of the month. Once my fridge broke and I couldn’t get the landlord to fix it, so I just left. Same goes for the time that the gas bill wasn’t paid in a utilities-included apartment for a week, resulting in frigid showers and no stove. That’s why we move so much. Stuff like that happens. Because our lives seem so unstable, poor people are often seen as being basically incompetent at managing their lives. That is, it’s assumed that we’re not unstable because we’re poor, we’re poor because we’re unstable. So let’s just talk about how impossible it is to keep your life from spiraling out of control when you have no financial cushion whatsoever. And let’s also talk about the ways in which money advice is geared only toward people who actually have money in the first place.

U.S. Wealth Is Near a Record, Yet Racial Gap Has Widened Since Recession -- America’s net worth—the combined assets of its households minus their debts—has rebounded from the Great Recession in recent years, driven higher by a vibrant stock market, and even notched a series of inflation-adjusted record highs. But the eye-popping gain in asset prices masks the fact that wealth inequality has actually widened since the recession along racial and ethnic lines, Pew Research Center says in a new report Friday. The wealth of white households was 13 times the median wealth of black households in 2013, compared with eight times in 2010, according to Pew’s analysis, which mines the Federal Reserve’s Survey of Consumer Finances. That is the biggest gap between blacks and whites since 1989, when whites had 17 times the wealth of black households. The wealth of white households is now more than 10 times that of Hispanic families, compared with nine times in 2010—the biggest gap since 2001.

How Our Good Will turned "That" Goodwill into a "Nonprofit" Billionaire -- If you feel a warm-and-fuzzy good will toward Goodwill, it's probably because you don't know the facts. Until recently, when I was investigating Savers Thrift Stores' fraudulent modus operandi (,  I thought of Goodwill as being an honorable, charitable shopping venue where I could have a blast, buying great stuff for great prices, which I've been doing since the late 1970s. Its own website characterizes it as one of the nation’s top five most valuable and recognized nonprofit brands.  In 2012 and 2013, Forbes named it as one of America’s Top 25 Most Inspiring Companies. In 2012, Goodwill Industries International, Inc., the national parent corporation for all of the nation's secondhand clothing franchises, paid its president and CEO James Gibbons $729,000.  Dozens of state and local chapters copied the national headquarters' executive extravagance. IRS form 990s indicate their salaries were hundreds of thousands of dollars each (17 of them exceeded a million dollars), essentially for being store managers. It is they, not the umbrella organization headquarters, who determine their pay. That's where the profit from your donations goes. The government pays the disabled employees, costing taxpayers about $90 million a year..This is yet another "beloved" charity, such as the Red Cross and United Way, that has shown itself to be fundamentally corrupt and contemptuous of its good-hearted donors.  

The Wall Street Takeover of Charity -- Donor-advised funds run by huge money management firms are exploding.  Fidelity Charitable runs the second-ranked charity in the United States, according to the Chronicle of Philanthropy, behind United Way Worldwide. Charles Schwab's is fourth and Vanguard's is 10th. People aren't literally giving to these companies. They are setting up accounts at these firms and then disbursing the money, advising on which charities get how much. The idea of the funds was to make it easier for individuals to give to charity. People could drop money into the account during flush times, and donate as they see fit, not in a panicked rush to meet the Dec. 31 deadline for contributions.So far, this has turned out to be a bad deal for society. For about 40 years, charitable giving held steady at about 2 percent of gross domestic product, while donations from individuals have stayed at around 2 percent of disposable personal income, according to Ray D. Madoff, a Boston College law professor and frequent critic of donor-advised funds. Over the last few years, the donor-advised funds have grabbed significant market share. The total amount of assets under management at donor-advised funds rose to $54 billion in 2013, up 20 percent from $45 billion a year earlier. Fidelity's alone have skyrocketed to $13.2 billion.

Frightening SWAT Team Raid Called in on Business for ‘Barbering Without a License’ - It can be tough policing the mean streets in these days of desperation, when drug cartels and other hardened criminals are out there ... somewhere ...But the good people of Orange Country, Florida, are lucky, because they've got the astonishing team of the Department of Business and Professional Regulation and the Orange County Sheriffs Office keeping watch, The DBPR/OCSO target in this case was a suspicious enterprise calling itself Strictly Skillz, and the agents spent a month carefully planning a joint sweep operation including a fully armed SWAT team in full battle dress. On the day of the raid, the team first sealed off the parking lot; next, two plainclothes cops entered to size up the danger; and then -- BAM! -- the SWAT team hit the unsuspecting subjects. Wearing riot gear and brandishing their guns, the team seized half a dozen of the enterprise's kingpins, cuffed them, and then laid them out on the floor, while officers searched the premises for more than an hour. Alas, nothing criminal was found.   You might assume that this was a narcotics operation, but no. In fact, Strictly Skillz is just a barbershop. What possible criminal activity led to this militaristic show of brute force? "Barbering without a license." That's a mere second-degree misdemeanor, but there was no violation, for all licenses at the shop were valid. DBPR could've determined that by a routine inspection, but instead the OCSO got involved to muscle the barbers, because ... well, because it has a SWAT team and a military mentality, so it thinks it's above the law.

Waiting for the U.S. to Become a “Majority-Minority” Nation? You’ll Have to Wait A Little Longer -- Minorities are fast becoming a potent force in American society and politics, but when it comes to becoming the majority of the U.S. population, they’ll have to wait just a wee bit longer. New projections released by the Census Bureau on Wednesday show America’s non-Hispanic white population will cease being the majority in 2044—one year later than previous projections.Non-Hispanic whites are currently around 63% of the population, but this figure will drop to 55.5% in 2030 and 49.3% in 2045, Census projections show. By 2060? Just 43.6%. Possible factors behind Census’s slight tweak are reduced projections for immigration and fertility among minorities already here in coming years.“The U.S. population will continue to grow and become more diverse, albeit at a somewhat slower pace that previously projected,” America’s non-Hispanic white population is barely growing, he notes, and will start declining absolutely between 2025 and 2030. A big factor is aging, which reduces fertility and increases deaths. According to an analysis by Brookings Institution’s William Frey, between 2015 and 2060, native non-Hispanic whites in the U.S. will decline by 23 million—while the rest of the population (minorities and immigrants) will increase by 118 million. Native non-Hispanic whites will be a minority before 2040, and will be only two-fifths of America’s population in 2060.

Portland-area water rates rising as pipes break, infrastructure costs mount —— Driven by the need to replace aging mains and other infrastructure, the quasi-municipal authority that pumps water to the city and 10 surrounding communities may nearly double capital spending in 2015 and increase water prices by 3.8 percent. The rate increase factors into the Portland Water District’s $39 million operating budget for next year, recently approved by district trustees, spokeswoman Michelle Clements said in a press release. That amount is up 1.9 percent from the 2014 budget, which represented a 3.4 percent increase over the previous year’s, and was based on a rate increase of 3 percent. The 2015 budget would add 70 cents to monthly water costs for a typical family of four, if a rate increase is subsequently approved, bringing the bill to just under $22. The average monthly water bill for a commercial customer using 8,000 cubic feet of water would increase about $7, to more than $164. Capital spending, financed by public bonds, is expected to grow from $12.8 million in 2014 to $25 million in 2015, most of which will pay for main replacements and upgrades at Portland Water District’s waste-water treatment facility in the East End. Rate changes, if approved by the Maine Public Utilities Commission, would take effect in the middle of next year. The changes would not affect sewer rates, which are set by individual municipalities, some of which contract with the Portland Water District for treating their waste water.

"The City Is On The Verge Of Collapse" - East Cleveland Is Begging To File For Bankruptcy - With Detroit emerging from bankruptcy yesterday, its experience under Chapter 9 was apparently so successful (occasional subsequent massive power outage notwithstanding), that suddenly every other insolvent city in the US is also i) admitting it is in dire straits and ii) hoping to recreate the Detroit experience. Enter East Cleveland. As Bloomberg Brief reports, the council president in East Cleveland said if she had her way, the city would follow Detroit's path and become Ohio's first municipality to file for bankruptcy to help solve its fiscal woes.  State Auditor Dave Yost said the suburb of 17,500, where oil baron John D. Rockefeller once had a summer estate, is insolvent. Things in the small town, representative of most small cities in middle America, are so bad "the community lacks a working ladder truck in its fire department, had its mobile phones shut off and faces $1.7 million in unpaid bills."

What's America's fastest shrinking city?: The better days in Youngstown were in the first half of the 20th century, when as many as 170,000 called the city home, and it was the third-largest steel producer in the nation.  But now some of the same advantages that made Youngstown a steel powerhouse in the 1930s are fueling the early stages of a rebirth. The city still sits in an area rich with resources, strategically located almost exactly midway between Cleveland and Pittsburgh. It is also adjacent to two giant oil and natural gas deposits—the Utica and Marcellus Shales, which cover much of Eastern Ohio and Pennsylvania. Extracting all that energy, through the process known as fracking, requires lots of steel. Now, you're talking Youngstown's language. Vallourec Star, a unit of French steel giant Vallourec, has spent more than $1 billion to expand its steel pipe plant in Youngstown, adding 350 jobs. Another subsidiary, VAM USA, is spending more than $80 million on a steel pipe threading plant nearby, adding another 80 jobs.  Unemployment in Youngstown, which topped out at 12.7 percent during the recession, is now 5 percent—well below the national average. But just as the resurgence of Youngstown gains steam, there is a potential roadblock. Plunging oil prices are changing the economics of fracking, practically on a daily basis. While there has been no official talk about scaling back the steelmaking expansion, officials are watching the situation closely.

The Koch Brothers’ Governors -- Jeffrey Sommers and Michael Hudson - The Koch Brothers are the closest thing the United States has to Russia’s oligarchs. They fuse ownership of the economy and state, using the latter to enrich themselves while making private gains through the public’s losses. Their idea of a “market economy” is to buy government officials and the assets they privatize at giveaway prices. The top three butlers at the Koch’s nouveau riche ‘Downton Abbey’ are Governors Sam Brownback of Kansas, Wisconsin’s Scott Walker, and Chris Christie of New Jersey. All three ran elections based on the anti-Keynesian oxymoron of promoting job creation by balancing budgets with regressive tax plans. All declared that cutting taxes (chiefly on their wealthy campaign contributors) was the way to achieve their goal (more campaign contributions). All have served at least one term in office and the results are in: Their rates of job creation and income growth are way below the national average. Rather than closing budget deficits, tax cuts create them – providing more excuse to privatize state assets, post-Soviet style.  Brownback simply hopes to stay on the job as governor of the state where the Kochs’ corporate headquarters are located. Despite flagging poll numbers, he remained in office thanks to a mildly tawdry incident involving his Democratic opponent’s youthful visit to a strip club (in the era of talk radio and Fox News, anything can be manufactured into a scandal). Christie and Walker, by contrast, have presidential aspirations and are raising funding as the two top prospects from the Kochs’ political farm team.

U.S. states' revenue growth picks up but still 'lackluster': survey (Reuters) - U.S. states' revenues are growing at a faster clip than last year, mostly due to the brightening national economic picture, and are stabilizing the governments' budgets, according to a nationwide survey released on Tuesday. "Economic growth and declines in the unemployment rate have led to an improved outlook for state revenues in fiscal 2015, but state budgets still face challenges from stagnant wages," the National Association of State Budget Officers survey found. NASBO Executive Director Scott Pattison told a media call that revenue growth was still below average. Adjusted for inflation, revenues remain 2 percent below the peaks reached before the 2007-09 recession, as well. "Stability, growth, but really kind of a lackluster picture," he said. "That to me is of great interest - the fact that we are not seeing very significant growth as you might expect in a recovery period." In total, states' general fund revenues are projected to increase 3.1 percent in fiscal 2015, more than double their estimated 1.3 percent gain in fiscal 2014, according to the survey. For most states, fiscal 2015 started July 1. December data is crucial because it comes halfway through the fiscal year and before governors propose budgets in January.

Each dollar spent on kids' nutrition can yield more than $100 later: There are strong economic incentives for governments to invest in early childhood nutrition, reports a new paper from the University of Waterloo and Cornell University. Published for the Copenhagen Consensus Centre, the paper reveals that every dollar spent on nutrition during the first 1,000 days of a child's life can provide a country up to $166 in future earnings. "The returns on investments in nutrition have high benefit-cost ratios, especially in countries with higher income levels and a growing economy," said Professor Susan Horton, of the School of Public Health and Health Systems and the Department of Economics at Waterloo. Children who are undernourished during the first 1,000 days of their lives typically show stunted growth patterns by the age of three and have poorer cognitive skills than their well-fed peers. As adults they are less educated, earn lower wages and have more health problems throughout their lives. "Height-for-age is a much better measure of health than weight-for-age. It is also predictive of economic outcomes," said Professor Horton, also chair in global health economics at the Centre for International Governance Innovation. She analyzed height and income data from a longitudinal nutrition study from Guatemala for the report. "Good childhood nutrition produces people who can contribute more and help boost economic growth." Studies of a range of low- and middle-income countries suggest that 1 cm more of adult height for men is associated with an increase in their earnings of 2.4 per cent. "Over an adult's working life, we can expect that one dollar spent on early childhood nutrition will on average have $45 worth of benefits in low and middle-income countries," said Horton.The paper looked at the effects of stunting on low- and middle-income countries such as Ethiopia, Kenya, Yemen and India. The cost-benefit ratio was the greatest in Indonesia, where every dollar spent on early childhood nutrition could provide the country $166 in future earnings.

As college costs rise, more food pantries sprout on campus -- Emporia is among the latest colleges in Kansas and Missouri to start a food pantry for cash-strapped students. Washburn University in Topeka also opened a pantry last month, Pittsburg State opened one in October and the University of Missouri-Kansas City student activities office is working on opening a food pantry in March.Other schools, including the University of Kansas and the University of Missouri, began stocking pantries for students, staff and faculty a year or more ago.It's a growing national trend as campus communities reach out to help students survive the ever-increasing costs of higher education.Emporia State's Center for Student Involvement surveyed students to determine whether a pantry was needed. Among students who responded, 42 percent said they had skipped meals because they didn't have enough money."I was surprised at the breadth of the problem," Huddleston said. "I didn't realize how many students were affected by this."

The Treasury's Worst-Case Scenario: Over $3.3 Trillion In Student Loans In A Decade -- One of the recurring topics on Zero Hedge over the past 3 years has been the relentless increase in student loans which, as a result of their cumulative default and loss severity (including those loans which are "merely" in deferment and forbearance) has surpassed the subprime bubble in terms of size.  In fact, as the following table from the TBAC shows, the actual default risk from student loans is several orders of magnitude above the 9% student loans which the Fed has revealed as currently "in default", as one has to add those 12% of loans in deferment and 11% in forbearance to the entire risk pool. In short: a third of all student loans are likely to end up unrepaid! Why is this number a problem? Because as the TBAC also forecasts, in its worst economic case scenario for the millennial generation (which sadly, based on recent employment and income trends for America's young adults is more like the base case scenario), total student loans, which currently stand a little over $1 trillion (or more than all the credit card debt in America), is set to triple in just the next decade, hitting a whopping $3.3 trillion by 2024.

Senior citizens carry student debt into retirement: At 39, Elizabeth Amerine went back to school and got a Ph. D. in neuropsychology. Now she's 72, and the student loans from her education are still with her today. Amerine's career opportunities turned out less rosy then she had hoped, and she's long struggled to pay back her loan. That allowed the debt — with interest — to balloon from $50,000 to $185,000. "It overwhelmed me for a while, I have to honest," she said. "There were a few years there that I just felt completely helpless and trapped." According to a government report, student debt for seniors like Amerine has jumped 550 percent a 10-year period. Seniors now owe more than $18 billion in student debt. And — unlike other forms of debt — student debt cannot be discharged in bankruptcy. In fact, the government can even come after your Social Security fund if you don't pay back student loans.

No Escape From Pension Math in Pennsylvania - Pennsylvania Governor-elect Tom Wolf earned a historic victory in ousting the state’s incumbent chief executive last month. Now budget woes and mounting retirement expenses threaten to undermine his campaign pledges. The 66-year-old Democrat will assume control of a government that has trailed all U.S. states in job growth since 2011. He has to balance promises, including more money for schools, with a $2 billion revenue shortfall for the year that begins July 1. Only New Jersey and Virginia are struggling more than Pennsylvania to fully fund retirement costs, according to Moody’s Investors Service. Pennsylvania’s credit has been cut this year by each of the three biggest rating companies, to two steps below the average for U.S. states. The grade may fall further if Wolf can’t plug revenue misses, said Bill Delahunty, the head of municipal research in Boston at Eaton Vance Management. Borrowing costs for the sixth-most-populous state may rise should the new governor fail to address the pension burden, said Paul Brennan, a money manager at Nuveen Asset Management, which oversees about $110 billion in munis.

Wall Street to Workers: Give Us Your Retirement Savings and Stop Asking Questions -  If you are a public school teacher in Kentucky, the state has a message for you: You have no right to know the details of the investments being made with your retirement savings. That was the crux of the declaration issued by state officials to a high school history teacher when he asked to see the terms of the agreements between the Kentucky Teachers’ Retirement System and the Wall Street firms that are managing the system’s money on behalf of him, his colleagues and thousands of retirees. The denial was the latest case of public officials blocking the release of information about how billions of dollars of public employees’ retirement nest eggs are being invested. Though some of the fine print of the investments has occasionally leaked, the agreements are tightly held in most states and cities. Critics say such secrecy prevents lawmakers and the public from evaluating the propriety of the increasing fees being paid to private financial firms for pension management services. The secrecy trend is spreading throughout the country. Last month, for instance, Illinois officials denied an open records request for information identifying which financial firms are managing that state’s pension money. Like their Kentucky counterparts, Illinois officials asserted that the firms’ identities "constitute trade secrets." Illinois’ Freedom of Information Act includes special exemptions for information about private equity firms.

Congress could soon allow pension plans to cut benefits for current retirees -- Congress could soon allow the benefits of current retirees to be cut as part of an agreement to address the fiscal distress confronting some of the nation’s 1,400 multi-employer pension plans. Several unions and pension advocates opposing the move, which would be unprecedented, say that permitting financially strapped plans to cut retiree benefits would violate the central promise of traditional pensions: that they would provide a defined benefit for life. “This proposal would devastate retirees and their surviving spouses,” said Karen Friedman, executive vice president of the Pension Rights Center, a nonprofit group. “The proposal would also torpedo basic protections of the federal private pension law . . . that states that once benefits are earned, they can’t be cut back.”  Several of the nation’s large multi-employer pension plans are on a course that would leave them insolvent within a decade. If that occurred, the federal insurance fund that protects the retirement benefits of more than 10 million Americans in multi-employer plans could collapse.  In a proposal made more than a year ago, a coalition of plan trustees and unions said the only way to salvage the most distressed pension plans without a government bailout is to allow them to cut retirement benefits before they run out of money. The reductions would be voted on by the trustees of individual plans, as well as retirees, under proposals being negotiated by lawmakers. Advocates point out that the plan laid out by the coalition would leave pensioners in distressed plans with more than what they would receive from government pension insurance if their plans failed.

Social Security disability benefits set to run short in late 2016 - Budgetary reality is on track to blow a huge hole through the social safety net in late 2016, when the trust fund that pays for Social Security disability benefits is set to start running dry. That could lead to a 20 percent cut in benefits for millions of people nationwide, including 53,000 in Erie and Niagara counties. Rep. Tom Reed, R-Corning, said Monday that he wants to work in the next Congress to prevent that from happening.  Reed told reporters Monday that unless Congress acts, benefits for the disabled could be cut by as much as 20 percent.  “It would be a huge hit to our clients and their ability to function,” Grover said. “For many of them, their sole source of income is SSDI.” SSDI is the part of Social Security that provides benefits to the disabled, their spouses and children. Its number of recipients has been growing as the baby boom generation has aged, and the actuaries who oversee Social Security and Medicare have predicted for years that the trust fund that provides those benefits would start running short long before the rest of the government retirement security program.

Lawyers Scalp $1.2 Billion From Social Security In 2013 -- Social Security Disability Insurance (SSDI) is no small program, costing taxpayers more than the combined cost of federal welfare payments, housing subsidies, food stamps and school lunches. Attorneys receive taxpayer-funded fees each time they successfully place a client in the program, which incentivizes them to encourage clients to file disability claims. The fees are capped at 25 percent of the successful client’s SSDI award, or $6,000, whichever is less. Attorneys took in $1.2 billion in such fees in 2013, up from just $425 billion in 2011.

Half of Doctors Listed as Serving Medicaid Patients Are Unavailable, Investigation Finds - Large numbers of doctors who are listed as serving Medicaid patients are not available to treat them, federal investigators said in a new report.“Half of providers could not offer appointments to enrollees,” the investigators said in the report, which will be issued on Tuesday.Many of the doctors were not accepting new Medicaid patients or could not be found at their last known addresses, according to the report from the inspector general of the Department of Health and Human Services. The study raises questions about access to care for people gaining Medicaid coverage under the Affordable Care Act.The health law is fueling rapid growth in Medicaid, with enrollment up by nine million people, or 16 percent, in the last year, the department said. Most of the new beneficiaries are enrolled in private health plans that use a network of doctors to manage their care. Patients select doctors from a list of providers affiliated with each Medicaid health plan. The investigators, led by the inspector general, Daniel R. Levinson, called doctors’ offices and found that in many cases the doctors were unavailable or unable to make appointments.More than one-third of providers could not be found at the location listed by a Medicaid managed-care plan. “In these cases,” Mr. Levinson said, “callers were sometimes told that the practice had never heard of the provider, or that the provider had practiced at the location in the past but had retired or left the practice. Some providers had left months or even years before the time of the call.”

Doctors face steep Medicaid cuts as fee boost ends - (AP) — Primary care doctors caring for low-income patients will face steep fee cuts next year as a temporary program in President Barack Obama's health care law expires. That could squeeze access just when millions of new patients are gaining Medicaid coverage. A study Wednesday from the nonpartisan Urban Institute estimated fee reductions will average about 40 percent nationwide. But they could reach 50 percent or more for primary care doctors in California, New York, New Jersey, and Illinois — big states that have all expanded Medicaid under the health law. Meager pay for doctors has been a persistent problem for Medicaid, the safety-net health insurance program. Low-income people unable to find a family doctor instead flock to hospital emergency rooms, where treatment is more expensive and not usually focused on prevention. To improve access for the poor, the health law increased Medicaid fees for frontline primary care doctors for two years, 2013 and 2014, with Washington paying the full cost. The goal was to bring rates up to what Medicare pays for similar services. But that boost expires Jan. 1, and efforts to secure even a temporary extension from Congress appear thwarted by the politically toxic debate over "Obamacare."

All Senate Republican Staffers To Sign Up For Obamacare -- One of the unspoken complaints about Obamacare (in addition to it soaking up all and then some of the $380/year in low gas price "savings" as a result of the oil plunge) is that if it was so good for the general population, then why are most Congressional staffers exempt from its provisions? That is about to change after Senate Republican staffers will be required to obtain health insurance through ObamaCare's exchanges under a rule passed Wednesday by the GOP Conference. "Washington should have to live under ObamaCare just like everybody else until we repeal it. And we won't be complicit in Obama's illegal rule designed to protect Washington insiders."

Job health insurance costs rising faster than wages: Santa Claus is going to be bringing lots of presents in a couple of weeks, but lower health-insurance costs for most Americans won't be one of them. People with insurance through an employer—that is, most people with health coverage—are paying "more in premiums and deductibles than ever before" as those costs outpace the growth of wages, a new report finds. Total premiums for covering a family through an employer-based plan rose 73 percent from 2003 through 2013, while workers' personal share of those premium costs leaped 93 percent during the same time frame, the Commonwealth Fund report said. At the same time, median family income grew just a measly 16 percent.If that wasn't painful enough, deductibles—or the amount a person has to pay out of pocket before an insurance plans covers medical costs—more than doubled over the 10-year span. And despite a recent slowdown in costs that coincided with the adoption of the Obamcare health-care reform law in 2010, the price of job-based coverage is still rising faster than incomes, according to the report.

Beware of 2015 health insurance individual mandate penalty - The Obamacare law imposes a penalty on individuals who fail to have so-called minimum essential health insurance coverage for any month.  The bad news is the penalty can be considerably more expensive in 2015. .  Unless you are exempt, you will owe the penalty if you do not have minimum essential coverage for yourself and your dependents. Minimum essential coverage includes certain government-sponsored programs (such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and TRICARE), eligible employer-sponsored plans, plans obtained in the individual market, certain grandfathered group plans, and certain other coverage specified by the federal government. However, if you fit into one of the following categories next year, you will be exempt from the penalty in 2015.

  • * Your 2015 household income is below the federal income tax return filing threshold (generally $10,300 for singles, $20,600 for married joint-filing couples, and $13,250 for heads of households).
  • You are considered to lack access to affordable minimum essential coverage. For example, coverage under an employer-sponsored plan is considered unaffordable if your required monthly contribution exceeds 8% of household income.
  • You suffered a hardship in obtaining coverage. To qualify for this exception, you should obtain a hardship exception certificate issued by an Insurance Exchange.
  • You have only a short coverage gap.
  • You qualify for an exception on religious grounds or have coverage through a health-care sharing ministry.
  • You are not a U.S. citizen or national or you are in the U.S. illegally.
  • You are incarcerated.
  • You are a member of an Indian tribe.

FDA Advisers' Financial Ties Not Disclosed - David Kandzari, an Atlanta cardiologist, also has worked as a consultant to makers of medical devices. He received at least $100,000 from them in five years, according to corporate and government data. Another organization he works with, the Food and Drug Administration, doesn't appear to mind. In October, the FDA put Dr. Kandzari on a panel reviewing a medical device made by Boston Scientific Corp., one of the companies he has advised. The FDA didn't disclose the connection. It was among numerous financial ties the FDA hasn't disclosed between medical-device makers and the doctors and other experts who review devices for it, a Wall Street Journal analysis of corporate, state and federal data shows. In panels evaluating devices involved in cardiology, orthopedics and gynecology from 2012 through 2014, a third of 122 members had received compensation--such as money, research grants or travel and food--from medical-device companies, an examination of databases shows. Nearly 10% of the FDA advisers received something of value from the specific company whose product they were evaluating. The FDA disclosed roughly 1% of these corporate connections.

Don’t Homogenize Health Care -- IN American medicine today, “variation” has become a dirty word. Variation in the treatment of a medical condition is associated with wastefulness, lack of evidence and even capricious care. To minimize variation, insurers and medical specialty societies have banded together to produce a dizzying array of treatment guidelines for everything from asthma to diabetes, from urinary incontinence to gout.  At some level, this makes sense. Some types of variation are unwarranted, even deadly. For example, we know that ACE inhibitor drugs improve quality of life and survival in heart-failure patients, but only two-thirds of American physicians prescribe these drugs to such patients. A study by the National Committee for Quality Assurance, a nonprofit organization focused on health care, reported that 57,000 Americans die each year because the care they get is not based on the best available evidence. But the effort to homogenize health care presumes that we always know which treatments are best and should be applied uniformly. Unfortunately, this is not the case. The evidence for most treatments in medicine remains weak. In the absence of good evidence recommending one treatment over another, trying to stamp out variation in care is irrational.

The post-antibiotic future is here: Chilling report highlights the reality of a global crisis - The misuse and overuse of antibiotics in hospitals and factory farms is pushing us ever closer to the day when our miracle drugs will no longer be effective. Maryn McKenna memorably laid out the stakes of our imminent arrival in the post-antibiotic era as a terrifying hypothetical: Before antibiotics, five women died out of every 1,000 who gave birth. One out of nine people who got a skin infection died, even from something as simple as a scrape or an insect bite. Three out of ten people who contracted pneumonia died from it. Ear infections caused deafness; sore throats were followed by heart failure. In a post-antibiotic era, would you mess around with power tools? Let your kid climb a tree? Have another child?  In India, that future is already here. The New York Times has a distressing report on the epidemic of antibiotic resistant “superbugs” killing the country’s newborns by the tens of thousands:“Five years ago, we almost never saw these kinds of infections,” said Dr. Neelam Kler, chairwoman of the department of neonatology at New Delhi’s Sir Ganga Ram Hospital, one of India’s most prestigious private hospitals. “Now, close to 100 percent of the babies referred to us have multidrug resistant infections. It’s scary.”  These babies are part of a disquieting outbreak. A growing chorus of researchers say the evidence is now overwhelming that a significant share of the bacteria present in India — in its water, sewage, animals, soil and even its mothers — are immune to nearly all antibiotics.

10 million deaths by 2050 from resistance? - This morning, the Prime Minister of the UK announced the first findings from the Review on Antimicrobial Resistance, chaired by economist Jim O’Neill. The numbers are eye-popping: 10 million deaths by 2050, with equally huge global economic costs. These numbers dwarf the estimates in the 2013 CDC Threat Assessment. All microbial resistance is included in these estimates, bacteria, viruses, parasites and fungi. Much of the global burden of resistance will come in malaria, TB and HIV, in addition to bacteria. These numbers are based on model projections created by KPMG and Rand Europe for the Review Commission. Like all models, they are open to criticism, but many are viewing these estimates as a “worst case” scenario, assuming the governments of the world don’t achieve global collective action to address the problem of antimicrobial resistance. But this might not represent the worst case. The models do not include true pandemics such as the 1918 influenza. Last year, no one would have guessed that 2014 would be the year of Ebola. My bottom line: these model estimates require much careful additional work, but correctly identify the magnitude of the problem and the potential macroeconomic impact. It should also help us frame an appropriate response.

Superbugs to kill 'more than cancer' by 2050: Drug resistant infections will kill an extra 10 million people a year worldwide - more than currently die from cancer - by 2050 unless action is taken, a study says. They are currently implicated in 700,000 deaths each year. The analysis, presented by the economist Jim O'Neill, said the costs would spiral to $100tn (£63tn). He was appointed by Prime Minister David Cameron in July to head a review of antimicrobial resistance. Mr O'Neill told the BBC: "To put that in context, the annual GDP [gross domestic product] of the UK is about $3tn, so this would be the equivalent of around 35 years without the UK contribution to the global economy." The reduction in population and the impact on ill-health would reduce world economic output by between 2% and 3.5%. The analysis was based on scenarios modelled by researchers Rand Europe and auditors KPMG. They found that drug resistant E. coli, malaria and tuberculosis (TB) would have the biggest impact. In Europe and the United States, antimicrobial resistance causes at least 50,000 deaths each year, they said. And left unchecked, deaths would rise more than 10-fold by 2050.

As Ebola Rages, Poor Planning Thwarts Efforts - On a freshly cleared hillside outside the capital the new Ebola treatment center seems to have everything. There are racks of clean pink scrubs and white latex boots, bathrooms that smell like Ajax, solar-powered lights, a pharmacy tent, even a thatch-roofed hut to relax in. But one piece is missing: staff. The facility opened recently with a skeleton crew. Now, in an especially hard-hit area where people are dying every day because they cannot get into an Ebola clinic, 60 of the 80 beds at the Kerry Town Ebola clinic are not being used.It is like this with a lot here: good intentions, bad planning. Aid officials in Sierra Leone say poor coordination among aid groups, government mismanagement and some glaring inefficiencies are costing countless lives. Some officials argue that the whole response system seems to be begging for a McKinsey & Company, or some other troubleshooter, to rush in and problem solve.Ambulances, for example, are being used to ferry blood samples, sometimes just one test tube at a time, while many patients die at home after waiting days for an ambulance to come. Half of the patients in some front-line Ebola clinics do not even have Ebola, but their test results take so long that they end up lingering for days, taking beds from people whose lives hang in the balance and greatly increasing their own chances of catching the virus in such close quarters. Even after patients recover, many treatment centers delay releasing them for more than a week until there are enough other survivors, sometimes dozens, to hold one huge goodbye ceremony for everyone — again, keeping desperately needed beds occupied.

Sierra Leone to jail 'entire families' in Ebola crackdown » Sierra Leone warned on Friday it would jail entire families if Ebola victims who appeared to have been washed after death were discovered in their homes. The tradition of cleansing the dead before burials remains a major factor in the spread of the highly infectious virus, the government said, despite numerous appeals for Sierra Leoneans to refrain from the practice. “When the family calls (the burial hotline) and it is proved that the corpse has been tampered with, we are going to quarantine the entire family or take them to holding centres for 21 days,” said Palo Conteh, head of the government’s National Ebola Response Centre. “If they are negative, they will be taken to prison for a certain period under the state of emergency. If they are positive, we will send them for treatment. “If they die, that will be their fate. But if they survive, again they will be sent to prison.” Conteh, speaking to reporters in Freetown, did not specify if children would be held criminally responsible, or what would happen to them if their parents were jailed. The government says civil unrest and disobedience in parts of the country are making it impossible to beat the outbreak, which has already killed almost 1,600 people.

Ebola outbreak: Virus still 'running ahead of us', says WHO: The Ebola virus that has killed thousands in West Africa is still "running ahead" of efforts to contain it, the head of the World Health Organization has said. Director general Margaret Chan said the situation had improved in some parts of the worst-affected countries, but she warned against complacency. The risk to the world "is always there" while the outbreak continues, she said. She said the WHO and the international community failed to act quickly enough. The death toll in Guinea, Liberia and Sierra Leone stands at 6,331. More than 17,800 people have been infected, according to the WHO. "In Liberia we are beginning to see some good progress, especially in Lofa county [close to where the outbreak first started] and the capital," said Dr Chan. Cases in Guinea and Sierra Leone were "less severe" than a couple of months ago, but she said "we are still seeing large numbers of cases".  Dr Chan said: "It's not as bad as it was in September. But going forward we are now hunting the virus, chasing after the virus. Hopefully we can bring [the number of cases] down to zero." The official figures do not show the entire picture of the outbreak. In August, the WHO said the numbers were "vastly under-estimated", due to people not reporting illnesses and deaths from Ebola.

Ebola crisis: Sierra Leone bodies found piled up in Kono: Health officials in Sierra Leone have discovered scores of bodies in a remote diamond-mining area, raising fears that the scale of the Ebola outbreak may have been underreported. The World Health Organization said they uncovered a "grim scene" in the eastern district of Kono. A WHO response team had been sent to Kono to investigate a sharp rise in Ebola cases. Ebola has killed 6,346 people in West Africa, with more than 17,800 infected. Sierra Leone has the highest number of Ebola cases in West Africa, with 7,897 cases since the beginning of the outbreak. The WHO said in a statement on Wednesday that over 11 days in Kono, "two teams buried 87 bodies, including a nurse, an ambulance driver, and a janitor drafted into removing bodies as they piled up". Bodies of Ebola victims are highly infectious and safe burials are crucial in preventing the transmission of the disease. The response team also found 25 people who had died in the past five days piled up in a cordoned section of the local hospital.

Drowning in Corn - This year is expected to be the deadliest for corn drownings since 2010, when 31 people died in 59 grain-bin entrapments, according to Professor Bill Field, who for five decades has documented such accidents as part of Purdue University’s Agricultural Safety & Health Program. On average, children and young men under age 21 make up one in five grain-bin accident victims. “There are some 45,000 items in the average American supermarket and more than a quarter of them now contain corn,” writes Michael Pollan in The Omnivore’s Dilemma. But as international dependence on the highly subsidized crop for cattle feed, corn syrup, and ethanol has surged—so have deaths by corn.

China's corn import curbs 'may be just the start': Chinese officials, who have curbed imports on US corn through a clampdown on biotech tainting, may be turning their sights to other origins too, as well as to the country's soaring buy-ins of sorghum. US Department of Agriculture foreign staff revised down by 500,000 tonnes to a four-year low of 2.5m tonnes their forecast for Chinese corn imports in 2014-15, citing the refusals of cargos from the US over claims of containing a genetically-modified variety approved in Washington but not Beijing. While imported corn is some 1,000 yuan-a-tonne cheaper than domestic supplies, as measured in the port of Guangdong, "biotechnology related trade restrictions continue to disrupt trade", the USDA's Beijing bureau said. Indeed, the bureau warned of the potential spread of the Chinese curbs from US supplies to other origins. "China's slow biotechnology approval process has restricted imports from the United States and may impact Brazil and Argentina." 'Attracted government attention' And the bureau flagged concerns that Chinese officials may turn their sights on some of the alternative feed grains that feed mills have turned to to replace imported corn, with Australian feed barley, US sorghum and Thai cassava among popular alternatives. Chinese imports of sorghum soared from 631,000 tonnes in 2012-13 to 4.16m tonnes last season, and are expected to hit 4.3m tonnes in 2014-15. "The rapid increase in sorghum imports has attracted government attention," the bureau werned.

Europeans can't swallow U.S. pact 'Frankenfood' - (UPI) -- Europeans are finding a proposed trade deal with Americans unpalatable because they fear they'll be subjected to U.S. "Frankenfood." If passed, the Transatlantic Trade and Investment Partnership (TTIP) would be a historic link between the U.S. and the European Union and a market merger of some 800 million consumers. Import duties would be slashed and things like food-safety standards modified to be more commerce friendly. And that's what Europeans find hard to swallow. America allows far more chemicals and genetic modifications in food that are banned in Europe. "Hormone-boosted beef. Chlorine-washed chicken. Genetically altered vegetables. This is what they want for us," French organic farmer Jean Cabaret tells the Washington Post. "In France, food is about pleasure, about taste. But in the United States, they put anything in their mouths. No, this must be stopped."  A European opposition group says it has collected more than one million signatures on a web petition against trade negotiations with the U.S. Trade supporters have been taken aback by the opposition. Europeans also fear that a pedal-to-the-metal American capitalism will storm through Europe, putting corporate interests above all.

Americans need to start worrying about tap water  - Americans take for granted that every time they turn the faucet, clean water will pour out. Yet, cracks are appearing in the system that ensures the supply of safe, drinkable tap water, and the efforts to repair the damage are increasingly contentious. Exhibit A is a set of rules proposed in April by the Environmental Protection Agency called Waters of the U.S., which would extend protections to the sources of drinking water for more than 100 million Americans. These common-sense measures to guarantee basic health and safety have been met with a ferocious campaign from opponents who often resort to willful deception and half-truths. When they aren’t misleading, the complaints read like boilerplate from the business lobby: the costs are excessive, the rules too complex and government is intruding where it has no business.The signs of deteriorating water quality are particularly acute in agricultural areas. For example, the Des Moines, Iowa, water works is having trouble controlling the amount of nitrates in local drinking water. This pollutant exceeded permissible levels of 10 milligrams per liter in one of the utility’s main water sources. Nitrates are especially toxic to infants and at that level can cause blue baby syndrome — a form of oxygen starvation. Des Moines’s water system spent an additional $1 million in 2013 to filter out nitrates, Stowe wrote, and costs will inevitably rise. The reasons for the contamination are clear: Farms in Iowa and elsewhere can skirt regulations to control the runoff of noxious chemicals derived from fertilizers into rivers.. "Until industrial agriculture is no longer exempt from regulations needed to protect water quality, we will continue to see water quality degrade and our consumers will continue to pay."

Under Voluntary Water Restrictions, Poor People Conserve While Rich People Use More - California is suffering through the worst drought in 1,200 years. So what are we doing about it? In L.A., Mayor Eric Garcetti has called for a voluntary cutback of 20 percent. Sounds reasonable, except that history shows voluntary restrictions don't do much. Actually, according to data compiled by Dr. Caroline Mini for her dissertation at UCLA, low-income people do conserve a little bit under voluntary drought restrictions. But rich people actually use a little more. Mini looked at data from the L.A. Department of Water and Power from the last drought, which lasted from 2007 to 2010. During that period, the DWP imposed voluntary restrictions, then mandatory restrictions, and then finally raised the price of water. As Adam Smith might have predicted, raising the price was the most effective way to reduce demand. Mandatory restrictions alone were less effective, and voluntary restrictions were pretty ineffective. But it gets really interesting when Mini breaks the data down by income groups:This graph shows shows the effect of water-use restrictions, broken down by income categories. Low-income neighborhoods are represented by light gray bars, medium-income areas by dark gray bars, and high-income neighborhoods by black bars. When voluntary restrictions were first imposed, in July/August 2007, low-income areas cut water use by 1.8 percent. Rich areas increased their usage 1.1 percent. In September/October 2007, low-income areas cut their use by 1.2 percent, while rich areas increased their use again by 1.1 percent. The disparity continued in May/June 2008, when low-income areas reduced usage by 4.2 percent, and rich areas increased by 0.5 percent. It only started to even out — and then rich people started to conserve more than poor people — when mandatory restrictions and price increases went into effect.

What Americans Learned This Year From Being Unable To Drink Their Water -- On January 9, more than 300,000 West Virginia residents were shocked to learn that seemingly overnight their water was declared undrinkable, unusable even, save for flushing the toilet. In the ensuing weeks and months they would discover that a chemical mixture used to clean coal, crude MCHM, had leaked from a neglected storage tank on the banks of the Elk River, just upstream from a major water intake facility.  Despite its proximity to the drinking water supply, very little is known about crude MCHM and its potential impact on humans and the environment. Mixed messages regarding the safety of the water perpetuated the sense of fear among residents, a feeling that lingers nearly a year later,  “I think there are still people in the area that are not drinking the water,” Hansen said. “It is still a concern for some people.”  Half a year and millions of dollars later, another water disaster struck: A toxic algae bloom in Lake Erie contaminated the water for nearly 500,000 residents. Throughout the year, millions of Californians have continued to grapple with the new water-stressed reality accompanying the state’s historic, ongoing drought — one that has forced regulators to not only restrict water use but to scramble to prevent communities from running out of water. The water disasters of 2014 both exposed additional threats to the nation’s water supply and have left significant unanswered questions about whether anything will be done to prevent these incidents, prolonged or acute, from happening again.

Fall snow cover in Northern Hemisphere was most extensive on record, even with temperatures at high mark --In 46 years of records, more snow covered the Northern Hemisphere this fall than any other time. It is a very surprising result, especially when you consider temperatures have tracked warmest on record over the same period. Data from Rutgers University Global Snow Lab show the fall Northern Hemisphere snow cover extent exceeded 22 million square kilometers, exceeding the previous greatest fall extent recorded in 1976. New Jersey state climatologist David Robinson, who runs the snow lab, shared these additional snow cover statistics:

  • For the fall (September, October, and November), when Northern Hemisphere snow cover set a record:
    • North America had its most extensive snow cover on record
    • Eurasia had its third most extensive snow cover on record
  • In November:
    • North America had its most extensive snow cover on record
    • The Lower 48 had its most extensive snow cover on record (which is not surprising given the Arctic blast and snow events in the final two weeks)
    • Canada had its second most extensive snow cover on record

Louisiana's Moon Shot - ProPublica: The state hopes to save its rapidly disappearing coastline with a 50-year, $50 billion plan based on science that’s never been tested and money it doesn’t have. What could go wrong?  This story is second in a two-part series on Louisiana’s rapidly disappearing coastline. Read part one. As Brig. Gen Duke DeLuca wrapped up his 32-year career with the U.S. Army Corps of Engineers in August, he contemplated the key to Louisiana’s massive, 50-year, $50 billion effort to prevent the southeastern portion of the state from being swallowed by the Gulf of Mexico.  DeLuca, an expert on the many threats facing the coast, said: “It will take a moon-shot type of investment in the science.” Many in Louisiana’s coastal scientific community believe DeLuca’s description is right on the mark, capturing the undertaking’s daunting uncertainties.  The mission could not have been set on a more challenging landscape, at a more inopportune time.

Study Gauges Plastic Levels in Oceans - It is no secret that the world’s oceans are swimming with plastic debris — the first floating masses of trash were discovered in the 1990s. But researchers are starting to get a better sense of the size and scope of the problem.A study published Wednesday in the journal PLOS One estimated that 5.25 trillion pieces of plastic, large and small, weighing 269,000 tons, could be found throughout the world’s oceans, even in the most remote reaches.The ships conducting the research traveled the seas collecting small bits of plastic with nets and estimated worldwide figures from their samples using computer models. The largest source of plastic by weight comes from discarded fishing nets and buoys, said Marcus Eriksen, the leader of the effort and co-founder of the 5 Gyres Institute, a nonprofit group that combines scientific research with antipollution activism.Dr. Eriksen suggested that an international program that paid fishing vessels for reclaimed nets could help address that issue. But that would do nothing to solve the problem of bottles, toothbrushes, bags, toys and other debris that float across the seas and gather at “gyres” where currents converge. The pieces of garbage collide against one another because of the currents and wave action, and sunlight makes them brittle, turning these floating junkyards into “shredders,” he said, producing smaller and smaller bits of plastic that spread far and wide.When the survey teams looked for plastics floating in the water that were the size of grains of sand, however, they were surprised to find far fewer samples than expected — one-hundredth as many particles as their models predicted. That, Dr. Eriksen said, suggests that the smaller bits may be swept deeper into the sea or consumed by marine organisms.The result echoed that of a paper published this year in Proceedings of the National Academy of Sciences that found a surprisingly low amount of small plastic debris. Those researchers estimated as much as 35,000 tons of the smaller debris were spread across the world’s oceans, but they had expected to find millions of tons.

The Ocean Now Has At Least 700 Pieces Of Plastic Per Person On Earth -- A study published on Wednesday estimates that the ocean contains over 260,000 tons, or 5.25 trillion pieces, of plastic. The study found that the amount of microplastics, pieces of plastic that are less than half a centimeter, found on the ocean’s surface were much smaller than expected.   The study was conducted by Marcus Eriksen of the Five Gyres Institute, which works to reduce plastic pollution. Eriksen took data from 24 different ocean expeditions in major ocean currents across more than 1700 different locations. The researchers ran their data through a model to produce estimates for the amount of plastic of various sizes in the ocean. According to the researchers, all of their estimates are “highly conservative, and may be considered minimum estimates.” Indeed, their projections account for only 0.1 percent of the world’s annual plastic production.   Over 90 percent of the searches that the study did contained plastic, and polystyrene made up most of the plastics found. One of the researchers said that in some areas with larger amounts of debris, there was more plastic in the water than living creatures. The study’s authors said that “removal processes” such as UV degradation, consumption by organisms and loss of buoyancy are responsible for the low amounts of microplastic found on the ocean’s surface. The Five Gyres Institute explains that forces such as waves and sunlight break plastic down into smaller pieces but that the plastic never fully disappears.

Pacific Seafloor Methane is Escaping at Alarming Rates -- You've likely heard about our ocean's methane plumes - dangerous greenhouse gases being slowly released from their icy seafloor prisons. Now a new study of the seafloor off the West Coast of the United States has revealed that these gaseous "leaks" are already escalating to a full blown jail break, with methane escaping at 500 times its average rate of natural release.  The study, recently published in the journal Geophysical Research Letters (GRL), details how waters off the coast of Washington are gradually warming at a depth of 500 meters, about a third of a mile down. That just so happens to be the same depth at which methane transforms from a solid into a gas, helping to facilitate the release of the most powerful of greenhouse gases - capable of trapping heat in our atmospheres with 20 times the efficiency of carbon dioxide. It should be noted that methane is naturally released by the ocean all the time, either from natural seafloor vents or in a simple cycle of freezing and melting, as part of the Earth's greater carbon cycle. However, experts have recently expressed concern that methane (CH4) is seeing more release than ocean carbon sinks can make up for. This may be due to uncharacteristic warming of the sea - an argued consequence of climate change and human influence. These warm currents could be melting through frozen water on the ocean floor, collapsing pockets of gas called "methane hydrates." (Scroll to read on...)

Warming Ocean May Be Triggering Mega Methane Leaks Off Northwest Coast — As the waters of the Pacific warm, methane that was trapped in crystalline form beneath the seabed is being released. And fast. New modeling suggests that 4 million tons of this potent greenhouse gas have escaped since 1970 from the ocean depths off Washington’s coast.“We calculate that methane equivalent in volume to the Deepwater Horizon oil spill is released every year off the Washington coast,” said Evan Solomon, a University of Washington assistant professor of oceanography and co-author of the new paper, which was published in the journal Geophysical Research Letters. The modeling does not indicate whether the rate of release has changed as temperatures warm, but it does strengthen the connection between ocean temperature and methane behavior. Solomon and his colleagues first learned about the methane leaks when fishermen started sending them photographs of bubbles coming up out of the deep. “They’re really low quality phone shots of their fish finders, but every single location they gave us was 100 percent accurate,” Solomon said.

Growing concern over methane from ocean floor: - Off the Washington coast, just beyond where the continental shelf drops off, methane gas is locked in ice crystals called hydrates, about 10 to 15 feet below the surface of the ocean. Here at depths of more than 1,600 feet, the leading edge of those frozen crystals is melting, releasing millions of tons of methane or natural gas. But unlike deep natural gas deposits tapped for fuel, this methane simply starts bubbling up through the ocean floor into the water column and some of it into the atmosphere. That, say scientists, is a problem for two reasons. One, methane is a powerful greenhouse gas, and if enough of it reaches the atmosphere, it could worsen global warming and climate change. And two, methane can be consumed by bacteria and cause seawater to become more acidic. Acidic water is considered harmful to marine life and can eat away at the shells or prevent larvae from forming shells and dying. In a paper to appear in the publication Geophysical Research Letters, University of Washington oceanographers Evan Solomon, Susan Hautala, Paul Johnson and others are trying to measure just how much methane is emitting off the ocean floor just off the coast of Washington state. Their estimate is that just one year of methane is comparable to the amount of natural gas emitted during the 2010 Deepwater Horizon well blowout in 2010, also known as the BP oil spill. The research is funded by the National Science Foundation and the U.S. Department of Energy. But it's not just a problem in the north Pacific. Research is also well underway in the north Atlantic, which is seeing methane containing ice melt with shifts in the warm Gulf Stream.

Rapid warming hits Antarctica's shallow seas - Ocean waters around Antarctica have warmed steadily for the past 40 years, according to a new study. Some shallow areas have also heated more quickly than others, and waters around Antarctica are growing less salty in some regions, researchers reported today (Dec. 4) in the journal Science. The changes have spurred dramatic melting of ice shelves and could be a factor in Antarctica's record-breaking seasonal sea ice growth, the scientists said. The study is the first comprehensive survey of temperature and salinity records for the Southern Ocean, said lead study author Sunke Schmidtko, an oceanographer at GEOMAR Helmholtz Centre for Ocean Research in Kiel, Germany. The research confirms earlier findings of rapid warming in deep offshore currents in the Southern Ocean near Antarctica. However, Schmidtko and his co-authors also report significant heating of ocean water on the continental shelf, the shallow underwater region that underlies Antarctica's floating ice shelves. Warm ocean water that melts ice shelves from below accounts for most of the ice loss in Antarctica, recent studies have found. "A half-degree rise in water temperature close to a big ice shelf can melt the ice significantly faster than raising the air temperature," Schmidtko said. "It's a tremendous amount of heat available to melt the ice."

"There Are A Hundred Flashing Red Warning Signs Coming From The Environment" - Following up on the previous chapter focusing on human-caused resource depletion, the other disheartening part of the story of the environment concerns the things we humans put back into it, and the impact they have on the ecosystems that support all of life -- ours included. Like the economy, ecosystems are complex systems. That means that they owe their complexity and order to energy flows and, most importantly, they are inherently unpredictable. How they will respond to the change by a thousand rapid insults is unknown and literally unknowable. Like any complex system, an ecosystem will tend to remain in a stable form until the pressures become too great and then they will suddenly shift to a different baseline and exist there for a while. That is, instead of having some magical preferred equilibrium, they have many -- and some of those will be decidedly less or more awesome for humans to exist within. If the world tips from a stable climate to a less stable one, as it has done many times in the past, then growing enough food for everyone will become difficult if not impossible. An ocean acidified will remain that way for possibly hundreds of thousands or even millions of years. Overly-depleted cod fisheries will take many decades to recover, if and only if they are not fished in between. A species wiped out remains that way forever. An overpumped aquifer may take thousands if not tens of thousands of years to recharge. There are a hundred flashing red warning signs coming to us from the environment, the Earth, and all of its supporting ecosystems. Either we get off the 'growth at any cost' express train or we risk wrecking important, valuable, essential and beautiful species, ecosystems and support systems that we rely upon for our health, our wealth, and our happiness.

Viral Video Asks: Why I Think This World Should End » While politicians fail to act on climate, it’s easy to lose hope and feel like the world is coming to an end. Richard Williams, better known by his stage name Prince EA, lays out in this viral video how bad of a condition the world is in today: “The air is polluted, the oceans are contaminated, the animals are going extinct.” Then Prince EA—a spoken word artist, music video director and human rights activist from St Louis, Missouri—poses the question: “So, what can we do in the midst of all this madness and chaos. What is the solution?” Watch the video to find out:

Geoengineering - David Keith, a climate scientist at Harvard University, and author of  A Case for Climate Engineering, is interviewed at re/code There’s no question it reduces the global average temperatures; even the people who hate it agree you could reduce average global temperatures. The question is: How does it do on a regional basis? By far the single most important thing to look at on a region-by-region basis is the impact on rainfall and temperature. And the answer is, it works a lot better than I expected. It’s really stunning. A lot of us thought that, in fact, geoengineering would do a lousy job on a regional basis — and there’s lots of talk on the inequalities — but in fact, when you actually look at the climate models, the results show they’re strikingly even. Now, it’s not perfect and there are some things it won’t do. Turning down the sun does nothing for ocean acidification. But it looks like it can cut, like, 80 percent of the total variation in climate, which is really stunning. .

New regs for Tuesday: greenhouse gases, equal employment opportunity and renewable fuel standards -- Tuesday’s edition of the Federal Register contains new rules for greenhouse gas emissions from the Environmental Protection Agency, a final rule from the Department of Justice for federal contractors and subcontractors to follow in regard to giving job applicants equal employment opportunities and an announcement from the EPA delaying its release of new renewable fuel standards.  Here’s what is happening:  Greenhouse gases: The Environmental Protection Agency is considering a rule that would require petroleum and natural gas companies that are hydrofracking and have oil wells to report their greenhouse gas emissions. The rule will add greenhouse gas calculation methods and reporting requirements for facilities that use hydraulic fracturing to stimulate oil and natural gas wells and release natural gas from pipelines between compressor stations.  “The EPA’s Greenhouse Gas Reporting Program (GHGRP) requires annual reporting of greenhouse gas data and other relevant information from large sources and suppliers in the United States ,” the proposed rule said.  “On October 30, 2009, the EPA published Part 98 for collecting information regarding greenhouse gas emissions from a broad range of industry sectors. Although reporting requirements for petroleum and natural gas systems were originally proposed to be part of Part 98 , the final October 2009 rule did not include the petroleum and natural gas systems source category as one of the 29 source categories for which reporting requirements were finalized.”  The public has 60 days to comment.

Fuel to the fire? Fuel exports soar under Obama - (AP) — Solar panels glisten from every thatched hut on this crowded island, one of the largest in this remote chain off the Panamanian coast.  They have helped the island's Guna people reduce what was already a minuscule carbon footprint. They own one of the most pristine stretches of tropical rainforest in Panama, cleansing the atmosphere of carbon dioxide naturally. But larger forces threaten to uproot them, stemming from the failure by the rest of the world to rein in carbon emissions. Pollution linked to global warming keep rising even though the world's two largest carbon polluters have pledged to combat climate change, with the U.S. committing to deeper cuts and China saying its emissions will stop growing by 2030. It's a dangerous trajectory the U.S. is stoking with record exports of dirty fuels, even as it reduces the pollution responsible for global warming at home. The carbon embedded in those exports helps the U.S. meet its political goals by taking it off its pollution balance sheet. But it doesn't necessarily help the planet. That's because the U.S. is sending more dirty fuel than ever to other parts of the world, where efforts to address the resulting pollution are just getting underway, if advancing at all. While the exported fuel has gotten cleaner, in the case of diesel, about 20 percent of the exports are too dirty to burn here. For the Guna, as carbon rises, so will the seas that imperil them. Several communities have plans to relocate to the mainland, fleeing severe floods and storms that have drowned some islands and divided others in half.

Canada's climate inaction leaves it 'increasingly isolated' ahead of COP 20 --Canada is looking "increasingly isolated" as former climate policy laggards such as the U.S. and China take action to tackle climate change, policy experts say. Earlier this month, the U.S. and China announced an agreement to significantly cut and cap their greenhouse gas emissions. Not only does that give a big boost to the global momentum to tackle climate change, but it cranks up the international pressure on Canada ahead of the annual United Nations Climate Change Conference (COP 20), which opens today in Lima, Peru.  "They make [Prime Minister Stephen] Harper look increasingly isolated," said Simon Dalby, CIGI chair in the political economy of climate change at the Balsillie School of International Affairs in Waterloo, Ont.  At COP 20, a Canadian delegation led by Environment Minister Leona Aglukkaq is joining policymakers from 195 countries to negotiate a legally binding international climate change agreement to replace the Kyoto Protocol. The agreement is due to be signed at the COP 21 meeting in Paris next year.  A poll released this week shows a majority of Canadians are worried about the impact of climate change on future generations, and more than half support a carbon tax.

In Latin America, Growth Trumps Climate - It can be tempting to understand the greenhouse gas negotiations this week in Lima, Peru, in the same light: a clash between developing countries fighting to preserve their vulnerable environments from the rich representatives of multinational capitalism who want to exploit them. But the brawl between the American economist and the Brazilian environmentalist is the wrong historical precedent. Particularly these days, Brazil doesn’t want its environment protected from development. Stunned by an abrupt slowdown in economic growth over the last three years, it urgently wants its environment exploited, whether this means offering cheaper gas to encourage driving or investing trillions in developing its oil reserves. “There is a strategic vision in Brazil that it must close the gap that still separates it from rich, developed countries,” said Sérgio Leitão, head of public policy for Greenpeace in São Paulo. “To do that it must burn its natural capital, which is what Americans and Europeans did.”  Indeed, the relevant precedent happened two decades before the Rio Summit, in 1972, when the United Nations organized its first-ever environmental summit meeting in Sweden.

The Moral Case for Fossil Fuels: We Can Live With Warming -- Rolling Stone (ahem) includes Alex Epstein, author of The Moral Case for Fossil Fuels, on its list of top "global warming deniers."  Epstein: [T]hose who dispute catastrophic global warming are accused of denying the greenhouse effect and global warming. I experienced this in 2013 when I woke up to find myself named to Rolling Stone's Top 10 list of "Global Warming's Denier Elite" --in which they cited three articles of mine, each of which explained that CO2 has a warming effect. How can anyone believe in anthropogenic global warming yet continue to enthuse over fossil fuels?  It's a question of magnitudes, of course.  Massive warming is deadly; modest warming is fine.  Epstein thinks the magnitude of warming has been - and will remain - modest.  Which brings us to the obvious question: Why should anyone go with his judgment, rather than the scientific consensus? There was a time, Epstein admits, that he didn't take this challenge seriously.   But there was so much going on in discussions of global warming , I didn't know how to decide where the evidence lay. I would hear different sides say different things about sea levels, polar bears, wildfires, droughts, hurricanes, temperature increases, what was and wasn't caused by global warming, and on and on. I acknowledged that I didn't really know what to think, and the idea that we might be making the Earth fundamentally uninhabitable scared me.Most us, myself included, are in the same epistemic boat.  I'm not qualified to evaluate Epstein's main claims about the magnitude of global warming.  But he expresses his main claims so clearly that experts shouldn't find it hard to confirm or deny them.  My question for experts: Is there anything seriously wrong with this figure?  In particular, is it really true that virtually every major climate model overpredicts global temperature?  I'm genuinely curious, but I insist on a straight answer.

Like Canada's Harper Government, Obama Administration Muzzling Its Scientists Steve Horn - In recent years, Canadian Prime Minister Stephen Harper has come under fire for disallowing scientists working for the Canadian government to speak directly to the press. An article published in August by The New Republic said “Harper’s antagonism toward climate-change experts in his government may sound familiar to Americans,” pointing to similar deeds done by the George W. Bush Administration. That article also said that “Bush’s replacement,” President Barack Obama, “has reversed course” in this area. Society for Professional Journalists, the largest trade association for professional journalists in the U.S., disagrees with this conclusion. In a December 1 letter written to Gina McCarthy, administrator for the U.S. Environmental Protection Agency (EPA), the society chided the Obama administration for its methods of responding to journalists’ queries to speak to EPA-associated scientists. “We write to urge you again to clarify that members of the EPA Science Advisory Board (SAB) and the twenty other EPA science advisory committees have the right and are encouraged to speak to the public and the press about any scientific issues, including those before these committees, in a personal capacity without prior authorization from the agency,” said the letter. “We urge you…to ensure that EPA advisory committee members are encouraged share their expertise and opinions with those who would benefit from it.”

What’s a university to do about climate change? --About a year ago, I blogged about the fossil-fuel divestment movement at universities, arguing that it is unlikely to have any effect, and that even if it did it would be to raise fuel prices, which we could do more directly with a carbon tax.  I said that those of us at the University of California (and other top universities) should fight climate change by researching the science and policy changes that could make a real difference. In the last year, I’ve changed my mind. Not on divestment, but on what a university can do. I owe my enlightenment to Frank Wolak, my colleague, friend and sometimes co-author at that other top university in the bay area that I will not name. Frank wrote an excellent op-ed for the Los Angeles Times last May and has since co-authored a longer policy paper, both arguing that university action against climate change should start at home, with a campus carbon tax.  All expenditures by campus units would be assessed a tax based on the GHG emissions associated with whatever they are buying or activity they are supporting. Of course, that raises issues like how large the tax should be and who should get the money, which I return to below.

Congress gives Native American lands to foreign mining company with new NDAA — Congress is poised to give a foreign mining company 2,400 acres of national forest in Arizona that is cherished ancestral homeland to Apache natives. Controversially, the measure is attached to annual legislation that funds the US Defense Department. This week, the House and Senate Armed Services Committees quietly attached a provision to the National Defense Authorization Act (NDAA) that would mandate the handover of a large tract of Tonto National Forest to Resolution Copper, a subsidiary of the Australian-English mining company Rio Tinto, which co-owns with Iran a uranium mine in Africa and which is 10-percent-owned by China. The “Carl Levin and Howard P. ‘Buck’ McKeon National Defense Authorization Act for Fiscal Year 2015” - named after the retiring chairmen of the Senate and House Armed Services panels - includes the giveaway of Apache burial, medicinal, and ceremonial grounds currently within the bounds of Tonto. News of the land provision was kept under wraps until late Tuesday, when the bill was finally posted online. The land proposed to be given to Resolution Copper, in exchange for other lands, includes prime territory Apaches have used for centuries to gather medicinal plants and acorns, and it is near a spot known as Apache Leap, a summit that Apaches jumped from to avoid being killed by settlers in the late 19th century.

Toxic Pool Creeping Across India Kills Thousands of Kids Day by Day - One by one, children began to die, often in agony and exhibiting similar symptoms: convulsions, burning pain in the extremities, nausea, vomiting, fever and diarrhea. By the end of 2011, parents buried 53 of them in this forested hill country village occupied mostly by subsistence farmers and day laborers. That scenario played out in three other villages in and around the contiguous coal-mining districts of Singrauli and Sonbhadra about 600 miles (965 kilometers) southeast of New Delhi. At least a dozen more kids with similar symptoms succumbed, along with several adults. Outrage at the deaths sparked an investigation by the chief medical officers of the Sonbhadra district regional government -- and the results only deepened the outrage. Most were tied to drinking polluted water, according to reports obtained by Bloomberg News in October. They stopped short of identifying the pollutants but independent scientists who have conducted exhaustive toxicology tests in the region say they know the chief culprit: mercury. An October 2012 study by the New Delhi-based Centre for Science and Environment, a public-interest research group, found mercury levels in some village drinking water samples to be 26 times higher than the Bureau of Indian Standard’s safe limit for human consumption. Fish taken from a lake near villages where residents routinely catch and eat them showed mercury levels twice what the Indian government deems safe, according to that report.  The Indian government has long been aware of this. In a three-year study conducted in 1990s, the state-run Indian Institute of Toxicology Research found dangerous levels of mercury in blood, hair and nails of people in the Singrauli region. Yet pollution continues to grow. United Nations data show India is second only to China in annual mercury emissions.

The Worst Industrial Disaster in the History of the World - For the people of Old Bhopal who woke up on the night of December 2, finding it difficult to breathe, their eyes burning, it was as if some great, unknown evil had taken place. They did not think of the factory as the source of their distress, not unless they had worked there and knew of its troubles or had been among those active in protesting its location in their midst. Most people thought there was a fire in a chili warehouse somewhere, sending clouds of toxic fumes their way—and because burning chilies are sometimes used to chase off evil spirits, this seemed to be a case of an exorcism gone out of control, the protecting magic indistinguishable from the possessing evil. But the source of this particular evil was, in fact, the factory. An accident there had sent forty metric tons of methyl isocyanate (MIC), a lethal chemical, into a runaway reaction that released a toxic gas. The gas filled the night air of Old Bhopal and entered into people’s bloodstreams, where it then dissolved into hydrocyanic acid, attacking the lungs, respiratory tracts, kidneys, liver, and brain. In order to get away from the choking, burning air, people abandoned their houses and tenements. They ran away from the slums, out of Old Bhopal, across the lake and the hills that divide New Bhopal from Old Bhopal and that would keep the city’s wealthier residents relatively safe even as the poor choked on the fumes. They poured into the new city, into the railway station, some dying in the stampede, others succumbing to the fumes. So many people died that mass cremations and burials took place, bodies piled one on top of another. Corpses were loaded onto trucks and hastily driven out of the city.

Disaster Persists 30 Years after Bhopal Gas Catastrophe - When the monsoon washes away the dust of the Indian summer from the landscape, huts and people of Bhopal, the dry basin behind the slum of J.P. Nagar turns into a lake. Laughing children swim in it, fishermen wait for the telltale tug on their lines to signal a catch, and buffalos greedily devour the succulent stems of water lilies.  In Bhopal, a cycle of death begins with each year's rainy season. "The people can't see, smell or taste the poison," says Rachna Dhingra, "but it's there." It's in the water, in the flesh of fish and in the milk of the water buffalo, and it's in the dark mud that slum residents scrape from the shores of the lake to fill the cracks in their houses. Dhingra, 37, is standing on a small hill in her blue kurta, a long traditional Indian garment, angrily trying to talk sense into the fishermen. "This is suicide," she shouts.Today's lake was once used as a solar evaporation pond, a dump for the unfiltered waste from the nearby chemical plant. More than 11,000 tons of material was dumped there, and now the soil and groundwater are contaminated with mercury, nickel and other heavy metals. Nevertheless, farmers water their animals at the lake every day, and women fetch water from it to wash their children and their laundry. The contaminated lake affects more than half a million people. For activist Dhingra, what is happening in Bhopal is an "endless catastrophe -- and the world simply looks away."   The murky lake is only about 500 meters (1,640 feet) from the grounds of the former Union Carbide plant. The rusty factory ruins form a backdrop to the corrugated metal roofs of the slum, almost a memorial. They are silent witnesses of the tragedy that began in Bhopal 30 years ago and continues today.

Fossil-fuel lobbyists, bolstered by GOP wins, work to curb environmental rules - Oil, gas and coal interests that spent millions to help elect Republicans this year are moving to take advantage of expanded GOP power in Washington and state capitals to thwart Obama administration environmental rules. Industry lobbyists made their pitch in private meetings last week with dozens of state legislators at a summit of the American Legislative Exchange Council (ALEC), an industry-financed conservative state policy group. The lobbyists and legislators considered several model bills to be introduced across the country next year, designed to give states more power to block or delay new Obama administration environmental standards, including new limits on power-plant emissions. The industry’s strategy aims to combat a renewed push by President Obama to carve out climate change as a top priority for his final two years in office. The White House has vowed to continue using executive authority to enact more environmental limits, and the issue is shaping up to be a major flash point heading into the 2016 presidential election. With support from industry lobbyists, many Republicans are planning to make the Environmental Protection Agency a primary political target, presenting it as a symbol of the kind of big-government philosophy they think can unify social and economic conservatives in opposition.

One Of Nation’s Most Respected Constitutional Scholars Sells Out To Nation’s Largest Coal Company  -- Last week, Harvard law professor Laurence Tribe sent out a broadside he wrote with the world’s largest privately-held coal company attacking the Environmental Protection Agency’s proposed rule to regulate carbon pollution from existing power plants under the Clean Air Act. The document submitted by Tribe and coal behemoth Peabody Energy calls the proposed rule a “remarkable example of federal overreach,” that “lacks legal basis,” to regulate carbon, resting on a “fatally flawed interpretation of Section 111” of the Clean Air Act.  Because this rule is a significant component of President Obama’s plan to tackle climate change, and because Obama was Tribe’s principal research assistant at Harvard Law School, the document unsurprisingly received some attention. The Wall Street Journal editorial board put it thusly, “Professor Tribe Takes Obama to School.”The press release notes that Tribe “was retained by Peabody Energy to provide an independent analysis of the proposed EPA rule as a scholar of constitutional law,” and includes the disclaimer that Tribe’s views are his own, and not representative of Harvard University or Harvard Law School. The amount of his retainer has not been made public by Tribe nor Peabody Energy.

Investigation Finds Dirty Coal Projects Being Financed by Climate Funds -  Close to $1 billion in funds meant to finance global climate-mitigation projects is going toward the construction of power plants fired by coal—the biggest human source of carbon pollution—according to an Associated Press investigation.  The findings underscore the lack of rules designed to steer the United Nations' 'climate finance' initiative, through which rich countries funnel money to poor countries to help tackle global warming, Karl Ritter and Margie Mason wrote for the AP.  "The money for coal highlights one of the biggest problems in the UN-led effort to fight climate change: A lack of accountability," they pointed out. "Climate finance is critical to any global climate deal, and rich countries have pledged billions of dollars toward it in UN climate talks, which resume Monday in Lima, Peru. Yet there is no watchdog agency that ensures the money is spent in the most effective way. There's not even a common definition on what climate finance is."  The news outlet reported Monday that Japan, a top contributor of so-called climate finance, gave $958 million to help build three coal-fired plants in Indonesia—plants they said burn coal more efficiently than older facilities.  "However, they still emit twice as much heat-trapping carbon dioxide as plants running on natural gas," the AP noted. "Villagers near the Cirebon plant in Indonesia also complain that stocks of shrimp, fish and green mussels have dwindled.

The Fiery Underground Oil Pit Eating L.A. -- Sliding around beneath the surface of Los Angeles is something dark, primordial, and without form. It seeps up into the city from below, through even the smallest cracks and drains. Infernal, it can cause fires and explosions; toxic, it can debilitate, poison, and kill. Near downtown Los Angeles, at 14th Place and Hill Street, a small extraction firm called the St. James Oil Corporation runs an active oil well. In 2006, the firm presided over a routine steam-injection procedure known as “well stimulation.” The purpose was simple: a careful and sustained application of steam would heat up, liquefy, and thus make available for easier harvesting some of the thick petroleum deposits, or heavy oil, beneath the neighborhood.  But things didn’t quite go as planned. As explained by the Center for Land Use Interpretation—a local non-profit group dedicated to documenting and analyzing land usage throughout the United States—“the subterranean pressure forced oily ooze and smells out of the ground,” causing toxic “goo” to bubble over “into storm drains, streets, and basements.” The sudden appearance of this nauseating black tide actually destabilized the nearby road surface, leading to its emergency closure, and 130 people had to be evacuated. It took weeks to pump dangerous petroleum byproducts out of the basements and to resurface the street; the firm itself was later sued by the city.  While this was an industrial accident, hydrocarbons are, in fact, almost constantly breaking through the surface of the city, both in liquid and gaseous form. These are commonly known as seeps, and the most famous one is an international tourist attraction: the La Brea Tar Pits.

Fracking waste will yield toxic future | The Columbus Dispatch: Our state legislators and the Ohio Department of Natural Resources have welcomed with open arms highly toxic “produced fluids” from gas and oil fracking. In 2011, more than 2.8 million barrels of fracking waste were put into Ohio’s injection wells. Half of that waste came from West Virginia and Pennsylvania. These wastes contain myriad industrial chemicals used to frack gas and oil wells. Because of nondisclosure agreements, many of the chemicals remain unknown; some are carcinogenic, while others are endocrine disruptors. Additionally, because these chemicals come into contact with radioactive particles deep in the ground, they also harbor water-soluble radionuclides. Samples of fracking waste have contained levels of radiation over 3,600 times what experts say is safe for drinking water, according to Environment Ohio. According to Ohio Revised Code 1509.226, these radioactive wastes can be applied to land surfaces as a dust control or road de-icer or dumped into landfills. Drill cuttings, wastes created during the fracking process, are finding their way into Ohio landfills. These materials are referred to as TENORM, or technically enhanced naturally occurring radioactive materials. Ohio’s landfills are not equipped to handle radioactive materials. Long after Ohio’s oil and gas boom has ended, we will be dealing with this toxic legacy.

W.Va. OKs fracking under Ohio River; critics leery - The Columbus Dispatch: West Virginia has opened the Ohio River to fracking. The state government announced that companies can ask to drill beneath the Ohio River for natural gas and oil. Those companies would pay the state a per-acre fee as well as royalties on the oil and gas. It is a move that could bring millions of dollars into West Virginia, which has tapped into its rainy-day fund to prop up its budget. But environmental activists say that cash infusion could come at the expense of clean drinking water for thousands of people on both sides of the river. West Virginia has made initial awards to three oil and gas companies — Triad Hunter, StatOil USA Onshore and Gastar Exploration — to frack beneath 12 miles of the Ohio River next to southeastern Ohio and has received requests from companies to frack beneath an additional 9 miles. The drilling would occur from Marshall, Wetzel and Pleasants counties. The first three deals are still being negotiated, and nothing has been signed yet, said Josh Jarrell, deputy secretary and general counsel of the West Virginia Department of Commerce. But they include a cash fee of as much as $9,000 per acre in some cases and a 20 percent royalty on oil and gas produced at each well. “That revenue infusion will go right back into our state parks,” Jarrell said. “There’s been a tremendous amount of pressure on our state budget lately, so it’s going to help everyone enjoy those resources even more.”

West Virginia To Allow Fracking Underneath The Ohio River - West Virginia is selling hydraulic fracturing or fracking rights under the Ohio River, and the effects of that decision will be monitored by the other states in the Ohio River Valley. The Ohio River isn’t actually in Ohio—the state line is mostly the western and northern bank, which means West Virginia controls what’s underneath the river. The state is now leasing drilling rights, and West Virginia spokesman Josh Jerrall tells the Columbus Dispatch his state needs the money. Jerrall, citing successful under-river drilling elsewhere, says the practice is safe. Should something go wrong, there is a water testing system on the river from Pittsburgh to the Mississippi that uses chemical signatures to find pollutants. “The system is locations where we monitor water for unanticipated organic compounds that might be related to a spill,” said Lisa Cochran of the Ohio River Valley Water Sanitation District, a consortium of the states in the Ohio River watershed. West Virginia is negotiating with three companies for drilling rights under the Ohio. Horizontal fracking technology has opened up the U.S. oil and gas industry to new profits by allowing companies to drill down, and then turn and drill horizontally beneath the ground in a single well.

Groups Coalesce Against Fracking Activity in Ohio River Valley | Huntington News: — Late in November, representatives of citizen groups from West Virginia and Ohio gathered in Huntington, W.Va., to discuss the growing threats to the Ohio River Basin, which provides drinking water for five million people. The impetus for the meeting came from the dramatic rise in the oil and gas industry’s activities and proposals slated for the Ohio River Basin. The industry is proposing to build docks and barge toxic, radioactive waste along the Ohio River. The waste is generated by the deep shale hydraulic fracturing (fracking) method of extracting natural gas. Millions of gallons of liquid waste would be unloaded at dock sites for transport to injection wells in Southeast Ohio. The Coast Guard has yet to announce approval of barge transport for this kind of industrial waste, but such facilities are already being permitted and built along the river. “Alarmingly, Ohio already has more than two hundred injection wells, most of which are within the Ohio River watershed,” said Andrea Reik of ACFAN (Athens County (Oh.) Fracking Action Network), who was present at the meeting. “According to a Government Accountability Office report on Class II injection wells released this summer, Ohio is the least regulated state for these hydraulic fracturing waste disposal wells.” (A map of the injection wells so far permitted and/or active in Ohio can be found here.) “It is alarming how many of these wells are located near, or in the Ohio River watershed,”

Congressman Widens Inquiry Into Fracking Waste in Northeast and Midwest - A Congressional investigation into the way states regulate the disposal of the often toxic waste generated during the fracking of oil and gas has expanded.  Rep. Matthew Cartwright, a Democrat from eastern Pennsylvania, launched the investigation in October by singling out his home state for the inquiry.  Now Cartwright, a member of the House Subcommittee on Economic Growth, Job Creation and Regulatory Affairs, has broadened the probe to include Ohio and West Virginia. Those states generate waste from hydraulic fracturing as well as accepting waste from other states, including Pennsylvania. Cartwright's growing inquiry mirrors the increasing national concern about the disposal of oil and gas waste left over from hydraulic fracturing, or fracking.  In letters to the heads of the environmental protection agencies for Ohio and West Virginia, Cartwright said fracking waste can "cause harm to human health and the environment" if not properly handled.Consequently, Cartwright wants the two states to explain how their inspection procedures of oil and gas waste disposal facilities protect human health and the environment. The representative also is seeking answers to more than a dozen other questions, including the number of inspections or investigations of disposal facilities receiving fracking waste. He also wants to know how the states' regulators monitor the accuracy of reporting and compliance requirements for handling and disposing  of fracking waste.

Abandoned Oil and Gas Wells ‘High Emitters’ of Methane Gas - Natural gas has been sold to us as the environmentally friendly fossil fuel compared to gas or coal since it doesn’t release carbon emissions. We’ve learned that’s not true, since drilling for natural gas can release methane, a far more potential greenhouse gas in contributing to climate change. Now there’s some more bad news regarding the methane that’s a byproduct of oil and gas drilling operations, including fracking operations. Two studies found that the amount of methane leaked by oil and gas operations is probably being underestimated. Both hoped to provide information to make wells safer. A study published in the Proceedings of the National Academy of Sciences of abandoned gas and oil wells in western Pennsylvania found that they continue to leak methane into the atmosphere long after their productive life has ended. In fact, millions of old wells could be leaking methane that’s not being included in any emissions data base, with an estimated 300,00 to 500,000 disused wells in Pennsylvania alone. “Millions of abandoned wells exist across the country and some are likely to be high emitters,” the group of researchers from Princeton University wrote. “Additional measurements of methane emissions from abandoned wells and their inclusion in greenhouse gas inventories will aid in developing and implementing appropriate greenhouse gas emissions reduction strategies.”

Methane still belches from USA ‘s old oil and gas wells - Two studies out this week focus on unintentional emissions of methane — a potent greenhouse gas — into the air.   One study found that millions of abandoned oil and gas wells across the USA could release a significant quantity of methane into the atmosphere but are not included in total emission counts. A second study found that only a few active natural gas wells produce the majority of known methane emissions. Methane is a greenhouse gas 30 times more potent than carbon dioxide at trapping atmospheric heat and thus is a prime contributor to global warming. Methane accounts for nearly 9% of all greenhouse gases emitted as a result of human activity in the USA . The Environmental Protection Agency said the oil and gas industry is the largest source of methane in the atmosphere in the USA , followed by livestock emissions and landfills. 

Direct measurements of methane emissions from abandoned oil and gas wells in Pennsylvania: Recent studies indicate that greenhouse gas emission inventories are likely missing methane emission sources. We conducted the first methane emission measurements from abandoned oil and gas wells and found substantial emissions, particularly from high-emitting abandoned wells. These emissions are not currently considered in any emissions inventory. We scaled methane emissions from our direct measurements of abandoned wells in Pennsylvania and calculate that they represent 4–7% of current total anthropogenic methane emissions in Pennsylvania. Millions of abandoned wells exist across the country and some are likely to be high emitters. Additional measurements of methane emissions from abandoned wells and their inclusion in greenhouse gas inventories will aid in developing and implementing appropriate greenhouse gas emission reduction strategies.

Marcellus Shale region workers to receive more than $4M in back - An ongoing investigation conducted by the U.S. Department of Labor's Wage and Hour Division has found significant violations of the Fair Labor Standards Act, resulting in employers agreeing to pay $4,498,547 in back wages to 5,310 natural gas extraction industry employees in the Marcellus Shale region in West Virginia and Pennsylvania. The majority of violations were due to improper payment of overtime. Under the FLSA, all pay received by employees during the workweek must be factored when determining the overtime premium to be paid. In some cases, however, employees' production bonuses were not included in the regular rate of pay to determine the correct overtime rate of pay. Investigators also found that some salaried employees were misclassified as exempt from the FLSA overtime provision, and were not paid an overtime premium regardless of the number of hours they worked. Wage and Hour Division investigators attribute the labor violations in part to the industry's structure. “The oil and gas industry is one of the most fissured industries. Job sites that used to be run by a single company can now have dozens of smaller contractors performing work, which can create downward economic pressure on lower level subcontractors,” said Dr. David Weil, administrator of the Wage and Hour Division. “Given the fissured landscape, this is an industry ripe for noncompliance.” Large energy providers are engaged in site exploration and production. The providers then use subcontractors for the majority of the work performed on the well site. Secondary subcontractors are also often hired for more specialized work and ancillary support services, such as welding, laboratory services, landscaping, pipeline maintenance, safety and traffic control, and water treatment. Frequently, this level of services does not take place directly at the well sites.

Energy Firms in Secretive Alliance With Attorneys General - The letter to the Environmental Protection Agency from Attorney General Scott Pruitt of Oklahoma carried a blunt accusation: Federal regulators were grossly overestimating the amount of air pollution caused by energy companies drilling new natural gas wells in his state.But Mr. Pruitt left out one critical point. The three-page letter was written by lawyers for Devon Energy, one of Oklahoma’s biggest oil and gas companies, and was delivered to him by Devon’s chief lobbyist.“Outstanding!” William F. Whitsitt, who at the time directed government relations at the company, said in a note to Mr. Pruitt’s office. The attorney general’s staff had taken Devon’s draft, copied it onto state government stationery with only a few word changes, and sent it to Washington with the attorney general’s signature.  Attorneys general in at least a dozen states are working with energy companies and other corporate interests, which in turn are providing them with record amounts of money for their political campaigns, including at least $16 million this year. They share a common philosophy about the reach of the federal government, but the companies also have billions of dollars at stake. And the collaboration is likely to grow: For the first time in modern American history, Republicans in January will control a majority — 27 — of attorneys general’s offices. The Times reported previously how individual attorneys general have shut down investigations, changed policies or agreed to more corporate-friendly settlement terms after intervention by lobbyists and lawyers, many of whom are also campaign benefactors.  But the attorneys general are also working collectively. Democrats for more than a decade have teamed up with environmental groups such as the Sierra Club to use the court system to impose stricter regulation. But never before have attorneys general joined on this scale with corporate interests to challenge Washington and file lawsuits in federal court.

Fossil Fuel Industry Funds State Attorneys General to Sabotage Environmental Regulations --The job of a state attorney general is to enforce the state’s laws and look out for the interests of its citizens. A large part of that involves oversight of corporate special interests and protecting the state’s citizens against them. He or she is in theory the “lawyer for the people.” But a story in the New York Times this weekend laid out how many state attorneys general are serving as little more than errand boys and mouthpieces for the fossil fuel industry. “Never before have attorneys general joined on this scale with corporate interests to challenge Washington and file lawsuits in federal court,” wrote reporter Eric Lipton. It’s the second part of a series the paper is doing to “examine the explosion in lobbying of state attorneys general by corporate interests and the millions in campaign donations they now provide.” It follows up on part one which ran in late October, revealing how some attorneys general shut down investigations or settled lawsuits with terms highly favorable to corporations. Part two, Energy Firms in Secretive Alliance With Attorneys General, contains even more egregious examples of how partisan and special interest-driven these theoretically independent elected officials have become. During the 2014 campaign, attorneys general candidates such as Texas’ Ken Paxton, Ohio’s Mike DeWine and Alabama’s Luther Strange received massive infusions of cash from the energy industry. The article provides evidence of just how far some of these attorneys general are willing to go to virtually serve as free counsel for big gas and oil companies.

Fueling Corporate Welfare - Getting something for nothing is a pretty sweet deal — at least if you’re the one getting something. Not so much if you’re the one receiving nothing in exchange. Oil and gas companies are extracting gas from federal lands and paying nothing for much of it, according to a new Taxpayers for Common Sense report. One of our most troubling findings was that gas companies drilling on federal lands have avoided paying over $380 million in royalties on the fuel they’ve extracted over the past eight years. That’s a lot of money — and it could be a lot more, because it’s based on self-reported data provided by the oil and gas industries. And it’s a lot of gas. By the American Natural Gas Alliance standards, the amount of royalty-free gas either consumed as fuel or lost by operators since 2006 would be enough to meet the needs of every household in New York State for a year. Like most subsidies for the oil and gas industry, the provision that allows companies to avoid paying royalties on gas they use as fuel for their drilling rigs is decades old.

New Study Claims US Shale Gas Quantities Grossly Exaggerated: US government estimates of the amount of natural gas that can be extracted by fracking may be far too optimistic, according to a new study by the University of Texas (UT) at Austin. In 2013, the US Energy Information Administration (EIA) issued a report saying that, according to its analysis, shale wells, which require fracking to release their gas, would be productive at current levels for “over 30 years,” that is, at least until 2040. But researchers from UT’s Department of Petroleum and Geosystems Engineering say shale gas production may peak 20 years earlier, followed by a rapid decline in output. Their findings were reported in a feature story published Dec. 3 in the scientific journal Nature. The problem, according to the UT researchers, goes far beyond merely running out of natural gas. The researchers warn that the US and many other countries, relying on a long-term availability of inexpensive gas, are investing billions of dollars in vehicles, factories and power plants that depend on gas. Major proponents of fracking are President Obama in the US and Prime Minister David Cameron in Britain. Obama has boasted that “our 100-year supply of natural gas is a big factor in drawing jobs back to our shores.” And Cameron has dismissed fracking opponents as “irrational.” But if the UT scientists are right and gas production begins to fall off around 2020, all those billions of dollars put into gas-based vehicles and infrastructure will have been wasted.

Shale gas projections are in decline – and we shouldn’t be surprised --The recent confidence in shale gas was likely premature, according to several new reports published in the US. In particular a study from the University of Texas claims the US boom will tail off by 2020 and not keep going to 2040 as previous less thorough analyses have predicted. To anyone who has been closely following the industry in recent years, this difference in predictions will not be surprising, of course. In 2013 the US Energy Information Administration (EIA) already noted that Norway’s assessment of its shale gas potential went from 83 trillion cubic feet (tcf) (2011) to zero (2013) due to results obtained from test wells in the alum shale, and how Poland’s estimates went from 44tcf to 9tcf due to stricter application of requirements for successful shale formations. But at that time the EIA did not comment as strongly or publicly on similar concerns about the accuracy of the US shale data.  Likewise concern about overestimates of shale potential is becoming louder in Britain, which is at a much earlier stage in terms of shale gas exploration but has a similarly enthusiastic government. Last month scientists from the UK Energy Research Council suggested that promises by ministers about greater energy security and lower energy prices through shale gas were premature and unlikely to be deliverable. Additionally there are concerns over whether investment in shale gas is still profitable, while numerous potentially costly environmental concerns have not yet been dispelled either. What then are the reasons for these unreliable calculations? And why do governments promote shale gas with such conviction when it is surrounded by such uncertainty? One possible factor behind inaccurate judgement of shale gas potential is that both official organisations like the EIA and industry specialists rarely release the data behind their forecasts.The terminology is also surely to blame: there are resources, and then there are reserves. While this is clear to experts, the distinction is not made consistently in the media.

Shale gas pipeline developer threatens to seize land - The developer of a $750 million natural gas pipeline from Pennsylvania into New York has threatened to seize land from reluctant landowners through eminent domain. A letter obtained by the Albany Times Union ( ) tells landowners who have refused to sell rights of way for the Constitution Pipeline that they have until Wednesday to accept offered prices. After that, developers will take them to court to force such sales for possibly less money. The letter was sent from the law firm Saul Ewing. Project opponents filed a complaint against the letters with New York State Attorney General Eric Schneiderman. His office declined comment but confirmed receipt of the complaint. Lawyer Daniel Estrin of the White Plains-based Pace Environmental Litigation Clinic said the letter is meant to "bully landowners ... into waiving their property rights." Asked about the legality of invoking eminent domain prior to meeting conditions outlined in the FERC approval, Constitution Pipeline Company spokesman Tom Droege told the Times Union, "We continue to communicate with landowners along the route to seek easement agreements ... We continue to work closely with other state and federal permitting agencies and remain optimistic that we will receive necessary clearances." U.S. energy regulators approved the pipeline project last week. It's designed to bring cheap shale natural gas from Pennsylvania into high-priced markets in New England and New York.

CONSTITUTION PIPELINE PREMATURE WITH EMINENT DOMAIN -- Copy/paste articles about the eminent domain proceedings with regards to the Constitution Pipeline have appeared in “mainstream media”.   I call them copy/paste articles because they originate from skimpy coverage by the Associated Press (AP) with no reporter cited.

See: Constitution Gas Pipeline Threatens Landowners With Condemnation | by Chip Northrup on December 5, 2014 for what reporting should look like.The AP article fails to mention the FERC approval for the Constitution Pipeline was CONDITIONAL APPROVAL. There are things that must be done by Williams prior to the final approval, these conditions also mean the FEDEXing of letters threatening property owners with eminent domain was premature. Given William’s long history and experience of constructing interstate pipelines, they should know this. Witmer’s credentials include 20 years experience and being lead counsel in more than 70 condemnation suits (eminent domain) filed in Pennsylvania in connection with interstate pipeline projects.Saul Ewing firm is clearly not an outfit with a handmade shingle dangling from a doorknob; they have attorneys with experience in these matters.   Therefore you would expect Saul Ewing to also know the FEDEXing of eminent domain threats is also premature.

Zoning Changes required for fracking: Even if Gov. Andrew Cuomo approves shale gas development, natural-gas drilling probably won't begin until towns update zoning laws to allow hydraulic fracturing, according to lawyers and planners. Towns that want fracking — the controversial process to free natural gas from shale — may face a lengthy, complicated and contentious process involving public hearings, deliberation and resolutions. The outcome likely will vary from town to town, even in regions pegged "fracker friendly" by industry proponents and landowner groups. The fallout comes from a decision from the state's high court last July that upheld fracking bans in the towns of Dryden in Tompkins County and Middlefield in Otsego County. Conventional wisdom held that the decision prevented fracking only in towns with bans. But the decision set a precedent that would discourage fracking in most zoned areas unless it is explicitly written into zoning laws, according to lawyers and planners. Towns without zoning — and there are only a handful in the Southern Tier and Finger Lakes region — are exceptions. "People think in terms of bans or no bans. But what Dryden and Middlefield told us is, your current zoning law matters," said Cheryl Sacco, a partner who specializes in municipal law for the Binghamton law firm of Coughlin & Gerhart. "If they [towns with zoning] want drilling, they're going to have to review their zoning laws.""You can't just stick an unconventional gas well — and all the industrial activity that goes with it — in an area zoned as agricultural, even if there is no ban." If that happens, she said, "it will be subject to legal challenge as incompatible with the comprehensive plan."

There is clear scientific evidence of fracking’s harm - On Oct. 22, Gov. Andrew Cuomo stated that academic studies come out all different ways, and more recently, that there are credentialed academics on both sides. It is simply not the case that academic researchers or academic studies are split on whether drilling and fracking are safe. There are no academic studies finding that drilling and fracking are safe or good for public health. Cuomo would have been right if he said that academic studies show all different types of harm from drilling and fracking. Indeed, there are now hundreds of peer-reviewed studies raising many areas of concern. Moreover, the pace at which new studies are emerging has accelerated. Since the end of the state’s last public comment period on fracking, the body of scientific studies has more than doubled in size. This summer, Concerned Health Professionals of New York released a compendium of scientific, medical and other key findings demonstrating risks and harms of fracking. It is organized into fifteen areas of concern that include air pollution, water contamination, inherent engineering problems, radioactive releases, noise and light pollution and occupational hazards. Science is deciding. Studies show that permitting fracking in New York would pose significant threats to the air, water, health and safety of New Yorkers.

The Evidence Against Fracking - Speculation is mounting that the long-awaited state Health Department study on fracking’s potential public health risks could be released soon, and the governor roiled some anti-fracking groups recently when he suggested that there were “credentialed academics” on both sides of the politically contentious issue. In response, two groups — Concerned Health Professionals of New York and Physicians, Scientists and Engineers for Health Energy — pulled together information on a growing body of health studies that have been issued since 2009, when the state Department of Environmental Conservation first issued its potential environmental roadmap for fracking.That year, there were six peer-reviewed studies on how fracking, which uses a high-pressure mix of water, chemicals and sand to break up gas-bearing underground rock formations, could affect air and water quality. Another six such studies were added in 2010, when then-Gov. David Paterson issued an executive order imposing a fracking moratorium. There were 32 more fracking health studies in 2011, 66 more in 2012, and 139 more in 2013, when the state Health Department was ordered to conduct its health fracking study. By the end of November 2014, there were another 154 such peer-reviewed studies, according to the PSE study. Of health-related papers, 96 percent cited potential health risks from fracking, according to the study. For air-quality related papers, 95 percent found elevated pollution from fracking; for water-quality related papers, three-quarters found evidence of water pollution. The growth in science examining fracking is exponential. We are adding roughly a study a day. And three-quarters of all these scientific papers have been done within the last two years,” said Sheila Bushkin-Bedient, a health researcher with the Institute for Health and Environment at the University at Albany, and member of Concerned Health Professionals of New York.

New Studies Expose Public Health Risks From Fracking - As New York state ponders whether to lift its moratorium on fracking, in place since 2009, two new reports were released which compiled the results of numerous studies on its potential health and environmental impacts. The evidence was overwhelming, as the health care professionals and scientists involved urged Governor Andrew Cuomo to enact a three-to-five-year extension of the moratorium.  The studies offered a response to statements from Cuomo such as “You can have credentialed academics on both sides—one side says they have more credentialed experts than the other side” and “I’m not a scientist. Let the scientists decide. It’s very complicated, very controversial, academic studies come out all different ways. Let the experts decide.” The experts have largely decided that evidence of risks to citizens and communities from fracking are compelling.  One study, released by PSE Healthy Energy, pointed out that, with the fracking boom still young, “research continues to lag behind the rapid scaling of shale gas development.” It points to an enormous increase in the amount of scientific research and surge in peer-reviewed scientific papers in just the last two years. It reviewed about 400 of those papers.

Big-Picture Study Of Fracking Operations Suggests Even Small Chemical Exposures Pose Risks -- A paper published Friday in Reviews on Environmental Health suggests that even tiny doses of benzene, toluene and other chemicals released during the various phases of oil and natural gas production, including fracking, could pose serious health risks -- especially to developing fetuses, babies and young children. "We hear a lot of anecdotal stories all the time," said Dr. Sheila Bushkin-Bedient, of the Institute for Health and the Environment at University at Albany-SUNY and co-author on the paper, "but now that we've had a decade of opportunity to observe the ill effects from these chemicals on people and animals, the evidence is no longer just anecdotal." The boom in the extraction of oil and natural gas continues across large swaths of the U.S., but not without resistance. Many environmental groups oppose fracking -- which uses a mix of pressurized water, sand and chemicals to unlock hydrocarbon reserves in shale rock -- even as the industry maintains that processes like fracking are safe. Still, more than 15 million Americans now live within one mile of such oil and gas operations.  The research paper pulls together findings from studies that have investigated links between exposures to chemicals associated with fracking -- and, in some cases, proximity to fracking operations -- and developmental and reproductive problems in animals and humans, including reduced semen quality and increased risk of miscarriage, birth defects and infertility. While the report doesn't provide any new data, the authors say the compilation builds a more compelling case for such connections.  

Fracking Linked to Miscarriages, Birth Defects and Infertility -As the level of concern about fracking rises—what chemicals are being used in these “unconventional oil and gas (UOG) operations, whether they are getting into the water and air, and whether information on them is being withheld from communities—a new study adds more evidence that the concern is justified. It asserts that fracking increases the rate of miscarriage, as well as other reproductive and developmental problems.  “In this work,” the six researchers from the Center for Environmental Health (CEH), the University of Missouri and the Institute for Health and the Environment say, “we review the scientific literature providing evidence that adult and early life exposure to chemicals associated with UOG operations can result in adverse reproductive health and developmental effects in humans.”  “Children, developing fetuses, they’re especially vulnerable to environmental factors,” said CEH’s Ellen Webb, the study’s lead author. “We really need to be concerned about the impacts for these future generations.” The study points out that fracking operations have the potential to pollute the air and water of nearby communities, and “every stage of operation from well construction to extraction, operations, transportation and distribution can lead to air and water contamination” from hundreds of chemicals. It looks at what chemicals are used in fracking, the ways in which they can find their way into the air and water, and the adverse reproductive and developmental effects they are associated with.

Report: Fracking chemicals threaten reproductive health =— Public health experts today painted a vivid connect-the-dot picture of the risks associated with exposure to toxic fracking chemicals and called for more testing of people and animals in gas patch communities.   The in-depth review, which appeared in the journal “Reviews of Environmental Health” and co-authored by researchers working in public and reproductive health and biological sciences based mainly at the University of Missouri, raised red flags about impacts to reproductive and developmental health, based on the results of existing peer-reviewed studies. One of the authors of the new paper said their conclusions refute industry assertions that oil and gas operations don’t present a health risk to nearby communities. To the contrary, the systematic review of scientific studies should set off alarm bells among medical professionals in gas patch communities. A spokesman for the Western Energy Alliance, an industry trade and lobbying group, said the review doesn’t offer any new scientific data. “There does not appear to be anything new on actual exposure and health risks,” said WEA’s Aaron Johnson, adding that many of the existing studies on the health risks of oil and gas drilling and fracking are hampered by the same fundamental flaw — the “lack of direct identification of fracking chemicals.”

To Frack or Not to Frack: Piling on the Fracking Evidence - Before the verdict on To Frack or Not to Frack is announced in New York, the scientists have been piling on the evidence; the latest salvo being a double-barrel blast of studies. On Thursday, two new scientific summations on the risks and harms of fracking were released at a press conference in Albany. First, Physicians Scientists & Engineers for Healthy Energy released a working paper analysis, in the form of a statistical evaluation of the approximately 400 peer-reviewed studies to date on the impacts of shale gas development. In short, this team examined what percentage of papers indicated risks/adverse impacts versus no indication of risk. Key highlights: 96% of all papers on health indicate risks/adverse health outcomes; 95% of all original research studies on air quality indicate elevated concentrations of air pollutants; 72% of original research studies on water quality indicate contamination or risk thereof. Second, my own group, Concerned Health Professionals of New York, released a second edition of the Compendium of scientific, medical, and media findings of risks and harms of fracking. At 103 pages and with 448 citations, the Compendium compiles and concisely summarizes the most important findings. Although the second edition comes only 5 months after the first, it’s about 30% longer now with more than 80 new entries.Together, these two make a very decisive scientific case against fracking. See the joint press release, with quotes from PSE and doctors and scientists from CHPNY, and good summaries.

WATCH: 'Fracking 101' Narrated by Edward James Olmos » Chances are you’re already up in arms about fracking and its impact on people’s health, the environment and our climate. It’s also likely you know some people who don’t know a lot about it, but they may have heard a newscaster say that it’s behind dropping gas prices and they think “That’s great!” You may have also seen some polls that show a lot of Americans approve of fracking—but they’ve also shown that people don’t know very much about its impacts, and once they do, they’re likely to oppose it. The Sierra Club has put together a two-and-a-half minute animated video called Fracking 101 that’s simple enough for a kindergartner to understand and short enough so that even the most attention-challenged will get it. Cancer-causing poisons? Check. Polluted aquifers? Check. Climate change-causing methane-emissions? Check. It’s all here in digestible and entertaining form.  The video, which features narration by actor Edward James Olmos (Battlestar Galactica, Stand and Deliver, Blade Runner), depicts how methane gas escapes from fracking operations to drive climate change, how the toxic chemicals used in the process find their way into our water and air, and what kind of health impacts those chemicals have.

North Texas Fracking Zone Sees Growing Health Worries: Propped up on a hospital bed, Taylor Ishee listened as his mother shared a conviction that choked her up. His rare cancer had a cause, she believes, and it wasn’t genetics. Others in Texas have drawn the same conclusions about their confounding illnesses. Jana DeGrand, who suffered a heart attack and needed both her gallbladder and her appendix removed. Rebecca Williams, fighting off unexplained rashes, sharp headaches and repeated bouts of pneumonia. Maile Bush, who needed surgery for a sinus infection four rounds of antibiotics couldn’t heal. Annette Wilkes, whose own severe sinus infections were followed by two autoimmune diseases. “I’ve been trying to sell my house,” said Williams, a registered nurse, “because I’ve got to get out of here or I’m going to die.” Texas regulators and politicians have shrugged off such complaints for years. But scientific research — coming out now after years of sparse information — suggests that proximity could pose risks. Measurements taken near sites that residents identified as problematic in five states found spikes in air toxics such as benzene, which can cause leukemia. A Colorado study found more babies born with congenital heart defects in gas-well-intensive areas than in places without wells. Yale University researchers surveying Pennsylvania residents — without mentioning gas — determined that those living close to wells were significantly more likely to report having skin and upper-respiratory problems than those farther away. This year a 16-university group recommended substantially more research given the potential problems.

Benzene and Worker Cancers: “An American Tragedy” -- Thompson never figured the chemical could do him harm.  But after being diagnosed with a rare form of leukemia in 2006, relatives say, he came to believe his exposure to benzene had amounted to a death sentence. Oil and chemical companies knew about the hazard, Thompson felt, but said nothing to him and countless other workers. Thompson died before a lawsuit filed by his family against benzene suppliers could play out in court, where science linking the chemical to cancer could be put on display. Over the past 10 years, however, scores of other lawsuits, most filed by sick and dying workers like Thompson, have uncovered tens of thousands of pages of previously secret documents detailing the petrochemical industry’s campaign to undercut that science. Internal memorandums, emails, letters and meeting minutes obtained by the Center for Public Integrity over the past year suggest that America’s oil and chemical titans, coordinated by their trade association, the American Petroleum Institute, spent at least $36 million on research “designed to protect member company interests,” as one 2000 API summary put it.

Shale oil gluts, 1980s Dynasty and Dallas edition - If history really does repeat itself, then the upside of the oil glut of 2014 could be some top quality kitsch TV drama moments in the not too distant future. We’re going by Season 3, episode 7 of Dynasty, which first aired December 8, 1982.  The episode features Blake Carrington, CEO of Denver-Carrington, despairing about the prospect of becoming an oil tycoon in distress due to the 1980s oil glut and having to rely on ex-wife Alexis Colby (Joan Collins) for a bailout if his loans go bad.  Check out the opening two minutes and later at 24.30 for the scene between Carrington and the chairman of the subcommittee on energy policy and technology.  (transcript)  Though, this being the reality TV generation, we guess the 2014 version will more likely consist of a “Real Housewives of North Dakota” edition or some such.

More municipal bans on fracking pose setback to domestic energy boom | Fox News: The surge in domestic-energy production that has created millions of new jobs and abundant natural gas and oil is now facing a potential setback, cities across the country imposing bans on the widely-used deep-drilling process known as fracking. At least three U.S. cities and two counties in the November elections voted in favor of such a ban. And courts in Pennsylvania and New York have recently ruled in favor of letting cities have some control over the drilling.  There is little surprise that Texas is at the forefront of the fight between energy companies and other fracking supporters and critics who say the drilling process is noisy, pollutes water supplies and triggers earthquakes. Most of the attention in Texas is now on Denton, a college town near Dallas that sits on the Barnett shale formation that is full of natural gas. The city became the first in Texas to impose the ban and has emerged as a test case for municipalities across the state trying to halt the drilling -- particularly in the face of the powerful energy industry and the Texas General Land Office, which owns 13 million acres of land across Texas and uses revenue from the mineral rights to fund public education.

Plant Expansions Fueled by Shale Boom to Boost Greenhouse Gas, Toxic Emissions -- Motivated by an abundance of gas, at least 120 petrochemical facilities are planned around the U.S. —equivalent in CO2 emissions to 28 coal plants. Sasol North America, the domestic division of a South Africa-based energy and chemical company, has begun buying out many of the 300 or so remaining inhabitants of Mossville, offering cash for the homes they grew up in and their parents built. Those it hasn’t bought may be expropriated come February. The state of Louisiana says it will allow the facility to release up to 10.6 million tons of greenhouse gases and 3,275 tons of volatile organic compounds such as benzene, a carcinogen, into the atmosphere each year. This is on top of the 963 tons of pollutants that were discharged into the air by Sasol and other companies within the 70669 ZIP code last year, according to the U.S. Environmental Protection Agency. The Sasol project is among at least 120 of its type planned around the United States , according to data compiled and analyzed by the Environmental Integrity Project, a research and advocacy organization. Motivated by an abundance of cheap natural gas unleashed by hydraulic fracturing—fracking—companies like ExxonMobil and Shell want to build or add on to petrochemical plants, oil refineries and fertilizer plants in places like Mont Belvieu, Texas, and Monaca, Pennsylvania. They have asked state regulators for permission to release a collective 130 million tons per year of carbon dioxide equivalent, a measure of the global-warming potential of certain emissions

Texas Inspectors Fired for Enforcing the Rules  The dismissals of two Railroad Commission inspectors help tell the story of oil and gas regulation in Texas. Former Railroad Commission inspector Fred Wright, who is suing the agency for a wrongful termination, said he was asked to bend the rules to allow wells to begin operating before they met all the regulatory standards for safety. This is a document related to the case. Two former oil and gas inspectors for the Texas Railroad Commission, Fred Wright and Morris Kocurek, were fired within months of each other in 2013. They say they were fired because they demanded that the oil and gas industry strictly abide by state regulations designed to protect the public and the environment. The inspectors’ responsibilities included keeping old and new wells safe and making sure the industry’s often-toxic waste didn’t become a hazard. Below are links to some of the hundreds of pages of commission records that InsideClimate News used to document the praise, promotions, censure and exile that marked the men’s careers. The documents were obtained by filing requests under the Texas Public Information Act.

FIRED: — During their careers as oil and gas inspectors for the Texas Railroad Commission, Fred Wright and Morris Kocurek earned merit raises, promotions and praise from their supervisors.They went about their jobs—keeping tabs on the conduct of the state’s most important industry—with gusto.But they may have done their jobs too well for the industry’s taste—and for their own agency’s.Kocurek and Wright, who worked in different Railroad Commission districts, were fired within months of each other in 2013. Both say their careers were upended by their insistence that oil and gas operators follow rules intended to protect the public and the environment.The incidents Kocurek and Wright describe offer an inside look at how Texas regulates the oil and gas industry, a subject InsideClimate News and the Center for Public Integrity have been investigating for more than a year and a half.The investigation has found that the Railroad Commission and its sister agency, the Texas Commission on Environmental Quality, focus more on protecting the industry than the public, an approach tacitly endorsed by the state’s political leaders. The Railroad Commission is controlled by three elected commissioners who, combined, accepted nearly $3 million in campaign contributions from the industry during the 2012 and 2014 election cycles, according to data from the National Institute on Money in State Politics. Gov. Rick Perry collected a little less than $11.5 million in campaign contributions from those in the industry since the 2000 election cycle. The governor-elect, Attorney General Greg Abbott, accepted more than $6.8 million.

Earthquakes + Massive Water Consumption = Consequences of Fracking  - Earthquake! We must be in California, right? Wrong. As of mid-2014, Oklahoma surpassed California in number of 3.0 or higher magnitude earthquakes. How? Scientists are beginning to speculate that hydraulic fracturing, or “fracking,” is the cause behind this phenomenon. Currently occurring in more than 25 states, the process uses “massive amounts of water” which “could be responsible for creating a wave of pressure … that triggered the earthquakes.” These “frackquakes” are not the only effect this water-intensive practice of retrieving natural gas has on our environment. In recent years, the U.S. Environmental Protection Agency has reported this method to annually deplete between 70-140 billion gallons of water in the U.S. That’s equal to the water consumption of approximately eighty 50,000-person cities! So why is such an exhaustive system gaining popularity?

Shell Oil May Nix $90M Settlement With Polluted Town Because It Wasn't Kept Secret - Shell Oil Co. is reportedly reconsidering its offer to pay $90 million to residents of a California town with widespread soil contamination, saying they had wanted the settlement to be kept confidential. According to a Law360 report, Shell attorney Deanne Miller told Los Angeles Superior Court Judge William Highberger on Friday that his refusal to keep the terms of the agreement secret left the case unsettled. On Thursday, Shell withdrew its application for a “good faith” settlement with the plaintiffs in Carson, California, who claim they’ve been plagued with cancer, blood disorders, and other illnesses from exposure to benzene, methane, and other hazardous chemicals in petroleum. Shell had announced in November that it would pay $90 million to 1,500 current and former Carson residents, specifically those living in a neighborhood called the Carousel Tract. The houses in Carousel were built in the 1960s, directly on top of a former Shell oil tank farm that had been buried. In 2008, the Los Angeles Regional Water Quality Control Board found that the soil in Carousel was widely contaminated with unhealthy levels on benzene, a known human carcinogen that can cause blood disorders and birth defects. The Board deemed Shell the responsible party, and residents who claimed they had been harmed — either with illnesses or declining property value — sued the company in 2009.

Call For Crude-By-Rail Moratorium In California After Train Derailment -- A train derailment last week has prompted a California state legislator to call for a moratorium on crude-by-rail shipments through the state’s “most treacherous” passes.  Twelve cars  derailed on a Union Pacific rail line along the Feather River northeast of Oroville, CA in the early morning hours of November 5th. The state Office of Emergency Services responded by saying “we dodged a bullet” due to the fact that the train was carrying corn, some of which spilled into the river, and not oil.  State Senator Jerry Hill (D-San Mateo), a vocal critic of the state’s emergency preparedness for responding to crude-by-rail accidents, does not think California should wait around for a bullet it can’t dodge before taking action. Hill sent  a letter to Governor Jerry Brown calling for a moratorium on shipments of volatile crude oil from North Dakota’s Bakken Shale and other hazardous materials via the Feather River Canyon and several other high risk routes throughout California.  “This incident serves as a warning alarm to the State of California,” Hill wrote in the letter. “Had Tuesday’s derailment resulted in a spill of oil, the spill could have caused serious contamination in the Feather River, flowing into Lake Oroville and contaminating California’s second largest reservoir that supplies water to the California Water Project and millions of people.”

Activists protest Nevada public land auctions for fracking - A coalition of activists on Tuesday protested outside the office of the federal Bureau of Land Management in Reno to decry an auction of huge tracts of public land for private oil and gas exploration that they claim damages the environment and guzzles water in a time of drought. Wearing blue and carrying empty jugs to signify the loss of water, protesters said that auctioning leases on 189,000 acres of public lands in the state’s eastern reaches had angered Nevadans of all social stripes and politics to speak out against fracking, which they say threatens public health, wildlife and quality of life.   The precise formulations and types of chemicals used inn fracking have been mostly kept secret by the industry, which says the information is proprietary. Activists say the process pollutes the aquifer beneath the drill sites, harming precious groundwater in a desert state. In September, BLM officials announced they will begin auctioning off parcels in eastern Nevada for fracking leases. On a cold Reno Tuesday, several dozen activists waved signs that showed their diversity, including ranchers, real estate agents and Native American leaders: “Nevada is Not for Sale,” one read, while another boasted “Realtors against Fracking.” One animal lover posted a sign on a pet that read “Dogs against Fracking.”

Sage grouse scares off BLM oil, gas bidders in Nevada - (AP) — Concerns about potential future protection of the sage grouse scared off bidders for all but one of 97 oil and gas leases the U.S. Bureau of Land Management offered at auction Tuesday for energy exploration across about 300 square miles of northeast Nevada. Two dozen anti-fracking protesters rallied outside BLM headquarters in Reno against the drilling that likely would utilize underground hydraulic fracturing that critics say threatens fish, wildlife and Nevada's limited supply of groundwater. But Patricia LaFramboise, chief of BLM's minerals adjudication branch, said concern about the potential federal listing of the greater sage grouse under the U.S. Endangered Species Act was the main reason only one of the six representatives of the oil and gas industry offered the lone bid for the single 473-acre parcel in Nye County at the minimum $2 per acre. The 97 leases that went on the auction block covered more than 186,000 acres of northeast Nevada, from north of Austin to near the Utah border.

Leaking wells a burning issue: Serge Fortier has been trying for years to raise awareness about leaking wells along the St. Lawrence River. Nothing has been quite as effective as setting them on fire. "The reaction came very rapidly," says Fortier, an environmental activist whose fiery demonstration near Ste-Francoise has prompted the Quebec government to acknowledge it has a problem - one that regulatory officials are often not keen to discuss. In Alberta, where old wells have been uncovered in schoolyards, backyards and at shopping malls, officials are saying little about a well that has now turned up at Calgary's airport, which is in the midst of a $2-billion expansion. "There is an investigation right now with respect to an abandoned well at the airport," Brenda Cherry, vicepresident of closure and liability at the Alberta Energy Regulator, told Postmedia News. She would not comment on whether the airport well is leaking or if it's under the new 4.2-kilometre runway, saying details are "confidential" until the investigation is complete. And in British Columbia, where it's estimated as many as 10 per cent of oil and gas wells leak, one leak reportedly cost $8 million to repair. More than 550,000 holes have been drilled in Canada since North America's first well gushed "black gold" in southern Ontario in 1858. And industry is boring another 10,000 wells a year as controversial fracking operations in Western Canada extend their reach. As the wells proliferate, so do concerns about the way many of the kilometresdeep holes in the ground are leaking because of cracked, poorly formed and decaying plugs and seals.

Why US Shale May Fizzle Rather Than Boom -- The Shale Revolution may not really end up being a revolution after all. A new study in Nature finds that the estimates for shale gas production could be vastly overblown, and production could peak within the next decade. It is first important to note that forecasting energy production years into the future is always difficult and pinpointing the trajectory of oil and gas production years out is an impossible task. However, many forecasters, including the closely-watched Energy Information Administration (EIA), have highly bullish projections on the ultimate recoverability of natural gas trapped in American shale.For example, in its latest Annual Energy Outlook, the EIA predicts that shale gas production will continue to climb upwards over the next several decades. By 2040, the agency forecasts, the U.S. will be producing 56 percent more natural gas than in 2012, largely driven by a doubling of natural gas production from shale. Writing in Nature on December 3, Mason Inman reports that such predictions could be wildly optimistic. Using data from a team of researchers from the University of Texas, which studied the topic for three years, Inman concludes that the shale story is not nearly as revolutionary as everyone thinks. Inman says that shale gas production from the big four shale plays – the Marcellus, Barnett, Fayetteville, and Haynesville – which account for two-thirds of the country’s shale gas output, will peak in 2020, declining thereafter. If that is true, even the EIA’s most downbeat scenario for shale gas production could be overly optimistic.

The American Miracle Idea Of Energy Independence Is Crumbling - And on the Seventh Day, God sold his shares? What do you think, is He short the market? Short oil? Oil does look up a tad, but then the dollar lost about a percent vs the euro, so that definitely feels like a headfake from where I’m sitting. The dollar lost more vs the euro than oil gained against the dollar. Gold and silver have somewhat more solid looking gains, but that’s against the same feverish buck, so what does it really mean? We’ll have to wait and see. Now, be honest, who’s getting nervous yet? WTI oil yesterday fell 4.5% and tumbled through $63. $63, brother, you remember when it was $80 and you were thinking wow, that’s a long way down? That’s when you took that suit to the cleaners, and that feels like just yesterday, don’t it, and here we are, it’s down another 20%+. Anyone worried about their Christmas bonuses yet? New Year’s? The central-bank-propped-up stock exchanges didn’t even like what they saw anymore either yesterday, let alone today. Greece down -13%, Shanghai -5.4%, Argentina -7.1%, Europe on average -2.5%. And that’s on a weak dollar day… Think we’ll have a lot of those days? Think God is short the greenback? Is oil going to break the whole facade? What do YOU think? You think that maybe we’ve had enough of this charade? Is this the one God, let alone the Yellens and Draghis on this planet can’t manipulate from their comfy seats? The Fed can buy Exxon and Conoco, and Draghi can try and support Shell and BP, or maybe the Bank of England should, but oil is a global thing, it’s not like Treasuries or Greek debt that you can just buy a $1 trillion handful of every week or so. But maybe God found a way to keep some more of the stuff in the ground. Who was it again that said nature developed man only to get rid of a carbon imbalance on the planet, to get it out of the soil and back into the atmosphere?

Oil falls more than $1 as rout extends, Morgan Stanley cuts forecast (Reuters) - Oil prices fell by more than a dollar on Monday to near their lowest levels since 2009 after Morgan Stanley cut its price forecast for Brent, saying oversupply will likely peak next year with OPEC deciding not to cut output. "Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley said in a report. Brent crude for January delivery dropped to a low of $67.73 a barrel, near last week's trough of $67.53 which was its weakest since October 2009. It was down 97 cents at $68.10 by 0051 GMT. Morgan Stanley slashed its 2015 base case forecast for Brent to $70 from $98 and for 2016 to $88 from $102. In its bear-case scenario, the bank sees the crude benchmark falling to a low of $43 in the second quarter of next year. Top oil exporter Saudi Arabia blocked calls from poorer members of the Organization of the Petroleum Exporting Countries to reduce production at the group's meeting on Nov. 27, fueling a further slide in oil prices which have lost more than 40 percent since June. "With OPEC on the sidelines, oil prices face their greatest threat since 2009, but we expect a volatile 2015 rather than a one-way trade," Morgan Stanley said in a report. U.S. crude fell 96 cents to $64.88 a barrel, after hitting a session low of $64.63. West Texas Intermediate crude dropped to $63.72 last week, its lowest since July 2009.

Crude oil drops to 5-year low on oversupply forecasts - Brent crude oil fell almost $2 a barrel on Monday to a new five-year lows on predictions that oversupply would keep building until next year after OPEC decided not to cut output. "Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley analyst Adam Longson said. In a report dated December 5, the US investment bank said oil prices could fall as low as $43 a barrel next year. The bank cut its average 2015 Brent base case outlook by $28 to $70 per barrel, and by $14 to $88 a barrel for 2016. Brent crude for January was down $1.45 cents at $67.62 a barrel by 1000 GMT, having fallen $1.72 to $67.35 - its lowest since October 2009. US crude was down $1.16 cents at $64.68 a barrel, after hitting a session low of $64.63. The US contract, also known as West Texas Intermediate, touched $63.72 last week, its lowest since July 2009.

Oil Slumps to Five-Year Low Amid Concern Funds May Start Selling -  Brent crude slumped to a five-year low amid concern that hedge funds and other money managers bet too much on rising prices. West Texas Intermediate also fell. Futures dropped as much as 3.3 percent in London and 2.6 percent in New York. Net-long positions on Brent rose to the highest in four months in the week to Dec. 2, according to data from the ICE Futures Europe exchange, while bullish bets on WTI climbed the most in 20 months. Brent declined 9.9 percent in the period while WTI slumped 9.7 percent. “The near-term risk is for additional long-liquidation,” “The belief is spreading that we could hit $60 or even lower before this stabilizes.” Oil is trading in a bear market as the U.S. pumps at the fastest rate in more than three decades and global demand growth slows. Explorers in the U.S. increased the number of operating rigs last week, defying predictions of a drilling slowdown as price plunge, data from Baker Hughes Inc. show. Brent for January settlement declined as much as $2.30 to $66.77 a barrel on the London-based ICE Futures Europe exchange, the lowest since Oct. 7, 2009. It declined $1.84 to $67.23 at 1:38 p.m. local time. The European benchmark crude traded at a premium of $2.65 to WTI.   WTI for January delivery dropped as much as $1.74 to $64.10 a barrel in electronic trading on the New York Mercantile Exchange. It slid 97 cents to $65.84 on Dec. 5, the lowest close since July 2009. The volume of all futures traded was about 3 percent above the 100-day average for the time of day. Prices decreased 34 percent this year.

Signs Of Peak Oil Starting To Emerge: What caused the recent crash in the oil price from $110 (Brent) in July to $70 today and what is going to happen next? With the world producing 94 Mbpd (IEA total liquids) $1.4 trillion has just been wiped off annualized global GDP and the incomes of producing and exporting nations. Energy will get cheaper again, for a while at least. The immediate impact is a reduction in global GDP and deflationary pressure. There is a lot of information to review and summarize and so this week and next we will present the story in stages culminating we hope with an oil market forecast scenario. The concept of peak oil remains controversial. One school observes that the Olympic Peak of July 2008 (87.9 Mbpd, total liquids IEA) has been swept away by successive production records, the latest data from the IEA showing 94.2 Mbpd. In a recent post I showed that all of the growth in total liquids since May 2005 has come from either low quality (NGL) or expensive supply (light tight oil [LTO] and tar sands) (Figure 2). And most of this growth is located in the USA and Canada.  But while the USA and Canada have been bathed in the warm glow of growing supplies of expensive oil, the RoW has seen their supplies stagnate and fall (Figure 1). The importing countries like most of Europe, China, India, Japan and S Korea are all competing for finite supplies from OPEC. Since oil is often seen as the lifeblood for the global economy, not managing to access enough of it at the affordable price you want inevitably strangles growth out of the economy. It is this competition for supplies that has underpinned $100+ oil and undermined economic growth for so long.

3 Things to Keep in Mind About Falling Oil Prices - Ten years ago, the kind of steep drop in oil prices we’ve seen in recent weeks would have been cause for unmitigated celebration. Economists almost universally analogized higher oil prices to a tax, with the proceeds largely going abroad to OPEC oil-producing countries. So any reduction in oil prices was viewed like a taxcut. Who could be against that?  It’s an indication of how much has changed in energy markets over the past decade that fallen oil prices are viewed with mixed feelings. Yes, some consumers are understandably happy that gas prices almost everywhere have dropped below $3 a gallon. But others worry that the falling oil prices, now down to the mid-$60s per barrel, and possibly falling to about $60 per barrel, will crimp efforts by U.S. shale oil producers to pump more oil out of existing wells and, worse, induce them to quit looking for more. Some environmentalists worried about fracking, which has made shale oil (and gas) economic relative to renewable fuels, might be happy that it could be curtailed. But other environmentalists worry that lower oil prices will yet again stifle efforts to wean U.S. consumers off of alternative fuels that are more expensive but more environmentally friendly–solar and wind, in particular. So what to expect from the decline in oil prices? For a thoughtful answer, I suggest reading experts at Resources for the Future, one of the most balanced energy-environmental think tanks around. A recent post by RFF scholar Alan Krupnick provides some words of wisdom. For one thing, the price drop hasn’t yet curtailed domestic oil production, which is running at 9 million barrels a day, a high.  Second, if prices remain low, it could induce mergers among some of the smaller shale oil producers, which Mr. Krupnick thinks is not all bad: Larger companies buying them out are more likely to have the resources and skills to take precautions necessary to preserve the environment when fracking. Third, low prices are temporary, so enjoy them while you can. Over the long run, a growing world economy will put upward pressure on prices.

Saudis Cut Oil Prices Again In Bid To Maintain Market Share --Saudi Arabia may have led the move to keep OPEC’s crude production high and thereby keep prices low, but that doesn’t mean it isn’t concerned about keeping its share of the global oil market.  Riyadh evidently demonstrated that on Dec. 4 when it dramatically cut oil prices for Asian and US customers. Saudi Aramco lowered the price of all its oil grades for Asian customers in January by between $1.50 and $1.90 per barrel below December prices. For US customers, prices for all grades will decline by between 10 cents and 90 cents.  At the same time, Saudi Aramco raised prices for all its grades of crude for clients in the Mediterranean and in northwestern Europe by between 20 cents and 50 cents per barrel.  The Saudis haven’t explained their reasoning, and some analysts told Reuters that the pricing change is merely a reflection of the oil market. But others note Saudi Arabia has been cutting prices to certain customers, especially in the US, since before it steered the cartel to maintain production levels at the OPEC summit in Vienna on Nov. 27.  Now, with world oil prices falling daily – they’re down by nearly 40 percent since mid-June – some observers and some OPEC members believe the Saudis aim to maintain their market share, especially in the US. The American oil industry has been experiencing a domestic boom, but it’s predicated on expensive hydraulic fracturing. Cheap Saudi oil, they reason, could undercut that boom.

How the U.S. could fight OPEC and win (and why it won't) -- OPEC has declared war on American oil production with the intention of making the country more dependent on imported oil and on oil in general. By refusing to cut production in the face of weakening world demand, the cartel has allowed oil prices to fall more than 35 percent since mid-year to levels that are likely to make most new oil production in America's large shale deposits unprofitable. That could not only halt growth in U.S. production, but may lead to an actual drop because production from already operating deep shale wells declines about 40 percent per year. The United States could chose to fight back and possibly win this war with OPEC by employing one simple, big move. But, I can confidently predict that the country will not do it. Why? Because it involves a tax, a tariff actually. Back in 1975 then-Secretary of State Henry Kissinger proposed that the world's oil importers adopt a floor price for oil. The purpose was threefold: 1) encourage domestic oil production, 2) accelerate the development of alternative energy sources by making their price more competitive with oil and 3) encourage conservation of oil and oil-derived products such as gasoline and diesel fuel. The easiest way to achieve the floor price, of course, would be to slap a sliding tariff on imported oil. The formula for such a tariff would be simple: The floor price minus the price of imported oil unless the price of imported oil equals or exceeds the floor price, in which case, the tariff would be zero. Imposing a tariff that keeps U.S. oil prices above, say, $100 per barrel would only return the domestic price of gasoline and other refined products to their level of just six months ago. Presumably, that wouldn't be much of a shock to consumers.

Oil Prices Collapse To New Cycle Lows, Canada Heavy Tumbles Under $50 -- The crude carnage continued overnight with oil prices across the entire complex crashing through support to new cycle lows. Despite recent strategic reservce demand in China, the world's oil glut continues as global growth expectations plunge leaving WTI trading as low as $64.10, Brent $66.77 (narrowing the Brent-WTI spread to $2.68 from $3.23 on Friday), and most stunning of all, Canada Heavy as low as $49.24. Speculators and money managers appear to be BTFD as they increased net long positions last week (amid the price slump) but comments from Kuwait Petroleum's CEO and Iran officials suggest 'lower for longer' on prices will be the norm. As Morgan Stanley notes, "with OPEC on the sidelines, oil prices face their greatest threat since 2009 and appear on track for an extremely volatile 2015"

Here's why oil companies should be a lot more profitable than they are (Reuters) - The  shareholders of oil majors such as Exxon, Chevron, Shell, BP and Total could be among the biggest beneficiaries of the price slump, if it forces their corporate managements to abandon some of the bad habits they acquired in the 40-year oil boom when OPEC first established itself as an effective cartel in January, 1974. If this period of cartelized monopoly pricing is now ending, as Saudi Arabia has strongly hinted in the past few weeks, then it is time to re-focus on some basic principles of resource economics that Big Oil managements have ignored for decades, to their shareholders’ enormous cost. The most important of these principles is “diminishing returns”: The more oil that corporate geologists discover, the lower the returns their shareholders can hope to achieve, because new reserves will almost invariably be more expensive to develop than the ones discovered earlier that were, almost by definition, more accessible. This inherent flaw in the oil companies’ business model was disguised for the past 40 years by the fact that oil prices rose even faster than the costs of exploration and production. But this is where a second economic principle now starts to bite. Unless a market is totally dominated by monopoly power, prices will be set by the most efficient supplier’s marginal costs of production – in layman’s terms, by the cost of producing an extra barrel from oil reserves that have already been discovered and developed. In a fully competitive market, the enormous sums of money invested in exploring for new oil fields could not be recovered until all lower-cost reserves ran dry and there would be no point in exploring for anywhere outside the Middle Eastern and central Asian oilfields where the oil is easiest to pump.

Oil Falls to 5-Year Low, and Energy Companies Start to Retrench -  The price of crude oil continued to collapse on Monday, plunging to a five-year low, as oil giants began to scale back their drilling ambitions and pare the ranks of their workers.On the same day that the American oil benchmark traded around $63 a barrel, down more than 4 percent, ConocoPhillips announced it would cut investment spending in 2015 by 20 percent, the biggest sign yet that major oil companies are contracting.The announcement came on the heels of BP’s notice that it would cut middle management and other jobs in the months ahead.Both moves suggested that the 40 percent drop in oil prices since July had spread pain beyond small exploration companies that were highly leveraged and most vulnerable to oil price swings.“We are setting our 2015 capital budget at a level that we believe is prudent given the current environment,” said Ryan Lance, ConocoPhillips’s chairman and chief executive.But even with the sharp cut in investments, the company projected that its oil and gas production would grow 3 percent next year because of recent start-ups of major projects in Canada, Europe and Asia, as well as increasingly productive wells being drilled in the Eagle Ford and Bakken shale fields of Texas and North Dakota.That forecast, combined with the slow decline in drilling rigs deployed in fields worldwide, indicates that whatever hopes Saudi Arabia and other OPEC producers have that lower prices will lead to quick production declines are unlikely to happen before late 2015. The cartel decided last month to keep its 12 members’ production quotas steady, in a move that accelerated the oil price drop.

Oil Price Drop Not Affecting US Drilling --The drop in oil prices caused by a supply glut hasn’t daunted US drillers. Oil companies are still drilling in the United States at the highest rate in more than 30 years even as demand in China and Europe sags. In fact, the Houston-based oilfield-services giant Baker Hughes is reporting that the number of active US rigs saw a net increase of three to 1,575 the week ending Dec. 5.  This defies predictions that drilling, much less exploration, would decline because of OPEC’s decision on Nov. 27 not to reduce its production limit of 30 million barrels of oil per day. The move was orchestrated by Saudi Arabia and other extremely wealthy Persian Gulf oil producers despite the pleas of poorer members such as Venezuela and Libya. The wealthier OPEC members are defending their market share and apparently challenging American shale oil producers, whose methods, including hydraulic fracturing and horizontal drilling, are more expensive than conventional extraction methods and unsustainable if prices drop too low.It’s too early to say whether this modest increase is a signal that US producers are fighting back against OPEC. Although the American rig count reached a record 1,609 in mid-October, the number has receded in five of the past eight weeks, according to the Baker Hughes report, issued on Dec. 5. Still the count is more than 200 rigs higher than in December 2013 when 1,397 rigs were drilling. In the week ending Dec. 5, the oilfields with the most new rigs were the Granite Wash in Texas and Oklahoma, according to the Baker Hughes report. At the same time, some rigs were removed from the Cana Woodford field in Oklahoma, Eagle Ford in Texas and Williston, spanning areas of North Dakota and Montana. Meanwhile, Baker Hughes reports that the number of vertical gas-drilling rigs remained static at 344, down by 11 from the same week in 2013. The number of these rigs had peaked at 1,606 in 2008. And the net number of horizontal rigs for both shale oil and gas dropped by three to 1,368 after peaking at 1,372 in mid-November.

Oil Price Drop Not Affecting US Drilling Much - Yves Smith - There have been two view of how the sudden plunge in oil prices would affect US oil production. Yet it is instructive to see how different reporters are reading the same data sources. The Financial Times in a story tonight that also looked at oil production levels, pointed to a decline in rig count and in filing new drilling permits:  Last Friday Baker Hughes, the energy services group due to be bought by rival Halliburton, published data which showed the number of rigs drilling for oil in the Eagle Ford shale of south Texas had fallen by 16 since October to 190. The number of rigs in the Bakken shale and related North Dakota formations had meanwhile dropped by 10 to 188. Also last week Drillinginfo, a consultancy, published figures showing that the number of applications for permits to drill new wells had fallen by about 30 per cent in both the Bakken and the Eagle Ford areas last month compared with October. That may overstate the likely drop in activity, because companies will have a backlog of permits they can use, but it is clear the industry is responding to a steep drop in the oil price. The Financial Times also points out that areas that will be hardest hit are the marginal ones, and contends that good assets in the hands of overlevered drillers will move to stronger owners. It ends on an upbeat note:. “Even at $50 oil, though, US production probably plateaus, but it doesn’t start going down.” However, keep in mind that these comparatively sunny views are based on the assumption that oil prices next year average $70. If they are sustained below that level, the picture starts to change. Note this contrasting view from Bank of America, via Ambrose Evans-Pritchard:The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned. Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a mucher cheaper source of gas for Europe…

Non-fundamental factors drag crude oil prices - The precipitous fall in crude oil prices has spawned a whole lot of discussion on the causes of the price action and the desirability or otherwise of low prices in the long-term interest of the industry as well as the consumers. Current rates hover slightly above $60 a barrel, down from around $85 a barrel two months ago and $95/barrel a year ago. Most analysts attribute the price collapse to a combination of factors on the demand and supply side. They assert that market fundamentals have undergone a change — rising supplies and weak demand growth. Expanding shale oil production in the US together with reluctance of most OPEC members and non-OPEC producers to cut production is cited as a reason for robust supplies. That demand-supply fundamentals have impacted crude prices is only a part of a bigger story and hardly helps explain the current price situation. If anything, reasons for the price fall are non-fundamental in nature covering geo-political developments, monetary policy, currency movements and speculation.  Quantitative easing by the US Fed meant availability of ‘easy money’ at nearly no cost for an extended period of time. Slowdown in the US economic activity including high unemployment rates pushed the value of dollar lower. At some stage, an euro could buy $1.38. A weak dollar props commodity prices up. As for crude, geopolitical instabilities exacerbated the situation in different parts of the world and raised apprehensions of supply shock. So, a combination of easy money, weak dollar and geopolitical tensions created an ideal situation for speculative capital to rush in. In a commodity market with fairly balanced demands-supply fundamentals, flow of speculative capital exerts an exaggerated impact on prices. By the market’s very nature, the price action is disproportionate to the flow of funds.

Winter demand to provide floor for crude oil prices: Platts expert - Higher winter demand may provide the necessary floor to crude oil prices in the short-term, even as Russia looks to India to fill the gap post the western sanctions, a senior official at Platts told Gulf News. On Friday, Brent for January settlement fell 57 cents to end at $69.07 per barrel, the lowest close since Oct. 7, 2009. Prices have slipped 38 per cent in 2014. Market has been on a decline mode as traders eye surplus oil supplies to meet weak oil demand post the Opec decision to maintain output. But after a free fall in prices, “the expectations are the higher winter oil demand in the northern hemisphere might provide a temporary floor, with a downward drift resuming in Q2 next year,”  The May quarter has been the traditional slow demand season, when 5-6 million barrels per day of refining capacity worldwide is expected to go offline for seasonal maintenance, she said.  Platts' expert feels weak demand for crude oil to continue from Europe, which is still reeling under recession. Factored into the current market bearishness is expectation of European demand continuing to drift sideways or even slide lower in the coming months, as the economic headwinds remain in place, said Hari.

Energy Quote of the Day: ‘Oil Prices are Expected to Remain High Enough in 2015…’ - Breaking Energy - Energy industry news, analysis, and commentary: Today the US Energy Information Administration slashed its 2015 oil price forecasts, but the statistical arm of the DOE still expects total oil output to increase to volumes not seen since 1972.  As we reported last week, it will take some time before current lower oil price levels manifest in lower US oil production volumes. And while most analysts have cut their average 2015 oil price forecasts, many see prices strengthening again toward the end of next year. For example, Barclays expects quarterly average WTI prices of $58 per barrel in Q1, $61/bbl Q2, $68/bbl Q3 and $76/bbl in Q4. For its part, the EIA forecast WTI to average $63/bbl next year and the “discount of WTI to Brent crude oil is forecast to widen slightly from current levels, averaging $5/bbl in 2015. “U.S. oil production growth is expected to slow next year in response to lower crude prices, but annual output is forecast to still increase to the highest level since 1972.” “Continued lower oil prices will make some drilling activity less profitable in both emerging and mature U.S. oil production areas. However, oil prices are expected to remain high enough in 2015 to support new drilling in the major shale areas in North Dakota and Texas, which account for most of the growth in U.S. oil production.”latest Short-Term Energy Outlook

OPEC Sees Weakest Demand for Its Crude in 12 Years in 2015 - - OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and lower demand estimates. Brent fell below $65 a barrel for the first time since 2009. The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That’s about 1.15 million a day less than the group’s 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. “The fundamentals outlined in the report look quite bearish,” Abhishek Deshpande, oil markets analyst at Natixis SA in London, said by e-mail. “Fiscal balances are a huge problem for weaker OPEC members, so I won’t be surprised if they call for an emergency meeting early next year.” Prices now are below what 10 out of OPEC’s 12 members need for their annual budgets to break even, according to data compiled by Bloomberg. Kuwait and Qatar are the exceptions. Saudi Arabia, OPEC’s biggest member, has $742.4 billion of reserve assets, data from the country’s monetary agency show. OPEC’s next meeting is due to take place on June 5. Brent crude, the global benchmark, fell as much as 4.2 percent to $64.04 a barrel, the lowest since July 2009. It traded at $64.30 at 3:39 p.m. in London.

Oil Price Tumbles After OPEC Releases 2015 Forecast - The demand for oil in 2015 will drop to its lowest level since 2002 because of an oversupply of crude and stagnant economies in China and Europe, according to OPEC’s latest forecast. And that’s just one of several sour estimates.  OPEC’s monthly report said demand for the cartel’s oil will fall to 28.9 million barrels per day next year, 280,000 barrels lower than its previous forecast and the lowest in 12 years. Add to that a new report from the US government’s Energy Information Administration (EIA), which also cut its 2015 forecast for growth in global oil demand by 240,000 barrels per day, down to 880,000 barrels per day.  For 2014, the EIA expects demand will be about 960,000 barrels per day. And yet on Nov. 27, OPEC refused to lower its production levels below 30 million barrels a day, adding to the oil glut that started with the US boom in high-quality shale oil. As a result, the price of Brent crude has plunged more than 40 percent since June. Futures for US crude also are down dramatically. “There is a growing realization that the first half of next year is going to look very weak,” Gareth Lewis-Davies, a strategist at the Paris-based bank BNP Paribas, told Reuters. “You start to price that in now.” On Dec. 9, meanwhile, the American Petroleum Institute (API) reported that inventories of US crude rose during the week ending Dec. 6 by 4.4 million barrels to 377.4 million barrels. The increase was twice as large as had been expected. US backlogs of gasoline and distillates also were up, according to the API.

Oil price falls below $65 for first time in 5 years - The price of internationally traded oil fell below $65 for the first time in more than five years on Wednesday after Opec lowered forecasts of demand for its crude to their lowest level in a decade. The report by Opec, the producers’ cartel, underlined the looming supply glut facing oil markets amid surging US shale output and weakening global demand, raising hopes of a boost for consumers but piling further pressure on to oil companies. It worsened the already bearish outlook for oil, which has fallen 43 per cent since mid-June. Brent, the international benchmark, fell as much as 4.9 per cent to $63.56, the lowest level since July 2009. West Texas Intermediate, the US benchmark, also fell after US crude stocks unexpectedly rose. “For prices, the path of least resistance is down,” said Michael Wittner, analyst at Société Générale The price slide battered energy stocks, with shares in ExxonMobil slipping 3 per cent, Chevron dropping 3.4 per cent and Petrobras, the Brazilian state-controlled energy group, falling 4.9 per cent. As the price rout continued, there was further evidence on Wednesday that cheaper crude was forcing oil companies around the world to rethink their spending plans. BP announced a sweeping cost-cutting programme that will lead to $1bn in restructuring charges over the coming year and the loss of several thousand jobs across the group. It also signalled it would trim its guidance for capital expenditure for 2015.

Why OPEC still has oil markets over a barrel - The oil-importing world has long hoped that the Organization of Oil Exporting Countries — a union of countries often at odds with each other — will fall apart and usher in an era of free-market oil. OPEC’s decision at its November meeting to maintain output at 30-million barrels per day has once again raised the age-old speculation that the 12-member group featuring Saudi Arabia, Iran, Venezuela and Iraq, among others, has become ineffective. “With oil having to ‘balance itself’ going forward, OPEC has given up on its traditional role of keeping supply and demand in check,” said Bank of America Merrill Lynch in a report. . “The cartel is now effectively dissolved.” Hold the champagne. Since the 1970s the group’s recalcitrant members have lurched from one oil episode to the next and have a long tradition of holding acrimonious meetings that seem to be their last. Often those meetings have not yielded the desired results, either.The dysfunctional group has survived bloody wars between member countries (Iraq and Iran; Iraq and Kuwait), overcome US$9 per barrel oil in the late 1990s, and managed to hold regular meetings even as Saudi Arabia and Iran engage in proxy wars for regional influence. Saudi Arabia’s latest feat of muzzling dissent from Iran and Venezuela in November is also nothing new, as Riyadh has long held sway over the group with the help of allies protecting its interest against a cabal of other member countries. But it’s also true that the recent US$50 drop in Brent crude prices from its summer high is uncomfortable for most OPEC producers.  OPEC’s proceeds from oil exports will no doubt be affected, but the group will still rake in revenues of $760-billion this year alone, to add to the trillions of dollars already parked in sovereign wealth funds and global assets, and giving it the fiscal cushion to ride out the oil decline.

Oil Drops Below $60 After Saudis Question Need to Cut - Benchmark U.S. oil prices dropped below $60 a barrel for the first time since July 2009 as Saudi Arabia questioned the need to cut output, signaling its priority is defending market share. West Texas Intermediate crude slid 1.6 percent in New York. The market will correct itself, according to Saudi Arabian Oil Minister Ali Al-Naimi. Global demand for crude from the Organization of Petroleum Exporting Countries will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, the group predicted yesterday. Oil’s collapse into a bear market has been exacerbated as Saudi Arabia, Iraq and Kuwait, OPEC’s three largest members, offered the deepest discounts on exports to Asia in at least six years. The group decided against reducing its output quota at a meeting last month, letting prices drop to a level that may slow U.S. production that’s surged to the highest level in more than three decades.

World Oil Prices Slide to Lowest Since 2009 - Another day, another five-year low.As of today a barrel of oil (should you need one delivered in January) will set you back less than $60. The last time it was that cheap was in May 2009, just after the Federal Reserve launched its quantitative easing program to stop the U.S. economy imploding.The trigger for Friday’s tumble was a new report from the International Energy Agency on the outlook for the world market in 2015. The Paris-based organization cut its forecast for demand growth next year by 230,000 barrels a day to 900,000 b/d. That’ll mean that the planet is “only” burning an average of 93.3 million b/d next year, up from 92.4 million this year.The irony in the IEA’s report is that it’s oil-producing countries that will be using less oil than expected next year, a stark illustration of how the 40% drop in prices this year has transferred billions of dollars of spending power from those countries to consumers elsewhere. Economists might be cooing over how lower oil prices are acting like a tax cut in the West, but from Angola to Iran and Russia, it’s like a tax increase, as there are few tax dollars available to recycle into public-sector investment, wages or pensions.

WTI Crashes To $57 Handle; 80% Of Shale Production Non-Economic - WTI Crude just burst below $58 and is now over 46% below the peak in June. Since the initial leaks of no production cuts at OPEC, WTI is down 25% (gold and silver are up 2-4%). At these levels only 4 of the US 18 Shale Oil regions remain economic... 61...60...59...58...57... Down 25% from the initial OPEC leaks... Which leaves only 20% of US Shale regions economic...(graphs)

$60 oil will be norm for next 5 years: Economist - $60 oil will be norm for: Oil prices will stay around $60 a barrel for the next five years as China's economy cools down, economist Andy Xie told CNBC on Thursday. Oil prices had risen so high because of China's boom, the former Morgan Stanley and IMF senior economist said in a "Squawk Box" interview. China is now transitioning from a 15-year super cycle that built up a massive industrial machine, and the economy must cool down to digest overinvestment, which will drag down commodity prices, he said. "When China goes into normal situation, I think that the oil price will become normal, too, so $60 would be the normal price for the next five years or so," he said. Xie predicted the oil price plunge to $60 in September as China's energy demand tapered off. He said oil price declines are trailing the slide in coal, but he expects the gap to narrow. "Coal is down 60 percent, so eventually I expect oil to come down 60 percent, too," he said.  Over the next four to five years, China will experience deflation and sluggish demand, Xie said. Consumption will remain healthy, he added, with households continuing to spend and exports performing well. As a result, Xie sees the China story hitting raw material and equipment providers such as Australia, Japan and Germany, while consumer products providers like France and Switzerland will feel much less impact. Geopolitical analyst Richard Mallinson from Energy Aspects disagreed with Xie's forecast, saying the longer the low-price period persists, the more likely that demand will grow. "China isn't going to be the main center of demand growth anymore. It's economy is rebalancing and the growth rate is slowing, but there are other Asian economics, there are other parts of the world, and lower prices will unlock that demand growth. It will just take a bit of time to emerge,"

Overstated Tight Oil Reserves and a False Sense of Energy Independence -- A recent publication, "Drilling Deeper", by J. David Hughes on behalf of the Post Carbon Institute has proven to be a most interesting resource in this current low-oil price environment.  As a geoscientist, I found this report to be extremely well written and the authors analysis was both compelling and very thorough.  The report looks at the top seven tight oil and top seven tight gas plays in the United States that account for 89 percent of America's tight oil production and 88 percent of shale gas production and then projects when production from those plays will peak and then begin to decline.  It is these plays which have been made viable through the use of multi-stage hydraulic fracturing (aka fracking) that have brought the United States to the position where it is now one of the world's premier oil and natural gas producers.  The author, a geoscientist, then compares his production calculations to those of the Department of Energy's Energy Information Administration (EIA) which gives us a sense of whether or not production from non-conventional shale plays will be robust over the long-term and how long the United States economy can exploit its rediscovered energy independence.   For those of you that are non-oil industry people, when an oil or natural gas well is drilled, its production gradually declines over time.  The rate of decline can be very steep or it can be very shallow depending on the reservoir.  Here is a well production profile showing what the production history looks like for a typical Eagle Ford non-conventional oil well:

Oil Crash Comes Home To Roost: ConocoPhillips To Slash 2015 CapEx By 20% -- With every single hollow chatterbox repeating that crashing oil prices are "unambiguously good" it is clearly the case that the opposite is true.  And sure enough, the first indications that the crude price crash is about to lead to some serious pain in the US came first yesterday from BP, which announced over the weekend that it would "slash 100s of mid-level supervisor jobs" around the globe, and moments ago, from ConocoPhillips, which added that as a result of plunging oil prices, it would slash its 2015 spending budget by a whopping 20%, cutting off some $3 billion in capital spending mostly involving "less developed project: spending which for those who remember their GDP calculation, means a proportional reduction in the US Gross National Product.

Crashing Crude's First Casualty: One-Time Commodities Giant Phibro Liquidating -- While we were expecting that one-time "god of crude oil trading" would have a poor year as a result of his consistent bullishness on the crude space, we were quite astounded to learn, as Bloomberg first reported yesterday, that Andy Hall - the man whose name was for a decade legendary in the commodity space - would call it a day. And yet that pales in comparison to the WSJ report overnight than Phibro itself, Andy Hall's 113 year old employer currently owned by Occidental Petroleum after its sale by Citigroup, would liquidate in the US after it failed to buy a buyer, marking the end of an era.  As the WSJ reports, "the 113-year-old company, founded in Germany by two scrap-metal dealers, is winding down its U.S. operations after it failed to find a buyer, according to a person familiar with the situation. The sale process for units in London and Singapore continues, the person said. Phibro specialized in physical trading of oil and other raw materials, seeking to profit by moving actual barrels and acting as an intermediary between producers and consumers. The pool of potential buyers for these kinds of operations has dwindled in recent years amid a regulatory crackdown on Wall Street banks’ involvement in these markets." As for Hall, while he will sever his relationship with Phibro, he will continue working for his $3 billion hedge fund Astenbeck, of which Occidental owns 20%.

Goodrich, Oasis Petroleum cut spending for 2015 as oil slides (Reuters) - Goodrich Petroleum Corp and Oasis Petroleum Inc said they expect to spend much less on exploration and production next year, joining a list of U.S. oil and gas companies cutting capital spending as oil prices plunge. Goodrich shares fell as much as 14.7 percent to $3.57 in early trading. Oasis' shares fell as much as 13.3 percent to a record low of $11.01. Both stocks were among the top losers on the New York Stock Exchange on Wednesday. Several large oil producers, including ConocoPhillips and Apache Corp, have set lower capital spending budgets for 2015, rattled by a near 40 percent drop in global crude prices since June. Some have said they will deploy fewer drilling rigs next year. Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold in 2015, according to Norwegian consultancy Rystad Energy. Goodrich lowered its capital spending budget for 2015 to $150 million-$200 million. The company has budgeted spending of $325-$375 million for 2014, but said spending would likely be at the lower end of that range.

Big Oil Slashing Spending Amid Low Prices -- Oil prices continue to slide in mid-December, slumping towards another key threshold of $60 per barrel.  Oil prices hit a five-year low on December 10. While many major oil players have gone to lengths to assure markets that they can weather the price downturn – and indeed it is far from clear how long the current price collapse will last – low prices are clearly starting to have an impact on major investment decisions. Drilling permits dropped by 36 percent between October and November, and the number of rigs in operation continues to fall.  Many oil companies are beginning to pare back capital expenditures, reconsidering pouring billions of dollars into expensive projects that may or may not be profitable in the current environment. ConocoPhillips announced on December 8 that it would slash capital expenditures in 2015 by 20 percent, dropping its spending budget to $13.5 billion. And in a sign that the oil price slump is starting to take a major toll on future investments,  BP is also hoping to cut costs. It expects to lay off workers and trim spending, perhaps by as much as $2 billion. Chevron decided to delay the release of its budget, perhaps because of how volatile the oil markets have become in the fourth quarter of this year. According to an average of analyst predictions, market watchers think Chevron will slash its budget by 11 percent next year.Oil majors Royal Dutch Shell and Total are ahead of the curve, having implemented cost cutting and divestment measures earlier this year before oil prices dropped. Total may further put off investment in the North Sea over the next two years.

Rig count falls as oil prices continue slide: U.S. producers laid down a large number of rigs last week, as crude prices that fell below $60 on Friday finally appeared to take their toll on the pace of drilling. The drilling slowdown hit oil rigs the hardest, where producers idled 29 rigs and brought the total to 1,546, according to Baker Hughes’ weekly count. Rigs drilling for gas were up two to 346. The total count fell 27 to 1,893. One rig was classified as miscellaneous. This week’s slowdown in rigs is one of the first significant drops seen in the count since oil began to tumble from highs at more than $100 a barrel this summer. The U.S benchmark crude, West Texas Intermediate, fell below $58 a barrel on the New York Mercantile Exchange Friday. The slide has prompted some exploration and production companies to cut back capital spending in 2015. Almost all of the idled oil rigs were in Texas, bringing the state’s total down 24 to 872 from 896 last week. Arkansas posted the second largest loss of three rigs, bringing that state’s total to nine from 12 the week prior. The Permian Basin saw the most rigs idled when broken up by basin. The play lost 20 rigs, bringing the total to 548 from 568 the week before. The Texas Panhandle’s Granite Wash play was the second biggest loser, as drillers laid down six rigs bringing the total to 57. The Eagle Ford lost two for a total of 204 and the Marcellus gained one to reach 83 rigs.

US Oil Rig Count Tumbles Most In 2 Years - Zero Hedge: We warned just a week ago that the lag between initial price declines in oil and the closure of rigs was between 4 and 6 months and just as we warned of the deja-vu all over again, Banker Hughes reports that the Rig Count this week dropped the most since March 2013 (oil rigs dropped 29 to 1546 - biggest weekly drop in 2 years). The biggest drop was seen in the Permian Basin (down 20 to 548). Of course, it's being ignored for now, just as it was in 2008... Worst weekly drop in rig count since March 2013... With Oil Rigs down 3rd most in 5 years... And as a reminder, what happened last time... (graphs)

Canadian energy firms struggle with debt, survival as oil prices plummet: The rapid decline in global oil prices is setting the stage for a long dance between buyers and sellers in Canada’s energy industry. The rout put a chill on an oil and gas acquisition market that saw about $39 billion of deals this year and is leading sellers like Penn West Petroleum Ltd. to consider waiting for a rebound. Highly indebted Canadian oil and natural gas producers may not be able to afford that luxury, and suiters such as Crescent Point Energy Corp. Chief Executive Officer Scott Saxberg are circling for bargains. “When oil was $100, there were companies that were struggling with their balance sheets and now oil is 60-some-odd dollars and they’re in trouble,” Saxberg said of the price for a barrel in an interview. “There will be a few of those companies that will disappear and have to be consolidated.” Oil at a five-year low is making cash more scarce for producers that may have no choice but to sell assets or seek outright takeovers. The challenge will be finding investors willing and able to pay the price they want, Macquarie Group Ltd. analyst Chris Feltin said. “There’s going to be lots for sale and not a lot of buyers,” Feltin said by phone from Calgary. “Asset valuations might not be what the sellers would like to sell for but in this scenario there are few other options available.”

Is The Canadian LNG Export Dream Dead?  -- Lower oil prices have killed off major plans for liquefied natural gas exports from Canada’s west coast. On December 2 the state-owned oil company of Malaysia, Petronas, decided to shelve plans to build an enormous LNG export terminal in British Columbia, citing the falling price of oil. It is common for LNG contracts to be priced using a formula linked to the price of crude oil, so declining oil prices pushes down prices for LNG.Petronas’ Pacific NorthWest LNG, as it was known, was a proposed $32 billion export terminal that would send LNG to Asia. The decision highlights how competitive global LNG trade has become, despite growing demand. Greenfield projects, such as Pacific Northwest LNG, face steep startup costs that become prohibitive when oil prices fall.Although low oil prices may have been the icing on the cake, Canadian LNG projects were facing serious obstacles before oil prices plummeted. There is stiff competition from a slew of LNG projects already under construction in the U.S. and Australia, which will come online much earlier than anything from British Columbia. Several LNG export facilities in the U.S. are not starting from scratch, for example. The Sabine Pass terminal on the Gulf Coast and the Cove Point facility on the Chesapeake Bay were both originally constructed to import LNG rather than export. The original facilities were put on ice when the U.S. no longer needed LNG imports. Now, companies are retrofitting them to handle exports – a much cheaper process than building a new facility.

Plummeting oil prices driving Alberta into $6 billion shortfall: premier: -- Albertans should prepare for pain in next year's budget, says Premier Jim Prentice, as the continued nosedive of oil prices will force provincial politicians to consider big program cuts and new revenue-generating taxes over the holiday season. In a speech to over 700 business leaders, politicians and not-for-profit groups with the Edmonton Chamber of Commerce on Tuesday, Prentice said Alberta's government faces a roughly $6-billion revenue shortfall due to low oil prices and will be making "tough decisions" over the holiday break as ministers prepare their wish lists for Budget 2015. Prentice said the government recently revised its oil price forecast down to $75 US per barrel for the rest of the fiscal year but with West Texas Intermediate (WTI) prices hitting a five-year-low at $63, the balanced budget for 2014-15 is in jeopardy. "We're wrestling with that, trying to make sure we understand the implications at this point but clearly it makes it more challenging to balance the budget, even this fiscal year let alone the fiscal year we're facing," Prentice told reporters. Prentice promised government "belt-tightening" before asking Albertans to pay more. He repeatedly signalled "tough decisions" and "changes" in the 2015 budget that could mean deep program cuts and new taxes for Albertans, but not a sales tax. "I've been very clear about the scale of the financial challenges we face and we are in the budgeting process now," he said. "Once we have wrestled it to the ground and dealt with the implications and the recommended changes, I'll be very clear about that but at this point, we're finishing off this fiscal year."

Obama Signals Keystone XL "No" on Colbert Report As Enbridge "KXL Clone" He Permitted Opens -- In his December 8 “Colbert Report” appearance, President Barack Obama gave his strongest signal yet that he may reject a presidential permit authorizing the Alberta to Cushing, Oklahoma northern leg of TransCanada's Keystone XL tar sands pipeline.   Yet just a week earlier, and little noticed by comparison, the pipeline giant Enbridge made an announcement that could take the sails out of some of the excitement displayed by Obama's “Colbert Report” remarks on Keystone XL North. That is, Enbridge's “Keystone XL Clone” is now officially open for business.   “Keystone XL Clone,” as first coined here on DeSmogBlog, consists of three parts: the U.S.-Canada border-crossing Alberta Clipper pipeline; the Flanagan, Illinois to Cushing Flanagan South pipeline; and the Cushing to Freeport, Texas Seaway Twin pipeline.   Enbridge announced that Flanagan South and its Seaway Twin connection are now pumping tar sands crude through to the Gulf of Mexico, meaning game on for tar sands to flow from Alberta to the Gulf through Enbridge's pipeline system.   Alberta Clipper, now rebranded Line 67, was authorized by Hillary Clinton on behalf of the Obama State Department in August 2009 and got a quasi-official permit to expand its capacity by the State Department over the summer. That permit is now being contested in federal court by environmental groups.   Flanagan South, meanwhile, exists due to a legally contentious array of close to 2,000 Nationwide Permit 12 permits handed out by the U.S. Army Corps of Engineers, which — as with Alberta Clipper expansion — has helped Enbridge usurp the more democratic and transparent National Environmental Policy Act (NEPA) review process

Former Halliburton Subsidiary Managing Construction of First US Tar Sands Mine - The debate over the Keystone XL pipeline has launched Canadian tar sands into mainstream American discourse, but few people seem to know that a tar sands mine is now being constructed in the United States. The project is being managed by former Halliburton subsidiary Kellogg Brown and Root. The mine will be excavated in PR Spring, a remote piece of wilderness on the Tavaputs Plateau in eastern Utah. Facing northeast from Arches National Park, 109 miles away, one can see the plateau stretching along the horizon. The mine will sit just above the spring that the area is named for; a BLM-managed campground is nearby.The area is part of the Colorado River watershed, which supplies water to more than 30 million people. The land is owned by US Oil Sands, Inc., a Calgary-based company with a 100 percent interest in 32,005 acres of Utah tar sands leases. According to the company's website, their leases comprise the largest commercial tar sands stake in the United States. The company boasts of its "unique and environmentally friendly extraction process," which uses a citrus-based solvent called d-Limonene to separate oil from the rest of the material brought up in extraction. But a 2012 report by InsideClimate News questioned the safety of the technique, noting that while the FDA lists small amounts as generally safe, "in large doses, laboratory rats got sick when exposed to the chemical."

Oil Company Agrees To Pay $7M Over 800,000-Gallon Tar Sands Pipeline Spill - A four-year class action lawsuit over the largest and most expensive inland oil spill in U.S. history has reached a tentative settlement, with the company responsible agreeing to pay $6.75 million to those who lived and owned property near the spill.  The lawsuit was brought by thousands of plaintiffs who claimed they were subject to toxic fumes, noise, and general degradation of life following the July 2010 oil spill, which saw more than 800,000-gallons of thick Canadian tar sands crude oil flow out of a ruptured pipeline and into Michigan’s Kalamazoo River. The pipeline, called Line 6B, is owned and operated by a company called Enbridge Inc., based in Calgary, Alberta.  Under the agreement with Enbridge, plaintiffs who lived or owned property within 1,000 feet of the river will split a total of $2.2 million, meaning each plaintiff stands to get anywhere from a couple thousand to a couple hundred dollars depending on the size of the class. In addition, a $1.5 million fund will be set up for people who can show they made out-of-pocket expenses — stayed in hotels, bought meals, etc. — during the time the spill was at its worst. Enbridge will also be required to implement a $50,000 testing program for well water, and has agreed to donate $150,000 to local environmental conservation organizations.

BOOM: North America’s Explosive Oil-by-Rail Problem : U.S. regulators knew they had to act fast. A train hauling 2 million gallons of crude oil from North Dakota had exploded in the Canadian town of Lac-Megantic, killing 47 people. Now they had to assure Americans a similar disaster wouldn’t happen south of the border, where the U.S. oil boom is sending highly volatile crude oil every day over aging, often defective rails in vulnerable railcars.On the surface, the response from Washington following the July 6, 2013 explosion seemed promising. Over the next several months, the U.S. Department of Transportation issued two emergency orders, two safety alerts and a safety advisory. It began drafting sweeping new oil train regulations to safeguard the sudden surge of oil being shipped on U.S. rails. The railroad industry heeded the call, too, agreeing to slow down trains, increase safety inspections and reroute oil trains away from populous areas.But almost a year and a half later—and after three railcar explosions in the United States—those headline-grabbing measures have turned out to be less than they appeared. Idling oil trains are still left unattended in highly populated areas. The effort to draft new safety regulations has been bogged down in disputes between the railroads and the oil industry over who will bear the brunt of the costs. The oil industry is balking at some of the tanker upgrades, and the railroads are lobbying against further speed restrictions.And rerouting trains away from big cities and small towns? That, too, has been of limited value, because refineries, ports and other offloading facilities tend to be in big cities.

BP's oil spill settlement appeal rejected by U.S. Supreme Court -- The U.S. Supreme Court on Monday rejected BP's appeal of its oil disaster settlement, ending the British oil giant's two-year fight over interpretation of the agreement. The decision affirms lower court rulings that, under the settlement terms, businesses claiming damages from the 2010 Gulf of Mexico oil disaster need not prove direct harm.  The justices did not comment on their decision not to review the case. But they approved several requests from outside parties with interests in the dispute to file briefs.  BP sought to have its settlement overturned. It argued that the agreement was being misinterpreted to allow millions of dollars in payments to businesses that were not directly harmed by the disaster. BP originally estimated the settlement would cost $7.8 billion. Now it estimates that figure could exceed $9.7 billion.

Israel Nature Reserve Oil Spill "One of the Country's Worst Environmental Disasters" -- Millions of litres of oil gushing out of a breached pipeline flooded a desert nature reserve in Israel overnight, causing one of the country’s worst environmental disasters, officials and media said. Three people were hospitalised after inhaling fumes released by an accidental rupture in the Eilat-Ashkelon pipeline near the Evrona reserve, on the Jordanian border, police said. Israel Radio reported Wednesday night’s breach happened during maintenance work. The main road leading to Eilat, a Red Sea resort, from central Israel was closed intermittently as emergency teams contained the leak. Evrona is known for its deer population and douma palms. “Crude oil flowed throughout the reserve, causing serious damage ... to flora and fauna,” Environment Ministry official Guy Samet told Israel Radio on Thursday. He estimated the spillage at millions of litres. “Rehabilitation will take months, if not years ... This is one of the State of Israel’s gravest pollution events. We are still having trouble gauging the full extent of the contamination.”

Israel Oil Spill Four Times Worse Than Initially Thought - The company responsible for what many are calling Israel’s worst-ever environmental disaster has admitted that the amount of oil it spilled in the Arava desert is about four times larger than it initially estimated, Haaretz reported on Sunday.  In a new report to Israel’s Environmental Protection Ministry, the Eilat Ashkelon Pipeline Company said that 5 million liters, or 1.3 million gallons of crude oil spilled from the southern tip of the 153-mile Trans-Israel pipeline on Thursday night. The company’s first estimate on Thursday was that 1 million liters, or about 260,000 gallons of oil had spilled. It quickly raised its estimate to around 600,000 gallons on Friday.  According to Haaretz, the new figures raise questions about the company’s initial assurances that it had stopped the flow of oil from the pipeline as soon as the leak was found.  Even before the larger estimate, the spill had already been called “one of the gravest pollution events in the country’s history,” according to Israel Environmental Protection Ministry official Guy Samet, who also said the spill could take months, maybe years, to fully clean up. The breach — the cause of which is still unknown but has been so far attributed to “mechanical failure” and not foul play — took place near Eilat, a southern Israel city with a population of about 50,000 people.  At first, the city itself was not said to be in immediate danger. But now, Haaretz reports that makeshift dams are being built to stop the flowing river of oil from making its way to the city in the event of a rain storm.

Norway’s Oil Decline Accelerating - New oil projects are being scrapped in Norway amid falling production and low oil prices. The early cracks in Norway’s petrol-based economy are beginning to show, perhaps quicker than many predicted. Energy analysts have explored in detail how the ongoing decline in oil prices – down 40 percent since June – might affect oil exporting countries like Russia, Iran, Venezuela, and other OPEC members. But even Norway, the model for using natural resources to build a modern wealthy economy, is not immune to the price fall.  Statoil, the mostly government-owned oil company, has seen its share price cut in half since July 2014. It is idling several offshore rigs as oil prices drop. Three rigs – the COSL Pioneer, Scarabeo 5, and Songa Trym – will be suspended until the middle of 2015 because of lower profitability. “These measures are necessary due to the overcapacity of rigs compared to the assignments we are prioritising. This situation is unfortunate, and we are doing what we can to minimise the extent of the suspensions,” Statoil procurement head Jon Arnt Jacobsen said in a statement. To make matters worse, costs of developing new fields have been steadily rising. “The boom is probably over. But we’re not looking at a steep decline in investment or production,” Norway’s oil minister Tord Lien told Reuters in May 2014. “The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere.” Since those comments, oil prices have tumbled. Norway may in fact see a steep decline in investment.

IEA Cuts Global Oil Demand Forecast for 4th Time in 5 Months - Global oil demand next year will be weaker than previously estimated and supply from non-OPEC producers will be bigger, the International Energy Agency said. Consumption will expand by 230,000 barrels a day less than estimated in November, the Paris-based adviser to 29 nations said in a report today. Output from nations outside of the Organization of Petroleum Exporting Countries will grow at a faster pace than the agency predicted last month. Production rising faster than demand could strain some nations’ ability to store oil by the middle of next year, it predicted. The agency cut projections because the economies of producer nations are being hurt by tumbling prices, according to the report. Most of the reduction in next year’s estimate is attributable to Russia, where sanctions are hobbling growth, it said. Brent crude costs that collapsed 43 percent this year are too low for 10 of OPEC’s 12 members to balance their budgets, data compiled by Bloomberg show.

150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy - While the clear narrative forced upon the investing (and consuming) public is that lower oil prices are great for the economy - which is utter crap (as we have explained here and here) - the fact of the matter both primary and secondary effects are extremely significant... and already occurring. As Reuters reports, global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic as the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil. As one analyst notes, "at $70 a barrel, half of the overall volumes are at risk." As Reuters reportsGlobal oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade.  As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil./..Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.

Big winners and losers in oil price crash -Few commodities are as powerful as oil. Its value can make or break governments, causing growth or economic hardship, depending on which way the price swings. The plunging value of crude is having a negative impact on a few, but is a positive shift for the majority, China prominent among them. But it is wrong for medium or long-term planning to be based on the drop: any number of factors, political, social and technological among them, makes predicting the value futile.The price of benchmark Brent light crude has fallen more than 40 per cent since June, when it was US$115 a barrel.  The oil cartel Opec, with Saudi Arabia in the driving seat, has maintained high levels of output to counter the impact of the boom in American shale oil and protect market share. There are winners, but also big losers. The IMF estimates that global GDP grows by 0.2 per cent for every 10 per cent fall in the oil price; a drop puts more money in the pockets of governments and consumers, boosting spending. China, the world's second-biggest net importer, saves US$2.1 billion for every US$1 decline, while there will be hefty budget gains for Indonesia and India, countries that heavily subsidise oil. That should make imports cheaper, foreign currency go further and, over time, living standards rise. Chief among the losers are oil producers, which have relied on high prices to drive their policies, Iran, Russia and Venezuela being the most vulnerable. Iran's budget is based on oil being priced at US$140 a barrel and Venezuela's at US$120, worsening inflation and exacerbating shortages of everyday goods. Russia is less vulnerable due to its hefty fiscal reserves, but should oil prices remain low for two or more years, the economic consequences would be dire.

Oil Price Winners and Losers Around the Globe - As the world’s top policy makers rewrite their forecasts for global growth on oil’s price-plunge, who are the biggest winners and losers?  The Republic of Congo, Equatorial Guinea, and Angola–three West African nations that rely on oil to fund the lion’s share of their economy and state revenues–will likely be hit the hardest. The near-$40 a barrel fall in crude prices represents billions of dollars in lost revenue equivalent to roughly 20% of their gross domestic product.  For Djibouti, Seychelles and Kyrgyzstan, whose net oil imports take a huge chunk out of their economies, the decline in prices is a boon worth up to 11% of their GDP, allowing consumers to spend on goods and services that can fuel economic growth.In dollar terms, the price drop translates into a $117 billion loss in revenues for Saudi Arabia if oil prices hold for another six to eight months, based on that country’s massive exports of crude. Russia, already in recession, could lose nearly $100 billion in revenues, almost 5% of the country’s GDP. Iran’s also in similar straits, maimed by international sanctions and a falling currency, with the price drop slicing off 5% of its GDP in revenues. And Kuwait could see its oil income fall by $32 billion, almost one-fifth of the country’s GDP.  For U.S. consumers, it’s an aggregate windfall worth $90 billion. It’s also a benefit equivalent to nearly a percentage point of GDP for China, Germany and France.

How cheap oil changes the world - As oil prices hit their lowest point in five years, the ripple effects are being felt around the world – from big-producing nations such as Russia and Saudi Arabia, to big-consuming nations such as the United States and China, to billions of people’s wallets. The plunging prices are affecting the geopolitics of the Middle East, the cohesiveness of the Organization of the Petroleum Exporting Countries (OPEC), the number of drilling jobs in North Dakota, and the cost of airline tickets for the holidays. On one level, there is nothing unusual about this. It reflects the never-ending undulation of oil prices that has been going on since the dawn of the fossil fuel era. Prices rise, and prices fall. Oil markets self-correct. But this time around, something fundamentally different may be happening. New oil is flowing from unexpected corners, while longtime petro states watch their grasp on markets slip. Traditionally oil-hungry countries have curbed their appetite, but once-sleepy economies now guzzle vast amounts more crude than they used to. Meanwhile, growing global alarm over the threat of unchecked greenhouse gas emissions has accelerated the development of alternative fuels and efficiency measures that displace oil demand across the board. These and other structural shifts make it “increasingly clear that we have begun a new chapter in the history of the oil markets,” the Paris-based International Energy Agency (IEA) wrote in its November Oil Market Report. Barring any unforeseen disruption in supply, most analysts believe short-term oil prices will remain well below the $100 to $110 per barrel range, around which prices had consistently hovered for three years. Depending on whom you ask, the world may continue to see oil at $60 to $50 per barrel, or lower, for months, a year – or even a decade.

Reasons Why A Severe Drop in Oil Prices Is A Problem -- Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem?  Let me explain some of the issues: Issue 1. If the price of oil is too low, it will simply be left in the ground. The world badly needs oil for many purposes: to power its cars, to plant it fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics. If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price leads to a whole series of secondary effects (debt defaults resulting from deflation, job loss, collapse of oil exporters, loss of letters of credit needed for exports, bank failures) that indirectly lead to a much quicker decline in oil production. The view is sometimes expressed that once 50% of oil is extracted, the amount of oil we can extract will gradually begin to decline, for geological reasons. This view is only true if high prices prevail, as we hit limits. If our problem is low oil prices because of debt problems or other issues, then the decline is likely to be far more rapid. With low oil prices, even what we consider to be proved oil reserves today may be left in the ground.

The basic reason oil keeps getting cheaper and cheaper - Oil prices continued their slump even lower today, with West Texas Intermediate crude -- a U.S. benchmark -- now well below $60 per barrel. This is part of a momentous decline of over $40 per barrel since late June. One catalyst today is the International Energy Agency's release of its latest Oil Market Report, which lowered the agency's forecast for global oil demand growth in 2015 by 230,000 barrels per day. This means that demand in 2015 is only expected to exceed demand this year by .9 million barrels per day, a sluggish 1 percent rate of growth. The report could not be more plain that the fundamental cause of the sharp oil price decline -- whose knock-on effects include markedly lower gas prices in the U.S., and soon, perhaps, lower airfares -- is an imbalance between supply and demand. Or as IEA puts it: "Several years of record high prices have induced the root cause of today’s rout: a surge in non‐[Organization of Petroleum Exporting Countries] supply to its highest growth ever and a contraction in demand growth to five‐year lows." The report provides this telling figure -- showing a gulf opening between levels of global oil supply, and global demand to consume that oil:

Russian Recoil Hits Oil - A truism of the oil industry is that the cure for low prices is low prices, as they discourage supply and thereby tighten the market. But that ignores an important change on the demand side that was highlighted in Friday’s report from the International Energy Agency. Adding to the pain of crude oil dropping below $59 a barrel, the IEA cut its forecast for global demand growth next year by 230,000 barrels a day. Fully 85% of that relates to Russia, where even the government, never knowingly shy about extolling the country’s strengths, predicts a recession next year. Sanctions over Ukraine play a part in that, but the bigger factor is a feedback loop from lower oil prices, the driving force of the Russian economy. This is part of a wider trend. Since the start of this century, demand growth for oil has rested increasingly on emerging economies—not just China, but also big oil exporters themselves such as Russia and Middle Eastern countries. Indeed, one factor keeping oil prices low through the 1990s was that even though Russian oil output collapsed along with the Soviet Union, so did the country’s demand. Looking ahead, it is worth bearing in mind that of the 910,000 barrels a day of global demand growth that the IEA still forecasts, a third relates to the Middle East and Brazil, both regions that could suffer more pain as commodities prices slide

Oil price fall sparks market turmoil - An accelerating slide in oil prices triggered broader turmoil across international financial markets on Friday, capping a turbulent week for energy that has compelled investors to sell shares and corporate bonds. The International Energy Agency cut its demand growth forecasts for 2015 on Friday, saying the rout in prices had so far failed to stimulate buying. Its comments sent crude prices to fresh five-and-a-half-year lows and brought the decline for the week to more than 10 per cent.  Brent crude, the international oil marker that has plunged 45 per cent since mid-June, fell $1.95 to $61.73 a barrel. West Texas Intermediate, the US benchmark, dropped $2.23 to $57.72 — a level it last reached in May 2009. WTI’s slide below the $60-a-barrel barrier has left investors increasingly worried that prices could decline much further before they stabilise, with ramifications for consumers, industry and central banks. “Oil is a hugely traded financial asset. It links through the financial system and as it breaks down it becomes a huge tipping point,” While lower oil prices are seen being a boon for consumer spending, a broader concern is that the sharp decline from above $100 a barrel in June, may not just reflect excess supply, but rather signal less demand, suggesting the global economy is decelerating. Slumping inflation expectations also suggest the global economy faces a worrying one-two punch of weakening growth and disinflation, a scenario that has rattled investors preparing for the end of the year.

Why investors’ view of falling oil prices has just pivoted - Oil prices are falling, at a historic rate. Crude prices have more than halved since their post-crisis high, with almost all of that fall coming in the last five hectic months, and their descent is accelerating. This is a huge economic readjustment. And it prompts the question — in line with the old English history textbooks — of whether this is a Good Thing, or a Bad Thing. Even though oil is far less critical to the developed world’s economies than it was in the 1970s, cheaper oil should be a net benefit. It reduces costs for most businesses, while freeing up consumers to spend more. That is why falling oil prices have been accompanied usually by rallying stock prices, particularly in the US, where most Americans are still wedded to the automobile. This week, however, investors’ attitude has pivoted. Oil prices are still falling, but now that is viewed as a Bad Thing. The critical moves are in bond markets. In the US, 10-year treasury yields have dropped well below 2.2 per cent once more, and below the level at which they closed on October 15 — the “flash crash” day in the bond market when yields suddenly dropped below 2 per cent, triggering consternation. In the eurozone, German five-year inflation break-evens — the inflation forecast that can be taken from subtracting the yield on fixed income bonds from the yield on inflation-linked bonds — dropped below zero this week. Traders expect deflation in the eurozone for the next five years. In the US, inflation break-evens for the next 10 years have dropped to 1.62 per cent, their lowest since the autumn of 2010 — when falling break-evens prompted the Federal Reserve to launch the “QE2” round of bond purchases. Until now, a falling oil price has been regarded as a function of strong supply. But this week brought evidence that weak demand is also part of the equation. Opec announced that it expected demand for its oil to hit a 12-year low next year. And Chinese imports fell 6.7 per cent year-on-year in November; for the year as a whole, imports seem totally flat. Chinese production is now growing more slowly, when viewed as a 12-month moving average, than at almost any time since 1990.

The Financialized-Oil Dominoes Are Toppling - Oil is not just something that is refined into fuel--it is capital, collateral, debt and risk. In other words, it is intrinsically financial. As I noted in The Oil-Drenched Black Swan, Part 2: The Financialization of Oil, oil has been financialized to the point that few outside the industry understand the dominoes that are currently toppling.Let's start with the obvious fact that the impact of lower oil is financial, political and geopolitical. Lower oil revenues are negatively impacting:

  • 1. Oil-exporters’ revenues
  • 2. Monetary policy of central banks
  • 3. Trade flows
  • 4. Global financial markets

Lower revenues are pressuring oil-dependent governments such as Russia, Venezuela and Iran, and destabilizing the geopolitical order as weakened oil exporters sink into recession and political turmoil. Lower revenues are also kicking the financial supports out from under the debt-dependent, enormously capital-intensive oil exploration and development projects in North America. Simply put, the sharp drop in oil revenues has knocked over a line of financial dominoes whose end is not yet in sight. These issues have been addressed by a number of analysts; here is a small selection of recent stories:

Falling oil prices could give West upper hand : If there was one piece of news the main oil exporters did not need, it was the announcement on Tuesday that after long years of often acrimonious negotiations, the Iraqi government had signed an agreement with the Kurdistan Regional Government on the division of the output of the oil fields in the Kurdish areas on Northern Iraq. The Kurds agreed to send 300,000 barrels of oil a day south through the Iraqi pipeline while being allowed to independently sell on the international market 250,000 barrels of their own through a different pipeline to neighboring Turkey. The Baghdad government is no longer capable of preventing the Kurds from exporting their own oil and had no choice but to sign the agreement, opening up the way for the entrance of Western oil companies eager to develop new oil fields in the region. A new source of cheap available oil added to the growing global surplus. The markets were quick to react with another dip in the price of oil, now hovering at around 65 dollars, the cheapest in over four years. A year ago, the accepted narrative in the West was that an imminent war in the Middle East, particularly between Israel and Iran, will push oil prices sky-high, causing a global economic crisis. Oil was selling at $120 per barrel and there were analysts who wouldn’t rule out the possibility of it reaching $200. . Other countries with oil-based economies such as Venezuela were also in the ascendant. After the Fukoshima disaster in 2011, with many countries scaling back plans to invest in nuclear energy, it seemed that the world’s dependency on oil would only increase. In recent months, this trend has been totally reversed. Just in July, oil still sold at around $100 per barrel. Now, just four months later, it is well under $70.

Falling oil threatens Canada’s bulletproof banking system - While the U.S. financial system — as well as many international banks — has gotten hopped up on a wide assortment of financial opiates and stumbled through more than a dozen bank-fueled crises through the decades, Canada boasts a stellar track record of banking sobriety.  However, a spectacular death spiral in crude-oil futures — West Texas Intermediate settled Thursday at $59.95, a more than five-year low — threatens to deliver a serious shock to the banking system of the U.S.’s northern neighbor, according a research note published Thursday by Pavilion Global Markets.  Canada ranks as one the world’s five largest energy producers and a net exporter of oil, according to the U.S. Energy Information Administration. So, a big drop in oil would pose several risks to Canada’s oil-dependent economy. “The drop in oil prices, as mentioned above, will have wide-ranging implications on the Canadian economy,” Pavilion strategists Pierre Lapointe and Alex Bellefleur said in the note. It’s not just that Canada’s banks will find themselves saddled with souring loans from underwater energy producers. The problem, Pavilion argues, is that Canada’s employment rate could suffer as oil-related businesses are forced to close.

Fall in Oil Prices Threatens Africa's Economic Growth - Plunging oil prices are threatening Africa's economic ascent. Recent oil and gas discoveries were hailed as a godsend for African nations aspiring to middle-income status. But billions of investment dollars are moving into projects just as crude prices have tumbled, raising fears that some may be put on hold. Total SA, Exxon Mobil Corp. and other companies are at work on a $16-billion oil project in Angola that will be profitable only if oil prices average more than $70 a barrel, Citigroup analysts estimate. The price of Brent crude closed at a new five-year low on Thursday, falling nearly 1%, or 56 cents, to $63.68 a barrel. Anadarko Petroleum Corp. and Eni SpA have spent more than $5 billion developing natural-gas fields in Mozambique that threaten to become much less profitable if global supply expands too rapidly. Ugandan officials say they fear lower oil prices could deter companies, including Tullow Oil PLC and China'sCnooc Ltd., from following through on plans to invest up to $15 billion to develop the country's oil fields. Cheaper fuel will help many African countries suppress inflation by keeping energy import costs down. But the continent's biggest economies have staked their futures on robust prices for oil and gas. Pumping high-price crude has generated rapid economic growth and spending that spilled across borders. Now, those flows are set to slow sharply. Capital Economics says falling commodity prices will cut growth across sub-Saharan Africa by one percentage point next year, to around 4%, the slowest rate since the late 1990s.

Is this the beginning of the end for OPEC? -  FORTY-ONE YEARS ago OPEC, the global oil cartel, boldly asserted its power with an export embargo that drove the price of crude from $3 per barrel to $12 in just six months. Through subsequent oil shocks of 1978, 1990, and 2008, voices on the left — and a few on the right — have used the specter of $200 per barrel oil to justify reams of subsidies for wind and solar (“just another few years, and they’ll be able to stand on their own — really”), ethanol (“imagine how much we’ll save when oil is $300 per barrel”), and even hydrogen cars ($2 billion spent and still counting). The parade of grants, loans, and tax benefits all rode in the name of securing our “energy independence.” Last week, the West Texas benchmark hit $67 per barrel — a five-year low — and with that milestone the doomsayers’ predictions came crashing down, as well. To be sure, we have seen plenty of valleys among the peaks before. After reaching $140 in the summer of 2008 — just in time for my own re-election campaign — prices crashed to just $40 by January of 2009. But this time may be different. During the past five years, new exploration techniques have allowed America to surpass all but Saudi Arabia in crude oil production. Meanwhile, changes in driving patterns and fuel efficiency have steadily lowered US consumption from its peak back in 2005. If that combination of growing supply and curtailed demand keeps prices low, the big spenders are going to need a new rallying cry, OPEC might need a new business plan, and Venezuela might need a new economy.

Saudi in ‘race against time’ to cut reliance on oil - Saudi Arabia has warned it is in “a race with time” to cut its reliance on oil as the world’s governments move to tackle climate change by curbing the use of fossil fuels. “We know that climate change policy will affect our future and we are working very hard to raise our resilience,” said Khalid Abuleif, Saudi Arabia’s lead climate negotiator and sustainability adviser to Ali Al-Naimi, the powerful petroleum minister. “We know we’re in a race with time,” he told reporters at UN climate talks in Lima, where negotiators are doing the groundwork for a global climate deal to be sealed in Paris at the end of next year. “Inevitably, oil producers are going to face huge liabilities if the implementation of the convention is advocating a move away from fossil fuels,” he said. Saudi Arabia, he added, had long understood it needed to diversify its economy to make it less reliant on the resource that had led it to become the world’s leading crude oil exporter. “What you really do have is an objective that is very challenging to the future sustainable development of oil exporters,” he said. Mr Abuleif said Saudi Arabia wanted to join the effort to tackle climate change. But in a sign of the fraught negotiations that lie ahead of a Paris deal, he said country delegates in Lima calling for the agreement to include measures that would effectively phase out the use of fossil fuels as early as 2050 were being unrealistic.

White House Tries to Hold Off New Iran Sanctions - The White House is stepping up its campaign to ward off new congressional sanctions on Iran after diplomatic talks over Tehran’s nuclear program were once again extended in November, this time for seven months. Secretary of State John Kerry on Sunday suggested the process could be concluded in half that time, telling American and Israeli leaders at the Brookings Institution’s Saban Forum on U.S.-Israeli relations that negotiators could reach a final deal within four months.  Vice President Joe Biden, meanwhile, told the same audience on Saturday that now is not the time for lawmakers to pursue new sanctions. “Should Iran violate the terms of our agreement, Congress and the administration could immediately impose new sanctions. And the president has made it clear that he’d be part of that. But now is not the right time to do that,” Mr. Biden said. “And with all that is happening in the region, this is not the time to risk a breakdown when we still have a chance for a breakthrough. This is the moment to give our negotiators a little bit more time and space to see if they can reach an agreement that benefits everyone.” The White House push is designed to preserve what the White House hopes will wind up being a key part of his foreign policy legacy. President Barack Obama has made a nuclear deal with Iran a top priority in his last two years in office.

China Enters Fight Against ISIS  - To protect its oil interests in Iraq, it eventually had to come to this: China Offers to Help Iraq Defeat Isis.  China has offered to help Iraq defeat Sunni extremists with support for air strikes, according to Ibrahim Jafari, Iraq’s foreign minister.  Wang Yi, Mr Jafari’s Chinese counterpart, made the offer to help defeat the Islamic State of Iraq and the Levant, known as Isis, when the two men met in New York at September’s UN antiterrorism meeting, Mr Jafari said.   Any Chinese assistance would be outside the US-led coalition. “[Mr Wang] said, our policy does not allow us to get involved in the international coalition,” Mr Jafari told the Financial Times in Tehran, where he was attending an anti-extremism conference earlier this week. China is the largest foreign investor in Iraq’s oil sector and stands to lose the billions its state-owned groups have ploughed into the country if the fields are lost to the insurgents. Sinopec operates in Kurdistan, while China National Petroleum Corp has interests in the giant Rumaila field near Basra and in Maysan province near the Iranian border. CNPC has already effectively abandoned oilfields it operated in Syria.

China Trade Surplus Climbs to Record as Imports Drop on Oil - China’s trade surplus climbed to a record in November after an unexpected decline in imports on lower crude oil and other commodity prices. Overseas shipments rose 4.7 percent from a year earlier, missing the 8 percent median estimate in a Bloomberg News survey. Imports fell 6.7 percent, compared with projections of a 3.8 percent increase, leaving a trade surplus of $54.47 billion, the customs administration said today. The slide in oil prices to five-year lows offers China a double benefit as its leadership confronts the weakest expansion in a generation. The decline could boost economic growth and help keep inflation slow enough to give scope for further easing after last month’s interest-rate cut. “High trade surplus will be here to stay for several months on falling oil prices,”

China faces more pressure as Nov imports shrink unexpectedly, exports slow (Reuters) - China's imports shrank unexpectedly in November while export growth slowed, fuelling concerns the world's second-largest economy could be facing a sharper slowdown and adding pressure on policymakers to ramp up stimulus measures. Exports rose 4.7 percent from a year earlier, while imports dropped 6.7 percent, the biggest drop since March, data released by the General Administration of Customs showed on Monday. That left the country with a record trade surplus of $54.5 billion, which analysts say could increase upward pressure on the yuan CNY=CFXS even as exporters are struggling. true Economists polled by Reuters had expected exports to grow 8.2 percent, a 3.9 percent rise in imports and a trade surplus of $43.5 billion, all slowing from October.

China Fixes Yuan At Strongest Since March As Trade Surplus Hits Record Highs -- Chinese imports and exports dramatically missed expectations this evening but it is imports that was thereal driver that pushed the trade surplus to $54.47 billion (higher than the $43.95 billion expected) record highs. Exports rose just 4.7% YoY (against expectations of an 8.0% rise and previous 11.6% rise) for the slowest growth since April. Imports utterly collapsed; plunging 6.7% YoY (against expectations of a 3.8% rise and prior 4.6% YoY rise). This is the biggest drop since March and 4th largest plunge since Aug 2009. Of course, in any real world this means 'the rest of the world' should be suffering from huge drops in exports... but we are sure, by the magic of fradulent invoicing that will not be the case. The PBOC may have got a glimpse and fixed CNY at its strongest since March and highest premium to the market since August.

China’s equity frenzy: putting easing on hold? --Nice from Simon Rabinovitch at the Economist: One middle-aged man, Mr Xu, had come to meet a manager to inquire about how to subscribe to initial public offerings; their average first-day gain has been about 40% this year. He said he had taken the afternoon off work for the meeting and could hardly conceal his glee. “I’ve been trading since 1992 (just two years after the Shanghai Stock Exchange was established) and I guarantee you this bull market will last,” he said. He confessed to getting badly bruised by the last big one – his portfolio of 500,000 yuan had swollen to 3 million yuan by 2007 at the peak of the market, before falling back to its original level. At the other end of the spectrum in terms of experience was Ms Zhou, 25, an interior designer with dyed-blonde hair. Like many other young professionals, she had previously put a big chunk of her savings in an online investment fund marketed by Alibaba, an e-commerce company. The fall in interest rates has reduced the return on that fund, pushing her to look for alternatives. “I had been thinking for a while about buying stocks but I had to travel for work and missed the best opportunity,” she sighed. “I will be conservative at first. Just one or two thousand yuan. Or maybe ten thousand.” Which says a lot about the mechanical nature of this “super-bull” run. There’s simply quite a bit of money in China and a limited number of places for it to go. Once one is found…

China’s changing monetary policy, charted - Some cut out and keep from Morgan Stanley: That chart, and many others, are from an MS look at the PBoC past and future — it’s tools, policy path etc. It will find its way to the usual place. Particularly useful we’d suggest in the face of recent China carry on.  Take the slowing deflation data from this morning (chart from Nomura below): On the back of that there’s a presumption of easing in our inboxes, here’s UBS’s Wang Tao for example: Rapid disinflation and increasing deflationary pressure in China will push up real interest rates and compel more rate cuts. We expect at least two more cuts in benchmark lending rates totaling 50 bps by end 2015, and see the central bank continue to provide sufficient liquidity to keep money market rates low. We think the next rate cut is likely to be after the Chinese New Year, in March or early April. As we have elaborated earlier, rate cut is key in driving down debt service burden, improving corporate cash flow and reducing financial risk by reducing the pace of NPL formation (Figure 3&4). We do not see these measures to have significant stimulating impact on credit growth and, hence, GDP growth.

World's longest train journey reaches its final destination in Madrid -  (Xinhua) -- Madrid was the final destination on Tuesday for a train which has set the record for the longest train journey in history; 13,052 kilometers between the Chinese city of Yiwu and the Spanish capital. The train which arrived in Madrid at 11a.m. local time (1000GMT), departed from Yiwu on November 18th with 40 wagons, carrying 1,400 tons of cargo, consisting of stationary, craft products and products for the Christmas market and it will return to China filled with luxury Spanish produce such as cured ham, olive oil and wine. The results of this first historic journey which will then be evaluated with the aim of opening a regular two-way rail link between China and Spain, which could commence operations in early 2015. Two major advantages of rail travel are that the goods were transported much faster than would otherwise be possible by boat, arriving in Spain in half of the time a cargo vessel would need to cross from China to Spain, while the train produces 62 percent less carbon dioxide contamination less than a lorry making the same journey by road. The marathon journey crossed China, Kazakhstan, Russia, Belarus, Poland, Germany and France, before arriving in Spain with 30 of the wagons it had originally set out with. The 13,052 kilometers between Madrid and Yiwu is a greater distance than that between the north and south pole, although the distance was not covered using the same crew, nor the same engine.

The Chinese Century - Joseph Stiglitz - When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history. Comparing the gross domestic product of different economies is very difficult. Technical committees come up with estimates, based on the best judgments possible, of what are called “purchasing-power parities,” which enable the comparison of incomes in various countries. These shouldn’t be taken as precise numbers, but they do provide a good basis for assessing the relative size of different economies. Early in 2014, the body that conducts these international assessments—the World Bank’s International Comparison Program—came out with new numbers. (The complexity of the task is such that there have been only three reports in 20 years.) The latest assessment, released last spring, was more contentious and, in some ways, more momentous than those in previous years. It was more contentious precisely because it was more momentous: the new numbers showed that China would become the world’s largest economy far sooner than anyone had expected—it was on track to do so before the end of 2014.

China inflation eases to five-year low: Consumer prices in China eased to a five-year low in November, suggesting continued weakness in the Asian economic giant. The inflation rate fell to 1.4% in November from 1.6% in October, which is the lowest since November 2009. The reading was also below market expectations of a 1.6% rise. Producer prices also fell more than forecast, down 2.7% from a year ago - marking a 33rd consecutive monthly decline. Economists had predicted a fall of 2.4% after a drop of 2.2% in the previous month as a cooling property market led to slowing demand for industrial goods. The figures are the latest in a string of government data that showed a deeper-than-expected slowdown in the Chinese economy. Dariusz Kowalczyk, an economist at Credit Agricole, said the data partly reflected low commodity and food prices but also confirmed softness in domestic demand. "It will likely convince policymakers to ease their policy stance further and we continue to expect a RRR [bank reserve requirement ratio] cut in the near term, most likely this month," he told Reuters.

Economists React: China Inflation Hits Five-Year Low - China’s consumer and factory level inflation figures came in weaker than expected in November, with the consumer price index (CPI) up only 1.4% year-on-year for its slowest gain in five years and down from 1.6% in October. The producer price index (PPI) doggedly moved lower for the 33rd consecutive month, with the decline accelerating to 2.7% year-on-year from 2.2% the previous month. Sluggish domestic demand, an easing of food price increases, and slumping prices of oil and other global commodities likely contributed to the weak data. Some economists saw this as an opportunity for policymakers, currently meeting in Beijing to set economic priorities for next year, to speed up price-related reforms. Others focused on the prospect of deflation and the likelihood of monetary easing policies in the face of continuing economic weakness.  Here’s the take on the numbers from the economists (edited for style and length):

China’s Slowdown Deepens as Factory Output Growth Wanes --  China’s economy slowed in November as factory shutdowns exacerbated weaker demand, raising pressure on the central bank to add further stimulus. Bloomberg’s gross domestic product tracker came in at 6.78 percent year-on-year in November, down from 6.91 percent in October and a fourth month below 7 percent, according to a preliminary reading. Factory production rose 7.2 percent from a year earlier, retail sales gained 11.7 percent, and investment in fixed assets expanded 15.8 percent in January through November from a year earlier, official data showed.  The government ordered some factories to close in Beijing and surrounding provinces during the Asia-Pacific Economic Cooperation forum in early November to curb pollution. China’s central bank has been seeking to ease monetary conditions including with a cut to benchmark interest rates last month, helping spur a rebound in the broadest measure of new credit.  “The accelerated lending could lend some support to short-term growth,”  “However, banks need to find more funds to support the lending, which could prompt the authorities to cut RRR to provide more liquidity.”

China's factory and investment growth flagging, more stimulus seen (Reuters) - China's economy showed further signs of fatigue in November, with factory output growth slowing more than expected and growth in investment near a 13-year low, putting pressure on policymakers to unveil fresh stimulus measures. In a sign that banks were already responding to Beijing's instructions to reflate the economy, however, new lending jumped 56 percent in the month. Weighed down by a sagging housing market, China's economic growth had already weakened to 7.3 percent in the third quarter, so November's soft factory and investment figures suggest full-year growth will miss Beijing's 7.5 percent target and mark the weakest expansion in 24 years. true "The data bodes ill for GDP growth in the fourth quarter, which is bound to slow further," said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. Growth in real estate investment also slipped for the first 11 months of 2014, though property sales registered their best month this year, buoyed by Beijing's efforts to revive a sector on which so much of the economy depends. After September's move to cut mortgage rates and downpayments for some home buyers, the People's Bank of China cut interest rates on Nov. 21 for the first time in two years.

China likely to lower growth target to 7% for 2015: reports - -- As China's top leadership convened Tuesday for the annual Central Economic Work Conference in Beijing, state media reported the government might cut 2015's economic growth target to as low as 7%, down from the 2014 goal of "about 7.5%." Lowering next year's target is a "a high probability event," and the most likely case is "to set a 7% target and realize a growth slightly higher than the target," the state-run China News Service quoted Guan Qingyou, head of research at Minsheng Securities, as saying Tuesday. China's economy is at a "gear-down" stage, and 7% growth is enough to create 10,000 new jobs, ensuring sufficient employment for the economy, the report quoted Niu Li, head of macroeconomic research at the government's State Information Center policy think tank, as saying. Niu added that cutting the growth target can reduce the stress on local governments, allowing them to push ahead with reforms. China's official growth target numbers usually aren't publically announced until the national legislature convenes in the spring.

Hong Kong’s Leader Expects Tough Fight in Clearing Protests - Hong Kong police may face “fierce resistance” when they assist a court order to clear pro-democracy protesters who have occupied key areas of the city for over two months, Chief Executive Leung Chun-ying said. “As the number of people falls in the later stages of the movement, the remaining crowd will be more and more fierce,” Leung told reporters yesterday in the southern Chinese city of Shenzhen, according to a transcript of his remarks posted on the government’s website. “The government and police don’t want any bodily harm or conflict to happen when carrying out duties.” Leung reiterated his call for demonstrators to disperse as police prepare to clear barricades at the main protest site in the Admiralty district near the city government offices. The demonstrations, spurred by China’s decision to vet candidates for the city’s first leadership election in 2017, are fading amid waning public support and disagreements over tactics. The protesters aren’t planning to withdraw before possible clearing actions this week, Tommy Cheung, a representative of the Hong Kong Federation of Students, one of the two main protest groups, said by phone today. Protesters are “unclear” about the process Hong Kong’s political reform must follow under the Basic Law, the city’s de facto constitution, Leung said.

Big Hands: Chinese Banks Growing Prevalent in Korean Financial Market -- Chinese banks are growing at a very rapid pace in the Korean financial market. The five major Chinese banks – the Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Bank of Communications, and Agricultural Bank of China – are attracting more and more yuan-denominated deposits comparable to provincial banks in asset size. The assets of their branches in Korea increased by 88 percent last year and are expected to increase by more than 100 percent this year. The annual growth rate had been 20 to 30 percent since the mid-2000s. The rapid growth is contrary to the stagnation of American and European bank branches at the same time. While U.S. banks remain most popular, Chinese banks' market share is growing rapidly. Chinese banks’ dominance is likely to be further solidified with the Korea-China FTA having been signed and the won-yuan direct trading market having been opened. The financial authorities are monitoring the possibility of money laundering with investors rushing to yuan-denominated deposits and the like having a hard time finding attractive investment destinations.

Household debt triggers concerns - South Korea’s soaring household debt, boosted by low borrowing costs and eased mortgage lending, is touching off concerns on the ability of the borrowers to repay it, according to experts.  “It is the soundness of the debt that matters the most,” said Lee Geun-tae, economist at LG Economic Research Institute on Monday. Depending on economic circumstances, household debts are not always considered negative, as they may promote consumption and activate the market, he explained. “But recently, there have been no signs of such a virtuous circle, and we have a situation where the debt is piling up without leading to any growth in production, consumption and investment,” he said. The nation’s household debt amounted to 1.06 quadrillion won ($948 billion) as of end-September, up 22 trillion won or 2.1 percent from the previous quarter, according to the Bank of Korea Monday.

Japan's third-quarter economic contraction bigger than expected  (Reuters) - Japan's economic contraction in July-September was deeper than initially expected on declines in capital expenditure, according to revised data on Monday that backs Prime Minister Shinzo Abe's recent decision to delay a second sales tax hike. The data indicated that the hit from April's sales tax hike turned out to be bigger than expected. Abe, who has called a snap poll for Sunday, hopes voters will agree that his stimulus policies and a decision to delay a second sales tax hike next year will revive a sputtering economy. The revision to an annualized 1.9 percent contraction, more than a preliminary 1.6 percent fall, confirmed the world's third-largest economy had slipped into recession with only a modest rebound expected in the current quarter. It compared with a median forecast for a 0.5 percent contraction. "The data confirmed a two straight quarter of recession so this is a harsh evidence for Abenomics," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Tame growth in wages in particular are likely to drag on private consumption and the broader economic activity." On a quarter-to-quarter basis, the economy fell 0.5 percent in July-September, compared with a preliminary reading of a 0.4 percent contraction and a median market forecast for a 0.1 percent drop, Cabinet Office data showed. The key factor behind the downgrade was a 0.4 percent decrease in capital expenditure, which was revised from a preliminary 0.2 percent fall after incorporating last week's upbeat corporate capital spending survey.

Japan recession worse than feared - The recession that struck Japan after a tax increase in April was deeper than first reported, the government said on Monday, casting fresh doubt over its efforts to boost growth in the run-up to a general election. According to the Cabinet Office’s first estimate three weeks ago, gross domestic product shrank at an annualised rate of 1.6 per cent between July and September, amid big cuts in companies’ inventories and falls in private investment. Yet a revised estimate on Monday showed that real GDP slipped 1.9 per cent, with a contraction in spending by businesses twice as severe as first thought. On a nominal basis, output slipped 0.9 per cent, marking the first quarter-on-quarter fall since Shinzo Abe returned to power in December 2012, vowing to overturn more than a decade of deflation. The new numbers are a blow to Mr Abe, who called a snap poll last month in the hope of resetting the clock on a four-year electoral cycle, arguing that his mix of policies is “the only way” for Japan to return to steady growth. “The bankruptcy of ‘Abenomics’ is clear to everyone’s eyes,” said Tetsuro Fukuyama, policy chief of the main opposition Democratic party of Japan, in a statement after the GDP release. “Abenomics has brought about excessive yen weakening and bad inflation, hurt households and stalled consumption.” Although the commitment to push up taxes on consumption was one made by the previous administration more than two years ago, it was one that the prime minister stood by, noted Tomo Kinoshita, chief economist at Nomura Securities in Tokyo, which must raise questions over his stewardship of the world’s third-largest economy. “He is in a difficult position,” he said. However, analysts said that confirmation of another technical recession for Japan — its fourth since the Lehman crisis — is unlikely to affect the outcome of the poll on December 14, the announcement of which caught the DPJ and other parties on the hop.

Abenomics Revised Down Again -- Economists expected Japan's third quarter GDP would drop 0.1%. The preliminary forecast was -0.4%.Japan just announced capital spending was even worse than reported. Compared to last last quarter, the estimate now is -0.5%. For those who prefer looking at annualized numbers, Japan's third-quarter GDP revised down to annualized 1.9 percent contraction. Japan's economy shrank an annualized 1.9 percent in July-September from the previous quarter, worse than a preliminary 1.6 percent contraction as capital expenditure fell more than initially estimated, revised government data showed on Monday.On a quarter-on-quarter basis, the economy shrank 0.5 percent in the third quarter, against a preliminary reading of a 0.4 percent drop, the Cabinet Office data showed. The result compared with a median market forecast for a 0.1 percent contraction.Capital expenditure fell 0.4 percent from the previous quarter, more than a preliminary 0.2 percent decline.

Japan's Desperation: Gambling on Casino Openings - You cannot help but feel sorry for Japan as it tries everything to get its economy rolling again except for the thing which promises the most--opening itself up to migration in an era of depopulation. Abenomics is a dud; despite US-style money-for-nothing policies, it has had even more limited success pump-priming its economy. In fact, it's fallen back into recession and Abe has had to call for another election to renew his mandate for...I do not know precisely what.  Since generating revenues is one of Japan's many problems, this option had to pop up sooner or later: when in doubt, build casinos! As nearly every American state and even moralistic "Asian values" Singapore has legalized gambling, why not Japan? As the Yanks are learning, building casinos is hardly a surefire way to fiscal success. But, given the level of Japanese desperation, isn't it worth a shot for the heck of it? Apparently that's what the Abe administration thinks, even if Japan's current economic woes are causing delays in gaining legislative approval. Given a sour economy, there are higher priority bills like re-militarizing Japan to meet rising Chinese territorial expansionism, thoughGaming companies such as Las Vegas Sands Corp, Caesars Entertainment Corp and MGM Resorts International have been hoping Abe would unlock an "integrated resort" market that brokerage CLSA estimated could generate annual revenue of $40 billion. Pro-casino lawmakers intend to push back a vote on the bill instead of trying to pass it in the current parliamentary session ending this month, three people directly involved in pushing the casino bill told Reuters on Tuesday. Although they aim to keep the bill on the table, the sources said there was a considerable chance it would not come up for discussion even in 2015.

Yen plunge hurting, but more still to come -  After years of complaints by economic managers that the yen was too high and no one was buying Japanese exports, the currency is on a one-way charge to the bottom of the heap. Three years after hitting the dizzy heights of 75 yen to the dollar as global investors poured into the safe haven currency, the Japanese unit is now plumbing seven-year lows beyond 120 to the dollar. Massive -- and recently expanded -- monetary easing by the Bank of Japan has been responsible for driving down the yen, a trend that has accelerated in recent months as the Fed wound down its asset-purchase programme. The price of Japanese goods abroad has fallen and exporting firms have seen their bottom line fattening nicely, driving up share prices. Companies such as Toyota and Panasonic have celebrated as their coffers fill with cash, enough -- maybe -- to dish out the pay rises Prime Minister Shinzo Abe desperately wants workers to get if they are ever to start spending and help nurture the economy back to health. With the dollar at 120 yen, compared with 103 a year ago, the main six automakers stand to collectively enjoy an additional 800 billion yen ($6.7 billion) in operating profit for the year to March 2015, the Nikkei newspaper estimated.

Growing Trans-Pacific Trade Deficits Set the Stage for Growing Trade-Related Job Displacement -- U.S. trade and investment agreements have almost always resulted in growing trade deficits and job losses. Under the 1993 North American Free Trade Agreement, growing trade deficits with Mexico cost 682,900 U.S. jobs as of 2010, and U.S.-Mexico trade deficits and job displacement have increased since then. President Obama promised that the U.S.-Korea Free Trade Agreement would increase U.S. goods exports by $10 to $11 billion, supporting 70,000 American jobs from increased exports alone. However, in the first two years after that deal went into effect, U.S. exports actually declined, and growing trade deficits with Korea cost nearly 60,000 U.S. jobs.This is important to keep in mind as negotiations for the Trans-Pacific Partnership (TPP) resume in Washington this week. The United States has a large and growing trade deficit with the 11 other countries in the proposed TPP. This deficit has increased from $110.3 billion in 1997 to an estimated $261.7 billion in 2014, as shown in the figure below. With trade deficits already on the rise, it makes no sense to sign a deal that would exacerbate them further.Meanwhile several members of the proposed TPP deal are well known currency manipulators, including Malaysia, Singapore, and Japan—the world’s second largest currency manipulator (behind China). Eliminating currency manipulation could reduce U.S. trade deficits, increase GDP, and create 2.3 million to 5.8 million U.S. jobs. The United States would be foolish to sign a trade and investment deal with these countries that does not include strong prohibitions on currency manipulation. Yet U.S. Trade Representative Froman has testified that currency manipulation has not been discussed in the TPP negotiations.

Obama says he willing to defy Democrats on his support of Trans-Pacific Partnership -- President Obama signaled Wednesday that, at least on international trade, he is willing to defy his fellow Democrats and his own liberal base to pursue a partnership with Republicans. Trade represents one of Obama’s best chances for a legacy-building achievement in the final two years of his presidency, but he acknowledged that it is an idea he still has to sell to many of his traditional allies.  Speaking at a gathering of business leaders, Obama offered his strongest public defense of his administration’s pursuit of a major 12-nation trade deal in the Asia Pacific, known as the Trans-Pacific Partnership (TPP), that has been opposed by Democrats, labor unions and environmental groups. The administration has argued that the trade deals will boost U.S. exports and lower tariffs for American goods in the fast-growing Asia-Pacific region, where the United States has faced increasing economic competition from China.  “There are folks in my own party and in my own constituency that have legitimate complaints about some of the trend lines of inequality, but are barking up the wrong tree when it comes to opposing TPP, and I’m going to have to make that argument.”The president spoke shortly before meeting at the White House with Sen. Mitch McConnell (R-Ky.), who will become majority leader next month and has said the GOP would be supportive of Obama’s efforts to liberalize trade policy.  But Obama is facing increasing pressure from the other countries, particularly Japan, to win approval from Congress for fast-track authority, which would allow him to pursue a final deal that could not be changed by lawmakers before a vote on Capitol Hill. Current Majority Leader Harry M. Reid (D-Nev.) blocked a nascent push from the White House last year over fears of blowback from labor unions and other liberal groups.

Watch out, the US taxman may be after you: Boris Johnson, the mop-topped Lord Mayor of London and a man still occasionally touted as a possible future leader of Britain's Conservative Party, was born in New York but hasn't lived there since he was five. Due to his place of birth he is a US citizen, holds dual citizenship and carries both passports. It still must have come as a surprise to him when the US Internal Revenue Service handed him a tax bill for the sale of his London home in 2009. Profits on the sale of a principal residence in the UK are tax free as they are in Australia, but not in the US. And although Boris has never lived in the US, the estimated tax is more than £100,000. He is very vocal in his refusal to pay. This case could have tax implications for Australians living abroad as much as Americans. Uniquely among the countries of the world, the US taxes its citizens not on the basis of where they live, but on their citizenship. For a US citizen residing abroad it does allow a tax-free threshold of roughly $US100,000 which means most US expatriates pay little or no tax to the US government, apart from the fees their accountants charge to file the returns. Foreign residents are advised to use a professional since the US regulations are extremely complex and mistakes are subject to hefty penalties.

Baltic Dry Plunges Back Below $1000 - Lowest December Since 2008 -- Just a few short months ago, investors were "buy buy buy"-ing the fact that The Baltic Dry Index had resurged off multi-year lows 'proving' China's renaissance and that world economic growth will re-approach Nirvana. Simply put, with collapsing commodity prices (iron ore for instance) and massive fleets of credit-driven mal-investment-based vessels, it should surprise no one that the shipping index just plunged back below 1000, now at its lowest for this time of year since 2008. Furthermore, the seasonal bounce always seen in Q3 was among the weakest ever. But apart from that, buy stocks...

Currency Mismatch Seems Likely to Deepen as Central Banks Diverge - The Bank for International Settlements warns about global risks associated with a strengthening U.S. dollar, and Friday’s U.S. jobs report suggests those risks will only intensify in the months ahead as global central bank policies diverge. Firms overseas that have borrowed in dollars may have trouble paying the money back if the dollar keeps strengthening, the BIS argues in its quarterly report on global central banking, singling out emerging market economies. “Many firms in emerging markets have large US dollar-denominated liabilities. A continued depreciation of the domestic currency against the dollar could reduce the creditworthiness of many firms, potentially inducing a tightening of financial conditions.” International bank loans to emerging markets amounted to $3.1 trillion in mid-2014, mainly in US dollars, according to the BIS. Total international debt securities issued from these economies stood at $2.6 trillion, of which three quarters was in dollars.  If there is trouble lurking here in emerging markets, it would be because they get caught up in crosscurrents created as big central bank policies diverge. The Federal Reserve is on a path to start raising short-term interest rates in mid-2015 as the U.S. job market improves. Friday’s strong U.S. jobs report helped officials reaffirm this view. Meanwhile the ECB, Bank of Japan, and People’s Bank of China are all moving toward easier monetary policies because of dimmer growth prospects in their economies.

Should we really worry about currency wars? —In September 2010, Brazil’s former finance minister, Guido Mantega, made headlines when he accused the Federal Reserve, the European Central Bank and the Bank of England of engaging in a currency war.  The complaint was that easy monetary policy was driving down the value of the dollar, the euro and the pound, at the expense of his country and those like it. More recently, similar charges have been levied against Japan: namely, that the Bank of Japan’s extraordinary balance sheet expansion is aimed at driving down the value of the yen, damaging the country’s trading partners and competitors.  At first blush, these “beggar thy neighbor” charges might seem plausible. Many emerging market countries survive on exports, so an appreciation of their currency makes their products more expensive to foreign buyers. This naturally depresses sales, putting a drag on growth. Cheaper imports add to that drag. Finally, with policy interest rates in the advanced economies at the zero bound, the exchange rate channel has become more important than usual as a means of transmitting monetary policy stimulus. But the charge was and is difficult to justify. First, the aggregate economic impact of currency changes is limited. Second, there is no evidence that advanced economies are manipulating their exchange rates to achieve a competitive advantage.

Low oil prices pull down banks' lending --The continued drop in crude oil prices and decrease in the subsidy bill of the oil marketing companies have led to a fall in the loans given out by banks. The financial institutions claim the cycle of the big drop in their loan growth could last up to one year. Oil marketing companies have seen their working capital needs decline by a huge margin due to the crude oil prices being on a downward slide since June. Crude oil prices have come off 36 per cent since June and are currently trading at $70 a barrel. The international crude oil price of the Indian basket was at $67.98 a barrel (bbl) on December 4. Decrease in borrowings has brought down the year-to-date (April-till now) credit to the largest bank, State Bank of India (SBI) by Rs 13, 000 crore. "The demand for working capital has declined after fall in oil prices and subsidy reforms. Oil companies were borrowing significantly when they were in a tight spot due to the subsidy burden. The corporate credit growth has declined after demand from oil companies slowed down," said an official from SBI. When the oil prices were high and the government reimbursed oil marketing companies after a gap, short-term bank loans were a crucial source of financing for the companies. Also, the government did not reimburse the interest incurred on these loans. According to Reserve Bank of India data the exposure of banks to petroleum, coal and the nuclear energy segment has been on the decline all through this financial year (2014-15). In March, the outstanding loans to this segment was Rs 63,500 crore. It declined to Rs 55,500 crore in October. Indian Oil Corporation, the biggest borrower among the three oil marketing companies, has seen its borrowing at the end of November drop by Rs 25,000 crore.

Crude fall to oil Indian economy - The Hindu: For India’s economy, projected to grow at a faster clip from early-2015, the timing of the oil-prices relief could not have been sweeter Down nearly 40 per cent since June, international crude prices are close to levels last seen in 2009, when the global economy was gripped by its worst slump since the 1930s. Indians though are not enjoying commensurate savings on fuel bills — retail prices of petrol and diesel are not declining at the same pace as the plummeting price of crude. Consumers are paying 8.32 per cent less for diesel and 11.31 per cent less for petrol than on June 1. But there are indirect gains. The sharp fall in global crude prices has a favourable impact on India’s macro economy, setting off multiple growth boosters. Investment bank Nomura estimates that the $40 fall can potentially boost growth by up to 0.4 percentage points to 6 per cent in the current financial year. “Improvement in macro fundamentals [inflation and the fiscal deficit and the current account balance] will, at the margin, increase the space for macro [monetary and fiscal] policies to boost growth,” it says in a report on the impact of the tumbling international crude prices on India. “The price fall is fortunate for the new government … it will reduce the balance of payments and if handled well it can be translated into economic growth,” economist Kirit Parikh told The Hindu. Dr. Parikh, who has been on the economic advisory councils of five Prime Ministers — Atal Bihari Vajpayee, P.V. Narasimha Rao, V.P. Singh, Chandra Shekhar and Rajiv Gandhi, said the biggest impact on India can be that the government, if it wants, will be able to spend more on development.

A passage to India — Putin goes to New Delhi -- Russia’s President Vladimir Putin heads to New Delhi next weekend and will sign a deal with India on energy supply, marking the latest step in a remarkable set of developments that will reshape the international energy business and particularly the natural gas market for years to come.  The deal between India and Russia will centre on the long-term supply of gas and oil. The deal is likely to account for a substantial proportion of India’s growing needs well into the 2020s. This will follow the deal signed in May and another signed last month which will give China more than 30bn cubic metres of gas annually from east Siberia, once the necessary infrastructure is in place. The first Chinese deal was said to be worth $400bn; the second slightly less. The agreement with India also follows last week’s announcement that Russia is considering abandoning the South Stream project to supply gas through a pipeline running through southern Europe in favour of creating a new gas trading hub in Turkey.  Much of the coverage of the Chinese deal has focused on the low price being paid. The Turkish deal is also reported to offer the Turks a material, long-term discount. I have no doubt that any deal with India will also be completed at an attractively low price.  But this focus on price misses the point. Mr Putin, who has a better understanding of the global energy market than any western leader, is focused on market share rather than price. In three moves he has established Russian dominance in some of the key global markets for the medium to long-term. The relatively low prices (and in the case of India, no doubt also some attractive defence supply deals) establish a sense of mutual advantage. In what has become a buyers’ market, Mr Putin has played a weak hand very well.

Venezuela GDP shrank 4.2 pct through third quarter, opposition says (Reuters) - Venezuela's economy shrank by 4.2 percent in the first three quarters of 2014, an adviser to the country's main opposition group said on Tuesday, after almost a year of official silence about the state of the OPEC nation's economy. The central bank has not published any GDP data for this year and has not revealed inflation figures since August's 63.4 percent 12-month reading, spurring criticism that President Nicolas Maduro is hiding bad economic news. "The central bank has not given figures but I'm going to give them to you," Jose Guerra, a former central bank director who now works as an adviser to the opposition's Democratic Unity coalition, told a news conference. "GDP dropped by 4.4 percent in the first quarter, 4.4 percent in the second quarter and 3.5 percent in the third quarter," he said, yielding a drop of 4.2 percent for the first nine months of the year.

Venezuela faces hyperinflation threat - Gloomily watching their money shrink in value, Venezuelans don't need government statistics to tell them what they already know: their country is facing the looming risk of hyperinflation. Breaking its own regulations, the Venezuelan central bank has stopped publishing the official inflation rate, which stood at 63.4 per cent at the end of August. Since then, prices have only continued to rise, as the South American oil giant feels the pinch of falling crude prices and struggles to import the food and medicine it largely buys abroad. It is difficult to evaluate just how much value the bolivar has lost in recent months. But one quick measure is the Extra Value menu at McDonald's: In September 2013, a Big Mac combo meal cost 125 bolivars; by November 2014, the price had nearly doubled, to 245 bolivars. The US fast food giant is, paradoxically, a good place to track Venezuela's inflationary spiral. For one thing, it remains popular with Venezuelans, despite anti-"Yankee-lover" diatribes by President Nicolas Maduro, the political heir to late socialist firebrand Hugo Chavez. For another, it is one of the few food businesses not to have been hit by the shortages crippling the Venezuelan economy. "We raise our prices practically every month," a McDonald's employee said, speaking on condition of anonymity.

Argentina says Oct primary deficit blew out to 15.2 bln pesos (Reuters) - Argentina's primary budget deficit was 15.2 billion pesos ($1.8 billion) versus a shortfall of 2.8 billion pesos in October last year, the economy ministry said on Friday. The primary budget balance, which measures government spending relative to income and does not include debt payments, is followed closely by the markets as an indicator of Argentina's ability to meet its financial obligations. The South American grains exporting country is struggling with high inflation, a stagnant economy and faces a special financing challenge due to being locked out of the global bond market since its 2002 sovereign debt default.

Mexico Announced Currency Intervention as Peso Weakens to Two-Year Low. Mexico’s central bank revived an intervention program designed to curb foreign-exchange volatility after the peso fell to a two-year low. Policy makers will auction $200 million on days when the peso weakens at least 1.5 percent from the previous close, the central bank said today in a statement. A similar measure to support the local currency was put in place in November 2011 and was used just three times before ending in April last year. The peso, which pared today’s losses after the announcement, is still down 10 percent over the past six months on concern that a drop in oil prices will damp investment in the country’s energy industry. The new program to support the peso surprised investors including Juan Carlos Alderete, a currency strategist at Grupo Financiero Banorte SAB in Mexico City, after Finance Minister Luis Videgaray said last week that he didn’t see a need for intervention. “I don’t think it will be necessary to actually use the measure,” Alderete said in a telephone interview. “It’s more of a preventative one based on high market volatility.”

Canadians' Debt Levels 'Unsustainable,' Fitch Warns: Canadian levels of consumer debt, especially mortgage debt, were termed “unsustainable” by ratings agency Fitch in a report that gives a negative outlook for Canadian banks. Fitch gives Canada’s banks a “stable” ratings outlook, citing their good earnings and solid balance sheets. But looking forward to 2015, when interest rates are expected to rise, it sounds a warning on housing affordability and overall indebtedness. "The key macroeconomic driver of Fitch Ratings' outlook is the high level of consumer indebtedness in Canada, which Fitch still believes to be at unsustainable levels," the agency said. Last week, Equifax reported that Canadians were carrying an increasing debt load, an average of $20,891 of consumer debt. But two thirds of the $1.5 trillion in debt Canadians carried was mortgage debt. House prices in Canada rose at an average of 2.5 per this year, but markets such as Toronto, Calgary and Vancouver saw much sharper increases. "This, combined with what Fitch believes to be signs of overvaluation in the Canadian housing market, particularly in areas such as Vancouver and the Greater Toronto Area, begets a cautious view of consumer credit and thus the negative sector outlook." Moody's also has debt concerns Moody's Investor Service echoed the Fitch warning on household debt in a report on Canada’s economic outlook.

Global Economic News Coverage Shows More Chatter About Easier Monetary Policy - A measure of global economic conditions fell further in November, and talk about monetary policy turned decidedly more accommodative last month. The Absolute Strategy Research/Wall Street Journal global newsflow composite index declined to 54.2 last month from 54.7 in October, according to data released Tuesday. An index above 50 denotes positive news coverage on economic topics. November’s reading was the lowest since June 2013. The index’s decline indicates economic conditions are less supportive to equities relative to bonds. A new development in the November news flow research was the steep drop in the monetary policy component of the composite index. The global monetary policy newsflow index dropped to 44.7 last month from 52.4 in October. “The stories about easier monetary policy outnumbered those on tighter policy for the first time since last December,” the report said. The drop in the overall economic newsflow index along with coverage about very weak inflation probably contributed to “growing chatter” about looser monetary policy, the report added. “This is a global phenomenon. Monetary Policy Newsflow has fallen sharply in the U.S., U.K., Japan and China,”

Think Central Banks Are Done? Stimulus to Accelerate in 2015 -  If you expect global central banks to unwind stimulus next year, you’re probably wrong. In fact, the world’s monetary policy makers are set to open the cash spigot by the most in four years in 2015. Major central banks will together add almost three times more liquidity next year than they did in 2014, according to Credit Suisse Group AG analysts. Even with the U.S. Federal Reserve and Bank of England having wrapped up their bond buying, the strategists led by Andrew Garthwaite estimate the balance sheets of the four top central banks will grow 13 percent next year, or $1.3 trillion, after this year’s 5 percent expansion. They assume the Bank of Japan will account for $855 billion via quantitative easing and the European Central Bank will increase its assets by about half the 1 trillion of euros it’s aiming for. If the ECB hits its target then the swelling globally will be $1.9 trillion or 18 percent.

The State of Workers’ Wages Around the World - Yves here. Some of this Real News Network interview with Richard Wolff, who is currently a visiting professor at the New School, on a new ILO report on workers' wages covers familiar ground. Wage growth in advanced economies has been much slower than that in emerging economies, in large measure due to multinational moving jobs overseas to exploit lower labor costs. But the interesting part of the conversation is Wolff's argument on why this is in fact not defensible conduct and what countries like the US ought to do about it.

Putin’s New Deal Spells End to 15 Years of Wage Gains - Vladimir Putin’s confrontation with the U.S. and Europe augurs a new deal for his 144 million subjects. Instead of the rising living standards he’s delivered the past 15 years in exchange for the public’s acquiescence, the Russian president now holds out declining wages and more austere lifestyles as the price of swollen national pride. The first signs of discontent are appearing. Doctors protested Nov. 30 over job cuts and Putin ordered a freeze in inflation-linked pay raises for some government employees. Keeping dissatisfaction at bay will be costly too: Putin may exhaust more than half of the nation’s $420 billion of reserves -- down from almost $600 billion in 2008 -- within two years. “There’s been a social contract in place in Russia whereby the population understood that its living standards will continue to improve even if political freedoms are limited, but now living standards are taking a hit,” “This is going to affect public attitudes and it’s going to put pressure on the system and on Putin personally.”

Russia's Ruble Disaster in One Chart - Bloomberg: Russian President Vladimir Putin has tried everything from selling dollars to threatening speculators in his bid to stem this year’s plunge in the ruble. None of it has worked. The attached graph provides an up-close look at the ruble’s collapse over the past two months. It dropped 25 percent during that time to 53.40 rubles per dollar, extending this year’s slide to 38 percent. The only currency in the world that’s fallen more is that of Ukraine, the country where all of Putin’s financial troubles began when his troops invaded the Crimea peninsula in March. Putin’s frustration with the ruble showed during his annual address to parliament last week. He pledged “harsh” measures for those speculators betting against the currency while promising to repel any effort to force Russia to back down over Ukraine. With his finance officials now appealing to state-controlled exporters to take measures to help shore up the ruble, speculation is mounting that he may turn to capital controls next as oil revenue dries up.

Russians Snap Up Porsches as Falling Ruble Erodes Savings - Russians are snapping up Porsche sports cars and Lexus sport-utility vehicles to protect against the falling ruble from eroding their savings. With steeper price increases looming next year, sales of Porsche vehicles, such as the Cayenne crossover, jumped 55 percent last month and Lexus demand surged 63 percent. Local Lexus dealers added extra staff to handle customer traffic that surged by a third, according to the Toyota Motor Corp. (7203) brand. It’s not just the wealthy seeking high-end cars. Russians of all stripes are looking to convert their rubles as the currency has tumbled 19 percent against the dollar since Nov. 1. The recent buying spree has come as a boon to the Russian car market, which has been hit hard by the country’s economic woes. Deliveries slipped just 1.1 percent last month, stemming the decline through November to 12 percent, according to Russia’s Association of European Businesses.

Russia 'Defends' the Ruble? You Must be Joking -  Before we rotate out of the currency fixation we've had for the last few days, here's an interesting feature from Bloomberg I found illustrating the recent slide in the Russian ruble. Yes, I know, it's been doing the dive-bombing thing for a few months already. However, the recent price action is interesting insofar as the rhetoric has been cranked up by Putin and Co. As you would expect, bluster about "punishing speculators" and so on have not done much to shore up the currency's value absent concrete action by the central bank. Here is the blurb: Russian President Vladimir Putin has tried everything from selling dollars to threatening speculators in his bid to stem this year’s plunge in the ruble. None of it has worked. The attached graph provides an up-close look at the ruble’s collapse over the past two months. It dropped 25 percent during that time to 53.40 rubles per dollar, extending this year’s slide to 38 percent. The only currency in the world that’s fallen more is that of Ukraine, the country where all of Putin’s financial troubles began when his troops invaded the Crimea peninsula in March.

Ruble Collapses, Russians Yawn -- With the ruble down 40 percent against the dollar so far this year, and down more than 14 percent in the last 30 days, one might have expected widespread economic panic among Russians. But there's been nothing of the kind. It's been business as usual in Moscow: no bank runs, no desertion of retail stores, no sign of consumer hoarding. Only expensive cars and luxury items are selling better than usual, and that's evidence only of bargain-hunting among the Moscow elite. When you expect panic, it's easy to pick up signals that match those expectations: store and restaurant closures, long lines for good that suddenly became scarce, ATMs routinely running out of cash. Sure enough, observers have found plenty of alleged evidence for economic distress. Fashion Consulting Group, a Moscow consulting company, estimated that fashion sales in Russia dropped 7 to 8 percent year on year in the first six months of 2014, and predicted they would be down 20 percent for the full year. Mexx, the Dutch mid-range clothing brand with 100 stores in Russia, cited ruble devaluation and Eastern European political unrest among the reasons for its bankruptcy filing last week. Zara, the biggest brand of Spanish fashion group Inditex, closed its Moscow flagship store a stone's throw from the Kremlin this month. Still, Moscow malls -- at least the three I visited today -- appeared neither deserted nor feverish. The activity was normal for this time of year, most stores doing reasonably brisk business. A Mexx store in a below-ground mall near the Kremlin was rather quiet, but then the prices, marked up in line with the ruble's devaluation, were unattractive compared with those in neighboring shops.

"Isolated" Russia Begins Testing De-Dollarization-Driven Payment System -- Having announced its intention to create an alternative to the SWIFT payment system (following calls from Western politicians for SWIFT to cut off Russia - which the 'independent' firm rapidly denied), Russia recently said it would be ready in May. However, it seems the rapid drop in the Ruble (and the Yuan in recent days) has escalated the need for this de-dollarized payment system and, as RT reports, Russia’s Rossiya and SMP banks, which fell under Western sanctions, are among the eight lenders that will start testing the country’s new national payment system on December 15.

Ukraine Sends Russia Huge Advance Payment For Gas --Ukraine’s Naftogaz has sent $378.22 million to Russia as advance payment for natural gas supplies, which should lead to the resumption of shipments that were suspended nearly six months ago in a dispute over the prices Moscow had set for the fuel and debts Kiev owed for previous shipments. Russia’s Gazprom said Dec. 7 that it had received the payment, which had been made the day before. Under an agreement signed between the two government-owned gas companies, the flow of gas was to resume within 48 hours after payment. The payments and the flow of gas come just in time, as wintry weather settles on Ukraine. It also is good news for Russia’s gas customers in the European Union, Alexander Paraschiy, an energy analyst at Concorde Capital in Kiev, told Bloomberg News. “Russian gas paid for [now] cuts the risk of shortages in Ukraine and in Europe-bound transit at least until the middle of February,” he said. Vladimir Demchishin, Ukraine’s minister of energy and coal industry, said Dec. 5 that the payment would buy about 1 billion cubic meters of gas. His predecessor, Yuri Prodan, said earlier in December that the amount would depend on weather and demand. Under the Gazprom-Naftogaz contract, Ukraine can decide at any time on the amount of gas it needs for a given period, as long as it pays in advance. But that’s just the first installment. Paraschiy said that, for now, the country can’t rely much on coal because of the pro-Russian violence in Ukraine’s eastern coal region, and estimated that Ukraine may need as much as 4 billion more cubic meters of Russian gas, costing up to $1.5 billion, starting in January to keep warm through the winter.

Rebalancing the EU-Russia-Ukraine gas relationship - The October 2014 agreement on gas supplies between Russia, Ukraine and the European Union did not resolve the Ukraine-Russia conflict over gas. The differences between parties in terms of objectives, growing mistrust and legacy issues make it unlikely that a long-term stable arrangement will be achieved without further escalation. Without EU pressure and support, Ukraine is likely to enter a new unfavourable gas arrangement with Russia, which could have repercussions beyond the energy sector.  Key highlights:

  • To reduce prices and increase the security of imports, the EU as a bloc should redefine its gas relationship with Russia and Ukraine and overcome the diverging interests of EU member states on second-order issues.
  • Implementation of a joint strategy rests on enforcement of EU competition and gas market rules, a strengthened role for the Energy Community and the establishment of a market-based instrument for supply security.
  • For Ukraine, the EU should serve as an anchor for comprehensive gas sector reform. Contingent on Ukraine’s reform efforts, EU financial and technical assistance, the enabling of reverse flows from the EU to Ukraine and pressure on Gazprom, should eventually enable Ukraine to obtain a sustainable gas-supply contract with Russia. This should make a sustainable and mutually beneficial Russia-Ukraine-EU gas relationship possible. However, during the transition, the EU should be prepared for possible frictions.

IMF warns Ukraine bailout at risk of collapse - The International Monetary Fund has identified a $15bn shortfall in its bailout for war-torn Ukraine and warned western governments the gap will need to be filled within weeks to avoid financial collapse. The IMF’s calculations lay bare the perilous state of Ukraine’s economy and hint at the financial burden of propping up Kiev as it battles Russian-backed separatist rebels in its eastern regions. The additional cash needed would come on top of the $17bn IMF rescue announced in April and due to last until 2016. Senior western officials involved in the talks said there is only tepid support for such a sizeable increase at a time Kiev has dragged its feet over the economic and administrative reforms required by the programme. “It’s not going to be easy,” said one official involved in the talks. “There’s not that much money out there.” People briefed on the IMF warning said the fiscal gap has opened up because of a 7 per cent contraction in Ukraine’s gross domestic product and a collapse in exports to Russia, the country’s biggest trading partner, leading to massive capital outflows and a rundown in central bank reserves. The breakaway regions of the east accounted for nearly 16 per cent of Ukraine’s economic output before the start of hostilities. Without additional aid, Kiev would have to massively slash its budget or be forced to default on its sovereign debt obligations. Since the bailout programme began in April, Ukraine has received $8.2bn in funding from the IMF and other international creditors.

Poland counts the cost of losing millions of its workers -- After 1.2 million of its citizens migrated in the ten years since Poland joined the European Union, the country is counting the economic and social cost. Though its workers may have eased demographic difficulties in ageing countries like Britain and Germany, Poland now has a population crisis of its own. Those who left were predominantly the young and economically active. For a while the billions of euros they sent back helped the economy - remittances were worth 2 percent of the country's GDP in 2009 alone - and enabled it to avoid recession but that money is drying up as they choose to settle permanently abroad. As a result Poland's social security system is creaking badly. The country will spend almost a third of its budget in 2015 subsidising pensions - a ratio only likely to increase as the population ages and grandchildren are born abroad. "To put it very simply, millions of workers emigrating and not paying anything in means no pensions for millions of retirees,"  Demographic projections show Poland will lose nearly 3 million people in the next 25 years, partly through migration and partly because women who leave Poland are more likely to have children than those who stay, official data shows. While Poland's pensions crisis looms, a more immediate migration-related problem is presenting itself: shortages of labour at home.

New G20 Rules: Cyprus-Style Bail-Ins to Hit Depositors and Pensioners - On the weekend of November 16, the G20 leaders whisked into Brisbane, posed for their photo ops, approved some proposals, made a show of roundly disapproving of Russian President Vladimir Putin, and whisked out again. It was all so fast, they may not have known what they were endorsing when they rubber-stamped the Financial Stability Board’s “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” which completely changes the rules of banking. Russell Napier, writing in ZeroHedge, called it “the day money died.” In any case, it may have been the day deposits died as money. Unlike coins and paper bills, which cannot be written down or given a “haircut,” says Napier, deposits are now “just part of commercial banks’ capital structure.” That means they can be “bailed in” or confiscated to save the megabanks from derivative bets gone wrong. Rather than reining in the massive and risky derivatives casino, the new rules prioritize the payment of banks’ derivatives obligations to each other, ahead of everyone else. That includes not only depositors, public and private, but the pension funds that are the target market for the latest bail-in play, called “bail-inable” bonds. “Bail in” has been sold as avoiding future government bailouts and eliminating too big to fail (TBTF). But it actually institutionalizes TBTF, since the big banks are kept in business by expropriating the funds of their creditors.

Which euro area countries have been driving household spending growth? - Handy chart from CreditSights illustrating the changing fortunes of euro area households over the past couple of years:Notice the turnarounds in Spain, Italy, and other countries on the so-called “periphery”. After falling by about 6 per cent peak to trough in Spain and Italy, real household consumption has been slowly rising and contributing to the overall growth of the euro area.  It’s also encouraging that German household consumption may finally become a growth engine for Europe. The stereotype of the tightfisted German is well-grounded in the national income accounts data. We’ve previously noted that real consumption per person grew slower in Germany than in any other country in the euro area in the years before the crisis — and slower than in Japan too, for that matter — which helps explain why Europe’s current and capital account imbalances swelled so much after the creation of the single currency. If Germans boost their spending, it could provide needed euros to indebted Europeans elsewhere.  Something to watch.

OECD: Eurozone at risk of slide into contraction - --Economic growth is set to slow in the eurozone, according to leading indicators released Monday by the Organization for Economic Cooperation and Development, placing the currency area at risk of a slide back into contraction. The Paris-based research body said its gauges of future economic activity--which is based on information available for October--also pointed to slowdowns in the U.K. and Russia, while suggesting growth in most of the world's other large economies will remain at current rates over coming months. The leading indicators add to concerns that economic activity may once again start to decline in the eurozone. The currency area emerged from 18 months of falling output in the second quarter of 2013, but has struggled to embark on a significant recovery. Its economy grew by just 0.2% in the third quarter, having expanded by 0.1% in the second. "In the euro area the CLI (composite leading indicator) continues to indicate a loss of growth momentum, particularly in Germany and Italy," the OECD said. "Stable growth momentum, however, is expected for France." The warning signal from the leading indicators follows the release of surveys of manufacturers and service providers that showed private sector activity grew at the slowest pace in 16 months during December. The number of people without work rose for a second straight month in October, while the annual rate of inflation returned to a five-year low in November.

ECB Kills Covered Bond Market; Buyers of Only Resort; Japanization of Europe Continues - ECB president Mario Draghi set out to stimulate bank lending by purchasing covered bonds. Yields plunged, which is precisely what Draghi wanted. Now, the average covered bond yield of 0.53% is so low that investors won't touch them. Numerous bond deals have been cancelled due to lack of demand. The buyer of only resort is the ECB. This all transpired since September. Please consider ECB Blamed for Covered Bond ShortageCovered bond supply has reached its lowest level in nearly two decades as the European Central Bank has been accused of crowding out investors from the market by pushing up prices and depressing yields. European covered bond volumes total $166.2bn for the year to date, the lowest figure since 1996 according to Dealogic. This is in spite of an ECB programme announced in September aiming to stimulate the market. Last month Allied Irish Banks took the unusual step of postponing a planned 10-year covered bond deal amid market speculation that the yield offered was too low to tempt investors. Economic madness did not help Japan, and it will not cure Europe either. But Central Bankers do not care about losses or failures. Central bank policy remains: "If it doesn't work, do more of it". And so they will, On December 4, the ECB announced a Broad Stimulus Plan, All Assets but Gold on the Table for Purchase.

France Heading For Deflation Inflation - French inflation just sank to another five-year low, down at 0.4% in November, compared to the same month last year, leaving France even further away from the European Central Bank's 2% inflation target.. Analysts were expecting a 0.5% figure. But it's even worse than that. France's core inflation is now at -0.2%. It's negative for the first time the country started recording it. It's much harder to blame falling oil prices for that: core inflation deliberately strips out volatile items like fresh food and energy, to try to give an idea of the underlying trend. Here's France's headline inflation tumbling:  BNP Paribas economists had this to say in a note: "Keeping in mind that the annual inflation rate still includes the impact of the early 2015 VAT hike, we should expect headline inflation to fall in negative territory early next year." France raised VAT to 20% from 19.6% in January, the effect of which has kept prices up all year. But from January, that effect will fall away, and combined with falling oil prices, deflation is now looking likely for Europe's second biggest economy.

Greece’s Yield Curve Inverts as Return to Bond Markets Unravels - Greece’s access to capital markets, an emblem of the nation’s recovery from its sovereign debt crisis, is starting to unravel. The price of Greek three-year notes, sold in July as part of the nation’s reintegration into bond markets, fell to a record today as political turmoil threatened to derail its recovery. The slump pushed yields on those securities above 10-year rates for the first time. “Curve inversion in Greece is not a good sign,” . “It usually signals a heightened perception of default risk.”Stocks and government bonds in Greece slid after Prime Minister Antonis Samaras brought forward the process for choosing a new head of state. Failure to decide on a new leader would trigger parliamentary elections early next year, with anti-bailout group Syriza currently leading in opinion polls. The yield on Greece’s July 2017 notes climbed 182 basis points, or 1.82 percentage point, to 8.29 percent at 4:44 p.m. London time. The price of the 3.375 percent security fell 3.88 or 38.80 euros per 1,000-euro ($1,241) face amount, to 88.89.

Greece’s stock market just suffered its worst collapse ever - Now this is Greek tragedy. Greece’s Athex Composite tanked almost 13% Tuesday — the biggest drop for the index on record, according to FactSet. The renewed jitters came after the government, in a surprise move late Monday, said it would bring forward presidential elections to Dec. 17, potentially, setting the scene for snap elections in early 2015. Here’s why that’s important: Far-left party Syriza currently is leading the early polls and it seems likely they would win a snap election. This is how to think about Syriza:

  • The party has been calling for an end to austerity in Greece
  • Has been campaigning for market-unfriendly measures
  • Is firmly against the international bailout program that helped the country avoid a default during the depths of its financial crisis.

How bad is Greece’s Tuesday collapse? It’s worse than the 9.7% drop the market saw Oct. 24, 2010, at the peak of Greek debt worries. The drop also eclipses the 10% fall Greek markets saw in 1989 during a bout of political turmoil. “If there is uncertainty about Greece’s political commitment to the bailout program, it seems likely that the QE opposition within the ECB has some temporary tailwinds,”

Mad as Hellas, by Paul Krugman - The news that has roiled Europe these past few days is that the Greeks may have reached their limit. The details are complex, but basically the current government is trying a fairly desperate political maneuver to put off a general election. And, if it fails, the likely winner in that election is Syriza, a party of the left that has demanded a renegotiation of the austerity program, which could lead to a confrontation with Germany and exit from the euro. The important point here is that it’s not just the Greeks who are mad as Hellas (their own name for their country) and aren’t going to take it anymore. Look at France, where Marine Le Pen, the leader of the anti-immigrant National Front, outpolls mainstream candidates of both right and left. Look at Italy, where about half of voters support radical parties like the Northern League and the Five-Star Movement. Look at Britain, where both anti-immigrant politicians and Scottish separatists are threatening the political order. It would be a terrible thing if any of these groups — with the exception, surprisingly, of Syriza, which seems relatively benign — were to come to power. But there’s a reason they’re on the rise. This is what happens when an elite claims the right to rule based on its supposed expertise,... then demonstrates both that it does not, in fact, know what it is doing, and that it is too ideologically rigid to learn from its mistakes. I have no idea how events in Greece are about to turn out. But there’s a real lesson in its political turmoil that’s much more important than the false lesson too many took from its special fiscal woes.

Grexit’ threat could complicate ECB QE --The return of the idea of a Greek euro exit, as boogeyman or genuine threat, comes at a particularly difficult time, dangerously complicating the already fraught advent of full-scale QE in the eurozone. A parliamentary vote, set to begin next week, to replace the Greek president may trigger general elections in the new year, elections which the anti-bailout party Syriza could well win.  The very idea, much less its invocation by the prime minister, panics Greek markets, which have seen equities lose more than a fifth of their value in three days and a spike in 10-year government bond yields above 9%. There are very good reasons for this, though much has changed since the height of Greece’s crisis.  Even beyond Greece’s own grave difficulties, should Syriza win an election, most likely to be held, if needed, in January or early February, it will shortly enter into negotiations, if not conflict, with the Troika of the European Commission, the International Monetary Fund and the European Central Bank over the terms of the bailout. That doesn’t have, by any stretch, to end with a euro lineup change, but by its very nature the term and idea will be batted about, with predictable results. Almost no matter how you slice it, Greece, with a quarter of its population unemployed and having lost a quarter of its economic output, is poorly positioned to shoulder its debt load.

    Life expectancy in Spain is highest in EU and fourth-highest in the world  -- SPAIN has the highest life expectancy in the European Union – it’s official, according to the Organisation for Economic Cooperation and Development (OECD). Women in Spain typically live to 85-and-a-half and men to 79-and-a-half, putting the average for both sexes at 82-and-a-half. This has risen by five years and six months since the year 1990, compared to an average of 5.1 years across Europe as a whole. The OECD puts this down to the ‘excellent public health system’ in the country. Switzerland and Iceland, with an average for both sexes of 82.8 years and 83 years respectively, mean Spain’s life expectancy is the third-highest in Europe, but is the highest in the EU as Switzerland and Iceland are not among its 28 member States. Within the 34 countries in the OECD – considered to be the ‘first world’ and ‘emerging’ countries – Spain’s women live the second-longest after females in Japan, who reach an average of 86.4 years. Men in Spain have the ninth-highest life expectancy out of the 34 countries described as the ‘western world’, below Italian men who live to be 79.8 and Swedish men who reach 79.9. The OECD average for men and women together is 80.2 years, being 82.9 for women and 77-and-a-half for men.

    Google News Closes in Spain; News Vacuum  --In the wake of an inane new law in Spain that requires every Spanish publication to charge services like Google News for showing even the smallest snippet from their publications, whether they want to or not, Google did the only sensible thing: Google Shut Down Spanish News OperationsGoogle News is a service that hundreds of millions of users love and trust, including many here in Spain. It’s free to use and includes everything from the world’s biggest newspapers to small, local publications and bloggers. Publishers can choose whether or not they want their articles to appear in Google News -- and the vast majority choose to be included for very good reason. Google News creates real value for these publications by driving people to their websites, which in turn helps generate advertising revenues.  But sadly, as a result of a new Spanish law, we’ll shortly have to close Google News in Spain. Let me explain why. This new legislation requires every Spanish publication to charge services like Google News for showing even the smallest snippet from their publications, whether they want to or not. As Google News itself makes no money (we do not show any advertising on the site) this new approach is simply not sustainable. So it’s with real sadness that on 16 December (before the new law comes into effect in January) we’ll remove Spanish publishers from Google News, and close Google News in Spain.

    EU draws up 1.3 trillion-euro wish list to revive economy (Reuters) - The European Union has drawn up a wish list of almost 2,000 projects worth 1.3 trillion euros ($1.02 trillion pounds) for possible inclusion in an investment plan to revive growth and jobs without adding to countries' debts. Investment has been a casualty of the financial crisis in Europe, tumbling around 20 percent in the euro zone since 2008, according to the European Central Bank, and countries want to ease off on the budget rigour that has dominated policy so far. Following a call by European Commission President Jean-Claude Juncker, EU governments have submitted projects ranging from a new airport terminal in Helsinki to flood defences in Britain, according to a document seen by Reuters. "Almost 2,000 projects were identified with a total investment cost of 1,300 billion euros, of which 500 billion are to be realised within the next three years," said the document, which was drawn up by governments, the European Investment Bank and the European Commission. It will be discussed by EU finance ministers on Tuesday. The EU's economics commissioner, Pierre Moscovici, said on Monday that the fragile economy "strongly underlined the case for the ambitious investment plan."

    Eurozone Needs Further Labor Market Reforms, IMF Says - The eurozone needs to cut protection for permanent workers and keep minimum wages in check, the International Monetary Fund said Tuesday.The Washington-based organization released a staff discussion note arguing for further labor market reforms in core European economies such as France, Italy or Spain.“Growth alone will not solve the problem, especially where high youth unemployment predates the crisis,” the IMF said.With the eurozone’s gross domestic product expanding by a scant 0.6%—annualized—in the third quarter, economic growth might not be an option anyway. Nonetheless, the research paper points out that the fall in GDP accounted for only half the rise in youth unemployment during the crisis: Countries such as Greece, Spain and Portugal—but also Italy and France—already had a problem with the amount of young jobless before 2008.According to the IMF, policy makers should close the gulf between temporary workers—a large share of which are under 25—and permanent workers by easing protection on the latter. It also adds that “it might be helpful to ensure that minimum wages are set taking into account of other wages in a country,” or young workers are likely to be “priced out” of the labor market. On top of this, the IMF argues for more vocational training schemes, as well as cost-effective active policies to help the unemployed find jobs.

    EU plans for 'Robin Hood' tax fall into disarray - Telegraph: European plans to introduce a tax on financial transactions have fallen into disarray, with ministers failing to meet a year-end deadline that would have resulted in the so-called "Tobin Tax" being introduced at the start of 2016. Finance ministers from the 11 countries planning to introduce the levy had planned to sign off on a basic outline this week, but internal squabbling has forced further delays. It means they will not agree the basic points of any tax by the end of 2014, a target that was seen as crucial in order to have the Tobin Tax in place by January 2016. Jean-Claude Juncker, the European Commission president, has made the introduction of the financial transactions tax (FTT) a priority for the new commission, but the plans face legal barriers, cross-country disagreements and the vehement opposition of the financial community. Critics have said that, contrary to proponents of the "Robin Hood" tax, it would hit investors more than the banks it is targeted at, make it more difficult for companies to raise money, and raise far less than forecast in tax revenues. The British Government has challenged the idea in the European courts. Despite wanting no part in the FTT, the City of London would be damaged by the tax - a levy on equity and derivative transactions.

    Charts Show 28 Seriously Troubled Mega-Banks: 24 of them in Europe  -- I have been saying for years that European banks are in far worse shape than US banks. We can now show that in chart form thanks to Ophir Gottlieb, CEO of Capital Market Labs. Let's start with a visualization of the day: Worldwide Mega Cap Banks: Is Europe in Crisis?  If we take all of the banks in the world with market caps larger than $25 billion USD and then plot them with total assets on the x-axis and non-performing loans as a percentage of total loans, ALL of the top eleven are in Europe. Ophir Gottlieb expanded on the European bank crisis idea in this guest MarketWatch post yesterday: Opinion: European banks are Stuck in a Severe CrisisBig banks in Europe are riskier than anywhere else in the world.They have higher non-performing loans, greater asset shrinkage, larger losses and higher debt-to-equity ratios. And European banks are bracing for even worse loan losses. It’s the combination of those characteristics that lead to a crisis, and the eurozone essentially is in one today. There are 200 banks in the world with market values of more than $5 billion, 48 of which are in Europe. The chart below plots non-performing loans over total loans on the y-axis and market capitalization (or value) on the x-axis for that population of banks. If we take the population of world banks greater than $5 billion in market capitalization and select those with non-performing loans over total loans that are greater than 5% (worse than the Bank of America/Countrywide/Merrill Lynch combination), we are left with 24 banks. Twenty-one of those are in Europe.

    Bank of England Reckons Rate Rises Won’t Crimp Growth -  A critical question for central banks contemplating a rise in interest rates is what effect that might have on consumer spending and the wider economy. A new study published by the Bank of England Monday suggests that a gradual rise in borrowing costs shouldn’t have too big an impact on the U.K. recovery, provided the nation’s recent growth fuels a long-awaited rise in incomes. A survey carried out by pollsters NMG Consulting on the BOE’s behalf found the average household in the U.K. has pretax income of £33,000, or about $51,700, while those with a mortgage have an outstanding balance on average of £83,000 ($130,000). The average level of unsecured debt among borrowers is about £8,000 ($12,500). Around 360,000 households, or about 1% of the U.K. total, were judged to be particularly vulnerable to an increase in interest rates, according to the survey. These are the households spending more than 40% of their regular income on servicing their debts, who could not easily absorb higher borrowing costs without seriously curtailing spending. An increase in the BOE’s benchmark interest rate to 2% from its current level of 0.5% would raise the number of vulnerable households in the U.K. to 480,000, the survey found. Yet an increase in interest rates would create some winners, too, particularly among savers, whose response to higher rates may be to spend more. Taking borrowers and savers together, the BOE calculated that a one percentage point increase in its benchmark interest rate would reduce consumer spending in the economy by around 0.5%, although it acknowledged the actual effect could be somewhat larger, given that savers are generally less likely to be big spenders.

    Raise Rates Soon to Keep Increases Gradual, Says BOE’s McCafferty - The Bank of England should begin raising borrowing costs sooner rather than later if it is to ensure that future increases in interest rates will be smooth and gradual, one of the U.K. central bank’s nine rate-setters said Wednesday. Ian McCafferty, one of four members of the BOE’s nine-person rate-setting panel drawn from outside the central bank’s ranks, said in a speech that gradual and limited interest-rate rises are “a critical element” of the central bank’s guidance on its future decisions. Delaying the first rate rise too long may necessitate a faster increase in borrowing costs in future to keep inflation in check, he said. “Such gradualism is more likely to be delivered if we start sooner rather than later. Delaying the start of normalization risks a greater monetary policy response later on,” Mr. McCafferty told business leaders in Liverpool, England, according to a text of his remarks. Mr. McCafferty voted alongside fellow rate-setter Martin Weale in August to raise the BOE’s benchmark interest rate from a low of 0.5% and has stuck with that call for the following three months. His decision at December’s policy meeting will be published in the official minutes on Dec. 17.

    Bank of England: half a million housebuyers face mortgage arrears - The Bank of England has warned half a million families would be at risk of falling into mortgage arrears once it started to raise interest rates from their emergency level of 0.5%. Threadneedle Street said the number of households running into difficulties would increase by a third to 480,000 in the event of a two-percentage-point increase in the cost of borrowing. The Bank stressed the proportion of borrowers having trouble paying their home loans should remain well below the levels of the early 1990s – when Britain suffered its worst postwar property crash – provided incomes rose alongside interest rates. “Higher interest rates will increase financial pressure on households with high levels of debt,” the Bank said in its Quarterly Bulletin. “The percentage of households with high debt-servicing ratios, who would be most at risk of financial distress, is not expected to exceed previous peaks given the likely paths of interest rates and income. “But developments in incomes for the households who are potentially most vulnerable will be an important determinant of the extent to which financial distress does increase.” The findings were based on a survey for the Bank conducted by NMG consulting. It found that the average outstanding mortgage debt was £83,000 per household, with average household income of £33,000 a year (£43,000 for those with a mortgage) and unsecured debt £8,000.

    British workers suffer biggest real-wage fall of major G20 countries -- British workers suffered the biggest drop in real wages of all major G20 countries in the three years to 2013, according to the International Labour Organisation (ILO). Labour said the report underlined why the government has been unable to get the deficit down. Chris Leslie the shadow Treasury chief secretary said: “Not only are working people worse off under the Tories, we’re also doing worse than all other G20 economies. On average working people are now £1600 a year worse off since 2010. “As the Autumn Statement showed, and these figures help confirm, the continuing squeeze on living standards is leading to a shortfall in tax revenues. And this is a key reason why George Osborne has broken his promise to balance the books.” The ILO report reveals that wages in the UK have fallen more than in Italy. The biggest fall in UK wages adjusted for inflation came in 2011, when they fell by 3.5%. In Italy, which was one of the countries hit hardest by the eurozone crisis, real pay fell by “only” 1.9%. This despite the fact that Italy’s economy has been shrinking for three consecutive years now, and unemployment recently hit a record high of 13.2%.

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