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

Saturday, December 20, 2014

week ending Dec 20

Fed's Balance Sheet 17 December 2014 Sets New Record High -- Fed's Balance Sheet week ending balance sheet was $4.462 trillion - up from the record $4.452 trillion for week ending 19 November 2014 and up from the $4.448 trillion for week ending 10 December.  The balance sheet has insignificantly declined from its peak. Note that on the 29 October 2014, the Federal Reserves governing board (FOMC) stated that .... ..."the Committee decided to conclude its asset purchase program this month [October 2014]". Therefore October 2014 should be the high water mark for the Federal Reserves' balance sheet.  The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows  - continue reading >>

FRB: H.4.1 Release--Factors Affecting Reserve Balances--December 18, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed considers time to end free money pledge (Reuters) - The U.S. Federal Reserve would give the clearest signal next week that its easy money stance is ending if, as some expect, it drops its two-year long pledge to keep interest rates close to zero for a "considerable time". The Fed, which meets on Tuesday and Wednesday, first inserted that wording in its post-meeting statements in December 2012, promising then to maintain its highly accommodative monetary stance for a considerable time after its asset purchase program ends and the economic recovery strengthens. Both have occurred. The U.S. unemployment rate slipped below 6.5 percent, a Fed mark of healthier recovery, in April and is now at a six-year low of 5.8 percent even as more people enter the labor force. Its asset buying ended in October, when all but one of its voting members opted to keep the "considerable time" language. The market has understood the term to mean at least six months, with current expectations for a first rate hike in mid-2015. Since October, the more hawkish Dallas Fed chief Richard Fisher has said the Fed should drop the pledge, while more moderate Cleveland counterpart Loretta Mester told Reuters the reference was "really stale". Some economists believe markets will take a change of wording in their stride, but others hark back to "taper tantrums" after the Fed first mentioned the idea of gradually reducing monetary expansion in May 2013.

Fedspeak Cheatsheet: What Are Fed Policy Makers Saying? - In the weeks since their October policy meeting, Federal Reserve officials have moved ever so gingerly to prepare the public for the day when they start raising short-term interest rates from near zero. While few officials changed their predictions about the likely timing of rate increases—most favor some time next year—they acknowledged continued growth in the economy and emphasized that their decision will depend on how the economy evolves. Most viewed labor market improvements as genuine, but officials sparred over whether weak inflation might cause them to wait longer before raising rates. Here’s a sampling of what Fed officials have said about the outlook for the economy and monetary policy since their last meeting.

Fed Watch: More Questions for Yellen - FOMC meeting this week. We all pretty much know the lay of the land. "Considerable time" is on the table, and whether it stays or goes is a close call. The existence of the press conference this week argues for the change over just waiting until January. . If the statement is changed, they will probably replace "considerable time" with the intention to be "patient" when considering the timing of the first rate hike. They will be navigating some tricky currents when constructing the rest of the statement. The opening paragraph will need to acknowledge the improved data - the US economy clearly has some momentum. They will also acknowledge again the expected impact of energy prices on headline inflation, but emphasize the temporary nature of the impact and fairly stable survey-based expectations. This suggest another dismissal of market-based measures. They can't both suggest that risks are weighted to the downside and pull the "considerable time" language.   I have previously suggested two questions for Federal Reserve Chair Janet Yellen at the post-FOMC press conference: If you want to know what the Fed is thinking at this point, a journalist needs to push Yellen on the secular stagnation issue at next week's press conference. Does she or the committee agree with Fischer? And does she see any inconsistency with the SEP implied equilibrium Federal Funds rates and the current level of long bonds?  and I would like a journalist to press Yellen on her interpretation of the 5-year, 5-year forward breakeven measure of inflation expectations. Does she see this measure as important or too noisy to be used as a policy metric? What is her preferred metric?

Fed Likely to Stare Down Oil-Price Drop -  Much has changed in the U.S. economy since Federal Reserve officials last issued their economic projections, in September. Oil prices have fallen by more than one-third, the dollar has climbed 5.3% against a broad basket of currencies and about 800,000 more Americans have found jobs. These developments present overlapping challenges as Fed Chairwoman Janet Yellen and her central-bank colleagues wrestle with shifting fundamentals at home and mounting jitters overseas. Falling oil prices are a boost to the U.S. consumer. But lower prices also are putting downward pressure on already low inflation, potentially moving the nation further away from the Fed’s objective of 2% annual increases in consumer prices. If Ms. Yellen and her colleagues put more weight on the looming inflation drop, they will hold off on interest-rate increases, which are expected by mid-2015. If they put more weight on underlying economic strength, they will proceed as planned, or even accelerate their move. The signs so far are that the Fed will proceed as planned.

FOMC Statement: "Considerable Time" replaced with "patient", "consistent with previous statement" -- FOMC Statement: To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

Read the Full Text of the Fed’s Statement - Here is the full text of the Federal Reserve’s policy statement, released Wednesday:

Parsing the Fed: How the Statement Changed - The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the December statement compared with October:

Fed signals tightening by mid-2015 - The US Federal Reserve has sent a strong signal that it expects to tighten monetary policy in mid-2015 by dropping its forecast that it would keep interest rates low for a “considerable time”. The rate-setting Federal Open Market Committee instead said it would be “patient” in judging when to start raising rates, in new language designed to reassure markets that rate rises are not imminent.  Ditching “considerable time” despite global market turmoil shows the Fed’s confidence in strong US growth and its desire to prepare financial markets for tighter monetary policy next year. The S&P 500 closed up more than 2 per cent at 2,013 and the dollar rose. Ten-year Treasury yields gyrated before closing eight basis points higher at 2.15 per cent as markets concluded rate rises are getting closer. But in a carefully weighted statement that prompted three dissents — passing by 7 votes to 3 — the FOMC insisted the new guidance does not mean it has brought forward its plans for rate rises. “This new language does not represent a change in our policy intentions and is fully consistent with our previous guidance,” said chairwoman Janet Yellen in her post-meeting press conference. “In particular, the committee considers it unlikely to begin the normalisation process for at least the next couple of meetings,” she said, signalling that the Fed does not expect to raise rates until its April 2015 meeting at the earliest.

Fed Watch: Quick FOMC Recap -Today's FOMC statement was a reminder that in normal times the Federal Reserve moves slowly and methodically. Policymakers were apparently concerned that removal of "considerable time" by itself would prove to be disruptive. Instead, they opted to both remove it and retain it: the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October.  If you thought they would drop "considerable time," they did. If you thought they would retain "considerable time," they did. Federal Reserve Chair Janet Yellen explained the change in language as necessary to shift away from the increasingly dated reference to the end of quantitative easing. In addition to the lower inflation and interest rate expectations in the Summary of Economic Projections, the statement was initially regarded as dovish. The press conference, however, was in my opinion anything but dovish. During the presser, Yellen explained that "patience" was only likely guaranteed through the next "couple" of meetings, later clarified to be two. Hence, the April meeting is still on the table, although I still suspect that is too early. Yellen also said that a press conference was not required to raise rates; if necessary, they could always opt to have a presser even if one not scheduled. She dismissed falling market-based inflation expectations as reflecting inflation "compensation" rather than expectations. She dismissed the disinflationary impulse from oil, calling it transitory and drawing attention to the expected positive implications for US growth (much as she corrected described "noisy" inflation indicators earlier this year). She indicated that inflation did not need to return to target prior to raising rates, only that the Fed needed to be confident it would continue to trend toward target. She was very obviously unconcerned about the risk of contagion either via Russia or high yield energy debt - I think she almost seemed surprised anyone was worried about the latter.

What’s the Difference Between ‘Patient’ and ‘Considerable Time’? - The Federal Reserve was so worried that dropping the phrase “considerable time” from its statement might spook financial markets it decided to keep the term in there, sort of. The central bank said in its official statement Wednesday it would “be patient” in deciding when to start raising interest rates from near zero. But then it added that it sees “this guidance as consistent with its previous statement” pledging to keep rates very low for “considerable time.” Fed Chairwoman Janet Yellen emphasized this continuity in her press conference Wednesday, then implied there is indeed a significant difference between the two terms. When asked what “patient” meant, she said the Fed would not begin hiking rates for “a couple” of meetings. Pressed further, she confirmed “a couple” means two. In contrast, Ms. Yellen said earlier this year–and markets have never forgotten it–that a “considerable time” meant something on the order of six months. That’s a bigger cushion than just two meetings. The Fed’s next scheduled meetings are in January, March and April. The new language suggests it won’t move before the April meeting, though many top officials have said they expect liftoff closer to the middle of next year.

Can Janet Yellen Be Serious? -- Bloomberg Editorial. -- Sometimes you have to wonder if the Federal Reserve's governors are just laughing at the analysts who pore over every statement to find crucial hidden meanings in their blandest phrases. If they aren't laughing, they should be. For days before the publication of this afternoon's Federal Open Market Committee statement, discussion had centered on the phrase "considerable time." What did the FOMC mean when it previously said that it would hold short-term interest rates close to zero for a "considerable time"? Would that pivotal phrase be removed from the December statement? If it were, what would its absence mean? Related: Why the Fed Needs Editing In something of a conceptual if not linguistic breakthrough, the Fed both dropped the phrase and retained it. The new language says that the Fed "can be patient in beginning to normalize the stance of monetary policy." On the other hand, it pointed out that this new formula is "consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October." Splendid. Analysts can now spend the holiday season debating whether the Fed will merely be patient or will be patient for a considerable time, or some combination thereof; how long a "considerable time" is, exactly (at least that's a comfortingly familiar question); what it means, monetarily if not spiritually, to be "patient"; and indeed, whether the change in language signifies anything at all.

Fed Gets Rare Hat Trick of Dissent -- The Federal Reserve’s decision Wednesday to tiptoe slowly toward interest-rate increases generated a significant and rare level of insurrection among its membership. The outcome of the Federal Open Market Committee meeting saw dissenting votes from three of the 10 officials who currently are allowed to weigh in directly on the policy outlook. Notably, those votes came from both sides of the monetary-policy debate, from officials who are ready to raise rates and those who are ready to hold off for some time to come. The leaders of the Dallas, Minneapolis and Philadelphia Fed banks cast the “no” votes. It was the first three-person dissent since Fed meetings held in August and September 2011 Fed meetings. Notably, the dissents then came from the same central bankers. But this time, the rationale for opposition changed. Dallas Fed leader Richard Fisher cast a no vote because he believes economic data suggests rate rises will need to come sooner than his colleagues currently expect. Philadelphia Fed chief Charles Plosser remains uncomfortable with language in the Fed statement that suggests the outlook for rate increases is to some degree driven by a calendar date, rather than by the economy’s performance. Meanwhile, Narayana Kocherlakota of the Minneapolis Fed continues to believe it’s a mistake for the Fed to contemplate interest rate increases at a time when inflation is falling so far short of the central bank’s official 2% goal. The breadth of the dissent ties up neatly with the challenging outlook for the monetary policy. The Fed has been greeted with an extended run of solid growth and hiring data that it broadly expects it to continue. At the same time, inflation remains persistently below the 2% price target central bankers say they will defend from both the high and low side. Put another way, one side of the outlook favors rate increases, while the other argues for sticking to an ultra-easy money stance.

Fed’s Yellen Says No Rate Hike Likely For a Couple of Fed Meetings - Federal Reserve Chairwoman Janet Yellen said Wednesday the U.S. central bank is unlikely to raise short-term interest rates until at least the spring. “The committee considers it unlikely to begin the normalization process for at least the next couple of meetings,” Ms. Yellen said at a press conference following the U.S. central bank’s latest monetary policy meeting. She added, “this assessment, of course, is completely data dependent.” Ms. Yellen was speaking in the wake of a Fed meeting that saw officials continue to edge toward lifting interest rates off of near zero levels that have been in place since the end of 2008. The Fed said in its statement that it will be patient about the timing of rate rises. While some regional Fed officials would like to see rate increases begin in the spring, key central bankers such as New York Fed President William Dudley, who have suggested the middle of the year is the most likely time for the Fed to act, as long as the economy develops along the path expected by policy makers. “A number of committee participants have indicated that in their view, conditions could be appropriate by the middle of next year, but there is no preset time and there are a range of views as to when the appropriate conditions will likely fall in place,” Ms. Yellen said. The Fed chief’s comments were consistent with the outlook held by Mr. Dudley. Ms. Yellen also pushed back against those who believe the Fed can only make a big policy shift at one of the four meetings, out of eight, that are followed by a press conference.

Fed’s Williams: No Rate Increase Likely For a Couple of Meetings - Federal Reserve Bank of San Francisco President John Williams said in a radio interview Friday interest rate increases are unlikely to arrive until the middle of 2015, adding the central bank can begin to end its easy-money policy stance even if inflation is short of its official target. Mr. Williams told Bloomberg Radio the U.S. economy is in “a very good place right now.” The official, who will have a voting role on the monetary-policy setting Federal Open Market Committee next year, sided with central bank Chairwoman Janet Yellen‘s outlook, and said any move to boost rates off of their current near-zero levels is unlikely to take place “in the next couple of meetings.” The official said in light of an economy that is likely to grow between 2.5% to 3% next year, amid further drops in the jobless rate, “June 2015 seems a reasonable starting point for thinking about liftoff.” In recent comments, the policymaker has put the likely timing of rate hikes in the latter half of 2015. Mr. Williams noted the outlook for rates will ultimately be driven by the economy, but he added market views on the timing of rate increases appear to be “relatively reasonable.” Surveys of market participants, as well as other indicators, see widely-held expectations of a mid-year rate increase. Mr. Williams said that what is now a 5.8% jobless rate is likely to fall further and reach the “full employment” levels of around 5.25% by the end of 2015. But he acknowledges the current weakness of inflation relative to the Fed’s 2% price target is unlikely to abate much in the new year, especially given the rapid drop in oil prices.

Fed’s Janet Yellen Not Worried About Falling Oil Prices, Russian Turmoil - Federal Reserve Chairwoman Janet Yellen isn’t too worried about plunging oil prices or the turmoil in Russia’s economy. In fact, she said Wednesday at her post-policy meeting press conference,  falling oil prices are a net positive for the U.S. economy even if they weigh on inflation for a time. “It’s something that is certainly good for families, for households,” she said. “It’s putting more money in their pockets, having to spend less on gas and energy, and so in that sense it’s like a tax cut that boosts their spending power.” Ms. Yellen conceded that lower oil prices could lead to “reduced drilling activity” and less capital investment in domestic production efforts. But “on balance, I would see these developments as a positive for the standpoint of the U.S. economy,” she said. Not so much for Russia, which Ms. Yellen said “has been hit very hard by the decline in oil prices, and the ruble has depreciated enormously in value.” But developments in Russia likely won’t hurt the U.S. economy, she said. Trade and financial links between the U.S. and Russia “are actually relatively small,” Ms. Yellen said, and “spillovers to the United States, both through trade and financial channels, would be small.” Europe, though, is “somewhat more exposed to Russia,” she said.

Yellen Playbook Puts Slack Over Oil Price Declines - The Federal Reserve isn’t spooked by the sharp oil-induced declines in inflation the world is now witnessing. That is one of the more important messages to emerge from Chairwoman Janet Yellen’s press conference Wednesday after the central bank released a statement indicating interest rate increases are likely next year. Instead, her emphasis remains on diminishing slack in the labor market. Ms. Yellen’s bottom line, repeated several times during the press conference: If core inflation – excluding volatile food and energy prices — remains stable in the coming months and the jobless rate continues to fall, that should be enough to convince policy makers that it is time to start raising rates. The energy price decline is seen as transitory, but the reduction of slack as fundamental. “Theories that are consistent with historical evidence will be something that governs the thinking of many people around the table,” Ms. Yellen said. “Typically, we’ve seen that as long as inflation expectations are well anchored, that as the labor market recovers, we’ll gradually see upward pressure on both wages and prices. And that inflation will tend to move back toward 2 percent.” That theory leads Ms. Yellen to this conclusion: “By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor market conditions. They also expect core inflation to be running near current levels but foresee being reasonably confident in their expectation that inflation will move back toward our 2% longer-run inflation objective over time.” The behavior of inflation expectations is the wildcard here. Survey measures of inflation expectations have remained stable, but measures gleaned from Treasury markets have softened. Ms. Yellen played down the market measures as idiosyncratic, but the Fed is watching carefully.

Comments on Fed Chair Yellen's Press Conference - A few key takeaways:
There has been no change in FOMC policy. Replacing "considerable time" with "patient" was because we are moving further in time from the end of QE3 .  The first rate hike will be a "considerable time" from October.
"Patient" means it is unlikely the FOMC will raise rates at the next two meetings (not impossible, but very unlikely). Here is the sentence in the statement: "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy". Based on Dr. Yellen's comments, it sounded to me like the FOMC will remove "patient" about two meetings before the first rate hike.
Yellen was not very concerned about the financial crisis in Russia spilling over into the U.S. She said "spillovers to the United States, both through trade and financial channels, would be small."
Yellen thought the impact of the decline in oil prices on inflation would be transitory, and that core inflation would move towards the Fed's 2% target.
Yellen made it clear that a policy change could happen at any meeting (not just meetings followed by a scheduled press conference). She said: “Every meeting that we have is a live meeting at which the committee could make a policy decision and we will feel free to do so. I would really like to strongly discourage the expectation that policy moves can only occur when there’s a scheduled press conference.”
Yellen reminded everyone that monetary policy works with a lag, and that the FOMC has to forecast when a better labor market will lead to higher inflation (not yet, obviously).
Yellen argued that it is important that the Fed stay independent. She opposes auditing the Fed's policy decisions (the Fed is already audited financially). Of course the people pushing the policy audits have been wrong about everything ... so we are lucky they are not in charge!

Krugman Fighting Consensus Says 2015 Fed Rate Increase Unlikely -  Paul Krugman, challenging the consensus of economists and the Federal Reserve’s forecasts, said policy makers are unlikely to raise interest rates in 2015 as they struggle to spur inflation amid sluggish global economic growth. “When push comes to shove they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and it turns out we were mistaken is just so huge’,” the 2008 Nobel laureate said in Dubai. “It’s certainly a real possibility that they’ll go ahead and do it, but probably not, and for what it’s worth I and others are trying to bully them into not doing it.” Krugman, author of “End This Depression Now!”, has criticized the U.S. government and central bank for not doing more to revive the economy after the financial crisis, and his position now pits him against most Fed officials. Krugman said financial markets are signaling that policy makers will delay raising borrowing costs. His remarks build on arguments he’s made in his New York Times column. On Dec. 10 he wrote that the Fed risked “letting itself being bullied into doing the wrong thing” by raising interest rates prematurely.

Markets will win game of chicken with Fed - For the week just before the Federal Reserve met in Washington, the S&P 500 index dropped 3.5 per cent and outflows continued from both the loan and junk market, while year-to-date returns fell to zero and low-rated triple C issuers were down 4 per cent on fears that the fateful day will appear sooner rather than later. But then the Federal Reserve uttered the single word “patience” and everything changed. On Wednesday the stock market rose 2 per cent and on Thursday the Dow Jones Industrial index had its best day in three years. The market dependence on Fed policy has never seemed greater, despite the fact that the Fed message also noted that rate increases could come as early next spring. The game of chicken between the Fed and the markets is on once more. Every time it seems that we are finally drawing to an end of easy money, something (or things) in the world go wrong and only Fed forbearance and patience can soothe the markets. But nothing — even Fed patience — can change the fact that we live in a world where growth next year is likely to be slower, where few producers will have pricing power and where less dollar liquidity from the Fed will probably not be fully offset by the generosity of the Bank of Japan or the European Central Bank. Countries and markets that should be immune to the problems in Russia and be beneficiaries of the unexpectedly swift decline in oil prices traded down before the Fed pronouncement. That suggests that hopes the taper tantrum of last year will not be repeated are indeed likely to prove vain.

Surprise... Everyone Was Wrong About The End Of QE - Since the beginning of this year, Wall Street economists and analysts have been consistently prognosticating that following the Federal Reserve's latest bond buying campaign, economic growth would gather steam and interest rates would begin to rise. This has consistently been the wrong call. The recent decline in interest rates should really not be a surprise as there is little evidence that current rates of economic growth are set to increase markedly anytime soon. Consumers are still heavily levered; wage growth remains anemic, and business owners are still operating on an "as needed basis." This "economic reality"continues to constrain the ability of the economy to grow organically at strong enough rates to sustain higher interest rates. This is a point that seems to be lost on most economists who forget that the Federal Reserve has been pumping in trillions of dollars of liquidity into the economy to pull forward future consumption.

Fed's Forward Guidance Amounts to a "Considerable (Waste of) Time" -- If you had told an economics practitioner 30 years ago that the Federal Reserve would hold the U.S. benchmark rate close to zero for six years, he would have said, nonsense. How could a highly developed $17.5 trillion economy function with such low interest rates for so long without generating huge imbalances or raging inflation? Welcome to our world. What seemed implausible has become reality. And there is no real urgency to start raising rates. First, let me say that I am surprised to be writing the previous sentence. Two years ago, when the Fed introduced a 6.5 percent unemployment threshold for even considering an increase in the funds rate, I was aghast. The Fed's projections at the time for full employment (5-6 percent) and the long-run neutral funds rate (4 percent) implied that policy makers were willing to wait until the very last minute to normalize rates, even if it meant risking higher inflation. Now the unemployment rate is 5.8 percent, and many analysts expect the Fed to replace its pledge to hold the funds rate near zero for "a considerable time after the asset purchase program ends" with something equally vague. That program ended in October, so at minimum the Fed will have to change the verb tense. What about the phrase itself? If "considerable time" had any meaning, the Fed has since neutered it with the addition of a qualifier: Depending on the progress toward its employment and inflation objectives, the Fed could raise rates sooner or later than anticipated.

Key Measures Show Low Inflation in November  - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:  According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.8% annualized rate) in November. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.0% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.  Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.3% (-3.0% annualized rate) in November. The CPI less food and energy rose 0.1% (0.9% annualized rate) on a seasonally adjusted basis.   Note: The Cleveland Fed has the median CPI details for November here. Motor fuel declined at a 55% annualized rate in November following a 31% annualized rate decline in October! There will be another sharp decline in December too. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for October and increased 1.6% year-over-year.  On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.0% annualized, and core CPI increased 0.9% annualized.

What is Going Down With Inflation Expectations? - Households surveyed by the University of Michigan early this month said they expected consumer price inflation five years from now to be 2.9%. That is up from an expectation of 2.6% inflation when they were surveyed last month and in line with the 2.9% average of the past decade. The survey showing stable expectations, released Friday, is one last bit of data that might give Federal Reserve officials some comfort as they prepare to gather for their final policy meeting of the year Tuesday and Wednesday. Some market measures of inflation expectations are falling sharply, a worry for Fed officials if more broadly confirmed. Expected inflation in five to ten years, as measured in the Treasury Inflation Protected Securities (TIPS) market, has dropped to 1.97% from 2.21% at the time of the Fed’s October meeting, and at that point it was already down from 2.50% in August. Central bankers try to keep expected inflation anchored to their targeted rate, which for the Fed is 2%. When unmoored, and expected inflation moves sharply lower or higher, it could become a self-fulfilling prophesy that gets locked into actual wage and price contracts. Expectations are a wild-card now because actual inflation is dropping, thanks to large declines in oil prices. If Fed officials thought the near-term drop was going to be more than a temporary move, they might have second thoughts about signaling short-term interest rate increases next year. Fed officials have placed heavy weight on expected inflation in the TIPS markets before, but they’re downplaying the move now, in part because survey measures of expectations are holding steady.

Bond Investors Are Writing Off Inflation for Years, If Not Decades, to Come -  An obscure corner of the $12.4 trillion market for U.S. government debt is providing one of the clearest signs yet that bond investors are writing off the threat of inflation for years, if not decades, to come. Demand for Strips, created when Wall Street banks separate the interest payments from the principal of U.S. debt and sell each at a discount, has boosted the amount outstanding to an average $211 billion this year, the most since 1999, data from the Treasury Department show. The securities, the most vulnerable to inflation of all U.S. government bonds, posted the biggest returns this year by rallying almost 50 percent. While forecasters say the world’s largest economy will grow at the fastest pace in a decade next year and expose the securities to the deepest potential declines, debt investors are signaling their skepticism as commodities plunge and slowdowns in Europe and Asia threaten the U.S. recovery. Last week, the bond market’s outlook for inflation over the next three decades fell below 1.9 percent annually, the lowest in three years.

How a 2% Inflation Target Became Global Economic Gospel - Sometimes, decisions that shape the world’s economic future are made with great pomp and gain widespread attention. Other times, they are made through a quick, unanimous vote by members of the New Zealand Parliament who were eager to get home for Christmas.That is what happened 25 years ago this Sunday, when New Zealand became the first country to set a formal target for how much prices should rise each year — zero to 2 percent in its initial action. The practice was so successful in making the high inflation of the 1970s and ’80s a thing of the past that all of the world’s most advanced nations have emulated it in one form or another. A 2 percent inflation target is now the norm across much of the world, having become virtually an economic religion.A core piece of the Japanese government’s strategy to jolt its economy to life is to do “whatever it takes” to get to that magical 2 percent inflation level. In the United States, the same rationale has driven the Federal Reserve to keep interest rates near zero for six years and to pump nearly $4 trillion into the economy by buying bonds. The European Central Bank appears on the verge of its own huge effort to bring inflation closer to 2 percent.Yet even as the idea of a 2 percent target has become the orthodoxy, a worrying possibility is becoming clear: What if it’s wrong? What if it is one of the reasons that the global economy has been locked in five years of slow growth?Some economists are beginning to consider the possibility that 2 percent inflation at all times leaves central banks with too little flexibility to adequately fight a deep economic malaise.To understand that thinking, it’s worth understanding how New Zealand’s 2 percent target became so entrenched in the world economic order to begin with. The story starts in that Southern Hemisphere nation in the summer of 1989, with a kiwi farmer and banker named Don Brash.

How Oil’s Plunge Could Become a Financial Stability Worry for Fed - Federal Reserve officials revising their economic forecasts this week are likely to see the recent plunge in oil prices as a net benefit to the U.S. outlook, as lower energy costs bolster Americans’ ability to spend. But the sheer speed and magnitude of the retreat in crude oil prices, which have fallen over 40% since June to under $60 a barrel, is likely to raise eyebrows for those concerned about the central bank’s unofficial but increasingly important mandate: financial stability.The contagion has been rather rapid. Not only have stock markets retreated across the world, led by energy related shares, but the $1.3 trillion U.S. junk bond market has also taken blows, and is now on track for its worst annual performance since the financial crisis.  Emerging market currencies are also taking deep hits, particularly oil exporters, with the Russian ruble setting daily record lows and the Indonesian rupiah sinking to a 16-year low. But even crude importers such as Turkey and India are seeing their currencies tumble. The financial crisis and deep recession of 2007-2009 challenged traditional orthodoxy at the Fed that argued asset bubbles were too hard to spot and that interest rates were too blunt a tool to deal with them. Given the large economic costs of the popping of the bubble in financial assets linked to the U.S. housing boom, policy makers have become more open to the notion of acting preemptively, perhaps using regulatory or so-called macroprudential tools. Yet given the fledgling nature of that toolkit, the best Fed officials may be able to do for now is attempt to talk down frothier corners of the market.

Pimco: Don’t Fret Falling Oil Prices -  Worried that tumbling energy prices are a sign a recession is ahead? Don’t be, Pacific Investment Management Co. says. The bond powerhouse is out with a report, written by managing director Saumil Parikh and group chief investment officer Daniel Ivascyn, arguing that falling crude prices aren’t “harbingers of real economic stress and downside macroeconomic risk.” “Today’s bear market in oil is predominantly supply-driven,” not a reflection a slowing energy demand, the paper argues. Seventy percent “of the drop in oil is being driven by upside surprises in supply growth, and some 30%–40% of the reduction in demand growth is coming from increased energy productivity, such as via fuel-efficient vehicles, as opposed to slower economic growth.” The Pimco gang argues that prices are plunging because oil is gushing from U.S. wells at unexpected rates. “On the demand side, there is evidence to suggest that real demand out of China and Europe has slowed in 2014, adding to the downward price pressure; however, global oil demand has still increased on the year, reinforcing the assertion that the 2014 bear market is primarily a supply-driven development,” Pimco says. Pimco sees the global economy growing 2.75% next year, up from 2.5% in 2014.

“Why Are So Many Commodity Prices Down in the US… Yet Up in Europe?” -- Oil prices plummeted 43% during the course of 2014 – good news for oil-importing countries, but bad news for Russia, Nigeria, Venezuela, and other oil exporters. Some attribute the price drop to the US shale-energy boom. Others cite OPEC’s failure to agree on supply restrictions. But that is not the whole story. The price of iron ore is down, too. So are gold, silver, and platinum prices. And the same is true of sugar, cotton, and soybean prices. In fact, most dollar commodity prices have fallen since the beginning of the year. Though a host of sector-specific factors affect the price of each commodity, the fact that the downswing is so broadly shared – as is often the case with big price swings – suggests that macroeconomic factors are at work.  So, what macroeconomic factors could be driving down commodity prices? The most common explanation is the global economic slowdown, which has diminished demand for energy, minerals, and agricultural products. Indeed, growth has slowed and GDP forecasts have been revised downward in most countries. But the United States is a major exception. The American expansion seems increasingly well established, with estimated annual growth even exceeding 4 % over the last two quarters. Private employment has risen by more than 200,000 for each of the last ten consecutive months. And yet it is particularly in the US that commodity prices have been falling. The Economist’s euro-denominated Commodity Price Index, for example, has actually risen by 4 per cent over the 12 months; it is only the Index in terms of dollars – which is what gets all the attention – that is down 6%. That brings us to monetary policy, the importance of which as a determinant of commodity prices is often forgotten. Monetary tightening is widely anticipated in the US, with the Federal Reserve having ended Quantitative Easing in October and likely to raise short-term interest rates sometime in the coming year.

Is Our Economic Commentators Learning? - Paul Krugman -- We are now in our seventh year at the zero lower bound. Over that period we’ve seen massive deficits rise and fall, aggressive monetary expansion and ill-advised monetary tightening, extreme fiscal austerity, and more. At this point we should therefore have a pretty good idea of how things work in this environment. And as I’ve often pointed out, everything has been more or less exactly what you would have expected.  It’s remarkable, then, how much commentary in the media involves assertions that are completely at odds with everything we’ve seen since the financial crisis. I made fun of belief in invisible bond vigilantes and the confidence fairy in mid-2010, and sure enough, there have been no sightings of either in all the years since. Yet you’d never know that from the media commentary. Simon Wren-Lewis offers a depressing example: he finds Robert Peston of the BBC continuing to talk about interest rates by invoking the invisible bond vigilantes – when as Wren-Lewis notes, France now pays much lower interest rates on its debt than the UK, and as he doesn’t note, so does Japan, with its very large debt and aging population. Worse still, however, Peston describes his fantasies as the message being conveyed by “Mr. Market.” Through telepathy?  But belief in the invisible bond vigilantes and the confidence fairy isn’t the only faith that seems oddly impervious to evidence. Ambrose Evans-Pritchard, in an otherwise coherent description of Europe’s deflation risk, approvingly quotes Tim Congdon blithely declaring that monetary reflation in a liquidity trap is no problem:  Sure. Just look, in the accompanying chart, at the rate of M1 growth in the US versus the Fed’s preferred measure of inflation. Feel the power! Seriously, how can an alleged expert be talking straight monetarism at this point in history?

The Limits of Purely Monetary Policies - Paul Krugman --  Ambrose Evans-Pritchard pushes back against my in-passing criticism of a column I mainly agree with, in which I argued that it’s hard to see why anyone believes that money supply increases will do the trick after the past six years. I understand where Evans-Pritchard is coming from, because I’ve been there. Indeed, it’s where I started. But I had my road-to-Damascus moment — or more accurately road-to-Tokyo moment — back in 1998. And maybe describing my own conversion to monetary pessimism may help clarify what’s happening now. But, asks Evans-Pritchard, what if the central bank simply gives households money? Well, that is, as he notes, really fiscal policy — it’s a massive transfer program rather than a conventional monetary operation.  You may say that you don’t care what it’s called. But the distinction isn’t just one of academic classification: Central banks aren’t in the business of just giving money away; what they do is always some kind of asset swap, in which they buy assets or make loans which then become assets. I’m pretty sure that neither the Fed nor the Bank of England has the legal right to just give money away as opposed to lending it out; if I’m wrong about this, put me down for $10 million, OK? Still, isn’t this just theory? Well, no. Huge increases in the monetary base in previous liquidity trap episodes had no visible effect. And now we have the post-2008 experience, and it’s certainly not an example of central banks easily dealing with economic downdrafts.

Lowflation and the Fed - Paul Krugman -- At the aforementioned economics dinner, we went around the table to ask who believed the Fed would actually raise rates in 2015. Officials at the Fed have been signaling that they will; but most of the people around the table didn’t believe them. This morning’s consumer price report explains why. Basically, while growth and job creation have finally been pretty good lately, there is so far no sign whatever that the economy is overheating. Core inflation remains below the Fed’s target (the Fed focuses on a different measure that usually runs lower than the CPI, so this report is actually fairly far below target.)  Add to this troubles abroad — the direct spillover from Russia or even Europe is fairly small, but the rising dollar means that good news on manufacturing may not last — and there is a real risk that any rate hike will turn out to have been a mistake. And it’s a mistake that would be very costly, because it could all too easily set the stage for a Japan/Europe style long-term low-inflation trap (yes, at this point I think we can put the euro area in the same category). Of course, this is all about what the Fed should do, not what it will. But I guess I believe that top officials at the Fed have a view of the world not too different from mine, and will come around to the same conclusions.

Competitive Theories: "Deflation Warning" vs. "Inflation is Nearly Everywhere" - Bloomberg is sounding a Deflation Warning as 2-Year Break-Even Rates Go Negative. Break-even rates are the difference between treasuries and the same-duration Treasury Inflation-Protected Securities (TIPS). The break-even rate turned negative yesterday for the first time since 2009. In theory, break-even rates reflect investors’ expectations for inflation over the life of the securities. When break-even rates are negative, it's an indication investors expect price deflation for the duration, in this case for two years. From Bloomberg “The shortest-term TIPS are very influenced by the direction of the consumer price index. It’s telling you inflation on the short-end could turn negative.”  Fed Chair Janet Yellen downplayed the notion at the press conference after the conclusion of yesterday’s two-day policy meeting. Falling break-even rates may represent a decline in the inflation premium risk or the range of inflation outcomes investors are taking into consideration, she said. One of the justifications for the Fed to raise rates for the first time since 2006 is to keep consumer price increases from getting out of control. Fed Chair Janet Yellen downplayed the notion at the press conference after the conclusion of yesterday’s two-day policy meeting. Falling break-even rates may represent a decline in the inflation premium risk or the range of inflation outcomes investors are taking into consideration, she said. One of the justifications for the Fed to raise rates for the first time since 2006 is to keep consumer price increases from getting out of control. Color me extremely skeptical regarding out of control consumer prices. In fact, I side with this headline:

Adair Turner understands better than Paul Krugman -- After watching the new video with Adair Turner from a talk he gave at the Bristol Festival of Economics in November 2014, it is clear he understands the economic situation better than Paul Krugman.  While Krugman tries to understand if inequality even leads to more financial instability (link), Turner knows that it does and the mechanisms by which it does. Turner then gives recommendations on how to lean against the economic forces creating inequality. The mechanisms work around real estate financing. In the video, Turner explains how to control lending practices for real estate. While Krugman pushes for more accommodative monetary policy and fiscal policy, Turner recommends less accommodative policy and much more fiscal type policies that enter the income stream directly, including some form of helicopter drop. Helicopter drop options, as Turner says, are tax cuts, more welfare expenditures or infrastructure spending. Turner does not like QE accommodation because the money did not enter the income stream directly.While Krugman recommends strong accommodative monetary policy if there is fiscal austerity, Turner does not support such strong accommodative policy. He sees it as exacerbating the causes of our economic problems. Turner sees that accommodative monetary policy needs to be unraveled and replaced with policies that allow money to directly enter the income stream within the general population. In essence, Krugman puts too much faith in monetary policy, while Turner does not. In all, Adair Turner is ahead of Krugman in understanding macroeconomic problems and their solutions.

Treasury Snapshot, Six Weeks afer QE and with the FOMC in Focus: We're now six weeks beyond the end of the Fed's latest round of Quantitative Easing. With QE in the past and the Federal Open Market Commitee taking center stage on Wednesday, let's take a quick look at what's been happening for US Treasuries. The yields on the 10-, 20- and 30 year Treasuries have generally trended downward since the end of 2013. In fact, the 10-year note yield is at its lowest since early June 2013, and the 30-year bond is at its lowest yield since mid-November 2012. The latest Freddie Mac Weekly Primary Mortgage Market Survey today puts the 30-year fixed at 3.93%, well off its 4.53% 2014 peak during the first week of January. Here is a snapshot of the 10-year yield and 30-year fixed-rate mortgage since 2008. A log-scale snapshot of the 10-year yield offers a more accurate view of the relative change over time. Here is a long look since 1965, starting well before the 1973 Oil Embargo that triggered the era of "stagflation" (economic stagnation with inflation). I've drawn a trendline (the red one) connecting the interim highs following those stagflationary years. The red line starts with the 1987 closing high on the Friday before the notorious Black Monday market crash. The S&P 500 fell 5.16% that Friday and 20.47% on Black Monday.

Rising Interest Rates Are Uncharted Territory for Today's Lawmakers - The Federal Reserve sent a clear signal about the strength of the U.S. economy on Wednesday, giving guidance suggesting it will “be patient in beginning to normalize the stance of monetary policy.” It is widely expected that the Fed will initiate an increase in historically low interest rates sometime in 2015, and in doing so will test a generation of lawmakers and policymakers who have never governed during a time of rising rates. Many will refer to this rise as “interest rate normalization,” or rates settling in the 5 percent range. But that phrase gives people a false idea about the historic trends for interest rates: They've been declining for 33 years. So rising interest rates will be abnormal or new for most lawmakers. Interest rates did rise for 35 years from 1946 to 1981, but few of our current elected officials were in office then. For the handful that were, it was only for a very brief period before rates began falling. In other words, this trend sends a message to nearly all lawmakers at the federal, state and local level: No matter how long you have served, you have never legislated or governed in an environment of sustained rising interest rates.  Our institutions have gone through a significant economic interest rate cycle, but not our institutional leaders. The world they face is even more different when you factor in globalization and technological innovation, an unwinding of unprecedented monetary stimulus and rapidly changing demographics.

Communicating the Uncertainty of CBO's Estimates - Doug Elmendorf --  My colleagues and I at CBO are acutely aware of the uncertainty of the budgetary and economic estimates we provide to Congress. We view our estimates as representing the middle of the distribution of possible outcomes. We frequently explain the estimates that way to Members of Congress and their staffs, and we regularly discuss risks to our estimates. For example, our reports on the budget and economic outlook over the next 10 years and over the long term have sections or chapters discussing key sources of uncertainty. We have also worked hard in the past few years to quantify the uncertainty of more of our analyses. However, there are important limitations currently on our ability to quantify uncertainty and to help legislators make effective use of such quantification. We quantify the uncertainty of our estimates in a number of contexts, and I gave four examples. First, when we estimate the macroeconomic effects of changes in fiscal policies, we regularly provide both a “central estimate” and a “range.” The ranges allow for uncertainty about the response of labor supply to changes in tax rates, the effect of changes in budget deficits on national saving and international capital flows, and other factors, and they are intended to cover roughly two-thirds of the distribution of possible outcomes. One example of such analyses is our estimates of the short-term and long-term economic effects of alternative paths for the federal debt (see chapter 6 of this year’s Long-Term Budget Outlook. Second, the Long-Term Budget Outlook regularly includes alternative projections. In July 2014, we showed what would happen to the budget if four key underlying factors—the decline in mortality, the growth of productivity, interest rates, and the growth of health care costs—differed from the values that are used in most of the report (see chapter 7 of the report). The chapter also discusses other sources of uncertainty that we do not quantify.

Republicans have a powerful weapon in the upcoming budget wars, and they’re going to use it -  Here's a new word to remember as Republicans prepare to consolidate their control of Congress: reconciliation. Under reconciliation, policies that affect the federal budget cannot be filibustered in the Senate, which means they can be adopted with just 50 votes. Reconciliation was last used in 2010 by Democrats to complete passage of President Obama's Affordable Care Act. Republicans will have a 54-member Senate majority in January, so reconciliation would permit them to adopt legislation -- potentially very sweeping legislation -- without the support of any Democrats or even the most moderate Republicans. And during a meeting with reporters Friday, the incoming chairman of the House Budget Committee, Rep. Tom Price of Georgia said Republicans would definitely employ the maneuver in 2015. The only question, Price said, is what to use it for. Some want to use reconciliation to repeal the Affordable Care Act. Obama would never sign such a bill, Price said, but some Republicans believe the act of passing it through Congress and forcing the president to veto it could prove useful in drawing a contrast between the two parties. The other option is to use reconciliation to pass something significant that Obama might actually sign, "to get a true change in public policy," as Price put it. Possible candidates, he said, including tax reform, changes to federal health programs, energy policy and even the debt limit.

Oil Collapse, Russia Woes Reshape White House’s International Economic Policy -- For a meeting of the Group of Eight nations in 2012, President Barack Obama gathered officials around a small wooden table at Camp David for an intimate discussion of the world’s top economic problems. Russia’s prime minister, who was two seats away, was later described by the White House as an “active participant.” Containing oil prices was a leading topic given worries about supply shortages, spurring an unusual joint statement from the G-8. The G-8 is no more, of course, after the rest of its members suspended the group this year due to Russia’s engagement in Ukraine. U.S. and European sanctions against Russia appear to have slowed Russia’s economy throughout the year and they remain high on the priority list of the Obama administration’s international economic policy makers. The plunge in oil prices is helping their strategy by giving Russia a sharper blow.The split with Russia is showing little cost to the U.S. economy, at least for now.  Russia represents a negligible amount of trade with the U.S. – just 0.1% of the U.S. economy — and the sanctions against Russia are keeping it that way. The impact of Russia’s severe economic turmoil appears to be centered on other emerging markets so far. Few officials see it as a concern for U.S. trade or the financial sector.“I see the spillover as pretty small,” Fed Chairwoman Janet Yellen told reporters this week. The oil drop, on the other hand, is “one of the most important developments shaping the global outlook,” Ms. Yellen said after a two-day meeting of Fed officials.

America’s Afghan war bill: $1 trillion and rising! — The Afghanistan war has cost the United States around $1 trillion and will consume billions dollars more in the future, after the 13-year war ends later this month, according to the Financial Times and independent reports. The true cost of the war is difficult to pinpoint and the US government has never attempted to detail its expenditure in Afghanistan. America’s longest-ever overseas war, which began months after 9/11, is set to officially wind down at the end of this month, though 10,000 US troops will remain there through 2016. The US has appropriated $765 billion for the war in Afghanistan since 2001, mostly for the US Defense Department’s purposes and the rest for the likes of the US State Department, according to the Financial Times. In comparison, the Iraq war cost US taxpayers around $2 trillion, including benefits owed to veterans, with a price tag that could reach $6 trillion over the next 40 years counting interest, according to the Costs of War Project by the Watson Institute for International Studies at Brown University. Funds allocated for the Iraq and Afghan wars were borrowed, so interest will also add to the total cost. According to Ryan Edwards at City University of New York, the US has paid $260 billion - $125 billion from the Afghan war, according to the Financial Times - in interest on that total war debt.

More proof the US defense industry has nothing to do with defending America —This has been a classic week in the defense procurement industry. The armed services are trying to boost their worst aircraft, the totally worthless F-35, by trashing their best, the simple, effective, proven A-10 Warthog.The A-10 is popular enough that the USAF had to come up with a reason for wanting to get rid of it, and the one it produced is the sort of thing that would make any psych-therapist chuckle with glee: The USAF said it needed maintenance personnel to handle its precious new high-priced fighter, the F-35…and that the only place it could get them from was the maintenance crews currently keeping the A-10 flying. Nope, there were no other options! The only way to find a good crew is to gut the one effective ground-attack aircraft the USAF has in its inventory, in favor of the worst fighter ever designed. It makes no sense. I’ll just say that right up front. The reason it doesn’t seem to make any sense is that it doesn’t. There are no secret reasons here, no top-security considerations that justify any of this. It’s corruption, pure and simple. The sooner you understand that the US defense industry has nothing at all to do with defending America, and everything to do with making Dick Cheney’s buddies even richer, the more quickly you’ll be able to understand what’s going on.

Elizabeth Warren And The Independent Community Bankers of America Are Right: Antonio Weiss Should Not Become Undersecretary for Domestic Finance - Simon Johnson - Antonio Weiss has been nominated to become Undersecretary for Domestic Finance at the Treasury Department. A growing number of people and organizations have expressed reservations about this potential appointment, which requires Senate confirmation – including Senator Dick Durbin (D., IL), Senator Jeanne Shaheen (D.,NH), Senator Joe Manchin (D., WV), the American Federation of Teachers (in a press release on December 17th), and other groups. And, from another part of the political spectrum, the Independent Community Bankers of America has also come out strongly against Mr. Weiss. In a speech last week, Senator Elizabeth Warren detailed her concerns about Mr. Weiss’s background: “He [Mr. Weiss] has focused on international corporate mergers and companies buying and selling each other. It may be interesting, challenging work, but it does not sufficiently qualify him to oversee consumer protection and domestic regulatory functions at the Treasury that are a critical part of the job.” And Senator Warren made it clear that the Weiss nomination needs to be seen in this broader context: “Time after time in government, the Wall Street view prevails, and time after time, conflicting views are crowded out.” A line must be drawn and, as Senator Warren said on Friday evening, with regard to the Wall Street view that what is good for executives at big banks is good for the country,

Obama signs $1.1 trillion government spending bill (Reuters) - President Barack Obama on Tuesday signed a $1.1 trillion spending bill passed by Congress last week that lifted the threat of a government shutdown. The legislation funds most government agencies through September 2015. The Department of Homeland Security will be treated differently, getting a funding extension only through Feb. 27, by which time Republicans will control both chambers of Congress. Passage of the 1,603-page bill was a long struggle in the Senate and the House of Representatives marked by bitter disputes over changes to banking regulations and Obama's recent executive order on immigration.

Congress Approves Tax Extenders for 2014 -- The U.S. Senate has approved a one-year extension of the tax extenders bill, a grab bag of around 50 tax provisions for businesses and individuals. The bill will cost $42 billion over ten years and applies retroactively to the 2014 tax year. The House of Representatives passed their version of the bill last week.  The one-year extension passed by the House and Senate leaves the package to expire again at the end of this month, which will set up discussion on the tax extenders again in 2015. We have written previously that not all tax extenders are good tax policy, and thus most should not be extended. There are a handful of provisions, though, that provide a more neutral tax code and should become permanent tax provisions. These include provisions that help more accurately define business income—such as bonus depreciation and section 179—and provide more neutral treatment—such as look-through treatment and active financing. The table below includes a breakdown of each of the tax provisions in the bill. 

New Research Shows Multinational Corporations Have No Tax Advantage Over Domestics - While the media has been feasting on Lux Leaks and other stories of “multinational tax dodging”, academic accountants have determined that U.S. multinational corporations (MNCs) have no particular tax advantage over U.S. domestic firms. In fact, a new study finds the average effective tax rate for U.S. MNCs is slightly higher than that of U.S. domestic firms: 28 percent versus 24 percent. The study calls into question policy makers’ emphasis on international “profit shifting,” including the elaborate efforts by the OECD and rich-country governments to crack down on MNCs exclusively. The authors of the study, Scott Dyreng of Duke University and three other academic accountants, looked at the financial statements of more than 4,000 U.S. firms over the last 25 years. They found that overall there has been a decline in effective tax rates but the decline has been about the same for MNCs and domestic firms. The effective tax rate for MNCs declined from 34 percent in 1988 to 28 percent in 2012, while the effective tax rate for domestic firms declined from 32 percent in 1988 to 24 percent in 2012. Other studies have shown a similar decline in effective tax rates across the developed world, which is attributable to the decline in statutory corporate tax rates everywhere except the U.S. The mystery is that effective tax rates have dropped in the U.S. despite no significant change in the corporate tax rate over the last 25 years. Nonetheless, the U.S. continues to have one of the highest effective tax rates in the world

The War on the IRS -- The massive 2015 spending bill that President Obama is likely to sign this week continues an ongoing effort to trash the Internal Revenue Service. It is a cynical recipe for a self-fulfilling disaster: Give the agency more and more work. Cut its budget. Blame it for failing to do its job. Repeat. House GOP Appropriators bragged that this year’s IRS budget is the lowest since 2008. But it is actually worse than that. In inflation adjusted dollars, the agency’s funding is lower than it has been since 1998, when Buffy was still slaying vampires and people were listening to Aerosmith before it was nostalgic. For context, in 1998, taxpayers filed about 125 million individual returns. Last year, the agency had to process 145 million. Technology has made some of that work easier—more than 90 percent of individual returns are now filed electronically, vastly reducing the amount of work for IRS staffers. But technology has also forced the agency to respond to growing numbers of hackers and identity thieves. And while processing returns may be easier, taxpayers must sort through increasingly complex rules—most as result of laws passed by the same Congress that cuts the IRS budget. The agency ought to be providing more assistance and education to help them but, thanks to those budget reductions, it is providing less. According to the Government Accountability Office, IRS has cut staff by 9 percent since 2009. Examinations of business returns dropped from 50 percent to one-third. In 2014, callers waited twice as long for an IRS response than they did in 2009, and fewer said they received service. The IRS has cut training costs by more than 80 percent.  The agency estimates its audit rate for partnerships and other pass-through business–where fraud and error are rampant–was 0.5 percent in 2011.

Slashing IRS budget carries a heavy price --The “Cromnibus” that was enacted last week has received its share of brickbats, mostly over the Citigroup-written and Rep. Kevin Yoder-instigated provision giving banks taxpayer protection for derivatives trading. Also for the campaign-finance provision blowing up most of what was left of campaign contribution limits, pushed by Mitch McConnell but also apparently crafted by Democratic campaign lawyer Mark Elias. Another awful provision got much less attention but is deeply destructive—the successful move by Republicans, including Sen. Ron Johnson and Rep. Ander Crenshaw, to cut $350 million from the IRS budget, following other cuts this year totaling $1 billion or more that have forced the IRS to cut 13,000 employees while it faces a much heavier workload from 7 million additional taxpayers. Why these moves? One part is strategic—another in the series of guerrilla actions by congressional Republicans to destroy the Affordable Care Act while avoiding the once-standard tactic of working to improve the law’s policies or coming up with an alternative. Another part is just punitive, trying to cause deep pain to an agency that, in the eyes of GOP lawmakers, took off after conservative groups trying to register as 501(c)(4) nonprofits, and held a few expensive conferences. Here is the reality. Cutting the Internal Revenue Service will result in a serious drop in revenue—fewer audits, less oversight, with many studies showing that additional funding for the agency has always resulted in a sixfold or greater increase in federal revenues without changing the law to increase taxes. That will worsen our federal budget deficits. At the same time, fewer personnel will mean many fewer taxpayers reaching the IRS to get answers to questions, more delays in processing returns and refunds, a much rougher tax season, and lots of pain for individuals.

Eleven Richest Americans Have All Received Government Subsidies - A new report by Good Jobs First shows how the very wealthy in America have benefited from government subsidies as one element in building their fortunes. According to the study, the 11 richest Americans, and 23 of the 25 richest, all have significant ownership in companies that have received at least $1 million in investment incentives. The study compares the most recent Forbes 400 ranking of wealthiest Americans with the Good Jobs First Subsidy Tracker database. Not only do Bill Gates, Warren Buffett, Larry Ellison, the Koch Brothers, the Waltons, Michael Bloomberg, and Mark Zuckerberg own companies that have received millions or even billions in taxpayer funds, 99 of the 258 companies connected with the Forbes 400 have such subsidies. As I argued theoretically in Competing for Capital, the new report points out that subsidies for investment increase inequality as average taxpayers subsidize wealthy corporate owners. Location incentives directly put money into their pockets, which then has to be offset by higher taxes on others, reduced government services, or higher levels of government debt. Moreover, as the study notes, despite the huge amount of these subsidies given in the name of economic development, there has not been enough payback to raise real wages even back to their 1970s peak. In other words, if economic development has created so many new jobs, why haven't wages risen?

Fed Vice Chairman Shocked At Wall Street Influence After Jamie Dimon "Whips" Cromnibus Votes -- "Boy, was I wrong," exclaimed Federal Reserve Vice-Chairman Stanley Fischer, "I thought that when Dodd-Frank started, that the banks would not succeed in influencing it, having lost all the prestige they lost." Just like the Fed's economic and rate forecasts, Fischer's political perspective could not have been more incorrect. Rather stunningly confirming Fischer's admission, The Hill reports JPMorgan Chase CEO Jamie Dimon made calls to lawmakers on Thursday urging them to support the "cromnibus" spending bill, according to no lesser brain-trust than Rep. Maxine Waters. Perhaps Fischer inadvertently summed up the state of reality as WSJ reports, when he opined, "we are two bad decisions away from not being an independent central bank." We might suggest the "two" decisions went by a long time ago.

Democrats Who Voted For The Cromnibus Received Double The Money From Wall Street Than "No" Voters -- It should come as no surprise that Republicans would be willing to vote for a bill that seeks to indemnify Wall Street from future failure. After all, Wall Street's proximity to the GOP, and vice versa, is hardly a contentious issue. And yet, it was "only" 162 republicans who voted for the Cromnibus - some 67 voted against. Which means that whipping the 57 democrats who also voted for the Bill to get the crucial 218 passing votes was far more critical to assure passage of the swaps push out provision.  What exactly motivated those 57 Democrats to break ranks with the rest of their party - the 139 democrats voted against the spending bill - and to be not only on the receiving end of Elizabeth Warren's ire, but also accountable for dumping a few hundred trillions of derivatives into the laps of US taxpayers. The answer, what else: money.

Here’s What Democrats Got Out of the Cromnibus - The worst part of the "cromnibus" spending bill was the provision that guts a small piece of the Dodd-Frank financial reform bill and allows banks to get back into the custom swaps business. So why did Democratic negotiators agree to this? In a long tick-tock published yesterday, Politico tells us: During [] negotiations with House Appropriations Chairman Hal Rogers (R-Ky.), Barbara Mikulski (D-Md.), his Senate counterpart, agreed to keep the provision in exchange for more funding for the Commodity Futures Trading Commission and the Securities and Exchange Commission, according to aides. OK. Democrats have been ambivalent about this particular provision of Dodd-Frank from the start, and therefore they were willing to cut a deal that allowed Republicans to repeal it. But what about the rest of the spending bill? Republicans got a bunch of venal little favors inserted, but what did Democrats get? Here's retiring Rep. Jim Moran:  Implementing the Affordable Care Act, there’s a lot more money for early-childhood development — the only priority that got cut was the EPA but we gave them more money than the administration asked for....There were 26 riders that were extreme and would have devastated the Environmental Protection Agency in terms of the Clean Water and Clean Air Act administration; all of those were dropped. There were only two that were kept and they wouldn’t have been implemented this fiscal year. So, we got virtually everything that the Democrats tried to get. And here is President Obama:The Administration appreciates the bipartisan effort to include funding provided to enhance the U.S. Government’s response to the Ebola epidemic, and to implement the Administration’s strategy to counter the Islamic State of Iraq and the Levant, as well as investments for the President’s early education agenda, Pell Grants, the bipartisan Manufacturing Institutes initiative, and extension of the Trade Adjustment Assistance program.

Cromnibus Pension Provisions Gut Forty Years of Policy, Allow Existing Pensions to Be Slashed -- Oddly, or not, “progressive” and Democratic loyalist commentary on the Cromnibus bill has — with occasional honorable exceptions – focused almost exclusively on Elizabeth Warren’s fight against a derivatives provision that might benefit big banks, as we saw yesterday, and has been silent about a provision that could do far worse and far more immediate harm to working people who made their retirement plans based on the belief that their pension rights were secure and backed by legislation, and the idea that a contract was a contract. Oldthink, I know!  So in this post I want to rectify that mysterious silence, and take a look at the truly nauseating Kline-Miller amendment, passed by the House, and part of the Senate bill forwarded to Obama for his signature. David Dayen summarizes:  Under the bill, trustees would be enabled to cut pension benefits to current retirees, reversing a 40-year bond with workers who earned their retirement packages. Michael HilzickUnder ERISA, the 1974 law governing pensions in the private sector, benefits already earned by a worker can’t be cut.  Now they can. That’s right. Even if you’re retired and vested in a private pension plan, your benefits could be cut. Congress retraded the deal (if I have the finance jargon right). That’s nauseating even for today’s official Washington. And the bill was passed in a thoroughly bipartisan fashion: Kline is a Minnesota Republican, and Miller is a “liberal” California Democrat.

Inside Congress's $42B tax-break package - Congress is poised to enact a $42 billion tax bill that opponents on the left and right insist is full of corporate giveaways, and even supporters acknowledge is no way to set tax policy. The Senate is expected to vote in the coming days to restore more than 50 tax breaks, all of which expired at the end of 2013, just through the end of this year. House Republicans passed the measure last week, after President Obama and other Democrats torpedoed an emerging deal that would have made dozens of these incentives permanent. Tax analysts say the more prudent approach would be to sift through the list of expiring tax provisions commonly known as extenders, keep those policymakers think make sense and allow the others to stay on the trash heap. “This on-again, off-again style of legislating on a temporary basis is a terrible way to make tax policy,” said House Ways and Means Chairman Dave Camp (R-Mich.), who was negotiating the broader tax deal with Senate Majority Leader Harry Reid (D-Nev.).

Presenting The $303 Trillion In Derivatives That US Taxpayers Are Now On The Hook For -  Courtesy of the Cronybus(sic) last minute passage, government was provided a quid-pro-quo $1.1 trillion spending allowance with Wall Street's blessing in exchange for assuring banks that taxpayers would be on the hook for yet another bailout, as a result of the swaps push-out provision, after incorporating explicit Citigroup language that allows financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp, explicitly putting taxpayers on the hook for losses caused by these contracts. Recall: Five years after the Wall Street coup of 2008, it appears the U.S. House of Representatives is as bought and paid for as ever. We heard about the Citigroup crafted legislation currently being pushed through Congress back in May when Mother Jones reported on it. Fortunately, they included the following image in their article: Unsurprisingly, the main backer of the bill is notorious Wall Street lackey Jim Himes (D-Conn.), a former Goldman Sachs employee who has discovered lobbyist payoffs can be just as lucrative as a career in financial services.

The 'Hunger Games' Economy -- That our Congress is intent on taking from the many to enrich the few was on full display during passage of the new $1.1 trillion federal spending bill, as five provisions show. In a Washington run by and for oligarchs, official theft happens suddenly and without warning. No public hearings. No public debate. Instead, as we saw in North Carolina and Wisconsin, it occurs with just abrupt moves to shift power and money from the many to the richest few. And with little focus by our best news organizations on the consequences for people’s lives, especially if they are in the 90 percent, many people have no idea they just got officially mugged. The continuing resolution to fund the government was combined with an omnibus spending bill to create a 1,603-page statutory monster called the “cromnibus.” Among the provisions that show how both political parties help corporations pick the pockets of the vast majority, while far too many mainstream journalists help obfuscate the awful truth:

  • • Already retired blue-collar workers who belonged to unions can now be cheated out of some of their pension money, with only those age 80 and older fully protected.
  • • Another $345.6 million will be cut from the budget of the Internal Revenue Service, in a favor to big corporations and the rich that will have little effect on workers, whose taxes are withheld before they are automatically processed via computer. The cuts mean fewer audits of corporations and rich individuals.
  • • Another $60 million was cut from the Environmental Protection Agency, in a boon to companies that pollute the air and water, and instead of cleaning up after themselves, shove the expense onto all Americans.
  • • Despite a 2-1 vote to legalize marijuana in the District of Columbia, Congress said no, revealing again how Washington does not trust the states or local governments.

Dodd-Frank Budget Fight Proves Democrats Are a Bunch of Stuffed Suits (Taibbi)  Gosh, the Democrats are really pushing hard to save a key portion of the Dodd-Frank Wall Street reform bill, aren't they? Like tigers, or Siamese fighting fish they battle! Thrilling to watch!   Oh, wait, that's what they aren't doing. Actually what we're watching in the "Cromnibus" budget fight, is a stage-managed surrender that was inevitable pretty much from the moment the ink began to dry on the so-called sweeping reform of Wall Street the Democrats passed years ago.   The dominant media narrative this past week has been that Massachusetts Senator Elizabeth Warren, firmly saddled in her high horse, is trying to hold up the passage of the budget over a trifle. In reality, the so-called "Citigroup" provision to kill a rule designed to prevent future bailouts (so named because it was allegedly written by Citigroup lobbyists) is potentially quite an evil and destructive little thing. But the nitpicking counter-spin is already coming hot and heavy.

Wall Street’s Revenge, by Paul Krugman -- On Wall Street, 2010 was the year of “Obama rage,” in which financial tycoons went ballistic over the president’s suggestion that some bankers helped cause the financial crisis. They were also, of course, angry about the Dodd-Frank financial reform, which placed some limits on their wheeling and dealing.   The Masters of the Universe, it turns out, are a bunch of whiners. But they’re whiners with war chests, and now they’ve bought themselves a Congress. And the first payoff to that investment has already been realized. Last week Congress passed a rollback of one provision of the 2010 financial reform. In itself, this rollback is significant but not a fatal blow to reform. But it’s utterly indefensible. ... One of the goals of financial reform was to stop banks from taking big risks with depositors’ money. ... If banks are free to gamble, they can play a game of heads we win, tails the taxpayers lose. .Dodd-Frank tried to limit this kind of moral hazard in various ways, including a rule barring insured institutions from dealing in exotic securities, the kind that played such a big role in the financial crisis. And that’s the rule that has just been rolled back. ...  What just went down isn’t about free-market economics; it’s pure crony capitalism. And sure enough, Citigroup literally wrote the deregulation language that was inserted into the funding bill.

Inside Wall Street’s new heist: How big banks exploited a broken Democratic caucus -- As the CRomnibus becomes law, many rank-and-file liberals have wondered how Democrats, needing to reconnect with the public after another midterm debacle, could in their first order of business help roll back a key Wall Street reform. The answer lies in the nature of this rollback, along with the real lack of communication between lawmakers ostensibly on the same side. First of all, it’s worth mentioning that the CRomnibus was a horrible bill even without weakening Dodd-Frank. It was loaded with favors to wealthy and well-connected special interests, and its very existence, as a must-pass, short-term budget bill larded up with unrelated policy riders that will last forever, sets a dangerous precedent for the future.But let’s just focus on this one Wall Street rider, and how it made its way into law. The so-called swaps push-out provision of Dodd-Frank, Section 716, forced commercial banks that trade certain risky types of derivatives to split them off into a separately capitalized subsidiary, uncovered by FDIC deposit insurance. Those attempting to downplay Section 716’s importance, like Paul Krugman, highlight the fact that uninsured institutions like Lehman Brothers played a critical role in the last crisis, and that risk can cascade through an interconnected financial system no matter where those risks are initially housed. This theory actually made it easier to get the rider through Congress, giving lawmakers a plausible story that the provision wasn’t central to reform.

The Great Budget Sellout of 2014: Do We Even Have a Second Party?: - In principle, Saturday's vote to keep the government open should be the perfect curtain-raiser for the political debates between now and the 2016 election. As their price for averting a government shutdown, Republicans demanded and got a gutting of one of the most important provisions of the Dodd-Frank Act, preventing banks from speculating with government insured money. Agencies hated by Republicans such as the Environmental Protection Agency took big cuts, and a rider was inserted permitting "mountaintop removal" coal mining once again. Another extraneous provision demanded by conservatives permits massive increase in individual campaign contributions. The IRS enforcement budget lost $345.6 million. This will only increase public deficits, since most IRS enforcement is directed at upper-bracket tax cheats. The IRS collects about seven dollars for every dollar it spends on audits. The bill also cuts Pell grants for lower income college students, diverting money to the for-profit companies that function as collection agencies for student loans. And it allows companies to cut pensions for current retirees, even those that are contractually guaranteed.  This deal was cut by the outgoing Congress, in which Democrats still controlled the Senate. Far worse will be directed at ordinary working families when the new Congress meets in January.

"The Most Egregious Sections Of Law I've Encountered During My Time As A Representative" -- While most Americans are busy Christmas shopping and making preparations for trips to see family, Congress remains hard at work doing what it does best. Giving gifts to Wall Street and trampling on citizens’ civil liberties. I knew the plebs were about to be royally screwed a week ago when I published the post: Wall Street Moves to Put Taxpayers on the Hook for Derivatives Trades. The piece concluded with the following:Remember what Wall Street wants, Wall Street gets. Have a great weekend chumps. Naturally, Wall Street got what it wanted. In fact, this provision was so important to the financial oligarchs that Jaime Dimon called around to encourage our (Wall Street’s) representatives to support it. The Washington Post reports that: The acrimony that erupted Thursday between President Obama and members of his own party largely pivoted on a single item in a 1,600-page piece of legislation to keep the government funded: Should banks be allowed to make risky investments using taxpayer-backed money? The very idea was abhorrent to many Democrats on Capitol Hill. And some were stunned that the White House would support the bill with that provision intact, given that it would erase a key provision of the 2010 Dodd-Frank financial reform legislation, one of Obama’s signature achievements.  While that’s bad enough, the lame duck Congress clearly didn’t consider its job done without legislating away the 4th Amendment. Here is some of what one of the only decent members of Congress, Justin Amash, wrote on FacebookWhen I learned that the Intelligence Authorization Act for FY 2015 was being rushed to the floor for a vote—with little debate and only a voice vote expected (i.e., simply declared “passed” with almost nobody in the room)—I asked my legislative staff to quickly review the bill for unusual language. What they discovered is one of the most egregious sections of law I’ve encountered during my time as a representative: It grants the executive branch virtually unlimited access to the communications of every American.

Meet Your Newest Legislator: Citigroup: Citigroup is the Wall Street mega bank that forced the repeal of the Glass-Steagall Act in 1999; blew itself up as a result of the repeal in 2008; was propped back up with the largest taxpayer bailout in the history of the world even though it was insolvent and didn’t qualify for a bailout; has now written its own legislation to de-regulate itself; got the President of the United States to lobby for its passage; and received an up vote from both houses of Congress in less than a week. And there is one more thing you should know at the outset about Citigroup: it didn’t just have a hand in bringing the country to its knees in 2008; it was a key participant in the 1929 collapse under the moniker National City Bank. Both the U.S. Senate’s investigation of the collapse of the financial system in 1929 and the Financial Crisis Inquiry Commission (FCIC) that investigated the 2008 collapse cited this bank as a key culprit.

Taxpayers could be liable again for bank blunders - With the House and Senate having passed a bill to avoid a government shutdown, the country is one step closer to avoiding a government shutdown -- at least for the next fiscal year that ends in September 2015. Now it just requires signature by President Obama to become law. According to critics, however, the bill also brings the country closer to another potential financial crisis by removing a key provision of the Dodd-Frank financial regulation law. By doing so, Congress may have opened the door to banks using depositor insurance, intended to protect consumers, to cover losses from bad bets on certain esoteric and risky investments. Some Democrats, like Massachusetts Senator Elizabeth Warren, lobbied against passage of the spending bill with the measure to soften financial regulation. The Dodd-Frank modification is "so clearly written by the banks," said Mike Konczal, a fellow with the Roosevelt Institute, in an interview with CBS MoneyWatch. "You can read the changes, and they read like what Citigroup wanted [in 2013]." Esoteric investments The Dodd-Frank section in question is 716, and it prevented banks from directly investing in certain types of derivatives -- financial instruments that are essentially legalized bets on how other financial transactions or products will perform. An example that helped bring on the Great Recession just a few years ago was the so-called collateralized debt obligation, or CDO.

Wall Street Salivating Over Further Destruction of Financial Reform, by Kevin Drum: Conventional pundit wisdom suggests that Wall Street may have overreached last week. Yes, they won their battle to repeal the swaps pushout requirement in Dodd-Frank, but in so doing they unleashed Elizabeth Warren and brought far more attention to their shenanigans than they bargained for. They may have won a battle, but ... they're unlikely to keep future efforts to weaken financial reform behind the scenes, where they might have a chance to pass with nobody the wiser.Then again, maybe not. Maybe it was all just political theater and Wall Street lobbyists know better than to take it seriously. Ed Kilgore points to this article in The Hill today:Banks and financial institutions are planning an aggressive push to dismantle parts of the Wall Street reform law when Republicans take control of Congress in January. ... Will Democrats in the Senate manage to stick together and filibuster these efforts to weaken Dodd-Frank? ... I'd like to think that Elizabeth Warren has made unity more likely, but then again, I have an uneasy feeling that Wall Street lobbyists might have a better read on things than she does. Dodd-Frank has already been weakened substantially in the rulemaking process, and this could easily represent a further death by a thousand cuts.

Two Contradictory Arguments That Dodd-Frank is Crony Capitalism - I’m pretty convinced that the term “crony capitalism,” as deployed by the right, is useless as a political or analytical tool. I keep a close eye on how conservatives talk about financial reform, and according to the right, Dodd-Frank is crony capitalism. Oh noes! But what does that mean, and how can we stop it? Here’s a fascinating case in point: two AEI scholars with different publications argue that we need to stop Dodd-Frank from enabling crony capitalism, and then proceed to describe two opposite, mutually exclusive sets of problems and solutions. Here’s one story, from James Pethokoukis in ”Fighting the Crony Capitalist Alliance”: “our highly concentrated and interconnected, Too Big to Fail financial system [...] gives a competitive edge to megabanks.” How is that? Regulators create incentives for big banks to take on risks “such as investing in mortgage-backed securities and complex derivatives.” Banks are the size they are, and do the activities that they do, because of the actions of regulators. So how do we combat this problem? According to Pethokoukis, we should “substantially raise the capital requirements for Too Big To Fail banks” to limit risk. Even more, “such capital requirements might well nudge the biggest banks into shrinking themselves or breaking up.” Here’s another story, from Tim Carney’s “Anti-Cronyism Agenda for the 114th Congress”: Dodd-Frank is cronyism because “[e]xcessive regulation is often the most effective crony capitalism.” What’s worse is that Dodd-Frank designates the biggest firms as Systemically Important Financial Institutions (SIFIs), meaning that they pose a systemic risk to the economy. Those firms are put under more regulation, but it’s obviously a cover for a permanent set of protections. According to Carney’s agenda, Congress should “open banking up to more competition by repealing regulations that give large incumbent banks advantages over smaller ones.” Well, which regulations are those? “Congress should repeal its authority to designate large financial firms as SIFIs.”

Bail-In and the Financial Stability Board: The Global Bankers’ Coup - Ellen Brown -- On December 11, 2014, the US House passed a bill repealing the Dodd-Frank requirement that risky derivatives be pushed into big-bank subsidiaries, leaving our deposits and pensions exposed to massive derivatives losses. The bill was vigorously challenged by Senator Elizabeth Warren; but the tide turned when Jamie Dimon, CEO of JPMorganChase, stepped into the ring. Perhaps what prompted his intervention was the unanticipated $40 drop in the price of oil. As financial blogger Michael Snyder points out, that drop could trigger a derivatives payout that could bankrupt the biggest banks. And if the G20's new "bail-in" rules are formalized, depositors and pensioners could be on the hook.   The new bail-in rules were discussed in my last post here. They are edicts of the Financial Stability Board (FSB), an unelected body of central bankers and finance ministers headquartered in the Bank for International Settlements in Basel, Switzerland. Where did the FSB get these sweeping powers, and is its mandate legally enforceable?  Those questions were addressed in an article I wrote in June 2009, two months after the FSB was formed, titled "Big Brother in Basel: BIS Financial Stability Board Undermines National Sovereignty." It linked the strange boot shape of the BIS to a line from Orwell's 1984: "a boot stamping on a human face—forever." The concerns raised there seem to be materializing, so I'm republishing the bulk of that article here. We need to be paying attention, lest the bail-in juggernaut steamroll over us unchallenged.

Just how did banks get that big win in Washington? - The rollback this week of a key part of Wall Street regulation adopted after the 2008 financial collapse caught much of Washington by surprise, creating an uproar among liberals who called it a payoff to big banks, threatening to derail a bipartisan budget agreement, and almost shutting down the government. It was indeed the product of lobbying by the banks, which capped their long campaign this week with personal calls to Congress by the CEO of JPMorgan Chase. But it should have been no surprise. It was in the works for more than a year. And it was supported by many Democrats. A bill doing just what this week’s provision does actually passed the House Financial Services Committee last year with 22 of 28 Democrats voting for it. The bill passed the entire House of Representatives with broad Democratic support.Yet when the House this week took up a $1.1 trillion budget bill needed to keep the government open when money ran out Thursday night, liberal Democrats rallied against the provision. They said it was sneaked in by Republicans doing Wall Street’s bidding.  Indeed, the nation’s five largest banks – JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Morgan Stanley – desperately wanted the change.At issue are swaps, speculative bets between private parties on whether the price of a stock or a commodity such as oil or corn will move up or down. Under the Section 716 of the Dodd-Frank Act, banks had to push the riskiest 5 percent of this trading into separate corporate entities where they would not be covered by taxpayer-provided protections.

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge? - Yves Smith - Conventional wisdom among banking experts is that Wall Street’s successful fight last week to get a pet provision into the must-pass budget bill (or in political junkies’ shorthand, Cromnibus) as more a demonstration of power and a test for gutting Dodd Frank than a fight that mattered to them. But the provision they got in, which was to undo a portion of Dodd Frank that barred them from having taxpayer-backstopped deposits fund derivative positions, may prove to be more important than it seemed as the collateral damage from the 40% fall in oil prices hits investors and intermediaries.   Mind you, all the howling by Big Finance over this measure can’t be seen as an indicator of its importance. Yes, they have been trying to get this passed for two years. In fact, as Akshat Tewary of Occupy the SEC points out:The provision that just got passed by the House (Section 630 of the Cromnibus) is identical to another bill already passed by the House last year – HR 992 (Swaps Regulatory Improvement Act). So the House has basically passed the same bill twice. Last year the Senate wouldn’t approve it and the banks were not happy…so the Republicans thought they would hide it in the budget bill so the Senate was forced to approve it this time.  Industry participants view any incursion on their right to make profit (as in pay themselves big bonuses) as a casus belli. That leads to regular histrionics about minor restrictions, like the TARP’s pathetically weak limits on executive bonuses. Exerts on regulation said that the Dodd Frank provision at issue, known as derivatives push-out, was simply about the big US financial firms keeping their profit margins via continued access to cheap funding. Banks weren’t barred from engaging in this type of business but they’d have to do it in different legal entities.

Volcker lambasts Wall Street lobbying - Paul Volcker, the former Federal Reserve chairman, has lambasted the "eternal lobbying" of Wall Street after regulators granted the industry more time to comply with a rule designed to prevent them from owning hedge funds. In a withering statement — as much an attack on his successors at the Fed as a critique of banks — Mr Volcker said: “It is striking, that the world's leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can't manage the orderly reorganisation of their own activities in more than five years.” "Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?” The Fed and its fellow regulators this week gave the banks until 2017 to comply with a part of the Volcker rule, named after Mr Volcker, which puts strict limitations on their ownership of funds. Banks had been supposed to comply by next year. The law containing the Volcker rule was passed in 2010. As well as its limitations on fund ownership, the rule contains a prohibition on proprietary trading. Both parts of the rule are intended to stop banks taking on too much risk. But banks have argued that the way the rule was written affects a far broader range of funds than was originally intended and to try to sell every last fund interest would be complex.

Paul Krugman Buys into the Big Lie About the 2008 Financial Collapse - WE hold great respect for Paul Krugman as an economist. We link regularly to his columns under our “Publisher’s Must Reads”. But every time Krugman posits on Dodd-Frank financial reform or the crash of 2008 he blunders into the quagmire created by financial reporter Andrew Ross Sorkin’s misinformation campaign in the pages of the New York Times.  Take this past Monday for example. Krugman devoted his column to the spending bill just passed by Congress that guts a key derivatives provision of the Dodd-Frank financial reform legislation, writing that “One of the goals of financial reform was to stop banks from taking big risks with depositors’ money. Why? Well, bank deposits are insured against loss, and this creates a well-known problem of ‘moral hazard’: If banks are free to gamble, they can play a game of heads we win, tails the taxpayers lose.”   So far so good.  But then Krugman steps into Andrew Ross Sorkin’s illusion of what actually happened in 2008, writing: “Now, this isn’t the death of financial reform. In fact, I’d argue that regulating insured banks is something of a sideshow, since the 2008 crisis was brought on mainly by uninsured institutions like Lehman Brothers and A.I.G.” Regulating insured banks is a sideshow? Nobel laureates can’t go around saying things like that for very long before their academic colleagues start to roll their eyes and the Nobel folks start to wonder if there’s some way to rescind the prize.

Congressional Leaders Reject Wall Street’s Push for Deregulatory “Trade” Pacts - The Obama administration needs to stop negotiating so-called “trade” deals with deregulatory rules pushed by the likes of Citigroup that would undermine the re-regulation of Wall Street.  That’s the message that Senator Elizabeth Warren – champion of financial reform and member of the Senate Banking Committee, Congresswoman Maxine Waters – Ranking Member of the House Financial Services Committee, and other congressional leaders have delivered to the administration in recent letters.  The members of Congress warn against expanding the deregulatory strictures of pre-financial-crisis trade pacts, crafted in the 1990s under the advisement of Wall Street firms, via two pacts currently under negotiation: the Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA, also known as TTIP).  As proposed, both pacts would include controversial foreign investor privileges that would empower some of the world’s largest banks to demand U.S. taxpayer money for having to comply with U.S. financial stability policies.  Yesterday, Sen. Warren and Sens. Tammy Baldwin and Edward Markey sent U.S. Trade Representative Michael Froman a letter calling for such “investor-state dispute settlement” (ISDS) provisions, which have sparked global controversy, to be excluded from the TPP.  The letter states:Including such provisions in the TPP could expose American taxpayers to billions of dollars in losses and dissuade the government from establishing or enforcing financial rules that impact foreign banks. The consequence would be to strip our regulators of the tools they need to prevent the next crisis. Earlier this month, Rep. Waters and Reps. Lacy Clay, Keith Ellison, and Raúl Grijalva sent a similar letter to Froman that called for ISDS to be excluded from TAFTA to safeguard financial stability, stating:

What are the Odds of a Commodities-Led Global Financial Crisis? -  Yves Smith -  While the odds of commodities-triggered 2008 style meltdown is still not the most likely outcome, recall that that pessimists like yours truly assessed the likelihood of Seriously Bad Things Happening as of early 2008 at 20-30%, which I then saw as dangerously high. In other words, tail risks are bigger than they appear. Some of the things that favor worse outcomes than one might otherwise anticipate is investor irrationality, or what one might politely call herd behavior. For instance, a major news story today was how investors are dumping emerging markets assets willy nilly, when many are not exposed to much if any blowback from lower commodity prices and quite a few are seen as net beneficiaries. The offset is that central banks have been conditioned to break glass and overreact when banks start looking wobbly. But the Fed may be slow to get the memo, since it sees recent data (the last jobs reports and retail sales data) as strong, and is also predisposed to see its medicine as working even though it is really working only for those at the top of the food chain. Note that this report is from Monday in Australia, and look how much oil prices have dropped since then. WTI is now at $54.28 per Bloomberg.

Private Equity “Money for Nothing” Tax Game as An Example of Elite Lawlessness --  Yves Smith  -- Most members of the great unwashed public, when they hear about unfair results of the tax code, like Warren Buffet's secretary facing a higher tax rate than he does, or private equity and hedge fund barons paying capital gains tax rates on labor income, assume that those outcomes are the result of a combination of the rich getting the tax code changed over time or succeeding in preserving the exploitation of loopholes that should have been closed ages ago. But there is another category of tax games that are not discussed much in polite company, that of outright abuses. What is disturbing about that behavior is that it has not only become increasingly common, but members of the bar, including those at white shoe firms, are enablers. "Money for nothing" private equity monitoring agreements are a blindingly obvious example.

Senate Democrats Tell The SEC To Get Moving On CEO Pay Rule: -- Fifteen Senate Democrats including Elizabeth Warren (D-Mass.) called Tuesday for the Securities and Exchange Commission to implement a rule on CEO pay that the agency has suppressed for more than a year. Sen. Robert Menendez (D-N.J.) organized a letter to SEC Chair Mary Jo White demanding action on the rule, which requires companies to disclose the ratio of CEO compensation to the pay of its median worker. "While CEOs can create value for companies, so can ordinary workers," the letter reads. "Pay ratio disclosure helps investors evaluate the relative value a CEO creates, which facilitates better checks and balances against insiders paying themselves runaway compensation." The SEC proposed the rule in September 2013. The standard 60-day period for public comments expired in December of last year, but the agency has yet to implement the proposal. The 2010 Dodd-Frank financial reform law required the SEC to craft a CEO pay ratio rule. Companies have furiously lobbied the agency to delay or water down the proposal to allow calculation methods that would result in a lower ratio between CEOs and typical workers. White, who took the helm of the SEC in April 2013, has been widely criticized for being soft on corporate managers and failing to regulate dark money in the campaign finance system.

Warnings of a potential bloodbath in bonds - There is a big disconnect between the US Federal Reserve and the international bond markets. It is a disconnect that could lead to one of the biggest sell-offs in bonds for a long time. Some fund managers even say 2015 might be like 1994 all over again, when the government bond markets crashed as the Fed aggressively raised interest rates. Wesley Sparks, the head of US fixed income at Schroders, the UK fund house, says he has never seen such a big divergence between US central bank projections for interest rate rises, as laid out in the so-called dot plot chart that shows where voting members of the Fed think benchmark rates will be at the end of upcoming years, and the forecast of the market, expressed in Fed fund futures. US central bank policy makers expect the main Fed funds rate to rise from near zero today to 1.25 per cent by the end of next year, with the first rate rise pencilled in for next June. The market projects rates to end 2015 at 0.50 per cent, with the first rate rise in October. By the end of 2016, the Fed’s policy makers forecast rates at 2.75 per cent, while the market has them at 1.50 per cent. By the end of 2017, Fed policy makers expect rates to be 3.75 per cent compared with market forecasts of 2.0 per cent. Bill Eigen, head of absolute return fixed income at JPMorgan Asset Management, warns of a potential bloodbath in bonds next year should the market continue ignoring the warnings of aggressive rate rises that the Fed has clearly signalled in its dot plot charts.

"This $550 Billion Mania Ends Badly," Energy Companies Are "Shut Out Of The Credit Market" -- "Anything that becomes a mania -- it ends badly," warns one bond manager, reflecting on the $550 billion of new bonds and loans issued by energy producers since 2010, "and this is a mania." As Bloomberg quite eloquently notes, the danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt - as HY energy spreads near 1000bps - all thanks to the mal-investment boom sparked by artificially low rates manufactured by The Fed. "It's been super cheap," notes one credit analyst. That is over!! As oil & gas companies are “virtually shut out of the market" and will have to "rely on a combination of asset sales" and their credit lines. Welcome to the boom-induced bust...

Junk-bond worries spread beyond oil - The oil bust is exposing cracks in the $1.3 trillion junk-bond market, putting pressure on a key source of corporate financing and potentially crimping economic growth. U.S. junk-bond prices have fallen 8% since late June, according to data from Barclays PLC. One-third of that drop has come this month alone, putting the market on track for its worst annual performance since the financial crisis. While much of the stress has been in the energy sector on the heels of the sharp decline in oil prices, lately the woe is spreading across the junk market. Each of the 21 high-yield sectors in a U.S. junk-bond index tracked by J.P. Morgan Chase & Co. registered losses in the five days ended Dec. 9. “Oil prices have crushed the energy sector, and it’s leaking elsewhere,” said Andrew Herenstein, co-founder of Monarch Alternative Capital LP, which manages $5 billion and is among the largest investors in distressed debt. Debt is generally deemed to be distressed when investors view it as at high risk of missing bond payments or of a restructuring, at least at some point. A pullback from junk bonds is often a harbinger of a broader reassessment of risk across financial markets, raising the possibility that investors could turn more wary of stocks and other assets.

US high-grade spreads widen on Russian concerns - Spreads widened out in the investment-grade secondary bond market on Tuesday, as concerns about the impact of plunging oil prices and the plummeting rouble rippled through risk assets. The rouble fell more than 11% against the dollar in its worst fall since the Russian financial crisis in 1998. It initially opened stronger on news of the central bank raising rates to 17% but reversed those gains as confidence waned in Russia’s ability to stop the currency’s slide. “All risk markets are down today. Everyone is concerned about Russia, and the liquidity situation in the market is bad at the best of times at the end of the year,” said an investment grade credit strategist. The Dow Jones industrial average fell 111.9 points, its third straight day of losses, while the 10-year Treasury yield was ending about 5.5bp tighter at 2.06% and the CDX IG.23 was 1.75bp wider on the day at 76.2bp. Brent crude’s front-month settled futures contract ended down US$1.20 at US$59.86 a barrel and hit a session low of US$58.50, the lowest since July 2009. The contract has lost more than 10% in five days of trading.

If They Only Knew How Little You Know - Pretend, for a minute, that you’re a money manager in today’s manipulated world. You understand that most of what’s happening is the result of governments and central banks forcing down interest rates and pumping up asset prices. You don’t trust this process but since “the markets are recovering” you’ve felt compelled to play along, putting your clients into a standard mix of stocks, bonds and cash. But you’re not feeling the love. With stocks outperforming bonds and cash, your blended portfolios have failed to match the S&P 500 and your clients are asking snarky questions like “What exactly am I paying you for when I could do better by just buying an ETF?” So finally, as equity prices march ever higher and governments around the world reiterate their promises of unlimited cheap money from here to eternity, you throw up your hands and give the clients what they want, loading up on growth stocks, especially from the hottest emerging markets. Then, out of the blue, the dollar spikes, oil tanks and the world tips into chaos. US stocks have their worst week in three years, emerging markets collapse, and clients who last month demanded double-digit gains now start begging for reassurance that their savings won’t just melt away.

U.S. Declares Bank and Auto Bailouts Over, and Profitable - — Six years after President George W. Bush began the auto bailout, the Obama administration on Friday declared a profitable end to the sweeping federal interventions in Wall Street and Detroit, saying a final sale of stock from General Motors’ former finance arm had closed a turbulent chapter of the financial crisis.The programs “that helped restart the flow of credit to meet the critical needs of small businesses and consumers are now closed,” declared Treasury Secretary Jacob J. Lew. “And while the goal was always to stabilize the economy, and not to make a profit, it is important to recognize the return we have earned for taxpayers.”Continue reading the main story Related Coverage G.M., Once a Powerhouse, Pleads for BailoutNOV. 11, 2008 Bush Aids Detroit, but Hard Choices Wait for ObamaDEC. 19, 2008 Bailout Plan Wins Approval; Democrats Vow Tighter RulesOCT. 3, 2008 Buyout Plan for Wall Street Is a Hard Sell on Capitol HillSEPT. 23, 2008 The government actions, initially seen as necessary in Washington and on Wall Street to prevent a collapse of the economy on the order of the Great Depression, agitated the political world, helping give rise to the Tea Party movement on the right and the Occupy Wall Street movement on the left. And even as the nation climbed out of recession and slowly recovered, many Americans were left with little trust in the nation’s government and financial institutions. Tea Party, to many of its foot soldiers, stood for Taxed Enough Already, and the bailouts were assumed to be enormous drains on the federal Treasury. Yet in the end, the Troubled Asset Relief Program and the Detroit bailout yielded $15.35 billion in profit, Treasury officials said Friday.

Falling oil price poses new threat to banks - --The world’s big banks would like to draw a line under their recent troubles. The losses from the financial crisis, the costs of regulatory change and the fines from mis-selling and market manipulation scandals appear largely in the past. For once, another sector is suffering a series of blows. Within a matter of months, the falling oil price has wiped as much as 25 per cent off the market values of the oil majors. But might the bankers be smiling too soon? Could the oil market turmoil become the banks’ next nightmare? Last month, there was a hint of what might be around the corner, when it emerged that Wells Fargo and Barclays had exposure to big potential losses on an oil loan — specifically, $850m of funding granted earlier in the year to back the merger of US oil groups Sabine and Forest. Attempts to syndicate the loan had failed amid a falling oil price. The banks, which led the fundraising, were left holding mark-to-market losses estimated at as much as 40 per cent. Since then, the oil price collapse has only worsened. Last week, Brent crude hit a new five-year low of barely $60. That is nearly 50 per cent down on its summertime peak.  That Sabine-Forest financing was just one of many. Oil and gas financing has spiralled over the past couple of years, dominating the riskier end of the bond market. According to data compiled by Barclays, energy bonds now make up nearly 16 per cent of the $1.3tn junk bond market — more than three times their proportion 10 years ago. Nearly 45 per cent of this year’s non-investment grade syndicated loans have been in oil and gas.

A real danger to global financial system from oil price collapse - There is a very important transmission mechanism that could ensure that problems in the energy sector reverberate across the global financial system. Credit derivatives. The exposure of US insured banks to derivatives stood at $236.8tn at the end of June 2014. More specifically, US banks had an exposure of $10.4tn to credit default swaps with around $2.6tn subinvestment grade. About 16 per cent of the US high yield market relates to energy companies. With oil prices below $60 per barrel, 30 per cent of US subinvestment grade energy companies could end up in restructuring or default. This means that banks could have to pay out on more than $135bn of credit default swaps.  However, that is a conservative estimate. If defaults from the energy sector spread out more widely across the high yield bond markets, payouts on credit default swaps could be much higher. There are also other derivative products such as structured notes that have been sold by banks to investors that are related to the oil price and could cause large losses for investors. Increased volatility in commodity derivatives usually spreads across related asset classes and causes losses in interest rate derivatives (where US banks have $192tn of exposure) and foreign exchange ($31tn of exposure). Losses in one segment of the market can become contagious because of the interrelationships between the different asset classes and also the counterparties that trade them. We do not know how these counterparties manage their exposure, hedging and risks, so as a result losses often appear in unexpected ways and places. We saw this in the last financial crisis when it was discovered that AIG was highly exposed to the US housing market (a surprise to many people) as a result of selling credit default swaps based on subprime mortgages. There is unlikely to be a happy ending to falling oil prices for highly leveraged US energy companies, and it is wrong to assume that there is no interconnectedness between the companies, banks, hedge funds and other organisations that trade derivatives based on the oil price.

Obama Imports and Immunizes Banksters Who Donate to the Democratic Party --William K. Black --President Obama and then Secretary of State Clinton decided that America has a critical shortage of banksters and decided to import some from Ecuador. The banksters showed their gratitude by showing the Democratic Party with “donations.” Sometimes a small story reveals the core truth of large public policy issues far better than the big overall story can. The New York Times has just published an article entitled “Ecuador Family Wins Favors After Donations to Democrats.” The short-version is that Obama has decided to give what amounts to asylum to a family from Ecuador after it made large campaign donations to Democrats. The Isaías family, which has been investigated by federal law enforcement agencies on suspicion of money laundering and immigration fraud, has made hundreds of thousands of dollars in contributions to American political campaigns in recent years. During that time, it has repeatedly received favorable treatment from the highest levels of the American government, including from New Jersey’s senior senator and the State Department.” And it gets better: “The Obama administration has allowed the family’s patriarchs, Roberto and William Isaías, to remain in the United States, refusing to extradite them to Ecuador. The two brothers were sentenced in absentia in 2012 to eight years in prison, accused of running their bank into the ground and then presenting false balance sheets to profit from bailout funds. In a highly politicized case, Ecuador says the fraud cost the country $400 million. The family’s affairs have rankled Ecuador and strained relations with the United States at a time when the two nations are also at odds over another international fugitive: Julian Assange, the WikiLeaks founder, who has taken refuge in the Ecuadorean Embassy in London.”

Bill Black: Obama and Holder Choose Banksters Over Whistleblowers --Sometimes life sends a 75 mph (not-so) fastball down the center of the plate that is simply begging to be knocked out of the park. That happened on December 17, 2014, with what is supposed to be the heart of the U.S. batting order for ensuring the rule of law, President Obama, Attorney General Eric Holder, and U.S. Attorney for the Southern District of New York, Preet Bharara up to bat. Each was called out on strikes. Worse, they were called out on strikes without ever getting the bat off their shoulder and swinging at a pitch that even an AAA second baseman would have crushed into the stands. No one is surprised at Obama and Holder maintaining their perfectly imperfect batting average of .000 – all on called third strikes – against the senior bankers who grew wealthy by leading the three fraud epidemics that caused the financial crisis and the Great Recession. Bharara is the shocker, for he has been the proverbial “one-eyed” prosecutor in the valley of the morally blind. This made him the “king” of financial prosecutors.  I’ll use the New York Times to illustrate the coverage of the whistleblower event that this article discusses. They entitled their article: “Whistle-Blower on Countrywide Mortgage Misdeeds to Get $57 Million.” If you know the case, then you know that the NYT is the article to read about the whistleblower because it was the NYT that so casually and gratuitously smeared him in its October 24, 2012 article when his identity first became publicly. I wrote an article criticizing those smears which I’ll return to later in this piece. The title of the 2012 NYT piece smearing Edward O’Donnell, the whistleblower, was “U.S. Accuses Bank of America of a ‘Brazen’ Mortgage Fraud.”

Bankers, like alcoholics, must first admit they have a problem - -- They really can’t help it, can they? Like alcoholics in a liquor store, the investment banks cannot resist an illicit swig whenever they think nobody is looking. That is the conclusion from the fines imposed on 10 US investment banks last week for breaking the rules designed to manage conflicts of interest in initial public offerings. The shock is that the event in question occurred in 2010, a mere seven years after rules were passed to clean up the IPO market in the wake of the dotcom crash. Back then Eliot Spitzer, then New York State attorney-general, had led an investigation that showed how investment banks’ analysts had been puffing new issues. It was a scandal that blew Wall Street’s claim to be a trusted adviser out of the water. Ten investment banks paid $1.4bn to settle the matter and signed up to new rules restricting analysts’ involvement in IPOs.  This seemed to have cleaned up the mess. After the settlement, lawyers attended banks’ pitch meetings to police good behaviour; and investment bankers were no longer allowed to influence research. Analysts working on house stocks complained that they could not go to the lavatory except in the presence of a compliance officer; and senior management assured anyone who asked that the IPO market had been reformed. And that was what we believed until last week,when the US Financial Industry Regulatory Authority (Finra) fined 10 firms a total of $43.5m for allowing their equity research analysts to solicit investment banking business, and for offering favourable research coverage in connection with the 2010 planned IPO of Toys R Us, the American chain store. The fines are not big in the context of the $100bn-plus paid so far to cover the post-2008 banking crisis scandals but this is still a very damaging episode for the industry.

How a Memo Cost Big Banks $37 Billion - WSJ: Assistant U.S. Attorney Richard Elias was leafing through a pile of J.P. Morgan Chase & Co. documents while tending to his newborn son in 2012 when he found something that came back to haunt the three largest U.S. banks. In a memo, one J.P. Morgan employee warned her bosses they were putting bad loans into securities being created before the financial crisis hit. The U.S. attorney’s office in Sacramento, Calif., soon started sending subpoenas to J.P. Morgan officials tied to the memo. Three months later, top Justice Department officials in Washington told investigative teams across the country to hunt for similar ammunition in tens of millions of documents from other banks, especially Bank of America Corp. and Citigroup Inc.  In a move meant to shake money from the banks, the Justice Department decided to go after them with an unusually potent law created to clean up the savings-and-loan crisis of the 1980s. The law has a lower burden of proof than other laws used by the agency to punish alleged fraud, a much longer statute of limitations and potentially astronomical financial penalties. Mr. Elias’s discovery has delivered a whopping payoff so far: $36.65 billion, representing the cost of the government’s three separate settlements with the banks since late 2013, including the $16.65 billion deal with Bank of America in August that is the largest ever between the U.S. and a single company.

Unofficial Problem Bank list declines to 406 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Dec 12, 2014.   As anticipated, there were few changes to the Unofficial Problem Bank List this week. After the removal of one bank, the list count is 406 institutions with assets of $123.9 billion. A year ago, the list held 641 institutions with assets of $219.4 billion. The Ohio State Bank, Marion, OH ($85 million) was removed after if found a merger partner. Next week, we anticipate the OCC will provide an update on its enforcement action activities. 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 406.

CoStar: Commercial Real Estate prices increased in October -- From CoStar: Commercial Real Estate Prices Post Steady Gains In October. Most major property types continued to benefit from minimal speculative construction, a firming economic recovery and rising rental rates. Meanwhile, benchmark interest rates such as the 10-year Treasury continued to decline in October, a positive underlying trend for commercial real estate cap rates. The two broadest measures of aggregate pricing for commercial properties within the CCRSI — the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index — increased by 0.8% and 0.9%, respectively, for October 2014.... After climbing 0.9% in the month of October, the value-weighted U.S. Composite Index reached a record high, thanks to steady gains in recent months. The index now stands 3.9% above its prerecession peak in 2007, reflecting strong competition among investors for large, high-end commercial properties.  While its recovery began later, the equal-weighted U.S. Composite Index, which is influenced by smaller property sales, has made solid gains and is now back to 2005 levels, although it remains 15% below its 2007 prerecession peak. This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes. The value weighted index is at a record high, but the equal weighted is still 15% below the pre-recession peak. There are indexes by sector and region too. The second graph shows the percent of distressed "pairs". The distressed share is down from over 35% at the peak, but still elevated. Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

Spending Bill Bans FHA from Financing Eminent Domain Loans --  The so-called cromnibus appropriations bill passed by the House late Thursday included a little-noticed provision that would make it more difficult for municipalities to use eminent domain to condemn and seize underwater mortgages. The massive $1.05 trillion spending bill would ban the Federal Housing Administration from refinancing loans that have been seized via eminent domain. The bill is expected to be passed by the Senate soon. Proponents of eminent domain such as San Francisco-based Mortgage Resolution Partners were planning to use FHA-insured loans to refinance loans that have been seized by municipalities and written down to their current appraised value. But so far, the use of eminent domain has been thwarted by industry groups like the Mortgage Bankers Association and Securities Industry Financial Markets Association, which have strongly opposed Mortgage Resolution Partners' efforts in cities like Richmond, Calif., Las Vegas and Newark, N.J. Fannie Mae and Freddie Mac are not allowed to finance loans involved in an eminent domain takeover. But Department of Housing and Urban Development officials have declined to take a position on the issue, contending they would have to consider the circumstances when actually presented with an application to refinance a mortgage seized via local governments exercising eminent domain. Language in the spending bill says it "prohibits funds for HUD financing of mortgages for properties that have been subject to eminent domain."

Political theater: Community groups giving HUD “Grinch of the Year” award -- An opposite day version of Christmas comes early to the U.S. Department of Housing and Urban Development, as community groups in several cities including Los Angeles, San Francisco, and Boston will present local HUD officials with their “Grinch of the Year” award for refusing to fix a controversial program that auctions off the ownership of homes of troubled borrowers, which the advocates say is driving foreclosures. The community groups are calling for changes to the Distressed Asset Stabilization Program, created in 2012 by the Federal Housing Administration. “By auctioning pools of delinquent loans to the highest bidders — vulture capitalists — HUD is driving unnecessary foreclosures and contributing to the rise of ‘Wall Street Landlords,'" said Gisele Mata, an organizer with the Alliance of Californians for Community Empowerment. “We have asked HUD and FHA officials to change the Distressed Assets program to prioritize keeping families in their homes and preserving affordable housing, but so far they would rather play the Grinch and let Wall Street steal families’ futures.”

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in November -  Economist Tom Lawler sent me the updated 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 and Orlando were unchanged).  Short sales are down significantly in these areas.Foreclosures are up in several areas (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.

Zillow: Negative Equity declines further in Q3 2014, "Down by Almost Half Since 2012 Peak" -- From Zillow: Negative Equity Down By Almost Half Since 2012 Peak, But There’s Still a Ways to Go  The national negative equity rate continued to decline in the third quarter, falling to 16.9 percent, according to the third quarter Zillow Negative Equity Report, down almost half from its 31.4 percent peak in the first quarter of 2012. More than 7 million previously underwater homeowners, those homeowners owing more on their home than it is worth, have been freed from negative equity since its peak. Negative equity fell from 21 percent in the third quarter of 2013 and 17.9 percent in the second quarter.  The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q3 2014. From Zillow:  Nationally, of the homeowners who are underwater, around half are only underwater by 20 percent or less, which is to say they are close to escaping negative equity. (Figure 3) On the other hand, 1.9 percent of owners with a mortgage remain deeply underwater, owing at least twice what their home is worth. Almost half of the borrowers with negative equity have a LTV of 100% to 120% (8.2% in Q3 2014). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or their loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight to ten years or so). In a few years, these borrowers will have positive equity.

Least Expensive Homes Languish Underwater Even As Equity Rises - About 8.7 million homeowners still owed more on their mortgages than their homes were worth at the end of September, according to a report released Wednesday by Zillow. That’s 7 million fewer than in early 2012, but with home-price growth slowing the picture might not improve all that much in 2015. Negative equity has been a drag on the market in many areas. It traps homeowners, making it more difficult for them to sell and move. It also cuts back on the inventory of homes available to buyers, driving up the prices of homes that are unencumbered by large mortgages. Thankfully for many owners, being “underwater” ended up being a transitory phenomenon. At the most dire point of the housing crisis, more than 31% of homes were underwater, according to Zillow, whereas in the third quarter only 17% of homes were. In Phoenix, more than 58% of homeowners owed more than their properties were worth during the crisis. That rate has come all the way down to 22%. To be sure, home prices are still rising. But with the dramatic gains of this year and 2013 behind the market, the current state of affairs could be longer-lasting for those still paying outsize mortgages. That will be especially vexing for borrowers who own less-expensive homes, according to Zillow’s report. The company split homes into three price categories based on their estimated values. In the highest-price tier, about 9.3% of borrowers were underwater in the third quarter, compared to 15.7% of borrowers in the middle tier and 27.4% in the cheapest tier.

The return of subprime lending  -- Turned down by Bank of America for a home mortgage, McKnight-Baron was stunned to learn from her real-estate agent that she could still qualify for a loan. The lender was Angel Oak Home Loans. The company, based in Atlanta, offered a loan program that targeted the millions of people like her with credit problems who, since the 2008 financial crisis, have been unable to secure a traditional mortgage. For McKnight-Baron, a dispute last year over a loan payment had caused a negative blip on her credit report and axed her out of the mortgage market — or so she thought. “Bank of America wouldn’t give me the loan, but Angel Oak did.” Thwarted for years by the nation’s banks, which virtually shut down mortgage lending after the financial meltdown, and stricter rules imposed by federal regulators, a growing number of credit-impaired borrowers like McKnight-Baron are again finding their piece of the American dream. Unlike the risky subprime loans from before the financial crisis — many involving no down payment and no documentation — these new subprime loans require minimum down payments of 20 percent and proof that borrowers can pay the monthly mortgage. While investors have taken notice and are pumping billions into the lending institutions making these loans, government regulators, including the Consumer Financial Protection Bureau, say they intend to keep a close eye on lenders, with the hope that the loans don’t morph into the toxic products that were bundled into securities and devastated the nation’s economy.

The Next Challenge For Mortgage Lending? - Regulators and lenders say that agreements struck this year should make it easier for more Americans to get mortgages in 2015. But one major problem that could hold lending back has yet to be addressed, according to a research paper released by the Urban Institute this week. The problem: The cost of taking care of delinquent mortgages has gone way up and is on track to get even higher, according to the paper, authored by Laurie Goodman, center director of the Housing Finance Policy Center at Urban. Last year, on average it cost lenders more than $2,300 per year to service a seriously delinquent mortgage, nearly five times the cost in 2008. By comparison, it cost only $156 annually in 2013 to service a performing loan. Or to put it another way, more than half of the money spent by a typical lender to service mortgages goes to the 6.7% or so of loans that aren’t performing, according to Urban. That greatly reduces the incentive for a bank to make a loan to a riskier borrower, even if the ultimate loss after a foreclosure is borne by government-backed entities, such as Fannie Mae, Freddie Mac or the Federal Housing Administration.

"Mortgage Rates Back to Pre-Taper-Tantrum Levels"  - From Matthew Graham at Mortgage News Daily: Mortgage Rates Back to Pre-Taper-Tantrum Levels Mortgage rates fell decisively today, bringing some lenders back in line with rate sheets seen on May 22nd, 2013. That's significant because it was arguably the first day of the 'Taper Tantrum,' when markets began pricing in the effects of a reduction in Fed asset purchases. On a more quantitative note, it was significant because it was one of the most abruptly negative days in modern mortgage rate history--one of several that would be seen in the ensuing months.  Simply put, for more than a full year, borrowers and mortgage professionals would have been thrilled with the chance to go back in time to lock May 22nd, 2013 rates. In more than a few cases, now they can. The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers is now in transit between 3.875% and 3.75%.  Here is a table from Mortgage News Daily:

Freddie Mac: "Mortgage Rates Find New Lows for 2014" - From Freddie Mac: Mortgage Rates Find New Lows for 2014 Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates falling to new lows for this year as 10-year Treasury yields closed at their lowest level since May 2013. 30-year fixed-rate mortgage (FRM) averaged 3.80 percent with an average 0.6 point for the week ending December 18, 2014, down from last week when it averaged 3.93 percent. A year ago at this time, the 30-year FRM averaged 4.47 percent. This graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index.   Historically refinance activity picks up significantly when mortgage rates fall about 50 bps from a recent level.  Many borrowers who took out mortgages over the last 18 months can refinance now - but that is a small number of total borrowers.  However, for a significant increase in refinance activity, rates would have to fall below the late 2012 lows (on a monthly basis, 30 year mortgage rates were at 3.35% in the PMMS in November and December 2012.  Based on the relationship between the 30 year mortgage rate and 10-year Treasury yields, the 10-year Treasury yield would probably have to decline to 1.5% or lower for a significant refinance boom (in the near future). With the 10-year yield currently at 2.20%, I don't expect a significant increase in refinance activity any time soon

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey -  From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 12, 2014. ... The Refinance Index remained unchanged from the previous week. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier.... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.06 percent, the lowest level since May 2013, from 4.11 percent, with points decreasing to 0.21 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 5% from a year ago.

Mortgage Applications Tumble As Citi Warns Oil-Drop Risks Housing/Jobs Slump -- Mortgage applications for home purchases fell almost 7% last week, fading recent gains and hovering once again back at 20 year-lows (entirely unable to reflect the housing 'recovery' for the average joe). The plunge in applications comes as mortgage rates crash back to 4% - the lowest in 19 months. The reason - apart from unaffordability - is explained by Citi's Will Randow who notes the spillover effects of the "unequivocally good for everyone" drop in oil prices has a dramatic effect on both jobs (prolonged price drop means a loss of ~200k jobs) and housing (starts expected to drop 100k if oil prices remain low). Maybe talking-heads should reconsider that "unequivocally good" narrative.

Is the Housing Market Signalling a Top? - With house prices rising across many markets in the United States, it's starting to look like the housing market is on the path to healing.  Unfortunately, when we look at one metric, it's also starting to look like the housing bubble is back.  Please keep in mind that I am using national statistics for the purpose of this posting; each market will have its own variables with some remaining very affordable and some markets being extremely unaffordable when measured in terms of household income.  Here is a chart showing the median selling price of a new home since 1963:  Other than the blip during the Great Recession, it certainly appears like housing prices have been on a  climbing trend since most of us had the summers off from elementary school. Let's focus on the period from the mid-1980s to the present:  At $305,000 in October 2014, the median selling price of a new home is now up $42,400 from its pre-Great Recession peak of $262,600 in March 2007 and up $100,800 from its post-Great Recession low of $204,200 in October 2010.  That's an increase of 49.4 percent in just four years.   Now, let's look at the other component in this equation.  Here is a chart showing what has happened to median household income since 1984:   Unfortunately, we don't yet have median household income for 2014 from the Federal Reserve but, according to Sentier Research, in July 2014, median household income was $54,045, a number that I will use in the next graph.  Now, let's look at housing affordability, using the definition coined by Demographiawho define housing affordability using the median multiple which is the median price of a home divided by the median household income.  As the median multiple rises, housing becomes increasingly unaffordable as shown on this table:

Home Buyers Are Optimistic but Not Wild-Eyed -Robert Shiller -- Karl Case of Wellesley College and I have conducted an annual questionnaire survey of recent home buyers in the Los Angeles, San Francisco, Milwaukee and Boston areas since 2003. Since 2012, Anne Thompson of Dodge Data & Analytics has participated. Each year, our survey has asked: “On average over the next 10 years, how much do you expect the value of your property to change each year?” In 2004, a boom year, the average answer was a gain of 12.6 percent, but in succeeding years the figure began to decline, bottoming at 4 percent in 2012. The expected gain rose to 4.2 percent in 2013 and 5.5 percent in mid-2014. In addition, the Pulsenomics U.S. Housing Confidence Survey, covering the entire country (and involving many cities that may be less volatile than our four), showed that homeowners and renters in July had slightly lower 10-year expectations: 4 percent a year for the next 10 years. Still another measure of expectations can be found in the United States composite home price index futures contract on the Chicago Mercantile Exchange. At its close on Nov. 30, the contract predicted a 4 percent-a-year increase from November 2014 to November 2016.  These three reports are fairly consistent, and both our data and that of the Chicago Mercantile Exchange show higher expectations than they did a couple years ago. But these new expectations are hardly wild: If inflation ran at 2 percent a year, the Federal Reserve’s target, the expected appreciation in housing would be an inflation-corrected 2 percent to 3.5 percent a year. So at the moment, there is no evidence of extravagant bubble thinking.

Housing Bubble 2 Goes Nuts: San Francisco Home Sales Plunge 20%, Prices Soar 27% -  In the nine-county San Francisco Bay Area, sales in November of new and resale houses and condos dropped 10% from November last year, according to CoreLogic DataQuick. It was the worst November since crisis-year 2008. DataQuick blames the debacle on the “limited number of homes for sale, cautious buyers, a challenging mortgage market, and a quirk of the calendar….” But with a median price of $601,000 in November, up 9.3% year-over-year, there aren’t that many people left who can afford to buy a home. And investors, fattened by Yellen’s monetary policy? They’re starting to lose interest. These “absentee buyers” purchased 18.6% of the homes, down from 20.4% in November last year, the lowest level since September 2010. Sales volume was down in all nine counties year-over-year, topped by my crazy and beloved San Francisco where sales plunged 20%. But … the median price soared, gulp, 27% from November a year ago – um, that’s not a typo – reaching a new all-time record of $1,072,500. That’ll buy a 2-bedroom no-view apartment in a so-so area.

Early Glimpses at New-Home Sales Show Buyers Still Hesitant - Early gauges of new-home sales in November point to a lackluster, if not disappointing, result as consumers remain hesitant despite the improving economy. Even so, a few builders reported a lift in sales contracts inked last month, hinting that the end of election season perhaps alleviated anxiety for some buyers. A monthly survey of 220 home-builder representatives across the U.S. conducted by housing research firm John Burns Real Estate Consulting Inc. found that respondents’ per-community sales pace declined by an average of 20% last month from their pace in November 2013. A measure of per-community sales gauges the average number of homes a builder sold across its various projects at a given time. On the basis of the total national volume of sales, the November result likely is closer to a small decline or break-even with a year earlier. That’s because the measure of per-community sales used by Burns and others focuses only on sales pace, neglecting the gain in overall volume that comes from a builder expanding its number of communities under development in the past year

Housing Starts decrease to 1.028 Million Annual Rate in November  --From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,028,000. This is 1.6 percent below the revised October estimate of 1,045,000 and is 7.0 percent below the November 2013 rate of 1,105,000. Single-family housing starts in November were at a rate of 677,000; this is 5.4 percent below the revised October figure of 716,000. The November rate for units in buildings with five units or more was 340,000. Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,035,000. This is 5.2 percent below the revised October rate of 1,092,000 and is 0.2 percent below the November 2013 estimate of 1,037,000. Single-family authorizations in November were at a rate of 639,000; this is 1.2 percent below the revised October figure of 647,000. Authorizations of units in buildings with five units or more were at a rate of 367,000 in November. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) increased in November (Multi-family is volatile month-to-month). Multi-family starts are down 11% year-over-year because there was a large increase in starts last November. Single-family starts (blue) decreased in November. The second graph shows total and single unit starts since 1968. This was below expectations of 1.038 million starts in November, however October was revised up by 36 thousand (annual rate), so overall this was a decent report. The comparison to last year was difficult because of the large increase in starts in November 2013 (that probably was one of the reasons many analysts were too optimistic for 2014).

Housing Permits Tumble Most Since January, Starts Miss - There goes another pillar of the sustainable growth meme. Housing Permits tumbled 5.2% MoM - the biggest drop since January (amid the Polar Vortex) to 1.035mm SAAR. Permits dropped in all regions except the Northeast. Housing Starts dropped 1.6% MoM to 1.028mm SAAR. The South was the only region with a rise in completions as the Northeast was cut in half and both single- and multi-family residences slid. Both Starts and Permits miss, with forward-looking permits signaling notable weakness ahead. Here are starts broken down by single and multi-family. And permits: (charts)

Comments on November Housing Starts -- A year ago, for November 2013, housing starts were reported at 1.091 million on a SAAR basis (seasonally adjusted annual rate), up 29.6% from November 2012.  Starts in November 2013 have since been revised up to 1.105 million. That huge increase in starts was probably one reason that many analysts, myself included, were overly optimistic for housing starts in 2014.  This year total starts in November were reported at 1.028 million SAAR, down 7.0% from a year ago. That sounds weak, but actually starts in the 2nd half of 2014 have averaged 1.032 million, up 10.1% from the 937 thousand during the same period last year - including that strong November in 2013!  In early 2014, housing starts were very weak - down year-over-year in Q1 - but starts have picked up in the 2nd half. A few numbers: There were 927 thousand total housing starts during the first eleven months of 2014 (not seasonally adjusted, NSA), up 8.2% from the 857 thousand during the same period of 2013.  Single family starts are up 4.4%, and multifamily starts up 16.6%.  The key weakness has been in single family starts.  The following table shows the annual housing starts since 2005, and the percent change from the previous year (estimates for 2014). The housing recovery has slowed in 2014, especially for single family starts.  However I expect further growth in starts over the next several years.This graph shows the month to month comparison between 2013 (blue) and 2014 (red). Starts in 2014 were above the same month in 2013 for seven consecutive months prior to November. December will be another difficult year-over-year comparison, but I expect to see solid year-over-year growth in Q1 2015. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions.

Why Milennials Are Stuck Living At Home With Parents - The Federal Reserve conducted a study on Millennials and tried to ascertain why so many of them are living at home. Is it too much student debt? Lower incomes? Or is it that home prices are simply unaffordable? The study finds that all of these factors have a big impact on why many Millennials are living at home and why the first time home buyer market is performing so badly. It also gives us insight into the shifting building demand of new construction. Many builders are focusing their energies on multi-unit structures to cater to an audience that will look for rentals or lower priced condos. There is a heavy renting trend undertaking this country. We are seeing a record numbers of young people living at home with mom and dad heading directly back into their childhood rooms to rock out the NES and attempting to pass Super Mario Brothers once again. There are major implications for housing because of this new structural change. First time home buying is down dramatically. Construction is catering to a lower income cohort. Let us look at what the Fed found in their report.

NAHB: Builder Confidence decreased to 57 in December -The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 57 in December, down from 58 in November. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Drops One Point in December Following a four-point uptick last month, builder confidence in the market for newly built single-family homes fell one point in December to a level of 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. “Members in many markets across the country have seen their businesses improve over the course of the year, and we expect builders to remain confident in 2015,” “After a sluggish start to 2014, the HMI has stabilized in the mid-to-high 50s index level trend for the past six months, which is consistent with our assessment that we are in a slow march back to normal,” ...Two of the three HMI components posted slight losses in December. The index gauging current sales conditions fell one point to 61, while the index measuring expectations for future sales dropped a single point to 65 and the index gauging traffic of prospective buyers held steady at 45. Looking at the three-month moving averages for regional HMI scores, the West rose by four points to 62 and the Northeast edged up one point to 45, while the Midwest registered a three-point loss to 54 and the South dropped two points to 60.

Home Builders Feeling Great in the West, Glum in the Northeast -- The National Association of Home Builder’s monthly gauge of builder confidence for single-family homes ticked down in December, to a seasonally adjusted 57 from 58 in November, the trade group said Monday. A reading above 50 means a majority of builders see conditions as good rather than poor. The national index has remained above that threshold for six consecutive months. But signals have been more a little more mixed at the regional level. In the Northeast, the index hit 51 last month, the region’s first reading above 50 since the spring of 2006. That confidence proved fleeting. The index for the Northeast fell to 46 in December, back in negative territory. Still, the three-month moving average for the region rose this month to 45 from 44 in November, reaching its highest level since June 2006. In the West, meanwhile, the sentiment gauge surged to 74 in December from 60 in November. That’s the highest reading for the West, or any region, since December 2005. The three-month moving average for the West rose to 62 this month, up from 58 in November but still below levels seen earlier this year. Elsewhere, the NAHB sentiment index ticked down this month in the Midwest, to 54 from 56, and in the South, to 58 from 62.

AIA: Architecture Billings Index shows slower expansion in November - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From AIA: Demand Softens, but Outlook for Architecture Billings Index Remains Positive Buoyed by sustained demand for apartments and condominiums, coupled with state and local governments moving ahead with delayed public projects, the Architecture Billings Index (ABI) has been positive for seven consecutive months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI score was 50.9, down from a mark of 53.7 in October. This score reflects a slight increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.8, following a mark of 62.7 the previous month. “Demand for design services has slowed somewhat from the torrid pace of the summer, but all project sectors are seeing at least modest growth,”  Regional averages: South (57.9), West (52.7), Midwest (49.8), Northeast (46.7) [three month average]This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in November, down from 53.7 in October. Anything above 50 indicates expansion in demand for architects' service  Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

After years of doubts, Americans turn more bullish on economy (Reuters) - Pessimism and doubt have dominated how Americans see the economy for many years. Now, in a hopeful sign for the economic outlook, confidence is suddenly perking up. Expectations for a better job market helped power the Thomson Reuters/University of Michigan index of consumer sentiment to a near eight-year high in December, according to data released on Friday. U.S. consumers also saw sharp drops in gasoline prices as a shot in the arm, and the survey added heft to strong November retail sales data that has showed Americans getting into the holiday shopping season with gusto. "Surging expectations signal very strong consumption over the next few months," said Ian Shepherdson, an economist at Pantheon Macroeconomics. While improvements in sentiment haven't always translated into similar spending growth, consumers at the very least are feeling the warmth of several months of robust hiring, including 321,000 new jobs created in November. When asked in the survey about recent economic developments, more consumers volunteered good news than bad news than in any month since 1984, said the poll's director, Richard Curtin. Moreover, half of all consumers expected the economy to avoid a recession over the next five years, the most favorable reading in a decade, Curtin said

The American Consumer Calls The Top -  How is it not absolutely brilliant that in the face of a collapsing shale oil industry – or at least, for the moment, of its financing model -, and the worst week for the Dow since 2011, the Thomson Reuters/UofMichigan consumer sentiment index shows American consumers are more optimistic than they’ve been in 8 years, and that “more consumers volunteered good news than bad news than in any month since 1984″? 1984! How does one trump that as a contrarian signal? And that I don’t mean to sound funny: that is serious. Of course it says something too about US media and their incessant messages about how well everything is going and how we’ve passed that corner the recovery was always just around, and what a boon the falling oil prices will be to spending over the holidays, and even if sales instead fell over Thanksgiving; surely that’s only because people were saving up their newly found extravaganza for the Christmas season. And obviously the Fed-sponsored distortions of all asset prices on the planet, homes, stocks, you name it, have a lot to do with stoking that optimism as well. But the feat stands on its own two feet just as much. Americans are not just behind the curve, they positively confirm a top has been reached. If ever you needed a sign, here it is: “Their expectations run quite counter to recent price data.” That’s from Jason Lange for Reuters, but before he gets around to that, check out what some of the experts he cites have to say:

BLS: CPI decreased 0.3% in November, Core CPI increased 0.1% -- From the BLSThe Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 percent in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.3 percent before seasonal adjustment. ...The gasoline index posted its sharpest decline since December 2008 and was the main cause of the decrease in the seasonally adjusted all items index. The indexes for fuel oil and natural gas also declined, and the energy index fell 3.8 percent. ...The index for all items less food and energy increased 0.1 percent in November. ... The all items index increased 1.3 percent over the last 12 months, a notable decline from the 1.7 percent figure from the 12 months ending October. The index for all items less food and energy has increased 1.7 percent over the last 12 months, compared to 1.8 percent for the 12 months ending October. This was below the consensus forecast of a 0.1% decrease for CPI, and at the forecast of a 0.1% increase in core CPI. Energy prices have also declined significantly in December, and CPI will fall further - but the key is to focus on the core measures.

Consumer Prices Plunge Most Since Dec 2008 - Great news: The prices consumers pay dropped 0.3% MoM in November - the biggest deflation since Dec 2008. Of course, The Fed will be in "considerable" panic mode at this data and may choose to crush the hope of so many that rate hikes are coming in mid-2015 as definitive evidence that the US economy is well on the road to recovery. Ex-Food-and-Energy, prices rose 1.7% YoY - slightly missing expectations of +1.8%. Of course, a big driver of this 'transitory' disinflation is a 10.5% YoY drop in Gasoline and 6.6% MoM drop in November. Despite this huge drop, and thge promises of various talking heads, airfares rose 1.36% in November (after also rising 2.39% in October) - so much for the benefits to the consumer.

Oil Is Dragging Down Prices Faster Than Official Price Index Can Capture - Consumer prices around the world are pulling back so rapidly, along with the collapse of oil prices, that official measures of inflation have yet to capture the magnitude of the decline. But the Billion Prices Project, which scrapes the Internet daily to capture changing prices online, is recording a significant and broadening plunge in consumer prices. The Labor Department‘s official measure of consumer prices has declined from 2.1% this summer to 1.7% in October. But the data from the Billion Prices Project measure, which is now known as the State Street PriceStats inflation series, which provided data through Dec. 12, shows the annual change in inflation now running at 1%. The PriceStats index was running a little hotter than the CPI this summer–reaching about 2.5% in June and July–and has now declined by 1.5 percentage point, compared with the 0.4 percentage point drop in the CPI. The Labor Department will report its November numbers for the CPI on Wednesday and its December numbers on Jan. 16. being closely monitored by Federal Reserve officials as they study the health of the economy and debate whether to prepare markets for an increase in interest rates in mid-2015. While Fed officials believe the drop in oil prices could give consumers a boost, by confiscating less of their paychecks at the gas pump, they are also wary of prices falling too far below their goal for 2% inflation. The PriceStats measure suggests the Fed is missing that goal and, more troublingly, that the decline in prices is spreading beyond energy.

Gas prices now at 5 year low, nearing Y2K prices in real, wage-adjusted terms - This is from GasBuddy:  Gas prices have fallen below $2.56 per gallon. This is the lowest they have been in 5 years. Here is an update of the price of a gallon of gas as a share of the average hourly wage: Note this is only through November. So far in December prices have plunge another 10%. "Real" gas prices could be at a 10 year low by the end of this month, and barely above their price at the turn of the Millennium. There is evidence this is having a pronounced effect on living expenses on lower income households. More on that in a post later this week. Note: As Jeff Miller points out, just as "the cure for high prices, is ... high prices," so low prices tend to "cure" themselves as well. I do not claim any profound knowledge as to how long these relatively low prices for gas will last. To the extent there is a political, rather than economic, reason for the Saudis in particular not to cut back on production, then as soon as the political goal has been achieved, prices might rise again quickly. On the other hand, to the extent the moves in price have an economic basis, then, just as it took from 2008 through 2014 for exploration, conservation, and alternative fuels to break through the "Oil choke collar," it may well take a similar amount of time for those forces to reverse.

You May Spend Less on Gas Next Year Than You Have Any Year This Decade - With global oil prices in a freefall, Americans are reaping economic benefits not seen in more than a decade. U.S. households are on track to spend the least amount of money on gasoline in 11 years, the U.S. Energy Information Administration reported Tuesday. The average household is expected to spend about $1,962 on gasoline in 2015, $550 less than it did in 2014. The price for regular gasoline in the U.S. has fallen 11 weeks in a row to $2.55 per gallon as of Dec. 15, down more than a dollar since its peak this year in April, according to EIA. The federal statistical agency also predicts that U.S. gasoline prices are going to remain low next year, averaging $2.60.

Gasoline Expenditure Forecast at Lowest Levels in 11 Years -The US Energy Information Administration (EIA) forecasts U.S. Household Gasoline Expenditures in 2015 On Track to be the Lowest in 11 YearsThe average U.S. household is expected to spend about $550 less on gasoline in 2015 compared with 2014, as annual motor fuel expenditures are on track to fall to their lowest level in 11 years. Lower fuel expenditures are attributable to a combination of falling retail gasoline prices and more fuel-efficient cars and trucks that reduce the number of gallons used to travel a given distance. Household gasoline costs are forecast to average $1,962 next year, assuming that EIA's price forecast, which is highly uncertain, is realized. Should the forecast be realized, motor fuel expenditures (gasoline and motor oil) in 2015 would be below $2,000 for the first time since 2009, according to EIA's December 2014 Short-Term Energy Outlook (STEO). The price for U.S. regular gasoline has fallen 11 weeks in a row to $2.55 per gallon as of December 15, down $1.16 per gallon from its 2014 peak in late April and the lowest price since October 2009. Gasoline prices are forecast to go even lower in 2015. Gasoline prices are falling because of lower crude oil prices, which account for about two-thirds of the price U.S. drivers pay for a gallon of gasoline.Increases in fuel economy are also contributing to lower motor fuel expenditures, as cars and trucks travel farther on a gallon of gasoline. According to the Environmental Protection Agency, the production-weighted fuel economy of cars has increased from 23.1 miles per gallon (mpg) for model-year (MY) 2005 cars to almost 28 mpg for MY2014, an increase of about 21%. Similarly, the fuel economy for trucks has increased 19%, from 16.9 mpg to 20.1 mpg in the same time frame.

An idea whose time has come: raise the federal gas tax. Also, an important, new-ish trend. - Here’s an argument–raising the federal gas tax that’s been stuck at $0.18/gallon since 1993–that IMHO should be highly resonant right now with progressives, environmentalists, fiscally responsible types, those with common sense, and anyone else I’ve left out. Anyway, it over at PostEverything. There’s even some bipartisan support for the idea. Let me add two pictures I left out of the piece. First, FWIW (and who knows, really?), here’s EIA’s forecast for gas prices over the next year. If they’re right, that’s another reason why a slow phase in of a small increase shouldn’t hardly bite consumers at all. Second, and much more importantly, here’s a really remarkable trend that I’ve mentioned before but has been extremely persistent: the flattening of vehicle miles traveled since the last recession. I’ve seasonally adjusted the data and run a filter to identify the trend. I’ve run a smooth trend through the data but the flattening is evident either way. Obviously, income loss has played a role but even while you can see some cyclicality in the series, there’s nothing in there that comes close to the recent flattening (the trend reveals a slight uptick toward the end but you’ve got to squint to see it).So what’s going on here? I don’t know and it certainly warrants some research, as this is an important change with economic and even cultural implications. I will offer an hypothesis: it’s what Ben Spielberg and I call “the inequality wedge” at work. This recovery has been unique, even relative to past deep recessions like the early 1980s double dip, in how little income has reached the middle class, as the wedge of inequality has diverted growth to the top of the scale.

DOT: Vehicle Miles Driven increased 2.6% year-over-year in October - With lower gasoline prices, vehicle miles driven might reach a new peak in 2015. The Department of Transportation (DOT) reported:Travel on all roads and streets changed by 2.6% (6.6 billion vehicle miles) for October 2014 as compared with October 2013. Travel for the month is estimated to be 264.2 billion vehicle miles.  Cumulative Travel for 2014 changed by 0.9% (23.2 billion vehicle miles). The following graph shows the rolling 12 month total vehicle miles driven.  The rolling 12 month total is slowly moving up, after moving sideways for a few years.

ATA Trucking Index increased 3.5% in November - Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Surged 3.5% in November - American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index jumped 3.5% in November, following an increase of 0.5% during the previous month. In November, the index equaled 136.8 (2000=100), which was the highest level on record. Compared with November 2013, the SA index increased 4.4%, down slightly from October’s 4.5% increase but still was the second highest year-over-year gain in 2014. Year-to-date, compared with the same period last year, tonnage is up 3.3%. ... “With strong readings for both retail sales and factory output in November, I’m not surprised that tonnage increased as well,” said ATA Chief Economist Bob Costello. “However, the strength in tonnage did surprise to the upside.”“The index has increased in four of the last five months for a total gain of 6.4%,” Costello said. “Clearly, the economy is doing well with tonnage on such a robust trend-line.” Trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $681.7 billion, or 81.2% of total revenue earned by all transport modes.

Even Before Long Winter Begins, Energy Bills Send Shivers in New England - John York, who owns a small printing business here, nearly fell out of his chair the other day when he opened his electric bill.For October, he had paid $376. For November, with virtually no change in his volume of work and without having turned up the thermostat in his two-room shop, his bill came to $788, a staggering increase of 110 percent. “This is insane,” he said, shaking his head. “We can’t go on like this.”For months, utility companies across New England have been warning customers to expect sharp price increases, for which the companies blame the continuing shortage of pipeline capacity to bring natural gas to the region.Now that the higher bills are starting to arrive, many stunned customers are finding the sticker shock much worse than they imagined. Mr. York said he would have to reduce his hours, avoid hiring any new employees, cut other expenses and ultimately pass the cost on to his customers.Like turning back the clocks and putting on snow tires, bracing for high energy bills has become an annual rite of the season in New England. Because the region’s six states — Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont — have an integrated electrical grid, they all share the misery.These latest increases are salt in the wound. New England already pays the highest electricity rates of any region in the 48 contiguous states because it has no fossil fuels of its own and has to import all of its oil, gas and coal. In September, residential customers in New England paid an average retail price of 17.67 cents per kilowatt-hour; the national average was 12.94 cents.

Fed: Industrial Production increased 1.3% in November -- From the Fed: Industrial production and Capacity Utilization Industrial production increased 1.3 percent in November after edging up in October; output is now reported to have risen at a faster pace over the period from June through October than previously published. In November, manufacturing output increased 1.1 percent, with widespread gains among industries. The rise in factory output was well above its average monthly pace of 0.3 percent over the previous five months and was its largest gain since February. In November, the output of utilities jumped 5.1 percent, as weather that was colder than usual for the month boosted demand for heating. The index for mining decreased 0.1 percent. At 106.7 percent of its 2007 average, total industrial production in November was 5.2 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.8 percentage point in November to 80.1 percent, a rate equal to its long-run (1972–2013) average. This graph shows Capacity Utilization. This series is up 13.2 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 80.1% is is at the average from 1972 to 2012 and near the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production increased 1.3% in November to 106.7. This is 27.4% above the recession low, and 5.9% above the pre-recession peak. This was a strong report - with upward revisions to prior months - and well above expectations.

Industrial Production Surges Most Since May 2010 Thanks To Subprime Auto Loans & Polar Vortex 2.0 - Thanks to 'entirely sustainable' 5.1% MoM surges in both Motor Vehicle manufacturing (thank you Subprime) and Utilities (thank you Polar Vortex 2.), Industrial Production in November surged 1.3% (against expectations of +0.7%) for the biggest rise since May 2010. For context, November's surge is the 2nd biggest monthly rise since October 1998... sound right? With factory output now above late-2007 pre-recession peak levels, it seems The Fed will find it hard to talk this one down to justify lower-for-longer...

November Industrial Production Jumps By 1.3% -- Industrial production is on fire with a 1.3% November gain.  Even better, the Federal Reserve Industrial Production & Capacity Utilization report shows upward revisions all the way back to June 2014.   October was revised from a -1.0% decline to 0.1% growth.  This month gains were across the board,, another good sign for the economy.  Manufacturing alone grew by 1.1% and utilities jumped up 5.1% from October.  Mining, which includes oil, decreased by just -0.1%.  The sudden jump up in utilities is due to colder weather if one recalls the great freeze taking over the country in November.  The G.17 industrial production statistical release is also known as output for factories and mines.  This is the largest industrial production monthly gain since October 2005.  Total industrial production has now increased 5.2% from a year ago.  Currently industrial production is 6.1 percentage points above the 2007 average.  Below is graph of overall industrial production's percent change from a year ago.  Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +4.8%
  • Mining:             +9.3%
  • Utilities:           1.8%

The Big Four Economic Indicators: Industrial Production -- According to the Federal Reserve, "Industrial production increased 1.3 percent in November after edging up in October; output is now reported to have risen at a faster pace over the period from June through October than previously published. In November, manufacturing output increased 1.1 percent, with widespread gains among industries. The rise in factory output was well above its average monthly pace of 0.3 percent over the previous five months and was its largest gain since February." The full report is available here.Today's month-over-month increase of 1.26 percent (to two decimal places) came in well above the consensus of 0.7 percent. As I've mentioned before, my personal view is that Industrial Production is the least useful of the Big Four economic indicators. It's a hodge-podge of underlying index components and subject to major revisions, which undercuts its value as a near-term indicator of economic health. As a long-term indicator, it needs two key adjustments to have any correlation with economic reality. First, it should be adjusted for inflation using some sort of deflator relevant to production. Second, it should be population-adjusted. The chart below is my preferred way to look at Industrial Production over the long haul. I've used the Producer Price Index for All Commodities as the deflator and Census Bureau's mid-month population estimates to adjust for population growth. I've indexed the adjusted series so that 2007=100.

NY Fed: Empire State Manufacturing Survey indicates "activity declined for New York manufacturers" in December --From the NY Fed: Empire State Manufacturing Survey The December 2014 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers. The headline general business conditions index dropped fourteen points to -3.6, its first negative reading in nearly two years. The new orders index also fell into negative territory, tumbling eleven points to -2.0, and the shipments index fell to -0.2. Labor market conditions were mixed, with the index for number of employees holding steady at 8.3, while the average workweek index declined to -11.5. .... Indexes assessing the six-month outlook were generally lower this month, but nevertheless conveyed considerable optimism about future business activity. The index for future general business conditions fell nine points to 38.6—still a fairly high figure by historical standards.  This is the first of the regional surveys for December.  The general business conditions index was well below the consensus forecast of a reading of 12.0, and indicates contraction in December for the first time in two years.

Empire Fed Crashes To Almost 2-Year Lows, Biggest Miss In 4 Years - Must be the weather, because lower gas prices is "unambiguously good" for everyone. The Empire Fed manufacturing survey collapsed to -3.6 from 10.16 , its lowest since January 2013, missing expectations of a rebound to 12.4 by the most in 4 years. New orders plunged and unfilled orders utterly collapsed from -7.45 to -23.96 or as some would call it, "unambiguously bad." The timing of this US macro data collapse could not be better for The Fed of course, which with the entire world reeling form a demand crunch (see oil) needs an excuse to keep lower-for-longer on the table, and even proceed with QE4 if and when needed.

Philly Fed Manufacturing Survey declines to 24.5 in December -- From the Philly Fed: December Manufacturing Survey The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, from a reading of 40.8 in November to 24.5 this month ... The new orders [to 19.7] and current shipments indexes also weakened significantly... The current employment index fell 15 points [to 9.7] ...The diffusion index for future activity edged down 6 points, to 51.9, in December ... This was at the consensus forecast of a reading of 25.0 for December.  Note: These declines were from the extremely high readings in November - usually a reading of 24.5 would be considered robust (above zero indicates expansion).

Philly Fed Crashes From 21-Year High; Employment, New Orders Collapse -- What a farce. After printing 40.8 in November - a 21 year high - Philly Fed collapsed back to 24.5 (missing expectations of 26.0). New Orders, employment (lowest since April), and the workweek plunged as The Philly Fed notes the survey suggests a slower pace of expansion of the region’s manufacturing sector. Despite plunging oil prices, the prices paid index only fell modestly... on the heels of the PMIs, it appears the "US economy is awesome" meme is coming unglued rapidly.

Kansas City Fed: Regional Manufacturing "Activity Expanded at a Moderate Pace" in December --  From the Kansas City Fed: Tenth District Manufacturing Activity Expanded at a Moderate Pace The Federal Reserve Bank of Kansas City released the December Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to expand at a moderate pace in December, and producers’ expectations for future activity remained at solid levels. The month-over-month composite index was 8 in December, up slightly from 7 in November and 4 in October. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The employment index jumped from 10 to 18, its highest level in nearly two years. ...  Future factory indexes were mostly stable at solid levels. The future composite index was unchanged at 22, while the future shipments, new orders, and employment indexes increased further. The future capital spending index jumped from 15 to 23, its highest level in five months. In contrast, the future production index eased from 34 to 30, and the future order backlog index also inched lower.

US Manufacturing PMI Plunges To 11 Month Lows, Misses By Most On Record -- But what about the massive cajillion-dollar tax cut for American manufacturers from the oil-drop? US Manufacturing PMI collapsed to 53.7 in December, missing expectations of a rebound to 55.2 by the most on record and falling to its lowest since January 2014 - the middle of the Polar Vortex. This is the 4th monthly drop in a row off the mid-year "yay recovery is here" record highs and 4th miss in a row as economists continue to 'price in' the hockey-stick. The employment sub-index dropped to its lowest since July and new orders collapsed to its lowest since January. This comes on the heels of Germany's 18-month lows for its Manufacturing PMI. No decoupling after all. As Markit noted about Germany, "the data are consistent with only marginal GDP growth in the fourth quarter at best," and we suspect the same is coming for USA soon, as they add "a cooling in the pace of expansion from unusually strong rates earlier in the year."

"Q4 GDP Below 2%, December Payrolls Under 200,000" Markit Warns As Service PMI Crashes To 10-Month Low -- "Another bumper month of non-farm payroll growth looks unlikely in December, with private sector payroll growth unlikely to breach the 200,000 mark," warns Markit after The US Services PMI plunged to 53.6, missing expectations of 56.3 by the most on record. This is the 6th straight month of declines. Job creation slumped to 8-month lows. The Composite (Services & Manufacturing) PMI plunged to its lowest level since October 2013. Still exuberant? Still hopeful? Here's Markit's summary, "A sharp slowing in service sector activity alongside a similar easing in the manufacturing sector takes the overall rate of economic expansion down to the weakest since October 2013. The extent of the slowdown suggests that economic growth in the fourth quarter could come in below 2%"

LA area Port Traffic in November -  Note: West coast ports were impacted by a trucker strike in November, and ongoing labor negotiations (and some slowdown). The trucker strike ended after 9 days on November 22nd. Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for November since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was down 0.2% compared to the rolling 12 months ending in Octrober. Outbound traffic was down 1.4% compared to 12 months ending in October. Inbound traffic has been increasing, and outbound traffic has been mostly moving sideways. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were down 2% year-over-year in November, exports were down 15% year-over-year. Exports suggest a slowdown in Asia, but import traffic was decent considering the strike and labor negotiations.

Report: US-China Trade Deficit Cost 3.2 Million American Jobs -- A report by the Economic Policy Institute found that the growing U.S. Trade deficit with China has resulted in 3.2 million American jobs lost. The reports examines how the acceptance of China into the World Trade Organization in 2001 has led to job loss in all 50 states and the District of Columbia. China has greatly benefited from the WTO. They have grown into the world's greatest exporter and second biggest importer. The US is the reverse, the biggest importer and second biggest exporter. The manufacturing industry has been hit hard since China's acceptance in the WTO. The industry includes imports of computer and electornic parts and accounted for 56 percent of the $240.1 billion increase in the US trade deficit with China. An estimated 1,249,100 jobs were eliminated in the electronic industry. Other sectors hit hard were apparel (203,900 jobs), textile mills and textile product mills (106,800), fabricated metal products (141,200), electrical equipment, appliances, and components (96,700), furniture (94,700), plastics and rubber products (72,800), motor vehicles (34,800), and miscellanceous manufactured goods (107,600). The states with the biggest net losses were Califirnia (564,200 jobs), Texas (304,700), New York (179,200), Illinois (132,500), Pennsylvania (122,600), North Carolina (119,600), Florida (115,700), Ohio (106,400), Massachusetts (97,200), and Georgia (93,700).

Weekly Initial Unemployment Claims decreased to 289,000 -- From the DOL reported: In the week ending December 13, the advance figure for seasonally adjusted initial claims was 289,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 294,000 to 295,000. The 4-week moving average was 298,750, a decrease of 750 from the previous week's revised average. The previous week's average was revised up by 250 from 299,250 to 299,500.  There were no special factors impacting this week's initial claims  The previous week was revised up to 295,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

Jobless Claims Decline Across The US, But Jump In Two Shale States -- We are sure this data is entirely dependable but when continuing jobless claims spike over 6% last week and collapse almost 6% this week - and the labor department says there is nothing unusual - we hold our hands up and laugh. Continuing claims printed 2.37mm (beating expectations) and initial claims dropped 6k to 289k (beating expectations). But the most critical aspect of today's report is the one-week-delayed details on which states saw a rise in initial claims - Pennsylvania: 12,302 and Texas 9,107 - both major Shale states. Has the job-culling, cost-cutting started?

Oil, Employment, and Growth - Mauldin - Oil & gas jobs are widely geographically dispersed and have already had a significant impact in more than a dozen states: 16 states have more than 150,000 jobs directly in the oil & gas sector and hundreds of thousands more jobs due to growth in that sector. Author Mark Mills highlighted the importance of oil in employment growth: The important takeaway is that, without new energy production, post-recession US growth would have looked more like Europe’s – tepid, to say the least. Job growth would have barely budged over the last five years. Further, it is not just a Texas and North Dakota play. The benefits have been widespread throughout the country. “For every person working directly in the oil and gas ecosystem, three are employed in related businesses,” says the report. (I should note that the Manhattan Institute is a conservative think tank, so the report is pro-energy-production; but for our purposes, the important thing is the impact of energy production on recent US economic growth.) The next chart Harvey directed me to was one that’s on the Dallas Federal Reserve website, and it’s fascinating. It shows total payroll employment in each of the 12 Federal Reserve districts. No surprise, Texas (the Dallas Fed district) shows the largest growth (there are around 1.8 million oil-related jobs in Texas, according to the Manhattan Institute). Next largest is the Minneapolis Fed district, which includes North Dakota and the Bakken oil play. Note in the chart below that four districts have not gotten back to where they were in 2007, and another four have seen very little growth even after eight years. “It is no wonder,” said Harvey, “that so many people feel like we’re still in a recession; for where they live, it still is.”

Real aggregate and average wage measures set records in November: Courtesy of the huge decline in gas prices, in November consumer prices actually declined by -0.3%. Not only does that bring the YoY inflation rate down to +1.4%, but because of this deflation, at least two important measures of wages set records. The most important record is that in real aggregate wages per capita. What this measures is how much in real, inflation-adjusted wages are being paid out for each person in the US population. This further tells us how much, in real terms, wage-earners in the aggregate have to spend on their families. Here's the graph: This just set an all time record in this metric, which goes back 50 years. Second, average real wages for all employees just set a post-recession record: This series is less than 10 years old, so this is a record for the series. Finally, while it did not set a record, here is a look at real, inflation-adjusted wages for all nonsupervisory workers (a more representative series for middle and working class Americans): As a result of the boot due to declining energy prices in November, this series is only 0.3% off from its October 2010 post-recession peak, and thus only 0.4% from a 35-year high, as shown in this graph showing the entire 50 years of this metric:

Economic Recovery Spreads to the Middle Class - For years, even as the economy recovered and the stock market soared, most American workers saw little evidence of better times in their paychecks.But last month’s surprisingly large increase in both average hourly and weekly earnings, along with other encouraging data, has convinced many economists that falling unemployment and increased hiring are finally about to start paying off in terms of wage gains for a broader swath of workers.“It’s the beginning of an uptick, and we should see it continue over the next year or two as the unemployment rate falls and the labor market tightens,” said Nariman Behravesh, chief economist at IHS, a private economics and forecasting firm. “You have to be careful, but my gut instinct is that this is the beginning of better wage performance.”Still, even the seemingly good news for wages in November wasn’t clear-cut. Although overall wages increased 0.4 percent — double what economists had been expecting — the gain for lower-paid workers in nonsupervisory and production roles increased only 0.2 percent.

Why America’s middle class is lost -- They’ve waited more than a decade in Downey. They’ve tried all the usual tricks to bring good-paying jobs back to the 77-acre plot of dirt where once stood a factory that made moon landers and, later, space shuttles. Nothing brought back the good jobs. Those jobs aren’t coming back. Not at the old North American Rockwell plant, and not in thousands of similarly socked towns. Yes, the stock market is soaring, the unemployment rate is finally retreating after the Great Recession and the economy added 321,000 jobs last month. But all that growth has done nothing to boost pay for the typical American worker. Average wages haven’t risen over the last year, after adjusting for inflation. Real household median income is still lower than it was when the recession ended. Make no mistake: The American middle class is in trouble.  It used to be that when the U.S. economy grew, workers up and down the economic ladder saw their incomes increase, too. But over the past 25 years, the economy has grown 83 percent, after adjusting for inflation — and the typical family’s income hasn’t budged. In that time, corporate profits doubled as a share of the economy. Workers today produce nearly twice as many goods and services per hour on the job as they did in 1989, but as a group, they get less of the nation’s economic pie. In 81 percent of America’s counties, the median income is lower today than it was 15 years ago.

Jobless Rates Fall In Most U.S. States in November - (interactive table) The unemployment rate continued to fall across most U.S. states in November, reflecting broad economic growth and steady hiring in most parts of the country. Washington, D.C., and 41 states saw their unemployment rates decrease from October, the Labor Department said Friday. The rate increased in three states and was unchanged in six. Despite broad improvements, the figures show the unevenness of the recovery. California, Georgia, Mississippi, Oregon and Rhode Island, for example, still have unemployment rates at or above 7%. North Dakota’s rate is the lowest in the nation at 2.7%. The state has benefitted from the shale oil boom. Last month, North Carolina’s 0.5 percentage point decrease was the largest in the U.S., followed by Delaware, Georgia, Maryland, and Michigan at 0.4 point.

BLS: Forty-one States had Unemployment Rate Decreases in November -- From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were little changed in November. Forty-one states and the District of Columbia had unemployment rate decreases from October, three states had increases, and six states had no change, the U.S. Bureau of Labor Statistics reported today. ... Mississippi had the highest unemployment rate among the states in November, 7.3 percent. The District of Columbia had a rate of 7.4 percent. North Dakota again had the lowest jobless rate, 2.7 percent.This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The states are ranked by the highest current unemployment rate. Mississippi, at 7.3%, had the highest unemployment rate replacing Georgia with the highest unemployment rate. The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate at or above 11% (red). Currently no state has an unemployment rate at or above 8% (light blue); Five states and D.C. are still at or above 7% (dark blue).

Recent Pickup in Job Growth Is Reflected in State Job Numbers --This morning’s release of monthly state employment and unemployment numbers by the Bureau of Labor Statistics was a welcome bit of good news.  Just as the national jobs report showed surprisingly good job growth in November, most states experienced reasonably strong employment growth and nontrivial declines in unemployment over the past 3 months. There are a few states where the falling unemployment rate has coincided with substantial declines in the labor force, but the majority of states are showing consistent signs of an improving labor market. From August to November, 45 states and the District of Columbia added jobs, with South Carolina (+1.7 percent), Vermont (+1.6 percent), and Delaware (+1.6 percent) making the largest percentage gains. To put those percentages in context, this is the first time all year where any states other than North Dakota have experienced a three-month gain of this size, and the first time that more than one state has had job growth greater than 1.5 percent.  Five states lost jobs since August: Maine (-0.3 percent), Montana (-0.3 percent), Nevada (-0.2 percent), Mississippi (-0.1 percent), and New York (-0.1 percent.)  Kentucky and North Carolina, in particular, have had labor force reductions of 3.3 percent and 1.4 percent, respectively, over the past 6 months—raising questions about whether the entire drop in unemployment is due to workers finding jobs or simply giving up the job search. While these numbers certainly give reason to be optimistic, there should be no illusions that state labor markets are entirely back to pre-recession health. Only five states (Colorado, Michigan, Minnesota, North Dakota, and Ohio) have achieved their pre-recession unemployment rates; 19 states still have unemployment levels above 6 percent, and five states still have unemployment rates above 7 percent. Moreover, workers are still not seeing wage growth at rates that would indicate a tight labor market – one in which employers are raising wages in order to attract new workers and retain the staff they have.  Today’s report suggests better days may be ahead, but we’re not there yet.

Why U.S. Women Are Leaving Jobs Behind - Ms. Devine quit her job after she had her first child, a girl, four years ago, because she thought 12 weeks of maternity leave was too short. Her story would have played out differently, she said, if she had been living in her native England. Like many European countries, Britain offers a year of maternity leave, much of it paid, and protections for part-time workers, among other policies aimed at keeping women employed. “I would have been O.K. putting a 1-year-old baby in day care, but not a 12-week-old,” Ms. Devine said. “More flexible hours and being able to work from home part of the time definitely would have made a big difference.” Her thinking is shared by many American women — and plays a role in a significant economic reversal. As recently as 1990, the United States had one of the top employment rates in the world for women, but it has now fallen behind many European countries. After climbing for six decades, the percentage of women in the American work force peaked in 1999, at 74 percent for women between 25 and 54. It has fallen since, to 69 percent today. In many other countries, however, the percentage of working women has continued to climb. Switzerland, Australia, Germany and France now outrank the United States in prime-age women’s labor force participation, as do Canada and Japan.

Robots Grow Smarter, American Workers Struggle - A machine that administers sedatives recently began treating patients at a Seattle hospital. At a Silicon Valley hotel, a bellhop robot delivers items to people’s rooms. Last spring, a software algorithm wrote a breaking news article about an earthquake that The Los Angeles Times published. Although fears that technology will displace jobs are at least as old as the Luddites, there are signs that this time may really be different. The technological breakthroughs of recent years — allowing machines to mimic the human mind — are enabling machines to do knowledge jobs and service jobs, in addition to factory and clerical work. And over the same 15-year period that digital technology has inserted itself into nearly every aspect of life, the job market has fallen into a long malaise. Even with the economy’s recent improvement, the share of working-age adults who are working is substantially lower than a decade ago — and lower than any point in the 1990s. Economists long argued that, just as buggy-makers gave way to car factories, technology would create as many jobs as it destroyed. Now many are not so sure.

As workers are devalued, many need multiple jobs to make a middle-class wage --Green once held a middle-class job. Now, to make enough money to send his children to college, he works the equivalent of two full-time jobs: one maintaining highways for the state of North Carolina and one ushering fans and collecting trash for a variety of sports teams around Winston-Salem.The American economy has stopped delivering the broadly shared prosperity that the nation grew accustomed to after World War II. The explanation for why that is begins with the millions of middle-class jobs that vanished over the past 25 years, and with what happened to the men and women who once held those jobs.Millions of Americans are working harder than ever just to keep from falling behind; Green is one of them. Those workers have been devalued in the eyes of the economy, pushed into jobs that pay them much less than the ones they once had.Today, a shrinking share of Americans are working middle-class jobs, and collectively, they earn less of the nation’s income than they used to. In 1981, according to the Pew Research Center, 59 percent of American adults were classified as “middle income” — which means their household income was between two-thirds and double the nation’s median income. By 2011, it was down to 51 percent. In that time, the “middle” group’s share of the national income pie fell from 60 percent to 45 percent. For that, you can blame the past three recessions, which sparked a chain reaction of layoffs and lower pay.

The U.S. Middle Class Has Faced a Huge “Inequality Tax” in Recent Decades - Economic Policy Institute -- In 2014, rising income inequality became a front-burner political issue, as policymakers and the general public became more aware of the enormous stakes for the American middle-class. The figure below shows actual income growth for the middle 60 percent of U.S. households since 1979 and what this growth would have been had it simply matched the growth of average income, which was buoyed by stratospheric growth at the top of the income ladder. It’s important to note that it is clearly possible for all households to see income growth approaching the overall average rate—this is what occurred for decades following the end of World War II.  By 2007, the last year before the Great Recession, incomes for the middle 60 percent of U.S. households would have been roughly 23 percent (nearly $18,000) higher had inequality not widened (meaning that growth for the middle 60 percent simply matched overall average growth). The wedge between these incomes is essentially a tax on middle-class incomes imposed by rising inequality. Top incomes (driven largely by stock market movements) fell sharply during and immediately after the Great Recession, temporarily reducing this wedge between average growth and growth for the broad middle class. The income data ends in 2011—but the stock market has recovered strongly since then, so one imagines that the inequality tax has surely risen in recent years as well. By contrast, the broad middle class has yet to meaningfully benefit from economic growth since the Great Recession ended, mainly due to stagnant wages.

Wealth Gap between America’s Rich and Middle-Class Families Widest on Record - The typical affluent family in America now has nearly seven times the wealth of a middle-income family, the biggest wealth gap in three decades, according to a new analysis by Pew Research Center. Last year, the median wealth of upper-income families in the U.S. ($639,400) was 6.6 times bigger than that of middle-income families ($96,500), up from 6.2 times in 2010. Upper-income families now have a median wealth level that is nearly 70 times that of lower-income families. As America’s economy has rebounded, the gap between the rich and everyone else has increased. Pew analyzed findings from the Federal Reserve’s Survey of Consumer Finances, which is conducted every three years. To do their analysis, Pew split Americans into lower-, middle- and upper-income groups, adjusting their incomes for family size. For a family of three, for example, an income last year of about $38,000 made you “middle income.” A household income of $114,000 or greater made you “upper income.” Of course, that wealth inequality has gotten worse during the economic recovery isn’t all that surprising.

Wealth inequality has widened along racial, ethnic lines since end of Great Recession -Pew Research  -- The Great Recession, fueled by the crises in the housing and financial markets, was universally hard on the net worth of American families. But even as the economic recovery has begun to mend asset prices, not all households have benefited alike, and wealth inequality has widened along racial and ethnic lines. The wealth of white households was 13 times the median wealth of black households in 2013, compared with eight times the wealth in 2010, according to a new Pew Research Center analysis of data from the Federal Reserve’s Survey of Consumer Finances. Likewise, the wealth of white households is now more than 10 times the wealth of Hispanic households, compared with nine times the wealth in 2010. The current gap between blacks and whites has reached its highest point since 1989, when whites had 17 times the wealth of black households. The current white-to-Hispanic wealth ratio has reached a level not seen since 2001. Leaving aside race and ethnicity, the net worth of American families overall — the difference between the values of their assets and liabilities — held steady during the economic recovery. The typical household had a net worth of $81,400 in 2013, according to the Fed’s survey — almost the same as what it was in 2010, when the median net worth of U.S. households was $82,300 (values expressed in 2013 dollars). The stability in household wealth follows a dramatic drop during the Great Recession. From 2007 to 2010, the median net worth of American families decreased by 39.4%, from $135,700 to $82,300. Rapidly plunging house prices and a stock market crash were the immediate contributors to this shellacking.

America’s Wealth Gap Is Becoming a Wealth Chasm -- This week in the great wealth meltdown: Pew reports that the wealth gap between America's middle-income and upper-income families has never been greater in recorded history. In 2013, the median wealth of what Pew defines as a middle-income family was $96,500. The median wealth, or "nest egg," as Pew terms it, of an upper-income family was nearly seven times that: $639,400.  The Federal Reserve began collecting the Survey of Consumer Finances data that Pew uses in its report in 1983, when the wealth gap between the median upper- and middle-income family was a factor of 3.4. Wealth, for a bit of context, is defined as the difference between a family's assets and debts. Those assets in this case include things like a house, a retirement account, stocks, bonds, and—unlike in other calculations—a car. Thinking about the kinds of assets included in wealth is key to understanding why the gap between middle- and upper-income families might have grown so substantially over the past several years. After hitting a low point in March 2009, the stock market had rallied well over 100 percent by when the Fed began collecting its 2013 data. For America's upper-income families, which tend to have more of their wealth invested in the stock market, that translated into gains. But for middle-income families, which disproportionately keep their assets in their homes, the market's momentum hasn't made much of an impact.

Joseph Stiglitz: Economics Must Address Wealth and Income Inequality  - naked capitalism - Yves here. This interview with Joseph Stiglitz is pretty subversive for a talk with a Serious Economist. Stiglitz doesn't simply talk about the problem of inequality, but the drivers that most mainstream economists choose to ignore, such as the rise of monopoly/oligopoly power, worker exploitation, and how central banks have allowed banks to engage increasingly in speculative rather than productive lending.

Is It Bad Enough Yet? - THE police killing unarmed civilians. Horrifying income inequality. Rotting infrastructure and an unsafe “safety net.” An inability to respond to climate, public health and environmental threats. A food system that causes disease. An occasionally dysfunctional and even cruel government. A sizable segment of the population excluded from work and subject to near-random incarceration.You get it: This is the United States, which, with the incoming Congress, might actually get worse.This in part explains why we’re seeing spontaneous protests nationwide, protests that, in their scale, racial diversity, anger and largely nonviolent nature, are unusual if not unique. I was in four cities recently — New York, Washington, Berkeley and Oakland — and there were actions every night in each of them. Meanwhile, workers walked off the job in 190 cities on Dec. 4. The root of the anger is inequality, about which statistics are mind-boggling: From 2009 to 2012 (that’s the most recent data), some 95 percent of new income has gone to the top 1 percent; the Walton family (owners of Walmart) have as much wealth as the bottom 42 percent of the country’s people combined; and “income mobility” now describes how the rich get richer while the poor ... actually get poorer.  The progress of the last 40 years has been mostly cultural, culminating, the last couple of years, in the broad legalization of same-sex marriage. But by many other measures, especially economic, things have gotten worse, thanks to the establishment of neo-liberal principles — anti-unionism, deregulation, market fundamentalism and intensified, unconscionable greed — that began with Richard Nixon and picked up steam under Ronald Reagan. Too many are suffering now because too few were fighting then.

Inequality In U.S. Today Is Worse than in Apartheid South Africa or 1774 Slaveholding Colonial America … and TWICE As Bad As In Ancient Slaveholding Rome -- Inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. Nicholas Kristof notes at the New York Times that inequality in the U.S. is worse than it was in apartheid South AfricaThe net worth of the average black household in the United States is $6,314, compared with $110,500 for the average white household, according to 2011 census data. The gap has worsened in the last decade, and the United States now has a greater wealth gap by race than South Africa did during apartheid. (Whites in America on average own almost 18 times as much as blacks; in South Africa in 1970, the ratio was about 15 times.)   Indeed, economist and inequality expert Thomas Piketty notes that – according to an important measure – inequality in America today is the worst in world history: For those who work for a living, the level of inequality in the U.S. – writes Piketty – is “… probably higher than in any other society at any time in the past, anywhere in the world …”  In other words, there might have been some squalid country in the distant past where the disparity between people without any job and the king was higher than between a jobless American and the top fatcat in the U.S.  But the spread between the American worker and the American oligarch is the greatest in world history.

How Fear Of Occupy Wall Street Undermined the Red Cross’ Sandy Relief Effort -- In the days after Superstorm Sandy, relief organizations were overwhelmed by the chaos and enormous need. One group quickly emerged as a bright spot. While victims in New York's hardest hit neighborhoods were stuck in the cold and dark, volunteers from the spontaneously formed Occupy Sandy became a widely praised lifeline.   Occupy Sandy was "one of the leading humanitarian groups providing relief to survivors across New York City and New Jersey," as a government-commissioned study put it.  Yet the Red Cross, which was bungling its own aid efforts after the storm, made a decision that further hampered relief: Senior officials told staffers not to work with Occupy Sandy. Red Cross officials had no concerns about Occupy Sandy's effectiveness. Rather, they were worried about the group's connections to the Occupy Wall Street protest movement. Three Red Cross responders told ProPublica there was a ban. "We were told not to interact with Occupy," says one. While the Red Cross often didn't know where to send food, Occupy Sandy "had what we didn't: minute-by-minute information," another volunteer says. The three spoke to ProPublica on the condition of anonymity because they continue to work with the Red Cross.

Inequality and the American Child by Joseph E. Stiglitz - Children, it has long been recognized, are a special group. They do not choose their parents, let alone the broader conditions into which they are born. They do not have the same abilities as adults to protect or care for themselves. That is why the League of Nations approved the Geneva Declaration on the Rights of the Child in 1924, and why the international community adopted the Convention on the Rights of the Child in 1989.  Sadly, the United States is not living up to its obligations. In fact, it has not even ratified the Convention on the Rights of the Child. The US, with its cherished image as a land of opportunity, should be an inspiring example of just and enlightened treatment of children. Instead, it is a beacon of failure – one that contributes to global sluggishness on children’s rights in the international arena.  Though an average American childhood may not be the worst in the world, the disparity between the country’s wealth and the condition of its children is unparalleled. About 14.5% of the American population as a whole is poor, but 19.9% of children – some 15 million individuals – live in poverty. Among developed countries, only Romania has a higher rate of child poverty. The US rate is two-thirds higher than that in the United Kingdom, and up to four times the rate in the Nordic countries. For some groups, the situation is much worse: more than 38% of black children, and 30% of Hispanic children, are poor.

The USA Is World #1... In Young Adult Income Inequality - Think young adults in Mexico, Thailand, Philippines, and Russia have it tough? Think again. 20-24 year-olds in the USA have an average gross income over 40% below the national average. That is the worst disparity in the world... USA USA USA!!

Man can't challenge $280K tax bill he probably doesn't really owe, Pa. court says - With undisguised reluctance, Commonwealth Court has issued an order requiring a Philadelphia man to pay a $280,772 tax bill that he probably doesn't really owe. In fact, city officials acknowledged in court that the tax bill they sent Nathan Lerner was a "jeopardy assessment" based on a fabrication. The problem is that Lerner didn't follow the right procedural course in challenging it, a Commonwealth Court panel found in a ruling issued this week. And so, the state judges determined, he's stuck with that unfounded tax tab. Lerner's saga illustrates the complexity of the tax appeals system, the difficulty in navigating it and the peril of not obeying court orders. He initially tried to tackle the appeal process without a lawyer after the city filed a complaint against him in 2009, alleging that he owed more than $200,000 in unpaid business privilege, wage and net profits taxes for 2003 to 2006. That figure had no basis in fact, however. Philadelphia has a policy of sending out tax delinquency notices with fictional "jeopardy assessments." Those assessments aren't based on any actual tax determination, and are set deliberately high to induce the targeted taxpayer to contact the city's revenue department to determine the true amount of tax owed.  Leavitt noted Lerner's contention that he didn't owe any of the taxes sought by the city. He claimed he didn't even own a business and subsisted primarily on Social Security. According to court filings, Lerner made some legal missteps while trying to fight the tax battle on his own. The fatal one, the Commonwealth Court found, is that he didn't obey county Judge Leon W. Tucker's order to pay for a transcript of a city Tax Review Board hearing on the matter.

Peak Idiocy: CNN Urges Students Not To Pay Down Student Loans, Buy Stocks Instead -- You know the Central-Bank-driven wealth-creation narrative has gone too far when... CNN Money - the bastion of personal financial advice introduces us to Mohammad Majd, graduate who opines "I changed my entire philosophy on debt. I started making minimum payments on my student loans, picked up a "Stock Investing for Dummies" book, and put whatever extra money I made into the stock market." It's great any muppet can win... "It was a really good feeling knowing that I could wipe away my entire student loan debt with just a few mouse clicks." This is how broken the market (and the mindset) has become...

Gov. John Kasich: Toughen charter school rules - Gov. John Kasich forecast a plan Thursday to strengthen regulation of Ohio's charter schools during his second term. Investigations and studies have drawn attention to poor academics and corruption at many of the independently run, taxpayer-paid schools. "We are going to fix the lack of regulation on charter schools. There is no excuse for people coming in and taking advantage of everything," Kasich told a gathering of the Ohio Chamber of Commerce. "We believe in charters … but we will not tolerate people coming in to this state, making money at the expense of our kids.… "We're for excellence in education." Kasich, a possible 2016 Republican presidential candidate, also said he would fight business leaders unwilling to sustain hikes in some taxes to help finance massive cuts to income taxes. He called for increasing the amount of taxpayer money in the state's savings account and intensifying regulations on oil and gas released through hydraulic fracturing of shale rock, known as fracking. In previewing a focus on charter schools, Kasich was signing on to efforts by Democrats and teacher union groups – and, increasingly, Republicans – who have called for increased oversight of the independent schools.

Students Support Deporting US Citizens to Allow Illegal Immigrants to Stay in US   - Here's and amusing but totally unscientific informal poll on how to tackle the illegal immigrant problem. Students were asked if they would sign a petition to deport US citizens on a one-for-one basis in exchange for allowing illegal immigrants to stay in the US.  Link if video does not play: Deport US Citizens to Keep Illegal Immigrants?   The people who conducted this experiment said about 2/3 of the college students signed the petition. What does this suggest, if anything, about the quality of our education system? Or is it simply proof that people in general do not listen?  Such questions aside, I actually think that is a brilliant idea, with just one minor modification: We have to have sufficient grounds for deporting.  I suggest war crimes is sufficient grounds. More specifically, I propose we deport to an international war crimes tribunal a select group of the worst war crimes offenders.

Your Waitress, Your Professor -- ON the first day of the fall semester, I left campus from an afternoon of teaching anxious college freshmen and headed to my second job, serving at a chain restaurant off Las Vegas Boulevard. The switch from my professional attire to a white dress shirt, black apron and tie reflected the separation I attempt to maintain between my two jobs. Naturally, sitting at the first table in my section was one of my new students, dining with her parents.  Bumping into a student can be awkward, but exposing the reality that I, with my master’s degree, not only have another job, but must have one, risks destroying the facade of success I present to my students as one of their university mentors.In class I emphasize the value of a degree as a means to avoid the sort of jobs that I myself go to when those hours in the classroom are over. A colleague in my department labeled these jobs (food and beverage, retail and customer service — the only legal work in abundance in Las Vegas) as “survival jobs.” He tells our students they need to learn that survival work will not grant them the economic security of white-collar careers. I never told him that I myself had such a job, that I needed our meeting to end within the next 10 minutes or I’d be late to a seven-hour shift serving drunk, needy tourists, worsening my premature back problem while getting hit on repeatedly.The line between these two worlds is thinner here in Las Vegas than it might be elsewhere. The majority of my students this semester hold part-time survival jobs, and some of them will remain in those jobs for the rest of their working lives. About 60 percent of the college freshmen I teach will not finish their degree. They will turn 21 and then forgo a bachelor’s degree for the instant gratification of a cash-based income, whether parking cars in Vegas hotels, serving in high-end restaurants or dealing cards in the casinos.

Unions sue to stop Chicago pension overhaul -- If Mayor Rahm Emanuel is allowed to raise employee contributions by 29 percent and reduce cost-of-living benefits to save the Municipal Employees pension fund, Jones said her monthly annuity will shrink and her lifestyle will change dramatically. “I would probably have to move out of my home in Chatham because I wouldn’t be able to afford it. I would probably have to move into an apartment and put off knee replacement surgery,” said Jones, 62. “I have my mother living with me. I support my grandchildren. I have health issues of my own. If they go ahead with these cuts,that would truly squeeze me beyond what I can afford. They’re being unfair trying to put all the pressure on retirees. We worked long and hard and we were promised we would be taken care of.” On Tuesday, Jones was one of a dozen current and former city employees named as plaintiffs in a lawsuit against the city, along with four unions that represent them: AFSCME Council 31, the Chicago Teachers Union, the Illinois Nurses Association and Teamsters Local 700. They’re asking a Circuit Court judge to overturn the bill that saved the Municipal Employees and Laborers pension funds, citing the same clause in the Illinois Constitution at the core of the state pension reform case: that pension benefits promised to government employees “shall not be diminished or impaired.”

Pension Bill Seen as Model for Further Cuts - WSJ: A measure included in Congress’s mammoth spending bill permits benefit cuts for retirees in one type of pension plan, a big shift that lawmakers and others believe could set a precedent for other troubled retirement programs. The legislation is aimed at defusing a potentially explosive problem—the deteriorating condition of what are known as multiemployer plans, jointly run by unions and employers. The bill cleared by the Senate late Saturday would allow troubled funds to cut benefits for current retirees in some circumstances. That is an exception to a long-standing federal rule against scaling back private-pension benefits. Lawmakers and experts, while divided over the merits of the change, largely agreed that it could well be the first of many. The measure “would set a terrible precedent,” said Karen Friedman, executive vice president of the Pension Rights Center, a group that advocates for wider pension coverage and opposes benefit cuts. The bill could encourage similar cutbacks in troubled state and local pension plans, and possibly even Social Security and Medicare, she said. Some conservatives contend the bill would encourage policy makers to recognize and deal with shortfalls in benefits programs.

What Retirees Need to Know about the New Federal Pension Rules - The last-minute deal to allow retiree pension benefit cuts as part of the federal spending bill for 2015 passed by Congress last week has set off shock waves in the U.S. retirement system. Buried in the $1.1 trillion “Cromnibus” legislation signed this week by President Barack Obama was a provision that aims to head off a looming implosion of multiemployer pension plans—traditional defined benefit plans jointly funded by groups of employers. The pension reforms affect only retirees in struggling multiemployer pension plans, but any retiree living on a defined benefit pension could rightly wonder: Am I next?  “Even people who aren’t impacted directly by this would have to ask themselves: If they’re doing that, what’s to stop them from doing it to me?” says Jeff Snyder, vice president of Cammack Retirement Group, a consulting and investment advisory firm that works with retirement plans. The answer: plenty. Private sector pensions are governed by the Employee Retirement Income Security Act (ERISA), which prevents cuts for retirees in most cases. The new legislation doesn’t affect private sector workers in single-employer plans. Workers and retirees in public sector pension plans also are not affected by the law. Here are answers to some of the key questions workers and retirees should be asking in the legislation’s wake.

Kansas Governor Proposes Using Pension Money to Cover Budget Gaps Created By His Tax Cuts In 2012, Kansas Gov. Sam Brownback signed a landmark bill that delivered big tax cuts to high income earners and businesses. Less than two years after that tax cut, the state's income tax revenues plummeted by a quarter-billion dollars -- and now Brownback is pushing to use money for public employees’ pensions to instead cover the state's ensuing budget shortfalls.  Brownback's proposal: Slash the state’s required pension contribution by $40 million to balance the state budget. But Kansas already has one of the worst-funded pension systems in the nation. The state was also recently sanctioned by the Securities and Exchange Commission for not accurately disclosing the shortfalls. Brownback, an icon of tea party economics who was re-elected in 2014, defended his proposal to divert money from the Kansas Public Employees Retirement System (KPERS), telling the Wichita Eagle: “It’s kind of, uh, well where are you going to go for the funds? And I don’t like it, but it’s kind of what’s your other option if you don’t hit K-12 and higher ed with allotments?” Brownback joins fellow Republican Gov. Chris Christie in coupling large tax cuts and credits with cuts to actuarially required pension payments. In New Jersey, Christie slashed required pension payments while signing legislation expanding tax credits to corporations, and doling out a record amount of corporate tax subsidies. Many of those subsidies have flowed to firms whose executives have made campaign contributions to Republican political organizations. Last week, New Jersey pension trustees filed a lawsuit against Christie for not making legally required contributions to the state's pension system.

Chicago Mayor Rahm Emanuel Continues Getting Cash From Firms Managing Chicago Pension Money - Last week, Emanuel raked in more than a half-million dollars in campaign cash in a single day. Among the contributions were $100,000 from top executives at Madison Dearborn Partners and another $50,000 from John Buck, the principal of the John Buck Company. Those two firms currently manage Chicago pension money and their executives have previously made major campaign contributions to Emanuel, who appoints members of the boards overseeing pension investments. Emanuel, 55, is running for a second term in Chicago's municipal election in February.  Chicago lawmakers have asked the Securities and Exchange Commission to investigate possible violations of the agency’s “pay-to-play” rule, designed to prevent campaign contributions to public officials from executives at firms managing public pension money.   The lawmakers also asked the city’s inspector general to investigate whether the campaign contributions violated an executive order (signed by Emanuel himself) that bans campaign contributions to him from city contractors and subcontractors. That order says “it is necessary that public officials and contractors adhere to the highest ethical standards and avoid transactions and circumstances that may compromise or appear to compromise the independence of any City decision.”

Social Security continuing to pursue claims against family members for old debts - The Social Security Administration, which announced in April that it would stop trying to collect debts from the children of people who were allegedly overpaid benefits decades ago, has continued to demand such payments and now defends that practice in court documents. After The Washington Post reported in April that the Treasury Department had confiscated $75 million in tax refunds due to about 400,000 Americans whose ancestors owed money to Social Security, the agency’s acting commissioner, Carolyn Colvin, said efforts to collect on those old debts would cease immediately. But although some people whose refunds were seized were reimbursed in recent months, some of those same taxpayers have since received new demands from Social Security, asserting that the debts remain and seeking repayment. In March, the U.S. government intercepted Mary Grice’s tax refunds from both the IRS and the state of Maryland. It turned out that after Grice’s father died in 1960, when she was 4, her mother got survivor benefits to help feed and clothe her five children. Social Security says it overpaid someone in the Grice family — it’s not sure who — in 1977. With Grice’s mother long since dead, the government came after Mary to pay the debt.

California Retiree Health Expense Climbs 11% to $72 Billion -  California increased its projected cost for providing health care to retired workers by 11 percent to $72 billion, Controller John Chiang said. Chiang, a Democrat, called on lawmakers to set aside money into an investment fund so that earnings can cover some of the costs that grew $7.2 billion in the fiscal year that ended June 30. The $72 billion represents present day costs for future benefits. Governor Jerry Brown will unveil a funding plan next month, said his budget spokesman H.D. Palmer. “The price tag associated with providing health care to retired state workers has quietly grown to rival or even eclipse the funding gap associated with public pensions,” Chiang said in a statement. “If we continue to do nothing, we will be sowing the seeds of a future crisis.” While governments put money aside for pensions and use investment earnings to absorb costs, health-care benefits are typically paid from annual budgets. Those expenses are straining localities’ finances as workers retire. U.S. states owe more than $528 billion of unfunded retirement benefits, not including pensions, according to a report last year by Standard & Poor’s.

Tennessee Expands Medicaid, Gets Permission To Not Call It Obamacare -  Well, here’s a bit of nice time: Tennessee has decided to opt in to the Affordable Care Act’s expansion of Medicaid after all. Of course Republican Gov. Bill Haslam is being very careful to depict the move as a victory over the oppressive federal government: it’s a pilot plan for a program called “Insure Tennessee,” and it’s only set to run two years. No way is this an embrace of the Big Government socialist takeover of healthcare. Sure, it’s going to use federal and state funds to provide coverage for healthcare for low-income Tennesseans, but it’s completely different from Medicaid expansion: “We made the decision in Tennessee nearly two years ago not to expand traditional Medicaid,” Haslam said. “This is an alternative approach that forges a different path and is a unique Tennessee solution. Our approach is responsible and reasonable, and I truly believe that it can be a catalyst to fundamentally changing health care in Tennessee,” Haslam said. At a press conference, Haslam also explained that he isn’t the one who’s changed; rather, he’s won some very important concessions from the feds that will make it OK for more than 160,000 low-income Tennesseans to get healthcare without any icky worries that they may suddenly have turned Canadian in their swimsuit areas:

Uninsured under the ACA: Millions of Americans can't afford coverage - Affordable health insurance for all Americans was one of the cornerstones and selling points of the ACA. And while the law has helped reduce the proportion of uninsured Americans from 20 to 15 percent, according to The Commonwealth Fund, it has left millions without coverage. These uninsured Americans, falling into a gap created by the ACA, are too poor to receive assistance on their health insurance premiums, but make too much to qualify for Medicaid, putting them in a difficult predicament when costly medical bills come due. When Rush last shopped for coverage -- while working full time at a local events center that didn't offer benefits he could afford -- he says he didn't qualify for subsidies under the ACA. But because Nebraska didn't expand Medicaid, he didn't qualify for that either. "Both of my kids are on Medicaid," says Rush, who has a daughter, 5, and a son, 3. Rush lost that job and briefly had access to Medicaid, but once his unemployment benefits kicked in, he made too much money and again had to go without coverage.

From the E.R. to the Courtroom: How Nonprofit Hospitals Are Seizing Patients’ Wages - On the eastern edge of St. Joseph, Missouri, lies the small city's only hospital, a landmark of brick and glass. Music from a player piano greets visitors at the main entrance, and inside, the bright hallways seem endless. Long known as Heartland Regional Medical Center, the nonprofit hospital and its system of clinics recently rebranded. Now they're called Mosaic Life Care, because, their promotional materials say: "We offer much more than health care. We offer life care." Two miles away, at the rear of a low-slung building is a key piece of Mosaic—Heartland's very own for-profit debt collection agency. When patients receive care at Heartland and don't or can't pay, their bills often end up here at Northwest Financial Services. And if those patients don't meet Northwest's demands, their debts can make another, final stop: the Buchanan County Courthouse. From 2009 through 2013, Northwest filed more than 11,000 lawsuits. When it secured a judgment, as it typically did, Northwest was entitled to seize a hefty portion of a debtor's paycheck. During those years, the company garnished the pay of about 6,000 people and seized at least $12 million—an average of about $2,000 each, according to a ProPublica analysis of state court data.

Dozens of lawmakers call for liver ‘redistricting’ plan | The Hill: A debate over liver donations is gaining steam in Congress, with lawmakers in states with organ shortages along the coasts sparring with those representing the donor-rich heartland. Dozens of lawmakers from the Northeast and West Coast signed a letter Thursday urging the federal government to redraw the map that governs its collection and distribution of livers. Currently, livers are only given to recipients who live in the same geographic region as the donor. That means that states with higher mortality rates, like those in the South and Midwest, have larger supplies of livers but typically lower demand for donations. Rep. Elliot Engel (D-N.Y.) said in a statement that the redistricting plan recently floated by the United Network for Organ Sharing, the government-contracted group that oversees liver donations, which help create a fairer system.

Obesity: A Global Economic Issue - Yves here. As the world has shifted from subsistence farming to significantly agri-business controlled food production and distribution, it is not unreasonable to see health outcomes like widespread obesity as a direct result of how the food industry has evolved. Let us not put too fine a point on it: the risk of getting Type II diabetes is highly correlated with body mass, and the high and rising incidence of Type II diabetes is a public health crisis in the making. There of course is also the secondary but not at all trivial related effect of industrialization and specialization of labor, that the physical activity of hunter-gather and minimally mechanized farming lifestyles are vastly healthier than sedentary advanced economy lifestyles. One of my big reasons for never wanting to own a car is that running my life on foot keeps me out of the sedentary category, which is the most important step to make exercise-wise, in terms of health (more exercise up to the point of not messing up your joints is better, but the most important thing you can do for yourself is get out of the sedentary category). And that also has an impact on body weight.The article basically says that you can only rely so much on individual initiative as far as getting most people to lose weight is concerned. You actually need broader cultural changes. The one that comes out top of the study list is portion sizes. It isn’t widely enough discussed that the move to bigger portions in the US started in the restaurant trade as a way to justify higher prices. A oft-mentioned contrast is France, where not only are portion sizes much smaller than American norms, but it is not considered impolite not to finish all of your food, and women, who can’t consume as many calories as men, are also typically trained at home not to finish desserts (when they have them, desserts aren’t a staple as they are in many American households).

Hey Jude: You made it bad - Sylvia Kronstadt - Maybe you've noticed the recent flood of heart-tugging (and very costly) national TV ads seeking your "desperately needed" funds for St. Jude's Children's Research Hospital in Memphis. These slick appeals have buttressed  the "nonprofit's" constant campaign to enrich its nearly $3 billion nest egg.  I always liked the late Danny Thomas, who undoubtedly founded this organization with the purest of intents. His daughter, Marlo, has fought aggressively to "keep the dream" (and her dad's memory) alive.  But donors who have done their homework about how this "charity" raises money, and how it spends those hard-earned dollars of yours, are scathing in their assessment of St. Jude's priorities and integrity.    The charity-rating sites are filled with disgusted and dismayed comments from donors, many of whom have been sending $20 a month to St. Jude for decades, and finally decided to do some due diligence. They rage on about the palatial St. Jude "campus," the exorbitant salaries of high- and mid-level staff, the dramatic decline in quality research, the abysmal treatment of front-line medical staffers, and the unconscionable amount of money that is spent to raise even more money.    These generous donors -- who thought their funds were being used to help children -- are furious to learn that the CEO of the hospital, William Evans, is paid almost a million dollars a year, and has a benefits package that is akin to those on Wall Street.  A few other examples of compensation at this "children's charity" provide a sense of how the funds are spent. Every dollar that is paid out to some fat-cat is implicitly taken away from research and patient care:

Your purgatory awaits you, Cream of Wheat included -  Sylvia Kronstadt - Each day when I come to visit the nursing home, there is a massive, bloated young man in the lobby who is strapped to his semi-reclined wheelchair, and who writhes and flails constantly, his head thrown back and his eyes seeming to roll in different directions. I am told that most of his brain was destroyed in a car accident, and he has been classified as "unresponsive." As one nurse puts it, "There's nothing upstairs but drool." He has what the insiders call "blunt force dementia," she says. Even so, I don't feel right just ignoring him. So finally, I stop. I lean over and whisper, "Good morning. Do you mind if I touch you?" I put my hand on his shoulder. I think I sense a slight relaxation in him, but I'm not sure. I gently place my hand on his cheek. "Ahhhhhhh!" he cries loudly. "Ohhhhhh!" I take his hand, which is curved around in that cerebral-palsy way, and hold it. He is laughing. In my younger days, I might have been embarrassed by the spectacle I am creating, but now I don't give a damn what anyone thinks. I tousle the young man's hair and whisper into his ear, "I am sorry for you. I'll see you tomorrow." He squirms and grimaces, extending his twisted arms toward me. When I kiss his forehead, he makes the sweetest sound: A little baby's high-pitched squeal..

Broken windows, broken lives -  Frances Coppola -  Our ability to prolong life far outstrips our ability to improve its quality, and an increasing proportion of our economic activity must therefore go towards caring for the frail elderly. But we have not addressed the ethics of keeping people alive for extended periods of time after their minds and personalities have disintegrated. In 2008, Baroness Warnock suggested that people with dementia had a "duty to die". Her remarks were greeted with horror: yet we do need to have this discussion. For in reacting with shock and horror to the very idea of ending someone's life, we are failing to see the human tragedy of dementia. The tragedy is not so much for the person concerned, although in the early stages many dementia sufferers are fully aware of what is happening to them and some are horrified - as my mother was in the months after her operation, though she now seems happy. But the real, enduring tragedy is for the families: husband and wife torn apart, family relationships destroyed, and yet no closure, no funeral, no ability to say good-bye to the person that they loved, because even though that person is gone the shell is still alive, and must be cared for at increasing expense. We are caught in a trap of endless grief. I do not want to see my mother die. But it might be better for everyone if she did. I fear for my father, if her life is prolonged: five years of this, and he loses his home. Is this what she would want for him? And what if he becomes ill or frail himself, and needs care? How would he - would WE - afford both her care and his? What of the children who are dependent on us? In diverting resources to such extended elderly care, are we crippling the development of the next generation? Do we have our priorities right?

Prenatal exposure to common household chemicals linked with substantial drop in child IQ -- Children exposed during pregnancy to elevated levels of two common chemicals found in the home--di-n-butyl phthalate (DnBP) and di-isobutyl phthalate (DiBP)--had an IQ score, on average, more than six points lower than children exposed at lower levels, according to researchers at Columbia University's Mailman School of Public Health.  The study is the first to report a link between prenatal exposure to phthalates and IQ in school-age children. Results appear online in the journal PLOS ONE. DnBP and DiBP are found in a wide variety of consumer products, from dryer sheets to vinyl fabrics to personal care products like lipstick, hairspray, and nail polish, even some soaps. Since 2009, several phthalates have been banned from children's toys and other childcare articles in the United States. However, no steps have been taken to protect the developing fetus by alerting pregnant women to potential exposures. In the U.S., phthalates are rarely listed as ingredients on products in which they are used.  Children of mothers exposed during pregnancy to the highest 25 percent of concentrations of DnBP and DiBP had IQs 6.6 and 7.6 points lower, respectively, than children of mothers exposed to the lowest 25 percent of concentrations after controlling for factors like maternal IQ, maternal education, and quality of the home environment that are known to influence child IQ scores. The association was also seen for specific aspects of IQ, such as perceptual reasoning, working memory, and processing speed. The researchers found no associations between the other two phthalates and child IQ.

South Korea cancer victims bring class action against nuclear operator (Reuters) - A group of South Korean thyroid cancer patients living near nuclear plants have filed the country's first class action suit against the operator, after an October court ruling in favor of a plaintiff claiming a link between radiation and the cancer. Worries about the safety of nuclear power in the world's fifth-largest user of the energy source have intensified after a 2012 scandal over the supply of reactor parts with fake security certificates, as well as the 2011 Fukushima disaster in Japan. A total of 1,336 plaintiffs, including 301 cancer patients living near four nuclear plants, and their families, filed the suit in a court in the southeastern city of Busan against Korea Hydro and Nuclear Power Co Ltd (KHNP), part of state-run Korea Electric Power Corp, a statement from a group of environmental organizations representing the plaintiffs said. true "We hope that the relationship between thyroid cancer and nuclear power plants will be proved at court so it will make the government take a full-scale inspection on nuclear energy," Seo Eun-kyung, a lawyer leading the suit, told Reuters.

Diseases are spreading in Syria: WHO -- One million people have been wounded during Syria’s civil war and diseases are spreading as regular supplies of medicine fail to reach patients, the World Health Organization’s Syria representative said. A plunge in vaccination rates from 90 percent before the war to 52 percent this year and contaminated water have added to the woes, allowing typhoid and hepatitis to advance, Elizabeth Hoff said in an interview late Thursday. “In Syria, they have a million people injured as a direct result of the war. You can see it in the country when you travel around. You see a lot of amputees,” Hoff said. “This is the biggest problem.” She said a collapsed health system, where over half of public hospitals are out of service, has meant that treatments for diseases and injuries are irregular. Hoff said that Assad’s government, which demands to sign off on aid convoys, is still blocking surgical supplies, such as bandages and syringes, from entering rebel-held areas. Aid workers say Damascus argues that the equipment would be used to help insurgents. More than 6,500 cases of typhoid were reported this year across Syria and 4,200 cases of measles, the deadliest disease for Syrian children, Hoff said.

Antibiotic Resistance Will Kill 300 Million People By 2050 - Scientific American: The true cost of antimicrobial resistance (AMR) will be 300 million premature deaths and up to $100 trillion (£64 trillion) lost to the global economy by 2050. This scenario is set out in a new report which looks to a future where drug resistance is not tackled between now and 2050. The report predicts that the world’s GDP would be 0.5% smaller by 2020 and 1.4% smaller by 2030 with over 100 million premature deaths. The Review on Antimicrobial Resistance, chaired by Jim O’Neill, is significant in that it is a global review that seeks to quantify financial costs. This issue goes beyond health policy and, on a strictly macroeconomic basis, it makes sense for governments to act now, the report argues. "One of the things that has been lacking is putting some pound signs in front of this problem," says Michael Head at the Farr institute, University College London, UK, who sees hope in how a response to HIV came about. "The world was slow to respond [to HIV], but when the costs were calculated the world leapt into action." He recently totted up R&D for infectious diseases in the UK and found gross underinvestment in antibacterial research: £102 million compared to a total of £2.6 billion. Other research shows that less than 1% of available research funds in the UK and Europe were spent on antibiotic research in 2008–2013.

U.S. Food Supplier Accused of Falsely Marketing Meat as Halal to Muslims - An Iowa-based food supplier is accused of marketing its products as halal to Muslims worldwide, when its meats were in fact not produced in accordance with strict Islamic standards.Federal prosecutors allege that Midamar Corp. sold about $4.9 million in beef to customers in Malaysia, Kuwait and the United Arab Emirates under the false pretense that its cattle were slaughtered in accordance with Islamic law, the Associated Press reports. The corporation has strongly refuted the allegations and called them a “religious matter” that the U.S. government has no right to regulate.The lawsuit contends that Midamar told customers that Muslim slaughtermen killed its cattle by hand. Yet Midamar’s primary beef supplier was a Minnesota-based meatpacking plant that uses bolt stunning, which involves shooting a steel-rod through the cow’s brain, according to the lawsuit.The lawsuit says that Midamar employees would remove the label from the Minnesota-based plant and exchange it for a label from a Nebraska plant where kill practices are certified as halal.

NASA: California Needs 11 Trillion Gallons of Water to End Epic Drought -- California’s record-setting three-year-old drought has left the state with a massive water deficit, and communities, agricultural interests and others warring over access to the supply. Now groundbreaking new calculations based on NASA satellite data have revealed just how large that deficit is. A team of sci’s Jet Propulsion Laborator (JPL) crunched data from NASA’s Gravity Recovery and Climate Experiment (GRACE) to figure out how much water it would take to end the drought. They determined that it would take 11 trillion gallons—about 1.5 times the maximum volume of the largest U.S. reservoir—to make up for drought losses due to record heat and low rainfall. “Spaceborne and airborne measurements of Earth’s changing shape, surface height and gravity field now allow us to measure and analyze key features of droughts better than ever before, including determining precisely when they begin and end and what their magnitude is at any moment in time,” said NASA team leader Jay Famiglietti. “That’s an incredible advance and something that would be impossible using only ground-based observations.”

Children harvest crops and sacrifice dreams in Mexico's fields - Child labor has been largely eradicated at the giant agribusinesses that have fueled the boom in Mexican exports to the United States. But children pick crops at hundreds of small- and mid-size farms across Mexico, and some of the produce they harvest makes its way into American kitchens and markets. . Data on child labor are scarce. Many farmers and distributors will not talk about it. The Times pieced together a picture of child labor on Mexican farms by interviewing growers, field bosses, brokers and wholesalers, and by observing children picking crops in the states of Sinaloa, Michoacan, Jalisco and Guanajuato.Produce from farms that employ children reaches the United States through long chains of middlemen. A pepper picked by a child can change hands five or six times before reaching an American grocery store or salsa factory.In Teacapan in Sinaloa, The Times watched Alejandrina and dozens of other children fill buckets and sacks with chile peppers. The farm where they were working supplies produce to a distributor in Arizona, which ships it to wholesale markets and other outlets across the U.S.In Guanajuato, children were seen harvesting peppers at a farm whose produce eventually reaches a U.S. distribution hub in Texas.

Indonesia’s deadly price of palm oil -- Palm oil plantations in Indonesia, one of the world’s leading producers of the product, can be highly lucrative for their economy. The oil is used in everything from cosmetics to biofuels and major countries, from China to the U.S., have a high, daily demand for consumption. The problem is, they aren’t just consuming palm oil, they’re consuming Indonesia.  According to the first feature in a three part series on palm oil brought to us by World Watch, Indonesia is now leading in pollution and deforestation, as palm oil producers plow through tropical rainforests and indigenous communities, trying to meet the soaring demand for this highly versatile plant. Clearly, we cannot rely on these corporations to place environmental impact over profits. Even the palm oil harvested in the name of biofuel and biomass, a supposed solution to climate change, is completely counteracting any good this industry could have done.

Selling off forests is a business for the Peruvian government -- A new report shows that, despite public commitments to protect Peru’s forests, the first Amazonian host of the UN COP is ignoring the real drivers of deforestation and failing to safeguard the rights of indigenous peoples. This, despite the fact that these peoples occupy approximately one third of the Peruvian Amazon and offer the best chance of defending the country’s precious forests. The report, Revealing the Hidden: Indigenous Perspectives on Deforestation in the Peruvian Amazon, was compiled by Peru’s national Indigenous peoples’ organization, AIDESEP, and an international human rights organization, the Forest Peoples Programme (FPP).  The findings are based on the analysis of Peru’s Indigenous leaders and organizations, whose peoples, lands and livelihoods are threatened by deforestation on a daily basis. Contrary to official discourses that blame migrant farmers for deforestation, the report suggests that the “invisible” drivers of current and future deforestation in Peru include road construction, oil, gas and mining projects, palm-oil plantations, illegal logging operations and mega-dam projects. The report revealed that official analyses of deforestation have placed disproportionate responsibility on migrants from the Andes, while downplaying the crucial role of decades of road construction and explicit colonization programs on the part of the government. These schemes actively promoted immigration and were aimed at the economic integration and agricultural development of the Amazon. As a result, according to the authors, an estimated 75% of deforestation in Peru occurs within 20km of a road.

Global report busts myth of wood-based bioenergy -- A new report by the Global Forest Coalition closely examines the real climate impact of replacing fossil fuels with bioenergy resources. The study pulled together various case studies from around the world, picking apart the environmental, ecological and social impacts of large-scale wood based bioenergy. Ultimately, the study concluded that wood-based bioenergy is a misguided industry, distracting the public and detracting from real, sustainable solutions to climate change. Some of the findings and conclusions include:

  • Wood burning is an unsustainable model that perpetuates the overconsumption of energy.
  • The increase in demand for wood in larger, industrialized nations like the U.S. and U.K. strongly impact forests and communities all over the world.
  • The majority of the issues are the result of bioenergy subsidies offered to global bioenergy and biotechnology corporations.

Warning from the Romans about the virtual water trade -- The Romans developed networks of trade and food supply that enabled them to escape local water constraints, in a way that is explained in a new study in the journal Hydrology and Earth System Sciences. Fertile regions such as southern Spain or Italy’s Po valley would grow lots of food and ship it back to Rome or to the drier outposts of the Empire. Embedded within this is a what geographers call a virtual water trade – an indirect way of shifting this precious resource from wetter, less populated areas to those regions with more people or a less consistent climate. The map below shows this in action. The amount of virtual water imports (a) and exports (b) in different parts of the Empire are illustrated by the size of the circles. Does this sound uncomfortably familiar? In the next 30 years we are facing a critical combination of inter-related stresses on the core resources that keep our civilisation running. As it happens, the Romans gave us a word for that too – the “food-water-energy nexus” (from the Latin nectere, to bind together). So are we doomed to the same fate as the Romans?  As its name suggests, the nexus recognises that different resources are intimately interconnected. We need water for drinking, washing and for industry; but we also need it to grow food, and around 70% of global fresh water supply is used for farming. As populations grow and become more wealthy, demand for food will increase, placing pressure on domestic water supply and industrial output.

First El Niño in five years declared by Japan's weather bureau -- Japan’s weather bureau said on Wednesday that an El Niño weather pattern, which can trigger drought in some parts of the world while causing flooding in others, had emerged during the summer for the first time in five years and was likely to continue into winter. That marks the first declaration by a major meteorological bureau of the much-feared El Niño phenomenon, which had been widely expected to emerge this year. El Niño - a warming of sea-surface temperatures in the Pacific - can prompt drought in south-east Asia and Australia and heavy rains in South America, hitting production of food such as rice, wheat and sugar. The Japan Meteorological Agency (JMA) forecast last month that the possibility of an El Niño pattern forming this winter was higher than the 50% it had projected in its previous monthly prediction. But on Wednesday it said that an El Niño had emerged between June and August, continuing into November. “We can’t tell whether or not El Niño will continue until spring, but we can say that there is a higher chance of it continuing in the winter,” said Ikuo Yoshikawa, a JMA forecaster. The Japanese weather bureau does not classify or predict the size of El Niño, he said.

2014 surprisingly rough on coral reefs, and El Niño looms in 2015 -- An outbreak of coral bleaching—the loss of corals’ food-producing algae—in the Pacific and the Caribbean occurred this past summer, most likely tied to a brewing El Niño. The reefs of the Florida Keys observed their worst bleaching impacts since 1997-1999, when a major El Niño was quickly followed by a major La Niña. The surprising intensity of bleaching across multiple ocean basins in 2014 has scientists wondering what to expect in 2015, when El Niño is forecasted to finally develop. This map shows accumulated coral heat stress in the tropical Atlantic and Caribbean as of the week of September 21, 2014, when Florida was observing its highest level of stress. Reef locations are shown as black dots.  Below 4 weeks (light yellow), heat stress was not enough to trigger bleaching. Beyond four degree-heating weeks (gold to orange) widespread coral bleaching becomes likely, and beyond 8 weeks (salmon to dark pink), significant bleaching and death become possible. Areas shown in white had not experienced heat stress sufficient to cause bleaching during the previous 12 weeks.  Under sustained heat stress, corals expel the symbiotic algae that live inside the corals and produce much of their food (through photosynthesis). Losing their algae causes the corals’ vibrant colors to fade to white—bleaching—and corals may starve or catch diseases during prolonged stress. Heat stress in corals is described by degree heating weeks: the number of degrees the water temperature is above the local summertime maximum times the number of weeks it remains there.  Beyond the Florida Keys, the main Hawaiian Islands experienced their worst bleaching on record, and a record level of heat stress was observed in the Northwestern Hawaiian Islands. In a recent Diving Deep podcast, Mark Eakin, NOAA’s Coral Reef Watch Coordinator, spoke about how these widespread bleaching events have been surprisingly severe even without a strong El Niño underway.

Most coastal cities will face routine flooding in our lifetimes, NOAA says - When does the threat of climate change become reality? When does a forecast of sea-level rise become a here-and-now problem? In a new study, researchers at the National Oceanic and Atmospheric Administration, better known as NOAA, grappled with that question, and defined the "tipping point" as the moment when coastal locations routinely experience at least 30 days of flooding each year. By that measure, Annapolis; Wilmington, N.C.; and Washington, D.C., are already in trouble. Seven more cities, including Baltimore, Atlantic City and Port Isabel, Tex., will be there by 2020. And within the next 35 years, the study says, most cities along the Mid-Atlantic, Gulf and Pacific coasts will be dealing with routine flooding.It's important to note that this is not storm-related flooding. That will no doubt happen more frequently, too. The NOAA analysis looked at "nuisance flooding" -- the inundation of city streets and landmarks by routine high tides -- as measured at and projected for NOAA tidal stations with a record stretching back at least 50 years. Such flooding is already much more common than in decades past, the report’s co-author, William Sweet, an oceanographer at NOAA’s Center for Operational Oceanographic Products and Services, said in a written statement, adding: "This is due to sea level rise." "Unfortunately, once impacts are noticed, they will become commonplace rather quickly," Sweet said. "We find that in 30 to 40 years, even modest projections of global sea level rise -- 1½ feet by the year 2100 -- will increase instances of daily high tide flooding to a point requiring an active, and potentially costly response. And by the end of this century, our projections show that there will be near-daily nuisance flooding in most of the locations that we reviewed."

Tiny Plastic Bits Too Small To See Are Destroying The Oceans -- There are at least 268,000 tonnes of plastic floating around in the oceans, according to new research by a global team of scientists.  The world generates 288m tonnes of plastic worldwide each year, just a little more than the annual vegetable crop, yet using current methods only 0.1% of it is found at sea.  The new research illustrates as much as anything, how little we know about the fate of plastic waste in the ocean once we have thrown it "away".  Most obviously, this discarded plastic exists as the unsightly debris we see washed ashore on our beaches.  These large chunks of plastic are bad news for sea creatures which aren't used to them. Turtles, for instance, consume plastic bags, mistaking them for jellyfish. In Hawaii's outer islands the Laysan albatross feeds material skimmed from the sea surface to its chicks.   Although adults can regurgitate ingested plastic, their chicks cannot. Young albatrosses are often found dead with stomachs full of bottle tops, lighters and other plastic debris, having starved to death. But these big, visible impacts may just be the tip of the iceberg. Smaller plastic chunks less than 2.5mm across – broken down bits of larger debris – are ubiquitous in zooplankton samples from the eastern Pacific. In some regions of the central Pacific there is now six times as much plankton-sized plastic are there is plankton.

Wisconsin Environmental Groups Sue State For Failure To Implement Air Pollution Standards -- Environmental groups in Wisconsin are suing the state’s Department of Natural Resources, claiming that the agency hasn’t done its job in implementing recent federal air pollution regulations.  Clean Wisconsin and Midwest Environmental Defense Center Inc. filed a lawsuit last week that aims to force the DNR to comply with Environmental Protection Agency regulations for sulfur dioxide, nitrogen oxide and particulates (soot). The EPA updated its rules for sulfur dioxide and nitrogen oxide in 2010, and its rules for particulate matter in 2012. But according to the groups, Wisconsin hasn’t updated its statewide regulations on these pollutants.  “The protection of the federal Clean Air Act and Wisconsin air pollution statutes are not fully recognized unless and until the Department of Natural Resources undertakes is [sic] legal obligation to implement the law by updating air quality standards,” the groups write in the lawsuit. “The DNR has failed to do so.”  Exposures to the three pollutants cited in the lawsuit can contribute to a range of health effects. Short-term exposure to sulfur dioxide can lead to “an array of adverse respiratory effects,” according to the EPA, including asthma. Nitrogen oxides, which are emitted from cars and fossil-fuel burning power plants, can cause major health problems: exposure to high levels can cause difficulty breathing, throat spasms, headache, fatigue, and even death. Low-level exposure can cause irritation of the eyes and throat, fatigue, shortness of breath, and nausea. Particulate pollution has been linked to respiratory problems, heart attacks, and irregular heartbeat.

Reinert Interview: Opinion on Ethanol and What Would Be a Better Octane Booster Choice? | Big Picture Agriculture -- K.M.: Years ago you said, “Using ethanol for fuel is like electing the dumbest kid in school as Class President.” Do you still stand behind that statement? Reinert: Yes, I still stand behind that statement. Ethanol has remarkably destructive properties in your gas tank, especially on cars and engines that aren’t driven very much, like seasonal boats. It is hydroscopic so it absorbs water and the water gets throughout the fuel system and dirt or debris that’s normally in your tank gets emulsified. That gets plated out in your fuel system and your car runs very poorly. This has been documented time and time again, and it’s especially bad for cars or applications that aren’t designed for high levels of ethanol. It really has no upside and when we consider all of the damage that it does to our ecosystems, it is done for no good reason. I don’t believe anybody in the scientific community or at the Department of Energy (DOE) is seriously looking at bioethanol from corn except for the politicians.  I don’t think people realize how much energy is in oil and gas, and the amount of acreage necessary to make even small replacements is huge. And cellulosic ethanol, by the way, is a dream that will remain a dream.

Study: Your all-electric car may not be so green (AP) -- People who own all-electric cars where coal generates the power may think they are helping the environment. But a new study finds their vehicles actually make the air dirtier, worsening global warming. Ethanol isn't so green, either. "It's kind of hard to beat gasoline" for public and environmental health, said study co-author Julian Marshall, an engineering professor at the University of Minnesota. "A lot of the technologies that we think of as being clean ... are not better than gasoline." The key is where the source of the electricity all-electric cars. If it comes from coal, the electric cars produce 3.6 times more soot and smog deaths than gas, because of the pollution made in generating the electricity, according to the study that is published Monday by the Proceedings of the National Academy of Sciences. They also are significantly worse at heat-trapping carbon dioxide that worsens global warming, it found. The study examines environmental costs for cars' entire life cycle, including where power comes from and the environmental effects of building batteries. "Unfortunately, when a wire is connected to an electric vehicle at one end and a coal-fired power plant at the other end, the environmental consequences are worse than driving a normal gasoline-powered car," said Ken Caldeira of the Carnegie Institution for Science, who wasn't part of the study but praised it.

Emit some CO2? Its warming influence should peak in about a decade - The time frames of climate change challenge us in a number of ways. For one thing, it’s difficult to personally experience changes in climate in an obvious and reliable way. (Our sense and memories are a little less precise than thermometers.) And it’s hard to feel a sense of urgency about something changing gradually, especially when the benefits of dealing with it also accrue gradually.  So will any of us see any difference as a result of cutbacks in emissions? A popular 2010 post on the website approached this question from the opposite direction, presenting an estimate for how long it takes to realize the warming from emitted CO2. Largely because the ocean takes up heat slowly, the full force of that greenhouse warming isn’t felt immediately. That post threw out 40 years as an estimate for the lag between emissions and perceptible warming, based on a 1985 paper’s calculation for the time to reach 60 percent of the long-term warming.  That number was in line with the impression of most climate scientists, though. A couple years ago, for example, one scientist said, "It takes several decades for the climate system to fully respond to reductions in emissions. If we expect to see substantial benefits in the second half of this century, we had better get started now.” In a new paper published in Environmental Research Letters (open access), Carnegie Institution for Science climate scientists Katharine Ricke and Ken Caldeira beg to differ with that scientist—who happened to be Ken Caldeira himself. The paper investigates a simple question: if you emit some amount of CO2 and then stop emitting, how long does it take before temperature stops rising? The researchers used simplified, mathematical characterizations of climate sensitivity, the ocean’s “thermal inertia,” and carbon cycle activity from model comparison projects. Mixing and matching those three variables from a number of models, they generated 6,000 estimates of the temperature response to a pulse of 100 gigatons of CO2 carbon, tracking it over the course of a century.

Petrochemical Factories Are The Forgotten Greenhouse Gas Mega-Polluters  - Permits granted to oil, gas and chemical companies in 2014 have set the stage for significant emissions later on, according to a recent report. The report, published last week by the Environmental Integrity Project, found that over the last year, U.S. companies were granted draft or final permits for the construction or expansion of at least 46 petrochemical facilities. Once these facilities are completed, they’ll collectively emit 55 million tons of greenhouse gases a year — an emissions equivalent of twelve 500-megawatt coal-fired power plants. Eleven similar applications submitted since January 2014 are still being considered by the Environmental Protection Agency and other agencies, so that emissions count could climb if these applications are also granted permits.This flurry of applications was due to low fuel prices driven by America’s shale boom, according to the report. Forty-six permits were also granted in 2013, and 13 were granted in 2012. "These projects have multiplied as industries tap into low cost supplies of shale oil and gas that provide feedstock or fuel for manufacturing or export,” the report’s authors write. “Over the past three years, EPA and state agencies have issued draft or final permits to build or expand 105 oil, gas, or chemical plants that authorize nearly 97 million tons of greenhouse gas emissions yearly.” According to the report, the chemical industry has shown some of the most drastic growth of any sector during the shale boom. The industry had 22 projects proposed or approved in 2014, projects that include a plant that would convert ethane, a natural gas component, into ethylene, and that in all will emit 27 million tons of greenhouse gases a year. Most of the proposals came from Texas and Louisiana, but states like West Virginia and Pennsylvania were also potential sites for new chemical facilities.

Chinese carbon emissions facts - You may be tired of reading commentary on the US-China climate deal struck last month. We thankfully didn’t hear as much about a minor international agreement reached in Peru a couple of days ago. And all this is prelude to what is supposed to be the culminating global meeting in Paris in 2015. It may be surprising that there are facts available about Chinese behavior, not just endless assertions. The Netherlands Environmental Assessment Agency, which seems like it should be a fairly unbiased source, just released its 2013 carbon emissions estimates. Here’s what they say (the numbers are also close to those from the Global Carbon Project): Chinese emissions are now 95% higher than American. Except for 2007, the pattern in Chinese emissions data shows a one-year lag from official GDP growth. First, official GDP changes speed, then emissions change speed a year later. There are many possible data problems here but it will surprise no one that economic trends are what drive Chinese emissions. Emissions growth has come down recently because the Chinese economy has been weakening. This makes Chinese commitments to slowing and eventually zero emissions growth much more credible. Beijing has rushed to adopt the phrase “the new normal” in describing the economic trajectory. Translation of the new normal: considerably slower. So the Chinese side of the Sino-American climate trade is to assent to something happening already and likely to continue.

Canada ‘Flies Under Radar,’ Skirts Oilsands Issue At COP20 Climate Talks - Canada is “flying under the radar” at this year’s UNFCCC COP20 climate talks in Lima, Peru according to Canada Youth Delegation member Brenna Owen.  Canada’s negotiators are working hard to sidestep the issue of the country’s growing greenhouse gas emissions from the oil and gas sector according to Owen, while simultaneously keeping quiet about the oilsands as nations come up with their “intended nationally determined contributions” (INDCs) in the global climate agreement.  “They’re not going to be able to do that much longer,” she added. “And they’re not going to be able to avoid talking about the tar sands.” On Tuesday, as ministers and delegates from around the world continued to arrive at the climate talks to negotiate an internationally binding climate agreement, Prime Minister Stephen Harper told the House of Commons he would not regulate emissions from Canada’s oil and gas sector. “Under the current circumstances of the oil and gas sector, it would be crazy – it would be crazy economic policy – to do unilateral penalties on that sector,” he said. “We’re clearly not going to do that.”  The oilsands are Canada’s fastest growing source of greenhouse gas emissions. In October, Canada’s environment commissioner Julie Gelfand said the country has “no overall vision” when it comes to oil and gas regulations and as a result will not meet its 2020 international greenhouse gas reductions targets agreed to in Copenhagen.

Climate Deal Would Commit Every Nation to Limiting Emissions - Negotiators from around the globe reached a climate change agreement early Sunday that would, for the first time in history, commit every nation to reducing its rate of greenhouse gas emissions — yet would still fall far short of what is needed to stave off the dangerous and costly early impact of global warming.The agreement reached by delegates from 196 countries establishes a framework for a climate change accord to be signed by world leaders in Paris next year. While United Nations officials had been scheduled to release the plan on Friday at noon, longstanding divisions between rich and poor countries kept them wrangling through Friday and Saturday nights to early Sunday. The agreement requires every nation to put forward, over the next six months, a detailed domestic policy plan to limit its emissions of planet-warming greenhouse gases from burning coal, gas and oil. Those plans, which would be published on a United Nations website, would form the basis of the accord to be signed next December and enacted by 2020.That basic structure represents a breakthrough in the impasse that has plagued the United Nations’ 20 years of efforts to create a serious global warming deal. Until now, negotiations had followed a divide put in place by the 1997 Kyoto Protocol, which required developed countries to act but did not demand anything of developing nations, including China and India, two of the largest greenhouse gas polluters.“This emerging agreement represents a new form of international cooperation that includes all countries,” said Jennifer Morgan, an expert on international climate negotiations with the World Resources Institute, a research organization.

Fossil-Fuel Limits in All Nations Closer After UN Deal - A plan to limit fossil-fuel pollution in all nations for the first time came a step closer as envoys from more than 190 countries agreed on the key parts of a deal they plan to adopt next year to fight global warming. After two weeks of discussions in Peru organized by the United Nations, the diplomats agreed on the detail of pledges from all nations on curbing greenhouse gases. Richer countries gave an assurance they’re on track to mobilize $100 billion a year in climate aid by 2020. The decision sets the framework for a landmark agreement the UN intends to adopt in December 2015 in Paris that will rein in the emissions damaging the atmosphere. It included last-minute concessions to some of the poorest nations in the world, who are concerned the system will impose costly and painful changes on their economies. “We are on track for an ambitious and equitable Paris agreement,” said Jennifer Morgan, director of climate programs at the World Resources Institute in Washington, an advocacy group. “What you’re seeing is the emergence of a new form of international cooperation on global climate change.”

Assessing the Outcome of the Lima Climate Talks - Stavins - In the early morning hours of Sunday, December 14th, the Twentieth Conference of the Parties (COP-20) of the United Nations Framework Convention on Climate Change (UNFCCC) concluded in Lima, Peru with an agreement among 195 countries, the “Lima Call for Climate Action,” which represents both a classic compromise between the rich and poor countries, and a something of a breakthrough after twenty years of difficult climate negotiations. Just before two o’clock in the morning, the President of COP-20, Manuel Pulgar Vidal, Peru’s Minister of Environment, gaveled the approval of the text, without dissent. At that moment, the foundation was established for the next major international climate agreement, which – under the auspices of the Durban Platform for Enhanced Action – will be finalized and signed one year from now at COP-21 in Paris, France, for implementation in 2020.After five days on the ground in Lima, where I participated in a variety of events and met with a diverse set of national negotiating teams, I’ve reviewed the agreed text of the Lima Call for Climate Action (which I abbreviate below as the “Lima decision”), and can now reflect on its gestation, its meaning, and its implications.

A Single Word in the Peru Climate Negotiations Undermines the Entire Thing -- Since 1992, the world’s leaders have been meeting annually to talk about what to do about climate change. Despite these efforts, the planet is still on pace for a worst-case scenario—actually, it’s tracking a bit above it. Thanks to exceptionally warm oceans, this year should be the hottest ever measured. Still, the stakes were especially high this year in Lima, Peru. For the last two weeks, negotiators representing 196 countries gathered there to assemble the first draft of the first-ever global agreement on climate change, to be finalized late next year. After an all-night session that forced an extra day, there remained a divide, generally between the U.S. and China—the same two countries who spent much of the year in secret talks before announcing a historic bilateral agreement on climate last month. A bloc of African countries and many small island states were on China’s side, while Australia, Japan, and the EU joined the United States. So many countries objected to earlier drafts that the conference chair had no choice but to do a major rewrite to include stronger language saying that rich countries have a mandate to help buffer the "loss and damages" that climate change is already causing. China and the developing countries also wanted fewer constraints on the emissions reductions plans they'll be required to submit for the first time next year.  . In the final version of the text, developing countries largely got their way—including language referencing a temperature rise of just 1.5°C above pre-industrial levels, a target so ambitious that it would likely require a single-minded global focus—but one key word related to international oversight of the emissions reductions plans was changed from "shall" to "may" at the request of China. Had the re-write not occurred, a leaked strategy document showed a coalition of some influential developing countries, including India, were prepared to scrap the entire agreement.

Black Lung Escalates In China Just As Coal Demand Starts To Slow -- China is the world’s biggest producer, consumer, and importer of coal. While the health effects associated with air pollution from coal-fired power plants have been well documented due to their high visibility throughout China’s urban hubs, the even more acute hazards of working in the mines have grabbed less attention.  This weekend, a dispatch from the Wall Street Journal shed some light on the growing blight of black lung for Chinese coal miners. The report states that according to official data, China’s diagnoses of black lung, or pneumoconiosis, rose sevenfold from 2005 to 2013, to a total of about 750,000 and an annual average increase of 35 percent. However this number is probably an enormous understatement. Wang Keqin, founder of the organization Love Save Pneumoconiosis, told the WSJ that the true number of black lung cases could be close to six million as up to 90 percent of China’s coal miners don’t have labor contracts that would qualify them for official health survey.  According to the United Mine Workers Of America, black lung is contracted by “prolonged breathing of coal mine dust.” It is an incurable, yet preventable disease. In 1969, the U.S. Congress implemented coal industry reforms to help eradicate the disease, which has since fallen from inflicting 7.7 percent of coal miners between 1968-1980 to 2.6 during the first decade of this century. China now finds itself at an earlier junction in this story, as coal production has surged but health and safety reforms and oversight are lagging. A 2013 study by Shantou University Medical College in southern China found that about six percent of Chinese coal workers had black lung between 2001 and 2011.

Forget Oil. Here Are The More Insidious Things That Polluted America’s Air And Water This Year  -- This year, three billion gallons of waste were injected into California’s underground aquifers. Eighty millions pounds of toxic grey goop were spilled in a North Carolina waterway. Clouds of thick, black, oily dust coated children’s playground equipment in Chicago’s southeast side. Like every year, 2014 saw a wide range of environmental pollution from fossil fuel development. But there was no BP-scale well blowout, no Lac-Mégantic-sized crude oil train explosion. Instead, many of this year’s major fossil fuel disasters came from a more insidious source — not the fuels themselves, but the waste products they create. These are essentially the leftovers from fossil fuel development: wastewater from oil and gas drilling, coal ash from coal burning, and petroleum coke from tar sands refining. Here’s a look back at how fossil fuel wastes like coal ash, wastewater, and petcoke shaped the year in pollution.

America’s Second-Biggest Form Of Waste Is About To Be Federally Regulated For The First Time  -- The EPA has confirmed that on Friday, it will release its first-ever regulations on the second-largest form of waste generated in the United States: coal ash. EPA spokesperson Rachel Dietz told ThinkProgress that the new rule will be likely be released in the early afternoon. When it is finalized, the rule is expected to include requirements on how coal ash should be disposed, how existing coal ash pits should be cleaned up, whether coal ash should be designated as a hazardous material, and who should be responsible for enforcing the rules. Coal ash is a byproduct of coal burning, and often contains chemicals like arsenic, chromium, mercury, and lead. After producing it, coal companies sometimes dispose of it by dumping it into ditches, and filling those ditches with water. Those ditches, called coal ash ponds or lagoons, are often unlined, meaning the coal ash comes in direct contact with the environment. Right now, the Sierra Club estimates there are more than 1,400 coal ash sites in the United States, most of which are located in close proximity to lakes and rivers due to the vast quantity of water needed to burn coal for power. “This is the worst-stored material we have in the country,” said Frank Holleman, a senior attorney at the Southern Environmental Law Center. “Not everybody knows that the world’s leading country is allowing the storage of millions of tons of industrial waste containing toxic substances to take place in unlined pits filled with water, directly beside our nation’s water resources and our drinking water reservoirs.”

EPA Will Not Declare Coal Ash A Hazardous Waste  -- The U.S. Environmental Protection Agency on Friday issued its first-ever regulations on coal ash, a toxic byproduct of burning coal for power. But to environmentalists’ chagrin, the agency declined to designate the substance as a hazardous waste. Instead, coal ash will be regulated similarly to household garbage. EPA Administrator Gina McCarthy assured reporters on Friday that designating coal ash as solid waste, rather than hazardous waste, would be sufficient to prevent catastrophic spills of coal ash from the ponds the substance is often stored in, and to prevent it from leaching into groundwater, as it has in the past. “I’m very proud that the EPA is moving this over the finish line,” McCarthy said. “[The rule] is a common sense path forward that protects public health and the environment.” Coal ash — which often contains chemicals like arsenic, chromium, mercury, and lead — is the second-largest form of waste generated in the United States. After producing it, coal companies sometimes dispose of it by dumping it into ditches, and filling those ditches with water. Those ditches, called coal ash ponds or lagoons, are often unlined, meaning the coal ash comes in direct contact with the environment. It has, until now, never been federally regulated.

Four Executives Indicted From Company Behind West Virginia Chemical Spill --The U.S. Attorney General’s office has filed an indictment against four executives of the company that contaminated drinking water for 300,000 West Virginians this past January, alleging violations of the Clean Water Act.  The indictment marks the second time this month that former Freedom Industries CEO Gary Southern has been charged with violations related to a massive chemical spill that saw 10,000 gallons of a coal-cleaning chemical called crude MCHM dumped into West Virginia’s Elk River. Also named in Wednesdsay’s indictment are company ex-president Dennis Farrell, former secretary William Tis, and onetime vice president Charles Herzing. Freedom Industries’ executives are accused of “fail[ing] to exercise reasonable care in its duty to operate the [chemical storage facility] in a safe and environmentally-sound manner,” and that their failure to exercise care was the primary reason for the historic spill.  “It’s hard to overstate the disruption that results when 300,000 people suddenly lose clean water,” U.S. Attorney Booth Goodwin said at a news conference, according to the Associated Press. “This is exactly the kind of scenario that the Clean Water Act is designed to prevent.” The indictment brings Farrel, Tis, and Herzing into the public eye as figures allegedly responsible for the spill, which left 300,000 West Virginians without drinkable water for five days, though uncertainty surrounding whether the chemical was fully removed has left many residents still wary to drink the water.

John Galt Faces Prison For Contaminating West Virginia Water Back in January, John Galt proclaimed his independence from pesky regulatory oversight in West Virginia when he contaminated the drinking water supply of over 300,000 residents. Recall that Galt did his damage through his appropriately named corporation, Freedom Industries, where he was using the contaminant to magically make coal “clean”. In a remarkable development, though, we learned yesterday that a federal grand jury has indicted six people associated with Freedom Industries:A federal grand jury on Wednesday indicted four owners and operators of the company whose toxic chemical spill tainted a West Virginia river in January, forcing a prolonged cutoff of drinking water to nearly 300,000 residents in and around Charleston.Each was charged with three counts of violating the Clean Water Act, which bars discharges of pollutants without a permit. Their company, Freedom Industries, and its owners and managers did not meet a reasonable standard of care to prevent spills, the indictment stated.One of those indicted, Gary L. Southern, the company’s president, was also charged with wire fraud, making false statements under oath and bankruptcy fraud. Freedom declared bankruptcy days after the spill. Actual prison time is at stake in these charges:

Not Just Public Lands: Defense Bill Also Incentivizes Fracked Gas Vehicles -- Steve Horn - DeSmogBlog recently revealed how Big Oil's lobbyists snuck expedited permitting for hydraulic fracturing (“fracking”) on public lands into the National Defense Authorization Act (NDAA) of 2015, which passed in the U.S. House and Senate and now awaits President Barack Obama's signature. A follow-up probe reveals that the public lands giveaway was not the only sweetheart deal the industry got out of the pork barrel bill. The NDAA also included a provision that opened the floodgates for natural gas vehicles (NGVs) in the U.S.—cars that would largely be fueled by gas obtained via fracking. The section of the bill titled, “Alternative Fuel Automobiles” (on page 104) lays it out: The “fuel described in subparagraph (E)” refers to natural gas, found within Title 49 of the United States Code's section 32901. It means, as with electric vehicles, natural gas automobile manufacturers will now also receive financial credits under the new Corporate Average Fuel Economy standards introduced by President Obama in May 2009. The provision was initially introduced in February by U.S. Sen. James Inhofe (R-OK), a climate science denier, as the Alternative Fuel Vehicle Development Act. Inhofe called it a “bill that would incentivize the production and purchase of…natural gas vehicles (NGVs)” in a press release announcing its introduction.

Oil industry spokesman gets it wrong about local fracking ban -  The comments by Shawn Bennett in a recent interview published in The Athens NEWS on Dec. 8 seriously misrepresent the problems and dangers that the fracking industry presents to the residents of Athens and neighboring counties. According to Mr. Bennett, Issue 7, which recently passed in the city of Athens by a 78 percent to 22 percent margin, represented an attempt by an out-of-state organization to interfere with local economic development. Nothing could be further from the truth. In fact, Issue 7 was an attempt by local residents to prevent out-of-state industries from polluting our local environment.  By Mr. Bennett's own admission, there are no current plans for deep-shale fracking development in Athens County, because oil and gas extraction is not sufficiently profitable here. What the oil and gas industry is planning to do, however, is to turn Athens and neighboring counties into dumping grounds for fracking waste generated in other states. There are no economic benefits resulting from environmental contamination. The reason that our communities are being targeted for disposal of out-of-state waste is that our state laws allow the oil and gas industry to avoid federal EPA oversight and ignore regulations that they must comply with to dispose of fracking waste in other states. Thus, neighboring states where EPA regulations still apply find it cheaper and easier to send their fracking waste here. Oil and gas companies are protected by current state law from having to reveal the contents of fracking waste, but there is clear evidence that these fluids are highly toxic, containing known carcinogens and contaminated by radioactivity. For example, wastewater from Pennsylvania shale has been found to be "3,609 times more radioactive than a federal safety limit for drinking water.

Environmentalists find serious flaws in Ohio's oversight of fracking waste -- An environmental advocacy group conducted a pretty thorough audit of Ohio’s Class II injection wells — the places where fracking wastewater usually ends up here — and found a bunch of problems, according to the audit, which was released today. Ohio Citizen Action and Ohio Citizen Action Education Fund say that the two governmental agencies that oversee the wells share blame for inadequate oversight, inconsistent inspections, non-enforcement and “even disdain and disrespect of citizens attempting to get answers about oil and gas injection wells in their communities.” A PDF of the audit is here: .  The U.S. Environmental Protection Agency usually has oversight over Class II injection wells, but in Ohio, the state Department of Natural Resources does. The wells are a critical part of the fracking boom here. To frack wells, companies pump thousands of gallons of water mixed with sand and chemicals underground to fracture shale, where oil and gas is hiding. A lot of that water mixture comes back up to the surface, and it can’t go back into the rivers and streams where it came from because it’s been laced with chemicals. In some cases, depending on the shale, the water can also carry some radioactive rocks. That’s where Class II injection wells come in. Drilling companies hire haulers to collect that wastewater and cart it off to the wells, where it’s pumped underground. And while we usually think about fracking being something that happens in the eastern part of the state, Class II injection well are all around us. There’s injection wells in Knox and Licking counties, not too far from Columbus. Problems with these wells, and with the oversight of them, are well documented. The U.S. Government Accountability Office conducted its own review earlier this year and found that federal and state governments don’t do enough to keep drinking water safe near these wells. 

Ohio activist groups pleased by committee death of H.B. 490 - Drilling - Ohio: A coalition of environmental organizations, community organizing groups and concerned citizens including health professionals and first responders mobilized to help defeat HB 490, killing it in the Ohio Senate Agriculture Committee before it could move to the floor for a vote. Mobilized within just three weeks, hundreds of Ohioans expressed their displeasure with the bill, which would have taken chemical information for oil and gas operations out of the hands of local first responders – and placed it in the hands of the Ohio Department of Natural Resources. The coalition opposing the measure included the Buckeye Forest Council, the Center for Health and Environmental Justice, Ohio Citizen Action, Ohio Environmental Council, and Ohio Organizing Collaborative/Communities United for Responsible Energy. Several community members, health professionals and first responders submitted written or oral testimony to the Ohio Senate Agriculture Committee.  HB 490 would have rolled back some important reforms around chemical disclosure. In 2013, after a citizen petition, the United States EPA reaffirmed that, just like every other industry, Ohio oil and gas drillers must report hazardous chemicals used or stored at fracking wells to the State Emergency Response Commission to meet the requirements of the federal Emergency Planning Community Right to Know Act. This ruling reinstated reporting that had stopped 12 years earlier, when oil and gas friendly interests carved out a special exemption for the industry as one of many provisions buried in the 2001 budget bill.

Families flee out-of-control natural-gas leak at eastern Ohio fracking well - Columbus Dispatch: About 25 families in eastern Ohio have been unable to live in their houses for the past three days because of a natural-gas leak at a fracking well that crews cannot stop. Bethany McCorkle, a spokeswoman for the Ohio Department of Natural Resources, the state agency that regulates oil and gas, said crews lost control of the Monroe County well on Saturday. Families were evacuated from about 25 houses within a 1.5-mile radius of the well, located near the Ohio River about 160 miles east of Columbus. The well is not on fire, but the gas could be explosive. “There’s still a steady stream of natural gas coming from the wellhead,” McCorkle said yesterday. The well is operated by Triad Hunter, a Texas company that also has offices in Marietta in southeastern Ohio. The company did not return a call yesterday but said in a statement that the well had been temporarily plugged about a year ago while the company drilled and fracked three more wells on that site. “Despite numerous precautionary measures taken in connection with the temporary plugging and abandonment operation, the well began to flow uncontrollably while recommencing production operations,” the company said. Triad Hunter workers tried to bolt the cap back into place but couldn’t, the statement said.   McCorkle said ODNR is investigating.

25 Families Forced To Flee Their Homes Due To Uncontrolled Gas Leak At Fracking Well - Twenty-five families in eastern Ohio have been unable to return to their homes for the last three days due to a natural gas leak at a nearby fracking well. Households within a 1.5-mile radius of the well were evacuated this week after the well started leaking Saturday. Oil and gas workers weren’t able to control the leak, which is continuing to emit gas into the atmosphere. The well, which is owned by Texas-based company Triad Hunter, had been plugged about a year ago, but started leaking when workers restarted operations on it. “Despite numerous precautionary measures taken in connection with the temporary plugging and abandonment operation, the well began to flow uncontrollably while recommencing production operations,” the company said in a statement. Families have been allowed back into their homes during the day, but haven’t had access to them at night. Bethany McCorkle, spokeswoman for the Ohio Department of Natural Resources, , told the Columbus Dispatch that leaks like this aren’t common.  “This whole situation is uncommon in general,” she said. “A full investigation will give us more information as to what happened, what led up to the incident and why there was so much pressure.”  Right now, the well isn’t on fire, but the gas leak does pose an explosion risk. Earlier this year, a leaking natural gas well owned by Chevron caught fire in Pennsylvania, killing one contract worker. And last year, a gas well off the coast of Louisiana caught fire.  This also isn’t the first time that Ohio residents have been forced to evacuate as a result of a natural gas leak. In October, about 400 households were evacuated after a fracking operation in eastern Ohio began leaking gas. That evacuation didn’t last long, however — the leak began at about 6 p.m. and residents were allowed back into their homes around midnight. Some residents in Morgan County, Ohio were also forced to evacuate in May due to a natural gas and oil leak.

25 homes evacuate an unstoppable gas leak in another Ohio fracking 'incident' - Another day, another toxic spill thanks to fracking: About 25 families in eastern Ohio have been unable to live in their houses for the past three days because of a natural-gas leak at a fracking well that crews cannot stop. Bethany McCorkle, a spokeswoman for the Ohio Department of Natural Resources, the state agency that regulates oil and gas, said crews lost control of the Monroe County well on Saturday. […]   Ohio has had its share of fracking accidents this year. In May, a blowout resulted in an oil spill into an Ohio river tributary. And then this happened the following month: On the morning of June 28, a fire broke out at a Halliburton fracking site in Monroe County, Ohio. As flames engulfed the area, trucks began exploding and thousands of gallons of toxic chemicals spilled into a tributary of the Ohio River, which supplies drinking water for millions of residents. More than 70,000 fish died. In October, a well ruptured in eastern Ohio, spreading natural gas and methane, and resulted in the evacuation of over 400 families. [This] incident was the third in three days tied to fracking operations in eastern Ohio. On Sunday, a worker at a fracking site in Guernsey County was burned in a fire. On Monday, a pipeline carrying natural-gas condensate ruptured in Monroe County, igniting several acres of woods. Explosions resulting in frequent evacuations, leaks into drinking-water supplies, earthquakes—but don’t worry, folks. Fracking is perfectly safe.

Cartwright widens inquiry into fracking waste in Northeast, 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, D-Pa., 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.

Gas field drillers, activists seek statewide rules for wells -- There are more regulations for cutting hair than for drilling water wells in Pennsylvania. To cut hair, you must hold a cosmetologist degree, pass an exam and get a license that outlines how you can practice. To drill a well and install a water pump, you need only register drilling equipment with the state. The absence of statewide rules governing how water wells are built and who can drill them have united some unlikely allies — environmental activists and gas drilling companies, who say rules are needed to reduce the risk of groundwater contamination in the middle of the gas drilling boom. More than 3 million rural and suburban residents in Pennsylvania rely on a private well for drinking water, and about 20,000 wells are drilled each year in the state, according to the U.S. Geological Survey. Gas companies, required by the state to test water wells in a 2,500-foot radius of a well pad and present reports to well owners, want rules to further minimize risk of contamination and fix improperly constructed wells, according to the Marcellus Shale Coalition. State and federal studies echo each other on well water contamination in Pennsylvania, consistently pointing to improperly constructed wells as a culprit. “We, in our water testing, continue to see relatively high levels of bacteria in water wells.” Swistock's own well was contaminated by mice who were living in it, he learned. The mice had an easy way in since the well was missing a sanitary cap, a lid required by most states. Last year, the USGS reported that 8 percent of more than 5,000 wells tested from 1969 to 2007 statewide contained levels of arsenic at or above federal standards set for public drinking water and an additional 12 percent — though not exceeding standards — showed elevated levels.

As pipelines proliferate, Pennsylvania sees next phase of gas boom - The surge in drilling has meant trillions of cubic feet of natural gas are being pumped out of Pennsylvania every year. And now billions of dollars are flooding into the state for new pipeline projects to move that gas to market.It’s the next phase of the fracking boom: energy companies are building their own sort of interstate highway system—a network of pipelines. Matt Henderson, of Penn State’s Marcellus Center for Outreach and Research, says more than $10 billion in pipeline projects have already been announced for Pennsylvania.“Production has outpaced anybody’s wildest expectations,” he says. “The operators were found in a position where, ‘We need to get this out.’ So there’s a sense of urgency.” Industry representatives say undoubtedly not all of the proposed pipelines will get built. But there’s still a race to get gas to customers. Houston-based Cabot Oil & Gas has been able to ship its gas out of northeastern Pennsylvania on three existing interstate pipelines. Company spokesman Bill DeRosiers says Cabot is partnering with other companies on new projects to ease bottlenecks in the system, like the $700 million Constitution pipeline. It was recently approved by federal regulators to carry Marcellus gas to New York and New England. And there’s an even bigger one on the horizon. “The Atlantic Sunrise is another pipeline project that will actually head south,” says DeRosiers. The $3 billion line would cut through 10 central Pennsylvania counties. If it’s approved by regulators, it could be operational in two years. It would start near Cabot’s operations in Susquehanna County and go as far south as Alabama.“It will actually bring gas along the eastern seaboard markets as far south for Cabot’s interests to Cove Point which is an exportation terminal, where Cabot’s looking forward to exporting to Japan,”

Fracking Mirage -- New York farmers think that fracking is going to make unprofitable farms profitable. Actually no. That’s not how it works. If a farm is unprofitable, fracking won’t make it profitable. They also think that they have something worth fracking. Probably not. The leasing companies may have left because of the moratorium, but that does not mean that they will come back if the moratorium is lifted. What’s changed during the intervening years is that we know a lot more about where the shale is productive and where it is not. This is no secret, except, apparently, to the landowner coalitions hoping to sell out to the frackers.The farmers that wanted to lease never cared about the proposed regulations. They didn’t even bother to comment on the drafts. They just wanted to sell out. Most of them won’t get the chance. Not because of moratoriums or bans, but because there’s not much there worth fracking. Struggling Farmers Say Fracking Will Save Their Farms Since the moratorium is not codified into law, it does not have an expiration date and thus Gov. Andrew Cuomo has yet to decide what to do—much to the chagrin of many struggling farmers in upstate New York who stand to benefit from fracking on their land into a toxic mess. Some say the ban was instituted in response to the growing protests from environmentalists and New York City residents who were concerned that an aquifer in upstate New York that provides water to the city would be contaminated and sicken millions.While environmentalists followed Cuomo around during midterm election campaigning, pressuring him to take a stance and ban fracking once and for all, some farmers and large landowners in upstate New York have been saying “frack us!

Doctors, scientists, engineers calling for fracking moratorium: Health professionals and scientists are raising awareness about the possible negative effects of allowing hydraulic fracturing in New York, and are calling on the governor to extend the moratorium an additional three-to-five years. The call follows the release of a new study in an environmental health journal, which looked at evidence showing the negative effects of fracking operations on reproductive and developmental health. In a press conference held in the Legislative Office Building last Thursday, Dec. 11, scientists and health professionals said the science is clearly indicating there are potential negative effects of the controversial natural gas drilling process on the public living near drilling sites. The fate of the debate on whether to allow drilling within the state hangs on to a health and environmental impact study being conducted by the state Health Department and Department of Environmental Conservation.

Not One Fracking Well. One way or another . . . -- Not One Well is putting on the push to get Governor Cuomo to go against type and prohibit hydrofracking of shale in New York. If he did that, he’d be a shoe-in for the Goldman Environmental Prize, the Nobel Prize and a big hug from the Pope.  But assuming that the Good Governor does approve fracking – in some limited way – the dynamics of actually drilling any shale wells are constrained by several unviable factors; to wit:

  • 1. Geology –  At best New York is very marginal for dry shale gas in the Marcellus. Although less well understood (no pun), it’s certainly marginal for dry gas in the Utica as well. So you are talking about many a dozen townships along the borderline in Broome County, maybe Delaware, and maybe Tioga. The only permit applications that are left in the queue that a financially viable (if not geologically viable) are Exxon’s. That is not likely to change.
  • 2. State Fracking Regulations – There aren’t any.The proposed fracking regulations missed their expiration date, and will have to be revisited – in public. After they are adopted, the NGOs will sue to block them, pretty much guaranteed.
  • 3. Local Regulations – Where the shale gas is located, there aren’t any fracking bans. But since shale gas industrialization is a hazardous heavy industrial process, the townships or the landowners that lease would be challenged either by local residents or by environmental NGOs – for the failure of the town to protect the health, safety and welfare of its citizens.
  • 4. Lawsuits – The state’s fracking regulations will be challenged in court, as will the permits, as will the towns that allow fracking, as will the landowners that lease as will the frackers. And we’ll all find out that New York has more lawyers than shale gas.

Governor Cuomo: Fracking Decision ‘By the End of the Year’ - It looks like New York state could have a decision on whether its fracking moratorium will be lifted or remain in place sooner than previously thought. The review by the state Department of Health on the health impacts of fracking is due to be completed and delivered Dec. 31. Governor Andrew Cuomo had said he would base his decision on that report, and it was widely believed that he would make his announcement early next year. Anti-fracking activists were preparing to rally at his Jan. 7 State of the State address in Albany. But yesterday in an interview on local radio show The Capitol Pressroom, Cuomo said that his decision will come by the end of the year.  “By the end of the year we should have positions on both [the other issue is casino licenses] that are clear and we’ll start the new year with some major decisions under our belt, so to speak,” he said.

The Science of Fracking Equates to Not One Fracking Well - While filming a new movie in London, I learned that the sole shale gas well in the nation — just a few hours north of me — has triggered two earthquakes, suffered a “structural integrity failure,” and risked poisoning water supplies.That’s right: the only fracking well in the United Kingdom failed and caused two earthquakes!This news is a stark reminder of what’s at stake in my home state of New York, where newly re-elected Governor Andrew Cuomo has said that he will soon make an announcement about fracking. In his first four year term to date, despite much sound and fury from the gas industry, Governor Cuomo maintained a de facto moratorium on the practice. The emerging science shows the wisdom of that decision — as scientists themselves are quick to point out. Just last week, Concerned Health Professionals of New York presented the Governor with an updated, hundred-page Compendium on the risks and harms of fracking to health, water, air, wildlife, and economic vitality. On the same day, the Physicians Scientists & Engineers for Healthy Energy released its own analysis of the 400 peer-reviewed studies on fracking — nearly all of them indicating dangers and nearly all of them published since the Governor took office in 2011. Among the key findings:

· 96 percent of all papers on health found signs or risks of sickness;
· 95 percent of studies on air found evidence for air pollution;
· 72 percent of studies on water found signs or risks of water contamination;

BREAKING: New York Will Ban Fracking -- The state of New York is officially moving toward a fracking ban. After presenting the findings of an exhaustive five-year study on the potential environmental, economic, and public health effects of fracking, state Department of Environmental Conservation commissioner Joseph Marten said he would issue a “legally binding findings statement” seeking prohibition of the controversial process.  The study presented Wednesday had few good things to say. It noted that peer-reviewed studies on how fracking affects public health were few and far between; that the process had the potential to pollute New York’s many reservoirs and aquifers; and that the economic benefit to the state would be “clearly lower than intially forecast.” “Would I live in a community with [fracking] based on the information we have now? … After looking at the plethora of reports, my answer is no,” acting state health commissioner Howard Zucker said. “I cannot support high volume hydraulic fracturing in the great State of New York.” A moratorium on the process has been in effect since 2008, and New York Gov. Andrew Cuomo had historically said he wouldn’t consider lifting the ban until the review of possible environmental and health impacts was completed. His position on the issue was that he was “not a scientist” — a refrain he repeated on Wednesday — and that he would leave it up to the experts to decide whether fracking would be safe for the state. “Let’s bring the emotion down and let’s ask the qualified experts what their opinion is,” Cuomo said on Wednesday before the results of the report were announced. “I will be bound by what the experts say because I am not in a position to second-guess them with my expertise.”

Cuomo to Ban Fracking in New York State, Citing Health Risks -  Gov. Andrew M. Cuomo’s administration announced on Wednesday that it would ban hydraulic fracturing in New York State because of concerns over health risks, ending years of uncertainty over the disputed method of natural gas extraction.State officials concluded that fracking, as the method is known, could contaminate the air and water and pose inestimable dangers to public health.That conclusion was delivered during a year-end cabinet meeting Mr. Cuomo convened in Albany. It came amid increased calls by environmentalists to ban fracking, which uses water and chemicals to release oil and natural gas trapped in deeply buried shale deposits.The question of whether to allow fracking has been one of the most divisive public policy debates in New York in years, pitting environmentalists against others who saw it as a critical way to bring jobs to economically stagnant portions of upstate. Mr. Cuomo, a Democrat who has prided himself on taking swift and decisive action on other contentious issues like gun control, took the opposite approach on fracking. He repeatedly put off making a decision on how to proceed, most recently citing a continuing — and seemingly never-ending — study by state health officials. On Wednesday, six weeks after Mr. Cuomo won re-election to a second term, the long-awaited health study finally materialized. In a presentation at the cabinet meeting, the acting state health commissioner, Dr. Howard A. Zucker, said the examination had found “significant public health risks” associated with fracking. Holding up scientific studies to animate his arguments, Dr. Zucker listed concerns about water contamination and air pollution, and said there was insufficient scientific evidence to affirm the long-term safety of fracking. Dr. Zucker said his review boiled down to a simple question: Would he want to live in a community that allowed fracking? He said the answer was no.

New York bans fracking after health report (Reuters) - New York state will ban hydraulic fracturing after a long-awaited report concluded that the oil and gas extraction method poses health risks, Governor Andrew Cuomo's administration said on Wednesday. New York Environmental Commissioner Joseph Martens said at a cabinet meeting he will issue an order early next year banning fracking, which has been under a moratorium since 2008. Once that happens, New York will join Vermont as the only states to completely prohibit fracking. The decision ends what has been a fierce debate in New York over the benefits and pitfalls of fracking, a process that involves pumping water, sand and chemicals into a well to extract oil or gas. Many in the state saw gas drilling as a key economic resource while others argued it was too dangerous. The state's health commissioner, Howard Zucker, said there is not enough scientific information to conclude that fracking is safe. "The potential risks are too great, in fact not even fully known, and relying on the limited data presently available would be negligent on my part," Zucker said. New York sits atop a portion of the Marcellus shale, one of the largest natural gas deposits in the United States. The ruling is a blow for energy companies that had been waiting for years to tap the thousands of acres of land they have leased there. The oil and gas industry immediately slammed Cuomo for the decision. Karen Moreau, the executive director of the New York State Petroleum Council, called it a reckless move that would deprive the state of thousands of jobs and hundreds of millions of dollars in revenue.

Document: Read the state Health Department's report on hydrofracking --  Below is the 184-page report by the New York State Department of Health regarding hydrofracking. The report was released by state health Commissioner Howard Zucker, who concluded that he would not allow his family to drink tap water in an area where fracking occurred. "I cannot support (fracking) in the great state of New York," Zucker said. New York state's environmental Commissioner Joseph Martens said today he will ban fracking in New York. NYS DOH Fracking Health Report (embedded scribd)

The Alarming Research Behind New York's Fracking Ban  - The battle over untapped natural gas in New York State appears to have reached its end. Following an extensive public health review of hydraulic fracturing, Governor Andrew Cuomo announced a complete ban on the oil and natural gas harvesting practice in the state on Wednesday. The 184-page report, conducted by the New York State Department of Health, cites potential environmental impacts and health hazards as reasons for the ban. The research incorporates findings from multiple studies conducted across the country and highlights the following seven concerns:

  • Respiratory health: The report cites the dangers of methane emissions from natural gas drilling in Texas and Pennsylvania, which have been linked to asthma and other breathing issues.
  • Drinking water: Shallow methane-migration underground could seep into drinking water, one study found, contaminating wells. Another found brine from deep shale formations in groundwater aquifers. The report also refers to a study of fracking communities in the Appalachian Plateau where they found methane in 82 percent of drinking water samples, and that concentrations of the chemical were six times higher in homes close to natural gas wells. Ethane was 23 times higher in homes close to fracking sites as well.
  • Seismic activity: The report cites studies from Ohio and Oklahoma that explain how fracking can trigger earthquakes. Another found that fracking near Preese Hall in the United Kingdom resulted in a 2.3 magnitude earthquake as well as 1.5 magnitude earthquake.
  • Climate change: Excess methane can be released into the atmosphere, which contributes to global warming.
  • Soil contamination: One analysis of a natural gas site found elevated levels of radioactive waste in the soil, potentially the result of surface spills.
  • The community: The report refers to problems such as noise and odor pollution, citing a case in Pennsylvania where gas harvesting was linked to huge increases in automobile accidents and heavy truck crashes.
  • Health complaints: Residents near active fracking sites reported having symptoms such as nausea, abdominal pain, nosebleeds, and headaches according to studies. A study in rural Colorado which examined 124,842 births between 1996 and 2009 found that those who lived closest to natural gas development sites had a 30 percent increase in congenital heart conditions. The group of births closest to development sites also had a 100-percent increased chance of developing neural tube defects.

Governor Cuomo Saves New York From Getting Fracked ! --Governor Cuomo has done the environmentally, economically and politically practical thing and has banned fracking in New York. Because it simply is not worth the risk. Bravo. The Cuomo Administration just passed The Fracking IQ Test. DOH Commissioner Dr. Zucker stated the obvious – the science isn’t there to turn frackers loose in New York: “I cannot support high volume hydraulic fracturing in the great state of New York,” said Howard Zucker, the acting commissioner of health. The DOH report on fracking is here. That did it. Then DEC Commissioner Joe Martens said the DEC would not permit fracking and issued a press release to that effect. Both of them cited the greatly reduced area where fracking would actually take place in New York – since most Upstate towns ban it. And the only towns that might allow it are in an small area by the Pennsylvania border that is not currently economic. So, frankly, simply not worth fracking fooling with.Which makes perfect sense from all standpoints: environmentally, economically and politically.Watch Dr. Zucker’s and DEC Marten’s speech here.    Take a look at a Real Fracking Hero. The guy that had the juevos to tell the frackers to “Come back when you can play clean.” If ever.  Thanks Governor Cuomo ! I take back all those things I said about you. Well almost everything.

With Unresolved Health Risks and Few Signs of an Economic Boon, Cuomo to Ban Gas Fracking - After years of gauging the environmental, medical, economic and political risks of hydraulic fracturing, Gov. Andrew M. Cuomo is moving to ban this method of extracting natural gas from shale deposits in New York State. It had been clear for years, as I wrote in 2012, that there was little political or economic impetus to act quickly, even though I felt (and still am convinced) that gas extraction from shale can be done safely and cleanly if properly regulated. I would have preferred an approach allowing some carefully supervised drilling where communities were supportive — which Cuomo had pondered several years ago. See my conversation with Josh Fox, the director of “Gasland,” for more on my view, which holds now. But for a governor, data on drilling risks are just one of a host of considerations. The issue is similar to President Obama’s quandary on the Keystone oil pipeline.  Cuomo faced sustained, forceful and creative opposition from his left (the image below is one example of the creativity) and, as the upstate journalist Tom Wilber made clear in his blog and book, “Under the Surface,” there were few signs that New York would be able to provide sufficient oversight to justify drilling. (Read here for more on that question.) On top of this, courts were increasingly upholding community efforts to enact local bans.

BBC News - New York bans fracking over "significant health risks": Hydraulic fracturing, or fracking, will be banned in New York state, governor Andrew Cuomo's administration announced. A report has concluded that the method of extracting oil and gas potentially poses health risks. "Relying on the limited data presently available would be negligent on my part," said state Health Commissioner Howard Zucker. Vermont is the only other US state to ban fracking. New York has had a moratorium on hydraulic fracturing since 2008 when it initiated an environmental review of the process. The potential for fracking in the state is considerable as the large Marcellus shale deposit is partly located under it.  Commissioner Zucker said he had identified ``significant public health risks'' that prevented him approving the technique. Environmental groups welcomed the decision. But representatives of the oil and gas industry criticised the move, suggesting the state would miss out on the creation of thousands of jobs and hundreds of millions of dollars of revenue. New York Governor Andrew Cuomo said it was the most emotionally charged issue he had dealt with, even compared to gay marriage or the death penalty.

New York moves to make fracking ban permanent, says risks to health, air, water all need more study - State health officials announced Wednesday that a years-long study of the health and environmental impacts of hydraulic fracking in New York have convinced them that New York should ban the practice “until the science provides sufficient information to determine the level of risk to public health.”  After the announcement, and the release of the lengthy report, the chairman of the state’s environmental quality commission said his agency will draft permanent rules putting the ban into place early next year. New York Gov. Andrew Cuomo told reporters he’ll defer to the two experts and won’t interfere with the decision to make what had been a temporary moratorium on fracking permanent. The acting health commissioner, Dr. Howard Zucker, said the research isn’t clear yet whether fracking is safe. But he said enough warning signs have been reported across a range of scientific studies that fracking should be banned until it’s clear that it is safe. “As with most complex human activities in modern societies, absolute scientific certainty regarding the relative contributions of positive and negative impacts of HVHF on public health is unlikely to ever be attained. In this instance, however, the overall weight of the evidence from the cumulative body of information contained in this Public Health Review demonstrates that there are significant uncertainties about the kinds of adverse health outcomes that may be associated with HVHF, the likelihood of the occurrence of adverse health outcomes, and the effectiveness of some of the mitigation measures in reducing or preventing environmental impacts which could adversely affect public health. Until the science provides sufficient information to determine the level of risk to public health from HVHF to all New Yorkers and whether the risks can be adequately managed, DOH recommends that HVHF should not proceed in NYS.”

Is New York governor's ban on fracking grounded in science? -- To frack, or not to frack? That was the question facing New York, and Gov. Andrew Cuomo (D) decided not to. Governor Cuomo announced Wednesday that New York would prohibit fracking over health and environmental concerns. The ban ends years of uncertainty in the state over hydraulic fracturing – or “fracking” – the controversial practice that injects a mixture of water, sand, and chemicals underground to unlock stores of natural gas and oil trapped inside shale rock. Few environmental issues have inspired as much animosity and disagreement as fracking. Environmentalists say fracking can contaminate drinking water, cause earth tremors, and encourage reliance on emissions-heavy fossil fuels. Those concerns led New York to put a moratorium on fracking in 2008. But the scientific work assessing the risks of fracking is far from consistent. In fact, many states have determined the practice is safe. From North Dakota to Texas to Pennsylvania, fracking has kicked off a shale boom that’s created jobs, boosted oil and natural gas production, and helped US power plants move away from dirtier-burning coal.

New York Says No To Fracking Jobs And Any Fracking Money - Politics and Energy are hardly strange or unusual bedfellows. We know they’ve been under the covers with each other for a very long time, which is why when politicians act as though they didn’t know it really is irritating. While President Obama was announcing his decision to open talks with Cuba, New York State declared itself to be “Frack Free Zone”. It is a decision and a move that I disagree with and I thought I’d put that right on the table at the start of this piece. I don’t live in New York and the state can do whatever New York wants to do but Governor, Come On Man!. Governor Cuomo says he backs the decision but it wasn’t his decision to ban fracking. uhh?? No, the credit and the blame goes to New York’s Environmental Commissioner Joseph Martens according to the Governor himself. What a nifty move. Cuomo gets to be hailed by environmentalists for being a leader and for making New York only the second state to ban fracking behind Vermont. But, how can Cuomo be a leader when he’s hiding behind the shadow of his Environmental Commissioner? He can’t be. It seems that the Governor wants the credit and he wants to escape the blame should he decide to do what political pundits have been speculating for awhile now, make a run for the Democratic Presidential nomination. It is a very risky gamble. Taking the credit for turning down potentially hundreds of jobs, hundreds of millions in state tax revenue and a little private sector stimulus of the state economy probably won’t play too well nationally. (and yes, I am being purposely very conservative on those estimates. I’ll have more on that in a moment) The leader is New York’s Environmental Commissioner Joseph Martens. He’s the guy who made the call saying “health concerns” are the reason for the ban. The problem here is that there isn’t the data to justify Martens’ claim. New York’s own Health Commissioner, Howard Zucker, has conceded there is not enough data to justify health concerns and Zucker does not stand alone.

New York Governor Cuomo Does Saudi Bidding, Bans Fracking In NY State -- Having missed the entire shale boom, and with heavily-indebted shale companies now scrambling to boost liquidity or else face bankruptcy if crude prices remain at current levels, moments ago - in the latest example of blatant populist pandering -  New York Governor Andrew Cuomo said Wednesday his administration would prohibit hydraulic fracturing statewide, citing health concerns and calling the economic benefits to drilling there limited.  “I cannot support high-volume hydraulic fracturing in the great state of New York,” acting health commissioner Howard Zucker said, adding that he wouldn’t allow his own children to live near a fracking site. He said the “cumulative concerns” about fracking “give me reason to pause.”

Turn off Cuomo’s gas for fracking ban: Hofmeister: New York Gov. Andrew Cuomo has drawn either high praise or fierce criticism for banning fracking in the state. John Hofmeister, founder of Citizens for Affordable Energy and former Shell Oil president, clearly falls into that second camp. "The people in New York state will be suffering as a consequence because this is a sound business. It is a needed business," he told CNBC on Friday, two days after Cuomo announced plans to ban hydraulic fracturing in the state. The decision—which the Democratic governor said was up to state's environmental commissioner—came after the release of a long-awaited report that said the oil and gas production process could pose health risks. Read MoreGreentech: Oil price slump's latest victim "I don't know where the governor gets the heat for his mansion, but it probably comes from fossil fuel," Hofmeister said. "If he doesn't want to drill it in New York state, maybe we should just turn off the gas."

With fracking banned in New York, what happens to landowners, leases? - -- New York's decision to ban fracking because of health concerns has raised a number of questions about what happens next. Here are some of the questions and the best answers we could put forth today. What happens to landowners who have leases with gas companies? Nothing right now. The leases, which generally have time limits, will continue to stay in effect or end on their scheduled expiration dates. "It will not have a direct impact," said Joe Heath, a Syracuse lawyer who has worked with landowners who wanted to end their leases. One wrinkle is a case now pending before the state Court of Appeals over whether drilling companies can extend leases beyond their expiration date because New York had stalled in making a fracking decision. Landowners who sued to break those leases won in federal court, but the case has been moved to New York's highest court. Heath said he hopes the state's decision will prompt drilling companies to stop fighting to keep alive leases that landowners want to end. Will this decision be challenged in court? Gov. Andrew Cuomo said it's likely there will be lawsuits. The challenge could come from landowners who want to tap into the gas below their property, or from the oil companies that have paid for leases on that land. "I certainly think someone will file a lawsuit challenging this," said Brian Sampson, president of the Empire Chapter of Associated Builders & Contractors. "I certainly think if you're a landowner in the Southern Tier, the state has just made a decision that will prevent you from benefiting from the riches that are below your feet.

NY unlikely to face lawsuits over fracking ban, experts say (Reuters) - When Governor Andrew Cuomo announced a ban on fracking in New York on Wednesday, he predicted "a ton of lawsuits" against the state. But that is unlikely as the end of a drilling boom has left the industry in no mood for a fight, industry experts and lawyers said. "I think most of the companies in the industry are disinterested in fighting," said Brad Gill, the executive director of the Independent Oil and Gas Association of New York, a trade group. Six years ago, before the start of a lengthy New York moratorium on hydraulic fracturing of natural gas, the governor might have been right. But since then, the fracking phenomenon has turned from mania to mundane. Chesapeake Energy, once one of the biggest leaseholders in New York, last year gave up a legal battle to retain thousands of acres in the state. Norse Energy went bankrupt in 2012 after more than 100,000 acres in the state it leased were deemed off-limits to drilling. The industry's less confrontational stance reflects the dramatic shift in the U.S. natural gas industry over the years since the state's de facto ban came into force in 2008. That year, natural gas prices spiked to a near record around $14 per million British thermal units (mmBtu), and drilling were racing around the country snapping up land rights to exploit new techniques that would unlock decades worth of reserves.

NYS Ban on Fracking: Ripple Effect Expected Says NYIT Expert - New York Governor Andrew Cuomo’s decision to ban fracking in the state provides powerful ammunition for others around the country who are opposed to the issue, says NYIT Environmental Technology Associate Professor Sarah Meyland of NYIT’s Center for Water Resource Management. “It was a really good thing for him to do, but I was surprised at the announcement,” Meyland said. “It is important that he made the decision on the basis of health and environmental issues. It strengthens the whole argument around the country that fracking is a health problem as well as an environmental concern.” Meyland is available for interviews about hydraulic fracturing and the state’s ban. Many state residents wanted a ban but “they weren’t able to mount a strong case” against fracking, but Meyland says those who oppose fracking because of its effects on climate issues now have the NY decision to help bolster their own opposition. “Fracking will prolong our dependence on fossil fuel,” says Meyland. “I don’t think the world can afford that.” Meyland’s opposition also stems from environmental effects of fracking. “There’s no solution for the safe disposal of fracking waste,” she says.

Producers shrugging off New York fracking ban  - Even if the Cuomo administration had allowed fracking in New York State, it’s uncertain that oil and gas companies would have blitzed the borders, according to the Pittsburgh Business Times. Sam Kusic reports that Jim Tramuto, vice president of governmental and regulatory strategies for Southwestern Energy Co., said operators prefer to be in states that are welcoming and where the companies can have working relationships with regulators. He said, “New York just does not provide that environment.” On Wednesday, the Gov. Andrew Cuomo announced the official ban of hydraulic fracturing. The decision was made after it was decided that the process posed too many health and environmental risks. New York State officials have been studying the impacts of drilling since 2008, and a moratorium was placed on the process by former Gov. David Paterson in 2010. Tramuto continued to say how many other locations are available to producers, adding, “You’ve got a lot of really good shale plays out there.” New York sits atop the Marcellus Shale formation, but occupies less than 10 percent of its total acreage, according to Penn State geosciences professor Terry Engelder. He said, “In the big picture, the New York state ban is largely symbolic except for those people along the Southern Tier that may have benefitted.”

Why Cuomo’s Fracking Ban Won’t Matter Much - It’s hardly surprising that a liberal Democratic governor in one of America’s most liberal states chose to ban fracturing. Indeed, in most liberal/left groups, hatred of the oil-and-gas sector isn’t just popular, it’s a membership requirement. On Thursday morning, Dan Henninger of the Wall Street Journal put it exactly right when he told Charles Payne on Fox Business that “the Democrats have been captured by the Greens.” New York has had a moratorium on hydraulic fracturing for years. To change that policy now, after all the campaigning that has been done in the state by environmental groups, would have been a truly surprising move. That Cuomo formalized that moratorium and made it official is not surprising in any way. But in the big picture, the ban on fracturing in New York won’t matter much for domestic energy production. To understand why that’s true, we need only compare the attractiveness of New York as a place to get into the oil-and-gas sector with that of other states. Given the political risks of operating in New York, drillers have simply opted to take their rigs, workers, and capital and put them to work elsewhere. Sure, New York has lots of oil and gas in the Marcellus shale that could be extracted. But there are plenty of hydrocarbons in the Marcellus shale in Pennsylvania, too. Ohio has the Utica shale, North Dakota has the Bakken, Texas has the Eagle Ford, Louisiana has the Haynesville. Why would a driller consider locating in New York, given the political uncertainty? The answer is obvious: They haven’t, and now, thanks to Cuomo, they won’t.

Seven years of fracking debate in NY: In certain places in New York, Wednesday's news of the state's ban on fracking inspired public celebration. When a manager at GreenStar Natural Foods Market in Ithaca announced the news over a loud speaker, people in the store began applauding, cheering, shouting and hugging. "People had worked for this for so long," said Dawn Lodor, an assistant manager at the store, which helped organize opposition to shale gas development. In pro-fracking camps, the news was met with bitterness and disbelief. Dan Fitzsimmons, head of the Joint Landowners Coalition of New York group, listened to the decision from Cuomo's cabinet meeting in Albany streamed online to his farmhouse in Conklin. His reaction? "It was like a kick on the gut." His phone started ringing after that with angry members of the coalition who, in Fitzsimmons words, "feel like they've been robbed." It was no surprise that the news was emotionally charged. But, for people on both sides of the issue, it was an abrupt endpoint of an epic policy fight that began nearly seven years ago. New York's shale gas story will be cast in history as one of false starts, near misses, and empty promises. From the beginning, some harbored great expectations for a shale gas boom in the Southern Tier. In the end it was a bust that never got off the ground. I began learning the full implications of the shale gas story one day in early May, 2008, when several visitors came to the Press & Sun-Bulletin newsroom.  At the time, few people knew what fracking was, and most associated "Marcellus" with a small town outside Syracuse.

Here’s the grassroots political story behind the New York fracking ban - The Washington Post: Long before Wednesday's ban on fracking by the administration of Gov. Andrew Cuomo, small towns in New York state were fighting for their rights to ban fracking no matter what the state wanted. Last summer, the towns — located in counties with the best shale gas prospects — won an important victory in the state's highest court. On Wednesday, the New York health commissioner said the health risks of drilling outweighed the benefits of tapping the rich shale reserves. As we originally explored this year in early July, here's the story of the small towns that helped lay the political groundwork for that conclusion.

Environmentalists Are Gearing Up for the Next Phase of New York's Fracking Wars -- At times it appeared as if Cuomo was leaning toward allowing fracking to proceed in New York. In 2012, he considered a plan that would have allowedfor fracking in New York's Southern Tier, as a way to boost the upstate region's struggling economy. But opponents of fracking accused the governor of trying to create "sacrifice zones," in which the state's poorest residents would bear the brunt of drilling's environmental costs. Even on Wednesday, Cuomo seemed to distance himself from the decision, telling reporters that he was deferring to his health and environmental advisors on the decision.  Never the less, environmental activists gathered outside the governor's office in midtown Manhattan yesterday for a victory rally after the announcement. But while they celebrated the ban, many also warned that a battle lays ahead over natural gas developments— gas pipelines, compressor stations, storage facilities—that have begun cropping up as gas from neighboring states passes through New York and into energy markets along the Eastern Seaboard. The new projects, they argued, could come with their own set of negative environmental impacts, even if drilling itself is banned.  "This is the next big battle," said Fox, citing the Constitution Pipeline, a 125-mile natural gas transmission vein that was approved by the Federal Energy Regulatory Commission (FERC) earlier this month, as a future target of protest.  A slew of FERC-approved natural compressor stations have also cropped up in New York, including one in Minisink, a township about sixty miles for New York City where residents have told me they are afraid to go outside for fear of the headaches, nosebleeds, and dizzy spells that they have started to experience since the station went online in June 2013. The FERC, together with the New York DEC, also gave their blessing this year to a plan that will allow Texas-based energy firm Crestwood Midstream to store natural gas in abandoned underground salt mines near Seneca Lake in upstate New York.

Editorial: Cuomo’s junk science - NY Daily News: Politics, not science, drove Gov. Cuomo to ban natural-gas fracking from New York, killing upstate’s most promising hope for economic development. The governor cast acting Health Commissioner Dr. Howard Zucker as the voice of expert wisdom — whose research moved him to declare that he would not want his child to live in a community where fracking was taking place. Really? Zucker’s office admitted when pressed by the Daily News that the good doctor is both single and childless, making his avoid-at-all-costs proclamation as fact-free as the research he cited to help Cuomo reach the desired outcome. His department’s study of the threats posed by extracting gas from shale using a high-pressure water-based solution proved to be little more than a compendium of alarmist speculation. Far from identifying any concrete harm that properly regulated drilling would cause to health or the environment, the report mostly catalogued hypothetical perils that have yet to be credibly documented by research. No matter, Zucker spun the conflicting and incomplete results as grounds for rejecting a drilling method that is successfully practiced in dozens of states, generating huge economic benefits.

Reaction to NY decision on hydro-fracturing ban  --"Today's decision will shake the foundations of our nation's flawed energy policy, and we can only expect that it will give strength to activists nationwide who are fighting fracking in dozens of states and hundreds of cities and counties," said Sierra Club Executive Director Michael Brune. --- "The decision implies that at least 30 other states, Sen. Schumer and the Obama Administration's Environmental Protection Agency are wrong about the health impacts and do not care about the well-being of millions of American citizens, and discounts the successes that are occurring in Pennsylvania and elsewhere," said Republican state Senate Co-Leader Dean Skelos. --- "Woo! New York State just passed a moratorium on hydrofracking. Thank you, Gov. Cuomo, Joe Martens and Commissioner Zucker and thanks to all the beautiful, dedicated people in the anti-fracking movement who used science, their guts, their brains, and their hearts to make this day a reality. Love you," actor-activist Mark Ruffalo said on Instagram. --- "While other states across the nation continue to realize the numerous economic benefits from responsible natural gas development, New York State has yielded to a well-funded, fear-based propaganda campaign," said Greg Biryla of Unshackle Upstate, a business coalition. --- "This is a disappointing day for the people of the Southern Tier, and for the people of New York. The impact of this missed opportunity will be long-lasting," said Heather Briccetti, president of the Business Council of New York State.--- "Today is a major victory in the movement for safer energy," said Ansje Miller of the Center for Environmental Health, a national nonprofit group. "Other states should follow New York's example and join the movement for a clean energy future."

Landowners React to Fracking Ban: Wednesday’s decision by the Cuomo administration to ban fracking in New York has struck a nerve among upstate landowners, particularly those in the southern tier. Dan Fitzsimmons, president of the Joint Landowners Coalition of New York, a coalition of 77,000 landowners representing over 1 million acres of land, and the owner of 185 acres of land in Broome County, Binghamton, N.Y., says the governor has turned his back on the hardworking men and women of the southern tier. “Governor Cuomo rejected lower taxes, lower utility bills, job creation, business growth, clean affordable energy, and domestic power generation,” he said in a statement. Farmers and other large landowners have been long awaiting for the temporary ban to be lifted, in hopes of making sweet land deals with eager energy companies. Former New York state Gov. David Paterson issued an executive order in 2010, placing a six-month moratorium on fracking across the state. Chesapeake Energy Corp. was offering as high as $2,500 per acre before the moratorium was put in place.Some farmers complain they have been struggling since the economic downturn of 2008 with mounting debt and bankruptcy pending. “Many of our farmers in the southern tier are extremely disappointed with the decision and question what economic opportunities could have come their way through the reinvestment in their family farms,” said Dean Norton, New York Farm Bureau president, in a statement.

Fracking In New York: It Ain't Over Till It's Over -- And It Ain't Over -- Was that the same Governor Andrew Cuomo of New York from whom we’ve come to expect such decisiveness and combativeness over the years? “I don’t think I even have a role here,” he said at a news conference on Wednesday, turning to the state’s expert officials for answers regarding his administration’s decision to ban hydraulic fracturing in the state. Actually, the announcement underscored just how indecisive his administration has been on this particular issue. The ban came after a six-year review by the state’s Department of Environmental Conservation that included a study from the New York State Department of Health. The ongoing procrastination angered everyone: environmentalists, energy companies, and the property owners who stand to benefit from fracking – and Cuomo paid a political price in November when he only carried eight of the upstate counties that had previously voted for him. While the ban may be a major setback, it is not a final defeat. The lure of jobs and growth that fracking represents for the upstate New York communities won’t go away. Legal actions and political challenges to the ban are likely inevitable, and the energy industry is no doubt sitting down right now strategizing a comprehensive initiative. Further studies can be commissioned. A constant chorus of support for rethinking and possibly overturning the ban can resound throughout the digital airwaves. The fact that the ban coincided with a historic drop in oil prices (ironically caused, in part, by the natural gas boom) was lost on no one. That marketplace reality will be the energy industry’s greatest hurdle to reversing the ban, especially as analysts do not foresee supply/demand stabilization for some time to come.

Ohio and Maryland Should Take a Hint from New York's Fracking Ban - Governor Cuomo’s decision was backed by the science described at length in the Health Department’s extensive study of the risks fracking poses to public health. New York Health Commissioner Howard Zucker summed up the study simply: he wouldn’t want his child to play outside in a community that allows fracking. Oil and gas companies claim that accidents are few and far between, but leaks, spills, and explosions are not uncommon. And when they do happen, they are often severe. Ohio, a small shale gas producer compared to states like Texas and Pennsylvania, has seen a distressing number of serious accidents related to fracked wells. Last month, a worker was killed in an explosion and fire at a fracking site. Two weeks before that, Ohio saw three fracking-related accidents in three days, during which a worker was burned, a pipeline fire torched acres of forest, and a well blowout forced 400 families to evacuate. In June, a massive spill and fire forced 25 families to evacuate and killed over 70,000 fish along a 5-mile stretch of a tributary of the Ohio River. The fire took a week to extinguish, with at least 30 explosions occurring over that week, driving dangerous shrapnel though the air. The state lets companies drill up to 100 feet from homes, but explosions at drilling operations are capable of blowing pieces of metal much farther than that. The month before that fire, drillers were unable to prevent the excessive buildup of pressure in a well, which led to a leak of around 1,600 gallons of oil-based drilling fluids into a tributary of the Ohio River. These accidents are unacceptable, yet they are only the most visible instances of pollution. We can’t see the long-term impacts of widespread drilling and fracking—damage to groundwater, the atmosphere, and the public health effects of long-term exposure to chemicals—but they stand to be a much more significant threat.

Will N.Y. move on fracking affect Pa.?: As it considered whether to allow high-volume hydraulic fracturing in New York, the administration of Gov. Andrew Cuomo sought guidance from health officials on possible impacts to air and water quality. Pennsylvania officials also have studied possible health impacts of the technique known as fracking, but did so after the practice was well underway here. Was New York exercising more caution with the health of its citizens? Perhaps, but when Cuomo's administration announced Wednesday that it would ban the technique for extracting natural gas from shale deposits, analysts said the decision was as much about politics and economics as it was about health. Still unclear is what New York's move means for Pennsylvania, where high-volume fracking - the use of pressurized fluids to crack open gas deposits in shale - yields trillions of feet of natural gas a year. Gov.-elect Tom Wolf said last week that he disagreed with New York's ban, vowing instead to ensure that the practice is performed safely. He also has proposed a 5 percent tax on gas extraction. Yet a spokesman said Wolf continues to oppose drilling in the Delaware River Basin. That region is overseen by a commission with members from Pennsylvania, New Jersey, New York, and Delaware, along with a representative from the federal government. Drilling in the basin has been on hold amid disagreement among the participating states. Delaware and New York are expected to vote no on any proposal to allow drilling, whereas Pennsylvania under Gov. Corbett has been squarely in favor. Representatives from New Jersey and the U.S. are said to be reluctant to cast a deciding vote.

No Fracking In New York? That's OK With Pennsylvania -- Pennsylvania's fracking boom has led to record-breaking natural gas production, but its neighbor, New York, announced Wednesday it was banning the practice. Industry and environmental groups say New York's decision could be good for Pennsylvania.New York's ban comes six years after the state placed a temporary moratorium on fracking to study the gas drilling technique. Now, officials question fracking's economic benefits and cite environmental risks."There are many red flags because scientific issues have not yet been comprehensively studied through rigorous scientific research at this time," says Howard Zucker, New York's acting health commissioner.George Stark, a spokesman for Houston-based Cabot Oil and Gas, says New Yorkers who fear the process just don't understand it. The company operates many of the most productive wells in Pennsylvania."Our industry — this entire episode — is saving many farms. So the farmers that I've been in contact with endorse and embrace hydraulic fracturing," Stark says.Pennsylvania is now dotted with more than 7,000 active wells.

Faulty policies, falling prices spell bad news for fracking -- Two recent events have cast some doubt about the seemingly bright future of fracking in northeastern Pennsylvania and in other parts of the country. The first has to do with a few voter-driven efforts to eliminate fracking. The second is related to the recent plunge in energy prices.While voters and many municipal governments have decided to restrict fracking, few have banned it all together. That is why shock waves ruminated through those involved in the fracking process when 59 percent of voters in Denton, Texas — a state that owes much of its economic success to petroleum — voted to ban hydraulic fracturing all together. During the campaign to ban fracking in Denton, claims about and the potential for groundwater contamination were taken more seriously because, unlike northeastern Pennsylvania, there are many gas wells right within Denton’s relatively small city limit — in fact there are 270 of them. Some wells were drilled within a football toss of North Texas’ football field. Property owners in Denton, those with even relatively small plots of land on top of the rich Barnett Shale, are hardly taking the ban lightly. For many, it was a major, if not sole, source of income. These property owners are not the only ones undone by the ban. Texas Railroad Commission Chairwoman Christi Craddick told the Dallas Morning News that she would continue to issue permits in Denton. The commission, which regulates drilling in Texas, is also seeking an injunction against the ban.

The Texas Energy Revolt - Today, state lawmakers, the oil and gas industry and national environmental groups have become acutely aware of Denton, home to two universities, 277 gas wells and now, thanks to a rag-tag group of local activists, Texas’ first ban on fracking.  Thrust into the saga is George P. Bush, who in January will take the helm of the Texas General Land Office, an otherwise obscure office that manages mineral rights on millions of acres of state-owned property. In his first political office, Jeb’s eldest son, George W.’s nephew and one of George H.W.’s “little brown ones,” will inherit one of two major lawsuits filed against Denton, home to a sliver of that mineral portfolio.  “We don’t need a patchwork approach to drilling regulations across the state,” Bush, a former energy investment consultant, told the Texas Tribune in July as the anti-fracking campaign gained steam. It appears to be his only public statement on the issue.  Bush’s role in the dispute—however peripheral—only brightens the spotlight on Denton, and it forces him and others to choose between two interests Texans hold dear: petroleum and local control.  McMullen’s group—Frack Free Denton—convinced nearly 59 percent of Denton voters to approve a fracking ban on November 4, after knocking on doors, staging puppet shows and performing song-and-dance numbers. The movement had help from Earthworks, a national environmental group, but its opponents—backed by the oil and gas lobby— raised more than $700,000 to spend on mailers and television ads and a high-profile public relations and polling firm. That was more than 10-times what Frack Free Denton collected.

Meeting explores drilling changes | Denton Record Chronicle - Questions from the audience Monday night focused primarily on two new programs the city has proposed in amending its gas well ordinance, beefed-up inspections and “co-locations” for pad sites. The city unveiled details in a formal presentation for the crowd, including its plan to have energy companies select a single location for the gas wells they want to operate. The “co-location” program allows the city to review an energy company’s application to drill by pulling together all contiguous leases, selecting a single location for multiple, horizontal wells, and releasing the rest of the land for other development. It was the first substantive public discussion of the amendments since the Denton City Council adopted a moratorium on new drilling permits in May to work on them. The city is also planning amendments to increase insurance coverage requirements of operators, improve disclosure of existing gas well locations to people buying homes and property in Denton, and hire an independent firm to conduct additional equipment inspections.

Bush School report says fracking could lead to Texas water shortage  - Freshwater in the Eagle Ford Shale — a geological formation that encompasses 30 Texas counties, including Brazos — is being drawn from the aquifers 2.5 times faster than the replenish rate, according to key findings from a Texas A&M Bush School of Government and Public Service study. As a result, and as hydraulic fracturing, or “fracking,” activity continues to grow within the massive shale, researchers who conducted the study estimated Texas could face a 2.7-trillion-gallon water shortfall by 2060. Highlights from the report, “Water Use in the Eagle Ford Shale: An Economic and Policy Analysis of Water Supply and Demand,” were recently included in the latest edition of “The Takeaway,” a publication of the Mosbacher Institute for Trade, Economics and Public Policy at the Bush School. Led by Bush School professor James Griffin, researchers analyzed four years of groundwater consumption data from within Eagle Ford, which spans southwest from Brazos County into Webb County . Researchers concluded each well used for fracking requires about five million gallons of water. Since 2010, more than 200 operators have drilled into shale reserves that had been inaccessible until hydraulic fracturing technology became available.

Anti-fracking fringe | TheHill: Most of the wells in Denton are in the southwestern portion of the city. Looking at the precinct results for the election, that part of the city actually rejected the ban by nearly a 2-to-1 margin. While the actual homeowners living closest to the wells were voting in favor of responsible drilling, the ban enjoyed its strongest support from the precincts that include Denton’s two college campuses. Notably, there are few if any wells in those precincts. Additionally, the precincts with the widest margin of support for the ban also heavily supported Democrat Wendy Davis over Republican Greg Abbott in the state’s gubernatorial race. Anti-fracking groups have focused on college towns and, in many cases, areas with no existing development to try to enact symbolic bans, using the measures as "evidence" that opposition to hydraulic fracturing is growing. They have succeeded in spinning press coverage out of these bans, and even convinced the media to suggest that support for oil and gas development is eroding in communities all across the country. For example, they have touted fracking bans in Mendocino County, Calif.; Mora County, N.M.; the state of Vermont; and Athens, Ohio. What ties all of these together? They all generated headlines about fracking being banned, even though there is no significant oil and gas development occurring in any of those areas. In only rare occasions do the stories about these bans include that crucial fact.

Fracking bans in cities hurt everyone -  On Nov. 4, the voters of Denton made history. They approved a fracking ban within the city limits, the first ban of its kind in the energy-giant state of Texas. It was, however, the kind of history that other leading energy regions, such as the Bryan-College Station metropolitan area, should strive to avoid. The ban effectively ends natural gas production in the city -- and the thousands of jobs and millions in tax receipts that it generates annually. Natural gas production in the gas-rich Barnett Shale accounts for nearly 40 percent of economic growth in the region. It also produces about $30 million in taxes to Denton. The Perryman Group estimated in a report earlier this year that the ban, if approved, could cost Denton $251.4 million in economic activity and 2,000 jobs over the next 10 years. The legislation also would slash tax income by $5.1 million and cut $4.6 million in revenue to the Denton school district. Expect consumers and residents to make up the difference, especially if a long, expensive legal battle ensures. Hydraulic fracturing and horizontal drilling are nothing new, especially in Texas. What is new are the recent calls for drilling restrictions by activists who also are trying to kill the Keystone Pipeline, offshore energy development, transmission lines for wind and solar electricity and almost every other energy development plan in America.

The Shocking Data Proving Shale Oil Is Massively Over-hyped -  Hooray, oil is suddenly much cheaper than it used to be. That's great news, right? Not so fast. For certain it's not good news for those counting on a continued rise in US oil production from the "shale miracle". Many drillers were challenged to operate profitably when oil was above $70 per barrel. Very few will remain solvent with oil in the $50s (as it is as of this writing). So, expect US oil production to suffer from these lower prices if they persist. But even if oil prices rise and rise soon, there's new data that indicates the total amount of extractable oil from America's shale plays is less -- much less -- than what we're being told (or better put, "sold"). On today's podcast, Chris talks with oil analyst David Hughes, who has complied several recent studies based on a massive database of production results on a play-by-play basis of America's shale basins. The data show that declines tend to be hyperbolic in all shale fields. The average first-year decline is 70%; down to 85% by year three. And we're drilling the best plays first: meaning future ones will yield less even under the best results. We're pinning our hopes of "oil independence" on faulty data. Worse, we're using it to dismiss the Peak Oil theme at exactly the time we should be using this extra oil to construct the infrastructure for our next energy age (whatever that may look like), while we still have the net energy available to us:

Oil Storm Has Texas Wildcat Veterans Warning Bakken Rookies to Take Cover - Autry Stephens knows the look and feel of an oil boom going bust, and he’s starting to get ready. The West Texas wildcatter, 76, has weathered four such cycles in his 52 years draining crude from the Permian basin, still the most prolific U.S. oilfield. Though the collapse in prices since June doesn’t yet have him in a panic, Stephens recognizes the signs of another downturn on the horizon. And like many bust-hardened veterans in this region -- which has made and broken the fortunes of thousands -- he’s talking about it like a gathering storm. The ups and downs of oil are a way of life in Midland and Odessa, Texas, dating all the way back to the Great Depression. It’s as much a part of the culture as Gulf Coast hurricanes, and residents often prepare accordingly.   “We’re going to hunker down and go into survival mode,” Stephens, founder of Endeavor Energy Resources LP, said. “Stay alive is our mantra, until the price recovers.” Go about 1,300 miles (2,100 kilometers) due north and you get a very different take from the rookie oil barons in North Dakota, where crude output from the Bakken formation went from 200,000 barrels a day in 2008 to about 1.2 million today. They’re not seeing any need to take shelter, and it shows in their swagger.Of all the booming U.S. oil regions set soaring by a drilling renaissance in shale rock, the Permian and Bakken basins are among the most vulnerable to oil prices that fell to $56.74 a barrel at 11:19 a.m. in New York. With enough crude to exceed the reserves of Saudi Arabia, according to some producers, they’re also the most critical to the future of the U.S. shale boom.

Texas Could Be Headed for an Oil-Fueled Recession, J.P. Morgan Economist Says - The global plunge in oil prices could lead to a painful economic downturn in Texas, J.P. Morgan Chase’s chief U.S. economist said Thursday. “As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession,” Michael Feroli said in a note to clients. Texas has seen strong growth in recent years, outpacing the U.S. recovery in part thanks to a boom in domestic oil production. The state’s unemployment rate in October was 5.1%, below the national rate of 5.8%, according to the Labor Department. Gross domestic product in Texas expanded 6.9% in 2012 and 3.7% in 2013, beating national GDP growth of 2.5% and 1.8% respectively, according to the Commerce Department. But Texas could be in danger from the global swoon in oil prices since the summer. The per-barrel price of West Texas Intermediate, a benchmark U.S. crude oil, has fallen nearly by half since its June peak.  That’s good news for most U.S. consumers and businesses, who are enjoying lower energy costs including cheaper gasoline. “It’s something that is certainly good for families, for households,” . “It’s putting more money in their pockets, having to spend less on gas and energy, and so in that sense it’s like a tax cut that boosts their spending power.”

Surreal Aerial Photos Show Impact From Fracking » Sometimes it takes a bird’s eye view to get a sense of the full scope of what’s being done to our land in pursuit of profit. A few weeks ago we ran some photos by artist Mishka Henner who creates projects that make people think about how we interact with our environment. Those photos showed industrial-scale feed lots, factory farms where thousands of animals are raised, taken from the air. He discovered them while flying over the country working on another project: aerial photos of oil drilling sites. Those photos are just as compelling, combining a virtually abstract beauty with a sense of the devastation being done to the environment in the lust to extract oil. Each print is assembled from hundreds of high-resolution satellite images of each location. They include photos taken in Texas, Utah and California‘s Kern County, its most fracked county. Long home to conventional oil drilling and undergoing an explosion of fracking operations in the last decade, it has been called “the Texas of California.” You can learn more about Henner and see more of the photos here.

Big Trouble for the Bakken Oil Field: Has the Bust Begun? -- The Great Bakken Oil Field suffered a setback in October as production declined 1,598 barrels per day compared to the previous month.  The industry blames the decline on drillers scaling back on production due to the new flaring mandate that requires companies to capture natural gas as well as the rapid fall in oil prices. While these factors will impact future production, there are additional red flags warning that the Bakken may be already heading for BIG TROUBLE.  And nothing spells trouble more than the huge loss of Bakken oil production due to its high decline rate. Each month the EIA – U.S. Energy Information Agency puts out a Productivity Report on the different shale oil and gas fields.  The EIA’s first Productivity Report was published in October 2013.  If we compare the rate of change in the Bakken from the first issued report to the most recently published data, the decline in monthly production continues to increase: According to the October 2013 Report (Top), the Bakken added 86,000 barrels of day (bd) of production from new wells, while suffering a loss of 60,000 bd, netting a gain of 24,000 bd for November.  When the EIA publishes these reports, they are estimating the production and decline rate for the following month. On the bottom of the chart, the EIA forecasts the Bakken will produce 104,000 bd of new production in January with a loss of 77,000 bd, netting an increase of 27,000 bd for the month.  As we can see, the Bakken monthly decline rate has increased from 60,000 bd in November 2013, to an estimated 77, 000 bd in January 2014. Basically, the Bakken now has to produce at least 77,000 barrels a day of new production each month just to stay flat.  This is up 17,000 bd or 28% in just a little more than a year.  So, the EIA believes the Bakken will continue to grow its oil supply in January by adding a net 27,000 bd of production.  However, there is good evidence that production at the Bakken may actually decline rather than increase.

Guest Post: Calculating The Breakeven Price For The Median Bakken Shale Well -- A lot of data has been thrown around recently concerning the Bakken shale wells of North Dakota in an attempt to figure out the necessary oil price required to break even on the investment.  In order to get a clearer picture of the financial situation in Bakken, it is necessary to develop a financial model of the median Bakken well (attached).    With a discount rate of 15%, the median well has a profitability index of 1.02 (after federal income tax) if $66 per barrel is used.   (A profitability index of 1.0 indicates a break even situation at the discount rate that was used in the model).  This means that at $66 per barrel, half the wells are uneconomic.  If oil prices settle out at this price it can be expected that the number of wells drilled should be reduced by about half. If the current oil price of $55 per barrel is used, the initial production rate has to be increased to 800 BPD in order to break even.  According to the J.D. Hughes data, 25% of the wells have an initial production rate of 1000 BPD or more.  Accordingly, if oil prices settle out at the current price, the number of wells drilled will be about a quarter of the present number. Some people have stated that this shale industry exists only due to abnormally low interest rates.  If we use $100 per barrel and increase the discount rate to 20%, the median well has a profitability index of 1.6, which is profitable.  The well is still making over 200 BPD after payout.  My conclusion is that the shale development would still be profitable in a normal interest rate environment. The production data used in this model are from only 4 counties, Dunn, McKenzie, Mountrail, and Williams.  Very few wells have been economic outside of these 4 counties.  Therefore, when these 4 counties become saturated with wells, the Bakken play is over. 

Crash-O-Matic Finance -- Kunstler - “Oil prices have dropped $50 a barrel. That may not sound like much. But when you take $107 and you take $57, that’s almost a 47 percent decline…!”  May not sound like much? I guess when you hunker down in the lab with the old slide rule and do the math, wow! Those numbers really pop! This, of course, is the representative thinking out there. But then, these are the very same people who have carried pompoms and megaphones for “the shale revolution” the past couple of years. Being finance professionals they apparently failed to notice the financial side of the business, for instance the fact that so much of the day-to-day shale operation was being run on junk bond financing.  It all seemed to work so well in the eerie matrix of zero interest rate policy (ZIRP) where investors desperate for “yield” — i.e. some return more-than-zilch on their money — ended up in the bond market’s junkyard. These investors, by the way, were the big institutional ones, the pension funds, the insurance companies, the mixed bond smorgasbord funds. They were getting killed on ZIRP. In the good old days of the late 20th century, before Federal Reserve omnipotence, they could depend on a regular annual interest rate churn of between 5 and 10 percent and do what they had do — write pension checks, pay insurance claims, and pay clients, with a little left over for company salaries. ZIRP ruined all that. In fact, ZIRP destroyed the most fundamental index in the financial universe: the true cost of borrowing money. In doing so, it twerked and torqued the concept of “risk” so badly that risk no longer had any meaning. In “risk-on” financial weather, there was no longer any risk. Imagine that? It also destroyed the entire relationship between borrowed money and the cost-structure of the endeavors it was borrowed for. Take shale oil, for instance.The fundamental limiting factor for shale oil was that the wells were only good for about two years, and then they were pretty much shot. So, if you were in that business, and held a bunch of leases, you had to constantly drill and re-drill and then drill some more just to keep production up. The drilling cost between $6 and $12-million per well. What happened the past seven years is that the drillers and their playmates on Wall Street hyped the hoo-hah out of the business — it was a shale revolution! In a few short years they drilled to beat the band and the results seemed so impressive that investment money poured into the sector like honey, so they drilled some more. It was going to save the American way of life. We were going to be “energy independent,” the “new Saudi America.” We would be able to drive to Wal-Mart forever!

US shale industry faces endurance test after Opec rejects cuts - When Saudi Arabia and other Gulf countries last month rejected calls for a production cut by Opec, the oil cartel, they put the responsibility for stabilising plummeting crude prices on to the US shale industry. Suhail al-Mazroui, energy minister for the United Arab Emirates, said US shale companies and other producers who had created an oil glut should “respect the needs of the market”. Two weeks on from that Opec decision — and against a backdrop of a 40 per cent fall in the oil price since June — evidence of its negative impact on US producers is starting to emerge. Rather than a war, the US shale industry is braced for a test of endurance. As the pressure on oil producers mounts, weak companies face the threat of dwindling investment, faltering production, forced asset sales and possible bankruptcy. The successful companies will be the ones that both entered the downturn in the strongest position and are most effective at improving their efficiency. They can hope to make it through to better days when the oil price recovers and are also likely to be able to pick up some undervalued assets. On Monday ConocoPhillips, the US’s largest exploration and production company, unveiled plans to cut its capital spending by about 20 per cent next year to $13.5bn — a steeper reduction than analysts had expected — and said it would defer drilling programmes in several North American shale areas. 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 new permits to drill 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.

Some companies won't survive the oil meltdown -- America's shale oil boom has been the darling of investment circles in recent years. People were throwing cash at these companies, hoping to get a piece of the rapid growth.Not anymore. The dramatic plunge in oil prices has made some shale projects unprofitable. Investors are waking up to the realization that not all shale oil is created equally. Drilling for oil is extremely capital intensive. Companies often borrow money to fund the exploration and drilling. Now that oil is sitting at just $55, it's likely to get much more difficult for shale players to get the financing they need after years of low interest and bond rates. Investors are betting that at least some of these more speculative shale companies won't survive if oil prices stay low for a prolonged period. Just look at the junk bond market, which has been rattled by the energy turmoil. High-yield energy bonds have tumbled almost 10% this month alone, according to S&P Dow Jones Indices. "It becomes a vicious spiral. If bonds stay where they are, it's going to be very difficult for these companies to raise new capital to continue to live," Huge energy companies like ExxonMobil and Chevron have plenty of financial flexibility to weather low oil prices, but that's not the case for many smaller, highly-leveraged players. Some of them are cash flow negative, meaning they aren't generating enough revenue to offset the heavy investments they are making. Up until now, they've plugged those holes by selling stock or raising equity. But $55 oil has changed that equation. Few investors are willing to provide affordable financing.

Why The US Is About To Be Flooded With Record Oil Production Due To Plunging Oil Prices -- One would think that plunging oil prices and the resulting mothballing (or bankruptcy) of the highest-cost domestic producers would lead to a collapse in US oil production. And sure enough, if looking simply at headline data like the Baker Hughes count of active rigs in the US, then US oil production grinding to a halt would be all but assured. However, what will actually happen, even as the highest-cost producers and those with the weakest balance sheets are taken to their local bankruptcy court, is that as Bloomberg reports, the US is - paradoxically - set to pump a 42-year high amount of oil in 2015 "as drillers ignore the recent decline in price, pointing them in the opposite direction."

U.S. Talking Oil Exports Just When World Needs It Least -  The U.S. Congress is talking about allowing unfettered oil exports for the first time in almost four decades. Its timing couldn’t be worse. There’s space in the global market for 1 million to 1.5 million barrels a day of U.S. crude if the ban vanishes, Energy Information Administration chief Adam Sieminski told a congressional subcommittee at a Dec. 11 hearing. That would be less than 2 percent of worldwide demand. With prices sliding amid a glut, the figure is bound to be even smaller, according to consultants including Wood Mackenzie Ltd. As members of Congress promise more hearings on repealing the restrictions on oil exports, the world is awash in the stuff. Global prices have fallen by almost half since June to the lowest in five years amid slower demand growth and rising supply. What’s more, the kind of crude flowing in record volumes from U.S. shale plays is already abundant in the market.“If they dropped the export ban today, how much crude would get exported?” Harold York, vice president of integrated energy research at WoodMac in Houston, said by telephone. “Today? I say none. At these prices, why would a barrel leave?” Global crude prices have fallen 45 percent this year to below $60 this week for the first time since 2009. Producers say the U.S. shale boom may falter if they can’t reach overseas markets, while refiners fight to keep the limits, which have reduced domestic costs and allowed them to export record amounts of gasoline and diesel.

US rig count down 18 to 1,875 — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. fell by 18 this week to 1,875. The Houston firm said Friday in its weekly report that 1,536 rigs were exploring for oil and 338 for gas. One was listed as miscellaneous. A year ago 1,768 rigs were active. Of the major oil- and gas-producing states, Arkansas gained three rigs, Kansas and New Mexico each rose by two and Alaska and Pennsylvania were up one apiece. North Dakota declined by seven, Oklahoma by six, Texas down four, Louisiana off three, and Ohio and West Virginia each decreased two. California, Colorado, Utah and Wyoming were unchanged.

US Oil Rig Count Tumbles Most In Over 5 Years,"Demand From Oilfield Customers Dropping Rapidly" -- "Unequivocally" not good. Following last week's surge in initial jobless claims for 'Shale' states, Baker Hughes confirms rig counts continue to tumble.  The last two weeks have seen the total US rig count fall the most since 2009 (and Canada down 9.3% this week alone). Seemingly confirming this weakness, The Kansas City Fed notes respondents see non-durable (petroleum) demand "sluggish", and rather awkwardly against the "everything's great meme," one respondent exclaims, "demand from oilfield customers is dropping rapidly." The current US rig count is now the lowest in 5 months...US Rig Counts are sliding fast... But just as in 2008, there is a lag... this has only just begun... And Canada is getting crushed...(graphs)

More than 500 rigs may shut down as oil slides, analysts say: As many as 550 drilling rigs may have to sit on the sidelines of U.S. shale oil patches over the next few months, analysts say, as oil prices have folded nearly in half since this summer. The projections come a few days after Texas drilling rigs led the nation in a 1.4 percent weekly decline in the U.S. active rig count, according to oil field services firm Baker Hughes. Oil companies cut 20 rigs in the Permian Basin, a sharp turnaround from the flurry of rigs and hydraulic fracturing equipment that had rushed to West Texas earlier this year. “We think there’s a significant amount of pain coming” to the oil industry and its service companies next year, said Praveen Narra, an analyst with Raymond James. Any recovery in U.S. drilling activity will likely take longer than usual in oil-price downturns because the decline was set off by a glut in crude supplies, rather than less demand, he said. “The problem isn’t as quick of a fix as it would be if demand rebounded,” Narra said, adding that service costs for rigs and other oil tools will likely come down. Rigs could begin to see less work starting early next year, following a 40 percent drop in the number of new U.S. drilling permits issued from October to November, Jason Wangler, an analyst with Wunderlich Securities, wrote in a note to clients on Tuesday. So far, the most active U.S. oil basins have seen the sharpest fall in permits, as new issues in the Permian Basin in West Texas dropped 38 percent last month, the Williston Basin in North Dakota fell off 29 percent and the Eagle Ford Shale in South Texas declined 28 percent, according to Wunderlich.

Fracking could carry unforeseen risks as thalidomide and asbestos did, says report produced by Walport -- Fracking could carry unforeseen risks in the way that thalidomide, tobacco and asbestos did, warns a report produced by the government’s chief scientific adviser. A chapter in the flagship annual report produced by the UK’s chief scientist, Mark Walport, argues that history holds many examples of innovations that were adopted hastily and later had serious negative environmental and health impacts.  The controversial technique, which involves pumping chemicals, sand and water at high pressure underground to fracture shale rock and release the gas within, has been strongly backed by the government with David Cameron saying the UK is “going all out for shale”. But environmentalists fear that fracking could contaminate water supplies, bring heavy lorry traffic to rural areas, displace investment in renewable energy and accelerate global warming. The chapter in the report produced by the chief scientific adviser appears to echo those fears. “History presents plenty of examples of innovation trajectories that later proved to be problematic — for instance involving asbestos, benzene, thalidomide, dioxins, lead in petrol, tobacco, many pesticides, mercury, chlorine and endocrine-disrupting compounds...” it says.

Police asked university for list of attendees at fracking debate --- Police asked a university to hand over a list of members of the public who were due to attend a public debate on its campus. Canterbury Christ Church University, which had invited experts to debate the merits of fracking in an open forum, refused to hand over the list, and the police request has drawn sharp criticism, with one of the panelists branding it deplorable. More than 200 people went to the debate to listen to and question a panel that included a retired geologist, engineers, a local councillor, an analyst from a thinktank and a campaigner. Kent police said they needed to assess “the threat and risk for significant public events in the county to allow it to maintain public safety”. The fracking debate on 19 November was organised by sociology academics, and members of the public who wanted to attend were required to book a place through the university. The university confirmed that it had been “contacted for a list of attendees at the Engaging Sociology event, Fracking in the UK, and did not disclose the requested information.” It added, without further explanation, that “the university did not feel it was appropriate to provide the information”.

CMU, Fractraker teaming up to monitor crude oil trains through region: Trains carrying millions of gallons of crude oil from Midwestern shale oil fields pass through the region daily and at speeds approaching the limit established to reduce derailment risks, according to a pilot study by Fractracker Alliance and Carnegie Mellon University’s CREATE Lab. The study counted 360 tanker cars bearing the Department of Transportation “1075” and “1267” flammable oil and gas placards on 10 trains passing through the city during 11 daylight hours on Oct. 21. Six of those 10 trains were traveling east with a total of 176 full tanker cars The other four were traveling west with 84 empty tanker cars. The train spotting and rail car counting was done on Norfolk Southern’s Fort Wayne line, which runs along the Ohio River through Sewickley, Glenfield, Ben Avon, Avalon and the North Side. The study, conducted on just one of seven rail freight lines used by oil trains in Allegheny County, is the first to count the number of oil trains passing through, and there are plans to do several more. The Fractracker news release about the study states that by tracking and monitoring the transport of oil and gas, “we can begin to understand the risks that these trains pose should an incident occur.” “We want to study the oil trains issue in several ways across Pennsylvania and beyond, examining the communities and populations affected and evaluating the scale and dynamics of the train traffic, including speeds and volumes of cargo,”

U.S. taxpayers help fund oil-train boom amid safety concerns -- For the past 18 months, Americans from Albany to Oregon have voiced growing alarm over the rising number of oil-laden freight trains coursing through their cities, a trend they fear is endangering public safety. In at least a handful of places, the public is also helping fund it. States and the federal government have handed out tens of millions in public dollars to rail companies and government agencies to expand crude oil rail transportation across the country, a Reuters analysis has found. The public assistance in states like New York , Pennsylvania , Ohio , Oklahoma and Oregon comes as railroads are posting record profits, and as state and federal authorities press for safety overhauls that the oil and rail industries have opposed, following several explosive derailments. The Reuters analysis identified 10 federal and state grants either approved or pending approval, totaling $84.2 million, that helped boost the number of rail cars carrying crude oil across the nation. The funds are a fraction of total public funding for railroads each year, and look small compared to the $24 billion railroads themselves are spending annually on infrastructure. But with oil-train safety under heavy scrutiny, the public grants could be controversial and add to growing strains between the industry and some local communities who say they are ill-prepared to deal with oil spills or derailments.

Another industry scam, this time Alberta tar sands investors left high and dry! -- As the Saudi’s continue to flood the market with cheap oil in an attempt to break the economic back of Russia, investors in the Canadian tar sands (Hello Koch Brothers?) are in a bit of a first world pinch. This excellent expose published in The Ecologist shows how fossil fuel companies ware misleading investors and potential investors by greatly understating the risks of lower oil prices, higher costs for environmental damages, and new green house gas regulations. Something has to give, right?  Tar sands industry faces ‘existential’ $246 billion loss The exploitation of Canada’s tar sands is more than just an environmental catastrophe, writes Gregory McGann. It’s also an turning into an economic disaster, with massive investments at risk as falling oil prices leave the tar sands stranded.  92% of future oil sands production will only viable if oil prices are $95 per barrel. However, prices stand at only $85, so producers are losing money for every barrel of oil they sell. One of the most destructive forms of oil production is financially nonsensical and faces total collapse, according to a new report by the Carbon Tracker Initiative (CTI), Oil Sands: Fact sheets. The report suggests that that investors are being misled about the economic viability of oil sands production, which is doing irreparable damage to the pristine boreal forests of northwestern Canada.

57,000-Gallon Oil Spill In Canada Forces Closure Of Pipeline To U.S.  - Canadian energy delivery company Enbridge Inc. has temporarily shut down and isolated one of its crude oil pipelines that connects to the United States after a 1,350-barrel, or 56,700-gallon oil spill, the company reported Wednesday evening. While the company said it’s not sure how long the cleanup will take or when the pipeline will be re-opened, it insisted that no oil was spilled out of the area within the Regina Terminal in Saskatchewan, where the incident occurred. It’s not yet clear what kind of oil was released — the 796,000 barrel-a-day Line 4 pipeline, which connects to a terminal in Wisconsin, carries heavy, medium, and light sour crude. “There are no impacts to the public, wildlife or waterways,” Enbridge said in a statement. “Nearby residents and businesses may detect a faint odour.” A spokesman for Enbridge told Reuters that the spill happened because of a problem with a valve within the terminal, and not because of a problem with the actual pipeline. He called it a “relatively easy fix,” but did not give a timeline for when the system would be back in action. Bloomberg News reported Thursday that Canada’s National Energy Board would meet with Enbridge officials on Friday to discuss when the line could return to service.

Closed for Risky Business: Stop Supporting Toxic Tarsands | Toronto Media Co-op: This morning more than a dozen affiliates of Enbridge and the Tar Sands have been locked out of their workplaces throughout Ontario. Individuals in 9 cities have participated. Doors to banks, political offices, and other institutions associated with Enbridge have been locked or otherwise disabled, with “Closed for Risky Business” notices posted. These notes all convey the same message: “Good people cannot simply watch as the government and big business dismantle protections and poison our communities for profit, so today we call attention to companies that enable Enbridge to continue destroying for profit - their financiers and contractors; their facilitators and publicists. Those who manage their security and their planning, approve their permits and projects – and any other players who passively take part in eco-destruction while operating business as usual.” The National Energy Board has already had to crack down on Enbridge's Line 9 project this year for negligence and safety concerning watercourses line 9 crosses however, anti-Line 9 activists are adamant that the public cannot rely on the NEB to be an effective watchdog since environmental protection is not in their mandate.

Keystone pipeline to top Senate agenda next year: Senate Republican Leader Mitch McConnell says approving the Keystone XL pipeline will top the Senate agenda in January. The issue could set up an early 2015 veto confrontation with President Barack Obama. Congressional Republicans have been pushing for approval of the pipeline for years. Obama has resisted because of environmental concerns. The pipeline would carry tar sands oil from Canada into the United States and eventually to the Texas Gulf Coast. The Republican-led House has repeatedly passed legislation approving the pipeline. But the bills have died in the Democratic-controlled Senate. Republicans will take control of the Senate in January, and McConnell said approving the pipeline will be the first issue on the agenda. McConnell said the pipeline would create jobs. But as crude oil prices drop around the globe, some have questioned whether the pipeline still makes economic sense. Global crude prices hovered below $60 Tuesday, their lowest price in five years.

Keystone XL pipeline may no longer make economic sense, experts say --Amid the shouting on Capitol Hill, the wads of campaign cash and the activist careers shaped around the Keystone XL pipeline, the project at the flashpoint of America's energy debate now confronts a problem bigger than politics. It may no longer pencil out. As Congress' six-year obsession with Keystone nears a climax, plunging oil prices have industry analysts questioning whether the plan to link Canadian tar sands with Gulf Coast refineries still makes economic sense. It is now possible that pipeline backers could win their hard-fought battle for political approval yet never build the project. With the GOP about to take control of both houses of Congress, backers of the pipeline say they are close to having a veto-proof majority for a bill that would order the Obama administration to give the project the federal permit required for pipelines that cross a U.S. border. But "the political debate is not paralleled by the realities" in the market, said Sandy Fielden, director of energy analytics at Texas-based RBN Energy. "The economics of this project are becoming increasingly borderline." The problem is that extracting oil from tar sands is difficult and costly. Prices need to be relatively high to make the extra effort profitable. For pipeline boosters, market conditions have turned gloomy as world oil prices have dropped to the lowest point in five years.  By some estimates, the price of oil already has dropped below what investors in Keystone would need to break even, and some analysts believe further drops are in store.

How cheaper oil changes the calculus for Keystone XL - With oil hovering around $57/barrel (for WTI) as of late Monday afternoon, now might be a good time for a quick look at the state of Canada’s enormous and expensive tar sands projects, and at the Keystone XL pipeline intended to help move what they produce. First have a look at this chart of production costs — for tar sands oil, at the far right, they are some of the highest in the world: The average cost per barrel this year for existing Canadian oil sands projects is close to $80, roughly $30 above the rest of the world. (Production costs for existing tar sands projects are significantly lower than those for new fields, however, and some might be profitable at current prices.) But even more interesting is the effect of lower prices on the political and economic dynamics of the Keystone XL pipeline. As background, approval for the pipeline from the US government faced political trouble even before the fall in oil, and most recently was rejected by the US Senate in November. Oil produced from tar sands developments is dirtier and more carbon-intensive than crude produced from other places. It’s quite possible, and increasingly likely, that the Senate will approve the pipeline when the less environmentally friendly Republicans assume control of the Senate in January. President Obama, however, can veto it, and he seemed surprisingly open to the possibility last week.  The political delays — the pipeline was first proposed in 2008 — together with court challenges mean that producers have also made contingency plans. After six years of waiting, one oil magnate even recently dismissed the entire project as “irrelevant“.

Cuba's Oil Potential - Is It a Motivating Factor For Ending the Embargo? -  The thawing of relations between the United States and Cuba after fifty years of pointless embargo is interesting, particularly given that American business investments that were nationalized in 1959, may at some point be reopened to U.S.-based companies.  As a petroleum geoscientist and a world class cynic, my mind naturally turns to oil, the hydrocarbon that lubricates the world's economy.  As you will see in this posting, Cuba appears to have potential for significant hydrocarbon reserves.  Under the current embargo, Cuba cannot access U.S. oilfield equipment for both drilling and environmental protection.  The embargo prohibits the exporting and re-exporting of items that contain more than 10 percent American components under the De Minimus Rule under Sections 734.4 and 736.2 (b)(2) of the Export Administration Regulations (EAR).  What is particularly interesting about the embargo is the fact that Washington refued to allow an exemption for U.S. oil spill prevention and response companies even though the Obama Administration was very concerned about potential oil spills from drilling operations located relatively close to the U.S. - Cuba maritime boundary in 2012.     Let's look at Cuba's hydrocarbon potential.  According to the Energy Information Administration, Cuba produced 51,000 barrels of oil per day (BOPD) in 2012 and consumed 151,000 BOPD; the shortfall is made up of imported crude from Venezuela.  Here is a graph showing Cuba's total daily oil production from 1980 to 2013:

Obama Has Taken Alaska’s Bristol Bay Off the Market for Drilling - President Barack Obama on Tuesday listed Alaska’s Bristol Bay as a no-go zone for oil and gas drilling, promising to protect the coastal area’s booming fisheries, as well as preserve a linchpin of Native American heritage.The bay, home to a $2 billion annual fishing industry, supplies some 40 percent of America’s wild-caught seafood and supports local indigenous communities, the White House said in a press statement. Obama’s order indefinitely extends short-term protection for the area that was granted in 2010 and due to expire in 2017.The Alaskan region is home to the biggest wild sockeye salmon run in the world, as well as numerous threatened species, including the endangered North Pacific Right Whale.

Petrobras Said to Cut Exploration Spending in Cash Crunch - Petroleo Brasileiro, the biggest oil producer in ultra-deep waters, is curbing refining and exploration spending in response to the collapse in prices and difficulties tapping debt markets during a corruption probe, said two people with direct knowledge of the matter. The state-run oil company known as Petrobras plans to freeze investments in the Premium I and Premium II refineries in northeastern Brazil and sell assets to protect its cash position, said one of the people. The exploration cuts will focus on projects that are behind schedule, they said. Both asked not to be named because the information isn’t public. The stock erased a 6.8 percent drop to surge as much as 8.1 percent in Sao Paulo. It was up 5 percent to 9.64 reais at 2:42 p.m. Petrobras didn’t respond to e-mails seeking comment. “This is totally beneficial for the company, as they can build cash,”  Petrobras, the most indebted publicly-traded oil company, is trading at the lowest since 2004 amid an expanding investigation into contractors who allegedly bribed company officials. The oil producer has delayed reporting its financial results while independent investigators conclude their reports in what has become Brazil’s largest-ever money-laundering and corruption scandal. Shares tumbled 9.2 percent yesterday.

A few reasons to worry about falling oil prices — and a few reasons to celebrate -- Is the big drop in oil prices too much of a good thing? We may find out since there might be more room for them to fall. the UAE’s  energy minister tells Blooomberg that  middle eastern oil producers think “the market will stabilize itself. … We are not going to change our minds because the prices went to $60 or to $40.” The bear scenario on cheaper energy is outlined in a Capital Economics morning note: The fallout might be economic (as oil producers cut spending and investment, or highly-indebted countries with already low inflation rates get caught in deflationary spirals), financial (as some countries are forced to default or sell assets), or even geopolitical (as regimes dependent on high oil prices look for distractions from social unrest at home). These risks are likely to build if oil prices fall further. But the usually upbeat Ed Yardeni reminds us of the upside of cheaper energy for consumers:

    • 1) Buoyant confidence. The Bloomberg Consumer Comfort Index rose during the first week of December to the best readings since December 2007.
    • (2) Petroleum windfall. Personal consumption data show that consumers spent $381 billion on gasoline and $26 billion on heating oil at a seasonally adjusted annual rate during June. The price drops since then suggest that consumers could save as much as $200 billion, at an annual rate, on these petroleum products.
    • (3) Elevating earned income. Excluding gasoline station sales, retail sales rose 0.9% last month. Adjusted for inflation, we estimate that retail sales excluding building materials (which are included in GDP’s residential component) jumped 1.2% during November
    • (4) Widespread spending. Almost every major retail category was up solidly in nominal terms to either a new cyclical high or a new record high during November:

Some Interesting Facts Regarding US Oil Supplies - The futures contract for January 2015 has gone from $102 a barrel in July to $57 a barrel today, a $45 dollar a barrel discounting of price in less than six months. Much of this move is based upon bearish sentiment and future expectations for oil supplies along with bearish headlines coming out of OPEC Members and the exiting of the long side of the market (Players stepping away) and a huge short trade pushing prices lower. But the question is has too much bearish sentiment been priced in too fast? Well let`s look at some EIA Inventory Data for trying to put some actual data footholds if you will on the subject. US Oil Inventories The US has 380 Million Barrels of Oil in storage right now, and this time last year the US had 375 Million Barrels in storage, yet the futures price was $97.65 a barrel last year at this time versus $57 and change as of Friday. That is roughly a $40 re-pricing of the commodity on a little US Inventory difference on the WTI contract. In fact just a couple of weeks ago we actually had less US oil Inventories in storage, as from week to week the year over year comparisons (noise) can move the needle in either direction (last week`s EIA Report showed a surge in Imports) this can be reversed the following week. Let us dig a little deeper as this is the slow period for the oil market, after the summer driving season and before the heavy cold weather hits increasing demand for heating oil and other energy products in the heart of winter. On July 4th the US had 382 Million Barrels of Oil in storage, so actually more oil in storage at the heat of the summer driving season than we do today at the weak part of the oil market in terms of demand, but yet price has gone down $40 a barrel on essentially the same level of oil supplies here in the US.

Oil Investors Keep Betting Wrong on When Market Will Bottom - Investors betting on a rebound in oil prices are nothing if not tenacious. They have poured the most money in more than four years into exchange-traded products that track oil as prices fell 18 percent this month. It’s the third consecutive month that the four biggest U.S. funds have received money, during which time futures have plunged 41 percent. “It’s a testament that after such a wild selloff people are more and more eager to step in and wait for this eventual rebound,” said Stoyan Bojinov, a Chicago-based analyst at ETF Database. “Oil looked cheap a month ago and it’s even cheaper today, that’s why we continue to see these inflows.” Oil prices have tumbled by half since June amid surging production and slower than expected demand growth. Output in the U.S. is the highest in three decades, and OPEC, responsible for about 40 percent of global supply, maintained its output target at a Nov. 27 meeting. The U.S. Energy Information Administration said last week that consumption around the world next year will be 390,000 barrels a day less in 2015 than it forecast in October.

The dark side of the oil shock -- The financial markets saw only bad news in the oil shock last week. Despite extremely strong US consumer data, there is a reluctance to recognise the shock for what it is – a long-lasting structural change, with mostly beneficial consequences for aggregate demand in the developed economies. As John Authers explains, weak Chinese data are causing concern, but there is little evidence that China has been the main cause of falling oil prices. Global oil demand has been fairly stable as supply has surged, and it is surely revealing that the latest oil price drop followed the Saudi decision to maintain oil output after the November OPEC meeting.  Like investors, economists have been thrown into confusion. Almost no-one in the profession (including myself) predicted the oil price collapse in advance. After the shock, it took months for oil price forecasts to be brought into line with the new reality. Futures prices in the oil market have performed no better: predicting oil prices can be a mug’s game. More surprisingly, there has also been a disinclination to accept the potential benefits in the oil shock. Some economists have said it largely reflects an adverse demand shock in the global economy, so it is axiomatically bad news. Others have said that, even if it is a supply shock in the oil market, which would normally be beneficial, this time will be different, because it will be deflationary, and will therefore raise real interest rates. There are some honourable exceptions, like Martin Wolf and David Wessel who have viewed it mainly as a supply shock with net beneficial consequences. But the pessimists have thrown up a lot of noise... If the pessimists have a case, it is in oil producers in the emerging world, especially Russia. But, among oil importers in the developed world, it is hard to see too much of a dark side..

Petrothoughts - Paul Krugman - Just leaving a conference in Dubai, and thinking about oil prices. So, some not especially organized notes.  One involves the failure of OPEC to restrict production to support prices. I guess I wonder why anyone thought that was likely. My understanding has always been that when people say OPEC, the subtitle reads “Saudi Arabia”, which is the only player that has ever done much to restrict output to sustain prices. And Saudi Arabia only accounts for about 13 percent of world production, which gives it limited power even given inelastic demand (especially because unconventional oil supply is probably quite price-elastic, further reducing Saudi market power.)   Also, consider the precedents: the last time there was anything like the recent oil glut, namely back in the 1980s, even drastic cuts in Saudi production, shown in the accompanying figure, weren’t enough; eventually the Saudis gave up, and prices crashed, so why should they go through that again?  My other thought is that Venezuela-with-nukes (Russia) keeps looking more vulnerable to crisis. Long-term interest rates at almost 13 percent, a plunging currency, and a lot of private-sector institutions with large foreign-currency debts. You might imagine that large foreign exchange reserves would allow the government to bail out those in trouble, but the markets evidently don’t think so. This is starting to look very serious.

The oddly subdued optimism about falling oil prices  - Our pal Josh Brown has a hilarious post highlighting the pessimism bias in how the fall of oil prices has been discussed in the US:This past June, crude oil prices were hitting highs above $110 a barrel and the narrative was that this was why stocks were selling off. The S&P 500 had a weekly correlation of .55 with oil, meanwhile, and had actually spent most of the year rising with it. So not only was the “story” of why stocks were dropping false, the data was as well.Some headlines from June:

The reasons given then to describe the relationship between oil prices rising and stock markets selling off were adorable. Today, the S&P 500 has a weekly correlation with oil of negative .55, literally an about-face from this time six months ago. A correlation of negative .55 means that the two are almost diametrically opposed. And yet – and yet – the drop in oil is being blamed for the selloff in stocks today. The Dow dropped 312 points, after having risen for five straight weeks, and the business media is blaming oil. Here are today’s headlines, in order, from the same publications as the headlines above (in one case, from the same writer):

Cardiff here. “Oil continues falling and that’s awesome” isn’t the kind of headline or story that journalists and pundits get paid to write — good thing that we are a mere blogger — and that’s fine. Journalists should be vigilant. But the dominant theme to emerge from the decline in crude should nonetheless be vigorously positive. And given the widespread efforts to spot the negative, such a message is worth emphasising at least once.

Goldman Pours More Crude On The Fire: "Oil Prices Can Go Lower For Longer" -- Slowing the rebalancing and creating further downside risk is a very strong consensus view that this pull back is temporary and that oil prices will quickly rebound as they did in 2009. According to a recent Bloomberg survey, the median WTI forecast for 2016 is $86/bbl (even we forecast it going back to $80/bbl). All of these forecasts are based upon now outdated cost data that is shifting as fast as the price. It is precisely this strong view for a rebound in prices and the behavior it creates, that not only suggests that oil prices can go lower for longer, but also that the new normal is far lower than we thought just one month ago. Instead of optimizing against a lower price environment, many oil producers are trying to position themselves for the rebound in prices

Oil Prices Fall to Fresh Lows - Oil prices tumbled for a fourth straight session, extending this year’s steep losses fueled by a persistent surplus of crude supplies. The spate of declines has sent the benchmark price for U.S. oil 48% lower in the past six months, underscoring how investors and traders see few signs of pullback in production big enough to stabilize the market. “The sellers are still in charge, and it seems like the market really hasn’t bottomed,” Oil for January delivery fell $1.90, or 3.3%, to close at $55.91 a barrel, the lowest level since May 2009 on the New York Mercantile Exchange. Brent crude, the global benchmark, slid 1.3% to $61.06 a barrel, the lowest level since July 2009, on ICE Futures Europe. Prices had risen earlier in Monday’s session after armed clashes in Libya over the weekend disrupted oil exports. A quadrupling of Libya’s oil output in a matter of months earlier this year is a major factor behind the global supply glut that has weighed on prices. But some previous disruptions to Libyan shipments were quickly resolved. Any interruption would have to be sustained to set even a temporary floor under prices, analysts said.

"Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers" - Most commentators remain in a state of denial about the enormity of the price fall underway. Some, failing to understand the powerful forces now unleashed, even believe prices may quickly recover. Our view is that oil prices are likely to continue falling to $50/bbl and probably lower in H1 2015, in the absence of OPEC cutbacks or other supply disruption. Critically, China’s slowdown under President Xi’s New Normal economic policy means its demand growth will be a fraction of that seen in the past. This will create a demand shock equivalent to the supply shock seen in 1973 during the Arab oil boycott. Today's ageing Boomers mean that demand is weakening at a time when the world faces an energy supply glut. This will effectively reverse the 1973 position and lead to the arrival of a deflationary mindset.... Prices have so far fallen $40/bbl from $105/bbl since we first argued in mid-August that a Great Unwinding was now underway. And there have been no production cutbacks around the world in response, or sudden jumps in demand. So prices may well need to fall the same amount again.

IEA cuts 2015 oil demand growth forecast, predicts lower Russia supply-12/12/2014- The International Energy Agency (IEA) has cut its forecasts for global oil demand growth in 2015 by 230,000 bbl/day to 900,000 bbl/day on expectations of lower supply from Russia on the back of falling oil prices and economic sanctions, the France-headquartered body said on Friday. Lower expectations for demand growth from Russia and other former-Soviet states for next year is balanced to an extent by predicted increased demand from the US, the agency added. Oil futures benchmark prices have slumped by $15/bbl since the publication of the IEA’s previous market report in November, following cartel OPEC’s decision to leave production targets unchanged at a recent meeting, as Middle Eastern oil majors opt for lower pricing over reduced market share. Oil-exporting economies are likely to suffer a stronger impact from the price falls than oil-importing countries will benefit, the agency added. “The adverse impact of the oil price rout on oil-exporting economies looks likely to offset, if not exceed, the stimulus it could provide for oil importing countries against a backdrop of weak economic growth and low inflation,” the IEA said.

Sinking Oil Price Is Hard on North Sea Producers -  — Back in September, when oil was still selling for close to $100 a barrel, North Sea energy reserves were the big prize at stake in Scotland’s referendum on whether to secede from Britain.The Scots voted to keep the kingdom united. But three months later, with oil trading in the $60 range, it is now North Sea oil whose future hangs in the balance.With a 40 percent fall in prices since June, oil producers around the globe are having to recalibrate. Rosneft is gauging the effects of the price on the Russian economy. OPEC nations are wondering how long they can let market prices threaten their cartel. And Texas shale-oil producers are contemplating whether to start another fracking project.Perhaps nowhere else in the global oil industry has the question of moving forward been as clouded by doubt as in the North Sea. If Brent crude, the North Sea benchmark, remains around $60 to $70, at least 85 percent of new British offshore oil and gas resources now in the planning stages are at risk of being dropped, according to the industry consultants Wood Mackenzie.

"It's A Huge Crisis" - The UK Oil Industry Is "Close To Collapse" - With great delight we present the latest blowback from Obama's "brilliant" strategy to cripple Putin: in addition to the default wave about to crush America's own shale industry, America's biggest foreign ally and military partner when it comes to "ideologically pure missions of liberation" - the UK, and specifically its North Sea oil industry which according to the BBC is in a "crisis" and according to Robin Allan, chairman of the independent explorers' association Brindex, the industry was "close to collapse".  "It's almost impossible to make money at these oil prices", said a director of Premier Oil. "It's a huge crisis. It's close to collapse. In terms of new investments - there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone."

Oil Slump Blindsides Bulls That Wagered on Rout Ending: Energy -  Speculators added to wagers that the slump in oil futures, the worst since the global recession, is ending. Prices kept falling anyway. Money managers raised their net-long position in U.S. crude to the highest in two months in the week ended Dec. 9, U.S. government data show. Most of the change came from short holdings contracting to the lowest level since August. Oil fell to a five-year low last week after OPEC producers including Kuwait and Iraq reduced prices and the International Energy Agency cut its estimate for global demand for the fourth time in five months. Saudi Oil Minister Ali Al-Naimi indicated he won’t trim supply, reiterating OPEC’s decision last month to leave the group’s production target unchanged even as the U.S. pumps the most oil in more than three decades.

When Shale Hedges Fail: The Downside Of Three-Ways - "[Shale Oil]Producers are inherently bullish," warns one energy-hedging firm, and that truth belies the weakness in the apparent hedging programs many over-optimistic energy firms are facing now. We hear day after day that, in the short-term, low prices can be handled "because they're hedged," but producers were so exuberant about the direction of oil prices they didn't do simple linear hedges (swaps or futures) to manage price movements, but instead, as Bloomberg reports, used the so-called "three-way collar." Simply put instead of a floor and a ceiling for prices, there is a 3rd (bullish) leg of low-strike sold puts that subsidized the cost of the hedge... unless the price of oil goes below that strike, in which case the hedge fails and, as a lot of producers are finding, they are now losing money.

The Fracturing Energy Bubble Is the New Housing Crash - David Stockman - Let’s see. Between July 2007 and January 2009, the median US residential housing price plunged from $230k to $165k or by 30%. That must have been some kind of super “tax cut”. In fact, that brutal housing price plunge amounted to a $400 billion per year “savings” at the $1.5 trillion per year run-rate of residential housing turnover. So with all that extra money in their pockets consumers were positioned to spend-up a storm on shoes, shirts and dinners at the Red Lobster. Except they didn’t. And, no, it wasn’t because housing is a purported “capital good” or that transactions are largely “financed” at upwards of 85% leverage ratios. None of those truisms changed consumer incomes or spending power per se. Instead, what happened was the mortgage credit boom came to a thundering halt as the subprime default rates became visible. This abrupt halt to mortgage credit expansion, in turn, caused the whole chain of artificial economic activity that it had funded to rapidly evaporate.  Substitute the term “E&P expense” in the shale patch for “housing” investment and employment in the sand states, and you have tomorrow’s graphs—–that is, the plunging chart points which are latent even now in the crude oil price bust.  But the full story of the housing bust also reminds that the long caravans of pick-up trucks which will soon be streaming out of the Bakken in North Dakota will represent only the first round impact.

The squeeze on oil sector’s ‘supertankers’ - The international oil majors are like supertankers, hard to turn round in a hurry. But they have been forced to plot a new course, as the slump in oil prices transforms the energy industry. Low oil prices, which have plunged more than 45 per cent since mid-June, are squeezing their cash flow, forcing them to slash costs and curtail spending. Most are expected to announce big cuts to capital expenditure with their full-year results in 2015. Even for a big beast like ExxonMobil, the outlook is bleak. Fadel Gheit of Oppenheimer estimates that at oil prices of about $65 a barrel Exxon would be heading for a cash shortfall of about $15bn per year. “If these prices last for a couple of years, that puts it $30bn in the hole. That will make a dent, even for Exxon.” Yet in many ways, the majors are much better placed than their smaller rivals to withstand the turbulence ahead. Their earnings are a lot less volatile, partly because they have many more sources of income, including refineries that profit from lower crude prices. They are financially stronger, with lower borrowings and better credit ratings. They can take advantage of lower prices to pick up businesses and assets at bargain prices from smaller companies that are forced to sell. The majors are also generally better able than others to absorb short-term price volatility because of the immensely long time horizons they operate on. Oilfields in Alaska and the North Sea discovered in the late 1960s and early 1970s are still valuable assets. Even so, the effect of the current price drop will be significant. In some cases, reduced cash flow will be insufficient to cover capital spending. And there is unlikely to be much let-up in the future, if longer-term price expectations are anything to go by. Internationally-traded Brent crude for delivery in five years’ time has dropped from about $94 per barrel in June to about $76 this week.

Oil prices as an indicator of global economic conditions -- West Texas Intermediate sold for $105 a barrel at the start of July, but ended last week at $58. The most important factor has been surging U.S. production. But another reason oil prices have slid so much is weakness in demand for the product, which may be related to a slowdown of overall world economic growth. Here I comment on the importance of that second factor. For example, the price of copper fell from $3.27/pound to $2.93, a 10% drop over those same six months. This of course has nothing to do with the success of people in getting more oil out of rocks in Texas. Softness in demand for commodities like copper and oil may be one indicator of new weakness in the world economy. The yield on 10-year U.S. Treasury bonds is also down almost 50 basis points over the period, for which I believe the most plausible interpretation is again weakness in the world economy. And the dollar is up 11%, which I attribute to the same cause. To get an impression of the quantitative importance of these developments, I regressed the weekly change in the natural logarithm of the crude oil price (here’s why I use logarithms for this) on the change in the 10-year yield and the change in the logs of the copper price and the value of the dollar using data from April 2007 to June 2014. Here are the results of that regression, with t-statistics in parentheses as calculated using a Newey-West adjustment with 5 lags:

Oil-Led Slump Spurs Fastest Investor Exit Since ’08: Commodities -- Open interest in raw-material futures and options is down 6.5 percent since June, heading for the biggest second-half slump since 2008, exchange data show. U.S. exchange-traded products tracking metals, energy and agriculture saw net withdrawals of $169.4 million in 2014, marking the first two- year slump since the funds were created a decade ago. Commodities are under pressure from many sides. Collapsing oil prices are driving bearish sentiment because energy is used to produce or deliver almost everything, according to Societe Generale SA. Low inflation and higher interest rates create an “ugly scenario” for gold, says Bank of America Corp. And weaker currencies in countries that produce everything from soybeans to iron ore mean supplies will continue to climb, Goldman Sachs Group Inc. predicts. “Now is not a time to be overweighting commodities,” Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.4 trillion, said in a Dec. 17 telephone interview. “For now, the outlook is still negative. It wouldn’t surprise us to see prices go down even further. We wouldn’t be taking any tactical positions.” Energy Leads The Bloomberg Commodity Index of 22 products slumped 14 percent this year, heading for a fourth straight annual drop that will be the longest since the gauge’s inception in 1991. Brent crude tumbled 46 percent, the biggest loss among the raw materials, after trading below $60 a barrel this week for the first time in five years.

Déjà Vu All Over Again - John Michael Greer -- Over the last few weeks, a number of regular readers of The Archdruid Report have asked me what I think about the recent plunge in the price of oil and the apparent end of the fracking bubble. That interest seems to be fairly widespread, and has attracted many of the usual narratives; the blogosphere is full of claims that the Saudis crashed the price of oil to break the US fracking industry, or that Obama got the Saudis to crash the price of oil to punish the Russians, or what have you.  I suspect, for my part, that what’s going on is considerably more important. To start with, oil isn’t the only thing that’s in steep decline. Many other major commodities—coal, iron ore, and copper among them—have registered comparable declines over the course of the last few months. I have no doubt that the Saudi government has its own reasons for keeping their own oil production at full tilt even though the price is crashing, but they don’t control the price of those other commodities, or the pace of commercial shipping—another thing that has dropped steeply in recent months.  What’s going on, rather, is something that a number of us in the peak oil scene have been warning about for a while now. Since most of the world’s economies run on petroleum products, the steep oil prices of the last few years have taken a hefty bite out of all economic activities. The consequences of that were papered over for a while by frantic central bank activities, but they’ve finally begun to come home to roost in what’s politely called “demand destruction”—in less opaque terms, the process by which those who can no longer afford goods or services stop buying them.

The high cost of low-priced oil -- As a consumer of oil, you may regard recent sharp declines in the world oil price as a blessing. But... If you work in the oil industry, you will not. If you work in the renewable energy industry, you will not. If you work in the energy efficiency business, you will not. If you work to address climate change, you will not. If you have investments in the oil industry (and nearly everyone does through pensions or 401k plans), you will not. If you live in a country that exports a lot of oil (not just Saudi Arabia, but Mexico, Canada and Norway, too), you will not. The declining price of oil is supposed to have a balanced ledger of winners and losers. But we may be on our way to finding out that in the long run we will have a much larger list of losers than winners. And, the list will lengthen if the price continues to fall, and especially if it stays down for a long time. (Low prices are not necessarily an indication of future abundance. Remember that oil reached $35 a barrel at the end of 2008 before returning to record average daily prices in 2011, 2012 and 2013.) Now here is something to contemplate. Is the price of oil falling because we can no longer afford it? This is not an idle question. Record high average daily prices for oil in the last three years have been an unrecognized cause of sluggish overall worldwide economic growth. That subpar growth appears to be exhausting itself now, particularly in Asia and Europe. In dampening growth, high oil prices sewed the seeds of their own demise by ultimately dampening demand. But, low oil prices will make it even harder to secure future oil supplies. The oil industry was already cutting back its exploration budgets before the price plunge. The industry said that there were not enough profitable prospects available even at $100 per barrel. What happens to industry exploration and development budgets with oil prices now around $60? Without exploration there can be no new production; and without new production, oil supply falls automatically.

Oil spill: As the oil price plunges, gloom and ill-will, oddly, abound -- Economist -- BE CAREFUL what you wish for. After years of grumbles about a historically high oil price, the cost of crude has tumbled. But cries of woe are outnumbering the shouts of joy. Exporters, oil-company shareholders and industry suppliers are all contemplating a future of oil at $60 a barrel—or below. So too are all the people who lent money to them. Markets are pricing in the pain and pessimism immediately, while seeming to discount the future gains to energy users. Russia’s currency is at a record low, falling below 60 roubles to the dollar on December 15th. Indonesia’s rupiah is at its weakest for six years. The FTSE 100, a London-based stock market index dominated by extractive-industry shares, had its worst week since August 2011, with a 6.3% fall. European equities across the continent suffered their biggest weekly loss in more than three years. Emerging market stocks are also down to a nine-month low. Over the weekend Abdallah Salem el-Badri, secretary general of the Organisation of Oil Exporting Countries, (OPEC), a cartel which produces 40% of the world’s oil, said he saw no grounds for production cuts.  That will be little comfort to those squeezed by the 50% fall in the price of oil from its peak three years ago. Mr el-Badri says he believes that the drop is excessive. "The fundamentals should not lead to this dramatic reduction [in price]," he said. OPEC was "assessing the situation" to determine the real reasons behind the decrease.

Oil price fall threatens $1tn of projects - Almost $1tn of spending on future oil projects is at risk after a brutal plunge in crude prices to nearly $60 a barrel, Goldman Sachs has warned. Any cancellation of these developments would deprive the world of 7.5m barrels a day of new output over the coming decade — or 8 per cent of current global oil demand. The findings suggest the supply glut that has sent prices tumbling could soon vanish as the oil majors delay big-ticket production projects — the lifeblood of future petrol supplies, heating fuels and chemicals. Brent, the international benchmark, has fallen more than 45 per cent since mid-June amid surging US shale production, strong supply from the Opec cartel and weak oil demand in Europe and Asia. The price plunge has shaken the energy industry, throwing some of the majors’ most ambitious plans into doubt and pummelling oil company shares. Projects in challenging frontier regions like the deep waters of the Gulf of Mexico are predicated on high oil prices and may not be economic with oil at $60 a barrel — the level Brent was trading at on Monday afternoon. Goldman has examined 400 oil and gasfields around the world, many of which are still awaiting a final investment decision. Its analysis, based on a $70 oil price, shows that fields representing 2.3m b/d of output by 2020 and awaiting a green light have now become uneconomic. That figure rises to 7.5m b/d of production by 2025. The analysis excludes US shale. The bank shows that companies will need to cut costs by up to 30 per cent — for example by forcing suppliers to take steep price cuts — to make these projects profitable at $70 a barrel.

Crashing crude may blow a $1.6 trillion hole in the global oil sector, annually -—Talk about an oil spill. The spectacular unhinging of crude oil prices over the past six months is weighing mightily on the U.S. stock market. And while it may be too early to abandon all hope that the market will stage a year-end Santa rally, it appears that if Father Christmas comes, there’s a good chance his sleigh will be driven by polar bears, instead of gift-laden reindeer. Wall Street’s gift: a major stock correction. Indeed, the Dow Jones Industrial Average, already endured a bludgeoning, registered its worst percentage decline since Nov. 25, 2011, down 677.96 points, or 3,78%. It was also the worst week for the S&P 500 on a percentage basis since May 18, 2012. The S&P 500 was down 73. 04 points and 3.52% on the week. But all that carnage is nothing compared to what may be in store for the oil sector as crude oil tumbles to new gut-wrenching lows on an almost daily basis. On the New York Mercantile exchange light, sweet crude oil for January delivery settled at $57.81 on Friday, its lowest settlement since May 15, 2009. Moreover, the largest energy exchange traded fund, the energy SPDR XLE, -0.89% is off by 14% over the past month and has lost a quarter of its value since mid-June. The real damage, however, is yet to come. By some estimates the wreckage, particularly for the oil-services companies, may add up to a stunning $1.6 trillion annual loss, at oil’s current $57 low, predicts Eric Lascelles, RBC Global Asset Management chief economist.

Saudi Arabia is playing chicken with its oil: Saudi Arabia is once again using its “oil weapon,” but instead of driving up prices and cutting supply, it’s doing the reverse. In the face of a global slide in oil prices since June, the kingdom has refused to cut its production, which would help to drive prices back up. Instead, the Saudis led the charge to prevent OPEC from cutting production at the cartel’s last meeting on Nov 27. The consequences of Saudi policy are impossible to ignore. After two years of stable prices at around $105 to $110 a barrel, Brent blend, the international benchmark, fell from $112 a barrel in June to around $65 on Friday. “What is the reason for the United States and some U.S. allies wanting to drive down the price of oil?” Venezuelan President Nicolas Maduro asked rhetorically in October. His answer? “To harm Russia.” That is partially true, but Saudi Arabia’s gambit is more complex. The kingdom has two targets in its latest oil war: it is trying to squeeze U.S. shale oil—which requires higher prices to remain competitive with conventional production—out of the market. More broadly, the Saudis are also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war. Since the Syrian uprising began in 2011, regional and world powers have played out a series of proxy battles there. While Saudi Arabia and Qatar have been arming many of the Syrian rebels, the Iranian regime—and to a lesser extent, Russia—have provided the weapons and funding to keep Assad in power. The conflict is now a full-blown proxy war between Iran and Saudi Arabia, which is playing  out across the region. Both sides increasingly see their rivalry as a winner-take-all conflict: if the Shi’ite Hezbollah gains an upper hand in Lebanon, then the Sunnis of Lebanon—and by extension, their Saudi patrons—lose a round to Iran. If a Shi’ite-led government solidifies its control of Iraq, then Iran will have won another round.

Why Big Oil Needs a Bailout in New OPEC Price War --Let's just admit it: We don't have a true free-market economy. If we did, we wouldn't have bailed Wall Street out of the mess it created during the housing bubble with nary a slap on the wrist — with some estimates putting the price tag at nearly $8 trillion — as their CEOs spent millions on bonuses and office redecorations in the midst of the downturn.  I'm not here to pass judgment on whether this has been a success, just to acknowledge that if we're honest, and want to spread the largesse evenly in the interests of the bigger picture, then the oil and gas folks could use a helping hand. Last week, crude oil plunged below $58 a barrel for the first time since May 2009. Wholesale gasoline futures have dropped by nearly one-half from their summertime highs. And further declines look likely. All of this is threatening what has been the lone bright spot of the economic recovery to date: The growth of the U.S. energy industry thanks to the rise of fracking technology and the opening of production in shale plays. A major portion of job gains since late 2007 have been concentrated in shale-oriented states such as North Dakota and Texas. The increase in domestic oil and natural gas production has helped narrow the U.S. trade deficit by about a third since 2006. . And, as I discussed in a recent column, the collapse of energy prices has been the primary cause of the recent turbulence in financial markets.  .  How bad could it get? Morgan Stanley warned its clients that Brent crude, which is now joust above $61 a barrel, could fall as low as $43 in the first quarter of 2015. On Sunday, United Arab Emirate Energy Minister Suhail Al-Mazrouei said OPEC would stick to its guns "even if oil prices fall as low as $40 a barrel" and would wait at least three months before considering an emergency meeting.

Emerging Market Oil Importers Are Suddenly Under a Cloud - It’s starting to get messy in emerging markets. The bonds and currencies of oil-exporting countries such as Russia, Nigeria and Venezuela are still getting hammered. But what’s really worrying investors is how jitters are spreading to supposedly healthy countries, such as Turkey and India, which import oil and should therefore benefit from lower prices – all at a time of the year when trading volumes are notoriously thin, magnifying the moves. “Emerging market sentiment has really soured in this last month along with commodity prices. This is now combining with seasonal illiquidity to make markets go down in big steps. I don’t think anybody is willing to step in front of that in the last two weeks of the year,” said James Barrineau, co-head of emerging market debt at Schroders. Credit default swap protection to insure against a default of $10 million of Russian five-year bonds now costs $536,000 a year, according to Markit, up from $487,000 Friday. Venezuela’s bonds are now trading on average at around 40% of their face value. Oil importers are also getting that sinking feeling: Yields on 10-year Indian government bonds climbed 0.04 percentage points to 7.84% Monday. Yields rise as prices fall. The Indian rupee is down 1.55% Monday at 63.17 against the dollar — its lowest level since January. The cost of five-year CDS protection on $10 million of Turkish debt rose by $11,000 to $210,000 Monday, while the Turkish Lira slumped to a record low against the dollar. Turkey is a big oil importer, too, and just last week analysts were trumpeting the fall in oil prices as a potential fillip to the country’s soaring current account deficit.

Blowback from Oil Price War: Sovereign Wealth Funds Selling Investments - While there has been ample discussion the impact of falling oil prices on the national budgets of major oil producing nations, there's been less media focus on how some of the countries that face budget squeezes are likely to react. Consider what a difference nine days makes. Moody's gave six Middle Eastern countries a thumbs up on December 8, based on the assumption that oil prices will average $80 to $85 a barrel in 2015. With WTI now at $55.33, it appears reasonable to assume a price of $60 or below for the first half of 2015. The consensus is that production cuts will lead to much firmer prices in the final two quarters,* but $70 a barrel would now seem a more reasonable forecast for the year. Here is the money part of the Moody's assessment (emphasis ours):

The Global Energy Security War -- Concerns about energy security have shot to the top of the political agenda in Europe. But the US has no intention of letting the EU down. “The United States will be working with the EU to develop a plan for the mid- to long-term evolution of a more energy-secure future”, said US Secretary of Energy Ernest Moniz at a conference of the Atlantic Council in Istanbul. At this summit, top US officials and energy experts showed themselves surprisingly positive about the progress the EU has made reducing its dependence on Russia. “A few years ago, we couldn’t have solved the Ukrainian problem. Now we can.” With US LNG exports under way, the “monumental” Southern Corridor under construction, and Gazprom’s South Stream project increasingly under pressure, Europe’s position will only get stronger. Karel Beckman reports from Istanbul.

What America Does Not Understand About Russia & Oil -- As hard as it is to believe - given the strength of the "Russia-is-doomed" meme - Crude oil prices for Russia (in Rubles) are unchanged since February... This is important as all costs are Ruble denominated while revenues are USD denominated, leaving Russian oil companies’ margins insulated despite the dollar decline in price. In addition, the Russian government is easing the export taxes which further improve the profitability of Russian oil. So as US Shale Oil sector is destroyed by its USD costs, it appears Putin's core energy industry is somewhat insulated... and America's late-80s "defeat The Soviet Union" playbook is failing.

Iraq seeks one-year deferral on Gulf War reparations (Reuters) - Iraq has requested a one-year deferral of a $4.6 billion reparations payment for destroying Kuwait's oil facilities during its 1990-91 occupation, a U.N. official said on Wednesday. The request comes as Iraq's economy is being battered by both low oil prices and war with Islamic State militants. Kuwait and major powers on the ruling body of the U.N. Compensation Commission will consider the formal request at a special session in Geneva on Thursday, the official, who works on the commission, said. Kuwait was said by the official to be supportive of the request. "We have a request for a one-year suspension of the requirement to deposit 5 percent of Iraqi oil revenues into the compensation fund," the senior official told Reuters. "They are looking for a one-year deferral with the possibility of review at the end of one year," she said, adding that the decision could be taken on Thursday.

Enter the Dragon: China offers Iraq Aerial Strikes on ISIL/ Daesh  - The list of powers eager to see Daesh (what Arabs call ISIS or ISIL) defeated grew larger this weekend with a report in the Financial Times that Iraqi foreign minister Ibrahim Jaafari received a pledge from his counterpart Wang Yi that China would intervene against Daesh from the air. It was not clear whether China was offering to fly fighter jets or just programmed missile strikes.  China is heavily invested in Iraq’s petroleum sector. It is one of the world’s largest petroleum importers after the US, bringing in 6.1 million barrels a day. In addition, China has a restive population of Muslims in its northwest and is no doubt afraid of the influence on them of Daesh (Chinese Uigurs are fighting alongside militants in Syria). China is not OK with putting Chinese army troops on the ground, but, like President Obama, is willing to intervene from the air.China says it will not join President Obama’s ad hoc coalition, and so any bombing runs the Chinese do will be unilateral and possibly poorly coordinated.For China to bomb Daesh targets in the Sunni Arab areas would be an virtually unheard-of deployment of Chinese military might far from its borders.In short, China is beginning to behave like a classic capitalist imperial country, intervening with military force to protect investments, markets and trade routes. In short, Beijing now has an interest in Iraq that seems to make it willing to deploy air power to defeat Daesh.

Occupy groups to start 'non-cooperation movement' as follow-up to mass protests | South China Morning Post: Students and civic groups are launching a "non-cooperation movement" - urging people to delay paying their public-housing rent and to pay tax bills in small and symbolic amounts - as an offshoot of the Occupy prodemocracy protests. Alex Chow Yong-kang, secretary general of the Federation of Students, said yesterday the actions were legal and busy workers unable to join previous protests could take part. "Occupy is taking on different forms. While the government has no timetable for universal suffrage, we do have a timetable to fight for it and challenge the legitimacy of the government," Chow said. Secretary for Justice Rimsky Yuen Kwok-keung called on the public not to follow the groups' suggestions, saying it was not "a wise act" and he would not agree to "any suggestion to act in breach of the law". The groups' call came after police last week dismantled the Occupy stronghold in Admiralty.

China plans to ban local government debt from securitized products —China plans to ban asset management companies from repackaging local government debt as so-called securitized products, taking another step to contain risk in loans and bonds owed by many of its struggling regional authorities. The move, proposed by an industry association overseeing China’s fund management houses, came just a week after another subsidiary of the nation’s securities watchdog effectively barred investors from using low-grade bonds issued by local governments as collateral for short-term borrowing. However, given that asset-management firms account for only a fraction of China’s fast-expanding asset securitization market, the impact of the latest move will likely be limited, unless major issuers such as banks and trust companies follow suit, analysts say. In draft rules proposed by the Asset Management Association of China, which is overseen by the country’s securities regulator, the industry association unveiled a list of items that can’t be used as underlying assets for asset-backed securities, or ABS. Asset-backed securities are bonds or notes backed by financial assets including credit-card receivables, auto loans and mortgages. The products are appealing to issuers because by passing on risks to investors, they could get the underlying assets off their balance sheets and free up more capital.

China Flash Manufacturing PMI in Contraction, at 7-Month Low --The slowdown in China continues, as evidenced by contraction in China Flash Manufacturing PMI, now at a seven-month low.  Key points:

  • Flash China Manufacturing PMI™ at 49.5 in December (50.0 in November ). Seven-month low.
  • Flash China Manufacturing Output Index at 49.7 in December (49.6 in November ). Two-month high.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The HSBC China Manufacturing PMI dropped to a seven-month low of 49.5 in the flash reading for December, down from 50.0 in November. Domestic demand slowed considerably and fell below 50 for the first time since April 2014. Price indices also fell sharply. The manufacturing slowdown continues in December and points to a weak ending for 2014. The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”

China's manufacturing swings to contraction: HSBC data - -- China's manufacturing activity appears to be contracting this month for the first time since May, according to HSBC's preliminary or "flash" version of its monthly manufacturing Purchasing Managers' Index, released Tuesday morning. The PMI's headline number fell to a seven-month low of 49.5, down from November's final read of 50.0, and dropping below the 50 mark that separates overall growth from contraction. The output subindex extended its fall from the previous month, though at a slower pace, but new orders swung to a decrease, even as new export orders accerlated their gain. "The manufacturing slowdown continues in December and points to a weak ending for 2014," wrote HSBC chief China economist Hongbin Qu in comments accompanying the report. "The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months," Qu wrote. Chinese stocks eased following the data, with Hong Kong's Hang Seng Index down 0.9% compared to a 0.7% deficit ahead of the PMI release, while the Shanghai Composite Index saw its advance slim to 0.2% from 0.4%. HSBC's final December PMI was due out Jan. 2.

China industrial activity shrinks in December, calls grow for more stimulus (Reuters) - Activity in China's factory sector contracted in December for the first time in seven months, the latest in a string of weak economic indicators that will intensify calls for more stimulus measures to head off a hard landing. The flash HSBC/Markit manufacturing purchasing managers' index(PMI) fell to 49.5 in December from November's final reading of 50.0 and below the 50.0 forecast by analysts. The new orders sub-index fell to 49.6, the first contraction since April. A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis. "The manufacturing slowdown continues in December and points to a weak ending for 2014," Hongbin Qu, chief economist for China at HSBC, said after the survey was released on Tuesday. "The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months." However, while economists have continued to call for more easing, others question whether another round of easy credit is what China needs, given the country is still struggling to work off a mountain of bad debt and manufacturing overcapacity engendered by the last round of policy easing in 2009.

As China’s Economy Slows, So Too Does Growth in Workers’ Wages - Growth in minimum-wage levels across China appeared to have slowed this year, amid low inflation rates and a slowdown in the world’s second-largest economy, a labor watchdog says. Just 20 of the 32 Chinese provinces and regions tracked by China Labor Bulletin raised their statutory minimum wages so far in 2014, fewer than the 27 areas that lifted base pay levels last year, according to report published Tuesday by the Hong Kong-based group. The latest data also marked a third-straight year of decelerating minimum-wage growth, according to China Labor Bulletin. In 2014, the 20 regions that have boosted their minimum wages did so by an average of 13%, lower than the average 17% seen last year. This also compared to an average increase of 20% by 25 regions in 2012, and the average 22% increase by 24 regions in the preceding year. The slowdown in minimum-wage growth “is partly explained by China’s low inflation rate over the last year,” China Labor Bulletin said. Government data showed China’s consumer prices rose in November at their slowest pace in five years amid lower global commodity prices and weaker demand. Increases in minimum wages, however, don’t necessarily translate to better pay for many workers. A slowdown in China’s economy and its manufacturing sector, combined with a lengthy squeeze on credit, means that “many low-paid workers have seen next to no increase in take-home pay this year,” China Labor Bulletin said.

U.S. Imposes Steep Tariffs on Chinese Solar Panels - The Commerce Department began closing a chapter in a protracted trade conflict with China over solar equipment Tuesday, approving a collection of steep tariffs on imports from China and Taiwan.The decision, intended to close a loophole that had allowed Chinese manufacturers to avoid tariffs imposed in an earlier ruling by using cells — a major module component — made in Taiwan, found that the companies were selling products below the cost of manufacture and that the Chinese companies were benefiting from unfair subsidies from their government.The department announced anti-dumping duties of 26.71 percent to 78.42 percent on imports of most solar panels made in China, and rates of 11.45 percent to 27.55 percent on imports of solar cells made in Taiwan. In addition, the department announced anti-subsidy duties of 27.64 percent to 49.79 percent for Chinese modules.“These remedies come just in time to enable the domestic industry to return to conditions of fair trade,” said Mukesh Dulani, president of SolarWorld Americas. “The tariffs and scope set the stage for companies to create new jobs and build or expand factories on U.S. soil.”But others in the industry were quick to criticize the ruling.“Taxing solar trade undermines both the spirit and efficacy of pledges made by the U.S. and China to work together in the battle against global warming,” Jigar Shah, president of the Coalition for Affordable Solar Energy, said in a statement. “These unnecessary taxes inhibit competition and put upward pressure on solar panel prices needed by U.S. homeowners, installers and utilities.”

China is Planning to Purge Foreign Technology and Replace With Homegrown Suppliers - China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people familiar with the effort. The push comes after a test of domestic alternatives in the northeastern city of Siping that was deemed a success, said the people, who asked not to be named because the details aren't public. Workers there replaced Microsoft Corp.'s (MSFT) Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China's Inspur Group Ltd., they said.  The plan for changes in four segments of the economy is driven by national security concerns and marks an increasingly determined move away from foreign suppliers under President Xi Jinping, the people said. The campaign could have lasting consequences for U.S. companies including Cisco Systems, International Business Machines (IBM), Intel and Hewlett-Packard Co.

Michael Pettis: Is China Really Turning Away from the Dollar? - naked capitalism Yves here. This important post by Michael Pettis addresses whether the efforts of the Chinese to diversify their foreign investments away from the dollar will be a negative for the US. Pettis is skeptical of that thesis, and some of his reasons are intriguing. Like quite a few experts, he doubts that China's role in sponsoring an infrastructure bank will be a game changer, and he also points out, as we have regularly, that the Chinese cannot deploy their foreign exchange reserves domestically without driving the renminbi to the moon (via selling foreign currencies to buy RMB), which is the last thing they want to have happen. A more surprising, but well argued thesis is that reduced Chinese purchases of US bonds would be a net plus for the US. Get a cup of coffee. This is a meaty, important article.

Pepe Escobar: How China’s Eurasia Maneuvers Beat Obama’s Pivot to Asia -- naked capitalism - Yves here. We've commented occasionally on Obama's failed pivot to Asia, which is clearly an effort to contain China. The centerpiece, the TransPacific Partnership, appears to be going nowhere. A meeting between Communist party chief Xi and Japan's Abe trumped America's presence at the ASEAN conference; our Japanese press-watcher Clive says that Putin garnered as much media coverage as did the US president. But you'd get perilous little sense of how China is outmaneuvering the US in Asia, despite considerable worries among its neighbors about its aggressive territorial claims. This article by Pepe Escobar gives a fine overview of the measures China is taking to create greater economic integration with its Eurasian and European trade partners, to the detriment of US influence. And Washington appears to have been caught flat-footed.

Yuan's slide gathers steam - The Chinese yuan's slide gathered steam on Friday, falling to its lowest level in more than five months and nearing the weak end of its trading band, as the market increasingly grows weary of a slowdown in the world's second-largest economy. The yuan is tightly controlled but investors say the selling is becoming so intense that the People's Bank of China is being forced to allow the currency to fall further. "The market is leading this and ultimately the PBOC will follow," said Chris Morrison, a strategist at hedge fund Omni Macro Partners in London. Mr. Morrison says his firm recently increased its bets against the yuan after Beijing cut interest rates last month to boost flagging growth. On Friday, the central bank set the morning reference rate weaker for a second day against the U.S. dollar, after weeks of setting it stronger in hopes of guiding the spot market higher too. Setting it weaker as the currency falls also prevents the yuan from hitting the 2% daily trading band above or below this so-called central parity rate. The currency was down as much as 2.9% for the year on Friday. Despite China's push to internationalize the yuan, the mechanics of opening it up as a market-driven currency are difficult, analysts and investors say.

Faced with few options, Japan gives Prime Minister Abe more time to fix the economy -With a new electoral mandate and the real prospect of four more years in power, Japan’s Shinzo Abe on Sunday laid out an ambitious agenda for his government, encompassing economic revival and a more active role on the global stage. Although turnout was at a record low, Abe’s ruling Liberal Democratic Party and its coalition partner, Komeito, won a “supermajority” in the lower house in a snap parliamentary election held Sunday.  Abe’s political calculation that it would be better to call an election now, before the economy deteriorates further, appears to have paid off, analysts said.“The top priority is economy,” Abe, asked about his plans, told the state broadcaster NHK as the results were still rolling in on Sunday night. “We will proceed with our strategic diplomacy, taking a bird’s-eye view of the globe, increase Japan’s status in the world and protect our national interest.”The 60-year-old prime minister had called the election as a referendum on his “Abenomics” strategy to revive the economy, mainly by pumping in huge amounts of money. This approach appeared to have failed when the economy last quarter tipped into recession, but Abe went to the electorate with the campaign slogan: “This road is the only road.”

Abe reaffirms Japan’s reflationary policies after election victory: (Reuters) - Japanese Prime Minister Shinzo Abe, brushing aside suggestions that a low turnout tarnished his coalition's election win, vowed on Monday to stick to his reflationary economic policies, tackle painful structural reforms and pursue his muscular security stance. But doubts persist as to whether Abe, who now has a shot to become a rare long-lasting leader in Japan, can engineer sustainable growth with his "Abenomics" recipe of hyper-easy monetary policy, government spending and promises of deregulation. "We heard the voice of the people saying 'Move forward with Abenomics'," Abe told a news conference at his ruling Liberal Democratic Party (LDP) headquarters, adorned with giant posters of the premier and his campaign slogan "This is the only path". "I want to boldly implement the 'Three Arrows'," Abe said, adding he would compile stimulus steps before the year's end and ask business leaders to boost wages, which have not kept pace with rises in consumer prices.

Bank of Japan downplays Oil-Deflation Worries—For Now -- The biggest current threat to the Bank of Japan’s pledge to foster 2% inflation by next year is the sharp drop in global oil prices. But Gov. Haruhiko Kuroda is downplaying such concerns for now, instead welcoming the resulting boost to growth and insisting he will hit his price target on time, nonetheless. In the central bank’s statement released Friday after its two-day policy meeting, it said inflation “is likely to be around the current level for the time being,” contradicting most private-sector forecasts for steady decline. At a follow-up press conference, Mr. Kuroda said while oil might drag down inflation in the near-term, “from a slightly longer-term perspective, a fall in crude prices will work to push prices higher” by encouraging enriched consumers and companies to spend more. At the meeting, the board maintained the size of its monetary stimulus program, as expected. Mr. Kuroda’s relaxed stance this week seems a marked contrast from late October, when he engineered a surprise expansion of the BOJ’s already-large asset-purchase program, in direct response to the feared impact on inflation expectations from the oil price plunge in the prior weeks. At the time, officials explained their concern that the fuel market collapse was wrecking havoc with the fragile progress they’d seen in their campaign to raise expectations for higher inflation among the Japanese public. In the seven weeks since, oil prices have fallen another 20%. Meantime, Japanese inflation expectations, after rising briefly in response to the recent easing, have fallen again back below late-October levels, as measured by one bond-market gauge, says J.P. Morgan. The most closely watched inflation index, after peaking at 1.5% earlier this year, slipped back below 1% in October, and is widely expected to fall through early 2015. Nomura economists say a sustained period of sub-$60-per-barrel oil could push the price index back into negative territory.

Trade deficit widens to $16.8 billion; gold imports surge 6-fold -  An over six-fold jump in gold imports in November has pushed country's trade deficit to one-and-a-half year high of USD 16.86 billion in the month, causing fresh concerns for economic policy makers . Although exports went by 7.2 per cent, the highest in the last four months, gold imports soared by 571 per cent to USD 5.61 billion (over Rs 35,000 crore) in November to widen the trade gap. Besides the precious metal, higher imports of transport goods, fertiliser, machinery and electronic goods added to the trade gap which rose to its highest level since May 2013. The surge in gold imports has raised fresh concerns of widening current account deficit. Both Reserve Bank and government have been saying that CAD levels are comfortable despite an upward trend, but the huge jump in gold imports may cause fresh worries to them. Besides, import curbs were eased on November 28 which could also lead to further rise in imports this month onwards. Rating agency Crisil, however, said lower oil imports would offest the impact of higher gold shipments and CAD should remain at USD 32 billion for 2014-15. It may be noted that economic growth has slowed to 5.3 per cent in July-September from 5.7 per cent in the previous quarter. Exports contribute about 25 per cent in the country's GDP. It was in negative zone in October.

Can Modi Break Indian Coal Miners' Balls? -- The make-or-break moment for new Indian Prime Minister Narendra Modi is at hand: Part of the process ushering in modern Britain--"neoliberalization" its critics would label it as a term of abuse--is the marginalization of organized labor. Similar things happened in the United States that set the shape of things to come as organized labor has been ground small all over the world. However, the defining moment remains Britain's showdown three decades ago. It was the Iron Lady Margaret Thatcher versus Arthur Scargill, leader of the coal miners who obviously did not want any "downsizing", "rightsizing", "rationalization" or any other modern euphemisms for closing down the money-losing coal industry. Revisit the UK circa 1984: The coal industry, nationalized in 1947, was losing money at a horrendous rate; the government subsidy had risen to $1.3 billion a year.  Scargill and his militants were unwilling to compromise. For them, it was not a battle over modernization but a class war.  We all remember how things turned out: the coal miners went on strike hoping to break Thatcher, but the prevailing political-economic situation had moved on:  Now, consider modern-day India. Labor militancy has long been one of the stumbling blocks to modernizing the country. Resembling Thatcher-era Britain, coal is once again at the, well, coalface of this dispute. Given recurrent power outages in India, Modi seeks to privatize large swathes of the industry to make production more efficient. As you would imagine, the unionists are up in arms: Coal-fired power plants generate 60 percent of India’s electricity, except for when shortages lead to repeated blackouts. Outages shaved $68 billion or almost 4 percent off annual gross domestic product in the year ended March 2013, says the Federation of Indian Chambers of Commerce and Industry. Last week, Modi made a move toward ending shortages, winning partial passage of a bill that will allow him to end a 40-year government coal monopoly. The plan is to bring in more efficient private companies, which the coal unions say will mean job losses and they’ll fight him.

Yes, there is an Asian space race - Asian space programs have been fueled by these developments for decades, although it largely escaped the attention of the wider world. The programs were relatively modest in comparison to their superpower rivals, and were focused on practical outcomes. Asia needed satellites to map farmland and connect dispersed peoples through telecommunications. There would be no robots to Mars, at least initially.Thus, China, India and Japan ran world-class space programs for a long period without arousing much interest in the West. Japan's strategic and political ties to America made it a partner in the International Space Station. Otherwise, there was only a modest degree of interaction beyond Asia itself. The turn of the millennium has escalated Asian spaceflight to fever pitch. Analysts can no longer deny that an Asian 'space race' is in full swing.  China launched an astronaut in 2003. Recently, Beijing has slowly confirmed that it plans to land astronauts on the moon around 2030 (as this analyst has long professed to so many selectively deaf ears in the West). The rise of China's astronaut program sent a normally calm and methodical Indian space program into panic. Within weeks, an Indian astronaut capsule will fly a short test mission. Yet India lacks a reliable rocket to launch astronauts. China waited until it had mastered rocketry before developing its Shenzhou spacecraft. India seems to be putting the cart before the horse, which could lead to safety problems in the future.

Imran Khan's Karachi Protest; Malala's Nobel Reactions; Indian-Held Kashmir Elections --What does Imran Khan hope to accomplish with his multi-city protest campaign in Pakistan? Will PTI-PML talks succeed in stopping protests?  Is Pakistan really the 8th most dangerous country as claimed by a US-based group? Is Pakistan more unsafe than Mexico where the death toll from drug wars is higher and climbing?  Why are some Pakistanis critical of Malala's Nobel Prize?   What was the real voter turn-out in Indian-occupied Kashmir? Will India return to talks with Pakistan after the state elections in India?  ViewPoint from Overseas host Faraz Darvesh discusses these questions with panelists Sabahat Ashraf (iFaqeer), Misbah Azam ( and Riaz Haq (

Indonesia Rupiah Sinks to 16-Year Low as Bonds Slide on Outflows -  Indonesia’s rupiah tumbled to the lowest level since the Asian financial crisis as an uptick in dollar buying by local companies before the year-end coincided with a rout in the sovereign bond market. The currency slid 1.9 percent to 12,698 per dollar in Jakarta, the lowest close since August 1998, prices from local banks show. That was the biggest drop since Aug. 1. In the offshore market, one-month non-deliverable forwards declined 1.4 percent to 12,919, according to data compiled by Bloomberg. Overseas investors have pulled 10.09 trillion rupiah ($795 million) from local-currency sovereign bonds this month through Dec. 11, finance ministry data show, as the prospect of U.S. interest-rate increases damped demand for emerging-market assets. Indonesia’s current account, which has been in deficit for the past 12 quarters, makes it vulnerable as concern over the global economic outlook deters risk-taking. The yield on the country’s 10-year sovereign notes jumped the most since January. “Year-end dollar demand from local corporations as well as flows related to recent selling of bonds seem to be weighing on the currency,”

IMF Now Ready To Slam The Door On The U.S. And The Dollar -- As I predicted last month in “We Have Just Witnessed The Last Gasp Of The Global Economy,” severe volatility is now returning to global markets after the pre-game 10 percent drop in equities in October hinted at what was to come. This is it, folks; this is the endgame right in front of our faces. The year of 2014 is the new 2007, with all the negative potential but 100 times more explosive going into 2015. Our nation has wallowed in slowly degrading financial conditions for years, hidden by fake economic statistics and manipulated stock prices. All of it has been a prelude to a much more frenetic and shocking event. We expect a hailstorm of geopolitical crises over the next year to provide cover for the shift away from the dollar. Ultimately, the death of the dollar will be hailed in the mainstream as a “good and necessary thing.” They will call it “karma.” They will call it “progress.” They will even call it “decentralization” and a success for the free market. But it will not feel like a positive development for the American public, who will suffer greatly as the dollar crumbles.

Emerging markets dive following contagion from Russia - A sell-off that has engulfed emerging markets accelerated on Tuesday after investors balked at the crisis in Russia and dumped currencies, bonds and stocks across the developing world. Brazil’s real dropped to its weakest level in almost 10 years against the US dollar after the collapse of the Russian rouble spurred on a wider emerging market rout, as investors sought refuge in safe-haven assets. Countries such as Turkey, an importer of oil that should benefit from the plunge in crude prices, were also hit, with the lira weakening to a record low against the dollar during intraday trading. India, another oil importer, saw the rupee fall to its lowest level in more than a year. Stock markets in Dubai and Saudi Arabia both lost 7.3pc, continuing a plunge that has ravaged the Gulf this month.

Russia sounds a warning on the frailties of global debt - A couple of weeks ago, Claudio Borio told investors to wake up to the threat posed by currency mismatches. In the past few years, the chief economist at the Bank for International Settlements observed, companies in places such as Russia, China, Brazil and India have rapidly increased their borrowing, particularly in dollars. And though nobody fretted about this until recently, if — or when — the dollar suddenly rises, this debt pile could trigger shocks, since much of it is serviced by revenues in domestic currencies. “Unfortunately, there are few hard numbers about the size and location of currency mismatches,” Mr Borio pointed out. “[But] what we do know is that these mismatches can be substantial.” Should the dollar continue to strengthen, currency and funding mismatches could be exposed by rising debt burdens, he added. Consider the numbers. According to BIS data, there are some $2.6tn of outstanding international debt securities from emerging market borrowers, three quarters of which are issued in dollars. A significant slice of this is being serviced by revenues earned in domestic currencies, the BIS believes, although it is not clear precisely how much. In addition, international banks have extended some $3.1tn hard currency loans to emerging market borrowers, with a particularly stark increase in places such as China. This means, somewhat remarkably, that corporate leverage in regions such as Asia is considerably higher today, relative to gross domestic product, than it was before the 1998 Asian financial crisis, as Frederic Neumann of HSBC notes. What is even more alarming is that these numbers might understate the risk since many emerging market companies have been using offshore vehicles to raise funds — and those flows are not well tracked. The BIS reckons that about half of the debt securities sold between 2009 and 2013 by emerging market entities, along with a large chunk of loans, were channelled via offshore entities, not onshore parent companies. These offshore entities typically swap this money from dollars into domestic currency and repatriate it to the head office.

Fed calls time on $5.7 trillion of emerging market dollar debt -  The US Federal Reserve has pulled the trigger. Emerging markets must now brace for their ordeal by fire. They have collectively borrowed $5.7 trillion in US dollars, a currency they cannot print and do not control. This hard-currency debt has tripled in a decade, split between $3.1 trillion in bank loans and $2.6 trillion in bonds. It is comparable in scale and ratio-terms to any of the biggest cross-border lending sprees of the past two centuries. Much of the debt was taken out at real interest rates of 1pc on the implicit assumption that the Fed would continue to flood the world with liquidity for years to come. The borrowers are "short dollars", in trading parlance. They now face the margin call from Hell as the global monetary hegemon pivots. The Fed dashed all lingering hopes for leniency on Wednesday. The pledge to keep uber-stimulus for a "considerable time" has gone, and so has the market's security blanket, or the Fed Put as it is called. Such tweaks of language have multiplied potency in a world of zero rates. Officials from the Bank for International Settlements say privately that developing countries may be just as vulnerable to a dollar shock as they were in the Fed tightening cycle of the late 1990s, which culminated in Russia's default and the East Asia Crisis. The difference this time is that emerging markets have grown to be half the world economy. Their aggregate debt levels have reached a record 175pc of GDP, up 30 percentage points since 2009. Most have already picked the low-hanging fruit of catch-up growth, and hit structural buffers.

The Biggest Economic Story Going Into 2015 Is Not Oil -- Once again oil is not even the biggest story today. It’s plenty big enough by itself to bring down large swaths of the economy, but in the background there’s an even bigger tale a-waiting. Not entirely unconnected, but by no means the exact same story either. It’s like them tsunami waves as they come rolling in. It’s exactly like that. That is, in the wake of the oil tsunami, which is a long way away from having finished washing down our shores, there’s the demise of emerging markets. And we're not talking Putin, he’ll be fine, as he showed again yesterday in his big press-op. It’s the other, smaller, emerging countries that will blow up in spectacular fashion, and then spread their mayhem around. And make no mistake: to be a contender for bigger story than oil going into 2015, you have to be major league large. This one is.

Former BIS Chief Economist: "The System Is Dangerously Unanchored; It Is Every Man For Himself" -- "There is no automatic adjustment of current account deficits and surpluses, they can get totally out of hand. There are effects from big countries to little ones, like Switzerland. The system is dangerously unanchored. It is every man for himself. And we do not know what the long-term consequences of this will be. And if countries get in serious trouble, think of the Russians at the moment, there is nobody at the center of the system who has the responsibility of providing liquidity to people who desperately need it. If we have a number of small countries or one big country which run into trouble, the resources of the International Monetary Fund to deal with this are very limited. The idea that all countries act in their own individual interest, that you just let the exchange rate float and the whole system will be fine: This all is a dangerous illusion."

The Baltic Dry Index Has Never Crashed This Fast Post-Thanksgiving -- We are sure it's nothing - since stock markets in China and The US are soaring - but deep, deep down in the heart of the real economies, there is a problem. The Baltic Dry Index has fallen for 21 straight days, tumbling around 40% since Thanksgiving Day. This is the biggest collapse in the 'trade' indicator (which we should ignore unless it is rising) since records began 28 years ago... As The Index itself hovers very close to the post-crisis lows... Charts: Bloomberg

Venezuela Bonds Fall Below 40 Cents as Maduro Affirms Subsidies - Venezuelan bonds dropped to a 16-year low as President Nicolas Maduro said he has no plans to curb fuel subsidies while not ruling out the possibility of default. The government’s benchmark bonds due in 2027 fell 8.5 percent to 37.74 cents on the dollar, the lowest on a closing basis since 1998, as of 2:07 p.m. in New York. The extra yield investors demand to hold Venezuela’s overseas notes instead of Treasuries rose the most in the world. Swaps contracts protecting bond investors from non-payment imply a 97 percent chance of default in the next 12 months, according to CMA data. Maduro said in televised speeches over the weekend that he saw no need to cut the government subsidies that leave gasoline selling for 6 cents a gallon, and that he will keep a 6.3 bolivar-per-dollar fixed exchange rate for priority imports. He said there’s no possibility of default unless it was part of a strategy to bolster economic development and no such plans are in place. Oil, which makes up 95 percent of exports, fell 2.9 percent in New York to extend its drop since June to 47 percent. “Maduro’s speech over the weekend was a problematic change of tone,” said Ray Zucaro, who helps oversee about $450 million of investments at SW Asset Management LLC. “The vice around Mr. Maduro is getting tighter and he’s running out of options. All the easy fixes remain undone.”

Argentine & Venezuelan Deadbeats' Paymaster, China - It is no big secret that the new Latin Left abhors the United States. For a long time now, China has been on hand to buy the loyalties of these countries in a geopolitical tug-of-war that's largely unspoken. Call it the "new" Cold War. With America the target of opprobrium the world over, it isn't exactly hard to find these sorts. Today's case in point are our favorite anarcho-economies, Argentina and Venezuela. Largely shunned by international credit markets, these nations have had to turn to China to shore up their funding as of late. First up is Argentina, which has had a swap arrangement in place with China since midyear. Since it's frozen out of Western capital markets--the recent default didn't help--this one was coming along for quite some time: Argentina’s central bank tapped a currency swap line with its Chinese counterpart for the first time Thursday, requesting the equivalent of about $814 million at a time when its hard currency reserves are under pressure. Argentina and China agreed to the 70 billion yuan currency swap during a state visit by Chinese President Xi Jinping in July. Argentine officials say the agreement will make it easier for Chinese companies to invest in Argentina and strengthen the central bank’s depleted reserves. In the overall scheme of things, $814 million isn't that much, but hey, every little helps in a recessionary economy. Speaking of which, the China has lent far larger sums to Venezuela in an oil-for-cash deal. To no one's real surprise, the Chinese have had to relax credit terms because of this other deadbeat's inability to pay. Venezuela's financial situation is deteriorating further as oil prices sink. Why does China persist with a losing proposition? Some commentators suggest it is too invested in Venezuelan energy to allow a wholesale collapse. Sunk costs and all that...

Brazil's currency plunges as oil, ruble spook investors (Reuters) - Brazil's currency fell sharply on Tuesday as diving oil prices, a plunge in the Russian ruble, and uncertainty over the central bank's currency-intervention program drove investors toward safe-haven assets. The Brazilian real fell as low as 2.76 per dollar, near its weakest in 10 years. The country's Bovespa stock index pared early losses as bargain-hunting helped Petrobras shares recover from an early drop. Brent crude fell more than $1 per barrel on Tuesday to below $60 for the first time since July 2009 as concern over a global supply glut continued to thrash prices. Russia said on Tuesday it would not cut oil output to help prop up prices and refrained from calling on OPEC to do so even though its economy was showing signs of severe stress. The ruble tumbled nearly 10 percent for the second day on Tuesday, with confidence in the central bank evaporating after an ineffectual overnight rate hike. Brazil's real, which has weakened nearly 6 percent this month on uncertainty over the future of the central bank's currency-intervention program and the outlook for U.S. interest rates, extended its losses into a fifth session. Concerns over the intervention program continued to fuel caution after central bank chief Alexandre Tombini offered only vague details on how the program would be changed next year. In a Tuesday speech, Tombini said the central bank could reduce the daily supply of currency swaps to as little as $50 million or leave it unchanged at $200 million.

Ruble Tumbles Most Since 1998 as Traders Pressure Central Bank - The ruble tumbled the most since 1998, sliding past 60 for the first time, as traders tested Russia’s willingness to defend the currency amid an oil slump that’s pushing the economy toward recession. The ruble weakened 9.1 percent to 64.0005 per dollar at 7:57 p.m. in Moscow, the steepest slide on a closing basis since the year Russia defaulted on local-currency debt. The 10-year government bond yield rose 23 basis points to 13.23 percent. Three-month implied volatility for the ruble climbed to a six-year high as the rout triggered the Bank of Russia to sell foreign exchange, according to BCS Financial Group and MDM Bank. Traders are pressing the central bank to buy more rubles to limit a selloff that has wiped out 22 percent of the currency’s value this month. Oil’s slide toward $60 a barrel in London and sanctions over the conflict in Ukraine are undermining confidence in Russian assets as evidence mounts that the economy is entering a recession. Industrial output fell the most in more than a year in November, data showed today. “The collapse of the ruble has intensified amid falling oil prices and a central bank that failed to deliver a decisive actions to counteract the ruble decline,”

Russian Ruble, Turkish Lira, Ukrainian Hryvnia Hit Record Lows; Global Currency Crisis on Deck --As oil continues to slide so does the Ruble. Emerging market currencies have gone on for the ride as have the currencies of Eastern European countries, especially Ukraine. The Russian Ruble, Turkish Lira, and Ukrainian Hryvnia are at or near record lows. Since the beginning of the year, the Ruble has gone from 32.99-per-US$ to 65.51-per-US$. That's a decline of 49.64%. Ukrainian Hryvnia - UAH Since the beginning of the year the Hryvnia has gone from 8.21-per-US$ to 15.75-per-US$. That's a decline of 47.87%. Turkish Lira - TRY Since the beginning of the year, the Lira has gone from 2.15-per-US$ to 2.37-per-US$. That's a relatively modest decline of 10.23%. However, the lira slide since the beginning of 2013 (not shown on chart) is 25.74%.The worst thing Russia could do would be to blow its currency reserves in a foolish attempt to stop the Ruble slide. Were Russia to blow its currency reserves, Russia would cause or exacerbate a crisis, not prevent one. The best thing for Russia to do is let the decline play out.The market will eventually find a level. In the meantime, there is little or nothing Russia can do. Yes, Russia is facing a currency crisis. So is Ukraine, Turkey, Venezuela, and numerous other countries.I believe a global currency crisis is in the works.

Putin on the Fritz - Paul Krugman - It’s impressive just how quickly and convincingly the wheels have been coming off the Russian economy. Obviously the plunge in oil prices is the big driver, but the ruble has actually fallen more than Brent — oil is down 40 percent since the start of the year, but the ruble is down by half. What’s going on? Well, it turns out that Putin managed to get himself into a confrontation with the West over Ukraine just as the bottom dropped out of his country’s main export, so that a financing shock was added to the terms of trade shock. But it’s also true that drastic effects of terms of trade shocks are a fairly common phenomenon in developing countries where the private sector has substantial foreign-currency debt: the initial effect of a drop in export prices is a fall in the currency, this creates balance sheet problems for private debtors whose debts suddenly grow in domestic value, this further weakens the economy and undermines confidence, and so on.  The central bank may (or may not, as seems to be true in Russia right now) be able to limit the currency plunge by raising interest rates (now above 13 percent on Russian 10-years), but only at the cost of deepening the recession. Eichengreen et al (pdf), in a good discussion of all this in the Latin American context, give the example of Chile, which was hit very hard by falling copper prices at the end of the 1990s despite a much more favorable institutional setup than Russia right now — and, of course, without having de facto invaded a neighboring country.

IP, Russia, by Tim Duy: The string of solid US economic news continued with industrial production advancing 1.3% in November. Year-over-year growth (5.2%) is now comparable to the late-90's: Meanwhile, the international fallout from the oil price drop continues. Russia is a classic emerging market crisis story. The decline in energy prices reveals a currency mismatch between assets and liabilities. The decline in oil dries up the dollars needed to support those liabilities, so the value of the ruble is bid down as market participants scramble for dollars. One suspects that capital flight from Russia only aggravates the problem; those oligarchs are seeing their fortunes whither. Currency plummets, aggravating the cycle. The sanctions were the beginning of this crisis, the oil price shock the culmination.  The Central Bank of Russia is forced into defending its currency via either depleting reserves or hiking interest rates. Both are losing games in a full blown crisis. The Central Bank of Russia has tried both, upping the ante by jacking up rates to 17% this afternoon, a hike of 650bp. That, however, is no guarantee of stability. Tight policy will crush the financial sector and the economy with it, triggering further net capital outflows that my guess will swamp the net inflows the rate hike was intended to create. Everything heads into free-fall until a new, lower equilibrium is established. It is all appears really quite textbook. At this point, an IMF program would be on the horizon. But that's where the textbook changes. Hard to see the IMF just handing out a lifeline to an economy probably viewed by most as currently invading its neighbor (that's the point of the sanctions after all). And I am guessing that Russian Premier Vladimir Putin is not going to easily acquiesce to an IMF program in any event. At the moment, looks like Russia is toast.

Russian Central Bank Intervenes After Currency Crashes, Halts "Manipulated" Equity Futures Trading - The Russian Ruble has collapsed this morning. Despite a modest dead-cat-bounce-like rally in crude oil, the Ruble is down almost 3 handles smashing through the 61/USD level for the first time ever. Minutes after flash-crashing to 61.46/USD, officials, according to Reuters, halted trading in certain instruments to “prevent possible manipulation of equity futures market." Russia's 5Y CDS has broken above 500bps for the first time since 2009 (+21bps today), the RTS stock market is down over 6%, and 5Y bond yields are pushing towards 13%. It seems Putin is increasingly being put under pressure to do something...

Russia’s Central Bank Abruptly Raises Key Rate to 17% --  Russia has a new enemy: the currency markets.  Russia’s government is in the middle of an all-out fight to preserve the value of the ruble in the face of plummeting oil prices and Western sanctions over the Ukraine crisis. In the boldest move yet to stanch the bleeding, the Central Bank of Russia announced a stunning interest rate increase in the middle of the night.  Its main deposit rate is now 17 percent, up from 10.5 percent when Russian banks closed for business on Monday. The rate increase, one of the largest ever announced by the central bank, echoes the drastic measures taken during the 1998 crisis when Russia defaulted on its debt and devalued the ruble.The question is whether the move — announced on the central bank’s website at 1 a.m. in Russia — will appease the markets. If it doesn’t, investors may view the rate increase as a sign of increasing disarray.  Some economists are concerned that Russia is now stuck in the quagmire of stagflation, or high inflation and low growth. The government expects inflation of 10 percent or more by the end of this year and for the country to fall into a recession next year.

Russia Increases Key Rate Most Since 1998 to Stem Ruble Rout - Russia’s central bank raised its benchmark interest rate the most since the nation’s 1998 default, making the announcement in the middle of the night in Moscow as policy makers seek to douse investor panic and stem a ruble rout.  The central bank increased the key rate to 17 percent from 10.5 percent effective today, it said in a statement on its website. Policy makers gathered for an unscheduled meeting after a one-point increase on Dec. 11.  “This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks,” the bank said in the statement.  Russia’s central bank raised interest rates for the sixth time in 2014 after more than $80 billion spent from its reserves failed to stop a 49 percent selloff of the ruble, the world’s worst-performing currency this year. President Vladimir Putin, whose incursion into  Ukraine’s Crimea peninsula in March prompted the U.S. and its allies to strike back with sanctions, this month called for “harsh” measures to deter currency speculators.

The First Sellside Reactions Trickle In: "17% Rate Hike Not Enough" According To Citi, JPM -- Two short hours ago Russia shocked everyone with an unprecedented rate hike sending the nation's various interest rates some 650 bps higher. Well, according to the initial sellside responses, as shocking as the move was, it is not nearly enough.  Here is Citi: However, speaking with one of our senior RUB traders, the move is likely not aggressive enough for the medium-term. “Hiking the key rate to 17.0% is not enough to get a hold of a currency that can drop 10% in one day,” he says.  “On top of that, the FX repo size needs to be much larger than it is at the moment…however, the hike might give RUB a few days of breathing space.” One wonders just which "chatroom" Citi's FX traders decide what the fair value of the Rub(b)le should be.  And while we wonder, here is JPM which already appears to have exchanged notes in chatroom XYZ with Citi: Tonight's large rate hike should in the short term help to slow retail dollarisation demand. However rate hikes do little to help the underlying demand for USD from corporates and banks who continue to front load their demand in order to apy their FX debt payments further down the line. With limited access to USD funding markets and oil having yet to find its bottom, the perceptions of local banks and corps on RUB continues to be negative, fuelling this hoarding behavior. In this context, there is a real possibility that even such a significant rate hike may not be enough in the medium run to stem RUB depreciation.

Russia’s major interest rate hike fails to halt ruble’s plummet — Russia appeared headed Tuesday toward a full-fledged currency crisis after the central bank imposed a massive, middle-of-the-night interest rate hike but failed to halt the ruble’s plunge.   The tactics have revived memories of Russia’s 1998 financial meltdown, when the nation defaulted on debts and hyperinflation wiped out a generation’s savings.  Russia has more crisis-fighting resources today, but the central bank decision also carried perilous risks for the broader economy. So far this year, the ruble has lost more than half its value against the U.S. dollar, a decline closely linked to the falling price of oil — Russia’s main export — and Western sanctions imposed because of Russia’s actions in the Ukraine conflict.  By midday Tuesday, the ruble slid more than 8 percent on top of a Monday swoon of more than 10 percent. The continued decline was a sign that investors were rejecting the central bank’s intervention.

Russian Ruble Hits New Low Despite Rate Rise - WSJ: The battered ruble plunged to a record low against the dollar again Tuesday, as investors grew convinced that the Russian central bank’s surprise move overnight to jack up interest rates to 17% wouldn’t be enough to alleviate the pressure on the currency from falling oil prices and western sanctions. By early afternoon in Moscow, the ruble dropped sharply, reaching 80 to the dollar, a record low and a 35% decline from opening levels when it rallied briefly. At 1630 local time, the dollar was trading around 73 rubles. “In a situation like this, an emerging market central bank has to ‘break the back’ of the market, by selling dollars on top of it,” said Luis Costa, emerging market analyst at Citigroup , in an internal note. “The central bank again shied away from aggressively selling dollars in a crucial moment to reaffirm its monetary and FX policies. This is essentially why the hikes didn't work.” Traders said there was no indication yet that the central bank was intervening with sales of foreign currency, even as the dollar tested the record level of 80 rubles briefly. A further fall in crude oil prices on Tuesday also weighed on the ruble and other Russian financial markets. In an interview with state television aired midday, Central Bank Chairwoman Elvira Nabiullina said the market would need time to stabilize after the rate increase and dismissed proposals made by some in parliament that the government should impose capital controls. Later, Deputy Chairman Sergei Shvetsov called the situation “critical,” the Interfax news agency reported. “At lot of (market) participants are in serious condition because of these events.”

Russia Prepares For GDP Surge As Consumers Scramble To Spend Their Plunging Rubles -- In the most ironic twist of all amid the "currency crisis" enveloping Russia, we suspect the world's central bankers will be looking on jealously as The CBR manages to achieve precisely what The BoJ and The Fed are desperate to achieve. In raising inflation expectations, The FT reports, Russians are hurriedly turning their depreciating Rubles into jewelry, furniture, cars, and apartments as the currency's collapse prompts a shopping spree that will likely lead to a surge in GDP. As one anxious shopper noted, "none of us know what’s happening. We’re all worried that the currency will keep falling," and so "it’s time to buy furniture!" And sure enough, shopping centers are currently experiencing a spectacular rush.

Rouble collapse prompts Moscow shopping spree - Russians hurried to change their savings and pensions into dollars and euros while also stocking up on furniture and jewellery as the rouble’s collapse accelerated. Their mounting concern was reflected on Tuesday morning in the red lights of the currency exchange booths that dot the city, which were ticking over to show ever weaker rouble rates. High quality global journalism requires investment. Please share this article with others using the link  A queue of about a dozen people formed at a branch of Sberbank, the country’s largest bank, opposite Kursky station in central Moscow. “I took out some of my pension and I want to change it into dollars,” said Galina, a retiree, who declined to give her surname. “None of us know what’s happening. We’re all worried that the currency will keep falling.” The dramatic collapse in the rouble in recent days has not triggered outright panic, but it has prompted a rush to change currency and to stock up on durable goods such as furniture, cars and jewellery before they become even more expensive Bankers say the reaction by ordinary Russians has heaped further pressure on the rouble, creating a vicious cycle that has eroded confidence in the currency. Artem Zotov, the head of currency operations at the retail arm of Otkritie Bank, Russia’s second largest private lender by assets, told Bloomberg that demand for foreign currencies had jumped to three to four times above the daily average since Monday.

Russian Food Suppliers Have Begun Halting Shipments -- While the adverse impact on the Russian banking system has been mostly confined to the upper class - since there is virtually no middle class in the country to speak of - the second cold war of words, which rapidly morphed into a very hot financial war, is about to hit the very ordinary Russian on the street, because as Russia's Vedomosti reports, citing vegetable producer Belaya Dacha, juice maker Sady Pridoniya and others, Russian suppliers are suspending food shipments to stores because of unpredictable FX movements. And it is about to get worse: very soon Russians may have to live without imported alcohol because at least on supplier of offshore booze, Simple, halted shipments in "a two-day pause” to see what happens with the ruble, Vedomosti reports.

Russia grapples with shocking fall of the ruble: ‘What happened yesterday is a catastrophe’: The Russian currency crashed to unprecedented lows Tuesday trading at 80 rubles to the dollar and 100 to the euro, testing Vladimir Putin’s ability to ride out both the economic storm and his clash with the West. Moscow’s midnight move to raise interest rates to 17 percent failed to arrest the collapse of the currency. To make matters worse, the White House announced that US President Barack Obama plans to approve tightening sanctions against Moscow. Western sanctions over the Kremlin’s support for the separatist insurgency in Ukraine have all but closed access to foreign borrowing for Russia and contributed to the crisis. The almost halving of crude oil prices in the past six month has also been devastating for Russia’s economy, which is heavily dependent on export of natural resources. Even the central bank warned of a five-percent contraction if they remain at the current level. After dropping by 20 percent during the day, the ruble bounced back slightly in late afternoon trade to around 71 against the dollar and over 88 against the euro.

Stop Celebrating the Ruble’s Collapse. Low Oil Could Come Back to Bite the American Economy David Dayen - The global oil collapse has claimed its first victim: Russia. A 40-percent drop in the price of crude, the country’s dominant industry, has significantly reduced trade demand and coincided with a battering of the ruble, down 11 percent against the dollar just on Monday.  U.S. commentators have received this news with a mixture of two words: “Ha” and “ha.” But the schadenfreude over Russia’s demise should be tempered by the knowledge that the U.S. has its own regional petro-states. As the White House never tires in pointing out, the U.S. leads the world in oil and gas production, and amid this collapse, those projects are under serious pressure. While the overall impact of falling oil prices may help our economy overall, it will hurt those areas dependent on fossil fuel production—and potentially, it could affect all of us.  Taking the big-picture view, you can see lots of benefits from lower energy costs. But a macroeconomic analysis obscures how the explosive growth in U.S. oil production—the biggest in 30 years—has been confined to a few select regions. In particular, areas with traditional oil or shale gas basins—including plains states like Wyoming and western North Dakota, as well as Oklahoma, Texas, and Alaska—have seen the biggest growth in production, as sophisticated drilling techniques become widespread. These areas helped to increase employment in the oil and gas industry by 100,000 workers since 2010, with predictions of millions more in the coming years. But drilling for shale oil remains costlier than, for example, drilling for oil in the Middle East, and makes far more economic sense when prices are high. If prices pass the “breakeven” point, where the cost of production exceeds the revenue gained, those projects will grind to a halt, with idled rigs, reduced hours, and plenty of layoffs.

More To Ruble’s Collapse Than Meets The Eye: The ruble is dying, and fast. In what is now being dubbed ‘Black Monday’ the ruble’s value to the dollar dropped nearly 15 percent. Tuesday brought no respite and the ruble fell another 10 percent. The ruble’s collapse follows a similar – though by no means as extreme – slump in oil prices. Still, the Russian economy’s troubles are deeper than that and President Vladimir Putin will be hard-pressed to find an easy out. With a recession looming, state energy companies are struggling to stay afloat, if not directly contributing to the country’s woes. On the year, the ruble has lost more than 55 percent of its value against the dollar, breaking psychological barrier after psychological barrier. Tuesday’s low of 80 marks a new record and harkens back to the period of hyperinflation that characterized post-Soviet Russia. Then, as now, citizens are seeing their material wealth disintegrate amid rising costs domestically. For its part, the Russian central bank has been unable to stop the slide. Neither periodic use of the dwindling foreign exchanges reserves nor interest rate hikes have proved effective. The latest interest rate increase – enacted under the cover of night Monday – brought the key rate to 17 percent, up from 10.5, in an effort to end investor speculation. Tuesday’s trading demonstrated the speculation is far from over and the central bank is far from in control. The higher rates will further squeeze growth as the economy heads for a 4.5 percent retraction next year. Ill prepared to wait it out, the central bank is clearly a step behind the game and perhaps even out of its league. Black Monday suggested other powers might be at play.

Oil, Ruble and Ideology -naked capitalism - Yves here. Since the financial media is covering the continuing meltdown of the ruble intensely, we thought it would be helpful to add some information that seems to be missing from most reporting. This post by Jacques Sapir from the 14th (hat tip Michael Hudson) provides important detail on the importance of oil to the Russian economy (far less than typically depicted, although it is the biggest source of foreign exchange), the impact of the fall of the ruble and oil prices on the domestic budgets, and the odds of a Russian default. Note that Sapir is sanguine on the default front and does not see a rerun of 1998 in the offing, by virtue of of Russia having large foreign currency reserves. Note that Menzie Chinn of Econbrowser differs, and uses a chart from the Economist to make his point:

Russia Currency Market Bends But Doesn’t Break: Chart of the Day - Bloomberg: Foreign-exchange desks were in better shape to deal with the ruble’s selloff earlier this week than the last time they faced such a test 16 years ago. The CHART OF THE DAY shows the difference between bids and offers on ruble-dollar trades peaked two days ago at 0.7825 ruble. While that’s the highest since Russia’s 1998 bond default, it is less than a third of the almost 3 rubles peak is reached then. Thirty-day volatility climbed 45 percentage points since October, to 55 percent, compared with about 200 percent in 1998. “The market is much more liquid and there are many more banks trading the ruble now,” The ruble fell as much as 20 percent, the most since 1998, on Dec. 16 after a 6.5 percentage-point interest-rate increase by the Bank of Russia failed to stem the rout. The currency rebounded 13 percent yesterday, trimming this year’s decline to 45 percent, as government foreign-exchange sales and central bank measures to help companies refinance looming foreign-currency debts bolstered confidence. Foreign-exchange markets might not cope so well next time if brokers decide the volatility is too much to handle. New York-based FXCM Inc., the third-largest currency broker for retail clients, will stop offering the ruble versus the dollar and begin closing its customers’ trades while Alpari UK stopped clients from taking new positions. Bloomberg Tradebook, a unit of Bloomberg LP, has also halted all trading in the ruble.

Defiant Vladimir Putin blames west for Russia’s economic woes - A defiant Vladimir Putin said Russia should brace itself for two years of recession, as he blamed economic woes on a western plot to defang the Russian bear. The president was speaking at a three-hour press conference during which he addressed this week’s market turmoil in public for the first time. He claimed that a period of economic hardship was the price Russia would have to pay to maintain its independence in the face of western aggression, repeatedly blaming the rouble’s plunge and a looming recession on “external factors”. In a metaphor that summed up his entire performance, he compared Russia to a bear which the west was trying to weaken by stripping it of its nuclear weapons and taking its natural resources. “They will always try to put it on a chain,” he said. “As soon as they succeed in doing so they will tear out its fangs and claws.” That, he said, would leave it nothing but a “stuffed animal”. Mr Putin was speaking after a week of high drama in Moscow, as the rouble slid 16 per cent against the dollar in the space of two days, evoking memories of the disastrous 1998 financial crisis when Russia defaulted on its domestic debt. The currency, which is about 45 per cent lower than at the start of the year, has been dragged down by plunging oil prices and western sanctions imposed over Moscow’s annexation of Crimea and its intervention in eastern Ukraine.

Putin’s Bubble Bursts, by Paul Krugman -- If you’re the type who finds macho posturing impressive, Vladimir Putin is your kind of guy. Sure enough, many American conservatives seem to have an embarrassing crush on the swaggering strongman. “That is what you call a leader,” enthused Rudy Giuliani, the former New York mayor, after Mr. Putin invaded Ukraine without debate or deliberation. But Mr. Putin never had the resources to back his swagger. Russia has an economy roughly the same size as Brazil’s. And, as we’re now seeing, it’s highly vulnerable to financial crisis... For those who haven’t been keeping track: The ruble has been sliding gradually since August, when Mr. Putin openly committed Russian troops to the conflict in Ukraine. A few weeks ago, however, the slide turned into a plunge. Extreme measures ... have done no more than stabilize the ruble far below its previous level. And all indications are that the Russian economy is heading for a nasty recession. The proximate cause of Russia’s difficulties is, of course, the global plunge in oil prices... And this was bound to inflict serious damage on an economy that ... doesn’t have much besides oil that the rest of the world wants; the sanctions imposed on Russia over the Ukraine conflict have added to the damage.

Notes on Russian Debt - Krugman -  Obviously plunging oil prices are bad for petroeconomies. But what is making the Russian experience so dire is the linkage oil->ruble->balance sheets, because of all the dollar- and euro-denominated debt. This, however, raises several questions.First, how did they get that debt? Here’s the Russian current account balance over the past couple of decades: has been in consistent large surplus, with a cumulative surplus of more than $900 billion. Russia should not be a debtor country. It has managed this nonetheless, presumably because corporations and banks have borrowed abroad, and somehow that money has ended up invested in luxury London real estate and other things. It would be nice to have a good picture of how the flow of funds worked.That said, at first glance the debt level doesn’t look too high. Here’s the ratio to GDP: The central bank helpfully points out that this is in a range the IMF considers low-risk, and there wasn’t any visible upward trend.But watch out for that denominator. Debt to GDP was stable, but GDP was rising fast in dollar terms, not because of real growth, but because of real appreciation. Compare the actual rise in the ruble price of a dollar, which was modest until the past few weeks, with the rise that would have compensated for relative Russian inflation: So I would argue that Russia was in fact going rapidly deeper into debt, but that this was masked by the growing overvaluation of the ruble thanks to high oil prices. Now comes the fall, and suddenly debt looks like a much bigger issue.

The casualties of Russia's decline: In the 21st Century, no economy is an island, entire of itself. But as Russia looks likely to enter a deep recession - fuelled by plummeting oil prices and the plunging rouble - the West has remained sanguine about the potential impact on global finances. Heavyweights like the US and UK would argue they have little to worry about, for despite its political importance, Russia accounts for just 3% of global economic output, and an even smaller portion of world trade. However there are several individual companies, and even countries, for whom Russia's decline is very bad news indeed. Major banks in Austria, France and Italy have much of their value tied up in the country. Global brands such as Carlsberg, Adidas and Pepsi sell a lot to Russian consumers. And former Soviet states, such as Lithuania and Latvia, rely heavily on exports to Russia, and on money sent back home from citizens working in the country.  France's Societe Generale has 62% of its tangible equity (the funds of its core operations) tied up in Russia, according to research by Citigroup, while Italy's UniCredit has 40%. Austria's Raiffeisen bank, one of the largest lenders operating in Eastern Europe, announced on Thursday that its capital ratio, a measure of a bank's financial strength, had already declined because of the rouble crisis.

Europeans Face Export Losses as Sanctions Bite Russian Ruble - The Russian ruble’s swan dive is putting pressure on the exports of several European Union countries as some political leaders there take a fresh look at the sanctions that have added to the economic upheaval. A rout of the ruble, the currency Russians are paid in, is making some imported products expensive or even unaffordable. The shift may lead many Russians to put off purchases or substitute domestically produced items. The ruble has lost 43% of its value against the euro since the beginning of the year as sanctions imposed after Moscow’s interference in Ukraine added to earlier pressure from economic stagnation. The steep drop in oil prices since the summer has added sharply to the country’s pain. Since Europeans mainly buy energy from Russia—dollar-denominated oil and gas—the currency shift is unlikely to lift EU imports from Russia noticeably. In Slovakia, a car-assembly hub, exports to Russia represented 3.6% of gross domestic product in 2013, while Hungary’s exports to Russia equaled 2.3% of GDP, or well over the European Union’s average of 0.7% exposure to Russian trade, according to an analysis of Russian customs data. Russian officials initially scorned the sanctions, but now that the measures are biting, President Vladimir Putin has acknowledged their effect, and some European officials are wondering if Russia is feeling too much economic pain.

China Prepares To Bailout Russia -- Earlier this evening China's State Administration of Foreign Exchange's (SAFE) Wang Yungui noted "the impact of the Russian Ruble depreciation was unclear yet, and, as Bloomberg reported, "SAFE is closely watching Ruble's depreciation and encouraging companies to hedge Ruble risks." His comments also echoed the ongoing FX reform agenda aimed at increasing Yuan flexibility which The South China Morning Post then hinted in a story entitled "Russia may seek China help to deal with crisis," which which noted that Russia could fall back on its 150 billion yuan ($24 billion) currency swap agreement with China if the ruble continues to plunge, that was signed in October. Furthermore, two bankers close to the PBOC reportedly said the swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze. Is 'isolated' Russia about to be bailed out by the world's largest economy China?

IMF, World Bank Halt Lending to Ukraine – Franklin Templeton $4 Billion Ukraine Bet Goes Bad - Yves here. While the financial media is riveted with the spectacle of the ruble meltdown and the Russian government rate hike to 17%, and the investor rush out of all things emerging markets, another drama is playing out in Ukraine. If you've been following this drama, the Ukraine economy is substantially intertwined with Russia's, and Russia was already subsidizing it by giving it a break on gas prices. When things got ugly, Russia revoked the subsidy, demanded repayment of outstanding gas debts, and cut off gas shipments. This made for an ugly situation, since 70% of gas to Europe goes through pipelines that transit Ukraine meaning Ukraine could simply steal European-bound gas if they got desperate, creating a conflict with one of their new patrons. Moreover, it raised the specter that any rescue of Ukraine would wind up routing funds to Gazrpom to pay off the gas bill, another outcome unappealing to a West determined to punish Russia every way it could (the dispute over the outstanding debt is being arbitrated, with a decision due next summer, which also allows Europe to wash its hands of money going to Gazprom). This detailed account of the wrangling over what to do about supporting the basket case of Ukraine makes a couple of issues very clear: one, the amount of funding needed is much larger than the officials want to admit to, and two, the approaches under discussion are at best stopgaps. A default and restructuring look inevitable.

Transatlantic Trade and Investment Partnership (TTIP) - According to the European Commission, TTIP aims at removing trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US. On top of cutting tariffs across all sectors, the EU and the US want to tackle barriers behind the customs border – such as differences in technical regulations, standards and approval procedures. These often cost unnecessary time and money for companies who want to sell their products on both markets. For example, when a car is approved as safe in the EU, it has to undergo a new approval procedure in the US even though the safety standards are similar. The TTIP negotiations will also look at opening both markets for services, investment, and public procurement. They could also shape global rules on trade. Why the resistance from a hostile European public? Opposition is strongest in Germany, Austria and France. The European slump and currency crisis of the last five years has sapped confidence in governing elites, sown fear of globalisation, and a mistrust of the corporate world and marauding, tax-avoiding multinationals. The biggest issue in the talks and the focus of the growing opposition to the pact is the system known as investor-state dispute settlement (ISDS). For the critics, this amounts to a surrender of national political sovereignty to the deep-pocketed multinationals, with business, not government, setting the rules of international trade. But ISDS isn’t new and has existed for almost half a century, and there are 9,000 such agreements operating globally, 1,400 of them in the EU already.

US-Europe trade deal stuck on launch pad - David Cameron has called for “rocket boosters” and Angela Merkel has warned there is “no time to lose”. Across the Atlantic, Barack Obama has said his administration is intent on “reinvigorating” the entire exercise. Eighteen months after the launch of talks between the EU and US to create what would be the world’s biggest free trade bloc, both sides are seeking to inject momentum.Yet even as trade officials pledge a “fresh start” for the talks to build a Transatlantic Trade and Investment Partnership (TTIP), a sense of resignation is setting in. Ministers and officials are coming to the conclusion that, unless something radical changes — or both sides settle on something less ambitious — there is unlikely to be a deal by the end of 2015 as some European politicians have called for. Some officials now even contend that President Obama, who leaves office in January 2017, is unlikely to be the US leader who shepherds a great transatlantic pact through Congress. Commercial tensions are also clouding the picture. The pressure being applied by European governments on US tech giants such as Google has caused members of Congress to protest. Europe’s community of trade officials, experts and campaign groups is also engaged in a heated debate over what sort of protections — if any — foreign investors should be accorded in an agreement with the US, an issue that has helped mobilise opposition to a transatlantic pact. Cutting a deal in 2015 would mean “not missing a beat” all year, says one senior official involved. Another reckons it is “unrealistic” to think a deal next year is even possible. At best, most involved say, the EU and US might hope for some broad political agreement by the end of the year with the details and actual texts to be filled in after that.

Consumer Price Deflation for 15 Consecutive Months in Spain, CPI Now -0.8 Percent --Spain is in the midst of consumer price deflation going on 15 months. Inflation is -0.8% and falling. El Confidential reports Deflation is Cast in the Spanish Economy ... and No Disasters (For Now).  It is rare to see publications looking at the bright side of deflation, but here you have it. Via translation ... The data speak for themselves. And leave no shadow of doubt about the collapse of prices. The Consumer Price Index (CPI) ended in November yoy at -0.4%. But what is more important: far from having touched the ground, continue to fall in the coming months. Func considers in particular that the CPI will end 2014 at -0.8%. In the first two months of 2015, the index will continue to plummet to -1% in February. A general fall in prices over a significant period of time constitutes deflation. If the analysis is done taking into account not only the IPC, which covers only the rate of change in consumer purchases - but all the prices that influence inflation (as producer prices), the result is likewise significant. Core inflation, which excludes from the calculation energy and food products, in November stood at -0.1%. The upside is a recovery of purchasing power. And indeed, according to Social Security, pensions have earned 713 million in purchasing power this year because they were up 0.25%, when the CPI in November to November stood at -0.4%. Therefore, a gain of 0.65% purchasing power. Between 2013 and 2014, the government estimated the gain purchasing power of pensions was 2.085 billion euros. Also, wages have risen agreement 0.6% above the CPI. Deflation positively influences the competitiveness of the Spanish economy. While the HICP in Spain stood at -0.5% yoy, the HICP in the euro zone is 0.3%. The favorable price differential Spain continues to consolidate.

France drifts into deflation as ECB 'pea-shooter' falls short - France is sliding into a deflationary vortex as manufacturers slash prices to keep market share, intensifying pressure on the European Central Bank to take drastic action before it is too late. The French statistics agency INSEE said core inflation fell to -0.2pc in November from a year earlier, the first time it has turned negative since modern data began. The measure strips out energy costs and is designed to “observe deeper trends” in the economy. The price goes far beyond falling oil costs and is the clearest evidence to date that the eurozone’s second biggest economy is succumbing to powerful deflationary forces. Headline inflation is still 0.3pc but is expected to plummet over the next three months. French broker Natixis said all key measures were likely to be negative by early next year. Eurostat data show prices have fallen since April in Germany, France, Italy, Spain, Holland, Belgium, Portugal, Greece and the Baltic states, as well as in Poland, Romania and Bulgaria outside the EMU bloc. Marchel Alexandrovich, from Jefferies, said the number of goods in the eurozone’s price basket now falling has reached a record 34pc. “Eurozone deflation is now inevitable. There is no way around it,” said Andrew Roberts, at RBS. “We think yields on German 10-year Bunds will fall to 0.42pc next year.” “The ECB is presiding over a deflationary disaster. They need to act fast and aggressively or else markets will start to attack Italian debt. Italy’s nominal GDP is falling faster than their borrowing costs and that is pushing them towards a debt spiral,” he added.

Draghi now has all the ammunition he needs for QE. Implementation still a problem. - If Mario Draghi was lacking ammunition to initiate an outright quantitative easing program in the Eurozone, he certainly has it now. Even the staunchest opponents will have a tough time arguing against the need for a more aggressive approach to monetary easing. Here are five reasons:
1. The take-up on ECB's TLTRO offering (see post) fell far short of the ECB’s goals.  Therefore the initiatives announced by the ECB last summer, including ABS and covered bond purchases, are simply insufficient for the type of monetary expansion (of about €1 trillion) the central bank would like to see in the Eurozone.
2. Some Economic data out of the Eurozone shows recovery stalling. Italian industrial production and French labor markets are just two examples.
3. With the collapse of oil prices, the Eurozone is bracing for deflation. German 5-year breakeven inflation expectations are now at zero. And Europe's central bankers are fearful of repeating Japan's decade-long struggle with deflation.
4. While the euro has declined significantly against the dollar, it remains quite strong on a trade-weighted basis. This is putting downward pressure on prices (via cheaper imports) and is disadvantaging some of the Eurozone-based exporters. A more aggressive easing effort would force the euro lower.
5. Finally, the euro area's sovereign risks are resurfacing once again - triggered by new political uncertainty in Greece.

Draghi About to Quit ECB? - Rumor has it that Draghi is so fed up with German opposition to everything he wants to do with stimulus and sovereign debt bond buying that he is about to leave the ECB.  The Fiscal Times asks Why the Hell Does Mario Draghi Want to Leave the ECB Now!? What would happen to Europe’s prospects for recovery if Mario Draghi left his job as president of the European Central Bank? Would Draghi’s plans to implement an ambitious policy of monetary stimulus get bulldozed by German inflation hawks and others favoring continued austerity across the Continent?   Even a week ago there seemed little reason to ask such questions. Not anymore. Draghi appears set to leave Frankfurt and return to his native Italy the first chance he gets. This could be as soon as January, depending on a variety of circumstances in Frankfurt and Rome, according to well-placed sources who include a prominent private investor and a senior journalist in Rome. “Draghi wants out, fed up and stymied by Berlin,” one of these sources wrote in a note just before the weekend. In a subsequent message: “I am hearing from several [official] sources that he is entirely fed up with the monetary politics he confronts.”

ECB May Have to Buy Sovereign Bonds, Nowotny Says - With its key interest rates as low as they can go, the European Central Bank may have to buy sovereign bonds if the inflation rate remains low and economic growth weak over the long term, a member of the governing council said Monday. “Interest rate policy has reached a lower zero bound, for all practical purposes. I personally don’t see the possibilities for further interest-rate cuts,” said Ewald Nowotny, head of Austria’s central bank. Mr. Nowotny said the ECB’s balance sheet is declining, and that could lead to a restrictive monetary policy. In an effort to boost its balance sheet, the ECB has launched programs to buy covered bonds and asset-backed securities, “both markets with low volumes,” Mr. Nowotny said. As banks aren’t taking the ECB up in large enough amounts on its offer of targeted long-term loans, the only remaining market is sovereign bonds, Mr. Nowotny said. The purchase of sovereign bonds by a central bank is known as quantitative easing. Mr. Nowotny gave his qualified support for such a move. ”It is always dependent on economic developments,” Mr. Nowotny said. The central banker also wants to ensure that any measure taken by the ECB would happen within the bounds of the central bank’s mandate. This excludes the possibility of the ECB purchasing sovereign bonds directly from governments, known as the primary market, he said, but purchases on the secondary market–where sovereign bonds are resold after their initial purchase–are a classic tool used by central banks. The ECB can’t do it all alone, though. Monetary policy is a necessary component in encouraging investments which would help restart the economy, he said, but it isn’t sufficient. Fiscal policy also has to play a part.

Swiss Central Bank to Introduce Negative Interest Rates - Switzerland’s central bank Thursday said it would introduce negative interest rates to cool the strength of the Swiss franc, a move that comes as central banks across Europe scramble to protect their economies from the threat of falling consumer prices. With its move, the Swiss central bank joined others in Denmark and the eurozone in enacting a policy aimed at discouraging banks from parking excess funds with the central bank. It highlights the divergent paths being taken by policy makers in developed economies as their economies recover at varying speeds. In the U.S., the Federal Reserve is expected to start raising rates in the middle of 2015, while the Bank of England could follow suit later in the year. By contrast, central banks across much of the European continent may keep easy-money policies in place for years as their interconnected economies force officials to one-up each other on aggressive policy moves. “Divergent monetary policies were very much a prospect already, but the latest events have been exacerbating this,”  Beginning Jan. 22, the Swiss National Bank will charge banks 0.25% to deposit overnight funds with it, it said in a statement. The move will push the three-month Swiss franc Libor rate, currently in a range between 0.0% and 0.25%, into negative territory.

Swiss National Bank to Adopt a Negative Interest Rate -  Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand.The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22.The bank acted as the crisis in Russia and plummeting oil prices have caused a run on emerging market currencies. Switzerland, known for its fiscal rectitude and banking secrecy, tends to attract capital inflows as money flees chaos elsewhere. But that puts pressure on the franc, threatening to make exporters less competitive and raising the risk that very low price pressures will tip the economy into outright deflation. “Over the past few days, a number of factors have prompted increased demand for safe investments,” the central bank said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”

Strikes across Belgium cause transport chaos: A nationwide strike in Belgium has brought air, rail and road transport to a standstill and forced many businesses to close. Hundreds of flights to and from Belgium have been cancelled, as well as Eurostar services to Brussels. The widespread industrial action is the latest in a series of strikes protesting against the new centre-right coalition's austerity policies. The government plans to save €11bn (£8.7bn) in the next five years. The 24-hour strike is the largest to have taken place in Belgium for many years. It has forced government offices and schools to close, and the country's ports have been blockaded. Unions are opposing a decision by Charles Michel - Belgium's new leader - to scrap a cost-of-living wage rise next year. Belgian law currently mandates that wages rise at the same pace as inflation. They are also protesting against public sector cutbacks and plans to increase the retirement age.

Anti-Islam 'Pegida' march in German city of Dresden: About 15,000 people have taken part in a march against "Islamisation of the West" in the east German city of Dresden. A large counter-demonstration of more than 5,000 people was also held. No major incidents were reported. Dresden is the birthplace of a movement called "Patriotic Europeans Against the Islamisation of the West" (Pegida), which staged a big rally a week ago. Chancellor Angela Merkel warned Germans not to be exploited by extremists. "There's freedom of assembly in Germany, but there's no place for incitement and lies about people who come to us from other countries,'' Mrs Merkel said in Berlin. "Everyone [who attends] needs to be careful that they are not taken advantage of by the people who organise such events." In Monday's march, protesters chanted Wir sind das Volk (we are the people) - a rallying cry used in the city in the weeks before the fall of the Berlin Wall 25 years ago. One elderly man shouted: "I'm a pensioner. I only get a small pension but I have to pay for all these people (asylum seekers). No-one asked me!" A woman who travelled 80km (50 miles) for the demonstration told the BBC: "I am not right wing, I'm not a Nazi. I am just worried for my country, for my granddaughter."

To save itself, Greece must exit the euro -  Of all the instabilities that concern international investors – from the plunging oil price to the collapsing rouble and the slowing Chinese economy, now fast transmogrifying into a systemic emerging market crisis – Greece is the one that bothers them least. If you happen to be Greek, or are long of Greek bonds, the latest turn of events obviously matters a lot, but to the great bulk of the outside world it seems a contained and largely irrelevant problem, quite unlike the Greek meltdown of 2011/12 which brought the entire Eurozone close to collapse. It's yesterday's story, now eclipsed by the greater threat of mass retrenchment in emerging markets weighed low by excessive dollar debt. Things have moved on quite a bit since back then, or at least, that’s what eurozone leaders have convinced themselves of; the banking system is stronger, and mechanisms are in place to prevent wider contagion from a Greek default or exit, including, crucially, the bond buying backstop of the European Central Bank. Perversely, some would actually welcome such a development, which they think would act as a warning to others, re-energising reform programmes that have become badly stalled, and galvanising the ECB into putting aside its divisions, and embarking on full scale quantitative easing. It’s an almost convincing, script, but also an unduly sanguine one which massively underestimates the capacity of events to spiral out of control. Once a chain reaction has started, it’s hard to stop. For an inherently unstable and inter-connected construct such as the single currency, it may be close to impossible, even with the weight of the ECB behind the endeavour. The political nature of Greece’s renewed crisis makes it all the more unpredictable.

What SYRIZA says about Greece’s economy, its debt and the euro: Led by Alexis Tsipras, Syriza is Greece’s biggest opposition party and has pledged to annul the country’s bailout agreement should it take power. An acronym for Coalition of the Radical Left, Syriza vows to renegotiate repayment terms on loans from euro member states and on Greek bonds held by the European Central Bank. Tsipras, 40, as well as all other opposition leaders in Greece, have said they will block the appointment of a new president this month, forcing the governing coalition led by Prime Minister Antonis Samaras to call early elections. Syriza won last May’s ballots for the European Parliament and has been ahead in every opinion poll since then. Its lead has recently narrowed to between 2.8 and 4.9 percentage points. Here’s an overview of Syriza’s policies:

Consensus Builds Against Eurozone’s ‘Hardball’ Strategy - The Washington, D.C.-based Peterson Institute for International Economics, this week urged a fundamental rethink of the eurozone’s strategy for confronting its mounting economic woes, adding its voice to those of the International Monetary Fund and the Paris-based Organization for Economic Cooperation and Development.  Unlike the Fund and the OECD, the Peterson Institute doesn’t number European governments among its membership, and that might explain why it has been more scathing about the currency area’s five-year focus on austerity, overhauls that push down wages in southern parts of the currency area, and an aversion to supporting near-term economic growth.  “This narrative is wrong, and importantly, it’s been proven to be wrong,” said Adam Posen, the Institute’s president. “We’re seeing a euro area that’s becoming more unstable, more entrenched in stagnation, more entrenched potentially in deflation.” For Mr. Posen and his colleagues at the institute who have offered their own remedies for the ailing currency area, the basic flaw in the eurozone’s strategy is the belief that overhauls will only be undertaken if voters and politicians have their backs to the wall. Employing that logic, growth is bad for reforms. In defense of that strategy, policy makers can point to Greece and other eurozone countries that have undertaken deep economic overhauls, but only after they had lost their financial independence and there was no other alternative. That principle has been most clearly articulated by members of the German government. And indeed, the Peterson Institute made it clear that it holds Germany’s leaders chiefly responsible for the eurozone’s current predicament.  “The reason we have the policy we now have is because Chancellor (Angela) Merkel has wished it that way,” Mr. Posen said.

Eurozone Economy Expanding Slightly Despite Weakness in Germany and France - The eurozone economy is still expanding, private-sector data showed on Tuesday, even as France and Germany registered weakness.Markit Economics, a data analysis company in London, surveyed purchasing managers across the 18-nation currency bloc this month about their business prospects, and a composite index based on the study rose to 51.7 from 51.1 in November. A reading below 50 indicates a contraction, while a number above that level suggests expansion.The survey pointed to weakness at the so-called core of the eurozone, with German companies reporting the smallest increase in business activity since June 2013, and activity declining in France for an eighth consecutive month. The purchasing managers’ survey does not correlate precisely with gross domestic product, but it does provide a widely watched real-time indicator of economic activity in the region.A separate survey on investor and analyst confidence from the ZEW Center for European Economic Research nonetheless gave grounds for optimism about Germany. The ZEW sentiment indicator, based on the outlook for the next six months, rose to 34.9 points in December from 11.5 in November.Clemens Fuest, president of the institute, said the data showed that confidence in Germany seemed to be returning as a result of “favorable economic conditions such as the weak euro and the low crude oil price.”Michel Martinez, chief eurozone economist at Société Générale, said the data was consistent with “sluggish” fourth-quarter growth in the eurozone’s gross domestic product G.D.P. of an estimated 0.2 percent, the same as in the third quarter. On an annualized basis, the eurozone’s 0.6 percent expansion in the third quarter was far behind the United States economy’s gain of 3.9 percent.

BOE Sees Rising Eurozone Threat - The Bank of England Tuesday warned that continued low growth and inflation in the eurozone carries risks for the U.K. economy and the stability of its financial system. In its twice-yearly Financial Stability Report, the BOE also said that while falling oil prices are good for global economic growth, they could “reinforce certain geopolitical risks” and may make it more difficult for U.S. shale oil and gas exploration firms to repay their debts. The BOE Tuesday announced the results of its stress testing of eight major U.K. banks, which examined their resilience in the face of a 35% drop in house prices and a sharp rise in interest rates. It found that only one would need to raise more capital. However, the BOE also expressed concerns about a possible reprise of 2011 and 2012, when concerns about the durability of the eurozone led to a sharp rise in funding costs for U.K. banks, and damaged consumer and business confidence. Policy makers said there could be negative consequences for the U.K. if investors lost faith in the ability of the European Central Bank and other eurozone institutions to “achieve the rebalancing and adjustments required in the euro area.” “A further downward revision to growth and inflation prospects could lead investors to question again the sustainability of debt positions in the most vulnerable euro-area countries,” it said.

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