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

Saturday, December 6, 2014

week ending Dec 6

FRB: H.4.1 Release--Factors Affecting Reserve Balances--December 4, 2014: Federal Reserve statistical release H.4.1: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fischer: Fed’s Current Concern Is How, When Best to Raise Interest Rates - With the U.S. economy making progress, the focal point at the Federal Reserve these days is how and when best to lift interest rates from zero, the central bank’s vice chairman said Monday. “Zero interest rates is not normal,” said Fed Vice Chairman Stanley Fischer at a symposium hosted by the Council on Foreign Relations in New York. “The big issues we’re discussing now is lift off of interest rates — when is that going to happen, how is it going to be done.” The central banker, who took on the No. 2 position at the Fed in June, said he believes the U.S. economy has seen a “real recovery” with growth fluctuating in the 2% to 2.5% range. He added he thinks years of low interest rates have worked to help the current recovery and generate at least some inflation. While growth in wages has shown little signs of life, Mr. Fischer said he is willing to wait and see and believes a pickup is on the horizon. The recent drop in oil prices isn’t weighing too heavily on the official. He said the drag lower energy prices could have on inflation should “be temporary” and in fact have a positive effect on growth. Longer term, the official said he is worried about the Fed’s independence and its ability to conduct effective monetary policy without political influence. “I fear that there may be a future crisis in which we’ll be very sorry that the Fed’s powers to act as the lender of last resort have been constrained significantly by changes in the Fed’s authority with regard to emergency lending made in the Dodd-Frank law,” he said.

Dudley: Financial Market Reaction Key To Pace Of Rate Hikes -- Federal Reserve Bank of New York President William Dudley reiterated Monday the U.S. central bank is likely to start raising interest rates next summer, in remarks that explained the pace of interest-rate increases will be driven as much by the economy’s performance as by how financial conditions react to changes in Fed policy. The decision to boost rates off of current near-zero levels depends “on how the economic outlook evolves, particularly with respect to the labor market and inflation,” Mr. Dudley said. But he added that while the economy still argues in favor of the Fed being patient, he said “market expectations that lift-off will occur around mid-2015 seem reasonable to me.” Mr. Dudley’s comments came in a speech given at Bernard M. Baruch College in New York. Mr. Dudley also serves as vice chairman of the interest-rate setting Federal Open Market Committee, which is scheduled to meet later this month to deliberate on monetary policy. It is widely expected the FOMC will leave short-term interest rates unchanged. Mr. Dudley has steadfastly argued in favor of a go-slow approach to raising interest rates, even as some of his colleagues leading other regional Fed banks have said improvements in hiring and growth mean the timing for rate increases is getting closer. Financial market conditions are “an important element in the transmission mechanism of monetary policy to the economy,” Mr. Dudley said. “How much one pushes on the short-term interest rate lever depends, in part, on how financial market conditions respond to such adjustments,” largely because Fed policy actions rely on markets to be passed on to the broader economy, the official said.

Richard Fisher Says He’d Like the Fed to Revisit Borrowing-Cost Plans - Federal Reserve Bank of Dallas President said Wednesday he’d like the U.S. central bank to revisit its recently revised plans for raising borrowing costs in way that could help ease conditions in the bond market. In remarks in Dallas, Mr. Fisher, who will retire from the Fed next March, said he’d like the central bank to think again about its current plan to stop reinvesting the proceeds of maturing Treasury and mortgage bonds into new holdings only after it begins to raise short-term interest rates. “It strikes me that given current circumstances, it would do no harm to start slowly trimming our holdings by letting them roll off as they mature,” Mr. Fisher said. The Fed’s ongoing reinvestment process is designed to keep its $4.5 trillion balance sheet size steady. If it didn’t buy new securities with the proceeds of its maturing holdings, the balance sheet would automatically begin to shrink. For many policy makers and market participants, a shrinking balance sheet would represent a de facto shift in Fed policy to a more restrictive stance, even if short-term rates are left at their current near-zero levels. On rate hikes, Mr. Fisher said his his view was that the Fed was “closer to the period where we might raise rates than market consensus,” during a questions-and-answers session with reporters after the speech. Still,he suggested that the inflation situation would make a gradual approach to policy change possible. Currently, the rate of inflation was consistent with price stability, Mr. Fisher said, and he would not be worried by a slight increase in inflation rates.

Fed Simulations Call for Rate Hikes Soon - The optimal path for short-term U.S. interest rates might be to start raising them soon and end the process quickly, according to research conducted by senior Federal Reserve economists. The Fed’s new “optimal control” study, completed in late November, is akin to putting the whole economy through a flight simulator to estimate how much fuel it needs to ride through a storm. Using a model known as FRB/US, Fed staffers simulate a path for the central bank’s benchmark interest rate–the federal funds rate–that results in the quickest possible return to low unemployment and stable inflation around 2%. The study finds the best time to start lifting the fed funds rate from near zero is right now, in the fourth quarter of 2014, followed by increases to 1.4% by the fourth quarter of 2015, 2.6% by the fourth quarter of 2016 and 3.5% by the end of 2017. Looking out past 2020, the simulations never result in short-term rates above 4%. These simulations are noteworthy in part because Fed Chairwoman Janet Yellen pays attention to them. She highlighted earlier versions of optimal control exercises in speeches in 2012, citing the work as evidence the Fed should take its time raising rates. Those earlier simulations had notably different outcomes than the news ones. They pointed to the optimal time for liftoff as late 2015, followed by a steep path of rate increases that pushed the benchmark to near 5% by 2020.

Fed Watch: Yes, I am Optimistic -- I stood relieved when Federal Reserve policymakers recognized the tendency toward pessimism during this recovery when no such pessimism was warranted: Finally, a couple of members suggested including language in the statement indicating that recent foreign economic developments had increased uncertainty or had boosted downside risks to the U.S. economic outlook, but participants generally judged that such wording would suggest greater pessimism about the economic outlook than they thought appropriate. This stands in contrast to fairly consistent efforts to find the dark cloud in every silver lining. This, from the Wall Street JournalEconomic prospects are flagging across Europe, Japan and big emerging markets such as India, a turn that presents fresh challenges to the relatively robust U.S. economy at a time when the world needs a dependable growth engine.At least they mentioned the "robust" part. And the perennial activity of agonizing over holiday sales is in full swing, despite the reality that holiday sales tell you little if anything about the overall economy.  The lesson no one wants to draw from this recovery is that the US economy is both stronger and more resilient than commonly believed. Everyone, it would seem, is in the pessimism business - and such pessimism seems endemic throughout the US public. Perhaps only pessimism scores political points. Or perhaps that is only human nature. As Deirdre McCloskey recently remarked in her review of Piketty:  …pessimism sells. For reasons I have never understood, people like to hear that the world is going to hell, and become huffy and scornful when some idiotic optimist intrudes on their pleasure. Yet pessimism has consistently been a poor guide to the modern economic world. We are gigantically richer in body and spirit than we were two centuries ago…

Fed to stay aggressive in 2015 as it battles ‘lowflation’: Morgan Stanley - — Prepare for another year of ultra-loose monetary policy around the world, as the Federal Reserve and other central banks use low interest rates and aggressive stimulus to fight low inflation and anemic growth, top economists at Morgan Stanley have said. The major theme for the next 12 months will be “lowflation” — inflation running at excessively low rates — which has become “pervasive, persistent and pernicious”, chief global economist Joachim Fels warned at the investment bank’s 2015 global outlook presentation on Monday in London. “Markets no longer believe that central banks will be able to bring inflation back to target any time soon. The longer this lasts, the more self-fulfilling these prophecies become,” Fels said. “This is why central banks have a strong interest in lifting inflation [...] We think they have already started the battle against lowflation, but there is more to come,” he added. Here’s what Morgan Stanley expects to come out of central banks next year.

Fed Watch: Sometimes I Wonder -- Sometimes I wonder if the Fed every actually looks at the data. This, from Reuters: Interviews with Fed officials and those familiar with its thinking show the mood inside is more somber than the central bank's reassuring statements and evidence of robust economic health would suggest. The reason is the central bank's failure to nudge price growth up to its 2 percent target and, more importantly, signs that investors and consumers are losing faith it can get there any time soon... ..."The primary concern at the moment is whether you can get back to 2 percent in a way that keeps expectations anchored, and maintains the credibility of the Fed as an institution that can achieve its goal," ...One Fed official, who declined to be named, told Reuters policymakers must resist the urge to lift rates at the first opportunity because they might be forced to backtrack if inflation failed to pick up... One would think that central bank officials would recognize that low inflation is not a new phenomenon. It has been a persistent phenomenon for the past twenty years:  Note the long periods of below trend core inflation. Has this trend really gone unnoticed on Constitution Avenue? Moreover, the periods of elevated inflation have been more persistent when unemployment is below 5%, compared to the current 5.8%. At current rates, I would say you are more likely to be below than about 2% inflation: Bottom Line: Sometimes I think the Fed's underlying pessimism stems from some belief that inflation and wage pressures were about to occur when there was absolutely no reason to hold such a belief. The economy is only just beginning to move into a zone where more interesting things could happen. Honestly, it would be much more interesting if the economy moved to 4% unemployment with no wage or price pressures.

Is the Fed "Pretending"? - DeLong - Ted Rivelle is clearly saying things that make sense to him. But I don’t think what he says makes sense to the world, and it certainly does not make sense to me: Fed’s game of pretend must end soon:“Artificially low rates mean that improperly qualified borrowers……obtain loans and then bid resources away from those who might employ them more productively. Along the way leverage accumulates, increasing financial risk and market volatility…. The Fed’s reluctance to pull the plug on zero interest rates is understandable. Since low rates have enabled activities that would not survive a rate rise, a renormalisation will be painful…. So why do it? Because ‘kicking the can’ means the inevitable deleveraging will be more painful. Sustainable growth comes from improvements to work process and product. Merely adding leverage to a business does not improve its efficiency; higher home prices do not increase the wages of those in the home…. The game of pretend ultimately has to end. For investors, the question that matters is when and how. When the end game comes, leverage will be forced out of the system and asset prices will fall. If the Fed is willing to recognise that ultimately its policies cannot dictate economic realities, rate rises should begin soon, presumably in 2015… In short, interest rates are “artificially” low when the market rate of interest is less than the natural rate of interest, at which the quality of planned savings supplied at full employment balances investment plus government demand for finance. If interest rates are low but if planned savings at full employment exceed investment, then interest rates are not “artificially low”: they are naturally low. If they are “artificially” anything, they are artificially high.

The Fed and ECB differ sharply on the oil shock -- The FT’s Martin Wolf has said almost everything that needs to be said about the global economic effects of the 2014 oil shock, but one additional point is worth emphasising. This is the fact that the US Federal Reserve and the European Central Bank view the consequences of the oil shock entirely differently. The markets have, of course, already been acting on this assumption, but the extent of the gulf between the world’s two leading central banks on this issue has been underlined by Mario Draghi’s dovish speech last month, and particularly by the Fed vice-chairman Stanley Fischer in a somewhat hawkish interview with The Wall Street Journal. In perhaps his most significant statement since becoming vice-chairman in May, Mr Fischer made it clear that the period of low inflation due to falling oil prices will not deter the Fed from starting to raise interest rates next year. Furthermore, he suggested that the Fed might soon drop the assurance that it would not raise rates for a “considerable time”, replacing it with alternative language that is less constraining on its future actions. It now seems likely that this language change could happen at the next Federal Open Market Committee meeting on December 16 and 17. By contrast, Mr Draghi and his supporters at the ECB clearly view the oil shock as a reason to shift policy in a more expansionary direction – if not at Thursday’s policy meeting, then sometime fairly soon.

Oil Prices and Deflationary Bias - Paul Krugman - I know all you young whippersnappers don’t remember ancient history, but a long time ago, in a galaxy far, far away — well, actually, in 2011, and right here on planet Earth — oil and other commodity prices were rising, not falling. As a result, headline inflation was running fairly high. Some of us argued that core inflation was a much better guide to monetary policy, and the Fed agreed; but inflationistas were going wild, and in Europe the ECB decided, disastrously, to raise interest rates. So now that oil is plunging, the same people who saw rising oil as a reason to raise rates should see falling oil as a reason for expansionary policy, right? Why, no. They’re telling us not to pay attention to low headline inflation, which they say is just oil (although it isn’t), and anyway, falling oil prices are a stimulus. So when oil is going up, it’s a reason to tighten policy, and when it’s going down, it’s a reason not to loosen policy.  And people wonder why I talk about sadomonetarism.

Cheap Oil A Boon For The Economy? Think Again --Ilargi -  I thought it might be a nice idea to question a certain someone’s theories using their own words, while at the same time showing everybody what the dangers are from falling oil prices. There are many ‘experts and ‘analysts’ out there claiming that economies will experience a stimulus from the low prices, something I’ve already talked about over the past few days in The Price Of Oil Exposes The True State Of The Economy and OPEC Presents: QE4 and Deflation. And I’ve also already said that I don’t think that is true, and I don’t see this ending well. Today, our old friend Ambrose Evans-Pritchard starts out euphoric, only to cast doubt on his self-chosen headline. He’d have done better to focus on that doubt, in my opinion. And I have his own words from earlier in the year to support that opinion. Ambrose is bad at opinions, but great at collecting data; after all, if you write for the Daily Telegraph you’re supposed to write positive things about the economy. Oil Drop Is Big Boon For Global Stock Markets, If It Lasts Tumbling oil prices are a bonanza for global stock markets, provided the chief cause is a surge in crude supply rather than a collapse in economic demand Roughly one third of the current oil slump is a shortfall in expected demand, caused by China’s industrial slowdown and Europe’s austerity trap. The other two thirds are the result of a sudden supply glut, which Saudi Arabia and the Gulf states have so far chosen not to offset by cutting output. This episode looks relatively benign. Nick Kounis from ABN Amro says it will add $550 billion of stimulus to world markets. “That is fantastic news for the global economy,” he said

Fed Fischer's Complete & Bizarre Nonsense: Oil Price Collapse "Making Everybody Better Off" -- "I'm not very worried," explains Fed Vice Chairman Stan Fischer in a very Bernanke-"contained"-like nonchalence about the total collapse of oil prices (and US oil producer stocks). Sharply lower oil prices will boost spending and aid U.S. growth, Fischer stated in a mind-blowingly naive speech for the 2nd-most-important-monetary-policy-maker-in-the-world,  adding that lower oil prices were "a phenomenon that’s making everybody better off." We don’t understand his ignorance: as Raul Ilargi Meijer noted earlier, Fischer is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost? This is just complete and bizarre nonsense. As Bloomberg reports, Sharply lower oil prices will boost spending and aid U.S. growth, said two of the Federal Reserve’s most influential officials, playing down the risk that plunging energy costs could push inflation further below the Fed’s goal. Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley, speaking at separate events yesterday in New York, both stressed the positive economic impact from the steepest decline in oil prices for five years. “I’m not very worried,” Fischer told an audience at the Council on Foreign Relations. “The lower inflation that we’ll get from the lower price of oil is going to be temporary.” He also said lower oil prices were “a phenomenon that’s making everybody better off.”

Happy holidays from the Saudis and shale oil -- While Americans were enjoying their thanksgiving feast this year, they received an extra blessing from two sources: the shale (cheaper) oil revolution and Saudi Arabia. Due to pressure from a surge of shale oil supply coupled with weaker global demand for energy, oil prices had, by the week before Thanksgiving, dropped about 30 percent from $110 a barrel last summer to $78 a barrel. Thanksgiving coincided with OPEC’s price setting meeting at which the Saudi refusal to cut production (restrict supply to boost the price of oil) has so far cut the price by another $8-$10 a barrel. Of course there are no guarantees that oil prices will stay at current levels indeed they could rise or fall. But the current price of about $70 per barrel versus the previous average of about $110 a barrel represents a huge, and largely unexpected, 40 percent cut in American energy costs which run about $400 billion annually. That is equivalent to a tax cut with no strings attached of about $160 billion, enough to finance over a quarter of the roughly $60 billion worth of holiday spending expected this year. In broader terms, cheaper oil is currently the equivalent of a tax cut equal to almost a full percentage point of US GDP. If oil price stays around current levels, as it may well do given the fortuitous combination of extra supply from shale and Saudi largess and weaker global oil demand (stagnating growth is evident in China, Japan, Europe, and emerging markets – about half of the global economy), the windfall of cheaper energy may boost 2015 growth by about 50 percent, from the current 2 percent average up to 3 percent. That is truly great news, especially coming as it does amidst a flurry of negative news tied to elevated uncertainty about tensions in the Middle East, Ukraine, and greater Asia.

A Note on Oil Prices and the Economy - Krugman - I may be doing some media where people will ask me about what the oil plunge means for the US economy, so I thought I’d spend a bit of time figuring out what if anything I might say that’s interesting. And it does seem to me that there’s a bit more to the story than a casual pass might suggest.The big news prior to the plunge was, of course, fracking and all that, which has abruptly reversed the long slide in domestic production.  You might think that this surge in production, by reducing imports, has left the US relatively insulated from oil shocks. But we do need to remember that on the eve of the latest plunge real oil prices were very high by historical standards, so that oil imports as a share of GDP remained quite high — in fact, early OPEC high:  So the economic impact might be bigger than you think. But shale has in some important ways arguably changed the nature of that impact.Because we once again have a significant sized domestic oil industry, falling prices now create losers as well as winners within the US. The gains from falling prices exceed the losses, and if the marginal propensity to spend is similar that should tell the tale for aggregate demand. In fact, in the old days when domestic oil largely meant Texas billionaires and all that, it was reasonable to argue that the internal redistribution further increased demand when oil fell.But fracking means that some of the producers are very different; and among other things, they’re engaged in a lot of investment spending. So you could make the case that falling oil is less expansionary than it used to be, and even, possibly, that it’s contractionary.

The Long and Short of Falling Energy Prices - Atlanta Fed's macroblog -- Earlier this week, The Wall Street Journal asked the $1.36 trillion question: Lower Gas Prices: How Big A Boost for the Economy? We will take that as a stand-in for the more general question of how much the U.S. economy stands to gain from a drop in energy prices more generally. (The "$1.36 trillion" refers to an estimate of energy spending by the U.S. population in 2012.)  It's nice to be contemplating a question that amounts to pondering just how good a good situation can get. But, as the Journal blog item suggests, the rising profile of the United States as an energy producer is making the answer to this question more complicated than usual. The data shown in chart 1 got our attention: As a fraction of total investment on nonresidential structures, spending on mining exploration, shafts, and wells has been running near its 50-year high over the course of the current recovery. As a fraction of total business investment in equipment and structures, the current contribution of the mining and oil sector is higher than any time since the early 1980s (and generally much higher than most periods during the last half century). In a recent paper, economists explain why this matters:We show that crude oil production from existing wells in Texas does not respond to current or expected future oil prices... In contrast, the drilling of new wells exhibits a strong price response...In short, the investment piece really matters. We've done our own statistical investigations, asking the following question: What is the estimated impact of energy price shocks in the second half of this year on investment, consumer spending, and gross domestic product (GDP)?  If you are interested, you can find the details of the statistical model here. But here is the bottom line: the estimated impact of energy price shocks is a very sizeable decline in investment in the mining and oil subsector and, more importantly, an extended period of flat to slightly negative growth in overall investment (see chart 2).

New US Oil Well Permits Collapse 40% In November, Fed Still "Not Worried"? -- Houston, we have a problem-er. With a third of S&P 500 capital expenditure due from the imploding energy sector (and with over 20% of the high-yield market dominated by these names), paying attention to any inflection point in the US oil-producers is critical as they have been gung-ho "unequivocally good" expanders even as oil prices began to fall. So, when Reuters reports a drop of almost 40 percent in new well permits issued across the United States in November, even The Fed's Stan Fischer might start to question his lower oil prices are "a phenomenon that’s making everybody better off," may warrant a rethink. New permits, which indicate what drilling rigs will be doing 60-90 days in the future, showed steep declines for the first time this year across the top three U.S. onshore fields: the Permian Basin and Eagle Ford in Texas and North Dakota's Bakken shale.

Federal Reserve Confirms Biggest Foreign Gold Withdrawal In Over Ten Years -- A week ago, when we reported that in a stunning move, the "Dutch Central Bank Secretly Withdrew 122 Tons Of Gold From The New York Fed", and when looking at the NY Fed's monthly reports of gold deposits by foreign entities, we observed that "we can see that while the 5 tons outflow in 2013 was most likely Germany, the recent surge in gold repatriation from Liberty 33 was the Netherlands. That said, only 77.5 tons of NY deposits gold has been officially repatriated through September, which means the October update, when it comes out, will be a doozy." Yesterday, the long anticipated October update of "earmarked gold" held on deposit at the NY Fed was released, and sure enough it did not disappoint. Declining in dollar value from $8.305 billion to $8.248 billion, this was the equivalent of 42 tonnes of gold being withdrawn, in the process reducing net gold located in the vault of JPMorgan the NY Fed to 6,076 tonnes. The 42 tonnes withdrawal was also the biggest single monthly redemption from the NY Fed since 2001.

The return of currency wars will strengthen the U.S. dollar even more - Roubini - The recent decision by the Bank of Japan to increase the scope of its quantitative easing is a signal that another round of currency wars may be under way. The BOJ’s effort to weaken the yen is a beggar-thy-neighbor approach that is inducing policy reactions throughout Asia and around the world.  Central banks in China, South Korea, Taiwan, Singapore and Thailand, fearful of losing competitiveness relative to Japan, are easing their own monetary policies or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating. All of this will lead to a strengthening of the U.S. dollar, as growth in the United States is picking up and the Federal Reserve has signaled that it will begin raising interest rates next year. But if global growth remains weak and the dollar becomes too strong, even the Fed may decide to raise interest rates later and more slowly to avoid excessive dollar appreciation.

Interest Rate Derivatives and Expectations - NY Fed - Market expectations of the path of future policy rates can have important implications for financial markets and the economy. Because interest rate derivatives enable market participants to hedge against or speculate on potential changes in various short-term U.S. interest rates, they are a rich and timely source of information on market expectations. In this post, we describe how information about market expectations can be derived from interest rate futures and forwards, focusing on three main instruments: federal funds futures, overnight index swaps (OIS), and Eurodollar futures. We also discuss how options on interest rate futures can be used to gain insight into the full distribution of rate expectations—information that cannot be gleaned from futures or forwards alone. In a forthcoming companion post, we explore an alternative source of policy rate expectations based on the two surveys conducted by the Trading Desk at the Federal Reserve Bank of New York.

Hilsenrath Analysis: Friday’s Jobs Report Assures Global Central Banks Going in Two Directions -- Friday’s U.S. jobs report assures the world’s major central banks will be going in opposite directions in the months ahead. Strong job growth in the U.S. keeps the Federal Reserve on a path toward raising short-term interest rates in 2015, while the European Central Bank, the People’s Bank of China and the Bank of Japan debate whether new easy money measures are warranted in the face of disappointing economic output and downward pressure on inflation. Two senior Fed officials–Fed Vice Chairman Stanley Fischer and New York Fed President William Dudley–said this week they were looking toward rate increases next year as the U.S. job market improves. With the U.S. on pace for its best job growth in 15 years, that conviction is likely to strengthen, however officials are unlikely to rush into action because U.S. inflation is still well below the Fed’s 2% target and wage increases remain modest. Mr. Dudley said he saw mid-2015 as the most likely starting point for raising the Fed’s benchmark short-term rate from near zero.  The next challenge for the Fed is deciding what signal to send about rates after a Dec. 16-17 policy meeting. The big issue on the agenda is whether to drop an assurance in the Fed’s policy statement that rates will stay near zero for a “considerable time.”Fed officials have been debating since September whether to drop those words and how to replace them. The market is likely to take such a move as a sign that rate increases are nearing. Mr. Fischer said at a Wall Street Journal conference “it is clear we are getting closer” to dropping the assurance, and Friday’s report pushes the Fed nearer still. Mr. Dudley has said the Fed can still be “patient” about raising rates in the months ahead. His comments suggest the Fed might stop giving the “considerable time” assurance but switch to some signal of patience as officials assess whether downward pressure on commodities prices and global inflation are a threat to the U.S.

On Not Counting Chickens - Krugman - A genuinely good employment report this morning — adding jobs like it’s 1999, and some actual wage growth, finally.But — you knew there would be a but — good news can turn into bad news if it encourages complacency.There will, predictably, be calls to respond to the good news by normalizing monetary policy, raising interest rates soon. And we will want to raise rates off zero at some point. But it’s important to say that (a) we are still highly uncertain about the underlying strength of the economy (b) the risks remain very asymmetric, with much more danger from tightening too soon than from tightening too late. On (a), the uncertainty comes in several dimensions. We don’t know how long the good news on jobs will continue; we don’t know how far we are from full employment; we don’t know how high interest rates should go even when we do get to full employment.On (b), we know how to deal with above-target inflation; it’s a problem, but not a trap. But if you get into a trap like Japan’s, or that which the euro area already seems to be in, getting out is very hard. You really don’t want to risk tightening too soon, and finding yourself desperately trying to get traction in a zero-rate environment. One related point: there may be some tendency to say that things are really good, because we can count on falling oil prices to give the economy a big boost. But as I suggested yesterday, that’s not as clear as you might think. And I was happy to see the much more detailed analysis from Dave Altig at the Atlanta Fed making basically the same point. Once you take into account the effects of falling oil prices on energy investment, the stimulative effects of the fall look weaker, maybe even nonexistent. So still: the Fed should wait until it sees the whites of inflation’s eyes — and by inflation I mean inflation clearly above 2 percent, and if I had my way higher than that.

What Should the Fed Think of the Economy's Clearly Gaining Momentum?  DeLong - Tim Duy: Economy Clearly Gaining Momentum: “The November employment report came in ahead of expectations… …with a monthly nfp gain of 321k and 44k of upward revisions to previous months. Job gains were spread throughout the major sectors of the economy. The 2014 acceleration in job growth is clearly evident. The employment report in the context of indicators previously identified by Federal Reserve Chair Janet Yellen as important to watch. Measures of underemployment are generally moving in the right direction. To be sure, the labor force participation rate remains in a general downward trend, but on this point I think you have to accept that demographic forces are driving the train. Year-over-year wage growth remains anemic although average wages gained 0.37% on the month.” May I say that I believe that it is inappropriate for the Federal Reserve to raise interest rates before it sees at least two quarters in which inflation averages 2%/year and wage growth averages 3%/year or more?  Seriously: now is the time for the Federal Reserve to establish its credibility on the point that, if the economy enters a liquidity trap, the Fed is going to keep stimulating until the economy is out of the liquidity trap and interest rates can normalize. If the Fed does not do this now, future Fed Chairs will curse its name.

What should the Federal Reserve do?: The case for opportunistic inflation | The Economist: Sometime next year, the Federal Reserve will likely face an unusual confluence of economic circumstances. One of its mandates, full employment, will call for monetary policy to tighten relatively quickly; the other, inflation, will suggest it should stay loose. How should the Fed weigh these competing goals? It may want to dust off a doctrine from the 1990s, “opportunistic disinflation” and rechristen it "opportunistic inflation.” The impressive pace of job creation reported today underlined the approaching crunch point. The number of new non-farm jobs in November, at 321,000, was the most in nearly three years. Along with revisions of 44,000 to prior months, it shows this year’s already-solid pace is accelerating. The unemployment rate remained at 5.8%, but if this year’s combination of job and labour force growth continue, it will drop below 5% within a year, easily undershooting the Fed’s estimate of its natural rate. True, the current unemployment rate may overstate how strong the labuor market is, but other measures suggest slack is quickly disappearing: the broader U-6 measure of underemployment dropped to 11.4% in November, from 11.5%, long-term unemployment edged down to 1.8% from 1.9%, and involuntary part time work declined. But even as the Fed hits its full-employment target, it will be badly missing on its 2% inflation target – from below. Headline inflation was 1.7% in October, and core inflation, according to the Fed’s preferred index, was just 1.5%. Petrol prices have plunged further since, so headline inflation is likely headed below 1%, and pass-through effects will likely push core further down as well.

Fed's Beige Book: Economic Activity "continued to expand" - Fed's Beige Book Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand in October and November. A number of Districts also noted that contacts remained optimistic about the outlook for future economic activity. Consumer spending continued to advance in most Districts, and reports on tourism were mostly positive. Employment gains were widespread across Districts, and Districts reporting on business spending generally noted some improvement. Demand for nonfinancial services generally increased. Manufacturing activity strengthened in most Districts. Construction and real estate activity expanded overall in October and November, but saw a fair amount of variation across sectors and regions. Residential construction increased on balance across the Districts and multifamily construction remained stronger than single-family construction in a number of Districts. Reports on residential real estate activity were mixed. About half of the Districts reported an increase in home sales. Many Districts indicated that sales in the multifamily sector were stronger than sales in the single-family sector. Home prices were little changed in most Districts, although prices increased in the Richmond, Atlanta, Dallas, and San Francisco Districts. Nonresidential construction rose in most Districts. Construction of office space was relatively strong in some large urban areas, such as New York City and Philadelphia. Industrial construction was particularly strong in the Cleveland, Chicago, and Dallas Districts. Commercial real estate activity also increased in many Districts, with declining vacancies and rising rents for office space; especially strong activity was noted in the central business districts of some large urban areas.

Fed’s Beige Book: We Read It So You Don’t Have To -- The outlook for the U.S. economy brightened over the fall, boosted by stronger consumer spending and falling gasoline prices, according to the Federal Reserve’s “Beige Book” report, released Wednesday.  Here are some of the anecdotes offered from the Fed’s 12 regional banks:

Fed Survey Finds 'Optimistic' View of the Economy -- Federal Reserve officials went into the end of the year with a fairly buoyant view on the economy, with lower gas prices, higher holiday spending and employment growth acting as the main catalysts. In assessments across the central bank's 12 districts, views were largely positive, with most "optimistic" about the outlook, according to the Fed's latest Beige Book report, released Wednesday. Inflation remained subdued, according to most respondents to the survey. Related: What Economic Numbers Do and Don’t Say About the Economy One of those observations already appears in question, with holiday spending so far not meeting bullish projections. But gas prices continue to drop and the jobs market is expected to post another month of gains in excess of 200,000 when the government releases its latest nonfarm payrolls count Friday. The report covered conditions for October and November, a time when financial markets exhibited some turbulence while oil prices tumbled, sending gasoline below $3 a gallon across the nation.

An Assortment of Data Shows a Resurgent U.S. Economy, but Wages Continue to Lag — The nation’s private businesses added workers at a fairly brisk clip in November and the services sector grew strongly, suggesting a slowing global economy is having a limited impact on domestic activity.Strengthening labor market conditions, however, have yet to spur faster wage growth, other data on Wednesday showed, which could give the Federal Reserve ammunition to maintain its very low interest rate policy for a while.Evidence of the economy’s resilience was backed by the Fed’s Beige Book, which found that activity continued to expand in October and November, with lower gasoline prices stimulating consumer spending.“With all of the talk about a recession in Japan, possible recession in the eurozone and in Russia, the U.S. economy is looking much more attractive,” said  The payrolls processor ADP said private sector employment rose by 208,000 last month after increasing by 233,000 in October. Private payrolls have now advanced by more than 200,000 in seven of the last eight months.The ADP report, which was jointly developed with Moody’s Analytics, was released ahead of the government’s more comprehensive November employment report on Friday.Private sector job gains last month were broad-based, though the pace of hiring in both the services and goods-producing sectors slowed a bit. Economists said that did not change their expectations for the government’s report to show that employers added about 225,000 jobs last month.In a separate report, the Institute for Supply Management said its index of services sector activity rose to 59.3 last month from 57.1 in October. The latest reading is just below a postrecession high hit in August. Any reading above 50 indicates an expansion in activity. New orders and order backlogs increased, while a gauge of export orders rose solidly, defying slowing economic growth in China and the eurozone, as well as Japan’s recession.

Waving a Magic Wand for Economic Growth - Brad DeLong -- Brink Lindsey asked me what I would do to the U.S. economy to increase economic growth if I could just "wave a magic wand". The problem I have with such questions--with such "magic wands"--is that I am never sure just how powerful they are supposed to be.  Let me propose three, all of which are small scale in terms of policies but larger scale in that in order to become durable policies they do require, as John Adams said, changes "in the hearts and minds of our countrymen [and women]...":

  • (1) A Federal Reserve committed to nominal GDP level targeting, with a trend growth rate in nominal GDP of 7%/year
  • (2) State and local governments committed to raising salaries of K-12 public-school teachers relative to median salaries by 50%, in exchange for severe reductions in teacher tenure
  • (3) Increasing the number of legal immigrants from roughly one million per year to 2.5 million per year--0.75% of the population per year:

Total US Debt Rises Over $18 Trillion; Up 70% Under Barack Obama -- Last week, total US debt was a meager $17,963,753,617,957.26. Two days later, as updated today, on Black Friday, total outstanding US public debt just hit a new historic level which probably would be better associated with a red color: as of the last work day of November, total US public debt just surpassed $18 trillion for the first time, or $18,005,549,328,561.45 to be precise, of which debt held by the public rose to $12,922,681,725,432.94, an increase of $32 billion in one day. It also means that total US debt to nominal GDP as of Sept 30, which was $17.555 trillion, is now 103%. Keep in mind this GDP number was artificially increased by about half a trillion dollars a year ago thanks to the "benefit" of R&D and intangibles. Without said definitional change, debt/GDP would now be about 106%. It also means that total US debt has increased by 70% under Obama, from $10.625 trillion on January 21, 2009 to $18.005 trillion most recently.

Some serious nonsense on CBO from the WSJ - I almost never bother with editorials from the Wall St. Journal, which read to me something like, “Boy, if toasters could sing and dance, breakfast would be a lot more fun!” But this AMs entry was almost like a satire—an Onion version—of their usual fare. They want to get rid of the Congressional Budget Office (and the tax revenue score-keeper, the Joint Tax Committee) because they were created, according to the Journal, by Democrats to “support the agenda of expanding government.”  In their place, the Journal’s ed board suggests that: “The wisest course is to abolish CBO and Joint Tax and allow open debate about the tax and spending implications of policy changes. Let the politicians with the authority to make these decisions be accountable for the results.” What could go wrong with that? There’s been a fair bit of scribbling about the roles and practices of CBO since the election, with various technocratic R’s advocating that the new Congressional majority reappoint the current director, Doug Elmendorf, vs. more ideological R’s suggesting they get their own guy or gal in there.  Across the way from the singing toaster editorial, conservative writer Avik Roy has a more thoughtful piece on ways he thinks the budget agency can derive “better” numbers. (Note that he too casts a vote for Elmendorf staying on the job.) I disagree with his calls for “dynamic scoring,” which will not produce better, as in more accurate, numbers. It will just produce more numbers.

House on Brink of Spending Deal to Avoid Another Government Shutdown - — House Republican leaders appeared ready to buck their Tea Party flank on Wednesday as they closed in on a spending deal to avert a government shutdown and prepared to call a vote next week.If the plan by Speaker John A. Boehner and his leadership team prevails, it will be a significant victory for Republicans eager to avoid the kind of bitter and politically harmful fight that led to a 16-day shutdown last year.But many conservative Republicans were venting their frustrations in private meetings and news conferences at the Capitol as they called on their colleagues not to ignore the anger from their base over President Obama’s decision to defer deportations for millions of illegal immigrants.It is a fight Mr. Boehner is willing to have.   He and his allies believe they will find themselves in the uncomfortable position of having to rely on Democrats to pass the spending bill through the House because of the number of Republicans who will vote against it. But the trade-off is one the speaker can accept: He may draw the ire of conservatives and Tea Party groups, but he will demonstrate to voters that Republicans can be pragmatic and not beholden to their most far-right elements.

The Politics and Policy of Tax Extenders -- ‘Tis the season for bad tax policy… In what has become an annual ritual, Congress is struggling with what to do with the 70 or so “temporary” tax provisions that expired in 2013 or will expire in 2014. For a brief moment last week, there was word of a deal to make permanent the biggest of the “extenders.” That plan was apparently quashed by a presidential veto threat, but the issue has not gone away. Now would be a good time for Congress and the White House to stop treating these holiday baubles as a sacred vessel that is above policy oversight. The now-defunct deal would have restored and made permanent the research and experimentation tax credit (which also would have become partially refundable for small businesses), expensing for small businesses, the state and local sales tax deduction, the refundable American Opportunity Tax Credit for higher education expenses, the exclusion for employer-provided transit and parking benefits, and half a dozen others. It would also have extended retroactively a raft of other dubious provisions, including tax breaks for owners of NASCAR race tracks. Lawmakers were unwilling to make permanent alternative energy tax incentives and enhanced tax credits for low-income working families,which are scheduled to expire in a few years. The Center on Budget and Policy Priorities estimates this unlamented deal would have added $409 billion to the deficit over 10 years (not accounting for interaction effects that would be in an official estimate). CBPP points out this is more than half of the much-touted revenue savings from the fiscal cliff deal.

How To End the Tax Extender Drama: Stop Calling Them Extenders—And Make Congress Pay For Them -- There are two simple ways to end the tiresome seasonal drama over faux-temporary tax cuts known (with a stunning lack of accuracy) as the extenders. First, call them what they are: Expired tax breaks that have been off the books for nearly a year. Second, make Congress pay for any of the special interest subsidies it chooses to restore. These are tax cuts just like any other, and they should be financed with offsetting tax hikes or spending cuts. There is no good reason why Congress should be allowed to add hundreds of billions of dollars to the federal debt to benefit favored taxpayers. Requiring Congress to pay for these tax breaks would not only be good for the nation’s fiscal health, it would impose much-needed discipline to a process that has been thoroughly corrupted in recent years. It would encourage lawmakers to at least consider the merits of dozens of allegedly temporary tax breaks before reviving them through the policy equivalent of a free lunch. It looks as if Congress is about to do it again. After an aborted attempt to make some of the expired provisions permanent, lawmakers may be about to mindlessly restore more than 50 tax breaks retroactively and perhaps extend them for 2015. In March, the Committee for a Responsible Federal Budget estimated the price tag for doing this would top $75 billion. Keeping them around for a full decade would add nearly $800 billion to the federal debt.

House Passes One Year Renewal of Tax Extenders -- On Wednesday of this week, the U.S. House of Representatives passed a $42 billion package that would extend the nearly 50 tax provisions in the “tax extenders” bill through the end of 2014.  The one year extension came following a veto threat from the president that halted talks between Senate Majority Leader Harry Reid (D-NV) and House Ways and Means Chairman Dave Camp (R-MI) on a $400 billion permanent extension of most of the tax provisions. As we have written before, not all tax extenders are good policy. The provisions that should be extended on a permanent basis are the extenders that help make the tax code more neutral. Four provisions that clearly qualify as neutral tax policy are:

  • Section 179: In past years, Section 179 has allowed businesses to expense up to $500,000 in capital investment rather than depreciating them overtime. This moves the tax code closer to neutral treatment of capital investments.
  • Bonus Depreciation: Bonus Depreciation, or 50 percent expensing, allows businesses to deduct 50 percent of their costs in software and equipment, in the year the purchases are made.
  • Look-Through Treatment: Look-through treatment allows U.S. companies to move money between their foreign subsidiaries without triggering a U.S. tax liability. This is a necessary band aid for our current worldwide tax system.
  • Active Financing: Active financing also provides a slight fix for our uncompetitive international tax system. The provision extends deferral to banks and businesses that finance the foreign sale of their products, which grants these businesses the same treatment as other U.S. businesses.

Real world contradicts right-wing tax theories - Ever since economist Arthur Laffer drew his namesake curve on a napkin for two officials in President Richard Nixon’s administration four decades ago, we have been told that cutting tax rates spurs jobs and higher pay, while hiking taxes does the opposite. Now, thanks to recent tax cuts in Kansas and tax hikes in California, we have real-world tests of this idea. So far, the results do not support Laffer’s insistence that lower tax rates always result in more and better-paying jobs. In fact, Kansas’ tax cuts produced much slower job and wage growth than in California.  The empirical evidence that the Laffer curve is not what its promoter insists joins other real-world experience undermining the widely held belief that minimum wage increases reduce employment and income.  The Laffer curve refers to a theory of marginal effects of tax rates on tax revenues, which goes back hundreds of years, at least to a 15th century Muslim scholar named Ibn Khaldun. Laffer’s model illustration looks like a bullet pointed to the right. It shows that the government collects no revenue when tax rates are at 0 or 100 percent. As tax rates rise, revenue does until reaching an unspecified rate that Laffer calls “prohibitive.” Above that level, as tax rates rise, government revenues fall off quickly.. Is this absolute rule right? Let’s consider the tax law changes in Kansas and California that took effect at the start of last year.

Wall Street Demands Derivatives Deregulation In Government Shutdown Bill: -- Wall Street lobbyists are trying to secure taxpayer backing for many derivatives trades as part of budget talks to avert a government shutdown. According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said. The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.  Taxpayer insurance helps banks secure higher credit ratings for their derivatives, since taxpayers assume some of the risk, which in turn makes the banks more profitable. Last year, Rep. Jim Himes (D-Conn.) introduced the same provision under debate in the current budget talks. The legislative text waswritten by a Citigroup lobbyist, according to The New York Times. The bill passed the House by a vote of 292 to 122 in October 2013, 122 Democrats opposed, and 70 in favor. All but three House Republicans supported the bill. Himes was passed over for leadership positions after the 2014 midterm elections, which he said he interpreted as unrest within the Democratic Party over his strong ties to financial elites.

Pimco suffers $100bn in redemptions from top funds - FT.com: Pimco has accounted for half of the 10 funds with the biggest outflows so far this year – bleeding more than $100bn – as rivals snatched market share from the world’s largest bond manager while it struggled to contain management infighting. Five of the 10 funds with the heaviest customer redemptions so far this year are run by the California company, and several more have suffered multibillion-dollar outflows.  The data highlight how Pimco’s weak performance began before the resignation in September of founder Bill Gross and extends beyond the funds that he personally managed. Mr Gross’s former Total Return and Unconstrained Bond funds top the list of biggest redemptions in 2014 so far, with Pimco funds investing in high-yield bonds, leveraged loans and equities also suffering heavy withdrawals. The league table of US fund flows, by research group Morningstar, paints a stark picture of how savers have shifted money to other managers, led by Vanguard, MetWest and Goldman Sachs. It also reveals how longer-term trends in the mutual fund industry have continued to play out in 2014, including the vast asset accumulation of tracker funds from Vanguard, the low-cost market leader, and the decline of traditional active management funds by Fidelity and Capital Group’s American Funds.

Fed Leak Tipped Traders to Historic Stimulus Move, Prompted Secret Inquiry - Alarms went off inside the Federal Reserve: the Fed’s innermost secrets had leaked to Wall Street. Confidential deliberations of the Federal Open Market Committee made their way into a research note circulated among traders. The report -- a fly-on-the-wall account of the FOMC’s September 2012 meeting, with hints of Fed action to come that December -- prompted a mole hunt that reached the highest levels of the central bank. The story of the FOMC leak underscores the lengths to which outsiders will go to penetrate the inner workings of the Fed, and how valuable access can be. The Fed has never disclosed the investigation or its findings. Public pronouncements by Fed leaders routinely move markets, and officials must walk a delicate line when discussing information. They are allowed to air their own views but are forbidden from disclosing non-public information about committee decisions. Minutes of the FOMC, the 12-member panel that sets monetary policy, are so sensitive that an accidental leak in April 2013 caused a stir. The Fed inspector general was asked to examine how the Board of Governors handled confidential information and released a report to the public detailing weaknesses. More recently, the question of Fed leaks has focused on the Federal Reserve Bank of New York, where an employee passed confidential information to a banker at Goldman Sachs Group Inc. That episode raised concern about ties between government agencies and the financial industry.

Hedge Funds Closing At High Rates - Yves Smith  --CalPERS’ decision earlier this year to exit all hedge fund investments turns out to have been a particularly visible manifestation of a trend underway: that of investor dissatisfaction with hedge funds. CalPERS politely attributed its withdrawal to excessive fees, too much complexity, and the difficulty of finding funds where it could put a meaningful amount of money to work. The latter point gets at the real problem: hedge funds have underperformed and investors are less and less willing to pay big fees for lousy results. A Bloomberg story revealed that a marked uptick in the number of hedge funds closures this year. Admittedly, the fact that there could be so many shuttered firms is because there are so ‘blooming many hedge funds in the first place. Money continued to flow into big, institutionally-oriented hedge funds, with assets under management at 159 players surveyed up 15% for the year ended June 30. Deutsche Bank pegs the growth of the industry overall as 13% per annum since 2008. However, the hedge funds being wound up aren’t just newbies, although one would expect small funds to be disproportionately represented. The article mentions funds that have shrunken considerably but are still meaningful in size. However, if a fund has mainly institutional investors, it can enter into a death spiral, since virtually all institutional investors limit the amount of any fund they will hold to 10% of total assets. So if fund withdrawals proceed, an institutional investor might have to reduce his stake simply because his position is now in excess of 10% of the newly-smaller fund. And that reduction can lead to further required selling by other institutional investors.

NY Fed’s Dudley Says There Is No Revolving Door at His Bank - –Federal Reserve Bank of New York President William Dudley on Tuesday said there really isn’t a revolving door between his bank examiners and the financial firms they oversee. “The actual conflicts of interest are diminimus” when it comes to his staff bank examiners and financial firms, although he added “we have to be sensitive to the appearance of conflict.” Mr. Dudley, who served as investment bank Goldman Sachs chief economist before coming to the Fed, said “I don’t think there’s anything greatly harmful” about moving between jobs in the public and private sector. But he added that when it comes to the New York Fed, those sorts of moves simply don’t happen all that much. “I don’t think there’s much of a revolving door” given how long most New York Fed bank examiners stay on the central bank payroll before moving on to other jobs, Mr. Dudley said. “It’s not like people are coming to the Fed and within a year or two are going to the banking industry,” he said. The New York Fed, which serves as the U.S. central bank’s main point of contact with financial markets, has been under intense criticism in recent months over what some have seen as its less than robust oversight of financial firms. Mr. Dudley testified before Congress on the matter last month. The New York Fed has been accused of going easy on the banks it overseas, in part because some of its workers hope to gain jobs at the very same firms they are supposed to be keeping in line.

Bankers Who Commit Fraud, Like Murderers, Are Supposed to Go to Jail - Dean Baker - Wow, some things are really hard for elite media types to understand. In his column in the Washington Post, Richard Cohen struggles with how we should punish bankers who commit crimes like manipulating foreign exchange rates (or Libor rates, or pass on fraudulent mortgages in mortgage backed securities, or don't follow the law in foreclosing on homes etc.). Cohen calmly tells readers that criminal prosecutions of public companies are not the answer, pointing out that the prosecution of Arthur Andersen over its role in perpetuating the Enron left 30,000 people on the street, most of whom had nothing to do with Enron. Cohen's understanding of economics is a bit weak (most of these people quickly found other jobs), but more importantly he is utterly clueless about the issue at hand. Individuals are profiting by breaking the law. The point is make sure that these individuals pay a steep personal price. This is especially important for this sort of white collar crime because it is so difficult to detect and prosecute. For every case of price manipulation that gets exposed, there are almost certainly dozens that go undetected. This means that when you get the goods on a perp, you go for the gold -- or the jail cell. We want bankers to know that if they break the law to make themselves even richer than they would otherwise be, they will spend lots of time behind bars if they get caught. This would be a real deterrent, unlike the risk that their employer might face some sort of penalty. Why is it so hard for elite types to understand putting bankers in jail?

Fed’s Brainard Sees Need to Tailor Regulations to Size of Institution - Federal Reserve governor Lael Brainard said Tuesday the central bank recognizes that financial regulations need to be tailored to institutions of different sizes and business models.  “Applying a one-size-fits-all approach to regulations may produce a small benefit at a disproportionately large compliance cost to smaller institutions,” she said in opening remarks to a meeting on economic growth and regulatory paperwork reduction taking place in Los Angeles. “Of particular concern in this regard is the need to ensure our regulations are appropriately calibrated for smaller institutions.” She did not comment on Fed monetary policy.

Fed Limited in Its Oversight of Nonbank Financial Activities, Brainard Says - Federal Reserve Gov. Lael Brainard said on Wednesday that the central bank’s limited reach over non-bank financial activities, or the so-called shadow banking sector, meant it would put more emphasis on ensuring the structural resilience of the nation’s largest and most-complex institutions to maintain financial stability. Ms. Brainard’s remarks, prepared for delivery at the Brookings Institution in Washington on Wednesday afternoon, focused on how the Fed could use various policy tools to promote market stability. Echoing previous comments by other Fed officials, Ms. Brainard said interest-rate increases would be best used as a second line of defense after regulatory and supervisory tools to curb financial stability risks. Foreign central banks, such as those in the U.K. and Israel, have used regulatory tools to curb growth in the housing sector, for example, to tamp down potential excesses without using the blunter tool of interest-rate increases. Still, she added, if the U.S. faced rapidly growing financial imbalances “against a backdrop of sub-par economic conditions, the Federal Reserve may consider monetary policy for financial stability purposes more readily than some foreign peers because our regulatory perimeter is narrower, the capital markets are more important, and the macro-prudential toolkit is not as extensive.”

U.S. SEC's Stein says Bank of America waiver policy is 'breakthrough' (Reuters) - A top U.S. regulator praised the structure of a regulatory waiver granted last month to Bank of America Corp, saying the tougher conditions imposed on the bank may help deter repeat offenses. Securities and Exchange Commission Democratic member Kara Stein said such conditions as requiring the bank to hire an independent compliance consultant if it wants to keep selling shares in private deals will help "focus and empower" company management to change the corporate culture. "This approach represents a breakthrough in the commission's method of handling waivers, and I hope to see more of this and other thoughtful approaches in the future," Stein said. Stein made her comments in a speech on Thursday at the Consumer Federation of America's financial services conference. Bank of America is the latest bank to get stuck in the middle of a tussle among the SEC's five commissioners over agency policy for when corporate lawbreakers should be granted certain regulatory waivers. Earlier this summer, the bank reached a record $16.65 billion settlement with the U.S. government over charges it had misled investors who bought troubled mortgage-backed securities that soured during the financial crisis.

What Is Free Banking All About? -- I notice that there has been a bit of a dustup lately about free banking, triggered by two posts by Izabella Kaminska, first on FTAlphaville followed by another on her own blog. I don’t want to get too deeply into the specifics of Kaminska’s posts, save to correct a couple of factual misstatements and conceptual misunderstandings (see below). At any rate, George Selgin has a detailed reply to Kaminska’s errors with which I mostly agree, and Scott Sumner has scolded her for not distinguishing between sensible free bankers, e.g., Larry White, George Selgin, Kevin Dowd, and Bill Woolsey, and the anti-Fed, gold-bug nutcases who, following in the footsteps of Ron Paul, have adopted free banking as a slogan with which to pursue their anti-Fed crusade.  Now it just so happens that, as some readers may know, I wrote a book about free banking, which I began writing almost 30 years ago. The point of the book was not to call for a revolutionary change in our monetary system, but to show that financial innovations and market forces were causing our modern monetary system to evolve into something like the theoretical model of a free banking system that had been worked out in a general sort of way by some classical monetary theorists, starting with Adam Smith, who believed that a system of private banks operating under a gold standard would supply as much money as, but no more money than, the public wanted to hold. In other words, the quantity of money produced by a system of competing banks, operating under convertibility, could be left to take care of itself, with no centralized quantitative control over either the quantity of bank liabilities or the amount of reserves held by the banking system.

What Do Banks Do with All that "Fracking" Money? - NY Fed -  Banks play a crucial role in the economy by channeling funds from savers to borrowers. The ability of banks to accomplish this intermediation has become an important element in understanding the causes and consequences of business cycles. In a recent staff report, I investigate how a positive deposit windfall translates into investments by banks. This post, the first of two, shows how the development of new energy resources has led to deposit inflows to banks and how that can be used to estimate banks’ investment decisions over the recent business cycle. The second post will look at factors that might explain the business cycle patterns observed below.

Why Do Banks Keep All that “Fracking” Money? - NY Fed - In a recent post, I discussed the significant impact that “fracking” and other unconventional energy development has had on bank deposits. Using this deposit windfall, I estimated how banks allocate these funds, finding that over the recent business cycle they reduced the portion used for loans. In this post, I will discuss what may have influenced the decision to lend these funds or to hold liquid assets like cash or securities.   The chart below, also reported in my first post, illustrates how banks in unconventional energy areas reduced their allocations to lending during the Great Recession. The line segments indicate the period over which the allocation decisions are estimated, the points reflect the midpoint of the period. The first segment is the pre-recessionary period, the second is the peak of the financial crisis from mid-2007 to mid-2009, the third is the recession from mid-2009 to mid-2011, and the final is 2012. The dashed line is the percentage of the deposit shock allocated to liquid assets and the solid line is the percentage allocated to loans. Details regarding these estimates can be found in the related staff report.

U.S. small business borrowing rises to highest on record: PayNet - - U.S. small businesses ramped up borrowing in October, pushing the Thomson Reuters/PayNet Small Business Lending Index to a record high, according to data released on Tuesday. The reading of 131.8, up from 127.1 in September, was the highest since the index launched in 2005. The previous record was set in January 2007; later that year, the nation's economy fell into its deepest downturn in decades, a recession from which it has yet to fully recover. This time around the signs point to more growth ahead, not less, PayNet founder Bill Phelan said. "The conditions then were so much different than they are today," Phelan said, offering as evidence data on loan delinquencies as tracked by a separate PayNet index. Loan delinquencies had been steadily rising in the months before the January 2007 borrowing peak, reaching 2.5 percent of all loans. In October 2014, however, delinquencies fell to 1.56 percent from 1.57 percent the previous month. That means borrowers today probably aren't taking as many risks with their money as they were back then, when over-leveraging led to a surge in defaults.

Unofficial Problem Bank list declines to 408 Institutions -- This is an unofficial list of Problem Banks compiled only from public sources.  Here is the unofficial problem bank list for Nov 28, 2014.  This week, the FDIC provided an update on its latest enforcement action activity and updated aggregate figures for their official problem banks. After four additions and seven removals, the Unofficial Problem Bank List holds 408 institutions with assets of $124.7 billion. A year ago, the list held 645 institutions with assets of $221.2 billion. During November, the list count dropped by 14 institutions after four additions, 13 action terminations, four mergers, and one failure. It was the most institutions added in a month since five were added back in October 2013. The FDIC reported its number of problem banks had fallen for 14 consecutive quarters to 329 institutions with assets of $102 billion. So the difference between the FDIC numbers and the Unofficial number is 79 institutions and $22.7 billion in assets, which is down from a difference of 85 institutions and $30 billion in assets last quarter.  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 back down to 408.  Almost a round trip ...

The Wall Street Journal Still Refuses to Grasp Accounting Control Fraud via Appraisal Fraud --William K. Black -- The Financial Crisis Inquiry Commission (FCIC) report described one of three epidemics of accounting control fraud that drove the financial crisis in these terms.“Some real estate appraisers had also been expressing concerns for years. From 2000 to 2007, a coalition of appraisal organizations circulated and ultimately delivered to Washington officials a public petition; signed by 11,000 appraisers and including the name and address of each, it charged that lenders were pressuring appraisers to place artificially high prices on properties. According to the petition, lenders were ‘blacklisting honest appraisers’ and instead assigning business only to appraisers who would hit the desired price targets” The FCIC Report then documents scale of this epidemic of loan origination fraud. “One 2003 survey found that 55% of the appraisers had felt pressed to inflate the value of homes; by 2006, this had climbed to 90%. The pressure came most frequently from the mortgage brokers, but appraisers reported it from real estate agents, lenders, and in many cases borrowers themselves. Most often, refusal to raise the appraisal meant losing the client” The WSJ’s title for its article on appraisal fraud makes obvious that it has learned nothing from two fraud epidemics in two crises a quarter-century apart. “Dodgy Home Appraisals are Making a Comeback: Industry Executives See Parallels With Pre-Crisis Valuations, Regulators are Wary.” Every aspect of the title is disingenuous. The bank “executives see parallels” because they have run the same appraisal fraud scheme twice only a few years apart. That is one of the immense social costs of failing to prosecute the banksters that led the fraud epidemics that drove the financial crisis. “Dodgy” is a misleading euphemism for “fraud.” The article uses the word “fraud” only once. Even then, it uses the word “fraud” only to describe civil investigations of appraisal fraud by Freddie Mac.

Housing Fraud is Back – Real Estate Industry Intentionally Inflating Home Appraisals - Almost 40% of appraisers surveyed from Sept. 15 through Nov. 7 reported experiencing pressure to inflate values, according to Allterra Group LLC, a for-profit appraiser-advocacy firm based in Salisbury, Md. That figure was 37% in the survey for the previous year.“If you thought what was happening before was an embarrassment, wait until the second time around,” said Joan Trice, Allterra’s chief executive and founder of the Collateral Risk Network, which represents appraisers employed by lenders and other companies and has been meeting with regulators to discuss concerns about appraisers being pressured into inflating values.- From the Wall Street Journal article: Dodgy Home Appraisals Make a Comeback When in doubt, just make shit up. That seems to be the mantra of the U.S. real estate industry. A place where home values must always rise no matter what. After all, there’s nothing better for an economy than pricing out average citizens from their means of shelter. As the WSJ reports, inflated home appraisals have become such a concern that the Office of the Comptroller of the Currency is looking into it. Which means precisely nothing will be done to stop it. The WSJ reports:Home appraisers are inflating the values of some properties they assess, often at the behest of loan officers and real-estate agents, in what industry executives say is a return to practices seen before the financial crisis. An estimated one in seven appraisals conducted from 2011 through early 2014 inflated home values by 20% or more, according to data provided to The Wall Street Journal by Digital Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and consulting firm based in Maitland, Fla., was hired by some of the 20 largest lenders to review their loan files. The firm reviewed more than 200,000 mortgages, parsing the homes’ appraised values and other information, including the properties’ sizes and similar homes sold in the areas at the times. The review was conducted using the firm’s software and staff appraisers.

Black Knight October Mortgage Monitor: "8% of mortgages, 4 million borrowers in negative equity" - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for October today. According to BKFS, 5.44% of mortgages were delinquent in October, down from 5.67% in September. BKFS reported that 1.69% of mortgages were in the foreclosure process, down from 2.54% in October 2013. This gives a total of 7.13% delinquent or in foreclosure. It breaks down as:
• 1,658,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,101,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 858,000 loans in foreclosure process.
For a total of ​​3,617,000 loans delinquent or in foreclosure in October. This is down from 4,427,000 in October 2013. This table from Black Knight is a comparison of 2005 to 2014 originations by Credit Score and LTV. Black Knight notes: Borrowers with credit scores of 740 and up make up 55 percent of 2014 refinance originations, compared to just 29 percent in 2005. On the other hand, in 2005, 21 percent of refinance originations were to credit scores below 640; today that number is just 8 percent. Today’s purchase market is even more clearly separated; 56 percent of purchase originations were to credit scores of 740 and above, while just 2 percent went to borrowers with scores below 640

4 Million Homeowners Still Underwater, Total Negative Equity $157 Billion --In spite of a sustained rally in home prices, the October Black Knight Financial Services Mortgage Monitor shows Four million borrowers currently underwater. Highlights:

  • Black Knight found that even though underwater mortgages are now less than 8% of all mortgages, there are still roughly 4 million borrowers in negative equity positions, who are, on average, $39,000 underwater.
  • Underwater borrowers, representing nearly $800 billion in unpaid balances and $157 billion in negative equity, are 10X more likely to be delinquent than those with positive equity.
  • Underwater borrowers exhibit a 40% delinquency rate, as compared to just 4% for borrowers with equity
  • For those with combined LTVs of 150% or greater, more than 3 out of every four (77%) are delinquent
  • There are approximately 1.3 million underwater GSE-backed mortgages representing an aggregate $39 billion in negative equity; of these, 365K are delinquent
  • Much-discussed principal reductions on delinquent underwater borrowers would require up to $89 billion in write-downs; the GSE share alone would require up to $18 billion
  • Black Knight found some relaxation in credit requirements for refinance originations (though these are still high by historical standards)
  • Weighted average credit scores for GSE refinances have come down to 742 from a high of 766 in late 2011, while credit requirements on GSE purchase mortgages have remained tight since 2009
  • GNMA backed originations have also seen some relaxation in refi credit requirements, with weighted average credit scores down from 727 at the end of 2012 to 701 (which is still significantly higher than 2005's average of 628)
  • Looking at the refi market as a whole, Black Knight found that borrowers with 740+ credit scores make up 55% of 2014 refi market, as compared to just 29% in 2005

Despite Continuing Decline, Underwater Borrowers Still Total Four Million - DSNews: Despite the declining share of underwater mortgages as a percentage of all mortgages in the U.S., which has fallen below 8 percent, about four million borrowers are still underwater, according to Black Knight Financial Services' October 2014 Mortgage Monitor released today. Those four million underwater homeowners combined for about $157 billion in negative equity in October, according to Black Knight. That averages out to slightly more than $39,000 in negative equity per home. Underwater homeowners also combined for approximately $800 billion in unpaid balances. "Over the past two-and-a-half years, there has been sustained and continual improvement in the number of underwater borrowers in this country," said Trey Barnes, Black Knight's SVP of Loan Data Products. “From 33.5 percent of borrowers being in negative equity positions in January 2012, we’re now looking at less than eight percent of borrowers underwater. However, there are still four million borrowers who owe more on their mortgages than their homes are worth, despite more than two years of relatively steady home price appreciation. Borrowers in negative equity positions represent $800 billion dollars of mortgage debt overall, with some $157 billion of that being underwater, and the data shows these borrowers are 10 times more likely to be delinquent than those with positive equity." Black Knight found in its report that more than three-quarters (77 percent) of loans with combined loan-to-value ratios of 150 percent or greater were delinquent, representing about 1.2 percent of active mortgages. Approximately 1.3 million GSE-backed mortgages were underwater in October, according to Black Knight. These underwater borrowers combined for $39 billion in negative equity, an average of about $30,000 per borrower. About 365,000 of the underwater GSE-backed mortgages were delinquent, according to Black Knight.

US banks are lending to everyone but homeowners – There’s a lot for banks to celebrate in the Federal Deposit Insurance Corp.’s latest quarterly update on the US industry. They’re seeing bigger profits, and the agency suggested more are on the way as lenders put aside less money for bad loans. Bank loans and leases have reached nearly $8.2 trillion, which means more money for business owners…  …and farmers…  As for consumers, they’re taking on less credit-card debt, though they’ve been more eager and able to take out other loans, for things like cars and education. Able is a big thing here. Despite super-low interest rates, banks and other kinds of mortgage lenders have pulled way back since the recession, after the market for mortgages without a government guarantee dried up and credit standards tightened considerably. Haggling between lenders and the government have thawed things a bit on that front, but it’ll be a while before we’re back to normal.

Mortgage Lenders Set to Relax Standards - Some of the largest U.S. mortgage lenders are preparing to further ease standards for borrowers after the release of new guidelines this month from mortgage giants Fannie Mae and Freddie Mac...Some lenders, including Wells Fargo & Co. and SunTrust Banks Inc., said borrowers should begin to see initial changes in a few weeks, including faster turnaround times for mortgage applications to be processed....After the financial crisis, Fannie and Freddie made banks repurchase tens of billions of dollars in loans that the companies said didn’t meet their standards. In turn, many lenders stopped making loans to all but the most pristine of borrowers. In many cases, they required borrowers to have substantially higher credit scores and put in place other measures—so-called credit overlays—that were more stringent than what Fannie and Freddie required. With the new agreement, “I’ve been told with absolute confidence that some lenders are lifting almost all of their overlays,” said David Stevens, president of the Mortgage Bankers Association.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 28, 2014. This week’s results included an adjustment for the Thanksgiving holiday. ... The Refinance Index decreased 13 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.08 percent, the lowest level since May 2013, from 4.15 percent, with points increasing to 0.28 from 0.25 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Mortgage Rates decline to 3.89%, No Significant Increase in Refinance Activity Expected  --A few months ago, there was some discussion of a possible "refi boom" due to falling mortgage rates. I argued then that that was unlikely. Mortgage rates have fallen further, but rates are still far above the level required for a significant increase in refinance activity. This morning Freddie Mac reported: Mortgage Rates Lower Across the Board Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates down from the previous week. At 3.89 percent, the average 30-year fixed-rate mortgage is at its lowest level since the week of May 30, 2013.

CoreLogic: House Prices up 6.1% Year-over-year in October --The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).  From CoreLogic: CoreLogic Reports More Than Half of States At or Within 10 Percent of Pre-Crisis Home Price Peak Home prices nationwide, including distressed sales, increased 6.1 percent in October 2014 compared to October 2013. This change represents 32 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, rose by 0.5 percent in October 2014 compared to September 2014. ...Excluding distressed sales, home prices nationally increased 5.6 percent in October 2014 compared to October 2013 and 0.6 percent month over month compared to September 2014. Also excluding distressed sales, 49 states and the District of Columbia showed year-over-year home price appreciation in October, with Mississippi being the only state to experience a year-over-year decline (-1.2 percent). Distressed sales include short sales and real estate owned (REO) transactions. . This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 0.5% in October, and is up 6.1% over the last year. This index is not seasonally adjusted, and this month-to-month increase was fairly strong during the seasonally weak period. The second graph is from CoreLogic. The year-over-year comparison has been positive for thirty two consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

October housing reports: all positive for the first time in a year: Let me start out by quickly explaining why I pay so much attention to the housing market. It is because no other single economic indicator so accurately foretells the health of the economy 12-18 months later than housing, and in particular new housing sales. Both the Conference Board and ECRI include housing permits among their leading indexes.. As a general rule, housing construction is affected first and foremost by interest rates. Even a small change may have major effects. For example, an increase in interest rates from 3% to 4% increases monthly interest payments on mortgages by 1/3, e.g., from $600/mo. to $800/mo. That's a significant enough increase to disqualify a lot of potential purchasers, especially first time purchasers. A similar decrease in rates will have a similar positive effect. Here's how interest rates (blue,inverted) have fed through into housing permits (red) over the last 3 years: As expected, housing permits followed interest rates with a 3 - 6 month lag. Secondarily, as we learned in the last 18 months, is demographics. A move in interest rates might be attenuated, if not negated, by a big increase or decrease in the age group most likely to purchase houses - again, especially those in their late 20's through mid-30's most likely to be purchasing their first home. Here's Bill McBride, a/k/a Calculated Risk with a graph of this crucial demographic:  Note that both interest rates and demographics have turned positive for the housing market since late spring. As a result, October housing permits (red) and starts (blue) for both new single family home sales (green) and existing homes sales (orange) were all positive YoY for the first time in a year, as shown by the graph below: October single vs. multi-unit housing permits continued to show that condominiums and apartment construction continued to slightly outperform single family home construction: Here's the same information on a YoY% basis, where it is easier to spot the trend:

Housing: Demographics for Renting and Buying - It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive.  The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).  The demographics are still favorable for apartments, since  a large cohort is still moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers").  Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag. This graph shows the population in the 20 to 34 year age group has been increasing.  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.The circled area shows the recent and projected increase for this group.  From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged. This favorable demographic is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.

New-Home Prices Surge Despite Lackluster Demand - Demand for new homes remains soft this year, but the price for those properties is surging. In October, the median price for a new home sold in the U.S. rose 15% from a year earlier to $305,000, the highest level on record, the Commerce Department said last week.  Rising prices are putting new homes out of reach for some buyers. In the first 10 months of the year, new-home sales rose 1% from the same period in 2013. That’s a disappointing performance given that low interest rates and an improving labor market should be supporting sales.  Typically, when demand is weak for a good or service, the price for that product falls. That’s not been the case with new houses. Instead, it appears builders are selling fewer, more expensive homes.Those higher-end houses tend to be more profitable.October’s annualized sales pace was roughly half the average annual level of sales recorded from 1996 through 2006. Less overall building in recent years limits the boost home construction provides to the economy. In contrast, sales of more-affordable existing homes have turned up in recent months, reaching the highest level of the year in October. Sales have gained as the pace of home-price appreciation has slowed. Home prices rose 0.7% in the third quarter, down from a 2.1% increase during the year-earlier quarter, according to the S&P/Case-Shiller index.

Something Weird in the U.S. New Home Market -- Something really weird appears to have happened to the U.S. new home market in October 2014.  Here, if we're to believe the preliminary figures reported by the U.S. Census Bureau, both the median sale price and the average sale price of new homes in the United States posted their largest ever recorded month-over-month gains in October 2014.  In September 2014, the median sale price of a new home in the U.S. was originally reported to be $259,000, which was just revised slightly upward by $2,700 to $261,700. The U.S. Census Bureau then indicates that the median sale price for a new home for October 2014 is $305,000, an all time record month-over-month increase of 16.7%. By contrast, the three next highest month-over-month percentage increases in the median sale prices of new homes in the U.S. were 10.7% in May 2010, 10.6% in April 1966 and 10.5% in October 2006.   Meanwhile, in September 2014, the average sale price of a new home in the U.S. was originally reported to be $313,200, which was just revised slightly upward by $1,000 to $314,200. The U.S. Census Bureau then indicates that the average sale price for a new home for October 2014 is $401,100, an all time record month-over-month increase of 27.7%. The chart below, which shows the recorded median and average sale prices of all new homes sold in the U.S. since January 1975 illustrates just how out of place these prices are with respect to all the prices that have been recorded before.

Declining Affordability in the Sales Mix of New Homes - Earlier this week, we noted that the preliminary data for both the median sale price and the average sale price of all new homes sold in the U.S. appeared to spike dramatically upward to reach all time record levels for the month of October 2014.  Today, we're digging deeper into the U.S. Census Bureau's data to get some insight into how the sales mix of the new home market in the U.S. is evolving. Here, we've calculated the twelve month trailing average of the monthly number new homes sold in the U.S. according to the price range into which they fall, which we've illustrated in our first chart. In this chart, we see that since the year-long main inflation phase of the second U.S. housing bubble ended in July 2013, U.S. new home builders have continued to increasingly turned away from producing affordable homes.  For the lowest priced homes, below $150,000, that continues a trend that resumed with the onset of the second U.S. housing bubble in July 2012. We also find that builders have also begun to reduce the number of homes in the next-highest price tier, $150,000 to $199,999, since the main inflation phase of the second U.S. housing bubble ended in July 2013.  Meanwhile, we find that the number of homes in the next higher price tier, $200,000 to $299,999 has flatlined since July 2013. And then we find that U.S. home builders have increased their monthly production of homes priced $300,000 and up.  What this means is that U.S. home builders are increasingly declining to pursue building homes that fall within the affordable reach of U.S. households. That strategic decision mirrors what happened during the first U.S. housing bubble, when a similar dynamic increasingly took hold in the new home market after May 2004, setting up what would ultimately become the deflation phase of the first U.S. housing bubble.  Our next chart stacks the data presented in the first chart to illustrate how the overall market looks.

Homeownership and Wealth Creation --Since the housing bust, renting has been in and owning a home has been out, especially among young adults who in earlier decades would have been first-time home buyers. As the rate of homeownership has declined, from a peak of nearly 70 percent in 2004 to a 20-year low of 64.3 percent recently, the number of owner-occupied homes has barely budged, while the number occupied by renters has increased by nearly 25 percent.Those trends have led to questions about the future of homeownership. Would more and longer rentals be a bad thing? Are the benefits of homeownership overrated? The answer to the first question is yes; the answer to the second is no.Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth. A recent study by researchers at the Joint Center for Housing Studies at Harvard University analyzed the reasons for these differing outcomes. Paramount among them is that homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.

Think homebuilder optimism is irrational? Think again. - The chart below (and similar comparisons) has been circulated widely in the media and the blogosphere. It shows homebuilder optimism (as measured by the NAHB) far outpacing sales of singly-family homes in the United States. Naive reporters and bloggers have been arguing that builders are simply out of touch with reality. How could homebuilders possibly be almost as optimistic as they were prior to the housing recession when new single-family home sales are near multi-decade lows? There are a couple of key reasons for the NAHB index decoupling from new single-family home sales:
1. Builders are targeting higher-end and luxury homes - a market where mortgage availability is less of an issue. That it why the median price of new homes sold is far above the pre-recession peak and continues to rise.
2. US homebuilders are also focused on multi-family structures - rental as well as some high-end condos.

Tighter credit conditions and some consolidation have resulted in reduced competition among homebuilders, with a number of local and regional players closing down after the recession. At the same time rental housing demand is on the rise (see post). Those well positioned in this space will do fine. Therefore, while it is quite popular to poke fun at the "giddy" homebuilders, one should rest assured these businesses are acting quite rationally. And so are their investors. Homebuilder shares have outperformed the broader market since the October correction (see chart).

Construction Spending increased 1.1% in October --The Census Bureau reported that overall construction spending increased in October: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during October 2014 was estimated at a seasonally adjusted annual rate of $971.0 billion, 1.1 percent above the revised September estimate of $960.3 billion. Both private and public spending increased in October Spending on private construction was at a seasonally adjusted annual rate of $692.4 billion, 0.6 percent above the revised September estimate of $688.0 billion. Residential construction was at a seasonally adjusted annual rate of $353.8 billion in October, 1.3 percent above the revised September estimate of $349.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $338.6 billion in October, 0.1 percent below the revised September estimate of $338.9 billion. ... In October, the estimated seasonally adjusted annual rate of public construction spending was $278.6 billion, 2.3 percent above the revised September estimate of $272.3 billion. Non-residential for offices and hotels is increasing, but spending for oil and gas is declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

Construction Spending Up 1.1% for October 2014 -- The Census released the monthly construction spending report today.  Spending was $971 billion in October, up +1.1% from September and an increase of +3.3% from October 2013.  This is a rebound from last month with the largest gain in five months.  September was revised upward from -0.4% to -0.,1%.  For just 2014, spending has increased 5.8%.  Construction is a monthly tally, seasonally adjusted, annualized, but not adjusted for inflation of how much money was spent on construction.  Private construction spending increased +0.6% overall, and is up +4.0% from a year ago.  Residential construction was up +1.3% from September and is up +1.7% from October 2013.  Below is the graph for residential construction spending.  One can track the entire housing bubble rise and burst by this graph. Private, non-residential construction decreased -0.1% for the month and 6.4% for the year. Public construction increased 2.3% for the month and is up 1.5% for the year. Conservation & development increased 5.8% for the month and is up 32.6% from a year ago. Below are the details of all manufacturing construction spending, both public and private. Construction for manufacturing increased 3.4% for the month and is up a very promising 22.2% for the year. Most of this is private manufacturing construction. Total Power construction decreased -1.0% from April and is flat, up 0.7% from a year ago. Reuters collected Economists revised GDP estimates as a result of the construction spending boom: Economists said that suggested the gross domestic product estimate for the third quarter could be raised by 0.2 percentage point to a 4.1 percent annual rate. The government will publish revisions to third-quarter GDP growth data later this month. Spending on residential and nonresidential structures such as factories and power stations previously was reported to have made no contribution to growth.

Government Construction Spending Surges Most Since 2006 | Zero Hedge: After 4 months of missed expectations, US Construction Spending rose 1.1% in October, beating the 0.6% expectations, and the highest MoM since May 2014. Great news... the recovery is back, right? Scratch barely below the surface of this algo-loving headline though and the unsustainable reality peaks out. US Government construction spending spiked 19.3% in October, the most since 2006... seems like we need to dig some holes and fill them in again... Yay! Headline construction spending rose more than expected.... Driven by a huge spike in government construction spending...

U.S. Consumers’ Borrowing Slowed in October -  U.S. consumers racked up debt at the slowest pace in almost a year in October, a sign of cautious spending that could limit the economy’s growth in the year’s final months. Total outstanding consumer credit, reflecting Americans’ debt outside of real-estate loans, expanded at a 4.9% seasonally adjusted annual rate to $3.279 trillion in October, the Federal Reserve said Friday. That was the smallest monthly increase since November 2013. Overall debt grew 5.7% in September. The slower rate reflected sluggish growth in both credit-card debt and in nonrevolving credit such as auto and student loans. Revolving credit, mainly credit-card balances, grew at a 1.3% pace. That was down from September’s 1.9% growth. Nonrevolving credit—largely reflecting borrowing for cars and education–expanded at a 6.2% pace. That was lower than the prior month’s 7.1% growth.

US consumer debt rises $13.2 billion in October — U.S. consumers increased their borrowing in October but at a slightly slower pace than in the previous month as credit card use slowed.Overall borrowing rose $13.2 billion following a $15.4 billion gain in September, the Federal Reserve reported Friday. The gains have pushed consumer debt excluding real estate loans to a record level of $3.28 trillion.The category that includes credit card debt edged up by $922 million after a rise of $1.4 billion in September. The category that covers auto loans and student loans jumped by $12.3 billion after a $14 billion increase in September.Economists expect that the strong gains in employment seen this year may make consumers more comfortable about increasing their use of credit cards, something they cut back on sharply following the Great Recession.The Fed's monthly consumer credit report excludes mortgages and other loans secured by real estate. A quarterly report issued by the New York Federal Reserve Bank that tracks all types of consumer borrowing shows that total household debt, including home mortgages, increased by $78 billion in the July-September quarter to $11.7 trillion.That is still slightly below the peak for total debt of $12.7 trillion reached in the third quarter of 2008 as the Great Recession was deepening and households began to cut back on their borrowing as millions of people lost jobs.

Consumer Credit Growth Misses For 3rd Month, Credit Card Debt Trickles To A Halt --For the 3rd month in a row, Consumer Credit growth rose less than expected. At $13.226 billion (against expectations of a $16.5bn gain), this is the smallest growth since Nov 2013. This is the first 3-month miss since June 2009. Once again, as expected, the rise is all student and auto loans (which now face 27% delinquency for the subprime borrowers). However, perhaps the most notable facet is a 66% collapse in revolving credit growth from a year ago.

Basic Costs Squeeze Families - WSJ: The American middle class has absorbed a steep increase in the cost of health care and other necessities as incomes have stagnated over the past half decade, a squeeze that has forced families to cut back spending on everything from clothing to restaurants. Health-care spending by middle-income Americans rose 24% between 2007 and 2013, driven by an even larger rise in the cost of buying health insurance, according to a Wall Street Journal analysis. Consumer spending continues to make up just over two-thirds of the U.S. economy. But where households spend that money has shifted significantly. To see how it has moved, the Journal analyzed Labor Department data on 2013 out-of-pocket spending for the middle 60% of the population by income—households earning between about $18,000 and $95,000 a year, before taxes. The data show they are losing ground. Overall spending for the group rose by about 2.3% over the six-year period from 2007, even as inflation totaled about 12%. At the same time, income for the group stagnated, rising less than half a percent. With health care and other costs rising, these consumers spent less on furniture, entertainment, clothing and even child care, the Journal analysis found.

Debt Collectors Paying To Use Prosecutors’ Letterheads To Get People To Pay - Consumerist -- It’s one thing to get a letter from a debt collector that erroneously claims you owe money and have to pay up; it’s another to receive that same notice from your local prosecutor. But what if that latter letter is actually coming from a debt collector who is paying the district attorney’s office for the right to contact certain consumers?   There are programs around the country through which for-profit debt collectors can be allowed to use prosecutors’ letterhead in correspondence with consumers about debts or allegations of writing bad checks. For example, in California the state’s Bad Check Diversion Act allows local district attorneys to refer bad check-writers to “diversion programs,” that let them avoid prosecution by paying fully restitution (plus a limited fee). Prosecutors may use third-party collectors — who turn over a percentage of the collected fees in return — to manage such programs.  But people are only supposed to be referred to a diversion program if “there is probable cause to believe” that the person violated state laws regarding the passing of bad checks. The law also requires that a prosecutor — an actual lawyer, not just someone in the DA’s office — must review a slate of factors each time a case is referred to one of these diversion programs. However, not all district attorneys’ offices are being vigilant about these requirements, allowing some debt collectors to use their letterhead for these diversion programs without anyone doing a proper legal review to make sure the claim is legitimate.

Unsteady Incomes Keep Millions of Workers Behind on Bills - "We just kind of wing it every month,” said Mr. Vories, whose unemployment benefits ran out at the end of 2013, 10 months after he lost his job answering phones at Fidelity Investments. Ever since, the family’s income has bounced up and down from one week to the next.  “Get all the bills paid,” he said, “then see where we’re at.” The financial volatility that the Vories grapple with is a feature of life for millions of workers whose paychecks fluctuate with the season, an hourly schedule or the size of a weekly commission. Income variability is difficult to quantify, but studies that try to measure it suggest that ups and downs in income, particularly among the poorest 10 percent of American families, started to rise in the 1970s, leveled off in the early 2000s and then increased significantly again when the recession started.  A 2012 study by Daniel Sichel, an economist at Wellesley; Douglas Elmendorf, director of the Congressional Budget Office; and Karen Dynan, who now heads the Treasury Department’ Office of Economic Policy, found that “household income became noticeably more volatile between the early 1970s and the late 2000s” despite a period of increased stability throughout the economy as a whole.  A more recent national survey by the Federal Reserve, based on 2013 data, suggests the problem has not only persisted as the economy recovers but may even have worsened. More than 30 percent of Americans reported spikes and dips in their incomes. Among that group, 42 percent cited an irregular work schedule; an additional 27 percent blamed a span of joblessness or seasonal work. The data show "a clear upward trend in income volatility,” according to a report from U.S. Financial Diaries, which is releasing on Wednesday the first results of an in-depth study of low- and moderate-income families.

Restaurant Performance Index increased in October - Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Registered Gain in October Driven by stronger sales and traffic and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in October. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.8 in October, up 1.8 percent from its September level. In addition, the RPI stood above 100 for the 20th consecutive month, which signifies expansion in the index of key industry indicators. “The positive same-store sales and customer traffic results suggest that restaurants are the beneficiaries of falling gas prices, which were down $0.88 since the end of June,” “Elevated food costs continue to top the list of challenges reported by restaurant operators, but overall they remain generally optimistic that business conditions will improve in the months ahead.”

Another Look at the Drop in Discretionary Spending -- An analysis of the U.S. government’s Consumer Expenditure Survey by The Wall Street Journal shows how household budgets are tilting toward necessities and away from more discretionary outlays. Over at the New York Fed, economist Jonathan McCarthy has been poring through different data and reached a similar conclusion: Consumer spending on discretionary services took a massive hit in the recession of 2008-09–much bigger than in prior recessions–and it hasn’t recovered.His conclusion goes beyond the idea that consumers are dividing up the pie of their income (and debt) differently. Rather, he suggests, consumers remain skeptical even as the economy has started to recover and have continued reducing or postponing discretionary purchases against the risk that things worsen again. It’s less clear whether that’s simply part of the nature of a financial recession–one sparked by too much debt and loss of confidence rather than the normal business cycle–or says something more significant about this particular recovery.Here’s how McCarthy puts it: “Discretionary expenditures have picked up noticeably over recent quarters but, unlike spending on nondiscretionary services, they remain well below their pre-recession peak. Even so, the pace of recovery for both discretionary and nondiscretionary services in this expansion is well below that of previous cycles. One explanation is that weak income expectations continue to constrain household spending.” McCarthy uses personal consumption expenditures figures that are derived from GDP data by the Bureau of Economic Analysis. The image below shows cumulative declines in PCE for discretionary services, which McCarthy notes are probably more sensitive to quick changes by consumers.

Black Friday Spending Drops 11% - Black Friday is starting to lose its luster.A survey of shoppers from a national retail trade group shows that fewer people are shopping on the Black Friday weekend that historically marks the beginning of the holiday shopping season, the Associated Press reports.The number of people shopping in stores and online this weekend was 133.7 million, a 5.2% drop from last year, according to a National Retail Federation survey of 4,631 consumers.The total amount of spending for the weekend is expected to fall from $57.4 billion to $50.9 billion, an 11% decline from last year. Per-person spending is expected to hit $380.95 for the weekend, a 6.4% drop from last year’s $407.02.

Black Friday Fizzles With Consumers as Sales Tumble 11%  -- Even after doling out discounts on electronics and clothes, retailers struggled to entice shoppers to Black Friday sales events, putting pressure on the industry as it heads into the final weeks of the holiday season. Spending tumbled an estimated 11 percent over the weekend from a year earlier, the Washington-based National Retail Federation said yesterday. And more than 6 million shoppers who had been expected to hit stores never showed up. Consumers were unmoved by retailers’ aggressive discounts and longer Thanksgiving hours, raising concern that signs of recovery in recent months won’t endure. The NRF had predicted a 4.1 percent sales gain for November and December -- the best performance since 2011. Still, the trade group cast the latest numbers in a positive light, saying it showed shoppers were confident enough to skip the initial rush for discounts. “The holiday season and the weekend are a marathon, not a sprint,”

Black Friday Fatigue? Thanksgiving Weekend Sales Slide 11 Percent - Have Americans finally had enough of Black Friday madness?Sales, both in stores and online, from Thanksgiving through the weekend were estimated to have dropped 11 percent, to $50.9 billion, from $57.4 billion last year, according to preliminary survey results released Sunday by the National Retail Federation. Sales fell despite many stores’ opening earlier than ever on Thanksgiving Day.And though many retailers offered the same aggressive discounts online as they did in their stores, the web failed to attract more shoppers or spending over the four-day holiday weekend than it did last year, the group said. The average person who shopped over the weekend spent $159.55 at online retailers, down 10.2 percent from last year.Continue reading the main story Related Coverage Black Friday Sales Slip as Discounts Start EarlierNOV. 29, 2014 Up Early in Pursuit of Deals, Black Friday Shoppers Find Small CrowdsNOV. 28, 2014 Over all, 133.7 million people shopped or planned to shop at stores or online over the four-day weekend, 5.2 percent fewer than last year, the federation said. And shoppers spent an average of $380.95 over the four days, 6.4 percent less than the $407.02 they spent last year.

Retail Disaster: Holiday Sales Crater by 11%, Online Spend Declines: NRF Blames Shopping Fiasco On "Stronger Economy" - Last year was bad. This year is an outright disaster.  As we reported earlier using ShopperTrak data, the first two days of the holiday shopping season were already showing a -0.5% decline across bricks-and-mortar stores, following a "cash for clunkers"-like jump in early promotions which pulled demand forward with little follow through in the remaining shopping days. However, not even we predicted the shocker just released from the National Retail Federation, the traditionally cheery industry organization, which just reported absolutely abysmal numbers: sales during the four-day Thanksgiving holiday period crashed by a whopping 11% from $57.4 billion to $50.9 billion, confirming what everyone but the Fed knows by now: the US middle class is being obliterated, and that key driver of 70% of US economic growth is in the worst shape it has been since the Lehman collapse, courtesy of 6 years of Fed's ruinous central planning.  Demonstrating the sad state of America's "economic dynamo", shoppers spent an average only $380.95, down 6.4% from $407.02 a year earlier. In fact, as the NRF charts below demonstrate, there was a decline across virtually every tracked spending category (source):

About that 11% decline in post-Thanksgiving US retail sales: It Didn't Happen:  By now you have probably run across one of the media stories that there was a big 11% decline in "Black Friday" and Thanksgiving weekend US retail sales, for example the New York Times report that "Thanksgiving Weekend Sales, at Stores and Online, Slide 11 Percent."  Barry Ritholtz http://ritholtz.com/blog/2014/12/no-black-friday-sales-were-not-down-11/... already shown the wild historical inaccuracy of this once-a-year NAR report.  But now we have some actual, reliable numbers.  As you know, every week I post the ICSC, Redbook, and Gallup sales numbers.   Their consistent methodology and long record make them a much more reliable "nowcast" of retail sales. Here's their readings from last week.  The first two are through Saturday, Gallup is through Sunday (via http://www.econoday.com/economic-calendar.aspx): ICSC - up 2.8% YoY (an average YoY reading for the last 2 years): Redbook - up 4.8% YoY (one of their very best YoY readings for the last 2 years) Gallup 3 day spending - $111 vs. $108 last year Gallup 14 day spending - $102 vs. $91 last year That "11% decline" story is thoroughly Busted. It didn't happen.

Gun sales boom on Black Friday - CNN.com: (CNN) -- The busiest shopping day of the year also saw a major boom for gun sales, with the federal background check system setting a record of more than 175,000 background checks Friday, according to the FBI. The staggering number of checks -- an average of almost three per second, nearly three times the daily average -- falls on the shoulders of 600 FBI and contract call center employees who will endure 17-hour workdays in an attempt to complete the background reviews in three business days, as required by law, FBI spokesman Stephen Fischer said. "Traditionally, Black Friday is one of our busiest days for transaction volume," Fischer said. Indeed, Friday saw the highest number of background checks ever for a Black Friday, and second in history. The highest day on record was December 21, 2012, with more than 177,000 background checks. On average, more than 500 gun background checks a day fail because of incomplete information required for a decision, according to the FBI's National Instant Criminal Background Check System, which is responsible for checks on firearm purchases from federally licensed shops. Employees of the background check agency, who work every day but Christmas, worked through the weekend to vet Friday's purchases. "We are averaging three checks per second,"

Unlike people, monkeys aren't fooled by expensive brands: In at least one respect, Capuchin monkeys are smarter than humans -- they don't assume a higher price tag means better quality, according to a new Yale study appearing in the open-access journal Frontiers in Psychology. People consistently tend to confuse the price of a good with its quality. For instance, one study showed that people think a wine labeled with an expensive price tag tastes better than the same wine labeled with a cheaper price tag. In other studies, people thought a painkiller worked better when they paid a higher price for it. The Yale study shows that monkeys don't buy that premise, although they share other irrational behaviors with their human relatives. "We know that capuchin monkeys share a number of our own economic biases. Our previous work has shown that monkeys are loss-averse, irrational when it comes to dealing with risk, and even prone to rationalizing their own decisions, just like humans," said Laurie Santos, a psychologist at Yale University and senior author of the study. "But this is one of the first domains we've tested in which monkeys show more rational behavior than humans do."

What Black Friday and Cyber Monday Don’t Tell You About the Economy -- Maybe it’s time to stop talking about Black Friday’s importance to year-end shopping. The idea that holiday sales begin the day after Thanksgiving is no longer the case. The 11% drop in early holiday shopping, estimated by the National Retail Federation, does not mean the U.S. economy is in trouble (and that’s a point the group itself makes).Holiday gift-giving has shifted away from traditional store items. Services such as a spa day or golf lessons are replacing merchandise as holiday gifts. Those indulgences don’t show up in retail sales. Plus, according to retailers’ data, 80% of consumers plan to give at least one gift card this year, and 17.5% plan to give six or more. While consumers buy the cards before the holidays, retailers do not recognize the revenues until they are used.  That’s why January sales activity has now become part of assessing total holiday sales.The retail experience around the holidays has changed in recent years for two major reasons. First, when household spending collapsed in the Great Recession, retailers began to fight for every shopper’s dollar. As a result, retailers roll out “Black Friday” deals well before Thanksgiving–if not before Halloween. Second, the explosive growth of online retailing means consumers can order gifts anytime everywhere. Online shoppers can even get the same Black Friday discounts offered by brick-and-mortar stores, but without getting up at 4 a.m. to stand in line in the cold. That’s why e-commerce sales have captured a growing share of retail activity in the fourth quarter of each year for more than a decade.

More Borrowers Fall Behind on Car Payments, Report Shows - An increasing number of borrowers are falling behind on their car payments, even as the total amount of outstanding debt reaches new heights, according to the latest report by Experian, the credit and research firm. In a presentation on Wednesday, Experian said the balance of loans that were 60 days delinquent increased 27 percent, to roughly $4 billion, in the third quarter from the same period a year ago. Signs of trouble in the market come after a significant increase in lending to people with damaged credit and limited financial means. Analysts have warned that a loosening of underwriting standards for subprime auto loans could cause widespread losses in the financial system because much of the debt has been securitized and bought by investors around the globe. ome of the highest delinquency rates in the quarter are concentrated across the South in Mississippi, South Carolina and Alabama. North Dakota had the lowest delinquency rate.Finance companies, which tend to focus more on subprime customers than traditional banks, had the largest increases in delinquencies in the third quarter

U.S. Light Vehicle Sales increase to 17.1 million annual rate in November -- Based on a WardsAuto estimate, light vehicle sales were at a 17.08 million SAAR in November. That is up 5.5% from November 2013, and up 4.5% from the 16.35 million annual sales rate last month. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for November (red, light vehicle sales of 17.08 million SAAR from WardsAuto). This was above the consensus forecast of 16.5 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967.Note: dashed line is current estimated sales rate. This was another strong month for vehicle sales - the second month with 17 million SAAR this year - and the seventh consecutive month with a sales rate over 16 million.

Trade Deficit mostly unchanged in October at $43.4 Billion -Earlier the Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.4 billion in October, down $0.2 billion from $43.6 billion in September, revised. October exports were $197.5 billion, $2.3 billion more than September exports. October imports were $241.0 billion, $2.1 billion more than September imports. The trade deficit was larger than the consensus forecast of $41.5 billion. The first graph shows the monthly U.S. exports and imports in dollars through October 2014. Both imports and exports increased in October. Exports are 19% above the pre-recession peak and up 2% compared to October 2013; imports are 4% above the pre-recession peak, and up about 3% compared to October 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through October. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $88.47 in October, down from $92.54 in September, and down from $99.96 in October 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. Note: There is a lag due to shipping and long term contracts, but oil prices will really decline over the next several reports! The trade deficit with China increased to $32.5 billion in October, from $28.7 billion in October 2013. The deficit with China is a large portion of the overall deficit.

U.S. factory orders fall for third straight month (Reuters) - New orders for U.S. factory goods fell for a third straight month in October, pointing to a slowdown in manufacturing activity. The Commerce Department said on Friday new orders for manufactured goods declined 0.7 percent after a revised 0.5 percent drop in September. Economists polled by Reuters had forecast new orders received by factories would be unchanged after a previously reported 0.6 percent fall in September. true There are conflicting signals on the manufacturing sector, with the so-called hard data suggesting a cooling in activity, while sentiment surveys point to a building of momentum. Factory orders excluding the volatile transportation category dropped 1.4 percent in October after being flat for two straight months. Unfilled orders at factories increased 0.4 percent in October. Order backlogs have increased in 18 of the last 19 months. Inventories edged up 0.1 percent, while shipments fell 0.8 percent. That left the inventories-to-shipments ratio at 1.31, up from 1.30 in September. The Commerce Department also said orders for durable goods, which are manufactured products expected to last three years and more, rose 0.3 percent instead of the 0.4 percent gain reported last month.  Orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - fell 1.6 percent instead of the 1.3 percent decline reported last month.

US Factory Orders Tumble, Miss By Most Since January -- US Factory Orders tumbled 0.7% in October (missing 0.0% expectations) for the 3rd month in a row (for the first time since June 2012). Rather notably, the only other time we had 3 straight months of factory orders declines was in the recession and the 2012 decline was saved by QE3. The data was ugly across the board: Non-durable orders -1.5%, non-defense, ex-air tumbled 1.6%, and inventories-to-shipments levels are at the year's highs. More problematically for GDP enthusiasts, October inventories of manufactured nondurable goods decreased 0.5% to $249.0 billion driven by petroleum and coal products (but wait lower oil prices are unequivocally good right?)

ISM Manufacturing index at 58.7 in November -- The ISM manufacturing index suggests slightly slower expansion in November than in October. The PMI was at 58.7% in November, down from 59.0% in October. The employment index was at 54.9%, down from 55.5% in October, and the new orders index was at 66.0%, up from 65.8%. From the Institute for Supply Management: November 2014 Manufacturing ISM® Report On Business®  "The November PMI® registered 58.7 percent, a decrease of 0.3 percentage point from October’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 66 percent, an increase of 0.2 percentage point from the reading of 65.8 percent in October. The Production Index registered 64.4 percent, 0.4 percentage point below the October reading of 64.8 percent. The Employment Index grew for the 17th consecutive month, registering 54.9 percent, a decrease of 0.6 percentage point below the October reading of 55.5 percent. Inventories of raw materials registered 51.5 percent, a decrease of 1 percentage point from the October reading of 52.5 percent. The Prices Index registered 44.5 percent, down 9 percentage points from the October reading of 53.5 percent, indicating lower raw materials prices in November relative to October. Comments from the panel are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike." Here is a long term graph of the ISM manufacturing index.This was above expectations of 58.2%, and indicates solid expansion in November.

US PMI Plunges To 10-Month Lows (Export Order Drop), ISM Beats (Export Orders Soar) - For the 3rd month in a row, US Manufacturing PMI dropped from 4-year highs to 10-month lows. At 54.8, missing expectations of 55.0 (and down from 55.9) for the 5th month of the last 6 as extrapolated hopes fade into the usual cyclical un-decoupled collapse into year-end (but ignore NRF data). Sadly for the bullish decoupling meme, Markit notes, "the principal cause of the slowdown is a renewed downturn in export orders, which fell for the first time since January." So, amid all of this doom, ISM then beat expectations, printing 58.7 vs 58.0 expectations (down slightly from October's 59.0 print) led by - rather ironically - new export orders surging... US data has gone full China. US Manufacturing PMI tumbled to 10-month lows As Markit notes, this is not a pretty picture: “What’s more, with inflows of new orders slowing sharply, there’s a good chance that production growth will deteriorate further in December. “The principal cause of the order book slowdown is a renewed downturn in export orders, which fell for the first time since January. Demand from many emerging markets remains well down on pre-crisis levels, and a deteriorating situation in the Eurozone has hit trade flows to Europe. “Unless order book growth picks up, factories will inevitably soon turn to cutting jobs in order to bring capacity down in line with weaker demand.” And then ISM beat.. led by export orders!!!! Business activity fell to 58.7 vs 59.0

    • * New orders rose to 66 vs 65.8 last month
    • * Employment fell to 54.9 vs 55.5 last month

US Services PMI Tumbles For 5th Month As "Domestic Demand Weakens" -- For the 5th month in a row since the record-breaking June highs that proved the recovery narrative was working, US Services PMI dropped. At 56.2 (missing expectations of 56.5), this is the lowest in 7 months. As Markit notes, this is a problem, since "whereas the manufacturing slowdown was largely linked to weaker global demand and a renewed fall in export orders, moderating growth in the service sector is a sign of domestic demand weakening." This points to a significant slowdown in GDP growth to a mere 2.5% from a hopeful 3.9% in Q3.

ISM Services Surges To 4th Highest On Record (As Services PMI Plummets) -- On the heels of 5 months of weakness in Services PMI, and 2 months of weakness in ISM Services, it only makes sense that ISM's Services print would massively beat expectations at 59.3 (against 57.5). All ISM subindices rose - apart from employment (which dropped to 4 months lows)! Just 15 minutes after one survey indicates a drastic slowdown in domestic demand for services, another one says it has almost never been better...

ISM Non-Manufacturing Index increased to 59.3% in November - The November ISM Non-manufacturing index was at 59.3%, up from 57.1% in October. The employment index decreased in November to 56.7%, down from 59.6% in October. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: November 2014 Non-Manufacturing ISM Report On Business®  "The NMI® registered 59.3 percent in November, 2.2 percentage points higher than the October reading of 57.1 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 64.4 percent, which is 4.4 percentage points higher than the October reading of 60 percent, reflecting growth for the 64th consecutive month at a faster rate. The New Orders Index registered 61.4 percent, 2.3 percentage points higher than the reading of 59.1 percent registered in October. The Employment Index decreased 2.9 percentage points to 56.7 percent from the October reading of 59.6 percent and indicates growth for the ninth consecutive month. The Prices Index increased 2.3 percentage points from the October reading of 52.1 percent to 54.4 percent, indicating prices increased at a faster rate in November when compared to October. According to the NMI®, 14 non-manufacturing industries reported growth in November. Comments from the majority of respondents indicate that business conditions are on track for continued growth. The respondents have also stated that there is some strain on capacity due to the month-over-month increase in activity." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was above the consensus forecast of 57.7% and suggests faster expansion in November than in October.  A solid report

Business Roundtable: CEOs Expect Less Capital Spending, More Hiring - Business leaders have dimmed their outlook on the U.S. economy, saying uncertainty over tax and trade policy could fester throughout next year and discourage company spending, the lobbying group Business Roundtable reported Tuesday. A measure of the economic outlook among chief executive officers slipped to 85.1 in the current quarter from 86.4 in the third quarter, the Business Roundtable said. The survey of 129 CEOs reflects expectations for the next six months of sales, capital spending and employment. Lowered expectations of business investment drove the index’s overall decline. CEOs also downgraded their outlook on sales, though they boosted expectations of hiring. Tuesday’s survey showed most CEOs—74%–still expect their company’s sales to climb over the next six months. But 9% forecast a decline, up from 7% who said so in the third quarter. Just over a third—36%–expected to increase capital spending over the next six months while 13% planned a decrease and 50% saw no change. Four in 10 CEOs expected to boost hiring while 36% saw no change in employment and 23% forecast a decline in employment. Companies are icing investment plans until they get a better sense of what their tax bills will be over the long term, said AT&T Inc. CEO and chairman Randall Stephenson, the Business Roundtable’s chairman.

Weekly Initial Unemployment Claims decreased to 297,000 - The DOL reported: In the week ending November 29, the advance figure for seasonally adjusted initial claims was 297,000, a decrease of 17,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 313,000 to 314,000. The 4-week moving average was 299,000, an increase of 4,750 from the previous week's revised average. The previous week's average was revised up by 250 from 294,000 to 294,250. There were no special factors impacting this week's initial claims.  The previous week was revised up to 314,000.  The following graph shows the 4-week moving average of weekly claims since January 1971.

ADP: Private Employment increased 208,000 in November -- From ADP: – Private sector employment increased by 208,000 jobs from October to November according to the November ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Mark Zandi, chief economist of Moody’s Analytics, said, “Steady as she goes in the job market. Monthly job gains remain consistently over 200,000. At this pace the unemployment rate will drop by half a percentage point per annum. The tightening in the job market will soon prompt acceleration in wage growth.”  This was below the consensus forecast for 226,000 private sector jobs added in the ADP report. 

Another Positive ADP Employment Report for November 2014 - ADP's proprietary private payrolls jobs report shows yet another solid month of strong private sector job gains.  For November, ADP reports a monthly gain of 208,000 private sector jobs.  October's ADP private payroll gains were a revised 203,000.  Small businesses drove the payroll gains.  By ADP's survey, this is the eighth consecutive month where their reported private job gains are above 200 thousand.  This report does not include government, or public jobs.  The official BLS employment report for September will be released on Friday. ADP's reports in the service sector alone 176,000 private sector jobs were added.  The goods private sector gained 32,000 jobs with 17,000 of those jobs in construction.  Professional/business services jobs grew by 37,000.  Trade/transportation/utilities showed strong growth again with 49,000 jobs.  Financial activities payrolls added 5,000 jobs.  Manufacturing added 11,000 jobs,back to it's mediocre showing.  Graphed below are the monthly job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange).  ADP reports payrolls by business size and this month small business added almost half of the jobs.  Small business, 1 to 49 employees, added 101,000 jobs with establishments having less than 20 employees adding 48,000 of those jobs.  ADP does count businesses with one employee in there figures.  Medium sized business payrolls are defined as 50-499 employees, added 65,000 jobs, which the report noted was significantly down from last month.  Large business added 42,000 to their payrolls.   If we take the breakdown further, large businesses with greater than 1,000 workers, added 32,000 of those large business jobs. Below is the graph of ADP private sector job creation breakdown of large businesses (bright red), median business (blue) and small business (maroon), by the above three levels.  For large business jobs, the scale is on the right of the graph.  Medium and Small businesses' scale is on the left.

ADP Employment Misses, Worst November In 4 Years - Following 2 months of improving growth and beats after a mid-year slump, ADP Employment in November dropped to 208k (from an upward revised 233k in Oct even as September was revised lower from 225K to 213K) missing expectations of 222k by the most since August. November has historically seen a significant bump higher in employment but 2014 saw a drop (the first since 2008) with the lowest November print since 2010. ADP job growth slipped and missed: Worst November since 2010, first drop in November since 2008 Some more charts: Monthly change in ADP payroll: ADP vs BLS: Employment by Company Size Employment by Selected Industry:  From the report: Payrolls for businesses with 49 or fewer employees increased by 101,000 jobs in November, down slightly from 103,000 in October. Job growth was down significantly over the month for medium-sized firms. Employment among companies with 50-499 employees rose by 65,000, well below October’s increase of 122,000. Employment at large companies – those with 500 or more employees – saw a rebound from 7,000 the previous month to 42,000 jobs added in November. Companies with 500-999 employees added 10,000 jobs, down from October’s 14,000. However, this drop was more than offset by the addition of 32,000 jobs by companies with over 1,000 employees.

November Employment Report: 321,000 Jobs, 5.8% Unemployment Rate - From the BLSTotal nonfarm payroll employment increased by 321,000 in November, and the unemployment rate was unchanged at 5.8 percent, the U.S. Bureau of Labor Statistics reported today. ... The change in total nonfarm payroll employment for September was revised from +256,000 to +271,000, and the change for October was revised from +214,000 to +243,000. With these revisions, employment gains in September and October combined were 44,000 more than previously reported.The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes). Ten consecutive months over 200 thousand. Employment is now up 2.73 million year-over-year. Total employment is now 1.7 million above the pre-recession peak. The second graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate was unchanged in November at 62.8%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio was unchanged at 59.2% (black line). The third graph shows the unemployment rate. The unemployment rate was unchanged in November at 5.8%. This was well above expectations, and with the upward revisions to prior months, this was a strong report.

Nonfarm Payrolls +321K; Unemployment 5.8%; Employed +4,000 (Household Survey), Unemployment +115,000 - The payroll survey shows a net gain of 321,000 jobs vs. an expectation of 240,000 jobs. September was revised up from 256,000 to 271,000. October was revised up from 214,000 to 243,000. The unemployment rate was steady although employment only rose by 4,000 in the household survey. Unemployment actually rose by 115,000. Swings in household survey employment and the labor force have been wild lately. Once again we are in a situation where the establishment survey and the household survey are at odds. Over time these fluctuations tend to smooth out. The question, as always, is "in whcih direction". BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +321,000 - Establishment Survey
  • Employment: +4,000 - Household Survey
  • Unemployment: +115,000 - Household Survey
  • Involuntary Part-Time Work: -177,000 - Household Survey
  • Voluntary Part-Time Work: +235,000 - Household Survey
  • Baseline Unemployment Rate: +0.0 at 5.8% - Household Survey
  • U-6 unemployment: -0.1 to 11.4% - Household Survey
  • Civilian Non-institutional Population: +187,000
  • Civilian Labor Force: +119,000 - Household Survey
  • Not in Labor Force: +69,000 - Household Survey
  • Participation Rate: +0.0 at 62.8 - Household Survey

Economy Adds 321,000 Jobs, Strongest Gain in Almost Three Years  -- Dean Baker -- Over the last three months wages grew at a 1.8 percent annual rate. The economy added 321,000 jobs in November, the strongest gain since it added 360,000 in January of 2012. With upward revisions to the prior two months data, the average job gain over the last three months has been 275,000. The household survey showed unemployment unchanged at 5.8 percent, with the employment-to-population ratio (EPOP) also unchanged at 59.2 percent. The gains were widely spread across sectors. ... Other news in the establishment survey was also positive. The average workweek increased by 0.1 hour to 34.6, the longest since May of 2008 and wages reportedly rose by 9 cents. The one-month jump was in large part an anomaly; over the last three months wages have risen at just a 1.8 percent annual rate compared with the prior three months. There is little evidence of any wage acceleration in any major sector. While the overall employment and unemployment numbers changed little in November, there was some positive news in the household survey. The number of people involuntarily employed part time fell by 200,000. It is now almost 900,000 below the year-ago level. By contrast, the number of people voluntarily choosing to work part-time rose by 297,000. It is now more than 1 million higher than the year-ago level. This is almost certainly the result of the Affordable Care Act, which has allowed people to get insurance outside of employment so that many people no longer have to work full-time jobs to get insurance for themselves or their families. In another positive sign, the percent of the unemployed who had voluntarily quit their job rose to 9.1 percent. This measure of confidence in the labor market is at its highest level in the recovery, albeit well below the 11-12 percent range in the pre-recession period. The median duration of unemployment spells and the share of long-term unemployed both fell to their lowest level in the recovery, although the average duration rose slightly. Black teen employment rate rose to 21.8 percent, the highest since January of 2008, while unemployment fell to 28.1 percent, the lowest since April of 2008.

November Jobs Report – The Numbers - WSJ - U.S. employers added 321,000 jobs last month—the best monthly gain in almost three years–while the unemployment rate held steady at 5.8%, the Labor Department said Friday. Economists surveyed by The Wall Street Journal had expected payrolls to increase by 230,000 in November and the unemployment rate to remain 5.8%. Here are highlights from the report. Job creation in recent months was stronger than previously estimated. Payroll figures for October and September were revised up by a total of 44,000. The October gain was 243,000 compared with a first estimate of 214,000, while September figures were marked up to 271,000 from 256,000. Hourly earnings for private employees rose 2.1% in November from a year earlier, a very slight acceleration from recent annual readings. In general, wages have been growing only slightly faster than mild consumer inflation. The average work week was 34.6 hours, up from 34.5 in October. The Federal Reserve is closely watching income measures for evidence that slack in the labor market is diminishing. Nonfarm payrolls rose for the 50th straight month in November, extended the longest streak of expansion on records back to World War II. Despite its impressive length, the expansion’s total job creation trails several shorter, but stronger, recoveries. Last month, 62.8% of Americans participated in the labor force, meaning they were either working or looking for a job. That’s unchanged from the prior month despite robust hiring. The labor force grew in November, but so did the ranks of the unemployed. More than 9.1 million Americans that wanted a job last month couldn’t find one. Labor-force participation rate remains near a three-decade low. A broader measure of unemployment—including involuntary part-time workers and Americans too discouraged to apply for jobs—stood at 11.4% in November. The figure is down 1.7 percentage points from a year earlier. The decline indicates to a healthier labor market, but the measure, known as the U6, remains elevated by historical standards. The rate was near 8% before the recession began in 2007.

November payrolls: + 321k, unemployment rate stays at 5.8% --Lots of good news in this report:

  • – A huge payrolls number, the best since January 2012
  • – Finally some signs of wage growth, with average hourly earnings rising 9 cents, though it’s only one month and the year-over-year rate remains small
  • – Healthy upward revisions to September and October, combining for an additional 44,000 jobs, for a three-month average of
  • – Average monthly jobs growth of 224,000 represents a clear acceleration beyond the pace of prior years, and is the best such streak since 2006.
  • – Both streaks from last month’s report continue, with the US registering a 50th consecutive month of positive payroll gains and a tenth straight month of 200k+ payrolls.

Was there any bad news? Well, the housing survey didn’t contain much activity, with the unemployment rate mostly unchanged and just a 4,000 climb in employment. But this is the noisier survey, and the October numbers were so huge (638,000 rise in employment) that some giveback was to be expected.  There will be some unavoidable debate about what this means for the Fed, and the two-year Treasury yield is about 6-7 basis points higher than before the report. Our take is that the Fed is likely to still want another few reports before considering a meaningful change in its stance on the likely path of rates — especially given that wage growth remains weak (if accelerating) and the weak inflation readings of recent months.

As Jobs Surge, Term Structure of Unemployment Remains Distorted - The US economy added 321,000 payroll jobs in November, the best in almost three years. Strong upward revisions to September and October numbers boosted the 12-month gain to 2,756,000, a new high for the recovery. The official unemployment rate was unchanged at 5.8 percent. The broad unemployment rate, U-6, which takes into account discouraged workers and involuntary part-time workers, fell to a new low of 11.4 percent. Although these data indicate a return to normal in many respects, distortions remain. One of the most conspicuous is an elevated rate of long-term unemployment. As the following chart shows, the term structure of unemployment remains substantially different from the prerecession pattern: On the one hand, we see that the short-term unemployment rate, made up of people who are out of work for four weeks or less, has not only returned to its pre-recession level, but has actually dropped below it. In 2007, short-term unemployment averaged 1.66 percent of the labor force; now it is 1.61 percent. Most unemployment in this category is voluntary, representing a minimum time needed for job search, interviews, moving, and perhaps a quick vacation between jobs. It includes people who find work soon after entering or reentering the labor force or find a new job quickly after leaving a former one. At the other end of the spectrum, we find people who are out of work for 27 weeks or longer at a stretch, some much longer than that. Most of the painful stories of labor market distress come from this category. It includes young college graduates who look for months without finding work in their field of study. It also includes people who have been laid off after years of steady work and can find nothing acceptable to replace it. The chart shows that long-term unemployment has fallen significantly from its peak, but at 1.8 percent of the labor force, it remains far above its 2007 average of 0.8 percent.

November Jobs Report: Blowout on jobs, slight help on wages, participation still dismal - Headlines:

  • 321,000 jobs added to the economy
  • U3 unemployment rate unchanged at 5.8%
  • Not in Labor Force, but Want a Job Now: up 8,000 from 6.537 million to 6.545 million
  • Employment/population ratio ages 25-54: unchanged at 76.9%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 (or +0.2%) from $20.70 to $20.74 up 2.1%YoY
September was revised upward by 15,000 to 271,000. October was revised upward by 29,000 from to 243,000. The net revision was +44,000. Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment.  The headline numbers for  November show strong jobs growth, continuing the trend all this year.  Real wages are slowly trending higher - but mainly due to lower inflation.  Participation rates are barely budging.Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago.  Since Congress cut off extended unemployment benefits at the end of last year, they have actually risen, and this month were 6.545 million, over 750,000 higher than they were last November.On the other hand, the participation rate in the prime working age group has made up over 40% of its loss from its pre-recession high, although it did not change this month. After inflation, real hourly wages for nonsupervisory employees probably rose from October to November. The  nominal YoY% change in average hourly earnings is 2.1% somewhat better than the likely November YoY inflation rate of 1.5%.

The November Jobs Report in 10 Charts - U.S. employers added 321,000 jobs in November, the best single month of job growth since January 2012. Revisions to October and September showed that another 44,000 more jobs were added than previous estimates showed. Here are 10 charts that break down the latest employment report: Job growth is now on pace to hit its highest annual level since 1999. The last time that U.S. employers added this many workers to their payrolls over a 12-month period was early 2006. The unemployment rate was unchanged at 5.8% in November. Average hourly earnings rose by 0.4% in November from the prior month and 2.1% from a year earlier. Average weekly earnings rose 2.4% from a year earlier. The share of Americans who are in the civilian labor force may have stopped falling after reaching its lowest level in decades. And a measure of the share of Americans with a job rose to its highest level since the 2007-09 recession ended. The share of workers who are working part-time jobs because they can’t find full time jobs fell slightly, though it’s still historically very high. The number of Americans who have been out of work for more than six months is less than 1% above the prerecession level. The share of those long-term unemployed workers, while high, it at the lowest level since March 2009. The average duration of unemployment is also at the lowest level since March 2009. But it’s still higher than at any point in the recessions of the 1980s, 1990s or early 2000s.

First Impressions: Strong payroll gains mark another solid jobs report - Employers added workers at a much faster-than-expected clip last month, as payroll gains 321,000, the largest monthly gain since January 2012. Upward revisions to the prior two months added another 44,000, while the unemployment rate held steady at 5.8%. Even wage growth, which has been a critical missing piece of the recovery, got at least a monthly bump, up 0.4%, though the more relevant year-over-year growth rate remains stuck at around 2% (2.1%, Nov13-Nov14), where it has been since 2010. While any one month’s results from these “high-frequency” data should be taken with a grain of salt (see the “JB smoother” below), I saw no obvious anomalies in the payroll data. Job growth was robust across industries, with almost 70% of private industries expanding, the highest level for this metric since 1998. Businesses added 86K, retail was up 50K, and manufacturing, a key sector that had been a laggard in recent months, added 28K, mostly in the higher paying durable goods sector. Smoothing out monthly ups-and-downs, this month’s JB smoother©, which averages monthly gains over 3, 6, and 12 months, shows a nice acceleration in payroll gains. Over the past three months, net job growth is up 278,000 per month. Over the past year, this measure is up 228,000, showing an acceleration of 50,000 jobs per month. In another sign of improving labor market demand, average weekly hours ticked up a tenth, matching pre-recession levels. The unemployment rate, which comes from a survey of households (as opposed to business establishments, like the data discussed above) held steady at 5.8% (it actually ticked up a touch, from 5.76% to 5.82%, but who’s counting?).

Employment Report Comments: Best Year for Employment since the '90s --This was a strong employment report with 321,000 jobs added, and job gains for September and October were revised up.  This was the tenth consecutive month over 200,000, and an all time record 50th consecutive month of job gains. As always we shouldn't read too much into one month of data, but at the current pace (through November), the economy will add 2.89 million jobs this year (2.80 million private sector jobs).  This is the best year since 1999 (and, for private employment, this might be the best year since 1997). A few other positives: U-6 declined to 11.4% (an alternative measure for labor underutilization) and was at the lowest level since 2008, the number of part time workers for economic reasons declined  (lowest since October 2008), and the number of long term unemployed declined to the lowest level since January 2009. And there might even be an early hint of wage growth, from the BLS: "Average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $24.66 in November. Over the year, average hourly earnings have risen by 2.1 percent. In November, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $20.74." With the unemployment rate at 5.8%, there is still little upward pressure on wages. Hopefully wage growth will pick up as the unemployment rate falls over the next couple of years.A few more numbers:Total employment increased 321,000 from October to November and is now 1.7 million above the previous peak.  Total employment is up 10.4 million from the employment recession low.  Private payroll employment increased 314,000 from October to November, and private employment is now 2.1 million above the previous peak. Private employment is up 10.9 million from the recession low. Through the first ten months of 2014, the economy has added 2,650,000 payroll jobs - up from 2,247,000 added during the same period in 2013.

Full-Time Jobs Down 150K, Participation Rate Remains At 35 Year Lows, "No Job Market For Young Men" -- While the seasonally-adjusted headline Establishment Survey payroll print reported by the BLS moments ago may be indicative of an economy which the Fed will soon have to temper in an attempt to cool down, a closer read of the November payrolls report shows several other things that were not quite as rosy. First, the Household Survey was nowhere close to confirming the Establishment Survey data, suggesting jobs rose only by 4K from 147,283K to 147,287K, and furthermore, the breakdown was skewed fully in favor of Part-Time jobs, which rose by 77K while Full-Time jobs declined by 150K.

November Jobs Report: How Many New Jobs Are Actually Full Time? -- A common reaction to a string of solid job gains—such as Friday’s news that the economy has added 2.7 million jobs over the past year, which is at an eight-year high—goes something like this: Well, how many of those jobs are full-time? The answer is most of them.The economy has seen a net gain of more than 6 million full-time jobs since the official end date of the 2007-09 recession, which was in June 2009. The economy has witnessed a net increase of just 311,000 part-time jobs over the same period, according to Labor Department figures. Looking back over the last year tells a similar story. There were 2.5 million more full-time workers in November than one year ago, compared with around 309,000 more part-time workers.Friday’s survey did show that the number of full-time workers ticked down in November from October, but that survey tends to be volatile from month to month. Over the past three months, there are 866,000 more full-time workers, compared with 27,000 more part-time workers.  It’s true that during the recession and in the first few years after it ended, employers added many more part-time workers than full-time workers. That hasn’t been the case for about three years. The cynicism over the jobs numbers is understandable for other reasons. As my colleague Damian Paletta notes, wages have barely been growing, so the economic recovery doesn’t feel like it to anyone who’s not in the top tier of income earners.

November Jobs Report: Are Wages Finally Snapping Back? --The surprising jump in wages for U.S. workers in November–up 0.4%—could signal a new phase in the economic recovery. But we’ve seen this jump before. Combined with falling gas prices, the pickup in wages could give millions of Americans new economic leverage heading into the holidays. It means, essentially, that many Americans will have more money in their pockets. In some cases, quite a bit more money. Yet there have been wage false starts in the postrecession shakeup that has left many workers and economists scratching their heads. Three other times since December 2008, the Bureau of Labor Statistics reported monthly wage gains of 0.4%. They were followed either by negative wage growth or no growth. One reason this time might be different is that November’s wage growth marked the fourth time this year that wages have grown at least 0.3% in a month, and there hasn’t been a single month that recorded falling wages. That phenomenon hasn’t happened since at least 2008. Wages have remained stagnant for years for a variety of reasons. The financial crisis, and the ensuing spike in unemployment, forced many Americans to take a job–any job–to get back on their feet. Many took jobs they were overqualified for and agreed to take a pay cut just to get back into the workforce. The unemployment rate fell but wages hardly budged. But something might be changing, albeit slowly, that is causing the wage shift. In November, the Labor Department said the number of people being hired for jobs and the number of people voluntarily quitting their jobs each climbed to the highest level in more than six years. The “quit” rate is important, as it shows many workers feeling more confident to go out in the work force and seek new employment, which often results in better pay.

In Short-Term Unemployment Data, Good and Bad News - The level of short-term unemployment has returned to normal. The percentage of the labor force unemployed for 26 weeks or less has fallen to 4%, about where it stood at the end of 2005. Similarly, the job vacancy rate has returned to a healthy level. The good news is that fewer people are out of work and that more companies are hiring. The bad news is that there appears to be little room for improvement in these areas. The relationship between job vacancies and unemployment is known as the Beveridge Curve. The curve is a visual way to distinguish cyclical changes in unemployment from structural ones. As Northeastern University’s Rand Ghayad and Bill Dickens noted in 2012, the overall Beveridge Curve has shifted out since the beginning of the recession, but the curve for the short-term unemployed, shown above, has moved cyclically: The relationship between job vacancies and short-term unemployment has not changed. Some observers have expressed expressed skepticism about published job-vacancy data because they find the high vacancy rate implausible, given mediocre economic conditions. The short-term Beveridge Curve provides evidence against that view. If the published rate of job vacancies significantly overstated job openings, then the true vacancy rate would stand even lower. And that would imply that the economy has become more efficient at matching most unemployed people to jobs.

Where The Jobs Were: Secretaries, Waiters, Retail, Education, Leisure And Temp-Help -- Curious just what the "quality" of jobs that comprised the best jobs report in nearly 3 years? Here is the answer: Retail Trade, Education and Health, and Leisure and Hospitality, as well as Administrative Assistants, cumulatively made up more than half of the jobs gains in the month. All minimum-wage or just above paying jobs. Which is why anyone who believes that wages rose at the rate the BLS would like you to believe, may want to wait until the inevitable downward revision. The breakdown of the top job categories:

  • Professional Services excluding temp help: +63K, of which administative assistants +12K, bookkeepers +16.4K
  • Retail Trade: +50K
  • Leisure and Hospitality: +38K, of which waiters and bartenders +26.5K
  • Manufacturing: +28K
  • Temp Help: +22.7K

Retail hiring suggests holiday shopping won’t accelerate this year - Last month, we cast our normally jaundiced eyes on an exciting bit of data in the US jobs report: the rapid pace of job growth in the retail sector. Since there is a strong relationship between the (non-seasonally adjusted) number of workers hired by retailers and real consumer spending at retailers, we were encouraged by the fact that October was the best month since the late 1990s for the sector. Here was the chart we made then: Now that we have the (preliminary) data for November, however, our earlier case for optimism appears slightly excessive. According to the latest figures, this year’s Q4 retail job growth is on pace to be about the same as it was last year. October’s strong numbers were offset by a lacklustre November. For the visual learners: Our earlier enthusiasm was probably just a reaction to noise. While October is historically the least important month for year-end shopping, there is evidence that Americans are pushing their holiday purchases earlier and earlier. In other words, hiring that would previously have occurred in November happened in October. That would explain both October’s strong growth and November’s under-performance (weakest since 2011). Also, the time between the survey for the October and September numbers was slightly longer than normal, which may have led to a slight exaggeration of the figures.

U.S. factories show luster with bullish November hiring - (Reuters) - While the acceleration in U.S. hiring last month was surprisingly sharp and broad-based, a sector that has had a particularly rough 21st century - manufacturing - offered one of the brightest signals. U.S. factories added 28,000 jobs in November, the most in a year, according to government data released on Friday. Manufacturers also raised the average work week for their production workers to 42.2 hours, returning to levels reached earlier in 2014 that were the highest since the end of World War Two. "We are definitely in growth mode,"  After hemorrhaging hundreds of thousands of jobs during the first decade of this century, the U.S. factory sector is now an example of America's economic upswing even as a slowing global economy and a stronger dollar clouds the outlook for exporters. Employers added 321,000 workers to their payrolls last month, with strong gains in most sectors, from construction and retail to finance. In manufacturing, the rise in hours worked was particularly illustrative because it could signal further hiring ahead for a sector that has added about 700,000 jobs over the last five years but that remains 5 million jobs in the hole in the 21st century.

10 Health-Care Jobs Projected to Grow -- The health-care sector is proving to be one of the most resilient job creators in the U.S. It even kept hiring during the Great Recession. According to the Labor Department, the average hourly wage for all health-care workers stood just shy of $27 in October, above the private-sector average of about $24.50.Demand for health-care workers will increase in coming years because of an aging population, the increase in patients with chronic conditions and medical advances, says the Labor Department. It projects the number of health-care jobs will increase by almost 4 million jobs, or about 25%, by 2022. Of course, health-care jobs run the gamut from surgeons to home-care workers. The former pays extremely well but requires years of education and residencies. The latter entails less skill but usually pays close to the minimum wage and involves bedpans. Using data from the Labor Department and its own employment metrics, job-search website CareerCast determined the “best jobs in health care.”  With two exceptions, these are careers that don’t need years of extra post-college education yet pay more than the household median annual income of about $52,000. The high projected growth in these jobs indicates they should offer secure career paths. According to the report, the top 10 health care jobs are:

Even At 321,000 Jobs a Month, It Will Be Nearly Two Years Before the Economy Looks Like 2007  - Dramatically falling employment in the Great Recession and its aftermath has left us with a jobs shortfall of 5.8 million—that’s the amount of jobs needed to keep up with growth in the potential labor force. Each year, the population keeps growing, and along with it, the number of people who could be working. To get back to the same labor market we had in 2007, we need to not only make up the jobs we lost, but gain enough jobs to account for this growth. The chart below projects out the potential labor force into the future. We ran a variety of scenarios to determine how many jobs we would need to create each month to catch up to that line. The reality is that at November’s pace of job growth—which was an above average month—it will take until October 2016 to hit the employment level needed to return the economy to the labor market health that prevailed in 2007. Yes, the jobs growth last month is good news, and I’m optimistic that we will continue to see job growth that strong or stronger in the upcoming months. But, it’s also higher than we’ve seen lately and could get revised downward next month. If we were to take the average monthly job growth over the last six months, we wouldn’t return to pre-recession labor market health until July 2017. On the other hand, if we want to return to the labor market health that prevailed in 2007 much sooner, say, by creating 450,000 jobs per month, we would get there in March 2016. So, yes, 321,000 is a nice surprise, however, between the jobs gap and the sluggish wage growth, it is clear that we are fall from a full recovery.

The Paid Vacation Route to Full Employment | Dean Baker - The notion that seven million people (the drop in population adjusted employment since the start of the recession) just decided they don't feel like working, doesn't pass the laugh test outside of economic departments and corporate boardrooms. This leaves us stuck with a policy prescription -- more stimulus -- that has zero political prospect any time in the foreseeable future.There is an alternative. If we can't take steps to increase the demand for labor, we can go the other way and try to reduce the supply. Specifically, we can try to increase the number of people employed by reducing the average number of hours worked.  That should not sound far out. This is exactly the route taken by Germany, a country often held up as one of the few economic success stories in the world today.  The secret to Germany's success is in large part that it has been better able to distribute the available work. According to the OECD, the average length of the work year in Germany is 1388 hours. That is 400 hours less than 1788 hours for an average worker in the United States. Germany has a variety of policies to spread the work. The simplest one is its work sharing program. The government encourages employers to reduce work hours rather than lay off workers in response to a falloff in demand. The government makes up most of the lost pay for workers who have a reduction in hours.  This is a straight win-win situation for everyone involved. The government would have paid unemployment benefits to workers who lose their jobs. Instead it is making up a portion of the lost pay for workers putting in fewer hours.

The Answer to the Unemployment Problem Is More Jobs -- L. Randall Wray - Dean Baker, everyone’s favorite progressive economist (mine, too), has an interesting take on our unemployment problem.  Give more paid vacations. The idea is that if all the employed work less, employers will need to hire the unemployed to produce what the already employed won’t be producing while sunning themselves on Florida’s beaches. Look, I’m all for shorter work weeks. It is ridiculous that labor’s push somehow got stuck a century ago at the 40 hour work week in the USA. Employed Americans work more hours per year than just about any other workforce on the planet.  But, as Joan Robinson once declared, the only thing worse than working as a wage slave is to be unemployed. Just ask the Italians, who now have the highest unemployment rate since they started keeping records. Thanks to the EMU and German fiscal rectitude!   I see shorter work days and more paid vacations as a progressive goal to humanize the work place. More time to enjoy one’s family, recreation, and the arts. More time for self-improvement and community involvement. More time for our wage slaves to enjoy the life of leisure long pursued by the leisure classes. However, last on my list of arguments for a shorter work week would be the claim that it will create more jobs for the unemployed.“Job sharing” as a cure for employment makes as much sense as “sandwich sharing” as a cure for the problem of hunger.

Enough Money --J.D. Alt -- Money causes labor to do useful things, and goods and services to be exchanged between people, thereby enabling people in general—both individually and collectively—to obtain what they need. In order for this process to occur in an optimal way—that is, in order for the maximum number of people to obtain what they need, individually and collectively, it seems clear that two basic conditions must be met: (1) there needs to be enough money to pay people to create all the goods and services they need, and (2) this adequate supply of money needs to be in the hands of people who are actually able and motivated to spend it for that purpose.  By “enough money” I mean this: Is there enough money to pay people to build all the things and provide all the services they need both individually and collectively—without there being too MUCH money (which could cause prices to escalate)? If there isn’t enough money, it is likely there will be things we need but which we cannot have—not for the lack of available and willing labor to provide those things, but for lack of money with which to pay that labor. In this case that labor not only remains wastefully unemployed, but we, collectively and individually, go without something which we otherwise could have, and might possibly—even desperately—need.   Assuming there is enough money to employ people to create all the goods and services they need, the second question is whether or not that adequate money supply is in the hands of people who are in a position and motivated to actually spend it to achieve that purpose? It could well be, instead, that the money is held by people who cannot imagine something useful to do with it—in which case it sits idle while people who are willing to work for it remain unemployed, and the things we need, individually and collectively, remain un-provided. Or it could be that some portion of what is otherwise an adequate supply of money is held by people with no interest in spending it to cause useful things to be done, but instead are interested in making bets with the goal of acquiring more money with which to make even bigger bets. Where this is the case, much of the money that appears to be available to pay people to do useful things is actually not available at all, and the people who would be willing to work for that money must remain unemployed, and the useful things we need un-provided.

Say Goodbye To Mid-2015 Rate Hikes: Revised "Hourly Compensation" Crashes - But all the clever talking heads (the same ones that to-a-man saw rising rates this year) keep telling us that wage inflation is coming any minute, it has to right, and will create escape velocity and nirvana on American soil. Sorry, nope. Unit labor costs dropped 1.0% in Q3 against a 0.3% preliminary print and expectations of a mere 0.2% drop (the 4th missing quarter of th elast 5 and lowest growth since Q4 2013. What is more problematic is real hourly compensation was revised drastically lower - quite a plunge. Unit Labor costs dropped for the 2nd quarter in a row...missing for the 4th quarter of the last 5... This is how the BLS just "revised" everyone wages on paper to match what is going on in reality: In the third quarter of 2014, nonfarm business productivity increased 2.3 percent, rather than 2.0 percent as reported November 6. The revised figure reflects an upward revision to output that was partially offset by a small upward revision to hours. Unit labor costs were revised down, and decreased 1.0 percent rather than increasing 0.3 percent, reflecting both the upward revision to productivity and a 1.0 percentage point downward revision to hourly compensation growth.

President Barack Obama Says Wages Feeding ‘Undertow Of Pessimism’ -  President Barack Obama, in a frank exchange with business leaders about strengths and weaknesses in the U.S. economy, lamented that wage stagnation had created “an undertow of pessimism despite generally good economic news.” His observation highlights perhaps one of the most vexing issues in the slow recovery from the financial crisis–why aren’t wages picking up? And in some cases, why are wages sliding? “Although corporate profits are at the highest levels in 60 years, the stock market is up 150%, wages and incomes still haven’t gone up significantly and certainly have not picked up the way they did in earlier generations,” Mr. Obama told the Business Roundtable on Wednesday. Average hourly earnings for most workers rose more than 4% per year in 2006 and 2007, but they have not risen more than 2.5%, year over year, since May 2010. They rose just 2.22% year-over-year in October 2014, Labor Department figures show. This is the weakest period of wage growth since at least the 1970s, and perhaps much earlier. Mr. Obama has both political and economic reasons to worry about wages. One reason Democrats were routed in the November midterm elections was because of an economic unease that has gripped many Americans, despite the improving unemployment rate and stock market. Americans might have a job, but it isn’t necessarily the job they want. Or it isn’t paying them what they want or need to get ahead. For the economy, wage stagnation is holding back economic growth. Unless people are willing to load up on debt, they generally need to make more money to spend more money.

Obama will push labor unions to back free trade agreements: U.S. President Barack Obama acknowledged differences within his own Democratic Party on free trade agreements that he supports and vowed to make a strong case for trade to Congress. Obama said free trade is “tough politics” among some lawmakers because many Americans feel their wages and income have stagnated as a result of foreign trade. He said his argument to U.S. labor unions and environmental groups concerned about the impact of free-trade agreements is that they are accepting a status quo that is damaging to American workers. “Part of my argument to Democrats is: don’t fight the last war,” Obama told the Business Roundtable, referring to past battles over free trade.

An Overdue Fix to Overtime: On the one hand, millions of Americans are stuck in low-paying part-time jobs that don’t offer them enough hours. On the other, millions more are now routinely forced to work over 40 hours a week without getting a dime for their overtime labor. In many cases, that’s because employers are paying hourly wage workers as if they were salaried professionals. There used to be a big distinction between hourly and salaried employees. That wasn’t by accident. In 1938, Congress passed the Fair Labor Standards Act, which forced bosses to pay workers a minimum wage and time-and-a-half for any hours worked over 40 a week. That law was key to building America’s middle class. Only a small percentage of employees — executives, administrators, and travelling salespeople, among others — were exempt from overtime. Yet since figuring out who was eligible for overtime proved complicated, regulators settled on one rule that trumps them all: weekly salary. By having a clear rule on salary level, it’s much harder for employers to avoid paying overtime. But that salary limit hasn’t kept up with inflation or changes in the workforce. As a result, many businesses have been putting anyone with even minor “management” responsibilities on salary.  For example, a federal court found that a clerk at a Dollar General store — who worked 50 hours or more a week stocking shelves and mopping floors — could be considered a salaried “manager,” since she was responsible for minding the store.

Study Finds Violations of Wage Law in New York and California -  The United States Labor Department says that a new study shows that between 3.5 and 6.5 percent of all the wage and salary workers in California and New York are paid less than the minimum wage. The study, which examined work force data for the two states, found that more than 300,000 workers in each state suffered minimum-wage violations each month. Labor Department officials said that even if one assumed a violation rate half that nationwide, that would mean more than two million workers across the nation were paid less than the federal or state minimum wage.  Violations were most common in the restaurant and hotel industries, the study found, followed by educational and health services and retail and wholesale. “These findings are alarming in terms of the prevalence of the problem, particularly in a set of industries where we already know workers earn low wages and struggle to earn a basic family budget,” The minimum-wage violations in those two states translate into $20 million to $29 million in lost income per week, the study concluded. Those amounts represent 38 percent of the income of the victimized workers in New York and 49 percent of the income of victimized workers in California.

Amazon Releasing 15,000 Robots In Its Warehouses: A year ago, Amazon.com workers like 34-year-old Rejinaldo Rosales hiked miles of aisles each shift to "pick" each item a customer ordered and prepare it for shipping. Now the e-commerce giant boasts that it has boosted efficiency — and given workers' legs a break — by deploying more than 15,000 wheeled robots to crisscross the floors of its biggest warehouses and deliver stacks of toys, books and other products to employees. "We pick two to three times faster than we used to," Rosales said during a short break from sorting merchandise into bins at Amazon's massive distribution center in Tracy, California, about 60 miles east of San Francisco. "It's made the job a lot easier." Amazon.com Inc., which faces its single biggest day of online shopping on Monday, has invested heavily this year in upgrading and expanding its distribution network, adding new technology, opening more shipping centers and hiring 80,000 seasonal workers to meet the coming onslaught of holiday orders. Amazon says it processed orders for 36.8 million items on the Monday after Thanksgiving last year, and it's expecting "Cyber Monday" to be even busier this year. CEO Jeff Bezos vows to one day deliver packages by drone, but that technology isn't ready yet. Even so, Amazon doesn't want a repeat of last year, when some customers were disappointed by late deliveries attributed to Midwestern ice storms and last-minute shipping snarls at both UPS and FedEx. Meanwhile, the company is facing tough competition from rivals like Google and eBay, and traditional retailers are offering more online services.

GOP Plan to De-Fund DHS Over Obama's Immigration Plan Won't Work -- In the nearly two weeks since President Obama announced he would protect millions of deeply rooted immigrants from deportation, conservatives have been impressively obtuse about how they hope to respond and whether they'll try to shut down the government again.  Republicans had hoped to use regular spending legislation—which must pass before the government shuts down on December 11—to fund all of the government aside from Obama’s deportation relief program. But just as the right’s plan to defund the Affordable Care Act in 2013 ran up against the small problem that Obamacare isn't really dependent on annual appropriations, Obama’s deportation program is also largely on autopilot. Even a government shutdown won’t stop it from taking effect.. Hal Rogers, the House Republicans’ top appropriator, has tried in vain to spell out this basic point to his conservative colleagues. “[T]he Appropriations process cannot be used to 'de-fund' the [relevant] agency,” he explained in a pre-Thanksgiving statement. “The agency has the ability to continue to collect and use fees to continue current operations, and to expand operations as under a new Executive Order, without needing legislative approval by the Appropriations Committee or the Congress, even under a continuing resolution or a government shutdown.” The right isn't buying it. Conservatives are convinced that Rogers is lying or hiding the ball or simply mistaken about the appropriations process.

Why 17 states are suing Obama administration over immigration actionTexas and 16 other states filed suit on Wednesday against the Obama administration, charging that the president’s recent executive action on immigration is unconstitutional and violates federal law.The 30-page complaint was filed in federal court in Brownsville by Texas Attorney General Greg Abbott. It accuses President Obama and his administration of failing to comply with a clause in the US Constitution that requires the president to “take care that the laws be faithfully executed.”  It also accuses the administration of failing to follow the correct procedures in enacting the new immigration regulations. Under the Obama plan, more than 4 million of the estimated 11 million unauthorized immigrants in the US are eligible for deferred action from deportation. They are also eligible for work permits.  The president’s unilateral action has sparked a debate over whether Mr. Obama is abusing his authority and ignoring the Constitution’s required separation of powers. Supporters of the administration say the executive branch has broad discretion to set enforcement priorities under US immigration law. This is discretion authorized by Congress itself, they say. Critics disagree.

How income inequality undermines U.S. power - Much has been written about the domestic consequences of growing income inequality in the United States— how inequality depresses growth, puts downward pressure on the middle class, accentuates wage stagnation and creates added difficulty paying for a college education and buying a home — but much less has been said about how inequality will affect America’s role in the world. How will the social science experiment of allowing wealth to settle so unequally between the top 1 percent and rest of the United States impact the foundations and contours of U.S. foreign policy? In fact, there are likely to be subtle and direct consequences of growing inequality both for the United States’ international standing and its activism.  The next phase of intense global engagement is likely to demand much more from a larger share of the population. The lion’s share of 21st-century history will play out in Asia, with its thriving and acquisitive middle classes driving innovation, nationalist competitions, military ambitions, struggles over history and identity, and simple pursuit of power. The United States is in the midst of a major reorientation of its foreign policy and commercial priorities that will draw it more closely to Asia in the decades ahead. The competition for power and prestige there rests on comprehensive aspects of national power — as much to our product and service offerings, the strength of our educational system and the health and vitality of our national infrastructure as to the quality of U.S. military capabilities. Each of these efforts require substantial and sustained longer-term investments; all face funding shortfalls due to myriad challenges. A corresponding consequence of growing inequality has been a reduction in support for these building blocks for comprehensive and sustained international engagement.

Inequality and Economic Performance - Paul Krugman -- I’m at a Columbia conference on that topic, giving a talk tonight; my slides are here (pdf). My basic point is that we need to get beyond reduced-form correlations between inequality and growth, and a few samples of things we might do. I’m actually a skeptic on the inequality-is-bad-for-performance proposition — not hard line against it, but worried that the evidence for some popular stories is weaker than I’d like. It’s important to realize that even the absence of a relationship is a big change from conventional wisdom; but how much do we really know for the opposite case?

UC Davis Economics Professor: There Is No American Dream --  Gregory Clark is sharing his research as a hard truth with no hope—whether or not you can get ahead in America is as predictable as any formula.In fact, he says, the formulas for social mobility in the United States show there’s nothing to dream about.“America has no higher rate of social mobility than medieval England, Or pre-industrial Sweden,” he said. “That’s the most difficult part of talking about social mobility is because it is shattering people s dreams.”Clark crunched the numbers in the U.S. from the past 100 years. His data shows the so-called American Dream—where hard work leads to more opportunities—is an illusion in the United States, and that social mobility here is no different than in the rest of the world.  “The status of your children, your grandchildren, your great grandchildren your great-great grandchildren will be quite closely related to your average status now,” he said. Clarks’ study was published by the Council on Foreign Relations.

Race inequality between US Whites and African-Americans by the Numbers (Again) - With regard to employment, African-Americans got hit harder by the Bush Depression than did whites, and jobs have not come back for them at nearly the same rate:This vast difference between Euro-American and African-American rates of employment holds true regardless of educational level; college-educated African-Americans are also twice as likely to be unemployed as whites with the same level of education:Among Americans born in the US, nearly 40% of all tuberculosis cases are in African-Americans. They are only about 13% of the US population:On the other hand, although African-Americans are disproportionately likely to be poor, they are only a quarter of Americans living in poverty; whites make up about 41% of the poor.. (If the distribution were proportional, whites would by 70-some percentage of the poor and African-Americans would be 13%). Those white Americans who don’t want to help the poor because they’d be helping people of another race are actually screwing over white people big time.  Most death sentences are handed out for killing white people, even though African-Americans make up 50% of murder victims (they are only 12% of the population). So if an African-American male had fired ten shots into the SUV of some white suburban kids playing their music too loud, killing one of them, I think we all know there would have been a murder conviction and almost certainly a death penalty imposed.

Even When Minorities Do Well in the Suburbs, Racial Inequalities Follow --Suburbia is more diverse than it used to be, but many of the divisions that exist in urban settings are now spreading to outer-lying communities. A new study by Brown University researcher John Logan  finds suburban blacks and Hispanics live in much higher-poverty neighborhoods than non-Hispanic whites and Asians—even when they earn the same or even more. Mr. Logan analyzed Census data on Americans in metropolitan areas through 2010 along with figures from the National Center for Education Statistics. Black and Hispanic households making over $75,000 a year, the study found, live in neighborhoods with a higher poverty rate than white households earning less than $40,000. The findings suggest that even when blacks and Hispanics do better on the job front, they confront persistent racial divisions and disadvantages. That pours some cold water on hopes that suburbia—where public services are often better—is helping minorities get a leg up. “Minorities confront boundaries in suburbia that are very similar to those they live with in cities,” Mr. Logan says. Suburbs have grown much more than core cities over the past three decades. Some 60% of metropolitan-area residents now live in suburbs, which often have more community resources and better schools than central cities. As they grow, suburbs are becoming more diverse. In fact, suburbia in 2010 was roughly as racially and ethnically diverse as the nation’s central cities were in 1980, Mr. Logan says. Back in 1980, the suburbs were nearly 90% white. The suburban black population was under 6 million in 1980, but has now reached about 16 million. For Hispanics, this figure is now around 23 million, up from 5 million in 1980, thanks to fast population growth. While the share of whites living in suburbs isn’t growing as it once was, it’s still rising. And residential segregation has moderated somewhat.

Widening wage gap linked to more deaths among black Americans - Greater income inequality is linked to more deaths among African Americans, but the effect is reversed among white Americans, who experienced fewer deaths, according to a new study by researchers at the University of California, Berkeley. The study, published in the fall 2014 issue of the International Journal of Health Services, highlights stark racial differences in the effects of the widening gap between the rich and poor. The United States has one of the largest gaps between rich and poor among developed nations. According to a report from the nonpartisan Congressional Budget Office, income grew by 275 percent for the top 1 percent of households between 1979 and 2007. In comparison, income for households in lower brackets grew only 40-65 percent in that same time period. The bottom 20 percent of households saw their incomes grow by only 18 percent. "There have been a number of studies that have established the association between greater income inequality and poorer health on a population level, but ours is one of the few studies to explicitly factor in race," said study lead author Amani Nuru-Jeter, associate professor of community health and human development and of epidemiology at UC Berkeley's School of Public Health. "What is really important is the finding that income inequality matters for everyone, but it matters differently for different groups of people." The researchers analyzed census data from 107 U.S. metropolitan areas with populations that numbered 100,000 people or more and that were at least 10 percent African American. They used three different measures to assess income inequality, and then matched the results to National Center for Health Statistics mortality data from the same period. The researchers found that with each unit increase in income inequality, there were an additional 27 to 37 deaths among African Americans. For white Americans, however, each unit increase in income inequality resulted in 417 to 480 fewer deaths.

Child poverty pervasive in large American cities, new report shows: --Years after the end of the Great Recession, child poverty remains widespread in America's largest cities. A paper just released by the National Center for Children in Poverty (NCCP), a research center based at Columbia University's Mailman School of Public Health, reports that nearly three children in five living in Detroit are poor, according to the most recent Census figures. This rate has grown by 10 percentage points since the onset of the Great Recession in 2007. Most children in Cleveland and Buffalo also live in poverty, as do nearly half the children in Fresno, Cincinnati, and Memphis. Other large cities topping the list for child poverty are Newark, Miami, St. Louis, and Milwaukee. Seven of the 10 cities with the highest child poverty rates have seen them climb by eight percentage points or more since 2007, led by Fresno, with an extraordinary 16 percentage point jump. "Many Americans--even policymakers--seem unaware of the shocking prevalence of child poverty in many of our nation's most important and iconic cities," observed Curtis Skinner, PhD, director of Family Economic Security at NCCP.  "Reducing child poverty is critical to the social and economic health of cities, now and in the future." At 30.6 percent, the child poverty rate for all U.S. large cities (defined as the 71 cities with a total population of 250,000 or higher in 2007) is substantially higher than the 19.9 percent poverty rate for all children in the United States in 2013. While the national child poverty rate fell by two percentage points from 2012 to 2013, the big-city rate declined by only one percentage point. The aggregate child poverty rate in big cities remains four percentage points higher than the pre-recession rate in 2007 of 26.4 percent.

US cities making it harder to feed the homeless - For a lot of people in the United States, Thanksgiving includes volunteering: either filling up a bag of non-perishable food items for a food drive, or volunteering, or sending donations to food banks or hunger charities like Feeding America. And yet a growing array of communities seem intent on making it harder for many of these organizations to serve the still-high homeless population in cities across the United States.   21 cities have managed to pass legislation banning or restricting organizations from sharing food with homeless populations in public places since January 2013 alone, according to a recent report by the National Coalition for the Homeless.  Make that 22 cities: Since that report was published, Fort Lauderdale, Florida passed an ordinance that effectively makes it impossible for charity groups to keep serving food to homeless populations outdoors and in parks.   The new rules, ostensibly to protect those getting the food from any illnesses from poorly prepared foods, require charity groups that distribute food to comply with the same standards of a restaurant dishing up meals for tourists visiting Fort Lauderdale’s beaches. That doesn’t just mean wearing gloves; it includes providing toilets and an array of specific equipment.  What could be the motivation? As commissioners acknowledged in the ordinance, “the City of Fort Lauderdale has a substantial interest in the revitalization, preservation of property values and the prevention of the deterioration in its downtown.” And feeding the homeless – which destroys the visual impression of a booming downtown – kind of wrecks that image.

In 33 U.S. Cities, It’s Illegal to Do the One Thing That Helps the Homeless Most - In case the United States' problem with homelessness wasn't bad enough, a forthcoming National Coalition for the Homeless (NCH) report says that 33 U.S. cities now ban or are considering banning the practice of sharing food with homeless people. Four municipalities (Raleigh, N.C.; Myrtle Beach, S.C.; Birmingham, Ala.; and Daytona Beach, Fla.) have recently gone as far as to fine, remove or threaten to throw in jail private groups that work to serve food to the needy instead of letting government-run services do the job. The bans are officially instituted to prevent government-run anti-homelessness programs from being diluted. But in practice, many of the same places that are banning food-sharing are the same ones that have criminalized homelessness with harsh and punitive measures. Essentially, they're designed to make being homeless within city limits so unpleasant that the downtrodden have no choice but to leave. Tampa, for example, criminalizes sleeping or storing property in public. Columbia, South Carolina, passed a measure that essentially would have empowered police to ship all homeless people out of town. Detroit PD officers have been accused of illegally taking the homeless and driving them out of the city.  The U.N. even went so far as to single the United States out in a report on human rights, saying criminalization of homelessness in the United States "raises concerns of discrimination and cruel, inhuman or degrading treatment."

Chicago Council Strongly Approves $13 Minimum Wage -  By a 44-5 vote, Chicago's City Council set a minimum-wage target of $13 an hour, to be reached by the middle of 2019. The move comes after Illinois passed a nonbinding advisory last month that calls for the state to raise its minimum pay level to $10 by the start of next year.The current minimum wage in Chicago and the rest of Illinois is $8.25. Under the ordinance, the city's minimum wage will rise to $10 by next July and go up in increments each summer thereafter.The legislation includes several findings of a focus panel that examined the wage issue in Chicago earlier this year. The bill states that "rising inflation has outpaced the growth in the minimum wage, leaving the true value of lllinois' current minimum wage of $8.25 per hour 32 percent below the 1968 level of $10.71 per hour (in 2013 dollars)." It also says nearly a third of Chicago's workers, or some 410,000 people, currently make $13 an hour or less. The timing of the vote reflects a political reality, as Emanuel and other Chicago leaders are maneuvering ahead of the next election cycle. "Chicago Mayor Rahm Emanuel wants to pre-empt state action on local minimum wages," Northern Public Radio reports, adding that among those who approve the pay hikes, "Officials are worried business groups will push for Springfield legislation that prohibits municipalities raising their minimum wage higher than the state's."

Ohio employers face tax hike for debt to feds on jobless benefits - Lawmakers are looking for ways to pay off the state’s unemployment compensation loan, but a fix won’t come in time to avoid another tax hike on Ohio employers. The federal unemployment tax paid by employers will be bumped up for the fourth time on Jan. 1 under an automatic repayment system for states that have failed to repay their debts. This increase, on top of three previous ones, will cost employers an additional $84 per employee, according to the Ohio Department of Job and Family Services. In all, the state’s lingering debt has cost Ohio businesses $558 million in added taxes the past three years. A Republican lawmaker who led hearings on the issue this fall plans to release a report this month outlining ways Ohio can pay off the nearly $1.4 billion debt and restructure the state’s unemployment compensation system to keep it solvent the next time the economy tumbles. “It’s not just paying off the debt. We also have a structural imbalance,” said Rep. Barbara Sears, R-Sylvania, and chairwoman of the Unemployment Compensation Debt Study Committee. Those who have studied the issue say the state must increase taxes paid and lower benefits received to achieve long-term solvency.

Chinese investors sign up to fund I-95-Pa. Turnpike link: Chinese investors have begun signing up to spend $500,000 each to help pay for a long-awaited connection between the Pennsylvania Turnpike and I-95. In exchange, the investors hope to get permanent residency in the United States for themselves and their families. Agents for the novel financing plan have been pitching the proposal in China since September, touting the project's financial stability and showcasing photos of Gov. Corbett and Turnpike Commission officials breaking ground for the construction in Bucks County. "Guaranteed by U.S. Government, Class A+ Repayment Credit!" proclaimed the Chinese-language website promoting the investment last month. "A key expressway-connecting hub project in U.S.A.!" More coverage Graphic: Connecting I-95 and the Pa. Turnpike (The website language has been toned down following inquiries by The Inquirer, to remove suggestions of government guarantees for investors. Now, the site says, "Pennsylvania Turnpike Commission enjoys an A+ rating," a reference to the Standard & Poor's rating on turnpike revenue bonds, which aren't involved in this financing plan.) More than 100 investors have applied so far to invest in the I-95/turnpike connection. The Turnpike Commission is counting on 400 wealthy foreign investors, mostly from China, to provide $200 million for the $420 million project. The rest of the money will come from federal and turnpike funds.

How Pennsylvania Is Selling Residency To Chinese "Investors" For $500k Each -  A major theme here at Liberty Blitzkrieg over the past year has been the creative ways in which corrupt Chinese oligarchs and government officials are maneuvering their way into the United States. To be clear, I am not anti-immigration by any stretch of the imagination. My mother was an immigrant. This is about being against corrupt and morally compromised individuals being welcomed here with open arms just because they have cash. We have enough domestic criminal oligarchs as it stands. These people have collectively captured the American political and economic system and control it to their own ends. Do we really need to import more of these types from abroad? Did you know that there exists a federal Immigrant Investor Program that grants “EB-5? immigration visas to foreigners who provide at least $500,000 to U.S. projects that create 10 or more American jobs? Apparently the good folks at the Pennsylvania Turnpike Commission are well aware of it, and are using it to raise $200 million. Here’s what we’d like to know. Who are these investors and who vets them? It is a known fact that corrupt Chinese officials and businessmen are scrambling to get themselves and their money out of their homeland as the government cracks down on corruption. How many of them are going to use this program to get into the U.S., and what will be the long-term impact to our society?

Detroit power failure raises alarms across the country: The power failure that plunged Detroit's schools, fire stations, traffic signals and public buildings into darkness Tuesday reflects a larger problem of aging electrical infrastructure around the country that has worried experts for years. The chaos of unexpected power loss is all too familiar for people who work in downtown Detroit. Its aging municipal system was responsible for major power failures that caused blackouts in 2010, 2011 and 2013. But the problem is not isolated to one city. A series of federal and private studies raise alarm bells about the power distribution system nationally, saying it is plagued by aging equipment with high failure rates, obsolete system structures and outdated engineering. The American Society of Civil Engineers recently gave the nation's power infrastructure a grade of D+, saying some elements of the interconnected transmission and distribution systems, including 400,000 miles of electric lines, date to the 1880s and much to World War II era. "Aging equipment has resulted in an increasing number of intermittent power disruptions, as well as vulnerability to cyber attacks,'' the group said in its report. It said the number of significant power outages around the country rose from 76 in 2007 to 307 in 2011. While weather was the cause of some, including the 2012 blackout in New York City, many transmission and distribution systems have suffered failures.

Patrolling the Boundaries Inside America - Robert Reich -- America is embroiled in an immigration debate that goes far beyond President Obama’s executive order on undocumented immigrants. It goes to the heart of who “we” are. And it’s roiling communities across the nation. In early November, school officials in Orinda, California, hired a private detective to determine whether a seven-year-old Latina named Vivian – whose single mother works as a live-in nanny for a family in Orinda — “resides” in the district and should therefore be allowed to attend the elementary school she’s already been attending there. On the basis of that investigation they determined that Vivian’s legal residence is her grandmother’s home in Bay Point, California. They’ve given the seven-year-old until December 5th to leave the Orinda elementary school. Never mind that Vivian and her mother live during the workweek at the Orinda home where Vivian’s mother is a nanny, that Vivian has her own bedroom in that home with her clothing and toys and even her own bathroom, that she and her mother stock their own shelves in the refrigerator and kitchen cupboard of that Orinda home, or that Vivian attends church with her mother in Orinda and takes gym and youth theater classes at the Orinda community center. The point is Vivian is Latina and poor, and Orinda is white, Anglo, and wealthy. And Orinda vigilantly protects itself from encroachments from the large and growing poor Latino and Hispanic populations living beyond its borders.

In Arizona, a Textbook Fuels a Broader Dispute Over Sex Education - The textbook, the one with the wide-eyed lemur peering off the cover, has been handed out for years to students in honors biology classes at the high schools here, offering lessons on bread-and-butter subjects like mitosis and meiosis, photosynthesis and anatomy.But now, the school board in this suburb of Phoenix has voted to excise or redact two pages deep inside the book — 544 and 545 — because they discuss sexually transmitted diseases and contraception, including mifepristone, a drug that can be used to prevent or halt a pregnancy.A law passed two years ago in Arizona requires schools to teach “preference, encouragement and support to childbirth and adoption” over abortion, and the school board decided that those pages were in violation of this law — even though the Arizona Education Department, which examined the book for compliance, found that they were not. The controversy has turned into a referendum on the 2012 law, with supporters saying the textbook content cannot be removed fast enough and opponents crying foul for any number of reasons: technical, ethical, pedagogical. But the Gilbert school board is moving forward, trying to figure out how to remove the material in question — by way of black markers or scissors, if need be — despite resistance from parents, residents, the American Civil Liberties Union and even the district’s superintendent.

White House Announces Initiative To Improve Climate Education In The U.S.  - The White House is hoping to make climate education more of a priority in the U.S. through a new initiative announced this week.  The White House Office of Science and Technology Policy on Wednesday launched its Climate Education and Literacy Initiative, a plan that the Obama administration hopes will help American students gain access to science-based education about climate change. According to the White House, the initiative will start out with a roundtable discussion in which government officials, educators, and leaders from nonprofits and the private sector will discuss ways to improve climate education the U.S. through improving teachers’ access to educational resources and other methods. The initiative also includes several other White House commitments, such as working climate change education into the information National Park Service employees share with park visitors, launching NOAA-sponsored regional workshops for educators on strategies for teaching climate change, and providing courses on climate change for upper-level employees of the Federal government. In addition, the initiative is launching a competition for games that incorporate climate education, with the most innovative games to potentially be made available for use in classrooms around the country. As part of the initiative, the Department of Energy also released four videos — and is planning to release three more next year — as education tools for that schools can use when teaching students about energy.

Educational feedback loops in China and the U.S. - mathbabe - I’ve been studying these issues and devoted a large chunk of my book to the feedback loops described as they’ve played out in this country. Here are the steps I see, which are largely reflected in Ravitch’s review:

  1. Politicians get outraged about a growing “achievement gap” (whereby richer or whiter students get better test scores than poorer or browner students) and/or a “lack of international competitiveness” (whereby students in countries like China get higher international standardized test scores than U.S. students).
  2. The current president decides to “get tough on education,” which translates into new technology and way more standardized tests.
  3. The underlying message is that teachers and students and possibly parents are lazy and need to be “held accountable” to improve test scores. The even deeper assumption is that test scores are the way to measure quality of learning.
  4. Once there’s lots of attention being given to test scores, lots of things start happening in response (the “feedback loop”).
  5. For example, widespread cheating by students and teachers and principals, especially when teachers and principals get paid based on test performance.
  6. Also, well-off students get more and better test prep, so the achievement gap gets wider.
  7. Even just the test scores themselves lead to segregation by class: parents who can afford it move to towns with “better schools,” measured by test scores.
  8. International competitiveness doesn’t improve. But we’ve actually never been highly ranked since we started measuring this.

Don't try this: meet the high schooler who made $300K trading penny stocks under his desk | The Verge: It was just a few weeks into the new school year when Connor Bruggemann decided to play sick. He holed up in his bedroom, shut the door, and opened his laptop. Over the summer his father had opened an Etrade account for him, using around $10,000 Bruggemann had saved up over two years working as a busboy and waiter at a local BBQ joint. At first Bruggemann had used that cash to buy some big, well-known stocks: Apple, Verizon, and a few others. But today was different. One by one he liquidated those positions and put almost everything he had into American Community Development Group Inc, ticker sign ACYD, a penny stock selling for $.003 a share. Over the next year Bruggemann would turn that $10,000 into more than $300,000, principally trading penny stocks, a practice rife with risk, fraud, and wild swings of fortune. He took off school that day, but for most of the time when Bruggemann was trading, he was also a 16-year-old high school junior in Wyckoff, New Jersey. With his iPhone in hand, Bruggemann would buy and sell six figures of stock from his lunch table, the bathroom, and, occasionally, on the sly while sitting at his desk. What Bruggemann did with penny stocks isn’t new, but technology has changed what’s possible. Twenty years ago even the best home internet wouldn’t have supported this kind of real-time trading. A decade ago you might have done it from a home office. Today, with the supercomputers we carry in our pockets, a kid can put his life savings on the line while sitting in Spanish class.

The Need to Address Noncognitive Skills in the Education Policy Agenda -- Multiple traits compose a broad definition of what it means to be an educated person. Indisputably, being an educated person is associated with having a certain command of a curriculum, and knowledge of theories and facts from various disciplines. But the term educated also suggests a more far-reaching concept associated with individuals’ full development. Such development implies, for example, that individuals are equipped with traits and skills—such as critical thinking skills, problem solving skills, social skills, persistence, creativity, and self-control—that allow them to contribute meaningfully to society and to succeed in their public lives, workplaces, homes, and other societal contexts. These traits are often called, generically, noncognitive skills.1 Despite noncognitive skills’ central roles in our education and, more broadly, our lives, education analysis and policy have tended to overlook their importance. Thus, there are currently few strategies to nurture them within the school context or through education policies. However, after a relatively prolonged lack of consideration, noncognitive skills are again beginning to be acknowledged in discussions about education, leading to the need for thoughtful and concerted attention from researchers, policymakers, and practitioners. This paper contends that noncognitive skills should be an explicit pillar of education policy. It contributes to the growing interest in these skills by reviewing what we know about noncognitive skills, including what they are, why they matter, and how they enter into the education process. We then extend the discussion by providing a tentative list of skills that are both important for and can be nurtured by schools.

Colleges that pledged to help poor families have been doing the opposite, new figures show | The Hechinger Report: Mr. Jefferson’s Capital Ball was more than just another Friday night party to ease Washington into the weekend. It had the commendable purpose of raising money for scholarships to the University of Virginia. But not the kind of scholarships that go to low-income students based solely on their financial need. The proceeds from the ball are destined for merit aid for applicants who have the high grade-point averages and top scores on entrance tests that help institutions do well on college rankings. Merit aid can also attract middle- and upper-income students whose families can pay the rest of the tuition bill and therefore furnish badly needed revenue to colleges and universities. As institutions vie for income and prestige in this way, the net prices they’re charging the lowest-income students, after discounts and financial aid, continue to rise faster on average than the net prices they’re charging higher-income ones, according to an analysis of newly released data the universities and colleges are required to report to the U.S. Department of Education. This includes the 100 higher-education institutions whose leaders attended a widely publicized White House summit in January and promised to expand the opportunities for low-income students to go to college. In fact, the private universities in that group collectively raised what the poorest families pay by 10 percent, compared to 5 percent for wealthier students, according to the analysis by The Dallas Morning News and The Hechinger Report based on information the U.S. Department of Education released this month covering 2008-09 to 2012-13, the most recent period available.

How dozens of failing for-profit schools found an unlikely savior: a debt collector - It was once among the country’s most successful public companies, beloved by Wall Street for its simple, lucrative model: offering degrees to low-income students who borrowed heavily from the government to pay their tuition. But the for-profit college giant Corinthian Colleges has spent much of the year in a tailspin. Investigations found the school used deceptive marketing to lure students into loans they had no hope of paying back, and the federal government suspended the schools’ access to federal aid. Corinthian’s schools looked like they were toast. And then an unlikely savior swooped in. The ECMC Group, which runs one of the biggest debt collectors used by the Education Department and has no experience teaching students, agreed last week to pay $24 million for more than half of Corinthian’s 107 campuses. The company plans to turn the for-profit campuses into nonprofit schools serving nearly 40,000 students. The deal will create the country’s largest nonprofit system of career education and is the biggest sign yet that the beleaguered for-profit college industry, which currently has 2 million students enrolled, is trying to reinvent itself. Several other for-profit schools are also trying to turn into nonprofit institutions. Critics say the Corinthian deal, which is unprecedented in scope, could put more taxpayer dollars and students at risk at a time when there is already $1 trillion in federal student debt. “I find it ironic that a company whose history is in student debt collection is now going to run a set of colleges that excelled at sending students into default,”

These College Majors Have the Hardest Time Paying Off Student Loans -- Most college students pick their major based on their talents and their interests, not on how easily that major can help them pay down their student loans. Maybe it’s time to rethink that. A new study breaks down exactly how hard it is for former students to pay off their student loans based on what their chosen major. While some of the results are predictable, the research sheds new light on exactly how tough it can be for new grads in certain fields. The Brookings Institution’s Hamilton Project crunched the numbers on more than 80 different majors to determine how much graduates typically earn right out of school as well as a decade later, and how that affects their ability to pay off their student loans.At the median, someone with a bachelor’s degree earns $27,000 right out of school, but some majors make considerably less, with a number earning under $20,000. “In the first year of the career, when earnings are at their lowest, graduates from several majors in the arts and humanities would need more than 20 percent of their earnings to service their loans,” the report says.The list of majors who have to put the highest share of their income towards their loans in the first year after graduation is an eclectic one. “Graduates in drama and theater face payments of 24% of their earnings during the first year of repayment,” the study says. In addition, those with degrees in health and physical education, civilization, ethnic studies, composition, speech, fine arts and nutrition and fitness studies pay the highest percentage of their earnings towards student loan repayment in their first year out of school.The vast majority — 66 of the 81 majors examined — will have to funnel more than 10% of their first-year earnings towards their student loans. Even grads with degrees in business and math initially have to spend 12% or more of their earnings servicing their debts.

The Hypereducated Poor - Debt and Higher Education -  Brianne Bolin thought her master's degree in English would guarantee her at least a steady income. But like hundreds of thousands of others with advanced educations, she barely makes enough to feed herself and her son. Alissa Quart reports on a growing segment of Americans: the hypereducated poor.   Professor Bolin, or Brianne, as she tells her students to call her, might as well be invisible. When I arrive at the building at Columbia College in Chicago where she teaches composition, I ask the assistant at the front desk how to locate her. "Bolin?" she asks, sounding puzzled, as she scans the faculty list. "I'm sorry, I don't see that name." There is no Brianne Bolin to be found, even though she's taught four classes a year here for the past five years. She doesn't have a phone extension to her name, never mind an office. ... Bolin seems more angry than anxious. An adjunct professor, she earns $4,350 a class, never more than $24,000 a year, she says. At the moment, she has $55 in the bank and $3,000 in credit card debt. She is a month behind on the $975 rent she pays for a two-bedroom house next to railroad tracks in a western Chicago suburb, where every 20 minutes a train screeches by. Her bookshelves are full of poetry and philosophy from grad school, she can recite poems from memory, and she collects French 1960s LPs, but she must rely on food stamps to feed herself and her son. And because her job doesn't offer health insurance, they're both enrolled in Medicaid, the state and federal health-care program for the poor. (Coverage for a child Finn's age in Illinois caps at an income equaling 142 percent of the federal poverty level, or about $22,336.)

The Dismantling of Medicaid - Medicaid, once considered one of the crowning achievements of The Great Society, is now being dismantled by those entrusted with its care. Plagued by a poorly designed medical reimbursement process that rewards health care professionals for providing medically unnecessary care and yet doesn’t pay enough for many specialists or small providers to deal with burdensome administration, the popular program has been a target of reform for decades. With state budgets hollowed out by the perfidy of the mortgage industry and a budget regime that cuts investments in health to fund tax breaks for corporations, legislators across the nation are now looking to find ways to cut costs—and if there’s time, improve the quality of care. Here enters managed care, seen by some elected officials as a panacea to their fiscal woes. Under this system, private insurance companies, or Managed Care Organizations (MCO), receive a fixed monthly payment from the state per Medicaid patient. In exchange, they agree to work with hospitals to strike deals and lower costs.Theoretically, this costs states less than paying for each patient directly. In fact, managed care seems like a great idea overall, until one factors in the often unscrupulous business practices of the health insurance industry.One obvious flaw in the system is that MCOs can increase their profits by erecting roadblocks to care. If you’re one of the aforementioned 60 patients put on a diet and exercise regime, you may find it more difficult to get access to a cardiologist. Worse still, if MCOs make a patient drive three hours to see an “in-network” specialist he or she needs, chances are lessened that the patient will make it to that professional at all—and the MCO can keep the funds it receives from the state without paying for that person’s care.

Underinsurance Remains Big Problem Under Obama Health Law -- The Affordable Care Act, like most health care reform efforts, focuses on people without insurance. That’s fine, because those people do face significant problems obtaining health care in the United States. But underinsurance is a real concern, too, and it’s often ignored. Before the A.C.A. was passed, underinsurance was prevalent.  Some of the A.C.A.'s regulations, such as removing annual or lifetime limits on reimbursements, were aimed at reducing the out-of-pocket spending that people might have to make. When the act went into effect and some people found their policies had been canceled (despite President Obama’s now-infamous assurance that “if you like your health care plan, you can keep it”), it was often because those policies left them underinsured, even if they didn’t realize it.But the A.C.A. has not done as much as many had hoped it would to reduce underinsurance. In fact, it may be helping to spread it. And proposed modifications to the law, like those that would introduce a new tier of “copper” plans in addition to bronze, silver, gold and platinum, might make underinsurance worse.This is important, because research shows that those who are underinsured are more likely to go without needed care.  In the most recent update of the Commonwealth Fund survey, conducted in September and October of this year, investigators found that 13 percent of all adults 19-64 spent more than 10 percent of their income on out-of-pocket health care costs. Poor adults were the most likely to spend this amount. More than 30 percent of nonelderly adults earning less than the poverty line spent more than 10 percent of their income on out-of-pocket costs, and 18 percent of those making between 100 percent and 200 percent of the poverty line did so. All of these people were insured.

The Bad Design of Health Care Exchanges Will Cost People Billions - If you got insurance on an Affordable Care Act exchange last year, not going through the process again every year can be very costly to you. According to a new report from HHS, “ More than 7 in 10 current Marketplace enrollees can find a lower premium plan in the same metal level—before tax credits—by returning to shop.  If all returning consumers switched from their current plan to the lowest-cost premium plan in the same metal level, the total savings in premiums would be over $2 billion.” Of course we have long known from other health care systems that only a tiny percentage of people are likely to shop around each open enrollment period. This has a lot to do with the fact that most people lack the health insurance knowledge and math skills to needed to properly shop around. Even if the government could convince most people on the exchanges to annually undergo this shopping process they find very unpleasant, it doesn’t actually mean people will save money. Experiments have shown that even when people are offered a fairly simplified choice they are very bad at picking the best insurance policy. In fact one experiment found that without significant help participants, “selected the correct option 21 percent of the time, a figure not different than chance.” The current exchanges might be as useful as a dart board for helping many people pick the best plan for them.Democrats should have known about these significant short comings with insurance exchanges in 2009 but choose to go with this system anyway. The billions people are probably going to overpay next year is largely the fault of Democrats for choosing this bad design. Of course what is waste to regular people is profit for the insurance companies, so from their perspective the system is very well designed.

The Real Threat to Obamacare: Obamacare has had a rough month: it’s being challenged in a Supreme Court case; House Republicans are trying to undermine it with a lawsuit; and its poll numbers are terrible. But on the ground the Affordable Care Act—which is starting its second open-enrollment period—looks robust. Most people in the program say they’re happy with their plans, and new insurers are entering the market. Prices are pretty good, too: estimates suggest that premiums for the second-cheapest of the “silver” plans, which is the benchmark used to set subsidies, have risen by an average of just two to five per cent. Still, one fundamental challenge remains: if Obamacare is to succeed in holding down premiums over the long run, it needs consumers to shop around. People have no difficulty comparison-shopping and changing allegiance when it comes to, say, automobiles or consumer electronics. Companies in those markets face huge pressure to keep quality high and prices low. But there are also markets where consumers tend to stick with the same choice forever, even though switching could save them quite a bit of money. Energy bills are a classic example. We’ve long been told we can save money by leaving incumbent providers for newer upstarts, but the vast majority of us haven’t. Economists call it consumer inertia, and you can see it in many fields, including banking, credit cards, and health insurance. “History tells us that people are very sticky about health insurance,” Larry Levitt, a senior vice-president at the Kaiser Foundation, told me. “If you look at federal employees or at Medicare Part D, people generally don’t switch plans from year to year.”

Exclusive: U.S. CEOs threaten to pull tacit Obamacare support over 'wellness' spat   (Reuters) - Leading U.S. CEOs, angered by the Obama administration's challenge to certain "workplace wellness" programs, are threatening to side with anti-Obamacare forces unless the government backs off, according to people familiar with the matter. Major U.S. corporations have broadly supported President Barack Obama's healthcare reform despite concerns over several of its elements, largely because it included provisions encouraging the wellness programs. The programs aim to control healthcare costs by reducing smoking, obesity, hypertension and other risk factors that can lead to expensive illnesses. A bipartisan provision in the 2010 healthcare reform law allows employers to reward workers who participate and penalize those who don't. true But recent lawsuits filed by the administration's Equal Employment Opportunity Commission (EEOC), challenging the programs at Honeywell International and two smaller companies, have thrown the future of that part of Obamacare into doubt. The lawsuits infuriated some large employers so much that they are considering aligning themselves with Obama's opponents, according to people familiar with the executives' thinking. "The fact that the EEOC sued is shocking to our members,"

4 New Studies: Obamacare Working Incredibly Well - A week ago, Sen.Charles Schumer said his party made a political mistake by passing the Affordable Care Act rather than some unspecified economic measure. Put aside the dubious political logic (in reality, Congress’s appetite for additional stimulus had been completely exhausted with the passage of the original version). Schumer’s comments, announced at the National Press Club, sanctify a hardened perception among the general public, which has encroached into the Democratic Party itself, that Obamacare was not worth the trouble. The law is a bugaboo upon which every criticism of Obama has attached itself — he is too economically elitist, or too partisan, or too complex. What makes this wave of regret — not even taking into account the unmitigated hostility from the political right — so strange is that Obamacare is actually working. Indeed, evidence continues to mount that the law is working extremely, even shockingly, well. The overall goal of the law was to gradually reverse the two most perverse facts about the U.S. health-care system: Its overall cost has exploded, and it denies access to tens of millions of people. Four major new sources of information have come out this week, all of which have further demonstrated the law’s success.

Updated: Health care spending reached $2.9 trillion in 2013, government says - Health care spending in the U.S. grew 3.6 percent in 2013, reaching a total of $2.9 trillion, or $9,255 per person, the federal Centers for Medicare & Medicaid Services announced Wednesday. CMS said U.S. health spending has maintained what it called a “pattern of low growth” — between 3.6 percent and 4.1 percent — for five consecutive years. The report by the CMS Office of the Actuary is being published Wednesday in the journal Health Affairs. The report said the rates of national health spending growth coincide with growth in the Gross Domestic Product, which averaged 3.9 percent per year since the end of the recession in 2010. The share of the economy devoted to health remained unchanged over this period at 17.4 percent. “This report is another piece of evidence that our efforts to reform the health care delivery system are working,” said CMS Administrator Marilyn Tavenner. “To keep this momentum going, we are continuing our efforts to shift toward paying for care in ways that reward providers who achieve better outcomes and lower costs.”

The Hospital CEO as Scrooge – Hired Managers Get Raises While Presiding Over Deficits, Layoffs and Pay Cuts - Yves here. Hospitals have become yet another example of looting by the administrative classes. Roy Poses explains the result is ever-rising executive pay even when financial results often deteriorate. The next phase of their misrule will be to implement further cost cuts (not including their pay, mind you), with the almost-certain result that standards of care will fall.

Computer hackers taking aim at insider information at health care companies - A surgically precise e-mail hacking effort is targeting health care companies in an effort to steal corporate secrets for insider stock trading. While the hacking techniques are relatively common, experts at FireEye, the Silicon Valley IT security firm that revealed the hacking group Monday, were surprised by the attackers’ business savvy and sustained attention on specific targets. The focus allowed them to breach e-mail accounts of top executives, lawyers, bankers, consultants and investor-relations departments at more than 100 large companies, which were not named. Medical device firms and pharmaceutical makers are being targeted because they’re prone to large stock swings from disclosures like announcements of potential mergers, product approvals and clinical trial results. Nearly 70 percent of the companies in the report were publicly traded health care companies, and more than a quarter of them make medical devices and equipment. Such precise targeting of individuals with financial information separated this group of hackers from others who might be interested in stealing national secrets or causing general havoc

Hey Jude, you made it bad: How a beloved "nonprofit" creates executives that are flushed with financial health -  sylvia kronstadt - Another charity that cynically manipulates the tender-heartedness of its donors.  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.

Darkness at Sunrise: A multinational corporation warehouses dementia patients for $74,000 a yearsylvia kronstadt - When you step off the elevator onto the fourth floor of Sunrise Senior Living, and you enter the secure “Reminiscence” ward -- where dementia patients are housed -- you might well become overwhelmed with a sense of dread. The first thing you see is a large, semi-dark room – known as “the TV room” -- in which about 25 women sit virtually all day in theater-style rows, with their eyes closed and their heads either hanging down or thrown back. A couple of them gaze vacantly into the distance. There are no interactions between them, and the seating arrangement certainly isn’t conducive, even to eye contact. Is this what the website meant by "individually tailored care"? No one is watching “Let’s Make a Deal.” They ignored "The Price is Right" as well. It would be too bad if they were interested: The sound is turned off. These women look gray and dead. They seem unreal, as if they were in Madame Tussauds’ rendition of Zombieville. I am sick with grief and guilt as I confront the fact that my mother is moving into this $74,000 a year institution tomorrow.

The image of dementia needs an Extreme Makeover - Sylvia Kronstadt -- I have spent several hours a day for the past six months with people confined in locked dementia wards. I realize that they have a progressive brain impairment, but I fear that we are giving up on them way too readily, which leads to their becoming exactly what we expect: dull, bored, confused, sleepy and complacent. I believe that it is the institutions -- which ignore the "real person" who is still inside that head -- as much as the disease itself, that account for the blank-faced, slack-jawed, sprawled out appearance of these dear people, who are being cruelly warehoused and neglected by multibillion-dollar conglomerates, which own hundreds of facilities in order to profit from "economies of scale."  We are throwing our loved ones to the wolves. Every day in these dismal surroundings makes them die a little bit more. When you watch as they become helplessly institutionalized, it breaks your heart.  When I "embedded" myself in Dementiaville, I found that beneath those masks of stupor, sullenness and complacency, there were bright, lively, charming people. Many if not most of them still have beautiful minds, if you just connect with them. In their faces, the sun rises again.  These concentration camps must be regulated. We are losing thousands of precious human beings, who are plunging deeper and deeper into oblivion.They are prisoners. We need to hatch an escape plot.

CDC's flu warning raises questions about vaccine match  -- The Centers for Disease Control and Prevention (CDC) warned yesterday that the profile of influenza viruses currently circulating, with A/H3N2 predominant, suggests a risk for a rough ride this winter, especially since about half of the H3N2 viruses don't match up with the corresponding strain in this year's vaccine. CDC Director Tom Frieden, MD, MPH, observed that seasons dominated by H3N2 viruses are generally worse than other seasons, and warned that the mismatch between the vaccine and circulating strains may portend lower vaccine effectiveness (VE) than usual. Consequently, he emphasized that antiviral medications are an important second line of defense, especially for patients at risk for flu complications. At a press conference, Frieden said the vaccine may still yield some protection against H3N2, despite the mismatch. At the same time, he cautioned that it's still early in the season and flu is highly unpredictable, so anything could happen. In response to the CDC advisory, some flu experts raised questions about the wisdom of focusing public attention on findings of a vaccine mismatch with circulating flu strains. They say there seems to be little correlation between vaccine match and how well the vaccine works, and that even with an apparent mismatch, the vaccine should still provide some protection from infection. The critical point, they suggested, is that H3N2-dominated flu seasons tend to be more severe.

CDC: Flu shot less effective; virus has mutated - CNN.com: (CNN) -- Scientists are concerned about what they're seeing so far this flu season, the director of the Centers for Disease Control and Prevention said Thursday, a day after the agency advised doctors this year's flu vaccine is not as effective because the current strain of the virus has mutated. Dr. Tom Frieden said researchers are worried that with this particular strain of the virus, "we could have a season that is more severe than most with more hospitalizations and more deaths." The advisory sent Wednesday said 52% of the 85 influenza virus samples collected and analyzed from October 1 through November 22 were different than the virus strains included in this year's vaccine, indicating a mutation, or drift, of the strain. The most common strain of the virus reported so far this season is influenza A (H3N2). In the past, this strain has been linked to higher rates of hospitalization and death, especially for those at high risk for complications, which is usually the very young, the elderly and those with chronic health conditions such as asthma or heart problems.  It's too late to create another version of the flu vaccine this year, Frieden said, because even with modern production technology, it typically takes about four months to produce the vaccine.

CDC: Vast majority of HIV-positive people lacking treatment - Seventy percent of the 1.2 million Americans living with HIV are not regularly taking medication or seeing a doctor, a new finding that has alarmed federal health officials trying to slow the spread of infection. About 840,000 HIV-positive people are not receiving treatment that could substantially reduce the chances of spreading the virus and expand their own lifespans. Out of those not receiving care, 66 percent were aware of their infections, according to a study released Tuesday by the Centers for Disease Control and Prevention (CDC). CDC Director Dr. Tom Frieden said the findings showed a massive gap in treatment even as more people were becoming aware of their infections.

HIV evolving 'into milder form' -  HIV is evolving to become less deadly and less infectious, according to a major scientific study. The team at the University of Oxford shows the virus is being "watered down" as it adapts to our immune systems. It said it was taking longer for HIV infection to cause Aids and that the changes in the virus may help efforts to contain the pandemic. Some virologists suggest the virus may eventually become "almost harmless" as it continues to evolve. More than 35 million people around the world are infected with HIV and inside their bodies a devastating battle takes place between the immune system and the virus. HIV is a master of disguise. It rapidly and effortlessly mutates to evade and adapt to the immune system.However, every so often HIV infects someone with a particularly effective immune system. "[Then] the virus is trapped between a rock and hard place, it can get flattened or make a change to survive and if it has to change then it will come with a cost," said Prof Philip Goulder, from the University of Oxford. The "cost" is a reduced ability to replicate, which in turn makes the virus less infectious and means it takes longer to cause Aids.

Toiletry chemicals linked to testicular cancer and male infertility cost EU millions, report says -- The hormone-mimicking chemicals used routinely in toiletries, cosmetics, medicines, plastics and pesticides cause hundreds of millions of euros of damage to EU citizens every year, according to the first estimate of their economic impact.The endocrine disruptor compounds (EDCs) are thought to be particularly harmful to male reproductive health and can cause testicular cancer, infertility, deformation of the penis and undescended testicles. The new report, from the Nordic Council of Ministers, focuses on the costs of these on health and the ability to work but warns that they “only represent a fraction of the endocrine-related diseases” and does not consider damage to wildlife. Another new study, published in a medical journal, showed an EDC found in anti-perspirants reduced male fertility by 30%.The Nordic Council, representing the governments of governments of Denmark, Finland, Iceland, Norway and Sweden, is demanding the European Union speeds up its plan to identify, assess and ban harmful EDCs. Sweden is already taking legal action against the EU over its missed deadlines, which it blamed on lobbying by the European chemical industry.“I am not happy that taxpayers have to pay for the damage caused by EDCs, while industry saves money by not investigating their chemicals properly,” said Danish environment minister Kirsten Brosbøl on publication of the new report.

‘Superbugs’ Kill India’s Babies and Pose an Overseas Threat - — A deadly epidemic that could have global implications is quietly sweeping India, and among its many victims are tens of thousands of newborns dying because once-miraculous cures no longer work.These infants are born with bacterial infections that are resistant to most known antibiotics, and more than 58,000 died last year as a result, a recent study found. While that is still a fraction of the nearly 800,000 newborns who die annually in India, Indian pediatricians say that the rising toll of resistant infections could soon swamp efforts to improve India’s abysmal infant death rate. Nearly a third of the world’s newborn deaths occur in India.  “Reducing newborn deaths in India is one of the most important public health priorities in the world, and this will require treating an increasing number of neonates who have sepsis and pneumonia,” said Dr. Vinod Paul, chief of pediatrics at the All India Institute of Medical Sciences and the leader of the study. “But if resistant infections keep growing, that progress could slow, stop or even reverse itself. And that would be a disaster for not only India but the entire world.”In visits to neonatal intensive care wards in five Indian states, doctors reported being overwhelmed by such cases. “Five years ago, we almost never saw these kinds of infections,” said Dr. Neelam Kler, chairwoman of the department of neonatology at New Delhi’s Sir Ganga Ram Hospital, one of India’s most prestigious private hospitals. “Now, close to 100 percent of the babies referred to us have multidrug resistant infections. It’s scary.” These babies are part of a disquieting outbreak. A growing chorus of researchers say the evidence is now overwhelming that a significant share of the bacteria present in India — in its water, sewage, animals, soil and even its mothers — are immune to nearly all antibiotics.

We May Have Reached The ‘Apocalyptic Scenario’ With Antibiotics - Centers for Disease Control and Prevention director Tom Frieden made headlines last year when he proclaimed that the United States would "soon be in a post-antibiotic era," meaning we'd be plagued by everyday infections that our drugs could no longer handle.  It appears that age is already on our doorstep.  Newborns in India are now dying at alarming rates from infections that were once curable, The New York Times reported on Thursday. The same deadly “superbugs” are spreading around the globe and have already come to the United States, fueled in part by our country's overuse of antibiotics on farms and in hospitals.  The problem isn't just the bacteria — it's the fact that the drugs we once relied on to kill them no longer work. .  The bacteria have, genetically speaking, outsmarted us.  Last year, nearly a quarter of a million Americans died from bacterial infections that didn't respond to antibiotics. Certain strains of "nightmare bacteria" kill up to half of the patients they infect, and cases are becoming increasingly common across 42 states.  Several diseases that the US has kept in check with antibiotics have developed antibiotic-resistant strains, including gonorrhea, which is sexually transmitted and infects more than 100 million people a year, and tuberculosis, a serious lung infection that's returned with a vengeance across several continents in recent years.  In cases of severe infection, when bacteria are not responding to an initial round of antibiotics, doctors may turn to carbapenems, a stronger, "second-line" class of drugs. But a group of Indian scientists in Mumbai told Nature in 2012 that half of the bacterial samples they had collected from patients with infections were resistant to carbapenems, compared with just 30% of such samples a few years ago.

F.D.A.’s Mandatory Menu Labeling Regulations Won’t Work, Could Hurt Consumers - Shortly before everyone started leaving town for Thanksgiving, the Food and Drug Administration issued the rules designed to implement a requirement that was made part of the Affordable Care Act that requires most nationwide restaurant chains and other outlets to sell food to provide nutritional information about the food they sell, even though there is scant evidence that the presence of this information on menus actually has any impact on consumer behavior:— The Food and Drug Administration announced sweeping rules on Tuesday that will require chain restaurants, movie theaters and pizza parlors across the country to post calorie counts on their menus. The rules will have broad implications for public health. As much as a third of the calories that Americans consume come from outside the home, and many health experts believe that increasingly large portion sizes and unhealthy ingredients have been significant contributors to obesity in the United States. The rules are far broader than consumer health advocates had expected, covering food in vending machines and amusement parks, as well as certain prepared foods in supermarkets. They apply to food establishments with 20 or more outlets, including fast-food chains like KFC and Subway and sit-down restaurants like Applebee’s and The Cheesecake Factory.  Perhaps the most surprising element of the new rules was the inclusion of alcoholic beverages, which had not been part of an earlier proposal. Beverages served in food establishments that are on menus and menu boards will be included, but a mixed drink at a bar will not, F.D.A. officials said

China to stop harvesting organs from prisoners - The mainland – which has long been criticised by international human rights groups for using organs harvested from executed prisoners as its main source of organ transplants – will completely ban the practice from next year.  All organs used in future transplants must be from donors, the Southern Metropolis News quoted Dr Huang Jiefu as saying. Huang is former deputy director of the health ministry and director of the China Organ Donation and Transplant Committee. Major transplant centres had already stopped using executed prisoners’ organs, said Huang, who chaired an industry forum in Kunming on Wednesday. There is more here, via Mark Thorson.  The article notes China has one of the lowest voluntary organ donation rates in the world.  0.6 individuals out of a million sign up to donate their organs after they die, and that means the number of actual donors is lower yet.  If you google around, you will find some ambiguity as to whether the donation rate or the “register to donate rate” is that low, but as far as I can tell (try this Chinese source) it is the actual register to donate rate, in part because they just aren’t many ways to register right now. 

The smart mouse with the half-human brain -- Mice have been created whose brains are half human. As a result, the animals are smarter than their siblings. The idea is not to mimic fiction, but to advance our understanding of human brain diseases by studying them in whole mouse brains rather than in dishes. The altered mice still have mouse neurons – the "thinking" cells that make up around half of all their brain cells. But practically all the glial cells in their brains, the ones that support the neurons, are human.  Goldman's team extracted immature glial cells from donated human fetuses. They injected them into mouse pups where they developed into astrocytes, a star-shaped type of glial cell.  Within a year, the mouse glial cells had been completely usurped by the human interlopers. The 300,000 human cells each mouse received multiplied until they numbered 12 million, displacing the native cells. Astrocytes are vital for conscious thought, because they help to strengthen the connections between neurons, called synapses. Their tendrils (see image) are involved in coordinating the transmission of electrical signals across synapses. Human astrocytes are 10 to 20 times the size of mouse astrocytes and carry 100 times as many tendrils. This means they can coordinate all the neural signals in an area far more adeptly than mouse astrocytes can. "It's like ramping up the power of your computer," says Goldman. A battery of standard tests for mouse memory and cognition showed that the mice with human astrocytes are much smarter than their mousy peers.

The Excrement Experiment - Crohn’s disease affects as many as seven hundred thousand Americans, but, like other autoimmune disorders, it remains poorly understood and is considered incurable. (Autoimmune disorders are thought to arise when the immune system attacks healthy tissue, mistaking it for a threat.) The standard treatments for Crohn’s often don’t work, or work only temporarily, and many have serious side effects. When the disease cannot be managed by drugs, surgery to remove part of the colon is often the only option. Gravel, who is thirty-nine, is slight and mild-mannered, with delicate features and floppy brown hair. He had endured nearly three years of debilitating symptoms, as well as a shifting regimen of enemas, suppositories, shots, supplements, and, for several months, intravenous infusions of Remicade, a potent immunosuppressant, at a cost of more than twelve thousand dollars each. “I would tell my wife in the morning, ‘I’m getting out my arsenal,’ ” Gravel told me. Even so, blood tests continued to show high levels of inflammation. His daily life was governed by calculations of proximity to the nearest rest room. “I’d get nervous if I had to go to the bank,” he said. The checkout line at Whole Foods was an ordeal.  His mother showed him an article from the Times about a man who had been nearly bedridden by ulcerative colitis—a condition related to Crohn’s—and who had largely recovered after a month or so of fecal transplants. Gravel found a how-to book on Amazon and bought the recommended equipment: a blender, a rectal syringe, saline solution, surgical gloves, Tupperware containers. His wife agreed to be his donor.His doctor was unable to offer advice, saying that too little was known about fecal transplants. Nor could he legally provide the procedure. The Food and Drug Administration regards fecal transplantation as an experimental treatment, and doctors must apply to the agency for permission before offering it to Crohn’s patients.

The Red Cross CEO Has Been Serially Misleading About Where Donors’ Dollars Are Going - The American Red Cross regularly touts how responsible it is with donors' money. "We're very proud of the fact that 91 cents of every dollar that's donated goes to our services," Red Cross CEO Gail McGovern said in a speech in Baltimore last year. "That's world class, obviously." McGovern has often repeated that figure, which has also appeared on the charity's website. "I'm really proud" that overhead expenses are so low, she told a Cleveland audience in June.The problem with that number: It isn't true. After inquiries by ProPublica and NPR, the Red Cross removed the statement from its website. The Red Cross said the claim was not "as clear as it could have been, and we are clarifying the language."The Red Cross declined repeated requests to say the actual percentage of donor dollars going to humanitarian services.But the charity's own financial statements show that overhead expenses are significantly more than what McGovern and other Red Cross officials have claimed. In recent years, the Red Cross' fundraising expenses alone have been as high as 26 cents of every donated dollar, nearly three times the nine cents in overhead claimed by McGovern.

A Global Health Care Spending Slowdown - The growth in health care spending has been putting pressure on government budgets all over the world, and in the U.S., it puts pressure on household budgets, too. However, the rise in U.S. healthcare costs has slowed in the last few years, which has led to a dispute. Is the slowdown in health care spending mainly a reflection of the Great Recession and the sluggish economic growth that has followed? Or does it represent the start of a potentially long-run slowdown in rising health care costs? Partisans of the Obama administration, like the White House Council of Economic Advisers, like to argue that the Patient Protection and Affordable Care Act of 2010 may be an important part of slowing down health care costs, too.  As I've argued in the past (here and here), U.S. health care spending seemed to slow down in the mid-2000s, well before any cost-constraining measures of the 2010 legislation could take effect. In addition, the slowdown in health care costss has been international, which suggests that changes in U.S. law are not the driving factor. In the December 2014 issue of Finance & Development, Benedict Clements, Sanjeev Gupta, and Baoping Shang offer more explanation on the international dimensions of health care costs in high-income countries in their article, "Bill of Health." Here is there figure showing the pattern of health care spending across OECD countries in the last few decades. Notice that there are several times when it looks as if health care costs are slowing for a few years, before they start rising again.

Ebola Death Toll Climbs to Nearly 7,000: WHO --New data released by the World Health Organization on Wednesday reveals that 6,802 people have died from the Ebola virus. There have been 16,169 suspected, probable or confirmed cases in the three West African nations most severely affected by the outbreak, according to the health agency. All but 15 Ebola-related deaths have taken place in Sierra Leone, Liberia and Guinea, reports NBC.WHO cautions that its current figures may vastly underestimate the actual death toll from the deadly virus. The Centers for Disease Control and Prevention (CDC) believes that the actual number is somewhere between two and four times the number published by WHO. Experts warn that infection rate statistics are of the utmost concern, however, because they represent how quickly the virus is spreading.  Of those three nations, Liberia has seen the sharpest increase in the death toll from Ebola, with more than 1,000 new occurences of the highly contagious disease since WHO published its most recent data last Wednesday. Liberia has also seen the most fatalities.  It remains unclear what's behind the recent increase in deaths, but a spokesman told The Wall Street Journal that the discrepancy may not have been due to a new outbreak, but rather to previously unreported deaths now being accounted for. Local authorities and agencies have not been equipped to handle the outbreak, and WHO has said that they haven’t been able to process paperwork, including death certificates, as quickly as the statistics change.

Despite Aid Push, Ebola Is Raging in Sierra Leone - While health officials say they are making headway against the Ebola epidemic in neighboring Liberia, the disease is still raging in Sierra Leone, despite the big international push. In November alone, the World Health Organization has reported more than 1,800 new cases in this country, about three times as many as in Liberia, which until recently had been the center of the outbreak.More than six weeks ago, international health officials conceded that they were overwhelmed in Sierra Leone and reluctantly announced a Plan B. Until enough hospital beds could be built here, they pledged to at least help families tend to their sick loved ones at home.The health officials admitted Plan B was a major defeat, but said the approach would only be temporary and promised to supply basics like protective gloves, painkillers and rehydration salts.Even that did not happen in Isatu’s case. Nobody brought her food. Nobody brought her any rehydration salts or Tylenol. No health workers ever talked to her about who she might have touched, which means anyone directly connected to her could now be walking through Freetown’s teeming streets, where — despite the government’s A.B.C. campaign, Avoid Body Contact — people continue to give high fives, hug and kiss in public.

Ebola cases surge in Sierra Leone - Ebola continues to surge in Sierra Leone, with the number of cases quintupling in Freetown alone in the past two months, according to new figures. The latest health ministry figures come as the World Health Organisation (WHO) admits it has not met a goal set in early October to get the disease under control by isolating 70% of cases by 1 December. Only Guinea is on track to meet the goal, according to an update from WHO. In Liberia, only 23% of cases are isolated and 26% of the needed burial teams are in place. In Sierra Leone, about 40% of cases are isolated. Figures for Sierra Leone published over the weekend show that the number of confirmed cases in Freetown now stands at 2,052, almost 200 of those over the past weekend. There are also concerns about the escalation in infection rates in Port Loko, a district contiguous to the capital that has recorded 860 cases, up from 295 on 1 October. Bombali, home of Makeni, the third biggest town in Sierra Leone, has 807 cases to date. Koinodugu, a province that prided itself on being Ebola-free until one infected man crossed the border into the Nenei chiefdom in October, has recorded 84 cases as a result. Overall, the number of cases in the country looks set to eclipse 6,000 once the figures for 30 November are published, with deaths exceeding 1,500 on Saturday with a total of 1,522.

Ebola: The economic damage is mounting  - This year’s Ebola outbreak has been a heart-wrenching humanitarian tragedy. Almost 6,000 people, all but a handful in West Africa, are dead, according to the WHO. But it has also been an economic catastrophe for the three main affected countries of Guinea, Liberia and Sierra Leone, as the World Bank lays out today in its latest update on the situation. The Bank now says it expects the economies in Guinea and Sierra Leone to actually contract in 2015 after slowing significantly this year. It also offers a daunting picture of the fiscal cost of the outbreak which it puts at $500m. Before the Ebola outbreak the World Bank expected Guinea’s economy to grow by 4.5 per cent (see chart, left) but now sees a growth rate of 0.5 per cent this year and -0.2 per cent in 2015. It expected Liberia’s economy to grow 5.9 per cent before the outbreak but now sees a growth rate of 2.2 per cent this year and a rebound to 3 per cent in 2015. The reason the World Bank gives for its upward revision of the 2015 forecast from 1 per cent in October to 3 per cent in December is a sense that the disease is abating in the country. In Sierra Leone, the situation is more dramatic. The bank sees a decline from a pre-Ebola projected 2014 GDP growth rate of 11.13 per cent to 4 per cent now. Next year, it sees growth slumping to -2.0 per cent, the lowest among those African countries hit hardest by the disease. If the forgone income across all three countries is added together, it would reach well over $2bn, the World Bank says. That breaks down into over $250m Liberia, about $1.3bn for Sierra Leone, about $800m for Guinea.

Visualizing Peak Population -- Based on a recent UN study, by 2100, our global population is predicted to be between 9.6 and 12.3 billion people. The world will be much different than we know it today in the future. For starters, the vast majority of growth will happen in the less developed regions of the world. As an example, Nigeria’s population will increase five-fold, from around 174 million today to almost a billion people. It will likely be the 3rd most populous country behind India and China in 2100. Sub-Saharan Africa as a whole could hold up to almost half of the world’s population in the future. While population has exploded exponentially, unfortunately the resources on our planet are finite. The ecological term for this is “carrying capacity”, which is the maximum population that an environment and resources can sustain indefinitely. Human carrying capacity is very complex and takes into account many factors, including nutrients, fresh water, environmental conditions, space, technology, medical care, and sanitation. The carrying capacity for humans is not static, and can be changed by adding or subtracting resources from the ecosystem. While technology has saved the human race time after time, we have not yet found ways to address many of the problems tied to overpopulation such as consumption, changes to climate, inequality, and scarcity of resources.

The Leftovers We Toss - No matter how fond we are of turkey Monte Cristo sandwiches or even turkey tamales, there comes a time when even the most beloved Thanksgiving leftovers—yes, even grandma's cornbread stuffing—must make their way into the garbage. For most Americans, that time will come sometime this week, if it hasn't already. Thanksgiving remnants are just one drop in the American food-waste bucket, though. The amount of food we throw away year-round is adding up to be a bit of a problem. According to the Environmental Protection Agency, food scraps make up 20 percent of our landfills, and each year Americans toss 35 million tons of uneaten groceries. That's nearly enough to feed the population of California. Americans throw away 31 percent of all tomatoes they buy  Restaurants and businesses are responsible for about half of food waste, and consumers for the other half, according to the EPA. All that garbage costs American households $124 billion each year. So what are we most likely to dispose of? Fresh fruits and vegetables, which tend to give up the ghost rather quickly, are one major culprit. Americans throw away 31 percent of all tomatoes they buy, for example, or 21 tomatoes per year per person. Here's a more detailed breakdown, via the USDA's food-loss estimates among consumers for 2010:

Where Grass Is Greener, a Push to Share Drought’s Burden - In these hills overlooking San Diego, the only indication of the continuing drought — now among the worst in California’s recorded history — is the perpetually cloudless sky. Private lemon groves hark back to the area’s agricultural past, before it became home to some of Southern California’s wealthiest residents; horses roam through grassy pastures; palatial homes are surrounded by rolling grass lawns and, in at least one case, a three-hole putting green owned by the golfer Phil Mickelson. And all that greenery sucks down hundreds of gallons of water each day. Three years into the drought, residents of this area are using more water than those in any other part of California. According to data released this month by state water officials, residents of the Santa Fe Irrigation District used an average of 584 gallons a day in September, nearly five times the average for coastal Southern California. The district encompasses Rancho Santa Fe, the wealthy gated community of Fairbanks Ranch and the more densely populated city of Solana Beach. The lawns and horse pastures here offer a stark reminder that, although drought has blanketed the entire state, the burdens of the dry reservoirs have hardly been spread evenly. As people in low-income corners of the San Joaquin Valley cope with dry taps and toilets they cannot flush, life has continued almost exactly as before in much of California, where the water supply still seems endless.Water managers are trying to fight that complacency. “This isn’t Connecticut — you can’t just roll out lawn endlessly,” said Michael J. Bardin, the general manager of the Santa Fe Irrigation District. “The whole mind-set about using water needs to be addressed. That’s a challenge, as a community that uses a lot of water. If you have a $10 million home, you want to invest in your landscape.”In part, the high per-capita water consumption here is easy to explain: Properties are larger than almost anywhere else, many of them at least three acres, so their grounds demand more water.

California drought the worst in 1,200 years, new study says -  The last three years of drought were the most severe that California has experienced in at least 1,200 years, according to a new scientific study published Thursday. The study provides the state with breathtaking new historical context for its low reservoirs and sinking water tables, even as California celebrated its first good soaking of the season. Analyzing tree rings that date back to 800 A.D. -- a time when Vikings were marauding Europe and the Chinese were inventing gunpowder -- there is no three-year period when California's rainfall has been as low and its temperatures as hot as they have been from 2012 to 2014, the researchers found."We were really surprised. We didn't expect this," said one of the study's authors, Daniel Griffin, an assistant professor in the University of Minnesota's department of geography, environment and society. The report, published in the journal of the American Geophysical Union, was written by researchers at Massachusetts' Woods Hole Oceanographic Institution and the University of Minnesota. The scientists measured tree rings from 278 blue oaks in central and southern California. Tree rings show the age of trees, and their width shows how wet each year was because trees grow more during wet years. The researchers compared the information to a database of other tree ring records from longer-living trees like giant sequoias and bristlecone pines, dating back 1,200 years.

Of Fish and Farmers - The Delta smelt is a tiny, steel-colored fish. Stretched across an open hand, it barely spans the width of four fingers. The fish lives only in the San Francisco Bay Delta, hatching in early spring and spawning a year later. A female lays 1,200 to 2,600 eggs and then dies. A single smelt will inhabit the earth for 1/85th of your probable lifetime. Over millions of fish generations the smelt, those gleaming silver scraps, have evolved north of the Central Valley in the San Francisco Bay Delta, an estuary that exists where the San Joaquin and Sacramento rivers meet. The smelt were once the most abundant species in the estuary, and this is the only place in the world where they exist. Today, the rivers they swim are studded with cement blockades, squat buildings stretching from bank to bank. The buildings house government-operated pumps that, in most years, suck water from the Delta and carry it to the plains you drive through now, the farms of the Central Valley. Inside the plant close to Tracy, which you’ll pass near as you enter San Francisco, the pumps thrust out of the floor. They are rings of metal 15 feet across, painted green, each capable of guzzling 500,000 gallons of water, and the fish that swim in that water, every minute.

Shark Finning Kills 100 Million Sharks a Year, International Commission Fails to Address Crisis -- After a meeting in Genoa, Italy on Nov. 17, the International Commission for the Conservation of Atlantic Tunas (ICCAT) failed to implement a U.S.-proposed measure to eliminate the practice of shark finning. . This is the sixth year a measure against shark finning has been proposed at the annual ICCAT conference, and the repeated failures are beginning to worry those opposed to shark finning. The repeated failures of bans on shark finning are suspected to be caused by the continued demand for shark fin soup, which fuels a multi-billion dollar industry in China and other parts of Asia. Every year, some 100 million sharks are killed to make shark fin soup, a Chinese delicacy served primarily at weddings and on special occasions like holidays and birthdays. The sharks are “finned,” a process that involves cutting off all of their fins and then tossing the bodies—still alive—back into the sea. The sharks sink to the bottom of the sea and, because they must swim in order to pass water over their gills, they suffocate.  Sharks are considered a keystone species, and thus, cannot be replaced by any other animal when removed from the ecosystem. Without sharks to regulate other species of predator fish, the number of prey species in the ecosystem is impacted. This causes a complete disruption of the ocean ecosystem, causing the population of many fish species to plummet, including many species of fish that we eat regularly such as tuna. Sharks also have very low birth rates, as they do not mature in some species, such as the Great White, until 15 years of age, making the process of finning even more decimating to their populations as a whole.

Eating less meat essential to curb climate change, says report --  Curbing the world’s huge and increasing appetite for meat is essential to avoid devastating climate change, according to a new report. But governments and green campaigners are doing nothing to tackle the issue due to fears of a consumer backlash, warns the analysis from the thinktank Chatham House. The global livestock industry produces more greenhouse gas emissions than all cars, planes, trains and ships combined, but a worldwide survey by Ipsos MORI in the report finds twice as many people think transport is the bigger contributor to global warming. “Preventing catastrophic warming is dependent on tackling meat and dairy consumption, but the world is doing very little,” said Rob Bailey, the report’s lead author. “A lot is being done on deforestation and transport, but there is a huge gap on the livestock sector. There is a deep reluctance to engage because of the received wisdom that it is not the place of governments or civil society to intrude into people’s lives and tell them what to eat.” The recent landmark report from the Intergovernmental Panel on Climate Change found that dietary change can “substantially lower” emissions but there is no UN plan to achieve that. Past calls to cut meat eating by high-profile figures, from the chief of the UN’s climate science panel to the economist Lord Stern, have been both rare and controversial. Other scientists have proposed a meat tax to curb consumption, but the report concludes that keeping meat eating to levels recommended by health authorities would not only lower emissions but also reduce heart disease and cancer. “The research does not show everyone has to be a vegetarian to limit warming to 2C, the stated objective of the world’s governments,” said Bailey.

Bangladesh farmers turn back the clock to combat climate stresses: - Indigenous varieties of rice are making a comeback in Bangladesh as farmers abandon high-yielding hybrid rice in favour of more resilient varieties that can cope with more extreme climate conditions, researchers say. About 20 percent of the rice fields planted in the low-lying South Asian nation now contain indigenous varieties that can stand up to drought, flooding or other stresses,  At its peak, high yielding varieties of rice accounted for 90 percent of total rice grown in Bangladesh. "In places where newly invented varieties fail to cope with stresses, farmers cultivate local varieties," Bangladesh's government first introduced high-yielding rice in the 1960s, in an effort to promote food security and meet rising demand,  Over time, most farmers adopted the new varieties, which brought in higher incomes. But in recent years, as climate change has brought more irregular rainfall - including worsening floods and droughts - farmers have had more difficulty producing consistent crops of high-yielding varieties. That has led to a growing share of farmers returning to more resilient varieties capable of coping with the extreme conditions, or planting both old and new varieties side by side.

Central American Civil Society Calls for Protection of Local Agriculture at COP20 - Worried about the effects of global warming on agriculture, water and food security in their communities, social organisations in Central America are demanding that their governments put a priority on these issues in the COP20 climate summit. In the months leading up to COP20 – the 20th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) – civil society in Central America has met over and over again to reach a consensus position on adaptation and loss and damage. These, along with mitigation, are the pillars of the negotiations to take place in Lima the first 12 days of December, which are to give rise to a new climate change treaty to be signed a year later at COP21 in Paris. “Central American organisations working for climate justice, food security and sustainable development are trying to share information and hammer out a common position,” Tania Guillén, who represents Nicaragua’s Humboldt Centre environmental group at the talks, told IPS. That consensus, in one of the regions of the world most vulnerable to global warming, will serve “to ask the governments to adopt positions similar to those taken by civil society,” said the representative of the Humboldt Centre, a regional leader in climate change research and activism. Guillén said the effort to hold a Central American dialogue “is aimed at guaranteeing that adaptation will be a pillar of the new accord, and there is a good climate for that.”

Water War Amid Brazil Drought Leads to Fight Over Puddles - Brazil’s Jaguari reservoir has fallen to its lowest level ever, laying bare measurement posts that jut from exposed earth like a line of dominoes. The nation’s two biggest cities are fighting for what little water is left. Sao Paulo state leaders want to tap Jaguari, which feeds Rio de Janeiro’s main source. Rio state officials say they shouldn’t suffer for others’ mismanagement. Supreme Court judges have summoned the parties to Brasilia for a mediation session this week. The standoff in a nation with more water resources than any other country in the world portends further conflicts as the planet grows increasingly urban. One in three of the world’s 100 biggest cities is under water stress, according to The Nature Conservancy, a U.S.-based nonprofit. “It’s unusual in that it’s two very large cities facing what could be a new, permanent conflict over the allocation of water,” said Peter Gleick, president of the Pacific Institute, a research organization in Oakland, California. “It’s a wake-up call that even places we think of as water-rich have to learn to do a better job of managing what’s ultimately a scarce resource. Nature doesn’t always cooperate with us.”

Brazil's epic water crisis a global wake-up call: One of the world's biggest cities is running out of water. Sao Paulo, a city of 20 million people, could run dry within weeks. The humanitarian and economic cost would be immense. The fiasco should be a global wake-up call for other metropolises. The immediate cause of the crisis is a year-long drought. The Cantareira reservoir system that supplies around a third of the city's population is so low that Sabesp, the local utility, has to dip into and treat sediment-heavy supplies and pipe water in from other sources. It's the worst dry spell in the region since record-keeping began more than 80 years ago. Other parts of Sao Paulo state and Brazil have been hit, too, though not as harshly. It may look like an aberration, but the planning for the disaster has been poor - and offers important lessons. Sabesp has not introduced any rationing - at least not formally. It has slashed reservoir extraction by a third, cut pump pressure at night and offered discounts to frugal customers. But, regrettably, the "R" word remains taboo. The government, meanwhile, shied away from suggesting mandatory rationing during last month's presidential elections. That turned the shortage into a political battleground, which is no way to solve a crisis. Longer-term planning has fallen short, too. Some of the infrastructure is creaky. Leakage rates are between 30 percent and 40 percent.

Major deltas 'could be drowned' -- Half a billion people live in deltas, but the newly published research suggests many of these areas are set to be inundated by rising seas.   Some of the lowest lying, including the Mekong and Mississippi, are particularly vulnerable. The paper is published in the journal Nature. Lead researcher Dr Liviu Giosan, from Woods Hole Oceanographic Institution in Massachusetts, said dams and other river engineering had exacerbated the problem by reducing the amount of sediment rivers could carry.  In an article he said was "a call to action before it's too late", Dr Giosan said rivers were losing the fight between land and sea.  Deltas such as that of the Irrawaddy River represent a fight between the land and the sea, with rivers depositing sediment and the sea washing it away "Rivers produce sediment by eroding the land, and the sea [washes away] that sediment," he told BBC News. A delta is the result of a river producing sediment faster than the sea can remove it, resulting in expanses of fertile, flat land. These are home to some of our most sprawling megacities, including Shanghai, Dhaka and Bangkok.  And where they are left pristine, they are also sites of great biodiversity. One of the world's better preserved deltas, for example - the Danube - is the most extensive wetland in the European Union and a global biodiversity hotspot.

Australia has hottest spring on record as temperatures soar: November was the hottest month and ended the hottest spring on record for Australia, meteorologists say. The soaring temperatures are part of a trend putting the world on track for the warmest year on record. Maximum temperatures were warmer than average across nearly the entire continent, according to the Australian Bureau of Meteorology (BoM). Nine of the warmest springs on record occurred since 2002, said BoM Manager of Climate Monitoring Karl Braganza. "Australia has been warming up, by about 0.9C since 1910," Dr Braganza told the BBC. Australian temperature records go back to 1910. "There were two really significant heat waves on the east [of Australia] and there were a couple of [heatwave] duration records," he said. A 13-day stretch of above-40C weather ended on 25 November in Longreach in north-west Queensland. It was some of the hottest weather in living memory for the Queensland town. "In the past couple of years, we have seen heatwaves starting earlier in the season," said Dr Braganza.  Spring 2014 was the warmest on record for Australia for the second year running. Both mean temperatures and maximum temperatures were highest on record for the season. Spring rainfall for Australia as a whole was 34% below the long-term mean.

Mercury Rising: 2014 Likely to Surpass 2010 as Warmest Year on Record -- The monthly global analysis for October has been released at NOAA's National Climatic Data Center (NCDC) and it reveals that global surface temperature for October 2014 is the warmest October in 135 years of record-keeping. This follows on from the 2nd warmest April, and the warmest May, June, August, and September, ever recorded. In fact the first 10 months of 2014, January to October, are the warmest such period ever recorded, and 2014 is very likely to end up as the warmest year - taking over the title from the previous record year in 2010. Other surface temperature data sets, such as NASA GISTEMP and the Japan Meteorological Agency, also have 2014 on pace to break the annual record.  With two complete months of data yet to come, it may appear premature in declaring 2014 a likely record-breaker, but 2014 is different to the evolution in surface temperature during 2010 - the previous record holder. Record warm years are typically associated with the development of El Niño events, whereas in 2014 El Niño is yet to even put in an appearance. . El Niño typically builds up mid-year, peaks December-January, and then winds down the following year. The 2010 record occurred in the 2nd calender year of an El Niño event and surface temperatures fell throughout that year after April-May. In comparison, 2014 has seen warming from March onwards. 2014 and 2010 are on two contrasting trajectories; a mostly cooling trend in 2010, and a general warming trend in 2014.

2014 To Be Hottest Year Ever Measured - Scientific American: This year will likely be the hottest on record for the planet, with global temperatures 1.03 degrees Fahrenheit higher than the 1961-to-1990 average, according to a new report from the World Meteorological Organization. This would make 2014 the 38th consecutive year with an anomalously high annual global temperature. The estimate comes from the WMO's annual compendium on the "Status of the Global Climate." This year's report was released during the U.N. climate talks in Lima, Peru, where diplomats are negotiating a new global climate deal to be signed in Paris next year. The report uses data from the National Oceanic and Atmospheric Administration, NASA and the United Kingdom's Met Office. To place the findings in a historical context, scientists usually compare temperatures with "normal" temperatures averaged over a 30-year stretch, usually 1961 to 1990. Driving the temperature rise in 2014 were the oceans -- the Pacific, the polar and subtropical north Atlantic, parts of the south Atlantic, and the Indian Ocean all experienced the warmest temperatures ever recorded. Global sea surface temperatures were 0.45 degree Celsius above the 1961-90 normal. On land, temperatures were 0.86 C above normal. Notable heat waves were recorded in South Africa and Tunisia. High temperatures were recorded in Arctic regions of Russia, particularly in the spring.  Meanwhile, the Antarctic set a high record for ice cover, covering 560,000 square kilometers more than the previous record set in 2013. Scientists are studying the Antarctic to understand why its sea ice extent has been growing since 1979.

E.P.A. Ozone Rules Divide Industry and Environmentalists - — The Obama administration on Wednesday announced a long-delayed environmental regulation to curb emissions of ozone, a smog-causing pollutant linked to asthma, heart disease and premature death.The sweeping regulation, which are aimed at smog caused by power plants and factories across the country, particularly in the Midwest, is the latest in a series of Environmental Protection Agency controls on air pollution that wafts from smokestacks and tailpipes. Such regulations, released under the authority of the Clean Air Act, have become a hallmark of President Obama’s administration. Environmentalists and public health advocates have praised the E.P.A. rules as a powerful environmental legacy. Republicans, manufacturers and the fossil fuel industry have sharply criticized them as an example of costly government overreach. The National Association of Manufacturers has called the proposal “the most expensive regulation ever.”The proposed regulation would lower the current threshold for ozone pollution to a range of 65 to 70 parts per billion, from 75 parts per billion. That range is less stringent than the standard of 60 parts per billion sought by environmental groups, but the E.P.A. proposal would also seek public comment on a 60 parts-per-billion plan, keeping open the possibility that the final rule could be stricter.The agency estimates that the new regulation would by 2025 prevent from 320,000 to 960,000 asthma attacks in children, and from 330,000 to 1 million missed school days. It also estimates that by 2025 the rule would prevent 750 to 4,300 premature deaths, 1,400 to 4,300 asthma-related emergency room visits and 65,000 to 180,000 missed workdays.

Obama administration sets stricter smog standard - Al Jazeera America: The Obama administration took steps Wednesday to cut levels of smog-forming pollution linked to asthma, lung damage and other health problems, making good on one of the president’s original campaign promises while setting up a fresh confrontation with Republicans and the energy industry. In a long-awaited announcement, the Environmental Protection Agency (EPA) said it prefers a new, lower threshold for ozone pollution of 65 to 70 parts per billion, but left open the possibility it could enact an even lower standard of 60 parts per billion sought by environmental groups. The current standard is 75 parts per billion, put in place by President George W. Bush in 2008. Meeting the stricter rules will cost industry about $3.9 billion in 2025 if the government goes with a standard of 70 parts per billion, the EPA estimated. At a level of 65 parts per billion, the EPA said, the cost grows to $15 billion. But industry groups said the cost would actually be far higher and that it would be nearly impossible for refineries and other businesses to comply. Pushing back on those claims, EPA Administrator Gina McCarthy said lower ozone standards would actually spur more businesses, investment and jobs by making communities healthier. She said states would be given time to carefully design plans to meet the new standard over the coming decades.

Air pollution costs Britain £10bn a year, report shows - Britain has 10 of Europe’s top 50 “super-polluting” power stations and factories, helping to cost it more in health and environmental impacts than any other countries, except for Germany and Poland. New air pollution figures from the European environment agency (EEA) suggest  suggest that a handful of power stations and industrial plants together cost the National Health Service and the wider UK economy over £10bn a year. Of over 14,000 major industrial plants identified in Europe’s 27 countries, Drax power station in Selby and the Longannet plant at Kincardine in Scotland were ranked respectively 5th and 10th between 2008-2012. Drax’s air pollution is calculated to have cost the economy £2.7-£6.34bn and Longannet £1.8-4.56bn. The Corus steel works in Redcar ranked 27th in Europe with Alcan Aluminium in Co Durham 34th. The 10 biggest British plants together were calculated to have at cost at least £12.6bn in air pollution damages between 2008-2012. Eight of the 30 biggest sources of air pollution were in Germany, six in Poland, four in Romania and three each in Bulgaria and the Britain. Half of all the health and environmental costs were said to be caused by just 1% of the industrial plants, said the report.

Atmospheric Lifetime of Fossil Fuel Carbon Dioxide: Abstract: CO2 released from combustion of fossil fuels equilibrates among the various carbon reservoirs of the atmosphere, the ocean, and the terrestrial biosphere on timescales of a few centuries. However, a sizeable fraction of the CO2 remains in the atmosphere, awaiting a return to the solid earth by much slower weathering processes and deposition of CaCO3 . Common measures of the atmospheric lifetime of CO2 , including the e-folding time scale, dis- regard the long tail. Its neglect in the calculation of global warming po- tentials leads many to underestimate the longevity of anthropogenic global warming. Here, we review the past literature on the atmospheric lifetime of fossil fuel CO2 and its impact on climate, Eg., those who cite a 100 year lifetime, are counting the absorption of CO2 molecules by the ocean, but not counting the release of previously absorbed CO2 molecules from the ocean back into the atmosphere. And they don't take into account that processes that remove CO2 from the air, such as absorption by the ocean, will slow in the future, as they become saturated with CO2 or used up by reactions with CO2.

NASA: Alaska Shows No Signs of Rising Arctic Methane | NASA: Despite large temperature increases in Alaska in recent decades, a new analysis of NASA airborne data finds that methane is not being released from Alaskan soils into the atmosphere at unusually high rates, as recent modeling and experimental studies have suggested. The new result shows that the changes in this part of the Arctic have not yet had enough impact to affect the global methane budget. This is important because methane is the third most common greenhouse gas in the atmosphere, after water vapor and carbon dioxide. Although there is much less of it in the air, it is 33 times more effective than carbon dioxide at trapping heat in the atmosphere and adding to greenhouse warming. High concentrations of atmospheric methane have been measured at individual Arctic sites, especially in Siberia. This adds to the concern that massive methane releases are already occurring in the far North. NASA's multiyear Carbon in Arctic Reservoirs Vulnerability Experiment (CARVE) is the first experiment to establish emission rates for a large region of the Arctic. In the new study, researchers analyzed methane measurements made over Alaska from May through September 2012 during the first season of CARVE. They estimated emission rates for the winter months, during most of which no methane was released because the soil was frozen. Alaska composes about one percent of Earth's total land area, and its estimated annual emissions in 2012 equaled about one percent of total global methane emissions. That means the Alaskan rate was very close to the global average rate.

A Huge Antarctic Ice Sheet Is Melting Three Times Faster Than Previously Thought -  A West Antarctic ice sheet that is roughly the size of Texas is losing the amount of ice equivalent to Mount Everest every two years, representing a melt rate that has tripled over the last decade, according to new research to be published in the journal Geophysical Research Letters on Friday.  To get their results, scientists from the University of California-Irvine and NASA analyzed more than 20 years worth of data representing what’s called the “mass balance” of glaciers in the Amundsen Sea Embayment, an ice sheet that flows into the Amundsen sea. The “mass balance” measurement takes into account the fact that glaciers gain and lose ice over time, and measures the average. What they found was staggering: The glaciers in the Amundsen Sea Embayment are averaging a loss of 83 gigatons, or 91.5 billion U.S. tons, of ice per year — a rate that has accelerated by an average of 6.7 billion tons every year since 1992.

Antarctic sea ice expands to record extent - and it's deeper than we thought - The Ecologist: While the Arctic melts, Antarctica's ice has spread to record extents in three consecutive years, writes Edward Hanna. But is the news as good as it looks? Yes, if indications from a robot submarine that the ice is thicker than expected are supported by further evidence. It may just be that Antarctica's ice is more resilient than scientists dared to hope. If the results are confirmed by future work, they suggest Antarctic sea-ice may be more resilient towards climate warming than has previously been appreciated. For several years now climatologists have puzzled over an apparent conundrum: why is Antarctic sea ice continuing to expand, albeit at the relatively slow rate of about one to two percent per decade, while Arctic sea ice has been declining rapidly - by some 13% per decade in late summer? Just a few weeks ago the Antarctic saw a third consecutive record year of sea ice coverage. The two previous records were set in 2012 and 2013. To help get to the bottom of this mystery, one team of scientists have enlisted an underwater robot to help measure the thickness of the ice. Their vehicle, known as SeaBED, has an upwards looking sonar which maps the underside of ice floes and provides novel, highly-detailed three-dimensional maps of Antarctic sea ice. The researchers present their findings in the journal Nature Geoscience.  Measuring a total of ten ice floes covering more than 500,000 square metres, they found mean ice thicknesses of 1.4 to 5.5 metres. In some places the ice was up to 16 metres thick.

Warming Seas Drive Rapid Acceleration of Melting Antarctic Ice -- Melting Antarctic glaciers that are large enough to raise worldwide sea level by more than a meter are dropping a Mount Everest's worth of ice into the sea every two years, according to a study released this week. A second study, published Thursday in the journal Science, helps explain the accelerating ice melt: Warm ocean water is melting the floating ice shelves that hold back the glaciers. The two new pieces of research come as officials of the World Meteorological Organization announced Wednesday that 2014 is on track to be the warmest year on record. Scientists have long worried that the West Antarctic ice sheet is a place where climate change might tip toward catastrophe. The ice sheet holds enough water to raise sea level by 16 feet (5 meters). The region along the Amundsen Sea is the sheet's soft underbelly, where the ice is most vulnerable. (See "Rising Seas" in National Geographic magazine.)  Earlier this year, researchers at the University of California, Irvine and NASA's Jet Propulsion Laboratory reported that the glaciers flowing into the Amundsen Sea—notably the Pine Island and Thwaites Glaciers—were already doomed to collapse, and at the current rate of melting would be gone in 200 years. A study released Tuesday by members of the same team, published in Geophysical Research Letters, confirms those troubling measurements with ones made by other researchers using a total of four different techniques.

How Climate Change Has Altered Life On Earth - (AP) — In the more than two decades since world leaders first got together to try to solve global warming, life on Earth has changed, not just the climate. It's gotten hotter, more polluted with heat-trapping gases, more crowded and just downright wilder. The numbers are stark. Carbon dioxide emissions: up 60 percent. Global temperature: up six-tenths of a degree. Population: up 1.7 billion people. Sea level: up 3 inches. U.S. extreme weather: up 30 percent. Ice sheets in Greenland and Antarctica: down 4.9 trillion tons of ice. "Simply put, we are rapidly remaking the planet and beginning to suffer the consequences," says Michael Oppenheimer, professor of geosciences and international affairs at Princeton University. Diplomats from more than 190 nations opened talks Monday at a United Nations global warming conference in Lima, Peru, to pave the way for an international treaty they hope to forge next year. To see how much the globe has changed since the first such international conference — the Earth Summit in Rio de Janeiro in 1992 — The Associated Press scoured databases from around the world. The analysis, which looked at data since 1983, concentrated on 10-year intervals ending in 1992 and 2013. This is because scientists say single years can be misleading and longer trends are more telling. Our changing world by the numbers:

Some climate change impacts unavoidable: World Bank (Reuters) - Some future impacts of climate change, such as more extremes of heat and sea level rise, are unavoidable even if governments act fast to cut greenhouse gas emissions, the World Bank said on Sunday. Past and predicted emissions from power plants, factories and cars have locked the globe on a path towards an average temperature rise of almost 1.5 degrees Celsius (2.7 Fahrenheit) above pre-industrial times by 2050, it said. "This means that climate change impacts such as extreme heat events may now be simply unavoidable," World Bank President Jim Yong Kim told a telephone news conference on the report, titled "Turn down the Heat, Confronting the New Climate Normal." "The findings are alarming," he said. Sea levels would keep rising for centuries because vast ice sheets in Greenland and Antarctica thaw only slowly. If temperatures stayed at current levels, seas would rise 2.3 metres (7 ft 6 in) in the next 2,000 years, the report said. Average temperatures have already risen by about 0.8 degree(1.4F) since the Industrial Revolution, it said. "Dramatic climate changes and weather extremes are already affecting millions of people around the world, damaging crops and coastlines and putting water security at risk,"

Climate change will slow China's progress in reducing infectious diseases - China has made significant progress increasing access to tap water and sanitation services, and has sharply reduced the burden of waterborne and water-related infectious diseases over the past two decades. However, in a study published in the latest edition of Nature Climate Change, researchers from Emory University found that climate change will blunt China's efforts at further reducing these diseases in the decades to come. The study found that by 2030, changes to the global climate could delay China's progress reducing diarrheal and vector-borne diseases by up to seven years. That is, even as China continues to invest in water and sanitation infrastructure, and experience rapid urbanization and social development, the benefits of these advances will be slowed in the presence of climate change. Using data drawn from multiple infectious disease surveillance systems in China, the study, led by Justin V. Remais, PhD, associate professor of environmental health at Emory's Rollins School of Public Health, provides the first estimates of the burden of disease due to unsafe water, sanitation and hygiene in a rapidly developing society that is subjected to a changing climate. Remais' team, including colleagues at the University of Florida, the University of Colorado, the Pacific Northwest National Laboratory, the Chinese Center for Disease Control and Prevention, and the Chinese Academy of Sciences, found that changes to global temperature can substantially delay China's heretofore rapid progress towards decreasing the burden of diarrheal and vector-borne diseases. The authors accounted for changes in China's population structure, the ongoing migration of China's population, and the country's rapid investment in water and sanitation infrastructure.

As Mexico Addresses Climate Change, Critics Point to Shortcomings - Faced with the growing threat of extreme weather — droughts, hurricanes and rising coastal waters — Mexico has positioned itself as a leader in the fight against climate change. It pledges to curb the rise in emissions significantly by 2020 and to produce one-third of its energy from clean sources by 2024. Mexico, the world’s 13th-biggest emitter of carbon dioxide, has passed a stack of federal and state laws that regulate emissions, promote sustainable forest management and establish funds for renewable energy and energy efficiency. In 2012, it became one of the first countries in the world to pass a climate change law. But as world leaders meet in Lima, Peru, this week to lay the groundwork for a new agreement under the United Nations Framework Convention on Climate Change, some analysts doubt that Mexico can meet its much-lauded targets.“Mexico put on the climate change T-shirt because it was in vogue,”. “We are the champions of the climate change fight — the good boy who does his homework — but the resources dedicated to climate change are few.” The government introduced a carbon tax in January that levies an average of $3 per ton of carbon, and Mexico’s stock exchange started a platform to trade carbon credits last year.Mexico has also been among the most diligent of developing nations in submitting its inventory of greenhouse gas emissions under the United Nations convention, according to Globe International, an organization that promotes sustainable development laws.

In Climate Talks, Spotlight Turns to India: India's new prime minister, a Hindu nationalist and former tea seller, recently urged his country's schoolchildren to help save the planet by relishing the delight of a full moon. "On a full moon night, if street lights are put off for two, three hours, will it not be service to the environment? Won't you enjoy the full moon night?" Narendra Modi said in September, adding: "We have forgotten to live with nature." He urged kids to switch off fans, lights, or appliances when not in use and turn off tap water when brushing teeth. Modi, 64, has sounded at times like a climate activist.  So as a new round of international climate talks launches Monday in Lima, Peru, what role will Modi's government play? The United Nations meeting will focus on a new global accord, slated to be finalized next year in Paris, to reduce the carbon dioxide emissions linked to global warming. (See related map: "Four Ways to Look at Global Carbon Footprints.") India, the world's third largest emitter of these gases, is under the spotlight because it is driving an uptick in global coal use and carbon emissions. China and the United States—the world's two biggest emitters—announced a deal on November 12 to curb such pollution by 2030.

India's Climate Change Opportunity - India lags far behind rival China in wealth and development -- and also in the amount of carbon dioxide it spews into the atmosphere. Indian leaders say this explains why they shouldn't be expected to limit their greenhouse-gas output as China has just done. At global climate talks in Lima this week, they'll probably also point out that 1 in 4 Indians still lacks electricity, so the country can't afford any limits on economic growth. In fact, India's relatively low level of development is exactly why it stands to benefit from setting aggressive emissions targets. It means, first, that the country has a chance to build smarter. According to one government estimate, some 70 percent of India's buildings in 2030 will have been constructed after 2011. Enforcing strict green buildingcodes now, and providing financial and tax incentives to comply, would limit the carbon intensity of India’s growth and, at the same time, improve its air quality and help businesses save money. In a similar way, the rapid expansion of India’s smaller cities offers an opportunity to upgrade public transportation and avoid productivity-killing gridlock. Eager to boost India’s manufacturing sector, Prime Minister Narendra Modi has already backed plans for efficient newrail freight corridors, an encouraging sign. If his government also rationalized pricing -- traditionally, high freight tariffs have subsidized passenger fares, while diesel subsidies, now lifted, made road transport artificially cheap -- it could enlarge the share of goods shipped by rail, which has fallen to less than a third. For its own reasons, notably India's poor oil and gas reserves, Modi's government has already set ambitious targets for renewables, hopingto reach 100 gigawatts of solar power by 2022, from around 3 gigawatts today -- a commendably ambitious target. While that may be a stretch, the country is well-positioned to benefit from new energy storage and distribution technologies that can bypass the decrepit transmission grid. If Modi continues to eliminate subsidies as he's promised, his government could also invest more in energy research and development, and reduce the country's dependence on imported (mostly Chinese) green technology.

Optimism Faces Grave Realities at Climate Talks - — After more than two decades of trying but failing to forge a global pact to halt climate change, United Nations negotiators gathering in South America this week are expressing a new optimism that they may finally achieve the elusive deal.Even with a deal to stop the current rate of greenhouse gas emissions, scientists warn, the world will become increasingly unpleasant. Without a deal, they say, the world could eventually become uninhabitable for humans.For the next two weeks, thousands of diplomats from around the globe will gather in Lima, Peru, for a United Nations summit meeting to draft an agreement intended to stop the global rise of planet-warming greenhouse gases. The meeting comes just weeks after a landmark announcement by President Obama and President Xi Jinping of China committing the world’s two largest carbon polluters to cuts in their emissions. United Nations negotiators say they believe that advancement could end a longstanding impasse in the climate talks, spurring other countries to sign similar commitments.  But while scientists and climate-policy experts welcome the new momentum ahead of the Lima talks, they warn that it now may be impossible to prevent the temperature of the planet’s atmosphere from rising by 3.6 degrees Fahrenheit. According to a large body of scientific research, that is the tipping point at which the world will be locked into a near-term future of drought, food and water shortages, melting ice sheets, shrinking glaciers, rising sea levels and widespread flooding — events that could harm the world’s population and economy.

Climate change adaptation comes of age in UN talks: In Peru, where two weeks of U.N. climate talks begin Monday, melting glaciers and more extreme weather such as hot spells and flash frosts are already harming crops and incomes, and keeping people in poverty, aid workers say. "From the Andes to the jungles, communities are doing what they can, but their efforts will never be enough without ambitious global action to tackle climate change," said Milo Stanojevich, CARE International's Peru director. The Lima negotiations are tasked with settling on the key elements of a new global climate deal due to be finalised in Paris in a year's time, and working out how to make bigger reductions in planet-warming emissions before that deal comes into force in 2020. Governments also need to boost support for the poor who are already struggling with climate change impacts, including wilder weather and rising seas, CARE urged. In recent weeks international attention has focused on new goals announced by the world's top two greenhouse gas emitters, the United States and China, to curb their carbon pollution. But at the same time, there is a quieter push underway to secure more of the limelight for efforts to adjust to the unavoidable effects of climate change. These include building more resilient infrastructure, putting in place disaster warning systems and teaching farmers to harvest rainwater.

56 countries seek carbon capture incentives in next climate deal: Reuters) - Fiscal incentives for carbon capture should be part of the global climate change agreement that replaces the Kyoto Protocol, 56 countries belonging to the U.N. Economic Commission for Europe (UNECE) said in a statement on Tuesday. The recommendation by the UNECE member states puts the issue formally on the table for a meeting of the U.N. Framework Convention on Climate Change in Paris in December 2015, which aims to agree a legally binding treaty to replace Kyoto. Delegates from almost 200 nations will meet in Peru next month to work on the accord, amid new scientific warnings about risks of floods, heatwaves, ocean acidification and rising seas. The UNECE recommendation says that commercial development of carbon capture and storage (CCS) -- taking carbon dioxide out of the atmosphere to reduce the build-up of greenhouse gases -- does not have enough political support, and should have at least as much as other low carbon technologies.

Yes, the U.S. can reduce emissions 80% by 2050 — in 6 graphs - There is no substantial technical or economic barrier that would prevent the U.S. from reducing its greenhouse gas emissions 80 percent below 1990 levels by 2050, a target that would help put the world on track to limit global average temperature rise to 2 degrees Celsius. In fact, there are multiple pathways to that target, each involving a different mix of technologies. Achieving the goal would cost only around 1 percent of GDP a year out through 2050, and if we started now, we could allow infrastructure to turn over at its natural rate, avoiding stranded assets.  Pulling it off would require immediate, intelligent, coordinated, vigorously executed policies that sustain themselves over decades. These are the conclusions of a new report on U.S. decarbonization from the Deep Decarbonization Pathways Project, to which I drew your attention yesterday. The DDPP is a comprehensive attempt to determine how the world’s biggest emitters can put themselves on a pathway to the 2 degree target. It involves 15 research teams, one from each of the top 15 emitting countries, each doing work tailored to the economic and political conditions of its home country but meant, collectively, to create a global pathway to 2C. The preliminary results were released in September; now the chapter on the U.S. has been expanded into a full report. To be clear, this is just a preliminary technical report. It does not address social and political questions, attempt comprehensive cost-benefit analysis, or recommend specific policies. It seeks only “to assess the technical and economic feasibility” of hitting an aggressive carbon target and “to understand what this goal implies for the magnitude, scope, and timing of required changes in the U.S. energy system.” Long story short: It implies large and rapid changes, undertaken immediately.

$100 billion climate finance goal 'a very small sum': UN climate chief  - - An international goal of providing $100 billion each year by 2020 to help vulnerable countries adapt to climate change impacts and pursue green growth is far off what is needed to achieve a global clean revolution, the U.N.'s top climate change official said on Wednesday. Christiana Figueres told journalists at U.N. climate talks in Lima that in terms of paying for the efforts needed to shift economies worldwide onto a low-carbon track "$100 billion is frankly a very, very small sum". "We are talking here about trillions of dollars that need to flow into the transformation at a global level," she added. She said $90 trillion would be invested in infrastructure over the next 15 years. "The world needs to decide: Are those $90 trillion going to go into clean technology, clean infrastructure, and above all resilient infrastructure, or is it going to go into the technologies and infrastructure of the last century?" Climate finance is in the spotlight at the two-week negotiations in Peru, as developing countries push for more clarity on how to drive funding up to the $100 billion level governments committed to back in 2009. Finance is seen as key to building trust between richer and poorer nations at the talks.

The Climate-Change Finance Gap at a Glance - Depending on who you ask, the $9.7 billion in pledges for the Green Climate Fund is either a woeful start or an encouraging sign that wealthy nations are serious about helping poorer ones deal with climate change. As climate treaty talks begin next month in Peru, it's the opinions of those within developing nations that matter most. Negotiators for those countries have said they cannot commit to emissions reductions or sign a climate treaty without adequate financial support. The pledge total is just shy of the $10 billion goal for the initial phase of the Green Climate Fund, and well short of the $15 billion that developing nations wanted. The fund was set up to supply public and private money for projects that would help vulnerable nations shift to low-carbon energy and adapt to the effects of climate change. Estimates for how much money is needed vary widely. After reviewing many of those estimates, the Stockholm Environment Institute said poorer nations would likely need, on average, more than $600 billion per year in climate aid just for the shift to low-carbon energy. Here's a look at the gap:

Duke Energy considers charging customers to explore fracking -- If you thought Duke Energy had run out of ideas to extract more money from its ratepayers, get this: The utility is pondering the high-risk natural gas exploration business, and it wants customers to pay for it. Already, state regulators are considering a proposal from Miami-based Florida Power & Light to charge its customers as much as $750 million a year for a fracking exploration project in Oklahoma that the utility says could help lock in fuel prices for years and save customers money. Duke is watching closely and could follow suit if FPL gets its way. Here’s the real bottom line: Florida utilities currently do not profit from the cost of fuel used to run their power plants. The utilities bill customers for their fuel costs as a pass-through charge.  But the fracking deal would allow the utilities to earn profits on the fuel that powers their plants, along with revenue from the construction of the facilities and the electricity they generate. FPL’s proposal would be the first effort by the state’s utilities to charge customers for fracking exploration.

Reinert Interview: The Future of the Electrical Grid -  K. McDonald: What is the future of the electrical grid? How can we integrate renewables into it in a way that makes the most sense?  Reinert: The problem is and remains the intermittency of renewables. Given current technology about 30% renewables is about the maximum any portfolio can adequately handle. Much beyond that and you need to match renewables watt for watt with spinning reserves. And this is best case. In harsh climates the maximum renewable penetration is much smaller. It’s not how many windmills you build, or how many solar plants come on line, what matters is how many usable watts are produced over the year. Through that lens the price of renewables is quite high. The figures we see quoted about the installed costs coming down are misleading. These costs generally do not include intermittency nor do they include the costs of spinning reserves to span the intermittency. And they don’t include the costs of non-dispatchable power. 

Accident Took Place At Ukraine Nuclear Power Plant, Prime Minister Reveals - Several days ago we heard rumors, unsubstantiated, of an accident at Ukraine's Zaporozhye nuclear power plant, Europe's largest and the 5th biggest in the world. Considering Ukraine's history with nuclear accidents, and resultant panics, we decided it would be prudent to wait for an official confirmation before proceeding with a report. We got the confirmation about an hour ago, when Ukraine's new/old Prime Minister Arseny Yatseniuk, or "Yats" as his puppetmaster Victoria Nuland likes to call him, said "on Wednesday an accident had occurred at the Zaporizhye nuclear power plant (NPP) in south-east Ukraine and called on the energy minister to hold a news conference."

Nuclear Incident Leaves Doubts Over Ukraine’s Energy Security -- Sometimes it seems Ukraine and energy just don’t mix. Its relationship with Moscow, maintained today only for the sake of buying desperately needed Russian gas, is patchy at best. And recently Russia has halted coal shipments to Ukraine.  And then there was another nuclear accident in Ukraine on Nov. 28, though by all accounts it was much less dangerous. Yet its effects are being felt in a nation already short of fuel and fighting well-armed Russian-backed rebels in its east. The latest accident wasn’t acknowledged until Dec. 3, when Prime Minister Arseniy Yatsenyuk, presiding over the first meeting of his new cabinet, asked Energy Minister Volodymyr Demchyshyn to report on the accident. “There is no threat … there are no problems with the reactors,” Demchyshyn said. He emphasized that the accident had been caused by a short circuit in the power-output system one of the facility’s six reactors and “in no way” involved power production itself. Meanwhile, four of the plant’s six reactors have continued operating, the Russian television network RT reported, quoting the plant’s website. One of the reactors had been undergoing scheduled maintenance at the time of the accident, RT said. The results of the Zaporizhzhya accident alone seem limited, but Ukraine’s coal shortage is making matters worse. Demchyshyn said Dec. 3 that he hoped to arrange voluntary cutbacks on energy use in the country and persuade some businesses to operate at night, when electricity demand is lower.

‘Thick Orange Gooey Stuff’ With Arsenic, Lead Found In River Near Duke Energy Power Plant - Contaminated waste from a retired coal plant in Rowan County, North Carolina, has been found leaking into a tributary of the second largest river in the state, environmental groups charged on Thursday. The groups Waterkeeper Alliance, Southern Environmental Law Center, and the Yadkin Riverkeeper said they discovered extensive leaks of coal ash coming from Duke Energy’s Buck Power Plant flowing into High Rock Lake, a tributary of the Yadkin River. Though the power plant no longer actively burns coal, it is surrounded by ponds filled with more than six million tons of coal ash — a waste byproduct from coal-burning. Pete Harrison, an attorney representing the groups, told ThinkProgress that the seep was initially discovered in mid-November, after reports of a quarter-mile long area of orange-colored streaks along the river bank. The groups took samples of the seep, and found that it contained high levels of pollutants such as arsenic, lead, and selenium, the groups said in a press release. Coal ash usually contains similar chemicals.“The whole bank was just bleeding this thick orange gooey stuff,” he said.

Groups Sue Interior Over Climate Impacts Of Coal Leasing Program -  Last week, environmental groups Friends of the Earth and the Western Organization of Resource Councils filed suit in the U.S. District Court for the District of Columbia challenging the Bureau of Land Management’s (BLM) failure to consider the harmful climate effects of the federal coal program. The BLM is managed by the U.S. Department of the Interior and is responsible for coal leasing on approximately 570 million acres. The lawsuit requires the BLM to re-examine its federal coal program in light of developments regarding the ramifications of burning coal and increased greenhouse gas emissions (GHGs). The BLM issued a programmatic environmental impact statement (PEIS) for the federal coal program in 1975, which detailed the environmental consequences of federal coal leasing. This review, however, was never updated to account for almost three decades of new information on climate change and GHG emissions from burning coal that has emerged since the PEIS was initially drafted. Under the National Environmental Policy Act, NEPA, the agency is required to consider changed circumstances and new information that affects its prior environmental analysis. The challenge is an effort by environmental groups to confront the glaring inconsistency between the President’s efforts to combat climate change and BLM’s continued efforts to lease more federal coal.

Utah’s Plan To Seize Public Lands Would Cost More Than A Quarter Of A Billion Dollars Per Year -- A study released Monday by researchers at three Utah universities found that transferring national forests and other public lands to the state of Utah would cost taxpayers at least $280 million per year — a price tag that could only be paid if the state were able to increase drilling and mining, seize energy royalty payments that are owed to U.S. taxpayers, and, if energy prices remain low, raise taxes to pay for the shortfall. The study fulfills a requirement of a 2012 Utah bill mandating the transfer of over 31 million acres of America’s public lands to the state of Utah. The study found that in order to raise the needed funds to manage national forests and other public lands, including taking over responsibility for fighting wildfires, the state would need to pursue “an aggressive approach to managing its mineral lease program,” that would only “be profitable for the state if oil and gas prices remain stable and high.”  The nearly 800-page report explored a number of scenarios for the state to assume management of public lands, concluding that the only way that the plan would be “profitable” is if the state collects 100 percent of royalties from oil and gas development in the state, which are currently shared equally by the federal and state government. The study states that without the change in royalty allocation, which would add to the national debt and place a burden on U.S. taxpayers, “oil and gas revenues are not sufficient to cover the state’s total land management costs for at least two years after the transfer.”

Rape of Appalachia Continues as Obama Administration Fails to Stop Mountaintop Removal - The process of mountaintop removal mining has made accessing coal seams easier and less labor intensive. It’s also blighted the Appalachian landscape of West Virginia, Kentucky, Tennessee and Virginia where it’s taking place, destroying 10 percent of the land in central Appalachia, ravaging forests, burying more than 2,000 miles of streams in debris and polluting water supplies with coal ash and chemicals. And it’s helped decimate employment in the coal industry, dealing another blow to one of the country’s poorest regions. It’s great for Big Coal, not so great for ordinary citizens.  In 2009, the White House Council on Environmental Quality, with the U.S. Army Corps of Engineers, the Department of the Interior and the Environmental Protection Agency (EPA), produced a Memorandum of Understanding (MOU) with an interagency action plan “designed to significantly reduce the harmful environmental consequences of Appalachian surface coal mining operations, while ensuring that future mining remains consistent with federal law.” Today the Alliance for Appalachia, a coalition of grassroots citizen groups, released a study assessing how well that plan had been implemented and what still needs to be done. While pointing to some successes, the group said much stronger actions are needed to avert future disasters like the chemical dump that fouled the drinking water for hundreds of thousands of West Virginians in January.

Obama’s climate change envoy: fossil fuels will have to stay in the ground --The world’s fossil fuels will “obviously” have to stay in the ground in order to solve global warming, Barack Obama’s climate change envoy said on Monday. In the clearest sign to date the administration sees no long-range future for fossil fuel, the state department climate change envoy, Todd Stern, said the world would have no choice but to forgo developing reserves of oil, coal and gas. The assertion, a week ahead of United Nations climate negotiations in Lima, will be seen as a further indication of Obama’s commitment to climate action, following an historic US-Chinese deal to curb emissions earlier this month. A global deal to fight climate change would necessarily require countries to abandon known reserves of oil, coal and gas, Stern told a forum at the Center for American Progress in Washington. “It is going to have to be a solution that leaves a lot of fossil fuel assets in the ground,” he said. “We are not going to get rid of fossil fuel overnight but we are not going to solve climate change on the basis of all the fossil fuels that are in the ground are going to have to come out. That’s pretty obvious.”

Ohio bill’s fracking provisions could clash with federal law --The Ohio Senate began hearings this week on a bill that could let oil and gas companies skirt current laws dealing with disclosure of chemical hazards to local communities and water withdrawals from the Lake Erie watershed. The Ohio House of Representatives passed House Bill 490 in November, and the Ohio Senate could vote on the bill as early as next week. If passed in its current form, the bill could face challenges under federal law.  HB 490 would make the Ohio Department of Natural Resources (ODNR) the main storehouse for oil and gas company filings about the hazards of chemicals used in their operations. Currently, those companies and many other industrial operations are supposed to provide the information to the State Emergency Response Commission (SERC), as well as local emergency planning committees and fire departments. The requirement stems from the federal Emergency Planning and Community Right-to-Know Act (EPCRA). Congress passed that law in 1986 in the aftermath of the Bhopal factory disaster that killed thousands of people in India.Under HB 490, the chief of ODNR would put “appropriate” information into an electronic database. ODNR would make the database available to local planning committees and fire departments in case of an emergency. Critics believe that approach is not enough to protect the public and to comply with federal law. They believe that while a database might help in some cases, companies should still directly provide first responders and communities with the required chemical inventory information.

Lawsuit Challenges Radioactive Fracking Waste Facilities in Ohio - Cheryl Mshar lives less than a mile from a fracking waste processing facility in Youngstown, Ohio. She worries that the air she breathes is polluted with chemicals and even radioactive contaminants. State regulators did not hold a public meeting before allowing the waste facility to begin operating earlier this year, so Mshar and her neighbors never had a say in the deal, until now. Two environmental groups filed a lawsuit on November 19 on behalf of Mshar and other residents challenging the temporary approval of 23 fracking waste facilities in Ohio, where critics say lax regulations have helped the state become a popular destination for the contaminated leftovers of the fracking process. The groups allege that the Ohio Department of Natural Resources (ODNR), which regulates the oil and gas industry, broke the law when it issued temporary orders allowing the waste facilities to begin operating without first taking comments from the public and completing a formal rule-making process to regulate the facilities. Ohio Gov. John Kasich is also named in the lawsuit. "The ODNR has unlawfully moved forward to approve these facilities without the input of the public, which these rules are intended to protect in the first place," said Alison Auciello of Food and Water Watch, one of the groups that filed the lawsuit. "For loosely regulated frack waste processing and dumping to be allowed on such a huge scale spells disaster for Ohio."

Frackers, cities await court ruling: – Gas and oil companies have fought legal skirmishes with some Ohio cities over local zoning regulation and ordinances that attempt to limit drilling — but Mansfield Law Director John Spon said he believes this city may be at low risk of a second lawsuit anytime soon. Mansfield is among five Ohio cities where voters have approved local issues designed to limit or ban deep shale drilling or disposal of fracking waste. Broadview Heights, Yellow Springs, Oberlin and Athens also have attempted to exert local restrictions. The latter city, located in southeastern Ohio, was the latest to approve a ban, in the general election Nov. 4. On the same day, residents of Gates Mills, Kent and Youngstown all turned down measures meant to ban or limit drilling. Court cases seeking to block municipalities' attempts to limit drilling have been filed in at least three cities in recent years: Beck Energy Corp. of Ravenna is asking the Ohio Supreme Court to rule that the state is the sole authority deciding where oil and gas drilling may occur — and that municipalities may not enact ordinances limiting drillers. The Ohio Supreme Court heard oral arguments in February, but has not issued a ruling. That case began after the City of Munroe Falls filed an action in Summit County asking common pleas court to stop the company from drilling. The local judge found in the city's favor in 2011. But the Ninth District Court of Appeals later held that, while Beck Energy must comply with local ordinances governing use of roads, Munroe Falls' zoning ordinance and local drilling provisions conflicted with state law.

Broadview Heights residents file suit to defend fracking ban - - Today, residents of Broadview Heights, Ohio, filed a first-in-the-state class action lawsuit against the State of Ohio, Governor John R. Kasich, and Bass Energy, Inc. and Ohio Valley Energy Systems Corp. The lawsuit was filed to protect the rights of the people of Broadview Heights to self-governance, including their right to ban fracking. In November 2012, residents of Broadview Heights overwhelmingly adopted a Home Rule Charter Amendment – proposed by residents – banning all new commercial extraction of gas and oil within the City limits. The Amendment establishes a Community Bill of Rights – which secures the rights of human and natural communities to water and a healthy environment. The Bill of Rights bans fracking and frack waste disposal as a violation of those rights. In June 2014, Bass Energy and Ohio Valley Energy filed a lawsuit against the City of Broadview Heights to overturn the Community Bill of Rights. The corporations are contending that the community does not have the legal authority to protect itself from fracking, and that corporations have the constitutional “right” to frack. Residents involved in drafting and proposing the Community Bill of Rights attempted to intervene in the lawsuit, to defend the community’s right to self-governance, including the right to say “no” to fracking and other threats. However, in September, the Court of Common Pleas of Cuyahoga County denied the motion to intervene, ruling that the residents did not have a direct “interest” in this case. With the court’s denial of intervention, residents decided to move forward with the class action lawsuit. In filing the lawsuit, Broadview Heights residents argue that the Ohio Oil and Gas Act, known as HB 278, and the industry’s enforcement of the Act, violate the constitutional right of residents to local self-government.

Broadview Heights activists sue Ohio Gov. John Kasich and state over gas, oil wells - A local activist group that opposes oil and gas wells in residential neighborhoods has sued the state of Ohio and Gov. John Kasich in an attempt to stop drilling here. Mothers Against Drilling in Our Neighborhood, based in Broadview Heights, says the city's Community Bill of Rights – which voters approved in 2012 and which bans future wells – supersedes a state law that allows drilling. The lawsuit, filed Thursday in Cuyahoga County Common Pleas Court, says the U.S. and Ohio constitutions guarantee the rights of citizens to govern themselves locally and protect their communities – in this case, from detrimental effects of oil and gas wells. The lawsuit seeks class-action status, which would allow the activists to represent all Broadview Heights residents. It says the group has legal standing to sue because members started the campaign for the Community Bill of Rights and worked hard to pass it on the ballot. See the entire lawsuit at the bottom of this story. The lawsuit comes six months after two drilling companies – Bass Energy Co. Inc. of Fairlawn and Ohio Valley Energy of Austintown – sued Broadview Heights over its prohibition against future wells. That case is still in county court. Tish O'Dell, a Broadview Heights resident who directs the group, said members filed this latest lawsuit because the county court, in September, turned down their request to help defend Broadview Heights in the Bass and Ohio Valley suit, filed in June.

Broadview Heights tries new legal tactic in fight against fracking - Local - Ohio: A group of residents filed a class-action lawsuit Thursday against the state of Ohio, Gov. John Kasich and two drilling companies. It is believed to be the first suit of its kind in Ohio and seeks to protect the rights of self-governance, including the right to ban fracking. In November 2012, Broadview Heights voters approved a charter amendment for a community bill of rights and banned fracking and the disposal of fracking waste. In June 2014, Bass Energy and Ohio Valley Energy filed suit against the city to overturn the community bill of rights. The companies said that only the Ohio Department of Natural Resources oversees drilling. Efforts by residents to intervene were rejected by a Cuyahoga County Common Pleas judge. In the new suit, the residents contend that the Ohio Oil and Gas Act violates the constitutional right of residents to local self-government. The residents were aided by the Pennsylvania-based Community Environmental Legal Defense Fund. “This class-action lawsuit is merely the first in Ohio, and expected to be one of many filed by people across the United States whose constitutional rights to govern their own communities are routinely violated by state governments working in concert with the corporations that they ostensibly regulate,” said Thomas Linzey, executive director of the defense fund. “The people of Broadview Heights will not stand idly by as their rights are negotiated away by oil and gas corporations, their state government and their own municipal government.”

Residents of Ohio Suburb Sue to Protect Fracking Ban - Residents of a Cleveland suburb have filed a lawsuit against Ohio and two drilling companies arguing that the state's exclusive authority to regulate and permit oil and gas wells is a violation of their constitutional rights to local self-government.  The residents, who live in Broadview Heights, about 15 miles south of Cleveland, filed the lawsuit against Bass Energy Inc., Ohio Valley Energy, the state and Gov. John Kasich, to "protect the rights of the people to self-governance, including their right to ban fracking," according to the Community Environmental Legal Defense Fund (CELDF), which is helping those involved in the lawsuit and has lead challenges to the industry across the country.  In November 2012, Broadview Heights voters approved a community bill of rights that amended the city's charter and banned the drilling of new oil and gas wells, as well as the transport and injection of industry waste. It was one of the earliest such charter amendments passed in the state in an area removed from the unconventional drilling boom in eastern Ohio. Over the summer, though, Bass Energy and Ohio Valley Energy filed a complaint in Cuyahoga County Common Pleas Court seeking declaratory relief to prevent the city from interfering with a conventional well being drilled on 100 acres owned by a local church (see Shale Daily, July 28). The companies argued that the city does not have regulatory authority under state law, which gives the Ohio Department of Natural Resources (ODNR), the "sole and exclusive authority to regulate the permitting, location and spacing of oil and gas wells and production operations within the state." A group of residents from Broadview Heights that had previously been involved in drafting and proposing the community bill of rights attempted to intervene in the companies’ lawsuit. But in September, a common pleas court judge denied the motion, ruling that the group did not have a direct interest in the case.

DEP gives gas industry group $150,000 grant to study drilling -The state Department of Environmental Protection has awarded a $150,000 non-competitive grant to an industry-backed nonprofit organization. The money was allocated in last year’s state budget specifically for “independent research regarding natural gas drilling.” As StateImpact Pennsylvania previously reported, the grant recipient is a Pittsburgh-based nonprofit called the Shale Alliance for Energy Research (SAFER PA). It formed in 2013 as a partnership between industry and academia. Its board has three representatives from Pennsylvania universities and five members from the oil and gas industry. Other groups were not able to compete for the grant money because the DEP said SAFER PA is “the only known research organization that is comprised of both private and public entities … with a specific focus of conducting scientific research and development of shale related projects.” SAFER PA has never published any research. The DEP has not responded to repeated inquiries about the grant. Barry Kauffman, of the nonpartisan government reform group Common Cause PA, finds the deal concerning. “There are many, many qualified organizations with good research credentials that could produce unbiased research—or certainly more balanced research—than an entity heavily dominated by the industry which it contends to take a look at,” he says.

SUE THY FRACKING NEIGHBOR -- What do you do when your water goes bad, your health deteriorates, and your once peaceful life has been upended by gas drilling operations near your home? The obvious answer is to sue the drillers. This is what the Lauff family in Mt. Pleasant Pennsylvania did. In November 2014, the Lauff family filed a lawsuit naming Range Resources – Appalachia LLC, and their contractors Markwest Liberty Midstream And Resources LLC, Sunoco Logistics Partners L.P., The Gateway Engineers Inc., New Dominion Construction Inc., And Highland Environmental LLC as defendants.So what makes this case so different than others filed against drilling companies? The Lauff family also names the Carter family as defendants.   The natural gas operations in question reside on land LEASED by the Carter family to Range Resources. CLICK HERE TO DOWNLOAD THE LAWSUIT.

Frack Waste on Roads: A Great New Way to Kill Maple Trees!  --Plus oak trees, hemlock, pine, dandelions, corn, wheat, crocus, day lilies, clover, what have you. GMO, non GMO, you name it. If it grows, it dies. A long long way from the road.  Save the RoundUp and the chain saws, just spread thousands of gallons of free frack waste, genuine imported Pennsylvania toxic radioactive goo on your town or county roads as de-icer in the winter and “dust suppressant” on seasonal roads in the summer, year after year after year. And you too will have a maple-free road scape within a generation of two. After the frack waste poisons the plants, it goes to work on your tires, your car’s paint, and all those pesky fish in nearby streams. Oh, and then in you. Almost forgot that part. When does all this free toxic radioactive frack goo arrive in New York state ? How about yesterday. Although the exact composition of the fluids was not disclosed by the companies that manufactured them because they consider that information proprietary, her study noted, the main constituents appeared to be sodium and calcium chlorides because of their high concentrations on the surface soil. Almost immediately after disposal, the researchers said, nearly all ground plants died. After a few days, tree leaves turned brown, wilted and dropped; 56 percent of about 150 trees eventually died.

Cuomo administration releases status report on crude oil transport -- The governor’s office has released a status report that they say outlines significant progress made by the state to protect New Yorkers and the environment from potential risks associated with crude oil transport.  State agencies have implemented 66 actions to strengthen standards, regulations and procedures to make crude transport by rail and water safer and to improve spill preparedness and response, according to Gov. Andrew Cuomo’s office. The state also has completed on five of the 12 recommendations made to state and federal governments and the oil industry to improve safety. Among the actions that the Cuomo administration handpicked to highlight:

  • Performing Rail Safety Inspections:
  • Preparing First Responders:
  • Updating and Enhancing Response Plans:
  • Pushing for Aggressive Federal Action:
  • Urging Oil and Rail Industries to Increase Safety of Shipment:

Cuomo wants boost in oil cleanup fund - Times Union: The administration of Gov. Andrew Cuomo was rebuffed by state Comptroller Tom DiNapoli this month when it sought a half-million dollars from a financially shaky oil spill cleanup fund to support planning, staff and equipment to deal with potential oil spills from surging Bakken crude rail shipments. The Cuomo administration is now exploring ways to beef up the 36-year-old fund, which in past years has run in the red because it has spent millions more on spill cleanups than was collected from polluters, rendering the fund ill-prepared to take on new responsibilities. Five years ago, DiNapoli called to no avail for the Environmental Protection and Spill Compensation Fund to be financially strengthened, after a Times Union investigation revealed its weakness. Most state-ordered cleanups under the fund were supported not by polluters, but by a gasoline tax paid by consumers in the state. Consumers are kicking in about $30 million a year to the fund.

32% of natural gas pipeline capacity into the Northeast could be bidirectional by 2017 -- U.S. Energy Information Administration (EIA): Spurred by growing natural gas production in Pennsylvania, West Virginia, and Ohio, the natural gas pipeline industry is planning to modify its systems to allow bidirectional flow to move up to 8.3 billion cubic feet per day (Bcf/d) out of the Northeast. As of 2013, the industry had the capacity to transport 25 Bcf/d of natural gas from Canada, the Midwest, and the Southeast into the Northeast. In addition to these bidirectional projects in the Northeast, the industry plans to expand existing systems and build new systems to transport natural gas produced in the Northeast to consuming markets outside the region. Flows on ANR Pipeline, Texas Eastern Transmission, Transcontinental Pipeline, Iroquois Gas Pipeline, Rockies Express Pipeline, and Tennessee Gas Pipeline accounted for 60% of flows to the Northeast in 2013. Flows on these pipelines in 2013 were between 21% and 84% below 2008 levels, with the largest percentage decline occurring on the Tennessee Gas Pipeline. In 2014, the Tennessee Gas Pipeline and the Texas Eastern Transmission began flowing gas both ways between states along the Northeast and Southeast region borders. As a result of these pipelines being underutilized, the pipeline companies have announced plans to modify their systems to allow for bidirectional flow, adding the ability to send natural gas out of the Northeast region:

  • Columbia Gulf Transmission completed two bidirectional projects in 2013 and 2014 that enable the system to transport natural gas from Pennsylvania to Louisiana.
  • ANR Pipeline, Tennessee Gas Pipeline, Texas Eastern Transmission, and Transcontinental Gas Pipeline are planning to send natural gas from the Northeast to the Gulf Coast because of the potential of industrial demand and LNG exports from the Gulf Coast. These projects total 5.5 Bcf/d of flow capacity.
  • The Rockies Express Pipeline's partial bidirectional project (2.5 Bcf/d of capacity) is primarily to flow Marcellus natural gas to more attractive markets in Chicago, Detroit, and the Gulf Coast.
  • 'The Iroquois Gas Pipeline's bidirectional project (0.3 Bcf/d of capacity) will deliver natural gas from the Marcellus to Canada. Iroquois will receive gas from the Dominion, Constitution (expected in service in 2016), and Algonquin pipelines.

The Fracking Fallacy: More Hot Air Than Gas --Companies are betting big on forecasts of cheap, plentiful natural gas. Over the next 20 years, US industry and electricity producers are expected to invest hundreds of billions of dollars in new plants that rely on natural gas. And billions more dollars are pouring into the construction of export facilities that will enable the United States to ship liquefied natural gas to Europe, Asia and South America.All of those investments are based on the expectation that US gas production will climb for decades, in line with the official forecasts by the US Energy Information Administration (EIA). As agency director Adam Sieminski put it last year: “For natural gas, the EIA has no doubt at all that production can continue to grow all the way out to 2040.” But a careful examination of the assumptions behind such bullish forecasts suggests that they may be overly optimistic, in part because the government’s predictions rely on coarse-grained studies of major shale formations, or plays. Now, researchers are analysing those formations in much greater detail and are issuing more-conservative forecasts. They calculate that such formations have relatively small ‘sweet spots’ where it will be profitable to extract gas. The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we’re setting ourselves up for a major fiasco”.

US natural gas production could peak in 2020 -- The most recent outlook from the US Energy Information Administration saw US production slowing from the exponential trajectory of the 2000s, but still increasing through 2040. A news article appearing in the journal Nature this week highlights a major research project run by a group at the University of Texas at Austin that foresees much lower production. Their analysis forecasts peak shale gas production in 2020, falling to half the EIA’s estimate by 2030.  The reason for the difference is mostly a matter of resolution, according to the Nature story. The EIA has relied on county-level production statistics, while the UT-Austin researchers have drilled down to one mile resolution. That makes it easier to account for “sweet spots”—the portions of a shale layer with the physical characteristics most conducive to producing natural gas. The reason for fracturing these rocks to free the gas is that they’re too impermeable for the gas to move through them, so this isn’t a case of the first few wells bleeding the store dry. But to the extent that sweet spots can be identified, they’re typically targeted for drilling first. That means that subsequent wells in the area may be significantly less productive. And that could translate into the end of the shale gas revolution arriving well ahead of schedule.

New Study Says US Fracking Boom Will Fade Quickly After 2020 --  Yves Smith -- A new study by Mason Inman and a team at the University of Texas, published in Nature News, throws cold water on bullish US natural gas production forecasts by the US agency, the Energy Information Administration. Its analysis suggests that the fracking boom will be a relatively short-lived phenomenon, which raises doubts about the attractiveness of investing in shale plays and in liquified natural gas transport facilities, particularly for export. Notice that this big red flag about the size and durability of the natural gas bonanza hasn’t hit the mainstream media yet. For instance, today one of the lead stories in the Financial Times is US oil reserves at highest since 1975: Shale revolution transforms country’s energy supply outlook. Specifically, the study finds that shale gas output will peak ramp up sharply to 2020, consistent with the EIA’s projections. However, the EIA calls for continued solid growth through 2040.  By contrast, Inman foresees production dropping sharply starting in 2020. Note that Inman isn’t the only expert to anticipate that the fracking boom tops out in 2019 to 2020. The Paris-based International Energy Agency also projects that US shale gas production will peak then, but it foresees a very gradual decline in output through the 2020s and a steeper fall after that. So why should we take Inman’s forecast more seriously than that of the EIA? First, he’s one of the few analysts to obtain and work with the EIA’s projections. For instance, notice the two bottom bands on the chart. Inman appears to be the first to notice that the EIA appears to have introduced plug figures to achieve overall production totals higher than the sum of the eight majors plays. And troublingly, their spreadsheets didn’t always foot.

Energy Pipeline: Dry fracking could be a water-saving game changer -- Companies in drought areas have begun looking at liquefied petroleum gas gel for hydraulic fracturing as a way to reduce dependence on already-scarce water supplies. Gas gel presents a potentially viable replacement to the millions of gallons of water used in the fracking process at each well site, said John McLennen, an associate professor of chemical engineering at the University of Utah.  Also referred to as dry fracking, the process does not involve water. Instead, highly pressurized gas is injected directly into a formation to crack the rock.  “Conceptually it’s a great idea. People are definitely looking for water substitutes,” he said. While the gel reduces the use of water dramatically and can benefit both producers and operators, many companies have not incorporated the gel into their operations due to the explosive and flammable nature of propane, McLennen said.  Under the Colorado Oil and Gas Association, companies have the autonomy to make individual technology related decisions, spokesperson Dan Haley said. “There are a number of different techniques that Colorado companies use in oil and gas development,” said Doug Flanders, COGA director of policy and external affairs. “The most important factor when deciding which technique works best is the type of formation where you’re trying to extract oil or gas.”  McLennen said that the advantages to gel use have yet to be fully researched or substantiated. However, it has the potential to drastically reduce water use in areas were the resource is expensive because of drought or high transportation costs.

NCDOT seeks pact from fracking companies to repair damaged roads -- North Carolina could require energy exploration companies to pay to repair state roads after a fracking operation is completed, state transportation officials told lawmakers Tuesday.  Drilling is heavily dependent on dump trucks, tanker trucks and 18-wheel rigs that chew up the kinds of two-lane country roads that criss-cross North Carolina ‘s rural counties where shale gas exploration is expected to get underway. But Republican Sen. E.S. “Buck” Newton of Wilson warned that North Carolina ‘s road maintenance protections must not impede drilling. Newton is a member of the Joint Legislative Commission on Energy Policy.  “We want to get this industry up and moving,” Newton told transportation officials. “I don’t want our process to be more onerous. “I want our process to be less onerous but more rigorous.” Fracking could start as early as next spring when the state’s safety rules go into effect for energy exploration. As part of that process, the N.C. Department of Transportation will submit a study Jan. 1 that was requested by the legislature to examine the impact of fracking on local roads, particularly in Lee, Moore and Chatham counties where fracking is most likely to begin.

The Real Cost of Fracking: How the US Shale Gas Boom Is Threatening Our Families, Pets and Food  -- The first researchers to systematically document ill health in livestock, pets, and people living near fracking drill sites were Michelle Bamberger and Robert Oswald. Bamberger, a veterinarian, and Oswald, a professor of molecular medicine at Cornell University , used a case study approach–looking at individual households–to search for possible effects (Bamberger and Oswald 2012). Many fracking chemicals are known carcinogens, endocrine disruptors or other classes of toxins (Colborn et al. 2011). Bamberger and Oswald’s studies, carried out during the ongoing fracking boom, uncovered serious adverse effects including respiratory, reproductive, and growth-related problems in animals and a spectrum of symptoms in humans that they termed “shale gas syndrome”. Ultimately, their research led them to consider fracking’s broader implications for farming and the food system (Bamberger and Oswald 2012 and 2014). Their new book, The Real Cost of Fracking: How America’s Shale Gas Boom Is Threatening Our Families, Pets, and Food describes the results of this research. However, it is by showing the pervasiveness of fracking’s harmful effects on the lives of the householders that Bamberger and Oswald best convey its true costs.

Studies Raise Red Flags About Hazardous Compounds in Fracking Fluid - Perhaps the most comprehensive look to date at fracking chemicals was presented in August at the National Meeting & Exposition of the American Chemical Society (ACS). William Stringfellow, a professor in environmental engineering at the University of the Pacific, lead author of the report, said he conducted the review of fracking contents to help resolve the public debate over the controversial drilling practice. The team of scientists presenting this work said that out of nearly 200 commonly used compounds, there's very little known about the potential health risks of about one-third. However, they concluded eight of the known compounds are toxic to mammals. Chemicals such as corrosion inhibitors and biocides are being used in "reasonably high concentrations that potentially could have adverse effects," said Stringfellow. "Biocides are inherently toxic by design," he told Truthout. "They need to be evaluated even if used in small amounts because of their toxicity." A second study released in October by the Environmental Integrity Project (EIP) found that despite a federal ban on the use of diesel fuel in hydraulic fracturing without a permit, several oil and gas companies are exploiting a Safe Drinking Water Act loophole pushed through by Halliburton to frack with petroleum-based products containing even more dangerous toxic chemicals than diesel. For example, a drilling company in West Texas injected up to 48,000 gallons of benzene into the ground in September. Fracking with fluids containing benzene (a carcinogen), ethylbenzene (a probable carcinogen) and other highly toxic chemicals is a potential threat to drinking-water supplies and public health, but, it appears to be common practice. "Produced water can have benzene, which can get into groundwater or volatilize into air," Schaeffer told Truthout. "It's not good to either drink or inhale it." "Five gallons of ethylbenzene can pollute a billion gallons of water."

Fracking Benzene ? A Rig Worker’s Way to Cancer  -- Benzene Cancers: ‘An American tragedy’ -- Documents lay bare petrochemical industry’s $36 million ‘research strategy’ on carcinogens. Internal memorandums, emails, letters and meeting minutes obtained by the Center for Public Integrity over the past year suggest that America’s oil and chemical titans, coordinated by their trade association, the American Petroleum Institute, spent at least $36 million on research “designed to protect member company interests,” as one 2000 API summary put it. Many of the documents chronicle an unparalleled effort by five major petrochemical companies to finance benzene research in Shanghai, China, where the pollutant persists in workplaces. Internal Documents Reveal Oil and Gas industry ‘Pattern of Behavior’ on Toxic Chemicals. Sixty-six years ago, a professor at the Harvard School of Public Health wrote a report linking leukemia to benzene, a natural component of crude oil and a common solvent and an ingredient in gasoline. “It is generally considered,” he wrote, “that the only absolutely safe concentration for benzene is zero.” The report is remarkable not only because of its age and candor, but also because it was prepared for and published by the oil industry’s main lobby group, the American Petroleum Institute. This document and others like it bedevil oil and chemical industry executives and their lawyers, who to this day maintain that benzene causes only rare types of cancer and only at high doses.  Not so.

Pink Fracking The Cure Marketing Scam -- Even Susan G. Komen’s own website shares the chemicals from fracking that are linked to breast cancer, but it didn’t stop them from partnering with oil and gas giant Baker Hughes, which donated $100,000 to Komen in October for the “Doing Our Bit for the Cure” campaign where 1,000 fracking drill bits were painted pink. The viral post on EcoWatch, written by breast cancer survivor and fracking activist Sandra Steingraber, exposed the hypocrisy of this campaign. Now, The Daily Show with Jon Stewart takes this outrageous partnership to new heights.  Watch this hilarious segment where The Daily Show‘s Samantha Bee meets Karuna Jaggar, executive director of Breast Cancer Action, to fully uncover the stupidity of pink fracking. http://goo.gl/EA9U2h

A dozen dirty documents -  The Center for Public Integrity, along with researchers from Columbia University and the City University of New York, on Thursday posted some 20,000 pages of internal oil and chemical industry documents on the carcinogen benzene.  This archive, which will grow substantially in 2015 and beyond, offers users a chance to see what corporate officials were saying behind the scenes about poisons in the workplace and the environment.  Here are 12 examples of what the petrochemical industry knew about benzene; the impetus behind industry-sponsored science; and the corporate spin that often occurs when damning evidence against a chemical threatens companies’ bottom lines.

Fracking ban goes into effect in its birthplace — An unprecedented ban on fracking went into effect Tuesday in Denton, Texas, a town of 123,000 located on top of the natural-gas goldmine that is the Barnett shale formation, the birthplace of the much-maligned oil and gas extraction method. Denton voters approved the ban last month, making it the first city or county to do so in the energy-rich, fracking-heavy state of Texas. Shortly after the Nov. 4 vote, the Texas Oil & Gas Association, an energy industry group, and the Texas General Land Office filed a lawsuit seeking to reverse the ban. "Whatever happens next will take place in a courtroom," Ed Ireland, executive director of the Barnett Shale Energy Education Council, an energy industry mouthpiece, told Reuters. The Barnett shale formation, which spans 24 counties in north Texas, is considered the spot where hydraulic fracturing, or fracking, originated thanks to energy behemoth Exxon Mobil. The company’s CEO, an ardent fracking evangelist, was involved in a lawsuit as of earlier this year to rid his own suburban Texas neighborhood of fracking, operations of which were “creating a noise nuisance and traffic hazards,” according to the suit.

Enviro Groups File Motion to Intervene in Defense of Denton Fracking Ban -- Steve Horn -- Just days after attorneys representing Denton, Texas submitted their initial responses to two legal complaints filed against Denton — the first Texas city ever to ban hydraulic fracturing (“fracking”)environmental groups have filed an intervention petition. That is, a formal request to enter the two lawsuits filed against the city after its citizens voted to ban fracking on election day.Denton Drilling Awareness Group and Earthworks are leading the intervention charge, represented by attorneys from the Natural Resources Defense Council (NRDC) and Earthjustice. The drilling awareness group runs the Frack Free Denton campaign.Those groups have joined up with attorneys representing Denton to fight lawsuits filed against the city by both the Texas Oil and Gas Association and the Texas General Land Commission. Texas Oil and Gas Association is represented by Baker Botts, a firm with close ties to the Bush family. And the Land Commission will soon be headed by George P. Bush, the son of potential 2016 Republican Party presidential candidate Jeb Bush and nephew of George W. Bush. Earthjustice attorney Deborah Goldberg, lawyer for Dryden, New York — the first town in that state to ban fracking, which set a precedent allowing municipalities in the state to ban oil and gas development — filed as one of the requested intervenors. “The State of Texas has granted municipalities the right to oversee oil and gas operations. The people of Denton have exercised that right, and we intend to help preserve it,” said Goldberg in a press release. “When state and federal officials won’t stand up for the public, citizens must have the right to use local democracy to protect themselves.” Though Denton has set aside a $4 million fund to slug out the litigation, the outside legal help and financial aid from environmental groups will strengthen the public interest defense against the industry lawsuits.

US Shale Under Pressure From More Than Just Low Prices -- Hydraulic fracturing, or fracking, has come full circle in Denton, Texas after a controversial ban on the practice entered into effect on Tuesday. Denton is one of several cities located on top of the massive Barnett shale formation, regarded as the birthplace of modern fracking. The ban, while incomplete, gives strength to what is a growing anti-fracking movement in the United States.  The Barnett shale covers an area of more than 5,000 square miles with depths between 5,000 and 8,000 feet. With more than 40 trillion cubic feet (Tcf) of technically recoverable gas, the Barnett holds approximately 12% of the nation’s proved reserves. Over the past decade, activity on the shale skyrocketed and over 15,000 wells have been drilled to date. For the state, the benefits are clear – in 2011 alone, Barnett production added nearly $13.7 billion to the Texas economy. However, production peaked in 2012 at 2 Tcf and will plummet by more than half toward 2030 – recent ban notwithstanding.

Two Lawmakers Want To Ban Fracking In Florida - Two Florida state senators introduced legislation this week to ban fracking in their state, citing concerns about environmental impact and potential damage to water supplies. State Senators Darren Soto (D) and Dwight Bullard (D) filed a bill on Tuesday that, if adopted, would prohibit hydraulic fracturing in Florida. In a press release announcing the legislation, the senators said that Florida’s natural beauty, major tourism industry, and underground aquifers would be at risk if fracking becomes common in Florida.  “The key is this: there shouldn’t be any fracking in Florida,” Soto told Florida’s WGCU. “We are a beautiful state that has so much to lose from fracking and so little to gain from a few small areas that it’s actually just disgraceful that we would allow it here.” Soto is most concerned about fracking’s potential impact on the Floridian Aquifer, which serves as a drinking water source for nearly 10 million people. Fracking’s impact on groundwater has been documented: a 2012 study found that chemicals from fracking in the Marcellus Shale region could find their way into drinking water more quickly than scientists had previously thought. And a September study from this year linked groundwater contamination in Texas and Pennsylvania to faulty casing and cementing in gas wells.

What Really Happens When You Cut Taxes On Oil Companies  -- Tax cuts are often spoken of as an unalloyed good in American politics. But the state of Alaska is learning the hard way those cuts — especially when they are for taxes on oil companies — can come back to bite you. Alaska is the only state with neither a state income tax nor a state sales tax. For revenue, it relies entirely on federal funding and various taxes on oil production in the state. Back in 2013, the oil taxes were cut by legislation passed under former Governor Sean Parnell (R). The logic of the cut was that it would spur renewed oil industry activity in the state, but that expected economic ferment has not materialized. And now, as the price of oil drops lower and lower, taking Alaska’s remaining tax revenue down with it, those cuts are leaving Alaska’s state budget deep in the red. “[I]n recent years taxes on oil production have covered more than half the total budget ($13.5 billion including federal funds and capital projects) and 90 percent of the state’s discretionary spending ($6.5 billion to run agencies and schools),” the Washington Post reported on Wednesday. “Now, with prices under $70 a barrel, the budget deficit could balloon to more than $3 billion, about half of the state’s discretionary spending level.”

Earthquakes shouldn’t dislodge the facts about fracking - The American Southwest is undergoing a spike in seismic activity. A new U.S. Geological Survey shows that a small basin on the New Mexico-Colorado border experienced 20 times more serious earthquakes from 2001 to 2011 than it had over the previous 30 years. There have been similar tremor spikes throughout the country. Some media accounts have been quick to blame this on hydraulic fracturing. Also known as “fracking,” this technique involves injecting a high-pressure mixture of water, sand and other fluids to break up underground rock structures and free up embedded oil and gas. One prominent columnist claimed “fracking may be inducing earthquakes.” The online journal Salon simply declared that the “earthquake epidemic is linked to fracking.” And NBC News published a story with the bold title of “Confirmed: Fracking practices to blame for Ohio earthquakes.”   This thinking is completely off-base. There’s ample evidence indicating that fracking doesn’t cause earthquakes. And spreading the lie that it does could lead to policies that undermine job creation and economic growth in the energy industry.  Some fracking operations do create very small seismic events. But, as Stanford geophysicist and former Obama administration energy advisor Mark Zoback has noted, these events “pose no danger to the public.” In fact, research has shown that these very slight tremors release about the same amount of energy as a gallon of milk falling off a kitchen counter.

At current prices Bakken and Permian Basin are in the red -- At $66 per barrel North American producers have real problems on their hands. While Eagle Ford is still profitable, both Bakken and Permian Basin are in now the red. Scotiabank: - Based upon an analysis of more than 50 oil plays across Canada and the United States, we estimate that ‘mid-cycle breakeven costs’ in the North Dakota Bakken (1.05 mb/d) are roughly US$69 per barrel and in the Permian Basin in Texas (1.63 mb/d) about US$68. While some producers have hedged forward at higher prices, if WTI oil remains around US$70 for more than six months, it appears likely that drilling activity will slow in more marginal areas of these plays as 2015 unfolds. Funding for independent oil producers will also tighten. However, the ‘liquids-rich’ Eagle Ford (1.45 mb/d) will be little impacted, with breakeven costs averaging only US$50.  That's why we've had such an extreme sell-off in US oil & gas shares on Friday (see chart) and Canadian shares underperformed (see chart). If prices persist at current levels for months to come, the Saudis will achieve their objective of dealing a blow to North American oil production. The expectations of the US outpacing Saudi Arabia as the number one oil producer (see chart) will be shelved for some time. And the only thing the US government could do at this point to support the domestic oil industry is to begin increasing the Strategic Petroleum Reserve. Of course such a measure would be temporary and if global demand does not improve, prices will begin falling again.

Sub-$50 Oil Surfaces in North Dakota Amid Regional Discounts - Oil market analysts are debating if oil will fall to $50. In North Dakota, prices are already there. Crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28, according to the marketing arm of Plains All American Pipeline LP. That’s down 47 percent from this year’s peak in June, and 29 percent less than the $70.15 paid for Brent, the global benchmark. The cheaper price for North Dakota crude underscores how geographic and logistical hurdles can amplify the stress that plunging futures prices have put on drillers in new shale plays that have helped push U.S. oil production to the highest level in 31 years. Other booming areas such as the Niobrara in Colorado and the Permian in Texas have also seen large discounts to Brent and U.S. benchmark West Texas Intermediate. “You have gathering fees, trucking, terminaling, pipeline and rail fees,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said Dec. 2. “If you’re selling at the wellhead, you’re getting a very low number relative to WTI.” Discounted prices at the wellhead have been exacerbated by a 39 percent drop in Brent futures since June 19 to $69.92 a barrel yesterday. Prices have fallen as global demand growth fails to keep pace with surging oil production from the U.S. and Canada.

Shale Liquidations Begin? Sub-$50 Oil Appears In North Dakota -- When ISIS dared to steal and sell oil at below market rates, they were dire pirates that needed to be destroyed (and anyone who dared to buy it was pariah). So when, as Bloomberg reports, crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28 (according to the marketing arm of Plains All American Pipeline), you know there is an issue in the US Shale industry. As one analyst notes, "to a producer in Wyoming, if Brent’s $70 then I’m at $50, then I have to start asking does it economically make sense to keep drilling, they might start reallocating capital, you might see projects slowed or shut down." So with every expert in financial media clinging to some hope that oil prices can't go down any more surely right? The answer is yes... and have already broken below $50... something that may indicate not just transportation issues, but desparation for crucial liquidity needs

US refineries run flat out to process cheap crude - FT.com: US highways grow visibly emptier as winter weather sets in. Traffic volumes decline, as does petrol consumption. Tell that to oil refiners. The US industry is processing record amounts of crude for this time of year, taking advantage of falling oil prices and a flood of supply from shale drillers. “They’re running refineries as hard as they can,” says John Auers, executive vice-president at Turner Mason, an energy consultancy in Dallas. Refineries’ hearty appetite has kept the price of high-quality “light” US crude closely in line with international prices, defying warnings that a glut would force deep discounts. Light Louisiana Sweet, the US Gulf coast benchmark, this week sold for just a dollar less than the international Brent benchmark, suggesting solid demand for it. Government policy has also helped maintain strong crude runs, emboldening refiners who argue that Washington should keep in place longstanding restrictions on oil exports. Under a four-decade-old law, shippers are free to export refined petroleum products but not crude. The amount of oil purchased by refiners in the US will be an important guide for world oil markets, which have cut prices to $70 a barrel because of surging output in the US and the Opec cartel’s unwillingness to cut production. Refiners are by far the dominant customers for crude, which is largely unusable unless processed. In the week to November 28 gross inputs to US refinery distillation units were 16.554m barrels a day, the highest figure for any November week on record, according to the American Petroleum Institute. Refineries ran at 93 per cent of capacity.

A death in the Bakken: Worker's family rejects drug conclusion --— One thing is clear: Brandon Belk should have been wearing an oxygen mask. After that, there’s a long list of questions. It starts with a big one. Why did he die? There’s the mix of solvents and petroleum gunk he was breathing while cleaning a frack tank two days before his death in July 2013. When federal worker safety inspectors showed up, they found the working conditions dangerous. But there’s also the traces of methadone — a potent and often abused painkiller — found in his bloodstream. To Belk’s family, it’s clear his job at a company here called Badlands Power Fuels is what led to his death. His autopsy says he died from pneumonia — fluid in the lungs — which points to the chemical exposure. “It is neglect on so many people’s part,” said his mother, Vikki Daggett. “As far as I’m concerned, Power Fuels killed my son.” But the autopsy report also indicates he wouldn’t have died without the methadone and citalopram, an antidepressant for which he had a prescription. And his death certificate states he had no “injury at work.” To his former employer, that settles it. So, too, for the Occupational Safety and Health Administration (OSHA) and the North Dakota workers’ compensation system, which has denied death benefits to his 13-year-old daughter. “The North Dakota Forensic Medical Examiner’s Office report concluded the death was an accident unrelated to the workplace,”

Lawsuit Filed Calling for Ban on Fracked Oil Bomb Trains  --Earthjustice has filed a lawsuit on behalf of Sierra Club and Forest Ethics, challenging the Department of Transportation’s rejection of their July request for an immediate ban of DOT-111 rail tanker cars carrying volatile crude oil from the Bakken shale formation.  The National Transportation Safety Board (NTSB) called in 2012 for an immediate ban for these tankers, which are prone to puncture in the case of accidents, crashes and rollovers, causing explosions and fires. Two-thirds of the rail cars carrying crude oil through the U.S. are DOT-111s. The industry has insisted that discontinuing their use or phasing them out rapidly would be too costly, asking for four years to phase out the older cars and up to six years for the newer ones. This lawsuit challenges the Department of Transportation’s assertion that they have responded sufficiently to the dangers posed by the cars. The court filing said, “Petitioners ask the Court to set aside and remand the Secretary’s denial of the petition to ban shipping Bakken crude oil in unsafe tank cars because the Secretary failed to consider pertinent evidence and several relevant factors, including the Secretary’s past findings that the surge in crude-by-rail shipments of Bakken crude in dangerous tank cars poses imminent hazards and emergency unsafe conditions, the number of rail accidents and oil spills likely to occur during the time it will take to stop shipping Bakken crude in the most hazardous tank cars through rulemaking, Canada’s more expeditious phase out of the most hazardous tank cars and the safety hazards of allowing the industry to more than double the crude oil fleet before removing the most dangerous tank cars from crude-by-rail shipping.”

Jobs: Shale States vs Non-Shale States -- Investments in oil and gas exploration and production generate substantial economic gains, as well as other benefits such as increased energy independence.  The Perryman Group estimates that the industry as a whole generates an economic stimulus of almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs across the nation.  Simply put, this means 9.3 million, or 93% of the 10 million jobs created since the recession/depression trough, are energy related.

The Shale Bust Arrives: November Permits For New Shale Wells Tumble 15% - With a third of S&P 500 capital expenditure due from the imploding energy sector (and with over 20% of the high-yield market dominated by these names), paying attention to any inflection point in the US oil-producers is critical as they have been gung-ho "unequivocally good" expanders even as oil prices fell. However, as Reuters reports, new data suggests that the much-anticipated slowdown in shale country may have finally arrived - permits for new wells dropped 15% across 12 major shale formations last month, as one analysts warns, "the first domino is the price, which causes other dominos to fall."

Oil slump may see wave of junk bond defaults - Junk bonds have financed the US shale boom, and now the sharp drop in oil prices could lead to a massive wave of defaults on that high-yield debt. Should oil prices fall below $US65 per barrel and stay there for the next three years, Tarek Hamid, a high-yield energy analyst at JP Morgan Chase, estimates that up to 40 per cent of all energy junk bonds could default over the next several years. Energy companies, the fastest growing segment of the high-yield bond market in recent years, account for nearly 18 per cent of all outstanding high-yield bonds, up from 9 per cent in 2009, according to JP Morgan. Mr Hamid says that the 40 per cent possible default rate is the upper limit over the next few years, and that energy companies will take steps to avoid falling into bankruptcy, including cutting spending and selling assets. Still, even if companies make smart moves to cut costs, with oil at $US65 per barrel or below for the next three years, he estimates that default rates high-yield bonds from the energy sector could still hover around 20 per cent to 25 per cent. "It would become a very dire scenario," Mr Hamid said

Market rout as oil slide rocks energy groups - FT.com: Shares in the world’s biggest energy groups have tumbled in a market rout as plunging oil prices put at risk billions of dollars of investment and jeopardised future supplies of crude. The sharp slide in the price of Brent oil after Opec’s decision not to cut output triggered warnings that oil companies would cut as much as $100bn of capital spending in response, imperilling the US shale bonanza and threatening much Arctic oil exploration. Meanwhile oil’s fall continued to play havoc with the currencies of oil exporting countries, especially Russia. At one point on Friday, the rouble slid to a record low. Leonid Fedun, vice-president of Lukoil, Russia’s second largest crude producer, told the Financial Times that Opec was trying to turn the US shale oil “boom” into a “bust” for smaller producers. He compared the surge in North American shale to the dotcom and subprime mortgage booms, and said Opec’s objective now was “to get small producers with large debts and low efficiency to pack up and leave the market”. Opec said on Thursday that it was leaving its output ceiling of 30m barrels a day unchanged, prompting a swift 8 per cent drop in the oil price, which was already down by nearly 40 per cent since mid-June. Brent fell $2.80 on Friday to $69.78, a four-year low. The move showed that Saudi Arabia, Opec’s largest producer and effective leader, had decided to relinquish its traditional role of balancing the oil market by increasing or reducing output, letting prices do the job instead, analysts said. “We cannot overstate what a dramatic and fundamental change this is for the oil market,” said Mike Wittner, senior oil analyst at Société Générale. Friday’s brutal sell-off in the US and across Europe hit shares in the oil majors, the big oil services companies that supply them, as well as the smaller explorers most exposed to the plunge in crude. ExxonMobil fell 4.3 per cent, Chevron 5.4 per cent and oilfield services group Halliburton 11.1 per cent. They recovered slightly by the close.

Crude Carnage Goes Contagious As Brevan Howard Liquidates Underperforming Commodity Fund -- The entire commodity complex is seeing major contagion-like price declines in early trading. WTI Crude is back below $65 for the first time since May 2010 - now down 16% since the initial leaks of OPEC's decision last Wednesday. Gold and Silver are getting whacked and copper has plunged below 300 - back at its lowest since June 2010. The news over the weekend that Brevan Howard is liquidating its $630 million commodity hedge fund following recent poor performance is also likely not helping as what looked like late-Friday margin call liquidations are extending notably this evening.

Fracking Frenzy Threatens Developing Nations  -- Fracking is both a temptation and a curse for developing nations, says a new report released today by Friends of the Earth Europe as governments meet in Lima to make meaningful commitments to speed up the transition away from dirty energy sources. Fracking Frenzy: How is the fracking industry threatening the planet? details the impacts of developing shale reserves in new regions of the world unprotected by political power to ward off bad policies that favor fossil fuel extraction companies over communities.  The report looks at a selection of countries identified in the U.S. Energy Information Administration’s 2013 World Shale Gas and Shale Oil Resource Assessment that analyzed potential shale resources in 42 countries and 95 shale basins around the world. It identifies 11 countries it says are prime targets for the fracking industry to focus on in depth: Mexico, Brazil, Argentina, Morocco, Algeria, Tunisia, South Africa, China, India, Indonesia and Russia. It analyzes the potential gas and oil reserves (often over-estimated), available water resources, area’s geology, country’s policies on drilling, local opposition to fracking and environmental, ecological and social impact of fracking in each. “While much has been written about fracking in North America and in the EU, this report provides a global overview of shale gas development in the rest of the world,”

Shale Gas increasing Threat to Climate, Environment, Communities Worldwide -- As world climate talks open in Peru today, new research shows how fracking is likely to further accelerate climate change, destroy water sources and infringe on communities’ rights worldwide unless urgent action is taken to stop the ‘dash-for-gas’. The report, from Friends of the Earth Europe, maps the expansion of the shale gas industry outside Europe and North America with examples of 11 key countries on three continents. It finds that multinational oil and gas companies such as Total, Shell and Chevron are moving into increasingly vulnerable countries in Latin America, Africa and Asia where the ecosystems, communities and authorities are even less unable to cope with the impacts of extraction. Countries such as Mexico, China, Argentina and South Africa, are in earthquake-prone or water-scarce regions and are most exposed to the impacts of climate change. The pursuit of fracking in these countries is likely to exacerbate the climate, environment, social and human rights problems they already face.  Friends of the Earth Europe is calling on the EU and other developed country governments meeting in Lima to make meaningful commitments to speed up the transition away from dirty energy sources.  The report details how fracking is a global climate threat. Leakage of methane – a greenhouse gas 86 times more powerful than carbon dioxide – into the atmosphere, even at fracking sites that use the “best available technology”, will cause harmful climate emissions and contribute to a 3.5°C global temperature rise if fracking is developed worldwide. Case studies from the US indicate that due to methane leakage, there is a big risk that shale gas is far worse than conventional gas and almost comparable to coal, so it cannot be a “transition fuel”.

New York Times Repeats Russian Frack Hoax - Read that the New York Times is repeating the rumor that the Russians are behind the global backlash against fracking. This hoax first surfaced in Europe, then spread to the US (including Denton, Texas) and before it completely frittered away from disuse, a Times reporter recycled it, from a previous article, one more time: Russian Money Suspected Behind Fracking ProtestsCircumstantial evidence, plus large dollops of Cold War-style suspicion, have added to mounting alarm over covert Russian meddling to block threats to its energy stranglehold on Europe.” Catch is that when you read the article, there is no evidence presented, real or “circumstantial” to indicate that the Russians are manipulating what is invariably a grass-roots push back against fracking – at home or abroad. Here’s the best Andrew Higgins could come up with re the “evidence” – there is none:  “This belief that Russia is fueling the protests, shared by officials in Lithuania, where Chevron also ran into a wave of unusually fervent protests and then decided to pull out, has not yet been backed up by any clear proof.” Here’s Higgins interview with one of the leaders of the Romanian fractavist groups, supposedly another Kremlin fractavist marionette: “George Epurescu, the president of Romania Without Them, a Romanian organization that has played a major role in mobilizing opposition to Chevron here in Pungesti, said his group, set up in 2011 to protest corruption, shifted its focus to the fight against fracking after it “found out about the shale gas problem” from Bulgarian activists.

North Pole Sues Koch-Owned Oil Company Over Contaminated Water  -- The city of North Pole, Alaska, used to have clean groundwater. But now, it’s the polar opposite.  According to a lawsuit filed by the city last week, two oil companies are responsible for polluting North Pole’s groundwater and some private drinking water wells with a mysterious chemical. The chemical, called sulfolane, leaked from an oil refinery that the lawsuit alleges was negligently operated — both by current refinery owner Flint Hills Alaska Resources, which is owned by Koch Industries, and former owner Williams Alaska Petroleum.  “The presence of sulfolane contamination in the city’s groundwater has rendered that groundwater unfit for human consumption and endangers the public health or welfare,” the lawsuit reads, according to a report in the Fairbanks Daily News-Miner. “Ultimately, these hazardous substances have migrated off the refinery property and have contaminated the groundwater down gradient of the refinery and within the city, including wells owned by the city and supplying drinking water to the city’s inhabitants.”

Oilsands study confirms link between tailings ponds and air pollution -- Environment Canada report agrees with earlier research suggesting amount of toxic compounds emitted by industry has been dramatically underestimated. New federal government research has confirmed that oilsands tailings ponds are releasing toxic and potentially cancer-causing chemicals into the air. And Environment Canada scientist Elisabeth Galarneau said her study — the first using actual, in-the-field measurements — agrees with earlier research that suggests the amount of polycyclic aromatic hydrocarbons emitted by the industry has been dramatically underestimated. “We found that there actually does appear to be a net flow of these compounds going from water to air,” she said. “It’s just a bit under five times higher from the ponds than what’s been reported.” Galarneau’s findings echo those from an earlier study this summer. That paper, however, depended on mathematical modelling. The Environment Canada study, recently published in the journal Atmospheric Environment, used actual data collected from air sampling and filtering devices placed in the oilsands region under the joint federal-provincial monitoring program. Using standard and well-established testing methods, Galarneau’s preliminary results suggest 1,069 kilograms a year of PAH compounds are being released from the 176 square kilometres of tailings ponds across the region.

Alberta Pipeline Spills 60,000 Liters of Crude Oil Into Swamp: he Alberta Energy Regulator says close to 60,000 litres of crude oil have spilled into muskeg in the province’s north. An incident report by the regulator states that a mechanical failure was reported Thursday at a Canadian Natural Resources Limited (TSX:CNQ) pipeline approximately 27 kilometres north of Red Earth Creek. The report says there are no reports of impact to wildlife and that a cleanup has begun. Red Earth Creek is over 350 kilometres northwest of Edmonton. Carrie Rosa, a spokeswoman for the regulator, says officials have been delayed reaching the scene due to poor weather in the last few days. “As soon as it’s safe for them to travel to site they will be there and they’ll investigate the incident,” Rosa said Sunday morning. No one from Canadian Natural Resources could be reached on Sunday for comment.

Work Stops On Tar Sands Export Terminal Due To Endangered Beluga Whale Population - TransCanada, the company behind the controversial Keystone XL pipeline, has run into multiple challenges over the past year with another of its proposed tar sands pipelines, Energy East. The project has been met with throngs of protesters, opposition from First Nations groups, and strict conditions imposed by Quebec and Ontario.   Now the oil company is facing another snag in its plan to build a pipeline across Canada’s eastern provinces: whales. This week, the Committee on the Status of Endangered Wildlife in Canada (COSEWIC) found that the population of beluga whales in Quebec’s St. Lawrence River should be considered endangered, prompting TransCanada to halt its studies on a key export terminal in Quebec.  The Cacouna, Quebec marine terminal was proposed for the eastern shore of the St. Lawrence and would serve as a loading point for oil carriers. But COSEWIC’s endangered species classification for the population, which contains about 900 individual whales and is the southernmost population of belugas in the world, could make building the terminal in Cacouna difficult for TransCanada. “We are standing down on any further work at Cacouna, in order to analyze the recommendation, assess any impacts from Energy East, and review all viable options,” TransCanada spokesman Tim Duboyce told Bloomberg.

Hillary Clinton Wades Into Debate Over Fracking But Avoids Keystone XL  -- Speaking to an influential gathering of environmental leaders on Monday, Hillary Clinton expressed concerns relating to the natural gas boom but continued to eschew commenting on the politically explosive Keystone XL pipeline. In a 10-minute speech at a fundraiser for the League of Conservation Voters in midtown Manhattan, Clinton scolded climate deniers, praised green technology, stood behind market-based solutions to limiting greenhouse gas emissions, and said both the science and political challenges associated with climate change are “unforgiving.”  “There is no getting around the fact that the kind of ambitious response required to combat climate change is going to be a tough sell at home as well as around the world,” Clinton said.  Perpetuating her mum stance on the Keystone XL pipeline, the approval process for which she oversaw during her tenure as Secretary of State, Clinton chose instead to venture ever so slightly into the debate over the pros and cons of the natural gas boom. In addressing the risks of natural gas extraction, she was perhaps trying to draw a distinction between herself and President Obama, who has continually touted natural gas as an important element of an all-of-the-above energy strategy.   “I know many of us have serious concerns with the risks associated with the rapidly expanding production of natural gas,” Clinton said. “Methane leaks in the production and transportation of natural gas pose a particularly troubling threat so it is crucial we put in place smart regulations and enforce them, including deciding not to drill when the risks to local communities, landscapes and ecosystems are just too high.”

State Department Keystone XL Contractor ERM Bribed Chinese Agency to Permit Project = Steve Horn - Environmental Resources Management (ERM Group), the consultancy selected by TransCanada to conduct the environmental review for Keystone XL's northern leg on behalf of the U.S. State Department, is no stranger to scandal. Exhibit A: ERM once bribed a Chinese official to ram through major pieces of an industrial development project. ERM was tasked to push through the project in Hangzhou Bay, located near Shanghai. Accepting the bribe landed Yan Shunjun, former deputy head of the Shanghai Municipal Environmental Protection Bureau, an 11-year prison sentence. Yan “allegedly took bribes of 864,000 yuan (126,501 U.S. dollars), 20,000 U.S. dollars and 4,000 euros from seven contractors,” explained Xiuhuanet. “Yan was also accused of illegally setting up a channel to speed up environmental impact assessment processes, which are essential for companies wanting to build factories.” BP, one of the companies standing to gain if Keystone XL North receives a presidential permit from the Obama administration as a major Alberta tar sands producer, was also mired in the Chinese ERM Group scandal.   A commenter on People's Daily, the state-owned newspaper in China, wrote that bribery was merely the cost of doing business and an “investment” of sorts.  In the U.S. context as it pertains to Keystone XL, ERM's conduct has been far less ham-handed than it was in China. By procedure and by law, the company applying for the permit gets to pick and pay for the contractor conducting the environmental review on behalf of the State Department. In this case, it meant TransCanada selected ERM Group to give it a rubber stamp of approval for KXL.  In other words, the State Department has legalized a de facto form of “institutionalized corruption” for handling environmental reviews for cross-border pipelines like Keystone XL's northern leg. Sierra Club attorney Doug Hayes described it as a “built-in conflict of interest” in a 2013 Bloomberg Businessweek article. ERM Group, with a track-record of rubber-stamping ecologically hazardous projects in places ranging from central Asia to Peru to Alaska to Delaware and China, has proven itself once again a key tentacle of the “carbon web” for Keystone XL.

4 Reasons Keystone Really Matters - Naomi Klein - Ever since the debate over the Keystone XL pipeline exploded three and half years ago, that’s been the argument from the project’s liberal supporters. Sure, the oil that Keystone would carry from the Alberta tar sands is three to four times more greenhouse-gas-intensive than conventional crude. But that’s not on Keystone XL, we’re told. Why? Because if TransCanada isn’t able to build Keystone to the south, then another pipeline will be built to the west or east. Or that dirty oil will be transported by rail. But make no mistake, we have long been assured: all that carbon buried beneath Alberta’s boreal forest will be mined no matter what the president decides. Up until quite recently, the tar-sands boom did seem pretty unstoppable. The industry regularly projected that production would soon double, then triple, and foreign investors raced to build massive new mines. But these days, panic is in the air in formerly swaggering Calgary. In less than a year, Shell, Statoil and the French company Total have all shelved major new tar-sands projects. And a rather large question mark is suddenly hanging over one of the world’s largest—and dirtiest—carbon deposits.   This radically changes the calculation confronting Barack Obama. His decision is no longer about one pipeline. It’s about whether the US government will throw a lifeline to a climate-destabilizing industrial project that is under a confluence of pressures that add up to a very real crisis. Here are the four main reasons that the tar sands are in deep trouble.

PHOTOS: Israel Hit With Massive 600,000 Gallon Oil Spill -- A nature reserve has been flooded with oil and more than 80 people have been hospitalized from exposure to toxic fumes after approximately 600,000 gallons of crude oil spilled from a pipeline in southern Israel on Wednesday, according to media reports there.  The massive spill, which resulted from a breach in the 153-mile Trans-Israel pipeline, has been described as “one of the gravest pollution events in the country’s history.” That’s according to Israel Environmental Protection Ministry official Guy Samet, who also said the spill could take months, maybe years, to fully clean up.  “This is one of the State of Israel’s most serious pollution events,” Samut told Israel Radio. “We are still having trouble gauging the full extent of the contamination.” The breach and subsequent spill took place in the desert near Eilat, a southern Israel city with a population of about 50,000 people. Though the city itself is not said to be in immediate danger, the now-4.3 mile river of oil is reportedly making its way toward the Jordanian border, where fumes have already been detected. The Israel Ministry of Environmental Protection is warning people to stay away from the spill, noting that oil “can be a health concern,” contaminating land and releasing hazardous gas. The Ministry noted that a triathlon had been scheduled in Eilat for Thursday, and recommended it be cancelled in light of the fumes. Some Israeli media outlets have already reported adverse effects to human health. According to at least one media report, more than 80 people in the neighboring city of Aqaba, Jordan, had been hospitalized for breathing difficulties due to hydrogen sulfide in the air. Three Israelis were also reportedly hospitalized for inhaling toxic fumes.

Big Oil Going Big In The Gulf Of Mexico - The oil industry is betting big on the Gulf of Mexico with both costs and production rising as a result. The Gulf has seen a bit of a resurgence in production this year, after declining from a peak in 2009. The oil industry extracted 1.7 million barrels per day on average in the summer of 2009, which fell to 1.2 million barrels per day last year (see chart. Data from EIA).  But oil output is up around 15% since then, as the industry pours billions of dollars into the Gulf. The Wall Street Journal reported that several new projects from Royal Dutch Shell, Hess Corporation, ExxonMobil and Chevron are expected to come online before the end of 2015 and will have a combined production capacity of 900,000 barrels per day. The production gains come with high price tags. Since 2010, deepwater wells have seen costs balloon by 25%, according to the WSJ. The average deepwater well can cost $300 million. Even worse, costs are rising by 5 to 10 percent each year.  Some of that has to do with the fact that drillers have to move further offshore and into deeper waters. But additional safety regulations that came in the wake of the BP Deepwater Horizon disaster have also added to project costs. The WSJ notes that the average deepwater well takes 13% longer to drill compared to pre-Deepwater Horizon projects due to more scrutiny from inspectors.

US oil reserves at highest since 1975 - FT.com: US proven oil reserves last year rose to their highest level since 1975, official figures have shown, in the latest sign of how the shale revolution has transformed the country’s energy supply outlook. Proven reserves — oil that is expected to be recoverable with existing technology at current prices — were in decline in the US up until 2009, when companies began experiments with producing oil from the Bakken shale of North Dakota. Rising reserves are an indication that higher US oil production, which has risen about 80 per cent since 2008, can be maintained in the longer term, although the recent slump in oil prices is expected to lead to cutbacks in activity and a slowdown in output growth over the coming months. Crude has fallen nearly 40 per cent since June, on the back of surging US production combined with slowing global oil demand. Brent, the international benchmark, fell 18 per cent last month alone as Opec, the producers’ cartel, decided not to cut output. Brent was trading just below $70 a barrel on Thursday afternoon. Last year companies in the US produced about 2.7bn barrels from their reserves, but added 5.5bn in new discoveries, according to the government’s Energy Information Administration. As a result, the US ended 2013 with about 36.5bn barrels of proven oil reserves: a rise of 9.3 per cent over the year, and one of the highest levels ever reported in records that go back to the 19th century. The peak came in 1970, when the industry reported proven reserves of 39bn barrels of crude oil. However, the US is today still well behind Russia and Canada in terms of proven reserves, and also behind most Opec members.

A glut of oil? -- The world is awash in oil, I’m hearing. The problem is, it’s fairly expensive oil.  Take for example Canada. The country has managed to increase its production of oil by a million barrels a day over the last decade. But almost all of that increase has come from oil sands. If you consider only conventional crude oil, Canadian production today would be a third of a million barrels a day lower than at its peak in 1973.  Even without counting environmental costs, that stuff’s not cheap. It was profitable when West Texas Intermediate was over $90. But last week WTI closed at $66. Here are some of the estimates from the Wall Street JournalThe break-even price for new oil-sands surface mines is among the most expensive in the world, at around $85 a barrel, according to Bank of Nova Scotia . Operating costs at existing mines are less than half that amount. But the break-even point for so-called in situ projects, in which bitumen is heated and pumped up to the surface, range between $40 a barrel and $80 a barrel. Such projects represent the majority of future growth. Or consider the United States, where production has grown 2 mb/d since 2004. More than 3 mb/d of that growth has come from fracking of oil trapped in tight geologic formations. Without tight oil, U.S. production would be down more than a million barrels a day over the last ten years and down 5-1/2 mb/d from its peak in 1970. Estimates again vary, but prices this low have to severely inhibit new investment in U.S. tight oil. Without continuing new drilling, U.S, tight oil production would quickly fall. And the economics of deep ocean drilling, which has also been important in supporting production in the U.S. and around the world, have become even more difficult at today’s low prices.  Why am I talking about the costs for Canadian and U.S. oil producers? Because if it had not been for the success of Canada and the United States, world production of crude oil would be down overall over the last decade.

OPEC Fires First Shot In Global Oil Price War - OPEC’s decision not to cut production to shore up oil prices drove down the price of oil even further in a strong challenge to American shale oil producers – or, in less delicate language, the start of an all-or-nothing price war. The immediate result of OPEC’s decision was a further drop in the price of the world’s leading benchmark oil, Brent crude, which lost $6.50 per barrel, falling to $71.25 on Nov. 27, its worst performance in a single day since 2011. Brent soon had a weak rally, raising its value to $72.55. The price of oil has now dropped by nearly 40 percent since mid-June. But expect Brent and other crudes to fall again, says Igor Sechin, the CEO of Russia’s government-owned oil company Rosneft. He said the average price of oil could go below $60 per barrel during the first two quarters of 2015. OPEC’s big decision was not to lower its total production cap of 30 million barrels a day, turning aside pleas from less-affluent cartel members, who said the current oil glut has left them unable to afford to sell their oil at such oil prices. They had urged OPEC to reduce production by 1 million barrels per day. Abdullah Bin Hamad al-Attiyah, who served as Qatar’s oil minister for nearly 20 years, countered on Nov. 19 that any decision to reduce production should be shouldered by major producers who aren’t in OPEC. “Russia, Norway and Mexico must all come to the table,” he said. He may just as well have included the United States. All these non-OPEC producers recently have been harvesting oil at record or near-record levels contributing to the global oil glut that couldn’t be remedied by a simple OPEC production cut of 1 million barrels per day.

Turnabout: OPEC shows U.S. oil producers who's boss -- To paraphrase Mark Twain, rumors of OPEC's demise have been greatly exaggerated. Breathless coverage of the rise in U.S. oil production in the last few years has led some to declare that OPEC's power in the oil market is now becoming irrelevant as America supposedly moves toward energy independence. This coverage, however, has obscured the fact that almost all of that rise in production has come in the form of high-cost tight oil found in deep shale deposits. The rather silly assumption was that oil prices would continue to hover above $100 per barrel indefinitely, making the exploitation of that tight oil profitable indefinitely. Anyone who understood the economics of this type of production and the dynamics of the oil market knew better. And now, the overhyped narrative of American oil self-sufficiency is about to take a big hit. After weeks of speculation about the true motives behind OPEC's decision to maintain production in the face of declining world demand--which has led to a major slump in oil prices--the oil cartel explicitly stated at its most recent meeting that it is trying to destroy U.S. tight oil production by making it unprofitable. One of the things a cartel can do--if it controls enough market share--is destroy competition through a price war. Somehow the public and policymakers got fixated on OPEC's ability to restrict production in order to raise prices and forgot about its ability to flood the world market with oil and not just stabilize prices, but cause them to crash. The industry claims that most U.S. tight oil plays are profitable below $80. And, drillers say they are driving production costs down and can weather lower prices. OPEC's move will now test these statements. The current American benchmark futures price of about $65 per barrel suggests that OPEC took into consideration the breakeven points cited in the linked article above.

OilPrice Intelligence Report: How Badly Has OPEC Bungled?: Saudi Arabia did it. After stonewalling for weeks, all attention is on the House of Saud and its refusal to let OPEC cut production, even by a modest 2 million barrels a day. The immediate impact of this decision was felt with WTI falling to $65.99, its lowest point in over four years, while Brent settled at $70.07 after a near $7.67 drop. That Saudi Arabia thought this to be “a great decision” shows the defiance of the former top global oil producer when confronted with a new energy world order. The news also handed out a battering to oil stocks, with Premier Oil falling by 7%, with Statoil, Total and Shell all down around 4%. Despite this immediate impact, Western powers quickly moved to dispel concern about the impact of this decision on their economies. Canadian Finance Minister Joe Oliver stated that Canada had not counted on an OPEC deal, saying that “when we took into account the oil price decline…we made the assumption that the prices would stay at the low level for the entire period.” Tellingly, far more ink has been poured on whether OPEC has made a severe miscalculation and what this could cost them. USA Today quotes experts as saying that “every time OPEC fails to act it becomes even less relevant.” Seeking Alpha goes one step further, examining in detail how this could lead to OPEC’s breakup, especially with many of its poorer members aghast at the decision and Venezuelan Oil Minister Rafael Ramirez storming out of the conference once the verdict was final. The reasons for such a breakup are numerous. Congress is growing closer to lifting a ban, with a hearing set for December 11 in the House. Russia needs high oil prices to stay financially stable, especially with economic troubles and political sanctions costing well over $100 billion a year. The shift in production power to the U.S., allied with the likes of Canada, Mexico and Brazil, has exposed the deep divisions between OPEC members that were once papered over in the name of joint economic prosperity. If the shale boom truly makes the U.S. energy independent and the oil export ban is lifted, certain OPEC members may shift their allegiance.

Saudis risk playing with fire in shale-price showdown as crude crashes - Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals. Caliphate leader Abu Bakr al-Baghdadi has already opened a “second front” in North Africa, targeting Algeria and Libya – two states that live off energy exports – as well as Egypt and the Sahel as far as northern Nigeria. “The resilience of US shale may prove greater than the resilience of Opec,” said Alistair Newton, head of political risk at Nomura. Chris Skrebowski, former editor of Petroleum Review, said the Saudis want to cut the annual growth rate of US shale output from 1m barrels per day (bpd) to 500,000 bpd to bring the market closer to balance. “They want to unnerve the shale oil model and undermine financial confidence, but they won’t stop the growth altogether,” he said. There is no question that the US has entirely changed the global energy landscape and poses an existential threat to Opec. America has cut its net oil imports by 8.7m bpd since 2006, equal to the combined oil exports of Saudi Arabia and Nigeria. The country had a trade deficit of $354bn in oil and gas as recently as 2011. Citigroup said this will return to balance by 2018, one of the most extraordinary turnarounds in modern economic history. “When it comes to crude and other hydrocarbons, the US is bursting at the seams,” said Edward Morse, Citigroup’s commodities chief. “This situation is unlikely to stop, even if prevailing prices for oil fall significantly. The US should become a net exporter of crude oil and petroleum products combined by 2019, if not 2018.”

Saudi Arabia Declares Oil War on US Fracking, hits Railroads, Tank-Car Makers, Canada, Russia; Sinks Venezuela | Wolf Street: When OPEC announced on Thanksgiving Day that it would maintain oil production at 30 million barrels per day, chaos broke out in the oil market, and the price of oil around the globe spiraled into a terrific plunge. The unity of OPEC, if there ever was such a thing, was in tatters with Saudi oil minister smiling victoriously, and with a steaming Venezuelan oil minister thinking of the turmoil his country is facing  After a near 10% dive in two days, WTI is now down 37% since June!   While the US fracking boom is the official target, Canada’s tar-sands producers are getting hit the hardest. The process is expensive. Their production is largely land-locked and often has to be transported to distant refiners in Canada and the US by costly oil trains. Yet these high-cost producers are getting the least for their oil: The heavy-oil benchmark Western Canada Select (WCS) traded for $48.40 per barrel on Friday, down over 40% from June, the cheapest oil in the world.Their shares got knocked down in sync: For example, Suncor Energy dropped 9% on Friday, down 27% since June; and Canadian Natural Resources dropped nearly 10% for the day, down 28% since June. The US shale oil revolution is bleeding as well. Shares across the board are getting hit, many of them outright eviscerated. If the word “plunge” occurs a lot, it’s because that’s what these stocks did on Friday.

  • Goodrich Petroleum plunged 34% on Friday; down 80% from June.
  • Sanchez Energy plunged 29.5% on Friday, down 71% from June.
  • Clayton Williams Energy plunged 25.6% on Friday, down 61% from May.
  • Callon Petroleum plunged 18.6% on Friday, down 60% from June.
  • Laredo Petroleum plunged 33.5% on Friday, down 66.5% from June.
  • Oasis Petroleum plunged 27.2% on Friday, down 68% from July.
  • Stone Energy plunged 24.1% on Friday, down 68% from April.
  • Triangle Petroleum plunged 25.6% on Friday, down 62% from June.
  • EP Energy plunged 25.3% on Friday, down 54% from June.

The list goes on. Even large oil companies got clobbered:

Leniency expected from oil lenders - Heavily indebted US shale companies are facing financial pressure as a result of the fall in the price of oil but may find their lenders are inclined to “go easy” on them, according to Fitch, the rating agency. The 40 per cent fall in crude prices since June has raised fears that liquidity could dry up for companies with the greatest debt burdens. However, Fitch argues that, as in the previous oil price crash of 2008-09, banks are likely to show forbearance rather than pushing many companies towards restructuring or bankruptcy. “We still think there’s going to be a continued flow of credit,” said Mark Sadeghian of Fitch. “Are the banks going to be the ones that push companies to the wall? We don’t think so.”* The US shale oil boom of the past five years has been led by small and midsized companies, which have generally spent more on drilling wells than they have earned in cash from operations, meaning that they have needed to finance themselves externally, typically with debt. High-yield bond issuance by exploration and production companies increased from $2.5bn in 2003 to $27.7bn so far in 2014, according to Dealogic. The average net debt of the leading US oil and gas exploration and production companies rose from $981m in 2005 to $2.46bn last year, according to Bloomberg data. Bank lending to smaller oil companies is usually linked to a borrowing base representing the value of the company’s oil and gas reserves. When the price of oil drops, the value of those assets also falls, meaning that companies’ borrowing limits will be constrained.

Shale pioneer sees less drilling after losing $12 billion: — Billionaire wildcatter Harold Hamm, a founding father of the U.S. shale boom whose personal fortune has fallen by more than half in the past three months, said U.S. drilling will slow as producers cut back amid falling oil prices. Declining activity from Texas to North Dakota won't be as harmful to the industry as some have feared, the chairman and chief executive officer of Continental Resources Inc. said. OPEC's refusal to curb output last week bodes well for U.S. producers that can outlast countries in the cartel, which depend on higher oil prices. "Will this industry slow down? Certainly," Hamm said Monday in a telephone interview. "Nobody's going to go out there and drill areas, exploration areas and other areas, at a loss. They'll pull back and won't drill it until the price recovers. That's the way it ought to be." Investors have been spooked as oil has declined to a five- year low. The downturn comes after prices above $100 a barrel sparked a boom in output from U.S. shale formations that helped create a glut of supply. Hamm's wealth, which is largely tied to the fate of Oklahoma City-based Continental, has fallen by more than $12 billion in three months, according to the Bloomberg Billionaires Index.

Founding Father of Fracking Boom Is Crying the Blues -- The price of a barrel of oil has been dropping steadily due to decreasing demand and a glut of oil on the market, thanks in large part to the fracking boom in the U.S. Last week, the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, announced it wasn’t going to cut back on production. The announcement sent prices down to less than $70 a barrel, creating financial worries for some banks and a billionaire whose wealth depends upon the success of fracking. Billionaire oilman Harold Hamm, referred to by Bloomberg as “the founding father of the U.S. shale boom” who helped drive the discovery and development of North Dakota’s oil-heavy Bakken shale formation, lost half his fortune in the last three months, the publication reports. “Will this industry slow down? Certainly,” Hamm told Bloomberg. “Nobody’s going to go out there and drill areas, exploration areas and other areas, at a loss. They’ll pull back and won’t drill it until the price recovers. That’s the way it ought to be..” Oil prices of more than $100 a barrel were a large driver of fracking exploration. But as prices drop, fracking for oil in areas such as the Bakken could become unprofitable. But Hamm believes the price will rebound. He claims that his company, Oklahoma-based Continental Resources, can make a profit at $50 a barrel and plans to boost output next year. “Hamm declined to say how those plans may change if prices fall further,” Bloomberg reported, adding “In the most profitable areas of the Bakken, producers can turn a profit on average with oil prices above $65.03 a barrel, according to Bloomberg New Energy Finance.”

The new oil price war - (Blog Review) What’s at stake: Opec’s decision to leave its output ceiling of 30m barrels a day unchanged on Thursday has sent crude prices into a tailspin. Under normal conditions, falling oil prices would be a favorable macroeconomic development, but under current circumstances this is making the job harder for central bankers who struggle to deliver on their inflation targets. Wonkblog writes that there's one short-term reason and three longer-term reasons for this slump. The meeting was the most important in years, because it came amid a pre-existing slump in prices. Everybody wanted to know if OPEC would take any action to halt the decline. It didn't -- presumably because its members decided it was wiser to weather the current storm -- and crude oil prices immediately tanked.  Brad Plumer writes that up until very recently that US oil boom — along with increases in Canada and Russia — had a fairly minimal effect on global prices. That's because, at the exact same time, geopolitical conflicts were flaring up in key oil regions. There was a civil war in Libya. Iraq was a mess. The US and Europe slapped oil sanctions on Iran and pinched that country's exports. Those conflicts took more than 3 million barrels per day off the market.  James Hamilton writes that the current surplus of oil was brought about primarily by the success of unconventional oil production in North America, most new investments in which are not sustainable at current prices. Without that production, the price of oil could not remain at current levels. It’s just a matter of how long it takes for the high-cost North American producers to cut back in response to current incentives. And when they do, the price has to go back up.

Shale oil: In a bind | The Economist: That energy revolution is the envy of the business world. Abundant oil and gas have been extracted from underground rocks by blasting them with a mixture of water, chemicals and sand—“fracking”, in the jargon. As well as festive spirit, the firms responsible embody an all-American formula of maverick engineers, bold entrepreneurs and risk-hungry capital markets that no country can match. Yet now that oil prices have fallen by almost 40% in six months, these firms’ mettle is being tested. Across America shale-shocked executives will spend Christmas overhauling their strategies to cope with life at $70 per barrel, even as investors dump their firms’ shares and bonds. Executives at Lukoil, a big Russian firm, now sniff that shale is like the dotcom bubble—a mania that is being cruelly exposed. Oil-price slumps usually lead to cuts in energy firms’ investments. Production eventually falls, helping prices to stabilise. In 1999, after the Asian crisis, global investment in oil and gas production dropped by 20%. A decade later, after the financial crisis, investment fell by 10%, then recovered. This time some of the pain will be taken by the big integrated energy firms, such as Exxon Mobil and Shell. After a decade of throwing shareholders’ cash at prospects in the Arctic and deep tropical waters to little effect, they began cutting budgets in 2013. Long-term projects equivalent to about 3% of global output have been deferred or cancelled, says Oswald Clint of Sanford C. Bernstein, a research firm. Most “majors” assume an oil price of $80 when making plans, so deeper cuts are likely. ...other articles in this Economist series:

U.S. rig count grows despite oil price slump: The boom in U.S. oil production will live to see another week. The nation’s crude explorers, engaged in a pricing war with the world’s largest suppliers, defied predictions of a drilling slowdown and ran the most rigs since mid-November, boosting the U.S. count by three to 1,575, Baker Hughes Inc. said on its website today. Rigs drilling for natural gas were unchanged at 344, the Houston-based field services company’s website showed. The number of U.S. oil rigs has fallen from the 2014 peak of 1,609 amid a global surplus of crude that has dragged prices down by more than $45 a barrel and threatens to slow the nation’s unprecedented shale boom. OPEC decided last week to m aintain production, placing more strain on U.S. oil producers that have some of the world’s highest drilling costs.“There’s just so much momentum built up in the system right now and a lot of projects have already been funded,” Kurt Hallead, co-head of RBC Capital Markets’ global energy research team, said by telephone from Austin, Texas. “There are some projects that will continue on into the next quarter. Right now, you’re seeing the smoke, and you won’t really see the fire until about the second quarter.”

OPEC’s War Won’t Be All Over by Christmas -- Like invasions of Russia and land battles in Asia, a war on U.S. shale promises to be a protracted and unpredictable campaign.  Rising U.S. shale oil output is one target of Saudi Arabia’s push to have OPEC members maintain their output and so depress oil prices. Even leaving aside OPEC’s clutch of internal divisions, though, fighting U.S. shale will prove a grind—with substantial attrition on the cartel’s side.  Part of OPEC’s problem is that U.S. shale is a many-headed beast, with multiple resource basins and operators. So there isn’t a single price below which production gets shut down. Rather, estimates of break-even prices in U.S. shale span a range: Citigroup , for one, estimates this to be around $70 to $90 a barrel using full-cycle costs.  “Full-cycle costs” is the crucial phrase, as it incorporates big up front charges such as acquiring land. In core shale regions where land and infrastructure is already locked up, the cost to keep drilling could be as low as $40, Citi estimates. Benchmark U.S. crude now trades at about $68. Look at oil’s last big collapse, from almost $150 to less than $40 a barrel between the summer of 2008 and early 2009 amid the financial crisis: The number of oil rigs operating in the U.S. dropped by more than half. Yet production, on a trailing 12-months basis, merely dipped from about 5.1 million barrels a day to 5 million—before starting the surge toward the current level of about 8.5 million. Similarly, while the U.S. rig count collapsed by 85% between 1981 and 1986, output didn’t start falling sustainably until February 1986.   Oil’s sudden slide will cause growth in U.S. oil output to slow, but stopping it altogether would take a protracted period of low prices, at least through the end of next year. Even then, the techniques and discoveries already made would simply pass to another set of players—most likely oil majors scooping up distressed exploration and production firms.

This is oil's ‘Minsky moment’: Strategist: Marc Chandler says the energy sector has just suffered its own Minsky moment. And while he doesn't expect it to take down the stock market, the slide in oil could have a serious impact on the high-yield bond market. Minsky moment is a term coined by Pimco economist Paul McCulley in 1998, and it refers to a point when a period of rapid growth and risk-taking leads to a sudden turn lower and a crisis. Chandler, global head of markets strategy at Brown Brothers Harriman, says that is precisely what is happening in crude oil. "Many people a couple years ago, a year ago, were saying that oil prices could only go up—'we're in peak oil'—meaning that we're running out of the stuff. So a lot of things were leveraged based on oil prices that can only go up. Sort of like house prices—'they can only go up.' So what happened is, because people held this as a deep conviction, they leveraged up," Chandler said Thursday on CNBC's "Futures Now."  In fact, the energy sector has borrowed $90 billion in the high-yield market since 2008, Chandler said, making energy producers "a large component of the high-yield market itself." The problem is that "a lot of the loans, like loans on houses, were made not so much on a person's ability to repay the loan as on the value of the house. Similarly, the banks and investors bought high-yield bonds or leveraged loans on the energy sector not on the basis of their ability to repay it, but on the value of the oil in the ground."

Oil Can Keep Crashing: Just a month or two back, commentators were speculating that Saudi Arabia’s aggressive stance on output and offers of discounts to secure sales were seen as forms of covert economic war against Iran in particular, but against other non-allies such as Russia as well. Saudi Arabia, it was said, is fighting for its market share and, in the process, is quite pleased if it’s causing a little pain in some quarters. However, the failure of OPEC to agree to any cutbacks to shore up falling prices at this week’s meeting in Vienna has been widely reported as an attempt by the cartel to squeeze all low-cost producers out of the market, including and, maybe specifically, US shale or tight oil suppliers. Related: Could Falling Oil Prices Spark A Financial Crisis? If the intention is to put current operators out of business, it’s unlikely to succeed an FT article says. Production costs vary, but Jason Bordoff of Columbia University is quoted as saying many facilities producing oil from Texas’s Eagle Ford and Permian strata would remain viable at $40-$50 per barrel and although production from the Bakken Formation of North Dakota and Montana would be more affected than Texas shale output, the impact was likely to be more on private equity investors’ willingness to get into new projects than existing operations.  The refusal of the Keystone XL green light may be seen in years to come as a wise decision. A prolonged period of lower prices and rising carbon taxes could make further development of oil sands doubtful. Likewise, exploration in high-cost regions such as the Arctic and in deepwater such as offshore Brazil will be very challenged to move forward in the second half of this decade if prices don’t recover soon.

Here Is Oil's Next Leg Down -News reports about developments in the oil markets are coming fast and furious, and none of them indicate any stabilization, let alone rise, in oil prices. Quite the contrary. There are very large amounts of extra barrels flowing into the market, which is just, as one analyst puts it “even more oil flooding the market that nobody needs.” Saudi Arabia looks set to battle for sheer market share, even if it sends strangely contradictory messages. While the US shale industry aggressively tries to convey an attitude based on confidence and breakeven prices that suddenly are claimed to be much lower than what seemed common knowledge until recently. Bloomberg says today that most shale is profitable even at $25 a barrel, and we might want some independent confirmation and/or analysis of that. Just hearing the industry claim it seems a bit flimsy; they have plenty reasons to paint the picture as rosy as they can get away with. Last night, the Wall Street Journal reported on a Saudi price cut for the US, and a simultaneous price hike for Asia.  Saudi Price Cut Upends Oil Market Oil prices tumbled to their lowest point in more than two years after Saudi Arabia unexpectedly cut prices for crude sold to the U.S., likely paving the way for further declines and adding to pressure on American energy producers. The decision by the world’s largest oil exporter sent the Dow industrials into negative territory for the day amid concerns about the pace of global growth. The move heightened worries over the resilience of the U.S. oil industry, which has expanded rapidly in recent years.

US shale lenders caught in energy sell-off - FT.com: The share prices of US banks based in the shale oil heartlands of America nosedived late last week after Opec’s decision to keep its current production rates sparked another steep fall in the price of crude. BOK Financial, headquartered in Tulsa, Oklahoma, dropped as much as 4.4 per cent on Friday, while Cullen Frost, the biggest Texas-based bank, fell as much as 4.3 per cent. Louisiana-based MidSouth Bancorp declined 5.2 per cent while Dallas, Texas-based ViewPoint Financial fell as much as 7.45 per cent. According to estimates from bank analysts at Raymond James, MidSouth has one of the highest proportions of energy loans among midsized US banks at 20 per cent of its total institutional loan book, followed by BOK with 18.6 per cent and Cullen Frost with 14.9 per cent. The sell-off in bank stocks and the drop in oil prices, which have fallen by more than a third since June, left many analysts mulling the outlook for smaller and midsized lenders in the epicentres of the recent US shale boom. Massive investment by oil drillers and exploration companies in US energy and shale gas projects in recent years has been partly financed through cheap borrowing in the capital markets as well as loans from banks. For smaller banks, which have relied on so-called commercial and industrial lending to boost profit margins in recent years, the concern is that a steep fall in the price of crude could take away one of their strongest revenue generators. At an extreme, trouble in the shale industry could spark a wave of debt restructurings and even losses on banks’ energy-related loan portfolios.

Oil, Gold And Now Stocks? - Is the Plunge Protection Team really buying oil now? That would be so funny. Out of the blue, up almost 5%? Or was it the Chinese doing some heavy lifting stockpiling for their fading industrial base? Let’s get to business.  First, in the next episode of Kids Say The Darndest Thing, we have New York Fed head (rhymes with methhead) Bill Dudley. Dudley’s overall message is that the US economy is doing great, but it’s not actually doing great, and therefore a rate hike would be too early. Or something. Bloomberg has the prepared text of a speech he held today, and it’s hilarious. Look: Fed’s Dudley Says Oil Price Decline Will Strengthen US Recovery The sharp drop in oil prices will help boost consumer spending and underpin an economy that still requires patience before interest rates are increased, Federal Reserve Bank of New York President William C. Dudley said. “It is still premature to begin to raise interest rates,” Dudley said in the prepared text of a speech today at Bernard M. Baruch College in New York. “When interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late.” Dudley expressed confidence that, although the U.S. economic recovery has shown signs in recent years of accelerating, only to slow again, “the likelihood of another disappointment has lessened.”  How is this possible? ‘The sharp drop in oil prices will help boost consumer spending’? I don’t understand that: Dudley is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost? Lower energy costs “will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending,” Dudley said.  The drop will especially help lower-income households, who are more likely to spend and not save the extra real income, he said.  Extra income? Real extra income, as opposed to unreal? How silly are we planning to make it, sir? Never mind, the fun thing is that Dudley defeats his own point. By saying that lower-income households are more likely to spend and not save the ‘extra real income’, he also says that others won’t spend it, and that of course means that the net effect on consumer spending will be down, not up.

Oil Market Remarks by Spencer as Taken from Comments - Lifted from comments from this post, Angry Bear Spencer England further explains oil and markets: Oil production is an unusual business in that virtually all of the cost of getting crude to the refiner is fixed costs while variable cost or current spending is insignificant. Economic theory shows that as long as a producers are covering their variable cost, even if they are losing money, it pays to continue production. Thus, what you hear from so many economists and analysts that lower prices will lead to lower output and so balance supply and demand is not quite true. Consequently, lower oil prices will only leads to oil firms not undertaking new drilling. So only with a long lag will lower prices lead to lower output.  Currently, the marginal supply of oil is oil from fracking. At $70 to $80 dollar oil about half of the current supply of fracked oil is unprofitable to bring to market. But oil from wells already drilled will continue to flow. But next year oil drilling will collapse and with a short lag that will lead to a sharp drop in US oil production. Traditional oil, or non-fracked oil has been falling about 5% annually already. Moreover, fracked oil wells have a relatively short life span — on average maybe about three years. To offset these natural rates of decline in US oil output new fracking has to grow sufficiently to offset these two factors. So in 2015 when new drilling for fracked wells fall sharply most people will be surprised to finally see US oil output drop sharply. Interestingly, the optimal pricing strategy for an oligopolist like Saudi Arabia is to set the price just below the price that will allow major new sources of oil come to market. Over the years Saudi has not done a very good job of following this strategy, but it sure looks like that is what they are trying to do now.

Low Oil Prices Are History’s Greatest Case of Market Failure - Remember "Peak Oil?" The world was running out of oil, we were told: Prices would soon skyrocket, and we had better find other fuels.  Well, that argument didn't work out so well for environmentalists, did it? As oil reserves and those of other carbon fuels became scarce and prices rose, the law of supply and demand kicked in. The industry invested the profits from those higher prices in new technologies, and the oil barons found even more destructive ways to extract oil and gas—by exploiting the muck from tar sands, inventing hydro-fracking, and despoiling sources in developing countries.  So now, oil is cheaper than it's been in years, about $66 a barrel. Regular unleaded gasoline can be had for well under $3 a gallon.  One of the few things sustaining U.S. consumer purchasing power in the face of dismal wages is close to $100 billion saved in energy costs. OPEC's pricing power has been broken, and the United States is about to surpass Saudi Arabia as the world's largest oil producer.  Whoopee, energy self-sufficiency! Take that, enviro-pessimists.  The fact is that markets price energy wrongly. They price oil and gas based on current demand and supply, and not based on the costs to the planet in pollution, global climate change, sea level rise, and more. This is, as Lord Nicholas Stern famously put it, history's greatest case of market failure.

'We Are Entering A New Oil Normal" -- The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year. We believe we are entering a “new oil normal,” where oil prices stay lower for longer. While we highlighted the risk of a near-term decline in the oil price in our July newsletter, we failed to adjust our portfolio sufficiently to reflect such a scenario. This month we identify the major implications of our revised energy thesis.  The reason oil prices started sliding in June can be explained by record growth in US production, sputtering demand from Europe and China, and an unwind of the Middle East geopolitical risk premium. The world oil market, which consumes 92 million barrels a day, currently has one million barrels more than it needs.... Large energy companies are sitting on a great deal of cash which cushions the blow from a weak pricing environment in the short-term. It is still important to keep in mind, however, that most big oil projects have been planned around the notion that oil would stay above $100, which no longer seems likely.

Junk Bonds Funding Shale Boom Face $8.5 Billion of Losses -- Bond investors who helped finance America’s shale boom are facing potential losses of $11.6 billion as oil prices plummet by the most since the credit crisis.The $90 billion of debt issued by junk-rated energy producers in the past three years has fallen almost 13 percent since crude oil peaked in June. Halcon Resources Corp. (HK), SandRidge Energy Inc. and Goodrich Petroleum Corp. have been among the hardest hit as OPEC’s refusal to ease a supply glut pushed prices to a five-year low of $66.15 a barrel last week.The oil selloff is deepening concern among bond investors that the least-creditworthy oil explorers will struggle to pay their obligations and prompt bankers to rein in credit lines as revenue slumps. Halcon, SandRidge and Goodrich are among about 21 borrowers operating in the costliest U.S. shale-producing regions that will be unprofitable if crude oil falls below $60 a barrel, according to data compiled by Bloomberg. “We are concerned that there will be defaults and that was even before oil fell as much as it has,” Ivan Rudolph-Shabinsky, a New York-based money manager at Alliance Bernstein Holding LP, said in a telephone interview. “There was too much money going into this space that would have resulted in problems long term -- now that timeline has been accelerated.”

Energy Bond Crash Contagion Suggests Oil Will Stay Lower For Longer -- When we first explained to the public here, that the excessive leverage and currently squeezed cashflow of many US oil producers could "trigger a broader high-yield market default cycle," the world's smartest TV-anchors shrugged off lower oil prices as 'unequivocally good' for all. Now, as a 40% collapse in new well permits and liquidations occurring at the well-head, the world outside of credit markets is starting to comprehend the seriousness of the crash of a sector that was responsible for 93% of jobs created in this 'recovery'. The credit risk of HY energy corporates has more than doubled to a record 815bps (over risk-free-rates) crushing any hopes of cheap funding/rolling debt loads. Suddenly expectations of 1/3rd of energy firms restructuring is not so crazy...

Oil falls to 5-year low, hit by dollar, Saudi price cut - Crude-oil prices fell hard again Friday, with the U.S. benchmark settling at its lowest level in more than five years. Oil briefly erased some losses after a stronger-than-expected U.S. jobs report, but then it slumped to trade at its lowest level since mid-2009, weighed down in part by a rallying dollar. A stronger buck often hurts commodities that trade in dollars, since that makes them more expensive for holders of other currencies. “The jobs report was great, but along with that came a further strengthening of the dollar, and the oil market has generally been prioritizing the dollar strength over economic strength,” said Jim Ritterbusch, president of oil-trading advisory firm Ritterbusch & Associates. Crude also was pressured by Saudi Arabia cutting January prices for U.S. and Asian buyers. On the New York Mercantile Exchange, crude futures for delivery in January CLF5, -1.77% dropped by 97 cents, or 1.5%, to settle at $65.84 a barrel, marking the lowest settlement for a front-month contract since July 29, 2009. The U.S. benchmark endured a weekly loss of 0.5% after being up for the week earlier Friday. Meanwhile, January Brent crude on London’s ICE Futures exchange slumped 57 cents, or 0.8%, to $69.07 a barrel. This represented a 1.5% loss for the week and the lowest settlement since Oct. 7, 2009.

Saudi Arabia Sees Oil Prices Stabilizing Around $60 a Barrel - WSJ: OPEC’s biggest oil producer, Saudi Arabia, now believes oil prices could stabilize at around $60 a barrel, a level both it and other Gulf producers believe they could withstand, according to people familiar with the situation. The shift in Saudi thinking suggests the de facto leader of the Organization of the Petroleum Exporting Countries won’t push for supply cuts in the near-term, even if oil prices fall further. Brent crude dropped 62 cents a barrel to $69.92 on Wednesday. The change in Saudi mind-set also suggests OPEC members may have to adapt swiftly to shifts in the oil market caused by a surge in supply from the U.S. shale revolution and slowing global demand growth. As recently as early November, OPEC officials were talking about $70 a barrel as the sustained level at which there would be “panic” within its ranks.

Extreme oil bears bet on $40 crude - FT.com: The oil market rout has made some investors so bearish they are buying contracts that pay out if prices drop below $40 a barrel — a level last traded during the bleakest chapters of the financial crisis. Extreme market scenarios are playing out in put options for crude, which give holders the right to sell oil above a set price by a certain date.  The number of options to sell US crude at $40 a barrel by December 2015 was equivalent to 880,000 barrels, after more than quadrupling in the past two weeks, according to CME Group exchange data. Similar options with a $35 a barrel strike price climbed to 669,000 barrels from none. The option buying took place as West Texas Intermediate crude tumbled almost 40 per cent from its June high to hit $66.74 a barrel on Thursday, hastened by Opec’s recent decision to stay the course on supply. “It’s a punt, a shot at the worst-case scenario for the oil price,” said Raymond Carbone, president of broker Paramount Options in New York. “You’re a genius if you’re right. And if you’re wrong, it won’t ruin your lifestyle.” US benchmark WTI futures last settled below $40 a barrel in February 2009.

Oil price increases and decreases seem to have asymmetric effects - From an interesting 2003 review article by Jones, Leiby, and Paik (pdf): The energy economics literature has noted the asymmetric responses of petroleum product prices to price changes for well over a decade, as observed by Balke, Brown, and Yücel (1998) in a review of previous studies.  Product prices rise more quickly in response to crude price increases than they decline in response to crude price reductions.  Using weekly data on crude prices and a variety of spot and whole gasoline prices, BBY (1998) find considerable support for asymmetry in the time pattern of downstream price changes to changes in upstream prices, although they find that different specifications of asymmetry yield different results.  Applied to the crude-product relationship, asymmetry has a different meaning than it does in the oil price-GDP relationship. In the crude-product relationship, the asymmetry is in the speed of the response, while in the oil price-GDP relationship, it is in the magnitude of the response. Competition will ensure that the magnitudes of the response of product prices to crude price changes are eventually equal. Otherwise profits in refining and distribution would grow without bound. Here is a JSTOR link to a somewhat later Balke, Brown, and Yücel paper.  Here is their 2008 paper (pdf) on why the oil price/gdp link has weakened in the United States.  Here is a related 2010 paper (pdf).  Here is a recent James Hamilton blog post on oil gluts.  Here is Scott: “Focus on Q, not P.”

Falling oil prices have no implications for global growth. Oil production does -- Rising oil production is likely to lead to faster global growth. Falling oil production is likely to lead to slower global growth. That's because oil is an important input into the production process. However falling oil prices have no implications for global growth---it merely redistributes global wealth. That's why estimates of US RGDP growth next year at $66/barrel are not much different from what people were estimating at $100/barrel. Global oil output hasn't changed very much. Might falling oil prices affect AD? Not with monetary offset--the Fed will simply adjust the date at which they start raising rates.

Oil at $40 Possible as Market Transforms Caracas to Iran -  Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union. Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades. “This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” Daniel Yergin, author of a Pulitzer Prize-winning history of oil, told Bloomberg Radio. “There’s a change in psychology. There’s going to be a higher degree of uncertainty.” A world already unsettled by Russian-inspired insurrection in Ukraine to the onslaught of Islamic State in the Middle East is about be roiled further as crude prices plunge. Global energy markets have been upended by an unprecedented North American oil boom brought on by hydraulic fracturing, the process of blasting shale rocks to release oil and gas. Few expected the extent or speed of the U.S. oil resurgence. As wildcatters unlocked new energy supplies, some oil exporters abroad failed to invest in diversifying their economies. Coddled by years of $100 crude, governments instead spent that windfall subsidizing everything from 5 cents-per-gallon gasoline to cheap housing that kept a growing population of underemployed citizens content.  Those handouts are now at risk.  “If the governments aren’t able to spend to keep the kids off the streets they will go back to the streets, and we could start to see political disruption and upheaval,”

Collapse Of Oil Prices Leads World Economy Into Trouble --OPEC, the largest crude-oil cartel in the world, wanted others to feel its pain as oil prices collapsed. “OPEC wanted … to cut off production … and they wanted other non-OPEC [countries], especially in the US and Canada, to feel the pinch they are feeling,” says Abhishek Deshpande, lead oil analyst at Natixis. But in its rush to influence others, OPEC ended up hurting everyone in the process – including itself. Low oil prices, pushed down further by OPEC’s meeting last week,have impacted world economies, energy stocks, and several currencies. From the fate of the Russian rouble to Venezuelan deficits to American mutual funds full of Exxon or Chevron stock, OPEC’s decision was the shot heard round the world for troubled commodities.  So how low could oil go? Standard Chartered analysts expect “extremely negative for oil prices for 2015”. The bank slashed its 2015 average price forecast for Brent crude oil by $16 a barrel to $85. Other forecasts are lower.   Natixis’s Deshpande said their average 2015 Brent forecast is around $74, with WTI around $69. These prices have real-world effects on world economies. Everyone in the sector is smarting. Deshpande said because of how Saudi Arabia uses its oil well to support its entire economy, the country’s budget calls for $90 a barrel to break even, despite that the cost of production is closer to $30.  Other OPEC members have even higher budgetary breakevens.  Venezuela is a prime example of a country squandering its riches. Citi said for every $10 drop in oil prices Venezuela loses about $7.5bn in revenues.

Global Oil Consumption Report: What Countries Have Increased or Decreased Oil Usage Since 2009?  -- Reader David Epperson sent in some interesting charts on global oil usage that he produced from U.S. Energy Information Administration (EIA) data. The data is through the end of 2013. David writes ... I was curious how much oil consumption had declined over the last few years, so I went to the EIA web site, downloaded the consumption data and produced the following charts. The data represents the percentage change in oil consumption from 2009 to 2013, the latest year non-OECD data were available.  This is an absolute percentage change, and not an annualized change.  For instance, oil consumption in Spain was roughly 20% lower in 2013 than in 2009.  This was about the same rate of decline seen in war-wracked Syria.  Greece was down even more, close to 30%.  In order to make the data labels readable, I’ve had to separate the charts into three.  One shows countries in the 1 million to 20 million b/d group.  The next shows the 1 million – 4 million club (all large countries excluding the US, China and Japan), and the next shows the 100,000 to 1 million b/d club. I’ve excluded the 141 countries in the EIA database whose consumption was less than 100,000 b/d, since these only account for about 3.5% of total global demand. The sum for the entire world was a 6.5% increase from 2009-13.

Flow of Opec petrodollars set to dry up - FT.com: The flow of Opec petrodollars into global financial markets is set to dry up as the collapse in the oil price delivers a $316bn hit to the cartel’s revenues. Big oil producers have pumped the windfall they enjoyed from soaring oil prices over the last decade into a huge range of global assets, from US Treasuries and high-grade corporate bonds to equities and real estate. Qatar, for example, bought the Harrods department store and Paris Saint-Germain, France’s top football club, while Abu Dhabi’s sovereign wealth fund bought a stake in the glitzy Time Warner building in New York. The flow of petrodollars into the global financial system boosted liquidity, spurred asset prices and helped to keep borrowing costs down. But the 40 per cent fall in Brent crude since mid-June will reverse this trend, as the shrinkage of the oil producers’ cash pile removes a pillar of support for global markets. “This is the first time in 20 years that Opec nations will be sucking liquidity out of the market rather than adding to it through investments,” David Spegel, global head of emerging market sovereign and corporate research at BNP Paribas. BNP estimates that if oil production remains at its current level and oil prices stay at about $70 a barrel for the next year, Opec nations will receive $316bn less in oil export revenues than if oil prices were at their three-year average of $105.

Putin Kills "South Stream" Pipeline, Will Build New Massive Pipeline To Turkey Instead -- Earlier today, in a stunning announcement, Putin revealed that the South Stream project is now finished. As the WSJ reports, "Putin said Moscow will stop pursuing Gazprom’s South Stream pipeline project that would supply natural gas to Europe with an underwater link to Bulgaria, blaming the European Union for scuttling the project." Putin is right: Europe - Austria excluded - had seen rising resistance to the South Stream in recent months. The EU is concerned that the project would cement Russia’s position as Europe’s dominant supplier of natural gas. Russia already meets around 30% of Europe’s annual needs. So what does Putin do? He signs a strategic alliance with NATO member Turkey, the only country in Europe that is anything but European and which lately has been increasingly anti-Western, to build a new mega-pipeline to Turkey instead. And the exclamation point: TURKEY, RUSSIA AGREE TO USE LOCAL CURRENCIES IN TRADE: Or, as Obama would put it, Russia just got even more "isolated."

Anger and dismay as Russia scraps $50bn gas plan - FT.com: Eastern European nations reacted with shock and anger to Russia’s decision to abandon South Stream, its $50bn gas pipeline across the Black Sea into Europe, as shares in some of the companies involved in the project dived. Bulgaria, Serbia and Hungary said they had received no advance warning that Moscow was scrapping South Stream, even though they all have substantial financial and political capital invested. Russia said it would export its gas to a trade hub in Turkey instead.  South Stream is so far the biggest casualty of the stand-off between Russia and Europe over Moscow’s military involvement in Ukraine. The much-vaunted project, backed by Russia’s state-controlled gas group Gazprom, was designed to bring Russian gas into Europe by bypassing Ukraine. It gained momentum after a series of price disputes between Moscow and Kiev over the past decade led to supply cuts for some of Gazprom’s European customers. But there were fears in Brussels that the pipeline would cement Gazprom’s domination of the European gas market. The European Commission insisted that other gas suppliers be given access to South Stream, arguing that the idea of Gazprom both providing the gas and owning the pipeline violated EU competition rules.  However, the project was backed by several countries in southeastern Europe, which saw it as a way to improve their energy security. They also looked forward to earning money from transit fees for South Stream’s gas as it crossed their territory.

Russia Forecasts a Recession in 2015, Signaling a Toll From Sanctions and Oil Prices - After months of insisting that Russia can weather sanctions and plunging oil prices, Moscow for the first time is acknowledging that the economy could fall into a recession next year.The Ministry of Economic Development, which publishes the government’s economic outlook, on Tuesday revised its forecast for 2015 to show a contraction of 0.8 percent, compared with a previous projection of 1.2 percent growth.The combination of sanctions and plummeting oil prices is catching up with Russia’s economy, wobbly in the best of times because of its heavy reliance on commodity exports.In the face of the weakness, the ruble has been in a free fall, driven by Russians’ fears of economic isolation and their eagerness to change rubles into dollars or euros to move wealth out of the country.The ruble opened at 52 to the dollar and slipped to around 53 in trading on Tuesday. So far this year, the ruble has fallen more than 40 percent against the dollar. Also boding ill for the Russian economy was the announcement on Monday by President Vladimir V. Putin that he would scrap plans for South Stream gas pipeline. The project, once intended to establish the country’s energy dominance in southeastern Europe, fell victim to Russia’s increasingly strained relationship with the West.

Russia will hit recession in 2015 because of oil and Ukraine, Kremlin admits -  The Russian government has for the first time acknowledged that the country will fall into recession next year, battered by the combination of Western sanctions and a plunge in the price of its oil exports. The economic development ministry on Tuesday revised its GDP forecast for 2015 from growth of 1.2 per cent to a drop of 0.8 per cent. Disposable income is expected to decline by 2.8 per cent against the previously expected 0.4 per cent growth. Russia's economy has been damaged by low oil prices, a key export and the backbone of the state budget, as well as Western sanctions over its role in eastern Ukraine. The sanctions are hurting Russian banks and investment sentiment is down. The national currency, the ruble, has dropped by more than 40 per cent this year, raising concerns of a spike in inflation that can hurt spending. The release of the forecast on Tuesday afternoon reversed a modest rally in the Russian market, bringing the ruble 2 per cent lower against the dollar, to 52.30 per dollar.

Putin Signs Russian Budget for Next Year Based on $100 Oil Price -  President Vladimir Putin on Wednesday signed into law a 15.5 trillion ruble ($290 billion) budget for next year that only balances with global oil prices averaging $100 a barrel. Total income to state coffers in 2015 will be 15.1 trillion rubles, according to a statement on the Kremlin website. Russia is one of the world's largest exporters of oil and natural gas, and the government depends on energy for about half of its revenues. However, oil prices have plunged about 40 percent since a June high of $115 dollars a barrel. Every $1 drop in global oil prices deprives the state of about $2 billion. The Economic Development Ministry predicts oil prices will average $80 a barrel next year. The budget for next year is also calculated with an average inflation level of 5.5 percent, according to the Kremlin statement. Driven up by a falling ruble and import bans, inflation has jumped in recent months, with some officials predicting it will reach 10 percent by the end of the year. The 2015 budget will record a deficit of 430.7 billion rubles ($8 billion), according to the statement.

Russia: Prostitutes hike prices as rouble falls: Prostitutes in the Russian Arctic port of Murmansk have unexpectedly hiked prices for their services by up to 40%, blaming the tumbling rouble exchange rate for their decision, it seems. They also want to peg the cost of services to the dollar in the longer term if the situation doesn't improve, sources at one brothel tell the local FlashNord news agency. Two hours with a prostitute in Murmansk cost 3,000-7,000 roubles ($57-132; £36-84) before the price rise, the agency says. The management of another brothel says it's "trying to keep prices down, but the cost of living is rising and the girls can't work at a loss". The rouble has lost more than 40% of its value against the dollar and 60% against the euro since the start of the year, as a result of Western sanctions over Russia's involvement in the eastern Ukraine insurgency and a fall in oil prices. Russian social media commentators are having a field day over the news, with some getting in digs at the authorities. "Putin - learn about the economy from the Murmansk prostitutes", tweets Andrei Negotov. Others, including Alexander Sitnikov on the NTV website, think the prostitutes should show some patriotism and "raise their rates for foreigners, in reply to sanctions".

Russian ruble in worst daily drop in 16 years - The ruble, Russia's currency, has suffered its biggest one-day fall since 1998 as sinking oil prices and Western sanctions over the Ukraine crisis aggravate worries about the country’s economy. The Russian currency fell by nearly nine percent at one point to 53.9 rubles against the dollar and 67 rubles against the euro. Later in the day, the currency clawed back a little ground to 52 rubles against the dollar and 65 against the euro. The ruble has depreciated by nearly 60 percent against the dollar since the start of this year. The price of oil dropping to five-year lows in recent days has a major impact on the Russian economy as oil and natural gas exports are a main source of revenue for its federal budget. Many analysts increasingly worry over the country's economic outlook as the Russian authorities express apparent reluctance to change tack over the crisis in Ukraine. The price of oil, the backbone of the Russian economy, has dropped roughly 25 percent since the summer. Brent crude, an international benchmark, fell three percent on Friday and was down another one percent on Monday to $69.47 a barrel.

Putin Gambles on a Weak Ruble -  The Russian government is taking a risky political gamble by allowing the ruble to fall along with the price of oil. The Russian currency dropped to a record low for a third day, continuing its most severe decline since 1998, when the country defaulted on its internal debt. The freefall will soon affect consumption, and even the less affluent citizens who form President Vladimir Putin's support base could become restless. At first glance, the ruble's recent depreciation follows the trajectory of oil prices, which dropped sharply after the Organization of Petroleum Exporting Countries declined to cut output last week. Other oil-producer currencies have suffered, too. Yet the ruble's slump is deepest of all. Here is the ruble's trajectory compared with the Nigerian naira: Unlike Nigeria, which has defended its currency, Russia has barely intervened. There were reports of central bank activity during today's trading session, and the ruble rebounded slightly after dropping more than 9 percent in the morning, but it's still down almost 6 percent for the day. Putin has explained the government's strategy this way: The national budget is denominated in rubles, not dollars, and as Russia's main export, oil, loses dollar value, the currency devaluation offsets the loss. This allows the government to keep its promises for social programs, in nominal terms. As imports drop, the theory goes, domestic producers will pick up the slack, and most Russians aren't going to feel much of a pinch unless they travel outside the country or buy a lot of imported clothes, electronics and fancy foods. In any case, the people who do such things aren't Putin's biggest supporters. He relies on the poorer, older, more nostalgic and less educated electorate, which wouldn't be hurt by the devaluation.

Capital controls feared as Russian rouble collapses - The Russian rouble has suffered its steepest one-day drop since the default crisis in 1998 as capital flight accelerates, raising the risk of emergency exchange controls and tightening the noose on Russian companies and bodies with more than $680bn (£432bn) of external debt. The currency has been in freefall since Saudi Arabia and the Gulf states vetoed calls by weaker Opec members for a cut in crude oil output, a move viewed by the Kremlin as a strategic attack on Russia. A fresh plunge in Brent prices to a five-year low of $67.50 a barrel on Monday caused the dam to break, triggering a 9pc slide in the rouble in a matter of hours. Analysts said it took huge intervention by the Russian central bank to stop the rout and stablize the rouble at 52.07 to the dollar. “They must have spent billions,” said Tim Ash, at Standard Bank. It is extremely rare for a major country to collapse in this fashion, and the trauma is likely to have political consequences. "This has become disorderly. There are no real buyers of the rouble. We know that voices close to president Vladimir Putin want capital controls, and we cannot rule this out," said Lars Christensen, at Danske Bank. "Funding problems are increasing dramatically. We think Russia is now flirting with systemic problems,” he added.

Lawmaker Calls Russia's Central Bank ‘Evil’ - The Prosecutor General’s Office is looking into the Central Bank’s operations after a ruling party lawmaker accused it being an “enemy of the country” by supposedly driving down the ruble and plotting “evil” against Russia. The ruble dipped to nearly 54 against the dollar on Monday, amid Western sanctions against Moscow’s over its policy on Ukraine and a global slump in energy prices. But Yevgeny Fyodorov, a United Russia lawmaker and member of the State Duma’s Budget and Tax Committee, instead charged that the troubles were the Central Bank’s fault. “The Central Bank is an institutional enemy of the country,” “Its bosses are officially abroad. I am assuming that it will do the maximum evil. The Central Bank will do everything to have the ruble rate fall.” Fyodorov has expressed his concerns to the Prosecutor General’s Office, demanding that it open a “criminal case” against the bank. The Central Bank confirmed Monday that the prosecutor’s office was looking into its activities. “The Bank of Russia is currently preparing the necessary materials to respond to the prosecutor’s office in connection with this inquiry.” Traders told Reuters on Monday that the Central Bank may have started to intervene on the foreign currency exchange market to slow down the slide of the ruble, which seemed headed for its steepest one-day fall since the 1998 financial crisis. The ruble lost more than 6 percent of its value against the dollar in Monday trading before moving up slightly to a 4 percent loss.

Bank of Russia move fails to reverse ruble's slide - --The Bank of Russia intervened in the currency market for the second time this week on Wednesday in an effort to defend the crumbling ruble, traders said, but the effect was short-lived. The ruble weakened to a record low of 54.91 against the dollar in morning trading, pressured by a recent slide in the oil price and Russia's gloomy economic outlook. But at 0951 GMT, the ruble suddenly firmed to 52.79 per dollar. The central bank let the ruble float freely from Nov. 10 and eliminated regular interventions after spending nearly $30 billion of its reserves did little to stop the ruble's decline. But the central bank has repeatedly said it reserved the right to carry out sudden interventions at any level to ensure financial stability and avoid panic. On Wednesday, it revealed that it had sold $700 million earlier in the week in defense of the ruble, which has been hitting record lows daily. The central bank's latest move back into the market, however, supported the ruble only briefly. The dollar quickly pushed back up to 54. "The ruble situation is looking quite ugly,"

Putin Just Announced A Massive Foreign Currency Bailout For Russia's Collapsing Banks - In his annual address to the nation on Thursday, Russian President Vladimir Putin announced that the country's reserve funds, usually earmarked for investment in state projects, should be used to bail out troubled Russian banks. In doing so he revealed just how grim the prospects for financial institutions have become following the rouble's collapse. The Russian private sector appears to be on state-funded life support. In particular, the move strongly suggests that the Russian banking system has been running out of collateral that can be used to get dollars from the central bank. Access to dollars is critical because the banks took out foreign-currency loans from investors that they have to pay back in the same currency. Current estimates suggest Russian businesses need to repay $35 billion this month. But Russian banks face major challenges funding this, with Western sanctions freezing them out of global capital markets on the one hand and a weakening domestic economy putting pressure on profits on the other. These issues have been compounded by a fall of about 40% in the value of the rouble since June. As the rouble loses ground to foreign currency, those debts become increasingly difficult to pay back.

Sanctions on Russia Bite Europe, China the Beneficiary -- European sanctions on Russia have hurt the EU far more than Russia. Moreover, Europe has lost key machinery contracts to China, and those contracts will likely stay with China even after sanctions are lifted. Please consider Europe Feels Sting in the Tail of Russia SanctionsAt a technology fair in Moscow last month, European executives faced the new reality of doing business in Russia since the West imposed sanctions: the number of companies at the international showcase had shrunk by half from a year ago. "The impact on business couldn't be clearer. Fewer stands, fewer companies," said Mark Bultinck, a sales executive for Belgian digital screen maker Barco, which had a booth at the annual expo for the audiovisual industry. The impact of the sanctions was already clear to Barco. The company lost Russia's biggest shipbuilder as a client when the United States and the European Union blacklisted United Shipbuilding Corporation in July, meaning Barco could no longer sell screens to the company for its vessel training simulators.

China Winning in OPEC Price War as Hoarding Accelerates - China is emerging as the winner from OPEC’s battle with rival oil producers as the world’s biggest energy consumer stockpiles crude. The nation’s efforts to boost reserves may increase its imports by as much as 700,000 barrels a day in 2015, according to London-based Energy Aspects Ltd. That’s more than half the global glut forecast by Citigroup Inc. after the Organization of Petroleum Exporting Countries refrained from cutting output at its meeting last week. Brent crude has slumped 41 percent from its peak in June. The dwindling number of investors still betting on a rebound in prices can at least count on Chinese demand. OPEC decided to maintain output targets even as a shale boom boosts U.S. production to the highest in more than three decades and causes a global supply glut. As crude extends its slump to the lowest level in more than four years, China is seeking to build a strategic petroleum reserve. “This is a golden time window to acquire more strategic oil stockpiles at lower costs,” Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc., wrote in an e-mail Nov. 28. China will be “a big beneficiary” from the OPEC decision, he said. China boosted imports by 8.3 percent, or 460,000 barrels a day, in the first nine months of this year, the fastest pace since 2010, customs data show. The country will overtake the U.S. as the world’s biggest oil consumer within two decades, according to the International Energy Agency in Paris.

China's manufacturing growth slows again in November: China's factory activity slowed by more than expected in November, highlighting how a cooling economy is impacting its vast manufacturing sector. The official purchasing managers' index (PMI) dipped to 50.3 in November from October's 50.8, closer to the 50 point mark that separates growth from contraction. It was below the 50.6 level expected by economists. Rising costs and falling demand were blamed for the downturn in activity. Meanwhile, a private survey from from HSBC showed that growth in Chinese factories in November stalled as output shrank for the first time in six months. The final HSBC/Markit manufacturing PMI slipped to a six-month low of 50 in November, down from 50.4 in October. The reading was unchanged from a preliminary "flash" finding released earlier this month. Output fell to 49.6, which was the worst reading since May.

China Manufacturing PMI Drops To 8-Month Lows, Teeters On Brink Of Contraction - From exuberant credit-fueled cycle highs in July, China's official Manufacturing PMI has done nothing but drop as the hangover-effect from the credit-impulse weighs once again on the now commodity-collateral crushed nation. At 50.3 (missing expectations of 50.5 for the 2nd month in a row), this is the lowest print since March. All 5 components dropped led by notable weakness is outout and new orders (new export orders biggest MoM drop in 17 months) with medium- and small-enterprises heading deeper into contraction (at 48.4 and 47.6 respectively) as the Steel industry PMI craters to 43.3. Japan's PMI dropped marginally to 52 and then HSBC's China Manufacturing confirmed the government data and flash reading with a 50 print - the lowest since May as New Export Orders growth slowed for the 2nd month.

Chinese Workers Should Work Less, Spend More, Report Says - Stop working long hours — it’s bad for your health and the country’s economic growth. That’s the message academics want to send to China’s 769 million workers. The Chinese economy—the world’s second-largest– has long benefited from its hardworking factory workers who churn out everything from handbags to iPhones, as well as its many white-collar toilers who eat their dinner at the office to meet deadlines. The average Chinese worker works between 2,000-2,200 hours every year in China, Wang Qi, a researcher of the Beijing Normal University, told China Real Time. Such an estimate was based on data from China’s National Bureau of Statistics, industry groups and online questionnaires. By contrast, the average worker residing in Organization for Economic Cooperation and Development countries countries works some 1,770 hours, according to the Paris-based organization. Though such a hardworking ethos may be praiseworthy, some economists say it is time for Chinese employers to cut down on their employees’ working hours. Doing so, they say, can help workers feel better-rested – boosting productivity – and also spur consumption, a key government objective, with more leisure hours that can be devoted to shopping. Lai Desheng, a Beijing Normal University professor who led the study of Chinese working hours, said long working hours aren’t in China’s best interest, according to a transcript of the event. “It may have been one of the secrets that help created the ‘China miracle’ but it has created a lot of problems,” Mr. Lai said, citing the frequency of workplace accidents, which tend to happen when workers are tired. “It is not sustainable.”

China’s Challenge on Deposit Insurance: Create Risk but Not Panic - As deposit insurance is rolled out across China’s financial industry, regulators face a difficult balancing act. They’ll try to introduce more risk to strengthen the financial system without sparking bank runs as depositors realize the government won’t always bail them out. On Sunday, the central bank released a draft of a long-awaited deposit insurance plan that would insure accounts up to 500,000 yuan ($81,000) if an institution fails. After a public comment period, the program is expected to start in the first half of 2015. The challenge is weaning the public from its belief in an implicit government guarantee, which can encourage reckless behavior, without sparking a panicked shift of capital from smaller to larger banks. “You have to figure out a gradual way to try and teach them,” said Oliver Barron, head of China research at North Square Blue Oak, an investment bank. “You want to avoid 100 people out demonstrating in front of a bank.” Bank defaults have been rare during the Communist Party’s six and a half decades in power. China has bailed out a handful of failed financial institutions, including Hainan Development Bank in the late 1990s. One factor in the timing of the new system, analysts said, is the expected startup of five private banks on a pilot basis. Without deposit insurance, Chinese depositors would have a limited incentive to try new entrants out, potentially dooming this reform effort before it started.

China Just Passed U.S. as World's Largest Economy -- Market Watch recently reported: "For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet ... The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A." We used to laugh, smug with our "American exceptionalism" whenever we saw cheap goods with the stamp "Made in Japan" or "Made in China". American workers had always thought of themselves and their country superior in every way. We belonged to labor unions, had job security, and healthcare. Our parents used to tell us to eat all our vegetables because people were starving in China. We had the "American Dream" and we defeated fascism and communism wherever and whenever challenged. We sent a man to the moon, and outspent the U.S.S.R. in military spending to break up the Soviet Union. We were so high and mighty and full of ourselves as we were buying up all those cheap goods, stereos, VCRs and TVs. That was before American corporations began expanding their operations exponentially overseas after the Vietnam War for cheaper labor to increase their CEO's paychecks. The reason they gave was because of "global competitiveness". There is no such thing as "corporate patriotism". About that time was also when Wal-Mart began expanding their super-stores into our neighborhoods, putting small business that were selling American-made goods (with higher prices) out of business forever (with cheaper prices).

Further slowdown in GDP expansion forecast in 2015 - Economic growth in China is expected to post the slowest growth rate since 1990 of around 7.2 percent in 2015, State-owned lender Bank of China Ltd said on Tuesday. "We expect that the government will set its annual economic growth target for 2015 at around 7 percent, down 0.5 percentage point from 2014," said Gao Yuwei, a researcher at the bank's Institute of International Finance. Cao Yuanzheng, chief economist of BOC, said China's economic structure has been undergoing profound changes in recent years. The service industry has become the largest industrial sector and consumption has become a major contributor to the economy, significantly alleviating the employment pressure. "Back in 2007, every percentage point of GDP growth would have created 1.2 million jobs. But now, it will create 1.8 to 1.9 million jobs ... In this sense, economic growth is not as important as before," Cao said. According to a report on the economic and financial out look in 2015 released by the lender, the service industry will account for about 48 percent of the gross domestic product, giving more support to steady growth of the economy and employment. Consumption is expected to contribute 50 percent of the economic growth.

How might a China slowdown affect the world? -- Two years ago it was hard to find analysts who expected average GDP growth over the rest of this decade to be less than 8%. The current consensus seems to have dropped to between 6% and 7% on average.  I don’t think Beijing disagrees. After assuring us Tuesday that China’s economy – which is growing a little slower than the 7.5% target and, is expected to slow further over the rest of the year – was nonetheless “operating within a reasonable range”, in his Tianjin speech on Wednesday Premier Li suggested again that the China’s 7.5% growth target is not a hard target, and that there may be “variations” in China’s growth relative to the target.  I think every one knows that variations will only come in one direction, and although his stated expectations are still pretty high, most analysts, correctly I think, interpreted his remarks as a warning that growth rates will drop even more.  At any rate as far as I can understand, most analysts claim that if growth in China fell much below 6%, we would be likely to suffer the following: The rest of the world would slow, perhaps sharply, as a consequence of China’s lower growth. There would be a crisis in the Chinese financial system, which would spread to the global financial system. Political instability would emerge in China as unemployment surges. I think most analysts may be overestimating the adverse consequences and underestimating the probability of much lower growth. I continue to expect growth rates to fall substantially, probably by 1 percentage point a year or more for the rest of the decade, so that in the best case, during the expected period of President Xi’s administration (2013-32), growth rates are unlikely to average above 3-4%. Higher growth rates are not impossible, of course, but to get the arithmetic to work for me it would take some fairly implausible assumptions – mainly that Beijing engineers the transfer of 2-3% of GDP every year from the state sector to the household sector – for China to achieve growth rates anywhere near 6% for the next decade.

U.S.-China Commission Describes The Multiple Tactics Of A Rogue Nation Whose Policies Have Destroyed The U.S. Economy, And The U.S. Federal Government's Failed Response: For the past decade, U.S. government officials have been pleading with China to shift its economy from investment in manufacturing capacity and exports to domestic consumption. It has asked that China stop manipulating the value of its currency. It has asked that it open its markets to U.S. service providers in health care and finance. Despite repeated promises from Chinese diplomats, it's not happening and doesn't look like it ever will, according to the U.S.- China Economic and Security Review Commission (USCC). In fact, China remains a rogue nation, undeterred in its pursuit of creating hundreds of millions of jobs in whatever manner it deems appropriate, and at whatever cost to the U.S. economy. According to the commission, China is shutting out foreign companies. It continues to invest in state-owned enterprises. Its cyber espionage programs continue to target U.S. businesses and national security agencies. It is cracking down on political activists, despite assurances made by former U.S. presidents, senators and diplomats that the Internet and liberalized trade with the United States would lead to a new wave of enduring freedoms for Chinese citizens.

Violent clashes are the new normal for Hong Kong’s Umbrella Movement -- As Hong Kong’s pro-democracy protests stretch into their third month, one question has loomed large—how much longer can the stand-off continue? After all, the center of the city has been colonized by a pro-democracy tent city that looks more permanent by the day. It hasn’t prevented most Hong Kongers from getting to work, but serves as a daily public reminder of the deep ideological rift between Beijing and its allies, and many of Hong Kong’s citizens. Not much longer, is the short answer. Hong Kong has just been rocked by a series of violent clashes between protesters and police—which started Sunday night and reached their zenith early this morning. And a court injunction handed down late Monday evening, which prescribes clearing the heart of the protests, means there is more to come. Late Sunday the protesters, after more than a week of seeing their encampments systematically dismantled by police, decided to step up their actions to force the government to react and bring the demonstrations to a head. And police, after months of mostly non-confrontational tactics, seem to have lost any qualms about using violent force. In short, both sides appear to be acting with a new-found determination that seems likely to end the stalemate in a very messy fashion.

Occupy supporters and police clash as Hong Kong protests escalate - Students fought running battles with police outside government headquarters on Sunday night as Occupy protesters tried to storm the Admiralty compound and lay siege to Chief Executive Leung Chun-ying's office. Minutes after student leaders called on the thousands gathered at the Admiralty Occupy encampment, hundreds of protesters - wearing an assortment of hard hats and protective masks - thronged around government headquarters and Tamar Park and began trying to breach police lines at various points. Police used pepper spray and baton charges to repel them, leaving some bloodied and requiring treatment by makeshift medics. Key areas of violence were Lung Wo Road and the walkways from Harcourt Road to government headquarters.  At the same time, fresh trouble flared in Mong Kok as police and protesters clashed, although the disturbances subsided after 10 or so minutes, leaving the situation tense.

Asia’s Factory Activity Slows on Weak Demand - November’s bleak factory readings across Asia signal another month of export weakness, as manufacturers continue to struggle with slumping global demand. Purchasing managers’ index readings, which measure manufacturing conditions, signaled weakness in China, Indonesia and Taiwan. While South Korea showed some improvement, India proved the only bright spot, with its gauge hitting a 21-month high. The data “suggests that the region’s manufacturers continue to struggle,” said Daniel Martin, a Singapore-based economist with Capital Economics, a research firm. In South Korea and Taiwan, “output appears to be stagnant at best.” Two measures of factory activity weakened in China, with its official gauge falling to its lowest level since March, and a private reading by HSBC and research firm Markit hitting a six-month low. China’s official PMI index fell to 50.3 in November from 50.8 in October. A reading above 50 indicates an expansion in manufacturing activity from the previous month, while a reading below indicates contraction. Economists haven’t seen evidence yet that last month’s interest-rate cut will lift production. The official new export orders index, for instance, fell a sharp 1.5 points to 48.4. Barclays continues to believe that more interest rate cuts will be necessary.

Japan downgraded by Moody's amid rising fears over debt: Moody's has cut Japan's credit rating by one notch over rising doubts about its ability to reduce debt levels. The decision by the ratings agency sent the yen to a seven-year low against the US dollar. The downgrade comes less than a two weeks before a snap general election called by prime minister Shinzo Abe. His economic stimulus policies and a decision to delay a second sales tax rise will be among the key campaign issues. Tom Byrne, regional credit officer of Moody's, said the downgrade was closely linked to Mr Abe's decision to delay a sales tax rise due to be implemented in 2015. The move would make it more difficult for Japan to cut its budget deficit by 2020. Moody's also warned that efforts by the Bank of Japan to achieve its 2% inflation target through aggressive money printing, or quantitative easing, could make it more expensive for the government to borrow. Japan's rating has been reduced by one notch to A1 from Aa3 after the economy sank into recession during the third quarter. The A1 rating is one level lower than China and South Korea, and four lower than the US and Germany, which both have the top Aaa rating.

The Moody’s Move: How Long Can Japan Defy Gravity? - The decision by Moody's to cut Japan’s sovereign debt rating once again raises awkward questions always lurking just below the surface for the country’s policy makers: Just how long can they defy gravity? When will a debt downgrade exact the punishing toll on Tokyo that such a blow has unleashed on other highly indebted countries, from Europe to emerging Asia and Latin America? The early read: that time hasn’t come yet–though changes in long-time stabilizing fundamentals could be making Japan more vulnerable. Japan has long been the great paradox of the big sovereign borrowers — having the biggest pool of government debt in the world relative to the size of its economy, while enjoying one of the lowest borrowing rates. Its government debt is well over twice the size of its gross domestic product– only Zimbabwe comes even close to that ratio–while the yield on its benchmark 10-year government bonds is around 0.43%. For many years, economists explained that disparity by noting that while Japan’s government was a huge debtor, its companies and households were big savers, leaving the country as a net creditor. Deflation also kept market interest rates low. And then there was the view that Japanese leaders took the debt seriously and were committed to bringing it down over time, and could do so with measures like raising their sales tax. The danger is that each of those buffers may now be eroding under the “reflation” push by Prime Minister Shinzo Abe and Bank of Japan Gov. Haruhiko Kuroda. They say they are committed to stoking 2% inflation as soon as next year. They’re leaning hard on Japanese companies to stop sitting on so much cash and circulate it through the economy. They’re pushing domestic investors to dump Japanese government bonds for other assets. And Mr. Abe decided to delay the next planned sales tax increase in hopes of getting higher growth.

Did Japan actually lose any decades? -- Commentators, academics and policymakers often assert that Japan’s economic performance since the 1980s is one of the worst fates a rich country can endure. While this has become somewhat less common since 2008 — Paul Krugman even apologized for his earlier criticisms — concerns about the “Japanification” of the euro area have become particularly intense as inflation has slowed and government bond yields have converged towards zero.  In a new note, economists at Nomura suggest that Europeans should only be so lucky. After all, Japan endured its supposedly “lost decades” with grace. The euro area has not, and things could end up getting even worse.  For perspective, the number of Japanese aged 15-64 peaked in 1995 and has since fallen by more than 10 per cent. Japan’s total population hasn’t undergone as dramatic a change but it seems to have peaked sometime in 2010 and is basically the same size as it was nearly 25 years ago. We’ve previously noted that, between the start of 2005 and the recent consumption tax increase, real GDP per person has grown more in Japan than in the US, Canada, the UK, and the euro area, while Professor Krugman has noted that real output per working-age adult in Japan has tracked the equivalent figures in the US and Europe quite closely throughout the “lost decades”. Household consumption, rather than total GDP, is an even better comparison, since that’s a closer proxy for living standards of actual people. Real Japanese household consumption grew at an annual average rate of 1.2 per cent from the beginning of 1990 through the end of 2013 — slower than in almost any other rich country, with the notable exception of Germany:

S&P Doubts Shinzo Abe Can Repair Japan's Tattered Finances (Reuters) – Standard & Poor’s cast doubt on Japan Prime Minister Shinzo Abe’s ability to repair the country’s tattered finances, a day after Moody’s tarnished the government’s economic record less than two weeks away from a major election. Abe’s decision to delay a sales tax increase by 18 months may help the economy in the short term, but there is still no guarantee taxes will rise because the political dynamic could change after the election, Takahira Ogawa, director of sovereign ratings at S&P, told Reuters. The growing reservations about Japan come at an awkward time for Abe as he has called an election on Dec. 14 that has become a vote on whether he has done enough to fundamentally improve the prospects for growth. “I might be wrong, but judging by history I’m not optimistic about getting a detailed fiscal plan,” Ogawa said. “In addition, if the government fails to implement its plan, then it doesn’t make any sense.” S&P has an AA- rating on Japan, which is three notches from the top rating of AAA. S&P’s rating on Japan has a negative outlook, meaning a downgrade is possible.

The Abenomics Devastation: Japanese Real Wages Decline For Record 16 Consecutive Months -- Those seeking proof that Abenomics is working are advised to look elsewhere. Overnight Japan released its latest, October, wage data, which showed that total cash wages rose 0.5% yoy, slightly slowing from the 0.7% growth recorded in September. As the chart below shows, Nominal wages have been slowing down from the peak in July when the figure was boosted to +2.4% on summer bonus payments. Overtime pay grew +0.4% yoy (September: +1.9%), slowing from the peak recorded in April (+6.0%) on a slowdown in economic activities. The figure contributed to overall wages by only +0.03 pp. Some more details from Goldman: "Basic wages rose 0.4% yoy in October, unchanged from September. The effect of the shunto spring wage hike seems to be fully reflected into base wage growth and settling at a stable growth around 0.5%. However, with overtime pay near zero, the 0.4% increase in basic wages virtually determines the overall wage growth during non-bonus months. We also note that preliminary basic wages tend to be revised down at the final stage."

‘Stagflation’ Possible for Japan, Morgan Stanley Says - Japan could fall into “stagflation”–a combination of stalled growth and rising prices–if Prime Minister Shinzo Abe’s pro-growth push fails, Morgan Stanley says in its new economic outlook.In its “bear” scenario, released this week, the world’s third-largest economy contracts by 0.1% in the 2015 calendar year, before growing 0.9% the following year. Inflation, meanwhile, reaches 1.8% and 2.1%, respectively.“It’s stagflation–not extreme stagflation, however,” The forecast stands out from what many other Japan watchers are predicting based on a recent fall in the inflation rate, after the effects of a sales tax increase were stripped out, partly due to lower oil prices. Morgan Stanley MUFG sees Japanese inflation picking up from next April, as a weaker yen pushes up the prices of imports, the economy improves and oil prices rebound.“If wages and prices start to chase each other, inflation could rise significantly,” Mr. Kawano said, explaining that the country’s tight labor market could put upward pressure on wages even if government policies fail to generate much growth.In Morgan Stanley’s “bull” scenario, the economy grows 1.3% in 2015, while inflation is 1.5%. The next year growth reaches 2.6% and inflation still comes in at 2.1%.In the baseline scenario, inflation reaches only 1.6% in 2016, while the economy grows 1.8%. In other words, Bank of Japan Gov. Haruhiko Kuroda is likely to see the inflation rate hit the central bank’s target of 2% by 2016 under both the most bullish and bearish scenarios.

Some striking facts about Japan’s demography -- It’s misleading to compare macroeconomic aggregates across countries with very different population growth rates, which is why so many analysts get it wrong on Japan. While we were doing some of the data work for that previous post, however, we thought you might appreciate a visualization of how Japan’s population has aged and why it is poised to shrink a lot over the next few decades: Some highlights:

  • - The number of Japanese under the age of 60 peaked in 1985 and has since dropped by more than 17 per cent. There are now as many Japanese under the age of 60 as there were in the year 1960.
  • - In 2005, Japanese government statisticians began dividing people over the age of 90 into three separate categories: 90-94, 95-99, and 100+. At the end of 2010 (latest available data), there were about 1.4 million Japanese who were at least 90 years and about 44,000 who were at least 100 years old.
  • - Most striking of all, however, is the disappearance of new Japanese. The number of Japanese under the age of 15 has already collapsed by 41 per cent since 1978:

Even if the mortality rate continues to drop and lifespans keep lengthening, this dearth of young people means that the total Japanese population will start to shrink at a rapid rate.The baseline forecast of Japan’s National Institute for Population and Social Security Research is that the total population will fall by a third between 2010 and 2060. The number of people under the age of 15 is projected to collapse by more than half — suggesting that the population decline will continue to accelerate into the end of the century. Even the elderly population is projected to start shrinking by the 2040s:

Japan’s monetary base up 37.1% year on year --The nation’s monetary base stood at ¥262.69 trillion at the end of November, up 37.1 percent from a year earlier and a record high for the fourth straight month, as the Bank of Japan provides extra liquidity to boost the economy, BOJ data showed Tuesday.  The bank raised the pace of supplying funds after it moved to take additional monetary easing steps in late October to help meet its goal of boosting inflation to 2 percent. The BOJ aims to boost the monetary base at an annual pace of about ¥80 trillion, up from ¥60 trillion to ¥70 trillion in its previous policy. The economic recovery has been slow due to the lingering impact of the April consumption tax hike. Price increases remain limited due in part to sluggish demand. At the end of last month, the balance of financial institutions’ current account deposits at the BOJ amounted to ¥170.28 trillion, up 66.3 percent from a year before.

BOJ’s Negative Yields Seen Reaching Five-Year Bond  - Two-year yields dropped to a record low minus 0.005 percent on Nov. 28 a day after the Bank of Japan bought debt from the market as part of its plan to expand bond purchases to as much as 12 trillion yen ($101 billion) a month. Japanese government bonds returned 0.7 percent in November, completing an eight-month rally that matched a similar streak in May 2003, according to Bank of America Merrill Lynch data. “Investors are lumping debt up to five-year maturity into one category of relatively low-risk government debt,” Akio Kato, the Tokyo-based general manager of the trading department at Kokusai Asset, which manages $31 billion, said by phone on Nov. 28. “There’s a chance yields on debt up to five years could drop to zero or go negative.” Five-year yields matched a record low 0.095 percent yesterday as BOJ Governor Haruhiko Kuroda steps up asset purchases to achieve a 2 percent inflation target that has been thwarted by slumping fuel prices, falling household spending and an economic recession. When the central bank expanded easing on Oct. 31, it cited a risk that weak demand and cheaper oil could delay an end to Japan’s “deflationary mindset.”

Korea feared to follow Japan on deflation path: Concern over deflation is increasing after inflation fell to the lowest level in nine months. Economists warn that Korea's economy could suffer Japanese-style deflation, if the low level of inflation continues. According to Statistics Korea, consumer prices rose by 1 percent in November from a year ago, marking the lowest growth in 9 months. This is far below the central bank's target of an increase between 2.5- and 3.5-percent. The government attributes the low inflation to a good crop harvest and a fall in global oil prices. However, core inflation excluding agricultural and oil products also stood at a mere 1.6 percent. The government expects the planned cigarette price hike to help pull up inflation. The governing and the main opposition parties agreed to raise cigarette prices by 2,000 won per pack as suggested by the government. It expects the hike to pull up inflation by 0.62 percentage points, but economists say that won't solve the sluggish economy, which is the main cause of the low inflation. Consumers may welcome low inflation, but if it persists, the economy can fall into a vicious cycle of deflation, in which households cut consumption and businesses refrain from investment. Economists are showing concern that the current low inflation is mainly due to slow growth.

Demography Is Rewriting Our Economic Destiny - The idea that the world economy is undergoing a demographic transition is now so familiar that it barely even registers. The point is noted; the conversation moves on. This is a mistake. It's important to recognize just how powerful a force this shift is going to be. A remarkable boom in the world's working-age population is ending, and a new boom in the population of retired people has begun. People are living longer; more importantly, when it comes to reshaping the global age structure, they're having fewer children. Today, there are roughly four people of working age for every person aged 60 or over. By 2050, it's estimated there'll be just two. The steep fall in this ratio isunprecedented.  What will it mean? For one thing, of course, systems for paying incomes in retirement will come under serious pressure. But the implications go far wider than that.  In a couple of recent notes for VoxEU, the portal of the European Center for Economic Policy Research, Charles Goodhart and Philip Erfurth explain the connections between global demographics on the one hand, and economic growth, real interest rates and inequality on the other. Seemingly entrenched patterns, they argue, are likely to be disrupted over the next two or three decades.  The starting-point is that countries with older populations tend to save less, because people save while they're working and then run down their savings in retirement. As patterns of saving change, so will flows of capital. Through this channel, demographic forces were implicated in the global financial imbalances that helped cause the Great Recession. Looking ahead, they'll shift the pattern of financial imbalances, and all that follows from them, again.

The Return of Currency Wars by Nouriel Roubini - – The recent decision by the Bank of Japan to increase the scope of its quantitative easing is a signal that another round of currency wars may be under way. The BOJ’s effort to weaken the yen is a beggar-thy-neighbor approach that is inducing policy reactions throughout Asia and around the world. Central banks in China, South Korea, Taiwan, Singapore, and Thailand, fearful of losing competitiveness relative to Japan, are easing their own monetary policies – or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway, and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating. All of this will lead to a strengthening of the US dollar, as growth in the United States is picking up and the Federal Reserve has signaled that it will begin raising interest rates next year. But, if global growth remains weak and the dollar becomes too strong, even the Fed may decide to raise interest rates later and more slowly to avoid excessive dollar appreciation. The cause of the latest currency turmoil is clear: In an environment of private and public deleveraging from high debts, monetary policy has become the only available tool to boost demand and growth. Fiscal austerity has exacerbated the impact of deleveraging by exerting a direct and indirect drag on growth. Lower public spending reduces aggregate demand, while declining transfers and higher taxes reduce disposable income and thus private consumption.

Over half of 500 companies in debt trouble, need Rs 7 trillion to pare it - More than half of the highly over- leveraged top 500 companies would need more than a whopping Rs 7 trillion or $114 billion and three years to deleverage themselves, says a report of India Ratings. "If equity infusion is used as a means to deleverage, as many as 262 of the 500 top corporates would require a minimum equity infusion of around Rs 7,04,300 crore ($ 114 billion). But raising this amount will be a significant challenge given that between FY08 and FY14, less than half of this amount was infused as equity across these 500 corporates", India Ratings senior director for financial services Deep N Mukherjee said in a note. If these companies were to bring down their leverage ratio to a prudent level, they will need around three years to complete the process, provided their debts do not rise from the FY14 levels, he said. Mukherjee added, however, that the process will take five to six years if there is only a marginal uptick in the economy over the current level. "Of these, as many as 96 corporates, which are already tagged as non-performing assets or are undergoing corporate debt restructuring, will take 5-10 years to reduce their leverage to moderate levels", he said.

Rattled by Chinese subs, India joins other nations in rebuilding fleet | The Japan Times: – India is speeding up a navy modernization program and leaning on its neighbors to curb Chinese submarine activity in the Indian Ocean, as nations in the region become increasingly jittery over Beijing’s growing undersea prowess. Just months after a standoff along the disputed border dividing India and China in the Himalayas, Chinese submarines have shown up in Sri Lanka, the island nation off India’s southern coast. China has also strengthened ties with the Maldives, the Indian Ocean archipelago. China’s moves reflect its determination to beef up its presence in the Indian Ocean, through which four-fifths of its oil imports pass, and coincides with escalating tension in the disputed South China Sea, where Beijing’s naval superiority has rattled its neighbors. “We should be worried the way we have run down our submarine fleet. But with China bearing down on us, the way it is on the Himalayas, the South China Sea and now the Indian Ocean, we should be even more worried,” said Arun Prakash, former chief of the Indian Navy.

Thailand Unravels - WSJ: For many years military coups in Thailand were followed by the appointment of a civilian government, which then rewrote the constitution and held fresh elections. This time the country’s new strongman General Prayuth Chan-ocha is playing to a different—and more worrisome—script. Generalissimo Prayuth, who took power following a coup in May, is enraged that millions of Thais aren’t happy with his power grab. A few brave souls continue to stage symbolic protests in defiance of martial law, such as offering three-finger salutes outside screenings of the new “Hunger Games” movie. The generals have resorted to “inviting” troublesome figures to enjoy some time in an “attitude readjustment” facility, as they did after the coup. Early in November the junta appointed a 36-member committee to draft a new constitution. Their assignment appears to be to rig the political system so allies of former Prime Minister Thaksin Shinawatra can never take power again, even if they win elections. Among the methods under discussion is a permanent ban on Thaksin-affiliated politicians from holding office. Another is a Senate appointed by the royalist elite. These would make a mockery of democracy and provoke violent protests by the pro-Thaksin majority of the population. That might be part of the military’s plan. Since the Thaksin forces have won the last five elections, unrest that makes a return to democracy impossible could be a convenient excuse for Gen. Prayuth to hang on to power. Already members of his government have suggested the next election won’t be held until 2016.

Emerging Market Distressed Debt Loses Most Since 2008 - Losses in emerging market distressed debt have mounted to the worst since the global financial crisis led by Indonesian coal miner PT Bumi Resources and ZAO Russian Standard Bank. Bank of America Merrill Lynch’s distressed emerging markets corporate index tumbled 2.7 percent yesterday after a 5.6 percent drop in November. The gauge, which tracks 108 dollar-and euro-denominated debentures from Russia to China and Brazil, has retreated 9.8 percent this year, the most since a 36.8 percent slide in 2008. A glut in coal and iron ore, plunging oil prices and sanctions against Russia are pushing more companies to the brink of default. Hedge funds are shutting at a rate not seen since the credit crunch amid disappointing returns while the International Monetary Fund forecasts the global economy will expand 3.8 percent in 2015, below the boom years of 2004 to 2007, when growth was 4.9 percent or more. “It’s a very bloody environment for most of the small- and mid-sized commodity players,” Heo Joon Hyuk, the New York-based head of global fixed income at Mirae Asset Global Investments Co., said by e-mail today. “And Russian corporates have one more burden above falling commodities -- funding restrictions.”

Brazil October Industrial Production Unexpectedly Stagnated - Brazil’s industrial output unexpectedly stagnated in October as President Dilma Rousseff looks to her new economic team to revive confidence and growth in the world’s biggest emerging market after China. Production was flat after falling 0.2 percent in September, the national statistics agency said today in Rio de Janeiro. That was lower than the median estimate of a 0.3 percent increase from 36 economists surveyed by Bloomberg. Output declined 3.6 percent from the year before, compared with a 3 percent drop forecast by analysts. PresidentRousseff has enlisted Banco Bradesco executive Joaquim Levy as her finance minister-designate to boost economic growth in her second term. Levy pledged to adopt more rigorous fiscal discipline as central bank directors raise the Selic to damp consumer price increases. A weaker real may further fan inflation, and today’s data add evidence for another quarter-point increase in the Selic, according to Banco Espirito Santo de Investimento economist Flavio Serrano.

Record household debt triggers warnings over 'insatiable' spending - The Globe and Mail: There are fresh signs and warnings about the “insatiable appetite” for consumer debt. The Bank of Canada has amped up its concerns, warning Wednesday that, while the economy is improving, “household imbalances, meanwhile, present a significant risk to financial stability.” The central bank has oft cited this threat as household debt burdens rose to record levels. Its latest red flag went up on the same day as two reports underscored the swollen debts among Canadians just as the holiday shopping frenzy begins. In one report, Equifax Canada said that “Canadian consumers have yet again tipped the scales setting a new benchmark of over $1.513-trillion in debt.” That third-quarter figure marked an increase from $1.448-trillion in the second quarter and $1.409-trillion a year earlier, according to Equifax, whose numbers are based on more than 25 million unique consumer files. Excluding mortgages, average debt held by Canadians has increased 2.7 per cent to $20,891.

EU-Canada FTA as a Precursor to an EU-US Deal -  It appears that the EU-Canada FTA, a.k.a. the Comprehensive Economic and Trade Agreement (CETA), may soon be a done deal with Germany's SPD junior coalition partners indicating that they will let it push through despite initial misgivings about investment protection clauses that many left-leaning folks believe infringe on national sovereignty in the interests of global capital. Actually, bilateral EU-Canada negotiations were wrapped up a few months ago; these clauses and what to do with them have been among the principal sticking points: German Vice Chancellor Sigmar Gabriel said he expected his Social Democrat party (SPD) would back Europe's free trade agreement with Canada (CETA), which has faced opposition from party left-wingers due to its investment protection clause. The deal, which could increase bilateral trade by a fifth to 26 billion euros ($34 billion) and is widely seen as a template for a larger trade pact between the EU and the United States, was wrapped up in August after five years of tricky negotiations. However, critics say the investor protection clause, allowing companies to bring claims against a state if it breached the treaty, would give multinationals too much power and could lead to governments being pressured into ignoring laws on labor, the environment, data protection or food standards.  It is unclear whether all 28 EU states will have to ratify CETA. The EU Commission believes it is not necessary, but member states want a say, which means the dispute may have to be settled by the European Court.  The concern of European anti-globalization activists is not so much Canada as it is the United States. For, US firms with Canadian operations may use these investment protection clauses to sue EU nations over unfavorable state policies even if the EU-US FTA--a.k.a. the Transatlantic Trade and Investment Partnership (TTIP)--does not have them:

Global Manufacturing PMI Tumbles To 14-Month Low - Is it any surprise oil prices are cratering? With global GDP expectations plumbing cycle lows, JPMorgan just confirmed the global slowdown is accelerating as their Global Manufacturing PMI printed 51.8 - its slowest level of 'expansion' since September 2013.New Orders fell to the lowest reading since July 2013 and New Export Orders to the lowest since June 2013. But the US is really decoupling this time...

Eurozone's manufacturing growth grinds to a halt - The eurozone's already anemic manufacturing expansion ground to a halt in November as activity in each of its three-largest economies declined for the first time since mid 2013, increasing pressure on the European Central Bank to step up its stimulus campaign. The headline measure from data firm Markit's monthly survey of purchasing managers of around 3,000 manufacturers fell to 50.1 from 50.4 in October, having been reduced from a preliminary estimate of 50.4. A reading above 50.0 for the index indicates an expansion in activity, while a reading below that level signals a contraction. Renewed weakness in the sector was driven by Germany, the eurozone's largest economy. Its PMI fell to 49.5, the lowest in 17 months. Activity in the French and Italian manufacturing sectors had already begun to decline before November. "There is a risk that renewed rot is spreading across the region from the core," said Chris Williamson, Markit's chief economist. The survey suggests that a recovery in manufacturing activity is unlikely in coming months, with new orders dropping at the fastest pace since April 2013. In particular, Markit said export orders were "subdued" despite the depreciation of the euro since May, which policy makers had hoped would aid the sector.

Big Three Manufacturing Contraction: Germany, France, Italy; Core Rots as Spain Improves; Eurozone Recession Coming Up -- The manufacturing PMI for each of Europe's top three countries is in decline. Recession will follow. The Markit/BME Germany Manufacturing PMI - Final Data shows PMI at 17-month low, in contraction.  Summary:  The seasonally adjusted final Markit/BME Germany Manufacturing Purchasing Managers’ Index ® PMI fell from 51.4 in October to a 17-month low of 49.5 in November, signalling contraction in Germany’s goods- producing sector. The headline PMI is now seven points lower than at the beginning of the year and remained below its long-run average of 51.9. The headline index reading followed an earlier ‘flash’ estimate of 50.0. The Markit France Manufacturing PMI Final Data shows French manufacturing sector contraction continues in November.  Summary: Operating conditions in the French manufacturing sector worsened further in November. The headline Markit France Manufacturing Purchasing Managers’ Index ® PMI slipped to 48.4, from 48.5 in October. The latest reading was the lowest in three months and indicative of a moderate rate of deterioration. Production at French manufacturers fell for a sixth consecutive month in November. The rate of contraction was little-changed from the moderate pace recorded in October. The Markit /ADACI Italy Manufacturing PMI shows Manufacturing output falls slightly, weakness in new orders continues, Employment falls at fastest rate since September 2013. Summary: Italy’s manufacturing sector continued to contract during November. Despite growth in export orders, output was reduced for the second month running as total new business fell again. Weakness on the demand side led to further contractions in manufacturers’ purchasing activity and employment, with the latter dropping at a faster rate. Meanwhile, producer prices increased slightly as firms faced a rise in average purchasing costs. The headline Markit/ADACI Italy Manufacturing Purchasing Managers’ Index PMI registered 49.0 in November, unchanged from October’s 17-month low. The index has now registered below 50.0 – signalling deteriorating business conditions – in three of the past four months.

'Tired' Grillo overhauls leadership of Italy's 5-Star Movement  (Reuters) - Beppe Grillo, the unruly comic who built Italy's 5-Star Movement into one of the most potent anti-establishment forces in Europe, is struggling to stop a steady slide following months of infighting and electoral setbacks. After a week that saw two local election defeats and two parliamentary members expelled from the party, Grillo announced his movement needed a more formal leadership structure. A five-member committee, approved by an online poll, will take over much day-to-day running with the aim of strengthening foundations for the future. true The 66-year-old Grillo said he would remain as "guarantor" but what that means is unclear. "I'm pretty tired, as Forrest Gump would say," he wrote in his blog beneath a mock-up of himself as the movie character, telling a band of followers that he is ending a marathon run across the country. One of the most successful of the anti-system parties that have blossomed in Europe during the financial crisis, Grillo's movement is fueled by anger at a corrupt and inefficient political class. It remains Italy's second-biggest party but after its triumph in the 2013 elections, when it won 25 percent of the vote, it has struggled in parliament.

Some Mainstream Italian Parties Now Advocating Euro Exit -- Yves Smith --Watching the Eurozone limp along has proven to be an instructive exercise in how long political and financial legerdemain can keep a fundamentally untenable situation going beyond its sell-by date. European technocrats managed to avoid forcing writedowns and restructurings upon banks but the price of that maneuver was heavily-indebted national governments, low growth, and rising risk of deflation. Now, the biggest existential risk to the Eurozone is that Germany continues to insist on contradictory things: it wants to continue to export to the rest of the Eurozone, yet is unwilling to finance its trade partners, which is a requirement of running persistent trade surpluses. Yes, there’s been discussion of measures such as an infrastructure bank that if done on a big enough scale and with fiscal spending, could provide enough stimulus to the periphery countries to serve as a quasi-Federal overlay and reduce the importance of German exports in the Eurozone economy, thus also reducing the pressure of financing them. But as we discussed, that proposal is long on optics and short on viability. Many analysts have come to believe that the big danger to the Eurozone is political, not economic, that the loss of sovereignity, the continued squeeze of ordinary workers and the inability of countries to depreciate their currencies to help exports, make the benefits of Eurozone membership look questionable relative to the costs. But most political commentators have downplayed this risk, arguing that the benefits of Eurozone membership are so large that no incumbent would relinquish it. And indeed, the noise-making has come from parties like UKIP, who have no realistic odds of forming a government. Up until now, France’s Marine Le Pen, leader of the National Front, has seemed like the most likely contender among Eurozone-exit-favoring party leaders, but she is seen as more able to move France’s Overton than get France out of the Eurozone.

Economic devastation in Europe prompts new wave of Italian migration to Australia - Australia is witnessing a new wave of migration from Italy in numbers not seen in half a century, as thousands flee the economic devastation in Europe. The explosion of numbers saw more than 20,000 Italians arrive in Australia in 2012-13 on temporary visas, exceeding the number of Italians that arrived in 1950-51 during the previous migration boom following World War Two. The research group Australia Solo Andata (Australia One Way) is made up of Italians in Australia and has been tracking the trend using figures from the Department of Immigration and Border Protection. Spokesman Michele Grigoletti said he has been surprised by just how many of his countrymen are making the move to Australia. "Italians are coming to Australia in numbers we could not expect," Mr Grigoletti said. Audio: Listen to David Marchese's report (PM) "We already have the first six months of data from 2013-14 and we know that the trend of Italians [arriving] is on the increase again."

Meet and Greet Natalie Jaresko, US Government Employee, Ukraine Finance Minister -  Yves Smith - The new finance minister of Ukraine, Natalie Jaresko, may have replaced her US citizenship with Ukrainian at the start of this week, but her employer continued to be the US Government, long after she claims she left the State Department. US court and other records reveal that Jaresko has been the co-owner of a management company and Ukrainian investment funds registered in the state of Delaware, dependent for her salary and for investment funds on a $150 million grant from the US Agency for International Development. The US records reveal that according to Jaresko’s former husband, she is culpable in financial misconduct.  I have a sneaking suspicion that the US media won’t take notice of Natalie Jaresko’s new appointment and on the accusations of her former husband that she made an improper loan out of an investment company heavily, if not entirely, funded by the US government. As Helmer writes: It hasn’t been rare for American spouses to go into the asset management business in the former Soviet Union, and make profits underwritten by the US Government with information supplied from their US Government positions or contacts. It is exceptional for them to fall out over the loot.

Being Bad Europeans, by Paul Krugman -  The U.S. economy finally seems to be climbing out of the deep hole it entered during the global financial crisis. Unfortunately, Europe, the other epicenter of crisis, can’t say the same. ... Why is Europe in such dire straits? The conventional wisdom among European policy makers is that we’re looking at the price of irresponsibility: some governments have failed to behave with the prudence a shared currency requires, choosing instead to pander to misguided voters and cling to failed economic doctrines. And if you ask me (and a number of other economists who have looked hard at the issue), this analysis is essentially right, except for one thing: They’ve got the identity of the bad actors wrong.For the bad behavior at the core of Europe’s slow-motion disaster isn’t coming from Greece, or Italy, or France. It’s coming from Germany. I’m not denying that the Greek government behaved irresponsibly before the crisis, or that Italy has a big problem with stagnating productivity. But Greece is a small country whose fiscal mess is unique, while Italy’s long-run problems aren’t the source of Europe’s deflationary downdraft. If you try to identify countries whose policies were way out of line before the crisis, have hurt Europe since the crisis, and refuse to learn from experience, everything points to Germany as the worst actor. ....

The European Outlier - Paul Krugman - I want to post a simple chart. It makes the same point already made by Francesco Saraceno and Simon Wren-Lewis, but in a more stripped-down and possibly clearer (?) way. The point is a simple but important one: at this point any European imbalances associated with the surge in capital flows to the periphery after the formation of the euro have been worked off via extremely painful and costly disinflation. If we look at the whole period from 1999 to the present, most of Europe has had cost growth and inflation just about consistent with the ECB’s long-standing just-under-2 percent inflation target. There’s just one big outlier:  At this point the European imbalance problem is a German problem, caused by Germany’s persistent failure to have wage and price increases in line with what the euro requires. This German undervaluation is in turn exporting deflation to the rest of Europe. By contrast, France, Spain, and even Italy have been playing by the rules.

The German euro is overvalued -- I keep telling people that the German euro is undervalued, but some folks seem not to believe me. (See the comments section from this post last year for an example.) But this is a really big deal. The dominant narrative about the eurozone crisis is that fiscally irresponsible countries like Greece were bringing the once-proud currency to its knees, and weakening the European project to boot. Meanwhile, the virtuous Germans keep on cranking out trade surpluses and have to bail out Greece, Ireland, Portugal, and Spain. And it’s pretty clear that the Germans believe this version of events.Never mind that Spain and Ireland, for two, had budget surpluses prior to the crisis, or that Spain’s economy is five times as large as Greece’s. What’s going on in Greece is supposedly the true explanation for the eurozone’s problems. Let me challenge that narrative that with a simple thought experiment. Instead of one euro, let us reason as if each of the 18 eurozone members had its “own” “euro.” Let’s begin by thinking about what creates the value of the current 18-country euro. We might include interest rates, inflation rates, growth rates, and trade balance, among other things, and of course expectations for all these variables. What we need to remember is that the value of today’s euro represents the averaged effect of all these variables in all 18 countries, rather than reflecting the economic conditions of any one of them.

The logic behind the German Euro gamble -   In the current economic policy debate in Europe there seems to be an increasing polarization between the German view and the view of the other countries. How did we end up with such polarized views of the world? What is the basis for the apparent German stubbornness to change their mind about what are the right economic policies for the Euro area? Here is my best attempt to explain the economic logic behind that side of the debate, including a critical view of the arguments whenever is needed.
1. Europe needs structural reforms. Correct, this has always been true and it will be true in the coming years or decades.
2. Some countries/governments will find any excuses they can to avoid reforms. Correct. Without external pressure or a crisis, change will not happen. This was also true for Germany in the post-2000 reforms.
3. Imbalances of spending and debt (and asset price bubbles) were a fundamental cause of the crisis. Correct.
4. The pre-crisis imbalances requires post-crisis sacrifices. Correct but only up to a point. We understand that deleveraging can slow down growth but this does not justify the extent of the Euro crisis. For example, the fact that pre-crisis growth was not balanced and required an adjustment does not justify the post-crisis downward revisions that we have seen of potential output in many Euro members.
5. Competitiveness and low wages are the key to growth. Wrong. Prices need to reflect the balance of supply and demand and while it is possible that in some cases some prices or wages are above their optimal levels the idea that reduction in nominal wages leads to growth is wrong. It just leads to deflation. And the idea that reduction in real wages is always good makes no sense. If this was true, let's all work for free to be more competitive. In addition, reduction in wages look a lot like competitive devaluations that we know are not possible everywhere.

German private sector grows at slowest pace in 17 months in November: PMI | Reuters: (Reuters) - Germany's private sector grew at the slowest pace in 17 months in November as new business and output prices fell, a survey showed on Wednesday, pointing to a meager expansion in Europe's largest economy in the fourth quarter. Markit's final composite Purchasing Managers' Index (PMI), which tracks activity in the manufacturing and services sectors that account for more than two-thirds of the economy, fell to 51.7 in November from 53.9 in October. That was still above the 50 line dividing growth from contraction but down from an initial reading of 52.1 for November, far below levels seen earlier in the year. The PMI index tracking services alone fell to 52.1, a 16-month low, from 54.4 in October, although the index tracking future business expectations among service providers rose. "Composite PMI data suggest the German economy is likely to face another quarter of only marginal growth at best, with fears of a renewed downturn intensifying," Markit economist Oliver Kolodseike said. He also noted that the average PMI reading for the fourth quarter so far is the lowest since the second quarter of 2013.

Deflation looms as Europe's economic bugbear - - It's the D-word that's pushing the European Central Bank into a corner. But it's not debt - Europe's main economic problem in recent years - that is driving speculation the ECB will switch on the printing press to help the economy. It's deflation. At first glance, deflation, which is generally defined as a sustained drop in prices, sounds good - getting goods cheaper surely warms the heart of any consumer. The problem lies when prices fall consistently over time, as opposed to temporary declines, which can give economic activity a boost. The recent sharp fall in the oil price, for example, is expected to help growth. Longer-term deflation encourages people to put off spending and can prove difficult to reverse because it requires altering people's expectations. It can lead to years of economic stagnation, as in Japan over the past two decades, or at worst, into something more pernicious, such as the Great Depression of the 1930s. The determination to avoid another Great Depression was largely behind the U.S. Federal Reserve's activist response to the financial crisis of 2008 and the ensuing recession. Former Fed Chairman Ben Bernanke spent much of his academic career studying deflation and laid out a strategy to counter deflation should it rear its head again. Much of his prescription was put into action during the financial crisis - slashing interest rates to near zero and injecting new money into the economy through a program of government bond purchases. The ECB has long held off the last bit - the large-scale bond-buying - but as the risk of deflation grows in the 18-country eurozone, it is finally considering it.

Draghi looks to QE despite governing council split - FT.com: Mario Draghi, European Central Bank president, has maintained he can deliver fresh measures to stave off economic stagnation in the eurozone next year, despite renewed signs of tensions between policy makers at the central bank. Rivalries between governing council members were reopened on Thursday, after splits emerged over a slight toughening-up of the language on plans to swell the ECB’s balance sheet by €1tn.   The ECB strengthened its forward guidance by saying the central bank “intends” to expand its balance sheet to around €3tn to boost inflation, rather than simply “expecting” to meet this objective. But the semantic change was not unanimous, with dissent coming from members of the executive board of ECB officials, as well as some national central bank governors. The disagreement happened despite staff economists slashing their forecasts for growth and inflation in the currency area. The council was in agreement, however, that if lower oil prices began to threaten the outlook for inflation, or its existing measures disappointed, then more radical easing was warranted. A downbeat assessment in the first quarter “would imply altering early next year the size, pace and composition of our measures,” policy makers said in their monthly statement. Mr Draghi was adamant the ECB did not need unanimity in its governing council to take steps, such as extending purchases of asset-backed securities and covered bonds to include instruments such as corporate and sovereign debt. “There were major decisions where there was no unanimity,” the ECB president said, adding that policy makers were “not politicians” and had to stick to their mandate of keeping inflation on track. Not to do so would be “illegal”.

ECB paralyzed by split as irreversible deflation trap draws closer - The European Central Bank has dashed hopes for quantitative easing this year and acknowledged for the first time that the institution’s elite board is split on plans for a €1 trillion liquidity blitz. Equity markets fell across southern Europe,with Italy’s MIB off 2.77pc, led by sharp falls in bank stocks. Spain’s IBEX dropped 2.35pc. The euro surged by more than 1pc to $1.2455 against the dollar in early trading as speculators rushed to cover short positions. Expectations for immediate stimulus had been riding high after the ECB’s president, Mario Draghi, pledged action “as fast as possible” last month. The bank slashed its forecasts for economic growth to 1pc next year, and admitted that inflation will remain stuck at just 0.7pc, a combination that traps large parts of southern Europe in deflationary slump and corrodes debt dynamics. BNP Paribas said eurozone inflation is likely to average 0pc in 2015, after turning negative this month. “The ECB’s measures are woefully behind the curve,” said Ashoka Mody, a former EU-IMF bailout chief now at the Bruegel think-tank in Brussels.  “For anyone who wants to see it, a debt-deflation cycle is ongoing in the distressed economies. The authorities have very nearly lost control of a process that will become ever harder to manage as it becomes more entrenched,” he said.  Mr Draghi denied that the ECB is complacent about the deflation risk or that is succumbing to paralysis. “Let me be absolutely clear. We won’t tolerate prolonged deviation from price stability,” he said.

Draghi's authority drains away as half ECB board joins mutiny -  The European Central Bank is facing a full-blown leadership crisis. Mario Draghi’s authority is ebbing, with powerful implications for financial markets and the long-term fate of monetary union. Both Die Zeit and Die Welt report that three members of the ECB’s six-strong executive board refused to sign off on Mr Draghi’s latest statement, an unprecedented mutiny in the sanctum sanctorum of the ECB’s policy making machinery. The dissenters are reportedly Germany’s Sabine Lautenschläger, Luxembourg’s Yves Mersch, and more surprisingly France’s Benoît Cœuré, an indication that Paris is still hoping to avoid a breakdown in relations with Berlin over the management of EMU. The reality is that a full six months after Mr Draghi first talked loosely of a €1 trillion blitz to head off deflation risks, almost nothing has actually happened. The ECB balance sheet has shrunk by over €100bn. Talk has achieved a weaker euro but that is not monetary stimulus. It does not offset the withdrawal of $85bn of net bond purchases by the US Federal Reserve for the global economy as a whole. It is a zero-sum development.  The clash comes at a delicate moment amid Italian press reports that Mr Draghi may soon go home, drafted to take over the Italian presidency as the 89-year old Giorgio Napolitano prepares to step down. Such an outcome is unlikely. Yet there is no doubt that Mr Draghi has pressing family reasons to return to Rome, and he barely disguises his irritation with Frankfurt any longer.

Swiss voters reject gold, immigration proposals - Swiss voters overwhelmingly rejected proposals on Sunday to boost gold reserves and impose strict new curbs on immigration, averting a potential nightmare for policymakers struggling with a popular backlash against the country’s open borders. The referendums are part of a recent flurry of initiatives under Switzerland’s model of direct democracy that have had threatened to undermine the non-EU member’s reputation for stability. They reflect a growing public view that Switzerland is under siege from foreign workers eroding its Alpine culture and from trading partners who have insisted in recent years that the Swiss dismantle their business model based on banking secrecy. “The result of both today’s gold and immigration referenda show that the Swiss public want to pursue a coherent international economic policy and do not want to create new tensions with their EU neighbors,” said Reto Foellmi, Professor of International Economics at the University of St. Gallen. The “Save our Swiss gold” initiative, proposed by the right-wing Swiss People’s Party out of concern the central bank has sold too much of its gold in the past, was rejected by 77 percent of voters, said Swiss broadcaster SRF.

The Greek Patient: Europe Debates Third Bailout Package for Athens - Der Spiegel - One high-ranking EU official compared the situation to a patient who has survived intensive care but wants to leave the hospital early. A relapse is certain and the subsequent care will be much more involved than if the patient had stayed in the hospital long enough for full recovery. Greece's second bailout package officially ends in a month's time, but it is already certain that the country will require additional funding from its EU partners. Last Wednesday in Paris, there was a minor uproar when troika officials made it known that they felt Greece hadn't fulfilled conditions for the payout of the final tranche from the second bailout package. Athens' international creditors determined the country will fall around €2 billion ($2.5 billion) short of reaching its commitment of not exceeding a budget deficit of 3 percent of gross domestic product. The Greeks, for their part, accused the troika of being overly critical, arguing that in the past, the situation had developed more positively than predicted by pessimists. Still, in contrast to Ireland or Portugal, both of which fulfilled bailout conditions with flying colors, the Greeks have always lagged behind on major reforms intended to make the country competitive again. And with presidential elections approaching, the impetus for reform has fallen even further in recent months, sources inside the European Commission claim. There is a package of laws in Athens intended to ensure that Greece meets the conditions imposed by the troika, but it isn't moving forward. One provision aims to increase the quality of administration in the country by partially pegging officials' pay to their performance. Another foresees swifter settlement of tax debts. The latter measure, though, offers tardy taxpayers the possibility of paying up over the course of up to 100 installments, a plan that irked the country's international creditors.

The New Exodus: 700,000 Young Spaniards Have Left Home Looking For Work Abroad -- Today Spain is in financial straits, and most of her former colonies are in far better economic shape. And as the gloomy economic landscape in Europe has dried up opportunities for young Spaniards, many have started to look to South America to start new careers. Between 2008 and 2012 an estimated 700,000 Spaniards have left home in search of greener pastures, choosing to go to places like Colombia, Peru, and Chile. Unencumbered by a language barrier and without much culture shock, they’re finding that they’re able to rise up the career ladder much more quickly than they could back home. The shortage of skilled labor and advanced training in these countries means that foreigners are able to obtain higher paying jobs than they could back home. Some recent college grads find themselves occupying senior level positions after just a few years because there is no one else around qualified for the job. Even folks who are not with a large corporation or hold an advanced technical degree still have valuable skills.

German state elects reform communist leader in historic shift (Reuters) - The reform communist Left party took power in a German state on Friday for the first time since reunification, ending a quarter century of conservative rule in Thuringia and raising the chance of a left-wing threat to Angela Merkel in the next federal vote. The Left, which traces its roots to the Socialist Unity Party (SED) that once ruled East Germany and built the Berlin Wall, will run the state southwest of Berlin with the center-left Social Democrats (SPD) and Greens in a three-way coalition. Thuringia voted in September in state elections which produced a close result, leading to protracted negotiations involving four parties. Eventually the three left-leaning parties agreed on a coalition and on Friday the state assembly elected the Left party's Bodo Ramelow, a 58-year-old trade unionist from West Germany, as premier of Thuringia. It is the first time these three parties have ruled together in one of Germany's 16 states. If they succeed in Thuringia, they could decide to band together in the next national election in 2017 in an attempt to knock the chancellor's conservatives from power.

French bank dumps British assets, contrasts UK sclerosis with Francois Hollande miracle - France’s Société Générale has advised clients to liquidate British assets and dump sterling before the elections, warning that the UK is badly governed and increasingly prone to political risk. “So far there has been zero structural reform and no improvement in the twin deficits or exports despite a significant devaluation of the currency. We are concerned,” it said. Alain Bokobza, head of the French bank’s global asset team, said much of Britain’s growth is driven by excess leverage and a housing bubble. “This is due to lax monetary policy that needs tightening. It is not sustainable,” he said. The fact that the country is still running a budget deficit of 5.5pc of GDP so late into the cycle - at a stage when growth is mature, and should be generating a cascade of tax revenues - means the economy is fundamentally out of kilter. The UK risks falling afoul of markets once sentiment changes. The irony of a French bank blasting Britain for failing to implement supply-side reforms might cause a few smiles in Paris, where socialist president Francois Hollande is pushing through a raft of Thatcherite reforms against bitter opposition. The bank insists that France is the new reform champion in Europe, and may soon leave Germany languishing in inertia.

Destroying the state is no accident - In a discussion of George Osborne’s plans for the deficit, I suggested that - if we were to take them seriously - they could only be rationalised as an attempt to fundamentally reduce the size of the state. Chris Dillow, following Rick and Giles, seems to prefer the cock-up theory, whereby the destruction of the state is an accidental result of an obsession with the deficit. I’m afraid they are wrong - this is no accident.  I suspect we would not be having this discussion if we were talking about the US. Indeed, Brad DeLong, in commenting on a different post where I ask why some academics so dislike fiscal stimulus, says I’m trying so hard to be fair that I lose sight of the ball. He asks “how can you not think it is all ideology on the other side ..”. That was a discussion about academics, who you might hope were more objective and less politically strategic than politicians.  So why do I think the sharp reduction in the size of the state in the UK is no accident? The most obvious piece of evidence is how the deficit has been reduced. Osborne originally planned an 80/20 split between cuts in spending and increases in taxes. In practice, as Giles pointed out at the Resolution Foundation’s meeting, deficit reduction has almost all been about spending cuts, with almost nothing net on taxation (largely because of the LibDem inspired increases in the personal allowance). If it really is all just about the deficit, why the imbalance? As one time European Commissioner Olli Rehn put it, in complaining that (initially) France was trying to comply with Eurozone deficit rules by putting up taxes: “Budgetary discipline must come from a reduction in public spending and not from new taxes”.

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