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

Saturday, January 24, 2015

week ending Jan 24

FRB: H.4.1 Release--Factors Affecting Reserve Balances--January 22, 2015 - Federal Reserve statistical release H.4.1 Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Watch: Will The Fed Take a Dovish Turn Next Week? -- As it stands now, we are heading into the next FOMC meeting with the growing expectation that the Fed will take a dovish turn. Is it not obvious that global economic turmoil, collapsing oil prices, weak inflation, and a stronger dollar are clearly pointing to rapidly rising downside risks to the US economy? For financial market participants, they answer is a clear "yes." Expectations of the first rate hike have been pushed out to the end of this year, seemingly in complete defiance of Fed plans for policy normalization. The Fed may get there as well and abandon their carefully crafted mid-year plan, but I suspect they will not move quite as rapidly as financial market participants desire. As a general rule, the Fed tends to act in a more deliberate fashion....  Bottom Line: I reiterate my view that despite the generally positive data flow, and the upward boost from oil, I don't see how they can justify raising rates without some reasonable acceleration in wage growth. ... my broader point is this: During normal times the Fed moves methodically if not ponderously. The current state of the economy gives them room to move as such. So I would not be surpised to see a fairly steady hand revealed in the next FOMC statement.

Fed’s Bullard: Current Low Inflation Doesn’t Support Zero Rates - Federal Reserve Bank of St. Louis President James Bullard said Friday the surprising weakness of inflation right now doesn’t necessarily support the U.S. central bank keeping interest rates at their current near-zero levels.  “The level of inflation is not so low that it can alone justify a policy rate of zero,” Mr. Bullard said in material prepared for a speech in Chicago. Mr. Bullard’s comments came in remarks that tackled the conflicting economic environment that now faces central bankers. While growth and employment have been clearly on the mend and support a case for the Fed raising rates, the weakness of inflation relative to the Fed’s 2% target argues against making borrowing costs more restrictive. The data, relative to expectations, “pulls the [Federal Open Market] Committee in two different directions on monetary policy,” he said. Most central bankers expect to raise short-term interest rates this year, with key officials favoring a mid-year point for action. The problem these officials confront is a decided lack of price pressures. The Fed has fallen short of its inflation goal for 2 1/2 years, and the drop in oil prices means rising inflation will prove even more elusive. Some economists have warned negative headline price readings could prevail for much of the year, and if that is right, raising rates would be an unprecedented act in an outright deflationary environment.

Fed’s Bullard Still Pushes for First Quarter Rate Rise - —Federal Reserve Bank of St. Louis President James Bullard said Friday he still favored raising U.S. interest rates by the end of the first quarter, even with inflation well below the central bank’s 2% target. Mr. Bullard said he was willing to adjust the pace of further rate increases to reflect wider economic trends, but that a “lift off” in inflation was not as important as moving short-term rates from near zero. “I still think we should get going with our rate rises,” he told reporters after a speech in Chicago. “The data lift off is not so critical as the pace.” Mr. Bullard said the Fed risked falling behind the curve if it waited until June, when many investors and some policy makers expect the first rate increase. He added that if the central bank waits until summer to move, the rise could be followed by a faster pace of subsequent increases. “The level of inflation is not so low that it can alone justify a policy rate of zero,” Mr. Bullard said earlier in a speech in Chicago. The Labor Department reported Friday its consumer price index rose 0.8% in December from the same month a year earlier, their slowest annual pace in five years, largely due to a plunge in oil prices. The Fed prefers to look at a different broad measure, the Commerce Department’s personal consumption expenditures price index. Using that gauge, inflation has undershot 2% for more than two and a half years.

Fed’s Williams Still Eyeing Mid-2015 Rate Rise - —Federal Reserve Bank of San Francisco President John Williams said Friday he expects the economy will have improved enough to begin raising rates this year, while adding that price pressures short of where central bankers want them to be will not stand in the way of action. As he has in past remarks, Mr. Williams said some time in the middle of the year may be the best time for the U.S. central bank to increase what are now near zero short-term rates. Mr. Williams has held this view for some time. His comments came as part of an event held in San Francisco by the Bay Area Council Economic Institute. “There’s no rush to raising rates,” Mr. Williams told reporters after his speech. Given the health of the broader economy, “what I’m really watching for is underlying inflation—wage growth, prices. My forecast is once we get through this slow path in inflation it will start moving back,” Mr. Williams said. “I’m not expecting inflation to be 2% when we raise interest rates. I don’t need to be at the goal when we raise the rates,” he said. Instead, what’s more important is that policymakers have confidence prices will rise back to their price target, the official said.

Fed’s Bullard Eager to Raise Rates Soon - Federal Reserve Bank of St. Louis President James Bullard is eager to start raising interest rates in the months ahead because the underlying economy is looking stronger. Mr. Bullard, in an interview with The Wall Street Journal Monday, said recent declines in U.S. Treasury bond yields don’t dissuade him of this view. Nor do movements in the market for Treasury Inflation Protected Securities, where investors are demanding less compensation for future inflation. Yields on 10-year Treasury notes dropped to 1.815% last week. They’ve fallen by more than 0.4 of a percentage point in three weeks, leading some investors and Fed officials to wonder whether the markets are sending a signal of a global growth and inflation slowdown that should deter the U.S. central bank from raising short-term interest rates. In an interview with The Wall Street Journal last week, Boston Fed President Eric Rosengren said he wasn’t at all confident that inflation is rising toward 2% as the Fed projects. Mr. Bullard said U.S. long-term rates are being pulled down by global factors, and not new threats to the domestic economy. He wants to “get going” with rate increases. Below are excerpts of the interview with Mr. Bullard:

Fed Watch: Policy Divergence - Increasingly, the Federal Reserve stands in stark contrast with its global counterparts. While the ECB readys its own foray into quantitative easing, the Bank of England shifted to a more dovish internal position, the central bank of Denmark joined the Swiss in cutting rates, and the Bank of Canada unexpectedly cut rates 25bp this morning. The latter move I found somewhat unsurprising given the likely impact of oil prices on the Canadian economy. The rest of the world is diverging from US monetary policy. How long can the Fed continue to stand against this tide? Late last week, Reuters reported that the Fed's resolve was stiffening. This week, the Wall Street Journal reported the Fed was staying the course. This morning, Bloomberg says the Fed is getting weak in the knees: Federal Reserve officials are starting to reassess their outlook for the economy as global weakness and disappointing data on American consumer spending test their resolve to raise interest rates this year. San Francisco Fed President John Williams last week said he will trim his U.S. estimate because of slower growth abroad. Atlanta’s Dennis Lockhart said Jan. 12 that he advocates a “cautious” approach to rate increases and inflation readings “may be pivotal.” Both are voters on the Federal Open Market Committee in 2015 and repeated that rates could be raised in the middle of the year. I doubt the Fed will place too much weight on the December retail sales report. It is fairly noisy data and there is no indication that the fundamental upward trend has been broken:  Moreover, I think they would be wary of reading too much into one data point given the upswing in consumer confidence in recent months. That, of course, only builds upon the upswing in employment data. And housing starts finished the year on a strong note - see Calculated Risk for more on that topic. All that said, the Fed should of course be cautious about the impact of global weakness. But how does the Fed communicate such caution? The challenge I see for the Fed is that they will want to hold the statement fairly steady, with falling oil prices and global weakness as offsetting risks while holding the line on the "low inflation is transitory" story. They want to keep June alive. After all, it's still five months out - a lifetime at the speed of today's financial world. They don't want expectations to fall too far to the back of the year while they are still looking at a June hike.

Larry Summers warns of epochal deflationary crisis if Fed tightens too soon - The United States risks a deflationary spiral and a depression-trap that would engulf the world if the Federal Reserve tightens monetary policy too soon, a top panel of experts has warned. "Deflation and secular stagnation are the threats of our time. The risks are enormously asymmetric," said Larry Summers, the former US Treasury Secretary. "There is no confident basis for tightening. The Fed should not be fighting against inflation until it sees the whites of its eyes. That is a long way off," he said, speaking at the World Economic Forum in Davos. Mr Summers said the world economy is entering treacherous waters as the US expansion enters its seventh year, reaching the typical life-expectancy of recoveries. "Nobody over the last fifty years, not the IMF, not the US Treasury, has predicted any of the recessions a year in advance, never." When the recessions did strike, the US needed rate cuts of three or four percentage points on average to combat the downturn. This time the Fed has no such ammunition left. "Are we anywhere near the point when we have 3pc or 4pc running room to cut rates? This is why I am worried," he told a Bloomberg forum. Any error at this critical juncture could set off a "spiral to deflation" that would be extremely hard to reverse. The US still faces an intractable unemployment crisis after a full six years of zero rates and quantitative easing, with very high jobless rates even among males aged 25-54 - the cohort usually keenest to work - and despite America's lean and efficient labour markets.  Mr Summers warned that this may be a harbinger of deeper trouble as technological leaps leave more and more people shut out of the work-force, and should be a cautionary warning to those in Europe who imagine that structural reforms alone will solve their unemployment crisis.

Insiders, Outsiders, and U.S. Monetary Policy - Paul Krugman -- I ran into Olivier Blanchard over breakfast the other day. This isn’t as much of a coincidence as it might seem, because there was a big financial conference here, and the set of economists who get invited to such things isn’t that extensive.  Unusually, Olivier and I do have a significant disagreement right now, over US monetary policy (this isn’t insider info — he told the conference about it later that day). I’m very worried that the Fed may be gearing up to raise rates too soon; he’s sanguine, considering the risk of a Japan-type trap in the US minimal and the case for a rate hike this year solid. And when I look around I realize that our disagreement over coffee is part of a wider split. Among the Cambridge mafia, and in general among policy-oriented, more or less Keynesian types, there’s a surprisingly sharp divide over near-term US monetary policy. And the divide seems to depend on one thing: whether the economist in question is currently in a policy position. Larry has had his time running the world, but right now he sounds exactly like me“Deflation and secular stagnation are the threats of our time. The risks are enormously asymmetric,” said Larry Summers, the former US Treasury Secretary. “There is no confident basis for tightening. The Fed should not be fighting against inflation until it sees the whites of its eyes.” And I mean exactly: Don’t tighten until you see the whites of inflation’s eyes — and at this point there is absolutely zero sign that inflation is nigh.

When central bank losses matter -- This is a post about why the taboo against helicopter money or money financed fiscal stimulus is irrational once we have Quantitative Easing, but might nevertheless be in the interest of some groups.  Many macroeconomists have argued that we shouldn’t think about central banks in the same way as private banks. A central bank can never be insolvent, at least as long as people use the currency it issues. It can cover losses by creating more money. All that matters, from a macroeconomic point of view, is whether it has the ability to do its job, which is to control inflation.   I do not want to talk about controlling inflation here. Instead I want to talk about these losses, and in particular who gains when these losses are made. Macroeconomists tend to focus on the controlling inflation point, so let me avoid that by imagining a really simple world. There is a constant price level target, and base money velocity (nominal GDP/money) is constant in the long run, so base money must return to some constant value in the long run to meet the target. In the short run velocity is not constant and we can have recessions due to demand deficiency in the usual way.

WSJ Economists' Forecasts for 10-Year Yields and the Fed Funds Rate: The big economic news today is the ECB's announcement of a quantitative-easing program of 60 billion euros per month starting in March and lasting until September 2016. That's a total commitment of over 1 Trillion euros. This announcement comes nearly three months after the US Fed ended its last round of QE. Note: See the full details here. With the focus now on the European Central Bank, let's take a quick look at a couple of items in the January Wall Street Journal survey of economists, starting with where the Federal Reserve is headed with the Fed Funds Rate, which is currently at 0.12 percent. The January survey was sent to 70 economists. Here is a table showing the major response statistics -- Low, Median (middle), Average (aka Mean) and High -- at six-month intervals from June 2015 to December 2017.Here is the equivalent table showing the forecasts for the 10-year Treasury Note yield, which closed yesterday at 1.87 percent. Since a picture is worth a thousand words, here's a short visual essay illustrating the forecast averages for the two series. The ECB is bringing out what the popular economic press has referred to as its "QE bazooka". The goal is to stimulate the economy and move from its current deflationary state to a target inflation rate of two percent. Meanwhile, the economists in the WSJ survey have a rather optimistic view of the US economy, which they see strengthening enough to send the Fed Funds Rate above two percent at some point in the second half of 2016. The yield on the 10-year Treasury is expected to rise by over 60 basis points by June of this year and to be up a full percent by year's end.

Why Should Americans Care About European Central Bank Policy Moves? -- While the European Central Bank—based in Frankfurt—announced new actions Thursday to boost the eurozone economy, the effects are already being felt in U.S. financial markets and could benefit Americans if they work. A Wall Street Journal report Wednesday that the ECB was considering a new stimulus package gave U.S. stocks a modest lift and triggered a pullback in U.S. government bonds, causing their yields to rise.  U.S. Treasury yields influence other borrowing costs throughout the economy, such as those on mortgages and business loans. Stocks and bonds rallied and the euro dove after Tuesday’s move.Among the reasons for the recent strengthening of the U.S. dollar and decline in the euro were market expectations the ECB would make such a move at the same time the U.S. Federal Reserve is preparing to start raising interest rates.  A strong dollar can benefit U.S. consumers by lowering the price of imports and costs of traveling abroad. But it also can curb U.S. exports and corporate profits. Fed officials generally believe the benefits to the U.S. economy of stronger eurozone growth would outweigh the negatives of a stronger dollar. Collectively, the 19 countries that share the euro represent one of the U.S.’s largest trading partners and as a group are at risk of a third recession in six years. If the ECB’s new bond-buying program works as intended, it should spur more economic activity there, which should mean more business for U.S companies and possibly more demand for U.S. workers. More broadly, Fed officials see the threat of weaker growth overseas as the biggest risk to U.S. economic prospects, which for once are looking rather firm. In addition to the eurozone’s woes, Japan’s economic growth is anemic and many major emerging market economies, including China’s, are slowing.

The State of the Economy, in Eight Charts - Although the economic recovery is clearly accelerating, the improvements did nothing for the Democrats in the November midterm elections. Nor is it likely the economy will much help Mr. Obama’s ability to pass his legislative agenda through the Republican-controlled Congress. In anticipation of his remarks, here are eight charts that describe the state of the union in economic terms. For the duration of his presidency, Mr. Obama has sparred with House Republicans over the budget. Over calendar year 2014, the budget deficit was the smallest since 2007. While large in absolute terms, as a share of the economy, neither spending or revenue are extraordinarily high at the moment.  One of the most welcome pieces of news for many consumers, especially those with long commutes, is the plunge in gas prices. In this week’s speech, Mr. Obama can talk about some of the lowest gas prices of his presidency.  The jobless rate is far lower than when Mr. Obama first took office. Unemployment and underemployment were at their worst around the time of Mr. Obama’s 2010 State of the Union. Both measures have come down significantly and are now the lowest of Mr. Obama’s presidency by a significant margin.While unemployment has come down, this hasn’t translated into rising incomes for most families. The median household income in the U.S., adjusted for inflation, climbed as high as $56,800 in 2000 and has since been in decline. Income is still significantly lower than the $54,059 during Mr. Obama’s first year in office.  Different industries always have different growth rates. Under Mr. Obama’s presidency, professional and business services and health and education services have done especially well. Leisure and hospitality and retail trade have also added many jobs, though traditionally these industries can be low wage. Manufacturing, construction and state and local government all continued shedding jobs several years into Mr. Obama’s presidency. These industries have begun to grow again in recent years, but have fewer jobs than when Mr. Obama took office.

Q4 GDP Forecasts: 3%+ -  The advance estimate for Q4 GDP will be released next Thursday. The consensus is for GDP to 3.0% annualized in Q4. Here are couple of forecasts:  From the Atlanta Fed GDPNowThe GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2014 was 3.5 percent on January 21, up from 3.4 percent on January 14. The uptick was due to a slight increase in the nowcast for fourth-quarter inventory investment after last Thursday's industrial production release from the Federal Reserve Board.  From Merrill Lynch:  We are forecasting a 3.2% increase in real GDP in 4Q. We expect particularly strong consumer spending of 3.7% even with the disappointing December retail sales report.

Weather Shocks Needn’t Shock Economic Data, New Research Shows - When the U.S. economy unexpectedly contracted in the first three months of 2014, many economists and policy makers were quick to lay the blame on the dreadful winter weather that was holding sway over much of the nation. That view proved correct. As the unusually harsh winter faded, growth snapped back in the spring, to be followed the rest of the year by healthy gains in overall economic activity and jobs. The episode illuminated the trouble the economics profession has in dealing with surprise bouts of terrible weather. Most economic data is adjusted to take stock of normal variations. But unusually harsh or benign periods can wreak havoc with that process, and make the numbers look worse or better than they actually are. If the process of seasonal adjustments could be enhanced to deal with surprise weather, it would allow for a more accurate read on the economy in real time. That would help policy makers and markets alike. New research from the Federal Reserve Bank of Philadelphia argues that it’s possible for the economics profession to do better. The paper’s authors believe the normal seasonal adjustment process can be enhanced to incorporate unusual weather swings, which are not all that strange over the longer run. The key to incorporating unusual weather effects is knowing when they are more likely to happen, knowing what industries are more likely to be affected and understanding how an unexpected event plays out over time, the paper said. The authors zeroed in on jobs data as a place to try out their new method of creating seasonal adjustments, noting “financial markets, the press, and the Fed are hypersensitive to employment data.” They add “the weather adjustments that we propose might often substantially alter their perceptions of the labor market.”

Downgrading The US Will Cost S&P $1.5 Billion -- Remember when S&P forgot for a second that it lives in a world of pretend free speech, and where telling the truth would promptly result in a lawsuit by the US government after it downgraded the US from AAA to AA+ in the summer of 2011? A downgrade which as Bloomberg previously reported led to this exchange with then Treasury Secretary Tim Geithner: "S&P’s conduct would be looked at very carefully," Geithner told McGraw according to the filing. "Such behavior would not occur, he said, without a response from the government." Well, S&P will never make the same mistake again, because according to Reuters, it will cost it $1.5 billion to settle with the government and put the whole "downgrade" episode in the past.

Scene-Setting for the Policy Discussion: The American Economy Stumbles - DeLong - The American economy has done badly over the past generation or so. This is not to say other economies have done better: The American economy remains among the richest in the world. However, given the economic lead America had a generation ago, it really ought to still be well ahead of the North Atlantic pack, and it no longer is. Moreover, across most of the income distribution Americans today are little if any better off than their predecessors back in 1979, at the business-cycle peak in the Jimmy Carter presidency. Yes, today Americans have remarkable access to incredibly cheap electronic toys. But those are a small part of expenditure, and the costs of securing the standard indicia of middle-class life–a home in a safe neighborhood with good schools and a short commute, college for the children, assurance that a major illness will not lead to bankruptcy, a secure and reasonably-sized pension–have all become more costly relative to incomes. This shift is astonishing: For 150 years before 1979 Americans had confidently expected that each generation would live roughly twice as well in a material sense as its predecessor, not find itself struggling against the current to stay in the same place. If you want a single set of numbers to keep in the front of your mind to understand America’s relative position today, you cannot do better than those in the figure below, copied from the Credit Suisse Global Wealth Report1:

The Politics of MMT (Strange Bedfellows) -- There are the cut-and-dried facts, about how money actually works, which MMT succinctly explains—that those who were unaware—seem to readily grasp.

  1. The US is the issuer of currency not just currency users like households, towns, businesses and US States.
  2. If a country has a marvelous productive capacity, a free floating sovereign currency, and little to no debt denominated in foreign funds—then there is no external reason it cannot spend regardless of taxing or borrowing.
  3. The last seven US depressions were preceded by seven rare public surpluses.
  4. A public deficit is a non public surplus, which means a private surplus after taking into account what leaked overseas.
  5. A private surplus is the point of a prosperous nation, as long as it doesn’t cause hyperinflation.
  6. Banks create money, too. But since it usually has to paid back someday, those dollars are temporary.

The conclusion is that the US is the monopoly issuer of net financial assets. So, given a stable foreign trade balance the only way the private sector can grow is with increased government spending, asset appreciation (inflation), people spending out of savings, or people/businesses borrowing (temporarily) from banks.

The Politics of Economic Stupidity by Joseph E. Stiglitz --  In 2014, the world economy remained stuck in the same rut that it has been in since emerging from the 2008 global financial crisis. Despite seemingly strong government action in Europe and the United States, both economies suffered deep and prolonged downturns. The gap between where they are and where they most likely would have been had the crisis not erupted is huge. In Europe, it increased over the course of the year. Developing countries fared better, but even there the news was grim. The most successful of these economies, having based their growth on exports, continued to expand in the wake of the financial crisis, even as their export markets struggled. But their performance, too, began to diminish significantly in 2014.  The malaise afflicting today’s global economy might be best reflected in two simple slogans: “It’s the politics, stupid” and “Demand, demand, demand.” The near-global stagnation witnessed in 2014 is man-made. It is the result of politics and policies in several major economies – politics and policies that choked off demand. In the absence of demand, investment and jobs will fail to materialize. It is that simple.

Announcing (Actually, Confirming) Our Focus on the CBO’s Dubious Models and Political Bias -- We've been writing about abuses of power and process at the Congressional Budget Office and will be ramping up our coverage further now that ranking member Bernie Sanders has a new team at the Budget Committee, which among other things supervises the CBO. And the CBO is going to be the subject of a major political fight over how it prepares its estimates of the economic and fiscal impact of pending legislation. As we'll discuss below, Republicans plan to mandate that the CBO use something called dynamic scoring, which has the effect of making tax cuts look far more beneficial to the economy than they are, by effectively claiming that tax cuts boost growth, which then boosts tax receipts. It would effectively institutionalize the Laffer curve, which has been widely and repeatedly debunked. As troubling as this development is, there's already a lot not to like in how the CBO operates.

More and War – The Tao of Washington -   Tom Engelhardt - When it comes to the national security state, our capital has become a thought-free zone. The airlessness of the place, the unwillingness of leading players in the corridors of power to explore new ways of approaching crucial problems is right there in plain sight, yet remarkably unnoticed.  Consider this the Tao of Washington. Last week, based on a heavily redacted 231-page document released by the government in response to a Freedom of Information Act lawsuit, Charlie Savage, a superb reporter for the New York Times, revealed that the FBI has become a “significant player” in the world of warrantless surveillance, previously the bailiwick of the National Security Agency.  The headline on his piece was: “FBI is broadening surveillance role, report shows.” Here’s my question: In the last 13 years, can you remember a single headline related to the national security state that went “FBI [or fill in your agency of choice] is narrowing surveillance role [or fill in your role of choice], report shows”?  Of course not, because when any crisis, problem, snafu or set of uncomfortable feelings, fears, or acts arises, including those by tiny groups of disturbed people or what are now called “lone wolf” terrorists, there is only one imaginable response: more money, more infrastructure, more private contractors, more surveillance, more weaponry, and more war.   More tax dollars consumed, more intrusions in our lives, the further militarization of the country, the dispatching of some part of the U.S. military to yet another country, the enshrining of war or war-like actions as the option of choice — this, by now, is a way of life. These days, the only headlines out of Washington that should surprise us would have “narrowing” or “less,” not “broadening” or “more,” in them.

Trans Pacific Partnership: Obama ready to defy Democrats to push secretive trade deal - The Trans Pacific Partnership is a trade agreement so significant and important, its details can’t be disclosed. The TPP, sure to make an appearance during tonight’s State of the Union, is a 21st-century trade agreement involving 11 Asian countries along the Pacific Rim, and said to cover 40% of the world’s economy. The TPP is a subject close to the heart – and the economic plans – of President Obama. In a November trip to Beijing, he urged other world leaders to finalize the agreement, calling it a “high priority” that would strengthen American leadership in the Asia-Pacific region and lead to growth, investment and job prospects for more workers. The administration has argued that the deal will allow lower tariffs for American exports, in an environment of increasing competition, especially from China. Obama is also touting the deal as a boon for small businesses. When 98% of the US’s exporters are small businesses, new trade partnerships will help them create even more jobs, he proclaimed in last year’s State of the Union address. “Listen, China and Europe are not standing on the sidelines. Neither should we.” Right now, American citizens will have to take those promises about the impact of the TPP on faith. The TPP is one of the largest international trade agreements the US will sign, yet most of it is mired in secrecy. Congress won’t have access to the TPP before it is signed, and the terms won’t be publicly disclosed – ironic since the negotiations include 600 corporate advisers, including representatives of Halliburton and Caterpillar.

GOP Leaders Set to Enable “ObamaTrade” With Fast Track for President - A vote on Trade Promotion Authority (TPA, better known as "Fast Track") is likely to come up in March as Senator Mitch McConnell (left, R-Ky.), Representative Paul Ryan (center, R-Wis.), Senator Orrin Hatch (right, R-Utah), and other GOP leaders line up Republican votes to push for Obama’s U.S.-Atlantic-Pacific merger pacts. "The first thing we ought to do is pass trade promotion authority," new House Ways and Means Committee Chairman Paul Ryan said at a committee hearing on the U.S. economy, according to a January 14 report on Ryan argued that TPA would allow the White House to bring back the best deal in the ongoing international negotiations. “The first window for passing trade promotion authority legislation will likely be in March, according to a senior House GOP aide, who said busy floor and committee schedules will likely prevent the bill from coming up in February,” Politico reported. “The aide predicted that the House Ways and Means Committee would report out a clean TPA bill, with no other trade legislation attached,” Politco continued. “In one scenario, the Senate could pass all the other pending trade legislation, such as the Generalized System of Preferences, together in a package, while the House passes TPA. Then, each chamber in turn would pass the legislation from the other, the aide said.”

Trans-Pacific Partnership Deal Isn’t Secret, Says US Official, But Access To Text Is Highly Restricted -- -- The trade rules of the proposed Trans-Pacific Partnership (TPP) between the U.S. and 11 Asian nations would cover nearly 40 percent of the world economy -- but don't ask what they are. Access to the text of the proposed deal is highly restricted. Froman, who said his office has held more than 1,600 briefings with lawmakers over the TPP, said his office also has released summaries of proposed provisions.Yet the actual text of the agreement remains under lock and key. That represents a significant break from the Bush administration, which in 2001 published the text of a proposed multinational trade agreement with Latin American nations.  “It is incomprehensible to me that leaders of major corporate interests who stand to gain enormous financial benefits from this agreement are actively involved in the writing of the TPP, while at the same time, the elected officials of this country, representing the American people, have little or no knowledge of what’s in it,” wrote U.S. Sen. Bernie Sanders, I-Vt., in a letter to Froman earlier this month.   Sanders’ office confirmed that congressional lawmakers are permitted to view the text of the agreement only in the Trade Representative’s office, without their own staff members or experts present. They are not allowed to take copies of the agreement back to Capitol Hill for deeper, independent evaluation. Despite those restrictions, specific details of the agreement’s text have surfaced from unauthorized leaks -- some of which appear to contradict the Obama administration’s promises. Froman, for instance, said in Davos that “none of [the trade participants] want to lower our health, safety or environmental standards,” yet one of the leaks showed the U.S. proposing to empower corporations to attempt to overturn domestic regulations, while critics say another leaked provision would help the pharmaceutical industry inflate the price of medicines in poor countries.

Obama Proposes New Tax Hikes on Wealthy to Aid Middle Class -President Barack Obama is proposing new taxes on the wealthiest Americans that would limit their profits from investments and make it harder for them to pass assets to heirs. Obama, who will promote the plan during his Jan. 20 State of the Union Address, will use much of the proceeds -- $320 billion over 10 years -- to expand tax credits for higher education and child care and create a new break for two-earner couples. The White House released details of the plan Saturday. “What you’re seeing here is really dedicated middle-class tax relief to really get at that problem of middle-class wage stagnation,” said Harry Stein, director of fiscal policy at the Center for American Progress, a Washington group aligned with Democrats. Obama’s tax plan faces opposition in the Republican-controlled Congress, where lawmakers want to cut tax rates and curtail targeted breaks. The two parties agree more on business tax changes, though an accord on that isn’t close. “Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” Republican Orrin Hatch, the chairman of the Senate Finance Committee, said in a statement Saturday. “The president needs to stop listening to his liberal allies who want to raise taxes at all costs and start working with Congress to fix our broken tax code.”

Driving the Obama Tax Plan: The Great Wage Slowdown -- The key to understanding President Obama’s new plan to cut taxes for the middle class is the great wage slowdown of the 21st century. Wages and incomes for most Americans have now been stagnant for 15 years. They rose at a mediocre pace for much of President Bush’s tenure in the 2000s, before falling sharply during the financial crisis that dominated the end of his presidency. Even as job growth has picked up in recent months, wages haven’t grown much more quickly than inflation. As a result, the government’s official statistics suggest that the typical American household makes no more than the typical household did in the final years of the 20th century. There is little modern precedent for a period of income stagnation lasting as long as this one. Official records don’t exist before World War II. But the best estimate is that the Great Depression may be the only other modern time in which incomes for most households in the United States have grown so slowly — or not at all — for so long.  The great wage slowdown has several main causes: globalization, which has forced Americans to compete with hundreds of millions of poorer workers from around the world; technological change, which allows machines to replace human labor in new ways; the slowdown in American educational attainment, even as the rest of the world has continued to become more educated and more highly skilled; and the shifting balance of economic power, away from workers and toward companies and their executives. The wage slowdown is the dominant force in American politics and will continue to be as long as it exists. Nothing drives the national mood — and, by extension, national politics — the way that the country’s economic mood does, as political scientists have demonstrated. And nothing drives the economic mood as much as wages and incomes, which are the main determinant of material living standards for most households.

President Obama Targets the "Angel of Death" Capital Gains Tax Loophole - The President plans to announce in Tuesday’s State of the Union Address new proposals that would raise taxes on capital gains for the wealthiest Americans. The proposal would raise the top tax rate on long-term gains and qualifying dividends to 28-percent (including the Affordable Care Act’s 3.8 percent investment income surtax on high-income taxpayers). The president also proposes to tax capital gains at death rather than allow them to pass income-tax free to heirs as under current law. All told, the proposal amounts to a substantial tax increase for wealthy people. The top rate on investment income (including ACA surtax) goes up by about 18 percent (from 23.8 to 28 percent). But the more significant change for the very wealthy is elimination of the “angel of death loophole,” as Michael Kinsley famously called it. Under current law, heirs of appreciated property benefit from so-called “stepped up basis,” which is a wonky way of saying that past capital gains or losses are ignored. If grandpa leaves you shares of stock that he bought for $10 and are now worth $100, you never have to pay tax on the $90 of appreciation. Under the proposal, grandpa’s estate will be taxed on the $90 profit on his final tax return. There would be several exceptions: No tax is due until the surviving spouse dies. The first $100,000 in gains is exempt for singles ($200,000 for couples). Special rules would protect small businesses. Finally, gifts to charity would be exempt (though other gifts would be subject to the levy).

First thing we do, tax all the banks: why Obama's middle-class economics plan makes good sense - President Obama’s tax proposal announced in the State of the Union address on Tuesday night has one feature that has nothing to do with taxes. In fact, Obama’s tax plan is actually the first real plan for financial regulation from the White House since the passage of Dodd-Frank financial reform in 2010.  It’s also, at long last, an acknowledgement that more reform is required to stabilize the financial system and prevent future crises. The question is no longer “Are we done”? but “What more must we do?”  Obama’s plan is a redistributive one, designed to close some tax breaks for the wealthy and put $325bn in savings into the hands of the middle class.  One notable aspect of Obama’s plan is that financial institutions with assets of over $50bn would have to pay a 0.07% fee, a kind of tax for being too big to fail. The fee would raise roughly $110bn over the next 10 years from around 100 firms.  But the key to the plan is that it does not tax the bank’s assets, or what they own; it taxes their liabilities, or what they owe.  In other words, it’s a tax on bank borrowing, which punishes one of the key drivers of the 2008 financial crisis. By limiting bank borrowing, the tax would also reduce the risk of big bank failures that impose costs on the rest of the economy.  If the White House wanted to simply raise money, Obama would have proposed taxing the bank’s assets, which are hard to reduce. But the tax on liabilities gives big banks a way to shrink gracefully. They can reduce their tax bill simply by cutting back on borrowing, and financing their operations through other methods, like selling shares of stock or retaining some of their earnings.

Banks and Congress blast Obama plan to tax Wall St and wealthy - The banking industry and Republicans have criticised a White House proposal to increase taxes on Wall Street and the wealthy as President Barack Obama steps up efforts to seize the initiative on economic policy. Seeking to exploit a rising tide of populism in the US, he will unveil proposals in his State of the Union address on Tuesday that would pump funds raised from banks and rich families into policies likely to be popular with the middle class. Mr Obama aims to raise more than $300bn by imposing a new levy on the US’s largest financial institutions, raising the top rate of capital gains tax to 28 per cent, and closing a loophole that lets wealthy families pass down assets without paying tax. The funds would pay for initiatives to boost the middle class — such as tax benefits for childcare, college education and retirement for middle class Americans — as the president continues an aggressive run of policy moves likely to shape debate in the 2016 presidential campaign. The White House said the capital gains and inheritance changes would almost exclusively affect the wealthiest 1 per cent of Americans, and that 80 per cent of the impact would fall on the much narrower 0.1 per cent band, defined as those with annual income of more than $2m. But the proposals are unlikely to pass a Congress controlled by Republicans — who say tax rises would slow economic growth — and the details previewed by the White House over the weekend sparked an immediate backlash.

The Tax Reform Gap Between Obama and the GOP is Widening - In his state of the union address, President Obama laid out his vision for the tax code. Earlier in the day, in a speech to the Chamber of Commerce, Senate Finance Committee chair Orrin Hatch (R-UT) described his. They are not only on different planets. They inhabit different galaxies. Obama wants to raise capital gains taxes on high-income investors, cap the size of tax-preferred retirement savings accounts, and impose a new tax on big banks. He’d use the money to create or expand tax subsidies or boost direct spending on families with kids, low-income workers, those who want to go to college, and those without access to job-based retirement savings. Hatch isn’t having much of it. He wants to use tax reform to promote savings and investment.  He rejects tax hikes on businesses. And he’s opposed to using the code to “pick winners and losers.” In the past, Republicans have backed variations on some of Obama’s ideas. Former House Ways & Means Committee chair Dave Camp proposed a bank tax as part of his reform plan. GOP senators Marco Rubio (R-FL) and Mike Lee (R-UT) have proposed their own expansions of the Earned Income Tax Credit and the Child Tax Credit. And Democrats, including Obama, have backed the ideas of simplicity and neutrality.

JPMorgan CEO Jamie Dimon Accepts Obama Capital Gains Tax Hike: -- At least one prominent member of the global financial elite is open to paying higher taxes and specifically accepting an increase in capital gains taxes proposed by President Barack Obama -- a measure long opposed by Wall Street. "Everyone I know wants it, tax reform. Democrats and Republicans, and across a broad base -- individual and corporate -- and this is some of it," JPMorgan Chase CEO Jamie Dimon told the International Business Times in an interview here on the sidelines of the World Economic Forum. "I don't think it can stand on its own. It has to be comprehensive." Asked specifically about Obama's proposal to increase capital gains taxes paid by investors -- a measure that has in years past drawn accusations of class warfare from Wall Street -- Dimon expressed no opposition. "If capital gains taxes go up, fine," Dimon said. "But you've got to make it part of a package. And I hope that the package is a growth package." Dimon's comments here reinforced what appears to be a readjustment by Wall Street leaders in their stance toward the Obama administration as the White House places greater emphasis on addressing economic inequality. In years past, Dimon has chafed at characterizations that Wall Street was to blame for the financial crisis and the Great Recession, while accusing Democrats of pursuing "anti-business" policies.

The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy: President Obama is going big on capital taxation in the State of the Union tonight, including a proposal to raise dividend taxes on the rich to 28 percent.  In the response to Obama’s proposal, you are going to hear a lot about how lower dividend rates increase investment and help the real economy. Indeed, lowering capital tax rates has been a consistent goal of conservatives. As a result, one of the biggest capital taxation changes in history happened in 2003, when George W. Bush reduced the dividend tax rate from 38.6 percent to 15 percent... So did the tax cut make a difference? This is where UC Berkeley economist Danny Yagan’s fantastic new paper, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut,” (pdf, slides) comes in. ...Here’s what he finds: ... There’s no difference in either investment or adjusted net investment. There’s also no difference when it comes to employee compensation. The firms that got a massive capital tax cut did not make any different choices about things that boost the real economy. This is true across a crazy-robust number of controls, measures, and coding of outliers. ... President Obama will likely focus his pitch for the dividend tax increase on the future, when, in his argument, globalization and technology will cause compensation to stagnate while investor payouts skyrocket and the economy becomes more focused on the top 1 percent. But it’s worth noting that while capital taxes are a solution to that problem, that the radical slashing conservatives have brought to them are also partly responsible for our current malaise.

For The Love Of Capital Income - Paul Krugman -- Shorter Glenn Hubbard: Means-tested programs and tax credits are a terrible thing, because benefits that fall when your income rises discourage work. Also, we must save money by means-testing Social Security and Medicare. The real point, of course, is that Hubbard is defending his pride and joy, the 2003 cuts in tax rates on dividends and long-term capital gains, which were supposedly designed to spur business investment. They didn’t — we have what amounts to a controlled experiment, because the dividend tax cut had no effect on closely held corporations, which can therefore be used as a control group. And what the comparison shows is that the tax cut didn’t boost investment or employment at all — all it did was boost payouts to shareholders.  And who were those shareholders? Glad you asked. According to the Tax Policy Center, two-thirds of the benefits from the dividend tax cut went to the top 1 percent; more than half went to individuals with incomes of more than a million dollars a year.  So who, exactly, has been waging class warfare?

Republicans and Wall Street Say To Hell With Protecting the Public! - Bill Moyers. A must-read interview with Simon Johnson. -- Since December, Congress has twice passed measures to weaken regulations in the Dodd-Frank financial law that are intended to reduce the risk of another financial meltdown.  In the last election cycle, Wall Street banks and financial interests spent over $1.2 billion on lobbying and campaign contributions, according to Americans for Financial Reform. Their spending strategy appears to be working. Just this week, the House passed further legislation that would delay by two years some key provisions of Dodd-Frank. “[Banks] want to be able to do things their way, and that’s very dangerous.” MIT economist Simon Johnson tells Bill.“‘Here we go again’ — I think that’s exactly the motto, or the bumper sticker for this Congress. It’s crazy, it’s unconscionable, but that is the reality.” Lawmakers are pinning these provisions to Dodd-Frank onto bigger must-past bills like spending measures that the president doesn’t dare veto.

A Billionaire Lectures Serfs In Davos: "America's Lifestyle Expectations Are Far Too High" - Just when you thought it couldn’t get any worse, it has. Enter billionaire Jeff Greene, who’s comments at Davos make Sam Zell look enlightened. From BloombergBillionaire Jeff Greene, who amassed a multibillion dollar fortune betting against subprime mortgage securities, says the U.S. faces a jobs crisis that will cause social unrest and radical politics.  “America’s lifestyle expectations are far too high and need to be adjusted so we have less things and a smaller, better existence,” Greene said in an interview today at the World Economic Forum in Davos, Switzerland. “We need to reinvent our whole system of life.”  Wait a minute, “we” need to reinvent our whole system of life? I’m curious, Mr. Greene, how specifically will YOU be adjusting your lifestyle expectations? I didn’t think so. Kindly shut the fuck up.  Greene, who flew his wife, children and two nannies on a private jet plane to Davos for the week, said he’s planning a conference in Palm Beach, Florida, at the Tideline Hotel called “Closing the Gap.” The event, which he said is scheduled for December, will feature speakers such as economist Nouriel RoubiniApologies, it appears when it comes to Jeff Greene, he is adjusting his expectations in the opposite direction, upward.

Bill Black appearing on The Real News Network -- NEP’s Bill Black appeared on The Real News Network (TRNN) discussing the bill that the House of Representatives passed that further weakens financial regulation. The video is below. If you wish to view the transcript at TRNN, click here.

Debunking the Wall Street Talking Points that Fooled Congress – Alexis Goldstein - After winning big by getting a Wall Street-reform gutting provision included in the 2014 year-end government spending bill, the big banks were not content to take a victory lap. As one of the first acts after convening the 114th Congress, House Republicans hurried to provide yet more favors to the biggest banks.  H.R. 37, which the Republicans brought to the House floor literally 24 hours after the Members took their oath of office, is an 11-bill hodgepodge of financial deregulation. The most significant part of the legislation takes aim at one part of the Volcker Rule, a law meant to stop deposit-taking banks from engaging in speculative trading, or investing in risky enterprises like hedge and private equity funds. H.R. 37 would give banks an extra two years to divest of certain investments known as “collateralized loan obligations,” which are securitized pools of leveraged loans, often juiced with some non-loans thrown into the mix (often derivatives or bonds). The CLOs, as they’re known, are backed by leveraged loans often issued by private equity firms to facilitate corporate buyouts. The bill mostly benefits JP Morgan, Wells Fargo, and Citigroup, who own 66% of all U.S. bank-held CLOs. Banks have already had three years of extensions granted by the Fed: they currently have until 2017 to sell off anything the Volcker Rule now prohibits them from owning. But with House Republicans, and some Democrats, willing to play ball, the banks keep using their surrogates to ask for more.

Goldman Tramples Volcker Rule -- Goldman Sachs has been on a shopping spree with its own money, snapping up apartments in Spain, a mall in Utah and a European ink company, all of which the bank hopes eventually to sell for a profit. These are the sorts of investments that many, including some of the bank’s regulators, had assumed would be prohibited by one of the signature elements of the 2010 financial overhaul legislation, the Volcker Rule.Yet while its competitors have been abandoning the business of making big bets with their own money, frequently citing the risks involved, Goldman has been quietly coming up with several new ways to put its own money to work in formats that appear to stay on the right side of Volcker.The investments have caused disquiet among some of Goldman’s big clients, which complain privately that the bank is supposed to help its clients buy companies and other assets but instead ends up competing for those assets.Paul A. Volcker, the former Federal Reserve chairman who inspired the rule, and the two senators who wrote it said through spokesmen that they were disappointed that banks had been allowed to continue making big proprietary bets using their own money, despite the lawmakers’ intent.The regulators who were responsible for putting the law into practice have given banks room to continue making purchases with their own money through their merchant banking arms. But other large banks have essentially stopped this activity. And Goldman’s merchant banking business is upsetting some regulators, who worry that such investments do not follow the spirit of the law, which aims to reduce concentrated risks at banks, according to people at three regulatory agencies, who were not authorized to speak publicly.

KKR Rebates Some Ill-Gotten Fees to Investors Due to Dodd Frank Reforms - Yves Smith  - KKR made what amounted to an admission of guilt to the blistering charges that the SEC laid at the doorstep of the private equity industry last May. Then, Andrew Bowden described in unusually specific detail the widespread, serious abuses it was finding in its initial private equity examinations, including what amounted to embezzlement. Those reviews came about because Dodd Frank required general partners who with funds bigger than $150 million to register as investment advisors. Mark Maremont of the Wall Street Journal, based on a document obtained by FOIA from the Washington State Investment Board, learned that KKR had disgorged some ill-gotten fees. From his report: KKR & Co. refunded money to investors in some of its buyout funds after regulators found it overcharged them, marking one of the highest-profile results yet of regulators’ increased scrutiny of the private-equity business. The decision by KKR, one of the world’s largest private-equity firms, came in response to an examination by the Securities and Exchange Commission, which found the firm wrongly charged investors for some expenses and failed to properly notify them of certain fees it collected, according to a document from one of KKR’s largest investors.

Plight of Bitcoin Miners Tests the Digital Currency's Self-Regulating Design | MIT Technology Review: Those watching or betting on the digital currency Bitcoin could be in for an interesting week. That’s roughly how long it will be before the decentralized software that operates the currency can correct for the effects of a plunge in the value of Bitcoin since the start of the year. A Bitcoin is currently worth just over $200, down about one-third from where it began January. It peaked at more than $1,000 late in 2013. The low price threatens the operations of the “miners” who use powerful computers to mint new bitcoins—and whose activity is also needed to confirm and process Bitcoin transactions. As the value of new coins has tumbled, the cost of the computers and electricity needed to mine them have not—a similar problem to the one that has stranded some oil companies as the price of crude has dropped. Several Bitcoin companies ceased operations last week, saying that they couldn’t operate profitably. Small-time miners talked in online forums about having to shut off their equipment. It is hard to know how many miners experienced similar problems, given the variations in electricity prices and the cost structures of different companies. Mining companies contacted by MIT Technology Review on Friday did not respond. However, data from the Bitcoin network indicates that the revenue generated by all miners each day has roughly halved since the start of the year. In theory, Bitcoin’s self-regulating setup should prevent this situation from cascading into significant problems for the currency. The Bitcoin software has a mechanism that is designed to ensure there are always enough miners working to keep the currency operating and to regulate their output. It does that by altering the difficulty of the work that mining software has to do so that their miners’ combined rate of output is always the same.

Fed’s Powell Says Rate-Rigging Undermines Trust in Banking - Widespread manipulation of key benchmark interest rates such as the London Interbank Offered Rate, or Libor, threatens public confidence in the financial system, and must be prevented through fines and criminal prosecution, Federal Reserve governor Jerome Powell said Tuesday. Mr. Powell has become the Fed’s point-man in global efforts to find a more credible alternative to Libor and other comparable rates around the world, which were alleged to be rigged on a consistent basis to favor the banks setting those rates. His remarks at the Brookings Institution in Washington referred primarily to a U.K. policy review that is in charge of addressing the problem of rate-fixing. Mr. Powell said the review “looks to identify further steps that should be taken to restore public confidence in fixed-income, currency and commodities markets in the wake of the depressingly numerous instances of serious misconduct in these markets in recent years.” “That misconduct has been, and will continue to be, addressed through substantial fines and criminal prosecution of the firms and individuals involved,” Mr. Powell added. Mr. Powell stressed that activities in these financial markets have widespread effects on the broader economy. “Bad conduct, weak internal firm governance, misaligned incentives, and flawed market structure can all place this trust at risk,”

Everest Macro Hedge Fund Blows Up After Nearly $1 BIllion In Swiss Franc Losses -- Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline.  Other hedge funds that have suffered amid the Swiss turmoil, according to people familiar with the situation, are Discovery Capital Management LLC, a South Norwalk, Conn. firm that manages $14.7 billion, and Comac Capital LLP, which oversees $1.2 billion in London.

The End Of The World Of Finance As We Know It -- Ilargi. I’ve said before, and quite a while ago too, – more than once-, that the world of investing as we’ve come to know it is over. What we’ve seen since 2008 – not that things were fine and rosy before that – is that all ‘private’ losses were taken over by the public sector, just so the private sector didn’t have to fess up to what it lost, and the appearance of a functioning market system could be upheld. And those who organized this charade were dead on in thinking that as long as Dow and S&P numbers would look good, and they said ‘recovery’ in the media often enough, people would believe there still was a functioning financial marketplace. And they did. But those days are over. Or at least, they soon will be. What I mean by that is that the functioning marketplace is long gone, and only now people’s beliefs, too, about it are changing, being forced to change, and soon quite radically. The entire idea that ruled the world of finance and kept it -seemingly – standing upright is crumbling fast. And we’re going to have to find a way to deal with that. As of today, we have none, we come up zero. The overriding narrative – which overrides every other thought – is that we’re on our way back to recovery. And then we’ll get back to becoming ever richer, live in ever bigger homes and drive ever bigger, smarter and faster cars. Or something in that vein. The downfall of finance can be traced back to all sorts of points in history. Think Nixon the gold standard in 1971, for example. But the repeal of Glass-Steagall in 1998, under Bill Clinton, is undoubtedly one of the major ones. Once deposit-taking banks were -again – allowed to use those deposits to ‘invest’ – read: gamble with -, it was only a matter of time before the train went off the tracks in spectacular fashion.

We Are in a Financial Meltdown: Nomi Prins - Best-selling author and financial expert Nomi Prins says, “We are in a financial meltdown.  I said 9 or 10 months ago, it hadn’t happened yet, but it should happen because of the instability of a system that is supported by central bank maneuvers and not really anything organic and leveraging and reaching for yields in places like oil and natural gas and other places on the virtue of cheap money. . . . It kind of boggles the mind.  This QE is epic.  It’s historic.  It is larger and more insane that ever in history.  It is pan-global.  The reason that things have kind of stayed in place is because there was enough cheap money coming into the system and enough corporations getting it . . . that really kept the markets artificially buoyed by virtue of this cheap money coming  in.  That’s kind of coming to a stop.  The ECB QE will help provide the markets and banks some solvency for a while and some buoy for a while.  So, therefore, there is still a little bit coming in.” Prins goes on to predict, “The volatility is going to increase.  Last year, we had volatility spikes in August, October and December.  This year, we’ve already had a spike in January.  So, the shocks are coming in more closely and the downsides are deeper.  That’s why we are transitioning down.  At the end of this year, we will have a lower market.  It will start to come apart, and these shocks will have a more intense volatility and chaotic impact over this year.  That will basically start to unravel all of this money that’s been dumped and the way in which this money has held up a system that should not be held up.   It has no inherent value.”

Hedge Fund Manager Loses 99.8% In 9 Months, Tells Investors He Is "Sorry" For "Overzealousness" -- Day after day, mainstream media proclaimed December the month to be in stocks: seasonals, Santa Claus rally, and performance-chasing funds would 'guarantee' upside. For Owen Li, former Raj Rajaratnam's Galleon Group trader, and the clients of his Canarsie Capital hedge fund, December 2014 will never be forgotten. According to CNBC, from around $100 million in AUM in March 2014, Li told investors in a letter, the fund had lost all but $200,000 and he was "truly sorry," for "acting overzealously" in the last 3 weeks.

The Cruel Oil-Market Math Conspiring Against ETF Bulls - Bloomberg: The $2.3 billion that has poured into funds that track oil since December would seem like a logical enough investment. After crude dropped more than 50 percent to a five-year low, the thinking goes, prices are due for a rebound. There’s just one problem. And it’s a big problem. The market is stuck in something called contango, an exotic term that really just means that prices on crude contracts to be delivered in coming weeks are lower than those on contracts due later. Exchange-traded fund (USO) managers, as a result, are left to sell the cheaper expiring oil contracts and re-invest the proceeds in the more expensive ones due the following month, creating a vicious cycle that erodes returns. Analysts at Citigroup Inc., Barclays Plc and Societe Generale SA say contango won’t vanish anytime soon, predicting it will persist throughout 2015 because of the glut of oil. Investors have sent $1.03 billion into the four biggest oil exchange-traded products so far this month after investing $1.23 billion in December, which was the biggest monthly gain since 2010, according to data compiled by Bloomberg. The inflows came even after contango widened to the biggest in almost two years. Front-month futures are the benchmark with most trading, and moving away from them to buy long-dated futures results in bigger losses in a contango market. WTI for February delivery added $1.44 to $47.69 a barrel at 1:27 p.m. on the New York Mercantile Exchange. March futures traded 44 cents higher than the February contract. The gap between the first two months closed at 69 cents on Jan. 12, the biggest since February 2013.

Energy bondholders at risk as bank loans ebb - April in Texas traditionally marks the start of the spring thunderstorm season. This April, the tempestuous weather looks set to be accompanied by an additional financial squall for the state’s oil and gas companies as banks begin cutting back on the reserve financing on which these firms rely. Such financing is typically re-evaluated twice a year, usually in October and April, and is tied to the value of the borrowing firms’ oil and gas reserves and related assets such as pipelines. With the price of US crude now less than 50 per cent of its recent peak of $107 a barrel, the likely consequence is that banks will significantly reduce their lending to energy firms across the US, forcing companies to look for alternative sources of financing on more punitive terms. “I don’t think people understand how much this move in oil is going to affect the high-yield market,” says Leonard Tannenbaum, chief executive of Fifth Street Management, which advises two publicly traded business development companies. Cash-guzzling oil and gas firms have typically relied on a mix of bank lending and bonds sold in the public markets to help finance their extraordinary growth in recent years. US oil and gas companies have issued more than $140bn in high-yield debt since 2000, with energy bonds now accounting for about 14 per cent of the $1.3tn junk-rated US corporate bond market. “We’ve been through a period when financing has been readily available. Investors wanted to see these exploration and production companies grow,” says Andrew Brooks, vice-president at rating agency Moody’s. “There is a lot of leverage in the system as a result. The rapidity with which oil prices collapsed has caught a lot of people by surprise.”

Slimin’ Jamie Dimon Tells Howlers About Persecution of Banks, “Fortress Balance Sheet”Yves Smith - Jamie Dimon seems to think if he can tell his Big Lies long enough, he’ll be believed. In reality, the only ones who will buy his blather are his fellow members of the elite banker looting classes and their hired help. Dimon’s latest opportunity to play Ministry of Truth came in an analysts’ call last week, when he tried presenting JP Morgan and banks generally as “under assault”. This was so patently ridiculous that it quickly elicited the scorn it deserved. For instance, from DS Wright at Firedoglake: Remember that time the US government broke up all the Too Big To Fail banks and prosecuted bankster executives for the crimes that brought down the financial markets in 2008? Me neither. Yet JPMorgan CEO Jamie Dimon is caterwauling to the media about Wall Street being “under assault” by US regulators. Dimon’s complaining appeared to be instigated by JPMorgan posting a drop in quarterly profits. JPMorgan recently had to pay legal costs and fines related to a slew of criminal activity that ranged from fraud in the mortgage market, rigging currencies, and participating in the Bernie Madoff Ponzi scheme. The fines which the bank paid were relatively small and no JPMorgan executives were prosecuted. Quite an assault. Or how about Tim Mullaney at MarketWatch: J.P. Morgan & Chase’s chief executive officer is taking a well-deserved roasting for complaining Wednesday that “banks are under assault” from regulators, who nastily want them to make good on old misfeasance, while meanly insisting they raise ever-more capital so the 2008 credit crash and near-depression won’t recur. Asked for details, Dimon responded: “Are you kidding?” Poor baby. He’d be way more convincing if J.P. Morgan’s press office hadn’t been unable to produce a list I requested of all the legal settlements the nation’s biggest bank has been forced to enter in recent years. Neither could Better Markets, a Washington-based consumer watchdog that bedevils the too-big-to-fail set. From enabling Bernie Madoff to manipulating energy markets to defrauding credit-card customers, there are just too darn many scandals for either side to count. 

Citigroup’s $150 Million in Currency Losses Deserve a Closer Look -  It has been more than four days since wire services reported that Citigroup’s trading desk had lost more than $150 million as a result of Switzerland’s central bank removing the cap on the Swiss Franc’s peg to the Euro. During that time, Citigroup does not appear to have demanded a correction or retraction. Thus, that much of the story has made it into the hands of the public. What is not widely known is that Citigroup, a global behemoth bank which is on a short tether by the Federal Reserve after failing its stress test last year and in previous years since its crash, is branding itself as the go-to place for retail clients wanting to gamble in the high-stakes world of currency trading with a starting account size as small as $10,000. In addition, the account can be leveraged up on margin provided by Citigroup’s insured banking unit by as much as 50 times. According to the FDIC’s data as of September 30, 2014, Citibank N.A., the unit of Citigroup offering the currency trading to retail clients, had total assets of $1.377 trillion; domestic deposits of $443 billion; and foreign deposits of $505 billion. In other words, in terms of its deposit base, Citibank is more foreign than it is domestic, but it’s the U.S. taxpayer that will be on the hook if it implodes again. With its recent history, why are its regulators allowing it to take on potentially perilous trading activities? When retail clients end up owing money to a bank in a highly leveraged currency trade, the bank can easily end up stuck with the losses. That’s the part of this Swiss Franc story we haven’t yet heard about: how much is Citi on the hook for retail client losses?

Regulators Delve Into 'Too Big to Fail' Tag - Top financial regulators on Wednesday discussed ways to improve how so-called too-big-to-fail institutions are singled out for closer supervision, but they stopped well short of reversing any designations made so far.The proposals discussed by the Financial Stability Oversight Council included making earlier and fuller disclosures of information and giving companies designated as “systemically important” more opportunities to have their names removed from the list.“It’s important for us to be nimble and adjust our processes as we continue to grow and mature,” said the Treasury secretary, Jacob J. Lew, who leads the council.It was not clear whether such changes would mollify members of Congress who have criticized the council recently, warning that its actions could harm American competitiveness.Any changes would also come too late to help MetLife, the big life insurer that was designated systemically important in December, subjecting it to tougher capital and disclosure requirements and supervision by the Federal Reserve. MetLife filed suit in federal court earlier this month, seeking to have the designation rescinded as “arbitrary and capricious.”Without mentioning MetLife or its lawsuit, Mr. Lew indicated that the panel would not back down.

“We know exactly who today’s dream killers are”: Why postal banking is so needed — and on the rise - Dave Dayen - Postal banking — allowing the post office to serve over 67 million Americans with little or no access to financial services, providing low-cost alternatives that would both promote financial inclusion and shore up the finances of the nation’s second-largest employer — has enjoyed a bit of institutional support, from Senator Elizabeth Warren to the Postal Service’s own Inspector General. But it hasn’t had the benefit of an activist movement pushing for it, until now. Yesterday, fifteen consumer, progressive and labor groups inaugurated the Campaign for Postal Banking, demanding the creation of a “public option” for affordable financial services for unbanked and underbanked Americans. The campaign denounces the high cost of what they call “legal loan sharks” like payday lenders and check-cashing stores, and lauds the array of benefits for millions of people from fair access to simple banking services. And they plan to build public pressure on the Postal Service management to establish postal banking under their own authority, without having to go through Congress. The founding members include leading consumer watchdogs like Public Citizen and Americans for Financial Reform, faith and progressive organizations like Interfaith Worker Justice and National People’s Action, the Alliance for Retired Americans and all four major postal unions. “There’s a tremendous social need for folks that don’t have full access to banking services,” said Mark Dimondstein, president of the American Postal Workers Union (APWU), representing 200,000 letter carriers. “The post office is well-situated to address these social needs and bring new sources of revenue and help protect living-wage jobs.”

Unofficial Problem Bank list declines to 392 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Jan 16, 2015.  A bank failure and the OCC releasing an anticipated update on its recent enforcement action activities led to several changes to the Unofficial Problem Bank List. This week there were eight removals and one addition that leave the list at 392 institutions with assets of $122.8 billion. A year ago, the list held 605 institutions with $199.8 billion in assets. First National Bank of Crestview Crestview, FL ($80 million) was the first bank failure in 2015. It is the 72nd failure of a Florida-based institution since the on-set of the Great Recession in 2008. With 88, only Georgia has more failed institutions.The OCC issued a new action against First National Bank, Waupaca, WI ($778 million).Next week will likely see fewer changes to the list. 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 392 - almost full circle!

S&P faces rating suspension in SEC deal - Standard & Poor’s will be suspended for a year from rating certain commercial mortgage bonds in an $80m settlement with the US Securities and Exchange Commission and the attorneys-general in New York and Massachusetts, according to people familiar with the matter. The agreement is scheduled to be announced on Wednesday, the people added. It will be the toughest penalty yet for the ratings industry, which was blamed along with Wall Street for risky activities that led to the 2008 financial crisis. But the settlement with the SEC and the attorneys-general focuses on whether S&P eased its standards for six commercial mortgage-backed securities issued in 2011 to gain business. The SEC settlement will involve a $60m penalty, while New York attorney-general Eric Schneiderman’s office will impose a $12m fine. The Massachusetts attorney-general’s office will levy an $8m penalty. S&P will also be banned for a year from rating pooled mortgage securities that are backed by commercial properties, a lucrative part of the market. McGraw Hill Financial, S&P’s parent company, took a $60m charge to its third-quarter earnings last year, to cover the likely SEC fine. S&P pulled the ratings it had assigned to several CMBS deals in 2011 after the discovery of discrepancies, and it stayed out of the business for a year while it hired new people and developed new mathematical models. Separately, S&P is also close to settling a justice department lawsuit over subprime mortgages that were rated in the lead-up to the financial crisis, according to people familiar with that case. The penalty in that case is expected to total at least $1bn.

Black Knight: Mortgage Delinquencies Declined in December -  According to Black Knight's First Look report for December, the percent of loans delinquent decreased 7% in December compared to November, and declined 13% year-over-year.  The percent of loans in the foreclosure process declined further in December and were down about 35% over the last year. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.64% in December, down from 6.08% in November.  The normal rate for delinquencies is around 4.5% to 5%. The percent of loans in the foreclosure process declined to 1.61% in December from 1.63% in November. The number of delinquent properties, but not in foreclosure, is down 375,000 properties year-over-year, and the number of properties in the foreclosure process is down 424,000 properties year-over-year. Black Knight will release the complete mortgage monitor for December in early February.

MBA: "Mortgage Applications Increase in Latest MBA Weekly Survey" - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 14.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 16, 2015. ... The Refinance Index increased 22 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. ... “Mortgage application volume increased last week to its highest level since June 2013, led by a 22 percent increase in refinance application volume. This increase was largely due to mortgage rates dropping to their lowest level since May 2013. However, the recent reduction in FHA mortgage insurance premiums also played a role: FHA refinance applications increased 57 percent last week. Even with this increase, refinances made up only 48 percent of FHA volume, compared to 73 percent for VA, and 77 percent for conventional loans,” said . “Conventional purchase applications were down about 3 percent for the week on a seasonally adjusted basis, but up 5 percent relative to last year at this time. FHA purchase applications were down 1 percent for the week on a seasonally adjusted basis.” The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.80 percent, the lowest level since May 2013, from 3.89 percent, with points increasing to 0.29 from 0.23 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. 2014 was the lowest year for refinance activity since year 2000. It looks like 2015 will see more refinance activity than in 2014, especially from FHA loans! The second graph shows the MBA mortgage purchase index. According to the MBA, the purchase index is up 5% from a year ago.

America's Ultra Luxury Housing Bubble Has Burst: "Deals Have Slowed To A Trickle" - As we further showed, the bulk of foreign demand for New York's most expensive properties, originated in China, Russia and various other oligarch-controlled nations, where the impetus to launder illegally obtained hot money meant an impulse to buy US real estate sight unseen and virtually at any price. And all of it, of course, all cash. No mortgages.  That onslaught of foreign oligarch demand is ending, and with it so is the bubble that luxurious New York real estate found itself in on the back of some $12 trillion in central bank liquidity created out of thin air in the past 6 years. Business Week cites Manhattan real estate agent Lisa Gustin who listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000. “I thought for sure a foreign buyer would come in"...

A tale of two housing markets: mansions for the rich while poor are priced out - David Dayen -  Here’s the first problem to overcome, particularly with the president’s focus on the middle class: we have two housing markets, one for the rich and one for the rest. The only home sales growing are for million-dollar properties. Home purchases made entirely in cash are historically high. Simply building more homes and increasing the supply of houses won’t bring down prices. The homes being built are bigger than ever, and increasingly designed for the luxury market. Consider this incredible statistic from the research analyst Redfin: through last April, sales of the McMansions of America – the top 1% of homes by price – rocketed up 21% compared to last year. But sales of the other 99% of homes were down 7.6%.  It’s not even clear that rising home prices – traditionally a way to measure a recovery – would be good for the middle class. Price increases harm the affordability of homes, particularly for first-time homebuyers, who have not returned to the market at their historical level. This is an important group: first-time homebuyers drive the entire market, allowing sellers to step up into bigger homes.  The absence of middle-class, first-time homebuyers has been the biggest obstacle to a true housing recovery. While residential housing investment – which includes home construction, remodeling and mortgage broker’s fees – has grown since the Great Recession, the Bureau of Economic Analysis shows that it remains lower than the depths of any housing crash over the past 40 years.

Existing Home Sales in December: 5.04 million SAAR, Inventory down slightly Year-over-year - The NAR reports: Existing-Home Sales Rebound in December, 2014 Total Sales Finish 3 Percent Below 2013 Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent to a seasonally adjusted annual rate of 5.04 million in December from a downwardly-revised 4.92 million in November. From a year ago, December sales were higher by 3.5 percent and are now above year-over-year levels for the third straight month. ... Total housing inventory at the end of December dropped 11.1 percent to 1.85 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace – down from 5.1 months in November. Unsold inventory is now 0.5 percent lower than a year ago (1.86 million). This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in December (4.93 million SAAR) were 2.4% higher than last month, and were 3.5% above the December 2013 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 1.85 million in December from 2.08 million in November. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Existing Home Sales Drop Year-Over-Year For First Time Since 2010 - Despite surges in mortgage applications juxtaposed with notably downbeat commentary from KB Home and Lennar, existing home sales rose modestly in December (+2.4%) but missed expectations for the 2nd month in a row (+3.0%) for a SAAR of 5.04mm sales. Only the Southern region saw sales improve. However, for all of 2014, there were 4.93 million sales, a 3.1% decline from 2013 (5.09 million) - the first drop since 2010. This should be no surprise as NAR finally admits the problem (instead of blaming weather) - “Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.” It's the price, stupid!

It’s Official: First-Time Home Buyers Held Back in 2014 - First-time buyers purchased nearly one-third of previously owned homes sold in 2014–the same share as 2013, according to a report released Friday by the National Association of Realtors.  That’s the lowest share, 29%, since NAR began tracking the data in 2008, said Lawrence Yun, the Realtors’ chief economist. It was down from 31% in November but up from 27% a year ago, NAR said.  Mounting student debt, higher rents and tight credit conditions continue to make it tough for first-time borrowers to save enough money for a down payment and qualify for a mortgage. Another measure of first-home home buyers from NAR that surveys recent buyers found the annual share had fallen to its lowest level in nearly three decades. Mr. Yun said the improving economy and policy changes intended to make mortgages more accessible to first-time borrowers could entice buyers to enter the market in 2015.  But they may find homes are less affordable in the months ahead. Total housing inventory dropped 11.1% in November, raising some concerns that lower selection and potentially faster price appreciation could offset overall demand from buyers encouraged by a stronger economy, Yun said.  The still-tight mortgage credit conditions and more challenging first-time home buyer affordability that were revealed by the failure of home sales to continue recovering last year remain a serious concerns as we head into 2015,”

A Few Comments on December Existing Home Sales -- The most important number in the NAR report each month is inventory. This morning the NAR reported that inventory was down 0.5% year-over-year in December.   It is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data - and December is usually the lowest month of the year for inventory.   Clearly - in many areas - inventory is still too low.   The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data.This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 5.5% from the bottom. On a seasonally adjusted basis, inventory was down 2.2% in December compared to November (most of the decline reported by the NAR was seasonal).  The NAR reports active listings, and although there is some variability across the country in what is considered active, many "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year. And another key point: The NAR reported total sales were up 3.5% from December 2013, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):  Distressed sales – foreclosures and short sales – were up slightly in December (11 percent) from November (9 percent) but are down from 14 percent a year ago. Eight percent of December sales were foreclosures and 3 percent were short sales.

Interest rates are bullish for the housing market later this year (and the US economy next year): The global slowdown has caused US interest rates to plummet along with gasoline prices. While the decline in interest rates reflects concern about weakness and deflation now, it also sets the stage for a rebound later -- hence why interest rates are a long leading indicator. One of the corollaries of lower interest rates generally, is lower mortgage rates. And as I have written many times over the last several years, a significant change in interest rates leads to a significant change in new housing construction (and refinancing). New housing construction in turn over the next year or so feeds into the general economy. So the downturn in interest rates over the last year, and especially the last several months, has been accompanied by a nice decline in mortgage rates, and this is turning me very bullish on housing for later this year. First, here is the YoY% change in Treasury rates and mortgage rates (inverted), compared with the YoY change in housing permits (in 100,000s) over the last 5 years: You can see that new housing permits follow changes in interest rates with a 6 to 12 month lag. Additionally, the large Millennial generation reaching home-buying age is providing a demographic tailwind on the order of about 75,000 - 100,000 annually. Here's the same information zoomed in to the last year:  Treasury interest rates are now 1% lower than they were a year ago, and mortgage rates are declining in tandem.  If this decline in rates holds for awhile, it suggests that housing permits will rise by about 100,000 annualized later this year.  The demographic tailwind means that could go as high as an improvement of 200,000 YoY.

Housing Starts increased to 1.089 Million Annual Rate in December -- From the Census Bureau: Permits, Starts and Completions: Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,089,000. This is 4.4 percent above the revised November estimate of 1,043,000 and is 5.3 percent above the December 2013 rate of 1,034,000. Single-family housing starts in December were at a rate of 728,000; this is 7.2 percent above the revised November figure of 679,000. The December rate for units in buildings with five units or more was 339,000.An estimated 1,005,800 housing units were started in 2014. This is 8.8 percent above the 2013 figure of 924,900. Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,032,000. This is 1.9 percent below the revised November rate of 1,052,000, but is 1.0 percent above the December 2013 estimate of [1,022,000]. Single-family authorizations in December were at a rate of 667,000; this is 4.5 percent above the revised November figure of 638,000. Authorizations of units in buildings with five units or more were at a rate of 338,000 in December. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased slightly in December. Multi-family starts are up 5% year-over-year. Single-family starts (blue) increased in December and are at the highest level since March 2008. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and - after moving sideways for about two years and a half

Comments on December Housing Starts -  - Just over a year ago, in November 2013, housing starts were at a 1.091 million pace on a seasonally adjusted annual rate (SAAR) basis. (Since revised to 1.105 million). That end of the year surge in 2013 led many analysts to push up their forecast for 2014 (see blue column for November 2013 in the first graph below).  It ends up not one month in 2014 was above November 2013 (as revised).  This is a reminder not to be influenced too much by one month of data. That brings us to this morning: the Census Bureau reported that single family starts were at 728 thousand in December, the highest level since early 2008.  If single family starts just hold that level in 2015, annual single family starts would be up about 12% over 2014.  With more growth, 20% would seem possible.  However I think 20% is too optimistic (based on lots and pricing), and just like in 2013, we shouldn't let one month of data influence us too much. This graph shows the month to month comparison between 2013 (blue) and 2014 (red). There were 1.006 million total housing starts during 2014, up 8.7% from the 925 thousand in 2013.  Single family starts were up 4.9%, and multifamily starts up 17.1%. The following table shows the annual housing starts since 2005, and the percent change from the previous year. The housing recovery slowed in 2014, especially for single family starts.  However I expect further growth in starts over the next several years.Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions.

Building Permits Slide For 2nd Month, Miss Expectations; Starts Near Cycle Highs -- For the 2nd month in a row, Building Permits dropped and missed expectations. The 1.9% MoM drop in December was a notable miss against expectations of a 0.6% rise and left YoY Permits at a mere +1.0% - hovering at the weakest growth since mid 2011. The long-heralded savior of permits - multi-family - tumbled to their lowest since June; with overall permits lower in all regions aside from the "weather-affected" Midwest. Housing Starts rose back near cycle highs (just don't tell KB Homes) beating expectations for the 4th month in a row.

NAHB: Builder Confidence decreased to 57 in January -  The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 57 in January, down from an upwardly revised 58 in December (revised up from 57). Any number above 50 indicates that more builders view sales conditions as good than poor.  From Reuters: U.S. homebuilder sentiment edges lower in January -NAHB The NAHB/Wells Fargo Housing Market index fell to 57 from a revised 58 in December, the group said in a statement. ... The index has not been below 50 since June 2014. "After seven months above the key 50 benchmark, builder sentiment is reflecting the gradual improvement that is occurring in many markets throughout the nation," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. The single-family home sales component was flat at 62. The gauge of single-family sales expectations for the next six months fell to 60 from 64, while the index of prospective buyer traffic fell to 44 from 46.

AIA: Architecture Billings Index increased in December -  Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From Reuters: U.S. architecture billings index rises in December The index rose to 52.2 in December from 50.9 in November, making it ten months that the index had risen in 2014. A reading above 50 indicates an increase in billings.  "Particularly encouraging is the continued solid upturn in design activity at institutional firms, since public sector facilities were the last nonresidential building project type to recover from the downturn," AIA Chief Economist Kermit Baker said. This graph shows the Architecture Billings Index since 1996. The index was at 52.2 in December, up from 50.9 in November. Anything above 50 indicates expansion in demand for architects' services. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.  According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index has indicated expansion for eight consecutive months, and those positive readings suggest an increase in CRE investment in 2015.

Low Inflation On Much More than Gas as CPI Declines -0.4% -- The monthly Consumer Price Index dropped -04% for December, the largest monthly drop since 2008  Once again it's all about falling oil prices.  Gasoline prices declined the steepest since December 2008.  Inflation with gas and food removed flat-lined and had no change from last month.   CPI measures inflation, or price increases.  CPI has only increased 0.8% from a year ago and this is the lowest yearly increase since October 2009.  CPI is approaching the deflationary period of 2008-2009 and deflation has it's own set of major problems.  Core inflation, or CPI with all food and energy items removed from the index, has increased 1.6% for the last year.  Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate.  Deflation is a grave concern for the Federal Reserv.  Yet the recent collapse in oil impacting inflation might force the Fed's hand to keep interest rates effectively zero for longer.  If CPI and other inflation measures go negative, look to the Fed to raise rates later rather than sooner.   Graphed below is the core inflation change from a year ago.  Core CPI's monthly percentage change is graphed below.  This is only the second time since 2010 core inflation has had no monthly change.  Energy overall declined -4.7% for the month and energy costs are now down -10.6% from a year ago.  This decline should be even more dramatic next month since oil & gas prices are still dropping like a stone.   The BLS separates out all energy costs and puts them together into one index.  Gasoline dropped -9.4% for the month and has declined -21.0% for the year.   Fuel oil dropped -7.8% for the month, down -19.1% for the year.  Natural gas is now up 5.8% from a year ago with a monthly increase of 1.5%.  Electricity increased 0.8% for the month and is now up 3.1% for the year.  Graphed below is the overall CPI energy index.

There Is No Inflation (Unless You Eat Food, Use Water, Live In A House, Get Sick, Go To School, Or Do Taxes) -- Government data reports are so funny. The blaring headlines today tells us that prices dropped in December. We are all saving billions from the drop in oil and gas. Hallelujah!!! The corporate MSM never digs into the numbers to get the real truth. These reports and their distribution to the sheep are designed to keep you sedated and calm. Facts are not necessary. How this data pertains to your everyday life is not important to the .1% who control the flow of information. Your government keepers will continue to drown you in propaganda and misinformation. But the average person should know they are being lied to. They see how much money they have left over at the end of every month. If any. Below are the annual price increases for items that might impact your life on a daily basis:

Paper Exposing Manipulation of Electricity Prices Stymied by Editor with Private Equity Ties -- Yves here. I’ve read the detailed traffic between the author Eric L. Prentis and the publication in question, Energy Economics, and have also run them and his paper by academics who have or are supervising significant research and publication efforts. They gave the Prentis paper high marks and agreed that the actions of Energy Economics and its parent Elsevier were troubling, given that the editor who failed to move the routine review process forward has strong ties to the private equity industry. As one put it, “On its face, this conduct raises very grave questions.” The article eventually appeared in a well-regarded foreign academic publication: “Evidence on U.S. Electricity Prices: Regulated Utility vs. Restructured States,” International Journal of Energy Economics and Policy, (2015). And why might private equity firms not like the Prentis paper to find a US audience? It demonstrates that the economic theory of “free market” competition naturally delivering lower electricity prices in restructured electric utility states is incorrect. Private equity firms make money on electric utility restructurings and thus have an interest in keeping unfavorable information our of the public domain. Along with food, electricity is an essential purchase for American consumers and higher prices hit their budgets.

Gas Prices on Track to Tumble Below $2 - U.S. gas prices are on the verge of dropping below $2 per gallon, much to the pleasure of drivers everywhere.An average gallon of regular unleaded fell to $2.05 Wednesday, more than a $1.20 cheaper than a year ago,according to AAA.Earlier this week, AAA said that the price could drop below $2 per gallon before the end of January. The average is already under $2 in more than half of the U.S., with the cheapest gas in Missouri at $1.77 per gallon. Hawaii’s gas is the most expensive, at $3.31 per gallon, followed by $2.81 in Alaska.Prices have dropped for a record 118 consecutive days, driven by plunging oil prices. Increased output from countries such as the U.S. as well as lower oil consumption in Europe and Asia has created aworldwide glut of crude.Last year, those falling costs at the pump helped Americans save roughly $14 billion, AAA said. They are on track to save more this year as long as prices stay low.

Cognitive dissonance - Because transportation infrastructure is a gift from god?  A trio of state polls released this week show voters in states such as Georgia, New Jersey and Utah do not support an increase in their gas taxes to pay for new transportation projects.  The surveys come as lawmakers in Washington are indicating a willingness to raise the 18.4-cents-per-gallon federal gas tax for the first time in 20 years.  In Georgia, where drivers pay an additional 7.5 cents per gallon on top of the federal gas tax, according to the America Petroleum Institute (API), 60 percent of voters said they are opposed to paying more at the pump to pay for new transportation projects in a poll conducted by Landmark Communications, according to a report from Atlanta’s WSB.  Similarly, 68 percent of New Jersey voters said they are opposed to a gas tax increase in that state, where drivers currently are paying an extra 10.5 cents per gallon to fill local transportation coffers, according to a Trenton Times report.  Finally, in Utah, where drivers pay an extra 24.5 cents per gallon at the pump, only 35 percent of voters said they supported a gas tax increase, according to a report from Salt Lake City TV station KSL about a poll that was conducted by the Exoro Group

Is China the answer to America’s infrastructure woes? -- China invests in and builds the most infrastructure globally. Over the past ten years, the American Enterprise Institute and Heritage Foundation’s China Global Investment Tracker (CGIT) has recorded almost 1,400 investment and engineering transactions of $100 million or more. Chinese companies have increased spending around the world at a steady pace over this time period with total business, both investment and contracts, nearing $1 trillion.  For investment, the US is a prime target.  The CGIT currently estimates a total of 24 transactions amounting to almost $17 billion of Chinese investment in the US in 2014, the third annual increase in a row. In total, the US has received nearly $78 billion of Chinese investment since 2005, making America the largest recipient country in the world.  In sharp contrast, Chinese engineering and construction in the US is barely visible. Despite demands for infrastructure maintenance and improvement, the US has only outsourced five road and bridge projects worth more than $100 million to Chinese firms, and the total cost for these five projects is less than $1 billion. In comparison to the rest of the world, by CGIT estimates, the United States does not rank in the top 30 countries for transportation contracts and has received less than 1 percent of China’s total outbound engineering contracts.

Fuel hedging and airlines -- THE FALL in oil prices—and the resulting drop in the cost of aeroplane fuel—is good news for airlines and business travellers hoping to cut costs. This could be the airline industry's best year in half a decade, according to the International Air Transport Association, a trade group. But the practice of fuel-price hedging—used famously by Southwest Airlines and now a favourite tool of most carriers—will sort airlines into a clear hierarchy of winners and losers. Those that foresaw lower prices will benefit—and may even extend their hedges. Those that expected high prices to continue will pay dearly. Reuters has details: In Europe, airlines such as Aer Lingus and Ryanair are aiming to take advantage of the low oil prices to lock in fuel costs into 2016 and beyond. Thai Airways plans to hedge 100 percent of its fuel purchases this year... U.S. airlines that hedged based on higher oil prices, such as United Airlines, have had to dump losing bets and are now reviewing their strategies for protecting themselves from oil market volatility... At least one Asian carrier, South Korea's Asiana Airlines, has stopped hedging since November due to recent price volatility, while Germany's Air Berlin has said it is considering reducing its hedging rate. United isn't the only big American carrier with a hedging problem. Another (excellent) Reuters story explains how Southwest  and Delta have found themselves facing higher-than-usual hedging costs. American Airlines, by contrast, will benefit disproportionately from the fall in prices—it hasn't signed a hedging contract since 2013, according to Reuters. But because airlines tend to benchmark their prices against one another, that extra profit probably won't be passed on to consumers; American will likely just enjoy its better margin while it can.

DOT: Vehicle Miles Driven increased 1.1% year-over-year in November, Nearing All Time High - With lower gasoline prices, vehicle miles driven might reach a new peak in 2015. The Department of Transportation (DOT) reported:
--Travel on all roads and streets changed by 1.1% (2.5 billion vehicle miles) for November 2014 as compared with November 2013.
--Travel for the month is estimated to be 241.0 billion vehicle miles.
--Cumulative Travel for 2014 changed by 1.4% (38.2 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven. The rolling 12 month total is slowly moving up, after moving sideways for a few years.In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months. Currently miles driven has been below the previous peak for 84 months - 7 years - and still counting. Currently miles driven (rolling 12 months) are about 1.2% below the previous peak. The second graph shows the year-over-year change from the same month in the previous year. In November 2014, gasoline averaged of $3.00 per gallon according to the EIA. That was down from November 2013 when prices averaged $3.32 per gallon.

Honda US Sales Chief Fears "Stupid" Auto Loans Vicious Cycle -- Extended-term loans are "stupid not just for us, but for the industry," exclaimed Honda's US sales chief John Mendel, adding that competitors are doing "stupid thing" to boost auto sales. With delinquency rates surging, it appears he is right to worry, as Bloomberg reports, more than one in four new-car loans in October and November had terms of 73 to 84 months long (more than double that of the previous 08 peak). Honda has said it will avoid longer-term loans even if competitors do note as one economist ranted, "we've seen this movie before, we know how it ends, and it’s not pretty."

ATA Trucking Index unchanged in December, Up Solidly Year-over-year - Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Unchanged in December, Up 3.5% for 2014 American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index was unchanged in December, following a jump of 3.5% during the previous month. In December, the index equaled 136.8 (2000=100), which tied November as the all-time high. Compared with December 2013, the SA index increased 5.2%, which was the largest year-over-year gain in 2014. For the entire year, tonnage was up 3.5%. ... “Economic data was mixed in December, with retail sales down 0.9% and factory output up 0.3%, so tonnage was in-between those two readings, which are two large drivers of truck freight,” Costello said that in December, tonnage was 10.2% above January. “Freight volumes look good going into 2015,” Costello said. “Expect an acceleration in consumer spending and factory output to offset the weakness in hydraulic fracking this year.” Trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $681.7 billion, or 81.2% of total revenue earned by all transport modes.

LA area Port Traffic in December  - Note: LA area ports were impacted by a trucker strike in November, and there are ongoing labor negotiations (and some slowdown).  Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for December since LA area ports handle about 40% of the nation's container port traffic.  The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was unchanged compared to the rolling 12 months ending in November. Outbound traffic was down 1.0% compared to 12 months ending in November. Inbound traffic has been increasing, and outbound traffic has been mostly moving sideways (down a little recently). The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were unchanged year-over-year in December, exports were down 11% year-over-year. Exports suggest a slowdown in Asia, but import traffic was decent considering the ongoing labor negotiations.

Industry warns of crippling impact of work stoppage at US ports - Representatives of two key industries have warned about the severe risks for the US economy if the increasingly sour atmosphere surrounding a simmering labour dispute leads to a full-blown work stoppage at US west coast ports. Matt Priest, president of the Footwear Distributors and Retailers of America, said it would be “catastrophic” if the dispute — which has gone on for more than six months — led to a complete work stoppage in the already severely congested ports. The North American Meat Institute, which represents meat and poultry producers, warned that its members faced $30m losses per week because of the disruption to exports. A full stoppage would only worsen the problems. Numerous sectors of the US economy have suffered severe disruption because of congestion at the ports, which has held up containers to and from Asia. The Federal Reserve noted the dispute’s disruptive effect in a report on US economic activity on January 14. The Pacific Maritime Association, representing employers, and the International Longshore and Warehouse Union, representing workers, have been in fruitless negotiations for eight months over a new labour contract at ports in California, Oregon and Washington. Workers have been without a contract since the previous six-year agreement expired on July 1. There had been hopes that the appointment earlier this month of a federal government mediator to try to resolve the dispute might produce an agreement. But angry statements in the past week suggest it might result in either a strike or a lockout of workers by employers. A 10-day lockout in 2002 at west coast ports led to months of disruption to the US economy and forced the federal government to step in.

President Barack Obama’s Five-Year Trade Goal? The U.S. Isn’t Even Close - In 2010, President Barack Obama set a national goal to double exports in his State of the Union address. Five years later, we’re only halfway there. “Tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America,” Mr. Obama said. While complete trade data aren’t available to compare the full year 2014 with 2009, a comparison of the most recent four quarters of goods shipments to the same period five years earlier shows a 52% increase. Some areas, including the auto industry, have indeed seen a doubling of exports compared with the slow period of the financial crisis five years ago, when some carmakers received a government bailout. But the biggest export gains have come from petroleum products, a windfall from the shale revolution in the oil and gas industry. Overall export growth has been slower than predicted, a disappointment that administration officials blame on the weaker-than-expected global economic recovery, especially in Europe. The numbers matter in part because Mr. Obama and his economic team are seeking to sell a trade policy that some fellow Democrats fear will cost American jobs. They see export growth is a more effective argument for trade agreements than an increase low-cost imports, which many labor groups associate with outsourcing.

Trade Agreements or Boosting Wages? We Can’t Do Both - It’s widely expected that in tonight’s State of the Union address President Obama will call for actions to boost wages for low- and moderate-wage Americans, and also for moving forward on two trade agreements—the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). These two calls are deeply contradictory. To put it plainly, if policymakers—including the President—are really serious about boosting wage growth for low and moderate-wage Americans, then the push to fast-track TPP and TTIP makes no sense.The steady integration of the United States and generally much-poorer global economy over the past generation is a non-trivial reason why wages for the vast majority of American workers have become de-linked from overall economic growth. This is not a novel economic theory—the most staid textbook models argue precisely that for a country like the United States, expanded trade should be expected to (yes) lift overall national incomes, but should redistribute so much from labor to capital owners, so that wages actually fall. So, it can boost national income even while leaving the incomes of most people in the nation lower than otherwise. The intuition on how is pretty easy. Take the most caricatured example of how expanded trade works: the United States produces and exports more capital-intensive goods (say airplanes) and imports more labor-intensive goods (say apparel). By focusing on what we’re relatively better at producing (capital-intensive airplanes)and trading this extra output for what our trading partners are relatively better at producing (labor-intensive apparel), we can see national incomes rise in both countries. This specialization in the United States requires shifting resources (i.e., workers and capital) out of apparel production and into airplane production. But each $1 in apparel production lost requires more labor and less capital than the $1 in airplane production gained—causing an excess supply of labor and an excess demand for capital. Capital’s return rises while labor’s wage falls.

A Tale of Two Charts -- In his last year of office, President Bill Clinton called on Congress to make normal trade relations with China permanent. The other crucial point that was made was that the involvement of the U.S. was needed "to help the workers of the People’s Republic of China to lead better lives". Since then, 500 million Chinese people have been lifted up into the middle-class. (Mission accomplished.) Paul Krugman writes, "There have been huge gains for what we might call the global middle — largely consisting of the rising middle-classes of China and India." [He provides the graphic directly below] "Now for the bad news: Between these twin peaks lies what we might call The Valley of Despond. Incomes have grown slowly, if at all, for the advanced-country working classes." From The Atlantic: "The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle-class didn’t really matter. His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade." Since then, China has recently passed the U.S. to be the world's largest economy — partly because, American companies have been offshoring so many jobs to China (and other countries). Not to mention: 1/3 of current American jobs are STILL prone to being offshored/outsourced. That would help to explain the Bureau of Labor and Statistics' new report about why so many American workers now fear losing their jobs.

The Middle-Class Economics Myth -- Middle-class economics is not what any of the political parties would have you believe it might be in the form of tax breaks and any other incentive you can think of. Middle-class economics is one thing only: protectionism. Why? Because, no tax break will restore your lost job at the abandoned steel mill. No college degree will find you a job in an industry that has long been shipped overseas. Nor will a stimulus package make your wage internationally competitive. Only sky high tariffs can save the middle class, because factories are the economy.The industrial, electronic, and chemical revolution with their associated productivity gains make all other industries possible. Without them, we become subsistence farmers once again. Without them, everything amounts to ideology built on intellectual quick sand.  The logic of this bold claim is outlined in a series of links for the reader who is new to the Instapopulist website and unfamiliar with my attempt to overthrow 200 years of defective economic theory. Critique is of course welcome, because unfortunately We The People are on our own. We can no longer rely on the political body to think beyond a few free-market catch phrases. It's time for a new debate. Let it begin here:

The Manufacturing Footprint and the Importance of U.S. Manufacturing Jobs -- While U.S. manufacturing has been hit hard by nearly two decades of policy failures that have damaged its international competitiveness, it remains a vital part of the U.S. economy. The manufacturing sector employed 12 million workers in 2013, or about 8.8 percent of total U.S. employment. Manufacturing employs a higher share of workers without a college degree than the economy overall. On average, non-college-educated workers in manufacturing made 10.9 percent more than similar workers in the rest of the economy in 2012–2013. This report examines the role manufacturing plays in employment at the national, state, and congressional district levels, including the number of jobs manufacturing supports, the wages those jobs pay, and manufacturing’s contribution to GDP. (This report updates an earlier EPI report but includes U.S. congressional district data for the first time.) The data show that manufacturing employment was stable for three decades until 1998, and has been on a largely downward trajectory since then, with traditional manufacturing states hit particularly hard. Given its size and importance, we cannot ignore the consequences of such a decline. Further, the policies that would help manufacturing the most are those that would help close the nation’s large trade deficit. Reducing this trade deficit would, in turn, provide a valuable macroeconomic boost to a U.S. economy that is still operating far below potential.

Kansas City Fed: Regional Manufacturing "Activity Expanded at a Slower Pace" in January, Weaker Energy Sector - From the Kansas City Fed: Tenth District Manufacturing Activity Expanded at a Slower Pace Tenth District manufacturing activity expanded at a slower pace in January, but producers’ expectations for future activity remained at solid levels. Most price indexes were lower than last month, especially for finished goods prices.  The month-over-month composite index was 3 in January, down from 8 in December and 6 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in some types of durable goods production, particularly electronics, machinery, and metal products, some of which is likely due to lower energy activity. Looking across District states, the weakest activity was in energy-dependent Oklahoma. ... the employment index posted a five-month low.... “We saw weaker activity in some energy sector-related manufacturing in January, and that pulled the overall index down somewhat”, Future factory indexes continued to remain stable at mostly solid levels. The future composite index was unchanged at 19 ...The over all impact from the decline in oil prices will be positive for the US economy, but as Tim Duy noted a couple of weeks ago about oil prices: the negative impacts will be fairly concentrated and easy for the media to sensationalize, while the positive impacts will be fairly dispersed. We all know what is going to happen to rig counts, high-yield energy debt, and the economies of North Dakota and at least parts of Texas. "Kablooey," I think, is the technical term. Easy media fodder. Much more difficult to see the positive impact spread across the real incomes of millions of households, with particularly solid gains at the lower ends of the income distribution.

US Manufacturing Growth Slows To 1 Year Low As Shale Collapse Cripples New Order Spending -- Who could have seen that coming? It appears that for all the bluster that the US economy could somehow decouple from the rest of the world's demise (when as always it is simply and timing issue - lagged response), America's manufacturing renaissance is dying. Markit's US Manufacturing PMI printed 53.7 in January, missed expectations of 54.0 falling for the 5th month in a row to the lowest in 12 months. While day after day, investors are told that low oil prices are unambiguously good for America, Manufacturing PMI was last lower than this in October 2013 as survey respondents note clients operating in the oil and gas sector have weighed on new order volumes in January.

Solar Jobs Report Shows Huge Growth: -– The solar industry reports job growth 20 times higher than the rest of the U.S. economy, according to a new analysis. As of 2014, there were nearly 174,000 jobs in the solar industry, according to the report from the nonprofit Solar Foundation. That represents 86 percent employment growth since the organization began tracking job figures in 2010. By the end of 2015, companies said they expect to hire an additional 36,000 new solar workers. The solar industry installed 7,200 megawatts of new solar power last year, the foundation said. More than half of the solar industry jobs -– 55 percent -– involved installation, and 19 percent were in manufacturing. The report found those jobs pay an average of $20 to 24 an hour. "We can very definitely say that these solar jobs are good, well-paying jobs, which I think is important," Andrea Luecke, executive director of the Solar Foundation, said in an interview with The Huffington Post. "While the economy has improved since we started this census series in 2010, at the height of recession, there are still lots of people without college degrees looking for work. Solar provides that kind of work."

Bob Dylan wants billionaire ‘job creators’ to start actually creating some jobs -- Bob Dylan urged billionaires to start creating some of those jobs they’re always talking about. “The government’s not going to create jobs, it doesn’t have to,” Dylan said a wide-ranging interview with AARP. “People have to create jobs, and these big billionaires are the ones who can do it. We don’t see that happening. We see crime and inner cities exploding with people who have nothing to do, turning to drink and drugs. They could all have work created for them by all these hotshot billionaires. For sure that would create lot of happiness.” The legendary musician said he gains satisfaction from his grueling tour schedule – playing more than 100 concerts a year at age 73 – rather than reflecting on his success.  “How can a person be happy if he has misfortune?” he said. “Some wealthy billionaire who can buy 30 cars and maybe buy a sports team, is that guy happy? What then would make him happier? Does it make him happy giving his money away to foreign countries? Is there more contentment in that than in giving it here to the inner cities and creating jobs?” Dylan admits no one can force the wealthy to give away any of their money or to create a job, saying “I’m not talking about communism,” but he urged them to use their money “in a virtuous way.” “There are a lot of things that are wrong in America, and especially in the inner cities, that they could solve,” he said. “Those are dangerous grounds, and they don’t have to be. There are good people there, but they’ve been oppressed by lack of work. Those people can all be working at something. These multibillionaires can create industries right here in America, but no one can tell them what to do — God’s got to lead them.”

Let’s Not Just Create Jobs, Let’s Save Them, Too -- In his State of the Union speech on Tuesday, President Obama talked a lot about job creation. I am all for growing the economy and creating more U.S. jobs, but I also am for saving jobs and keeping people employed at U.S. companies, even if those companies fall upon hard financial times. Strikingly, approximately 18,500 people lost their jobs when Hostess closed its doors; 34,000 people lost their jobs when Circuit City suffered the same fate; and over 9,900 people were let go as a result of four casinos in Atlantic City closing in the past twelve months.  It is undeniable that chapter 11 changes people’s lives. It can save an employee’s job, continue a customer relationship for a vendor, and preserve a tenant for a landlord. It also can, however, devastate all of these relationships in what feels like a nanosecond—relationships that many people rely on to support their families or their own business operations. As I suggested in an earlier post, I believe that the human face of chapter 11 often gets lost in all of the noise concerning the rate of return to creditors, disputes among institutional creditors, and whether a company should be sold quickly, or at all, through the chapter 11 process.  So this leads me to ask the question: Is the bankruptcy system working as effectively as it could? Admittedly the bankruptcy system cannot (and should not) save every company, and we cannot ignore the rights of senior creditors who most likely have a claim on all of the company’s assets by the time the company files for bankruptcy. But that doesn’t mean we should ignore failures in the system that we could improve if we tried.

Weekly Initial Unemployment Claims decreased to 307,000  -- The DOL reportedIn the week ending January 17, the advance figure for seasonally adjusted initial claims was 307,000, a decrease of 10,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 316,000 to 317,000. The 4-week moving average was 306,500, an increase of 6,500 from the previous week's revised average. The previous week's average was revised up by 2,000 from 298,000 to 300,000.  There were no special factors impacting this week's initial claims.  The previous week was revised up to 317,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

Rising Fears About Losing and Replacing Jobs: The General Social Survey is a nationally representative survey carried bout by the National Opinion Research Center at the University of Chicago and financially supported by grants from the National Science Foundation. Starting in 1977 and 1978, and intermittently over the years since then, it has included these two questions: Thinking about the next 12 months, how likely do you think it is that you will lose your job or be laid off—very likely, fairly likely, not too likely, or not at all likely? About how easy would it be for you to find a job with another employer with approximately the same income and fringe benefits you have now? Would you say it would be very easy, somewhat easy, or not easy at all?  Charles Weaver updates the results and looks for patterns over time in "Worker’s expectations about losing and replacing their jobs: 35 years of change," in the January 2015 issue of the Monthly Labor Review, published by the US Bureau of Labor Statistics. ... Both simple comparisons and more sophisticated analyses suggests that fear about losing and replacing jobs has been rising over time. Here's the simple comparison from Weaver: "Compared with workers in 1977 and 1978, workers in 2010 and 2012 expressed significantly less job security. They were more afraid of losing their jobs (11.2 percent versus the earlier 7.7 percent) and were less likely to think that they could find comparable work without much difficulty (48.3 percent versus the earlier 59.2 percent)." The more detailed breakdown of the data shows which groups have seen their labor market fears increase the most. On the question how likely you are to lose your current job, the answer for the population as a whole rose 3.5 percentage points from 1977-78 to 2010-12. But for blue-collar craft workers the increase was 11.1 percentage points, and for blue collar operatives the rise was 9.7 percentage points. Also, from the early to the most recent survey, those in the age 50-59 age bracket were 8.2 percentage points more likely to think that they were likely to lose their job.

17,600 Laid-Off Canadian Target Workers Stunned At Ex-CEO's "Walk-Away" Package -- Earlier this month, Target announced it would close all of its 133 stores in Canada, laying off the 17,600 employees north of the border. As CBC reports, Target's "employee trust" package for its Canadian workers, announced last week, amounts to around $56 million, providing each worker with 16 weeks of pay. But - what is perhaps more stunning is that, depending on who’s doing the calculation, the golden handshake "walk-away" package handed to ex-CEO Gregg Steinhafel last May is in roughly the same ballpark at around $61 million, including severance of $15.9 million. It appears underperforming is the new killing it...

Real wages close in on 35 year high in December -- The huge decline in gas prices has had a dramatic effect on consumer confidence.  As of last week, it is Near 40 year highs, ex-tech boom and 1984:The big -0.4% decline in the CPI also means that real wages actually rose +0.1% in December, and they are only -0.2% off their 2010 peak: With gas prices continuing to decline so far this month, there is a decent chance that real wages will make a 35 year high: Still under the entire 1970s period, and about 8% under their peak. But there is no denying that the decline in gas prices is having a real effect. In fact, both significant prior advances in real wages since 2000, in late 2006 and especially in late 2008, have occurred when gas prices declined, and they are now as well.

More Young Adults Stay Put in the Biggest Cities - WSJ:  Amira Nader graduated from Columbia University in 2010 with a master’s degree in acting and nearly $190,000 in debt. She now works for a public radio station in New York City and waits tables on the side.  But like tens of thousands of other young Americans, she is finding it hard to move away.  For decades, young people flocked to the U.S.’s three biggest metro areas—New York, Los Angeles and Chicago—to build careers before taking their talent and spending power elsewhere to raise families. That pattern now appears to be fading as more young workers stay put. From 2004 to 2007, before the recession, an average of about 50,000 adults aged 25 to 34 left both the New York and Los Angeles metro areas annually, after accounting for new arrivals, according to an analysis of census data by the Brookings Institution and The Wall Street Journal. The recession diminished this flow. Fewer than 23,000 young adults left New York annually between 2010 and 2013. Only about 12,000 left Los Angeles—a drop of nearly 80% from before the recession. Chicago’s departures dropped about 60%. Young adults who moved to the three cities for school, internships or early jobs—or simply because it seemed cool—may now be stuck, said William Frey, a demographer at the Brookings Institution.

Common Risks in America: Cars and Guns - I have long said that driving a car is the most dangerous thing regularly do in our lives. Turns out deaths due to automobiles are declining, while deaths due to firearms are on the rise: Guns and cars have long been among the leading causes of non-medical deaths in the U.S. By 2015, firearm fatalities will probably exceed traffic fatalities for the first time, based on data compiled by Bloomberg.  While motor-vehicle deaths dropped 22 percent from 2005 to 2010, gun fatalities are rising again after a low point in 2000, according to the Atlanta-based Centers for Disease Control and Prevention. Shooting deaths in 2015 will probably rise to almost 33,000, and those related to autos will decline to about 32,000, based on the 10-year average trend. There's also this story.

The Key to $10 Billion in U.S. Human Smuggling: Big Banks - Dionisio Diaz takes a seat inside the Evangelical Christian Assembly Church at an office park in Doraville, an Atlanta suburb. It’s been another six-day week working for a landscaping crew, mowing lawns and pruning shrubs. The 37-year-old undocumented immigrant from Guatemala clutches a Bible and joins dozens of worshipers belting out a hymn in Spanish.  Diaz has also been helped on his journey to the U.S. by more earthly powers: He hired a gang of human smugglers, or coyotes, who got him across the U.S. border to a stash house in Mesa, Arizona, and then on to Georgia, Bloomberg Markets magazine will report in its February issue. Diaz paid for part of the trip using one of America’s biggest banks, Wells Fargo & Co. It’s a story repeated over and over as waves of illegal immigrants stream into the U.S. from Latin America. Gangs reap $10 billion a year from about 3 million illegal border crossings from Mexico, according to the United Nations Office of Drugs and Crime. Major banks, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo, have been used as financial conduits for the smuggling industry, according to evidence in a federal criminal case against a gang of 15 human smugglers and warrants from prosecutors in Arizona, Maryland and Texas.

How Black Middle-Class Kids Become Poor Adults - When it comes to financial stability, black Americans are often in much more precarious financial situations than white Americans. Their unemployment rate is higher, and so is the level of poverty within the black community. In 2013, the poverty rate among white Americans was 9.6 percent, among black Americans it was 27.2 percent. And the gap between the wealth of white families and black families has widened to its highest levels since 1989, according to a 2014 study by Pew Research Center. The facts of this rift aren’t new, or all that surprising. But perhaps what’s most unsettling about the current economic climate in black America is that when black families attain middle-class status, the likelihood that their children will remain there, or do better, isn’t high. “Even black Americans who make it to the middle class are likely to see their kids fall down the ladder,” writes Richard Reeves, a senior fellow at the Brookings Institute. In a recent blog post Reeves says that seven out of 10 black children who are born to families with income that falls in the middle quintile of the income spectrum will find themselves with income that's one to two quintiles below their parents' during their own adulthood. A 2014 study from the Federal Reserve Bank of Chicago, which looked at factors like parental income, education, and family structure, shows a similar pattern: Many black Americans not only fail to move up, but show an increased likelihood of backsliding. According to the study, “In recent decades, blacks have experienced substantially less upward intergenerational mobility and substantially more downward intergenerational mobility than whites.”

Give the middle classes their fair share of the pie - Izabella Kaminska - ‘It can be morning again for the world’s middle class’ Lawrence Summers, former US Treasury secretary, rallying for the middle classes? Finally someone at Davos gets it. We’re the ones who have suffered most as a result of the crisis. Reduced income streams from investments, with interest rates at rock bottom . No jobs. Kids with loads of debt. About time someone spoke up for us.  The key words here are “working” and “globalised”. It’s about rewarding the “middle class” in the US sense — those who have to work for a living in the real economy — with higher earnings relative to those who generate income from owning or managing asset portfolios; those living off inherited wealth; or those operating successful businesses. Basically, you mean improving wages rather than investment income? Spot on. Professor Summers makes the point, for example, that if the US had the same income distribution today as in 1979, the bottom 80 per cent of the population would have $11,000 more per family, while the top 1 per cent would have $750,000 less. Which is why some say his recommendations amount to a “stealth wealth” transfer from rich to the poor, and deeply un-capitalistic. Sure.  Those lucky enough to be able to live off accumulated savings are actually part of the problem. Their claims on the economic system’s actual output — that is, the proportion of goods, services and resources available that they are able to buy — may have grown disproportionately large relative to those who have to depend on their salaries. They are the ones actually responsible for keeping the economy ticking over. Yes, but that doesn’t necessarily entitle pensioners and others who live off their accumulated assets to an ever-expanding share of the economic “pie” if the pie itself isn’t growing. This means younger people have no incentive to work since they haven’t a chance of accumulating wealth of their own. The objective isn’t to deprive savers but to make sure their claims don’t stifle the working population that fuels the engine of growth and thus expands the size of the overall pie.

Should Cities Have a Different Minimum Wage Than Their State? -- The start of 2015 meant rising salaries for minimum-wage workers in 20 states and the District of Columbia. Workers in New York got their raise a day early, when the state increased the minimum wage by 75 cents on the final day of 2014. That’s over 3 million workers in the U.S. who will benefit from a pay raise this year, according to the Economic Policy Institute. But how significant are these wage increases when compared with the diverse cost of living across the country? The federal minimum wage has sat at $7.25 since 2009, when it was raised from $5.15. Since then, many states have taken the task of hiking minimum-wage requirements into their own hands. These wages can vary greatly from state to state—from $5.15 in Georgia and Wyoming, to $9.47 in Washington. Some have matched federal requirements while others have boosted the minimum wage in their state even higher. And a few states refuse to set a minimum at all (employers are required to pay the highest minimum-wage rate applicable for their location, be it federal, state, or municipal). But what’s even more important than the dollar amount of this wage is the amount of buying power the salaries of these workers affords.  According to a 2014 study from the St. Louis Fed, despite the fact that many states had minimums that were close to the federal rate, when the cost of living in each state was factored in, minimum wages across the country became a bit more polarized. The report shows that when wages were adjusted for the cost of living, so-called real wages showed an increase in some areas, such as Texas, Idaho and the Dakotas. But these calculations of real wages decreased income in other areas including New York, New Jersey, and Rhode Island.

Virginia civil engineer group says infrastructure fixes could cost $40 billion -  A Virginia civil engineer group gives the state's infrastructure an overall grade of C- minus, marginally up from the D-plus the engineers graded it five years ago. Fixing Virginia's aging, deteriorating and outmoded infrastructure could cost a minimum of $40 billion over two decades.The 2015 Report Card for Virginia’s Infrastructure, released by the Virginia Section of the American Society of Civil Engineers Tuesday, assessed 10 categories of the state's public works. Roads received the lowest grade - a D - in the report card analysis. Solid waste earned the highest grade: B minus. "A C-minus is a slight improvement over last time," said Don Rissmeyer, chair of the infrastructure committee with the Virginia Section of the American Society of Civil Engineers, "but it's not the kind of grade you'd want your children bringing home." A team of professional engineers in Virginia assessed the ten public works sectors to reach the cumulative grade of C minus. The categories with their grades are: bridges, C; dams, C; drinking water, C); parks and recreation, C plus; roads, D; rail and transit, C minus; schools, C minus; solid waste, B minus; stormwater, C minus; and wastewater, D plus.

The Government Just Took A Step Toward Ending Mass Homelessness -- At the end of last year, a little-noticed announcement came out of the Federal Housing Finance Agency (FHFA): it has allowed Fannie Mae and Freddie Mac to contribute funds to the National Housing Trust Fund. It may sound small and unimportant. But the National Housing Trust Fund was created by Congress in 2008 to fund affordable housing projects across the country. Yet its coffers have stood empty ever since — until now. The news that the FHFA has found Fannie and Freddie to be financially fit enough to put money into the fund is like “turning on the spigot,” Rachael Myers, executive director of the Washington Low Income Housing Alliance, told ThinkProgress. She estimates it will mean about $325 million doled out to states as a block grant starting in 2016. That figure, of course, is dwarfed by the need for affordable housing. As of 2009, there was a 5.5 million shortfall in affordable housing units compared to the poor renters who need them. That shortage is a big reason why we see mass homelessness today, given that it’s a relatively recent phenomenon; in 1970, there was actually a 300,000 surplus. The new funding is “a really needed resource, but it certainly does not solve the problem” of homelessness, Myers noted. Her own state will probably get about $7.5 million in the first year, which would create about 200 homes. Those kind of figures won’t “actually make a dent in homelessness,” she said. Still, the good news is that 75 percent of the money has to be spent serving people who are at 35 percent of median income or lower, “those at risk of homelessness or just leaving homelessness,” she pointed out.

Study finds no easy way to Illinois debt reduction - (AP) - The University of Illinois Institute of Government and Public Affairs says there is no easy to repair Illinois' chronic annual deficit. An analysis released by the university's Fiscal Futures Project indicates Illinois currently faces a $9 billion annual deficit that will grow to $14 billion by 2026. Co-Director Richard Dye compares the state's fiscal status to that of a person in deep credit card debt. He says the state hasn't paid debt totaling $159 billion. He says that is more than twice the inflow of revenue in a single year. Dye says solving the debt problem will require a long-term fiscal plan that includes tax increases, spending cuts and economic growth. But those alone won't solve the state's fiscal problems. It says changes in expectations and policy are needed to restore fiscal balance

Alabama Legislators Say You Must Be A Salaried Employee Of Old School Media To Get Approved For Press Credentials - The only people who still feel they can clearly define who is and isn't a journalist are legislators. They're almost always wrong. Journalism isn't a career. It's an activity. Anyone can do it and, thanks to the internet, anyone can find a publishing platform and readers. But, according to many politicians, it ain't the press unless it involves one.  If you want press credentials to cover Alabama's legislative sessions, prepare to be disappointed. Here's Alabama's proposed official press credential policy.

1. A media representative shall be admitted to the floors of the House or Senate or allowed press privileges if the person is a salaried staff correspondent, reporter, or photographer employed by any of the following:
a. The news department of a federally licensed television or radio station, or the news department of a network providing coverage to television and radio stations.
b. A newspaper of general circulation providing print or online editions for the dissemination of news of a general character, which has a bona fide subscription list of paying subscribers, and has been established, printed, and published at regular intervals.
c. A wire service providing news service to newspapers, television, or radio stations as referred to above.
d. Internet news services and bloggers associated with any of the previously listed categories.

Eric Holder Ends Horrible Civil Asset Forfeiture Program -- I hate to let this development from last Friday continue to go unremarked: Attorney General Eric Holder on Friday announced sweeping changes to a federal civil asset forfeiture program that local law enforcement agencies have been able to use to seize property. ...Under new rules announced Friday, federal agencies will no longer be able to accept or "adopt" assets seized by local and state law enforcement agencies — unless the property includes firearms, ammunitions, explosives, child pornography or other materials concerning public safety. Holder described the new policy as the "first step in a comprehensive review." This is a big deal. Civil asset forfeiture allows police departments to seize property—usually money and cars—from people they merely suspect of a crime. No conviction is necessary, and victims have no recourse unless they have the means to sue to recover their property. All by itself this has been a scandal for a long time, but the federal program Holder eliminated has been the biggest scandal of all. It's bad enough that civil asset forfeiture even exists as a legal doctrine, but it's beyond comprehension that the feds would actively encourage abuse of forfeiture laws by creating a program that allows police departments to keep most of the money they seize. This is practically an invitation to steal money from innocent people.

Your Home Is Your Prison: How to Lock Down Your Neighborhood, Your Country, and You - Yves here. This post describes a particularly ugly face of the ever-increasing levels of surveillance to which we are all being subjected, namely new tools for monitoring criminals, including those whose cases looked weak or politically motivated. But its not just that surveillance is being used as an alternative to prison. In 2012, two school districts in Houston were already requiring students to wear electronic tags. And as this article warns, pre-crime is coming too.

Poorer parents are just as involved in their children's activities as better-off parents --  Poorer parents are just as involved in education, leisure, and sports activities with their children as better-off parents, a new study has found. Dr Esther Dermott and Marco Pomati analysed survey data on 1,665 UK households and found that poorer parents were as likely to have helped with homework, attended parents' evenings, and played sports or games with their children in the previous week. Dr Dermott, of the University of Bristol, and Mr Pomati, Cardiff University, say they found no evidence of a group of poor parents who failed their children. "Those with lower incomes or who felt poor were as likely to engage in all of the good parent-child activities as everyone else," they say in an article published online in the journal Sociology. "The findings support the view that associations made between low levels of education, poverty and poor parenting are ideologically driven rather than based on empirical evidence. Claims that families who are poor or are less well educated do not engage in high profile good parenting practices are misplaced." They found no evidence of a group of parents who failed to participate in parent-child activities, they say.

Majority of public school students are now poor enough to qualify for free or reduced-price lunch: The share of public school students who qualify for free or reduced lunch in the United States has grown to 51 percent, in an indication of growing poverty, according to a report released on Friday. The problem is most acute in Mississippi where 71 percent of students were in that category, according to the report from the Southern Education Foundation. The group identified the share of students from low-income families by analyzing 2013 federal data on children who qualify for free or reduced lunch at school, which is offered to those from families at or below 185 percent of the federal poverty level. For a family of four, the poverty level is less than $24,000 a year and 185 percent of that figure is about $44,000. The foundation said the share of poor students in the nation’s schools has been growing for decades. It called the fact that a majority of U.S. students are now from low-income families a “defining moment in America’s public education.” The group argues poor students have greater needs and should receive more support than has been offered to them.

Percentage of Poor Students in Public Schools Rises - Just over half of all students attending public schools in the United States are now eligible for free or reduced-price lunches, according to a new analysis of federal data. In a report released Friday by the Southern Education Foundation, researchers found that 51 percent of children in public schools qualified for the lunches in 2013, which means that most of them come from low-income families. By comparison, 38 percent of public school students were eligible for free or reduced-price lunches in 2000.  According to the report, which analyzed data from the National Center for Education Statistics, a majority of students in 21 states are poor. Close to two-thirds of those states are in the South, which has long had a high concentration of poor students. In Mississippi, for example, close to three-fourths of all public school students come from low-income families. But the West also has a large and growing proportion of low-income students. Arizona, California, Hawaii and Nevada have high rates of students eligible for free or reduced-price lunches. Children who are eligible for such lunches do not necessarily live in poverty. Subsidized lunches are available to children from families that earn up to $43,568, for a family of four, which is about 185 percent of the federal poverty level. The number of children eligible for subsidized lunches has probably increased in part because the federal Agriculture Department now allows schools with a majority of low-income students to offer free lunches to all students, regardless of whether they qualify on an individual basis or not.

Just The Facts, Ma'm -- Alex Tabarrok at Marginal Revolution hastens to correct what appears to be a misleading report on children in poverty.  In widely reported article the Washington Post says a Majority of U.S. public school students are in poverty. The article cites the Southern Education Foundation:   Eligibility for free and reduced-price lunches, however, depends on eligibility rules and not just income levels let alone poverty rates.... Frankly I suspect that this study was intended to confuse the media by conflating “low-income” with “below the poverty line”. Indeed, why did this study grab headlines except for the greater than 50% statistic? It is very easy to find official numbers of the number of students in poverty according to the federal poverty standard.... If Mr. Tabarrok is correct and surely he is then we don't need to be nearly as concerned about the level of children in poverty as some deceptive people want us to be. Only one fifth of our children are in poverty, not over one half. So what's the hubbub, bub? Not only are there only 11 million children living in poverty, most of them aren't even, shall we say, of the right culture and therefore have nobody to blame but themselves, not that Mr. Tabarrok is blaming anybody.   In 2012, approximately 16.0 million, or 22 percent, of all children under the age of 18 were in families living in poverty; this population includes the 11.1 million 5- to 17-year-olds and 5.0 million children under age 5 living in poverty. The percentage of children under age 18 living in poverty varied across racial/ethnic groups. In 2012, the percentage was highest for Black children (39 percent), followed by American Indian/Alaska Native children (36 percent), Hispanic children (33 percent), Pacific Islander children (25 percent), and children of two or more races (22 percent). The poverty rate was lowest for White children (13 percent) and Asian children (14 percent). Mr. Tabarrok is not insensitive to the plight of these children but is able to put it in perspective.

Schools in Illinois now have access to kids' social media... — A new law approved by Illinois legislators now can demand a student's social media password. According to KTVI, Illinois schools could only take action against bullying if the post on Facebook or other social media occurred during the school day. The new law gives school districts and colleges the ability to demand a student's social media password regardless if it was posted after hours. Some parents have already received letters from the schools to notify them of the new rules.

Caught between greed and religion: the battle for Kansas public education - Governor Brownback, in his state of the state address, said: “Kansas is the most pro-life state in America. And we are not going back.” Kansas is also $280m short on due payments for this fiscal year, following an experiment with historic tax cuts now in its fourth year. The projected shortfall for next year is nearly $650m. On this point, too, Brownback is not going back: “We will continue our march to zero income taxes.” Indeed, while his administration recently called for slowing deep tax cuts, lofty supply-side goals remain. This ideological juxtaposition, in which subjective morality is controlled by the state and in which citizens’ objective needs are left for the market to sort out, is by now familiar to most voters. But its most poignant setting, perhaps, was the main focus of Browback’s speech: public education. In recent years, attempts in Kansas to erode both the funding of public schools and the separation of church and state within them have reached fever pitch. Last March, partially settling a historic, 15-year, multiple-lawsuit battle pitting Kansas schools against Congress, the state supreme court set a national precedent by ruling with Gannon v Kansas that the state inequitably funds public education – the “suitable provision” for which the state constitution has required since a 1960s amendment. Last month, a district court ruling all but sealed the deal.Kansas quietly became the fifth state, following Texas, Florida, Arkansas and Oklahoma, to pass controversial civics education legislation creating what some view as legal wiggle room for teaching US history with a religious slant.

Earning a High-School Diploma Can Be Worth $9,000 a Year - One in five U.S. high school students doesn’t make it to graduation in four years. Staying in school, though, can be a profitable decision. The median weekly paycheck for full-time U.S. workers was $799 in the fourth quarter of 2014, the Labor Department said Wednesday, based on how much people say they usually earn. That’s up 1.7% from a year earlier, slipping from 2.5% annual growth in the third quarter. There was considerable variation based on gender, race and education. Women had median earnings of $724 last quarter, $158 less per week than men. Hispanics earned $600 a week compared with $621 for blacks, $823 for whites and $959 for Asians. A full-time American worker, 25 years or older, who didn’t graduate from high school had median weekly earnings of $491 in late 2014. Someone with a high-school diploma, but no college education, earned $664 a week. That earnings gap of $173 per week translates into $8,996 over the course of a year.A much larger jump in earnings comes with a college education. Workers with a bachelor’s degree, but no advanced diploma, earned $1,131 a week, $467 more than did their high school-only colleagues. That translated into $24,284 more per year. There’s plenty of evidence that a college education pays for itself, with higher lifetime earnings offsetting the cost of attendance. But many college graduates have been taking jobs that don’t require a degree and earn barely more than workers with only high-school diplomas, especially since the recession. In any case, graduating from high school and/or college leads to better job security as well as higher earnings. The unemployment rate for Americans with less than a high-school diploma was 8.6% in December, compared with 5.3% for people who graduated from high school but didn’t attend college. People 25 and older with a bachelor’s degree or higher had a jobless rate last month of just 2.9%.

Blackstone Group's Stephen Schwarzman Says More Money Won't Improve Public Education: -- Private equity investor Stephen Schwarzmann is generally a believer in the power of money, a trait that has netted him billions of dollars worth of that useful commodity. But when it comes to education, Schwarzman says more money is not necessarily a fix for ailing American public schools. Speaking Friday at a World Economic Forum event called “Business Backs Education,” the Blackstone Group CEO was asked by International Business Times if he supports raising more money for education through President Barack Obama’s new proposal to increase capital gains taxes or through other proposals to end special “carried interest” tax exemptions for Wall Street financiers. He declined to answer that question and instead suggested that a focus on resources is misguided. “In the Catholic schools they spend much less money than the public schools, and they get amazing results. Private schools spend much more money than the public schools and they get remarkable results,” said Schwarzman, who was once rumored to have likened tax increases to Hitler invading Poland. “So as an analyst, this can’t be just about money because you keep having great outcomes regardless of that. And so I would suggest that there are a lot of ways to be successful in education. It's usually good to have more resources of all types, but you can make due with a lot less and have great outcomes in large scale.”

Spending More on Public Schools Boosts U.S. Economy - It’s become almost conventional wisdom that throwing more money at public education doesn’t produce results. But what if conventional wisdom is wrong?  A new paper from economists suggests that it is. The economists find that spending works. Specifically, they find that a 10 percent increase in spending, on average, leads children to complete 0.27 more years of school, to make wages that are 7.25 percent higher and to have a substantially reduced chance of falling into poverty. These are long-term, durable results. Conclusion: throwing money at the problem works. The authors find that the benefits of increased spending are much stronger for poor kids than for wealthier ones. So if you, like me, are in the upper portion of the U.S. income distribution, you may be reading this and thinking: “Why should I be paying more for some poor kid to be educated?” After all, why should one person pay the cost while another reaps the benefits? There are several good reasons.When poor Americans become better workers, it doesn’t just boost their wages. It also boosts the profitability of the companies where they work. If you own stock in such a company (and I hope you do), the value of those shares will go up if American worker productivity increases.If you own your own business, you might need to hire some low-income people. If those people are better readers, better at doing simple math, more efficient at everyday tasks, and just more productive in general, that cuts down on the time and money you need to spend fixing their mistakes. Next, having more educated poor people makes for a better civil society.  I bet you don’t enjoy having to worry about driving or walking through unsafe neighborhoods.  It might also be nice not to have to live behind the isolating walls of a gated community.

Helping the Poor in Higher Education: A Simple Nudge - There are enormous inequalities in education in the United States. A child born into a poor family has only a 9 percent chance of getting a college degree, but the odds are 54 percent for a child in a high-income family. These gaps open early, with poor children less prepared than their kindergarten classmates. How can we close these gaps? Contentious, ambitious reforms of the education system crowd the headlines: the Common Core, the elimination of teacher tenure, charter schools. The debate is heated and sometimes impolite (a recent book about education is called “The Teacher Wars”). Yet as these debates rage, researchers have been quietly finding small, effective ways to improve education. They have identified behavioral “nudges” that prod students and their families to take small steps that can make big differences in learning. These measures are cheap, so schools or nonprofits could use them immediately.  Let’s start with college. At every step of the way, low-income students are more likely to stumble on the path to higher education. Even the summer after high school is a perilous time, with 20 percent of those who plan to attend college not actually enrolling — a phenomenon known as “summer melt.” Bureaucratic barriers, like the labyrinthine process of applying for financial aid, explain some of the drop-off. While they were graduate students at Harvard, two young professors designed and tested a program to help students stick to their college plans; automatic, personalized text messages that reminded high school students about their college deadlines. The texts included links to required forms and live counselors. The result? Students who received the texts were more likely to enroll in college: 70 percent, compared with 63 percent of those who did not get them. Seven percentage points is a big increase in this field, similar to the gains produced by scholarships that cost thousands of dollars. Yet this program cost only $7 per student.

The Ballooning Cost of Obama’s College-Loan Repayment Program - President Barack Obama gave a nod in his State of the Union address to a rapidly growing form of government aid: income-based repayment plans for Americans with student debt. What Mr. Obama didn’t talk about are the plans’ long-term costs.  Mr. Obama said he wants to “work with this Congress to make sure Americans already burdened with student loans can reduce their monthly payments.” He didn’t discuss details, but he appeared to be referring to his previous proposal to expand an income-based repayment program known as Pay As You Earn. Pay as You Earn is the most generous of several federal programs that reduce Americans’ monthly student-debt bills by capping payments as a share of their incomes. Put in place during Mr. Obama’s first term, it requires borrowers to pay 10% a year of their discretionary income—annual income above 150% of the poverty level—in monthly installments. That program currently applies to only newer borrowers, though Mr. Obama has proposed expanding it to all borrowers. Borrowers with older loans currently have access to less generous repayment plans. Enrollment in the programs have surged over the past year, in part due to outreach efforts by the Obama administration. The programs are likely one factor behind a recent decline in defaults among borrowers.But the income-based repayment plans are also working in tandem with a separate program that promises to forgive student debt after a period, driving up the long-term taxpayer costs.

University of Minnesota tuition, adjusted for inflation - Like most universities, the University of Minnesota has raised tuition a lot over the years. In 1960, Minnesota charged just $213 in tuition for an undergraduate Minnesotan, compared to $12,060 today — a 56.6-fold jump. Except the dollar was worth a lot more in 1960, so that exaggerates the change significantly. In 2015 dollars, 1960 tuition at the University of Minnesota was $1,704.80. That’s seven times smaller than the $12,060 tuition today. Here’s what this looks like: Still: most of the increase has been very recent. As late as the 1999-2000 school year, tuition was $5,915 in 2014 dollars. That means that in the 40 years from 1960 to 2000, Minnesota tuition increased by about $4,210 — adjusting for inflation. In the 15 years since then, it’s gone up by $6,144.

Department of Education Sides Against Students to Feather Its Own Bed in For-Profit Corinthian Colleges Debacle -- Yves Smith -- We hadn’t reported much on the horrorshow of for-profit Corinthian Colleges’ creative and varied ways of ripping off its students simply because the scandal seemed to be ably covered elsewhere. Par for the course for many for-profit colleges, its students had taken on hefty amounts to attend when they were unlikely to land jobs that made that much borrowing a sensible proposition. But Corinthian Colleges departed substantially from the already-dubious norms of the debt-peddaling practices of the for-profit educational-industrial complex. From Distance Education: The charges against it include presenting false job placement data to prospective students in its marketing, altering student grades and attendance records, and questionable recruitment and student loan advisory practices. The federal government recently announced it would withhold some student aid from the company, causing a delay that the company claims necessitates the bankruptcy. Corinthian Colleges looked to be on the way to a well-deserved demise as a result of CFPB and Department of Education interventions, as well as investigations and lawsuits by state attorneys general in twenty states along with the SEC. That seemed to imply that students were going to come out as well as they could given the abuses they’d suffered. It turns out we were naive. After all, this is America, where debtors routinely get the short end of the stick even when the lender engaged in fraud.  . As WSWS notes: Not uncharacteristically, the Obama administration responded with an immediate $16 million life preserver, with a total of $35 million pledged in the form of accelerated financial aid payments. The government move was unprecedented, and some have likened it to a bank-style bailout….Among CCI’s 108 institutional stockholders, the largest is Wells Fargo, a bank, followed by a whole series of hedge funds, including Shah Capital Management, FMR LLC, Dimensional Fund Advisors, Vanguard Group and Blackrock.

CalPERS Board Discussion of Fees Exposes Naivete, Misguided Aim of Fee Reduction Effort -- Yves Smith -- Today, the Financial Times has a prominent article on how the giant public pension fund and private equity investing heavyweight CalPERS has a new push on to reduce the fees that it pays to private equity firms. This would all be salutary, except that a board meeting in December exposed that CalPERS's staff has an unduly narrow conceptualization of the charges that private equity firms are taking out of the companies that they buy with the funds of limited partners like CalPERS. As a result, this effort demonstrates how badly captured the limited partners like CalPERS are. They passively accept the parameters set by the general partners and ask for concessions only within that framework, rather than demanding entirely new arrangements in light of well-publicized abuses and gaping shortcomings in transparency and accountability.

Removing the Social Security Tax Cap Would Benefit Most Workers - naked capitalism - As we and others have discussed at some length, the concern over Social Security funding is vastly overhyped. As Nicole Woo discusses in this Real News Network interview, one simple fix, that of eliminating the cap on who is subject to the tax, would solve most of the gap that is anticipated in long-term projections. That's before we get to the MMT issue that "taxing" to fund any government activity is a political mechanism that is a holdover from the gold standard days, and not how government functions are funded operationally. In fact, with more and more promised pensions being slashed, and investment returns flagging thanks to QE and ZIRP, the notion that ordinary people can save enough for their retirement is a chimera. Thus preserving and strengthening Social Security is more important than ever.

Red States Are Reinventing Medicaid to Make It More Expensive and Bureaucratic -Since the implementation of the Affordable Care Act’s Medicaid expansion in 2014, 23 states have refused the federal money to offer health insurance to their low-income residents, depriving almost 4 million people of coverage. Slowly, some of the holdout red states are finding a way to say yes, but only if they can claim a conservative twist on expanding coverage. Tennessee last week became the latest state to release details on a proposal for its own unique version of Medicaid expansion via a waiver of Medicaid rules (known as an 1115 waiver). "We made the decision in Tennessee nearly two years ago not to expand traditional Medicaid," Gov. Bill Haslam, a Republican, has said. "This is an alternative approach that forges a different path and is a unique Tennessee solution.” Versions of Haslam’s statement are common among Republican lawmakers who have negotiated with the Obama administration to pursue this path: They’re willing to accept Obamacare money so long as they can plausibly sell it as not Obamacare, and they want to use their leverage to attach conservative reform ideas to Medicaid. At the Washington Post, Sarah Kliff has called these measures “making Medicaid more Republican.” Arkansas, Iowa, Michigan and Pennsylvania have already advanced unique versions of Medicaid expansion thanks to waivers that feature GOP-backed wrinkles to the program; Indiana has submitted a waiver pending approval from the federal Department of Health and Human Services, while Tennessee, Wyoming and Utah have developed proposals after active negotiations with the feds; and lots of other states are taking a look, including North Carolina, Georgia, and even Texas. That’s good news for those states' poorer residents, who have been left to fend for themselves while state legislatures offer massive resistance to Obamacare. In practice, however, crafting plans that are ostensibly more conservative thus far have ended up more complicated, confusing, and possibly costlier than the program Republicans refused to expand in the first place.

Supreme Court decision on Medicaid could bankrupt states - On January 20, the Supreme Court will hear a case that may end up being far more important than any of the Obamacare challenges. The issue in Armstrong v. Exceptional Child Center is whether Medicaid providers and beneficiaries have a right to enforce federal Medicaid law requiring states to pay providers amounts sufficient to ensure equal access to Medicaid care and services. If the Court answers yes, many states, already heavily burdened by Medicaid costs, could be driven into bankruptcy. Five Idaho Medicaid providers sued Idaho Department of Health and Welfare Director Richard Armstrong for failing to increase Medicaid payment rates after studies performed at IDHW’s request revealed that actual provider costs exceed the rates. They claim this violates the “equal access provision” (§30A) of the federal Medicaid law that requires states to offer provider payments that “are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” Medicaid, the jointly funded federal-state program to provide medical care for the poor, is the largest insurer in the country, covering 68.5 million people. Medicaid expenditures have become the first- or second-largest budget items in most states and the resulting deficits have led state governments to cut or, in Idaho’s case, freeze, provider payments.

Government Health Care Website Quietly Sharing Personal Data: (AP) — The government's health insurance website is quietly sending consumers' personal data to private companies that specialize in advertising and analyzing Internet data for performance and marketing, The Associated Press has learned. The scope of what is disclosed or how it might be used was not immediately clear, but it can include age, income, ZIP code, whether a person smokes, and if a person is pregnant. It can include a computer's Internet address, which can identify a person's name or address when combined with other information collected by sophisticated online marketing or advertising firms. The Obama administration says'snections to data firms were intended to help improve the consumer experience. Officials said outside firms are barred from using the data to further their own business interests. There is no evidence that personal information has been misused. But connections to dozens of third-party tech firms were documented by technology experts who analyzed and then confirmed by AP. A handful of the companies were also collecting highly specific information. That combination is raising concerns. Sends Personal Data to Dozens of Tracking Websites -- The Associated Press reports that–the flagship site of the Affordable Care Act, where millions of Americans have signed up to receive health care–is quietly sending personal health information to a number of third party websites. The information being sent includes one's zip code, income level, smoking status, pregnancy status and more. An example of personal health data being sent to third parties from EFF researchers have independently confirmed that is sending personal health information to at least 14 third party domains, even if the user has enabled Do Not Track. The information is sent via the referrer header, which contains the URL of the page requesting a third party resource. The referrer header is an essential part of the HTTP protocol, and is sent for every request that is made on the web. The referrer header lets the requested resource know what URL the request came from. This would for example let a website know who else was linking to their pages. In this case however the referrer URL contains personal health information. In some cases the information is also sent embedded in the request string itself, like so:

Who suffers if Obamacare subsidies go away? Surprise -- The kind of people who were more likely to vote for Mitt Romney over President Barack Obama in the 2012 election also turn out to be the same kind of people who would be most likely to lose their Obamacare health insurance if a looming Supreme Court case goes against the president, according to a new analysis.  Obamacare enrollees who are white, live in the South and have jobs with modest incomes would be disproportionately affected by an adverse ruling for Obama at the high court, which could come this June, the study by Urban Institute researchers found.   The researchers earlier this month found that 6.3 million people would lose health coverage because they would no longer be eligible for subsidies if the Supreme Court rules that such federal financial aid issued to customers on the Obamacare insurance exchange is illegal, as plaintiffs claim. Without those subsidies to help pay for premiums in the 37 states served by the federal exchange, the plans would become unaffordable for that number of people, the Urban Institute said.   In a new report issued Thursday that looked for the first time at the demographics of that group, the researchers said that 61 percent of the 6.3 million people who would lose health coverage are white, and 62 percent of them live in the South.   And a total of 81 percent of the people who would lose coverage work either full or part time, and 82 percent have modest incomes, but are not poor, the report said.

Why Republicans can't come up with an Obamacare replacement - Vox: In Philip Klein's new book Overcoming Obamacare, Cato's Michael Cannon scolds the right for getting outplayed, again and again, on health care. "Conservatives are falling into the same trap now that they fell into with fighting the Clinton health plan ... they’re conceding the left’s premises that the government should be trying to provide everybody with health insurance, or the government should be trying to expand access to health insurance, or the government should be subsidizing health insurance, because some people need help and therefore the federal government should be the one to help them. The problem [comes] because once you accept those premises, all of your solutions look like the left’s solutions. They look like Obamacare. And so a lot of conservatives, as much as they want to repeal it and say they want to repeal Obamacare, they’re still pushing replace plans that amount to ‘Obamacare Lite.’" Cannon is right. The basic project of health reform, at least as it's been understood in American politics in recent decades, involves the government giving money to poor people so they can buy health-care insurance. That money needs to come from somewhere. The government usually gets it from politically unsympathetic constituencies like the rich and corporations, both of which lean Republican. In the case of Obamacare, Medicare cuts were added to the package, meaning another Republican-tilting constituency — the elderly — absorbed the pain. The problem for conservatives is that making sure poor people have health insurance is politically popular, at least in the abstract. But the plans that achieve it tend to be in tension with both broad tenets of conservatism — it raises taxes, it redistributes wealth, and it grows the government — and with key factions of the conservative coalition.

End Obamacare, and people could die. That’s okay. -- Say conservatives have their way with Obamacare, and the Supreme Court deals it a death blow or a Republican president repeals it in 2017. Some people who got health insurance as a result of the Affordable Care Act may lose it. In which case, liberals like to say, some of Obamacare’s beneficiaries may die.  During the health-care debates of 2009, Rep. Alan Grayson (D-Fla.) brought a poster on the House floor: “The Republican Health Care Plan: Die Quickly.” In the summer of 2012, when Obamacare was threatened by a presidential election, writer Jonathan Alter argued that “repeal equals death. People will die in the United States if Obamacare is repealed.” Columnist Jonathan Chait wrote recently that those who may die are victims of ideology — “collateral damage” incurred in conservatives’ pursuit “of a larger goal.” If these are the stakes, many liberals argue, then ending Obamacare is immoral.  Except, it’s not.  In a world of scarce resources, a slightly higher mortality rate is an acceptable price to pay for certain goals — including more cash for other programs, such as those that help the poor; less government coercion and more individual liberty; more health-care choice for consumers, allowing them to find plans that better fit their needs; more money for taxpayers to spend themselves; and less federal health-care spending. This opinion is not immoral. Such choices are inevitable. They are made all the time.

Catholics don't have to breed 'like rabbits', says Pope Francis - Catholics do not have to breed “like rabbits” and should instead practise “responsible parenting”, Pope Francis said on Monday. Speaking to reporters en route home from the Philippines, Francis said there were plenty of church-approved ways to regulate births. But he firmly upheld church teaching banning contraception and said no outside institution should impose its views on regulating family size, blasting what he called the “ideological colonisation” of the developing world. African bishops, in particular, have long complained about how progressive, western ideas about birth control and gay rights are increasingly being imposed on the developing world by groups, institutions or individual nations, often as a condition for development aid. “Every people deserves to conserve its identity without being ideologically colonised,” Francis said.

Smoking Can Cost You $1 Million to $2 Million in a Lifetime - According to the American Lung Association, tobacco kills nearly half a million Americans annually and costs the nation $333 billion per year in health-care expenses and lost productivity to boot. But it’s hard for the average person—specifically, the average smoker—to wrap one’s brain around such an enormous figure.Coming to the rescue, timed to coincide with the CDC’s Tobacco Awareness Week, is a new state-by-state analysis from WalletHubdetailing the lifelong financial costs of smoking for an individual. Because the average price of a pack of cigarettes varies widely around the country—$5.25 in Virginia, $8 in Michigan, $12.85 in New York—the lifetime outlay varies greatly from state to state as well. In all cases, though, the data gathered by WalletHub show that smoking is incredibly costly in addition to being potentially deadly.The total cost per smoker is estimated at $1,097,690 in South Carolina—and it’s the least expensive state in the nation. A Kansas City Star headline noted that the “cost of smoking is cheap in Missouri … relatively,” as the state ranks as the eighth least expensive on WalletHub’s list, with the total cost for a lifetime of smoking running “only” $1,177,230. At the high end of the spectrum, there’s Rhode Island, Massachusetts, New York, and Connecticut, where the habit costs more than $1.9 million per person in a lifetime. Priciest of all is Alaska, which crosses the $2 million mark.For a little perspective, federal data estimates that the cost of raising a child to age 18 is about $250,000—a big chunk of change, but only a small fraction of expenses reportedly incurred by smokers.

Cough and cold medicines for kids are likely a waste of your money and an unnecessary risk -  A number of people have been emailing me or tweeting me about the use of OTC meds for kids in light of this severe flu epidemic. So let me cut to the chase. Medications for fever work. They work for pain, too. But cough and cold meds? No. From our first bookAs pediatricians, we really wish that we could recommend something to help parents and children feel better.  Unfortunately, over-the-counter cough and cold medicines are not the answer.  First of all, they don’t work. Since 1985, all six randomized, placebo-controlled studies of the use of cough and cold medicines for children under the age of 12 years did not show any difference between taking a cough or cold medicine or taking a placebo or fake medicine.  Expert panels have reviewed these studies and have all agreed that there is no evidence to suggest these medicines work for kids.  The American College of Chest Physicians stated that the scientific literature for over-the-counter cough medicines did not support that cough medicines worked.  A 1997 policy statement from the American Academy of Pediatrics stated that support for the use of cough medicines in children had not been established.  So, neither the medical experts, nor the scientists, nor the chest doctors, nor the pediatricians think that these medicines work.  Even worse than not working, over-the-counter cough and cold medicines have bad side effects and can even kill children.  During the years 2004 to 2005, 1,519 children in the United States under the age of 2 had to go to the emergency room because of a bad reaction or overdose related to cough and cold medications. The bad reactions included serious problems like abnormal heart rhythms, loss of consciousness, and brain damage.  In 2005, three infants under the age of 6 months died because of cough and cold medicines.  An FDA review found 123 deaths that could be tied to cough and cold medicines used in children under 6 years of age over the past 30 years.

California asks people who haven’t been vaccinated for measles to avoid Disneyland — Seventy people have been infected in a measles outbreak that led California public health officials to urge those who haven’t been vaccinated against the disease, including children too young to be immunized, should avoid Disney parks where the spread originated. Story continues below New infections linked to the theme parks emerged Wednesday in the outbreak that has spread to five U.S. states and Mexico, though the vast majority — 62 — occurred in California. The outbreak began in December December Because measles is highly contagious, people who have not received the measles-mumps-rubella, or MMR, vaccine are susceptible and should avoid visiting Disney “for the time being,” state epidemiologist Gil Chavez said. The same holds true for crowded places with a high concentration of international travelers, such as airports, Chavez said. People who are vaccinated don’t need to take such precautions, he said. Disneyland Resorts spokeswoman Suzi Brown said officials agreed with the advice that “it’s absolutely safe to visit if you’re vaccinated.”

PTSD May Raise Women's Risk for Diabetes -- Women with post-traumatic stress disorder seem more likely than others to develop type 2 diabetes, with severe PTSD almost doubling the risk, a new study suggests. The research "brings to attention an unrecognized problem," said Dr. Alexander Neumeister, director of the molecular imaging program for anxiety and mood disorders at New York University School of Medicine. It's crucial to treat both PTSD and diabetes when they're interconnected in women, he said. Otherwise, "you can try to treat diabetes as much as you want, but you'll never be fully successful," he added. PTSD is an anxiety disorder that develops after living through or witnessing a dangerous event. People with the disorder may feel intense stress, suffer from flashbacks or experience a "fight or flight" response when there's no apparent danger. It's estimated that one in 10 U.S. women will develop PTSD in their lifetime, with potentially severe effects, according to the study.

As U.S. Bids to Renew Relations With Havana, Heralded Cuban Diabetes Drug Remains Off-Limits - – President Obama’s efforts to renew relations with Cuba may soon allow Americans to visit this island’s pristine beaches and start lugging home shopping bags filled with long-coveted cigars and rum. But for frustrated American physicians battling to save the feet and legs of tens of thousands of diabetic patients, it may be a long wait before a much-heralded limb-saving Cuban drug can legally make the 90-mile trip to U.S. shores. Because of the Cold War-spawned economic blockade against what Washington has long considered the Communist threat in the Caribbean, the developer of the medication, the Center for Genetic Engineering and Biotechnology in Havana, is forbidden to bring a nine-year-old drug, called Heberprot-P, to the U.S. for clinical trials and use. “I don’t know what’s going to happen, but I do know that it may be that American legs are being lost while Cuban legs are being saved because Washington agencies …won’t allow that medicine in,”  “I think all the American medical community really wants is for Heberprot to be allowed into the country for testing…Let’s get it tested and see if it will really save the thousands of limbs that many believe it can,” Cohen said. In December, 2013, 111 members of Congress petitioned the Treasury secretary to allow the drug to be tested in the U.S., but up to now there has been no sign of progress, according to several lawmakers who signed the letter.

"If You Question Authority, You Are Mentally Ill", Report Finds -- The psychopathologizing of anti-authoritarian behavior is yet another step on what looks like an increasingly slippery slope and it strikes us as especially harmful. The American Diagnostic and Statistical Manual of Mental Disorders (DSM for short) defined a new mental illness, the so-called “oppositional defiant disorder” or ODD. As informs us, the definition of this new mental illness essentially amounts to declaring any non-conformity and questioning of authority as a form of insanity. In short, as Natural News put it: According to US psychiatrists, only the sheeple are sane.

It’s Official: If You Question Authority, You Are Mentally Ill -- In late 2013, the then newest issue of the American Diagnostic and Statistical Manual of Mental Disorders (DSM for short) defined a new mental illness, the so-called “oppositional defiant disorder” or ODD. As informs us, the definition of this new mental illness essentially amounts to declaring any non-conformity and questioning of authority as a form of insanity. According to the manual, ODD is defined as: […] an “ongoing pattern of disobedient, hostile and defiant behavior,” symptoms include questioning authority, negativity, defiance, argumentativeness, and being easily annoyed.  In short, as Natural News put it: According to US psychiatrists, only the sheeple are sane. Every time a new issue of the DSM appears, the number of mental disorders grows – and this growth is exponential. A century ago there were essentially 7 disorders, 80 years ago there were 59, 50 years ago there were 130, and by 2010 there were 374 (77 of which were “found” in just seven years). A prominent critic of this over-diagnosing (and the associated over-medication trend) is psychologist Dr. Paula Caplan. Here is an interview with her:

No Pardon – Young Woman To Serve 30 Years For Miscarriage -- Last week, a young woman in El Salvador who goes by the alias name of 'Guadalupe,' had very high hopes, and was all but assured she would receive a pardon from her 30-year sentence. She had already served seven years, starting in her teens. Her alleged crime? Fetal homicide. She miscarried, and was charged with murder. Her pardon didn't come. Guadalupe's freedom was one vote short. Her fate was determined by a Right-Wing congressional majority of 43-42. I can't write about something like this and not feel like I've been punched in the stomach again and again.  Guadalupe represents every woman. This is what happens when abortion is illegal. El Salvador is known to be one of the worst countries in the world for women's reproductive rights.  According to Tim Rogers at forms of abortion are illegal in El Salvador. And though there was no indication that Guadalupe, a mother of one, intentionally terminated her pregnancy, the doctors snitched her out to save themselves from any criminal liability. Guadalupe, who never saw the inside of a fifth grade classroom, was interrogated in her hospital bed without a lawyer. The Kafkaesque trial was brutal and swift. Before Guadalupe knew what was happening, she was sentenced to 30 years in jail and thrown behind bars with convicted murders. If Guadalupe’s story sounds crazy, that’s because it is. Not only does El Salvador have one of the most draconian anti-abortion laws in the world, but authorities there apply the tyrannical law with an aggressiveness that borders on obsessive. Dozens of Salvadoran women — mostly young, and all poor — are behind bars for homicide

Detailed study confirms high suicide rate among recent veterans: Recent veterans have committed suicide at a much higher rate than people who never served in the military, according to a new analysis that provides the most thorough accounting so far of the problem. The rate was slightly higher among veterans who never deployed to Afghanistan or Iraq, suggesting that the causes extend beyond the trauma of war. "People's natural instinct is to explain military suicide by the war-is-hell theory of the world," said Michael Schoenbaum, an epidemiologist and military suicide expert at the National Institute of Mental Health who was not involved in the study. "But it's more complicated." The study brings precision to a question that has never been definitively answered: the actual number of suicides since the start of the recent wars. Though past research has also found elevated suicide rates, those results were estimates based on smaller samples and less reliable methods to identify veteran deaths. The government has not systematically tracked service members after they leave the military. The new analysis, which will be published in the February issue of the Annals of Epidemiology, included all 1,282,074 veterans who served in active-duty units between 2001 and 2007 and left the military during that period.

Controversial DNA startup wants to let customers create creatures - In Austen Heinz’s vision of the future, customers tinker with the genetic codes of plants and animals and even design new creatures on a computer. Then his startup, Cambrian Genomics, prints that DNA quickly, accurately and cheaply. “Anyone in the world that has a few dollars can make a creature, and that changes the game,” Heinz said. “And that creates a whole new world.” The 31-year-old CEO has a deadpan demeanor that can be hard to read, but he is not kidding. In a makeshift laboratory in San Francisco, his synthetic biology company uses lasers to create custom DNA for major pharmaceutical companies. Its mission, to “democratize creation” with minimal to no regulation, frightens bioethicists as deeply as it thrills Silicon Valley venture capitalists. With the latest technology and generous funding, a growing number of startups are taking science and medicine to the edge of science fiction. In the works or on the market are color-changing flowers, cow-free milk, animal-free meat, tests that detect diseases from one drop of blood and pills that tell doctors whether you have taken your medicine.  His 11-person team has raised $10 million from more than 120 investors, including Peter Thiel’s venture firm Founders Fund. “It’s a fundamentally new technology that can open up a whole new industry,” said partner Scott Nolan. Venture capitalist Timothy Draper, another investor, praises Heinz as an “exceptional leader with a unique passion for his business.”  “I love Cambrian,” he wrote in an e-mail. “The company is literally printing life. Can’t wait to see all the great things that come of it.”

Over 80 percent of Americans support “mandatory labels on foods containing DNA” - The Washington Post -- A recent survey by the Oklahoma State University Department of Agricultural Economics finds that over 80 percent of Americans support “mandatory labels on foods containing DNA,” about the same number as support mandatory labeling of GMO foods “produced with genetic engineering.” Oklahoma State economist Jayson Lusk has some additional details on the survey. If the government does impose mandatory labeling on foods containing DNA, perhaps the label might look something like this: WARNING: This product contains deoxyribonucleic acid (DNA). The Surgeon General has determined that DNA is linked to a variety of diseases in both animals and humans. In some configurations, it is a risk factor for cancer and heart disease. Pregnant women are at very high risk of passing on DNA to their children.

Scientists race to identify goop on birds along San Francisco Bay shorelines - — Three days after rescue efforts escalated to find and save goop-covered seabirds along the shorelines of San Francisco Bay, the operation has been halted – with many key questions still unanswered. Two hundred birds have died, and 315 more have been coated with a gray, sticky, and odorless substance. Researchers don’t know what the substance is or where it has come from. They are busily – some say frantically – trying to find out by applying chemical tests and autopsy procedures. The hope is to alleviate the suffering and free the wings of the still-living birds so they can be released back into the wild. “Identifying the substance will help us in at least two big ways,” says Andrew Hughan, spokesman for the California Department of Fish and Wildlife. “It will tell us what we can do to help the 315 birds still living, and then we might also be able to determine its source, which could help in prosecuting whoever the culprits are.” The affected birds – mostly horned grebes, surf scoters, and buffleheads – began turning up on shorelines on Jan. 16 in Hayward, San Leandro, Alameda, and Foster City, Calif. Volunteers and professional rescue workers began scouring the shorelines on Monday. The area where the birds have been turning up is formally designated an important bird area (IBA), notes Jordan Wellwood, director of the Richardson Bay Audubon Center & Sanctuary.

Sad Day for Maryland - Alison Prost, Maryland Executive Director of the Chesapeake Bay Foundation (CBF), issued this statement following Governor Hogan's withdrawal Wednesday of the Phosphorus Management Tool and nitrogen oxides (NOx) reduction regulations: "This is a sad day in the long fight to make Maryland waters clean enough for swimming and fishing. Governor Hogan's decision has hurt the rivers and streams on Maryland's Eastern Shore where 228,000 tons of excess manure will continue to be applied to farm fields each year, and to wash off into nearby creeks and river. The new governor rolled back 10 years of progress when he withdrew the Phosphorus Management Tool, a common sense, science-based solution to the manure crisis."Agriculture is the largest source of pollution to the Chesapeake Bay, and is also the cheapest to reduce by far. Many farmers deserve credit for their efforts to stem pollution from their barn yards and fields. But just as those who live in our cities and suburbs are doing more to clean the Bay, so must farmers."Businesses with technologies to help reduce phosphorus pollution from poultry manure are ready to come to Maryland and help ease the burden of excess manure. But these technologies  will only have a significant impact if farmers are required to not apply excessive amounts of phosphorus to their crops. Regulations create demand for problem-solving technologies that otherwise would languish.  "Additionally, by withdrawing regulations that would have reduced pollution from coal-fired power plants, Governor Hogan's decision also has put corporate interests above the people of Greater Baltimore. Nitrogen oxides are linked to ozone which can be harmful to children and sensitive adults. As a greenhouse gas, nitrogen oxides are 300 times more powerful than carbon dioxide. Also, nitrogen from coal plants and vehicles adds millions of pounds of harmful pollution to the Bay each year. The power industry used the same hardship argument in 2006 when the legislature approved the Maryland Healthy Air Act. In the years afterwards, electricity prices dropped, and the industry prospered.

Clean Up Those Contaminated Chicken Parts, USDA Tells Industry - NPR - Right now, according to government surveys, about a quarter of the cut-up chicken you buy — and about half of all ground chicken — is contaminated with salmonella bacteria.It's a surprisingly high number, and it was a surprise to the USDA's food safety officials, too, when they realized this about a year ago. Because up to that point, their efforts had been focused on whole chickens, rather than the cut-up parts.There's a legal limit on the percentage of whole chicken carcasses that can be contaminated with salmonella. That limit is 7.5 percent, and most poultry companies meet it easily.But most people buy chicken parts, like thighs, breasts and drumsticks. And about a year ago, during an outbreak of salmonella poisoning that was traced to Foster Farms, in California, the USDA's scientists started systematically testing chicken parts, too.They discovered that those parts were three or four times more likely to test positive for salmonella than the whole chickens. Ground chicken was even worse.Whatever the cause, that discovery persuaded the USDA to propose a new set of legal standards covering poultry parts and ground poultry. The limits, formally proposed on Wednesday, will cover salmonella and a less common microbe called campylobacter.If the proposal goes into force, companies will have to cut the amount of salmonella contamination by about half.

Common Pesticide May Pose Risk to Workers Who Apply It  -- An insecticide used on corn and other U.S. crops poses health risks to workers who mix and apply it and also can contaminate drinking water, according to a U.S. Environmental Protection Agency report released this week. The report is an update, based on new research, to a 2011 assessment of the health impacts of the pesticide chlorpyrifos, which remains one of the most commonly applied organophosphate pesticides. It has been banned for more than a decade for household use but is still used commercially on corn, soybeans, fruit and nut trees and some golf courses.  The agency did not find any additional risks from airborne or food exposure. It cited the latest U.S. Department of Agriculture data that found “no concerns for chlorpyrifos in food, with the pesticide detected in less than 1 [percent] of samples.” However, researchers believe inhalation is likely a major exposure route for people living near heavily treated fields, said Janie Shelton, an epidemiologist who led a study linking chlorpyrifos to autism in babies born to moms near treated fields in farm-heavy Northern California last year. This bystander exposure is likely a “sub-clinical exposure” - where the mom would not experience any effects herself, but the constant chronic exposure in drift or house dust could impact an unborn child, Shelton said. Chlorpyrifos is a neurotoxin that prevents the synapses of the nerves from stopping activity, causing over-stimulation, Shelton said. It has been linked to birth defects, low birth weights and impaired brain development problems, and endocrine disruption. Fetuses are at much higher risk from the pesticide, she said.

15 Health Problems Linked to Monsanto’s Roundup  -- Between 1996 – 2011, the widespread use of Roundup Ready GMO crops increased herbicide use in the U.S. by 527 million pounds—even though Monsanto claimed its GMO crops would reduce pesticide and herbicide use. Monsanto has falsified data on Roundup’s safety, and marketed it to parks departments and consumers as “environmentally friendly” and “biodegradable, to encourage its use it on roadsides, playgrounds, golf courses, schoolyards, lawns and home gardens. A French court ruled those marketing claims amounted to false advertising. In the nearly 20 years of intensifying exposure, scientists have been documenting the health consequences of Roundup and glyphosate in our food, in the water we drink, in the air we breathe and where our children play. They’ve found that people who are sick have higher levels of glyphosate in their bodies than healthy people. They’ve also found the following health problems which they attribute to exposure to Roundup and/or glyphosate:

US Military, Monsanto Targeting GMO Activists and Independent Scientists, New Investigation Alleges -- A highly concerning new investigative report from the largest daily newspaper in Germany alleges that Monsanto, the US Military and the US government have colluded to track and disrupt both anti-GMO activists and independent scientists who study the adverse effects of genetically modified food.   As revealed yesterday by Sustainable Pulse, on July 13th the German newspaper Süddeutsche Zeitung detailed information on how the US Government "advances the interests of their corporations," focusing on Monsanto as a prime example.  The report titled, "The Sinister Monsanto Group: 'Agent Orange' to Genetically Modified Corn," described a 'new fangled cyber war' being waged against both eco-activists and independent scientists by supporters and former employees of Monsanto, who are described as "operationally powerful assistants" and who have taken up sometimes high ranking posts in the US administration, regulatory authorities, and some of whom have connections deep within the military industrial establishment, including the CIA.    "Monsanto contacts are known to the notorious former secret service agent Joseph Cofer Black, who helped formulate the law of the jungle in the fight against terrorists and other enemies. He is a specialist on dirty work, a total hardliner. He worked for the CIA for almost three decades, among other things as the head of anti-terroism. He later became vice president of the private security company Blackwater, which sent tens of thousands of soldiers to Iraq and Afghanistan under US government orders."

How the People Can Outwit the Global Domination Plans of Agribusiness - The strategic centerpiece of Monsanto PR is to focus on the promotion of one single compelling idea. The idea that they want you to believe in is that only they can produce enough for the future population. They wish you to therefore believe that non-industrial systems of farming, such as all those which use agroecological methods, or SRI, or are localised and family-oriented, or which use organic methods, or non-GMO seeds, cannot feed the world. This same PR strategy is followed by every major commercial participant in the industrial food system. Therefore, if you go to the websites of Monsanto and Cargill and Syngentaand Bayer, and their bedfellows: the US Farm Bureau, the UK National Farmers Union, and the American Soybean Association, and CropLife International, or The Bill and Melinda Gates Foundation, The Rockefeller Foundation, USAID, or now even NASA, they will raise the “urgent problem” of who will feed the expected global population of 9 or 10 billion in 2050. Yet this strategy has a disastrous weakness. There is no global or regional shortage of food. There never has been and nor is there ever likely to be.India has a superabundance of food. South America is swamped in food. The US, Australia, New Zealand and Europe are swamped in food. In Britain, like in many wealthy countries, nearly half of all row crop food production now goes to biofuels, which at bottom are an attempt to dispose of surplus agricultural products. China isn’t quite swamped but it still exports food (see Fig 1.); and it grows 30% of the world’s cotton. No foodpocalypse there either. Even in Bangladesh the farmers do not produce the rice they could because prices are low, because of persistent gluts.

Brazil’s worst drought in history prompts protests and blackouts The taps have run dry and the lights have gone out across swathes of Brazil this week as the worst drought in history spreads from São Paulo to Rio de Janeiro and beyond. More than four million people have been affected by rationing and rolling power cuts as this tropical nation discovers it can no longer rely on once abundant water supplies in a period of rising temperatures and diminishing rainfall. The political and economic fallout for the world’s seventh biggest economy is increasingly apparent. Protesters in dry neighbourhoods have taken to the streets, coffee crops have been hit, businesses have been forced to close and peddle-boat operators have had to cease operations because lakes have dried up. In São Paulo – the most populous city in South America and the worst hit by the drought – a year of shortages has cut water use in the city by a quarter since last January, but Jerson Kelman, the head of the main water company Sabesp, urged consumers to do more in helping the utility to “prepare for the worst”. At least six cities have been hit by blackouts due to weak hydroelectricity generation and high demand for air conditioning as temperatures soar over 35C. In response, utilities are burning more fossil fuels, adding to the cost of energy and greenhouse gas emissions. The government acknowledged on Thursday that Brazil is also now importing power from Argentina to try to cover the shortfall.

California drought: What happened to the rain? - An unusually wet December has given way to a hot, totally dry January. And it's creating angst among drought-weary residents like the 69-year-old Conta, whose house is still under construction. Weather experts, however, say not to panic. They emphasize that it's too soon to say that California is headed into its fourth straight year of drought. And they point out that a dry January is not out of the ordinary in a typical Northern California winter. "A midwinter dry spell occurs almost every winter, and it averages 19 days," said meteorologist Jan Null, owner of Golden Gate Weather Services in Saratoga. "Now if it persists on to February and March, then we're getting out of the normal realm." The National Weather Service said Saturday there's no rain in sight for Northern California except for some Sunday showers that will moisten Eureka and spread inland along the state's northern edge. And longer-term forecasts, Null and other meteorologists say, are riddled with uncertainty, making it hard for water providers to set policies for the coming months.

California’s Big Trees Disappearing In Face Of Climate And Water Challenges - A group of California scientists published a study this week comparing forest surveys from the 1920s and ’30s to recent U.S. Forest Service data. What they found was not encouraging for the future of the state’s renowned large trees. Published on Tuesday in the journal Proceedings of the National Academy of Sciences, the study found that drought, changes in land use, and fire suppression efforts have caused the number of trees larger than two feet in diameter to decline by 50 percent in a 46,000 square mile area of the state’s forest they surveyed.  “Older, larger trees are declining because of disease, drought, logging and other factors, but what stands out is that this decline is statewide,” said study leader Patrick McIntyre, who manages biodiversity data for the California Department of Fish and Wildlife. “Forests are becoming dominated by smaller, more densely packed trees, and oaks are becoming more dominant as pines decline.” With California currently locked in a serious drought, the role of water stress in determining tree size does not bode well for the future. The study does not factor in the four-year drought now underway as the latest census was taken just before it began. Scientists have determined that the impacts of climate change are exacerbating the state’s current drought. Climate models predict that the state and much of the Southwest will continue to get hotter and drier. “Based on our data, water stress helps to explain the decline of large trees,” McIntyre said. “Areas experiencing declines in large-tree density also experienced increased water stress since the 1930s.”

Our El Nino year may not happen - There has been a lot of buzz over the last few months of an El Nino taking shape across the globe. These often bring wet conditions to the southern and western U.S. and warmer conditions to the state of Minnesota. But recent observations are showing that our El Nino may not even happen. There are many different ways to measure if an El Nino is occurring, but the main way is to measure sea surface temperatures in the equatorial Pacific… it's this area that is often most affected by an El Nino event. Well, the latest trends aren't promising… This graph shows sea surface temperature anomalies for parts of the Pacific… basically shows what temperatures are like compared to average. El Nino events warm these waters with temperatures often 2, 3, or even 4 or more degrees Celsius warmer than average. What's occurred over the last month is surprising with an overall decrease in temperature from around a degree above average to around normal. That's not a good sign that an El Nino event is occurring or will occur anytime soon. Now, fluctuations in temperature happen all the time, just like every other part of the globe so this doesn't necessarily tell us anything. In fact, there have been several El Nino years that surface temperatures in the Pacific rose exceedingly fast, several degrees in just a few short weeks. So what does this mean exactly? Well, honestly nobody knows. Every long range computer model is still forecasting some kind of El Nino during the year (albeit, much weaker than they were thinking a few months ago), but many climate scientists are still baffled at why it hasn't started yet and just proves that the science of long range forecasting has a LONG ways to go.

El Nino likely to head to an end over spring: Japan weather bureau (Reuters) - Japan's weather bureau said on Friday the El Nino weather pattern, often linked to both heavy rainfall and drought, is continuing but added that the phenomena could end over spring. The Japan Meteorological Agency forecast said the El Nino, which emerged during last summer for the first time in five years, was already starting to ease. The El Nino weather pattern - a warming of sea-surface temperatures in the Pacific - can trigger drought in Southeast Asia and Australia, and floods in South America, hitting production of key foods such as rice, wheat and sugar.

Why the Entire U.S. Weather Satellite System is at Risk - Members of the House Committee on Science, Space, and Technology are worried about the future of U.S. weather satellites, which may include a gap in coverage that could leave the U.S. without crucial satellite data for over a year.  NOAA (the National Atmospheric and Oceanic Administration) maintains two types of satellites: Geostationary (or GOES series), which provide continuous images of the earth from a fixed point about 22,000 miles up, and Polar-orbiting (or JPSS series), which circle 500 miles above the planet and provide the images used in long-range forecasting. A legacy of mismanagement, budget overruns, and slipping deadlines means that satellites in both programs may well fail before their replacements are launched and become fully functional. Last year, the committee commissioned the Government Accountability Office to conduct a new study into NOAA’s weather satellite program. Reports detailing that study were made public today, and Representative Lamar Smith, (R-TX), who chairs the committee, says he is disappointed by the findings.  "The ability to make timely and accurate weather forecasts should be a top priority for the National Oceanic and Atmospheric Administration (NOAA)," said Smith. "Unfortunately our next generation weather satellites have been plagued by problems, including dysfunctional management, delays and cost overruns. As a result, gaps in our domestic weather data could jeopardize our forecasting capabilities, putting American lives and property at risk."

2014 officially the hottest year on record  - The numbers are in. The year 2014 – after shattering temperature records that had stood for hundreds of years across virtually all of Europe, and roasting parts of South America, China and Russia – was the hottest on record, with global temperatures 1.24F (0.69C) higher than the 20th-century average, US government scientists said on Friday. A day after international researchers warned that human activities had pushed the planet to the brink, new evidence of climate change arrived. The world was the hottest it has been since systematic records began in 1880, especially on the oceans, which the agency confirmed were the driver of 2014’s temperature rise.The global average temperatures over land and sea surface for the year were 1.24F (0.69C) above the 20th-century average, the National Oceanic and Atmospheric Administration (Noaa) reported. Nasa, which calculates temperatures slightly differently, put 2014’s average temperature at 14.67C – 0.68C above the average – for the period 1951-80. The scientists said 2014 was 0.07F (0.04C) higher than the previous records set in 2005 and 2010, and the 38th consecutive year of above-average temperatures. That means nobody born since 1976 has experienced a colder-than-average year.

It's Official: 2014 Was the Hottest Year on Record: Deny this. The animation below shows the Earth’s warming climate, recorded in monthly measurements from land and sea over 135 years. Temperatures are displayed in degrees above or below the 20th-century average. Thirteen of the 14 hottest years are in the 21st century.

Dangerously in denial on climate change - Last year, government scientists tell us, was the hottest year on record. This news is terribly — what’s the word? — inconvenient.  No, not for polar bears or drought victims or coastal dwellers. It’s inconvenient for politicians across the country who, despite whatever data or overwhelming scientific consensus might be proffered, insist on denying global warming. In recent weeks, West Virginia has snatched national headlines for its attempts to doctor school science standards to discredit climate change. . After a national outcry from educators, West Virginia backed down. But the science curriculum standards — which come from recommendations developed and adopted by a partnership of states — have already been rejected by Wyoming. South Carolina blocked the standards before they were even finalized, and other states are gearing up for similar battles. Climate change has slipped into the same contentious curricular role that evolution once occupied, and some sort of Scopes penguin trial or a debate over “intelligent warming” seems inevitable. The question is why..To some extent, of course, economic self-interest discourages a belief in man-made climate change, particularly if you’re from a state heavily dependent on fossil fuel production. West Virginia happens to be one such state, and a school board member there who backed the curricular changes even publicly alluded to the coal industry’s stake in the matter. Wyoming legislators’ thinking might be similarly influenced by their state’s status as both the nation’s top producer of coal — it is responsible for 39 percent of domestic production — and the top consumer of energy in per capita terms. In these states, man-made global warming is simply too economically inconvenient to be true.

The real climate battle after a sweltering 2014 - Jeff Sachs -- The announcement that last year was the warmest on record puts another nail in the coffin of climate denial. Not that one was needed. The pseudo-debate about climate science has always been about politics, not science. There are two main sources of climate denial. The first is libertarian ideology, which opposes government more than climate change. Climate change requires public policy and, for libertarians, that’s enough to declare it false. Since libertarianism is the elixir of financiers and wealthy peers, climate denial haunts Wall Street, the City of London, a surprising number of FT readers and the House of Lords. The real climate fight, however, is not about ideology but between oil companies like ExxonMobil, Chevron, and Koch Industries, and the general public. The oil groups will suffer massive capital losses when climate controls are finally instituted. Perhaps even libertarians can appreciate that the real battle is therefore over money, lots of it, and the corruption of government by that big money. Human-induced climate change represents an “existential threat” to the oil industry. Professor Paul Ekins and Christophe McGlade at University College London have shown this rigorously in an important new paper in the journal Nature. They asked the key question: what does climate safety mean for the future use of the proven fossil fuel reserves in various parts of the world? Their conclusions are stark. Roughly one-third of the world’s oil, a half of the world’s natural gas and 80 per cent of coal reserves are unburnable by 2050 if we are to keep warming within an internationally agreed 2C limit. And yet the business of the oil companies in recent years has been to spend hundreds of billions of dollars to add new, high-cost, unconventional hydrocarbon reserves on top of the heap of already unusable currently proved reserves.

Rate of environmental degradation puts life on Earth at risk, say scientists - Humans are “eating away at our own life support systems” at a rate unseen in the past 10,000 years by degrading land and freshwater systems, emitting greenhouse gases and releasing vast amounts of agricultural chemicals into the environment, new research has found. Two major new studies by an international team of researchers have pinpointed the key factors that ensure a livable planet for humans, with stark results. Of nine worldwide processes that underpin life on Earth, four have exceeded “safe” levels – human-driven climate change, loss of biosphere integrity, land system change and the high level of phosphorus and nitrogen flowing into the oceans due to fertiliser use. Researchers spent five years identifying these core components of a planet suitable for human life, using the long-term average state of each measure to provide a baseline for the analysis. They found that the changes of the last 60 years are unprecedented in the previous 10,000 years, a period in which the world has had a relatively stable climate and human civilisation has advanced significantly. Carbon dioxide levels, at 395.5 parts per million, are at historic highs, while loss of biosphere integrity is resulting in species becoming extinct at a rate more than 100 times faster than the previous norm.

Recent shifts in the occurrence, cause, and magnitude of animal mass mortality events - PNAS - Mass mortality events (MMEs) are rapidly occurring catastrophic demographic events that punctuate background mortality levels. Individual MMEs are staggering in their observed magnitude: removing more than 90% of a population, resulting in the death of more than a billion individuals, or producing 700 million tons of dead biomass in a single event. Despite extensive documentation of individual MMEs, we have no understanding of the major features characterizing the occurrence and magnitude of MMEs, their causes, or trends through time. Thus, no framework exists for contextualizing MMEs in the wake of ongoing global and regional perturbations to natural systems. Here we present an analysis of 727 published MMEs from across the globe, affecting 2,407 animal populations. We show that the magnitude of MMEs has been intensifying for birds, fishes, and marine invertebrates; invariant for mammals; and decreasing for reptiles and amphibians. These shifts in magnitude proved robust when we accounted for an increase in the occurrence of MMEs since 1940. However, it remains unclear whether the increase in the occurrence of MMEs represents a true pattern or simply a perceived increase. Regardless, the increase in MMEs appears to be associated with a rise in disease emergence, biotoxicity, and events produced by multiple interacting stressors, yet temporal trends inMME causes varied among taxa and may be associated with increased detectability. In addition, MMEs with the largest magnitudes were those that resulted from multiple stressors, starvation, and disease. These results advance our understanding of rare demographic processes and their relationship to global and regional perturbations to natural systems.

‘Hottest Year’ Story Obscures Bigger News: Ocean Warming Now Off The Charts -- The oceans — where over 90% of global warming heat ends up — have literally warmed up off the charts of NOAA. The big climate news last week was NOAA and NASA announcing that 2014 was the hottest year on record, breaking the highs of 2005 and 2010. But the bigger story got buried: Global warming has continued unabated in recent years.  Indeed, it’s not just that there not been a hiatus or pause or even slowdown in surface temperature warming (see below). The oceans, where the vast majority of human-caused global warming heat goes, have seen an acceleration in warming in recent years. As climate expert Prof. John Abraham writes in the UK Guardian, “The oceans are warming so fast, they keep breaking scientists’ charts.” Remember, more than 90 percent of human induced planetary warming goes into the oceans, while only 2 percent goes into the atmosphere, so small changes in ocean uptake can have huge impact on surface temperatures. That’s a key reason surface temperatures haven’t appeared to warm as fast as many had expected in the past ten years — although ocean warming has sped up, and sea level rise has accelerated more than we thought , and Arctic sea ice has melted much faster than the models expected, as have the great ice sheets in Greenland and Antarctica   But here’s where the media’s sometimes single-minded focus on one statistic — the hottest year on record — misses the real story from the latest scientific data and analysis. The human-caused rise in surface air temperatures never paused, never even slowed significantly. And that means we are likely headed toward a period of rapid surface temperature warming.

Corrosive Seawater, Not Low pH, Implicated As Cause of Oyster Deaths -Key Points:

  • Because of the geologically-rapid emission of carbon dioxide into the atmosphere by human industrial activities, and the subsequent dissolution of this CO2 into the global oceans, ocean pH and carbonate saturation state are currently declining in tandem - a process known as ocean acidification.
  • Over geological timescales, however, ocean pH and carbonate saturation (corrosiveness) tend to become disassociated. This explains why the ancient oceans were highly saturated with carbonates and therefore conducive to calcification (calcium carbonate shell formation) at times of high CO2 in Earth's past even though ocean pH was lower than it is today.
  • Waldbusser et al (2014) conducted a series of experiments with oyster and mussel juvenile life stages (larvae) which enable them to distinguish between the individual responses to carbonate saturation and ocean pH, something not done in typical ocean acidification laboratory experiments
  • The authors surprisingly found that, except at extremely low concentrations, ocean pH by itself had little impact on larvae growth. As expected though, low carbonate saturation was very detrimental to larvae growth and thus survival. This work implicates carbonate undersaturation as the key mechanism responsible for the large-scale die-off of oyster larvae along the North American Pacific coastline over the last decade.

U.S. Cities Lag in Race against Rising Seas - Scientific American: In December, residents in Marin, a county in the northern part of the San Francisco Bay Area nestled across from the Golden Gate Bridge, woke up to find that some of their roadways, docks and parking lots were underwater. Unlike in past years, when the king tides—unusually high tides that occur when the sun and moon are closer to the Earth—were accompanied by stormy weather, residents this year were faced with just some minor flooding. But more and more, parts of California are seeing an increase in such flooding, said Gary Griggs, director of the Institute of Marine Sciences at the University of California, Santa Cruz. Griggs is among the scientists who sat on a legislative committee to examine how rising sea levels will affect the California economy. He said in the last four years California has shifted from thinking about rising sea levels as a "black box" toward putting money where the science is. "A number of communities realize they're losing land," he said, adding that in some ways "nuisance" flooding might be to thank for continuing to keep the rising sea levels conversation open. In just a few decades, most U.S. coastal regions are likely to experience at least 30 days of nuisance flooding every year. Washington, D.C.; Annapolis, Md.; and Wilmington, N.C., are already in trouble. By 2020, seven more cities, including Baltimore and Atlantic City, N.J., can add themselves to the list. And within the next 35 years, most cities along all coasts will be dealing with routine flooding. The term "nuisance flooding," which is not as glib as it sounds, basically means municipalities can expect to see more water in the streets and low-lying areas and can expect not only inconvenience but modest damage thanks to rising sea levels spurred by climate change.

A Carbon Offset Market for Trees - IN the last 40 years, more than one billion acres of tropical forests have vanished, equivalent in size to over half of the continental United States. The rate of cutting, burning and clearing shows no signs of abating.Tropical forests store huge amounts of carbon. When their trees are cut or burned, the carbon is eventually released into the atmosphere, mixing with oxygen to form the long-lasting greenhouse gas carbon dioxide. The pace of deforestation is so great today that it accounts for an estimated 12 to 15 percent of global carbon dioxide emissions annually. Economic forces drive this destruction — for timber, rangeland, mining and development. But there is also a powerful economic argument for preservation. Forests’ carbon reserves can be monetized and sold as offsets to greenhouse gas emitters who need them to comply with regulatory emissions limits, or who voluntarily want to reduce their carbon footprint.These offsets typically are sold by utilities or other industrial companies that have reduced their emissions below a government-imposed cap. The offsets equal the emissions below the cap; their price is determined by supply and demand. The buyers are companies whose emissions are above the cap; the offsets are subtracted from their excess emissions, enabling them to avoid penalties. There is also a voluntary market where companies and individuals buy offsets to reduce their carbon footprint. The revenue is used to finance energy efficiency and other projects to reduce emissions.These markets are booming, with trades each year in the tens of billions of dollars. But a potential pool of offsets has been largely left off the table — offsets that represent carbon emissions avoided by not destroying tropical forests. These were difficult to value because there was no way to accurately quantify the carbon savings. Nor were there reliable, transparent systems to ensure these forests would remain standing or that proceeds would be returned to local communities.

Economic Impacts of Carbon Dioxide Emissions Are Grossly Underestimated, a New Stanford Study Suggests - In a study published this week in the journal Nature Climate Change, researchers from Stanford University estimate that the economic damage of carbon dioxide emissions is roughly on the order of $220 per ton — nearly six times higher than the $37-per-ton figure recently arrived at by the U.S. government.  Estimates for the so-called “social cost of carbon,” or SCC — essentially the price society pays for changes in agricultural output, impacts on human health, property damages from increased flooding, and other associated byproducts of a warming planet — have varied wildly from analysis to analysis, as researchers and policymakers struggle to determine how best to regulate global carbon dioxide emissions. Even the best current estimates, according to the Environmental Protection Agency and the Intergovernmental Panel on Climate Change, are likely underestimates. “The models used to develop SCC estimates, known as integrated assessment models, do not currently include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature,” the EPA notes on its Web site, “because of a lack of precise information on the nature of damages and because the science incorporated into these models naturally lags behind the most recent research.”

Republicans Post Doctored Version Of State Of The Union, Censor Facts On Climate Change -- The official website for House Republicans has posted on YouTube a doctored version of President Obama’s State of the Union address which cuts out comments where the President was critical of Republican rhetoric on climate change, ThinkProgress has learned. In the website’s “enhanced webcast” of the State of the Union speech, President Obama’s comments criticizing Republicans for saying they are “not scientists” when it comes to climate change are erased.  At the 43:25 minute mark, President Obama is supposed to say “I’ve heard some folks try to dodge the evidence by saying they’re not scientists; that we don’t have enough information to act. Well, I’m not a scientist, either. But you know what — I know a lot of really good scientists at NASA, and NOAA, and at our major universities. The best scientists in the world are all telling us that our activities are changing the climate, and if we do not act forcefully, we’ll continue to see rising oceans, longer, hotter heat waves, dangerous droughts and floods, and massive disruptions that can trigger greater migration, conflict, and hunger around the globe.”  Instead, the entire section is skipped. Obama’s comments resume with “The Pentagon says that climate change poses immediate risks to our national security. We should act like it.”  You can watch the version of the video here.

House GOP Posts SOTU Video With Climate Stuff Magically Erased - Here’s a fun little bit of political ratfucking (not really, it’s totally an accident!): When the House Republican website posted a version of Tuesday’s State of the Union address, with Republican talking points popping up to reply to each point President Obama made, the posted version of the speech left out at least two significant portions of the speech, deleting almost everything about global warming: At the 43:25 minute mark, President Obama is supposed to say “I’ve heard some folks try to dodge the evidence by saying they’re not scientists; that we don’t have enough information to act. Well, I’m not a scientist, either. But you know what — I know a lot of really good scientists at NASA, and NOAA, and at our major universities. The best scientists in the world are all telling us that our activities are changing the climate, and if we do not act forcefully, we’ll continue to see rising oceans, longer, hotter heat waves, dangerous droughts and floods, and massive disruptions that can trigger greater migration, conflict, and hunger around the globe.” ADVERTISEMENT Instead, the entire passage is missing, with a painfully obvious skip in the words, and picks up only with Obama saying, “The Pentagon says that climate change poses immediate risks to our national security. We should act like it.” Maybe they left that part in since it sounded like we could start bombing the climate if it refuses to comply with our demands.

Mitt Romney and Rand Paul Are Going to Make Climate Change a Real Issue in the GOP Primary - It took one day for the party of climate change denial to rediscover science—a few of them, anyway. Mitt Romney, who is considering his third presidential run, told a Utah audience, “I’m one of those Republicans who thinks we are getting warmer and that we contribute to that,” arguing for “real leadership” to tackle rising carbon pollution. Then, 15 Republican senators voted in favor of a conservative climate amendment that said "human activity contributes to climate change." One of those senators was Rand Paul. Granted, that means 39 Republican senators voted against the amendment, including two other potential 2016 candidates, Ted Cruz and Marco Rubio. But if nothing else, Wednesday's events show that the GOP's position on climate change is in flux. Rather than simply pretending the issue doesn't exist, as most of the 2012 candidates did, Republicans will actually debate climate change in the 2016 primary. They still have a long way to go, including the Republicans who believe humans are responsible for global warming. What’s more important than affirming the science is whether they have a reasonable plan to address it. Paul and Romney's present and past comments, for instance, suggest they're in no hurry to take action against climate change.

Not holding my breath - Krugman (Hating good government) reminds us (again) that, politically, scientific evidence doesn't much matter: It’s now official: 2014 was the warmest year on record. You might expect this to be a politically important milestone. After all, climate change deniers have long used the blip of 1998 — an unusually hot year, mainly due to an upwelling of warm water in the Pacific — to claim that the planet has stopped warming. This claim involves a complete misunderstanding of how one goes about identifying underlying trends. (Hint: Don’t cherry-pick your observations.) But now even that bogus argument has collapsed. So will the deniers now concede that climate change is real?  Of course not. Evidence doesn’t matter for the “debate” over climate policy, where I put scare quotes around “debate” because, given the obvious irrelevance of logic and evidence, it’s not really a debate in any normal sense. And this situation is by no means unique. Indeed, at this point it’s hard to think of a major policy dispute where facts actually do matter; it’s unshakable dogma, across the board. And the real question is why. .... the fact is that we’re living in a political era in which facts don’t matter. This doesn’t mean that those of us who care about evidence should stop seeking it out. But we should be realistic in our expectations, and not expect even the most decisive evidence to make much difference. Of course, agreeing that the world is likely getting warmer is different than agreeing about what we should do about it. There is a wide range of reasonable policy goals (from adaptation to mitigation) and alternatives (do nothing to a carbon tax equal to the social cost of carbon). It would be great to be able to have a conversation about goals and alternatives instead of debating the science based on opinions.

Is a Climate Disaster Inevitable? - The defining feature of a technological civilization is the capacity to intensively “harvest” energy. But the basic physics of energy, heat and work known as thermodynamics tell us that waste, or what we physicists call entropy, must be generated and dumped back into the environment in the process. Human civilization currently harvests around 100 billion megawatt hours of energy each year and dumps 36 billion tons of carbon dioxide into the planetary system, which is why the atmosphere is holding more heat and the oceans are acidifying. As hard as it is for some to believe, we humans are now steering the planet, however poorly.  Can we generalize this kind of planetary hijacking to other worlds? The long history of Earth provides a clue. The oxygen you are breathing right now was not part of our original atmosphere. It was the so-called Great Oxidation Event, two billion years after the formation of the planet, that drove Earth’s atmospheric content of oxygen up by a factor of 10,000. What cosmic force could so drastically change an entire planet’s atmosphere? Nothing more than the respiratory excretions of anaerobic bacteria then dominating our world. The one gas we most need to survive originated as deadly pollution to our planet’s then-leading species: a simple bacterium.  The Great Oxidation Event alone shows that when life (intelligent or otherwise) becomes highly successful, it can dramatically change its host planet.

UN Climate Chief: Carbon Bubble Is Now a Reality-  The so-called “carbon bubble” is no longer a concept, it’s a reality, according to UN climate chief Christiana Figueres, who will oversee the crucial UN climate conference in Paris in December. Investors who sunk their money into the fossil fuel sector are going to come up losers, she suggested, as plummeting oil prices have made new extraction projects too costly to continue to pursue and concerns about global warming have made them too risky.  “A lot of the stranded asset conversations we’ve been having for a long time are now coming true,” she told RTCC, speaking from the World Future Energy Summit in Abu Dhabi. “Those expensive oil projects—deep sea, Arctic, tar sands—those are actually beginning to be taken off the table because of the low oil prices.”  That’s good news for the environmental groups that have long warned about “stranded assets”—coal, oil and gas that would have to be left in the ground to slow climate change—and how that was leading to an overvaluation of these reserves.

How To Pull Earth Back From The Brink - Bill and Melinda Gates said a simple pie chart in a newspaper breaking down the major causes of death among children forced them to ramp up their philanthropic effort. Bill Gates remarked, “If you show people the problems and you show them the solutions they will be moved to act.”  Last week, two research papers unambiguously identify the key priorities to reduce global systemic risk and ensure long-term prosperity. The first tracks the “Great Acceleration” in human growth and activity largely since the 1950s. The other, by myself and 17 international colleagues, identifies nine planetary boundaries and calculates that Earth has now transgressed four. Our global civilization is now in a danger zone. It would be prudent to pull back from the brink.  The best science indicates that we can do just that, and political momentum is growing at an astonishing rate. A year ago it was easier to imagine a global catastrophe than it was to imagine the level of cooperation required to seal an ambitious climate deal in 2015. But recent US and China leadership has changed all that. And business leaders, from Unilever’s Paul Polman and IKEA’s Peter Agnefjäll, accept that companies must share a new responsibility for finding solutions for a planet under pressure.  This is the new global context.

US shale revolution must force Davos energy rethink -- The shale revolution has reduced the amount of oil the US needs to import and dramatically trimmed energy costs for a variety of US industries. US natural gas is now half the price it is in Europe due to shale technologies, and one third of the price it is in Asia (based on a Henry Hub price of $4 per MMBtu). IHS estimates that lower natural gas and electricity prices will boost US industrial production 3.9 per cent by 2020, resulting in additional trade benefits of $180 billion a year by 2020 compared with 2012. However, for major manufacturing or energy exporting nations, this US cost advantage poses a significant threat. This is particularly true of countries that depend on US dollars for financing, or cases such as the Gulf where the US has helped guarantee local security in exchange for energy supplies. The US will not only need the energy supplies less in future, but as a result of that it may rethink some of the security arrangements as well. To combat the US cost advantage, affected nations should introduce further incentives for renewable power in general and solar battery development in particular. The advantage will eventually fade as renewable sources supplant fossil fuels. A wholesale move to solar could help level the playing field, though it is only realistically achievable once the total cost of solar reaches parity with grid-based energy. While companies are devising innovative financing approaches to enable households to install solar panels at zero or no upfront cost (see Elon Musk’s Solar City and Vivint, backed by Blackstone), battery costs remain a key stumbling block to achieving this objective. Only Malta and Cyprus are at grid parity in Europe, though if battery prices were to fall by half to 7.5 euro cents/kWh, six more countries would reach it.

Leaders in Davos Urge Quick Action to Alter the Effects of Climate Change  On the heels of data showing that last year was the hottest on earth since record keeping began, business leaders, politicians and scientists at the World Economic Forum redoubled their calls to combat climate change. In panels and private discussions, executives and legislators were comparing notes on the growing economic cost of changing weather patterns, and debating what practical steps could be taken in the near term.At the same time, corporate leaders implored governments to come to a broad agreement at the United Nations Climate Change Conference, which will take place in Paris at the end of the year. “This is the year to make a big climate deal in Paris,” Feike Sijbesma, chief executive of DSM, the big Dutch nutrition and materials company, said in an interview. “We need to push further awareness, we need to put a price on carbon.” At a panel discussion on Friday, world leaders including Christine Lagarde, managing director of the International Monetary Fund, and Ban Ki-moon, secretary general of the United Nations, held a public discussion titled “Tackling Climate, Development and Growth.” Ms. Lagarde sounded the alarm about rising global temperatures. “We are at risk of being grilled, fried and toasted,” she said. Jim Yong Kim, president of the World Bank, was also on the panel and said that between the more visible effects of climate change and the Paris summit, the time was ripe for a new global accord. “This is a really important year,” he said.

India: The Epicenter of International Climate Talks - Earlier this month, UN Secretary General Ban Ki-moon called for India to continue to be a leader in international conversations on climate change. Next week, U.S. President Obama will travel to India to meet with Indian Prime Minister Modi, where he will likely explore how the two countries might collaborate on climate change efforts in advance of the much-anticipated UN climate talks taking place in Paris at the end of the year. This focus on India highlights the pivotal role the country will likely play leading up to the negotiations: despite the fact that India has not historically generated high per-capita carbon emissions, the country’s massive population and rapid economic growth mean the country’s development path will have environmental consequences both for India’s citizens and the rest of the world.  The good news is that India is already taking important steps toward sustainable economic growth. India’s National Action Plan on Climate Change includes measures to increase energy efficiency and install significant solar capacity in the near-term (100 gigawatt by 2022), helping to meet its goal to double its total renewable capacity by 2017, all while reducing the country’s carbon intensity by 20-25 percent by 2020. These efforts demonstrate that India is taking the threat of climate change and the promise of renewable energy expansion seriously, which is an important step forward on the Road to Paris.

The U.S. and India keep pushing toward a climate deal  -- Preparations are well underway for President Obama’s visit to India later this month. New Delhi is emptying the cattle from its streets. The U.S. Secret Service is installing anti-aircraft guns on the city’s rooftops. And U.S. Secretary of State John Kerry just made a visit himself to lay the groundwork for some big announcements — most notably on climate change.  Officials in the U.S. delegation traveling with Kerry told the Associated Press that there could soon be news about a solar energy deal, a joint effort to bring electricity to the country’s rural areas, and, possibly, a carbon-reduction pact, hinted about for months, that Obama and Indian Prime Minister Narendra Modi would both sign.  The possibility of a climate deal between the U.S. and India, the world’s third largest annual emitter of greenhouse gases, is inviting comparisons to the big U.S.-China announcement late last year. It’s unlikely, however, that we can expect anything so far-reaching; India has repeatedly reminded the world that its people are very poor, and argued that it therefore deserves some leeway on the whole emission-reduction thing. The country points out that even as its emissions continue to grow (see graph on the left below), its per-capita emissions are well below the world average (see graph on the right).

Climate leadership under China's economic domination? -- The International Monetary Fund declared that the GDP of China has, as expected but ahead of forecasts, surpassed the GDP of the United States. MarketWatch called it a "major economic earthquake" that will "change almost everything in the longer term."  But so what if we're not number one? Nobel Prize winning economist Joseph E. Stiglitz writes in January's Vanity Fair that economically we might end up better off. And that China probably will not crow about its achievement -- "China (does) not want to stick its head above the parapet." Wanting to be #1 is a distinctly American attitude.  Stiglitz says that the real danger is in losing our influence. In his words, "The bedrock strength of the U.S. has always rested less on hard military power than on 'soft power'; most notably its economic influence." The U.S. has used this soft power to lead international bodies such as the World Bank and the G20 "to pursue the economic interests of its multinationals, including its big banks."  Those driving our economic interests have not addressed climate change with the urgency it deserves. Stiglitz calls out both American and Chinese roles in increasing carbon emissions and other forms of ecological degradation. Until the recent U.S./China climate deal, the U.S. has repeatedly denied the urgency of climate change, refused to sign treaties and retreated from funding global efforts at remediation.  Now that China can claim economic leadership, will it use its influence to lead environmental policy as well?

New Report: Low Oil Prices Won’t Hurt Clean Energy -A new report from the International Renewable Energy Agency (IRENA) has found that the cost of generating renewable energy is now equal to or below the cost of fossil fuels in many parts of the world. Released on Saturday, the major report also asserts that renewables should remain financially competitive even if oil prices remain low for a while. Oil prices have fallen some 60 percent since last summer.  The report states that “history has shown that periods of low oil prices tend to be transitory as long as the world’s thirst for these finite resources rises,” and that for investments with a lifetime of 25 years or so, investments decisions in electricity generation should not be made using current oil prices. The report found that, even without financial support and despite falling oil prices, biomass, hydropower, geothermal, and onshore wind are all competitive with or cheaper than oil, natural gas, and coal-fired power stations.Titled Renewable Power Generation Costs in 2014, the report also found that the cost of solar power is falling faster than any other technology. Large-scale solar PV costs have halved in the last four years and the cost of installing residential solar has fallen around 70 percent since 2008. The cost of utility-sized solar projects to produce power is about $0.08/kWh without financial support, with prices as low as $0.06/kWh in some places, such as the Middle East. IRENA puts the cost of fossil fuel power as being between $0.07 and $0.19/kWh when environmental and health costs are factored in.

Ohio’s Anti-Green Suicide  - Swing state Ohio is plunging ever deeper into the fossil/nuke abyss.  Its Public Utilities Commission may soon gouge the public for $3 billion (BILLION!) to subsidize two filthy 50-year-old coal burners and America’s most dangerous nuke.  Approval would seal Ohio’s death notice. None of those coal/nuke burners can compete with the rising revolution in renewable energy. Throughout the world, similar outmoded facilities are shutting down. In 2001, Ohio deregulated its electric markets. But the state’s nuke owners demanded nearly $10 billion in “stranded cost” handouts so the obsolete Davis-Besse and Perry reactors on Lake Erie could allegedly compete with more efficient technologies.  Today, despite the huge subsidies, renewables and fracked gas have completely priced them out of the market.  Davis-Besse—a Three Mile Island clone—is infamous worldwide for its horrific breakdowns, including two of the five worst in U.S. history since 1979 as listed by the Nuclear Regulatory Commission. In 2002 a boric acid leak was found to have eaten nearly all the way through its reactor pressure vessel. A Chernobyl-sized disaster was missed by a fraction of an inch. The ensuing  fines comprise the biggest in NRC annals. The $600 million spent on replacement power could have funded an opening transition to a renewable economy. Instead, fires, operator error and chronic malfunctions continue to define Davis-Besse’s public-sponsored dotage.

Activists say Obama action on methane emissions 'misses 90% of pollution' -- Barack Obama has defied a Republican Congress to move ahead on his climate agenda on Wednesday, cracking down on methane emissions from America’s oil and natural gas boom. In a further use of the president’s executive authority, the White House unveiled a strategy aimed at cutting methane – one of the most powerful heat-trapping gases – by 40% to 45% over the next decade. The new methane strategy, unrolled at a time when Obama and Congress are locked in a standoff over the Keystone XL pipeline, was aimed at ensuring the president delivers on his promise to fight climate change, the White House told reporters in a conference call. The plan, a clear signal the president aims to shore up his climate legacy, applies only to future oil and gas infrastructure – a move environmental groups say will fail to combat the rise in emissions from the booming US oil and gas industry.

Environment, logic taken for a ride by surging SUV sales -- Where is the logic in buying a gas-guzzling SUV just because gas prices are so low?  As gas prices have tumbled, gas-hog sales have soared. November sales of the Cadillac Escalade SUV were up 91.5 percent over November of last year. In December, sales of Ford's Navigator rose 90.2 percent. The Dodge Ram and Chevy Silverado each saw sales increase by about a third. These vehicles have an average gas mileage of 16 in the city and about 22 on the highway.In fairness, higher truck sales are primarily driven by higher housing starts, and construction is up, but buying a gluttonous SUV simply because gas prices have temporarily dipped is about as smart as buying a house without a roof because it's sunny out.  Even the military-style Hummer H1, discontinued by General Motors for its fuel-thirsty ways, is attracting buyers. One local dealer told me he wished he'd bought a Hummer when owners were desperately selling them for $20,000 last fall. At the time we spoke last month they were topping 30 grand.

Can Louisiana Hold Oil Companies Accountable For Its Vanishing Coastline? — Flying due south from the shores of Lake Pontchartrain, the Louisiana coast looks at first just as it did decades ago, with thick, marshy wetlands broken only by freshwater lakes and streams. Within minutes, however, that landscape gives way to a different scene: tufts of grass clinging to tiny slivers of land, the wild curves of the remaining patches broken by thousands of razor-straight lines where oil and gas companies have laid pipelines and dredged canals to give their boats easier access to the rigs and wells that dot the coastline. Just below the water, the murky outline of recently submerged land is visible from 1,000 feet in the air.  Keep flying south and a glimpse of the future of the coast emerges — open water as far as the eye can see.  This swift erosion poses a very serious threat to the coastal communities who are watching their land crumble away beneath them at the fastest rate in the world: the state’s shoreline is losing a football field-sized area of land every hour. Furthermore, as the ocean eats away at the remaining wetlands, a natural process unnaturally sped up by oil and gas extraction, levee construction, and sea level rise, the marshes are unable to absorb storms that regularly batter the coastline. Without that natural buffer, strengthened hurricanes are making landfall, devastating both urban and rural areas that previously rode out storms mostly unharmed. “It’s the greatest ongoing environmental disaster in the country, maybe even in the world,”

WATCH: Inside A Coal Ash Community That Can’t Use Its Tap Water  - Records obtained by The Associated Press show that Duke and North Carolina environmental regulators have known since 2011 that groundwater samples taken from monitoring wells near several homes in Dukeville contained substances, some that can be toxic, exceeding state standards.. “The hardest moments for me is when I’m laying awake in the middle of the night and I’m thinking about all the times I made a pitcher of Kool-Aid with the water, or I boiled a pot of corn or potatoes with the water,” Sherry Gobble said. “Those thoughts stick with me in the middle of the night.” That quote comes from a new mini-documentary by the Center For American Progress (CAP), which chronicles Gobble’s life living directly next to a coal ash pond in Dukeville, North Carolina. Coal ash is the second-largest form of waste generated in the United States, and contains contains chemicals like arsenic, chromium, mercury, and lead. Just this past summer, Gobble found out via tests from the group Waterkeeper Alliance that the water wells surrounding her home — including the one that provides her tap water — contain aluminum, chromium, lead, iron, manganese, and hexavalent chromium, a known carcinogen. Duke Energy, the company that owns the coal ash pond, has denied that the contamination is its doing.

Historic Grassroots Victory Stops Central Illinois Coal Mine » An eight year battle against a central Illinois strip mine ends in victory for the communities of Canton and Orion township. An arm of Springfield Coal Company asked the Illinois Department of Natural Resources to terminate their permit for their North Canton Mine before a court hearing challenging errors in permit approval. “The naysayers told us we couldn’t fight city hall and the mine. They have more money. But we stayed the course,” said Brenda Dilts, chair of Canton Area Citizens for Environmental Issues. The permit challenge hinged on the mine’s potential impact to streams and Canton Lake, which supplies water to roughly 20,000 people, but opposition rallied around many ways the community would be harmed, including noise, water well contamination, heavy truck traffic and airborne pollutants. Only a road and fence would have separated the mine from residents in Orion township, Dilts said. “Now people are free to enjoy their country living and well water.”

Losing Streak Continues for U.S. Coal Export Terminals - The U.S. coal export industry continued its losing streak as 2014 ended and 2015 began. A coal terminal project in Louisiana lost its permit in state court, and one in Washington ran into a stiff legal challenge. Last month, the company behind several other planned terminals sold its remaining projects to a high-risk investment firm at a major loss. The developments continue a string of victories for environment groups fighting the export of coal to developing economies such as China. Of 15 proposals to build major new coal export facilities across the U.S., all but four have been defeated or canceled within the past two years. And only a few existing facilities have won approval to expand. "This is an ugly, ugly time for coal exports," said Clark Williams Derry, research director for the Seattle-based Sightline Institute, a nonprofit think tank that promotes sustainable policies for the Pacific Northwest. As U.S. demand for coal plunged in 2011 due to the boom in natural gas production, the industry began planning to ship the energy abroad as a way of supporting production and sales. Doing so would require a substantial expansion of infrastructure, including more coal-by-rail systems and coastal export centers to load the fuel onto ships.

Vermont Yankee Shutdown (video) The Vermont Yankee shutdown means the plant carcass must be safely decommissioned as quickly as possible. With full spent fuel pools, we hope Vermont Yankee rests in peace, not in pieces like Fukushima Daiichi. In this video, CCTV Nuclear Free Future Host Margaret Harrington discusses the economic, environmental, health and safety implications that the recent closing of Vermont Yankee nuclear power plant will have on New England with Beyond Nuclear’s Kevin Kamps and  Arnie Gundersen, chief engineer of Fairewinds Energy Education.

U.S. Department of Energy: Our forecasts aren't really forecasts (or are they?) - The U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, does not issue forecasts, at least not long run forecasts.  So says Howard Gruenspecht, deputy administrator of the EIA, in a letter to Nature, the respected science journal. Gruenspecht was responding to recent coverage of an alleged EIA forecast which paints a rosy picture of U.S. domestic oil and natural gas production through 2040, a view challenged by the article in question. Here is the bureaucratese from the letter: "Contrary to the presentation in the Nature article, EIA does not characterize any of its long run projection scenarios as a forecast." Long run projection scenarios....huh. What could those actually be if not forecasts? And, why is the deputy administrator making such a big deal of this?  To cut to the chase, Nature stands by its story; and, I see no reason why it shouldn't.   I have been perusing the EIA's statistics on an almost weekly basis for years, and I have occasionally offered critiques of what I was sure were forecasts--lengthy complicated documents with color graphics and tables and elaborate justifications for energy production numbers far into the future. What's more, everyone else called these documents forecasts, too. How could I have made such a mistake? As it turns out, I didn't. The words "forecast," "forecasts" and "forecasting" appear 49 times by my count in the EIA's most recent nonforecast, its Annual Energy Outlook 2014 with projections to 2040. Those instances include this laudable gem: "By law, EIA’s data, analyses, and forecasts are independent of approval by any other officer or employee of the United States Government." One of the most frequent occurrences is as part of the web address of the report: Yes, the "aeo" in the address refers to "Annual Energy Outlook." Click on the link and see the nonforecast forecast for yourself. Now, why am I making such a big deal of this?  I'm making a big deal of this because practically the entire world of policymakers, of business and governmental leaders, takes the EIA's nonforecasts very seriously. These leaders make critical policy and business decisions based on the "projections" in the nonforecasts.

Ohio Oil Production Sputters, Complicating John Kasich’s Agenda: Ohio’s oil production since 2012 has been far short of state officials’ projections. That’s according to a new report from Opportunity Ohio.Low production plus sharply lower prices could complicate Gov. John Kasich’s plans to pay for a statewide income tax cut by hiking energy taxes, said Matt Mayer, president of the free-market think tank Opportunity Ohio.Mayer’s analysis of records filed with the Ohio Department of Natural Resources revealed yearly statewide oil production tens of millions of barrels short of the Republican governor’s projections. (See chart at bottom.)  Ohio is one of several states where drilling for oil and natural gas has increased recently thanks to breakthroughs in hydraulic fracturing, or “fracking.”  Since 2012, Kasich has been demanding Republicans in the Ohio General Assembly increase the severance taxes energy companies—and often, landowners—must pay when oil and gas are extracted from Ohioans’ property.   In the report, Mayer explained that low oil prices and production guarantee a severance tax hike would not be the revenue source Kasich has been counting on. And even without Kasich’s tax hike, low prices and production are already driving energy companies from Ohio.

New pipeline will help transport oil to county - Zanesville Times Recorder  – A new pipeline in Guernsey and Noble counties is slated to transport light oil condensate to points in the surrounding area, including Muskingum County, that will serve major customers in Utica Shale production.. The new pipeline project, including the compression and stabilization facilities, is scheduled for completion in Guernsey and Noble counties in the second half of this year. Open season for the pipeline, which is a process that allows pipeline operators to secure volume commitments from producers before a new pipeline goes into service, was just extended until Feb. 27. The new pipeline will carry oil from the Utica Shale production in Noble and Guernsey counties and will connect to the existing Ohio River Valley pipeline that runs through the Black Run Station in Muskingum County, as well as to the Bells Run Station in Washington County, Wright said. No new construction will take place in Muskingum County, nor will any new wells be drilled in the county in connection with the project. Muskingum County has one hydraulic fracturing well producing in Meigs Township and two others permitted in Meigs and Madison townships, according to the Ohio Department of Natural Resources. Guernsey County has 69 fracking wells, 26 of which are producing, and Noble County has 79 wells, 20 of which are producing, the department reported. The pipeline construction will create about 150 to 200 direct jobs in eastern Ohio, Wright said, adding that EnLink is investing more than $250 million in the project.  The new pipeline will have an initial capacity of about 50,000 barrels per day and is expandable based on customer interest. Six natural gas compression and condensate stabilization facilities also will be constructed.

NEXUS opponents discuss strategy - The proposed 42-inch NEXUS pipeline would cross 11 counties in Ohio to deliver 1.5 billion cubic feet of natural gas daily from the Utica shale fields in Kensington, Ohio, to the Dawn Energy Hub in Canada. About 30 members of the Coalition to Reroute NEXUS (CORN) from Lorain, Medina, Fulton, Lucas and Summit counties met at First Church in Oberlin for several hours Saturday during a private strategy meeting. The meeting was planned in part by Paul Gierosky, a York Township resident who has been instrumental in organizing landowners in Medina County who have concerns with the proposed route. During a separate meeting with The Chronicle-Telegram following the strategy meeting, CORN members said they will continue raising their voices in an attempt to reroute the pipeline. CORN is opposed to a pipeline route they call secretive and unsafe, which the group says would travel routes near water towers in some areas and within feet of the foundations of homes in others. According to a map provided by CORN, which shows the proposed route in comparison to population densities, a more southern route would travel through less densely populated areas.  NEXUS spokesman Devin Hotzel, who replied to questions through email after the meeting, said pipeline routes are based on environmental, engineering and stakeholder concerns, adding that existing corridors and edges of properties will be used where possible. Hotzel said pipeline reroutes require in-depth examination from multiple departments including project design, engineering, construction and environmental. “This is a lengthy process and can take weeks, even months to examine all the impacts a major reroute has on the rest of a project that stretches 250 miles,” he said.

Falling oil and natural gas prices threaten shale rush - Gastar Exploration is among several companies cutting their drilling forecasts for this year, a sign that lower natural gas and oil prices are starting to hit home in the Marcellus and Utica Shale region. The spot price of natural gas is nearing $3 per thousand cubic feet, the lowest it's been since it fell below $3 per Mcf in mid-2012. The reason is simple: there's just too much natural gas. Consider this: in December 2004, the average daily production of dry natural gas in the United States - the product used in home heating sources - stood at about 2.8 billion cubic feet. In December 2014, production had swelled to more than 39 billion cubic feet per day, according to the U.S Energy Information Administration. There's also more oil, which has led the price per barrel to fall to about $47. That is less than half the $100 per barrel price in July - and is down from about $80 just two months ago. Natural gas liquids, such as ethane, propane and butane, are also in abuncance, leading to lower prices. With prices down and supply up, the local region's drilling boom will suffer. "We have a glut of oil, a glut of natural gas liquids, and a glut of natural gas," R. Dennis Xander, past president of the Independent Oil and Gas Association of West Virginia, said. "It's really just supply and demand." PDC Energy is eliminating its funding for Ohio drilling altogether this year. Oil and natural gas giant ConocoPhillips, meanwhile, slashed its drilling budget by 20 percent for 2015, emphasizing that it will defer spending in North American shale plays.

Antero Resources Presents 2015 Capital Budget & Guidance - Antero Midstream Partners has released its capital budget and guidance for 2015. The partnership allocated capital budget of $1.8 billion for 2015, reflecting a 41% reduction from the 2014 capital budget of $3.05 billion. The budget decrease is primarily due to continuing capital efficiency improvements, a reduction in rig count and the deferral of 50 Marcellus well completions, which were previously scheduled for the second and third quarters of 2015, to 2016. Of the total budget, drilling and completion budget is $1.6 billion, a 33% reduction from the 2014 capital budget of $2.4 billion.  The 2015 budget includes the addition of 78 miles of pipeline and eight fresh water storage impoundments to Antero's fresh water distribution system. Since Antero has completed the majority of the main water trunklines within its consolidated acreage position, the 2015 water distribution infrastructure budget is focused on the extension to the existing system to accommodate the ongoing development program. Approximately 60% of the drilling and completion budget is allocated to the Marcellus Shale and the remaining 40% is allocated to the Utica Shale. The partnership plans to operate an average of 14 drilling rigs between the Marcellus and Utica Shale plays in 2015, down from 21 at year-end 2014. Of this, nine drilling rigs would be in the Marcellus Shale in West Virginia and five would be in the Utica Shale in Ohio. Antero also plans to complete 130 horizontal Marcellus and Utica wells in 2015, down from 179 in 2014. Of this, approximately 80 horizontal wells would be in the Marcellus Shale and 50 would be in the Utica Shale.

Stone Energy to cut operating budget in half - Stone Energy of Lafayette has announced it will nearly halve its operating budget in 2015, from $875 million in 2014 to $450 million this year. That budget, authorized by Stone's Board of Directors, will allocate some 75 percent to Deep Water/Gulf Coast assets, 8 percent to Appalachia, 4 percent to business development and 13 percent to abandonment expenditures. In a release published on PRNewswire, the company said, "The capital budget and allocation of capital across the various areas is subject to change based on several factors, including commodity pricing, liquidity, permitting times, rig availability, regulatory, non-operator decisions and the sales of working interests in certain targeted assets."The allocations differ markedly from Stone's 2014 efforts, when it drilled more than 30 wells in the Marcellus Shale, which ranges chiefly from West Virginia to eastern Ohio and Pennsylvania, and increased its operating budget from $825 million to $895 million at the end of the third quarter. The company also drilled its first Utica shale well in Appalachia. The Utica shale is mostly in Pennsylvania and New York. The company said it expects to drill in the Marcellus only in the first quarter. The deep water budget will include the following in the Gulf of Mexico, the company said:

West Virginia, Ohio Energy Firms Slashing Budgets - Amid low low oil and natural gas prices, both Antero Resources and Stone Energy are joining Gastar Exploration and PDC Energy in slashing their Marcellus and Utica shale drilling plans for this year. The price of natural gas again dipped below $3 per 1,000 cubic feet Wednesday, down from $4.60 just two months ago, while oil prices remain around $47 per barrel, compared to $100 in July. As a result, Denver-based Antero will trim its capital budget from $3 billion last year down to $1.8 billion in 2015, roughly a 41 percent cut. Meanwhile, Lafayette, La.-based Stone is slicing drilling funds from $895 million in 2014 to $450 million this year, approximately a 50-percent decrease.Antero Chairman and CEO Paul Rady said the company - which has operations throughout eastern Ohio and northern West Virginia - will defer fracking 50 Marcellus wells that previously had been scheduled to start producing oil and gas by 2016 because of "unfavorable pricing markets." Rady then joined Gastar Senior Vice President Mike McCown in blaming a lack of operational pipeline infrastructure in the Marcellus region for the company's challenges in the area. "Consequently, we have adjusted our Marcellus plan so that we can sell the vast majority of our gas into more favorable markets. We will continue to monitor commodity prices throughout the year and may revise the capital budget lower if conditions warrant," Rady said. At least four major pipeline projects to do just that are in the works, but are not yet complete: the Atlantic Coast Pipeline, the Rover Pipeline, the Leach XPress and the Mountain Valley Pipeline. Despite cutting back on drilling and fracking, Antero expects its daily production to reach 1.4 billion cubic feet this year, a 40 percent increase from 2014. The company expects to produce 37,000 barrels per day worth of natural gas liquids - primarily ethane, propane and butane - this year, driven by development in the wet areas of the Marcellus and Utica.

Complicated by drilling boom, a chronic housing shortage in Greene County gets new attention | It began in 2005 as an ad hoc collection of trailer hookups tucked away in a backyard in Jefferson Township. Now an RV campground, it flourishes by luring prospective campers with all the amenities: shower facilities, coin-operated laundry, a community room and flexible rates for daily, weekly, monthly and long-term stays. But the campground, which has an entry on the state’s official tourism website, doesn’t cater to vacationers but instead serves a transient wave of natural gas drillers, pipeliners and other short-term natural gas workers drawn by the gas boom in the Marcellus Shale. And as the campground has provided a home — for however long — for weary workers, it has filled the coffers of an unlikely owner: In September, the county’s first-ever comprehensive study on housing was handed to the commissioners office: Nearly a third of the county’s housing stock is more than 75 years old, with just 8 percent built since 2000.The numbers are comparable to those across Pennsylvania, which has some of the oldest houses in the country, according to the U.S. Census.  But Greene County missed much of the residential and commercial development that breathed economic life into neighboring Washington and Allegheny counties. With a lack of adequate water and sewer infrastructure, developers have been hesitant to invest, particularly in the rural areas that make up 90 percent of the county south of Pittsburgh.

KEF: Fracking poses threat to groundwater - Environmental activist Craig Williams urged the city of Berea to go on record Tuesday in opposition to hydraulic fracturing in the Berea area. The controversial method of extracting oil and gas from deep shale beds could potentially degrade the water, air and soil in all of Madison County, he said. The same request will be presented to the Madison Fiscal Court and the Richmond City Commission, Williams added. “Needless to say, there are countless people who are concerned about having this sort of exploration and drilling occur in this region,” he said, addressing the council on behalf of the Kentucky Environmental Foundation (KEF). Materials KEF presented to the council outline what it claims are environmental risks of fracking, as the method is more commonly known. These include the assertion that fracking poses risks to ground water. According to KEF, as well as media reports, fracking involves pumping water and potentially carcinogenic chemicals into the ground to extract oil or gas. In a draft resolution submitted by Williams, over 600 potentially dangerous chemicals are employed in the process, many of which are identified as hazardous pollutants, according to the draft. If that is true, Williams said the resulting water pollution from fracking could be devastating.

Groups to intervene in Seneca Lake storage project - Citizen, business and municipal groups, some of whose members have engaged in protests that resulted in mass arrests at the proposed site of a Seneca Lake petroleum storage facility, plan to intervene legally in an attempt to halt the project. At a news conference Friday in Rochester, representatives of the groups said they have engaged lawyers to intervene in the permitting process for the Crestwood Midstream project, which would store up to 88 million gallons of liquified petroleum gas in underground salt caverns. Opponents say the project, which was first proposed five years ago, would be a disaster for residents of the Seneca Lake area and the numerous well-regarded wineries and other businesses there. “This is an industry that cannot co-exist with the growing $4.8 billion Finger Lakes wine industry. I’m asking — which is the better investment?” The focus of the protests is a proposed storage facility for liquid propane and butane, two petroleum components that are extracted from wells like natural gas and oil. The wells typically are hydraulically fractured, a factor that fuels the opposition. Crestwood Midstream, a Texas company, would use caverns carved out of underground salt formations in a now-defunct commercial mining operation. New York has three existing underground LPG storage facilities, but Crestwood said more capacity is needed.

200 Arrests in Ongoing Seneca Lake Uprising - Sandra Steingraber (videos) Jim Connor, 83, was not among the 20 protesters arrested on Monday afternoon as part of the latest human blockade at the entrance gates of Crestwood Midstream two miles north of Watkins Glen, New York. Had the sheriff’s deputies arrived an hour earlier, his name would appear in the list of the now 200 arrests that have take place at these gates since October. But Jim—who uses a walker and was blockading while seated in a lawn chair and wrapped in a blanket—needed to go home after 2.5 hours of turning back trucks with his own body. Which is how the two-dozen original blockaders were whittled down to 20 during a non-violent direct action on a January morning atop an icy hill above Seneca Lake where winds drop effective temperatures well below the already-wickedly-low digits on the thermometer and where the advice, “dress in layers,” means that you pull mittens on over your gloves, wear two coats on top of three sweaters and throw some chemical handwarmers into the toes of your snow boots.  But perhaps the reluctant attrition of the elderly, the workers and the parents of toddlers only attests to the homespun determination of this ongoing civil disobedience uprising—now in its third month.As does the enduring presence of the 40 other protesters who rallied for hours in support of the blockaders along the shoulder of the highway. One of them was 90-year-old Martha Ferger of Dryden. I was another.

Next battle over Finger Lakes gas storage facility: an issues conference - The next fight in a long battle over storing liquefied petroleum gas along the western shore of Seneca Lake is an issues conference next month. Opponents to the facility are trying to get a seat at the table along with environmental officials and the gas company. Storing the liquefied gas, or LPG in an expansive network of empty salt caverns along the southwestern shore of this finger lake was first proposed five years ago. The company behind the plan, Crestwood, says there’s a need for more natural gas to heat homes in upstate New York . And it says the facility would be safe. But residents and wineries have fought the plan hard, lobbying state environmental officials. They say industrializing the lakefront wouldn’t gel with the Finger Lakes wine country vibe that’s brought so many tourists.

Army Corps seeks more data on pipeline - The U.S. Army Corps of Engineers has told the planners of the Constitution Pipeline project they must furnish “significant information” for the agency to act on its request to discharge fill material in regulated wetlands. In a Jan. 13 letter to the pipeline company, the federal agency outlined a laundry list of items it still needs before it can act on the company’s application. Data being sought by the Army Corps includes updated estimates of impacts to wetlands and a final feasibility analysis of site-specific plans for trenchless crossing operations that could impact wetlands. It also specifically asked for plans that would “avoid and minimize impact” to “unique and difficult to replace wetlands” on a parcel of nearly 1,000 acres in Delaware County. That property is known by its owners — the trustees for the Henry S. Kernan Land Trust — as the Charlotte Forest. “The analysis should include the results of a geotechnical investigation to ascertain the potential for the use of Horizontal Directional Drilling and further analysis of overland alternative routes that avoid or minimize impacts to Waters of the United States,” Amy L. Gitchell, chief of the upstate New York section of the Army Corp’s regulatory branch. The horizontal directional drilling technique suggested by the Army Corps for that specific property was also recommended by an environmental expert retained by the Kernan family last week at a public hearing the state Department of Environmental Conservation (NYSDEC) held in Cobleskill.

Port Ambrose LNG Export Terminal In Trouble !?$&? - Some people – including the Republican Governor of New Jersey and the Republican leader of the New York State Senator are not supporting the Glorious Scheme to Export American’s Natural Gas Reserves Tax Free from Offshore NY/NJWhat’s wrong with you people ? This facility, which will pay not property, sales or income tax  – and is owned by a Cayman Islands tax shelter partnership (think Mitt Romney) and that would employ six (6) full time employees to insure that Americans are doing their part to ship our nation’s fracked gas resources tout de suite to the Ukraine, China, or Brazil.  Momentum Building Against Port Ambrose! What a terrific demonstration of bottom-up, grassroots organizing in action: Radiating out from Long Beach, Long Island, the chorus of voices against the Port Ambrose LNG project is amping up in a big way: Not only did we knock it out of the park at the January 7th hearings, there are four new fantastic developments this week alone: 1) The appointment of Senator Brad Hoylman as the ranking Democrat on the State Senate Environmental Committee is a very positive development on any level, and especially for those of us interested in stopping Port Ambrose. Hoylman has been a progressive voice since he was part of the West Village community board (where he opposed the Spectra pipeline). Now, together with Assembly Member Linda Rosenthal, Hoylman has drafted a state legislative sign-on letter to Cuomo opposing Port Ambrose. In coming weeks it will be important for us to be calling our reps to make sure they get a high number of signatories.

LNG Port Ambrose Fight Heats Up - The fight against the Liberty LNG Port Ambrose project has started to catch fire. Hundreds of elected officials, community leaders and local residents met at a public hearing at the JFK Airport Hilton on Wednesday, January 7, to express their thoughts on the liquefied natural gas site proposed off the coast of Jones Beach. Port Ambrose, a deep-water port proposed 16.1 nautical miles south of Jones Beach, would receive ships that carry liquefied natural gas, vaporize it, and would deliver it to Long Island through pipelines. The project would bring 400 million cubic feet of natural gas per day – enough to meet the energy needs of 1.5 million homes. Liberty proposed the project in June 2013 and it was open to public comment during the summer. After releasing a Draft Environmental Impact Statement about the project on December 10, 2014, which stated the environmental impacts of the project would be minimal, the Maritime Administration (MARAD) and the U.S. Coast Guard (USCG) have opened up another public comment period. They hosted two public meetings on the project to get some feedback. More than 100 people registered to speak at the New York meeting, with many showing opposition for the project.

Fracktivists Fight Liquefied Natural Gas Terminal Near NYC   - “The whole fight [against Port Ambrose] has been energized by the fracking movement in the last few years,” says John Weber, Mid-Atlantic regional manager for the Surfrider Foundation, an advocacy group that focuses on the health of oceans and coastal ecosystems. Liberty denies that it intends to use the terminal for export. Its CEO told the Associated Press, “This will never be an export project. … It’s crazy to try to export gas from that location; it would be the most expensive gas on the planet.” The project as currently proposed would also not have the permits or cooling technology for LNG exportation. But local activists also worry that approval of Port Ambrose would set a precedent that could lead to approval of LNG export terminals in the same area. And fracktivists oppose building any major fossil fuel infrastructure because they are committed to the broader fight against climate change. Why, they wonder, would we invest in exporting or importing natural gas, when we should instead be building clean energy capacity? “One thing that resonates with people is the availability and desirability of alternatives,” says Patrick Robbins, spokesperson for the Sane Energy Project, a New York-based grassroots anti-fossil fuel organization. Robbins notes that the Port Ambrose site is part of an area in which the federal Bureau of Ocean Energy Management is collecting proposals for an offshore wind farm.

Kansas Officials Admit "Strong Correlation" Between Quakes & Fracking - “If the government and the Kansas Corporation Commission care about the people of Kansas and the damages, they will order a moratorium,” exclaims Joe Spease, chairman of the Kansas Sierra Club's fracking committee following a report from Kansas officials, who have been reluctant to link the mysterious earthquakes in south central Kansas to fracking, admitted last week that "we can say there is a strong correlation between the disposal of saltwater and the earthquakes."   As LJWorld reports, it's the first time state officials have so clearly stated the likely cause of the earthquakes, which are afflicting a region where fracking is widely used, as Rick Miller, a geophysicist and senior scientist for the Kansas Geological Survey, said he believes the injection of fracking chemicals into the earth has been a catalyst for the quakes.  Questions have long been raised about whether fracking activity is causing the earthquakes, and officials in other states have concluded that it has. But Kansas officials consider the waste water disposal a separate process, and so have not considered the fracking itself to be the key factor in the quakes. At issue now is what, if any, action to take.

Political tremors: Kansas officials link earthquakes to fracking-related process - Kansas officials for the first time have said a sharp increase in earthquakes may be tied to a process connected to fracking -- stoking debate in the state over the controversial drilling practice.  Reports of earthquakes in Kansas have shot up recently, particularly in the state's south-central region. Now, scientists are connecting them to the disposal of wastewater that is a byproduct of the oil-and-gas extraction process.  Rick Miller, geophysicist and senior scientist for the Kansas Geological Survey, told the Lawrence Journal-World, “we can say there is a strong correlation between the disposal of saltwater and the earthquakes.”  During hydraulic fracturing, or “fracking,” operators use a mixture of saltwater and chemicals to break underground rock formations in order to release oil and gas. Then, to get rid of the water, operators inject it deep into disposal wells.

Why Is It Legal to Cause Fracking Earthquakes In Colorado? -  This falls in the “You Can’t Make This Shit Up” category in Colorado. Yesterday it was reported that a fracking waste company—NGL Water Solutions DJ LLC—that was linked to causing earthquakes is allowed by Gov. John Hickenlooper’s appointed oil and gas commission to increase their fracking waste injection operations, and it was determined that the company did not violate any law or rule when they likely caused the earthquakes. Further, not only are the fracking waste injections increasing, but the earthquakes are continuing, the biggest of which, in May 2014, was a 3.4 on the richter scale that shook homes and rattled nerves across the region. And, the director of the Governor’s oil and gas commission stated, “We have actively managed this particular circumstance in a way that we feel comfortable with.” You can read the latest on this Colorado earthquake morass in the BizWest newspaper. This is consistent with the industry’s business model to frack first, grab all the money, and leave the problems for taxpayers and homeowners to clean up.”

Oil And Gas Production Is Exposing Californians To At Least 15 Different Kinds Of Pollutants - Two communities in California are being exposed to at least 15 different kinds of pollutants from oil and gas development, according to a new report. And experts don’t yet know how the pollution is affecting residents’ health. The report, published Thursday by environmental group Earthworks, used infrared cameras to record pollution coming out of oil and gas facilities in Upper Ojai in Ventura County, CA and and Lost Hills in Kern County, CA. The infrared camera made it possible for researchers to see pollution being emitted from the facilities that is typically invisible.  The researchers also collected air samples from each site. Samples from the Upper Ojai site tested positive for multiple pollutants, including methane, dichlorodifluoromethane, trichlorofluoromethane, propane, isobutene, and ethanol. The Lost Hills samples also tested positive for similar pollutants, and also included a compound that researchers couldn’t identify. Some of the compounds detected in the samples, the report notes, “are known to cause a variety of health effects, ranging from headaches and dizziness, to vomiting and throat irritation. Some compounds are known carcinogens, and can affect the nervous and reproductive systems. Some compounds have not been studied at all, meaning that there is no way to know how they will affect public health.” In all, 15 compounds that are known to impact human health were detected, as well as 11 compounds that had no health data.

Al Jazeera Exposes Deadly Working Conditions for Bakken Oil Workers -- (video) The explosion in drilling for oil on the Bakken Shale in North Dakota has been seen by many as a threat to the environment and the safety of oil workers. There have been concerns over radioactive waste contaminating local water, oil spills, crude by rail fiery explosions and even sex trafficking. Now, Al Jazeera America is looking into how North Dakota became the number one state for worker fatalities. Part of Al Jazeera America’s current affairs documentary series, Fault Lines, Death on the Bakken Shale gives viewers a glimpse into the working conditions of oil drilling operations and exposes why North Dakota has the highest worker fatality rate in the U.S., according to a report by the AFL-CIO. Forty-four workers died in North Dakota in 2011, producing a rate of 17.7 deaths per 100,000 workers. That is more than five times the national average of 3.5 deaths per 100,000 workers. Add to that the fact that between 2009 and 2013, there were more than 9,000 claims of injuries filed by oil and gas workers to North Dakota ’s Workforce Safety and Insurance Agency. Death on the Bakken Shale focuses on three oil workers who lost their lives on the job. Many workers are very inexperienced and not properly trained before engaging in high-risk activities. Bill Wuolu, training director for the nonprofit North Dakota Safety Council, says “what we’re getting is workers that are doing jobs that they’re not trained, skilled or maybe even qualified for.”

North Dakota Pipeline Spills Nearly 3 Million Gallons Of Drilling Waste Into Creeks  - Almost 3 million gallons of saltwater drilling waste spilled from a North Dakota pipeline earlier this month, a spill that’s now being called the state’s largest since the North Dakota oil boom began.  The brine, which leaked from a ruptured pipeline about 15 miles from the city of Williston, has affected two creeks, but it doesn’t currently pose a threat to drinking water or public health. The pipeline’s operator — Summit Midstream Partners — discovered the spill on Jan. 6, but officials didn’t find out about the true size of the spill until this week.  The pipeline company has been trying to clean up the spill by vacuuming water from the creek, but in doing so, they’re also capturing a lot of fresh water.  “The problem is that … the creekbed is kinda being replenished with water so we extract, it fills; we extract, it fills,” John Morgan, a spokesman for Summit Midstream told the Grand Forks-Herald.  North Dakota Department of Health Environmental Health Section Chief Dave Glatt said he hasn’t seen any impacts to wildlife yet, but officials won’t likely know the full impact until all the ice melts. Officials have discovered chloride concentrations in Blacktail Creek as high as 92,000 milligrams per liter — far higher than normal concentrations of about 10 to 20 milligrams per liter.  “That has the ability to kill aquatic life and so we’ll want to see if the aquatic life was able to get out of the way, and if they weren’t, how badly they were impacted,”

Nearly 3M gallons of brine spill; ND oil boom's largest leak - Nearly 3 million gallons of saltwater generated by oil drilling have leaked from a North Dakota pipeline, an official said Wednesday, the largest such spill since the state's current oil boom began and nearly three times worse than any previous spill. Two creeks have been affected, but the full environmental effect might not be clear for months. Operator Summit Midstream Partners LLC detected the pipeline spill on Jan. 6, about 15 miles north of Williston and told health officials then. Officials say they weren't given a full account of the size until Tuesday. Cleanup has begun and inspectors have been monitoring the area, but it will be difficult to measure the effects on the environment and wildlife until the ice melts, said Dave Glatt, chief of the North Dakota Department of Health's environmental health section. Some previous saltwater spills have taken years to clean up. "This is not something we want to happen in North Dakota," Glatt said. At the moment, the spill doesn't threaten public drinking water or human health, Glatt said. He said a handful of farmers have been asked to keep their livestock away from the two creeks, the smaller of which will be drained. The saltwater, known as brine, is an unwanted byproduct of oil and natural gas production that is much saltier than sea water and may also contain petroleum and residue from hydraulic fracturing operations.

Three-million-gallon drilling waste spill is North Dakota's worst, but far from the state's only one: Sixteen days ago, Operator Summit Midstream Partners found a toxic leak of salty drilling waste from a pipeline in western North Dakota, the heart of the Bakken oil boom. Although it reported the leak to the state's department of health immediately, it wasn't until Tuesday when officials learned that nearly three million gallons of the stuff had leaked into two creeks. This makes it the largest spill of its type since the North Dakota oil boom began about a decade ago. A clean-up is underway, but the full extent of the environmental damage is not yet known and may not be for a long time. That, in part, is because they don't know what caused the leak nor how long it allowed toxins to spill into the creeks. Effects from such spills can last for decades. Katie Valentine reports: North Dakota Department of Health Environmental Health Section Chief Dave Glatt said he hasn’t seen any impacts to wildlife yet, but officials won’t likely know the full impact until all the ice melts. Officials have discovered chloride concentrations in Blacktail Creek as high as 92,000 milligrams per liter—far higher than normal concentrations of about 10 to 20 milligrams per liter. “That has the ability to kill aquatic life and so we’ll want to see if the aquatic life was able to get out of the way, and if they weren’t, how badly they were impacted,” While this is the largest such spill, it's far from the only one. Two-and-a-half years ago, the investigative website ProPublica reported that oil companies had revealed more than 1,000 reported spills in 2011. Most of these were said to be small, but the investigation found that in several cases they were much larger than first claimed. In addition, there is considerable illicit dumping.

Worst Fracking Wastewater Spill in North Dakota Leaks 3 Million Gallons Into River Three million gallons of brine, a salty, toxic byproduct of oil and natural gas production—also known as fracking wastewaterspilled from a leaking pipe in western North Dakota. State officials say it’s the worst spill of its kind since the fracking boom began in the state. The spill was reported 17 days ago when Operator Summit Midstream Partners found a toxic leak of salty drilling waste from a pipeline in the heart of the Bakken oil boom. Officials say there’s no immediate threat to human health but as Marketplace’s Scott Tong reports yesterday, there could be trouble ahead. He interviews Duke geochemist Avner Vengosh who has sampled frack wastewater and has found that “North Dakota’s is 10 times saltier than the ocean, that endangers aquatic life and trees, and it has ammonium and radioactive elements.” Tong also interviewed Hannah Wiseman, law professor at Florida State, who says the disposal of fracking wastewater is underregulated.“A typical well can spit about 1,000 gallons a day,” says Tong. “Some of the water is recycled back into fracking, stored in pits or used to de-ice roads. It’s also injected deep underground, which has been known to cause earthquakes.” Wiseman shares that fracking wastewater issues also exist in Ohio, Oklahoma and Texas. And, for the latest update on the spill, watch last night’s MSNBC’s The Rachel Maddow Show:

North Dakota pipeline leaks crude oil, 3mn gallons of fracking byproduct — RT USA: Nearly 3 million gallons of saltwater and an as yet unknown amount of crude oil have leaked from a northwest North Dakota pipeline into a creek that feeds into the Missouri River. Officials have called the leak the largest of its kind in state history. The leak in the 4-inch saltwater collection line, owned by Summit Midstream Partners LP and operated by subsidiary Meadowlark Midstream Co., was discovered earlier this month and was reported to the state on January 7, according to Reuters. The pipeline, about 15 miles north of Williston, will be out of commission for an undetermined amount of time, Summit said. Although Williston residents receive drinking water that comes from the Missouri River, the leak does not threaten supplies, according to the North Dakota Department of Health. However, the city has the ability to shut off collection valves to avoid harmful water, Reuters reported. Yet some of the brine made it to the Missouri River, the Williston Herald reported, and the state found "high readings" of contamination at the confluence of the Little Muddy and Missouri Rivers southeast of Williston, according to Karl Rockeman, the director of water quality at the Department of Health.  Williston sits in the middle of North Dakota’s oil boom, and the saltwater is said to be a byproduct of hydraulic fracturing, or fracking.

Environment official: Saltwater spill reached Missouri River -- Water testing has shown that saltwater contamination from a massive pipeline spill in northwestern North Dakota reached the Missouri River, the state's environmental chief said Friday, adding that officials don't expect harm to wildlife or drinking water supplies because it was so diluted. Blacktail Creek and the Little Muddy River were contaminated after nearly 3 million gallons of saltwater leaked this month from a pipeline operated by Summit Midstream Partners LLC, the largest spill of its kind in the state since the current energy boom began. Testing showed elevated levels of chloride contamination where the Little Muddy River empties into the Missouri, but the levels diluted to within water quality standards almost immediately, said Dave Glatt, chief of the North Dakota Department of Health's environmental health section. He said the contaminants diluted quickly because of the size of the river and its volume of water. "We're not anticipating any public impacts, we're not anticipating any wildlife impacts," Glatt said. "But we'll continue to monitor."

DOT delays final rule for rail tank cars -- Final regulations for phasing out older freight-rail tank cars carrying crude oil and ethanol will be released May 12 instead of March 31 as originally planned, according to the U.S. Department of Transportation. The delay, which the department announced this week, also will apply to the release of standards for the next generation of replacement tankers. It comes after many railroad industry groups warned in public comments that the proposed phase-out of DOT-111 tankers carrying Class 1 flammable materials by October 2017 and a phase-out of those carrying Class 2 liquids by October 2018 will lead to shortages of tank cars. In a joint filing, the Association of American Railroads (AAR) and the American Petroleum Institute (API) contend the tank car industry doesn’t have the capacity to retrofit the estimated 143,000 tank cars that would need to be modernized to meet the new specifications. Nor can manufacturers build new tank cars fast enough, they say. About 70 percent of crude oil shipped to refineries from the Bakken Shale Formation in North Dakota and Montana -- and 70 percent of ethanol shipped to refineries -- is transported by rail, according to the American Fuel and Petrochemical Manufacturers, a trade group representing 120 U.S. refineries. Most of rail shipments are on unit trains containing at least 100 tank cars filled with crude oil or ethanol. That has raised safety concerns in communities adjacent to the routes.

Federal Court Order: Explosive DOT-111 "Bomb Train" Oil Tank Cars Can Continue to Roll  - Steve Horn - A U.S. federal court has ordered a halt in proceedings until May in a case centering around oil-by-rail tankers pitting the Sierra Club and ForestEthics against the U.S. Department of Transportation (DOT). As a result, potentially explosive DOT-111 oil tank cars, dubbed “bomb trains” by activists, can continue to roll through towns and cities across the U.S. indefinitely. “The briefing schedule previously established by the court is vacated,” wrote Chris Goelz, a mediator for the U.S. Court of Appeals for the Ninth Circuit. “This appeal is stayed until May 12, 2015, or pending publication in the Federal Register of the final tank car standards and phase out of DOT-111 tank cars, whichever occurs first.” Filing its initial petition for review on December 2, the Sierra Club/ForestEthics lawsuit had barely gotten off the ground before being delayed.  That initial petition called for a judicial review of the DOT's denial of a July 15, 2014 Petition to Issue an Emergency Order Prohibiting the Shipment of Bakken Crude Oil in Unsafe Tank Cars written by EarthJustice on behalf of the two groups. On November 7, DOT denied Earthjustice's petition, leading the groups to file the lawsuit.  Initially, DOT told the public it would release its draft updated oil-by-rail regulations by March 31, but now will wait until May 12 to do so. As reported by The Journal News, the delay came in the aftermath of pressure from Big Oil and Big Rail. “In a joint filing, the Association of American Railroads (AAR) and the American Petroleum Institute (API) contend the tank car industry doesn’t have the capacity to retrofit the estimated 143,000 tank cars that would need to be modernized to meet the new specifications,” wrote The Journal News. “Nor can manufacturers build new tank cars fast enough, they say.”   The “bomb trains” carrying volatile crude oil obtained via hydraulic fracturing (“fracking”) from the Bakken Shale, then, will continue to roll unimpeded for the foreseeable future. They will do so in the same DOT-111 rail cars that put the fracked oil-by-rail safety issue on the map to begin with — the July 2013 deadly explosion in Lac-Mégantic, Quebec.

BNSF adds oil trains, changes route in Nebraska: BNSF Railway more than tripled the number of trains it moved through Nebraska with a million gallons of oil or more aboard late last year and has changed its route to bypass Lincoln, at least for some trains. Reports filed with the Nebraska Emergency Management Agency show that late last year BNSF expanded the number of oil trains it was required to report from three per week in July to a range of seven to 14 per week. Railroads must report trains that carry at least a million gallons of oil -- about 35 tank cars -- from the Bakken formation in North Dakota and Montana. Last week, since the price of oil has continued to plummet even more, the railroad filed a new report that said it was moving about a dozen trains. BNSF says it must report changes of at least 10 percent of traffic. A map filed with the documents shows changes from the 230-mile route the BNSF filed in July. The original route ran from South Sioux City in northeast Nebraska south through Fremont, Ashland, Waverly, Lincoln and on southeast to Rulo, where it crossed the Missouri River. In addition to the 11 Nebraska counties originally named, a new route filed late last year added Sarpy County.

On to Plan B as Oil Work Stalls in Texas - With oil prices plummeting by more than 50 percent since June, the gleeful mood of recent years has turned glum here in West Texas as the frenzy of shale oil drilling has come to a screeching halt.Every day, oil companies are decommissioning rigs and announcing layoffs. Small companies that lease equipment have fallen behind in their payments.In response, businesses and workers are bracing for the worst. A Mexican restaurant has started a Sunday brunch to expand its revenues beyond dinner. A Mercedes dealer, anticipating reduced demand, is prepared to emphasize repairs and sales of used cars. And some well-off oil company managers are cutting back at home, rethinking their vacation plans and cutting the hours of their housemaids and gardeners.It’s at times like these that Midland residents recall the wild swings of the 1980s, a decade that began with parties where people drank Dom Pérignon out of their cowboy boots. Rolls-Royce opened a dealership, and the local airport had trouble finding space to park all the private jets. By the end of the decade, the Rolls-Royce dealership was shut and replaced by a tortilla factory, and three banks had failed.

How Not to Ban Fracking --  Am not a zoning attorney, nor do I play one on YouTube, but I know a good land use law when I see one, and the frack ban in Mora County struck me when it was passed as a bit loopy. Here’s my take on it at the time – the New Mexico county did not base their ban on a comprehensive land use plan, or on zoning case law, or on anything that resembled land use law.  Unfortunately a federal judge agreed with me and tossed it.  A federal judge this week struck down a New Mexico county’s fracking ban in one of a growing number of regulatory fights over the controversial method of extracting natural gas and oil from deep rock underground.  U.S. District Judge James Browning ruled Mora County’s 2013 ban on oil and gas drilling is unconstitutional, prohibiting corporate activities protected by the First Amendment. Browning’s order also said the ban violates state law and that it could not be enforced on lands owned by the state. Fortunately, there is a right way for a county or town or city to control or ban fracking, but that entails hiring an honest-to-god land use planner and a zoning attorney that can walk and chew gum at the same time. If your town/ county/city does not do that, good fracking luck in court.  Mora County’s approach was to challenge a corporation’s right to frack. That is not how land use law works. I will believe that corporations are people when Texas executes one with some leftover poison, but until then, for godsakes, hire a land use attorney to do zoning law. OK ?

Lou Allstadt on Fracking -- Original video source Fracking companies push people out of homes (and then buy their silence) Download video (248.34 MB) America’s young fracking industry has been hailed and embraced by government officials. But energy independence comes at a cost: fracking pollutes rivers, causes earthquakes and spills waste on surrounding land. Is the price worth paying? How dire are the consequences of fracking? And why isn’t the public more alarmed? Today we ask these questions of a former vice-president of Mobil, now an anti-fracking activist. Lou Allstadt is on Sophie&Co today.

Map: The Fracking Boom, State by State -- As debate intensifies over oil and gas drilling, most states with frackable reserves are already fracking—or making moves to do so in the near future. That translates to 22 states, from California to Texas, Michigan to West Virginia, currently employing this high-intensity form of energy extraction, and five others may soon follow. Called high-volume hydraulic fracturing, or fracking, the controversial process became commercially viable in the late 1990s. It generally involves injecting millions of gallons of water, along with sand and chemicals, down a well to extract oil-and-gas reserves that were previously hard to access. InsideClimate News compiled a comprehensive map of the nation's fracking activity. This state-by-state breakdown will be periodically updated. Fracking is used differently in each state, depending on the available fossil fuels. Texas has thousands of wells that tap into deeply buried shale deposits. By contrast, in Indiana, fracking occurs for a small percentage of wells. Tennessee and Kentucky are outliers. While both states allow high-volume fracking (modern fracking), drillers there tend to use other extraction techniques that can involve injecting nitrogen gas underground. Illinois is the most recent state to allow modern fracking. The legislature there passed new rules in late 2014, and regulators are waiting for applications. Both North Carolina, which is finalizing rules, and Maryland, which is launching into the rulemaking effort, aren't far behind. Meanwhile, drillers in Alaska are exploring fracking's potential in the state. But there's been little interest in Florida, which technically allows the practice.

Amid U.S. oil price crash, cost cutting ripples through industry (Reuters) - Any lingering doubt about the depth of the crisis facing the U.S. energy industry is quickly evaporating as even the biggest firms slash spending amid the steepest oil price crash since the recession, sending ripples across the vast sector. In a stark sign of how a sudden, 60 percent drop in oil prices is biting, oil services giant Schlumberger Ltd on Thursday said it will reduce spending this year by 25 percent and fire 9,000 workers worldwide, surprising investors with the size of the cuts. As activity slows and drillers idle rigs at the fastest pace in more than 20 years, the magnitude and speed of the changes are surprising firms that provide some of the raw materials and equipment essential to drilling that even two months ago hoped to dodge the ill effects of the slowdown. "There is total chaos and uncertainty and it is impacting the whole ecosystem," said Aamer Sarfraz, chief executive of United Guar, which provides guar gum used in fracking to major oil service firms. Schlumberger's announcement lays bare the strain that a supply glut and subsequent dive in prices is putting on the engine room of the U.S. fracking boom: the oil service firms like Schlumberger and rivals Baker Hughes Inc and Halliburton Co that provide drilling services for thousands of wells across the country. Service firms, desperate to cut costs, asked Sarfraz to lower the price of his company's guar by 30 percent as soon as possible in meetings held in recent days. Other suppliers are being met with similar demands, he said, and even existing contracts are being withdrawn. "We're definitely in the fall out phase. It's going to get ugly."

BHP cuts shale investment amid drop in oil price - BHP Billiton is cutting its shale oil investments and reducing the number of rigs it operates onshore in the US by 40 per cent due to the drop in oil prices. The world’s biggest miner by market capitalisation said on Wednesday that the revised drilling programme would boost efficiency but added that its shale spending programme remained under review. “In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in the onshore US business by approximately 40 per cent by the end of the financial year,” said BHP. This will reduce the number of rigs it operates to 16, down from 26. BHP’s drilling programme will be focused on its higher quality liquids-rich Black Hawk acreage in southern Texas. Noting that many of BHP’s peers were also cutting rig numbers at their shale oil operations in the US, Glyn Lawcock, UBS analyst, said: “I would expect this to have an impact on production. In the case of BHP we expect impact to financial year 2016 production, but not necessarily financial year 2015 production, given rigs will come offline towards the end of 2015.”

OilPrice Intelligence Report: Oil Majors Taking Ruthless Measures To Survive -- Across the board, many oil majors are taking the butcher’s knife to operations, cutting jobs and capex in unprecedented numbers.  Spending on global exploration and production could fall over 30 percent this year, the greatest drop since 1986, should markets remain depressed.  Bank of America are predicting Brent futures to fall to $31 by the end of the first quarter this year, over $5 below the lows of the 2008 financial crisis, citing rapidly growing global inventories as the cause of such a substantial drop.  News such as this has spurred the latest round of massive cutbacks across most sectors in the oil and gas industry.   BP will cut 300 jobs in Scotland with ConocoPhillips cutting 230 in Britain overall, Suncor Energy will reduce staff by 1000, while Schlumberger expects to axe over 9000 jobs in total this year.   Continental Resources slashed its spending for 2015 by 41 percent last month, while Range Resources Corp. reduced theirs by 33 percent.  Shell has cancelled a $6.5 million project in Qatar and Statoil has shelved exploration plans in Greenland.  However, it’s not all bad news, at least for one major oil producer. This week saw a ruling in the case against BP on the final amount spilled into the Gulf of Mexico following the Deepwater Horizon incident.  Despite government calculations of 4.2 million barrels, Judge Carl Barbier judged that 3.19 million barrels were spilled into the ocean, thus reducing the maximum potential penalty that could be imposed on the British company.  The final amount of fines will be decided at trial next week with the law allowing for a maximum penalty of $4,300 per barrel, or $13.7 billion, down from a potential maximum of $18 billion.  So far, BP has paid out over $28 billion in clean up and claims, with $3.5 billion currently set aside to handle the first installment once the trial has been concluded. 

 Turns Out the US Oil Boom Was Just a Fairy Tale - With one quick drop in the price of oil, the shale oil boom is officially bust. In less than a week, 61 oil rigs across the United States closed up shop, according to the most recent rig count from Baker Hughes. The U.S. has 1,750 oil rigs still hunting for new oil wells, but that number is expected to fall by another 400 rigs by the time spring rolls around. The whole episode is a wake-up call about just how much of a fairy tale North America’s oil boom really was. It was a fairy tale with real drills, sure — and since it was exempt from the Clean Air and Clean Water acts, it will continue to have real consequences for the people living near it. But when it costs Saudi Arabia $10 to get a barrel of oil and it costs shale oil operations around $65 to make that same barrel, it should have been obvious that America was only a titan of oil production because another country was letting us be. “Those who are producing the most expensive oil — the rationale and the rules of the market say that they should be the first to pull or reduce their production,” Suhail Al Mazrouei, oil minister for the United Arab Emirates, told reporters recently, sounding more than a little like an Econ 101 professor. “If the price is right for them to produce, then fine, let them produce.” That price — which was $110 per barrel this summer, and $80 three months ago — is now hovering at $46. Goldman Sachs estimates that it will drop to $40 in a few months, since it will take a while for production to slow down and adjust to the new pricing. the United States has cut 10 percent of its oil exploration, and Canada has cut back 25 percent Since late November, the United States has cut 10 percent of its oil exploration, and Canada has cut back 25 percent. If this continues, expect the oil boom towns of Alberta, Texas, North Dakota, and Colorado to start looking more like ghost towns.

Oil Glut, Collapsed Prices, Layoffs Be Damned: Production Soars -- Layoff announcements have been ricocheting around the oil and gas sector, fleshed out with individual stories that percolate up to me. The entire sector is cutting operating costs and capital expenditures as fast as they can crunch the numbers. Revenues are plunging largely in sync with the collapsing prices of oil and natural gas. Today, French oil giant Total’s CEO Patrick Pouyanne, while hobnobbing at the World Economic Forum in Davos, said that his company would “limit” its investments in US shale fields at least until prices come back up – “my instructions have been pretty clear,” he said. On Tuesday, Oilfield services provider Baker Hughes, which is being acquired by Halliburton for almost $35 billion in a masterful piece of Wall Street engineering, chimed in with its own job cuts; its customers in the oil patch are slashing their capital expenditures and what they will pay Baker Hughes as their revenues are plunging due to the collapsing price of oil. The chain reaction goes on. Baker Hughes is going to axe 7,000 employees, mostly in the first quarter. That’s about 11.5% of its headcount! Acquirer Halliburton, which has already cut 1,000 people outside North America in the fourth quarter, out of the 80,000 it employs worldwide, would do some cutting of its own at home. “Headcount adjustments” was the term COO Jeffrey Miller used during the earnings call, without going into details. Both companies get about half of their revenues from North America, which they expect to get hit harder than the rest of the world. On Monday, oilfield services giant Schlumberger said it would cut 9,000 jobs. BP and ConocoPhillips already announced major budget cuts, as have dozens of smaller companies. Charge-offs are piling up. And it’s just the beginning..

Shale Debt and Its Implications - We have all been held spell bound by the recent precipitous plunge in oil prices. The implications are the stuff of conjecture, conspiracy theories and just plain interesting conversation. Adding to this conversation, it would appear that another troubling trend has possibly emerged.   It is well known that the Fed has kept interest rates artificially low for a considerable period of time. There are many good arguments to be made as to why this should be so. Nevertheless, there is also a reasonable argument to be made that low interest rates encourage investors to chase yield. In other words, investors may be more inclined to invest in higher risk businesses than usual because these businesses provide a higher return in an otherwise artificially low return environment. Many argue that this encourages bubbles within the markets. What it certainly causes is the increased use of debt by corporations. Debt overall, in the oil and gas industry, has grown threefold since 2006. The “shale revolution”, according to S&P, was approximately 75% funded by junk debt. Further, it was not funding itself out of cash flow. Not even close.  Is this a bad thing? It all depends on your perspective. Examining the debt to equity ratio in some shale companies, it becomes readily apparent that debt was decidedly the preferred choice of funding. This makes sense in that money has been cheap and equity has always been an expensive way to fund. But like all else in life, debt must be managed in moderation.  When examining a company, one usually looks for a debt to equity ratio percentage of less than .80. As we can see the only one these companies that is any where near this level is Pioneer and they are still pushing the edge. Looking at Continental in comparison, we see that creditors have twice as much money in the company as equity holders. For Range, we see a similar pattern. Significantly more money from creditors. Another interesting way of looking at this is to divide net income, which is a company’s total earnings or profits, into its long term liabilities and see just how long it would take to pay off that debt. In Range’s case, it will take about 20 years. For Continental, about 11 years. And that is using 100% of their profits year in, year out.

These Shale Companies Will File For Bankruptcy First: Goldman's "Best And Worst" Shale Matrix -- Over a month ago we presented a ranking of "America's most levered energy companies." Since then they have all, without exception gotten clobbered, not only in their publicly traded stock but also their debt. Today, long after the liquidation whirlwind has left junk bond owners dazed and confused, Goldman catches up, and lays out a matrix of shale companies sorted not only by leveraged (they see 2.5x as the cutoff; we used 4.0x) but also by shale asset quality. From there, it also lays out the various opportunities, if any, available to the management teams in the resultant 4 quadrants. Readers will be most interested in the "restructuring/bankruptcy" option, most applicable for Group 4, because these are the names which,  all else equal, will file for bankruptcy first.

A Solemn Pause - Kunstler - Events are moving faster than brains now. Isn’t it marvelous that gasoline at the pump is a buck cheaper than it was a year ago? A lot of short-sighted idiots are celebrating, unaware that the low oil price is destroying the capacity to deliver future oil at any price. The shale oil wells in North Dakota and Texas, the Tar Sand operations of Alberta, and the deep-water rigs here and abroad just don’t pencil-out economically at $45-a-barrel. So the shale oil wells that are up-and-running will produce for a year and there will be no new ones drilled when they peter out — which is at least 50 percent the first year and all gone after four years. Anyway, the financial structure of the shale play was suicidal from the get-go. You finance the drilling and fracking with high-yield “junk bonds,” that is, money borrowed from “investors.” You drill like mad and you produce a lot of oil, but even at $105-a-barrel you can’t make profit, meaning you can’t really pay back the investors who loaned you all that money, a lot of it obtained via Too Big To Fail bank carry-trades, levered-up on ”margin,” which allowed said investors to pretend they were risking more money than they had. And then all those levered-up investments — i.e. bets — get hedged in a ghostly underworld of unregulated derivatives contracts that pretend to act as insurance against bad bets with funny money, but in reality can never pay out because the money is not there (and never was.) And then come the margin calls. Uh Oh….In short, enjoy the $2.50-a-gallon fill-ups while you can, grasshoppers, because when the current crop of fast-depleting shale oil wells dries up, that will be all she wrote. When all those bonds held up on their skyhook derivative hedges go south, there will be no more financing available for the entire shale oil project. No more high-yield bonds will be issued because the previous issues defaulted. Very few new wells (if any) will be drilled. American oil production will not return to its secondary highs (after the 1970 all-time high) of 2014-15. The wish of American energy independence will be steaming over the horizon on the garbage barge of broken promises. And all, that, of course, is only one part of the story, because there is the social and political fallout to follow. The table is set for the banquet of consequences. The next chapter in the oil story is more likely to be scarcity rather than just a boomerang back to higher prices. The tipping point for that will come with the inevitable destabilizing of Saudi Arabia, which I believe will happen this year when King Abdullah ibn Abdilaziz, 91, son of Ibn Saud, departs his intensive care throne for the glorious Jannah of virgins and feasts.

UK's shale gas revolution falls flat with just 11 new wells planned for 2015 -- The UK government’s planned shale gas revolution has barely got out of the starting blocks with just 11 new exploratory wells for shale gas and oil due to be drilled this year even before the impact of plunging oil prices has fully begun to impact on the industry. David Cameron has said the government is going “all out for shale” but just a handful of new wells are in line to be created in 2015 and just nine wells – eight new and one existing – have been announced as candidates for fracking. Professor Jim Watson, research director at the UK Energy Research Centre and author of a recent report on the potential for shale gas in the UK, said that statements by politicians on shale gas’s potential had been speculative. “Given the low number of wells that have been drilled in the UK, and the very low level of experience of shale gas production here, it is far too early to say how much shale gas could be produced.... The prime minister’s statement that shale could provide gas for the UK ‘perhaps for as long as 30 years’ is therefore very speculative and optimistic,” said Watson.  He added that it was unlikely the UK would have a significant shale industry until the early 2020s and even then the UK would still need to import the majority of its gas.

Oil Industry Withdraws From High Cost Areas -- The oil industry is pulling back from some marginal areas of operation, slashing jobs and spending, and retrenching in the face of the ongoing slump in oil markets. Signs of a shrinking footprint are beginning to pop up across the globe. Norway’s Statoil has let three of its exploration licenses expire in Greenland, an acknowledgement that exploring in frontier lands no longer makes sense with oil at $50 per barrel. Not too long ago, Greenland was hyped as an unexplored and pristine new oil region. The excitement was enough to fuel a bit of an independence movement within Greenland to pull away from Denmark.  However, drilling in Greenland would be highly technical, expensive, and would present geological and environmental risk. Statoil has decided to shelve its plans for now.  Statoil also put an end to negotiations with Lundin Petroleum over building an oil terminal in Norway’s far north. Building an Arctic terminal would aid the development of several offshore oil and gas fields in the Barents Sea, where the companies each have made several discoveries.  Elsewhere, there are signs of a major contraction. Tullow Oil, a British oil company that drills in West Africa, has taken a $2.7 billion write-off. It is dialing back its drilling plans significantly, slashing exploration spending down to $200 million, about one-fifth of what it was just a year ago. For their part, the economies of African oil-producing countries are suffering under low prices. And in the U.K. the oil industry is facing an existential crisis. BP announced on January 15 that it would lay off 300 workers there. That follows last month’s announcement by ConocoPhillips that it planned on laying off 230 of its workers. After BP’s announcement, Energy Secretary Ed Davey flew to Aberdeen and said that the British government was “determined to do everything we can” to stem the job losses. But many of the oil fields in the North Sea are maturing and highly expensive. As long as oil prices remain low, much of the reserves could become stranded assets.

More oil jobs are disappearing: Baker Hughes cuts 7K jobs - Baker Hughes (BHI) became the latest energy company to cut costs, revealing plans on Tuesday to slash 7,000 jobs and cut capital spending by 20%. The company, which provides tools and services to oil companies, blamed declining drilling activity and a slowdown in spending. "Our industry is clearly in the early stages of a down cycle, the same sort of cycle we enter once or twice a decade," Baker Hughes CEO Martin Craighead told analysts during a conference call. The layoffs are the latest reminder that while cheap energy is great for the overall U.S. economy, it's causing economic pain for many Americans. That's especially true in the previously booming state of Texas, where Baker Hughes is based. Related: Cheap oil is killing my job Baker Hughes said most of the job cuts are expected to occur during the first quarter. The company estimates the layoffs will cost as much as $185 million in severance expenses. The cost cutting may not end there either. Baker Hughes, which recently agreed to be acquired by rival Halliburton (HAL), is reviewing its operations for potential facility closures as well. "This industry can't simply hope and wait for oil to climb back over $100 a barrel, instead, we must adapt to a new reality of sustained lower commodity prices,"  Baker Hughes is hardly alone in cutting jobs. Recently, rival Schlumberger announced plans to lay off 9,000 workers and Civeo, a provider of housing for oil workers, said it would cut 1,000 jobs.

Baker Hughes to axe 7,000 jobs - Oil drilling is falling faster in North America than in the rest of the world, according to Baker Hughes, which on Tuesday announced plans to cut 7,000 jobs in the first quarter of this year in response to the plunge in oil prices. The oil services company warned of “challenging” conditions ahead, with the industry in the early stages of a downturn of the type seen once or twice every decade. Martin Craighead, chief executive, told analysts on a call: “This industry can’t simply hope and wait for oil to climb back over $100 a barrel. Instead, we must adapt to a new reality of sustained lower commodity prices.” Halliburton, the rival oil services company that last November agreed a takeover of Baker Hughes now valued at $26.8bn, also on Tuesday highlighted a sharp slowdown in activity. Dave Lesar, Halliburton’s chief executive, said spending by the oil companies that are its customers had on average been cut 25-30 per cent, “as they adjust their spending to operate within their cash flows” in response to falling oil prices. He added that many customers were still revising their budgets down, making it “difficult to size your business in today’s US market in particular because it is such a fast-moving target”. Baker Hughes’ planned job cuts represent about 12 per cent of its global workforce of about 59,000.

Impact of oil price rout starkly evident in North America - In the trial of strength in global oil markets, it is the North American producers that are flinching first. The fall in the internationally traded crude price of more than 55 per cent since last June has put oil-producing companies and countries everywhere under pressure. In the past week, though, there has been a clear message in results from Schlumberger, Halliburton and Baker Hughes, the three largest international service companies that support oil and gas producers with activities such as drilling, completing and analysing wells. All three say activity is dropping off much more sharply in North America than in the rest of the world. The oil price has been falling so fast that forecasting is difficult. As Paal Kibsgaard, Schlumberger’s chief executive, put it on the call with analysts to discuss the company’s fourth-quarter results last Friday: “We have a very significant lack of visibility. The way we are going about managing . . . is quarter by quarter now.” The oil majors begin reporting fourth-quarter results next week, starting with Royal Dutch Shell and ConocoPhillips, and are expected to give substantive updates on how they are responding to the fall by cutting capital expenditure. However, initial indications are that spending by Schlumberger’s customers, which include both the majors and smaller companies, is dropping by 25-30 per in North America compared with 10-15 per cent in the rest of the world. The message was similar from Halliburton on Tuesday. Dave Lesar, its chief executive, talked about a 25-30 per cent fall in the US and predicted a period of “volatility and pain for a few quarters”. By contrast, he said, the Middle East and Asia appeared the company’s “most resilient” markets and were expected to be its best performers this year.

Canadian oil sector to cut investment by 33 per cent in 2015: Investment in Canada's oil sector will fall sharply this year because of the collapse in crude prices, but production will continue to rise, the country's industry association has predicted. The Canadian Association of Petroleum Producers forecast on Wednesday that capital spending in western Canada, including the oil sands of Alberta, would drop by 33 per cent this year to C$46bn, from C$69bn last year. Tim McMillan, president of the CAPP, said the industry faced challenging times. "We have suppliers to this industry right across Canada, so the effect will be felt across the country," he added.However, Canada's oil production is still expected to grow, albeit more slowly than the CAPP had previously forecast. It now expects output to rise by about 150,000 barrels per day this year to about 3.6m b/d, and by a further 150,000 b/d next year. The impact of the investment slump on production is likely to be greater in 2017 and beyond, analysts said. Although Alberta's oil sands are among the higher-cost sources of crude in the world, investment there is suffering less than in "conventional" oilfields or in shale. The CAPP expects investment in conventional and shale oil and gas in western Canada to drop by 42 per cent this year to C$21bn, but investment in the oil sands to drop just 24 per cent to C$25bn.

Scientists and Doctors Sound Alarm Over Health Dangers of Oil Spill Dispersants - Last week, the US Environmental Protection Agency (EPA) proposed a series of changes to its standards governing the use of toxic chemical dispersants during oil spills, like the 1.9 million gallons of dispersants used during BP’s Gulf of Mexico disaster. The EPA claims their new rules will incorporate part of what officials learned during BP’s Deepwater Horizon disaster, including toxicity testing requirements, information that manufacturers must provide the EPA and the public, and how toxicity must be monitored while the chemicals are used on future spills. Mathy Stanislaus, who oversees the EPA’s emergency response policies, stated: “Our proposed amendments incorporate scientific advances and lessons learned from the application of spill-mitigating substances in response to oil discharges and will help ensure that the emergency planners and responders are well-equipped to protect human health and the environment.”

Faced With Eminent-Domain Land Seizures by TransCanada, Defiant Nebraskans Vow to Halt Keystone XL - As Canadian energy company TransCanada filed eminent domain claims against Nebraska landowners on Tuesday for the construction of the controversial Keystone XL tar sands pipeline, families whose properties are on the verge of forced seizure say they will do whatever is necessary to shut down the project. Landowners from Nebraska's York and Holt counties last week filed suit against TransCanada to stall or even stop construction of the Keystone XL pipeline through their state. On Tuesday, they continued to call on President Barack Obama to veto the project altogether. "Today, Nebraska families are facing an inconceivable moment when land that has been in their hands for generations is being taken away from them by a foreign oil company," Bold Nebraska director Jane Kleeb stated in a press release. "Landowners will match TransCanada’s lawsuits in local courts and continue to take our fight to the one person who can put an end to all of this: President Obama."Obama has promised to veto legislation that would force the approval of the Keystone XL pipeline; Senate Republicans have vowed to get the pipeline approved as one of their first acts of 2015. TransCanada's use of the "unconstitutional and void" eminent domain law, which gives the government the right to seize private lands for public use without compensation, is "another bullying move by the foreign corporation that swears they are going to be a good neighbor," said Jim Tarnick, one of the landowners who joined in the suit. "From the Kalamazoo to the Yellowstone rivers and all across the United States, tar sands are a horrible danger and threat that the President must reject,"

Nebraskans File New Lawsuits That Could Stop The Keystone XL Pipeline - Nebraska landowners have launched two separate lawsuits that, if successful, could serve to delay or even stop the construction of the controversial Keystone XL tar sands pipeline.  The lawsuits, filed last week, represent Nebraska property owners’ second attempt to challenge the constitutionality of a law that gave the Keystone XL pipeline a legal route through the state and, by extension, their property. The landowners claim that TransCanada — the Canadian company that wants to build Keystone XL — made direct threats to use eminent domain and seize their land if they did not consent to having the pipeline run though it.  “We stand with landowners to protect property rights and a constitutional pipeline routing process,” said Jane Kleeb, director of Bold Nebraska, a group that has been at the center of the state’s Keystone XL opposition movement. “While we fight to ensure TransCanada and the state of Nebraska do not run roughshod over farmers and ranchers, we also call upon President Obama to reject Keystone XL now.” The law that is being challenged is called LB1161. The landowners say it is unconstitutional because it allows pipeline companies, like TransCanada, to bypass the state’s Public Service Commission (PSC) when seeking approval of their route through the state and go directly to the Governor. The landowners say that the PSC, which has a stricter permitting process, is the only entity with direct authority to regulate pipelines under Nebraska’s state constitution. More specifically, the landowners say former Gov. Dave Heineman “abus[ed] the powers of his office … by taking away the authority from the PSC … and instead [gave] the authority to himself to approve a pipeline and give a foreign corporation the power of eminent domain before they have all their permits in place.”

TransCanada begins condemnation proceedings -- TransCanada, the company proposing to build the controversial $8 billion Keystone XL pipeline, filed court documents Tuesday in nine Nebraska counties to start eminent domain proceedings and get the 12 percent of easements it still needs here. On the same day, Omaha Sen. Ernie Chambers filed legislation (LB473) that would wrest the power to take land from the Canadian pipeline company. "The pipeline is like King Kong, and the people and farms are like ants and grasshoppers," Chambers said. "If they get in the way, they will be crushed with no redress." TransCanada started the condemnation process two days before a deadline to do so or lose eminent domain powers given to it by former Gov. Dave Heineman when he approved the pipeline route in Nebraska two years ago. The company’s attorneys filed just under 90 actions involving landowners, said Andrew Craig, TransCanada’s Omaha-based land manager for Keystone projects. “Commencing the eminent domain process in Nebraska does not mean the project is done trying to work towards a voluntary agreement with these landowners,” he said. TransCanada still hopes to reach voluntary agreements with more than 90 percent of landowners, Craig said. The percent of easements it has in Nebraska has gone from 84 to 88 since Christmas. But a few Nebraskans continue to stand squarely in the pipeline's path, hoping to stop it from crossing the heartland. They include Stromsburg-area farmer and cattleman Terry Van Housen.

Pipeline to Nowhere - The House recently voted in favor of building the 1,200-mile pipeline for the tenth time. The Senate is poised to approve it too. Although dozens of Democrats are siding with Republicans in favor of this boondoggle, those lawmakers lack the votes, so far, tooverride the veto Obama has threatened.  There are many good arguments against the $8-billion pipeline on environmental and labor grounds. People like founder Bill McKibben and groups like Media Matters need no help explaining them. Here's another reason why the pipeline shouldn't be built: It's a waste of money. First, plunging oil prices matter. A lot. They've sunk below $47 a barrel, losing more than half their value since last June. Saudi Arabian Oil Minister Ali al-Naimi declared a few weeks ago that he doesn't care whether oil goes as low as $20 a barrel, a 16-year low. It just might. By some estimates, a barrel of oil must fetch at least $95 for profits to be extracted from Canada's tar sands. It's impossible to say when prices will rebound to that level or if companies will give up on that oil patch, leaving the Keystone XL without much (if any) heavy crude to move.   Ultimately, there could be no oil to haul from Alberta to Louisiana to be refinedor not, if the U.S. scraps its ban on exporting crude — and then shipped to, say, China.

Senate GOP Accused Of ‘Closing Off Debate’ During Keystone XL Pipeline Votes  - Democrats in the Senate are accusing Majority Leader Mitch McConnell of breaking his promise of an “open amendment process” for legislation to approve construction of the Keystone XL pipeline, after two Democrat-sponsored amendments were not brought to a vote on their merits on Tuesday. Instead of taking up actual “yes” or “no” votes on the amendments, the Senate voted to table — meaning, effectively kill — those two measures. One, sponsored by Sen. Ed Markey (D-MA), would have required that all the Canadian oil shipped through the Keystone XL pipeline stay in America, and not be shipped overseas. The other, sponsored by Sen. Al Franken (D-MN), would have required that only American-made steel and iron be used to build the pipeline. The vote to table meant that Senators were not voting on whether they agreed with the content of the amendment, but whether to consider the amendment at all. According to Markey, that doesn’t count as an “open” process. “Senate Republicans promised an open amendment process, but they are closing off debate, and not allowing a vote on the very first amendment considered by the Senate,”

Senate Sets Final Vote For Keystone XL After Long, Tense Night Of Amendment Voting -- The Senate was in session until midnight Thursday night, debating and voting on fifteen amendments to a bill that would approve the construction of the controversial Keystone XL tar sands pipeline. At the end of it all, Majority Leader Mitch McConnell filed for cloture, a procedural move that effectively sets up a final vote on Keystone for next week.  The move followed a long, somewhat tense night of voting on amendments to the Keystone bill. Those amendments included one that expressed the “sense of the Senate” that President Obama’s agreement with China to tackle climate change is “economically unfair and environmentally irresponsible”; one to increase exports of natural gas; and one that sought to take the lesser prairie chicken off of the endangered species list.   Only two of the amendments passed. One, proposed by Sen. John Cornyn (R-TX), seeks to protect property owners from getting their land seized under eminent domain for the purpose of building the pipeline. The other, put forth by Sen. Lisa Murkowski (R-AK), expressed the “sense of the Senate” that all types of oil companies should be required to pay a per-barrel tax that goes into a government fund for oil spill cleanup. Currently, only some types of oil companies are required to do that — tar sands companies are excluded. All of the amendments put forth by Democrats — 10, in all — were rejected. But they were not all rejected on their merits.

Bill would allow automatic approval of natural gas pipelines - On Wednesday the House approved legislation to expedite the federal review process for new natural gas pipelines, according to a report by The Hill. The bill was passed with 253 votes in favor and 169 against. The bill calls for immediate approval of natural gas pipelines if federal agencies don’t respond within a certain time frame. The measure calls for the Federal Energy Regulatory Commission (FERC) to approve or deny a pipeline application within a year. After FERC issues its final environmental review, agencies responsible for issuing permits and licenses must act within 90 days, though, that limit could be extended by 30 days if an inability to complete the review process is demonstrated. If the agency fails to make a decision by that deadline, a proposed pipeline would be granted automatic approval. Republicans supporting the bill said it would push agencies to reduce the amount of unnecessary delays in the approval process. The Hill reports that the bill’s main sponsor, Rep. Mike Pompeo (R-Kan.) said, “We have an opportunity to get this product from where it’s been found to the consumers and businesses that are demanding it.” However, Democrats are arguing that the bill would make detailed review of proposed pipelines nearly impossible. Member of the House Energy and Commerce Committee Rep. Frank Pallone (D-N.J.) said, “It scares me, in all honesty, to think that we would want to change the process whereby FERC has the opportunity to look at the safety of these pipelines when they’re proposed for permitting and somehow short-circuit that process.”

Totally Tubular - Paul Krugman -- As far as anyone can tell, the dominant Republican economic idea is to license the Keystone pipeline. And that’s ridiculous. The standard estimate — accepted by pipeline advocates — is that building the pipeline would temporarily add 42,000 jobs, the vast bulk of which would go away after two years. That’s in an economy with 140 million workers. So Keystone would temporarily increase US employment by 0.03, that’s right, 0.03 percent. Or to put it another way: given the recent pace of job creation, the number one GOP policy priority, basically the only job measure the party has to offer, would create about as many jobs as the Obama recovery is adding every five days. So there’s a mystery here. Do Republicans not know this? (I’m not a scientist, man — or a mathematician.) Do they know it but count on the innumeracy of voters, having found that pipelines sound good to focus groups?

Seaway Pipeline filling the Keystone void | It was a day of celebration on Friday as Canada-based Enbridge and Houston-based Enterprise Products began the delivery of Canadian tar sands crude oil to the Houston area through a new pipeline system. The Seaway Pipeline system twin loop and the new Flanagan South pipeline connect in Cushing, Oklahoma, with the newly constructed Seaway loop delivering up to 450,000 barrels of Canadian crude per day. Currently, about 250,000 barrels per day arrive in Freeport. Enterprise executive vice president and COO Jim Teague called the effort a “heck of a marriage” between Enbridge with its Canadian crude “supply aggregation” and Enterprise with its “distribution system” to every refinery in the Texas City, Houston, Beaumont and Port Arthur regions. The Seaway system includes a 500-mile, 30-inch diameter pipeline. On May 17, 2012 Enterprise and Enbridge completed a project to reverse the flow direction of the pipeline, allowing it to transport crude oil from Cushing, Oklahoma hub to the vast refinery complex along the Gulf Coast near Houston. The “loop” portion of the pipeline was completed in 2014, and was designed to run parallel with the existing Seaway Pipeline from Cushing to the Gulf Coast. The additional loop is expected to more than double the Seaway’s capacity to 850,000 barrels per day. “Make no mistake about it. Canadian crude is in the game now in the Gulf Coast, and we will compete.”

50,000 Gallons Of Crude Oil Spills Into Partially Frozen Yellowstone River -- On Saturday morning, a pipeline in Montana spilled up to 50,000 gallons of crude oil into the Yellowstone River, the pipeline’s operator confirmed Sunday night.  Some residents are reportedly smelling and tasting oil in their drinking water, causing the EPA to test water samples and the city water plant to cease drawing water from the river. The 12-inch diameter steel pipe breached and spilled anywhere from 12,600 to 50,000 barrels of oil nine miles upriver from the town of Glendive, with an unknown amount of it spilling into the partially frozen river, according to a statement from Bridger Pipeline LLC. The company said the spill occurred at 10 a.m. and they “shut in” the flow of oil just before 11 a.m. — meaning that though the pipeline section could still empty itself of its contents, no new addition oil would flow into the spilled area.  “Oil has made it into the river,” Bridger spokesperson Bill Salvin confirmed to the AP on Monday. “We do not know how much at this point.” Observers spotted oil, some of which was trapped under the ice, up to 25 miles downstream from Glendive. This photo from the Billings Gazette shows the oil visible through the icy river from the air.  Clean-up crews were en route to the site on Sunday afternoon after local, state, and federal levels were notified. The pipeline sits at least eight feet below the river bed. There are concerns that the water supply could be compromised, though the City of Glendive Water Plant said on Sunday that nothing unusual had been detected.  “I am not saying the water is unsafe. I am not saying it is safe,” “We are waiting for officials to arrive who can make that decision.”

Traces of Montana Oil Spill Are Found in Drinking Water - — Work crews burrowed through thick ice and set up containment booms Tuesday in a struggle to vacuum up 50,000 gallons of oil that spilled into the Yellowstone River from a ruptured pipeline, contaminating drinking water.The 12-inch steel pipeline, which burst Saturday morning near Glendive, Mont., about 400 miles east of here, sent light crude oil flowing downstream as far as the confluence with the Missouri River, 60 miles away in North Dakota.Health officials warned people not to use tap water in Glendive and surrounding towns after traces of benzene from the leak were found in a water treatment plant. Gov. Steve Bullock visited the area on Monday and declared a state of emergency for Dawson and Richland Counties.The Bridger Pipeline Company, which operates the line, has shut it down, company officials said. The line is part of a system that passes across eastern Montana from the Canadian border.  Federal officials have said short-term exposure to the water was not dangerous. But residents near the spill found the water undrinkable.“It smells like diesel and it’s oily,” . “People are panicking right now. I don’t think there was anything on the shelves.”State officials and local grocery stores began trucking in pallets of bottled water Tuesday, and Glendive residents began making plans to shower and do laundry at the homes of friends and relatives who draw their water from wells.The spill has led to renewed concerns among environmentalists about the safety of the proposed Keystone XL pipeline, which would pass about 25 miles north of Glendive.

Officials Tell Montana City Residents Not To Drink Their Water After Yellowstone River Oil Spill - The estimated 50,000 gallons of crude oil that spilled from a pipeline into Montana’s Yellowstone River Saturday has forced truckloads of water to be shipped in to one Montana city, after traces of the oil were found in the city’s water supplies.  Residents of Glendive, Montana began reporting an unusual odor coming from their taps Sunday night, even after initial tests of the city’s water supply on Saturday and Sunday didn’t reveal traces of oil. Late Monday night, the Environmental Protection Agency confirmed that the oil had reached the drinking water supply of the town, which is home to about 5,000 people. The spill occurred after a break the Poplar Pipeline, which carries Bakken oil from Canada to Baker, Montana. Officials are advising Glendive residents not to drink or cook with their tap water.“The initial results of samples taken from the City of Glendive’s drinking water system indicate the presence of hydrocarbons at elevated levels, and water intakes in the river have been closed,” the EPA said in a statement. The agency said it is working with Montana agencies and Bridger Pipeline LLC, the company in charge of the pipeline that leaked oil into the river, to “secure alternative drinking water supplies for residents and develop a plan to flush the water distribution system.” The EPA will continue sampling the city’s water over the next few days.  Montana Gov. Steve Bullock declared a state of emergency Monday morning in Dawson — where Glendive is located — and Richland counties.

Montana city tries to fix water system tainted by oil spill | — Authorities scrambled to decontaminate a water system serving 6,000 eastern Montana residents after a cancer-causing component of oil was found downstream of a Yellowstone River pipeline spill. Up to 50,000 gallons of crude oil was released Saturday, and elevated levels of benzene were found Monday in samples from the water treatment plant serving the agricultural community of Glendive near the North Dakota border. That’s when residents were warned not to drink or cook with water from their taps. People lined up to receive bottled water at a distribution center Tuesday as officials took initial steps to cleanse the plant by adding more activated carbon — a type of charcoal. If that approach does not work, officials plan to add equipment that would pre-treat water coming into the facility. Officials hoped to flush out any remaining contamination and get the plant operating by Thursday, Montana Department of Environmental Quality Director Tom Livers said. The federal Centers for Disease Control and Prevention said the levels of cancer-causing benzene were above those recommended for long-term consumption, but they did not pose a short-term health hazard.

Oil spill effects on fish, wildlife still uncertain: Guided by lessons learned during the response to the 2011 oil spill in the Yellowstone River, Montana Fish, Wildlife and Parks officials are attempting to gather baseline data on the effects of Saturday’s oil spill into the Yellowstone near Glendive. “We’ve had people out there right on top of this,”  Rich said fisheries personnel from FWP’s Miles City office are attempting to collect fish below and above the pipeline rupture to assess contamination levels in fish tissue. FWP has issued a consumption warning for fish caught below the spill and is also asking anglers to contribute fish for tissue samples to check contamination. Wildlife officials are also attempting to assess damage to any waterfowl or other animals that may have come into contact with the oil, as well as surveying fishing access sites and wildlife management areas downstream from the spill.  Although possessing a better knowledge of how to deal with the logistics of an oil spill, FWP is contending with an entirely different scenario — even though it’s the same river. The 2011 oil spill into the Yellowstone River near Laurel dumped 63,000 gallons of crude into the water during spring runoff when the water was flowing at about 65,000 cubic feet per second. Such a huge volume of water quickly diluted the oil and spread it rapidly downstream and into flooded bottomlands.  In comparison, on Saturday when the pipeline ruptured above Glendive releasing an estimated 40,000 gallons of oil, the river was flowing at about 4,500 cfs and much of the river is covered in ice, inhibiting access to the water to clean up the oil or to find any fish that were killed by the spill. The lower Yellowstone is also home to the endangered pallid sturgeon, where federal agencies have been attempting to revitalize the depressed population by planting hatchery-raised fish from eggs captured from netted adults.

Building Their Own Gallows: The Oil Pipelines - The debate surrounding labor’s support for oil pipelines has largely centered on a false “jobs versus climate” dichotomy. But labor’s position is also alienating them from their potential allies while strengthening the hand of their sworn enemies. There’s a popular saying on the left that organized labor would build their own gallows if they were offered the jobs, and nowhere is this more true than in labor’s support for the environmentally disastrous Keystone XL, Enbridge Sandpiper and Bakken oil pipelines. In reality of course, it is the jobs argument that is overblown, and it is the environmental threat to the survival of every living thing on earth that labor habitually understates or ignores. The bottom line is there won’t be any jobs, or an economy at all, if the planet is no longer hospitable to human life. There’s no such thing as a safe oil pipeline because extracting fossil fuels from the ground and burning them into the atmosphere is what causes catastrophic climate change, not accidental oil spills. But while the “jobs versus climate” debate is likely to continue inside mainstream circles for some time, the left also needs to begin discussing in more detail two other important aspects of the issue: 1) The impact pipeline politics has on labor’s relationship with other social movement actors. 2) How labor’s position could actually strengthen the hand of the same corporate power players that are hell bent on destroying organized labor and relegating effective workers’ organizations to the dustbin of history.

Oil slips $1 on Chinese economy concerns, record Iraq output (Reuters) - Brent crude oil prices fell below $49 a barrel and U.S. crude also fell more than $1 on Monday after the global economic outlook darkened and Iraq announced record oil production. The world's biggest energy consumer, China, faces significant downward pressure on its economy, its premier Li Keqiang was quoted by state radio as saying on Monday. China is expected this week to report growth slowing to 7.2 percent from a year ago, the weakest since the depths of the last global economic crisis. Data from China's National Bureau of Statistics showed on Sunday house prices fell for a fourth straight month. Brent crude traded at $49.15 a barrel by 1646 GMT, down $1.02, having earlier dropped to a session low of $48.88. U.S. crude was down $1.02 at $47.67 a barrel. Oil prices have dropped by more than half since June as output around the world soared while demand growth slowed. Although the International Energy Agency (IEA) said last week a reversal in the trend was possible this year, it added that prices may fall further before rising. "There's still more supply than demand and that's a situation that will not change in just a few weeks,"

Oil resumes losing ways, slides nearly 5% as growth outlook dims - Crude-oil futures settled sharply lower Tuesday as investors weighed a batch of downbeat views on global economic growth, including news that China’s economy expanded at its slowest pace in decades. As well, natural gas prices came under pressure. Crude futures for delivery in fell $2.30, or 4.7%, to end at $46.39 a barrel. Oil resumed its losing ways after finishing Friday with a weekly gain, snapping a seven-week streak of declines. March Brent crude also succumbed to sellers, falling 85 cents, or 1.7%, to settle at $47.99 a barrel. U.S. markets were closed on Monday for the Martin Luther King Jr. holiday, but in electronic trading U.S. crude prices fell 2.4% after Iraq said it’s producing a record amount of crude. Iran’s oil minister, meanwhile, said that his country could withstand $25-a-barrel oil. Also Monday, the IMF cut its global growth forecast for 2015 by 0.3 percentage point to 3.5%. The fund expects the world economy to expand 3.7% in 2016. While lower oil prices will help boost growth, this benefit will be more than offset by negative factors such as weak investment, as economies adjust to lower growth expectations, the International Monetary Fund said in its latest report.

Get Used to Cheap Oil. Why Lower Prices May Stick Around - Oil’s plunge is one of the biggest factors reshaping the global economy. How long can it last? Here are two fundamental reasons oil prices could stay low for a while.

  1. Excess capacity. Prices are determined by the size of the gap between demand and supply. Both sides of the ledger have been dramatically adjusted in the last several months to widen that gap, leading to the price plunge. Saudi Arabia in particular moved to recapture market share lost to the U.S. by keeping the crude spigots open regardless of price. And as the global economic outlook dimmed, demand has fallen, with sharp revisions in expected growth in crude oil consumption. The International Energy Agency predicts a much tighter balance between supply and demand late in the year as the more expensive production is squeezed out of the market: Producers on the top end of the cost curve are more at risk, with oil sands leading the pack. While firms may shut down production, traders know it could come back online in a relatively short period of time. That’s one reason prices remained low for 15 years after the 1985-1986 oil price collapse, an episode that some economists see as a parallel to today’s price plunge.
  2. Stalled Demand. Cheap fuel should, theoretically, drive up consumption as consumers spend their windfall and juice economic growth. That’s a major reason the International Monetary Fund revised up its projection for U.S. growth this year. But tumbling oil prices are also signaling global economic weakness, and there’s no certainty demand will rebound anytime in the near future. In fact, the IMF cut prospects for the global economy and said the shot in the arm for tumbling crude costs wouldn’t be enough to pull the world out of a deepening long-term rut. Two of the world’s biggest economies–the eurozone and Japan—are struggling to avoid re-entering recessions and are expected to remain stuck in stagnant growth for years to come. Falling oil prices appear to be feeding lower inflation expectations. Consumers and businesses may cut back on spending if they expect prices to fall further.

BP sees $50 oil for three years: BP's job announcement later today, including a few hundred job losses in Aberdeen, is being made because it does not expect the oil price to bounce any time soon. The oil price has dropped around 60% since June, to $48 a barrel, and I understand that BP expects that it will stay in the range of $50 to $60 for two to three years. Although no oil company has a crystal ball, this matters - especially since it has a big impact on its investment and staffing ambitions. So plans that it had already initiated to reduce costs have taken on a new element, namely postponement of investments in new capacity that have not been started, and shelving of plans to extend the life of older fields where residual oil is more expensive to extract. Aberdeen is an important centre for BP, and it employs around 4000 there. And it is in no sense withdrawing - it is continuing to invest in the Greater Clair and Quad 204 offshore properties. But the reduction of several hundred in the numbers it will henceforth employ in the Aberdeen area is symbolic of a city and industry that faces a severe recession. Hardest hit will be North Sea companies with stakes in older fields, where production costs are on a rising trend - and whose profitable life will be significantly shortened if the oil price does not recover soon. The reason BP expects the oil price to stay in the range of $50 to $60 for some years is for reasons you have read about here - it is persuaded that the Saudis, Emiratis and Kuwaitis are determined to recapture market share from US shale gas. This means keeping the volume of oil production high enough such that the oil price remains low enough to wipe out the so-called froth from the shale industry - to bankrupt those high-cost frackers who have borrowed colossal sums to finance their investment.

Obama Boasts Increase In Domestic Energy Production, But Saudi Arabia Is Keeping Prices Low -- The price of a barrel of crude, which was higher than $90 last January, fell to less than $47 this week, a five-year low that will put almost $750 per household a year back into the pockets of U.S. consumers, President Barack Obama said in his State of the Union address Tuesday night. Obama credited the dip to America's increasing reliance on domestic oil, but the decrease in oil price is due largely to the second-biggest oil producer in the world, Saudi Arabia. “Thanks to lower gas prices and higher fuel standards, the typical family this year should save $750 at the pump,” Obama said. But consumers aren’t saving solely because of the increase of domestic oil and gas production. The big dip in the price of crude oil was the result of Saudi Arabia’s manipulation of the oil market for political gain. For weeks now, Saudi Arabia has blocked the Organization of the Petroleum Exporting Countries from cutting production targets in the face of an oil-supply glut, which has negatively affected Venezuela, Russia and Iran. Oil makes up the largest piece of the total world energy consumption pie at 34 percent, followed by coal and gas. And Saudi Arabia controls the global oil market because it not only pumps a lot of crude every day but also has the financial ability to absorb the shock of lower oil prices -- in stark contrast to its chief regional adversary, Iran. And so Saudi Arabia, the leading oil producer in OPEC, which accounts for about 73 percent of the world’s proven oil reserves, is once again a hugely relevant global player.

Behind Drop in Oil Prices, Washington’s Hand - Did the United States kill OPEC? The plummeting price of oil since Saudi Arabia decided last fall not to cut production to counter rising supply elsewhere has fueled intense speculation about a downfall of the infamous cartel, once feared for its power to bend oil prices to its will.  Was OPEC’s biggest oil producer unwilling or just unable to stop an emerging glut? Does this mean oil will never again reach $100 a barrel — where the spendthrift governments of the Organization of the Petroleum Exporting Countries need it to be? What’s missing from the discussion is an understanding of how the oil market got to this juncture and, notably, who brought it here. The answer is surprising. It was the United States, mostly. Last year, the United States produced more oil than it had in 25 years, surpassing Saudi Arabia as the world’s largest producer. Perhaps the most intriguing part of this story is that one of the main participants in this revolution is the American government. Facing fears of a broad energy shortage, in the shadow of an embargo by Arab oil producers, the Nixon administration and Congress laid the foundation of an industrial policy that over the span of four decades developed the technologies needed to unleash American shale oil and natural gas onto world markets. Environmentalists against any government involvement in the fossil fuels business will hate this, of course. But the collaboration between government and business in pursuit of energy independence offers a valuable lesson for policy makers forging a strategy to fit the current energy imperative: reducing carbon emissions to combat climate change.

Oil falls after EIA announces massive build in crude stocks (Reuters) - Crude oil futures tumbled on Thursday after the Energy Information Administration announced the largest build in U.S. crude stocks in at least 14 years. Crude stocks rose by 10.1 million barrels to a total of 397.9 million, the highest level for this time of year in at least 80 years, the EIA said.[EIA/S] The increase was much greater than the 2.6 million barrel build traders predicted in a Reuters poll. true U.S. crude CLc1 fell more than 3 percent after the announcement, tumbling $1.54 to trade at $46.24 by 11:57 a.m. EST (1457 GMT). Global benchmark Brent LCOc1 also fell by 61 cents to trade at $48.42. The market was waiting for a catalyst like the EIA report to break out either positive or negative, said Eli Tesfaye, senior market strategist at RJO Futures. "There's no factor right now stabilizing this market," Tesfaye said. "There's definitely a race to the bottom here." The inventory build included a 2.91 million barrel rise at Cushing, Oklahoma, the delivery point of the U.S. crude contract. [EIA/S] The U.S. supply glut has been a major contributing factor to the 60 percent decline in oil prices over the past several months.

Whiplash! - Over the course of 2014 the prices the world pays for crude oil have tumbled from over $125 per barrel to around $45 per barrel now, and could easily drop further before heading much higher before collapsing again before spiking again. You get the idea. In the end, the wild whipsawing of the oil market, and the even wilder whipsawing of financial markets, currencies and the rolling bankruptcies of energy companies, then the entities that financed them, then national defaults of the countries that backed these entities, will in due course cause industrial economies to collapse. And without a functioning industrial economy crude oil would be reclassified as toxic waste. But that is still two or three decades off in the future. In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But at the moment most unconventional oil costs more to produce than it can be sold for. This means that entire countries, including Venezuela's heavy oil (which requires upgrading before it will flow), offshore production in the Gulf of Mexico (Mexico and US), Norway and Nigeria, Canadian tar sands and, of course, shale oil in the US. All of these producers are now burning money as well as much of the oil they produce, and if the low oil prices persist, will be forced to shut down. An additional problem is the very high depletion rate of “fracked” shale oil wells in the US.  Shale oil wells deplete very fast: flow rates go down by half in just a few months, and are negligible after a couple of years. Production can only be maintained through relentless drilling, and that relentless drilling has now stopped. Thus, we have just a few months of glut left. After that, the whole shale oil revolution, which some bobbleheads thought would refashion the US into a new Saudi Arabia, will be over. The entire economy that popped up in recent years around the shale oil patch in the US, which was responsible for most of the growth in high-paying jobs, will collapse, causing the unemployment rate to spike.

When Will Oil Markets Find A Bottom? - Berman - Which curve on this chart is not like the others? It's the U.S. and Canada's oil production curve over the past several years. That's why oil prices have fallen: too much oil for the demand in the world. The tight oil from North America is the prime suspect in the production surplus that's pushing down oil prices. Now that you know the answer, let's talk about IEA's January report that was released today. Here are my main takes from the report:

  • 1. The fourth quarter 2014 supply surplus was 890,000 barrels per day (see the chart below). That is the difference between supply and demand. We can argue about whether it was mainly supply or mainly demand-I've stated my belief that it's mostly supply-but that's the difference between them. That is why oil prices are falling.
  • 2. This surplus amount is 170,000 barrels per day greater than in the previous quarter.
  • 3. Demand in the first half of 2015 will be 900,000 barrels per day lower than in the fourth quarter (see the second chart below). 1st half demand is usually lower than 2nd half but that means that prices could fall again.
  • 4. 3rd quarter 2015 demand will increase by 1,530,000 barrels per day and 4th quarter demand will increase another 420,000 barrels per day. That is a lot and would take demand to record highs. This should go a long way towards moving prices higher.

So, where does that leave us? The problem is mostly about supply but demand has to increase if we're going to fix the surplus problem in 2015 because supply is not expected to fall that much. I think this means that prices will increase in 2015 but not a lot unless something else happens. That something else will probably be an OPEC and Russia production cut in June after the next OPEC meeting.

This Chart Shows Why the Oil Bust Will Last --- Crude oil inventories in the US (excluding the Strategic Petroleum Reserve) rose by 10.1 million barrels to 397.9 million barrels during the week ended January 16, the EIA reported on Thursday. Inventories have now reached 397.9 million barrels, the highest level for this time of year in “at least the last 80 years,” or as far as the EIA’s records go back. This chart by the EIA shows that current inventory levels (blue line) have been on a terrific upward trajectory that defies the 5-year range and seasonal movements. These ballooning crude oil stocks will exert further downward pressure on prices. What I’m scratching my head about is what these speculators are thinking when they’re leasing tankers to fill them up with “cheap” crude, waiting for the price to rise. Leasing a tanker is not free, unlike borrowing money overnight. And there are plenty of other costs and risks involved – including already ballooning inventories. Who the heck is going to buy all this crude out of storage when production is soaring faster than demand? But their thinking has gotten a lot of press recently which makes me think that they’re trying to lure others into that trade for reasons of their own. But there is a bitter irony: The plunge in the price of oil is pushing desperate drillers, buckling under their debt, to maximize production from existing wells while slashing operating costs and capital expenditures. BHP Billiton, perhaps unwittingly, explains this irony: despite the oil glut, collapsed prices, layoffs, and shuttered facilities, US oil production is soaring and will continue to soar, at least for a while.

US Rig Count Craters To Lowest Since August 2010 - With oil prices down another 6% this week (despite Saudi leadership uncertainty and ECB QE), widespread layoffs announced in Shale states, and despite Lew's comments that he doesn't see US oil production declining, it is perhaps no surprise that the US rig count cratered further to its lowest level since August 2010. The US rig count is now down over 15% from the highs, with its biggest 10-week drop since May 2009 (and down 8% YoY). The pace of collapse in the rig count has now accelerated for 7 weeks in a row, and judging by lagged oil prices, there is a lot more room to drop yet. The oil rig count standalone is now down 7% YoY - its biggest drop sicne Nov 2009. As T.Boone Pickens so rightly noted, watch the US rig count (and suggested it will need to drop 500 rigs or more before any stability returns).

OPEC Will Blink in Battle With U.S. Shale Drillers, Poll Shows - Bloomberg: U.S. shale drillers won’t scale back output quickly enough for OPEC to avoid production cuts this year, according to a quarterly poll of Bloomberg subscribers. Forty-nine percent of analysts, traders and investors surveyed said the Organization of Petroleum Exporting Countries will have to lower its production target this year, while 34 percent said shale drillers will lower output in time. Seventeen percent weren’t sure. Fifty-eight percent of respondents who said OPEC will cut its production target expect it to happen in the second half of the year, compared to 34 percent who see it happening before the end of June. The poll of 481 investors, analysts and traders who are Bloomberg subscribers was conducted Jan. 14-15 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 4.5 percentage points.

Davos oil barons eye $150 crude as investment slump incubates future crunch - Rampant speculation by hedge funds and a rare confluence of short-term shocks have driven the price of oil far below its natural clearing level, coiling the springs for a fresh spike this year that may catch markets badly off-guard once again. "The price will rebound and we will go back to normal very soon," said Abdullah Al-Badri, Opec's veteran secretary-general. "Yes, there is an over-supply, but fundamentals don't justify this 50pc fall in price." Experts from across the world - from both the West and the petro-powers - said the slump in fresh investment in 2015 is setting the stage for a much tighter balance of supply and demand, and possibly a fresh oil crunch. Mr Al-Badri said he had been through price swings before but recovery may be swifter today than in past cyclical troughs. "This time we have to be very careful to handle this crisis right. We must keep investing, and not lay off experienced people as we did last time," he told the World Economic Forum in Davos. Claudio Descalzi, chief executive of Italy's oil giant ENI, said the last phase of the price crash from $75 a barrel to around $45 was driven by wild moves on the derivatives markets. Traders with "long" positions effectively capitulated once it became clear that Opec was not going to cut output to shore up prices.  This led to abrupt switch to massive "short" positions instead. "These contracts are 15 or 20 times the physical market," he said. Mr Descalzi said the roller coaster move in prices is destructive for the oil industry and is leading to investment cuts that may store up serious trouble for the future. "What we need is stability: a central bank for oil. Prices could jump to $150 or even $200 over the next four or five years," he said. Khalid Al Falih, president of Saudi Aramco, the world's biggest oil producer, said the mix of financial leverage and the end of quantitative easing had "accelerated" the collapse in prices but the slide has lost touch with reality.

Crushing The U.S. Energy Export Dream - By Arthur Berman - Exporting crude oil and natural gas from the United States is among the dumbest energy ideas of all time. Exporting gas is dumb. Exporting oil is dumber. The U.S. imports almost half of the crude oil that we use. We import 7.5 million barrels per day. The chart below shows the EIA prediction that production will slowly fall and imports will rise (AEO 2014) after 2016.  This means that the U.S. will never be self-sufficient in oil. Not even close. What about the tight oil that is produced from shale? That’s included in the chart and is the whole reason that U.S. production has been growing. But there’s not enough of it to keep production growing for long. Here is a chart showing the proven tight oil reserves just published last month by the EIA.  Total tight oil reserves are 10 billion barrels (including condensate). The U.S. consumes about 5.5 billion barrels per year, so that’s less than 2 years of supply. Almost all of it is from two plays–the Bakken and Eagle Ford shales. We hear a lot of hype from companies and analysts about the Permian basin but its reserves are only 7% of the Bakken and 8% of the Eagle Ford. Tight oil comprises about one-third of total U.S. crude oil and condensate reserves. The U.S. is only the 11th largest holder of crude oil reserves (33.4 billion barrels) in the world with only 19% of Canada’s reserves and 12% of Saudi Arabia’s reserves.  In other words, the U.S. is a fairly minor player among the family of major oil-producing nations. For all the fanfare about the U.S. surpassing Saudi Arabia in production of crude oil, we are not even players in reserves. Let’s put all of this together.

• The U.S. will never be oil self-sufficient and will never import less than about 6 million barrels of oil per day.
• U.S. total production will peak in a few years and imports will increase.
• The U.S. is a relatively minor reserve holder in the world.

How does this picture fit with calls for the U.S. to become an exporter of oil? Very badly. For tight oil producers to become the swing producers of the world? Give me a break.

Why the Energy Selloff Is So Dangerous to the U.S. Economy -- Oil-related companies in the U.S. now account for between 35 to 40 percent of all capital spending. Announcements of sharp cutbacks in capital spending and job reductions by these companies create big ripples, forcing related companies to trim their own budgets, revenue assumptions, and payrolls accordingly. The announcements coming out of the oil patch are picking up steam and it’s not a pretty picture. Last week Schlumberger said it would eliminate 9,000 jobs, approximately 7 percent of its workforce, and trim capital spending by about $1 billion. Yesterday, Baker Hughes, the oilfield services company, announced 7,000 in job cuts, roughly 11 percent of its workforce, and expects the cuts to all come in the first quarter. Baker Hughes also announced a 20 percent reduction in capital spending. This morning, the BBC is reporting that BHP Billiton will cut 40 percent of its U.S. shale operations, reducing its number of rigs from 26 to 16 by the end of June. When Big Oil cuts capital spending, we’re not talking about millions of dollars or even hundreds of millions of dollars; we’re talking billions. Last month, ConocoPhillips announced it had set its capital budget for 2015 at $13.5 billion, a reduction of 20 percent. Smaller players are also announcing serious cutbacks. Yesterday Bonanza Creek Energy said it would cut its capital spending by 36 to 38 percent. Other big industrial companies in the U.S. are also impacted by the sharp slump in oil, which has shaved almost 60 percent off the price of crude in just six months. As the oil majors scale back, it reduces the need for steel pipes. U.S. Steel has announced that it will lay off approximately 750 workers at two of its pipe plants. On January 15, the Federal Reserve Bank of Kansas City released a dire survey of what’s ahead in its “Fourth Quarter Energy Survey.” The survey found: “The future capital spending index fell sharply, from 40 to -59, as contacts expected oil prices to keep falling. About half of the survey respondents said they were planning to cut spending by more than 20 percent while about one quarter of respondents expect cuts of 10 to 20 percent.

Oil demand weakness persists despite lower prices - FT - It was expected that prices — now down two-thirds from mid-June levels — would lift demand amid a wealth transfer from producer countries to consumer nations and help to alleviate an oversupplied oil market. Oil prices have dropped to less than $50 a barrel as weaker than expected oil demand in Asia has coincided with stagnation elsewhere, failing to absorb sustained output from Opec countries and unrelenting US supply — the main cause of a glut that is expected to get worse in the coming months. Lower prices have provided a shot in the arm to the global economy, but still-tepid growth, subsidy removals and a stronger dollar are among factors keeping demand growth at bay. In its closely watched oil market report, the International Energy Agency said these conditions “continue to act as a depressant on prices, as opposed to low prices stimulating demand”. The wealthy nations’ energy watchdog estimates global oil demand will stand 900,000 barrels a day higher this year than in 2014, at 93.3m b/d. “Sure you might drive a little bit more if gasoline is cheaper, but you are not going to commute to work twice,” says Jamie Webster, oil analyst at consultancy IHS Energy, adding that many people are still feeling financially stretched. “Demand is still very subdued.” His comments echo those by Christine Lagarde, managing director of the International Monetary Fund, who last week said “deep-seated weaknesses” in the global economy still persist. This has resulted in a 0.3 per cent downward revision to the IMF’s 2015 global gross domestic product growth forecast, to 3.5 per cent. “Too many countries are weighed down by . . . legacies of the financial crisis, high debt, high unemployment. Too many companies and households keep cutting back on investment and consumption today because they are concerned about the growth tomorrow,” Ms Lagarde said.

Gail Tverberg: This Is The Beginning Of The End For Oil Production - PODCAST with Chris Martensen -- With the recent collapse in the price of oil, Gail Tverberg, returns to discuss the likely impact on the US shale oil industry, as well as the global market for oil. Gail is a professional actuary who applies classic risk assessment procedures to global resources: studying issues such as oil & natural gas depletion, water shortages, climate change, etc. These days, she writes at her website While as an actuary, Gail is one to avoid hyperbole and the let the numbers speak, her analysis of the outlook for future oil production is nothing short of dire:  What we need is cheap energy. We need cheap, liquid oil. When it’s high-priced it really messes up the economy. We need oil to run our cars and to operate our trucks and such things, but it needs to be cheap. And it suddenly is today.  But, you have to be able to keep pulling it out at that same price. And the critical thing is, we can’t keep pulling it out at that price. What is going to happen, I’m afraid, is that once production goes down, we won’t be able to get it back up again.  There’s several reasons. One of them is that very low interest rates have been helping keep production up. Once you get your interest rates back up because there’s been a lot of failures, particularly in the shale industry, the costs will be higher. So, they can’t pump it out for the same price that they had it before. But, there’s also the issue that these old wells need to be produced continuously and they need continuous investment. If you cut that off, it’s going to be very hard to restart them. So, there will need to be an extra investment just to get it back online. Trying to do that becomes extremely difficult when the price is low. If it’s really an affordability issue, you've got a double hurdle then. Not only do you have to get the price up, but you have to get the price very high so you can get lots of investment dollars so you can kind of make up for lost time, besides everything else. As we know, it takes a long time to get new production online.

A new theory of energy and the economy – Part 1 – Generating economic growth - Gail Tverberg - How does the economy really work? In my view, there are many erroneous theories in published literature. I have been investigating this topic and have come to the conclusion that both energy and debt play an extremely important role in an economic system. Once energy supply and other aspects of the economy start hitting diminishing returns, there is a serious chance that a debt implosion will bring the whole system down. In this post, I will look at the first piece of this story, relating to how the economy is tied to energy, and how the leveraging impact of cheap energy creates economic growth. Trying to tackle this topic is a daunting task. The subject crosses many fields of study, including anthropology, ecology, systems analysis, economics, and physics of a thermodynamically open system. It also involves reaching limits in a finite world. Most researchers have tackled the subject without understanding the many issues involved. I hope my analysis can shed some light on the subject.  I plan to add related posts later.

IEA warns of tighter oil market in second half - The world’s leading energy forecaster said on Friday that although an oil price recovery “may not be imminent”, the market is likely to see lower production growth from non-Opec countries this year. “How low the market’s floor will be is anybody’s guess,” said the International Energy Agency, in its closely watched monthly oil market report. “But the sell-off is having an impact. A price recovery — barring any major disruption — may not be imminent, but signs are mounting that the tide will turn.” The wealthy nations’ energy watchdog cut expectations for 2015 non-Opec supply growth by 350,000 barrels a day to 950,000 b/d, citing a pullback in spending and drilling by energy companies on the back of the oil price rout. Although the effects of the lower oil price on North American supply are still limited, the IEA said it had reduced its 2015 forecast for US production growth by 75,000 b/d on the back of a slowdown in the number of rigs drilling and drilling permits and that of Canadian supplies by 95,000 b/d. Projections for Colombia have been cut by 175,000 b/d and a further 30,000 b/d for Russia. “A non-Opec production [growth] pullback as early as this year, more towards the second-half, means that the sloppy market conditions seen today will start firming up, or at least will stop getting worse,”

Not your usual oil-price decline effect - Izabella Kaminska - Analysts and economists still can’t decide whether the fall in oil prices is net positive or net negative for the global economy. Unfortunately for the net positive camp, it looks increasingly like global demand and growth figures are beginning to side with the negativity team. Indeed, the longer the oil price stays low, the more it looks like global stimulus hopes were overdone due to poor understanding of financial feedback loops in the commodity space. So what’s behind the anomaly? How did a whole school of economists get this potentially so wrong? Cue once again the potentially under appreciated effects of financial inflows (and commodity financialisation) on the workings of an increasingly complex global economy.The speculation that pumped up commodities (which only trade for dollars) in the run up to 2008 amounted to a global tax on commodity-short growth centres like Asia. This stifled their growth potential, until of course the Fed came in with unconditional cheap global dollar liquidity, allowing those growth centres to keep growing.  But take the liquidity tap away, and once again global growth centres are left without the currency they need to acquire the necessary commodities to maintain their growth. Worse than that, since a lot of the intermediary growth was sustained on borrowed dollars, dollar tightness actually introduces a drastic reversal in their development, as companies are forced into bankruptcy and assets have to be sold off or liquidated.

Oil Producers Currency Collapse Continues, Nigeria's Naira Crashes To Record Low Against Dollar -- Having proclaimed it is not Zimbabwe, Nigeria's currency is starting to look a lot like a hyper-inflating mess. After devaluing to a 168 peg in November, the Naira has crashed to 200 / USD today - smashing above the upper peg band of 176 as it appears Nigeria is losing control. The collapse of Oil Producer currencies had abated for a week or two but the last 2 days have seen the Ruble and Naira tumble (even as The USDollar weakens modestly ahead of the ECB QE tomorrow).

Citgo Said to Plan $2.5 Billion Debt for Venezuela Dividend - Citgo Petroleum Corp. is planning to raise $2.5 billion that it will use to shore up the finances of its state-owned parent company, Petroleos de Venezuela SA, according to a person with knowledge of the matter.   The U.S. oil refining and marketing unit of PDVSA is seeking to sell $1.5 billion of bonds and obtain a $1 billion loan, according to the person, who asked not to be identified because the information is private. While Citgo’s debt ratings were cut to six levels below investment grade by Moody’s Investors Service last week on concern Venezuela will default, it’s still three steps higher than the government’s rating.   Using Citgo to sell debt would mark a new strategy to raise cash for Venezuela after the government said in October that it had scrapped a plan to sell the Houston-based company. Venezuela owes $2.3 billion to Exxon Mobil Corp. and Gold Reserve Inc. after losing arbitration cases tied to expropriations, and those rulings would make it difficult for the government to sell Citgo without having to pay them off, according to Russell Dallen, a managing partner at Caracas Capital Markets in Miami.  The only reason Citgo would issue the debt “is if they’re going to default on it,” Dallen said in a telephone interview. “And then the bank or the company they issued it to would be able to foreclose and take the property. It’s a back-door way of Venezuela selling the company.”   Officials with Venezuela’s Information Ministry and PDVSA’s press office didn’t immediately respond to e-mails seeking comment. Fernando Garay, Citgo’s public-affairs manager in Houston, declined to comment.

Coming to Terms With the New Oil Reality - WSJ: The sharp drop in oil prices has already roiled markets and pummeled energy companies. But its impact on oil production and climate policies is likely to last years past the moment when prices have recovered. The shale boom in the U.S., where oil production has nearly doubled over the past 10 years, and the refusal of the Organization of the Petroleum Exporting Countries to cut output, have contributed to a glut on global energy markets. At the same time, low growth in Europe and emerging markets is holding down demand, upending long-held assumptions of scarcity and ever-increasing prices. Analysis“The expectations that have governed the world for over a decade have been overturned by a new reality,” says Daniel Yergin, vice chairman of energy research firm IHS and author of several books on the global oil market. Since the beginning of the year, investment banks have sharply lowered their price forecasts, with some seeing oil averaging around $50 a barrel this year, and staying close to $60 in 2016. That is about half of where prices stood last summer, squeezing margins across the oil sector. Energy producers, service providers and suppliers, such as steel companies, have started eliminating jobs and delaying projects. Just last week Royal Dutch Shell PLC scrapped plans for a big petrochemical plant in Qatar, and BP PLC laid off 300 workers at its North Sea hub in Aberdeen, Scotland. Analysts widely expect oil companies’ fourth-quarter earnings to be as much as one-fifth lower from a year earlier.

OPEC, oil companies clash at Davos over price collapse - OPEC defended on Wednesday its decision not to intervene to halt the oil price collapse, shrugging off warnings by top energy firms that the cartel’s policy could lead to a huge supply shortage as investments dry up. The strain the halving of oil prices since June is putting on producers was laid bare when non-member Oman voiced its first direct, public criticism of the Organization of the Petroleum Exporting Countries’ November decision not to cut production but instead to focus on market share.  Speaking at the World Economic Forum in Davos, Switzerland, the heads of two of the world’s largest oil firms warned that the decline in investments in future production could lead to a supply shortage and a dramatic price increase. Claudio Descalzi, the head of Italian energy company Eni Spa, said that unless OPEC acts to restore stability in oil prices, these could overshoot to $200 per barrel several years down the line. “What we need is stability… OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way,” Descalzi told Reuters Television. He expected prices to stay low for 12-18 months but then start a gradual recovery as U.S. shale oil production began falling. But both OPEC and Saudi Arabia, the group’s largest producer, stuck to their guns. “If we had cut in November we would have to cut again and again as non-OPEC would be increasing production,” OPEC Secretary General Abdullah al-Badri said in Davos.

Oil Dinosaurs Face Extinction: State Oil Companies And The Meteor-Strike Of Low Oil Prices -- State-owned oil companies that don't slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction. Domestic and international energy companies are responding to the 50% decline in the price of oil by doing what's necessary to remain in business: they're slashing payroll, postponing capital investments, delaying new projects and soliciting price cuts from suppliers and subcontractors. This is the discipline of profit-driven capitalism: if expenses exceed revenues, profits vanish, losses pile up, capital contracts and eventually the company runs out of cash (and access to credit) and closes down. Unfortunately for state-owned oil companies, the feedback of expenses, losses and access to credit are superceded by the need to feed hordes of parasites: the state-owned company exists not to generate profits but to fund large payrolls and support state officials and cronies. Stripped of the discipline of markets and profits, state-oil companies exist to serve the interests of the state's Elites and their cronies and favored constituents. As a result, critical infrastructure has fallen into obsolescence, capital investments have been hollowed out and the expertise needed to maintain production has eroded. The state-owned oil companies are like dinosaurs: the extinction meteor of low oil prices has smashed their ecosystem, and all they can do is watch the sky darken as revenues crater and expenses and debt remain at unsustainably high levels.

How we’re preparing for $25 oil: Lukoil CEO: Lukoil, the Russian oil company, has stress tested its business for the oil price falling to $25 a barrel, Vagit Alekperov, the company's chief executive, told CNBC at the World Economic Forum in Davos. Brent crude was changing hands at close to $110 a barrel just a year ago, but has plummeted in recent months as the global economy performed worse than hoped, but supply continued at previous levels. On Friday, news that Saudi King Abdullah bin Abdulaziz Al Saud passed away sent oil prices sharply higher.  "We think that the current trends in the oil market and the global economy are only pushing the world oil to its lower levels. We think the crisis is only at its earliest stages and the demand situation in world market is not really conducive to oil prices going up," Alekperov warned. Russian  Lukoil, like other Russian businesses, has been affected by sanctions imposed by Western governments since the downing of Malaysia Airlines flight MH17 over eastern Ukraine. A planned joint venture with French oil giant Total was scrapped in September. Lukoil, like other Russian companies, will also find it difficult to raise money internationally, or to repay international loans as the value of the rouble has tumbled. "The sanctions obviously limit our access to locality and financing. And over the past 25 years, we've been heavily integrated into the international community in terms of technology and financing," Alekperov said. "These will have a telling impact on us."

Low Oil Prices Force OPEC Members To Rethink 2015 Budgets - The persistent drop in oil prices is prompting more oil-rich OPEC countries to revise the projected revenues in their coming budgets.  Already, Saudi Arabia, the world's largest producer of oil and OPEC's richest member, has acknowledged that the steep fall in oil prices since June will leave the Riyadh government with its first budget deficit since 2011 and the largest in its history. The Saudi budget, announced on Dec. 25, will include spending during fiscal 2015 of $229.3 billion, higher than in 2014, despite revenues estimated at only $190.7 billion, lower than in the current fiscal year. That would leave a deficit of $38.6 billion. In fact, according to an analysis by Bloomberg in December 2014, 10 of OPEC's 12 member states – all but Qatar and Kuwait – can no longer rely on oil exports to balance their budgets. And although Saudi Arabia is losing money, Bloomberg says, its treasury has a financial reserve of nearly three-quarters of a trillion dollars. But even that analysis needs revising. Qatar now is expected to base the budget for its coming fiscal year, beginning April 1, on oil valued at $45 per barrel in 2015, down from its previous estimate of $65, an anonymous source in the Persian Gulf state's energy industry tells Reuters. The source stressed, however, that $45 is a conservative figure chosen to “help keep growth on track.” As is its custom, Qatar's Finance Ministry would not comment on its spending plans until the budget is formally published. Yet Doha is known for being conservative in its revenue estimates to prevent any deficits and, at times, to enjoy unexpected surpluses.  Iran, meanwhile, is predicating the budget for its coming fiscal year, which begins March 21, on an even lower price for oil, $40 per barrel. Iran is beset not only by the precipitous drop in oil prices but also by sanctions imposed because of suspicions that its nuclear program is not peaceful but aims to develop weapons.

Saudi Arabia Plunges into an Abyss --Last week, just before the Charlie Hebdo attack, ISIS sent a suicide team across the border into Saudi Arabia.  Here's what happened.

  • The attack was successful.  The team found and killed the Saudi general (Oudah al-Belawi) in charge of the country's nothern border zone at the outpost he was visiting (here's a pic of the state funeral for some of the men killed in the attack).
  • The target was significant.  General Oudah al-Belawi was in charge of the multi-billion dollar Saudi effort to secure the northern border against ISIS.  Not only has Saudi Arabia sent 30,000 additional troops to guard the northern border, it's building a highly automated 600-mi security wall to protect itself (lots of robots and sensors).  Here's a great graphic of the monstrosity from the Telegraph.  My take:  What a waste of time and effort.  
  • It demoralized the Saudi military.   This attack deeply undermines the morale of Saudi troops on the border.   If ISIS can kill a top general...

Here why this attack is signficant. 

  • It tells us that ISIS is starting to focus on Saudi Arabia -- with good reason.  The reason is that there's simply no other way to unite the various groups under the ISIS banner.  ISIS, like all open source movements, needs to keep moving in order to stay alive (like a shark).  Right now, ISIS has stalled.  A jihad to retake the holy sites from the corrupt regime in Riyadh can serve as a simple plausible promise that can reignite the open source war ISIS started, on a global scale.
  • The Saudis are vulnerable.  The attackers knew exactly when the general was going to be at the outpost.  This tells us that the Saudi military is rife with ISIS sympathisers and/or active members.  If so, the Saudi military may melt away when facing jihadis (or switch sides) in the same way 30,000 Iraqi troops did early last year a couple of hundred miles to the north.

Saudi Arabia's King Abdullah bin Abdulaziz dies: Saudi King Abdullah bin Abdulaziz has died, royal officials have announced, weeks after he was admitted to hospital. Abdullah, who had ruled since 2005 and was said to be aged about 90, had been suffering from a lung infection. His 79-year-old half-brother, Salman, has been confirmed as the new king. Within hours of his accession to the throne of the oil-rich kingdom, King Salman vowed to maintain the same policies as his predecessors. "We will continue adhering to the correct policies which Saudi Arabia has followed since its establishment," he said in a speech broadcast on state television. Abdullah had suffered frequent bouts of ill health in recent years, and King Salman had recently taken on the ailing monarch's responsibilities.

Dead Cat Bounce? Oil Prices After King Abdullah's Death - The newswires were all abuzz this morning about the passing away of King Abdullah, formerly Crown Prince Abdullah before his half-brother King Fahd passed away in 2005. Now that he too has died, his brother Salman has become Saudi king. In terms of the broader energy market, the notable news is that oil prices have bumped up slightly on the news. To be sure, Abdullah's passing was not unexpected since he has not been in the best of health in recent years and succession plans were already well-known:  Oil prices jumped on Friday as news of the death of Saudi Arabia's King Abdullah added to uncertainty in energy markets already facing some of the biggest shifts in decades. Abdullah died early on Friday and his brother Salman became king in the world's top oil exporter. Salman named his half-brother Muqrin as heir, moving to forestall any succession crisis at a moment when Saudi Arabia faces unprecedented turmoil on its borders and in oil markets.Brent crude futures rose to a high of $49.80 a barrel shortly after opening before easing back to $49.30 a barrel by 0650 GMT, up 78 cents. U.S. WTI crude futures were at $47, down from a high of $47.76 earlier in the session."This little spike in prices is understandable. But this is a selling opportunity in our view. It should be sold off quickly and it won't last long at all," The new king is expected to continue an OPEC policy of keeping oil output steady to protect the cartel's market share from rival producers. "When King Salman was still crown prince, he very recently spoke on behalf of the king, and we see no change in energy policy whatsoever," Keenan said.

There is a new Saudi Arabian king, but the world already wants to know who will succeed him – Quartz: Succession to the throne was smooth in Saudi Arabia, still the most important oil-producing country on the planet. But beyond that, the ascent of crown prince Salman after the death of king Abdullah does not inspire confidence. One reason is talk that Salman, who is 79 years old, suffers from dementia. Another is that the new crown prince, Muqrin, is rumored to have reached his position more for his pliability than executive competence—he may not be up to the job as king, should he eventually be called upon to take it. In fact, one bit of speculation is that Salman, who can choose his own crown prince, will relatively quickly put his own favorite in line. None of this clears up the Kingdom’s quandary (some will call it a future crisis), which is that the end of the second generation of male offspring of king Abdul Aziz, Saudi Arabia’s founder, is upon us. Neither the deceased king Abdullah nor anyone else has put in place any known plan for what comes next. This is not an academic nor trivial question: despite the rise of shale oil and OPEC’s current capitulation to markets, it would be foolhardy to buy into the intellectual fashion that OPEC’s—and Saudi Arabia’s—influence are dead. OPEC still controls some 40% of the world’s oil supply—the largest single block by far—and Saudi Arabia remains the cartel’s leader.

Saudis face rethink on Iran rivalry: The terrorist strike last week on the Saudi border post facing the Iraqi province of Anbar - known to be the Islamic State's first assault on the kingdom - could be the proverbial straw on the camel's back, forcing Riyadh into a profound rethink of its regional strategies imbued with the rivalries involving Iran. Tehran has effectively countered the Saudi plots in Syria and Iraq and at the moment would seem to have the upper hand. The last-ditch Saudi attempt to hurt the Iranian economy by forcing a steep decline in oil prices is not only not having the desired effect but, as President Hassan Rouhani explicitly warned yesterday, Riyadh may end up shooting at its own feet (as well as the Kuwaiti brother's). However, it is the attack on the Saudi post by the IS (killing two border guards and their commanding officer) that becomes a defining moment. The fact that the IS attackers included three Saudi nationals must be a rude awakening. To be sure, the blowback has begun. The Saudis hope to erect a ‘great wall' and insulate themselves from the IS barbarians next door but that is sheer bravado. More …

Obama's "Partners" In Yemen Overthrown As Presidential Palace Falls To Local Militiamen -- It seems like an eternity ago when Obama delivered the following extensively choreographed "Statement by the President on ISIL", in which he praised US anti-terrorist tactics, giving Yemen and its "partners" as an example of "successful" US foreign intervention.  To wit: "This counterterrorism campaign will be waged through a steady, relentless effort to take out ISIL wherever they exist, using our air power and our support for partner forces on the ground.  This strategy of taking out terrorists who threaten us, while supporting partners on the front lines, is one that we have successfully pursued in Yemen and Somalia for years." He may want to scrub that statement because just 4 months after reading that from the Teleprompter, America's "partners on the Yemen front lines" have officially fled quietly into that good night, abandoning the control of the nation to local Shiite militiamen.

Saudi Arabia's new Yemen strategy: get behind a fence - Saudi Arabia is increasingly taking a security-first approach to neighbouring Yemen, where Houthi rebels have all but seized power, wanting nothing better than to finish a new border fence and then slam shut the gates. Riyadh convened a meeting of Gulf countries on Wednesday to threaten unspecified measures to "protect their interests" in Yemen where the Shi'ite Muslim rebels, allies of its enemy Iran, are holding the president a virtual prisoner. But unlike in the past, the kingdom wields little influence across its border and has few established ties to Yemen's new powerbrokers. It has already suspended aid payments, its most potent leverage in the country. That will compel the Houthis, and by extension Iran, to foot the substantial bill for keeping Yemen afloat if they want to govern the poorest Arab country without Riyadh's support. Saudi analysts say the priority is sealing the mountainous Yemeni border - where Houthis killed around 200 Saudi soldiers in a brief war four years ago - with a fence modelled on its expensive frontier defences with Iraq. "The Saudi strategy is no strategy for Yemen. I don't see one except for security: keeping the border intact and guarding it well,"

Islamic State Has Tripled Its Territory In Syria Since U.S. Started Airstrikes -- The following Wall Street Journal graphic shows that ISIS has more than tripled the amount of territory it holds in Syria since the U.S. started bombing:  Heck of a job

Oil drop ‘disastrous’ for anti-Isis fight - The collapse in the oil price has had “disastrous” consequences for the fight against Isis, Haider al-Abadi, Iraq’s prime minister, has warned world powers. Western leaders meeting Mr Abadi in London on Thursday have promised to increase shipments of ammunition and to consider allowing the Iraqi government to defer millions of dollars of payments for key supplies, in order to alleviate budgetary pressure and ensure the country’s military can continue fighting. Baghdad’s budgetary crisis, which has been greatly deepened by the falling oil price, dominated discussions on Thursday between representatives of a coalition of world powers that is working to fight the Islamic State of Iraq and the Levant jihadi group, known as Isis. The talks were hosted by Philip Hammond, Britain’s foreign secretary, and led by his US counterpart, John Kerry. “I cannot stress this [problem] any more,” said Mr Abadi, speaking at the UK Foreign Office. “We don't want to see a reverse of our military position because of our budget and fiscal problems.” He continued: “We [are working with] our partners in the coalition and there will be a programme to [deal] with Iraq’s internal crisis. “One choice is that delivery of munitions and armaments can have deferred payments,” he said.

Iraq is now partitioned. Forget it and move on. -- What was once the Sykes-Picot creation called the Kingdom of Iraq is dead. It is finished. That country was established as a European contrivance and convenience in what had always been called the Mesopotamian region centered on the Tigris and Euphrates drainage systems. In what was traditionally called "Iraq," the British, with French political acquiescence, cobbled together a pastiche of very different ethno-religious groups and placed a princeling of the Hashemite family on a newly established throne. Ethnic Arabs, Kurds, Turcomans, and Jews were forced into a "shotgun marriage" that suited none of them. Sunni and Shia Muslims, Yazidi pagans, Jews, and various kinds of Christians were all told that for the first time in history they had become a new kind of human, "Iraqi Man." This collage of the peoples of Mesopotamia and Kurdistan limped along for almost 80 years under a variety of governments. One of the principal functions of these governments was to maintain a coerced "unity" in this artificial state. The endless wars between the Baghdad centered state and Kurdish separetists were emblematic of the festering dissidence that always lay just below the surface of daily life. All this ended when the United States and its coalition of the willing invaded Iraq in 2003 and destroyed the state of Iraq and all the mechanisms of state identity and power. The motivations for this program of destruction of the structure of the state of Iraq, have been and will be endlessly discussed. I am weary of the debate. What matters in January, 2015 is the simple truth that Iraq as it was is no more. IS holds the north and west of the country with the exception of what has become a de facto country in the Kurdish "Autonomous" Region. The Shia Arabs hold the south from their part of Baghdad all the way down to Basra. They are likely to retain control of that territory for the simple reason that the Shia Iranians will not let it be taken from them.

Iran OK With $25 Oil As Iraq Pumps Crude At Record Pace - The precarious "game theory" equilibrium that worked for decades while OPEC was still a functioning cartel is unwinding before everyone's eyes. Just as Saudi Arabia accurately anticipated, the lower the price of crude goes, the more both OPEC members and their non-OPEC peers (especially shale companies funded by hundreds of billion in junk bonds) will have to produce in order to keep their budgeted revenues roughly in line (and keep creditors happy for the time being) in the process setting off an unprecedented wave of bankruptcies and production capacity declines, which take about 6-12 months after the price plunge to materialize. Case in point: the country formerly known as Iraq (and now better known as that region around the Tigris and the Euphrates that does not belong to ISIS) is pumping crude at a record pace and will continue to boost exports this year, its Oil Minister Adel Abdul Mahdi said.

Iran sees no OPEC shift toward a cut, says oil industry could withstand $25 crude (Reuters) - Iran sees no sign of a shift within OPEC toward action to support oil prices, its oil minister said, adding its oil industry could ride out a further price slump to $25 a barrel. The comments are a further sign that despite lobbying by Iran and Venezuela, there is little chance of collective action by the 12-member OPEC to prop up prices - entrenching the reluctance of individual members to curb their own supplies. In remarks posted on the Iranian oil ministry's website SHANA, Oil Minister Bijan Zanganeh called for increased cooperation between members of the Organization of the Petroleum Exporting Countries. true "Iran has no plan (to hold an emergency OPEC meeting) and is currently in consultations with other OPEC member states in a bid to prevent the sharp fall in the oil price, but these consultations have yet to bear fruit," he said. Oil has plunged by more than half since June 2014 to below $50 a barrel on Monday, pressured by a global glut and OPEC's refusal at its last meeting in November to cut its output. OPEC decided against a production cut despite misgivings from non-Gulf members such as Iran and Venezuela, after top producer Saudi Arabia argued the group needed to defend market share against U.S. shale oil and other competing sources.

Elsewhere in central banking news…here are the real stories… Fighters for one of the factions battling for control of Libya seized the Benghazi branch of the country’s central bank on Thursday, threatening to set off an armed scramble for the bank’s vast stores of money and gold, and cripple one of the last functioning institutions in the country. The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign currency reserves. It is the great prize at the center of the armed struggles that have raged here since the overthrow of Col. Muammar el-Qaddafi in 2011. There is more here.  And in collapsing Yemen, the Iran-funded Houthi fighters seem to have the central bank tightly under guard.  Mario Draghi does not in fact have the toughest job in the world.

Local gas prices set to soar as exports to Asia get under way: While most of us were on holidays, something happened off the coast of Gladstone in Queensland that will have hip-pocket implications for consumers across the eastern states. In late December, British energy giant BG Group sent the first ever shipment of liquefied natural gas from Australia's east coast, using gas from the state's booming coal seam gas industry. Granted, it sounds far removed from everyday life for most of us. But this cargo load is the start of a trend that will dramatically increase how much households pay for gas used for hot water, cooking, or heating. It is predicted to push up many households' utility bills by a similar amount to the carbon tax, but there are no plans for compensation. And as you'd expect with a jump in the cost of living of this size, this one is producing some seriously flimsy economics. Advertisement First though, back to that shipment. Not only was it the first time that CSG has been converted into LNG, the exportable form of gas. More importantly for consumers, it was the first time gas has been exported from the east coast of Australia at all, and there is much more to come.

China's shipyards brace for leaner times due to crude prices slide --  For China's shipyards, the oil rig market that was supposed to be a blessing is in danger of becoming a curse. As crude prices slide, oil producers are slashing new project spending. With a near 40 percent slice of a global market worth tens of billions of dollars, Chinese rig builders that offered juicy financing terms and discounts to leapfrog Asian rivals in recent years are now the most exposed to a slowdown. Diversifying to pull out of a downturn in traditional shipbuilding, China's state and privately owned yards have lured orders away from regional peers, building scores of rigs for down payments of as little at 1 percent. Many haven't yet been chartered by oil explorers, industry watchers say. Some in the industry fear that rig builders are now heading toward a slowdown, possibly with cancellations and price cuts, that could persist longer than the oil market's slump. Even if oil prices recover enough to stoke exploration, an inventory of ready-made rigs will be on hand, delaying new construction. "Future cancellations will depend on the market going forward and unfortunately we are looking at a real risk for yards in this respect,"

China's 2014 economic growth misses target, hits 24-year low (Reuters) - China's economy grew at its slowest pace in 24 years in 2014 as property prices cooled and companies and local governments struggled under heavy debt burdens, keeping pressure on Beijing to take aggressive steps to avoid a sharper downturn. European and Asian shares in fact rose on relief that the news was not worse; the Shanghai Composite index gained 1.85 percent, Japan's Nikkei 225 index saw its biggest one-day gain in a month and European markets rallied. But for investors worried about growth in China and the world this year, the data poses two questions: Will the soft numbers and expectations of further weakness force the central bank to pump hundreds of billions of dollars into banks system-wide to prop up growth? And if so, what does that mean for Beijing's attempts to reform its economy? The world's second-largest economy grew 7.4 percent in 2014, official data showed on Tuesday, barely missing its official 7.5 percent target but still the slowest since 1990, when it was hit by sanctions in the wake of the Tiananmen Square crackdown. It expanded 7.7 percent in 2013. Fourth-quarter growth held steady at 7.3 percent from a year earlier, slightly better than expectations.

China economic growth is slowest in 24 years - China's economic growth slipped to its weakest level in a quarter century in 2014, though growth in the final quarter came in higher than expected, amid nagging problems of overcapacity, a weak housing market and lower global demand. China's gross domestic product grew 7.4% last year, within range of the government's target of about 7.5%, the National Bureau of Statistics said on Tuesday. The expansion for the final quarter of the year was 7.3%, matching the third quarter level and beating market expectations of 7.2%. While the growth rate was well above that in all other major economies, it was down from the 7.7% growth of 2013 and the double-digit levels achieved as recently as 2010. It was China's worst performance since the 3.8% growth recorded in 1990, the year after the crushing of pro-democracy unrest in Beijing's Tiananmen Squared led to Western sanctions, swooning domestic and international confidence and an ideological lurch to the left. The slower growth, which Beijing has called a "new normal," was recorded on the back of higher, targeted spending on needed infrastructure in areas such as railways and subways and after the central bank cut interest rates for the first time in over two years and ordered bank loans be directed to farmers and small businesses.

China’s real GDP is slower than official figures show - The NBS puts GDP growth last year at 7.4 per cent. This appears slower than 2013’s 7.7 per cent but Chinese statistics are not nearly accurate enough for a shift from 7.7 to 7.4 to be important. The GDP deflator is approximately 0.8 per cent. This fits between 2 per cent consumer inflation and almost 2 per cent producer deflation and confirms the threat is deflation and slow growth, rather than any overheating. Deflation puts consumer spending at risk. GDP per capita of about $7,600 obscures disposable income of only $3,300. Businesses selling to consumers report weak results over the course of 2014. Most consumers remain lower middle-income and apparently are increasingly reticent. It is worth noting as growth slides that China’s global growth role is mischaracterized. Because it runs the world’s largest trade surplus, China detracts from, rather than contributes to, the rest of the world’s GDP. China reported a 2014 goods and services trade surplus of approximately $213bn (extrapolating services trade through November), from $142bn in 2013. That’s another $71bn in GDP everyone else in the world did not get. Jobs may be a bright spot. The central government does not publish meaningful unemployment numbers for the country as a whole. But the supposed link between 8 per cent GDP growth and job creation never made sense – growth can be labor-intensive or capital-intensive, as China’s has been recently. There seems to be no serious pressure on the jobs market, which is far more important than a GDP growth rounding error.

China's slowdown: From a very big base | The Economist: MUCH of the analysis of China’s 2014 GDP data, which the government published today, has focused on the economy’s slowdown. That is, on one level, understandable. Growth of 7.4% was China’s weakest in 24 years (see chart below). It was also the first time this century that China has missed its official growth target, falling just short of the official goal of 7.5%. But on another level, the focus on the slowdown seems almost myopic. China joined an exclusive club last year: its economic output exceeded $10 trillion, making it only the second country to achieve that feat (America reached this level in 2000). . Moreover, the increase in China’s economic size means that slower growth now generates as much additional demand as its turbo-charged growth did just a short time ago. Last year’s growth, even with subdued inflation, yielded an extra 4.8 trillion yuan in GDP, almost exactly the same as in 2007, when growth ran to 14.2% and inflation was far higher. And because the economy today includes more labour-intensive services than in the past, China is doing even better at creating new jobs: it added 13.2 million urban jobs last year, compared with 12 million in 2007.  This would all be beside the point if China’s growth was simply the prelude to a spectacular collapse. But looking beyond the headline GDP figure, China’s growth also appears to be slowly becoming better balanced. . Gross fixed capital formation accounted for 48.3% of China’s growth in 2011, well above the peaks of roughly 40% hit by South Korea and Taiwan when they industrialised last century. We will have to wait for a breakdown of GDP by expenditure to get the 2014 figures for China, but the data from today's release point in the right direction.

How China Deals With Deflation: A 60% Pay Raise For 39 Million Public Workers -- While the rest of the developed world, flooded with re-exported deflation as a result of now ubiquitous money printing, scrambles to print even more money in hopes of stimulating the economy when all it is doing is accelerating a closed deflationary loop (at least until the infamous monetary helicopter drop), China - which still has the most centrally-planned economy in the world even if the US is rapidly catching up - has a more novel way of dealing with the threat of deflation: a massive wage hike across the board for all public workers. Two days ago, at a press conference, the Chinese vice minister of human resources and social security Hu Xiaoyi said that China’s 39 million civil servants and public workers will get a pay raise of at least 60% of their base salaries as part of pension plan overhaul.

China Manufacturing Flat-Lining In Slight Contraction - Its pretty much the status quo for the HSBC Flash China Manufacturing PMI report. Key Points:

  • Flash China Manufacturing PMI at 49.8 in January (49.6 in December). Two-month high.
  • Flash China Manufacturing Output Index at 50.1 in January (49.9 in December). Three-month high.

When a rise from 49.6 to 49.8 puts you at high, you cannot possibly be moving fast. Flat-lining in slight contraction is the best phrase to describe the state of affairs. The following charts show just that.Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: ...“The HSBC China Manufacturing PMI rose to 49.8 in the flash reading for January, up from 49.6 in December. Domestic demand improved marginally while external demand remained solid. The labour market weakened and prices fell further. Today's data suggest that the manufacturing slowdown is still ongoing amidst weak domestic demand. More monetary and fiscal easing measures will be needed to support growth in the coming months.

China January factory growth stalls, deflation pressures build, bad debt rises  (Reuters) - China's manufacturing growth stalled for the second straight month in January and companies had to cut prices at a faster clip to win new business, adding to worries about growing deflationary pressures in the economy, a private survey showed. The HSBC/Markit Flash Manufacturing Purchasing Managers' Index (PMI) hovered at 49.8 in January, little changed from December's 49.6 and just below the 50-point mark that separates contraction from growth on a monthly basis. A Reuters poll had forecast a second month of contraction with a reading of 49.6. true Reflecting the tumble in oil prices, which have more than halved in the last six months, a sub-index for input prices sank to 39.9, a level not seen since the global financial crisis. But companies also had to cut output prices for the sixth straight month to sell their products, and more deeply than in December, eroding their profit margins. "Today's data suggest that the manufacturing slowdown is still ongoing amidst weak domestic demand,"

How China’s Slowdown Could Drag Down the Global Economy - China’s economic growth is slowing to its lowest pace in more than two decades as it reaches the limits of its credit-fueled, export-led expansion and tries to avoid a hard landing. How might that slowdown affect the global economy? We already know: Growth in the world’s No. 2 economy is already more than 30% lower than many economists forecast. The International Monetary Fund, for example, has sliced nearly four percentage points off its five-year outlook since 2010. China’s cooling has been a major factor in the IMF also downgrading global growth and the emergency lender warning the world economy may struggle to pull itself out of its low-growth rut for years to come: That slowdown has been a key factor in the precipitous decline in oil and other commodities, as well as global trade. In its latest Global Economic Prospects report, the World Bank warned that a hard landing is one of the biggest risks to the global economy. The World Bank assigns a low probability to a sharp and unexpected drop in the China’s growth rate given the country’s large foreign currency reserves and other economic shock absorbers. But, it warned, “a sharper decline in growth could trigger a disorderly unwinding of financial vulnerabilities and would have considerable implications for the global economy.” If growth is one percentage point lower in China than expected, the bank estimates it could shave a half percentage point off global growth:

Yuan accounts for a quarter China's payments in 2014: data (Reuters) - Nearly a quarter of all cross-border payments in China last year were settled in yuan, the central bank said on Tuesday, underscoring the renminbi's growing dominance as it heads into the league of major currencies. A total of 9.95 trillion yuan ($1.6 trillion) worth of cross-border payments were made in yuan last year, the People's Bank of China (PBOC) said in a statement on its website, as it vowed to increase international usage of the currency this year. The total value for yuan cross-border payments in 2013 was not available. true The yuan's rising global profile mirrors its surging trading volume worldwide. Although still tightly controlled by China's government, offshore trading in the yuan soared some 350 percent on Thomson Reuters trading platforms last year. Rival platform EBS said the yuan ended 2014 as one of its top five traded currencies.

The Chinese money supply - Derek Scissors reportsBroad money M2 breached $20tn at the end of December, a staggering 70 per cent larger than in the US, where monetary policy has hardly been tight.  There’s a tremendous amount of liquidity, the problem is no one is using it. Growth in narrow money M1 has collapsed. It was a dangerously excessive 32.4 per cent in 2009. It was a dangerously anemic 3.2 per cent in 2014. M1 is money being held ready for use in anticipated transactions. It should correlate very well with GDP, which is a sum of transaction values. But while M1 flies around over time, GDP growth barely budges in comparison. It strains credulity that the amount of money held for use could grow at one-tenth the speed in 2014 as it did in 2009, yet growth in uses of that money (GDP) drops less than 2 points.  The FT post is of more interest generally on Chinese economic statistics.

Obama Pushes for Trade Support, Warns on China - President Barack Obama made a broad appeal to skeptics of his trade policy, arguing that a failure to enact a deal under negotiation with Pacific partners would play into the hands of China. “China wants to write the rules for the world’s fastest-growing region,” Mr. Obama said in his State of the Union address Tuesday. “We should write those rules.” Still under negotiation, the Pacific agreement would set rules for everything from the environment to drug patents, and cover nations with about 40% of global economic output and a third of world trade. The U.S. also is working on a trade deal with the European Union.  Mr. Obama is working to build support that has been elusive so far among Democratic lawmakers. Members of the administration have privately been using the specter of Chinese economic dominance for at least a year to win support for the Trans-Pacific Partnership, or TPP, a trade bloc under negotiation that would include Japan and 10 other Asia-Pacific countries but not China. Officials recently have grown more outspoken with the argument, using it to win support for legislation — known as trade promotion authority — that eases congressional passage of trade deals negotiated abroad. “We should level the playing field,” Mr. Obama said. “That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but are also fair.”But critics say the warning about Beijing is a distraction from the economic risks of lower trade barriers.“I am not the least bit surprised that he is raising China as a boogeyman to try to change the subject off of what most American think when they hear ‘trade agreement,’ which is ‘job loss,’” said Lori Wallach, trade expert at watchdog group Public Citizen.

Is the TransPacific Partnership Being Brought Back From the Dead? -- With a new Republican Congress, and Obama himself a Republican who occasionally wears Democratic clothing, the Administration is making noise that the TransPacific Partnership and its ugly sister, the Transatlantic Trade and Investment Partnership, are moving forward in a serious way.  But the Administration tried that sort of messaging last year to keep up a sense of inevitability about these regulation-gutting, mislabeled trade deals, when reality was very different. Democrats, joined by a not-trivial block of Republicans, revolted due to the unheard levels of secrecy being maintained around the deal as well as, for many of them, what they had inferred about the content. Needless to say, the Republican majorities may well change that dynamic. But what about the considerable opposition for the TransPacific Partnership’s hoped-for foreign signatories, particularly Japan? You’d think the negotiations were full steam ahead based on a Japan Times article last week, Japan, U.S. target reaching broad TPP agreement at March meet. Key sections: Japan and the United States have agreed that 12 countries discussing a Trans-Pacific Partnership free trade deal should hold a ministerial meeting in the first half of March to reach a broad agreement, informed sources said on Friday…Japanese and U.S. officials signaled that the two sides narrowed gaps over auto trade, during the latest Tokyo session. Deputy chief TPP negotiator Hiroshi Oe said he strongly feels that the United States is serious about concluding talks successfully.But Japan and the United States remain apart over farm trade. Elsewhere in the broader TPP talks, the United States and emerging market economies such as Malaysia are in dispute over intellectual property protection. Yves here. If you read the text closely, there is less here than meets the eye. The two sides have agreed to talk again. And Oe’s remark is wonderfully ambiguous. It’s only about US eagerness, not about where the Japanese are.

Suspicious Nonsense on Trade Agreements - Krugman - I am in general a free trader; there is, I’d argue, a tendency on the part of some people with whom I agree on many issues to demonize trade agreements, to make them responsible for evils that have other causes. And my take on both of the trade agreements currently under negotiation — Pacific and Atlantic — is that there’s much less there than meets the eye. But my hackles and suspicions rise when I listen to the advocates. Tom Donohue, head of the US Chamber of Commerce, warns against economic populism, which he says is really a push to create a “state-run economy.” Yep — so much as mention rising inequality, and you’re Joseph Stalin (unless you’re Mitt Romney.) But what really gets me is the Chamber’s supposed agenda for growth. Topping the list — the number one priority — is completing those trade agreements.This is absurd, and disturbing. Think about it. The immediate problem facing much of the world is inadequate demand and the threat of deflation. Would trade liberalization help on that front? No, not at all. True, to the extent that trade becomes easier, world exports would rise, which is a net plus for demand. But world imports would rise by exactly the same amount, which is a net minus. Or to put it a bit differently, trade liberalization would change the composition of world expenditure, with each country spending more on foreign goods and less on its own, but there’s no reason to think it would raise total spending; so this is not a short-term economic boost.

National Debt That's 245% of GDP? No Worries, Japan -- Economics Professor Masazumi Wakatabe at Waseda University was prompted to write commentary on Japan's fiscal situation by a recent FT article calculating Japan's national debt to be a world-leading 245% of GDP. In Greece, it's a puny 176% by comparison. 245%! Why haven't financial yellow journalists been proven right in predicting Japan will be crushed by hyperinflation and other vile nonsense? As the good professor explains, the fiscal situation in Japan is not nearly as bad as it looks. First, consider the usual explanations concerning how the assets held by the Japanese government significantly offset its paper liabilities: The key to understand Japan’s fiscal situation is the net debt as opposed to gross debt. First, the Japanese government holds large amount of assets, therefore the net debt relative to GDP ratio goes down to 132 percent as of June 2014. Second, the Bank of Japan holds a large amount of Japanese government bonds. “Since the central bank could, in principle, forever hold its current stock of JGBs, the government need not worry about how it is going to repay these bonds,” [Columbia Professor David] Weinstein wrote. Then the net debt relative to GDP ratio goes even further down to 80 percent as of June 2014. There is some sleight of hand here that won't pass muster with international standards regarding national-level bookkeeping, of course, but thankfully he doesn't reiterate the old chestnut that most Japanese government bonds (JGBs) are held by Japanese since their exceedingly low yields make them unattractive to international investors. So, Japan is not really vulnerable to a crisis of confidence among foreign holders of its debt since, well, most debt is held at home.

Japan’s 10-Year Yield Drops to Record-Low 0.2% as BOJ Buys Debt - Japan’s 10-year bond yields fell the most in a year to a record low as the central bank buys unprecedented amounts of debt to counter deflation. Benchmark yields dropped four basis points to 0.2 percent at the close of trading in Tokyo, according to data from Japan Bond Trading Co., the biggest decline since Jan. 14, 2014, based on closing prices. The 20-year yield slid to 0.865 percent, the lowest since April 2013, before ending trade at 0.87 percent. Bond yields are falling as Bank of Japan Governor Haruhiko Kuroda seeks to stoke inflation through large-scale asset purchases designed to drive down borrowing costs. The central bank today offered to buy 780 billion yen ($6.7 billion) of government debt from the market.

Japan core inflation to slow, may prompt more BOJ stimulus; wages seen up - Reuters poll - - Japan's inflation rate is expected to slow in the next fiscal year, a Reuters poll showed, which could probably force the Bank of Japan to launch more stimulus later in the year. Japan, which has been grappling with either outright deflation or very low inflation for decades, is facing an even greater challenge than some other economies given the 60 percent plunge in oil prices over the past six months. The BOJ surprised financial markets last October by expanding an already massive asset purchase programme, but the effect on inflation has been negligible so far. The economy unexpectedly slipped into recession in the third quarter of last year, as consumption was knocked by a sales tax hike in April. "As the BOJ has said lower oil prices are positive for the economy in a medium- to long-term, our main scenario is the central bank will wait and see," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "But the BOJ is expected to ease again in the latter half of 2015 when it becomes clear core inflation won't accelerate," said Tokuda. The core consumer price index, which includes oil products but excludes fresh food prices, will probably average an annual rise of 0.6 percent in the fiscal year starting April 1, a Reuters poll of 22 analysts taken Jan. 9-19 found. The forecast excludes April's tax-rise effect

Japan Set To Surpass China As America's Largest Creditor --When it comes to America's foreign creditors, only two names matter (except for Belgium whose Euroclear service continues to be used by an anonymous entity(s) to buy up US Treasurys): Japan and China. And it is in the Treasury buying and selling dynamics of these two entities that we can see how Japan's monetary policy has impacted its holdings of US paper, which just hit a new all time high of $1,242 billion, while on the other hand Beijing's official holdings of Treasurys have remained unchanged since the summer of 2011, and which in July declined yet another month to just $1,250 billion, the lowest since January 2013.

Why is deflation continuing in Europe and Japan? - Here is an update from Japan: Four years after the Bank of Japan set a 2 percent inflation target, price gains may still be coming up short, according to a survey of economists by Bloomberg News. Consumer prices will rise an average 1.4 percent the fiscal year through March 2017, after failing to reach 2 percent — stripped of fresh food and a sales-tax boost — in any of the years since the goal was set, the median of 16 estimates shows. Here are further data points from Krugman about other locales. I am not seeking (today) to argue about liquidity traps, credibility, and the like.  Clearly the Japanese central bank can influence inflation at least somewhat, and recall the BOE helped bring inflation in at over five percent but a few years ago.  The ECB really could do much more.  But my view is this:

  • 1. Most countries have labor market incumbents with sweet real wage deals, deals which could not be renegotiated anew today because the world has seen a repricing of labor downwards for the wealthy countries.
  • 2. Higher rates of price inflation would cut into those deals and thus high rates of price inflation are unpopular.  Voters don’t quite understand the monetary economics here, but they have a vague sense that “inflation screws them.”
  • 3. We are no longer at the point where two percent inflation is easy to achieve in Europe or Japan.  Central banks are doubted.  To achieve two, they would have to shoot for four, and thus announce a target of four.  Few voters wish to hear this, and furthermore a credible stab at four percent inflation might in fact bring three percent inflation or maybe more.  A non-credible central bank can indeed still debase its currency, yet the achievable targets are given by lumpy notches, not a smooth sliding scale.  In the case of the eurozone, too high an inflation target is probably illegal as well, given the sole mandate of price stability.

Malaysia raises fiscal deficit target, cuts growth forecast: (Reuters) - Malaysia has increased its fiscal deficit target to 3.2 percent of gross domestic product for 2015 and cut its forecast for economic growth to adjust its budget after a sharp fall in earnings from oil and gas, Prime Minister Najib Razak announced on Tuesday. The original budget, tabled in October, had targeted a reduction in the fiscal deficit to 3.0 percent this year, from 3.5 percent in 2014. Najib, who is also finance minister, said the government now expects economic growth of between 4.5 to 5.5 percent, having earlier forecast 5.0 to 6.0 percent. Najib said the revised budget would assume a global oil price of around $55 a barrel. The government had assumed a price of $100 a barrel last October, whereas the price of Brent crude has fallen by more than half to levels below $50. The prime minister said Malaysia was not facing an economic crisis, but the government needed to adjust to the change in circumstances due to the fall in global oil prices.

Federal minister accuses Saudi govt of destabilising Muslim world - Pakistan - Federal Minister for Inter-provincial Coordination (IPC) Riaz Hussain Pirzada has accused the Saudi government of creating instability across the Muslim world, including Pakistan, through distribution of money for promoting its ideology. Addressing a two-day 'Ideas Conclave' organised by the "Jinnah Institute" think tank in Islamabad, the federal minister said 'the time has come to stop the influx of Saudi money into Pakistan'.  He also blasted his own government for approving military courts in the presence of an 'independent and vibrant judiciary' and said that military courts reflect 'weak and coward leadership'. "Such cowardly leadership has no right to stay in power," Pirzada added.

Rehman’s Jinnah Institute Causes Stir as Pakistani Federal Minister Calls Out Saudi Destabilization -- Back when she was Pakistan’s Ambassador to the United States, Sherry Rehman rankled the Obama Administration when she said in an interview with Christiane Amanpour that US drone strikes in Pakistan’s tribal regions “radicalize footsoldiers, tribes and entire villages“. Rehman’s time as Ambassador came to an end with the election of President Nawaz Sharif in 2013, and she has since moved on to reactivate a think tank she founded in 2010, the Jinnah Institute. The Jinnah Institute is holding a two day “Ideas Conclave”, and a speech delivered there by Pakistan’s Minister for Inter-provincial Coordination, Riaz Hussain Pirzada, is getting a lot of attention: Federal Minister for Inter-provincial Coordination (IPC) Riaz Hussain Pirzada has accused the Saudi government of creating instability across the Muslim world, including Pakistan, through distribution of money for promoting its ideology. Addressing a two-day ‘Ideas Conclave’ organised by the “Jinnah Institute” think tank in Islamabad, the federal minister said ‘the time has come to stop the influx of Saudi money into Pakistan’. Tying Saudi funding to promotion of its ideology seems to be quite a courageous move. Pakistan’s economy was in dire shape last year when a key $1.5 billion “loan” from Saudi Arabia helped to stop the fall in currency values. By pointing out the connection between Saudi funds and the promotion of Saudi ideology (which is clearly meant to be the extremist views held by terrorists) Pirzada seems to be saying that those funds come at too high a price.

Fury in Pakistan as petrol crisis brings roads to a halt - Prime Minister Nawaz Sharif on Monday expressed extreme displeasure over Pakistan's severe petrol shortage, forcing the petroleum minister to apologise for a crisis that has brought parts of the nation to a standstill. The shortage began last week, first hitting Pakistan's central Punjab province and the capital Islamabad, and spreading Monday to northwestern Khyber Pakhtunkhwa province and parts of the country's biggest city, Karachi. Affected areas ground to a halt, taking many buses off the roads and prompting angry scuffles at petrol stations, with tempers fraying as people waited in long queues for fuel. Some filling stations were forced to close. "The Prime Minister showed his extreme displeasure over the difficulties being faced by the people due to non-availability of fuel," Sharif's office said in a statement after he led a high-level meeting on the crisis. Officials say the shortage was sparked earlier this month when banks refused to extend further credit to Pakistan State Oil (PSO), forcing the state-owned fuel supplier to slash imports. Anger is growing over the shortage amongst Pakistanis -- who already have to deal with chronic power cuts that can see them struggle without electricity for 12 hours a day or more -- at a time of a global glut in oil supplies.

State Bank: Pakistan's Actual GDP Higher Than Official Figures Show  "In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM." State Bank of Pakistan Annual Report 2014.  Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.
Economists at Pakistan Institute of Development Economics (PIDE),  explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of  PSLM (Pakistan Social and Living Standards Measurement) consumption data  and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08".  And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity large scale manufacturing sector as its focus.  They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census.  In the years since 2006 CMI census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG).

Obama's India Visit; Iran-Saudi Proxy War; Pakistan Fuel Crisis - What is President Barack Husain Obama's India Visit Agenda? Will India-Pakistan tensions and Afghanistan be at the top of the agenda? Will it lead to improved cooperation in South Asia?  Is Iran behind the Yemen crisis? Will it intensify Saudi-Iranian proxy war in the Middle East? How will the death of Saudi King Abdullah affect it? How will it impact Pakistan? Has the fuel crisis in Pakistan further weakened Prime Minister Nawaz Sharif's PMLN government? How will PTI and Imran Khan benefit from it? ViewPoint from Overseas host Faraz Darvesh discusses these and other issues with panelists Ali H Cemendtaur, Misbah Azam ( and Riaz Haq. Obama's India Visit; Iran-Saudi Proxy War; Pakistan Fuel Crisis from WBT TV on Vimeo.

Bupa expands in India as rules on foreign investment are eased - News that Bupa has taken a 49% stake in a joint venture with an Indian healthcare provider marks the impact of a new set of legislation going through parliament. The government in New Delhi wants to makes it easier for foreign firms to invest in the country reports the Times of India. Narenrda Modi’s government has relaxed rules on the stakes foreign companies can own in the insurance industry, the first in a raft of changes seeking to boost competition and investment.Traditionally India has been a protectionist economy, keen to promote the growth of its home industries rather than foreign firms through a lot of red tape. Both Tesco and WalMart decided to call it quits in recent years. The entry of foreign firms into the domestic retail market is controversial and currently limited, with concerns over the impact on the countries large number of small stores in terms of employment and wage rates.Modi made his name by creating a model economy in Gujarat that grew more rapidly than all other Indian states. Now the country is demanding the same. India continues to enjoy a ‘Modi bounce’, with growth at 5.3% and business confidence rising, in part the result of a recent cut in interest rates. There’s an excellent BBC video clip on the costs and benefits of falling oil prices on the Indian economy.

A current account surplus? In India? You’re sure? - And to answer it, no we’re not sure. But the fact it’s even close is the point. From Nomura: After recording a deficit every quarter for more than seven years, we expect India’s current account balance to swing into a surplus of ~1.5% of GDP in Q1 2015 compared with our current account deficit estimate of 1.6% of GDP in 2014.  Part of this swing is seasonal in nature. India’s current account balance tends to improve in Q1 (Jan-Mar) owing to a narrower trade deficit (lower gold imports and higher merchandise exports) and a higher invisibles surplus (software exports mainly). However, we think the swing in Q1 2015 will largely reflect the full pass-through of lower oil prices on the import bill, which we expect will more than offset lower petroleum exports and weaker remittances.  A large balance of payments (BoP) surplus (we expect a BoP surplus of above USD20bn in Q1 alone) should put appreciation pressures on the local currency with Nomura’s FX strategists forecasting USDINR of 61.6 in Q1 2015 and 62 by Q4 2015.

Subramanian vs. Krugman: Indian Economic Adviser Fears U.S. Is Turning Against Globalization - The chief economic adviser to India’s government said he fears America’s longstanding commitment to globalization and the free movement of goods and people is in doubt, and that the shift in attitudes menaces the growth and development of poor countries including India. Arvind Subramanian, who spent much of his career in the U.S. before taking his current post in New Delhi, raised his concerns Saturday during a panel discussion in the Indian capital. He said the most worrisome aspect of this “intellectual climate change” is that it is taking place not only among “insular protectionists,” but among “heavyweight,” “cosmopolitan” economists as well. One such thinker, Mr. Subramanian said: his fellow panelist Paul Krugman. The Nobel Prize-winning economist and New York Times columnist, who has suggested that globalization has exacerbated income inequality in the U.S., was seated nearby. Mr. Subramanian said the U.S.’s recent economic growth hasn’t resulted in “gains distributed across the spectrum,” engendering distrust toward economic openness that becomes reflected in politicians’ and policy makers’ choices. The potential harm to India is vast, he said. Tougher U.S. immigration policy would jeopardize the estimated $45 billion that skilled Indian immigrants in the U.S. earn each year, as well as the $3 billion that these people pay into the social-security system and never collect because they don’t stay in the country long enough to become eligible.

IMF downgrades global growth forecast: The International Monetary Fund (IMF) has lowered its forecast for global economic growth for this year and next. The IMF now expects growth of 3.5% this year, compared with the previous estimate of 3.8% which it made in October. The growth forecast for 2016 has also been cut, to 3.7%. The downgrade to the forecasts comes despite one major boost for the global economy - the sharp fall in oil prices, which is positive for most countries. The IMF expects that to be more than offset by negative factors, notably weaker investment. That in turn reflects diminished expectations about the growth prospects for many developed and emerging economies over the next few years. If business expects weaker growth, there is less opportunity to sell goods and services and so less incentive to invest. Deflation concerns The eurozone is a case in point. The IMF does expect the recovery there to continue, but not strongly. It is estimating growth of 1.2% in the euro area this year and 1.4% in 2016. For the European Central Bank, the immediate priority is to tackle the deflation, or falling prices, now under way.

IMF cuts global economic-growth outlook - Sliding oil prices will give global growth a brief jolt, but the benefits won’t be strong enough to keep the world economy out of a deepening long-term rut, the International Monetary Fund said. In new forecasts, the IMF downgraded its outlook for more than a dozen of the world’s largest economies, including markedly slower growth in China. The fund said global growth would be 0.3 percentage point lower this year and next than it had previously expected. It now expects the world economy to expand 3.5% this year and 3.7% in 2016. “The price of oil is a shot in the arm,” IMF Chief Economist Olivier Blanchard said in an interview. “But there is clearly a state of weakness in the world economy and this shot is not enough.” The emergency lender raised its outlook for the U.S. economy this year by half a percentage point to 3.6% as falling fuel prices at the pump helped juice the American recovery. But tumbling crude costs failed to fend off stubborn economic anemia in the eurozone and Japan, two of the world’s largest economies at risk of returning into recession. The IMF cut its 2015 growth expectations for the currency union by 0.2 percentage point to 1.2% and chipped off the same amount for Japan’s forecast, putting growth in the world’s No. 3 economy at 0.6% for the year.

IMF World Economic Outlook Update - From the IMF: Global growth will receive a boost from lower oil prices, which reflect to an important extent higher supply. But this boost is projected to be more than offset by negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies. Here is an excerpt from the update table. What I find remarkable is the marked deterioration in the prospects for Russia. Year-on-year growth in 2015 and 2016 has been marked down by 3.5 and 2.5 percentage points, respectively, just in the three months since October’s WEO, to -3.0 and -1.0. Growth from 2014Q4 to 2015Q4 is forecasted to be -5.4%. (See this post for discussion of y-o-y vs. 4q/4q growth rates.)One might speculate that now would be the time to exert maximal leverage via further economic sanctions, should Russia continue to pursue its incursion in eastern Ukraine. Now some folks (like reader Tom commenting on a similar World Bank forecast) pooh-poohed the magnitude of the implied recession. It’s useful to remind people that the year-on-year drop in the US in 2009 was 2.8%… I think most sensible people think that was a pretty deep recession.

IMF cuts global growth outlook, calls for accommodative policy (Reuters) - The International Monetary Fund lowered its forecast for global economic growth in 2015, and called on Tuesday for governments and central banks to pursue accommodative monetary policies and structural reforms to support growth. Global growth is projected at 3.5 percent for 2015 and 3.7 percent for 2016, the IMF said in its latest World Economic Outlook report, lowering its forecast by 0.3 percentage points for both years. "New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries," Olivier Blanchard, the IMF's chief economist, said in a statement. The IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation. If policy rates could not be reduced further, the IMF recommended pursuing an accommodative policy "through other means". The United States was the lone bright spot in an otherwise gloomy report for major economies, with its projected growth raised to 3.6 percent from 3.1 percent for 2015. The United States largely offset prospects of more weakness in the euro area, where only Spain's growth was adjusted upward.

Global Economy Faces Strong and Complex Cross Currents -  IMF BlogOlivier Blanchard - The world economy is facing strong and complex cross currents.  On the one hand, major economies are benefiting from the decline in the price of oil.  On the other, in many parts of the world, lower long run prospects adversely affect demand, resulting in a strong undertow.  We released the World Economic Outlook Update today in Beijing, China. The upshot for the global economy is that while we expect stronger growth in 2015 than in 2014, our forecast is slightly down from last October.  More specifically, our forecast for global growth in 2015 is 3.5%, 0.3% higher than global growth in 2014, but 0.3% less than our forecast in October. For 2016, we forecast 3.7% growth, again a downward revision from the last World Economic Outlook. At the country level, the cross currents make for a complicated picture. Good news for oil importers, bad news for exporters. Good news for commodity importers, bad news for exporters. Continuing struggles for the countries which still show scars of the crisis, not so for others. Good news for countries more linked to the euro and the yen, bad news for those more linked to the dollar. In short, many different combinations, many different boxes, and countries in each box.   Let me expand a bit on some of these themes.

The IMF’s Top Economist On Weak Global Growth, Tumbling Oil Prices and Market Turmoil - The International Monetary Fund late Monday revised downward its global economic outlook amid slower-than-expected growth in most of the world’s largest economies, despite a stronger U.S. recovery and tumbling oil prices.  In an interview, IMF chief economist Olivier Blanchard outlined the key factors driving a dimmer outlook.

IMF cuts global growth outlook, warns of deflation risk: The International Monetary Fund lowered its forecast for global economic growth in 2015, and called on Tuesday for governments and central banks to pursue accommodative monetary policies and structural reforms to support growth. Global growth is projected at 3.5 percent for 2015 and 3.7 percent for 2016, the IMF said in its latest World Economic Outlook report, lowering its forecast by 0.3 percentage points for both years. “New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries,” Olivier Blanchard, the IMF’s chief economist, said in a statement.The IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation. If policy rates could not be reduced further, the IMF recommended pursuing an accommodative policy “through other means”. The United States was the lone bright spot in an otherwise gloomy report for major economies, with its projected growth raised to 3.6 per cent from 3.1 per cent for 2015. The United States largely offset prospects of more weakness in the euro area, where only Spain’s growth was adjusted upward. Projections for emerging economies were also broadly cut back, with the outlook for oil exporters Russia, Nigeria and Saudi Arabia worsening the most. The drop in world oil prices, which have fallen more than 50 per cent since June, is largely the result of Opec not cutting supplies, a decision that is unlikely to change, Mr Blanchard said. “We expect the decrease in price to be quite persistent,” he told reporters at a news conference launching the report. “We expect some return, some increase, but surely not an increase back to levels where we were, say, six months ago.”

Krugman warns of scary future due to spectre of deflation - The future for the world economy is "scary" due to the threat of deflation, Nobel prize-winning economist Paul Krugman said during a speech at the "Asian Financial Forum" in Hong Kong yesterday. He said he wanted the US Federal Reserve to think twice before raising its key interest rate, a move which he expects the Fed to take this year. Though the US economy is performing better than the economies of Japan and Europe, it could be affected by problems in these countries, he warned. Krugman said he was pessimistic about the future of the euro-zone economy, for which he currently believes there is no recovery in sight. However, the Princeton University professor of economics and international affairs expressed his support for maintaining the euro project, since breaking it up would cost the European Union dearly, particularly in terms of its goals of promoting democracy and prosperity. He said he expected the European Central Bank to cut its policy rate and adopt a quantitative-easing policy by injecting money into the system.

Looking At the World Bank's And IMF's Latest Global Economic Concerns: Over the last several days, both the IMF and the World Bank have issued their global growth reports, both of which contained lowered projections. The combination of these texts place into context the underlying reasons for the recent equity market and and commodity market sell-off, treasury market rally and overall concern regarding world economic performance. Let’s start with the World Bank’s report, which contained four concerns: First is persistently weak global trade. Second is the possibility of financial market volatility as interest rates in major economies rise on varying timelines. Third is the extent to which low oil prices strain balance sheets in oil-producing countries. Fourth is the risk of a prolonged period of stagnation or deflation in the Euro Area or Japan. I’ll take these in the order presented. Global trade has been dropping for two reasons, the first of which is the Chinese slowdown as shown in the following chart: Before the recession, overall Chinese GDP growth was increasing, from about 8% to 12% just before the financial crash. But after the recession, Chinese growth has been moving lower, now settling in the 7% range. But just as importantly, the composition of internal growth has changed from an economy based on manufacturing and exports to one more centered on domestic consumption. This has led to a drop in global trade, as China’s demand for raw materials like industrial metals has declined, which is declined, which is highlighted in this chart from the WTO:  This is also a primary reason for the drop in commodity prices, especially industrial metals.

The IMF’s Downgrade and 2 Big Questions for a Souring Global Economy - Many crosscurrents are buffeting the world economy.  The sudden, surprising decline in oil prices is good for global economic growth; more countries import oil than export it. But many forces are blowing the other way. Among them: slowing growth in China; recession in Russia; stagnation in Europe; commodity producers reeling from lower prices; the side effects of the rising U.S. dollar in emerging markets; and a worldwide shortage of investment. The bad winds are prevailing nearly everywhere outside the U.S., according to the International Monetary Fund’s update of its economic forecast. Compared with its October forecast, the IMF revised down its forecast for global economic growth by 0.3 percentage points for 2015 (now at 3.5%) and 2016 (3.7%). The only major economy for which the IMF is more optimistic than it was in October is the U.S., now seen growing 3.6% in 2015 (up 0.5 percentage points from the earlier forecast) and 3.3% in 2016 (up 0.3 percentage points.) All of which raises a couple of very big questions: First, can the U.S. really do better while the rest of the world does worse? Perhaps. The United States relies less on exports than many other big economies; it is a big consumer of oil and is enjoying a welcome strengthening of domestic demand. Meanwhile, the chances of any significant fiscal tightening from Washington are very low. There’s a good chance 2015 will be the year we’ve all been waiting for, the year in which the U.S. economy finally takes off. But the risks are nearly all to the downside: The worse the rest of the world does, the more likely it is that 2015 will be another disappointing one for the U.S. Second, can global economic policymakers provide enough of a jolt to make a difference?

Central bank prophet fears QE warfare pushing world financial system out of control -  The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world's financial system going into 2015. Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West. "We are in a world that is dangerously unanchored," said William White, the Swiss-based chairman of the OECD's Review Committee. "We're seeing true currency wars and everybody is doing it, and I have no idea where this is going to end." Mr White is a former chief economist to the Bank for International Settlements - the bank of central banks - and currently an advisor to German Chancellor Angela Merkel. He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. "We are holding a tiger by the tail," he said.  He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. "Sovereign bond yields haven't been so low since the 'Black Plague': how much more bang can you get for your buck?" he told The Telegraph before the World Economic Forum in Davos. "QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market," he said.

World Economy Needs 280 Million Jobs in Next Five Years, ILO Says - Real Time Economics - WSJ: The world economy will need to generate nearly 280 million new jobs between now and the end of 2019 to make up ground lost during the last recession and ensure new labor market entrants can find work, the International Labor Organization said in a new report. The ILO forecasts a grim employment picture for the global economy as a whole over coming years, and does not believe that gap will be closed unless aggressive employment policies are implemented where they are most needed. “Job creation is expected to remain at this lower growth rate over the medium term, causing a widening of the global jobs gap to around 80 million jobs in 2019, the United Nations agency said. Including “new labor market entrants, 277 million jobs will need to be created over the coming five years to close the crisis-related global jobs gap and to absorb the increase in the labor force,” the report said. The ILO’s World Employment Social Outlook includes a trove of data about countries around the world. The total number of unemployed workers worldwide was 201.3 million in 2014, 1.2 million more than in 2013 and around 31 million more than in 2007, when the financial crisis began. “The global employment gap caused by the crisis continues to widen,” the organization said. The report also flags youth unemployment as a major problem across geographic regions. Almost 74 million young people aged 15 to 24 were looking for work last year, and the youth unemployment rate is nearly three times the adult rate. It notes that elevated levels of male youth unemployment are associated with higher levels of social unrest.

Where Will the Future Global Jobs Come From? - Economies all around the world need to create jobs. In part, this is to continue the process of recovery from the Great Recession. In part, it is to address expanding workforces in the countries that are still experiencing population growth. And and all around the world, jobs need to be created so that those who have unsatisfactory or insecure jobs have the prospect of something better. The International Labor Organization offers some background on these issues in the January 2015 issue of World Employment and Social Outlook: Trends 2015.. As a starting point: here is an overview of how the ILO sees the need for creating 280 million jobs worldwide in the next five years: "[T]he global employment outlook will deteriorate in the coming five years. Over 201 million were unemployed in 2014 around the world, over 31 million more than before the start of the global crisis. And, global unemployment is expected to increase by 3 million in 2015 and by a further 8 million in the following four years. The global employment gap, which measures the number of jobs lost since the start of the crisis, currently stands at 61 million. If new labour market entrants over the next five years are taken into account, an additional 280 million jobs need to be created by 2019 to close the global employment gap caused by the crisis."This estimate of a need for 280 million new jobs covers the unemployed and population growth, but from a global view, it seems a lowball estimate to me. The reason is that the ILO counts many people around the world as holding jobs in what it calls the "vulnerable employment" sector, which is defined as "own-account work and contributing family employment." Thus, a low-income subsistence farmer is counted as counted as holding a job. 

Richest 1% Likely to Control Half of Global Wealth by 2016, Study Finds - The richest 1 percent are likely to control more than half of the globe’s total wealth by next year, the charity Oxfam reported in a study released on Monday. The warning about deepening global inequality comes just as the world’s business elite prepare to meet this week at the annual World Economic Forum in Davos, Switzerland. The 80 wealthiest people in the world altogether own $1.9 trillion, the report found, nearly the same amount shared by the 3.5 billion people who occupy the bottom half of the world’s income scale. (Last year, it took 85 billionaires to equal that figure.) And the richest 1 percent of the population, who number in the millions, control nearly half of the world’s total wealth, a share that is also increasing. The type of inequality that currently characterizes the world’s economies is unlike anything seen in recent years, the report explained. “Between 2002 and 2010 the total wealth of the poorest half of the world in current U.S. dollars had been increasing more or less at the same rate as that of billionaires,” it said. “However since 2010, it has been decreasing over that time.”Winnie Byanyima, the charity’s executive director, noted in a statement that more than a billion people lived on less than $1.25 a day.“Do we really want to live in a world where the 1 percent own more than the rest of us combined?” Ms. Byanyima said. “The scale of global inequality is quite simply staggering.”

New Oxfam report says half of global wealth held by the 1% - Billionaires and politicians gathering in Switzerland this week will come under pressure to tackle rising inequality after a study found that – on current trends – by next year, 1% of the world’s population will own more wealth than the other 99%. Ahead of this week’s annual meeting of the World Economic Forum in the ski resort of Davos, the anti-poverty charity Oxfam said it would use its high-profile role at the gathering to demand urgent action to narrow the gap between rich and poor. The charity’s research, published on Monday, shows that the share of the world’s wealth owned by the best-off 1% has increased from 44% in 2009 to 48% in 2014, while the least well-off 80% currently own just 5.5%. Oxfam added that on current trends the richest 1% would own more than 50% of the world’s wealth by 2016. Winnie Byanyima, executive director of Oxfam International and one of the six co-chairs at this year’s WEF, said the increased concentration of wealth seen since the deep recession of 2008-09 was dangerous and needed to be reversed. In an interview with the Guardian, Byanyima said: “We want to bring a message from the people in the poorest countries in the world to the forum of the most powerful business and political leaders. “The message is that rising inequality is dangerous. It’s bad for growth and it’s bad for governance. We see a concentration of wealth capturing power and leaving ordinary people voiceless and their interests uncared for.”

Very Rich Get Very Richer: Wealthiest 20% Hold 94.5% of World’s Money - The wealthiest 1% of the world’s population will own more than half of total global wealth next year, according to projections released Monday by Oxfam International, the antipoverty advocacy group. And the richest 80 people in the world alone now possess more combined riches than do the poorest half of the world’s population, Oxfam reported, citing Credit Suisse and Forbes data. “Global wealth is becoming increasing(ly) concentrated among a small wealthy elite,” the Oxfam report said. In 2010, it would have taken the combined riches of the 388 top billionaires to equal the combined assets of the bottom 50% of the planet. But the billionaires’ assets have appreciated so quickly since then, and the total value of the poor’s resources has dropped so precipitously, that last year it took just the top 80 billionaires to equal the wealth of the bottom 3.5 billion people on the planet, Oxfam said. The wealthiest 80 people have a combined net worth of $1.9 trillion, up from $1.3 trillion in 2010, with the bulk of their fortunes coming from the financial, pharmaceutical and health care industries. More than a billion people live on less than $1.25 a day, Oxfam said. The richest 20% of the population together hold 94.5% of the world’s wealth, Oxfam said. The poorest 80% of the world’s population share just 5.5%.

Richest 1% Will Have More Wealth Than Remaining 99% By 2016: Oxfam Study: The richest one percent of the world’s population will have more wealth than the remaining 99 percent by next year, charity group Oxfam said, in a report published Monday. The report, which warns of a widening gap between the world’s richest and the rest, comes ahead of this week’s annual meeting of the World Economic Forum (WEF) in Davos, Switzerland. According to the research paper by Oxfam, titled “Wealth: Having It All and Wanting More,” the share of global wealth owned by the richest one percent has increased from 44 percent in 2009 to 48 percent in 2014 -- a trend that will eventually lead to the richest owning over 50 percent of wealth by 2016. Moreover, the study found that the richest 80 people in the world now own the same amount of wealth as bottom 50 percent of the population. “3.5 billion people share between them the same amount of wealth as that of these extremely wealthy 80 people …  In 2010, it took 388 billionaires to equal the wealth of the bottom half of the world’s population; by 2014, the figure had fallen to just 80 billionaires,” Oxfam said, in the study. In absolute terms, this means that richest 80 people -- 0.000001 percent of the world's population -- currently have a collective wealth of $1.9 trillion, an increase of $600 billion since 2010.

80 rich people now have as much as 50% of the rest of humanity combined – Billionaires are getting richer, according to a new study from Oxfam. Gather together the wealth of the world’s richest people, and you now only need 80 of them before there’s enough in the pot to equal everything owned by the poorest 50% of the rest of the world combined. Back in 2010, you’d have needed 388 of the world’s richest to balance those scales.  The richest of the top 1%, the top billionaires on Forbes’ rich list, have seen their wealth accumulate faster over the last five years than even the rest of the super-rich, Oxfam said. In 2010, the richest 80 people in the world had a net wealth of $1.3 trillion. By last year, that was up to 1.9 trillion, an increase of $600 billion. Together with the rest of the 1%, that group owned 48% of global wealth in 2014. That’s more uneven than in 2010, when they owned a little over 44%. However, according to Oxfam’s data, we’ve been here before. Back in 2000, the 1% owned a higher percentage of global wealth than they do today. For a few years, the trend seemed to show that number falling, as the world’s poorest clawed some of it back. But in the past five years, that’s reversed. Part of the problem, as identified by Oxfam, is that the rate of increase for the rich has speeded up, and it’s now so much higher than that for everyone else that it’s increasing the gap.

Billionaires Shocked To Learn They Only Control Half The World's Wealth - A new Oxfam report indicating that the wealthiest one per cent possesses about half of the world’s wealth has left the richest people in the world “reeling with disappointment,” a leading billionaire said on Tuesday.  Speaking to reporters in Davos, Switzerland, where he is attending the World Economic Forum, the hedge-find owner Harland Dorrinson said, “I think I speak for a lot of my fellow billionaires when I say I thought we were doing a good deal better than that.” Calling the Oxfam findings “sobering,” he said that he hoped they would serve “as a wake-up call to billionaires everywhere that it’s time to up our game.”  “Quite frankly, a lot of us thought that by buying politicians, rewriting tax laws, and hiding money overseas, we were getting it done,” said Dorrinson, who owns the hedge fund Garrote Capital. “If, at the end of the day, all we control is a measly half of the world’s wealth, clearly we need to do more—much more.” In Davos, Dorrinson is huddling with other billionaires in the hopes of setting an ambitious goal for the top one per cent: to own the other half of the world’s wealth by 2025.“Getting that other half is not going to be a walk in the park,” he said. “But ten years from now, when Oxfam says that the top one per cent owns everything in the world, it’ll all have been worth it.”

The Only Road Out Of Davos - The Automatic Earth: After 6+ (BIG +) years of deepening poverty and rising stock markets, of creative accounting, of QE and ultralow interest rates, of extend and pretend and outright propaganda and of what have you, all of which have led us to where we are today, facing yet more rounds of stumbling from crisis into multiple crises, it would seem clear that the model, if not the mold, is broken. In order to fix it, let alone replace it altogether, we need to understand to what extent it is broken. And to do that, we first need to know what exactly the model is. Now, it would be tempting, even seem logical, to consult with the people who designed and built the model. Who, after all, not only claim to be the only ones capable of fixing the broken mold, but who also have occupied all positions of power that have any say in the process. But that’s less obvious than it may seem. Because, mind you, the model is broken. They built a flawed model. Or rather, they built one that works for them, for some, but not for the rest of us. There are gatherings and festivities ongoing in Davos. Only some are invited: the rich, the powerful and their court jesters. Those who profited most from the broken model. They’re least likely to fix it, they won’t even admit to it being broken. It works just fine for them. The people in Davos believe in one model only, the one of ever increasing centralization and globalization, because that’s the model that got them where they are. That means that what’s in their interest is 180º removed from what’s in your interest. And it means that whatever these people propose you do, you should probably do the exact opposite.

The dollar is still our currency and still your problem | FT Alphaville: For some reason, a lot of people outside the US like to borrow from and lend to each other in dollars. A new paper from the Bank of International Settlements, which has consistently been producing some of the best research on these flows, describes how the action has shifted from banks to bond investors since 2008. The first point they highlight is that almost all of the growth in total US dollar lending to the non-financial sector since the crisis has gone abroad and to the US government, rather than to the American private sector. As a result, the share of private dollar credit going to foreign borrowers has jumped from about 20 per cent in 2009 to nearly 35 per cent by 2014: You can also see, in the right panel of the chart above, that the growth of dollar debt owed by the non-US non-financial sector is quite volatile compared to the growth of debt owed by Americans. Much of that volatility can be attributed to the behaviour of banks rather than the fixed income markets. (Valentina Bruno and Hyun Song Shin have written about the role of bank lending in international capital flows in much more detail, but the short version is that US monetary policy affects the incentives for banks to adjust their leverage using dollars.) That said, about half of the additional dollar credit provided to the foreign non-financial sector since 2008 came from bonds rather than bank loans because the growth rate of offshore bond issuance accelerated sharply over the past five years:

It can be morning again for the world’s middle class, by Lawrence Summers, FT [open link] The most challenging economic issue ahead of us involves a group that will barely be represented at this week’s annual Davos summit — the middle classes of the world’s industrial countries..., no one should lose sight of the fact that without substantial changes in policy the prospects for the middle class globally are at best highly problematic. First, the economic growth that is a necessary condition for rising incomes is threatened by the spectre of secular stagnation and deflation. ... Second, the capacity of our economies to sustain increasing growth and provide for rising living standards is not assured on the current policy path. ... Third, if it is to benefit the middle class, prosperity must be inclusive and in the current environment this is far from assured. ... The experience of many countries and many eras shows that sustained growth in middle class living standards is attainable. But it requires elites to recognise its importance and commit themselves to its achievement. That must be the focus of this year’s Davos.

The "Deflationary Vortex": Global Dollar Economy Suffers Biggest Plunge Since Lehman, Down $4 Trillion - One of the macroeconomic observations that has gotten absolutely no mention in recent months is the curious fact that while global economic growth has not imploded in recent quarters, it is because GDP has been represented, as is customary, in local currency terms. Of course, this comes as a time when local currencies (at least those which are not the USD) have been plunging against the greenback on the back of the expectations that the Fed will hike rates some time in the summer or later in 2015. Which also means that in "dollar economy" terms, i.e., converted in USD, things are not nearly as good.  In fact, as the chart below shows, the global dollar economy is not only shrinking fast, but it is doing so at the fastest pace since the Lehman collapse, having lost a whopping $4 trillion, or a whopping 5% drop,  in just the last 6 months!

Tempers Fray As Argentine Tampon Squeeze Extends To 20 Days -- While Venzuelans line up for hours every day to garner staples such as soap and toilet paper, the Argentinians have a potentially more explosive problem. As Reuters reports, the country's 20.6 million women couldn't find their favorite tampons earlier this month - during the height of summer - "for 20 days, we simply couldn't source any tampons from wholesalers." The government vowed to keep the supply chain filled with tampons as media talk of a "run on tampons" stoked peoples' fears that Argentina is rapildy heading down the same socialist utopia track as its neighbor.

Latin American Default Wave Just Getting Started -- Latin America is turning into the world leader in corporate-bond defaults. Four companies in the region have skipped dollar-denominated debt payments this month, more than any other area and almost half the total in all of 2014. In a sign bond investors are increasingly concerned about Latin American companies’ ability to repay debt, borrowers led by Mexico’s oil-rig operators have pushed the amount of the region’s bonds trading at distressed prices to $58 billion, about a third of all emerging-market debt trading at such levels. The strains that have investors from Prudential Financial Inc. to Hartford Investment Management Co. bracing for more defaults are showing few signs of abating. An oil-led collapse in commodities prices has persisted, growth is flagging in economies from Mexico to Colombia, and the biggest corruption scandal in Brazil’s history is spreading. That raises the risk of even bigger losses for investors saddled with the worst returns in emerging-markets this year.

Brazil seeks additional $7.7 billion with first round of tax hikes (Reuters) - Brazil on Monday announced tax increases on fuel, imports and consumer loans aimed at raising 20.6 billion reais (5 billion pounds) in additional revenues this year, although some economists have warned the measures may boost inflation.The plan is part of an effort to help balance budget accounts and revive investor confidence, Finance Minister Joaquim Levy said at a news conference. The taxes will help the government collect one-third of the savings it needs to meet debt-reduction goals for the year.The tax hikes will also reverse fiscal incentives that had been implemented by Levy's predecessor at the Finance Ministry, Guido Mantega, whose policies had been widely criticized by the private sector."The main goal of these measures is to boost confidence in the economy," said Levy, who took office at the start of the year. "These measures, taken together, should improve confidence, encourage people to invest in Brazil and take risks."Yet, the tax hikes are likely to stoke inflation, putting the 12-month trailing number potentially above the official target ceiling of 6.5 percent, and put the brakes on an already sluggish economy, analysts have said.

Olympic host Brazil dominates list of world’s 50 most dangerous cities - Forty-three of the 50 most dangerous cities in the world are in Latin America, according to a survey released Tuesday, including 19 in Brazil, which will host the 2016 Summer Olympic Games.Mexico City didn’t make the list, and Ciudad Juárez, the border city with Texas that was once the world’s murder capital, fell this year to No. 27.But the fallen Mexican resort of Acapulco was No. 3, behind San Pedro Sula, Honduras, and Caracas, Venezuela.This is the seventh year that the Citizen Council for Public Security and Criminal Justice, a Mexico City advocacy, has compiled the list, based on official murder rates per 100,000 residents of cities with more than 300,000 people.The president of the council, José Antonio Ortega Sánchez, said Brazilian authorities would do well to take note that its cities are growing in number on the annual list. Last year, Brazil had 16 cities in the ranking.

Distortions, lies and omissions: The New York Times won’t tell you the real story behind Ukraine, Russian economic collapse - We witness the single most reckless, destructive foreign policy this administration has yet devised, comparable in magnitude to Bush II’s decision to invade Iraq in 2003. The devastation of ties with a global power, the dissolution of Ukraine and very possibly the ruination of Europe’s barely beating economic recovery will be what we live with after this administration makes its exit. I am awestruck as news of recent events unfolds. Ukraine is more than an economic, political and military mess: It is a major humanitarian tragedy now. As the German CEO wants to know, how can we possibly arm neo-Nazis in Ukraine while right-wing extremists and anti-immigration atavists rise all over Europe? The body blows the State Department and Treasury are dealing Russia in response to the Ukraine crisis—as precipitated by State, of course—would be irresponsible under any circumstances for the risks they carry. In the current global environment, this starts to shape up as monomania. Thoughtful readers point out that this is a standoff between two nuclear powers, and, indeed, this has to be on our minds. But for the moment, and thank goodness, that is in the background. The very immediate menace is a global economic calamity that could make the 2008 crisis look like a blip on the chart. Last week Fitch, the credit-rating agency, downgraded Russia’s status to BBB, putting it a few notches away from junk status. This is hardball, we had better recognize: You cannot shove the world’s No. 8 economy into the gutter and expect it to land there alone. A lot of suffering beyond Ukraine’s borders, where it is awful enough already, is frighteningly near. Before I go any further: No, you are not reading much about this in the American press. You can read about it in the German press, the French press and elsewhere on the Continent, in the Czech press, the Russian press (obviously), some of the British press, and even the Chinese press. But all those journalists and all their readers are in a propaganda bubble, the world’s greatest newspaper wants us to know. It is crowded inside the propaganda bubble and lonely here outside of it, it seems. To this topic we will return.

Gorbachev Warns of Decline in Russian Western Ties over Ukraine -- Gorbachev: Everything appears to be repeating itself. There was a time for building a Wall and a time for tearing it down. I'm not the only person to thank for the fact that this wall no longer exists. (Former Chancellor) Willy Brandt's Ostpolitik was important, as were the protests in Eastern Europe. Now, new walls are being built and the situation is threatening to escalate. I do, in fact, see all the signs of a new Cold War. Things could blow up at any time if we don't act. The loss of trust is disastrous. Moscow no longer believes the West and the West doesn't believe Moscow. That's terrible.
SPIEGEL: Do you think it is possible there could be another major war in Europe?
Gorbachev: Such a scenario shouldn't even be considered. Such a war today would inevitably lead to a nuclear war. But the statements from both sides and the propaganda lead me to fear the worst. If one side loses its nerves in this inflamed atmosphere, then we won't survive the coming years.
SPIEGEL: The new Russian military doctrine labels NATO's eastern expansion and the "reinforcement of NATO's offensive capabilities" as one of the primary threats facing Russia. Do you agree?
Gorbachev: NATO's eastward expansion has destroyed the European security architecture as it was defined in the Helsinki Final Act in 1975. The eastern expansion was a 180-degree reversal, a departure from the decision of the Paris Charter in 1990 taken together by all the European states to put the Cold War behind us for good. Russian proposals, like the one by former President Dmitri Medvedev that we should sit down together to work on a new security architecture, were arrogantly ignored by the West. We are now seeing the results.

Russia May Be Forced Into Production Cuts Says Deputy PM - The 7-month-old plunge in oil prices will force Moscow to cut its budget for 2015 by 10 percent, perhaps even 15 percent, a senior Russian government official told a panel discussion at the World Economic Forum in Davos Switzerland, adding that Russia may find itself reducing oil production by as much as 1 million barrels per day, but he stressed that such a cut would not be made in coordination with OPEC.

Analysts Predict a Russian Descent Into Madness - President Vladimir Putin cannot afford at this point to reform the political system he has built up, as doing so would undermine his grip on power, a panel of political analysts said at the Gaidar Forum on Friday. They went on to warn that without fundamental change, Russia risks an eventual descent into "revolutionary chaos." The panel, which consisted of several analysts known for their vocal criticism of Russian government policy, spoke before a packed audience. Such heated political rhetoric may seem out of place at a high-level economic policy conference co-organized by the Russian Presidential Academy of National Economy and Public Administration (RANEPA) and the Gaidar Institute for Economic Policy. But the final day of this year's forum was marked by departures from mainstream economics, with forays into everything from politics to education. The political panel was moderated by Leonid Gozman, who has stood at the helm of some of Russia's most prominent liberal parties over the course of the past decade.

Expanding Russia Issues Europe An Ultimatum -- Don’t tell the West, but Vladimir Putin isn’t changing. The Russian President has skipped their little ‘lesson’ on 21st century politics in favor of his own, unadulterated, version. In what we’ve come to expect, Putin is set to formally absorb South Ossetia – Georgia’s breakaway republic – and Gazprom is prepared to deny Europe up to one-quarter of its annual exports to the continent. What’s more, the conflict continues in Ukraine and allegations of Russian financing are growing louder.  As we remarked earlier, Russia has enjoyed a less than ideal start to 2015. In line with crude prices, the ruble has tumbled nearly 60 percent since its high last June. The country is hemorrhaging its foreign exchange reserves and desperately trying to rein in capital flight, which hit record levels in 2014 and is on track for more of the same this year. On Friday, Moody’s Investors Service slashed Russia’s credit rating to the lowest investment grade, with a cut to junk looming. The ratings cuts – which also targeted oil and gas companies Gazprom, Gazprom Neft, and LUKoil – represent serious stumbling blocks, but Western sanctions remain the primary source of Russia’s financing woes.

"Russian Invasion Survival Manual" To Be Issued To Citizens In European Union -- While most Americans discount the possibility of a major conflict with Russia, Europeans who have seen two great wars in the last century know better. The country of Lithuania, much like its neighbors, is preparing for a full-out invasion by Russian forces and their government is issuing a survival manual to its citizens.

More Isolation? Russia, China To Build $240 Billion High-Speed Rail Link -- The ongoing 'isolation' of Russia took another turn for the un-isolated-er today when, as Bloomberg reports, China will build a 7,000-kilometer (4,350-mile) high-speed rail link from Beijing to Moscow, at a cost of 1.5 trillion yuan ($242 billion), Beijing’s city government said. The rail-link - which will bring travel time between Beijing and Moscow down from 5 days to 30 hours - signals a 10-year partnership between the two nations and follows the dropping of the French company, Alstom, from the project.

'Francogeddon': Swiss central bank stuns market with policy U-turn: The Swiss National Bank shocked financial markets by scrapping a three-year-old cap on the franc, sending the safe-haven currency soaring against the euro and stocks plunging amid fears for the export-reliant Swiss economy. Only days ago, SNB officials had described the 1.20 francs per euro cap, introduced in 2011 at the height of the euro zone crisis to prevent the strong currency leading to deflation and a recession, as the cornerstone of the bank's monetary policy. The U-turn sent the euro nearly 30 per cent lower against the franc in chaotic early trading. It came a week before the European Central Bank is expected to unveil a massive bond-buying programme that might have forced the SNB to intervene repeatedly to defend the cap. Advertisement "Today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," said Nick Hayek, chief executive of Swiss watch firm Swatch. SNB chairman Thomas Jordan denied at a news conference that the move amounted to a "panic reaction", saying the cap had been scrapped because it was unsustainable. "If you decide to exit such a policy, you have to take the markets by surprise," Jordan said. As it removed the upper limit on the currency, the SNB sought to discourage new flows into Swiss francs by pushing down its interest rate on some cash deposits held at the central bank by commercial banks and other financial institutions. After taking the rate into negative territory last month for the first time since the 1970s, it cut another 0.5 percentage points on Thursday to -0.75 per cent, a move Jordan said would help ease upward pressure on the franc over time.

Oh Switzerland, What Have You Done? - On Thursday January 15th, the Swiss National Bank abruptly made a radical policy shift. For the last two years it has capped the value of the franc at 1.20 EUR by doing what was until recently the world’s largest QE programme – buying euros without limit in return for newly created francs. As a consequence, its balance sheet has ballooned to 86% of Swiss GDP. But according to the SNB, times have changed and the cap is no longer needed:  Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.   So with immediate effect, the cap was lifted. The franc now floats freely versus the euro. And in a radical move, the SNB slashed interest rates on central bank deposits to an unprecedented minus 0.75%. Immediately after the announcement, the franc rose by over 40% against the euro and more than 15% against other currencies, though it later fell back, closing up 19% against the euro.  Such a massive surge had appalling effects on financial intermediaries and their customers who were exposed to Swiss francs through derivative trades. Brokers were particularly badly hit. The FX trading platform FXCM FXCM found itself $225m short of regulatory capital because of customer losses: it has now obtained emergency funding of $300m from Leucadia. Alpari UK is officially insolvent, Global Brokers NZ Ltd. was forced to shut down and IG Group said it could face losses of up to £30m ($45.3m). Banks suffered too: Bloomberg Bloomberg reports that Citigroup Citigroup appears to be down $150m, while Barclays and Deutsche Bank also admitted to heavy losses. Nor are the losses limited to financial markets. Households in Hungary and Poland who had taken out mortgages in Swiss francs will experience distress since the forint and the zloty have fallen versus the franc. And Switzerland’s own export sector is severely impacted, since the Eurozone is by far its largest trading partner.

The Swiss currency bombshell – cause and effect --The completely unexpected decision of the Swiss National Bank (SNB) to remove the 1.20 floor on the Swiss franc against the euro on Thursday was one of the biggest currency shocks since the collapse of the Bretton Woods system in 1971. The decision has been heavily criticised, both for its tactical handling of the foreign exchange market, and for the collapse of the centrepiece of its monetary strategy, without (apparently) any overriding cause. The credibility of a central bank that has traditionally been hugely respected by the markets has clearly been dented. The decision has already caused severe stress and bankruptcies in the currency market, and it is far too early to judge whether this has now settled down. More importantly, the deflationary shock to the Swiss economy will be severe. And there are concerns that the failure of the SNB’s policy of unlimited market intervention may have much more profound implications for the credibility of the wider market interventions by global central banks, on which asset prices currently depend.  It is important to keep this in perspective. The SNB decision may have been driven to a large degree by the fear of losses on the central bank’s balance sheet, which are peculiar to the ownership structure of the central bank in Switzerland. Furthermore, other major central banks are not operating currency pegs, where large balance sheet losses tend to occur. Even so, this event will clearly make investors question whether the central banks can indefinitely exert as much control over the financial markets as the period of quantitative easing has suggested.

Swiss Franc Trade Is Said to Wipe Out Everest’s Main Fund - Marko Dimitrijevic, the hedge fund manager who survived at least five emerging market debt crises, is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro, according to a person familiar with the firm.  Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline, said the person, who asked not to be named because the information is private.  Armel Leslie, a spokesman for Everest Capital with Peppercomm, declined to comment on the losses. Calls to Dimitrijevic weren’t returned.  Last year, the main fund rose 14.1 percent, driven by Chinese equities and bets against currencies, including a wager that the Swiss franc would fall after citizens rejected a referendum that would require the central bank to hold at least 20 percent of its assets in gold, the investor report said.

No One Was Supposed to Lose This Much Money on Swiss Francs -- One does not normally see sharp right angles in financial charts, but you could pretty much cut yourself on this chart of the volatility of the Swiss franc against the euro: One straightforward takeaway is: Whoa, that volatility is super high! But perhaps a more useful takeaway is: Whoa, it was super low for a really long time! This is of course because the Swiss National Bank capped the franc's value against the euro: The SNB wanted a price of no less than CHF 1.20 per euro, and the euro itself wanted a price of no higher than CHF 1.20 for reasons of its own, so the result was pretty much a peg at slightly above 1.20. In the 12 months ending on Wednesday, the euro traded in a range of 1.20095 to 1.23640 francs: That chart looks more jagged than it is, because you're standing too close to it. Here, I've zoomed out by two days: Those two days -- yesterday and today -- really put the previous year in perspective. Goldman Sachs Chief Financial Officer Harvey Schwartz said on this morning's earnings call that this was something like a 20-standard-deviation event, and while the exact number of standard deviations is of course a subjective matter, that's the right ballpark. Over the 12 months ended on Wednesday, the annual volatility -- that is, the annualized standard deviation of daily returns -- of the euro/franc relationship was a bit over 1.7 percent; over the last three months of that period the volatility was less than 1 percent. That converts to adaily standard deviation of something like 0.1 percent. On Thursday, the euro ended down almost 19 percent, or call it 180 standard deviations, depending on what period you use. An 180-standard-deviation daily move should happen once every ... hmmm let's see, Wikipedia gives up after seven standard deviations, but a 7-standard-deviation move should happen about once every 390 billion days, or about once in a billion years. So this should be much less frequent. Good news I guess, Switzerland won't be un-pegging its currency for at least another billion years, go ahead and set your Swatch by it.

Tough times ahead for the Swiss economy - The Swiss National Bank’s unexpected abandonment of the Swiss franc cap continues to reverberate across global markets (examples listed below). The currency settled around parity, which is about 17% above the cap (the euro is 17% lower). At this level the SNB loss on its massive foreign currency position (mostly euro) is somewhere around CHF 75 bn.  The buildup of euros was the result of having to defend the franc cap when capital was flowing out of the Eurozone into Switzerland (the SNB had to buy euros and sell francs). The central bank came under enormous criticism domestically for becoming so exposed to the Eurozone. But now the central bank is cutting its losses and walking away from having to buy any more euros. In the past few years, the currency cap resulted in (relatively) easy monetary policy by keeping the franc artificially weak while the SNB balance sheet expanded via the euro purchases. While the mechanism was different than with other central banks who have undertaken the policy of quantitative easing, the SNB's balance sheet had ballooned in recent years. As a result, the nation’s stock market had outperformed other European markets by some 30% since the cap was instituted. When it comes to pumping up the stock market, easy monetary policy clearly works. But once the valve was opened and the Swiss franc was allowed to appreciate, the Swiss stock market gave up some 15% in just two days (chart below). In effect the SNB ended its version of “quantitative easing” in a few seconds rather than by “tapering” as was the case in the US. With this decision the SNB has lost a great deal of credibility - not due to the change in policy but due to its execution. .Switzerland was already entering deflation before the currency was allowed to appreciate. Now the nation is about to undergo what Japan had a few years back. During the Eurozone crisis, the yen which - just as the Swiss franc - was a "safe haven" currency, strengthened significantly, nudging Japan into deflation. The situation in Switzerland is now similar, except that rather than easing policy further as the BOJ did, the SNB tightened it. For the Swiss economy difficult times lie ahead.

Counting Ways the Swiss Franc Shook the World -- Less than a month into 2015, we already have a candidate for its biggest economic story for the year. Catching nearly everyone off-guard, the Swiss National Bank (SNB) indicated on Thursday (15 January) that it would no longer push down the value of the Swiss franc against the euro. You see, since 6 September 2011, the SNB had kept the Swiss franc (CHF) at 1.20 to the common currency to maintain the competitiveness of Swiss exports--especially to the Eurozone where over half of them go. The trigger of this guarantee was the CHF brutally gaining against EUR [1, 2] as the European Central Bank (ECB) started emulating American-style easy money policies in trying to reflate the Eurozone from its moribund state. By the end of Thursday, CHF had gained nearly 40% against the euro--kind of unbelievable, but it really did happen. We all know of the massive Swiss multinationals that have loudly complained about the SNB's action given the loss of competitiveness that will surely follow:  The beating Swiss exporters received on stock markets on Thursday and the uncertainty this action caused for banks that were caught "short" on Swiss francs the world over walloped any number of financial service concerns and dragged global equity indices down.   However, there is also a long list of victims of the SNB move that are somewhat less obvious.  In order of culpability, these include:
(1) Eastern Europeans who took out home loans denominated in CHF:
(2) One of the world's largest online foreign exchange brokers, FXCM:
(3) And perhaps the most obvious of them all, a large hedge fund that was reportedly shorting Swiss francs:

Swiss Move Prompts Fears of Sustained Market Tumult - The Swiss central bank’s surprise decision to remove the cap on its currency has incited investor fears that a spate of bank and fund losses could lead to a sustained bout of market turmoil beyond the ability of central banks to ride yet again to the rescue.The Swiss franc soared against the euro, which tumbled in value against the dollar after the move by the central bank on Thursday. The yen pushed upward, emerging market currencies gyrated and the price of oil rose sharply, reversing its recent fall.The last few days have been a time of “volatile volatility,” to use the words of a top Citigroup executive — trader jargon for a series of sharp, disorienting moves in stocks, currencies and bonds that can ultimately lead to market-rattling events like the collapse of a major bank or investor.This was the explanation used by FXCM, one of the largest foreign exchange trading platforms for individual investors in the United States, when it said on Thursday that “unprecedented volatility” after the Swiss franc’s surge against the euro had led to $225 million in customer losses that might put it in breach of capital requirements. On Friday, the company announced that it would receive a $300 million loan from the parent company of the investment bank Jefferies to allow it to keep operating.There were other casualties in the currency markets, including several small brokerage firms in Britain and New Zealand.The question now is whether the much larger players in the $5 trillion-a-day foreign exchange market, global banks like Barclays, Deutsche Bank and others, might have been caught short in significant ways.

On the Instability of Unilateral Fixed Exchange Rate Regimes -- The difference between winning and losing in the FX market is usually just a matter of luck. To a first approximation, floating exchange rates seem to follow a random walk (see here). But the trade I'm describing here is one I think we should have expected to pay off for reasons beyond pure luck. That is, there is a pretty sensible theory of currency crises that might have guided our investment strategy in the present context. In particular, I'm thinking of Paul Krugman's (1979) model, which he describes here.   The basic idea is as follows. Suppose that a central bank wants to peg its currency relative to some other currency. Suppose that it does so unilaterally. The success of the peg will depend critically on its perceived credibility. This credibility may depend on, among other things, the amount of foreign reserves held by our intrepid central bank. To defend the peg, the central bank must stand ready to buy its own currency on the FX market, which it does so by selling off its stock of foreign reserves. A unilateral peg of this sort is just ripe for speculation. The two most likely outcome in this case are (1) the peg holds or (2) the peg fails (the domestic currency depreciates). The trade in this case is to go short on the pegging bank's currency and long in the foreign currency. A speculator either breaks even if (1) or wins if (2). It's a can't lose proposition (but please don't try this at home kids). Rational speculators, recognizing the opportunity, start shorting the pegged currency. If they do so en masse, our little central bank will soon run out of reserves and be forced to abandon the peg--a self-fulfilling prophecy

What does the end of the Swiss Peg tell us about central banks? - A lot of the discussion in blogs about the end of the Swiss exchange rate peg has focused on whether the original peg, which started in September 2011, was a good idea in the first place. [1] This post asks a rather different question, which has wider relevance. First some facts, which you can skip if you have already read some of those posts. The safe haven status of the Swiss Franc meant that during the Eurozone crisis people wanted to buy the Swiss currency, and the resulting appreciation was in danger of driving some Swiss producers out of business. [2] The chart below plots competitiveness, measured as relative consumer prices, in Switzerland and in the UK. [4] The appreciation problem in 2011 was real and the exchange rate cap fixed that, but to prevent the exchange rate appreciating beyond the 1.2 Swiss Francs (CHF) per Euro mark the central bank had to create lots of money to buy Euros. You can think of it as Quantitative Easing (QE) that buys foreign currency rather than domestic government debt. [3] The interesting question is why the central bank ended the cap. Perhaps the cap was always meant to be a transitional measure, to allow firms time to adjust to a loss in competitiveness. (Here is the official explanation.) This is not that convincing. If the central bank was worried that its producers were becoming too competitive, it could have changed the cap from, say, 1.2 CHF per Euro to 1.1 CHF per Euro. Removing the cap completely would only make sense if you thought your safe haven status had reached some kind of equilibrium, and with the Greek elections and other things currently happening that seems unlikely. Even if you did think this, caution might suggest testing the market with a more appropriate cap and seeing how much defending you had to do.

More on Paul Krugman and the Swiss Movement - Dean Baker - Paul Krugman is still upset over the decision by Switzerland's central bank to end its peg to the euro and allow the value of the Swiss franc to rise. Since some of us non-hyper-inflation worriers don't share his anger, perhaps it worth explaining the difference in views. Krugman sees the peg as a sort of quantitative easing. He argues it was working (Switzerland's economy has largely recovered), so there was no reason to abandon it. He sees the basis for abandonment as a needless fear over inflation and possibly a concern about central bank losses. Krugman may well be right about the reasons that Switzerland's central bank abandoned its peg, but that doesn't mean that it was wrong to do so. Switzerland's peg was designed to promote its growth at the expense of its neighbors. This is not a big deal with a relatively small country like Switzerland, but imagine that Germany left the euro (hold the applause) and adopted the same policy of deliberately under-valuing the new mark against the euro. Germany would then run large trade surpluses and the other euro zone countries would run large deficits, draining away demand. Should we applaud this policy as a form of quantitative easing that needs to be supported? Krugman's argument rests largely on the idea that we need to promote central bank credibility. I'm a bit more skeptical on this one. Central bank credibility is a two-edged sword. One of the main reasons that we are not supposed to pursue QE-type policies is the risk of inflation, which could undermine central bank credibility.

Hungary’s Orban Makes World’s Best Trade on Swiss Franc Loans - Hungarian Prime Minister Viktor Orban, often criticized for punishing banks, is being hailed as a hero for warding off financial disaster with his quest to rid the country of mortgages worth billions of Swiss francs. Orban in November forced Hungarian banks to make financial arrangements to convert 3.3 trillion forint ($12 billion) in foreign-currency mortgages, overwhelmingly denominated in Swiss francs, into local currency. The move, to be completed this year, prevented a 700 billion-forint jump in household debt when the Swiss National Bank (SNBN) set the franc free yesterday, Hungary’s monetary authority said. “This was top notch,” Laszlo Szabo, president of Budapest-based Concorde Asset Management, which manages $1.9 billion in assets, said by e-mail. “We may often criticize the Hungarian government and central bank, but this is the time to congratulate them for the incredible timing.” The outcome is the crowning achievement of Orban’s drive to shield borrowers from currency swings. The issue moved to the top of the country’s political agenda after the global financial crisis sent the forint tumbling in 2008, triggering a wave of defaults. This time, even as the Hungarian currency slumped 16 percent against the franc in two days, mortgage holders and banks were off the hook. Hungary’s economy now faces “limited impact” from the franc’s strengthening, the central bank said. The estimated 700 billion-forint burden would have been equal to about 2 percent of gross domestic product.

Michael Hudson: The Crisis in Europe and the Machinations of the Rentier ClassYves Smith  This Boom/Bust show features a wide-ranging talk with Michael Hudson about the impact of the Swiss currency shock, the pending Greek elections, the effects of sanctions, and what the deteriorating Ukraine economy means for Europe. Some of Hudson’s observations will likely be novel to readers, for instance, how the rise in the Swiss franc will affect the Swiss economy, or why sanctions aren’t as bad for the economies subjected to them as most pundits would have you believe (note I’m not as sanguine as Hudson about the economic impact, but he’s got a strong case as far as the political impact is concerned). The segment with Hudson starts at 4:00. The opening is about the Swiss shock, and you may want to watch that as well.

Swiss 10-year govt bond yield goes negative for first time ever - (Reuters) - The yield on benchmark 10-year Swiss government bonds fell below zero for the first time ever on Friday, a day after the Swiss National Bank stunned markets by scrapping the franc's exchange rate cap and cutting interest rates to -0.75 percent. The yield on the 10-year bond maturing in July 2025 fell to -0.003 percent, the first time that the benchmark borrowing costs of a developed economy's government has gone negative. In effect, this means that investors are paying the Swiss government for the privilege of lending to it over a 10-year period.

Race for Negative 30-Year Yields Underway, Swiss In Front With 0.295%; Futulity of Draghi's Upcoming QE - As of the end of Monday January 19, 2015, European 10-year yields are as follows:

  • Germany 10-Year bond yields 0.441%
  • France 10-Year bonds yields .641%
  • Spain 10-Year bonds yields 1.526%
  • Switzerland  10-Year bonds yield -0.074%
At least the first three are positive.  Congratulations (of sorts) to Switzerland for winning the race to negative yields on 10-year government bonds.  As of today, you can pay Switzerland 0.074% for the privilege of lending to the Swiss government for 10-years.  Last week was the first time first time that the benchmark borrowing costs of a developed economy's government has gone negative for a 10-year duration.

Deflation Swamps Switzerland -- Shocking!  Unprecedented!  Unfair!  These were some of the politer adjectives used by financial experts to describe this week’s decision by the Swiss National Bank to abandon its currency peg to the euro.  As is often the case with major central bank decisions involving currencies, the public finds it very hard to understand what is happening or why it matters.  In Switzerland’s case, the situation was made even more confusing by the central bank lowering its overnight money rate to negative 0.75%.  This means you have to pay interest to the central bank for the privilege of lending them your money, an act that strikes many as contrary to the laws of nature.  Doesn’t the lender always earn interest, and the borrower always pay?  Not in the topsy-turvy world of deflation, which is the strange financial anti-matter world that Switzerland now inhabits.  The Swiss no doubt are asking themselves how they have found themselves in such a situation.  We would all do well to ask the same question, because deflation is the most important financial reality facing the world today.

SNB Decision Sparks Calls For Polish Mortgage Bailout; Central Bank Against It -- As we noted last week, the Swiss National Bank's decision to un-peg from the Euro (thus strengthening the CHF dramatically) will have very significant repercussions - not the least of which is for Hungarian and Polish Swiss-Franc-denominated mortgage-holders. The 20% surge in Swiss Franc translates directly into a comparable jump in the zloty value of loan principles and and monthly payments for about 575,000 Polish families owing a total $35 billion in mortgages denominated in the Swiss currency which has prompted calls for Poland's government to bail them out. Never mind the FX risk, the low-rates were all anyone cared about and now yet another 'risk-free' trade has exploded, Deputy PM Piechocinski says, if the franc "remains above the 4 zloty level, the government may provide support" to debtors but Poland's Central Bank is not supportive of the bailout.

Denmark Says It Has Tools to Defend Peg After Surprise Cut - Denmark moved to quash speculation it may follow Switzerland and abandon its euro peg, delivering a surprise interest-rate cut to prevent the krone gaining further. “We have the necessary tools to defend the peg,”Karsten Biltoft, head of communications at the Copenhagen-based central bank, said by phone. Asked whether Denmark could ever consider abandoning its currency peg, he said, “Of course not.” Since the Swiss National Bank shocked markets on Jan. 15 by jettisoning its three-year-old euro peg, Scandinavia’s biggest banks have fielded calls from hedge funds and other offshore investors asking whether Denmark could be next. Danske Bank has sought to dispel the speculation, noting Denmark’s three-decades-old currency regime is backed by the European Central Bank, unlike the SNB’s former system. “The comparison that is made between Denmark and Switzerland I think is somewhat off,” Biltoft said. “I don’t think you can make a comparison between the two cases.”

Denmark Just Followed Switzerland And Slashed Interest Rates As Europe Stagnates - Denmark just announced a surprise interest rate cut, pushing the country's main policy rates further into negative territory. Both the deposit and lending rates were cut from -0.05% to -0.2%. Like Switzerland, Denmark has been trying to keep up a currency peg against the euro, at around 7.46 Danish kroner to the euro. Switzerland's central bank caused currency chaos last week, when it unexpectedly ended the peg and the Swiss franc soared in value. Since then, analysts have questioned whether Denmark will have to follow. Societe Generale's FX man, Kit Juckes, thinks that's overblown (emphasis ours): There has been significant speculation about the Danish currency peg to the euro following the SNB (Swiss National Bank) shock. We are doubtful that the Danish krone peg, which has existed for decades, is about to break. The DKK (Danish kroner) remained within the ERM (exchange rate mechanism) during the 1992 European currency crisis, even as the pound and the lira abandoned it. Unlike the CHF (Swiss franc), the DKK is not generally regarded as a global safe haven currency. Danish foreign reserves have actually declined by some 13% from their peak in mid-2012 after the passing of the European sovereign crisis, which implies a weakening of the pressure on DKK in recent years. But like Switzerland, Denmark is importing deflation from the eurozone. Prices rose by just 0.3% in December, and there's going to be continued pressure on Denmark so long as the currency union's sluggish economic outlook continues, and with a likely QE programme coming on Thursday.

Central bank prophet fears QE warfare pushing world financial system out of control - The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world's financial system going into 2015. Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West. "We are in a world that is dangerously unanchored," said William White, the Swiss-based chairman of the OECD's Review Committee. "We're seeing true currency wars and everybody is doing it, and I have no idea where this is going to end." Mr White is a former chief economist to the Bank for International Settlements - the bank of central banks - and currently an advisor to German Chancellor Angela Merkel. He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. "We are holding a tiger by the tail," he said. He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. "Sovereign bond yields haven't been so low since the 'Black Plague': how much more bang can you get for your buck?" he told The Telegraph before the World Economic Forum in Davos. "QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market," he said.

Prices are Falling in the Eurozone, but is it “Real” Deflation? -- The Eurozone has been on the brink of deflation for months. The latest data show that for the first time, consumer prices for the currency area as a whole (and for 12 of its 19 member countries) were actually lower in December than a year earlier. But is it “real” deflation?  In a pair of posts [1] [2] last fall, when EZ inflation was merely low, but not yet negative, I explained that there are two kinds of deflation. The nasty kind of deflation, which everyone rightly fears, is driven by falling aggregate nominal demand. As demand collapses, it drags both real output and the price level down with it. There is a serious risk of a self-reinforcing downward spiral in which debtors can’t repay their loans, defaults and falling asset prices undermine the financial system, zero interest rates render monetary policy powerless, and rising unemployment sparks social unrest. However, there is also a benign kind of deflation, driven by rising productivity. In that scenario, conservative monetary policy restrains the growth of nominal GDP while real output surges ahead. The rate of inflation is negative, but growing output provides borrowers with the cash flow they need to repay their loans, rising productivity allows real wages to rise, and nominal interest rates, although low, do not need to fall all the way to the zero bound. In the US and UK, such productivity-driven deflation was the norm during much of the nineteenth century and reappeared again, more briefly, in the prosperous 1920s. So which kind of deflation is Europe facing now? The bad, demand-driven kind,  or the good, supply-driven variety? A little of each, it seems.  The good news is that the recent transition from positive to negative inflation for the EZ as a whole comes largely from the supply side via falling energy prices. As the next chart shows, core inflation—the CPI with energy stripped out—remains positive.

Eurozone QE set to arrive, but with conditions - The European Central Bank will this week set out plans for an ambitious programme of sovereign bond buying, as the bank steps up its efforts to stave off deflation and boost the eurozone’s flagging economy. The ECB has for several months signalled its intention to follow the US Federal Reserve and Bank of England by initiating quantitative easing. But agreeing a format that Mario Draghi, the bank’s president, could sell to Europe’s policy makers has gone right down to the wire. Although recent news of a fall in annual prices in the eurozone for the first time in five years all but confirmed expectations of eurozone QE, dissent from within the central bank, and fierce opposition towards sovereign bond-buying from Germany, has led to horse-trading ahead of Thursday’s governing council vote. Details about the size of the programme, and what exactly the ECB will buy, are still to be revealed. One area where the bank is set to bend to QE sceptics, however, is to break with tradition and force national central banks to take on the losses for their national debt. The ECB could agree to chip in by buying the bonds of the European Investment Bank. Policy makers could allow Greece, and others with junk ratings on their sovereign debt, to buy bonds by insisting they only do so if their countries remain in European Commission reform programmes. Placing the burden for losses on the shoulders of national central banks is unlikely to win Mr Draghi support from Jens Weidmann, the Bundesbank president and governing council member who has said QE without national responsibility for losses would contravene EU law. Nor is Sabine Lautenschläger, the council’s other German member, set to back the ECB chief. But the vast majority of the eurozone’s monetary policy makers are likely to support QE.

Why the ECB should not water down a QE programme - Quantitative easing is, they say, “priced in by the markets”. The European Central Bank will almost certainly announce a decision to buy sovereign bonds on Thursday. Priced in it may be, but such a move would nevertheless constitute a momentous event in modern European economic and monetary history. Something is happening that was not supposed to have ever happened. It is a big step for the ECB, given the ideological corner it started from some 16 years ago. But it is also a marker of how desperate things have become. This is not going to be the pre-emptive version of QE, but the post-traumatic one. Inflation expectations cut loose from the target some time ago. Headline inflation is negative. The eurozone economy is sick. My understanding is various critical parts of a QE programme were still under discussion by the end of last week though a consensus seems to be emerging on some. The programme will have a nominal figure attached — some say €500bn, but it could be more. It will not be open-ended. Mario Draghi, ECB president, will probably not say he will do “whatever it takes” to get inflation back to target. It will be more a matter of: we will do it; this is what we will spend; and when this is over, we will decide again. Optimists say the number does not matter. Once you start, the floodgates open, and you will not be able to close them until you have reached your inflation target. The initial size of the programme is thus irrelevant. I fear the floodgate theory is wrong because it misjudges the policy dynamics. If the programme does not succeed, it may be judged to have failed.In that case, it may be abandoned rather than renewed. My plea would therefore be to start with a big programme now. Size matters.

Why the ECB Should Take More Risks - Mrs. Merkel and Mr. Schäuble are worried. The ECB is planning to buy the sovereign debt of its member states and Mr. Schäuble doesn't trust his southern European partners. He thinks that Portuguese, Spanish and Italian debt is risky and he knows that Greek debt is.   Bankers are supposed to be boring. And central bankers are supposed to be boring in spades. What would happen if the Fed were to bet the farm, buying shares in an internet start-up that subsequently goes bust? The public purse would be on the hook for the loss. At least, that’s the theory. That theory is wrong.  The central banking business plan is a money-spinner beyond a venture capitalist’s wildest dream. Buy an asset, any asset, and pay for it by issuing little pieces of colored paper. Collect the interest payments and dividends from the assets and use them to pay for your house, your car and a holiday in Spain. If you happen to be the central bank of a sovereign state, pay the interest and dividends to the treasury to help reduce the tax bill of your citizens.  Does it matter which assets you buy? Conventional wisdom says yes. A central bank should buy safe assets, typically promises issued by its own national government that will never fall in value. The Fed buys T-bills on the private market. The Treasury pays the interest and principal to the Fed, and the Fed turns around and pays them straight back to the Treasury. The point of all of this is to keep enough of the little pieces of colored paper passing from one person to another to “oil the wheels of trade”.

Why QE in the Eurozone Is a Mistake - The first proposition of doubtful value is that the ECB should adopt QE to counter the deflationary tendency in the Eurozone.  There is little convincing evidence from Japan, the UK or the USA that QE has any significant effect on consumer price inflation. If you haven’t noticed, despite massive money injections, the deflation tendency is still present in all three countries.  QE does not buy-up ordinary goods and services, and consequently QE does not create consumer price inflation. The second implied proposition is that an increase in the money base is needed to increase inflation.  This proposition, too, is of doubtful value.  QE does increase the money base, but it does not necessarily increase the money supply.  Successive rounds of QE in Japan and the USA have not increased the money supply even though it increased the money base enormously. The third is a “missing” proposition. De Grauwe and Ji miss to recognize that QE has delivered positive effects only when it was implemented in conjunction with decisive fiscal stimulus, since it counteracted the interest rate rises that deficit and debt growth would have otherwise caused. In other words, QE must be complemented by fiscal expansion for aggregate demand to be affected. This does not seem to be possible in the Eurozone today. Finally, De Grauwe and Ji seem to suggest that QE reduces the financial obligations associated with the debt purchased by the central bank. Yet, they fail to specify the conditions required for the related debt obligations to be “sterilized” indefinitely.

The European Scene - Paul Krugman - Above are European long-term interest rates as of close of business yesterday. So, first of all, look at “crisis-hit” France; investors are so worried about France that they won’t hold its bonds unless offered, um, 0.64 percent, the lowest rate in history. But never mind — everyone knows that the French must be in crisis, because they still believe in social insurance, and besides, they’re French.  Notice also that crisis-hit Spain is now paying a lower interest rate than Britain. It’s surely a higher interest rate in real terms, because Spain faces the prospect of years of deflation. But this should — but won’t — put an end to all the talk about how low British rates are the reward for austerity, and so on.  More generally, those very low rates reflect market expectations that (a) the European economy will remain very weak and (b) that the ECB will continue to fall far short of its inflation target. German 5-year bonds are yielding minus 0.05 percent; index bonds of the same maturity are yielding -0.44 percent. So the market is saying both that there are very few good investment opportunities out there — few enough that paying the German government to protect the real value of your wealth is a good move — and that inflation over the next five years will be around 0.4 percent, not the target of 2 percent. Will the QE policy turn this around? Unless it’s shockingly larger and more aggressive than expected, it’s hard to see how. Unconventional monetary policy works, if it does, largely by changing expectations; but the markets know this is coming, and are notably unimpressed.

Euroblunders - Krugman  -- Obama was able to talk about success and moving forward. Meanwhile Mario Draghi is doing what he can and should, but I don’t know anyone who really believes that it will be enough.  So why the difference? Are the forces of secular stagnation stronger in Europe? Was it fiscal austerity? Was it wrong-headed monetary policy? As far as I can tell, the answer from the data is yes. That is, there are multiple possible culprits for Europe’s deflationary trap, and it’s hard to assign responsibility.On the secular stagnation front, just note that the euro area’s working-age population peaked in 2009, and is now on a Japanese-style downward path. US working-age growth has slowed, but at least it’s still positive.On policy, aggregate euro-area fiscal policy has been substantially tighter than in the US. Here’s the IMF’s estimate of general government (i.e., including state and local) primary cyclically adjusted budget balance as a percent of GDP — that’s a mouthful, but it means looking at non-interest spending minus taxes, corrected to take out the effects of a depressed economy: Meanwhile, on the monetary side Europe zagged when America zigged. At no point in the past five years has euro area core inflation (CPI excluding food, energy, alcohol, and tobacco) reached, let alone exceeded, the ECB’s legal target of 2 percent:  Overall, European policy has behaved throughout as if debt and inflation were the overwhelming risks, giving no consideration until very recently to the risk of deflation and persistent weakness. And the old mindset has by no means gone away — the monetary hawks are still hawkish despite deflation, inventing new reasons why interest rates must rise. Anyway, the point is that Europe’s woes are no mystery, although it’s hard to allocate the blame; policy did everything wrong, so it’s hard to tell which wrongness mattered most.

Europe on brink of deflating, needs stimulus: Larry Summers (Reuters) - The European economy is "on the brink of deflating" and urgently needs more stimulus, particularly from the continent's largest economy Germany, former U.S Treasury secretary Larry Summers said on Tuesday. Summers also said central bank bond buying, known as quantitative easing, would be welcome and certainly better than no action at all. He added, however, that there is a limit to how much that would achieve in stimulating growth and that further measures, such as fiscal stimulus and sovereign debt forgiveness, would be needed. "Europe is not growing and is on the brink of deflating," Summers told an audience at the London School of Economics. He was on his way to the World Economic Forum's meeting in Davos, Switzerland later in the week. "Is it too much to ask that Germany take a forward-looking view of a common European destiny in thinking about macroeconomic policy ... rather than a retaining a green-eyeshade accounting mentality?" The European Central Bank is widely expected to unveil a sovereign bond-buying program at a policy meeting on Thursday in a bid to ward off deflation and kick-start growth. Summers said policymakers, faced with a "chronic" global excess in savings that has driven interest rates around the world to their lowest level ever, should change philosophy.

Summers Sees German Objections to Borrowing as Eurozone Hurdle - The eurozone appears ready to brave uncharted territory with the European Central Bank’s expected launch of a program of government bond purchases Thursday. But for former U.S. Treasury Secretary Lawrence Summers, one major hindrance to an economic revival in the eurozone remains: Germany’s antipathy to more government borrowing to finance increased investment in roads, railways and other public infrastructure. Speaking at the London School of Economics on Tuesday, Mr. Summers repeated his view that “secular stagnation”–or an excess of savings over investment–helps explain why developed economies have grown so slowly in recent years. Referring to the ECB’s expected bond-buying program, Mr. Summers said that while he was “more worried that the average about what the efficacy will be” and “a bit more nervous than the average” about the threat it generally poses to financial stability, it would be better than nothing. But Mr. Summers’s preferred policy response to secular stagnation is a large-scale program of public investment, funded by fresh government borrowing at very low interest rates. In the eurozone, that prescription runs up against a seemingly immovable obstacle, the German government’s insistence on cutting borrowing. Mr. Summers suggested that has less to do with economics, and more to do with a particular sense of morality. “We need to move beyond the Calvinist idea that saving is good, and borrowing is bad,” he told an audience of academics and students.

ECB Executive Board's QE Proposal Calls for Roughly50 Billion in Bond Buys Per Month - A proposal from the European Central Bank’s Frankfurt-based executive board calls for bond purchases of roughly €50 billion ($58 billion) a month that would last for a minimum of one year, according to people familiar with the matter, an indication that officials are weighing massive stimulus to shore up the eurozone’s fragile economy and boost inflation. The ECB’s executive board met Tuesday to decide on the proposal, which will form the basis of deliberations by the entire 25-member governing council on Thursday. The final number and details could change after the full board weighs in on the plan. Still, the executive board’s proposal indicates that the ECB could move more aggressively than financial markets have expected. Forecasts among analysts have recently centered on a figure of around €500 billion or higher for a quantitative-easing program, but the executive board’s proposal suggests that bond purchases could amount to at least €600 billion and perhaps much more. An ECB spokesman declined to comment.

Benchmarking the ECB’s QE Program  Yves Smith - The ECB is set to announce the details of its QE program tomorrow. Many analysts and investors have been trying to puzzle out how its operations might work, since those details will make a difference in what impact if any it has. Frankly, we are hugely skeptical of this initiative. The US version, which is bizarrely touted as a success, further zombified the economy. It goosed asset prices, which widened wealth and income inequality. Now respectable economists are decrying the widening gap between rich and poor and the lack of class mobility as a brake on growth, yet they also refused to endorse debt restructuring and much more aggressive fiscal spending. And some experts contend that the reason the Fed decided to end QE last summer was that it came to recognize the costs outweighed what if anything it produced in the way of benefits. Of course, they can never admit that publicly or even privately if true. In Europe, there is even more reason to be expect QE to be at best ineffective. Unlike the US, where as a matter of policy, a lot of financing takes place through the capital markets (for instance, credit card debt, subprime auto loans, home loans are all securitized to a large degree), in Europe, far more credit is on bank balance sheets, and small to medium sized corporate lending is far more important than in the US. Thus, while as we have repeatedly explained, putting money on sale is unlikely to result in more borrowing unless the cost of money is the biggest cost of running your business (ie, you are a bank or a speculator), in Europe you have the added layer that reducing investment yields is unlikely to change how credit officers view lending to small/medium sized enterprises (assuming they even want to borrow) in a weak, deflationary economy. This Bruegel post describes the major options that the ECB has in designing its QE program, which will help readers benchmark tomorrow's announcement. One might politely describe the choices as bad and less bad.

Davos and the fear of Darth Vader - The world's top power brokers may be gathered in Davos, but these days all eyes are fixed on the other side of the Swiss border, where, on Thursday, Mario Draghi is expected to walk to the podium of the European Central Bank (ECB) in Frankfurt to declare war on deflation. The ECB Chief's arsenal: A massive bond-buying program meant to stop the 19-member single currency bloc from sliding deeper into the dark side. The problem is that the average citizen does not understand the consequences of what deflation is, argued Anthony Scaramucci, founder and Co-CEO of the New York-based investment firm SkyBridge Capital. "It's an annihilation. It's the Darth Vader death star outside of the atmosphere of the earth, shooting a laser to blow up the world's economy." That may be overdoing it, says Harvard economist Kenneth Rogoff. But he agrees that the central banks appear to be in over their head. " I think they have been a little surprised that they have trouble creating inflation. I don't think they knew that. " While the US Fed is considering tightening its credit reins after seven years of rampant money printing, Europe's and Japan's central banks are now lining up to mimic Washington's daring monetary policy, hoping that will be the death knell for deflation. But Rogoff remains skeptical: "Frankly, the markets have lost confidence that [the central banks] will ever [create inflation]."

ECB launches 1 trillion euro rescue plan to revive euro economy -  (Reuters) - The European Central Bank took the ultimate policy leap on Thursday, launching a government bond-buying program which will pump hundreds of billions in new money into a sagging euro zone economy. The ECB said it would purchase sovereign debt from this March until the end of September 2016, despite opposition from Germany's Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms. Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing program will release 60 billion euros ($68 billion) a month into the economy, ECB President Mario Draghi said. By September next year, more than 1 trillion euros will have been created under quantitative easing, the ECB's last remaining major policy option for reviving economic growth and warding off deflation. The flood of money impressed markets: the euro fell more than two U.S. cents to $1.14108 on the announcement, and European shares hit seven-year highs. "All eyes were on Mario Draghi and he has delivered a bigger bazooka than investors were expecting," said Mauro Vittorangeli, a fixed income specialist at Allianz Global Investors, adding that the news marked "an historic crossroads for European markets". The ECB and the central banks of euro zone countries will buy up bonds in proportion to its "capital key", meaning more debt will be scooped up from the biggest economies such as Germany than from small member states such as Ireland. The prospect of dramatic ECB action had already prompted the Swiss central bank to abandon its cap on the franc against the euro. Denmark cut its main policy interest rate on Thursday for the second time this week after the ECB announcement, aiming to defend the Danish crown's peg to the euro.

European Quantitative Easing -- Mario Draghi announced European Central Bank Quantitative Easing yesterday. The plan is to buy long term public bonds for 60 billion euros a month from March at least through September 2016. Draghi said the program could be extended if inflation of slightly below 2% isn’t achieved.   60 billion a month is slightly above analysts’ average guess (warning in Italian). The hint that the purchases might be extended should, in theory, be important. All in all the announced program is more than forecast.  Paul Krugman is, of course, totally on the story.  He looked at German inflation protected securities vs regular Bunds and calculates an 0.2% increase in expected annual inflation over then next 5 years. This confirms the impression that the program is bigger than expected. 0.2% more inflation (and so 0.2% lower safe short term real interest rates) will not have a large effect on investment. This is just the expected extra effect from the program being more aggressive than was guessed before it was announced. Euro QE should cause the the Euro to depreciate. I fair use this graph from the Wall Street Journal. It shows an announcement effect which is not large enough to make a big difference (again the announcement effect is just the effect of the program being more aggressive than expected).

Central bankers lurch from 'whatever it takes' to 'whatever next' (Reuters) - The Swiss currency shock has raised an awkward question many investors have been fearful of asking - what if central banks become as unpredictable and fallible as they are powerful? The Swiss National Bank's sudden decision to abandon its three-year-old cap on the franc - the "cornerstone" of its monetary policy just three days before - led to the biggest one-day move in major exchange rates in the post-1973 floating rates era. To some it was a warning sign of other U-turns, mishaps and possible failures by central banks still ahead, outcomes not fully appreciated by long-becalmed markets. For decades the power of currency printing presses has held markets in thrall. "Don't fight the Fed" and all its international variations has been a devout belief among financial traders. true Even after the failure of Alan Greenspan's Federal Reserve to spot and headoff one of the biggest credit booms and busts in history, the ability of the Fed, Bank of England, Bank of Japan, European Central Bank and others to flood their money supply to ease the fallout helped anaesthetise fractious markets. The subsequent waves of cheap credit, currency fixes and "quantitative easing" drove down borrowing rates and erased volatility. The demonstrations of central bank might culminated in ECB chief Mario Draghi's declaration in 2012 that he would do "whatever it takes" to save the euro. In the face of the power of the money printing press, speculation became pointless.

Why ECB action is likely to stoke global currency wars - Will quantitative easing by the European Central Bank succeed? Here’s a tip: watch the euro. Although Mario Draghi, president, denied it was a target, the weakening currency could prove the most effective channel through which QE reaches the real economy. A lower euro will boost exports and, crucially, lift inflation. If it looks as if the ECB has increased the hostility of a global currency war, there is a good reason: it has. Like the Bank of Japan, the ECB is implicitly using an important reserve currency as a policy weapon. Even ahead of Thursday’s policy meeting, there had been substantial collateral damage. The Swiss National Bank had attempted to cap the resulting Swiss franc appreciation but last week raised the white flag. The subsequent brutal rise in the Swiss currency threatens the country with a deep recession. Switzerland highlights the futility of currency wars. Others will counter the ECB’s moves. The BoJ is still struggling to convince investors it will achieve its inflation goal – and Japanese carmakers’ biggest exporting rivals are German. Bank of England hawks who wanted to raise interest rates are in retreat. Denmark cut interest rates again on Thursday. Canada cut earlier this week; India last week. Global monetary easing is being priced into fixed income markets. But rather than improving investor confidence, extraordinarily low borrowing costs raise questions about whether central banks are losing their grip and whether markets have become (even more) distorted.

The Euro Crashes To 12 Year Lows And Now The US Commerce Secretary Starts To Grumble About A Strong Dollar -- A crashing Yen failed to help Japan or fix its economy, but while Japan may now be a lost cause, the Keynesian masterminds of the world will give it another try, and following today's Draghi's announcement, the EURUSD has crashed to the lowest level since 2003, tumbling over 200 pips, and printing below 1.14 moments ago. However, in a clear indication that the party for the USD-bulls may be ending, none other than the US commerce secretary moments ago said the impact of a rising dollar on exports and economic growth bears monitoring.

Who Owns the Government Bonds the ECB Will Buy? -- The European Central Bank finally unveiled its large-scale bond-buying program to bolster the eurozone economy and lift inflation toward the central bank’s target.  Who will the ECB be purchasing these assets from? Deutsche Bank economist Torsten Slok offers a useful breakdown of who owns what in the eurozone debt universe.   Greece remains a key concern for the 19-nation monetary union, with Prime Minister Antonis Samaras indicating the ECB’s debt purchases would only include Greece if a continuing review of the country’s bailout program is successfully completed.  Countries that received banking-sector bailouts from the European Union and International Monetary Fund, such as Greece, Portugal and Ireland, have a larger proportion of their debt held by other governments.“Sub-investment grade countries will be included, as we suspected,” Mr. Slok said in a research note. “These countries must be under a program.”“This, in our view, is a clever design,” he added. “This technical limit, which holds for all countries, prevents the ECB from being accused of making a political decision ahead of the election.”

Mario Draghi’s bond-buying plan outstrips expectations - Deep splits on the European Central Bank’s 25-member governing council sparked concerns that Mr Draghi’s version of quantitative easing would underwhelm, even as prices in the eurozone dropped for the first time in five years. Market analysts polled by Bloomberg this week had expected €550bn worth of government bond purchases. The central bank now intends to buy double that amount, launching a €1.1tn bond-buying spree, most of it sovereign debt. The ECB president said on Thursday that plunging oil prices had raised the threat of a destructive period of falling prices. The central bank would buy €60bn worth of government debt, alongside asset-backed securities and covered bonds, from March until September 2016 to rid the eurozone of deflation that threatens to wipe out any chance of meaningful economic recovery. An earlier plan to buy €50bn worth of bonds until the end of next year was shelved during the governing council’s meeting in the hope that buying more bonds over a shorter timeframe stood a better chance of reviving inflation expectations, according to one person familiar with the deliberations.

Mr Draghi finally delivers -- On Thursday, the European Central Bank became the last of the major central banks to announce a large programme of quantitative easing, involving the purchase of over €1tn of assets, mostly eurozone government bonds, in the next 18 months. Is this the “credible regime change” which economists like Paul Krugman say is the only way that central banks can affect growth and inflation when interest rates have reached the zero lower bound? It would be too optimistic to say “yes”, but it is certainly a major philosophical shift by the conservative standards of the ECB. Originally designed slavishly on the Bundesbank model, the ECB has declared independence from its German forebears today. But the long delays in reaching this point have made the eurozone deflation threat more severe than it need have been. Whether this belated recognition of reality is a case of better late than never, or too little too late, remains to be seen. The markets are likely to assess the package with three litmus tests: is it big enough, are the restrictions placed on the bond purchases too restrictive, and does it matter that the decisions were far from unanimous, with the Bundesbank probably opposed to some key elements? In my view, the good clearly outweighs the bad.

One last gasp for the 'one-size-fits-all’ euro - Telegraph: The fate of the euro dramatically contradicts the fantasy that one size fits all. Trying to operate one currency to satisfy the needs of 19 countries of varying size, wealth and political dynamics was always going to be a near-impossible task. Yesterday, the European Central Bank tried one last attempt to make it work. The ECB announced that it would inject at least €1.1 trillion into the eurozone economy. The value of the currency immediately fell to an 11-year low against the dollar.  In the old days, a country such as Greece or Italy could deflate its currency independently to remain competitive in hard times. But imprisoned within the euro, options have been dictated by a bank that has bowed to the demands of Germany – a richer, more powerful nation terrified of reliving the catastrophic inflationary spiral of its past. Nobody can blame the Germans for acting within their own interests. What is strange is that one set of interests should enjoy such priority over another in a supposedly democratic union of equals. The result: the ECB waited too long to act. It can be sensible to reflate, providing the conditions are right.  Britain and the US started doing it some time ago – the US pumping the equivalent of 25 per cent of its annual GDP into the economy. The eurozone has thus joined the party long after everyone else, and even so will only spend something equivalent to just over 10 per cent of its GDP. In the short term, the action may well work, for the markets seem to be showing initial enthusiasm. But in the long term it is clear that the only way for the eurozone to achieve the economic harmony it seeks is through ever-closer political union. That would require treaty change that, in turn, would require national referendums.

Quantitative easing alone will not ward off deflation - The ECB will embark on a programme of quantitative easing (QE) tomorrow, as very low inflation poses a mounting threat to the economic stability of the eurozone. The rate of consumer price inflation has dropped below zero, and hence far below the European Central Bank’s (ECB) target of just below 2 per cent. This highlights the degree of weakness in the eurozone economy and further increases doubts over debt sustainability across the currency union: without a healthy dose of inflation, it is much harder for households, firms and governments to reduce their debt burdens.  The problem is that QE alone is unlikely to be effective without a significant change in the ECB’s approach to monetary policy. The ECB needs to manage people’s expectations about the future path of demand, income and inflation more forcefully if it is to generate a proper economic recovery across the eurozone.

The Beauty of Deflation - The Eurozone has been hovering around a 1% inflation rate, getting closer to zero during 2014, nothing close of the ambitious 2% benchmark set by central banks. Any small downward adjustment in the inflation rate will put it in the negative territory, allowing for prices to spiral downward. The West is genuinely fearful of deflation. Headlines in leading papers were very strong in reflecting this fear, describing deflation as “the world’s biggest economic problem”, or the “nightmare” that stalks Europe that will lead to its “descent” and collapse. The real question is why do our governments fear deflation? Why do they perceive it as the chronic disease that could infect our economy and why do they go to such great lengths to avoid this “taboo”? The mainstream argument says we should avoid deflation because it causes a drop in overall demand and lower growth (Germany and other European states have been living a slowing recession recently which called for a downgrade in 2014 growth expectations). Also, deflation implies a decline in prices, lower corporate earnings and asset values, particularly real estate. But the greatest concern to governments is not deflation itself; the real concern is the impact of deflation on the already over-indebted economies of Europe. Seven of the Eurozone countries are projected to have public debt to GDP ratios of over 100% next year! The worry is quite legitimate as Europe is on the verge of a debt-deflation spiral. With deflation, the burden on the already highly indebted governments increases making a default even likelier. So what are policymakers doing to “tackle” this problem?

What Mario Draghi Said When Asked If His QE Will Unleash Hyperinflation Question: what would you say to those who are concerned that when the ECB buying up bonds, electronically printing money, whatever one calls it, is the first chapter in a story that leads inevitably towards hyperinflation. What is your response to that? Answer: I think the best way to answer to this is have we seen lots of inflation since the QE program started? Have we seen that? And now it's quite a few years that we started. You know, our experience since we have these press conferences goes back to a little more than three years. In these 3 years we've lowered interest rates, I don't know how many times, 4 or 5 times, 6 times maybe. And each times someone was saying, this is going to be terrible expansionary, there will be inflation. We did OMP. We did the LTROs. We did TLTROs. And somehow this runaway inflation hasn't come yet.

Draghi: "There must be a statute of limitations for those who say there will be inflation" -  I think this is the quote of the day via The Daily Telegraph: ECB unveils €1.1 trillion QE program Mr Draghi rejected any criticism that the vast expansion of the ECB's easy-money policies would stoke inflation down the road, noting that inflation has stayed very low even after several interest rate cuts and abundant ECB loans to banks. "There must be a statute of limitations for those who say there will be inflation," Mr Draghi said. Some policymakers have been wrong for years, both on monetary and fiscal policy ("austerity über alles"). And on the ECB's QE, from the WSJ: ECB Unveils Stimulus to Boost Economy:ECB President Mario Draghi said the ECB will buy a total of €60 billion a month in assets including government bonds, debt securities issued by European institutions and private-sector bonds. The purchases of government bonds and those issued by European institutions will start in March and are intended to run through to September 2016, Mr. Draghi said. The risks associated with the bonds of EU institutions will be shared among eurozone central banks, but purchases of other government bonds won’t be subject to loss sharing, he said. Mr. Draghi said bond purchases might continue beyond September 2016, and until there are clear signs that the annual rate of inflation is rising toward the central bank’s target of just below 2%. And from the Financial Times: European Central Bank unleashes quantitative easing Mr Draghi said the bond-buying scheme will commence in March and last until the end of September 2016, or “until we see a sustained adjustment in the path of inflation”. The €60bn monthly asset purchases include government debt, asset-backed securities and covered bonds but not corporate bonds.

Now that the QE Dream Has Come True, What Next? --  The ECB is to be congratulated on finally defying its German masters, who have long kept the euro’s guardian of stability in captivity. For a number of years, Germany’s unholy triangle of power over the land of the euro – Berlin, Frankfurt, Karlsruhe – has enforced a diktat that undermined both the euro economy and democracy, causing a deep socioeconomic crisis, the rise of nationalism, and anti-EU sentiments across the continent. At last, the ECB has liberated itself from the scourge of hyperinflation scaremongering that is the self-serving conviction – and declaration of intellectual bankruptcy – of the Germany political elite. It is fitting that the chance for a revival of democratic values and European solidarity is knocking on Athens’ door this weekend. In the markets’ perception, Mario Draghi over-delivered yesterday on his famous “whatever-it-takes” promise made at the height of the euro crisis in the summer of 2012. The euro and bond yields are down, stocks are up, party time is here. Things are going according to plan and everyone financial is in high spirits. The question is what Mario’s QE bazooka will really do beyond the markets – for the real economy, that is. The markets are not worried about that issue at this point. Or perhaps some are thinking ahead like this: if growth stays weak, there will be even more QE coming, so all is good in any case. In case you didn’t follow the Q&A carefully yesterday, there was another important course change – or return to hardcore German dogma – on exhibit in what Mario Draghi had to say.

Europe Needs a Real Industrial Policy - The Juncker Commission is now up and running, and it is beginning to give an idea of where it wants to go. Unfortunately not far enough. The two defining moments of the first few months are the Juncker plan, and the new guidelines on flexibility in applying the Stability and Growth Pact. Both focus on public investment. Public investment deficiency is now chronic across the OECD, and particularly in the EU. Less visible and politically sensible than current expenditure, for twenty years it has been the adjustment variable for European governments seeking to meet the Maastricht criteria, and to control their deficit. The guidelines issued last weeks, that some countries trumpeted as a great victory against austerity, are in fact just a marginal change.  The Juncker plan foresees the creation of an Investment Fund endowed with €21bn from the European budget and from the European Investment Bank. Two aspects of the plan raise issues. First, it is hard to see how it will be possible for the newly established fund to raise the announced amount. The expected leverage ratio is very ambitious (some have described the plan as a huge subprime scheme). Second, even assuming that the plan could create a positive dynamics and mobilize private resources to the announced 315 billions, this amounts to just over 2% of GDP for the next three years (approximately 0.7% annually). In comparison, Barack Obama’s American Recovery and Reinvestment Act of 2009 amounted to more than 800 US$ billions. The US mobilized more than twice as much as the Juncker plan, in fresh money, and right at the beginning of the crisis.

A message from Davos: Quantitative easing alone won't solve Europe's ills | Reuters: (Reuters) - Financial markets have been obsessing for months about the timing, size and structure of a European Central Bank bond-buying program that seems likely to be unveiled on Thursday. But business leaders, policymakers and celebrity academics gathered at the World Economic Forum in Davos had a message for all the "quantitative easing" (QE) enthusiasts: don't count on the ECB to resolve Europe's economic woes. On the first day of the annual gathering in the Swiss Alps, former Bundesbank president Axel Weber, now chairman of Swiss bank UBS, raised questions about whether the single currency could survive unless politicians stepped up and reformed their economies. "I have not seen enough reforms in Europe and the ECB will not fix this issue," Weber said, stressing the need for "heavy lifting" changes to labor market rules and pension schemes. He said that if European politicians continued to rely on loose monetary policy alone, the euro project would become "increasingly difficult" to run. "We need to move Europe to that next stage and if that doesn't happen I think there will always be questions about the viability of the project. Europe has not done enough to dispel these concerns," he said.

"World Running Out of Positive-Yield Bonds" -  In the wake of ECB's €60 billion a month QE madness, one might be wondering what it may do to European bond yields. Since September of 2013, yield on the German 10-year bond has plunged from around 2% to 0.367%.  With €720 billion annual asset purchases, a huge portion of the bonds the ECB buys will be German.  Bloomberg explains ECB Risks German Bonds Mismatch Exceeding 100 Billion Euros[Of the 60 billion monthly asset purchases], about 45 billion euros probably would be sovereign debt, according to a central bank official, equating to more than 100 billion euros of German securities this year, based on purchases being conducted in proportion to euro-zone members’ contributions to the ECB’s capital. That would shrink the tradable market for German bonds in a year when the debt agency already planned to reduce the amount of conventional bonds outstanding by 8 billion euros. “It’s going to cause a huge shock to the supply-demand balance in the European government-debt market,” Anthony Doyle, investment director at M&G Group Plc in London, said before the ECB’s decision was announced. “We might not be too far off the German bund market looking like the Swiss one, with a negative yield out to 10 years. It’s pretty crazy.”  The difficulty for the ECB may be flushing out sellers and getting them to buy other assets instead. Banks and insurers need Germany’s AAA securities to bolster their balance sheets and pension funds mop up bunds to match their liabilities. In a low-growth environment with scant inflation, investors are sticking with bonds, particularly when the ECB is levying charges on its overnight deposit facility.

Germany to offer no return on its five-year bonds - — Germany is preparing to offer investors a return of nothing to buy its five-year bonds, for the first time on record. The country’s central bank said Tuesday it would auction €5 billion ($5.79 billion) of five-year government bonds  Wednesday with an annual coupon of 0%. The willingness of investors to buy ultrasafe German bonds on such terms is another sign of how markets are bracing for the European Central Bank’s likely announcement Thursday of a mass government bond-buying program, also known as quantitative easing. See: What happens if the ECB pulls a Swiss-style surprise Many analysts expect around one-quarter of any sovereign QE program to focus on Germany, to reflect its contribution to the ECB’s capital base, which is based on each country’s population and gross domestic product. Economists expect the total program to be anywhere from €500 million to €1 trillion in size. “The symptoms of a bond-buying program are being seen more and more now as QE is priced to a 100% likelihood. There is a scarcity of Germany bonds in the market,”

The ECB Cold Shoulders Greece on QEYves Smith  -- Normally, when I post shows from RT, I direct reader attention to the main interview, and treat the introductory four-minute segment as an informative addition.  Here, the key part of the show is that initial section, where Ed Harrison provides an informative, high level look at the ECB’s upcoming QE program. It is seems to be badly thought through operationally (reader Scott pointed yesterday to a Financial Times effort to explain how each country’s purchases and liabilities would work, and declared them to be “clear as mud”). Moreover, as Ed Harrison explains, it’s not clear how the effort can accomplish anything positive in an increasingly negative yield environment. The other segments are also worthwhile, with regular Boom/Bust host reporting on the Swiss shock live from Davos, and Ed Harrison talking with Dan Alpert about the prospects for the Euro, and the last section on net neutrality.

ECB’s Bond-Buying Program Expected to Boost Commercial Real Estate Sales - Commercial real estate analysts were projecting that 2015 would be a strong year even before Thursday’s quantitative easing announcement by the European Central Bank. Now it’s looking even better, according to David Hutchings, head of Europe investment strategy at Cushman & Wakefield. The real estate services giant had been projecting a 5% to 10% increase in commercial real estate sales volume in 2015 over 2014. If the ECB’s €60 billion-per month bond buying program pushes interest rates down as expected, the increase in volume would be more like 20%, Mr. Hutchings said. Cushman & Wakefield is now projecting that, with quantitative easing, European sales volume in 2015 would hit €268 billion, which would tie the record year, 2007. Mr. Hutchings said that quantitative easing would help commercial real estate sales partly because, as the ECB buys bonds, investors who would typically buy these bonds are going to be displaced. They’ll look around for other investments and real estate will be particularly attractive because it offers higher yields than bonds. “There will automatically be a ripple effect pushing investors out to other assets,” Mr. Hutchings said. Also, if the ECB is successful, the bond buying program would spark economic growth in Europe that also would also benefit commercial property, by driving up rents and occupancy rates. “There hopefully will be an improvement in the economic situation which makes property a better asset,” he said.

Ilargi: Brussels is a Bunch of Criminals - I was going to start out saying yesterday was the saddest day in Europe in 50 years, or something like that, because of the insane and completely nonsensical largesse the ECB permits itself to launch, aimed at once again saving a banking system, but which will not only not help the European people, it will make things even much worse than they already are. Which is also, lest we overlook that ‘detail’, entirely thanks to the ECB/EU/IMF Troika.  I’ve said many times that the EU in its present form should be dismantled tomorrow morning (even though it’s not the same tomorrow morning anymore), and if Draghi’s $1.1 million x million ‘stimulus’ should make anything clear, it’s that the dismantling gets more urgent by the day. But calling it the saddest day in Europe in 50 years would show far too little respect for the people who died in former Yugoslavia, and in eastern Ukraine. It’s still a very sad day, though. And I was already thinking about that even before I read Theopi Skarlatos’ article for the BBC; that really made me want to cry. When you read about female doctors(!) feeling forced to prostitute themselves to feed their children, about the number of miscarriages doubling, and about the overall sense of helplessness and destitution among the Greek population, especially the young, who see no way of even starting to build a family, then I can only say: Brussels is a bunch of criminals. And Draghi’s QE announcement is a criminal act. It’s a good thing the bond-buying doesn’t start until March, and that it’s on a monthly base: that means it can still be stopped.

Greece cannot rebound without debt cut: Syriza economist -- Struggling Greece will never recover without a generous debt cut, despite what the country's creditors might think, the politician likely to become the next finance minister said Tuesday. "To promote reforms one must settle the debt issue," Giannis Dragasakis, the senior economist at anti-austerity party Syriza who are favourites to win Sunday's general election, told AFP in an interview. "The possibility of recovery is limited" because Greece is labouring under a debt of nearly 320 billion euros ($371 billion), or 175 percent of national output, he said. Syriza, who have a steady lead of around three points in pre-election polls, are trying to strike a delicate balance between fiscal diligence and debt forgiveness. The left-wing party's plan to renegotiate Greece's multi-billion bailout with the European Union and the International Monetary Fund is already raising hackles among the country's creditors.

Polls point to victory for Syriza as Greek election nears (Reuters) - Greece's Syriza party is set for a comfortable victory in Sunday's general election, according to opinion polls that show the radical leftists consolidating gains in the final days of campaigning. With just four days left until the vote, all polls show Syriza firmly ahead. The latest poll had Syriza's lead over the ruling conservatives widening to five percentage points, putting it close to the threshold for an outright victory. Greece's election is being closely watched by financial markets as a victory by the anti-bailout party could trigger a standoff with European Union and IMF lenders and push the country close to bankruptcy or an exit from the euro zone. In an opinion piece for the Financial Times published on Wednesday, Syriza leader Alexis Tsipras sought to dismiss those fears and appealed for time to change Greece. "We have a duty to negotiate openly, honestly and as equals with our European partners. There is no sense in each side brandishing its weapons," Tsipras wrote. "We have not been in government; we are a new force that owes no allegiance to the past. We will make the reforms that Greece actually needs."

The Triumph of Radical Right Economics in Greece – At the Hands of “Socialists” -  Bill Black -  In my January 18, 2015 column, I explained that German Prime Minister Angela Merkel’s sweetest triumph was successfully extorting George Papandreou, Greece’s Prime Minister, head of the Greek Socialist Movemnt (PASOK), and President of the Socialist International, to inflict austerity and a war on workers’ wages on the Greek people.  I quoted a passage from the Papandreou administration’s  May 3, 2010, “Memorandum of Economic and Financial Policies” (the Papandreou Plan) agreeing to the European Commission’s (EC) austerity and anti-worker demands that was made part of The EC’s  Occasional Papers No. 61 “The Economic Adjustment Programme for Greece” (May 2010).  In this column I explain how radically right-wing the Papandreou Plan was and the completeness with which it embraced rather than resisted the troika’s theoclassical nostrums that forced Greece, Italy, and Spain into gratuitous second Great Depressions.  In Greece’s case, the Merkel Great Depression has proven more severe and longer in duration than the Great Depression of 80 years ago.  The EC’s Economic Adjustment Programme for Greece description of the Papandreou Plan was accurate.  The Greek leaders “strongly own and support the [austerity] programme policies and objectives.”

Angela Merkel says Greece must take responsibility for its debts - German chancellor Angela Merkel has warned Greece that it must take responsibility for its debts, as the country heads into crunch elections that could reignite the eurozone debt crisis. At a keynote speech at the World Economic Forum, Merkel insisted that she wanted Greece to remain in the eurozone. But she also signalled to Athens that Germany was not easing up in its insistence that the Greek debt mountain is repaid. “Everything we have done politically has been about Greece remaining in the euro area,” she told Davos. She cited two principles that underpin the eurozone. “Showing solidarity, and continuing to show solidarity, along with the responsibility to shoulder one’s own risks,” she said. But Merkel also acknowledged that Sunday’s poll could reshape the eurozone, with the left-wing Syriza party leading the polls, and committed to securing a debt renegotiation. “What happens after the elections, we will discuss then,” Merkel said. Greece’s debts now total around 175% of GDP, a level which many experts believe is unsustainable. More than 30 economists wrote an open letter this week, urging its lenders to agree to debt relief. But another northern European leader at Davos, Finland’s Alexander Stubb, was taking a tough line, saying the Greek people needed to know that it will be “very hard for us to forgive any loans or restructure any debt at this moment.”

Greece to need another bailout extension – euro zone official - (Reuters) – Greece will have to ask for a new extension to its euro zone bailout programme before 1.8 billion euros in pending aid can be paid, a senior euro zone official said on Friday, stressing that a new government must first be in place to do so. Greece’s programme with the euro zone expires on Feb. 28. Although the International Monetary Fund will continue to back Athens, the country needs to be under an European accord to receive the final euro zone loans and to be eligible for support from the European Central Bank. Without an extension, Athens would also lose access to almost 11 billion euros (8.22 billion pounds) in euro zone bailout bonds now available to safeguard Greek bank capital needs in the Hellenic Financial Stability Fund. Given Greek elections on Sunday, one senior euro zone official said it was “on the outer fringes of statistical probability” that the EU, IMF and ECB would complete a long-delayed fifth review of Greece’s international aid programme and release the final euro zone disbursement. But the official, who declined to be named, played down concerns about a standoff with the leftist Syriza party and international lenders that would drive Greece to bankruptcy and push the country out of the euro zone. The official said euro zone finance ministers will discuss financing for Greece on Monday at a meeting in Brussels and are expected to signal that they are willing to give Athens more time under a programme.

Greek Public Debt at 176% of GDP in Q3 2014 - According to data released by Eurostat, the Greek public debt increased to 176% of the country’s GDP during the third quarter of 2014, from 171% in the same quarter of 2013. Public debt within the Eurozone stood, on average, at 92.1% of GDP in the third quarter of 2014, compared to 91.1% in the third quarter of 2013. Meanwhile, in the EU28, public debt reached 86.6% of GDP, while a year ago it stood at 85.3%. Regarding Greece, the country’s public debt reached 176% of GDP during the third quarter of 2014, amounting to a total of 315.5 billion euros, while during the second quarter, the debt stood at 177.5% (317.5 billion euros) and 171% (317.7 billion. euros) in the third quarter of 2013. Greece recorded the highest public debt rate in the EU in the third quarter of 2014, followed by Italy (131.8%), Portugal (131.4%) and Ireland (114.8%). The lower debt rate was recorded in Estonia (10.5%), Luxembourg (22.9%) and Bulgaria (23.6%). Compared to the third quarter of 2013, the public debt rate showed an increase in 18 EU member-states, while it dropped in 10. The largest increases were recorded in Slovenia (16.8 percentage points), Croatia (7.3 percentage points) and Bulgaria (6.6 percentage points). Furthermore, the greatest public debt reduction was recorded in Ireland (-9.4 percentage points), Poland (-8.0 percentage points) and Luxembourg (-5.0 percentage points).

Trojan Hearse: Greek Elections and the Euro Leper Colony - Europe is stunned, and bankers aghast, that polls show the new party of the Left, Syriza, will win Greece's parliamentary elections to be held this coming Sunday, January 25. Syriza promises that, if elected, it will cure Greece of leprosy. Oddly, Syriza also promises that it will remain in the leper colony. That is, Syriza wants to rid Greece of the cruelty of austerity imposed by the European Central Bank but insists on staying in the euro zone. The problem is, austerity run wild is merely a symptom of an illness. The underlying disease is the euro itself. For the last five years, Greeks have been told that, if you cure your disease--that is, if you dump the euro--the sky will fall. I guess you haven't noticed, the sky has fallen already. With unemployment at 25%, with Greek doctors and teachers eating out of garbage cans, there is no further to fall. In 2010, when unemployment was a terrible 10%, a year into the crisis, the "Troika" (the European Central Bank, European Commission and the International Monetary Fund) told the Greeks that brutal austerity measures would restore Greece's economy by 2012. Ask yourself, Was the Troika right? There is a saying in America: Fool me once, shame on you. Fool me twice, shame on me. Can Greece survive without the euro? Greece is already dead, but the Germans won't even bother to bury the corpse. Greeks are told that if they leave the euro and renounce its debts, the nation will not be able to access world capital markets. The reality is, Greece can't access world markets now: no one lends to a corpse. There's a way back across the River Styx. But it's not by paddling on a euro.

First It Refused To Bail Out Its Insolvent Banks; Now Iceland Set To Officially Withdraw European Union Application -- Iceland may be a small country, but when it comes to dealing with big problems it is truly the modern equivalent of David in the battle against the status quo Goliath. First, it was Iceland, and only Iceland, refusing to bail out its banks, when every other western nation was being held hostage by those who stood to lose the most from a financial collapse, and even going so far as throwing some of its banking executives in prison. And now, as MBL reports, Iceland's con­ser­v­a­tive In­de­pen­dence Party will sup­port a res­o­lu­tion in par­lia­ment to for­mally with­draw Ice­land's ap­pli­ca­tion to join the Eu­ro­pean Union.

Europe 'faces political earthquakes': Political earthquakes could be in store for Europe in 2015, according to research by the Economist Intelligence Unit for the BBC's Democracy Day. It says the rising appeal of populist parties could see some winning elections and mainstream parties forced into previously unthinkable alliances. Europe's "crisis of democracy" is a gap between elites and voters, EIU says. There is "a gaping hole at the heart of European politics where big ideas should be", it adds. Low turnouts at the polls and sharp falls in the membership of traditional parties are key factors in the phenomenon. The United Kingdom - going to the polls in May - is "on the cusp of a potentially prolonged period of political instability", according to the Economist researchers.They say there is a much higher than usual chance that the election will produce an unstable government - predicting that the populist UK Independence Party (UKIP) will take votes from both the Conservatives and Labour. The fragmentation of voters' preferences combined with Britain's first-past-the-post electoral system will, the EIU says, make it increasingly difficult to form the kind of single-party governments with a parliamentary majority that have been the norm.

Another Former Central Banker Finally Gets It: "The Idea That Monetary Stimulus Is The Answer Doesn't Seem Right" -- What is it about central bankers who wait to tell the truth only after they have quit their post. First it was the maestro himself, the Fed's Alan Greenspan (most recently in "Greenspan's Stunning Admission: "Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It"), and now it is the Bank of England's former head, Mervyn King, who yesterday told an audience at the LSE that "more monetary stimulus will not help the world economy return to strong growth." That this is happening just as we learn that in one year the world's 1% will collectively own more wealth than the rest of the world combined, and two days before Goldman's Mario Draghi unleashed up to €1 trillion (if not unlimited) in QE, is hardly as surprise, and will be surely ignored by everyone until the inevitable outcome of another "French revolution" finally arrives.

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