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

Saturday, January 3, 2015

week ending Jan 3

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Monday, December 29, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Bernanke reveals what really happens at Fed meetings - — Wall Street awaits the outcome of U.S. central bank meetings with great anticipation, but an insider says the event is usually very dull and the outcome known well in advance. “They get lots of attention ... and most of them are deadly boring,” said Ben Bernanke, the former Federal Reserve chairman from 2006 to early 2014, in an interview with the BBC. “They are very scripted. The staff do all the work and they write the communiqué in advance of the decision making.”

Philadelphia Fed’s Plosser Warns Delay for Rate Increases Carries Risk - The longer the Federal Reserve waits to begin raising interest rates from near-zero, the more aggressive those rate increases will have be, according to a new paper co-authored by Charles Plosser, president of the Federal Reserve Bank of Philadelphia.  Keeping rates at their current ultralow level is “unusually accommodative by historical standards,” and while inflation remains subdued, “economic conditions are still consistent with a gradual tightening of policy,” wrote Philadelphia Fed research director Michael Dotsey, Mr. Plosser and Keith Sill, director of the regional reserve bank’s Real-Time Data Research Center, in a “special report” released by the bank Wednesday. Many investors and some Fed officials expect the central bank to start raising its benchmark short-term interest rate around the middle of 2015. “Delaying liftoff well into 2015 runs the risk of requiring more aggressive future monetary policy than would otherwise be needed,” the paper’s authors concluded, though they added such risks should “be balanced with the prospect that inflation could run persistently below target.” Mr. Plosser, who retires in March, has been a vocal critic of the Fed’s aggressive attempts to stimulate economic growth in recent years. He has argued that the Fed should adopt a formal rule, such as the Taylor rule, to guide its policy decisions. Those rules suggest the Fed should have started to tighten policy in late 2014, according to Messrs. Dotsey, Plosser and Sill.

Cleveland Fed’s Mester Says Rates Could Rise in First Half of Year - The Federal Reserve could raise interest rates in the first half of the year, Cleveland Fed President Loretta Mester said Friday. Ms. Mester expects U.S. economic growth to strengthen to 3% this year as oil prices provide a boost, she told Fox Business Network in an interview. “The economy is on very firm footing,” Ms. Mester said. “We’ve got some very good data on growth and employment, and the unemployment rate has come down” more rapidly than many economists had forecast, she added. Inflation, which has undershot the Fed’s 2% target for over two years, is “running a bit low,” Ms. Mester noted. But she described the downdraft as likely “transitory,” echoing language used by Fed Chairwoman Janet Yellen. Ms. Mester took the helm of the Cleveland Fed in June, and won’t have a vote this year on the policy-setting Federal Open Market Committee. The Fed has kept official interest rates at effectively zero since December 2008. Most investors currently expect the first rate increase to come sometime in mid-2015.

The Fed's Game of Monetary Inflating and How to Put an End to It - History has shown unequivocally that you don't want to monkey with money and credit.  This is the cogent warning recently issued by Doug Noland at Prudent Bear. He is referring to the monetary shenanigans of the central banks around the world, the most egregious of which is our very own central bank, the Federal Reserve.  After more than 15 years of almost continuous and increasingly profligate money-credit creation, the Fed is now approaching the moment of truth. In the next few months it will have to put its actions where its mouth is regarding the interest rates under its control. Up to now, Fed Chairman Janet Yellen has been very good at what we could call the Open-Market Charade. While sounding profoundly straightforward and direct, she actually has bested Alan Greenspan at the art of Fedspeak: talking in soothingly erudite phrases, all the while saying nothing in particular.  But no matter what she says now, the Fed's predicament is clear: It must soon choose between allowing the target rate to climb, which will squeeze the necks of already precarious emerging markets, or keeping the rate low and in the process risking re-devaluation of the dollar and/or blowing even more bubbles in stocks, junk bonds, global derivatives, emerging market currencies, and selected real estate.

Data Insight: Which Growth Rate? It’s a Weighty Subject  -NY Fed - The growth rate in real gross domestic product (GDP) is a conventional indicator of the economy’s health. But the two ways of measuring annual GDP growth can give very different answers. In 2013, GDP grew 2.2 percent on a year-over-year basis, but at a faster 3.1 percent rate on a Q4-over-Q4 basis. So, which measure is more meaningful? We show in this post that the Q4/Q4 metric is better since it only considers quarterly growth rates during the current year, while the Year/Year measure depends on quarterly growth rates in both the current and previous year and puts considerable weight on growth around the turn of the year.
A standard method for reporting annual growth in economic variables (as used by the Bureau of Economic Analysis) is to take the average level for the whole year and compare that with the average level in the previous year, which in our example would be 2012. This calculation results in the Year/Year growth rate:The alternative measure of annual growth is to calculate Q4/Q4 growth:  The Q4/Q4 measure is, for example, used by the Federal Reserve presidents and Board members in their economic projections. These two measures can give very different values for annual growth rates. The chart below shows them both from 1950 through 2013.  The next chart shows that the difference in the two measures has been over 4.0 percentage points at times, with the standard deviation of the difference being a fairly high 1.7 percentage points. So, which of these two measures should one consider? In order to understand the differences between them, we show that each annual series can be approximately expressed as a weighted average of quarterly growth rates. The quarterly growth rate (at an annual rate) is defined as:

The silliness of NGDP targeting – again. The case against NGDP targeting is actually even stronger theoretically than I let on in that post.  I organized the last post around the simplest possible sticky price model, with no saving, capital, only one type of consumer, no sticky nominal wages, no credit frictions, a closed economy, so no trade… If we relax these restrictions, optimal policy becomes a much more complicated beast.  It involves [actually this is an informed conjecture not an assertion of analytical fact] a weighted sum of deviations of inflation, nominal wages, consumption by borrowers and lenders (entering separately), interest rate spreads, the capital stock, the real exchange rate…  and with weights on inflation of prices and nominal wages an order of magnitude greater than the rest. It would be reasonable to scoff at this and argue for nominal GDP targeting on grounds of simplicity.  But then, as I said in the last post, on grounds of simplicity I’d argue for sticking with the status quo, with plenty of communication about how the central bank also cares about nominal wage growth, the real exchange rate, spreads and unemployment.

It’s Beginning to Look a Lot Like Christmas – of 2008 – Pam Martens - We are watching a collapse in industrial commodity prices, including crude oil. Yields on junk bonds (high yield debt) have risen dramatically. Investors have sought out the safe haven of U.S. Treasury notes, driving the yield lower as junk bond yields rise from an exit flight out of higher risk securities.The above paragraph could just as well be describing December of 2008. Unfortunately, it’s also an apt description of where we find ourselves on December 30, 2014.Aside from the irrationally exuberant U.S. stock market, there are two other serious mismatches that don’t compute between December of 2008, in the midst of the greatest financial collapse on Wall Street since the Great Depression, and December 2014. First, the publicly traded stocks of the largest Wall Street banks were in precipitous decline in late 2008, as they should have been, since rising levels of distressed debt and crashing industrial commodity prices mean the economy is weakening and banks will take a hit to earnings. Bizarrely, today, the share prices of Citigroup, Bank of America, and JPMorgan Chase are actually higher than where they started the year. The second serious mismatch is the rhetoric coming out of the Federal Reserve. The statement released by the Federal Open Market Committee (FOMC) on December 16, 2008, accurately acknowledged the “declines in the prices of energy and other commodities” as a harbinger of “weaker prospects for economic activity.” Today, despite a stunning collapse in the prices of industrial commodities, the December 17, 2014 FOMC statement mentions only “declines in energy prices” and says nothing about the stark weakness in a broad range of other industrial commodities.

November’s Deflation Figures the Fed Would Rather You Not See -- According to the U.S. central bank, the Federal Reserve, in its December 17, 2014 policy statement delivered by the Federal Open Market Committee, America has become a veritable oasis in a sea of economic turmoil. Economic activity is “expanding,” labor conditions have “improved further,” housing spending is “rising moderately,” business fixed investment is “advancing.” And that plunge in oil prices? Well, that’s going to be “transitory” and “dissipate.”  The Fed’s position that the United States can wave a magic wand and delink itself from the vicious deflationary forces besetting our trading partners is the stuff of fairy tales. As of November 2014, annual rates of inflation as measured by the Consumer Price Index (CPI), showed that ten of our trading partners, mostly in the Eurozone, were experiencing deflation:

  • Belgium: -0.110 percent
  • Estonia: -0.614 percent
  • Greece: -1.246 percent
  • Hungary: -0.739 percent
  • Israel: -0.098 percent
  • Poland: -0.484 percent
  • Slovenia: -0.252 percent
  • Spain: -0.372 percent
  • Sweden: -0.204 percent
  • Switzerland: -0.059 percent

Another seven of our trading partners showed annualized inflation, as measured by CPI, below one-half of one percent:

Commodity Prices Are Cliff-Diving Due To The Fracturing Monetary Supernova - The Case Of Iron Ore - David Stockman - Crude oil is not the only commodity that is crashing. Iron ore is on a similar trajectory and for a common reason. Namely, the two-decade-long economic boom fueled by the money printing rampage of the world’s central banks is beginning to cool rapidly. This cooling phase is graphically evident in the cliff-diving movement of most industrial commodities. But it is important to recognize that these are not indicative of some timeless and repetitive cycle—–or an example merely of the old adage that high prices are their own best cure.  Instead, today’s plunging commodity prices represent something new under the sun. That is, they are the product of a fracturing monetary supernova that was a unique and never before experienced aberration caused by the 1990s rise, and then the subsequent lunatic expansion after the 2008 crisis, of a cancerous regime of Keynesian central banking. Stated differently, the worldwide economic and industrial boom since the early 1990s was not indicative of sublime human progress or the break-out of a newly energetic market capitalism on a global basis. Instead, the approximate $50 trillion gain in the reported global GDP over the past two decades was an unhealthy and unsustainable economic deformation financed by a vast outpouring of fiat credit and false prices in the capital markets. For that reason, the radical swings in commodity prices during the last two decades mark the path of a central bank generated macro-economic bubble, not merely the unique local supply and demand factors which pertain to crude oil, copper, iron ore, or the rest.  Accordingly, the chart below which shows that iron ore prices have plunged from $150 per ton in early 2013 to about $65 per ton at present only captures the tail end of the cycle.

Five Reasons for Slow Growth by Michael Spence -  A remarkable pattern has emerged since the 2008 global financial crisis: Governments, central banks, and international financial institutions have consistently had to revise their growth forecasts downward. . It is a pattern that has caused real damage, because overoptimistic forecasts delay measures that are needed to boost growth, and thus impede full economic recovery. Forecasters need to come to terms with what has gone wrong; fortunately, as the post-crisis experience lengthens, some of the missing pieces are coming into clear focus. I have identified five. First, the capacity for fiscal intervention – at least among developed economies – has been underutilized. As former United States Deputy Secretary of the Treasury Frank Newman argued in a recent book, Freedom from National Debt, a country’s capacity for fiscal intervention is better assessed by examining its aggregate balance sheet than by the traditional method of comparing its debt (a liability) to its GDP (a flow). Research by the International Monetary Fund has indicated that these fiscal multipliers – the second factor overlooked by forecasters – vary with underlying economic conditions. In economies with excess capacity (including human capital) and a high degree of structural flexibility, the multipliers are greater than once thought. A third piece of the forecast puzzle is the disparity between the behavior of financial markets and that of the real economy. Judged only by asset prices, one would have to conclude that growth is booming. Obviously, it is not. A fourth factor is the quality of government. In recent years, there has been no shortage of examples of governments abusing their powers to favor the ruling elite, their supporters, and a variety of special interests, with detrimental effects on regulation, public investment, the delivery of services, and growth. It is critically important that public services, public investment, and public policy are well managed. Finally, and most important, the magnitude and duration of the drop in aggregate demand has been greater than expected, partly because employment and median incomes have been lagging behind growth. This phenomenon preceded the crisis, and high levels of household debt have exacerbated its impact in the aftermath.

Looking back on the economic collapse - Dean Baker - The recession officially began seven years ago this month, which makes it a good time to look back and assess the damage. The carnage is impressive.  To start with the top-line numbers, we have already lost almost $10.5 trillion in output because of the downturn. This is the value of the goods and services that could have been produced over the last seven years, according to the Congressional Budget Office (CBO), but were not because of all the people thrown out of work by the recession. To put this figure in context, it comes to more than $33,000 per person in the United States, or $132,000 for a family of four. There are a lot of people in Washington who have been yelling about the cost of the food stamp program. But the amount of money we lost because of the recession is almost 140 times the current annual budget for that program. For another comparison, the government looks to lose about $500 million on the loan guarantees it made to Solyndra, a start-up solar-energy company that received stimulus money and later went bankrupt, to the guffaws of conservatives. The money lost because of the recession is 21,000 times what taxpayers lost on Solyndra. If we spent an hour yelling about Solyndra and we wanted our yelling time to be proportional to the amount of money lost, if we started on Jan. 1, 2015, we would have to be yelling about the recession around the clock until May 24, 2017. And this doesn’t even count the roughly $2 trillion in annual losses from the downturn for the rest of the decade that are implied by current CBO projections. If employment had followed the path projected by the CBO before the recession, more than 6 million additional people would be employed today. And another 2 million people who want full-time jobs but can find only part-time work would instead have full-time jobs. If we had followed the path projected back in 2007, real wages in total in 2014 would be more than 20 percent higher than they actually are.

The year of dollar danger for the world - America’s closed economy can handle a surging dollar and a fresh cycle of rising interest rates. Large parts of the world cannot. That in a nutshell is the story of 2015. Tightening by the US Federal Reserve will have turbo-charged effects on a global financial system addicted to zero rates and dollar liquidity. Yields on 2-year US Treasuries have surged from 0.31pc to 0.74pc since October, and this is the driver of currency markets. Since the New Year ritual of predictions is a time to throw darts, here we go: the dollar will hit $1.08 against the euro before 2015 is out, and 100 on the dollar index (DXY). Sterling will buckle to $1.30 as a hung Parliament prompts global funds to ask why they are lending so freely to a country with a current account deficit reaching 6pc of GDP.  There will be a mouth-watering chance to invest in the assets of the BRICS and mini-BRICS at bargain prices, but first they must do penance for $5.7 trillion in dollar debt, and then do surgery on obsolete growth models.  The Yellen Fed will be forced to back down in the end, just as the Bernanke Fed had to retreat after planning a return to normal policy at the end of QE1 and QE2. For now the Fed is on the warpath, digesting figures showing US capacity use soaring to 80.1pc, and growth running at an 11-year high of 5pc in the third quarter.

On the Stupidity of Demand Deficient Stagnation - In my last post I wrote about “why recessions caused by demand deficiency when inflation is below target are such a scandalous waste. It is a problem that can be easily solved, with lots of winners and no losers. The only reason that this is not obvious to more people is that we have created an institutional divorce between monetary and fiscal policy that obscures that truth.” I suspect I often write stuff that is meaningful to me as a write it but appears obtuse to readers. So this post spells out what I meant.   If you do not understand why economies can suffer from deficient demand, and why this is a needless waste of resources, then to be honest your best bet is to read a few chapters of a popular book on macro, like Tim Harford’s latest. Demand deficiency when inflation is persistently below target (the stagnation of the title) should not occur, because it is easy to solve technically. If I was a benevolent dictator in charge of both monetary and fiscal policy instruments, stagnation would never persist in my economy. The way I would ensure this most of the time is by varying interest rates, but if nominal interest rates hit zero (a liquidity trap) I have a whole range of alternative instruments, ranging from cutting various taxes to increasing transfers or raising public spending. I know of no macroeconomic theory on earth which tells me that everyone of these instruments will fail to raise demand.

Fiscal Policy at the Zero Lower Bound, Again - Paul Krugman -- For a moment there I thought David Beckworth and I had reached a common understanding of the role and limitations of monetary policy at the zero lower bound. Leave aside Fed purchases of unconventional assets; we agree, I think, that conventional open-market operations are ineffectual in a liquidity trap unless the increase in the monetary base is perceived as permanent. As I explained, that’s why I pushed for a fiscal response in 2009; I didn’t believe that the Fed was ready to make a credible announcement of a regime change, so I didn’t believe monetary policy could get much traction. But now Beckworth argues that the same logic means that fiscal policy would be ineffective too absent regime change. I think this is wrong, and would urge him to reconsider.  What Beckworth seems to be saying is that the Fed and the ECB are at their inflation target, and would therefore tighten policy if the economy were to expand and inflation to rise. But they aren’t at their inflation targets! The Fed has been below target for a number of quarters; the ECB is way below target. And don’t say that the failure to raise inflation rates shows that they must be happy with where they are. The whole point of our previous discussion has been that monetary policy is ineffective under zero-interest conditions unless you are willing to change regimes, that is, accept higher inflation over a fairly long period. If you aren’t willing to do that, the central bank loses traction today and is unable to correct low inflation. It seems to me that we’re seeing some backsliding here into the notion that the central bank can always hit whatever nominal GDP target it wants. No, it can’t, unless it is willing to make a long-term regime change.

US Debt Soars By $100 Billion On Last Day Of 2014, Hits Record $18.14 Trillion - It seems like it was only yesterday when we reported that, in yet another sleight of hand for the US Treasury and Social Security Administration, US debt rose by $32 billion on the last day of November sending total US debt above $18 trillion for the first time ever.  As we further noted, it also meant "that total US debt has increased by 70% under Obama, from $10.625 trillion on January 21, 2009 to $18.005 trillion most recently."  Fast forward to today when we are happy to report that according to the US Treasury, America's debt-funded spending spree, while supposedly slowing down if looking at the declining monthly budget deficit report, never actually has. As of the last day of 2014, total US debt soared by $98 billion in one day (driven again by Social Security debt surging on the last day of the month to a record $5.117 trillion), and closing off 2014 with a new all time high total of $18.141 trillion in Federal debt - an increase of $136 billion in the month of December and $790 billion for all of 2014.

After Years of Cuts, Government Spending Is Starting to Rebound - NYT — For a long stretch, government spending cutbacks at all levels were a substantial drag on economic growth. Now, finally, relief is in sight. For the first time since 2011, local, state and federal governments are providing a small but significant increase to prosperity. “There’s not a lot of positive contribution coming from the government sector, but when you’re talking about economic growth, less of a negative is a positive,” said Chris Varvares, senior managing director and co-founder of Macroeconomic Advisers. Mr. Lynch is one of the latest additions to the city’s payroll. His is the kind of government job this Gulf Coast town never would have even contemplated during the recession.“When everybody else is cutting back, you don’t hire people,” Across the nation, state and local governments, Democratic and Republican alike, are spending on projects that were stalled. Teachers, who were laid off in droves in recent years, are being hired again. Even federal spending in some sectors is on the rise.But no one is making plans for spending sprees, said Donald J. Boyd, senior fellow at the Nelson A. Rockefeller Institute of Government. Many officials were spooked by the most serious economic downturn since the 1930s, he said, and these are still tough times for many states and localities.

A Republican Ruse to Make Tax Cuts Look Good - — AS Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies. Whenever new tax legislation is proposed, the nonpartisan Congressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would. In preparing estimates, scorekeepers try to predict how people will respond to a new tax law. For example, if Congress contemplates raising the excise tax on cigarettes, scorekeepers consider existing trends in cigarette consumption, the likelihood that the higher taxes will induce some smokers to quit, and the prospect that higher prices will increase incentives for cigarette smuggling. There are no truly “static” revenue estimates.  These conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes. Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path. Such proponents argue that conventional projections are skewed against tax cuts, because they do not consider that cutting taxes could lead to higher economic output, which would make up at least some of the lost revenues. They maintain that dynamic scoring will, therefore, be both more neutral and more accurate than current methodologies.But the reality is more complex. In order to look at the effects across the entire economy, dynamic modeling relies on many simplifying assumptions, like how well people can predict the future or how much they care about their children’s future consumption versus their own.

Ed Kleinbard calls out “dynamic scoring” - There are many strong, substantive reasons to be worried about the use of “dynamic scoring” by the new Republican Congress. As Ed Kleinbard tells it in today’s NYT, the new majority is instructing the official scorekeepers of the revenue implications of tax changes to employ models that incorporate macroeconomic feedback. As I argued here, such a move engenders at least two big concerns. First, there’s the uncertainty of the estimates, providing a plum opportunity for cherry picking: Dynamic scoring calls for adding macroeconomic impacts to budget estimates. If, for example, your model of the economy is jiggered to show that cutting taxes boosts productivity, labor supply, and growth, then said growth can be tapped to offset the revenue lost by the tax cut. CBO doesn’t go there, because there’s insufficient evidence that such macroeconomic feedback effects can be reliably estimated (CBO does allow for some behavioral responses to tax changes, such as timing changes in realizing capital gains). Thus, dynamic scoring that correctly reflects this uncertainty returns a range of results—that’s what I mean by it gives you more numbers. For example, a dynamic score of Rep. Dave Camp’s tax reform plan estimated that it would raise the level of GDP over ten years by between nothing (0.1%) and a lot (1.6%). Guess which end of that spectrum fans of his plan would choose to highlight? Or, as Ed puts it, dynamic scoring provides us with “…greater exposure to the risk of a political thumb on the scale.”

The Republican's Magical Mystery Tour - Robert Reich - According to reports, one of the first acts of the Republican congress will be to fire Doug Elmendorf, current director of the non-partisan Congressional Budget Office, because he won’t use “dynamic scoring” for his economic projections.  Dynamic scoring is the magical-mystery math Republicans have been pushing since they came up with supply-side “trickle-down” economics. It’s based on the belief that cutting taxes unleashes economic growth and thereby produces additional government revenue. Supposedly the added revenue more than makes up for what’s lost when Congress hands out the tax cuts. Dynamic scoring would make it easier to enact tax cuts for the wealthy and corporations, because the tax cuts wouldn’t look as if they increased the budget deficit. Incoming House Ways and Means Chairman Paul Ryan (R-Wis.) calls it “reality-based scoring,” but it’s actually magical scoring – which is why Elmendorf, as well as all previous CBO directors have rejected it.  Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed. Ronald Reagan cut the top income tax rate from 70 percent to 28 percent and ended up nearly doubling the national debt. His first budget director, David Stockman, later confessed he dealt with embarrassing questions about future deficits with “magic asterisks” in the budgets submitted to Congress. The Congressional Budget Office didn’t buy them. George W. Bush inherited a budget surplus from Bill Clinton but then slashed taxes, mostly on the rich. The CBO found that the Bush tax cuts reduced revenues by $3 trillion.Yet Republicans don’t want to admit supply-side economics is hokum. As a result, they’ve never had much love for the truth-tellers at the Congressional Budget Office.

Lies, Damned Lies, and Reaganolatry - Paul Krugman - Last summer the editorial page editor of the Kansas City Star declared that she won’t be running any more op-eds by Stephen Moore, chief economist of the Heritage Foundation. She had cause: Moore had published an article that purported to refute my debunking of claims about the miraculous effects of tax cuts, but all of his numbers were wrong — they didn’t cover the time period he claimed, there were further inexplicable errors of fact, and all of the errors, surprise, tilted the supposed results in the direction he wanted. But while the Kansas City Star may have had enough of Moore, the door is always open at the Washington Post.  As PGL at Econospeak points out, Moore’s latest contains one outright lie — and it’s a lie about yours truly. Moore declares that  Critics such as economist Paul Krugman object that rapid growth during the Reagan years was driven more by conventional Keynesian deficit spending than by reductions in tax rates. No, I’ve never said that. I’ve written many times that both the 1979-82 slump and the recovery thereafter were driven by monetary policy: The architect of America’s great disinflation was Paul Volcker, the Fed chairman. In fact, Mr. Volcker began the process in 1979, when he adopted the tight monetary policy that caused that record unemployment rate. He was also mainly responsible for the recovery that followed: it was his decision to loosen up on the money supply in the summer of 1982 that set the stage for the rebound a few months later. The main reason recovery has been slower since the 2008 crisis is that we’ve hit the zero lower bound, preventing the kind of dramatic monetary loosening that took place in 1982, and also that we’ve seen unprecedented fiscal austerity. Oh, and I predicted the slow recovery in advance.

Sanders names 'deficit owl' his chief economist - A prominent advocate of bigger deficits and unconventional economics will be Sen. Bernie Sanders’ chief economist when he becomes the ranking member of the Senate Budget Committee in January. Stephanie Kelton, a self-described “deficit owl” and a leading proponent of the alternative economics theory known as modern monetary theory, announced that she would be the chief economist for the minority on the Budget Committee Friday.  Kelton is currently the chairwoman of the economics department at the University of Missouri-Kansas City. In addition to her academic career, she has a strong presence on social media, especially on Twitter. Since the financial crisis, Kelton has developed a following as a defender of larger deficits to counteract the recession, as well as one of the leading exponents of modern monetary theory, popularly referred to as MMT.  Deficit owls distinguish themselves from deficit “hawks,” who favor spending cuts and, in some cases, tax increases to reduce deficits.  University of Texas professor James Galbraith, another self-described deficit owl, said in a 2012 interview that “a deficit owl believes that the deficit is a result, not a cause, of economic difficulty, and that it’s not something policy should work on directly. In my opinion, the deficit is a symptom, not a disease in itself.”

Interview: Demystifying Modern Monetary Theory - Bill Mitchell -  I am sharing an interview I did with the Institute for New Economic Thinking (iNET) at their conference in April 2014 in Toronto Canada. iNET posted the interview on December 28, 2014 after they had finished editing and producing the material recorded in April. The interview probed the basic principles of Modern Monetary Theory (MMT) and how I think it can be extended in to the policy space. I hope you enjoy it. Bill Mitchell: Demystifying Demystifying Modern Monetary Theory. The Institute for New Economic Thinking invited me as one of their keynote speakers at their conference in Toronto, Canada in April 2014. As part of the visit, Marshall Auerback who is the Director of Institutional Partnerships at iNET conducted a series of interviews with some of the speakers.This is an edited version of the interview he conducted with me as part of that series. It is 22:43 minutes. The accompanying page – Bill Mitchell: Demystifying Modern Monetary Theoryat iNET provides an introduction to the Interview.

The Endless $1.6 Trillion War on Terror - The U.S. is increasingly coming to grips with the terrible costs of the post-9/11 war on terror that has gone on for over a decade – with no end in sight. American casualties in Afghanistan and Iraq total 6,845 men and women, according to the latest official tally, while more than a million troops were wounded in both wars. The Senate Intelligence Committee recently released a startling 528-page document that chronicled the CIA’s often brutal and secretive tactics in interrogating terrorism suspects that for many ran counter to American values. Now the Congressional Research Service (CRS) has provided a new accounting of the cost of wars in the Middle East between 2001 and 2014 – interventions that have been more expensive than the Korean War, the Vietnam War and the Persian Gulf War of 1990-1991 all rolled into one – and adjusted for inflation.  The government has spent $1.6 trillion on warfare since the Sept. 11, 2001 attacks on New York and Washington – a staggering sum that works out to about $337 million a day every day for the past 13 years. By contrast, the U.S. spent $341 billion of inflation-adjusted dollars waging war on North Korea between 1950 and 1953, $38 billion on the Vietnam War between 1965 and 1975, and $102 billion on the first Persian Gulf War.  This new total is about half a trillion dollars more than when the CRS last tried estimating the overall cost in 2010. The entire tab for Operation Enduring Freedom in Afghanistan, Operation Iraqi Freedom and related military action was placed on the government’s credit card. In other words, the money going to the war through a special “Overseas Contingency Account” was added directly to the federal debt. 

Round Goes the Revolving Door: Black Water Lobbyist to Run House Intel Committee - After lobbyist-run SuperPACs and big money efforts dominated the last election, legislators are now appointing lobbyists to literally manage the day-to-day affairs of Congress. For the House Intelligence Committee, which oversees government intelligence operations and agencies, the changing of the guard means a lobbyist for Academi, the defense contractor formerly known as Blackwater, is now in charge.  Congressman Devin Nunes (R-CA), the incoming chairman of the Intelligence Committee when the House reconvenes in January, announced that Jeff Shockey will be the new Staff Director of the committee. As a paid representative of Academi, Shockey and his firm have earned $80,000 this year peddling influence on behalf of Academi.  In previous years, the House Intelligence Committee has investigated Blackwater over secret contracts with the Central Intelligence Agency. Now, the shoe is on the other foot. As Staff Director, the highest position on a committee for a staff member, Shockey will oversee the agencies that do business with his former employer.

Will Tax Reforming Be Forgot and Never Brought to Mind? -- Could Dave Camp’s proposal and the corporate inversion debate prompt tax reform in 2015? TPC’s Bill Gale considers how they might shape developments in 2015. “Camp’s proposal provides the means to think seriously about tax reform. The inversion debate offers a reminder of why tax reform could be beneficial. Whether progress is made on these issues in 2015 is an open question. But despite long odds, many political leaders seem motivated to pursue it in the coming year.” Dynamic scoring of tax bills might not matter all that much. TPC’s Howard Gleckman considers the new rules crafted by the House GOP leadership. They would not require dynamic scoring for all bills, and the “qualitative assessment” required of the Joint Committee on Taxation and the Congressional Budget Office might not lead to an accurate budget score. Couple that with their call for a highly uncertain 20-year estimate of how tax changes would affect the economy. Bottom line, as Howard concludes: Projecting how tax changes affect the enormous and complex US economy is incredibly tough—no matter the method.

Profit from Crisis: Why capitalists do not want recovery, and what that means for America - Conventional economic theories tell us that capitalists are hedonic creatures. Like all other economic “agents” – from busy managers and hectic workers to active criminals and idle welfare recipients – their ultimate goal is maximum utility. In order for them to achieve this goal, they need to maximize their profit and interest; and this income – like any other income – depends on economic growth. Conclusion: utility-seeking capitalists have every reason to love booms and hate crises.  But, then, are capitalists really motivated by utility? Is it realistic to believe that large American corporations are guided by the hedonic pleasure of their owners – or do we need a different starting point altogether? So try this: in our day and age, the key goal of leading capitalists and corporations is not absolute utility but relative power. Their real purpose is not to maximize hedonic pleasure, but to “beat the average.” Their ultimate aim is not to consume more goods and services (although that happens too), but to increase their power over others. And the key measure of this power is their distributive share of income and assets. Note that capitalists have no choice in this matter. “Beating the average” is not a subjective preference but a rigid rule, dictated and enforced by the conflictual nature of the system. Capitalism pits capitalists against other groups in society – as well as against each other. And in this multifaceted struggle for greater power, the yardstick is always relative. Capitalists – and the corporations they operate through – are compelled and conditioned to accumulate differentially; to augment not their personal utility but their relative earnings. Whether they are private owners like Warren Buffet or institutional investors like Bill Gross, they all seek not to perform but to out-perform – and outperformance means re-distribution. Capitalists who beat the average redistribute income and assets in their favor; this redistribution raises their share of the total; and a larger share of the total means greater power stacked against others. In the final analysis, capitalists accumulate not hedonic pleasure but differential power.

U.S. Bond Sentiment Worst Since Disastrous ’09 as Fed Shifts - Get ready for a disastrous year for U.S. government bonds. That’s the message forecasters on Wall Street are sending. With Federal Reserve Chair Janet Yellen poised to raise interest rates in 2015 for the first time in almost a decade, prognosticators are convinced Treasury yields have nowhere to go except up. Their calls for higher yields next year are the most aggressive since 2009, when U.S. debt securities suffered record losses, according to data compiled by Bloomberg. Getting it right hasn’t been easy. Almost everyone who foresaw a selloff this year as the Fed ended its bond buying was caught off-guard as lackluster U.S. wage growth and turmoil in emerging markets propelled Treasuries to the biggest returns since 2011. Now, even as the bond market’s inflation outlook tumbles, forecasters are sticking to the view that Treasuries are a losing proposition as the economy strengthens. “Next year should be the break-out year finally,” “The market is ignoring the rhetoric that Yellen and the FOMC is getting closer and closer to tightening. The market has it wrong.”

 ICE bans ‘disruptive trading’ strategies - Intercontinental Exchange has explicitly banned an array of market strategies — from flooding its systems with data to tricking others by cancelling orders — in a tougher stance towards electronic trading groups. Two of ICE’s commodity futures exchanges in New York and Canada late on Monday outlined rule changes that set out detailed lists of prohibited “disruptive trading practices”. They are to take effect on January 14, about four months after exchanges owned by rival CME Group adopted similar rules. Disruptive trading was made illegal under the 2010 US Dodd-Frank financial reform law. Last year, the US Commodity Futures Trading Commission issued further guidance on banned types of trading including “spoofing”, or entering bids or offers with the intent to cancel them before completion. Such strategies can take place in millionths of a second as traders use algorithms to gauge the price level and depth of a market. One trader is fighting criminal charges that he designed computer programs to spoof commodity and currency futures markets for an illicit $1.6m in profit. ICE said it was now providing “additional clarification” on disruptive practices which were prohibited. These included entering orders with “intent to overload, delay, or disrupt the systems of the exchange or other market participants” and the “intent to cancel the order before execution”. A four-page document attached to the rule notices attempts to illuminate the changes, but an executive at one trading firm warned the rules appeared to rely heavily on judgment calls by exchange regulatory officials.

Break Up Citigroup - Simon Johnson - America’s presidential campaign is already well underway. The election is not until November 2016, and very few candidates have formally thrown their hats into the ring, but the competition to promote and develop ideas – both behind closed doors and publicly – is in fully swing.  Earlier this month, Citigroup took advantage of this formative political moment by seizing an opportunity to score a tactical victory – but one that amounts to a strategic blunder. Using legislative language apparently drafted by Citi’s own lobbyists, the firm successfully pressed for the repeal of some of the 2010 Dodd-Frank financial reforms. The provision was then passed after it was attached to a last-minute spending bill – a tactic that ensured very little debate in the House of Representatives and none at all in the Senate.  At a stroke, Citi executives demonstrated both their continued political clout in Washington and their continued desire to take on excessive amounts of financial risk (which is what this particular legal change permits). Lobbying to be allowed to load up on risk is exactly what Citi did during the 1990s and 2000s under Presidents Bill Clinton and George W. Bush – with catastrophic consequences for the broader economy in 2007-09.  As a result, breaking up Citigroup is under serious consideration as a potential campaign theme. For example, in a powerful speech – watched online more than a half-million times – Senator Elizabeth Warren responded uncompromisingly to the megabanks’ latest display of muscle: “Let’s pass something – anything – that would help break up these giant banks.”

The Cartel: How BP Got Insider Tips Through a Secret Chat Room - Halfway down a muddy, secluded road on marshland in suburban Essex sits Wharf Pool . A white sign with red lettering reads: “Private Syndicate: Strictly Members Only.” A metal gate, a barbed-wire fence and two CCTV cameras bar the way. An hour away by train, in London’s financial district, the lake’s owners ply their trade. Wharf Pool was purchased for about 250,000 pounds ($388,000) in 2012 by Richard Usher, the former JPMorgan trader at the center of a global investigation into corruption in the foreign-exchange market, and Andrew White, a currency trader at oil company BP. With revenue of almost $400 billion last year and operations in about 80 countries, BP trades large quantities of currency each day. Traders at the company regularly received valuable information from counterparts at some of the world’s biggest banks -- including tips about forthcoming trades, details of confidential client business and discussions of stop-losses, the trigger points for a flurry of buying or selling -- according to four traders with direct knowledge of the practice.   Copies of messages sent to BP traders over the course of a year were provided to Bloomberg News by a person with access to the online conversations. The person, who redacted the names of banks sending the messages and dates of conversations, said they came from firms whose senior foreign-exchange traders belonged to a chat room called “The Cartel” that was set up by Usher and included dealers at JPMorgan, Citigroup Inc. (C), Barclays Plc and UBS Group AG. (UBSN) The information offered an insight into currency moves minutes, sometimes hours before they happened. The messages could drag the U.K.’s biggest energy company into a scandal that has enveloped 11 banks and led to more than 30 traders from London to Singapore losing or being suspended from their jobs. Last month six banks were fined $4.3 billion for passing along information about their clients and working together to rig foreign-exchange markets.

Banking Culture Encourages Dishonesty - Across the globe, many people and institutions suffered large costs from the 2008 financial meltdown. Among the victims is the financial sector itself—whose reputation has been questioned after scandals involving the manipulation of interest rates and fraudulent deals. In trying to make sense of the crisis, some have pointed the fingers to individual bankers and banks, others to institutional pressures. But new research suggests that one important cause may reside elsewhere: in the banking culture itself. A paper recently published in Nature magazine found that the financial sector’s culture encourages dishonesty. This is an important finding, as it suggests that good conduct starts with having the right culture. Finance CEOs and upper management need to change cultural norms, so that they can model good behavior at all levels of banks and assure that performance incentives don’t inadvertently reward dishonesty. But what, you may be wondering, is unique about banking culture? The fact that there is a lot of focus on money and number crunching.

Why Getting Rid of Loan Officers Hurt Banks and the Economy - Yves Smith  - Yves here. Economists seldom take note of the fact that the degradation of skills at major banks has had serious macroeconomic effects. One issue has been described by Andrew Haldane: that as banks have become deregulated, they all have come to use very similar methods for making loans and taking other risks. This is particularly true in retail and small business lending, where individual and often character-based decisions made by loan officers have now been superceded by FICO-based models. The heavy reliance on FICO means that too many banks make similar lending decisions, exacerbating the tendency of banks to run lemming-like off cliffs all together. Haldane used a biological metaphor: that previously specialized types of financial firms and more autonomy in branch lending decisions led to more diversity in an ecological sense, which produced a more stable system. Less biological diversity, and less diversity among firms, increases systemic risk. A second issue is that the abandonment of training of credit officers means that banks have effectively abandoned the small business lending market. Mind you, that does not mean that small businesses can’t get credit, but the sources consist of small credit lines associated with business accounts, credit cards, and secured lending (equipment lending, borrowing against real estate owned by the enterprise). The dearth of bona-fide small business lending is one of the big reasons why the Fed’s super low interest rates didn’t lead to much in the way of increased lending to smaller companies (note that the biggest reason was still lack of loan demand. Businesses don’t borrow unless they see a good use of funds).

Unofficial Problem Bank list unchanged at 401 Institutions, Q4 2014 Transition Matrix - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Dec 26, 2014:  The FDIC did not release an update on its enforcement action activities through November this week. We had anticipated the release as the FDIC's issuance pattern is on the last Friday of the month. However, President Obama provided federal workers an additional day off given that Christmas fell on a Thursday. So it looks like the FDUC will issue the release one day next week. Otherwise, there are no changes to report to the Unofficial Problem Bank List. Thus, the list ends the month and year holding 401 institutions with assets of $125.1 billion. A year ago, the list held 619 institutions with assets of $205.8 billion. During December 2014, the list declined by a net seven institutions after nine action terminations, one failure, one merger, and four additions. However, assets during the month rose by $405 million, which is the first monthly increase since September 2012. The asset increase ends a streak of 26 consecutive months of lower assets. Given no changes this week, we decided to bring the transition matrix a week earlier than planned. For full details, see the accompanying table and a graphic depicting trends in how institutions have arrived and departed the list. Since publication of the Unofficial Problem Bank List started in August 2009, a total of 1,684 institutions have appeared on the list. Since year-end 2012, new entrants have slowed as 83 institutions have been added since then while 520 institutions have been removed. The pace of action terminations moved slightly higher in the latest quarter from the pace latest quarter. There has been a notable slowdown over the past six months (9.5 terminations per month average) compared with pace in the preceding 12 months (20 terminations per month average). Granted the list count is lower, but the per capita action termination rate of has slowed from 9.7 percent per quarter to 6.4 percent per quarter. At the start of the fourth quarter, there were 432 institution on the list with 30 institutions being removed because of action termination.

Fannie Mae: Mortgage Serious Delinquency rate declined slightly in November, Lowest since October 2008 --- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in November to 1.91% from 1.92% in October. The serious delinquency rate is down from 2.44% in November 2013, and this is the lowest level since October 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.  Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate was unchanged in November at 1.91%. Freddie's rate is down from 2.43% in November 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".The Fannie Mae serious delinquency rate has fallen 0.53 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2016 - although the rate of decline has slowed recently. Note: The "normal" serious delinquency rate is under 1%. Maybe serious delinquencies will be close to normal in late 2016.

Black Knight: Mortgage Delinquencies increased in November - According to Black Knight's First Look report for November, the percent of loans delinquent increased 12% in November compared to October, and declined 6% year-over-year. The percent of loans in the foreclosure process declined further in November and were down 35% over the last year.  Foreclosure inventory was at the lowest level since January 2008. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 6.08% in November, up from 5.44% in October. Some of the increase was seasonal (the delinquency rate usually increases in November).  The normal rate for delinquencies is around 4.5% to 5%. The percent of loans in the foreclosure process declined to 1.63% in November from 1.69% in October. The number of delinquent properties, but not in foreclosure, is down 329,000 properties year-over-year, and the number of properties in the foreclosure process is down 427,000 properties year-over-year. Black Knight will release the complete mortgage monitor for November in early January.

Who Gets to Decide Whether a State is a Judicial Foreclosure State or a Non-Judicial Foreclosure State, Legislatures or the Mortgage Industry? -- Apparently some mortgage lenders feel they can make this change unilaterally. Big changes are afoot in the process of granting a home mortgage, which could have a significant impact on a homeowner’s ability to fight foreclosure. In many states in the Unites States (including but not limited to Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin), a lender must go to court and give the borrower a certain amount of notice before foreclosing on his or her home. Now the mortgage industry is quickly and quietly trying to change this, hoping no one will notice. The goal seems to be to avoid those annoying court processes and go right for the home without foreclosure procedures. This change is being attempted by some lenders simply by asking borrowers to sign deeds of trust rather than mortgages from now on.  Not long ago, Karen Myers, the head of the Consumer Protection Division of the New Mexico Attorney General’s Office, started noticing that some consumers were being given deeds of trust to sign rather than mortgages when obtaining a home loan. She wondered why this was being done and also how this change would affect consumers’ rights in foreclosure. When she asked lenders how this change in the instrument being signed would affect a consumer’s legal rights, she was told that the practice of having consumers sign deeds of trust rather than mortgages would not affect consumers’ rights in foreclosure at all. Being skeptical, she and others in her division dug further into this newfound practice to see if it was widespread or just a rare occurrence in the world of mortgage lending. Sure enough, mortgages had all but disappeared, being replaced with a deed of trust. As a general matter, depending on the law in a state, a deed of trust can be foreclosed without a court’s involvement or any oversight at all. More specifically, the differences between judicial and non-judicial foreclosures are explained here in the four page document generated by the Mortgage Bankers’ Association.   The legal framework is vague and described briefly here.

Black Knight: House Price Index up slightly in October, Up 4.5% year-over-year -  Note:  The timing of different house prices indexes; Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From Black Knight: U.S. Home Prices Up 0.1 for the Month; Up 4.5 Percent Year-Over-Year -Today, the Data and Analytics division of Black Knight Financial Services​ released its latest Home Price Index (HPI) report, based on October 2014 residential real estate transactions. The Black Knight HPI combines the Company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales. The Black Knight HPI increased 0.1% percent in October, and is off 10.2% from the peak in June 2006 (not adjusted for inflation). The year-over-year increases have been getting steadily smaller for the last year - as shown in the table below:

Case-Shiller: National House Price Index increased 4.6% year-over-year in October -- S&P/Case-Shiller released the monthly Home Price Indices for October ("October" is a 3 month average of August, September and October prices).  This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.  Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.   From S&P: S&P/Case-Shiller National Home Price Index Pace Eases While Eight Cities Show Faster Gains  Data released today for October 2014, shows that the pace of home prices across the country continues to decelerate although eight cities did see prices rise faster... Both the 10-City and 20-City Composites saw year-over-year declines in October compared to September. The 10-City Composite gained 4.4% year-over-year, down from 4.7% in September. The 20-City Composite gained 4.5% year-over-year, compared to 4.8% in September. The S&P/CaseShiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.6% annual gain in October 2014 versus 4.8% in September. .. The National and Composite Indices were both slightly negative in October. Both the 10 and 20-City Composites reported a slight downturn, -0.1%, while the National Index posted a -0.2% change for the month. San Francisco and Tampa led all cities in October with increases of 0.8%. Chicago and Cleveland offset those gains by reporting decreases of -1.0% and -0.7% respectively. The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 18.0% from the peak, and up 0.7% in October (SA). The Composite 10 is up 24.1% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 17.0% from the peak, and up 0.8% (SA) in October. The Composite 20 is up 25.0% from the post-bubble low set in Jan 2012 (SA). The National index is off 9.8% from the peak, and up 0.7% (SA) in October. The National index is up 21.8% from the post-bubble low set in Dec 2012 (SA). The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 4.4% compared to October 2013. The Composite 20 SA is up 4.5% year-over-year.. The National index SA is up 4.6% year-over-year. Prices increased (SA) in all 20 of the 20 Case-Shiller cities in October seasonally adjusted. (Prices increased in 8 of the 20 cities NSA) Prices in Las Vegas are off 42.3% from the peak, and prices in Denver and Dallas are at new highs (SA).

Home Prices See Biggest Monthly Drop Since Polar Vortex As Case-Shiller Declines For Second Month - Case-Shiller's 20-city home price index dropped 0.1% MoM in October (on an unadjusted basis) - the second monthly drop in a row and biggest drop since the Polar Vortex. Year-over-year, home prices rose 4.5% - the weakest growth since October 2012. While this modestly beat expectations (+4.5% vs +4.4% exp.), it is the 11th month in a row of growth deceleration. Also of note: the Top 20 Composite index is now down for the second month in a row, dropping to 173.36. The question now is whether the downside momentum will pick up.

House Prices: Better Seasonal Adjustment; Real Prices and Price-to-Rent Ratio in October --  This morning, S&P reported that the National index increased 0.7% in October seasonally adjusted. However, it appears the seasonal adjustment has been distorted by the high level of distressed sales in recent years. Trulia's Jed Kolko wrote in August: "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data" The housing crisis substantially changed the seasonal pattern of housing activity: relative to conventional home sales, which peak in summer, distressed home sales are more evenly spread throughout the year and sell at a discount. As a result, in years when distressed sales constitute a larger share of overall sales, the seasonal swings in home prices get bigger while the seasonal swings in sales volumes get smaller. Sharply changing seasonal patterns create problems for seasonal adjustment methods, which typically estimate seasonal adjustment factors by averaging several years’ worth of observed seasonal patterns. A sharp but ultimately temporary change in the seasonal pattern for housing activity affects seasonal adjustment factors more gradually and for more years than it should. Despite the recent normalizing of the housing market, seasonal adjustment factors are still based, in part, on patterns observed at the height of the foreclosure crisis, causing home price indices to be over-adjusted in some months and under-adjusted in others.This graph from Kolko shows the weighted seasonal adjustment (see Kolko's article for a description of his method). Kolko calculates that prices increased 0.2% on a weighted seasonal adjustment basis in October - as opposed to the 0.7% SA increase and 0.2% NSA decrease reported by Case-Shiller. In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $278,000 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). In real terms, the National index is back to November 2002 levels, the Composite 20 index is back to July 2002, and the CoreLogic index back to March 2003.

A Look at Case-Shiller by Metro Area -- Today’s S&P/Case-Shiller home price report shows prices nationally increased 4.6% in the 12 months ended in October, down from 4.8% in September.  Slowing home appreciation is another sign of weaker demand for housing. The S&P report, however, is hopeful that strong economic growth and falling unemployment will turn the tide for home sales and prices. On an unadjusted basis, the 20-city gauge was down 0.1% in October from September, while the national index fell 0.2%. Regionally, San Francisco and Tampa led all cities in October with unadjusted increases of 0.8%. The Midwest cities of Chicago and Cleveland saw home prices fall 1.0% and 0.7% respectively in October. See how your metro area performed. (interactive table)

Eight Cities Where U.S. Home Prices Are Setting New Records - Home prices have returned to new highs in eight of the 40 largest metropolitan areas in the U.S.Nationally, prices are down 10.2% from their June 2006 peak, according to figures released this week by Black Knight Financial Services, a real-estate data firm.Many markets that saw a big housing bubble face a much deeper hole. Prices in Las Vegas, for example, have rebounded over the last two years, but they’re still 41% below the inflated level recorded in May 2006. Prices in Riverside, Calif., stood nearly 32% below their June 2006 level at the end of October.Black Knight tracks home transactions in 18,500 U.S. ZIP Codes, and it publishes data on the top 40 metro areas every month. The S&P/Case-Shiller index, which publishes data on 20 metro areas, has shown that prices in Denver and Dallas returned to new nominal highs in 2013. That index on Tuesday puts prices around 9.5% below their 2006 peak. Of the eight cities where prices have pushed to new highs, half of those record-setting markets are in Texas. Prices in Austin, Dallas and Houston have risen between 7% and 9% for the year through October, while prices in San Antonio are up 4.7%. Those figures aren’t adjusted for inflation. Texas, of course, didn’t have a big housing bubble when many other parts of the U.S. did between 2003 and 2007. And prices have picked up over the past four years as the energy boom spurred an increase in household formation and new construction. The plunge in oil prices figures to curb investment in the energy sector and could lead to layoffs, which could eventually cool housing demand and prices, though it will take time for that to show up in recorded transaction data. Prices have also risen to records in Denver and Nashville, two markets that also saw less dramatic increases during the bubble years and have had stronger economic recoveries. . Two other markets that have long faced affordability problems due to an inability to build much new housing round out the list of cities where prices have set new peaks: Honolulu and San Jose, Calif.

Zillow: Case-Shiller House Price Index year-over-year change expected to slow further in November -- The Case-Shiller house price indexes for October were released earlier today. Zillow has started forecasting Case-Shiller a month early - now including the National Index - and I like to check the Zillow forecasts since they have been pretty close.  From Zillow: Nov. 2014 Case-Shiller Forecast: Home Price Changes Slowing, But Still Growing. The October S&P/Case-Shiller (SPCS) data released this morning showed more slowing in the housing market, with annual growth in national home prices falling to 4.6 percent. Annual appreciation in home values has been below 5 percent for the past two months, and we anticipate this trend to continue into the future. The 10- and 20-City Indices also saw annual growth rates decline in October; the 10-City index rose 4.4 percent, while the 20-City Index rose 4.5 percent – down from rates of 4.5 percent and 4.7 percent, respectively, in September. Our forecast for November SPCS indicates that the slowing in home price gains will continue into November. Zillow predicts the national SPCS to rise 4.5 percent on an annual basis. The non-seasonally adjusted (NSA) 20-City index fell 0.1 percent from September to October, and we expect it to decrease 0.2 percent in November. We also expect a monthly decline in the 10-City Composite Index next month, falling 0.2 percent from October to November (NSA).All forecasts are shown in the table below. These forecasts are based on the October SPCS data release and the November 2014 Zillow Home Value Index (ZHVI), released Dec. 19. Officially, the SPCS Composite Home Price Indices for November will not be released until Tuesday, Jan. 27.

Robert Shiller: "Fragile" Real Estate Market Is "Not A Good Investment" -- In a few brief minutes, Professor Bob Shiller calmly and eloquently crushed the hopes and dreams of CNBC's cheerleading muppetry as they desperately tried to spin today's house price data as great news. Exuberant at gains in San Francisco and Miami, the anchor is stunned (briefly) when Shiller dares to say "things are getting too bubbly," and warns these areas are full of speculative excess. While falling just short of calling a turn in the housing cycle (noting ), when Simon Hobbs says "my reading of this is actually very optimistic," and begs Shiller to look at the glass-half-full side of the argument, the "anxious" Professor retorts, that home sales rates "trouble him" and warns the real estate market is "fragile." Shiller then concludes that not only are stocks extremely expensive but that housing is not a good investment... the anchor fades to black... Here is Professor Shiller popping the cheerleading bubble...(video)

It’s Official – Inflated Home Prices Strangle US Housing Market -- Wolf Richter - Mortgages are hard to get, and inventories of homes for sale are low: Those have been the dominant reasons cited by the industry to rationalize the crummy home sales that have disappointed pundits for over a year. But now those memes have been debunked by homebuyers themselves. Each real-estate data-gathering entity has its own methods, so results vary. But the direction has been consistent. Today, real-estate broker Redfin released the November data for the 41 or so major metro markets it serves across the US. The terrible numbers came with a conundrum:  With gas prices low and consumer confidence at the highest reported level in seven years, there was a lot to be cheery about heading into the holiday home-buying season. However, positive consumer sentiment did not translate into more real estate transactions last month as the number of homes sold plunged 21% in November versus October and was down 5% from this time last year. Yet the median sale price rose by 6.2% year over year. It’s not jumping in the double-digits anymore, as in the two prior years, but it’s still rising, though sales are falling.  The National Association of Realtors, when it reported similar but not quite as dismal results before the holidays, offered its own conundrum: “Fewer people bought homes last month despite interest rates being at their lowest levels of the year.” It also blamed “stock market swings in October.” Which makes you wonder what’s going to happen to housing when an actual correction sets in, or a bear market or worse? And finally with a nod to reality, it admitted that “rising home values are causing more investors to retreat from the market.”

NAR: Pending Home Sales Index increased 0.8% in November, up 4.1% year-over-year - From the NAR: Pending Home Sales Show Modest Gain in November The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.8 percent to 104.8 in November from a slightly downwardly revised 104.0 in October and is now 4.1 percent above November 2013 (100.7) – the highest year-over-year gain since August 2013 (5.6 percent)....The PHSI in the Northeast rose 1.4 percent to 89.1 in November, and is now 7.0 percent above a year ago. In the Midwest the index decreased 0.4 percent to 100.0 in November, and is now 0.5 percent below November 2013.Pending home sales in the South rose 1.3 percent to an index of 119.7 in November, and are 5.1 percent above last November. The index in the West increased 0.4 percent in November to 98.5, and is now 4.9 percent above a year ago. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

Existing Home Sales Revised Lower (Again), Midwest Slumps For 6th Month In A Row - While existing home sales rose 0.8% (beating the 0.5% expectation) MoM in November, once again previous data was revised lower. On an unadjusted basis however, YoY home sales rose at only 1.7% - missing expectations of 2.6% growth. The Midwest region saw existing home sales drop again - for the 6th month in a row, down over 5% in that period.

Housing Market Enters 2015 Facing Affordability Pressures -  The U.S. housing market failed to provide the lift to the economy over the past year that many analysts expected. It enters a new year with few signs pointing to either a renewed breakout or a sharp slowdown. New data released this week showed that contracts signed to buy previously owned homes rose to the third-highest level of the past year, the latest sign of how housing demand firmed up in 2014 after a sluggish start.  Some of the price declines were exacerbated by a glut of foreclosures. The subsequent rebound reflected increased investor demand for those bargain-priced properties ... As foreclosures have faded and investor-purchasers stepped back from the market, price gains have slowed. In October, home prices had increased 4.6% from their year-earlier level, compared to a year-over-year gain of 10.9% in October 2013. An open question in the coming year is whether price gains stabilize at those lower levels or whether they weaken further. Research firm Zelman & Associates expects price gains of 4% in 2015 and 3% in 2016.  But some market specialists say prices may need to give if sales are to rise. “In a few markets, there will be price declines,” “and maybe in more than a few.”

Housing Costs for Renters Rose by $20.6 Billion This Year -  U.S. renters paid $441 billion for apartments and houses this year, a $20.6 billion increase, as fewer Americans owned their homes and landlords with tight inventories raised leasing charges, Zillow Inc. (Z) said today. The number of rental households grew by 2 percent, or 770,000, nationally during 2014, according to the Seattle-based real estate information service. In the New York metropolitan area, the largest U.S. housing market, the number of rental residences expanded by 63,000 to 3.4 million, with tenants spending a total of $50 billion for shelter. Demand for rentals has grown after owners of more than 5 million U.S. homes went through foreclosure since 2007, mortgage lending tightened and younger families postponed buying because they can’t afford or prefer not to own property. That may change slowly as rents rise and the economy improves, said Skylar Olsen, senior economist at Zillow. “Spending a lot for rent means it’s hard to save for retirement or a down payment and makes it more difficult to move from being a renter to being a homeowner,” Olsen said in a telephone interview. “At the same time, it gives greater incentives to start seeking out an opportunity to be a homeowner.” Zillow projects rents will increase 3.5 percent in 2015, compared with a gain in home values of more than 2.5 percent. The U.S. inflation rate was 1.3 percent in the 12 months through November.

The road to Americans serfdom via the housing market: The trend towards renter households will continue deep into 2015. - If you bought or rented in 2014 a larger portion of your income went to housing.  Rents and housing values are quickly outpacing any pathetic gains to be had with wages.  With the stock market at a peak, talking heads are surprised when the public is still largely negative on the economy.  Can it be that many younger adults are living at home or wages are stagnant?  It can also be that our housing market is still largely operated as some feudal operation.  Many lucrative deals were done with big banks and generous offers circumventing accounting rules.  This works because many perceive they are temporarily embarrassed Trumps, only one flip away from being a millionaire.  Why punish financial crimes when you will likely need those laws to protect your gains once you join the club?  The radio talk shows are all trying to convince people to over leverage and buy a home because you know, this time is the last time ever to buy.  Yet home sales are pathetic because people don’t have the wages to support current prices.  So sales drop and many sellers pull properties off the market.  You want to play, you have to pay today.  Rents are also rising and this is where a large portion of household growth has occurred.  2015 will continue to see housing consume a large portion of income and will lead many into a new modern day serfdom.

How Much Did Your Rent Go Up in 2014? What's Your Expectation for 2015?   If you are a renter, how much did your rent go up this past year? What's your expectation for 2015? Let's explore those questions starting with a chart on rent from the MarketWatch article Here’s What Americans Spent on Rent this Year. In isolation, the chart is misleading because it included growth in rent collected which varies by population increases. It does not reflect percentage increases in base rent.Both MarketWatch and Zillow explain it that way, but one has to read carefully to pick that up. Zillow says U.S. Renters Paid $441 Billion in Rent in 2014, Up Nearly $21 Billion Since 2013Americans shelled out $20.6 billion more in rent in 2014 compared to 2013. Cumulatively, U.S. renters paid $441 billion in rent in 2014 compared to $420 billion last year, an increase of nearly five percent (4.9 percent), as both the number of renting households and the average rent rose nationally, according to a Zillow rentals analysis.  Locally, the Bay Area, consisting of the San Jose and San Francisco metros, saw the largest jump in cumulative rent paid in 2014, up 14.4 and 13.5 percent respectively. Rent per household in the San Jose, Calif. metro rose by $197 per month, while rent in the San Francisco metro rose by $163 per month. That looks like a shocking stat for San Jose and San Francisco. If one inaccurately places all of the increase on rising rent, the hike would be a whopping $2,364 per year!  However, Zillo explains "Nationally, the total number of renters is estimated to have grown 1.9 percent in 2014ii. Over the same time period, the median rent paid increased 2.9 percent."

U.S. construction spending unexpectedly falls in November (Reuters) - U.S. construction spending unexpectedly fell in November, held back by a drop in government outlays and by less money spent by businesses on projects other than homes. Construction spending fell 0.3 percent, the first decline since June, to an annual rate of $975 billion, the Commerce Department said on Friday. true October's construction outlays were revised up to show a 1.2 percent gain instead of the previously reported 1.1 percent increase. Economists polled by Reuters had forecast construction spending rising 0.3 percent in November. While the readings could point to softer investment by businesses and governments, spending on home construction looked more robust. Outlays on private residential construction rose 0.9 percent in November.

Construction Spending decreased 0.3% in November - The Census Bureau reported that overall construction spending decreased in November: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2014 was estimated at a seasonally adjusted annual rate of $975.0 billion, 0.3 percent below the revised October estimate of $977.7 billion.  Private spending increased and public spending decreased in November: Spending on private construction was at a seasonally adjusted annual rate of $697.7 billion, 0.3 percent above the revised October estimate of $695.7 billion. Residential construction was at a seasonally adjusted annual rate of $352.7 billion in November, 0.9 percent above the revised October estimate of $349.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $345.0 billion in November, 0.3 percent below the revised October estimate of $346.1 billion. ...In November, the estimated seasonally adjusted annual rate of public construction spending was $277.3 billion, 1.7 percent below the revised October estimate of $282.0 billion.  Non-residential for offices and hotels is increasing, but spending for oil and gas is generally declining (up slightly in November from October). Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending. As an example, construction spending for lodging is up 11% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014.

Census puts US population at 320.09 million, up 0.7 percent from year-ago: The U.S. population is seen at 320.09 million people as of Jan. 1, up 0.73 percent from a year earlier, the Census Bureau said on Monday. The Census Bureau said in a statement that the figure represents an increase of about 11.35 million people, or 3.67 percent, since the last population count on April 1, 2010. “In January 2015, the U.S. is expected to experience a birth every eight seconds and one death every 12 seconds. Meanwhile, net international migration is expected to add one person to the U.S. population every 33 seconds,” the Census Bureau said. It said the combination of births, deaths and net international migration would add at least one person to the U.S. population every 16 seconds. The Census Bureau projected the world population on Jan. 1 at about 7.21 billion, a 1.08 percent increase from New Year’s day in 2014. It estimated that about 4.3 births and 1.8 deaths will occur worldwide every second in January.

The U.S. Population Will Hit a Record 320,090,857 for the New Year. The Growth Rate? Stalled. -- The U.S. population has climbed past 320 million and, according to new Census Bureau estimates, will stand at a record 320,090,857 on Jan 1, 2015.Census estimates a child will be born in the U.S. every eight seconds, while one person will die every 12 seconds. As more people immigrate to the U.S. than leave it, net international migration will add one new person every 33 seconds. Add that all together and the population will grow by about one person every 16 seconds, according to Census calculations. As of Jan. 1, the population will be about 2.3 million people larger than a year earlier. That’s a modest uptick from population growth of 2.2 million in 2013. The Census estimates include people whose usual residence is in the 50 states and District of Columbia. It does not include residents of Puerto Rico and other U.S. territories. The figures include immigrants, regardless of their legal status, and do not include U.S. citizens living overseas. (The daily population estimate of 320,090,857 does not include around 300,000 U.S. troops living overseas, although the charts of monthly data included in this post do.) Since the 1950s, the U.S. has grown every single year (so the population is always at record levels!), usually adding somewhere between 2 million and 3 million people. Population growth slowed dramatically, however, after the recession that began in late 2007. The recession made the U.S. less attractive to immigrants (though they’re now beginning to return) and also caused some families to postpone having children. In percentage terms, population growth slowed during the recession to the lowest pace in more than half a century and has yet to rebound. So while 320,090,857 will be the largest U.S. population ever, the growth rate has slowed–in part due to the economy–and has yet to kick back into gear.

Inflation Watch: It Has Never Been More Expensive To Live The 1% Life - While inflation (explicit in price rises or implicit in USD debauchery) over the past 30 years has eaten away at the average American's standard of living, it is the cost of living the 1%-life that has truly soared. As Forbes' "Cost of Living Extremely Well" index  (CLEWI) shows, since 1982, the 1% have seen prices for their goods rise at double the pace of the average joe. However, do not feel too sorry for them, as their net worth, courtesy of various Fed interventions has outpaced the cost of living extremely well by over 4 times.

The economics of stuff -- Some simple observations:

  • 1. Economies grow when people buy stuff.
  • 2. Over time, people accumulate more and more stuff.
  • 3. People can only handle so much stuff. Sock drawers get full of socks. Cupboards get full of cups. Bookshelves get full of books. 
  • 4. It's hard to get rid of stuff. Economic models typically assume disposing of unwanted things costs nothing. But life isn't like that. Sorting out stuff that can be tossed from stuff that is worth keeping takes time and effort.
  • 5. People are "loss averse". Throwing things away - clothes that don't fit, vinyl LPs - hurts psychologically.
  • 6. There's no need to replace perfectly good stuff. True some stuff, like mobile phones, only lasts a year or three. But other stuff, like cast-iron frying pans, lasts for decades.

Taken together, observations 2 through 6 imply that, as people get older, they buy less and less stuff. Combined with observation 1, these observations explain why countries with aging populations experience lower rates of economic growth.

Don't Just Follow the Money--Follow the Income: Follow the money is a good start--but what matters going forward is income, and most especially, net income and disposable income. Debt is important, money/capital flow is important, but when push comes to shove, all that matters is having net income/disposable income: to service debts, to invest, to spend. Debt can be substituted for income, but not for long. Central banks have been playing a game for six long years: by lowering interest rates and making credit available, the central banks have encouraged households, enterprises and governments to substitute borrowed money (debt) for income. This works as a stop-gap, but debt accrues a funny thing called interest that eventually eats the borrower alive. Income is (supposedly) the driver of stock valuations, the financial foundation of rental property and the ultimate arbiter of solvency: households, enterprises and governments whose income cannot meet their debt and spending obligations are insolvent and eventually declare bankruptcy. The reality that all that really matters is income incentivizes gaming income. Corporations and their officers/stockholders benefit greatly when net income appears to rise smartly, as rising income boosts stock prices and the value of stock options. So it's no wonder that S&P 500 Profits Are 86% Higher Than They Would Be Without Accounting Fudges. Fudging operating income with accounting trickery pays such huge dividends, why not indulge in a bit of financial flummery? The chances of anyone questioning the sleight of hand is nil, since the entire financial sector relies on systemic flummery for its profits. Following the income leads us to wonder how the 99% of households whose income is declining in real terms can borrow and spend more every year.

Weekly Gasoline Price Update: Down Another 10 Cents  - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny Regular and Premium both dropped 10 cents. Regular is at its lowest price since May 2009. According to, Hawaii has the highest average price at $3.51. The highest continental average price is in New York at $2.99. Missouri has the cheapest Regular at $1.92.

Here Is Citi "Explaining" In 2006 Why Soaring Oil Prices Don't Impact Consumption - "We have heard constantly that oil will slow consumption down as it eats into disposable income. But it remains a conundrum to many that consumption has remained robust, despite oil prices remaining high. What’s going on? We don’t see a conundrum. As we wrote about in September (The Global Investigator, Is Oil Relevant for Equities, September 2 2005), in the plutonomy countries, the rich are such a massive part of the economy, that their relative insensitivity to rising oil prices makes US$60 oil something of an irrelevance. For the poorest in society, high gas and petrol prices are a problem. But while they are many in number, they are few in spending power, and their economic influence is just not important enough to offset the economic confidence, well-being and spending of the rich."

Hotels: Strong Finish to 2014, Best Year since 2000 - From STR: US results for week ending 27 December The U.S. hotel industry recorded mostly positive results in the three key performance measurements during the week of 21-27 December 2014, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy was flat at 44.4 percent. Average daily rate increased 1.5 percent to finish the week at US$110.71. Revenue per available room for the week was up 1.5 percent to finish at US$49.18.  Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  Hotels are now in the slow period of the year.

Restaurant Performance Index shows Expansion in November - Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remains in Positive Territory Buoyed by positive sales and traffic and an optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in positive territory in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.1 in November, down slightly from its October level of 102.8. November marked the 21st consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators. “The RPI registered a modest decline in November, as sales and customer traffic results were somewhat softer than their solid October levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, a majority of restaurant operators still reported higher same-store sales in November, and they are increasingly optimistic that business conditions will continue to improve in the months ahead.” “Overall, the RPI topped the 102 level for the second consecutive month in November, the first such occurrence in nearly nine years,” Riehle added.

Consumer Confidence "Rebounded Modestly" in December - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through December 16. The headline number of 92.6 was an increase from the revised November final reading of 91.0, an upward revision from 88.7. Today's number was slightly below the forecast of 93.2.Here is an excerpt from the Conference Board press release. Consumer confidence rebounded modestly in December, propelled by a considerably more favorable assessment of current economic and labor market conditions. As a result, the Present Situation Index is now at its highest level since February 2008 (Index, 104.0). Consumers were moderately less optimistic about the short-term outlook in December, but even so, they are more confident at year-end than they were at the beginning of the year. Consumers’ appraisal of current conditions was considerably more favorable in December. Those saying business conditions are “good” was unchanged at 24.8 percent, while those claiming business conditions are “bad” decreased from 21.8 percent to 19.6 percent. Consumers were also more positive in their assessment of the job market, with the proportion stating jobs are “plentiful” increasing from 16.2 percent to 17.1 percent, and those claiming jobs are “hard to get” decreasing from 28.7 percent to 27.7 percent.  Consumers’ optimism about the short-term outlook eased moderately in December. The percentage of consumers expecting business conditions to improve over the next six months edged down from 18.3 percent to 18.0 percent, but those expecting business conditions to worsen declined slightly from 10.4 percent to 10.1 percent. Consumers’ outlook for the labor market was marginally less optimistic. Those anticipating more jobs in the months ahead decreased from 15.5 percent to 14.7 percent, while those anticipating fewer jobs rose from 16.1 percent to 16.9 percent. The proportion of consumers expecting growth in their incomes declined moderately from 16.9 percent to 16.4 percent; however the proportion expecting a decrease also declined, from 11.0 percent to 10.0 percent.

Consumer Confidence Misses 2nd Month In A Row Despite Record Stocks, Low Gas Prices -- Having missed expectations by the most since June 2010 in November, The Conference Board's measure of Consumer Confidence missed once again. The previous dip was revised higher (because 'revisions' is exactly what makes sense in a confidence survey) from 88.7 to 91.0 but the current level printed 92.6 against expectations of 93.9. This is the 3rd miss of the last 4 months (as stocks hit record highs and gas prices collapse?). Employment "not so plentiful" rose to its worst level in a year, employment expectations going forward dropped as did income growth expectations.

Consumer confidence at pre-Obama highs -  As we stand at the threshold of a new year, American consumers are feeling pretty good about themselves. Powered by optimistic outlooks for both jobs and business conditions, as well as plummeting gas prices, consumer confidence bubbled to highs not seen since February of 2008. As this Reuters graphic shows, the index from non-profit research group The Conference Board came in at 92.6 in December (against a 1985 baseline of 100), reflecting a steady improvement since the pit of the Great Recession. Confidence that the availability of jobs is “plentiful” hit 17.1 percent, reflecting a steady decrease in the belief that jobs are “hard to find.” Similarly, the increase in the view that current business conditions are “good” tracks to a consistent decline, to 19.6 percent, in the opinion that conditions are “bad.” The Conference Board wasn’t alone. A Thomson Reuters/University of Michigan reading for December showed confidence at its highest levels since January of 2007, and Gallup’s U.S. Economic Confidence Index for the week ending Dec. 28 showed sentiment edging into positive territory for the first time since December of 2007. We tend to be an optimistic bunch, and caveats have already been issued against forgetting the mistakes that prompted the economic downturn, but for the most part this is a very encouraging mentality with which to start the new year.

Dallas Fed: Texas Manufacturing "Picks up Pace" in December -  From the Dallas Fed: Texas Manufacturing Activity Picks Up Pace  Texas factory activity increased again in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose strongly from 6 to 15.8, indicating output grew at a faster pace in December. Other measures of current manufacturing activity reflected continued growth during the month. The capacity utilization index rose from 9.8 to 12.4, due to a higher share of respondents noting an increase in December than in November. The shipments index climbed to 19.6, its highest reading in five months. The new orders index moved down from 5.6 to 1.3, suggesting moderating demand growth, but more than a quarter of firms noted increases in new orders over November levels. Perceptions of broader economic conditions remained positive this month. The general business activity index fell from 10.5 to 4.1. The company outlook index was almost unchanged at 8.4, with 21 percent of respondents noting an improved outlook. Labor market indicators reflected unchanged workweeks but continued employment increases. The December employment index held steady at a solid reading of 9.2 Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Dallas Fed Tumbles Below Lowest Estimate As Commodity Crash Comes Knocking - Who could have possibly anticipated that the one state that contributed the most high-paying jobs during the "recovery" on the back of the shale miracle, is facing recession (as JPM predicted)? Certainly not economists, who have correctly predicted exactly zero of the last 20 economic recessions, and whose lowest estimate for today's Dallas Fed manufacturing outlook survey was 5.0 (with 12.5 on the high side, and a 9.0 consensus mean). Moments ago we got the official number and it was a doozy, plunging from 10.5 to just 4.1, the lowest print since the Polar Vortex swept away economic activity across the US and when the Dallas Fed printed a tiny 0.3.The drop of 6.4 from the November print was also the largest slide in economic activity since October 2013

Chicago PMI MIsses, Drops To 5-Month Lows - Only 1 of MNI's Chicago Business Barometer components rose in December as the headline index tumbled from October's multi-year highs at 66.2 to today's December print of 58.3 - lowest in 5 months and missing expectations for the 2nd month in a row. While new orders, prices paid, and production all fell, employment (the sole improvment) rose.

U.S. factory activity growth slips to 11-month low in December: Markit (Reuters) - The U.S. manufacturing sector slowed in December to its lowest rate of growth since last January, and a gauge of employment sentiment fell, an industry report said on Friday. Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index fell to 53.9 in December from November's final reading of 54.8. The preliminary December read for the index was 53.7. A reading above 50 indicates expansion in economic activity. Chris Williamson, chief economist at Markit, noted that factories had their best year since the recession, even as the outlook for 2015 is now a bit clouded. true “Companies are citing greater uncertainty about the outlook, especially in export markets, leading to some scaling back of expansion plans and a greater reluctance for customers to place orders compared to earlier in the year, which suggests a slowdown could become more entrenched unless demand revives," he said in a statement. The survey's output index fell to 54.7, a low not seen since last January, from 55.6 in November. The employment index declined to 53, the lowest since July, from 55.1 in November. New orders showed a modest improvement in sentiment, Markit said.

Un-Decoupling? US Manufacturing PMI Tumbles To 11-Month Lows - So much for that whole "decoupling" meme... Just as China and then Europe saw weakness in their manufacturing PMIs, so the US data just hit, printing 53.9 (missing expectations modestly) and falling for 4 straight months to the lowest since January 2014's Polar Vortex. Production volumes are also the weakest since Jan 2014 and the employment sub-index collapsed. Markit warns, "this suggests a slowdown could become more entrenched."

U.S. manufacturing sector slips to six-month low in December: ISM (Reuters) - The pace of growth in the U.S. manufacturing sector slowed more than expected in December, according to an industry report released on Friday. The Institute for Supply Management (ISM) said its index of national factory activity fell to 55.5 from 58.7 the month before. The reading was shy of expectations of 57.6, according to a Reuters poll of economists. A reading above 50 indicates expansion in the manufacturing sector. true The dropoff comes in tandem with a similar slip in Markit's flash purchasing managers' index, and indicates that activity in the factory sector has taken a hit on worries about global demand and a drop in oil prices. The decline dropped the ISM index to its lowest level since June. The new orders index fell to 57.3 from 66. The prices paid gauge was down dramatically to a reading of 38.5 from 44.5, compared with expectations for a reading of 43. Employment rebounded modestly, however, rising to 56.8 from 54.9, and ahead of expectations for a 54.7 reading. December's figure marks the 18th consecutive month of expansion in manufacturing employment sentiment.

ISM Manufacturing index declined to 55.5 in December - The ISM manufacturing index suggests slower expansion in December than in November. The PMI was at 55.5% in December, down from 58.7% in November. The employment index was at 56.8%, up from 54.9% in November, and the new orders index was at 57.3%, down from 66.0%. From the Institute for Supply Management: December 2014 Manufacturing ISM® Report On Business® Economic activity in the manufacturing sector expanded in December for the 19th consecutive month, and the overall economy grew for the 67th consecutive month, . "The December PMI® registered 55.5 percent, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. The New Orders Index registered 57.3 percent, a decrease of 8.7 percentage points from the reading of 66 percent in November. The Production Index registered 58.8 percent, 5.6 percentage points below the November reading of 64.4 percent. The Employment Index registered 56.8 percent, an increase of 1.9 percentage points above the November reading of 54.9 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent. The Prices Index registered 38.5 percent, down 6 percentage points from the November reading of 44.5 percent, indicating lower raw materials prices in December relative to November. Comments from the panel are mixed, with some indicating that falling oil prices have an upside while others indicate a downside. Other comments mention the negative impact on imported materials shipment due to the West Coast dock slowdown." . Here is a long term graph of the ISM manufacturing index. This was below expectations of 57.5%, but still indicates decent expansion in December. The West Coast port issue is ongoing.

ISM Manufacturing Comes Down Further From It's Lofty Highs in December - The December ISM Manufacturing Survey shows manufacturing is still expanding, abet at a slower pace than November.  PMI dopped by -3.2 percentage points to 55.5%.  New orders caused the overall decline and by themselves slid down -8.7 percentage points to go below the 60's level.  Production also slid back down to moderate growth levels  While this looks like a scary December, it is not, just a return to more mediocre U.S. manufacturing growth.  That's always much better than a contraction of course.  This is a direct survey of manufacturers.  Generally speaking indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments.  This month two sectors blamed dropping oil prices on their sluggish performance and two more blamed the West Coast dock slow down going on by workers.  One said the California rain is causing a downpour in roofing materials profits.   New orders really plunged to mediocre growth.  The -8.7 percentage point drop from last month gives a level of 57.3% as shown in the below graph.   The Census reported November durable goods new orders declined by -0.7%, where factory orders, or all of manufacturing data, will be out later this month, but note the one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark:  A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.

Falling oil prices both good and bad for manufacturers - For manufacturers, the recent tumble in oil prices is a mixed bag,  a report released Friday suggests. On one hand, a steep decline in the cost of oil leads to lower expenses. But on the other, business may suffer because of lower spending by oil and chemical companies on big-ticket items like computers and new machinery. The monthly report by the Institute for Supply Management, a not-for-profit educational association, shows that the manufacturing sector expanded for the nineteenth consecutive month. Meanwhile, the overall economy has expanded for the sixty-seventh month in a row. The report, based on data collected from U.S. supply chain executives, concludes that 11 of the 18 manufacturing sectors grew during December. Brad Holcomb, the chair of the Institute for Supply Management, said the December report marked a strong showing leading into 2015. It’s “quite solid and a good way to put 2014 in the drawer,” he told Fortune. The report’s findings come as a barrel of crude oil closed down 1% for $52.69 a barrel Friday, the lowest finish is more than five years. Prices have fallen nearly 50% since their peak in 2014. Comments from manufacturing executives in the report show the dual impact of the decline. They also highlight the complexity of their business beyond the uni-dimensional view that low fuel prices are always good for business.

Decoupling Just Died: December New Orders Plunge Below Polar Vortex Level, Optimism Plummets To 2012 Levels - As the ISM data revealed moments ago, we were right to focus on the NSA data, because while the Seasonally Adjusted (and one still wonders why a survey needs seasonal adjustments - after all human psychology automatically adjusts for the seasons) New Orders number tumbled by 8.7, the biggest crash since the 13.1 crash now blamed on the Polar Vortex (can't blame the weather this time), it was the unadjusted New Orders number that was the stunner: at 53.5 this was the lowest number since before even the polar vortex: in fact it was the lowest since July 2013!

ISM manufacturing and construction spending data miss forecasts -  The pace of growth in the U.S. manufacturing sector slowed more than expected in December, according to an industry report released on Friday. The Institute for Supply Management (ISM) said its index of national factory activity fell to 55.5 from 58.7 the month before. The reading was shy of expectations of 57.6, according to a Reuters poll of economists.  A reading above 50 indicates expansion in the manufacturing sector. The dropoff comes in tandem with a similar slip in Markit's flash purchasing managers' index, and indicates that activity in the factory sector has taken a hit on worries about global demand and a drop in oil prices. The decline dropped the ISM index to its lowest level since June. The new orders index fell to 57.3 from 66. The prices paid gauge was down dramatically to a reading of 38.5 from 44.5, compared with expectations for a reading of 43. Employment rebounded modestly, however, rising to 56.8 from 54.9, and ahead of expectations for a 54.7 reading. December's figure marks the 18th consecutive month of expansion in manufacturing employment sentiment. Construction spending declines In a separate report, U.S. construction spending unexpectedly fell in November, held back by a drop in government outlays and by less money spent by businesses on projects other than homes. Construction spending fell 0.3 percent, the first decline since June, to an annual rate of $975 billion, the Commerce Department said on Friday.

ISM Manufacturing & Construction Spending Collapse To 6-Month Lows - Not decoupling-er. Completing this morning's triple whammy of ugliness, US construction spending in December dropped 0.3% (against expectations of a 0.4% rise) - the biggest monthly drop since June. On the back of a crash in new orders from 66.0 to 57.3 (and prices paid plunging to 30 month lows), ISM Manufacturing also tumbled from 58.7 to 55.5 - its lowest since June (missing expectations by the most since January). Unable to find a silver lining, ISM's Holcomb proclaimed "comments are a 'bit mixed'".

Manufacturers Lament ‘West Coast Port Issues’ -- The Institute for Supply Management report out Friday notes labor problems at West Coast ports delayed delivery of imported supplies last month. One respondent in the fabricated metal industry notes, “West Coast port issues have greatly impacted our incoming materials. We are air freighting many parts from Japan and Asia to support production while parts sit at the dock.” And a textile mill purchasers says, “West Coast ports are creating delays for imported goods.” The difficulty in getting imports could explain why manufacturers drew down inventories in December. The inventory index fell to 45.5 last month from 51.5 in November. The problems also explain the rise in the ISM’s supplier deliveries index to a three-year high of 59.3 last month from 56.8 in November. A higher reading is usually a sign of production shortages or bottlenecks since it means manufacturers are waiting longer to get supplies. Paul Dales, senior U.S. economist at Capital Economics, suspects the December increase “is due to the West Coast dock labor dispute holding up shipments rather than firms struggling to cope with high demand.”

Moving Freight - A Leading Indicator of Economic Health  -- There is an interesting leading economic indicator that gets very little attention from the mainstream media.  Most often, the mainstream media uses a combination of employment, housing and manufacturing data to give us a sense of where the economy is headed, however, this data is trailing the economy, that is, it is released after it has happened and provides us with relatively little sense about where the economy is headed, rather, where it has been.  A study by Dr. Peg Young and Ken Notis back in 2009 looks at using the Bureau of Transportation's Freight Transportation Services Index (TSI) as a predictor of where the economy is headed.  The TSI is the broadest monthly measure of United States domestic transportation services and provides the best possible measure of these services which includes real monthly changes in both freight and passenger transportation services across America.  The TSI includes only domestic for-hire transportation that is operated on behalf of or by a company that provides transportation services to an external company for a fee.  It does not include transportation in vehicles used in the private sector (i.e. car trips taken by families). Here are the five modes of transportation that make up the Freight Transportation Services Index:  The authors noted that both accelerations and decelerations in the freight TSI are strong leading indicators of the health of the economy.  Here is a graph showing the freight TSI between January 2000 and February 2009:

Postal Service poised to begin controversial plant closures next week  --  The U.S. Postal Service next week plans to begin a new round of plant closings and consolidations that will affect dozens of mail-processing centers, despite calls from more than half the members of the outgoing Senate to postpone the changes. Earlier this month, 30 senators, all but one of them Democrats, issued a letter to Postmaster General Patrick Donahoe urging USPS not to move forward with its “network rationalization” program until the agency has completed its analyses of potential impacts.  USPS spokeswoman Sarah Ninivaggi said the agency plans to respond to the senators’ letter, but she did not provide a timeline. All told, the Postal Service plans to close 82 mail processing centers nationwide next year, starting on Jan. 10. USPS officials have said the consolidation plan will help the financially struggling agency save money and adjust to dwindling demand for first-class mail, one of its core services. But critics say the program will slow down delivery times and harm the agency’s brand.

Problems stack up at US Pacific ports - - A labour dispute and problems handling vast new container ships have led to the worst delays in 10 years at US west coast container ports, with shipping lines being forced to divert vessels or cancel services. Retailers have called on President Barack Obama to intervene after they were left struggling to get hold of stranded goods. Other sectors of the US economy including manufacturing and agriculture have also been hit. The situation has been most acute at the neighbouring ports of Los Angeles and Long Beach, which together handled 41 per cent of US container traffic in 2013. However, high cargo volumes and a simmering labour row over pay and conditions have caused disruption all along the US Pacific coast. The hold-ups have left queues on some days of up to 18 ships waiting in San Pedro Bay off Los Angeles to dock. According to the US’s National Retail Federation, congestion has pushed up the waiting time to retrieve containers from the ports after unloading from two to three days to seven to 10 days. Los Angeles and Long Beach, like other west coast ports, have many small container terminals that have been easily overwhelmed by the larger cargo volumes that bigger ships produce. The terminals also lack the latest, most efficient equipment, while a shortage of truck chassis to haul containers has further exacerbated the problems. The Pacific Maritime Association, which represents employers, in December asked for help from federal government mediators to resolve the problems. The International Longshore and Warehouse Union, which represents workers, has not yet said whether it will agree to mediation.

News for Washington Post: Politicians Don't Always Tell the Truth and TPP Is Not a Free-Trade Agreement -- Dean Baker - People in places like rural Kansas and downtown Washington, DC often have a misplaced trust in authority and elected officials. The Washington Post gave us an example of this confusion in a front page article on President Obama's effort to push the Trans-Pacific Partnership (TPP), which it repeatedly refers to as a "free-trade" pact. The piece follows the administration's line in telling readers that" "the president threw his full support behind the pact as part of a broader effort to rebalance U.S. foreign policy to the fast-growing Asia-Pacific region." This assertion makes little sense since the administration is simultaneously pursuing a similar trade pact, the Trans-Atlantic Trade and Investment Pact, with Europe. What both deals have in common is that they are primarily about imposing a business-friendly structure of regulation on both our trading partners and the United States. The more plausible explanation is that President Obama is trying to get more business support for the Democratic Party. The terms of the pacts will supersede laws put in place by both national and sub-national governments, creating an investor-state dispute settlement mechanism. Foreign corporations would be able to contest laws at every level of government at these tribunals. Their rulings could not be over-turned by domestic courts. Incredibly, the Post article made no mention of these tribunals even though they have been a major cause of opposition to the agreements. The piece also repeatedly refers to the TPP as liberalizing trade. This is not at all clear. Most of the trade barriers between the United States and the countries in the agreement are already low. While the TPP will reduce many of these barriers further, it will also increase protectionist barriers in the form of patent and copyright protection. It is entirely possible that the increase in protectionism due to stricter and longer protections in these areas will most than offset any reduction in the remaining tariff and quota barriers.

Without a currency chapter, the TPP should not be ratified. -- The issue at hand is the Trans Pacific Partnership, a proposed set of rules governing trade between the US and 11 other countries. Here’s how the US Trade Representative, the agency within the Obama administration that’s trying to sell the deal to the Congress, describes it: “…an ambitious, 21st century trade agreement that the United States is negotiating with 11 other countries throughout the Asia-Pacific region…When complete, TPP will unlock opportunities for American workers, families, businesses, farmers, and ranchers by providing increased access to some of the fastest growing markets in the world.” Then you have Lori Wallach, director of Public Citizen’s Global Trade Watch, who knows more about what’s actually in the TPP than anyone else I’ve met, which is no small feat because the text of the damn thing is confidential. The public has no access to materials drafted thus far, and even members of Congress have limited access. Wallach: Meanwhile, more than 500 official corporate “trade advisors” have special access… Although it is called a “free trade” agreement, the TPP is not mainly about trade. Of TPP’s 29 draft chapters, only five deal with traditional trade issues. One chapter would provide incentives to offshore jobs to low-wage countries. Many would impose limits on government policies that we rely on in our daily lives for safe food, a clean environment, and more. Our domestic federal, state and local policies would be required to comply with TPP rules. At CBPP we’ve not previously weighed in much on trade agreements, but Paul Van de Water’s been concerned that the TPP “threatens to make prescription drugs less affordable for consumers and taxpayers” by providing drug companies the ability to extend existing patents. As Dean Baker relentlessly points out, it’s hard to square such protectionist-sounding measures with “free trade.”

The President Set a Goal of Doubling Exports by 2014—Why Haven’t We? -- The United States failed to achieve a doubling of exports between 2009 and 2014, as promised in President Obama’s National Export Initiative (NEI). It wasn’t even close. Total U.S. goods and services exports increased by less than 50 percent ($766 billion, or 48.4 percent) between 2009 and 2014 (estimated), as shown in the figure below. Meanwhile, imports increased by an even larger $883.8 billion, and as a result, the U.S. trade deficit increased by $117.0 billion. Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. Between 2009 and 2014 the growth in imports more than offset the increase in exports, resulting in a growing trade deficit, as shown in the figure. Growing trade deficits have eliminated millions of jobs in the United States, and put downward pressure on employment in manufacturing, which competes directly with most imported products. For example, growing trade deficits with China alone have displaced 3.2 million U.S. jobs between 2001 (when China entered the WTO) and 2013, with 1.3 million of those jobs lost since 2009 alone.

China Trade Deficit Has Cost the United States 3.2 Million Jobs - If anyone believes offshore outsourcing jobs is passé and not impacting U.S. labor markets think again.  The Economic Policy Institute has published a new study showing America has lost millions of jobs to China's cheap labor market.  From 2001 to 2013, the massive trade deficit with China has cost the United States 3.2 million jobs.  Worse, the researchers discovered 75.7% of those jobs lost, 2.4 million, were in manufacturing  China and China alone accounts for two-thirds of all manufacturing jobs lost between 2001 and 2013.  Of the jobs lost, computers and electronics have been hit the hardest.  Computers & electronics parts has lost 39.6% of the total jobs offshore outsourced, that's 1,249,100 jobs.  Anyone remember when high tech was the future for America?  It is no surprise that China just became the world's most powerful economy.  Corrupt politicians with their multinational corporate backers have literally offshore outsourced America's economic future.  From the report: Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China. This broad category of high-end technology products includes the more advanced elements of the computer and electronic parts industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology.  Every state in the Union has been affected and in the top 10 states, these lost jobs represent 2.44% to 3.67% of total employment, that's a lot.  Below is EPI's interactive map of the United States showing how many jobs have been lost per state.

Weekly Initial Unemployment Claims increased to 298,000  - The DOL reported: In the week ending December 27, the advance figure for seasonally adjusted initial claims was 298,000, an increase of 17,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 280,000 to 281,000. The 4-week moving average was 290,750, an increase of 250 from the previous week's revised average. The previous week's average was revised up by 250 from 290,250 to 290,500.  There were no special factors impacting this week's initial claims. The previous week was revised up slightly. The following graph shows the 4-week moving average of weekly claims since January 2000.

Where Will All the Workers Go? by Nouriel Roubini - – Technology innovators and CEOs seem positively giddy nowadays about what the future will bring. New manufacturing technologies have generated feverish excitement about what some see as a Third Industrial Revolution. In the years ahead, technological improvements in robotics and automation will boost productivity and efficiency, implying significant economic gains for companies. But, unless the proper policies to nurture job growth are put in place, it remains uncertain whether demand for labor will continue to grow as technology marches forward. Recent technological advances have three biases: They tend to be capital-intensive (thus favoring those who already have financial resources); skill-intensive (thus favoring those who already have a high level of technical proficiency); and labor-saving (thus reducing the total number of unskilled and semi-skilled jobs in the economy). The risk is that robotics and automation will displace workers in blue-collar manufacturing jobs before the dust of the Third Industrial Revolution settles. The rapid development of smart software over the last few decades has been perhaps the most important force shaping the coming manufacturing revolution. Software innovation, together with 3D printing technologies, will open the door to those workers who are educated enough to participate; for everyone else, however, it may feel as though the revolution is happening elsewhere. Indeed, the factory of the future may be 1,000 robots and one worker manning them. Even the shop floor can be swept better and cheaper by a Roomba robot than by any worker.

Signs of a Tightening Labor Market, but Still Room for Improvement - Though it still has a long way to go, the American job market improved a lot more in 2014 than in 2013.In both years, the jobless rate fell by 0.9 of a percentage point: from 7.9 to 7 percent in 2013 and from 6.7 percent to 5.8 percent in 2014. So why is an identical almost-one-point decline so much better news this year than last?The answer has to do with one of 2014’s more important, if somewhat overlooked, positive economic developments: The rate at which people participate in the labor force stopped falling.This matters because of the way the federal government’s Bureau of Labor Statistics defines unemployment. To be counted as jobless, you have to be looking for work. If you give up looking, whatever the reason, as far as the B.L.S. is concerned, you’re out of the labor force.But ever since the deep recession that began in late 2007, one reason people had been dropping out of the labor force was precisely because they couldn’t find work. That had the paradoxical effect of making the unemployment rate fall not because more people were finding work but because they were giving up the search for work. In 2013, the share of the working-age population in the labor force fell 0.7 tenths of a percent, accounting for most of the decline in the unemployment rate. What appeared to be a tightening labor market was driven more by people dropping out than getting jobs. This year, the participation rate was nearly flat — up 0.1 tenth of a point — revealing a truly tighter labor market.

Musings on 25-54 Employment-to-Population Rates and the Macroeconomy -  Brad DeLong:

  • (1) If the US economy were operating at its productive potential, the share of 25 to 54-year-olds who are employed ought to be what it was at the start of 2000. Back then there were few visible pressures leading to rising inflation in the economy.
  • (2) Right now, 25 to 54-year-olds–both male and female–are employed at a rate lower by 5%-age points then they were at the start of 2000. That’s 6.5%, or 1/15, more 25-54 labor at work than we have today.
  • (3) Even if you think–in spite of the absence of accelerating inflation–that employment in 2000 was above the economy’s long-term sustainable potential, there is no reason to believe that a U.S. economy firing on all cylinders would not have 25-54 employment to population rates–both male and female–back at their 2006 levels, a full 3%-age points–and 4%, 1/25–higher than today.
  • (4) The U.S. economy’s convergence towards its potential is very slow: The 25-54 employment-to-population ratio has only risen by 1%-point over the past two years.
  • (5) Yet in spite of all these, the Federal Reserve believes that the U.S. economy is now close enough to its productive potential that unless some more things go wrong it is no longer appropriate for it to be buying assets and it will be appropriate for it in a year to start raising interest rates even though inflation is still below its 2%/year target.

Dean Baker on part time employment -- Dean Baker adds a comment on Spencer England’s post on Part time employment statistics being (Spencer writes…”John R. Graham is a beautiful example of a little knowledge being a dangerous thing. The researchers at the right wing think tanks scour the economic releases for anything that they can spin to sell their point of view. But for the most part they do not really understand what they are writing”), and points to a piece of his own:  You really do have to distinguish between voluntary and involuntary part-time. In fact, voluntary part-time has risen in the last year, most likely because young parents don’t have to work full-time to get health care insurance [The Affordable Care Act: A Family-Friendly Policy ] Back where I took my economics, this was considered a good thing — people have the opportunity to spend time with their kids.  Involuntary part-time employment has been falling throughout the recovery. Anyhow, it is crucial to distinguish between the two. There is no economic reason to be upset about people voluntarily opting to work part-time.

You Ask, We Answer: Is the U.S. Economy Creating Part-Time Instead of Full-Time Jobs? --When the size of a package of bacon shrinks, isn’t that a form of hidden inflation? Aren’t most of the jobs being created today part-time positions? How can people say the unemployment rate is falling when it doesn’t count everyone who is unemployed?  These are all questions posed to Wall Street Journal economics reporters by curious–and sometimes upset–readers.  The number of U.S. economic indicators produced every month by government agencies and private groups–initial claims for jobless benefits and building permits, manufacturer sentiment  and import prices, to name just a few–can be daunting. Not all the statistics are intuitive. Average hourly earnings aren’t the same as real average hourly earnings, which differ from personal income and the employment-cost index. Some come with wide margins of error and other caveats.  We’ve rounded up a few recent inquiries from readers, and tried to answer them. If you have more questions, please, send them our way! We are here to help.

Sources of Real Wage Stagnation - Brookings Institution - Despite increased evidence of economic recovery, real wage gains have been niggling over the past decade and have given rise to growing claims of unfairness. I agree that all of the evidence points to uncommonly small gains in workers’ real (adjusted for inflation) wages, but it is instructive to understand the reasons for the poor performance. We can trace the change in real wages to three primary determinants of: (1) gains in labor productivity, (2) the division of earned income between labor and capital (profits), and (3) the allocation of labor compensation among wages and nonwage benefits.   Most importantly, the growth in the average real wage is largely determined by improvements in labor productivity, output per worker hour. Without such gains, an increase in the average nominal wage will simply be passed forward in the form of higher prices, and higher real wages for some can only come at the expenses of lower wages for others–a zero-sum game. However, the growth in the real wage can deviate from that of productivity due to changes in labor’s share of total income. Historically, labor’s share has been one of the great long-run constants of economics, but its surprising decline in recent years has stimulated renewed interest in its determinants, and a popular book by the French economist, Thomas Piketty, put the issue at the center of the debate over the sources of growing income inequality. Third, workers often focus on their take-home or money wage, ignoring the magnitude of benefits (primarily provisions for retirement and health insurance) that are paid for through their employer.

How the Trans-Pacific Partnership Sells Out American Women - What’s the TPP, you ask? It’s a giant trade agreement between the United States and 11 other Pacific Rim nations — including Australia, Japan, and Malaysia, among others — now being negotiated in secret.  Well, mostly in secret. Around 600 corporations and a few labor unions with stakes in the talks have seen a draft. Except for a few chapters released by WikiLeaks last year, Congress and the public have not. But here’s what we do know: This so-called “partnership” is an insult to U.S. workers. And it’s especially bad news for women. According to Doctors Without Borders, for example, the agreement’s intellectual property clauses could cut off access to generic drugs for people living with HIV/AIDS — who are increasingly women and kids. And the Communications Workers of America union says the pact will make it easier for corporations to outsource majority-female jobs — not only in low-wage workplaces such as call centers, but also higher-wage sectors like human resources. So it’s no surprise that women in Congress have been leading the opposition to the TPP for some time. In the House, Democrats Rosa DeLauro and Louise Slaughter pointed out in a forceful Los Angeles Times op-ed that the agreement would force Americans to compete against workers from extremely low-wage countries. It would also, they argued, roll back environmental standards and U.S. laws that protect food and drug safety. And there’s another little-known provision. Under the proposed rules, businesses incorporated in TPP countries — any of them — would be guaranteed equal treatment with U.S. firms when bidding on government contracts. That means our tax dollars could go to underwriting companies in countries like Brunei, which imprisons unmarried women for getting pregnant and allows the stoning of gays and lesbians.

Jobless Rates Are Falling Almost Everywhere, But Not in Louisiana -- Nearly 40% of some 372 metro areas in the U.S. had unemployment rates below 5% in November, providing the latest sign of improving labor markets. Twelve metros had jobless rates above 10%, while 147 had rates below 5% in November, according to data released Tuesday by the Labor Department. The data aren’t adjusted for seasonal factors. Unemployment rates were lower than a year earlier in 341 metro areas, while 27 metros had higher unemployment rates. The eight metro areas with the largest increases in the unemployment rate were in Louisiana, led by Alexandria, where the unemployment rate in November climbed to 6.8% from 5.2% one year earlier. Of Louisiana’s eight metro areas, Alexandria was also the only one to witness a year-over-year decline in the number of employed workers. Some 53 metros saw the number of employed workers decline from a year earlier, led by Atlantic City, N.J., and Ocean City, N.J., which were hit by the closure of several casinos at the end of the summer. Payrolls in those metro areas fell by 6.4% and 3.9%, respectively, from a year earlier. Lincoln, Neb., had the nation’s lowest unemployment rate in November, at 2.1%. Yuma, Ariz., again claimed the nation’s highest unemployment rate, at 23.1%, though that was down from 27.3% one year ago. Only Decatur, Ill., had a larger year-over-year drop in the unemployment rate, down 4.3 percentage points to 7.9% last month. Four of the five metro areas with the largest year-over-year increase in payrolls are in Texas, which has benefited from an energy boom but which could soon see a slowdown in job growth amid a sudden plunge in oil prices.

What's Wrong With Georgia? - Throughout the economic downturn and subsequent recovery, there have been some usual suspects when it comes to the most pitiful state in monthly unemployment figures. For awhile, Michigan took the prize for highest unemployment rate in the country, until Nevada knocked it off its perch in May of 2010. Nevada then held the title for most of the next three years, sometimes sharing the honor with California, until it ceded the top (more accurately, the bottom) spot to Rhode Island in December 2013. But now, as the economy picks up steam, and consumer sentiment rises to its highest levels since 2007, a new state keeps appearing at the top of the unemployment list. Georgia, home to Fortune 500 heavyweights such as Home Depot, UPS, and Coca-Cola, had the highest unemployment rate in the nation in August, September, and October. With a November rate of 7.2 percent, the state was narrowly edged out by Mississippi’s 7.3 percent This may seem surprising, since Georgia was named the best state to do business in both 2014 and 2013 by Site Selection magazine, largely because of its workforce-training program and low tax rates. Nathan Deal, the state’s GOP governor, handily won reelection in November against Jimmy Carter’s grandson by speaking about Georgia as a job magnet. But those who follow the state’s economy say the state’s troubling economic figures are directly related to Georgia’s attempts to paint itself as a good state for corporations.  “This is what a state looks like when you have a hands-off, laissez-faire approach to the economy,” said Michael Wald, a former Bureau of Labor Statistics economist in Atlanta. “Georgia is basically a low-wage, low-tax, low-service state, that’s the approach they’ve been taking for a very long time.”

Minimum wage increases breaking out all over! -- As some wit tweeted a few months ago, the American electorate wants legal pot, higher minimum wages, and the most conservative Congress ever. At any rate, the newly legislated higher wage floors in states and cities across the land, in tandem with a number of annual adjustments in minimum wages for inflation, just went into effect in the new year: All told, 29 states will exceed the federal minimum wage of $7.25 an hour at the beginning of January, according to the National Conference of State Legislatures.  The initial changes will enhance minimum pay by as little as a few pennies to as much as $1.25 an hour, affecting about 3.1 million employees, according to the Economic Policy Institute, a liberal research group.  By now, about 60% of the workforce is covered by minimum wages above the federal level. I’ve been getting a number of queries about all this, so here’s some Q&A:

Twin Peaks Planet, by Paul Krugman --  In 2014, soaring inequality in advanced nations finally received the attention it deserved, as Thomas Piketty’s “Capital in the Twenty-First Century” became a surprise (and deserving) best seller.  But that’s a story about developments within nations, and, therefore, incomplete.  I’d argue, you get a better sense of the good, the bad and the potentially very ugly of the world we live in. So let me suggest that you look at a remarkable chart of income gains around the world produced by Branko Milanovic of the City University of New York Graduate Center (which I will be joining this summer). What Mr. Milanovic shows is that income growth since the fall of the Berlin Wall has been a “twin peaks” story. Incomes have, of course, soared at the top, as the world’s elite becomes ever richer. But there have also been huge gains for what we might call the global middle — largely consisting of the rising middle classes of China and India.  And let’s be clear: Income growth in emerging nations has produced huge gains in human welfare, lifting hundreds of millions of people out of desperate poverty and giving them a chance for a better life.  Between these twin peaks — the ever-richer global elite and the rising Chinese middle class — lies what we might call the valley of despond: Incomes have grown slowly, if at all, for people around the 20th percentile of the world income distribution. Who are these people? Basically, the advanced-country working classes. And although Mr. Milanovic’s data only go up through 2008, we can be sure that this group has done even worse since then, wracked by the effects of high unemployment, stagnating wages, and austerity policies.

What We Know About Inequality (in 14 Charts) -- If any one theme dominated economic policy debates and research over the past year, it was income inequality. The debate was kicked into high gear when French economist Thomas Piketty‘s book “Capital in the Twenty-First Century”  became a runaway best seller. (It’s not clear how many people who bought the book actually read much of it.)  When President Barack Obama and Pope Francis met, they mostly talked about inequality. Economists, policy makers and think tanks have devoted extensive energy to researching and quantifying these trends, likely keeping it a leading topic in 2015.  Here are 14 charts, curated from our coverage at Real Time Economics over the past year, that tell the story of rising inequality.

Alaska Governor Warns State's Fiscal Situation "Critical" As Oil Price Drops -- Narrative, we have a problem. What is billed day after day as 'unequivocally good' is entirely not good for Alaska (oh and Texas and Pennsylvania and...) as with oil prices dropping, AP reports Alaska Gov. Bill Walker has halted new spending on six high-profile projects, pending further review. With oil taxes and royalties expected to represent nearly 90% of Alaska's unrestricted general fund revenue this year, officials warned, "the state's fiscal situation demands a critical look."

Moscow on the Brazos - Paul Krugman - OK, not really. But falling oil prices will have very different effects on different regions of the United States, with those states that have benefited most from the shale boom hurt a lot even as most Americans gain. The big losers will be in the Dakotas and Nebraska, but that whole region has a population not much bigger than that of Brooklyn. The big enchilada is Texas; so how big a deal will the oil slump be there? Pretty big. If you look at the BEA regional data, you learn that mining output nationally is up a lot — 39 percent between 2007 and 2013 — but that this is still fairly small change on a national basis, 0.7 percent of 2007 GDP. However, more than half the mining growth took place in Texas, which was only 8 percent of the national economy. So in Texas mining directly contributed 4.7 percent to GDP; if we use a multiplier of 1.5, which is what the best research suggests, we conclude that the shale boom added 7 percent to Texas’s growth — and what shale giveth, shale may now take away. We’re not talking real disaster here. I mean, it’s not as if Texas is a one-party state with a culture of corruption and crony capitalism. Oh, wait. But seriously, we surely aren’t looking at a Russia-style crisis. We could, however, be looking at a situation in which Texas is sliding into recession even as the rest of the country is doing fairly well. That is, after all, what happened after the 1985 oil price collapse:

A New Jersey bid to privatize water without public votes -  A bill that would allow New Jersey municipalities to sell their public water utilities to private, for-profit corporations without putting the measure to voters is awaiting Gov. Chris Christie’s signature. Until now, any municipality in New Jersey that sought to sell off its water system to a private bidder had to hold a public vote. But a bill passed with bipartisan support by the state’s Senate last week would allow municipalities with aging and deteriorating water systems to put their systems up for sale without holding a referendum. While supporters of the bill say privatizing water systems could save municipalities money, it allows companies to factor the purchase price of the systems into the rates they charge customers, meaning taxpayers could ultimately be on the hook for the sale of their water systems. Many New Jersey municipalities have turned to privatization as a way to get quick cash infusions for their deteriorating water systems. According to the Environmental Protection Agency, the state would need $41 billion over the next 20 years to repair its water, stormwater and wastewater systems. “We’re an old, industrial state, and water infrastructure was built a long, long time ago,” said Lawrence Hajna, a spokesman for the state’s Department of Environmental Protection, which has not taken a position on the bill. “We’ve spent billions on upgrading, but there’s still a lot more to do.”

This City Eliminated Poverty, And Nearly Everyone Forgot About It: Between 1974 and 1979, residents of a small Manitoba city were selected to be subjects in a project that ensured basic annual incomes for everyone. For five years, monthly checks were delivered to the poorest residents of Dauphin, Manitoba –- no strings attached. And for five years, poverty was completely eliminated. The program was dubbed “Mincome” -- a neologism of “minimum income” -- and it was the first of its kind in North America. It stood out from similar American projects at the time because it didn’t shut out seniors and the disabled from qualification. The project’s original intent was to evaluate if giving checks to the working poor, enough to top-up their incomes to a living wage, would kill people’s motivation to work. It didn’t. But the Conservative government that took power provincially in 1977 -- and federally in 1979 -- had no interest in implementing the project more widely. Researchers were told to pack up the project’s records into 1,800 boxes and place them in storage. A final report was never released.

Cellphones cut off, Ohio suburb weighs bankruptcy -  — East Cleveland has long been one of the poorest cities in the state, a model for what urban decay looks like — streets filled with blighted and boarded-up homes and tired commercial districts. And it's beyond broke. The city government's cellphone provider recently cut off service for nonpayment. It is getting two new salt trucks purchased with federal money but won't be able to fill them because of what it owes Morton Salt Inc., one of the city's fiscal overseers said. This city of 17,000 people is now considering whether to file for municipal bankruptcy, which would be a first for an Ohio municipality.East Cleveland in recent years lost two of its biggest employers and the income taxes paid by those who worked there. East Cleveland's bottom line has been further diminished by substantial cuts in state funding and a countywide reappraisal that further reduced property tax receipts. The Cleveland suburb has been under a state-ordered fiscal emergency since 2012, which means a fiscal commission oversees the city's finances and works with officials to devise a recovery plan. East Cleveland has been there before. It was under a fiscal emergency from 1988 until 2006, the longest in state history. The city's financial woes have reached a point where the head of the fiscal commission doesn't think bankruptcy would even help. Sharon Hanrahan of the Ohio Office of Management and Budget said she's concerned the city won't have enough cash in the bank to make payroll for the first pay period of 2015. Mayor Gary Norton said a bankruptcy filing is being considered. "We have to recognize the reality we face, weigh our options and choose a course," Norton said in an interview with The Associated Press. "Right now, we're in the stage of weighing our options."

Homeless Numbers Up In De Blasio's First Year - WNYC: New Yorkers have been pouring into the city’s homeless shelters throughout 2014, bringing the number of homeless people to a new record high: 58,913. “It’s a bad number,” said Tony Shorris, the first deputy mayor. He said the de Blasio administration has struggled with the continuing surge. They’ve opened 24 new shelters across the city, causing protests in some neighborhoods that didn’t want them. But Shorris said they’ve also accomplished what they aimed for in 2014. “Many of the programs the Mayor said he wanted to put in place have begun to be put in place, and we’ve begun the re-design of the homeless system in every aspect of it,” he said. Shorris wouldn’t say exactly when the number of people in the shelter system will go down. But in the pursuit of that goal the city is pinning its hopes on a new program of rental subsidies for working families, the chronically homeless, domestic violence victims, seniors and childless adults. Most will pay 30 percent of whatever income they have, and the city will cover the rest, for three to five years.

Arrests plummet 66% with NYPD in virtual work stoppage -- It’s not a slowdown — it’s a virtual work stoppage. NYPD traffic tickets and summonses for minor offenses have dropped off by a staggering 94 percent following the execution of two cops — as officers feel betrayed by the mayor and fear for their safety, The Post has learned. The dramatic drop comes as Police Commissioner Bill Bratton and Mayor Bill de Blasio plan to hold an emergency summit on Tuesday with the heads of the five police unions to try to close the widening rift between cops and the administration. The unprecedented meeting is being held at the new Police Academy in Queens at 2 p.m., sources said. Angry union leaders have ordered drastic measures for their members since the Dec. 20 assassination of two NYPD cops in a patrol car, including that two units respond to every call. It has helped contribute to a nose dive in low-level policing, with overall arrests down 66 percent for the week starting Dec. 22 compared with the same period in 2013, stats show.  Citations for traffic violations fell by 94 percent, from 10,069 to 587, during that time frame. Summonses for low-level offenses like public drinking and urination also plunged 94 percent — from 4,831 to 300. Even parking violations are way down, dropping by 92 percent, from 14,699 to 1,241.

Detroit homeowners face foreclosure-notice flood - Municipal bankruptcy is in Detroit's rearview mirror, but a new challenge looms: a wave of foreclosure notices for unpaid property taxes. After years of delay, Wayne County, which includes Detroit, is informing residents in an estimated 35,000 occupied homes that they are delinquent in their city taxes, which could lead to their houses being auctioned off. That could affect about one in seven Detroit residents, or 97,733 people, according to an analysis of Wayne County's foreclosure list by Detroit-based Loveland Technologies. Experts say homeowners struggling in a recovering job market and saddled by depressed home values make property-tax delinquencies a persistent problem, especially in aging urban cores. National estimates for the amount of property-tax delinquencies are hard to come by, but the National Tax Lien Association pegs the annual total at $14 billion. In recent years, advocates in cities including New York, Philadelphia, Baltimore and Washington have wrestled with changing rules on tax foreclosures to keep people in their homes. But none have confronted the sheer number of potential foreclosures now facing poverty-stricken Detroit. Advocates fear that a new foreclosure wave would only accelerate decay and vandalism in a city plagued by abandoned houses and hamper its rebound from the financial crisis and its bankruptcy. For residential properties subject to foreclosure in Detroit, the average amount of taxes and fees owed is $7,067. The average assessed value of homes entering into foreclosure this year is $20,930, which might be significantly higher than what they would fetch on the market.

Court restricts city's ability to seize homes used by drug dealers: In a potentially precedent-setting decision, a Pennsylvania appellate court has restricted the circumstances under which prosecutors can seize homes used by convicted drug dealers. The 5-2 majority opinion by Commonwealth Court applies to homeowners who can show they had little or no involvement in the illegal activity. The ruling in the case involving a 69-year-old West Philadelphia widow, and the settlement of two seizure cases in a federal lawsuit Dec. 20, constitute twin setbacks for the city's civil forfeiture program. The Commonwealth Court decision would establish sweeping new rules of evidence the city must meet if it is to prevail in some seizure cases. Those are cases involving parents or others who own homes used by drug dealers without the owners' knowledge or consent. The Philadelphia District Attorney's Office has 30 days from the time of the Dec. 17 decision to appeal. The office did not respond to calls for comment on Monday. Seizures of properties by law enforcement have caused an outcry across the country because such civil forfeitures can move forward even if the homeowner has not been criminally convicted.

State prison populations down to lowest point in a decade -- The number of Americans under supervision of state adult correctional systems has fallen to the lowest level in a decade, the federal government said Tuesday, while the number of people serving time in federal prison fell for the first time in more than three decades. Data from the Bureau of Justice Statistics [pdf] showed 6,899,000 adults were under supervision of various adult correctional systems at the end of 2013, the last year for which figures are available. The number of adults under supervision includes those who are incarcerated, on parole or probation. The total number declined by 41,500 from the end of 2012, and it represented the first time since 2003 that the number fell below 6.9 million. About one in every 35 adults was under some form of correctional supervision at the end of 2013, unchanged from the previous year. That rate is the lowest it’s been since 1997. The total incarceration rate has fallen, too, from about one in every 100 adults to one in every 110 adults.. States have reported an uptick in the number of inmates they hold this year, though further reforms to the criminal justice system could lower those numbers over the long term. The drop in prison populations came almost entirely from declines in the number of adults under community supervision and the number of inmates housed in local jails. At the end of 2013, 2,220,000 inmates were being housed in prisons or jails, down 11,000 from the year before.  Last year marked the sixth consecutive year the number of supervised adults had decreased, since reaching a peak in 2007. Still, prison populations remain near an all-time high: More than 1.5 million inmates are housed in state or federal prisons, and another 731,000 reside in local jails. The local jail population fell by 13,000 inmates over the previous year.

The Prison State Of America -- Prisons employ and exploit the ideal worker. Prisoners do not receive benefits or pensions. They are not paid overtime. They are forbidden to organize and strike. They must show up on time. They are not paid for sick days or granted vacations. They cannot formally complain about working conditions or safety hazards. If they are disobedient, or attempt to protest their pitiful wages, they lose their jobs and can be sent to isolation cells. The roughly 1 million prisoners who work for corporations and government industries in the American prison system are models for what the corporate state expects us all to become. And corporations have no intention of permitting prison reforms that would reduce the size of their bonded workforce. In fact, they are seeking to replicate these conditions throughout the society.

US homeless pin hopes on ‘Bill of Rights’ to end criminalization in 2015 -- While the total number of homeless people in the United States fell slightly this year thanks to a gradual economic recovery, new laws criminalizing homelessness are making it harder to get homeless individuals and families off the streets. That could change next year, as three states consider passing a Homeless Bill of Rights. On any given night in the U.S., there are over 600,000 people facing life without security, a home, or a place to keep their belongings, according to the State of Homelessness in America 2014, a report by the National Alliance to End Homelessness. Over 200,000 of those are children — an all-time high for the U.S. — and families make up about a third of the total homeless population. At the same time, the number of laws targeting the homeless by making it illegal to sleep, eat or sit in public places has been on the rise in cities across the U.S. At least 21 cities, for example, now have laws against exchanging food in public, making it illegal to give food to the homeless. In one case, a 91-year-old pastor and World War II veteran, Arthur Abbott, was arrested on multiple occasions in Fort Lauderdale, Fla., for giving out food to the homeless after the city made that act of charity illegal. Advocates for the homeless argue that these laws are the equivalent of criminalizing poverty, as the homeless are simply doing what all human beings need to do to survive, but they lack the private space to do them

Homelessness deprives kids of normal childhood, affects development — One in 30 American children is homeless, according to a report published Monday by the National Center on Family Homelessness — an all-time high for the United States. The finding portends an epidemic of emotional, developmental and even physical harm among the nation’s youth. The report, titled “titled “America’s Youngest Outcasts,” states that about 2.5 million American children experienced homelessness at some point in 2013 — an increase of 8 percent nationally from the previous year.. Though most U.S. cities provide various forms of shelter for homeless families, not all who apply are accepted, since programs are often underfunded and understaffed. And even if there is space, most programs are ill-equipped to give kids a normal childhood experience. The New York City Department of Homeless Services (DHS), for example, provides shelter in the South Bronx to pregnant women and families with children, but the entrance to the temporary housing unit looks more like a juvenile detention center than a welcoming home. There are no signs of children, no drawings on the walls, no toys or playgrounds and no sounds of play. Security guards strictly monitor anyone going in and out. Visitors are not allowed.

In Pennsylvania, Judge Paves Way for Private Takeover of Public School District - Control of the struggling York City School District in Pennsylvania has been handed over to the state, effectively paving the way for public education in that county to be provided exclusively by a private company. State officials had previously said that, if approved for a receivership (as a state takeover is called), they would bring in Charter Schools USA, an 'education management company' based in Florida, to operate the district. According to the York Dispatch:The decision of President Judge Stephen P. Linebaugh gives all but taxing power to a Spring Garden Township man who has steered the district's financial recovery process for two years. David Meckley, who has an extensive business background, has served as the district's chief recovery officer for two years. His tenure started after the state placed York City in moderate financial recovery status...For the past several months, Meckley has advocated for a full conversion of the district's eight schools to operation by a for-profit charter company called Charter Schools USA.  The Dispatch reports that district teachers, parents, and students have been vigorously opposed to the plan. Following the judge's ruling on Friday, a group of about 20 students and staffers protested outside the York County Judicial Center.  In a statement, the state's largest school employee union said Linebaugh's decision "ignores the will of the community, puts students’ education at risk, and paves the way for a corporate takeover of the city’s schools."

Philadelphia law school enrollment down 35 percent since recession - The six local law schools have seen first-year enrollment drop by 34.6 percent from its historic high in 2009-10 — exceeding the national drop off of 27.7 percent. In the past year alone, first-year enrollment at the local schools has fallen by 8.7 percent, a much greater decline than the 4.4 percent nationally. With the number of high-paying jobs available to law grads still down significantly from pre-recession levels, many potential students have begun to look elsewhere rather than risk running up more debt and facing an uncertain future. The American Bar Association said that first-year enrollment in 2014 is the lowest since 1974, when there were 151 ABA-approved law schools compared to the 204 that exist now. The ABA also said that nearly two-thirds of law schools (127) experienced declines in first-year enrollment from the prior year. At 64 law schools, first-year declines exceeded 10 percent. At 25 schools, first-year enrollment declined by more than 20 percent. At 25 schools, first-year classes included fewer than 100 students.

International Education Attainment: US Fading - The economy of a country and its potentinal for future growth is based on  the skill levels of all workers, not just on those who attend the best colleges and universities. The U.S. has been underperforming in education for decades, and the international statistics show it. Here are a few of the many figures that caught my eye from Education at a Glance 2014: OECD Indicators. This figures compares the percentage of those with a tertiary education comparing 25-34 year-olds to the education level of 55-64 year-olds. The black squares show the older group; the blue triangles show the younger group; and the light blue bars show which countries have been expanding education in a way that the younger generation is well ahead of its elders. One wouldn't expect the U.S. to have the highest level of gains, given that other countries had much lower levels of those with a higher education several decades ago--and thus greater potential for gains. Still, it's a little shocking to see that the U.S. shows almost no intergenerational gain in education levels, and is second from the bottom in such gains. Tou can also see by the position of the blue triangles that the U.S. is just barely above the OECD average for tertiary education in its 25-34 age group.

School districts face huge pension bill - A state-mandated sched-ule for replenishing California’s cash-strapped teachers’ retirement fund means school districts will see their pension contributions triple by 2021 and remain high for decades, according to budget forecasts released this month by several local districts. Administrators say they’re at a loss for how they’ll come up with the cash, which for some districts could be tens of millions per year. The forecasts come just six months after a legislative deal was struck by Sacramento lawmakers to recover billions of dollars for the California State Teachers’ Retirement System, or CalSTRS. Some school districts in San Diego County highlighted the sticker shock in so-called “interim midyear” budget reports released this month that show escalating contributions from teachers, school districts and even the state as a way to dig the teachers’ retirement fund out of debt over the next several years. Administrators said that in the coming fiscal year, they may be faced with tough decisions to cut instructional programs, cut professional development or delay technology infrastructure improvements at the expense of paying their share of unfunded pension liabilities — totaling $74 billion statewide. Officials in districts throughout California are talking about forming a coalition to explore ways to fix the teacher retirement system without cutting into their own school programs.

Michael Hudson: The War on Pensions – The US Budget Anti-Pension Law - On the Senate’s last day in session in December, it approved the government’s $1.1 trillion budget for coming fiscal year. Few people realize how radical the new U.S. budget law was. Budget laws are supposed to decide simply what to fund and what to cut. A budget is not supposed to make new law, or to rewrite the law. But that is what happened, and it was radical. Wall Street’s representatives in Congress – the Democratic leadership as well as Republicans – took the opportunity to create an artificial crisis. The press called this “holding the government hostage.” The House – backed by the Senate – said that it would shut the government down at some future date if two basic laws were not changed. Most of the attention has been paid to Elizabeth Warren’s eloquent attack on the government guaranteeing bank trades in derivatives. Written by Citigroup lobbyists, this puts taxpayer funds behind future bank bailouts if banks make more bad bets on complex financial derivatives, such as packaged junk mortgage loans. Critics have focused on how there must be a loser for every winner in a derivatives contract. The problem is that if banks lose, the government will bail them out just as it did in 2008.Less attention has been paid to what happens if banks win. They will win largely in making bets against pension funds. Indeed, pension funds have not been treated well by Wall Street in recent years. And when Goldman Sachs, or JPMorgan Chase draw up a derivative for a client, their aim is to make money for themselves, not for the client. So pension funds have been at the losing end. Most funds would have done better simply to turn their money over to Vanguard in an indexed fund, and saved management fees. The new law permits pension plan trustees – often Wall Street financiers – to cut benefits without having to ask the PBGC to take over the plan. This “balances the federal budget” by saving the bailout funds for Wall Street, not for labor.

Pensions, Social Security -- Holiday present for you via Congress and the Cromnibus. Tucked into the massive spending bill Congress passed this weekend was legislation that reversed 40 years of federal law protecting retirees’ pensions.  The change will allow benefit cuts for up to 10 million workers, many of them part of a shrinking middle-class workforce in businesses such as construction and trucking. There wasn’t a single Congressional hearing on the plan before it was slipped into the spending bill, outraging senior’s advocates…including NCPSSM. “Allowing plans to break the fundamental ERISA promise – that pensions paid to retirees and their surviving spouses will not be reduced – represents an extreme response to a problem that can be addressed through other means by strengthening the funding of the Pension Benefit Guaranty Corporation. Additionally, the National Committee is deeply concerned that this provision could set a dangerous precedent for other defined benefit programs, such as single employer plans, public sector plans and Social Security … Coberly here….When I saw this mentioned in the news, it was described as Congress addressing the “retirement crisis.”   Yep.  Take away their pensions.  No crisis.

California judges sue Calpers pension system over contributions (Reuters) - A group of judges is suing California's public pension system Calpers and the state of California over claims their pension contributions have been almost doubled unlawfully. Under state pay grades, the six California Superior Court judges each earn more than $181,000 a year. The lawsuit filed on Dec. 23 says their pension contributions should be lowered by about $13,000 a year. The six, who were elected in 2012, claim a pension reform law signed by Governor Jerry Brown which took effect Jan. 1, 2013 has raised their pension contributions to 15 percent from 8 percent of their salary. They say the 8 percent contribution was set in stone and should not have been raised by the new law retrospectively. The California Public Employees Retirement System, or Calpers, said the lawsuit was so recently filed it was too early to comment on it. Calpers is America's biggest public pension fund, managing assets of $300 billion. Last January, a former California appeals court judge sued on behalf of 1,600 judges. He contends that California judges are owed pension increases and back pay because their salaries, frozen for five years, did not keep pace with increases to other state workers under state law. If that lawsuit prevails it could wipe out a $97 million reduction in the state's pension liability that had been gleaned from lower state salaries for other employers, according to Calpers's chief actuary Alan Milligan in comments made earlier this year.

As Medicaid Rolls Swell, Cuts in Payments to Doctors Threaten Access to Care -  Just as millions of people are gaining insurance through Medicaid, the program is poised to make deep cuts in payments to many doctors, prompting some physicians and consumer advocates to warn that the reductions could make it more difficult for Medicaid patients to obtain care.The Affordable Care Act provided a big increase in Medicaid payments for primary care in 2013 and 2014. But the increase expires on Thursday — just weeks after the Obama administration told the Supreme Court that doctors and other providers had no legal right to challenge the adequacy of payments they received from Medicaid.The impact will vary by state, but a study by the Urban Institute, a nonpartisan research organization, estimates that doctors who have been receiving the enhanced payments will see their fees for primary care cut by 43 percent, on average.  Stephen Zuckerman, a health economist at the Urban Institute and co-author of the report, said Medicaid payments for primary care services could drop by 50 percent or more in California, Florida, New York and Pennsylvania, among other states.  In his budget request in March, President Obama proposed a one-year extension of the higher Medicaid payments. Several Democratic members of Congress backed the idea, but the proposals languished, and such legislation would appear to face long odds in the new Congress, with Republicans controlling both houses.  Dr. David A. Fleming, the president of the American College of Physicians, which represents specialists in internal medicine, said some patients would have less access to care after the cuts. It would make no sense to reduce Medicaid payments “at a time when the population enrolled in Medicaid is surging,” he said.Dr. George J. Petruncio, a family physician in Turnersville, N.J., described the cuts as a “bait and switch” move. “The government attempted to entice physicians into Medicaid with higher rates, then lowers reimbursement once the doctors are involved,” he said.

Lessons for Maine in Vermont’s Failure -- Last Wednesday, Vermont Governor Peter Shumlin announced that he was abandoning his plan for a single-payer health care system for the state, finally admitting in an unexpected news conference that it is “not the right time.”  As one most liberal states in the nation, Vermont has faced years of internal pressure to adopt government-run health care. Shumlin made single-payer health care a major feature of his recent re-election campaign, and until last week, seemed to be blazing a trail towards the first single-payer system in the U.S. His plan, which was designed partly by controversial Obamacare architect Jonathon Gruber, would have pushed for a single-payer – the state of Vermont – to pay health care costs, instead of private insurance companies. Nearly every Vermonter would have been required to be insured under “Green Mountain Care,” a state-run agency funded primarily through taxes rather than insurance premiums. The cost for Green Mountain Care was estimated to be approximately $2.6 billion, an astounding $300 million more Vermont’s entire budget for FY 2015. The state would have needed an overwhelming 11.5% payroll tax on businesses and a new sliding-scale income tax of up to 9.5% just to get the program off the ground. Given that Vermont already boasts a top income tax rate of 8.95%, a 6% sales tax and 8.5% corporate income tax, these new taxes would have made Vermont the highest taxed state in America, by a significant amount.  Even with those new taxes, Shumlin’s administration predicted that Green Mountain Care would be drawing a deficit by at least 2020, meaning additional revenue or tax increases would be needed in the near future.

No health insurance? Penalties to rise in 2015: The cost of being uninsured in America is going up significantly next year for millions of people. It's the first year all taxpayers have to report to the Internal Revenue Service whether they had health insurance for the previous year, as required under President Barack Obama's law. Those who were uninsured face fines, unless they qualify for one of about 30 exemptions, most of which involve financial hardships. Dayna Dayson of Phoenix estimates that she'll have to pay the tax man $290 when she files her federal return. Dayson, who's in her early 30s, works in marketing and doesn't have a lot left over each month after housing, transportation and other fixed costs. She'd like health insurance but she couldn't afford it in 2014, as required by the law.  Ryan Moon of Des Moines, Iowa, graduated from college in 2013 with a bachelor's degree in political science and is still hunting for a permanent job with benefits. He expects to pay a fine of $95. A supporter of the health care law, he feels conflicted about its insurance mandate and fines. "I hate the idea that you have to pay a penalty, but at the same time, it helps other people," said Moon, who's in his early 20s.

Health Plan Enrollment Numbers Show Importance of Coming Supreme Court Case -  A new report from the Obama administration highlights the very high stakes for a challenge to the Affordable Care Act before the Supreme Court. The subsidies that the court may eradicate are helping a large majority of customers pay for their health insurance.The report is the first time that the Department of Health and Human Services has delivered some numbers on exactly who is signing up for health insurance for 2015, since the open enrollment period began in mid-November.The data that was used isn’t perfect or complete — and many commentators rightly grumbled about its shortcomings — but the report is still a helpful snapshot of whom the new insurance markets are serving. It’s particularly detailed in looking at the people using the marketplaces in the 37 states that are letting the federal government manage their enrollment. Over all, it found, customers who were using to pick insurance plans — some new customers, and some renewing customers — were overwhelmingly likely to qualify for federal subsidies to help them pay their premiums. On average, the report found that 87 percent of these customers were eligible for subsidies, with higher percentages in some states — up to a high of 95 percent in Mississippi.

Vast majority of ObamaCare customers qualify for subsidies - Nearly 90 percent of people who bought health insurance in the second year of ObamaCare qualify for government help to pay their premiums, federal health officials announced Tuesday. The new figure, which was released Tuesday by the Department of Health and Human Services (HHS), signals success for the government’s extensive push to promote financial assistance for millions who remained uninsured after ObamaCare’s first year. In the government's most comprehensive report yet on federal and state exchanges, HHS also announced that at least at least 4 million people signed up for healthcare for the first time since open enrollment began Nov. 15. At least 6.5 million people bought healthcare in state and federal marketplaces in the first month of the new signup period, which HHS called an “encouraging start.” Out of that tally, 600,000 signups came from the 12 states running their own exchanges. The 6.5 million enrollment figure, which is nearly the same as the federal enrollment tally reported last week, is likely far less than the actual tally. The report only includes state signups through Dec. 13 and federal sign-ups through Dec. 15. Two of the biggest states, California and New York, only reported new sign-ups, and seven states did not report customers who were auto-enrolled in plans.

Epidemic of Violence against Health-Care Workers Plagues Hospitals – In a harrowing video that surfaced last month, a 68-year-old hospital patient attacks a group of nurses with a pipe pulled from his bed. They flee through a nearby door in a streak of rainbow scrubs, but the patient pursues and lands several more blows on one fallen nurse in the hallway.  This assault is far from an isolated incident. Health-care workers are hit, kicked, scratched, bitten, spat on, threatened and harassed by patients with surprising regularity. In a 2014 survey, almost 80 percent of nurses reported being attacked on the job within the past year. Health-care workers experience the most nonfatal workplace violence compared to other professions by a wide margin, with attacks on them accounting for almost 70 percent of all nonfatal workplace assaults causing days away from work in the U.S., according to data from the Bureau of Labor Statistics.And attacks show no sign of slowing down. There is little movement toward stopping the assaults. “There is a top-to-bottom cultural assumption that violence is part of the job” for ER nurses and health-care workers, says Lisa Wolf, a registered nurse and research director for the Emergency Nurses Association. “It goes from the bedside up to the judicial system.”    

Paid to Promote Eye Drug, and Prescribing It Widely -  When the drug maker Genentech introduced a major product in 2006, it found itself in an awkward position: persuading eye doctors to start using its new more expensive drug instead of a popular cheaper version that the company already sold.  Ophthalmologists had been enthusiastically using the company’s cancer drug Avastin, which cost about $50 a dose, to treat a common eye disease in the elderly, wet macular degeneration. Then Genentech introduced Lucentis, a nearly equivalent drug that cost $2,000 a dose and was approved specifically to treat the disease.  Use of Lucentis took off, and it has become one of Medicare’s most expensive treatments — costing the federal government about $1 billion a year — even though several studies have concluded Lucentis has no significant advantage over its cheaper alternative.Now, a new federal database shows that many of the doctors who were the top billers for Lucentis were also among the highest-paid consultants for Genentech, earning thousands of dollars to help promote the drug. The data raises questions about whether financial relationships between doctors and drug companies influence treatment decisions, even though physicians maintain they cannot be swayed.

Severe Flu Cases on the Rise in the U.S. - WSJ: This year’s influenza season started earlier than expected and is sending more patients to the hospital, raising concerns this could be a more severe outbreak than in recent years. Thirty-six states are now experiencing high levels of flu activity, according to the Centers for Disease Control and Prevention in Atlanta, as this year’s flu vaccine may not fully protect against a strain known as influenza A H3N2 that is currently circulating and tends to be more severe. Fifteen children age 18 and under have died from the flu as of Dec. 20, compared with four such deaths around the same time last year, according to the CDC. A number of hospitals are outpacing previous years, with some restricting visitors to prevent the spread of the virus. “Our medical director said that in his eight years at the hospital, he had never seen double digits” in the number of patients hospitalized, said Jill Chadwick, a spokeswoman at the University of Kansas Hospital in Kansas City, Kan. It had a record 25 flu cases admitted as of Monday and two deaths. Dr. Anna-Kathryn Rye, a pediatric infectious disease specialist at Palmetto Health Children’s Hospital in Columbia, S.C., said the hospital is seeing two to three times the number of flu patients as in a normal season. “We are hoping this week will be the peak,” she said.

As Feared, It’s a Season of High Flu Intensity -- Nationwide, we’re on track for a nasty flu season, with both a large number of cases and many severe ones that require hospitalizations, according to the Centers for Disease Control and Prevention. It declared an influenza epidemic this week, a status achieved at some point nearly every year, though not usually this early in the season. Twenty-two states and Puerto Rico are reporting high flu intensity. In some parts of the country, flu infections have outpaced those from each of the last few years, according to data from the C.D.C.Google Flu Trends, which measures flu intensity using search terms, shows a similar pattern of high flu activity. The worrisome outlook is the result of a confluence of factors: an early start to the flu season, with more people sick in December than usual; a strain that tends to make people sicker; a relatively low vaccination rate; and a mismatch between this year’s flu vaccine and the virus that’s making people sick. “We’re already above the peak that we saw last year, and we’re increasing,” The C.D.C. tracks flu deaths, hospitalizations and the percentage of doctors’ visits for flulike illness. The detailed, public data make it easy to watch the flu take off this year. Google Flu Trends tells a similar story, although its algorithm has been criticized for overestimating the prevalence of the flu. But it has also been endorsed by epidemiologists and published in medical journals, and a new Google flu tool allows you to look at the misery down to the level of the city.

Year of birth significantly changes impact of obesity-associated gene variant -- Investigators working to unravel the impact of genetics versus environment on traits such as obesity may also need to consider a new factor: when individuals were born. In the current issue of PNAS Early Edition a multi-institutional research team reports finding that the impact of a variant in the FTO gene that previous research has linked to obesity risk largely depends on birth year, with no correlation between gene variant and obesity in study participants born in earlier years and a far stronger correlation than previously reported for those born in later years.The authors note that most studies of interactions between genes and the environment have looked at differences within specific birth cohorts -- groups born during a particular span of years -- which would not account for changes in the larger environment that take place over time. To investigate whether different conditions experienced by different age groups might alter the impact of a gene variant, they analyzed data from participants in the Framingham Offspring Study -- which follows the children of participants in the original study -- gathered between 1971, when participants ranged in age from 27 to 63, and 2008.

Are some diets “mass murder”? - British Journal of Medicine - From low fat to Atkins and beyond, diets that are based on poor nutrition science are a type of global, uncontrolled experiment that may lead to bad outcomes, concludes Richard Smith  Jean Mayer, one of the “greats” of nutrition science, said in 1965, in the colourful language that has characterised arguments over diet, that prescribing a diet restricted in carbohydrates to the public was “the equivalent of mass murder.”1 Having ploughed my way through five books on diet and some of the key studies to write this article, I’m left with the impression that the same accusation of “mass murder” could be directed at many players in the great diet game. In short, bold policies have been based on fragile science, and the long term results may be terrible.2 3 4 5 6

Giveth not, unless thou wisheth to be screwed - The music swells and harrowing pictures flow by as TV ads for blown-apart, disfigured, brain-injured war veterans, and trembling, abused, beaten and starved animals flood the airwaves. These are carefully calibrated to move you to tears, and into action. "Just $19 a month," they beg you, or "just 35 cents a day," to alleviate unspeakable suffering. Given how often these ads run, they must have millions of people rushing right to their phones to donate on the spot. It's hard not to -- unless you do your homework. Even knowing as I do that they are exploitative, I can't ignore them. They are profoundly, albeit cynically, poignant. It's almost impossible not to be moved by them, even if you're well-informed. The Wounded Warriors Project has mounted a major campaign on TV in recent weeks to speed up the influx of your hard-earned money. The executive director of this "nonprofit" pays himself more than $600,000 a year, according to its Form 990 tax return, and his deputy about $400,000 a year. Nine other executives haul in between $150,000 and $200,000 a year, plus benefits, pensions and expense accounts. Is that where you want your money to go? Especially since billions of your tax dollars are already being devoted to veterans? The ASPCA has perhaps the most grueling ads to watch, showing abused, helpless, trembling animals with the saddest, most plaintive eyes you've ever seen. They tear you apart. But where do your contributions go? For one thing, the CEO pays herself more than $600,000 a year, just as the Wounded Warriors honcho does.The CEO of Save the Children is actually saving herself. Without your financial help, she might be languishing among the middle class, instead of paying herself $425,000 a year. Ditto for two of my (formerly) favorite causes, the ACLU, which pays over $400,000, the NAACP, which pays $300,000. And Amnesty International pays its executive director well over a quarter million dollars annually.

New research shows nearly half the children in Mexico impacted by lead poisoning: – In November 2014, the journal Annals of Global Health published "Blood Lead Levels in Mexico and Pediatric Burden of Disease." The research concluded that although blood lead levels (BLL) have decreased significantly in Mexico over the past 35 years, they remain significantly elevated. In urban areas, the post-leaded gasoline average BLL is still more than 4.5 times higher than the level in the US (5.52 vs 1.2 ug/dL). Researchers in the study estimate that this will result in 820,000 disability adjusted life years (DALYs) lost, with a lead-induced loss of as much as 5 IQ points on average in Mexican children aged 0 to 4 alone. And this is considering children in urban areas alone. In rural areas, where robust data was not available, the results are expected to be much worse. This means that nearly half the population of Mexican children have a BLL that is above the threshold where intelligence and behavior is affected. To compare, only 2.5% of children in the United States hit this threshold. The cause is traditional Mexican pottery. Leaded glaze is used extensively throughout Mexico. Acid from spicy food causes lead from the glaze to leach into the food, and then into the people eating the food. And it stays in the body, affecting neurological development and causing other problems.

Liberia ‘Abolishes’ Cremation as Ebola Resurges on Border -- The Liberian Observer, one of the nation’s largest newspapers, reports that the government has decided to put an end to the cremation process after significant public backlash. Liberia had previously required that all Ebola victims be cremated, so as to avoid contamination through traditional burial practices. Such practices require the washing of the body, which would put those performing the ceremony in contact with the deceased’s bodily fluids.  “Cremation of dead bodies is not and has never been a part of the Liberian culture, but the Liberian government was forced, during the heat of the Ebola crisis, to initiate the practice in an effort to curtail further spread of the virus,” notes the newspaper. The Observer adds that forced cremation caused many individuals to hide the bodies of the dead and bury them as tradition demanded in secret. Many of those who refused to follow government orders, in turn, contracted Ebola.

Is IMF Austerity at Fault in Ebola Epidemic? - Did the International Monetary Fund contribute to the West African Ebola crisis by requiring too much budget belt-tightening? That’s what several professors argue in the latest issue of medical journal The Lancet.  Three sociologists and a health expert from a trio of premier U.K. universities accuse the emergency lender of enabling the epidemic by fostering underfunded and insufficiently staffed health-care systems through the IMF’s loan programs.  The IMF strongly disagrees, challenging the post on nearly every point in a special online letter and video. Experts say weak health care systems Sierra Leone, Guinea and Liberia allowed the virulent spread of the Ebola virus. The authors of the Lancet piece acknowledge that there are many reasons for the countries’ frail health-care systems, including a history of conflict in the region. But they also blame the economic policy prescriptions the IMF required in a raft of crisis loans the emergency lender provided to the countries over the past two decades. The bailout conditions, the authors argue, hindered rather than helped the development of the health-care systems in those nations. The authors said the IMF’s loan programs forced countries to cut government investment in health care, discouraged employment of needed doctors and nurses by capping public sector wage costs and recommending decentralized health-care spending.

Weaponized Ebola? ISIS Militants Said To Contract Deadly Virus --  Forget targeted US airstrikes, ISIS faces a new existential threat. Citing an unnamed source in a Mosul hospital, Iraq's official pro-government newspaper, al Sabaah, said Ebola arrived in Mosul from "terrorists" who came "from several countries" and Africa. Mashable further confirms, three outlets reported that Ebola showed up at a hospital in Mosul. For now, it's unclear if any disease experts or doctors in Mosul are even able to test for the Ebola virus; but it would mark the first time the virus had been detected in an area controlled by ISIS, a group that doesn't embrace science and modern medicine.

Homegrown bioterror  -- Conventional wisdom says “superbugs” emerge in places like India or Africa and move to the US through global travel. That was certainly the case with the Ebola virus recently and the NDM-1 bacteria from India. However, an interesting research letter in Nature Genetics examined the global evolution and spread of a particularly nasty epidemic caused by Clostridium difficile. Last year, the CDC listed C. difficile as one of the top 3 antimicrobial resistance threats in the US. This disease already kills more than 14,000 Americans a year and sickens a quarter million more, a bigger toll by far than the global death count from Ebola. But before Gov. Christie tries to close the borders, this paper tells us that epidemic strains of C. difficile first emerged in North America, especially in the northeast US. The study comes from the Wellcome Trust Sanger Institute in Cambridge, England, applying whole genomic sequencing to 151 clinical samples collected around the world over the past 25 years. Here’s the map, showing the emergence of two distinct fluoroquinolone-resistant (FQR) epidemic strains from the US (red) and the US/Canada (blue):  This highly infectious disease originated in North America and spread to health care facilities across the globe.  Note also the subsequent transmission within the UK (box on right, red lines) after the 4 initial “invasions” from the US (directly and via France).

Exclusive: FDA prices 'lost pleasure' of junk food into calorie count rule (Reuters) - U.S. health regulators estimate that consumers will suffer up to $5.27 billion in "lost pleasure" over 20 years when calorie counts on restaurant menus discourage people from ordering french fries, brownies and other high-calorie favorites. The lost-pleasure analysis, which is criticized by some leading economists and public health groups, was tucked into new regulations published last month by the U.S. Food and Drug Administration which require chain restaurants, grocery store chains selling prepared food, large vending machine operators, movie theaters and amusement parks to display calorie counts. Public health advocates alerted Reuters to the inclusion of the analysis, which they say makes such regulations more vulnerable to challenges by industry because it narrows the gap between the government's projections of a regulation's benefits and costs. Amit Narang, an attorney at Public Citizen, said the lost pleasure calculation could help companies or trade groups to challenge the menu rule in court. Peter Larkin, chief executive of the National Grocers Association, warned last week the calorie count regulation would impose "a large and costly regulatory burden.” Laura Strange, a spokeswoman for the group, said the grocers would work with supporters in Congress to change the rule, but declined to say whether they would cite the lost pleasure factor.

Scientists Alter Crops With Techniques Outside Regulators’ Scope -  Its first attempt to develop genetically engineered grass ended disastrously for the Scotts Miracle-Gro Company. The grass escaped into the wild from test plots in Oregon in 2003, dooming the chances that the government would approve the product for commercial use.Yet Scotts is once again developing genetically modified grass that would need less mowing, be a deeper green and be resistant to damage from the popular weedkiller Roundup. But this time the grass will not need federal approval before it can be field-tested and marketed.Scotts and several other companies are developing genetically modified crops using techniques that either are outside the jurisdiction of the Agriculture Department or use new methods — like “genome editing” — that were not envisioned when the regulations were created.The department has said, for example, that it has no authority over a new herbicide-resistant canola, a corn that would create less pollution from livestock waste, switch grass tailored for biofuel production, and even an ornamental plant that glows in the dark.  The trend alarms critics of biotech crops, who say genetic modification can have unintended effects, regardless of the process.“They are using a technical loophole so that what are clearly genetically engineered crops and organisms are escaping regulation,” said Michael Hansen, a senior scientist at Consumers Union. He said the grass “can have all sorts of ecological impact and no one is required to look at it.”

Honeybees: Keep On Survivin' -- It’s no secret that America’s bees are in trouble: Since Colony Collapse Disorder hit the U.S. in 2006, the country’s beekeepers have reported an average annual hive loss of 30 percent. A groundswell of hobby beekeepers has emerged, wanting to do their part to save honeybees, and commercial beekeepers are racing to come up with solutions. It’s not just a critical issue for bees, but for our entire agricultural system: One-third of our food depends on bees and the industry is responsible for $15 billion in increased crop value annually. But some progress is being made. A group of honeybee breeders across the nation are looking to hardy, resilient bees they call “survivor stock” as one important step toward a solution. A host of factors likely play a role in CCD, including habitat loss, overuse of agricultural chemicals and an array of pests and diseases. Similarly, a variety of characteristics come together under the survivor stock definition.  For example, one particularly pernicious pest, a parasitic mite native to Asia and aptly named Varroa destructor, can destroy a hive in months. Varroa mites arrived in the U.S. in the late 1980s and have caused significant losses across the country since. In addition to feeding on bees, Varroa, like mosquitoes carrying malaria, are vectors for bee diseases. While there is no standard definition for “survivor stock,” longevity and natural pest resistance are key.

Hens, Unbound - The most significant animal welfare law in recent history — California’s Prop 2 — takes effect today. The measure, which passed by a landslide vote in 2008, requires egg and some meat producers to confine their animals in far more humane conditions than they did before. No longer will baby calves (veal) or gestational pigs be kept in crates so small they cannot turn around and, perhaps more significantly, egg-laying hens may not be held in “battery” cages that prevent them from spreading their wings. The regulations don’t affect only hens kept in California. In 2010, Gov. Arnold Schwarzenegger signed into law a bill that extended the protections of Prop 2 to out-of-state birds: You cannot sell an egg in California from a hen kept in extreme confinement anywhere. For an industry that has been able to do pretty much what it wants, this is a big deal: It bans some of the most egregious practices. Does limiting confinement for hens mean the end of cages? Maybe. It might become impractical for growers to build bigger cages; that is, it might be easier simply to keep hens in groups that meet the new minimum area required per bird, and so keep the hens “cage free.” That’s not a panacea, but it is an improvement.The new minimum is not specified in numbers, but the courts have said that it “establishes a clear test that any law enforcement officer can apply, and that test does not require the law enforcement officer to have the investigative acumen of Columbo to determine if an egg farmer is in violation.” Hens must be able to spread their wings without touching a cage or another bird.There is, however, another new state regulation — the so-called shell egg food safety regulation, aimed at reducing salmonella — enacted by the California Department of Food and Agriculture. This requires a minimum of 116 square inches per bird, compared with the current 67 square inches, which is less space than an 8-by-10 photo, and just a tad more than a standard iPad.

The Ag Gag Laws: Hiding Factory Farm Abuses From Public Scrutiny -  Earlier this month, politicians in Iowa bowed to corporate pressure when they passed a law designed to stifle public debate and keep consumers in the dark. Instead of confronting animal cruelty on factory farms, the top egg- and pork-producing state is now in the business of covering it up. As one of the people this new law is designed to silence, I'm concerned that Iowa is shooting the messenger while letting the real criminals go unpunished. HF 589 (PDF), better known as the "Ag Gag" law, criminalizes investigative journalists and animal protection advocates who take entry-level jobs at factory farms in order to document the rampant food safety and animal welfare abuses within. In recent years, these undercover videos have spurred changes in our food system by showing consumers the disturbing truth about where most of today's meat, eggs, and dairy is produced. Undercover investigations have directly led to America's largest meat recalls, as well as to the closure of several slaughterhouses that had egregiously cruel animal handling practices. Iowa's Ag Gag law -- along with similar bills pending in other states -- illustrates just how desperate these industries are to keep this information from getting out. The original version of the law would have made it a crime to take, possess, or share pictures of factory farms that were taken without the owner's consent, but the Iowa Attorney General rejected this measure out of First Amendment concerns. As amended, however, the law achieves the same result by making it a crime to give a false statement on an "agricultural production" job application. This lets factory farms and slaughterhouses screen out potential whistleblowers simply by asking on job applications, "Are you affiliated with a news organization, labor union, or animal protection group?"

It's Final: Corn Ethanol Is Of No Use -- OK, can we please stop pretending biofuel made from corn is helping the planet and the environment? The United Nations Intergovernmental Panel on Climate Change released two of its Working Group reports at the end of last month (WGI and WGIII), and their short discussion of biofuels has ignited a fierce debate as to whether they’re of any environmental benefit at all. The IPCC was quite diplomatic in its discussion, saying “Biofuels have direct, fuel‐cycle GHG emissions that are typically 30–90% lower than those for gasoline or diesel fuels. However, since for some biofuels indirect emissions—including from land use change—can lead to greater total emissions than when using petroleum products, policy support needs to be considered on a case by case basis” (IPCC 2014 Chapter 8). The report lists many potential negative risks of development, such as direct conflicts between land for fuels and land for food, other land-use changes, water scarcity, loss of biodiversity and nitrogen pollution through the excessive use of fertilizers (Scientific American). The International Institute for Sustainable Development was not so diplomatic, and estimates that the CO2 and climate benefits from replacing petroleum fuels with biofuels like ethanol are basically zero (IISD). They claim that it would be almost 100 times more effective, and much less costly, to significantly reduce vehicle emissions through more stringent standards, and to increase CAFE standards on all cars and light trucks to over 40 miles per gallon as was done in Japan just a few years ago. With more than 60 nations having biofuel mandates, the competition between ethanol and food has become a moral issue. Groups like Oxfam and the Environmental Working Group oppose biofuels because they push up food prices and disproportionately affect the poor.

Doug Parker: The Status Of The Drought In The U.S. West --  2014 saw the extension of a historic drought across the US West. Croplands withered or were fully abandoned. Water rationing was enforced. Well tables dropped. The price of many vegetables and meats have skyrocketed. But the past month has seen a welcome set of rain systems arrive along the Pacific coast. As a result, some regions like northern California are currently at 140% of rainfall vs the typical year. To drive home why this is such an important topic for everyone to follow, the table below shows how critical California's agricultural output is to feeding the rest of America: (Source) So is an end to the drought in sight? The short answer is 'no'. And were not close to it (yet). Much will depend on the rainfall levels over the next three months, and how much of that accumulates as snow pack. To explore this important issue in depth, we welcome Doug Parker, the Director of the California Institute for Water Resources, as well as the Strategic Initiative Leader for the UC Agriculture and Natural Resources Water Quality Quantity and Securities Strategic Initiative. Click the play button below to listen to Chris' interview with Doug Parker (27m:58s)

A 2,500 Square-Mile Methane Plume Is Silently Hovering over Western US - Legacy of fossil fuel drilling is "giant cloud" of powerful greenhouse gas now visible from space. A monstrous cloud of accumulated methane—a potent greenhouse gas—is now hovering over a large portion of the western United States according to satellite imagery analyzed by NASA and reported by the Washington Post. Created by years of intentionally released and errantly leaked natural gas during fossil fuel drilling operations, the cloud—invisible to the human eye but captured by advanced satellite imaging technology—is centered over northwest New Mexico and described by thePost as "a permanent, Delaware-sized methane cloud, so vast that scientists questioned their own data when they first studied it three years ago." So alarmed by the size of the plume were scientists, NASA researcher Christian Frankenberg told the Post, "We couldn’t be sure that the signal was real." Though there is considerably less of it put into the atmosphere each year, methane is twenty times more powerful as a greenhouse gas than carbon-dioxide or CO2. The accumulation of methane is not a new problem, but one that appears to be worsening as hydraulic fracture drilling (or fracking) and other intensive fossil fuel extraction operations continue to soar in the southwest region of the country. The latest NASA analysis of the phenomenon put the approximate "average extent of the gas plume over the past decade at 2,500 square miles." Frankenberg pointed out that this estimate pre-dates the most recent gas and oil drilling boom now underway in the southwest.

White Christmas? Start worrying about El Niño and its effect on food prices -- There’s a good chance the weather phenomenon El Niño will appear in the next six months, weather forecasters say, but farmers don’t need an official decree from meteorologists – they can just look out the window. Those recent rains in California? Thank El Niño. Most farmers in Argentina and southern Brazil are also getting extra precipitation. The weather phenomenon was named El Niño, a reference to the Spanish phrase for “Christ child”, because it often arrives around Christmas. El Niño does not bring gifts of rain to all farmers. In Australia and some countries in the western Pacific, the phenomenon usually means drier weather. On 4 December, the US Climate Prediction Center said in its monthly forecast the odds for an El Niño to be “present” during the next six months are 65%. If it is confirmed, El Niño is expected to last until spring 2015.

El Nino Seen Looming by Australia as Pacific Ocean Heats Up - El Nino-like weather may persist in coming months as the Pacific Ocean continues to warm and indicators approach thresholds for the event that brings drought to Asia and heavier-than-usual rains to South America. Sea-surface temperatures have exceeded the thresholds for a number of weeks and the Southern Oscillation Index has generally been negative for the past few months, Australia’s Bureau of Meteorology said today. While trade winds have been near-average along the equator, they have been weaker in the broader tropical belt, it said. A sustained weakening of trade winds is needed for the phenomenon to develop, the bureau says. El Ninos, caused by periodic warmings of the Pacific, can roil world agricultural markets as farmers contend with drought in Asia or too much rain in South America. Palm oil, cocoa, coffee and sugar are among crops most at risk, Goldman Sachs Group Inc. says. Forecasters, including Australian scientists, raised the possibility of an El Nino earlier this year before tempering their outlook as conditions didn’t develop. “The tropical Pacific Ocean continues to border on El Nino thresholds, with rainfall patterns around the Pacific Ocean basin and at times further afield displaying El Nino-like patterns over recent months,” the bureau said. “If current conditions do persist, or strengthen into next year, 2014–2015 is likely to be considered a weak El Nino.”

Anchorage, Alaska never saw a day below zero in 2014 - The coldest it has been on this day in Anchorage, Alaska, since 1954 is 20 degrees Fahrenheit below zero. The coldest it has been on New Year's Eve in that same time period is even colder: -25. But this year, the lows are expected to be 33 and 27 degrees respectively -- meaning that 2014 will be the first year on record that the temperature didn't drop below zero.  As Alaska Dispatch News notes, the last time the temperature was below zero (again: in Fahrenheit) was Dec. 26, 2013. That was the tail end of a cold snap, of the kind not uncommon in winter -- particularly in Alaska. But ever since, temperatures have been above zero according to readings taken at the airport, with low temperatures reaching zero only once, on February 11.Complete annual records from the National Oceanic and Atmospheric Administration begin on Jan. 1, 1954. Since then, the number of days Anchorage went below zero each year has dropped from an average of 33.2 in the 1960s to 16 in the 2000s. The year with the second-fewest below-zero days was 2002 (the red line on the graph above).

Ice-free Arctic could be just six years away -- “We discovered this rotten ice in the summer of 2009,” said Barber, who made the finding while on an icebreaker in the Beaufort Sea. “The ice had broken up into tiny pieces about the size of a Volkswagen and these bits and pieces had congealed with new ice that was forming, only a couple centimetres thick. The satellites thought they were looking at multi-year sea ice, but when we were driving a ship through it, it was this heavily rotted stuff that didn’t slow us down at all.”  Sea ice has always been highly variable. Barber said that variability is growing and makes predictions difficult. Dates for an Arctic free of summer ice vary from 2020 to 2080 and scientists can’t really say how that’s going to play out in different regions.  “When you look at what’s happening over the whole Northern Hemisphere, the models are pretty good at that. What they’re not good at is the small-scale stuff, particularly storms and the role that storms play in how the ice behaves. “Most of the contemporary research is looking at these small-scale phenomena to try and understand them so we can encapsulate the physics of them better in the models.”  But the effects are already distorting fragile Arctic food webs.  Almost all Arctic life, from birds to bowheads, begins with algae that starts blooming beneath the ice every March, said University of Manitoba biologist CJ Mundy. “When you take an ice core, the bottom of the ice core is brown,” he said. “That’s all algae.”  The bloom is the first in a series of pulses that run from algae, to plankton, to tiny animals called copepods, to fish, to seals and on up. “That bloom really kick-starts the whole system,” Mundy said.

IceSat data confirm that Greenland's ice sheet melting has been underestimated, and it is accelerating - Greenland’s ice sheet shrank by an average of 243 billion tonnes a year between 2003 and 2009 – a rate of melting that is enough to raise the world’s sea levels by 0.68 mm per year. In what is claimed as the first detailed study, geologist Beata Csatho, of the University of Buffalo in the US, and colleagues report in the Proceedings of the National Academy of Sciences that they used satellite and aerial data to reconstruct changes in the ice sheet at 100,000 places, and to confirm that the process of losing 277 cubic kilometres of ice a year is more complex than anyone had predicted. The Greenland ice sheet is the second biggest body of ice on Earth − second only to Antarctica − and its role in the machinery of the northern hemisphere climate is profound. It“The great importance of our data is that, for the first time, we have a comprehensive picture of how all of Greenland’s glaciers have changed over the past decade,” Dr Csatho said. The study looked at readings from NASA’s ice, cloud and land elevation satellite ICESat, and from aerial surveys of 242 glaciers wider than 1.5 km at their outlets, to get a more complete picture of melting, loss and – in some cases – thickening of the ice sheet as a whole. Previous studies have focused on the four glaciers. One of them, Jakobshavn, has doubled its speed of flow since 2003, and closer studies have begun to reveal more about the dynamics of individual flows. But the real strength of the study is that it establishes the pattern of ice melt in more detail, and suggests that climate models may not give a clear enough picture of the future of the ice cap. To put it crudely, Greenland could lose ice faster in the future than any of today’s predictions suggest.

The deep Greenland Sea is warming faster than the World Ocean - Recent warming of the Greenland Sea Deep Water is about 10 times higher than warming rates estimated for the global ocean. Scientists from the Alfred Wegener Institute Helmholtz Centre for Polar and Marine Research recently published their findings in the journal Geophysical Research Letters. For their study, they analysed  temperature data from 1950 to 2010 in the abyssal Greenland Sea, which is an ocean area located just to the south of the Arctic Ocean.

Greenland's "Dark Snow" Should Worry You - (see photos) Jason Box knows ice. That's why what's happened this year concerns him so much. Box just returned from a trip to Greenland. Right now, the ice there is…black:  The ice in Greenland this year isn't just a little dark—it's record-setting dark. Box says he's never seen anything like it. I spoke to Box by phone earlier this month, just days after he returned from his summer field research campaign. "I was just stunned, really," Box told me. The photos he took this summer in Greenland are frightening. But their implications are even more so. Just like black cars are hotter to the touch than white ones on sunny summer days, dark ice melts much more quickly. As a member of the Geological Survey of Denmark and Greenland, Box travels to Greenland from his home in Copenhagen to track down the source of the soot that's speeding up the glaciers' disappearance. He aptly calls his crowdfunded scientific survey Dark Snow. There are several potential explanations for what's going on here. The most likely is that some combination of increasingly infrequent summer snowstorms, wind-blown dust, microbial activity, and forest fire soot led to this year's exceptionally dark ice. A more ominous possibility is that what we're seeing is the start of a cascading feedback loop tied to global warming. Box mentions this summer's mysterious Siberian holes and offshore methane bubbles as evidence that the Arctic can quickly change in unpredictable ways. This year, Greenland's ice sheet was the darkest Box (or anyone else) has ever measured. Box gives the stunning stats: "In 2014 the ice sheet is precisely 5.6 percent darker, producing an additional absorption of energy equivalent with roughly twice the US annual electricity consumption." Perhaps coincidentally, 2014 will also be the year with the highest number of forest fires ever measured in Arctic.

Miami’s climate catch-22: Building waterfront condos to pay for protection against the rising sea –  Argentine developer Alan Faena recently listed the most expensive condo in this city’s history at $55 million. The Mid Beach penthouse features a private elevator, an infinity pool, an uninterrupted view of the Atlantic. The catch: The tower stands on what scientists call one of America’s most vulnerable floodplains. But Miami Beach needs this penthouse — and many more like it. The more developers build here, the more taxes and fees the city collects to fund a $300-million storm water project to defend the shore against the rising sea. Approval of these luxury homes on what environmentalists warn is global warming quicksand amounts to a high-stakes bet that Miami Beach can, essentially, out-build climate change and protect its $27 billion worth of real estate. The move makes budgetary sense in a state with no income tax: Much of South Florida’s public infrastructure is supported by property taxes.

Environment Agency: 7,000 properties to be lost to sea: An estimated 7,000 properties around England and Wales will be sacrificed to rising seas over the next century, according to the Environment Agency. Analysis by the Agency, based on current funding levels, projects that more than 800 will be lost over the next 20 years as coastlines erode. The cost of protecting these properties is considered to be too high. The Environment Agency estimates that more than £1bn worth of properties will disappear as a result. The coast of England and Wales is being steadily eaten by the waves, and climate change is projected to increase sea-level and drive up the intensity of storms. In the coming 100 years, six local authorities - Great Yarmouth, Southampton, Cornwall, North Norfolk, East Riding and Scarborough - are expected to lose more than 200 homes each. Local groups are campaigning for compensation if they are forced out of their homes. The government has resisted this call, which could set a precedent for paying damages to people affected by climate change. Friends of the Earth has accused the government of dumping the costs of climate change on to vulnerable people.

Pope to push for action on climate change - Over the weekend, The Guardian reported that Pope Francis will issue an encyclical urging Catholics to push for action on climate change. The push will coincide with the efforts to follow up on the Lima agreement in the hope that they will lead to binding agreements for the reduction of greenhouse gas emissions. Although the Vatican has not confirmed that the document is in the works, the article quotes several authorities by name, and they speak as if it is a done deal. The document would be in keeping with the Pope's messages on environmental stewardship; the article quotes Francis as telling an audience in Latin America, "Climate change, the loss of biodiversity and deforestation are already showing their devastating effects in the great cataclysms we witness.” It's also consistent with his general high regard for scientific findings.  The Pope will join a variety of voices pushing for action next year and will undoubtedly add to the political pressure for an agreement. A more relevant question may be whether Francis can sway anyone who wasn't already interested in seeing progress made on the climate.

Bill Moyers’ Last Show: Our Children’s Trust Climate Litigation --  Yves Smith -  We will all miss Bill Moyers, who in an important act of public service came out of retirement twice at viewer request. I was lucky enough to appear on his show twice. Bill is both a gentleman and a true pro, and went to great lengths to make his interviewees look good. His final show looks forward in an important way, to the efforts of a young group of climate change activists called Our Children’s Trust to use well-settled case law as the basis for suing governments for their failure to combat change. (video & transcript)

Must-See Robert Reich’s 2014 Year in Review  - I highly recommend watching Robert Reich‘s 2014 year in review. “As we head into 2015, it’s important to keep in mind how quickly progressive change that seems radical, if not a pipe dream at one point in time, becomes feasible when enough people make a ruckus,” says Reich. From the Keystone XL pipeline to limits on carbon emissions to corporate personhood, Reich covers it all.

Climate Change Is a Tax, and Rates Are Going Up -- Many people, particularly in the United States, are having a hard time coming to terms with the concept of climate change. But whether you believe the science or not, there’s little doubt that the world is undergoing some fundamental changes — and there are, and will continue to be, huge costs to dealing with the fallout. With the exception of increasingly frequent severe weather and superstorms, most of us — especially middle-class, working adults — don’t spend an awful lot of time worrying about climate change. But that may change soon as scientists find more and more evidence that warmer average temperatures are going to start taking an economic toll.  A new study released by Tatyana Deryugina and Solomon M. Hsiang from the National Bureau of Economic Research claims that the hotter the world gets, the more expensive every day life will become. Specifically, the researchers draw a comparison between declining economic activity and how high the temperature is on a given day. By comparing and contrasting economic and climate data from the past 40 years, the study comes to the conclusion that for every degree warmer than 59 Fahrenheit, the country’s economic input decreases by about 1%. As the Associated Press puts it, that means that on a 77-degree day, the average individual’s income drops by $5, as opposed to a day that ended up with a high of 57 degrees. . “Personal income per capita increases slightly as temperatures rise from cool to moderate, then declines approximately linearly at temperatures above 15◦C (59◦F). Relative to a day with an average temperature of 15◦C (59◦F), a day at 29◦C (84.2◦F) lowers annual income by roughly 0.065%.”

Financing Climate Safety by Jeffrey D. Sachs - The purpose of the global financial system is to allocate the world’s savings to their most productive uses. When the system works properly, these savings are channeled into investments that raise living standards; when it malfunctions, as in recent years, savings are channeled into real-estate bubbles and environmentally harmful projects, including those that exacerbate human-induced climate change. The year 2015 will be a turning point in the effort to create a global financial system that contributes to climate safety rather than climate ruin. In July, the world’s governments will meet in Addis Ababa to hammer out a new framework for global finance. The meeting’s goal will be to facilitate a financial system that supports sustainable development, meaning economic growth that is socially inclusive and environmentally sound. Five months later, in Paris, the world’s governments will sign a new global agreement to control human-induced climate change and channel funds toward climate-safe energy, building on the progress achieved earlier this month in negotiations in Lima, Peru. There, too, finance will loom large. The basics are clear. Climate safety requires that all countries shift their energy systems away from coal, oil, and gas, toward wind, solar, geothermal, and other low-carbon sources. We should also test the feasibility of large-scale carbon capture and sequestration (CCS), which might enable the safe, long-term use of at least some fossil fuels. Instead, the global financial system has continued to pump hundreds of billions of dollars per year into exploring and developing new fossil-fuel reserves, while directing very little toward CCS.

Climate Change Triage: What Do You Protect – Money or People? - At the latest round of international climate talks this month in Lima, Peru, melting glaciers in the Andes and recent droughts provided a fitting backdrop for the negotiators’ recognition that it is too late to prevent climate change, no matter how fast we ultimately act to limit it. They now confront an issue that many had hoped to avoid: adaptation.Adapting to climate change will carry a high price tag. Sea walls are needed to protect coastal areas against floods, such as those in the New York area when Superstorm Sandy struck in 2012. We need early-warning and evacuation systems to protect against human tragedies, such as those caused by Typhoon Haiyan in the Philippines in 2013 and by Hurricane Katrina in New Orleans in 2005.Cooling centers and emergency services must be created to cope with heat waves, such as the one that killed 70,000 in Europe in 2003. Water projects are needed to protect farmers and herders from extreme droughts, such as the one that gripped the Horn of Africa in 2011. Large-scale replanting of forests with new species will be needed to keep pace as temperature gradients shift toward the poles. Because adaptation won’t come cheap, we must decide which investments are worth the cost. A thought experiment illustrates the choices we face. Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses. What should be our priority: reduce losses for the farmworker or the baron?

What If The World Can't Cut Its Carbon Emissions? -- Many people, including more than a few prominent politicians, accept that global warming must be limited to no more than two degrees C above the pre-industrial mean, or a little more than one degree C above where we are now, to avoid dangerous interference with the Earth’s climate. Let’s assume these people are right, that the 2C threshold really does represent the climatic equivalent of a cliff and that bad things will happen if we drive off it. However desirable it may be to protect the Earth from the dire consequences of a runaway climate the chances that the world will agree to cut its emissions quickly enough to stay below the 2C threshold are somewhere between zip, zilch and zero. (There’s also the question of whether cuts of the magnitude necessary would be politically, economically and technologically achievable if the world does agree, but we’ll leave it aside here.) Now imagine that you are one of the prominent politicians – Obama, Kerry, Merkel, Ban Ki-moon, Hollande, Cameron, Davey, whoever – who have publicly and repeatedly stated that climate change is the greatest threat facing the world, that the world is in serious trouble if nothing is done to stop it but that a solution is still within our reach. What do you tell people when next year’s make-or-break Paris climate talks show that it isn’t?

Activists Permanently Shut Down Vermont Yankee Nuke Plant Today » The Vermont Yankee atomic reactor goes permanently off-line today, Dec. 29, 2014. Citizen activists have made it happen. The number of licensed U.S. commercial reactors is now under 100 where once it was to be 1,000. Decades of hard grassroots campaigning by dedicated, non-violent nuclear opponents, working for a Solartopian green-powered economy, forced this reactor’s corporate owner to bring it down. Vermont Yankee is the fifth American reactor forced shut in the last two years. Entergy says it shut Vermont Yankee because it was losing money. Though fully amortized, it could not compete with the onslaught of renewable energy and fracked-gas. Throughout the world, nukes once sold as generating juice “too cheap to meter” comprise a global financial disaster. Even with their capital costs long-ago stuck to the public, these radioactive junk heaps have no place in today’s economy—except as illegitimate magnets for massive handouts.

Ukraine's Largest Nuclear Power Plant Suffers 2nd Emergency Shutdown In 3 Weeks  -- Following a reported "minor" accident three weeks ago, Ukraine's Zaporizhia nuclear power plant, Europe's largest and the 5th biggest in the world, was shutdown. The 'glitch' it appears has reoccurred as RT reports, one of the reactors at the Zaporizhia Nuclear Power Plant has automatically shut down. Causes are still being investigated.

Is Ukraine Hiding A Huge Radiation Leak At The Largest Nuclear Power Plant In Europe? -- Two days ago we reported of the odd coincidence of a 2nd emergency shutdown at Ukraine's Zaporozhye Nuclear reactor - Europe's largest nuclear power plant - following our earlier fears of disinformation. Today, we get information of a leaked report sourced from three different place - unconfirmed for now (but RT is trying to verify) - that Ukrainian nuclear scioentists misled the public and a radioactive leak has been detected - citing the country’s emergency services claiming that levels of radiation are 16.3 times the legally permitted norm.

Natural Gas Threatens U.S. Nuclear Future -  Nuclear power plants produce huge quantities of absolutely carbon-free electricity. But many nuclear plants are in danger of being closed. Next year, for the first time in decades, there will be fewer than 100 making electricity. The principal culprit: cheap natural gas. In today’s market, nuclear is not always the lowest-cost producer. Electricity was deregulated in much of the country in the 1990s, and today electricity is sold at the lowest cost, unless it is designated as “renewable” -- effectively wind and solar, whose use is often mandated by a “renewable portfolio standard,” which varies from state to state. Nuclear falls into the crevasse, which bedevils so much planning in markets, that favors the short term over the long term. Today’s nuclear power plants operate with extraordinary efficiency, day in day out for decades, for 60 or more years with license extensions and with outages only for refueling. They were built for a market where long-lived, fixed-cost supplies were rolled in with those of variable cost. Social utility was a factor. For 20 years nuclear might be the cheapest electricity. Then for another 20 years, coal or some other fuel might win the price war. But that old paradigm is shattered and nuclear, in some markets, is no longer the cheapest fuel -- and it may be quite few years before it is again.

Reliable alternative to water could ease economic, environmental issues for gas drillers -- Some regulators and researchers see it as the shale gas industry's version of the Holy Grail. Finding a viable alternative to the millions of gallons of water that companies use during hydraulic fracturing could remove some of the industry's most serious environmental challenges. “There's a potential for a radical reduction in a lot of impacts and issues if we found a reliable alternative to water,” said Scott Perry, deputy secretary for oil and gas management at the state Department of Environmental Protection. Several companies are field-testing new technologies that use high-pressure carbon dioxide, propane or butane instead of water to break apart shale and lodge sand in the fissures to free the trapped gas. An ongoing National Energy Technology Lab study at the University of Texas is looking at the best ways to stabilize foams for fracking with carbon dioxide, nitrogen or gas liquids. The goal is not just to eliminate the potential environmental concerns of drawing fresh water from rivers and disposing of water that could be tainted with high levels of salts, dissolved solids or leftover fracking chemicals; shale companies want to squeeze more gas from each well to fight depressed prices. “From a productivity perspective, water creates all kinds of problems downhole that carbon dioxide does not,” said Mark Weise, business development director for energy services at Connecticut-based Praxair Inc., the largest industrial gases company in the Americas. The company in September started selling its DryFrac system that uses liquid carbon dioxide.

Injection well meeting draws crowd, opponents express concerns -  More than 100 people attended a meeting the Athens County Commissioners hosted Tuesday to give people an opportunity to comment on a proposed injection well in Troy Twp. More than 30 people took that opportunity, expressing their opposition to the well. K&H Partners, a West Virginia company, has applied to the Ohio Division of Oil and Gas Resources Management — part of the Ohio Department of Natural Resources — for a permit to drill the company’s third injection well in Troy Twp.  Injection wells are used to dispose of waste, including brine and fracking waste, from oil and gas wells. The county commissioners were asked by the Athens County Fracking Action Network (ACFAN) and residents of Troy Twp. to hold a public meeting on the K&H Partners application. A recording of the comments made at Tuesday’s meeting, which was held at the Federal Valley Resource Center in Stewart, will be sent to the Ohio Division of Oil and Gas Resources Management along with a request that a formal public hearing be held, according to County Commission President Lenny Eliason.

Dozens testify against proposed frack-waste well in eastern Athens County: Not one of 35 community members who spoke Tuesday evening during a public meeting about a proposed Torch area fracking waste injection well said he or she favors it. The eastern Athens County well has been proposed by K&H Partners of West Virginia, the same company that operates two other injection wells in the same area. Called by the Athens County Commissioners, the meeting occurred within the two-week comment period set by the Ohio Department of Natural Resources. The agency, by statute, has sole regulatory authority over oil and gas drilling and related activities (such as injection wells) in the state of Ohio. However, attendees at the meeting – held at a former school building in Stewart – did not hold out much hope that their comments will have any impact on ODNR's decision on approving the well. "It is important that local government be listened to at the state level," Athens County Commissioner Lenny Eliason told the standing-room-only crowd of over 120 people at the Federal Valley Resource Center. "When they ignore us, that's a problem."

Ohio should follow the example of New York and Quebec to ban fracking -- On Dec. 17, New York Gov. Andrew Cuomo declared that the state of New York would prohibit fracking statewide, after announcing the results of a state-commissioned scientific review of the health impacts of oil and gas development. "Would I let my child play in a school field near [fracking]?" asked the New York Health Commissioner. "The answer is no." Gov. Cuomo said: "If you wouldn't want your children to live near fracking, no one's children should have to." They went on to state that the risks of fracking outweigh the benefits. A ban was also enacted in Quebec, Canada after an environmental review came to a similar conclusion. These developments should encourage concerned Ohio residents. As yet, Ohio has not commissioned a scientific study on fracking. Ohio's regulations of the oil and gas industry are among the weakest in the country and some critical regulations have never been written. The chief of the ODNR Division of Oil and Gas can waive many of the regulations that do exist at will, and regularly does so. Radioactive fracking fluid and drill cuttings are virtually unregulated in Ohio. That has made Ohio the fracking waste dumping ground of choice for neighboring states. Ohio is accepting waste that is classified as radioactive in Pennsylvania and West Virginia for disposal in landfills that are not equipped to contain or monitor it.

3 Reasons Why New York's Fracking Ban Changes Everything - New York is officially frack free. Here are three reasons why New York's fracking ban changes everything.
1) It's not about climate change --   Despite natural gas' lower carbon dioxide emissions rate (about 30% less than oil and half that of coal), critics believe its carbon-intensive extraction process, as well as methane leakages during exploration and production, make natural gas as messy as any other fossil fuel.  But those claims are hard to quantify, and Governor Cuomo turned an environmental debate into a public health debate. The basis for banning fracking came in the form of a 184-page New York State Department of Health report. The paper focuses on air impacts on respiratory health, water contamination, potential earthquakes, and even boomtown community impacts like increased traffic and overstrained medical care.
2) Anti-frackers aren't only anarchists.  Environmental activists aren't exactly mainstream -- but this latest ruling is evidence that Governor Cuomo and other politicians are increasingly interested in their message. The New York decision didn't happen overnight. Demonstrators protested at events around the states. Celebrities like Sean Lennon and Yoko Ono even sang their dissent. In November, a Pew Research center survey found that more Americans oppose increased fracking (47%) than favor it (41%).
3) It's not about the money. For New York, fracking natural gas represents an enormous energy and economic opportunity. But since the state has never received big tax boosts from natural gas, it won't miss them now. That's a major reason why natural gas companies in other states enjoy a "home court advantage" to environmental activists, but it won't help energy companies in the Empire State.

A Report From the Frontlines in the War Against Fracking --  A mixture of emotions is running through the Finger Lakes region of New York in the wake of Governor Cuomo’s announcement on Wednesday, December 17 to ban hydraulic fracturing (“fracking”) in the state. Residents are relieved to be protected from the health risks and environmental damage produced from fracking. Nevertheless, they are continuing their struggle to oppose the Texas-based Crestwood corporation’s project to store volatile gases extracted from other states, such as Pennsylvania, in salt caverns along the shores of Seneca Lake, which provides drinking water for approximately 100,000 people. Crestwood is seeking to make the Seneca Lake location a hub in its broader infrastructure that supports fracking. Since October of this year, wave after wave of residents comprising the group We Are Seneca Lake (WASL) have practiced non-violent civil disobedience at the gates of the Crestwood facility protesting the Federal Energy Regulatory Commission’s (FERC) decision permitting the storage of methane in the salt mines. A proposal to store liquefied petroleum gas (LPG) is currently before the state Department of Environmental Conservation (DEC). The momentum of the uprising has only grown since then. During the week of November 17-21 there were 48 arrests as activists blocked the gates every day. The day before Governor Cuomo’s announcement banning fracking, there was a massive blockade leading to 41 arrests, most of whom were local educators. And when Governor Cuomo made his announcement last Wednesday, Seneca Lake Defenders were dancing to the joyous jams performed by the Ithaca-based Sim Redmond band before their arrests. All told, there have been over 160 arrests this fall in front of the gates of the Crestwood facility.

State should thoroughly investigate proposal for Seneca Lake gas storage facility - - Buffalo News: The battle under way over the underground storage of propane in the Finger Lakes wine country is playing out as a small-scale version of New York State’s hydrofracking standoff. As with the drilling technique known as hydrofracking, state officials should continue taking their time in weighing the issues. The stakes are too high to rush to a decision. Here’s what is brewing: a plan to store tens of millions of gallons of liquefied petroleum gas, and up to 2 billion cubic feet of natural gas, in salt caverns thousands of feet below the ground around Seneca Lake. To environmentalists, the lake’s pristine image would be irreparably damaged by underground gas storage, harming the promise of tourism and the growing wine industry. Underground gas storage is not new. Crestwood is already permitted to store more than 1 billion cubic feet of natural gas in salt caverns near Watkins Glen, where the company owns the U.S. Salt plant. But the potential risks are enormous. If the project proceeds and something goes wrong, the results could be catastrophic. Critics say a leak could contaminate Seneca Lake, which provides the area with drinking water. Even without an accident, the inevitable industrial equipment and increased truck and rail traffic will mar the lake’s beauty at a time the region is trying to shed its reputation for cheap wines.

Time to Stop Pennsylvania Fracking: Ban in New York Creates New Momentum -- Last week, New York Governor Cuomo announced that his state would  ban fracking, due in large part to concerns about impacts on public health. But right across the border in Pennsylvania, one of the fastest-moving shale booms in the country still proceeds at breakneck speed.  While Governor-elect Tom Wolf  campaigned on promises to tax shale gas extraction, evidence continued to grow that Pennsylvania has struggled to police the drilling industry or even keep tabs on its activities. A  scathing report issued in July by State Auditor General Eugene DePasquale found that record-keeping was “egregiously poor,” and environmental regulators do “not have the infrastructure in place to meet the continuing demands placed upon the agency by expanded shale gas development.”  For the past several years, Pennsylvania has had a history of lax regulation of the shale rush and its impacts on drinking water. For example, in 2011, the state made  national headlines for allowing shale wastewater laced with toxic and radioactive materials to be discharged after incomplete treatment into rivers and streams that were not capable of fully diluting the waste, according to internalEPA documents. Even now, toxic waste from the fracking industry is only tracked via industry self-reporting, which a Pittsburgh Post-Gazette  investigation found has led to major gaps in tracking and reporting.

Interior secretary criticizes fracking bans - Interior Secretary Sally Jewell criticized local and state bans on hydraulic fracturing, saying they create confusion for the oil and natural gas industries. Jewell, who oversees the federal government’s various public land agencies, also said fracking bans often come as a result of what she sees as bad scientific decisions that incorrectly find safety or health problems associated with fracking, radio station KQED reported. “I would say that is the wrong way to go,” Jewell told KQED Friday about local fracking bans. “I think it’s going to be very difficult for industry to figure out what the rules are if different counties have different rules.” Jewell said local and statewide bans on fracking often stem from fears about the controversial practice, in which drillers pump fluids into wells at high pressure to break shale and extract more oil or gas.

Obama's interior secretary says fracking bans are 'wrong way to go' - President Obama’s Secretary of the Interior, Sally Jewell, says recent local and statewide bans on fracking are the “wrong way to go” and based on a misunderstanding of science.  Jewell, who is the government’s chief custodian of federal land and a former petroleum engineer, was speaking with San Francisco public radio station, KQED. From KQED:  “There is a lot of misinformation about fracking,” Jewell said. “I think that localized efforts or statewide efforts in many cases don’t understand the science behind it and I think there needs to be more science.” “These are very troubling comments,” said Kassie Siegel, who directs the Climate Law Institute at the Center for Biological Diversity.“In essence Secretary Jewell seems to be saying that communities around the country, the Governor and Public Health Commissioner of New York, and the over 600,000 people who wrote to the Interior Department urging her to adopt a ban on fracking, don’t understand the science and are just acting out of an irrational fear of fracking,” Siegel said. “It’s insulting, and quite simply wrong.” Jewell’s comments come two weeks after New York announced a statewide ban on fracking. Officials there cited possible public health and environmental concerns, however they said the science around the issue has yet to be settled.Gov.-elect Tom Wolf called New York’s decision “unfortunate.” He hopes to enact a new tax on gas drillers and use the revenue to fund his priorities, including public education.

Judge: No proof gas drilling tainted well water - (AP) - A federal judge has ruled against nine southern New York homeowners who claimed their drinking water was contaminated by a nearby natural gas well. U.S. District Judge Charles Siragusa in Rochester decided the homeowners had failed to prove the silt and methane that befouled their water was caused by one of two gas wells drilled a half mile from their homes in 2010. The decision was filed on Dec. 17. The homeowners had sought $2 billion in damages from Denver-based Anschutz Exploration Corp. Bonnie Todd of Horseheads, one of the homeowners, said Monday she was unaware a decision had been made. New York City personal injury law firm Napoli Bern Ripka Shkolnik, which represented the homeowners, didn't immediately return a call seeking comment. Nor did a spokesman for Anschutz. The wells drilled in the Trenton-Black River sandstone formation in Chemung County, near the Pennsylvania border, weren't hydraulically fractured, or fracked, a technology that injects a well with chemically treated water and sand to fracture shale and release trapped gas. The Cuomo administration announced a decision earlier this month to ban shale gas development using high-volume fracking, citing a lack of definitive studies of potential health risks. According to court documents, Joseph Yarosz of the Department of Environmental Conservation inspected the two Anschutz wells in the town of Big Flats more than 50 times during construction. He testified in his deposition that Anschutz complied with all permit conditions.

Fracking ban: New York decision puts pressure on California - California’s movement to ban fracking and other dangerous oil extraction techniques just got a huge boost from the other side of the country. Gov. Andrew Cuomo has announced a fracking ban in New York . Cuomo’s decision follows a report from the state’s Department of Health that found fracking poses an unacceptable public health risk. That ratchets up pressure on Gov. Jerry Brown to extend the same health and environmental protections to Californians. Instead, Brown has allowed a disturbing expansion of fracking and drilling, leaving California communities to fend for themselves against the powerful oil industry. As Brown enters his last term, he should take a cue from Cuomo and listen to his constituents who want him to protect California’s health, water and air by changing course on fracking, which blasts huge volumes of water mixed with toxic chemicals into the earth to shatter rock formations and release oil and gas. Facing the threat of increased oil development, communities are taking actions to protect themselves. Santa Cruz and Mendocino counties and the city of Beverly Hills have passed measures to ban fracking and similar oil extraction techniques. In November San Benito County voters approved a fracking ban with a 59 percent majority, despite a $2 million opposition campaign by the oil industry.

Good Times Run Out for Sand Producers - WSJ -- “This isn’t our first rodeo” has become a catchphrase among oil-industry executives who are laying off workers and dialing back spending in the wake of tumbling crude-oil prices. But for many sand producers, this is their first time on the bucking bronco that is the cyclical energy business—and not all of them are ready for the wild ride, industry analysts say.  Sand companies’ biggest customers used to be golf courses and glass manufacturers, but the oil boom brought energy clients to their door and now roughly 60% of business is tied to fracking, according to PacWest Consulting Partners, which forecasts sand demand. Now that oil prices have fallen, many fracking companies are retrenching—and that is bad news for sand producers. Earlier this fall PacWest projected sand use would grow by 20% each year in 2015 and 2016. But following the plunge in oil prices, PacWest now expects sand demand to stay flat.  Meanwhile, new sand mines could add another 10% on top of the existing pile, creating a glut and pushing down prices, Global oil prices have plunged 50% since June, as the surging supply—thanks to fracking—collided with lackluster world-wide demand for fuel this fall. With their revenue threatened, oil drillers and fracking companies are under tremendous pressure to dial down their spending and the companies they buy sand from will be easy targets, said Karen Nickerson, an energy analyst at Moody’s . “They’re going to push on who they can,” she said.  “Sitting on your hands and waiting isn’t what the veterans do,” Mr. Sheridan said. “There are a lot of wide-eyed people out there right now in the industry.”

XTO Energy to pay $5 million for fracking violations — ExxonMobil subsidiary XTO Energy, Inc. will pony up about $3 million to restore eight West Virginia sites where the company illegally filled wetlands and polluted the water during fracking operations. The company will also pay a civil penalty of $2.3 million for violating the Clean Water Act, with impacts along more than a mile of stream and 3.38 acres of wetlands. Under a court-approved settlement (subject to final review) XTO will also implement a comprehensive plan to comply with federal and state water protection laws at the company’s West Virginia oil and gas extraction facilities that use horizontal drilling methods. The settlement resolves alleged violations of state law asserted by the West Virginia Department of Environmental Protection (WVDEP). The state of West Virginia is a co-plaintiff in the settlement and will receive half of the $2.3 million civil penalty. “American communities expect EPA and our state partners to make sure energy development is done responsibly,” said Cynthia Giles, assistant administrator of EPA’s Office of Enforcement and Compliance Assurance. “This case will help to protect clean water in West Virginia, and support a level playing field for energy developers that play by the rules.”

Spill Baby Spill ! Kill Baby Kill ! – 2014 in Fraccidents and Frackastrophes - We ended the first installment of “Spill Baby Spill the Year in Frackastophes” way back in May. It’s been a big year for Fraccidents and Frackastrophes since then, and Fractavist Extraordinaire Richard Averett has brought the list up to date, one fracking mess at a time.  Fracking has becomeAmerica’s deadliest form of energy, a bigger body count in a month than coal in a year. Fracking produces more radioactive HAZMAT material in a few days than the US nuclear industry does in a year.  Sandra Steingraber’s group published a compendium of fracking health risks and the Physicians Scientists & Engineers for Healthy Energy did a statistical analysis of health studies, which were released simultaneously the week before Governor Cuomo’s announcement to ban fracking in New York. We here at No Fracking Way, The Dory, The Bill, The Wendy, Sheik Yerbouti – aka “Richard Averett” and Joe Tex, wish you and yours a very Happy unFracked New Year ! And remember the Chevron Promise: “If the fracking well explodes, the pizzas on us !”

NC set to lift fracking moratorium, but prospects for drilling remain iffy -- After four years of heated debate, North Carolina stands on the cusp of lifting its fracking moratorium and opening the state’s woodlands and meadows to shale gas exploration. The state legislature, which convenes next month, is expected to let energy developers start pulling drilling permits as early as April, and no later than autumn. But the imminent end of the moratorium is arriving on an anticlimactic note. Despite a sustained effort by the Republican-led legislature to turn North Carolina into an energy-producing state, the prospects for energy exploration here remain iffy.Falling energy prices globally, coupled with high startup costs in a state with no history of drilling, make North Carolina a long shot for shale gas exploration. Even the most ardent boosters of fracking acknowledge that North Carolina is destined to remain a low priority for the energy industry for an indefinite time.“It is pulling teeth to get anyone to look at North Carolina and to allocate resources,” said Nicholas Spiro, an independent energy developer focusing on North Carolina. “You’ll see some interest, but I don’t think you’ll see any more than you currently see. You’ve got a lot of pontification, a lot of talking.”

Central Ky. residents worry over pipeline's possible use - — Residents and local officials are seeking answers about a plan to reuse an existing Kentucky pipeline to transport highly flammable liquids to the Gulf of Mexico. Federal regulators are considering the proposal to repurpose a 1,000-mile pipeline owned by Kinder-Morgan Energy Partners and MarkWest that runs from Ohio to the Gulf Coast. The pipeline would convert from carrying oil and natural gas to natural gas liquids. The pipeline traverses 18 counties in Kentucky, including 20 miles in Boyle County, the Advocate-Messenger in Danville reported ( A recent plan to build a new natural gas liquids pipeline through more than a dozen counties in central Kentucky was canceled in April after its backers lost a court battle over eminent domain rights. The companies behind that project, called the Bluegrass Pipeline, said they were halting it because the market had changed.   Natural gas liquids are the substances left over when natural gas is harvested from hydraulic fracturing. They are made up of ethane, butane, propane, methane and various solid chemicals.

Texas towns test oil and gas supremacy on fracking - — A Texas hamlet shaken by its first recorded earthquake last year and hundreds since then is among communities now taking steps to challenge the oil and gas industry’s traditional supremacy over the right to frack. Reno Mayor Lyndamyrth Stokes said spooked residents started calling last November: “I heard a boom, then crack! The whole house shook. What was that?” one caller asked. The U.S. Geological Survey confirmed that Reno, a community about 50 miles west of Dallas, had its first earthquake. Seismologists have looked into whether the tremors are being caused by disposal wells on the outskirts of Reno, where millions of gallons of water produced by hydraulic fracturing are injected every day. Reno took the first step toward what Stokes believes will be an outright ban by passing a law in April limiting disposal well activity to operators who can prove the injections won’t cause earthquakes. Reno and other cities are taking their lead from Denton, a university town north of Dallas where the state’s first ban on fracking within city limits takes effect Tuesday. The Denton ban has become a “proxy for this big war between people who want to stop fracking and people who want to see it happen,” said Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin. It also has become a referendum on Texas cities’ rights to halt drilling. Property rights are a part of Texas’ cultural fabric, but the desire to develop hydrocarbons is strong in a state that leads the nation in oil and gas development. Furthermore, under state law, property rights are separate from mineral rights, making it possible to own one but not the other. Cities in other states have tried to stop fracking, with varying success. Courts in Pennsylvania and New York have ruled in favor of allowing cities some control over drilling. But in Colorado, courts ruled against one city’s attempted ban.

ND oil and gas industry expected to face hurdles in 2015  - With oil prices slipping to their lowest point in more than five years, new state regulations slated to take effect and lawmakers proposing major investments in oil country, 2015 is shaping up to be a critical year for the oil and gas industry in North Dakota. Continued lower oil prices will make some drilling activity less profitable in emerging and mature oil plays, but prices are expected to remain high enough in 2015 to support new drilling in the major shale areas in North Dakota and Texas, the U.S. Energy Information Administration said in its short-term energy outlook Dec. 9. The outlook forecasts average spot prices of $68 per barrel for Brent crude and $63 per barrel for West Texas Intermediate crude in 2015, with lower prices early in the year, the EIA said, citing “high uncertainty” in the price outlook. Helms is optimistic prices will recover, calling the recent decline “a blip.” Ness said the industry doesn’t see it that way, noting most analysts are predicting the price slump could last eight to 16 months or even one to two years as U.S. supply stays strong, global demand remains weak and OPEC continues to challenge U.S. production. “We don’t know what the new normal for oil prices is going to be,” he said. “We’re in an energy war.” North Dakota light sweet crude oil has dropped below $40 a barrel. And while some barrels are hedged, “by and large, we’re probably taking $60 less a barrel than we were six months ago,” Ness said.

Oil price drop could lead to shutdown at North Dakota rigs - Falling oil prices could halt drilling at several rigs in North Dakota, the state’s top oil regulator has warned. The price of sweet crude hit $66.25 per barrel on Wednesday, InForum reports, which is a 20 percent drop from July.  This has meant good news for drivers, with average regular unleaded gas prices in Minnesota dropping below $3 a gallon this week, but the outlook is less positive for oil producers.  The number of operational rigs in North Dakota on Wednesday stood at 190, down 13 percent from the all-time high of 218 at the end of May, according to the state’s Department of Mineral Resource’s most recent figures, but the department’s director, Lynn Helms, said drilling could stop at another 10 rigs because of the prices. “We have three counties that right now are below breakeven,” he told the Minot Daily News. “It would not be economically viable to drill wells in those counties.” “It puts eight to 10 rigs at risk. It’s impossible to predict when those rigs could go out of service. We’re at 190 today, so it’s less than a 10 percent impact,” he told the paper.

Plunging Oil Prices Trigger Economic Downturn in Fracking Boom Town - When fracking and horizontal drilling made the oil embedded in North Dakota‘s underground Bakken shale formation accessible for extraction, it touched off something akin to a gold rush in the state. Oil production has grown 600 percent in the last decade. Small towns, called “man camps,” have sprouted with growing populations of oil field workers, bringing both increased economic activity and employment and increased crime and social problems such as sexual assaults. But plummeting oil prices have the potential to upend all that in ways that are hard to predict. Williston, North Dakota, which is in the heart of the boom, grew from 13,000 to more than double today, which meant major invests in housing and infrastructure. The city is currently $300 million in debt and four years behind in paying off that debt, and plunging oil prices could impact its ability to do so. Williston Mayor Howard Krug talked to Peter O’Dowd of NPR’s Here and Now about the challenges his town faces.

In North Dakota, a Tale of Oil, Corruption and Death - On the reservation, where identity is deeply connected to the land, conservationists have been more vocal than elsewhere in North Dakota, and they have denounced their leadership’s oversight of the oil industry for mirroring the state’s pro-business posture.“The mentality comes from the state: less regulation, more profit,” said Joletta Birdbear, a former postmaster. “They’re only concerned about the immediate dollars and not about the long-term costs to our land and the future generations of our people.”But if critics of North Dakota’s elected officials viewed them as too close to the oil industry, critics here had more pointed concerns. Their leader was part of the industry, seeking and getting contracts from oil companies that operated under his watch.“I have no problem with the government making profit for the people, but when they make a profit for themselves and not the people, that’s another story, you know?” Ms. Hudson said.Most of the 14,169 enrolled tribal members, about half of whom live on the reservation, do not receive significant oil royalties. The tribal government does, along with hundreds of millions in oil tax revenue, and many here appreciate the potential benefits for the reservation itself.But so far, apart from a significant rise in jobs, which often go to transient workers, many see deterioration rather than improvement in their standard of living. They endure intense truck traffic, degraded roads, increased crime, strained services and the pollution from spills, flares and illegal dumping.

South Dakota Could Trump Obama In Blocking Keystone - Much has been told about Nebraska's lengthy approval process for the Keystone XL pipeline, which would bring crude oil from Canada to be processed at refineries in Texas, Louisiana, and Alabama. Far less has been written about the role of South Dakota, population 845,000, which might hammer the final nail in the pipeline's coffin.  South Dakota approved the pipeline in 2010, but the construction permit expired in June 2014. Getting a new one is neither automatic nor easy. TransCanada, the potential builder of the pipeline, has applied to South Dakota to renew the permit. But over 40 groups and individuals have filed petitions with South Dakota's Public Utility Commission to broaden the approval process to matters that were not considered in 2010. The goal of most groups is to stall the Mount Rushmore State's approval of Keystone XL so that even if the new Congress were to pass a bill authorizing construction, and President Obama or a future president were to sign it, the pipeline could not be built. These groups include the Standing Rock Sioux Indian Tribe, the Rosebud Sioux Tribe, Boettcher Organics, and the Sierra Club, as well as a number of independent individuals. At a December 9 meeting of the PUC, they were granted "party status" in TransCanada's application for approval of the pipeline's construction. "Party status" means that an entity, such as a municipality, governmental agency, nonprofit organization or person can cross-examine witnesses and request documents from TransCanada.

Race to Build on River Could Block Pacific Oil Route— Here in southern Washington, some environmental groups are quietly pushing a builder to move even faster with a $1.3 billion real estate project along the Columbia River that includes office buildings, shops and towers with 3,300 apartments. The reason is oil. Two miles west of the 32-acre project, called the Waterfront, one of the biggest proposed oil terminals in the country is going through an environmental review, with plans to transfer North Dakota crude from rail cars to barges. Up to four trains, carrying 360,000 barrels of oil, would pass every day through this city’s downtown, only a few hundred feet from the Waterfront’s towers, westbound from the Bakken shale oil fields.. “We have a very large project that is directly pitted against the oil terminal,” said Brett VandenHeuvel, the executive director of Columbia Riverkeeper, a watchdog group for the river, and an opponent of the oil terminal.The result is a sort of race to the crossing: If the Waterfront can get its bricks and mortar in the ground before the terminal is approved — possibly late next year, with litigation likely to follow — more people would be living and working near the oil-train line. This year, 19 trains of Bakken oil — a mile long, 100 cars each — moved through Washington each week, according to the Washington Department of Ecology, a number that could grow to 137 a week by 2020 if all the proposed oil facilities, including Vancouver’s, are approved. From British Columbia south through Oregon, four coal terminals and three coal terminal expansions, two oil pipelines, 11 oil-by-rail facilities and six natural gas pipelines have been proposed since 2012, according to a recent report by the Sightline Institute, an environmental research and advocacy group in Seattle.

OilPrice Intelligence Report: Money Worries For Energy's Future: U.S. Natural gas prices dropped by 29% in the last month, owing to milder than expected winter temperatures, and they are expected to remain lower for some time.  This will lead to yet more consumer savings on electricity and heating bills as natural gas accounts for 26% of U.S. electricity generation.  This comes at a time when falling oil prices have already impacted gasoline prices at the pump in favor of consumers.  Natural gas prices are notoriously volatile and, given that one fifth of U.S. gas production comes from associated gas found while drilling for oil, the expected slowdown of drilling in the US shale scene in 2015 may drive natural gas prices up as associated gas levels drop in turn.   The U.S. Department of energy has a released a report stating that U.S. oil reserves grew by 7.26 million barrels, contrary to the expected 1.8 million barrel decline that had been forecast.  Gasoline reserves were up by 4.1 million barrels, over six times the expected amount, with refiners breaking records of 9.92 million barrels per day processed.  In order to achieve this, refineries operated at a rate of 93.5% utilization.  On top of this, crude imports rose from 7.1 million barrels the previous week to 8.3 million barrels.   Crude oil and gasoline inventories are 5% and 3% higher, respectively, than this time last year.  The increase in imports comes as part of Saudi Arabia’s shock and awe tactics that are aimed at leveraging more expensive North American shale oil out of the market.  Thus far, it appears that the decision not cut production and thus flood the United States with cheap oil may be working

Frack Boom Goes Bust!  - From Boom to Bust in less than a decade – job well done!  This is why we are hearing everyone else under the sun being blamed for bursting the shale bubble – because the industry has NEVER taken responsibility for any problems that they are responsible for  – at any time or place – and this is no exception.  Like all the other lies and misinformation generated by the petroleum industry, they will need to manufacture their own “proof” since none exists in the “real world” (that the rest of us reside in).  So enjoy the show – it should be spectacular!  Thousands of recently highly paid workers have been laid off after the oil price plummeted 50 percent in 2014. At least four American oil-producing states are already facing budget problems due to decreasing oil revenues. The price plunge has affected petroleum production in all oil-extracting countries, including the US.  Currently cheap fuel is still believed to be providing an overall boost to the US economy, as consumers can spend less on gasoline and more on shopping and services. But for the American energy sector the future looks less bright. It’s effecting places like Alaska, Louisiana, Oklahoma and Texas, the New York Times reports.  US oil experts recall the 1980s oil price downturn, accompanied by economic disasters around the globe and arguably becoming one of the causes of the fall of the Soviet Union. Some experts are positive and say America’s oil-producing states won’t suffer too much because they “diversified their economies.”

Marginal producers of oil? - Yves Smith adds her thoughts on possibilities of the market price decline for oil:  When the Saudis announced their intention not to support oil prices when they were sliding towards $90 and plunged quickly through that level, we deemed the move to be a masterstroke. It served to damage both economic and political enemies. On the economic front, the casualties would include renewables, Canadian tar sands, and the US shale gas industry. On the geopolitical front, the casualties would include Iran, Syria, Russia…. and the US.The Saudi “pump, baby, pump” strategy is tantamount to OPEC abandoning its cartel role. From Anatole Kaletsky in Reuters: The U.S. shale revolution is perhaps the strongest argument for a return to competitive pricing instead of the OPEC-dominated monopoly regimes of 1974-85 and 2005-14. Although shale oil is relatively costly, production can be turned on and off much more easily – and cheaply – than from conventional oilfields. This means that shale prospectors should now be the “swing producers” in global oil markets instead of the Saudis. In a truly competitive market, the Saudis and other low-cost producers would always be pumping at maximum output, while shale shuts off when demand is weak and ramps up when demand is strong. This competitive logic suggests that marginal costs of U.S. shale oil, generally estimated at $40 to $50, should in the future be a ceiling for global oil prices, not a floor. The Saudi determination to hold its position and force adjustment onto higher-cost producers makes this Kaletsky scenario seem more likely than it did when he wrote it.

High-cost oil production not worthwhile -  When the oil world’s most important man says anything, people pay attention. But the usually aloof Ali al-Naimi, Saudi Arabia’s oil minister, took market observers by surprise last week when he did something he would never normally do — talk the market down. Rather than instil calm as the price of oil fell to a five and a half year low of around $60 a barrel, Mr Naimi’s forceful and at times bellicose comments only gave those betting on lower prices encouragement to keep selling. Opec, led by its largest producer and effective leader Saudi Arabia, would not be cutting output to bolster prices, said Mr Naimi, reaffirming the cartel’s decision at its November meeting to keep its output target at 30m barrels a day. But he did not stop there. His comments, in a series of interviews, went beyond any official remarks. Mr Naimi said: cutting production was no longer in the interest of Opec producers; the price of oil may never reach $100 a barrel again; even if non-Opec producers come to an agreement on cuts, the cartel would not now change tack; high-cost producers may try and hold out but the financing would sooner or later dry up. Game on Whether his words were simply “bravado” or articulation of a well-thought out strategy to remove some high-cost production off the market, they represent an attempt to regain control of a situation that many industry participants say has caught Saudi Arabia by surprise. And the message is simple. Those energy companies and financiers invested in any high-cost production, from US shale plays to output from Brazil’s deepwater fields, need to realise it is not worth the bother. A person briefed by Saudi officials said the country’s national oil company has been told to prepare for at least two years of lower oil prices, something that kingdom’s finance minister on Thursday also alluded to.

Sub-$55 Oil Has U.S. Drillers Idling Most Rigs in 2 Years -  U.S. oil drillers idled the most rigs since 2012 as prices slide below $55 a barrel to the lowest level in five years and a fight for market share with OPEC intensifies. Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, the lowest since April, Baker Hughes Inc. (BHI) said on its website yesterday, extending the three-week decline to 76. Those drilling for natural gas increased by two to 340, the Houston-based field services company said. U.S. oil output has surged to the highest in three decades even as the Organization of Petroleum Exporting Countries resists cutting production to defend market share, exacerbating an oversupply that Qatar estimates at 2 million barrels a day. Crude has slumped by almost 50 percent this year prompting U.S. producers including Continental Resources Inc. and ConocoPhillips to plan spending cuts. “We should see the rig count going down at least through the end of the first quarter as a reaction to the low oil prices,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas, before the report. “By midyear, we should see measurable impacts on production.” The total rig count, which includes one miscellaneous rig, dropped 35 to 1,840, an eight-month low. Benchmark Brent crude and the U.S. West Texas Intermediate crude futures are both trading near five-year lows. WTI fell 48 cents to $53.13 a barrel in electronic trading on the New York Mercantile Exchange at 10:25 a.m. London time. Brent dropped 71 cents to $57.17.

Oil price crash claims first U.S. LNG project casualty - (Reuters) – Excelerate Energy’s Texan liquefied natural gas terminal plan has become the first victim of an oil price slump threatening the economics of U.S. LNG export projects.A halving in the oil price since June has upended assumptions by developers that cheap U.S. LNG would muscle into high-value Asian energy markets, which relied on oil prices staying high to make the U.S. supply affordable.The floating 8 million tonne per annum (mtpa) export plant moored at Lavaca Bay, Texas advanced by Houston-based Excelerate has been put on hold, according to regulatory filings obtained by Reuters.The project was initially due to begin exports in 2018.Excelerate’s move bodes ill for thirteen other U.S. LNG projects, which have also not signed up enough international buyers, to reach a final investment decision (FID). Only Cheniere’s Sabine Pass and Sempra’s Cameron LNG projects have hit that milestone.Back when LNG and crude oil prices were riding high in February, Excelerate, founded by Oklahoma billionaire George Kaiser, applied for permits to build the facility.  Eleven months on, its submission to the U.S. Federal Energy Regulatory Commission on Dec. 23 said that uncertainty generated by a steep decrease in oil prices has forced it to conduct a “strategic reconsideration of the economic value of the project” and to suspend all activities until April 1, 2015.“Due to the recent global market conditions, the company has determined that, at this time, this project no longer meets the financial criteria necessary in order for us to move forward with the capital investment,”

Supply, demand and the price of oil -A few weeks ago I offered some calculations suggesting that lower demand for oil might account for about $20/barrel of the dramatic decline in the price of oil since last summer. Here I point to some other evidence consistent with that conclusion.  Last week the IMF’s Rabah Arezki and Olivier Blanchard produced a very useful assessment of the role of supply and demand in the recent oil price decline. They note for example that the IEA’s current estimate of world oil demand growth for 2014:Q3 is 800,000 barrels/day below what the organization had been anticipating as of last June.  The suddenness of this shift suggests that economic weakness in Europe, Japan, and China made a contribution. In the case of the United States, some of the long-run demand response to the price run-up of the 2000s is still underway, as seen for example in the continuing improvements in fuel economy of new cars sold in the U.S.  But Steve Kopits calls attention to Don Pickrell’s documentation of some important long-term trends in U.S. demand as well. The American population is aging, and older people drive less. In addition, people who don’t have jobs don’t drive as much. Much of the decline in the U.S. labor force participation rate seems due to long-run developments that were in evidence well before the Great Recession.  Another contributing factor to an excess supply of oil was a return of Libyan production between July and October. But the latest estimates are that some of this was lost again last month. And this weekend Libya’s largest oil port was attacked, raising the possibility that more of the country’s exports will again be disrupted.  But the biggest factor in producing an excess supply of oil has been the success of the U.S. shale oil production. U.S. inventories are well above what’s expected for this time of year. At what price would supply and demand be back in balance? I won’t even make an attempt to predict short-run developments for the wild cards like Libya, Iraq, and China. But in principle, the U.S. supply situation should be simpler. At current prices, some of the higher-cost producers will be forced out. It should be a textbook problem of finding the point on the marginal cost curve at which there’s an incentive for the marginal producer to meet desired demand;

Oil companies seen cutting spending 25 pct in 2015 due to falling crude (Reuters) - Plunging oil prices will prompt energy companies to cut investments in new projects by 25 percent or more in 2015, analysts said over the past week, as firms try to stay cash-flow positive and keep debt in check. With oil prices down more than 40 percent since June, some companies, including ConocoPhillips, have slashed spending by 20 percent. But because crude prices have yet to stabilize, other companies are waiting to draw up budgets. "Many are buying time on 2015 capex and production guidance while hoping for a stable baseline to plan from," Capitol One Securities said in a note to clients. "We think cuts of 25 percent or more versus a year ago are on the way and won't be unusual." true Whiting Petroleum Corp said on Monday it will not release its 2015 capital spending plan until February, citing volatile oil prices. Budgets from Chevron Corp and Exxon Mobil Corp are also due out in early 2015, along with comprehensive spending surveys from industry analysts at Cowen and Barclays. The spending reductions, once announced, are likely to be the biggest in years. But the U.S. government still expects output to be the highest in decades as productivity for new wells rises. Investment bank Simmons expects average U.S. oil production growth of about 900,000 barrels per day (bpd) next year, up from around 9 million bpd in November. Bernstein Research said if benchmark Brent crude oil was at $80 per barrel, then global exploration and production spending would fall 20 percent to $640 billion.If Brent were at $65 a barrel, then spending would fall by 30 percent. Bernstein added that a decline of 35 percent in North American capex would be likely if benchmark West Texas Intermediate (WTI), which trades at a discount to Brent, averages $65 a barrel. WTI is currently around $56.  Wood Mackenzie said the top 40 oil companies would collectively need to slash spending $170 billion, or 37 percent, to keep net debt flat if global oil were at $60 a barrel.

Oil Strengthens as Libya Conflict Offers Relief From Glut - Oil advanced for the first time in three days amid speculation that an escalating conflict in Libya may pare a global surplus that’s driven crude into a bear market. Brent futures rose 1.3 percent in London. Fires have been extinguished at three of six tanks at Es Sider, Libya’s largest oil port, which were set ablaze after an attack by militants, said National Oil Corp. spokesman Mohamed Elharari. Algerian Energy Minister Youcef Yousfi called on the Organization of Petroleum Exporting Countries to cut output to boost prices, the Associated Press reported. Oil plunged 46 percent this year, set for the biggest annual drop since 2008, as OPEC resisted supply cuts to defend market share in response to the highest U.S. production in three decades. Libya pumped 580,000 barrels a day in November, down from about 1.59 million at the end of 2010, according to data compiled by Bloomberg. Trading was below average amid Christmas and New Year holidays. “The main development over Christmas has been the attack on the Es Sider terminal in Libya and the fire that followed on the tank farm,”

How Increased Inefficiency Explains Falling Oil Prices - Gail the Actuary - Since about 2001, several sectors of the economy have become increasingly inefficient, in the sense that it takes more resources to produce a given output, such as 1000 barrels of oil. I believe that this growing inefficiency explains both slowing world economic growth and the sharp recent drop in prices of many commodities, including oil. The mechanism at work is what I would call the crowding out effect. As more resources are required for the increasingly inefficient sectors of the economy, fewer resources are available to the rest of the economy. As a result, wages stagnate or decline. Central banks find it necessary lower interest rates, to keep the economy going. Unfortunately, with stagnant or lower wages, consumers find that goods from the increasingly inefficiently sectors are increasingly unaffordable, especially if prices rise to cover the resource requirements of these inefficient sectors. For most periods in the past, commodities prices have stayed close to the cost of production (at least for the “marginal producer”). What we seem to be seeing recently is a drop in price to what consumers can afford for some of these increasingly unaffordable sectors. Unless this situation can be turned around quickly, the whole system risks collapse.

If Prices Keep Falling, OPEC Must Act To Restore ‘Fair’ Rate Of $70-$80 - The consensus among many Arab OPEC producers is that, one way or another, the worldwide price of oil will stabilize then rise again during 2015, settling between $70 and $80 per barrel by the end of the year, probably without intervention from the cartel’s leadership. Reuters interviewed several OPEC representatives during the week ending Dec. 28, some from what it called “core [Persian] Gulf” oil countries, who said a return to stronger global economic growth should increase demand for oil, particularly in China and Europe. “‎The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year," one Gulf oil source told the news service. A separate Gulf OPEC source told Reuters, “We have to wait and see. We don’t see $100 for next year unless there is a sudden supply disruption. But average of $70 to $80 dollars for next year – yes.” Nor do any of these delegates want a return to oil averaging $100 a barrel very soon. They say that would only turn this year’s precipitous drop in oil prices into a boom-and-bust cycle by encouraging excessive oil production by high-cost non-OPEC producers such as those in North America, who lately have been relying on hydraulic fracturing, or fracking, for their oil boom. Instead, these Arab OPEC members see prices settling at a “fair” price around $10 or $20 per barrel above the current rate, which has been hovering around $60 per barrel. Many observers believe that shale oil extracted through fracking isn’t profitable at such a low price.

Oil prices fall more than $1, dropping to five-year lows (Reuters) - Crude oil prices on tumbled on Monday, with global grades settling down more than $1 a barrel after an early rally fizzled and prices fell to their lowest levels since May 2009. News of further damage Libya's oil infrastructure prompted the early rally that was quickly erased as pervasive fears of global oversupply trumped concerns about output curtailment from the OPEC producer. Phil Flynn of Price Futures Group said the rally may have triggered sell stops. Then once the Brent dropped below $54, a previous low, more stops may have been triggered. true "It just shows you that the market is very heavy," Flynn said. Global benchmark Brent crude LCOc1 settled down $1.57 at $57.88. U.S. crude settled down $1.12 at $53.61 a barrel, following Brent downward. The rally followed by the steep drop showed the market's fears about oversupply are not going away, “Every time the market tries to pick itself up, it’s just another wave of selling,” Oil tanks at Es Sider in Libya have been on fire for days after a rocket hit one of them, officials said. The OPEC member nation is producing 128,000 barrels a day, an official said, down from the 1.6 million it produced prior to Muammar Gaddafi's ouster in 2011. .

Low Oil Prices Drive US Rig Count Down -- The number of drilling rigs in the United States fell for the third consecutive week in December, indicating that lower prices and therefore lower profits are causing producers to cut costs, according to Baker Hughes, a leading American oil-field services company. Onshore US drilling rigs fell by 37 to 1,499 in the week ending Dec. 26. Ten rigs were dropped in the previous week and 29 went out of service the week before that. This period saw the greatest drop since the worldwide price of oil began to fall six months ago, according to the Baker Hughes report issued Dec. 29. And it was the largest number of rigs idled since 2012. As a result, “the rig count is falling because oil prices are falling,” . “The margins just aren’t there.” Part of the reason for the fall is a global surfeit of oil caused in large part by the boom in US oil production employing hydraulic fracturing, or fracking. As a result, some analysts expect a lull in production to keep prices from falling even further. “We should see the rig count going down at least through the end of the first quarter as a reaction to the low oil prices,” “By mid-year, we should see measurable impacts on production.”

US Drilling Rig Count Tumbles to 2-Year Low - Baker Hughes -- Among the first indications we expect to see that the falling cost of crude oil is putting economic pressure on oil producers is a drop in the number of rigs that are being employed. In the week ended December 26, the number of oil rigs poking holes in the ground fell by 37, compared with the total just one week earlier. The total number of rigs drilling for oil in the United States last week came in at 1,499, compared with 1,536 a week ago and 1,382 a year ago. Including 341 other rigs mostly drilling for natural gas, there are a total of 1,840 working rigs in the nation, down 35 week-over-week, but up 83 year-over-year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count. The year-over-year growth underlines the impact of the falling price of crude: the average price of a barrel of West Texas Intermediate (WTI) crude in December 2013 was $97.63. By June 2014 the price had risen to $105.79, and by November the price had dropped to an average of $75.79. That number very likely will tumble by about another $10 a barrel in December. The two states losing the most rigs were California (-17) and Texas (-16). North Dakota lost three, while Oklahoma gained four. In the three biggest producing basins, rig counts fell slightly: the Permian Basin of west Texas lost three rigs to bring its total down to 536; the Eagle Ford Basin in south Texas lost two rigs and now has 204 working; and the Williston Basin (Bakken) has 179 working rigs, down two from the prior week.

US Oil Rigs Are Shutting Down Like Crazy - The number of US oil rigs in operation keeps tumbling.   The latest Baker Hughes rig count data showed that the total number of US rigs in operation — which includes both oil and gas rigs — fell by 35 last week, to 1,840 from 1,875. This report is usually released on Friday afternoons, but was released on Monday due to last week's Christmas holiday.  This is down from 1,920 for the week ended December 5. Oil rigs in use fell by 37 last week, while gas rigs actually rose by 2.   For the week ending December 12, the number of oil rigs in use fell by 27, which at that time was the single biggest weekly decline in two years. The following week, the number of rigs in use fell by 18.  The drop in oil rigs on Monday also comes alongside two discouraging pieces of news for the oil industry. The price of West Texas Intermediate oil is crashing again, touching $53 a barrel for the first time since May 2009 and declining more than 3% on the day.   Additionally, manufacturing data from the Dallas Fed showed that business leaders in Texas are growing concerned about the drop in the price of oil. As one Texas business executive said, the drop in crude oil prices was, "going to make things ugly ... quickly."  And according to Monday's report, Texas saw 16 rigs shut down last week.   In Canada, the number of rigs in use also continues to crater, which rigs in use falling by a staggering 135 last week to 256, which is below the same point a year ago. Canada's production, however, is more seasonal than the US.

Oil Prices Fall, Rig Count Drops, Oil Companies Employment to decline -- A few related articles on oil  ... From Bloomberg: Oil Falls to 5-Year Low as Supply Glut Seen Lingering Oil fell to the lowest level in more than five years amid speculation that a global supply glut that’s driven crude into a bear market will continue through the first half of 2015....WTI for February delivery fell 96 cents, or 1.8 percent, to $53.77 a barrel at 12:25 p.m. on the New York Mercantile ExchangeCurrently WTI is at $53.21, and Brent futures are at $57.79. From Bloomberg: Oil Rigs in U.S. Drop by 37 to Lowest Level Since April Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, Baker Hughes Inc. (BHI) said on its website today. The number of oil rigs has slipped by 76 in three weeks. ... The number of rigs targeting U.S. oil is down from a record 1,609 following a $55-a-barrel drop in global prices since June, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest in three decades. ... While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show. And less exploration will lead to layoffs.  From the WSJ: Oil Jobs Squeezed as Prices Plummet Tom Runiewicz, a U.S. industry economist at IHS Global Insight, forecasts companies providing support services to oil and gas companies could lose 40,000 jobs by the end of 2015, about 9% of the category’s total, if oil stays around $56 a barrel through the second quarter of next year. Equipment manufacturers could shed 5,000 to 6,000 jobs, or about 6% of total employment for such companies.There will be winners and losers with the decline in oil prices, however, since the US is a large net importer of oil (despite the myth reported by some in the media), overall the decline in oil prices should be a positive for the economy. .

WTI Hits $52 Handle As US Rig Count Tumbles To 8-Month Lows -- Just as T. Boone Pickens warned "watch the rig counts" last week, so the Baker Hughes rig countjust collapsed for the 3rd week in a row to 8-month lows. This is the fastest 3-week drop since mid-2009. Crude prices were already weak but the news has flushed WTI to a $52 handle (not seen in the front-month contract since May 2009) Graphs: Rig count is tumbling... Some context for the surge in US rig count... And while the drop in Canadian rig count sounds impressive - it's the worst since 2009 - it's much more seasonal WTI Hits A $52 handle!! And then there's this... Charts: bloomberg

Oil Trades Near Lowest Since ’09 With Supply at Year-End Record -   Oil traded near the lowest since 2009 in New York and London amid speculation that U.S. crude inventories will stay at the highest for the time of year in at least three decades. Futures were little changed in New York, recouping a loss of 1.7 percent. U.S. stockpiles are projected to remain at 387.2 million barrels last week, the highest for the period in data going back to 1982, a Bloomberg News survey shows before government data tomorrow. U.S. oil drillers idled the most rigs since 2012, Baker Hughes Inc. said on its website yesterday. Oil has slumped 46 percent this year, set for the biggest annual decline since 2008, as the highest U.S. production in more than three decades contributed to a global surplus estimated by Qatar at 2 million barrels a day. Saudi Arabia, which is steering the Organization of Petroleum Exporting Countries to resist cutting output, has said it’s confident that prices will rebound as economic growth boosts demand. “Nowhere are signs of a rising crude glut more visible right now than in the U.S.,” . Global refinery runs will fall in the first quarter, “further highlighting the looming weakness in the global oil balance.” West Texas Intermediate for February delivery slid as much as 91 cents to $52.70 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since May 2009, and was at $53.56 at 11:52 a.m. London time. The contract decreased $1.12 to $53.61 yesterday, also the lowest close in 5 1/2 years. The volume of all futures traded was about 16 percent below the 100-day average for the time of day.  Brent for February settlement fell as much as $1.14, or 2 percent, to $56.74 a barrel on the London-based ICE Futures Europe exchange, also the lowest since May 2009. It dropped $1.57 to $57.88 yesterday. The European benchmark crude traded at a premium of $4.27 to WTI.

Hedge Funds Surrender to Oil Rout as Bullish Bets Drop - Hedge funds finally pulled back from bets on higher oil prices as the market faced its worst year since 2008. Speculators reduced their net-long position in West Texas Intermediate crude for the first time in four weeks, cutting their holdings by 5 percent in the week ended Dec. 23, Commodity Futures Trading Commission data showed yesterday. Long wagers dropped the most since August. Prices tumbled today to the lowest level in more than five years as U.S. output climbed and the Organization of Petroleum Exporting Countries refused to make production cuts. The International Energy Agency and U.S. Energy Information Administration cut their estimates of 2015 global fuel consumption this month amid expectations for slower economic growth outside the U.S. “The weak physical fundamentals have weighed on the market,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “OPEC’s shift from a policy of supporting prices to one of protecting market share has also had a major impact.” WTI rose $1.19, or 2.1 percent, to $57.12 a barrel on the New York Mercantile Exchange during the CFTC report period. The U.S. benchmark grade dropped 85 cents, or 1.6 percent, to $53.27, the lowest settlement since May 1, 2009. Brent fell 57 cents to $57.33, bringing 2014 losses to 48 percent.

When BTFD Fails: Hedge Funds Say "Enough Is Enough", Start Covering Bullish Crude Bets - Having been trained well to BTFD in any and everything, after weeks of picking bottoms, clutching falling knives, and being run over, Bloomberg reports hedge funds finally pulled back from bets on higher oil prices - reducing their net-long position in WTI crude for the first time in four weeks, cutting their holdings by 5% in the week ended Dec. 23. “Traders just said enough is enough,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone. "They were tired of trying to guess the bottom of the market and missing. We don’t have a bottom yet and there’s still a ways to go."

Oil-Bust Contagion Hits Hedge Funds, Supplier Layoffs Begin - Wolf Street: It started a few weeks ago. I’d hear from guys here or there in the oil patch who’d just been laid off. That contrasts with the prior anecdotes of hiring binges. A trickle of anecdotal evidence that something has changed, but not enough to pin down credible trends. Then suddenly, something happens – and it turns out that the trends might be worse and might be developing faster than imagined. Afterhours Monday, between the holidays during a shortened workweek when everyone was supposed be on vacation and when no one was supposed to pay attention, Civeo, which provides workforce accommodations for oil fields and mines in Canada, Australia, and the US announced its Initial 2015 Operating Guidance. And what it said about the oil industry was a doozie.  So in its Initial 2015 Operating Guidance, Civeo said that the plunge in the price of oil and its projected persistence caused “major oil companies” to slash their 2015 capital budgets. Particularly hard hit were the development and expansion plans of oil-sands operators, a “major driver” of Civeo’s business in Canada.Just how bad is it in Canada? Baker Hughes’ latest rig count, released on Monday, shows that US drillers reduced their rigs that are drilling for oil by 37, to 1,499, while increasing gas rigs by 2 to 340. But in Canada, oil rigs plunged by half from 190 to 94; and gas rigs dropped by 19% from 201 to 162. The Canadians aren’t dilly-dallying around. According to Civeo, tar-sands operators have been just as aggressive as drillers in cutting operating costs and capital expenditures.  Going into 2015, Civeo has about 35% to 40% of its lodge rooms contracted in Canada, “down from over 75%” a year ago. That’s down by about half!

Oil workers to pay for near 50% price fall - Oil prices are on course for their largest annual slide since 2008, capping another dire year for commodities, as crude fell again on Tuesday to hover at close to half its level of six months ago. Brent’s 49 per cent plummet since June — alongside a near halving of iron ore prices and sharp drops in coal and copper — has also helped drag the Bloomberg Commodity index down 15.6 per cent in 2014 to a five-year low. While the international benchmark’s price plunge could prove a significant boon for the global economy, it has thrown big oil exporters such as Russia and Venezuela into disarray, and forced oil companies to re-examine their investment plans and look for ways to reduce costs. In a sign of how the oil majors are scrambling to make savings, BP, Royal Dutch Shell, Total and Chevron have all ordered sharp cuts in the rates paid to skilled contractors on projects in the UK North Sea. The groups are cutting up to 15 per cent of the pay of thousands of self-employed oil and gas workers in the region. US-based Chevron told employment agencies that it would reduce rates from January 1 “to better align with industry benchmarks and manage cost pressures”, while BP has decided to cut the wages of 450 workers by up to 15 per cent from the new year. It said it remained “firmly committed” to the North Sea, but added that “costs have been rising and we must respond to these toughening market conditions”. Another oil major is cutting UK contractor rates by 10 per cent. Shell has reduced rates in recent weeks, and oil services company Wood Group has announced pay cuts for 1,300 contractors.

Keystone XL Debate to Take Center Stage in New Congress - It looks like the Keystone XL pipeline will be making headlines again when Congress reconvenes next week—and three Democratic congressmen are getting a head start in laying down the gauntlet. When Senate approval of the pipeline was defeated by one vote in November, incoming Senate majority leader Mitch McConnell vowed to make approving the pipeline his first order of business when the new Senate with its Republican majority opened its session. And new chair of the Senate Energy and Natural Resources Committee Lisa Murkowski followed through, announced that Keystone XL will be her committee’s first item of business when it meets next week.  On the other side of Congress, the House has voted in the past to approve the pipeline and appears poised to do so again—so quickly, in fact, that three Democrats sent a letter to Speaker John Boehner this week, urging that the House follow the full process of vetting a bill. Representatives Peter DeFazio of Oregon, Frank Pallone of New Jersey and Raul Grijalva of Arizona, ranking members of the three committees that have jurisdiction over the pipeline—Transportation and Infrastructure, Energy and Commerce, and Natural Resources—asked Boehner not to bypass the committee process to bring an immediate floor vote.

Tanker market benefits from oil rout - The daily earnings of supertankers on the benchmark Middle East to Japan route hit a six-year high in mid-December, in part due to China building up its strategic reserves on the back of low oil prices. According to aggregated data from the Baltic Exchange, daily earnings reached $97,489 on the Middle East to Japan route, the highest levels since 2008. Only six months ago, tanker rates were so low ship owners could not cover their daily operating expenses of up to $20,000. The rally in tanker rates is a welcome boost for an industry that has been ravaged in recent years. With oil prices dropping to below $60 a barrel for the first time since May 2009 — down almost 50 per cent in the last six months alone — China has moved to build up its strategic reserves. Between January and November this year, China imported 6m barrels a day on average, up 500,000 barrels on the same period last year, according to Argus Media, the energy data company. Relentless production from US shale oilfields has also had a transformational impact on the tanker market. US seaborne crude imports are down 43 per cent since 2006 and have fallen 9 per cent this year alone, according to Clarkson Research Services, the broking firm. Exports from the Middle East and west Africa have instead made their way to China and India, routes that are longer and more lucrative. The industry could receive a further boost in the coming months as the oil surplus grows. When there is a so-called “contango structure” — when prices for future delivery exceed spot prices — traders seek to buy oil for storage on tankers hoping to profit from future sales. 

US allows more exports of ultralight oil - The Obama administration will approve more exports of ultralight oil from the US shale drilling boom, bringing a measure of relief to domestic producers hurt by plummeting crude prices but potentially adding to ample supplies abroad. The US Bureau of Industry and Security said it will authorise more companies to sell oil condensate that has been processed through a basic distillation tower, giving them a green light for export without violating a four decade old US ban. As US oil output climbs and net imports decline, the future of the export ban has stoked intense debate among energy companies and policy makers. Crude refined into products such as petrol may be exported freely, but sales of unrefined crude oil are generally limited to Canada. The agency also published a list of answers to common questions about petroleum exports, providing guidelines for the first time on a matter that has been shrouded in confusion — although some experts said there remained considerable room for interpretation of the rules. A handful of companies including Enterprise Products Partners and Pioneer Natural Resources have already received private approval to export processed condensate, a type of ultralight oil, while energy and mining group BHP Billiton said it planned to pursue exports without a permit by relying on the terms of the earlier rulings. Other companies have been waiting for formal approvals, a number of which the bureau on Tuesday said it would grant.  In its answers to questions, the bureau described the extent to which a hydrocarbon must be boiled in a distillation tower before it is no longer considered crude oil and thus eligible for export. However, experts said some answers were vague, leaving uncertainty for companies that have not received individual export approvals. The American Petroleum Institute, an oil industry lobby in Washington, said that while additional clarity on the issue of condensates was “helpful”, the guidelines did not address the statutory crude oil export ban. “The larger issue is crude exports, which remain restricted by 1970s-era policies that only limit our growth as an energy superpower,” it said.

U.S. Opening Door to More Oil Exports Seen Foiling OPEC Strategy - The Obama administration’s move to allow exports of ultralight crude without government approval may encourage shale drilling and thwart Saudi Arabia’s strategy to curb U.S. output, further weakening oil markets, according to Citigroup Inc. A type of crude known as condensate can be exported if it is run through a distillation tower, which separates the hydrocarbons that make up the oil, according to U.S. government guidelines published yesterday. That may boost supplies ready to be sold overseas to as much as 1 million barrels a day by the end of 2015, Citigroup analysts led by Ed Morse in New York said in an e-mailed report. Saudi Arabia led the Organization of Petroleum Exporting Countries to maintain its production quota at a meeting last month even as a shale boom boosted U.S. output to the highest in more than three decades. That prompted speculation OPEC was willing to let prices fall to force some companies with higher drilling costs to stop pumping. “U.S. producers are under the gun to reduce capital expenditures given lower prices,” Citigroup said in the report. “Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple U.S. production.” Current U.S. export capacity is at about 200,000 barrels a day, which could be expanded to 500,000 a day by the middle of 2015, according to the bank.

US eases oil export ban in shot at Opec as crude price slumps - President Barack Obama has fired a shot at the Organisation of Petroleum Exporting Countries (Opec) in the war to control global oil markets by quietly sanctioning the easing of America's 40-year ban on exporting crude. The US government has reportedly told oil companies they can begin to export shipments of condensate - a high-grade crude produced as a by-product of gas - without going through the formal approval process. The move could signal that a full opening of the export ban, which has existed since the oil shock of the 1970s, is imminent. Brent crude fell sharply on the news, first reported by Reuters. The global benchmark opened down almost 2pc in London at $56.85 per barrel as it closes in on its biggest annual drop since the financial crisis in 2008. Brent has lost 50pc of its value since reaching its year-long high in June. The ending of America's self-imposed embargo on oil exports would mark a serious escalation in the unfolding oil price war with Opec led by Saudi Arabia. The kingdom has made it clear that it is willing to watch the price of oil fall lower in order to protect its share of the global market. Opec share has fallen to about a third of world supply, down from about half 20 years ago as the flood in shale oil drilling in the US and new supplies from Russia and South America have created a global glut. Meanwhile, the sharp fall in the value of oil is placing economies in major producing nations such as Venezuela and Russia under extreme strain.

Canadian Oil Surge to U.S. Gulf Puts Mexico on Defensive - A price war is brewing between Canada and Latin America over who will satisfy U.S. Gulf Coast refiners’ hunger for heavy oil. The new Seaway Twin pipeline will almost double the amount of heavy Canadian crude coming to Gulf terminals and plants to about 400,000 barrels a day starting in January. The shipments are growing even without the Keystone XL pipeline, which has been delayed for six years because of environmental opposition. The Canadian supply will square off against crudes from Mexico and Venezuela that have traditionally fed refineries along the Texas and Louisiana coasts. State-owned Petroleos Mexicanos widened its discount for U.S. buyers in December by the most since August 2013. Valero Energy Corp. and Marathon Petroleum Corp., which invested in special equipment to refine heavy crude, stand to gain the most from the Canadian supply. “Something’s going to have to give,” said Ed Morse, Citibank’s head of global commodities research in New York. “It’s going to have to be combination of Latin American countries exporting less into the U.S. or Canadian crude being re-exported and competing with crudes in other markets, particularly Europe.”New pipelines and rail terminals enabled more Canadian oil to head south to higher-value markets, partially offsetting a 48 percent collapse in global prices since June as the Organization of Petroleum Exporting Countries refused to cut production to counter a global glut. The discount of Western Canadian Select priced in Hardisty, Alberta, to Mexico’s Maya crude has narrowed this year by more than half to $11 a barrel. Heavy Canadian crude will cost the same in Houston as Maya arriving by tanker, including the cost of transportation, according to data compiled by Bloomberg.

Oil Falls to 5 1/2-Year Low as Russia, Iraq Boost Output - Oil dropped to the lowest in more than five and a half years amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China. Futures capped a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest levels in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday. Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.  Brent for February settlement dropped 91 cents, or 1.6 percent, to close at $56.42 a barrel on the London-based ICE Futures Europe. It’s the lowest settlement since April 30, 2009. Volume for all futures traded was 34 percent below the 100-day average. The European oil fell 48 percent last year, the second-biggest annual loss on record behind a 51 percent tumble in the 2008 financial crisis. Brent closed at a $3.73 premium to WTI.

Petrobras finds itself in deep water - There are not many executives who have asked their boss three times whether they should be fired and survived. Maria das Graças Foster, chief executive of Petrobras, Brazil’s crisis-stricken state-owned oil company, says she’s one. She has offered her resignation to Dilma Rousseff, Brazil’s president, on multiple occasions in recent weeks but her close friend of more than a decade has stuck by her — so far.“The president thought I should stay,” Ms Graças Foster told reporters this week. Petrobras, the pride of Brazil in 2007 after it announced the world’s largest offshore oil discoveries in decades, is today in danger of becoming a pariah among investors and a national shame for Brazilians. The company has been thrown into disarray by an investigation by Brazilian police and prosecutors alleging that former senior executives, construction companies and politicians of Ms Rousseff`s Workers’ party-led ruling coalition creamed billions of dollars off Petrobras’ contracts. This allegedly took place under the noses of Ms Rousseff, who was the company’s chairman until she took office in 2010, and Ms Graças Foster, who has led Petrobras since 2012. Although neither are accused of direct involvement, the scandal has sparked an investigation by the US Securities and Exchange Commission and led the dual-listed company’s auditor, PwC, to refuse to sign off on its accounts until Petrobras has conducted its own inquiry. If Petrobras is unable to satisfy PwC’s concerns and release audited financial results by April 30, the company, one of Brazil’s biggest corporate borrowers with debt estimated by Moody’s credit rating agency at $170bn, could trigger a technical default.

OPEC Resolve on Supply Promises No Calm for Oil Markets -- Oil’s biggest price swings in three years are poised to continue as OPEC cedes no ground to competing suppliers. Oil traders’ expectations for future swings, known as implied volatility, surged since Saudi Arabia and fellow members of the Organization of Petroleum Exporting Countries decided on Nov. 27 to keep pumping crude despite a supply glut. That will mean prices fluctuating in the next several years by even more than the $59-a-barrel move in 2014, Bank of America Corp. says. “OPEC has always been there to lower volatility both on the upside and downside, but now they have less and less weight,” said Pierre Andurand, the London-based founder of Andurand Capital Management LLP, whose $350 million fund earned 18 percent in November from betting on lower Brent crude prices. “It means more volatility.” OPEC’s policy of testing rival producers’ tolerance for lower prices has sparked the search for a new equilibrium, increasingly shaped by the readiness of U.S. shale drillers to sustain projects as returns shrink. This year’s drop in Brent is threatening investment in new crude supply, creating the potential for more volatility in years to come. Futures are down 49 percent in London, the most since 2008.  Implied volatility for front-month Brent futures reached 49.7 percent on Dec. 22, the highest level since August 2011. It climbed by 3 percentage points the day after OPEC’s November meeting, then slid almost 9 percentage points through to Dec. 5, before pushing higher. Brent has fallen 27 percent since the day before the group’s session in Vienna, trading for $56.08 a barrel today.

Saudi Facing Largest Deficit In Its History - The nearly 50 percent plunge in the price of oil during the past six months is expected to leave oil-rich Saudi Arabia with its first budget deficit since 2011 and the largest in its history. The 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. Oil prices have been dropping since June because of a market glut, caused in part because of prodigious oil extraction in the United States from shale formations. As a result of this glut, OPEC was urged to cut production levels at its Nov. 27 meeting in Vienna in an effort to shore up prices, but wealthy members of the cartel, led by Saudi Arabia, decided to keep production at its nearly two-year-old level of 30 million barrels a day. Saudi Oil Minister Ali al-Naimi has since explained that the OPEC strategy was to reclaim market share. Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil. But fracking is expensive, and many believe it can’t be profitable if the price of oil falls much below its current level of around $60 per barrel. Oil is the principal, if not the only, resource in Saudi Arabia, so it’s clear that the price of oil has a strong influence on how the country’s annual budget is drawn up. Different analyses, however, provide different answers to how Riyadh has forecast the commodity’s value. Four of these reports say the Saudi budget is predicated on oil averaging $55 to $63 per barrel in 2015.

Saudi Arabia bets its future on ‘Berlin or Bust’ oil strategy -- Saudi Arabia has won the opening battle of its radical oil strategy by forcing prices lower. But the kingdom is about to enter into a dangerous new phase in its war to regain control of the world’s oil market.  In November, Saudi succeeded in bullying the other members of the Organisation of Petroleum Exporting Countries (Opec) into continuing to pump their current quota of 30m barrels per day (bpd) as its first objective. The strategy born in the palaces of Riyadh has sparked the apparently desired oil price rout, which the kingdom’s veteran oil minister Ali Naimi clearly believes is necessary to shut down the cartel’s biggest rivals in Russia and the shale oil fields of Dakota.  Oil equals political power and influence for Saudi Arabia and a seat at the table of the world’s most powerful nations at the G20. Despite the colossal risks, something had to be done to reverse the tilt towards high-cost production coming from the US and elsewhere to maintain Saudi Arabia’s dominance as the so called global “swing producer”. With 13pc of global oil reserves and the cheapest production costs, the kingdom believes that it can still buy back the market and secure higher prices over the long term.  “This is one of the most important policy initiatives by Saudi Arabia in the modern era,” said Edmund O’Sullivan, an expert on the kingdom with Middle East Economic Digest and author of the book, The New Gulf. “It isn’t without risks but they have the political power and economic resources to pull it off.”  If victorious, Saudi Arabia will emerge stronger after re-asserting its global significance as the custodian of the world’s primary energy source. And, in pushing oil prices lower over the short term, it will reinforce its strategic importance to the US by bringing Russia’s President Vladimir Putin to his knees and putting pressure on Iran.

Iran says Saudi Arabia should move to curb oil price fall (Reuters) - Falling world oil prices will hurt countries across the Middle East unless Saudi Arabia, the world's biggest crude exporter, takes action to reverse the slump, Iran's deputy foreign minister told Reuters. Hossein Amir Abdollahian described Saudi Arabia's inaction in the face of a six-month slide in oil prices as a strategic mistake and said he still hoped the kingdom, Tehran's main rival in the Gulf, would respond. Oil prices closed on Wednesday at a 5-1/2 year low, registering their second-biggest ever annual decline after OPEC oil exporters, led by Saudi Arabia, chose to maintain oil output despite a global glut and calls from some of the cartel's members - including Iran and Venezuela - to cut production. true "There are several reasons for the drop of the price of oil but Saudi Arabia can take a step to have a productive role in this situation," Abdollahian said. "If Saudi does not help prevent the decrease in oil price ... this is a serious mistake that will have a negative result on all countries in the region," Abdollahian said in an exclusive interview on Wednesday evening. His comments highlight continued tensions between the Shi'ite Muslim republic and Sunni Muslim kingdom, locked in a battle for regional power and influence despite hopes of rapprochement since the inauguration of Iran's President Hassan Rouhani in August 2013.

Energy Crisis As Early As 2016 - Low oil prices today may be setting the world up for an oil shortage as early as 2016. Today we have just 2% more crude oil supply than demand and the price of gasoline is under $2.00/gallon in Texas. If oil supply falls too far, we could see gasoline prices doubling within 18 months. For a commodity as critical to our standard of living as oil is, it only takes a small shortage to drive up the price. On Thanksgiving Day, 2014 Saudi Arabia decided to maintain their crude oil output of approximately 9.5 million barrels per day. They’ve taken this action despite the fact that they know the world’s oil markets are currently over-supplied by an estimated 1.5 million barrels per day and the severe financial pain it is causing many of the other OPEC nations. By now you are all aware this has caused a sharp drop in global crude oil prices and has a dark cloud hanging over the energy sector. I believe this will be a short-lived dip in the long history of crude oil price cycles. Oil prices have always bounced back and this is not going to be an exception. To put this in prospective, the world currently consumes about 93.5 million barrels per day of liquid fuels, not all of which are made from crude oil. About 17% of the world’s total fuel supply comes from natural gas liquids (“NGLs”) and biofuels. One thing that drives the Bears opinion that oil prices will go lower during the first half of 2015 is that demand does decline during the first half of each year. Since most humans live in the northern hemisphere, weather does have an impact on demand. I agree that this fact will play a part in keeping oil prices depressed for the next few months. However, low gasoline prices in the U.S. are certain to play a part in the fuel demand outlook for this year’s vacation driving season.

Doubts as giant China project’s water reaches capital - A towering dam in central China holds back a vast expanse of water destined to travel over 1,000 km north to Beijing, but critics say it will only temporarily quench the city’s thirst. China’s capital on Saturday received its first supplies from the South-North Water Diversion Project, one of the most ambitious engineering projects in Chinese history. After decades of planning and at least $33 billion of investment, over 1 billion cu. meters of water are projected to flow to Beijing every year through more than 1,200 km of channels and pipes, equivalent to the distance from London to Madrid. “Beijing is now formally receiving water” from the project, the city’s government said in a text message. Another 8.5 billion cu. meters, equivalent to 3.4 million Olympic-size swimming pools, will reach provinces along the way, planners say. The Chinese government says the project, which will ultimately have three routes and an estimated total cost of $81 billion, will solve a chronic shortage in northern cities. Water availability per person in Beijing is on a par with Middle Eastern countries such as Israel, threatening China’s economic growth, the key source of support for the ruling Communist Party.

China Leading Index Plunges To Worst Since Feb 2009 Sending Yuan To Lower Trading Band Extreme - China's Leading Index has fallen to its lowest since Feb 2009 this evening, down 4 straight months from credit-driven 18 month highs. This economic weakness has exaggerated the already weak tone in Yuan trading this evening pushing CNY to its weakest in almost 7 months (against the USD), its furthest on record from the CNY Fix (10-month highs), and very close to the PBOC's upper +2% band for CNY trading. At 6.23, USDCNY is over 1000 pips weaker than the CNY fix. We suspect the weakness in Yuan is also driven by further corruption crackdowns as China will require VIP gamblers in Macau to undergo a record check. China Leading Index hits lowest since Feb 2009... By way of interest, The China Leading Index includes: Hang Seng Mainland Freefloat Index, industrial sales, M2 money supply, new fixed asset investment, logistics index (total freight traffic and volume of transportation in major harbors), real estate investment (land and construction of residential properties), consumer expectations index, Treasury yield spread (spread between treasury securities with maturities of 7+ years and those with less than 1 year maturity). Putting further pressure on the Yuan as selling pushes it to the weakest against the fix on record (over 1000 pips lower)

China Zombie Factories Kept Open to Give Illusion of Prosperity. In the shadow of a group of enormous smokestacks and abandoned foundries, a peeling sign welcomes visitors to the Wenxi Steel Industrial Park. Highsee stopped paying its 10,000 employees six months ago. Local officials estimate the plant supported indirectly the livelihood of about a quarter of Wenxi county’s population of 400,000. Highsee was the biggest privately owned steel mill in Shanxi, accounting for 60 per cent of Wenxi’s tax revenues. For those reasons, the local government was reluctant to allow the company to go out of business, even though it had been in serious financial difficulties for several years.“By 2011 Highsee was already like a dead centipede that hadn’t yet frozen stiff with rigor mortis,” . “More than half the plant shut down, but it was still producing steel even though its suppliers wouldn’t deliver anything without cash up front and it was drowning in debt.”In the past month alone Chinese media have reported on at least nine large steel mills that appeared to be suspended in limbo after halting production but which are forbidden from going formally bankrupt. “There are large numbers of companies across China that should go bankrupt but haven’t done so,” “The government doesn’t want to see bankruptcy because as soon as companies go bust, unemployment spikes and tax revenues disappear. By stopping companies from going bankrupt, officials are able to maintain the illusion of local prosperity, economic growth and stable taxes.”The outstanding volume of non-performing loans in the Chinese banking sector has increased 50 per cent since the beginning of 2013, according to estimates from ANZ, the Australian bank, but the sector-wide NPL ratio remains extremely low, at just over 1.2 per cent.In private, however, senior Chinese financial officials admit the real ratio is almost certainly much higher, obscured by local governments trying to prop up companies.

China Manufacturing PMI Confirms Contraction, Employment Drops For 14th Month In A Row -- With Steel output down 3.4% YoY (worst in over 2 years) and Cement output down 4% YoY (worst in 7 years) it should not be entirely surprising that the Final December HSBC Manufacturing PMI for China slumped to a contraction-implied 49.6 (a small blip up from the 49.5 preliminary print) and down from 50.0 in the previous month. This is the first contraction since April 2014 after the credit-impulse of Q2 comes back to bit in the hangover. New orders fell for the first time since April but the employment sub-index contracted again for the 14th months in a row. Market reaction is modest for now, China stocks lower and USDJPY fading.

China December factory PMIs suggest economy cooling further, more stimulus expected  (Reuters) - China's factory activity sputtered in December, underlining the challenges facing the country's manufacturers as they fight rising costs and softening demand in a cooling economy. After a rough 2014, the world's second-largest economy looks set to start the new year on a weak note, reinforcing expectations that Beijing will roll out more stimulus to avert a sharper slowdown which could trigger job losses and debt defaults. A property slump is expected to last well into 2015, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving only the services sector as the lone bright spot in the economy. China's official Purchasing Managers' Index (PMI) slipped to 50.1 in December from November's 50.3, a government study showed on Thursday, its lowest level of the year and clinging just above the 50-point level that separates growth from contraction on a monthly basis. Analysts polled by Reuters had forecast a reading of 50.1. "This indicates that industrial growth is still in a downward trend, but the pace (of declines) is slowing," Zhang Liqun, an economist at the Development Research Centre, said in a statement accompanying the report.

China’s Economy Faces Sluggish Start for New Year - After a rough 2014, China, the world’s second-largest economy, appeared to be starting the new year on a weak note, reinforcing expectations that Beijing will roll out more stimulus measures to avert a slowdown that could cause job losses and debt default.China’s factory activity is sputtering, underlining the challenges facing the country’s manufacturers as they fight rising costs and softening demand in a cooling economy. In addition, a property slump is expected to last well into 2015, companies continue to struggle to pay off debt, and export demand may remain erratic, leaving the services sector as China’s lone economic bright spot.The nation’s official purchasing managers index slipped to 50.1 in December from 50.3 in November, a government report showed on Thursday — its lowest level of the year, clinging just above the 50-point level that separates growth from contraction on a monthly basis.“This indicates that industrial growth is still in a downward trend, but the pace is slowing,” Zhang Liqun, an economist at the Development Research Center, said in a statement accompanying the report.A similar private survey on Wednesday showed that activity in December shrank for the first time in seven months. That survey focused on smaller companies, which are under greater strains.Many analysts expect economic growth in the fourth quarter to slow only marginally from 7.3 percent in the third quarter, though weak data suggest that may be too optimistic. If full-year growth is less than the government’s 7.5 percent target, it would be the weakest expansion in 24 years.Economists who advise the government have recommended that China lower its growth target to around 7 percent in 2015.

Budget deficit grows on faltering economy - Despite the government’s efforts to boost the economy this year particularly in the second half, the tax revenue shortfall is expected to be near 13 trillion won ($11.8 billion). If so, this will be the third consecutive year that the government’s spending exceeds tax collections. According to the National Assembly Budget Office on Sunday, the national tax revenue shortfall will be roughly 1 trillion won to 2 trillion won larger than an estimate made in July, which was around 10.7 trillion won. The shortfall is expected to widen due to continuing stagnation of the domestic market and the worsening performances of major companies including Samsung Electronics and Hyundai Motor. Since former Saenuri Party lawmaker Choi Kyung-hwan was appointed the nation’s finance minister and deputy prime minister for the economy, the government has pushed numerous economic stimulus policies including aggressive deregulations and lowering interest rates. However, such efforts haven’t managed to push the economy up largely due to external factors, such as the depreciation of the Japanese yen that hurt Korea’s exports in the global market as well as decelerating growth in major economies other than the United States.

Japan cabinet approves Y3.5tn stimulus spending - - Japan’s government has approved stimulus spending worth Y3.5tn ($29bn) aimed at helping the country’s lagging regions and households with subsidies, merchandise vouchers and other steps, but analysts are sceptical about how much it can spur growth. The package was unveiled on Saturday, two weeks after a massive election victory by prime minister Shinzo Abe’s ruling coalition gave him a fresh mandate to push through his Abenomics stimulus policies. The government said it expects the stimulus plan to boost Japan’s GDP by 0.7 per cent. Given Japan’s dire public finances, the government will avoid fresh debt issuance and fund the package with unspent money from previous budgets and tax revenues that have exceeded budget forecasts due to economic recovery. With nationwide local elections planned in April which Mr Abe’s ruling bloc must win to cement his grip on power, the package centres on subsidies to regional governments to carry out steps to stimulate private consumption and support small firms. Of the total, Y1.8tn will be spent on measures such as distributing coupons to buy merchandise, providing low-income households with subsidies for fuel purchases, supporting funding at small firms and reviving regional economies. The remaining Y1.7tn will be used for disaster prevention and rebuilding disaster-hit areas including those affected by the March 2011 tsunami. Tokyo will seek to bolster the housing market by lowering the mortgage rates offered by a governmental home-loan agency.

Japan unleashes $29 billion fresh stimulus to spur growth: Japan’s Cabinet, on Saturday, approved about 3.5 trillion yen ($29 billion) in fresh stimulus, including subsidies and job creation, to help pull the world’s third-largest economy out of recession. The Cabinet endorsed the plan proposed by Prime Minister Shinzo Abe as it wrapped up work for 2014. It includes 420 billion yen ($3.5 billion) earmarked for helping stagnant regional economies. Abe took office for a third term on Wednesday, and faces strong pressure to do something to restore growth after a sales tax hike in April put Japan back in recession. Data released on Friday showed inflation eased slightly in November as household spending dropped, hindering the government’s effort to get the economy out of recession and back to sustainable growth. Japan’s central bank is buying up to 80 trillion yen ($660 billion) in assets each month, mostly government bonds, to help spur inflation, but so far has not attained its target of 2 per cent price increases overall. Since wage increases have not kept pace with inflation, rising share prices and corporate profits have done little to stimulate consumer demand, apart from a rush of purchasing ahead of the April tax hike. A large share of the proposed support for local governments would be handouts to local governments, to be used for shopping vouchers to entice people to spend more.

Concern as Japan's 2014 birth rate falls to record low: Japan's birth rate slumped to a record low in 2014, health ministry figures show, dropping to 1,001,000 newborns in 2014 - 9,000 fewer than in 2013. The fall is the fourth in consecutive years and comes as the estimated number of deaths continues to rise, at just under 1.3 million last year. Some estimates say that by 2050 the population could be as low as 97 million - 30 million lower than now. Experts warn the impact of the decline will harm Japan in various ways. A lowering of the number of people aged between 15 to 64 is predicted to lower potential growth and shrink Japan's GDP.That in turn is expected to harm the pension system and other elements of social welfare. The impact in rural areas is predicted to be especially damaging, putting the very existence of some communities in danger. Another decline in the number of children is inevitable as "the number of reproductive-age women is on the decline", an official at the health ministry was quoted by Kyodo News as saying. Government figures in April revealed that Japan's population shrank for the third year running, with the elderly comprising 25% of the total for the first time. The proportion of people aged 65 or over is predicted to reach nearly 40% of the population in 2060, the government has warned.

The Death Of A Nation: Japanese Births Drop To Lowest Ever, Deaths Hit All Time High -- Supporters and opponents of Abenomics may debate the metaphorical death of Japanese society as a result of the terminal hyper-Keynesian, hyper-monetarist policies implemented by Abe and Kuroda for the past 2 years until they are blue in the face, but when it comes to the literal death of Japan, there is no debate: as the FT succinctly puts it "deaths outnumbered births in Japan last year by the widest margin on record, underscoring the scale of the challenge facing the government as it tries to ensure a dwindling pool of workers can support growing ranks of pensioners."

To Rescue Economy, Japan Turns to Supermom - Prime Minister Shinzo Abe has been encouraging Japanese women to have it all. A rewarding career. Children, preferably more than one.In a country where juggling work and family has long been especially difficult, Mr. Abe has pledged to ease the way for women like Ms. Kitajima, with more state-funded child care and other measures to foster “a society where all women shine.” Tackling the nation’s shrinking population and declining labor force by encouraging working women is part of his broader effort to re-energize the economy, which is looking especially unsteady after Japan unexpectedly fell into a recession last quarter. His promises, though, will be difficult to put into practice, given entrenched societal and corporate norms. While the share of working women has been steadily growing — and now exceeds the level in the United States — they tend to earn significantly less than men. Mothers, in particular, are more likely to drop out of the work force.Mr. Abe must overcome an entrenched corporate culture that prizes long and inflexible hours favoring men, and the prime minister’s own conservative party makes for an unlikely champion of women.A decade ago one of his predecessors, Yoshiro Mori, said women who delayed giving birth in order to work were selfishly “exulting in freedom,” suggesting that those without children should be disqualified from receiving public pensions. A health minister in Mr. Abe’s first government, which lasted from 2006 to 2007, described women as “baby-making machines.”

The Politics of Modi’s Vegetarianism -- While it may be routine for the media to report about the dishes served during meetings and summits, this emphasis on Modi’s vegetarianism—and his apparent success in making sure all the leaders consume vegetarian food, at least at the Retreat—is particularly noteworthy. Especially when the fact that Modi was fasting for Navratri during his visit to the US was also equally publicised. Was this an attempt at burnishing Modi’s image as the Hindu Hriday Samrat within India as well as the increasingly vocal Indian or more precisely, the Hindu community abroad? There is a definite hierarchical ordering of food in Hindu thought. At the top, in terms of the moral order, sit sattwikfoods: vegetarian, non-spicy, simple—ideally involving little or no harm to the source of the food. These foods are supposed to result in clarity and equanimity of the mind. Then there are rajasik foods or stimulant foods that supposed to produce mental restlessness, followed by tamasik foods which are supposed to be harmful to the mind and body. Meat falls into this last category. Inherent in these categorizations is an element of morality. Consumers of rajasic and tamasik food are thought to be more subservient to their gross urges, while a sattvik diet is associated with spiritual purity. It is important to add here that these categorizations are not considered rules within Indic philosophy—unlike the proscription against pork in Judaism/Islam—but rather serve as norms for the upper castes. Select Brahmins such as those from Kashmir and Bengal, for instance, continue to enjoy the quasi-illicit pleasures of meat eating. In the case of the Kshatriyas, the warrior caste, consumption of meat is even considered necessary for them to carry out their dharma or duties.

Basel Bonds Set to Spike as Bad Debt Spoils Indian Equity - India’s banks will ramp up sales of bonds that act as capital buffers in 2015 as lackluster earnings and rising soured loans make share sales tough, Fitch Ratings Ltd. says. State-owned lenders in Asia’s third-biggest economy issued 122.5 billion rupees ($1.9 billion) of Basel III notes in 2014, a fraction of the more than $85 billion in similar securities sold by banks in China, according to data compiled by Bloomberg. Bad debts as a proportion of Indian banks’ total advances are at least the highest in eight years and capital sales of as much as 840 billion rupees may be required next fiscal year to shore up balance sheets, according to ICRA Ltd., the local unit of Moody’s Investors Service. Demand for such bonds is “seen as low because of the risky features of these securities and bad loans add to the problem,” said Arun Srinivasan, a Mumbai-based senior vice president for investments at ICICI Prudential Life Insurance Co., which manages assets equivalent to $15 billion. “Bad debt won’t fix itself overnight and investors will price in this risk by demanding higher interest.” With economic growth only just starting to pick up from near the lowest in a decade, investors are treating Basel III notes, which offer higher payments to compensate for the risk regulators will declare a borrower non-viable in the event of a banking crisis, with caution. State-owned banks had a stressed asset to total loans ratio of about 12.9 percent as of Sept. 30, compared with 4.4 percent for private banks and 10.7 percent for the banking system as a whole, Reserve Bank of India data released Dec. 29 show.

Book Sales in India: Profit Motive Drives Authors Bashing Pakistan - Have you ever wondered why the publication of anti-Pakistan books has become a major growth industry today? The answer is simple: Authors and publishers of books about Pakistan know where the money is. It's in India where the book sales are rising rapidly in the midst of continuing global decline. Strong profit motive drives them to write what Indians want to read. Those, like Professor Wendy Doniger of University of Chicago, who ignore this reality are punished by having their books withdrawn and pulped. No publisher wants to take this risk now. And authors who wish to get published have to understand it too. India's English language book market is the world's third largest, behind the United States at the top and the United Kingdom at number 2.  It is the fasting growing market today which will make India the world's number 1 market in the next ten years.  It could happen sooner if the book sales in the US and the UK decline faster than they are already.

Pakistani officials furious over ‘Homeland’ - Pakistani officials are furious with Showtime after watching the fourth season of its hit show “Homeland,” which they say portrays their country as an ugly, ignorant, terror-plagued “hellhole.” The diplomats took copious notes of every slight while binge-watching all 12 episodes — including the lack of greenery in the depiction of the nation’s capital, Islamabad. They complained directly to producers of the Emmy-winning drama, but their gripes fell on deaf ears, Pakistani sources said. “Maligning a country that has been a close partner and ally of the US . . . is a disservice not only to the security interests of the US but also to the people of the US,” Pakistan Embassy spokesman Nadeem Hotiana told The Post. One of their beefs is that the show — which stars Danes as CIA Agent Carrie Mathison on assignment in Pakistan — trashed a diplomat’s image of the capital as a bucolic oasis. “Islamabad is a quiet, picturesque city with beautiful mountains and lush greenery,” one source said. “In ‘Homeland,’ it’s portrayed as a grimy hellhole and war zone where shootouts and bombs go off with dead bodies scattered around. Nothing is further from the truth.”

US pullout of Afghanistan leaves Pakistan on edge - The end of the US combat missions in Afghanistan this week has left Pakistan fearing an Iraq-style breakdown in security leading to blowback from resurgent Islamist extremists. The fears come as the country, labelled “half an ally” by some Western officials for its tolerance of Taliban safe havens along the border with Afghanistan, renewed its fight against the group after it launched a brutal attack on a school in the northern city of Peshawar last month. The massacre of 150 people, mostly children, shocked the country and prompted senior Pakistani officials to describe it as the country’s 9/11 — a comparison to the New York terrorist attack of 2001 that sparked the US campaign in Afghanistan. “If Afghanistan collapses like Iraq, we will live with the consequences,” said one senior security official. “The Americans came due to their own 9/11 and they are leaving Afghanistan right after Pakistan’s 9/11. For us [Pakistan], the Peshawar attack was a turning point.” Since the attack, Pakistan tried to demonstrate stronger resolve in combating jihadi violence, resuming executions of those involved in previous terrorist attacks and debating the establishment of military courts to speed up trials of terrorism suspects. The measures have coincided with a Pakistan army campaign against Taliban militants in the north Waziristan region along the Afghan border, which began in June 2014 after an audacious attack on Pakistan’s biggest airport in Karachi by Taliban-backed Uzbek jihadis.

Pakistan’s burgeoning tech scene - Just two months ago, e-commerce company Markhor, which works with local artisans to produce high-quality men’s leather shoes, became Pakistan’s most successful Kickstarter campaign, raising seven times more than its intended goal, catching the attention of Seth Godin and GOOD Magazine. There is no greater evidence of this positive change than in Pakistan’s burgeoning technology ecosystem. In a new report released by my company, Invest2Innovate – which was commissioned by the World Bank’s Consultative Group to Assist the Poor (CGAP) – we mapped the number of startup competitions, incubators, university programs, coworking spaces and forums, and analyzed the gaps and challenges entrepreneurs continue to face in the country. Three years ago, the ecosystem was relatively nascent, with just a handful of organizations. Today, the space is unrecognizable and brimming with constant energy and activity. That is from Kalsoom Lakhani, there is more of interest here.  Here is my earlier post on Pakistan as an underrated economy.

Is Global Poverty Falling? Not in Absolute Terms - Economic growth and social policies have helped pull millions out of poverty in the developing world. Or have they? The often-heard narrative is based on data from the World Bank showing a sharp reduction in the number of people living below $1.25 per day, adjusted for inflation. However, new research suggests a deeper look into poverty statistics paints a different picture. While there has been progress in reducing the number of people living below the poverty line, this has been achieved largely by raising those considered ultrapoor to just above the poverty line, rather than by boosting the standard of living of the poor more broadly, according to a paper from Martin Ravallion, economist at Georgetown University’s Center for Economic Research. “There has been very little absolute gain for the poorest,” Mr. Ravallion writes in a new working paper from the National Bureau of Economic Research. “Using an absolute approach to identifying the floor, the increase in the level of the floor seen over the last 30 years or so has been small—far less than the growth in mean consumption.” The author cites Mahatma Gandhi and the late philosopher John Rawls as a basis for looking at poverty in absolute rather than comparative terms. “Recall the face of the poorest and the weakest man whom you may have seen, and ask yourself if the step you contemplate is going to be of any use to him,” the paper cites Mr. Gandhi as saying in 1948. “Will he gain anything by it?” According to the data, the answer so far is not very much.

Who Are the Biggest Emerging-Market Dollar Borrowers? - A boom in dollar debt in emerging markets risks capsizing a host of companies around the globe as the greenback surges. Which countries are home to the biggest borrowers? Mostly China and Brazil. Since 2008, emerging-market governments and corporations have bulked up on dollar-denominated debt. According to Bank for International Settlements data, developing nations account for nearly half of all greenback debt issued to nonbanks outside the U.S., approaching three times the volume of eurozone borrowers. Hyun Song Shin, the head of research at the BIS, points to two other episodes when the dollar strengthened during a lending boom: the Latin American crisis in the 1980s and the Asian crisis in the 1990s. Many countries and companies have learned from previous crises, building up their emergency buffers and including local currency borrowing in the portfolio. But not all, and the dollar borrowing boom may have set the stage for a series of busts in the coming years. “The big question,” said Mr. Shin in a recent Brookings Institution seminar, “is are we now on the cusp of the rally of the dollar, and what will the impact be, especially given the amount of dollar-denominated credit out there?” Companies in China and Brazil account for a hefty portion of the $1.3 trillion in dollar-debt issuance since 2008, according to data-provider Dealogic. Energy companies are some of the biggest borrowers. Brazil’s Petroleo Brasileiro SA has issued $40 billion in dollar bonds since 2008. China National Offshore Oil Corp. borrowed almost $14 billion in greenback debt in the last four years. Petróleos de Venezuela SA has racked up nearly $21 billion in the past seven years. Although oil-firms’ income is largely denominated in dollars, plummeting crude prices are pushing up default risks.

Brazil cuts pension, jobless benefits to prop up finances (Reuters) - The Brazilian government said on Monday it will limit unemployment and pension benefits, in a move that aims to shore up depleted finances and regain investor confidence. Incoming planing minister Nelson Barbosa said in a briefing that the measures would save the government up to 18 billion reais ($6.7 billion) a year or 0.3 percent of Brazil's gross domestic product next year. The measures, effective immediately via a presidential decree, could prove unpopular for President Dilma Rousseff, who vowed to maintain workers' benefits during her successful re-election campaign for a second term that starts on Thursday. true A rapid deterioration of Brazil's finances after years of heavy public spending and hefty tax cuts has put pressure, however, on Rousseff to introduce austerity measures to avoid losing its coveted investment credit grade. The measures include an increase in the time a worker needs to be employed before they can request jobless insurance and a reduction in the payment of widow's pensions, as well as a number of restrictions to avoid fraud. "There are many distortions in these programs. For them to be sustainable we need to make these changes," Rousseff's chief of staff, Aloizio Mercadante, told reporters in Brasilia.

Oil & The Looming Canadian Housing Bubble Crash - Sure, California has a love affair with real estate and we go through our traditional booms and busts.  $700,000 crap shacks now litter the landscape but there are fewer and fewer lemmings taking the plunge.  In Canada there was no correction.  In fact, households continue to go into deep debt to purchase real estate.  The argument goes that mortgage standards are much tighter in Canada so therefore, they are much more enlightened when it comes to financing homes.  People forget that the bulk of the 7,000,000 foreclosures in the US came in the form of standard loans.  Garbage loans imploded in more dramatic fashion but people lost their homes because the economy shifted.  At that point, it merely meant covering the monthly nut.  We were housing dependent and that market contracted aggressively.  Canada is housing and oil dependent.  And oil just got a big kick to the shins. In Canada, there seems to be a cult belief that housing simply will not correct. They are full on drinking the good old tasting real estate Kool-Aid. Canada has enjoyed many years of the global commodities boom and now finds itself contending with a market full of debt and inflated housing values. Short of oil rising back up to $80 a barrel or higher, Canada is likely going to face some short-term pain. The housing market is due for a correction.

Russia Debt One Grade Above Junk With Downgrades Coming, How Likely is Default? -- All three rating agencies are expected to downgrade Russia's debt to junk soon and bailouts to Russian banks are on the rise, but how likely is default? The Financial Times reports ...  Russia trebled the size of its bailout of troubled lender Trust Bank to Rbs99bn ($1.9bn) on Friday, laying bare the growing financial fallout from its currency crisis and the slump in the price of oil, its main export. The rapidly rising cost makes the rescue of Trust bank, which foundered as the rouble collapsed early last week, the second-largest seen in Russia. It has now consumed a tenth of the money earmarked by the government last week for bank bailouts. The authorities also said they would spend Rbs320bn ($5.9bn) propping up two other banks. Anton Siluanov, finance minister, said state-owned VTB, the second-largest lender by assets, could receive Rbs100bn before the end of this year and another Rbs150bn in 2015, while Gazprombank could be allocated Rbs70bn. Trust Bank was the first financial institution to fall victim to the currency crisis as it suffered a run on deposits by customers panicked by the steep drop in the rouble’s value, which at one point on December 16 plummeted to an all-time low of 80 against the dollar.  The central bank said that the state-run Deposit Insurance Agency would provide Trust Bank with up to Rbs99bn. It would give an additional Rbs28bn loan to Bank Otkritie, one of Russia’s largest private lenders, to restructure Trust Bank, with the two then merging by the end of 2020.

Europe's Far Right And Putin Get Cozy, With Benefits For Both - Last month at a meeting of the far-right National Front in the French city of Lyon, there was a special guest: Andrey Isayev, a member of Russian President Vladimir Putin's political party.The apparent contradiction of political philosophies didn't seem to dampen the crowd's enthusiasm for Isayev's message: Long live Franco-Russian friendship, and down with the European Union! Isayev called the EU a "spineless lackey of the United States."While Putin says he is standing against fascism in Ukraine, he's had no qualms about cozying up to Europe's far right. Analysts say the growing bond between Putin and far-right European politicians could benefit to both sides.Pierre Lellouche, a member of a mainstream conservative party, the Union for a Popular Movement, says the far right is attracted by Putin's Russia because it embodies the traditional social values they feel Europe has abandoned."In Russia today there is a mix of exalting nationalism, exalting the church and Christian values," says Lellouche. "They are now replacing the red star with the cross, and they are representing themselves as the ultimate barrier against the Islamization of the continent."

Russian Woes Continues As Ruble Plumbs New Depths - Russia’s Economic Development Ministry reports that the country’s economy shrank for the first time in five years in November, measuring 0.5 percent lower in November than it did in the same month the previous year because of dramatic drops in both investment and manufacturing. “A sharp slowdown in manufacturing had the main negative effect on GDP dynamics in November,” the Economic Development Ministry said in the announcement on its website. It said there also were serious drops in wholesale trade, agriculture and construction.  This was more bad news for the Russian currency, the ruble, which continued to lose value because of the steep plunge in the price of oil, Russia’s most abundant resource, and Western sanctions imposed because of Moscow’s suspected role in a bloody uprising in neighboring Ukraine. Hours after the report was issued, the ruble was down an additional 5 percent, trading at 56 per US dollar in Moscow. The depreciation of the ruble comes despite recent efforts by Russia’s Central Bank to stabilize its currency by raising its most important interest rate to 17 percent and offering both dollars and euros to Russian banks to lend to export businesses that need such currencies to support their activities. Yet the Central Bank also has been selling foreign currencies to support the ruble, leaving its current reserve of such monies below $400 billion for the first time since August 2009. And the sanctions, imposed by the European Union and the United States, have denied Russian banks access to Western capital markets.

Russian company debt contaminates sovereign dollar bonds (Reuters) - As Russia confronts financial crisis, investors in its sovereign dollar bonds are braced for things to get worse before they get better, even though few expect a full-blown sovereign default. The Russian state, they say, is a diligent payer of debts however belligerent the rhetoric of its leaders. But Russian companies are heavily indebted and with Western sanctions over Moscow's role in Ukraine making it hard for them to access capital, the national balance sheet may have to shoulder much of the burden. Optimists will point to Russia's 1998 crisis, when oil hovered at $10 a barrel and hard currency reserves fell below $15 billion. Through crippling recession, rouble collapse and a huge domestic debt default, Russia faithfully honoured its international 'Eurobond' debts. Sixteen years on, Moscow has $400 billion on its books, or four times the total debt due next year. Hardly anyone believes it will default. Yet its sovereign bond spreads, a gauge of the risk premium over U.S. Treasuries, are over 500 basis points, or well above those of junk-rated Jamaica or Lebanon. What's more those prices are probably justified, says Michael Cirami, emerging debt portfolio manager at investment managers Eaton Vance. What changes the equation from 1998 is the rise in Russian companies' external indebtedness. "The concern we had here was that in the event of a crisis this corporate paper was going to migrate over to the sovereign balance sheet," Cirami said.

In Reversal, Germany Cools to Russian Investment - Few countries have invested more heavily in Russia than Germany has, rushing in to exploit new trade opportunities that opened up after the Cold War ended. More than 6,000 German companies set up operations there, and Russia became a major customer for German cars, pharmaceuticals and machinery.But now the rush is going in reverse. The announcement last week by the German chemical giant BASF that it had canceled a planned deal with Gazprom, the Russian energy giant, involving natural gas extraction and distribution, was the latest example of how German companies are delaying projects and investment.Opel, the car-making unit of G.M. based in Germany, has laid off workers at its plant in St. Petersburg; Volkswagen shut down an auto plant in Kaluga intermittently because of poor demand; and Fresenius, a health care company, canceled a joint venture with Russian partners.More than a third of German companies with operations in Russia are likely to cancel investment projects, though only a small number of German companies have abandoned Russia completely, according to a survey this month by the German-Russian Chamber of Commerce.The conflict in Ukraine has rattled Germany’s leaders as perhaps no others outside Russia. It is not just business that has been put on hold: Countless forums for partnership like major political gatherings have been trimmed back or put on ice. Although Germany’s politicians continue to lead diplomatic attempts to ease the Ukraine crisis, trust in Moscow has evaporated. Everyone knows that it will take a long time to repair a rift that has revived fears of a new division of Europe — roughly, pitting Russia against the European Union — and markedly reduced commerce once considered a reliable source of growth. The impact on Russia is broader, because it is much more dependent on German goods and investment than vice versa. Russia is hobbled by economic sanctions for its intervention in Ukraine, the devalued ruble and a severe drop in the price of oil, its main export. Russia is expected to suffer a steep recession next year, while Germany is forecast to grow 1 percent.

Why are weapons-makers excited by TTIP? - Could the world’s largest weapons company soon be managing part of our medical systems? That absurd and nasty idea is being actively discussed. The National Health Service in England recently held a meeting for firms interested in providing support services to doctors. Among those firms were Lockheed Martin, the same company that has supplied interrogators to the US torture chambers of Guantanamo Bay, fighter jets to Israel and cluster bombs dropped by US forces in Afghanistan. Not content with arming a superpower, Lockheed has been trying to muscle into civilian markets. For a number of years, it has been involved in running parts of the postal services in the US and Sweden. The arms industry is hoping that the Trans-Atlantic Trade and Investment Partnership (TTIP) will provide it with greater opportunities. The Aerospace and Defence Industries Association of Europe (ASD) – an umbrella group for weapons-dealers – has calculated that more than half of the 24 topics raised in the initial stages of the EU-US trade talks affect the companies it represents. Top of the list is “government procurement” – a fancy term for providing goods to public authorities and, in some cases, letting corporations run vital services.

Ukraine in ‘full-blown financial crisis’ – Ukraine’s GDP shrank by 7.5 percent from January till November 2014, as foreign exchange reserves fell to their lowest level since 2009, and inflation jumped to 21 percent by November, admits the head of the Ukraine’s National Bank, Valeriya Gontareva. The country’s foreign exchange reserves shrank to $9.9 billion, as Kiev gave Naftogaz an estimated $8.6 billion to buy gas and settle state guaranteed Eurobonds. $3.1 billion went to settle the debt with Russia’s Gazprom, Gontareva explained. The conflict over Russia’s reunification with Crimea has killed more than 4,700 people has also killed the economy. “There is a full-blown financial crisis,” Gontareva told reporters Tuesday. “We can only overcome it if we implement quick and even extreme reforms.”

Swiss Depositors Confused By Concept Of NIRP As Swiss Deposits Jump Most In 18 Months This wasn't supposed to happen. The Swiss National Bank has a problem - having announced on Dec 18th that it will impose negative deposit rates starting Jan 22nd, sight deposits soared (as opposed to the textbook expectations). Sight deposits (cash-like deposits commercial banks hold with the central bank) rose CHF10.8 billion this week (or 3.4%) - the most in over 18 months.

Spain to Issue €55 Billion in New Debt, 72% to Roll Over Existing Debt; Interest Rate Perspective - Spain's regional and local governments are struggling to pay back debts. The central government has not made much progress either.  El Economista reports 72% of Treasury Issuance in 2015 to Refinance CCAA and Municipalities.  Of estimated €55 billion debt increase for 2015, 72 percent of that amount will be to regional governments and municipalities through new mechanisms created to ease the burden of regional debt and also provide liquidity to local authorities for other policies (through the Fund Management, targeting the most indebted and Economic Promotion Fund for sustainable investments). The €55 billion debt increase announced Friday is the same as last year, but is €8 billion superior to that which was announced last September.  Guru Huky has some interesting charts in his post Spain will Increase National Debt by €55 Billion.Since 2008, Spanish debt has increased by €600 billion. Guru notes "Since 2012 we had a tax increase that completely screwed the middle class of this country. And yet we continue with a cruising speed of new debt generation of more than €50 billion a year."  In spite of the fact that yield on the 10-year government bond is a record low 1.67%, Spain tacks on more debt year after year. For comparison purposes, the yield on 10-Year US notes is 2.25%.

Rise of Spanish populists overturns two-party system (Reuters) - The sudden rise of a new anti-establishment party has transformed Spanish politics a year before a general election, forcing the center-right government to veer away from austerity and the left-leaning opposition to scramble for new leaders. In just a year since its founding, the party "Podemos" - We Can - has overturned the two party system in place since Spain embraced democracy in the 1970s. It is now polling around even with the ruling People's Party (PP) and main opposition Socialists, and has even led in some polls. Prime Minister Mariano Rajoy's PP has unveiled a raft of new, populist-tinged measures, such as an anti-corruption bill, new monthly payments for the long-term unemployed and the first rise in the minimum wage in two years. true The Socialists have replaced their leaders in search of fresh faces that would have more electoral appeal. Further to the left, the former Communists have announced similar plans. But Podemos activists say the mainstream parties are missing the point: their group offers not just new personalities and a new policy mix, but a whole new way of thinking about politics, giving greater voice to ordinary Spaniards who feel ignored by a political class derided as "la casta" or "the caste".  Podemos has set up hundreds of local assemblies known as "circulos" across the country, staging unruly weekly meetings at which Spaniards can vent the anger built up during worst economic crisis since World War Two.

News from Europe continues to deteriorate | Bill Mitchell – The following graph shows the French unemployment rate (%) from 1975. The data is available from – INSEE – (the National Institute of Statistics and Economic Studies). INSEE also reported that unemployment is now at a record high of 3.488 million people in November or 9.9 per cent of the workforce. Over the last 12 months French unemployment has risen by 5.8 per cent. You can see (from the graph) that the wheels started falling off during the time of – Raymond Barre – who was the Prime Minister in the government of Valéry Giscard d’Estaing from 1976 until 1981.  There have been cycles since but the level has been creeping up over time – each cycle seems to create a new higher mean tendency. The reality now is that the unemployment rate is once again on the rise in France, a legacy of the cuts that the Hollande government is undertaking to satisfy the mandarins in Brussels and Washington. The European Commission’s response to the disaster unfolding in France is that they have to cut the fiscal deficit even harder to come within the Stability and Growth Pact fiscal rules. The growth projections for next year are so low that unemployment will continue to rise for at least the next 12-15 months. But I consider the official projections to be overly optimistic and if the European Commission succeeds in forcing the French government to make further cuts, there is every chance France will return to recession in 2015. The official growth projection of 1.5 per cent in 2016 is unlikely to be achieved.

Greece In Turmoil After Third Failed Presidential Vote Means January 25 Snap Elections - And just like that Grexit is back. It appears that with a few short days left in the year, the Santa rally is finally over, if only in Greece where both bonds and stock are tumbling after the third vote for PM Samaras' appointed presidential appointee Stavros Dimas concluded as many had expected: in failure, with 168 Greek lawmakers voting in favor of Dimas, well short of the 180-vote threshold needed. 132 voted against Mr. Dimas. This means that the "worst case" scenario - at least as described by Goldman - is now on deck: a snap general election that could bring the anti-bailout Syriza party to power. And speaking of Syriza, and its triumphant leader Samaras, moments ago he announced that the now inevitable Greek elections will take place on January 25: pencil that date in for even more turmoil.

When Fearmongering Goes Bad: Greece Scrambles To Prevent Deposit Run Goldman Warned About In Its "Worst Case" - Recall that just over two weeks ago, none other than Greek currency swap expert Goldman (alongside Jean-Claude Juncker who quite explicitly warned Greeks not "to vote wrong") came out with a Fire and Brimstone worst-case scenario which was nothing but an attempt at fearmongering designed to scare Greek MPs into doing Samaras' bidding, in which it said not electing the designated presidential candidate may lead to a worst-case scenario which involves a "Cyprus-style prolonged bank holiday." Basically what Goldman said is that unless Greece quickly folds back in line and does as the unelected Brussels eurocrats demand, there will be a Cyprus-style bank closure coupled with preemptied bank runs. Well.... oops. Because if that was the doubled-down bluff, then Greece just called it, and the "downside scenario" is now in play.

The Greek dance with debt: If you thought that the Greek debt crisis was over; think again. Tomorrow, the Greek parliament will try, for the third time, to agree on who will be the next president. If parliamentarians cannot agree (and that now seems likely) we are headed for the first potential rock in the road to recovery for 2015. There is a real danger that the Greek debt crisis will emerge with a vengeance and, once again, throw world financial markets into turmoil. Under the rules of the Greek constitution, if no candidate receives an absolute majority, parliament will be dissolved, and there will be a general election, most likely in early February. If that happens, all signs point to a victory by Syriza, a left of center party that proposes to renegotiate the Greek debt. A Syriza victory would force the core Euro countries to decide either to give up on the project of European integration, or to move to the next stage of full scale fiscal union in which German taxpayers assume responsibility for Greek debt. If the Euro breaks apart, the fallout will be global.  The world economy has been hit by a falling demand for raw materials and oil is trading at less than US$60 a barrel. Some of this is caused by newly discovered proven reserves and that is a good thing. But Jim Hamilton has argued that falling world demand is a big part of the reason for lower oil prices and that does not bode well for a truly global recovery.

Greek Vote Puts ECB Funds at Risk as Crisis Memories Revived - Greece’s descent into political crisis is threatening the country’s financial system. The European Central Bank, already battling the risk of euro-area deflation, may soon have to decide whether to withdraw much of its funding for Greek lenders. Special rules on Greek assets accepted as collateral will become invalid if snap elections prevent the country from agreeing to a replacement for its bailout program by the end of February. The prospect of renewed Greek turmoil is reviving memories of the euro-area debt crisis, which started in the southern European nation in 2009 and spread until it threatened the survival of the single currency in 2012. The regional economy has struggled to recover since then, prompting the ECB to take unprecedented stimulus measures that may extend to quantitative easing as soon as next quarter. There is “a risk of around 30 percent that Greece may descend into a new deep crisis with potential euro exit beyond the inevitable bout of near-term uncertainty now,”  “That is a significant risk.”

Fears for fresh Greek crisis after poll called - - Fears of a fresh Greek crisis were ignited on Monday after Athens called a snap general election that could bring the anti-bailout Syriza party to power and put the country on a collision course with international lenders. Investor concerns were revived after the Greek parliament rejected Prime Minister Antonis Samaras’s nominee for president, automatically triggering an election which is to be held on January 25. Monday’s dramatic events revive dormant questions about Greece’s place in the eurozone, just two years after the country’s debt crisis nearly triggered a break-up of the currency union and shook the European project to its core. It comes with much of the eurozone struggling with weak growth, the rise of populist anti-EU parties and widespread disenchantment with the politics of austerity. Investors took fright at the prospect of a victory by Syriza, which has pledged to write off much of Greece’s debt and renegotiate the terms of its bailout. The Athens bourse fell almost 11 per cent to a two-year low before regaining some ground. Greek 10-year bond yields jumped to a year high of 9.8 per cent while the government’s short-term borrowing costs hit a record high of 12 per cent. Spanish and Portuguese bond yields also rose as investors moved out of Europe’s indebted southern periphery into the haven of German debt, pushing the yield on Germany’s 10-year bonds to an all-time low of 0.54 per cent.

Greek Polling Points to Coalition as Voters Reject System - Greek polling data suggest neither Prime Minister Antonis Samaras’s New Democracy nor the main opposition Syriza party will win an outright majority in next month’s election, meaning coalition negotiations or even a repeat vote will be needed. Pollster Elias Nikolakopoulos said current projections of voting intentions for the Jan. 25 elections show the lower limit for securing at least 151 seats in the country’s 300-seat chamber is about 38 percent. Alexis Tsipras’s Syriza led New Democracy by 28 percent to 25 percent in a survey by Marc published on Alpha TV’s website this week. “I don’t think that any party will manage to get a parliamentary majority,” Nikolakopoulos, a professor of politics and electoral sociology at the University of Athens, said in a phone interview. “But if the winner gets more than 30 percent, as will probably happen, it will likely reach 140 to 145 seats.” Under the Greek electoral system, the winning party gets 50 bonus seats in the country’s unicameral chamber, and the remaining 250 seats are distributed proportionally among all parties that surpass the 3 percent threshold. A government can only take office after a confidence vote requiring the support of at least 151 lawmakers. If smaller parties, including Independent Greeks, or a potential breakaway fraction from the socialist Pasok party fail to win seats, the threshold to secure an outright majority falls to about 36.5 percent, according to Nikolakopoulos. Without that level of support, Syriza or New Democracy will need the backing of a smaller party or of independent lawmakers to form a government. At stake in next month’s ballot is the international lifeline that has kept Greece afloat since 2010, since Syriza vows to abandon the reforms Samaras has pursued in return for bailout aid. It also aims to renegotiate Greek debt held by euro-area member states and the European Central Bank.

Greece comes back to haunt eurozone as anti-Troika rebels scent power - The eurozone’s long-simmering crisis has returned with a vengeance as snap elections in Greece open the way for an anti-austerity government and a cathartic showdown over the terms of euro membership. Yields on 3-year Greek debt surged 185 basis points to 11.9pc on Monday amid default fears after premier Antonis Samaras failed to win the extra votes in parliament needed to avert a general election on January 25, despite dire warnings that such an outcome risked “bankruptcy and exit from the euro.” The upset opens the door for the hard-Left Syriza movement, which has vowed to tear up Greece’s hated ‘Memorandum’ with EU-IMF Troika creditors “on its first day in office”, and threatened to default on up to €245bn of rescue loans unless the EU grants debt relief. Syriza is leading by 29.9pc to 23.4pc in the latest Palmos Analysis poll, though other surveys are closer. It is likely to become the first truly radical group to take power in any EMU state since the creation of monetary union. A quirk in Greece’s electoral law gives the winning party an extra fifty seats in parliament. Alexis Tsipras, the bloc's firebrand leader, vowed to overthrow of the austerity regime and launch new era of social salvation, claiming the government’s campaign of “blackmail and terror” had failed. “There will be an end to austerity. The future has started,” he said.

A Greek Revival of Anxiety, Some Say Without Foundation - After a two-year spell during which investors eagerly snapped up Greek assets, the prospect of new elections and the arrival of a tough-talking new prime minister are once again roiling European markets. But as the yields on benchmark Greek bonds soared and the Athens stock exchange plunged 4 percent, analysts remained divided as to whether the election of a new government with a mandate to reject years of forced austerity will signal a return to the dark days of the European debt crisis. In a note published on Monday, Mujtaba Rahman, an analyst at the Eurasia Group in London, raised the prospect of contagion spreading from Greece to other reform-challenged economies in the eurozone like France and Italy. After Greece, Italy had the worst-performing debt securities in the eurozone bond market on Monday. Many investors fear that the head of the left-leaning Syriza party, Alexis Tsipras, may even take a hard line in terms of repaying Greek debt, raising the specter of another Greek debt default. The arrival of Mr. Tsipras on the scene will probably delay any move by the European Central Bank to step into the market and buy in bulk eurozone government bonds.Still, Mr. Tsipras may carry with him the reputation of a firebrand, but those who have spent time with him say that he is less the reckless populist than a measured pragmatist eager to strike a deal with Greece’s creditors.

Greek Patience With Austerity Nears Its Limit -  Nowhere have austerity policies been more aggressively tried — and generally failed to live up to results promised by advocates — than in Greece. After more than four years of belt tightening, patience is wearing thin, and tentative signs of improvement have not yet trickled down into the lives of average Greeks. Now, after its Parliament failed to pick a president on Monday, forcing early elections, Greece faces a turning point in how to heal its devastated economy. In the Jan. 25 general election, a majority center-right coalition government that has reluctantly stuck with austerity policies will face a charismatic left-wing challenger who says it is time for Greece to take its future into its own hands and do what it can to stimulate growth. Whichever path the country chooses, the outcome is likely to have broad implications for Greece and its place in the European Union. In 2010, with Greece crippled by debt and threatening the survival of the euro, the European Union, the International Monetary Fund and the European Central Bank began imposing German-inspired austerity on the country.  Such policies, they promised, would get Greece back on its feet, able to borrow again on financial markets. Greeks grudgingly went along, assured that painful reform would return the country to growth by 2012. Instead, Greece lost 400,000 jobs that year and continued on a decline that would see a drop in the gross domestic product since 2008 not much different from the one experienced during the first five years of the United States’ Great Depression.Greece’s unemployment rate was supposed to top out at 15 percent in 2012, according to International Monetary Fund calculations. But it roared to 25 percent that year, reached 27 percent in 2013 and has ticked downward only slightly since.

Greece’s threat to the European economic recovery -- It is difficult to exaggerate the importance of the Greek government’s failure today to secure sufficient votes in parliament to choose a new president for the country. Since such a failure not only forces Greece to hold snap elections by the end of January, which could see the coming to power of a radical left-wing government. It also raises the real possibility that Greece will be forced to exit the Euro in 2015 that would be a major blow to the prospects of a meaningful European economic recovery. On the basis of current electoral polls, the Syriza Party, headed by Alexis Tsipras, should win the parliamentary elections now scheduled for January 25. Judging by Syriza’s consistent electoral promises, if elected one must expect that Syriza will roll back the austerity policies imposed on Greece by the IMF, the ECB, and the European Union (the so-called “troika”). Syriza must also be expected to reverse many of Greece’s recent structural reforms in the labor market and in the area of privatization policy. In addition, it will more than likely insist on substantial official debt relief from the ECB, the IMF, and its European partners. The prospect of a Syriza government taking office is already sending shudders through the Greek financial markets and is undermining confidence in the still very depressed Greek economy. One must expect that the election of Syriza will put Greece on a collision course with both the troika and the German government. Since it is difficult to see how the troika and  the German government can accede to Greece’s request for either debt relief or for additional budgetary financing at a time that Greece’s economic policy would be going in a direction clearly unacceptable to its European partners. For its part, it is difficult to see how Syriza can quickly make a policy U-turn from a position that it has been consistently espousing these past few years.

Greek expulsion from the euro would demolish EMU’s contagion firewall - Telegraph: We know from memoirs and a torrent of leaks that Europe’s creditor bloc came frighteningly close to ejecting Greece from the euro in early 2012, and would have done so with relish. Former US Treasury Secretary Tim Geithner has described the mood at a G7 conclave in Canada in February of that year all too vividly. “The Europeans came into that meeting basically saying: 'We’re going to teach the Greeks a lesson. They are really terrible. They lied to us, and we’re going to crush them,'” he said. “I just made very clear right then: if you want to be tough on them, that’s fine, but you have to make sure that you’re not going to allow the crisis to spread beyond Greece.” German chancellor Angela Merkel did later retreat but only once it was clear from stress in the bond markets that Italy and Spain would be swept away in the ensuing panic, setting off an EMU-wide systemic crisis. The prevailing view in Berlin and even Brussels is that no such risk exists today: Europe has since created a ring of firewalls; debtor states have been knocked into shape by their EMU drill sergeants.Europe’s rescue apparatus is not what it seems. The banking union belies its name. It is merely a supervision union. Each EMU state bears the burden for rescuing its own lenders. Europe’s leaders never delivered on their promise to “break the vicious circle between banks and sovereigns”.  The political facts on the ground are that the anti-euro Front National is leading in France, the neo-Marxist Podemos movement is leading in Spain, and all three opposition parties in Italy are now hostile to monetary union. The creditor core has destroyed the political unity of EMU by pushing its contractionary agenda too far, and by imposing an “asymmetric adjustment” that forces deficit states alone to close the intra-EMU gap rather than surplus states.

Forgive the debt or earn the wrath of its victims - It could have been staged by the Ghost of Christmas Past. The scene in the Greek parliament on Monday was just the sort of vignette that Dickens’s supernatural hero might have enacted for the betterment of the mean-spirited. Its message: behold the consequences of rigid fiscal rectitude. The spirit of Scrooge hangs over the eurozone. More than seven years after the onset of the credit crunch, austerity prevails and the threat of deflation looms. Any cost-benefit analysis of post-crisis fiscal stringency is dispiriting. Government debt continues to rise. As a percentage of gross domestic product, government debt rose across the eurozone from 66 per cent in 2007 to 95 per cent in 2013 — with Greece, Italy, Portugal and Ireland all well above 100 per cent. Yet policy makers remain wilfully blind to the reality that the debt problem is unresolved, and that the eurozone’s outstanding public sector borrowings will never be repaid in full. Perhaps Greece’s snap election, now scheduled for next month, will provide the necessary wake-up call. If the radical-left Syriza party scores a victory in that poll, it could precipitate a clash with international creditors. Whether or not that happens, the only remaining question on the debt overhang is how far default will occur through inflation, and how much through formal debt restructuring. The eurozone has, in effect, followed the Japanese model of post-bubble crisis management, a muddle-through process that has saddled the country with gross government debt equivalent to about 240 per cent of GDP. Despite a resort to quantitative easing on an unprecedented scale by the Bank of Japan this year under Abenomics, it is proving remarkably difficult to stoke up inflation. Some on the European Central Bank’s governing council fear that a proposed move to full QE, involving the purchase of government bonds, would be equally ineffective in imparting stimulus to the eurozone economy.

Why Greece’s Spillover Across Euro Area Will Probably Be Contained This Time -  Greece’s flirtation with an exit from the euro in 2011 and two cliffhanger elections in 2012 prompted the darkest days of the debt crisis, halted only by the European Central Bank’s pledge to save the currency come what may. Now, with the collapse of another Greek government, Europe’s leaders, its more vulnerable economies and financial markets are better prepared. While euro in-or-out threats will echo through the Greek election campaign, the spillover across Europe this time is likely to be contained. “We’re looking at a Greece problem -- the euro crisis is over,” Holger Schmieding, chief economist at Berenberg Bank in London, said by phone. “The euro crisis was all about contagion risk. I do not expect markets to seriously contest the contagion defenses of Europe.” Investor reaction to the Greek parliament’s failure to pick a president traced the familiar north-south divide. Greek stocks and bonds plunged and markets were buffeted in Italy, Portugal and Spain, while funds flowed into Germany, Europe’s biggest economy and hard-money bastion. Yet look closer and Italy, the euro zone’s second most-indebted country after Greece, is nowhere near a fiscal calamity. Ten-year borrowing costs are hovering around 2 percent, compared to over 7 percent at the height of the crisis, and today Italy auctioned 10-year government bonds to yield less than 2 percent for the first time on record.

Why I think Greece will leave the eurozone this year or soon thereafter – Tyler Cohen - Matt Yglesias has a good argument to the contrary: On its face, the political crisis in Greece seems relatively likely to lead to Greece exiting the Eurozone. And why not? Europe’s leading politicians pretty clearly regret having let Greece in back in 1999 (particularly in off-the-record conversations), and Greek voters are clearly fed up with being told what to do by Brussels and Frankfurt. Journalistically, a “Grexit” is certainly the most interesting outcome, so people talk a lot about it, and at this point there are a lot of plausible theories about how it could go. But I think it’s not going to happen. The forces of the status quo will rally, and another grand coalition will lead Greece through several more dreary years of austerity and slow growth.  Nonetheless I think Germany wants them out.  First, I think Germany regards Greece as a kind of cultural and economic cancer for the eurozone, and they don’t want to enshrine the principle that eighty percent default is OK.  Second, Germany sees a fair amount of eurozone stability right now (NB: I’m not saying stability is always good in every way) and has noticed that the contagion effects from the recent Greek troubles have been small.  This is not a bad time to get them out.  Third, Germany is smart and knows that the real problems are Podemos in Spain and just about everyone in Italy and maybe even a few people (or more) in France.  Now is a good time to send splinter parties a message that they had better not mess around with the Troika, and what could do that better than an economic disaster in a recalcitrant Greece? So I think Germany will play brinksmanship with Syriza and, when the time comes, simply pull the plug and leave them high and dry.

Grexit: Papandreou announces that he’s creating a new party (AFP) - Former Greek prime minister Georges Papandreou announced on Friday he was creating a new political party just weeks before snap elections this month, sparking anger in his own Socialist party. The move, described as "absurd" by the Socialist Pasok party of which Papandreou is still a lawmaker, is likely to complicate the potential outcome of the January 25 election. "New year. New start," Papandreou wrote on his website. "The moment has come to make a big step forward for progressive forces... to build together a political home for progressive principles," he wrote. Papandreou, who was premier during the crisis-wracked period from 2009 to 2011, will officially launch the party on Saturday in the Benaki museum in Athens, the Ana agency reported. Papandreou said the new movement would work in the parliament that emerges from the closely-watched election "to definitively bring Greece out of the crisis ".

Merkel attacks wave of rightwing populism -  German chancellor Angela Merkel headed a trio of European leaders in delivering a powerful warning against populism and prejudice taking root in Europe, amid deepening fears about economic stagnation.  In a hard-hitting new year broadcast, Europe’s most powerful leader led the charge against Europe’s far-right parties, slamming the organisers of recent anti-Islam protests in Germany as having hearts “often full of prejudice, and even hate”. Her attack on rightwing populism was echoed by France’s president François Hollande, who fired a shot across the bows of National Front leader Marine Le Pen, by pledging to fight entrenched conservatism and “dangerous” populist stances. And in Italy, 89-year-old President Giorgio Napolitano accompanied the announcement of his coming resignation with a fierce denouncement of crime, corruption and “dangerous” populist calls for the crisis-torn country to quit the euro. The three leaders’ warnings came after Greece this week plunged into fresh political turmoil after parliamentary deadlock forced the government to call a snap general election for January 25, opening the door to a possible victory by Syriza, the leftwing populist grouping leading the polls. Ms Merkel also called for EU “cohesion” in the face of Russian aggression in Ukraine, the upsurge of Islamist militancy in the Middle East, and the need to boost Europe’s economic competitiveness.

New Year Brings Eurozone Closer to a Lost Decade - WSJ: It looks like it will be a “lost decade” after all. As the eurozone enters the eighth year of a slump that began with the 2008 financial crisis, only true optimists believe that the bloc will find a path to faster growth over the next couple of years. Slow growth and rock-bottom inflation have set in. This combination inevitably delays a reduction of the bloc’s heavy private- and public-sector debt burdens. While their debt loads remain high and their incomes in nominal terms are stagnant, people perpetuate slow growth by saving rather than spending. As 2015 begins, economic activity in the eurozone is below the level it was at the start of 2008. The hardest-hit economies are a long way below. With growth so anemic, it doesn’t take much of a shock to turn it negative. Last year, the imposition of European Union sanctions on Russia and its modest retaliation were almost enough to tip the bloc into recession. This year starts once again with political uncertainties in Greece—and a Jan. 25 general election—that may further set back faltering confidence. And as long as the bloc’s economic prospects remain sickly, the more likely become political crises among members of the currency union.  In Greece and in other debt-burdened countries such as Italy and Spain, antiausterity, antiestablishment parties of the left are gaining ground. In Europe’s core, including France, anti-EU, anti-immigration parties of the right are finding traction.

European Central Bank Hints of Stimulus as Euro Falls Against Dollar - — A strong indication on Friday that the European Central Bank is on the verge of aggressive action to stimulate the economy, just as the Federal Reserve is dialing back its stimulus, helped push the euro to its lowest level against the dollar since 2010.Mario Draghi, the president of the European Central Bank, said in an interview published in the German newspaper Handelsblatt that the risk that the central bank would not be able to meet its main task of keeping inflation from being too low or too high was greater than it had been six months ago. At 0.3 percent in November, inflation in the eurozone was far below the central bank’s official target of close to 2 percent.Investors interpreted Mr. Draghi’s comments to mean that the central bank is moving closer to broad-based purchases of government bonds, the same kind of “quantitative easing” that the Fed used to push down market interest rates in the United States — and is phasing out as growth picks up. The diverging paths of the two central banks prompted investors to put money into dollars, on the expectation that interest rates in the United States will rise and offer a better return than in Europe, where interest rates are falling.

European Union Imposes a Tax on Digital Transactions Equal to 0.006 Percent of GDP - Dean Baker - The NYT reported that the European Union (EU) will start collecting a tax on digital transactions in 2015 that is expected to raise $1 billion this year. For those who are not very familiar with the size of the EU economy, it is projected to be close to $19 trillion in 2015, which means that the revenue from this tax will be a bit less than 0.006 percent of GDP.

Prostitution and illegal drugs help UK overtake France in global wealth league : Britain’s multi-billion pound sex and illegal drug industries have helped the UK leapfrog France to become the world’s fifth largest economy. The latest global economic league tables includes a £10bn boost in UK earnings from drugs and sex – which earlier this year led to Brussels issuing a £1.7bn bill to the Treasury. New figures from the Centre for Economic and Business Research (CEBR) also forecast that the UK economy will pass Germany’s after 2030, for the first time since 1954, with a declining population identified by researchers as a “likely weakness” for the European industrial powerhouse. While the Chancellor George Osborne may cite the new rankings as further evidence of the success of his financial strategy, the UK’s jump up the table comes with a caveat – as the French do not include prostitution or narcotics income in gross domestic product (GDP) calculations. The CEBR survey also forecasts that Britain’s lead economic role in the Commonwealth will soon end. India’s growing economy is on course to overtake the UK within three years, and is expected to become the world’s third largest by 2024.

"Hookers & Blow" Lift Britain Over France As World's 5th Largest Economy --   Britain has inched out France as the world's fifth-largest economy thanks to what The Telegraph calls "a shake-up" of the national accounts this summer. UK gross domestic product (GDP) is expected to total $2.828 trillion (£1.816 trillion) this year, compared with French GDP of $2.827 trillion, as The Centre for Economics and Business Research (CEBR) said Britain's acceleration was boosted by the inclusion of sex and drugs to UK growth (as part of new pan-European accounting standards). Official estimates show prostitution added about £5.7bn to the UK economy in 2013, while illegal drugs were worth about £6.62bn. One question - how did they estimate it?

Britain's Success Story - Paul Krugman -- Simon Wren-Lewis asks how good British economic recovery — which is being touted as a wonderful success story — really has been. Not very, he says. Indeed. Here’s a comparison of the UK with two other major economies since 2007:  Austerity triumphant. Or, maybe not.  Part of this is the growth rate fallacy — no matter how badly an economy has done over an extended period, you proclaim success after a year or two of good growth. As Wren-Lewis likes to say, on this basis the ideal policy is to shut half the economy down for a while, then start it up again — that way you get 100 percent growth. Also, hitting yourself in the head with a baseball bat is a great idea, because it feels good when you stop.But surely we’re also seeing the ideological bias of many in the news media. France is supposed to be a terrible failure, because it still believes in a strong welfare state — and so it is reported as a failure, never mind the numbers. Austerity in Britain is politically approved, so it is pronounced a success on the shakiest of grounds. It’s all pretty depressing.

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