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

Saturday, February 14, 2015

week ending Feb 14

Federal Reserve SOMA Holdings of the Long Bond - It is well known that the Federal Reserve in its three rounds of QE (and especially the first two) aggressively bought Treasury Notes and Bonds or collectively the ‘Long Bond’ of 10 Years and longer. But there has been relatively little discussion of what that means for such things as Federal Government Net Interest etc. So rather than advance my thoughts I figured we could start with the numbers in the following web tool: System Open Market Accounts The link should take you to the Summary Tab which shows that total holdings in these accounts are $4.221 trillion comprised of $1.738 trillion of MBS’s (Federal Mortgage Backed Securities) and $2.347 trillion in Treasury Notes and Bonds plus some smaller amounts in TIPS and Agency Securities that are more a rounding error in context. Of interest is that the Fed’s SOMA holds no T-Bills at all. That is the holdings are all Medium to Long (2 years and longer) and not Short (1 year or less). If you click on the Notes and Bonds tab you will see a breakdown of Fed SOMA holdings of each issue. Now while Notes and Bonds are not individually labelled it is easy to distinguish 10 Year and shorter Notes and 30 Year Bonds simply by inspection of the relative coupon rates of different Treasuries maturing on the same date: rates above 6% being Bonds issued 15, 25, and 30 years ago and rates in the 1-3.5% range being mostly 10 Year Notes. If we then inspect Fed holdings of those higher yield Bonds we see that they comprise up to but never exceeding 70% of the total issue. The numbers show that the Fed’s SOMA holds something like 2/3rds of ALL existing high yield Treasury Bonds. Which means that these accounts are also collecting that percentage of projected Net Interest going forward for that part of Federal Debt actually held in Bonds. Since the Fed has no need to ever sell those holdings against its will and can simply hold them to maturity and since it rebates ‘profits’ to Treasury this would seem to mean that simply examining Net Interest in either nominal terms or as a percentage of GDP will lead one to erroneous conclusions about the ability to the Government to service its debt. That is just examining the total for Public Debt and taking its average coupon doesn’t do much until or unless you segregate out both Intragovernmental Holdings AND the Fed’s SOMA holdings and THEN adjust for the fact that these holdings include up to 70% of the highest yielding instruments.

Fed’s Lacker Says June ‘Attractive Option’ for Raising Rates - The Federal Reserve’s June policy meeting is the “attractive option” for beginning to raise interest rates, Federal Reserve Bank of Richmond President Jeffrey Lacker said. “At this point, raising rates in June looks like the attractive option for me,” Mr. Lacker told reporters following a speech Tuesday in Raleigh, N.C. “Data between now and then may change my mind, but it would have to be surprising data.” Mr. Lacker, a regular critic of the Fed’s aggressive stimulus efforts since the 2007-2009 recession, is a voting member this year on the Fed’s policy-setting panel, the Federal Open Market Committee.Most Fed officials said in December they expected to begin raising interest rates sometime in 2015. Mr. Lacker said Tuesday that he has thought for some time that the Fed should most likely raise rates in the first half of 2015, and recent data have “solidified” that view.“The economy’s clearly growing at a more rapid, sustained pace than it was a year ago,” he said. “Economies that are growing faster need higher real interest rates, and a variety of indicators point to the need for higher real rates.”The Fed’s next policy meetings are scheduled for March 17-18, April 28-29 and June 16-17.In deciding when to begin raising short-term rates pinned near zero since December 2008, Fed policy makers must weigh continued improvement in the labor market, including strong hiring over the last year, against persistently low inflation that is headed lower due to the global plunge in oil prices. The Fed’s legal mandate is to promote maximum employment and stable prices.Mr. Lacker said the effects of lower gasoline prices on inflation should be transitory, and he expects inflation will move back toward the Fed’s 2% annual target over the next year or two. “The inflation rate was clearly moving towards 2% before oil prices began falling last summer,” he said.

Fed Watch: Fedspeak Points To June -- Federal Reserve speakers were out and about today. First off, Richmond Federal Reserve President Jeffrey Lacker set a fairly high bar for NOT hiking in June. Via the Wall Street Journal:“At this point, raising rates in June looks like the attractive option for me,” Mr. Lacker told reporters following a speech Tuesday in Raleigh, N.C. “Data between now and then may change my mind, but it would have to be surprising data.”......“The economy’s clearly growing at a more rapid, sustained pace than it was a year ago,” he said. “Economies that are growing faster need higher real interest rates, and a variety of indicators point to the need for higher real rates.”What about inflation? It is all about oil:Mr. Lacker said the effects of lower gasoline prices on inflation should be transitory, and he expects inflation will move back toward the Fed’s 2% annual target over the next year or two. “The inflation rate was clearly moving towards 2% before oil prices began falling last summer,” he said. Here I worry, because Lacker is clearly ignoring the data, or least weighing the year-over-year changes far too heavily. Inflation actually accelerated in the second half of 2013, but was clearly decelerating by the beginning of 2014, prior to the oil shock: But the Fed is close to achieving the employment mandate, so inflation data be damned! Still think the employment part of the dual mandate is really a good idea?San Francisco Federal Reserve President John Williams digs in his heals and assures us a rate hike is coming. Via the Financial Times:John Williams, president of the Federal Reserve Bank of San Francisco, said the time for the US central bank to start raising rates is getting “closer and closer” amid faster-than-expected wage rises in January and “really strong” hiring. Some investors may be caught out by a rate increase, but that should not stop the Fed from tightening policy if necessary, he said.What about inflation? No problem, it is all about the lags: ...Economists including Lawrence Summers, a former US Treasury secretary, have urged the Fed to leave rates unchanged until there is clear evidence that inflation, and inflation expectations, are set to breach its 2 per cent target.  Meanwhile, soon-to-retire Dallas Federal Reserve President Richard Fisher is pegging his rate outlook to wage gains:“If we were to see employment continue to increase, we’re getting much, much better on that front and you begin to see the wage price pressures, that should govern what we do with interest rates.” The Fed simply has no justification to raise rates in June absent acceleration in wage growth. Even Fisher agrees.

What’s Behind the Fed’s Credibility Gap on Interest Rates - There is a significant difference between the interest-rate path that Federal Reserve officials sketched in December, the last time they made public projections, and the rates implied by trading in futures markets. The markets see a smaller, more gradual increase in interest rates than the now-famous dots that show where Fed officials expect interest rates to go. The chart above illustrates this, using the median forecast for Fed funds from the Federal Reserve’s December “Summary of Economic Projections” alongside the rate implied by Fed funds futures for the same month (light green) and for this week (dark green.) By January 2017, for instance, the markets project that Fed funds, which are now around zero, will be up to 1.375%. In December, the median Fed official saw 2.5%.  What explains this persistent divergence? I’ve heard three reasons, and there’s probably some truth to all of them. First, financial markets are not interested in the median Fed official; they’re interested in Chairwoman Janet Yellen, and they assume her dot is lower than the median. That is, they expect her to want to move much more cautiously to raise interest rates than the median Fed policymaker. After all, she has suggested that significant slack remains in the labor market even though the headline unemployment rate–at 5.7%–has fallen close to the Fed’s estimates of a level that would be long-term sustaintable. Second, the markets think Fed officials and staff economists are overly optimistic about the U.S. economy, as they have been in the past, particularly in light of the troubled condition of nearly every major economy outside the U.S. (with the exception of Britain). Third, there’s the inflation issue. Many do not believe that the Fed will raise rates until underlying inflation is a lot closer to its 2% target. The Fed has said that it needs more confidence that inflation is headed up to the target before any movement on interest rates will be seen. The Fed’s favorite inflation measure, the personal consumption expenditures price index, climbed only 0.75% in the 12 months ending in December; excluding food and sinking energy prices, it was up 1.33%–and moving in the wrong direction.

Goldman Asks If Negative Rates Are Coming To The US --  Now that Europe has demonstrated that one can go NIRP and not crash the system, will the Fed - once its silly obsession with hiking rates in the summer only to launch even more easing and/or QE as the ECB did in 2008 and 2011 - follow suit and join a rising tide of "developed" world central banks in punishing savers for hoarding cash? In a note released last night titled "Revisiting Negative Interest Rates in the US", Goldman shares its thought on the matter. It goes without saying that Goldman is important, because whatever Goldman's econ team shares with Goldman's Bill Dudley over at the NY Fed, usually tends to become official policy with a 3-6 month lag. We think it is unlikely that the Fed would want to implement negative interest rates in the US. Most importantly, Fed officials have continued to suggest that rate hikes are likely to start in mid-2015, and pushing interest rates into negative territory would of course be moving away from rather than toward rate hikes. (Our forecast for the first hike remains September 2015.) However unexpected negative shocks could always occur. Even then, we think the Fed would be more likely to effect any dovish shift in its policy stance through forward guidance (whether formal or informal) or balance sheet policy, rather than a move toward negative interest rates. 

Nobody Knows Nairu, and That’s a Problem for the Fed - Economists surveyed by The Wall Street Journal have widely divergent views about how low the unemployment rate can get before job market slack disappears and inflation pressures emerge. It could be anywhere between 4% and 6%, according to the Wall Street Journal’s monthly survey of private sector economists. On average, analysts said the “nonaccelerating inflation rate of unemployment,” also known as Nairu, was 5.1%. In all 69 analysts were surveyed, though all of them didn’t answer every question. Nairu is a theoretical threshold at which the economy is in balance and inflation pressures are neither rising nor falling. A jobless rate below this chokepoint in theory would create inflation pressure. The unemployment rate was 5.7% in January, still a good distance above the average 5.1% estimate. Federal Reserve officials are paying close attention to these estimates now because the jobless rate is falling rapidly, down from 6.6% a year ago. Fed officials estimate the unemployment rate’s long-run range–which is akin to a Nairu–is between 5.2% and 5.5%. Officials will update their projections in March. Some of them are thinking about revising their estimates down, because they see unemployment falling without much evidence of inflation pressure building. Many Fed officials want to start raising short-term interest rates before the economy reaches a point of full employment. Economists surveyed on average estimated the jobless rate will reach the Nairu threshold by the fourth quarter. But here again, estimates vary widely. Some analysts said unemployment wouldn’t reach Nairu for another three years or more. Others said it is already there.

Fed’s George: Wrong to Rely on Regulation Alone to Thwart Bubbles - Federal Reserve Bank of Kansas City President Esther George said it is a mistake for policymakers to rely on regulatory powers alone to deal with financial market imbalances. In a speech delivered on Tuesday in Manila, the central banker argued that modest rate rises early in a business cycle can help restrain the sort of forces that can later metastasize into damaging financial bubbles. “Interest rate policy used earlier in the cycle can foster a more stable financial landscape as a business cycle matures,” Ms. George said in the text of her remarks before a gathering of the Financial Stability Institute and Bank for International Settlements. Ms. George did not comment directly on the U.S. policy and economic outlook. She is not currently a voting member of the monetary-policy setting Federal Open Market Committee. Ms. George has long been uneasy with the ultra-easy stance of near-zero interest rates currently maintained by the Fed. She is one of a small group of Fed officials who have worried Fed policy is creating too much risk in financial markets. Very easy Fed policy is designed to drive investors into riskier assets because that type of buying is more likely to create stronger levels of growth. But with stock indexes moving sharply higher, amid rock bottom borrowing costs and signs of excess in some sectors, some worry Fed policy is distorting markets. Many Fed officials counter that it is better to deal with financial imbalance by way of regulatory and supervisory actions. They believe using interest-rate policy is too blunt a tool, because rate rises aimed at quelling excess markets can create significant headwinds to growth and hiring.

Fisher Bashes Fed Audit Bill in Television Interview - Soon-to-retire Dallas Fed President Richard Fisher told a television channel Monday that a bill in Congress that boosts oversight over the central bank’s monetary policy making decisions is hugely misguided. Capitol Hill lawmakers already “cannot do their jobs,” and it would be a mistake for legislators to further enmesh themselves into the interest rate decisions made by the Fed, Mr. Fisher said. “We are audited out the wazoo, okay? Every Federal Reserve bank has a private auditor, we have an auditor of the system, we have our own inspector general, ” Mr. Fisher said on the Fox Business Network. Directly auditing the Fed’s monetary policy actions would boost the politicization of the Fed, and history shows that whenever politicians directly influence a central bank, bad outcomes happen, he said. Mr. Fisher zeroed in on Sen. Rand Paul, who has been of the Fed’s toughest critics and strongest advocates for the “audit the Fed” bill now being weighed in Congress. “I respect the gentleman from Kentucky, but he’s wrong,” the central banker said. Mr. Fisher said the audit bill was really about “interfering with the making of monetary policy,” and he believes nothing good can come of that. Most economists agree independent central banks make policy better because they are insulated from public opinion to a degree, and can make the difficult choices needed to control inflation. The high-profile internal critic of U.S. Fed policy does not currently hold a voting role on the monetary-policy setting Federal Open Market Committee, and is due to step down from the leadership of his bank in March.

Clueless in Kentucky: Rand Paul’s ideas about the Fed make absolutely no sense - Sometimes it's hard to tell the charlatans from the cranks. Take Rand Paul. Does he really believe all the stuff he says? It's hard to tell. Back when he thought it would help him, he was happy to indulge in Bilderberg Group and NAFTA superhighway conspiracy theories. But then he got elected to the U.S. Senate, and had enough self-awareness to realize that talking about them had become a liability. So he stopped. Instead, he's moved on to peddling barely-more-coherent scare stories about Ebola, vaccines, and, above all, the Federal Reserve. In fact, during a swing to Iowa last weekend, he began his trip with an all out assault on the Fed. “Anybody feel that the Fed is out to get us?" Paul said to applause. What's behind this odd fixation? Like his father before him, Rand Paul is a devotee of so-called Austrian economics. I say devotee, because Austrianism is a cult more than anything else. It preaches that the Fed is to blame for the economy's boom-and-bust cycle ... despite the fact that the busts have gotten smaller and less frequent since the Fed—the nation's central bank—was created. But that's no matter to Austrians who think the only important thing is whether their theories work in, well, theory, and not in, well, practice. That's not hyperbole. Austrians really say it's irrelevant whether their hyperinflation predictions come true—which makes sense, I guess, since they haven't—as long as those predictions logically follow from first principles. That makes their beliefs "true" whether or not they actually are. If that sounds loony, that's because it is. But it's the basis of Paul's attempt to control—I forgot, he's calling it an "audit" of—the Fed.

There's Something About Money - Paul Krugman -- Continuing a family tradition, Rand Paul is saying crazy things about the Fed and monetary policy. It’s important to note, however, that he’s not that far out of the modern Republican mainstream. Remember this:  I always go back to, you know, Francisco d’Anconia’s speech, at Bill Taggart’s wedding, on money when I think about monetary policy. Then I go to the 64-page John Galt speech, you know, on the radio at the end, and go back to a lot of other things that she did, to try and make sure that I can check my premises. Yes, that’s Paul Ryan citing a second-tier character in Atlas Shrugged as the ultimate authority on monetary policy; and we’re not talking about when he was an adolescent, we’re talking about someone who was already a rising Republican star. But why the craziness? It goes beyond class interest, I think, although that’s part of it. There’s something about money that promotes crazy thinking, backed with a lot of passion (and anger at anyone who doesn’t go along with the program). What makes money and monetary policy special? Here’s my current thought: in some sense money is a really weird thing, which can look to individuals like a real asset — cold, hard, cash — but is ultimately, as Paul Samuelson put it, a “social contrivance” whose value is more or less conjured out of thin air. Mainstream macroeconomics acknowledges the weirdness — in particular, makes heavy reliance on the ability of central banks to create more fiat money at will — but otherwise treats money a lot like ordinary goods. But that intellectual strategy doesn’t come naturally to many people, so there’s always a constituency for monetary cranks.

Money Makes Crazy, by Paul Krugman -- So monetary crazy is pervasive in today’s G.O.P. But why? Class interests no doubt play a role — the wealthy tend to be lenders rather than borrowers, and they benefit at least in relative terms from deflationary policies. But I also suspect that conservatives have a deep psychological problem with modern monetary systems. You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society. ...  Modern money — consisting of pieces of paper or their digital equivalent that are issued by the Fed, not created by the heroic efforts of entrepreneurs — is an affront to that worldview. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. ... Paper is a check drawn by legal looters.”  Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a technical issue, a question of what works; it’s a matter of theology: Printing money is evil.

Fed’s Powell Seeks Greater Confidence on Inflation Rebound - U.S. inflation is too low and Federal Reserve officials should wait for more evidence that it will return to the central bank’s official 2% target before raising interest rates, Fed governor Jerome Powell said Monday. Mr. Powell said recent progress on reducing unemployment was encouraging. But he added that the other side of the Fed’s mandate, stable inflation, was falling repeatedly short. “Inflation is too low,” Mr. Powell told Bloomberg television in an interview. “I want to have some reason for confidence that it’s coming back up to 2%. I think the time is coming but it’s not here. I would want to see some evidence.” U.S. inflation as measured by the personal consumption expenditures index or PCE, the Fed’s preferred consumer price index, has fallen short of the central bank’s stated 2% goal for 32  months. The Fed has kept interest rates at effectively zero since December 2008, but officials are considering an interest-rate increase sometime this year. They said last month they could remain “patient” as they consider raising official borrowing costs. Asked about this terminology, Mr. Powell said: “I think ‘patience’ is the appropriate term.” He said low inflation gives the Fed some time—despite the transient effects of cheaper oil—and the ability to be patient. In addition, he said the labor market also appeared short of full health despite recent improvements.

Only raise US rates when whites of inflation’s eyes are visible - - Larry Summers - I cannot recall a moment when the gap between what markets expect the US Federal Reserve to do and what the Fed itself has forecast it will do has been as large. Markets predict that the Fed will raise rates only to 1.6 per cent by the end of 2017; the Federal Open Market Committee’s average forecast is 3.5 per cent. Such a divergence raises the risk of volatility and poses a communications challenge for the Fed. More important, it raises the question of what should guide future policy. Especially after Friday’s very strong employment report, there can be no doubt that cyclical conditions are normalising. ... All of this taken in isolation would suggest that interest rates should not remain at zero much longer. On the other hand, the available inflation data suggests little cause for concern. ... Perhaps most troubling: market indications suggest inflation is more likely to fall than rise . The Fed has rightly made clear that its decisions will be data dependent. The further key point is that it should allow the flow of information on inflation rather than on real economic activity to determine its timing in adjusting interest rates. And it should not raise rates until there is clear evidence that inflation, and inflation expectations, are in danger of exceeding its 2 per cent target. Here are four important reasons why. First, real wages for most workers have been stagnant. Median family incomes are down by 4.5 per cent over the past five years and the economy is about $1.5tn — or $20,000 for the average family of four — below pre-recession estimates of its 2015 potential.  Second, if inflation were to accelerate a bit this would be a good thing. It is now running and is expected to run below the Fed target.Third, Historical experience is that inflation accelerates only slowly so the costs of an overshoot on inflation are small and reversible with standard tightening policies. In contrast, aborting recovery and risking a further slowing of inflation is potentially catastrophic.  Fourth, the US has never been more intertwined with the global economy. Higher interest rates and the stronger dollar they would bring would mean greater debt burdens for debtor countries, a growing US trade deficit that damages manufacturing, and growing protectionist pressures.

Fed’s Plosser Says Little Risk of Deflation in the U.S. Economy -- The outgoing leader of the Federal Reserve Bank of Philadelphia doesn’t expect the U.S. to be hit by price deflation, and argued again that the U.S. central bank needs to consider interest rate increases soon. “I don’t see deflation as a risk in the U.S. economy,” Philadelphia Fed President Charles Plosser told the Fox Business Network television channel in an interview Monday. He said weakening price pressures as measured by headline inflation gauges largely reflect the huge drop in oil prices, and aren’t a sign of broader economic problems. “We have to look through” the drop in oil prices and its impact on inflation, Mr. Plosser said. The U.S. central bank is currently caught between the cross currents of decent growth, strong job gains and inflation readings that are falling ever farther short of its 2% price target. While the growth and hiring news argues in favor of rate increases, price pressures are tilting the other way. Indeed, many economists believe negative price readings could prevail for much of this year. Raising rates in the face of such weak inflation numbers would be unprecedented.  Mr. Plosser repeated in his interview his long-held belief that the course of economic data suggests the Fed should be raising rates now, or very soon. Mr. Plosser also said the Fed’s new commitment to be patient when it comes to the timing of rate increases was a bad idea that complicates the central bank’s other commitment to change rates in reaction to incoming data.

QE and ZIRP Are Deflationary -The Fed and other Central Banks have shifted away from focusing on growth to focusing on inflation. The explanation here is as follows: they’ve failed to create growth, debt deflation is their worst nightmare, so the best they can hope for is inflation to make debt servicing easier. However, by leaving interest rates at zero, the Fed has unleashed its worst fear: deflation… particularly deflation in consumer spending and consumer psychology… the lifeblood of the US economy. It sounds totally counter-intuitive, but let’s consider the following. If you are retired or close to retired, your primary concern is having enough money to enjoy retirement and possibly leave a little something for your children/grandkids. Since you will no longer be working (hopefully), your money will come from interest income on the pool of capital you have accumulated by now. If you’d saved $1 million, and interest rates are 4%, you’ve got interest income of $40,000 per year. That’s not bad at all if you’ve paid off your house and accomplished the other items associated with “the American Dream.” However, if you’ve saved $1 million and interest rates are 0.25% as they are today, your interest income is $2,500 per year. This is HIGHLY deflationary because you are making next to nothing, which means that in order to survive you have to spend your savings. This reduces your total capital, as well as the potential for greater future interest income (the amount of capital you have to produce interest income down the road is shrinking).  If this scenario, you’re not going to go out and start living high on the hog. You are going to start being more frugal and careful with your expenses because money is not coming in at the pace you’d hoped.  Consequently, your spending goes down and you enter a kind of “capital hibernation.” You’re not going to start plunging your money into risky investments because you are more averse to loss of capital than potential gains.

The Remarkable Depth and Breadth of Deflation: Above are three charts of four ETFs: the DBA, which tracks agricultural commodities, the DBBs which track industrial metals, DBE, which tracks energy and DPP which tracks precious metals. The top chart is for three years, the middle is for two and the bottom is for one. On the three year chart, there are only a few months of positive returns from the DBAs, DBEs and DPP. On the two year chart, there are only a few months of positive returns, this time from the DBAs and DBBs On the one year chart, both the DBAs and DBBs spiked earlier in the year, but both have been slowly moving lower since; all sectors are now printing negative returns. Regardless of your time horizon, there just isn't any commodity inflation, period.

Philadelphia Fed’s Plosser Says ‘Jury Still Out’ on Inflation Surge - Outgoing Federal Reserve Bank of Philadelphia President Charles Plosser said Thursday he isn’t yet ready to throw in the towel on his long-held fear ultra-easy central bank policies will cause an inflation outbreak. Mr. Plosser was speaking on Bloomberg TV. The veteran central banker is set to retire at the start of March. Mr. Plosser has long been concerned about the Fed’s actions over the course of the financial crisis and its aftermath, and he has been a regular dissenter during the times he held a voting role on the monetary-policy setting Federal Open Market Committee. Mr. Plosser told the television channel he didn’t regret any of his dissenting votes. While the votes may not have altered the outcome of central bank policy, he said they helped shape the debate and proved the public officials were actively considering their actions. One of Mr. Plosser’s persistent concerns about Fed stimulus over the last few years is that it would set the stage for surging inflation. Instead, price pressures have remained persistently short of the Fed’s 2% price target and are in fact getting weaker, rather than stronger, despite solid job market gains and decent growth. “The jury is still out” when it comes to the inflation outlook, Mr. Plosser said. “We will have to see as we exit this period of extreme accommodation, seven plus years of zero interest rates, whether we will have inflation—inflationary consequences from that. That is something we still don’t have an answer to,” the official said.

Anxiety and Interest Rates: How Uncertainty Is Weighing on Us -  Robert Shiller -  Anxiety and uncertainty are weighing on individuals even where the overall economy is growing. Some of this angst is the fallout from advances in information technology..., the technologies may eliminate our jobs... Even people with moderately high incomes have reason to be uncertain. ... Along with this ... is the psychic cost of growing income inequality. ... I suspect that there is a real, if still unsubstantiated, link between widespread anxieties and the strange dynamics of the economic world... — a link that helps to explain why short-term interest rates are very low, long-term rates, too, why stock market prices are so high in some countries and why real estate prices have come up in many places... When there is unusual uncertainty about the future, and if not enough new business initiatives can be found to increase the supply of good investments, people will compete to bid up existing investable assets. ...Uncertainties ... can affect asset prices through an important indirect channel, government policy... Governments ... use expanded credit in a desperate effort to placate a dissatisfied electorate. Credit expansion can create housing bubbles and an illusion of wealth for many people, for a while, at least. The idea is: “Let them eat credit.” But with rising anxiety about our economic lives and about the state of the markets, we need something more substantial than credit expansion to help us. We all need to think hard about the underlying mechanisms producing individual uncertainty and inequality, and we need to devise financial and insurance plans to help us to deal with whatever looms ahead.

Warning—Falling (U.S. Treasury) Objects - The IMF Blog: The remarkable remarkable collapse in the price of oil--a key global price that has virtually halved in the space of just a few months—has received a lot of attention lately. Meanwhile, another significant shift has taken place in recent months that is just as surprising and has wide-reaching global implications—the dramatic drop in long-term U.S. Treasury bond yields. The last time we saw 10-year Treasury bond yields this low was in early May 2013. As many will remember, this didn’t last long and when it corrected, it set off a burst of volatility across emerging markets. The sharp drop in this key global interest rate has occurred despite the general strength of the U.S. economy, the positive news coming from recent data, and the broad consensus among analysts that the day is soon approaching when the Federal Reserve will start raising interest rates. Once you strip out changes in the expected path of future short term rates, it becomes clear that it is the term premium—the compensation that investors require for holding a long-term bond rather than rolling over a sequence of short-term bonds—that has been responsible for a big chunk of the fall in Treasury rates. The term premium has actually turned negative since the start of the year. Some believe that long-run inflation in the United States could become permanently stuck below the Fed’s goal of 2 percent. As a consequence, holders of longer maturity bonds would need less compensation for future inflation. Increasing global risk aversion is another possibility. The recent improving fiscal positions in some of the large industrial countries, including the United States, has reduced the net supply of global safe assets.The recent stellar U.S. growth performance is diverging from much of the rest of the world. It is not surprising, then, that investors would expect the dollar to continue to strengthen in the months ahead.

Rand Paul Explains What The Dollar Is Backed By: "Used Car Loans, Bad Home Loans, Distressed Assets And Derivatives" -- Having recently exposed the mainstream media's lack of objectivity in "slanted and distorted" interviews, Rand Paul has turned his focus to another staple of the status quo - his father's arch-nemesis, The Fed. As WSJ reports, Sen. Rand Paul unleashed a blistering attack on the Federal Reserve in Iowa on Fridasy evening, calling for an audit of the institution’s books and blaming it for fueling income inequality. "Once upon a time, your dollar was as good as gold," he explained, adding "then for many decades, they said your dollar was backed by the full faith and credit of government." Do you know what it’s backed by now? "Used car loans, bad home loans, distressed assets and derivatives."

U.S. Economic Growth Estimates for the Fourth Quarter Are Dropping After A Strong Six-Month Stretch - The U.S. economy’s growth rate for the fourth quarter of 2014 is looking worse than initially thought, balancing out the strong six-month stretch that came before it. Gross domestic product, the broadest measure of goods and services produced in the country, registered an annual growth rate of 2.6%, the Commerce Department said last month, a marked slowdown from earlier in the year. That figure, based on incomplete data, is deteriorating as more official figures come rolling in. On Tuesday, Commerce released wholesale inventories for December, sparking the latest round of downgrades for GDP growth in the final three months of last year. Now, it’s looking like GDP came in under 2% to round out the year. Forecasting firm Macroeconomic Advisers on Tuesday lowered its tracking estimate of fourth-quarter GDP by four-tenths to 1.7%. J.P. Morgan Chase trimmed its estimate to 1.7% from 2%. And Barclays also knocked three-tenths of a percentage point off its estimate, to 2%. Inventories, which contribute to GDP when they rise, aren’t the only reason. The registered an annual growth rate of 2.6%, the Commerce Department said last month, a marked slowdown from earlier in the year. That figure, based on incomplete data, is deteriorating as more official figures come rolling in. On Tuesday, Commerce released wholesale inventories like it came in wider than initially estimated during the fourth quarter, which also would subtract from top-line economic growth. But a drawdown in company inventories one quarter sometimes spells restocking the next. “A weaker inventory accumulation in the fourth quarter is a favorable development for first-quarter growth,”

MA’s Monthly GDP Measure Declined 0.6% in December | Macroeconomic Advisers: Monthly GDP declined 0.6% in December, and growth for November was revised down by three-tenths. The decline in December reflected a sharp deceleration in PCE and a large decline in net exports; nonfarm inventory investment declined somewhat. The level of GDP in December was 0.8% below the fourth-quarter average at an annual rate. Our latest tracking forecast of 2.4% annualized growth of GDP in the first quarter assumes increases in monthly GDP during the first quarter that average 0.4% per month (not annualized).

Inventories May Not Have Been Quite the Boost to GDP in Q4 (Thu, Feb 12 2015): In its first estimate of GDP, the BEA assumed a brisk pace of inventory building in the fourth quarter. Today’s business inventories report suggests the initially-reported 0.8 percent boost may be revised lower. The 0.1 percent increase in business inventories for December was smaller than the 0.2 percent gain that had been expected by the consensus. Sales were weak across the board in December, with manufacturers reporting a monthly sales decline of 1.1 percent and retailers posting a similar drop. In a separate report this morning, we learned that January retail sales fell again. Q4 Inventory Build Not Entirely Intentional Consumption spending was strong in the fourth quarter, but equipment spending fell modestly. So is the inventory build intentional as consumer-oriented businesses stock up? Or is it unintentional as businesses were caught flat footed by the cutbacks in equipment spending? The inventory-to-sales figures showed increases across the board, which suggests at least some of the inventory build was unintended.

Winter Snow Weighs on First-Quarter GDP - Brace for blizzards and other bad weather to hit the economy again this winter, though perhaps not as deeply as last year. The forecasting firm Macroeconomic Advisers on Thursday said heavy snowfall pounding the Northeast and parts of the Midwest will subtract 0.4 percentage point from gross domestic product growth in the first quarter. Last year was much worse, with a barrage of bad weather across a wider swath of the country taking an estimated 1.4 percentage point off growth in GDP, the broadest measure of economic output. “The major snowstorms that hit the Chicago and Boston areas earlier this month yielded larger contributions to the snowfall index than did any snowfall totals in any county last February,” the firm said in a note to clients. “But outside of these areas, every other county’s contribution in the top 100 is lower this February than last February…at least given our assumptions for the balance of the month.” The forecasting group measures snowfall totals by county and weights that against population. Calculations last year showed a much heavier impact from the weather, but also a big bounce back in subsequent quarters. GDP shrank at a 2.1% annual rate in the first quarter of 2014, and then expanded 4.6% in the second quarter and 5.0% in the third. The latest official estimate for the fourth quarter is the more trend-like 2.6%, though that will likely get revised down. For the first quarter of this year, Macroadvisers is forecasting a 2.4% growth rate, a figure that incorporates poor January retail sales figures that may be showing some impact from the weather. But senior economist Ben Herzon said there’s a downside risk to that estimate of a “few tenths” tied to additional effects from bad weather.

WSJ Survey: Forecasters See Blue Skies Ahead, But Check Back Later -  A new year inspires people to be hopeful about all the good that will come in the next 12 months. So maybe it is not surprising that economists in The Wall Street Journal survey of forecasters typically kick off the year feeling all warm and fuzzy about the economy’s prospects. Throughout most of this expansion, however, reality has forced the forecasters to scale back their expectations. In four of the five full years of this expansion, forecasters in the January and February surveys on average expected very solid growth in inflation-adjusted gross domestic product. But only in 2013 did actual GDP growth come in stronger than what was expected (3.1% versus the 2.35% forecast in the first two months of 2013). The challenge for economists is the inability to forecast the unexpected, whether from Mother Nature or Washington. Last year, for instance, economists thought the economy would expand by 2.8%, but no one foresaw how the severe and prolonged winter weather would cause economic activity to contract in the first quarter. That put GDP in the hole and growth for 2014 was only 2.5%. Similarly, the average forecast in early 2011 called for robust GDP growth of 3.4% that year. Then Washington battled over the budget and S&P unexpectedly downgraded U.S. debt in August, a move that rattled both business and consumer confidence. The resulting budget cuts and uncertainty subtracted from growth, which finished the year at just 1.7%.

Nobody Understands Debt, by Paul Krugman - Many economists, including Janet Yellen, view global economic troubles since 2008 largely as a story about “deleveraging” — a simultaneous attempt by debtors almost everywhere to reduce their liabilities. Why is deleveraging a problem? Because my spending is your income, and your spending is my income, so if everyone slashes spending at the same time, incomes go down around the world.   Last week, the McKinsey Global Institute issued a report titled “Debt and (Not Much) Deleveraging,” which found, basically, that no nation has reduced its ratio of total debt to G.D.P.  You might think our failure to reduce debt ratios shows that we aren’t trying hard enough — that families and governments haven’t been making a serious effort to tighten their belts, and that what the world needs is, yes, more austerity. But we have, in fact, had unprecedented austerity. Real government spending excluding interest has fallen across wealthy nations — there have been deep cuts by the troubled debtors of Southern Europe, but there have also been cuts in countries, like Germany and the United States, that can borrow at some of the lowest interest rates in history. All this austerity has, however, only made things worse — and predictably so, because demands that everyone tighten their belts were based on a misunderstanding of the role debt plays in the economy. Because debt is money we owe to ourselves, it does not directly make the economy poorer (and paying it off doesn’t make us richer). True, debt can pose a threat to financial stability — but the situation is not improved if efforts to reduce debt end up pushing the economy into deflation and depression.

When Is It Time for Mindful Austerity? - In his budget, President Barack Obama called for an end to “mindless austerity.” That begs the question: If mindless austerity is to be avoided, will there ever be a time for mindful austerity? His budget doesn’t envision it anytime soon. Compare the president’s newest economic and fiscal projections to those in his previous budget. Then, Mr. Obama saw the publicly held debt declining from 74% of GDP in fiscal 2014 to 69% in 2024. In this year’s budget, the debt actually rises a bit in the near term before easing back to level out at 73%, little changed from 2014. There was a good case against trying to get the debt ratio down while the economy was still swimming in excess capacity and the Federal Reserve, with its short term interest rate at zero, was struggling to restart growth with unconventional monetary policy such as quantitative easing. The spending cuts and tax increases that began in 2011 held back the recovery, made the Fed’s job harder, and gave austerity a bad name. However, the fact that austerity is sometimes unwise doesn’t mean it always is. As John Maynard Keynes put it, “The boom, not the slump, is the right time for austerity at the Treasury.” The United States hasn’t seen a boom for a while, but if Mr Obama’s economic projections come true, it may soon (at least what passes for a boom these days). They project the unemployment rate dropping below 5% in 2017 and 2018, that is, slightly below most estimates of the natural unemployment rate. This is actually a bit more optimistic than last year’s budget.

Obama to Seek War Power Bill From Congress, to Fight ISIS - The Obama administration has informed lawmakers that the president will seek a formal authorization to fight the Islamic State that would prohibit the use of “enduring offensive ground forces” and limit engagement to three years. The approach offers what the White House hopes is a middle way on Capitol Hill for those on the right and left who remain deeply skeptical of its plans to thwart extremist groups.  The request, which could come in writing as early as Wednesday morning, would open what is expected to be a monthslong debate over presidential war powers and the wisdom of committing to another unpredictable mission in the Middle East while the nation is still struggling with the consequences of two prolonged wars. Congress has not voted to give a president formal authority for a military operation since 2002 when it backed George W. Bush in his campaign to strike Iraq after his administration promoted evidence, since discredited, that Saddam Hussein’s government possessed unconventional weapons.

Obama To Ask Republicans’ Permission To Bomb Ay-rabs, They Will Surely Love Him Now -- Perhaps you recall that for the last year or so, ever since those child-murdering dickbags who go by the name the Islamic State started making a nuisance of themselves in the Middle East — and we started bombing them, because America — various members of Congress have been demanding (demanding!) that the president ask them to grant him an Authorization for the Use of Military Force, basically a permission slip to do what he’s already doing anyway. And the president was like nah, no thanks, guys, those AUMFs you passed after 9/11 have me covered, even though they were about Al Qaeda and Iraq and not ISIS, but eh whatever, amiright? This made Congress very upset. It was not that they were against bombing ISIS — oh God no, don’t be silly — just that they are Very Serious People who want to have Very Serious Policy Conversations about Very Important Issues Facing the American People. This view spanned ideological lines, from hippie-dippy peaceniks who fret about separation of powers and “the scope and duration” of military activities, pshaw, to the Great American Heroes who’ve never met a bomb they didn’t love or a war they wouldn’t send your kids to die in. Well, Obama’s about to give them what they wantThe White House will ask Congress by Wednesday for new authority to use force against Islamic State fighters, congressional aides said on Monday, paving the way for lawmakers’ first vote on the scope of a campaign that is already six months old.

Immigration furor may thwart push to expand tax credit --Both President Obama and Rep. Paul Ryan (R-Wis.) want to expand a key tax break for the working poor, but any hopes for a bipartisan compromise face a familiar obstacle – immigration reform. In his latest budget, Obama proposed giving adults without children greater access to the Earned Income Tax Credit (EITC), a benefit that in some cases gives working families refunds from the government. Ryan, the chairman of the House Ways and Means Committee, has sounded open to that idea as well, noting that conservatives and Republicans have long been fans of the EITC and its work requirements. But as a Senate hearing this week showed, the strident debate over Obama’s move late last year to shield millions of illegal immigrants from deportation could undercut any efforts for EITC expansion.Obama’s order allowed undocumented immigrants to seek work authorization. That work permit would pave the way for a worker to get a Social Security number, which in turn would allow her or him to claim the EITC. Not only that, Eileen O’Connor, who ran the Justice Department’s tax division under George W. Bush, noted at the Senate Homeland Security Committee on Wednesday that workers who acquire a Social Security number would then be able to amend returns from the previous three years to claim the earned income credit.

Tax Subsidies May Not Help Start-Ups as Much as Lawmakers Think - Many tax subsidies help new businesses, especially those financed with borrowed money and organized to avoid the corporate income tax . However, large numbers of start-ups may not benefit from this largess, according to a new study by my Tax Policy Center colleagues Joe Rosenberg and Donald Marron.  Startups and those that lose money in their early years often pay higher marginal effective tax rates than established businesses. In addition, the benefits of tax subsidies vary widely by industry.   For decades, policymakers have enthusiastically supported special tax breaks for small businesses, including start-ups. This week, the House is expected to easily approve a measure that would permanently extend to $500,000  (indexed for inflation) the annual cost of property that small firms could deduct immediately under Sec. 179. In his 2016 budget, President Obama proposed increasing that limit to $1 million after 2015. But Joe and Donald, using TPC’s new Investment and Capital tax model, as well as data from the Kauffman  Firm Survey (a project that has been sampling start-ups since 2004), find that these subsidies fall very unevenly. Full disclosure:  For example, subsidies such as Sec. 179 are aimed at cutting taxes for equipment-heavy small firms. Not surprisingly, the biggest beneficiaries are companies in industries such as mining, telecom, and transportation. Retail and service firms, software and IT businesses, or small bio-tech firms get much more modest benefits.  But even these advantages can be washed out depending on how a firm is financed and how long it takes to become profitable. Other research findings from the Kauffman firm survey found that fast-growing and R&D-based firms rely more heavily on equity while businesses that invest in tangible assets are more likely to finance with debt.  But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years.

House GOP Restarts Effort to Make “Tax Extenders” Permanent - CBPP  -- The House is scheduled to vote tomorrow on the first of an expected series of bills to make permanent many large “tax extenders” — tax breaks, mostly for corporations, that policymakers routinely extend a year at a time — without offsetting the cost.  Tomorrow’s bill would make popular charitable-related tax provisions permanent, which many lawmakers support on policy grounds.  But, as our paper explains, doing so now without offsetting the costs would open the door for making other, costlier extenders permanent.  Making all of the extenders permanent would cost $473 billion over the next decade (see graph).  Ways and Means Committee Chairman Paul Ryan has made clear that House Republican leaders are simply “picking up where we left off last year,” when the House passed a series of permanent tax-extender bills, along with a bill to expand and permanently extend the “bonus depreciation” tax break, without offsetting any of the cost.  The President and many House members opposed that effort, and the President has properly threatened to veto tomorrow’s bill to make permanent the charitable provisions that Ways and Means approved last week

Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies - It is hard not to notice that while policymakers are talking tax reform they are walking tax deform. The more they vow to lower tax rates and eliminate targeted tax preferences (close loopholes in Congress-speak), the more bills they push to create new subsidies or juice up old ones. Yesterday, the Senate Finance Committee created three new tax breaks: a credit for the cost of new professional licenses for military spouses who move to a new duty station, an exclusion for clean coal power grants, and an investment credit for firms that acquire waste-to-heat-power equipment. It also voted to cut excise taxes for producers of hard cider and to allow Paul Newman’s charity to retain control of the Newman’s Own salad dressing brand without losing its tax-exempt status. Today, the Ways & Means Committee moved to approve measures to restore and make permanent $300 billion worth of tax extenders, including the research credit and the deduction for state and local sales taxes, as well as a proposal to expand Sec. 529 college savings accounts. Other lawmakers are busily introducing their own bills to extend existing tax breaks or create new ones. For instance, this week congressmen Pat Tiberi (R-OH) and Richard Neal (D-MA) put in a measure to make permanent and more generous the New Markets Tax Credit. Sen.Mike Crapo (R-ID) introduced one to exclude from tax certain assistance for grads of veterinary schools.

No Hitting the Brakes for Tax Breaks… Some House GOPers want to help millionaires save for college. Yesterday the House Ways and Means Committee approved a bill to expand the Sec. 529 college savings plan and rejected a Democratic amendment to limit the plans for people earning more than $3 million a year. Bloomberg reports that the amendment would have affected about 0.1 percent of households and could have covered the cost of the bill. As passed by the panel, the bill would cost the government $51 million over ten years. Ways and Means would also restore a couple of extenders… yet again. The panel voted yesterday to make permanent the deduction of state and local sales taxes and make permanent and simplify the research credit. Two other House members would like to give health insurance companies a break. Republican Charles Boustany and Democrat Krysten Synema want to repeal the Health Insurance Tax. The tax, estimated to raise $8 billion in 2014 and $14.3 billion by 2018, helps fund the Affordable Care Act. The proposal follows efforts to eliminate a similar tax on device makers. Will lawmakers ever walk the talk on tax reform? TPC’s Howard Gleckman can’t help but “notice that while policymakers are talking tax reform they are walking tax deform. The more they vow to lower tax rates and eliminate targeted tax preferences (close loopholes in Congress-speak), the more bills they push to create new subsidies or juice up old ones.”

US bill would tax ‘currency manipulators’ - Foreign products from places such as China and Japan will be subject to punitive US import taxes if their governments are found guilty of currency manipulation by Washington under legislation proposed on Tuesday. The measures contained in bipartisan bills presented in both houses of Congress come amid an escalation in rhetoric in Washington surrounding recent foreign exchange swings fed by concerns over the impact on American competitiveness and the US recovery of a rising dollar. "Few actions by foreign governments do more to disrupt free and fair trade and to harm US job growth than currency manipulation,” said Sander Levin, the veteran Democrat from Michigan leading the push in the lower House of Representatives. “Currency manipulation has had a major impact on millions of American middle class jobs. We are sending an unequivocal message today that action is needed to rein in this abuse.” A majority of both houses of Congress have called for the US to introduce binding currency provisions into trade agreements being negotiated by Washington including the Trans-Pacific Partnership with Japan and 10 other countries nearing completion. But that push, backed heavily by the US auto industry, has been resisted by the White House and the US Treasury in particular that insists that forums such as the G20 and institutions such as the International Monetary Fund are better suited to deal with currency matters than trade agreements.

Bank of America’s U.S. Deposit-Taking Unit Financed Tax Trades - WSJ: Bank of America Corp. for years used its government-backed U.S. banking subsidiary to finance billions of dollars in controversial trades that helped hedge funds and other clients avoid taxes, according to internal documents and people familiar with the matter. The bank last year quietly started phasing out the practice of using funds from its U.S. banking unit to finance transactions by its European investment-banking arm that, among other things, helped hedge funds avoid taxes on stock dividends, according to the documents and people. The practice has ended, according to a bank spokesman. The strategy had attracted criticism from federal regulators about reputational risks as well as the broader need to better protect the U.S. deposit-holding subsidiary from risky activities, according to internal bank documents and people familiar with the matter. And it has prompted a series of complaints by a bank employee to U.S. authorities about the investment bank’s use of U.S. bank funding for tax-minimization trades. The practice dates back to at least 2011, when senior Bank of America investment-bank officials in London started pushing subordinates to adopt the policy in order to take advantage of the lower funding costs enjoyed by the U.S. unit called Bank of America National Association, according to internal emails and the people familiar with the matter. The goal was to attract more hedge-fund clients to Bank of America’s European investment-banking unit, including clients that were engaged in the so-called dividend-arbitrage tax trades.  Bank of America National Association, or BANA, is home to the company’s vast U.S. retail-banking network, including the majority of its federally insured deposits. BANA pays less to borrow money than business units that engage in riskier investment-banking activities. Experts said it is inappropriate for Bank of America to tap the entity holding federally insured deposits to finance risky investment-banking trades.

IRS Issues John Doe Summons To FedEx, DHL, UPS, HSBC In Massive Offshore Account Hunt - A federal judge approved the IRS issuing summonses requiring FedEx, DHL, UPS, and a bevy of other handlers to produce information about U.S. taxpayers who used Sovereign Management & Legal Ltd. for offshore accounts and assets. They include Western Union Financial Services Inc., the Federal Reserve Bank of New York, Clearing House Payments Company LLC, and HSBC USA. The IRS uses John Doe summonses to obtain information when it searches for tax fraud by individuals whose identities are unknown. This is a sweeping order, allowing the IRS to get records from all of these companies. The target is any U.S. taxpayers who, from 2005 through 2013, used Sovereign’s services to control foreign accounts or entities. That is likely to be a long list. The IRS may face budget cuts, but the hunt for offshore evaders continues, this time out of a DEA operation. A DEA investigation of online narcotics trafficking got the IRS on to Sovereign, a company allegedly helping U.S. clients evade taxes. A taxpayer in the IRS offshore program (OVDP) reported that Sovereign set up his Panamanian shell, so now Sovereign is in the hot seat.  Sovereign is a multi-jurisdictional offshore services provider that offers clients the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, re-invoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control. Sovereign uses Federal Express, UPS and DHL to correspond with U.S. clients, and Western Union to transmit funds. Wire services operated by the FRBNY and Clearing House, and U.S. accounts HSBC USA holds for Sovereign’s banks in Panama and Hong Kong should produce a trove of Sovereign’s U.S. clients who may be avoiding or evading taxes.

U.S. scrutiny of Barclays and UBS widens forex trading probe: FT | Reuters: (Reuters) - The U.S. Department of Justice is examining currency-linked investments offered by Barclays and UBS, the Financial Times reported on Sunday. The agency is looking into whether the two banks sold so-called structured products without disclosing the profit they were making from currency trades used to generate the products' returns, according to the FT report, which cited people familiar with the investigation. ( The Department of Justice is also investigating other banks over allegations of inadequate profit disclosure to clients and counterparties involved in currency deals, the FT reported. The Department of Justice, UBS and Barclays declined to comment for the article.

U.S. Is Seeking Felony Pleas by Big Banks in Foreign Currency Inquiry - The Justice Department is pushing some of the biggest banks on Wall Street — including, for the first time in decades, American institutions — to plead guilty to criminal charges that they manipulated the prices of foreign currencies.In the final stages of a long-running investigation into corruption in the world’s largest financial market, federal prosecutors have recently informed Barclays, JPMorgan Chase, the Royal Bank of Scotland and Citigroup that they must enter guilty pleas to settle the cases, according to lawyers briefed on the matter. The pleas would be likely to carry a symbolic stigma, if limited actual fallout, in handing felony convictions to some of the world’s biggest banks.Yet even as those cases head toward negotiations over potential plea deals — a development that has not been previously reported — additional currency misconduct has surfaced in a New York state investigation, confidential documents show. The documents, excerpts from online chat rooms reviewed by The New York Times, suggest that banks designed electronic trading platforms that effectively drove up the price of currencies sold to clients. In the chats, replete with expletives and industry jargon, employees described and even joked about how the platform would cancel trades that ceased to be profitable for the bank.New York’s financial regulator, Benjamin M. Lawsky, initially focused on platforms at Barclays and Deutsche Bank, but he has since subpoenaed four other banks: Goldman Sachs, Credit Suisse, BNP Paribas and Société Générale. None of the banks have been accused of wrongdoing, and they are cooperating with the investigation.

Rise in financial alchemy is worryingly familiar - Those searching for evidence of Wall Street’s never-ending wackiness need look no further than the man who is convinced investors are wary of corporate bonds because the debt is just too risky. As detailed by Bloomberg this week, John “Mac” McQuown wants to create a hybrid security, known as an eBond, that would embed credit default swaps (CDS) into corporate debt. Doing so would automatically impart default insurance to each security, stripping out the so-called credit risk associated with issuers. Since many CDS are now traded via a central counterparty, the technique theoretically also strips out counterparty risk associated with the seller of the swap. Et voilà — a corporate bond is rendered an ostensibly risk free security with a credit profile similar to that of a US Treasury. It is financial engineering of a familiar sort. As Mr McQuown tells Bloomberg, the eBond technique means companies will be “able to transform junk-graded debt into the equivalent of AAA-rated notes”. We have seen similar alchemy before, back when subprime mortgage bonds were given triple-A ratings by dint of credit enhancement and a “wrap” provided by monoline insurers. When the housing bubble burst these insurers were suddenly on the hook for billions of dollars worth of losses and were soon overwhelmed. More recently, banks have begun offering to transform riskier securities into higher-quality assets that can be posted as collateral — a process branded as “collateral transformation”. Last year, Goldman Sachs tried to sell a new kind of debt that used derivatives to generate extra returns while creating a security that, nevertheless, carried a top credit rating. Before that, Citigroup attempted to sell a refreshed version of a synthetic collateralised debt obligation, the derivative-based asset class that wreaked havoc during the 2008 crisis. In short, financial engineers are still at work as investors demand fresh securities to buy, or to use as collateral. Indeed, the bond-buying programme announced by the European Central Bank last month looks set to give Wall Street’s engineers additional impetus as the ECB hoovers up safe assets and sets off a cascade of negative interest rates in the region. Investors will still need assets to buy and it is probable that someone will attempt to manufacture them.

Senate leader calls for US government's explanation in wake of HSBC leaks - A leading member of the Senate banking committee is calling on the US government to explain what action it took after receiving a massive cache of leaked data that revealed how the Swiss banking arm of HSBC, the world’s second-largest bank, helped wealthy customers conceal billions of dollars of assets. The leaked files, which reveal how HSBC advised some clients on how to circumvent domestic tax authorities, were obtained through an international collaboration of news outlets, including the Guardian, the French daily Le Monde, CBS 60 Minutes and the Washington-based International Consortium of Investigative Journalists. The files reveal how HSBC’s Swiss private bank colluded with some clients to conceal undeclared “black” accounts from domestic tax authorities across the world and provided services to international criminals and other high-risk individuals. The Guardian has established the leaked data was shared with US regulators five years ago. “I will be very interested to hear the government’s full explanation of its actions – or lack thereof – upon learning of these allegations in 2010,” said Ohio senator Sherrod Brown, the leading Democrat on the committee. Referring to previous charges against HSBC, which were resolved in a landmark civil settlement in 2012, he added: “If the charges are true, the same institution that was first caught violating US sanction laws and laundering money for Mexican drug cartels could then escape accountability for promoting widespread evasion of US tax laws. I intend on pressing regulators, the IRS, and the DoJ for answers.”

Bill Black and Alexis Goldstein on HuffPost Live - NEP’s Bill Black appears along with Alexis Goldstein on HuffPost Live with Alyona Minkovski. They are discussing HSBC and it’s latest mess – helping rich customers hide billions of dollars and avoid paying millions of dollars in taxes. You can watch the interview here.

Bill Black: Criminal Tax Evader HSBC’s CEO Resorts to Bank Apologist Fable of the Virgin Crisis -- HSBC’s most recent scandal is the perfect holiday gift. Whatever genre of entertainment one favors – from blood diamonds to drug cartels to rollicking royals to sport stars HSBC was happy to aid the wealthiest stars of your genre to illegally evade their taxes. Taxes were once termed the price we paid for civilization, but they now represent the price the wealthy brag to each other about refusing to pay as they pillage civilization. Because the City of London “won” the “regulatory race to the bottom” it is the worst “vector” for the epidemic of sleaze led by our most elite bankers. Oh, sorry, I let reality intrude in that last sentence.  The “respectable” government people in the UK and the U.S. (and Ireland) insist that we are experiencing the first virgin crisis – consisting of hundreds of thousands of fraudulent transactions by bankers – in which not a single CEO of the largest banks knew that his bank was a massive criminal enterprise. The long-running (anti) morality play with an extended run in each of these three nations claims that we are experiencing the first “Virgin Crisis” conceived without sin in these bank C-Suites. In every case, the bank CEOs – paid like Croesus because they are financial geniuses and managerial wizards – has been bamboozled by the tiny folks in the banks’ “org charts.” Such a betrayal of the trust that the elite bank CEOs reposed in these unworthy junior officers and employees! The pain of the elite bank CEOs is palpable – having their reputation besmirched by their ungrateful and immoral lesser. We’ll put aside who it is that crafts the perverse incentives that created the City of London’s (and Wall Street’s) corrupt financial cultures for the same reason that the CEOs’ apologists put aside that unsettling question. The latest installment from the UK comes in the testimony of Martin Wheatley, the chief executive of the Financial Conduct Authority (FCA) about HSBC’s latest scandal. Wheatley decried the “staggering” number of scandals the City of London’s banks have committed. Of course, “banks” can only commit scandals through “bankers,” so we all eagerly await which bank CEO will finally be prosecuted.

Bill Black appears on Background Briefing - NEP’s Bill Black appears on Ian Masters’ Background Briefing discussing HSBC and the tax dodging it facilitated for its customers. You can listen here.

The S.E.C.’s Hazy Approach to Crime and Punishment -- In Gilbert and Sullivan’s “The Mikado,” a line expresses the need “to let the punishment fit the crime.” The Securities and Exchange Commission is struggling with that notion when it decides whether to grant a waiver to an automatic bar from certain securities trading. The issue has been nagging the S.E.C. for the last year in settlements with banks and brokerage firms for violations of the securities laws that earns them the label of “bad actor,” which results in the automatic bar, which can be costly. Last week, two commissioners, Luis A. Aguilar and Kara M. Stein, issued a dissent from an order that granted a waiver to Oppenheimer & Company despite what they described as “egregious misconduct.” The firm reached a settlement with the S.E.C. and the Treasury Department’s financial crimes enforcement network for improperly executing sales of billions of shares of penny stocks for a client and failing to file suspicious activity reports about the trading. Oppenheimer paid $20 million in penalties for the violations. Under an amendment to Rule 506 that went into effect in September 2013, those violations would normally mean that the firm could not participate for five years in private placements of securities to so-called accredited investors, which include pension and hedge funds. These investors are viewed as sufficiently sophisticated so that they do not need the usual protections afforded by the disclosure requirements for such transactions. Shutting a firm out of this lucrative corner of the market, which involves hundreds of billions of dollars in sales annually, can inflict significant harm on its bottom line. The S.E.C. can waive the automatic bar “upon a showing of good cause.” What constitutes “good cause” is not spelled out in the rule, and that issue has divided the commissioners.

Former CFTC Commissioner Michael Greenberger: “We’re Going to be Back Where We Were in 2008″ - Yves Smith  - This interview with former CFTC Commissioner Michael Greenberger provides useful detail on why financial reform proved to be so weak. Some of it, predictably, is that Obama has consistently put Wall-Street-friendly candidates in key regulatory positions. As Greenberger points out, Gary Gensler unexpectedly switched allegiance.  That likely comes as no news. But what may surprise readers is Greenberger’s assessment that Dodd Frank was actually a pretty decent bill, but was substantially watered-down by extremely aggressive and effective lobbying in the rulemaking phase. Here I have to quibble a bit, since Dodd Frank punted on far more issues than is typical for a bill, kicking many over to a year or two of studies, or delayed implementation, which give the financiers another bite at the apple.

Stock Buybacks Are Killing the American Economy - Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks. Last year alone, U.S. corporations spent about $700 billion, or roughly 4 percent of GDP, to prop up their share prices by repurchasing their own stock. In the past, this money flowed through the broader economy in the form of higher wages or increased investments in plants and equipment. But today, these buybacks drain trillions of dollars of windfall profits out of the real economy and into a paper-asset bubble, inflating share prices while producing nothing of tangible value. Corporate managers have always felt pressure to grow earnings per share, or EPS, but where once their only option was the hard work of actually growing earnings by selling better products and services, they can now simply manipulate their EPS by reducing the number of shares outstanding.  So what’s changed? Before 1982, when John Shad, a former Wall Street CEO in charge of the Securities and Exchange Commission loosened regulations that define stock manipulation, corporate managers avoided stock buybacks out of fear of prosecution. That rule change, combined with a shift toward stock-based compensation for top executives, has essentially created a gigantic game of financial “keep away,” with CEOs and shareholders tossing a $700-billion ball back and forth over the heads of American workers, whose wages as a share of GDP have fallen in almost exact proportion to profit’s rise.

What Is Citigroup Hiding From Its Shareholders Now? --Simon Johnson -- In the early and mid-2000s, Citigroup had compensation practices that can fairly be described as a disaster for shareholders (and for the broader economy). Top executives, such as then-CEO Chuck Prince, received big bonuses and generous stock options. Lower level managers and traders were paid along similar lines. These incentives encouraged Citi employees to take risks and boost profits. Unfortunately for shareholders, the profits proved largely illusory – when the dangers around housing and derivatives materialized fully, the consequences almost destroyed the firm.  The market value of Citigroup’s stock dropped from $277 billion in late 2006 to under $6 billion in early 2009. The shareholders could easily have been wiped out – they were saved from oblivion by a generous series of bailouts provided by the federal government (see Figure 7 in the final report of the Congressional Oversight Panel; direct TARP assistance was $50 billion but “total federal exposure” was close to $500 billion). In the next credit cycle, the experience for Citi shareholders could be even worse. So it is entirely reasonable for shareholders to look carefully at, among other things, the details of how executives and other key employees are paid – and to understand the current incentives for taking and managing risk. But Citigroup is resisting efforts to disclose fully the structure of relevant compensation contracts. What is Citigroup hiding now?

Does Finance Do Any Good for Society? -  After the Great Recession, finance has gotten a bad rap as a professional calling: A survey last December found thatnearly half of Americans think that the financial system hurts the economy. Even among readers of The Economist—where bankers presumably have home-field advantage—a poll found that 57 percent disagreed with the statement that “financial innovation boosts economic growth.”  Luigi Zingales, a professor of finance at the University of Chicago’s Booth School of Business, has been studying the public’s post-recession loss of faith in the financial sector. In a speech delivered in early January at the annual meeting of the American Finance Association, Zingales argued that academic economists' views on the financial sector are too rosy in comparison to the public's mistrust.  In a National Bureau of Economics working paper published earlier this week, he expanded on how economists might try to bridge this gap between their views and public opinion. I spoke with Zingales about his paper, and, among other things, we talked about the press's diminishing role in shaping how economists and the public converse with each other and about whether skepticism toward bankers is a uniquely American phenomenon. The interview that follows has been edited and condensed for the sake of clarity.

A Fed Insider Calls for Reform, by James Freeman, WSJ:  Richard Fisher, President of the Federal Reserve Bank of Dallas, believes “there’s too much power concentrated in the New York Fed.” And that goes as well for the Fed’s Washington headquarters. He’s calling for voting power at the central bank’s Federal Open Market Committee (FOMC), which sets interest rates, to be reallocated to recognize the rising population and economic power of the South and the West.  In a visit to the Journal this week, Mr. Fisher sketched out his plan to limit the influence of Washington and Wall Street on monetary policy. To reform the Fed while maintaining its independence, Mr. Fisher first proposes to end the long tradition of the New York Fed President serving as the vice chairman of the FOMC. ...Mr. Fisher would further boost representation for those outside of Washington and New York. Today, the Washington-based Fed governors and the Chairman hold a total of seven votes on the FOMC. That would not change. But whereas today New York gets a permanent seat and the other 11 regional banks take turns sharing four remaining seats, the regional banks would hold six seats under the Fisher plan. New York would lose its permanent seat and instead take its turn in the rotation for one of the six regional seats. So the Fed governors and Chairman, selected by the President and confirmed by the Senate, would still have a majority on the FOMC, but power would be further dispersed outside of the Acela corridor. ...And to address “the potential for regulatory capture,” Mr. Fisher says that teams in charge of supervision of a “systemically important” bank should come from a district outside where the giant bank is based. ...

Another JPMorgan Banker Dies After Murder-Suicide: Chokes Wife, Stabs Himself To Death -- By now, there have been so many banker-related suicides that it has become a moot point of i) tracking them all or ii) trying to find a pattern. And yet, one name continues to stand out: JPMorgan. The bank which has been most prominent among the list of "suicided" bankers notched one more casualty over the weekend when "a JPMorgan Chase & Co. employee strangled and stabbed his wife to death before turning the knife on himself, according to police who are treating the couple’s death in Bergen County, New Jersey as a murder-suicide." But most eerie and disturbing is how comparable the Tabacchi double-death is to a comparable case from July of last year when as we reported not only did a JPM executive director shoot his wife multiple times before using the same weapon on himself (like now), but the tragedy also took place in New Jersey.

Consumer Protection Agency Seeks Limits on Payday Lenders - In the world of consumer finance, they are chameleons: payday lenders that alter their practices and shift their products ever so slightly to work around state laws aimed at stamping out short-term loans that can come with interest rates exceeding 300 percent.Such maneuvers by the roughly $46 billion payday loan industry, state regulators say, have frustrated their efforts to protect consumers.Now, for the first time, a federal regulator is entering the fray, drafting regulations that could sharply reduce the number of unaffordable loans that lenders can make.The Consumer Financial Protection Bureau, created after the 2008 financial crisis, will soon release the first draft of federal regulations to govern a wide range of short-term loans.The rules are expected to address expensive credit backed by car titles and some installment loans that stretch longer than the traditional two-week payday loan, according to industry lawyers, consumer groups and government authorities briefed on the discussions who all spoke on the condition of anonymity because the deliberations are private. Certain installment loans, for example, with interest rates that exceed 36 percent, the people said, will most likely be covered by the rules.Behind that decision, the people said, is a stark acknowledgment of just how successfully lenders have adapted to keep offering high-cost products despite state laws meant to rein in the loans.

As Oil Price Drops, Texas Lenders Watch for Fallout - WSJ: Oil prices have dropped by roughly half since last summer, pressured by a glut that is outstripping demand. That has caused an unfamiliar anxiety for many bankers with loans tied to the energy boom, even if indirectly. The drilling boom that lasted most of the past decade was financed largely by private-equity firms and bond deals—not the local and regional banks that typically provided money to independent exploration firms in generations past. Yet analysts say a sustained price drop creates vulnerability for small and midsize lenders whose customers provide a range of ancillary services, from the carwashes that scrub the trucks to the hotels that house the workers. The impact of the energy swoon on those businesses is in many ways more difficult to predict. So far, many energy bankers say, the mood is cautiously optimistic that a catastrophe isn’t looming.Bankers already have started warning customers that credit lines may be reduced in coming months, especially if prices slide further. And they are lowering their own internal projections for oil prices to see how their portfolios will perform in a worst-case scenario. At Cadence Bank in Houston, clients that bankers used to call twice a year are hearing from the bank every six weeks. “Clients know that credit lines are coming down, but they want to know by how much,” said Paul Murphy, chairman of the regional bank, which has more than more than $7 billion in assets.

Unofficial Problem Bank list declines to 387 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Feb 7, 2015.  One subtraction from the Unofficial Problem Bank List this week that leaves the list at 387 institutions with assets of $121.4 billion. A year ago, the list held 588 institutions with assets of $195.1 billion.  Thanks to reader for catching an action termination against Pacific Mercantile Bank, Costa Mesa, CA ($1.1 billion). The other alternation to this list this week was a name change for Worthington Federal Bank, Huntsville, AL ($130 million) to American Bank of Huntsville.

Report: Foreclosures Increase in January, "Clearing the deck" -- Note: Data from other sources suggest most of the loans on these properties were originated almost a decade ago.  Still "clearing the deck" after the storm. From RealtyTrac: U.S. Foreclosure Activity Increases 5 Percent in January Driven By 15-Month High in Bank Repossessions RealtyTrac® ... today released its U.S. Foreclosure Market Report™ for January 2015, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 119,888 U.S. properties in January, an increase of 5 percent from the previous month but still down 4 percent from a year ago. The 5 percent monthly increase was driven primarily by a 55 percent monthly jump in bank repossessions (REOs) to a 15-month high. A total of 37,292 U.S. properties were repossessed by lenders in January, up 23 percent from a year ago to the highest monthly total since October 2013....“Due to our ponderous judicial system, most of the options have been exhausted, and the judges are now expediting the process" “The banks recognize the opportunity in this improving market and are aggressively trying to remove these properties from their balance sheets. It is encouraging, after seven years, to see the end near on this dramatic cycle.”.. “Despite a bit of an extension to this wind-down process due to delayed actions created by the Homeowner Bill of Rights in 2013, we are preparing that this is really a final push to clear the decks of the a still disproportionate amount of distressed homes and finally bring the market back to a more stability.”

Can the Government Afford to Cut Mortgage Fees? - On Wednesday, U.S. Department of Housing and Urban Development Secretary Julián Castro faces a hearing at the House Financial Services Committee. Much of the questioning—especially from Republican lawmakers—will surround Mr. Castro’s recent decision to cut the fees charged on loans backed by the Federal Housing Administration. The FHA doesn’t make mortgages, but sells insurance to make investors whole on loans to borrowers with down payments of as little as 3.5%. Last month, the FHA cut the fee it charges a typical borrower by 0.5 percentage point to 0.85%, which the White House says will result in average savings of $900 per year. Of course, getting borrowers that savings, which HUD thinks will bring thousands of first-time home buyers into the market, comes with trade-offs.  Cutting FHA premiums by half a percentage point makes buying a home much cheaper for hundreds of thousands of borrowers. On a $200,000 loan, for example, a borrower would typically save about $1,000 in the first year at the lower charges. FHA insurance used to be much cheaper, but after steep crisis-era losses, the agency sharply raised its price to help repair its balance sheet. Even with the price hike, the FHA needed a $1.7 billion bailout from the U.S. Treasury in 2013. Now that its finances are in better shape, proponents of the cut say there’s room to save borrowers money and argue that today’s home buyers shouldn’t have to pay for past sins.

Freddie Mac: 30 Year Mortgage Rates increase to 3.69% in Latest Weekly Survey - From Freddie Mac today: Mortgage Rates Move Higher on Strong Jobs Report Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving higher amid a strong employment report. Regardless, fixed-rate mortgages rates still remain near their May 23, 2013 lows. ... 30-year fixed-rate mortgage (FRM) averaged 3.69 percent with an average 0.6 point for the week ending February 12, 2015, up from last week when it averaged 3.59 percent. A year ago at this time, the 30-year FRM averaged 4.28 percent.  15-year FRM this week averaged 2.99 percent with an average 0.6 point, up from last week when it averaged 2.92 percent. A year ago at this time, the 15-year FRM averaged 3.33 percent.This graph shows the 30 year and 15 year fixed rate mortgage interest rates from the Freddie Mac Primary Mortgage Market Survey®.     30 year mortgage rates are up a little (34 bps) from the all time low of 3.35% in late 2012, but down from 4.28% a year ago.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey  Mortgage applications decreased 9.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 6, 2015. ... The Refinance Index decreased 10 percent from the previous week. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.84 percent, the highest level since January 9, 2015, from 3.79 percent, with points increasing to 0.31 from 0.29 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.

Trulia: Asking House Prices up 7.5% year-over-year in January - From Trulia chief economist Jed Kolko: For Home Prices, The Rebound Effect Is Over. Long Live Job GrowthNationwide, asking prices on for-sale homes climbed 0.5% month-over-month in January, seasonally adjusted — the smallest monthly gain since August. Year-over-year, asking prices rose 7.5%, down from the 9.3% year-over-year increase in January 2014. Asking prices increased year-over-year in 94 of the 100 largest U.S. metros. The biggest home price increases are not necessarily in markets that had more severe housing busts. But the metros where home prices are now rising fastest are, almost without exception, the ones with faster job growth. Why? A growing economy fuels housing demand. Among the 10 metros with the biggest year-over-year price increases, nine had at least 2% year-over-year job growth. ...Nationwide, rents rose 6.5% year-over-year in January. The three large rental markets with the steepest rent increases – Denver, Oakland, and San Francisco – all have had job growth of 2% or more. In general, metros with faster job growth have larger rent increases, though some Sunbelt markets like Riverside-San Bernardino, Houston, and San Diego have had impressive job growth with more limited rent increases.  Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases had been slowing, the year-over-year change increased in January compared to December.  The month-to-month increase suggests further house price increases over the next few months on a seasonally adjusted basis.

FNC: Residential Property Values increased 5.0% year-over-year in December -  In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.  FNC released their December index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased slightly from November to December (Composite 100 index, not seasonally adjusted).   The 10 city MSA RPI declined in December, and the 20-MSA and 30-MSA RPIs increased . These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).    In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The year-over-year (YoY) change was lower in December than in November, with the 100-MSA composite up 5.0% compared to December 2013.   In general, for FNC, the YoY increase has been slowing since peaking in March at 9.0%. The index is still down 19.6% from the peak in 2006.

Stream of Foreign Wealth Flows to Elite New York Real Estate - On the 74th floor of the Time Warner Center, Condominium 74B was purchased in 2010 for $15.65 million by a secretive entity called 25CC ST74B L.L.C. It traces to the family of Vitaly Malkin, a former Russian senator and banker who was barred from entering Canada because of suspected connections to organized crime.Last fall, another shell company bought a condo down the hall for $21.4 million from a Greek businessman named Dimitrios Contominas, who was arrested a year ago as part of a corruption sweep in Greece.A few floors down are three condos owned by another shell company, Columbus Skyline L.L.C., which belongs to the family of a Chinese businessman and contractor named Wang Wenliang. His construction company was found housing workers in New Jersey in hazardous, unsanitary conditions.Behind the dark glass towers of the Time Warner Center looming over Central Park, a majority of owners have taken steps to keep their identities hidden, registering condos in trusts, limited liability companies or other entities that shield their names. By piercing the secrecy of more than 200 shell companies, The New York Times documented a decade of ownership in this iconic Manhattan way station for global money transforming the city’s real estate market. Many of the owners represent a cross-section of American wealth: chief executives and celebrities, doctors and lawyers, technology entrepreneurs and Wall Street traders. But The Times also found a growing proportion of wealthy foreigners, at least 16 of whom have been the subject of government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud. Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities.

At the Time Warner Center, an Enclave of Powerful Russians -- He had become extraordinarily wealthy during the early years of Vladimir V. Putin’s presidency, when the oil company he had acquired for $25 million was taken over in 2003 by a state-controlled enterprise for $600 million. It was widely alleged that the purchase price was excessive, and that money was funneled to politicians in the form of kickbacks. Six years later, as Mr. Vavilov helped inaugurate one new venture in Washington, his personal fortune was bringing another piece of business to fruition in New York. A shell company tied to Mr. Vavilov was poised to buy a penthouse at the Time Warner Center for $37.5 million.Mr. Vavilov’s purchase — all 8,275 square feet of it, with his-and-her master bathrooms and 360-degree city views — is an opulent example of how the flight of wealth accrued in the chaotic capitalism of post-Soviet Russia has been a powerful force behind the luxury condominium boom reordering New York City’s skyline. In the decade and a half since Mr. Putin came to power, Russians have socked away hundreds of billions of dollars overseas. Even as the Kremlin was promoting what it called a “deoffshorization” campaign to repatriate Russian capital, an estimated $150 billion left the country last year. Unless Mr. Putin can effectively lock the door, that flow may intensify if Russia’s economy and currency continue to founder.

Experts: Unaffordable rents here to stay - Unaffordable rents are making it hard for people to save for down payments, and they aren’t likely to ease up for at least two years, according to the latest Zillow Home Price Expectations Survey sponsored by Zillow and conducted quarterly by Pulsenomics. More than half (52%) of the respondents with an opinion on this issue said the market will correct the nation’s soaring rents over time, and no government intervention is required. About one-third (35%) of respondents said rising rents are not a problem. “Solving the rental affordability crisis in this country will require a lot of innovative thinking and hard work, and that has to start at the local level, not the federal level,” said Zillow Chief Economist Dr. Stan Humphries. “Housing markets in general and rental dynamics in particular are uniquely local and demand local, market-driven policies. Uncle Sam can certainly do a lot, but I worry we’ve become too accustomed to automatically seeking federal assistance for housing issues big and small, instead of trusting markets to correct themselves and without waiting to see the impact of decisions made at a local level. Broader federal efforts aimed at increasing real wages and job opportunities will go a long way toward helping renters, but real, lasting solutions to rising rents need to be found locally.” The survey also asked panelists about President Obama’s announcement last month aimed at helping middle-class homebuyers through a reduction in FHA mortgage insurance premiums.Two-thirds (66%) of survey respondents with an opinion said they think the changes will be “somewhat effective in making homeownership more accessible and affordable,” but almost half (49%) said the new initiatives are unwise, unnecessary and potentially risky for taxpayers.

Construction Costs Are Rising as Economy Improves - With the commercial real estate market in recovery in many parts of the U.S., construction costs are rising. The latest sign: a rise in an index on construction costs compiled by Minneapolis-based M.A. Mortenson Co., a construction company with about $2.5 billion in 2014 revenue. The index, which started at 100 in the first quarter of 2009, hit 111 in the fourth quarter of 2014. “In most markets, we’re advising customers to budget 5% to 6% increases in construction costs on an annual basis,” said Greg Clark, vice president of estimating for Mortenson. Costs still aren’t rising as fast as they were just before the bust. In 2006 and 2007, Mortenson was advising customers to budget 5% to 7% cost increases, Mr. Clark said. “But we could be at 2006-07 numbers by the end of this year,” he added. The current rise in costs is only partly due to rises in labor and material expenses. Most materials costs—except glass—have only seen moderate price increases. Labor costs have been increasing at 2.5% to 3.5% per year, Mr. Clark said. So why are overall costs rising faster than that? The answer has a lot to do with the numerous contractors that went bust during the downturn. Those that were left standing are now able to charge more because competition is less, Mr. Clark said. “If there are only four people to do the work and two are busy, the two that are left are going to ask a higher cost to do the work,” he said.

Houston, You Have A Huge Problem: One-Sixth Of US Office Space Under Construction Is In This Texas City - Nearly two months ago, in "Houston, You Have A Problem" - Texas Is Headed For A Recession Due To Oil Crash" we warned that, just as the title explained, the city that has been the biggest beneficiary of the US shale boom will, logically, be the biggest victim now that the shale boom turns to bust. The post had many numbers and charts, as well as lots of words, so it is understandable if if went right over the heads of many. Then, one month ago, we followed up with "The Next Victim Of Crashing Oil Prices: Housing", which also had a bunch of charts, numbers and words but had the following observation: .. we look at the impact of plunging crude on non-residential construction and specifically physical structures, which is where roughly 90% of energy capex is. Spending there tracked an annualized rate of $140bn in the first three quarters of 2014, a sum that accounts for a whopping 30% of total non-residential private fixed investment in structures, or about a 1% of GDP. The point was simple: while everyone has been focusing - and if they haven't, they should be, right BLS? - on the adverse impact to oil-service (only) jobs from the shale bust, it was only a matter of time before the fallout spread to that all important for the US "recovery" segment of the economy: housing. However, now that the WSJ has joined the fray, the time has come for US data reporting to finally catch up to reality. This is what the WSJ had to say about the imminent collapse in not only the Texas housing industry, but soon - everywhere else. The jagged skyline of this oil-rich city is poised to be the latest victim of falling crude prices. As the energy sector boomed in recent years, developers flocked to Houston, so much so that one-sixth of all the office space under construction in the entire U.S. is in the metropolitan area of the Texas city.

Middle-Class Spending Expectations Crash, NY Fed Reports - It appears someone forgot to tell The Federal Reserve Bank of New York (FRBNY) how to 'seasonally-adjust' its data to meet the narrative. In Februrary's survey of consumer expectations, FRBNY reports a collapse in consumer spending growth expectations in January. Even more worrying for President Obama's "middle-class economic" strategy is that the biggest plunge is among the $50-100k income cohort. Not exactly the picture of the 'wreckovery' Americans are supposed to be buying right now. All those jobs, all that wealth created, all the low-gas-price-tax-cut, and spending expectations collapse...

Why Bank Of America Is Stumped: Despite "Lower Gas Prices" US Consumer Spending Has Plunged - One just has to laugh while reading the following hilarious attempt to justify the cognitive dissonance by Bank of America's analysts - and everyone else for that matter - who were oh so certain that tumbling (if not any more) gas prices would translate into a "splurge" of spending on non-gas related goods and instead, when looking at their internal data, are seeing something inexplicable. To be sure, it wasn't just BofA data that has shown a plunge in discretionary spending: the December retail sales report last month courtesy of the government showed precisely the same, even if BofA's analysts - and everyone else - rushed to describe as a "one-off" aberration which would quickly be revised higher. Well, it won't be.  This is how Bank of America explains its total confusion why the US consumer so desperately refuses to follow the "recovery" script. All signs point to a robust consumer: job growth has accelerated, with an average of 336,000 jobs created a month over the prior three months, gasoline prices have plunged and interest rates have declined. Consumers are taking notice with sentiment measures climbing higher. According to the University of Michigan survey, consumers have not been this upbeat since January 2004, when the economy was booming. The natural outcome should be for  consumers to splurge, hitting the malls and going out to restaurants. But much to our surprise, the data suggest otherwise. How can we explain this disconnect? It seems that consumers are saving some of the windfall cash from lower gasoline prices, with the personal savings rate increasing to 4.9% in December. Another factor is that our data may be skewed by consumers with credit cards who are not as budget constrained as those who spend predominately with cash. Looking at a breakdown of spending by key sectors, we find a pick-up in sales at home improvement stores, restaurants and grocery stores, but a slowdown in lodging and furniture sales.

Michigan Consumer Sentiment Slips From Its January Peak - The Preliminary University of Michigan Consumer Sentiment for February came in at 93.6, down 4.5 points from the final reading of 98.1 in January. had forecast no change from the February Preliminary.  See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.  To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 10 percent above the average reading (arithmetic mean) and 11 percent above the geometric mean. The current index level is at the 72nd percentile of the 447 monthly data points in this series. The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 24.3 points above the average recession mindset and 6.2 points above the non-recession average.  Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest data point was a larger 4.5 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

UMich Consumer Confidence Tumbles, Biggest Miss On Record - After six month so soaring confidence, UMich consumer confidence tumbled from 11 year highs by the most since October 2013 in January (despite the low gas price stimulus), printing at 93.6, missing expectations of 98.1 by the most on record. It appears survey-based 'hope' is catching down to hard-date-based reality of spending habits as the sheer idiocy of the low-gas-price meme is destroyed once again. The drop was led by a plunge in Current Conditions from 109.3 to 103.1 and towards teh future, fewer now expect higher incomes and those who have favorable business expectations plunged from 70 to 58 with a surge in people expecting "bad times" over the next 12 months.

U.S. Retail Sales Fell 0.8% in January - WSJ: —U.S. retail sales slumped in January for a second straight month, a worrisome signal of weak consumer spending over the holidays and headed into 2015. Sales at retailers and restaurants decreased 0.8% last month to a seasonally adjusted $439.77 billion, the Commerce Department said Thursday. Retail sales dropped 0.9% in December after rising 0.4% in November. Gasoline prices have plunged since last summer. But even excluding purchases at gas stations, retail sales were flat in January after ticking down 0.2% in December. Excluding autos, sales fell 0.9% in January after an identical December decline. Excluding both gas and autos, sales rose 0.2% in January after a flat December reading. Economists surveyed by The Wall Street Journal had expected total sales would fall a more modest 0.5% last month. Retailer sales rose 3.3% in January from a year earlier, steady from December’s annual growth. Retail sales data can be volatile from month to month. January’s 0.8% decline came with a 0.5 percentage point margin of error.Even so, retail purchases are closely watched for clues to the direction of the broader economy. Consumer spending generates more than two-thirds of U.S. economic output, and robust household outlays in late 2014 are estimated to have bolstered growth in the face of a widening trade gap, a pullback in government spending and weaker business investment.

Retail Sales decreased 0.8% in January - On a monthly basis, retail sales decreased 0.8% from December to January (seasonally adjusted), and sales were up 3.3% from January 2014. Sales in December were unrevised at a 0.9% decrease. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $439.8 billion, a decrease of 0.8 percent from the previous month, but up 3.3 percent above January 2014. ... The November to December 2014 percent change was unrevised from -0.9 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline increased slightly. Retail sales ex-autos decreased 0.9%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 6.9% on a YoY basis (3.3% for all retail sales). The decrease in January was below consensus expectations of a 0.5% decrease. Sales for both November and December were revised up slightly.

Retail Sales Plunge Twice As Much As Expected. Worst Back-To-Back Drop Since Oct 2009 -- Following last month's narrative-crushing drop in retail sales, despite all that low interest rate low gas price stimulus, January was more of the same as hopeful expectations for a modest rebound were denied. Falling 0.8% (against a 0.9% drop in Dec), missing expectations of -0.4%, this is the worst back-to-back drop in retail sales since Oct 2009. Retail sales declined in 6 of the 13 categories. Clearly it has been a very cold winter, with both December and now January big disappointments. Retail sales disappoint, again In worse back-to-back drop since oct 09... The retal sales control group continues to crawl sequentially, while the relatively strong Y/Y data is still due to the base effect of December/January 2014 being slammed by the "Polar Vortex." If February spending does not pick up significantly, we will see a 2% handle.

January Retail Sales Were Surprisingly Weak; No Help from Cheaper Gasoline - The Advance Retail Sales Report released this morning shows that sales in January came in at -0.8% month-over-month, which comes on top of a -0.9% decline in December. Core Retail Sales (ex Autos) came in at -0.09%, which follows a -0.09% December decline (although that is an upward revision from the December Advance Estimate of -0.1%). Today's numbers came in substantially below the forecast of -0.05% for Headline Sales and 0.04% for Core Sales.  The two charts below are log-scale snapshots of retail sales since the early 1990s. Both include an inset to show the trend over the past 12 months. The one on the left illustrates the "Headline" number. On the right is the "Core" version, which excludes motor vehicles and parts (commonly referred to as "ex autos"). Click on either thumbnail for a larger version.  The year-over-year percent change provides a better idea of trends. Here is the headline series. Here is the year-over-year version of Core Retail Sales.  The next chart illustrates retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. I've highlighted the values at the start of the two recessions since the inception of this series in the early 1990s.  Given the sharp decline in gasoline prices in recent months, we would expect Retail Sales ex Gasoline to look strong, with savings on gas prices increasing other purchases. But January sales ex-gas were flat at 0.0% MoM.

Weak retail data drives buck lower for first time in a week - The dollar tumbled against its major rivals Thursday after retail-sales slumped for the second month and weekly jobless-claims data revealed a surprising jump. The ICE U.S. Dollar Index, a measure of the buck’s strength against a trade-weighted basket of six rivals, declined for the first time in four sessions. It lost 0.84% and fell to 94.1000. The euro rose to its highest level against the dollar in six days, boosted by weak data and reports that the European Central Bank has raised the limit of how much Greece can borrow through its Emergency Liquidity Assistance program. The shared currency traded at $1.1410, compared with $1.1318 Wednesday. Elsewhere, some industry experts read the Bank of England’s upbeat quarterly inflation report as hinting that a rate hike would come in 2016. The pound traded at $1.5399, compared with $1.5209 Wednesday. Currency experts wondered whether the buck’s recent slide portends an end to the buck’s seven-month rally. “Based on the chart of the trade-weighted dollar index, the longer-term uptrend in the greenback remains strong, though we may be in for some turbulence in the short term,”

Retail Sales Mystery: Where Are Americans’ Gas Savings Going? -    Americans saved at the pump last month as gasoline prices fell to levels last seen in 2009. But where did that money go? Thursday’s retail-sales report from the Commerce Department didn’t contain many answers. Overall sales fell in January for the second straight month, largely due to a 9.3% decline in sales at gas stations.  But other sectors didn’t see a broad boost from those savings. Excluding gas purchases, sales last month were flat from December after ticking down 0.2% the prior month. “With lower gasoline prices leaving households with more to spend on other goods and services, the labor market on fire and consumer confidence back at its pre-recession level, we had hoped to see a much stronger performance from underlying retail sales,”  There are signs that Americans may be saving the money they’re not spending on gasoline, or using it to pay down debt. The personal saving rate jumped in December to 4.9% from 4.3% in November, the Commerce Department estimated in a separate report. But there’s a big hole in the picture – the retail-sales report doesn’t track consumer spending on most services. The Commerce Department’s broader income and personal spending report for January, due out on March 2, will include estimates for services spending. But the first, hard data will come in the Quarterly Services Survey, a low-profile report that estimates revenue at service-providing firms. The QSS for the fourth quarter of 2014 will be released on March 11, and data for the first quarter of 2015 will come on June 10. “It takes time for consumers to reallocate their spending,” . “Some of the reduced gasoline expenditures will be allocated to spending on services. Some will be used to repay debt or saved, a negative for current spending, but a positive for the future.”

Wolf Richter: Something Rotten Is Piling Up in this Economy - It’s tough out there for companies that have to deal with the over-indebted, under-employed, strung-out American consumers with fickle loyalties and finicky tastes, who have been subjected to this corporate cost-cutting for years. And so retail sales, according to the Commerce Department, dropped a seasonally adjusted 0.8% in January. That’s on top of a 0.9% decline in December. The hitherto inconceivable is happening: folks are saving money on gas, but not everyone is immediately spending all that money! It’s so inconceivable that I warned about it and other effects of the oil price crash two months ago: “Wall Street promises a big boost to US GDP,” I wrote. “What have these folks been smoking?” But even excluding gasoline sales, retail sales were flat last month after edging down 0.2% in December. And sure, some of the savings from gasoline will be spent eventually, but there are plenty of Americans with enough money left over every month to where their spending patterns aren’t influenced by the price of gas.But this report, an advance estimate that is subject to potentially large revisions, covers only spending at retailers and restaurants, a portion of total consumer spending, which includes healthcare and anything else that consumers pay out of their noses for. And year-over-year, retail sales actually rose 3.3%, with food services sales up 11.3%, auto sales up 10.7% thanks to prodigious subprime financing, while sales at gas stations sagged 23.5%.  So from just the retail sales report, the consumer situation remains murky.

Hotels: Solid Start to 2015 - From US hotel results for week ending 7 February The U.S. hotel industry recorded positive results in the three key performance metrics during the week of 1-7 February 2015, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy rose 1.9 percent to 57.5 percent. Average daily rate increased 3.5 percent to finish the week at US$113.55. Revenue per available room for the week was up 5.5 percent to finish at US$65.32. 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, but business travel will pick up soon.

Energy expenditures as a percentage of consumer spending  - Here is a graph of expenditures on energy goods and services as a percent of total personal consumption expenditures through December 2014. This is one of the measures that Professor Hamilton at Econbrowser looks at to evaluate any drag on GDP from energy prices.Data source: BEA Table 2.3.5U. The huge spikes in energy prices during the oil crisis of 1973 and 1979 are obvious. As is the increase in energy prices during the 2001 through 2008 period. With the recent decline in energy prices, this ratio has declined sharply.  Hopefully energy prices are resuming their long term down trend as a percent of PCE.

Weekly Gasoline Price Update: Up 12 Cents, Biggest Pop Since July 2013 -  It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular rose 12 cents and Premium 11. This is the largest weekly increase since the 15-cent pop in mid-July 2013. According to, Hawaii has the highest average price at $3.05. The highest continental average price is in New York at $2.42. Utah has the cheapest Regular at $1.88.

Global Deflation Exports To US Send Import Prices Tumbling Most Since Lehman - Import prices dropped 8.0% YoY (modestly beating expectations of an 8.9% plunge) and 2.8% MoM. The last time import prices started to fall at this pace was a month after Lehman Brothers BK'd. Of course the crash of oil prices is largely responsible as imported fuel costs slumped 16.9% YoY - the most since Dec 2008 (petroleum -17.7%). However, even away from that the price of imported capital goods collapsed the most since March 2009 with the biggest rise in Japanese (foreign central banks) exported deflation since April 2013 (when QE really accelerated).

West Coast ports: Retail's $7 billion problem: Retailers' anxiety levels are rising as gridlock grinds on with contract negotiations between West Coast dockworkers and port terminal operators. It has been a long nine months for those dealing directly, or indirectly, with the lack of a West Coast port contract, and after a temporary shutdown over the weekend, retail lobby groups and consultants are assigning potential costs to the issue. According to a Kurt Salmon analysis, congestion at West Coast ports could cost retailers as much as $7 billion this year. That congestion cost comes from a combination of the higher price of carrying goods and missed sales due to below optimal inventory levels. A prolonged shutdown of course would be worse—and it would hit more than just the retail community. The National Retail Federation and National Association of Manufacturers estimate a 10-day shutdown could levy a $2.1 billion per day hit to the overall economy as about half of the nation's international imports come into the country via the West Coast ports. Without naming names, Kurt Salmon retail supply chain strategist Frank Layo said a number of retailers have begun to shift shipments to East Coast ports, or are buying extra inventory in advance to mitigate inventory disruption, though those measures are only temporary Band-Aids for a potentially large wound.  The cost to retail could get exponentially worse going forward. Layo said congestion coupled with rate increases from import growth, and retailers could be facing $36.9 billion more in 2016 than 2014's baseline costs.

US west coast ports face 4-day shutdown - Port employers on the US west coast are to halt vessel loading and unloading for four of the five next days, as the congested facilities slide closer to complete shutdown amid a protracted industrial dispute. The shutdown on Thursday, Saturday, Sunday and Monday follows a two-day shutdown last weekend and means that, by the end of Monday, terminals will have been operating normally on only four of the past 10 days. The stoppages come amid apparent unofficial go-slows by workers at terminals at ports in California, Oregon and Washington unhappy at employers’ failure to agree a new contract to replace one that expired on July 1. On Wednesday, there were 14 vessels waiting off the ports of Los Angeles and Long Beach — the region’s two busiest facilities — to load and unload. The slowdowns have caused considerable problems for both importers and exporters in the US. Japan’s Nissan and Toyota said they had been forced to airfreight parts for their US car manufacturing operations from Asia to circumvent the port hold-ups. The shutdowns are likely further to extend the already considerable wait for some vessels to enter port. One vessel — the YM Fountain — has been waiting off the Port of Tacoma, in Washington, since January 25 to enter port. As it did last weekend, the Pacific Maritime Association, which represents employers, said it was halting work to avoid paying premium rates for weekend and holiday working when relatively little work was being done. Thursday is the Lincoln’s Birthday holiday, while Monday is the Presidents’ Day holiday, marking George Washington’s birthday.

West Coast Ports Will Take A Split 4-Day Weekend Off – It’s hard to understand the contract dispute over workers at the ports on the west coast of the United States, because the two different sides can’t even agree on what they’re arguing about. Either longshoremen are deliberately slowing down their work to protest while still getting paid, or shipping changes have caused a backlog for diligent workers. Either way, there are a lot of containers of just about everything, waiting on ships. Today is a holiday according to the port workers’ contracts, and so is Monday. Instead of paying overtime for what shipping line representatives say is deliberately slowed-down work, they’re simply shutting everything down for those four days, as they did last weekend. The unions, meanwhile, claim that the owners are trying to force a lockout, and also making the backlog even worse as a negotiating tactic. We know, for example, that at the very busy port of Los Angeles/Long Beach, uncertified crane operators are no longer allowed to do that job for safety reasons. The union made that decision, and shipping line owners believe that making fewer crane operators available in general is causing the backlog. The effects of the slowdown are going to affect American consumers soon, and cause more problems than French fry shortages and chartered planes full of Subaru dashboards. For example, the New York Times reports that citrus growers in California have lost about $500 million in export business because containers headed out from the ports would have to sit for ten days.

The "Catastrophic Shutdown Of America's Supply Chain" Begins: Stunning Photos Of West Coast Port Congestion -- One week ago, when previewing what may be the first lockout of the West Coast Ports since 2002, we cited the Retail Industry Leaders Association who, realizing that failure to reach an agreement between the dockworker union and their bosses, the Pacific Maritime Association representing port management would lead to devastating consequences for the US retail industry, had several very damning soundbites:

  • "a work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt."
  • "A west coast port shutdown would be an economic disaster."
  • "A shutdown would not only impact the hundreds of thousands of jobs working directly in America’s transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves."

And the punchline: "The slowdown is already making life difficult, but a shutdown could derail the economy completely."  Just so readers have a sense of what is at stake, this is what the average dockworker makes: $147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000 (according to an association press release). It is the overtime compensation to the total shown here, which grosses to over a quarter of a million dollars, that dockworkers are negotiating to raise or else the key US supply-chains gets it.  Incidentally, the demands of the dockworker union and their leverage is precisely the reason for the dramatic discrepancy we showed in the following chart:

Obama, Biden & Pelosi Lobbying Hard for TPP -- As you may know, I've been writing a lot lately about TPP, the next NAFTA-style job-killing (and sovereignty-killing) trade agreement — for example, here:
The State of the Union, Hillary Clinton and Obama’s “Piketty Moment”
NAFTA, TPP, and The Clinton Global Initiative’s “Free Trade” Activism

I've also discussed TPP and its congressional prospects with Rep. Alan Grayson in a recent one-hour interview. He's as concerned as the rest of us. There is absolutely no question that TPP is a corporate (meaning, billionaire) wet dream, a profit maker and a U.S. job killer in one sweet package. (Yes, killing U.S. jobs is a goal, not a by-product. No billionaire CEO worth his luxury jet wants to pay one dime for an overpaid U.S. worker when slaves in China are next to free. Let them eat joblessness until they change their pay demands.) TPP is also the next step in the neutering of democratic government by the global wealthy, who see the creation of even more wealth as the only goal of life on earth and the only real use for government. (Click for a short explainer on the sovereignty-killing feature of these agreements.) In addition, I've written about Obama's recent on-the-one-hand, on-the-other-hand "progressivism." He gives what appears to be protection to the Arctic Wildlife Preserve from carbon extraction (addressing climate in a small but visible way) and takes back by opening large areas of the eastern seacoast for further drilling (and spilling). He gives what appears to be an open Internet (finally) and takes back in failing to prosecute Darren Wilson for his alleged crimes, or Rupert Murdoch and NewsCorp for theirs. But there's no on-the-one-hand, on-the-other-hand about TPP. It's a bad deal all round, for the U.S. and for the world. It's a billionaire parting gift from his last two years in office — only they will benefit from it — and a hard slap at his legacy and America, with zero to offset it. Ask yourself: What's the strongest argument its proponents make for TPP? It's NAFTA only better, this time with jobs.Everyone on the planet who cares, or is unbought, knows that the results of the 20-year-long NAFTA experiment are in. NAFTA was a disaster for everyone in the world without at least a million in wealth, and a feast for everyone with more than a billion.

Go to Prison for File Sharing? That's What Hollywood Wants in the Secret TPP Deal -- The Trans-Pacific Partnership agreement (TPP) poses massive threats to users in a dizzying number of ways. It will force other TPP signatories to accept the United States' excessive copyright terms of a minimum of life of the author plus 70 years, while locking the US to the same lengths so it will be harder to shorten them in the future. It contains DRM anti-circumvention provisions that will make it a crime to tinker with, hack, re-sell, preserve, and otherwise control any number of digital files and devices that you own. The TPP will encourage ISPs to monitor and police their users, likely leading to more censorship measures such as the blockage and filtering of content online in the name of copyright enforcement. And in the most recent leak of the TPP's Intellectual Property chapter, we found an even more alarming provision on trade secrets that could be used to crackdown on journalists and whistleblowers who report on corporate wrongdoing.  Here, we'd like to explore yet another set of rules in TPP that will chill users' rights. Those are the criminal enforcement provisions, which based upon the latest leak from May 2014 is still a contested and unresolved issue. It's about whether users could be jailed or hit with debilitating fines over allegations of copyright infringement.

Weak U.S. wholesale stocks point to cut in fourth-quarter growth estimate: (Reuters) – U.S. wholesale inventories barely rose in December, the latest suggestion that fourth-quarter growth could be revised lower. Still, the economic outlook remains bright, with other data on Tuesday showing a jump in job openings in December. Wholesale inventories edged up 0.1 percent as lower crude oil prices weighed on the value of petroleum stocks, the Commerce Department said. Stocks at wholesalers had increased by an unrevised 0.8 percent in November. Economists polled by Reuters had forecast wholesale inventories rising 0.2 percent in December. U.S. financial markets were little moved by the data. U.S. stocks were trading higher on hopes of a deal in Greece’s debt negotiations, while prices for Treasuries fell. The dollar rose against a basket of currencies. Inventories are a key component of gross domestic product changes. The component that goes into the calculation of GDP – wholesale stocks excluding autos – nudged up 0.1 percent. The report, together with last week’s data showing a 0.3 percent fall in manufacturing inventories in December, suggested the boost to GDP growth from restocking in the fourth quarter was probably not as large as initially thought. The government estimated last month that inventories added 0.8 percentage point to the economy’s annualised 2.6 percent growth pace in the fourth quarter. Prior to Tuesday’s inventories data, a larger-than-anticipated trade deficit in December had led economists to expect that fourth-quarter GDP growth could be lowered by as much as three-tenths of a percentage point.

Wholesale Inventory Growth Slowest Since May 2013, Sales Tumble - Worst Ratio Since Lehman -- There goes GDP... Inventory growth stalled notably to just 0.1% MoM in December (missing the 0.2% rise expectations) from 0.8% growth in November to its lowest since May 2013. The other side of the spectrum was even worse with Wholesale Sales sliding a worse-than-expected 0.4% leaving the December inventories/sales ratio at 1.22 (up from 1.16 in December) to the worst level since Lehman. If we build it... based on artificial price signals and mal-investment - they didn't come...

US business inventories rise 0.1 percent in Dec. vs. estimate of 0.2 percent increase: U.S. business inventories rose less than expected in December, supporting views that fourth-quarter growth was slower than initially thought. The Commerce Department said on Thursday business inventories nudged up 0.1 percent after an unrevised 0.2 percent increase in November.  Economists polled by Reuters had forecast inventories rising 0.2 percent in December. Inventories are a key component of gross domestic product. Retail inventories excluding autos, which go into the calculation of GDP, ticked up 0.1 percent in December. That followed a similar gain in November. The government estimated last month that inventories added 0.8 percentage point to the economy's annualized 2.6 percent growth pace in the fourth quarter. But with December manufacturing and wholesale inventory data recently coming in below the government's assumptions, economists expect that contribution could be lowered by at least five-tenths of a percentage point.

Business Inventories Grow At Slowest Pace Since May 2013, Inventory-To-Sales Worst Since Lehman -- Business inventories grew at a mere 0.1% in December, missing expectations for the 7th of the last 8 months. This is the slowest inventory growth since May 2013. Perhaps most worrisome is the drop in sales (down 1.1%) which slammed the inventory-to-sales ratio to its highest since July 2009.  The slowest growth in business inventories since May 2013... But a slump in sales pushed the inventory-to-sales ratio to its highest since July 2009... Charts: Bloomberg

Counterparty Risk in Material Supply Contracts - Forming long-term partnerships with customers and suppliers often creates a competitive advantage for firms because it permits resource sharing, eases financial constraints, and encourages investment in relationship-specific capital. While these relationships can be beneficial, they also increase firms’ exposure to their counterparties’ risk. In a recent Staff Report, Anna Costello of MIT and I study two important and unanswered questions about supply relationships. First, what specific characteristics of the trade relationship make a firm more vulnerable to adverse spillovers from their supply chain partners? Second, if managers understand these vulnerabilities, can they design contracts or diversify their partners in order to mitigate exposures to negative events along their supply chain?

Internet providers lobby against backup power rules for phone lines -- The Federal Communications Commission is considering whether to impose backup power requirements on Internet providers that offer phone service, but cable companies and telcos don’t want to be required to keep customers connected through long power outages.  While copper telephone lines can keep working through outages by drawing power from a telco’s central office, the old lines are going out of favor because they can’t provide Internet speeds as fast as cable or fiber. Voice over Internet Protocol (VoIP) phone service delivered over the newer networks stops working as soon as the power goes out unless there is a battery backup in the customer's home. The FCC thus opened a proceeding to determine whether Internet providers that offer voice service should have to offer backup power systems. “As consumers transition from legacy copper loops to new technologies, it is important they continue to have reasonable CPE [customer premises equipment] backup power alternatives to support minimally essential residential communications, particularly access to emergency communications, during power outages,” the FCC said.The commission tentatively proposed requiring that service providers “assume responsibility for provisioning backup power that is capable of powering their customers’ CPE during the first eight hours of an outage.” But the FCC said it would consider a 24-hour requirement and noted that Verizon already offers a 24-hour backup device.

Econoday Economic Report: Wholesale Trade February 10, 2015: The economy may be solid right now but inventories at the wholesale level look heavy, rising 0.1 percent in December vs a noticeable 0.4 percent decline in sales at the wholesale level. The mismatch drives up the stock-to-sales ratio by 1 notch from 1.21 to 1.22 which is the heaviest reading since way back in the troubled days of late 2009. This ratio was at 1.17 through the middle of last year but has since been moving higher. December's unwanted wholesale build is centered in the non-durable component where sales, in contrast to durable goods which rose 1.1 percent, fell 1.7 percent in the month. Here the culprit is petroleum where sales, reflecting both price effects and lower demand, fell 13.7 percent in the month. And the supply overhang, based on weekly petroleum inventory data, has continued to build into the new year. Showing a big draw in the month are lumber and electrical goods, two products that may be signaling rising demand out of the construction sector. The nation's inventories have been moving higher relative to sales but the imbalance has been centered in the wholesale sector, though inventories at the factory level are showing a little pressure as well. Watch Thursday for the business inventories inventory report which will round out December's inventory picture with data on the retail sector. Wholesale inventories looked a bit heavy in the wholesale sector, up 0.8 percent in November versus a 0.3 percent decline in sales that lifted the stock-to-sales ratio to 1.21 from October's 1.20 and compared to 1.19 in September. Weak sales made for unwanted inventory builds in metals, chemicals, lumber, machinery and farm products.

Small Business Optimism: Index Relinquishes Some of Its December Advance - The latest issue of the NFIB Small Business Economic Trends is out today. The February update for January came in at 97.9, down 2.5 points from the previous month. The index is now at the 36.1 percentile in this series. The forecast was for 101.3. Here is the opening summary of the news release.  The Small Business Optimism Index fell 2.5 points to 97.9, giving back the December gain that took the Index over 100. Still, the Index indicates that the small business sector is operating in a somewhat “normal” zone. Seven components fell, one was unchange d and 2 rose a bit. Most of the decline was accounted for by expected business conditions (43 percent of the decline), expected real sales (14 percent) and earnings (14 percent). The good news was the increase in the percent of owners reporting hard to fill openings and the drop of only 1 point in the net percent of owners planning job creation from December’s very good number.  The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past four years. The NBER declared June 2009 as the official end of the last recession.

In the Trenches, Recruiters See the Skills Gap Up Close -  No surprise, the acceleration in U.S. hiring in the second half of 2014 benefited the companies that profit from finding the right candidates for job openings. Those benefits are expected to continue in 2015 even though the skills shortage will make placements harder in some industries, according to a new survey. Bullhorn, a firm that creates cloud-based customer relationship management software for recruitment agencies, polled 1,285 North American recruiters in December to ascertain the state of the employment placement industry. “2014 was a year of high performance output and steady progress,” said the Bullhorn report. The survey showed 77% meeting or exceeding revenue goals last year. The ratio of openings filled increased to 50% from 46% in 2013. Looking at 2015, 89% expect revenues to increase and 75% plan to expand their own firms’ headcount. The revenue outlook means the industry expects to place a larger number of candidates into jobs this year. “Hiring economy-wide looks to continue on its current pace if not pick up,” said Gordon Burnes, chief marketing officer at Bullhorn. The Bullhorn survey also found the same skills-gap challenge mentioned in various business surveys. Three out of four respondents said they struggle to find the right skilled workers needed by the industry they mainly serve. Government had the biggest skills shortage, with 83% of recruiters seeing a shortage of skilled candidates while marketing, public relations and media had the fewest problems with the skills gap. Among job descriptions, engineering and design positions had the biggest shortage of candidates while marketing and creative positions had the smallest gap.

Strong January Employment Report (9 graphs) The Bureau of Labor Statistics release of the January jobs report shows continued strength in the labor market, with total nonfarm employment rising 257,000. Moreover, the current increase, along with revisions over the past two months show employment growth averaging 336,000 over the past three months. The revision to November, up to 423,000, was the largest monthly increase since May of 2010. In addition to the usual monthly revisions, the BLS also undertook annual re-benchmarking:  For those data geeks wanting to know more about benchmark revisions, here is the full article from the BLS. Summarizing that article, “The March 2014 benchmark level for total nonfarm employment is 137,214,000; this figure is 67,000 above the sample-based estimate for March 2014, an adjustment of less than 0.05 percent.” The BLS then uses the re-benchmarked data to revise the rest of the year, “From April 2014 to December 2014, the net birth/death model cumulatively added 968,000, compared with 841,000 in the previously published April to December employment estimates.” Employment gains were robust, the only major sector to shed jobs was the Government sector, losing 10,000, meaning that Private sector jobs increased by 267,000. Average weekly hours, however, have shown no change over the past 3 months, stuck at 34.6.Average hourly earnings ticked up slightly to $24.75, and growth has averaged about 2% per year since 2010, but with CPI inflation running below 2% of late means real hourly earnings are growing, albeit modestly. While the strong report certainly keeps the Fed on a steady *normalization* pace, there are still areas in the labor market that, if not troublesome, remain nagging issues. While the employment to population took a nose dive during the great recession…and is still quite low relative to its all-time (at least since WWII) peak… …however, if one zooms in, there has been a steady increase over the past year and a half or so… Another somewhat nagging issue is the fate of the long term unemployed. Indeed, the number of those unemployed 27 weeks or longer actually rose in January, from 2.785 million to 2.80 million persons. The percent of the unemployed who are unemployed 27 weeks or longer has been bouncing between 31% and 32% for the last six months or so…. The number of persons employed part time for economic reasons (or involuntary part-time workers) also didn’t improve in January. There remains 6.8 million individuals who would like to be working full time but couldn’t because the were unable to find full time work or had their hours cut back.

January's Jobs Report Shows Strong Payroll Growth for 2014 - The BLS employment report is another good showing for payroll jobs as growth was 257,000.  January is the month of revisions and November 2014 is now a 423,000 jobs added blowout with December 2014 not far behind with 329,000 jobs added.  We're on year eight after the start of the great recession and 2014 is finally when America started seeing some jobs growth.  While jobs are consistently being added each month, but only recently has the types of jobs created expanded beyond the lowest paying ones.  The United States is now up 2.5 million jobs from December 2007. That sounds great until one realizes working age population has increased and thus America needs jobs for all the new potential workers. Below is a bar chart showing the employer's payroll growth since January 2008. This shows major sectors like manufacturing and construction have not recovered from the recession. Leisure and hospitality is notorious to have very low paying jobs. Health care jobs are not just nurses and doctors, but very low paying aids and assistants, as well as caregivers. Professional and business jobs category contains waste management jobs and the temporary ones. Job gains from January 2014 are 3.207 million and the breakdown is shown below. This is just great jobs growth and one can say wow and finally. It is great to finally see jobs growth in manufacturing and construction. Yet, watch out on professional and business categories. There are many low paying office worker and support services jobs in this category. Additionally the BLS counts foreign guest workers in their employment statistics, so in the Science & Technology fields, don't assume those jobs went to Americans. Just to keep up with population growth, we need at least 100,000 jobs per month or 1.2 million a year and this estimate assumes the current artificially low labor participation rates. While it will take ages to create enough jobs to re-employ all of those who dropped out of the count during the recession who really need a job, the fact is payrolls are finally showing the kind of growth needed to do just that. On the private sector, or not jobs with the government, since the start of the recession, the private sector has gained 2.984 million jobs. This means the government has stayed fairly static and almost all of the growth has come from the private sector. Below is a bar chart of the payroll gains by industry sector for the month.

Revisions Push Private Payroll Job Gains to Levels Not Seen Since Dot.Com Boom - Strong upward revisions reported yesterday by the Bureau of Labor Statistics pushed US payroll job gains to levels not seen since the boom of the 1990s. According to preliminary data, the economy added 257,000 total payroll jobs in January 2015. The report revised gains for November upward from 353,000 to 423,000 and those from December from 252,000 to 329,000. The government sector lost 10,000 jobs in January. The government sector had added jobs in November and December, but over the year since January 2014, government jobs were down by 17,000. All levels of government shed jobs in January, but the federal government showed the largest losses. All told, the government sector has lost 688,000 jobs, including a net loss of 55,000 at the federal level, since the inauguration of President Barak Obama six years ago, contrary to his opponents’ idea that his administration would give rise to an “explosive growth of government jobs.” Meanwhile, private sector jobs have boomed. As the next chart shows, the economy added 3,127,000 private payroll jobs between January 2014 and January 2015. That easily eclipsed the peak rate of job creation during the housing bubble of the early 2000’s, and was the strongest 12-month showing since 1997, at the height of the boom. Elsewhere in the report, there were few surprises. Wages were up and the labor force added more than a million workers, reversing December losses with room to spare. Both the narrow and broad unemployment rates rose by a tenth of a percentage point, leaving them still near their lows for the recovery. The percentage of unemployed workers who were without a job for more than 27 weeks decreased, as did the average duration of unemployment. However, the number of long-term unemployed remains high by historical standards.

257,000 Jobs Are Great, but Those Wall Street Boys Are Really Smart - Dean Baker - The celebrations over the economy's strong performance are really getting out of hand. That makes it incumbent on those of us who have access to government data and know arithmetic to work harder to set the record straight. The basic point is a simple one. The economy is recovering, and at least recently, at a relatively rapid pace. I say "relatively" because if we saw the same job growth rates as we did after steep recessions in prior decades we would be seeing 500,000 to 600,000 jobs a month, but hey 257,000 is better than we had been seeing until 2014. So this is good news. The problem is that the Wall Street boys (e.g. Robert Rubin, Alan Greenspan, etc.) created a really really deep hole. So things are getting better, but we have a very long way to go to get back to anything we can consider a normal labor market and economy. There are many different measures that can be cited to make this point. The employment to population ratio for prime age workers (between the ages 25-54) is almost three full percentage points below its pre-recession level. (This gets around the claim that the problem is baby boomers retiring. These people are not leaving the labor force to retire.) The number of people who report working part-time involuntarily is still close to 2 million (@50 percent) above pre-recession levels.  But my favorite measure is the quit rate, the percentage of unemployment due to people who voluntarily quit their jobs. This is very useful because it is a real measure of people voting with their feet. The quit rate is telling us the extent to which workers have enough confidence in their job prospects to tell their asshole boss to get lost and then walk out the door.

More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes -- By request, a few more employment graphs ... This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels. The long term unemployed is just below 1.8% of the labor force - the lowest since January 2009 - however the number (and percent) of long term unemployed remains a serious problem. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".  This graph shows total construction employment as reported by the BLS (not just residential). Since construction employment bottomed in January 2011, construction payrolls have increased by 882 thousand. The BLS diffusion index for total private employment was at 62.4 in January, down from 69.0 in December. For manufacturing, the diffusion index was at 58.1, down from 64.4 in December. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. Above 60 is very good.

New Jobless Claims at 304K Disappoint Expectations -- Here is the opening statement from the Department of Labor:  In the week ending February 7, the advance figure for seasonally adjusted initial claims was 304,000, an increase of 25,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 278,000 to 279,000. The 4-week moving average was 289,750, a decrease of 3,250 from the previous week's revised average. The previous week's average was revised up by 250 from 292,750 to 293,000.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted 304K came in above the forecast of 285K. The four-week moving average at 289,750 is now 10,750 above its 14-year interim low set fourteen weeks ago.  Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

The Fed’s Accelerating Economy Theory Versus Tens of Thousands of Job Cuts -- Yesterday afternoon, Steve Ricchiuto, Chief U.S. Economist at Mizuho Securities USA, gave a gutsy interview on CNBC where he called into further question the Fed’s kooky talk of an accelerating economy that needs a rate hike to rein it in. Ricchiuto has a Masters Degree in Economics from Columbia University – one of those pesky, street smart guys who know a load of bull when he hears it and doesn’t mind telling you so.Ricchiuto had this to say on CNBC: “The deflation story is very, very critical but there’s also this wrong concept that I keep hearing over and over again in the financial press about this acceleration in economic growth. That isn’t happening. Last month we had a horrible retail sales number. We had a horrible durable goods number. We’re likely to have a very disappointing retail sales number coming forward. This month we’ve had a strong payroll number – we say everything’s great. It’s not great. It’s running where it’s been. It’s been the same thing for the last five years. There’s no improvement in the economy.”  Where is the financial press getting the idea “about this acceleration in economic growth”? From the Fed, of course. In its last monetary policy statement on January 28, the Federal Open Market Committee assured all of us that “economic activity has been expanding at a solid pace” with “strong job gains.” Not to put too fine a point on it, but this is the same central bank that didn’t see the greatest crash since the Great Depression stampeding at us in 2007 or early 2008. The Fed’s touting of “strong job gains” stands in stark contrast to mushrooming announcements of jobs cuts in the thousands by energy-related companies and retailers. The job cuts in the energy sector are the result of a 60 percent plunge in oil prices in the span of six months because of a global economic slowdown while the bankruptcies and retrenchment in U.S. retail results from a cash-strapped consumer who has been forced to tighten the family belt because of exactly what Ricchiuto is talking about: no significant economic or wage gains in five years.

1 in 5 suicides is associated with unemployment - Unemployment can drive people to suicide. Numerous studies have demonstrated that there is a relationship between unemployment and poor health and that (the threat of) losing a job and prolonged unemployment can constitute a serious situation for those affected as well as their relatives. The debate on this fateful association was reignited by the 2008 economic crisis and the subsequent austerity policies in many countries. While many studies have merely focused on crisis years and examined single countries or one world region, now, for the first time, Carlos Nordt, Ingeborg Warnke, Erich Seifritz and Wolfram Kawohl from the University of Zurich's Psychiatric Hospital have been able to draw a larger picture for four regions in the world from 2000 to 2011. "Every year, around one in five suicides is associated with unemployment," says first author Carlos Nordt. The study has just been published in the journal The Lancet Psychiatry.

BLS: Jobs Openings at 5.0 million in December, Up 28% Year-over-year -  From the BLS: Job Openings and Labor Turnover Summary There were 5.0 million job openings on the last business day of December, little changed from 4.8 million in November, the U.S. Bureau of Labor Statistics reported today. ... ... Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.7 million quits in December, little changed from November. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for December, the most recent employment report was for January.  Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in December to 5.028 million from 4.847 million in November. The number of job openings (yellow) are up 28% year-over-year compared to December 2013. Quits are up 12% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is another very positive report. It is a good sign that job openings are over 5 million, and that quits are increasing year-over-year.

Job Openings at 14-Year High as Hiring Returns to Pre-Recession Levels - For the first time since January 2001, the U.S. had more than five million job openings at the end of December, a sign of a labor environment shifting in favor of workers. December was also the best month for hiring since before the recession struck more than seven years ago. More than 5.1 million people were hired in December, the most since November 2007, according to the Labor Department‘s Job Openings and Labor Turnover Survey, known as JOLTS. The report adds to signs that the labor market is strengthening considerably. The Labor Department’s main jobs report, released on February 6, showed that November, December and January comprised the best three-month stretch of hiring since 1997, raising hope that the U.S economy will start delivering stronger wage growth for a wider swath of Americans after more than five years of sluggish recovery from a deep recession. The Labor Department’s main jobs report shows the net change in jobs — a gain of 257,000 in January — but the JOLTS report digs one level deeper, cataloging the millions of workers each month who quit a job or are laid off, retire, start a new job or switch jobs. The JOLTS report is closely followed by the Federal Reserve. Fed Chairwoman Janet Yellen has identified the report’s tally of the number of people who voluntarily quit their job each month as an important barometer of the economy’s health. In a good labor market, workers are more willing to quit — owing to greater confidence in their prospects or greater opportunities to find different work.

Layoffs and Quits Hold Steady in December -- The hires, quits, and layoffs rates all held fairly steady in the December Job Openings and Labor Turnover Survey (JOLTS). As you can see in the figure below, layoffs shot up during the recession but recovered quickly and have been at prerecession levels for more than three years. The fact that this trend continued in December is a good sign. That said, not only do layoffs need to come down before we see a full recovery in the labor market, but hiring needs to pick up. While the hires rate has been generally improving, it’s still below its prerecession level. The voluntary quits rate had been flat since February (1.8 percent), and saw a modest spike up in September to 2.0 percent, before falling to 1.9 percent in October and holding steady through December.  A larger number of people voluntarily quitting their jobs indicates a strong labor market—one where workers are able to leave jobs that are not right for them and find new ones. In December, the quits rate was still 9.2 percent lower than it was in 2007, before the recession began. Over the year, the quits rate has averaged 1.8 percent, an improvement over its average rate of 1.4 percent in 2009 and 2010. Each consecutive year has seen modest improvement, an average increase in the quits rate of 0.1 percentage points per year. Before long, we should look for a return to pre-recession levels of voluntary quits, which would mean that fewer workers are locked into jobs they would leave if they could.

December 2014 JOLTS - Still lookin' good.  Hiring, job openings, and quits are not only all rising. They are all accelerating. The labor market is looking great. My back of the envelope estimate is that the baby boomer effect (the large number of older workers) probably causes the job openings rate to be about 0.25% higher than in previous cycles, and the quits and hires rates to be about 0.25% lower. That puts the labor market cycle at about where we were in mid-to-late 2005, when the unemployment rate was around 5%. The baby boomer effect should be pulling down the unemployment rate, because older workers tend to have less unemployment churn. Again, looking at the back of the envelope, insured unemployment correlates to about a 4.3% unemployment rate, compared to recent cycles. My simple estimates attribute about 0.8% of the additional unemployment to the very long term unemployed that appear to have mostly timed out of extended unemployment insurance before the program had ended, and another 0.5% to persistence in unemployment that appears to be typical of more frequent or extended downturns. So, I think the current labor market, accounting for these effects, does resemble the 2005-ish labor market, whether we are looking at JOLTS, insured unemployment, or unemployment durations. But, these comparisons are moving targets because of the unusual demographic situation. Here is a Fred graph, which I think makes for interesting perusal. I think we can compare where we are now to where we were in about 2005 and 1995.

Job Openings Were Stronger in 2014 than 2013 or 2012, but We Have Still Not Fully Recovered - The number of job openings hit 5.0 million in December, according to this morning’s Job Openings and Labor Turnover Summary (JOLTS)—a slight increase from 4.8 million in November. Meanwhile, according to the Census’s Current Population Survey, there was a slight drop in people looking for work, to 8.7 million. Taken together, this means there were 1.7 times as many job seekers as job openings in December—the lowest this ratio has been since November 2007.  This slight decline in the jobs-seekers-to-job-openings ratio is a continuation of its steady decrease, since its high of 6.8-to-1 in July 2009, as you can see in the figure below. If the economy were stronger, the ratio would be even smaller—a 1-to-1 ratio would mean that there were roughly as many job openings as job seekers—but this indicates that we are moving in the right direction.  With the December data, we can also look at what’s happened throughout 2014, compared to the rest of the recovery. The job-seekers-to-jobs-openings ratio has been consistently falling, from a high of 5.9 percent in 2009 down to an average of 2.1 percent average in 2014. The average annual ratio fell 0.8 over the last year.  While the outlook for jobless workers is clearly improving, the job-seekers-to-jobs-openings ratio fails to account for the full extent of declines in labor force participation over the course of the recovery. 8.7 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the 6.1 million potential workers (in December) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will go back to looking for a job when the labor market picks up, so job openings will be needed for them, too.

The Unemployed Exceed Job Openings in Almost Every Industry - One of the recurring myths following the Great Recession has been that recovery in the labor market has lagged because workers don’t have the right skills. The figure below, which shows the number of unemployed workers and the number of job openings in December by industry, is a useful way to examine this idea. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are more unemployed workers than job openings, and others where there are more job openings than unemployed workers. What we find, however, is that there are more unemployed workers than jobs openings in almost every industry. The notable exception is health care and social assistance, which has been consistently adding jobs throughout the business cycle. There is now one unemployed worker for every job opening in that sector, suggesting a tighter labor market for those workers. However, we have yet to see any sign of decent wage gains yet, which would be the final indicator that the labor market, at least for those workers, were approaching reasonable health. Other sectors have seen little-to-no improvement in their job-seekers-to-job-openings ratios. There are still about six unemployed construction workers for every job opening. In other words, despite claims from some employers, there is no shortage of construction workers. Taken as a whole, these numbers demonstrate that the main problem in the labor market is a broad-based lack of demand for workers—not available workers lacking the skills needed for the sectors with job openings.

The Recent Rise and Fall of Rapid Productivity Growth -  FRBSF Economic Letter --Information technology fueled a surge in U.S. productivity growth in the late 1990s and early 2000s. However, this rapid pace proved to be temporary, as productivity growth slowed before the Great Recession. Furthermore, looking through the effects of the economic downturn on productivity, the reduced pace of productivity gains has continued and suggests that average future output growth will likely be relatively slow. The past decade has been wrenching for the U.S. and global economies. In the depths of the Great Recession, the U.S. unemployment rate rose to 10%, reflecting an economy operating far short of its potential. As the effects of the Great Recession have receded, it is important to know how fast the economy can sustainably grow going forward. This Economic Letter explores trends in productivity growth—a key contributor to this sustainable pace. A recent paper by Fernald (2014a) finds that the exceptional boost to productivity growth from information technology in the late 1990s and early 2000s has vanished during the past decade. Although there is considerable uncertainty, a relatively slow pace is the best guess for the future.

More Disturbing Findings Emerge on U.S. Productivity Path -  San Francisco Fed researcher John Fernald is producing disturbing results in research on the path of U.S. productivity growth. A productivity boom from 1995 to 2003 was a blip in a longer-run slowdown dating back to 1973, he finds. Since 2004 the U.S. has been on a path of modest productivity growth of 1.5% per year, far slower than the 3% average that characterized the 1995-2003 boom period and the 1948-1973 trend. Perhaps most disturbingly, the slowdown is the result of diminished innovation in the economy, as opposed to diminished investment, he argues. During the late 1990s, firms in retailing, wholesaling, broadcasting, utilities and other industries used information technology aggressively to reorganize and produce more output with less input. By the mid-2000s, “the low-hanging fruit of IT-based innovation had been plucked.”  It is an extension of earlier work he wrote last year and before. Productivity growth is a key ingredient to prosperity. When productivity is growing fast, output can grow quickly without causing inflation and forcing central bankers to put the brakes on the economy. It is associated with fast profit, wage and income growth, as happened in the late 1990s. It is also associated with stuffed government coffers that help policy makers control budget deficits. Mr. Fernald projects 1.5% productivity growth in the future and 2.1% annual growth in gross domestic product, lending weight to the idea that U.S. growth has stagnated.

Are We Becoming a Part-Time Economy? -- Atlanta Fed's macroblog -- Compared with 2007, the U.S. labor market now has about 2.5 million more people working part-time and about 2.2 million fewer people working full-time. In this sense, U.S. businesses are more reliant on part-time workers now than in the past. But that doesn't necessarily imply we are moving toward a permanently higher share of the workforce engaged in part-time employment. As our colleague Julie Hotchkiss pointed out, almost all jobs created on net from 2010 to 2014 have been full-time. As a result, from 2009 to 2014, the part-time share of employment has declined from 21 percent to 19 percent and is about halfway back to its prerecession level. But the decline in part-time utilization is not uniform across industries and occupations. In particular, the decline is much slower for occupations that tend to have an above-average share of people working part-time. This portion of the workforce includes general-service jobs such as food preparation, office and administrative support, janitorial services, personal care services, and sales. The following chart compares the share of part-time employment for these general-service occupations with the share for production-type occupations (such as machine operators, fabricators, construction workers, and truck drivers).

Real weekly earnings are up. Here’s why. -  When we talked wages on jobs day last week, I made the following point: Although hourly wage growth has been flat at about 2 percent, the acceleration of weekly hours and the deceleration of inflation were leading to real gains in weekly earnings. Some people were understandably perplexed. How could stagnant earnings turn into real (i.e., inflation-adjusted) earnings? I promise you, it’s not alchemy. It’s that the change in real weekly earnings is a function of three variables: nominal hourly wage growth, weekly hours’ growth, and inflation, or price growth. Moreover, these changes are additive, so they lend themselves to a revealing decomposition. The figure above provides a real life example, comparing 2013 to 2014. As the 2014 job market improved, weekly hours grew in 2014 after falling slightly in 2013. The next set of bars shows what I featured in last week’s post: Hourly wage growth was unchanged. But as the third set of bars — the growth in weekly earnings — shows, paychecks grew faster last year, not because of higher hourly wages but because of more weekly hours. The other thing that happened last year, and that is still ongoing, is slower price growth. That’s a negative in this equation, so it means that to get 2014 real weekly earnings, we subtract a smaller inflation number than we did the year before. Thus, as you see in the last set of bars, real weekly earnings grew by about 2 percent in 2014 after falling slight in 2013. Here’s the actual arithmetic so you can see for yourself, with all variables in percent changes:

It’s cheaper and easier to rent an MBA than to hire one - The on-demand economy, where people work when they want and get paid by the task, has redefined the roles of taxi drivers and created new jobs such as professional grocery store shoppers who are paid by the hour to run other people’s errands.Less well known is how the 1099 economy (named for the US tax forms filed by independent contractors), is now bleeding into the upper echelon of the workforce: The nation’s top business school graduates.For many of these people—unlike the “struggling workers” of Uber or the homeless house cleaners at Homejoy who critics say are getting a raw deal—the decision to leave big companies is more often than not, a choice. And their migration has big consequences for the future of employment.HourlyNerd, a two-year-old startup that lets companies rent an MBA, is bankrolled by the likes of Mark Cuban and Greylock Partners, and this week it secured its third round of financing, bringing the total raised to $12.55 million. One of its newest funders: General Electric’s venture arm. Perhaps the most institutionally corporate of all global companies is now backing a network of 10,000 graduates from top-40 US business schools. The rise of these “nerds,” who don’t commute to an office but earn $100 to $150 an hour from companies such as Microsoft and American Apparel, tells an important story about where the labor market and the economy are headed. For one, companies can now bypass costs associated with hiring full-time employees or paying the overhead of big consulting firms, says John Shegerian, president of the recycling giant Electronic Recyclers, which used HourlyNerd to find a Harvard MBA to write a business plan for a new project.

Back to the Nineteenth Century - Robert Reich  -- My recent column about the growth of on-demand jobs like Uber making life less predictable and secure for workers unleashed a small barrage of criticism from some who contend that workers get what they’re worth in the market. A Forbes Magazine contributor, for example, writes that jobs exist only  “when both employer and employee are happy with the deal being made.” So if the new jobs are low-paying and irregular, too bad. Much the same argument was voiced in the late nineteenth century over alleged “freedom of contract.” Any deal between employees and workers was assumed to be fine if both sides voluntarily agreed to it.  It was an era when many workers were “happy” to toil twelve-hour days in sweat shops for lack of any better alternative.   It was also a time of great wealth for a few and squalor for many. And of corruption, as the lackeys of robber barons deposited sacks of cash on the desks of pliant legislators. Finally, after decades of labor strife and political tumult, the twentieth century brought an understanding that capitalism requires minimum standards of decency and fairness – workplace safety, a minimum wage, maximum hours (and time-and-a-half for overtime), and a ban on child labor.  By the 1950s, when 35 percent of private-sector workers belonged to a labor union, they were able to negotiate higher wages and better working conditions than employers would otherwise have been “happy” to provide. But now we seem to be heading back to nineteenth century. Corporations are shifting full-time work onto temps, free-lancers, and contract workers who fall outside the labor protections established decades ago. And labor union membership has shrunk to fewer than 7 percent of private-sector workers. So it’s not surprising we’re once again hearing that workers are worth no more than what they can get in the market.

A Better Way to Help the Long-Term Unemployed - For all the recent good news about the booming job market and growing wages, there are still people out there desperately looking for work. Nearly 3 million of them—about one-third of all of the jobless—have been out of work for 27 weeks or longer, according to the Bureau of Labor Statistics. In past recessions, a far smaller share of the jobless had been out of work for so long. But states grappling with tight budgets have lost their sympathy for the long-term unemployed as the economy turns a corner. In the last two years, seven states have reduced benefits to 20 weeks or fewer—26 weeks of unemployment benefits used to be standard. The share of the unemployed receiving benefits now stands at 27 percent, according to a report from the National Employment Law Project, which is an all-time low.  Until recently, De Ann Jensen was struggling to cope with these changes. The 47-year-old Las Vegas resident lost her job as a construction administrator in January of 2014, and had been looking for work ever since. When her benefits ran out in July, she was forced to sell her home in a short sale and move in with her parents.  But now, Jensen is working full time again, partly thanks to a program called Platform to Employment that was launched in Nevada last fall using federal funds. The program provides a selected group of long-term unemployed with an intensive five-week, job-readiness class, and then offers to cover up to two months of their salary for any employer willing to give them a trial. P2E was first launched with private funding in Connecticut in 2011 and has been piloted in 10 cities since then also using private funding.

The job market is unquestionably improving, and at a nice clip. But wage growth is not heating up -- There’s a bit of a “Goldilocks” economy afoot right now in the United States. GDP is growing “at trend,” meaning about where we’d expect at this point in an expansion. The job market, as we learned today, is not only consistently posting good monthly numbers, but doing so at an accelerated pace. Over the past three months, employers have boosted their payrolls on net by about 340,000 jobs per month. A year ago, that figure was about 200,000. Yes, unemployment ticked up a touch last month, from 5.6 percent to 5.7 percent, but that was due to more people coming into the labor market, a signal that some of the sideliners who’d given up the job search may like what they’re starting to see in terms of their prospects in the improving labor market. If so, that’s another good sign. With all this good “growthy” stuff going on, you might think inflation would be accelerating as well. It’s not. Far from it, based most recently on the sharp slide in energy costs, price growth has been slowing. But even before that, inflation was subdued. If anything, price growth has been uniquely disconnected from the improvements noted above throughout this recovery. But surely wages must be growing more quickly, what with the job market itself tightening up? Again — and here’s the point I wanted to stress today — not so, at least in nominal (not counting inflation) terms, which is what matters from the perspective of the Federal Reserve or anyone else looking to get nervous about potential overheating. The figure above tells the story. The trend you see there is derived from a “principal components analysis” of five different wage series. You’ll find lesser econo-bloggers lazily posting one or two wage series. Yours truly gives you five — count ‘em! — summarized using a technique designed to pull out the common, underlying trend.

Researchers figured out when companies think about replacing workers with robots - (Reuters) - The falling cost of industrial robots will allow manufacturers to use them to replace more factory workers over the next decade while lowering labor costs, according to new research. Robots now perform roughly 10 percent of manufacturing tasks that can be done by machines, according to the Boston Consulting Group. The management consulting firm projected that to rise to about 25 percent of such "automatable" tasks by 2025. In turn, labor costs stand to drop by 16 percent on average globally over that time, according to the research. The shift will mean an increasing demand for skilled workers who can operate the machines, said Hal Sirkin, a senior partner at Boston Consulting. Factory workers "will be higher paid but there will be fewer of them," Sirkin said. The research found a tipping point for installing robots: Companies tend to start thinking about replacing workers when the costs of owning and operating a system come at a 15 percent discount to employing a human counterpart. For example, in the U.S. automotive industry, which is predicted to be one of the more aggressive adopters of robots, a spot-welding machine costs $8 an hour versus $25 an hour for a worker. A robot that can perform certain repetitive tasks costs about one-tenth as much as it did more than 10 years ago, Sirkin said. Costs tied to one commonly used robotics system, a spot welder, are expected to fall 22 percent between now and 2025. Three-fourths of robot installations over the next decade are expected to be concentrated in four areas: transportation equipment, including the automotive sector; computer and electronic products; electrical equipment and machinery.

Wage Theft by Employers is Costing U.S. Workers Billions of Dollars a Year - Rampant wage theft in the United States is a huge problem for struggling workers. Surveys reveal that the underpayment of owed wages can reduce affected workers’ income by 50 percent or more. Most recently, a careful study of minimum wage violations in New York and California in 2011 commissioned by the U.S. Department of Labor (DOL) determined that the affected employees’ lost weekly wages averaged 37–49 percent of their income. This wage theft drove between 15,000 and 67,000 families below the poverty line. Another 50,000–100,000 already impoverished families were driven deeper into poverty.  The extensive weekly minimum wage violations uncovered by the DOL study in California and New York alone amount to an estimated $1.6 billion–$2.5 billion over the course of a full year. Given that the combined population of California and New York is 18.5 percent of the U.S. total, it is reasonable to estimate that minimum wage violations nationwide amount to at least $8.6 billion a year, and as much as $13.8 billion a year. The DOL study vastly understates the total impact of wage theft because it reported only on minimum wage violations, which are more frequent than overtime violations but usually involve smaller per violation dollar amounts than many overtime pay violations. A bookkeeper, for example, earning an annual salary of $45,000, who works 10 hours of unpaid overtime a week might lose $325, whereas a minimum wage worker forced to work “off-the-clock” unpaid for 10 hours would lose “only” $72.50, or ten times the state minimum wage if it were higher than the federal minimum. (Overtime violations are very frequent among low wage workers: a 2009 study found that on a weekly basis, 19 percent of front-line workers in low wage industries were cheated out of overtime pay to which they were entitled.)

The missing working class - Lost in the debate over the middle-class tax policies that President Obama proposed in his State of the Union address is the puzzling disappearance from our political language of a once-common term: working class. Suddenly, no one in politics seems willing to use those words, as if calling someone working class were an insult. Their absence makes it harder to discuss measures that might help the large and beleaguered group that this descriptor still fits. In his State of the Union addresses, Obama has used the term middle class 28 times. But he has never said “working class” except in 2011, when he described Vice President Biden, who was seated behind him, as “a working-class kid from Scranton.” In last month’s address, the president argued that his proposals would benefit “every middle-class and low-income family with young children” — as if there were no one in between. But in fact millions of families fall between the college-educated middle class and the poor. They tend to be headed by people who have a diploma but not a bachelor’s degree: In 2014, among all families with children under age 18, 54 percent were headed by an adult who had the first but not the second.  A generation or two ago, those in this category supported their families by taking the industrial jobs that were plentiful, or by marrying someone who did. Today’s working class, in contrast, competes for the diminishing number of blue-collar jobs that haven’t yet been automated or outsourced. To lump these people together with the college-educated is to create a group that is so broad as to be meaningless.When asked, few Americans will volunteer that they are in the working class, but many accept it once they are presented with the term. The 2012 General Social Survey asked a national sample of adults whether they would say they belong in “the lower class, the working class, the middle class, or the upper class.” Forty-four percent chose working class and 44 percent chose middle class.

Steelworkers Union Expands Walkouts to Two BP Refineries - WSJ: The striking United Steelworkers expanded walkouts to two more refineries over the weekend as talks between the union and energy companies continued into a second week. The strike now encompasses more than 5,000 workers at 11 U.S. fuel-making plants. The action is the largest strike by refinery workers since 1980. The plants on strike account for about 13% of U.S. fuel-making capacity. The latest two refineries hit by strikes are BP PLC’s massive Whiting, Ind., refinery and a plant outside Toledo, Ohio, that BP jointly owns with Husky Energy Inc. of Canada. They are joining plants in Texas, Kentucky, California and Washington owned by Royal Dutch Shell PLC, LyondellBasell Industries , Marathon Petroleum Corp. , and Tesoro Corp. BP and the union confirmed over the weekend that refinery workers in the Midwest would strike. BP spokesman Scott Dean said the company is committed to negotiations with the union. Meanwhile, the company will continue to operate its plants, relying on current and former employees who have been trained on the equipment. In statements and interviews USW representatives have said little progress has been made toward resolving the concerns most central to union members. The union went into the talks asking for an annual wage increase that’s double what the contract now allows. But union officials have called the strike an “unfair-labor-practice work stoppage” and said that talks stalled over other issues, including the maximum amount that workers must pay out of pocket for health-care costs. The union also wants stronger policies in place that would prevent shift schedules that it says are contributing to worker fatigue, which can lead to accidents. The USW has also asked that energy companies keep staff levels up and rely less on nonunion contractors for regular maintenance work.

Union says U.S. refinery strike widened; cites unfair labor practices (Reuters) - The United Steelworkers union said on Saturday the strike by U.S. refinery workers is expanding to two more plants early on Sunday due to unfair labor practices by oil companies. Walk-outs at BP Plc's Whiting, Indiana, refinery and the company's joint-venture refinery with Husky Energy in Toledo, Ohio, shortly after 12 a.m. local time on Sunday would bring the number of plants with striking hourly workers to 11, including nine refineries accounting for 13 percent of U.S. refining capacity. BP said on Friday it had received notice of the walk-outs at the two refineries, but the Steelworkers had said little about them until Saturday.The union said in a statement that U.S. refinery owners led by Royal Dutch Shell Plc have failed to discuss health and safety issues and engaged in "bad-faith bargaining, including the refusal to bargain over mandatory subjects; undue delays in providing information; impeded bargaining; and threats issued to workers if they joined the strike." A Shell spokesman said the company was unaware of any unfair labor practice charge filed against it with the U.S Department of Labor. "We regret that we have been unable to reach a mutually satisfactory agreement with the USW prior to contract expiration," said Shell spokesman Ray Fisher. "We remain committed to resolving the remaining issues through collective bargaining at the bargaining table."

Steelworkers rally at two local refineries to support strikers in other states: Hundreds of union steelworkers rallied at two local refineries Saturday in support of 5,200 steelworkers on strike, or about to strike, at 11 refineries and chemical plants in California, Kentucky, Texas, Washington, Indiana, and Ohio. On Saturday morning, about 150 members of the United Steelworkers union, led by Local 10-234, met at the union hall in Trainer and marched to the Monroe Energy refinery for a rally, said the local's president, Denis J. Stephano. In the afternoon, approximately 100 workers, led by Local 10-1, rallied at the Passyunk Avenue entrance to the Philadelphia Energy Solutions refinery in South Philadelphia. Workers are not on strike at either area plant. Steelworkers are negotiating a national model contract with one company. That contract will form the basis for the rest of the contracts along with local issues bargained at each plant. Local issue negotiations began last week at the Trainer plant, Stephano said, describing the talks as cordial. The Trainer contract expires March 1. Philadelphia Energy Solution's contract expires in September. "We're just out showing our support," said Jim Savage, president of Local 10-1 and a member of the national bargaining committee. Management and labor relations at both local plants have generally been good, both union leaders said

Indiana BP refinery workers join nationwide strike | Midwest Energy News: The towering machinery and fiery flares of the BP oil refinery in Whiting, Indiana were largely obscured by a cold fog Sunday morning, as refinery workers clustered around barrels of burning wood and held picket signs at 10 different spots around the sprawling perimeter. About 1,100 members of the United Steelworkers (USW) Local 7-1 – more than half the refinery employees – went on strike at 12:01 am Sunday, joining a nationwide strike of USW refinery workersnegotiating a national contract with the industry. USW Local 7-1 president Dave Danko told reporters that contract negotiations broke off Friday, though they still hope to return to the bargaining table next week. He said that wages are not a contested issue, but rather the union is concerned about “understaffing,” excessive amounts of overtime work, and reliance on outside contractors who he said are not as familiar as they should be with the plant. “Instead of providing jobs in the community they’d rather run short-staffed and have people work onerous amounts of overtime,” said Danko. “For people to work sustained amounts of overtime leads to worker fatigue.” The USW’s nationwide strike against the oil industry began February 1 and now includes about 5,000 workers at 11 refineries in Indiana, Ohio, Kentucky, California, Texas and Washington. The strike is over unfair labor practices charges regarding safety and staffing as well as cuts to healthcare benefits. Shell is the lead industry player in the negotiations, which are currently stalled over a union request for information.

Illinois Governor Acts to Curb Power of Public Sector Unions  — Gov. Bruce Rauner, the newly elected Republican who has often criticized public sector unions, took his first step toward curbing their power on Monday by announcing an executive order that would bar unions from requiring all state workers to pay the equivalent of dues.Mr. Rauner, who faces a Democratic-controlled legislature with strong ties to labor, took the unilateral step saying that he believed those fees violate the United States Constitution.“Forced union dues are a critical cog in the corrupt bargain that is crushing taxpayers,” Mr. Rauner said. “An employee who is forced to pay unfair share dues is being forced to fund political activity with which they disagree. That is a clear violation of First Amendment rights — and something that, as governor, I am duty bound to correct.”  Mr. Rauner, a former private equity manager who became the state’s first Republican governor in more than a decade, is following other Republican governors in the Midwest who have aggressively taken on public sector unions in recent years.Those include Mitch Daniels of Indiana, who ended collective bargaining by state workers by executive order; Scott Walker of Wisconsin, who led efforts to cut collective bargaining rights for most public employees; and Rick Snyder of Michigan, who signed legislation ending the requirement that all workers in unionized workplaces pay union dues.The governor’s executive order affects about 6,500 of the state employees who are not in unions but currently pay fees in lieu of union dues. The American Federation of State, County and Municipal Employees said that about 42,000 state employees are represented by unions.

Nurses Condemn Illinois Governor’s Anti-Worker Executive Order - National Nurses United: National Nurses United, the largest organization of nurses in the U.S. and in Illinois late Monday condemned an executive order by new Illinois Governor Bruce Rauner that is intended to dismantle public employee unions, that nurses warn could cause serious harm to public health and safety. “Under the façade of protecting employee free speech, the governor’s real goal is to decimate public employee unions, eliminate their ability to challenge his corporate agenda, and seriously erode the ability of public workers to speak out when public protections are at risk,” said NNU Executive Director RoseAnn DeMoro. “It is no coincidence that this is one of the first acts of Gov. Rauner, a down payment to the most far right segments of American policies, such as the Koch Brothers, Wall Street, and other billionaire interests who helped elect him. But it is an enormous disservice to all Illinois residents and could cause an avalanche of harm,” DeMoro said. “Nurses, emergency responders, child welfare advocates, and public servants who enforce public oversight and regulatory protections are among the many groups of workers threatened by the order,” said Martese Chism, a Chicago registered nurse and board member for National Nurses Organizing Committee-Illinois, an NNU affiliate. “Without the protection of their union, nurses in public hospitals and clinics would be restricted from speaking out about unsafe hospital and clinic conditions, public servants who enforce public oversight and regulatory protections would be hamstrung in their ability to confront corporate attacks on safety standards, child welfare advocates would have less protection from retaliation for putting the interests of children first,”

New Evidence that Half of America is Broke - A recent Bankrate poll found that almost two-thirds of Americans didn't have savings available to cover a $500 repair bill or a $1,000 emergency room visit.  A related Pew survey concluded that over half of U.S. households have less than one month's income in readily available savings, and that ALL their savings -- including retirement funds -- amounted to only about four months of income.  And young adults? A negative savings rate, as reported by the Wall Street Journal. Before the recession their savings rate was a reasonably healthy 5 percent.  Between 2007 and 2013 median wealth dropped a shocking 40 percent, leaving the poorest half with negative wealth (because of debt), and a full 60% of households owning, in total, about as much as the nation's 94 richest individuals.  People of color fare the worst, with half of black households owning less than $11,000 in total wealth, and Hispanic households less than $14,000. The median net worth for white households is about $142,000.   Official poverty measures are based largely on the food costs of the 1950s. But food costs have doubled since 1978, housing has more than tripled, and college tuition is eleven times higher. The cost of raising a child increased by 40 percent between 2000 and 2010. And despite the gains from Obamacare, health care expenses continue to grow.  As all these essential costs have been going up, median household income has been going down since 2000, with the greatest drop occurring since 2009, as 95 percent of the post-recession income gains have gone to the richest 1%.  Worse yet, the lowest paid workers, those in housekeeping and home health care and food service, have seen their wages drop 6 to 8 percent (although wages overall rose about 2 percent in 2014).  Over half of public school students are poor enough to qualify for lunch subsidies. There's been a stunning 70 percent increase since the recession in the number of children on food stamps. State of Working America reported that almost half of black children under the age of six are living in poverty.

Richmond Fed’s Lacker: Skills Gap Contributes to Widening U.S. Inequality - The U.S. workforce isnt keeping pace with the economy’s need for skilled workers, and the gap in acquiring skills is one cause of widening inequality and sluggish economic mobility, Federal Reserve Bank of Richmond President Jeffrey Lacker said on Tuesday. “Many factors contribute to inequality and the persistence of that inequality both within and across generations,” Mr. Lacker said at the Emerging Issues Forum, a convention in Raleigh, N.C. “But the growing disparity in the acquisition of skills, often in the form of college education, appears to play a significant role.” Human capital, which Mr. Lacker defined as “the knowledge and skills that make people more productive,” drives innovation, which itself drives economic growth, he said. But, he said, the large earnings gap between workers with a college degree and those with only a high-school education suggests that “we are failing to keep pace with our economy’s growing demand for skilled workers.” This isn’t the first time Mr. Lacker has expressed worries about workforce development. In a speech last June in Lynchburg, Va., he said that the issue “is intimately related to the second part of the Fed’s legislative mandate, which is promoting maximum employment.” The Fed is also required to keep prices stable. A large number of students enroll in college but drop out without completing a degree, Mr. Lacker said, indicating that “many students could benefit from more information about what is required for college success.”

These Motel Rooms Are the Last Resort for Families Without Homes (photos) The Royal Park Hotel is a hulking brute of a building in Los Angeles’s Westlake neighborhood, a few miles from downtown. With its chain-link barricades, its entry passage through an underground garage, and its strict security procedures for visitors, it would feel like a fortress against the squalor of its surroundings if the blight weren’t even more pronounced on the inside. Guests at the Royal Park looking for drugs don’t even have to leave the building to find them; in fact, the motel is where people in the neighborhood come to score. “You got people who come in the front of this building at 2, 3 in the morning,” says Monica Nixon, whose family is staying at the motel. “And they’ll ask, ‘Can you go up there and get me crack? Can you go up there and get me meth?’ I call it the Twilight Zone.” Monica moved into the Royal Park Hotel in August, after being evicted from her apartment. She and her four kids—Honesty, Johnny, Steven and Savannah—live in a unit that looks to be around 150 square feet between the bedroom, the bathroom, the closet and the kitchenette. When it’s time to go to bed, Monica’s kids curl up on two mattresses. Monica sleeps on a couch donated by Savannah’s school.

The Imprisoner's Dilemma -- There are 2.3 million Americans in prison or jail. The U.S. has 5 percent of the world’s population but 25 percent of its prisoners. One in three black men can expect to spend time in prison. There are 2.7 million minors with an incarcerated parent. The imprisonment rate has grown by more than 400 percent since 1970. Pick a stat, any stat. They all tell you the same thing: America is really good at putting people behind bars. It’s supposed to help the country reduce crime in two ways: incapacitation — it’s hard to be a habitual offender while in prison — or deterrence — people scared of prison may do their best to not end up there. But recent research suggests that incarceration has lost its potency. A report released this week from the Brennan Center for Justice at the New York University School of Law finds that increased incarceration has had a very limited effect on crime over the past two and a half decades. At incarceration’s current elevated levels, the effect of more incarceration on crime is not statistically different than zero. It’s no longer working.  And yet crime has fallen. Violent crime is down 50 percent since 1990. Property crime is down 46 percent.1 It’s tempting to draw a connection there: As incarceration rose sharply, the crime rate plummeted. So one must be responsible for the other. But as you’ve read many times at FiveThirtyEight, correlation is not causation. According to the data analysis, the relationship between incarceration and crime wasn’t much more than a coincidence. Here’s how incarceration has changed over the past 100-plus years of U.S. history:2

Chart Of The Day – America’s Prison Population Over The Past 100 Years --In our national insanity, the U.S. has only 5% of the worlds population, yet 25% of its prisoners. Many of these people have no business being locked in a cage to begin with, and are wasting their lives away for committing “victimless crimes,” i.e. for no good reason. While the immorality of locking up so many of our fellow citizens for non-crimes should be readily apparent, today’s article from Five-Thirty-Eight offers evidence that America’s incarceration rate has become so saturated that it has absolutely no meaningful impact in lowering crimes rates anyway. The time for prison reform and the elimination of mandatory minimum sentences is long overdue.

We Put Way Too Many People in Prison - Earlier this morning I mentioned the Brennan Center's new report on the decline in crime over the past two decades, and one of its prime focuses is on incarceration. One of the authors of the report explains at 538 what they found. Basically, it turns out that locking up more people does have a deterrent effect, but that effect plummets when you start locking up people at huge rates—as we've done: It’s because of these elevated levels that we’re likely to see diminishing returns. If we assume — fairly! — that the criminal justice system tends to incarcerate the worst offenders first, it becomes clear why. Once the worst offenders are in prison, each additional prisoner will yield less benefit in the form of reduced crime. Increased incarceration — and its incapacitation effect — loses its bite. ....And diminishing returns are what we saw. Crime rates dropped as incarceration rates rose, for a time, but incarceration’s effect on crime weakened as more people were imprisoned. An increase in incarceration was responsible for something like 5 percent of the decrease in crime in the 1990s, when its levels were lower, but has played no meaningful role since. If I were speaking to a fellow economist, I’d say the incarceration elasticity of crime is not distinguishable from zero. At a cocktail party, I’d say that crime no longer responds to changes in incarceration.

Jails Have Become Warehouses for the Poor, Ill and Addicted, a Report Says -Jails across the country have become vast warehouses made up primarily of people too poor to post bail or too ill with mental health or drug problems to adequately care for themselves, according to a report issued Wednesday.The study, “Incarceration’s Front Door: The Misuse of Jails in America,” found that the majority of those incarcerated in local and county jails are there for minor violations, including driving with suspended licenses, shoplifting or evading subway fares, and have been jailed for longer periods of time over the past 30 years because they are unable to pay court-imposed costs.Continue reading the main story Related Coverage Ferguson One of 2 Missouri Suburbs Sued Over Gantlet of Traffic Fines and Jail FEB. 8, 2015 The report, by the Vera Institute of Justice, comes at a time of increased attention to mass incarceration policies that have swelled prison and jail populations around the country. This week in Missouri, where the fatal shooting of an unarmed black man by a white police officer stirred months of racial tension last year in the town of Ferguson, 15 people sued that city and another suburb, Jennings, alleging that the cities created an unconstitutional modern-day debtors’ prison, putting impoverished people behind bars in overcrowded, unlawful and unsanitary conditions.While most reform efforts, including early releases and the elimination of some minimum mandatory sentences, have been focused on state and federal prisons, the report found that the disparate rules that apply to jails is also in need of reform.

Plummeting oil price creates problems for severance-tax states - Lower gasoline prices are a great relief for motorists across the country. But for Alaska and a half-dozen other mineral-rich states, the falling price of oil is creating huge budget problems. Alaska, Louisiana, Montana, New Mexico, North Dakota, Texas, West Virginia and Wyoming top the list of states dependent on severance taxes levied on oil and gas producers. The sharp reduction in oil prices– they fell from $96 a barrel in July to about $50 a barrel this month–has forced those states to consider raiding their rainy day funds, cutting spending or raising taxes to offset shortfalls. Most of the states are eyeing all three. “All of the severance states are watching this very closely,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. “It’s a question of how severe the impact is. States like Alaska, Texas and North Dakota all have built up sizable reserves–rainy day funds. The question is whether they want to turn to those or not.” While Texas produces more oil than any other state (more than 104 million barrels a month), only 9 percent of its revenues comes from severance taxes. Alaska, by contrast, produces 16 million barrels a month but gets 78 percent of its revenue from severance taxes, according to the Rockefeller Institute of Government. That is the highest percentage, by far, of any state.

Tax Receipts In Energy-Producing States Plummet: "Largest Decline Since 2006" -- When it comes to the state of the US economy, it is all about surveys. On Friday we got the BLS' establishment and household surveys, both massively revised and seasonally-adjusted, meant to estimate the state of the US job market. Supposedly they were "unambiguously good." Here, on the other hand, is Evercore ISI with its Company and State Tax Receipt surveys. The verdict, looking at what is happening at both the corporate and state level, and especially the energy-producing tax receipt level which just fell off a cliff, is that "the US Economy is not taking off."

Sweeping change in Ohio tax proposed in Governor’s budget - Ohio Governor John Kasich recently released a budget proposal that calls for sweeping changes in Ohio taxes beginning this year. A brief description of the proposed changes follows, by type of tax:  Ohio personal income tax rates would be reduced 15% in 2015 and an additional 8% in 2016. This would reduce Ohio’s top income tax rate from 5.33% in 2015 to 4.1% in 2016. The proposal would also eliminate all Ohio income taxes on small businesses with annual gross receipts of $2 million or less. The Governor’s plan would provide further tax relief for low income Ohioans, in the form of increased personal exemptions for households earning less than $80,000 per year, but would eliminate several income tax breaks benefiting senior citizens and retirees for households making more than $100,000 per year, including the retirement income credit, senior citizen credits and the deduction for Social Security income. Commercial Activity Tax (“CAT”) The CAT rate would be increased from .26% to .32%. The minimum annual tax for businesses with annual gross receipts of $2 million or less would be reduced from $800 to $150.  The state sales tax rate would increase from 5.75% to 6.25%, plus local add-on sales tax rates that currently run as high as 2.25%. In addition, the sales tax would apply to several services not currently subject to the tax, including parking, lobbying, cable TV, public relations, market research, opinion polling, management consulting, travel services and debt collection.

The Fifth-Largest Lottery Jackpot in U.S. History is Good News for State Budgets --The Powerball jackpot for Wednesday night’s drawing is estimated at $485 million, making it the nation’s fifth-largest lottery jackpot ever. (Update: As of Wednesday afternoon, the jackpot has risen to $500 million.) That’s according to the Multi-State Lottery Association, which operates the game. Ahead of it on the all-time list is a $656 million Mega Millions jackpot in March 2012, a $648 million Mega Millions jackpot in December 2013, a $590.5 million Powerball jackpot in May 2013 and a $587.5 million Powerball jackpot in November 2012. Big jackpots tend to drive big ticket sales, so this week’s drawing is good news for state budgets. Forty-four states plus the District of Columbia count on lottery revenue, but Powerball sales fell 35% in 2014 due to a paucity of big jackpots over the last year.

Puerto Rico lawmakers remove interest cap from $2 bln bond deal  (Reuters) - Puerto Rico's lawmakers have scrapped a statutory cap on the interest the island would pay on a roughly $2 billion bond deal in a bid to make it more appealing to hedge fund investors. The move comes after a federal judge voided a local law that was key to Puerto Rico's efforts to carry out an orderly restructuring of its public corporations while securing funds for the central government. The judge's ruling late on Friday that the Recovery Act contravenes federal law, raised questions about the strength of government-backed debt, sending benchmark Puerto Rico's bonds to record lows on Monday. Eliminating the interest rate cap was "necessary to make viable a successful transaction in the capital markets because of current market conditions and the current value of Puerto Rico general obligation bonds," according to the legislation approved by the Senate. The amendment eliminated a restriction on how large a discount Puerto Rico could offer buyers that would have established a floor of 93 cents on the dollar, but they kept a provision that limits the average coupon rate to 8.5 percent.

States Consider Increasing Taxes on Poor, Cutting Them on Affluent: A number of Republican-led states are considering tax changes that, in many cases, would have the effect of cutting taxes on the rich and raising them on the poor.  Conservatives are known for hating taxes but particularly hate income taxes, which they say have a greater dampening effect on growth. Of the 10 or so Republican governors who have proposed tax increases, virtually all have called for increases in consumption taxes, which hit the poor and middle class harder than the rich.  Favorite targets for the new taxes include gasoline, e-cigarettes, and goods and services in general (Governor Paul LePage of Maine would like to start taxing movie tickets and haircuts). At the same time, some of those governors — most notably Mr. LePage, Nikki Haley of South Carolina and John Kasich of Ohio — have proposed significant cuts to their state income tax.

Connecticut to super-rich residents: Please don't leave us: — If you're a billionaire living in Connecticut, chances are the tax department is keeping an eye on you. In a state home to some of the richest Americans, tax officials go to some lengths to keep them — or, more accurately, keep the billions of dollars in revenue their income taxes generate. Connecticut tax officials track quarterly estimated payments of 100 high net-worth taxpayers and can tell when payments are down. Of that number, about a half-dozen taxpayers have an effect on revenue that's noticed in the legislature and Department of Revenue Services. "There are probably a handful of people, five to seven people, who if they just picked up and went, you would see that in the revenue stream," said Kevin Sullivan, the state's commissioner of the Department of Revenue Services. With one exception, he said, state officials don't actually approach the super-rich. He said: "There isn't friendly visiting or anything like that, how are you feeling? Doing all right? Doing OK?" Two years ago, tax officials were alarmed that a super-rich hedge fund owner might leave and reduce the state's income tax revenue. They set up a meeting and urged the unidentified taxpayer to stay. The effort was partly successful, with the taxpayer leaving Connecticut but agreeing to keep the hedge fund here.

Has Detroit Found An Answer To The Publicly Financed Stadium Scam?  - When Marathon Petroleum received a $175 million tax break from the city of Detroit in 2007, they promised jobs for Detroiters. And, as of last January, the $2.2 billion expansion of Marathon's refinery on the city's southwest side had, in fact, created new jobs for tax-paying residents —all of 15 of them. Now, members of the Detroit City Council want to pass an ordinance that will hold developers seeking public money accountable: They'll have to work out a community benefits agreement (CBA) with community leaders. A CBA is a legally binding pact covering everything from local hiring requirements and environmental concerns to redevelopment of public space and infrastructure. It's a way to assuage the fears of current residents wary of displacement and change and ensure the public's money is put to good use. It would be the first law of its kind in the country.  "We are allowing these large corporations—companies that could build a hockey arena without our money—to get in the corporate welfare line and take resources away from us," Rashida Tlaib, a Michigan state representative who serves Detroit, told me. "In exchange for what?"  The hockey arena Tlaib mentioned is for the city's beloved Red Wings, owned by pizza baron Mike Ilitch. The Ilitch family, whose net worth is estimated at $3.2 billion thanks in part to their Little Caesars pizza empire, received $284.5 million in public money to build a new, $450 million arena in the city's Cass Corridor neighborhood. While the Ilitch family was finishing up its honeypot stadium welfare deal last year—not to mention a wildly below-market rate $1 land transfer for 39 vacant parcels—they refused to sign a CBA that would ensure a certain percentage of permanent, non-construction jobs at the arena went to Detroiters.

Over Half Of Young American Adults Live With Their Parents In These 12 States -  The plight of America's young adults when dealing with exponentially rising curves has been extensively documented on these pages, with the "curve" in question - if one can call that the fastest growing debt bubble in history - being student loans issued by the Federal government.  And since the curve keeps rising, and since the US housing recovery's dead cat bounces are just getting silly, the Fed decided to finally put two and two together, and admit that the reason why US household formation, despite even more rigged, seasonally-adjusted data, has ground to a halt and why young Americans simply refuse to get out of their parents' basement, is due to student debt.  Of course, anyone with an ounce of common sense would have said (and did)  years ago that young people burdened by massive amounts of unrepayable debt. So this is what the Fed has uncovered after years of diligent study, as reported by the WSJ:A $10,000 increase in student debt per graduate in a U.S. state is associated with an additional 2.9 percentage point rise in the rate of 25-year-olds living with parents, according to an analysis of young Americans with credit reports by the New York Fed.  Young people weighed down by student debt may try to save money by staying home—especially, research suggests, those with relatively comfortable backgrounds. Or, these young adults may be less willing or able to take on additional debt by, say, buying a home. There is a “clear positive correlation between a state’s student debt growth and the rate at which its 25-year-olds live with their parents,” the New York Fed says In 12 U.S. states, over half of 25-year-olds lived with their parents in 2012-13.  The states: York are: New York, New Jersey, California, Florida, Illinois, Maryland, Delaware, Pennsylvania, Connecticut, Massachusetts, New Hampshire and Washington D.C.

How educating children early and well creates a ripple effect for us all - As research from Nobel economics laureate James J. Heckman has showed, early investment in disadvantaged children improves academic achievements, career prospects and, ultimately, their lifetime income, which brings in more tax dollars. It also reduces public spending on criminal justice, remedial education, health care, and safety-net programs that disproportionately get used by people who grew up poor. Heckman’s work suggests that a dollar spent on high-quality early-childhood education programs produces a higher return on investment than does almost any major alternative.  But that’s looking only at the effect of early-childhood education programs on kids. Improving access to high-quality child care and preschool offers even bigger returns when you also consider their effect on parents. That’s because they can help parents who want to work stay attached to the labor force, thereby improving their lifetime earning potential, too.  Survey data suggest that many stay-at-home mothers want to work outside the home, at least part time. Why is this? The problem probably isn’t sexist husbands. Rather, families weigh the costs of paid child care against mom’s post-tax take-home pay and decide that it’s just not worth it for her to take a job.  By dropping out of the workforce, these mothers are not just eliminating their current earnings; they are depressing their future earnings, too.. Families are considering only the immediate problem of money coming in and going out today, rather than the long-term problem of how a decision to outsource some household production today might affect the family’s collective earnings tomorrow.

How Elementary School Teachers’ Biases Can Discourage Girls From Math and Science - We know that women are underrepresented in math and science jobs. What we don’t know is why it happens.There are various theories, and many of them focus on childhood. Parents and toy-makers discourage girls from studying math and science. So do their teachers. Girls lack role models in those fields, and grow up believing they wouldn’t do well in them.  All these factors surely play some role. A new study points to the influence of teachers’ unconscious biases, but it also highlights how powerful a little encouragement can be. Early educational experiences have a quantifiable effect on the math and science courses the students choose later, and eventually the jobs they get and the wages they earn.The effect is larger for children from families in which the father is more educated than the mother and for girls from lower-income families, according to the study, published this week by the National Bureau of Economic Research.The pipeline for women to enter math and science occupations narrows at many points between kindergarten and a career choice, but elementary school seems to be a critical juncture. Reversing bias among teachers could increase the number of women who enter fields like computer science and engineering, which are some of the fastest growing and highest paying.Photo A new study points to the influential role played by teachers’ unconscious biases, but it also highlights how powerful a little encouragement can be for children.

Gov. John Kasich defends school funding plan | The Columbus Dispatch: As Ohio Gov. John Kasich called out some public-school leaders yesterday for “irresponsible” reactions to his K-12 funding plan, legislators in both parties questioned why certain districts would take funding cuts while others would not. “We need more superintendents who are educators, and less superintendents who are politicians,” Kasich said of criticism of his proposal that seeks to drive money to districts that are less able to fund their operations. At the same time, Tim Keen, Kasich’s budget director, faced down questions from House Finance Committee members who pointed out the “winners and losers” in their regions under a plan that would spend $459 million more but leave 309 districts with less state money after two years. Rep. Ryan Smith, R-Bidwell, the committee chairman, said the formula appears to group together districts that are “vastly different” and makes smaller districts look wealthier. “There is a lot of concern as to the distribution of the funds,” Smith said. “The distribution I’ve seen goes heavily into larger school districts, and probably has a propensity to favor them over smaller districts.” Of all new school-funding money, 74 percent would go to midsized and major urban districts, while rural districts as a group see little change. Keen noted that changes in property valuation and student enrollments also are considered in the new formula.

Why Howard Dean and the Democratic Party owe Teachers and Parents an Apology - Badass Teachers Association: On February 2 Howard Dean came out with an article in Salon supporting Teach for America and insisting that the current controversies over Education Reform were no more than the result of false dichotomies perpetrated by oppositional groups and individuals. However, a closer look at the issues he addresses and the policies he supports reveals a very different picture than the one he paints. The reason Howard Dean considers Teach For America and Education Reform a noble endeavor is at least partially because his son and daughter-in-law are Teach for America alums now involved in becoming charter school entrepreneurs. And, regardless of Mr. Dean's assertion that 1 in three entering TFAers are 1st generation college grads, his family are much closer to the 2 out of 3 TFA profile. Dean's son Paul and his wife are summa cum laude graduates of Yale, son of a Presidential candidate/former head of the National Democratic Party, and daughter of a Vice President over the Credit Card division at JP Morgan/Chase. They are the privileged children of the nouveau-aristocracy -- exactly the type of ivy league graduates TFA sets out to recruit and give a leg up into the halls of power they were destined for to begin with.

GOP governors want higher education cuts to recoup budget shortfalls -Facing budget shortfalls, a handful of prominent Republicans governors want to cut funding for higher education to help make up the gap, while insisting that tax hikes are a non-starter. Wisconsin Gov. Scott Walker wants a $300 million funding cut for higher education, and Gov. Bobby Jindal has proposed the same level of cuts in Louisiana. Arizona Gov. Doug Ducey wants at least a $75 million cut to higher ed, and Kansas Gov. Sam Brownback is aiming to cut $45 million from K-12 schools and higher education combined.Arizona Gov. Ducey’s budget also preserves major business tax cuts that the state had passed in 2011, despite calls by Democrats to reverse some of them to help address the state’s $1.5 billion shortfall. “This protects taxpayers by rejecting calls to raise taxes. It asks all areas of government to share in the work to develop and find savings,” Ducey said. Jindal blamed Louisana’s budget woes on the steep, unexpected decline in oil prices in recent months. But others point out that the state’s fiscal woes far predate the crash in oil prices — with some, such as fellow Louisiana Republican Sen. David Vitter, accusing Jindal of exacerbating the problem by recklessly expanding tax breaks. Kansas, meanwhile, has been in fiscal disarray after Brownback pushed through massive tax cuts, creating a huge budget shortfall and even leading the state to be downgraded by ratings agencies. While he’s proposed some tax increases, Brownback is also relying on the education cuts to help make up the gap.

Responding to the Proposed Cuts to Wisconsin Higher Education - Assuming there are no other “drafting errors” in the Governor’s proposed budget for higher education, then the plan, if implemented, for a $300 million reduction in funding for the UW system, combined with a two year tuition freeze, has the following implications for the Madison campus of the University of Wisconsin.From Chancellor Becky Blank’s February 5th presentation, after discussing how earlier cuts have been filled up to now by spending down reserves, she notes (slides 47, 48):  Some people might think it’s a fine idea to eliminate the Law School (unlike Dick the Butcher, not me, by the way). But I doubt that many of my fellow Wisconsinites think it would be a good idea to delete the Vet School, given the importance of agriculture in the state. CALS stands for College of Agriculture and Life Sciences; production of Vitamin D — a cure for rickets –, development of the means for mass production of penicillin, and the cure for pellagra, a once fatal disease, are all associated with units now encompassed by CALS. [1]  Slide 25 provides a comparison of salaries paid by UW Madison against other (state university) peer institutions; those institutions pay their full professors 43% higher on average than the University of Wisconsin at Madison.

Attention college students: You may have earned a degree without knowing it - If you’re cash-strapped, here’s a well-trodden path toward a bachelor’s degree: Start at community college, which is cheaper and more flexible; get a bunch of credits there; then transfer to a four-year college to finish. It’s estimated that about a quarter of community college students make this leap within five years. Most — about 64 percent — transfer before getting an associate’s degree first.  Within six years, about 60 percent of students who transfer from community college get a bachelor’s degree, according to a report from the National Student Clearinghouse Research Center. But in that same timeframe, 26 percent drop out. What happens to them? Many end up with nothing, no degree at all. It’s a bureaucracy thing. Students who took a shot at a BA and missed might not even know that they at least have enough credits to get an AA. Higher education systems aren’t really set up to help students in that limbo between community college and a bachelor’s degree. There’s not that much communication between schools.

Adjunct professors get poverty-level wages. Should their pay quintuple? - It’s been true for a long time now that academia — or at least the part of it that teaches students — relies heavily on the labor of adjunct faculty. As the number of tenured professors has fallen, universities have filled more than half of their schedules with teachers who work on contract. And no wonder: They’ll work for less than half what a full-time professor makes, at a median wage of just $2,700 per course, with scant benefits, if any. Now, a union that’s been rapidly organizing adjuncts around the country thinks that number should quintuple. Last night, on a conference call with organizers across the country, the SEIU decided to extend the franchise with a similar aspirational benchmark: A “new minimum compensation standard” of $15,000. Per course. Including benefits. Since getting into the game a few years ago, the Service Employees International Union has won elections covering about 24,000 contingent faculty across 25 campuses. That’s fitting, considering that the union specializes in organizing low-wage sectors, like property maintenance and home health care — as well as fast-food workers, where it’s run a high-profile campaign for a $15 an hour wage. A minimum wage for adjuncts? At the moment, the $15,000 number sounds even more outlandish than $15 did when fast food workers started asking for twice the federal minimum wage. But organizers argue that if you’re teaching a full load of three courses per semester, that comes out to $90,000 in total compensation per year — just the kind of upper-middle-class salary they think people with advanced degrees should be able to expect. (Most adjuncts teach part-time, which would put them at $50,000 or $75,000 per year.)

In at Least 22 States, Your Student Debt Could Cost You Your Job -- In at least 22 states, your student loan debt could wind up costing you more than your monthly bill – it could cost you your job. Across the country, a growing number of jobs don’t just require a college degree, but also a professional license or certificate. These jobs come in all shapes and sizes, ranging from K–12 teachers and nurses to electricians and barbers. It’s now projected that nearly 30 percent of jobs legally require you to have a state-issued professional license in order to perform them. Not surprisingly, jobs that require licenses or professional certificates often also require a college degree. But as affordable higher education has become less and less accessible, an increasing number of students are forced to take out loans to cover the cost of their education. Take the graduating class of 2014 as an example: more than 70 percent of students took out loans to cover the cost of their education, and on average, they owe $33,000 upon graduation. (Never mind the students who took on debt but didn’t end up graduating). Meanwhile, instead of helping struggling borrowers, many states are making it even harder to get out of debt. In at least 22 states, the government will revoke your professional license if you are unable to pay off your student loan debt. These state laws target a wide range of professions, including attorneys, physicians and therapists – even barbers make the list. But two professions show up over and over again: nurses and teachers.

Nearly 5,000 teachers cashing in on six-figure pensions -- The number of teachers and administrators raking in six-figure annual pensions in New York state nearly tripled between 2009 and 2014, according to a new report. Data from the Empire Center for Public Policy, an Albany-based think tank, show that more than 4,800 school retirees were eligible to receive pensions of more than $100,000 in 2014, up from 1,600 in 2009. More than 4,100 retired educators received six-figure pensions in 2013, ­according to the data. Although most of the pension jackpot winners are from suburban school districts, a few come from within the five boroughs. That includes pension king Edgar McManus, 90, a retired Queens College history professor who took in $561,286 last year, and Madeleine Brennan, 88, who raked in $417,466 last year after 50 years as a principal in Brooklyn. Brennan, who retired from IS 201 in Dyker Heights in mid-2013, didn’t want to discuss her pension other than to say, “My retirement is going fine.” More than a dozen other retirees collecting from the New York City Teachers’ Retirement System and the New York State Teachers’ Retirement System receive more than $200,000 a year — including city Schools Chancellor Carmen Fariña.

Louisiana’s teacher, state employee pension debt spikes to $19.2B; now, who's going to pay for it? -- The $17.7 billion long-term debt of Louisiana’s teacher and state employee pension plans just got larger.  Known as “unfunded accrued liabilities,” the UAL for the state’s teachers’ and employees’ retirements has hit the $19.2 billion mark. It represents how far short the systems are from having the assets necessary to pay their long-term pension obligations, a debt for which the state’s taxpayers are ultimately responsible. The systems include more than 240,000 active and retiree members. State officials and legislators are aware of the increased debt but say it’s under control. “What you are seeing is a short-term impact with a long-term gain,” said Cindy Rougeou, the executive director of the Louisiana State Employees Retirement System, or LASERS. “Going forward it will create greater budget stability and system sustainability.” The $1.45 billion jump in debt comes as both pension systems registered record investment earnings, approaching 20 percent each. Laws aimed at reducing the debt and state financial exposure over time started kicking in.At the same time, however, the Legislature and the pension systems and their oversight body made two big changes in the formula on which the financial evaluation is made. Those changes — promoted as “reforms” — led to a calculation that increased the systems’ debts. The Teachers Retirement System of Louisiana debt jumped from $11.3 billion to $11.9 billion and the LASERS debt from $6.44 billion to $7.27 billion under new evaluations that took into account the changes.

U.S. public pensions return 6.8% in 2014: — U.S. public pensions reported median returns of 6.8 percent last year, the sixth year in a row of gains after the financial crisis, according to Wilshire Associates. The gains, though, are less than the annual investment returns of 7.5 percent to 8 percent that many state and local governments count on to pay benefits for teachers, police and other employees. In the 10 years through Dec. 31, public pensions had a median return of 6.6 percent. A portfolio containing 60 percent U.S. stocks and 40 percent U.S. bonds returned 10 percent. While the Standard & Poor's 500 Index of U.S. stocks returned 13.7 percent, public pensions were dragged down by international investments. Stagnation in Europe and a strong dollar led to losses of almost 4 percent on foreign stocks, according to Wilshire. Nationwide, state and local pensions had a median allocation of 45.4 percent in U.S. stocks and 13 percent in foreign stocks, according to Wilshire's Trust Universe Comparison Service.

U.S. pensions remain on shaky ground, jeopardizing benefits for retirees- Tax revenue is up, home foreclosures are down, and, after a long absence, robust economic growth has returned to this sprawling city. But as far as municipal workers here are concerned, it feels as if the bad times never left. Police and firefighters are on the verge of seeing their retirement benefits cut. Other city employees are certain to be next. "The city is the one who put us in this position," said Art Doring, who has been a city firefighter for 10 years. "When the market was great before the crash, they did not make payments into the pension. The chickens have come home to roost, and we are the ones who have to pay." The stock market has soared more than 75 percent in the past five years, yet many pension funds, where many middle-class workers should benefit from the market's rise, continue to struggle, jeopardizing benefits for the workers who were counting on them in retirement. At the end of last year, Congress passed legislation allowing certain distressed pension plans to slash retirement benefits, including those already being received by retirees — an unprecedented move altering a principle enshrined in federal law for four decades that said benefits already earned could not be cut. None of the distressed plans have cut benefits — yet. But experts point out that their ability to do so is one more example that promises made to employees that once seemed inviolable can now be easily broken. This change in the social contract is growing more common as employers, private employers as well as governments, increasingly view the mushrooming cost of pensions as unbearable, even as the broader economy recovers.

Federal judge rebukes the 'bully' CalPERS in Stockton case -- A newly published federal court decision found the California Public Employees’ Retirement System was merely banging the legal table with its “iron fist” in the Stockton bankruptcy case. Judge Christopher Klein rejected the pension fund’s argument that California cities could not reduce pension benefits even in bankruptcy. The decision could dramatically change the way pensions are handled in future bankruptcy proceedings, even though the judge upheld the city’s workout plan, which leaves existing pensions untouched while "impairing" creditors.  The judge was clear: When California cities go bankrupt, pensions can be cut. After Klein made that point in his verbal ruling in October, CalPERS shot back in a statement: “The ruling is not legally binding on any of the parties … or as precedent in any other bankruptcy proceeding ….” Now it seems legally binding and precedential. The rest of the ruling elaborates on that simple point, but Klein’s dressing down of CalPERS makes for entertaining reading – and might keep it in its place when other cities face pension-driven fiscal ruin. It’s been widely reported that when Vallejo and San Bernardino went into bankruptcy, city officials agreed not to reduce pension benefits out of fear of facing CalPERS’ legal fist and bottomless bank account.

Pensions are the Middle Class’s Source of Capital Income - The Congressional Budget Office released a report in 2011 on trends in the distribution of income. It was a good report that carefully accounted for all the sources of income, including some non-taxable sources. It divided income into categories – largely the same kinds that I did in my report. It sorted pensions into a separate category from labor income and capital income, mostly because it’s impossible to allocate the pension income precisely between labor and capital. (The initial contributions were made with labor income, obviously.) However, since things tend to sit in retirement accounts for a long time, the income leans mostly on the capital side for most workers. The CBO report sorted retirement income into a category called “other.” It found that category accounted for about 7% of all personal income in 2007. (I found these categories to be about 9% of taxable income in 2012; the difference comes largely from the fact that the CBO included employer health premiums in personal income, and I did not.) New York Times columnist Paul Krugman took an interest in this report and published a blog post where he reported one of the CBO’s findings: that the distribution of capital income, as the CBO defined it, had grown more and more concentrated as time had gone on. But Krugman made the erroneous assumption that the definition of capital income included pensions. This would be a fair definition of capital income, given that pension income largely comes from capital, but it was not correct in this case. Krugman posed a rhetorical question: “Aren’t more and more Americans asset owners, for example through their retirement accounts? And the answer is no. In fact, the concentration of income from capital in a few hands has risen sharply. Tucked deep inside the CBO report on trends in the US distribution of income are data on the concentration of various types of income; here’s the one percent’s share of capital income.”

Republicans want 75 Years of Funding for Social Security - But without raising taxes on anyone earning more than $118,500 a year. The only thing that was not said at the Senate Hearing on Social Security disability today was: "Read my lips."  Because the Social Security disability trust fund is projected to pay 19% less in monthly benefits to recipients sometime in 2016, and because the old age trust fund is projected to pay only 75% of benefits to retirees by the year 2033, the current debate is two-fold: shoring up the disability trust fund with revenues from the old-age trust fund (as it's been done 11 times before); and shoring up the old-age trust fund for retirees by raising the $118,500 income cap for Social Security payroll taxes. Senator Bernie Sanders has proposed legislation for raising the income cap on those earning $250,000 a year to guarantee that Social Security can pay 100% of promised benefits for the next 75 years. But at the budget hearing today, it was established that a $250,000 cap would make Social Security solvent for the next 45 years, until at least 2060. (Still, better than naught. Some at the hearing proposed raising the cap to millions of dollars — which would be better still — and why not?) For Generation X (those born from the early 1960s to the early 1980s), that should be encouraging — if Senator Sanders' bill could ever get passed. For those born in 1960 or later, full retirement age is 67. And for the Millennials (those born around 2000), Sanders' bill would also go a long way towards shoring up Social Security for them as well. But instead, as one solution, the Republicans would rather raise their retirement age (and then have them blame the Baby Boomers for being born when they were.)

The Disability Insurance Non-Crisis - CBPP -- Although the Senate Budget Committee will hold a hearing tomorrow titled “The Coming Crisis: Social Security Disability Trust Fund Insolvency,” Disability Insurance (DI) is not, in fact, in crisis. Here, briefly, are the facts (see our chart book and blog posts for more):

  • DI’s recent growth stems mostly from well-understood demographic factors. The aging of the baby boomers into their 50s and 60s (peak ages for DI receipt), the rise in women’s labor force participation (which means more women now qualify for benefits), and the rise in Social Security’s full retirement age (which delays DI beneficiaries’ reclassification as retired workers) all contributed to the growth in the DI rolls.  Those pressures are easing, and the DI rolls have barely grown for the last two years (see chart).
  • The need to replenish DI was long anticipated and has a simple solution. Rebalancing payroll taxes between DI and Social Security’s separate Old-Age and Survivors Insurance (OASI) fund, in either direction, is a traditional and historically noncontroversial way to even out the programs’ finances.  Due to the last two such measures, DI now needs more funds soon while the OASI fund doesn’t.  The DI trust fund is expected to run out in 2016 — the same year lawmakers expected back in 1994, when they approved the last rebalancing.  Reallocating a small share of the payroll tax from OASI to DI would avert a 20-percent cut in DI benefits in 2016 and make both the OASI and DI trust funds solvent until 2033.
  • DI’s eligibility standards are strict. Applicants must provide convincing medical evidence from qualified sources, and most applications are denied.  (Those rejected applicants struggle in the labor market, evidence that DI’s standards are indeed stringent.)  The Social Security Administration regularly reviews beneficiaries to weed out those who have recovered.

“Generational Accounting” Is Complex, Confusing, and Uninformative - Well yes it is, and something of a constant theme of mine here at Angry Bear. But here is a chance to read the argument in the hands of real experts at CBPP, including Paul Van de Water who formerly held top positions at both SSA and CBO and is kind of a mentor of mine.  “Generational Accounting” Is Complex, Confusing, and Uninformative CBPP is the Center for Budget and Policy Priorities and is along with EPI the Economics Policy Institute and CEPR Dean Baker and Mark Weisbrot’s Center for Economic Policy and Research the three go to places for progressive policy numbers presented in rigorous form. While they shouldn’t be blamed for some of my policy formulations over the last few years, these are the places I mostly get the ideas for what I call my “number pointing” (as opposed to “number crunching” which I leave up to Paul, Kathy, Monique and Dean).

Wyoming Senate rejects Obamacare Medicaid expansion: he Wyoming Senate on Friday rejected a bill that would have supported the state’s expansion of the Medicaid program for the poor under President Barack Obama’s healthcare reform law, effectively shutting the door for the remainder of year. Opponents of the measure in the Republican-dominated state senate voiced concerns about possible complications with its implementation, and argued that increased health spending would add to the federal debt. A companion bill in the state’s House of Representatives was pulled from committee as well on Friday. “Many Senators campaigned on the promise to not expand Medicaid services,” . Republican Elaine Harvey, chair of the House Labor, Health and Social Services Committee, said “the House could amend this, but it would be an exercise in futility. The Senate won’t pass this no matter what we do.”

Billion-dollar problem brewing for Medicaid in Florida: -- A potential problem is brewing in Florida for Medicaid patients. State lawmakers recently discovered a gaping, billion-dollar hole in the budget to cover those costs. A budget deficit of $1.3 billion will be created if Florida's "Low Income Pool" program is not extended. Florida's "Low Income Pool" program, or LIP, reimburses hospitals that treat large numbers of poor and uninsured patients. According to the Tampa Bay Times, the funds are set to expire on June 30 and there is no renewal in place. "We are very optimistic with the discussions that are going on with the federal government," said Gov. Rick Scott's budget chief, Cynthia Kelly.   If the federal funding gets cut, the state possibly would have to make up the difference. Last month, Scott unveiled a $77 billion budget, assuming that LIP money would be included. The federal government didn't approve funding for Florida's LIP program until April of last year. The deal was only extended for a year with no promises of future funding. The state's six teaching hospitals, including Tampa General, would stand to lose almost $600 million in funding. TGH itself would lose $85 million in funding.

Florida hospitals serving uninsured to take $1.3 billion hit - The state is facing a $1.3 billion hole in next year’s health care budget when the federal government stops paying hospitals with a large number of uninsured patients, a practice that was set to end as part of the Medicaid expansion that the Florida Legislature has refused to implement. The federal government’s Medicaid chief said that there would be no more waivers granted to extend the program, known as the low-income pool (LIP), when responding to a question during the Associated Industries of Florida’s Health Care Affordability Summit in Orlando Tuesday, Health News Florida reported. Eliot Fishman, the director of the Centers for Medicare and Medicaid Services’ Medicaid division, said there was “no way” the LIP will continue when the current one-year waiver funding it expires June 30, at least “not in its present form,”

Local Missouri doctors will soon feel Medicaid pay cuts - Medicaid payments for primary care doctors in Missouri were slashed in half at the start of this year. It's a move that has now left many doctors and their patients scrambling. As of January 1, the government-funded insurance program for lower income residents stopped paying primary care doctors enhanced rates for treating recipients. As a result of the pay cuts, some doctors aren't taking new Medicaid patients and are struggling to afford their current ones. The enhanced Medicaid rates were part of President Barack Obama's health overhaul. For about two years, primary care doctors were paid more for treating Medicaid patients. The effect hasn't hit locally at Complete Family Medicine in Kirksville just yet, but they say it will in the next few weeks. "We have approximately 30 percent Medicaid and so basically 30 percent of our reimbursements will be cut right in half. So you can imagine how significant that is. With the number of doctors and practitioners here, that ends up being several hundred thousand dollars for the business," said John Collins, D.O. at Complete Family Medicine. Dr. Collins added that they already had to turn away new adult Medicaid patients. Complete Family Medicine will still be accepting children and previous adult Medicaid patients to the best of their ability.

A Primer on Medicare Physician Payment Reform and the SGR | Brookings Institution: If there is an equivalent of “Groundhog Day” in the legislative arena, it may be the semi-annual exercise to defer the physician payment rate cuts called for in Medicare’s Sustainable Growth Rate (SGR) legislation. Ever since 2003, Congress has legislated an alternative to the automatic cuts scheduled under the law. This time, absent legislative action, payments to physicians under Medicare will but cut by 21.2 percent starting in April. Last year, the three Congressional committees with jurisdiction over Medicare came together on a bipartisan, bicameral plan to fix the flawed system permanently. The remainder of this post explains just what is behind this decade of “kicking the can down the road.” For more details on how the Medicare SGR bill can be enhanced through alternative payment models, we recommend reading, "Medicare Physician Payment Reform: Securing the Connection Between Value and Payment" and Alice Rivlin's prepared testimony to the House Committee on Energy and Commerce Subcommittee on Health from January 21.

Under GOP plan, pay more for junk insurance, leave more uninsured -- In the hope that they will give cover to the Supreme Court gutting a key provision of the Affordable Care Act (ACA), three prominent Republican members of Congress revealed a plan to replace the ACA last week. Headline: Americans — middle-class, seniors and low-income — would pay more to get lousy insurance and many more working Americans would go without health coverage. We'll get numbers and more detailed analysis in the next few days and weeks, but here is the story they will tell.  The GOP plan strips the ACA requirement that health coverage include coverage for the range of healthcare needs people expect, from prescription drugs to preventive care to maternity care. And by allowing people to buy insurance regulated by other states, insurance companies would be able to hawk barebones plans written in states that have skimpy rules on what medical care must be covered. : The GOP will tout that the skinny benefits will lead to lower premiums. But what matters to people is what they pay for coverage after the tax credits on the ACA. The GOP plan will eliminate them entirely for middle-class people who earn more than three times the federal poverty level, or $60,000 for a family of four. And it reduces the tax credits for people who earn up to three times the poverty level. Skimpy plans also come with higher out-of-pocket costs (deductibles and copayments), which will mean even more Americans who are covered still skipping care because they can't afford to see the doctor.

Health insurers may be finding new ways to discriminate against patients -  One of the greatest promises of the Affordable Care Act is that if you are sick or get sick, health insurers can no longer charge you more or avoid covering you altogether. They have to provide coverage to anyone who wants it, and they're not allowed to cherry pick healthier customers over sick customers. But patient groups say they've spotted an alarming trend of some health insurance plans designing drug benefits to purposefully keep out sicker, costlier patients. It's currently the subject of a federal complaint, and a new study offers evidence this is happening across the country. Here's how advocates say this works. Rather than reject coverage for sick patients altogether, some insurers are placing high-cost medications for chronic conditions into the highest-priced tiers of the drugs they cover, which would force patients to pay potentially thousands of more dollars out of pocket for essential medications. In a discrimination complaint filed with the Department of Health and Human Services' civil rights division last year, two patient advocacy groups alleged that four Florida insurers selling plans on ACA exchanges were requiring HIV patients to pay up to 50 percent of the cost of HIV medications, even for generic versions, which should in theory be cheaper. They also asked federal regulators to investigate whether this practice was happening more broadly across the country. A new analysis published in the New England Journal of Medicine suggests that is the case. Of 48 exchange health plans Harvard School of Public Health researchers analyzed, they identified 12 plans that appeared to discriminate against HIV patients. In those plans, they found patients had to bear at least 30 percent of the cost for all NRTIs (short for nucleoside reverse-transcriptase inhibitors), one of the most commonly prescribed classes of HIV drugs.

Healthcare: The race to cure rising drug costs - Ms Porter is one of 140,000 Americans that have been treated by one of Gilead Science’s hepatitis C drugs since they were launched two years ago. Harvoni and Sovaldi, an older version of the pill, are seen as “miracle drugs”, offering cure rates of over 94 per cent. But Gilead has become the symbol of out-of-control drug prices in the US. A 12-week treatment costs $94,500, or $1,125 a pill, attracting unwanted attention from politicians and doctors, who identify the group as one of the most hated companies in pharmaceuticals. Peter Bach, a doctor and director at the Memorial Sloan-Kettering Cancer Center in New York, reflects the views of many in his profession when he accuses it of “corrupting behaviour”. “Gilead is a test case in the court of public opinion,” he says. “It has become the poster child for high drug prices.” The controversy has also highlighted the broader question of whether pharmaceutical companies can defend their premium pricing model in the world’s biggest healthcare market. The evidence of recent weeks suggests it is a battle that big pharma risks losing, raising questions over the economic model of an industry that relies heavily on US profits to reward investors and finance new drugs. After less than a year on the market, Gilead has faced a concerted push to lower the price of Harvoni. Seizing an opportunity created by the approval in December of a rival hepatitis C treatment from AbbVie, another US drugs group, the insurers and employers who fund US healthcare have forced deep discounts from both companies in return for access to patients.

The future according to HHS -- At a Jan. 26 Department of Health and Human Services meeting with consumers, health plans, healthcare providers and business leaders, HHS Secretary Sylvia M. Burwell announced concrete goals and a timeline for shifting Medicare payments from fee for service to fee for value.  HHS has, for the first time in the history of the Medicare program, set a goal of pushing a significantly larger share of Medicare payments through alternative payment models such as accountable care organizations (ACOs) and bundled payments. The shift will be from 20 percent ($72.4 billion) in 2014 to 30 percent ($113 billion) in 2016 and 50 percent ($213 billion) in 2018—a compound annual growth rate of 31 percent for 2014-2018.  In addition, HHS wants to tie 85 percent of all fee-for-service Medicare payments to quality or value by 2016, and 90 percent by 2018, through programs such as the Hospital Value-Based Purchasing and Hospital Readmissions Reduction Programs.   In support of these two goals, as well as broader expansion of alternative payment models, HHS is creating a Health Care Payment Learning and Action Network. Through this new organization, which will start meeting in March, HHS will work with private payers, employers, consumers, providers, states and state Medicaid programs, and other partners to add alternative payment models into their programs.   If the administration's plan works, there will be a total of 800-900 Medicare ACOs four years from now.

The U.S. government is poised to withdraw longstanding warnings about cholesterol - The nation's top nutrition advisory panel has decided to drop its caution about eating cholesterol-laden food, a move that could undo almost 40 years of government warnings about its consumption. The group's finding that cholesterol in the diet need no longer be considered a “nutrient of concern” stands in contrast to the committee's findings five years ago, the last time it convened. During those proceedings, as in previous years, the panel deemed the issue of "excess dietary cholesterol" a public health concern. The new view on cholesterol in the diet does not reverse warnings about high levels of "bad" cholesterol in the blood, which have been linked to heart disease. Moreover, some experts warned that people with particular health problems, such as diabetes, should continue to avoid cholesterol-rich diets. But the finding, which may offer a measure of relief to breakfast diners who prefer eggs, follows an evolution of thinking among many nutritionists who now believe that for a healthy adult cholesterol intake may not significantly affect the level of cholesterol in the blood or increase the risk of heart disease. The greater danger, according to this line of thought, lies in foods heavy with trans fats and saturated fats.

Are Your Medications Safe? -- Agents of the Food and Drug Administration know better than anyone else just how bad scientific misbehavior can get. Reading the FDA’s inspection files feels almost like watching a highlights reel from a Scientists Gone Wild video. It’s a seemingly endless stream of lurid vignettes—each of which catches a medical researcher in an unguarded moment, succumbing to the temptation to do things he knows he really shouldn’t be doing. Faked X-ray reports. Forged retinal scans. Phony lab tests. Secretly amputated limbs. All done in the name of science when researchers thought that nobody was watching.  That misconduct happens isn’t shocking. What is: When the FDA finds scientific fraud or misconduct, the agency doesn’t notify the public, the medical establishment, or even the scientific community that the results of a medical experiment are not to be trusted. On the contrary. For more than a decade, the FDA has shown a pattern of burying the details of misconduct. As a result, nobody ever finds out which data is bogus, which experiments are tainted, and which drugs might be on the market under false pretenses. The FDA has repeatedly hidden evidence of scientific fraud not just from the public, but also from its most trusted scientific advisers, even as they were deciding whether or not a new drug should be allowed on the market. Even a congressional panel investigating a case of fraud regarding a dangerous drug couldn't get forthright answers. For an agency devoted to protecting the public from bogus medical science, the FDA seems to be spending an awful lot of effort protecting the perpetrators of bogus science from the public.

Infoporn: Proof That the FDA Isn't Protecting Americans' Health --Making drugs is tricky business. It’s also expensive, so it’s no shocker that labs take scientific shortcuts when trying to get a treatment to market—where it can start earning back the millions of dollars spent in development. Whenever the FDA catches falsified data or unreported side effects, it issues a warning letter to document the bad research. That’s good. But a new study shows the FDA also goes to extreme lengths—from bureaucratic obfuscation to outright redactions—to hide any links between that negligence and any particular drug. That makes it impossible to tell if these letters are doing anything to protect consumers. Information ain’t always pretty. The busted-looking chart below is a list of clinical trials—the crucial studies that ensure drugs are safe and effective—containing flawed research. Charles Seife/JAMA This information came from the FDA, but not directly. Instead, a team of investigative journalists had to scrounge to find the missing links between bad research and the drugs it was performed on. “I look at warning letters from the FDA, and see these awful things happening in clinical trials that are rarely reported,” says Charles Seife, a journalist and professor at NYU who led the research. The 57 clinical trials listed here (there are 78 records because some clinical trials contain multiple lines of bad research) are only a fraction of what he found. In all, he published evidence of approximately 600 clinical trials with significant scientific and ethical lapses—lapses the FDA did their best to hide. Want some examples? How about the study on a treatment for leg blood clots that claimed the legs were getting a lot better, when one of the patients actually needed his foot amputated? Or falsified research in eight of the 16 research sites investigating a single blood clotting treatment? Or the researcher who was disbarred and sent to prison for overdosing a chemotherapy patient? All of these were reported in warning letters, but missing from the peer-reviewed research.

Study Shows HPV Vaccine Will Not Turn Your Daughters Into Whores - A new obviously fake study published in some bogus “medical” “journal” called the Journal of the American Medical Association or whatever claims that vaccinating girls against the human papillomavirus so they do not get cervical cancer and die from it will not cause them to immediately rush out and do a bunch of unsafe sex and turn into sluts. This is, of course, UNPOSSIBLE!, since everyone knows that vaccines are bad for you, and protecting girls from sexually transmitted diseases is the world’s greatest aphrodisiac. That’s just science. Except that it’s not: The researchers looked at the medical history between 2005 and 2010 of 21,000 girls between the ages of 12 to 18, who had been given the vaccine, and compared them with 180,000 women who did not have the vaccine. The study found that the vaccinated women did not have higher rates of sexually transmitted infections, suggest[ing] they did not have increased rates of unsafe sex.  And yet for some strange reason, even though the HPV vaccine is perfectly safe and a very good way of protecting your daughter from getting a virus that can turn into cancer, only 57 percent of teenage girls have been vaccinated with even one of the three recommended doses. That is so weird. Why would parents not want to vaccinate their daughters so they do not get this easily preventable virus that could turn into cancer?

Ebola Situation Report - 11 February 2015 – WHO -

  • Total weekly case incidence increased for the second consecutive week, with 144 new confirmed cases reported in the week to 8 February. Guinea reported a sharp increase in incidence, with 65 new confirmed cases compared with 39 the week before. Transmission remains widespread in Sierra Leone, which reported 76 new confirmed cases, while the resurgence in cases in the western district of Port Loko continued for a second week. Liberia continues to report a low number of new confirmed cases.
  • Despite improvements in case finding and management, burial practices, and community engagement, the decline in case incidence has stalled. The spike in cases in Guinea and continued widespread transmission in Sierra Leone underline the considerable challenges that must still be overcome to get to zero cases. The infrastructure, systems, and people needed to end the epidemic are now in place; response measures must now be fully implemented.
  • The surge of new confirmed cases reported by Guinea was driven primarily by transmission in the capital, Conakry (21 confirmed cases) and the western prefecture of Forecariah (26 confirmed cases). Community engagement continues to be a challenge in Conakry and Forecariah, and in Guinea more widely. Almost one-third of the country’s EVD-affected prefectures reported at least one security incident in the week to 8 February. Effective contact tracing, which relies on the cooperation of communities, has also proved challenging. In the week to 1 February, just 7 of 42 cases arose among registered contacts. A total of 34 unsafe burials were reported, with 21 EVD-positive deaths reported in the community.
  • Seven new confirmed cases were reported in the east-Guinean prefecture of Lola. A field team is currently deployed to Côte d’Ivoire to assess the state of preparedness in western areas of the country that border Lola.
  • A total of 3 confirmed cases was reported from Liberia. All of the cases originated from the same area of Montserrado county, linked to a single chain of transmission.

Study ties more deaths, types of disease, to smoking: Breast cancer, prostate cancer, and even routine infections. A new report ties these and other maladies to smoking and says an additional 60,000 to 120,000 deaths each year in the United States are probably due to tobacco use. The study by the American Cancer Society and several universities, published in Thursday's New England Journal of Medicine, looks beyond lung cancer, heart disease and other conditions already tied to smoking, and the 480,000 U.S. deaths attributed to them each year. "Smokers die, on average, more than a decade before nonsmokers," and in the U.S., smoking accounts for one of every five deaths, Dr. Graham Colditz, an epidemiologist at Washington University School of Medicine in St. Louis wrote in a commentary in the journal. The report shows that current estimates "have substantially underestimated the burden of smoking on society," he wrote. About 18 percent of U.S. adults smoke.   Researchers looked at nearly 1 million Americans 55 and older taking part in five studies, including the National Institutes of Health-AARP Diet and Health Study, since 2000. They tracked the participants' health for about 10 years and compared deaths from various causes among smokers, never smokers and former smokers, taking into account other things that can influence risk such as alcohol use. Death rates were two to three times higher among current smokers than among people who never smoked. Most of the excess deaths in smokers were due to 21 diseases already tied to smoking, including 12 types of cancer, heart disease and stroke. But researchers also saw death rates in smokers were twice as high from other conditions such as kidney failure, infections, liver cirrhosis and some respiratory diseases not previously tied to smoking.

Pink Is Not Green: Companies That Support Fighting Cancer Should Not Use Chemicals That Cause It » Everyone remembers the Komen vs Planned Parenthood scandal from a couple years ago, right? To recap: Susan G. Komen for the Cure defunded Planned Parenthood because, in addition to providing breast health services, they also offer—gasp—contraception and abortions. While Komen eventually caved to public pressure and reversed their decision, the damage was done. The scandal outed Komen as a right-wing institution.  So it should be no surprise that Komen’s conservative culture extends beyond reproductive rights, that they also take positions that fly in the face of common-sense environmental sensibilities. A women’s health charity opposing access to reproductive health care is shocking, and the same charity taking anti-environment positions given that breast cancer increasingly linked to environmental causes is plain wrong.  Companies regularly sell products that contain toxic or hazardous ingredients that can impact the health of consumers. While we’d all love to avoid products that have problem ingredients, the kind of attention and painstaking ingredient-list reading is not possible for most of us, which means that we are exposed to numerous harmful chemicals without our consent or knowledge. And pink ribbon products are no exception. Breast Cancer Action calls this practice pinkwashing.  Komen’s long list of corporate sponsors includes several companies that are selling a product which contains breast cancer causing ingredients, including Ford and American Airlines whose emissions are linked to increased risk of the disease, and Alhambra Water, which sells plastic water bottles emblazoned with pink ribbons—and that contain BPA, a hormone-disrupting chemical linked to breast cancer.

Polluted air leads to disease by promoting widespread inflammation -- Chronic inhalation of polluted air appears to activate a protein that triggers the release of white blood cells, setting off events that lead to widespread inflammation, according to new research in an animal model. This finding narrows the gap in researchers' understanding of how prolonged exposure to pollution can increase the risk for cardiovascular problems and other diseases. The research group, led by Ohio State University scientists, has described studies in mice suggesting that chronic exposure to very fine particulate matter triggers events that allow white blood cells to escape from bone marrow and work their way into the bloodstream. Their presence in and around blood vessels alters the integrity of vessel walls and they also collect in fat tissue, where they release chemicals that cause inflammation. The cellular activity resembles an immune response that has spiraled out of control. A normal immune response to a pathogen or other foreign body requires some inflammation, but when inflammation is excessive and has no protective or healing role, the condition can lead to an increased risk for cardiovascular diseases, diabetes and obesity, as well as other disorders.

Is All Growth Good? The Case of China - Since the seventies, economists have increasingly come to believe that not all types of growth are wholly “good.” Growth that ignores human well-being and equality are viewed as problematic. Certainly growth that results in severe environmental destruction, as in the case of China over the past twenty years, cannot be classified as good, either, despite the country’s much-lauded successes during this period. This is clearest in the case of pollution, where natural resources are destroyed and rendered unusable to future generations. For example, China is home to many “cancer villages” along the Huaihe River, into which toxic factory effluents are emitted. This has reduced production costs in the leather and paper industries while poisoning a source of drinking and irrigation water. The pollution of the river not accounted for in the cost of production of leather and paper goods, and future health care costs and resource destruction costs are not accounted for either (except that “defensive expenditures” like health care or environmental cleanup costs will add to future GDP!). Yet the GDP growth rendered by production processes along the Huaihe River is part of what has been considered China’s stellar “post-reform” economic performance.

China Tries a New Tactic to Combat Pollution: Transparency - Beijingers who care to know how much poison they’re inhaling are familiar with the Air Quality Index, which measures smog levels at different locations around the city and applies labels like “good,” “unhealthy,” and “hazardous.” Another handy tool might be called the Wang Anshun Index, after the mayor of Beijing. The week he was elected, in January, 2013, Wang called the city’s smog “worrisome.” In January, 2014, after a week of particularly horrendous pollution, he described Beijing’s environmental crisis as a “life-or-death situation.” Last week, he raised the stakes again, bluntly declaring his own city unlivable. If Wang doesn’t have his own app yet, he should. The mayor’s most recent dose of real talk followed an announcement that Beijing had failed to meet its 2014 target of a five-per-cent reduction in the average annual concentration of tiny particulate matter, known as PM2.5. Levels did decline, but only by four per cent. The announcement didn’t mention that levels of large particulate matter, PM10, actually increased by 7.1 per cent in the same year. This was after the central government had unveiled a two-hundred-and-seventy-seven-billion-dollar plan to fight pollution, in mid-2013, and after Beijing itself had allocated a hundred and twenty-one billion dollars, at the beginning of 2014. The news was a reminder that, even as the capital has stepped up its anti-smog efforts, livability may be a long way off.

Air pollution actually messes with your genes - Breathing nasty urban pollution does more than clog up your lungs — it actually messes with your genes. This disturbing news comes from a paper published last month, and could change the way we think about pollution. The study’s author, University of British Columbia researcher Chris Carlsten, put volunteers in a walled-in smog aquarium, exposed them to levels of air pollution similar to those found in the world’s most polluted cities, and then looked for changes at the level of the human genome. Carlsten’s lab takes blood samples from participants, first after they spend two hours in the smog booth breathing filtered air, and then again after they are dosed with diesel. “Essentially, each person serves as their own control,” Carlsten explains, “because everything about them is unchanged before and after the exposure.” So while the DNA in each paired sample is identical, Carlsten’s study found that the DNA methylation patterns — the layer of methyl molecules over DNA, that act as light switches turning genes on or off — are changed after the volunteers get the smog treatment. The factors that determine how your genome is actually translated into your flesh-and-blood are together known as your “epigenome.” Scientists are just beginning to realize how much of our biology is determined by changes in our epigenetics — we may even inherit some epigenetic qualities from our parents, along with the genetic basics like eye color and that funny-shaped nose. Over the past few years, studies have looked at the epigenetic effects of diet, of chronic stress, of sleep, and found again and again that our genes are not destiny; our environment still has a remarkable power to change us at a fundamental level.

Common pesticide may increase risk of ADHD: A commonly used pesticide may alter the development of the brain's dopamine system -- responsible for emotional expression and cognitive function - and increase the risk of attention deficit hyperactivity disorder in children, according to a new Rutgers study. The research published Wednesday in the Journal of the Federation of American Societies for Experimental Biology (FASEB), by Rutgers scientists and colleagues from Emory University, the University of Rochester Medical Center, and Wake Forest University discovered that mice exposed to the pyrethroid pesticide deltamethrin in utero and through lactation exhibited several features of ADHD, including dysfunctional dopamine signaling in the brain, hyperactivity, working memory, attention deficits and impulsive-like behavior. These findings provide strong evidence, using data from animal models and humans, that exposure to pyrethroid pesticides, including deltamethrin, may be a risk factor for ADHD,  . "Although we can't change genetic susceptibility to ADHD, there may be modifiable environmental factors, including exposures to pesticides that we should be examining in more detail," says Richardson.  Importantly, in this study, the male mice were affected more than the female mice, similar to what is observed in children with ADHD. The ADHD-like behaviors persisted in the mice through adulthood, even though the pesticide, considered to be less toxic and used on golf courses, in the home, and on gardens, lawns and vegetable crops, was no longer detected in their system.

Global Ban on Bee-Killing Neonics Needed Now - No matter how you feel about Ontario’s proposal to restrict use of neonicotinoid insecticides on corn and soybean crops, we can all agree: bees matter. But as important as bees are, there’s more at stake. Neonics are poisoning our soil and water. This problematic class of pesticides needs to be phased out globally to protect Earth’s ecosystems. By implementing restrictions now (the first in North America), Ontario will have a head start in the transition to safer alternatives. Not surprisingly, Ontario’s proposal has drawn the ire of the pesticide industry.Neonics have only been around for a couple of decades, but annual global sales now top $2.6 billion. They were initially embraced because they are less directly toxic to humans than older pesticides and are effective at low levels, reducing the volume used. They can be applied to seeds and are absorbed into the plant, which then becomes toxic to insect pests, reducing the need to spray. We now know these characteristics are the problem. These chemicals are nerve poisons that are toxic even at very low doses and persist in plants and the environment. They affect the information-processing abilities of invertebrates, including some of our most important pollinators.

The Bt Cotton Fraud  - Humanity’s struggle against corporate agriculture, especially in the form of GMOs, becomes increasingly fierce around the world. One of the most critical and infamous battlegrounds is India. Here, Bt cotton is the locus of the struggle over commodification, the agronomic performance and socioeconomic character of GMOs, and this false crop’s role in history’s greatest suicide epidemic.  I’ll investigate India’s farmer suicide epidemic in a subsequent post. In this post I want to focus on the fact that Bt cotton is the most clear-cut example of how GMOs and the propaganda campaigns that tout them comprise a massive hoax and fraud on farmers and society. We’ll see why India’s Parliamentary Standing Committee on Agriculture found in its 2012 report that “After the euphoria of a few initial years, Bt cotton cultivation has only added to the miseries of small and marginal farmers”, and why in 2014 this committee followed up with the finding that government claims of rising cotton farm income are false. Only debt and risks have risen, giving “ample proof to show that the miseries of farmers have compounded since the time they started cultivating Bt cotton”.  GMOs are a rich man’s technology. This is true of the corporations which control and distribute them, in the process gaining ever tighter control of agriculture and food. It’s also true for the farmers themselves. The only way GMOs may temporarily work as advertised is in the context of high-input industrial agriculture. To work as well as they can, such as that is, GMOs require lavish external inputs and best case scenarios. They need to be heavily supplemented with irrigation, synthetic fertilizer, pesticides, and mechanization. GMO seed sellers are also sellers of agricultural poisons such as herbicides and insecticides. The corporate goal is always to maximize both seed revenue and poison sales. That’s what GMOs are designed to do. They’re very costly to grow, and therefore require either huge cash reserves or that farmers go into debt. Only rich growers who can afford these expensive inputs can have any hope of getting GM crops in the field to perform as advertised so the farmer can turn a profit on these very expensive crops. That’s why GMOs are an abject failure everywhere they’re not propped up with massive government subsidies.

The Bt Cotton Fraud Part Two: Its Performance in the Field  (Part One) In Part 2 we’ll survey the real world performance of Bt cotton in India. This is in contrast to the “studies” of Monsanto flacks like Matin Qaim, who barely set foot outside the Mahyco greenhouses and field test sites during his few visits to India (he’s based in Germany), simply propagates corporate-asserted numbers based on secret data from the corporate trials... Bt cotton never improved yields. Data compiled by government and trade groups tells a stark story: The great bulk of the yield increase (measured by nationwide average kilograms per hectare) of the commodity cotton era in India occurred from the 2000-01 to the 2004-05 seasons, at which point only 5.6% of cotton acreage was planted to Bt varieties. During the Bt acreage surge from 2005-06 (18% of cotton acreage) to 2008-09 (84%) yield increased only a slight amount, then stagnated and declined. In the ensuing years as Bt acreage crept up above 90%, yields have declined. Overall, yield increased 70% from 00-01 to 04-05 when Bt acreage was negligible, and increased only 2% from 05-06 to 2011-12, with a decline since the 2007-08 peak.. This proves that the entire increase was from other causes and had nothing to do with the GMO. The real yield surge came from the switch from polyculture Desi-based cotton growing to hybrid monoculture deploying massive, expensive inputs – irrigation, fertilizer, pesticides.  Almost all the yield increase in fact came from improvements in conventional hybrids and expanded irrigation. As for pesticides, Kehsav Kranthi of the Central Institute of Cotton Research (CICR) scoffs at the notion that Bt crops can hold their own. On the contrary, he attributes the viability of any kind of hybrid cotton, Bt or conventional, vs. a wide range of what from the Bt point of view are secondary pests (Bt cotton’s target pest is the bollworm; secondary pests include jassids/leafhoppers, mealy bugs, mirid bugs, thrips, stink bugs, and many others), to the standard seed treatment with the neonicotinoid imidacloprid.

The Bt Cotton Fraud Part Three: The Global Record, and What It All Means  - From the history we explored in Parts One and Two we see how Bt cotton has aggravated the poison/debt agronomic treadmill and economic trap which enclose small farmers in hopelessness and misery, to the point that in the end their only avenues of escape are suicide or to flee the land for the terminal shantytown slums. Bt cotton has turned an agricultural crisis into a catastrophe.This result was no accident, nor was it unforeseen. On the contrary, it’s simply an escalation of standard “green revolution” phenomena: The replacement of food-based (or in this case textile-based) agriculture with poison- and commodity-based; the enclosure and concentration of agricultural power and profitability on an elitist basis; the forced mass expulsion of the people from the land. The fact that government, corporate, academic, and media elites touted Bt cotton to small farmers knowing it could lead only to their destruction comprises a great crime against humanity. Various Indian state governments and some central government officials have made half-hearted attempts to ameliorate the situation. In 2005 the government of Andhra Pradesh state banned three Monsanto-Mahyco varieties for poor performance and sought in vain to force Mahyco to compensate farmers. In 2006 the Monopolies and Restrictive Trade Practices Commission (MRTPC) issued an anti-monopoly pricing order against Monsanto-Mahyco, which Mahyco has done all it can to flout. The central government in 2008 as well as the state governments of Maharashtra in 2008, Maharashtra again in 2011 and 2012, and Karnataka in 2014 undertook regional farmer bailouts in response to atrocious Bt performance and crop failures. At various times Andhra Pradesh and Karnataka have banned Mahyco seeds for bad performance and fraudulent sales practices. But these ad hoc, piecemeal measures are utterly insufficient.

Earth Minute on Monsanto's GE dicambria-resistant soybean and cotton - (podcast) On Thursday, the US Department of Agriculture approved Monsanto’s controversial new GMO soybean and cotton that resist the toxic herbicide dicamba. Approved in 1967, dicamba seeps through the environment, causing damage to crops and flowering plants and polluting waterways. Studies also link it to “increased rates of cancer in farmers, and birth defects in their male offspring.” These new GMOs are Monsanto’s response to the fact that many weeds now tolerate their herbicide glyphosate, due to the widespread use of GMO crops that resist it. 70% of drinking water in US households is now contaminated by glyphosate, which has also been found in high levels in mother’s breast milk and in human urine. About Monsanto’s new dicamba-resistant crops, Andy Kimbrell, of the Center for Food Safety commented that these new GMO crops “are yet another example of how pesticide firms are taking agriculture back to the dark days of heavy, indiscriminate use of hazardous pesticides, seriously endangering human health and the environment.” For the Earth Minute and the Sojourner Truth show this is Anne Petermann from Global Justice Ecology Project.

USDA Approves GMO Arctic Apples Despite Opposition - Today, the U.S. Department of Agriculture (USDA) approved the Okanagan Specialty Fruits’ genetically engineered Arctic Apples. These apples are engineered to resist browning when sliced. The USDA’s environmental review received 73,000 comments that overwhelmingly opposed the commercialization of Arctic Apples. . The USDA has neglected to look at the full range of risks from these apples. In its environmental assessment, the USDA glossed over the possibility of unintentional effects associated with the technology used to engineer these apples, potential economic impacts on the U.S. and international apple market, effects of potential contamination for non-GMO and organic apple growers and the impact of the non-browning gene silencing which also can weaken plant defenses and plant health.  This apple was produced using a relatively new method of genetic engineering, known as RNA interference. This technology uses RNA to silence a target gene, but mounting evidence has shown that meddling with the genes could have unintended effects within the plant and also on organisms that eat the plant. The particular gene targeted by this technology allows the apples to be sliced without turning brown, which could mislead consumers into thinking they are eating fresh apples when they might be eating apples on the verge of rotting. . The silenced gene is also heavily involved in a plant’s natural defense against pests and pathogens, which could lead to trees that are less healthy than non-GMO apples and rely on more chemical treatments to ward off pests and disease.

U.S. Farm Income Set to Drop 22% on Crop Slump, Rising Cost - Declining commodity prices will reduce the 2015 cash profits of U.S. farmers to $89.4 billion, the third straight decline and the biggest single-year drop since 1931-1932, according to the Department of Agriculture. Revenues from corn, wheat and other crops will be $182.6 billion, a 7.9 percent decline from 2014, with lower prices pinching sales for equipment maker Deere & Co. and chemical makers including Syngenta AG. Livestock sales will fall 4.9 percent from last year’s record, the USDA said in its first farm-income forecast of the year. “Our ability to produce is outrunning our markets,” said Harwood Schaffer, an agricultural economist at the University of Tennessee in Knoxville, in an interview before the report was released. “Farmers are getting squeezed.” Boom times are ending for U.S. farmers, who are tightening their belts as low crop prices and rising costs erode incomes that peaked earlier this decade. Decreasing profits is also eroding the value of land, Farmers National Co., which manages 2.1 million acres of farmland in 24 states, said last week. Expenses for this year including seed, fertilizer and animal feed will be $332 billion, up 0.5 percent from 2014. Total farm assets are seen rising 0.4 percent to $3 trillion as total farm debt gains 3.1 percent to $327.4 billion.

The FAO Food Price Index falling again in January -  Food and Agriculture Organization of the United Nations - The FAO Food Price Index averaged 182.7 points in January 2015, down 3.6 points (1.9 percent) from its revised* (reduced) December 2014 value. While prices of sugar and dairy products stayed virtually unchanged, those of the other commodities included in the Index fell in January, with cereals and oils registering the strongest declines. Except for a short-lived respite in October 2014, the FAO Food Price Index has been falling every month since April 2014.  » The FAO Cereal Price Index averaged 177.4 points in January, down 6.6 points (3.6 percent) from December. This marked decline was mostly driven by a 7 percent reduction in international wheat prices, as coarse grains and rice subsided by only 1 percent or less. » The FAO Vegetable Oil Price Index averaged 156.0 points in January, down 4.7 points (2.9 percent) from December and its lowest level since October 2009. Prices of both palm and soy oil fell, reflecting weak import demand for palm oil and prospects of ample soybean supplies. » The FAO Dairy Price Index averaged 173.8 points in January, essentially the same level as in December. A decline in prices for cheese and skimmed milk powder was counterbalanced by a rise in the price of butter, while whole milk powder was unchanged. » The FAO Meat Price Index averaged 194.3 points in January, down 3.2 points (1.6 percent) from its revised December value. Falling currency exchange rates relative to the United States dollar, especially the Euro, were partly responsible for the decline.

Agricultural Movement Tackles Challenges of a Warming World -- Rice is a thirsty crop. Yet for the past three years, Alberto Mejia has been trying to reduce the amount of water he uses for irrigation on his 1,100-acre farm near Ibague in the tropical, central range of the Colombian Andes. He now plants new kinds of rice that require less water. He floods his paddies with greater precision and has installed gauges that measure the moisture content of the soil. On a daily basis he can determine how much nitrogen the plants need, and he relies on more advanced weather forecasting to plan when to fertilize, water, and harvest the grain. “We are learning how to manage the crops in terms of water, which will be a very, very good help for us now and in the future,” Mejia says, adding that the current El Niño weather pattern has caused serious drought. “We have very difficult days — hot, with no rain. It’s dry. There are fires in the mountains ... Growing crops makes it a complicated time here.”The growing move to climate-smart agriculture is strongly supported by dozens of organizations such as the World Bank, the United Nations Food and Agriculture Organization, and the CGIAR Consortium, a network of 15 international research centers that work to advance agriculture research globally. The Global Alliance for Climate-Smart Agriculture, launched last September, aims to strengthen global food security, improve resilience to climate change, and help 500 million small farmers adapt to more stressful growing conditions.

A Biofuel Debate: Will Cutting Trees Cut Carbon? - Does combating climate change require burning the world’s forests and crops for fuel?It certainly looks that way, judging from the aggressive mandates governments around the globe have set to incorporate bioenergy into their transportation fuels in the hope of limiting the world’s overwhelming dependence on gasoline and diesel to move people and goods.While biofuels account for only about 2.5 percent today, the European Union expects renewable energy — mostly biofuels — to account for 10 percent of its transportation fuel by 2020. In the United States, the biofuel goal is about 12 percent by early in the next decade. The International Energy Agency envisions using biofuels to supply as much of 27 percent of the world’s transportation needs by midcentury.The reasons for such ambitions are clear: It is nearly impossible under current technology to run cars, trucks, ships and jet planes on energy generated from wind or sun. What is more, bioenergy is now being drafted to make electricity. Last November, officials at the Environmental Protection Agency issued a policy memo widely seen as encouraging the harvest of forests to produce power by treating it as a carbon-free source. There is a big problem with this strategy, though. An economist would say that it ignores the “opportunity costs” of deploying vegetation as a source of energy. Others call it double counting. “Dedicating land to bioenergy always comes at a cost because that land cannot produce plants for other purposes,” said Timothy Searchinger, a a co-writer of a recent report that calls for a rollback of crops dedicated to biofuels.  In a nutshell, says Mr. Searchinger, the energy from forests and fields is not, in fact, carbon-free. The argument for aggressive deployment of bioenergy assumes that it is carbon-neutral because plants pull CO2 back from the air when they grow, offsetting the carbon emitted from burning them as fuel. But diverting a cornfield or a forest to produce energy requires not using it to make food or, just as important, to store carbon.

Closer look at flawed studies behind policies used to promote 'low-carbon' biofuels -- Nearly all of the studies used to promote biofuels as climate-friendly alternatives to petroleum fuels are flawed and need to be redone, according to a University of Michigan researcher who reviewed more than 100 papers published over more than two decades.Once the erroneous methodology is corrected, the results will likely show that policies used to promote biofuels -- such as the U.S. Renewable Fuel Standard and California's Low-Carbon Fuel Standard -- actually make matters worse when it comes to limiting net emissions of climate-warming carbon dioxide gas. The main problem with existing studies is that they fail to correctly account for the carbon dioxide absorbed from the atmosphere when corn, soybeans and sugarcane are grown to make biofuels, said John DeCicco, a research professor at U-M's Energy Institute. "Almost all of the fields used to produce biofuels were already being used to produce crops for food, so there is no significant increase in the amount of carbon dioxide being removed from the atmosphere. Therefore, there's no climate benefit," said DeCicco, the author of an advanced review of the topic in the current issue of Wiley Interdisciplinary Reviews: Energy and Environment. "The real challenge is to develop ways of removing carbon dioxide at faster rates and larger scales than is accomplished by established agricultural and forestry activities. By focusing more on increasing net carbon dioxide uptake, we can shape more effective climate policies that counterbalance emissions from the combustion of gasoline and other liquid fuels."

Obama Administration Plans to Aggressively Target Wildlife Trafficking - Hoping to stem illegal wildlife trafficking, the Obama administration on Wednesday introduced an aggressive plan for taking on traffickers that will include using American intelligence agencies to track and target those who benefit from the estimated $20-billion-a-year market. The plan, which was outlined by officials from the State Department, Justice Department and Interior Department, will also increase pressure on Asian countries to stop the buying and selling of illegal rhinoceros horns, elephant ivory and other items, which President Obama has called an “international crisis,” and will try to reduce demand for those items worldwide. “Right now, wildlife trafficking is a very profitable enterprise,” said John C. Cruden, the assistant attorney general for the Justice Department’s Environment and Natural Resources Division. “Our goal is to take the profit out of this illegal trade with all the tools at our disposal.” But the planned actions, a result of a two-year administration review on how to limit wildlife trafficking, will be supported by only a modest increase in funding and staffing for the law enforcement arm of the United States Fish and Wildlife Service, the agency chiefly responsible for policing the wildlife trade.

Unusual String Of Bottlenose Dolphin Deaths Linked To BP Oil Spill -- An “unusual mortality event” among marine mammals — primarily bottlenose dolphins — in the northern Gulf of Mexico has been linked to BP’s historic 2010 oil spill in the Gulf of Mexico. In research published Wednesday in the journal PloS One, a team of marine scientists from across the country documented a large cluster of dolphin strandings and deaths in the Gulf of Mexico between 2010 and June 2013. Of those strandings and deaths, they said, most occurred in areas impacted by the 2010 BP Deepwater Horizon oil spill.  “[T]he location, timing, and magnitude of dolphin stranding trends observed following the [BP] oil spill, particularly statewide for Louisiana, Mississippi, and Alabama, overlap with the location and magnitude of oil during and the year following [the] spill,” the research reads. “In comparison, the [Gulf of Mexico] coasts of Florida and Texas experienced little to no oiling, and … these areas lacked significant annual, statewide increases in stranded dolphins.”

NASA study predicts decades-long droughts to hit west - (UPI) -- Researchers at NASA say the ongoing drought in California, one of the worst in decades, is rather puny compared to what awaits in the second half of this century. A new study by climatologists with the space agency claims so-called megadroughts -- the driest and longest droughts in more than 1,000 years -- could afflict much of the U.S. Southwest and Central Plains in just a few decades. The increased risk in these regions of more expansive, longer-lasting and drier droughts is fueled by the increasing levels of anthropogenic greenhouse gas emissions, researchers say. While previous studies have offered similar suggestions, no one climate model is exactly the same. The latest efforts by NASA researchers amassed data from 17 climate models. The researchers also ran the numbers on a variety of scenarios, including one in which greenhouse gas emissions taper off by mid-century and another in which emissions continue to rise at an accelerated pace. "What I think really stands out in the paper is the consistency between different metrics of soil moisture and the findings across all the different climate models," said Kevin Anchukaitis, a climate scientist at the Woods Hole Oceanographic Institution who participated in the study. "It is rare to see all signs pointing so unwaveringly toward the same result, in this case a highly elevated risk of future megadroughts in the United States."

The U.S. is on track for a record-breaking megadrought -- In just a few decades, a huge swath of the US could experience the biggest megadrought that the US has seen in 1,000 years. New research published on Feb. 12 in the journal Science Advances predicts that this hypothetical could become reality from the Mississippi River to California. It could make the Dust Bowl of the 1930s seem mild by comparison. No one knows what megadroughts, which can last from 30-50 years, look like. So researchers from NASA and Columbia and Cornell Universities went back 1,000 years to peer confidently into our drier future. “If you want to study drought variability in the past, trees are the records to do it with,” lead author Benjamin I. Cook, a climate scientist at NASA’s Goddard Institute for Space Studies in New York, told Quartz. Cook used a network of 835 tree ring chronologies collected throughout much of North America. “The drought signal in these trees is huge,” he said. The record provided a robust, unbroken dryness gauge back to 1000 AD. Cook’s team was particularly interested in what’s called the “Medieval Warm Period,” which spanned from the 9th to the 13th century. Like most climate change stories, it created winners and losers depending on where you lived. It thawed the north, allowing Leif Erikson and his fellow vikings to colonize Newfoundland in Canada. In the west, it meant drought that “far exceeded the severity, duration, and extent of subsequent droughts,” which may have lead to the collapse of the Pueblo Indian civilization. This was all before humanity started power-blasting greenhouse gases into the atmosphere. Cook told Quartz that the Medieval warming provided a natural baseline, allowing him to model human-instigated megadroughts in the future.

Study sees even bigger longer droughts for much of US West - — As bad as recent droughts in California, the Southwest and the Midwest have been, scientists say far worse “megadroughts” are coming — and they’re bound to last for decades. “Unprecedented drought conditions” — the worst in more than 1,000 years — are likely to come to the Southwest and Central Plains after 2050 and stick around because of global warming, according to a new study in the journal Science Advances on Thursday. “Nearly every year is going to be dry toward the end of the 21st century compared to what we think of as normal conditions now,” There’s more than an 80 percent chance that much of the central and western United States will have a 35-year-or-longer “megadrought” later this century, said study co-author Toby Ault of Cornell University, adding that “water in the Southwest is going to become more precious than it already is.”  Megadroughts last for decades instead of just a few years. The 1930s Dust Bowl went on for more than 35 years, Ault said.The study is based on current increasing rate of rising emissions of carbon dioxide and complex simulations run by 17 different computer models, which generally agreed on the outcome, Cook said. The regions Cook looked at include California, Nevada, Utah, Colorado, New Mexico, Arizona, northern Texas, Oklahoma, Kansas, Nebraska, South Dakota, most of Iowa, southern Minnesota, western Missouri, western Arkansas, and northwestern Louisiana.

Brazil drought: water rationing alone won't save Sao Paulo - It should be the rainy season. Instead Sao Paulo state is experiencing a third consecutive year with soaring temperatures and rainfall patterns well below historic records. The main water reservoirs are operating at their lowest capacity. The Cantareira reservoir system, which serves more than nine million people in the state, is only 5% full. At the Alto Tietê reservoir network, which supplies three million people in greater Sao Paulo, water levels are below 15%. Simple calculations indicate that given the current level of consumption versus the predicted raining patterns there is only enough water on the system to last four to six months. That means the water could run out before the next rainy season starts in November. State officials recently announced a potential rationing program of five days without water and two days with, in case the February and March rains do not refill the reservoirs. This extreme climate scenario, combined with a series of management flaws, political negligence and a culture of waste and pollution, is bringing the largest metropolitan region of Brazil to the brink of collapse. Since 2013, after decades of warnings about misguided development policies and destructive land use practices, experts and civil society organisations have been calling for increasingly strong measures to reduce water consumption to keep the minimum secure levels for supply reservoirs. The calls have been ignored by the state government – the system’s main operator – and federal and municipal authorities turned a blind eye to the severity of the situation.

World has not woken up to water crisis caused by climate change: IPCC head -- Water scarcity could lead to conflict between communities and nations as the world is still not fully aware of the water crisis many countries face as a result of climate change, the head of the U.N. panel of climate scientists warned on Tuesday. The latest report from the U.N. Intergovernmental Panel on Climate Change (IPCC) predicts a rise in global temperature of between 0.3 and 4.8 degrees Celsius (0.5 to 8.6 Fahrenheit) by the late 21st century. Countries such as India are likely to be hit hard by global warming, which will bring more freak weather such as droughts that will lead to serious water shortages and affect agricultural output and food security. "Unfortunately, the world has not really woken up to the reality of what we are going to face in terms of the crises as far as water is concerned," IPCC Chair Rajendra Pachauri told participants at a conference on water security. "If you look at agricultural products, if you look at animal protein - the demand for which is growing - that's highly water intensive. At the same time, on the supply side, there are going to be several constraints. Firstly because there are going to be profound changes in the water cycle due to climate change." Development experts around the world have become increasingly concerned about water security in recent years. More frequent floods and droughts caused by climate change, pollution of rivers and lakes, urbanization, over-extraction of ground water and expanding populations mean that many nations such as India face serious water shortages.

4 Weather Patterns To Watch -- “There is enough data that we know the year-to-year weather in the Northern Hemisphere for the last 100,000 years,” says Browning-Garriss, who uses her knowledge of those patterns to explain the climate of today—and tomorrow—for farmers and others. “You need to know what happens most of the time when you’re facing these conditions.”These paradigm shifts can be incredibly disruptive. “As you shift weather patterns, you increase disaster risk and exposure,” says Browning-Garriss, who believes climate changes ebb and flow. “These people who want to cut back farmers’ insurance are picking a heck of a time to do it.”Here are the weather patterns you’ll want to watch and why.

  1. A cooler Pacific. The Pacific Decadal Oscillation (PDO) is a mouthful to say, but it’s also an ocean current that is likely to bring drier weather to the Midwest through its 15- to 20-year cycle. Browning-Garris says the PDO shifted in 2006 to a “negative” phase that she nicknames “Pretty Dry Oklahoma.”  This pattern changes rain and snow patterns, boosts the chances of floods and droughts, and in the West and Great Lakes regions, "increases the probability of dry weather."
  2. A warmer Atlantic. The Atlantic Multidecadal Oscillation (AMO) warms the North Atlantic and speeds the Gulf Stream on a 60- to 70-year cycle. This ocean current shifted in 1995, bringing more frequent and powerful hurricanes like Superstorm Sandy, hotter summers east of the Rocky Mountains, and colder, stormier winters and spring seasons. When this Atlantic pattern combines with the current Pacific pattern, it results in “dry weather in the West and the Great Plains,” according to Browning-Garris.
  3. El Niño. The warmer ocean currents of this shorter, 6- to 18-month weather cycle affect agriculture by bringing drought to some areas and rainfall in others. While one potential El Niño evaporated in 2014, there’s still a 50% or better chance that the weather pattern could return. "A weak/moderate El Niño ... increases the risk of dry springtime weather in the eastern Corn Belt," says Browning-Garriss.
  4. La Niña. This pattern, with its cooler ocean currents, typically brings drier conditions. “La Niña doesn’t sneak up on you,” Browning-Garriss says. “If you see a La Niña forming, it means drought in most of the U.S.”

Climate change in Australia: Of droughts and flooding rains | The Economist - Forthcoming generations of Australians will know ever more sunburnt, drought-stricken and flooded lands, if the predictions of a report from the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Bureau of Meteorology are realised. Those sweeping plains, especially in the country's centre, will become much hotter and their soil will degrade.  The report, released last week, is Australia's most comprehensive yet. It is also the most worrisome. Its worst-case predictions have average temperatures rising by 5.1°C by 2090, a shade above the global worst-case prediction. The report predicts less rain on average but far more of it when it does come. On land, more fires and heatwaves are projected; at sea, expect higher surface temperatures and acidity, and higher sea levels overall—all things foreseen with a “very high confidence” unless emissions are steeply cut.  The report also remarks on the effects of a global temperature rise of 2ºC over pre-industrial times, a goal many still believe is an attainable limit that would curtail worst-case scenarios in many regions. But it would most likely be terrible for Australia's mainland and “very challenging” for the Great Barrier Reef, according to Kevin Hennessy, one of the CSIRO's chief research scientists.  To many the report's dire predictions will come as no surprise; the number-crunching is based in large part on models used by the Intergovernmental Panel on Climate Change, and the outcomes are not so different from the last version of the report. The hottest year on record in Australia was 2013; the third-hottest was last year. Seven of the ten hottest years have occurred since 1988. The report quiets naysayers who would suggest this is natural climate variation, admonishing that "the signal is clear”.

Great Barrier Reef Dredging Is Causing Major Damage, Study Finds - A new report has found that Australia’s Great Barrier Reef (GBR) could be “severely damaged” if the government does not completely ban the dumping of dredge waste in the World Heritage Sites’ waters.  The Great Barrier Reef, the most extensive coral reef system on the planet, with 400 species of coral and 1,500 species of fish, was declared a World Heritage area in 1981. This year it risks being reclassified as a World Heritage Site in Danger. Last June, the U.N. gave the Australian government until this year to indicate that they were improving the health of the Reef. This new report, commissioned by the conservation group WWF-International, calls on supporters to “draw the line at the industrial destruction of the Great Barrier Reef.”  Conducted by independent consulting firm Dalberg Global Development Advisors, the “Great Barrier Reef Under Threat” report states that planned expansions of ports along the Australian coast, which would be used for coal and liquefied natural gas (LNG) exports as well as for other purposes, pose additional threats to the Great Barrier Reef.    No stranger to environmental danger, the Reef has already lost half its coral over the last three decades and is fighting off a myriad of threats including warming waters, ocean acidification, pollution, and development. A recent study found that a rise in ocean temperatures of just one to two degrees Celsius could accelerate coral death and make recovery from incurred damages even harder. Known as a “tipping point” in which recovery becomes unlikely, the study found a “very high likelihood” of coral cover plummeting below 10 percent if temperatures increased just a couple degrees, with corals replaced by sponges and algae.

Climate change marchers told to hire private security firm - The right to stage demonstrations in Britain could be threatened following a demand that climate change protesters planning a march next month hire a private firm to oversee it – a role previously carried out by the police. The Campaign Against Climate Change (CACC) says it is effectively being made to “pay to protest”, after learning that its demonstration in London, which could attract up to 20,000 people, will carry a bill of thousands of pounds. Following negotiations with the Metropolitan police, the Greater London Authority and Westminster city council, the organisers of the Time to Act march – which is supported by the People’s Assembly Against Austerity, the Stop the War Coalition, Global Justice Now, Avaaz and Friends of the Earth – have been told the police will no longer facilitate the temporary closure of roads along the agreed route. A similar march last September, which was the largest of its kind in history, attended by 40,000 people as part of a global day of action, was policed by the Met. “In previous years, the MPS may have undertaken this role but following a review of what services we provide, we have stopped doing this,” a Met spokeswoman confirmed. New, more restrictive, interpretations of traffic laws, coupled with constrained policing budgets, lie behind the Met’s decision. A large protest, which will block off roads, requires a temporary traffic regulation order to ensure public safety is maintained and congestion managed. However, Westminster council says it will issue an order only when the organisers of the march have produced a traffic management plan outlining who will steward the event and how.

14 High-Profile CEOs Want To Rid The Global Economy Of Carbon Emissions By 2050 - Fourteen high-profile business leaders and CEOs are calling on international leaders to agree to a goal of net-zero greenhouse gas emissions worldwide by 2050, arguing the ambitious goal would lead to “new jobs, cleaner air, better health, lower poverty and greater energy security.” Led by high-profile billionaire and Virgin founder Richard Branson, the B Team — which includes Huffington Post Media Group President Arianna Huffington, U.N. Foundation CEO Kathy Calvin, and Unilever CEO Paul Polman — directed their message at the 196 nations that are expected to meet at the Paris climate talks at the end of the year. The meeting is widely considered the last chance for a global agreement that could feasibly keep the rise in global average temperatures under 2°C. The group also urged business leaders to commit to emitting the equivalent of no carbon emissions in their long-term plans. A net-zero goal would mean dramatically reducing emissions while offsetting any remaining emissions with actions that reduce or absorb greenhouse gas pollution, like planting trees, using technologies that capture carbon, or funding clean energy ventures. They acknowledged that the goal would be difficult to meet, but said reducing carbon emissions drastically would be key to unleashing innovation, driving investment in clean energy, and creating jobs. Not to mention, they added, the benefits of avoiding the potentially disastrous side effects of unmitigated climate change.

Richard Branson leads call to free global economy from carbon emissions  Governments should set a clear target of making the world’s economy free from carbon emissions by mid-century, Sir Richard Branson and a group of other prominent businesspeople have urged. The goal – of eliminating the net impact of greenhouse gases, by replacing fossil fuels and ensuring that any remaining emissions are balanced out by carbon-saving projects such as tree-planting and carbon capture and storage – is more stretching than any yet agreed by world governments. The G8 group of rich nations has pledged to cut emissions by 80% by 2050, and some developing countries to halving emissions by then. Branson, long a vocal advocate of action on climate change, said that setting such a goal would galvanise businesses into reducing their reliance on fossil fuels and cutting carbon dioxide. “Taking bold action on climate change simply makes good business sense,” he said. “It’s also the right thing to do for people and the planet. Setting a net-zero GHG emissions target by 2050 will drive innovation, grow jobs, build prosperity and secure a better world for what will soon be 9 billion people. Why would we wait any longer to do that?”

Geoengineering should not be used as a climate fix yet, says US science academy  -- Climate change has advanced so rapidly that the time has come to look at options for a planetary-scale intervention, the National Academy of Science said on Tuesday. The scientists were categorical that geoengineering should not be deployed now, and was too risky to ever be considered an alternative to cutting the greenhouse gas emissions that cause climate change. But it was better to start research on such unproven technologies now – to learn more about their risks – than to be stampeded into climate-shifting experiments in an emergency, the scientists said. With that, a once-fringe topic in climate science moved towards the mainstream – despite the repeated warnings from the committee that cutting carbon pollution remained the best hope for dealing with climate change. “That scientists are even considering technological interventions should be a wake-up call that we need to do more now to reduce emissions, which is the most effective, least risky way to combat climate change,” Marcia McNutt, the committee chair and former director of the US Geological Survey, said. Asked whether she foresaw a time when scientists would eventually turn to some of the proposals studied by the committee, she said: “Gosh, I hope not.”

EPA Paper | EPA/jobs (tables)

Report sheds grim light on geoengineering outlook - Could technological developments be close to cooling the planet and tackling atmospheric toxins? Not yet, BizWest reports. The National Research Council partnered with the University of Colorado-Boulder to publish a report on the current viability of geoengineering— research and developments aimed at cooling the earth and ridding the atmosphere of carbon dioxide. According to the report, the costly technology would take decades to develop and would only yield moderate results. Technologies evaluated in the report includes reflecting sunlight away from the earth to allow it to cool. The report indicates that this method would only provide a temporary fix, and fail to address carbon dioxide within the atmosphere and other unknown consequences. Though the report offered a grim outlook for the reversal of climate and atmospheric changes, the authors recommended a stronger federal commitment to research and development of large-scale carbon dioxide removal and disposal.

Green Energy – The Grid of No Grid  - What’s New York REV Why Does It Matter? “Reforming the Energy Vision” (REV) is a major decision-making process underway now to transform the retail electricity market and overhaul New York’s energy efficiency and renewable energy programs. The stated goal of the proceeding is to create a cleaner, more affordable, more modern and more efficient energy system in New York, through the increased development of distributed energy resources, like rooftop solar, energy efficiency, and battery storage. The REV proceeding was initiated by New York’s Public Service Commission in April, 2014. Watch a briefing on REV by Jessica Azulay, AGREE program director: Reforming the Energy Vision (REV) is a process initiated by the New York Public Service Commission (PSC), which is the state agency that regulates the utility companies in New York. REV seeks to speed up the transition to energy efficiency and renewables by overhauling the regulations that govern utility companies and designing new energy markets. The PSC says that REV will give consumers more control over their energy use and engage them as energy producers. By promoting efficiency and distributed energy, REV also seeks to avoid billions of dollars in investments to repair or replace our aging energy infrastructure.

  • Distributed energy refers to small scale energy sources like rooftop solar, residential wind, battery storage, combined heat and power, energy efficiency, demand response, and other decentralized energy resources. A decentralized system based on these resources can be more efficient and resilient (meaning it can better withstand or recover from extreme weather events and outages).

Ohio EPA director details energy ‘bucket’ list for lawmakers - Ohio’s top environmental official gave legislators a “bucket” list of objections to the U.S. EPA’s Clean Power Plan on Thursday and recommended skepticism about how the state’s clean energy standards would help achieve compliance. Ohio EPA Director Craig Butler testified before the Energy Mandates Study Committee formed as a result of a 2014 law that froze and scaled back the state’s renewable energy and energy efficiency standards. Also testifying last Thursday was Asim Haque, Vice-Chairman of the Public Utilities Commission of Ohio (PUCO). Senate Bill 310 directs the committee to consider the costs and benefits of Ohio’s renewable energy and energy efficiency standards and to recommend whether any additional changes should be made.A previous analysis by the Natural Resources Defense Council proposed how Ohio’s energy efficiency and renewable energy standards could get the state most of the way towards meeting forthcoming federal targets for lower carbon emissions from power plants.

New Ohio energy co-chair was also a ‘freeze’ supporter -- The new chair of Ohio’s energy study committee, like her co-chair, has a track record of opposing renewable energy policy and ties to the fossil fuel industry.  Rep. Kristina Roegner (R-Hudson) is the new co-chair for Ohio’s Energy Mandates Study Committee with State Senator Troy Balderson (R-Zanesville). Roegner’s first official meeting with the committee took place last Thursday in Columbus. She replaced outgoing Rep. Peter Stautberg as co-chair. The legislative committee was formed last year as a result of Senate Bill 310, which Balderson sponsored. Among other things, SB 310 imposed a two-year freeze on increases in the state’s renewable energy and energy efficiency standards. The law also relaxed requirements for what would count toward meeting the standards’ targets. The statute directs the Energy Mandates Study Committee to study the costs and benefits of Ohio’s renewable energy and energy efficiency standards and to make recommendations for future energy policy.A majority of the committee’s members have shown past partiality on the subject of clean energy standards. The same holds true for Roegner.

Will Ohioans Be Forced to Pay the Bill to Keep the Crumbling Davis-Besse Nuke Plant Alive? » As the world’s nuke reactors begin to crumble and fall, the danger of a major disaster is escalating at the decrepit Davis-Besse plant near Toledo, Ohio. Now the plant’s owners are asking the Ohio Public Utilities Commission to force the public to pay billions of dollars over the next 15 years to subsidize reactor operations.  But Davis-Besse’s astonishing history of near-miss disasters defies belief. Its shoddy construction, continual operator error and relentless owner incompetence would not be believed as fiction, let alone as the stark realities of a large commercial reactor operating in a heavily populated area. Time and again Davis-Besse has come within a fraction of an inch and an hour of crisis management time. Today its critical shield wall is literally crumbing, with new cracks opening up every time the northern Ohio weather freezes (like this week). The company’s owners have blacked out the entire Northeast including 50 million customers—the largest such disaster in world history. They allowed boric acid to eat within 3/16th of an inch of a Chernobyl-scale disaster that would’ve permanently irradiated the Great Lakes region. They have set the record for fines by the Nuclear Regulatory Commission, and continue to drain billions of ratepayer dollars from Ohio’s bleeding economy. Now they want those ratepayers to fork over billions more to keep this reactor running beyond the brink.

Bills would weaken water protections — A year after a toxic leak contaminated drinking water for 300,000 residents, West Virginia lawmakers are considering a series of proposals that would weaken a new chemical tank safety law, remove stronger pollution protections for streams across the state, and protect the coal industry from enforcement actions over violations of water quality standards. Members of a coalition of citizen groups called the West Virginia Safe Water Roundtable held a news conference Monday at the Capitol to draw attention to their concerns and to urge lawmakers not to roll back the state’s clean water laws. On Tuesday, one broad bill backed by the West Virginia Coal Association is up for passage in the Senate, and efforts to attach industry-backed amendments to a Department of Environmental Protection rules bill are expected in a House committee. “It’s a critical time,” said Angie Rosser, executive director of the West Virginia Rivers Coalition. The DEP rules bill, on the agenda Tuesdaythis morning before the House Industry and Labor Committee, proposes to add drinking water protections to the part of the Kanawha River that flows through downtown Charleston.

Coal Companies Don’t Pay Enough To Mine For Coal On Federal Land, Report Argues - Coal companies that mine on federal lands have been exploiting loopholes that serve to make their coal inexpensive for years, a practice which is impacting the economy of Appalachia and should be stopped, according to a new report.  The report, published Monday by the Center for American Progress, states that decades-old flaws in the federal government’s program for leasing coal on public lands are giving coal companies that mine in Western states an unfair advantage over companies that mine in Appalachia. That’s because 40 percent of U.S. coal is mined from federal lands, and much of that land is out West — nearly all the coal that comes from Wyoming and Montana’s Powder River Basin is mined on federal lands, while only about one-tenth of 1 percent of Appalachian coal is mined from federal lands. Right now, the minimum royalty rate for coal mined on federal lands is 12.5 percent — a rate that’s lower than the royalty rate collected for offshore oil and gas leases and one that’s same as it was in 1976. In addition, the report states, coal companies have been able to manipulate the system to pay the royalty on a decreased coal price. The rate needs to change, the report argues, and the new revenue generated by the increase in rate should be put toward job transition and economic diversification efforts in Appalachia. A more comprehensive approach would also include changing the system so that coal companies can’t pay the rate on a below-market coal price, the report states. Changing the royalty rate “would bring transparency and fairness to the industry while raising additional revenues,” Rep. Matt Cartwright (D-PA) said on a press call Monday. Cartwright said he would be introducing legislation in the coming months that would “eliminate the loopholes that are allowing private coal companies to game the system.”

Montana and Wyoming see EPA coal rules differently -- Laramie River Power Station towers above Platte County, a community of 8,000 where the majority of people work in agriculture. The 1,710-megawatt facility employs around 350 people and pumps millions of dollars in tax revenue into county coffers every year. It also belched 14 million tons of carbon dioxide into the atmosphere in 2013, making it the 17th largest emitter of carbon in the United States, according to the U.S. Environmental Protection Agency. The 2,100-megawatt Jim Bridger Plant in southwestern Wyoming sent 16 million tons of CO2 into the atmosphere in 2013, placing it 12th on the EPA’s list of the country’s top carbon emitters. Farther to the north, the 2,100-megawatt Colstrip Generating Station in eastern Montana sent almost 15 million tons of carbon skyward. That made Colstrip the country’s 14th-largest carbon emitter in 2013.  Brecht, by his own admission, is something of an outlier among his neighbors. He believes climate change is real and should be addressed. But that doesn’t mean he wants to see Laramie River Power Station close.“I want things to be fair for the big coal plants,” Brecht told the Casper Star-Tribune. The sentiment underscores the difficulty facing policymakers in Wyoming and Montana. Both are among the country’s top coal producers, and both rely on coal for the majority of their electricity generation. Despite this, the western neighbors are pursuing radically different approaches to the Clean Power Plan. Wyoming plans to fight the regulations. Montana is looking to comply with them. The diverging path of two coal states has important implications for the mining industry’s future and the makeup of the western power grid.

Gov. Kasich’s fracking-tax hike proposed at ‘worst time,’ industry says -- Gov. John Kasich is back for a third go-around in his quest to dramatically increase the taxes paid on the oil and natural gas that drillers extract from Ohio’s Utica shale fields. And the governor wants more money than ever, prompting the industry to counter that Kasich is renewing the fight at the “absolute worst time.” With a plunge in oil and natural-gas prices of more than 60 percent in the past year, Ohio’s fracking boom is turning bust, said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association. Fewer horizontal wells are being drilled and jobs are being lost as lower prices and a supply glut combine to make it difficult to turn a profit, Bennett said. A $180 million-plus annual tax increase, as sought by Kasich, would further discourage drilling investment and job creation, Bennett said. But Kasich says Ohio drillers have long benefited from one of the nation’s lowest tax rates and that it is past time for producers to pay their fair share — about midpack among the states — for the right to deplete natural resources. The governor hasn’t pulled punches, calling Ohio’s current tax rates, which generated $4 million last year, “a total and complete rip-off to the people of this state. It’s outrageous.”

John Kasich's proposed tax increase on the oil, gas industry likely to be crippling --   When OPEC refused to cut production last November, it was widely considered a move to cripple U.S. shale energy production. When Gov. John Kasich proposed a huge tax increase on the oil and gas industry last week, he should have understood that the effect on Ohio -- intentions aside -- is likely to be the same.Tax increases are rarely a good idea, but this is an especially wrong move at the worst possible time. OPEC's strategy is already taking a toll, as oil and gas companies are announcing spending reductions and layoffs, and reassessing their near- and long-term planning. Ohio has not escaped the collateral damage:

  • • Vallourec Star announced that it was shutting down its $1 billion steel mill in Youngstown for three weeks in mid-February, citing "the declining oil and gas market."
  • • GoFrac, which provides a range of products and services to support hydraulic fracturing, shuttered its office in Cambridge, idling about 100 employees.
  • • Blue Racer Midstream has put its plans to build a $70 million wet gas processing plant on hold in Mahoning County.
  • • U.S. Steel announced the temporary closing of its Lorain facility, which provides pipes and tubes for oil drilling and fracturing, laying off 614 employees.

So what is Gov. Kasich's response to the loss of jobs and investment? He pushes for a huge tax on the companies that create jobs and invest in the state: 6.5 percent for crude oil and natural gas sold at the wellhead and 4.5 percent on natural gas and natural gas liquids that go through processing.  It makes no sense.

Safest mode of transport for oil and gas debated - Columbus Dispatch - The more oil and gas that is pulled from the ground by drilling and fracking, the more that will need to be moved from wellheads in North Dakota, Pennsylvania and Ohio to refineries and ports throughout the country.  But the best, safest way to transport oil and gas, which can be toxic and explosive, is still being debated.  Tanker trucks, trains and pipelines carry the commodities across Ohio, where debates have focused on transparency, oversight, safety and cost. Like many other debates, this one is complicated.   But a growing number of leaks, derailments, fires and explosions has pitted the oil and gas industry against environmental groups and others.“When we look at the modes of transportation, our industry — the oil and gas industry — we take an ‘all of the above’ approach,” said Robin Rorick, who oversees transportation of oil and gas from well to market for the American Petroleum Institute. “They all have inherent risks, but we view them all as being extremely safe.” The risk of spills and other problems, given the amount of oil and gas being transported across the United States every day, is relatively small. Railroads consistently spill less crude oil per ton-mile than pipelines or trucks, the two other main modes of land transportation, according to a Congressional Research Service report that was published in December. But when the trains derail, the results can be disastrous. For example, a train carrying 72 rail cars of crude oil from the Bakken shale formation in North Dakota derailed in Quebec in 2013 and exploded, killing 47 people. After refusing for months to release information about the rail transportation of Bakken crude in Ohio, the state shared reports last month that showed that millions of gallons are traveling each week through Ohio cities, including Columbus. Pipelines raise the same concerns. A leak last month sent thousands of gallons of crude oil into the Yellowstone River, prompting the governor of Montana to declare a state of emergency in two counties. About a week later, a pipeline across the Ohio River in Brooke County, W.Va., exploded, damaging a number of houses. Last year, the state of California fined Pacific Gas and Electric $1.4 billion for a pipeline explosion that killed eight people in 2010.

Green mayor wants Stark to join fight to re-route NEXUS pipeline - Green’s mayor visited Stark County commissioners Wednesday, asking them to join the effort to shift the proposed NEXUS Pipeline to the south. NEXUS Gas Transmission wants to build a pipeline, up to 42 inches in diameter, to carry as much as 2 billion cubic feet of natural gas a day from Kensington to users in Ohio, Michigan, Illinois and Canada. The proposed route crosses Washington, Nimishillen, Lake and Marlboro townships in Stark County. Mayor Dick Norton, whose Summit County city is on the route, said he’s not against the pipeline, but building it through populated areas poses an “unnecessary danger” to residents and businesses. Norton and Green’s council have asked NEXUS to re-route the pipeline, as have Lake Township trustees. Summit County and New Franklin have passed resolutions opposing construction of the pipeline. Local governments can’t prohibit NEXUS from building the pipeline. But the comments of all stakeholders matter at this early stage in the federal permit process, said David Mucklow, an attorney from Green and a member of a landowner group called Coalition to Re-route NEXUS. In light of public comments, NEXUS has told federal regulators it will evaluate an alternate southern route, but the review won’t be completed until summer. The coalition wants to present federal regulators with an alternate path of its own design. Commissioners scheduled a work session for Feb. 24 so the coalition and Green officials can present more detailed information.

Texas company says good-bye to the Utica -- GoFrac LLC, a Texas-based fracking business operating in the Utica shale play, is shutting down operations and closing its doors. GoFrac arrived in Ohio a few years ago when it purchased 90 acres in Guernsey County and started an operation in Cambridge. The company had serious investments in rail spurs and silos, explained Executive Director Norm Blanchard to the Columbus Business First. He also mentioned that the operation could hire up to 250 people. However, the Utica shale, like the rest of the energy industry, is struggling due to low oil prices. According to Blanchard, because of the downturn, GoFrac told the local Ohio Means Job office that it will be shutting down this week. Blanchard expressed how leaving the Utica is upsetting. The company saw itself as a solid company, and wouldn’t lose its operations due to all of the investments the company had made. GoFrac’s corporate office was unavailable for questioning. It is unsure how many employees will be affected by the closing, but government officials have plans to offer help to those in need.

Murky responses cloud plan to ship frack waste on Ohio River -- A Texas company's announcement that it plans to ship fracking wastewater on the Ohio River has touched off a controversy, with environmentalists worrying that the company got around federal permitting requirements and federal agencies hedging on just how much permission they've given the company. GreenHunter Resources Inc., based in Grapevine, Texas, announced last week that it had secured permission from the Coast Guard to ship thousands of barrels of wastewater from the Marcellus and Utica shale fields to its disposal wells in Ohio. The Army Corps of Engineers gave it permission to build a barge facility on the Ohio side of the river, the company said, The Coast Guard said Wednesday that it's still writing the regulations for shipping what it calls shale gas extraction wastewater and that it hasn't given GreenHunter permission to start transporting waste on the river. GreenHunter, however, said yesterday that it received a letter from a regional Coast Guard commander allowing it to ship "oilfield waste" -- and the company contends that's all it wants to do. "We don't even know what the hell shale gas extraction waste is," Kirk Trosclair, the company's chief operating officer, said in an interview yesterday. "What we're trying to transport is oil field waste and residual waste, which is basically brine, saltwater." The distinction is critical. There are already regulations in place that allow shipping oil field waste, but the Coast Guard has spent the last two years writing regulations for shale gas wastewater. It's currently responding to thousands of comments on its proposed rules and hasn't given a date for when the process may be finished.

River Fracking Debated -- Although a potential $40 million windfall awaits West Virginia's coffers if Gastar Exploration drills and fracks for natural gas under the Ohio River, at least one legislator does not believe the money outweighs the potential environmental risk such a plan could bring to the region's drinking water supply. More than 100 concerned students, residents, community leaders and elected officials turned out Saturday for a public discussion at Wheeling Jesuit University regarding Gastar's plans to draw natural gas from beneath the river in Marshall County. While river drilling was the main topic, discussion also touched on GreenHunter Resources' plans to barge frack wastewater on the Ohio River and on above-ground storage tanks located near rivers. Gastar is one of several companies bidding with the West Virginia Department of Commerce to extract oil and natural gas from state-owned land lying thousands of feet below the riverbed. Noble Energy recently bid to drill on 1,400 acres beneath the river, while Statoil also is making its own plans. Combining per acre lease payments with a 20 percent production royalty each company will pay once gas starts flowing, the state stands to have a steady stream of new revenue. McCown said Gastar projects paying the state $749,000 in up-front lease money for about 214 acres, but said the production royalties would be the real source of revenue, as he estimated this amount could reach as high as $40 million over several years.

First Nationwide Oil Worker Strike In 35 Years Spreads To Ohio, Indiana -- On Sunday, workers at two BP oil refineries in Ohio and Indiana walked out as part of a nationwide oil worker strike being led by the United Steelworkers Union (USW). Citing unfair labor practices and dangerous conditions, including leaks and explosions, the approximately 1,440 workers will join nearly 4,000 that began striking a week ago on February 1.   The first nationwide strike by oil refinery workers since 1980, the addition of BP’s Whiting, Indiana, refinery and the company’s joint-venture refinery with Husky Energy in Toledo, Ohio, brings the total number of plants with strikers to 11, including refineries accounting for about 13 percent of total U.S. oil refining capacity. The original strike included workers in California, Kentucky, Texas and Washington.  The USW called for the strike after talks broke down with Shell Oil, which is leading the industry-wide bargaining effort. It comes at an already tumultuous time as plummeting oil prices have given rise to a heated debate over the future of an industry that relies on extracting cheap and plentiful resources from the ground. This precipitous drop in crude oil prices by over 60 percent since June has caused companies to lay off workers and delay plans for expansion; what they see as the most painless means of avoiding profit cuts. The strike is not expected to impact gas prices. In a statement, USW International President Leo W. Gerard said the oil industry is long overdue in addressing many of the issues that directly impact workers’ health and safety.

At my oil refinery, my life is worth the price of a pie - Butch Cleve - In an oil refinery, like the one where I work, stuff leaks all the time. Sometimes dripped oil just makes a black spot on the ground. Sometimes 500-degree gas flows out, ignites and explodes. These powerful blasts can maim and kill. I’ve seen it. The first time was in 1998, four years after I started work at a refinery in Anacortes, which was first owned by Shell but later became Tesoro. It happened at the adjacent refinery, owned at that time by Equilon. An explosion killed six workers. For a lot of us, that was our first experience with a refinery catastrophe with multiple fatalities. It shocked you to the core. Then, five years ago, at my refinery, a massive explosion killed seven of my friends.The United Steelworkers, which represents 30,000 refinery workers in collective bargaining, tracks workplace deaths. It reports that 27 workers died at refineries in the past five years – more than five a year. That’s intolerable. And it’s a big part of the reason that 5,000 USW oil and chemical workers, including me, are on unfair labor practice strikes nationwide. We believe not enough is being done to prevent our co-workers from leaving refineries and chemical plants in body bags. None of us wants to be the next to lose his or her life for no good reason. After both of the Anacortes disasters, as well as a blast at BP in Texas City in 2005 that killed 15 and injured 180, regulators cited lax safety standards at the refineries as a problem. It’s frustrating. We know the refineries aren’t doing enough. At Tesoro, the explosion in 2010 didn’t come as a real surprise. The equipment that failed had a history of leaks and fires. We had all seen close calls, including me. I once helped disperse a volatile cloud of propane that jetted out of a broken pipe. That was about 18 years ago, a few years after I began work at the refinery. We shut the valves, diffused the propane and escaped with our lives because it never ignited. We were lucky and we knew it.

Special Investigation: Trains transporting hazardous chemicals across region -- Action News is investigating the transportation of a highly flammable and hazardous chemical that is being shipped right through the center of Philadelphia . It’s called Bakken oil. It’s a form of crude oil.  Early Saturday, 11 tank cars of a CSX train carrying crude oil derailed in South Philadelphia .  Last January, a 111-car CSX train partially derailed over the Schuylkill , six cars carrying crude. Two freight cars dangled dangerously over the river.  Action News is uncovering into the routes it’s traveling right through your neighborhoods and whether enough is being done to keep you safe.  This is a topic few emergency responders want to talk about. More than a handful of local departments, including the City of Philadelphia and several municipalities in New Jersey , declined our requests for an interview.  But our cameras caught this potentially dangerous material being transported right along the Schuylkill though densely populated neighborhoods and into New Jersey . They’ve been called “bomb trains.”More than 100-car freight trains carrying crude oil traveling across the Bakken oil fields in North Dakota, shipped to gas refineries right here in Philadelphia, Camden, and across the United States.  "The biggest problem with Bakken crude is of course its flammability," Matt Fitzgerald, emergency response specialist with the New Jersey State Police, said.

Ohio’s latest pipeline is open for business -- Marathon Pipe Line LLC has opened the gates to its new $140 million Utica shale pipeline for companies to lockdown rights to use it and other related Ohio transport developments. The Cornerstone Pipeline stretches 50 miles long and will transport natural gas, butane and condensate, along with an ultra-light crude oil from processing facilities in Harrison County to Marathon’s refinery located in Canton. The pipeline will also have the ability to move the fossil fuels to other operations located in the Midwest. Gary Heminger, Marathon CEO, spoke with analysts last week expressing that he isn’t concerned about the industry’s current slowdown or the effects on exploration and production it could have on eastern Ohio. Heminger stated the following: The Utica’s rig counts are fairly unchanged at this point in time … And being one of the larger purchasers of the output of Utica, we continue to see growth in that volume.Marathon plans to finish the pipeline late next year. In total, the Marathon Pipe Line LLC will be 6,000 miles long and stretch across 14 different states. Marathon also said the pipeline will be able to connect to other condensate and fractionation facilities that are located on the pipelines route.

Mariner East 2 pipeline gets two public forums - Sunoco Logistics announced this week it will be hosting  two open houses in central Pennsylvania regarding its proposed Mariner East 2 pipeline project.. The Mariner East 2 would stretch 350 miles and run parallel to its sister pipeline, the Mariner East 1. The $2.5 billion pipeline would transport natural gas liquids across southern Pennsylvania to the Marcus Hook Industrial complex. It would quadruple the amount of natural gas liquids traveling into the Philadelphia industrial complex, going from 70,000 to 250,000 barrels per day. Most of the ethane gathered would be shipped overseas and some of the propane will go towards the markets on the East Coast. Awaiting state and federal approvals, the Mariner East 2 would be up and running during 2016. Sunoco Logistics will hold the open houses on Wednesday and Thursday. Wednesday’s meeting will be held in Middletown and Thursday’s in Lebanon. The following information is gathered from Sunoco’s press release:

PennEast line estimated to have $1.6 billion economic impact - Construction of the proposed PennEast Pipeline connecting Marcellus Shale to southeastern Pennsylvania and New Jersey will have an economic impact of about $1.6 billion, according to an economic study released as pipeline developers make an economic case for the project before be-ginning the regulatory review. Econsult Solutions and the Drexel University School of Economics prepared the study, which relied heavily on IMPLAN, a widely used economic impact software program to determine that the construction would support 12,160 jobs. The study’s author and representatives from PennEast Pipeline LLC discussed the project on a conference call Monday. Bringing large amounts of less expensive natural gas to market will decrease the cost not only of natural gas, but also electricity as natural gas is increasingly used as a fuel for baseload generation, replacing coal. The 114-mile-long, 36-inch diameter gas line is being spearheaded by a coalition of marketing and transmission divisions of utility companies, such as UGI Energy Services and PSEG Power, in addition to others. The line will stretch from a interconnection in Luzerne County and cut through Carbon, Northampton and Buck County and jump the border into to Hunterdon and Mercer Counties in New Jersey. A good chunk of the immediate economic impact is the design and construction price tag of $1.2 billion, a direct economic impact. The project would employ about 12,000 and pay $740 million in wages as an indirect impact. When workers spend that money, it becomes an induced impact. After it is built, the pipeline will employ about 100 people and will have an operating budget of $13.2 million.

Penneast Garbagenomics   - Of the items mentioned to be considered in the Pre-Filing Environmental Review Process is the socio-economic impact. I would like to comment on the Economical Development Analysis released by PennEast this past Monday, on Feb. 9, 2015.   The PennEast Economical Development Analysis was produced by EConsult Solutions and Drexel University and it eerily mirrors a similar report produced by EConsult Solutions on Feb. 5, 2015 for Sunoco Logistics’ Mariner East project[i].PennEast Economic Development Analysis February 9, 2015[ii]  The original Pre-File documents submitted by PennEast, during the Open Houses, and in numerous statements made by PennEast representatives to media outlets, stated the PennEast project would create 2,000 jobs.The recently released Economic Development Analysis claims 12,160 jobs.   This is a difference of 10,160 jobs and should raise red flags as to the reliability and accuracy of both PennEast’s original figures and that of the Economic Development Analysis. Anyone working with databases or modeling software would be familiar with the acronym GIGO. GIGO stands for Garbage In-Garbage Out. Briefly it means if the input data is garbage, the output data will also be garbage.

Wolf being pressured to restrict gas drilling -- Environmental advocates are applying pressure on the Wolf administration to broaden restrictions on natural gas drilling on Pennsylvania state lands. Gov. Wolf’s Jan. 29 moratorium on new gas leasing, signed on his 10th day in office and hailed by environmentalists, had symbolic importance, but it went only so far. The ban undid a limited Corbett administration policy that allowed new leasing of lands where no surface disturbance was involved. Corbett’s executive order, which was never carried out, affected a relatively small universe of public lands that could be accessed from neighboring tracts where drilling is already permitted. Much of Pennsylvania’s finest recreational areas in the Marcellus Shale region remain available to natural gas development. About 1.5 million of the state’s 2.2 million acres of state forests lie over the gas-rich shale. The mineral rights underlying nearly 700,000 acres are controlled by gas interests and are unaffected by the governor’s leasing ban, which was erroneously reported in some media as a drilling ban. State Rep. Greg Vitali of Delaware County, the ranking Democrat on the House Environmental Resources and Energy Committee, said he was exploring ways to restrict drilling on state lands already under lease.

Town Sues Over Pipeline ROW Condemnation -  Using the same legal theory applied in Nebraska and Texas regarding the Keystone pipeline ROW, a Massachusetts town is suing to block a gas pipeline condemnation under the theory that the pipeline – which will be used to export fracked gas – has no public purpose in Massachusetts  – since shipping fracked gas to China is not a public purpose.  The Keystone pipeline serves even less of a public purpose, since it takes Canadian tar sludge, pumps it to a refinery in Texas for export. Which neither takes nor supplies any products in the US. In order to have the power of eminent domain, a pipeline must serve a public purpose where it is built. Not just be used to ship privately owned fracked oil or gas overseas, which serves no public purpose.  The town of Deerfield plans to file a negligence claim against the United States government today in its fight against the planned natural gas pipeline through Franklin County.  Filed under the Federal Tort Claims Act, which gives private parties the right to sue the federal government for damages if they are injured due to the negligence of one of its employees, the claim takes aim at Tennessee Gas Co.’s proposed 36-inch diameter natural gas pipeline and is the latest salvo in the town’s battle to keep the pipeline from passing through its limits.  The tort action claims that a 2005 change in the federal Natural Gas Act that gave the Federal Energy Regulatory Commission authority to regulate the transportation and sale of natural gas destined for sale overseas is unconstitutional.

Vermont Gas not to pursue 2nd phase of pipeline - (AP) -- Vermont Gas Systems says it is not going through with the second phase of a natural gas pipeline that would have extended underneath Lake Champlain to International Paper in Ticonderoga, New York. The company said Tuesday that it had recently reviewed the costs and says the second phase is no longer viable for International Paper. The cost estimate for phase two has grown to $105 million, up from an earlier estimate of $74 million. Gov. Peter Shumlin says he supports the decision. Last year, Vermont Gas announced two cost increases, prompting the Vermont Public Service Board to investigate further. The board recently asked for an updated cost estimate for phase two. The first phase of the pipeline is designed to reach Vergennes, Middlebury and other communities.

Tree Clearing for “Constitution Pipeline” start date: Feb 16th  Tree clearing is considered to be “pre-construction” by FERC. (behind a paywall, but relevant excerpt is below) A federal agency on Monday authorized pre-construction tree clearing* in Pennsylvania for a $257 million gas pipeline project by Central New York Oil and Gas Co. LLC and denied a stay requested by environmental groups opposed to the project.  Also note that “tree clearing” (stump removal with machines)  is not the same as “tree cutting”. Please be on watch. Remember this is a war being waged against us. There are very smart Generals on their side who have designed this arena to disempower us. I believe there are cunning* language experts at work here who have carefully designed the language used in order confuse us about the status, and to catch us off guard.I agree with what others from STP have said– there seem to be many signals coming now which seem to be saying: “CP cannot legally proceed.” Like this: CP is asking for a 60 day delay to file their implementation plan. AFTER the tree clearing window is closed. 

Oil train foes rally - Opponents of continued rail shipments of crude oil into the Port of Albany rallied Monday in a snowstorm outside the downtown Albany headquarters of the state Department of Environmental Conservation, renewing calls that the state take a closer look at potential environmental and safety risks. "We are asking for full transparency and scrutiny by DEC for the health and safety of all Capital District residents," said Albany County Legislator Doug Bullock, a resident of Albany who represents the 7th Legislative District. Last week, Bullock delivered to DEC a resolution signed by 22 county lawmakers that urged DEC to rescind a ruling last year that a proposed crude oil heating plant at the port by Global Partners would have no significant environmental impact. Opponents fear the facility would be used to heat Canadian tar sands oil, which in cold temperatures can become too thick to pump for transport. DEC is still reviewing the proposal. In June, the environmental group EarthJustice sued DEC seeking to get that ruling, called a negative declaration, overturned. The case remains pending in state Supreme Court in Albany County, said EarthJustice staff attorney Chris Amato on Monday.

Six Finger Lakes Residents Arrested This Morning – In an act of civil disobedience, seven people from five counties throughout the Finger Lakes region created a human blockade this morning at both of the gated entrances of Crestwood Midstream. Protesters prevented all traffic from entering for four hours. Six were arrested at 1:50 p.m. by Schuyler County sheriff’s deputies. (One of the blockaders, Janet McCue, 64, of Hector in Schuyler County left before law enforcement arrived.) Two dozen other Finger Lakes residents rallied along Route 14, holding signs and banners that declaimed the beauty of the region and declared themselves united against gas storage.Their actions were part of a four-month-old campaign called We Are Seneca Lake, which seeks an end to gas storage in lakeside salt caverns. Crestwood’s methane gas storage expansion project is advancing in the face of broad public opposition and unresolved questions about geological instabilities, fault lines, and possible salinization of the Seneca Lake, which serves as a source of drinking water for 100,000 people. Arrested protesters were transported to the Schuyler County sheriff’s department, charged with trespassing and released. The total number of arrests in the ongoing campaign stands at 216.

Dispatches from the Seneca Lake Uprising »  Sandra Steingraber - I told the guy at the wilderness outfitter store that I needed footwear appropriate for standing motionless in frigid temperatures with occasional bouts of below-zero wind chill. For possibly long periods of time. He asked if I was going ice fishing. There are no guidebooks for how to carry out a sustained civil disobedience campaign during winter—let alone one that involves human blockades that intercept trucks attempting to enter a compressor station site on a steeply sloping lakeshore with 18 inches of snowpack.  Ice fishing with a chance of handcuffs. It’s as good a metaphor as any. With that in mind, I bought a pair of waterproof boots that looked like something that you might bench-press at a gym and were guaranteed to 40 below. After two hours of standing on ice at 10 above, my feet were—surprise!—distressingly cold. I would have returned the boots except that a sustained civil disobedience campaign, with all participants vetted and trained, is also like planning and executing a wedding every week. No time for more shopping. The boots would have to do. At its core, the ongoing We Are Seneca Lake protest, now in its fourth month, is unsurprising.

Lake lessons - Jodi Dean - Since the end of October (and my first arrest on November 3), I've been involved in civil disobedience actions at the gates of Texas-based oil and gas company Crestwood-Midstream to stop the company from storing methane gas in the fragile salt caverns of Seneca Lake. The facility is at the south end of the lake; I live at the north end. The lake supplies the drinking water for about a hundred thousand people. Seneca Lake is fragile, higher in salinity than the other Finger Lakes, likely because of LPG storage in the sixties through the eighties. I've been on the line six times, arrested four of those times, and in a support role three additional times.  The issue is complicated and layered, not one I would have chosen. It chose me.  I wonder if politics works this way a lot of the time. I wonder if there is or will be something about climate politics that makes the way it will choose us to engage different from other political matters. What makes this seem likely is the largeness and seeming intractability of the problem: it is already happening. Binding global agreements seem unlikely and already like too little too late. We get trapped into the worst sorts of individualizing approaches that reduce action to one's consumer choices or ethical stance, feeling responsible.  The expanded storage facility would be part of the fracking infrastructure. Allowing it to be built undermines efforts to ban fracking (or maintain the ban in NY), adding to the ability of the industry to say things like "well, X is already in place." Methane in particular has an even greater warming effect than carbon. So this isn't a NIMBY issue. The point is no fracking here, no fracking anywhere. One divides into two -- in this case, the struggle over protecting one lake divides into that plus another struggle against fracking. The struggle against fracking divides into itself plus the struggle to mitigate rather than compound climate change. And this struggle, to be the struggle it is, is a struggle against capitalism. If there is to be any mitigation of global climate change, a massive sector of the capitalist economy -- the oil and gas industry, which includes, then, petro-chemicals, shipping and transport, the financial markets associated with speculating on oil and gas as commodities as well as other stocks and investments, automobiles, roads, the component industries of all of these -- has to be shut down. This means lots of job loss: in a sense the dismantling of the carbon-combustion complex is akin to the de-industrialization of the seventies and eighties. Instead of jobs and processes being moved elsewhere, though, they would be eliminated. Yes, renewables, thought broadly in ways that connect with renewing the capacities and resources of workers who have had to make their livings in the industry threatening us all.

Frackademia in Depth | Public Accountability Initiative -- In a trend that became known as “frackademia,” several universities issued industry-friendly fracking studies that the institutions later retracted and walked back due to erroneous central findings, false claims of peer review, and undisclosed industry ties. The studies bore the hallmarks of an industry effort to manipulate and corrupt the scientific debate around fracking, much like the tobacco industry manipulated the scientific debate around the dangers associated with smoking.  This report suggests that those studies, rather than being isolated cases, were consistent with a larger pattern – pro-fracking scholarship is often industry-tied and lacking in scientific rigor. An in-depth look at frackademia reveals that many of these kinds of studies have been produced by industry and its allies in academia, in government, and in the consulting world. The report approaches this topic by analyzing a broad set of fracking studies that the industry has put forward to help it make its case. Specifically, the report considers an extensive list of over 130 studies compiled by an oil and gas industry group, Energy in Depth. The list was specifically used to convince the government of Allegheny County, Pennsylvania, home of the city of Pittsburgh, to lease mineral rights under its Deer Lakes Park to Range Resources for gas drilling. Though that decision was a relatively minor one in the context of the nationwide fracking debate, the list provides a telling window onto the fracking research that the industry believes is fit for public consumption, and which it uses to make the case that the science around the issue is settled.

Study Confirms: Frackers Use Fracademics to Promote Fracking -– The oil and gas industry is using flawed research to give the impression of a scientific consensus that fracking is safe and beneficial, according to a new report released today by the Public Accountability Initiative (PAI) and available at: The report, titled “Frackademia in Depth,” assesses over 130 studies that the industry has put forward to help make the scientific case for fracking, analyzing them for the strength of their industry ties and their relative academic quality (whether they were peer-reviewed). PAI found that only 14% of the studies had been subject to peer review, while nearly 76% had some degree of connection to the oil and gas industry through funders, authors, and issuers. PAI also found that the list included reports that had been discredited and retracted by the institutions that published them, including a 2012 report from the University of Texas that an independent panel convened by the school decried as “falling short of contemporary standards of scientific work” after PAI revealed undisclosed conflicts of interest and shoddy scholarship. The extensive list of studies analyzed in the report was originally compiled by Energy in Depth, a nationwide industry outreach effort, and used to convince legislators in Allegheny County, Pennsylvania to lease mineral rights under a county park for fracking. The list opens a telling window onto the body of fracking research that the oil and gas industry deems fit for public consumption.

Methane emissions from natural gas industry higher than previously thought -- World leaders are working to reduce greenhouse gas emissions, but it's unclear just how much we're emitting. In the U.S., the Environmental Protection Agency (EPA) has a new program to track these emissions, but scientists are reporting that it vastly underestimates methane emissions from the growing natural gas industry. Their findings, published in two papers in the ACS journal Environmental Science & Technology, could help the industry clamp down on "superemitter" leaks.  Allen L. Robinson and colleagues note that the primary component of natural gas is methane, a greenhouse gas more potent than carbon dioxide. The EPA estimates that nearly one-quarter of methane emissions related to human activities comes from producing natural gas, processing it and getting it into the homes of millions across the country. But the agency based its estimate on data from 20 years ago. Robinson's team wanted to see if more recent changes in the industry and technology could further refine the numbers. The researchers discovered that a small fraction of facilities that collect, process and compress natural gas are responsible for a disproportionately high percentage of methane emissions. They also found that the EPA's new reporting program doesn't account for superemitters—sites that leak or vent large amounts of methane—or some equipment and operating modes that are major sources of the gas. They conclude that the program could be missing almost two thirds of the methane emissions from the natural gas system.

Study: Minority of facilities produce most natural gas methane emissions  Leaky equipment at a small number of natural gas compressors, processors and pipeline facilities account for a big chunk of the methane escaping into the air, according to the latest reports from a national collaboration between energy companies and the Environmental Defense Fund. Two peer-reviewed studies published Tuesday in Environmental Science & Technology involved researchers from Carnegie Mellon and Colorado State universities taking field measurements at a combined 176 facilities in 13 states. They come as regulators look to crack down on emissions of the greenhouse gas and as companies tout an industry-wide reduction over the past three years. The study of gathering and processing facilities found 30 percent of them contributed to 80 percent of emissions, mostly caused by engine combustion or venting from liquid storage tanks. Of 45 compressor stations studied, two were identified as “super-emitters.” The studies did not identify individual sites. “At many, it was clear there was a broken valve or something malfunctioning,” said Allen Robinson, an author of both studies and head of the mechanical engineering department at Carnegie Mellon. “Under normal operation, they would probably not be super-emitters.” In some cases, employees of the facilities fixed those issues on the spot when researchers found them, one study stated. Methane is non-toxic and in no cases did the researchers find explosive levels of leaks, Robinson said.

Fracking the Cure with Benzene: Frack Waste Carcinogen is 700 Times Limit -- A year’s worth of data from tests on flowback water coming out of hundreds of fracked wells found high concentrations of benzene, a human carcinogen.  Levels of benzene up to 700 times the federal standard have been found in waste water from fracking, data show. Hoping to better understand the health effects of oil fracking, the state in 2013 ordered oil companies to test the chemical-laden waste water extracted from wells.  Data culled from the first year of those tests found significant concentrations of the human carcinogen benzene in this so-called “flowback fluid.” In some cases, the fracking waste liquid, which is frequently reinjected into groundwater, contained benzene levels thousands of times greater than state and federal agencies consider safe. The presence of benzene in fracking waste water is raising alarm over potential public health dangers amid admissions by state oil and gas regulators that California for years inadvertently allowed companies to inject fracking flowback water into protected aquifers containing drinking water. The federal Environmental Protection Agency called the state’s errors “shocking.” The agency’s regional director said that California’s oil field waste water injection program has been mismanaged and does not comply with the federal Safe Drinking Water Act. The discovery adds urgency to a mounting list of problems at the state Division of Oil, Gas and Geothermal Resources, which regulates the oil and gas industry. State officials attribute the agency’s errors to chaotic record-keeping and antiquated data collection. And they emphasize that preliminary tests on nine drinking water wells have found no benzene or other contaminants.“The problem is foundational and it’s serious,”

As more fracking looms, Kentucky lawmakers consider bill reworking regulations on drilling -  With the potential looming for a jump in high-volume hydraulic fracturing, or fracking, to drill for oil and gas in Kentucky, state lawmakers will consider a bill that includes stronger reclamation standards and more protection for water sources near wells.House Bill 386, introduced this week, would upgrade rules to cover a type of drilling in which operators can inject millions of gallons of chemical-laced water under high pressure into deep, horizontal bore holes to break up rocks, unlocking oil and gas.That type of energy exploration has become common in recent years in Pennsylvania, Ohio, North Dakota and elsewhere, resulting in a boom in production, but it hasn't yet taken off in Kentucky.However, research showing there could be a lot of oil and gas in a shale layer deep under parts of Kentucky has sparked interest among oil companies, which signed hundreds of new leases with mineral owners the last two years.That interest has focused on Lawrence, Johnson and Magoffin counties, where there appears to be the greatest potential to tap the Rogersville shale layer, but leasing agents reportedly also have approached residents in Madison, Rockcastle and other counties.Fracking has caused concerns about air and water pollution from emissions of methane or spills and leaks of oil or drilling chemicals, though the industry says the technology is safe.

Natural gas futures drop 2% with weather, supplies in focus -  US natural gas prices declined for the fifth time in six sessions on Wednesday, as investors monitored near-term weather forecasts to gauge the strength of demand for the heating fuel. On the New York Mercantile Exchange, natural gas for delivery in March fell by as much as 6.5 cents, or 2.36%, to hit a session low of $2.689 per million British thermal units, before trading at $2.694 during U.S. morning hours, down 6.0 cents, or 2.2%. Futures were likely to find support at $2.608 per million British thermal units, the low from February 2, and resistance at $2.924, the high from January 29.

U.S. burns record natgas to generate power in January - U.S. electric companies in the lower 48 states gobbled up record amounts of natural gas to generate power in January 2015 as low prices made it more economic to burn gas instead of coal. Power generators used an average 23.1 billion cubic feet per day of gas in January 2015, up 13 percent from the 20.5 bcfd average in January 2014, according to Thomson Reuters Analytics. That was the most gas consumed by the power sector during the month of January on record, according to federal data going back to 1973. “Low prices, particularly in the U.S. Northeast, have provided gas-fired plants with a significant advantage over coal despite warmer temperatures and lower demand for heating this winter,” said Kyle Cooper at IAF Advisors, a consultancy in Houston. Gas prices at the Henry Hub benchmark in Louisiana and New York City averaged $2.97 and $8.35 per million British thermal units in January 2015, respectively, well below averages of $4.59 at the Henry Hub and $30.51 in New York in January 2014. Power firms shut about 4,300 megawatts (MW) of coal-fired generation in 2014 as record production of gas from shale plays cut power prices, making it uneconomic for generators to upgrade older coal plants to meet increasingly strict federal environmental regulations. “We expect coal-to-gas switching to drive an increase in utility gas burn in 2015 of about 1.8 bcfd,” said Hugh Wynne, managing director at Bernstein, a research and brokerage firm, in New York.

There is a little flame at the end of the tunnel for natural gas - With colder weather swooping into the U.S., natural gas futures are looking a bit brighter. Early on Monday, natural gas saw a small rally during early trading, about 3 cents or 1.12 percent. The minor increase comes after prices for the benchmark futures contract dropped close to two-year lows during the first week of February. Last Friday, the contract ended at $2.58 per million British thermal unit on the New York Mercantile Exchange. Yesterday, weather forecasts were on the colder side. The National Oceanic and Atmospheric Administration announced that cooler temperatures would be making their way into the southeastern part of the U.S. and that the northeast could see freezing rain and snow. These colder conditions will help support natural gas prices, considering it is typically used as a heating fuel. So far this winter, prices have been scattered due to increased production keeping prices low, and cold weather fronts causing sporadic price increases. According to Fuel Fix, “Last week, stores of natural gas fell by 115 billion cubic feet to a total of 2.4 trillion cubic feet. Natural gas storage is built up in the summer and traditionally drawn down in the winter.” This winter, the amount of natural gas available was less than what is typically expected. However, the gap was swiftly eliminated due to the high rate of natural gas production and the moderate withdrawals being taken from storage. According to a report by the U.S. Energy Information Administration, natural gas stores are now sitting just below the five-year average levels.

Fears for US economy as shale industry goes into hibernation -- America’s fracking revolution is becoming a victim of its own success. The controversial boom in shale gas and oil has driven the US economic recovery and helped lower world crude prices. But a price plunge from $115 (£75) a barrel last June to just above $50 last week means many shale operations no longer pay. Rigs across the US are being deactivated at a rate of nearly 100 a week. In the final week of January, 94 were pulled offline – the most since 1987, according to oil services company Baker Hughes. The number of active rigs fell by from 1,609 in October to 1,223 in January and some experts predict fewer than 1,000 will remain by the end of the year. “The low oil price is bringing to a halt the world’s great engine of supply growth over the last five years,” said James Burkhard, head of global oil market research for IHS Energy. “The US upstream is very responsive to changes in price and drilling is likely to slow down further until prices recover. “The great revival of US production has been from intensive onshore drilling. These aren’t massive $7bn projects that can’t be stopped: these are mostly onshore fracking that be started and stopped much more easily.” Burkhard said the US fracking boom accounted for more than half of global oil supply growth over the last five years, and it is the easiest tap to turn off while the world waits for the oil price to recover. The US has built up its largest stockpile of crude in 84 years.

Fewer trade secrets for Wyoming fracking fluid — In 2010 Wyoming became the first state to require oil and gas companies to disclose chemicals used in fracking operations. Home to the petroleum-rich Powder River Basin, proponents saw the rule as a model for other drilling-dependent states to follow. The message they hoped the regulation would convey: We can be energy-friendly and environmentally friendly too. But the rule contained a trade secrets caveat, which allowed companies to skirt the disclosure requirement if they said the chemicals were confidential business information. That exemption created a massive loophole. Now, thanks to a settlement approved Jan. 23, companies will have to do more to justify keeping fracking chemicals secret.  The settlement comes from a 2012 lawsuit that environmental nonprofit Earthjustice filed on behalf of public interest groups against the Wyoming Oil & Gas Conservation Commission. The suit challenged state regulators’ decisions to withhold the names of 128 fracking chemicals. It was the first time a Wyoming court interpreted trade secrets under the state’s Public Records Act, which puts the public’s right to know before a company’s protection.Though some research has shown fracking—the drilling method that injects a mixture of water, sand and chemicals deep into the ground to release oil and gas—can harm nearby water supplies, more conclusive evidence is still needed to determine how dangerous the practice is. Chemicals range from the same benign ingredients found in everyday products like toothpaste and detergent, to cancer-causing substances like Benzene. Since frack wells often pass through aquifers, there’s a risk those chemicals could contaminate drinking water, and because of drilling-related emissions, many fracking-intensive areas suffer levels of air pollution that exceed federal standards.

Hey, California: Oklahoma had 3 times as many earthquakes in 2014 - Oklahoma recorded more than three times as many earthquakes as California in 2014 and remains well ahead in 2015. Data from the U.S. Geological Survey shows that Oklahoma had 562 earthquakes of magnitude 3.0 or greater in 2014; California had 180. As of Jan. 31, Oklahoma recorded 76 earthquakes of that magnitude, compared with California’s 10. According to the Advanced National Seismic System global catalog, in 2014, Oklahoma even beat Alaska, the nation’s perennial leader in total earthquakes, though many small events in remote areas go unrecorded there. In California, earthquakes always have been relatively common, but in Oklahoma, they were much more rare – at least until 2009. Scientists have long assumed that the rate of earthquakes in a given location was constant, but the rapid increase in seismic activity in places like Oklahoma is fundamentally altering how experts plan for seismic risk. The U.S. Geological Survey’s current models of seismic hazards intentionally ignore quakes attributed to “induced seismicity.” And though Oklahoma has had the most dramatic increase in earthquakes, other states such as Kansas, Texas, Ohio and Colorado also are seeing more “induced seismicity” – earthquakes likely triggered by human activity. “A fundamental assumption of the old maps was that everything stays the same. Now we’re challenged with the earthquakes rates varying with time,” said William Ellsworth, a seismologist for the U.S. Geological Survey who is part of a group studying new ways to understand the hazards of induced earthquakes. “Everybody realized that this was an appropriate thing to do because they didn’t know what to do.”  Numerous studies agree that wastewater disposal from hydraulic fracturing, or fracking, is a major factor in increasing seismic activity.

Quake Debate: Science questioned while state's earthquake studies go unfinished - Inside a cluttered metal shed behind his rural Noble County home, Mark Crismon stares at a glowing laptop screen. The spiked heartbeat crawling across the screen tells him what he already knows: The earth is shaking. Again. “What you’re looking at here is a 3.6 earthquake,” Crismon says, pointing to the bright blue, green and red lines. This quake happened 30 minutes ago near Oklahoma’s northern border with Kansas, he explains, taking a drag from his cigarette. Crismon won't need to wait long before feeling the ground rumble under his own home, four miles from an injection well used to collect oil-field wastewater.  “Basically what they’ve done is they’ve pulled the cork out of the bottle, and the genie is gone and you can’t put it back. And nobody wants to do anything about it,” says Crismon, 75. The brick facade on his home is cracked.  Crismon says his house is "shredded" from the shaking. Since September, he has monitored a seismic station on his property as part of a research project conducted by Oklahoma State University geology students. Crismon’s home northeast of Stillwater lies in a broad swath of central Oklahoma that is being rattled by earthquakes that are increasing both in number and intensity. Last year, the state experienced 585 earthquakes of 3.0 magnitude or higher, more than in the past 35 years combined. That figure earned Oklahoma the title of the most seismically active among the contiguous 48 states. The state has about 3,200 active disposal wells, where water produced during oil and gas drilling is injected deep underground. The United States Geological Survey and several scientific studies have attributed Oklahoma's spike in earthquakes to these wastewater disposal wells, but key state officials say they need more evidence.

Are earthquakes triggered by oil and gas production becoming deadlier? - Science AAAS —Over the past several years, a torrent of small earthquakes has accompanied the glut of oil and gas produced by industrial operations across the central United States. In 2014, Oklahoma saw three times as many earthquakes magnitude 3.0 or greater than California. Hydraulic fracturing, or fracking, is not the main culprit. Rather, most of the small earthquakes have been linked to injection wells, which dispose of huge quantities of water used to flush out oil and gas in extraction operations. Here today at the annual meeting of AAAS (which publishes Science), Science had a chance to catch up with three experts working at the forefront of this field of induced seismicity: William Ellsworth, a geophysicist at the U.S. Geological Survey (USGS) in Menlo Park, California; Mark Zoback, a geophysicist at Stanford University in Palo Alto, California; and John Parrish, the California state geologist in Sacramento.

Are Earthquakes in Texas Caused by Fracking? - Seismologists from Southern Methodist University in Dallas and the U.S. Geological Survey released a “preliminary” report last Friday that a series of minor earthquakes could be explained away as simply anomalies relating to a geological formation they just discovered. This report, however, gave renewed hope to anti-frackers that the earthquakes were caused by fracking activities in the Barnett Shale formation underneath Dallas and the suburb of Irving. Brian Stump, one of the SMU seismologists, made it clear that any connection to fracking was premature: "This is a first step … in investigating the cause of the earthquakes. Now that we know the fault’s location and depth, we can begin studying how this fault moves." The report did acknowledge that the fault lies underneath natural gas fracking wells, but that they have been inactive for three years. Because the seismologists are just beginning their study of the fault, no connection to fracking, past or present, can be made. The report stated, "SMU scientists continue to explore all possible natural and anthropogenic [human] causes … and do not have a conclusion at this time." Anti-frackers have been trying to drum up concern about alleged fracking-caused earthquakes for years, but have been hard-pressed to do much more than speculate in the face of a lack of hard evidence of any connection.

Remap of Dallas-area quakes shows fault closer to fracking wells than thought -- Scientists finally have a rough picture of the ancient fault that’s been rattling the Dallas area, and the fissure isn’t where the public thought it was. Armed with more equipment and better data, SMU scientists have relocated dozens of quakes on the federal government’s imprecise maps. The team released a new map on Friday that shifts the epicenters of nearly all of last month’s temblors, arranging them in a neat line that shadows a fissure miles beneath the earth. And while the team has just begun to study that fault, they already have some early hints about its nature. It’s not beneath the old Texas Stadium site, as federal maps suggested. It’s small (for a fault) and appears to be quieting down after tossing off about four dozen quakes in a year. But it could still produce a tremor much more powerful than any Dallas has yet seen. And while scientists are skeptical that gas drilling woke it up, they now know the fault runs much closer than previously thought to the only two fracking wells in the area.

Houston oil tech company to cut 10 percent of workforce - Houston-based oil equipment maker FMC Technologies announced Wednesday that it will be cutting about 2,000 jobs, according to FuelFix. FMC CEO John Gremp told investors Wednesday that the job cuts come as they company aims to trim costs due to the collapsing oil prices. Gremp added that most of the company’s 10 percent job cut will come from its operations in North America.  FMC CEO John Gremp commented on the job cuts: “We’re responding quickly and significantly to the slowdown in our North American business by reducing discretionary and capital spending. We’re now taking action to address the reduce volumes we’ll experience in 2015 and we’re confident these steps will allow us to effectively manage through the downturn.” Gremp added FMC’s subsea orders in 2015 are expected to decline from last year’s $5.8 billion, but he expects the company to build on reductions of its cost structure that began last year to make manufacturing subsea equipment more efficient. FMC Technologies is the global market leader in subsea systems and a leading provider of technologies and services to the oil and gas industry. The company has more than 20,000 employees and operates 28 production facilities in 17 countries.

Oilfield crime still booming in West Texas --  A bust is of no help to the Permian Basin Oilfield Theft Task Force because workers’ job losses may tempt them to return after dark and steal the tools, copper wire, meters and valves they’ve seen lying around. And with scotching the purloining of oil, a Midland-based Federal Bureau of Investigation agent and sheriff’s deputies in Midland, Andrews and Ector counties have worked full-time since 2008 to stem the millions of dollars in losses that companies may sustain. FBI Supervisory Senior Resident Agent Troy Murdock said Wednesday that the task force arrested nine men on federal oilfield-related charges last year and is currently investigating more cases. “We don’t see our workload decreasing any with the slowdown due to oil prices,” Murdock said. “Folks are still out there figuring out how to steal and make money.” Asked if there is a difference between oilfield investigations and other types, he said it still requires “putting the pieces of the puzzle together,” but oil is generally harder to recover than most other property.

Contamination levels dropping from ND saltwater spill --  State and company officials say contamination levels have dropped along waterways affected by a massive saltwater spill in western North Dakota’s oil patch. A pipeline leak detected last month spilled nearly 3 million gallons of saltwater brine near Williston. The wastewater is a byproduct of intensive oil drilling taking place in the Bakken region of North Dakota and Montana. North Dakota Department of Health official Dave Glatt said Tuesday that elevated chloride levels initially detected along the Missouri River and the Big Muddy River are returning to normal levels. Pipeline owner Summit Midstream Partners LLC said Tuesday that it was making “significant progress” in the cleanup. But the Texas-based company offered no timeline for when the work may be done. Some previous saltwater spills have taken years to clean up.

Senate bill introduced to expedite pipeline permitting -- On Monday U.S. Senator Heidi Heitkamp introduced bipartisan legislation to reduce flaring and improve the capture process for natural gas across North Dakota and other states by reducing federal pipeline permitting delays.. Heitkamp introduced the bill with Republican Senator John Barrasso of Wyoming. The proposed bill would require the U.S. Secretary of the Interior to respond in a timely manner to permit requests to gather unprocessed natural gas on federal and Indian lands. Currently, the agency has an extended process for issuing decisions on applications which has in turn delayed efforts to reduce flaring. The delays are preventing states such as North Dakota from fully harnessing all of the natural gas being extracted. In a press release, Heitkamp said, “Part of committing to an all-of-the-above energy strategy means staying mindful of commonsense solutions. We can do that by preventing our energy resources from getting unnecessarily bogged down by government red-tape.” Heitkamp has routinely emphasized the importance of removing barriers hindering North Dakota’s energy development. “In North Dakota, we can do more to reduce flaring and fugitive methane emissions, and harness more of our natural gas. But too many permit requests to gather unprocessed natural gas have been met with federal delays – and that’s exactly what our bill works to change.” Heitkamp further reinforced the need to reduce flaring as a means for North Dakota to avoid wasting the energy resource. She said, “The federal government must stop dragging its feet on an all-of-the-above energy strategy, as we need an energy strategy that allows for continued, responsible energy production by reducing harmful environmental impacts, wasting fewer resources, and respecting our tribal governments – and I’ll continue to push for such an approach.”

14 leaking oil cars removed from BNSF train -- A train hauling crude oil across Idaho and Washington last month had to have 14 leaking tank cars removed at three different stops before it reached its destination at an Anacortes refinery.  The first leak was discovered about 20 miles east of Spokane at the refueling depot in Hauser. On Jan. 12, train crews spotted oil on the side of a single tank car, which was removed from the 100-car train, said Courtney Wallace, a BNSF spokeswoman. After traveling through Eastern Washington along the Columbia River, the train reached Vancouver, where seven more cars were determined to be leaking. BNSF employees and federal rail inspectors examined the train again in Auburn, south of Seattle. Another six cars were found to be leaking and taken out of service. The tank cars had slow oil leaks from the top values, Wallace said. Some of the leaks couldn’t be seen from the ground and weren’t detected until railroad employees climbed up onto the cars. No oil was spotted along the railroad tracks or right-of-way, she said.  BNSF Railway officials said that less than 25 gallons of oil was spilled from the cars over the three-day period, but the incident remains under investigation by Washington state regulators.

ND daily oil production sets record, but rig count dropping — The number of barrels of oil produced per day in North Dakota set a record in December, but the tally of rigs in the oil patch has dropped precipitously since then, state regulators said Friday. The state’s Mineral Resources Department estimated December production at slightly more than 38 million barrels, or about 1.23 million barrels per day. That broke the November record of 1.19 million barrels per day. However, the drilling rig count dropped from 188 in November to 181 in December and continued to fall, to 137 on Friday — a 37 percent drop from the record high of 218 rigs on May 29, 2012, and the lowest number since July 2010. “Oil price is by far the biggest driver behind the slowdown,” Mineral Resources Director Lynn Helms said. The price of oil has plummeted since last summer due to rising production in the U.S. and elsewhere. Wasteful burning off of natural gas — a byproduct of oil production — declined 1 percent from November to December in North Dakota, to 24 percent of production. The percentage of flared natural gas had been about one-third of production over the past several years but dropped after regulators endorsed a policy last summer that sets goals to reduce flaring in incremental steps through 2020. The new rules allow regulators to set production limits on oil companies if the targets are not met.

Drillers Take Second Crack at Fracking Old Wells to Cut Cost - - Beset by falling prices, the oil industry is looking at about 50,000 existing wells in the U.S. that may be candidates for a second wave of fracking, using techniques that didn’t exist when they were first drilled. New wells can cost as much as $8 million, while re-fracking costs about $2 million, significant savings when the price of crude is hovering close to $50 a barrel, according to Halliburton Co., the world’s biggest provider of hydraulic fracturing services. While re-fracking offered mixed results in the past, earning it the nickname “pump and pray,” the oil crash is forcing companies to pursue new technologies to produce oil more cheaply. Analyzing reams of data from older wells has become a key piece of the puzzle, identifying the best candidates for re-fracking instead of picking them simply at random, said Hans-Christian Freitag, vice president of integrated technology at Baker Hughes Inc. “You want to talk about the next step to increasing production without increasing costs?” said Carl Larry, Houston-based director of oil and natural gas at Frost & Sullivan, a consulting firm. “Re-fracking looks great.” Fracking involves blasting water, sand and chemicals down wells to crack rock, letting oil and gas flow to the surface. This second wave of fracking is disappointing environmentalists who expected a slowdown in new drilling tied to the price slump. Critics say fracking leads to contamination, uses too much water and creates air pollution from the sand mining. While fewer new wells would seem to mean less total fracking, the re-fracking phenomenon means there won’t be as big a reduction as some had expected.

Halliburton to cut thousands of jobs as oil slumps | U.S. oil services company Halliburton said on Tuesday it expects to cut potentially more than 6,000 jobs across the globe because of a “challenging market environment” resulting from low oil prices. Halliburton, the latest in a growing list of major oil industry companies laying off workers because of a worldwide glut of crude, said it expects to let go 6.5 percent to 8 percent of its 80,000-strong workforce, amounting to between 5,200 and 6,400 jobs. The number includes the 1,000 jobs that had been cut in the eastern hemisphere in the fourth quarter of 2014, a company spokeswoman said. Halliburton said the impact of the layoffs would be across all company operations, but it did not offer specifics.. Oil prices have dropped about half to $50 a barrel since June because of the global glut of oil, forcing many companies to reduce spending. The number of rigs drilling for oil in the United States has plummeted in recent weeks as drillers halt projects to save cash. Record high stocks of oil in the United States have continued to pressure prices. Layoffs by companies struggling with the slowdown have reached into the tens of thousands. Baker Hughes, a U.S. oil services provider that is being acquired by Halliburton in a deal worth nearly $35 billion, said in January that it would lay off 7,000 employees. Schlumberger, the world’s largest oilfield services company, said last month that it would cut 9,000 jobs, or about 7 percent of its workforce.

Halliburton to cut 5,000 to 6,500 jobs: – Oil field services company Halliburton Co. said Tuesday it’s planning to ax 5,000 to 6,500 jobs to cope with the crude-price collapse, the latest in a string of oil-field layoff announcements. The cuts amount to 6.5 percent to 8 percent of its global workforce of 80,000 employees. Halliburton’s move brings the number of layoffs announced by the world’s four biggest oil field services in recent weeks to more than 30,000 workers around the world. That’s about 9.4 percent of their combined workforce. “We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through the challenging market environment,” Halliburton spokeswoman Emily Mir said in an emailed statement. The reductions will affect “all areas of Halliburton’s operations,” she said. Houston-based Halliburton is the biggest hydraulic fracturing company in the United States, and the second-biggest oil-tool provider in the world after Schlumberger. Mir said none of the layoffs stem from the firm’s $34.6 billion proposed acquisition of smaller rival Baker Hughes, although the companies have said they expect “synergies” in the merger that most analysts believe will include job cuts. Baker Hughes has said it will cut 7,000 jobs worldwide because of fallen prices. Halliburton’s layoffs include the 1,000 jobs it said in December that it would cut across multiple regions in the eastern hemisphere.

Halliburton to cut up to 6,400 jobs as oil price falls: US oilfield services firm Halliburton has said it will cut up to 8% of its global workforce of 80,000, citing a "challenging market environment" as the oil price continues to tumble. Halliburton says the cuts will be across all operations of the company. Shares in Halliburton - the world's second-largest oilfield services company - fell nearly 3%. The oil price has nearly halved since June as a global supply glut and weak demand push prices down. "We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment," said Halliburton in a statement to the BBC. Halliburton had previously announced that it was planning job cuts in a conference call to discuss earnings on 20 January. The company reported fourth quarter profits of $901m (£591m), a 14% increase from the same period a year earlier. Dave Lesar, chairman and chief executive officer, warned in a statement accompanying earnings that it was "clear that 2015 will be a challenging year for the industry". Halliburton said the job cuts total includes previously-announced plans to trim 1,000 jobs outside the US.

Another 5,000 Victims Of The Plunge In Oil Prices - Yet another energy company is struggling to save money in the face of unexpectedly low oil prices. Weatherford International, one of the world’s largest oilfield services company, will cut 9 percent of its global workforce in the next two months to save more than $350 million a year.  The vast majority of the layoffs – 85 percent, or 4,250 workers – will be felt in the United States and Western Europe. The company, which has operations in more than 100 countries, now has about 56,000 employees. Weatherford also will offer voluntary buyouts to certain eligible employees to reduce its workforce further. “We will focus the entire organization on ensuring we are cash-flow positive in 2015,” the Swiss-based company’s CEO Bernard J. Duroc-Danner said in a statement late Wednesday. “This means that for every dollar of revenue we lose due to reduced activity and pricing, we will make up for it in cost, capital expenditure and working capital reductions.” Because of the drop in oil prices, oil companies and ancillary services like Weatherford are losing business. Nevertheless, Duroc-Danner said Weatherford will keep its eye on ensuring a positive cash flow throughout 2015. Last year it began selling off subsidiaries and cutting costs in other ways, raising about $1.8 billion in cash, most of it to pay down debt. “Customers aren’t placing new orders,” he told Bloomberg. “Where they can they’re trying to get out of existing contracts, and their credit quality is increasingly under question.”

Apache posts quarterly loss, plans to slash rig count - – Apache Corp on Thursday reported a quarterly loss as it wrote down the value of oil and gas assets and said it is reducing its rig count by more than a third in response to the collapse in crude oil prices. Crude oil prices have fallen by about half since June as global supplies grow in a time of waning demand. “While we are fortunate to have a substantial inventory of projects that can make economics at these oil prices, we believe it more prudent to curtail our activity until costs are lower and prices recover,” Apache Chief Executive John Christmann said in a statement. The Houston company reported a fourth-quarter loss of $4.8 billion, or $12.78 per share, compared with a year-ago profit of $174 million, or 44 cents per share.  Excluding $5.2 billion in charges mostly related to writing down the value of assets, Apache had a profit of $1.07 per share. Analysts on average had expected a profit of 76 cents per share, according to Thomson Reuters I/B/E/S. Apache, which plans to spin off or sell its international operations to focus growing output from onshore shale wells, said its North American liquids production rose 5 percent. Apache said its rig count will be reduced to 27 rigs at the end of this month from an average of 91 rigs in the third quarter of 2014.

Apache slashing 2015 rig count, capex due to low oil prices (Reuters) - Apache Corp, one of the top U.S. shale oil producers, said on Thursday it would slash capital expenditures and its rig count in 2015 as the collapse of crude oil prices prompts it to slow drilling, keeping output growth mostly flat. The company, which reported a multibillion-dollar net loss but adjusted earnings that beat Wall Street's estimates, also said it would not divest its overseas businesses, with one possible exception. Crude oil prices, down about 50 percent since June, prompted Apache to cut its 2015 capital expenditures by 60 percent and slash its fleet of drilling rigs by 70 percent. On a conference call with investors, Chief Executive Officer John Christmann also said the company is setting aide plans to sell or spin off its Egyptian and North Sea businesses, as they generate much-needed cash. "Clearly in this price environment it would not make sense to monetize them and they complement things very nicely so at this point, there are no plans to sell or spin them," said Christmann. However, Apache is exploring a possible sale of its offshore oil assets in Australia, he said. The Houston-based company reported a fourth-quarter loss of $4.8 billion, or $12.78 per share, compared with a year-ago profit of $174 million, or 44 cents per share.

Pioneer to cut budget 45 percent --  Pioneer Natural Resources will cut its budget by about45 percent in 2015, according to a late Tuesday announcement from the company that marked the latest Permian Basin producer to dramatically scale back in the face of low oil prices. As planned, the reduction leaves the company with a budget of about $1.85 billion for the year, with more than $1 billion intended for the Permian Basin. The release mentioned several steps the company is taking to scale back, including slowing down construction of a planned Permian Basin water system. The company reported plans to shed 16 rigs operating in the Permian Basin and Eagle Ford by the end of February, representing a 50 percent drop from the end of last year. Ten of those rigs are being released from the Permian Basin, where the company was shutting down its vertical drilling program. Pioneer pumped more than 182,000 barrels of oil equivalent per day last year and company executives still expect to grow production by as much as 10 percent in 2015, according to the Tuesday statement. Pioneer joins other Permian Basin oil companies in scaling back previous capital expenditure plans, such as Apache, Diamondback Energy and Concho Resources.

WPX cuts budget by half - Slumps in the energy industry have caught up with one of Colorado’s biggest natural gas producers. According to the Denver Business Journal, WPX Energy Inc. announced Thursday that its 2015 budget allows for $725 million — about half of its $1.5 billion 2014 budget. Earlier this year, the Tulsa-based company confirmed its plans to halt the completion of about 20 new wells in the state’s Piceance Basin. However, the area was among WPX’s three operating sites that will receive investments this year, along with the Williston Basin in North Dakota and the San Juan Basin in New Mexico. “Head winds bring challenges and opportunities,” said Rick Muncrief, WPX president and CEO. “We’re ready for both. It’s why we have a long-term plan to reshape WPX and grow our margins and cash flow. Margin expansion comes from diversifying our production and right-sizing our cost structure.” Despite the projected cuts, WPX still expects its operations to grow this year. While 2014 saw a 56 percent growth in oil and gas production, estimates for growth in 2015 sit at 15 to 20 percent. The company also said it maintains about 75 percent of its production at $4.10 per thousand cubic feet.

Mass layoffs complicate oil industry's long-term plans -- “This is the really crappy part of the job, and this is what I hate about this industry frankly,” the chief executive of oilfield services company Baker Hughes complained as he announced it would lay off 7,000 employees. Baker Hughes is cutting jobs in response to slumping prices and a downturn in drilling activity. But the company’s obviously frustrated chief acknowledged that “this is the industry, and it’s throwing us another one of these downturns, and we’re going to be good stewards of our business and do the right thing.” So the company will cuts costs, he told investors in a conference call on January 20 to discuss the firm’s fourth-quarter earnings and outlook for 2015. More than 100,000 layoffs have been announced across the industry worldwide since prices began to slide last summer, according to a tally kept by Bloomberg. In recent weeks other major service companies have announced job reductions. Halliburton announced it will cut 6,400 jobs (8 percent of its global workforce) while Schlumberger will eliminate 9,000 positions (around 7 percent of its workforce). Precision Drilling, one of the largest rig contractors in North America, has idled more than 50 of the 250 rigs it had working this time last year, leaving more than 1,000 skilled operators out of work, the company said on Thursday. “Industry downturns are difficult for all, but they affect our rig crews more than anybody else,” the company’s chief executive said in a statement. “Precision recruited, trained and developed many excellent crews to support the demands of our customers over the past several years, and unfortunately we now don’t have work for many of these dedicated workers.”

Inefficiencies Abound In U.S. Shale - Recent well performance in the Eagle Ford Shale play has declined among key operators. This is due in part to especially poor well performance by a few operators. Excluding those operators, well performance for 2013 and 2014 was still poorer than in 2012 but improved in 2014 compared with 2013.  When I wrote that Eagle Ford well performance was declining in a recent post, some readers were indignant as if a shale play somehow deserves a pass on the laws of physics and eternally gets better instead of eventually declining as all plays do.  “Never confuse production with reserves” is one of Halloran’s Immutable Principles of Energy. Wells may produce at relatively high rates but never reach commercial reserve levels because of cost or declining well performance over time despite high initial rates. Published analysis of shale plays too often stresses success based on production volumes but not reserves, production rates but not the cost, the benefits of technology but not its price, and claims of profit that exclude important expenses. Below is an example of well interference and rate acceleration in the Eagle Ford Shale play where an operator has over-drilled an area with bottom-hole locations approximately 300 feet apart. EUR values are shown for each well. None will be commercial because the wells are cannibalizing production from each other. Approximately $150 million in capital cost was spent on the non-commercial wells shown on this map.

Shale sub-prime and the Ides of March  -- In 2010 the US Government and media thus embarked in a promotional campaign for source rock drilling, erroneously calling “shales” to these resources to ease the marketing. Vast amounts of money started flowing to the sector, the industry quivered with activity, plenty of new jobs were created and the country soon emerged from economic recession. The end result: in three years petroleum extraction in the US grew by 50%, returning to levels not seen since the 1980s.But there was a problem: extracting petroleum from source rocks requires a relentless effort, without parallel among the resources explored by the industry. While a well drilled into a traditional reservoir can extract petroleum for decades, a well drilled into source rocks looses half of the initial flow rate in just 12 months, having a mean lifetime of just three years. In consequence, a company operating on these resources must be permanently drilling new wells just to keep the volume of petroleum extracted constant. This kind of activity requires unusually high amounts of capital investment.The American petroleum industry was able to source astronomical sums of money to keep the gargantuan “shale” machine running recurring to the debt bond market. With great help of the media, a swollen image of the real dimension of these resources was conveyed by the industry, in some cases announcing to investors reserves ten times larger than those reported to fiscal authorities. This practice yearned various suggestive names: “shale hype”, or my preferred, “snake oil”. More recently the Nature magazine published a series of articles not only questioning these reporting practices, but also pointing out the complicity of the Energy Information Agency (EIA – a branch of the US government’s Department of Energy). The EIA would eventually excuse itself, literally saying that its forecasts are not to be taken seriously. However, this admission come much to late for most investors.

Breaking: House Passes Keystone XL, Bill Heads to Obama’s Desk  -- This afternoon, after some debate that broke no new ground, the House of Representatives passed the Senate’s version of the Keystone XL pipeline bill by a vote of 270-152, the Senate passed the bill on Jan. 29 by a vote of 62-36. The House had quickly approved it—for the tenth time— just days after the current session of Congress convened in early January, sending the bill to the Senate. There it passed for the first time, thanks to Republicans taking control of the Senate following last November’s mid-term elections.  Today’s vote was necessary to reconcile the two versions of the bill, the final step before sending it to President Obama’s desk. President Obama has consistently indicated that he will veto the bill. To override his veto it would have required 67 votes in the Senate, which they did not achieve. “The only thing Congressional Republicans accomplished with this vote is a show of unflinching loyalty to their Big Oil campaign donors who put this tar sands pipeline at the top of their wish list,” said Michael Brune, executive director of the Sierra Club.

House Votes To Force Approval Of The Keystone XL Pipeline -The House voted 270-152 Wednesday to pass legislation approving the Keystone XL pipeline, the 1,179-mile cross-country project that would ship tar sands crude oil from Alberta, Canada down to the Gulf Coast of the U.S.   The bill will now be sent to President Obama, who is expected to veto it. White House press secretary Josh Earnest said at the beginning of January that the president “wouldn’t sign” any Congressional legislation on Keystone XL that makes it to his desk. “The president has been pretty clear that he does not think circumventing a well-established process for evaluating these projects is the right thing for Congress,” Earnest said. If the president does veto the bill, it will be the third time in his career that he’s used his veto authority.   Right now, it doesn’t look like the House or Senate would get the two-thirds majority that it would take to override the veto. Congressional Republicans vowed last year to make Keystone XL their first priority in 2015.

Keystone XL Pipeline Project Vote: Oil And Gas Industry Gave $250K To Senators Who Voted ‘Yes’ -- The oil and gas industry gave nearly $250,000 to each of the 62 senators who voted in favor of the controversial Keystone XL pipeline project late last month, according to MapLight, a nonpartisan research organization that tracks the influence of money in politics. The revelations come as the House of Representatives is set to vote on and expected to pass the Senate legislation Wednesday that would approve the pipeline and start transferring oil in western Canada to refineries on the Gulf Coast. President Barack Obama has threatened to veto the project on a number of grounds, including environmental concerns. The oil and gas industry, which stands to benefit from the Keystone XL pipeline, gave $236,544 on average to the senators who voted yes on Keystone, or about 10 times more than the senators who voted no. The 36 senators against the pipeline received about $22,882 apiece in campaign contributions from the oil and gas industry. There was no data on contributions to House members. Sen. John Hoeven, R-N.D., the sponsor of the Keystone Senate bill, received about $275,000 from the industry, according to MapLight, but he wasn’t the biggest beneficiary of oil and gas industry money in the Senate. That distinction goes to Sen. John Cornyn, R-Texas, who has received more than $1 million from the industry, which is important to Texas. The Democratic co-sponsor of the Keystone bill, Sen. Joe Manchin of West Virginia, received about $200,000 from the industry -- the biggest beneficiary of oil and gas money among Democrats. But there were 24 Republicans who got larger contributions from the industry than him. The petroleum refining and marketing industry, which is among the biggest backers of the Keystone pipeline, also gave about 10 times more money to senators who voted yes on Keystone than those who voted against it, according to MapLight. Those in the yes camp received about $47,325 on average from the industry while those who voted no received about $3,600.

The FBI Is Making House Calls to Keystone XL Opponents -- Tar sands activists in several states have been getting visits from the FBI, and no one knows yet exactly why.  Federal agents have been contacting activists who have participated in anti-Keystone XL and anti-tar sands protests, according to the Canadian Press. The visits have been happening to activists in Oregon, Washington state, and Idaho, and a lawyer working with the activists told the Canadian Press that he has advised them not to talk to the agents.  “It’s always the same line: ‘We’re not doing criminal investigations, you’re not accused of any crime. But we’re trying to learn more about the movement,'” he said.   The agents have reportedly been targeting activists who have protested “megaloads,” a truckload of tar sands extraction equipment that can be longer than a football field and can take up two lanes of a highway. These protests have blocked highways and delayed the equipment’s shipment.   One woman who was contacted by the FBI, Helen Yost, is the co-founder of Wild Idaho Rising Tide and has been arrested twice while protesting tar sands. Yost told the AP in January that she refused to talk to the agent.“We don’t see ourselves as posing any threat,” she said. “We see the FBI contact as being unwarranted.” The FBI told the Canadian Press that it doesn’t investigate political movements — instead, it focuses on crimes.  “The FBI has the authority to conduct an investigation when it has reasonable grounds to believe that an individual has engaged in criminal activity or is planning to do so,” FBI spokeswoman Ayn Dietrich said.

Breaking: Nebraska Judge Rules “No eminent domain for Keystone”  - Following other court opinions, a privately owned Canadian tar balls going to at Texas refinery for export overseas does not serve a public purpose in Nebraska – therefore it is not a utility, therefore it does not have eminent domain and cannot condemn private property.A Nebraska district court judge has temporarily halted the ability of a Canadian company to acquire right-of-way for the Keystone XL pipeline.  Holt County District Judge Mark Kozisek granted a temporary injunction Thursday to landowners who challenged the ability of TransCanada to use eminent domain to acquire land for the controversial pipeline. n The judge made the ruling after landowners filed new lawsuits challenging the state’s pipeline routing law, which was narrowly upheld by the Nebraska Supreme Court in a decision last month.  A spokesman for TransCanada said Thursday the company agreed to the injunction in exchange for an accelerated trial schedule. Although the judge’s order affects just the landowners along the northern part of the pipeline route, the company will offer to stall land condemnation for the roughly 90 property owners along the route who have refused to sign easement contracts.

Why Are Canadians Hell Bent on Shipping Tar Balls to a Refinery on the Gulf of Mexico ? -- Short answer: Because that’s the easiest way to export the finished product – oil – to China.   Why not just ship it to British Columbia ? In a word, gravity. The Alberta tar sands are about 1,000 feet above sea level – which means that going to the Texas coast is all down hill. That’s easy for a pipeline.  There are no mountain ranges in the way. Just farm land, rivers, and forests. Going to British Columbia means crossing the Canadian Rockies, which is a vertical rise of over 10,000 feet in places. That’s tough. But why Texas ? Because once the tar is refined in Texas, it will go onto supertankers and be shipped to China via the new sea level canal that the Chinese are building across Nicaragua.  In a private deal negotiated by Daniel Ortega of the Sandinistas. Remember him ? Now you know. All that right of way through all those farms and ranches and rivers and wetlands is being expropriated so that a foreign company – from Canada – can ship oil to China. Across all of those farms and ranches and forests and wetlands.  Tens of thousands of Nicaraguans may be displaced by the canal’s construction, including some indigenous communities. Moreover, the project poses serious threats to the country’s wetlands and forests. It may involve the dredging of Lake Nicaragua, which is too shallow at present to accommodate the supertankers that the canal’s backers want to see steaming through Nicaragua. That would generate a great deal of sediment and potentially damage water quality and harm the surrounding ecosystem.

U.S. oil output "party" to last to 2020 - IEA -– The United States will remain the world’s top source of oil supply growth up to 2020, even after the recent collapse in prices, the International Energy Agency said, defying expectations of a more dramatic slowdown in shale growth. The agency also said in its Medium Term Oil Market report that oil prices, which slid from $115 a barrel in June to a near six-year low close to $45 in January, would likely stabilize at levels substantially below the highs of the last three years. Oil prices deepened their decline after the Organization of the Petroleum Exporting Countries in November shifted strategy and declined to cut its own output, choosing to retain market share that has been eroded by rival supply sources such as U.S. shale oil. But IEA Executive Director Maria van der Hoeven, launching the report in London, said while OPEC may win back some customers while prices are low, it would not regain the market share it held before the 2008 financial crisis. “This unusual response to lower prices is just one more example of how shale oil has changed the market,” she said in a statement. “OPEC’s move to let the market rebalance itself is a reflection of that fact.” The report said supply growth of U.S. light, tight oil (LTO) will initially slow to a trickle but regain momentum later, bringing its production to 5.2 million barrels per day (bpd) by 2020. Total U.S. supply increases by 2.2 million bpd to 14 million bpd in 2020, with most of the expansion due to LTO.

Arthur Berman: Why Today's Shale Era Is The Retirement Party For Oil Production - As we've written about often here at, much of what's been 'sold' to us about the US shale oil revolution is massively over-hyped. The amount of commercially-recoverable shale oil is much less than touted, returns much less net energy than the petroleum our economy was built around, and is extremely unprofitable to extract for most drillers at today's lower oil price. To separate the hype from reality, our podcast guest is Arthur Berman, a geological consultant with 34 years of experience in petroleum exploration and production.  Berman sees the recent US oil production boost from shale drilling as short-lived and somewhat desperate; a kind of last hurrah before the lights get turned out: The EIA looks at the US tight oil plays and they see maybe five years before things start to fall off. I think it is less, but I am not going to split hairs. The point is that what we found is expensive and we have got a few years -- not decades -- of it. So when we start hearing people pounding the table about how the United States should lift the ban on crude oil exports, well that is another topic if we are just talking about free trade and regulation, but what in the world is a country like ours doing still importing 5+ million barrels of crude oil a day and we have got maybe 2 years of supply from tight oil? What are we thinking about when we claim we're going to export oil? That is just a dumb idea. It is like borrowing money from a bankrupt person. I like to talk about these shale plays as not a revolution, but a retirement party. I mean, you know, this is the kind of bittersweet celebration you have when you are almost out the door and are going to sit around the house and watch Duck Dynasty whatever for your remaining days. It's not really cause for a celebration. It is cause for some sobering concerns and taking stock about what does the future have in store for us as a country, as a world?

Oil Companies May Keep Up Output to Repay Debt, BIS Says - -- Energy companies may be slow to cut oil production after a 50 percent price drop because they need to service debt that has risen fourfold since 2003, according to the Bank for International Settlements. “Debt-service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market,” the Basel, Switzerland-based institution said in a report Saturday. Energy companies’ outstanding debt rose to more than $800 billion this year from less than $200 billion in 2003, said BIS, which is owned by central banks. Sinking oil prices weakened the value of assets used as collateral by producers and compelled them to sell more of their output on futures markets, it said. Oil’s role as a financial asset may have contributed to the price drop and the most volatile swings in prices in more than six years. Brent crude oil, a global benchmark, has tumbled as members of the Organization of Petroleum Exporting Countries refused to cut oil production in response to the highest U.S. output in three decades. Lower prices increases the risk of companies failing to meet interest payments, the BIS said. Borrowing Costs Tumbling oil prices have increased borrowing costs among energy companies, with spreads on high-yield bonds issued by energy firms soaring to 800 basis points, or 8 percentage points, as of January, from 330 points in June, according to the BIS. The spread measures the additional interest costs paid by a borrower compared above a benchmark rate.

BIS says financial flows partly to blame for oil collapse - The near 50 per cent fall in oil prices since mid-June cannot be solely explained by changes in consumption and production, according to the Bank for International Settlements, which says heavy trading on commodity futures markets has also played a part. In a preliminary analysis of the oil market rout, BIS, known as the central bankers’ bank, says financial flows have contributed to the rout along with changes in supply and demand balances.  The comments will add to the debate about the “financialisation” of commodity markets and the extent to which investors, big banks and hedge funds are driving prices of raw materials. BIS says the last two comparable oil price declines in 1996 and 2008 were associated with a large drop in consumption, and in 1996, a surge in production. But this time changes in supply and demand — which BIS says have not differed markedly from expectations — fall short of providing a satisfactory explanation for the abrupt collapse in prices. “Rather, the steepness of the price decline and the very large day-to-day price swings are reminiscent of a financial asset,” BIS said in its analysis. “As with other financial assets, movements in the price of oil are driven by changes in expectations about future market conditions.” Oil prices have gyrated wildly over the past week, rising and falling by as much 9 per cent a day in response to news flow that has ranged from data on US oil rigs to storage levels. Trading in Brent and West Texas Intermediate futures contracts dwarfs physical volumes and many traders say it is the supply and demand for futures which determines the price of oil. According to PVM, a brokerage, daily futures volume in oil has risen from 3.4 times global demand in 2005, when the International Petroleum Exchange went electronic, to 17 times at the end of 2014 and has ratcheted up even further to over 20 times since the beginning of the year.

The BIS has a very different take on oil financialisation effects -- So, this weekend, the Bank for International Settlements released a preview of an upcoming report in which they make a connection between financialisation and the oil market.  Tracy’s written it up here. But, before you get too excited, two things must be pointed out. The first, of course, is that a BIS admission about financialisation effects on the oil market is pretty unexpected. You see, as far as we’ve tracked or heard from BIS economists on this matter, they’ve resisted arguments and models pointing to financialisation effects, embracing instead explanations that link price effects to fundamentals. Which brings us to the second thing. Yes, the BIS is shifting its view on the financialisation argument, but the paper also shows it doing so in a really convoluted and unconvincing way. Definitely the opposite of Occam’s Razor. It seems that, in search of a fundamental excuse, the BIS has zoomed in on the following relationship between swap dealer positions and price volatility:  But this is weird, because — as Craig Pirrong has already pointed out – the above chart is totally unconvincing when it comes to cause and effect. It is entirely normal for swap-dealers to reduce positions as the oil price comes down.The decline in swap dealer short futures positions more likely reflects a reduced hedging demand by producers. For instance, at present we are seeing a sharp drop in drilling activity in the US, which means that there is less future production to hedge and hence less hedging activity. The fact that the decline in swap dealer short futures is much more pronounced now than in 2008-2009 is consistent with that, as is the big rise in these positions during the shale boom starting in 2009. This is exactly what you’d expect if hedging demand is driven primarily by E&P companies in the US. And the funny thing is, even those academics whose work has shown a link between financialisation and oil prices, don’t like the BIS analysis.

Citi: Oil Could Plunge to $20, and This Might Be 'the End of OPEC' - The recent surge in oil prices is just a "head-fake," and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup's global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.A pullback in production isn't likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range "for a while," according to the report. The U.S. shale-oil revolution has broken OPEC's ability to manipulate prices and maximize profits for oil-producing countries. "It looks exceedingly unlikely for OPEC to return to its old way of doing business," Morse wrote. "While many analysts have seen in past market crises 'the end of OPEC,' this time around might well be different," Morse said. Citi reduced its annual forecast for Brent crude for the second time in 2015. Prices in the $45-$55 range are unsustainable and will trigger "disinvestment from oil" and a fourth-quarter rebound to $75 a barrel, according to the report. Prices this year will likely average $54 a barrel.

Why Citi Thinks Oil Is Going To $20 -- The recent rally in crude prices looks more like a head-fake than a sustainable turning point, suggests Citi's Ed Morse, noting that short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond. While the shape of the oil price recovery is unlikely to be 'L'-shaped in their view (more likely 'U', 'V', or 'W'-shaped recovery), Citi warns the oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range (perhaps as low as the $20 range for a while) - after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. Via Citi, The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February. Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.

Oil Glut: Is North America the New Swing Producer? -- Citigroup read a lot of people’s minds yesterday who have been quietly wondering what happens to the price of oil when the glut becomes so extreme that the world runs out of storage containers to hold the oversupply or the cost of storage becomes uneconomic as the price of oil languishes. Citigroup’s head of commodity research, Edward Morse, wrote in a report yesterday that “Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops.” Morse said the oversupply could push U.S. domestic crude, West Texas Intermediate or WTI, below $40 and possibly into the “$20 range for a while.” WTI is trading currently at $52.29 in early morning trade. On the basis of the Citigroup report, CNN ran the headline: “End of OPEC Is Closer to Reality.” Adding to the end of OPEC thesis, the International Energy Agency (IEA), an autonomous group representing 29 member countries, released its Medium Term Oil Market Report yesterday. The report concluded that North America would remain a top source of oil supply growth for the remainder of the decade. IEA Executive Director, Maria van der Hoeven, said shale oil (or Light Tight Oil, LTO) produced in the U.S. and Canada has changed the market and “may have effectively turned LTO into the new swing producer.” Heretofore, Saudi Arabia, a member of OPEC, was seen as the key swing producer, cutting output to stem price declines in times of slack demand or overproduction. The report’s Executive Summary correctly identifies slacking global growth as a wild card in the prospect for a recovery in the price of oil, noting: “Unlike earlier price drops, this one is both supply and demand driven, with record non-OPEC supply growth in 2014 providing only one of the factors behind it, unexpectedly weak demand growth another.  The latest price drop is also occurring at a time when the dynamics of global demand and the place of oil in the fuel mix are undergoing dramatic change. Emerging economies – China chief among them – which 10 years ago seemed an unstoppable engine of near-vertical demand growth, have entered a new, less oil-intensive stage of development. The global economy, reshaped by the information technology revolution, has generally become less fuel intensive.  And the globalisation of the natural gas market, coupled with steep reductions in the cost and availability of renewable energy, are causing oil to face a level of inter-fuel competition that would have seemed unfathomable a few years ago.”

Oil-Price Rebound Predicted - WSJ -- In the latest sign that the seven-month selloff in crude-oil prices may be nearing a bottom, an energy watchdog said that a recovery seems “inevitable” and the glut that has driven down prices by more than 50% since June could start to ease as soon as the second half.  A wave of spending cuts by oil producers and a sharp decline in the number of rigs drilling for crude in the U.S. likely will slow the nation’s oil-output growth, spurring a rebound in prices, the International Energy Agency said in a report released Tuesday U.K. time. The benchmark U.S. oil price rose 2.3% to $52.86 a barrel on Monday and is up 19% from a nearly six-year low hit last month.  The IEA, which coordinates energy policy among industrialized countries, is adding its voice to the chorus of experts who say that the global glut is abating.  The IEA said its report, which presents a view of the oil markets five years out, aims to shed light on how a recovery will proceed, adding that a “price rebound…seems inevitable.” Stabilization in oil prices would spell relief across financial markets, which have been rocked by concerns that oil’s plunge signaled softness in global growth. The plunge has pummeled share prices of oil producers and currencies of oil-dependent economies.

Oil prices drop as IEA predicts weak rebound - - Oil prices fell Tuesday after the International Energy Agency predicted that global oil prices will recover only partially over the next five years.  US benchmark West Texas Intermediate (WTI) for March delivery slipped 70 cents to $52.16 a barrel compared with Monday's close. Brent North Sea crude for March slid 35 cents to stand at $57.99 a barrel in London afternoon trade. Citing a major shakeup in the oil markets, the IEA watchdog said in its five-year forecast that prices will recover from current levels of around $50-55 per barrel but remain considerably below the more than $100 per barrel reached before prices began to fall in June. "The global oil market looks set to begin a new chapter of its history, with markedly changing demand dynamics, sweeping shifts in crude trade and product supply, and dramatically different roles for OPEC and non-OPEC producers in regulating upstream supply," the IEA said. It added that it sees market rebalancing occurring "relatively swiftly", with increases in inventories halting mid-year and the market tightening.

Oil Searching For A Bottom As Union Threatens More Walkouts - The strike at US refineries got a bit bigger over the weekend – all amid the most volatile, and now downward, price swings seen in the last six years. Investors have yet to lose hope in a sustainable rebound, but another prolonged fall may be looming ahead. The United Steelworkers union (USW) and Royal Dutch Shell – big oil’s lead representative in the matter – failed to reach an agreement on wages, safety measures, and benefits last week. As a result, 1,400 workers at two BP-owned refineries joined the work stoppage on February 8. Since the beginning of the month, USW members have walked out of 11 refineries, leaving approximately 1.82 million barrels per day of refining capacity in the hands of retirees and last-minute, non-union replacement workers. Still in its early stages, the strike has room to grow. The USW national contract – which expired February 1 – covers nearly 30,000 workers, 65 facilities, and around two-thirds of the nation’s refining capacity. The nature of the negotiations remains unclear, but the sides appear to be far apart. The union has already rejected five offers from Shell and threatened further walkouts if progress is not made. To date, contingency plans and local bargaining have limited any drop in output – positive pressure on both crude and gasoline prices has been virtually non-existent. Instead, downward pressure caused by the work stoppage has only increased the recent volatility, muddying any understanding of the true bottom. The last strike, in 1980, lasted three months. Refinery stoppages, or even threats, tend to reduce purchases of crude – an untimely effect as US crude oil inventories are at their highest level in more than 80 years. The Energy Information Administration reports that inventories are up 6.3 million barrels since the week ending January 23, and up 55 million barrels since this time last year. West Texas Intermediate (WTI) fell more than five percent on the news.

U.S. rig count dives by 98, Baker Hughes says: – The number of active U.S. land rigs plunged by 98 this week in one of the biggest declines in the past three decades as fallen oil prices continued to pummel the industry’s drilling ambitions. Eighty-four U.S. oil rigs were idled this week and 14 gas rigs stopped running, according to oil field services firm Baker Hughes. Two U.S. offshore rigs became active this week. Baker Hughes’ 71-year-old U.S. rig count, one of the industry’s go-to indicators of future oil production and demand for rigs, was down by 406 drilling units compared to Feb. 13, 2014. The last time the rig count fell by 98 was in January, 2009 – the two declines are tied for the biggest drops since 1987. The 84-unit decline in active U.S. oil-hunting rigs was the second-biggest drop in nearly three decades, just behind the 94-oil rig decline last month. Last week, 83 oil rigs were taken out of the game.

US rig count plunges 98 to 1,358 - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. plunged by 98 this week to 1,358 amid depressed oil prices. The Houston firm said Friday in its weekly report that 1,056 rigs were exploring for oil and 300 for gas. Two were listed as miscellaneous. A year ago 1,764 rigs were active. Of the major oil- and gas-producing states, Texas' count plummeted by 56, New Mexico fell 12, North Dakota fell nine, Colorado lost six, Oklahoma lost five, Wyoming fell three, Ohio and West Virginia each lost two and Arkansas fell one. Louisiana gained one. Alaska, California, Kansas, Pennsylvania and Utah were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

U.S. Rigs Are Being Idled, but the Oil Boom Is Not Ending - -- The U.S. drilling frenzy is over. What’s not is the boom in oil production. While companies have idled 151 rigs in five shale formations since reaching a peak of 1,157 in October, they’ll need to park another 200 for growth to stall, according to data from the U.S. Energy Information Administration. Output there will reach a record 5.47 million barrels a day in March even though the number of rigs exploring for oil is the lowest since 2013. The spending cuts led to speculation that U.S. gains would slow, eroding a global supply glut that sent prices tumbling last year. Oil has jumped 18 percent since closing at a six-year low of $44.45 a barrel on Jan. 28. Improving technology and a focus on the most promising acreage has made the rig count, a closely watched barometer of drilling activity, a less reliable indicator of future output. “The trend in U.S. oil production is the key variable in the oil market this year, so any sign that the great growth engine is slowing is eagerly anticipated,” “There may be some false starts and we may have just seen one.”The industry has become better at blasting crude out of deep underground layers of rock, according to productivity data tracked by the EIA in the major shale prospects including the Bakken, Eagle Ford, Niobrara, Permian and Utica. More from S&P 500 Climbs to Record as Oil Rally Offsets Confidence Report Red Queen The improvements have helped overcome the natural depletion of existing wells. Shale wells decline sharply at first and then trail off at a slower rate until they run dry. It’s a phenomenon known as The Red Queen, after the character in Lewis Carroll’s “Through the Looking-Glass,” who tells Alice, “It takes all the running you can do, to keep in the same place.” As drillers cut costs, the less efficient equipment is idled first while the best machinery is dispatched to the most promising acreage, which boosts the amount of crude produced for every rig in the field. At the same time, the existing pool of wells grows older, meaning the decline rate -- the Red Queen -- slows down.

Stacked rigs and their impact on oil prices - Although the dramatic drop in U.S. rig count alleviated the oil price decline, global investment firm Goldman Sachs said it probably won’t lead to a slowdown in production or help with oversupply. According to a report by CNBC, earlier this week the firm stated in a note that “the decline in the U.S. rig count likely remains well short of the level required to slow U.S. shale oil production to levels consistent with a balanced global market. Lower oil prices will be required over the coming quarters to see the U.S. production growth slowdown materialize.” The firm estimates that the current rig count will sustain production growth in the major shale plays – the Bakken, Permian, and Eagle Ford formations – to 615,000 barrels a day in the last quarter of this year. Continued productivity growth may push that figure to as much as 690,000 barrels per day. According to data from the International Energy Agency, these figures are related to which rigs are being cut. CNBC reports that the note continued on to say, “While this focus on cost reduction initially leads to a sharp drop in the rig count, it provides little information on the future path of the rig count and companies’ aim at high-grading.” Though, the stacked rigs could quickly come back on-line when ready. “The impact of productivity gains is likely to be most visible over a longer period of time as it compounds on itself,” the note said. These gains will most likely be seen in 2016 rather than this year, though. Last month, Goldman slashed its oil price forecasts substantially. Currently, Goldman predicts that West Texas Intermediate prices will be $41 per barrel in three months, $39 in six months, and $65 within a year. Following the same time frame, Brent crude prices are projected to be $42, $43, $70 a barrel respectively. As of Wednesday, WTI scheduled for March delivery was being traded at $50.33 per barrel and Brent crude was being traded at about $56.30 per barrel, up from the lows seen last month.

US Rig Count Plunges By Most Since 1993, Production Hits Record Highs --Despite the dramatic plunge in rig counts, this week saw yet another surge in production to record highs and with storage levels getting close to full, it would seem  - despite the bounce/squeeze in prices to $53 as the data hit - that supply remains well ahead of any demand. Total rig count dropped 98 to 1,358 - for the largest weekly drop of the 10 week run as cutting is accelerating rapidly - now down 30%.  This is the biggest weekly rig count drop since 1993. West Virginia remains the relative hardest hit with rig count depletions but Permian Basin collapse 49 rigs to 369 this week.

The rig count misnomer? --  Numerous stories have been dished out covering the continuous rig count depletion happening across the nation. But while reducing oil rigs may have helped boost oil prices over the past month or so, it will do little to nothing in slowing production or alleviating the oil glut on the market, according to analysis from Goldman Sachs. “Our bottom-up analysis suggests that the decline in the US rig count likely remains well short of the level required to slow US shale oil production to levels consistent with a balanced global market, especially if productivity gains and high-grading materialize as expected,” Goldman Sachs stated in a press release Tuesday. “Nonetheless, we also find that the rebalancing of the US oil market is closer than would be implied by the US shale gas template of 2012-13.” Additionally, the analysis suggests that the issue really isn’t how many rigs are being cut, but which ones are leaving the production scene. A recent CNBC report stated that “high-grading,” with producers eliminating the least efficient rigs first, will keep production consistent. It is estimated that the Big-three plays (Eagle Ford, Permian and the Bakken) would need to cut their horizontal rig count by another 30 percent to 407 by the fourth quarter of 2015 to bring production growth to 400,000 barrels a day by then. Presently, it is expected that the current rig count will bring production growth from the Big-three shale basins to 615,000 barrels a day in the fourth quarter of this year, while continued productivity growth may push that as high as 690,000 barrels a day.

As U.S. oil tanks swell at record rate, traders ask: for how long? --  Oil is flooding into U.S. storage tanks at an unprecedented rate, leading traders to wonder how long the hub in Cushing, Oklahoma, can keep absorbing its share of the global supply glut. About half the surplus crude accumulating in tanks across the United States is flowing into Cushing. If the build-up continues at the same rate, some industry officials and sources said, the tanks could reach maximum capacity by early April. Others suggest the flow might continue until July before it tests the limits of the dozens of steel-hulled storage tanks clustered in mid-Oklahoma. Traders have been scrambling to secure space at Cushing so they can store oil purchased at current low prices and sell it in a year at a profit exceeding $11 a barrel because the oil market has been in a structure known as contango. In January, crude oil arriving by pipeline and rail into Cushing, the delivery point of the U.S. crude futures contract, jumped nearly 11 million barrels to nearly 42.6 million barrels, the largest monthly build since the U.S. Energy Information Administration began tracking the data a decade ago. On Thursday, data from energy information provider Genscape showed Cushing stocks rose a further 3.2 million barrels in the four days to Feb. 10, the biggest such increase ever. Over the past 10 weeks, some 550,000 barrels per day (bpd) of crude have flowed into oil tanks across the United States, according to the EIA. That’s approximately one-quarter of the current global surplus estimated by OPEC.

US shale oil boom masks declining global supply - The surge in US shale oil production over the past five years has been truly phenomenal, but the notion that it was ushering in a new age of global oil abundance was always overdone and is looking more exaggerated by the day. One need only look at the trend in the number of rigs drilling for oil in the US — as published weekly in the benchmark Baker Hughes survey — to see that the shale oil industry is now in severe crisis.  The US rig count has been on a downward trend since peaking in early October at 1,609, but the past two weeks have seen a spectacular acceleration of this trend. Following the record drop of 94 units for the week ending January 30, the latest data released on February 6 showed a further decline of 83 units. The rig count is now down by 469 units (29 per cent) since October, and at its lowest level since December 2011. Moreover, of the 469 rigs dropped, more than half (265) are horizontal drilling rigs, the most productive kind. The scale of the drop since early January in particular is spectacular, with 342 of the 469 rigs dropped since October 10 coming off in the past five weeks alone. In all of the historical Baker Hughes data stretching back to July 1987 there is no precedent for a drop of this severity. The reason this matters is that US shale oil has been the main driver of global supply growth in the past few years. It has increased by 4.1m barrels per day in the past six years to reach 4.7m b/d in 2014 from only 0.6m b/d in 2008. Indeed, without US shale oil, global crude oil output would have been lower in 2014 than it was in 2005.  Based on the preliminary 2014 supply data provided by the US Energy Information Administration in its most recent Short Term Energy Outlook, the total world crude oil supply increased by 3.5m b/d over 2005-14, rising to 77.3m b/d from 73.8m b/d. However, if we strip out the impact of rising production from US shale oil, the global crude oil supply actually declined by around 1m b/d over this period, to 72.6m b/d from 73.5m b/d.  In turn, this means the outlook for continuing growth in global crude oil output in the next few years depends crucially on the outlook for continuing growth in US shale oil production. And that is a problem as the decline rates of shale oil wells are much higher than for conventional oil wells, which means a large number of new wells must be drilled every year simply to offset natural decline. This drilling treadmill gives rise to a capex treadmill, whereby constant infusions of new capital are required to enable the drilling to continue.

Goldman: The Plunge in Rig Count Still Isn't Enough to Stop Oil From Tumbling (Bloomberg) -- The slump in oil prices may not be over, according to Goldman Sachs Group Inc. The decline in the number of U.S. drilling rigs that’s helped crude futures in New York rebound 14 percent from this year’s low isn’t enough to reduce an oversupply, the U.S. bank said in a note dated Feb. 10. Lower prices are needed for American output to slow sufficiently to rebalance global markets, it said.  Goldman joins Citigroup Inc. and Vitol Group, the world’s biggest independent oil trader, in signaling prices may resume a decline amid unrelenting production growth. West Texas Intermediate crude is still down by half from last year’s peak as the U.S. pumps the most in three decades. While companies have idled rigs and cut spending, it will be some time before production is affected, according to the International Energy Agency.  “The decline in the U.S. rig count likely remains well short of the level required to slow U.S. shale oil production to levels consistent with a balanced global market,” analysts including Damien Courvalin wrote in the report. “Lower oil prices will be required over the coming quarters to see the required U.S. production growth slowdown materialize.”

Goldman Warns "Don't Count On Rig Declines To Balance The Oil Market Just Yet" With WTI back under $50 once again (the mainstream media's new Maginot Line for oil complex stability - just like $80, $70, and $60 was), it appears more investors are waking up to the reality of an over-supplied, under-demanded global energy market. The 'squeeze bounce manipulation' that we saw over the last week - very reminiscent of the bounce seen mid-collapse in 2008/9, was predicated on falling rig counts (and capex). However, Goldman pours freezing cold fracking water all over that thesis as they explain that the decline in the US rig count remains well short of the level required to achieve a sufficient slowdown in US oil production growth to balance the global market. Simply put, they conclude, lower oil prices will be required over the coming quarters to see the US production growth slowdown materialize with risk to their already low price forecast to the downside.

Fed’s Fisher Tells Fox Business Network Low Oil Prices Will Stay for Now - Federal Reserve Bank of Dallas President Richard Fisher said in a television interview Wednesday low oil prices will likely stick around for a while. In an interview with Fox Business Network, Mr. Fisher said Saudi Arabia is “testing, testing, testing” as part of a process of “price discovery” in a world where the U.S. has returned as a top-tier oil producer. The central banker low said low oil prices will likely persist “for a year or two” as a result. Mr. Fisher, who retires from the Dallas Fed next month, said he isn’t worried about the shale-oil revolution in the U.S. He said that firms that fail because of low prices will likely be bought by bigger players, which will in turn preserve the industry for the future.

Nymex oil scores third week of gains in a row -  —U.S. crude-oil futures on Friday scored a third straight weekly gain, with prices for the Brent contract marking their highest settlement of the year on the back of spending cuts by oil companies and further declines in the number of active U.S. oil rigs. On the New York Mercantile Exchange, crude for delivery in March rose $1.57, or 3.1%, to settle at $52.78 a barrel—up about 2.1% for the week. Prices briefly traded as high as $53.10 immediately after weekly data from Baker Hughes showed that the U.S. number of rigs actively drilling for oil and natural gas fell 98 to 1,358 as of Feb. 13. That’s down 406 from the same time last year and they were already at about a 5-year low as of the week ended Feb. 6. Brent crude for April delivery rose $2.24, or 3.8%, to settle at $61.52 a barrel on London’s ICE Futures exchange. Based on the most-active contracts, Brent prices haven’t settled above $60 since Dec. 24 and they’re up more than 6% for the week. “The recent bounce back in the price of Brent appears to have been driven by the sharp drop in the number of rigs drilling for oil and the slew of announcements from major oil companies that they are cutting back on investment,”

Wolf Richter: Wall Street Has a Dream About the Price of Oil -- Yves here. I e-mailed Wolf today after seeing a new Wall Street Journal story on bullish IEA oil price forecasts for the second half of the year. From his reply: The fundamentals are clearly against any kind of quick rise in the price of oil. That said, with enough speculative money piling in, prices could rise (they already did by 20%). But that would just support more production and higher storage levels, which would then be the next shoe to drop. In my experience in the oil patch in the mid 1980s and on, this will take a while to work out. But as we say, nothing goes to heck in a straight line. As you mentioned, the rig count drop is irrelevant near term. But even long term, the rig count drop is misleading. Drillers cut out the oldest most inefficient rigs, and they stopped drilling in the most inefficient and expensive plays (wells that produce a lot of water, for example). They’re cutting the least productive wells and the worst equipment, but they are maximizing their most productive wells and the best equipment. I don’t know what the net difference might be, but it’s not equal to the total number of rigs that they idled…Wall Street is already pumping up prices for next year. In 2016, a lot of junk-rated drillers are going to run out of liquidity. At the current oil prices or below, they’re unlikely to obtain more funding at reasonable terms. Vultures will be moving in with senior secured debt at extortionary rates and tight terms to where they get most of the company when it defaults and restructures. This will hurt banks, investment banks, PE firms, etc. So they WANT oil prices to go up, after a big tradable crash to end no later than in Q3.

Wall Street Has a Dream About the Price of Oil -- The price of oil has bounced 20% since January 29 when the benchmark West Texas Intermediate had dipped below $44 a barrel, but according to Edward Morse, Citigroup’s global head of commodity research, that dizzying bounce is a “head-fake.” Because the fundamentals are still terrible. Oil production in the US is still rising, despite drillers shutting down drilling activities at a record pace. Drilling fewer new wells is hurting oil field services companies, and the pain is fanning out across the oil patch and beyond. It hit private equity firms, it sank energy junk bonds, it triggered layoffs, but it isn’t curtailing oil production. Not yet.So the US remains by far the largest contributor to “global oil supply growth,” the US Energy Information Administration just pointed out, with production in 2014 jumping by 1.59 million barrels a day. By comparison: in Iraq, the second largest contributor to global oil supply growth, production edged up by 0.33 million barrels a day. And… “Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia,” explained the Citi report, cited by Bloomberg. “The market is oversupplied, and storage tanks are topping out.”Production will continue to rise, despite plunging drilling activity, and won’t slow down until the third quarter this year. As the oil glut is growing, it wreaks havoc on the price of oil, potentially pushing it, according to the report, into the neighborhood of $20 a barrel – “for a while.”  And the US shale oil revolution has defanged OPEC. It can no longer control oil prices at will to maximize profits for oil-producing countries, including the US. A sort of an unpleasant free market has suddenly re-broken out. “It looks exceedingly unlikely for OPEC to return to its old way of doing business,” Citi’s report said. “While many analysts have seen in past market crises ‘the end of OPEC,’ this time around might well be different.” But Citi is an integral part of Wall Street, and Wall Street dreams of a V-shaped recovery of everything because that’s where the quick and big bucks are to be made. Prices even in the current range are unsustainable for the industry, the report pointed out, and will entail a wave of “disinvestment from oil,” of the type we’re already seeing. But then, after oil plunges into the $20-range, presumably by no later than the third quarter, mirabile dictu, the price will soar, according to the report, and I mean SOAR, with Brent hitting $75 a barrel by the end of this year – more than tripling in a little over a quarter.

Lower oil price to hit U.S. oil and gas lending: Kemp - “Excessive oil and gas loan concentrations have been a key factor in the failure of some banks during periods of steep price declines,” the Office of the Comptroller of the Currency (OCC) notes with bureaucratic understatement in its handbook for U.S. bank examiners. Falling oil and gas prices can have a negative impact on firms beyond producers themselves, rippling out to hurt oilfield service companies, drilling contractors, water haulers, construction companies, local hotels, housing projects, restaurants and even convenience stores. “Banks with regional concentrations in areas that are heavily dependent on the oil and gas economy can be severely affected beyond the direct lending for oil and gas production,” the handbook warns, instructing examiners to watch out for unintended concentrations of credit risk. The examination manual for “Oil and Gas Production Lending,” which was updated in April 2014, is a timely reminder of the tight links between the exploration and production sector on the one hand and the banking system on the other. While the equity and debt finance, including securitized lending, have come to play an increasingly important role in paying for drilling, as well as purchasing rigs and pressure pumping equipment, bank credit still has an important role in the industry.

The Problem Of Debt As We Reach Oil Limits - (This is Part 3 of my series – A New Theory of Energy and the Economy. These are links to Part 1 and Part 2.)  Many readers have asked me to explain debt. They also wonder,Why can’t we just cancel debt and start over?” if we are reaching oil limits, and these limits threaten to destabilize the system. . To do so would probably mean canceling all bank accounts as well. Most of our current jobs would probably disappear. We would probably be without grid electricity and without oil for cars. It would be very difficult to start over from such a situation. We would truly have to start over from scratch. Those holding paper wealth can’t count on getting very much.  Each debt, and in fact each promise of any sort, involves two parties. From the point of view of one party, the commitment is to pay a certain amount (or certain amount plus interest). From the point of view of the other party, it is a future benefit–an amount available in a bank account, or a paycheck, or a commitment from a government to pay unemployment benefits. The two parties are in a sense bound together by these commitments, in a way similar to the way atoms are bound together into molecules. We can’t get rid of debt without getting rid of the benefits that debt provides–something that is a huge problem.  Now, the world economy is much more networked, so a collapse in one area affects other areas as well. There is much more danger of a widespread collapse.Our economy is built on economic growth. If the amount of goods and services produced each year starts falling, then we have a huge problem. Repaying loans becomes much more difficult.

EIA: Record Oil Inventories, Gasoline Prices expected to average $2.33/gal in 2015  -- Oil prices are down today, with Brent at $55.05 per barrel, and WTI at $49.47. Note: There is less investment now, but current wells are still pumping.  Here is an excerpt from the Weekly Petroleum Status Report U.S. crude oil refinery inputs averaged about 15.6 million barrels per day during the week ending February 6, 2015, 20,000 barrels per day more than the previous week’s average. Refineries operated at 90.0% of their operable capacity last week. ... U.S. crude oil imports averaged 7.3 million barrels per day last week, down by 101,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.3 million barrels per day, 3.6% below the same four-week period last year. ...U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 million barrels from the previous week. At 417.9 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.  It is difficult to forecast oil and gasoline prices due to world events - and the response of producers to price changes, but currently the EIA expects gasoline prices to average $2.94/gal in 2015 according to the Short Term Energy Outlook released yesterday:

• EIA forecasts that Brent crude oil prices will average $58/bbl in 2015 and $75/bbl in 2016, with 2015 and 2016 annual average West Texas Intermediate (WTI) prices expected to be $3/bbl and $4/bbl, respectively, below Brent. This price outlook is unchanged from last month's forecast. ...
• Driven largely by falling crude oil prices, U.S. weekly regular gasoline retail prices averaged $2.04/gallon (gal) on January 26, the lowest since April 6, 2009, before increasing to $2.19/gal on February 9. EIA expects U.S. regular gasoline retail prices, which averaged $3.36/gal in 2014, to average $2.33/gal in 2015. The average household is now expected to spend about $750 less for gasoline in 2015 compared with last year because of lower prices. The projected regular gasoline retail price increases to an average of $2.73/gal in 2016.

WTI Nears $47 Handle After Inventory Build Doubles Expectations & Production Hits Record High - With inventories expected to rise 2.33 million barrels, crude oil inventories surged by 4.87 million barrels for the 5th week in a row (despite some talking heads looking for a draw). There were significant builds across the board in all products. As far as rig counts dropping means production cuts - forget it - crude production rose 0.534% to a new record high and total inventories rose to a new record high. Furthermore, as the following chart shows, the total crude inventory is still massively excessive relative to historical norms for this (or any other) time of year.

Markets chart of the day, February 11 - US crude supply is still soaring. A report from the Energy Information Administration on Wednesday said that US Crude inventories rose by 4.9 million barrels last week. This was more than the 3.6 million barrel increase that was expected. "At 417.9 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years,"  the EIA wrote in its release.  Following the data, West Texas Intermediate crude headed further below $50 a barrel, falling as much as 3.5% to as low as $48.24 a barrel. Brent crude was also down 3.5% to $55.43. This chart, via Deutsche Bank's Torsten Sløk, illustrates just how oversupplied oil markets are compared to historical levels.

U.S. Oil Production Reaches All-Time High Amid Low Crude Prices -- Domestic oil production has reached a new high of 9.2 million barrels daily, according to a new government report.The total is the most since 1983, according to the Energy Information Administration, based on weekly data. It also matches the agency’s daily record set in Oct. 1973 that was calculated using monthly production levels.The increased production follows a huge years-long drilling and fracking boom. Oil producers dramatically ramped up their operations to cash in on soaring energy prices.But since the summer, the global crude market has collapsed because of a glut in production and lower-than-expected consumption in Europe and China. Since then, prices have fallen more than half, and ended the day Wednesday at below $50 per barrel.In response to the glut, U.S. producers and oil services companies have slashed jobs and investment. Still, it has yet to fully impact production. .But the cuts have yet to completely curtail new production. In the latest week, daily U.S. production rose an average of 49,000 barrels to reach record levels.At the same time, U.S. crude stockpiles also grew by nearly five million barrels to 417.9 million barrels for the week of Feb. 6, according to the government. That is well above analyst expectations.

The Death Of The Petrodollar Was Finally Noticed -- Three months ago, wrote "How The Petrodollar Quietly Died, And Nobody Noticed", in which we explained in painful detail why far from the simple macroeconomic dogma which immediately prompted the macro tourists to scream that "oil prices dropping are good for US consumers", the collapse in the price of crude is not only a disaster for oil exporting nations - one which will lead to a series of violent "Arab Springs" across the oil-producing developed world - but far more importantly, have a massive impact on capital markets as a result of the plunge in the most financialized commodity in history. On the death of the Petrodollar we commented that unlike previously, when petrodollar recycling funneled the proceeds from oil-exports into financial markets, helping to boost asset prices and keep the cost of borrowing down, henceforth "oil producers will effectively import capital amounting to $7.6 billion." We added that "oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer." The conclusion was simple: "net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. The implications for financial markets liquidity - not to mention related downward pressure on US Treasury yields – is negative."

After Saudi Arabia Crushes The US Shale Industry, This Is Who It Will Go After Next -- Whether it is to cripple the will of Putin and end his support of the Syria regime (thus handing the much desired gas-pipeline traversing territory over to Qatari and/or Saudi interests), a hypothesis first presented here in September and subsequently validated by the NYT, or much more simply, just to destroy any and all marginal producers so that Saudi Arabia is once again the world's most important and price-setting producer and exporter of oil, one thing is clear: the Saudis will not relent from pumping more oil into the market than there is (declining) demand for, until its biggest threat and competitor - the US shale patch - which recently had become the marginal oil producer, as well as its investors - mostly junk bond holders gambling with other people's money - are crushed, driven before the Saudi royal family, and the lamentation of their women is heard across the globe.  But what neither the Saudis, nor the US shale companies, and certainly not their investors who lately seem to get their investment advice from the no longer Nielsen-rated Financial Comedy Channel, know is even if every last US shale company is Friendo'ed, there is an even more insidious group of drillers and oil extractors behind them, backed by an even greater monetary bubble and an even more clueless group of sources of cash, just waiting to step in and become the next marginal oil producer.  China. According to Global Times, the slump in oil prices "has triggered a flurry of Chinese investment in oil wells, in a bid to get a high return from the black gold."

Russia’s Complicated Relationship With OPEC - Russia, Saudi Arabia, and the United States are the world’s most important oil producers. While there has been a lot of discussion about Saudi Arabia’s move to crush U.S. shale by flooding international markets with oil, the relationship between Saudi Arabia and Russia is much less understood.  Saudi Arabia and Russia have a lot in common. Both depend on oil exports for an overwhelming portion of their budget revenues. Both put energy issues at the heart of their foreign policy and use oil (and in Russia’s case, natural gas) as tools to achieve political objectives.   But Russia is not a member of OPEC, and has suffered enormously as a result of Saudi Arabia’s decision to seek contractions in oil production from abroad. The head of Rosneft, Russia’s state-owned oil company, harangued OPEC (and by implication, the Saudi kingdom) at a London Conference on February 10. Rosneft’s Igor Sechin, who has been personally targeted by western sanctions, said that OPEC “has lost its teeth” as a result of its decision to keep oil production at elevated levels, a move that has led to market “destabilization.”  The verbal barrage suggests that Russia, more so than OPEC (or at least Saudi Arabia), is the one that is suffering under Saudi Arabia’s decision.   OPEC has sought Russian cooperation on oil output levels in the past, offers that Russia has thus far declined. Most recently, Saudi Arabia has dangled the prospect of real oil production cutbacks in front of Russia in exchange for Russia dropping its support for Syrian President Bashar al-Assad. “If oil can serve to bring peace in Syria, I don’t see how Saudi Arabia would back away from trying to reach a deal,” a Saudi diplomat told The New York Times.

Deep in the Amazon, a Tiny Tribe Is Beating Big Oil -- Ecuador’s government ignored the community’s refusal to sell oil-drilling rights and signed a contract in 1996 with the Argentinian oil company C.G.C. to explore for oil in Sarayaku. In 2003, C.G.C. petroleros—oil workers and private security guards—and Ecuadorian soldiers came by helicopter to lay explosives and dig test wells.  Sarayaku mobilized. “We stopped the schools and our own work and dedicated ourselves to the struggle for six months,” says Santi. As the oil workers cleared a large area of forest—which was community farmland—the citizens of Sarayaku retreated deep into the jungle, where they established emergency camps and plotted their resistance.  “In the six months of struggle, there was torture, rape, and strong suffering of our people, especially our mothers and children,” Santi recounts. “We returned with psychological illness. All the military who came …” He pauses to compose himself. “This was a very, very bad time.” In their jungle camps, the Sarayaku leaders hatched a plan. The women of the community prepared a strong batch of chicha, the traditional Ecuadorian homebrew made from fermented cassava. One night, a group of them traveled stealthily through the jungle, shadowed by men of the village. The women emerged at the main encampment of the petroleros. They offered their chicha and watched as the oil workers happily partied. As their drinking binge ended, the petroleros fell asleep. When they awoke, what they saw sobered them: They were staring into the muzzles of their own automatic weapons. Wielding the guns were the women and men of Sarayaku.

Africa Hardest Hit as Miners Trim $20 Billion Spending This Year - -- The rout in commodity prices to the lowest in 12 years will spur deeper spending cuts by the world’s biggest mining companies in Africa, hurting a region more reliant on mineral exports than any other on the planet. Miners will scale back spending by $20 billion this year, according to Macquarie Group Ltd., as they cut growth plans amid waning demand for raw materials. With projects planned during the decade-long commodities boom now being shelved, Africa is likely to bear the brunt of the cuts, investors say. “People are cutting back on Africa more than say Australia because Africa tends to be high on the cost curve,” said Andrew Lapping, who helps manage $39 billion at Allan Gray Ltd. in Cape Town. “Suddenly they’re having to cut capital and decide which are their best projects. There are less of those in Africa than in other regions.” Unrest in the Democratic Republic of Congo as well as uncertainty over mining taxes in Zambia -- the two largest copper producers on the continent -- has added to investor unease in recent weeks. The pullback presents a challenge to nations such as Botswana and Guinea which, according to the International Council of Mining & Metals, derive more than 60 percent of their exports from minerals. Prices of minerals and metals dropped to the lowest since August 2002 on Jan. 29, according to the Bloomberg Commodity Index. Companies are contending with the slump in the wake of an era of debt-fueled expansion that’s left some balance sheets stretched. Macquarie estimates total spending this year of $79 billion is 39 percent down on the industry’s peak outlay of $130 billion in 2012, it said in January.

Chinese Producer Prices Tumble For 34th Month In A Row, Worst 'Deflation' Since Oct 2009 -- For the 34th month in a row, Chinese Producer Prices (PPI) fell YoY (dropping 4.3%, missing expectations of a 3.8% deflation). This is the biggest YoY drop in prices since October 2009 led by a 9.9% plunge in fuel costs. Chinese Consumer Prices are also showing continued deceleration with a 0.8% rise YoY (missing expectations of a 1.0% rise YoY) - the weakest CPI low-flation since November 2009. Great news for the average Chinese person is that food prices rose at the slowest pace in years (and even better the cost of alcohol & tobacco fell YoY again).

China's Solution To "Tyrannical" Billionaires Who Harm The Economy: Execution -- In some countries, the 'solution' the state chooses for its ignominous billionaire class of inequality-garnering, economy-wrecking individuals is to either a) turn one's back for a brief enough moment as to allow the tyrant to leave the country in search of a golden beach upon which to lament how great a trade being long European bonds would have been' or b) enhance their wealth further on a quid pro quo basis. In China, the 'treatment' for corrupt billionaires who love casinos, cigars, and luxury cars is much simpler... execution.

Politically Directed Higher Education -- From the NY Times today:They are out there, hiding in library stacks, whispering in lecture halls, armed with dangerous textbooks and subversive pop quizzes…foreign enemies plotting a stealthy academic invasion of Chinese universities. So says China’s education minister, Yuan Guiren, who has been issuing dire alarms about the threat of foreign ideas on the nation’s college campuses, calling for a ban on textbooks that promote Western values and forbidding criticism of the Communist Party’s leadership in the classroom. The article continues: To gird China’s impressionable young minds, Mr. Yuan has been championing new guidelines, issued last month, that call on the country’s higher education institutions to prioritize the teaching of Marxism, ideological loyalty to the party and the views of President Xi Jinping. He recently described Chinese schools as the “ideological front line” in a battle against concepts like rule of law, civil society and human rights. Any “wrong talk” in social science and philosophy forums, he said, must be silenced.  Given the plethora of empirical evidence indicating the importance to economic growth of human capital accumulation, and a well-developed educational system in nurturing such accumulation, attempts to stifle the higher education system in China appear ill-advised — at least insofar as furthering economic advancement is concerned.

Ghost city: Chinese replica of Manhattan stands empty as economy slows (Video) Manhattan may be a bustling metropolis filled with busy people rushing off to work, the theatre, restaurants and the myriad attractions the city has to offer. A replica in China, complete with knock-offs of Rockefeller Center and the Hudson River, is missing that one key element that makes New York, New York: the people.The business district of Tianjin, China was billed as the world’s largest financial sector in the making when construction began on the 10-year project more than five years ago. “All of these tall buildings just appeared,” one local man recently told CTV News.Now, construction has all but stopped and builders have left town, leaving behind empty buildings and streets. The $50-billion project is heavily in debt and will likely remain half-completed and abandoned in a sign of China’s economic slowdown.

China's exports post surprise drop in January - --China's exports posted a surprising drop in January, suggesting that factories were grappling with sluggish demand from abroad as well as at home, as the world's second-largest economy struggles to gain traction. Imports also fell sharply during the month, partly due to weak demand from local industry as well as much lower oil and raw material prices, and giving the nation another big trade surplus for the month. "China's manufacturing sector is under great pressure as both external and domestic demand remains sluggish," ANZ . Exports fell 3.3% in January from a year earlier, data from the General Administration of Customs showed Sunday. This was a sharp deterioration from December's 9.7% rise and short of an expected 4.0% increase by economists polled by The Wall Street Journal. The export weakness adds to the already disappointing domestic picture where a government survey of factory activity in January slipped to its weakest level since September 2012. China's economy grew 7.4% last year, a pace that many countries would envy but was this nation's worst showing in 24 years. The government is widely expected to lower its growth target to about 7% this year as the global economy continues to make a slow recovery and domestic demand remains weak. In January, exports to Southeast Asia and the U.S. were stronger, while shipments to the European Union, Japan and Hong Kong, a key transshipment market, were all weaker in dollar terms.

China's imports slump, capping dismal January trade performance --Chinese economic indicators in January and February are typically viewed with caution given the distortions caused by the shifting week-long Lunar New Year holiday, and while the analyst median estimate was for a rise, the range of estimates was extremely wide.However the data - in particular the import data - is worrisome even after accounting for cyclical factors; last year the new year holiday idled factories and financial markets for a week in January, but this year the holiday comes in late February and January was a full month of business as usual."It's a very strange data print," said Andrew Polk, economist at the Conference Board in Beijing, noting that exports tended to be less effected by the holiday than other indicators, but added he was more concerned by the implications of the startlingly negative import figure.Chinese officials had predicted that monetary easing measures in Europe would boost demand for Chinese goods, and analysts polled by Reuters had also been optimistic that signs of economic strengthening in the United States would support exports. However, the data showed that while exports to the United States rose by 4.8 percent year-on-year to $35 billion, exports to the European Union slid 4.6 percent to $33 billion in the same period.

Economists clueless on China's trade as imports drop 20% -- China's trade report this weekend was dismal. Exports dropped 3.3% vs. economists' consensus of a 6.3% increase from last year. That is nearly a 10% miss, demonstrating that the global community of professional China watchers do not have a clue about the nation's trade dynamics. This is quite unsettling given the importance of China to global growth.A great deal of this weakness in exports was due to softer demand from the Eurozone and especially from Asia  Reuters: - ... the data showed that while exports to the United States rose by 4.8 percent year-on-year to $35 billion, exports to the European Union slid 4.6 percent to $33 billion in the same period.   Exports to Hong Kong, South Korea and Japan were also down, with exports to Japan slumping over 20 percent. But the real shocker came from the nation's import figures. Imports dropped by 20% from last year as the nation bought less (or paid less for) coal, oil and other commodities. Economists missed this measure by a whopping 17%!

Unexpected Collapse in Chinese Trade; Expect More Currency Manipulation Claims; Impact on US GDP -- Chalk up another unexpected data point for the slowing global economy: Economists expected Chinese exports to grow 5.9% in January. Instead exports declined by 3.3%. Imports declined a whopping -19.9% vs. an expectation of a 3.2% decline. With imports down way more than exports, China Posted a Record Trade Surplus of $60 billion, in this case, not a sign of strength. Year-Over-Year Data Points:

  • Imports plunged 19.9% year-over-year vs. economist expectations of a 3.2% drop.
  • Exports fell 3.3% vs. economist expectations of 5.9% gain.
  • Crude oil imports fell 41.8%
  • Iron ore imports fell 50.3%
  • Coal imports fell 61.8%
  • Exports to the European Union fell 4.4%
  • Exports to the Hong Kong fell 10.9%
  • Exports to the Japan fell 20.4%
  • Exports to the Russia fell 20.4%

Imports declined from all major trade partners, including the European Union and the U.S.   Trade numbers from China fluctuate widely in January and February depending on when a week-long new year lunar holiday begins. In 2015, the holiday begins in February making January numbers all the more alarming.

Chinese Imports Crash & Worst January Export Plunge Since 2009 Sends Trade Surplus To Record High -- Chinese imports collapsed 19.9% YoY in January, missing expectations of a modest 3.2% drop by the most since Lehman. This is the biggest YoY drop since May 2009 and worst January since the peak of the financial crisis. Exports tumbled 3.3% YoY (missing expectations of 5.9% surge) for the worst January since 2009. Combined this led to a $60.03 billion trade surplus in January - the largest ever. But apart from these massive imbalances, everything is awesome in the global economy (oh apart from The Baltic Dry at record lows, Iron Ore near record lows, oil prices crashed, and the other engine of the world economy - USA USA USA - imploding).

China Injects Funds Into Financial System - WSJ: —China added funds to the financial system Tuesday, adding to seven straight weeks of injections as Beijing seeks to ease a seasonal cash squeeze and cope with a slowing economy and capital outflows. The central bank added a net 45 billion yuan ($7.2 billion) into the China’s money market Tuesday, on track for the longest streak of pump priming since last July. The extra cash joins efforts already under way by the government to juice up growth, including last week relaxing the amount of reserves banks are required to hold, effectively freeing up $100 billion for loans. The move could also help lower money market rates and filter through into lower borrowing costs for banks, and for companies. The People’s Bank of China conducts liquidity operations every Tuesday and Thursday, with today’s addition above the average of 39.3 billion yuan a week during the past seven weeks. It also came just before the Lunar New Year holiday starting Feb. 19, when demand for cash jumps as consumers spend on travel and gifts for family.

Will China's Currency Peg Be the Next to Fall?: What is China's currency the renminbi (RMB, a.k.a. yuan) really worth? Nobody knows, because price discovery has been thwarted by the RMB's peg to the U.S. dollar. This peg has shifted over time, from 8-to-1 some years ago to the current peg of 6.24-to-1. A pegged currency rises and falls against other currencies along with the underlying currency. As the dollar weakened from 2010 to mid-2014, China's RMB weakened along with it. This allowed Chinese authorities to lower the peg without affecting the competitive value of the RMB. Now that the USD has gained 16% in less than a year, that rise is dragging the RMB higher with it, making China's goods less competitive in markets outside the U.S. (and countries which use the USD as their currency). This major move has prompted Chinese authorities to widen the peg's range to allow the RMB to weaken slightly against the dollar. Japan's stunning devaluation of the yen has prompted much speculation that China will be forced to either end the peg to the USD or loosen the peg to match the depreciation of the yen. What will happen should China end the peg and allow the RMB to float freely on global foreign exchange markets? Nobody knows, and that uncertainty is likely one reason why Chinese leaders are maintaining the peg. Uncertainty is disruptive, especially when it affects the value of currencies, which then affect the relative competitiveness of China's all-important export sector.

Why China poses the next great risk for a deflationary world  -- China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely.A year of tight money from the People’s Bank and a $250-billion crackdown on shadow banking have together pushed the Chinese economy close to a debt-deflation crisis. The surprise cut in the Reserve Requirement Ratio — the main policy tool — comes in the nick of time. Factory gate deflation has reached 3.3%. The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu from JP Morgan says the 50 point cut in the RRR cut from 20% to 19.5% injects roughly $100-billion into the system. This will not itself change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the last three years as a result of falling inflation. UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflexion point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP. The People’s Bank may have to cut all the way to zero in the end — a $4 trillion reserve of emergency oxygen — but to do that is to play the last card.

Korea's tax revenue falls short of target for third straight year in 2014 - Korea's tax revenue fell short of the government's target by a record amount last year. This also marks three straight years of a shortfall. The finance ministry says tax revenue came in at around 205-trillion won, or roughly 190-billion U.S. dollars in 2014, around 10 billion shy of the goal. Last year's shortfall is even larger than the amount recorded at the height of the Asian financial crisis in 1998 of 7.8 billion. The ministry attributes the shortfall to sluggish corporate tax revenue stemming from companies' weak performances. Corporate taxes for 2014 reached around 39 billion dollars, 3 billion dollars less than the government's target. It also says slumping domestic demand and a strengthening Korean won against the greenback prompted a fall in value-added taxes and customs duties. The government managed, however, to collect more taxes on wages than its target by 450 million dollars. The ministry explained that the rise in the number of employed resulted in more income tax revenue. For 2015, the ministry is targeting tax revenue that's up around 2 percent from last year's target. It adds that it will push through structural reforms and economy revitalization plans this year to meet the goal, but experts are skeptical about that, as the economy at home and abroad remain sluggish.

South Korea Cuts Prices Amid Currency War - South Korean export prices fell again in January, a sign that manufacturers are continuing to slash prices as they keep battling with Japanese firms for market share. Prices of South Korean exports fell 8.5% in January on year, compared with a 4.4% drop in December. South Korea’s car and electronics makers have struggled against Japanese competitors amid a two-year slide in the yen, a result of Japanese Prime Minister Shinzo Abe’s campaign to weaken the currency. While the won has been weakening against a resurgent U.S. dollar, its relative strength against the yen has made its exports less competitive compared to Japanese cars and electronics products. The won has weakened roughly 6% against the U.S. dollar over the past six months, compared with a nearly 15% decline of the yen. Many South Korean firms produce a lot offshore, in places like China and Mexico. But these factories often buy parts from South Korea-based manufacturers, who lose out if the won appreciates relative to the yen.

Lunar New Year Isn’t the Only Shadow Cast on Asia’s Exports - Asia’s export data has been disappointing in January: Some economists are blaming it on the moon. The Lunar New Year holiday this year falls in mid-February compared with late January last year. Exports typically pick up in the preceding weeks, as companies rush to fill orders before shutting down for the season. As a result, much of the flurry will be pushed to the beginning of February, and economists are waiting for that month’s data before jumping to any conclusions. “We wouldn’t read too much into the sharp falls,” as trade growth is “highly volatile” at the beginning of the year, says research firm Capital Economics’ Julian Evans-Pritchard. Economists at Bank of America Merrill Lynch are also waiting till February’s data for a better picture. Asia’s intertwined supply chains, particularly for electronics, means that China’s shift tips off a regional domino effect. In January, January, China’s exports fell 3.3% on year, South Korea’s fell 0.4% and data earlier Monday showed Taiwan’s rose 3.4%, its lowest level in almost a year. A port strike in in Los Angeles, Calif. also could be bottlenecking exports, particularly from China to the U.S. But others say that the Lunar New Year and other one-off factors don’t explain away the region’s export woes–and the U.S. recovery just isn’t enough to drive a return to the heady days of Asia’s double-digit export growth.

Japan's current account surplus hits record low in 2014 - (Xinhua) -- Japan's current account surplus fell 18.8 percent from a year earlier to 2.63 trillion yen (22.10 billion U.S. dollars) in 2014, the smallest level since comparable data became available in 1985, government data showed on Monday. The current account surplus, one of the widest gauges of international trade, has shrunk for the fourth consecutive year, the Finance Ministry said in a preliminary report, suggesting a surge in gas imports and the yen's drop were the main reasons. Exports in 2014 gained 9.3 percent from the previous year to 74. 12 trillion yen, while imports soared 10.3 percent to 84.49 trillion yen. Thus, the trade deficit, imports minus exports, grew 18.1 percent to a record 10.36 trillion yen, said the ministry. The trade deficit was underpinned by record imports, partly led by Japan's heavy reliance on liquefied natural gas imports to make up for the shutdown of nuclear plants for safety checks following the March 2011 Fukushima crisis. In the reporting period, the surplus in the income account, which reflects how much Japan earns from its foreign investments, rose 9.7 percent to a record high of 18.07 trillion yen, supported by higher dividends and profits from securities investments on the back of the yen's drop.

How Japan Borrows $9 Trillion Practically for Free - Here's why Japan, home to the world's largest debt burden, can borrow massive amounts of money at little or no cost. Borrow from domestic investors, mostly banks and consumers Foreign ownership of Japanese government bonds and treasury bills was 8.9 percent at the end of September, according to central bank data. That compares with 48 percent of U.S. treasuries held by foreigners, according to data compiled by Bloomberg. At the end of September, the following three public institutions held at least 46 percent of Japan's debt. The central bank: The Bank of Japan has bought government bonds since 2001 in an attempt to stimulate the economy and beat deflation, with its holdings doubling since the current monetary easing policy started in April 2013. At the end of September it had 23 percent of government bonds and treasury bills. And this has continued to rise. The post office: Japan Post Holdings held 167 trillion yen of the government's debt, about 16 percent of the total and the most after the central bank. About 70 percent was at the Japan Post Bank, and the rest was at Japan Post Insurance. The pension system: Public pension funds held 62 trillion yen of the government's securities, more than 6 percent of the total. Most of these were at the Government Pension Investment Fund, the world's biggest pension manager. Almost half of its 130.9 trillion yen in assets were in domestic bonds at the end of September, with the GPIF aiming to cut this to 35 percent. Have a low rate of inflation and slow growth When growth and inflation are low, this encourages investors to purchases government bonds, which guarantee a risk-free return.

Japan’s Abe Faces Uphill Battle in Putting Fiscal House in Order -  Japan will face an uphill battle in its bid to put its fiscal house in order, as the country’s working-age population dwindles, while the elderly in need of public care increases steadily, new government projections show. The projections, released as part of a budget plan, set out the road ahead for Prime Minister Shinzo Abe: he will have to tackle a demographic time bomb even as he fights slow growth and deflation. But the projections show Mr. Abe is at least on the right track. His budget for the fiscal year starting in April is shown to cut the size of the nation’s primary budget deficit by half, to 3.3% of the nation’s gross domestic product from 6.6% in fiscal 2010 — hitting a key fiscal consolidation metric. But another target of balancing the primary budget by 2020 won’t be achieved, even under optimistic assumptions that his pro-growth economic programs, known as Abenomics, will successfully rejuvenate the economy. The policies envisage that Japan’s economy will be restored to a growth of 3.5% in nominal terms, and 2% in inflation-adjusted real terms. In the past 10 years, the economy on average declined 0.4% in nominal terms, and grew just 0.8% in inflation-adjusted real terms. Japan has accumulated public debt in excess of 240% of GDP, according to the International Monetary Fund, as sluggish growth has reduced tax revenue while spending levels are kept largely intact.  As a first step toward fiscal health, Japan set a goal in 2010 of balancing its primary budget–or budget excluding interest expenses — by 2020.

Leaders at Japan Business Lobby Remain All Male, All Over 60 -  Japanese companies are under pressure to shake up their corporate culture, but the country’s chief business lobby, Keidanren, opted for stability when it reshuffled its leadership ranks. The group Monday chose six new vice chairmen—all men in their 60s and 70s–to join 10 incumbent vice chairmen and its chairman, who are also all men in that age group. The new officers of the group, which is called the Japan Business Federation in English, are presidents and chairmen of the bluest of blue-chip financial and industrial firms, like the Mitsui & Co. trading house and Nippon Life Insurance Co., the country’s biggest insurer. Three of the six new vice chairmen, who will start their four-year terms in June, hail from the Mitsubishi keiretsu, a loose conglomeration of companies that have led Japan’s economy for a century. To raise Japan’s economic metabolism, Prime Minister Shinzo Abe’s Abenomics program calls for changes like empowering women, strengthening corporate governance rules and fostering more entrepreneurship. Keidanren is a major voice in that debate, and it has pushed back against some of Mr. Abe’s proposals, from requiring big companies to set numerical targets for women managers to increasing the number of independent directors on corporate boards. “These personnel changes look like mostly a reshuffle and don’t seem to bring any improvement,” said Junichiro Koga, a former Kyodo News reporter and author of a book on Keidanren. “We picked the six people, considering various factors such as personality, dynamism, influence and types of affiliated companies and corporate groups,” Keidanren Chairman Sadayuki Sakakibara said at a news conference Monday.

Japan foresees revenue shortfall in surplus target year 2021  (Reuters) - Japan is set to miss budget-balancing pledges in coming years, government forecasts showed on Tuesday, underscoring the difficulty in reducing the country's huge debt burden, despite growth policies that have boosted tax revenues. Separate sets of government calculations, seen by Reuters, show the government's budget remaining in deficit and general revenues falling short of spending for the fiscal year to March 2021, the target year for a return to surplus. Under a previous government, parties including the one now headed by Prime Minister Shinzo Abe set targets to return annual budgets to surplus in order to whittle down an accumulated public debt that is more than twice the country's gross domestic product - the heaviest burden in the industrial world. But even under rosy growth assumptions, Cabinet Office calculations for medium- to longer-term planning purposes predict a primary deficit - which excludes new bond sales and debt servicing - of 1.6 percent of GDP for 2020/21. The baseline forecast is a deficit of 3.0 percent of GDP.

Japan Deficit Would Continue in 2020 Even If It Relaunches Economy: – Japan will register a primary deficit in 2020 even if it increases its consumer tax and reactivates economic growth, according to government forecasts published Tuesday by the Japanese newspaper Nikkei. In the current fiscal year, which ends in March, the deficit on the primary balance of Japan will reach more than $137 billion, or 3.3 percent of its Gross Domestic Product (GDP), as per official calculations. In the best expected scenarios, the deficit would be more than half, which is 1.6 percent of its GDP and far from the government’s objective of exiting the numbers in red. This estimate includes the further increase of the consumer tax, or VAT, to 10 percent which the government intends to implement in April 2017 and is based on a growth rate of Japan’s economy at 3 percent annually, according to the data published by Nikkei. In case the Japanese GDP grows at a rate of 1 percent, the deficit would remain at the current level by 2020. These figures will be presented Thursday at a meeting of the Japanese Council on Economic and Fiscal Policy, again highlighting the need for additional measures to improve Japan’s fiscal health and spur growth. During this period, the negative balance of the primary balance of Japan will be higher than initially planned because of the government’s decision to delay the new VAT increase.

Down Under: Economists Surprised by Jump in Australian Unemployment Rate - On February 3, the Reserve Bank of Australia cut interest rates to a record low 2.25%.  Did economists think the RBA had a reason for that cut or did they they think the RBA was playing darts and landed on a "rate cut" square?  The latter would make sense, because the Sydney Morning Herald notes a Surprise Jump in Unemployment to 6.4 Percent.  The Australian Bureau of Statistics said on Thursday that the number of people employed fell by 12,200 to 11.668 million in January, against market expectations of a fall of 5,000. This took the official unemployment rate to 6.4 per cent from 6.1 per cent in December, while the participation rate remained steady at 64.8 per cent of the population. The figures were well below expectations, and the Australian dollar plunged more than half a US cent, to US76.63 cents. The Reserve Bank of Australia highlighted its concerns about continuing softness in the jobs market last week, when it cut the cash rate for the first time in 18 months.Thursday's result is likely to ramp up speculation about a second cut within months. "While the market had expected some weakening in labour force conditions in January after the surprisingly good figures in December, the increase in the unemployment rate to 6.4 per cent was worse than feared,"

Australia’s debt crisis is a $1 trillion nightmare -- Financial modelling by global auditing firm Pricewaterhouse Coopers proves just how dire our debt crisis has become, with key economists now openly labelling our burgeoning debt load as a ticking time bomb. Without dramatic changes to government spending and a reversal in slumping revenues, they predict Australia’s government debt ratio to GDP will surge above the 50 per cent mark within 10-15 years. Taking into account the $25 billion of savings that have either stalled in the Senate by Labor and the minor parties or are yet to be introduced, the PwC midyear research paper claims net debt will rise from $244 billion to $312 billion within four years, before doubling from its predicted level of $531 billion in 2031 in the space of six years.  If the trend continues, PwC has pencilled in Australia’s commonwealth net debt to reach a staggering $2 trillion by 2042.PwC tax partner Paul Abbey said Australia was at grave risk of following the lead of debt-burdened European nations and getting in a situation where debt repayment was bordering on an impossibility.

Methodology change sees Indian economy grow faster than China's (Reuters) - Taken at face value, India on Monday became the fastest growing major economy in the world after its statisticians changed the way they measure Asia's third-largest economy and showed it clocked faster growth than China in the December quarter. It marks a dramatic turnaround for an economy that a fortnight ago was assumed to be struggling to gain momentum under Prime Minister Narendra Modi's reform-minded government. Prior to Modi's election last May, the economy had endured its weakest phase of growth since the 1980s. The statistical recovery is in large measure due to changes both in the way authorities calculate gross domestic product (GDP) and the base year. true Under the new method, the economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter. New Delhi also revised up growth for the first half of fiscal 2014/15 to 7.4 percent from the 5.5 percent reported earlier and forecast the full-year GDP growth to accelerate to 7.4 percent from a revised 6.9 percent a year earlier. The new estimate is sharply higher than the Reserve Bank of India's (RBI) growth projection of around 5.5 percent for the year under the old method.

India Economists’ Embarrassing Confession: They Don’t Know What GDP Is -- India’s radically revised gross domestic product data have apparently left economists dazed and confused because they are uncharacteristically silent about what growth was last quarter. India is scheduled to announce GDP figures for the quarter ended Dec. 31 on Monday but instead of the regular rush of forecasts, economists seem to have created a cartel of silence, choosing not to make predictions using India’s new methodology. Last week India surprised all the experts by recalculating GDP growth for the fiscal year ended March. Using a new calculation method, India’s economy expanded 6.9% that year, well above the 4.7% growth the country had announced earlier. “The revision was massive,” said Siddhartha Sanyal, India economist at Barclays. “We don’t know what the GDP was in the previous quarter, so how do we estimate what is going to happen?” The change happened because the government brought forward the base year used in GDP calculations by seven years to fiscal 2012. It also switched from using production costs to market prices. While the headline growth figure shot up with the new calculations, the absolute GDP figure was basically the same as it was before, making it hard for economists to figure out exactly where the new-found growth came from.  Meanwhile, the government didn’t give the revised quarterly data or new calculations for this year. While the new numbers suggest that last year the economy was rebounding strongly, some economists are still skeptical. Most other indicators that year suggested growth was sputtering, they said.

India’s Revamped GDP Could Show Slowdown -  The release of data on the size of the economy is a quarterly event in India and most other countries. But this evening’s GDP numbers out of New Delhi are likely to be more momentous than most. Chiefly because nobody is really quite sure what to expect. A years-in-the-making update to the Central Statistical Organization’s GDP-calculation methodology, upending impressions of the economy’s recent trajectory. Simply understanding recent growth, let alone forecasting economic expansion, became that much more difficult. The numbers released on Jan. 30 were annual ones, for the past two fiscal years. They showed much-faster GDP growth in the previous fiscal year: 6.9% instead of 4.7%. Monday evening’s release will include quarterly data for the past few quarters, as well as an advance reading on annual growth for the current fiscal year, which ends March 31.

India Fudging GDP to Show Faster Growth Than China?  - Indian government now claims that the country's GDP grew by 6.9% in 2013-14, well above the 4.7% growth the country had announced earlier.Based on the latest methodology,  it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:
1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?
2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures?  For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.
3. How can growth accelerate amid financial constraints depressing investment in India?  Indian companies are burdened with debt and banks are reluctant to lend.
4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?

Upstart party wins big in India's capital, in blow for Modi: (AP) — An upstart anti-corruption party won a smashing victory in elections to install a state government in India's capital, dealing a huge blow to Prime Minister Narendra Modi's Hindu nationalist party. While the results from last weekend's elections will not have any bearing on the structure of the federal government, they sent a clear message to Modi that he was not invincible despite his party's strong showing in state elections since it was swept to power last year. They were also an indication of voters' frustration with endemic corruption. Thousands of jubilant supporters of former tax collector Arvind Kejriwal and his Aam Admi Party, or Common Man's Party, beat drums and danced in celebration after India's Election Commission announced results Tuesday showing AAP's overwhelming win. Analysts said the scale of the defeat of Modi's Bharatiya Janata Party was a wake-up call for the government.Kejriwal, whose promises of subsidized electricity also helped him win over voters, said the arrogance of leaders in Modi's party led to the BJP's poor showing. The party had been on a winning streak since demolishing the competition in national elections in May, with many attributing its success to Modi's charisma and his promises to increase economic growth and end corruption. Kejriwal has made opposition to widespread graft a centerpiece of his political work. During a brief stint as New Delhi's leader last year, he promised tough action against police officers and officials caught accepting bribes, and encouraged ordinary people to carry out sting operations by filming officials accepting bribes.

Modi’s BJP crushed in Delhi poll - Narendra Modi’s Bharatiya Janata party has suffered a crushing defeat in Delhi’s city election, undermining the Indian prime minister’s image of political invincibility and showing the extent of disillusionment among the capital’s voters after only eight months of BJP national government. Arvind Kejriwal’s upstart Aam Aadmi (Common Man) party, which has campaigned against corruption, won 67 of Delhi’s 70 assembly seats, with Mr Modi’s BJP taking only three. The Congress party of Sonia Gandhi, which once dominated the city and the country, did not win a single constituency, according to the Election Commission of India. Working-class voters and religious minorities once loyal to Congress abandoned the party en masse and voted for the AAP. AAP’s victory was particularly embarrassing for Mr Modi since he had personally thrown his weight behind the BJP’s campaign — he loomed larger in the election posters than last-minute BJP chief ministerial candidate Kiran Bedi — and had asserted the importance of the Indian capital because of its international profile. The National Capital Territory’s 17m inhabitants comprise a tiny fraction of India’s 1.3bn people and the Delhi election was fought largely on local issues, but the BJP’s defeat ends a string of Modi triumphs in state polls since his sweeping general election victory in May last year. Indian business leaders and foreign investors remain solid supporters of Mr Modi and his agenda for developing the economy, even if they are as frustrated as the government by the difficulties the BJP faces in pushing reformist legislation through parliament.

As The Rupee Stands Tall, India Fears Losing the Devaluation Game -- The rupee has stood its ground against the dollar over the last year, but in the emerging global competitive-devaluation game, the Indian currency is losing by being strong.  Over the last six months, the rupee is little changed against the greenback but it has appreciated relative to other currencies. It gained nearly 17% against the euro, 15% against the Japanese yen, and around 10% against the British pound. Japan and the Eurozone are engaging in what some are calling a currency war, as they take steps to weaken their currencies, boost exports and lift growth. Some smaller economies have followed suit and let their own foreign exchange rates slide to remain competitive. India’s central bank said that while it is not worried about the rupee’s recent movement yet, there is a danger that the economies of India and other emerging markets could get hurt by the easy-money and weak-currency policies of Japan, the E.U. and elsewhere.  “With the massive amounts of quantitative easing that are going on in the rest of the world there are possible dangers of us becoming uncompetitive,” India’s central bank has been taking steps to ensure that the rupee stays in a range between 60 rupees to 62 rupees to the dollar, traders say, but it hasn’t done much to try to arrest the rupee’s rise against other currencies.  The Indian currency has been helped by the billions of fresh dollars that are pouring into the Indian stock and bond markets on the back of an improving outlook for economic growth. The latest gross domestic product figures suggest that India has been growing faster than even China is recent quarters. Foreign institutional investors dumped $42 billion into Indian stocks and bonds last year compared to $12 billion in 2013.

Aam Aadmi Party Sweep in Delhi; Afghan Pakistan China Trilateral Initiative -- What helped Kejriwal's Aam Aadmi Party sweep Delhi elections? Will it have any resonance in Pakistan?   Can China and Pakistan help stabilize Afghanistan by excluding India? Does the US support this trilateral effort? ViewPoint from Overseas host Faraz Darvesh discusses these questions with Arjumand Husain (who famously challenged VIP culture in Pakistan),Sabahat Ashraf (iFaqeer) and Riaz Haq (

Pakistan Ranks in the Middle For Infrastructure and Logistics in 2014  - The World Bank’s (WB) Logistics Performance Index (LPI) ranks Pakistan at number 72 for 2014, out of 160 countries. LPI  is ranking is based the efficiency of customs, border management and clearance as well as the quality of trade and transportation infrastructure. It also comprehends the quality of logistics services, the ability to track and trace consignments and the frequency at which shipments correctly reach their destinations on schedule.  The first LPI survey conducted in 2007 ranked Pakistan at number 68, which fell to a low of 110 in 2010 before recovering to 71st position in 2012.  Logistics performance is an important indicator of a nation's level of development and its ability to participate in global trade.  Another similarly important indicator is the ranking of a country on OECD survey of economic complexity compiled by Massachusetts Institute of Technology.  This indicator comprehends the diversity of products ad services traded and the number of trading partners. The more diverse the trade and trading partners, the higher the rank. Pakistan ranks 91 on this index among 144 countries as of 2012. It ranks higher than single-commodity oil exporting nations  like Iran and Saudi Arabia but lower than the newly industrialized Asian nations.

Seven Years Later, Global Debt Keeps Piling Up, $57 Trillion More Than 2007 -- Central bankers still have not figured out the absurdity of their efforts to cure deflation via low interest rates. By forcing down interest rates and encouraging more lending, debts of all sorts keep piling up with no realistic way of paying those debts off. Inquiring minds are digging into a fascinating albeit lengthy (256 page) McKinsey study of debt and deleveraging since the great financial crisis seven years ago: Debt and (Not Much) Deleveraging  Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points. That poses new risks to financial stability and may undermine global economic growth.

Currency Warriors Get a Boost at G-20 Meeting - WSJ: —The world’s top finance leaders on Tuesday in effect backed currency depreciation as a tool for promoting growth by signaling strong support for aggressive easy-money policies aimed at boosting the fragile global economy. The support by finance ministers and central bankers from the Group of 20 largest economies for mass monetary easing—policies that have weakened exchange rates from Europe to Japan—is at odds with the traditional view that currency depreciation could have damaging effects on other economies. It also reflects worry that economies in much of the world could get stuck in a low-growth rut without decisive cash injections from central banks. It marks an implicit acknowledgment of the failure across the globe to enact longer-lasting structural overhauls to major economies after years of relying on short-term spending and other temporary stimulus programs.The finance ministers appeared to be “trying to reduce tensions over perceived competitive devaluations by saying it’s in the collective good,” said Simon Johnson, professor at Massachusetts Institute of Technology’s Sloan School of Management. International support for “accommodative monetary policies,” as the G-20 statement issued at a meeting here put it, came the same day China said consumer prices last month rose just 0.8% compared with a year earlier, the slowest growth in five years. The announcement sparked fears that China might be tilting toward deflation, and boosted pressure on China’s central bank to cut interest rates and expand credit.

A Fragile Accord? G-20 Currency Agreement May Be a Shaky Deal - Global financial leaders this week signed what was essentially a currency agreement, backing central bank policies that make exchange rates cheaper in a last-ditch effort to jump-start global growth. But that currency accord could easily turn into discord as exchange-rate pressures build around the world. “It remains to be seen if it holds up,” said Simon Johnson, a professor at Massachusetts Institute of Technology’s Sloan School of Management and former International Monetary Fund chief economist. Finance ministers and central bankers of the Group of 20 largest economies said Tuesday that aggressive monetary easing efforts by central banks in Europe, Japan and other countries were necessary. But while the euro and yen fall, they put upward pressure on other countries’ exchange rates that can erode export competitiveness. The strengthening dollar, which has hit decade-long highs in recent weeks and is expected to continue its upward trend, is already inflaming tensions in the U.S. Congress. Lawmakers launched new legislation this week aimed at penalizing countries found manipulating their currencies.

News Coverage of Global Economy Turns Negative -  News coverage of the global economy deteriorated further in January, according to data released Tuesday. Signs of weaker economic growth caused media stories on global monetary policy to turn sharply negative. The Absolute Strategy Research/Wall Street Journal global newsflow composite index declined to 48.6 in January from 53.3 in December. The index is at its lowest level since April 2013. An index below 50 denotes net negative news coverage on economic topics. Each of the six global components was lower in January than three months earlier. “This is an early indication that the global economy is slowing,” said James Tasker, economic analyst at Absolute Strategy Research. “Those looking for an acceleration in global growth in the first half of the year on the back of lower oil prices could be disappointed.” The most dramatic drop was in the monetary policy newsflow index. It has dropped almost 20 points in three months. The low reading suggests more of the global news coverage was about accommodative monetary policy. Last month, the European Central Bank announced a quantitative easing program to help the struggling euro zone.

The World's Best Known Global Shipping Index has Crashed To Its Lowest Level Ever  - Having fallen for 47 of the last 51 days, The Baltic Dry Index (tracking the cost of shipping dry bulk from iron ore to grains) has been collapsing in a well-documented manner by Zero Hedge (though not the mainstream media). With Cramer having told investors of its importance previously, it will be hard to ignore the fact that, as of this morning, the index of global shipping costs has never (ever) been lower at 554. We leave it to readers to decide what they think this means (but we already know what it means for shippers and ship-building companies). Recovery? "Crisis has passed?" You decide... On the back of the total collapse in Chinese imports and exports, is this any surprise?

Too Big To Sail? Container Ship Cost-Cutting Creates Potential Of "Nightmare" Catastrophe -- We remarked on the first notable casualty of the collapse of global trade and with it the cost of shipping freight last week when the first of the bulk shipping bankruptcies occurred, but as The South China Morning Post reports, over the past 10 years, shipping lines have endlessly invested in newer, larger vessels - flooding the market with additional capacity - yet the industry's profitability and return on capital have remained pitiful. This supply-demand imbalance has lowered the cost of ocean shipping, but has raised concerns among vessel operators, insurers and regulators about the potential for catastrophic accidents, as "cost cutting measures such as reducing crew numbers, overworking and lack of training” have exacerbated the risks.

World's Largest Shipbuilder Reports $3 Billion Loss As Baltic Dry Index Hits New Record-er Low -- "Some Shipping Folks Are Sinking..." South Korea’s Hyundai Heavy Industries, the world’s largest shipbuilder, has reported operating loss of KRW 3.25 trillion in 2014, or about USD $2.96 billion. The operating loss in 2014 is compared to a profit of KRW 802 billion in 2013. At 530, The Baltic Dry Index is at fresh record-erer lows...

Global Economy Will Shrink By $2.3 Trillion In 2015 Via BofAML, The $2.3tn global GDP write-off

  • Global nominal GDP is likely to contract by about $2.3tn in 2015, a consequence of the USD strengthening.
  • It will be the sixth time since 1980 that global nominal GDP contracts in dollar terms and the second biggest contraction since 2009.
  • This change will have far reaching implications across markets, principally for commodity prices.

The world is going to be about $2.37tn smaller in 2015 than what we thought when we prepared our Year Ahead forecasts (Table 1). This is not insignificant, as it represents 3.2% of last year’s estimated global GDP. For perspective, that would be as if an economy of the size between Brazil’s and the UK’s would have just disappeared. In our calculation, we include the US, the Euro area, Japan, the UK, Australia, Canada and all the emerging markets we cover. Together they totaled $70.9tn last year, or 91% of the world output as measured by the International Monetary Fund.

Global growth report card: Eurozone and Japan recovering -- This blog presents the first in a regular series of monthly report cards on the state of global economic activity. The real time activity growth rates are derived from the latest Fulcrum “nowcasts”, based on dynamic factor models. These nowcasts, estimated by Juan Antolin Diaz and colleagues, combine a very large number of different statistical releases to identify a single growth “factor” that is assumed to be driving the economies in question.   The Fulcrum models build on the pioneering work of Lucrezia Reichlin, Domenico Giannone and others at the ECB and LBS. (Professor Reichlin’s subscription service is available here.)  As a San Francisco Fed study pointed out last week, GDP forecasts for the year ahead are not only “persistently optimistic”, but they are typically very significantly affected by the actual GDP data for the most recent quarter. Financial markets are therefore sensitive to quite small swings in activity data. It is important for investors to track the data flow, much of which is confused and contradictory, in the most efficient manner possible. We believe that factor models are helpful in doing this.

4 Maps Crucial to Understanding Europe's Population Shift - Europe’s population is shifting to the Northwest. The GDP in its more easterly nations seems to be booming, while the countryside and many smaller cities continue to empty at the expense of the great conurbations. And while Europe’s southern nations continue to suffer under austerity, cities around the Mediterranean are nonetheless among the fastest growing in terms of population. These are just some of the key demographic shifts outlined in a recent report [PDF] from Bloomberg Philanthropies and LSE Cities. While the report focuses overall on the 155 submissions made to last year’s first ever Europe-based Bloomberg Philanthropies Mayors Challenge, its data provides a fascinating snapshot of a continent on the move. While they’re often depicted as the continent’s poor relations, it’s actually the states of Central and Eastern Europe where per capita GDP has grown fastest. Calculating an average from growth rates between 2003 and 2013, the speediest developers overall are Lithuania, Moldova and Albania. Within this broad region, big cities are generally growing at a slower rate than the countries that contain them. There are admittedly some exceptions to this rule. Bulgaria’s and Slovakia’s respective capitals, Sofia and Bratislava, are notably powering ahead of their hinterlands. Meanwhile austerity-hit Southern Europe continues to languish (as does Ireland), with second tier cities like Southern Italy’s Messina and Greece’s Larissa particularly hard hit. Had the survey period covered only the five years prior to 2013, it’s likely the GDP drops would have been sharper still.

Leaders scramble to avert 'dramatic spiral' in Ukraine (Reuters) - The leaders of Russia, Ukraine, Germany and France agreed to meet in Belarus on Wednesday to try to broker a peace deal for Ukraine amid escalating violence there and signs of cracks in the transatlantic consensus on confronting Vladimir Putin. The four leaders held a call on Sunday, two days after Chancellor Angela Merkel and French President Francois Hollande traveled to Moscow for talks with Putin that produced no breakthrough in the nearly year-long conflict that has claimed over 5,000 lives. After the call, Ukraine President Petro Poroshenko said progress had been made and that he was hopeful the meeting in Minsk would lead to a "swift and unconditional ceasefire" in eastern Ukraine, where pro-Russian separatists have stepped up a military offensive in recent weeks, seizing new territory.But Putin warned in a newspaper interview that Kiev must stop its military operation in east Ukraine and stop exerting economic pressure on rebel-held regions. "Kiev's attempts to exert economic pressure on Donbas (region of east Ukraine) and disrupt its daily life only aggravates the situation. This is a dead-end track, fraught with a big catastrophe," Putin told Egyptian state newspaper Al-Ahram, according to an English transcript provided by the Kremlin. A Ukraine military spokesman said on Sunday that intense fighting was continuing around the rail junction town of Debaltseve, with rebel fighters making repeated attempts to storm lines defended by government troops.

China opposes US plans to arm Ukraine: China has voiced its opposition to US plans to supply Ukraine with arms, saying people in the country’s restive east are at the moment in “more need of peace” rather than lethal arms. The Chinese Foreign Ministry spokeswoman Hua Chunying said Monday that Beijing is against Washington’s plans to provide the western-backed government in Kiev with weapons, calling instead for a political solution to the conflict. Beijing “calls for the political settlement of the crisis in Ukraine as this meets the interests of all the sides,” said Chunying, adding, “People in eastern Ukraine now are more in need of peace rather than weapons.” Chunying continued by saying Beijing urges all sides in the conflict between Kiev government troops and pro-Russian forces “to refrain from any actions that could lead to an increase in confrontation or affect the negotiation process.” The Chinese official stressed that her country would “continue playing a constructive role in the political settlement of the crisis in Ukraine.”

Sarkozy: Crimea cannot be blamed for joining Russia — RT News: Crimea cannot be blamed for seceding from Ukraine – a country in turmoil – and choosing to join Russia, said former president of France, Nicolas Sarkozy. He also added that Ukraine “is not destined to join the EU.”  “We are part of a common civilization with Russia,” said Sarkozy, speaking on Saturday at the congress of the Union for a Popular Movement Party (UMP), which the former president heads. “The interests of the Americans with the Russians are not the interests of Europe and Russia,” he said adding that “we do not want the revival of a Cold War between Europe and Russia.” Regarding Crimea’s choice to secede from Ukraine when the country was in the midst of political turmoil, Sarkozy noted that the residents of the peninsula cannot be accused for doing so.  “Crimea has chosen Russia, and we cannot blame it [for doing so],” he said pointing out that “we must find the means to create a peacekeeping force to protect Russian speakers in Ukraine.”  In March 2014 over 96 percent of Crimea’s residents – the majority of whom are ethnic Russians – voted to secede from Ukraine to reunify with Russia. The decision was prompted by a massive uprising in Ukraine, that led to the ouster of its democratically elected government, and the fact that the first bills approved by the new Kiev authorities were infringing the rights of ethnic Russians.

Turkey, Russia’s Gazprom survey new pipeline route -- Turkey’s energy minister and Russia’s Gazprom chief took a helicopter ride over the Black Sea to survey a possible route of the “Turkish Stream” pipeline Saturday. Energy and Natural Resources Minister Taner Yildiz and Chairman of the Gazprom Management Committee Alexey Miller took off from Istanbul and flew along the Black Sea coast to Ipsala on the Turkish-Greek border to evaluate the possible entry points of the proposed pipeline. The flight lasted four hours. The two officials made it back to Istanbul by using a route over the Marmara Sea coastline. Y?ld?z said that a research committee would file a report about the first assessments of the pipeline soon, possibly by next Tuesday. The committee would consist of Gazprom members and Turkey’s Petroleum Pipeline Corporation, BOTAS. “With the four hour aerial tour, we had an opportunity to see how we can start such a project in Thrace and explore the pipeline route,” he said. “We passed over some places two to three times as we tried to assess how we can work with environmental concerns on some agricultural areas, forests and wet lands,” he added. Also, Y?ld?z said that the negotiation process for the pipeline involved discussions over natural gas price from Russia for Turkey. “Turkey is sensitive about natural gas price negotiations as much as it is about the realization of the Turkish Stream pipeline,” he said. In December, Russia scrapped the South Stream project that planned to carry gas under the western Black Sea to Bulgaria and further into European markets.

Russia Would See U.S. Moves to Arm Ukraine as Declaration of War - The Moscow Times: U.S. provision of military aid to Ukraine would be seen by Moscow as a declaration of war and spark a global escalation of Ukraine's separatist conflict, Russian defense analysts said. With Russia-backed rebels in eastern Ukraine seizing new territory from the Ukrainian army, voices in Washington are demanding that Kiev be given defensive weapons and hardware — including lethal equipment — to hold the line. But if such aid were sent, "Russia would reasonably consider the U.S. to be a direct participant in the conflict," said Evgeny Buzhinsky, a military expert at the Moscow-based PIR Center. Speaking to The Moscow Times on a condition of anonymity, a member of the Russian Defense Ministry's public advisory board warned that Moscow would not only up the ante in eastern Ukraine, "but also respond asymmetrically against Washington or its allies on other fronts."

US weapons to Ukraine 'would be matched by Russian arms to rebels'  -- Any US weapons supplied to Ukraine would be more than matched by an increase in Russian arms supplied to the separatists, a leading security thinktank has warned. Russia could arm the separatists much more quickly than the US could reinforce Ukraine’s forces, the London-based International Institute for Strategic Studies (IISS) said. The warning comes as intensive fighting continues in eastern Ukraine with more than 20 people killed as government forces and pro-Russian rebels jockey for position before peace talks in Minsk on Wednesday. Barack Obama has thrown his support behind German diplomatic efforts to contain Russia in Ukraine, but some in Washington, including the incoming defence secretary, Ashton Carter, and some Republicans in the House of Representatives, favour more military support to Ukraine. Obama has hinted that military alternatives under consideration by the White House remain largely symbolic and fraught with danger.

Russia's Newest Military Base In Europe Will Be Just 40km From NATO Facilities In Cyprus - "We want to avoid further deterioration in relations between Russia and Europe," explained Cyprus' President Nicos Anastasiades upon reportedly signing an agreement to offer Russia military facilities on its soil (that we noted previously). The air force base at which Russian planes will use is about 40 kilometers from Britain's sovereign Air Force base at Akrotiri, on the south shores of Cyprus, which provides support to NATO operations in the Middle and Near East regions. As fault lines within the EU widen, Anastasiades said in his interview that Cyprus opposes additional sanctions against Russia by the European Union over Ukraine, "Cyprus and Russia enjoy traditionally good relations and that is not going to change."

Cypriot Foreign Minister Kassoulides: No Issue of Russian Bases -- Cypriot Foreign Minister Ioannis Kassoulides ruled out earlier today the possibility of a future installation of Russian naval or military bases in Cyprus’ territory. Talking on the sidelines of the Foreign Affairs Council in Brussels, he denied that an official discussion regarding such a development has ever occurred. Answering to a question by the Cyprus News Agency, Kassoulides characteristically pointed out that “besides, there has never been any request from Russia about this.” In addition, the Cypriot Foreign Minister declared that what the President of the Republic of Cyprus, Nicos Anastasiades, “referred to in a recent interview, was the renewal of a military cooperation agreement with Russia, consisting of maintenance of military equipment sold to Cyprus years ago, as well as the purchase of spare parts according to existing contracts.” Moreover, regarding the offering of facilities, he explained that “these are of a purely non-military nature. They relate to humanitarian nature matters such as the evacuation of Russian civilians from the Middle East if the need arises.”

All Twerked Out -- Kunstler --It is heartening, finally, to see Europe attempt to creep away from the intrigues of our Klown Konfederacy at least in the current matter of Ukraine, that poor perpetually over-trodden land of potato-eaters lately torn asunder by America’s idiotic wish to wrest it away from Russia’s 1000-year sphere of influence. Merkel and Hollande stole over to Moscow last week to confab with Mr. Putin. They evidently omitted to inform the haircut-in-search-of-a-brain, Secretary of State John Kerry. Who would want that mule-faced ninny at the table? The Europeans are beginning to say some sane and arresting things, such as: Russia and Europe are part of the same civilization — note the implication that perhaps America is not so much in that club anymore. Perhaps it should be left twerking out on one of its fabulous lost highways until it is all twerked out.Europe, of course, has its own problems and they are very grave, and they are hard to understand because they derive from a financial system grown so abstruse and impenetrable that the ancient black magic arts look like a game of Go Fish in comparison. At this late stage, they can only pretend to figure out where all the entwined obligations really lead, and what might happen if someone starts to yank on a thread somewhere. The question for the moment therefore is: can they continue to succeed in pretending? A sickening sense of look-out-below spreads through the sentient ranks. This week will be a doozy.One thing is clearing up: Europe does not want or need to start a war with Russia at America’s insistence. What America needs is a war with itself, a war against the lazy narcissism that has left it susceptible to armies of grifters and racketeers, because ordinary people were too busy twerking and jerking to pay any real attention to the systematic dismemberment of their culture. Waiting in the wings is a whole category of human endeavor quaintly known as virtue, lately absent in the collective consciousness. What a shock it would be if Americans began to witness acts of fortitude and valor among us.

Ukraine gets new $40 billion lifeline - War-torn Ukraine has secured a new $40 billion international bailout package, a deal that should help stabilize the country's reeling economy. Christine Lagarde, managing director of the International Monetary Fund, announced the deal at a press conference in Brussels. The agreement covers four years and includes $17.5 billion from the IMF, complemented by other organizations and countries. The deal must still be approved by the IMF board. "It is an ambitious program; it is a tough program; and it is not without risk," Lagarde said. "But it is also a realistic program and its effective implementation ... can represent a turning point for Ukraine." Promises of more financial assistance for Ukraine coincided Thursday with news that Russia had signed up to a new ceasefire agreement. It is supposed to take effect from Sunday. In exchange for the funds, Kiev has promised to slash energy subsidies, restructure its banks, and implement more measures to tackle corruption, while protecting the poorest households.

Leaked : TTIP negotiations to constrain regulations that protect public interest: Key points: “Since December 2013, NGOs, social movements, and politicians have harshly criticised the European Commission's (EC) proposal on 'regulatory co-operation' 1in the Transatlantic Trade and Investment Partnership (TTIP). They argue that a position paper, leaked back then, suggested the Commission was opening the door to massive influence by big business over future laws. Now, a leaked document shows the Commission is maintaining its course – nothing suggests it is taking civil society concerns into account. In a previous document from December 2014, the EC goes even further, suggesting limiting the policy space of municipalities and local authorities – though this idea is under fire and might not be part of the EU position, it is a sign that regulatory co-operation could prove to be not only very comprehensive, but outright dangerous to democracy.” “... there was always a gap between the Commission's documents for public consumption, and the actual texts from the negotiations that have emerged via leaks. And the recent leaks of new proposals from December 2014 and January 2015 not only confirm the validity of the criticism; on a couple of points they show that the true negotiating position is even worse than critics imagined.” Regulatory co-operation is dear to the hearts of the big business lobby groups on both sides of the Atlantic. In late 2012, BusinessEurope and the US Chamber of Commerce had several meetings with the EU Commission to push their proposals. They understand it as an ironing out divergence in laws in the long term – be it in food standards, chemicals approval, or rules on production methods, to name but a few. [...] The two groups presented the Commission with a series of proposals at the 2012 meetings, which in sum would enable them – in their words – to 'co-write regulation'. Bearing this in mind, it is no surprise that the strong similarities between the Commission's proposals and those of the industry lobbyists sparked a backlash against the onerous privileges being awarded to business groups.”

Is Norway an economically overrated country? - The petroleum sector is about 21% of gdp and half of exports.  It’s not just that prices are down, rather quantities produced have been declining throughout the oughties.  (That is the less well known angle here.)  Currently Norwegian oil production is at about half of its 2000 level, and the sector is now bracing for 40,000 job cuts.Here is from a recent internal economists’ critique of the country:The group has documented how Norwegian politicians all too often have approved major investment projects that benefit far too few people, are poorly managed and plagued by huge budget overruns. Costs in general are way out of line in Norway, according to the group, while schools are mediocre, university students take too much time to earn degrees and mainland businesses outside the oil sector lack enough prestige to help Norway diversify its oil-based economy. The group mostly blamed the decline in productivity, though, on systemic inefficiencies and too much emphasis on local interests at the expense of the nation.Is this entirely reassuring?:Prime Minister Erna Solberg recently spoke of the need to invest in areas where people actually live…After you adjust for wage differences, it costs 60% more to build a road in Norway than in Sweden.There is this too:“Approximately 600,000 Norwegians … who should be part of the labor force are outside the labor force, because of welfare, pension issues,” says Siv Jensen, the finance minister.The country has largely deindustrialized, oil of course aside.  And there is a fair amount of debt-financed consumption. The country has falling and below average PISA scores by OECD standards.

Asylum Seekers Flood Into Hungary - The European Union is experiencing a steep rise in the number of Kosovar citizens smuggling themselves into the affluent bloc in search of a better life, with 23,000 migrants reaching Hungary in the first six weeks of 2015, compared to 6,000 for the whole of 2013. This influx follows a relaxation of travel rules allowing Kosovars to reach EU borders via Serbia and has coincided with political turmoil and unrest in Kosovo fueled by poverty, high unemployment, and economically debilitating corruption. Though most migrants are Kosovar Albanians, the Associated Press reports that many are Syrians, Afghans, Iraqis, and others. Once migrants are inside Hungary, they are able to travel freely to most other EU nations. UN High Commissioner for Refugees Antonio Guterres has called for the EU to consider imposing a quota system to force its nations to more equitably handle the spike in asylum seekers. The rush of refugees into Europe comes as the number of people driven from their homes by conflict and crisis tops 50 million, a first since World War II, according to the UNHCR.

Zero Lower Bounds: These are the usual confused thoughts mostly stimulated by this excellent post by Simon Wren-Lewis. You really should click the link and read that post. I will try to summarise it. First professor Wren-Lewis argues that monetary policy would not have offset less contractionary fiscal policy in the past 6 years, because short term safe nominal interest rates were stuck at the zero lower bound. Second, he argues that “For whatever reason (resistance to nominal wage cuts being the most obvious), inflation ceases to be a good indicator of underutilised resources when inflation starts off low and we have a major negative demand shock. ” So the not at all absolute zero lower bound on changes in nominal wages matters too. The problem with the argument that nominal interest rates can’t be negative is that they are in Denmark and Switzerland. The logic was that interest rates on bank notes can’t be negative so negative interest rates on other assets can only equal the cost of holding wealth as cash in a safe. It turns out that these costs make negative interest rates possible. I don’t think this matters all that much. Cash in a box arbitrage still implies that there is a lower bound which is no higher than -1% per year (and might be lower but it exists). It also does not imply that looser fiscal policy would have been offset. If central bankers believe there is a zero lower bound and they are stuck at it(as the Federal Reserve board and the Bank of England did) will not raise interest rates above zero following any increase in aggregate demand. I don’t think recent market rates in Switzerland and Denmark refute the whole liquidity trap argument, but I do think that Krugman, Wren-Lewis and others (including your humble correspondent) have to consider the issue a lot more.

Danish bank charges ordinary customers for deposits as negative interest rates bite -Lenders in Denmark are taking unprecedented steps to recoup expenses incurred from the negative interest rates that have followed the Danish central bank’s policy of defending its currency cap against the euro. In the past week, one lender has announced it will begin charging ordinary customers to hold money in their deposit accounts and at least two other banks have suspended the issuance of some types of mortgage-backed bonds until they get more clarity on how to deal with the situation. The European Central Bank’s stimulus spree has reverberated across the continent, with Switzerland abandoning the ceiling it had set on the franc’s level against the euro, and Denmark slashing interest rates four times in three weeks to end at minus 0.75%, to weaken its currency amid speculation it will follow the Swiss and remove its euro cap. FIH Erhvervsbank on Friday became the first Danish bank to begin charging private retail customers for deposits as a way of managing interest expenses from having excess liquidity invested in instruments with negative rates. Known as a small corporate lender, FIH Erhvervsbank began attracting retail clients a few years ago by offering high interest rates on deposits held for a longer period. As the Danish central bank’s rate cuts began hurting last month, it stopped offering three-year term deposits and last week decided to gradually close down the remaining term deposits held at three, six or 12 months. “Paying our customers zero or a positive interest is very bad for profitability,” Chief Financial Officer Palle Nordahl said in a recent phone interview. “If people want to put their money with us in our deposit bank, we at least don’t want to lose money on it.”

Sweden Imposes Negative Interest Rate and Plans Bond-Buying Program - The Swedish central bank on Thursday put its benchmark interest rate in negative territory and announced a bond-buying program in bold moves to protect its economy from mounting economic and political uncertainty in Europe.It was the latest example of how central bankers are being pushed to their limits in efforts to stoke growth as the threat of deflation has replaced inflation as their main worry.The Swedish benchmark interest rate was cut to minus 0.1 percent, and the central bank said it would begin buying Swedish government bonds, emulating the program used by the Federal Reserve in the United States, the Bank of England and soon the European Central Bank to pump money into the economy and increase inflation.Sweden is a member of the European Union, but it is not in the eurozone. Its economy is vulnerable to spillovers from its neighbors, forcing the central bank to react aggressively to avoid deflationary forces emanating from the rest of the Continent.Negative interest rates were almost unknown until recently. But as inflation has fallen, they have increasingly become a feature of monetary policy in countries including Denmark and Switzerland, in the government bond market and even in a few corporate bonds.Central bank negative rates are intended to encourage companies and individuals to borrow more, increasing investment and consumer spending and driving up inflation.

Sweden Cuts Main Rate Into Negative Territory - Sweden’s central bank on Thursday cut its main interest rate into negative territory for the first time and announced a bond-buying program, as it joined a widening group of central banks trying out unconventional measures to battle low inflation. The Riksbank, the world’s oldest central bank, lowered its benchmark rate to minus 0.1% from zero and said it would buy government bonds worth 10 billion Swedish kronor ($1.2 billion). The repo rate had stood at zero since October. “These measures and the readiness to do more at short notice underline that the Riksbank is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation,” the central bank said in a statement. The Riksbank targets 2% inflation. ENLARGE Analysts were divided ahead of the rate decision about which way it would go. A small majority expected unchanged rates while others had forecast the repo rate could be cut as low as minus 0.25%. In response to the move, the Swedish krona weakened against the euro, which rose to around 9.65 kronor from 9.50 kronor. Sweden’s two-year bond, which is more responsive to monetary policy changes than longer-dated bonds, traded at a yield of minus 0.23% after the decision compared with minus 0.18% before. Analysts were initially underwhelmed by the scale of the bond-buying program, known as quantitative easing, but noted the Riksbank’s comment that it is ready to do more in between scheduled meetings.

Sweden cuts rates below zero as global currency wars spread - Sweden has cut interest rates below zero and launched quantitative easing to fight deflation, becoming the latest Scandinavian state to join Europe’s escalating currency wars. The Riksbank caught markets by surprise, reducing the benchmark lending rate to minus 0.10pc and unveiled its first asset purchases, vowing to take further action at any time to stop the country falling into a deflationary trap. The bank presented the move as precautionary step due to rising risks of a “poorer outcome abroad” and the crisis in Greece. Janet Henry from HSBC said the measures are clearly a “beggar-thy neighbour” manoeuvre to weaken the krone, the latest such action in a global currency war that does little to tackle the deeper problem of deficient world demand. The move comes as neighbouring Denmark takes ever more drastic steps to stop a flood of money overwhelming its exchange rate peg to the euro and tightening the deflationary noose. The Danes have cut rates four times to minus 0.75pc in a month to combat fall-out from the European Central Bank’s forthcoming QE. They have even taken the unprecedented step of halting all issuance of government bonds.

This Is What Your Future Looks Like: Pay To Save - Now that 2-year government debt carries a negative yield in no less than nine European countries, the trend is spreading towards investment-grade corporate bonds (with at least a BBB- credit rating). The actions of the ECB – the quantitative easing – have made people anxious in their search for returns on the market and some investors are jumping in blindly, taking risks that often do not match their investment risk profile. Just a year ago, investors who no longer found refuge in the low yields on German or Dutch government bonds could still turn to qualitative corporate bonds; these still offered an attractive spread at the time versus government bonds. But lately something strange is happening in Europe. A whole range of bonds, especially government bonds from countries like Denmark, Switzerland, and Germany, now have negative yields.

  • Finland was the first country in the Eurozone to sell debt at negative yield.

  • Germany and Denmark have negative yields on bonds with maturities up to six years.
  • In Switzerland you have to wait 14 years to see a (very small) positive yield.
  • Even Slovakia is now selling short-term debt at negative yields.

It does not get much crazier than that …

Stunning Chart Of The Day: For The First Time Ever, Central Banks Will Monetize More Than 100% Of Global Sovereign Debt -- Over the past two years we explained how in a time of ubiquitous central bank debt monetization, the amount of global sovereign bonds available for purchase - when taking into account CB purchases - has been declining at an ever faster pace, leading to a collapse in liquidity (something the TBAC warned about in the summer of 2013, leading to the Fed's taper and subsequent temporary halt of QE3), and - naturally - to soaring bond prices (and plunging yields). The latter has reached epic proportions recently, and resulted in $3.6 trillion in global government debt, 16% of total, that is now trading at negative yieldsBut not even we had any idea just how bad it really would get. * * * Recall that many had touted 2015 as the year when the global "recovery", originally scheduled for the first half of 2013, would finally kick in. In fact it was said that this would be the year of central bank "renormalization."  They lied.  And one look at the Morgan Stanley chart below showing the net issuance of government debt in 2015, which will not only be the lowest in history, but - for the first time ever - be negative, explains all one needs to know.  Said otherwise, for the first time ever, "developed" central banks are now monetizing more than 100% of global sovereign debt issuance! We show this chart just in case there is still any confusion who is buying all the government debt and forcing bond yields ever lower, why $3.6 trillion in global debt is trading at negative yields, and why much more sovereign debt will very soon also reside in the terminal twilight zone of interest-bearing securities.

A tidal wave of global capital is looking for safety - In the era of ultra-loose monetary policy and global imbalances, investors’ hunt for yield has been remorseless — nowhere more so than in the corporate bond market, where yields have come down phenomenally relative to mainstream government bonds. How, then, do we explain Nestlé’s corporate bonds starting to trade last week at marginally negative yields? Whoever was buying at these levels was certainly not chasing yield. That said, the bonds of the world’s largest food company were simply following on the coat-tails of the Swiss government’s own bonds, which have been in negative-yield territory for some time now. This reflects the tidal wave of global capital that is looking for safe places in a world of high geopolitical uncertainty and worryingly unconventional monetary policy. The yield on Swiss government paper is in turn influenced by negative policy interest rates designed to deter foreign investors from causing the Swiss franc to appreciate, following the central bank’s failed attempt to hold down the currency.  Given the choice between, say, a southern European sovereign bond and the IOU of an exceptionally stable Swiss company with strong cash flow and net debt amounting to just 33.3 per cent of the equity, the case for buying Nestlé bonds yielding less than nothing makes itself. There is every chance that the negative income will be outweighed by a currency gain against a euro weakened by quantitative easing. And the value of Nestlé’s bonds, unlike its shares, will not be much affected by the impact of currency appreciation on its profits and the value of its overseas assets. Negative yields, I suspect, are here to stay and we will see more countries and companies showing them in due course. In the sovereign debt market, already the short-term paper of France, Germany, the Netherlands, Denmark, Finland and Sweden, as well as Switzerland, yield minus quantities. In a low-growth world, some countries are seeking to increase their share of the global economic cake through competitive devaluation; others are pursuing ultra-loose monetary policies for primarily domestic reasons that happen to result in a weaker currency. Countries that take the strain via currency appreciation will increasingly be tempted to inflict negative interest rates on capital inflows. The US is the notable exception. Traditionally it chooses not to fight market forces when the dollar strengthens.

The Effect of Recent ECB Policy on Inflation Expectations - St. Louis Fed -- Inflation expectations and realized inflation have trended down in the eurozone for several months. In fact, Germany’s inflation rate turned negative in January for the first time since the financial crisis. Also, some measures of inflation expectations have been declining since April 2013 for countries such as Germany, France and Italy. This has led the European Central Bank (ECB) to consider several policy alternatives including the lending facility established in mid-2014.  However, market commentators and policymakers have viewed those efforts as ineffective for increasing inflation expectations and actual inflation. Thus, there has been ample talk of a quantitative easing (QE) program for the eurozone. On Jan. 14, the European Court of Justice (ECJ) endorsed a bond-buying program. On Jan. 22, the ECB announced it would acquire public and private assets at a rate of 60 billion euros per month until at least September 2016, starting in March of this year. How Have Inflation Expectations Reacted? Breakeven inflation expectations are defined as the additional yield provided by nominal debt over the yield on inflation-indexed debt. The figures below show breakeven inflation expectations implied by sovereign bonds from the eurozone since the last days of 2014.

Draghi fuels junk sales as issuers go to Europe - Speculative-grade borrowers have issued the equivalent of US$19.1 billion of bonds in Europe this year, more than double the amount sold by this time in 2014, according to data compiled by Bloomberg. That's the busiest start to a year ever. In the US, sales are up 10 per cent to US$33.1 billion. Europe has also been more insulated from the oil-price slump that roiled US markets. When compared with the US, the European high-yield market has a more "modest" direct exposure to energy, Marsh said. "It feels like we could have a nice window" opening up for new borrowers in the leveraged-finance market in Europe, Jim Bonetti, the head of US leveraged finance syndicate at Morgan Stanley in New York, said in a phone interview. Less than a year ago, Morgan Stanley was talking to clients about how much better terms were for borrowers in the US, Bonetti said. The dollar market for junk bonds was in the midst of unprecedented issuance, and yields reached a record-low 5.69 per cent in June.

Report: HSBC Helped Conceal Millions in Foreign Accounts -- HSBC’s Swiss private bank helped hide millions of dollars for drug traffickers, arms dealers and celebrities as it assisted wealthy people around the world dodge taxes, according to a report based on leaked documents that lifts the veil on the country’s banking secrecy laws. The report from the International Consortium of Investigative Journalists and several news organizations comes as governments seek to crack down on tax evasion to bolster treasuries depleted by the financial crisis and staunch criticism that the rich aren’t paying their fair share.The leaked documents cover the period up to 2007 and relate to accounts worth $100 billion held by more than 100,000 people and legal entities from 200 countries.Some details of such operations were disclosed previously, when HSBC was fined in 2012 by the U.S. for allowing criminals to use its branches for money laundering. Monday’s report discloses a more detailed cache of data and information.Academics estimate that $7.6 trillion is held in overseas tax havens, depriving governments of $200 billion a year in tax revenue, according to the ICIJ report.The French government received the files from a whistleblower in 2010 and passed them onto tax authorities around the world, including the U.S., Britain and Germany.In Britain, where HSBC is based, the report sparked criticism that tax authorities hadn’t done more to penalize people who have illegally evaded taxes. The tax agency clawed back 135 million pounds ($236 million) from some of the 3,600 Britons identified as using the Geneva branch of HSBC, but only one has been prosecuted.France, by contrast, launched 103 actions. France’s Prime Minister Manuel Valls told Europe 1 radio on Monday that France is “very determined” to fight tax evasion and will continue to take action at home and at the European level.

HSBC files show how Swiss bank helped clients dodge taxes and hide millions - HSBC’s Swiss banking arm helped wealthy customers dodge taxes and conceal millions of dollars of assets, doling out bundles of untraceable cash and advising clients on how to circumvent domestic tax authorities, according to a huge cache of leaked secret bank account files. The files – obtained through an international collaboration of news outlets, including the Guardian, the French daily Le Monde, BBC Panorama and the Washington-based International Consortium of Investigative Journalists – reveal that HSBC’s Swiss private bank:

  • • Routinely allowed clients to withdraw bricks of cash, often in foreign currencies of little use in Switzerland.
  • • Aggressively marketed schemes likely to enable wealthy clients to avoid European taxes.
  • • Colluded with some clients to conceal undeclared “black” accounts from their domestic tax authorities.
  • • Provided accounts to international criminals, corrupt businessmen and other high-risk individuals.

The HSBC files, which cover the period 2005-2007, amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding almost $120bn (£78bn) of assets.

Greece says has no cash problem, to present plan next week (Reuters) - Greece said on Saturday it had no short-term cash problem and that it will hand its European Union partners a comprehensive plan next week for managing the transition to a new debt deal. The EU has warned time is running out to avoid a financing crisis in Greece. The new left-wing government in Athens has rejected the austerity that was forced upon the country by an EU/International Monetary Fund bailout and instead says it wants a "bridge agreement" until it has negotiated a new deal. true "We will present a comprehensive proposal on Wednesday," Finance Minister Yanis Varoufakis said, referring to a meeting of euro zone finance ministers in Brussels on that day. Varoufakis was attending a cabinet meeting called to prepare the government's overall policy program, which Prime Minister Alexis Tsipras will present to parliament on Sunday. On Friday, Jeroen Dijsselbloem, who chairs the Eurogroup of euro zone finance ministers, told Reuters that Greece had to apply for an extension of its reform-for-loans plan by Feb. 16 to ensure the euro zone keeps backing it financially. This is essentially an extension of the current bailout, something Greece has said it does not want and will not accept. It is due a 7.2 billion euro trance from the EU/IMF bailout, which it says it does not want because of the austerity strings attached.

U.S. Ambassador to PM: Greece Must Work with EU Colleagues, IMF  -- In meetings with Greek Prime Minister Alexis Tsipras and members of the Greek government, U.S. Ambassador to Greece David D. Pearce said the United States “believes that it is very important for the Greek government to work cooperatively with its European colleagues, as well as with the IMF,” a U.S. embassy press release said. He also reiterated that the “United States wants to see Greece emerge from its prolonged economic crisis and continue to play a stabilizing role in the region.” In his talks with the Greek government, Pearce recognized “the significant sacrifices that have already been made by the Greek people, while also reaffirming the United States’ position that Greece should continue to make administrative and structural reforms and exercise fiscal prudence. At the same time, in the view of the United States, Greece must make reforms that make foreign investment in Greece more attractive so the country can meet its international obligations and return to prosperity,” the announcement said.

Greek finance minister says euro will collapse if Greece exits - (Reuters) - If Greece is forced out of the euro zone, other countries will inevitably follow and the currency bloc will collapse, Greek Finance Minister Yanis Varoufakis said on Sunday, in comments which drew a rebuke from Italy. Greece's new leftist government is trying to re-negotiate its debt repayments and has begun to roll back austerity policies agreed with its international creditors. In an interview with Italian state television network RAI, Varoufakis said Greece's debt problems must be solved as part of a rejection of austerity policies for the euro zone as a whole. He called for a massive "new deal" investment programme funded by the European Investment Bank. "The euro is fragile, it's like building a castle of cards, if you take out the Greek card the others will collapse." Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast. The euro zone faces a risk of fragmentation and "de-construction" unless it faces up to the fact that Greece, and not only Greece, is unable to pay back its debt under the current terms, Varoufakis said. "I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous," he said. "Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?"

Greek exit from euro inevitable: Greenspan - (AFP) - Greece will have to leave the eurozone sooner or later, the former head of the United States central bank Alan Greenspan said on Sunday. The comments come after a diplomatic blitz by Greece's new anti-austerity government to try to renegotiate a new debt deal amid fears Greece could default on its loans. "It is a crisis and I don't see it being resolved easily, in fact I don't see it being resolved without Greece leaving the eurozone," the former chairman of the US Federal Reserve told BBC radio. "I don't see that it helps them to be in the euro and I certainly don't see how it helps the rest of the eurozone. And I think it's just a matter of time before everyone realises that parting is the best strategy." Greenspan said that the eurozone could not continue in its current form without political integration. The new government led by Prime Minister Alexis Tsipras and his radical left Syriza party was elected last month on a platform of ending austerity and easing Greece's crushing debt burden. But Germany and the European Central Bank have indicated there is little room for manouevre on the terms of country's 240-billion-euro ($275 billion) EU-IMF rescue deal.

No extension to Greek bailout, says Tsipras - Alexis Tsipras, the new Greek prime minister, has insisted he will not seek an extension to the country’s current bailout, putting his leftwing government on a collision course with its creditors in the run-up to this week’s EU summit. In his first speech to parliament as prime minister since taking office last month, Mr Tsipras said on Sunday: “This government isn’t justified in seeking an extension . . . The bailout has failed. “The Greek people gave a strong and clear mandate to immediately end austerity and change policies,” he said. “Therefore the bailout was first cancelled by its very own failure and its destructive results.” Many observers expected a policy switch to be announced in the speech after Mr Tsipras and his finance minister Yanis Varoufakis had failed to win support last week from other eurozone leaders for a restructuring of Greece’s €315bn foreign debt during a first round of visits to European capitals. The Athens General equity index was down 4.6 per cent on Monday at 769.73 with banks among the biggest fallers as investors responded to the prime minister’s defiance. Mr Tsipras said Greece would “pursue a new agreement with our partners, a bridge agreement until June” that would provide a breathing space to negotiate “a stable and balanced arrangement . . . would not condemn us to further austerity”.

Greek prime minister not backing down: With a difficult week looming for Greece and amid rising pressure from creditors, Prime Minister Alexis Tsipras on Sunday presented his government’s policy program in Parliament, pledging to implement pre-election promises to revoke austerity measures, though not all at once. “We only have one commitment – to serve the interests of the people, the good of society,” he said, adding that it was the “irrevocable decision” of his government to implement campaign promises “in their entirety.” The premier said the government would not seek an extension to Greece’s bailout, noting that it would be an “extension of mistakes and disaster,” and reiterated Greek demands for a “bridge” deal to be put in place until a “mutually acceptable agreement” is reached with creditors. “We do not intend to threaten stability in Europe,” he said, adding, however, that he would not “negotiate” the country’s sovereignty. Tsipras said his government needs “fiscal space” for a discussion on restructuring Greece’s debt and a new deal, adding that increasing austerity would only exacerbate the problem. He pledged to replace a unified property tax (ENFIA) with a new tax on large property and to increase the tax-free income threshold to 12,000 euros from 5,000 euros. He also vowed to introduce a fair tax system and crack down on tax evasion and corruption. Collective wage bargaining will be restored, Tsipras said, adding that the minimum wage will return to 751 euros a month from 586 euros, though gradually from now until 2016. Greek authorities would also reinstate at the end of the year the so-called 13th pension for retirees earning less than 700 euros a month, Tsipras said.

Highlights: Greek PM Tsipras outlines government policies (Reuters) - Leftist Prime Minister Alexis Tsipras laid out plans on Sunday to dismantle Greece's "cruel" austerity program. Here are some highlights from his speech.  Tsipras said the Greek government cannot ask for an extension to its bailout because the bailout failed. Greece will respect the modus operandi of the euro zone, but will not condemn the Greek economy to everlasting recession with "illogical and unrealistic" primary surpluses. Greece wants to service its debt and invites its partners to join it in finding a way to work together true It will comply with the rules of fiscal balance and a balanced budget but at the same time deal with social destruction, putting an end to austerity and a humanitarian crisis. Public sector workers who were made redundant unconstitutionally will be reinstated. Almost half of some 700 ministry cars will be canceled and the government will cut the number of staff at the prime ministerial residence by 30 percent. Sale of at least one of the government aircraft.Immediate reintroduction of collective wage bargaining Rules to protect workers from mass lay-offs The new government will show full confidence in public sector workers regardless of their political beliefs. There will be investigations into state contracts where there has been evidence of irregularities of any kind. Tsipras said his government would introduce a law to stop home foreclosures and he will not allow the selling of non-performing bank loans to speculative funds. He said they will re-vamp the law concerning bank bailouts in cooperation with private stakeholders.

Tsipras Lays Out Part of the Road Map for Greece --Mohamed A. El-Erian  Alexis Tsipras didn't disappoint in his first parliamentary speech as prime minister of Greece yesterday. He mixed fiery rhetoric with defiance and emotional nationalistic language, reaffirming his government's rejection of the country's international bailout programs. His address shed light on a way forward for Greece, as well as the many obstacles to progress. He also took unnecessary risks. Specifically:

  1. Tsipras's carefully crafted speech contained a case-by-case examination of Greece’s domestic challenges while showing that these are inextricably connected to equally urgent collective European problems. Finding the right balance between the two will be critical to maintaining financial order in Greece, improving economic prospects and keeping the country within the euro zone.
  2. On the surface, Tsipras may appear to have outlined an unworkable attempt to combine two mutually exclusive issues. That's not necessarily so. Moreover, this dual focus is one that many regional and multilateral efforts continuously try to implement, with varying degrees of success.
  3. Tsipras was right to say that Greek society is reaching the limits of its tolerance for a persistently disappointing economy, alarmingly high unemployment and the unending sense of impending financial catastrophe. He is also correct that the solution will be found in recasting austerity measures, deepening structural reforms, mobilizing immediate bridge financing and securing debt relief.
  4. In his commentary on these four requirements for a positive outcome, the prime minister provided some apt insights and a few incorrect ones, too. The critical tasks will be to moderate austerity, shifting the burden away from the poor and toward the better-off segments of society, including the rich, high-level politicians and top government officials.
  5. The newly elected government still has far to go before it can translate talk into a comprehensive medium-term economic program that improves the well-being of its citizens. This won’t succeed without the support of European partners, including Germany and the European Central Bank, as well as technical and financial assistance from the International Monetary Fund.
  6. To enable the transformation of ad hoc measures into a comprehensive program, the government would be well advised to focus on broad economic principles in its negotiation with its creditors. An initial framework approach based on growth, jobs and debt sustainability stands a better chance of securing the needed collaboration. It should also recognize that the Greek problem cannot be solved in isolation from its regional dimensions within the euro zone.

Is Syriza About to Score a Tactical Win Against the Troika? --  Yves Smith - Those who were hoping that Syriza would be cowed by the ECB’s aggressive moves to shut Greece out of bond markets and Eurozone finance ministers’ unified resistance to the new government’s proposals are no doubt frustrated by its refusal to capitulate. On Sunday, Greek prime minister Alexis Tsipras gave a rousing speech reaffirming Syriza’s plans. Ekathimerini’s summary: The premier said the government would not seek an extension to Greece’s bailout, noting that it would be an “extension of mistakes and disaster,” and reiterated Greek demands for a “bridge” deal to be put in place until a “mutually acceptable agreement” is reached with creditors. “We do not intend to threaten stability in Europe,” he said, adding, however, that he would not “negotiate” the country’s sovereignty.Tsipras said his government needs “fiscal space” for a discussion on restructuring Greece’s debt and a new deal, adding that increasing austerity would only exacerbate the problem.He pledged to replace a unified property tax (ENFIA) with a new tax on large property and to increase the tax-free income threshold to 12,000 euros from 5,000 euros. He also vowed to introduce a fair tax system and crack down on tax evasion and corruption. Collective wage bargaining will be restored, Tsipras said, adding that the minimum wage will return to 751 euros a month from 586 euros, though gradually from now until 2016. In parallel, a number of observers, including Alan Greenspan, argue that Greece either has to, or by virtue of not being willing to bend to the Troika, will wind up leaving the Eurozone. And at the moment, the Greek government does appear to have set up some incompatible boundary conditions: not defaulting, not “threatening the stability of the Eurozone,” which presumably means a Grexit, but also not accepting demands that the Troika is treating as non-negotiable. As we’ve stressed before, while a deal on restructuring Greece’s debt could probably get done, it seems highly unlikely that a compromise can be found between the bailout brigade’s idées fixes around structural reforms, which amount to squeezing labor, which stands in stark contrast with Tsipras’ plans to boost wage levels and labor bargaining rights. Greece also wants to reduce the primary surplus it is required to achieve from 4.5% to 1% to 1.5%. While some respected commentators like Martin Wolf at the Financial Times regard that as a reasonable ask, the belligerent mood among Greece’s creditors means that this request is also likely to be rejected.

All Grexit needs is a few more disastrous weeks like this - The first two weeks after Syriza’s victory in the Greek elections had the effect I feared. A sceptical northern European public was converted into a hostile one. We saw Yanis Varoufakis unilaterally dismissing the troika — the technocrats who oversee Greek economic policy. We followed with amazement how the Greek finance minister staged a grand European tour like a rock star. We saw him walking into a meeting with hedge fund managers in London and posing outside Downing Street. By the time he reached Berlin on Thursday, German politicians and the media were more hostile than ever. By Friday, Athens found itself isolated at a meeting of finance officials in Brussels. Politically, the situation is now as bad as it was in 2010 when the Greek debt crisis began. It was an utterly disastrous week of economic diplomacy. All that separates us from Grexit are a few more weeks like that one. Greece and its European creditors only have a few days left to decide how the country can get through the next four months. European finance ministers have to agree a compromise at a meeting on Wednesday if the funds to cover the government’s spending commitments are to be in place by March. And only when that happens will Athens and its creditors begin to talk about the really important stuff — like the future of the Greek economy. Thanks to a decision last week by the European Central Bank to increase the ceiling for emergency liquidity assistance, the Greek banking system will be protected until then — though not for much longer. This leaves the question of short-term funding as the main priority.

Debt In The Time Of Wall Street -- Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet. We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over. And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.

Obama, Treasury Pushing Back Against Troika Grexit Threats; Bernie Sanders Presses for Fed to Prod ECB -- Yves Smith The Financial Times reported over the weekend that the US has woken up to the risk that the impasse between Syriza and the Troika over the Feb. 28 bailout funds deadline could lead to a disorderly Grexit, which short term would give Mr. Market a sad, and long term has good odds of being the first step in the unraveling of the Eurozone. That would turn Europe’s borderline deflation into a full-blown depression, and seriously impair the US economy, which is moderately integrated into the European economy. For instance, roughly 25% of S&P 500 profits come from Europe. The overview from the Financial Times: US officials are expected to raise their concerns at this week’s meeting of the Group of 20 leading economies’ finance ministers’ gathering in Istanbul and during bilateral meetings in Washington on Monday between US President Barack Obama and Angela Merkel, his German counterpart. Over the course of the five-year-old eurozone crisis, Mr Obama has intervened with EU officials repeatedly, and sometimes decisively. Many EU officials credit an eleventh-hour call from Mr Obama with convincing Ms Merkel to back the first Greek bailout in May 2010. But the German chancellor has not always welcomed US pressure, resisting Washington’s lobbying in 2011 and 2012 for a bigger “bazooka” of bailout cash to calm panicking financial markets. The personal involvement of Obama is a welcome sign of seriousness, and contrasts with the fact that the head of the Treasury team dispatched to Athens, Daleph Singh, looks troublingly young, and his previous experience consists of being an emerging markets trader at Goldman.

Varoufakis Warns "Cloud Of Fear Over Europe Becoming Worse Than Former Soviet Union" -- The cracks in the foundation, walls, and ceiling of the European Union are beginning to widen. During an interview with Italian State TV RAI3, Greek Finance Minister Yanis Varoufakis hinted at Greece's "New Deal for Europe" strategy (to be financed by the EIB) but it was the glimpse behind the curtain of EU solidarity that was most shocking as he explained, "Greeks don't have a monopoly on the truth. What we can do, for the rest of Europe, and for Italy in particular, is to open a small door to the truth," adding rather stunningly, that Italy "stands in solidarity with [Greece] but cannot tell the truth as they fear of possible consequences on behalf of Germany."

Varoufakis Blasts ECB "Has Lost Control Of Monetary Policy" As Germany Tells Greece: "There Is No Way Out" -- "There is no way out" for Greece from its treaty obligations warns German lawmaker Michael Fuchs (Angela Merkel's deputy caucus chairman) telling Bloomberg TV that conditions set for Greece by The Troika (EU, ECB, IMF) for bailout funds "have to be fulfilled.... That's it, very simple." The Greeks remain adamant that they will not ask for an extension to the bailout mechanism with both Tsipras and Varoufakis confirming that a bridge agreement is required and the latter adding "the ECB has lost control of monetary policy," demanding the Troika structure come to an end. Then German Finance Minister Wolfgang Schaeuble exclaimed at the G-20 meeting that "Greece either has to find a way to get bridge financing, or, if they want to do it with us, they need a program," seeming to push the door open to possible Russian financial aid for Greece as Europe's pivot to Putin appears to be rising.

Greece to Propose a Debt Compromise Plan to Creditors - Hoping to defuse a standoff that has set Europe and financial markets on edge, Greek officials intend to propose a detailed compromise plan at an emergency meeting with creditors on Wednesday in Brussels, a finance ministry official here said on Monday.The plan will include the possibility of tapping part of a bailout loan disbursement of 7 billion euros, or $7.9 billion, that Athens had been saying it would reject, according to the official, who insisted on anonymity because the plans had not yet been made public.Greece still plans to reject some of the harshest austerity conditions attached to Greece’s bailout loans, but will propose retaining about 70 percent of the terms, according to the official.Athens will propose replacing the remaining 30 percent of the austerity conditions with new reforms that the Greek government will devise together with the Organization for Economic Cooperation and Development. The O.E.C.D. represents about three dozen of the world’s richest economies, including those of many of the European countries to which Greece owes money.The proposal, to be made at a gathering of eurozone finance ministers on Wednesday in Brussels, would also significantly extend the period Greece proposes for reaching a “new contract” with its creditors — by asking for a bridge-financing program through the end of August, instead of the May time frame Greek officials had previously discussed.

Greek FinMin Warns "Euro Will Collapse If Greece Exits", Says Italy Is Next -The time for the final all-in bet has arrived. As we explained yesterday, when we wrote that "Greece Gambles On "Catastrophic Armageddon" For Europe, Warns It "Only Has Weeks Of Cash Left"", and as confirmed further by today's fire and brimstone speech by Greek PM Tsipras, in which he not only did not concede one millimeter to Europe but raised the stakes even higher, by promising among other things to raise the minimum wage and to halt foreclosures, Greece is now betting everything that Europe will not allow it to exit, hoping that "this time is not different", and the existential terror that would be heaped on the Eurozone as forecast in 2012 by the likes of Citi's Buiter and IIF's Charles Dallara, will still take place, and Europe will concede that spending a few more billion on Greece's bridge program is worth to avoid what could potentially spiral into an out of control collapse. To be sure, that is precisely what Yanis Vaourfakis implied today when he said that "if Greece is forced out of the euro zone, other countries will inevitably follow and the currency bloc will collapse, Greek Finance Minister Yanis Varoufakis said on Sunday, in comments which drew a rebuke from Italy."

Alan Greenspan: The euro is doomed - The former Federal Reserve Chairman told the BBC that Greece's best course of action is to leave the Eurozone. But Greenspan didn't stop there. He predicts Greece's exit is the beginning of the end for the euro. "Short of a political union, I find it very difficult to foresee the euro holding together in its current form," Greenspan told the BBC's Mark Mardell on Sunday. Greenspan went as far as to say the world would be better off without the euro. He says the currency union is too complex unless Europe decides to have one unified governing body to call all the shots. Greece is a good example of the uneasy strain of the currency union. The country is mired in debt that it can't figure out how to pay back. The Greek people are so fed up with all the cutback measures imposed by Eurozone leaders that they recently elected a new prime minister, Alexis Tsipras, who campaigned on a platform of fighting back.  "I don't see it being resolved without Greece leaving the Eurozone," Greenspan said. "It's just a matter of time before everyone recognizes that parting is the best strategy."

Outlook Darkens for Syriza and Greece -- Yves Smith -Yesterday, we worked through a scenario in which it might be possible for Greece to improve the very long odds against it making real headway in its negotiations with the Troika. That possibility, as we stressed, depended on Greece having access to enough funds to be able to last without external support through at least the end of March, and better yet into April, when election results in Spain and France could apply pressure to governments that are now opposed to Syriza and shift the negotiating dynamics. That optimistic possibility now looks hopeless. Syriza is finding its options narrowing dramatically. And as we will discuss shortly, a Grexit is not something the government wants or is seeking, and for good reason. But the short-sighted pounding of Greece will if nothing else play into the hands of Marine Le Pen, the rabidly anti-Eurozone leader of Front National. A Le Pen victory in the French presidential elections of 2017 would mean a rapid departure by France, an almost certain fatal blow to the Eurozone project. So even if a victory over Syriza winds up looking decisive, it is likely to prove to be Pyrrhic.  As most readers know by now, Greek prime minister Alexis Tsipras made a bold speech to Parliament on Sunday, reaffirming his commitment to obtaining relief from austerity. That elicited a harsh response from Angela Merkel and Wolfgang Schäuble. As the pink paper put it, “Together, the remarks amounted to a German rebuttal to Mr Tsipras’ defiant pledge on Sunday night to end the bailout.” In other words, the Greek government is being told, in no uncertain terms, that it will not be permitted to renegotiate the terms of its existing deal, which includes items it has already firmly rejected, such as moving forward on new privatization deals, and replacing reforms designed to squeeze workers with ones to improve domestic labor demand and wage rates.

Greece: The Tie That Doesn’t Bind - Paul Krugman -- Relations between Greece and its creditors are not improving. Was this bad diplomacy on the part of Tsipras/Varoufakis? Maybe, but my guess is that there was nothing they could do to avoid a bitter confrontation short of immediate betrayal of the voters who put them in office. And creditor-country officials are acting as if they still expect that to happen, just as it has repeatedly over the past five years. But they’re almost surely wrong. The dynamics are very different this time, and failing to understand them could all too easily lead to unnecessary disaster. Actually, let me stress the “unnecessary” aspect. What Greece is asking for — although German voters probably don’t know this — is not a fresh infusion of money. All that’s on the table is a reduction in the primary surplus — that is, a reduction in Greek payments on existing debt. And we have often been told that everyone understands that the official target surplus, 4.5 percent of GDP, is unreasonable and unattainable. So Greece is, in effect, only asking that it get to recognize the reality everyone supposedly already understands. Why, then, are things boiling over? Partly because what “everyone knows” has never been explained to northern European electorates, so that the time to recognize reality is always at some future date. Partly also, I suspect, because creditors have come to expect the symbolism of debtor governments abjectly abandoning their campaign promises in the name of responsibility, and are waiting for the new Greek government to pay the usual tribute of humiliation.But as I said, the dynamic is very different this time...

Despite The ECB's Worst Wishes, Greek Deposit Outflows Said To Slow To A Trickle In February - Since central banks are there 24/7 and on site to intervene and "eliminate" Greek leverage at any flashing red headline, it is up to Greece to create a narrative that the European leverage in turn is also weaker, which means to project, whether based on truth or otherwise, that Greek bank deposit outflows are slowing. That is precisely what Reuters reported moments ago when it reported, citing Greek bankers, that deposit outflows have slowed so far in February after a sharp increase estimated for a month earlier, but savers are still uneasy over the new leftist government's standoff with its official lenders.

Life After Eurozone; Final Exam Crunch Time - The Showdown in Europe is now into final exam crunch time.  Greece’s Yanis Varoufakis heads for showdown talks with his fellow eurozone finance ministers on Wednesday afternoon, buoyed by a strong endorsement from parliament for the government’s hardline stance to renegotiate its bailout. Alexis Tsipras, Greece’s prime minister, told MPs after they passed a vote of confidence in his legislative programme in the early hours of Wednesday that the government would not yield to demands from other European capitals over its aid programme “no matter how much” Wolfgang Schäuble, the German finance minister, demanded it.  “We are not negotiating the bailout; it was cancelled by its own failure,” he told parliament before winning the vote with the support of 162 votes in the 300-seat chamber. “I want to assure you that there is no going back. Greece cannot return to the era of bailouts.” On Tuesday Mr Schäuble appeared to dismiss the Greek government’s plans to seek a bridge loan, issue new short-term treasury bills and renegotiate some terms of the €172bn bailout out of hand, saying he expected Athens to live up to the terms of the existing deal before he would consider new proposals.  “We are not negotiating a new programme,” Mr Schäuble said. “We already have a programme.” Mr Schäuble added that if Greece did not want a new rescue programme “then that’s it”, though he did not elaborate.  Animosities and and German arrogance are so high, the best thing for Greece to do is tell the rest of the eurozone, to "bleep off". That was my position years ago actually, but acceptance in Greece is now sufficient to allow just that to happen.  Thankfully, it appears kick-the-can compromises are no longer acceptable to Greece.

The Greek Crisis: Germany Toughens Tone With Greece Before EU Meetings: Germany and Greece drew battle lines ahead of an emergency meeting of official creditors today, setting the stage for a clash. German Finance Minister Wolfgang Schaeuble doused expectations of a positive outcome for Greece at the meeting in Brussels, saying there are no plans to discuss a new accord or give the country more time. Greece’s new Prime Minister Alexis Tsipras was defiant, saying there is “no way back” for his government, and that he wants a new agreement that won’t subject his people to more pain. Tsipras said in a speech before a vote of confidence in parliament that he wants an accord “that is in the mutual interest of Greece and its partners, one that will end punitive terms and the destruction of the Greek economy.” The discord risks roiling Greek markets again after they were buoyed by optimism on Tuesday that there might be room to move toward an agreement. Greek government bonds rose for the first time in five days and the benchmark Athens Stock Exchange Index advanced 8 percent.

No plan for Greece ready, Athens must extend bailout: Moscovici (Reuters) - Greece will have to ask for an extension of its current bailout to give itself and the euro zone time to hammer out a new agreement, as there is no specific plan for Athens now, the EU's economics commissioner said on Tuesday. Pierre Moscovici said euro zone ministers would listen to Greece's views at a meeting on Wednesday and tell Greek Finance Minister Yanis Varoufakis what they thought of them. But a deal to extend the bailout would have to be reached by Feb. 16 if talks were to continue. "There is no specific plan on the table. Tomorrow the Eurogroup in Brussels is an opportunity for Greece to present its views," Moscovici told reporters on the sidelines of a meeting of finance ministers and central bankers from the world's top 20 economies in Turkey. true Greece does not want to ask for an extension of the bailout, even by a few months, because the new Greek government won power in a Jan. 25 election on a promise to end the 240 billion euro ($271 billion) program and the fiscal consolidation and austerity reforms that came with it. Prime Minister Alexis Tsipras has repeatedly said he will not seek an extension, leaving little common ground with the euro zone, which does not want to move forward without it.

For the third time in a century, America will have to ride to Europe's rescue -  It would be the third time in a century. Will America once more end up having to save the fratricidal Europeans from themselves? In Washington, there is a sense of events spiralling out of control, and of again getting drawn into Europe’s centuries old propensity to self destructive madness. The EU’s evident inability to contain the geo-political ambitions of Vladimir Putin may be the most visible of America’s latest concerns, but the more immediate danger centres on the stand-off with Greece, which grows uglier by the day. Greece’s latest overtures to the Russians make the situation seem more alarming still. Tuesday's apparent olive branch from Greece’s celebrity finance minister, Yanis Varoufakis, is in truth no compromise at all, despite the evident relief it brought to financial markets; it was merely the same demands dressed up in more acceptable language. Speculation of a six month programme extension was also fast slapped down by the German finance ministry. To my mind, this is not a game Greece can win, if only because it is also not a confrontation which politically Berlin can afford to lose. As an inherently unstable alliance of communists, Trotskyists, Maoists, nationalists, idealists and libertarians, the new Greek government is likewise most unlikely to back off. The only thing that unites them is a crusade like determination to over-turn Europe’s austerity agenda. They would rather exit the euro than admit defeat, even though this was not the mandate on which they were elected.

Eurogroup Ministers to Syriza: Drop Dead  - Yves Smith - Today, February 11, an emergency meeting of the Eurogroup, a committee of 19 Eurozone finance ministers, officially begins to commence negotiations about a possible bailout for Greece. But keep in mind that “bailout” is a term of art, and is used to refer specifically to the Eurozone bailout that is set to end on February 28. Unless it is extended, Greece will not receive a payment of €7.2 billion of bailout funds plus an additional €1.9bn in income on Greek bonds held by the ECB that most observers think Greece desperately needs. But Syriza continues to reject taking these bailout funds, since the strings attached include austerity measures like labor-crushing “structural reforms”. . Even though financial markets responded positively to news of US pressure on Germany, and Varoufakis’ efforts to position this draft as making concessions, neither side has budged. As the Financial Times noted, “But several officials at the G20 meeting in Istanbul said that the new compromise appeared to be neither new nor a compromise.” And despite US entreaties, European officials are even more insistent that Greece must yield. From Bloomberg: Schaeuble damped any expectations talks were possible on a new accord, saying in Istanbul yesterday after a meeting of finance chiefs from the Group of 20 that if Greece doesn’t want the final tranche of its current aid program, “it’s over.” Creditors “can’t negotiate about something new,” he said. Deutsche Bundesbank President and European Central Bank Governing Council member Jens Weidmann said Greek efforts to get bridge financing through debt instruments was a non-starter. The EU economics commissioner joined the chorus of nay-sayers and told Greece it has only until February 16 to get a deal done. From Reuters: Greece will have to ask for an extension of its current bailout to give itself and the euro zone time to hammer out a new agreement, as there is no specific plan for Athens now, the EU’s economics commissioner said on Tuesday… Greece would have to agree to extend the bailout and apply for it by the next meeting of euro zone finance ministers on Feb. 16, he said, because otherwise there would not be enough time for parliaments in some euro zone countries to approve the extension before the program expires on Feb. 28.

Euro zone, Greece fail to agree way forward following meeting | Reuters: (Reuters) - Euro zone finance ministers were unable to agree with Greece a final statement or a way to continue talks until their next meeting on Monday, following hours of discussions in Brussels to extend an international bailout. "We explored a number of issues, one of which was the current program," Jeroen Dijsselbloem, who chaired the meeting, told a news conference in the early hours on Thursday in Brussels. "We discussed the possibility of an extension. For some that is clear that is preferred option but we haven't come to that conclusion as yet. We will need a little more time."

Greece, Eurozone Ministers at Fundamental Loggerheads --  Yves Smith - Bizarrely, there were leaks and news reports of progress all day on the meeting of Eurogroup ministers on a bailout memorandum. That would amount to a capitulation by Greece, since as we discussed earlier today, “bailout” in this context means an extension of the current deal with the Troika, with Greece continuing to adhere to the existing terms, including labor-squeezing structural reforms when Syriza has promised to raise minimum wages and hire 300,000 unemployed workers. But just before 6:30 PM, the GreeK government announced that any discussion of a bailout memo was off. From the Guardian, quoting the Greek statement: At this euro group there has been no agreement.  An extension of the memorandum cannot be accepted. Negotiations will continue with the goal [of achieving[ a mutually beneficial agreement. The Guardian’s take on the press conference following the day of talks: That’s the shortest, and most disappointing, press conference I can remember covering since this financial crisis began. The failure to agree a statement, even a holding one, suggests that the two sides have made desperately little progress tonight. From my vantage, as bad as the terse remarks were, this was the worst sign: We didn’t agree the common ground that will allow officials to start work now, ready for Monday, Jeroen Dijsselbloem reiterates. We need a political agreement first.  But the two sides had no common ground before the day started. This was Bloomberg’s summary earlier in the day of the two sides’ positions:

Greece Talks Break Down; Parties Cannot Even Agree On a Statement - At midnight, Greece turns into a pumpkin. The clock is clearly ticking but is this the 10th or 11th hour? Given the eurozone propensity to extend deadline after deadline, it's hard to say precisely what time this is. But we can say Greek Bailout Talks with Europe Break DownEurozone finance ministers’ first attempt to grapple with the bailout demands made by the new Greek government broke down in recriminations after the two sides failed even to agree a way to take negotiations forward after six hours of talks in Brussels.Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of his 18 colleagues, said that while he had hoped a blueprint for future talks could have been agreed at the session, no negotiations were scheduled ahead of a self-imposed deadline to reach agreement on a bailout extension by Monday.Although no final deal on Greece’s proposals was in the offing at Wednesday’s meeting, senior eurozone officials had hoped that, following days of public sniping over what a new bailout programme might look like, Athens and its creditors could at least find a road map to resolving the standoff. But officials said even those low expectations were not met and there are currently no talks expected before another meeting of finance ministers on Monday, where eurozone leaders had hoped a deal could be clinched.

Germany faces impossible choice as Greek austerity revolt spreads - The political centre across southern Europe is disintegrating. Establishment parties of centre-left and centre-right - La Casta, as they say in Spain - have successively immolated themselves enforcing EMU debt-deflation. Spain's neo-Bolivarian Podemos party refuses to fade. It has endured crippling internal rifts. It has shrugged off hostile press coverage over financial ties to Venezuela. Nothing sticks. The insurrectionists who came from nowhere last year - with Trotskyist roots and more radical views than those of Syriza in Greece - are pulling further ahead in the polls. The latest Metroscopia survey gave Podemos 28pc. The ruling conservatives have dropped to 21pc. The once-great PSOE - Spanish Workers Socialist Party - has fallen to 18pc and risks fading away like the Dutch Labour Party, or the French Socialists, or Greece's Pasok. You can defend EMU policies, or you can defend your political base, but you cannot do both. As matters stand, Podemos is on track to win the Spanish elections in November on a platform calling for the cancellation of "unjust debt", a reversal of labour reforms, public control over energy, the banks, and the commanding heights of the economy, and withdrawal from Nato.  Europe's policy elites can rail angrily at the folly of these plans if they wish, but they must answer why ex-Trotskyists  with a plan to dismantle market capitalism are taking a major EMU state by storm. It is what happens 5.46m people lack jobs, when 2m households still have no earned income, when youth unemployment is still running at 51.4pc, and home prices are down 42pc, six years into a depression.

Greek PM Tsipras in Brussels as clock ticks on EU bailout (Reuters) - Greece's radical new prime minister Alexis Tsipras was in Brussels on Thursday to lay out his case for more financial help to fellow EU leaders following finance ministers' failure to narrow differences overnight. The summit chairman, conservative former Polish premier Donald Tusk, confessed to anxiety about Greece after the newly elected left-wing government, riding a wave of anti-austerity sentiment, refused to sign up to any extension of a deeply unpopular bailout package that expires in just two weeks. "Oh yes," Tusk said with theatrical emphasis when asked by reporters if he was worried about what Germany and other euro zone states fear could be a rerun of financial chaos if Tsipras does not accept their conditions on cash to tide Athens over. Tsipras himself told reporters there should be a deal that would restore Europe's dynamism and he renewed his promise to improve Greek state finances while relieving the burden on the poor. "It's time to bring back the growth agenda to get back on a path of social solidarity needed for people and for our common European future," he said, pledging to raise revenue by fighting corruption and tax evasion. "We are now at a critical crossroads for Europe. We must show that Europe can bridge its differences and find solutions in line with its founding principles."

Greece Willing To Do "Whatever It Can" To Reach Deal After Greek Liquidity Situation Deteriorates Rapidly -- "Greece will make every effort to reach an agreement with its euro zone partners at Monday's meeting of euro zone finance ministers on how to transition to a new support program, its government spokesman said on Friday. "We will do whatever we can so that a deal is found on Monday," Gabriel Sakellaridis told Skai TV. "If we don't have an agreement on Monday, we believe that there is always time so that there won't be a problem." The reason for this rapid about face? "Senior bank officials have told Kathimerini that almost all the liquidity available to Greece (59.5 billion euros) has been absorbed and that banks’ total dependence on the Eurosystem amounts to 90 billion. The rapid deterioration in liquidity conditions has been attributed to the uncertainty that arose when the snap general elections were called as well as the new government’s inability to reach a swift agreement with the country’s creditors." As usual: money threatening to walk, walks.

German trade unions: SYRIZA win ‘a chance for change’ - The statement below was published on on February 3.  It has been signed by seven out of nine presidents of Germany's trade unions, all members of the executive boards of DGB and IG Metall, and mainly Social Democratic Party politicians in Germany's parliament and the European Parliament, including two vice-chairs of SPD, as well as numerous academics. * * *The political landslide in Greece is an opportunity, not only for that crisis-ridden country but also for a fundamental reassessment and revision of European Union (EU) economic and social policy.We highlight once again the criticism already voiced on many occasions by the trade unions: right from the outset, the key conditions under which Greece receives financial assistance did not deserve the label “reform”. The billions of euros that have flowed into Greece have been used primarily to stabilise the financial sector. At the same time, the country has been driven into deep recession by brutal cutbacks in government spending that have also made Greece the most heavily indebted country in the entire EU.The consequence is a social and humanitarian crisis without precedent in Europe.

Euro zone in deflation until Q4; 1-in-4 chance of Greek exit - The euro zone's bout of deflation will last for most of this year despite the European Central Bank's decision to buy government bonds, according to a Reuters poll that also gave a one-in-four chance of Greece leaving the currency area in 2015. The findings from a survey of economists taken this week are likely to disappoint the ECB, especially just after it announced, after much debate, a quantitative easing programme worth 60 billion euros a month starting in March. But a majority, 20 of 32, said that will not be enough to bring inflation back up to the ECB's target ceiling of 2 percent from -0.6 percent now, matching a record low. true Consumer prices will likely keep falling compared with last year until the fourth quarter, the poll showed, a sharp downgrade from last month, when economists forecast that would happen from January to March only.

Dijsselbloem cautions on hopes for a quick deal with Greece - Reaching a deal on Greece's emergency financing will be possible at the technical level, but a political agreement with the country's new leftist-led government will be "very difficult" the chairman of euro zone finance ministers said on Thursday. "I am optimistic that we will have an outcome on the technical process because I think that is a matter of simply comparing different measures and content of the programme (and Syriza's programme)," Jeroen Dijsselbloem told reporters as he left an EU leaders summit. "I am very cautious on the political side. It is going to be very difficult. It is going to take time. Don't get your hopes up yet," he said.

Greece, Germany Said to Offer Compromises on Aid Terms -- Greek Prime Minister Alexis Tsipras met his European Union peers at a summit for the first time Thursday and said afterwards he sees political will to agree on what happens after the current aid program expires this month. Greece’s goal remains a six-month bridge agreement that would lead to a new deal with euro-area authorities, he told reporters.  Behind-the-scenes negotiations resumed in Brussels hours after euro-area finance ministers failed to reach a joint conclusion. Greek negotiators and officials from its euro-area creditors plan to meet in Brussels Friday to discuss the way ahead as they struggle to decide whether to call the arrangement an extension, a new program or a bridge deal, officials said.  Germany won’t insist that all elements of Greece’s current aid program continue, said two officials in Berlin. As long as the program is prolonged, they said, Germany would be open to talking about the size of Greece’s budget-surplus requirement and conditions to sell off government assets. Greece’s willingness to hold to more than two-thirds of its bailout promises shows that Greece is broadly prepared to stick to the program, the German officials said. Improving tax collection and fighting corruption will win German backing, and getting a deal will depend on Greece’s overall reform pledges.  Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4 percent of gross domestic product, according to Greek government officials. Tsipras’s coalition also might compromise on privatizations, one of the officials said. The officials asked not to be named because the deliberations are private and still in progress.

ECB extends €5bn emergency loans to Greek banks - The European Central Bank has extended another €5bn in emergency loans to banks in Greece, following fears that a spate of withdrawals could leave lenders in the country short of funding. The ECB decision, made after a call with members of its governing council on Thursday, came as Alexis Tsipras, Greek prime minister, took his case for a new financial rescue deal to an EU summit in Brussels. The move is a sign of mounting strains on Greece’s financial system as brinkmanship between Athens and its eurozone partners over the terms of its bailout threatens to leave the country with no European financial support in little over two weeks. The two sides failed to establish any common ground at a meeting of finance ministers on Wednesday night. The request for more leeway for Greek lenders was first made last week by the country’s central bank but was refused, suggesting the ECB is trying to keep a tight rein on Greece. Only last week, the ECB stopped allowing Greek banks to use their country’s junk-rated bonds to secure loans from the central bank’s regular liquidity operations. Withdrawals from Greek banks have been steady for the past week at some €200m-€300m a day, according to a senior Athens banker, but they are expected to jump if a further meeting of eurozone finance ministers on Monday ends badly.

If Not Russia, Then China? Tsipras Invited To Visit Premier Li Keqiang In Beijing - First there was The BRIC nations; then South Africa was rolled in and the group became BRICS; but with news today (following yesterday's Russian invitations for Greece's new leader to meet with Vladimir Putin) that Greece's new Prime Minister Alexis Tsipras has been invited to visit Chinese Premier Li Keqiang, we wonder if the growing non-dollar partnership will be expanded to BRICSH as The Hellenic Republic prepares to walk away from its European overlords 'partners'.

Pablo Iglesias: If the Greek olive branch is rejected, Europe may fall -- During his swearing-in speech as Greece’s prime minister, Alexis Tsipras was clear: “Our aim is to achieve a solution that is mutually beneficial for both Greece and our partners. Greece wants to pay its debt.” The European Central Bank’s (ECB) response to the Greek government’s desire to be conciliatory and responsible, was also very clear: negative. Either the Greek government abandons the programme on which it was elected, and continues to do the very thing that has been disastrous for Greece, or the ECB will stop supporting Greek debt. The ECB’s calculation is not only arrogant, it is incoherent. The same central bank that recognised its mistakes a few weeks ago and began to buy government debt is now denying financing to the very states that have been arguing for years that the role of a central bank should be to back up governments in protecting their citizens rather than to rescue the financial bodies that caused the crisis. Now, instead of acknowledging that Greece deserves at least the same treatment as any other EU member state, the ECB has decided to shoot the messenger. Excesses of arrogance and political short-sightedness cost dear. The new despots who are trying to persuade us that Europe’s problem is Greece are putting the European project itself at risk. Europe’s problem is not that the Greeks voted for a different option from the one that led them to disaster; that is simply democratic normality. Europe’s threefold problem is inequality, unemployment and debt – and this is neither new nor exclusively Greek.  Nobody can deny that austerity has not solved this problem, but rather has exacerbated the crisis. Let’s spell it out: the diktats of those who still appear to be running things in Europe have failed, and the victims of this inefficiency and irresponsibility are Europe’s citizens. It is for this precise reason that trust in the old political elites has collapsed; it is why Syriza won in Greece and why Podemos – the party I lead – can win in Spain. But not all the alternatives to these failed policies are as committed as Syriza and Podemos are to Europe and to European democracy and values.

#BlackstoneEvicts - The Spanish PAH (Plataforma de Afectados por la Hipoteca / Mortgage Damnified Platform) has released this video. It gives a good idea of the level and intensity of fights developing in Spain, and I think it gives a good idea of the damage that austerity is causing in places like Spain, and I guess in Greece. One of the first measures Syriza adopted was stopping evictions, and I guess Podemos will do the same in November in Spain.  In addition to the use of #BlackstoneEvicts, there is a related page on Facebook, “International Action Against Blackstone” Protestors staged actions against Blackstone in Barcelona, New York, and San Francisco on Wednesday. In Spain, the protests center around mortgages that Blackstone bought last year. As the Wall Street Journal described it: Blackstone paid €3.6 billion to buy €6.4 billion of the Catalunya home loans in a government-run auction, outbidding investors including Oaktree Capital Management LP and Apollo Global Management LLC. The deal is expected to close by the end of this year. The purchase expands on Blackstone’s growing presence in Spain. In July 2013, the New York firm run by billionaire Stephen Schwarzman bought 1,869 government-subsidized rental apartments from the city of Madrid for €125.5 million. That deal already has brought headaches. Foreclosures by Blackstone have triggered protests by renters and the Platform for Mortgage Victims, an advocacy group known by its Spanish acronym PAH.

Pessimism in Spain: 83% See Economic Situation is Bad; Podemos Takes Huge Lead in Latest Poll - In spite of the "recovery" in Spain, close to 24% are still unemployed. That statistic explains Pessimism in the StreetsThe crisis is here to stay according to significant majority of Spaniards. The general perception is that the current situation in which the country is negative and far from getting better, can only stay stagnant or even worse. A Metroscopia poll published in El País makes it clear that the Spanish are unhappy with the current state of the country. Five out of six (83%) see the economic situation as "bad", while more than half of the remaining perceive "regular". More than half of respondents (52%) believe that in the coming months nothing will change, compounded with 15% who think things will get worse. Without a doubt, overall pessimism explains the results of the latest election polls as Voters Punish PSOE and PP.Prime minister Mariano Rajoy and his People's Party are in serious trouble in the upcoming elections later this year. In spite of the alleged recovery in Spain voters are disastified. Why? Unemployment is still near 24% and youth unemployment is still over 50%.

Fog of Negotiations: Greece and Germany Make Friendlier Noises, Restart Talks, But Press Reports DivergeYves Smith - After a collapse of negotiations over whether and how to resolve Syriza’s demands for a new deal with the Eurozone with the insistence of its counterparties that the new government adhere to the terms of its existing deal, technical discussions are set to resume Friday. The drop-dead date is Monday, since any extension or modification of the current so-called bailout needs to happen by February 28, when it expires. The lead time is necessary because the Germany Bundestag and the Finnish Parliament must approve any new or extended deal. Greece has requested a new bridge facility with different terms in place, to carry it over while it hopefully works out a broader new set of arrangements with the Troika. There were widespread reports of unified opposition of the Eurogroup, which are the Eurozone finance ministers, prior to their emergency meeting Wednesday. English language reports painted a confusing picture of what transpired. On the one hand, they continued to depict the two sides as hopelessly far apart on their basic positions. Yet leaks while the meeting was underway indicated that progress was being made, only to lead to the apparent disagreement over a formal statement that led to an shambles at the end of the meeting and no plan to continue working-level talks prior to the Monday deadline.   Today, various media outlets reported the resumption of the talks for Friday, along with more conciliatory words from both Merkel and Tsipras. But there was considerable disagreement as to how much thawing had actually occurred. 

 A new start for Greece - Greece's new government under prime minister Alexis Tsipras – in power for not even two weeks – has had a rollercoaster ride. In the face of crisis, it has exercised brinkmanship. It unilaterally declared that it would not respect the agreement between Greece's previous government and the country's creditors, and would increase government spending and be insolvent at the same time. The response has been predictable: the rest of the euro area and in particular the European Central Bank and Germany, felt blackmailed and called its bluff. The ECB made access to ECB liquidity more difficult for Greek banks, while Merkel’s administration has signalled that a Greek exit from the euro area is considered manageable. Tweet Thisa monetary system cannot function credibly if a small part of the union can hold the core of the system to ransomArguably, this was a necessary but insufficient response. It was necessary, because a monetary system cannot function credibly if a small part of the union can hold the core of the system to ransom. A country cannot unilaterally decide to increase expenditure at the expense of other parts of the union and hope to receive ECB funding for it. It can also not unilaterally refute agreements between its previous government and the European partners. However, the response has so far been insufficient. The new Greek government has been voted into office with a strong mandate to change course both with domestic economic policy and in terms of relationships with its partners. Ignoring this vote is not an option. Greeks need a realistic perspective that their daily lives will improve. This perspective cannot be the result of gambling, unilateral action or blackmail. Instead, it needs to be the result of serious domestic action and an agreement between the partners of the Eurogroup. So what are the essential elements of a deal?

Just How Sick is the EU?: For what seems like forever (which, in reality is actually a few years) I have been extremely bearish on the EU. There are several reasons for this: their continued obsession with austerity despite the clear proof it doesn’t work, the inability to work together to solve their overall problems and the lack of overall political will. But, over the last few weeks, several statistics have been issued that have got me wondering if, in fact, the EU is going to start growing at a more substantial rate. Let’s start with consumer credit: While this statistic is still negative on an annual growth basis, the rate of decrease has clearly increased to the point where it is almost positive. This has occurred at the same time as a slight increase in the YOY rate of growth in retail sales: And consider the following charts of the PMIs of the four largest economies Germany’s manufacturing and service sectors continue to grow, although both briefly dipped into negative territory at the end of last year. France’s manufacturing sector continues to print numbers showing a contraction, but the service sector has had several readings in expansionary territory. Italy’s manufacturing sector fell into contraction last year, but the latest reading was almost positive. And the services numbers has remained largely positive over the same time. And finally there is Spain, which is firmly in expansion mode. The downturn at the end of last year can be seen as a reaction to Russian sanctions starting to bite. But since then, the euro has continued to fall, which should add some momentum to export orders. Of the charts, France is clearly the weakest.  But its numbers are just barely negative; they don’t show a massive downward move into recession, but instead an overall malaise.  On the positive side is Spain, which is clearly back in a growth mode (which it desperately needs given its sky high unemployment rate).  Germany is also positive, but just barely so, while Italy is negative, but just barely so.

Eurozone Not Yet in Deflation, ECB’s Constancio Says -  The eurozone is not yet experiencing deflation despite prices falling in January, a senior European Central Bank official said Thursday. Consumer prices fell by an annual 0.6% in January but ECB Vice President Vitor Constancio said at a dinner in London “there is no deflation in the proper sense of the word in Europe.” He defined deflation as a prolonged and broad-based decline in prices that depresses economic activity. “We are not yet in such a situation,” Mr. Constancio said. He added the ECB acknowledges it is not currently fulfilling its mandate to keep annual inflation close to but below 2% but said newly-announced purchases of billions of euros of assets will help bring price-growth back to target. “I am confident… that in the medium term we can achieve price stability,” he said.

Bundesbank to buy €10 billion a month for ECB’s QE - The Deutsche Bundesbank will buy German sovereign bonds amounting to around €10 billion ($11.4 billion) monthly, as part of the European Central Bank’s quantitative-easing program starting in March, a senior official told The Wall Street Journal. The ECB last month announced its QE program to halt a decline in inflation expectations and falling prices. The program entails securities purchases of around €60 billion a month, including mostly sovereign bonds as well as private-sector assets. “There are many details to clarify, also regarding the purchase of bonds with negative yields,” André Bartholomae, the Bundesbank official in charge of the operative side of the transactions, said. Shorter-end German bonds, with maturities of up to five years, carry negative yields. That means the Bundesbank is in the uncomfortable position of buying bonds with negative returns from the outset, leading to losses. In previous ECB bond programs, the Bundesbank acquired sovereign bonds from eurozone-periphery countries, and made billions of euros in profit. This time, ECB governing council member Jens Weidmann, long opposed to the program, said that the Bundesbank will only buy German bonds under QE, minimizing risk. Weidmann is also president of the Deutsche Bundesbank.

Eurozone GDP Picks Up Modestly, Thanks to Germany - WSJ: A strong pickup in Germany helped boost eurozone economic growth in the final three months of 2014, but large parts of the euro currency area were either close to stagnation or still contracting. Modest though it was, the change will feed hopes that economic growth will quicken this year, aided by fresh stimulus from the European Central Bank, a weakening euro, low oil prices and signs that bank-lending may be set to increase after years of decline. The fourth-quarter recovery, which was also led by Spain, adds support to economists and officials who contend that politically difficult reforms to labor markets are the only way to achieve lasting growth in Europe. Germany revamped its economy over a decade ago, and its reforms—particularly to improve flexibility in labor markets—have been credited with making its economy more competitive. Spain, which reformed its labor markets in 2012, has emerged from its slump much faster than Italy and other southern European countries that have been slow to restructure their economies. The combined gross domestic product of the 18 countries that shared the euro last year was 0.3% higher in the fourth quarter than in the third, the European Union’s statistics agency said Friday. That was a slightly stronger outcome than the 0.2% rate forecast by many economists, which would have left growth unchanged from the three months to September. Lithuania has since joined the euro, bringing the number of members to 19. On an annualized basis, the economy grew by 1.4%, a much weaker performance than the 2.6% rate of growth recorded by the U.S. during the same period.

Mark Carney warns of banking reform fatigue - The Bank of England governor, Mark Carney, has urged the G20 to mount a big push to implement global regulatory reforms, fearing that governments may be tiring of nonstop rule-making since the financial crisis six years ago. Carney was speaking ahead of a meeting of finance ministers and central bankers whose regulatory task force, the Financial Stability Board (FSB), he chairs. Since Lehman Brothers crashed in September 2008, the FSB has coordinated a welter of new banking and markets rules to make the financial system more resilient to shocks. In recent months, however, governments have switched focus away from stability to reviving economic growth, dampening some of the reform momentum. The G20 meeting in Istanbul will kick off discussions on whether there are unintended consequences from the new rules. Banks are pushing for changes, arguing that the combination of so many rules is making lending and trading too costly at times. “I worry about reform fatigue, not surprisingly, both at the FSB and more generally,” Carney said at an Institute of International Finance meeting on Monday. “Many of the toughest reforms are micro-reforms that can have big political coalitions against them and have payoff very far into the future,” he said.

The Austerity Con · ‘The government cannot go on living beyond its means.’ This seems common sense, so when someone puts forward the view that just now austerity is harmful, and should wait until times are better, it appears fanciful and too good to be true. Why would the government be putting us through all this if it didn’t have to? By insisting on cuts in government spending and higher taxes that could easily have been postponed until the recovery from recession was assured, the government delayed the recovery by two years. And with the election drawing nearer, it allowed the pace of austerity to slow, while pretending that it hadn’t. Now George Osborne is promising, should the Tories win the election in May, to put the country through the same painful and unnecessary process all over again. Why? Why did the government take decisions that were bound to put the recovery at risk, when those decisions weren’t required even according to its own rules? How did a policy that makes so little sense to economists come to be seen by so many people as inevitable?

UK heading for deflation says Bank of England -  Mark Carney says that while inflation is set to enter negative territory, that UK should not fear deflationary spiral. Britain is heading for its first period of falling prices since records began in 1989, but is not at risk of falling into a dangerous deflationary spiral, according to the Bank of England. The Bank's quarterly health-check of the economy forecast that inflation would remain "close to zero" for the rest of 2015, and stated that it was "more likely than not" that inflation, as measured by the consumer prices index (CPI) will turn negative at some point during the first half of the year. This would be the first time the CPI recorded a negative reading since 1989. The Centre for Economics and Business Research (CEBR) believes inflation will fall to -0.3pc in March.  Britain's recent spell of low inflation has been largely down to a dramatic fall in oil prices, a phenomenon which Mark Carney, Bank governor, hailed as "unambiguously good" for economic growth. Latest inflation figures showed prices increased just 0.5pc in the year to December, the joint lowest on record.  In Mr Carney's first open letter to Chancellor George Osborne since he joined the Bank in August 2013, the Governor said falling prices did not signal that Britain was entering a protracted period of deflation. He added that the decline in the oil price - which has halved in the last eight months - would help to sustain the recovery and keep wages growing faster than prices.

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