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

Saturday, February 21, 2015

week ending Feb 21

FOMC Minutes: "Many participants ... inclined toward keeping the federal funds rate at its effective lower bound for a longer time"  - From the Fed: Minutes of the Federal Open Market Committee, January 27-28, 2015. Excerpts:  Some participants were concerned that a decision to delay the commencement of tightening could be perceived as indicating that an overly accommodative policy is likely to prevail during the firming phase. In connection with the risks associated with an early start to policy normalization, many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the Committee's objectives of maximum employment and 2 percent inflation. In addition, an earlier tightening would increase the likelihood that the Committee might be forced by adverse economic outcomes to return the federal funds rate to its effective lower bound. Some participants noted the communications challenges associated with the prospect of commencing policy tightening at a time when inflation could be running well below 2 percent, and a few expressed concern that in some circumstances the public could come to question the credibility of the Committee's 2 percent goal. Indeed, one participant recommended that, in light of the outlook for inflation, the Committee consider ways to use its tools to provide more, not less, accommodation.  Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time. Also concerned about too low inflation: A number of participants emphasized that they would need to see either an increase in market-based measures of inflation compensation or evidence that continued low readings on these measures did not constitute grounds for concern.

Fed officials worried about hiking rates too soon: minutes - (Reuters) - Federal Reserve policymakers expressed concern last month that raising interest rates too soon could pour cold water on the U.S. economic recovery, and fretted over the impact of dropping "patient" from the central bank's interest rate guidance. At the central bank's last policy-setting meeting in January, Fed officials debated the impact that stubbornly low inflation measures were having on the central bank's confidence in moving ahead with raising rates. They also noted how China's economic slowdown and tensions in the Middle East and Ukraine posed downside risks to the U.S. economic growth outlook, according to minutes from the Federal Open Market Committee's Jan. 27-28 meeting. Fed officials maintained that a decision on when to raise rates would remain dependent on economic data, though how early to move appeared to be cause for concern. "Many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the committee's objectives," said the minutes, which were released on Wednesday. The Fed repeated in January that it would be "patient" in deciding when to raise benchmark borrowing costs from zero and acknowledged a decline in certain inflation measures. The minutes show that many participants in the policy meeting feared that dropping "patient" - whenever the time comes - risks shifting market expectations of a rate hike to an "unduly narrow range of dates."

Key Passages in the Fed’s January Meeting Minutes - Federal Reserve officials remain optimistic about the U.S. economic outlook but also worried about the prospect that slower overseas growth could dampen the recovery, according to minutes of their January meeting released Wednesday.  They are debating when to begin raising interest rates after keeping them near zero since Dec. 2008. Some officials have hinted at a mid-year rate increase while others would like to wait longer, for confirmation that low inflation is returning to the central bank’s 2% target. Here are some key passages–in italics–from the minutes. As usual, they were released with a three-week lag and do not identify the speakers by name or specify the exact numbers of officials holding the views expressed.

A few quick Fed points…by Jared Bernstein

  • 1) The sharply stronger dollar, as Martin Wolf points out, pushes against Fed tightening: it reduces inflation, weakens demand for our exports, and by most analysts accounts, will lower real GDP growth by something on the order of 0.5% over the next year, given its recent appreciation.
  • 2) In their just released minutes, the Fed board clearly identified with the asymmetric risk that many of us Fed watchers have been emphasizing: “Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.”
  • 3) Some recent reports suggest a tension among FOMC members as to whether they should be data driven or just basically assume that inflationary pressures lurk around the next corner, despite what the data say. The minutes from January revealed that “a number of participants emphasized they would need to see either an increase in market-­based measures of inflation, compensation or evidence that continued low readings on these measures did not constitute grounds for concern” (i.e., disinflation).
  • 4) Remember, nobody knows what the “natural rate of unemployment” is, which is kind of a big deal in this space. The fact that our unemployment rate, now around the mid-fives, is close to the level that many US economists, including those at CBO and the Fed, consider to be the “natural rate” and yet neither nominal wages nor prices have accelerated only serves to underscore this point.

Fed Watch: January FOMC Minutes -- Minutes from the January FOMC meeting were released today. It is fairly clear that the Fed is gearing up for rates hikes: Participants discussed considerations related to the choice of the appropriate timing of the initial firming in monetary policy and pace of subsequent rate increases. Ahead of this discussion, the staff gave a presentation that outlined some of the key issues likely to be involved... The debate sounds familiar. On one side are those concerned that the Fed's zero rate policy will overstay its welcome: Several participants noted that a late departure could result in the stance of monetary policy becoming excessively accommodative, leading to undesirably high inflation. It was also suggested that maintaining the federal funds rate at its effective lower bound for an extended period or raising it rapidly, if that proved necessary, could adversely affect financial stability... while on the other side doesn't want to pull the trigger too early: In connection with the risks associated with an early start to policy normalization, many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the Committee's objectives of maximum employment and 2 percent inflation. In addition, an earlier tightening would increase the likelihood that the Committee might be forced by adverse economic outcomes to return the federal funds rate to its effective lower bound. I would say that "many" is greater than "several," which means that as of January, the consensus leaned toward later than sooner. Indeed: Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time... Here it would be helpful to know the expected time horizons. How long is a "longer" time? My sense is that the possibility of a March hike was on the table at the request of the hawks, and "longer" meant sometime after March. But when after March? That is data dependent, but the Fed is challenged to describe exactly what conditions need to be met before justifying a rate hike: Participants discussed the economic conditions that they anticipate will prevail at the time they expect it will be appropriate to begin normalizing policy. There was wide agreement that it would be difficult to specify in advance an exhaustive list of economic indicators and the values that these indicators would need to take.

Fed Minutes Not So ‘Dovish’ Upon Careful Inspection - It’s curious that many analysts took the release of the Federal Reserve’s meeting minutes Wednesday as dovish, meaning they believed officials leaned away from raising short-term interest rates. Investors and analysts zeroed in on line in the minutes which showed the Fed’s hesitance about raising rates: “Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.” That is a true statement. The Fed has leaned toward keeping rates at zero for a long time. But look at what it is doing now. The central bank held a special “policy planning” session to discuss the appropriate timing of interest rate increases. Officials had a long and detailed briefing from staff on the tools it would use once it started raising interest rates. In addition the staff briefed officials on the alternate interest rate paths it might choose for a series of interest rate increases, with historical and international comparisons. Moreover officials discussed removing the assurance from its policy statement that it will be patient before raising rates. Fed Chairwoman Janet Yellen is a methodical planner known since her childhood for doing her homework. Her Fed has clearly entered an intensive planning stage for interest rate increases.

Fed’s Bullard Favors Banishing ‘Patient’ Stance - Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank needs to change its policy statement to give it more room to maneuver with interest-rate increases, in comments that also expressed hope the first rate rise will come soon. “I do think it’s important to provide the [Federal Open Market Committee] some optionality” when it comes to its choices about what to do with short-term interest rates, Mr. Bullard told a Sirius satellite radio program on Friday. “It would be important to take out the patient language at the March meeting” to allow the Fed to better tie changes in short-term rates to changes in economic data, he said. Mr. Bullard was addressing the roiling debate over the language in the FOMC policy statement. The Fed currently pledges that it will be “patient” when it comes to raising rates off of what are currently near zero levels. Many officials would like to see this word taken out of the statement, but there are concerns that when it is removed, financial markets could react in an unwelcome way and start pricing in a more restrictive stance of monetary policy than the Fed is likely to deliver.

Did the Fed Just Enter the Currency Wars?  - The minutes from the Federal Reserve’s meeting last month have foreign-exchange traders wondering whether Janet Yellen has joined the currency wars. Policy makers pointed to the dollar’s rising value as “a persistent source of restraint” on exports in a surprisingly dovish set of minutes published Wednesday. The greenback fell against a broad group of its peers. Central bankers from Europe to Australia have engaged this year in bouts of rate-cutting oneupmanship, leaving the U.S., and possibly Britain, as the only developed nations seen as likely to raise borrowing costs in 2015. The dollar climbed to its strongest in more than a decade as a result, prompting billionaire Warren Buffett and Goldman Sachs Group Inc. President Gary Cohn to question whether the Fed can now increase rates without damaging the U.S. economy. “The Fed is finding a very subtle way to temper the enthusiasm around the risks of a sustained dollar bull market that gets out of control,” s. “What the Fed is trying to decelerate a bit is this dollar appreciation in order to make sure that the transition to a Fed hiking policy is more gradual.” The Bloomberg Dollar Spot Index, a gauge of performance against the euro, yen, pound and seven other major currencies, erased gains after the Fed released the account of its Jan. 27-28 meeting.

No, the Fed is not joining the currency war -- Fair enough if you want to talk about QE and devaluation but the recently released FOMC minutes really don’t seem to be the place to start building your argument for a Fed jumping into the currency wars. Bringing us the opposite view, here’s some Bloomberg: The minutes from the Federal Reserve’s meeting last month have foreign-exchange traders wondering whether Janet Yellen has joined the currency wars. Policy makers pointed to the dollar’s rising value as “a persistent source of restraint” on exports in a surprisingly dovish set of minutes published Wednesday. The greenback fell against a broad group of its peers.  As RBC’s Elsa Lignos demonstrates, that’s just a wee bit dramatic from those wondering traders. When we sifted through five years of FOMC statements, speeches, and minutes, we found a relatively short list of currency references, particularly when compared to the active verbal intervention by other G10 central banks… Table 2 shows a full list of all relevant remarks on USD or the exchange rate from the minutes. Here are the key takeaways:

  • • After a nine-month period of no real currency comments, the Fed has made some mention of USD in every set of minutes since September. But some of the comments are incredibly benign.
  • • In October, participants mentioned a whole host of reasons that the impact of USD strength and increased international downside risks on the domestic economy is likely to be limited, including “that the share of external trade in the US economy is relatively small, that the effects of changes in the value of the dollar on net exports are modest, that shifts in the structure of US trade and production over time may have reduced the effects on US trade of developments like those seen of late.”
  • • So bear that in mind when reading the line in the January minutes (the USD rally “was expected to be a persistent source of restraint on US net exports”) that these same participants were noting that the share of external trade is relatively small just three months ago.

Fed Minutes: Officials Debated Boosting Cap on Reverse-Repo Program - Federal Reserve officials in January actively debated the future of a program they hope will set a floor underneath short-term interest rates. They discussed raising the daily size limit of what the central bank calls its reverse repurchase agreement program, according to minutes of their Jan. 27-28 Federal Open Market Committee meeting, released Wednesday.  A number of officials believe a higher cap, at least for a time, could help the central bank begin the process of rate increases, when the time comes. Through the reverse repo, the Fed takes in cash from eligible investment banks and money managers in exchange for loans of Treasury securities. The program has been in testing since it was launched in September 2013. The Fed plans to use the interest rate it pays on the cash to set a lower boundary of a target range for its benchmark federal funds rate. The Fed plans to set the top of the range with the interest rate it pays on reserves parked at the central bank by private, deposit-taking banks. The Fed plans to use the tools together to lift the fed funds target, which has been a range of zero to 0.25% since 2008. When they raise that target, it should cause other borrowing costs to rise, such as the rates on mortgages, credits cards and business loans.

NY Fed Plumbs Balance Between Reverse Repos, Market Stability -  A report released on Friday by the Federal Reserve Bank of New York highlights the balancing act the central bank faces as it prepares to deploy a new tool it hopes will provide better control over short-term interest rates. The report took stock of what the Fed calls reverse repurchase agreements, offering recommendations for the future that appear to be consistent with what policymakers already believe is appropriate. Through these instruments, the Fed takes in cash from eligible investment banks, money funds and others, in exchange for loans of Treasurys owned by the central bank. The Fed would pay interest on the cash and use that rate to set a lower boundary, or floor, for short-term rates in general. As the Fed has tested the tool since September 2013, and the new report says the results have been quite encouraging. The New York Fed offers a deep dive in to further refinements the Fed could make with the program. Some officials have become concerned the tool could pose a risk to financial stability. The main fear is that by providing a safe place to park money during times of stress, reverse repos could drain money out of private asset markets. At the same time, some officials have worried the reverse repo program could cause some private financing markets to whither, displaced by a central bank taking in short-term cash. The Fed has already addressed some of those concerns. It has imposed total and firm-level borrowing caps, and it has signaled that the reverse repo program will be temporary.

In Fed Survey Ahead of January FOMC, Big Banks Expected Summer Rate Rise - Wall Street’s biggest banks told the Federal Reserve ahead of its January policy meeting they continue to expect the central bank to raise interest rates at some point over the summer. The median expectation of the so-called primary dealers continued to put the strongest odds on the Fed boosting interest rates off of currently near zero levels at the June meeting. But the survey of the banks, who were polled ahead of the late January Federal Open Market Committee meeting, also saw a chance of the Fed boosting rates at the September meeting, as well. The survey results were released Thursday. Primary dealers are large banks that serve as counterparties to the Fed, and who underwrite U.S. Treasury debt auctions. Via the New York Fed, these firms are surveyed ahead of Fed meetings to gauge market views on a variety of issues and policy choices that confront the central bank. Market views on the timing of rate increases have been largely unchanged for some time, and fully consistent with what key Fed officials have said is likely. Dealers in the survey still continue to place the strongest odds of rate increases on the meetings followed by a press conference, and low odds on the gatherings where Fed Chairwoman Janet Yellen won’t take reporters’ questions. Dealers believe that when the Fed does begin raising rates, it will do so slowly. Just under a third of respondents believe the Fed will only increase rates by half to one percentage point in the first year after starting rate rises, while 29% believe rates could go up by 1% to 1.50%.

Cleveland Fed President Mester: June Rate Increase Is ‘Viable Option’ - WSJ: Cleveland Fed President Loretta Mester wants the central bank to open the door to raising its benchmark short-term interest rate in June by moving away from assurances of continued low rates. In a wide-ranging interview with The Wall Street Journal in her Cleveland headquarters Friday, Ms. Mester also expanded on financial stability risks, her strategy toward dissents at policy meetings and why she disagrees with Harvard University economist Lawrence Summers on a number of issues. An edited transcript of key passages follows:

Plosser Says Fed Can’t Wait for Wage Growth - The Federal Reserve cannot wait for wages to rise significantly before raising interest rates, Philadelphia Fed President Charles Plosser said Sunday. Mr. Plosser, who retires next month, said in a Fox News Channel interview that the U.S. economy is doing “remarkably well,” and he expects it to grow about 3% this year. Against that backdrop, he said, “wages will continue to drift up, they will continue to strengthen. But wage growth is a lagging indicator not a leading indicator.” Fed officials are debating when to start raising their benchmark short-term interest rate from near zero, where it has been since Dec. 2008. Most have indicated they expect to move this year, with several pointing to midyear as a likely time for liftoff. One of the issues making some policymakers reluctant to push borrowing costs higher despite lower unemployment is low inflation, which has fallen short of the Fed’s 2% target for 32 consecutive months. Fed officials have said the recent drop in inflation is largely linked to the temporary impact of declining oil prices. Mr. Plosser said falling crude costs were a net positive for the U.S. economy and were already bolstering consumer spending.

Fed Destroys Mainstream Meme, Admits Low Oil Prices "Could Dampen Economic Expansion" -- When even The Fed is unable to keep its story straight on the impact of low oil prices, the entire facade of 'household spending' enhancement must collapse (as the data shows). After six months of lower prices, retail spending is still tumbling... and it appears The Fed is finally fessing up... "persistently low energy prices... could damp the overall expansion of economic activity for a period, especially if the slowing took place after most of the positive effects of lower energy prices on growth in household spending had occurred." Wait what!?

Irrational Exuberance 3.0: Fed Again Warns Of A Build Up In "Valuation Pressures" -- "The staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets, despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector, as indicated by rising prices and the easing in lending standards on CRE loans. Finally, the increased role of bond and loan mutual funds, in conjunction with other factors, may have increased the risk that liquidity pressures could emerge in related markets if investor appetite for such assets wanes. The effects on the largest banking firms of the sharp decline in oil prices and developments in foreign exchange markets appeared limited, although other institutions with more concentrated exposures could face strains if oil prices remain at current levels for a prolonged period."

Worried About Deflation? Fed Puts Focus on Alternate Price Measures -- Some Federal Reserve officials discussing low inflation at their January policy meeting noted that some measures suggest less weakness than others. “It was pointed out that the recent intensification of downward pressure on inflation reflected price movements that were concentrated in a narrow range of items in households’ consumption basket, a pattern borne out by trimmed mean measures of inflation,” according to minutes of the Jan. 27-28 meeting released Wednesday. What is a “trimmed mean” inflation measure? It’s a way of calculating price pressures that aims to better uncover the underlying trend of inflation. Trimmed-mean measures strip out the biggest price movers in any given month in a bid to reduce noise in favor of signal. These measures are designed to be an improvement on better known “core” price measures, which strip out volatile food and energy prices. Economists believe that over time, broad inflation measures (so-called headline measures) tend to converge with core measures. But in the short-term, things can get messy. Right now, the collapse in oil prices is pushing headline inflation measures—such as the Labor Department’s consumer price index and producer price index—very low. The PPI was unchanged in January from a year before. The CPI in December was just 0.8% higher than 12 months earlier. The Fed’s preferred measure, the Commerce Department’s personal consumption expenditures price index was up 0.7% in December on the year.Some analysts expect to see such measures go negative in coming months because of energy prices.

US Macro Collapses To 11-Month Lows, 88% Of Data Has Missed In February -- Despite the total and utter cognitive dissonance of talking-heads on mainstream media channels, the US economic data is not 'strong', is not 'goldilocks', is not 'decoupled', is not 'solid'. In fact, it's absolutely terrible. Bloomberg's US Macro data indicator which tracks both beats-and-misses and improvement/deterioration in data - is at 11-month lows. February alone has seen 29 data items miss expectations (from retail sales to industrial production) with only 4 data points beating expectations (including the constantly revised nonfarm payrolls data which so many hang their hat on). But apart from that... everything is awesome.

It Begins: Goldman Cuts Q1 GDP Due To Snow -- "We think that negative snowstorm effects could potentially subtract as much as half a percentage point from Q1 growth compared with a neutral baseline, although there is still plenty of time for activity to bounce back within the quarter. In light of our analysis, we reduced our Q1 GDP tracking estimate by two-tenths to +2.8%."

The 2015 Economic Report of the President - The White House - This morning, the Council of Economic Advisers released the 69th-annual Economic Report of the President, which reviews the United States’ accelerating recovery and ways to further support middle-class families as the recovery continues. The economy is recovering from the Great Recession at an increasing pace, growing at an annual rate of 2.8 percent over the past two years, compared with 2.1 percent over the first three-and-a-half years of the recovery. The speed-up is especially clear in the labor market, where job gains have reached a pace not seen since the 1990s. But it is essential that a broad range of households benefit from the United States’ resurgent growth, so this year’s Report focuses on factors that are important to middle-class incomes: productivity, labor force participation, and income inequality. The President’s approach to economic policies, what he calls “middle-class economics,” aims to improve each of these long-standing elements and ensure that Americans of all income levels share in the accelerating recovery. Below are some highlights from each of the seven chapters in this year’s Report:

White House Isn’t Shy About Its Own ‘Dynamic Scoring’ -  The president delivered a lot of good news–number of jobs up, unemployment and deficits down–in his annual (and bulky) “Economic Report of the President,” which he sent to Congress Thursday. The report, a tradition going back to 1947 under Harry Truman, also contained a fair dollop of wishful thinking—or what some might call the administration’s own “dynamic scoring.” The White House recently blasted congressional Republicans for wanting to require budget analysts in Congress to tally the macroeconomic impact of proposed tax cuts and other legislative changes, the practice known as dynamic scoring. In a recent blog post, White House budget director Shaun Donovan criticized the GOP push to score the long-term impact of legislation, saying there was far more uncertainty “among economists and experts about how policy changes affect the macroeconomy than about most other scoring issues.” But the White House doesn’t shy from its own version of the craft in laying out its long-term views of the economy, government spending and the accumulation of debt, as detailed both in the president’s budget and in his economic report to Congress. In Thursday’s report, the administration affixes precise numbers to the fiscal impact of a wide range of policy proposals that face exceedingly long odds in Congress.

The U.S. Economy According to the White House in 10 Charts - The Economic Report of the President, released Thursday, frames Barack Obama’s agenda to overhaul the corporate-tax code, boost infrastructure spending, approve new trade agreements and improve worker-friendly labor policies as the best way to boost the nation’s economic output and productivity. No time to read more than 400 pages? Here are highlights with charts from the report, produced by the White House Council of Economic Advisers.

Foreign selling of U.S. assets intensifies in December-Treasury data (Reuters) - Foreign investor selling of U.S. long-term and short-term assets escalated in December, with outflows at their largest since January 2009. These outflows totaled $174.8 billion in December, compared with sales of just $14.3 billion the previous month, data from the U.S. Treasury Department showed on Wednesday. Foreign investors bought long-term U.S. assets amounting to $35.4 billion two months ago, up from $33.5 billion n November. Investors tend to focus more on long-term U.S. assets. true Treasuries posted outflows for a second consecutive month, with foreign sales of $22.2 billion in December, up from outflows of $4.8 billion in November. It was a period when the market had ramped up expectations of an interest rate hike by the Federal Reserve in 2015 after some positive U.S. data. The benchmark 10-year U.S. Treasury note yield ended December at 2.1740 percent, down further from November's 2.1960 percent. The dollar index, on the other hand, ended the month at 90.269, its best monthly level since March 2009. Data also showed China's holdings of U.S. Treasuries declined for a fourth straight month to $1.244 trillion in December, from $1.250 trillion the previous month. China is still the largest holder of U.S. government debt.

Russia Dumps Most US Paper Ever As China Reduces Treasurys Holdings To January 2013 Levels -- Back in December, Socgen spread a rumor that Russia has begun selling its gold. Subsequent IMF data showed that not only was this not correct, Russia in fact added to its gold holdings. But there was one thing it was selling: some $22 billion in US Treasurys, a record 20% of its total holdings, bringing its US paper inventory to just $86 billion in December - the lowest since June 2008.

Bernie Sanders Adopts Novel Stance on the Deficit -- Sanders has used his position as a ranking member on the Senate Budget Committee to expound on his own vision for a political program. Last month, he put out a report advocating for a federal budget that would help “rebuild the disappearing middle class.”  Most of the policy initiatives suggested in that report — such as raising the minimum wage and boosting infrastructure spending — have been proposed before by Sanders and members of the Democratic Party. But the report also included a novel way of thinking about the federal deficit: Although Sanders said debt reduction is a worthy goal, he put far greater emphasis on reducing what he called the “other deficits in our society,” such as unemployment and income inequality.  That shift of emphasis — from an abstract, intangible economic indicator like the federal deficit to more concrete issues such as infrastructure and household income — appears to have been influenced in part by a heterodox strain of economics known as modern money theory (MMT). That school of economics has long been ignored by denizens of Capitol Hill, but it has plenty of adherents on the progressive left who are cheering Sanders's recent public statements. The Vermont senator is not an MMT adherent, but one of its leading practitioners, Stephanie Kelton, is now his chief economist on the Budget Committee. That hire, and Sanders’s subsequent public statements, have drawn the approval of progressive journalists such as The Fiscal Times’ David Dayen.  "Sometimes, Washington backs into its best ideas without even knowing it,” wrote Dayen in late January. "Sanders’s MMT-tinged push for higher spending comes at precisely the right time, when politicians are looking to respond to inequality and economic despair."  MMT economists view money as something that is spent into existence by the state. The more money the government spends, the more money the private sector accumulates. When the government taxes in order to recoup some of that money, it does so not in order to generate revenue for itself, but to limit the supply of money and give it some stable value.

Designed to Deceive: President’s Economic Report on Trade and Globalization -- The 69th Economic Report of the President (ERP), released this week, has much to recommend it—especially its focus on policies needed to rebuild middle-class economics, including raising the federal minimum wage and increasing job-creating investments in infrastructure, science, and technology. However, the report runs off the road when it turns to trade. The official summary of the report features a chart on trade which claims that “export intensive industries report 17 percent higher average wages than non-export intensive industries.” As I pointed out in a recent blog post on trade and wages, this frequently repeated claim is less than half the story. Wages in import-competing industries (not shown in the ERP chart) are also much higher than in non-traded industries, and also substantially higher than the jobs supported by exports. Worse yet, growing trade deficits have eliminated many more good jobs in import competing industries than are supported by exports. So, on balance, U.S. trade has eliminated many more good jobs than are supported in exporting industries. For middle-class working Americans, trade and globalization has indeed caused a race to the bottom in jobs and wages.

Fast-Track Treason and the Coming Corporate Coup- Corporations aren't people - otherwise, we'd be trying them for treason. If it were known that a handful of powerful men and women were meeting in secret to overthrow the authority of the US government and make this nation submissive to external domination, the NSA, CIA, FBI, US president, Congress and the military-industrial complex would declare them "terrorists of the year" and bomb them back into the Stone Age. But corporations aren't people. They enjoy superhuman status, and are awarded privileges and protections well beyond what ordinary citizens of the United States can expect. (The last time a corporation was shot dead in the streets by a police officer was - well, never.) Corporations are given preferential treatment by judges, laws, politicians, investigators, tax agencies, financial institutions and much of our consumer-capitalist society. So, when corporations spend years in secret negotiations to set up a trade agreement that gives them the legal power to overrule federal, state and local laws, subjugating not only the United States, but also the rest of the world to their control, our Congress lines up to help them. This is treason by another name. It's called fast-track authority for the Trans-Pacific Partnership (TPP).

Feed the Rich and Starve the Poor (Cont.) - It didn't take long before the new GOP House began passing a series of deficit-hiking tax cuts that will primarily help the rich at the expense of everybody else. Rep. Paul Ryan (R-Wis.), the new chairman of the Ways and Means Committee (which writes tax legislation), wants to make some previous tax breaks permanent — arguing that Congress has previously extended certain tax breaks before. But Congress had also done other things previously (that the GOP doesn't want to do now), such as transfer funds from the Social Security retirement fund to shore up the disability fund. The GOP's most recent tax bill was the second tax cut passed by the House this week, after last Thursday's passage of a tax break aimed at encouraging charitable giving. Ryan's committee has also started to move other cuts that would add another $300 billion to the deficit, and which are likely to reach the House floor later this month or next. Paul Ryan sees an end-of-summer deadline for making strides on tax reform — but by now, most of us already know what the Paul Ryan's idea of " tax reform" is really all about: feed the rich and starve the poor. Paul Ryan: "What we are simply trying to do here is produce certainty. We need to give businesses certainty. We need to help them plan for the future. We need to stop this crazy game of extending a tax benefit that has been on the books for quite some time, one year at a time, or retroactive one year at a time, and give businesses certainty." Didn't it ever occur to the Republicans that regular working-class Americans, the poor and the disenfranchised might also want a little "certainty" in their lives as well? Would it be too much to ask that they had "certainty" that their jobs wouldn't be outsourced to foreign countries, and when they are, have "certainty" that their unemployment benefits won't be reduced? Or when they become disabled or old (and can no longer work), that they can count on Social Security? Or if they can only find part-time work that pays minimum wage, they can have "certainty" that they can still feed themselves and/or their children with the food stamp program?

American Democracy is Owned by the Rich -- Two new studies by political scientists offer compelling evidence that the rich use their wealth to control the political system and that the U.S. is a democratic republic in name only.  In a study of Senate voting patterns, Michael Jay Barber found that “senators’ preferences reflect the preferences of the average donor better than any other group.” In a similar study of the House of Representatives, Jesse H. Rhodes and Brian F. Schaffner found that, “millionaires receive about twice as much representation when they comprise about 5 percent of the district’s population than the poorest wealth group does when it makes up 50 percent of the district.” In fact, the increasing influence of the rich over Congress is the leading driver of polarization in modern politics, with the rich using the political system to entrench wealth by pushing for tax breaks and blocking redistributive policies.

Did the GOP Just Give Away $130 Billion of Public Property? - In December, two Republican senators, John McCain and Jeff Flake, pushed Congress and the president into giving away what could amount to over $130 billion in public property. That’s enough to provide every single unemployed American a minimum-wage job for an entire year. That’s enough to pay for a year of tuition at a public institution for every college student in the US. And yet the GOP big-shots call themselves “fiscal conservatives”! “Fiscal conservatives,” my you-know-what. I’m talking about the huge giveaway to the mining companies Rio Tinto and BHP Billiton in the Defense Authorization Act. It was splayed across ten pages of the bill, pages 441 to 450 (out of 697). In a land-swap deal, the Defense Authorization Act took four square miles of Tonto National Forest—public land in Pinal County, just outside Superior, Arizona—and gave it to Resolution Copper, so that Resolution Copper can build a copper mine on the site. According to Resolution Copper’s website, the copper resource under that land contains 1.6 billion metric tons of copper-rich ore, which itself contains 1.47 percent copper. (That’s roughly 30 pounds of copper in every ton of ore.) So there are approximately 23.5 million tons of copper sitting under those four square miles of public property.  As I write this, copper goes for $5666 per ton. So the copper under those 2,422 acres of national park land is worth roughly $133.8 billion, at current prices.

Pentagon Used Your Money To Give Dudes $84 Million In Boners Last Year -- People of the wingnut variety are always yammering on about “outta control government spending!” and “I am being tyrannied into buying SLUT PILLS for all the ladies!” and dumb liberals always say, you know, if they were coming after your Viagra you’d be mad too. One entity that is NOT coming after your Viagra is the United States military. Originally, all patriotic Americans were under the impression that the military was spending about $500K a year on boners,  but the Military Times did some rock-hard-hitting penis journalism and found that the real cost of keeping your men boned up is $84.24 million per year: According to data from the Defense Health Agency, DoD actually spent $41.6 million on Viagra — and $84.24 million total on erectile dysfunction prescriptions — last year. And since 2011, the tab for drugs like Viagra, Cialis and Levitra totals $294 million — the equivalent of nearly four U.S. Air Force F-35 Joint Strike Fighters.  Next time your math teacher surprises you with a pop quiz that asks “How many F-35’s equal ALL THE MILITARY BONERS, KATIE?,” you will not be embarrassed and unprepared like you were last time. The answer is FOUR.

US sets deadline over financial crisis charges - US prosecutors have been given a 90-day deadline to assess whether they have enough evidence to bring cases against individuals linked to the 2008 financial crisis, as attorney-general Eric Holder fine-tunes his legacy before he steps down later this year. Mr Holder, the top law enforcement official in the US, disclosed the deadline on Tuesday and said that prosecutors had been asked to evaluate whether they can bring criminal or civil cases against individuals. JPMorgan Chase, Bank of America, Citigroup and other companies have agreed to pay billions of dollars in fines for mis-selling mortgage securities linked to the crisis. But some lawmakers and consumer groups have criticised the Department of Justice for not holding high-level individuals accountable. “To the extent that individuals haven’t been prosecuted, people should understand it’s not for lack of trying,” Mr Holder said on Tuesday at the National Press Club in answer to a question about the DoJ’s response to the crisis. “These are the kinds of cases that people come to the justice department to make. The inability to make them, at least to this point, has not been a result of a lack of effort.” A Wall Street lawyer who has been involved in crisis-related settlements was sceptical that the DoJ would be successful in going after individuals, given that the department had been investigating cases for years without prosecuting executives. The bar for bringing cases against individuals as opposed to companies is higher, partly because individuals usually fight back and are less likely to settle.

Where are the “Progressive” Democrats on Loretta Lynch’s HSBC Money Laundering Wrist Slap?Yves Smith  -- Some Republican Senators are having a field day, and rightly so, over the fact that Obama’s attorney general nominee, Loretta Lynch, looks to have allowed bank giant HSBC, and more important, its executives and officers, off vastly too easy in a massive money-laundering and tax evasion scheme.  The background is that Lynch, as attorney for the Eastern District of New York, led the investigation of HSBC’s money laundering for drug dealers and other unsavory types that led to a $1.9 billion settlement in 2012. That deal was pilloried by both the right and left as being too lenient given the scale of HSBC’s misdeeds.  And now it turns out the great unwashed public was kept in the dark about another set of misdeeds, that of large-scale tax evasion for the wealthy, which Lynch was aware of when she was negotiating the money-laundering deal. From the Guardian: Lynch negotiated a controversial settlement with HSBC in 2012, after the bank admitted to facilitating money-laundering by Mexican drug cartels and helping clients evade US sanctions. Now there are questions over why she did not also pursue HSBC over evidence that its Swiss arm helped US taxpayers hide their assets. The secret bank files – obtained and examined in detail this week in a series of reports by the Guardian, CBS 60 Minutes and other media outlets – reveal that HSBC’s Swiss arm colluded with some high net-worth individuals to hide their assets from tax authorities across the world. The new data, leaked by a whistleblower, was obtained by French tax authorities and shared with the US government in 2010, raising questions over why the Department of Justice has yet to take action against HSBC in the US.

TransPacific Partnership: Fast Track to Financial Instability - Yves here. Although we’ve written regularly on the corporate-looting-exercise-in-the-making known as the TransPacific Partnership and its evil twin, the Transatlantic Trade and Investment Partnership, we’ve tended to go deep into the weeds of their many nation-state-undermining features or the state of the negotiations. This post, by contrast, gives a good high level overview of what is wrong with these proposed pacts, both as supposed “trade deals” as well as for their “investor protections”. The bills are coming up for fast track approval in Congress, and I hope you’ll circulate this article to encourage friends and colleagues to contact their Congressmen and tell them they expect them to firmly oppose these agreements.

Interconnected Banks Pose Greatest Threat to U.S. Financial System -- Last Thursday, the Office of Financial Research (OFR), part of the Federal boondoggle created under the Dodd-Frank financial reform legislation in 2010 to foster the illusion that the government was reining in risk on Wall Street, released a new study showing almost unfathomable levels of systemic and interconnected risk among the too-big-to-fail banks that cratered the U.S. financial system in 2008 and has left our economy still struggling to right itself. The report reconfirms to Americans that nothing significant has been accomplished in the last six years to prevent casino capitalism on Wall Street from crashing our financial system and the U.S. economy again. The report found that five U.S. banks had high contagion index values — Citigroup, JPMorgan, Morgan Stanley, Bank of America, and Goldman Sachs. The authors write: “…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults. High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system. The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.”

Two New Papers Say Big Finance Sectors Hurt Growth and Innovation - Yves Smith -- In a bit of synchronicity, two new papers confirm the long-held suspicion that Wall Street is sucking the life out of Main Street.   The BIS has released an important paper, embedded at the end of this post, which has created quite a stir, even leading the orthodoxy-touting Economist to take note. Titled, Why does financial sector growth crowd out real economic growth?, its analysis of why too much finance is a bad thing is robust and compelling. This article is a follow up to a 2012 paper by the same authors, Stephen Cecchetti and Enisse Kharroubi, which found that when finance sectors exceeded a certain size, specifically when private sector debt topped 100% of GDP or when financial services industry professions were more than 3.9% of the work force, it became a drag on growth. Notice that this finding alone is damning as far as policy in the US is concerned, where cheaper debt, deregulation, more access to financial markets, and “financial deepening” are all seen as virtuous. The paper starts by looking empirically at the fact that larger financial sectors are correlated with lower growth rates.  And the big reason is one that is no surprise to anyone in the US, that finance has been sucking “talent,” as in the best and brightest from a large range of disciplines, ranging from mathematicians, physicists, the best MBAs (which remember could be running manufacturing operations or in high-growth real economy businesses) and lawyers. The banking sector’s gain is Main Street’s loss.

Goldman Sachs Doesn’t Care What You Think - So, in an apparent effort to raise its rank in the Most Recognized Polling Firm in America Sweepstakes, Harris Poll recently published a survey of 27,278 individuals across this fine land to determine America’s 100 most- and least-loved corporations. Bloomberg Business subsequently took time out of its busy day to gleefully report that Goldman Sachs, investment bank and über squid of the global financial markets, finished dead last:  People hate Goldman Sachs more than oil spills and the Koch brothers. Well, far be it for me to rain on Bloomberg’s and Harris Poll’s parade, but I am here to tell you children, with complete confidence, that Goldman Sachs just doesn’t care what you think. Now this does not mean there isn’t some poor (relatively) underpaid slob scurrying around Goldman Sachs’ Public Relations Department pulling out his or her hair, fretting that you and your Aunt Millie in Rochester think poorly of his or her employer. After all, big corporations like Goldman Sachs have to employ people like that whose job it is to care, if only for appearances’ sake. Generally conveying to the public at large that you don’t give a fuck tends not to play well and can introduce all sorts of petty annoyances and frictions in the conduct of one’s business, so spending a few otherwise forgettable millions on PR can work out to be a good investment.1 This is common knowledge. But deep in the bowels of Goldman’s money spinning machine and high in the corridors of the executive suite at its West Street headquarters, you may safely assume the people who matter do not give a flying fuck in a rolling donut that you don’t like them. Sorry to be harsh, but there it is.

Fed’s Powell: Leveraged Lending Risks Unlikely to Bring Down Big Banks -A Federal Reserve governor said risks in the leveraged lending market aren’t likely to endanger the biggest U.S. banks, indicating the Fed believes its efforts to tamp down questionable credit practices are working. Fed Gov. Jerome Powell said regulatory efforts to stop banks from taking on too much risk when lending to already indebted companies–along with changes in lending practices by banks–have made those firms less vulnerable to a market downturn. “Banks at the core of our financial system seem less likely to experience stress should conditions in leveraged lending deteriorate,” Mr. Powell said in remarks prepared for a speech in New York, adding that guidance regulators issued to banks in 2013 “now stands in the way of a return to precrisis conditions.” Mr. Powell sits on a five-member Fed board that sets regulatory policy from Washington D.C. His comments were consistent with those of other Fed officials, including Chairwoman Janet Yellen, who have said the Fed is watching the leveraged loan market but doesn’t see it as posing a risk to the financial system at the moment. Mr. Powell said while regulators were right to be cautious about the market’s risks, they should also be careful not to go too far. “Unless there is a plausible threat to the core of the system or potential for damaging fire sales, I would set a high bar for supervisory interventions to lean against the credit cycle. Such interventions would almost surely interfere with the traditional function of capital markets in allocating capital to productive uses and dispersing risk to the investors who willingly choose to bear it,”

Unofficial Problem Bank list declines to 386 Institutions  - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Feb 14, 2015.  Changes and comments from surferdude808:  A failure today reduced the Unofficial Problem Bank List to 386 institutions with assets of $121.2 billion. A year ago, the list held 586 institutions with assets of $195 billion. The FDIC shuttered the doors of Capitol City Bank & Trust Company, Atlanta, GA ($276 million) making it the 89th bank headquartered in Georgia to fail since the on-set of the Great Recession. Astonishingly, the FDIC estimates the failure cost at $88.9 million or nearly 33 percent of the bank's assets.  Historically, commercial bank failure are usually around 12¢ on the dollar. Even with a well above average cost percentage, Capitol City Bank & Trust only ranks as the 54th most expensive failure, in cost percentage terms, of the 89 Georgia closures. Moreover, its cost is under the Georgia average failure cost of 34.7 percent of failed bank assets. Next week, we anticipate the OCC will release an update on its latest enforcement action activities..

Fannie and Freddie: REO inventory declined in Q4, Down 25% Year-over-year -- Fannie and Freddie reported results this week. Here is some information on Real Estate Owned (REOs). From Fannie Mae: The continued decrease in the number of our seriously delinquent single-family loans, as well as lengthy foreclosure timelines in a number of states, have resulted in a reduction in the number of REO acquisitions and fewer dispositions in 2014 compared with 2013 and 2012...We recognized a benefit for credit losses in 2014 primarily due to increases in home prices of 4.7% in 2014. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default, which impacts our estimate of losses and ultimately reduces our total loss reserves and provision for credit losses.  The decline in REO is related to fewer delinquencies (higher house prices and a better economy), and long foreclosure time lines in some states (like Florida).  Here is a graph of Fannie and Freddie Real Estate Owned (REO). REO inventory decreased in Q4 for both Fannie and Freddie, and combined inventory is down 25% year-over-year. For Freddie, this is the lowest level of REO since Q2 2008. For Fannie, this is the lowest level since 2009. Delinquencies are falling, but there are still a large number of properties in the foreclosure process with long time lines in judicial foreclosure states.

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in January - Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for a few selected cities in January. On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Mid-Atlantic and Orlando are up year-over-year because of an increase foreclosure as lenders work through the backlog). Short sales are down in these areas. The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline. It is pretty amazing that distressed sales still make up almost 40% of sales in Orlando.  Florida has been very slow to recover from the severe damage of the housing bubble.

After the Housing Crisis, a Cash Flood and Silence - On Aug. 17, 2012, the federal government began expropriating all the earnings of Fannie Mae and Freddie Mac, the mortgage finance giants that succumbed to the 2008 crisis.Now the government is taking extraordinary measures to keep secret the deliberations surrounding that action. What exactly is it trying to hide?That is the question being asked by a Fannie and Freddie shareholder who has sued the government over the 2012 profit grab. The investor contends that the move amounted to an improper taking of its property; the government disagrees.Margaret M. Sweeney, a judge in the Court of Federal Claims, will determine who is right. But in the meantime, consider the remarkable secrecy demands that the government has made in the matter.Fair Game A column from Gretchen Morgenson examining the world of finance and its impact on investors, workers and families.  Previously undisclosed court records show that the Justice Department has asserted presidential privilege to prevent 45 documents from being produced. These materials — emails, draft memos and news releases — were created by officials at the Treasury Department and the Federal Housing Finance Agency, the overseer of Fannie and Freddie since they collapsed in 2008.

MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey  - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 13.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 13, 2015. ...The Refinance Index decreased 16 percent from the previous week. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier... “Mortgage rates increased to their highest level since the beginning of the year last week, and application volume dropped sharply as a result, particularly for refinances. The market index declined to its lowest level since the week ending January 2nd as purchase application activity decreased seven percent and refinance applications decreased 16 percent. Refinance volume fell particularly for larger loans, as evidenced by the decline of almost $25,000 in the average loan size for a refinance loan,”  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.93 percent from 3.84 percent, with points increasing to 0.35 from 0.31 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. 2014 was the lowest year for refinance activity since year 2000. 2015 will probably see more refinance activity than in 2014, but not a large refinance boom. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is up 1% from a year ago.

Is There a Middle Ground Between Renting a House and Buying One? -  It works like this: Champlain Housing Trust offers a down payment for a home, paid for with government funds. Then CHT screens potential buyers, who are members of the trust, based on their assets and income. (To qualify, a family of four must earn $80,200 or less in gross annual income, they must not own another home, and they must not have significant assets outside of savings for retirement.) The homeowner then gets a mortgage from a bank and pays the principal each month. Usually, the homeowner also pays for the closings costs and any upkeep and maintenance. When the homeowner decides to sell the property, he first must offer it back to the housing trust. Both the homeowner and housing trust share in the home's appreciation. (That's why it's called "shared equity"—25 percent of the appreciation goes to the homeowner and 75 percent to CHT). The homeowner also recoups all of the equity that he built up each month through making principal payments, as well as any money he has spent on capital improvements (a figure determined by an independent appraiser). Housing experts like this shared-equity model, also known in housing circles as community land trusts, because "the potential is that, if it's done well, it occupies the middle rung between renting and owning," says Brett Theodos, a senior research associate at the Urban Institute, a nonpartisan think tank in Washington. "This is a market hit solution."

Lawler: Regional Home Price Declines Used to be Quite Common; Just Not All at the Same Time - Some interesting analysis from housing economist Tom Lawler: Using the Freddie Mac Home Price Index for 369 MSAs, below is a chart showing the number of MSAs where the FMHPI over 60-month period ending in the date shown either (1) declined, or (2) fell by at least 10%. (The FMHPIs are based on repeat transactions of homes backing GSE mortgages, and data are available back to January 1975.) The first chart covers the five-year period ending January 1980 through the five-year period ending December 1999.  In five-year periods that including the late 70’s there were very few MSAs whose HPI fell over those five years, mainly because this was a period of very high inflation (see last page). That changed significantly as inflation fell (and following a serve recession), and the number of MSAs experiencing home price declines over a five year period increased significantly in the 80’s – with the most severe declines coming in the oil-patch states. There was another significantly jump in the number of areas experiencing “sustained” home price declines in the 90’s, including many Northeast markets (including the Boston “bubble/bust,” with the bust from the late 80’s through the early/mid 90’s) and the California “boom/bust” (especially Southern California, with the bust from the summer of 1990 through the beginning of 1996. The above chart doesn’t reflect the number of MSAs who have ever experienced a decline in home prices over a five-year period from 1975 to 1999, but rather the number whose HPI over the same five-year period experienced a drop. Over the 1975-1999 period the FMHPI for 198 MSAs saw a decline over some five year period, and the FMHPI for 87 MSAs fell by 10% or more. And for the top 25 MSAs (in terms of population), 15 experienced a decline in home prices over some five period from 1975 to 1999, with eight experienced a double-digit drop over some five year period (including four out of the top five MSAs.).

Strength in January New-Home Sales Bodes Well for Spring - It’s extremely early in the spring selling season yet. But, by many accounts, buyers of newly built homes came out in force last month. One of the latest reports to indicate a strong start to the spring season is the monthly survey of home builders conducted by housing research firm Zelman Associates. Respondents in Zelman’s January survey reported that total orders for new homes increased by 32% in January from a year earlier, an improvement from the 27% year-over-year pace in December. Zelman described January’s seasonally adjusted order pace as “the highest level of the recovery.” In addition, 45% of Zelman’s respondents reported better than expected customer-traffic counts in January, the highest percentage since Zelman began posing that question monthly in January 2014. The Zelman survey covers builders representing 13% of U.S. new-home production. To be sure, January’s gain in new-home sales might be aided by the fact that the gain is from a low base, being that severe weather in most of the U.S. in January 2014 depressed sales at that time. Still, the Zelman survey is the latest of several indicators of a robust January. Alan Ratner, a senior analyst tracking home builders for Zelman, attributed the January increase to the improving economy, stronger job growth, low mortgage rates and a slight loosening of mortgage-qualification guidelines.

Housing Starts decreased to 1.065 Million Annual Rate in January - From the Census Bureau: Permits, Starts and Completions: Privately-owned housing starts in January were at a seasonally adjusted annual rate of 1,065,000. This is 2.0 percent below the revised December estimate of 1,087,000, but is 18.7 percent above the January 2014 rate of 897,000. Single-family housing starts in January were at a rate of 678,000; this is 6.7 percent below the revised December figure of 727,000. The January rate for units in buildings with five units or more was 381,000.  Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,053,000. This is 0.7 percent below the revised December rate of 1,060,000, but is 8.1 percent above the January 2014 estimate of 974,000. Single-family authorizations in January were at a rate of 654,000; this is 3.1 percent (±0.9%) below the revised December figure of 675,000. Authorizations of units in buildings with five units or more were at a rate of 372,000 in January.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) increased slightly in January. Multi-family starts are up 23% year-over-year. Single-family starts (blue) decreased slightly in January and are up 16% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and - after moving sideways for about two years and a half years - housing is now recovering (but still historically low), This was close to expectations of 1.070 million starts in January, although starts in November and December were revised down.

Housing Starts, Permit Miss Expectations On Drop In Single-Family Housing  -- Earlier today, we got a hint that hopes that the 5th dead cat "housing rebound" bounce have been indefinitely delayed after Mortgage Applications cratered by over 13% after tumbling 9% in the week before on even the most fractional of 10 Year yield increases. That hope suffered another embarrassing defeat moments ago when the Census Bureau reported that in January both housing starts and permits missed expectations, rising at 1070K and 1053K, respectively, once again missing Wall Street consensus of 1089K and 1067K. The reason: yet another drop in single-family housing. Because while multi-family, i.e., rental units, remained brisk and rose from 340K to 381K for the starts and from 360K to 372K for the permits...

Last Year Saw Pivot In New-Home Sizes - The newest versions of the American dream continue to get a bit smaller. The median size of newly built U.S. homes registered 2,385 square feet in the fourth quarter, down from 2,414 in the third, according to Commerce Department data released Wednesday. The median now stands 106 square feet smaller–about the size of a small bedroom–than the all-time peak of 2,491 in the third quarter of 2013. Overall, the U.S. median home size slowly receded last year–falling in each of the past three quarters–after a fitful expansion in 2012 and 2013. The reason is a slow shift in the mix of homes constructed by home builders. For much of the recovery, builders focused on constructing increasingly larger, more expensive homes to cater to the better-heeled buyers with the capital and credit to buy homes. Meanwhile, would-be, entry-level buyers were largely sidelined by tepid wage and job growth, mounting student debt and tight mortgage-qualification standards. Those factors started to shift last year, which led builders to start constructing a larger number of slightly smaller, less expensive homes. Several builders have reported seeing more activity by entry-level buyers emboldened by recent job and wage gains, low interest rates and regulators’ pledges to ease credit standards.

Quarterly Housing Starts by Intent - In addition to housing starts for January, the Census Bureau also released the Q4 "Started and Completed by Purpose of Construction" report yesterday. It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series. However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.  The quarterly report released yesterday showed there were 106,000 single family starts, built for sale, in Q4 2014, and that was above the 102,000 new homes sold for the same quarter, so inventory increased slightly in Q4 (Using Not Seasonally Adjusted data for both starts and sales). The first graph shows quarterly single family starts, built for sale and new home sales (NSA).  The difference on this graph is pretty small, but the builders were starting about 30,000 more homes per quarter than they were selling (speculative building), and the inventory of new homes soared to record levels. Inventory of under construction and completed new home sales peaked at 477,000 in Q3 2006. In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory that they had built up in 2005 and 2006. Now it looks like builders are generally starting about the same number of homes that they are selling, and the inventory of under construction and completed new home sales is still very low.  The second graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

NAHB: Builder Confidence decreased to 55 in February - The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 55 in February, down from 57 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.From Reuters: Builder Confidence Slightly Lower in February on Harsh Weather Conditions Builder confidence in the market for newly built, single-family homes in February fell two points to a level of 55 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Two of the three HMI components posted losses in February. The component gauging current sales conditions edged one point lower to 61 while the component measuring buyer traffic fell five points to 39. The gauge charting sales expectations in the next six months held steady at 60.

Snow Weighs on Home-Builder Confidence, But It’s No Polar Vortex -- Severe winter weather is putting a damper on home-builder confidence across much of the country, but it’s nothing compared with last year’s polar vortex.  The National Association of Home Builders’ monthly gauge of builder confidence for single-family homes slipped in February, to a seasonally adjusted 55 from 57 in January, the trade group said Monday. Economists surveyed by The Wall Street Journal had expected the index to increase to 58.A reading above 50 means a majority of builders see conditions as good rather than poor. And the national index has remained above that threshold for eight consecutive months, despite flattening in recent months. But higher or lower confidence doesn’t necessarily translate into more or less construction. Weather in particular can have a big effect on builder sentiment, and doesn’t necessarily portend an imminent slowdown in the housing sector. In February 2014, the NAHB index plunged to 46 from 56 a month earlier, as much of the northern and central contiguous U.S. recorded below-average temperatures, and winter storms walloped the East Coast, Midwest and Northwest, according to the National Climatic Data Center. The index hovered around 46 for several months before edging back up in the middle of 2014. The NAHB index is seasonally adjusted but those adjustments can’t always account for shifting weather patterns.

Homebuilder Sentiment Slides, Buyer Traffic Plunges, Weather Blamed -- Homebuilder Sentiment slipped from 57 to 55 in February - missing extrapolated expectations of a 58 print by the most in over 6 months. Present sales slipped very modestly, future expectations remained flat (and hope-strewn) as Prospective Buyers Traffic tumbled from 44 to 39. Of course, the blame for this weakness and dramatic drop in prospective buyer traffic - The Weather!! Except we note that the Northeast region (one of the hardest hit by the storms) rose from 43 to 48.

AIA: Architecture Billings Index "softens" in January - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From the AIA: Architecture Billings Index Softens in January  Following a nine-month stretch of positive billings, the Architecture Billings Index (ABI) showed no increase in design activity in January. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 49.9, down from a mark of 52.7 in December. This score reflects a very modest decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.7, down from the reading of 59.1 the previous month. “This easing in demand for design services is a bit of a surprise given the overall strength of the market over the past nine months,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Likely some of this can be attributed to severe weather conditions in January. We will have a better sense if there is a reason for more serious concern over the next couple of months.” This graph shows the Architecture Billings Index since 1996. The index was at 49.9 in January, down from 52.7 in December. Anything above 50 indicates expansion in demand for architects' services.  Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

U.S. Household Debt Rises Slightly in to $11.83 Trillion -- Americans are for the most part taking on new loans carefully, yet a rise in late payments on two fast-growing types of debt--auto and student loans--suggest some consumers could be getting in over their heads. Household debt--including mortgages, credit cards, auto loans and student loans--rose $117 billion from October to December to $11.8 trillion, according to figures from the Federal Reserve Bank of New York released Tuesday. But more Americans fell behind on auto and student loans. The share of auto-loan debt 90 or more days overdue jumped to 3.5% last quarter, from 3.1%. A similar rate for student loans rose to 11.3% from 11.1%. The figures show that, while Americans have made considerable progress fixing their postrecession finances and are now taking on new loans judiciously, some are struggling with auto and student loans, whose rapid growth recently has fueled concerns among economists. If more Americans run into trouble paying these debts, that could crimp their ability to make other purchases and form households, chilling the broader economy.

NY Fed: Household Debt increased in Q4 2014 -- Here is the Q4 report: Household Debt and Credit Report.  From the NY Fed: Household Debt Continues Upward Climb While Student Loan Delinquencies Worse In its Q4 2014 Household Debt and Credit Report, the Federal Reserve Bank of New York announced that outstanding household debt increased $117 billion from the third quarter. The one percent increase puts total household indebtedness at $11.83 trillion as of December 31, 2014. Total debt has gone up $326 billion since the fourth quarter of 2013. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.  Balances were largely up across the board, led by mortgages ($39 billion) and student loans ($31 billion). Auto loan debt and credit card debt increased by $21 billion and $20 billion, respectively. Outstanding student loan balances now stand at $1.16 trillion. While overall delinquency rates were unchanged at 4.3 percent in the fourth quarter, delinquency rates for auto loans and student loans worsened. Our Liberty Street Economics blog post provides a further discussion of the delinquency picture.

Just Released: Student Loan Delinquency Rate Defies Overall Downward Trend in Household Debt and Credit Report for Fourth Quarter 2014 --NY Fed -- Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2014. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Overall, aggregate balances increased by $117 billion, or 1.0 percent, boosted by increases in all credit types except home equity lines of credit.  Delinquency rates improved overall, although the improvement was not across the board, as there were upticks in the delinquency rates for both student loans and auto loans. The chart below shows balance-weighted 90+ day delinquency rates by category of household debt.  The delinquency rates for mortgages, home equity lines of credit (HELOCs), auto loans, and credit cards peaked noticeably in the years following the recession, and have since fallen. In the case of mortgages, the 90+ day delinquency rate is now about 3.1 percent—still considerably higher than the roughly 1 to 1.5 percent rates we saw before the Great Recession. To some degree, this can be explained by the fact that the lengthy foreclosure process in many states is slow to clear out the stale stock of defaulted mortgages; however, a quick look at page 11 in our Quarterly Report reveals that the flow into serious delinquency also remains somewhat high by historical standards. Credit card delinquencies have been steadily improving, and are now at some of the lowest levels we’ve seen since the start of our data in 1999.  Auto loan delinquencies have followed a similar trajectory, although we should note that in the most recent quarter, there is an uptick in the 90+ day delinquency rate. This uptick is even more pronounced in our measures of flows into delinquency, and we’ll continue monitoring this going forward. The 90+ day delinquency rate for student loans, however, is different from the others—the rate has increased substantially since our student loan data began in 2003, and has now reached 11.3 percent. Student loans have the highest delinquency rate of any form of household credit, having surpassed credit cards in 2012. There are several reasons for this. Student debt is not dischargeable in bankruptcy like other types of debt; thus, delinquent or defaulted student loans can stagnate on borrowers’ credit reports, creating an ever-increasing pool of delinquent debt. Additionally, the measures of new delinquency in our Quarterly Report do reflect high inflows into delinquency.

Large student debt load limits young Americans' home-buying: (AP) — Younger Americans are struggling to keep up with steadily-rising student debt loads, a burden that is limiting their ability to buy homes. The Federal Reserve Bank of New York said Tuesday that the percentage of student loans 90 days or more overdue rose to 11.3 percent in the final three months of last year, up from 11.1 percent in the previous quarter. That's the highest in a year. Total student borrowing now stands at $1.16 trillion, the most on record and 7.1 percent higher than 12 months earlier. Previous research by the New York Fed has found that younger Americans with student loans are less likely to take out mortgages than those without student debt. That's a reversal from the pre-recession pattern. Before the 2008-09 downturn, 30 year-olds with student debt were more likely to have mortgages because of their higher levels of education and higher potential incomes, the New York Fed says. Now they are slightly less likely to have mortgages than 30-year olds without student debt. "Student loan delinquencies and repayment problems appear to be reducing borrowers' ability to form their own households," said Donghoon Lee, a research officer at the bank. Americans are also struggling with auto loans, the report showed, but are doing a better job keeping up with all their other debts.

Hackers Steal $1 Billion in Massive, Worldwide Breach -- Hackers have stolen as much as $1 billion from banks around the world, according to a prominent cybersecurity firm. In a report scheduled to be delivered Monday, Russian security company Kaspersky Lab claims that a hacking ring has infiltrated more than 100 banks in 30 countries over the past two years.Kaspersky says digital thieves gained access to banks’ computer systems through phishing schemes and other confidence scams. Hackers then lurked in the institutions’ systems, taking screen shots or even video of employees at work. Once familiar with the banks’ operations, the hackers could steal funds without raising alarms, programming ATMs to dispense money at specific times for instance or transferring funds to fraudulent accounts. First outlined by theNew York Times, the report will be presented Monday at a security conference in Mexico.  The hackers seem to limit their scores to about $10 million before moving on to another bank, Kaspersky principal security researcher Vicente Diaz told the Associated Press. . This helps avoid detection; the crimes appear to be motivated primarily by financial gain. “In this case they are not interested in information. They’re only interested in the money,” he said. “They’re flexible and quite aggressive and use any tool they find useful for doing whatever they want to do.”

Kaspersky Uncovers NSA Global Hard Drive Based Spying Program -  Russian-based Kaspersky Lab has announced its discovery of a program by the NSA to hide spyware within hard drives of top hard drive manufacturers. Kaspersky did not name the country explicitly but said it was the same one that created Stuxnet – an NSA cyberweapon used against Iran. The companies whose hard drives were noted as being part of the hard drive spyware program were Western Digital, Seagate, and Toshiba as well as others. The Kasperky report claims the firm studied computers found in 30 countries with most infections seen in Iran, Russia, Pakistan, Afghanistan, China, Mali, Syria, Yemen and Algeria. Though given the prevalence of the spyware and the manufacturers the NSA may or may not be directly working with it is likely that a large part of the computers being operated in the world are compromised. What’s more, because the infection comes from firmware even if the program is caught and destroyed it will be reintroduced once the hard drive is restarted – leading to re-infection ad infinitum. A former NSA employee told Reuters that Kaspersky’s analysis was correct, and that people still in the intelligence agency valued these spying programs as highly as Stuxnet. Another former intelligence operative confirmed that the NSA had developed the prized technique of concealing spyware in hard drives, but said he did not know which spy efforts relied on it… According to Kaspersky, the spies made a technological breakthrough by figuring out how to lodge malicious software in the obscure code called firmware that launches every time a computer is turned on. Disk drive firmware is viewed by spies and cybersecurity experts as the second-most valuable real estate on a PC for a hacker, second only to the BIOS code invoked automatically as a computer boots up. “The hardware will be able to infect the computer over and over,” lead Kaspersky researcher Costin Raiu said in an interview.

The Great SIM Heist: How Spies Stole the Keys to the Encryption Castle   - AMERICAN AND BRITISH spies hacked into the internal computer network of the largest manufacturer of SIM cards in the world, stealing encryption keys used to protect the privacy of cellphone communications across the globe, according to top-secret documents provided to The Intercept by National Security Agency whistleblower Edward Snowden. The hack was perpetrated by a joint unit consisting of operatives from the NSA and its British counterpart Government Communications Headquarters, or GCHQ. The breach, detailed in a secret 2010 GCHQ document, gave the surveillance agencies the potential to secretly monitor a large portion of the world’s cellular communications, including both voice and data. The company targeted by the intelligence agencies, Gemalto, is a multinational firm incorporated in the Netherlands that makes the chips used in mobile phones and next-generation credit cards. Among its clients are AT&T, T-Mobile, Verizon, Sprint and some 450 wireless network providers around the world. The company operates in 85 countries and has more than 40 manufacturing facilities.  With these stolen encryption keys, intelligence agencies can monitor mobile communications without seeking or receiving approval from telecom companies and foreign governments. Possessing the keys also sidesteps the need to get a warrant or a wiretap, while leaving no trace on the wireless provider’s network that the communications were intercepted. Bulk key theft additionally enables the intelligence agencies to unlock any previously encrypted communications they had already intercepted, but did not yet have the ability to decrypt.

AT&T charges $29 more for gigabit fiber that doesn’t watch your Web browsing - AT&T's gigabit fiber-to-the-home service has just arrived in Kansas City, and the price is the same as Google Fiber—if you let AT&T track your Web browsing history.   Just as it did when launching its "GigaPower" service in Austin, Texas in late 2013, AT&T offers different prices based on how jealously users guard their privacy. AT&T's $70 per-month pricing for gigabit service is the same price as Google Fiber, but AT&T charges an additional $29 a month to customers who opt out of AT&T's "Internet Preferences" program. AT&T says it tracks "the webpages you visit, the time you spend on each, the links or ads you see and follow, and the search terms you enter... AT&T Internet Preferences works independently of your browser's privacy settings regarding cookies, do-not-track, and private browsing. If you opt-in to AT&T Internet Preferences, AT&T will still be able to collect and use your Web browsing information independent of those settings."

Big Brother: Obama cyber push rankles tech giants -- Amidst the pomp and pageantry of what’s been dubbed a “White House summit,” President Barack Obama journeyed to Palo Alto, Calif., today to meet a collection of tech industry leaders a jitney ride from their own back yard.In a speech to the general audience assembled at Stanford University, Obama promoted government efforts to thwart cyberattacks, focusing on his data-sharing initiative, previously announced in his State of the Union address, touting the benefits to consumers in the wake of a bevvy of recent mass data breaches in the financial and retail sectors. But consumer protection is the easy-to-swallow spoon full of sugar in the administration’s plans; government concerns about private industry’s push for tougher data encryption — and White House demands that U.S. intelligence be allowed some sort of “back door” — are making the president’s proposed cyber-medicine unpalatable to some tech giants.  While the president will met today with the heads of AIG, Bank of America and Visa, to name a few, the CEO’s of Facebook, Google and Yahoo were noticeably absent. The New York Times quotes a new technologies expert on the “enormous degree of hostility between Silicon Valley and the government.” But beyond the personal enmity, there are real differences that weigh heavily on future prospects, both for personal privacy and tech-sector bottom lines.

"We Messed Up Badly" Lenovo Admits Putting Tracking Software On Your PC --  Lenovo Group, the largest computer manufacturer in the world, has made a rather stunning admission that they have been pre-installing tracking software on their PCs. The tracking software is made by a company called Superfish, which apparently paid some “very minor compensation” to Lenovo for putting the software on people’s computers. The Superfish program is a total disaster. It has image recognition algorithms which essentially monitor what a user is looking at… then suggests relevant ads based on what it thinks you might like. This is not only REALLY high up on the creepy scale, it also completely destroys Internet security. Whether you’re buying something online or accessing Internet banking, the Superfish program essentially cuts the secure link between you and sensitive websites that you’re trying to access.

The Clock is Ticking on Comcast’s Plan to Take Over Online Video - What if all of the devices in your life had a common interface, controlled by a single company, that picked what video content you could easily search and access online? What if that single company had its own economic reasons to support some “channels” and hide others? Welcome to the world of Xfinity, Comcast’s brand name for its services. You’ve seen the advertising. Now here’s the big idea: If Comcast has its way, Xfinity will be Americans’ window on the world. Basically, our only window.In 1996, Congress passed a law directing the FCC to ensure a competitive retail marketplace for consumer devices used to access cable and satellite pay TV services. That law, Section 629 of the Telecommunications Act, hasn’t brought about the changes Congress wanted. Today, you can choose among hundreds of wireless handsets and innumerable laptops and tablets. But when it comes to the vital category of set-top boxes—that ugly metal thing that plugs into your TV and talks to the wire coming into your house—you have very little choice. Five years ago, the Obama administration’s National Broadband Plan pointed out that Motorola and Cisco controlled more than 90% of the set-top box market and strongly recommended that the FCC finally implement Section 629. Efforts along these lines then died a quiet death inside the agency. At the end of 2014, Congress passed a law that wipes out the FCC’s old rules on this subject as of September 15, 2015. So now there’s a tick-tock to this story: it’s time for the Commission to get something workable in place.

Cable TV is speeding up its shows slightly to show you more ads -- It's not news that reruns of Friends aren't what cable TV really wants you to be watching. Networks make money by showing ads, and for years those networks have been looking for ways to pack in more and more quick spots to get you to buy Charmin, Tide, and Viagra. Now, the Wall Street Journal reports that many networks are desperately trying to increase the number of commercials you watch per hour, sometimes resorting to subtly speeding up older shows and reruns in an effort to recapture the revenue from tanking ratings.

To combat fraud, Visa wants to track your smartphone - — Those days of calling your bank to let them know that, yes, you really are in Thailand, and yes, you really did use your credit card to buy $200 in sarongs, may be coming to an end. The payment processing company Visa will roll out a new feature this spring that will allow its cardholders to inform their banks where they are automatically, using the location function found in nearly every smartphone. Having your bank and Visa know where you are at all times may sound a little like “Big Brother.” But privacy experts are actually applauding the feature, saying that, if used correctly, it could protect cardholders and cut down on credit card fraud. Credit and debit card fraud costs consumers and banks billions of dollars each year, and that figure has been growing as data breaches have become more common. The banking industry had $1.57 billion in debit card fraud in 2013 and $4 billion in credit card fraud in 2012, the latest years for which data are available, according to the Federal Reserve. Facing these high costs, banks and the payment processors have been stepping up their efforts to cut down on fraud, and Visa’s announcement is just one small piece of this drive. JPMorgan Chase’s CEO Jamie Dimon has said repeatedly that his bank spends $250 million overall on cybersecurity every year, and plans to double that spending.

Credit-Swap Traders Think Sears Will Fail In The Next Year – Consumerist: Credit default swaps are a confusing concept, since some forms resemble gambling on the failure of a company without even owning any stock in it. As a consumer, especially if you’re someone who likes to shop at Sears, you should know that now that Radio Shack has declared bankruptcy, the hot retailer that credit swap traders are betting will fail is Sears. Credit default swaps can be used as a backup by investors who hold, say, a loan taken out or a bond issued by a company with a shaky future. It’s a fancy form of betting on the future of a company, and can be used to balance out risk for debtholders. The party seeking to make money if the company defaults makes regular payments to another investor who believes that the company won’t fail. If the company does fail, the investor on the other end of the swap makes a one-time payment to the investor who took out the swap. It looks a little bit like taking out a term life insurance policy on a company. This may be the most excited that anyone has been about Sears since approximately 1992. The cost of a credit default swap can be a good proxy for the credit risk of that company, and Bloomberg reports that it’s now more expensive to take out a five-year swap than a one-year swap. That means that the market believes Sears will declare bankruptcy sometime in the next year.

Discount and Department Stores Boost Manager Ranks by 46% in Two Years, Hours Up 88% -- In the last two years, hours worked by managers at discount and department stores are up 86% while hours worked by nonsupervisor employees is down. Why? Supervisors, don't get paid overtime. It's yet another artifact of Obamacare. Please consider The Obama Recovery's Illusory Manager Hiring Binge by Jed Graham.  Retailers and other modest-wage employers increasingly are relying on managers, an unusual feature of the Obama economic recovery. Discount and department stores have boosted managers' ranks by 46% in less than two years, Bureau of Labor Statistics data show. And their hours worked have nearly doubled. In reality, this is a classification change more than a hiring binge, and a logical response to the Obamacare employer mandate to provide full-time workers with health insurance or pay a fine. As companies shift some workers below 30 hours per week to avoid the mandate, they also have an incentive to stretch the cost of insuring full-timers over as many hours of work as possible.  Nowhere has the shift to managers been more visible than among general merchandise retailers. Since the start of 2013, when the earliest measurement period for the ObamaCare employer mandate got underway (only to be postponed in July of that year), managers at discount and department stores are working 6 million more hours each week, up a hard-to-believe 88% by November 2014. Meanwhile, the ranks of managers have increased by about 92,000, or 46%.

Appetite for dining out shows US optimism - Restaurant sales have been strong across the US, rising at the fastest six-month annualised pace since 2006, according to figures last week. To some economists the growth is a sign that households are becoming freer with their finances, offering a counter to recent gloomy retail sales which have been suggesting a loss of momentum in household spending. “It shows the consumer is feeling pretty good about the backdrop. It is a fantastic consumer confidence indicator,” says Tom Porcelli, an economist at RBC Capital in New York. Real consumer spending in the US rose by an impressive 4.3 per cent in the final quarter of 2014 on an annualised basis, underpinning broader economic growth. The latest retail numbers have been much more muted, however. For two straight months retail sales have been weaker than Wall Street forecasts, despite the fillip to household finances provided by tumbling oil prices. The slowdown has created jitters in financial markets anxiously scanning for signs that America’s recovery is heading for the rocks. It comes at a key moment, as the Federal Reserve attempts to gauge whether the economy is strong enough to justify a rise in interest rates from their current 0-0.25 per cent level as soon as June. Headline retail figures are being heavily distorted by tumbling sales at petrol stations, as the 40 per cent drop in gasoline prices hits sales at the pump. Stripping out petrol stations, the “core” measure of retail sales has also been worryingly sluggish, however, rising just 0.1 per cent in January following a 0.3 per cent drop in December. The figures come amid indications that Americans are deciding to bank a significant chunk of their savings from cheaper gasoline, rather than spend them. If households had spent the entire $60bn they saved because of lower oil prices in the final quarter of 2014, annualised growth of real consumer spending would have been 2 percentage points higher, according to Morgan Stanley estimates.

Retail Sales & The Market's Looming "Gotcha" Moment - Over the last few days, there have been numerous articles puzzling over the surprise drop in latest retail sales report. Of course, the fact that retail sales did not surge is not much of a surprise for several reasons:

  • 1) Considering that labor force participation for the key employment group aged 16-54 is near the lowest levels since the late 70's, the demand for gasoline has fallen due to fewer people driving to work. The large group of non-counted but unemployed individuals combined with increased levels of productivity due to technology remains an impediment to increased spending that is derived from production. (An individual must produce first in order to consume.)
  • 2) Unlike an IRS tax refund which is "pre-spent" by individuals who eagerly anticipating the arrival of those dollars; when one fills up at the gas station there is no visible "refund." As Wells Fargo's Mark Vitner recently stated (via Business Insider): . On a weekly basis, the saving work out to between $10 and $15, which is meaningful for lower and middle-income households, but not enough to finance a spending spree, particularly right off the bat."
  • 3) Lastly, as I discussed previously, since gasoline sales are a part of the retail sales calculation a reduction in dollar sales of gasoline will only lead to a redistribution, not an increase, of spending in other areas of the economy. Therefore, $10 saved at the gas pump, which reduces gasoline sales, is offset by a $10 increase elsewhere in theory. However, the net economic impact is $0 as no "additional" spending was created. "Increased consumer spending is a function of increases in INCOME, not SAVINGS. Consumers only have a finite amount of money to spend."

Graphically, we can show this by analyzing real (inflation adjusted) gasoline prices compared to personal consumption expenditures (PCE) which comprises almost 70% of the GDP calculation.

Falling Oil Prices Yield a Barrel of Nonsense --Wait until next month, economists said. That's when consumers will spend their bonus savings from lower gas prices. Next month (January) came and went with the same disappointing results as December: a big decline in U.S. retail sales. A 9.3 percent plunge in gas station sales, driven by falling prices, was the main, but hardly the only, culprit behind January's 0.8 percent decline. (Retail sales are reported in nominal terms). Excluding gas station sales, retail sales were unchanged in January after a 0.2 percent decline in December.Retail "control," a category that excludes sales of gas, food, autos and building materials, and serves as a direct input for consumer spending in the GDP report, rose 0.1 percent last month following a 0.3 percent December decline. Consumer spending, two-thirds of which is on services, is a lot stronger than retail (goods) sales. And unlike goods prices, services prices aren't falling.  For months, economists have been touting lower oil prices as an unqualified plus for the economy, especially consumers. They seemed less concerned with the driver of the 59 percent decline in U.S. benchmark crude prices between June and January: changes in supply or demand. In economists' macro world, prices often exist in isolation. Of course, in the micro universe, lower prices may be a reaction to increased supply, a reflection of weaker demand, or a combination of the two--with very different implications for the quantity sold, which is what really matters.

Casino Revenues Surge as Gas Prices Fall - Regional casinos—the kind that people typically drive to for a night, rather than fly in for the weekend—seem to have been victims of their own success. As casino revenues increased for years, more and more states wanted in on the action and began welcoming casinos and other gaming venues in order to (hopefully) haul in big bucks by taxing all the money streaming through these places. At some point in recent years, however, observers began worrying that many regions had reached a casino saturation point, the marker at which gambling revenues would level off because there simply aren’t enough customers around to keep throwing money at these establishments.  In 2014, many casinos saw revenues go flat, and a handful of casinos went out of business in spots that were once regional gambling magnets, Mississippi and Atlantic City. Yet as 2014 came to a close and 2015 began, the tables seem to have turned for many casinos around the country.   Five of the six casinos in the St. Louis area reported bringing in more revenues in January 2015 than they did the year before. Detroit’s three casinos collectively saw gambling revenues rise 15% last month compared with January 2014. Even in Connecticut, where the casino business has been on the decline for years largely thanks to increased competition, gambling revenues are on the upswing lately.   In Atlantic City, meanwhile, in January the eight casinos still in business took in revenues that were 19% higher than the same month in 2014. Even when the four A.C. casinos that were open in January 2014 but are now closed are factored in, Atlantic City’s overall gambling revenues are up nearly 1% compared with a year ago—and again, that’s with four fewer casinos to work with.

Freighter backlog worsens outside major West Coast ports (Reuters) - Growing numbers of freighters were backed up around the two busiest U.S. cargo hubs on Sunday because of a dispute between shipping companies and dockworkers that has led to a partial shutdown of ports along the West Coast. With cargo delays rippling through the U.S. economy, Japanese carmaker Honda Motor Co Ltd said it planned to slow production at some of its North American plants starting on Monday because of a lack of parts from Asia. Under pressure to address the months-long strife, President Barack Obama on Saturday dispatched U.S. Labor Secretary Tom Perez to California to help broker an agreement. By Sunday morning, 34 container ships, tankers and other cargo vessels were waiting to dock at the ports of Los Angeles and Long Beach, California, up from 32 on Saturday, said Lee Peterson, a spokesman for the port of Long Beach. Cargo ships waiting at anchor and unable to load their goods were visible from highways and beaches for miles along the coast, an unusual spectacle, he said. Those delays have slowed deliveries of a wide range of goods, from agricultural produce to housewares and apparel, leading retailers to pressure Obama to intervene. Honda, which had already resorted to transporting some parts by airplane, said it would adjust production at plants making models including the Civic, CR-V, Accord and Acura.

Labor secretary to help reach West Coast port deal (Reuters) - Labor Secretary Tom Perez will travel to California to help broker an agreement between shipping companies and dockworkers in a dispute that has led to a partial shutdown of ports along the U.S. West Coast, the White House said on Saturday. The move by the Obama administration came after shippers vowed to prevent the loading and unloading of freight through Monday from container ships at the 29 ports, barring a settlement in talks with the dockworkers' union. The shipping companies said they were unwilling to pay union workers higher wages for weekend shifts and the Presidents Day holiday on Monday while productivity declines and cargo backups reach the point of near gridlock, after months of chronic congestion in freight traffic. The impact of the dispute has rippled through the U.S. commercial supply chain, slowing deliveries of a wide range of goods, from agricultural produce to housewares and apparel. "The negotiations over the functioning of the West Coast ports have been taking place for months with the administration urging the parties to resolve their differences," White House spokesman Eric Schultz said. "Out of concern for the economic consequences of further delay, the president has directed his Secretary of Labor Tom Perez to travel to California to meet with the parties to urge them to resolve their dispute quickly at the bargaining table."

White House to intervene in West Coast ports strike - — With the West Coast dock strike reaching a critical point, the White House announced Saturday that Labor Secretary Thomas Perez would start talks with the two sides. "The negotiations over the functioning of the West Coast Ports have been taking place for months with the Administration urging the parties to resolve their differences," White House spokesman Eric Schultz said in a statement. "Out of concern for the economic consequences of further delay, the President has directed his Secretary of Labor Tom Perez travel to California to meet with the parties to urge them to resolve their dispute quickly at the bargaining table." "Secretary Perez is already in contact with the parties and will keep the President fully updated," Schultz added. Dockworkers and port operators have been in negotiations over a new contract since May, but talks have stalled, resulting in accusations of work slowdowns and lockouts. The dispute has caused back-ups in shipping, turning the waterways off the coast into parking lots for container ships and other vessels.

A labor dispute slowed America’s ports to a halt. But there’s an even bigger problem. -  On Tuesday, President Obama dispatched Labor Secretary Tom Perez to fix something that nearly brought international marine commerce on the west coast to a halt over the long weekend: a lockout of the dockworkers, who are mired in a contract battle with the owners of the 29 ports from San Diego to Bellingham, Wash. Retailers have gnashed their teeth over the delay, which some analysts say could add up to $7 billion in extra costs this year, leading to spoiled goods and understocked shelves. What’s the fight about? The contract expired last July, and the Pacific Maritime Association — which bargains for the shippers — has accused the International Longshore and Warehouse Union of slowing down work to gain leverage. One last sticking point over arbitration procedures resulted in a fruitless meeting on Friday, and the ports decided to shut down rather than pay overtime on the holiday weekend. But labor isn’t the only problem America’s ports face. A rapidly increasing amount of cargo arriving in ever larger ships has scrambled normal operations in west coast ports, requiring costly and time-consuming infrastructure upgrades and leaving the dockworkers union trying to maintain as much control over the process as it can. Despite the intense pressure on the union and the shippers to come to an agreement, Kevin Ricciotti — a marine insurance salesman who chairs the Harbor Transportation Club, a trade association — knows it won’t solve everything. “The dirty little secret here with the ports of L.A. and Long Beach is that while everyone’s trying to put the emphasis on labor,” Ricciotti says, "there are some underlying issues that we have currently right now that are only going to manifest themselves later down the road."

Track The Massive Congestion At The Port Of Long Beach In Real Time -- Things on the West Coast Ports are going from bad to worse (for those who missed it read "Catastrophic Shutdown Of America's Supply Chain" Begins: Stunning Photos Of West Coast Port Congestion), and with no resolution in sight, it is now beginning to cripple the US economy. Here is not only a brief summary of how the near-strike is impacting various businesses across the US,  but also a map to track the congestion at Long Beach harbor in real time.

U.S. West Coast ports, union reach tentative labor deal: A group of shipping companies and a powerful dockworkers union clinched a tentative labor deal on Friday after nine months of negotiations, settling a dispute that disrupted the flow of cargo through 29 U.S. West Coast ports and snarled trans-Pacific maritime trade with Asia. The settlement, confirmed in a joint statement by the two sides, was reached three days after U.S. Labor Secretary Thomas Perez arrived in San Francisco on Tuesday to broker a deal with the help of a federal mediator who had joined in the talks six weeks earlier. The White House called the deal "a huge relief" for the economy, businesses and workers. President Barack Obama urged the parties "to work together to clear out the backlogs and congestion in the West Coast ports as they finalize their agreement," the White House said in a statement. The 20,000 dockworkers covered by the tentative five-year labor accord have been without a contract since July.

Labour deal avoids US ports shutdown - The US on Friday avoided a damaging full shutdown of some of its most important ports when President Barack Obama’s labour secretary successfully brokered agreement on a new contract between employers and the union at facilities on the Pacific Coast. The agreement, after nine months of talks, should start to ease the crippling congestion that has hit the ports since November amid an apparent unofficial slowdown by members of the International Longshore and Warehouse Union. However, the episode has also highlighted the fundamental challenges facing US ports, particularly in California, Oregon and Washington, as they grapple with the demands of fast-rising volumes and new, much bigger ships. Neither the ILWU nor the Pacific Maritime Association, representing employers, gave details of the tentative agreement that had been struck. But they had previously said they were close to finalising a five-year deal that would increase worker wages, maintain their healthcare benefits and increase their maximum pensions.

U.S. Industrial Production Rises Modestly  - Industrial production at U.S. factories, mines, and utilities rose 0.2 percent in January, rebounding from the previous month, as utility output rose amid colder weather, the government reported Wednesday. The Federal Reserve (Fed) said factory production, the biggest component of industrial output, rose 0.2 percent last month as manufacturers made more computers, clothing, and metals, offsetting declines in autos and aerospace. Factory production was flat in December Utility output jumped 2.3 percent as heating demand increased, while mining production fell 1 percent due to a sharp decline in oil and natural-gas drilling, the Fed said. Oil prices have fallen by half since last summer, causing drilling companies to delay digging new wells and limiting energy extraction. The modest increase in January industrial production suggests manufacturing still is supporting economic growth, though it is weaker than last year. Greater U.S. consumer spending is barely offsetting the impact of weakness overseas. Growth in the euro zone is weak, Japan has just exited recession, and China‚„s economy is growing more slowly than its recent historical rate. U.S. exports fell in December, increasing the trade deficit to its widest level in more than two years. Moreover, the rising value of the dollar against other currencies makes U.S. products more expensive abroad, making U.S. manufacturers rely more on domestic demand.

Fed: Industrial Production increased 0.2% in January -- From the Fed: Industrial production and Capacity Utilization Industrial production increased 0.2 percent in January after decreasing 0.3 percent in December. The rates of change in output for September through December are all slightly lower than previously published; even so, production is estimated to have advanced at an annual rate of 4.3 percent in the fourth quarter of last year. In January, manufacturing output moved up 0.2 percent and was 5.6 percent above its year-earlier level. The index for mining decreased 1.0 percent, with the decline more than accounted for by a substantial drop in the index for oil and gas well drilling and related support activities. The output of utilities increased 2.3 percent. At 106.2 percent of its 2007 average, total industrial production in January was 4.8 percent above its level of a year earlier. Capacity utilization for the industrial sector was unchanged in January at 79.4 percent, a rate that is 0.7 percentage point below its long-run (1972–2014) average.  This graph shows Capacity Utilization. This series is up 12.5 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 79.4% is 0.7% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production increased 0.2% in January to 106.2. This is 26.8% above the recession low, and 5.4% above the pre-recession peak. This was below expectations, and there were downward revisions to prior months.

Industrial Production Expands to Mediocre Growth for January 2014 -- The Federal Reserve Industrial Production & Capacity Utilization report shows industrial production gained 0.2% in January.   There were also revisions back to August with all but one month revised downward.   December was revised to a -0.3% decline and November's blow out was toned down to 1.1% growth increase.  Manufacturing alone grew by 0.2% and utilities jumped up 2.3% in January on weather.  Mining, which includes oil, decreased by -1.0%.  The drop in oil prices is clearly having an impact on oil production in the United States, yet in December mining overall jumped up by 2.1%.  The G.17 industrial production statistical release is also known as output for factories and mines.  Total industrial production has now increased 4.8% from a year ago after the new revisions.  Currently industrial production is 6.2 percentage points above the 2007 average.  Below is graph of overall industrial production's percent change from a year ago.  Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +5.6%
  • Mining:             +8.5%
  • Utilities:           -6.6%

Manufacturing output is 2.1 percentage points it's peak 2007 Level.  Motor vehicles and parts dropped -0.6%, while vehicles by themselves dropping -1.5%.  Computers and parts increased 1.2% for the month.

US Industrial Production Misses (Again) As Manufacturing & Construction Growth Disappoint -- With a mere 0.2% rise in manufacturing production (missing expectations of a 0.4% rise), and capacity utilization printing 79.4%, missing expectations of a rise to 79.9%, it is no surprise that overall industrial production missed expectations for the second month in a row. Motor vehicle production fell 0.6% in January and construction supply fell 0.3% - the most in 10 months.

The Big Four Economic Indicators: Industrial Production - According to the Federal Reserve, "Industrial production increased 0.2 percent in January after decreasing 0.3 percent in December. The rates of change in output for September through December are all slightly lower than previously published; even so, production is estimated to have advanced at an annual rate of 4.3 percent in the fourth quarter of last year." The full report is available here. Today's month-over-month increase of 0.19 percent (to two decimal places) follows a downwardly revised -0.28 percent in December (previously reported at -0.11 percent). Today's headline number came in below the consensus expectation of a 0.4 percent increase. As I've mentioned before, my personal view is that Industrial Production is the least useful of the Big Four economic indicators. It's a hodge-podge of underlying index components and subject to major revisions, which undercuts its value as a near-term indicator of economic health. As a long-term indicator, it needs two key adjustments to have any correlation with economic reality. First, it should be adjusted for inflation using some sort of deflator relevant to production. Second, it should be population-adjusted. The chart below is my preferred way to look at Industrial Production over the long haul. I've used the Producer Price Index for All Commodities as the deflator and Census Bureau's mid-month population estimates to adjust for population growth. I've indexed the adjusted series so that 2007=100. The January index, calculated in this fashion, is an even 90.0 percent, ten percent below the 2007 benchmark.

Consumers May Have to Use Pump Savings to Pay Utility Bills - With Old Man Winter bearing down on a major part of the U.S., consumers may be diverting money from the gasoline pump and into the oil tank.  On Wednesday, the Federal Reserve reported output at U.S. utilities rebounded 2.3% in January after warmer-than-normal temperatures in December caused a 6.9% drop in energy demand.  Frigid temperatures mean more households are turning up the thermostat. With winter storms continuing to batter broad parts of the U.S., demand for heat should continue to rise this month, which will push utility output and household spending on utilities up further.  How to pay those high heating bills? Consumers may well have to use the money saved from cheaper gasoline. If that’s the case, the mystery of weak retail sales will continue into the first quarter. Consumers faced similar high heating bills in the winter of 2014 when the polar vortex froze much of the U.S.  Spending on utilities spiked to a record high in the first quarter of 2014, eclipsing all previous records.  Although spending on utilities makes up only about 2% of all household purchases, the sector accounted for two-thirds of the increase in total consumer spending in 2014′s first quarter.  Retail sales started off that quarter extremely weak, finally making up ground in March. Economists have been wondering why the plunge in gasoline prices has not translated into a strong gain in retail shopping. Last week the Commerce Department reported total retail sales fell 0.8% in January following a 0.9% decline in December. Even when gasoline sales are excluded, store receipts saw a 0.2% drop in December and no change last month.

NY Fed: Empire State Manufacturing Survey indicates "business activity continued to expand at a modest pace" in February  From the NY Fed: Empire State Manufacturing Survey The February 2015 Empire State Manufacturing Survey indicates that business activity continued to expand at a modest pace for New York manufacturers. The headline general business conditions index edged down two points to 7.8. The new orders index fell five points to 1.2—evidence that orders were flat—while the shipments index climbed to 14.1. Employment indexes pointed to an increase in employment levels and little change in the average workweek. ....Indexes assessing the six-month outlook, though generally positive, conveyed considerably less optimism about future business activity than in recent months. The index for future general business conditions plunged twenty-three points to 25.6, its lowest level in more than two years. This is the first of the regional surveys for February.  The general business conditions index was below the consensus forecast of a reading of 9.0, and indicates modest expansion in February.

Empire State Manufacturing: Modest Expansion, But Down 2.2 Points from Last Month -  This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at 7.8 shows a 2.2 point slippage from last month's 10.0, which signals expansion at a modest pace.The forecast was for a reading of 8.5.The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report. The February 2015 Empire State Manufacturing Survey indicates that business activity continued to expand at a modest pace for New York manufacturers. The headline general business conditions index edged down two points to 7.8. The new orders index fell five points to 1.2�evidence that orders were flat�while the shipments index climbed to 14.1. Employment indexes pointed to an increase in employment levels and little change in the average workweek. The prices paid index inched up two points to 14.6, indicating continued moderate input price increases, while the prices received index fell nine points to 3.4, suggesting a slowdown in selling price increases. Indexes for the six-month outlook, while generally positive, conveyed markedly less optimism than in recent months, with the index for future general business conditions falling twenty-three points. The capital spending index shot up eighteen points to 32.6, its highest level in more than three years.Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire Fed Slides, Misses As New Orders Tumble And Hope Collapses -- Following January's bounce back from December's collapse to 2-year lows, Empire Fed fell back modestly in Feb. Against expectations of a small drop to 8.00 (from 9.95), it printed 7.78 - basically flat now for 2 years. Under the hood things are a lot more concerning as New Orders tumbled from 6.09 to 1.22 and number of employees slipped from 13.68 to 10.11. What is perhaps the most concerning for the ever-hopeful multiple expanding dreams of equity market wealth, future business expectations collapsed from 48.35 to 25.58 - the biggest drop since Jan 09 (along with a plunge in expected workweek from 11.58 to 1.22).

Philly Fed Manufacturing Survey declines to 5.2 in February - From the Philly Fed: February Manufacturing Survey Firms responding to the Manufacturing Business Outlook Survey indicated continued modest growth in the region’s manufacturing sector in February. Although the current activity index fell for the third consecutive month, it remained positive, and the employment indicator increased from its reading last month. The survey’s future activity index also fell but continues to reflect general optimism about manufacturing growth in the region over the next six months.... The diffusion index for current general activity fell slightly, from a reading of 6.3 in January to 5.2 this month ... The survey’s indicators for current labor market conditions suggest a slight improvement this month, as the employment index increased 6 points and returned to a positive reading ... This was below the consensus forecast of a reading of 8.5 for January. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The light blue line is an average of the NY Fed (Empire State) and Philly Fed surveys through February. The ISM and total Fed surveys are through January. The average of the Empire State and Philly Fed surveys declined in February, and this suggests a slightly weaker ISM report for February.

Philly Fed Business Outlook: Continued Modest Growth - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 5.2, a decline from last month's 6.3 and the lowest reading since the -2.0 contraction in February of last year. The 3-month moving average came in at 11.9, down from 23.6 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was essentially unchanged at 29.7 versus the previous month's 50.9. Here is the introduction from the Business Outlook Survey released today: Firms responding to the Manufacturing Business Outlook Survey indicated continued modest growth in the region’s manufacturing sector in February. Although the current activity index fell for the third consecutive month, it remained positive, and the employment indicator increased from its reading last month. The survey’s future activity index also fell but continues to reflect general optimism about manufacturing growth in the region over the next six months. (Full PDF Report)  Today's 5.2 came in below the 9.3 forecast at The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now above its post-contraction peak in September of last year.

Philly Fed Down 3rd Month In A Row, "Hope" Plunges Most Since Lehman - Following January's crash in Philly Fed from 21-year highs to 12-month lows, expectations among the Keynesian-gazers was for a mean-reverting bounce... it didn't. Falling for the 3rd month in a row, Philly Fed printed a worse-than-expected 5.2 (against 8.43 exp), its lowest in a year. New Orders tumbled to its lowest in a year but most critically, "hope" - the six-month forward outlook index  - tumbled from 50.9 to 29.7 - the biggest MoM drop since lehman.

Manufacturing PMI Signals "US Economy Has Entered A Slower Growth Phase"; Employment, New Orders Tumble -- Having hovered at its lowest level in 12 months in January, February's Markit US Manufacturing PMI printed 54.3 (modestly above expectations of 53.6). Under the covers it is a very different story with New orders dropping to their lowest level since Jan 2014 and employment falling. While the headline will likely steal the day (though initial equity reactions are negative), as Markit concludes, "the rate of economic growth remains well down on last year."

What Size Firm Has Created the Most Jobs in the Recovery? - St. Louis Fed -  In general, large firms proportionally destroy more jobs than small firms when unemployment is above trend and create more jobs when unemployment is below trend. A recent Economic Synopses essay examines whether this has been the case during the recovery from the Great Recession. Economist Maria Canon and Senior Research Associate Yang Liu, both with the Federal Reserve Bank of St. Louis, examined job gains and losses by firm size for recession years and for the years before and after the past two recessions, with the results displayed in the table below.  As shown in the table, Canon and Liu found that small firms did indeed create a higher fraction of new jobs and destroyed a smaller fraction of jobs late in the recessions. However, in the four years following the Great Recession, the share of jobs created by small firms decreased from 56.31 percent to 52.97 percent, while the share created by large firms increased from 20.25 percent to 23.48 percent, despite unemployment still being above trend. Shares of job losses, on the other hand, followed traditional patterns during and after the Great Recession. Small firms’ share of job losses fell during the recession, then rose sharply during the subsequent recovery, while large firms’ share of job losses rose during the recession, then fell during the recovery.

New Jobless Claims at 283K, Beats Expectations -- Here is the opening statement from the Department of Labor: In the week ending February 14, the advance figure for seasonally adjusted initial claims was 283,000, a decrease of 21,000 from the previous week's unrevised level of 304,000. The 4-week moving average was 283,250, a decrease of 6,500 from the previous week's unrevised average of 289,750.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted 283K came in below the forecast of 293K. The four-week moving average at 283,250 is now only 4,250 above its 14-year interim low set fifteen 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.

Texas Initial Jobless Claims Surge Higher As Continuing Claims Jump Most In 2015 - For the 9th week in a row, the smoothed average of initial jobless claims in Texas surged (Other Shale States - PA, ND, and CO also saw a notable rise in claims). While Tennessee's levels were estimated, the broad levels of claims send a mixed message. Initial claims beat expectations, fell from 304k to 283k with the trend now clearly flat since September. However, Continuing Claims jumped 58k to 2.425 million - the biggest jump in 2015, notably missing expectations. The trend of employmenmt has clearly changed...

Basic personality changes linked to unemployment: Unemployment can change peoples' core personalities, making some less conscientious, agreeable and open, which may make it difficult for them to find new jobs, according to research published by the American Psychological Association. "The results challenge the idea that our personalities are 'fixed' and show that the effects of external factors such as unemployment can have large impacts on our basic personality," said Christopher J. Boyce, PhD, of the University of Stirling in the United Kingdom. "This indicates that unemployment has wider psychological implications than previously thought." ... The study suggests that the effect of unemployment across society is more than just an economic concern -- the unemployed may be unfairly stigmatized as a result of unavoidable personality change, potentially creating a downward cycle of difficulty in the labor market, Boyce said. "Public policy therefore has a key role to play in preventing adverse personality change in society through both lower unemployment rates and offering greater support for the unemployed," Boyce said. "Policies to reduce unemployment are therefore vital not only to protect the economy but also to enable positive personality growth in individuals."

Junk the phrase ‘human capital’ - Since Adam Smith, economists have known that there is a difference between more and less skilled labor. Under skill, we include education (measured by years of formal schooling), experience (measured by the years one has worked) and, less precisely definable, knowledge. Whether using Marxian or neoclassical economic theory, people with greater skills are supposed to be paid more because they produce greater value. It is this combination of education, experience and knowledge that economists Jacob Mincer and Gary Becker decided in the early 1960s to term “human capital.” There is nothing new in the phrase nor anything harmful as such. We can call a more skilled person a person with greater human capital or use any other term, as long as we know and agree on what we mean. Calling it “human capital” appears a mere terminological quirk: We could just as well say that a more skilled person has greater “skilz” or whatever we decide to call it. So if the name that we give to more skilled labor, whether “human capital” or “skilz,” does not matter, why is “human capital” such a disastrous turn of phrase? There are two reasons. First, it obfuscates the crucial difference between labor and capital by terminologically conflating the two. Labor now seems to be just a subspecies of capital. Second and more important, it leads to a perception — and sometimes to the argument used by insufficiently careful economists — that all individuals, whether owners of real capital or not, are basically capitalists. Even if you have human capital and I have financial capital, we are fundamentally the same. Entirely lost is the key distinction that for you to get an income from your human capital, you have to work. For me to get an income from my financial capital, I do not.

No, negotiating a currency chapter in the TPP will not cause a trade war or cost us jobs.  - You really need an anthology of catch-phrases you hear in this benighted town of DC to understand the difference between what people actually say and what they mean. When someone says “my good friends from the other side of the aisle…,” they’re not really good friends. And when someone says, “that will cause a trade war!” it means they badly want to pass a trade agreement that’s got a deep flaw, and rather than fix the flaw, they threaten you with the prospect of war. This ridiculous tactic was on full display today in a NYT piece on how members of Congress are, to their great credit, insisting that the Trans Pacific Partnership (TPP) contain strong, actionable provisions against currency management by those with whom we trade. According to a spokesman for Rep. Paul Ryan, who’s working with the administration to pass the TPP, “retaliatory enforcement rules” against countries who manage their currency “could prompt a trade war” and “jeopardize our status as the world’s leading currency.”  Utter nonsense. To insist on such provisions could, as is the administration’s and Ryan’s real and legitimate concern, scuttle the trade deal on which they’ve been working for years, though that’s not at all a slam dunk. In fact, the article supports a contrary point I’ve made recently based on interactions with members of Congress that the only way Congress will ratify the treaty may be if our negotiators take action on currency.

How Third Way Trade Agreements Study Distorts Via Omission to Pave Way for TTP and TTIP - Yves Smith - Third Way (h/t TPM), a Democratic pro-trade think tank, has released a new study, “Are Modern Trade Deals Working?” It examines the various “free trade” deals the U.S. has signed since 2000 to conclude that 13 of 17 have led to an improvement in our goods (not including services; see more below) trade balance with the countries involved, giving a net improvement over the 17 agreements studied of $30.2 billion per year. I did a similar analysis of this very question (though in less detail than the Third Way study) in 2012. Unlike the Third Way report, my post included all U.S. free trade agreements (rather than starting in 2001 like Third Way) as well as the effect of the 2000 agreement for Permanent Normalized Trade Relations (PNTR) with China. So, compared to the Third Way study, my post includes the FTAs with Israel, Canada, and Mexico, but did not consider the Panama FTA, which had not yet come into effect when I posted. My conclusion was essentially the same as Third Way’s, that the effects of the agreements on our trade in goods were usually positive, but of small size (the effect of the Israel FTA was also small). Because the Third Way study begins in 2001, however, it omits the impacts of NAFTA and PNTR with China. However, as my post showed, they are the most important by far.This fact is not lost on opponents of the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Lori Wallach of Public Citizen Global Trade Watch told the Associated Press that “studies such as Third Way’s make a big deal out of modest trade improvements with countries like Panama, and gloss over huge trade deficits with major trading partners such as South Korea, Mexico and Canada.” She’s right.

How Trade Deals Boost the Top 1% and Bust the Rest -  Robert Reich - Suppose that by enacting a particular law we’d increase the U.S.Gross Domestic Product. But almost all that growth would go to the richest 1percent. The rest of us could buy some products cheaper than before. But those gains would be offset by losses of jobs and wages. This is pretty much what “free trade” has brought us over the last two decades. I used to believe in trade agreements. That was before the wages of most Americans stagnated and a relative few at the top captured just about all the economic gains. Recent trade agreements have been wins for big corporations and Wall Street, along with their executives and major shareholders. They get better access to foreign markets and billions of consumers. They also get better protection for their intellectual property – patents, trademarks, and copyrights. And for their overseas factories, equipment, and financial assets. But those deals haven’t been wins for most Americans. The fact is, trade agreements are no longer really about trade. Worldwide tariffs are already low. Big American corporations no longer make many products in the United States for export abroad. The biggest things big American corporations sell overseas are ideas, designs, franchises, brands, engineering solutions, instructions, and software.   But those profits don’t depend on American labor — apart from a tiny group of managers, designers, and researchers in the U.S. To the extent big American-based corporations any longer make stuff for export, they make most ofit abroad and then export it from there, for sale all over the world — including for sale back here in the United States.

Paul Ryan looks forward to passage of bill limiting congressional input on controversial trade deal: The chairman of a U.S. congressional committee responsible for trade said on Thursday he expects passage of legislation to fast-track trade deals soon, a vital step towards a Pacific trade pact covering a large chunk of the global economy. Negotiators from 12 Pacific nations hope to conclude talks on a Trans-Pacific Partnership (TPP) within months, and House Ways and Means Committee Chairman Paul Ryan said legislation known as trade promotion authority (TPA) should pass soon, easing a major hurdle. “We’re very close, we’re in the 11th hour of negotiating the final pieces of TPA,” Ryan, in Tokyo with a Congressional delegation for negotiations, told a news conference ahead of a meeting with Japanese Prime Minister Shinzo Abe. “Once those negotiations are wrapped up we anticipate moving … fairly quickly, and that’s really this spring,” he said. Ryan said he hoped the TPP could then be concluded soon after the TPA was passed. Dave Reichert, a lawmaker who is also a member of Ryan’s committee, said they hoped to clinch a deal by the end of the year.

Federal judge temporarily blocks Obama's immigration executive action  -- A federal judge has granted a request by 26 states to temporarily block President Obama's executive action on illegal immigration, allowing a lawsuit aimed at permanently stopping the orders to make its way through the courts. U.S. District Judge Andrew Hanen granted the preliminary injunction Monday after hearing arguments in Brownsville, Texas last month. He wrote in a memorandum accompanying his order that the lawsuit should go forward and that without a preliminary injunction the states will "suffer irreparable harm in this case." "The genie would be impossible to put back into the bottle," he wrote, adding that he agreed with the plaintiffs' argument that legalizing the presence of millions of people is a "virtually irreversible" action. The first of Obama's orders -- to expand a program that protects young immigrants from deportation if they were brought to the U.S. illegally as children -- was set to start taking effect Wednesday. The other major part of Obama's order, which extends deportation protections to parents of U.S. citizens and permanent residents who have been in the country for some years, was not expected to begin until May 19. White House Press Secretary Josh Earnest, in a statement, reiterated the administration's position that Obama's executive actions were within the bounds of the law -- and indicated they would appeal.

New Data Show How Firms Like Infosys and Tata Abuse the H-1B Program -- The outsourcing companies involved in the Southern California Edison (SCE) scandal I wrote about last week—where U.S. workers were replaced with H-1B guestworkers—are Infosys and Tata Consultancy Services. These two India-based IT firms specialize in outsourcing and offshoring, are major publicly traded companies with a combined market value of about $115 billion, and are the top two H-1B employers in the United States. In Fiscal Year (FY) 2013, Infosys ranked first with 6,269 H-1B petitions approved by the government, and Tata ranked second with 6,193. As with the SCE scandal, these leading offshore outsourcing firms use the H-1B program to replace American workers and to facilitate the offshoring of American jobs. Because of this, it’s likely that Americans lost more than 12,000 jobs to H-1B workers in just one year. FY13 H-1B data I’ve analyzed, acquired through a Freedom of Information Act request, reveals new details about how firms like Infosys and Tata are using the H-1B nonimmigrant visa program. Spoiler alert: they don’t use the H-1B visa as a way to alleviate a shortage of STEM-educated U.S. workers; they use it primarily to cut labor costs. But the other main arguments proffered to support an expansion of the H-1B program are easily debunked with even a cursory look at the H-1B data.

What's (Not) Up with Wage Growth? -- Atlanta Fed's macroblog -- In recent months, there's been plenty of discussion of the surprisingly sluggish growth in hourly wages. It certainly has the attention of our boss, Atlanta Fed President Dennis Lockhart, who in a speech on February 6 noted that The behavior of wages and prices, in contrast, remains less encouraging, and, frankly, somewhat puzzling in light of recent growth and jobs numbers. So what's up—or not up—with wage growth? Using samples of matched worker-level wage data from the U.S. Bureau of Labor Statistics' Current Population Survey, chart 1 plots the annual time series of median 12-month growth rates in per-hour wages. Like most wage growth measures, this chart indicates that wage growth has been gradually increasing since the end of the recession, but growth remains quite a bit lower than before the recession began. Prior to the recession, the median growth rate of wages was around 4 percent a year. This growth rate declined to 1.7 percent in 2010 (as the incidence of wage freezes become much more prevalent, as shown in this research) and increased to 2.5 percent in 2014. For comparison, the chart also shows the annual growth in the Employment Cost Index's measure of wages. The trends in the two measures are broadly similar.  We can sum up our findings by saying that median wage growth is higher for some characteristics than others, and the recent trend in wage growth is generally positive across characteristics. But none of the characteristic-specific median growth rates we looked at are close to returning to prerecession levels. Lower-than-normal wage growth appears to be a very widespread feature of the labor market since the end of the recession.

The Robots Are Coming for Your Paycheck -  A paper out this month concludes smart machines, such as robots, have the potential to destroy good-paying jobs and damage the economy. “In other words, technological progress can be immiserating,” Benzell, Kotlikoff, LaGarda and Sachs write. The study, “Robots are Us: Some Economics of Human Replacement,” is careful to note that’s not the only possible outcome. But it does predict a long-run decline in labor’s share of income, a cycle of tech booms and busts, and a growing dependency on past software investment rather than continued. Economists have long debated the role of technology and the future of the economy. And clearly automation is playing a bigger and bigger role in daily life. Messrs. Benzell, Kotlikoff, LaGarda and Sachs look specifically at the creation of software code that powers machines used to produce goods–that is, robots. Their worry is that the stock of good code will grow during a boom to the point that the demand for new code will decline, leading to lower wages in the high-tech field. That, in turn, means less savings and investment, and the accumulation of fewer assets. “The long run in such a case is no techno-utopia,” the authors say. “Yes, code is abundant. But capital is dear. And yes, everyone is fully employed. But no one is earning very much.” During the ensuing bust, consumption falls and not enough capital accumulates for the next round of investment. “In short, when smart machines replace people, they eventually bite the hands of those that finance them,” the authors say.

Wages Stagnated or Fell Across the Board in 2014—With One Notable Exception -- Yesterday, I released a report that looked at the most recent reliable data on Americans’ wages—by decile and by educational attainment, through 2014. These data are illuminating, because they let us look beneath the hood on the overall wage story, going beyond the topline trends that are usually covered by the media. The recovery has entered a period of solid job growth. That good news shouldn’t be overstated—if we continue to see 2014’s average rate of job growth, it will still be 2017 before we return to pre-recession labor market health—but the economy has been adding jobs at a respectable clip. However, decent wage growth has yet to be seen. From 2013 to 2014, real, inflation-adjusted hourly wages stagnated or fell across the board, with one notable, revealing exception.  Let’s start at the top of the wage distribution: those workers with the most education and the highest wages. Over the last year, real wages at the top of the wage distribution fell—by 0.7 percent at the 90th percentile and 1.0 percent at the 95th percentile. Real wages fell for workers with a 4-year college degree—a drop of 1.3 percent—and even more for those workers with an advanced degree—a decline of 2.2 percent. This sends a clear message: If even these groups of highly educated workers facing the lowest rates of unemployment are seeing outright wage declines, there is clearly lots of slack left in the American labor market, and policymakers—particularly the Federal Reserve—should not try to slow the recovery down in an effort to keep wage and price inflation in check. They’re both already firmly in check even for the most privileged workers.

Wal-Mart Is Giving Half a Million Employees a Raise - Wal-Mart is celebrating a surprisingly strong U.S. holiday season by spreading the wealth a bit.  The world’s largest retailer and the nation’s largest private employer is increasing hourly wages for its current U.S. store associates to more than $9 per hour or higher beginning in April. That increase is at least $1.75 above the federally mandated minimum wage. The decision will impact thousands of full and part-time U.S. employees. .  Wal-Mart, often maligned by labor advocates that have long argued the retailer can pay its employees more, is seemingly heeding that call. Even Fortune’s Stephen Gandel has argued Wal-Mart could afford to pay its employees up to 50% more without disappointing Wall Street.   Wal-Mart isn’t aiming as high as Gandel suggested, but it is certainly making a notable move with the increase. Wal-Mart said by February of next year, all current U.S. associates would make $10 an hour or more. The company is also piloting a training program to help employees move out of entry-level positions and potentially make $15 an hour and more with increased responsibilities. Wal-Mart employees about 500,000 full-time and part-time associates at its’ U.S. Wal-Mart and Sam’s Club stores.The pay hike comes as Wal-Mart reported a strong 1.7% increase in U.S. same-store sales, a key metric for retailers. That was better than the 0.7% jump that analysts had anticipated, according to a poll conducted by Consensus Metrix.

What Wal-Mart’s Pay Raise May Mean For Other Workers -- Wal-Mart Stores Inc. on Thursday pledged boost pay for its U.S. employees to at least $9 an hour this year, a rate that is well above the federal minimum wage, but at or below the pay floor set in seven states and the District of Columbia.  With minimum-wage increases that took effect at the start of the year, several states, including California, Connecticut and Massachusetts, have pay floors at or above $9 an hour. Washington has the highest state minimum at $9.47 an hour. The federal rate is $7.25 an hour. At least two more states—Minnesota and New York—plan to set $9 an hour minimum wages later this year. By Feb. 1, 2016, Wal-Mart expects its employees to earn at least $10 per hour. That rate would match California’s increase to $10 an hour at the start of next year and exceeds the expected pay floor in all other states, according to data from National Conference of State Legislatures. By 2018, at least five more states will have rates of $10 or more. The raises affect about 500,000 employees at Wal-Mart and Sam’s Club stores, or about a third of the company’s 1.4 million U.S. workers. The pay increase adds to upward pressure already felt by low-wage employers. Gap Inc. last year said the clothing store would raise starting pay to $10 an hour. Other companies, including  Starbucks Corp., Costco Wholesale, Hobby Lobby Stores Inc. and IKEA Group tout that all their workers earn more than the minimum wage. Average hourly earnings for retail workers rose 3% in the past year, a faster rate than overall wage growth of just above 2%. The wage gains coincided with the unemployment rate falling to 5.7% last month from 6.6% a year earlier. With states and companies raising pay floors, relatively few workers earn the federal minimum or less per hour, according to the Labor Department.  In 2013, 3.3 million workers earned the federal minimum, or 4.3% of hourly wage earners. Of those workers,  14% worked in retail jobs. Nearly half worked in food service.

Critics See Wal-Mart Wage Boost as First Step - Wal-Mart has long been the company that many liberals and labor activists love to hate. And the retail giant’s Thursday announcement that it would voluntarily boost wages to at least $10 an hour for all employees by 2016 is unlikely to lead to a wholesale reappraisal of company’s reputation and its labor practices by its most ardent critics. Wal-Mart said the changes aim to reward employees with better pay, as well as offer employees closer relationships with supervisors, better management of departments and improved scheduling of hours. It pegged the cost of the moves at $1 billion this fiscal year. “These changes will give our U.S. associates the opportunity to earn higher pay and advance in their careers. We’re pursuing a comprehensive approach that is sustainable over the long term,” said Wal-Mart Stores CEO Doug McMillon. While progressives cheered the news, they also said that it doesn’t erase the need for wider congressional action to raise wages and labor standards. President Barack Obama lobbied for an increase in the federal minimum hourly wage to $10.10 last year, but ran into opposition from Republicans, who contend such a move would hurt job creation and sink the economic recovery. While progressives cheered the news, they also said that it doesn’t erase the need for wider congressional action to raise wages and labor standards. President Barack Obama lobbied for an increase in the federal minimum hourly wage to $10.10 last year, but ran into opposition from Republicans, who contend such a move would hurt job creation and sink the economic recovery.

As Walmart Gives Raises, Other Employers May Have to Go Above Minimum Wage - Walmart is the biggest private employer in America, with 1.3 million United States workers. And many of them will soon see a raise, in the latest snippet of corporate news that suggests a firmer job market is starting to enable workers to successfully demand higher pay.The company said it would pay even its lowest-level workers at least $9 an hour starting this spring, comfortably above the $7.25 federal minimum wage, and push that to $10 in 2016. The company also said it would strengthen a “department manager” role, giving it a minimum wage of $13 per hour this year and $15 next, thus offering low-wage hourly workers a clearer path to advancement. Including similar bumps at Walmart-owned Sam’s Clubs, the company expects 500,000 workers to receive a raise at a cost of $1 billion a year, executives said in a conference call with reporters. Walmart is surely hoping to get plenty of good press for its decision to offer raises, but it’s worth examining the decision less based on whether they deserve applause on some moral grounds and more based on the economic forces that led them to act. Indeed, the best possible news would be if Walmart’s executives made this decision not out of a desire for good press or for a squishy sense of do-gooderism, but because coldhearted business strategy compelled it.

VW recognizes anti-UAW worker group ACE at Tennessee plant (Reuters) - Volkswagen  said on Monday it had recognized a new group called the American Council of Employees to represent workers at its auto assembly plant in Chattanooga, Tennessee, in addition to the United Auto Workers. Each worker group will represent workers in an unconventional manner set up by VW that allows more than one group to meet with plant management. The ACE is an alternative to and has campaigned against the UAW union, which a year ago lost an election to be the sole representative of workers at the plant. The ACE proved to an outside auditor it had achieved support from at least 15 percent of the plant's hourly and salaried workers, VW said. The UAW two months ago proved support from at least 45 percent of hourly workers at the plant and also represents workers there. The VW policy allows increasing levels of access to plant management based on a group's support level. The UAW at 45 percent has more access to management than the ACE at 15 percent.

Measuring Underground Economy Can Be Done - St. Louis Fed - The informal economy, also known as the underground economy or black market, is very hard to measure. A good example is the produce vendor on the street who sells the same vegetables you find in the supermarket but handles only cash and pays little or no taxes. Nevertheless, this sector adds considerable value to the economy. In developing countries, the informal sector has been estimated to account for about 36 percent of gross domestic product (GDP). In developed countries, it has been estimated to be about 13 percent of GDP.1 (See table.) So how do economists measure the informal sector? This article explains the two main approaches—direct and indirect—and the difficulties that each entails.

Robert Reich -"I spoke yesterday with one of the Democratic Party’s movers and shakers" - I spoke yesterday with one of the Democratic Party’s movers and shakers who said “Democrats should be talking more about economic growth and less about inequality.” I told him he couldn’t be more wrong. Growth isn’t the issue. The economy has been growing nicely. It’s more than twice as large as it was three decades ago. The problem is almost all the growth has gone to the top. If Democrats stand for anything, it should be the wellbeing of the bottom 90 percent whose incomes have been dropping for thirty years, adjusted for inflation. Stop worshipping the GDP and start talking once again about the public good and the common welfare – phrases that have all but disappeared. Economic growth doesn’t matter when the social compact has been shredded, and the basic bargain that once knitted us together has come apart. He seemed not to have the foggiest idea what I was saying. Maybe that’s because he’s a major fundraiser whose personal wealth puts him in the top one-hundredth of 1 percent. That’s a huge problem for the Democrats (and, of course, the Republicans). The money they need to be elected comes from people who don’t understand or care what’s happening to most Americans, and think it’s all about economic growth.

Inequality Has Actually Not Risen Since the Financial Crisis - The notion that income inequality has continued to rise over the past decade is part of the conventional wisdom. You’ve no doubt heard versions: The rich just keep getting richer. Inequality is higher than ever. Nearly all of the gains from the economic recovery have gone to the top 1 percent.  No question, inequality is extremely high from a historical perspective – worrisomely so. But a new analysis, by Stephen J. Rose of George Washington University, adds an important wrinkle to the story: Income inequality has not actually risen since the financial crisis began. How could that be? Because the crisis, which ran roughly from 2007 to 2010, reduced the pretax incomes of the wealthiest Americans more than the incomes of any group. The wealthy have indeed received the bulk of the gains since the recovery began, but they still haven’t recovered their losses. Meanwhile, the steps that the federal government took in response to the crisis, including tax cuts and benefit increases, have mostly helped the nonwealthy. Fascinatingly, Mr. Rose’s case is not based on a new or previously undiscovered data set. It’s based on the same statistics most commentators have been using to discuss inequality. The most up-to-date numbers come from the pathbreaking analysis of tax records by Emmanuel Saez, the University of California, Berkeley, professor who often collaborates with Thomas Piketty. A second set of statistics comes from the Congressional Budget Office.

What’s Wrong with David Leonhardt’s NYT Piece on Inequality? - Pavlina Tcherneva - The New York Times made waves this week with another piece on inequality, saying that it has not risen since 2007. The article was based on this paper by GWU’s Stephen Rose. The article also suggests that expansions are not a good way of looking at trends in inequality (as I have done in the past, also covered by the NYT). Instead, one needs to look at the business cycle. It also concludes that, thankfully, because of government tax and transfer policies, inequality has not been “that bad” over the last few years and governments can clearly do something about it. So what’s wrong with this picture? Here is the graph that appeared in the NYT (I’ve reproduced it below showing only the bottom 90% and top 10% of families using the same Saez data). Now let’s reproduce the exact same graph, using the same data but excluding capital gains. The trends reverse. . Without capital gains, the incomes of the bottom 90% fall faster than with them. It turns out that even though the bottom 90% of families get a very small share of their income from capital gains (less than 2%), for them capital gains are the difference between rapidly falling income and barely falling income. In other words, with capital gains, the bottom 90% didn’t experience as drastic a decline from the 2007 highs, but without them, incomes fell proportionately more than those of the wealthy. In any case, if we include the top 1% and the 0.01% in the above two charts, one would find that they do lose proportionately more including or excluding capital gains. However, the bottom line is this: this exercise gives an extremely narrow look at income distribution trends, based on a very incomplete picture. We live in a casino economy driven by serial asset bubbles, where the incomes of the wealthy (and not just their capital gains) are increasingly tied to stock market performance.  So when the biggest bubble in human history popped, the wealthy families lost a ton of income. At the same time middle class households fell into poverty, lost their decent jobs and pay, and got unemployment insurance or food stamps from the government. Can one really conclude from this that inequality is not “that bad”?

Aid to Needy Often Excludes the Poorest in America -  The safety net helped keep Camille Saunders from falling, but not Charles Constance.The difference? Ms. Saunders has a job, and Mr. Constance does not. And therein lies a tale of a profound shift in government support for low-income Americans at a time when stagnating wages and unstable schedules have kept many workers living near or below the poverty line.Assistance to needy Americans has grown at a gallop since the mid-1980s, giving a hand up to the disabled, the working poor and married couples with children. At the same time, though, government aid directed at the nation’s poorest individuals has shrunk.“Most observers would think that the government should support those who have the lowest incomes the most, and provide less help to those with higher incomes,” Robert A. Moffitt, an economist at Johns Hopkins University, writes in a forthcoming article in the journal Demography. “But that is not the case.”Mr. Moffitt found that government assistance for families whose incomes flutter just above the poverty line nearly doubled from 1983 to 2004 after taking inflation into account. The numbers look very different for those scraping along at the bottom, generally unemployed single mothers with children. Their benefits declined in real terms by about one-third.  “There’s been this emphasis on rewarding workers and people like the elderly or disabled who are considered ‘the deserving poor,’ ” said Mr. Moffitt, referring to a revival in recent decades of age-old attitudes toward those at the bottom of the economic ladder. “If you’re not working, the interpretation is that you’re not trying.”

Why Do Americans Feel Entitled to Tell Poor People What to Eat? -- Last weekend, consumers all across America were buying their slice of the 2.2 billion pounds of chocolate that would be sold for Valentine’s Day. For those who make enough income to afford their basic necessities, that necessitates setting aside some of the money they would have normally spent on rent, clothes or regular groceries to buy candies. For the poor, that could mean using some of their meager food-stamp allocation to give a gift to their loved ones.  The latter method, however, riled up some local news stations. “SNAP accepted for Valentine’s Day candy raises questions,” blared a headline for one station in Tennessee. Reporter Felicia Bolton asked two shoppers what they thought about EBT cards being used to buy candy. They didn’t approve: “If it’s supposed to be nutritional, candy’s not really nutritional,” said one. Curt Autry, at the Richmond, Virginia, NBC affiliate, conducted his own investigation into just how much candy comes in baskets that the poor can buy with food stamps.  Food stamp resentment, as Arthur Delaney has coined it, is a year-round phenomenon. It’s when a random shopper decides that he or she has the authority to dictate what poor people buy with the food stamps that come to a tiny bit over $4 a day, on average. The reason: that this food is being bought with “our” tax dollars, so we should have a say in what it can buy.

Is Welfare Reform Causing Earlier Deaths? - Twenty years ago, “welfare as we knew it” died. Under the bipartisan Personal Responsibility and Work Opportunity Act, the Clinton administration began an agenda of “personal responsibility,” aimed at pushing welfare recipients into self-sufficient nuclear families. But the old welfare system has ended at a price: new research on the cost of reform shows that, while many have been ripped away from the lifeline of government support, nothing is there to catch them as they fall to unprecedented depths. To “incentivize” work, welfare reform replaced the open-ended Aid to Families with Dependent Children (AFDC) program with time-limited Temporary Assistance for Needy Families (TANF), which combined work and training programs with penalties tied to bureaucratic requirements. The concept seemed to work at first: welfare rolls dropped sharply and many entered the workforce, often under mandatory regulations. But those who remained poor and jobless became increasingly vulnerable, and data suggests that pushing them off benefits ultimately pushed them toward earlier death. A recent public health study tests the hypothesis that welfare can be shut off like a leaky faucet and the poor will suddenly become motivated toward self-sufficiency. For those budgetary savings, it seems that people might pay with their lives.

As Oil Prices Slip, North Dakota Struggles to Get a Firm Grip on Its Budget -  Lawmakers in North Dakota have been suffering from dizzy spells lately, and there is only one thing to blame: the price of oil.For months, it has been in free fall, dropping from $100 a barrel in June to below $50 a barrel by January, casting worry over this state, the No. 2 producer of oil in the country. Even a small rally in the price was enough to cheer up legislators on a recent afternoon well into their 80-day session, which began in January.  That volatility has set the stage for an unusually contentious legislative session, a change from previous years when North Dakota was enjoying the boom from richly productive oil fields in the western part of the state.The North Dakota Legislative Assembly meets only once every two years, so lawmakers here are now faced with a challenge: planning a two-year state budget while trying to anticipate how far the price of oil will drop, while also deciding how to split rapidly shrinking revenues among competing regions of the state. Even once popular proposals to cut taxes may be headed for defeat Last week, the House began to debate a measure known as the “surge bill,” which would provide more than $1 billion to counties primarily in the western part of the state. The money would go to infrastructure needs, construction projects and schools in the towns that have grown exponentially during the oil boom of the last decade.The legislature will also consider a bill that would give oil-producing counties in the west a greater share of future oil revenues.

Will Texas Survive The Downturn? - Texas alone produces about 20-percent of all oil and gas in the United States. The sum-total of Lone Star oil and gas produced in 2014 topped $100 Billion, according to the Energy Information Administration. That’s up from about $40 Billion in 2007, and had a substantial economic impact statewide. Last year there were 12.5 million employed workers in the state, which added 458,000 new jobs in 2014 alone according to the Texas Workforce Commission. During the census period of 2000-2010, Texas swelled by 4.3 million residents. Collectively, the state’s output in 2014 topped $1.5 trillion, second only to California and for thirteen years in a row, Texas led the nation in net exports at $290 billion last year.  The obvious 900-pound gorilla in the room, then, is how much will the drop in prices affect the state’s jobs, revenue base and overall economy? Through a number of sources mostly related to oil and gas, the state government’s “rainy day fund” swelled from totally empty following the 2008 recession to a surplus of over $2 billion in 2014, mostly due to fracking and the shale oil revolution. Investment in oil and gas in the Barnett shale, the Permian Basin, the Eagle Ford shale and in other recoverable formations spackled around the state was the main reason. Like North Dakota, many remote Texas locales became overnight boomtowns. Of particular interest, analogous to what happened in the 1980’s, is the banking sector. With hundreds of millions of dollars in loans to various elements of the energy industry, the concern now is whether this dip lasts long enough to cause wide-spread bank problems should producers, suppliers and support industry businesses default on those loans. That was a big part of what knocked the Savings and Loan industry to its knees in the 80s.

State Revenue Growth Will Remain Sluggish -- State forecasters expect revenue growth to remain sluggish through fiscal year (FY) 2016 according to an Urban Institute analysis of agency reports. In FY17, states project revenue growth will return to its average post-2000 rate but remain significantly below its long term average. These state estimates are not adjusted for inflation. Using CBO’s forecast of the consumer price index, inflation-adjusted state revenue growth will be 1. 7 percent in FY 15 and 1.2 percent in FY16 compared to the long term real growth rate of 2.5 percent. Revenue growth is expected to vary widely by region according to state forecasts. Plains, Rocky Mountain and Far West states top the list, projecting growth rates above 4 percent in 2016. Despite Kansas’ fiscal woes and North Dakota’s energy slump, other Plains states remain relatively strong. Colorado is leading the way among the Rocky Mountain states, projecting very strong growth led by an 8.8 percent increase in sales tax revenues. Energy states (Alaska, North Dakota, New Mexico, Louisiana, Texas, and Wyoming) are a special case, given the recent plunge in oil prices. These states project only half the revenue growth of non-energy states in 2015 but will pick back up in 2016.

The real numbers: New Jersey faces $183 billion in state debt - To part the sea of red ink engulfing New Jersey, Gov. Chris Christie may need a miracle of biblical proportions. On the cusp of next week’s annual budget address by the governor, the challenges are even greater than those detailed in the State Treasury’s debt report for the past fiscal year. The total state debt is listed as nearly $85 billion, but buried deep in the report are details revealing the actual figure should be $183 billion — nearly $100 billion higher. That total is nearly six times higher than the state’s current annual budget of $32 billion.The heaviest weight is the state’s retirement system for public workers, which accounts for $135 billion of that shortfall. At first glance, pension obligation appears as $37 billion.  On the second-to-last page of the report, that figure jumps to $82 billion, using the more stringent accounting standard that took effect last year. Also missing from the first number is $53 billion in unfunded liabilities for post-retirement medical benefits. And that’s not the whole picture. State and local governments are responsible for an additional $20.7 billion for underfunded pensions and $13.8 billion for benefits for their retirees, according to a valuation commissioned by the Treasury.

Widening the gaps - Toledo Blade editorial: Gov. John Kasich touted the benefits of his new tax plan for all Ohioans this month, but the governor is guilty of false advertising. His regressive tax proposal overwhelmingly would favor the wealthiest taxpayers. Most Ohioans would pay more. The centerpiece of Mr. Kasich’s plan is an income tax cut that would reduce all Ohioans’ income tax liability. But most of the reductions would go to the wealthy few, with poor and middle-class Ohioans seeing little benefit.  According to an analysis by the nonpartisan Institute on Taxation and Economic Policy, taxpayers in the top 1 percent of earners would enjoy an average income tax reduction of more than $13,000, and earners in the next 4 percent would get an average reduction of $1,395. By contrast, taxpayers in the bottom 20 percent would receive an average reduction of only $16; those in the middle 20 percent would get reductions of $219. Those tax cuts might still sound like a good deal for everyone — but the money to pay for them has to come from somewhere. Mr. Kasich plans to finance the cuts in part with a 0.5 percent increase in the state sales tax, from 5.75 percent to 6.25 percent. The regressive tax would fall disproportionately on lower-income Ohioans, who pay more in sales tax as a share of their incomes than middle and upper-class earners.

Corporate Welfare Queens – Shocking “Development Program” Failure Rate in North Carolina  - @sandymaxey points me to a new report from the North Carolina Justice Center that is making my head spin. Picking Losers shows that the state’s flagship development program, the Job Development Investment Grant (JDIG), has seen 62 of its 102 projects fail in the period from its inception in 2002 until 2013. That is, 60% of the projects failed to meet either their job, investment, or wage goals, and had to have their awards canceled. 60%!. When I interviewed the director in Montreal in 2007, their failure rate was only 20%, a figure he considered needed to be reduced. In North Carolina, we are talking about a failure rate three times as high, despite giving the awards to firms that should not be nearly so risky. One such firm was Dell Computers. In 2004, the company conducted a bidding war for a new computer manufacturing plant between Virginia and North Carolina. But North Carolina’s analysis of the project was so out of whack that in nominal dollars it offered almost $300 million ($174 million present value) compared to Virginia’s offer of $37 million. The plant shut down completely in 2010. Here’s the paradox: North Carolina has some of the best taxpayer protections in the country; indeed, state and local governments lost only a few million dollars when Dell failed. The state is rigorous about canceling awards and clawing back monies already paid out. But the problem is that the state’s economic analysis of potential projects is simply atrocious. The 60% failure rate is one sign of this. The Dell fiasco, analyzed by the NC Justice Center and the Corporation for Enterprise Development in 2007, shows another aspect of fanciful economic modeling.

Scott Walker defers debt principal payment to balance books: — Gov. Scott Walker's administration in May will skip more than $100 million in debt payments to balance the state's shaky budget, bringing the total such payment delays to more than $1.5 billion since 2001. The so-called "scoop and toss" maneuver belongs to a bipartisan — if not necessarily proud — tradition in Wisconsin budgeting going back to Democratic Gov. Jim Doyle and Republican Gov. Scott McCallum. The Legislature's nonpartisan budget office reported on the planned financial maneuver Monday, noting that like past delayed payments it will end up increasing costs for taxpayers in future years. Also Monday, Democrats called on Walker to take federal money to expand Wisconsin's health programs for the needy and save the state up to $345 million over the next two years. Walker's budget proposal takes the opposite tack and keeps with his policy of avoiding a full federal expansion of health programs in the state. The Legislature will not have to sign off on the delay of the debt payment, because it involves a kind of short-term line of credit that in this case is not subject to lawmakers' approval. "He effectively wants to borrow money from the future to pay for his tax cuts today," Rep. Gordon Hintz (D-Oshkosh) said. "That doesn't sound fiscally responsible to me." Sen. Rob Cowles (R-Allouez) wasn't impressed either, saying taxpayers would pay the price. "Bad budgeting is bad budgeting whether it's done by a Republican or Democrat," he said.

The Boston Globe Covers Up for Wall Street, Ignores Swaps Losses in Coverage of MBTA Turmoil -- Yves Smith --A new Boston Globe story, The T’s long, winding, infuriating road to failure, purports to be “the true story of the breakdown,” a “a decades-long tale of grand ambitions and runaway costs.” Funny how this 2500 word article makes nary a mention of the huge losses that the Massachusetts Bay Transportation Authority made, along with many other easily duped transit authorities, on swap transactions that went massively against them in an environment of seemingly permanent low interest rates. A March 2012 article in Alternet by Tom Ferguson provided an overview. Key sections: The Refund Transit Coalition, a coalition of unions and public interest groups, put out a study that documented in stunning detail how Wall Street banks have for years been hustling American cities, states, and regional authorities out of billions of dollars. But save for Gretchen Morgenson’s “Fair Game” column for the New York Times, the study drew almost no attention…Some of its numbers are stunning. The study pegged annual swap losses at the Massachusetts Bay Transportation Authority (Boston area) at $25.8 million and suggested that the MBTA will “lose another $254 million on these swaps” before they lapse. The study added that the MBTA was losing money on swaps even before the crisis, with total losses running in the “hundreds of millions” of dollars. And it is not as if the Globe can feign being unaware of the swap losses. It ran this editorial, MBTA needs better terms on interest swaps, in June 2012:

Christie signs law greenlighting fast track sale of N.J. public water systems - A controversial bill signed into law this afternoon by Gov. Chris Christie would allow for fast-tracking the privatization of many public water systems in New Jersey. The Water Infrastructure Protection Act removes the public vote requirement to sell water systems throughout the state under emergency conditions that many systems currently meet. The sponsors of the bill tout it as a way to get desperately-needed investment into water systems that have been neglected to the breaking point by government owners. The emergent conditions that would allow for a fast-track sale include the location of the system within a critical water area, and it being deficient in drinkability or pressure, among others. Opponents warn that it is an attempt to turn private profits off public infrastructure at the expense of taxpayers -- who themselves will end up paying for the purchase prices with increased rates.

One reason to worry about US is really bad for our babies - My colleague Alice Chen, along with Emily Oster and Heidi Williams, have a new paper that explains differences in the infant mortality rate in the United States and other OECD countries. Despite its affluence, the US ranks 51st in the world in infant mortality, which puts it at the same level as Croatia. One reason the US performs poorly on the infant mortality measure actually reflects differences in measurement between it and other countries--babies born very prematurely in the United States are recorded as live births, but in other countries might be reported as miscarriages.  Because extremely premature babies have higher mortality rates, their inclusion in the US birth and mortality rate makes the US look relatively worse.  Nevertheless, when they control for reporting differences, and focus on microdata from the US, Austria and Finland, they find that the US continues to lag the others in terms of first year survival.  What is particularly interesting is that the difference between the US and other countries accelerates over the course of the first year of life--as neonatal threats recede, the position of the US worsened relative to Austria and Finland. Here is where inequality comes in--if when Chen and co-authors look at children born to advantaged individuals (meaning married, college-educated and white) in the US, they survive at the same rates as their counterparts in Austria and Finland.  But the trio find that children of disadvantaged parents in the US have much lower survival rates than children of disadvantaged parents in the other countries.  This may well be because Europe's safety nets make the disadvantaged less disadvantaged.

A New Majority Research Bulletin: Low Income Students Now a Majority in the Nation's Public Schools - Low income students are now a majority of the schoolchildren attending the nation’s public schools, according to this research bulletin. The latest data collected from the states by the National Center for Education Statistics (NCES), show that 51 percent of the students across the nation’s public schools were low income in 2013. In 40 of the 50 states, low income students comprised no less than 40 percent of all public schoolchildren. In 21 states, children eligible for free or reduced-price lunches were a majority of the students in 2013. Most of the states with a majority of low income students are found in the South and the West. Thirteen of the 21 states with a majority of low income students in 2013 were located in the South, and six of the other 21 states were in the West. Mississippi led the nation with the highest rate: ­71 percent, almost three out of every four public school children in Mississippi, were low-income. The nation’s second highest rate was found in New Mexico, where 68 percent of all public school students were low income in 2013.

New Milestone: Majority of Public School Students Now Considered Low-Income - Via Southern Education Foundation: Students are eligible for free meals if they live in households with no more than 135 percent of the poverty level, and they qualify for reduced-price meals if household income is no more than 185 percent of the poverty level. In 2013, the federal poverty threshold was $23,550 for a family of four.

A Grand Compromise: Supporting School Choice Without Savaging Poor Kids - Republicans and Democrats are at odds over how to overhaul No Child Left Behind so it better supports low-income students. But what if they're missing the point? The House of Representatives is slated to consider an overhaul of the bill this month, and Senate legislation is moving forward in committee. Many contentious issues are at play—from student testing to teacher accountability—but among the biggest to emerge is the question of whether federal funds dedicated to help low-income students should be allowed to follow those students to schools they choose. As No Child Left Behind currently stands, that money—known as Title I funding—is allocated toward the schools that enroll the students rather than the students themselves.  The battle lines have been drawn, with Republicans generally favoring "portability" of federal Title I money for low-income students as a way of injecting choice and market forces into public education. Democrats are mostly opposed to portability because the move would shift money from poor schools to rich ones, tilting the playing field against low-income students.  But it’s time to move beyond this familiar back and forth and entertain a grand compromise in which the federal school-funding policy allows for portability of money only if doing so will reduce what research suggests is one of the biggest impediments to equal educational opportunity: deep levels of economic segregation in American schools. A policy change that takes this reality into consideration could have a significant positive impact on the lives of millions of children.

Why Oklahoma Lawmakers Voted to Ban AP U.S. History - This week in things we wish were just a Colbert Report sketch, an Oklahoma legislative committee overwhelmingly approved a bill that would cut funding for the teaching of Advanced Placement U.S. History. The 11 Republicans who approved the measure over the objections of four Democrats weren't trying to win over Oklahoma's lazy high-school juniors. Tulsa World reports that Representative Dan Fisher, who introduced the bill, lamented during Monday's hearing that the new AP U.S. History framework emphasizes "what is bad about America" and doesn't teach "American exceptionalism." It's a complaint that's been spreading among mostly conservative state legislatures in recent months and has some calling for a ban on all AP courses. Earlier this month, the Georgia state Senate introduced a resolution that rejects a new version of the AP U.S. History course for presenting a "radically revisionist view of American history" and minimizing "discussion of America’s Founding Fathers, the principles of the Declaration of Independence, [and] the religious influences on our nation’s history." It says that if the College Board does not revise the test, Georgia will cut funding for the course. The exam has also sparked controversy in Texas, North Carolina, South Carolina, and Colorado, where students in Jefferson County protested last fall when a school-board member said the course should be modified to promote "patriotism" and discourage "civil disorder, social strife, or disregard of the law."  The conservative lawmakers' issues with the course, which was taken by 344,938 students in 2013, can be traced back to retired high-school history teacher Larry S. Krieger.  . "As I read through the document, I saw a consistently negative view of American history that highlights oppressors and exploiters," he said during a conference call in August, according to Newsweek.

The bizarre war against AP U.S. history courses - It seems strange to organize an educational system around what can’t be taught to children. But for large chunks of the country, that is exactly how public educational standards seem to be set: by demarcating and preserving blind spots rather than promoting enlightenment.  It started at least 90 years ago with evolution, when Tennessee banned the teaching of any theory that contradicted the biblical story of the divine creation of man, leading to the infamous Scopes monkey trial. The Supreme Court ultimately struck down such laws, but battles over teaching, or not teaching, evolution in public schools continue to this day. Many parts of the country that have relaxed their objections to teaching evolution have now pivoted to try to ban or sabotage teaching about climate change. Sex ed — at least the kind that actually educates kids about sex, rather than its absence — has come under similar attacks. Now, more recently, states have started trying to ban the teaching of U.S. history. Yes, U.S. history. Specifically, the bits of our history that might be uncomfortable, unflattering or even shameful — or, as some politicians call it, “unpatriotic.” This week an Oklahoma legislative committee voted overwhelmingly to effectively ban the teaching of Advanced Placement U.S. history classes. The bill’s author, Rep. Dan Fisher (R), said that state funds shouldn’t be used to teach the course — which students can take to receive college credit — because he believes it emphasizes “what is bad about America” and characterizes the United States as a “nation of oppressors and exploiters.” Fisher’s proposal to replace the ready-made, nationally used, college-recognized AP curriculum — studied by hundreds of thousands of high school students each year — with a homegrown substitute would cost the state an estimated $3.8 million.

With These Hires, Congress Becomes Even More Like a Corporation -- Until a few weeks ago, Joel Leftwich was a senior lobbyist for the largest food and beverage company in the United States. During his tenure at PepsiCo—maker of Cheetos, Lay’s potato chips and, of course, Pepsi-Cola—the company had played a leading role in efforts to beat back local soda taxes and ensure that junk food remained available in schools. But PepsiCo also faced new challenges at the federal level. The Healthy, Hunger-Free Kids Act, championed by Michelle Obama, had placed new nutrition standards on school lunches. PepsiCo sent teams of lobbyists to Capitol Hill, deluged political candidates with donations, and fired off letters to regulators asking them to weaken the new rules. One such PepsiCo letter requested the redefinition of a “school day” so the company could continue to sell its sugary sports drinks at “early morning sports practices.” Leftwich, a former congressional liaison for the Department of Agriculture, was well positioned to help PepsiCo shore up its allies in the House and Senate. Last April, Leftwich paid a visit to one such friend, Democratic Senator Debbie Stabenow of Michigan, then chairwoman of the Senate Agriculture Committee, to thank her for opposing nutrition guidelines for food stamp purchases. Now Leftwich will have far more access to such friends. As the newly appointed staff director of the Senate Agriculture Committee, now under GOP control, Leftwich will have wide sway over the law that funds school lunches, which is up for reauthorization this year. PepsiCo can rest easier, confident that the guidelines already in place are unlikely to be strengthened—and may be weakened instead. Leftwich’s new boss, Republican Senator Pat Roberts of Kansas, who took over the Agriculture Committee gavel in January, has set his sights on dialing back school lunch nutrition requirements, which he has called “Big Brother government that’s out of control.”

The real reason why the US is falling behind in math - Calculators have long since overthrown the need to perform addition, subtraction, multiplication, or division by hand. We still teach this basic arithmetic, though, because we want students to grasp the contours of numbers and look for patterns, to have a sense of what the right answer might be. But what happens next in most schools is the road-to-math-Hades: the single-file death march that leads towards calculus. Continue reading below We are pretty much the only country on the planet that teaches math this way, where students are forced to memorize formulas and procedures. And so kids miss the more organic experience of playing with mathematical puzzles, experimenting and searching for patterns, finding delight in their own discoveries. Most students learn to detest — or at best, endure — math, and this is why our students are falling behind their international peers. When students memorize the Pythagorean theorem or the quadratic formula and apply it with slightly different numbers, they actually get worse at the bigger picture. Our brains are slow to recognize information when it is out of context. This is why real-world math problems are so much harder — and more fascinating — than the contrived textbook exercises. What I’ve found instead is that a student who has developed the ability to turn a real-world scenario into a mathematical problem, who is alert to false reasoning, and who can manipulate numbers and equations is likely far better prepared for college math than a student who has experienced a year of rote calculus.

The Promise and Failure of Community Colleges - There are two critical things to know about community colleges.The first is that they could be the nation’s most powerful tools to improve the opportunities of less privileged Americans, giving them a shot at harnessing a fast-changing job market and building a more equitable, inclusive society for all of us. The second is that, at this job, they have largely failed.  With open enrollment and an average price tag of $3,800 a year for full-time students, community colleges are pretty much the only shot at a higher education for those who don’t have the cash or the high school record to go to a four-year university. And that’s a lot of people: 45 percent of the undergraduate students in the country. They are “essential pathways to the middle class,” Mr. Obama said. They work for parents and full-time workers, for veterans re-entering civilian life, and for those who “don’t have the capacity to just suddenly go study for four years and not work.”What the president chose not to emphasize is that precious few of the students at community colleges are likely to fulfill the promise and complete their education. Of all the students who enroll full time at Pellissippi, for example, only 22 percent graduate from a two-year program within three years. Just 8 percent transfer to a four-year college.And that’s hardly the bottom of the barrel. There are many community colleges with much worse records.

A New Degree in Architecture, Computers or Health Is Worth More Than Decades of Job Experience - Freshly minted college graduates who majored in fields like architecture, business, computers, statistics, engineering and health can expect to start jobs where they earn more than high school graduates with decades of experience. That’s the finding of a new report from Georgetown University‘s Center on Education and the Workforce, which dives into the varying career outcomes for graduates in different college majors. The report underscores both the size of the premium for higher education in the U.S. labor market and the even larger premium that accrues to graduates with select areas of expertise. “Back in the day, especially in the 1970s, the degree level didn’t matter as much–what mattered was what happened to you on the job,” said Anthony Carnevale, the center’s director. “Now the jumping off point–the degree–matters a great deal.” What Mr. Carnevale’s report concludes–as illustrated by the complicated but important chart above–is that college graduates with different degrees have wildly different labor market outcomes. For most degrees, a new graduate earns slightly less than someone with a high school diploma and decades of experience. High school graduates ages 35 to 43 earned $36,000 in 2012, the most recent year for which the detailed degree-level data can be parsed. But some degrees allow new workers to start out earning more than their experienced, but less educated, elders. For example, the median recent engineering graduate–those just age 22 to 26–earned $57,000 a year. Graduates in computers, statistics and mathematics earned the second most–$48,000–right out of college.

UMass bans Iranians from some engineering, science programs  – The University of Massachusetts at Amherst has banned Iranian nationals from admission to certain graduate programs that school officials say aligns its policy with U.S. sanctions against Iran. The university will no longer admit students from Iran to some programs in engineering and natural sciences. AD The National Iranian American Council says UMass' interpretation of the law is flawed and may violate protections against discrimination. Congress enacted legislation in August 2012 that denies visas for Iranian citizens to study in the U.S. if they plan to participate in coursework for a career in the energy or nuclear fields in Iran. But a U.S. State Department official says federal law doesn't prohibit qualified Iranian nationals from seeking an education in science and engineering. Each application is reviewed on a case-by-case basis.

How bad is age discrimination in academia?: I believe it is very bad, although I do not have data. I believe that if a 46-year-old, with an excellent vita and newly minted Ph.D in hand, applied for academic economics jobs at the top fifty research universities, the individual would receive very few “bites.” Unless of course he or she managed to cover up his or her age. (I am very pleased with the openness of my own university, I will add in passing.) Perhaps there are not many examples of this kind of age discrimination (do you know of any?). In part that is because older individuals are so discouraged from going down that path in the first place. Furthermore it is likely harder for older individuals to go down that path. In addition to life-cycle considerations, there may be age discrimination at the stage of graduate admissions. I rarely hear complaints about age discrimination in academia, though I often hear complaints about gender and race discrimination. I believe all of these phenomena are real (and unfortunate), and I wonder what exactly this discrepancy indicates. If anything, I suspect age discrimination is far more extreme, at least when it comes to the final stage of the process, namely the actual interview and hiring decisions. Is age discrimination less of a concern because “older people as a class” face fewer, other general handicaps than do women or African-Americans? Or is there some other reason for this difference in worry? I believe also that older, newly minted doctoral candidates bring useful differences in perspective, as can women and ethnic minorities, due to their differing life experiences.

The Student Loan Landscape -- NY Fed -- Student loans have recently attracted a huge amount of attention from the press and policymakers. In this post, the first in our three-part series this week, we’ll use our Consumer Credit Panel dataset, a representative sample drawn from anonymized Equifax credit data, to describe the landscape of the outstanding U.S. student loan portfolio. Much of our discussion will address updates to several graphs that we’ve presented before, most recently in a 2014 staff report, “Measuring Student Debt and Its Performance”; readers can find more detail there. We’ll also update some earlier analysis of the broader effects that student debt may be having on the economy, including data through 2014 on the relationship between student loans and mortgages that we discussed in a blog post last spring.  Economists have shown that even after we control for talent (as more talented people are more likely to attend college), a college degree is still worth it. However, financing a college education is challenging for many families, and student loans remain an important tool.  Student debt has had a remarkable trajectory over the past ten years, as seen in the chart below. Until 2009, student loans had been the smallest form of household debt. During the Great Recession, Americans reduced their other debts but continued to borrow for education, making student debt the largest category of household debt outside of mortgages since 2010.

Who’s Most Likely to Default on Student Loans? -- NY Fed - Millions of Americans are struggling to repay their student loans. But somewhat counterintuitively, those with the smallest balances are struggling the most. The Federal Reserve Bank of New York released research Thursday breaking down student-loan defaults based on how much debt a borrower owed upon leaving school. It divided borrowers into six categories, ranging from those who owed less than $5,000 to those who owed more than $100,000. Defaults were most common among those with the smallest debt burdens and least common among those with the largest. (The New York Fed defines default in this case as a borrower having gone 270 days with no payment.) Among those who owed less than $5,000, one in three had defaulted at some point as of Dec. 31, 2014. Those borrowers made up 21% of the entire pool of those with debt. The Fed researchers show that the higher the debt burden, the lower the default rate. Those with burdens above $100,000 had the lowest rate at 17.6%. Why is that? One likely explanation, offered by the New York Fed researchers, is that many Americans with small loan balances are dropouts. They may have attended school for a semester or two without getting a degree. They often don’t end up with the decent-paying job that a college education is supposed to bring, and thus lack the income to repay their debt. Another possibility is that low-balance borrowers attained credentials such as certificates that don’t lead to the kind of jobs and salaries that a bachelor’s degree does. By contrast, many borrowers with large loan balances are people who graduated from master’s programs and professional schools—doctors, lawyers—who typically end up with generous salaries. (We said typical, not always. There are plenty of struggling lawyers.)

Payback Time? Measuring Progress on Student Debt Repayment -- NY Fed - Student debt continues to make headlines because of its high balances and high rates of delinquency and default—troubling issues that we discussed in our previous posts this week. A less prominent, but still important, issue is the pace at which former students are—or are not—paying off their debts. This issue is important to borrowers because the longer they take to repay their debts, the more interest they accrue, the longer they have to worry about making payments, and the longer they have to deal with the consequences of unpaid debts. It’s also important to the macroeconomy because longer repayment periods mean that a large number of young adults may have their spending and housing purchase decisions constrained by student debt (and widespread delinquency) for many years, even if they eventually qualify for some debt forgiveness. For these reasons, in this third and final post of our student loan series, we use our Consumer Credit Panel (based on Equifax data) to examine how fast (or slow) student borrowers are able to pay off their loans.  With collateralized loans, such as auto loans or mortgages, default will be followed by repossession or foreclosure, after which the debt is removed from the borrower’s credit report. By contrast, a unique aspect of student loans is that they’re difficult to discharge. After a default, defined as a loan that reaches 270 days past due, the borrower remains responsible for repayment. However, borrowers with federal loans may take advantage of special programs, including deferments, forbearances, and income-based repayment plans, which allow them to delay or lower their payments. Thus, the delinquency and default rates that we discussed in our earlier post might understate the true extent of borrower problems in the student loan market if a significant number of borrowers are availing themselves of these programs to avoid defaults. For these borrowers, what we’ll observe is not delinquencies, but slow rates of repayment on student loan balances.

American student loan debt has surpassed the GDP of Australia, New Zealand, and Ireland combined – Quartz: The Federal Reserve of New York is worried about America’s student loans. Its latest snapshot on borrowing shows that even though Americans have been working on shoring up their finances over the past few years, more people are falling behind on their student loans. The rate of delinquency and its impact on the US economy has reached a “concerning” level, according to Fed economists. Until 2009, student loans in the US made up the smallest proportion of Americans’ household debt. That changed when Americans paid down their home and car loans during the recession but continued to borrow for school, even as tuition costs continued to rise. Just five years later, the $1.2 trillion in Americans’ outstanding student debt is higher than all other types of non-mortgage debt (mortgage debt, at $8.2 trillion, remains 69% of Americans’ total borrowing).  For some perspective, the amount Americans owe in student loans has surpassed the GDPs of Australia, New Zealand, and Ireland combined. Meanwhile, borrowers are struggling to keep up with their student loan payments. The percentage of student loans that are delinquent is rising faster than delinquencies on mortgages, auto loans, and credit cards.

The Un-Retiring, Increasingly Disabled Non-Working American Dream -- For the past few years (here from 2012 to most recently here) we have vociferously argued that the state of the US labor force is anything but healthy (and anything but cyclical) as the structural aging of America (where work is punished, college is free, and retirement long forgotten) drags at The American Dream. Even Goldman Sachs' Jan Hatzius - now desperate for a less positive spin to employment, in hopes of keeping The Fed dovish-er longer-er, has admitted that because of discouragement, disability, and schooling, coupled with a slowdown in the rise of the retired population will slow the pace of decline of the unemployment rate.

Up to 27,000 Americans Didn’t Die of Cardiovascular Disease Thanks to Medicare Drug Coverage -- The Medicare prescription-drug benefit introduced in 2006 saved an estimated 19,000 to 27,000 lives in its first year by expanding access to medications that treat cardiovascular killers like strokes and heart disease, according to new research from the Federal Reserve Bank of San Francisco. “While the exact magnitude of the number of lives saved depends on the particular specification, the basic result of a decline in cardiovascular-related deaths is shown to hold up across a multitude of robustness tests,” economists Abe Dunn and Adam Hale Shapiro wrote this month in a working paper, “Does Medicare Part D Save Lives?” The Part D benefit, enacted by Congress in 2003 and introduced in 2006, subsidized drug coverage for elderly and disabled Americans through the Medicare program.  To evaluate its effects, Mr. Dunn, of the Commerce Department’s Bureau of Economic Analysis, and Mr. Shapiro, a senior economist at the San Francisco Fed, analyzed data from the Centers for Medicare & Medicaid Services and the Centers for Disease Control and Prevention. The benefit was introduced at the beginning of 2006, so the economists zoomed in on mid-2006 to mid-2007 “as the initial 12 months that Part D would have an impact on mortality,” they wrote. They used geographic differences in pre-2006 drug coverage to separate out the effects of the new benefit in terms of encouraging people to obtain medication. And they looked specifically at cardiovascular diseases like heart attacks and strokes, since they can be effectively and quickly treated with drugs that target high cholesterol, high blood pressure and blood clots. They found that cardiovascular-related deaths declined, especially “in those counties that had a high share of individuals without drug coverage prior to the reform,”

Number enrolled in Obamacare nearly doubles - About 11.4m Americans enrolled in private health insurance plans during the second sign-up period for coverage under President Barack Obama’s controversial healthcare legislation, known as “Obamacare.” With a looming Supreme Court case challenging a core piece of the law, the enrolment numbers released by the White House on Tuesday are good news for an administration that continues to fight an uphill battle with both Republican lawmakers and many voters to win acceptance of reforms aimed at reducing the vast number of people without health insurance in the US. First, it exceeds the administration’s initial goal of enrolling just over 9m people during Obamacare’s second open sign-up period, and nearly doubles the enrolment tally from its disastrous initial rollout. The figure is still shy of the 12m 2015 target set by the non-partisan Congressional Budget Office, but it is a solid step forward. It also keeps the White House on track for meeting its own target of having between 9m and 10m individuals still enrolled by the end of the year. Some people are expected to drop their plans after obtaining health coverage through other means, such as a new job, while others are likely to be weeded out for failing to pay their premiums. As has been the norm in recent weeks, the White House used social media to announce the preliminary enrolment tallies, posting a video on Tuesday night of the president discussing the figures with Sylvia Matthews Burwell, the secretary of health and human services. “It gives you some sense of how hungry people were out there for affordable, accessible health insurance,” Mr Obama said. “The Affordable Care Act is working. It’s working a little better than we anticipated. It’s certainly, I think, working a lot better than many of the critics talked about early on.”

Elimination of 'public option' threw consumers to the insurance wolves | Center for Public Integrity: When members of Congress caved to demands from the insurance industry and ditched their plan to establish a “public option” health plan, the lawmakers also ditched one of their favorite talking points, that a government-run plan was necessary to “keep insurers honest.” Getting rid of a government-run insurance option was the industry’s top objective during the health care reform debate. Private insurers set out to persuade President Obama and Congressional leaders that they were trustworthy. Lawmakers were led to believe, for one thing, that insurers could be trusted to offer policies that would continue to give Americans’ access to the doctors they had developed relationships with and wanted to keep. And they were persuaded that insurers wouldn’t think of engaging in bait-and-switch tactics that would leave folks with less coverage than they thought they were buying. When he was running for president, Obama regularly talked about the need for a public option. That was one reason why many health care reform advocates supported him instead of Hillary Clinton. Soon after that, though, he began to waffle. It became clear to me as well as public option supporters in Congress that industry lobbyists had gotten to him. While Pelosi was able to get a bill through the House with a public option provision, she couldn’t control what was happening in the Senate. Although a majority of Senate Democrats supported the public option, the industry knew it only needed one senator who caucused with the Dems to change his mind and kill it. A senator from Connecticut, the insurance capital of the world, became the industry’s go-to guy. Insurers had spent years investing in Sen. Joe Lieberman, a former Democrat-turned-Independent. During the reform debate, the watchdog group Public Campaign Action Fund, (now called EveryVoice), called Lieberman an “insurance puppet,” noting that insurers had contributed nearly half a million dollars to his campaigns over the years.

Tax Error in Health Act Has Impact on 800,000 -  About 800,000 taxpayers who enrolled in insurance policies through received erroneous tax information from the government and were urged on Friday to hold off on filing tax returns until the error could be corrected.The Obama administration, under heavy pressure from congressional Democrats, also announced that it would give several million people more time to buy health insurance so they could comply with federal law and avoid tax penalties.The tax mistake, affecting taxpayers in 37 states, is the first major problem to surface in an otherwise smooth second enrollment period for the Affordable Care Act. The online insurance marketplaces have exceeded enrollment targets, and insurance premiums have generally come in lower than expected. Nonetheless, the mistake could cause some hardship for thousands of lower-income Americans who qualified for subsidized insurance, had hoped for tax refunds and now must wait for weeks to file their taxes. “Some consumers will be very frustrated,” said Christine Speidel, a tax lawyer at Vermont Legal Aid, “because they count on those refunds to buy home heating oil, to pay for car repairs and to pay off credit card bills.”

The Mystery of Moore - Paul Krugman -- Jonathan Chait seems boggled at an op-ed from Stephen Moore, the chief economist at the Heritage Foundation, attacking Obamacare: Not one alleged fact cited in the piece is right. And we’re not talking about matters of interpretation. CBO has not changed its view that the ACA will reduce the deficit; health costs have not increased faster than before; premiums are not skyrocketing.  Chait treats this as a story about the way the right is handling Obamacare’s success. Conservatives made a number of very specific predictions about what would happen when the ACA went into effect: health spending would soar, deficits would balloon, premiums would shoot up, more people would lose insurance than gain it. When none of these things happened, when the law’s first year of full operation went better than even supporters had expected, the reaction was, I believe, something new in American politics: right-wingers simply acted as if their predictions had come true, as if all the imagined disasters were actual truths on the ground.  That is indeed part of the story about that Moore op-ed. But there’s another aspect of the story, which is Moore himself: this is a guy who has a troubled relationship with facts. I don’t mean that he’s a slick dissembler; I mean that he seems more or less unable to publish an article without filling it with howlers — true, all erring in the direction he wants — in a way that ends up doing his cause a disservice. For example, his attempt to refute something I wrote about Kansas ended up being mainly a story about why Stephen can’t count, which presumably wasn’t his intention. But here’s the mystery: evidently Moore has had a successful career. Why?

Hospital Discharges Rise at Lucrative Times - WSJ: A Kindred Healthcare Inc. hospital in Houston discharged 79-year-old Ronald Beard to a nursing home after 23 days of treatment for complications of knee surgery. The timing of his release didn’t appear to correspond with any improvement in his condition, according to family members. But it did boost how much money the hospital got. Kindred collected $35,887.79 from the federal Medicare agency for his stay, according to a billing document, the maximum amount it could earn for treating most patients with Mr. Beard’s condition.If he had left just one day earlier, Kindred would have received only about $20,000 under Medicare rules. If he had stayed longer than the 23 days, the hospital likely wouldn’t have received any additional Medicare money. Under Medicare rules, long-term acute-care hospitals like Kindred’s typically receive smaller payments for what is considered a short stay, until a patient hits a threshold. After that threshold, payment jumps to a lump sum meant to cover the full course of long-term treatment. That leaves a narrow window of maximum profitability in caring for patients at the nation’s about 435 long-term hospitals, which specialize in treating people with serious conditions who require prolonged care. General hospitals are paid under different rules.

NYU Professor Uncovers How The FDA Systematically Covers Up Fraud & Misconduct In Drug Trials -- "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 Rising Price of Anti-Cancer Drugs - Every now and then, you read a story about a very expensive prescription drug that seems to have a real but modest health benefits. A few years back, an anti-melanoma drug called ipilimumab (brand name Yervoy) became available for sale from Bristol-Myers Squibb. The price was  $120,000  for a full course of therapy, and the expected gain in life expectancy was four months. Are these examples just a few outliers? Is there a trend toward more expensive drugs? David H. Howard, etal tackle this question in "Pricing in the Market for Anticancer Drugs," which appears in the Winter 2015 issue of the Journal of Economic Perspectives. Howard, Bach, Berndt, and Conti look at the 58 anticancer drugs approved for sale in the U.S. between 1995 and 2013. Before each drug is approved, various clinical trials and studies are done, and these studies provide an estimate of the median expected extension of life as a result of using the drugs. Then based on the market price of the drug when it is announced, it's straightforward to calculate the price of the drug per year of life gained. This figure shows, for the new anti-cancer drugs over the last two decades, how the the drug price per year of life gained has been rising over time.

The Drug that is Bankrupting America: America is the land of breakthrough science; in the case of the new hepatitis C virus (HCV) cure named sofosbuvir, sold under the brand name Solvadi by the drug company Gilead Sciences. There is no question that Solvadi is a godsend - a lifesaver for millions around the world ... Yet Solvadi is also the poster child of a US healthcare system that is being bankrupted by greed, lobbying and indefensible policies on drug pricing.  Gilead set the price for a twelve-week treatment course of Solvadi at $84,000... According to researchers at Liverpool University, the actual production costs of Solvadi for the twelve-week course is in the range $68-$136. ... The standard defense by the drug companies ... is that drug discovery is costly and their high profits reimburse the R&D costs. Here is where the story of Solvadi gets even more interesting. The total private-sector outlays on R&D were ... almost surely under $500 million, meaning that the decade-long R&D outlays were likely recouped in a few weeks of drug sales.  Solvadi shows how publicly financed science easily turns into arbitrarily large private profits paid for by taxpayers. The challenge facing the US is to adopt a rational drug pricing system that continues to spur excellent scientific breakthroughs while keeping greed in check. Big Pharma and the US public are on a collision course when they should be partners for the advancement of health.

Attorney general asks oil companies to stop selling synthetic drugs – New Hampshire Attorney General Joseph Foster on Tuesday joined other attorneys general in the country in asking oil companies to help eliminate synthetic drugs from their gas stations and convenience stores. The letter by the National Association of Attorneys General (NAAG) expressed “deep concerns” that dangerous drugs are being sold at the stores operating under the brand names of the major oil companies trusted by the public. “Young people are the most likely to use these dangerous drugs and their availability in stores operating under well-known brands gives the appearance of safety and legitimacy to very dangerous products,” states the letter. “We are extremely troubled that these drugs have been readily available in well-known retail locations.” The letter, dated Tuesday, is addressed to CEOs of oil companies BP, Chevron, Citgo Petroleum, Exxon Mobil, Marathon Petroleum, Phillips 66, Shell Oil Company, Sunoco, and Valero Energy. According to NAAG, synthetic drugs often mimic effects of substances like marijuana, methamphetamine and cocaine. When sold in stores, they are often marketed as incense, potpourri or bath salts, but when consumed can prove dangerous or lethal. The NAAG letter states that in 2010, more than 11,000 people went to the emergency room due to synthetic marijuana, and many of them were under the age of 17. In the following year, that number of these emergency visits more than doubled, growing to 28,000, it states.

Everything You Think You Know About Addiction and the War on Drugs Is Wrong - What if everything about the way we thought about drug addiction was backwards? What if the war on drugs was the purest distillation of this backward thinking? Those are the questions that animate Chasing the Scream: The First and Last Days of the War on Drugs, a new book by journalist Johann Hari that's brimming with shocking findings about the origins and misadventures of America's century-long war on drugs.  Hari, whose own family members dealt with serious drug addiction during his youth, recently embarked on a three-year journey through nine countries to establish why drug addiction is so misunderstood throughout the world — and what can be done to correct that misunderstanding.  He recently wrote about the ideas in his book for the Huffington Post in a widely read piece titled "The Likely Cause of Addiction Has Been Discovered, and It Is Not What You Think." Hari discussed how he thinks that the roots of addiction aren't moral failure or physiological compulsion, but rather an existential thirst for connection.  Mic sat down with Hari to hear more about the implications of his findings.

Secretive TPP threatens health, regulation, and democracy - The TPP negotiations are five years old yet the only substantive information citizens have gotten about them has come from Wikileaks. Provisions in the TPP will have far reaching effects on public health, labor, the environment, data privacy, and Internet use. Congress and the public have been shut out, and the USTR has relied on its 600 or so “cleared advisors” that represent global corporations. The USTR has insisted upon utmost secrecy, and a look at the chapters on intellectual property and investor-state dispute settlement raise alarm bells that the public needs to be aware of. It is likely that the USTR knows that if it released the texts that the public would reject the agreement. If TPP is so good for Americans why not let them know what is in it? The USTR touts the TPP as a trade agreement for the 21st century, but it is less about trade and more about regulatory harmonization. The chapter on intellectual property aims to increase intellectual property protection far beyond what is required in the Agreement on Trade-Related Intellectual Property (TRIPs) in the World Trade Organization. The plurilateral forum is the US’s way of getting what it knows it would be unable to achieve in a more transparent multilateral venue. Ironically, Obama’s signature legacy – the Affordable Care Act to reduce the costs of medical care – directly will be threatened by the TPP. Health care costs will sharply increase if the intellectual property provisions of TPP go through. Big Pharma and medical device makers have played a significant role of crafting the provisions which include: making surgical and diagnostic procedures patentable; requiring states to get patent owners’ consent before approving generic drugs for market; limiting parallel importation; requiring that pharmaceutical companies be involved in domestic drug pricing decisions; limiting compulsory licensing; incorporating 12 year terms of data exclusivity for biologic drugs; and seizing trans-shipments of drugs. Other provisions would permit patentability for second uses of known drugs, and for reformulations of drugs that do not enhance therapeutic efficacy (e.g., tablet to a gel cap).

Deadly CRE Germs Linked to Hard-to-Clean Medical Scopes -— Federal officials warned health care providers across the country on Thursday that difficult-to-clean medical scopes inserted down the throat might be infecting patients with deadly drug-resistant bacteria.The alert from the Food and Drug Administration came a day after California hospital officials reported that seven patients had fallen ill and two had died from what they said were improperly sterilized scopes at Ronald Reagan U.C.L.A. Medical Center.The likely cause was a superbug that may have been transmitted during procedures using the devices, the hospital said. The family of germs, known as CRE, which stands for carbapenem-resistant Enterobacteriaceae, are deadly because they are resistant even to last-resort antibiotics.The CRE germs usually strike people receiving medical care in hospitals or nursing homes, including patients on breathing machines or dependent on catheters. Healthy people are rarely, if ever, affected. But the bugs attack broadly, and the infections they cause are not limited to people with severely compromised immune systems, said Dr. Thomas R. Frieden, director of the federal Centers for Disease Control and Prevention.  “This is exactly what we are worried about,” Dr. Frieden said of the California infections in an interview. “CRE is becoming increasingly common in hospitals around the U.S. If we aren’t careful, it may well get out into the community and make common infections, like urinary infections, and cuts potentially deadly.”

New Killer Virus Found in Kansas -  Scientists are reporting on a new virus, never seen before anywhere, that apparently killed a Kansas man last year. They're calling it Bourbon virus, after the county in Kansas where the previously healthy man lived. He'd been bitten by ticks before he got sick so doctors believe the virus is carried by ticks. "We were not looking for a new virus," said Charles Hunt, Kansas state epidemiologist, who helped report on the new virus. "We are surprised. We really don't know much about this virus. It's important to find out more from a public health perspective. It is possible that other persons have been infected with this and not known it?"

HIV strain that becomes AIDS in 3 years identified in Cuba - A strain of HIV that could develop into AIDS before patients realize they are infected has been identified in Cuba. The aggressive variant was seen in patients who developed AIDS within three years of contacting the virus, according to a new study. It usually takes five to 10 years. “This group of patients that progressed very fast, they were all recently infected,” lead researcher Anne-Mieke Vandamme told Voice of America. “We know that because they had been HIV-negative tested one or a maximum two years before.” HIV develops into AIDS when a person’s CD4 count, which reflects white blood cells, falls below 200 or the patient gets a disease that wouldn’t affect someone with a healthy immune system. Vandamme, a medical professor at Belgium's University of Leuven, and her team studied 95 recently infected Cuban patients. They pinpointed a mutated strain of HIV that was only present in the small group who developed AIDS quickly. The variant is a combination of three subtypes of HIV. This can happen when someone contracts multiple strains of HIV, which then combine inside the body, researchers said.

Aggressive new HIV strain detected in Cuba - (UPI) -- A new HIV strain in some patients in Cuba appears to be much more aggressive and can develop into AIDS within three years of infection. Researchers said the progression happens so fast that treatment with antiretroviral drugs may come too late. Without treatment, HIV infection usually takes 5 to 10 years to turn into AIDS, according to Anne-Mieke Vandamme, a medical professor at Belgium's University of Leuven. According to the study, published in the journal EBioMedicine, Vandamme was alerted to the new aggressive strain of HIV by Cuban health officials who wanted to find out what was happening. "So this group of patients that progressed very fast, they were all recently infected," Vandamme explained to Voice of America. "And we know that because they had been HIV-negative tested one or a maximum two years before." None of the patients had received treatment for the virus, and all of the patients infected with the mutated strain of HIV developed AIDS within three years. While fast progression of HIV to AIDS is usually the result of the patient's weak immune system rather than the particular subtype of HIV, what's happening in Cuba is different. "Here we had a variant of HIV that we found only in the group that was progressing fast. Not in the other two groups. We focused in on this variant [and] tried to find out what was different. And we saw it was a recombinant of three different subtypes."

MERS deaths on the rise in Saudi Arabia -  Deaths from the MERS virus have surged in Saudi Arabia, health ministry figures showed, after authorities warned of a seasonal increase in Middle East Respiratory Syndrome coronavirus (MERS-CoV). The ministry recorded five deaths yesterday alone, bringing to 16 the number since February 11. That figure compares with a single death from the virus in the first 10 days of the month. Saudi Arabia is the country which has been hardest hit by the MERS virus, which was first identified in 2012. A total of 899 people have been infected in the kingdom, of whom 382 have died. Doctor Abdul Aziz bin Saeed, who heads the centre coordinating the ministry’s response to MERS, warned earlier this month that a surge in cases typically occurs around this time of year, because of the risks posed by newborn camels. The World Health Organization (WHO) has cited the preliminary results of studies indicating that people working with camels are at increased risk of infection from MERS-CoV, and young camels are particularly susceptible.

Crowds attack Ebola facility, health workers in Guinea (Reuters) - Crowds destroyed an Ebola facility and attacked health workers in central Guinea on rumors that the Red Cross was planning to disinfect a school, a government spokesman said on Saturday. Red Cross teams in Guinea have been attacked on average 10 times a month over the past year, the organization said this week, warning that the violence was hampering efforts to contain the disease. During the incident on Friday in the town of Faranah, around 400 km (250 miles) east of the capital Conakry, angry residents attacked an Ebola transit center and set ablaze a vehicle belonging to medical charity Medecins Sans Frontieres. A Red Cross burial team was also targeted and forced to flee, said Fodé Tass Sylla, spokesman for the government campaign against the disease. "All this agitation aims to discourage our partners and to give the virus the upper hand. We won't accept that," he said. "Everyone must understand that the fight we are leading requires the engagement of all citizens." The number of new cases in Guinea nearly doubled last week to 64, according to World Health Organization data, jeopardizing a government plan to get to zero new cases by early March.

Mercury levels rise in tuna - Whether man-made sources of mercury are contributing to the mercury levels in open-ocean fish has been the subject of hot debate for many years. My colleagues Carl Lamborg, Marty Horgan and I analyzed data from over the past 50 years and found that mercury levels in Pacific yellowfin tuna, often marketed as ahi tuna, is increasing at 3.8% per year. The results were reported earlier this month in the journal Environmental Toxicology and Chemistry. This finding, when considered with other recent studies, suggests that mercury levels in open-ocean fish are keeping pace with current increases in human-related, or anthropogenic, inputs of mercury to the ocean. These levels of mercury – a neurotoxin – are now approaching what the EPA considers unsafe for human consumption, underscoring the importance of accurate data. With this article, I'll explain the evolution of the science to this point and our findings. I expect our analysis will either quiet the debate or add more fuel to the fire.

Big Beef keeps getting bigger, thanks to growth drugs with unclear safety records -   The beef industry has come to rely on growth-inducing drugs to bulk up cattle before slaughter. But the consequences of using such drugs are a concerning unknown. And in a major move away from one particular growth drug, feedlot operators are refusing to participate in a new, large-scale study of Zilmax, Merck’s branded growth promotant for cattle, NPR reported last month.  Cargill, Tyson, JBS, and National Beef — which together produce more than 80% of the country’s beef — have barred cattle raised with the FDA-approved feed additive, and operators do not want to end up with unsellable livestock.  But instead of abandoning such drugs, several producers are simply using another controversial growth promoting drug instead, called ractopamine.  Since becoming commercially available in the U.S. in 2007, Zilmax helped feedlot operators raise bigger cattle on less food, what is known as improving “feed efficiency.” Used for 20 days before slaughter (plus a three-day withdrawal period), cattle could gain an extra 24 to 33 pounds, netting operators an estimated $15.69 more per heifer and an additional $24.24 per steer, according to a 2011 study published in the Journal of Agricultural and Resource Economics. But in August 2013, citing animal health issues, Tyson — the largest meat processor in the country — announced that it would stop accepting cattle raised with Zilmax by the following month. Nine days later, Merck announced that it would voluntarily withdraw the drug from the market. In December 2013, Reuters uncovered reports that found some cattle fed Zilmax were losing their hooves, rendering them unable to walk. In a March 2014 report from Texas Tech University and Kansas State University looking at a dataset of 722,704 cattle across nine feedlots, researchers found “the incidence of death was 80% greater in animals administered [zilpaterol, the active ingredient in Zilmax] than the comparative control cohort.”

First Genetically Modified "Browning-Resistant" Apple Approved For US Consumption - With only 37% of the public believing that genetically-modified foods are 'safe', The Arctic apple - which resists browning when cut open or sliced - faces an uphill battle for 'success'. But as WSJ reports, the non-browing trait makes it particularly attractive for restaurants, grocery stores, airlines and other companies that offer pre-sliced fruit, and since The Agriculture Department on Friday approved it as the first genetically modified apple for sale in the U.S., the debate over the safety (and labelling) of modified foods reignites. While "getting the consumer to buy in to the product has to be the priority," notes Okanagan, environmentalists warn "there is no place in the U.S. or global market for genetically engineered apples."

Another Bubble Pops: Price Of Farmland Suffers First Annual Decline Since 1986 - One of the bigger asset bubbles in recent US history has nothing to do with stock, bonds or commodities, We are talking about farmland. And yet, like all other bubbles - be they the result of retail euphoria or central bank rigging - this one too must come to a close, and as the WSJ reports, the first crack in the farmland bubble are appearing, after farmland values declined in parts of the Midwest for the first time in decades last year "reflecting a cooling in the market driven by two years of bumper crops and sharply lower grain prices, according to Federal Reserve reports on Thursday." the average price of farmland in the Federal Reserve Bank of Chicago’s district, which includes Illinois, Iowa and other big farm states, fell 3% in 2014, marking the first annual decline since 1986, which makes farmlands the only asset class that had not seen a down year in nearly three decades!

Climate Change Leads to Rapid Emergence of Infectious Diseases » Climate change is creating conditions that are likely to increase the rate of infectious disease worldwide.That’s the key findings of two new studies that show viruses such as Ebola, H1N1 and TB, as well as dengue and yellow fevers could spread further and become more frequent because of our changing climate. In one recently published article, zoologists studied climate in two vastly different regions—the tropics and the Arctic—to gain an understanding of how climate change may affect the spread of disease. In both regions the scientists found that by altering and moving habitat zones of disease-carrying animals, climate change could be making outbreaks of diseases more frequent. Previously, scientists believed that parasites could not quickly jump from one host to another because of the way parasites and hosts co-evolve. This would, in effect, make new disease more rare as parasites would first have to evolve a genetic mutation in order to move to another species. However, the new analysis argues that these evolutionary jumps can come quicker then anticipated.

Fishing with Anti-Malaria nets - At the NY Times Jeffrey Gettleman reports that people are using anti-malaria nets to fish.  After reading the headline but not the article (not wanting to be discouraged) I thought the problem was just that the pesticide treated nets were not being used to protect the people from malaria. The solution would just be to give extra nets so there were plenty for both purposes. The article explains that fishing with such nets is itself a problem. Nobody in his hut, including his seven children, sleeps under a net at night. Instead, Mr. Ndefi has taken his family’s supply of anti-malaria nets and sewn them together into a gigantic sieve that he uses to drag the bottom of the swamp ponds, sweeping up all sorts of life: baby catfish, banded tilapia, tiny mouthbrooders, orange fish eggs, water bugs and the occasional green frog. [the unsparing mesh, with holes smaller than mosquitoes, traps much more life than traditional fishing nets do. Scientists say that could imperil already stressed fish populations, a critical food source for millions of the world’s poorest people. Scientists are hardly the only ones alarmed. Fistfights are breaking out on the beaches of Madagascar between fishermen who fear that the nets will ruin their livelihoods, and those who say they will starve without them. Congolese officials have snatched and burned the nets, and in August, Uganda’s president, Yoweri Museveni, threatened to jail anyone fishing with a mosquito net. [skip] permethrin is “highly toxic” to fish. [skip] “If you’re using freshly treated nets in a smallish stream or a bay in the lake, it’s quite likely you’re going to kill fish you don’t intend to kill,”

Threatened Smelt Touches Off Battles in California’s Endless Water Wars - The tiny fish known as the delta smelt has helped touch off some of the most cataclysmic battles in California’s unending water wars. The delta that it inhabits lies in Northern California, at the confluence of mighty snow- and rain-fed rivers that drain into San Francisco Bay before their water heads out to the ocean. The rivers supply water through the delta for about two-thirds of Californians as well as vast tracts of rich farmland. But drought and the pumping of water to users as far away as Los Angeles have depleted the smelts and the delicate ecosystem they inhabit, prompting limits on the amount of water sent to farmers and cities — and sparking political warfare among farmers, cities, environmentalists and fishermen. “We tend to say that this is the single biggest water management challenge that California faces,” The debate over the delta, she said, ranks with those over other great national ecological landmarks, like the Everglades, the Great Lakes and Chesapeake Bay.“The future of this watershed is going to affect most people in the state,” she added.The immediate future looks grim. Despite a few powerful winter storms, California is facing a likely fourth year of drought, which is wreaking havoc on the delta’s ecosystem. The waterway where the federal researchers were working contained large patches of water hyacinth, an invasive plant that has proliferated in the dry conditions. Last fall, scientists doing a comprehensive survey recorded their lowest-ever seasonal tally of delta smelts, by a substantial margin. Another species, the longfin smelt, hit its second-lowest number. Salmon, too, have taken a hit, not only from the drought but also from last year’s record-breaking heat, which warmed the water above their comfort level. Most salmon in California swim through the delta to and from the ocean, and scientists have estimated that 95 percent of salmon eggs and young that were spawned last summer in the upper Sacramento River died because of the heat. Partly as a way to recoup the losses, hundreds of thousands of salmon were recently released from a hatchery to swim to the ocean.

NASA climate study warns of unprecedented North American drought -  California is in the midst of its worst drought in over 1,200 years, exacerbated by record hot temperatures. A new study led by Benjamin Cook at Nasa GISS examines how drought intensity in North America will change in a hotter world, and finds that things will only get worse.  Global warming intensifies drought in several ways. In increases evaporation from soil and reservoirs. In increases water demand. It makes precipitation fall more as rain and less as snow, which is problematic for regions like California that rely on snowpack melt to refill reservoirs throughout the year. It also makes the snowpack melt earlier in the year. The record heat has intensified the current California drought by about 36%, and the planet will only continue to get hotter. The study finds that drought intensity will increase, but could be manageable if we follow a path that involves slowing global warming by cutting carbon pollution.  However, decades-long mega-droughts in North America could be much worse than those experienced during medieval times, which led to the decline of native populations, if we continue on our current business-as-usual path.

São Paulo Facing "Drastic" Water Rationing to Save Cantareira System - (pictures): The government of the state of São Paulo has admitted that it may be forced to impose "drastic" and "tough" water rationing in Greater São Paulo, with possible cuts to supply of up to five days. The government did not provide further details or specify when the plans will come into effect. For the administration of Geraldo Alckmin, such measures would be a last resort, a final attempt to prevent the total collapse of the Cantareira system, a reservoir which supplies 6.2 million people in the São Paulo metropolitan area. Currently, the reservoir is at just 5.1% of its capacity. São Paulo is currently suffering from the worst water crisis in its history, and there are fears that the Cantareira could dry up completely in March. The suggestion of rationing was made by the engineer Paulo Massato, metropolitan director of São Paulo sanitation company Sabesp.

Weird Winter Weather Plot Thickens as Arctic Swiftly Warms  - Jennifer Francis - Everyone loves to talk about the weather, and this winter Mother Nature has served up a feast to chew on. Few parts of the US have been spared her wrath.  Severe drought and abnormally warm conditions continue in the west, with the first-ever rain-free January in San Francisco; bitter cold hangs tough over the upper Midwest and Northeast; and New England is being buried by a seemingly endless string of snowy nor’easters. Yes, droughts, cold and snowstorms have happened before, but the persistence of this pattern over North America is starting to raise eyebrows. Is climate change at work here? One thing we do know is that the polar jet stream—a fast river of wind up where jets fly that circumnavigates the northern hemisphere—has been doing some odd things in recent years. Rather than circling in a relatively straight path, the jet stream has meandered more in north-south waves. In the west, it’s been bulging northward, arguably since December 2013—a pattern dubbed the “Ridiculously Resilient Ridge” by meteorologists. In the east, we’ve seen its southern-dipping counterpart, which I call the “Terribly Tenacious Trough.” (See picture, below.) These long-lived shifts from the polar jet stream’s typical pattern have been responsible for some wicked weather this winter, with cold Arctic winds blasting everywhere from the Windy City to the Big Apple for weeks at a time. We know that climate change is increasing the odds of extreme weather such as heatwaves, droughts and unusually heavy precipitation events, but is it making these sticky jet-stream patterns more likely, too? Maybe. Jet streams exist because of differences in air temperature. In the case of the polar jet stream, which is responsible for most of the weather we experience around the middle-latitudes of the northern hemisphere, it’s the cold Arctic butting against warmer areas to the south that drives it. (A more in-depth explanation can be found here.) Anything that affects that temperature difference will affect the jet stream.

Researchers link smoke from fires to tornado intensity: Can smoke from fires intensify tornadoes? "Yes," say University of Iowa researchers, who examined the effects of smoke--resulting from spring agricultural land-clearing fires in Central America--transported across the Gulf of Mexico and encountering tornado conditions already in process in the United States. ... "We show the smoke influence for one tornado outbreak, so in the future we will analyze smoke effects for other outbreaks on the record to see if similar impacts are found and under which conditions they occur," says Saide. "We also plan to work along with model developers and institutions in charge of forecasting to move forward in the implementation, testing and incorporation of these effects on operational weather prediction models."

Hottest 12 Months On Record Globally Thanks To Warm January, Reports NASA - In January, the planet continued the warming trend that made 2014 the hottest calendar year on record. NASA reports that last month was the second-hottest January on record (after 2007), while the Japan Meteorological Agency ranked it the hottest.  Significantly, there has never been as hot a 12-month period in NASA’s database as the previous 12 months (February 2014–January 2015). This is using a 12-month moving average, so we can “see the march of temperature change over time,” rather than just once every calendar year. While it has been cold for those of us living in a slice of the eastern and northeastern U.S., the rest of the country and the globe is quite warm, with large parts of North America and Asia experiencing nearly off-the-charts heat. That’s clear in the NASA chart below for January temperatures, whose upper range extends to a whopping 8.1°C (14.6°F) above the 1951-1980 average!

Staying afloat amid climate change - South Florida is Ground Zero for the effects of climate change. With 2.4 million residents living no more than four feet above sea level, we have little room for error and no time to waste. According to the U.S. National Climate Assessment, sea levels rose about eight inches last century and are predicted to rise anywhere from one foot to four feet in the coming century. If a two-foot change happened right now in Miami, it would put 25,000 homes underwater, flood more than $14 billion worth of property and submerge 134 miles of roads. While an underwater Miami might seem impossible to imagine, students at Florida International University are already painting the picture. They built models of the city showing the impact of three-, four- and six-foot sea-level rise, which are now on display at the Coral Gables Museum. The students were also preparing to look at the effects of a ten-foot sea level rise — a scenario that’s not out of the realm of possibility — but they said, at six feet, “the whole map disappeared.” In the face of these devastating potential effects of climate change, South Florida is taking action. The Southeast Florida Regional Climate Action Plan, including Miami-Dade, Broward, Palm Beach and Monroe counties, has laid out recommendations for how to mitigate and adapt to the effects of climate change.

New York City Could See Up To Six Feet Of Sea Level Rise This Century: Report -  -- Climate change is already impacting New York City with rising temperatures and sea levels, which will only worsen as the century continues, according to a report released Tuesday from a panel of scientific experts.  In its 2015 report, the New York City Panel on Climate Change found that the most populous city in the United States is expected to see more frequent heat waves and extreme precipitation events. This is in line with the national and international trends other leading scientific bodies have observed.The city's average annual temperatures, measured from Central Park, have risen about 3.4 degrees Fahrenheit since 1900. From 1971 to 2000, the average annual temperature in the city was 54 degrees, and models predict a a 4.1- to 5.7-degree increase by the middle of the century. Temperatures are projected to rise 5.3 to 8.8 degrees Fahrenheit by the 2080s.Sea level rise, however, may pose an even greater challenge for coastal New York. Average sea levels have risen about 1.2 inches per decade in the city since 1900, or about 1.1 feet overall, according to the new report. This is almost twice the average global rate of 0.5 to 0.7 inches per decade.This trend is expected to accelerate in the coming decades as greenhouse gas emissions generated by human activity continue to trap more of the sun's heat, warming and expanding the oceans and melting land-based glaciers and ice caps, among other contributions.  The report's authors project sea levels around New York City will rise 11 to 21 inches by the middle of the century, 18 to 39 inches by the 2080s, and up to 6 feet by 2100. The researchers noted that their projections are specific to New York City, but "projections based on similar methods would not differ greatly throughout the coastal corridor from Boston to Washington, D.C."

New York’s Forecast: Rising Seas, Continual Heat Waves — and a Little Hope -  Extreme weather has coincided with the release of a report by the New York City Panel on Climate Change. It isn’t the sort of thing that will leave you guiltlessly saying, “Just give me 15 minutes to pack my takeout meal and arrange my nine-irons” the next time a well-meaning venture capitalist offers you a ride on his Gulfstream to Palm Springs.The panel, including scientists and infrastructure and risk-management experts, was established during the Bloomberg years to forecast climate trends and advise on resiliency. Its report projects that sea levels will probably rise four to eight inches in New York City in the 2020s and perhaps up to 75 inches by the beginning of the 22nd century. By 2080, mean temperature in New York City during a typical year “may bear similarities to those of a city like Norfolk, Va.,” the report states. Other unsettling predictions (based on NASA modeling tools) abound. From 1971 to 2000, mean annual temperature in New York City was 54 degrees; by 2100, the report said, the mean temperature could be as high as 66 degrees. By the 2050s, the number of heat waves per year is expected to more than double in the city (relative to the 29-year base period between 1971 and 2000) with the number of days at or above 90 degrees reaching somewhere between 32 and 57. By the 2080s, there could be 75 days a year of 90-degree weather. And of course there is no statistical apparatus available to forecast the uptick in distemper likely to accompany these changes. In general, the report prepares us to expect increased flooding and more extreme weather “events.”

Global Ocean Acidity Revealed in New Maps -- Ocean acidification can now be seen from space, highlighting an ongoing danger of climate change and revealing the regions most at risk.  Seawater absorbs about a quarter of the carbon dioxide, a greenhouse gas, that humans release into the atmosphere each year, mostly from the burning of fossil fuels, according to the National Oceanic and Atmospheric Administration (NOAA). This process has slowed the warming of the globe, as all of that carbon is locked up in the ocean's "carbon sink" rather than floating freely in the atmosphere. But when seawater takes up carbon dioxide, it becomes more acidic. According to NOAA, the surface pH of the ocean has become 30 percent more acidic since the end of the Industrial Revolution. That acidity is not necessarily evenly distributed, however, nor is it simple to measure. Most studies rely on physical measurements taken out in the open ocean from research vessels and buoys deployed from such vessels. These measurements are spotty and expensive to collect. Now, scientists are turning an eye to the sky to complement on-the-ground data. Using satellite measurements, researchers at the University of Exeter in the United Kingdom and their colleagues have created global maps of ocean acidity that show which areas are most affected. A map created from the results shows the variation apparent across the globe. The redder the color, the more alkaline, or basic — the opposite of acidic — the region is. The more basic the seawater, the more room it has to absorb carbon dioxide without becoming overly acidic. Open regions of the ocean show this resilience, while many coastal regions appear less alkaline. The northeastern United States looks particularly vulnerable — a finding that echoes 2013 research using on-the-ground measurements.

8 Million Metric Tons of Plastic Dumped Into World's Oceans Each Year - We’ve been hearing for years about all the plastic that is going into our oceans, creating enormous gyres, washing up on beaches, threatening marine life and marine ecosystems in ways we don’t even know yet. A study last year called Valuing Plastic by the Plastic Disclosure Project and Trucost, estimated plastic caused about $13 billion in damages to marine ecosystems each year—and noted that that estimate was probably low, given what we don’t know yet. Tracking all of that plastic, which ranges from plastic bags and bottles to tiny microbeads of plastic broken down from larger sources, has been an ongoing challenge for scientists. With each new study, we get a little closer to figuring out just how much there might be out there—and it’s worse than we thought. A new study, Plastic waste inputs from land into the ocean, published in the journal Science last week, estimated that plastic debris washing into the ocean from 192 coastal countries reached somewhere between 4.8 and 12.7 million metric tons in 2010. That’s enough to cover every foot of coastline in the world. Based on the inputs it used—solid waste data, population density and economic status—it calculated that these countries produced a total of 275 metric tons of plastic waste and then figured out how much of that ends up in the ocean. Previous studies had suggested the amount could be around a quarter million tons but this study found that it was likely many times more.

Officials Urge Americans To Sort Plastics, Glass Into Separate Oceans —Calling it an important but often overlooked step of the process, Environmental Protection Agency officials issued a statement Friday once again advising Americans to sort their plastics and glass materials into separate oceans. “We would like to remind Americans that clear, brown, and green glass should be placed in the Atlantic Ocean, and plastics classified as 1, 2, 4, 6, and 7 belong in the Pacific,” said EPA spokesman Daniel Gray, adding that individuals should properly rinse out all containers before depositing them off the appropriate coastline. “Also, lakes and rivers are reserved strictly for paper products. We simply ask that cardboard be flattened before it is left in any one of the thousands of designated freshwater bodies across the country.” Gray also stressed that Americans should only place old computers, televisions, mobile phones, and other unwanted electronics in forests on their assigned day of the week.

Significant Errors in Study Suggesting Global Warming is Good for the World - The new issue of the Journal of Economic Perspectives includes a remarkable admission about a controversial academic paper that wrongly suggested moderate amounts of global warming would have an overall positive economic impact on the world.  The paper by Richard Tol, who is now a professor of economics at the University of Sussex, has been widely promoted by climate change 'sceptics' who have attempted to argue that global warming is not a problem.  But editors at the journal have now finally acknowledged that the original paper contained a number of significant errors that render invalid its conclusion about beneficial global warming. In 2009, the journal published 'The Economic Effects of Climate Change' by Professor Tol, which used estimates of the impacts of climate change from a number of previous studies to show how they would change as global average surface temperature increases.   Among its conclusions were that global warming of upto two centigrade degrees or so could have a net positive economic impact.  Professor Tol added to and updated his analysis in subsequent papers for other journals, but reached the same general conclusion. Unfortunately, his papers contained a number of errors because he had inadvertently misrepresented the results of some of the studies of economic impacts.

Fiddling with global warming conspiracy theories while Rome burns - It shouldn’t need to be said, but the Earth really is warming. Air and ocean temperatures are rising fast, ice is melting across the planet, ecosystems are shifting, sea levels are rising, and so on.The latest zombie climate myth to rise from the dead involves the oldest form of global warming denial. It’s a conspiracy theory that the Earth isn’t really warming; rather, fraudulent climate scientists are “fiddling” with the data to introduce a false warming trend.   In The Telegraph, which is a mostly serious UK newspaper, Christopher Booker calls scientists’ adjustments to temperature data “the biggest science scandal ever.” These accusations have echoed through conservative media and online blogs, even being aired on Fox News (three times).   In reality climate scientists process the raw temperature data for very good reasons. Sometimes temperature monitoring station locations move. Sometimes the time of day at which they’re read changes. Sometimes changes are made to the instruments themselves. In each case, if adjustments aren’t made, then biases will be included in the data that don’t reflect actual changes in temperatures. Richard Muller at UC Berkeley was skeptical that climate scientists were doing all these adjustments correctly, so he assembled the Berkeley Earth Surface Temperature (BEST) team to check the data for themselves. The biggest initial financial contribution to the project came from the Koch brothers.  As Muller discusses in the video below, his team confirmed that the Earth’s surface temperatures are warming. In fact, BEST finds that NASA, NOAA, and the UK Met Office have slightly underestimated the warming over the past 15 years.

William Catton's warning -- William Catton Jr., author of Overshoot: The Ecological Basis of Revolutionary Change, believed that industrial civilization had sown the seeds of its own demise and that humanity's seeming dominance of the biosphere is only a prelude to decline. His work foreshadowed later works such as Joseph Tainter's The Collapse of Complex Societies, Richard Heinberg's The Party's Over: Oil, War and the Fate of Industrial Societies, and Jared Diamond's Collapse: How Societies Choose to Fail or Survive. In Overshoot Catton wrote: "We must learn to relate personally to what may be called 'the ecological facts of life.' We must see that those facts are affecting our lives far more importantly and permanently than the events that make the headlines." He published those words in 1980, and now, it seems, at least some of those facts have made their way into the headlines in the form of climate change, soil erosion, fisheries collapse, species extinction, constrained supplies of energy and other critical resources, and myriad other problems that are now all too obvious. But, even today, few people see the world as Catton did. Few realize how serious these problems are and how their consequences are unfolding right before us. Few understand what he called "the tragic story of human success," tragic because that success as it is currently defined cannot be maintained and must necessarily unwind into decline owing to the laws of physics and the realities of biology. We can adjust to these realities or they will adjust us to them.

Spy agencies fund climate research in hunt for weather weapon, scientist fears  -- A senior US scientist has expressed concern that the intelligence services are funding climate change research to learn if new technologies could be used as potential weapons. Alan Robock, a climate scientist at Rutgers University in New Jersey, has called on secretive government agencies to be open about their interest in radical work that explores how to alter the world’s climate. Robock, who has contributed to reports for the intergovernmental panel on climate change (IPCC), uses computer models to study how stratospheric aerosols could cool the planet in the way massive volcanic eruptions do. But he was worried about who would control such climate-altering technologies should they prove effective, he told the American Association for the Advancement of Science in San Jose. Last week, the National Academy of Sciences published a two-volume report on different approaches to tackling climate change. One focused on means to remove carbon dioxide from the atmosphere, the other on ways to change clouds or the Earth’s surface to make them reflect more sunlight out to space.  The report concluded that while small-scale research projects were needed, the technologies were so far from being ready that reducing carbon emissions remained the most viable approach to curbing the worst extremes of climate change. A report by the Royal Society in 2009 made similar recommendations.The $600,000 report was part-funded by the US intelligence services, but Robock said the CIA and other agencies had not fully explained their interest in the work.

'Next Pinatubo' a test of geoengineering: Scientists who study ideas to engineer the climate to mitigate global warming say we should be ready to deploy an armada of instrumentation when Earth has its next major volcanic eruption. Data gathered in the high atmosphere would be invaluable in determining whether so-called "geoengineering" solutions had any merit at all. It would have to be an event on the scale of Mount Pinatubo in 1991. That eruption cooled global temperatures for a couple of years. It did so by pumping 20 million tonnes of sulphur dioxide high into the sky above the Philippines. The resulting droplets of sulphuric acid that formed on contact with moisture reflected incoming sunlight back out into space, preventing that radiation from warming the surface. Some have suggested humanity could mimic this same effect by deliberately seeding the stratosphere with sulphur.  But Prof Alan Robock from Rutgers University said we had no real knowledge currently of how such a strategy would play out. That is why he wants to see a co-ordinated investigation of the next big volcanic eruption to gather additional data. "We'd like to be able to see how this sulphur dioxide cloud evolves from gas into particles and how the particles grow. If the particles are too big then they'll fall out much more rapidly and you'd have to replenish them much more rapidly, if you're interested in doing geoengineering. And so we'd like to understand the processes in the formation of these droplets," he told BBC News.

NRC geoengineering report: Climate hacking is dangerous and barking mad. - Some years ago, in the question-and-answer session after a lecture at the American Geophysical Union, I described certain geoengineering proposals as “barking mad.” The remark went rather viral in the geoengineering community. The climate-hacking proposals I was referring to were schemes that attempt to cancel out some of the effects of human-caused global warming by squirting various substances into the atmosphere that would reflect more sunlight back to space. Schemes that were lovingly called “solar radiation management” by geoengineering boosters. Earlier I had referred to the perilous state such schemes would put our Earth into as being analogous to the fate of poor Damocles, cowering under a sword precariously suspended by a single thread.  This week, the National Research Council (NRC) is releasing a report on climate engineering that deals with exactly those proposals I found most terrifying. The report even recommends the creation of a research program addressing these proposals. I am a co-author of this report. Does this mean I’ve had a change of heart? No. The nearly two years’ worth of reading and animated discussions that went into this study have convinced me more than ever that the idea of “fixing” the climate by hacking the Earth’s reflection of sunlight is wildly, utterly, howlingly barking mad. In fact, though the report is couched in language more nuanced than what I myself would prefer, there is really nothing in it that is inconsistent with my earlier appraisals.

Geoengineering might work in a rational world … sadly we don’t live in one -  The publication of a hefty two-volume report on geoengineering by the US National Research Council represents a marked shift in the global debate over how to respond to global warming. To date, the debate has been about mitigation, with the need for some adaption because of the failure to reduce emissions adequately. The new report, backed by the prestige of the National Academy of Sciences of which the NRC is the working arm, now argues that we should develop a “portfolio of activities” including mitigation, adaptation and climate engineering.  In other words, rather than presenting climate engineering, and especially solar radiation management (rebranded “albedo modification”), as an extreme response to be avoided if at all possible, the report normalises climate engineering as one approach among others. To be sure, the committee writing the report points to the serious risks likely in albedo modification, but it recommends the US set in train what would be a major research program into various forms of geoengineering, including field experiments in a technique to cool the planet by spraying sulphate aerosols into the upper atmosphere. And it endorses the deployment of various carbon dioxide removal methods as relatively benign ways to counter human emissions, arguing that the decision on mitigation versus carbon dioxide removal is largely a question of cost. This approach is riddled with political dangers. With no talk of “climate emergencies” in the report, we look in vain for any clear rationale for the possible deployment of albedo modification. The “buying time” argument – according to which we can temporarily increase the Earth’s albedo (surface reflectivity) while the world decides to put CO2 controls in place – has fallen out of favour because any warming suppressed by a solar shield will just come back to bite us once the shield is removed.

CIA Looking Into Weather Modification As A Form of Warfare -- This week, a top American climate researcher – Professor Alan Robock from Rutgers – says that the CIA is looking into weather modification as a form of warfare. The Independent reportsA senior American climate scientist has spoken of the fear he experienced when US intelligence services apparently asked him about the possibility of weaponising the weather as a major report on geo-engineering is to be published this week. Professor Alan Robock stated that three years ago, two men claiming to be from the CIA had called him to ask whether experts would be able to tell if hostile forces had begun manipulating the US’s weather, though he suspected the purpose of the call was to find out if American forces could meddle with other countries’ climates instead.During a debate on the use of geo-engineering to combat climate change, at the annual meeting of the American Association for the Advancement of Science in San Jose, California, Prof Robock said: “I got a phone call from two men who said we work as consultants for the CIA and we’d like to know if some other country was controlling our climate, would we know about it?  ”I told them, after thinking a little bit, that we probably would because if you put enough material in the atmosphere to reflect sunlight we would be able to detect it and see the equipment that was putting it up there. “At the same time I thought they were probably also interested in if we could control somebody else’s climate, could they detect it?”  Professor Robock, who has investigated the potential risks and benefits of using stratospheric particles to simulate the climate-changing effects of volcanic eruptions, said he felt “scared” when the approach was made.

Why Cheap Oil Won't Stop Solar Power - I almost forgot about this one: many environmentally-conscious folks have become increasingly concerned that low oil prices may slow or even reverse the movement towards renewable sources of power--especially solar. Why change when gas has halved in price or more in less than a year? However, the reality is that the current phenomenon of cheap oil is actually a non-event in the inexorable march towards solar power. To this end, Bloomberg identifies seven reasons as to why this is so:

  1. The Sun Doesn't Compete With Oil -  Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.
  2. Electricity Prices Are Still Going Up - The real threat to renewables isn’t cheap oil; it’s cheap electricity. In the U.S., abundant natural gas has made power production exceedingly inexpensive. So why are electricity bills still going up? Fuel isn’t the only component of the electricity bill. Consumers also pay to get the electricity from power plant to home. In recent years, those costs have soared. Annual investments in the grid increased fourfold since 1980, to $27 billion in 2010, according to a report by Deutsche Bank analyst Vishal Shah. That’s driving bills higher and making rooftop solar attractive. [That is, power distribution instead of power generation costs are driving up power delivered via the grid.]
  3. Solar Prices Are Still Going Down - You may have seen this chart [above] before. It’s the most important chart. It shows the reason solar will soon dominate: It’s a technology, not a fuel. As time passes, the efficiency of solar power increases and prices fall. Michael Park, an analyst at Sanford C. Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome. Case in point: Oil-rich Dubai just tripled its solar target for the year 2030, to 15 percent of the country’s total power capacity. Dubai’s government-owned utility this week awarded a $330 million contract for a solar plant that will sell some of the cheapest electricity in the world.

Burning Trees for Electricity Is Actually Dirtier Than Coal -- Western Europe has already lost about 97 percent of its original forests. But European power companies, under pressure to clean up their climate pollution and switch to renewable sources of energy, are increasingly looking to burn wood fuel instead of coal in their power plants. Without enough wood at home, European utilities are looking to America for wood fuel—to the rich forests of the Southeastern U.S. Their exploding appetite for wood from our southern forests stems from misguided EU energy policies that allow power plants to burn wood—known as forest biomass—as a low-carbon alternative to coal. These policies assume that all biomass is carbon neutral, so when power plants burn wood instead of coal, they don’t have to count any of their carbon emissions. Trouble is, the latest science shows this assumption is false. Burning trees and other large-diameter wood for electricity is actually dirtier than coal. Yet the U.S. EPA is apparently on the verge of making the same math mistake the EU did—opening an accounting loophole that puts our forests, as well as the Obama Administration’s own efforts to cut carbon pollution, at risk.

India Starts Building World’s Largest Solar Plant, Overtaking U.S. - India is about to start construction on what will be the world’s largest solar plant. As part of a redoubled effort to ramp up renewable energy capacity to help meet the developing country’s fast-growing energy needs, the 750-megawatt solar plant in Madhya Pradesh will be inaugurated on August 15, 2016 — India’s Independence Day. The plant will be significantly larger than the world-leading solar farms in California, including the recently-commissioned Desert Sunlight Solar Farm. India is planning to install at least 100 gigawatts of solar power by 2022 — a goal that solar power giant China only plans on beating by two years. Both countries are confronting energy crises as coal-fired power plants spread debilitating air pollution throughout fast-growing urban centers. The situation is in many ways more acute in India. More than 300 million Indians do not have access to electricity, and by 2017, it is predicted India will outpace China in economic growth.  A recent World Health Organization report found that India has 13 of the 20 most polluted cities in the world with the capital, Delhi, being the most polluted of all. The WHO report found that Delhi had six times the level of airborne particulate matter considered safe, but a recent on-the-ground investigation found that the levels could be up to eight times higher in heavily trafficked corridors.

Delhi Wakes Up to an Air Pollution Problem It Cannot Ignore - For years, this sprawling city on the Yamuna River had the dirtiest air in the world, but few who lived here seemed conscious of the problem or worried about its consequences.Now, suddenly, that has begun to change. Some among New Delhi’s Indian and foreign elites have started to wear the white surgical masks so common in Beijing. The United States Embassy purchased 1,800 high-end air purifiers in recent months for staff members’ homes, with many other major embassies following suit.Some embassies, including Norway’s, have begun telling diplomats with children to reconsider moving to the city, and officials have quietly reported a surge in diplomats choosing to curtail their tours. Indian companies have begun ordering filtration systems for their office buildings.  The increased awareness of the depth of India’s air problems even led Indian diplomats, who had long expressed little interest in climate and pollution discussions with United States officials, to suddenly ask the Americans for help in cleaning India’s air late last year, according to participants in the talks. So when President Obama left Delhi after a visit last month, he could point to a series of pollution agreements, including one to bring the United States system for measuring pollution levels to many Indian cities and another to help study ways to reduce exhaust from trucks, a major source of urban pollution. One driver for the change is a deluge of stories in Indian and international news outlets over the last year about Delhi’s air problems. Those articles, once rare, now appear almost daily, reporting such news as spikes in hospital visits for asthma and related illnesses. One article about Mr. Obama’s visit focused on how, by one scientist’s account, he might have lost six hours from his expected life span after spending three days in Delhi.

U.S. to Monitor Air Quality in India and Other Countries - — The United States says it will expand air-quality monitoring at some overseas diplomatic missions, following several years of reporting pollution data in China.The goal is to increase awareness of the health risks of outdoor air pollution, which easily spreads across borders, Secretary of State John Kerry said in announcing the program on Wednesday.The program is intended to help United States citizens abroad reduce their exposure to pollution and to help other countries develop their own air-quality monitoring through training and exchanges with American experts, he said.“We’re hoping that this tool can also expand international cooperation when it comes to curbing air pollution,” Mr. Kerry said.The program, run in conjunction with the Environmental Protection Agency, will begin to operate in India in a few months. New Delhi has some of the world’s worst air pollution, and residents there are becoming increasingly concerned about the dangers.American diplomatic missions will also monitor air quality in Vietnam, Mongolia and elsewhere, Mr. Kerry said.

Oil And Gas Companies Won’t Have To Pay For Damage Caused To Louisiana’s Coast, Judge Rules  - Oil and gas companies won’t have to pay for decades of damage to Louisiana’s coast, after a lawsuit filed against the companies in 2013 was thrown out on Friday. U.S. District Judge Nanette Jolivette Brown dismissed the lawsuit, which was filed by the Southeast Louisiana Flood Protection Authority-East against nearly 100 fossil fuel companies. The suit, which the New York Times called the “most ambitious environmental lawsuit ever,” could have cost the industry billions of dollars for its contribution to the erosion of Louisiana’s coast. The state’s coastline loses about a football field’s worth of land every hour, and the wells drilled by the oil and gas industry have been estimated by the Interior Department to have caused anywhere from 15 to 59 percent of the erosion. The lawsuit would have prompted the industry to help pay for the estimated $50 billion in coastal restoration and protection that Louisiana will need over the next several years.   Louisiana Gov. Bobby Jindal (R), who had long opposed the lawsuit and signed a bill last year to quash it — legislation that was later found unconstitutional — praised the judge’s decision, as did the state’s oil and gas industry, which called the lawsuit “ill-conceived, unwise and divisive.” The oil and gas industry may not be off the hook quite yet, however — the Flood Protection Authority is expected to appeal the judge’s decision to toss out the lawsuit.

Oregon Denies Wyoming Standing to Challenge State’s Denial of Key Permit for Coal-Export Facility - The Oregon Department of State Lands (DSL) recently denied an application for a state removal/fill permit (similar to a Clean Water Act 404 permit) critically needed for construction of a proposed multi-modal coal export facility. In its denial, DSL cited potential impacts to a “small, but important” Columbia River fishery. The project is Ambre Energy’s Morrow Pacific project, to be located on the Columbia River. Oregon Governor John Kitzhaber has publically opposed the project, so the denial is not a surprise. The applicant and the Port of Morrow have appealed the permit denial based on alleged bias in the agency’s decision-making process. The State of Wyoming also appealed the decision, alleging that the denial decision was not only politically-motivated, but an unconstitutional restriction of interstate commerce. DSL, however, has denied Wyoming’s request to be heard on standing grounds, finding that Wyoming failed to establish that it is “aggrieved or adversely affected” as defined by state regulation. The administrative appeal continues, and it remains to be seen whether Wyoming will seek intervention or other venues to assert its Commerce Clause arguments.  The proposed Morrow Pacific Project would transport coal by train from the intermountain West to the Port of Morrow, a Columbia River port near Boardman, Oregon. At the Port of Morrow, the coal would be transferred to barges for shipment down the Columbia River to the Port Westward Industrial Park at the Port of St. Helens, a downstream Columbia River port with the capacity to handle deep-draft ships. The coal would then be transferred to large ocean-going ships bound for Asian markets.

Anti-Fossil Fuel Movement Grows - Don’t look now but the anti-fossil fuel movement is quickly building momentum.Climate activists have campaigned against oil, gas, and coal for years. And while legislation in the U.S. Congress addressing climate change seems as remote as ever, outside of the beltway the anti-fossil fuel movement is building support at a breakneck pace.Consider the series of wins that environmentalists continue to rack up.The Keystone XL pipeline seemed destined for approval several years ago with an oil-friendly Secretary of State in Hillary Clinton and a largely indifferent President in the White House. That all changed when environmental groups led by made the project a defining issue for the Obama administration. Nearly five years after protests began, the pipeline appears close to being killed off for good.Or look to New York, where late last year, after several years of grinding opposition, Governor Andrew Cuomo finally banned fracking indefinitely. With vast reserves of shale gas located in the Marcellus and Utica shales in large swathes of southern and western New York, the fracking industry was stunned by the defeat.  That decision was in no doubt influenced by the People’s Climate March in New York City a few months earlier, which saw an estimated 400,000 people clog up city streets, calling for action on climate change. The march has been described as the largest rally for climate action in world history. Meanwhile, polls continue to show strong support for government action to reduce greenhouse gas emissions, including around half of Republicans.

Officials debate frack tax proposal - -- State officials continue to defend the governor's plan to increase tax rates on oil and gas produced via horizontal hydraulic fracturing. But Republican members of the House Finance Committee don't appear to be supporting the severance tax proposal, based on their questions and comments to the head of the Ohio Department of Taxation Thursday. "Baby steps do tend to be a little more acceptable than large steps," said Rep. Tim Derickson, R-Oxford, noting House Republicans backed a smaller severance tax increase package last session. "This does seem to be a rather large step for me compared to what we were proposing in the last general assembly." But state tax Commissioner Joe Testa countered that Ohio's severance tax rates remain too low -- 20 cents on a barrel of oil, 3 cents per thousand cubic feet of natural gas produced. "We think it's time," Testa said. "They've had almost four years of practically no severance tax."

Ohio court strikes down local fracking bans - Towns and cities in Ohio cannot regulate hydraulic fracturing on their own, the state’s Supreme Court ruled Tuesday. The court ruled 4-3 that Ohio’s legislature gave state agencies exclusive authority over all aspects of oil and natural gas drilling, including fracking, in a 2004 law, and any local ordinances would violate that exclusivity. “We have consistently held that a municipal-licensing ordinance conflicts with a state-licensing scheme if the local ordinance restricts an activity which a state license permits,” Justice Judith French wrote in the majority opinion. The remaining judges said Ohio’s “home rule” provision in its constitution gives municipalities great leeway in writing ordinances. “There is no need for the state to act as the thousand-pound gorilla, gobbling up exclusive authority over the oil and gas industry, leaving not even a banana peel of home rule for municipalities,” Justice Judith Ann Lanzinger wrote.

Ohio Supreme Court: local governments can't ban fracking -  The Ohio Supreme Court ruled 4-3 Tuesday that local governments can’t ban fracking in their municipality, or institute zoning regulations that would supersede drilling activity, complementing current state law upholding such prohibitions. The decision also stated that governments could not enforce any current regulations or bans, as they conflict with the state’s “executive authority” regarding oil and gas drilling, which is overseen by the Ohio Department of Natural Resources. In 2014’s election, Athens residents overwhelmingly supported an initiative to ban fracking practices within city limits. A similar initiative nearly made it to the November 2013 ballot, though the Athens County Board of Elections denied the ban from appearing on the ballot, considering the state has sole power regarding drilling regulations. Councilman Jeff Risner, D-2nd Ward, said 78 percent of voters were in favor of the 2014 ban. Athens Mayor Paul Wiehl said Tuesday’s ruling was “unfortunate”, adding it’s unfair for the state to void Athens’ ban. “I guess that means the voice of the people doesn’t matter,” Wiehl said. “We said ‘We want local control,’ and then they take it away.” The lawsuit leading to the Supreme Court decision involved Munroe Falls’ zoning ordinances and local laws regulating oil and gas drilling coming to head with Beck Energy, which had obtained a state permit to drill into the city’s property. Wiehl said Athens residents will be the ones to experience negative effects of fracking, which involves injecting water and chemicals into the ground to extract fossil fuels. “We’re the ones who are going to suffer the pollution,” Wiehl said.

Court upholds Ohio's power to regulate oil and gas drilling — Certain local zoning laws aimed at limiting fracking can't be used to circumvent the state's authority over oil and gas drilling, a fiercely divided Ohio Supreme Court ruled Tuesday.In a 4-3 decision with three written dissents, the high court said that the home rule clause of Ohio's constitution doesn't allow a municipality to block drilling activities otherwise permitted by the state.The decision came in a case brought by the Akron suburb of Munroe Falls against Beck Energy Corp. over a 2004 state law that gives Ohio "sole and exclusive authority" to regulate the location of wells.Beck received a state-required permit from the Ohio Department of Natural Resources in 2011 to drill a traditional well on private property in Munroe Falls. The city sued, saying the company illegally sidestepped local ordinances.The lawsuit has been closely watched nationally, raising a question in cities and towns where lucrative oil and gas is trapped in underground shale: Can regulations put in place by states eager for the jobs and tax revenues that come with drilling trump local restrictions on hydraulic fracturing, or fracking, that communities are enacting to protect against haphazard development.Writing for the court's majority, Justice Judith French said, "The issue before us is not whether the law should generally allow municipalities to have concurrent regulatory authority, but whether (the law) and Home Rule Amendment do allow for the kind of double license at issue here. They do not."

Ohio Supreme Court rules Munroe Falls regulations on oil and gas drilling are improper -- The Ohio Supreme Court on Tuesday ruled that communities may not exercise their home-rule powers to regulate oil and gas drilling if they conflict with a state law that regulates drilling across Ohio. In its 4-3 decision, the court upheld an appellate court's ruling against the city of Munroe Falls that struck down regulations the community was trying to enforce against a driller, Beck Energy. Munroe Falls had won an injunction in Summit County Common Pleas Court that halted Beck from drilling, even though it had obtained permits from the state. It appealed to the Supreme Court after the Ohio 9th District Court of Appeals overturned that decision.  Before the case was argued last February, Munroe Falls Mayor Frank Larson had said the case wasn't about oil and gas drilling. Rather, it was about communities fighting to preserve their constitutionally granted home-rule powers.  A half dozen other communities, including Broadview Heights, Euclid and North Royalton, filed briefs in support of Munroe Falls' position. Ohio's home rule provisions in the state constitution permit communities to enact local rules and regulations so long as they do not conflict with general state laws.  But in her majority opinion, Justice Judith French wrote that the Munroe Falls regulations, which were enacted between 1980 and 1995, clashed with a 2004 law enacted by the General Assembly that provided for general statewide regulation of oil and gas drilling.

Munroe Falls fracking rules are trumped by state regulations, Ohio Supreme Court rules - - Columbus Business First -- An Ohio community cannot use its zoning laws to ban fracking because state law trumps its home rule stance, the Ohio Supreme Court decided Tuesday. While the ruling in the 4-year-old dispute between the town of Munroe Falls and Beck Energy Corp. affirms a state appeals court ruling, it is unclear whether the question over the legality of local bans on hydraulic fracturing will continue. "It's a win for the oil and gas industry in this case, but I'm not sure that it actually answers the ultimate question of whether (state law) trumps all local ordinances that attempt to regulate oil and gas," said Matt Warnock, co-chairman of law firm Bricker & Eckler LLP's Shale Task Force. Chris Zeigler, executive director of American Petroleum Institute-Ohio, sees the decision as reaffirming what he already thought about local bans on fracking: "This certainly answers the question correctly with regard to outright banning campaigns," he told me. Comments from the justices implied the Ohio legislature could address some of the lingering questions over the local-versus-state debate. The court heard arguments a year ago over the dispute between the drilling company and Munroe Falls, near Akron. The dispute started when Ravenna-based Beck Energy prepared to drill a natural gas well on leased residential land in the town. The Ohio Department of Natural Resources approved a permit but the city sued, arguing Beck Energy violated the municipality's zoning and drilling rules.

Ohio high court holds local ordinances preempted by state oil and gas regulations - [JURIST] The Supreme Court of Ohio [official website] on Tuesday ruled [opinion, PDF] in a 4-3 decision that local drilling and zoning regulations are preempted by state laws governing oil and gas drilling activities. In 2011 Beck Energy Corporation obtained a permit from the Ohio Department of Conservation and Natural Resources (ODNR) [official website] in order to drill a well within the city limits of Munroe Falls, Ohio. The city obtained a court order to stop the company from operating within its limits until the company complied with local law, notably one zoning ordinance and four ordinances related to oil and gas drilling. In Tuesday's opinion, the court ruled the local ordinances are not within a the city's home rule powers [Court News Ohio report], which allow cities and counties to pass laws to govern themselves. The court referenced the purpose of a 2004 law [1509.02, text] passed by the Ohio General Assembly [official website] that established DCNR has exclusive authority [Columbus Dispatch report] to regulate all aspects of drilling activity. Because the local ordinances directly conflict with state-wide regulations, the court held the city of Munroe Falls could not enjoin the company from drilling when the proposed drilling activity complies with state regulations.

Don’t Give Up on Home Rule in Ohio  - Home Rule has been dealt a set-back in Ohio, but not a death blow. As Lady Chainsaw (aka Deborah Goldberg) explains, the court ruling did not negate a municipality’s ability to apply land use laws – zoning – to oil and gas activity – provided the ordinance is based on a comprehensive land use plan and is limited to land use zoning. The ruling just prevents towns from trying to regulate the activity of oil and gas drilling – what the court refers to as “double licensing” of the activity by the town as well as the state. No can do. Not in New York, not in Texas, not in New Mexico, not nowhere. As we have seen before, there are right ways to right zoning ordinances and there are wrong ways.   Nutshell, the Ohio town took the wrong approach.  “The press is overplaying the decision.  We submitted an amicus brief on behalf of health professionals in the case.  Our amicus brief argued strenuously that the Ohio Supreme Court should decide the case narrowly and not rule out the possibility of zoning that could work with state oil and gas regulatory law.  The three-judge plurality ruled against the City, but in doing so, it stated:  The issue before us is not whether the law should generally allow municipalities to have concurrent regulatory authority, but whether R.C. 1509.02 and the Home Rule Amendment do allow for the kind of double licensing at issue here. They do not. We make no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme. Rather, our holding is limited to the five municipal ordinances at issue in this case.  The one-judge concurrence stated: I write separately to emphasize the limited scope of our decision; “our holding is limited to the five municipal ordinances at issue in this case.” Lead opinion at ¶ 33. This appeal does not present the question whether R.C. 1509.02 conflicts with local land use ordinances that address only the traditional concerns of zoning laws, such as ensuring compatibility with local neighborhoods, preserving property values, or effectuating a municipality’s longterm plan for development, by limiting oil and gas wells to certain zoning districts without imposing a separate permitting regime applicable only to oil and gas drilling.

Beck Energy-1, Munroe Falls- 0, but does it matter? -- Now that Beck Energy Corp.’s case against Munroe Falls has come to the end, and the company walked away with the win, it may not pursue drilling the well that caused all the fuss in the first place.  Back in 2011, Beck Energy had plans to drill a natural gas well on leased residential land located in Munroe Falls.  The city sued Beck Energy claiming the well violated local zoning ordinances.  The case made its way up to the Ohio Supreme Court where the court eventually ruled in favor of Beck Energy.  Now with a victory, it is expected that the company begin drilling its well, but other factors are now weighing in on going ahead with operations.  John Keller, the Vorys Sater Seymour and Pease LLP attorney who argued the company’s case in court, commented on one issue that is making Beck Energy rethink drilling:  It needs to first of all determine if it makes economic sense to drill those wells … Prices have gone down since they first proposed this.

Company Presses Forward on Plans to Ship Fracking Wastewater via Barge in Ohio River, Drawing Objections from Locals -- A major dispute is brewing over transporting wastewater from shale gas wells by barge in the Ohio River, the source of drinking water for millions of Americans.  On January 26, GreenHunter Water announced that it had been granted approval by the U.S. Coast Guard to haul tens of thousands of barrels from its shipping terminal and 70,000-barrel wastewater storage facility on the Ohio River in New Matamoras, Ohio.  Outraged environmental advocates immediately objected to the news.  But the company's announcement was in fact made before the Coast Guard completed its review of the hazards of hauling shale gas wastewater via the nation's waterways – a process so controversial given the difficulty of controlling mid-river spills and the unique challenges of handling the radioactivity in Marcellus shale brine that proposed Coast Guard rules have drawn almost 70,000 public comments. GreenHunter's move drew a sharp rebuke from Coast Guard officials.  “The Coast Guard has not taken final agency action on GreenHunter’s 2012 request to transport shale gas extraction wastewater and has not classified this cargo for shipment,” the Coast Guard said in a statement responding to the announcement.  So how can the company move forward with plans to ship wastewater in the Ohio River? The answer may come down to whether the waste the company hauls is classified as “shale gas extraction waste” or “oilfield waste.” GreenHunter officials now say they consider their wastewater “oilfield waste.”  The company told the Ohio Beacon it had received a letter on October 2 from the Coast Guard stating it could ship “oilfield waste.” Citing that authority, company officials said they intend to move forward with shipments.

Marcellus horizontal well activity - Activity in the Marcellus Shale hasn’t changed much, but Governor Tom Wolf’s decision put in place a natural gas severance tax has caused an uproar within Pennsylvania. Wednesday of last week, Wolf shared his proposed 5 percent state severance tax on natural gas production. The tax would balance out the impact of shale drilling in counties located in Northeast Pennsylvania. Wolf claims that the tax is reasonable and has the potential to generate $1 billion that would mostly go towards public education by the 2016-2017 fiscal year. According to spokesman Jeff Sheridan, along with his proposed severance tax, Wolf also plans to replace the already existing driller impact fee that was adopted in 2012 with unclear impact funding for local governments. Debate regarding Wolf’s severance tax is heated and only time will tell what will happen to natural gas operations in Pennsylvania. The following information is provided by the Ohio Department of Natural Resources through the week of February 7th. DRILLED–16  DRILLING 1  PERMITTED -15  PRODUCING –12  TOTAL - 44.  Forty-four horizontal permits were issued through the week that ended Feb. 7th, and twenty-nine wells were drilled in the Marcellus Shale.

Oops! Marcellus did it again - Drilling companies in Pennsylvania did it again and broke another production record.  According to data released by the Department of Environmental Protection (DEP), last year shale gas production increased by 30 percent. Marcellus drillers alone produced over 2 trillion cubic feet of gas during the second half of 2014.  Throughout the entire year, drillers produced 4 trillion cubic feet, equivalent to 16 percent of what the nation uses on an annual basis.  Frank Macchiarola of the industry trade group, America’s Natural Gas Alliance commented on the natural gas supply that Pennsylvania has generated: “Economic growth from natural gas production has translated into increased disposable income for families and more profitable businesses … Pennsylvania also is supplying the rest of the country with abundant natural gas helping to power America.”Leading the way again, Cabot Oil and Gas’s operations in Susquehanna County, Pennsylvania, are the most productive wells.  The most gas producing county in Pennsylvania is Bradford, followed by Washington, Susquehanna, Lycoming and Greene counties. Consisting of parts of Pennsylvania and West Virginia, the Marcellus Shale area is the most productive natural gas formation in the U.S., reports the U.S. Energy Information Administration (EIA).  The EIA tracks drilling productivity monthly and releases graphs explaining the data gathered.  The following is the regional production chart released on February 9th, the next graph will be available on March 9th.

Cabot downsizes in the Marcellus Shale -- In its 2014 end of the year report, Cabot Oil & Gas announced its plans to eliminate two of its five rigs in the Marcellus Shale by the end of the second quarter. During the fourth-quarter of 2014, Cabot’s net production in the Marcellus reached 1,491 million cubic feet (Mmcf) per day, an increase of 27 percent compared to 2013’s fourth-quarter report. The company’s growth is credited to its well performance in the Marcellus, which was highlighted in data provided by the Pennsylvania Department of Environmental Protection. The results showed that Cabot had the top 16 performing wells in the state by cumulative production during the last six months of 2014. However, due to lower energy prices, Cabot is making a few changes for this year; Chairman, President and Chief Executive Officer Dan. O. Dinges explained the company’s plan: However, in light of weaker than anticipated price realizations this winter and expectations for this price environment to persist throughout the year, we are taking a more measured approach to our production levels in 2015 with a focus on maximizing price realizations and returns while at the same time managing growth … As a result, our plan is to reduce our originally budgeted level of activity; however, given the low-capital intensity of our operations in the Marcellus Shale, we can remain flexible to accelerate our pace of operations if market conditions and new takeaway capacity warrant.Currently, Cabot has five rigs operating in the Marcellus, and by the end of the second quarter this year, the company plans to drop two rigs. For 2015, the company intends to drill an estimated 70 wells in the Marcellus and place 65 to 70 wells on production, while ending the year with about 45 wells waiting on pipeline or waiting to be completed. This year, the average drilling and completion cost is estimated between $6 million and $6.5 million per well with an average length of 5,300 feet.

Congressional Democrats Seek To Step Up Fracking Oversight – Democrats on a congressional oversight panel are stepping up their investigation into how well states are regulating the disposal of oil and gas waste, citing continuing public concern about the potential environmental and health risks of hydraulic fracturing.Rep. Matt Cartwright, D-Pa., the lead Democrat on a health subcommittee of the House Committee on Oversight and Government Reform, says he will be pressing environmental agencies in Pennsylvania, Ohio and West Virginia for fuller answers to his panel’s questions on their level of inspections and enforcement actions. Republicans on the committee, including subcommittee chairman Jim Jordan of Ohio, have not yet taken a position on whether to join the investigation, citing in part jurisdictional questions.Of particular concern is making sure their waterways are not contaminated by waste from fracking, which uses millions of gallons of high-pressure water mixed with sand and chemicals to break apart rocks rich in oil and gas. That process leaves behind a host of chemicals, sludge and other potentially toxic fluids.Cartwright is also asking for a state accounting of how complaints from local residents about health effects are handled.He said state replies so far have been disappointing, mostly listing state regulations without discussing enforcement. Cartwright said the responses did little to allay questions about potential gaps in state oversight that the federal government may need to address. Currently, federal regulations on hazardous waste generally exempt those fluids related to fracking.

States Drag Their Feet on Congressman's Frack Waste Investigation - A Pennsylvania congressman wanted to know how his state and two neighboring states oversee the disposal of the often toxic waste generated by fracking oil-and-gas wells. Now, Matthew Cartwright has some answers, and he finds them late–and lacking.Cartwright, a Democrat from eastern Pennsylvania, launched the investigation in his state last October. A month later, he expanded his inquiry to Ohio and West Virginia.  Responses from two states failed to provide substantive, detailed information to the congressman while one state has ignored the request. Among the issues Cartwright raised:

  • How each state inspects oil-and-gas waste facilities.
  • What information the states require to pinpoint what's in the waste.
  • An explanation of the process for handling complaints regarding fracking waste disposal.

Answers to those questions are important for both residents and the environment in regions that are disposing of huge quantities of fracking waste, Cartwright said in an email interview.  "States continually argue that this is a state's issue and they can best handle it," Cartwright said.  "We believe that these states may not be adequately disposing of potentially hazardous waste." A representative of the Ohio Environmental Protection Agency did not respond to InsideClimate News calls and questions about why the agency has failed to reply to Cartwright. The agency was given a Dec. 3 deadline.

Rice Energy downsizes for 2015 -- On Tuesday, Rice Energy Inc. announced it will be joining the long list of companies that are cutting back on 2015 drilling operations. The company said it will be reducing its capital budget by 19 percent compared to its 2014 spending, bringing it down to $890 million.  Of the $890 million, $680 million will go toward developments in the company’s Marcellus and Utica assets.  The remaining funds will be invested in the company’s Ohio gas gathering system and its freshwater distribution center.  Even with the reduction in spending, Rice Energy says its production will increase by anywhere between 64 percent and 72 percent, equivalent to between 450 and 470 million cubic feet per day. The company’s number of rigs will drop from four to three this year.  Rice Energy plans on letting one Ohio rig go once the contract reaches its expiration date, which is sometime in mid-2015.  The stated the following regarding its exploration and production plans in its press release: In Pennsylvania, we expect to spud 43 gross (39 net) horizontal Marcellus wells (100% operated) and turn to sales 31 gross (26 net) horizontal Marcellus wells with an average lateral length of 7,100 feet. . In Ohio, we expect to spud 19 gross (12 net) horizontal Utica wells and turn to sales 12 gross (7 net) horizontal Utica wells with an average lateral length of 9,500 feet. On our non-operated properties in Ohio, we expect to spud 38 gross (9 net) horizontal Utica wells and turn to sales 15 gross (2 net) horizontal Utica wells with an average lateral length of 7,200 feet.

Court Tosses Illegal Gas Lease Extension -  A Pennsylvania court has tossed Cabot’s attempt to unlawfully extend gas leases. Bravo: This from Lady Chainsaw (aka Deborah Goldberg) at Earth Justice: “We submitted an amicus brief on behalf of small landowners in a PA case, in which Cabot attempted to extend its lease term after an unsuccessful lease challenge by landowners it had duped.  The case was filed in federal court, but the Third Circuit certified the question to the PA Supreme Court, which today rejected the claim that the lease should be “equitably extended.”  There is a long quote from our brief on page 10 below. Hooray for the PA Supreme Court, which continues to push back against oil and gas industry overreaching.”

Abandon ship: Southern Tier New York looks to defect to Pennsylvania over fracking ban  --  Despite the fact that it rests upon a wealth of resources, New York Gov. Andrew Cuomo is sticking by his pledge to ban the practice of the hydraulic fracturing of shale to extract natural gas (fracking) in the Empire State. He flipped on his opposition to the practice while seeking reelection after facing significant resistance from his environmentalist left flank. As a political maneuver, Cuomo’s decision makes sense. In any other context, though, the decision to ban fracking in New York is asinine. For the party of science, opposition to fracking technology is strictly the result of adherence to an article of faith.But not only is New York’s opposition to fracking not based in an objective assessment of its environmental impacts, it is also economically hazardous and a nightmare for the state’s badly neglected upstate residents. Well, between the fracking ban, high property taxes, and general meddling from Albany, New York’s Southern Tier has had enough. According to a report, those cities along the Pennsylvania border are investigating the prospects for seceding from New York and joining the Keystone State. “The Southern Tier is desolate,” said Conklin, New York supervisor to a reporter with WBNG. “We have no jobs and no income. The richest resource we have is in the ground.”There are 15 towns interested in the secession, according to the Towns Association. These towns are in Broome, Delaware, Tioga and Sullivan counties. The association declined to name the towns without their permission and also declined to comment on specifics at this time. As of now, research is ongoing. The group will be updating Action News with all of their findings in the coming weeks.The association said it’s comparing taxes and the cost of doing business in the two states. It says the facts show there is a huge difference between the two.Also being considered are things like workers comp, surcharges, unemployment and health insurance. The association’s understanding is that the secession would have to be approved by the New York State Legislature, the Pennsylvania State Legislature and the U. S. government.

Condem Nation: Landowners Fight Pipeline Condemnation - Evidently some landowners got the memo that it is better for them to opt for condemnation: at worst they get more money than an outright sale. Typically 100% more if they play their cards right.  At best the pipeline does not get built or gets built somewhere else.  This is the story of the Holleran family in Pennsyvlanai – who did not roll-over and play dead for a gas pipeline company.   Yesterday, we accompanied Susquehanna County, PA landowners to the hearing on “quick take” eminent domain condemnation Constitution Pipeline is seeking against them. The pipeline company is a joint partnership led by Williams Partners LLC, also owner of the proposed Atlantic Sunrise Pipeline in Pennsylvania. Partners in the project include Cabot Oil & Gas and Washington Gas & Light.  Constitution Pipeline via their law firm Saul Ewing is asking Judge Malachy Mannion, of the 3rd Circuit Federal Court of Appeals, for “quick take” power to condemn seven properties where landowners have refused an easement agreement for the 100-foot wide pipeline right of way. The Fifth Amendment of the US Constitution requires that “just compensation” be given for any private property seized by eminent domain. If Constitution Pipeline is successful, eminent domain condemnation would occur before the amount of “just compensation” is determined by the court, as hearings on that have not yet occurred. There was no ruling on the preliminary injunction yesterday, which means that Constitution cannot access those properties on February 16th (Monday) like they were seeking to do. Judge Mannion extended the time for written briefs and arguments to February 24th, after which he will make a ruling. The attorney for the landowners made a very good argument that the Fifth Amendment would be violated with “quick take”.

A Forest’s Family Roots Stand in a Pipeline’s Path - Known as Charlotte Forest , it is a sanctuary of woods and wetlands that the family has maintained for nearly seven decades. In 1947, Mr. Kernan’s father, Henry Kernan, a Yale-trained forestry expert, and his wife, Jody, bought nearly 1,000 acres of forest and wetland property straddling Delaware and Otsego Counties . Since then, the land has remained under the close stewardship of the Kernan family, the parents passing it down to their five children as the proud centerpiece of a family of naturalists. The forest has been intensively studied and documented by environmentalists and ecologists, including Henry Kernan, who wrote about it in two books and in numerous conservation articles. But now, the family says, the forest is threatened by the construction of the Constitution Pipeline, a $700 million, 124-mile conduit designed to transport natural gas from the Marcellus Shale fields of northeast Pennsylvania to Wright, N.Y., 80 miles southwest of Albany, where it will connect with two other pipelines to serve markets in New York and New England. The project calls for workers to clear a mile-long, 75-foot-wide swath through the forest, and for the path to be kept clear for perpetuity, at 50 feet.

Pooling legislation would ease development of shale gas wells - Legislation moving through the West Virginia House of Delegates seeks to allow lease integration for deep well horizontal drilling. House Bill 2688, introduced by Energy Committee chairman Delegate Woody Ireland, R-Ritchie, would allow property owners to come together and agree to allow gas companies to drill deep horizontal wells on their properties. Under current law, one holdout can prevent development and royalties for all other rights owners. Lease integration, also referred to as forced or fair pooling — depending on which side you’re on — would take care of that. It already exists for shallow Marcellus shale wells, but Ireland said this legislation would allow companies to take advantage of the abundant Utica shale, which lies deep under much of West Virginia. “It would encompass not only the shallow wells, which is the Marcellus, but also the deep wells — the Utica,” Ireland said. Lease integration, or forced pooling as it’s commonly known, works like this: Property owners agree to allow gas companies to drill under their land. The company works to get property owners of joint tracts of land to agree to lease their rights to the company into what’s known as a unit of production. But if the owner of one tract of property encompassed in the larger tract doesn’t want to sign over his or her rights, a supermajority consisting of 85 percent of property owners in that tract can force the holdout to participate. That allows all property owners to reap the economic benefits of leasing to the gas company and earning royalties on gas extracted from beneath their land. Under the proposed bill, gas companies must make multiple, good faith efforts through letters or phone calls to get the holdout to agree to lease before a pooling hearing takes place.

Seneca Lake Propane Export Scheme? - The promoters of the Seneca Lake Propane Bomb in a Partially Collapsed Salt Cavern have been telling locals that pumping millions of gallons of highly explosive propane into a partially collapsed salt cavern was going to dramatically lower their propane costs. In a word, frack no.  Since propane if fungible, its price does not vary much in the US. Moreover, since the US is now a net exporter of propane, the domestic price is likely to go up – as exports rise. If the propane is worth more on the export market, not only will it go overseas, but local deliveries will be curtailed as they were last winter – which lead to a midwinter shortage of propane “for the locals” – some of whom froze to death as a result. Because it was more lucrative to export it.  Bill Huston blogged about it – how the reversal of the propane supply lines – engineered not only a price spike, but a curtailment of domestic supply where it was needed most – in the north – in midwinter.  Debbie Dogskin is dead. She was found in her Fort Yates, North Dakota, mobile home frozen to death with an empty propane tank. [1] [2] What was the cause of the propane shortage which caused prices to rise and supplies to dwindle in the northern midwest and the northeast this winter? Short answer: It was an engineered gamble by industry seeking to maximize profits.To be plain: These are the kind of sick fracks that are behind the Seneca Lake Propane Export Scheme.

W.Va. county health board opposes natural gas pipeline  - The Board of Health in West Virginia’s Monroe County is taking a stand against the proposed Mountain Valley Pipeline, which would run from northwestern West Virginia to southwest Virginia. In an open letter, the county’s health officer says the proposed natural gas pipeline poses a “significant and substantial risk” to residents. Dr. J. Travis Hansbarger notes that the pipeline would pass close to a public school and a long-term care center. The Bluefield Daily Telegraph reports that the letter cites as a primary concern the potential for groundwater contamination during the pipeline’s construction. The pipeline is a joint venture of EQT Corp. and NextEra Energy. It would transport natural gas at high pressure through a buried, 42-inch-diameter steel pipe. It still needs regulatory approval.

W.Va. train derailment sends oil tanker into river  — Emergency crews and state environmental officials are responding to a train derailment in West Virginia that sent at least one tanker car containing crude oil into the Kanawha River. Media reports say the derailment occurred Monday afternoon of CSX train in Fayette County, which is north of Beckley. Public Safety spokesman Lawrence Messina said responders at the scene said the tanker is leaking crude oil into the river. Messina said at least one and possibly more tanker cars went into the river. He also said the derailment sparked a house fire.

Update: CSX train hauling North Dakota oil derails, cars ablaze in W. Virginia - A CSX Corp train hauling North Dakota crude derailed in West Virginia on Monday, setting a number of cars ablaze, destroying a house and forcing the evacuation of two towns in the second significant oil-train incident in three days. One or two of the cars plunged into the Kanawha River, said Robert Jelacic of the West Virginia Department of Homeland Security and Emergency Management. CSX said the train was hauling 109 cars from North Dakota to the coastal town of Yorktown, Virginia, where midstream firm Plains All American Pipelines runs an oil depot. It said one person was being treated for potential inhalation of fumes. No other injuries or deaths were reported. As of 9:30 p.m. local time, billowing flames could still be seen coming from several rail cars and something appeared to be burning on the partially frozen river. Clean-up was expected to take several days, as the fires burn themselves out, said Joe Crist, Fayette County fire coordinator. About 200 residents were evacuated. Crist said West Virginia American Water was testing to see if Kanawha River water had become contaminated.

West Virginia In State Of Emergency After Massive Oil Train Explosion - Crude oil is pouring into a river that supplies drinking water and approximately 1,000 people have been evacuated from their homes due to an oil train derailment and explosion in southern West Virginia on Monday, according to media reports. The train, owned by CSX Corp., was carrying more than 100 tankers of crude oil from the Bakken shale in North Dakota when it derailed at about 1:30 p.m., the L.A. Times reported. Officials estimated that approximately 14 of those tankers were involved in the derailment and subsequent fire, which as of 9 p.m. was still raging. Gov. Earl Ray Tomblin declared a state of emergency at around 5:40 p.m. One home has so far been confirmed destroyed, and at least one person has been sent to the hospital for inhaling smoke. CSX put out a statement Monday night saying it would provide hotel rooms for displaced residents.Concerns have also been raised about the potential contamination of local water-treatment facilities, after officials noted that at least one of the derailed tanker cars fell into the Kanawha River. The area is about 30 miles from the location where 10,000 gallons of a coal industry chemical called crude MCHM spilled and tainted the drinking water supply a little over one year ago.  Response efforts have so far been hampered by heavy snow. The area has been under a winter storm warning, according to the Associated Press, and is expected to get anywhere from 5 to 10 inches of snow tonight.

Breaking: Shale Oil Bomb Train Explodes in W Virginia Neighborhood  - Wiping out at least one house, so far. 14 tank cars are ablaze. The new normal. You live next to a railroad track at your peril. This train was hauling tank cars of North Dakota shale oil – which is highly explosive – right through a residential neighborhood – a long way from North Dakota. No local firefighters are equipped to deal with a shale oil bomb train. All they can do is evacuate the blast area and wait for it to blow itself up, one tank car at a time in a series of BLEVE explosions. How many of these Shale Oil Terror Trains do you want in your home town, in your state ?

Oil train ablaze in W.Va. passed safely in Ohio - Dozens of trains like the one that wrecked near Montgomery, W.Va., Monday afternoon cross northwest Ohio weekly to deliver oil from North Dakota’s Bakken Shale oil fields to terminals along the East Coast, and the CSX line through Defiance is, according to data released recently by a state agency, Ohio’s busiest. “Obviously we’re concerned,” said Tim Bowling, the assistant fire chief in Defiance. If a train like that were to derail and catch fire in town, he said, “You’re not going to spray a couple of hoses on that and put it out.” “It scares the bejeezus out of me,” Ken Chapman, Fostoria’s fire chief, said of the oil trains through that city, where the CSX line crosses a Norfolk Southern track that also handles some oil trains. “I don’t care if you’re Columbus, or Fostoria, or any city in between: nobody’s fully prepared for it.” It may take months to determine the cause of the West Virginia derailment, where about 25 of 107 loaded oil tank cars, each carrying about 30,000 gallons of oil, jumped the tracks. About 20 caught fire.

Montgomery customers lose water service due to plant shut down; Company establishing water distribution sites – West Virginia American Water is alerting all its customers in the Montgomery area that as a result of a train derailment just east of Montgomery, its water plant was shut down earlier this afternoon. West Virginia American Water expects that approximately 2000 customers in the Montgomery area will lose their water service within a few hours if the plant remains shut down. The company is awaiting confirmation from DEP and emergency responders as to whether or not crude oil migrated into the Kanawha River from Armstrong Creek, which is the tributary impacted by the derailment. . While awaiting further information, West Virginia American Water is sourcing local bottled water supplies as well as working to secure larger supplies of water and safe distribution sites for their impacted customers. As soon as the sites are identified, the company will issue updated information via the media, its website and social media.

Train Cars Still Burning near Montgomery; Water Plant Restarted: -- West Virginia American Water has reopened the intake at the Montgomery plant following tests showing no crude oil in the Kanawha River. WVAW restarted the Montgomery water treatment plant at 1 p.m. Tuesday. The plant was shut down for nearly 24 hours following a train derailment that happened Monday afternoon. 26 of the 109 cars carrying Bakken crude oil derailed, causing explosions and fire, as well as oil leaking from several of the cars in Armstrong Creek. Officials shut down the Montgomery intake, which is three miles downstream of the spill, until they could test the water to determine if oil made it to the intake. . "Multiple water samples taken at different locations in the river and at the plant showed non-detectable levels of the components of crude  A boil water advisory is in place for nearly 2000 customers in Montgomery, Smithers, Cannelton, London, Handley and Hughes Creek. The company expects that all affected customers should see their full service restored within one to two days, depending on the elevation of their locations.

Derailed CSX train in West Virginia hauled newer-model tank cars | Reuters: (Reuters) - An oil train was still on fire and leaking in West Virginia on Tuesday, a day after it derailed and erupted in flames, according to CSX Corp, which said the train was hauling newer model tank cars, not the older versions widely criticized as prone to puncture. The train, which was carrying North Dakota crude to an oil depot in Yorktown, Virginia, derailed in a small town 33 miles southeast of Charleston, causing 20 tank cars to catch fire. Several were still leaking oil on Tuesday. All the oil tank cars on the 109-car train were CPC 1232 models, CSX said late Monday. The CPC 1232 is the newer, supposedly tougher version of the DOT-111 car manufactured before 2011, which was faulted by regulators and operators for a number of years. U.S. and Canadian authorities, under pressure to address a spate of fiery accidents, are seeking to phase out the older models. The U.S. Transportation Department has recommended that even these later models be updated with improved braking systems and thicker hulls. The fires, which destroyed one house and resulted in the evacuation of two nearby towns, were left to burn out on Tuesday, CSX said in a statement. No serious injuries were reported. CSX said the cleanup of oil will begin when it can safely reach the site. In the meantime, delays are expected on the line. None of the 25 tank cars that derailed fell into the nearby Kanawha River, CSX said. On Monday, officials said at least one car had entered the river. Water tests along the Kanawha River have so far come up negative for traces of oil, according to a spokeswoman at the West Virginia Department of Environmental Protection. A nearby water treatment plant has been closed, she said.

Towns evacuated after crude oil tankers derail, explode in West Virginia YouTube

Bakken crude more volatile than other oils, report said -- The type of crude oil involved in Monday’s train derailment in Fayette County was more volatile and likely to ignite than other types of crude, which has led to increased scrutiny of its shipment by the federal government. The CSX train that derailed and filled the sky with fire near Mount Carbon was hauling 107 rail cars of filled with crude oil extracted from North Dakota’s Bakken shale to a refinery in Virginia. The Bakken region has been key to the United States’ resurgence in oil production in recent years, and its increased output has led to a surge in domestic oil shipments by rail. According to the Association of American Railroads, rail shipments of oil peaked at more than 16,000 rail car loads a week in the fall of 2014, nearly double what was being shipped at the beginning of 2012. But that increase in volume has also brought on a resurgence of accidents along those rail lines. According to government data analyzed by ProPublica, there were eight major incidents involving crude oil rail shipments in North America between 2012 and 2014. The U.S. has seen recent major train explosions in Aliceville, Ala., in November 2013; Casselton, N.D., in December 2013 and in Lynchburg, Va., last April. The Lynchburg incident occurred on the same CSX shipping line involved in Monday’s incident. Federal regulators have been looking at the increased rail shipments from the Bakken region since at least September 2012, according to a timeline from the Pipeline and Hazardous Materials Safety Administration, an agency under the U.S. Department of Transportation. Part of its initiatives included unannounced inspections, sampling and data collection on the Bakken crude and its delivery systems.

ND state officials blamed following fiery derailment -- The recent train derailment in West Virginia that resulted in a fiery blaze and the evacuation of two cities has some North Dakota groups accusing state leaders of failing to act quickly on oil conditioning standards. According to a report by The Bismarck Tribune, the recent derailment and explosion is the sixth incident involving Bakken crude oil since 2008. On Tuesday the Dakota Resource Council released a statement blaming state officials for refusing to enforce oil conditioning standards prior to shipment. Officials investigating the derailment in West Virginia have yet to determine what caused the accident. In the statement the organization said, “Responsibility for this explosion is squarely at the feet of North Dakota officials from Gov. Jack Dalrymple on down for their inept handling of regulating oil extraction in North Dakota. [Dalrymple’s] administration is putting people’s lives and property at risk here and across the continent.” The Tribune reports that Dalrymple’s spokesman Jeff Zent said the Council’s statement suggests that the groups is uninformed or decided to not acknowledge the progress made by the state. He referred to the Industrial Commission’s order which includes strict guidelines for the temperatures and pressures in which Bakken oil is transported.  Some critics, however, are arguing that the commision’s recommendation of limiting tank car pressure to 13.7 pounds per square inch (psi) is not enough given that the majority of the oil produced in the Bakken is already shipped below that threshold. The Bakken crude that was carried on the train that derailed in Lac-Megantic, Quebec, which killed 47 people in 2013, was shipping the product at 9.3 psi vapor pressure according to the Canadian transportation board.

Massive West Virginia Explosion Highlights Problems With Oil Train Regulation - A full day after a still-unknown amount of oil spilled from a 109-car oil train in West Virginia, portions of Kanawha and Fayette counties are still on fire.  The sight is becoming less abnormal. Across the United States and Canada, there’s been a string of fiery accidents involving oil trains. The accidents have involved these same unit trains containing 100-plus cars of light crude oil from North Dakota’s Bakken shale. Just this weekend, a train derailed and spilled Bakken oil in Ontario, Canada. Last year an oil train derailed on a bridge over the Schuylkill River in Philadelphia, and 13 cars tipped over along the Penobscot River in Maine. Two summers ago, a derailment in Lac Megantic, Canada, killed 47 people.  These accidents have been the product of a 40-fold increase in crude-by-rail shipments since 2008 — an unprecedented jump that has so far seen no concurrent upgrade in federal safety requirements. In the wake of Monday’s disaster in West Virginia, rail safety advocates are drawing attention to what they see as huge problems with the way oil trains are currently regulated.  The most basic problem is that current safety regulations were never meant to handle the enormous loads and speeds at which oil trains are operating today. That’s at least according to Fred Millar, a rail safety consultant who has spent 30 years lobbying for accident prevention around the country. “There was no such thing as oil trains two years ago, at least the way we see them now,” Millar said, noting that before the Bakken boom, crude oil was mostly shipped by pipeline and occasionally in mixed freight. “But now, with the Bakken oil, they’re pumping it out of the ground so fast with the fracking that the pipelines are all congested. The infrastructure is not ready for this.”

After fiery West Virginia train derailment, is oil by rail safe? (+video) - — Fireballs erupted in West Virginia Monday after an oil train derailed, setting ablaze tank cars full of North Dakota crude and threatening the local water supply. One derailed oil car went up in flames after hitting a house. Another ended up in the Kanawha River, threatening drinking water. Of the train’s 109 tank cars, about 25 derailed, each loaded with up to 30,000 gallons of oil. The derailment occurred near Mount Carbon, W.Va. as heavy snows began blanketing the south-central portion of the state Monday afternoon. Though no serious injuries were reported, hundreds evacuated as the derailed cars exploded and shot flames into the air. Tank cars were still burning Tuesday afternoon. Monday’s blast comes as the US Department of Transportation and the Obama administration finalize new rules, first proposed last summer, requiring safer tank cars and limiting train speeds. A string of crude by rail catastrophes – like the fiery derailment that rocked Casselton, N.D., last year – has increased public scrutiny on a growing form of transportation.  All told, shipments of crude by rail in the US have increased 400 percent since 2005, prompting many to call for updated safety standards in the industry. But CSX, the rail firm whose train derailed Monday, said the tank cars involved were the newer and supposedly tougher CPC 1232 models – not older model cars many say are too easily punctured in rail mishaps. Environmentalists say the derailment with new tank cars proves that any kind of oil by rail is too dangerous, and confers too much risk on those who live near railways that ferry crude oil across the US.

Two More 'Bomb Train' Explosions Should Be 'Wake-Up Call to Politicians to Stop These Dangerous Oil Trains' » Within the last several days, two trains carrying volatile crude oil derailed and caught on fire. These accidents highlight the danger of government foot-dragging over train safety and show that towns seeking to ban these trains coming through their area aren’t just being contentious and “anti-business.” Yesterday a 109-car train carrying fracked oil from the Bakken shale formation in North Dakota derailed in Fayette County, West Virginia, with several cars catching on fire and at least one plunging into the Kanawha River. A house was consumed by fire, two towns were evacuated and West Virginia governor Earl Ray Tomblin declared a state of emergency for two counties. The West Virginia Department of Health and Resources posted on its website: “The West Virginia Department of Health and Human Resources Bureau for Public Health today announced water intakes in Montgomery and Cedar Grove have been closed following a train derailment that occurred in Fayette County. The train was carrying crude oil, some of which has spilled into the Kanawha River. While the intakes are closed, customers are urged to conserve water.” Saturday evening, a 100-car train carrying tar sands oil from Alberta derailed in a remote area near Timmins, Ontario and caught fire. According to Canada’s Globe and Mail, “The train was visually inspected and went through a checkpoint that automatically detects mechanical problems 20 miles before the derailment. The track was visually inspected on Saturday and cleared by a rail flaw detector in the past week.”

U.S. oil trains are taking high-stakes risks with lives -– Five hundred and ninety one days have passed since a train carrying crude oil derailed and incinerated the town of Lac Megantic in Quebec. In that time, the U.S. Department of Transportation (DOT) has still not finalized new safety rules on tank car standards and operational controls for trains carrying highly flammable liquids. DOT started working on new rules in April 2012 — more than a year before the devastating fire at Lac Megantic in July 2013, which claimed the lives of 47 people — so the process has so far taken 1,041 days. DOT has now sent a draft to the Office of Management and Budget (OMB) for final review and revisions but does not expect the final rule to be gazetted until May 12. Even then, new tank car standards could be phased in over several years by 2017/18, and oil shippers are pressing for an even longer transition period. If the timetable now sticks, it will have taken at least six years to implement new standards for tank cars that were recognized as necessary back in 2012. It is an astonishing example of regulatory failure. This is unacceptably slow. While regulators, lobbyists and lawyers for crude shippers have been sparring in Washington over whether new standards are necessary, and how long the industry should be given to comply with them, crude-carrying trains have been derailing and catching fire with frightening frequency.

Fiery derailment near Dubuque involved outdated tank cars — A train derailment Wednesday near Dubuque that caused three tank cars to erupt in flames and three others to plunge into the icy Mississippi River involved outdated cars prone to punctures and spills. The Canadian Pacific freight train headed southeast derailed around 11:30 a.m. Wednesday in a remote area north of Dubuque. Eleven cars left the track, with 10 of those carrying ethanol, officials reported. Three of those cars caught fire and three slipped into the river. “I can confirm that DOT-111s were involved, how many of the derailed cars were DOT-111s I am not sure yet,” Canadian Pacific Spokesman Jeremy Berry reported Wednesday evening. DOT-111s, black, tubed-shaped tank cars, make up about 70 percent of the U.S. tank car fleet. The outdated cars have been blamed for explosions and spills during derailments across North America. In the worst of these crashes, 47 people died when a runaway train of crude oil in DOT-111 cars exploded in Lac-Megantic, Quebec, July 6, 2013.

Striking New Report Finds Oil Trains Put 25 Million Americans at Risk -- As officials probe the two latest explosive oil train derailments in Ontario and West Virginia, the Center for Biological Diversity released a report yesterday offering striking new details on the broad range of unchecked risks to people and the environment posed by the largely unregulated escalation in U.S. rail transport of oil. The report, Runaway Risks: Oil Trains and the Government’s Failure to Protect People, Wildlife and the Environment, reveals that:

  • An estimated 25 million Americans live within the one-mile evacuation zone recommended by the U.S. Department of Transportation;
  • Oil trains routinely pass within a quarter-mile of 3,600 miles of streams and more than 73,000 square miles of lakes, wetlands and reservoirs, including the Hudson, Mississippi and Columbia rivers, the Puget Sound, Lake Champlain and Lake Michigan;
  • Oil trains also go through 34 national wildlife refuges and within a quarter-mile of critical habitat for 57 threatened or endangered species, including the California tiger salamander, California red-legged frog, piping plover, bull trout and several imperiled species of salmon, steelhead and sturgeon.

“As we’ve seen in West Virginia and Ontario, these oil trains pose a massive danger to people, wildlife and our environment, whether it’s trains passing through heavily populated areas or some of our most pristine landscapes,” . “The federal government has failed to provide adequate protection from these bomb trains. We clearly need a moratorium on crude-by-rail until the safety of our communities and the environment can be ensured.”

Data: Oil Trains Spill More Often, But Pipelines Spill Bigger  -- Which is safer: pipeline or rail? The question’s been hot on bloggers’ minds since Monday, when a train carrying 3 million gallons of crude oil derailed and exploded in West Virginia. And it’s not a bad one to ask, considering recent political discussion has been dominated by a debate over whether a certain pipeline is in the national interest. Many blogs, this one included, have pointed out that oil train disasters are on the rise. In 2014, oil trains in the U.S. spilled more often than any other recorded year. These accidents have happened as crude-by-rail shipments are soaring, increasing 40-fold since 2008. And compared to pipelines, rail incidents are occurring more frequently — according to U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) data, rail incidents outnumbered pipelines two to one over the period of 2004 to 2012. A lot of people have used this data to argue that transporting oil via pipelines is safer than rail. And that’s true, if your idea of safety is defined by the frequency of accidents, regardless of how large the accidents are. If, however, you think massive releases of oil into the environment pose a greater risk to human health, than pipelines are the greater evil. According to the same PHMSA dataset, compiled and analysed by the International Energy Agency, U.S. pipelines spilled three times as much crude oil as trains over that eight-year period, even though incidents happened much less frequently. And that eight-year period was dominated by large pipeline spill events, including one that saw 800,000 gallons of Canadian tar sands crude spill in and around the Kalamazoo River, and another 63,000 gallon pipeline spill into the Yellowstone River. There are numerous other factors at play. When a pipeline bursts, it can be harder to contain than a leaking oil tanker — only a certain, contained amount can spill out of a single punctured rail car. A pipeline can just keep spilling until the operator shuts down the flow, and will usually continue to gush until it’s empty.  But when a rail car tips over while traveling at 40 to 50 miles per hour, it has a much larger chance of exploding. That’s a more immediate threat to human life if it happens in a populated area, not to mention the smoke and fumes that are released into the air from the open burning of hydrocarbons.

Offshore fracking is headed to the courtroom - The use of hydraulic fracturing in offshore projects, particularly off of California’s coast, has become a heated topic recently. Now the issue has become so hot that the Center for Biological Diversity filed a lawsuit today, naming the U.S. Interior Department as the defendant. According to the Center’s press release, the suit asserts that the Interior Department violated three federal laws by “rubberstamping offshore fracking off California’s coast without analyzing fracking pollution’s threats to ocean ecosystems, coastal communities and marine wildlife, including sea otters, fish, sea turtles and whales.” Fast-tracking permit approval for offshore fracking—known more specifically as categorical exclusion—has been one of the biggest concerns in the debate. While it boosts industry growth and is favored by officials in oil and gas, many are concerned that it exempts offshore drilling from a full environmental review. There are also flaws in the Environmental Protection Agency’s general wastewater permit, which allows for the discharge of limited amounts of fracking fluid. In its press release, the Center purports that the oil and gas industry, through this permit, is given permission on a federal level to dump over 9 million gallons of wastewater and fracking fluid into the Pacific Ocean off California’s coast each year.

Refinery blast at Exxon facility in Torrance, Calif., injures 4 - An explosion and fire ripped through a gasoline processing unit at an Exxon Mobil refinery in Torrance, California, near Los Angeles on Wednesday, slightly injuring four workers and shattering windows of surrounding buildings, authorities said. The cause of the blast, shortly before 9 a.m. PST (1700 GMT), was under investigation, but there was no evidence of foul play, said Torrance Fire Captain Steve Deuel. “All personnel have been accounted for,” Exxon said in a statement. “Four contractors have been taken to Long Beach Medical Center for evaluation for minor injuries.” Torrance Mayor Patrick Furey told local television station KNBC in an interview that people who live near the refinery should take precautions. “The most important thing is to shelter in place, stay indoors, no outdoor activity, turn the air conditioners off, keep the windows closed,” Furey told the station. Cory Milsap, an electrical contractor at the plant, said many workers were sent home after the explosion.

Huge Explosion Rips Through California Oil Refinery, Adding Fuel To Oil Worker Strike -- A huge explosion occurred at the ExxonMobil oil refinery in Torrance, California on Wednesday morning, shaking the homes of residents miles away and injuring at least three people.  No serious injuries or deaths have been reported, and authorities are still looking into the cause of the explosion. Aerial photos of the refinery following the incident showed considerable damage. Large metal structures were ripped apart and nearby vehicles were destroyed. A good portion of the refinery was covered in grey ash.  Though fire from the explosion was quickly extinguished, Torrance residents are still being told to remain inside in part due to a resulting gasoline leak. “The most important thing is to shelter in place, stay indoors, no outdoor activity, turn the air conditioners off, keep the windows closed,” Torrance Mayor Patrick Furey told NBC. The workers at the Torrance refinery are represented by United Steelworkers (USW), the same union leading unprecedented oil worker strikes nationwide. Those strikes, the largest of oil workers since 1980, are in part because of what the union sees as dangerous conditions, including leaks and explosions. The union asserts that these dangerous conditions are often caused by improper treatment of workers — unsafe staffing levels, bad training, absentee managment, and “flagrant contracting” number among the union’s complaints.  While the workers at the Torrance refinery were not striking, the local USW branch it is represented by — USW Local 675 — is, leading an ongoing strike at the nearby Tesoro oil refinery in Carson, California. . “And this is one hell of a way to have the point emphasized that we have been trying to make with these companies, trying to make with the public … these safety concerns that we have need to be taken seriously.”

Health Concerns Mount After Refinery Explosion Coats California City With White Ash -  The white ash that rained on the city of Torrance, California after a refinery explosion on Wednesday has been deemed non-toxic by city officials, but some oil industry workers and community members are questioning that claim.  Members of the USW Local 675, the union which represents workers at ExxonMobil’s Torrance refinery, believe that the ash contained chemicals that could be harmful to human health beyond general irritation of the eyes, nose and throat. The ash — something called “catalyst dust” — is made up from particles that come from a piece of refinery equipment called a fluid catalytic cracking unit, which converts crude oil to gasoline. The unit produces a fine, almost volcanic-looking ash, which is usually made up of aluminum oxide and smaller amounts of nickel and vanadium.  NBC News is reporting that the explosion occurred in an electrostatic precipitator next to the FCC unit, where workers were doing maintenance. The precipitator is a device that removes dust from flowing gas. The machine reportedly removes about 15 pounds of small particulate matter every hour, which is then transported offsite in closed trucks. A spokesperson for ExxonMobil told ThinkProgress that it does not comment on the status of individual units, but acknowledged that the dust was a catalyst primarily composed of some metal oxides and amorphous silica. “The material is not expected to be hazardous to people or animals under the conditions it was released,” But USW Local 675 Secretary-Treasurer Dave Campbell is urging public health officials to take a closer look. His branch is one that is participating in unprecedented nationwide strike over dangerous conditions and worker safety through its workers at the Tesoro refinery in Carson, California. Workers at the Torrance refinery were not striking.

U.S. refinery strike enters 18th day as talks restart -- The largest U.S refinery workers strike since 1980 entered its 18th day on Wednesday as union and oil company representatives renewed face-to-face negotiations over safety and pay, after a week’s hiatus. More than 5,000 workers at 11 plants, including nine refineries accounting for 13 percent of U.S. production capacity, remained on strike. Talks between representatives of the United Steelworkers union (USW) and lead oil company negotiator Royal Dutch Shell Plc had been on hold as the company compiled a reply to an information request and a counterproposal from the union. On Monday, the union’s lead negotiator, International Vice President Gary Beevers, told Reuters that safe staffing levels at refineries and chemical plants remained a sticking point. The union also wants wage increases. The USW has issued no new strike notices since Feb. 6, when workers at plants in Whiting, Indiana, and Toledo, Ohio, were told to walk off their jobs the next day. On Wednesday, the USW sent a text message to members after an explosion at Exxon Mobil Corp’s 149,500 barrel per day Los Angeles-area refinery in Torrance, California. The union said the blast, which injured four contract workers, showed the urgency of its goal to negotiate safer working conditions. “As USW pushes life-saving safety improvements, explosion rocks Exxon Torrance,” the message read. “Some injuries, no fatalities. Safe refineries save lives.”

Oklahoma-based energy company to consolidate workforce  - Enable Midstream Partners, an oil company with corporate functions in Oklahoma City, has announced that it will cut 10 percent of its workforce this year due to instability in oil and natural gas prices. The Oklahoman reports that Enable, which has about 2,000 employees, will consolidate some of its corporate staff in Oklahoma City and Houston. It does not know exactly how many of the employees will be affected. Lynn Bourdon, the president and CEO of Enable, says that the year will be a financially difficult time for the company. Enable was formed in 2013 when OGE Energy Corp.’s Enogex midstream assets and the interstate pipeline infrastructure from Houston’s CenterPoint Energy Inc. merged.

“Hidden Faults” Explain Frackquakes?  -- Oklahoma, Ohio and Arkansas have experienced an unusually large number of earthquakes in recent years. The shaking is rising at the same time that oil and gas production have increased. But other states that are hotbeds for new drilling have stayed seismically quiet, such as Montana, North Dakota and South Dakota. Now, two new studies explain why some regions of the country are rattling more than others. In Oklahoma, hidden faults beneath the surface are primed to pop, reports a study published Jan. 27 in the journal Geophysical Research Letters. Some of these faults were previously unknown and threaten critical structures, such as huge oil-storage facilities,  But the geology underlying Montana and the Dakotas is more benign, with fewer faults near their breaking point, according to a study published Feb. 10 in the journal Seismological Research Letters.  In the first study, the U.S. Geological Survey (USGS) analyzed more than 3,600 recent Oklahoma earthquakes to precisely locate known and unknown faults. The majority of the faults are perfectly aligned to slip under pressure transmitted through the continent from faraway tectonic plate boundaries, the study reports. Oklahoma’s buried rock layers are squeezed in an east-west direction from forces at the Mid-Atlantic Ridge, San Andreas Fault and Juan de Fuca Ridge, McNamara said. But the underground faults identified in the study tilt to the northwest or northeast, creating an angle of about 30 to 40 degrees from this regional pressure. Oklahoma's faults are left over from pushing and pulling that occurred in North America some 300 million years ago. These faults are being awakened by oil and gas drillers who are injecting fluids into the deep underground rocks above the layers that host the faults, according to several previous studies..These fluids reduce pressure on the faults just enough for the rocks to slip apart, triggering earthquakes.

Small Earthquakes Linked To Fracking Could Lead To Major Ones, Government Scientist Says -- The earthquakes that have been linked to oil and gas development so far might be minor, but they could be putting states like Oklahoma and Kansas at risk for a major earthquake later on, new research indicates. The research, which hasn’t yet been published, was presented at the American Association for the Advancement of Science by U.S. Geological Survey scientist William Ellsworth. Ellsworth said that states in which small, hydraulic fracturing-related earthquakes are a fairly regular occurrence shouldn’t “expect a large earthquake tomorrow,” but they should know that these small earthquakes could increase the risk of a larger, more damaging one occurring eventually.  “The more small earthquakes we have, it just simply increases the odds we’re going to have a more damaging event,” Ellsworth said.The process of extracting oil and gas has been linked by multiple studies to increased incidence of small earthquakes. Many of these studies blame the process of wastewater injection, a process in which oil and gas companies pump the wastewater used in fracking wells deep underground. The injection of the water can increase fluid pressure underground, making it easier for faults to slip and cause an earthquake. According to one study, nearly all of the 2,500 earthquakes that occurred over a five-year span in Oklahoma could be linked to the wastewater injection process.  But fracking itself — which involves injecting water, chemicals, and sand underground to break apart shale and unlock natural gas deposits — has also been found to have triggered earthquakes: an October 2014 study concluded that 400 small earthquakes in Ohio were triggered by fracking.

US geological agency calls for data sharing on fracking-induced tremors — RT USA: The US Geological Survey has called for more transparency and cooperation among “interested stakeholders” in order to monitor and mitigate the effects of fracking, a process widely blamed for the recent explosion of earthquakes in states like Oklahoma. A new USGS report, published in the journal Science, connected the increase of unnatural seismic activity in states targeted for oil and gas drilling -- including Oklahoma, Texas, Ohio, and Pennsylvania -- with the injection of wastewater vital to the process of hydraulic fracturing, or fracking. The USGS said it was currently working with stakeholders both in and out of the drilling industry to produce a “hazard model” for unnaturally occurring quakes in the US. The model would be updated often to track “changing trends in energy production.”

Natural gas drilling is causing earthquakes in Europe too - Shell and ExxonMobil, as well as the Dutch government, ignored for decades that drilling in Europe’s largest gas field was causing earthquakes that put human lives and property at risk. That’s the takeaway of a new report out this week from an independent group advising the Dutch government. As the natural gas beneath the Netherlands has dwindled in recent years, residents of Groningen County have experienced an increasing number of earthquakes. Last year, the area was hit with 84. The New York Times summarized what’s going on in a feature last summer: A half-century of extraction has reduced the field’s natural pressure in recent years, and seismic shifts from geological settling have set off increasingly frequent earthquakes — more than 120 last year, and at least 40 this year. Though most of the tremors have been small, and resulted in no reported deaths or serious injuries, they have caused widespread damage to buildings, endangered nearby dikes and frightened and angered local residents. Though the quakes started in the 1990s, the strongest came in 2012 when a 3.6 magnitude quake caused widespread damage to buildings in a region where structures were not designed to withstand seismic activity. It was only after that quake that the government and the drilling company started taking the welfare of residents into account, according to the recently released findings of a year-long inquiry by the Dutch Safety Board, a government-funded but non-governmental organization. “The Dutch Safety Board concludes that the safety of citizens in Groningen with regard to induced earthquakes had no influence on decision-making on the exploitation of the Groningen gas field until 2013. Until that time, the parties viewed the impact of earthquakes as limited: a risk of damage that could be compensated,” the report concluded.

Fracking is Depleting Water Supplies in America's Driest Areas, Report Shows: Of the nearly 40,000 oil and gas wells drilled since 2011, three-quarters were located in areas where water is scarce, and 55% were in areas experiencing drought, the report by the Ceres investor network found. Fracking those wells used 97bn gallons of water, raising new concerns about unforeseen costs of America's energy rush. "Hydraulic fracturing is increasing competitive pressures for water in some of the country's most water-stressed and drought-ridden regions,"  Without new tougher regulations on water use, industry could be on a "collision course" with other water users. . "We understand as a country that we need more energy but it is time to have a conversation about what impacts there are, and do our best to try to minimise any damage." It can take millions of gallons of fresh water to frack a single well, and much of the drilling is tightly concentrated in areas where water is in chronically short supply, or where there have been multi-year droughts. Half of the 97bn gallons of water was used to frack wells in Texas, which has experienced severe drought for years – and where production is expected to double over the next five years.

Pair of Houston-based companies among latest to announce cuts - A pair of Houston-based oil and gas companies have announced they will be making cutbacks in 2015 as a result of slumping oil prices. Noble Energy Inc. and Marathon Oil join a growing laundry list of O&G companies nationwide making similar announcements.  Noble Energy, one of the largest companies in the Houston area, announced that it expects to slash its 2015 capital spending by 40 percent to $2.9 billion, according to the Houston Business Journal. Approximately 60 percent of Noble’s capital budget is in place for domestic onshore assets, with 35 percent in place for global offshore development and the remaining five percent for global offshore exploration. Noble also said it will focus its onshore investments in the DJ Basin and Marcellus shale plays.  According to FuelFix, Marathon Oil Corp. said on Thursday that it would be cutting 350 to 400 jobs, or 10 percent of its workforce. Marathon says that most of the cuts will be in the United States. Lisa Singhania, a spokeswoman for Marathon commented: “These reductions will be focused largely on U.S. payroll employees, and will be weighted to be above-the-field and support services personnel. Our goal is to conclude this effort as quickly as possible to limit the period where our employees are certain of their standing and to minimize disruption. These types of actions are difficult and never taken lightly, but are necessary in the current environment.”

The Holdouts - Three Texas Families Who Took a Pass on the Fracking Boom: When the landman comes knocking, most people living in the Texas oil patch experience something like joy, or at least sweet relief. Here’s someone offering you money up front and the promise of hefty royalty checks in exchange for producing oil and gas from the ground. Imagine winning the lottery without even buying a ticket.  Almost everyone takes the money. You’d be crazy not to. According to industry estimates, oil and gas companies paid more than $15 million in royalties to Texans across the state in 2012. That doesn’t include initial signing bonuses, which can be enormous. But across the shale plays—primarily the Barnett in the north and the Eagle Ford in the south—there are some who reject the landmen’s offers. Known in the industry as “holdouts,” these mineral rights owners dare to challenge Big Oil in Texas. It’s a kind of principled madness that often baffles neighbors, family members and the industry itself. Unlike many fracking foes, the holdouts stand to benefit personally from oil and gas drilling. Yet they risk much more than money fighting to keep the fossil fuels in the ground. Some lose their health, their homes and their faith in the government as an arbiter of competing rights. Rarely are they able to stop the companies from drilling. For this uncommon breed, no amount of money can buy peace of mind. These are the stories of three families who were willing to walk away from thousands of dollars—and battle loved ones, their communities and their government—to make a stand, even when facing insurmountable odds.

Peaking Over the Precipice: The Red Queen Comes to Shale Oil --The Red Queen Effect refers to the phenomena, courtesy of Lewis Carroll, of having to run faster to stay in the same place, or in the oil business, drilling more wells to maintain production levels.  As Deborah Lawrence notes in a recent post, the two biggest shale oil fields in the US, the Bakken and the Eagle Ford are approaching that threshold – where 100% of the production from new wells are offsetting declines from older wells – not increasing the net output of the field. Meaning the productive capacity of the field may be peaking. The drop in drilling activity is price-driven, so the Red Queen Effect has not kicked in yet, but, at current prices, shale oil production has plateaued if not peaked. “Tight oil in the US is experiencing shocking deterioration in production vs. declines percentages just since November. Rig counts have plunged and though production overall is still rising, the amount used to offset the steep declines in older tight oil wells is skyrocketing. For instance, in the Bakken as recently as November 2014, 71% of all new production coming online was being used to do nothing but offset the declines in older wells. This was a very high figure. But over the ensuing three months as crude prices crumbled and capital expenditure has been slashed this figure has soared to 86%. The same thing is happening in the Eagle Ford where 72% of all new production was needed in November 2014 but has now risen to 89%. This is problematic because these figures are rapidly approaching 100% which means that the plays are quickly falling into decline. The amount of new production simply cannot keep up with the steep declines in older wells. Unfortunately “older” in shale gas and tight oil means a mere 4-5 years. These are not long lived wells.

Quicksilver Resources may seek bankruptcy protection – – Less than a week after laying off 10 percent of its workforce, Quicksilver Resources announced Tuesday that it may be on the road to seeking Chapter 11 bankruptcy protection after deciding to skip a crucial debt payment. Quicksilver announced it was not making a $13.6 million interest payment that was due Tuesday. The payment was tied to senior notes that come due in 2019. Under the terms of the debt, Quicksilver has 30 days to make the payment before it goes into default, the company said. If the company does not make the payment at the end of the grace period, the trustees or holders of at least 25 percent of the bonds may ask to be paid for the principal and the interest owed, triggering defaults under the terms of other Quicksilver debt, the company stated. While the company has hired outside help to restructure its debt, there are “no assurances” that it will be successful and could prompt the company to seek bankruptcy protection, something officials have avoided mentioning in previous announcements about its financial woes. “The company believes it is in the best interests of its stakeholders to continue to focus on actively addressing the company’s debt and capital structure and intends to continue discussions with its creditors during the 30-day grace period,” a company announcement said.

Conservation Colorado maps out leases in Arapahoe County - An analysis by a nonprofit environmental group revealed oil and gas leases for sites close to schools, parks and housing developments in Arapahoe County, the Denver Post reports. Conservation Colorado used data and property records from the Colorado Oil and Gas Conservation Commission (COGCC) to map out the locations of the leases. Peter Maysmith, the group’s executive director, hopes the maps will “bring home that this heavy industrial activity can occur anywhere.” While the leases nearly fill the county’s less-developed eastern half, the maps indicate a peppering of leases in the western half among neighborhoods, golf courses and more than 40 schools. Colorado Senate Minority Leader Morgan Carroll (D-Aurora) feels that the spread of lease holdings is ominous of the county’s future: While not every lease will be developed, the fact [that] these leases were so recently filed and that the oil and gas industry owns the mineral rights under so much of Arapahoe County is clearly a warning sign for elected officials and residents.

Senate weighs payments to mineral owners over fracking rules - Mineral owners would get compensation from local governments that restrict fracking under a bill being considered by Colorado lawmakers.Whether more regulations over fracking are needed is expected to be one of the most hotly debated questions lawmakers will take on this legislative session. A task force assembled by Democratic Gov. John Hickenlooper will be delivering recommendations to lawmakers later this month about what to do to reduce land-use conflicts among local governments, homeowners, and the energy industry. The proposal being heard in a Senate committee Thursday would require local governments that impose fracking restrictions to compensate mineral owners if the regulations reduce the value of their property by at least 60 percent. The proposal has a good chance in the GOP-led committee.

High levels of benzene found in fracking waste water -- 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 testing results from hundreds of wells showed, on average, benzene levels 700 times higher than federal standards allow, according to a Times analysis of the state data. 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.

Exclusive: Chesapeake Energy sues former CEO McClendon's new firm -- Chesapeake Energy Corp filed suit Tuesday alleging that its founder and former chief executive, Aubrey K. McClendon, stole confidential company data during his last months on the job in order to launch his new oil and gas empire. McClendon, 55, “misappropriated highly sensitive trade secrets from Chesapeake” and “subsequently used these trade secrets for the benefit of” a company he founded in 2013, American Energy Partners LP, according to the civil complaint filed by Chesapeake in Oklahoma County District Court. In the suit, Chesapeake claims McClendon asked his assistant to print maps and data about unleased acreage and that McClendon also sent himself blind copies of the same documents at a personal email address during his last months at the company.  The company says it discovered McClendon’s actions through a forensic analysis of his Chesapeake email account. Chesapeake alleges that the information was used by McClendon and American Energy Partners to acquire drilling rights on land in the Utica Shale formation in four separate transactions.

US shale leader EOG Resources confidence no match for cheap oil – One of the strongest leaders of the U.S. shale revolution has been humbled by plunging oil prices. EOG Resources Inc slashed its 2015 budget on Wednesday amid cheap crude prices and said its output will not grow this year, mere months after confidently saying it was strong enough to weather the downturn without cutbacks. Its shares tumbled more than 7 percent late Wednesday. The move offers the clearest example to date of how the roughly 50 percent drop in oil prices since last June is roiling the U.S. energy industry, forcing once-confident players to make choices unimaginable just 12 months ago. EOG’s scaled-back outlook would mark the first time in years its crude and natural gas output does not jump more than 10 percent. EOG is not alone. Last week Apache Corp posted a multibillion-dollar net loss and slashed its 2015 budget while saying its output would be flat from last year. On Thursday, the number of rigs drilling in North Dakota fell below 130 for the first time in years, a level the state’s top official said is necessary to prevent output from falling. ConocoPhillips and Occidental Petroleum Corp , among many others, have taken similar steps. Many oil industry and market analysts have been waiting anxiously for the update from EOG, regarded as a bellwether for the shale patch.  If even EOG – a firm renowned for its strong balance sheet, prime holdings in the sweetest shale spots, efficient drilling and good hedges – is brought low, output across the sector could stall more quickly than expected.

Saltwater spill contained on-site at Divide County oil well -: North Dakota regulators say a spill involving 21,000 gallons of saltwater was contained on-site at an oil well in Divide County. The state Oil and Gas Division says the spill at a well site about 5 miles south of Fortuna was reported Sunday. Murex Petroleum Corp. reported that 500 barrels of saltwater were contained and recovered on site. One barrel holds 42 gallons. Saltwater, or brine, is a byproduct of oil production. A pump leak was listed as the cause of the spill. A state inspector visited the site.

Four Oil-Related Spills Reported In North Dakota, The Latest In A Week Of Oil Mishaps  - Four “significant” oil-related spills, including two that impacted wetlands, were reported by North Dakota state officials this week.   It’s the fourth time this week that a big mishap involving the North American oil industry has occurred. On Monday, a train carrying 3 million gallons of crude oil derailed and exploded in West Virginia. On Wednesday, another explosion occurred at the ExxonMobil oil refinery in Torrance, California, injuring at least three people. And this weekend, a crude oil train derailed, spilled, and caught fire in Ontario, Canada. The spills in North Dakota began on Monday and spanned into Wednesday. The first was a double-incident reported by Hess Corp., which said that approximately 42,000 gallons of oil industry wastewater was released from two of its well sites in Williams County, located about three miles apart.  Both of the waste spills were said to have impacted wetlands, though the extent of the damage has not been reported. The type of wastewater released is called produced water, which peer-reviewed research has shown to contain elevated concentrations of bromide, which can promote the formation of toxic disinfection byproducts.  The next spill, reported Tuesday, was a 1,260-gallon oil spill in McKenzie County. In that incident, the oil overflowed from a truck and spilled into an oxbow of Charbonneau Creek, which is a a tributary of the Yellowstone River. The fourth incident saw 400 gallons of diesel fuel spill from an open valve of a truck and into an unnamed tributary of Lonesome Creek.  NPR reports that in 2013, the state produced more than 13 billion gallons of oil and nearly 15 billion gallons of wastewater.  But even with production falling, the state has seen its fair share of mishaps. In 2013, North Dakota experienced the largest inland oil pipeline spill in the U.S., a rupture that saw 865,000 gallons of crude sunk into farmland. Before February, already three oil-related spill incidents had been reported in 2015, including a 3 million gallon release of produced water and oil, cleanup of which is ongoing.

Drop in oil prices leaves roughnecks at loose ends - The drive from Ken Mercer’s home in Tennessee to the oil fields of western North Dakota takes 20 hours if you drive straight through. Every month, Mercer, an Army veteran who served in Iraq, would make the trip as part of his two-weeks-on, two-weeks-off hitch with the Houston oilfield services company Patterson-UTI. Rotating 12-hour shifts aboard a drilling rig, Mercer worked day and night until it was time to go home, rest and do it all again. That was until one day he arrived at the equipment yard after driving from Tennessee to be informed along with 50 other workers that he was being let go, according to a lawsuit Mercer and another worker in Midland filed in federal court in Houston earlier this month. So goes an oil boom that is sending workers packing almost as quickly as it drew a couple hundred thousand of them back to the oil fields. In locales such as Odessa, Williston and Carrizo Springs, where not long ago a vacant apartment could command big-city rents, drilling rigs are piling up in equipment yards. As the layoff announcements mount — 6,400 at Halliburton, 9,000 at Schlumberger — a five-year-long hiring boom that earned workers six-figure salaries and had companies jumping over each other to hire even unskilled workers is collapsing. With oil prices half what they were seven months ago, the tables have turned. The Federal Reserve Bank of Dallas is predicting 140,000 jobs in Texas alone could be lost by next year if crude prices don’t rebound.  The workers are claiming violations of a federal law requiring larger employers to give at least 60 days’ notice ahead of layoffs. Within the law, there is an exemption for layoffs caused by “unforeseeable business circumstances.” And the sudden drop in crude prices is likely to be a part of any defense.

Daily Bakken production over 1.2 million barrels - Last Friday, director of the North Dakota Department of Mineral Resources Lynn Helms expressed his confidence in oil price recovery and avoiding the large tax trigger. According a report by The Bismarck Tribune, the Department of Mineral Resources released state’s preliminary oil and gas production figures for the month of December. The numbers indicate that 1.23 million barrels of oil were produced per day, up from November’s final figures of 1.19 million barrels per day. Helms stated that the 39,000 barrel per day increase was likely due to year-end production goals and moderate weather. As reported by The Tribune, Helms said the month of “December was a tug-of-war” due to falling rig counts and companies trying to meet new flaring requirements. Drilling activity has now shifted to focus on the core counties of the Bakken formation (Dunn, McKenzie, Mountrail and Williams). With oil prices beginning to climb again, he said the chances of a gradual increase in activity is likely. He also said, “We’ve seen renewed confidence that the large trigger is likely not going to hit.”  State law mandates that two oil price tax triggers be implemented in the event that oil prices, based on the West Texas Intermediate benchmark, remain below a certain level for an extended period of time. If this happens, the 6.5 percent extraction tax will be reduced until prices recover. The low tax trigger was put into effect at the beginning of the month after average prices remained below $57.50 per barrel the month prior. After dropping to near $40 lows, the price has stabilized and has risen above the $50 per barrel mark in the past week. If the large trigger price had been hit, the reduced tax rates potentially could have cost the state billions in oil tax revenue over the next two years.

North Dakota breaks export record - North Dakota has broken its export record for the year of 2014, according to the U.S. Department of Commerce. Last year the state exported $5.3 billion worth of commodities, a 42 percent increase from 2013. Last year overall U.S. exports increased by a mere 3 percent. With North Dakota’s 42 percent increase, the state had the second highest annual export growth among all 50 states in 2014. Not surprising is the value of mineral fuels and oil product exportation exceeded the value of other exported goods. The majority of it was shipped to Canada via pipelines. Mineral fuels and oil products netted $2.7 billion, more than double the 2013 amount. Next on the list was front end loaders, which saw an 8 percent increase from 2013 at $296 million. Wheat exports also increased by $141 million, or 28 percent, while soybean exports grew by $109 million, a 123 percent increase from the previous year. Related: U.S. oil export boom stalled by topsy-turvy market In a press release, Director of the U.S. Commercial Service office in Fargo Heather Ranck said, “Exports are up, and that’s good news for North Dakota businesses that are pursuing new export horizons. If your business has a good track record of selling in the domestic United States, it’s likely a good candidate for making overseas sales.”

Shale producers postpone oil well completions -- EOG Resources became the latest major shale producer to state that it would “delay a significant number of completions” when it announced fourth-quarter results. The company plans to end 2015 with 285 wells awaiting completion services, up from 200 at the end of 2014, it told investors during an earnings call on Thursday. Continental Resources has also announced plans to go slow on well completions in response to the slump in oil prices. Apache and Anadarko Petroleum are among other shale producers to announce a deliberate strategy of delaying completions. U.S. shale producers are postponing well completions to conserve cash and defer production until prices recover. There are a large number of wells that have been drilled but are awaiting the arrival of pressure pumping crews to fracture them and service companies to link them up to gathering pipelines. In North Dakota, there were an estimated 750 wells that had been drilled but not yet completed at the end of December, according to the state’s Department of Mineral Resources. Once these wells are completed, they will increase the number of producing wells in the state by more than 8 percent, from the current total of around 8,950. At recent completion rates, it would take another 3-4 months to clear the backlog even if no new wells were drilled in the meantime.

Gas Burned Off at Oil Production Sites Is Equivalent to Emissions From 70 Million Cars - It’s like burning banknotes. Latest statistics from the World Bank (WB) indicate that the amount of gas flared each year is enough energy to supply electricity to several small countries or many millions of households. The flaring of 140 billion cubic metres (bcm) a year releases large quantities of greenhouse gases into the atmosphere—and that is not only bad news for the climate, but also for human health. The WB estimates that flaring results in total annual global carbon dioxide emissions of 350 million tones. Eliminating the burning of gas at hundreds of oil production sites round the world would be the equivalent, in terms of emissions savings, of taking 70 million cars off the road. Flared gas is often contaminated with toxic compounds and cancer causing carcinogens such as benzene. And in Nigeria’s Niger Delta—the country’s main oil production area and a region where flaring has been going on for several decades—villagers complain of skin diseases and breathing problems. Flaring has other impacts. Those living near flaring sites in Nigeria say agricultural yields have dropped due to contamination of the land by acid rain. The toxic chemicals in the flared gases are also blamed for corroding the metal roofs of houses in the area. The process of flaring takes place when there are no facilities to harness the gas that is produced along with oil—or when companies decide it is uneconomical to process and pipe the gas.

WOGCC cracks down on flaring - With its string of rejections to flaring requests, the Wyoming Oil and Gas Conservation Commission seems to be sending the state’s oil and gas industry a message to cut back on gas flaring. The most recent of the rejections occurred last week in response to a flaring request from  Chesapeake Energy, according to the Star Tribune.. The company had asked for permission to flare 349,000 cubic feet of natural gas daily over the course of six months, far exceeding the state’s limit of 60,000 cubic feet per day. The Oklahoma-based company now has until May to reign in its flaring. This follows a similarly denied request from EOG Resources, which trimmed its slated flaring request from 23 wells to three.  “The commission is being more diligent about their authority and requirements to prevent waste,” said Jill Morrison, an organizer at the Powder River Basin Resource Council who has frequently taken issue with the state’s industry regulation. “They take it very seriously. They want to see a definitive plan.” EOG representative Craig Newman said the message is one the company takes seriously, having spent $28 million to install pipelines and compressor stations to seize the gas.

Fracking has collapsed - The fracking-for-oil boom started in 2005, collapsed by 60% during the Financial Crisis when money ran out, but got going in earnest after the Fed had begun spreading its newly created money around the land. From the trough in May 2009 to its peak in October 2014, rigs drilling for oil soared from 180 to 1,609: multiplied by a factor of 9 in five years! And oil production soared, to reach 9.2 million barrels a day in January. That’s what real booms look like. They’re fed by limitless low-cost money – exuberant investors that buy the riskiest IPOs, junk bonds, leveraged loans, and CLOs usually indirectly without knowing it via their bond funds, stock funds, leveraged-loan funds, by being part of a public pension system that invests in private equity firms that invest in the boom…. You get the idea. That’s how much of the American shale-oil revolution was funded. Production soared for five years and eventually outpaced sluggish demand. Crap happened on the world scene, and suddenly the fracking boom, the biggest no-brainer in the history of mankind, turned into a terrible bust. On the drilling side, the bust began in mid-October last year, after the price had been plunging for over three months. At that time, 1,609 rigs were actively drilling for oil, according to Baker Hughes. Since then, week after week, drillers were idling rigs as fast as they could. In the latest reporting week, drillers idled another 84 rigs, the second biggest weekly cut ever, after idling 94 rigs two weeks earlier. Only 1056 rigs are still drilling for oil, down 443 for the seven reporting weeks so far this year and down 553 – or 34%! – from the peak in October. Never before has the rig count plunged this fast this far:  The number of rigs drilling for natural gas in the last reporting week fell by 14 to 300, the lowest since May 1993, having collapsed by 81% since 2008:

Another rig(s) bite the dust - Global analysis company Wood Mackenzie, which is based in Scotland but has over 25 offices worldwide, published a news release Thursday that gave factual evidence to the reality that so many within the oil and gas industry had been waiting to unwillingly hear. According to the release, Wood Mackenzie expects a continued decline in rig utilization through Q1 and Q2 of 2015, with a leveling off by August at approximately 1,000 units.  Over the course of the past five months, rig count numbers have fallen at a rapid pace. Baker Hughes’ weekly rig count totals reflect the sad reality of the rough patch the industry is currently battling through. Last week alone, nearly 100 rigs were idled in the United States. In January alone, rig counts saw a decline in count by nearly 200 to 1,616, down from a peak of 1,859 in November 2014. That pace has continued into the first two weeks of February with another 200 rigs coming off contract.  “The oil price collapse is hitting onshore activity and rig operators, and drilling rigs are currently being stacked at an alarming rate,” said Scott Mitchell, Research Director at Wood Mackenzie. Wood Mackenzie’s projections come under the notion of oil prices recovering from the severe lows seen in early 2015 and bouncing back to an annual average of $64 per barrel for West Texas Intermediate (WTI). However, if prices are sustained in the $40-$50 per barrel range for WTI, then the impact on rig counts will be even more severe, dropping to less than 900 by the summer. This would represent a 50% cut in the number of operational US land rigs from the November 2014 peak and a 23 percent drop from this time last year. On February 14, 2014, the total U.S. rig count stood at 1,764, 406 more rigs than we have today. “The resulting impact on the rig market is a slow but steady recovery, averaging an additional 15 rigs per month through the end of 2016,” Mitchell said.

Bullock calls for deeper pipelines after oil spills - — Montana’s governor is calling on the Obama administration to strengthen rules that require oil pipelines to be buried just 4 feet beneath major waterways. The Democratic governor’s Friday request comes after two breaches spilled a combined 93,000 gallons of crude into the Yellowstone River. River scouring due to flooding or an ice jam is being investigated as a possible cause of a spill near Glendive last month. In 2011, an Exxon Mobil pipeline broke during flooding near Laurel and contaminated dozens of miles of river bank with oil. Bullock said Friday in a letter to Transportation Secretary Anthony Fox that he wants existing lines surveyed to determine how deeply they’re buried. Bullock also wants more federal inspectors in Montana, which currently has only one overseeing 3,800 miles of pipelines.

Oil Train Derails, Catches Fire In Canada - A train carrying crude oil derailed in northern Ontario, Canada late Saturday night, spilling oil and causing a fire. Twenty-nine of the 100 cars on the train went off the track near Timmins, Ontario, and seven of those cars were still on fire as of Sunday afternoon. The derailment prompted Canadian National Railway Co. to close its main rail line, a decision that could end up causing a delay in oil shipments in eastern Canada. That delay would add to the disruption Canada’s rail industry is currently experiencing due to the weekend strike of 3,000 Canadian Pacific Railway workers, who are at odds with their company over wages and benefits.  The CBC reports that an “unknown amount” of oil spilled from the train, which derailed in a remote, wooded region. The derailed train had most recently been inspected on Saturday, the day the track was also inspected. The derailment caused no injuries, and officials are working to clean up the derailment site and determine the cause of the accident.  The derailment is just one of many that have occured in the U.S. and Canada in recent years, as oil producers increasingly rely on rail to transport crude. According to a ForestEthics report from last year, oil train traffic in North America has surged by 4,000 percent over the last five years — traffic that’s mostly coming from North Dakota’s Bakken region and Alberta’s tar sands. With this increase in traffic, oil train accidents have also increased.

Another oil train derails, ignites fire in Canada - Another train carrying crude oil derailed and caught fire in Canada early Sunday, potentially putting pressure on the White House to accelerate its review of new regulations intended to improve the safety of hazardous rail shipments throughout North America.The 100-car Canadian National train left the tracks in a remote part of Northern Ontario around midnight, the Toronto Globe and Mail reported Sunday. Of the 29 cars that derailed, at least seven were on fire, the newspaper reported.  The Transportation Safety Board of Canada is sending investigators to the scene, but they likely will face difficulties assessing the damage because the area is not easily accessible, and the temperatures are well below zero.No one appears to have been injured in Sunday’s derailment. But in 2013, a different part of Canada wasn’t so lucky. On July 6 of that year, an unattended crude oil train lost its brakes and rolled down in incline, smashing into the center of Lac-Megantic, Quebec. That derailment unleashed a torrent of burning oil into the heart of the town, killing 47 people and destroying dozens of buildings.

Can Alberta Sands oil be safely shipped on the St. Lawrence? --The St. Lawrence River is frozen solid right now, but when spring arrives tankers will begin their slow journey up and down the waterway. The tankers carry huge amounts of heavy raw materials like grain, iron, and coal to ports in the United States and Canada. Only a few shipments of crude oil from Alberta Sands in Canada and the Bakken in North Dakota have come through the seaway, but environmentalists and state official are concerned more will come. Lee Willbanks, director of Save the River said, “This is a huge issue because there is a lot of oil in different forms being extracted in the Midwest in our country and in Alberta Canada. And right now there is more oil coming out of the ground then has a conduit to a refinery." Gary McCullough, with the New York State Department of Environmental Conservation said, “Fundamentally my concern is that spills on the St. Lawrence River would be extremely challenging to clean up." Mcllouch said that is because the river’s current is really strong. “The oil will move on the water faster than we have the ability to contain it. If you lost a large amount of oil on Alexandria Bay, that oil has already transversed to Massena." McCullough mentioned the Nepco spill of 1976. A massive barge carrying thick motor oil ran aground and spilled 500,000 gallons. “You can still see oil strips on rocks up in Ogdensburg, Lisbon area,” he said. McCullough said much of that oil floated. The oil from the Tar Sands, on the other hand, is much heavier and may not float. Oil that sinks causes more damage because it is almost impossible to completely remove from a river floor.

Keystone Bill Heads to Obama for Veto - Congressional Republicans achieved an elusive legislative goal Wednesday, sending a bill to approve the Keystone XL pipeline to President Barack Obama.  Yet after three years of effort, the victory is somewhat hollow as falling oil prices and an improving job market conspire to weaken any practical or political payoffs.  The U.S. House passed the measure 270-152, with 29 Democrats joining all but one Republican to support the bill. Obama has vowed to veto the measure and Wednesday’s vote was short of the two-thirds super majority needed to override the president’s rejection. The Senate passed the bill last month.  Obama said he opposes the bill because it would circumvent his administration’s review of the $8 billion pipeline.

‘Anti-petroleum’ movement a growing security threat to Canada, RCMP say - The RCMP has labelled the “anti-petroleum” movement as a growing and violent threat to Canada’s security, raising fears among environmentalists that they face increased surveillance, and possibly worse, under the Harper government’s new terrorism legislation. In highly charged language that reflects the government’s hostility toward environmental activists, an RCMP intelligence assessment warns that foreign-funded groups are bent on blocking oil sands expansion and pipeline construction, and that the extremists in the movement are willing to resort to violence.There is a growing, highly organized and well-financed anti-Canada petroleum movement that consists of peaceful activists, militants and violent extremists who are opposed to society’s reliance on fossil fuels,” concludes the report which is stamped “protected/Canadian eyes only” and is dated Jan. 24, 2014. The report was obtained by Greenpeace. “If violent environmental extremists engage in unlawful activity, it jeopardizes the health and safety of its participants, the general public and the natural environment.”

DOE Used Gas Lobbyist Analysis to Greenlight LNG Exports -  In order to approve the exportation of gas, the DOE has to weigh the economic benefit of exporting gas vs the increased cost of gas to American industry and consumers. The benefit of exporting the gas has to be much more than the increased cost of doing business to American companies – who use gas in manufacturing and power generation. And to American retailers and consumers, who use it in cooking and heating. So far so good. Turns out that the DOE used a gas industry lobbyist to run the numbers on that economic analysis. And guess what the results were.  Simply put, these LNG export schemes are strictly by the 1%, for the 1% and of the 1%. And no one else.  Not US consumers, not US manufacturers, not US workers. They are not in the public interest.  Texan Dwain Wilder found this protest from a group of American manufacturers that will be disadvantaged by gas exports: “This petition from the Industrial Energy Consumers of America (IECA) to intervene in Pieridae Energy’s application to the Office of Federal Energy is a bombshell aimed right at DOE’s failings! I’ve just finished accessioning the document into the FrackFreeGenesee Library, and had to hand-type it, as the pdf was protected – so I got a close look at it indeed. I’ve never seen an industrial lobbyist quote Justice Brandeis before…Permit me to quote the first article of the Protest section in its entirety. I think you will find it touches on many matters of interest to us as we address FERC, DOE and the LNG and export industries. To be clear, this is an intervention from a manufacturing association that deals with methane as a feedstock. Yet it couches its claims on behalf of its members on a much larger basis. For instance it addresses matters such as the concern for income distribution in this country!

Scientists Working To Harness Energy Produced By Intense Fracking Debates - Hailing it as a promising potential fuel source with vast untapped reserves, researchers at the University of Texas revealed Wednesday that they are attempting to harness the abundant energy produced by the nation’s intense fracking debates. “We’ve been working tirelessly to develop a means of converting highly charged arguments from both advocates and opponents of fracking into a clean and efficient source of power,” said lead researcher Luke Hutchcroft, who noted that the combustible exchanges regarding the economic benefits of hydraulic fracturing and its environmental consequences are particularly prevalent in dispute-rich states such as New York, Colorado, and Pennsylvania. “While there are certainly significant outside factors to consider, including whether this energy supply is as inexhaustible as it appears to be, we may yet avert a climate catastrophe by learning to utilize the explosive force of this extremely potent controversy.” Hutchcroft added that the fuel source’s potential was rivaled only by the raw power that may one day be extracted from scientists’ urgent recommendations to adopt renewable energies.

U.S. shale on more sustainable course after price rally -- U.S. shale producers have responded even more quickly to lower oil prices than analysts expected, which should ensure shale production hits a plateau by May or June and is sustained rather than falling in the second half of the year. The number of rigs drilling for oil in the United States declined by another 84 last week, according to oil field services company Baker Hughes. The oil-directed rig count has now fallen by a total of 553, or 34 percent, since early October, the fastest decline since 1986. Some analysts have questioned whether the decline in rig counts will really result in a slowdown in oil output. The most basic lower rigs, those with the lowest horsepower and depth ratings, capable only of drilling vertically, are likely to be idled first, leaving more powerful units with horizontal capability still working. And drilling will pull back from speculative frontier areas to concentrate on the most productive parts of well-established plays to maximize new output per well drilled.

Is the oil crash over? - Gavyn Davies -- Oil prices have rebounded by $16 a barrel since the low point was reached at $45 a month ago, and investors are already wondering whether the worst is over for the energy sector. The bear market that started in 2011 has seen a peak-to-trough decline in overall commodity prices of 46 per cent, which is almost exactly the same decline experienced in the six previous bear markets, though this one has lasted 3.7 years, compared to an average of 2.3 years (according to JPMorgan). Based on the past chronology of commodity bears, the trough is now overdue.It will of course be impossible to pick the local bottom with any precision. Last year’s collapse in oil prices was not built into the forward markets. Nor was it predicted, even as an outside possibility, by economists and oil analysts. Few macro investors made any significant money from it, until trend-following funds entered significant short positions towards the end of the year. The inability of economists to forecast such an important event, not just for commodity markets but for bonds and equities as well, is certainly sobering. But almost without pausing for breath, we are faced with another urgent and unavoidable question: does the bounce in oil prices in the past month herald the end of the crash? After much debate, a consensus has now emerged about the main cause of the 2014 oil crash. As Jeremy Grantham of GMO wryly points out in the latest of his excellent pieces, sometimes the most obvious explanation is the right one. The prime factor was the unexpectedly rapid growth in fracking production in the US. This added about 4m b/d (4.5 per cent) to global oil production, at a time when global oil demand was rising more slowly than usual.

Oil Is Cratering. American Oil Production Isn't - Signs of the oil bust abound. The price of West Texas Intermediate crude has fallen in half in the past six months. The search for oil, which fueled a gold-rush mentality in North Dakota and Texas, is abating. According to Baker Hughes, there were 1,140 rigs drilling for oil  in the U.S. on Feb. 6, down from a peak of 1,609 on Oct. 10, 2014. In Houston, the Wall Street Journal reports, oil companies are shedding jobs and vacating office space. And yet a funny thing has happened during the bust. Oil production in America has been rising, as this chart of monthly oil production from the Energy Information Administration shows. In November, the U.S. produced 9.02 million barrels of oil per day, up 14.5 percent from November 2013. The last time the U.S. pumped more than 9 million barrels of oil per day for two straight months was in 1986. This week, in its short-term energy outlook, the Energy Information Administration noted that the boom is continuing. Production in January 2015 rose to 9.2 million barrels per day. And even with WTI crude settling at a forecasted price of about $55 per barrel for the year, production for all of 2015 should come in at 9.3 million barrels per day—up 7.8 percent from 8.63 million barrels per day in 2014.  That’s not what usually happens when the price of a vital commodity goes bust. Typically, producers react to supply gluts and falling prices by shutting down production—the better to bring supply in alignment with demand and support prices. It doesn’t make much sense to pump oil when the market price is below the so-called breakeven—the point at which pumping is profitable. And in fact, the rest of the world is effectively putting the brakes on production. The EIA expects global production to grow from 92.94 million barrels per day in 2014 to 93.76 million barrels per day in 2015—an increase of 820,000 barrels, or just .9 percent. The U.S., which accounts for just 10 percent of global production, is expected to supply 670,000 new barrels—82 percent of the globe’s total growth.

The Chilling Thing Devon Energy Just Said About the US Oil Glut - Wolf Richter - The oil-price plunge hit the industry when it was drunk on its own exuberance and awash in money. At the time, over-indebted junk-rated drillers had no trouble borrowing even more to drill more, efficiently or not. Dreadful IPOs flew off the shelf. Misbegotten spin-offs made Wall Street a ton of money. But in July, everything started to go awry. By October, it was clear that the oil-price plunge wasn’t a blip. By November, oil was in free fall.  Soaring production in the US, reaching 9.2 million barrels per day in January, and lackluster demand have caused US inventories to balloon. The “oil glut” was born.  So the industry adjusted by announcing waves of layoffs, whittling down operating costs, renegotiating prices with suppliers, and slashing capital expenditures. The number of rigs actively drilling for oil – a weekly gauge that indicates what’s going on in the oil field – has plummeted by 553 rigs, or 34%, since the peak in October. Never before has it plummeted this fast this far [The Fracking Bust Hits Home]. The crashing rig count was supposed to curtail production, and lower production would bring supply and demand into balance and allow the price of oil to recover. But the opposite is happening. And Devon Energy Corp. just told us why. CEO John Richels explained the phenomenon in the press release: We expect to sustain operational momentum in 2015 with the significant improvements we have seen in our completion designs and a capital program focused on development drilling. With strong results from our enhanced completions and a focus on core development areas, we expect growth in oil production to be between 20 and 25 percent in 2015, even with a projected reduction of approximately 20 percent in E&P capital spending compared to 2014. So, despite slashing the capital expenditure budget by 20%, the company’s oil production in 2015 would grow 20% to 25%. And in Q4 2014, production of oil, gas, and natural gas liquids from Devon’s “retained assets” had soared to an average of 664,000 oil-equivalent barrels (Boe) per day. This included record oil production of 239,000 barrels per day, up 48% year over year. While bitumen production in Canada grew more slowly, oil production from fracking in the US soared 82%! This chart shows Devon Energy’s oil production for the last five quarters:

Goldman Warns Over-Supply Means Oil Prices Will Be Much Lower -- In an effort to to disentangle demand from supply shifts, Goldman explores the drivers of the sharp drop in oil prices since last summer. They find that the vast majority of the decline in oil prices until November 2014 was driven by perceptions of improved supply. The continued sell-off in December and January was driven by perceptions of both improving supply and slowing demand. The latest rebound in oil--which started in late January--appears to be driven by a mix of demand and supply. However, Goldman concludes the new equilibrium price of oil will likely be much lower than over the past decade.

Could Oil Still Drop To $20? - Last week analysts at Citigroup slashed their forecast for crude oil to $20 a barrel before prices begin to recover. They see prices dropping to that point by the end of the first quarter or the beginning of the second quarter. The forecast is based on two points: the amount of crude oil in storage and the end of OPEC’s role as the so-called swing supplier.  WTI crude oil for March delivery closed at around $44 a barrel on January 29th and at $52.65 this past Friday, about where it traded before Citi’s forecast was published. Crude dipped to around $49 last Wednesday before climbing back up on Thursday and Friday. U.S. crude in storage remains at an 80-year high and there have been reports that foreign producers have been leasing tankers to sail around in circles with cargoes of crude waiting for the price to rise. No one, apparently, wants to be the first to cut production, preferring instead to take a “wait-and-see” approach. In the U.S. shale drillers have been cutting back on rigs at a pace of more than 80 a week for the past several weeks. But the cuts to rigs are not being accompanied by cuts in production. Apache Corp. said last week that it expects to cut its rig count from an average of 85 rigs in 2014 to just 12 to 14 rigs in 2015 while maintaining equal production.

Why The Price Of Oil Is More Likely To Fall To 20 Rather Than Rise To 80 - This is just the beginning of the oil crisis.  Over the past couple of weeks, the price of U.S. oil has rallied back above 50 dollars a barrel.  In fact, as I write this, it is sitting at $52.93.  But this rally will not last.  In fact, analysts at the big banks are warning that we could soon see U.S. oil hit the $20 mark.  The reason for this is that the production of oil globally is still way above the current level of demand.  Things have gotten so bad that millions of barrels of oil are being stored at sea as companies wait for the price of oil to go back up. But the price is not going to go back up any time soon.  Even though rigs are being shut down in the United States at the fastest pace since the last financial crisis, oil production continues to go up.  In fact, last week more oil was produced in the U.S. than at any time since the 1970s.  This is really bad news for the economy, because the price of oil is already at a catastrophically low level for the global financial system.  If the price of oil stays at this level for the rest of the year, we are going to see a whole bunch of energy companies fail, billions of dollars of debt issued by energy companies could go bad, and trillions of dollars of derivatives related to the energy industry could implode.  In other words, this is a recipe for a financial meltdown, and the longer the price of oil stays at this level (or lower), the more damage it is going to do. The way things stand, there is simply just way too much oil sitting out there.  And anyone that has taken Economics 101 knows that when supply far exceeds demand, prices go down

Rigged, manipulated and opaque: the $3 trillion oil market needs reform ---  Igor Sechin is an uncompromising figure. The head of Russian energy giant Rosneft and right-hand man of President Vladimir Putin launched an extraordinary attack on the entire global system for the supply, pricing and control of the world’s energy resources during the recent IP Week gathering in London. According to Mr Sechin, energy markets are being manipulated by a powerful alliance of forces, from Washington to Riyadh and Vienna, which present a long-term risk to the global economy. In his speech last week to executives from the cream of the world’s energy companies, he took aim at the Organisation of the Petroleum Exporting Countries (Opec), the US Department of Energy and the specialist energy media, which ultimately determine how much we pay for a gallon of petrol when filling up, or for our quarterly electricity bill. Of course, Mr Sechin’s hyperbole must be taken with a pinch of salt. Russia’s economy is feeling the brunt of the oil-price war effectively launched by Opec last November when the cartel decided to keep its production quotas unchanged at 30m barrels per day (bpd) – roughly a third of global supply.The move was largely orchestrated by Saudi Arabia and a clutch of its close Gulf Arab allies within the Vienna-based grouping; it sent oil markets into freefall within seconds of the 12 oil ministers leaving the secretariat, which sits a short walking distance away from the city’s grand Liechtenstein Palace. Opec had “lost its teeth”, growled Mr Sechin in Russian last week, and had essentially conspired with the US and European powers to drive the oil price artificially lower in a unilateral economic assault on Russia and Iran. But he didn’t stop there. America, he said, was “protectionist” by maintaining a crude oil export ban since the 1970s, which he argued was distorting global markets.

Oil tumbles as huge supplies raise doubts about rally -- (Reuters) - The comeback rally in oil paused on Wednesday, with crude prices falling 5 percent or more after traders and investors were overwhelmed by the latest estimates for U.S. supply builds that came in nearly five times above market expectations. Benchmark Brent oil fell below the psychological $60 support and U.S. crude traded not far above $50 after industry group American Petroleum Institute estimated a supply build of more than 14 million barrels last week. A Reuters poll had expected a growth of just about 3 million barrels for the week to Feb. 13. Oil had rallied over the past month, with Brent rising 35 percent from a mid-January low on short-covering by traders fearing the market had hit bottom after a 60 percent price crash since June. Violence in Iraq and Libya, both important oil producers, added fuel to the rebound. But Wednesday's session showed that supply worries have gripped the market again. "We have more supply coming from here with the refinery maintenance season, and that's prompting some people at least to ask if the market has overstretched itself with the rebound,"

Get Ready for $10 Oil -- At about $50 a barrel, crude oil prices are down by more than half from their June 2014 peak of $107. They may fall more, perhaps even as low as $10 to $20. Here’s why. U.S. economic growth has averaged 2.3 percent a year since the recovery started in mid-2009. That's about half the rate you might expect in a rebound from the deepest recession since the 1930s. Meanwhile, growth in China is slowing, is minimal in the euro zone and is negative in Japan. Throw in the large increase in U.S. vehicle gas mileage and other conservation measures and it’s clear why global oil demand is weak and might even decline. At the same time, output is climbing, thanks in large part to increased U.S. production from hydraulic fracking and horizontal drilling. U.S. output rose by 15 percent in the 12 months through November from a year earlier, based on the latest data, while imports declined 4 percent. Something else figures in the mix: The eroding power of the OPEC cartel. Like all cartels, the Organization of Petroleum Exporting Countries is designed to ensure stable and above-market crude prices. But those high prices encourage cheating, as cartel members exceed their quotas. So the Saudis, backed by other Persian Gulf oil producers with sizable financial resources -- Kuwait, Qatar and the United Arab Emirates -- embarked on a game of chicken with the cheaters. On Nov. 27, OPEC said that it wouldn't cut output, sending oil prices off a cliff.

EIA Crude Inventories & Production Surge To Record Highs -  Between European uncertainty and last night's massive API inventory build (14.3mm barrels), Brent and WTI crude was sliding into today's inventory data - well off the kneejerk highs at the US equity open (and back under $50). Market participants expected a US crude inventory build of around 3 million barrels but the number more than doubled that at 7.72 million barrels and production soared to new record highs.  Idiot algos kneejerked higher (because 7.72 is lower than 14.3?) but that insanity is fading fast...Record high crude inventories For those banking on production slowing and inventories being drawn down at some point, we suggest you look away... Crude inventories in the last 6 weeks have risen at the fastest pace in 14 years and 2nd fastest pace in history... Production surged to record highs... It seems WTI is sitting at a crucial support level... This will do nothing to help the WTI-Brent spread which has soared to almost $10 (as the refinery strike and storage capacity limits in the US contest with Libya disruptions across the pond). Charts: Bloomberg

Oil falls below $59 on record-high U.S. crude stocks -  (Reuters) - Brent crude oil prices fell below $59 a barrel on Thursday after U.S. government data showed crude stocks hit a record high last week. U.S. commercial crude oil inventories rose by 7.7 million to a record 425.64 million barrels in the week ended Feb. 13, said the U.S. Energy Information Administration (EIA). The build exceeded analysts' expectations of a 3.2 million-barrel rise. [EIA/S] Gasoline stocks rose by 485,000 barrels compared with analysts' expectations in a Reuters poll for a 167,000 barrels gain. Distillate stockpiles fell by 3.8 million barrels, versus expectations for a 2.1 million barrels drop. Crude stocks at the Cushing, Oklahoma, delivery hub rose 3.66 million to 46.26 million barrels, the EIA data showed. Benchmark Brent crude futures LCOc1 for April were down $1.83 at $58.70 by 1618 GMT, having hit an intraday low of $57.80 earlier in the session, extending declines from Tuesday's two-month high of $63. U.S. crude for March delivery CLc1 was down $2.05 at $50.09 a barrel after falling as low as $49.15. The contract expires on Friday.

US Oil Rig Count Tumbles To July 2011 Lows, Pace Slows -- For the 11th week in a row (2008/9 saw 20 weeks in a row), US rig counts fell and production hit record highs. Rig counts are tracking the lagged price of oil's decline almost perfectly, with total rigs having dropped 32% from the highs. Notably last week's rig count drop was the smallest in 4 weeks (down just 48 to 1310) with oil rigs dropping 37 to 1,019. Oil prices dropped on this news on worries at the slowing pace of rig count closure.

US rig count decreases 48 to 1,310 - (AP) — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. fell by 48 this week to 1,310 amid depressed oil prices. The Houston firm said Friday in its weekly report 1,019 rigs were exploring for oil and 289 for gas. Two were listed as miscellaneous. A year ago 1,771 rigs were active. Of the major oil- and gas-producing states, Texas' count fell by 22, Oklahoma lost 16, North Dakota and Wyoming each lost four, Alaska lost three, Colorado lost two and California and Utah each lost one. New Mexico gained six rigs while Louisiana gained one.Arkansas, Kansas, Ohio, Pennsylvania and West Virginia were unchanged.

U.S. rig count falls by 48 as market watches for signs of slowing output: The active U.S. rig count dropped by 48 drilling units this week, according to oil field service company Baker Hughes, in one of the smaller weekly declines in the past few months. Thirty-seven of those rigs were drilling for oil, bringing the number of idled U.S. oil rigs down by 406 compared to this time last year. It’s now at its lowest point in almost four years. Low oil prices continue to chase rigs away from the nation’s shale plays, but this week’s haul of idled rigs is around half the numbers reported in recent weeks. Friday’s count brought the number of active U.S. rigs down to 1,310, a figure that has plummeted by more than 460 compared to last year. Fifty-three gas rigs and 2 miscellaneous rigs were idled, Baker Hughes said. In Texas, oil companies stacked 22 rigs this week. The state’s rig count stands at 576, down from 907 in September. Since October, 65 rigs have gone silent in the Eagle Ford Shale in South Texas, while 196 rigs in West Texas’ Permian Basin and 70 rigs in North Dakota’s Williston Basin have idled. As oil prices have fallen in half since last summer, Baker Hughes’ rig count has become the crude market’s go-to leading indicator to gauge how much U.S. oil production may fall in coming weeks and months, which would be key to restoring petroleum prices. On Thursday, Wood Mackenzie forecast if oil stayed around $55 a barrel, 1,000 drilling units would be idled by the time the falling rig count stabilizes, which the energy research firm estimates will be sometime in August. Traders didn’t appear to like the news that only 37 U.S. oil rigs had idled, compared to the 84 oil rigs that were stacked last week, as U.S. oil prices slid below $50 a barrel in afternoon trading Friday shortly after the rig count appeared.

Fooling peak oil one more time: can we find new sources of liquid hydrocarbons? -The collapse of oil prices of late 2014 is an indication that the market cannot absorb the abundant - but expensive - unconventional oil that could be theoretically produced. The result is "peak liquids," arriving in a few years at most (according to Arthur Berman). But, just as it has happened in the past, the industry will not stand still. They will be actively seeking for new resources to keep production ongoing. Can peak oil be fooled once more, at least for some time?   As well known, predictions are difficult, especially when they are about the future. But it seems evident that, out there, something is stirring up and new "solutions" are being explored to counter the inpending decline of combustible liquids. The emphasis on nuclear energy in the latest IEA report is a sign of the times. But nuclear does not produce liquid fuels and the costs and the associated complications make it an unlikely savior of the world. The same can be said of biofuels: inefficient and land consuming; they have already reached their practical limits. Rather, the oil industry has always been good at squeezing out flammable liquids out of the dirtiest possible sources. Tar sands remain a potentially large resource, but their exploitation is hugely expensive. Perhaps more likely, the new "miracle" could be found in the "coal to liquids" process. 

With Oil Fields Under Attack, Libya's Economic Future Looks Bleak : NPR: The headquarters of the National Oil Corporation in Tripoli are gleaming, the floors marble, the offices decked out with black leather chairs and fake flowers. It seems far from the fighting going on over oil terminals around the country.But the man in charge looks at production and knows the future is bleak."We cannot produce. We are losing 80 percent of our production," says Mustapha Sanallah, the chairman of Libya's National Oil Corporation.  ."Now we have two problems: low production and low price," he says.  At the current rate, he expects that the country won't even earn 10 percent of the budget money Libya had in 2012, before militias started taking oil infrastructure hostage."If there is security in Libya, we can resume production within a few days," Sanallah says.If there's one thing that has a chance of keeping Libya from totally falling apart, it's oil. It provides nearly all the country's revenue. It's what militias are fighting over. And it's the prize coveted by the two rival governments — one in Tripoli, the other in Libya's east — that claim to be running the country.The Tripoli faction is seen as Islamist, the eastern government as anti-Islamist — but the fighting is mainly over turf and resources like oil, rather than ideology.

Oil steady as Libya, Kurdish worries offset by Greek woes (Reuters) - Oil prices were little changed on Monday after touching their highest nearly two months, as gains in the dollar following the collapse of Greek debt talks offset growing violence in Libya and concerns over exports from Kurdistan. The U.S. dollar index reversed early losses to trade higher by midday on Monday after talks between Greece and euro zone finance ministers broke down when Athens rejected a proposed six-month extension of its bailout. In thin activity, oil prices had earlier pushed to a new 2015 high amid supply worries in two big oil producers.

Iran will weather oil price slide, Saudi Arabia will suffer – Iranian President Hassan Rouhani said Tuesday that Iran can cope with the economic turmoil of falling oil prices, adding that Saudi Arabia and Kuwait will be harder hit. Rouhani said that while oil now only accounts for one-third of Tehran’s budget, some of the Gulf states are up to 95 percent reliant on it. “If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran,” he said. He added that “Kuwait’s budget is 95 percent reliant on oil,” and 90 percent of Saudi Arabia’s “annual exports are related to oil.”  Rouhani was addressing a crowd in the southern city of Bushehr – home to a nuclear power plant built with the help of the Russians, which became operational in 2011. He also said that falling prices for crude oil are the result of “a plot that will be overcome with unity and resistance.” “Those [countries] who have planned the oil price reduction against some countries should know that they will regret it,” he said, without elaborating on what countries he meant.

Saudi crude exports decrease in December -  Saudi Arabia's crude oil exports declined in Decenber by 362,000 barrels per day to 6.934 million bpd from 7.296 million bpd in the previous month, official data showed, Gulf Daily News reported. In December, the kingdom maintained crude oil production little changed at 9.630 million bpd from 9.610 million bpd in November, data published by the Joint Organizations Data Initiative said. However, refineries processed 2.217 million bpd in December, up from 1.809 million bpd in November. Exports of oil products grew to 1.050 million bpd in December from 878,000 bpd in November.

Welcome to World War ThreeKunstler  -- In case anyone didn’t get ISIL’s message from their latest video in which 21 Egyptian Coptic Christians have their heads sawn off, here it is: “We’re executioners, not warriors.” Those gouts of blood spilled on a Libyan beach amount to ISIL’s welcome mat to the mass execution of the Euro-American west. The dignity of a funeral is not even on the program. What we’ve got now with apocalyptic Jihadism spreading clear across the region from Pakistan to Morocco, and Europe blandly ignoring it across the Mediterranean, is an epochal face-off that will change the world. It comes at an odd moment in history, namely as the massive oil wealth of the Middle East and North Africa enters decline. It was that oil wealth that provoked a population spike in a desolate corner of the planet the past century. Now there is a huge over-supply of young men there with nothing to do but act out their angry psychodrama over having no future. When a whole peoples’ prospects for a decent life on Earth dwindle to zero, is it any wonder that they become preoccupied with end-times visions of feasts and virgins awaiting in an after-life? Partly what you’re seeing over there is an internal fight to control what’s left of the treasure. That battle has already had the strange consequence of disabling the oil production capacity in places like Iraq and Libya, where there is still a lot of oil, but not enough political stability to allow the complicated business of extraction and transport to take place.  It’s self-evident now that ISIL would like to control as much of the remaining oil wealth as possible — though I doubt they have the competence to run it for long even if they appear to control the terrain.  The Big Prize, of course, is the grand fortress of Saudi Arabia. The kingdom is surrounded by Islamic maniacs now, with Yemen recently fallen to the south, the ever-hostile Iranian Shi’a across the Persian Gulf, disintegrating Iraq and Syria to the north, and the festering human compost heap of Egypt and then Libya across the Red Sea. And, of course, along the saddle of the Levant there is Israel with all its enemies and problems. Arabia has a new King, 79, rumored to be weak in the head. The oil revenue is way down and the population still grows, and too many young men have nothing to do but marinate in Wahhabist fantasies. If Saudi Arabia falls apart, it’s game over for modern life as the West has known it (and much of Asia now, too).

LNG Tankers Lie Unused Around Singapore as Gas Downturn Turns to Crisis  (Reuters) – Over a dozen liquefied natural gas (LNG) tankers are parked, many idle, in and around Singapore – one of the world’s biggest trading hubs for the fuel – in a sign that the slowdown engulfing world gas markets may be worsening into a crisis. With Asian spot LNG prices down by almost two-thirds since February 2014 as slowing demand combines with rising output, shippers are parking their tankers close to ports like Singapore where unused ships can be easily maintained and serviced until new orders come in. Leading ship brokers estimate over one-tenth of the global fleet of 400 LNG tankers is currently unused because of slowing growth in Asia’s biggest economies. The impact just in Singapore suggests the problem could be worse. “There are currently 30 to 40 (oil and gas) tankers sitting in Singapore, many without anything to do,” said Javier Moret, head of LNG origination at Germany’s biggest power producer RWE during a conference in Singapore this week. According to shipping data on Thomson Reuters, seven tankers have been sitting idle off the east coast of Johor, Malaysia, for over two weeks, and another two ships have been anchored south of Batam, Indonesia, for several months. Half a dozen LNG tankers are in Singaporean docks. The 15 ships have a combined capacity to carry 2.26 million cubic metres of LNG, about two weeks worth of Singapore’s gas demand. For ship owners, idled tankers mean a loss of $60,000 in daily chartering fees per vessel. The gas these 15 tankers can carry would be worth over $200 million in current market terms. Around a year ago, that amount of LNG would have been worth almost $600 million.

Supertankers Speed Up as Oil Prices Fall (Bloomberg) -- The world’s supertankers are moving at the fastest speeds in 2 1/2 years as a collapse in oil prices spurs demand for cargoes and drives up daily returns owners can make from deliveries. Very large crude carriers, each about 1,000-feet long and able to transport 2 million barrels of oil, sailed at an average of 12.57 knots this month, according to data from RS Platou Economic Research, an Oslo-based firm. The fleet, whose steel weight is about 27 million metric tons, last moved that fast in August 2012. Tanker rates have surged amid signals that China accelerated purchases of crude to fill its stockpiles after Brent crude, the global benchmark, collapsed last year. Prices plunged in part because OPEC pledged to keep pumping oil amid a global oversupply.  The ships earned an average of more than $71,000 a day since the start of January, the best start to a year in Baltic Exchange data that begin in mid-2008. “Freight rates are high because there’s a lot of oil trade at the moment,” Frode Moerkedal, an Oslo-based analyst at Platou Markets, an investment adviser linked to the research company, said by phone on Thursday. “OPEC has refused to cut production so there’s more oil being shipped.” VLCC speeds from 14-to-16 Feb. were 6.7% higher than 14-to-16 Nov., according to Platou. The speed for the ships when voyaging without cargoes rose 10% over the same period to 13.31 knots.  The daily average rate to hire a VLCC on the benchmark Middle East-to-East Asia route was $71,772 so far in the first quarter, compared with an average of $47,614 in the fourth quarter, according to Baltic Exchange data. VesselsValue, a London-based firm that provides shipping data, also estimates VLCCs are sailing at the fastest since 2012. The acceleration is in part because falling oil prices have cut fuel costs and made it more profitable for owners to transport cargoes, .

Chinese Oil Re-Stocking Is Over: Inbound VLCCs Drop To 5-Month Lows -- In October 2014, we noted the massive surge (amid a slowing economy) in VLCCs bound for China as they began rebuilding their Strategic Petroleum Reserve, buying the newly low priced crude providing 'artificial' demand not reflective of actual current activity. Crude prices continued to drop and China-bound tankers remained high. But, as Bloomberg notes, this week saw the number of supertankers heading to China drop to 62 - the lowest since September 19th (before China began its restocking efforts) - strongly suggesting that 'artificial demand' has been removed from the global oil market. As Bloomberg reports,The number of supertankers sailing to Chinese ports fell to the lowest in five months in a weekly snapshot of vessel movements compiled by Bloomberg. There were 62 very large crude carriers bound for the Asian country as of about 8:30 a.m. in London on Feb. 20, compared with 63 a week earlier, according to signals from the ships compiled by Bloomberg from IHS Maritime data. That’s the lowest since Sept. 19. The vessels would deliver 124 million barrels of oil, assuming each hauled a standard 2 million-barrel cargo. With production hitting record highs, and demand (at 2 million barrels per inbound VLCC dropping) one could be forgiven for thinking crude prices are set to drop further... and perhaps compress Brent-WTI...

China to crank up oil product exports, add to supply glut – Beijing has raised the initial volume of oil products that Chinese refiners can export this year, potentially adding to a supply glut just as new processing capacity in the Middle East is expected to pressure fuel prices and depress margins. China controls oil product exports through quotas to state-run refiners after assessing domestic needs. This year Sinopec Corp, CNOOC Ltd and PetroChina were given an oil product export quota of 9.75 million tonnes, up about 20 percent from the initial limit set for 2014, industry sources with knowledge of the matter said. The refiners will likely apply for more allowances once they exhaust the initial quotas as they run cheaper crude through the capacity added last year, and the final annual exports are expected to far exceed the opening levels. The first quota limit given to oil refiners in 2014 was for about 8 million tonnes, but by the end of the year China had exported 19.6 million tonnes of gasoline, jet fuel, diesel and naphtha, according to customs data. “With supply running ahead of domestic products consumption, increased exports from China is expected to exert some pressure on the regional cracks,” said Wendy Yong a senior analyst at oil consultancy FGE, referring to the profit margins for processing a barrel of crude into fuel. China added more than 600,000 barrels a day (bpd) in refining capacity last year, bringing the nation’s total to near 14 million bpd. The jump in Chinese exports is also coming just after new export-focused refineries have added 800,000 bpd of capacity at Yanbu and Jubail in Saudi Arabia, putting further pressure on Asia’s cracking profits.  China’s demand growth is slowing, and with its big jump in processing capacity, that would typically mean a boost in diesel exports. But Chinese refiners have started producing more jet fuel and gasoline at the expense of diesel.

China's COSCO Dis-Assembles 8 Ships Amid Glut As Baltic Dry Hits Another Record Low -- You know things are bad in the ship-building business when... amid considerably larger than expected losses, China's COSCO announced that it has dis-assembled 8 vessels in January alone (including 3 bulk carriers) and will be decommissioning and disposing of them as it awaits a "more conducive" environment. It appears that is not coming anytime soon, as The Baltic Dry Index just hit 522 - a new all-time low (down a stunning 53 of the last 55 days).

Chinese home prices fall for ninth month: The average price of new homes in China's 70 major cities fell 0.4% in January from the month before, marking the ninth consecutive decline. Government data showed that prices in the cities of Beijing and Shanghai also fell more last month than they did in December on an annual basis. China's once red-hot real estate market has been facing headwinds from a slowing economy and oversupply issues. Investors have been turning away from the market and investing in stocks. Home prices fell in 64 of the 70 cities tracked by the National Bureau of Statistics. On an annual basis, prices fell 5.1% in January - marking the fifth consecutive month that prices have fallen from a year earlier. The continuing slump comes despite a surprise interest rate cut by China's central bank in November in an attempt to boost growth in the flagging economy.

Chinese Home Prices Suffer Biggest Annual Drop Ever: Why This Matters -- While the world's attention is glued to events in Greece, the real action continues to evolve quietly thousands of kilometers east, in China, where the near record surge in new loans remains unable to offset the dramatic slowdown in shadow banking issuance. And while China's bubble-chasing, animal spirits have recently reoriented themselves from real estate to the stock market, it is the real estate that holds the bulk of China's wealth. The problem here is that as China reported overnight, new-home prices in the world's most populous country just recorded their biggest annual decline ever!

Japan’s Economy Expands, but Less Than Expected - — Japan emerged from recession at the end of 2014, government data showed on Monday, though the economic growth — the country’s first since early last year — was weaker than experts had forecast.In a preliminary report, the Cabinet Office said gross domestic product expanded at an annualized rate of 2.2 percent in the quarter through December. The economy had contracted in each of the two previous quarters, a downturn widely blamed on higher taxes.The return to growth was less decisive than experts had predicted, however, and may fail to erase concerns that the economy remains fragile, despite a two-year stimulus campaign initiated by Prime Minister Shinzo Abe. Economists surveyed by news agencies had forecast an expansion of 3.7 percent on average.Since he returned to power at the end of 2012, Mr. Abe has been trying to inject life into the economy through a set of pro-growth policies known as Abenomics. Much of the work has been carried out by the Bank of Japan, the central bank, which is creating money on a vast scale by buying government bonds and other assets.Photo Economists say 2015 could be a more forgiving year for Shinzo Abe, Japan’s prime minister, with greater demand for exports. And Japan’s cities are looking more affordable to foreign tourists. The economy did not grow at all in 2014, with two quarters of recession almost exactly canceling out two quarters of expansion, according to Monday’s report. Growth in the two years since Mr. Abe began his campaign has added up to a modest 1.6 percent, slightly less than the 1.8 rate recorded in 2012, the year before he took office. But economists say 2015 could be a more forgiving year for Abenomics. Mr. Abe has postponed a second increase in the sales tax, hoping to avoid a fresh blow to consumer confidence.

Economists Negative on Japan GDP - Japan’s growth in the final quarter of last year came in lower than expected, a setback for Prime Minister Shinzo Abe’s bid to boost the economy heading into 2015. Japan’s annualized gross domestic product in the fourth quarter rose 2.2%, compared with expectations of 3.6%. Some of the key metrics comprising that figure—domestic demand, exports and investment—don’t paint a particularly encouraging picture. Here’s a closer look: Demand: Falling crude-oil prices should put more money in the pockets of Japanese consumers. But with wages lagging price increases for 18 consecutive months through December, shoppers haven’t been willing to spend–particularly after a tax increase last April. Private consumption rose by 0.3% last quarter, well below expectations. Mr. Abe and Bank of Japan 8301.TO +2.93%Gov. Haruhiko Kuroda have spent a lot of energy convincing Japan’s corporate executives to pass along record profits (partly thanks to a weaker yen) to employees via wage increases. The fruits of those efforts could come in spring wage negotiations, known as shunto, which are currently under way. But for now, there’s little evidence that companies, especially smaller firms, believe in a bright future for growth. What economists are saying: “I was surprised by how weak household spending was. The economy is recovering; it’s just the pace of the recovery is less than forecast.” Shotaro Kuga, Daiwa Institute of Research

Growth Data Show Signal of Inflation for First Time in 17 Years -- When economists talk about economic growth, they generally adjust the figures for price levels. In the case of Japan, where deflation took root in the late 1990s, that long made the “real” or price-adjusted growth figures look better. Even if the total yen value of goods and services produced in Japan declined, real growth could still be positive thanks to the deflation adjustment. It was the equivalent of an employee being told that her flat paycheck is actually a raise because goods are getting cheaper. The situation changed in 2014, according to government data released Monday. For the first time since 1997, “nominal” growth in gross domestic product–growth before adjustment for prices–outpaced real growth. Prices are reflected in a number called the “deflator.” If it’s a positive number, that means there’s inflation. And in 2014, Japan’s deflator was 1.6%–the first time it was greater than zero since 1997, when it was 0.6%. Granted, much of the increase was caused by a rise in the national sales tax to 8% from 5% in April 2014. (Not coincidentally, 1997 was also a sales-tax increase year.) But many goods, including those that are exported, aren’t affected by the sales tax, and economists say some of the 2014 price rise reflects genuine underlying inflation.

More stimulus expected as Japan exits recession -- Japan's economy limped out of recession in the last quarter of last year, official data showed yesterday, but analysts said the weaker-than-expected growth would likely press the central bank to introduce fresh stimulus measures. The 0.6 per cent expansion in the world's No. 3 economy in October to December - or 2.2 per cent on an annualised basis - follows two consecutive quarters of contraction that came as an April sales tax rise hammered consumer spending. But economists had expected a stronger 0.9 per cent expansion on-quarter, and over the full year the preliminary data showed zero growth, compared with 1.6 per cent in 2013. Revised figures will be released in the following weeks. In contrast, the United States economy grew at its fastest pace in four years last year, expanding 2.4 per cent. "While Japan's economy has finally left the tax-related weakness behind, the increase in (fourth-quarter gross domestic product) fell short of expectations and supports our view that the Bank of Japan (BOJ) will announce more stimulus in April," said Marcel Thieliant from Capital Economics. "Today's result indicates that the BOJ's view on growth is too optimistic, and we still believe that the bank will announce more easing at the late-April meeting."

Japan January Inflation Seen Easing, Factory Output Up Japan's core inflation is seen slowing for a sixth month in January while factory output is expected to rise, underlining the policy challenge facing the Bank of Japan as it strives to speed up economic growth and achieve its 2 percent price target. Stripping out the effects of a sale tax hike, the nation's core consumer price index (CPI) - excluding volatile fresh food but includes oil products - is forecast to have increased 0.3 percent year-on-year last month, a Reuters poll showed.  The Bank of Japan is counting on exports to help offset the still-weak private consumption, and for weak oil prices to spur companies to spend more, helping the economy gather speed after last April's sales tax hike tipped it into recession. The nation's factory output is seen jumping 2.7 percent in January from the previous month, the poll showed. In December, output increased 0.8 percent on-month, after a 0.5 percent fall in November. Household spending is expected to have fallen 4.1 percent in January from a year earlier partly due to bad weather, down for a tenth straight month, the poll showed. And retail sales are set to fall an annual 1.3 percent last month, down for the first time in seven months.

Will Bank of Japan Find ‘CPI Shock’ at Road’s End? -The Bank of Japan has taken some pressure off itself by pushing its self-imposed deadline for generating 2% inflation back to around the middle of 2016–but will it come to regret the new date? That’s just around the time the consumer price indexes will be recalibrated in a way that generally makes inflation look weaker in retrospect.In 2006, for example, the revisions resulted in the “CPI shock”–which was particularly awkward for the central bank. In March of that year, the BOJ had decided to end years of unorthodox stimulus measures, declaring that consumer prices had begun rising “stably.” But a recalibration of the index in August pushed down the core CPI reading for the first six months of that year to an average 0% from a previous estimate of plus 0.5%-0.6%. The core CPI, one of the BOJ’s favorite gauges, excludes volatile fresh food prices. The index is reviewed every five years. The next time will be summer 2016, possibly in August, according to government officials. At that time, the Ministry of Internal Affairs and Communications will change the reference year, update the weight of products within the index based on consumers’ changing tastes and behaviors, and recalculate CPI readings for the first six months of the year. This has led to downward revisions of CPI figures every time, dating to the 1980s, according to data from the ministry.That’s partly because consumers over time tend to increase spending on products that are of acceptable quality but falling in price. When that happens, the government raises the weight of those products in the CPI and corrects its past overestimation of price changes accordingly. The core CPI has been no exception. Downward revisions to the first six months of the year following past reviews include by 0.2 percentage point in 1986 and again in 1991 and 1996, and by 0.3 percentage point in 2001.

Bank of Japan Should Relax Inflation Target, Says Ex-Official --  The Bank of Japan and Prime Minister Shinzo Abe should stop banging the deflation drum now that Japan’s economy is recovering, says a former Bank of Japan executive.“Defeating deflation is a tool to realize a better economy. It’s only a tool, not a target. The target is already achieved,” Nobuo Inaba, who served as the BOJ’s executive director and was once a candidate to lead the bank, said in an interview with The Wall Street Journal.A stronger economy should allow the BOJ to relax its goal of hitting 2% inflation in two years–a goal made extremely difficult by lower oil prices, Mr. Inaba said.A 45% drop in oil prices since mid-2014 has some economists forecasting that Japan’s core consumer inflation rate will fall further in coming months, nearly two years after the BOJ launched a massive easing program in April 2013. On the other hand, lower oil prices look set to propel an economic expansion that started in the final quarter of 2014. “We should get rid of ‘getting rid of deflation,’” said Mr. Inaba, referring to Mr. Abe’s slogan ‘getting rid of deflation.’ “I think we’ve seen now that we can achieve full employment without beating deflation.”

"We're Gonna Need A 4th Arrow" Japanese Manufacturing PMI Misses, Slips To 7 Month Lows - It would appear that monetizing more than 100% of your debt and constant daily reassurances that everything is awesome are not enough to create real world economic growth. Japanese manufacturing PMI slipped to 51.5 in February (missing expectations of 52.2), its lowest since July 2014 as New Orders & Employment slowed. Perhaps most worrying for the deflation-death match Abe is wagering, Output prices tumbled. Japanese stocks don't care of course, having entirely decoupled from JPY when The BoJ scared the FX carry markets with its 'hawkish' bias and 5-4 vote.

Raghuram Rajan curbs bond flows in bid to bulletproof rupee - Central bank governor Raghuram Rajan is curbing access to India’s bond market as inflows make the rupee Asia’s best performer during a global currency war. The Reserve Bank of India (RBI) hasn’t allowed fresh overseas investment in government bonds since it raised the ceiling to $30 billion in 2013. Rajan said 3 February foreign investors can only buy corporate notes maturing in at least three years. Foreign investors have already filled the sovereign debt quota, which aims to prevent hot money from destabilizing the market. The rupee has climbed 1.4% against the dollar this year as global funds pumped $4.5 billion into Asia’s highest yielding investment-grade debt. Rajan said India risks “becoming uncompetitive” as the rest of the world prints money and it needs to have a “bulletproof balance sheet” when US interest-rate increases trigger outflows. “The central bank doesn’t want to open the doors wide to volatile capital flows that will temporarily appreciate the currency and then push it lower once the Federal Reserve starts raising rates,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, said by phone on 12 February. “India needs a weaker exchange rate to be competitive.” The rupee has this year strengthened against 30 of 31 major currencies as central banks from Canada to Australia sought depreciation to fight disinflation. The euro fell to an 11-year low versus the dollar after the European Central Bank (ECB) expanded asset purchases. Singapore’s dollar reached its lowest level since 2010 after authorities sought slower appreciation.

Govt approves construction of 7 stealth frigates, 6 nuclear-powered submarines - The Times of India: In a major step towards building a formidable blue-water Navy for the future, the Modi government has cleared the indigenous construction of seven stealth frigates and six nuclear-powered attack submarines, which together will cost well upwards of Rs 1 lakh crore. The Cabinet committee on security (CCS) took these decisions in tune with the "critical necessity" for India to bolster its "overall deterrence capability" in the entire Indian Ocean Region (IOR), especially its primary area of strategic interest stretching from the Persian Gulf to Malacca Strait. Under the over Rs 50,000 crore 'Project-17A' for stealth frigates, four will be constructed at Mazagon Docks in Mumbai and three in Garden Reach Shipbuilders and Engineers in Kolkata. "The contract will be inked with MDL and GRSE this month itself, with an initial payment of Rs 4,000 crore," said a source. Both the defence shipyards are already geared up for the project because it's a "follow-on" to the three 6,100-tonne stealth frigates built by MDL, INS Shivalik, INS Satpura and INS Sahyadari, which were inducted in 2010-2012.

India clears $8 billion warships project to counter Chinese navy (Reuters) - The government has cleared a $8 billion plan to build India's most advanced warships, defence sources said, just months after ordering new submarines to close the gap with the Chinese navy in the Indian Ocean. Since taking over last year, Prime Minister Narendra Modi has signalled his resolve to build a strong military after years of neglect that military planners say has left India unable to fight a two-front war against China and Pakistan. India's navy has been rattled in recent months after Chinese submarines docked in Sri Lanka, just off its southern coast, underlining the growing reach of the Chinese navy after years of staying closer to its shores. true Modi summoned a meeting of the cabinet committee on security on Monday to approve construction of seven frigates equipped with stealth features to avoid easy detection, a defence ministry source said. The Times of India said the government had also approved six nuclear-powered submarines for a further $8 billion. The defence source said he had no knowledge of the nuclear submarine programme, which traditionally has been kept under wraps. The frigates in a programme called Project-17A will be built at government shipyards in Mumbai and Kolkata, in a boost for Modi's Make in India campaign to build a domestic defence industrial base and reduce dependence on expensive imports that have made India the world's biggest arms market.

HSBC Bank: Secret Origins To Laundering The World's Drug Money -- #SwissLeaks what the media has termed it is a trove of secret documents from HSBC’s Swiss private banking arm that reveals names of account holders and their balances for the year 2006-07. They come from over 200 countries, the total balance over $100 billion. But nowhere has the HSBC Swiss list touched off a more raging political debate than in India. That’s why to obtain and investigate the Indian names, The Indian Express partnered in a three-month-long global project with the Washington-based International Consortium of Investigative Journalists (ICIJ) and the Paris-based Le Monde newspaper. The investigation revealed 1,195 Indian HSBC clients, roughly double the 628 names that French authorities gave to the Government in 2011. The new revelation— published as part of a global agreement — is expected to significantly widen the scale and scope of the ongoing probe by the Special Investigation Team (SIT) appointed by the Supreme Court. For years, when banks have been caught laundering drug money, they have claimed that they did not know, that they were but victims of sneaky drug dealers and a few corrupt employees. Nothing could be further from the truth. The truth is that a considerable portion of the global banking system is explicitly dedicated to handling the enormous volume of cash produced daily by dope traffickers.

India not to cut multi-billion dollar food handout programme - source (Reuters) - India will not scale down its multi-billion dollar food welfare programme that promises ultra-cheap rice and wheat to most of its people despite a high-level recommendation, a top government source said on Wednesday. A panel set up by Prime Minister Narendra Modi last month urged the government to lower the number of beneficiaries to 40 percent from 67 percent as part of efforts to trim the $18.64 billion food subsidy bill that drains stretched state finances. "No way," said the top-level source involved in the decision making. "We're deeply committed to our social welfare programmes, including our food security measures. There is no question at all of cutting down the number of beneficiaries." true The view in the government is that cutting back on the handouts will anger voters ahead of key state elections in poor but politically heavyweight states like Bihar, the source said. Modi's party faced its first election loss in Delhi this month after a winning streak of more than eight months that began with his thumping victory in the general election last May. "Any reduction in the number of beneficiaries will lead to genuine anger among voters," the source said, declining to be named. "We should not been seen deviating from our duty to ensure food security to every single Indian."

Delhi Needs Another Hero - There is something delightful about seeing the chief minister of an Indian state going on protest against his own police force, which is what happened in January 2014 when Arvind Kejriwal, leader of the Aam Aadmi (Common Man) Party (AAP), took charge of the state of Delhi after his party won the elections. Camping out on the streets with his supporters, demonstrating against the police, Kejriwal eventually resigned, his party having governed for exactly forty-nine days. For India’s run-of-the mill political outfits, whether the centrist Congress or the right-wing Bharatiya Janata Party (BJP)—as well as for the servile media that by and large leans right—such a topsy-turvy exercise of privilege was reason enough to describe AAP and Kejriwal as “anarchist.”   Still, almost exactly a year later, Kejriwal and the AAP are back in power in Delhi, this time having won sixty-seven out of seventy assembly seats. It is a remarkable victory margin, especially since the AAP’s principal rival, the BJP, was expected to replicate its success in the national elections in 2014, its Delhi campaign being led by the Indian prime minister Narendra Modi.  Much of the current support for the AAP can be attributed to the party’s economic populism, to the promise of necessities like energy, water and toilets for all, and all this couched in an inclusive language that reaches out to the poor, oppressed castes, religious minorities, and women. (Read the party’s manifesto here [PDF].) In that sense, votes for the AAP were votes against the BJP, both in its elitist economic agenda, and in its understanding of all those outside its core constituency of right-wing, upper-caste Hindu men as enemies and targets, to be increasingly marginalized and controlled if not outright eliminated. Yet it was Kejriwal in particular who exemplified the aspirations of the voters and their desire for a leader who exudes both authority and simplicity.

Indonesia Shrugs Off Inflation Fears in Rate Cut - Indonesia’s central bank unexpectedly cut its policy rate 25 basis points to 7.5% on Tuesday. The bank also cut its deposit facility rate (that is, the rate it pays commercial banks to hold cash) by a quarter percentage point to 5.5%. A net oil importer, lower prices should help Indonesia’s finances. The country’s new president, Joko Widodo, has used cheap oil to eliminate expensive public fuel subsidies, a move applauded by many economists. Scrapping those subsidies pushed some fuel prices up by a third, and led the central bank to raise rates in November to curb inflationary pressure. At first this looked like a good move. Consumer-price inflation rose to more than 8% in December. While oil is recovering somewhat—with Brent is currently around $62 per barrel, up about a third from its January low—it’s still down about 50% since June. The sustained fall pushed inflation down to under 7% in January, and the cut yesterday reverses November’s cautionary quarter-point increase. Indonesia’s central bank isn’t the only one that’s eschewed inflation concerns amid falling oil prices. Last month, lower oil and food prices led the central bank in India, another country that’s faced bouts of high inflation, to cut its key lending rate a quarter of a percentage point in a bid to boost manufacturing and job growth. By saving on fuel subsidies, Indonesia has billions more dollars to spend on health, education and infrastructure. But Indonesia still makes some revenues from oil, gas and commodities, which are suffering from weak prices. Oil and gas exports fell 17% on year in January, and pushed down overall exports more than 8% in the same period.

S&P warns Australia's budget under pressure - Standard & Poor's Ratings Services has backed warnings by Australia's central bank that the federal budget would be vulnerable to a global economic shock, which could put the country's AAA rating at risk. Australia's budget outlook has weakened sharply in the last six months as commodity prices have plunged, said S&P's sovereign analyst Craig Michaels. Sliding prices of coal and iron ore, the country's biggest export, are hurting economic growth, denting corporate profits, driving higher unemployment and eroding government tax receipts. Goldman Sachs recently calculated that Australia could lose A$500 billion ($390.6 billion) in national income in the next decade because of the drop in commodity prices, which includes a 50% drop in iron ore. "If there is a significant external shock, it's very likely that that would have a significant budget impact like it did in the global financial crisis,"  Some of the most pressing concerns include uncertainty over Greece's bailout, which has led to selling of the Australian dollar, and the prospects of a sharp slowdown in China, Australia's biggest regional trading partner.

Unbalanced hopes for the world economy - Why is the dollar so strong? It has soared 25 per cent on a real trade-weighted basis in the past four years, evoking memories of ascents in the early 1980s and again at the turn of the millennium. In the previous cases, the result was a widening of trade and current account deficits. What might be the outcome this time? The answer to the first question is that the US has far stronger demand, relative to potential output, than the other big economies — the eurozone, China and Japan. The answer to the second is that it will impose strong deflationary pressure and weaken demand for US output, making it harder to tighten policy than the Federal Reserve imagines. As Daniel Alpert of Westwood Capital notes: “No economy is an island.” This realisation is what was missing from the analysis of the current state of the eurozone offered last week by Jürgen Stark, a former member of the board of the European Central Bank. He argued: “Germany has reliably pursued a prudent economic policy. While others were living beyond their means, Germany avoided excess.” Yet income and spending has to add up across the world economy. Some can live within their means only because others do not. The prudent depend on the imprudent.  Moreover, what one saw inside the pre-crisis eurozone was the combination of low interest rates with a burgeoning of cross-border net lending. As Michael Pettis of Peking University argues, it is nearly certain that the soaring excess of savings over investment in Germany caused excess borrowing and spending elsewhere. The global economy is an integrated system. Ignoring that reality is futile. At present, among the most important realities is the chronic weakness of private sector demand relative to potential incomes, in important economies.

It's Official: Global Economy Back In Contraction For First Time Since 2012 According To Goldman -- After spending the past year deteriorating with each passing month, as global acceleration dipped decidedly in the negative camp, the only thing that kept the Goldman Global Leading Indicator "swirlogram" somewhat buoyant was that "Growth" measured in absolute terms had remained slightly positive. Not any more: according to Goldman's latest global economic read, the world is now officially in contraction, following a sharp plunge in both acceleration and growth in February.

Shipbuilding Orders Slump As Baltic Dry Hits Fresh Record Low -- For the 56th day of the last 58, The Baltic Dry Index dropped. At 509, this is now down over 65% from the dead cat bounce highs in November 2014 and - yet again - a new all-time record low for the cost of shipping freight. It is no surprise then that, as Lloydlist reports, bulker newbuilding orders slumped in January. When the Baltic Dry tumbled in 2012, the glut of ships then caused a 49% plunge in orders for shipbuilding - as JPMorgan said at the time, "you just have too many yards and too few orders," and given the artificial signals provided by credit-inflated commodities since, we can only imagine the overhang now.

Mexico’s GDP Report Gets an Overhaul -- Mexico’s statistics institute, Inegi, went ahead and changed the style of its gross domestic product release in reporting fourth-quarter GDP Friday, focusing on seasonally adjusted numbers for both quarterly and year-on-year comparisons.  In fact, Inegi gave its release a fairly robust makeover with user-friendly links to relevant databases, which have always been available but weren’t that easy to navigate for the casual visitor to the site.  Fourth-quarter GDP rose 0.7% from the third quarter, nonannualized. Output was up 2.6% seasonally adjusted from the fourth quarter of 2013,  and for the full-year the economy expanded 2.1%, better than 2013’s 1.4% growth. “This process will be gradually applied to most of the indicators … whose numbers require adjusting for seasonality,” Inegi said.

Argentina Nisman death: Hundreds of thousands rally: Hundreds of thousands of people have taken part in a march in the Argentine capital, Buenos Aires, to mark one month since the death of prosecutor Alberto Nisman. The protest was called by federal prosecutors and attended by Mr Nisman's family and opposition politicians. They defied torrential rain to demand justice for Mr Nisman, who had been investigating the government. The prosecutor was found dead in his apartment on 18 January. It is still not clear whether he killed himself or was murdered. Mr Nisman was investigating Argentina's deadliest terrorist attack, the 1994 bombing of the Amia Jewish centre. The silent march was called by prosecutors demanding a full investigation. Suspicious circumstances Mr Nisman's ex-wife, federal judge Sandra Arroyo Salgado, and their two daughters joined the demonstration, which lasted nearly two hours. Similar protests took place across the country.The protesters marched to the Plaza de Mayo, where the presidential palace is located Prosecutors are demanding a full investigation into the death of their colleague Sara Garfunkel, Mr Nisman's mother, took part in the silent march Argentines living in Spain, France, Israel and other countries also gathered to demand justice for Mr Nisman. Officials have denounced the march as a political move to weaken the government. Mr Nisman was found with a bullet wound to the head and a gun was lying next to him. Days earlier, he had published a 300-page report in which he accused President Cristina Fernandez de Kirchner and Foreign Minister Hector Timerman of covering up Iran's alleged role in the bombing.

The “Vultures” are Still Circling Argentina -- Argentina’s infamous “vulture funds”, as the holdout creditors represented by Paul Singer’s NML Capital are affectionately known, are back at their usual antics of trying to claw back from the Argentine government what they (and the US court system) see as rightfully theirs. But these holdouts lost a critical battle last week in the courts of the United Kingdom, where London Judge David Richards ruled that the Bank of New York, rather than Argentina, was responsible for not making payments on Argentina’s bonds issued under UK law. In the eyes of the British court, Argentina has made the payment and the onus of distributing the funds to the bondholders falls on BoNY. This ruling does not obligate the New York bank to process the payment, which would put them in between the rock and the hard place of obeying one court or the other. It does, however, clearly state the opinion that Argentina is most unequivocally not in default. This will allow Argentina to issue debt in the United Kingdom at lower than 10 percent interest by reducing the risk premium investors place on the country. The holdouts continue their onslaught in both the courts of public opinion and the court of the State of California. The American Task Force Argentina (ATFA) group published an “Index of the Enrichment of the Argentine Government” detailing the alleged enrichment by corruption of 14 current and former government members. This report uses public domain tax and official statements, simply presented in a pointed manner that has been decried by Economy Minister Axel Kicillof as “mafia tactics that will not work.”

Russia Creates Its Own Payment System - This is important: Almost 91 domestic credit institutions have been incorporated into the new Russian financial system, the analogous of SWIFT, an international banking network. The new service, will allow Russian banks to communicate seamlessly through the Central Bank of Russia. It should be noted that Russia’s Central Bank initiated the development of the country’s own messaging system in response to repeated threats voiced by Moscow’s Western partners to disconnect Russia from SWIFT. Much of the West’s power comes from our financial hegemony. Our ability to cut people off from loans, payments and so on.  Since this new system is Russian only, it isn’t, right now, that big a deal.But start connecting other countries to it, say China, Iran, India and so on, and it becomes a way of breaking financial blockades.  Include some calculable financial law (less of a challenge than it used to be as New York and London courts make increasingly punitive decisions), and start lending in Yuan (with which one can buy much of what one needs in the world, since the Chinese make so much of it), and you have a fully credible financial system.  The key is to get one major manufacturing country in.  Most of the nations the West is punishing these days, financially, are oilarchies ( Venezuela, Iran, Argentina).  They need the ability to buy manufactured goods.  The obvious country is China.  If China agrees to go in, Western financial hegemony is broken.  Japan could work; India could almost work, and Japan or India have a lot more to gain from it than it might seem (as we watch the Japanese economy implode.)

Russia Dumps $22 Billion in U.S. Bonds to Slow Economy's Slide - Russia jettisoned $22 billion worth of U.S. treasury bonds in December as the Kremlin scrambled for cash to battle a plunging ruble and fund a crisis spending program amid an emerging recession. The sale means that Russia currently holds just $86 billion of U.S. government debt, the lowest level since 2008, according to figures released late Wednesday by the U.S. Treasury Department. Moscow sold a total of $45 billion of U.S. treasury bonds in 2014 as relations with Western governments reached a post-Soviet nadir over the Ukraine crisis. Russian officials have said that they will wind down holdings of U.S. securities and reinvest the money in emerging market economies. "The Central Bank needed cash," December was the peak of Russia's currency crisis as a falling oil price and Western sanctions drove the ruble sharply lower and endangered the country's already shaky financial stability. The Central Bank said in October that it would make about $50 billion available through 2016 to banks via short-term loans in an effort to ease foreign exchange shortages.

Russia Has No Choice But to Continue Gas Route Through Ukraine - Russia's plan to cut out Ukraine as a gas transit route is unrealistic because the European Union will seek non-Russian gas rather than build the links it would need to Moscow's proposed new pipeline to Turkey, industry sources and analysts say. Last year, as violence flared in eastern Ukraine and Moscow faced new sanctions, President Vladimir Putin announced that Russia had axed the South Stream gas pipeline across the Black Sea to Bulgaria, designed to bypass Ukraine and ship gas straight to the European Union. Russia's Gazprom has also said the EU will not receive any deliveries of gas via Ukraine after a current transit contract expires at the end of 2019. Instead of the 63 billion cubic meters (bcm) of gas that Europe was to receive via South Stream, Russia has proposed a new undersea pipeline to Turkey with the same capacity. Known informally as Turkish Stream, its first line of 15.75 bcm a year should be operational by 2017 and supply just Turkey. Gazprom suggested the European Union should build its own link from an as-yet-unbuilt gas hub at the Turkish-Greek border to take some 50 bcm from the new route proposed by Putin — an idea greeted with skepticism in Brussels. "I would be very surprised if companies working with long-term contracts that go well beyond 2019 will just tomorrow swap all their demand to Turkey [from Ukraine] and would be happy to do so,"

New Ukraine Bailout Deal May Mean MultiBillion-Dollar Pain for Creditors -  How much will Ukraine’s creditors have to sacrifice to help keep Kiev afloat? Roughly $13.3 billion. That’s according to the Institute of International Finance, the bank industry group that represented the private sector in Greece’s historic debt restructuring. Earlier this week, International Monetary Fund chief Christine Lagarde unveiled an expanded emergency rescue package to keep Ukraine’s war-torn economy from collapse. The fund chief said some of the $40 billion in financing would come via creditors.The “Ukrainian government …intends to hold consultations with the holders of their sovereign debt with a view to improving medium-term sustainability,” she said. But what Ms. Lagarde failed to clarify is how much of the $40 billion in financing the IMF is assuming will come from the planned bond restructuring, or as the fund put it, “debt operations.”In a new report, the IIF industry group says around $17.5 billion is expected from the IMF. Another $9.2 billion will come from U.S. loan guarantees, low-interest loans and grants from the World Bank, the European Bank of Reconstruction and Development and other major Western economies.“The remainder of the package (or $13.3 billion) is envisioned to come from a PSI exercise with holders of Ukraine’s external debt,” the IIF said, referring to “private sector involvement,” market lingo for a debt-restructuring.Some economists suggest that a Ukraine debt restructuring only needs an extension of maturities and interest rate cuts, rather than a reduction in the face value of Ukrainian government debt. Others say such a debt haircut shouldn’t be ruled out.

Michael Hudson: Has the IMF Annexed Ukraine?  -- Ukraine is going into an IMF program in even worse condition that Greece with its various loans from the Troika in 2010, and we can see how well borrowing more when you were already overindebted worked out for Greece. In addition, this interview with Michael Hudson makes clear that the loan to Ukraine is wildly out of line with IMF rules, making it painfully obvious that this "rescue" is all about propping up the government so it can continue to wage war rather than economic development.

Ukraine – Trapped in Narrative - Ilargi: - This is not going to end well. Not unless we speak up. Not for anyone amongst us. This one will not pass by your door, or mine. We’re approaching decision time. For the world, for your life and mine. It’s time to pick sides. As I said, I’ve talked about this numerous times. I  suggest you read for example 2014: The Year Propaganda Came Of Age. And then realize that the age of innocence is gone. That ‘I didn’t know’ no longer counts for anything. That ‘I’m just trying to make a living’ only goes so far. That your life is not only about you. February 12 seems to have been a busy day. There had been a 16 hour – largely overnight – meeting in Minsk attended by Merkel, Hollande, Petroshenko and Putin. Why Putin was asked to attend – ostensibly representing the Donbass ‘rebels’ – is up for questioning, but he was there. The rebels themselves were not. Not long after the cease-fire was announced, perhaps even prior to it, US Senator Jim Inhofe released photos, which he claimed prove Russian troops are in Ukraine. These were subsequently found to be fake. Like every other single ‘proof’ has been found wanting. Think about that for a second, another second: it’s been a year since Maidan, since Yanukovich was chased out, and still not one piece of ‘evidence’ has been made to stick. Not one. While the US have the most advanced spy technology ever seen on the planet, it has not been able to produce one piece of information, for a whole year, to prove its assertions that Russia provides weapons to the ‘rebels’, sends soldiers to fight in the Donbass, or has anything to do with shooting down a plane. Not one single piece of evidence.

Obama attacks Europe over technology protectionism - European officials have hit back at Barack Obama for suggesting that efforts to restrain Silicon Valley companies on the continent were a form of protectionism. The US president said over the weekend that European scrutiny of companies such as Google and Facebook was driven by the “commercial interests” of the region’s tech companies who struggle to compete with better American rivals. “We have owned the internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests,” Mr Obama said in an interview with technology news site Re/Code. European’s politicians and institutions reacted forcefully to the president’s remarks.  “This point — that regulations are only there to shelter our companies — is out of line,” said a European Commission spokesperson. “Regulation should make it easier for non-EU companies to access the single market,” she went on. “It is in [US companies’] interest that things are enforced in a uniform manner.”  In the past year, Europe’s authorities have made a concerted effort to rein in the power and reach of leading US tech companies, often in response to concerns over US internet surveillance, tax avoidance and commercial dominance.  Google, in particular, has been a target in the region, with an EU competition probe into the search company entering its fifth year. Earlier this month, privacy watchdogs threatened legal action against Google over its implementation of the continent’s new “right to be forgotten” law.

Swiss prosecutor raids HSBC’s Geneva premises - HSBC’s offices in Switzerland have been raided by prosecutors investigating the bank’s past actions in helping overseas clients avoid taxes. Officials acting for the Geneva public prosecutor began to search the premises of the bank’s Swiss arm on Wednesday morning. “We are looking for everything and anything we can find — documents and files,” the prosecutor said. The decision to investigate the bank over allegations of “aggravated money laundering” was taken this week, it added. The prosecutor said the scope of the investigation would affect individuals suspected of having committed or participated in money laundering. The search was carried out by officials under the direction of Olivier Jornot, the Geneva public prosecutor, and Yves Bertossa, prosecutor. The raid appeared to take HSBC by surprise. The first some of the bank’s executives knew of it was when the Geneva prosecutor put out a press release as the raid started. On Wednesday, the bank said: “We have co-operated continuously with the Swiss authorities since first becoming aware of the data theft in 2008 and we continue to co-operate.” The search came 10 days after Europe’s biggest bank by assets was the subject of allegations that it colluded in tax-dodging by clients of its Swiss operation. Last week, HSBC admitted its Swiss private bank may have held accounts for tax-dodging customers in the past. The admission came after account details of more than 100,000 clients, including about 7,000 in the UK, were leaked to the media.

How will the oil crash affect Norway? The shift to an oil-driven economy with a high wage capacity has been a comfortable journey. The journey forward, where the oil service industry must downscale and other trade-exposed industries must grow, will be more challenging.  That’s the short answer, from a recent speech by Øystein Olsen, the governor of Norway’s central bank. Oil has been a windfall that pushed Norwegian living standards far above that of its neighbors. If the windfall has ended, living standards will probably converge through a combination of currency depreciation and wage cuts. So far, that hasn’t happened. In 1971 — when the North Sea oil was just beginning to flow — the average Norwegian was about as poor as the average Greek: Living standards in Sweden were about 50 per cent higher than in its western neighbor, while the average Dane was about one third richer. By 2013 (the latest data, which also happens to be before the crash in the oil price), the situation had reversed — the average Norwegian was 50 per cent richer than the average Swede. The average Greek fared even worse, by comparison: About half of Norway’s total business investment in recent years goes to building and maintaining rigs on Norway’s continental shelf and to maintaining the pipelines that pump the oil from the North Sea to the mainland and the rest of Europe. But this understates the importance of oil to the Norwegian economy, since many Norwegian manufacturers have specialised in building equipment for use by oil drillers in the North Sea and elsewhere.

Spain's 2014 public debt at 98.1% of GDP, exceeds estimates - Spain ended 2014 with public debt at 1.03 trillion euros, equal to 98.1% of GDP and higher than the 97.1% target. The figures were released on Tuesday by the Bank of Spain.  In December debt rose by 10.8 billion euros, a 1.06% increase on the previous month and 7% more than December 2013. Since the beginning of the economic crisis in 2008, Spanish debt has increased from 40% of GDP to 98.1% as of December.

French economy hit by negative inflation - The Local: Prices declined by 0.4 percent in January compared to the same month last year, INSEE said, noting that France has not seen negative inflation since October 2009. The data in France followed similar figures earlier this month that showed prices in European powerhouse Germany also declining by 0.4 percent. The pattern of declining prices in the eurozone is creating a headache for the European Central Bank, which aims to keep inflation "close to, but below" two percent. Last month, the ECB unveiled a massive trillion-euro bond purchase programme to ward off deflation and end stagnation in the eurozone economy. The fall in inflation in the eurozone is linked to the dramatic fall in oil prices, resulting in cheaper petrol -- a key component of many households' spending. But it is also linked to a sluggish economy in the 19-nation zone, with weak demand. Falling prices sounds like it should be positive for consumers and the economy. But economists fear deflation almost as much as rampant inflation because shoppers tend to put off purchases in the belief they may be cheaper in the future. This leads to a spiral of ever weaker demand, slowing the economy and pushing up unemployment.

ECB minutes show low inflation prompted higher QE - European Central Bank officials were worried last month that the risk of crippling consumer-price declines were lurking in the eurozone, prompting them to approve a bond-purchase plan that was even larger than the one that the bank's chief economist had offered for consideration. The region faced "the risk of too prolonged a period of too low inflation," the ECB said in an account of its Jan. 22 policy deliberations released Thursday. "This, in turn, raised the possibility of deflationary forces setting in, which would not permit an attitude of 'benign neglect.' " As a result, most ECB council members approved a EUR60 billion a month bond-purchase program, mostly government bonds, that would start in March and run at least until September 2016. That was higher than the EUR50 billion monthly figure mentioned by ECB chief economist Peter Praet as an option to the full council, would could have run a little longer. "In order to accelerate the impact, there was broad support in favor of some frontloading," the ECB said in the meeting accounts.

French Government Survives No-Confidence Vote -- France's Socialist government survived a parliament no-confidence vote called by opposition conservatives on Thursday after it resorted to a controversial decree to bypass broad opposition to a flagship economic reform bill. Some 234 lawmakers voted in favor of the motion, according to the official vote tally - well short of the 289 votes needed to secure an absolute majority in the lower house of parliament.  The challenge was made after Prime Minister Manuel Valls on Tuesday resorted to a little-used mechanism to push through a package of economically liberal reforms opposed by the left - a tactic widely denounced as anti-democratic.  However the outcome of the no-confidence vote came as little surprise after Socialist leaders said they would eject from the party any lawmaker who joined the censure motion. A Reuters reporter in parliament said no Socialist did so.

No Time for Games in Europe - Yanis Varoufakis — I am writing this piece on the margins of a crucial negotiation with my country’s creditors — a negotiation the result of which may mark a generation, and even prove a turning point for Europe’s unfolding experiment with monetary union. Game theorists analyze negotiations as if they were split-a-pie games involving selfish players. Because I spent many years during my previous life as an academic researching game theory, some commentators rushed to presume that as Greece’s new finance minister I was busily devising bluffs, stratagems and outside options, struggling to improve upon a weak hand.  Nothing could be further from the truth.If anything, my game-theory background convinced me that it would be pure folly to think of the current deliberations between Greece and our partners as a bargaining game to be won or lost via bluffs and tactical subterfuge. The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set. As finance minister of a small, fiscally stressed nation lacking its own central bank and seen by many of our partners as a problem debtor, I am convinced that we have one option only: to shun any temptation to treat this pivotal moment as an experiment in strategizing and, instead, to present honestly the facts concerning Greece’s social economy, table our proposals for regrowing Greece, explain why these are in Europe’s interest, and reveal the red lines beyond which logic and duty prevent us from going.

The BBC Dismisses a Real Greek Economist as a Sexy “Ideologue” --  William K. Black - In its web version, the BBC “News” has you click on a tease titled “Yanis Varoufakis, charismatic ideologue” to access a story dated February 13, 2015 entitled “Profile: Yanis Varoufakis, Greek bailout foe.” Neither the tease nor the title make any sense. Varoufakis is the Greek finance minister. Except, of course, we’re reading this in the BBC, so the description actually reads “Greece’s left-wing Finance Minister Yanis Varoufakis.” Funny, the BBC never describes the head of the ECB as “the ultra-right-wing” economist Mario Draghi or Jeroen Dijsselloem, the Dutch Finance Minister and troika hit man as the “ultra-ultra-right-wing” non-economist. The BBC “profile” is not unremittingly hostile to Varoufakis – it simply refuses to take him seriously. Varoufakis is a highly competent academic economist. His policy views have proven correct, as even the BBC (back-handedly) concedes by calling him Greece’s “Cassandra.” So why does the BBC treat Varoufakis as a sexy leftist and Dijsselboem as the respected spokesperson for the troika even though Dijsselboem is a fanatic ideologue who has caused massive human misery because of the intersection of his inflexible ideology and economic incompetence?

Greece bailout talks: Compromise possible, says Merkel: German Chancellor Angela Merkel has said a compromise is possible in the stand-off with Greece over its bailout terms. But Mrs Merkel told reporters as she arrived for a conference with other EU leaders that "Europe's credibility depends on us sticking to rules". Greece opposes extending its bailout deal, saying it is damaging their economy. On Wednesday, talks with other eurozone members failed to reach an agreement. However both sides said there was still hope for a deal. Eurogroup President Jeroen Dijsselbloem said the talks had been "constructive". The Greek Prime Minister Alexis Tsipras said as he arrived in Brussels for the summit that he was "very confident" a solution could be found to what he called the EU's "humanitarian crisis". Mrs Merkel suggested there was negotiating room: "Europe always aims to find a compromise and this is the cornerstone of Europe's success." If there is not an agreement within two weeks to extend the current bailout then Greece will not be eligible for a €7bn loan and shortly after will run out of money. At the moment there is deadlock. Prime Minister Alexis Tsipras cannot go back to the Greek people if the existing deal is extended.

Deadline for Greek Bailout Agreement Looms - After two steps back and one forward last week, it is crunchtime in the talks over Greece’s finances—and its future in Europe’s currency union. Talks start in earnest at a meeting of eurozone finance ministers in Brussels on Monday night. Any changes to the content or expiration date of Greece’s existing €240 billion ($273 billion) bailout have to be decided by Friday, to give national parliaments in Germany, Finland and the Netherlands enough time to approve them before the end of the month. Without such a deal, Greece will be on its own on March 1, cut loose from the rescue loans from the eurozone and the International Monetary Fund that have sustained it for almost five years.   There have been some positive signs in recent days. After a meeting Wednesday, in which eurozone finance ministers couldn’t even settle on a joint statement on how to proceed with negotiations, Prime Minister Alexis Tsipras agreed Thursday to begin talks with international institutions on what measures his government would be willing to take in return for continued aid. On Friday, officials in Brussels and other European capitals floated a new proposal that could combine demands from Greece’s creditors to extend the old rescue program with a refusal from Athens to do just that. Under that plan, the final €7.2 billion installment of Greece’s old bailout could be sliced into smaller tranches to be disbursed over the coming months in return for different overhauls and budget cuts. “Legally speaking, [such a deal] would have to be an extension” of the old bailout program, one European official said. But, given the changes to the conditions attached to new aid, “if you’re a Greek politician, you can call it a new program or a new agreement.” A German official suggested that adhering to 70%, or even 50%, of the old measures could suffice, given the right mix and broad compliance with the fiscal and economic goals of the old bailout.

This Week Is The Latest Deadline For The Greek Euro Deal And The View From Germany This coming week, Monday in fact when the US is closed for President’s Day, is the latest in the series of deadlines for Greece and the troika to agree on the solution to Greece’s financial woes. For that day is the regular meeting of the eurozone finance ministers and given the failure to get anywhere close to a deal last Wednesday time is beginning to run out. We’ve also got an, umm, interesting view from inside Germany of how the German population views things. One that doesn’t actually accord with what I hear from my own contacts just over the border. Here’s the FT on the next meetingOn Monday, the regularly scheduled meeting of the eurogroup, the finance ministers of countries that use the euro, will take place. Some ministers have said that this is the final deadline for an extension of Greece’s bailout from the EU. Greek prime minister Alexis Tsipras has already rejected the bailout saying that it “was first cancelled by its very own failure and its destructive results”.  The previous meeting on Wednesday night ended in recriminations after a deal could not be struck on a bridge financing deal. The point is that Greece isn’t in any imminent danger of going bust. There’s a few months before they have to start paying back money they don’t have and in which a suitable financing deal could be reached. However, there’s that little part of the eurozone system that keeps the Greek banks financed. In theory, if there’s no agreed extension to the current deal to cover that longer negotiating period then that could be withdrawn at the end of this month. It would be most unkind if it were and my own expectation is that it would only be done if the Greeks were being particularly obdurate. But that is the next seeming deadline, just two weeks away.

Weimar and Greece, Continued - Krugman -- Try to talk about macroeconomics, and you’re sure to encounter accusations that your policies would turn us into Weimar Germany; those wheelbarrows full of cash remain the ultimate bogeymen for many, despite years of being wrong about everything. As some of us have noted, however, there’s a peculiar selectivity in the use of Weimar as cautionary tale: it’s always about the hyperinflation of 1923, never about the deflationary effects of the gold standard and austerity in 1930-32, which is, you know, what brought you-know-who to power.  But that’s not the only piece of Weimar history that has gone missing; there was also the reparations issue, which as I noted yesterday has considerable bearing on the issue of how large a primary surplus Greece must run.  Thinking about this led me to an interesting question. We know that part of the reason large postwar reparations were such an unreasonable and irresponsible demand was the dire, shrunken state of the German economy after World War I. So how does Greece compare? The answer startled me:  Austerity, it turns out, has devastated Greece just about as much as defeat in total war devastated imperial Germany. The idea of demanding that this economy triple the size of its primary surplus is … disturbing.

Weimar on the Aegean, by Paul Krugman -- Try to talk about the policies we need in a depressed world economy, and someone is sure to counter with the specter of Weimar Germany, supposedly an object lesson in the dangers of budget deficits and monetary expansion. But the history of Germany after World War I is almost always cited in a curiously selective way. We hear endlessly about the hyperinflation of 1923, when people carted around wheelbarrows full of cash, but we never hear about the much more relevant deflation of the early 1930s, as the government of Chancellor Brüning — having learned the wrong lessons — tried to defend Germany’s peg to gold with tight money and harsh austerity. But the attempt to levy tribute... — incredibly, France actually invaded and occupied the Ruhr, Germany’s industrial heartland, in an effort to extract payment — crippled German democracy and poisoned relations with its neighbors. Which brings us to the confrontation between Greece and its creditors. ... Greece cannot pay its debts in full. Austerity has devastated its economy as thoroughly as military defeat devastated Germany... Despite this catastrophe, Greece is making payments to its creditors ... of around 1.5 percent of G.D.P. And the new Greek government is willing to keep running that surplus. What it is not willing to do is meet creditor demands that it triple the surplus..., cuts have already driven Greece into a deep depression...What would happen if Greece were simply to refuse to pay? Well, 21st-century European nations don’t use their armies as bill collectors. But there are other forms of coercion. We now know that in 2010 the European Central Bank threatened, in effect, to collapse the Irish banking system unless Dublin agreed to an International Monetary Fund program. The threat of something similar hangs implicitly over Greece..

Ireland takes hard line on Greece austerity programme - Ireland’s unofficial motto used to be Céad míle fáilte — a hundred thousand welcomes. Since the country entered its financial crisis seven years ago, those warm words have been displaced by something more strident: “We are not Greece”. As the commentator Fintan O’Toole noted in a piece for the Open Democracy website recently: “If government ministers and technocrats wore T-shirts, this slogan would be imprinted on those in charge of managing the crisis that hit Ireland in 2008.” Yet as eurozone finance ministers meet in Brussels on Monday to press Greece to seek an extension to its €172bn bailout, Irish ministers seem insistent that Athens complete every last yard of its gruelling austerity programme just as the Irish did. “They’re saying, ‘We’ve done our homework, it wasn’t easy, and part of the homework is keeping Germany happy, and the Greeks are being unrealistic’,” says Tom Healy, director of the Nevin Economic Research Institute. This lack of solidarity with Greece from Dublin is notable. It echoes the position of Spain and Portugal, who also argue that they have taken the hard steps needed to stabilise their economies and fiscal positions, and that there can be no special concessions for one EU member state. It chimes with the government’s insistence — argued most forcefully in parliament this month by Michael Noonan, the finance minister — that Ireland’s enormous sovereign debt, which he said was 110 per cent of economic output last year, is sustainable. The government’s stance has drawn criticism from commentators, economists and opposition politicians. They say Greece deserves more support as a fellow eurozone economy in distress, and that the Irish position is a cynical move to ensure that Greece gets no concessions not offered to the Irish. Michael McGrath, finance spokesman for the opposition Fianna Fáil party, says: “We have been quite dismissive of the Greeks and their predicament — we have done nothing to position ourselves to help them.”

Gap Still Yawns Between the Parties - Weekend talks uncovered a bigger-than-expected gap between the two sides, setting up a difficult stand-off between Yanis Varoufakis, the Greek finance minister, and his eurozone counterparts when they meet on Monday night. Wolfgang Schäuble, Germany’s finance minister, is determined that Athens should stick to its rescue programme as a condition of further financial assistance. Dogged resistance to such demands from Alexis Tsipras, Greece’s prime minister, has seen his poll standing soar at home, with thousands taking to the streets on Sunday in a support rally.   Panagiotis Lafazanis, leader of Syriza’s far-left faction, adopted a less-emollient tone, saying he would not allow his party’s economic plans to be “chopped up, subdivided or split into good and bad”. “If our so-called partners insist on an extension of the current programme in one form or another — the sinful memorandum — there won’t be an agreement,” he said on Sunday. Germany wants Greece to stay in the eurozone, but not at any price.“If we go deeper into the [debt] discount debate, there will be no more reforms in Europe,” said a senior German official. “There will be joyful celebrations in the Elysée and probably in Rome, too, if we go down this path.”  Ahead of Monday’s meeting, Vasileios Gkionakis, global foreign exchange strategy chief at UniCredit bank, wrote to clients: “I think it is fair to say that . . . the irresistible force will be meeting the immovable object.”

Greece, Confident Sticks to No-Austerity Pledge - Prime Minister Alexis Tsipras told Germany's Stern magazine that Athens needed time to implement its reforms and shake off the mismanagement of the past.  "I expect difficult negotiations; nevertheless I am full of confidence," he said. "I promise you: Greece will then, in six months' time, be a completely different country."  "The irresistible force will be meeting the immovable object," Vasileios Gkionakis, head of global FX strategy at UniCredit, wrote in a note.  Greek government spokesman Gabriel Sakellaridis showed no sign that Greece was backing off on its core demand.  "The Greek government is determined to stick to its commitment towards the public ... and not continue a program that has the characteristics of the previous bailout agreement," he told Greece's Skai television. He later said: "The Greek people have made it clear that their dignity is non-negotiable. We are continuing the negotiations with the popular mandate in our hearts and in our minds."

The harsh realities of the Greece-Eurozone game of chicken -- The Greece-Eurozone dispute has received a great deal of attention in the media in recent weeks. It seems however that contradicting statements and polarized views -  many tainted by various political agendas - have created a great deal of confusion around the subject. As the parties resume negotiations this coming week, lets look at what each has to lose if a solution is not reached in time. First of all it's important to point out that the so-called "Grexit" is equivalent to a complete failure to pay on obligations by the Greek government, its banks, corporations, and households. While everyone is focused on the €315 billion Greece owes to the Eurozone, the IMF, and others, the damage to the euro area would actually be much greater. What nobody wants to talk about is the fact that internally most Greek loans - including mortgages - are in euros (some are even in Swiss francs). Greek banks hold €227 billion of loans and €12.4 billion of Greek government debt (plus roughly another €25 - €50 billion of Greek-based private sector bonds). Under a Grexit scenario, most debt (including government debt) will be converted to the new drachma at a preset exchange rate.  As the drachma collapses - and there is little question that it will - Greek banks, who would now have drachma assets and euro liabilities, will quickly fall as well, leaving the Bank of Greece holding the bag. The Bank of Greece which is currently part of the Eurosystem will therefore default upon exit. But before it exits, the Bank of Greece will draw on Target2 from the rest of the Eurosystem as Greeks quickly move their deposits out (see how the mechanism works here with the Bank of Spain example). And there is no question Greeks will try to move a great deal of their deposits out before they are converted to drachmas. In December alone they pulled €4.6 billion euros out of Greek banks - and that's before the Syriza victory.  The default by the Bank of Greece could cause even more damage to the system than the losses to EFSF and to other entities such as the IMF. Between the government bonds the Eurosystem holds and the Target2 losses, the ECB may need to be recapitalized - a political disaster. Market anxiety alone could push the euro area back into recession as credit conditions tighten again (potentially similar to the Lehman situation). In the long run, if Grexit becomes a reality, the whole EMU could become unstable. History certainly isn't on the euro area's side.

Yanis Varoufakis: No Time for Games in Europe - The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set. As finance minister of a small, fiscally stressed nation lacking its own central bank and seen by many of our partners as a problem debtor, I am convinced that we have one option only: to shun any temptation to treat this pivotal moment as an experiment in strategizing and, instead, to present honestly the facts concerning Greece’s social economy, table our proposals for regrowing Greece, explain why these are in Europe’s interest, and reveal the red lines beyond which logic and duty prevent us from going. The great difference between this government and previous Greek governments is twofold: We are determined to clash with mighty vested interests in order to reboot Greece and gain our partners’ trust. We are also determined not to be treated as a debt colony that should suffer what it must. The principle of the greatest austerity for the most depressed economy would be quaint if it did not cause so much unnecessary suffering.

Greek rebellion greeted by left and right as 'kick in the ass' for Euro elites - Angela Merkel's insistence that austerity economics must be implemented to the letter across swathes of Europe is creating a most lethal form of risk - political risk. It threatens not just the political systems and office holders of those countries that earn her displeasure. It threatens the holders of investment capital as well.In Ireland, the old 'two-and-a-half party' system has collapsed. Fine Gael, Fianna Fáil and Labour together rate just over 50pc in the polls. The word Syriza is an acronym meaning 'coalition of the radical left.' The party is an amalgam of 20 or more mainly far-left splinter groups. As a reaction to poverty, corruption and mismanagement, Syriza is no isolated case. In Italy, the Ferrari-driving comedian Beppe Grillo's populist Five Star Movement was founded in 2010 and became Italy's biggest party in 2013. In Spain, Podemos ('We Can'), founded in 2014, is currently at 28pc in the polls, well ahead of the ruling Popular Party at 21pc. The convulsive change is not confined to the Left. In Greece, the neo-fascist Golden Dawn has 15pc support. In Austria, the Freedom Party has 20.5pc, broadly similar to Belgium's Flemish Block. In liberal Holland, Geert Wilders' Party for Freedom is the fourth largest. Add in the True Finns at 19pc, Hungary's Jobbik at 17pc and France's Front National and you have a dangerous political mixture. In France, the FN's Marine Le Pen told 'Le Monde' she welcomed the ascent of Syriza: "I do not agree with their whole programme, but I welcome their victory." The Greek vote has been described as 'kick up the ass' for the Euro elite. In Britain, UKIP leader Nigel Farage said that the Syriza vote was a desperate plea for help from the Greek people.

German economic policy is hurting Europe, the world, and itself - FROM Washington to Athens, politicians and economists who often have little in common all agree that Germany under Chancellor Angela Merkel is largely wrong about economic policy. Germany's apparent economic strengths--the lowest unemployment in two decades; steady, if low, growth; a balanced federal budget--mask weaknesses and policy errors, they say. A first mistake is to insist that troubled euro-zone countries such as Greece not only make structural reforms to their economies, but simultaneously cut spending and borrowing (depressing demand). But a second is domestic. Given low interest rates, now would be a golden opportunity to borrow and invest more at home, boosting the economy and providing a Keynesian stimulus to the entire sluggish euro zone. Instead, Germany is investing less than in the past and less than most other countries (see chart). The EconomistRaising investment could also deal with another imbalance in the German economy: its current-account surplus, the largest in the world, which has just set another record in 2014 of EUR220 billion ($250 billion), over 7% of GDP. By definition, this surplus measures the excess of savings over investment. Invest more, and the surplus would shrink or even disappear. Such thinking has fans even in Germany. Marcel Fratzscher at the German Institute for Economic Research in Berlin thinks that German strength is an "illusion" given its large "investment gap". Public investment in Germany--shared by the federal, state and local governments--has fallen from 6% of GDP in 1970 (in the West) to 2% now. Roads, bridges, broadband internet and much else could do with more money.

Greek Exit Worst Option, Says Bailout Fund Chief -  A Greek exit from the eurozone would be the worst of all options for everybody involved, the head of the European bailout fund said in a televised interview aired Sunday, signaling willingness to compromise over some conditions that have been linked to the country's existing bailouts. The comments come a day before a crucial meeting of eurozone finance ministers in Brussels, where officials will aim to lay the foundation of a financing deal for struggling Greece, whose existing bailout expires at the end of February. An exit from the eurozone would be "the most expensive solution both for Greece and for the euro area," said Klaus Regling, the head of the European Stability Mechanism, in a transcript of an interview with German broadcaster Phoenix. "That's why we try to prevent precisely this." Greece's new leftist government wants to end the austerity course and reduce the country's debt burden, and is refusing to complete the existing bailout program. Instead of extending its current program, Athens wants a bridge arrangement to keep it afloat until September while it negotiates less onerous terms for long-term assistance.

Greece risk eclipsed as stimulus fosters greed in Europe's credit markets: The battle between fear and greed in Europe’s credit markets is over as Mario Draghi’s quantitative easing ensures that not even the threat of a Greek exit from the euro is endangering risk appetite. European companies have issued $21 billion of junk-rated bonds in a record start to the year, while UBS Group AG joined a surge in issuance of the riskiest bank bonds with a debut sale, according to data compiled by Bloomberg. Demand for high- yielding assets has pushed junk borrowing costs to a five-month low, handing investors the best year-to-date returns in three years, Bank of America Merrill Lynch index data show. The European Central Bank’s plan to buy at least 1.1 trillion euros ($1.3 trillion) of bonds is sheltering markets from the potential consequences of Greece failing to reach an agreement with its international lenders. While Europe’s finance ministers meet Monday to discuss the country’s aid, credit markets suggest investors are reassured they will be shielded, whatever the outcome. “If investors were really concerned about a Greek stress point, the new-issue market would be closed across the board,” said Luke Hickmore, the Edinburgh-based senior investment manager at Aberdeen Asset Management, which oversees about $504 billion. “The market seems quite happy sailing on without being too concerned about a Grexit because people expect the ECB to stem contagion.”

Greece defies creditors, seeking credit but no bailout (Reuters) - Talks between Greece and euro zone finance ministers over the country's debt crisis broke down on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as "unacceptable". The unexpectedly rapid collapse raised doubts about Greece's future in the single currency area after a new leftist-led government vowed to scrap the 240 billion euro ($272.4 billion) bailout, reverse austerity policies and end cooperation with EU/IMF inspectors. Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said Athens had until Friday to request an extension, otherwise the bailout would expire at the end of the month. The Greek state and its banks would then face a looming cash crunch. How long Greece can keep itself afloat without foreign support is uncertain. The euro fell against the dollar after the talks broke up but with Wall Street closed for a holiday, the full force of any market reaction may only be felt on Tuesday. The European Central Bank will decide on Wednesday whether to maintain emergency lending to Greek banks that are bleeding deposits at an estimated rate of 2 billion euros ($2.27 billion) a week. The state faces some heavy loan repayments in March.

Eurozone's Greek talks collapse early - A high-stakes meeting of eurozone finance ministers over the future of Greece's bailout unexpectedly broke down early in deliberations after Athens angrily objected to a proposal that it continue with the terms of its current €172bn bailout, calling it "absurd" and "unacceptable". The draft text, obtained by the Financial Times, states that Greece would agree to a six-month "technical extension" of its current bailout, which Athens has long viewed as a red line, Peter Spiegel reports in Brussels. "This would bridge the time for Greece authorites and the Eurogroup to work on a follow-up arrangement," reads the statement. Shortly after Athens issued its angry objections, EU officials said the eurgroup meeting broke up after less than four hours of deliberations. The two-page draft, labelled "preliminary and confidential", reads that Athens would "successfully conclude the programme, taking into account the new government's plans" and promised the "best use of the existing flexibility in the current programme". A Greek government official said the statement was a "radical withdrawal" of an understanding Alexis Tsipras, the Greek prime minister, had reached with Jeroen Dijsselbleom, who chairs the committee of eurozone finance ministers. The official added that those who wanted to continue to press Greece to accept the current bailout were "wasting their time", adding that under the circumstances, "there can be no agreement today." Eurozone officials said they were deliberating whether it was worth reconvening later in the week.

Eurogroup Talks Terminated; Greece “Won’t Take Orders on Bailout” -  Yves Smith - As we indicated, we were doubtful that a deal with Greece on its bailout could get done, since if nothing else the two sides had irreconcilable positions on structural reforms. That was one of the biggest reasons for Greece rejecting the idea of extending the current bailout, that they did not want the strings attached, such as continued privatizations and further "progress" on labor-crushing market reform. The only way an agreement could have been reached would have been for Greece to capitulate on these issues, which seemed unlikely given how Syriza had risen to 80% approval ratings in the polls based on its Troika-defying stance. So it is not surprising to learn that the bailout talks are over, with no agreement reached. But what is suprising, and not encouraging, is that if anything the Eurogroup hardened its stance against Greece and expected it to capitulate.

Greece Bailout Talks Collapsed in Acrimony - A crucial meeting of eurozone finance ministers over the future of Greece’s bailout broke down in acrimony after Athens angrily rejected the bloc’s insistence that it extend its current €172bn rescue as “absurd” and “unacceptable”.  It is the second time in five days that negotiations between the new anti-austerity Greek government and its eurozone creditors have collapsed and it means Athens, whose public finances are deteriorating fast, could soon be left with no European financial backstop.  The eurozone gave Athens until Wednesday night to reverse course. Jeroen Dijsselbloem, chairman of the eurogroup of finance ministers, said the time available for a Greek request was almost out: “We can use this week, but that’s about it,” he said. “There was a very strong opinion across the eurogroup that the next step has to come from the Greek authorities,” he added. Monday’s talks collapsed when Yanis Varoufakis, Greek finance minister, strongly objected to a draft statement according to which Athens would drop its fierce opposition to prolonging its bailout. Mr Dijsselbloem said holding another finance ministers this week to discuss Greece was contingent on a request for a bailout extension from Athens. He added that he had spoke with Donald Tusk, president of the European Council, and that Mr Tusk had no intention of calling a summit of eurozone heads of government.

In NYT Op-Ed, Yanis Varoufakis Says Greece Is Not Bluffing, "Will Not Cross Red Lines It Has Drawn" -- With only a few short hours until the process of everyone's cards being revealed in Brussels begins, it is once again Greece' turn to remind the other players on the table that no matter the quality of cards it has, it is not bluffing. Which is precisely what anyone bluffing would say.  In a just released Op-Ed in the NYT (were there no European newspaper willing to accept the Greek finance minister's Op-Ed one wonders that he had to go all the way to the bastion of the left... in the United States) the new Greek finance minister says that not only is he not bluffing adding "that I have no right to bluff", but using recent military jargon says that "the lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff."

Redlined Comparison Of The Eurogroup Draft Varoufakis Was Ready To Sign, And The Draft He Rejected - Just like last week, the reason for the bitterly acrimonious collapse of today's Eurogroup attempt to resolve the Greek crisis, was in the wording of the proposed final Eurogroup draft. And, just like last week, while the Greek FinMin was initially willing to sign a specific draft (in this case penned by Moscovici), it was subsequently revised to a draft which Varoufakis threw up all over, leading to a premature end of today's discussions, one which for the second time in a week prevented the Eurogroup from even issuing a joint statement.  So what exactly was the reason for the Greek disagreement?  Now that both the acceptable, pre-revision (source), and rejected, post-revision (source) texts are available, we can find precisely which inserted and deleted words resulted in a surge in the Greek's blood pressure. Presenting: the red-line (or rather blue-line) comparison between the two drafts, none of which was ultimately signed by anyone. Some of the key variations:

  • the addition that the Greek authorities "intend to successfully conclude the programme taking into account the new government plans", something which when listening to the Varoufakis presser was clearly not the case.
  • the addition that Greek authorities will commit to "refrain from unilateral action"
  • the addition of specific reform parameters including "tax policy, privatisation, labour market, financial sector and pensions"
  • the addition of a Greek commitment (not agreement) to guarantee (not ensure) "debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement."

Varoufakis Charges Eurogroup with Bad Faith Dealing in NegotiationsYves Smith -- You must watch the press conference with Yanis Varoufakis. In the nicest possible manner considering the circumstances, he describes how he was presented with a memorandum prior to the Eurogroup meeting that he found acceptable and was presented with a different and unacceptable memo, at Eurogroup head Jeroen Dijsselbloem’s instigation, at the top of the session. I don’t see Varoufakis as insinuated what Mason attributes to him, but it is certainly a logical inference that the Germans were behind this stunt. Varoufakis clearly considers Djisselbloem messenger boy, and this attack on him is subtextual attack on German duplicity— Paul Mason (@paulmasonnews) February 16, 2015 Varoufakis reiterated he’d be happy to sign the older memo or a reasonable variant of it any time. He also does an impressive job of staying upbeat and on message under what have to be trying circumstances.  I suspect we’ll get some sort of rebuttal. But the fact that Varoufakis said repeatedly that he’d sign the older version of the memo would seem to undercut a Eurogroup defense. 

Greece Does Battle With Creationist Economics: Can Germany Be Brought Into the 21st Century? -- Dean Baker - Europeans have been amused in recent weeks by the difficulty that Republican presidential candidates have with the theory of evolution. But these cognitive problems will only matter if one of these people gets into the White House and still finds himself unable to distinguish myth from reality. By contrast, Europe is already suffering enormous pain because the people setting economic policy prefer morality tales to economic reality. This is the story of the confrontation between Greece and the leadership of the European Union. The northern European countries, most importantly Germany, insist on punishing Greece as a profligate spender. They insist on massive debt payments from Greece to the European Union and other official creditors to make up for excessive borrowing in prior years. The current program requires that Greece's tax revenues exceed non-interest government spending by 4.0 percent of GDP, the equivalent of $720 billion a year in the United States. This money is pulled out of Greece's economy and sent to its creditors. Making matters worse, because Greece is locked into the euro at present, it is not able to regain competitiveness by lowering the value of its currency relative to the richer countries in Europe. The result of the German program for Greece has been an economic downturn that makes the Great Depression in the United States look like a bad day. Seven years after the start of the downturn Greece's economy is more than 23 percent smaller than its peak in 2007.  On its current path Greece will be lucky if it returns to its pre-crash GDP by the middle of the next decade, 20 years after the crash.

Greek crisis talks collapse in acrimony as Syriza defies EMU - Greece is on a collision course with the eurozone’s creditor powers after emergency talks ended in acrimony on Monday night, triggering the most serious political crisis since the launch of the euro.  The Leftist Syriza government reacted with fury to eurozone demands that it must stick to the country’s discredited austerity plan, describing the draft text as “absurd and unacceptable”.  Yanis Varoufakis, the Greek finance minister, said Eurogroup finance ministers had ignored a deal already agreed with the European Commission for a four-month delay and a “new contract for growth”, returning instead to old demands. "The only way to solve Greece is to treat us like equals; not a debt colony,” he said, predicting that EU authorities would soon have to withdraw their latest “ultimatum”.  The talks were halted after four hours of stormy exchanges, risking a traumatic showdown that could precipitate the biggest default in world history and force Greece out of the euro by the end of the month.  Mr Varoukais said Syriza had won a landslide vowing to overthrow the EU-IMF troika memorandum and could not betray Greek democracy. "It would be an act of subterfuge to promise our partners that we will complete a programme we were elected to challenge."

Greece bailout: Varoufakis 'willing' as talks collapse: Greece's Finance Minister Yanis Varoufakis declared he was ready to do "whatever it takes" to reach agreement over its bailout after the collapse of talks with EU finance ministers. Mr Varoufakis spoke after Greece rejected an EU offer to extend its current €240bn (£178bn) bailout, a plan he called "absurd" and "unacceptable". He said he was prepared to agree a deal but under different conditions. But the Dutch finance minister said there were just days left for talks. Jeroen Dijsselbloem, who chairs the Eurogroup of finance ministers, said it was now "up to Greece" to decide if it wanted more funding or not. "My strong preference is and still is to get an extension of the programme, and I think it is still feasible," Mr Dijsselbloem told a news conference after the talks collapsed. Greece's current bailout expires on 28 February. Any new agreement would need to be approved by national governments, so time is running out to reach a compromise. Without a deal Greece is likely to run out of money.

Negotiation Breakdown Exposes Widening Rift Between Germany and GreeceYves Smith - As negotiations between Greece and the various members of the Troika continue, one of the things that has been striking is how, virtually without exception, media stories, financial commentators, and interested and reasonably well informed observers continue to maintain that a deal will get done by the 28th (which is allegedly now by this Friday at the absolute outside given the need for parliamentary approvals. As we’ll discuss, that confidence flies in the face of available evidence, in terms of the trajectory of the talks and the manner in which the latest Eurogroup session fell apart on Monday. Mind you, I am not saying a “deal” of some sort will not eventually get done. But looks increasingly improbable that an agreement to finesse an extension of the current Eurozone bailout will come together. That does not mean that other options to throw Greece a financial lifeline are foreclosed. But let’s understand where things stand now: based on the current, clear positions of both sides, there is no negotiating solution space. Their bargaining positions do not overlap.   And not only has neither side moved much, the German actions yesterday were tantamount, Mafia-style, to making a less attractive offer than the one tabled by the Eurogroup and rejected by Greece last week. Greece was supposed to get the message that this was an offer that they were in no position to refuse. So while external forces might lead the principals to modify their stances, there is no reason to see the odds favoring getting a deal done. For a longer-form recap of the events of yesterday, see Paul Mason of the BBC, Ambrose Evans-Pritchard of the Telegraph, and our posts yesterday (here and here).

Is Greece really going to leave the eurozone? -- No one knows.  Nor should you react too much to the latest headline or tweet.  The further apart the various parties appear to be, the more the whip of concession gets cracking.  The closer to an agreement they may seem, the greater the incentive to play hardball and demand further concessions.  So short-run news reports are hard to interpret, don’t obsess over them.  A given swing very often implies a counter-swing in the opposite direction, even if the latter has not yet made a headline.  So the direction of the last-reported swing just doesn’t contain that much information. We won’t know until the proverbial “fat lady” sings, namely deposits leave the country at a critical pace, or not, or the ECB cuts off Emergency Liquidity Assistance, or not. So why, then, do I believe that Greece will leave the eurozone?

  • First, I do not see that (most) extant commentary is properly accounting for the very recent fiscal collapse of the Greek economy.  I am not sure there is any fix, and the expression “failed state” comes to mind.  The momentum here does not seem to be positive.
  • Second, I do not assume Syriza — whom I have called The Not Very Serious People — have a coherent bargaining strategy at all.
  • Third, I believe we as observers tend to overestimate the permanence of trends/state of affairs which have lasted ten to fifteen years or more.  That included the Great Moderation and that also includes Greece in the eurozone.  In a broader historical perspective, the arrangement simply doesn’t make sense to me, as there is more than one Europe.  So I am willing to predict its end. 
  • Fourth, I still don’t think enough commentators are stressing how much the creditor eurozone countries see this as a nested game, where concessions to Greece would have to imply larger concessions elsewhere and embolden Podemos in Spain.
  • Fifth, it is hard to see Greece being in truly safe territory for the next few years to come, even if a handy bargain is dispatched over the next day or two.

"In The End Capital Controls Will Probably Have To Be Imposed" - Eurogroup Official - One thing is becoming clear: Greece will almost certainly not last until the proverbial D-Day on February 28 before it either i) runs out of money, ii) is forced to sign a "bailout extension" deal with the Eurogroup thus crushing its credibility with the people, or iii) exits the Eurozone. Needless to say, two of the three above options are very unpleasant for Greek savers, assuming any are left. And it is those savers that the Eurozone is directly targeting when it does everything in its power to provoke a bank run with statement such as these: "The situation of the banks is getting more and more difficult every day," said a European official. "In the end, in order to safeguard the banking system, capital controls will probably have to be imposed."

European blue-chip bond yields slip into negative territory (Reuters) - Bonds issued by European blue chips such as EDF, Nestle and Royal Dutch Shell have slipped into negative-yield territory as investors seek refuge from sub-zero central bank rates. While this for now is only indicated by secondary market prices, some investors believe it is only a matter of time before companies actually issue bonds at negative rates. true "I think we are bound to get to negative (transaction) yields eventually on these companies," said Yannick Naud, an independent London-based fund manager. "Investors are having to choose between a bank deposit rate that is negative and a company rate that is slightly less negative. The company may be the better credit risk, particularly if it is AAA-rated." The European Central Bank's monetary easing measures - including a deposit rate at -0.2 percent and a pledge to buy 1 trillion euros of bonds - have turned bond markets on their head, with investors seemingly willing to pay for the privilege of lending to the most trusted borrowers.

Comparative Austerity - Paul Krugman - Kevin O’Rourke is angry at the Irish government for self-righteously lecturing Greece on the need to suck it up and be austere like the Irish. Indeed. Here’s a different comparison: Greece has done a lot more austerity than those countries cited as supposed success stories (which is another issue — success being defined as “not total collapse, and slight recovery after years of horror” — but that’s a different story). And as Kevin says, the Irish government is acting against its own citizens by beating up on Greece.

Grexit doesn’t have to be the end of the Euro - There has been a continual flow of text in the Eurozone crisis based on this idea:  if Greece goes, this is the end of the Euro.  Because of that, the Eurogroup will step back from the brink and make the necessary compromise, provide Syriza with the financing it needs with less or no conditionality, and Grexit will be avoided.  Robert Peston repeats this idea as a near certainty in his blog today on the BBC website.  He had a go repeating it on the Today program, but, mysteriously, the line was cut before he got going.  (Coincidence, or intervention by Schauble?  You decide). This idea is greatly overplayed. Greece is a very small country.  It’s too small and different to learn any kind of lessons about how the large, troubled countries would be dealt with.  Those being Spain, Italy, even France.  I’d say that the Germans would not be able or willing to finance any of those countries on their own, or together.  They are too large.  Greece staying or going does not change that calculus, because it doesn’t change the size of that potential bail-out. What about the smaller countries:  Portugal, Ireland, Cyprus, Belgium…?  Would Eurogroup want to avoid suggesting that there could be exits of those countries?   Yes, but not at any cost:  the moral hazard argument weighs just as heavily.  The choice may between an exit, or [entering Eurogroup minds here] throwing good money after bad, and then exit.

Greece’s Syriza Deserves the Benefit of the Doubt - The current discussions between the new Greek government and its euro area partners have raised many questions and comments on Greece’s debt level and the need for debt cancellation measures. The goal of this note is to suggest that greater importance should be given to economic growth than to debt cancellation. A decision to restructure the debt would have almost no impact on Greece’s underlying budgetary position in the short to medium term because the debt service paid by Greece on its debt is modest. A write-off of some debt would be a symbolic victory for the Greek government, but the morning after, it would be facing the same economic challenge as today. Syriza should therefore accept to start negotiating without requiring a commitment to debt cancellation. For their part, euro area finance ministers should make a concession by accepting to engage discussions on a new program rather than requiring that the new Greek government sticks to the current program as a condition for further assistance. This requirement, if maintained, would place Syriza in a very difficult situation, which could trigger a crisis and open the exit door from the euro area. Instead, Greece’s partners should give the Greek government a chance to demonstrate its seriousness to negotiate a sound reform program. In the meantime, the Greek government should avoid taking policy measures that could be seen as being provocative by other euro area members. And steps should be taken to ensure that Greece has the funding necessary to avoid a default of payment. This is an urgent matter given that Greece’s current program expires at the end of February.

Mathew D. Rose: Greece – It’s a Revolution, Stupid!  - As Greece's struggles to secure relief from impossible-to-pay-debt that served to prop up otherwise insolvent French and German banks, and to be permitted to implement measures to reduce distress and restore growth, more and more observers are recognizing that this is really a struggle over democratic self-control versus rule by an unaccountable technocracy with inflexible rules, using finance as their enforcement weapon. This speech in the European Parliament today by UKIP leader Neil Fararge echoes some of the themes of Mathew Rose's post. Rose also explains how the many Germans justify the counterproductive destruction of a society that they have turned into a vassal state.

Greece to try for loan extension from eurozone: Wednesday to the Eurogroup a request for a six-month extension to its loan agreement with its creditors, sources close to the negotiations between Athens and the eurozone told Kathimerini Tuesday. While the request from Athens could help the two sides overcome the impasse reached at Monday’s Eurogroup, the fact that Greece will purportedly ask to extend its loan agreement rather than its program could lead to complications. The Greek side is apparently willing to agree to a moratorium on any steps that could affect the country’s fiscal targets and is ready to discuss other measures but is not willing to adopt the terms of the existing bailout. The proposal is due to be sent to Eurogroup chief Jeroen Dijsselbloem this morning and the Dutch finance minister will decide if it merits calling an extraordinary meeting of eurozone finance chiefs for Friday. A European Union official told Kathimerini’s Brussels correspondent Eleni Varvitsioti that the problem with Greece asking for an extension of its loan agreement and not the terms that come with it may create problems in parliaments such as Germany’s, which have to approve the prolongation of the agreement. Dijsselbloem suggested after Monday’s Eurogroup that existing program measures could not be scrapped without the approval of the European Commission, European Central Bank and International Monetary Fund but that the eurozone would be open to discussing their replacement with other measures. He also called on Greece not to take any unilateral steps.

Greece to submit loan request to euro zone, Germany resists (Reuters) - Greece will submit a request to the euro zone on Wednesday to extend a "loan agreement" for up to six months but EU paymaster Germany says no such deal is on offer and Athens must stick to the terms of its existing international bailout. The move, confirmed by an official spokesman, is an attempt by the new leftist-led government of Prime Minister Alexis Tsipras to keep a financial lifeline for an interim period while sidestepping tough austerity conditions in the EU/IMF program. An EU source said whether finance ministers of the 19-nation currency bloc, who rejected such ideas at a meeting on Monday, accepted the request as a basis to resume negotiations would depend on how it was formulated. A spokesman for the Eurogroup said no request had been received so far. Hardline German Finance Minister Wolfgang Schaeuble poured scorn on the Greek gambit, telling broadcaster ZDF on Tuesday evening: "It's not about extending a credit program but about whether this bailout program will be fulfilled, yes or no." However, German Economy Minister Sigmar Gabriel, leader of the Social Democratic junior partners in conservative Chancellor Angela Merkel's coalition, welcomed what he called the signal from the Greek government that it was ready to negotiate.

Greece Wants to Save Europe, but Can It Persuade Europeans? - Pavlina Tcherneva - Most analysis of the Greek debt crisis ignores an important reality: While Greece may be the villain du jour, every eurozone nation is profoundly short of cash. That’s because of a well-acknowledged, but not fully appreciated, flaw at the heart of eurozone financial architecture that converted a historically unprecedented number of nations from issuers of their own currency to users of a common currency. Greece is simply the first country to experience the extreme consequences of that loss of monetary sovereignty. With no independent source of funding, no currency of its own, no central bank to guarantee its government liabilities, it has had to ask others for help. And as a condition for securing that help, Greece has until now been forced to consent to radical austerity policies. As an analogy, consider a United States with a common currency but no Treasury to conduct macroeconomic policy, stabilization or stimulus spending. Imagine also that the Federal Reserve was banned by law from guaranteeing U.S. government debt. And imagine that one state, say, Illinois (think Germany) was the major net exporter, accumulating dollars (euros) while most other states (as is the case in the eurozone) were net importers, thereby bleeding dollars (or euros). Finally, imagine Illinois providing a loan to cash-strapped Georgia (think Greece), dictating that it implement slash-and-burn privatization of public assets and drastic cuts to state payrolls, pensions and other essential programs. This, in essence, is the situation in the eurozone today. But Greek voters last month rejected continuation of an austerity program that has plunged their economy into depression, voting in a government determined to break out of the current terms on which Greece gets help from the Troika.

ECB Could Pressure Greece by Refusing to Increase ELA (Update: Small Increase Approved) - Yves Smith - As we indicated, we’ve thought the ECB was unlikely to end the ELA as a way to force Greece to capitulate, since it would be too obvious a move to take down the Greek banking system, and would also have the effect of telling depositors in any European debtor state that their money was not safe in a domestic bank. That over time is a way to precipitate bank runs. But we also pointed out that the board, which rotates at the ECB, had a particularly Greece-unfavorable mix this time. And while more extreme measures, like imposing conditions on the ELA, requires a 2/3 vote, the decision to increase or not increase the size of the facility take a mere majority vote. So if the bloody-minded board members refuse to honor Greecee’s request to increase the backstop during the board meeting today, it would constitute a serious step to try to force Greece to capitulate. However, most experts believe this would be such a radical step as to be unlikely. And the board mix for each of the two ECB sessions in March is much Greece-friendly.  From ekthimerini: European Central Bank policymakers debated on Wednesday whether to allow more emergency funding for Greek banks with opinions divided as Athens came under pressure to accept an extended aid-for-reform programme… The ECB’s policymaking Governing Council was meeting to decide how far the cash-strapped country may support its troubled banks, which are suffering rising deposit outflows due to the political uncertainty. While the ECB is unlikely to lower the ceiling on emergency lending assistance (ELA) by the Greek central bank, a refusal to increase it would be bad news for the banks, which are close to using up the full 65 billion euros granted so far…

Greek banks to run out of collateral in 14 weeks: JP Morgan (Reuters) - Greek banks are losing around 2 billion euros of deposits a week, a pace of outflows which, if maintained, will see them run out of collateral for new loans in 14 weeks, according to JP Morgan. This is based on its calculation that of a maximum 108 billion euros of financing available from the European Central Bank and Greek central bank, Greek banks have already used up 80 billion euros, leaving them with 28 billion euros if needed. This estimate of Greek banks' access to funding comes amid confusion about how long they can continue to function while the standoff between Athens and its international creditors over Greece's bailout program persists. Debt-laden Greece and its euro zone creditors are having crunch talks in Brussels this week on the future of the bailout, which Athens wants renegotiated. Much of the remaining collateral for the funds available to Greek banks is in the form of EFSF (European Financial Stability Facility) bonds from euro zone creditors that were disbursed in 2012-13 to recapitalize the country's lenders, JP Morgan said.

Greece Has Less Than One Week of Cash; Another DOA Proposal Discussed Thursday; Exceptional Game Playing  - It's likely make-or-break for Greece in the next two days.Tomorrow the Eurozone to Weigh Greek Bailout Proposal, but it already that appears it's no different from previous proposals.There will be no meeting on Friday if Germany rejects this one up front.  Officials from 19 eurozone governments will meet in Brussels on Thursday to examine a request from Greece to extend its €172bn rescue programme but there were already signs the proposal would be rejected. If Athens’ eleventh-hour request is rejected, officials said it was hard to see how Greece could be kept in an EU bailout programme after it expires at the end of next week. That would leave the country without emergency EU funding for the first time since the start of the eurozone crisis in May 2010 and raise the possibility the Greek government could run out of cash as soon as next month. Several officials said they still had to see the request before passing judgment; if Thursday’s meeting of the so-called euro working group concludes the proposal is a step forward, a meeting of finance ministers would probably be held on Friday. In Berlin, Martin Jäger, the finance ministry spokesman, said any request that did not include a commitment to complete the terms of the current bailout would likely be unacceptable, and other German officials said a proposal based on EU Economic Affairs Commissioner Pierre Moscovici's plan — which Greek ministers have indicated would be the framework for their request — would also fail to pass muster.

Greek Government Faces Cash Crunch Next Week -- Yves Smith - Due to my odd hours, I am seeing this report on ekathimerini a bit late. Via Rob Parenteau: According to figures released yesterday by the Bank of Greece, in January the net cash result of the central administration posted a deficit of 217 million euros, against a surplus of 603 million in January 2014. Budget revenues reached 3.1 billion euros, against 4.4 billion in January 2014, while expenditure dropped to 3.2 billion from 3.6 billion last year.  Given these figures, the Finance Ministry estimates that cash reserves will run out next Tuesday. It has the option, however, of using the reserves of general government entities kept in commercial banks in order to cover short-term needs next week. However, the problem that cannot be addressed as things stand concerns needs for the first week of March. Unless something changes drastically to the country’s funding, Greece will not be able to fulfill all of its March obligations. As Parenteau points out, this would be the juncture for Greece to resort to tax anticipation notes to extend its financial runway.

ECB To Grant Greece Additional €3 Billion In Emergency Liquidity, €68.3 Billion Total -- Those wondering if Draghi would be so bold as to precipitate a Greek bank run and funding crisis by yanking the country's Emergency Liquidity Assistance program, which as of two weeks ago was boosted to €65 billion, now have an answer. According to Dow Jones, the ECB just boosted the Greek cash allottment to €68.3 billion, an increase of €3.3 billion: Which means that the cat and mouse game between Greece and Europe will continue for at least one more week, because that's when, according to Kathimerini's Greek sources, the nation runs out of state cash which will have the same impact on the Greek negotiating leverage as a full-blown bank run, which of course has still not been mitigated and in factis likely only to get worse in the coming days absent a deal of some sort. In retrospect, Draghi may not have had to do anything to accelerate the resolution in the Europe vs Greece standoff: it looks like Greece did that work for him.

Greece gets lifeline as ECB agrees €3.3bn extra emergency funds -- The embattled Greek government has been thrown a lifeline by the European Central Bank after the ECB agreed to €3.3bn more emergency funds for the country’s banks. The move came as the US warned Greece that it had to be constructive and find a deal, and Athens confirmed that it will seek an extension to its rescue loans on Thursday. The US Treasury secretary Jack Lew told the Greek finance minister Yanis Varoufakis in a phone call that Greece would face “immediate hardship” without an agreement and said the current deadlock was not good for Europe, despite signs that a compromise might be reached ahead of Friday’s deadline. “Time is of the essence,” Lew said. The Greek government has promised to submit a request for a loan extension to officials in Brussels, but leaked documents showed that Varoufakis will not give up on plans to repeal austerity measures such as public sector job cuts. Despite insistence from Brussels that Greece had to stick to cost cuts outlined under its bailout plan, Varoufakis said on Wednesday night he was confident his government’s proposed extension would be approved. “I believe the proposal will satisfy the Greek side and the Eurogroup president,” he said. The clock is ticking down to a eurozone-imposed deadline of Friday to reach an agreement, before Greece’s €240bn bailout – brokered by the ECB, the EU and the IMF – expires at the end of the month.

PM Tsipras declares war at home on Greece's 'oligarchs' (Reuters) - Greece's new anti-corruption minister is not a politician, but he is in tune with the new crusading mood. International attention on Greece since the Syriza party took over has focused on the leftist government's fight against an austerity package imposed from abroad. But Panagiotis Nikoloudis, 65, a supreme court prosecutor and specialist on economic crime, is spearheading another battle declared by Syriza: this one on the home front, against some of the wealthy businessmen who dominate Greek political and economic life. Speaking to parliament last week, Nikoloudis denounced an elite that included a "handful of families who think that the state and public service exists to service their own interests." Such businessmen influence politicians and state officials or abuse their control of the media to unfairly win state contracts, change regulations to their advantage or escape prosecution for illegal conduct, critics say. Prime Minister Alex Tsipras has announced radical measures aimed at what he calls the "oligarchs", including re-licensing private TV channels, ending "crony" bank loans for the well-connected, exercising the state's voting rights in the case of majority shareholdings of private banks, unwinding some key privatizations and aggressive tax audits of those with offshore bank accounts.  "We have made the decision to clash with a regime of political and economic power that plunged our country into the crisis and is responsible of Greece’s depreciation on an international level," Tsipras told parliament last week.

Greece offers debt forgiveness to its poor - Greece's radical government on Wednesday offered debt forgiveness to thousands of individuals and companies that owe the state money, hoping to secure a fraction of arrears. Junior finance minister Nadia Valavani said debtors offering to pay a minimum of 200 euros upfront could see a haircut of up to 50 percent on the rest of their debt. Valavani told a news conference that debts to the Greek state had ballooned to 76 billion euros (86 billion) in unpaid taxes and social insurance contributions. But realistically, just 9.0 billion euros from that total can be recovered, she added. "The money that can be demanded and recovered is just nine billion euros, or just 11.6 percent of the total," Valavani said. Greece's own debt to private bondholders and the three institutions supporting the country financially since 2010 -- the EU, IMF and the European Central Bank -- is around 320 billion euros. Valavani said the radical left Syriza government that came to power last month needs money for its plans to help thousands of Greeks left destitute by the economic crisis and austerity cuts. "Without income, the required social policy cannot be promoted," she said. The government has pledged to spend 2.0 billion euros on immediate poverty relief, and is in critical talks this week with the EU for temporary loan assistance. Greece's creditors had already raised objections to debt relief measures submitted by the conservative government that was in power before January's elections.

Obama Administration Throws Greece Under the Bus; ECB Leak Recommends Capital Controls; Greece Weighing Capitulation (Updated: Germany Rejects Greek Proposal) -- Yves Smith  Things are not going well for Greece. It appears Syriza has largely capitulated to the demands of the Troika. Greece has submitted a request for a loan extension that the Eurogroup will consider Friday. From ekathimeriniSpecifically the government is expected to seek an extension to the so-called Master Financial Assistance Facility Agreement, the official name for the European Financial Stability Facility’s loan contract. That contract stipulates, however, that the dispensation of financial assistance is dependant on Greece honoring the terms of the so-called memorandum, which contains the economic reforms that the previous government committed to and which the current SYRIZA-led coalition has contested. Indeed, former Prime Minister Antonis Samaras had made the same request in December last year when he sought to extend the European part of Greece’s bailout program, from the end of the year to February 28. Kathimerini understands that Samaras’s request had then used the words “technical extension to the existing Master Financial Assistance Facility Agreement,” the same phrase that the new government was said to be considering last night. The compromise is expected to satisfy both sides as it would mean Athens can avoid using the phrase “extension of the existing program” and the creditors can avoid using the term “loan agreement.” In substance, however, there would be little difference from the extension sought by Samaras as the terms of the memorandum would have to be respected in order for rescue loans to be disbursed. This means that Greece is effectively asking for an extension of the bailout, which is what it had refused to do. And that means keeping the “conditionality” as in privatizations and labor-crushing structural reforms, intact. Greece is still fighting to keep some flexibility there but it is not clear they will obtain much. Again from ekathimerini: The European Commission’s vice president for eurozone affairs, Valdis Dombrovskis, said efforts were under way to reach a compromise by finding “common ground for an extension of the current program.”  He insisted that “the best way forward is to extend the existing program with its conditionality.” Dombrovskis noted, however, that if Greece wants to substitute some of the existing measures in the memorandum with alternatives, it could do so. In other words, this is a “peace with honor” solution.

German and Greek Ministers Set to Collide -- Athens’ chances of finding itself without an EU financial backstop in one week will come down to a bitter face-off in Brussels on Friday between the Greek and German finance ministers after Berlin rejected Greece’s request to extend its €172bn rescue by six months. The German rebuff came just hours after Yanis Varoufakis, the Greek finance minister, reversed his government’s long-held promise to kill the current bailout by submitting a letter to his fellow ministers formally requesting the additional time and vowing to bring the programme to a “successful conclusion”. Berlin told counterparts [the letter] amounted to “a Trojan horse” designed by Athens to change the conditions it must meet to receive €7.2bn in aid available for finishing the bailout. “The letter from Athens is not a substantive proposal for a solution,” said Martin Jäger, spokesman for the German finance ministry. “In truth, it aims at bridge financing without fulfilling the demands of the programme.” Germany took an even harder line in a pre-eurogroup meeting of finance ministry deputies on Thursday, calling on Athens to submit no more than a three-sentence letter requesting the extension, promising to complete the programme, and committing to negotiating any changes with bailout monitors.In addition, the official said Berlin wanted to take back €10.9bn in bailout funds sitting unused in Greece’s bank bailout facility — money some EU officials believe could be needed if its financial institutions further weakened.  One person briefed on the talks said an earlier version of the Greek letter was more in line with German demands to agree to all aspects of the current bailout, with limited “flexibility” to negotiate its terms once an extension deal was signed, before it was hardened in Athens.But the Greek government said it would not revise its letter, arguing the eurogroup had just two choices: accept or reject the Greek request. “This will show who wants to find a solution and who doesn’t,” a Greek official said.

Head-On Collision: Germany Rejects Greece "Trojan Horse"; Slovakia Rules Out Further Aid -- Today the eurogroup finance ministers rejected Syriza's request for a bridge loan to work things out. Germany upped the ante, calling Greece's Letter Requesting Extra Time a "Trojan Horse" and instead demanded a three sentence letter accepting all Trioika demands.

  1. Official request for an extension
  2. Promise to complete the current programme
  3. Commit to negotiating any changes with bailout monitors
I have a simple question: What's left to negotiate other than how big a capital surplus Greece must have and for how long.  In terms of current account surplus, Germany wants 3.5% this year and 4.5% next year and following years. Athens wants 1.5%. Any room for negotiation here?  I rather doubt it. But it's not just Germany. For example, Slovakia rules out further financial aid for GreeceSlovakia’s prime minister [Robert Fico] has vowed to oppose Athens’ push to ease the terms of its bailout, and warned that Bratislava was “calm” about a possible Greek exit from the eurozone if the country refused to honour its commitments. “This is a red line for us. It would be impossible to explain to the public that ‘poor’ Slovakia . . . should compensate Greece,” Mr Fico told the Financial Times in an interview in his office on Thursday. “To explain to people that we have to give money to Greece for their salaries and pensions? Impossible. Impossible.”

Greece’s Request for Loan Extension Is Rejected by Germany - — Germany on Thursday dismissed Greece's latest effort to resolve the impasse in debt negotiations between Athens and its creditors.Greece, as expected, on Thursday requested a six-month extension of its loan agreement with the European Commission and European Central Bank. In a two-page letter to eurozone officials, the Greek finance minister, Yanis Varoufakis, said his country was prepared to “honor Greece's financial obligations to its creditors.”But a German Finance Ministry spokesman, Martin Jäger, quickly issued a statement saying the letter from Athens was “not a substantial proposal to resolve matters.” Germany, as the eurozone’s largest economy, is probably the central player in the proceedings.The head of the Eurogroup, the group of 19 eurozone finance ministers who are negotiating with Greece, scheduled a Friday afternoon meeting in Brussels to consider the proposal, as Athens sought to break a deadlock in debt talks amid fears of Greek insolvency. Unless Greece revises its offer before Friday's meeting, approval might be hard to obtain.Mr. Jäger said, “The written document does not meet the criteria agreed in the Eurogroup on Monday.”

Who's Extorting Whom? It's All About Coercion - The Economist's Feb. 6 cover displayed the Venus de Milo statue pointing a revolver, with the headline "Go ahead, Angela, make my day." In the editors' upside-down world, Greece is threatening Europe, or at least Germany. Really? On Monday, Feb. 16, European officials "handed Athens an ultimatum: Agree by Friday to continue with a bailout program or risk the funding that the country needs to avoid a default," The New York Times reported. Then there is Wolfgang Schäuble, Germany's finance minister and die-hard supporter of the failed austerity policies that brought Greece six years of depression. On Feb. 11, according to the Financial Times, he "hinted darkly that a Greek plan to leave the bailout at the end of the month could draw a harsh reaction from financial markets." "I wouldn't know how financial markets will handle it, without a programme -- but maybe [Greek Prime Minister Alexis Tsipras] knows better." Schäuble knows very well that it is not "the markets" that will decide how much capital flows out of the Greek banking system if it fails to renew the troika program that expires Feb. 28. He knows that it is the actions of the European Central Bank (ECB) that will determine how the markets will react. His transparent threat is like that of a gangster shaking down a store owner, pretending not to know who is responsible for the vandalism that happens to afflict businesses that don't make their payments to the mob.

Why Greece Might Very Well Say “Goodbye To All That” -- I assume that the overall costs (and risks) of Greece saying "Goodbye To All That" are considered too high by both the Eurogroup and the new Greek government. (In practice: a 5- day bank holiday, issuance of Drachmas, the conversion of euro assets into Drachmas and the announcement that 90% of outstanding debt will no longer be honoured.)  Eventually, there will be a compromise aimed primarily at gaining time. The Eurogroup will continue to allow the minimum financing of the Greek state ("extension") and say that they will need time to think how a "debt restructuring" could like like. Mr Tsipras and Mr Varoufakis will be content having secured "bridge funds" for another 6-9 months while still in possession of the trump card "Grexit".

Greek Deposit Run Accelerates Ahead Of Monday's Bank Holiday - Official Greek deposit data began tumbling in December (outflows around EUR3bn), and accelerated in January in the run up to the Syriza election (proxied by JPMorgan at over EUR 12bn). During the last two weeks, however, the absence of ATM lines and visible bank runs has been curiously lacking as, at least on the surface, there appears to be no panic. However, as Dody Tsiantar reports, sources in the Greek banking sector have told Greek newspapers that as much as EUR 25bn euros have left Greek banks since the end of December with outflows surging this week. Perhaps they are getting anxious that authorities will take Cypriot advantage of the Bank Holiday that is planned in Greece on Monday.

Insert German Curse Word Here - Paul Krugman -- Germany says no to Greek request.To be fair, I think news reports describing the Greek letter as a complete u-turn and capitulation are wrong. I see this:  and it looks to me as if Greece is quite carefully not committing to the original fiscal targets; it will attain “appropriate primary fiscal surpluses”, which almost surely means less than 4.5 percent of GDP. So if the German complaint is that Greece is not agreeing to lock in total surrender to the preexisting austerity plan, this appears to be right. Instead, Greece appears to be seeking to buy some time to put together an economic strategy (remember, this is a new government without a deep bench of technocrats), and to negotiate terms later. Germany, on the other hand, is trying to force Syriza into complete abandonment of its election promises right now, today.  Do the Germans really think that’s a likely outcome? I suspect not. This looks to me like an attempt to force Greece out of the euro, right now. German policy is objectively pro-Grexit. It’s also, given the likely fallout, objectively pro-Golden Dawn.

Greece defiant as Germany tears up last-ditch EMU compromise on austerity - Telegraph: Greece has vowed to reject any demands for further austerity at a last-ditch meeting with eurozone creditors on Friday, even though the country risks running out of money by next week without a deal. Yanis Varoufakis, the Greek finance minister, said there can be no agreement if the EMU creditor powers continue to insist that Greece sticks to the terms of its EU-IMF Troika bail-out and increase its primary budget surplus from 1.5pc to 4.5pc of GDP by next year. “We have bent over backwards to reach an accord. We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness. But what we cannot accept is that the fiscal adjustment, agreed by the last government, be carried through just because the rules say so,” he told The Telegraph. The defiant stand by the Leftist Syriza government raises the risk of an irreversible showdown when finance ministers from the Eurogroup converge on Brussels on Friday for yet another emergency meeting. .  While there is mounting irritation in EU circles over Germany’s refusal to give ground, and signs of a Franco-German rift are emerging, the Greeks are on thin ice. Failure to agree a deal could set off a chain-reaction as capital flight accelerates, leading ineluctably to a sovereign default and ejection from the euro.  “We have already done more fiscal tightening than has ever been done by any country in peace-time, and Greece is still in depression with declining nominal GDP. There is no macro-economic argument that can be made for further tightening,” said Mr Varoufakis.  “The only reason for doing so is out of ideology or on punitive grounds. All we are seeking is a way to end the debt-deflation cycle and restore the credit circuits of the Greek economy,” he said.

Varoufakis Meets Euro Partners as Greece Seeks to Avoid Default (Bloomberg) Greek Finance Minister Yanis Varoufakis returns to Brussels for a third meeting in two weeks with his euro-area counterparts in an effort to strike a deal that will let Europe’s most-indebted country avoid default. In a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Varoufakis said he would accept the financial and procedural conditions of the existing deal while asking for negotiations on other elements. German Finance Minister Wolfgang Schaeuble almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Greek Prime Minister Alexis Tsipras and Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal. “Hopes for a compromise at today’s Eurogroup have been raised,” analysts “The key stumbling block remains the clearer language regarding the conclusion of the current program, as demanded by Greece’s creditors, and more details regarding the attainment of fiscal targets.” While  Germany, the biggest contributor to Greece’s €240 billion rescue, is the chief advocate of economic reforms in return for aid to Greece. Since winning a national election on Jan. 25, Tsipras has abandoned demands for a writedown on Greek debt, pushed back the timetable for raising the minimum wage and decided against blackballing the international auditors keeping tabs on the government. “Admittedly, the letter sent by Greece marks significant progress,” Paris Mantzavras and George Grigoriou, analysts at Athens-based Pantelakis Securities wrote in a note to clients today. “It also contains a number of ambiguities that are hard to be accepted by the Eurogroup in their current form.” Still, the fact that the group is holding a meeting implies that the letter marks a sufficient basis for discussion, the analysts said.

Bundesbank President Adds to Criticism of Greeks’ Request - Another German has taken a swipe at Greek authorities, hours after Berlin’s finance ministry dismissed the embattled state’s latest attempt to extend its bailout program. Bundesbank President Jens Weidmann said Thursday night that Greece’s letter to its eurozone partners was “vague and the communication of the Greeks varies depending on the time and the recipient.”  His comments follow the German finance ministry’s flat-out rejection of the Greek’s request for a bailout extension earlier in the day.“The letter from Athens doesn’t offer a substantial proposal for a solution. In reality, it aims for a bridging loan without meeting the terms of the [bailout] program,” Martin Jäger, spokesman for Finance Minister Wolfgang Schäuble, had said in a statement a few hours after receiving the request. Mr. Weidmann, who also sits on the governing council of the European Central Bank, was answering audience questions at an event in Frankfurt following a speech about alternative currencies, such as bitcoin. He also said that the ECB could reinstate its collateral waiver for Greek government bonds, should the country meet the conditions set by the central bank two weeks ago when it stopped the waiver. “The waiver is tied to certain conditions. If these conditions are again met, then the waiver could be valid again,” he said.

The Logic of Greece’s Request for a Loan Agreement Extension - Yves here. There’s been a heated debate among members of the commentariat as to whether the latest proposal by the Greek government to the Eurogroup ministers was a significant concession or a carefully worded formulation that did not give much ground. This interview with Dimitri Lascaris, a top securities lawyer in Canada, gives a nuanced discussion of that issue, including the politics on the Greek and German sides.

Greece’s Fate in ECB’s Hands if Eurogroup Talks Fail -- Yves Smith - As most readers know well, Greece made concessions yesterday to the Eurogroup that, although contested as to how far they went, were seen as big enough concessions to win the support of Eurogroup head Jeroen Dijsselbloem and Italy. But Germany's Wolfgang Schauble almost immediately rejected them, setting the stage for a showdown today. As we've discussed from the outset, the biggest bone of contention continues to be "conditionality," otherwise known as structural reforms. Greece wants to be able to revise some measures as long as it can still meet its primary surplus target. Germany insists a deal is a deal and Greece must reaffirm all the terms of its existing agreement. The meeting is set to start in Brussels at 3 PM local time, so we'll know soon enough how things turn out. The two sides are making friendlier noises as of this morning, but we've seen these public displays of collegiality before, only to be followed by negotiation ruptures.

How Germany Is Blowing Up The European Union -  As Germany is set to reject a Greek loan extension request (and no, international press, that is not the same as an extension of the bailout program), Steve Keen uses proprietary numbers issued by the OECD – which is supposed to be on Germany’s side?! – to show how dramatically austerity has failed in Europe- that is, if the recovery of the Greek and Spanish economies was ever the real target. It certainly failed the populations of the countries. The problem is that nobody, not even the OECD can for Germany to answer to a report. But that does not make the case that is made, any less obvious, or bitter for that matter. Not many people remain ready to think that Greece will do what it has said it will, but I think they have been very consistent in their stated goals, and people get distracted too much by semantics at their own peril. As Steve shows, and Syriza proclaims, more of the same is not on the table, for good reason. It will and can only make matters worse for Greece. Germany – and the ECB – choose to entirely ignore the consequences of their theories, in particular the humanitarian crisis they have caused in Greece. And any political union that ignores the misery it unloads upon its citizens has a short shelf life. I see a majority voices out there claiming that Syriza is busy capitulating, but I don’t think that. They’ve always said they are willing to go far to reach consensus with Brussels in order to stay in the EU and eurozone. And that’s what they’re showing. In the world of political dealing and scheming, the Greeks have been remarkable consistent; so much so that this is itself leads people to claim they are not.

"Someone Has A Problem" - Someone has a problem

  • When you owe someone $340, it is YOUR problem.
  • When you owe someone $340 BILLION, it is THEIR problem.

As of today, Greeks everywhere – all 11 million of them, owe the rest of Europe $340 billion. Considering that over half of this debt was forced upon them by Germany and the IMF, and also considering that their economy is -25% less than it was 5 years ago, and not forgetting that Brussels controls all Greek tax rates, pensions and government spending, it’s very clear that the $340 billion is Europe’s problem. And if this isn’t enough to worry Germany, one should also know that as of January 25, 2015 – there is a new sheriff in town, they are called Syriza and they were elected by the same 11 million Greeks with the mandate to change the terms of the $340 billion debt owed to Europe. Ever since Greece revealed in 2009 that with help from Goldman Sachs, it had been fudging its wealth, taxes and debt numbers for over 10 years, Europe stepped in and called the shots. The reason for this fond concern for Greece wasn’t due to Germany’s fondness for sun, sand and ouzo, but rather it was due to Germany’s concern that if Greece defaulted on its debt, then German and European banks everywhere would tumble like a fig into the Aegean Sea.Since then, the entire European charade of countless bailout funds, countless austerity decrees, and countless threats of economic doom have all been structured to keep the European banking system together. In its current state, Greece has debt that will never be repaid. It will literally take several generations to repay the loans forced upon them. And this is assuming the country can miraculously start running budget surpluses and then avoiding the temptation to spend the surpluses.

Germany Gives Greece Just Enough Rope: Varoufakis Says If Troika Rejects Reforms "The Deal Is Dead And Buried" -- So for all those waiting for the real punchline, here it is - it also is the reason why Greece got until Monday to reveal the list of "reforms" it would undertake: "We’re in trouble next week if creditors don’t accept Greece’s reforms", Greek Finance Minister Yanis Varoufakis says. "If our list of reforms is not backed by the institutions, this agreement is dead and buried." That's bad. But... "But it’s not going to be knocked down by the institutions." For his sake, let's hopes he is correct in predicting what the Troika, pardon, Institutions will do. Because this is precisely what Schauble meant when he said that the "Greeks Certainly Will Have A Difficult Time To Explain The Deal To Their Voters": under the conditionality of the Troika's approval, the Tsipras government now has to walk back essentially all the promises it made to the Greek people - promises which by some accounts amount to over €20 billion in additional spending - or the Troika, pardon Institutions, will yank the entire deal and the Grexit can then commence. And that's the bottom line. It's also the reason Schauble was gloating: because he gave the Greek government just enough rope with which to hang itself.

Finance Chiefs Draw Up Greek Bailout Blueprint - Negotiations led by Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup of 19 eurozone finance ministers, have produced a common communiqué on the extension of Greece’s €172bn bailout, according to a eurozone official.  The text was produced after nearly five hours of bilateral talks between Mr Dijsselbloem and key ministers, including Yanis Varoufakis, Greek finance minister, and Wolfgang Schäuble, his German counterpart. The eurozone official also said Mr Dijsselbloem was in direct contact with Alexis Tsipras, Greek prime minister, during the talks. The text must now be presented to all 19 eurozone ministers for approval. “It will be fast,” said the official.According to a Greek government official, the new text was also agreed by the three institutions that monitor the country’s bailout: the European Commission, the European Central Bank and the International Monetary Fund.Mr Varoufakis had earlier insisted that Greece had made sufficient concessions to reach a deal to extend the bailout for six months after it expires next week and predicted that he and his 18 eurozone counterparts would reach an agreement.He said Athens had “gone not an extra mile [but] an extra 10 miles” in its proposal for the extension, submitted to eurozone leaders on Thursday, adding it was now the turn of other ministers to meet Greece “not half way, but one-fifth of the way” to reach a deal.Mr Varoufakis and a group of German-led eurozone countries are locked in a stand-off over the conditions of a bailout extension, with Berlin insisting the new Greek government agree to the terms of the existing bailout before it engages in negotiations over any changes in the programme.  Mr Tsipras’s government has refused, saying it was elected to end the current bailout, but has made significant concessions, agreeing to ask for an extension with some loopholes that would give it some leeway to negotiate terms.

Greece Capitulates On Bailout, Reaches Four Month Deal --  Yves Smith -- Syriza folded on its position of not taking bailout funds. From the Wall Street JournalGreece’s new left-wing government backed down from its plans to throw out the bailout program the country signed with its international creditors, striking a tenuous deal with the rest of the eurozone to extend the program by four months.  But now the two sides will launch what may be even tougher negotiations over how to keep the Greek government financed in the years to come, while at the same time reviving the depressed Greek economy. Those discussions could break down at any time, pushing the ministers back into high-stakes talks on what to do about Greece.  After weeks of fraught negotiations, the eurozone on Friday evening agreed to a request by the new left-wing government of Prime Minister Alexis Tsipras to extend the country’s bailout program. The extension lasts for four months until the end of June, just weeks before Athens must make several large debt repayments to its creditors….If the Greek proposal is deemed insufficient by the eurozone creditors, the finance ministers will likely convene again to decide their next move, an EU official said.  From the Financial TimesThe decision to request an extension of the current programme is a significant U-turn for Alexis Tsipras, the Greece prime minister, who had promised in his election campaign to kill the existing bailout.  In addition, it includes no reduction of Greece’s sovereign debt levels, another campaign promise. Discussions on debt restructuring are likely as part of follow-on talks ahead of another bailout programme, which must now be agreed before June… Critically, the agreement commits Athens to the “successful completion” of the current bailout review, although it allows for Greece to negotiate its economic reform agenda. The reforms must be approved by bailout monitors, and the final agreement on the measures is to be completed by April. The deal also unexpectedly requires the eurozone’s bailout fund to take back €10.9bn in funds currently sitting in Greece’s bank rescue facility, an unusual move that reflects the lack of trust between Athens and its eurozone lenders. The money would still be available for bank recapitalisation, but it would be disbursed by eurozone authorities rather than Athens, as was previously the case.

Full Eurogroup Statement On Greece - Redline Comparison With Previously Rejected Statement -- Just out from the Eurogroup, the final statement. Bottom line: Greece caves on pretty much everything, however it has two semantics successes: the dreaded "Troika" words has been replaced with "institutions" and "current programme" has been changed to "current arrangement" - surely nobody will notice. Sarcasm aside, Greece has just kicked the can for four months. Why four months? Because that's just ahead of the big Greek debt maturity. The Eurogroup reiterates its appreciation for the remarkable adjustment efforts undertaken by Greece and the Greek people over the last years. During the last few weeks, we have, together with the institutions, engaged in an intensive and constructive dialogue with the new Greek authorities and reached common ground today.  The Eurogroup notes, in the framework of the existing arrangement, the request from the Greek authorities for an extension of the Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments. The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece.  The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April.   Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF programme and the transfer of the 2014 SMP profits. Both are again subject to approval by the Eurogroup. 

Greece and Europe agree to a compromise, avoiding financial catastrophe - The Washington Post: Greece and European finance officials on Friday reached an 11th-hour deal to negotiate for four more months over a long-term plan to solve the country's financial woes and help ease an economic crisis that has consumed Europe for much of this decade. The agreement, in doubt for much of this week, avoids a potentially catastrophic exit by Greece from the euro zone. This latest deal continues, with a few changes, the terms of the November 2012 financial rescue that had given Greece money in exchange for tough reforms to the country's economy, including sharp tax hikes and budget cuts. Those tough measures helped push Greek unemployment over 25 percent, and they ultimately brought the new left-wing party Syriza to power last month with its promises to end the onerous terms of the old agreement. Syriza, led by the 40-year-old Prime Minister Alexis Tsipras, had set Greece on a collision course with Germany, Europe's economic heavyweight, which had insisted that Greece abide by the tough austerity measures in exchange for financial support. Many analysts expected that Syriza would refuse, prompting Greece's exit from the Euro zone, the monetary union that was supposed to usher in an era of economic stability in Europe but instead is being blamed for causing now-depression conditions across the continent.

Eurozone Officials Reach Accord With Greece to Extend Bailout - — Ending an acrimonious standoff, European leaders hashed out a deal on Friday to extend Greece’s bailout by four months, giving the troubled country a financial lifeline and avoiding a bankruptcy with potentially destabilizing consequences for the region.The agreement, reached at an emergency meeting of eurozone finance ministers here, paves the way for Greece to unlock further aid from its bailout, worth 240 billion euros, or $273 billion. But the creditors will dole out the funds only if Greece meets certain conditions, setting the stage for tense negotiations that could unsettle the markets and create more political friction with Germany and other European countries.If Athens moves slowly, it might not get the money for months. Or the deal could fall apart altogether, again raising the prospect of a messy Greek departure from the euro currency.“As long as the program isn’t successfully completed, there will be no payout,” Wolfgang Schäuble, the German finance minister, said after the negotiations. As part of the deal, Greece will have to introduce a series of reforms required by creditors, like making labor laws more flexible and rooting out corruption. While Greece will have some potential leeway, the government must show that it is not abandoning austerity measures unilaterally. Greece, though, may still balk at the demands. The new left-leaning government, led by Prime Minister Alexis Tsipras, swept to power last month on pledges to rebuff European-imposed austerity in Greece. He also promised to get a better deal from the country’s creditors. “You are asking a people to continue with a long, hard grind when they want to do something else,” said Gabriel Sterne, an economist at Oxford Economics in London.

Greece bends to Eurozone will to find short-term agreement  - Immediately after SYRIZA’s election victory in Greece, we predicted that:+ While a compromise could still be possible, it will be quite painful to reach and will imply someone taking big steps back from their previous stance. Tonight that looks to have been proven true – at least in the short term.+ Tonight’s deal (you can read the full Eurogroup statement here) extends the current Master Financial Assistance Facility Agreement (MFAFA) by four months in order to allow Greece to fund itself in the short term and to allow time for negotiations over what happens afterwards.+ The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions (European Commission, ECB and IMF – formerly known as ‘the Troika’).+ Tonight’s agreement seems to essentially extend the existing agreement and the tied-in conditionality of the current Memorandum of Understanding.+

Greece averts bankruptcy and softens austerity in last-ditch deal - Greece has secured a four-month reprieve from eurozone creditors at a last-ditch summit in Brussels, heading off imminent default and a traumatic rupture of monetary union. The interim accord gives Greece breathing room to flesh out its economic agenda and reform plans, and effectively scraps the draconian fiscal targets imposed by the EU-IMF Troika. The Syriza government in Athens gains bridging finance to avert a crunch as budget coffers run dry and capital flight reaches €1bn a day. Greek officials confessed privately that the country is on the brink of insolvency. It was likely to exhaust its limit on emergency liquidity from the European Central Bank as soon as Tuesday, risking a run on the banking system and a financial collapse. The Greeks now have a stay of execution until the end of June, when the drama is likely to be repeated. Greece must repay €6.7bn to the European Central Bank in July and August, an impossible task without a fresh EU-IMF programme or something similar. Eurogroup finance ministers have softened demands for yet further austerity, accepting that fiscal tightening should fit “economic circumstances”, the core Greek condition. This is a victory for Syriza on a crucial point. “It is a balanced agreement. It will help Greece to get on its feet again,” said the EU economics commissioner, Pierre Moscovici. The text said the Greeks “reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely”. “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions,” it said. Jeroen Dijsselbloem, the head of the Eurogroup, sweetened the bitter pill with a promise that there is “flexibility in the programme and we will make the best use of it."

Delphic Demarche - Paul Krugman -- OK, we have an agreement re Greece, according to which … what?   We do have four months of funding, plus what looks like an agreement not to hold Greece to fiscal targets for right now in the face of probably fiscal deterioration. The question is what strings were attached. Greece seemingly gave a lot of ground on the language: the stuff about fiscal adjustment in line with the November 2012 Eurogroup is back in, which Germany will presumably claim represents a commitment to stay with the 4.5 percent primary surplus target. But Greece apparently is claiming that the agreement offers new flexibility, which means that it will assert that it has agreed to no such thing. So we’re in a weird place: this looks like a defeat for Greece, but since nothing substantive was resolved, it’s only a defeat if the Greeks accept it as one; which means that nothing at all is clearly resolved. And that’s arguably a good outcome — time for Greece to get its act together.

Greece and the EU: a question of trust -- I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh.  But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago. The most obvious breakdown in trust happened in 2010 when the extent of Greece's indebtedness was revealed - and the lengths to which it had gone to conceal its true position. With the help of Goldman Sachs, it had lied about its finances to gain admission to the Euro in 2001, and had been living a lie ever since.     Since then, successive Greek governments have failed to deliver agreed reforms or have chosen to implement so-called "reforms" that wrecked small businesses and bankrupted households without addressing the deep structural problems in the Greek economy. Greece has made an immense reform effort, but all it has to show for it is a tiny primary surplus, some illusory exports and a growth mirage. It remains deeply depressed: the Economist observes that its depression is now nearly as deep as that of the US in the 1930s and more prolonged. And its debt/gdp is now a shocking 181% of GDP. However well-intentioned these reforms are, they are not working.

Cyprus: an island in search of a saga to learn from -- Crisis-stories are a plenty in Cyprus and the islanders are more than willing to tell them. “One of my clients,” said a man working in finance, “had a loan of €5m and €7m in deposits. Next day, he still had a loan of €5m but only €100,000 in deposits.” The client, of course, banked with Laiki Bank, also known as Cyprus Popular Bank and Marfin Popular Bank. Then there was the man on the beach in Paphos, selling boat trips. He now owns 500,000 shares in Bank of Cyprus worth quite a bit less than the €500,000 on his account until his funds, together with all other deposits above €100,000, were converted into shares.  In March 2013 Cyprus stared into the abyss of financial collapse. In order to qualify for a €10bn Troika loan, the absolute maximum the Troika – i.e. the European Union, EU, the European Central Bank, ECB and the International Monetary Fund, IMF – was willing to lend, Cyprus had to raise €5.8bn. After the Eurogroup threw out its first rescue plan, which included a levy on guaranteed deposits, i.e. less than €100.000, the Cypriot Parliament rejected a levy on non-guaranteed deposits only. Instead, the Cypriot government grabbed deposits above €100,000 in Laiki to merge it with Bank of Cyprus where non-guaranteed deposits were turned into shares. From the Cypriot point of view it seems unfair that whereas Cyprus had to find own funds other hard-hit European countries – Ireland, Greece, Portugal and Spain – got Troika loans to bail out banks. The overwhelming feeling in Cyprus is that the island’s 1.1m inhabitants and an economy contributing 0.2% of the euro zone economic output was too small and insignificant to matter to the Troika. Abroad lingers the suspicion that Russian money in Cyprus were unpalatable to the Troika.

The size of the recent macro policy failure - - In my Vox piece, I did a simple exercise to show how important fiscal austerity has been in the US, UK and Eurozone. If government consumption and investment had grown by 2% from 2010 onwards, and assuming a multiplier of 1.5, GDP could be around 4% higher in all three ‘countries’. [1]  It cannot be emphasised enough what a huge waste of resources this represents. If 1% growth was lost each year, then by 2013 that gives a cumulative loss of 10% of GDP. That approximation works well for the US. It also roughly fits with Eurozone estimates based on simulations of the NIGEM and QUEST models described here, but the Rannenberg et al study that I have discussed generates cumulative GDP losses up to twice as large. The UK is different from the US because austerity was concentrated in the early years. Using the same methodology (i.e. a multiplier of 1.5) you get a cumulated loss of around 14% of GDP.  For the UK I’ve often quoted a smaller figure of a 5% loss, but based on an analysis which I have always been careful to describe as conservative. It takes OBR estimates of the impact of austerity, which uses lower multipliers (although it does include the impact of higher taxes, which I ignore), and then assumes that all this lost GDP was recouped in 2013. Both differences are equally important in going from 14% to 5%.

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