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

Saturday, February 7, 2015

week ending Feb 7

FRB: H.4.1 Release--Factors Affecting Reserve Balances--February 5, 2015 -  Federal Reserve statistical release H.4.1: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed statement boils down to 'we're not in a rush:' Plosser - - The latest policy statement from the Federal Reserve boiled down to "we're not in a rush" and "we will give you some warning" about hiking rates, said Charles Plosser, the president of the Philadelphia Fed, on Thursday. In an interview with the Wall Street Journal, Plosser was sharply critical of how the Fed statements have evolved, saying it has become confusing and a "bit like Hotel California. Words check in and they never check out." Plosser said the Fed should not have given the markets guidance that it will be "patient" in hiking rates. Now the central bank might send the wrong signal when it changes that guidance. "It is going to be a challenge in March no matter what they do," Plosser said. The Philadelphia Fed president, who has often been at odds with his colleagues because he believes the U.S. central bank should follow a policy rule that limits discretion, will not attend the March 18-19 meeting because he is set to retire on March 1.

Fed’s Williams Upbeat on Economy, Says Summer Rate Rise Likely -  Federal Reserve Bank of San Francisco President John Williams said Friday the U.S. economy remains on a solid path that will open the door to interest-rate increases in the summer. In an interview with CNBC, Mr. Williams said, “I see a lot of strength in the domestic economy,” adding there’s “a lot of momentum for very good growth.” He indicated he is not worried by the unexpectedly soft 2.6% fourth-quarter gross domestic product reading reported earlier Friday, and predicted 2015 will see activity rise by about 3%. Mr. Williams also expects to see the economy near “full employment” by year-end, with the jobless rate hitting 5% from its current 5.6% level.All of that opens the door for the Fed to raise rates off their current levels near zero. “Around midyear is a good guess for when we are getting around that point that raising rates will be appropriate,” Mr. Williams told CNBC. “I’m not predicting it will be June or any particular meeting, but I think we are getting closer to that point” when the Fed can start to act, he said. Mr. Williams is a voting member of the monetary policy-setting Federal Open Market Committee. That body met earlier in the week. It continued to prepare the way for rate increases, but signaled patience in terms of when it would actually move. Most officials expect to see rates increase this year, with key officials favoring the middle of the year. Mr. Williams has for some time pointed to summer as the most probable time to boost rates. Mr. Williams allowed that inflation levels well under 2% were a “big story” for the Fed. He continues to believe that after a weak start to the year on oil-related factors, job market gains and signs of rising wages will start to push inflation back toward 2%, a level he sees being attained by the end of 2016.

Fed's Williams: Expect to see growth of 3% in 2015, unemployment rate at 5%: The U.S. economy has "good momentum," San Francisco Federal Reserve Bank President John Williams told CNBC on Friday. Williams predicted that the U.S. will see real GDP growth around 3 percent in 2015, and that the unemployment rate will touch 5 percent by the end of the year. Still, the central banker said he did not see the Fed hitting its inflation target until the end of 2016. "I see us getting to full employment basically by the end of this year or before then, and in fact having a pretty strong labor market," Williams said, explaining that he assesses normal levels of employment to be about 5.2 percent. Consequently, he predicted that wage growth and inflation would both edge higher "once we get past this period of low inflation." "I do think it's encouraging that we're seeing some pickup in wages, but I really don't expect wages to start really picking up until the economy gets even stronger," he said.

Fed Watch: As of Yet, Fed Not Changing Tune - Early salvos by Federal Reserve policymakers in the wake of last week's FOMC non-event suggest that recent developments have had little impact on Fed thinking with regards to the appropriate timing of rate hikes. The middle of this year remains the internal forecast. Whether data or events cooperate is of course another question.  I think it is worth viewing Friday's two interviews with St. Louis Federal Reserve President James Bullard at Bloomberg and San Francisco Federal Reserve President John Williams at CNBC. Bullard is fairly clear in his view that financial markets are doing it wrong: “The market has a more dovish view of what the Fed is going to do than the Fed itself,” Bullard said in an interview Friday in New York. “Markets should take it at face value” from the Fed’s rate projections, and it’s “reasonable” to expect an increase in June or July. In contrast, I would say that Williams is a bit more cautious: Given this projection, Williams said he thought "around the middle of this year is the time that I think, in my view, that we'll be getting closer to 'Should we raise rates now, or should we wait a little longer, collect some more data, get more confidence in the forecast?'"The baseline story, however, is generally the same. They believe the US economy has sufficient momentum to weather any external shocks. They both view the first quarter GDP report as consistent with their underlying forecast.

Hilsenrath: Jobs Report Means Fed Could Still Raise Rates in June - The strong January employment report keeps open the possibility the Federal Reserve could start raising short-term interest rates in June. The report included whopping increases in payroll employment in recent months. Revisions showed employers added 423,000 jobs in November, the largest monthly private-sector increase since September 1997, and 329,000 in December, as well as 257,000 in January. Importantly, the report also shows average hourly earnings of private sector workers rose 2.2% in January from a year earlier, a modest gain but better than the 1.7% increase in December. This supports the thesis that an improving job market is underpinning wages, though not yet pushing them up much. Two important milestones now loom for the Fed. First, Fed Chairwoman Janet Yellen is due to deliver her semiannual testimony to Congress later this month. She’ll use that to update lawmakers and the public on the economic outlook. Second, Fed officials will decide at their March meeting whether to change or drop the language in their policy statement pledging to “be patient” in deciding when to raise their benchmark short-term interest rate from zero. That phrase means they won’t move for at least two more meetings. After the March gathering, the Fed has meetings scheduled for April and June. If the policy makers keep the “patient” language in the statement, that would indicate they don’t think they’ll raise rates at those meetings. If they scrap the phrase, that would give them the option to move as early as June if the economic data hold up. The strong January jobs report increases the odds, but doesn’t guarantee, that they will drop the “patient” phrase in the March statement.

Fed’s Plosser: Getting Hard to Justify Not Raising Rates - An improving U.S. economy and growing job market are making it more difficult for the Federal Reserve to justify its policy of near zero interest rates, Philadelphia Fed President Charles Plosser said Friday. Mr. Plosser said he is keeping an eye on the recent drop in inflation, but argued central bank officials should look past it since most of the decline is attributable to sharply falling energy costs. Cheaper energy is “unambiguously positive” for the U.S. economy, Mr. Plosser told CNBC television in an interview. “We’re getting to the point where it’s hard to justify not raising rates,” said Mr. Plosser, who will retire next month. “There’s a good justification for increasing rates earlier.” The Fed brought official borrowing costs to zero in December 2008 and embarked on three rounds of bond buys to support economy growth and recovery. Mr. Plosser has often been a skeptic of the Fed’s more aggressive moves. Late last year, Mr. Plosser dissented against the Fed’s decision to say it would remain “patient” in raising interest rates because he feared policy makers would be tying themselves down to specific dates rather than following the data. The Fed is expected to begin raising interest rates at some point this year, but the exact timing remains a subject of avid debate. “The committee will have to figure out how to transition away from ‘patience,’” Mr. Plosser said.

Fed’s Kocherlakota Concerned About Low Bond Yields - Low government bond yields in the U.S. and other wealthy nations are worrisome because they suggest investors lack confidence in the ability of the Federal Reserve and other central banks to hit their inflation targets, Minneapolis Fed President Narayana Kocherlakota said Tuesday.  Mr. Kocherlakota, an advocate for more aggressive Fed policy in the face of an inflation rate that continues to undershoot the central bank’s 2% objective, told reporters markets are pricing in low interests rates for a prolonged time to come, a sign that investors are not expecting growth to pick up substantially. “The drop in bond yields is communicating that investors are worried about low growth and low inflation and especially about them happening at the same time,” Mr. Kocherlakota told reporters after a speech to the Minnesota Bankers Association. “This just represents a lack of confidence that the FOMC, other central market banks, are going to hit their target rates,” he said, referring to the policy-setting Federal Open Market Committee. U.S. ten-year benchmark Treasury yields, which move opposite to their price, closed at 1.669% on Monday, the lowest closing level since May 2013. They have since rebounded modestly. Rates on European government bonds, as well as Japanese debt, are even lower as central banks in both places undertake aggressive monetary stimulus programs to fend off deflation, a vicious cycle of falling prices and wages across the economy. Mr. Kocherlakota’s prepared remarks largely reiterated his view that the Fed should not raise interest rates this year because inflation is still well below target, and headed in the wrong direction.

Fed President Drops a Bombshell Yesterday: Fed Removed QE3 Too Soon: The monetary policy arm of the U.S. central bank, the Federal Open Market Committee (FOMC), is getting hammered this week. On Monday, two researchers at the Federal Reserve Bank of San Francisco chastised the FOMC for effectively wearing rose-colored glasses since 2007 and getting the rate of economic growth mostly dead wrong. (More on that later in this article.) Yesterday, in a speech before the Minnesota Bankers Association, Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis said that if one applied a corporate performance measurement to the FOMC’s dual job assignment from Congress of promoting price stability and maximum employment, then the FOMC has “underperformed in the past three years” on both measures. The reason the FOMC has underperformed according to Kocherlakota is that it did not provide adequate stimulus. The Fed President told the audience: .“What concrete actions could the FOMC have taken to provide additional stimulus? I think one concrete action would have been not to reduce stimulus. In mid-2013, the FOMC began communicating about the eventual elimination of its asset purchase program that took place from December 2013 and October 2014. These communications, and the follow-up actions, served as a tightening of monetary policy. Accordingly, they were associated with sharp increases in market interest rates and sharp reductions in the rate of home mortgage refinancing.”

Fed’s Rosengren: Weak Inflation Is Key Challenge for Central Banks - Federal Reserve Bank of Boston President Eric Rosengren warned Thursday that central banks need to treat the threat posed by weak inflation as seriously as they did the troubles created by high inflation several decades ago. “The problem of significantly undershooting inflation—a dynamic which could well keep interest rates at the zero lower bound—is likely to be a key challenge to central bankers in the first two decades of the 21st century,” Mr. Rosengren said in the text of a speech prepared for delivery before an event held in Frankfurt. “As with the oil shock in the 1970s, the current shock has served to accentuate a potential monetary policy pitfall—in this case, the failure to quickly and vigorously address a significant undershooting of inflation targets,” the central banker said. “Delays by central banks in moving to address the undershooting on inflation can be costly—especially if such delays lead households and firms to expect very low inflation rates,” Mr. Rosengren said. The official’s warning came as part of a speech looking back at the outcomes of multiple rounds of Federal Reserve bond-buying. Over three separate campaigns, the Fed bought combinations of Treasury and mortgage bonds in a bid to provide stimulus to the economy at a time when short-term rates were at near-zero levels.  The controversial purchases ballooned the Fed’s balance sheet from a precrisis level of around $800 billion to its current $4.6 trillion mark, generating still unsettled debates about the effort’s impact on the economy.

Fed should restart bond buys if inflation lags - Kocherlakota (Reuters) - The Federal Reserve should consider restarting its controversial bond-buying stimulus if inflation does not start moving back to 2 percent once downward pressure from the recent drop in oil prices dissipates, a top Fed official said on Tuesday. The Fed should first promise to keep rates low until it is convinced inflation will return to its 2-percent goal within a year or two, and until market-based measures of inflation expectation have risen back to normal levels, Minneapolis Fed President Narayana Kocherlakota told reporters after a speech. If that doesn't get inflation moving back to the target with alacrity "then I think we should be reconsidering asset purchases," he said. Kocherlakota's view is likely in the minority at the Fed, which stopped its bond-buying program last October after the U.S. unemployment rate dropped faster than expected. Most Fed officials now believe it is only a matter of time before inflation, which is running well below the Fed's target, will improve as well. Kocherlakota said Tuesday that it is a mistake to assume that just because the real economy is healing, inflation will automatically return to healthy levels.

Fed’s Mester ‘Comfortable’ With Hiking Rates In First Half Of 2015 - Expressing confidence weak inflation will eventually rise again, Federal Reserve Bank of Cleveland President Loretta Mester said Wednesday the U.S. central bank remains on track for raising rates in the next few months. Noting that Fed policy isn’t on a “pre-set path,” Ms. Mester said “if incoming economic information supports my forecast, I would be comfortable with liftoff in the first half of this year.” Because Fed policy actions affect the economy over a long period of time, the central banker said the Fed will need to act before it has fully achieved its job and price mandates. Ms. Mester’s comments came from the text of a speech prepared for delivery before an audience in Columbus, Ohio. The official isn’t currently a voting member of the monetary policy-setting Federal Open Market Committee.  The FOMC met last week in a gathering that saw officials upgrade their view of the economy and continue to prepare the way to lift short-term interest rates off of their current near zero mark. Almost all Fed officials favor a rate rise this year, with key officials pointing to the summer as a more likely time to act. While solid growth and continued declines in the unemployment rate argue in favor of tighter monetary policy, the Fed has fallen short of its 2% inflation target for over two and half years. The collapse in oil prices is likely to weaken inflation even further. That’s led some central bankers to argue forcefully against any move to boost borrowing costs, lest that further complicate a rise back to desired levels of inflation.

Fed’s Lockhart Worries About Inflation, Eyes June or Later Rate Rise -- Federal Reserve Bank of Atlanta President Dennis Lockhart said Friday that he still believes the U.S. central bank is on track for raising rates at some point over the second half of the year. When it comes to lifting short-term rates off of their current near-zero levels, “I remain comfortable with the assumption that circumstances will come together around midyear, or a little later,” Mr. Lockhart said. “I think all possibilities from June on should remain open. I don’t at this juncture have a prediction or preference. Timing will depend on what the data tell us.” Mr. Lockhart laid out his view on monetary policy and the economy in a speech at an event in Naples, Fla. The official spoke in the wake of the release of January hiring data that was heralded for being unambiguously strong, with a 257,000-rise in jobs. The unemployment rate ticked up slightly higher to 5.7%, but that gain was itself a sign that discouraged workers are finding the confidence to re-enter the labor force in search of jobs. The health of the labor market again raised questions about the timing of interest-rate increases. Almost all Fed officials believe the Fed will push interest rates higher this year, with key officials pointing to the middle of the year as the most likely time to act. However, inflation that has fallen persistently short of the Fed’s 2% target, and the probability that it will weaken further over the near term due to lower oil prices, has raised significant questions about boosting rates. Some Fed officials have argued it would be a major mistake to raise rates with inflation so low. Mr. Lockhart is a voting member of the interest-rate-setting Federal Open Market Committee, and he is widely viewed as a bellwether for the consensus outlook of policy makers. His views on interest-rate increases are largely unchanged from recent public comments he has made.

New York Fed Announces Changes to How It Calculates Fed Funds Benchmark -  The Federal Reserve Bank of New York said Monday it’s changing the way it calculates and reports short-term borrowing costs. In a press release Monday, the bank said the new formula for reporting what’s called the federal funds effective rate has no implications for monetary policy. Instead, the changes are designed to make the process of calculating the rate “more robust.” It said it will also make public a new “overnight bank funding rate” to more broadly describe the state of short-term funding costs. The fed funds rate has long been the Fed’s primary tool to influence the economy. By adding to subtracting money from a market where banks lend reserves to one another, the Fed could influence the setting of the funds rate, and thus the overall structure of interest rates. The fed funds rate was also the Fed’s primary tool to indicate how supportive or restrictive monetary policy is when it comes to growth, hiring and inflation. The New York Fed said it will now calculate the effective fed funds rate by utilizing transaction data from depository institutions, as opposed to information provided by fed funds market brokers. The change should capture more of the action in this market, the central bank said. The New York Fed said it will also offer a new rate based on data from the federal funds and Eurodollar markets. The bank said this data will deliver “insight” into short-term borrowing costs. This new rate will be made public daily.

U.S. Monetary Policy: Moving Toward the Exit in an Interconnected Global | Brookings Institution - Donald Kohn - That the Federal Reserve feels comfortable taking steps to exit from unconventional policies of course is very good news. The U.S. economy has made steady progress out of the very deep recession that followed the rolling financial market crisis of 2007-08, albeit much more slowly than had been hoped or anticipated. Economic slack—underutilized labor and capital resources--have been greatly reduced. The unemployment rate has fallen to a little over 5-1/2 percent, just above the upper end of estimates of the long run sustainable unemployment rate in the U.S. economy; and the utilization of industrial capacity is now around its long-run average. The inflation rate, abstracting from the effects of energy price declines, has moved up from very low levels toward the Federal Reserve’s 2 percent target, though its upward movement has stalled out and it still remains well below that level.

Ed Harrison: Why Quantitative Easing and Negative Interest Rates Will Fail - naked capitalism by Yves Smith - While most NC readers are skeptical about quantitative easing and negative interest rates, those reactions are often aesthetic: they are so far away from any normal operation of financial markets that something has to be wrong with the idea. The problem is that while that instinct may be (and we'd argue is) correct, policy wonks who have drunk the Fed's Kool Aid will treat those who have visceral negative reactions as simply having a case of novelty aversion, which means they can be ignored. Ed Harrison provides comparatively short and accessible explanation of why QE and negative interest rates are bound to bomb. I encourage you to send his post to friends and colleagues who'd like to be able to discuss in a more rigorous manner why these approaches are deeply flawed.

Campaign to audit the US Federal Reserve gathers pace - The US Federal Reserve is coming under the most political pressure it has faced since the financial crisis, as Republicans who say it lacks transparency attempt to subject its monetary policy deliberations to external audit. Republicans who took control of both houses of Congress this year want to use their new power to push for laws that would expose the Fed’s rate-setting and quantitative easing policies to formal review. The Fed has long been a whipping boy of anti-government conservatives who dislike its power and perceived opacity. But interest in reforming the central bank is now spreading to the Republican establishment. Janet Yellen, who chairs the US central bank, is likely to face questions on the topic this month in congressional testimony. Bill Huizenga, the Republican vice-chairman of the House subcommittee on monetary policy and trade, said the Fed was a “massive labyrinth of very opaque gears and levers” and that “very few people understand the why; the how.” He said: “There is this walled-off area — this is a no fly-zone. In an open society when you are making significant decisions that impact a lot of people, why would we have this opaqueness on purpose?” Last week, the conservative senators Rand Paul and Ted Cruz — both 2016 presidential aspirants — jointly introduced a bill to force the Fed to open its books. Its co-sponsors include the Republican Senate majority leader Mitch McConnell, whose spokesman said: “The leader believes we should have more transparency.” Some Republicans are also renewing a longstanding push for the central bank to follow mechanical rules in setting monetary policy, drawing on the work of the economist John Taylor.

Yellen Prepared to Fight A Revived “Audit the Fed” Movement - There is a rising level of chatter in Washington these days about the idea of imposing intrusive new congressional inspections of Federal Reserve policies. It is known as the “Audit the Fed” movement.. Sen. Rand Paul, (R-KY), the libertarian son of Fed scourge and former presidential candidate Ron Paul, last week proposed legislation with 30 Senate sponsors that would subject Fed monetary policy decisions to reviews by the Government Accountability Office, the congressional watchdog. With Republicans in control of the House and Senate and hostile to the Fed’s post-crisis monetary policies, the idea could get a breath of new life in Congress this year, much to the chagrin of Fed officials. Senate Banking Committee Chairman Richard Shelby (R-Ala) has suggested he’s interested in the Paul bill, though it’s unclear how far he is willing to take it. He is not a co-sponsor.  The Fed sees GAO reviews of its monetary policy decisions as a congressional intrusion into its independent decision-making. Former Fed Chairman Ben Bernanke strongly and successfully resisted “Audit the Fed” proposals and Chairwoman Janet Yellen is sure to do the same. In a December news conference, Ms. Yellen said she would be “very concerned” about such a bill and would “forcefully make the case” against it. The Fed demonstrated its savvy in dealing with Congress during Dodd-Frank debates in 2010. Efforts to impose congressional inspections of monetary policy and to reduce the Fed’s bank regulatory powers failed. It emerged from those debates in most respects with more power than it had before.  Ms. Yellen will have President Obama on her side again if the bill gets new life. She will also have the central bank’s 12 regional bank presidents, an influential but little seen force in Congress with strong connections in the deep-pocketed business and banking communities around the country. It remains hard to see the Fed losing this battle.

Fed Watch: Fed's Preferred Inflation Measure Dives -Not only is core-PCE inflation on a year-over-year basis trending away from the Fed's target: but the deceleration in recent months is truly shocking: It is hard to see how the Fed can be confident that inflation with trend back to target when looking at these numbers. They need some acceleration in wage growth to justify their intentions to begin normalizing policy, and even with such acceleration, I think their case is fairly weak in the context of the current inflation environment. If they make a case, they will base it on these three pillars:

1.) With unemployment nearing 5%, they have reached their employment mandate.
2.) Monetary policy is exceptionally accommodative even if they raise interest rates.
3.) Failure to raise rates invites asset bubbles.

It may be that the Fed looks at the tech and housing bubble episodes and concludes that zero interest rates are not desirable even if inflation is below trend. Yes, I know, macroprudential before interest rates when addressing asset bubbles. But at a point when the economy is at the Fed's idea of full-employment, and given the events of recent decades? Easy to see the Fed seeing danger in putting all of their eggs in the macroprudential basket.

PCE Price Index: Inflation Slips Further Below the Fed Target -- The Personal Income and Outlays report for December was published this morning by the Bureau of Economic Analysis.  The latest Headline PCE price index year-over-year (YoY) rate is 0.75%, down from 1.15% the previous month. The Core PCE index of 1.33% is down from the previous month's 1.40% YoY.  As I've routinely observed, the general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since April of 2013, the Core PCE had hovered in a narrow YoY range of 1.23% to 1.35%. The subsequent six months saw a higher plateau around 1.5%, but the most recent months appear to be trending back toward the lower range.  The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I've highlighted the 12 months when Core PCE hovered in a narrow range around its interim low.  The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.  I've calculated the index data to two decimal points to highlight the change more accurately. It may seem trivial to focus such detail on numbers that will be revised again next month. But core PCE is such a key measure of inflation for the Federal Reserve that precision seems warranted.

Inflation Reading Furthest Away From Fed Target Since 2009 -  A rapid deceleration in consumer inflation could complicate the Federal Reserve’s calculus for when to lift short-term interest rates from near zero. The price index for personal consumption expenditures, the Fed’s preferred inflation measure, was up 0.7% in December from a year earlier, the Commerce Department said Monday. That was the smallest 12-month gain for consumer prices since October 2009, just after the economy started emerging from a deep recession. Fed officials have signaled their intent to raise benchmark interest rates this year for the first time since 2006. Doing so could be difficult if price increases continue to far undershoot the central bank’s 2% target, suggesting weak demand persists in the economy. The inflation gauge has failed to even match the Fed target for 32 straight months. A swift fall in oil and related energy products is responsible for the decline in overall inflation from 1.6% in July. Fed officials have largely dismissed the pullback as a “transitory” factor that will ultimately prove short-lived. But energy is not the only factor in the economy weighing on price gains. “Stagnant household incomes have resulted in a lack of demand for retailers and manufacturers,” . “They don’t have any pricing flexibility.”  Inflation has been steadier outside of volatile food and energy prices. But that measure of “core” inflation also slipped slightly in recent months, from a 1.5% annual advance in October to 1.3% in December.

US Treasury yields and shrinkage, sovereign bond availability edition  - Sometimes the simplest explanation is the only one needed, and in economics it doesn’t get much simpler than supply and demand. Competing reasons have been offered for the sustained, vigorous decline in 10-year and long-dated US Treasury yields despite the acceleration in the economic recovery since last spring. Most recently the sharp drop in yields has coincided with the stunning fall in oil and long-term inflation expectations, which boost real yields and thus make Treasuries more appealing. Worries of slower global growth, with the US importing some of the corresponding disinflation through a strengthening dollar, are another suggested possibility. This reason is not mutually exclusive to the energy story, especially given that the price decline in other commodities indicates that the fall in oil is not entirely the result of a belatedly recognised supply-side shock, namely the shale revolution. Also possible is that regulatory measures coming online — requiring some financial institutions to keep more safe and liquid assets on their balance sheets, and derivatives counterparties to post more collateral — have also depressed yields. This is less clear for longer-maturity debt, however, as these institutions have an incentive to avoid the higher duration risk. The flattening of the yield curve casts further doubt on this notion. But these are mainly stories about the factors that influence the demand for safe debt. The same explanations related to weaker global growth, falling oil, regulation, and secular disinflationary pressures could similarly apply to the fall in yields of German, Australian, Japanese, and Swiss sovereign bonds. And the interplay of these variables isn’t easy to understand.

Another solid GDP report - The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 2.6% annual rate in the third quarter. Even factoring in the dismal start to the year, that leaves full-year GDP growth during 2014 at 2.4% (the best annual performance since 2010) and growth at an annual rate of 4% over the last 9 months.  Government spending had contributed 0.8 percentage points to the Q3 growth but subtracted 0.4 percentage points from Q4. Most of that swing can be attributed to a one-time bulge in defense spending in Q3. But the biggest reason for slower GDP growth in Q4 than in Q3 was the fact that real imports grew by 8.5% (at a continuously compounded rate) in the fourth quarter. Since imports are subtracted from GDP, more imports mean less GDP.   It’s worth noting that although real imports increased by 8.5% at an annual rate, the nominal value (that is, the actual number of dollars spent on imports) was only up 0.9% at an annual rate. The big story was not simply that we’re importing more barrels of oil than expected for this time of year, but that each barrel of imported oil cost us fewer dollars. That means that the apparent surge in real imports is less of a long-run burden for the U.S. than might appear at first glance from the data, and the underlying situation is reasonably healthy.  Fixed investment remains disappointing. But as Bill McBride notes, there’s still lots of room for growth there and reasonable basis for expecting it’s still to come. Residential fixed investment is still way below normal when expressed as a percentage of GDP– added confirmation of Reinhart and Rogoff’s observation that recovery from an event like the U.S. has gone through takes a long time. Once housing makes a decent recovery, we might expect business plant and equipment and structures to follow. Our Econbrowser Recession Indicator Index, which uses ysterday’s data release to form a picture of where the economy stood as of the end of 2014:Q3, is now all the way down to 1.6%, an unambiguous signal of an ongoing recovery.

Demographics and GDP: 2% is the new 4%: For amusement, I checked out the WSJ opinion page comments on the Q4 GDP report. As usual, the WSJ opinion is pure politics - but it does bring up an excellent point (that the WSJ conveniently ignores). First, from the WSJ opinion page: The fourth quarter report means that growth for all of 2014 clocked in at 2.4%, which is the best since 2.5% in 2010. It also means another year, an astonishing ninth in a row, in which the economy did not grow by 3%. This period of low growth isn't "astonishing". First, usually following a recession, there is a brief period of above average growth - but not this time due to the financial crisis and need for households to deleverage. So we didn't see a strong bounce back (sluggish growth was predict on the blog for the first years of the recovery). And overall, we should have been expecting slower growth this decade due to demographics - even without the housing bubble-bust and financial crisis (that the WSJ opinion page missed). ... The good news is that will change going forward (prime working age population will grow faster next decade). The bad news is the political hacks will continue to ignore demographics. Right now, due to demographics, 2% GDP growth is the new 4%.

The U.S. Economy Will Soon See Its Best Years in a Decade, Forecasters Say - The White House, Congressional Budget Office and Federal Reserve unanimously see the nation on the cusp of the best years for the economy in a decade or more. In its latest round of economic forecasts, released Monday with the president’s budget, the White House sees the unemployment rate falling below 5% by the end of 2016, the lowest since before the recession. The White House sees growth of 3% this year and in 2016–the best back-to-back years since 2004 and 2005. “The U.S. economy has substantial room for growth, although there are factors that could continue to limit that growth in the year ahead,” the White House report said. On the positive side, the report noted declining unemployment, support from Federal Reserve policy, and pent-up demand as consumers regain confidence after nearly seven years of economic doldrums. On the negative side, the report sees lingering effects of the credit crisis and continued weakness in European and Asian economies. The White House’s economic projections have, at times, been too optimistic. In President Barack Obama’s first budget, for example, the White House projected much lower unemployment than private economic forecasters and the CBO. Forecasters and the CBO thought unemployment would still climb; the White House saw it declining. With hindsight, the administration was also much more optimistic than what actually followed, when unemployment climbed to 10%.

Persistent Overoptimism about Economic Growth -- SF Fed Economic Letter -  In November 2007, the Federal Open Market Committee began releasing projections for real GDP growth four times per year in its Summary of Economic Projections (SEP). The SEP reports the central tendency and range for real GDP growth forecasts from the Federal Reserve Board members and Federal Reserve Bank presidents. Over the past seven years, many growth forecasts, including the SEP’s central tendency midpoint, have been too optimistic. In particular, the SEP midpoint forecast (1) did not anticipate the Great Recession that started in December 2007, (2) underestimated the severity of the downturn once it began, and (3) consistently overpredicted the speed of the recovery that started in June 2009. The SEP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Similar patterns are observed in the consensus private-sector growth forecasts compiled by the Blue Chip Economic Survey. This Economic Letter reviews the SEP’s track record of forecasting growth and considers some explanations for the optimistic bias.

San Francisco Fed Explains Why Central Bank Misses Growth Forecasts - When St. Louis Fed President James Bullard was pressed in a television interview Friday about his outlook for the economy, he responded, “you put out a forecast, you know you are going to be wrong.”  It’s a point he has made a number of times, always in good humor. But behind Mr. Bullard’s observation lies a problem: For years, Fed officials have been wrong in their economic projections. They consistently expected faster growth, more inflation and a slower decline in unemployment than occurred. New research from the Federal Reserve Bank of San Francisco offers an explanation for why the central bank keeps blundering with its growth forecasts. The main issue is one that affects most of the economics profession, argue bank economists. Most forecasters believe participants in the economy act with rational expectations. “This theory, which is the dominant paradigm in macroeconomics, assumes that peoples’ forecasts exhibit no systematic bias towards optimism or pessimism,” the economists wrote. “Allowing for departures from rational expectations in economic models would be a way to more accurately capture features of real-world behavior.” Other reasons Fed officials have been getting their forecasts wrong? The paper says they failed to identify building imbalances in the economy, of the sort that led to the Great Recession and its sub-par recovery. Also, there’s been an assumption monetary policy would work better than it did and forecasters’ “natural tendency” to make forecasts that build on the trend of past data, the paper said. All this matters because central bank that is constantly surprised by the economy’s performance is one that will have a harder time making good monetary policy, given the lags that changes in interest rates have on economic activity.

The Legacy of Debt: Interest Costs Poised to Surpass Defense and Nondefense Discretionary Spending - The U.S. has come a long way since the days of trillion-dollar deficits, just a few years ago. The White House projects 2016 will have the smallest budget deficit in eight years. Yet the budgetary impact of the debt that’s been accumulated–$18 trillion in total, $13 trillion of that owed to the public–will reassert itself. Currently, the government’s interest costs are around $200 billion a year, a sum that’s low due to the era of low interest rates. Forecasters at the White House and Congressional Budget Office believe interest rates will gradually rise, and when that happens, the interest costs of the U.S. government are set to soar, from just over $200 billion to nearly $800 billion a year by decade’s end. By 2021, the government will be spending more on interest than on all national defense. according to White House forecasts. And one year later, interest costs will exceed nondefense discretionary spending–essentially every other domestic and international government program funded annually through congressional appropriations. (The largest part of the budget is, and will remain, the mandatory spending programs of Social Security, Medicare and Medicaid. Mandatory spending is over $2 trillion and is set to double to $4 trillion by 2025.) The total dollars spent on defense and nondefense discretionary spending will continue to rise, albeit slowly, in the coming decade. But as a share of the economy, both categories of spending are poised to shrink for the next decade, squeezed down as interest rates rise. Mandatory spending will rise from 12.4% of GDP to about 14.5% of GDP over this period. By 2025, the White House projects interest costs will be 2.8% of GDP. The CBO is somewhat less optimistic and expects it will be 3%. Most economists and budget experts would agree that interest payments at 3% of GDP are manageable for an economy. The true cost may be the squeeze to other places the government could be spending a decade from now.

Debt Is Money We Owe To Ourselves - Paul KrugmanAntonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we’re stealing from future generations. Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people.    More than that, as Fatas points out, rising debt could be a good sign. Think of my little two-classes model of debt, where some people are less patient than others — perhaps (to step outside the model a bit) because they have better investment opportunities. Moving from a very limited financial system that doesn’t allow much debt to a somewhat more open-minded system should, in that case, be good for growth and welfare. The problem with private debt is that we have good reason to believe that in very wide-open financial systems people get irrationally exuberant, lending and borrowing to an extent that they eventually realize was excessive — and that there are huge negative externalities when everyone tries to deleverage at once. This is a very big problem, but it’s not about generalized excess consumption. And the problems with public debt are also mainly about possible instability rather than “borrowing from our children”. The rhetoric of fiscal debates has been, for the most part, nonsense.

Debt: A Thought Experiment - Paul Krugman - I’m getting some outraged/confused responses to my post on debt as money that we owe to ourselves. Many people seem to find it hard to step outside the misleading analogy between an individual and the economy as a whole. If I owe money, that’s a claim on my future. But debt levels in the economy as a whole are not a claim by some outside party on the economy as a whole.   Here’s a thought experiment that may clarify matters (or alternatively make the usual suspects even more enraged.) Suppose that for some reason the government were to decree, arbitrarily, that every American whose last name begins with the letters A through K now owes $100,000 to a special government agency; meanwhile, every American L through Z is given a $100,000 bond to be paid by that agency.  Clearly, the overall level of debt in the U.S. economy has suddenly increased (actually by about $1.6 trillion). But has the nation become any poorer? Is that $1.6 trillion of additional debt money taken from the next generation? No and no: the additional debt represents a claim by one set of Americans on another set of Americans — and we’re talking about people here now, not future generations. But, but, you say — that’s not where the debt comes from. It comes from people spending more than they earn. And that’s true — debtors get there by spending more than they take in. But creditors get there by spending less than they take in. Anyway, how we got here should not have any direct bearing on what the debt means now — which is that it’s money we owe to ourselves. There is still, of course, the definition of we, white man. Debt has distributional implications, and it may have macroeconomic effects because of those distributional issues. But again, all this is within the current generation; it’s not about the present versus the future.

Zero National Debt? Not Long Ago, Budget Forecasters Planned for It - What a difference a decade and change makes. At the turn of the century, the U.S. was running surpluses and had a national debt of just $3.4 trillion. The economy had been growing for nearly a decade without interruption. So when President Bill Clinton and President George W. Bush drew up their budgets, they came up with the following forecasts for the national debt.  Mr. Clinton’s final budget, issued in February 2000, predicted all the federal debt held by the public would be repaid by 2013. An asterisk in the report noted that “total debt will be fully redeemed in 2013. Policy decisions will be required on use of the surplus once debt has been redeemed.” The economy had been growing for so long that the report said “the maintenance of sound policies raise the possibility that future economic developments may continue even better than assumed.” So confident were these forecasts, that economists began to seriously fret what to do if the national debt were gone. For example, economists at the Federal Reserve were seriously wrestling with the question of how to conduct monetary policy if there’s no Treasury market.  Mr. Bush’s first budget, issued in February 2001, contemplated a new fiscal problem. What if the government tried to pay off the national debt but the people holding the debt didn’t want to sell their bonds? “Regardless of the size of the surplus, these securities can be redeemed early only if Treasury can buy them back in the market,” the budget said.

Trillion-dollar deficit projection vanishes if rates on low side of CBO forecast - Trillion-dollar deficit projection vanishes if rates on low side of: — It’s an unflattering picture portrayed by the Congressional Budget Office — that trillion-dollar deficits will return in 10 years unless significant action is taken to rein in either entitlement or defense spending or lift taxes. But behind this forecast is the assumption that interest rates will start rising by a fairly substantial manner. The average interest rate on debt held by the public was a mere 1.8% last year. The CBO assumes a growing U.S. economy, and growing government spending, will take the average interest rate the government pays on its debt obligations to 3.8% in 2025. It’s by no means a crazy assumption. The Federal Reserve expects to get short-term interest rates at least to the 3.5% to 4% level by then, though the implied market assumption for interest rates in 2025, using Eurodollar futures contracts, is 2.9%. But it’s worth examining the possibility that maybe — for factors as varied as bank regulatory requirements to baby-boom investment demand — rates might not go up so aggressively. Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities, says it’s an issue being discussed in Washington circles, although he did not have his own independent forecast. Right now, rates aren’t going up at all. In spite of an economy that grew 2.4% last year and saw a big drop in unemployment, rates remain depressed, with the 10-year yield holding well below 2%. The CBO’s rule of thumb is that for every 1 percentage point difference between what it projects and what the government actually pays on the interest on its debt, there’s a move in the deficit of $1.7 trillion over 10 years. (Keeping rates exactly where they are now would yield savings north of around $2.3 trillion, though Van de Water says that would be an “extreme” assumption.)

The uncertainty around the deficit numbers - While lots of ink and bits and bytes were spilled yesterday regarding the deficit projections in the President’s new budget, it’s very important to consider the uncertainty around such estimates, especially when you’re talking ten years out in the future. A bump in growth, interest rates, inflation, productivity, health costs, not to mention policy changes that will occur between now and then can all have major impacts. Below you see that there’s a 90% chance that by 2025 the deficit will range from of a surplus of 2.8% percent of GDP and a deficit of -7.7%, with central forecast of -2.5%. The lines in the figure are drawn under the assumption that future forecast errors are normally distributed based on past forecast errors. But were we to get a little Bayesian, we might ask: based on some underlying trends in some of the key movers noted above, can we make an educated guess about which end of the range might be more likely?

Surprise! The War on Terror Is Incredibly Expensive - The global “War on Terror” that started in 2001 and has sent American troops to both Afghanistan and Iraq has cost American taxpayers $1.7 trillion dollars, reports Forbes. That number, along with an infographic by Statista, comes from data collected by The Mercatus Center, citing a report from the Congressional Research Service.  According to Veronique Del Rey of the Mercatus Center, “When it comes to funding national defense, policymakers tend to ignore war costs so an accurate assessment on the burden on taxpayer of overseas military ventures is increasingly important as pressure mounts to increase the Pentagon’s regular ‘base’ budget.” Most of the taxpayer’s money has gone to the Department of Defense, which Del Rey argues is actually going into “offense” rather than “defense,” and that policymakers in Washington purposefully mislabel funds to avoid budget caps:  “War funding, which is budgeted under the title “Overseas Contingency Operations” (OCO), is also exempt from the spending caps implemented by the Budget Control Act of 2011. Policymakers have been rightly criticized for evading the caps by designating funds as OCO that should arguably be in the Pentagon’s base budget.” Compared to previous military operations, the inflated cost of the Vietnam War was less than half the cost of the current “War on Terror.”

White House vows to block 'sequester' budget cuts in break with austerity - The White House is threatening to block any attempt by Congress to restore the “sequester” budget cuts this year as it argues it is time to move from an austerity-driven focus on reducing government debt, and do more to tackle income inequality instead. Amid growing global debate over the wisdom of austerity economics, Barack Obama made clear in his own proposed budget on Monday that he believes the US should not be attempting to eliminate its deficit entirely and would only shrink debt as a proportion of the overall economy over the coming years. But the administration’s proposals are largely symbolic without approval from lawmakers and officials made clear that the president would veto any version of the 2016 budget drafted by the Republican-controlled Congress that sought more aggressive cuts in spending. “Sequestration is a deal-breaker,” his press secretary, Josh Earnest, told reporters when asked about a possible return of the controversial policy that first proposed mandatory cuts in government spending in 2011. The effects of sequestration were partially suspended under a deal between Republicans and Democrats in 2013 but are due to return later this year unless Congress agrees to the type of more generous spending provisions favoured by Obama. “I’m not going to accept a budget that locks in sequestration going forward,” he added in a speech outlining his $4tn proposal. “It would be bad for our security and bad for our growth.”

A Great Idea: End the Sequester -- President Obama released his 2016 budget proposal this morning. While president’s budgets are rarely implemented, especially if Congress is controlled by the opposite party, they help to set the agenda for the upcoming legislative year. And this year the president has a great idea that should not be disregarded: ending the sequester. The president has proposed increasing discretionary spending by over $70 billion, which would effectively put an end to the sequester-induced straight jacket on the budget. Half of the increase would be directed for defense discretionary spending and the other half for nondefense discretionary programs—i.e., the programs that fund public investments. While the proposed spending increase is not enough to meet our actual needs, it is a start. As a reminder, the sequester is the result of legislation Congress passed and President Obama signed in 2011. At the time, the discretionary caps and sequester were a bad idea; today they are a bad and dangerous idea. This self-imposed austerity was the major factor in the slow recovery from the Great Recession. Recently, Erskine Bowles, a deficit hawk and co-chair of the 2010 National Commission on Fiscal Responsibility and Reform (often called Simpson-Bowles) said “I don’t think it gets any stupider than the sequester.” I agree. Let’s hope the president forcefully pushes Congress to end the stupid sequester.

Obama’s Budget Seeks to Loosen Austerity Reins - The $4 trillion budget that President Obama released Monday is more utopian vision than pragmatic blueprint for his final years in office, but buried in the document are kernels of proposals that could take root even with a hostile Republican Congress.In his penultimate budget, Mr. Obama proclaimed victory in the long climb from deep recession and said the time had come to loosen the strictures of austerity to invest in the nation’s future, laying out a plan likely to shape the 2016 presidential contests. He relies on large tax increases, on corporations and the wealthy, to finance efforts in education, infrastructure construction and work force development that he says have waited far too long.  “I want to work with Congress to replace mindless austerity with smart investments that strengthen America,” . He said he would not accept spending bills that maintained tough budget caps he agreed to in 2011, nor would he loosen budget controls on military spending without relaxing them for domestic programs.But hidden in some of his most ambitious proposals to diminish the wealth gap and remake the corporate tax code are areas of potential compromise that nod to Republican ideas: an expansion of the earned income credit for the working poor, a revitalized Pentagon budget, and a surge in spending on roads, bridges, airports and other infrastructure, financed by a new tax rate on foreign corporate profits. Absent from the plan is any pretense of remaking the main drivers of the long-term debt — Social Security and Medicare — a quest that has long eluded both parties. In all, such entitlement programs would go from consuming 13.2 percent of the economy this year to 14.8 percent in a decade, while domestic and military programs under Congress’s discretion would shrink to 4.5 percent of the economy in 2025, from the current 6.4 percent.

Obama's new budget proves the grand bargain is finally dead - One of the most striking elements of the Obama administration's budget proposal to be released later today isn't anything that it's in it. It's what isn't in it — at least according to briefing documents provided by the White House. There's no entitlement reform. There's no Obama negotiating with himself. There's no bending over backwards to look reasonable to his adversaries or to centrist pundits. Every previous Obama budget has been about positioning himself for a legislative or electoral showdown. This one isn't. And while It would be an overstatement to call it a liberal dream budget — left-wing Democrats could dream up plenty more — for the first time it's really Obama's dream budget. This is the end of the "grand bargain" era, and instead an opportunity for Obama to lay out his priorities for the long term — from transportation infrastructure to transforming child care. Rather than position himself in advance of a potential compromise, he wants to outline his vision for a future that will extend well beyond the life of his administration.  Make no mistake, Obama is still proposing things that would reduce the deficit. His budget offers $640 billion in net deficit reduction via a tax reform plan that would make the rich pay more. He says comprehensive immigration reform could deliver $160 billion more in deficit reduction. And he has $400 billion worth of ideas to build on health care cost containment ideas from the Affordable Care Act. But these are purely aspirational statements of purpose. They are ideas that Obama believes in and wants to go on the record as supporting. They are rather obviously not things Republicans are going to vote for. Obama is trying to clarify where he stands on fiscal policy, not hoping they become law.

Statement on the President’s 2016 Budget — Center on Budget and Policy Priorities - President Obama is proposing a surprisingly ambitious budget that would make progress — in some cases modest, in others large — in various areas in which policy sclerosis has prevented the nation from addressing significant problems. It would expand opportunity, especially for children; reform various programs and tax incentives to make them more effective; and help large numbers of middle- and low-income families while scaling back inefficient tax shelters that mainly benefit those at the top. The budget should also strengthen economic growth. It would curb tax-driven economic distortions and invest part of the savings in initiatives that should make the labor force larger and more productive, such as pre-school education and child care, improved college access, stronger tax incentives for people to work, and much-needed infrastructure investments. Along with financing such investments, the plan would use some of the new revenue and program savings for deficit reduction. It would make modest but useful progress here, providing more than $1 trillion in deficit reduction over the next ten years (not counting the savings from winding down overseas wars). In essence, the plan reflects the judgment, with which we concur, that the nation faces two kinds of serious deficits — in the long-term fiscal arena, but also in crucial areas that need resources. Despite its investments, however, this is not a “big-spending budget,” contrary to some claims. Total federal spending over the next ten years would average 21.75 percent of gross domestic product (GDP) — identical to the average for the Reagan years. In fact, despite the budget’s proposals to ease the sequestration budget cuts, discretionary spending would fall by 2019 to its lowest level on record as a share of GDP, with data back to 1962. So would non-defense discretionary spending.[1]

Key questions and answers about Obama’s new budget - President Obama is scheduled to release his annual budget Monday morning, a big book that includes the details of where he thinks the federal government should raise money and where it should spend it. In the $4 trillion budget, the president will call for an increase in spending and a series of tax breaks designed to help middle-class families and poor workers. He suggests paying for all of this by raising taxes on the wealthy and large banks.Republicans have been publicly dismissive of Obama's ideas, but there are several things in his proposal that some Republicans have suggested -- giving more money to the Pentagon, for example, and giving low-wage workers without children a larger tax break. (Republicans, however, think those initiatives should be paid for with other cuts in spending.) Congress has until Oct. 1 to decide how it wants to spend money in the next fiscal year. Without doubt, the GOP-controlled Congress will ignore most, if not all, of what Obama suggests. And so like the State of the Union address and the turkey pardon, the president's annual budget is another one of Washington's many odd rituals. We'll answer a few questions you may be asking, and update later in the day after the budget is officially released:

  • What is the president's budget?
  • What's in his budget this year?
  • Wouldn't Obama's proposed spending boost the federal deficit and debt?
  • Where would the money come from?
  • What would the tax proposals mean for me?
  • How will Republicans respond?
  • What will happen next?

White House Budget Seeks Jolt for Employment Report - The Obama administration wants to give a little jolt to the monthly employment report.  The White House is seeking a budget boost for the agency that compiles and releases monthly employment, inflation and other economic data, a fiscal infusion that would allow it to release the Job Openings and Labor Turnover Survey, known as Jolts, at the same time as the closely watched jobs report.  “In order to better understand U.S. labor market dynamics, this initiative will improve Jolts data timeliness by releasing data at the same time as the Employment Situation, thereby allowing for contemporaneous analysis of the change in U.S. payroll jobs each month,” the Bureau of Labor Statistics said in a statement.  If the funding comes through, the job openings report also would be expanded to include greater industry and geographic detail, BLS said. Jolts can signal employers’ plans for hiring, though market reaction to the indicator is subdued compared with major releases such as payrolls and gross domestic product.

A Whiff of Secular Stagnation in Budget Forecasts - One of the more disturbing possibilities for the economy’s lengthy period of malaise following the recession was popularized by Harvard University’s Lawrence Summers, the former Treasury secretary and former top adviser to President Barack Obama, who said the economy could be slipping into a state of secular stagnation. Under secular stagnation, developed economies like the United States are facing a period of perpetually weak demand, driven by some combination of factors such as pessimism about the future, economic inequality, excessive budget austerity, an aging population, slow productivity growth or weak investment growth. These factors combine to create an era of low growth, low inflation and low interest rates. Economists generally believe there’s an ideal state of the economy where interest rates are not too high to choke off growth and not too low to generate inflation. When forecasters estimate economic variables far into the future, it’s a proxy for their views on the economy’s long-run equilibrium. But if secular stagnation is right, the economy’s equilibrium has been altered to a lower trajectory. And indeed, long-term forecasts from the Congressional Budget Office and White House show estimates of an economy with declining interest rates. The White House forecasts, released as part of the administration’s budget, show the economy’s short-term interest rate rising to 3.5% in the long run. That’s down from 3.7% in 2013 and 2014 and around 4.1% before 2012. Before the recession, this short-term rate reached 5%. Economic growth, once forecast to settle into a long-run average of 2.6%, has been revised down to 2.3% by the White House.

Now’s the Time for Infrastructure Spending, White House Says - The Obama administration is taking an unusual tack in pitching its plan for $478 billion in spending on roads, bridges, ports and other key transportation nodes, highlighting the economy’s all-too-slow recovery since the recession ended in 2009. “While infrastructure investment will continue to be needed even after the economy reaches full employment, time is running out to make these needed investments under ideal economic conditions,” the White House budget said. Those “ideal” conditions include an economy operating below full capacity, nearly 4% of the workforce working part time despite wanting a full-time job, an elevated unemployment rate within the construction sector, and historically low interest rates. All that may soon end, according to the Obama administration’s projections. For now, broader economic data back up the White House’s assessment. Gross domestic product, the broadest measure of goods and services produced across the U.S., advanced 2.4% for all of 2014, only slightly better than the average for the nearly six-year-old recovery, and still far from the 4% growth of the late 1990s. In December, there were 6.8 million involuntary part-time workers–individuals who wanted a full-time but couldn’t find one or had seen their hours cut. While down significantly from a peak above 9 million, the figure remains significantly higher than the 4.4 million average of the previous expansion.

The Long-Run Cop-Out, by Paul Krugman --  On Monday, President Obama will call for a significant increase in spending, reversing the harsh cuts of the past few years. He won’t get all he’s asking for, but it’s a move in the right direction. And it also marks a welcome shift in the discourse. ... It’s often said that the problem with policy makers is that they’re too focused on the next election, that they look for short-term fixes while ignoring the long run. But the story of economic policy and discourse these past five years has been exactly the opposite.  Think about it: Faced with mass unemployment and the enormous waste it entails, for years the Beltway elite devoted almost all their energy not to promoting recovery, but to Bowles-Simpsonism — to devising “grand bargains” that would address the supposedly urgent problem of how we’ll pay for Social Security and Medicare a couple of decades from now.   Am I saying that the long run doesn’t matter? Of course not, although some forms of long-termism don’t make sense even on their own terms. Think about the notion that “entitlement reform” is an urgent priority; why, exactly, is it crucial that we deal with the threat of future benefits cuts by locking in plans to cut future benefits?.

Obama’s Budget: Mostly a Political Document, and That’s Just Fine -- The White House released its annual budget on Monday for fiscal year 2016. On the one hand, this may seem like a low-value exercise, given the dim prospects for its major initiatives passing a Republican-controlled Congress. But on the other hand, the raft of stories written about it prove the president continues to have unrivaled power in setting the terms of policy debate.  And the terms set by the 2016 budget are really useful. Most of the big-ticket items were previewed: significant increases on tax rates for the highest-income households on income they receive simply from wealth-holdings, higher taxes on large transfers of wealth, tax cuts for low- and middle-income taxpayers, and substantial spending increases on community colleges, early childhood care, and infrastructure. One item that wasn’t telegraphed by the White House included corporate tax reforms that would impose a minimum 19% tax on foreign earnings of U.S. firms with no opportunity for deferral. This is a very big step in the right direction, if still a little shy of perfect since deferral should be ended and U.S. firms should be taxed at the going corporate income tax rate regardless of where income is earned. But 19% is a lot better than today’s implicit 0% on income held abroad. Further, a large chunk of the budget’s infrastructure proposals is financed by a one-time tax of 14% on accumulated earnings of U.S. corporations held abroad. Again, this is much better than the frequently floated alternative of allowing U.S. firms to repatriate their foreign-held earnings at a preferential rate.

Obama 2016 Budget Proposal: Foreign Earnings Tax Would Pay Half Of $478B Public Works Program --In an effort to get domestic companies booking huge foreign earnings to invest more in the U.S., President Barack Obama will propose a one-time tax on the firms’ overseas profits to help fund the repair of the country’s crumbling transportation infrastructure, the Associated Press reported Sunday. The White House apparently believes it can drum up bipartisan support for the proposal, part of the president’s $4 trillion budget for the 2016 fiscal year, by using the tax revenue on construction projects in almost every congressional district. The president is scheduled to send the proposal to Congress Monday. Spread out over six years, the public-works program would dedicate $478 billion to repair and upgrade bridges, highways and transit systems all over the U.S., AP reported. About one-half of that money would come from taxing the estimated $2 trillion in American corporate earnings amassed abroad at 14 percent, a much lower rate than the 35 percent tax imposed on profits in the U.S. “This transition tax would mean that companies have to pay U.S. tax right now on the $2 trillion they already have overseas, rather than being able to delay paying any U.S. tax indefinitely,” a White House official said, according to Reuters. “Unlike a voluntary repatriation holiday, which the president opposes and which would lose revenue, the president’s proposed transition tax is a one-time, mandatory tax on previously untaxed foreign earnings, regardless of whether the earnings are repatriated.” The U.S. would require an estimated $76 billion to repair the country’s deficient bridges, according to the American Society of Civil Engineers. Experts said one in 10 bridges in the U.S. is in urgent need of repair, with most of the more than 607,000 bridges in the country being 40-plus years old, Reuters reported last year.

Obama Said to Seek 19% Global Minimum Tax to Aid Road Fund -- President Barack Obama will propose that U.S.-based companies pay a minimum 19 percent tax on their future foreign earnings, capturing profits that are now often beyond the government’s reach. Obama will also seek a 14 percent mandatory tax on about $2 trillion in stockpiled offshore profits, said two people familiar with his budget proposals, declining to be named because the document won’t be made public until Feb. 2. Companies would pay that tax regardless of whether they bring the money back to the U.S., the two said, creating a revenue stream the president would use to pay for roads, bridges and other infrastructure projects. Obama’s latest proposals add new details to the administration’s efforts to revamp the U.S. business tax system. The issue has been stalled in Congress, though lawmakers of both parties say they see potential room for agreement on business taxes. In one sense, Obama is offering U.S. companies the kind of system they have sought -- one with lower corporate marginal tax rates and with future foreign profits subject to little or no extra U.S. tax when brought home. However, he’s offering to do so on terms that are less favorable than companies would want, with rates that could mean significant tax increases for companies that have been shifting profits to jurisdictions such as Bermuda and Ireland and paying less than 10 percent on their foreign profits.

Ideas Good and Not so Good: Infrastructure Investment and Corporate Taxes  - President Obama released his fiscal year 2016 budget proposal earlier this week. The proposal is full of good ideas, so-so ideas, and some not so good ideas. One great idea is to devote more money to the Highway Trust Fund for infrastructure investments, which improves job growth now and in the future. At the moment, however, it’s paired with the not-so good idea to pay for it with a mandatory one-time 14 percent tax on the $2 trillion of tax-deferred foreign earnings of U.S. corporations, which would bring in $268 billion over the six years. To be clear, this is an improvement over the other “one-time” corporate tax change often floated to realize a temporary revenue windfall—a full repatriation tax “holiday” for earnings accumulated overseas. So if the Obama proposal is a lot better than a full holiday, what’s the problem? The proposed one-time tax rate is still too low. The 14 percent one-time tax is a transition tax to the president’s proposal to institute a 19 percent tax on corporate foreign-sourced earnings. Currently, corporate foreign-sourced earnings are subject to the U.S. corporate income tax, but payment of the tax is deferred (i.e., no U.S. taxes are paid at all) until the corporation brings to earnings to the United States (or in the jargon: repatriates the earnings). The earnings are then theoretically taxed at the statutory corporate tax rate of 35 percent, but due to various deductions and tax credits most corporations pay substantially less than the 35 percent rate. It is estimated that firms have stashed away $2 trillion in untaxed earnings overseas. One reason it makes sense for them to stash money overseas is that Congress has in the past offered a repatriation tax “holiday,” which allowed them to repatriate it at hugely preferential rates. And proposals to do this again have been percolating for years, so it makes a lot of sense for multinationals to wait and see if they get another windfall.

Obama targets foreign profits with tax proposal, Republicans skeptical - (Reuters) - President Barack Obama's fiscal 2016 budget will seek new taxes on trillions of dollars in profits accumulated overseas by U.S. companies, and a new approach to taxing foreign profits in the future, but Republicans were skeptical of the plan on Sunday. Reviving a long-running debate about corporate tax avoidance, Obama will target a loophole that lets companies pay no tax on earnings held abroad, the White House said. But his proposal was certain to encounter stiff resistance from Republicans. In his budget plan to be unveiled on Monday, Obama will call for a one-time, 14 percent tax on an estimated $2.1 trillion in profits piled up abroad over the years by multinationals such as General Electric, Microsoft, Pfizer Inc and Apple Inc. He will also seek to impose a 19 percent tax on U.S. companies' future foreign earnings, the White House said.

Obama Proposes One-Time 14% Tax on Overseas Earnings - WSJ -- President Barack Obama is making an opening bid on overhauling corporate taxes and linking it to boosting infrastructure spending, a move that could clear a rare path toward common ground in a deeply divided capital. Mr. Obama wants U.S. companies to pay a 14% tax on the approximately $2 trillion of overseas earnings they have accumulated, a White House official said Sunday. They would face a 19% minimum tax on future foreign profits. Companies could reinvest those funds in the U.S. without paying additional tax. … The plan represents a significant expansion of Mr. Obama’s previous four-year, $300 billion infrastructure proposal. He also seeks more revenue from U.S. multinationals to pay for it—about $238 billion, compared with about $150 billion last year. Companies often pay little or no U.S. tax on foreign profits because the U.S. allows them to defer that tax until the money is brought home. They can further offset U.S. taxes with credits for foreign taxes paid. Some Republicans have expressed interest in overhauling taxation of foreign profits to fund infrastructure, but balked at levying the tax on accumulated profits regardless of whether the company chooses to bring the money to the U.S.

Corporate Tax Reform: The Opening Obama Administration Bid - There has been some hope that as President Obama and the Republican Congress face off, corporate tax reform might be an area where compromise and progress might be possible. But given how the issue is laid out in the Analytical Perspectives volume of the 2016 Budget of the United States Government (this is the budget asproposed by the President), the potential for common ground doesn't look very big. Here's how the budget document sets up the discussion of corporate tax reform in Chapter 12, under the subheading "Reserve for Business Tax Reform that is Revenue-Neutral in the Long Run": The number of special deductions, credits, and other tax preferences provided to businesses in the Internal Revenue Code has expanded significantly since the last comprehensive tax reform effort nearly three decades ago. Such tax preferences help well-connected special interests, but do little for economic growth. To be successful in an increasingly competitive global economy, the Nation cannot afford to maintain a tax code burdened with such tax breaks; instead, the tax code needs to ensure that the United States is the most attractive place for entrepreneurship and business growth. Therefore, in the Budget, the President is calling on the Congress to immediately begin work on business tax reform that achieves the following five goals: (1) cut the corporate tax rate and pay for it by making structural reforms and eliminating loopholes and subsidies; (2) strengthen American manufacturing and innovation; (3) strengthen the international tax system; (4) simplify and cut taxes for small businesses; and (5) avoid adding to deficits in the short-term or the long-term. Consistent with these goals, the Budget includes a detailed set of business proposals that close loopholes and provide incentives for growth in a fiscally responsible manner.

Do Obama’s Corporate Tax Proposals Add Up? - The tax proposals in President Obama’s 2016 budget combine two interesting ideas for international reform with his often-stated--but still vague-- goal of a broad-based corporate tax overhaul.  Obama has once again proposed cutting the corporate tax rate to 28 percent from the current 35 percent, with a special 25 percent rate for manufacturing. And once again, he’s promised to finance these rate cuts with mostly unspecified cuts in tax preferences. His budget reserves about $141 billion over 10 years for corporate reform. My Tax Policy Center colleague Eric Toder calculates that $141 billion represents less than 3 percent of total projected corporate tax revenues over the next decade.The Treasury estimates the one-time tax would raise $268 billion over 10 years (all of it in the first six).  Obama would use the money to pay for a big chunk of a $478 billion infrastructure spending initiative over the same six years. Whatever the merits of the transition tax, using it to fund road construction is a terrible idea. Building and upgrading public infrastructure is a long-term policy challenge. Funding it with a one-time tax-- even a big one—makes little sense.

Are Accrued Capital Gains Income in the Year You Die? - The Tax Policy Center’s tables showing the distribution of President Obama’s new income tax proposals indicate that some middle-class households would pay more tax than under current law. The Administration says they wouldn't. The reason is that TPC and the White House disagree over what counts as income.The dispute centers on the President’s proposal to tax accrued, but unrealized, capital gains at death. We find that some middle-income households would pay this tax; the White House contends that all of the burden would fall on taxpayers with high incomes.OMB Director Shaun Donovan was quite pointed in his critique of our analysis on NPR’s Morning Edition today: There’s some fundamental flaws [in the TPC analysis]. They actually assume that all of this income from capital gains isn't really income. It sort of defies logic to say that a family that has $500,000 of capital gains, that isn't income. The Administration argues that unrealized capital gains held at the time of death become income in the year the law changes to make them taxable. It is certainly true that taxable income on a decedent’s tax return would increase under the President’s proposal, but our measure of income, called expanded cash income, is intended to track pre-tax economic status. That doesn't change just because a tax is levied on accrued gains. Treasury Deputy Assistant Secretary Adam Looney proposes a different income measure: adjusted gross income (AGI) plus unrealized capital gains taxed at death. Not surprisingly, using this income measure, nobody with income below $100,000 would be affected by the new capital gains proposals since they allow a $100,000 capital gains exclusion for singles ($200,000 for couples). Treasury’s distribution table is reproduced below.

Wall Street Pays Bankers to Work in Government And Wants It Secret -- Citigroup is one of three Wall Street banks attempting to keep hidden their practice of paying executives multimillion-dollar awards for entering government service. In letters delivered to the Securities and Exchange Commission (SEC) over the last month, Citi, Goldman Sachs and Morgan Stanley seek exemption from a shareholder proposal, filed by the AFL-CIO labor coalition, which would force them to identify all executives eligible for these financial rewards, and the specific dollar amounts at stake. Critics argue these “golden parachutes” ensure more financial insiders in policy positions and favorable treatment toward Wall Street.  “As shareholders of these banks, we want to know how much money we have promised to give away to senior executives if they take government jobs,” said AFL-CIO President Richard Trumka in a statement. “It’s a simple question, but the banks don’t want to answer it. What are they trying to hide?”  The handouts recently received attention when Antonio Weiss, the former investment banker at Lazard now serving as counselor to Treasury Secretary Jack Lew, acknowledged in financial disclosures that he would be paid $21 million in unvested income and deferred compensation upon exiting the company for a job in government. Weiss withdrew from consideration to become the undersecretary for domestic finance under pressure from financial reformers, but the counselor position—which does not require congressional confirmation—probably still entitles him to the $21 million. The terms of the award are part of a Lazard employee agreement that nobody has seen.  These payments are routine at major banks, several of which have explicit policies, found in filings with the SEC, outlining automatic awards for executives who rotate into government. Goldman Sachs offers “a lump sum cash payment” for government service, for example.

The Super Wealthy See Pitchforks and Guillotines in Their Future -- Yves Smith -- This is a short but important conversation with Rob Johnson, the president of INET, on what was and more important, not said at Davos. The super wealthy know that the governance structures around them are breaking down, but rather than take measures to shoer them up, they are be retreating into concrete bunkers.   This is the Iron Law of Institutions on a societal level: people would rather take steps to better their position with a given social order than make sacrifices that would make them better off in an absolute sense, if not in a relative one.   He’s also too kind about Obama, but Johnson is a generous-spirited sort, so he tends to hope for the best even when the evidence is otherwise. That makes his assessment of the mood among the top elite even more sobering.

S&P Settles DOJ Lawsuit For $1.5 Billion; Agrees Not To Accuse Government Of Retaliation For US Downgrade -- As had been widely rumored in the past two weeks, and as the WSJ reported overnight, moments ago McGraw Hill, parent of disgraced rating agency S&P, entered into a $1.5 billion settlement to fully resolve the DOJ lawsuit regarding S&P ratings on RMBS and CDOs. As the WSJ reported overnight, In the "span of about 30 hours, the Justice Department lowered its asking price and backed off demands that S&P admit to violating laws when it issued rosy grades on risky mortgage deals, the people said." The details per the WSJ which broke the original story: Under the settlement, the Justice Department will receive $687.5 million. Some 19 states and the District of Columbia will share a similar amount, the people said.  Separately, S&P completed a $125 million settlement late Monday with the California Public Employees’ Retirement System, or Calpers, the country’s biggest public pension fund by assets, over another crisis-era lawsuit. That brings the total payout to $1.5 billion. Meanwhile, the Justice Department is in the early stages of a probe into ratings by Moody’s Investors Service of mortgage securities before the crisis, people familiar with the matter have said. A Moody’s spokesman declined to comment. Of course, everyone knows that the original lawsuit, and today's settlement, were over something far simpler: S&P daring to downgrade the US back in 2011. After all none other than Tim Geithner is on the record as saying that "S&P’s [downgrade] would be looked at very carefully," Geithner told McGraw according to the filing. "Such behavior would not occur, he said, without a response from the government."

Justice Department Investigating Moody’s for Pre-Crisis Ratings - WSJ: With its case against Standard & Poor’s Ratings Services nearing the finish, the Justice Department has turned its attention to another credit-rating firm under fire for issuing rosy grades on mortgage deals in the buildup to the financial crisis. Justice Department officials in recent months have quietly met with multiple former executives of Moody’s Investors Service to discuss ratings of complex securities before the crisis, according to people familiar with the situation. The Justice Department lawyers probing Moody’s are still in the early stages of their investigation, according to people familiar with the matter. It isn’t yet clear whether it will result in a lawsuit, the people said. A Moody’s spokesman declined to comment. In the recent wave of meetings, Justice Department officials, citing internal company emails, have pressed former Moody’s executives on whether the firm compromised standards to win business, according to people familiar with the matter. The main focus, as with the S&P case, has been on residential-mortgage deals from around 2004 to 2007, the people said.

S&P and the Puffery Defense - Cathy O’Neil - Yesterday the ratings agency S&P settled a lawsuit with the Department of Justice for awarding ridiculously high ratings for mortgage-backed securities way back when. For their massive contribution to the world-wide financial crisis, they got fined $1.5 billion, nobody went to jail, and they didn’t even have to admit what they’d done is wrong. But here’s something they did admit: their use of the word “objective” when describing their models was mere “marketing puffery,” not to be taken seriously. This is called the “puffery defense” by Bloomberg. To be fair, this wasn’t just about the usage of the word objective. From Bloomberg’s piece: U.S. courts have found that such vague and generalized statements are the kind of “puffery” that a reasonable investor wouldn’t rely on. Now, as some of you know, I’m writing a book about destructive mathematical models. And pretty much all of the models make claims of being objective. It’s part of the marketing for those models, a requirement to lure people into using complex, mathematical black boxes instead of their own brains, and crucially, in place of their own sense of fairness and accountability. So, it makes me wonder, is the Puffery Defense going to be widespread? Is it a technical and legalistic approach? Are we going to have a redefinition of that word so that companies are officially allowed to claim objectivity while actually meaning nothing like objectivity?

US Attorney General Has A Message For The American Markets: Beware Of Foreign Spies -- Following the arrest of 3 Russians on Wall Street for alleged spying, the message from John Carlin, assistant US attorney general for National Security, is clear, "they want what you have." The "they" are multiple foreign nations spying on the US financial markets and the "what you have" is, according to Carlin, financial markets that are "the envy of the world." As we explained recently, it appears the pretext for the scapegoat of the next possible (June rate hike-inspired?) market crash is being prepared, as Carlin confirms, "it's not just the Russians, there are multiple foreign nations that want to gather as much information about" the stock market as possible. When asked why, his response, "they are doing this for a number of reasons."

Prosecutors Trace $13.4M in Bitcoins From the Silk Road to Ulbricht’s Laptop - If anyone still believes that bitcoin is magically anonymous internet money, the US government just offered what may be the clearest demonstration yet that it’s not. A former federal agent has shown in a courtroom that he traced hundreds of thousands of bitcoins from the Silk Road anonymous marketplace for drugs directly to the personal computer of Ross Ulbricht, the 30-year-old accused of running that contraband bazaar.  In Ulbricht’s trial Thursday, former FBI special agent Ilhwan Yum described how he traced 3,760 bitcoin transactions over 12 months ending in late August 2013 from servers seized in the Silk Road investigation to Ross Ulbricht’s Samsung 700z laptop, which the FBI seized at the time of his arrest in October of that year.  Yum’s testimony represents another damning line of evidence connecting Ulbricht to the Silk Road, on top of a journal detailing the Silk Road’s creation found on his laptop and testimony from a college friend who said that Ulbricht confessed creating the site to him. Ulbricht’s defense has argued that despite initially founding the Silk Road, the 30-year-old Texan quickly gave it up to the site’s real owners, who later lured him back just before his arrest to serve as the “perfect fall guy.” But Yum’s analysis showed that Ulbricht was receiving bitcoin transfers from Silk Road servers in data centers near Philadelphia and Reykjavik, Iceland long after his defense has argued he turned over control of the site.

TPP and Provisions to Stop Currency Management: Not That Hard  -  --As discussions surrounding the proposed Trans-Pacific Partnership (TPP) heat up, there has been a new push to include provisions within the agreement to keep countries from managing the value of their currency for competitive gain vis-à-vis their trading partners. This push got an unexpected (by me, anyhow) boost recently when former U.S. Treasury Secretary and former Obama administration National Economic Council Director Larry Summers called for it (see page 22 in the link). This currency management is a key cause of persistent U.S. trade deficits, and it is widespread. Given that our trade deficit drags on demand growth, and given that generating sufficient demand to reach full employment is likely to be a key economic problem in coming years, this is an important issue to address. Further, given that U.S. tariffs are extremely low, it’s hard to think of any other issue besides currency management that could possibly matter more for trade flows, so excluding it from the TPP seems odd. And yet many TPP proponents are extremely reluctant to include binding tools to stop currency management in the treaty. There have been many arguments for why the United States can’t or shouldn’t stop currency management, but the latest rationale is pretty novel: the claim is that including a currency chapter in the TPP would let other countries use the provisions of the treaty to stop the Federal Reserve from engaging in expansionary monetary policy. If such a provision had been in effect during the Great Recession, this argument continues, it would have kept the Fed from engaging in the quantitative easing (QE) that it undertook to blunt the recession and spur recovery.

Nomi Prins: The Sinister Evolution Of Our Modern Banking System - I quit Wall Street and decided that it was time to talk more about what was going on inside it, as it had changed. It had become far more sinister and far more dangerous. ~ Nomi Prins interview with Chris Martenson - Today, the 'revolving door' connecting our political and financial systems is evident to anyone with eyes. But this entwined relationship between Washington DC and Wall Street is nothing new, predating even the formation of the Federal Reserve. To chronicle the evolution to where we find ourselves today, we welcome Nomi Prins, Wall Street veteran turned financial industry reformist, and author of the excellent expose All The Presidents Bankers. In this well-detailed interview, Nomi goes into depth of the rationale and process behind the creation of the Federal Reserve, and more important, how its mandate -- and the behavior of the banking system overall -- metastasized into the every-banker-for-himself regime of sanctioned theft we now live with.

Fed’s Bullard Calls For Breaking Up Nation’s Biggest Banks - Federal Reserve Bank of St. Louis President James Bullard warned Tuesday regulatory changes haven’t solved the too-big-to-fail problem in banking, adding that he’d support a break-up of the biggest banks in the U.S. “It’s naive to think that macro prudential tools as they exist today are sufficient” to tackle new bubbles without notable help from Federal Reserve interest rate policy, Mr. Bullard said. He was referring to the suite of tools the Fed and other agencies have to intervene in a targeted fashion when authorities believe financial markets have become unstable. By and large, most Fed officials say they would prefer to address market imbalances with regulatory tools, believing that interest rate policy is too blunt. Raising rates to stem speculative excesses can slow overall economic momentum and increase joblessness, making it a last resort tool to tackle a bubble, most Fed officials believe. But Mr. Bullard thinks bubbles can be so strong and so irrationally driven that regulatory policy may not be able to put the genie back in the bottle. What’s more, when it comes to these new powers, “they are untested, and it’s unclear whether they’d really work.” He said a better solution would be to reduce the size of banks that are considered too-big-to-fail. When it comes to the huge financial institutions that get special attention from regulators, “the whole point is if one of these guys falls down, the whole market falls down…We need smaller institutions in the U.S.,” Mr. Bullard said. When it comes to the mega-banks and other financial super giants “I would split them up.”

Big banks want to merge into bigger bank, run astroturf to pressure Fed -- Two banks with troubled histories of foreclosures and squandered public bailouts are now asking the Federal Reserve to merge, making them “too big to fail”—and they are getting really creative in their tactics.   It is very rare for the Federal Reserve to deny bank mergers, but OneWest Bank is not taking any chances. They have set up an online petition to support the merger on the bank’s website that has netted 1,900 signatures. The bank is even trying to pressure regulators to approve the merger with no public hearing, and the facts behind the two banks—OneWest and CIT Bank—make it clear why.  OneWest has a terrible record on foreclosures—they recently attempted to evict an 103-year-old Texas widow because she forgot to pay her homeowner’s insurance. They are asking to merge with CIT Bank—who received $2.3 billion in taxpayer funds to help small businesses, and then filed for bankruptcy to be discharged of this obligation. If the Federal Reserve approves the merger, experts say they would become “too big to fail.” Daily Kos was approached by consumer advocates, who asked for our assistance—so we set up our own online petition opposing the merger.

Banks See Stable Lending Landscape, But Some Auto Loans Signal Trouble -- Several large banks eased mortgage lending standards at the end of 2014 amid softer demand, including for loans that were eligible for purchase by Fannie Mae or Freddie Mac, a Federal Reserve survey found. Still, nearly 85% of banks said underwriting standards remained basically unchanged, while 14% said credit standards eased somewhat from October through December, according to the Fed’s January survey of senior loan officers released Monday. Nearly a third of banks reported “moderately weaker” demand for mortgages eligible for purchase by Fannie and Freddie.Most banks said they expect delinquency rates for credit cards, prime auto loans and other consumer loans would remain around current levels. Nearly one-third, however, said they expect the performance of subprime auto loans to deteriorate in 2015. The latest survey also asked more detailed questions about loans that meet certain criteria under new rules issued last year by the Consumer Financial Protection Bureau. Most banks reported little change in underwriting standards for commercial and industrial loans, but those who did cited more aggressive competition from other banks. Yet the number of banks that said they had eased price terms for business loans was “noticeably lower” than in past surveys, the Fed said. Most banks said they expected little change in the performance of business loans this year, with one exception — syndicated leveraged loans. Several large domestic and foreign banks said they expected credit quality to deteriorate somewhat this year. Regulators have repeatedly raised alarms about the surge in leveraged loans, which include high-interest-rate loans used by private-equity firms and others to finance purchases of companies

Bank Capital and Risk: Cautionary or Precautionary? - NY Fed - - Do riskier banks have more capital? Banking companies with more equity capital are better protected against failure, all else equal, because they can absorb more losses before becoming insolvent. As a result, banks with riskier income and assets would hopefully choose to fund themselves with relatively more equity and less debt, giving them a larger equity cushion against potential losses. In this post, we use a top-down stress test model of the U.S. banking system—the Capital and Loss Assessment under Stress Scenarios (CLASS) model—to assess whether banks that are forecast to lose capital in a severe downturn do indeed have more capital, and how the relationship between capital and risk has evolved over time.

Small Banks Score Gains in Lifting Regulation - WSJ: —Small banks are scoring big victories in their efforts to relax postcrisis rules by delivering a consistent message to lawmakers and policy makers: We’re not Wall Street. Since the 2010 Dodd-Frank law ushered in a spate of new regulations, community bankers have fanned out across Washington to emphasize the differences between small “Main Street” banks focused on local lending and Wall Street firms they say are fixated on transaction volume. In conversations with lawmakers, small bankers argue many of the rules intended to address problems at the big banks are weighing heavily on community banks, impeding their ability to grow, make a profit and lend. The pushback is working. Last week, the Federal Reserve and Consumer Financial Protection Bureau moved to relax restrictions on lending and acquisitions for smaller banks, satisfying two hard-fought priorities of the Independent Community Bankers of America, an industry trade group.

Unofficial Problem Bank list declines to 388 Institutions -This is an unofficial list of Problem Banks compiled only from public sources.  Here is the unofficial problem bank list for Jan 30, 2015.  As expected, the FDIC released an update on its enforcement action activities through December 2014 that contributed to all of the changes to the Unofficial Problem Bank List this week. In all, there were five removals and three additions that leave the list at 388 institutions with assets of $122.5 billion. A year ago, the list held 590 institutions with assets of $195.4 billion. When the weekly was list was first published back on August 7, 2009 it had 389 institutions, so this is the first time a subsequent list held fewer institutions than its inception. There are still 53 institutions from the original list that still remain on it.FDIC terminated actions against Signature Bank of Arkansas, Fayetteville, AR ($492 million); Village Bank, Saint Francis, MN ($176 million); Golden Eagle Community Bank, Woodstock, IL ($136 million); The Wilmington Savings Bank, Wilmington, OH ($127 million); and VistaBank, Aiken, SC ($107 million). FDIC issued new actions against Seaway Bank and Trust Company, Chicago, IL ($522 million); International Bank, Raton, NM ($292 million); and Sage Bank, Lowell, MA ($208 million).Next week will likely see fewer changes to the list.

Ocwen’s Servicing Meltdown Proves Failure of Obama’s Mortgage Settlements -- Tom Adams - Rather than listen to thousands of borrower complaints, housing advocates, foreclosure attorneys, market experts and, well…, us, the Obama Administration tried to paper over the many problems in the mortgage servicing market by creating the foreclosure settlement (officially the National Mortgage Settlementof 2012), as well as the earlier OCC enforcement actions against big mortgage servicers.   Now we have the disaster of Ocwen, the fifth largest servicer in the country, imploding as a result of the settlement charade. Sean Donovan, the Treasury and the Attorneys General were all told repeatedly that the servicing problems were serious and needed to be addressed. Instead, they listened to the banks and mortgage servicers themselves, who earnestly swore that they had seen the light and mended their ways.  It was widely acknowledged back in 2009 that the mortgage servicing industry business was a mess as borrower defaults and foreclosures swamped servicer capacity. When the problems of the foreclosure crisis began to bubble over in 2010, the Administration finally took action, both indirectly, through the Attorneys General settlement, and directly, through actions of the HUD. Yet despite efforts to convince the mortgage investors, borrowers and consumer activists that real servicing reform efforts were being made, the Administration permitted the orders and settlements to be watered down and generally without meaningful change, as was documented extensively here at Naked Capitalism. Presumably, the Administration’s theory was that the banks with large servicing portfolios or the housing market (or both) were too delicate to actually withstand real regulatory reform of servicing.

NY Judge Slams Wells Fargo For Forging Documents... And Why Nothing Will Change - Bankruptcy judge Robert Drain of the New York Southern District has long been one of the more fascinating litigators at One Bowling Green. However, until today we though that his often outspoken style is reserved for his career caseload, which includes among it Delphi, Hostess, and RCN; little did we know that Drain is also an activist on par with the infamous Jed Rakoff (author of the infamous rhetorical essay "Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?" which over 1 year later still has no answer).  Today, thanks to Zero Hedge contributor, who over the weekend noticed a critical filing in the case of Cynthia Carrsow-Franklin vs Wells Fargo, we find something stunning: in his 30-page decision (attached below), Drain accused Wells of forging, and explicitly used the word "forged", not once, not twice, but a whopping 22 times in his opinion! By way of background, the case involves a debtor, New York speech pathologist for autistic children, Cynthia Carrsow Franklin, whose Westchester Country house Wells Fargo is trying to prove it has a right to foreclose on. The proceedings had been going on since 2010, and it took five years of endless Wells Fargo lies for the presiding judge to finally snap and, as the Post reported, "shred Wells Fargo’s arguments regarding two crucial documents needed to prove ownership of a loan: an indorsement (another term for endorsement) on a note and an assignment of mortgage."  It goes without saying that a whole lot of robosigning and rubberstamping are involved.

Black Knight Mortgage Monitor - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for December today. According to BKFS, 5.64% of mortgages were delinquent in December, down from 6.08% in November. BKFS reported that 1.61% of mortgages were in the foreclosure process, down from 2.48% in December 2013. This gives a total of 7.25% delinquent or in foreclosure. It breaks down as:
• 1,736,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,132,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 820,000 loans in foreclosure process.
For a total of ​​3,688,000 loans delinquent or in foreclosure in December. This is down from 4,488,000 in December 2013. There is much more in the mortgage monitor.

Fannie Mae: Mortgage Serious Delinquency rate declined slightly in December, Lowest since October 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in December to 1.89% from 1.91% in November. The serious delinquency rate is down from 2.38% in December 2013, and this is the lowest level since October 2008 (also at 1.89%).  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Last week, Freddie Mac reported that the Single-Family serious delinquency rate was declined in December to 1.88%. Freddie's rate is down from 2.39% in December 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".The Fannie Mae serious delinquency rate has fallen 0.48 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2016 - although the rate of decline has slowed recently.

Mortgage Reduction Program Would Be Limited, Housing Regulator Says - A top U.S. housing regulator on Wednesday said his agency is still considering reducing the balances of some homeowners’ mortgages, though such an effort could be more limited than some left-leaning groups had hoped.  Federal Housing Finance Agency Director Melvin Watt said his agency, which regulates mortgage-finance companies Fannie Mae and Freddie Mac is attempting to find places where Fannie and Freddie can reduce mortgage balances without hurting taxpayers. Principal reduction has long been considered by some community groups the most effective tool for preventing foreclosures and keeping homeowners in their houses. But critics contend it also creates an incentive for some to fall behind on their mortgages and hurts taxpayers. At a congressional hearing last month, Mr. Watt said “there are some instances” where Fannie and Freddie could reduce mortgage principal without hurting the companies. On Wednesday, Mr. Watt told reporters “I don’t think we’ve ever taken principal reduction, in some way, off the table.” On the other hand, he said, some people “when they say ‘principal reduction,’ they’re talking about everybody with a mortgage or underwater getting a reduction in principal. That would be extremely costly to do.”

MBA: Mortgage Applications increase, FHA Refinance Applications up 76% -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 1.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 30, 2015. ... The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier...“Following several weeks of already elevated refinance activity due to falling interest rates, FHA refinance applications increased 76.5 percent in response to a reduction in annual mortgage insurance premiums which took effect January 26,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “Conventional refinance volume was up only 0.5 percent for the week while VA refinance volume was down 24.3 percent. FHA purchase applications were also up 12.4 percent over the week prior, despite a decrease in purchase applications in the rest of the market.” ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.79 percent, the lowest level since May 2013, from 3.83 percent, with points increasing to 0.29 from 0.26 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

CoreLogic: House Prices up 5.0% Year-over-year in December -- The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).  From CoreLogic: Home Prices Up 5 Percent Year Over Year for December 2014 CoreLogic® ... today released its December 2014 CoreLogic Home Price Index (HPI®) which shows that home prices nationwide, including distressed sales, increased 5 percent in December 2014 compared to December 2013. This change represents 34 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, fell by 0.1 percent in December 2014 compared to November 2014. Twenty-seven states and the District of Columbia are at or within 10 percent of their peak. Three states showed year-over-year home price depreciation, including distressed sales, in December; these states were Maryland (-0.7 percent), Vermont (-0.9 percent) and Connecticut (-2.2 percent). Excluding distressed sales, home prices increased 4.9 percent in December 2014 compared to December 2013 and increased 0.1 percent month over month compared to November 2014. Distressed sales include short sales and real estate owned (REO) transactions.... “For the full year of 2014, home prices increased 7.4 percent, down from an 11.1-percent increase in 2013,”  This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was down 0.1% in November, and is up 5.0% over the last year. This index is not seasonally adjusted, and this small month-to-month decrease was during the seasonally weak period. The second graph is from CoreLogic. The year-over-year comparison has been positive for thirty four consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit). The YoY increases had been slowing, but has mostly moved sideways over the last four months.

Total Construction Spending Weaker Than Expected; Residential Construction Spending in Contraction - Construction spending for December was weaker than expected. Lots of reports recently have been "weaker than expected". From Bloomberg. Construction outlays rebounded 0.4 percent in December after dipping 0.2 percent the month before. December was below market expectations which were for a 0.6 percent gain.  December's increase was led by public outlays which rebounded 1.1 percent after dropping 1.8 percent jump in November. Private residential spending rose 0.3 percent after edging up 0.1 percent in November. Private nonresidential construction spending eased 0.2 percent in December after a 0.8 percent rise the month before. On a year-ago basis, total outlays were up 2.2 percent in December compared to 2.7 percent in November.  Construction spending slipped 0.3 percent in November after a sharp 1.2 percent rebound in October. Market expectations were for a 0.5 percent gain. November's decrease was led by public outlays which fell 1.7 percent after a 2.8 percent jump in October. Private residential spending rose 0.9 percent, matching the pace the month before. Private nonresidential construction spending dipped 0.3 percent in November after edging up 0.1 percent in October. This is another trend that looks ominous. Year-over-year growth in total construction spending has fallen from 8% in February of 2014 to 2% in December.

Construction Spending increased 0.4% in December  --The Census Bureau reported that overall construction spending increased in December: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2014 was estimated at a seasonally adjusted annual rate of $982.1 billion, 0.4 percent above the revised November estimate of $978.6 billion. The December figure is 2.2 percent above the December 2013 estimate of $961.2 billion. ... The value of construction in 2014 was $961.4 billion, 5.6 percent above the $910.8 billion spent in 2013. Both private and public spending increased in December: Spending on private construction was at a seasonally adjusted annual rate of $698.6 billion, 0.1 percent above the revised November estimate of $698.2 billion. ...In December, the estimated seasonally adjusted annual rate of public construction spending was $283.5 billion, 1.1 percent above the revised November estimate of $280.4 billion. Note: Non-residential for offices and hotels is increasing, but spending for oil and gas is generally declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

NAHB: Builder Confidence improves Year-over-year for the 55+ Housing Market in Q4 -- This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008 (during the housing bust), so the readings were initially very low.  Note that this index is Not Seasonally Adjusted (NSA) and usually dips in Q4 compared to Q3 (just seasonal). From the NAHB: Builder Confidence in the 55+ Housing Market Ends Fourth Quarter on a Record HighThe fourth quarter results of the National Association of Home Builders’ (NAHB) latest 55+ Housing Market Index (HMI) released today show that builders are feeling quite positive about the market. All segments of the market—single-family homes, condominiums and multifamily rental—registered increases compared to the same quarter a year ago. The single-family index increased six points to a level of 54, which is the highest fourth-quarter reading since the inception of the index in 2008 and the 13th consecutive quarter of year over year improvements....All components of the 55+ single-family HMI posted increases from a year ago: present sales increased five points to 58, expected sales for the next six months rose two points to 64 and traffic of prospective buyers increased six points to 39. “The strength of the 55+ segment of the housing industry has been fueled in part by rising home values,” said NAHB Chief Economist David Crowe. “Older home owners are finding it easier to sell their existing homes at a favorable price, allowing them to rent or buy a new home in a 55+ community.”

Q4 2014 GDP Details on Residential and Commercial Real Estate -- The BEA has released the underlying details for the Q4 advance GDP report today.  Investment in single family structures is now back to being the top category for residential investment (see first graph).  Home improvement was the top category for twenty consecutive quarters following the housing bust ... but now investment in single family structures has been back on top for the last 5 quarters.  However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

The Face Of The Oligarch Recovery: Luxury Skyscrapers Empty As NYC Homeless Population Hits Record High - Nowhere is the fraudulent and criminal “oligarch recovery” more on display than in my hometown of New York City. Despite benefitting more than any other community from an enormous taxpayer bailout of the industry that destroyed the economy, financial services, the vast majority of the wealth has been allocated to a handful of oligarchs. To make matters even worse, American public policy, if you can even call it that, has been to encourage overseas oligarchs to park billions of dollars in U.S. real estate that largely sits uninhabited. Manhattan is a perfect example of this unproductive behavior and misallocation of capital. I covered this theme last year in the piece, Introducing Ghost Skyscrapers – NYC Real Estate Goes Full Retard, where it was noted that:The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year. New York City has never been known for its affordability, but a new crop of mega-luxury buildings in Manhattan are redefining sky-high prices. One 57 is the 1,000-foot high building looming over Central Park where an apartment has closed for as much as $90 million..

Consumer Confidence Lifting New-Home Sales - The housing market has been disappointing in the past year, with sales essentially flat. But there are signs that the market is starting to stir. The nation’s biggest public home builders are telling investors that new-home sales picked up during the second half of January, reflecting rising consumer confidence, low interest rates and an improving economy. Taylor Morrison Home Corp., a builder in five states, on Wednesday reported a 30% increase in its January sales from a year earlier, following its 24% gain in the fourth quarter. That followed fellow builder M/I Homes Inc.’s report on Tuesday that its January sales were up 8% as well as recent comments from peers PulteGroup Inc., Ryland Group Inc. and Beazer Homes USA Inc. that January sales exceeded their year-ago tallies..

Household Formation within the “Boomerang Generation” -- Young Americans’ living arrangements have changed strikingly over the past fifteen years, with recent cohorts entering the housing market at much lower rates and lingering much longer in their parents’ households. The New York Times Magazine reported this past summer on the surge in college-educated young people who “boomerang” back to living with their parents after graduation. Joining that trend are the many other members of this cohort who have never left home, whether or not they attend college. Why might young people increasingly reside with their parents? They may be unable to find employment, they may be saving their income to pay down increasing levels of student debt, or they may be unable to afford the rent for an apartment in the face of lower income or higher housing prices.  In a new Federal Reserve Bank of New York staff report, we discuss our analysis of these trends using the New York Fed Consumer Credit Panel (CCP). The CCP is a unique data set that includes information on the ages and locations of a large, representative sample of U.S. individuals and households. This data set’s size allows us to analyze residence patterns for very narrow age groups, here twenty-five- and thirty-year-olds, at very fine geographic levels. Such fine age and geographic detail helps us distinguish among the various local economic forces that may be driving young people home.

Consumer Credit Growth Misses: Revolving Credit Surges As Student, Car Loans Have Weakest Increase Since February 2012 -- Following a significant downward revision to November's data, December consumer credit growth printed a gain of $14.755 billion, missing expectations of $15 billion (for the 5th month) and hovering near one-year lows. The most notable aspect was the $5.77 billion surge in revolving credit (e.g. credit cards) as Americans extended and pretended into the holidays - the biggest rise since April.

U.S. Consumers Swipe Way to Largest Increase in Revolving Credit Since March -- U.S. consumers stepped up their borrowing in December, increasing balances on credit cards and other types of loans, the Federal Reserve said Friday. Total outstanding consumer credit, reflecting Americans’ debt outside of real-estate loans, expanded at a 5.37% seasonally adjusted annual rate to $3.31 trillion in December. That was a slight acceleration from November’s 4.92% gain. Revolving credit, mainly credit cards, contributed to last month’s increase. Revolving credit grew at a 7.85% pace in December, a turnaround from November’s 1.28% decline. December’s expansion in revolving credit was the largest since March. These credit figures suggest that consumers stepped up spending as the holiday season concluded. Other measures of consumer spending showed a strong increase in November but a pullback in December. Consumer spending accounts for about 70% of demand in the U.S. economy and was an important driver of GDP growth in the fourth quarter, when personal consumption expenditures rose 4.3%, the biggest gain since the fourth quarter of 2006.Nonrevolving credit, such as auto and student loans, grew at a 4.46% pace during the month, the smallest monthly increase since October 2011. November’s nonrevolving balances grew 7.21%. Revolving credit tends to be volatile, but nonrevolving credit has consistently expanded since August 2011.

BEA: Personal Income increased 0.3% in December, Core PCE prices up 1.3% year-over-year -- The BEA released the Personal Income and Outlays report for December:  Personal income increased $41.3 billion, or 0.3 percent ... in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $40.0 billion, or 0.3 percent...Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in December, in contrast to an increase of 0.7 percent in November. ... The price index for PCE decreased 0.2 percent in December, the same decrease as in November. The PCE price index, excluding food and energy, increased less than 0.1percent in December; the price index increased less than 0.1 percent in November. The December price index for PCE increased 0.7 percent from December a year ago. The December PCE price index, excluding food and energy, increased 1.3 percent from December a year ago...Personal saving -- DPI less personal outlays -- was $643.2 billion in December, compared with $568.2 billion in November. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 4.9 percent in December, compared with 4.3 percent in November. A key point is that the PCE price index was only up 0.7% year-over-year (1.3% for core PCE). This is way below the Fed's 2% target.

U.S. consumer spending in December weakest since 2009 (Reuters) - U.S. consumer spending recorded its biggest decline since late 2009 in December with households saving the extra cash from cheaper gasoline. Other data on Monday showed factory activity cooled in January, suggesting the economy may have entered the new year on a slightly softer footing than had been expected. Nevertheless, upbeat and cash-flush consumers are expected to step-up spending and buoy the economy this year. true "The consumer is poised to do well in early 2015. Lower gasoline prices are going to provide a big lift to consumption," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.3 percent after gaining 0.5 percent in November and 0.3 percent in October. The drop, the largest since September 2009, reflected a decline in spending at service stations as gasoline prices fell, as well as weak auto receipts and weather-related softness in demand for utilities. The spending data was included in Friday's fourth-quarter gross domestic product report, which showed the economy growing at a 2.6 percent annual pace, with consumer spending rising at a brisk 4.3 percent rate - the fastest since 2006. Economists said fourth-quarter GDP growth is likely to be revised up to at least a 2.8 percent rate after another Commerce Department report on Tuesday showed stronger nonresidential construction spending in December than previously assumed.

US Household Spending Tumbles Most Since 2009; Salaries Have Smallest Monthly Increase In 7 Months - After last month's epic Personal Income and Spending data manipulation revision by the BEA, when, as we explained in detail, the household saving rate (i.e., income less spending ) was revised lower not once but twice, in the process eliminating $140 billion, or some 20% in household savings... ... there was only one possible thing for household spending to do in December: tumble. And tumble it did, when as moments ago we learned that Personal Spending dropped in the month of December by a whopping 0.3%, the biggest miss of expectations since January 2014 and the biggest monthly drop since September 2009! As a result, this is what the US income and spending picture looked like: And, as we predicted last month, the savings rate surged from 4.3% to 4.9% in December, as the spending spree, all of which took place simply in Department of Truth seasonally-adjusted models, had to be normalized out. But wait, there's more. Because while spending cratered the most in 6 years (but.. but... gas-savings boost spending), the income picture was just as dire, and while Personal Income rose by 0.3% in December, above the 0.2% expected, the key component that everyone is, or should be, looking at, Wages and Salaries increased by a tiny 0.1%: the smallest monthly increase since May, and what's worse, Goods-producing wages actually declined by 0.2% in December, driven by a drop in Manufacturing sector wages.

The Latest on Real Disposable Income Per Capita - With the release of today's report on December Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The December nominal 0.22% month-over-month increase in disposable income rises to 0.45% when we adjust for inflation, thanks to a -0.23% month-over-month decline in the PCE price index. The year-over-year metrics are 3.76% nominal and 2.98% real.  The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000.  Nominal disposable income is up 61.4% since then. But the real purchasing power of those dollars is up only 21.9%.

The Dangerous State of Americans’ Savings - MORE than half of American households have less than one month of income available in readily accessible savings to use in case of an emergency, a new report from the Pew Charitable Trusts finds.Many financial advisers recommend that families have a savings account holding three to six months’ income, in case of a job loss or an unexpected major expense. But regardless of income level, the report found, most Americans lack the recommended level of savings.Even if they tapped all available resources, including assets that can be costly to tap, like retirement accounts and investments, the typical middle-income family can replace just four months of income, the report found.The report, “The Precarious State of Family Balance Sheets,” found that even though the economy has recovered from the Great Recession, many households remain financially insecure. Most families, the report said, “feel vulnerable and stressed, and could not withstand a serious financial emergency.”The position of lower-income households is particularly precarious, the report found, with less than two weeks’ income available in their savings and checking accounts and cash on hand. Such families generally have less access to credit than higher earners, so have fewer options during a financial crisis.

Credit card users easily identified from 'anonymized' data - Credit card data isn't quite as anonymous as promised, a new study says. Scientists showed they can identify you with more than 90 per cent accuracy by looking at just four purchases, three if the price is included — and this is after companies "anonymized" the transaction records, saying they wiped away names and other personal details. The study out of the Massachusetts Institute of Technology, published Thursday in the journal Science, examined three months of credit card records for 1.1 million people. "We are showing that the privacy we are told that we have isn't real," study co-author Alex "Sandy" Pentland of MIT said in an email. His research found that adding just a glimmer of information about a person from an outside source was enough to identify him or her in the trove of financial transactions they studied. Companies routinely strip away personal identifiers from credit card data when they share information with outsiders, saying the data is now safe because it is "anonymized." But the MIT researchers showed that anonymized isn't quite the same as anonymous. Drawing upon a sea of data in an unnamed developed country, the researchers pieced together available information to see how easily they could identify somebody. They looked at information from 10,000 shops, with each data piece time-stamped to calculate how many pieces of data it would take on average to find somebody, said study lead author Yves-Alexandre de Montjoye, also of MIT. In this case the experts needed only four pieces, three if price is involved. As an example, the researchers wrote about looking at data from September 23 and 24 and who went to a bakery one day and a restaurant the other. Searching through the data set, they found there could be only one person who fits the bill — they called him Scott. The study said, "and we now know all of his other transactions, such as the fact that he went shopping for shoes and groceries on 23 September, and how much he spent." It's easier to identify women, but the research couldn't explain why, de Montjoye said.

Fed’s “Solid” Expansion Called Into Question as Big Name Retailers Stampede into Bankruptcy -- It was just last Wednesday that the U.S. central bank, the Federal Reserve, released its monetary policy statement and reassured the markets that “economic activity has been expanding at a solid pace” with “strong job gains.” This cheery U.S. news came on the heels of recent action by seven foreign central banks to slash interest rates and/or pump more stimulus funds to head off an economic train wreck around the rest of the globe. The Fed statement also came on the heels of thousands of job cut announcements by companies like American Express (4,000), Schlumberger (9,000), IBM (at least 2,000), Baker Hughes (7,000), and Coca Cola (1,600 to 1,800). What’s happening among U.S. retailers is also not suggesting strong job gains. Since December, there has been a steady pace of bankruptcy filings and announcements by retailers to close all stores and liquidate as opposed to re-emerging eventually from bankruptcy and saving jobs. Last evening, the Wall Street Journal reported that Radio Shack, which employed approximately 24,000 workers as of late last year and operates more than 4,300 stores in North America, planned to file for bankruptcy, possibly as early as today. Shares of its publicly traded stock closed at 27 cents on Friday, strongly suggesting there will be serious job losses ahead at the company.

In Net Neutrality Push, F.C.C. Is Expected to Propose Regulating Internet Service as a Utility - The chairman of the Federal Communications Commission this week is widely expected to propose regulating Internet service like a public utility, a move certain to unleash another round of intense debate and lobbying about how to ensure so-called net neutrality, or an open Internet.It is expected that the proposal will reclassify high-speed Internet service as a telecommunications service, instead of an information service, under Title II of the Communications Act, according to industry analysts, lobbyists and former F.C.C. staff members.The change, the analysts and others say, which has been pushed by President Obama, would give the commission strong legal authority to ensure that no content is blocked and no so-called pay-to-play fast lanes exist — prohibitions that are hallmarks of the net neutrality concept. But Tom Wheeler, the F.C.C. chairman, will advocate a light-touch approach to Title II, they say, shunning the more intrusive aspects of utility-style regulation, like meddling in pricing decisions. He may also suggest putting wireless data services under Title II and adding regulations for companies that manage the backbone of the Internet.

You Asked: What Are Verizon and AT&T’s ‘Supercookies?’ - Overall, cookies are intended to enhance and personalize your Internet experience, and sites from Amazon to Yahoo use them to tailor the web to your liking. “Traditionally when you’re using cookies on the web, it’s primarily for maintaining some site information,” says Satnam Narang, senior security response manager at Symantec. For instance, cookies can save your username on a website so you don’t have to type it in every time you go to log in. Advertisers also use cookies to take note of what products you search for, so they can serve relevant ads to you as you traverse the web. But you can also erase cookies through your browser settings, or turn them off so that they don’t get saved to begin with. Your web browser’s “private mode” is another great way to get around them, because cookies are not saved when this feature is enabled.Supercookies, however, operate in a completely different way than standard web cookies. Instead of being a small file that gets saved by the web browser, a supercookie is a string of code injected into the data you’re downloading. Called a “unique identifier header,” this code cannot be deleted or wiped clean, because it is not a file.“There’s no way for you to wipe that cookie away,” says Narang, “because it’s injected into your network traffic.”  Everyday web users wouldn’t know the difference between a cookie and a supercookie until they tried (and failed) to delete their browser-based cookies — and that is what has privacy advocates so alarmed. “Even if you wipe a cookie away, the fact that your ID header (or supercookie) still exists, they’re able to correlate those two separate instances of traffic,” says Narang. “They’ve already profiled not only the cookie, but that unique identifier header.”Even if you’re browsing in private mode, websites can still monitor the websites you visited using supercookies. “The whole purpose of using private mode is because you want to just browse the website and not have anything saved,” says Narang. “You’re saying, ‘I don’t want you to save any information about me,’ and (with supercookies) that is not being respected.”

Energy-Pinching Americans Pose Threat to Power Grid - WSJ: The long-term future of the nation’s electric grid is under threat from an unlikely source—energy-conserving Americans. That is the fear of some utility experts who say that as Americans use less power, electric companies won’t have the revenue needed to maintain sprawling networks of high-voltage lines and generating plants. And if the companies raise rates too high to make up for declining sales volumes, customers will embrace even more energy-saving gizmos and solar panels, pushing down demand for grid power. The Edison Electric Institute, the trade group for investor-owned utilities, has warned that they could face a “death spiral.” “Utilities seem to have concrete shoes on,” says Elisabeth Graffy, co-director of Arizona State University’s Energy Policy, Law and Governance Center. Since 2004, average residential electricity prices have jumped 39%, to 12.5 cents a kilowatt-hour and prices for all users have jumped 36% to 10.42 cents, according to the U.S. Energy Information Administration. Retail sales to homes and businesses still are less than they were in 2007, before the recession. Even in parts of the country where the population has been growing, electricity sales have been anemic. Southern Co. , for example, said that in the third quarter of 2014, residential accounts grew 0.7% in its four-state region—but total home electricity sales contracted 0.6%.

Weekly Gasoline Price Update: First Increase of a Penny or More Since June of 2014 -  It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular rose two cents and Premium one. Based on the rounded data, this was the first weekly increase since June of last year.  According to, Hawaii has the highest average price at $3.09. The highest continental average price is in California at $2.45. Utah has the cheapest Regular at $1.84.

After Record Decline, Drop In Fuel Prices May Be Running Out of Gas - That decline in fuel prices that’s given millions of consumers across America reason to cheer? It looks like it’s running out of gas. The average per-gallon pump price for gasoline in the U.S. on Monday rose for the seventh straight day to $2.06, according to AAA. That follows 123 straight days of declines, a record, according to the motor club. Retail gasoline prices hit a nearly six-year low of $2.03 on Jan. 26. Seasonal trends in gasoline production and demand are a big factor behind the stabilization in prices. Refineries tend to scale back operations to make repairs in the first and second quarters, which curbs supplies. And consumption typically rises in the second quarter as the weather improves and people start driving more. It’s likely that gasoline prices have bottomed out for now, some experts say. To be sure, prices remain well below year-ago levels. “It is a good bet that most drivers will pay more for gasoline in March than today,” said AAA spokesman Avery Ash in a statement. Traders are closely watching a worker strike affecting refineries that produce nearly 10% of the nation’s fuels. The refiners say they plan to use nonunion labor to keep the refineries running, but any drop in production could push up fuel prices. Gasoline futures jumped 4.4% to $1.5446 a gallon Monday, one day after the strike was declared. That was the highest settlement price since Dec. 23. U.S. oil prices also rose, by 2.8% to $49.57 a barrel.

U.S. Light Vehicle Sales decrease to 16.6 million annual rate in January - Based on a WardsAuto estimate, light vehicle sales were at a 16.55 million SAAR in January. That is up 8.9% from January 2013, and down 1.5% from the 16.80 million annual sales rate last month.  The comparison to January 2014 was easy (sales were impacted by the severe weather last year). From Wards Auto: January 2015 U.S. LV Sales Thread: Trucks Spur Strong January Sales  Led by strong gains in truck sales, U.S. automakers sold 1.149 million light vehicles in January, a 9.3% increase in daily sales (over 26 days) compared with year-ago (25 days). The resultant seasonally adjusted annual rate - roughly 16.55 million - was the industry's highest January SAAR since 2006. General Motors led all automakers, accounting for 17.7% of the month's LV sales, followed by Ford (15.2%) and Toyota (14.8%). Subaru recorded the largest year-over-year growth with a 28.3% increase in daily sales, while Volvo and Volkswagen registered industry-worst 3.8% DSR declines.

US Domestic Vehicle Sales Disappoint In January, Drop For 2nd Month -- All day mainstream media has been crowing about Auto sales being mind-blowing... record-breaking... colossal... so we have a simple question... when Ward's released its US Domestic Auto Sales (SAAR) data this afternoon... why did it miss expectations and show a 2nd monthly drop in a row? January printed 13.31 million cars SAAR, missing expectations of 13.5 million and dropping from December's 13.46 million SAAR.

Why GM Employees Are Getting $9,000 Bonuses - About 48,000 General Motors employees in the United States can expect up to $9,000 in profit-sharing checks after the automaker on Wednesday reported impressive earnings for 2014.  The payments to GM workers are higher than last year’s maximum of $7,500, and the highest ever since GM and the United Autoworkers negotiated to share a portion of the company’s domestic profit, the Detroit Free Press reports.The increase in profit sharing-checks is based on an overall improvement in the automaker’s performance. GM earned $1.1 billion in the fourth-quarter of 2014, up 21% from a year earlier, with the company’s profit jumping 91% behind a strong auto market.GM spent $2.8 billion in costs related to the record number of recalls in 2014 after the company was forced to replace faulty airbags on thousands of vehicles. “A strong fourth-quarter helped us deliver very good core operating results in 2014 despite significant challenges we and the industry faced,” CEO Mary Barra said in a statement.

Why Ford Just Gave Many of Its Employees a $19,000 Raise -  Ford is planning to hike the pay of 300 to 500 entry-level workers by more than $19,000 a year as the automaker enjoys the recent strength of the U.S. auto industry.  The pay raise comes as Ford adds 1,550 jobs through March to support the production of Ford’s 2015 aluminum-body F-150 automotive, and as automotive sales continue to grow, The DetroitNews reports. Those new jobs will push Ford over the number of second-tier hourly workers it is allowed under its contract with the United Autoworkers, requiring the company to raise the 300-500 workers’ wages from about $19 an hour to $28 an hour.  The employees getting wage hikes are the most senior second-tier workers at Ford’s manufacturing facilities in Kansas City, Chicago and Louisville.  Ford is booming as the auto industry roars back from the recession. The company has added more than 15,000 hourly UAW members since 2011, exceeding its goal of creating 12,000 hourly jobs in the United States by 2015.

U.S. factory orders fall sharply, order books shrinking (Reuters) - New orders for U.S. factory goods fell for a fifth straight month in December, but a smaller-than-previously reported drop in business spending plans supported views of a rebound in the months ahead. Other data on Tuesday showing fairly brisk sales in January by the country's leading automobile manufactures also offered a silver lining for a sector that has taken a hit from weak global demand and falling crude oil prices.  The Commerce Department said new orders for manufactured goods declined 3.4 percent as demand fell across a broad sector of industries. That followed a 1.7 percent decrease in November and exceeded economists expectations for a 2.2 percent drop. The department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - slipped only 0.1 percent instead of the 0.6 percent drop reported last month. Manufacturing is being constrained by weakening demand in Europe and Asia, as well as a strong dollar and falling crude oil prices, which have caused some companies in the energy sector to either delay or cut back on capital expenditure projects.

Factory Orders Plunge 5th Month In A Row As ISM New York Crashes Most Since 2007 -- On the heels of the biggest crash in ISM New York since May 2007 (swinging from 9 year highs at 70.8 to 6 year lows at 44.5 in one month), Factory Orders plunged 3.4% in December (against an expectation of a 2.4% drop) - the biggest drop since Mar 2013 (ex last year's Boeing swing). Factory Orders 3.6% YoY drop is the largest since Nov09. Which explains why stocks are soaring... (despite Fed's Bullard saying "there is a lot of momentum in the US economy.")

Trade Deficit increases in December to $46.6 Billion --The Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $46.6 billion in December, up $6.8 billion from $39.8 billion in November, revised. December exports were $194.9 billion, down $1.5 billion from November. December imports were $241.4 billion, up $5.3 billion from November. The trade deficit was much larger than the consensus forecast of $38.0 billion.  The first graph shows the monthly U.S. exports and imports in dollars through December 2014. Imports increased and exports decreased in December. Exports are 17% above the pre-recession peak and up 1% compared to December 2013; imports are 4% above the pre-recession peak, and up about 5% compared to December 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through December. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $73.64 in December, down from $82.95 in November, and down from $91.33 in December 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. Note: There is a lag due to shipping and long term contracts, but oil prices will really decline over the next several months - and the oil deficit will get much smaller. The trade deficit with China increased to $28.3 billion in December, from $24.5 billion in December 2013. The deficit with China is a large portion of the overall deficit. The increase in the trade deficit was due to a higher volume of oil imports (volatile month-to-month), a larger deficit with China, and a larger deficit with the Euro Area ($11.7 billion in Dec 2014 compared to $8.8 billion in Dec 2013).

U.S. Trade Deficit Unexpectedly Widens To $46.6 Billion In December - The Commerce Department said the trade deficit widened to $46.6 billion in December from a revised $39.8 billion in November, reflecting the widest deficit since November of 2012. The wider trade deficit came as a surprise to economists, who had expected the deficit to narrow to $37.9 billion from the $39.0 billion originally reported for the previous month. While the wider deficit surprised economists, Paul Ashworth, Chief U.S. Economist at Capital Economics, said the data was broadly in line with assumptions made by the U.S. Bureau of Economic Analysis, likely resulting in no revisions to fourth quarter GDP growth. A sharp jump in the value of imports contributed to wider deficit, with imports surging up by 2.2 percent to $241.4 billion in December from $236.2 billion in November. Imports of industrial supplies and materials soared by 5.3 percent, partly reflecting a notable increase in the volume of imported crude oil. On the other hand, the report showed that the value of exports fell by 0.8 percent to $194.9 billion in December from $196.4 billion in November. The decrease was partly due to a sharp drop in exports of industrial supplies and materials, which tumbled by 7.3 percent.

US trade deficit jumps 17.1 percent to $46.6 billion — The U.S. trade deficit in December jumped to the highest level in more than two years as American exports fell and imports climbed to a record level. The deficit jumped 17.1 percent to $46.6 billion in December, the biggest imbalance since November 2012, the Commerce Department reported Thursday. The widening trade gap reflected a drop in exports, which fell 0.8 percent to $194.9 billion. Imports soared 2.2 percent to $241.4 billion. The deficit for all of 2014 increased to $505 billion, up 6 percent from the 2013 deficit of $476.4 billion. Economists expect the deficit to widen further in 2015 as strong growth in the United States boosts imports, while weak growth overseas and a rising dollar continue to depress exports. Economists were split on whether the bigger-than-expected December trade deficit would result in a significant revision in the government’s 2.6 percent initial estimate for overall growth in the fourth quarter. Paul Ashworth, chief U.S. economist at Capital Markets, said he believed much of the December trade balance was already reflected in the government’s GDP estimate. But Jennifer Lee, senior economist at BMO Capital Markets, said she thought the trade gap figures, along with weaker growth in business stockpiles, could trim as much as a 0.5 percentage point from the government’s initial estimate. “This is not good news for the final measure of economic growth,” The politically sensitive deficit with China set a record for 2014, rising 23.9 percent to $342.6 billion. The United States deficit with China surpassed the deficit with Japan in 2000 and since then, the trade gap with the world’s No. 2 economy has set a record nearly every year.

US Trade Deficit Soars In December As Strong Dollar Hurts Exports, Downward Q4 GDP Revisions Imminent -- And so after that epic 5.0% Q3 GDP print, driven largely by Obamacare, the payback begins, and the annualized Q4 GDP print, which came in at nearly half the previous quarter run rate, or 2.6%, is about to tumble by another ~0.5% following the just released trade data for December which saw a 17.1% surge in the US trade deficit from $39 billion (revised to $39.8 billion) to a whopping $46.6 billion in December, the widest deficit since 2012, as US exports declined 0.8% to 4194.9Bn from $196.4 Bn, while imports rose notably from $236.2Bn to $241.4Bn in the month before. All of this brought to you courtesy of the soaring USD. This was also the biggest miss to expectations of $38.0 billion since July of 2008. If this does not force policymakers to reassess the impact of the soaring dollar on US trade, nothing will.

How the U.S. Oil Boom Is Altering the Trade Deficit - The boom in U.S. oil production is rippling through U.S. trade figures. First, the U.S. is importing less oil. In 2014, petroleum imports at $334.1 billion fell to the lowest level since 2009, when the economy was still emerging from recession. Adjusted for inflation, the divergence is even starker. In constant dollars, the U.S. trade deficit for petroleum was the lowest on record last year, according to Commerce Department data released Thursday. In contrast, the U.S. appetite for other foreign goods has not abated. Indeed, one result of cheaper oil is cheaper gasoline, which allows Americans to spend more on an array of products. Adjusted for inflation, the non-petroleum trade gap was the highest on record last year.

US Trade Deficit with China Hit All-Time High in 2014 The global financial crisis was attributed to imbalances of the global economy coming undone. In particular, China was too export dependent with limited domestic demand as the income share of capital relative to labor went more and more in the former's favor. Meanwhile, the United States was consuming too much and exporting too little. Fast-forward six or seven years or so later and we have a world economy in which, er, the US still doesn't export all that much as its purchases of manufactures have hit all-time highs. Based on the latest data, full-year figures should show not only imports biting into US GDP but also the absence of any sort of rebalancing. Let's begin with the GDP-killing imports: Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a client note that he's now estimating that gross domestic product expanded at an annual pace of only 2 percent in the last three months of 2014. Feroli called that figure "a little dispiriting," considering that the economy was being boosted at the time by lower oil prices. (The government's first estimate of annualized GDP growth in the fourth quarter was 2.6 percent...) The gap between imports and exports was $46.6 billion in December, up from $39.8 billion in November. A deteriorating trade picture subtracted 1 percentage point from the government's first estimate of fourth-quarter growth. But with the new data, the subtraction is likely to be even bigger, economists said.  And here is the US being even more dependent on imports from China than ever, which conversely shows how China is still counting a lot on foreign demand: The details of today's reports were depressing to people trumpeting a U.S. manufacturing renaissance. Alan Tonelson, who blogs on trade and economic issues at RealityChek, calculates that the U.S. ran a record trade deficit with China for 2014 as a whole ($343 billion, up nearly 8 percent from the previous record in 2013) and a record deficit in manufactured goods with the world as a whole ($734 billion, up 13 percent from the 2013 record). So much for the global rebalancing fantasy.

Quick, Another Story on the U.S. Economic Boom, Before December Trade Data Gets Around - Dean Baker - Economists and economic reporters are fortunate they don't work in an occupation like dishwashing or truck driving where job security and promotion depend on performance. If they did, most of the folks currently employed would be on the street after missing little things like an $8 trillion housing bubble. But no reason to recount old history. Remember all those stories of the booming U.S. economy? Well, they are likely to be just memories. The December trade data was released today. It showed a monthly deficit of $46.6 billion, up from an originally reported $39.0 billion in November (revised up to $39.8 billion in this report). This will likely push the revised 4th quarter GDP growth to below 2.0 percent. Weak durable good shipments for December reported yesterday will also lower 4th quarter GDP. In short, it don't look like much of a boom. For fans of national income accounting (i.e. people who live in the real world), the rise in the trade deficit is very troubling. This is the core cause of secular stagnation. This is U.S. generated demand that is creating demand elsewhere. There is no easy mechanism to replace it. We could have larger budget deficits, but that goes against the fashions in Washington policy circles. That means, in the absence of another bubble, we can look to an underemployed economy persisting for some time.

Currency Manipulation and the 896,600 U.S. Jobs Lost Due to the U.S.-Japan Trade Deficit - U.S. trade and investment agreements have almost always resulted in growing trade deficits and job losses. Under the 1993 North American Free Trade Agreement, growing trade deficits with Mexico cost 682,900 U.S. jobs as of 2010, and U.S.-Mexico trade deficits and job displacement have increased since then. President Obama promised that the U.S.-Korea Free Trade Agreement would increase U.S. goods exports by between $10 billion and $11 billion, supporting 70,000 American jobs from increased exports alone. However, in the first two years after that deal went into effect, U.S. exports actually declined, and growing trade deficits with South Korea cost nearly 60,000 U.S. jobs. The U.S. trade deficit with South Korea continues to rise. This is important to keep in mind as secret negotiations for the Trans-Pacific Partnership (TPP) continue, most recently in Washington and New York. The United States has a large and growing trade deficit with Japan and the 10 other countries in the proposed TPP. This deficit has increased from $110.3 billion in 1997 to an estimated $261.7 billion in 2014.Additionally, several members of the proposed TPP deal are well known currency manipulators, including Malaysia, Singapore, and Japan. In fact, Japan is the world’s second largest currency manipulator, behind China. The United States should not sign a trade and investment deal with these countries that does not include strong prohibitions on currency manipulation. Yet U.S. Trade Representative Michael Froman has testified that currency manipulation has not been discussed in the TPP negotiations.

Increased U.S. Trade Deficit in 2014 Warns Against Signing Trade Deal without Currency Manipulation ProtectionsThe U.S. Census Bureau reported that the annual U.S. trade deficit in goods and services increased from $476.4 billion in 2013 to $505.0 billion in 2014, an increase of $28.6 billion (6.0 percent). This reflected a $6.5 billion (2.9 percent) increase in the services trade surplus and a $35.2 billion (5.0 percent) increase in the goods trade deficit. However, the small increase in the goods trade deficit masked important structural shifts in U.S. goods trade. Although the U.S. goods trade deficit in petroleum goods declined by $43.7 billion (18.8 percent), the U.S. trade deficit in nonpetroleum goods increased by $77.5 billion (17.0 percent).  The increased trade deficit in nonpetroleum goods is largely explained by the increase in the U.S. trade deficit in manufactured products, shown in Figure A. Growing U.S. goods trade deficits reflect reduced demand for U.S.-made goods, especially manufactured products, which make up more than 85 percent of U.S. goods exports. China, and the members of the proposed Trans-Pacific Partnership (TPP), were important contributors to the growing U.S. trade deficit in manufactured goods in 2014. (In addition to the U.S., the TPP includes Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.) U.S. trade and investment deals such as the North American Free Trade Agreement and the U.S.-Korea Free Trade Agreement, and China’s membership in the World Trade Organization, have resulted in growing U.S. trade deficits and job losses and downward pressure on U.S. wages.   Several members of the proposed TPP are well known currency manipulators, including Malaysia, Singapore, and Japan. In fact, Japan is the world’s second largest currency manipulator, behind China. The United States should not sign a trade and investment deal with these countries that does not include strong prohibitions on currency manipulation.

Love or Hate Trade Deals, There’s Ammunition in Widening U.S. Trade Deficit - The record-setting expansion of the trade deficit in December has fired up an economic debate at the center of President Barack Obama’s push to negotiate a giant trade agreement with 11 Pacific partners.  Leading critics of Mr. Obama’s trade policy, including labor leaders and Detroit’s auto industry, see the disturbing deficits as evidence that previous efforts to lower trade barriers have backfired. But the administration, backed by most Republican lawmakers, takes the opposite point of view: Officials say if trade barriers aren’t lowered further, it will be hard to boost exports and improve the balance of trade.The debate between the diametrically opposed viewpoints is heating up as the dollar strengthens against other currencies, as the U.S. seeks to sign the Pacific trade deal, and as more U.S. data show exports trailing behind imports.The Commerce Department said Thursday the U.S. trade deficit in December widened by the largest amount ever in dollar terms, to $46.56 billion. For all of 2014, the trade deficits in goods with China and the European Union hit records, totaling nearly half a trillion dollars. Mr. Obama fell well short of his goal of doubling exports over five years, with the shipment of goods abroad rising just 54% between 2009 and 2014. Stefan Selig, the undersecretary of commerce for international trade, said the data shows rising exports to countries with free-trade agreements. He acknowledged that the dollar, which he said is “likely to remain strong,” is a drag on exports and said that’s a reason to lower trade barriers through the Trans-Pacific Partnership and other deals.

West Coast Port Strike Could De-Rail Economic Recovery - A breakdown in contract negotiations between labor and management at America's west coast ports is threatening to turn a slowdown into a full-scale strike, and an economic headache into a full-blown crisis that impacts the entire American economy.     On Wednesday, talks between the Pacific Maritime Association (PMA) representing port management, and the International Longshore and Warehouse Union (ILWU) officially broke down, and without an agreement, experts have suggested that nearly 30 west coast ports could be shut down within a week. A work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America's supply chain grinds to a halt.   "A west coast port shutdown would be an economic disaster," said Kelly Kolb, vice president of government affairs for the Retail Industry Leaders Association. "A shutdown would not only impact the hundreds of thousands of jobs working directly in America's transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves.   "The slowdown is already making life difficult, but a shutdown could derail the economy completely," said Kolb. "For retailers specifically, a shutdown will have dire consequences for those dependent on spring inventory demand."  The last prolonged port shutdown of the West Coast ports was the 10-day lockout in 2002 which was estimated to cost the U.S. economy close to $1 billion a day.   "A port shutdown of even a short duration could de-rail economic growth and cause long-lasting damage and job losses across the country,"

West Coast Port slowdown could become shut down in less than a week - -- A breakdown in contract negotiations between labor and management at America’s west coast ports is threatening to turn a work slowdown into a full-scale strike, the Retail Industry Leaders Association (RILA) warned. On Wednesday, talks between the Pacific Maritime Association (PMA) representing port management, and the International Longshore and Warehouse Union (ILWU) officially broke down. Without an agreement, experts have suggested that nearly 30 west coast ports could be shut down within a week. According to reports, the two sides remain at odds on several issues, including wages, pensions and arbitration to settle contract disputes. A work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. The congestion has been most pronounced at Los Angeles and Long Beach, Reuters reported, with port authorities reporting more than 20 freighters left idled at anchor, waiting for berths to open up, over the past two days. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt, according to RILA. "A west coast port shutdown would be an economic disaster," said Kelly Kolb, VP of government affairs for RILA. “A shutdown would not only impact the hundreds of thousands of jobs working directly in America’s transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves. For retailers specifically, a shutdown will have dire consequences for those dependent on spring inventory demand.”

"Catastrophic Shutdown Of America's Supply Chain Looms" As West Coast Port Worker Talks Break Down -- According to the latest update from the 29 west coast ports that serve as the entry point of the bulk of Asia/Pac trade into and out of the US, things are about to get far worse for America's manucaturing base, because as RILA reported earlier, talks between the Pacific Maritime Association (PMA) representing port management, and the International Longshore and Warehouse Union (ILWU) officially broke down on Wendesday, and without an agreement, experts have suggested that nearly 30 west coast ports could be shut down within a week. As RILA reports, "a work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt."

West Coast Port Employers: Shutdown Could Be 5 Days Away - West Coast seaports could shut down in as soon as five days — hobbling U.S. trade with Asia — if dockworkers and their employers cannot reach a new contract, the head of a maritime association warned Wednesday in remarks intended to pressure an agreement after nine months of negotiations. Operators of port terminals and shipping lines do not want to lock out longshoremen, but that would be inevitable if cargo congestion persists at ports that handle about $1 trillion in trade annually, Pacific Maritime Association CEO James McKenna said. The maritime association has been negotiating since May with the International Longshore and Warehouse Union, which represents dockworkers at 29 ports from San Diego to Seattle. For months, employers have said ports in Los Angeles/Long Beach, Oakland and Washington state are on the "brink of gridlock" — and in recent weeks, queues of massive ships have grown longer in the waters off docks now stacked high with containers of goods. On Wednesday, McKenna said the congestion crisis has reached a tipping point, and it would make no sense to pay crews if there is no way to move cargo containers into the flow of commerce because dockside yards are too jammed. "The system can only take so much," McKenna told reporters by phone before returning to negotiations in San Francisco. "At some point, this will collapse under its own weight." Without a new contract, employers could begin a lockout in as soon as five days, or as many as 10 days. "I couldn't tell you exactly, but I can tell you it's imminent," McKenna said.

What is so wrong about the consumer paying the true cost of grain, coal and oil? - Maybe it would mean that I wouldn't eat so dang much: Locks are intended to make it easy for ... barges, with their cargoes of grain, coal and oil, to navigate the uneven waters of the Mississippi, Kentucky [1] and Ohio Rivers. But largely out of sight of most Americans, the locks are crumbling. There are 192 locks on 12,000 miles of river across the country; most were built in the 1930s, even earlier than Kentucky Lock and Dam, and have long outlived their life expectancy. ... President Obama has asked Congress for billions of dollars for infrastructure improvements, and last year, he signed a $12.3 billion water resources bill with money to complete construction of a major lock and dam project near Olmsted, Ill. But the president has also called for cuts in the United States Army Corps of Engineers budget, which includes money for repairs of locks and dams.  Transportation advocates say the funding is vastly insufficient to deal with the construction backlogs of locks and dams. The Corps of Engineers, which maintains most of the system, says it will take $13 billion through 2020 just to fix the decaying locks. Without the money, Corps officials say it will take until 2090 to complete all the projects. In the United States, the equivalent of 51 million truckloads of goods move by river each year. ... via I'm sure Cargil prefers the subsidy of federally supported river, rail and road transportation. On the other hand, putting money to fix locks into the federal budget isn't the most efficient way to pay for their repair. The cost of maintenance would be better supported with user fees. If the maintenance cost is $13 billion annually (or is it one-time, I can't tell from the article), 51 million truckloads move by river and 15 barges equal 1050 trucks then a toll of about $18,000 [2] per barge trip through the lock would fund the system ($255 per truckload). The goods that travel by barge would cost more and we would consume less of them (grain, coal and oil). Still, that seems like a better system than taxing most everyone to fund river transportation.

ISM Manufacturing index declined to 53.5 in January - The ISM manufacturing index suggests slower expansion in January than in December. The PMI was at 53.5% in January, down from 55.1% in December. The employment index was at 54.1%, down from 56.0% in December, and the new orders index was at 52.9%, down from 57.8%. From the Institute for Supply Management: January 2015 Manufacturing ISM® Report On Business®  . "The January PMI® registered 53.5 percent, a decrease of 1.6 percentage points from December’s seasonally adjusted reading of 55.1 percent. The New Orders Index registered 52.9 percent, a decrease of 4.9 percentage points from the seasonally adjusted reading of 57.8 percent in December. The Production Index registered 56.5 percent, 1.2 percentage points below the seasonally adjusted December reading of 57.7 percent. The Employment Index registered 54.1 percent, a decrease of 1.9 percentage points below the seasonally adjusted December reading of 56 percent. Inventories of raw materials registered 51 percent, an increase of 5.5 percentage points above the December reading of 45.5 percent. The Prices Index registered 35 percent, down 3.5 percentage points from the December reading of 38.5 percent, indicating lower raw materials prices in January relative to December. Comments from the panel indicate that most industries, but not all, are experiencing strong demand as 2015 kicks off. The West Coast dock slowdown continues to be a problem, negatively impacting both exports and imports as well as inventories."" Here is a long term graph of the ISM manufacturing index. This was below expectations of 54.5%, but still indicates expansion in January.

Manufacturing Growth Tapering as PMI Continues to Slide Towards Neutral - The January ISM Manufacturing Survey shows manufacturing is still expanding, abet at an even slower pace than December.  PMI dropped by -1.6 percentage points to 53.5%  Everything was down this month, new orders especially declined.  While technically not showing a contraction, the ISM overall message tells us American manufacturing is close to running idle.  One month does not a trend make but this sure isn't a great start to the New Year for U.S. manufacturing.  This is a direct survey of manufacturers.  Generally speaking indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments.  In spite of the slowing growth manufacturer's comments are exceedingly positive.  Three blamed workers which are slowing down the West Coast dock for better working conditions.  Agriculture said demand for equipment is down.   New orders really plunged to mediocre growth.  The -4.9 percentage point drop from last month gives a level of 52.9% as shown in the below graph. The Census reported December durable goods new orders declined by -3.4%, where factory orders, or all of manufacturing data, will be out later this month, but note the one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.

ISM Manufacturing Index: ISM Manufacturing Index: Slowest Growth in Eleven Months -- Today the Institute for Supply Management published its monthly Manufacturing Report for January. The latest headline PMI was 53.5, a decline from the previous month's 55.1 percent and below the forecast of 54.5. This was the lowest PMI in eleven months. Here is the key analysis from the report:  "The January PMI® registered 53.5 percent, a decrease of 1.6 percentage points from December’s seasonally adjusted reading of 55.1 percent. The New Orders Index registered 52.9 percent, a decrease of 4.9 percentage points from the seasonally adjusted reading of 57.8 percent in December. The Production Index registered 56.5 percent, 1.2 percentage points below the seasonally adjusted December reading of 57.7 percent. The Employment Index registered 54.1 percent, a decrease of 1.9 percentage points below the seasonally adjusted December reading of 56 percent. Inventories of raw materials registered 51 percent, an increase of 5.5 percentage points above the December reading of 45.5 percent. The Prices Index registered 35 percent, down 3.5 percentage points from the December reading of 38.5 percent, indicating lower raw materials prices in January relative to December. Comments from the panel indicate that most industries, but not all, are experiencing strong demand as 2015 kicks off. The West Coast dock slowdown continues to be a problem, negatively impacting both exports and imports as well as inventories."  Here is the table of PMI components.

ISM Manufacturing Tumbles To One-Year Lows As New Orders Crater; Construction Spending Disappoints - Amid a plunge in new orders to Jan 2014 lows, the ISM Manufacturing index slid to 53.5 (missing expectations of 54.5) to its lowest since Jan 2014 - confirming Markit's US PMI. New export orders contracted. employment growth slumped to 7 month lows, and inventories surged. In addition, after December's tumble in construction spending, January's bounce was only half as much as expedcted (+0.4% MoM vs +0.7% expected) missing for the 6th month in the last 7.

US Manufacturing "Remains In Low Gear" - Hovers Near One-Year Lows -- Having fallen 4 months in a row in December to its lowest since last January, one could have been forgiuven for expecting the ubiquitous hope-driven bounce we so often see in soft-survey-based data and sure enough, Markit's US Manufacturing PMI eked out a very small (53.9 vs 53.7 previous) rise in January - hovering at practically one-year lows. On the heels of China's disappointment, it appears the cleanest dirty short of America is not decoupling too much (if at all). This is not the "crisis has passed", "economy is strong" narrative-confirming data that Obama and The Fed would have everyone believe and as markit notes, “Manufacturing remains in a lower gear compared to that seen last summer... adding to the suspicion that the pace of economic expansion in the first quarter could even fall below the 2.6% rate seen in the final quarter of last year."

US Deflation Surges To Level Last Seen In October 2008 - This is what the ISM says of its "Prices" survey question: The ISM Prices Index registered 35 percent in January, which is a decrease of 3.5 percentage points compared to the December reading of 38.5 percent. In January, 11 percent of respondents reported paying higher prices, 41 percent reported paying lower prices, and 48 percent of supply executives reported paying the same prices as in December. This is the third consecutive month that raw materials prices have registered a decrease, with the Prices Index decreasing a total of 18.5 percentage points over these three months. A Prices Index above 52.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.  Of the 18 manufacturing industries, the only industry reporting increased prices in January is Printing & Related Support Activities. The 15 industries reporting paying lower prices during the month of January — listed in order — are: Textile Mills; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Petroleum & Coal Products; Paper Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; Computer & Electronic Products; Furniture & Related Products; Machinery; Transportation Equipment; Primary Metals; and Miscellaneous Manufacturing. And here is how respondents who answered "Higher" or "Lower" prices looks like in context. In case it is not self-evident, the last time 41% of the ISM respondents, and rising, saw "lower" prices was in October 2008. We can't quite put our finger on what had just happened the month prior.

Diving Into the ISM: What's It All Mean?  -- The PMI is a diffusion index. Numbers above 50 indicate expansion, numbers below 50 indicate contraction. A problem with such indices is size of company does not matter. A chemical company with 300 employees carries the same weight as an auto manufacturer with 200,000 employees. Moreover there are some peculiarities with the break-even number of 50. For example, the ISM says A PMI® in excess of 43.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the January PMI® indicates growth for the 68th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 20th consecutive month. Holcomb stated, "The past relationship between the PMI® and the overall economy indicates that the PMI® for January (53.5 percent) corresponds to a 3.3 percent increase in real gross domestic product (GDP) on an annualized basis." Thus, a manufacturing PMI above or below 50, does not imply overall economic activity as one might expect. Also, month-to-month changes show a lot a variances so it's important to look at trends over a longer period of time.The NBER (the historical arbiter of when recessions start and end) says a US recession began in November of 1973. The Manufacturing ISM was 68.1 at the time. The above chart also shows some recessions began with the manufacturing PMI in negative territory.

ISM Non-Manufacturing Index increased to 56.7% in January - The January ISM Non-manufacturing index was at 56.7%, up from 56.5% in December. The employment index decreased in January to 51.6%, down from 55.7% in December. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: January 2015 Non-Manufacturing ISM Report On Business® NMI® registered 56.7 percent in January, 0.2 percentage point higher than the December reading of 56.5 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2.9 percentage points higher than the December reading of 58.6 percent, reflecting growth for the 66th consecutive month at a faster rate. The New Orders Index registered 59.5 percent, 0.3 percentage point higher than the reading of 59.2 percent registered in December. The Employment Index decreased 4.1 percentage points to 51.6 percent from the December reading of 55.7 percent and indicates growth for the eleventh consecutive month. The Prices Index decreased 4.3 percentage points from the December reading of 49.8 percent to 45.5 percent, indicating prices contracted in January when compared to December. According to the NMI®, eight non-manufacturing industries reported growth in January. Comments from respondents vary by industry and company; however, they are mostly positive and/or reflect stability about business conditions." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

ISM Non-Manufacturing: Continued Growth in January - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56.7 percent, up slightly from last month's 56.5 percent. Today's number came in above the forecast of 56.3. Here is the report summary: "The NMI® registered 56.7 percent in January, 0.2 percentage point higher than the December reading of 56.5 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2.9 percentage points higher than the December reading of 58.6 percent, reflecting growth for the 66th consecutive month at a faster rate. The New Orders Index registered 59.5 percent, 0.3 percentage point higher than the reading of 59.2 percent registered in December. The Employment Index decreased 4.1 percentage points to 51.6 percent from the December reading of 55.7 percent and indicates growth for the eleventh consecutive month. The Prices Index decreased 4.3 percentage points from the December reading of 49.8 percent to 45.5 percent, indicating prices contracted in January when compared to December. According to the NMI®, eight non-manufacturing industries reported growth in January. Comments from respondents vary by industry and company; however, they are mostly positive and/or reflect stability about business conditions."  Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

Services PMI Worst New Order Growth Since Financial Crisis, ISM Weakest Employment Since Feb 2014 - Markit Services PMI rose modestly but hovered at one-year lows at 54.2 in January suggesting, as Markit notes, "the near-halving in the pace of economic growth in the fourth quarter of 2014," as companies struggle with new orders seeing the smallest increase since the financial crisis over six years ago. This comes on the heels of Decembers big miss in ISM Services, which rose - like PMI - very modestly to 56.7 (from a revised 56.5) with prices-paid tumbling to its lowest sinceJuly 2009 and employment lowest since Feb 2014. That said, it wouldn't be a Baffle with BS economy if the two releases, which are supposed to at least agree on the direction of the move, did not report two diametrically opposite trends, with the ISM reporting that while Employment tumbled from 55.7 to 51.6, New Orders actually rose from 56.5 to 56.7. Markit? The other way around, with New Orders dropping from 53.4 to 52.3 as Employment rose from 51.5 to 52.3!

How The ISM Beat Expectations: It Assumed January Weather Was Worse Than The Polar Vortex -- Earlier today, when the Markit PMI and the ISM non-manufacturing data disagreed violently over a key aspect of the economy, namely that according to the first, the all important, forward-looking New Orders had dropped to the lowest since the great financial crisis, while according to the latter, they rebounded modestly in January, we decided to go straight to the source: the unadjusted data which does not incorporate any gratuitous seasonal adjustments (which for the ISM, were just adjusted as part of its annual revision spectacle).  This is what we found.

U.S. growth may sputter with productivity and population growth so low -  It’s tough to read much in the latest quarterly swings in productivity data, but taken over the last four years, they paint a fairly dismal picture of the potential for growth from the U.S. economy. The latest report from the Labor Department showed that productivity fell 1.8% in the fourth quarter. For the year, productivity grew just 0.8%. That’s not a new trend. Since the recession’s end, productivity hasn’t surpassed a meager 1% in any year. There are different theories around to explain this phenomenon, including the lack of investment. A quick estimate of the growth potential of the U.S. economy is just the sum of productivity growth plus the growth in working-age population. As the chart shows, it’s not much. Even more sobering is the fact that the working-age population growth is set to decline — from roughly 0.5% right now, to just 0.2% in 10 years’ time. In 2000 — the last year, incidentally, that there was growth of over 4% for the U.S. economy — the working age population grew 2.1%.

Weekly Initial Unemployment Claims increased to 278,000 --The DOL reported: In the week ending January 31, the advance figure for seasonally adjusted initial claims was 278,000, an increase of 11,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 265,000 to 267,000. The 4-week moving average was 292,750, a decrease of 6,500 from the previous week's revised average. The previous week's average was revised up by 750 from 298,500 to 299,250.  There were no special factors impacting this week's initial claims. The previous week was revised up to 267,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

Layoffs Surge 17.6% YoY, Shale State Joblessness Soars, Initial Jobless Claims Rise --It all makes perfect sense. Challenger announced this morning that layoffs in January soard 17.6% year-over-year with planned job cuts at the highest level in almost 2 years... Jobless claims in Shale states continues to trend higher as oil prices collapse... but initial jobless claims beat expectations - hovering near cycle lows - though did rise modestly WoW.

ADP: Private Employment increased 213,000 in January - From ADP: Private sector employment increased by 213,000 jobs from December to January according to the January ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis...Goods-producing employment rose by 31,000 jobs in January, down from 47,000 jobs gained in December. The construction industry added 18,000 jobs, down from last month’s gain of 26,000. Meanwhile, manufacturing added 14,000 jobs in January, below December’s 23,000. Service-providing employment rose by 183,000 jobs in January, down from 207,000 in December. ... Mark Zandi, chief economist of Moody’s Analytics, said, “Employment posted another solid gain in January, although the pace of growth is slower than in recent months. Businesses in the energy and supplying industries are already scaling back payrolls in reaction to the collapse in oil prices, while industries benefiting from the lower prices have been slower to increase their hiring. All indications are that the job market will continue to improve in 2015.” This was below the consensus forecast for 220,000 private sector jobs added in the ADP report.  The BLS report for January will be released on Friday and the consensus is for 230,000 non-farm payroll jobs added in December.

The Layoffs Begin: ADP Misses, Lowest Since September As "Businesses In The Energy Industries Are Scaling Back Payrolls" -- Having beaten expectations for the past 4 months, in the face of a surge in jobless claims across Shale states, it appears January's print is finally catching down to a weaker expectations as layoffs dominate headlines as even Mark Zandi is forced to admit "Businesses in the energy and supplying industries are already scaling back payrolls in reaction to the collapse in oil prices, while industries benefiting from the lower prices have been slower to increase their hiring." At 213k, this is the lowest print in 4 months, missing expectations of 223k and dramatially down from December's upwardly revised 253k (from 241k) - the biggest drop since August as small business job growth slides significantly.

Goldman Sachs Employment Forecast: 210,000 jobs added, Unemployment Rate decline to 5.5%  - Yesterday I wrote: Preview for January Employment Report: Taking the Under. From Goldman Sachs economist David Mericle: January Payrolls Preview: We forecast nonfarm payroll job growth of 210k in January, below the consensus forecast of 230k. Payroll employment growth exceeded 250k in each of the last four months and averaged 246k over the 12 months of 2014, a substantial pick-up from the 194k average gain in 2013. On balance, labor market indicators were softer in January, with the decline in the ISM non-manufacturing employment index the most notable sign of slower hiring. We also expect a moderately positive two-month back-revision. The January report will also include annual benchmark revisions to payroll employment, but the preliminary revisions released in September indicated very little change...We expect employment gains to push the unemployment rate down to 5.5% in January from an unrounded 5.565% in December, though new population controls that will be included with the January report create some uncertainty...The two-tenths decline in average hourly earnings was the major surprise of the December payrolls report. But as we argued last month, calendar distortions and an unusual pattern of holiday retail hiring likely accounted for most of the downside surprise. We therefore expect average hourly earnings to rebound this month, growing an above-trend +0.4% in January, although we see some risk of a softer January gain coupled with an upward revision to December. Average hourly earnings rose just 1.7% over the year ending in December, contributing to the soft 2.1% year-on-year increase in our wage tracker. We expect an acceleration to around 2.75% by year-end, still well below the 3-4% rate of wage growth that Fed Chair Janet Yellen has identified as normal.

January Employment Report: 257,000 Jobs, 5.7% Unemployment Rate - From the BLSTotal nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. ... The change in total nonfarm payroll employment for November was revised from +353,000 to +423,000, and the change for December was revised from +252,000 to +329,000. With these revisions, employment gains in November and December were 147,000 higher than previously reported. Monthly revisions result from additional reports received from businesses since the last published estimates and the monthly recalculation of seasonal factors. The annual benchmark process also contributed to these revisions. ...[Benchmark revision] The total nonfarm employment level for March 2014 was revised upward by 91,000.  The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 257 thousand in January (private payrolls increased 267 thousand). Payrolls for November and December were revised up by a combined 147 thousand, putting November over 400 thousand! This graph shows the year-over-year change in total non-farm employment since 1968. In January, the year-over-year change was 3.21 million jobs. This was the highest year-over-year gain since the '90s. And improved earnings: "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $24.75, following a decrease of 5 cents in December. Over the year, average hourly earnings have risen by 2.2 percent."

Economy Adds 257,000 Jobs in January  - Dean Baker  - The Labor Department reported that the economy added 257,000 new jobs in January. With upward revisions to the prior two months' data, this brings the average over the last three months to 336,000 jobs. The unemployment rate was essentially unchanged at 5.7 percent. Adjusting for changes in population controls, the household survey still showed an increase in employment of 435,000 in January.  The job growth in the establishment survey was widely spread across industries, but it is noteworthy that the goods production sector remained strong. Construction added 39,000 jobs, bringing the average over the prior three months to 37,700. Manufacturing added 22,000 jobs bringing the average over the last three months to 31,000. The oil and gas sector is showing the impact of falling prices, with employment down by 1,900 in January. Employment in coal mining also fell by 700. Over the last year, the coal industry has lost 4,800 jobs with employment now standing at 71,300. Retail added 45,900 jobs in January, while health care added 38,300. The latter figure continues an uptick in job growth in the health care sector that began in the fall. Job growth had averaged under 14,000 a month in 2013 and 19,000 in the first half of 2014. It has averaged 39,000 a month since September. The temp sector showed a loss of 4,100 jobs in January after gaining 55,800 jobs over the prior two months. This more likely represents an erratic movement in the data than a reversal in employment trends in the sector. Restaurant employment rose by 34,600, almost exactly equal to its growth rate over the last year. The government sector lost 10,000 jobs, but most of this was due to the loss of 6,100 jobs in the Postal Service.There was a 12 cent jump in average hourly pay, but this reflects the erratic movement of this series, not a real development in the economy. Taking the last three months together, compared with the prior three months, wages have grown at just a 2.0 percent annual rate, down from a 2.2 percent increase over the last year. In other words, there is still no real evidence of wage acceleration in the data.The household survey showed little change in the employment situation for most groups. It is striking that less educated workers continue to be the largest beneficiaries of the recovery. In the last year, the employment rate (EPOP) for workers without high school degrees has risen by 2.1 percentage points, while their unemployment rate has dropped by 1.1 percentage points. High school grads have seen a similar drop in their unemployment rates, although their EPOP has risen by just 0.2 percentage points. By contrast, the unemployment rate for college graduates has fallen by 0.5 percentage points, while their EPOP has dropped by 0.7 percentage points. The unemployment rate for college graduates is still 0.8 percentage points above its average for 2007.

Strong Jobs Growth in January with Big Upward Revisions to November and December: Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing.  Today's report of 257K new nonfarm jobs in January was above the forecast of 234K. Moreover, December was revised upward from 252K to 329K and November from 353K to 423K, a total 0f 147K to the upside. The unemployment rate ticked up from 5.6% to 5.7%. While the monthly change in the nonfarm jobs count is a consistent headline maker in the business news, this is a data series that should be viewed with healthy skepticism. Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. I've included a 12-month moving average to help visualize the trend. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the most recent and previous bear markets. The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It dropped below 3% in April of last year and is now hovering at its post-recession low of 1.8%.

January Jobs Report Shows 2014’s Strong Jobs Market Continuing Into New Year -- January’s employment report is often a difficult one to gauge in advance because it happens to be the month that the Bureau of Labor Statistics introduces its new round of statistical revisions for the coming year, which in itself can often cause numbers to fluctuate wildly. Additionally, it’s often unclear what the impact of the end of the seasonable hiring for Christmas will end up being in the retail field. That notwithstanding, most analysts were expecting a strong report for January and the numbers didn’t disappoint:Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate  was little changed at 5.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing.The unemployment rate, at 5.7 percent, changed little in January and has shown no net change since October. The number of unemployed persons, at 9.0 million, was little changed in January. (See table A-1. See the note at the end of this news release and tables B and C for information about annual population adjustments to the householdnsurvey estimates.) Among the major worker groups, the unemployment rate for teenagers (18.8 percent) increased in January. The jobless rates for adult men (5.3 percent), adult women (5.1 percent), whites (4.9 percent), blacks (10.3 percent), Asians (4.0 percent), and Hispanics (6.7 percent) showed little or no change. (See tables A-1, A-2, and A-3.)

January 2015 jobs report: almost a blowout, wages still a relative weak spot, but real wages make 35 year high - HEADLINES:

  • 257,000 jobs added to the economy
  • U3 unemployment rate up 0.1% to 5.7%
  • Not in Labor Force, but Want a Job Now: down 87,000 from 6.445 million to 6.358
  • Part time for economic reasons: up 20,000 from 6.790 million to 2.810
  • Employment/population ratio ages 25-54: up 0.2% to 77.2% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.07 (or 0.3%) from $20.73 to $20.80, up 2.0%YoY

November was revised upward by 65,000 from 358,000 to 423,000, and December was revised from 252,000 to 329,000. The net revision was +147,000. Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment. The headline numbers for January show a surge in employment over the last few months, and also rebounded off of the decrease in wages from December. Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago. Since Congress cut off extended unemployment benefits over one year ago, they have risen to 600,000 higher November 2013 post recession low of 5.6 million. On the other hand, the participation rate in the prime working age group has come back almost half from its post-recession low towards its pre-recession high. After inflation, real hourly wages for nonsupervisory employees from December to January probably rose by +0.4% or more, in part because because lower gas prices will again show deflation. The nominal YoY% change in average hourly earnings is +1.9%. The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed by with a positive bias.

January jobs: “Goldilocks” rising–the labor market is strengthening at a faster clip but without inflationary pressures - Payrolls were up a solid 257,000 last month and strong upward revisions to prior months’ payroll gains reveal an uptick in the pace of job creation in recent months. Wage growth got a slight bump and the labor force participation rate ticked up as well, in what is a uniformly impressive jobs report, another in steady line of reports showing that the economic recovery has reliably reached the labor market. While we are clearly not yet at a full employment economy, characterized by a very tight fit between the number of job seekers and jobs, we are moving in that direction.Over the past three months, payroll growth has averaged 336,000 per month. A year ago, the comparable number was 197,000. My patented jobs day smoother, shown below, also captures the recent acceleration in net job creation, as the three month average is notably above that of six and 12 months.Unemployment ticked up slightly, to 5.7%, as more people entered the job market than found employment. But especially given the accelerated pace of job creation, this is good sign, signally the potential return (we don’t want to over-interpret one month’s move in this noisy series) to the labor force of sideliners who’ve been waiting for better prospects. The labor force participation rate ticked up 0.2% in January, replacing a decline of the same magnitude in December. At 62.9%, this important indicator has clearly stabilized at about 63%, where it’s been wiggling around for about a year now. That level remains three points below its pre-recession peak, and is thus symptomatic of remaining slack in the job market (there are also still close to 7 million involuntary part-timers who’d like full-time work, another indicator of ongoing slack). Still, its stabilization is good news. Hourly wages, which fell in December, rose 0.5% in January and were up 2.2% over the past year, compared to 1.9%, Dec/Dec. Given recent gains in weekly hours worked, weekly earnings are up 2.8% over the past year. Moreover, with energy prices holding back inflation, up only 0.7% when last seen, this translates into some of the first solid real wage growth in the recovery.

January Payrolls Smash Expectations Rising By 257,000 As Hourly Earnings Surge Most Since November 2008 - So much for expectations that January, missing on 9 out of 10 previous occasions, will miss again, as the BLS just reported that in January a whopping 257K jobs were added, far above the 228K expected, and up from December's 252K which was revised as part of the annual BLS data revision to 329K, a whopping 147K revision! The unemployment rate rose from 5.6% to 5.7%, above the 5.6% expected. But most notable, the average hourly earnings surged from last month's -0.2% by a whopping 0.5%, the highest monthly jump in average hourly earnings since November 2008. It remains to be seen just how this is happening with mass layoffs in the oil patch, but what is now practically assured is that the Fed will have no choice but to hike as soon as June.

Diving Into the Payroll Report: Wages Rebound (But Don't Get Too Excited), Revisions, Huge Jump in Labor Force - Wages rebounded from the dip last month (but don't get too excited as per details below). Also, there were big upward revisions to many prior numbers.  The unemployment rate rose this month because of a huge increase in the labor force. The civilian institutional population also leaped this month, and apparently these newly-found people are all looking for work. In yet another anomaly, unemployment rose by 291,000, but that was tempered by a rise in employment of 759,000.  This was certainly a strange report. Revisions are at the heart of it. This is just one month, and the household data has been exceptionally volatile lately. Revisions:

  • November nonfarm payroll employment was revised from +353,000 to +423,000
  • December nonfarm payroll employment was revised from +252,000 to +329,000
  • With these revisions, employment gains in November and December were 147,000 higher than previously reported. 
  • Monthly revisions result from additional reports received from businesses since the last published estimates and the monthly recalculation of seasonal factors. 
  • The annual benchmark process also contributed to these revisions.

BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +257,000 - Establishment Survey
  • Employment: +759,000 - Household Survey
  • Unemployment: +291,000 - Household Survey
  • Involuntary Part-Time Work: +20,000 - Household Survey
  • Voluntary Part-Time Work: +92,000 - Household Survey
  • Baseline Unemployment Rate: +0.1 at 5.7% - Household Survey
  • U-6 unemployment: +0.1 to 11.3% - Household Survey
  • Civilian Non-institutional Population: +705,000
  • Civilian Labor Force: +1,051,000 - Household Survey
  • Not in Labor Force: -354,000 - Household Survey
  • Participation Rate: +0.2 at 62.9 - Household Survey

January’s Jobs Report in 10 Charts -  The U.S. economy added 257,000 jobs in January, and revisions showed that employment gains in the last two months of 2014 included 147,000 more jobs than previous estimated. That was enough to keep job growth running at its fastest 12-month pace since the middle of 2000. The 2.2% rise in average hourly earnings is still sluggish historically but it reflects a pickup from last summer. Meanwhile, the unemployment rate ticked up to 5.7% in January. The increase in the unemployment rate reflected more Americans returning to the labor force, which is good news for the economy in the long run. Unemployment rates have remained much lower and less volatile for those with more education. The share of those out of work for at least six months, after falling steadily last year, has made less improvement of late. And long-term unemployment is still elevated relative to prerecession levels. For those who are unemployed, the length of those jobless spells remains higher than normal. Most of the jobs that have been added since the recession ended in June 2009 are full-time jobs, though the level of full-time jobs is still around 2 million below the prerecession level in December 2007. Job growth in professional services, construction and mining have seen the strongest year-over-year growth, while government jobs are still growing weakly, if at all.

That great January jobs report had some weird stuff in it -- As good as the January jobs report was — 257,000 net new jobs and a 0.5% increase in average hourly earnings — it was just the latest data point in an apparently improving employment story. Upward revisions have the economy adding just over a million (!) new jobs the past three months, including 423,000 in November — the best one-month showing since 1997. But here is the weird thing: Official GDP growth wasn’t that hot as 2014 came to a close. Although the initial print was 2.6%, more recent data suggest a downward revision to maybe 2.0%, according to JPMorgan. And while worker earnings improved, they are still up just 2.2% over the past year. Then you have the split between managers and all workers with hourly earnings up 0.5% for  all private, nonfarm workers vs. a 0.3% rise for private-sector production and nonsupervisory workers. So how to make sense of all these numbers? Two thoughts: First, maybe the technology optimists are right, and economic metrics made for a wheat and steel economy are increasingly inadequate for a digital economy. As economist David Beckworth tweeted this morning, “Consistently strong job numbers reinforce my prior that GDP is increasingly becoming a poor measure of economic activity.” So perhaps growth is stronger than we think, explaining the strong job gains. Second, wage growth remains anemic overall, more so for non-managers. This is especially notable if GDP is understating growth.  So let me again make this point: This sort of distributional issue could maybe be more evidence of an “average is over” economy where high- and low-skills jobs are growing, but not those in the middle thanks to automation and globalization.

January Jobs Report: Benchmark Revisions Cast Rosier Glow on 2014 - The economy had nearly a quarter-million more jobs than previously estimated at the end of 2014, after the Labor Department’s recast employment figures with comprehensive revision released Friday. The revisions raised the total number of jobs in the U.S. in December by 245,000, showing 140.59 million Americans employed at the end of last year. That change, and revisions made to monthly figures, partially reflects the new employment benchmark figure established for March 2014. It showed the U.S. had 91,000 more jobs in March 2014 than previously estimated. The new figure, which reflects a comprehensive look at tax records, alters calculations for seasonal adjustments and other estimating tools. As a result, the Labor Department recast seasonally adjusted employment figures back to January 2010.

BLS Unleashes Whopping Revisions To 2014 Jobs Data, Now Reports 423K Job Gains In November -- Remember that whopping 353K jobs number in November? Well, following the data revision, it was boosted by 20% to a whopping 423K - the second biggest monthly increase in jobs in the 21st century! And breaking it more fully down, what was supposed to be a total gain of 2,952K jobs in 2014 has now been revised to 3,197K. And the best news of the day: that average weekly wage you thought you were collecting during all months of 2014? That too was just revised higher across the board.

Job Losses Start To Hit the Surprisingly Resilient U.S. Oil Industry - The mining and logging industry lost 3,000 jobs in January, one of the only sectors of the U.S. economy to cut payrolls last month. Among those working directly in oil and gas extraction, jobs declined by 1,900. This is, no doubt, a reversal of fortune for the industry that was among the quickest to recover its job losses in the recession. But given the magnitude of the oil-price collapse, the industry has been surprisingly resilient. The collapse in oil prices has unquestionably hit the bottom line of oil producers and oil-field servicers. But the job losses so far have been small. The overall mining and logging industry experienced larger losses in late 2012 than it has over the past six months. The worst is yet to come. Bricklin Dwyer, a senior U.S. economist at BNP Paribas, estimates the major oil-field servicers have announced job cuts that will total 20,000 in the first quarter of 2015. The oil industry remains a tiny part of the U.S. employment picture, Mr. Dwyer notes, at about 0.7% of total employment. “We do expect an impact, but not massive,” Mr. Dwyer said of oil-industry job losses. “If you get it spread out over three months it slides under the radar.”

Did The BLS Forget To Count Thousands Of Energy Job Losses? -- One of the convenient things about the sharp plunge in crude and its subsequent and acute impact on energy company staffing levels, is that due to its concentrated nature one can keep track of precisely how many layoffs corporations in the energy sector announced in January. And as Bloomberg helpfully tracks, there were at least (and surely many more that were not unaccounted for) 18,000 terminations by US companies in the high-paying energy sector (and thousands more by foreign companies who have laid of US workers which are not shown in this total). According to third-party tracker Challenger, Gray & Christmas, the number is roughly the same with 21,322 job cuts in January in the energy space attributed to the tumble in oil prices. Texas alone accounted for 19,833 of these layoffs. “We may see oil-related job cuts extend well beyond those industries involved with exploration and extraction,” said John A. Challenger, CEO of the outplacement firm. He warned the retail, construction and entertainment sectors in regions that have benefited from the oil boom could face challenges. The BLS report? Well, according to the January payrolls report, the number of Oil and Gas Extraction workers declined to 199.5K in January from 201.4K in December, a virtually non-exstant drop of 1,900 workers (and even the not seasonally adjusted, raw data shows a tiny drop of just 3.1K workers).

Where The Jobs Were In January: Education, Health And Retail - As already observed, when it comes to tracking the job losses in the energy space, the BLS had some rather significant "seasonally-adjusted" or otherwise issues in January, reporting just 1.9K job losses in the oil and energy exploration space, when the reality was orders of magnitude higher. But while the Bureau of Labor Services may have failed to notice the collapse of the highest-paying US jobs (after Wall Street of course), it determined that over 250K jobs were created in other sectors. Where were they?

Nominal Wage Growth Still Far Below TargetThis morning’s jobs report showed the economy added 257,000 jobs in January, and the numbers for December and November were revised upward. But even with the positive revisions to 2014 and the solid jobs growth last month, there’s clearly still tremendous slack in the labor market, as evidenced by lagging nominal wage growth. While January’s 0.5 percent jump in wages is a good sign, it’s important not to read too much into any one month, as there’s considerable volatility in the series. Over the year, nominal average hourly earnings have only grown 2.2 percent. From the figure below, it is clear the nominal wage growth has been hovering around 2 percent for the last five years. It is also apparent from the figure that nominal wages have grown far slower than any reasonable wage target. The fact is that the economy is not growing enough for workers to feel the effects in their paychecks and not enough for the Federal Reserve to slow the economy down out of fear of upcoming inflationary pressure. If the Fed acts too soon, it will slow labor share’s recovery and come at a cost to Americans’ living standards. It is imperative that the Fed keep their foot off the brake for as long as it takes to see modest (if not strong) wage growth for America’s workers.

Employment Report Comments and Graphs - Bill Mcbride - This was a very solid employment report with 257,000 jobs added, and job gains for November and December were revised up significantly. There was even a little good news on wage growth, from the BLS: "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $24.75, following a decrease of 5 cents in December. Over the year, average hourly earnings have risen by 2.2 percent."  A few more numbers: Total employment increased 257,000 from December to January and is now 2.5 million above the previous peak. Total employment is up 11.2 million from the employment recession low. Private payroll employment increased 267,000 from December to January, and private employment is now 3.0 million above the previous peak. Private employment is up 11.8 million from the recession low. In January, the year-over-year change was 3.21 million jobs. This was the highest year-over-year gain since the '90s. Employment-Population Ratio, 25 to 54 years old Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle. The 25 to 54 participation rate increased in January to 81.1%, and the 25 to 54 employment population ratio increased to 77.2%. As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.

Here's How to Achieve Full Employment - Larry Mishel - The following is the testimony of Economic Policy Institute President Lawrence Mishel before the U.S. House Committee on Education and the Workforce hearing on “Expanding Opportunity in America’s Schools and Workplaces” on February 4, 2014. It originally appeared at the EPI website, where you can also find the source material.

Where Are the Jobs? If all the job openings in the United States were to be filled today, an additional 5 million Americans would be employed. That total is higher than the population of twenty-eight states, as well as every American city other than New York. It is the most job openings at any one time in the United States since 2001—enough to provide work for nearly three-in-five of the 8.7 million Americans who are now categorized as unemployed.Of course, the notion of instantaneously and simultaneously filling all of America’s vacancies is a nice thought exercise, but not particularly realistic. A healthy economy will always have openings as it grows and changes, as businesses open and close, and as workers leave jobs and begin new ones. But the sheer magnitude of current job availabilities raises important questions. Why are employers apparently having more difficulty filling openings than in the past? Is it because applicants lack the skills required? Or are businesses feeling uncertain about the durability of the recovery? What industries have rebounded most strongly after the Great Recession, and which have lagged behind? This report, the third in The Century Foundation’s Working Paper Series, will explore these issues complicating the demand side of the U.S. labor market. But our guiding question will be a simple one: Where are the jobs?

The Share-the-Scraps Economy - Robert Reich - How would you like to live in an economy where robots do everything that can be predictably programmed in advance, and almost all profits go to the robots’ owners? Meanwhile, human beings do the work that’s unpredictable – odd jobs, on-call projects, fetching and fixing, driving and delivering, tiny tasks needed at any and all hours – and patch together barely enough to live on. Brace yourself. This is the economy we’re now barreling toward. They’re Uber drivers, Instacart shoppers, and Airbnb hosts. They include Taskrabbit jobbers, Upcounsel’s on-demand attorneys, and Healthtap’s on-line doctors. They’re Mechanical Turks.  The euphemism is the “share” economy. A more accurate term would be the “share-the-scraps” economy. New software technologies are allowing almost any job to be divided up into discrete tasks that can be parceled out to workers when they’re needed, with pay determined by demand for that particular job at that particular moment. Customers and workers are matched online. Workers are rated on quality and reliability.  The big money goes to the corporations that own the software. The scraps go to the on-demand workers.

Wolf Richter: In Search of Cheap Labor in Tech – Behind the H1-B Visa Scenes - Yves here. This post focuses on how the procedures in the H1-B visa process meant to protect workers from unfair competition from foreign workers and contractors are a joke. And this is one of the reasons that the calls by disconnected Beltway pundits and technocrats for American students to get more technically oriented education, most of all in STEM fields, is hopelessly misguided. Companies are more and more refusing to supply much if anything in the way of entry-level jobs, sending yeoman’s work in former white collar professions, including accounting and the law, to outsources in India. And the fix of having more specialized training is just as unrealistic. The more specialized the training, the more at risk you are that those skills will prove to be useless. That is why so many mid-career professionals fall far when they lose their perch, since if they can’t use the narrow expertise that they’ve accumulated, they have to fall back on their generalist skills, which means low-level jobs like call center work, retail, or if they are lucky, a position like an office manager in a small business.

What Do Job Seekers Want? ‘Hostess,’ ‘Truck Driver’ Among Fastest-Growing Searches - Job seekers are increasingly searching for positions at restaurants, child-care centers and behind the wheel, according to new data from job-search site “Hostess” was the fastest-growing search term on the site, increasing 51% last month from December. Other popular searches at the start of the year included “travel agent,” “landscape” and “bakery.” Month-to-month changes in search-term popularity largely reflect seasonal patterns, said Indeed economist Tara Sinclair.  Searches for seasonal summer jobs typically pick up in January, with high school and college students looking to restaurants or outdoor work. And “travel agent,” while certainly not a growing field, is consistent with stronger interest in jobs in warmer locations during the winter. “Maybe they just finished a holiday trip and want a job where they can dream about traveling,” Ms. Sinclair said. From a year earlier, two of the top three fastest-growing jobs searches are for truck-driving positions. The need for transportation workers expands when the economy is growing and trucking companies have experienced labor shortages. Ms. Sinclair said the growing popularity of “driver” as a search term shows that job seekers are moving toward in-demand fields. Similarly, searches for “healthcare management,” “software engineer” and “data analyst” grew swiftly from a year earlier.

The Disconnections of Unemployment Insurance: You might think that those who are unemployed would be eligible for unemployment insurance, but you would be wrong. To be eligible to receive unemployment insurance, you need to meet certain qualification tests typically based on earnings in the previous year or so. As a result, many of the unemployed do not receive unemployment insurance. Here's a striking figure from a February 2015 report by Claire McKenna, "The Job Ahead: Advancing Opportunity for Unemployed Workers," written for the National Employment Law Project. The vertical axis measures the share of unemployed workers receiving unemployment insurance. The yellow shaded area shows that the about 30-40% of the unemployed receive unemployment benefits paid for by the regular state-run unemployment insurance programs. During times when unemployment rates are stuck at high leves--typically just after the recessions shown by the shaded gray areas--the federal government steps in and offers extended periods of unemployment insurance benefits. During these periods, shown by the blue shade areas in the figure, the share of unemployed receiving unemployment benefits can get higher, reaching about two-thirds of the unemployed after the Great Recession. The federal extension of unemployment insurance has now expired. The share of the unemployed receiving unemployment insurance is now at the lowest level in this time period going back to 1972.

A few comments on Inflation, the Unemployment Rate and Demographics -- A key question right now is how low the unemployment rate can fall before inflation picks up. Right now core inflation is falling, but some of that is probably due to bleed through from falling energy prices. So we have to be careful reading too much into the low core inflation numbers.  Last year, many of the "hawks" at the Fed were arguing inflation would pick up when the unemployment rate fell to 6%. They were clearly wrong since the unemployment rate was at 5.6% in December!  Professor Krugman wrote this morning: Tough Fedding [M]y point is that recent data are perfectly consistent with the view that full employment requires an unemployment rate below 5 percent; the most recent data would suggest an even lower rate. This might or might not be right; I don’t know. But the Fed doesn’t know either. And in the face of that uncertainty, the crucial question is what happens if you’re wrong. And the risks still seem hugely asymmetric.  Although monetary policy works with a lag, as Krugman notes, no one knows when inflation will pick up - and the risks of raising too soon far outweigh the risks of waiting too long.  I'd like to add on inflation that there might be a demographics component, as I noted early this year: There could be several demographics reasons for the low inflation (in addition to policy reasons). As an example, maybe older workers were being replaced by younger workers who made less (just like today), and maybe the slow increase in the prime working age population put less pressure on resources.

Trends in per capita real adjusted gross income: updated through 2013 - On Monday personal income and spending for December were reported, with the most noteworthy monthly news being that it confirmed the prior retail sales report that consumers primarily saved rather than spent their gas price savings (although December was higher than every other month except November). Secondly, real personal income finally rose above the December 2012 spike (just prior to the "fiscal cliff") to set a new record: Now let's adjust by population (blue) and by the civilian labor force (red), on an annual basis: Whether we adjust by population as a whole, or by just the labor force, per capita real personal income has generally grown throughout the last 20 years. Although is not nearly as broad a measure as the Bureau of Economic Statistics' "personal income" metric, another way in which per capita income might be looked at is as real per capita adjusted gross income, i.e., the income reported to the IRS on tax forms. While this is not kept graphically by either the IRS or the St. Louis FRED, I have created the following table showing real adjusted gross income from 1993 through 2011 (the last year available at the IRS site), adjusted per capita both by population, and by the size of the civilian labor force (+those not in the labor force but who want a job now). The second measure is not perfect, but does make a reasonable approximation of taking into account the wave of Boomer retirements (all figures in $Trillions):

Wage Growth – The Young Shall Lead Us - Conference Board --The U.S. labor market has been improving. The unemployment rate is almost at its natural rate of 5.5 percent, as defined by the Congressional Budget Office. Other labor market indicators – the difficulty of finding qualified labor (National Federation of Independent Business), job openings and quits rates (Bureau of Labor Statistics), the difficulty of finding a job (The Conference Board Consumer Confidence Survey) – have also been recovering nicely, with some already reaching the highs set during the previous economic expansion. One labor market measure that has barely begun to recover, however, is the wage rate. Wage growth is higher than the period right after the Great Recession, but still well below normal rates. Wage growth is one of the most important economic indicators. It is directly related to consumer spending and corporate profits, and recently has become crucial to monetary policy. The Federal Reserve’s decision about raising interest rates depends strongly on the future trajectory of wage growth. Why has wage recovery been so slow? Theories abound. For example, see here and here. We offer an additional explanation for wages’ lagging recovery – and for why wage increases are finally on the way.Chart 1 shows the estimated annual growth rate for full-time employed persons and two other groups: persons age 21-25 with a Bachelor’s degree (or higher) and persons age 21-25 with less than a BA. These estimates come from the Current Population Survey and are controlled for demographics, geography, occupation, industry, and unionization. The results show that in 2009-2010, when unemployment was at its peak in the United States, wage growth for the entire population slowed significantly, but for those aged 21-25 (with or without a BA) it actually declined.

Will Raises For Two Million Workers Pump Up the Jobs Report’s Wage Measure? Only a Little - More than two million workers received raises last month, thanks to minimum-wage increases in 20 states. But economists don’t expect the bigger paychecks to lead overall wage measures to pop in the government’s monthly jobs report. Minimum-wage increases, ranging from a $1.25 jump in South Dakota to a 12-cent bump in Florida, went into effect starting with the first paycheck of the year. About half the increases reflect new pay floors established last year by lawmakers or voters, while the others are annual increases tied to inflation. The raises could help support the closely watched average hourly earnings figure published in Friday’s jobs report. Earnings fell in December from November, and are barely staying ahead of inflation year-over-year. Weak wage gains are one factor holding back stronger economic growth. But many economists don’t expect a January turnaround on the back of minimum-wage increases. JPMorgan economist Daniel Silver projects higher pay floors will boost January hourly earnings by 0.05 percentage point. That’s enough to help round up wage gains, but it’s not likely to change the trend of only gradual improvement. The reason? Relatively few workers earn the minimum wage. The Economic Policy Institute estimates that about 2.5 million workers received raises at the start of the year, when including New York, which set a higher wage on Dec. 31, 2014. RBS economists say the number could be closer to three million, but that still accounts for just 3% of all private-sector employees.

Time to “Look for the Union Label?” First US Doctors’ Strike in Decades - A few news media outlets in California have reported on what has been up to now a very rare event – a strike by physicians. An initial summary was in an article in the San Diego Union – Tribune, whose title was First U.S. Doctors’ Strike in Decades A handful of doctors providing medical services to students at UC San Diego — and their colleagues at nine other University of California campuses — went on strike Tuesday. It’s the first time in 25 years that fully licensed doctors are picketing a U.S. employer, according to the Union of American Physicians and Dentists, which represents the physicians at the UC schools. The work stoppage began at 7:30 a.m. and is scheduled to last one day. It involves 150 health center doctors who manage the primary care and mental health needs of students. A second article in the Union-Tribune suggested that the point of contention between the union and the University of California administration was not primarily wages, Collective bargaining has not gone smoothly for UC student services doctors who voted to join the Union of American Physicians and Dentists in November 2013. The two sides have not been able to agree on a contract. Union members voted for the one-day strike after accusing the university system of refusing to provide key financial information that would aid their negotiations.

In Major Walkout, U.S. Oil Workers Demand Safety, Fair Treatment -- Citing dangerous conditions, including leaks and explosions, and asking for pay increases, the United Steelworkers Union (USW) called for its largest national strike of oil workers since 1980 on Sunday after talks broke down with Shell Oil, which is leading the industry-wide bargaining effort. After nearly two weeks of negotiations, USW asked about 3,800 workers at nine refineries to walk out after their previous contract expired in what represents about 10 percent of U.S. refining capacity.  The strike comes at an already tumultuous time as plummeting oil prices have given rise to a heated debate over the future of an industry that relies on extracting cheap and plentiful resources from the ground. This precipitous drop in crude oil prices by over 60 percent since June has caused companies to lay off workers and delay plans for expansion; what they see as the most painless means of avoiding profit cuts.  Meanwhile, on Monday ExxonMobil reported fourth quarter profits that topped expectations, with CEO Rex Tillerson saying the results show the value of the industry’s “proven business model that integrates upstream, downstream, and chemical businesses.” The workers in the industry clearly have some issues with the existing business model and their place in it. USW International Vice President Gary Beevers, head of the union’s National Oil Bargaining Program, stated that Shell has refused to continue bargaining toward a fair agreement.

U.S. Oil Workers Stage Largest National Strike Since 1980 - Oil workers in the U.S. began the largest national strike since 1980 on Sunday, after failing to agree on new labor contracts.The United Steelworkers Union (USW) called for about 3,800 employees to strike in nine sites across the country, affecting plants that account for 10% of the total U.S. refining capacity, reports Bloomberg.USW failed to agree on five contracts offered by lead negotiators Royal Dutch Shell PLC on behalf of several major oil companies including Chevron Corp. and Exxon Mobil Corp.When the current contract expired on Sunday, USW said it “had no choice” but to call the walkout after no further deal was reached.If a full strike of union workers is called, USW says it could disrupt as much as 64% of U.S. fuel production.Shell said it remained committed to reaching a deal with the union.But USW, which has been in talks since Jan. 21, feels the oil companies can afford to make the changes it is demanding, which include substantial pay raises and improved safety measures.

We're Jailing the Wrong People. We Need to Jail More of the Right Ones: Corporate Criminals: You know the statistic. We incarcerate a higher proportion of the population than any other country does. Russia and South Africa rank respectively second and third. Hundreds of thousands of young, now aging, men, are doing hard time for possession of small amounts of drugs. More and more people find themselves in jail because they got caught with bench warrants for their arrest for exorbitant fines they could not afford to pay. More than a century after debtors prisons were abolished, thousands are again behind bars because of debts. But one category of felon is free on the street. I refer, of course, to corporate criminals. Consider the case of a checkout clerk at Walmart who puts her hands in the till and walks off with a couple of hundred bucks of the company's money. That clerk could expect to face prosecution and jail. Now consider her boss, who cheats her of hundreds of dollars of pay by failing to accurately record the time she clocked in, or the overtime she worked.  Every year, workers are cheated out of tens of billions of dollars of pay—more than larceny, robbery and burglary combined. Until the incomparable Kim Bobo gave the practice its rightful name, wage theft, most people didn't equate cheating workers of their rightful pay with simple thievery.

Only 20% are Middle-Class, Most Don't Come Close - Noah Smith (at Bloomberg) recently wrote: "A plurality of Americans still consider themselves middle-class.” (A plurality meaning, more than any other, but not an absolute majority.) But he linked to The Guardian to make his case, which appears to be saying something completely different: The number of 18-29 year olds who consider themselves lower-middle-class has doubled since 2008 reaching 49% ... Average household income hovers around $51,700 – which is how much Americans were earning back in 1995. Yet even as 14.5% of Americans meet the actual definition of living in poverty, only about 7% of them will define themselves as lower-class. The definition most of them prefer is lower-middle-class. According to the Pew Research Center, the number of those who define themselves as lower-class or lower-middle-class has gone up to 40% in 2014, increasing by 15% since 2008 ... In 2008, 21% of [wealthy individuals] identify as in the upper-class or upper-middle-class. Even Hillary Clinton, who reportedly made over $100 million along with her husband President Bill Clinton since leaving the White House, said that she didn’t consider her family as being "truly well-off".  Noah Smith also believes if you think “I’m doing OK, and most people around me are doing OK too” — then you’re in the middle-class.

The Inequality of Opportunity in America - The Real State of the American Dream - While America's political masters pontificate about the current state of the union, there is one issue that is of key importance to many Americans; upward mobility in our society.  The United States has long prided itself on being the "Land of Opportunity" where, with hard work, anyone can get ahead.  Is this philosophy still prevalent across the entire U.S. today or are there some areas where upward social and economic mobility is far less likely?  A paper by the Equality of Opportunity Project at Harvard looks at upward income mobility varies across the United States and which regions offer better opportunities to "move up".The authors of the study used a sample of all American children that were born between 1980 and 1982 in 741 commuting zones (CZs) which are defined as geographical aggregations of counties that are similar to metropolitan areas but include rural areas.   They then measured the income of those same Americans in 2011 - 2012 when the group is approximately 30 years old.  Using the income data, the authors calculate two measures of intergenerational social mobility:

  • 1.) Relative mobility which measures the difference in the expected outcomes between children from high- and low-income families.
  • 2.) Absolute upward mobility which measures the expected economic outcomes of children born into a family with an income of approximately $30,000 annually (the 25th percentile of the income distribution).

Let's Not Give Up on Mobility - Carola Binder  Gregory Clark, an economic historian at UC Davis, writes that "Social mobility barely exists but let’s not give up on equality." His research using rare surnames to track social mobility over several centuries finds that social mobility in England is still just as low in today's "modern noisy meritocracy" as it was in pre-industrial times. He concludes that "Lineage is destiny. At birth, most of your social outcome is predictable from your family history." He emphasizes that this is true not only in the UK, but also in Sweden, China, and the U.S. The subtitle of Clark's article says that "Too much faith is placed in the idea of movement between the classes. Still, there are other ways to tackle the unfairness of society." He elaborates: "Given that social mobility rates are immutable, it is better to reduce the gains people make from having high status, and the penalties from low status. The Swedish model of compressed inequality is a realistic option, the American dream of rapid mobility an illusion...While mobility seems governed by a social physics that defies easy intervention, the magnitude of social inequalities varies considerably across societies, and can be strongly influenced by social institutions. We cannot change the winners in the social lottery, but we can change the value of their prizes."I agree that meritocracy alone does not guarantee high mobility, and therefore that making a society more meritocratic is not the silver bullet solution to inequality. But I wouldn't go so far as to say that social mobility rates are immutable. First, just because social mobility has not improved in the past doesn't mean that it's incapable of improving in the future. Second, the fact that social mobility varies across countries and even within countries implies that it should be possible to increase mobility.

What Thomas Piketty and Larry Summers Don’t Tell You About Income Inequality -  Yves Smith -- In a new paper for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution, economist Lance Taylor and his colleagues examine income inequality using new tools and models that give us a more nuanced — and frightening —picture than we’ve had before.  Their simulation models show how so-called “reasonable” modifications like modest tax increases on the wealthy and boosting low wages are not going to be enough to stem the disproportionate tide of income rushing toward the rich. Taylor’s research challenges the approaches of American policy makers, the assumptions of traditional economists, and some of the conclusions drawn by Thomas Piketty and Larry Summers. Bottom line: We’re not yet talking about the kinds of major changes needed to keep us from becoming a Downton Abbey society.

Moyers and Company: America Is a Horror Show - This week on Moyers & Company, David Simon, journalist and creator of the TV series The Wire and Treme, talks with Bill about the crisis of capitalism in America. After President Barack Obama’s annual State of the Union address, it’s a reality check from someone who artfully uses television drama to report on the state of America from an entirely different perspective — the bottom up. You can watch online here.  “The horror show is we are going to be slaves to profit. Some of us are going to be higher on the pyramid and we’ll count ourselves lucky and many many more will be marginalized and destroyed,” Simon tells Moyers. He blames a “purchased” Congress for failing America’s citizens, leading many of them to give up on politics altogether.

Can Fast Food Afford a $15 Minimum Wage Without Cutting Jobs? - naked capitalism Yves here. One of the oft-made assertions is that increasing wages in low-wage positions will lead to job losses. But in many industries, direct labor is a not all that large a proportion of total product cost. And with corporate profits at record highs, the immediate impact would normally be to trim profit levels, which have risen to be such a high proportion of GDP as to be deemed by Warren Buffet as well higher than sustainable levels. Moreover, as this Real News Network segment points out, businesses that pay only minimum wage or barely above it have lots of turnover. That is costly in terms of managerial time. Having a minimum wage that was more like a living wage would reduce employee churn, offsetting some of the cost of the pay increase. Costco has demonstrated that this approach works. It pays more than other discount retailers, and not only does it have less turnover, but it enjoys another gain: less inventory shrinkage, which is often due to theft by employees.

Young adults earn $2,000 less today than their parents did in 1980, adjusted for inflation -  The past is another country. In 1980, the typical young worker in Detroit or Flint, Michigan, earned more than his counterpart in San Francisco or San Jose. The states with the highest median income were Michigan, Wyoming, and Alaska. Nearly 80 percent of the Boomer generation, which at the time was between 18 and 35, was white, compared to 57 percent today. Three decades later, in 2013, the picture of young people—yes, Millennials—is a violently shaken kaleidoscope, and not all the pieces are falling into a better place. Michigan's median income for under-35 workers has fallen by 26 percent, more than any state. In fact, beyond the east coast, earnings for young workers fell in every state but Hawaii and South Dakota.The median income of young adults today is $2,000 less today than their parents in 1980, adjusted for inflation. The earnings drop has been particularly steep in the rust belt and across the northwest. As you can see in the next interactive graph, the three states with the highest median income for young people in 1980 were also the three states with the steepest 33-year decline in median income: Michigan, Wyoming, and Alaska. The winners of this continental shake-up are all on the coasts, particularly Virginia, Maryland, and just about all of New England.

Increasing State Inequality - At long last, politicians in the United States are paying attention (or at least lip service) to growing economic inequality in America.  A recent report by the Economic Policy Institute entitled "The Increasingly Unequal States of America" examines long-term state level data to see how the top one percent in each state have fared over the period from 1917 to 2012, emphasizing the period from just before the Great Depression to 2012, showing us just how lopsided income growth and economic inequality have become.  Here are their findings. The analysis begins by looking at the trends in income growth since the Great Recession.  The authors of the report found that during the first three years of the recovery (2009 to 2012), the top one percent saw their average income grow by 36.8 percent while the average income of the bottom 99 percent actually declined by 0.4 percent.  On a state-by-state level, 39 states saw the top one percent capture between half and all income growth and in 16 states, the incomes of the top one percent grew while the incomes of the bottom 99 percent dropped by as much as 16 percent (Nevada).  This means that in these 16 states, the top one percent captured more than 100 percent of the overall increase in income.  In only one state, West Virginia, did the incomes of the top 1 percent shrink by a rather small 2.5 percent. Here is a table which shows the states in order of total average real income growth captured by the top one percent between 2009 and 2012 from largest to smallest:

The Face Of The Oligarch Recovery: Luxury Skyscrapers Empty As NYC Homeless Population Hits Record High - Nowhere is the fraudulent and criminal “oligarch recovery” more on display than in my hometown of New York City. Despite benefitting more than any other community from an enormous taxpayer bailout of the industry that destroyed the economy, financial services, the vast majority of the wealth has been allocated to a handful of oligarchs. To make matters even worse, American public policy, if you can even call it that, has been to encourage overseas oligarchs to park billions of dollars in U.S. real estate that largely sits uninhabited. Manhattan is a perfect example of this unproductive behavior and misallocation of capital. I covered this theme last year in the piece, Introducing Ghost Skyscrapers – NYC Real Estate Goes Full Retard, where it was noted that:The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year. New York City has never been known for its affordability, but a new crop of mega-luxury buildings in Manhattan are redefining sky-high prices. One 57 is the 1,000-foot high building looming over Central Park where an apartment has closed for as much as $90 million..

The City That Outlawed Free Food -- Governing public space often boils down to basic social discipline. Some cities try to reduce littering by removing trash cans—thus limiting people’s options for tossing garbage in public. And some cities now apply this rationale to homelessness: by passing laws that bar homeless people from public places. Fort Lauderdale has taken this social engineering to its logical extreme by restricting “food distribution,” effectively giving those who help the homeless no place to feed them—because all that free food only encourages public displays of hunger.  But Fort Lauderdale’s Food Not Bombs activists say the real crime is a ban on acts of public generosity. The punk-inspired grassroots group just bit back with a lawsuit fighting for their right to engage in weekly demonstrations to promote peace and social welfare, and to illustrate this communal ethos by distributing morsels to bystanders in need. They assert that their modest gesture in Stranahan Park is an exercise in free expression.Fort Lauderdale’s ordinance restricting food distribution in public was passed last October in an effort to, according to city officials, manage use of the park, deter behavior that “enables” homelessness and to “ensure food safety and health”—evidently by keeping free food safely out of the hands of the hungry. But the city made international headlines by nabbing an activist with a local organization, fittingly called Love thy Neighbor, as they distributed meals. The 90-year-old humanitarian Arnold Abbott proclaimed at the time, “you cannot sweep the homeless under a rug…. There is no rug large enough for that.”

Detroit Seizes Homes to Fund Corruption - Detroit is foreclosing on tens of thousands of homes — in order to pay for an unaffordable city government that fails the essential tests of governance. The NYT reports that the city is seizing the homes of residents who failed to pay property taxes, and putting some of the houses up for public auction: Michigan in 1999 changed the way its local governments deal with people who fail to pay their property taxes, replacing a system of tax liens with foreclosure. Yet the number of foreclosures did not reach what advocates here view as a crisis level until years later, when the national recession hastened the city’s problems with blighted properties and population decline. By last year, at least 70,000 foreclosures had taken place here since 2009, not for unpaid mortgages but for failure to pay property taxes. Of the 62,000 city properties subject to foreclosure this year, more than half are believed to be occupied; nearly 13,000 are probably vacant lots. Some portion of the properties facing foreclosure were also eligible for it a year ago or more, but officials had delayed pursuing them in part because the numbers had grown too large for county workers to handle so many proceedings.

Detroit and Philadelphia: Among America’s 10 most efficient school systems? -- A new study by WalletHub has concluded that Philadelphia and Detroit are two of the nation’s top 10 “most efficient” school systems. Seriously. This illuminates one of the perils with “evidence-based” education—namely, the likelihood that data will be used in nonsensical ways and that foolishness will be passed off as evidence. WalletHub analysts combined fourth and eighth grade test scores, spending data, and various socioeconomic controls to rank cities on cost-effective performance. In a truly bizarre move, however, they didn’t use per pupil spending. Rather, they calculated cost efficiency based on per capita spending (in other words, school spending per local resident.) This decision inflated the reported cost-effectiveness for those cities with lots of elderly residents (which helps explain why Miami, Ft. Lauderdale, and Orlando all finished in the top 15.)  The results were then adjusted for rates of poverty, median household income, single-parent households, and non-English speakers. Add it all up and, voila!, we learn that, when it comes to efficiency, Miami is tops and Grand Rapids, Michigan, is number two. More to the point, we see that Detroit and Philadelphia are top 10 school systems. Let’s not pay any attention to the bankruptcies, state takeovers, hundreds of millions of dollars in shortfalls, empty schools, or abysmal scores with which these two cities are struggling. After all, the data tells the tale.

Ohio officials to detail Kasich's proposed education changes - (AP) - Ohio education officials plan to provide further details of Gov. John Kasich’s (KAY’-siks) proposed changes to the funding of public school districts and regulation of charter schools. The Republican governor on Monday unveiled a $72.3 billion, two-year state operating budget. It calls for cracking down on charter school sponsors rated ineffective or poor under a new state law. The budget proposal also makes revisions to Ohio’s school funding formula that the governor says better reflect the income levels of different districts. He says the changes for the first time allow the state to collect money from wealthier districts that are better able to afford the costs of operation so the money can be given to needier districts. Kasich also wants to see early college opportunities expanded.

Lawmakers react to proposed cuts to education - A day after Governor Sam Brownback says he'll cut nearly $45 million from Kansas schools, universities and colleges, districts are still trying to determine what it could mean for your child's education. Eyewitness News tried to speak with the governor in Topeka about those cuts but he was out of town for the day, in private meetings with Kansas' tribal leaders. But lawmakers who were at the statehouse said fixing the state's budget and education funding remains a major part of their job this year. "I think if you go back and look at why it was done to begin with, obviously it's because of a shortage of cash flow," said Rep. Gene Suellentrop, (R) Wichita, who sits on the House Budget Committee. Most at the statehouse agree there's no way to fix the $700 plus million budget shortfall Kansas is facing without including cuts to education.

Fewer Top Graduates Want to Join Teach for America - Teach for America, the education powerhouse that has sent thousands of handpicked college graduates to teach in some of the nation’s most troubled schools, is suddenly having recruitment problems.For the second year in a row, applicants for the elite program have dropped, breaking a 15-year growth trend. Applications are down by about 10 percent from a year earlier on college campuses around the country as of the end of last month.The group, which has sought to transform education in close alignment with the charter school movement, has advised schools that the size of its teacher corps this fall could be down by as much as a quarter and has closed two of its eight national summer training sites, in New York City and Los Angeles.“I want the numbers to be higher, because the demand from districts is extremely high and we’re not going to meet it this year,” said Matt Kramer, a co-chief executive of Teach for America. But, he added, “it is not existentially concerning.”

How much will free community college cost? - Yesterday the Obama administration released its budget for 2016, and with it came a somewhat clearer picture of the administration’s prediction as to how much free community college might cost. When the proposal was announced, the administration cited an estimated cost of $60 billion over 10 years, and that is indeed what the budget says. But this isn’t the end of the story. Because the estimate only reflects the costs of the program in its initial 10 years of existence—when state and student participation would still be ramping up—it likely understates the program’s cost over time. President Obama’s free community college proposal requires that states choose to participate and then commit substantial amounts of their own money to the program. Therefore, it’s likely that state participation will be low initially and then climb over time. This would mean that the number of students participating, and the program’s cost, would start small and then grow in future years. As The New York Times summed up this weekend:For the first time, the budget will lay out in detail the cost of [President Obama’s] proposal to make two years of community college free. In the first fiscal year, which will begin in October, it would be a modest $41 million, but the cost would climb to $951 million by 2017 and $2.4 billion by 2018 as more students took advantage of the program, according to a congressional budget aide briefed on the numbers. The budget released Monday takes us even further, charting the administration’s forecast through 2025:

Senators Introduce Bill Mandating Formation Of For-Profit College Oversight Committee - Back in October, the Department of Education finalized a new rule: career colleges — those schools that offer specialized training programs for certain occpuations — would have to do a better job actually preparing students for gainful emplotment, or they’d lose access to federal student aid. As part of those standards, the DoE rule included the creation of an oversight group. Today, two senators introduced legislation to ensure the task force is providing useful information to policymakers, parents and students. Illinois senator Dick Durbin and Maryland representative Elijah Cummings introduced legislation that would put into law the interagency committed tasked with improving coordination in federal and state oversight of the for-profit college industry. “Our legislation will streamline oversight of for-profit colleges to combat common deceptive practices and help students get the high quality education they pay for and expect,” Cummings said in a statement. “I am pleased the Department of Education has already taken some action, but Congress must do more to protect these students and the investments taxpayers are making in these schools.”

Can Students Have Too Much Tech? -  More technology in the classroom has long been a policy-making panacea. But mounting evidence shows that showering students, especially those from struggling families, with networked devices will not shrink the class divide in education. If anything, it will widen it. In the early 2000s, the Duke University economists Jacob Vigdor and Helen Ladd tracked the academic progress of nearly one million disadvantaged middle-school students against the dates they were given networked computers. The researchers assessed the students’ math and reading skills annually for five years, and recorded how they spent their time. The news was not good. “Students who gain access to a home computer between the 5th and 8th grades tend to witness a persistent decline in reading and math scores,” the economists wrote, adding that license to surf the Internet was also linked to lower grades in younger children. In fact, the students’ academic scores dropped and remained depressed for as long as the researchers kept tabs on them. What’s worse, the weaker students (boys, African-Americans) were more adversely affected than the rest. When their computers arrived, their reading scores fell off a cliff. We don’t know why this is, but we can speculate. With no adults to supervise them, many kids used their networked devices not for schoolwork, but to play games, troll social media and download entertainment. (And why not? Given their druthers, most adults would do the same.)

Is a college degree more important than it used to be?  -- We recently had the chance to attend a fascinating presentation given by Erik Hurst at the Booth economic outlook in New York. He discussed the divergent employment outcomes of those with college educations compared to those without them, which featured a chart that looked something like this:  The implication is that the economy is booming for people with college degrees but hasn’t recovered at all for people who never got past high school. This view not only fits with the anecdotal stories we hear about rapidly rising salaries for tech workers in the Bay Area but also with Hurst’s earlier finding that the bubble in construction employment in the 2000s temporarily employed a large mass of displaced manufacturing workers, who tended to be men without college degrees, thereby masking the impact of structural changes on the relative value of higher degrees:  We don’t want to dispute the benefits of education — there are few things more annoying than college graduates with good jobs telling people they shouldn’t get more schooling. Even so, we feel compelled to point out that the chart at the top tells us less than you might think about structural changes in the economy. Advanced degrees increase the odds of having a job but they haven’t become markedly more valuable — in that regard, anyway — over the past few years.

Rising tuition at public colleges, funding cuts leave students deeper in debt: Michael Bayne lives off-campus to save money on housing. He's always working at least one job — sometimes two. And he enrolled at an in-state public school, Arizona State University. But it's not nearly enough. The $2,500 in grants Bayne received this semester covered less than half of his tuition at ASU. A decade ago, the same amount of aid would have been enough to pay his entire bill. "My parents don't have money to help me, so to help pay for tuition, pay for books, pay for everything, I work a full-time job," he said. "And I still have $17,000 in student loans." It used to be that students such as Bayne could attend a public university and graduate with little to no debt. Then came the recession, when state governments slashed funding of higher education and families began paying higher tuition bills. Now, even as the economy recovers and taxpayer revenue is pouring back in, states have not restored their funding, and tuition keeps rising, leaving parents and students scrambling to cover costs. Total student debt now surpasses $1 trillion and is growing by the day. For the first time ever, according to a recent study, families are shouldering more of the cost of public university tuition than state governments.

Yes, More Young Adults Are Living With Their Parents, and It’s Probably Because of Student Debt - Why are more young adults living at home? The clearest culprit is student debt, the Federal Reserve Bank of New York says, though joblessness and rising housing costs may play roles, too. A $10,000 increase in student debt per graduate in a U.S. state is associated with an additional 2.9 percentage point rise in the rate of 25-year-olds living with parents, according to an analysis of young Americans with credit reports by the New York Fed. Young people weighed down by student debt may try to save money by staying home—especially, research suggests, those with relatively comfortable backgrounds. Or, these young adults may be less willing or able to take on additional debt by, say, buying a home. There is a “clear positive correlation between a state’s student debt growth and the rate at which its 25-year-olds live with their parents,” the New York Fed says. Theirs is the latest study to show that young Americans are now much more likely to delay leaving home, or to “boomerang” back. So-called “parental co-residence rates” have risen across the country over the last decade. In 12 U.S. states, this rate for 25-year-olds rose above 50% as of 2012-13. Four states—Maine, Minnesota, New Hampshire and Vermont—have seen rates rise by more than 20 percentage points between 2003 and 2013. More importantly, though, the New York Fed study reinforces similar research pinning the blame for rising parental co-residence rates on heavier student loans, which started their spectacular ascent to over $1 trillion well before the economy went bad.

Illinois teacher pension system eating up nearly ten percent of state's budget -- In FY 2015, Illinois taxpayers will pay $3.4 billion of its $35 billion budget to the state’s Teachers Retirement System (TRS). Setting aside nearly ten percent of a state’s budget to pay into only one of several public employee pension funds minimizes discretionary funds available for other services, and is forcing a conversation about reform. As part of that conversation, policy analysts like those at Illinois Policy Institute toss out ideas that are meant to stir debate. For instance, Ben VanMetre, the Institute’s Director of Pension Reform, suggests dramatic change in the way teachers’ pension are paid in Illinois. He says local districts should not look to the state to pick up the tab for teachers’ pensions, but should take care of the payments from the local level. The state is paying for pensions they have no part in negotiating, and that’s created an unsustainable financial expectation for taxpayers. Of this year’s $3.4 billion state contribution to TRS, $853 million will be used for the actual cost of pensions and $2.6B for unfunded pension liabilities. The reason the state is forced to pay such large amounts now, is because it hasn’t kept up with promises it made, says TRS Communications Director Dave Urbanek says.

California's two major government pension systems are 'endangered' according to federal criteria -- The Washington Examiner recently published a story showing that 150 unions had endangered pension systems, writing “Another 85 funds  are listed as being ‘endangered,’ meaning they lack the assets to meet at least 80 percent of their future obligations.” Based on the federal criteria, both CalPERS and CalSTRS, the two major California government systems, are “endangered.” CalPERS reports they are 77 percent funded, yet at the same time mandated a 50 percent increase in the contribution from member agencies. If the system is growing so well, why the massive increase? The report says “An estimated funding level of 77 percent for the Public Employees’ Retirement Fund–a positive growth of more than 7 percentage points. The PERF was funded at 69.8 percent as of June 30, 2013 based on the most recent actuarial value of assets. The PERF is the main pension trust fund that pays retirement benefits.” CalSTRS, is also under 80 percent and is more than doubling the contributions to try to reach the 80 percent non-endangered level. The report says “Employer contributions will increase from 8.25 percent to a total of 19.1 percent of payroll, phased in over the next seven years.” For the teachers this is a pay cut. For the students this means less equipment and a squeezing of resources. For parents, this means more votes for bonds and fees. Money meant to improve education quality is instead going toward pensions in the Los Angeles Unified School District (LAUSD). Teachers are being forced to pay higher contributions to CalSTRS, the teacher retirement system. But, LAUSD has decided to give the teachers a special pay raise, so the net affect—on teachers’ pay—is zero. Sadly, money for computers and better facilities have to be cut to afford this “benefit.”

OMB Director: Baby boomer retirement means US living with more debt - While the nation provides health-care and retirement benefits to the giant baby boom generation, the US government may have to learn to live with higher levels of debt than would otherwise be ideal, says Office of Management and Budget Director Shaun Donovan. The federal budget for fiscal year 2016, whose drafting Mr. Donovan supervised, projects federal debt next year will total $18.6 trillion, an amount equal to 75 percent of the size of the US economy. That level of federal debt is the highest level since 1950 and up sharply from 39.3 percent of GDP as recently as 2008. Speaking at a Monitor-hosted breakfast for reporters, Mr. Donovan said, “We are dealing with ... the pig in the python.” That is a reference to the 76 million members of the baby boom generation, those born between 1946 and 1964. . The OMB director added, “This demographic shift through the middle 2030s is a huge fiscal challenge to get through and so what is sort of acceptable in the next 20 years is different from what might be acceptable long term.”

White House Seeks to Limit Health Law’s Tax Troubles - Obama administration officials and other supporters of the Affordable Care Act say they worry that the tax-filing season will generate new anger as uninsured consumers learn that they must pay tax penalties and as many people struggle with complex forms needed to justify tax credits they received in 2014 to pay for health insurance.The White House has already granted some exemptions and is considering more to avoid a political firestorm.Mark J. Mazur, the assistant Treasury secretary for tax policy, said up to six million taxpayers would have to “pay a fee this year because they made a choice not to obtain health care coverage that they could have afforded.”But Christine Speidel, a tax lawyer at Vermont Legal Aid, said: “A lot of people do not feel that health insurance plans in the marketplace were affordable to them, even with subsidies. Some went without coverage and will therefore be subject to penalties.” In The penalties, approaching 1 percent of income for some households, are supposed to be paid with income taxes due April 15. In addition, officials said, many people with subsidized coverage purchased through the new public insurance exchanges will need to repay some of the subsidies because they received more than they were entitled to.More than 6.5 million people had insurance through the exchanges at some point last year, and 85 percent of them qualified for financial assistance, in the form of tax credits, to lower their premiums. Most people chose to have the subsidies paid in advance, based on projected income for 2014. If their actual income was higher — because they got a raise or found a new job — they will be entitled to a smaller subsidy and must repay the difference, subject to certain limits.

Gov't to overhaul Medicare payments to doctors, hospitals - (AP) — Medicare will change the way it pays hospitals and doctors to reward quality over volume, the Obama administration said Monday, in a shift that officials hope will be a catalyst for the nation's $3 trillion health care system. "It is in our common interest to build a health care system that delivers better care, spends health care dollars more wisely and results in healthier people," said Health and Human Services Secretary Sylvia M. Burwell. The shift won immediate support from insurers and the American Hospital Association. The professional group representing primary care doctors also said it's "on board." But American Medical Association president Robert Wah stopped short of an endorsement, telling reporters his group is encouraged but wants specifics. Burwell also announced the formation of the Learning and Action Network, a group she said will bring together a wide range of affected parties to drive change in how America pays for health care. It was unclear Monday whether the group will operate under federal open meetings rules. Its first meeting is planned for March. Supporters say the ultimate goal is to promote and reward quality care, not just the sheer volume of services like imaging scans and some elective surgeries. Medicare and employers were already moving in that direction, but Burwell's announcement sets specific federal goals and timetables. "It's time we put our money where our mouth is,"

Medical Costs Rise as Retirees Winter in Florida - Like many retirees, one couple from upstate New York visit doctors in their winter getaway in Florida. But on a recent routine checkup of a pacemaker, a cardiologist there insisted on scheduling several expensive tests even though the 91-year-old husband had no symptoms.“You walk in the door, and they just start doing things,” said Sally Spencer, 70, who canceled the tests after her husband’s longtime doctor advised her by phone that none of them were needed.The couple’s experience reflects a trend that has prompted some doctors up north to warn their older patients before they depart for Florida and other winter getaways to check in before agreeing to undergo exams and procedures. And some patients have learned to be leery after being subjected to tests — and expenses — that long-trusted physicians at home never suggested.Medical testing is a huge industry in the United States, with prices that are highly variable in different parts of the country. And while Medicare — the government insurance program for those over 65 or with disabilities — strictly regulates the price of tests and procedures, doctors who treat seniors can increase revenues by simply expanding the volume of such services and ordering tests of questionable utility.

Obamacare is costing way less than expected - In January 2010, the Congressional Budget Office projected that the federal health spending would total a bit more than $11 trillion between 2011 and 2020.  Today, the Congressional Budget Office thinks it made a mistake. Costs are coming in lower-than-expected, and the CBO's newest projections suggest the federal government will spend $600 billion less on health care than they predicted back in 2010. So far, so good: projections are always wrong by at least a bit, and it's nice to have the extra $600 billion in America's pocket.  But here's the incredible thing: as Paul Van de Water, a health care expert at the Center on Budget and Policy Priorities, points out, the January 2010 projection didn't include any of the spending associated with Obamacare. The latest projections include all of the spending associated with Obamacare.  So even adding all the spending in Obamacare, the CBO is projecting the federal government will spend $600 billion less on health care than the agency expected in 2010, when they weren't counting even a dollar of the spending in Obamacare.  That's simply an amazing fact. It's like finding you have thousands more in the bank than you expected at the beginning of the year — even though, at the beginning of the year, you didn't know you were going to buy a new car.

Health Care Cost Studies Pointedly Ignore Bad Incentives, Market Failure as Drivers -- Yves Smith -- An Academy Health Blog post last week set both Lambert’s and my “something is wrong with this picture” alarm bells ringing. The article, How coverage and technology interact, cites mainstream, widely-cited studies on what allegedly drives health care cost increases. Here are the opening paragraphs:  As I posted previously, many studies have pointed to technology as a principal driver of health care spending growth. Those studies also credit third party payment (i.e., insurance) and income for some of the blame too. More interesting, coverage, income, and technology interact; their intersection is explored in a few papers summarized below. The 2009 paper in Health Affairs by Shelia Smith, Joseph Newhouse, and Mark Freeland is one of the sources for the chart above. (See this post for additional detail.) In it, the authors note that “interrelationships among technology, income, and insurance are strong,” which makes “it difficult to assign specific quantitative magnitudes to each factor.”… This sort of thing drives me to despair. Go look at that chart. How can you begin to pretend that those categories are mutually exclusive? They aren’t even remotely, as even the snippet of the post I’ve provided demonstrates, and you’ll see even more proof if you read it in its entirety. So what is the point of engaging in the pretense of quantification when the explanatory variables are not at all discrete drivers? And what should really get you skeptical is the vague term “technology”. What does that mean? Is a new drug “technology”? Even if so, what about all the new drugs (via FDA classification as “new drug applications”) that are merely exercises in intellectual property rent seeking? The overwhelming majority of NDAs (I’ve seen estimates of 88%) are not new drugs at all but merely minor reformulations, like an extended release version, that allow patent life to be extended and for price increases (the “new” version is pushed hard to doctors and always priced higher than the existing version).

House G.O.P. Again Votes to Repeal Health Care Law -  The House passed a bill on Tuesday to repeal the Affordable Care Act for the first time in the new Congress, but Democrats appeared to show more zeal in defending the law than Republicans did in trying to get rid of it.The measure goes now to the Senate, where the majority leader, Mitch McConnell, Republican of Kentucky, has said that the chamber will vote on legislation repealing the health law but has not announced a schedule.Republicans in both chambers are divided over how to replace the law and how to respond if the Supreme Court upholds a challenge to insurance subsidies now being provided to millions of people under the law.The House vote, 239 to 186, generally followed party lines. No Democrats voted for repeal. Three Republicans — Representatives Robert Dold of Illinois, John Katko of upstate New York and Bruce Poliquin of Maine — voted against the bill. Despite an explicit veto threat from President Obama, Republicans said the vote on Tuesday was necessary to give new House members a chance to take a stand on the health law, which most Republicans had campaigned against. Freshman Republicans like Representatives Jody Hice of Georgia and Mia Love of Utah were among the most outspoken critics of the law on Tuesday.

Let’s Repeal Obamacare: 56th Time’s The Charm --Today, with a perfectly straight face, the House of Representatives voted for the 56th time to repeal the Affordable Care Act, with a vote of 239-186. And this time is different! This time, the Senate is controlled by Republicans, who might also vote to repeal it! But it’s okay at the moment, because the White House has issued a veto threat, and Republicans don’t have a big enough majority to override a veto. So don’t even worry about this until June, when the Supreme Court might overturn it! Republicans hate the ACA because it’s Obama’s big achievement, and because it costs money, which they say they won’t tolerate (unless costing money somehow helps wealthy people or corporations), and because it takes away all of their freedom to be sick and go bankrupt without insurance. And of course they will replace the ACA with something special, let’s not forget that! What if we look into some new Congressional Budget Office (CBO) data on federal health care spending, hmm? Maybe we will learn some new information about the “it costs money” part! Vox reports that a CBO projection in January 2010 estimated that federal health spending between 2011 – 2020 would cost around $11 trillion. This projection does NOT include costs associated with Obamacare, because the ACA had not been passed yet (it was signed into law in March 2010). Yesterday, CBO came out with a new estimate, and you will be so happy to hear that CBO is revising its earlier estimate DOWNWARD. With Obamacare, federal health spending is estimated to be $600 billion LESS than CBO predicted in 2010! So, prior to Obamacare, more federal spending on healthcare. With Obamacare, less federal spending on healthcare. Hooray! Do Republicans care about this? Nope!

Introducing Obamcare Lite: What the new GOP health reform ‘alternative’ really tells us - Plainly wounded by the Plum Line’s mockery, some congressional Republicans have finally unveiled a plan to replace the Affordable Care Act with their own health care reform. Is it serious? It’s certainly serious enough to examine and judge on its merits. Will it become the plan around which Republicans will unite? I doubt it, just because it’s hard to imagine Republicans ever uniting around a plan to do anything proactive on health care, though that’s always possible What’s really remarkable about this plan is that for all the claims we’ll hear about how it undoes the tyrannical horror of Obamacare, the Republicans’ version of health care reform has accepted most of the fundamental goals and regulatory paths of the law they so deeply despise. This plan — authored by Senators Richard Burr and Orrin Hatch and Rep. Fred Upton — is little more than Obamacare Lite. Though the devil is in the details — and there are some devilish ones — this tells us that Barack Obama has for all intents and purposes won the health care argument, at least as far as it concerns government’s role in health care. Here are some of the provisions, which I’ve copied from their synopsis:

  • Ensure NO ONE can be denied coverage based on their pre-existing condition;
  • Prohibit insurance companies from imposing lifetime limits on a consumer;
  • Adopt an age rating ratio that limits the amount an older individual will pay to no more than five times what a younger individual pays (5 to 1) as a baseline, unless a state affirmatively elects to have a different ratio;
  • Require health plans to offer dependent coverage up to age 26, unless a state opts out of this provision;
  • Ensure guaranteed renewability for patients to be able to renew their coverage;
  • Create a new “continuous coverage protection” that rewards individuals moving from one health market to another — regardless of whether in the individual, small group, or large employer markets — by allowing them to get a similar plan at a similar cost and not be rated on health status.

Anthem hack raises fears about medical data: Insurance giant Anthem Inc. suffered a massive data breach exposing the personal information of up to 80 million Americans — and it could have been even worse for consumers. The hackers didn't take sensitive medical information on patients or their credit card data, according to the company, even though it was stored alongside Social Security numbers and other personal information that were stolen. For several weeks last month, hackers infiltrated the key database of customer and employee information at the nation's second-largest health insurer. The company stumbled upon the attack last week and then scrambled to alert customers and authorities. The intrusion is raising fresh questions about the ability of giant health insurers and other medical providers to safeguard the vast troves of electronic medical records and claims data they are stockpiling. All this comes at a time when Anthem is spearheading an ambitious effort to build a controversial database of medical records on 9 million Californians for use by hospitals and doctors.

What the Corporate Media Aren’t Telling You About the TPP -- The Trans-Pacific Partnership, or TPP as it's more commonly known, is a public health disaster waiting to happen. According to leaked documents, the proposed trade deal, which I like to call the Southern Hemisphere Asian Free Trade Agreement - SHAFTA - would extend patent protections for drugs made by Big Pharma to prevent rival companies from making generic version of those same drugs. This a huge deal. For hundreds of millions of people all over the world, generic drugs are a cheaper alternative to the more expensive drugs sold by Big Pharma. So if the TPP goes through, real live breathing people (Doctors Without Borders estimates about half a billion of them) will effectively lose affordable access to the medicine they need to survive. And that's just one small provision of SHAFTA - pretty much every major industry in the world has their own little honeypot in there. The TPP would also let corporations sue countries in international courts owned and run by corporations, with judges handpicked from corporate law firms. In other words, if a corporation doesn't like a regulation, or thinks it'll diminish their profits, they can sue your town, state, or our federal government over it - and that would gut environmental and financial rules without any input from "We the People" or our elected representatives in Congress. Considering what's at stake here, you'd think that the media would want to fill its broadcasts with wall-to-wall TPP coverage. I mean, half a billion people losing access to life-saving drugs just so Big Pharma can boost its profit margins? Corporate controlled courts? That's ripe material for a primetime special! Apparently, though, the mainstream media could care less about the TPP or its disastrous effects on public health, the economy, and the environment.

America Embarks On Dumbest Science Debate Ever - A recent study from Pew Research Center shows a majority of U.S. Adult-Americans, 68 percent, believe parents should have to vaccinate their kids. Good, they are correct, and that should be the end of the story. But of course it isn’t. Because 30 percent of American “adults” think — like Gov. Chris Christie does or does not, who knows? — that parents should have the Freedom And LibertyTM to decide whether to let their kids maybe die from polio or measles or other supposed-to-be-eradicated diseases from the last century. And is it worse among the kids these days? Of course it is, because millennials are terrible, and 41 percent of 18- to 29-year-olds think parents should have the freedom to expose their children and anyone else they want to diseases that a decade ago we basically only knew about from history books and stories from grandma and grandpa.  Oh, and yes, grandma and grandpa absolutely believe parents should have to vaccinate their kids because they remember when their siblings and friends used to drop dead from that stuff, before scientists invented vaccines so that wouldn’t happen anymore. But now this fringe group of idiot parents who refuse to vaccinate their children is getting bigger. And they have support, though, thankfully for now, they’re still a minority. And people who actually daydream about running the entire U.S. government are like, “Well, gosh, some say this, some say that — let’s leave it up to parents to decide whether to infect schools and towns and Disneyland. What could go wrong?” Good job, anti-vaxxers!

Mississippi – yes, Mississippi – has the nation’s best child vaccination rate. Here’s why. - The Washington Post: It’s tough being a child in Mississippi. The state has the nation’s worst rates for infant mortality and low-weight newborns. Its childhood poverty rate ranks as the nation’s second worst. Overall, the residents of Mississippi are the unhealthiest in the country. But there is one notable exception to these dour health stats: Mississippi has the highest vaccination rate for school-age children. It’s not even close. Last year, 99.7 percent of the state’s kindergartners were fully vaccinated. Just 140 students in Mississippi entered school without all of their required shots. Compare that with California, epicenter of the ongoing Disney measles outbreak, where last year almost 8 percent of kindergartners — totaling 41,000 children — failed to get the required immunizations against mumps, measles and rubella. In Oregon, that number was 6.8 percent. In Pennsylvania, it was nearly 15 percent, or 22,700 kindergartners. And each of these states has suffered measles outbreaks in the last two years. “It’s nice not having measles in Mississippi,” said Mary Currier, Mississippi state health officer. The secret of Mississippi’s success stems from a strong public health program and — most importantly — a strict mandatory vaccination law that lacks the loopholes found in almost every other state.

Republican Party Comes Out Against Basic Hygiene, For Freedom - North Carolina’s newbie Sen. Thom Tillis is a damned fine Republican. You can tell because of how much he hates government regulation of any kind, because that is just the government murdering freedom. Forcing companies to follow Basic Rules of Hygiene, for example, like making employees wash their hands before serving food? He told a delightful story about explaining to some poor constituent who no doubt took a bleach bath after their encounter about how that’s one of those unnecessary regulations that really should be left up to the Great And All-Knowing Free Market:: I don’t have any problem with Starbucks if they choose to opt out of this policy as long as they post a sign that says “We don’t require our employees to wash their hands after leaving the restroom.” Cool story, bro. But it really helps to illustrate where today’s Republican Party is, which is in the toilet, not washing its hands because freedom. And that’s why we have a constantly growing list of wannabe presidential contenders trying to decide whether it is safe to say parents should vaccinate their kids, or whether that is somehow a violation of the party’s sacred oath to never make anyone do anything they don’t wanna, ever. Like Sen. Rand Paul — a “doctor” — saying parents should be allowed to decide whether to vaccinate their children or else liberty something something shut up. Really. “Shhhhh” little lady reporter, stop talking now.

New York Attorney General Targets Supplements at Major Retailers - The New York State attorney general’s office accused four major retailers on Monday of selling fraudulent and potentially dangerous herbal supplements and demanded that they remove the products from their shelves.The authorities said they had conducted tests on top-selling store brands of herbal supplements at four national retailers — GNC, Target, Walgreens and Walmart — and found that four out of five of the products did not contain any of the herbs on their labels. The tests showed that pills labeled medicinal herbs often contained little more than cheap fillers like powdered rice, asparagus and houseplants, and in some cases substances that could be dangerous to those with allergies.The investigation came as a welcome surprise to health experts who have long complained about the quality and safety of dietary supplements, which are exempt from the strict regulatory oversight applied to prescription drugs.The Food and Drug Administration has targeted individual supplements found to contain dangerous ingredients. But the announcement Monday was the first time that a law enforcement agency had threatened the biggest retail and drugstore chains with legal action for selling what it said were deliberately misleading herbal products.  Among the attorney general’s findings was a popular store brand of ginseng pills at Walgreens, promoted for “physical endurance and vitality,” that contained only powdered garlic and rice. At Walmart, the authorities found that its ginkgo biloba, a Chinese plant promoted as a memory enhancer, contained little more than powdered radish, houseplants and wheat — despite a claim on the label that the product was wheat- and gluten-free.

GNC, Target, Wal-Mart, Walgreens accused of selling adulterated ‘herbals’ -  A warning to herbal supplement users: Those store-brand ginkgo biloba tablets you bought may contain mustard, wheat, radish and other substances decidedly non-herbal in nature, but they’re not likely to contain any actual ginkgo biloba. That’s according to an investigation by the New York State attorney general’s office into store-brand supplements at four national retailers — GNC, Target, Walgreens and Wal-Mart. All four have received cease-and-desist letters demanding that they stop selling a number of their dietary supplements, few of which were found to contain the herbs shown on their labels and many of which included potential allergens not identified in the ingredients list. “Contamination, substitution and falsely labeling herbal products constitute deceptive business practices and, more importantly, present considerable health risks for consumers,” said the letters, first reported today by the New York Times. The tests were conducted using a process called DNA barcoding, which identifies individual ingredients through a kind of “genetic fingerprinting.” The investigators tested 24 products claiming to be seven different types of herb — echinacea, garlic, gingko biloba, ginseng, saw palmetto, St. John’s wort and valerian root. All but five of the products contained DNA that was either unrecognizable or from a plant other than what the product claimed to be.

Federal Government Set To Crack Down On Drug Courts That Fail Addicts: -- The federal government is cracking down on drug courts that refuse to let opioid addicts access medical treatments such as Suboxone, said Michael Botticelli, acting director of the White House’s Office of National Drug Control Policy, on Thursday. Drug courts that receive federal dollars will no longer be allowed to ban the kinds of medication-assisted treatments that doctors and scientists view as the most effective care for opioid addicts, Botticelli announced in a conference call with reporters. "Part of what we've been working on at the federal level is to strengthen our contractual language around those grants," he said. The new language will "show that if you are getting federal dollars that you need to make sure that people, one, have access to these medications [and two], that we’re not basically making people go off these medications, particularly as a participant of drug court."

Global obesity costs reach $2 trillion a year: report: We're fat - and we're getting fatter. One estimate from earlier this year found that almost onethird of the world is now obese (that's more than two billion people) and that numbers had been rising, significantly, for decades. The world's growing obesity and the health problems that come with it are a big deal - and come with a significant cost. A new report from consulting firm McKinsey estimates the world's obesity problem cost $2 trillion in 2012. That's more than alcoholism, climate change or drug use and almost as much as war and terrorism or smoking. McKinsey's report, titled How the world could better fight obesity, hopes to outline the ways that things could improve. It paints a complicated picture, not only calling for better education and personal responsibility, but also further intervention over a variety of sectors to force change. The problem is that there's not much evidence as to exactly what works in the battle against obesity. With no major success stories in combating obesity in the last 30 years, we're left to guess at what actually works.

Cancer updates! - Yesterday was evidently World Cancer Day. A big report came out on cancer worldwide. There are two paragraphs I’d like to highlight. The first is on breast cancer (emphasis mine): Between 1980 and the late 1990s, breast cancer incidence rates rose approximately 30% in Western countries, likely because of changes in reproductive factors and the use of menopausal hormone therapy and more recently because of increased screening. Declining incidence rates in the early 2000s have been attributed to the reduced use of menopausal hormone therapy in countries where it was formerly common, such as the United States, the United Kingdom, France, and Australia.  Breast cancer incidence rates have been rising in many countries in South America, Africa, and Asia. The reasons are not completely understood but likely reflect changing reproductive patterns, increasing obesity, decreasing physical activity, and some breast cancer screening activity. Regardless, good news in the developed world, more work to be done in other settings, though. The second paragraph is about lung cancer (emphasis mine): An estimated 1.8 million new lung cancer cases occurred in 2012, accounting for about 13% of total cancer diagnoses. Lung cancer was the most frequently diagnosed cancer and the leading cause of cancer death among males in 2012 (Fig. 2). Among females, lung cancer was the leading cause of cancer death in more developed countries, and the second leading cause of cancer death in less developed countries. In men, the highest lung cancer incidence rates were in Europe, Eastern Asia, and Northern America, and the lowest rates were in sub-Saharan Africa (Fig. 6). Among women, the highest lung cancer rates were in Northern America, Northern and Western Europe, Australia/New Zealand, and Eastern Asia (Fig. 6).  Lung cancer is the number one cancer killer of women in the developed world (the US included). It also happens to be one of the most preventable forms of cancer. It would be nice to see an adjustment in US focus, at least a little one, to acknowledge this fact. And I’m not even going to bring up heart disease.

Dying Shouldn't Be So Brutal - Michael was receiving state-of-the-art treatments at a renowned cancer center in New York City. As he became sicker, the treatments got more intense. Each decision came with more difficult trade-offs and uncertainties. Each step to stay alive risked making things worse.  He knew it. We’d talked openly about it. His life was precious and worth fighting for, so every option was worth carefully considering. But modern medicine has yet to make even one person immortal. Therefore, at some point, more treatment does not equal better care.  When Michael was out of standard options, they offered him a Phase I clinical trial — essentially an experiment. But his increasing pain and breathing problems were being poorly managed, sapping his strength and will to live. By phone I suggested to the nurse practitioner overseeing the study that Michael and his family would benefit from hospice services, starting with ensuring that he was correctly taking both long-acting and “as needed” pain relievers (and adjusting laxatives to counteract the pain relievers’ constipating effects). Hospice providers could also have responded to his wife and children’s questions about the details of caring for him at home. "It’s his choice,” the nurse said, referring to Medicare rules that require patients to choose between cancer treatment and hospice care. It was, but what a terrible choice to have to make.  Michael, who has since died, was suffering needlessly. Hospice care could have vastly improved the quality of his waning life, and eventually it did. But those rules mean that dying patients enrolled in Phase I studies, which aren’t intended to be treatments, are routinely denied access to hospice services. Caveat mortalis — let the die-er beware!

What the Corporate Media Aren’t Telling You About the TPP -- The Trans-Pacific Partnership, or TPP as it's more commonly known, is a public health disaster waiting to happen. According to leaked documents, the proposed trade deal, which I like to call the Southern Hemisphere Asian Free Trade Agreement - SHAFTA - would extend patent protections for drugs made by Big Pharma to prevent rival companies from making generic version of those same drugs. This a huge deal. For hundreds of millions of people all over the world, generic drugs are a cheaper alternative to the more expensive drugs sold by Big Pharma. So if the TPP goes through, real live breathing people (Doctors Without Borders estimates about half a billion of them) will effectively lose affordable access to the medicine they need to survive. And that's just one small provision of SHAFTA - pretty much every major industry in the world has their own little honeypot in there. The TPP would also let corporations sue countries in international courts owned and run by corporations, with judges handpicked from corporate law firms. In other words, if a corporation doesn't like a regulation, or thinks it'll diminish their profits, they can sue your town, state, or our federal government over it - and that would gut environmental and financial rules without any input from "We the People" or our elected representatives in Congress. Considering what's at stake here, you'd think that the media would want to fill its broadcasts with wall-to-wall TPP coverage. I mean, half a billion people losing access to life-saving drugs just so Big Pharma can boost its profit margins? Corporate controlled courts? That's ripe material for a primetime special! Apparently, though, the mainstream media could care less about the TPP or its disastrous effects on public health, the economy, and the environment.

How Reducing Food Waste Could Ease Climate Change -- More than a third of all of the food that's produced on our planet never reaches a table. It's either spoiled in transit or thrown out by consumers in wealthier countries, who typically buy too much and toss the excess. This works out to roughly 1.3 billion tons of food, worth nearly $1 trillion at retail prices. Aside from the social, economic, and moral implications of that waste—in a world where an estimated 805 million people go to bed hungry each night—the environmental cost of producing all that food, for nothing, is staggering. (Read more about causes and potential solutions to the problem of food waste.) The water wastage alone would be the equivalent of the entire annual flow of the Volga—Europe's largest river—according to a UN report. The energy that goes into the production, harvesting, transporting, and packaging of that wasted food, meanwhile, generates more than 3.3 billion metric tons of carbon dioxide. If food waste were a country, it would be the world's third largest emitter of greenhouse gases, behind the U.S. and China.  Food wastage comes in two forms. About one-third occurs at the consumer level, where we buy too much and throw it away. Approximately two-thirds happens at the production and distribution level. For example, a lot of food rots in fields, or is lost as a result of poor transportation networks, or spoils in markets that lack proper preservation techniques. We can make a big difference by transporting and storing our food under proper temperature conditions to extend food supplies.

Agricultural antibiotics in the President’s budget request - More than 80% of US antibiotic use occurs in agriculture, especially in the production of meat from poultry, pigs and concentrated feed lot operations for beef cattel. A useful recent survey of the research on this issue for poultry and pigs was just published , Economics of Antibiotic Use in U.S. Swine and Poultry Production. Three main take-aways here:

  • 1. Most of the studies showing a significant benefit from antibiotics as growth promoters (AGPs) were conducted decades ago, before many farms improved animal husbandry practices and before resistance grew. Studies on more modern operations show little or no benefit from AGPs.
  • 2. New antibiotic classes have been rare, and it seems likely that new classes will be restricted to human use. If so, the agricultural sector needs to protect and extend the usefulness of the antibiotics currently available. Agricultural antibiotics are a limited resource; they should not be used when other substitutes (better practices, vaccination) are available.
  • 3. The President’s antibiotic proposal in the budget calls for $77 million for the Department of Agriculture, a four-fold increase (Maryn McKenna). These funds could help us dramatically reduce total US antibiotic consumption, improving human health while not burdening our farmers.

Obama's budget would cut spending on Great Lakes and other local projects, yet boost other Ohio priorities - - Great Lakes cleanup money and funds for harbor dredging, both important to communities on Ohio's north coast, would be cut if President Barack Obama's new budget proposal got approved by Congress. Yet biomedical research, relished by local hospitals and universities, would get a boost. Similarly, a popular program that pays for fighting urban blight and improving streetscapes could get hit with cuts as Obama pushes to revamp it and better target the spending. Yet the same federal agency would see more money for housing vouchers, possibly helping Clevelanders who lost out on government aid during federal budget cuts of the last two years. Now that Obama's spending proposals for 2016 are officially out, these kinds of details can be gleaned. Until now, the White House promoted only select tidbits in advance of the budget's release, highlighting such things as free community college tuition, help for the middle class to pay for childcare, and higher taxes on the rich. One thing the proposed budget shows: If you added up most federal grants to just the state and local governments in Ohio, they'd reach nearly $22.5 billion in 2016. That's after the cuts mentioned above. And the total would represent a 7.1 percent increase - if Congress were to approve Obama's budget, that is.

Algal bloom, water quality requirements tackled in Gov. John Kasich's budget -- While state lawmakers debate plans to battle algal blooms in Lake Erie and other Ohio waterways, Gov. John Kasich made some suggestions of his own on Monday. Kasich proposed prohibiting spreading manure on frozen and rain-soaked ground in the Western Lake Erie Basin unless injection, tillage or cover crops are used, and eliminate all open-lake dredging and disposal by 2020. The Ohio Environmental Protection Agency wants to modify wastewater discharge permits for major public water treatment plants and continue to limit phosphorous discharge, according to the administration. "What we've done is try to take a comprehensive approach looking at all of the major sources of phosphorous into the lake and deal with those individually," Wayne Struble, Kasich's director of policy, said Monday. Kasich's suggstions aim to reduce algal blooms that tainted drinking water for thousands of Ohioans this summer. The proposal is part of his two-year state budget introduced as legislation in the Ohio House on Monday. State lawmakers will review, debate and revise the proposals during the next few months. "Remember though, even though people say the water turns over, the stuff at the bottom of the lake doesn't turn over," Kasich said Monday. "Is the lake getting healthier? I think that it is but it's a long way back... It won't get fixed in a day but we're on it in an aggressive way." Leaders in both chambers have said addressing water quality is a top priority during the coming months. House members plan to meet with farmers and experts in Northwest Ohio to discuss options. Meanwhile, a pair of Senators introduced legislation Monday that would specify requirements for fertilizer or manure application, dredging, nutrient loading and phosphorus testing, and also create the Office of Harmful Algae Management and Response in the Ohio EPA.

Southern Forests' Ability to Suck Carbon From the Air May Be Slowing - How are today's forests doing when it comes to sucking carbon out of the atmosphere? Wear and two Forest Service colleagues, John Coulston and Jim Vose, recently completed a study examining the carbon accumulation levels of forests in the southern United States. They discovered a possible reduction in the ability of these forests to absorb carbon. That worries Wear and his colleagues because carbon dioxide is the main greenhouse gas that causes climate change.  The trio of scientists, who worked out of the Forest Service's Southern Research Station, recently had their findings published in the journal Scientific Reports.. The study examined the impacts on forests from such things as fire, disease and cutting, as well as the effects of changing land uses. Data were collected from 40,000 locations from Virginia to Louisiana. Forests are among nature's most efficient and reliable systems for sucking up and storing carbon dioxide from the atmosphere. Trees use the carbon dioxide in photosynthesis—the process that allows all plants to live and grow. The scientists said forests in the southeastern U.S. provided a good workshop because they have more forest land than 96 percent of the countries in the world. Further, the forests in the 11 states studied absorb an estimated 15 percent of the carbon emission generated by energy- and transportation sources in the United States.

New Genetically Engineered Tree To Avoid Federal Oversight Completely - A genetically engineered (GE) tree may already be planted in field tests, and eventually be commercialized, in the U.S. without having gone through any regulatory oversight or environmental risk assessment. On January 13th, the U.S. Department of Agriculture (USDA) quietly posted its August reply to a letter from ArborGen, a biotechnology company that is developing GE forest trees for plantations, confirming that USDA will require no regulation of ArborGen’s GE loblolly pine. This failure to regulate a GE tree is unprecedented. Other known GE forest trees in the U.S. are being grown in USDA-regulated field trials, and none has been approved for commercial planting. USDA regulation is important because it ensures that risk assessments are carried out to determine whether or not the GE tree will harm the environment before a decision on its commercialization. Loblolly pine is an important native tree, common throughout the diverse forests of the Southeast. These pine forests are a key habitat for more than 20 songbirds and many other animals, including the endangered red-cockaded woodpecker. Loblolly pine is also the leading commercial timber species in the Southeast, where forests and plantations supply both lumber and pulp for paper and energy. The ArborGen GE loblolly pine contains novel genes that are currently undisclosed. Seeds and pollen of GE loblolly pine travel over a distance of many miles, and will disperse the novel genes well beyond any ArborGen GE field test site or plantation into natural forests where GE trees could potentially survive and spread.

Outrage Over US Secret Approval of Genetically Engineered Trees - Groups from around the world [1] today joined together to denounce the US government for allowing the first genetically engineered tree, a loblolly pine, to be legalized with no government or public oversight, with no assessment of their risks to the public or the environment, and without regard to overwhelming public opposition to GE trees.A secret letter from the USDA to GE tree company ArborGen [2], dated last August, was recently exposed by scientist Doug Gurian-Sherman of the Center for Food Safety [3]. In this letter, the USDA made the unprecedented decision to allow ArborGen to pursue unregulated commercial cultivation of a loblolly pine genetically engineered for altered wood composition. These trees could be planted anywhere in the US, without public knowledge or access to information about them.  Gurian-Sherman argues the USDA “is deliberately thumbing its nose at the public” with this decision, pointing out that this is probably the biggest environmental regulatory change in the US since the early 1990s [4]. Loblolly pines are native across 14 states throughout the US Southeast, and are grown in plantations around the world. Their pollen is known to travel for hundreds of miles.

Monsanto’s Roundup Ready Crop System Puts Monarch Butterflies at Brink of Extinction -  Center for Food Safety (CFS) released today a detailed, 80-page scientific report, Monarchs in Peril: Herbicide-Resistant Crops and the Decline of Monarch Butterflies in North America. The comprehensive report reveals the severe impacts of herbicide-resistant genetically engineered (GE) crops on the monarch population, which has plummeted over the past twenty years. The report makes it abundantly clear: two decades of Roundup Ready crops have nearly eradicated milkweed—the monarch caterpillar’s sole source of food—in cropland of the monarch’s vital Midwest breeding ground. At the urgent request of scientists and public interest groups, the U.S. Fish and Wildlife Service is currently considering listing the monarch as a threatened species under the Endangered Species Act.  Monarch population numbers have fallen by 90 percent in less than 20 years. This year’s population was the second lowest since careful surveys began two decades ago. The critical driver of monarch decline is the loss of larval host plants in their main breeding habitat, the Midwestern Corn Belt. Monarchs lay eggs exclusively on plants in the milkweed family, the only food their larvae will eat. “The alarming decline of monarchs is driven in large part by the massive spraying of glyphosate herbicide on genetically engineered crops, which has virtually eliminated monarch habitat in the corn and soybean fields that dominates the Midwest landscape,” said Bill Freese, Center for Food Safety science policy analyst and co-author of the report. “Glyphosate is the monarch’s enemy number one. To save this remarkable species, we must quickly boost milkweed populations and curtail the use of herbicide-resistant crop systems.”

Many Americans reject evolution, deny climate change and find GM food unsafe, survey finds A major survey of US opinions has revealed that huge numbers of people reject Darwinian evolution, consider GM foods unsafe to eat, and doubt that human activity is warming the planet. The report by the Pew Research Center in Washington DC was conducted with the American Association for the Advancement of Science (AAAS) and sought to compare the opinions of a cross-section of the US public with those held by the AAAS’s scientific members. Published in the journal Science, the survey found that 31% of the US public believed that humans had existed in their present form since the beginning, with a further 24% stating that humans had evolved under the guiding hand of a supreme being. In contrast, only 2% of AAAS scientists said humans had not evolved in their time on Earth. The proportion of the public who believed evolution had happened through natural processes, as described by Charles Darwin more than 150 years ago, was only slightly greater than a third at 35%. The survey drew on phone interviews with 2,002 US adults chosen to be representative of the nation, and online questions of 3,748 US-based members of the AAAS. The US has embraced genetically modifed crops, with 69m hectares (170.4m acres) given over to their cultivation, but the survey suggests the technology is still regarded as contentious by a significant portion of US society. A striking 57% of the public surveyed by Pew believed that GM foods were unsafe to eat. The overwhelming view of the scientists, was that the food was safe, with 88% having no concerns about eating GM.

In Northern Minnesota 176,000 Acres Have Been Deforested for Cropland Since 2006 | Big Picture Agriculture: Millions of acres of prairie in the Dakotas have been plowed up since 2006, but did you know that a sensitive region in northern Minnesota is also being converted to irrigated row-cropland? An hour or more northwest of Brainerd, Minnesota, is a pristine region with lakes, forest, and sandy soil, that everyone assumed would always stay that way. “No one saw this coming,” said state hydrologist Darrin Hoverson. The wild-life rich region is being deforested to grow row crops. Potatoes, corn, and soybeans are being rotated on this land. A shallow aquifer in the area, which sits under a very porous surface, is being depleted and contaminated with nitrogen. Other waterways are also being polluted. Thousands of new acres of commercial forest land is in the process of being sold and converted to cropland. This new cropland requires pivot irrigation since the region is fairly dry, and irrigation permits are overwhelming the local Department of Natural Resources. Irrigation applications statewide in Minnesota have gone up ten-fold in the past two years.

14 of the 15 hottest years on record have occurred since 2000, UN says -  Fourteen of the 15 hottest years on record have occurred since 2000, according to the UN World Meteorological Organisation, as rising carbon emissions continue to trap heat and drive climate change. The WMO’s new analysis narrowly places 2014 as the hottest recorded since 1850, as have recent analyses from other organisations. The WMO analysis is particularly authoritative as it brings together a number of leading temperature records, as well as alternative ways of estimating the warmth of the globe. The average global air temperatures over land and sea in 2014 were 0.57C above the average of 14.00C for the 1961-1990 reference period. The record temperature was above those in 2005 and 2010, the next hottest years, but only by a small amount which was within the margin of uncertainty in the calculations.“The overall warming trend is more important than the ranking of an individual year,” said WMO secretary-general Michel Jarraud. “2014 was nominally the warmest on record, although there is very little difference between the three hottest years.” “We expect global warming to continue, given that rising levels of greenhouse gases in the atmosphere and the increasing heat content of the oceans are committing us to a warmer future,” he said. “In 2014, record-breaking heat combined with torrential rainfall and floods in many countries and drought in some others – consistent with the expectations of a changing climate.”

How China's Filthy Air Is Screwing With Our Weather - As the snow began to fall earlier this week in the lead up to the season's first major blizzard, New York Governor Andrew Cuomo told reporters that the Northeast was witnessing "a pattern of extreme weather that we've never seen before." Climate change, Cuomo argues, is fueling bigger, badder weather events like this one—and like Hurricane Sandy. While the science that links specific snowstorms to global warming is profoundly difficult to calculate, the Intergovernmental Panel on Climate Change says it's "very likely"—defined as greater than 90 percent probability—that "extreme precipitation events will become more intense and frequent" in North America as the world warms. In New York City, actual snow days have decreased, but bigger blizzards have become more common, dumping more snow each time.  But climate change may not be the only way that human activity is making storms worse. In an emerging body of work, NASA scientists have identified a surprising contributor to American storms and cold snaps: Asia's air pollution. Over the past few years, a team at NASA's Jet Propulsion Laboratory and the California Institute of Technology has found that aerosols—or airborne particles—emitted from the cities fueling Asia's booming economies are making storm activity stronger in the Northwest Pacific Ocean. These storms wreak havoc on the polar jet stream, a major driver of North America's weather. The result: US winters with heavier snowfall and more intense cold periods.

China Fights Pollution with Transparency - The conversation about pollution in China has shifted dramatically in recent years. In 2011, state media still blamed “fog” for poor visibility in the capital, and government meteorologists denied that smog was caused by emissions. But denial has become less tenable by the day: air-quality data is now widely available, including a running update from the roof of the U.S. Embassy; “airpocalypse” conditions have become a regular, sometimes crippling feature of Chinese cities; and pollution is driving away tourists. Now officials are keen to stress the importance of environmental protection. Last March, Premier Li Keqiang promised to “declare war” on pollution and fight it with an “iron fist.” Chen Zhu, a former health minister, co-authored a report in 2014 concluding that air pollution kills between three hundred and fifty thousand and five hundred thousand Chinese every year. Wang, not to be outdone, has said that if government officials don’t fix the problem they will find their “heads on a platter.” That hasn’t stopped Beijing from suppressing unflattering pollution data, as the city did during the Asia-Pacific Economic Cooperation (APEC) summit, in November, but the over-all trend has been toward acknowledgment. With the new rhetoric has come a policy shift at every level of government. The Communist Party now evaluates local officials not only on their economic performance but also on their environmental record. In 2014, the National People’s Congress updated the country’s environmental-protection law for the first time in twenty-five years, approving stricter punishments for factories that pollute. When President Obama visited Beijing for the APEC summit, he and President Xi Jinping signed a joint agreement in which China promised to curb the growth of greenhouse-gas emissions by 2030. It’s an ambitious goal, some climate researchers say—but then ambitious is good.

Water privatisation: a worldwide failure? -- In 1999, the World Bank’s International Finance Corporation (IFC) proposed a vast expansion of the city’s water supply, raising real hope that a British or French company would lay pipes to the sprawling Ajegunle slum.   The IFC plan was rejected as “appalling” by the head of the Lagos Water Corporation, who said it was unworkable and too expensive for the city. But in the following years, donor governments, banks and a succession of European and American business consortia all went to Africa’s largest metropolis with plans to take water to people such as Orogobeni.   Like the IFC, most proposed awarding a single giant water company a long concession in return for providing technical expertise and millions of water connections.  But the companies, banks and donors all left, unable to agree with the federal or local authorities how to satisfy corporate demands, raise the billions of pounds inevitably needed, and convince the Nigerian public that international companies would fulfil their contracts and not make unreasonable profits from the sale of what was widely seen as a public resource.  About 80% of Lagos’s piped water supplies are thought to be stolen, only 5% of people receive it in their houses, taps are often dry, sanitation is non-existent across much of the metropolis and the hospitals are full of people suffering diarrheal and other water-borne diseases. All that has changed since the IFC’s abortive 1999 plan is that the demand for water has grown due to the arrival of millions more people in the city.

California Farmers Cope with Fourth Year of Drought - The past three years, meteorologists say California received an average of 51 inches of precipitation, about 16 inches below average. That's the 11th driest 3-year period during all of record keeping. “We've been through dry periods before, we should not be as short of water as we are today,” says Paul Wenger, California Farm Bureau President. “It's complete and total mismanagement of our water resources.” The situation is worse the farther south you go. “We need snow pack and we need reservoir full so we can get water to those growers in the south end of the valley or it's going to be a very critical year for them,” says Wenger. Unfortnuately, just last week the California Department of Water Resources conducted its second manual snow survey of the season. Officials discovered while the situation is better than it was in December, the snow pack is still way below average with the snow water equivalent to only 2 point 3 inches. That's only 12 percent of average and extremely disheartening, as the snowpack supplies about 30 percent of California's water needs in the spring and early summer, including vital farm irrigation. No matter what part of the state you visit, the reality is the same.

Port slowdown has damaged Western ag’s export markets - Boshart is just one of many farmers and shippers hurt by the slowdown, which has created a bottleneck at container ports along the West Coast. Chilled beef and pork, poultry, apples, frozen and dehydrated potato products, frozen vegetables, hay, forest products, Christmas trees, nuts and rice all have suffered combined sales losses in the hundreds of millions of dollars. The U.S. beef and pork industry just obtained access to South Korea’s market only to lose it because of the slowdown. Wheat has been largely unaffected because it is exported in bulk. But even after a new contract is signed, the fallout will continue to hurt the region’s agricultural exporters and the farmers who depend on them. It will take months to clear congestion at ports and restore shipments to normal, and there will be the long-term loss of overseas customers, said Peter Friedmann, executive director of the Agriculture Transportation Coalition. It’s happened before, he said. Almond and hazelnut exports to Japanese candy makers after the 2002 longshoremen strike never fully recovered, he said. “It will take months to unwind this, not just in clearing up port congestion but many importers already are shifting to the East Coast and saying they’re not coming back,” he said.

Driest January in history: Bay Area swings from boom to bust after wettest December - For the first time ever, San Francisco, Oakland and Sacramento have recorded no rainfall for the month of January -- nada drop. San Jose has received a record-low .02 inches, and no rain is forecast for at least a week. Adding more ominous news to California's historic drought, the Bay Area's rainy season has swung from boom to bust, with the month of January wrapping up as the driest on record. "Dismally meager," is how the state Department of Water Resources on Thursday described the precious Sierra snowpack, which has plummeted statewide to 25 percent of its average for this time of year. This comes after one of the wettest Decembers in history. "If anything, it's reminded me about the drought," said Scott Brendel, who watched the creek behind his home in San Jose go from a gusher in December to a trickle in January. "We're not even watering. You see the hills turning brown and it's always a reminder that we're not out of the woods." The only silver lining of the dry month is that because December was so wet, the rainfall total for the rainy season so far remains slightly above average.

Drought-Stricken California Let Oil Companies Inject Waste Into Drinkable Water Sources - The San Francisco Chronicle has a bombshell story showing that California regulators gave oil companies permission to inject chemical-laden wastewater into drinkable water sources underground.  The revelation comes as California enters another month of its epic, four-year drought, which has left some communities pumping out so much groundwater that the land is literally sinking. The state saw almost no rain in January, normally the wettest month of the year. Despite this, the state’s oil and gas regulator has been allowing oil companies to dump their waste into clean drinking water sources for years, according to documents reviewed by the Chronicle. A large portion of the waste injections happened in Kern County, which according to the American Lung Association has the third-worst air quality in the country. Kern’s population is also disproportionately low-income and non-white compared to other parts of the state. Specifically, the Chronicle found that with state permission, the oil industry has drilled 171 wastewater injection wells into clean aquifers, and 253 wastewater wells into aquifers that were salty but potentially usable with treatment.  Wastewater from oil and gas drilling can contain chemicals like arsenic and benzene, heavy metals, and radioactive material.  Hundreds of billions of gallons of wastewater are disposed by the oil and gas industry every year, many of which are in California, the third-highest producing state behind Texas and North Dakota. Though it may be surprising, environmental advocates have long-known that oil companies were dumping wastewater into California aquifers. But the Chronicle’s discovery showed that the practice was more widespread than advocates had thought. Last year, the Center for Biological Diversity found the existence of nine wastewater injection wells in aquifers that could have be used for drinking water if treated. The Chronicle found 171 injection wells in aquifers that were entirely clean.

Water is far more valuable and useful than oil - Even after 20 years of covering environmental issues in two dozen countries I had no idea of the incredible amounts of water needed to grow food or make things. Now, after two years working on my book Your Water Footprint: the shocking facts about how much water we use to make everyday products, I’m still amazed that the t-shirt I’m wearing needed 3,000 litres to grow and process the cotton; or that 140 litres went into my morning cup of coffee. The rest of my breakfast swallowed 1,012 litres: small orange juice (200 litres); two slices of toast (112 litres); two strips of bacon (300 litres); and two eggs (400 litres). Researching all this I soon realised that we’re surrounded by a hidden world of water. Litres and litres of it are consumed by everything we eat, and everything we use and buy. Cars, furniture, books, dishes, TVs, highways, buildings, jewellery, toys and even electricity would not exist without water. It’s no exaggeration to say that water is far more valuable and useful than oil. A water footprint adds up the amount of water consumed to make, grow or produce something. I use the term consumed to make it clear that this is water that can no longer be used for anything else. Often water can be cleaned or reused so those amounts of water are not included in the water footprints in the book. The water footprint of 500ml of bottled water is 5.5 litres: 0.5 for the water in the bottle and another five contaminated in the process of making the plastic bottle from oil. The five litres consumed in making the bottle are as real water as the 500ml you might drink but hardly anyone in business or government accounts for it.

A Fresh Look at the Watery Side of Earth’s Climate Shows ‘Unabated Planetary Warming’ - A fresh analysis of thousands of temperature measurements from deep-diving Argo ocean probes shows (yet again) that Earth is experiencing “unabated planetary warming” when you factor in the vast amount of greenhouse-trapped heat that ends up in the sea. This is not even close to a new finding, but the new study shows more precisely where most of the heat has been going since 2006 (in the Southern Ocean outside the tropics; see the red splotches in the map below).  The study, “Unabated planetary warming and its ocean structure since 2006,” was published today in Nature Climate Change. [I’ll add a direct link when there is one.]  The paper illustrates the importance of remembering that the atmosphere and ocean surface are just a small component of the Earth’s climate system — with the ocean depths having a vast capacity to absorb and move heat on time scales ranging from years to centuries and longer. This excerpt (my italics) explains why a recent pause in warming of sea surface temperatures (SST) can hide important deeper processes: Global mean SST has increased by about 0.1 [degrees Celsius per] decade since 1951 but has no significant trend for the period 1998-2013. Explanations for the recent ‘pause’ in SST warming include La Niña-like cooling in the eastern equatorial Pacific, strengthening of the Pacific trade winds, and tropical latent heat anomalies together with extratropical atmospheric teleconnections. However, it is heat gain and not SST that reflects the planetary energy imbalance and thus the warming rate of the climate system..

Brazil to raise ethanol blend in gasoline to 27 pct on Feb 15 (Reuters) - Brazil's struggling sugar and ethanol mills got more good news on Monday after the government granted an expected increase in the national blend of the biofuel in gasoline to 27 percent on Feb. 15 from the current 25 percent, industry officials said. The higher blend is the latest of several measures taken by the government expected to have a positive effect on the industry's bottom line going forward.  Also improving the outlook for mills was the government's January decision to raise taxes on gasoline starting on Feb. 1, allowing ethanol mills to raise prices in tandem and recover profit margins. In recent years, the government of President Dilma Rousseff, concerned about consumer inflation, had zeroed out the taxes on gasoline and even subsidized the price of the fuel on the local market, prior to the fall in global oil prices in past months.  The president of Brazil's cane milling industry, Elizabeth Farina, said mills had sufficient supplies of the biofuel to meet additional demand.

Biofuels Are Not a Green Alternative to Fossil Fuels - World Resources Institute: Powering cars with corn and burning wood to make electricity might seem like a way to lessen dependence on fossil fuels and help solve the climate crisis. But although some forms of bioenergy can play a helpful role, dedicating land specifically for generating bioenergy is unwise. It uses land needed for food production and carbon storage, it requires large areas to generate just a small amount of fuel, and it won’t typically cut greenhouse gas emissions.First, dedicating areas to bioenergy production increases competition for land.Roughly three-quarters of the world’s vegetated land is already being used to meet people’s need for food and forest products, and that demand is expected to rise by 70 percent or more by 2050. Much of the rest contains natural ecosystems that keep climate-warming carbon out of the atmosphere, protect freshwater supplies, and preserve biodiversity. Second, bioenergy production is an inefficient use of land. While photosynthesis may do a great job of converting the sun’s rays into food, it is an inefficient way to turn solar radiation into non-food energy that people can use. Thus, it takes a lot of land (and water) to yield a small amount of fuel from plants. In a new working paper, WRI calculates that providing just 10 percent of the world’s liquid transportation fuel in the year 2050 would require nearly 30 percent of all the energy in a year’s worth of crops the world produces today.

 New Report Destroys Biofuel Claims -- Despite their promise over the past decade or so, biofuels have been found to be a very inefficient way to generate energy, are bad for the environment and even contribute to world hunger, according to a new report by the World Resources Institute (WRI).  In fact none of these conclusions is new. Research into biofuels for years has focused on making them more potent. And no one has ever thought cutting down trees, for example, is good for the environment, even if more trees can be grown. And as for nutrition, who benefits more from corn: a hungry child or an automobile?   Certainly, natural waste products can contribute to bioenergy, but dedicating broad acreage to raising crops not for food but for energy creates unfair competition with a more important enterprise of growing crops and providing grazing land for livestock, according to the WRI, a global research organization based in Washington. And denuding forests may help create a clean-burning fuel, but it also deprives local waterways of protection they need, leaves wildlife without habitat and even leaves the Earth without its natural air cleansers that absorb carbon from the atmosphere. Perhaps most important from an energy standpoint, the report says, is that biofuels are inefficient. For example, it says, sugar cane seems like an ideal renewable source of energy because it grows quickly, but it “converts only around 0.5 percent of solar radiation into sugar, and only around 0.2 percent ultimately into ethanol.” Much the same is true for maize, or corn as it is known in the United States. The upshot? “Such low conversion efficiencies explain why it takes a large amount of productive land to yield a small amount of bioenergy, and why bioenergy can so greatly increase global competition for land,” the WRI report concludes. If you want clean energy, it says, go solar, which it says can outperform biofuels per hectare by a factor of more than 100.

Climate Change's Bottom Line -- It was 8 degrees in Minneapolis on a recent January day. But inside the offices of Cargill, the food conglomerate, Greg Page, the company’s executive chairman, felt compelled to talk about global warming. “It would be irresponsible not to contemplate it,” Mr. Page said, bundled up in a wool sport coat layered over a zip-up sweater. “I’m 63 years old, and I’ve grown up in the upper latitudes. I’ve seen too much change to presume we might not get more.” Mr. Page is not a typical environmental activist. He says he doesn’t know — or particularly care — whether human activity causes climate change. He doesn’t give much serious thought to apocalyptic predictions of unbearably hot summers and endless storms. But over the last nine months, he has lobbied members of Congress and urged farmers to take climate change seriously. He says that over the next 50 years, if nothing is done, crop yields in many states will most likely fall, the costs of cooling chicken farms will rise and floods will more frequently swamp the railroads that transport food in the United States. He wants American agribusiness to be ready. Mr. Page is a member of the Risky Business Project, an unusual collection of business and policy leaders determined to prepare American companies for climate change. It’s a prestigious club, counting a former senator, five former White House cabinet members, two former mayors and two billionaires in the group. The 10 men and women who serve on the governing committee don’t agree on much. Some are Democrats, some Republicans. Even when it comes to dealing with climate change, they have very different perspectives. Some advocate a national carbon tax, some want to mandate companies to disclose their climate risks. Mr. Page suggests that the world may be able to get by without any mandatory rules at all. Some members want to push investors to divest from fossil fuel companies. Several favor construction of the Keystone XL pipeline, while one member has spent more than $1 million lobbying to stop it. But they all do agree on one issue: Shifts in weather over the next few decades will most likely cost American companies hundreds of billions of dollars, and they have no choice but to adapt.

Mitch McConnell’s Move To Oversee EPA Budget Means One Thing: The Climate Fight Is Personal -- Just in time for the start of budget negotiations, the Senate committee in charge of funding the Environmental Protection Agency has a new member: Majority Leader Mitch McConnell.  McConnell announced on Monday that he will be joining the Senate Appropriations Subcommittee on Interior, Environment and Related Agencies, which has jurisdiction over the EPA. The Kentucky Republican, who has said his top priority as Majority Leader is to stop the Obama administration’s proposed climate regulations, has been touting his new positon as a way to “fight back against this Administration’s anti-coal jobs regulations” — or as he’s said in the past, to “get the EPA reined in.” On its face, the position makes it seem like McConnell, a pro-coal politician who does not think climate change exists, will now be at the center of deciding whether President Obama’s plan to fight climate change through the EPA gets any funding at all. This is bad for environmentalists, as McConnell has promised to use what are known as limitation riders — provisions that prohibit agencies from spending money for specific uses — to set back the White House climate agenda. That could mean a rider to prevent the EPA from spending any money on regulating carbon emissions for the entire year. It could mean a rider to defund the EPA entirely. Whatever it is, McConnell will be serving on the committee that decides. But here’s the thing: McConnell is already in charge of what goes into the Senate’s budget. He is now the Majority Leader. If he wants to include riders to defund the EPA or any of its activities, he doesn’t have to be on the environment appropriations subcommittee to do it. In other words, realistically, it really doesn’t matter if McConnell is on the subcommittee or not. “If he wants to get language limiting the EPA’s appropriations into the subcommittee bill, being on the subcommittee is kind of irrelevant,”

Surprise Lake Sheds Light on Underbelly of Greenland Ice - On a clear day, anyone flying over Greenland on the route between North America and Europe can look down and see the bright blue patches of melted water atop the flat, blindingly white expanse of the ice sheet that covers the island, the second largest chunk of ice on Earth. Scientists have long known this meltwater flows in streams along the ice sheet’s surface before disappearing down chutes that take it tumbling to the bottom of the ice sheet, where the ice scrapes against bedrock. It was thought that the water quickly flowed between ice and rock and out to sea, with little impact on the bottom ice layers. But a new study suggests the story isn’t so simple. In a serendipitous discovery, a team of scientists has found a lake at the bottom of the ice where the relatively warm meltwater pools and makes the ice around it slushier. Ultimately, that could make the ice flow faster to the ocean. The finding, detailed in the Jan. 22 issue of the journal Nature, suggests that this process could be important to more accurately modeling how Greenland will respond to climate change and contribute to the already 8 inches of global sea level rise since 1900. Greenland holds enough ice to raise global sea levels by 24 feet, and how much and how quickly it melts could change projections of future sea level rise,

New Satellite Data Reveals Dramatic Shrinkage of Arctic Ice Cap » An ice cap in the high Arctic has lost what British scientists say is a significant amount of ice in an unusually short time. It has thinned by more than 50 metres since 2012—about one sixth of its original thickness—and the ice flow is now 25 times faster, accelerating to speeds of several kilometers per year. Over the last two decades, thinning of the Austfonna ice cap in the Svalbard archipelago—roughly half way between Norway and the North Pole—has spread more than 50km inland, to within 10km of the summit. A team led by the scientists from the UK Centre for Polar Observation and Modelling (CPOM) at the University of Leeds combined observations from eight satellite missions, including Sentinel-1A and CryoSat, with results from regional climate models, to understand what was happening. The study’s lead author, geophysicist Dr. Mal McMillan, a member of the CPOM team, said: “These results provide a clear example of just how quickly ice caps can evolve, and highlight the challenges associated with making projections of their future contribution to sea level rise.”

Claims that climate models overestimate warming are "unfounded", study shows - A new paper takes an in-depth look at the suggestion that climate models routinely overestimate the speed at which Earth's surface is warming - and finds the argument lacking. A look back over the past century shows that, by and large, what we see in global average temperature is extremely well captured by models, the authors tell Carbon Brief.  The new research, a collaboration between scientists at the Max Planck Institute in Germany and the University of Leeds, is published today in the journal Nature. Climate scientists study how Earth's temperature changes over several decades. They also seek to understand how natural fluctuations influence the picture over shorter time periods. The past 15 years has received a fair bit of attention. It's notable that 14 of those years topped the charts as the warmest on record. But the difference between individual years has been slight, meaning the earth's surface has risen a fair bit slower than in previous decades. Most climate models haven't captured this slower rate of warming. Instead, they show continued warming, arriving at global temperatures that are above what we're seeing now. Prof Tim Osborn, a climate scientist at the University of East Anglia, tells Carbon Brief even the news that 2014 was probably the hottest year on record doesn't change the picture much: "Despite being very warm, 2014 still leaves the observed warming in the lower part of the range of climate model simulations."

Why Geoengineering is “Untested and Untestable” - Naomi Klein - Nature has a new opinion piece up that signals a bold new push for field experiments into techo hacking the climate system, usually known as “geoengineering.” Right now there are all kinds of geoengineering experiments going on in labs and with computer modeling but “outdoor tests” are still frowned upon. The authors of the piecefixtures on the “geo-clique” conference circuitboldly call for these tests to go ahead even in the absence of any regulatory system governing them. They explicitly state that “governance and experimentation must co-evolve”which is a high-minded way of saying: roll the dice and see what happens. Amazingly, the article completely fails to mention the most significant problem with small-scale field experiments: the fact that they are structurally incapable of answering the most significant ethical and humanitarian questions raised by these global-scale technological interventions, which relate to how geoengineering in one part of the world will impact the climate on the other side of the planet. Those questions can only be answered through planetary scale deployment. Here’s a short excerpt from my book on why geoengineering is “untestable.” For those interested in more, see all of Chapter 8: “Dimming the Sun: The Solution to Pollution is… Pollution?” in This Changes Everything.

Meeting two degree climate target means 80 per cent of world's coal is unburnable, study says - More than 80 per cent of the world's known coal reserves need to stay in the ground to avoid dangerous climate change, according to new research. Thirty per cent of known oil and 50 per cent of gas reserves are unburnable and drilling in the Arctic is out of the question if we're to stay below two degrees, the new research notes. That vast amounts of fossil fuels must go unused if we're to keep warming in check isn't a new idea. What's novel about today's paper is that it pinpoints how much fuel is unburnable in specific regions of the world, from Canadian tar sands to the oil-rich Middle East.  In its most recent report, the Intergovernmental Panel on Climate Change (IPCC) calculatedhow much carbon we can emit and still keep a decent chance of limiting warming to two degrees above pre-industrial levels. This is known as a carbon budget. Two degrees is theinternationally-accepted point beyond which climate change risks become unacceptably high. As of 2010, we could release a maximum of about 1000 billion more tonnes of carbon dioxide and still have a 50:50 chance of staying below two degrees, according to the  IPCC. Today's paper compares this allowable carbon budget with scientists' best estimate of how much oil, gas and coal exist worldwide in economically recoverable form, known as "reserves". Were we to burn all the world's known oil, gas and coal reserves, the greenhouse gases released would blow the budget for two degrees three times over, the paper finds.

Alpha Resources subsidiaries are going into idle mode -  On January 30th, Alpha Resources announced in a press release that two of its subsidiaries will be going into idle mode at certain West Virginia coal mines due to weak market conditions and federal government regulations that have tested the Central Appalachian mining industry. Following the rules set by the Worker Adjustment and Retraining Notification (WARN) Act, the company has given notice to an estimated 91 Highland Mining company employees, warning them of the anticipated idling of Highland Mining’s Superior North and Trace Fork surface mines.  The notice also advised employees of a reduction in workforce at the Reylas and Freeze Fork surface mines.  The mines affected by the notice are located in Logan and Mingo Counties in West Virginia.  Seven workers from Rum Creek Coal’s Anna Branch reclamation unit, which are currently working at the affected mines, will also be removed. About 25 percent of the workers impacted by the notice will continue to carry out reclamation work as three of the operations reach an idle state.  The mine idling and workforce cuts are planned to be completed by mid-April. The idling and cuts are due to continued weakness in U.S. and overseas coal demand, low prices and regulatory pressures contributing to the early retirement of coal-fired power plants all over the U.S.

Ohio Gov. John Kasich is proposing a big increase in taxes paid by oil and gas drillers - Gov. John Kasich has proposed a big increase in taxes paid by oil and gas producers, a number that is likely to again incite trade groups representing the industry operating in eastern Ohio. The severance tax is intended in part to offset the $500 million in tax cuts Kasich offered in his two-year budget Monday. A $1-per-pack tax increase on cigarettes and an increased sales tax are also proposed. Kasich wants a 6.5 percent tax on oil and gas, a significant increase from the 2.5 percent the Ohio House passed in May but faltered in the Senate. Natural gas liquids, of which Ohio's Utica shale is particularly known for, would be taxed at 4.5 percent to counter the extra costs involved in separating liquids like ethane and butane. Kasich has been open about what he sees as the need for a higher tax on the industry, which, buoyed by hydraulic fracturing and horizontal drilling brings direct and indirect jobs into an area of the state with few of either. But fracking also causes substantial impacts on roads, water and other municipal matters in communities with typically sparse populations. Harrison County, for example, has seen a huge impact in sales tax receipts since the drilling boom came to county, but "it still isn't enough," a county official told me. Local governments in eastern Ohio have long talked about the need for a set percentage of the severance tax to go to their coffers, and Kasich's proposal would set aside 20 percent of the tax to local governments. Ohio's current rate isn't based on percentages; its 20 cents per barrel on oil and 3 cents per thousand cubic feet of natural gas.

Ohio could see an increase in severance tax, thanks to the Gov. -- Many expect Governor Tom Wolf to propose a severance tax on natural gas after he releases his first budget next month, but Wolf isn’t the only one considering a severance tax. Ohio Governor John Kasich has hopped on the tax train and has announced he will push for an increase on the state’s severance tax. As part of Kasich’s state proposed two-year budget, he plans to seek an increase in Ohio’s severance tax, which is something he has been trying to push through the Legislature. In his recent proposal, Kasich said he would increase the tax for unconventional wells, bringing it to 6.5 percent on oil and gas production, and would charge 4.5 percent per thousand cubic feet on gas and natural gas liquids carried through processing plants. Currently, Ohio’s severance tax sits at 3 cents per thousand cubic feet of natural gas and 20 cents per barrel of oil. Oil and gas production in Ohio is mostly located on the eastern side of the state, above the Utica shale formation, which produces oil and gas. Select gas companies that are operating in the region now are beginning to tap the shale fields along with their oil and gas operations. According to the industry and Lou D’Amico, president and executive director of the Pennsylvania Independent Oil & Gas Association, a severance tax on the oil and gas industry in Pennsylvania and Ohio, on top of the impact fee, could make shale fields less profitable to develop and potentially push drillers to other areas of the U.S.

State must account for oil decline - - Crain's Cleveland Business: The recent decline in global oil prices benefits Ohio drivers and will continue to do so for the near future. However, the governor and state legislators need to now acknowledge how dependency on tax revenue derived from oil production leaves the state of Ohio susceptible to international political and economic forces that it cannot control. Any budget dependent on a severance tax on “fracking” will be vulnerable to the capricious, if not whimsical, vagaries of the global oil market. If “fracking” is to alter the fiscal landscape of Ohio, politicians need to understand that the revenue stream is neither constant nor guaranteed. Pooling severance tax revenue in a trust fund creates a revenue stream that will serve the residents of Ohio long after the shale is depleted of the black gold many have come to see as salvation. Global oil prices are in decline for many reasons, none of which anyone in Columbus affects. The effect of a surging U.S. dollar reduces the price of oil, which is priced in dollars. When the dollar appreciates, U.S. dollars buy more foreign goods. The most notable import is oil. So while Americans are enjoying the benefits of cheaper oil and gasoline, the rest of the world is paying more. There are many explanations for the improving dollar, but all that matters here is that no one in Columbus is able to affect global currency markets.

Proposed Oil And Gas Tax Hike Gets Support From Unlikely Source » WOSU News: House leaders are looking over Gov. John Kasich’s budget proposal, which includes a proposed tax increase on oil and gas drilling. And the governor is getting some support from an unlikely source. “They understand the business community—they understand the value of the product and they also understand the needs in eastern Ohio,” That’s a rare statement from Wendy Patton of Policy Matters Ohio about Gov. John Kasich’s plans to hike the tax on oil and natural gas drillers. In fact—Policy Matters has not been encouraged by any of his severance tax proposals—until now. The severance tax is a tax on oil and gas extracted from Ohio’s shale using hydraulic fracturing—also known as fracking. Patton says Kasich’s scheme to raise the tax to 6.5% is—as she describes—a “self-respecting” rate. “He recognizes the value of the commodity that we have just as industry is recognizing that value and he is proposing a severance tax rate that is within the range of those of major producing states,” said Patton. The governor’s office projects this would generate about $325 million in the next two fiscal years. The 6.5% number is pretty extreme compared to proposed rates in the past. Last year the governor’s office was looking for a 2.75% tax. The House passed its own tax increase of only 2.5%—and it died in the Senate.

Fracking waste water topic of meetings in Trumbull County – Property owners in Trumbull County will have an opportunity to voice their concerns and ask questions about the oil and gas drilling that is taking place across the area. Meetings are scheduled for Wednesday and Thursday at the county administration building on High Street. The Wednesday meeting begins at 11 a.m. and Thursday’s meeting is set for 6 p.m. Topics discussed will include updates on the oil and gas industry, local injection wells and how they’re regulated. Trumbull County has 17 wells. The concern is that the area is becoming a dumping ground for waste generated in other states and that the water supply is in jeopardy. According to the Ohio Department of Natural Resources, Trumbull County leads the state in accepting waste to be injected into their wells. About 2.3 million barrels were dumped in 2013 and 16 million in the first three quarters of 2014. Almost half of that came from Pennsylvania.

Trumbull County has most injection wells in Ohio - – Growing concerns over the number of brine injection wells in Trumbull County sparked a community meeting in Warren on Wednesday. It was a packed house in the Commissioners hearing room for the first of two public meetings on oil and gas drilling, which were organized by the Trumbull County Engineer’s Office. “What we could do to protect the roads. That is our job, to protect the roads and bridges, but then again, we are getting a lot of water from out of state,” said Jack Simon, RUMA coordinator for the Trumbull County Engineer’s Office. Trumbull County has the most injection wells in the state, with 17. That is more than the entire state of Pennsylvania. According to the Ohio Department of Natural Resources, Trumbull County leads the state in accepting waste to be injected into their wells. About 2.3 million barrels were dumped in 2013 and 16 million in the first three quarters of 2014. Almost half of that came from Pennsylvania, the ODNR said. According to a presentation given at Wednesday’s meeting, Class II disposal wells are used to inject brine, associated with the extraction of oil and natural gas, deep underground. More than 144,000 Class II wells are in operation in the United States and inject more than 2 billion gallons of brine every day. A lawyer familiar with oil and gas law, Atty. Thomas Carey, spoke about homeowners’ rights. Valid objections are the only thing looked at by the Ohio Department of Natural Resources when they issue a permit and most refusals are done for safety issues.

Fracking byproduct de-icing roads, but is it safe?: Fracking has been a controversial topic in recent years since it began to be used on a wide-spread scale. But now the byproduct of the drilling process is being used by the Ohio Department of Transportation to help clear roads in Summit County. From the fracking field to our roads, a new product called AquaSalina has been added to the arsenal of weapons ODOT uses against the snow and ice. "We heard good things from other communities that are using it," said ODOT spokesman Brent Kovacs. In hydraulic fracturing, better known as fracking, water, chemicals and sand get forced more than a mile down to break up rock and get at oil and natural gas. That watery mixture is left behind. "They filter it, get all of the stuff that we don't want on the roads out of it, and then they sell it to us," Kovacs explained. The byproduct is used to wet salt before it hits the highway. Unlike other additives, not everyone likes it. "Just not a big fan of it. Obviously I think it impacts the environment in ways that we don't even know yet," said motorist Nick Betro. How does AquaSalina compare to the other alternatives? Brine is cheap, about 5 cents a gallon. But it only works at warmer road temperatures. AquaSalina is about 50 cents a gallon but it's more effective. Liquid calcium costs about $1.10 a gallon. Beet Heet is $1.50 a gallon. "They are doing the test to a T, and they are testing everything out in every aspect of the way, and I completely trust what they are doing," said motorist Dominique Felice.

Texas fracking company reportedly exiting Utica shale play, closing Cambridge office  -- GoFrac LLC, a fracking business working the Utica shale play, is closing in Ohio. A few years ago the Texas company bought 90 acres in Guernsey County and opened an operation in Cambridge, its only one in Ohio. It made significant investments, including rail spurs and silos, Norm Blanchard, executive director of the Community Improvement Corporation in Cambridge, told me, and it once indicated it could hire as many as 250 people. But eastern Ohio's Utica shale play, like other energy spots across the country, is struggling amid a downturn in oil prices. And now, GoFrac has told the local Ohio Means Jobs office this week it's closing, Blanchard said. "The sad part is we thought they were the most solid, we'd never lose them," Blanchard said, because of the amount of investment the company had made. GoFrac was formed in Fort Worth, Texas, in 2011 and counted more than 600 employees in Texas and Ohio as of last November. It uses hydraulic fracturing to service oil and gas companies, using water, gel and acid to crack underground shale rock to release fossil fuels to the surface. GoFrac had appointed a new CFO and COO in recent months. Calls made to the company's Cambridge and corporate offices were not answered and messages weren't returned. It's unknown how many jobs would be affected, but government officials intend to extend help to employees.

Company wins federal approval to ship liquid drilling wastes by barge on Ohio River - A $3 million plan by a Texas company to ship liquid drilling wastes via barges on the Ohio River is gaining steam. GreenHunter Resources said the U.S. Coast Guard quietly approved its proposal in the fourth quarter of 2014. No announcement was made at the time. A new barge terminal at Portland, in Meigs County in southern Ohio, will be completed in the next six to nine months to handle the shipments, company officials said. When complete, the Mills Hunter Facility complex will double the facility’s injection capacity — from 14,500 barrels per day to about 30,000 barrels (42-gallons each) — for drilling liquids from the Utica and Marcellus shales in Ohio, West Virginia and Pennsylvania. Based on those numbers, Mills Hunter would handle and inject about 7.8 million barrels of waste per year, making it the No. 1 injection site in Ohio by far. That total would represent about 50 percent of the injection volume handled annually at Ohio’s 201 injection wells. Mills Hunter currently operates two injection wells that take drilling wastes delivered by truck. Four additional injection wells should be operating by March 31. The company also intends to spend an additional $2.5 million to $3 million to expand or to develop new waste shipping terminals at New Matamoras in Ohio’s Washington County and Wheeling, W.Va. Critics of the barge proposal submitted more than 60,000 comments, many citing the threat that such shipments posed to the Ohio River, which many communities use for drinking water.

Group unhappy with federal approval of Ohio River barge shipments - Drilling - Ohio: “Despite the thousands of comments from residents along the Ohio River opposing the risk of allowing toxic, radioactive fracking waste to be barged along the Ohio River, the Coast Guard quietly approved the plan at the end of 2014. “In addition to the risk of spills on the Ohio river, a drinking water source for millions, Ohio is also on pace to reach one billion gallons of fracking waste injected in 2015. Why would Ohio bear the public health and environmental risks, especially when the cost to administer the underground injection of this waste exceeds any income from importing it? This decision is financially irresponsible and opens up Ohio to be solidified as the regional dumping ground for the oil and gas industry’s dirty leftovers. “The Coast Guard is risking man-made earthquakes, drinking water contamination, leaks and spills. This approval compromises not only the health and safety of the millions who get their drinking water from the Ohio River but will increase the amount of toxic fracking waste that will be injected underground in Southeast Ohio.”

Large pipelines proposed to carry gas from shale formations - The growing supply of natural gas being pulled from the Marcellus and Utica shale regions of Ohio, West Virginia and Pennsylvania has become a potential boon for businesses that build large interstate pipelines and a potential nightmare for people who don't want massive amounts of gas surging through their property.Several underground pipeline projects are proposed to transport natural gas across the state from the Utica and Marcellus shale regions to northwest Ohio.The project that has drawn the most opposition is the NEXUS pipeline, which is being proposed by a partnership of Houston-based Spectra Energy and Detroit-based DTE Energy. NEXUS is a 200-mile corridor of 42-inch-diamater pipe capable of transporting as much as 2 billion cubic feet of gas per day, an amount that would meet the needs of around 20,000 homes for a year. Gas from the pipeline would be made available to industry and to gas-fired power plants.The other large proposed project is called ET Rover and consists of two similarly sized, side-by-said pipelines. Yet it's NEXUS that has drawn the most criticism because of its proximity to more densely populated areas including Stark, Summit, Medina and Lorain counties. The ET Rover pipeline would be built farther south and would mostly avoid populated areas.Drilling for oil and especially natural gas has become a major driver of economic activity in southeast Ohio's traditionally poor Appalachian region. Production, however, has outstripped the ability to get that gas to market, a problem the pipelines would help solve.While the drilling process called hydraulic fracturing — fracking — has turned some landowners into millionaires in the shale region, pipeline companies are not expected to make those who own land along their routes rich. Property owners instead are concerned their property values will be diminished, that they will lose the ability to use their land as they wish and are frightened by the possibility of ruptures and explosions.

A look at proposed natural gas pipeline projects in Ohio - Natural gas producers in the Utica and Marcellus shale regions need pipelines to carry natural gas to market. Here is a quick look at four proposed projects that would run through Ohio:

  • Ohio length: 208 miles
  • Capacity: 3.25 billion cubic feet per day
  • Estimated cost: $4.3 billion
  • Route details: Twin 42-inch lines northeast from Cadiz to Defiance
  •  NEXUS
  • Ohio length: 200 miles
  • Capacity: 2 billion cubic feet per day
  • Estimated Cost: $2 billion
  • Route details: Single 42-inch line northeast from Kensington to the Michigan border
  • Ohio length: 125 miles
  • Capacity: 1.5 billion cubic feet per day
  • Estimated Cost: $1.75 billion
  • Route details: Single 36-inch pipeline from Monroe County west to Lancaster and south into Vinton County
  • Ohio length: 235 miles
  • Capacity: 2 billion cubic feet per day
  • Estimated Cost: $3 billion
  • Route details Single 42-inch line northeast from Cadiz to the Indiana border

Over the past five years, the Ohio Valley has seen at least 21 drilling or pipeline-related accidents -   – From an explosion at a Marshall County well site in June 2010 to the Jan. 26 pipeline blast in Brooke County , 21 confirmed accidents related to the Upper Ohio Valley ‘s Marcellus and Utica shale industry have disrupted the lives of area residents, caused damage to the environment and, on at least two occasions, led to the loss of life. These accidents do not count citations drillers, pipeliners, or their subcontractors received for unauthorized stream fillings, traffic violations or criminal activity. They also do not count the numerous complaints by residents regarding air and noise pollution, or spills from trucks. While billions of dollars has flowed into the area from the drilling boom, it’s not been without its downside. Here is a brief recap of accidents in the gas fields.

Ohio pipeline manufacturer is temporarily closing its doors - Vallourec Star, an Ohio manufacturer that is closely bound to the oil and gas industry, announced it will be shutting down operations for three weeks and offering a six month voluntary layoff to its workers. In mid-February, Vallourec’s Youngstown plant will be discontinuing operations, which will affect 700 employees. Vallourec has already adjusted production schedules, lowered prices with suppliers and used fewer contractors to deal with the downturn in the oil and gas exploration industry. The company said in a statement it is at a point where some employees will be affected by the temporary closing, and unfortunately it cannot be prevented. Employees at the Youngstown plant will be able to file for unemployment benefits and use their paid time off to earn a paycheck during the closing. Workers will continue to have health care coverage, and if they accept the six month layoff coverage will continue uninterrupted.

Marcellus horizontal well activity - Compared to the week of January 17th, not much has changed regarding activity and operations in the Marcellus Shale.  However, one company’s CEO thinks the Marcellus and Utica shale regions are the best of the best, and that means prospective growth in the face of widespread cutbacks across the industry. EnLink Midstream Partners CEO Barry Davis shared with conference attendees at the Hart Energy Marcellus-Utica Midstream Conference that he believes the two shale regions are in prime positions for growth.  Davis explained how EnLink Midstream is expecting a 50 percent nationwide decline in shale operations, but the reductions will allow activity to focus on top shale plays out there. Forty-four horizontal permits were issued during the week that ended Jan. 31st, and twenty-nine wells were drilled in the Marcellus Shale. The following information is provided by the Ohio Department of Natural Resource for the week of January 31st


Forty-four horizontal permits were issued during the week that ended Jan. 31st, and twenty-nine wells were drilled in the Marcellus Shale.

Utica well activity | Utica drilling has leveled off, operations are continuing and production is still on the rise. However, a major issue lately has been what to do with all the natural gas being produced in the region. Several pipelines are in the works and they are causing issues among property owners, especially the NEXUS pipeline. The NEXUS pipeline, proposed by Spectra Energy and DTE Energy, is 200 miles long and 42 inches in diameter. The pipeline would be capable of transporting up to 2 billion cubic feet of natural gas per day and supply an estimated 20,000 homes with gas per year. Gas from the pipeline would also be available to industry and natural gas-fueled power plants. The issue the pipeline is causing revolves around its proposed path. Several property owners in Stark, Summit, Medina and Lorain counties in Ohio are enraged that the pipeline would be located in such a densely populated area, but also run directly through their properties. NEXUS spokesman Arthur Diestel stated that because of the controversy over the proposed path of the pipeline, an alternative route will be considered. The following information is provided by the Ohio Department of Natural Resources and is for the week of January 24th:


Eight horizontal permits were issued during the week that ended Jan. 24 and 48 rigs were operating in the Utica Shale. Top 10 counties by numbed of permits:

The Fault Line: Ohio quakes offer lessons for Texas: — A few decades ago, Youngstown, Ohio pulsed to the beat of the steel industry. The banks of the Mahoning River were lined with mills. These days, Youngstown and northeastern Ohio occasionally shiver to the beat of the oil and gas industry. From earthquakes. What Ohio is experiencing may hold some lessons for Texas, because a growing number of studies and state regulators link the tremors to oil and gas waste disposal wells and hydraulic fracturing. The spike in public consciousness over oil and gas and earthquakes happened in Youngstown on New Year's Eve 2011. "Bam," Lynn Anderson remembers. The cats that were sleeping on her shoulders that evening "launched." "Everybody ran out of their houses," she told News 8. The earthquakes were a rallying cry for opposition to oil and gas drilling for many in northeastern Ohio. The Northstar I well is now inactive, but "the battle for this well is not over until it is dismantled," Williams pledged. Dr. Ray Beiersdorfer, a geologist at Youngstown State University, traces 1,055 earthquakes — most of them less than magnitude 2 — to oil and gas activity in northeastern Ohio. He also is a consultant for Fracfree Mahoning Valley, a group that opposes hydraulic fracturing techniques to extract energy resources and injection wells to dispose of waste.

Pipelines remain big news - With the looming presidential veto of the Keystone XL Pipeline, which would transport gas 1,179 miles from Canada to the Gulf of Mexico, talk of jobs, energy independence and the environment has consumed hours of television airtime and barrels of ink and rolls of paper. In West Virginia, at least four natural gas transmission pipelines are being discussed for development, and talks — whether political or kitchen table — are mirroring the national dialogue: Those for and against them are speaking of jobs, energy independence and the environment. If green-lighted by the federal government, the multibillion-dollar transmission pipelines would criss-cross the central and southeastern part of the state, transporting natural gas drilled in West Virginia to destinations outside the state. Natural gas companies are promising millions to localities in tax revenue and hundreds of jobs to communities hard hit by the nearly moribund coal industry. Two transmission pipelines have held or are in the midst of holding public hearings, the beginning step — also a federal requirement — to construction. In mid-January, the U.S. Forest Service was seeking comments on whether to allow surveys for the proposed Atlantic Coast Pipeline on a 17.1-mile segment of the Monongahela National Forest in Pocahontas and Randolph counties.

Sunoco Logistics announces second, bigger natural gas liquids pipeline - Philadelphia-based Sunoco Logistics has announced a new $2.5 billion pipeline project to move natural gas liquids across the state. “Mariner East 2” would start in Ohio, bringing ethane and propane through West Virginia and western Pennsylvania to an industrial complex on the Delaware River. The 350-mile pipeline would run parallel to its predecessor, the Mariner East 1, but unlike that project,which involves reversing the flow of an existing line, this pipeline needs to be built from scratch. Spokesman Jeff Shields says it would quadruple the amount of natural gas liquids flowing to Marcus Hook from 70,000 barrels a day to 275,000. Much of the ethane will be shipped overseas and some of the propane will feed markets on the East Coast. Sunoco Logistics also announced plans for a propane manufacturing unit at the idled refinery in Marcus Hook. That facility will turn propane into propylene, a building block for plastics and fabrics. “That also enables a whole manufacturing chain that we think is really what people have been talking about when you’re talking about a manufacturing renaissance in Southeast Pennsylvania,” Shields said. That project is still in “active development” and there is no timeline for when the former oil refinery will start processing propane. Sunoco Logistics expects Mariner East 2 to come online in 2016, pending federal and state regulatory approvals.

Consol Energy posts $74M profit in fourth quarter -  Consol Energy Inc. plans to trim capital spending on natural gas development but avoid the more drastic cuts other shale companies are announcing as it continues to ramp up production. The Cecil-based gas and coal company on Friday said it will spend about $1 billion on development in the Marcellus and Utica shales, a drop of 23 percent from the $1.3 billion it spent last year on that business segment. Competitors including Range Resources and Rex Energy have cut spending for this year by 40 percent as natural gas prices hit two-year lows, and Chevron is laying off up to 162 of its 700 workers in Appalachia. Consol can cut costs by drilling on existing well pads and seeking reductions from contractors while squeezing more gas from wells with better technology, company leaders and analysts said. It predicts a 30 percent increase in gas production this year and next. “We’d like to keep that activity level intact, so we’ll partner with the right service companies to keep that in place,” Chief Financial Officer David Khani told analysts while discussing the company’s fourth-quarter financial results. Money from the company’s coal mines, which can run without larger capital expenses because of improvement projects Consol finished last year, can help fund the drilling program.

Oil train cars derail in Philadelphia --A freight train carrying crude oil partially derailed in Philadelphia over the weekend. No injuries or spills were reported. It was the second oil train derailment the city has seen in the span of a year.  As StateImpact Pennsylvania has previously reported, North Dakota’s Bakken Shale oil has helped breathe new life into Philadelphia’s refineries, but the city has also become one of the nation’s most heavily traveled regions for rail oil shipments. A string of recent accidents across the country has prompted calls for safety upgrades. The accident happened at about 3 a.m. Saturday at a CSX Corp. rail yard near 11th Street and Pattison Avenue, according to the Philadelphia Inquirer: A three-locomotive, 111-car CSX freight train was traveling from Chicago to the Philadelphia area when 11 tank cars containing crude oil came off the tracks, he said. The cars remained upright. Fire department hazmat crews responded to the scene “out of an abundance of caution” and left without taking any action, [CSX spokesman Rob Doolittle] said. No chemical leaks were detected, and no injuries reported, according to both CSX and the Philadelphia Fire Department.

Oil “Bomb Train” Derailment in Philadelphia Today -- Today the second major oil “bomb train” derailment occurred in Philadelphia, risking residents’ lives, endangering drivers on one of the nation’s busiest highways, I-95, and putting waterways at risk. One year and eleven days ago, early on Martin Luther King Day 2014,  seven cars carrying Bakken Shale crude derailed over the Schuylkill River in Philadelphia in a “near miss from disaster.” That derailment put the entire University of Pennsylvania medical complex, the Schuylkill Expressway, the Veterans Administration, Children’s Hospital, and other major institutions at risk, along with a chunk of Philadelphia’s residential population too big to safely evacuate.  Both accidents were predictable, preventable, and a near miss from potentially catastrophic impacts. There must be no third derailment. That no rupture occurred is extremely lucky. We can’t leave prevention to luck.

Opposition Greets Proposed Marcellus Shale-Trenton Pipeline -  Local landowners have risen up – colorful anti-pipeline protest signs sprout from the roadsides of most communities along its route. Residents say they fear the pipeline will cause environmental harm, permanently scar the terrain, lower property values, and put their lives at risk.  “The farmland is forever compromised,” said Charles Fisher, whose seventh-generation family farm would be diagonally crossed by the pipeline, along a right-of-way already occupied by a power line.  “The pipeline is universally despised up here,” said Stephanie Jones, whose late parents, Donald and Beverly Jones, were local leaders in the conservation and preservation movement. The PennEast project is one of a proliferation of new or upgraded pipelines proposed to tap into the Marcellus gas boom. Business leaders in Philadelphia are organizing a pipeline to the city that they say would fuel a renaissance of energy-intensive manufacturing. Along each pipeline route, citizens groups have organized in opposition. They are unmoved by the pipeline companies’ arguments that they are delivering affordable, life-sustaining energy to millions of customers. Most towns on PennEast’s route in New Jersey are not now served by natural gas utilities.  “Communities up and down the East Coast are waking up and saying, ‘This is a reality we don’t want any more,’ ” said Kristin McCarthy, a former member of the Delaware Township Council in Hunterdon County, who declined to run for reelection last year to devote herself to the pipeline fight.

Bill to monitor Marcellus Shale health effects reintroduced in state Senate -  A bill aimed at creating an advisory panel to monitor potential public health effects of Marcellus Shale drilling has been reintroduced in the state Senate. Senate President Pro Tem Joe Scarnati (R- Jefferson)  first proposed the measure in 2013. He reintroduced it on Friday. SB 375 would create a nine-member advisory panel that would meet at least twice a year to consult with experts to analyze the health effects of natural gas extraction.In 2011, former Gov. Tom Corbett’s Marcellus Shale Advisory Commission recommended that the state monitor public health impacts from drilling, however the legislature never allocated funding for it.  Last June StateImpact Pennsylvania reported on allegations by two former state health workers who said they were instructed to ignore public complaints about drilling. In response, the Department of Health changed its Marcellus Shale policies. After New York State banned fracking in late 2014, citing health concerns, Governor Tom Wolf said he supports creating a registry for public health complaints.

In fracking hot spots, police and gas industry share intelligence on activists - Last month an anti-fracking group settled a lawsuit against Pennsylvania, after it was erroneously labeled a potential terrorist threat. The case dates back to 2010 and was an embarrassment for then-Governor Ed Rendell. But documents obtained by StateImpact Pennsylvania show law enforcement here and in other parts of the country continue to conduct surveillance on anti-fracking activists, leading some to claim their Constitutional rights are being violated. It’s not hard to tell Wendy Lee is an animal lover. With her cockatiel, Quantum, by her side, she showed me her blog. Lee is a 55-year-old philosophy professor at Bloomsburg University and proud anti-fracking activist.She often travels to gas industry sites and takes photos. Her website is filled with criticism of fracking, and she’s used to getting criticized for her views. Still, she was surprised last February when a Pennsylvania State Trooper came to her house to ask her about a visit she’d made to a gas compressor station. On that trip, she was joined by two other activists and took some photos of the compressor. It wasn’t long before security guards told them all to leave. “When they tell us to leave, we left,” she recalls. “There was no altercation. There was nothing.” As the trooper stood inside her door, he questioned her about the incident. After a while, he brought up eco-terrorism. Lee was stunned when he asked her if she knew anything about pipe bombs. “Part of me was like, ‘Oh this is scary. This is actually scary.’” she says. “And part of me is just laughing on the inside because it’s ludicrous.”

New Bill Would Gut Regulations On West Virginia’s Storage Tanks - West Virginia lawmakers introduced a bill Tuesday that would scale back regulations enacted last year on aboveground storage tanks, like the one that spilled last January and contaminated the water of 300,000 of the state’s residents. House Bill 2754 makes changes to the Aboveground Storage Tank Act, which was signed into law by Gov. Earl Ray Tomblin last April and requires storage tank owners to register their tanks so that the state could create an inventory, and also stipulated that these tanks to be inspected by the first of this year. Under the new bill, the number of tanks regulated by the act would shrink considerably, said Evan Hansen, president of West Virginia think tank Downstream Strategies. The bill exempts storage tanks that store oil or any other liquid associated with the oil or natural gas industry, and it also exempts tanks that hold less than 10,000 gallons. The Aboveground Storage Tank Act, as it’s written now, applies to the nearly 50,000 registered above-ground storage tanks in West Virginia. With the exemptions outlined in this new bill, fewer than 1,000 would be subject to the act, Hansen said. The drop is severe partly because, according to Downstream Strategies, the oil and gas industry is associated with about three-quarters of the state’s above-ground storage tanks, so exempting the industry from the act greatly reduces the number of tanks that will be subject to the act. That means that the bill, if it’s passed, could be considered a win for West Virginia’s oil and gas industry, which has been critical of the Storage Tank Act in the past. In August, James McKinney, president of the Independent Oil and Gas Association of West Virginia, said the act could “cause lost jobs” and “close businesses for us.” And last month, West Virginia Oil and Gas Association Executive Director Corky DeMarco also said he thought the bill went too far.

Alternative routes considered for W.Va.-Va. pipeline — Developers are considering alternative routes for a proposed pipeline that would carry deliver natural gas from West Virginia to Virginia. Mountain Valley Pipeline LLC spokeswoman Natalie Cox tells The Roanoke Times that the company wants to find a route that has the least overall impact on landowners, the environment and cultural resources. Cox says looking at alternative routes isn’t unusual in this early stage of seeking federal regulators’ approval of the project. She says possible routes in multiple counties are being evaluated. She declined to provide details. The 300-mile pipeline would run from Wetzel County, West Virginia, to another pipeline in Pittsylvania County, Virginia. The project is a joint venture between EQT Corp. and NextEra Energy Inc. It would deliver natural gas from the Marcellus and Utica shale deposits.

Feds Made “Incredible Error” Ignoring N.Y. Salt Cavern Collapse -- In the 1960s, a 400,000-ton block of rock fell from the roof of an old salt cavern in the Finger Lakes region of New York — a cavity that new owners now want to reopen and use to store highly pressurized natural gas. The Midwestern energy company that seeks a federal permit for the storage project has denied knowing the roof failure ever happened. And the Federal Energy Regulatory Commission (FERC), which is poised to rule on the company’s permit application, has never publicly acknowledged the event. But a Houston geologist hired by lawyers for opponents of the project characterized the omission by Arlington Storage Co. and FERC as “an incredible error” that heightens safety concerns about the project next to Seneca Lake, less than three miles from the Village of Watkins Glen, population 1,860. “Clearly, Arlington’s application and FERC’s conclusions are compromised by this error,” H.C. Clark wrote in a Jan. 15 letter that is now part of FERC’s public record in the case.The fallen chunk of rock — roughly four times as massive as the U.S.S. Nimitz supercarrier — now sits on the floor of the cavern, leaving an unsupported rock roof roughly the size of a football field. The roof collapse created an irregular cavity that may soon hold pressurized methane drawn from natural gas wells in nearby northern Pennsylvania.  In the letter, Clark, who holds a Ph.D. in geophysics from Stanford and taught the subject for years at Rice University, analyzes a “400,000-ton fault block cavern roof failure” and rock faults surrounding the cavern. Clark draws on a series of long-suppressed reports written more than 50 years ago by a geologist for the company that then owned the cavern.

How to Salinate a Lake: Pressurize a Partially Collapsed Salt Cavern With Propane -- It’s that easy ! Sound like a plan ? Turn the nation’s cleanest fresh water lake into a brine pit. By forcing saline water out of a partially collapsed salt cavern – into the lake. Scientists discover that salty water (aka brine) in a partially collapsed salt cavern observes the laws of physics. When the brine is displaced by pressurized gas – liquid propane – it has to go somewhere else – like the lake next door. Imagine that. Peter Mantius gets the scoop: LPG Storage in Salt Cavern Linked to Salt Spike in Drinking Water For decades, scientists have puzzled over why Seneca Lake, the largest of New York State’s Finger Lakes, is by far the saltiest of the 11 glacier-carved water bodies.Now a Nevada hydrologist claims he’s solved the mystery. Tom Myers, who was hired by opponents of a plan to store liquid petroleum gas (LPG) in salt caverns at the southern end of Seneca, pins the blame on LPG storage in the same group of caverns between 1964 and 1984. “The risk of saline influx to the lake from LPG is very high and should be avoided,” Myers wrote in January.Formed as ice age glaciers retreated only 10,000 years ago, Seneca Lake was named for the westernmost Native American tribe in the Iroquois League. Running north and south, it is nearly 40 miles long and 1.5 miles wide. The state’s deepest lake, Seneca consistently holds 4.2 trillion gallons of water. That’s more than the current 3.6 trillion gallons behind the Hoover Dam in drought-plagued Lake Mead, America’s largest reservoir.

New York Banned Fracking, But 460,000 Tons Of Fracking Waste Have Been Dumped There - New York’s ban on fracking hasn’t been enough to completely shield the state from its public health and environmental risks, a prominent state environment group charged on Friday.  In a report titled “License to Dump,” the group Environmental Advocates of New York (EANY) accused seven state landfills of accepting potentially hazardous waste from Pennsylvania’s fracked oil and gas wells. Using information obtained from the Pennsylvania Department of Environmental Protection, the group said at least 460,000 tons of solid drilling waste — which can contain heavy metals, chemicals, and naturally occurring radioactive material — have been dumped in those landfills since 2010.  “These are highly radioactive wastes. They are notoriously toxic,” report author Liz Moran told ThinkProgress. “And to just be accepting them in our landfills without knowing for sure that the public is going to be safe, it’s just irresponsible.” The group’s report accuses the state Department of Environmental Conservation (DEC) of failing to adequately monitor the landfill sites for radioactivity, and criticizes the state for allowing fracking waste to be disposed in New York despite an ongoing moratorium and upcoming ban on the controversial well stimulation technique.

Why Pennsylvania Exports Surplus Frack Filth to New York - Pennsylvania’s biggest export commodity to New York is toxic radioactive frack waste. Who needs a frack ban, when you can just import the frack filth and skip the middleman?  New regulations on frack filth in Pennsylvania make it likely that more frack filth will be exported to New York, where regulatory oversight is lax. So it easier and cheaper to dispose of drill cuttings and processed frack flowback by trucking it across the border into New York.  How much of this fracking goo do you want oozing out of your local landfill ? Or slathered onto your roads ? At least 460,000 tons and 23,000 barrels of waste from Pennsylvania drilling operations have been taken in by a few New York landfills since 2010, a new analysis Thursday indicates. The report from Environmental Advocates of New York analyzed state data from Pennsylvania showing where natural-gas drillers reported taking their waste. Drillers hauled waste to five New York landfills from 2010 through 2014, including three along the Pennsylvania border: Chemung County Landfill in Lowman; Hakes Landfill in Painted Post, Steuben County; and Hyland Landfill in Angelica, Allegany County. Among solid waste, the Chemung landfill led the way, accepting 192,896 tons, the report said. The Allied Waste facility in Niagara Falls accepted 21,762 barrels of liquid waste, the data showed. The report faulted New York for letting the facilities accept the waste — which includes naturally occurring radioactive materials — particularly after Gov. Andrew Cuomo’s administration said it would ban high-volume fracking. But the state Department of Environmental Conservation criticized the report as “inaccurate, misleading and irresponsible.”

New Yorker Sees Risk Of Terrorists Using Oil Trains  -- Could terrorists use one of the trains transporting flammable crude oil throughout the country as a weapon of mass destruction? That disquieting scenario was sketched out Tuesday by Rep. Sean Patrick Maloney, D- N.Y. At a hearing of the House Transportation and Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Materials Maloney said he represented an area of the Hudson Valley that “sees an enormous amount of oil being moved both by rail and by barge down the Hudson River.” He pointed out that before Sept. 11, 2001 terrorists had never seized control of an aircraft and used it as a weapon to inflict mass casualties. “What concerns me very much is the possibility that an oil train could be similarly taken and directed and used as a weapon of mass destruction,” Maloney told Edward Hamberger, president and CEO of the Association of American Railroads (AAR). Oil trains move through highly populated areas and near “sensitive military assets,” Maloney said, noting that the Military Academy at West Point is in his district. “A train goes right under the main building” at West Point, he said. He’s worried about “an extraordinary amount of unguarded track where a shaped charge, an IED, could be placed and remotely detonated.”

Groups in three states join forces against pipeline - Residents of three states and more than 24 organizations have joined forces as StopNED to fight the Northeast Energy Direct (NED) proposal, which would bring natural gas from the shale formations of Pennsylvania into New England through a new pipeline that would traverse New York, Massachusetts and southern New Hampshire. StopNED has been active in Massachusetts for the past year. In October, the group joined Stop the Pipeline Coordinating Committee (SPCC) of Groton, Mass., in announcing a Bay State petition campaign for public hearings on the Kinder Morgan proposal. For much of 2014, the opposition was concentrated in New York state and northern Massachusetts, where most of the route was proposed. Late last year, Kinder-Morgan re-routed the project through southern New Hampshire, citing the availability of existing pathways for power lines. “Kinder Morgan moved a significant portion of the route into New Hampshire adjacent to an existing transmission corridor claiming it would minimize impacts when, in reality, it will still require the acquisition of an additional 100-foot-wide right of way, directly affecting hundreds of homeowners in 17 towns,” said Doug Whitbeck of Mason, one of the New Hampshire organizers.

Town Sues FERC, Claims Acts Are Unconstitutional — The town of Deerfield plans to file a negligence claim against the United States government today in its fight against the planned natural gas pipeline through Franklin County. The tort action claims that a 2005 change in the federal Natural Gas Act that gave the Federal Energy Regulatory Commission authority to regulate the transportation and sale of natural gas destined for sale overseas is unconstitutional.  Filed under the Federal Tort Claims Act, which gives private parties the right to sue the federal government for damages if they are injured due to the negligence of one of its employees, the claim takes aim at Tennessee Gas Co.’s proposed 36-inch diameter natural gas pipeline and is the latest salvo in the town’s battle to keep the pipeline from passing through its limits. The claim was drafted and filed with the federal Department of Energy, the FERC, the U.S. attorney general and at the U.S. Attorney’s Office in Springfield on behalf of the town by Cristobal Bonifaz, a lawyer from Conway who has been representing Deerfield free of charge as it fights the project. Many of the project’s opponents have raised concerns over the past year that much of the gas that will flow through the $4 billion, 300-mile-long pipeline is destined for export, claiming the volume of gas that is expected to travel along the pipeline from the Midwest Marcellus shale reserves — estimated at about 2.2 billion cubic feet per day — far exceeds the amount of gas that could be consumed in New England. The filing includes a report by David Gilbert Keith, a member of Deerfield’s Energy Resources Committee and an independent environmental researcher, in which he concludes that most of the gas will be likely be liquefied and exported. He based his findings on an analysis of data from the federal Energy Information Agency.

6 counties cut from proposed ET Rover pipeline route - A large natural-gas transmission pipeline proposed for construction through southeast Michigan will now impact far fewer counties. A deal with an existing pipeline operator means the ET Rover pipeline will no longer be built in Oakland, Macomb, St. Clair, Genesee, Shiawassee and Lapeer counties, Rover Pipeline announced Monday. The pipeline, which still requires federal approval, would carry more than 3 billion cubic feet of gas per day from the production areas of Pennsylvania, West Virginia and Ohio to Midwest markets including Michigan and beyond through a major gas hub near Sarnia, Ontario. Rover Pipeline, a subsidiary of Dallas-based Energy Transfer Partners, announced the route change. The 42-inch pipeline would still be partly constructed in Michigan, from a hub in Defiance, Ohio, through Lenawee, Washtenaw and Livingston counties. There, it would interconnect with the existing Vector pipeline, operated by DTE Energy and Canadian oil and gas transport giant Enbridge. The 348-mile, 42-inch Vector Pipeline, according to the company’s website, began operation in 2000. It transports about 1.3 billion cubic feet of natural gas per day from the Chicago area to parts of Indiana and Michigan, and then to Canada. Vector also leases a 59-mile, 36-inch diameter pipeline between Milford and Belle River from DTE.

Michigan group helps local governments control fracking - A Michigan township took careful steps this month to indirectly regulate oil and gas development within its borders — a legally tricky move amid growing public unrest and uncertainty over hydraulic fracturing here. Cannon Township , about 20 minutes northwest of Grand Rapids in West Michigan , adopted a series of ordinance changes that regulate new building construction, drilling equipment and “unwholesome substances.” While townships and counties are preempted by state law on many aspects of oil and gas development, including hydraulic fracturing, they can focus on some ancillary activities of the practice and enforce police powers to give local residents some say. One Traverse City-based group in particular, FLOW (For Love of Water), is on a sort of information and guidance tour, teaching communities what they can do through its Model Local Ordinance Program. The group is made up of a coalition of environmental groups around the state.  Adopted by the township board earlier this month, the new rules involve construction of “accessory buildings,” which include more requirements for permits to build structures related to drilling exploration. Drilling processes also have to comply with the city’s lighting ordinance, which would require a variance for lighted structures taller than 25 feet. Finally, the township updated its “unwholesome substances” ordinance, allowing it to step into cleanup practices if a spill occurs.

Survey: Majority of scientists oppose expanded use of fracking   - A new survey out this week from the Pew Research Center finds scientists have a more negative view of fracking than the general public. Among scientists, 31 percent favor the increased use of fracking, while a majority– 66 percent– are opposed. The general public is slightly more positive, 39 percent of adults favor it, while about half (51 percent) are opposed. The phone survey included 2,002 adults nationwide, as well as 3,748 U.S.-based members of the American Association for the Advancement of Science (AAAS), the world’s largest general scientific society. The scientists’ views about fracking vary across different disciplines. More than half of the engineers surveyed support more fracking (53 percent), while just 25 percent to scientists in the biological and medical fields favor it. Earth scientists fall in the middle– 42 percent favor it.

Zone or Ban Fracking ? A Virginia County Opts For Zoning -- Zoning laws vary by state. In some states (New York) land use laws can be used to prohibit fracking completely. In Texas, some cities, such as Dallas, have used zoning laws to severely limit where fracking can occur inside the city. Other cities such as Denton have banned it under their zoning laws. In some states, such as New Mexico, counties have used land use controls to curtail where fracking can be done. A Virginia county has taken this approach. The King George Board of Supervisors stopped short of prohibiting fracking—because such a ban might lead to lawsuits—but plans to put strict zoning regulations in place that probably will keep gas and oil drilling out of the county. Supervisor Dale Sisson Jr. said “none of us really support” drilling, but said the county couldn’t ban the process outright.Doing that might make it “the test case for legal action,” said Supervisor Ruby Brabo. There are differing opinions among state, local and environmental officials as to whether localities have the authority to prohibit hydraulic fracturing, the process of injecting water and chemicals deep into the ground to loosen trapped natural gas or oil. But all seem to agree that counties can control these kinds of actions through zoning ordinances—and put such strict regulations in place that would make it impossible or impractical for companies to drill there.

Lariat cuts 265 Permian workers - Driller Lariat Services laid off 265 people in the Permian Basin as it closes its divisional office, company officials confirmed Thursday, representing another sign of the downturn’s impact on jobs amid low oil prices. “We’ve already got rid of them,” said Manuel Molinar, the Odessa-based operations manager of pulling unit services in the Permian Basin, saying the layoff notices given this week were to “all the departments. Lariat Services is shutting down in the Permian Basin.” He referred further questions to corporate officials with Lariat’s parent company SandRidge Energy, an Oklahoma-based exploration and production company. “It’s safe to say that both a steep contraction in crude oil prices and the downturn in the number of drilling rigs had a big impact on that decision,” said Jeffrey Wilson, the vice president for government and public affairs for SandRidge. “A $60 decline in the price of crude oil in the past six months weighs heavily.” The regional oil price benchmark, Plains-West Texas Intermediate, ended at $41 on Thursday. That is nearly 60 percent less than the peak price of June.

Falling Prices Spread Pain Far Across The Oil Patch - WSJ: Trouble has been looming over the oil patch since crude prices began falling last summer, from over $100 a barrel to under $50 today. But only now are the long-feared effects of a bust starting to ripple through the complex energy ecosystem, affecting Houston executives, California landowners and oil old-timers in Oklahoma. Many big energy companies have said they plan to slash billions of dollars in spending along with thousands of jobs; energy giant ConocoPhillips told employees Thursday to expect a salary freeze and layoffs. Indicators like drilling permits in Texas have fallen sharply.  Cutbacks aren’t yet reflected in broad data on employment, home sales or tax collections. For example, the federal Bureau of Labor Statistics says that employment in oil and gas extraction rose in December to 216,100, the highest level since 1986. But fallout is beginning to affect people, starting with the legions working as suppliers to the energy industry. Eric Herschap is chief operations officer at Exclusive Energy Services LLC, a private company in Orange Grove, Texas, that offers services, including equipment rentals, to exploration companies. His customers are demanding price cuts of 15% to 25%, and Exclusive offers additional discounts beyond that, he says. So the company laid off 10 of its 45 employees and is cutting bonuses for those who remain. Mr. Herschap says his brightest engineers are now fielding phone calls from customers with technical questions. Nonenergy companies that rely on roughnecks are also pulling in their horns.

When "Rumor Becomes Reality" - This Is The Devastation Across The US Oil Patch - "This is going to hurt, no question," fears a landowner in Santa Barbara with a dozen oil wells. Layoffs are "kind of like a death in the family," exclaims a geophysicist in the Permian Basin. Houstonians were hoping for a hiccup, says one restauranteir, but now "they're getting more cautious." As WSJ reports, rumor is becoming reality across America as "unambiguously good" news of low oil prices turns from a trickle to a deluge of job losses and insecurity. Cutbacks aren’t yet reflected in broad data on employment, home sales or tax collections. But fallout is beginning to affect people, starting with the legions working as suppliers to the energy industry.  As The Wall Street Journal reports, Trouble has been looming over the oil patch since crude prices began falling last summer, from over $100 a barrel to under $50 today. But only now are the long-feared effects of a bust starting to ripple through the complex energy ecosystem, affecting Houston executives, California landowners and oil old-timers in Oklahoma

Anadarko to slash spending in 2015 -Anadarko Petroleum, which has offices in both Texas and Colorado, has announced its plans to cut spending in 2015, according to the Houston Business Journal. Anadarko joins a laundry list of companies across the nation that have announced similar cuts for the 2015 fiscal year. The announcement comes a day after the company released its fourth-quarter results in which the company reported a net loss which cost common stockholders $395 million, or $0.78 per share. Despite the fourth-quarter loss, Anadarko CEO Al Walker says the company had a solid year overall. “Anadarko’s fourth-quarter operating performance was a capstone to another terrific year for our company,” said Walker. “In 2014, we demonstrated the quality of our portfolio by delivering results that exceeded the midpoint of our initial sales-volume guidance by approximately 38,000 BOE per day, while staying well within our initial range of capital investment guidance and generating free cash flow.” Anadarko’s 2015 capital plan and outlook is scheduled to be released a month from today. Anadarko executives say the company’s Wattenberg field in Colorado is one of Anadarko’s assets best suited for investment this year. In 2014, the Wattenberg field achieved year-over-year growth of about 55 percent in 2014.“We see ourselves in a period here of trying to build value, maintain flexibility and not grow in a low commodity price environment that we see as less than attractive,” said Walker. To view Anadarko’s news release on its fourth-quarter results, click here.

The End of the Barnett Shale? Recent Earthquakes and an Epic Fault Line May May Erode Enthusiasm for Further Fracking in Dallas County -A 2.4 magnitude earthquake ushered in the New Year near the old Texas Stadium in Irving, TX. The event was yet one more in a series of frequent seismic episodes to rattle Dallas County residents.  Then, eleven earthquakes hit Irving five days later on January 6th and another quake struck the same area at 1 a.m. on the 7th. Notably, the twelve tremors over just 24 hours followed five earthquakes occurring over four days in late November, the largest of which was felt by many tens of thousands of residents. The old Texas Stadium is located at the intersection of Highways 114 and 183 in Irving, TX, about three miles west of Dallas Love Field Airport.  Seismology experts at nearby Southern Methodist University's (SMU) Earth Sciences Department have been working overtime recently to position earthquake monitoring sensors in Irving, the epicenter of all but one of the Dallas County earthquakes recorded this year. According to SMU's media office, January's earthquakes are the "fourth sequence of earthquakes in the Fort Worth Basin since 2008."  SMU's studies on two of the four sequences occurring in nearby Tarrant County cited "wastewater injection wells [from natural gas drilling operations] as a plausible cause of the seismicity." Tarrant County abuts the western border of Dallas County and is the #1 natural gas producing county in Texas, according to the Railroad Commission of Texas (RRC). Their September 2014 "Gas Well Counts by County" report indicates that 4,015 productive gas wells occupy Tarrant County's 897 square miles. In contrast, there are 31 oil and gas wells in Dallas County. Might the recent spate of Dallas County earthquakes also be linked to the natural gas fracking bonanza that has swept much of North Texas over the past six years?

Houston energy company defaults on debt payment -- As the old saying goes, “just when you thought things couldn’t get any worse.” Well, for Houston-based Lucas Energy, things have gone from bad to worse. The company said Friday that it has defaulted on a debt payment dating back to December 13 of last year, which means it will now be paying a defaulted interest of 18 percent per year on the $7.7 million it owes under the loan agreement. Lucas had been in financial turmoil for months as it struggled to boost revenue in a weakening energy sector. The company was even in danger of being delisted from the New York Stock Exchange in August 2014, but was granted a compliance extension shortly thereafter through October. Lucas Energy CEO Anthony Schnur commented: “The plunge in crude oil prices has required us to reconsider all alternatives. We are actively and aggressively pursuing options to secure funding through a corporate combination or project financing arrangement. We believe we have made significant progress toward establishing a definitive path forward."

Louisiana Squeezed as Oil Prices Drop - As oil prices drop, the squeeze has begun in south Louisiana. It starts with ugly state budget projections, layoff announcements and freezes on new construction projects. Cutbacks at the drilling companies lead to cutbacks at the service companies, and before long the grocery stores and car dealerships start feeling it.“The price of oil,” Mr. Lafont said over biscuits and coffee in a back room of his office just off the bayou, “controls everything in south Louisiana.”But every downturn is a little bit different, and every downturn falls unevenly — even within the oil industry, as Louisiana’s complicated place in the current price collapse shows.  The frontline casualties of the current price collapse have been in the shale-drilling boom towns of Texas and North Dakota. These shale plays, where hydraulic fracturing tapped massive oil reserves, rocketed into prominence and have come hard back down to earth. There has been little of that activity in Louisiana. The large swath of oil-rich shale that spans the center of the state is so geologically complicated that it has mostly been unexplored. And while some small well operators throughout Louisiana will be badly hurt, oil exploration within the state has generally been on the decline for years. The main oil exploration these days takes place out in the federal waters of the Gulf of Mexico. Many of these are multimillion-dollar, 10-year operations, so involved that they are relatively shielded from market slumps — as long as the slumps do not last too long.

Oklahoma drilling company to cut 2,000 jobs -- Oklahoma-based drilling contractor company Helmerich & Payne’s CEO announced Thursday that the company may have to cut as many as 2,000 jobs.  Helmerich & Payne CEO John Lindsay commented: “Our field employee count is directly proportional to our rig count. Based on what we know today, it is possible that we will have approximately 2,000 or more field positions eliminated by the foreseeable rig reductions. This is, without question, the worst part of the downturn.” Helmerich shares fell as much as 10 percent to $54 on Thursday as weak forecast for 2015 margins and revenue overshadowed a better-than-expected quarterly profit. Helmerich said less than 200 rigs would be active by the end of the current quarter, down from over 297 in the first quarter. The company said that it expects rig revenue in its U.S. land drilling unit to average $27,000-$27,500 per day in the second quarter, below the $29,457 it recorded in the first quarter. Helmerich, which had about 11,901 employees as of September 30, also said it would now build only two high-tech FlexRigs per month this year, down from the four rigs it had planned.

CA Officials Allowed Fracking to Taint Drinking Water Amid Record Drought -- Oil companies in drought-ravaged California are pumping wastewater from their operations into aquifers, potentially contaminating groundwater supplies that have become increasingly important. State regulators permitted companies to drill hundreds of waste-disposal wells into aquifers that store water for drinking or irrigation, the San Francisco Chronicle reported. Companies injected a blend of briny water, hydrocarbons and trace chemicals. Most of the wells are located in the state’s Central Valley, where residents are pumping so much groundwater to cope with the historic drought that the land has started to sink. "It is an unfolding catastrophe, and it’s essential that all oil and gas wastewater injection into underground drinking water stop immediately,” said Kassie Siegel, director of the Climate Law Institute at the Center for Biological Diversity environmental group. So far, tests of nearby drinking-water wells show no contamination, state officials said. But the federal Environmental Protection Agency is still threatening to take control of monitoring the waste-injection wells after more than 30 years of state management. “If there are wells having a direct impact on drinking water, we need to shut them down now,” said Jared Blumenfeld, regional administrator for the EPA. “Safe drinking water is only going to become more in demand.”

Oil Companies Pumping Waste Into California’s Water, It’s Probably Fine -- You probably heard about this big drought in California, especially if you live there and you haven’t washed your car for months because of rationing and stuff (as opposed to those of us who just don’t wash our cars because we call road dust a “patina”). It’s a seriously bad thing, and if your state is pumping so much groundwater that the ground is literally sinking in some areas, then you might just be a bit concerned about the San Fransisco Chronicle’s investigation of oil companies pumping wastewater from drilling operations right down into Central Valley aquifers containing drinkable water. Legally, with permission from state regulators. Since 1983.  The Chronicle explains where all that dirty water is coming from, and where it’s going: California produces more oil than any state other than Texas and North Dakota, and its oil fields are awash in salty water. A typical Central Valley oil well pulls up nine or 10 barrels of water for every barrel of petroleum that reaches the surface. In addition, companies often flood oil reservoirs with steam to coax out the valley’s thick, viscous crude, which is far heavier than petroleum found in most other states. They pump high-pressure water and chemicals underground to crack rocks in the controversial practice of hydraulic fracturing. They use acid and water to clear up debris that would otherwise clog their oil-producing wells. All of that leftover water, laced with bits of oil and other chemicals, has to go somewhere. Pumping the liquid — known in the industry as produced water — back underground is considered one of the most environmentally responsible ways to get rid of it.

Anti-fracking coalition calls for shut down of toxic injection wells - A coalition of anti-fracking groups and the Center for Biological Diversity today urged the federal Environmental Protection Agency (EPA) to immediately shut down hundreds of injection wells that are illegally dumping toxic oil industry wastewater into scores of California aquifers during the midst of a record drought.  Oil and gas companies over decades used more than 170 waste disposal wells to inject oil and gas wastewater into dozens of aquifers containing potable water, in violation of state and federal law, the San Francisco Chronicle reported. The majority of these violations are located in California ’s Central Valley, while others are near San Luis Obispo and Santa Maria . (  “Oil companies in drought-ravaged California have, for years, pumped wastewater from their operations into aquifers that had been clean enough for people to drink,” said David Baker, reporter. “They did it with explicit permission from state regulators, who were supposed to protect the increasingly strained ground water supplies from contamination.

University including earthquake safety in emergency planning - In the past, earthquakes in Wichita were few and far between. After, Wichita State was hit with a 4.8 magnitude quake on Nov. 12, officials felt the need to provide safety instructions for students on campus, just in case. Though nothing major has yet to hit Wichita, campus officials still feel students need to be cognizant of potential injurious outcomes of earthquakes, because buildings with foundations resting on unconsolidated landfill — which WSU has — are most at risk. Toni Jackman, WSU department of geology lecturer, said she believes that although the quakes are usually small, they could still be dangerous. “The geology department found that hydrofracking — a well stimulation technique in which rock is fractured by a hydraulically pressurized liquid made of water, sand, and chemicals — is unlikely to cause earthquakes, but it requires a large amount of water which they put down the shell in order to get the oil out,” Jackman said. “The problem is that the water has to go somewhere; and so they are putting these deep injection wells and putting the water down there and pushing it out into the spaces in the rocks. Doing is lubricating and also increasing the pressure and that’s what’s causing all of these little earthquakes here.” When the 4.8 quake hit Wichita in November, individuals reported to local news outlets about damages to homes and buildings in the area. KWCH reported an uprooted tree with a diameter of 18 to 20 inches and a propane tank shifted off its foundation. Damages like this caught the attention of officials who felt the need to inform the WSU community with the most efficient way to protect themselves should a quake occur.

Colorado oil, gas task force considers 91 pages of recommendations - — Gov. John Hickenlooper’s oil and gas task force sat down again Monday to discuss recommendations by task force members to solve the state’s increasing problem of urban drilling. The 21-member task force meets again today at the Colorado Convention Center, and is charged with finding a solution to the problem of the oil and gas industry intruding on the Front Range. The task force has been meeting since August and has so far spent its meetings gathering information from experts in different fields affected by the oil and gas industry and hearing testimony from residents. But Monday’s meeting was a little different. Rather than hearing from outsiders, the group was asked to put together recommendations, which were presented at the meeting. “This is a very different meeting than what we’ve seen so far,” said Mike King, the executive director of the Department of Natural Resources. “They’ve been listening for so long and this is really the first opportunity they’ve had to begin to deliberate and talk among themselves.” So far, the group has collectively submitted 91 pages worth of recommendations. Task force members spent the day discussing them, and talk will pick up again this morning. Suggestions have included other setback requests, more control of drilling by local governments, and increased support for oil and gas monitoring through the Colorado Department of Public Health and Environment.

Colorado oil and gas spill report for Feb. 2 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks.  Information is based on Form 19, which operators must fill out detailing the leakage/spill events. Any spill release which may impact waters of the state must be reported as soon as practical.  Kerr McGee Oil & Gas Onshore LP, reported on Jan. 22 that during routine inspection a release was discovered at a production facility outside of Platteville. It is approximated that 12 barrels of crude oil and three barrels of produced water were released. Fluids did not breach the steel lined berm.  Kerr McGee Oil & Gas Onshore LP, reported on Jan. 23 that during a routine inspection, outside of Longmont a release was discovered at a production facility. It is approximated that nine barrels of crude oil were spilled within the lined steel berm, fluids were not released outside of containment. Ward Petroleum Corp., reported on Jan. 23 that a pumper noticed a spill after examining a well that had not produced for two days outside of Nunn. The leak was determined to be from a split flowline. The well was immediately shut in and a backhoe was ordered to enable a temporary berm construction that would keep the spill from navigating further. It is approximated that 15 barrels were released from the pumper. Noble Energy Inc., reported on Jan. 26 that during the removal of a water vault, impacts were discovered, outside of Keenesburg. It is approximated that less than five barrels of produced water spilled. Soil and groundwater were tested and confirmed to have exceeded COGCC standards.  Kerr McGee Oil & Gas Onshore LP, reported on Jan. 26 that during abandonment activities a historical spill was discovered outside of Fort Lupton. It is unknown the amount of produced water that was released, but it was approximated to have been less than five barrels. Kerr McGee Oil & Gas Onshore LP, reported on Jan. 26 that during abandonment activities a historical release was discovered at a production facility. It is unknown the amount of oil spill that was released, but it is approximated that less than five barrels spilled. 

ND oil tax exemption set to start with slipping crude prices — A tax cut that will cost the state about $160,000 in lost revenue for each well drilled is slated to begin on Sunday. The extraction tax exemption is an incentive to keep companies drilling new wells when they might otherwise go idle due to low oil prices. That trigger needs to average $55 for a month but is due to expire this summer. North Dakota sweet crude was fetching about $45 a barrel late last week. The price was well below the trigger through most of January. The tax incentive is one of two that gives North Dakota oil industry a big tax break when crude prices nosedive. State law also forgives a 6.5 percent extraction tax if the five-month average price of a barrel of oil slips below $52.58.

North Dakota Faces Boom-Town Dilemma as Oil Tumbles -- The city at the heart of North Dakota ‘s energy boom is asking for $80 million of state money to upgrade streets, improve a landfill and expand city hall to serve a population that’s grown by two-thirds since 2010. Now, lawmakers in Bismarck may find themselves putting their faith and their funds in Williston’s unbridled growth even as crashing crude prices have chopped $4 billion off the state’s forecast for oil and natural-gas tax collections in the next two years.  Legislators are considering a $1.1 billion bill that would tap savings from energy-related revenue to send money to western North Dakota , including Williston, for infrastructure. The Senate passed the measure Jan. 29 by 44 to 2 and the House takes it up this month. For Senator Dwight Cook, memories of the 1980s oil bust were enough to prompt a no vote.  “I would love to vote for this bill, but considering our financial situation right now and the uncertainty of the future, this bill is too rich for me,” Cook, a Republican from Mandan , southeast of Williston, said on the Senate floor.

Adversity stirs innovation at hydraulic fracturing conference - In the Bakken Shale, it takes $6 million a year in maintenance and repair costs to keep a frac fleet of trucks and pumps up and running, leaving North Dakotan oil field workers no choice but to replace broken valves and other pump components every four days. Gusek says his company, Liberty Oilfield Services, is a month or two away from bringing a new technology to market that could fix that problem. It is planning to deploy a trailer carrying a heavy tungsten carbide-built pumping system that will allow sand to bypass the high-horsepower charge pumps and only mix with water and chemicals in an outside blender before shooting through tungsten carbide tubes — many times stronger than steel — and into the well. That may cut down on oil field maintenance costs at a time when U.S. shale oil producers are scraping for every penny after crude’s seven-month plunge to around $50 a barrel. At a booth in the Society of Petroleum Engineer’s seventh annual Hydraulic Fracturing Technology Conference in the Woodlands on Wednesday, Gusek said the new pumping system won’t be the only new, more efficient technology oil companies need, but it’s another tool that could save them time and money. “We’ve got to learn how to be able to work with lower and lower oil prices,” Gusek said. It has been done before, Gusek noted: Natural gas prices had sunk to record lows in 2011 and 2o12, but natural gas producers have slowly returned to gas fields as new technologies have crept in to make gas production more profitable at lower prices.

ND bill cuts time for wasting natural gas from oil well — North Dakota’s Senate is considering legislation that would drastically cut the time oil companies can burn off and waste natural gas from an oil well. Democratic Sen. Connie Triplett is sponsoring the bill that would require companies to begin paying royalties and taxes on natural gas within 14 days after an oil well begins production. Companies are given a year at present. Triplett and others told the Senate Energy and Natural Resources Committee on Friday that mineral owners and the state are being shortchanged because revenue on the wasted gas is not immediately being collected. North Dakota Petroleum Council President Ron Ness says the industry has invested $13 billion to capture the gas. But he says there is still a challenge obtaining permission to place gas pipelines in some areas.

Occidental suspends drilling in the Bakken - On Wednesday a representative from Occidental Petroleum Corp. told Dunn County commissioners that the company probably won’t be actively drilling or fracking in the area until March, according to a report from The Dickinson Press.  In an earnings call last month, Occidental CEO Steve Chazen announced that the company “virtually eliminated” capital spending in North Dakota and in some international oil sands. The company reported that this was due to “unacceptable returns in the current price environment.” The Dickinson Press reports that for several months, an Occidental spokesman had been reporting to the county commission about where the company’s six rigs operating in Dunn County would be moving. Currently the company has one rig completing a well in the county. Afterwards it will be taken out of use within 10 days. The final session of hydraulic fracturing was completed Tuesday night and the equipment will be moved offsite within a week. The company is a major player in Dunn County and throughout the oil patch, but through March, it will focus on producing oil from existing wells rather than drilling new ones. Since December the rig count in North Dakota has dropped substantially due to the drop in oil prices. As of today, the rig count sits at 136, down by around 50 since December of last year. The price of oil dropped by almost half since the summer. The counties located in the core of the Bakken formation (Dunn, Williams, McKenzie and Mountrail) were at first resistant to the price decline due to lower breakeven prices, but Occidental’s exit from Dunn County indicates that even the core counties aren’t immune to low prices.

Storing stacked rigs in the Bakken - As the current slowdown of drilling operations in the Bakken persists and rigs are stacked, they have to go someplace, but where? The Dickinson Press reports that as the rig count continues to fall, companies are in growing need of locations to store the unused drilling rigs. However, the rigs can’t stray too far from the oil patch in the event that prices start to climb and operations resume. In North Dakota, though, administrative code doesn’t usually allow rigs to be stacked on drilling sites. The code considers a stacked rig to be unused equipment and requires the rig to be moved or put back to use within a reasonable time limit. Patterson-UTI Drilling, for example, has leased rural land in Stark County. The landowner was required to obtain a conditional use permit before storing rigs on the swath of land outside Dickinson. Like the rest of the most recent oil boom, small North Dakota communities are having to deal with problems that have never been an issue in the past. During a recent zoning hearing, County planner Steve Josephson said receiving requests for such permits is a first for him, and he suspects there will be similar requests in the near future. “This is a test for us,” he said. Oil prices, which have decreased by roughly half since last summer, are causing the current slowdown in the Bakken formation. As of today, the rig count sits at 145, down by about 40 since last December. The downturn has shifted drilling operations to the core of the Bakken formation in Dunn, Williams, McKenzie and Mountrail counties where drilling is more economical. The rigs that are being stacked need a place to go, though, and can sometimes require an area of up to almost three quarters of an acre, or about two thirds of a football field.

Continental Bakken reserves continue to grow - Continental Resources, one of the top producers in the Bakken formation, has announced that the company’s proved reserves and production rates are continuing to grow with each passing year. The company reports that as of December 31, 2014, its proved reserves increased from the prior year by 267 million barrels of oil equivalent (MMBoe), or 25 percent. Its current proved reserves are reported to be 1.35 billion barrels of oil equivalent (Boe). At the end of last year, the company operated 83 percent of the reserves. Continental’s proved reserves have grown at a compounded annual rate of 39 percent since the end of 2010. When compared to the year-end figures from 2013, the proved developed producing reserves increased 21 percent to 490 MMBoe by the end of 2014. Additionally, the company had 2,994 gross (1,565 net) proved undeveloped locations at the end of last year. Of these proved but undeveloped locations, 82 percent are located in the Bakken formation. The company’s proved reserves at the end of 2014 had a net present value of $22.8 billion, a 13 percent increase from the year-end 2013 figures.

Optimism Remains In North Dakota, But For How Long?: Ordinarily, a good way to gauge the business climate of a region or a state is to look at its employment statistics. So you might expect to see the jobless rate in North Dakota to be rising as the price of oil drops. But in North Dakota, the poster child of the US boom in shale oil, the unemployment rate in December 2014 was just 2.8 percent, just a tick above the 2.5 percent recorded in April, two months before the big slide in oil prices began. And its payroll grew by 5.4 percent, or more than 24,000 workers, last year. “This won’t be a bust,” Harold Hamm told Bloomberg. Hamm is the founder and CEO of Continental Resources Inc., the largest leaseholder and producer in the Bakken shale region of North Dakota and Montana. “There’s plenty to do.”  And finding workers can be hard work. So employers in North Dakota aren’t quick to lay off workers in a fairly remote state in the US upper Midwest with the country’s fourth-smallest population and, by extension, not a lot of able-bodied oil workers to go around. Besides, North Dakotans say, if the price of oil can fall, it can also rise again. As a result, layoffs are down, according to jobless filings: In December 2014, applications for unemployment insurance payments numbered 4,192, 12.4 percent lower than in December 2013.

Comment period extended for radioactive waste proposal — People who want to comment on proposed new rules dealing with the disposal of radioactive oilfield waste now have more time. North Dakota’s Health Department has extended the comment period to March 2. Health officials are proposing to allow elevated levels of oilfield radioactive waste to be dumped at some North Dakota landfills. Environmental Health Chief Dave Glatt (glaht) has said the proposed standard is still safe for humans and the environment. North Dakota generates up to 75 tons of radioactive waste daily, largely from so-called oil filter socks that strain liquids during the oil production process.

Oil cleanup on Yellowstone River on hold until ice melts -- —  Cleanup work on a 30,000-gallon oil pipeline spill into the Yellowstone River near Glendive is effectively on hold for a month or more until ice on the river melts, state and pipeline company officials said Tuesday. About 25 people remain at the site to watch for oil-damaged wildlife and respond to any crude oil seen on the river. That’s down from a peak of about 125 people during the initial response, officials said. Less than 10 percent of the oil that spilled into the river has been recovered. It’s uncertain if that figure will significantly increase because much of the crude likely has dispersed as it was carried down the river, according to state officials. “Right now we’re in this phase where we’re watching it, but we’ll see what happens when the ice breaks up,” said Jeni Garcin with the Montana Department of Environmental Quality. The monitoring area spans a 90-mile stretch of the Yellowstone, from the spill site downstream to a bridge just across the North Dakota border. The cause of the Jan. 17 accident along Bridger Pipeline LLC’s Poplar line remains under investigation. The spill temporarily fouled Glendive’s drinking water supply and renewed calls for increased government oversight of the nation’s aging pipeline network. It was the second significant oil pipeline spill into the Yellowstone in less than four years, following a 2011 spill near Laurel. The section of line that broke upstream of Glendive was installed in 1967. It was originally buried beneath the river but somehow became exposed in the last several years, according to Bridger Pipeline.

Big Montana oil spill is latest involving pipeline company — The Wyoming company whose pipeline leaked 30,000 gallons of crude oil into the Yellowstone River in Montana and its sister company have had multiple pipeline spills and federal fines levied against them in the last decade, according to government records. Bridger Pipeline LLC, the operator of the Poplar Pipeline that broke recently near Glendive, Montana, recorded nine pipeline incidents between 2006 and 2014, according to the pipeline administration. Combined, they leaked nearly 11,000 barrels of crude. Its sister company, Belle Fourche Pipeline Co., recorded 21 incidents over the same period, during which a total of 272,832 gallons of oil was spilled. Both companies are operated from the same control room in Casper and are owned by the True family. Tad True, vice president of Bridger and Belle Fourche, said the companies have made great efforts to improve their compliance record in recent years. Since 2009, Bridger has been inspected eight times. Belle Fourche has been inspected on nine occasions. The companies have not been issued a fine in any of those inspections, federal records show.

USGS study links Montana oil spills to arsenic releases in groundwater -- Underground petroleum leaks can trigger arsenic spikes in groundwater, which could be a problem as the United States confronts a rising trend in pipeline-related accidents, such as the 39,000-gallon discharge into the Yellowstone River two weeks ago.  The arsenic release is more of a long-term problem compared to the immediate hazard of benzene and other toxins that prevented 6,000 residents of Glendive from drinking tap water for five days. But U.S. Geological Survey researcher Barbara Bekins said it illuminates the difficulty of dealing with oil spills. “It showed up as an unintended consequence of the cleanup of other things,”. “Where you’re trying to clean solvents, dry cleaning fluids or petroleum, what’s often done is you add organic carbon to the ground. That turns the groundwater anaerobic, which can mobilize arsenic. Regulators need to think about when should people worry about arsenic mobilization - how far does it travel?”  New USGS research released last week found that when bacteria break down petroleum underground, the chemical process can release naturally occurring arsenic. That toxic heavy metal then can dissolve into underground aquifers. A study in Bemidji, Minnesota, found such petroleum plumes produced arsenic concentrations 23 times higher than federal drinking water standards advise. The mobile arsenic can flow with the underground water to new locations away from the original spill site.

How To Frack a Mortgage. It’s Easy as Pie!  - Just a sign a fracking lease. That effectively puts your loan into default. And gives the lender the right to foreclose. The intrepid Alma Hasse, explains how: (video)  Some people, like Idaho Residents Against Gas Extraction (IRAGE) Co-Founder Alma Hasse, are sounding the alarm about possible mortgage conflicts and declining property values before Idaho’s gas and oil industry even has a chance to inflict damage on the market, and people’s pocketbooks and personal investments. Prior to moving to Idaho nine years ago, Hasse worked in the mortgage industry for 14 years in California, doing everything from “filling out applications,” to managing the Palmdale branch of the American Bankers Mortgage Corporation. In early 2012, Hasse asked Attorney Robert Wallace with the Boise-based Huntley Law Firm to review a gas lease signed by a Payette County resident with Bridge Energy — a company that went belly up, and had many of its leases subsequently snatched by Alta Mesa, Idaho. Wallace reviewed a New York Bar Journal article and wrote the lease appears to affect the rights of property owners. He gave several examples, including, “most of us have borrowed money secured by our property, or expect to sell it in the future. (a) We are required by law and good stewardship to protect it against the effects of hazardous materials. (b) These leases give the companies unfettered rights to cause permanent damage from hazardous activities, while (c) absolving them from fixing or even mitigating it.”

Administration’s “Balanced” Strategy Threatens Alaskan Oil -- On January 25, President Obama used his executive authority to ban oil production on  12 million acres of Alaska’s Artic National Wildlife Refuge by classifying it as wildnerness, including an estimated 1.5 million acres of oil deposits. Two days later, the Bureau of Ocean Energy Management proposed opening a large portion of the South Atlantic Coast to oil and gas exploration, but dealt the Alaskan energy industry another blow by blocking development of over 9.8 million acres in the Beaufort and Chuckchi seas.  Together, the onshore and offshore plans could ultimately cost substantially more than a few million barrels of oil. The administration’s plans could result in the closure  of the Alaska Oil Pipeline, destroying the only means to transport 27 billion barrels of untapped oil in the Arctic Outer Continential Shelf to refineries.   The “all-of-the-above” energy policy at one time advocated by the president is now being rebranded. The White House explained in a post on its website that the President’s energy strategy is now a “balanced,” all-of-the-above plan. 

ConocoPhillips and Shell outline billions of dollars in cuts - Two of the world’s largest energy groups, Royal Dutch Shell and ConocoPhillips, have set out plans for billions of dollars worth of cuts in their investment programmes in response to the plunge in crude prices. The cuts are part of a wave of reductions in capital spending announced by oil companies worldwide as they move to shore up their finances and protect dividends as cash flows are squeezed. The cuts have increased expectations that prices will rebound in the future as supply growth slows.BP has said it will cut 300 staff and contractor jobs from its 3,500-strong North Sea business and freeze salaries across the company in an attempt to cut costs. It has also sold down its equity interests in two massive Gulf of Mexico oilfields and relinquished its position as operator.  French major Total announced earlier this month that it planned to reduce group-wide capital spending by 10 per cent this year and speed up billions of dollars in asset disposals.  Though Shell and Conoco were both expected to follow suit, they differed sharply in the speed of the responses they announced on Thursday.   Shell, the largest European oil group, said it would “curtail” its capital spending by $15bn over 2015-17, representing 40 projects that would be delayed or cancelled. Its spending for this year, however, is set to be only slightly lower than the $35bn it spent in 2014.  Conoco, the largest US exploration and production company, said it planned a much steeper 33 per cent cut in its capital spending this year to $11.5bn, $2bn less than it had suggested in its previous guidance issued only last month.  Occidental Petroleum, the fourth-largest US oil producer by market capitalisation, also said it would cut this year’s spending by 33 per cent.

Shell prepares to dismantle North Sea giants - Royal Dutch Shell will on Tuesday set out ambitious plans to decommission the North Sea’s Brent oilfield — one of the UK’s biggest — in a multibillion-dollar project over the next 10 years that could be followed by other closures after the plunge in oil prices. The Anglo-Dutch energy group will within days begin public consultation on a disposal plan for the “topside” of Brent Delta — one of four platforms in the field that gave its name to the international crude price benchmark. Shell is anxious to avoid a repeat of the public furore 20 years ago over its attempt to dump the Brent Spar oil storage buoy in the Atlantic Ocean. The decommissioning of Brent Delta will involve lifting its 23,500 tonne steel superstructure that stands high above the waves — and includes the drilling rig and multistorey accommodation block — on to a giant ship called the Pieter Schelte. Shell executives say this will be the biggest offshore lift ever attempted, and could be a template for dismantling many of the North Sea’s larger platforms. The topside structure will then be taken by the Pieter Schelte to Teesside, where much of it will be scrapped and recycled into washing machine parts. But Shell will take more time to decide whether — and how — to remove Delta’s huge concrete legs and oil storage tanks. The bigger subsea structure, in water 140m deep and weighing 300,000 tonnes — as much as the Empire State Building — would take thousands of years to erode if left in place. Shell says the lifting of Delta’s topside, likely to happen next year, will “substantially reduce the risk, cost and environmental impact of the operation” — and is preferable to taking the structure apart piece by piece in the North Sea.

BP slashes capital spending by 20% - BP has slashed projected capital spending for this year by about 20 per cent after a sharp fall in oil prices led to a multibillion-dollar charge and a headline fourth-quarter loss for the group. The UK-based oil major on Tuesday became the latest of the world’s biggest energy groups to curb spending in an effort to preserve cash flow and protect dividend payouts after a drop of 50 per cent in crude. It said it was taking action to respond to the likelihood of oil prices “remaining low into the medium term and to rebalance its sources and uses of cash accordingly”. Capital expenditure — money poured into new projects — is now expected to be about $20bn for 2015, substantially lower than earlier guidance of $24bn-$26bn and down on last year’s $22.9bn, BP said. It will reduce exploration spending, postpone “marginal” upstream projects and halt some downstream projects. On an underlying basis, excluding charges, replacement cost profit for the fourth quarter was $2.2bn, lower than $2.8bn for the same period a year ago but ahead of consensus forecasts for underlying earnings of $1.57bn. Analysts said that a change in the way Rosneft, the Russian state-owned oil company in which the group has a minority stake, accounted for the rouble’s plunge helped BP beat expectations.

Oil Majors’ Profits Take A Beating - The first quarterly earnings reports since the collapse of oil prices are in and the numbers show a significant deterioration in profits for the oil majors.  Royal Dutch Shell went first on January 29, revealing a big jump from the same quarter a year ago, but down from the third quarter of 2014. In fact, Shell announced that it would cut $15 billion in spending over the next few years, an about-face from just a few months ago when it stated that it would leave capital expenditures unchanged in 2015. Shell’s CEO, concerned about the poor state of oil and gas markets, said that it may even consider withdrawing itself from significant assets held around the world, retrenching and focusing on North America.  On the same day, ConocoPhillips also reported gloomy numbers. It plans on slashing 2015 spending by an additional 15 percent, which comes after a December announcement of a 20 percent cut in expenditures for the year.  Chevron followed that up on January 30, posting its worst showing in five years. The $3.5 billion in earnings for the fourth quarter of 2014 was 30 percent lower than from the previous year. The California-based oil major says that it will trim spending by 13 percent.  And on February 2, ExxonMobil reported a drop in earnings from $8.4 billion in the fourth quarter of 2013 down to $6.6 billion for the same quarter in 2014. The company blamed almost the entirety of its 21% fall in earnings on lower oil prices. ExxonMobil was alone in not revealing its spending plans for the rest of this year, pushing off an announcement until March.

Oil companies put Arctic projects into deep freeze - In spite of objections from environmental campaigners, the Arctic has long been heralded as the next big frontier for “Big Oil”. A US geological study in 2008 estimated it held about 13 per cent of the world’s undiscovered oil — some 412bn barrels of oil equivalent — and 30 per cent of its undiscovered gas. Now, after a more than 50 per cent collapse in oil prices since last summer to less than $60 a barrel, there will be fewer drilling rigs heading north to the Arctic. The region is a high cost frontier because it is so remote, and for many energy groups halting exploration in the Arctic is likely to be preferable to abandoning cheaper projects elsewhere that offer swifter returns. “We will see something of a pullback in high-cost frontiers, and the most prominent of those is the Arctic,” says Andrew Latham of energy consultants Wood Mackenzie. “I wouldn’t expect anyone else to be pushing ahead with Canada, Greenland or other parts of the Arctic until we get a recovery in the price environment.” Indeed, Statoil, Norway’s biggest energy group, on Wednesday indicated it was unlikely to drill in the Norwegian Arctic this year. Eldar Saetre, chief executive, said it could delay development of the huge Johan Castberg field. Chevron of the US has shelved indefinitely plans to drill in the Beaufort Sea in the Canadian Arctic, while Statoil, Denmark’s Dong Energy and France’s GDF Suez have all handed back licences in Greenland. Meanwhile, ExxonMobil of the US was forced last year to pull out of its exploration joint venture with Russia’s Rosneft in the Kara Sea in the Russian Arctic, because of western sanctions against Moscow.

Exxon, Chevron set to boost production just as prices fall - — Exxon Mobil has been working for years on a fleet of enormous new oil and gas projects in places such as Abu Dhabi, Russia, Papua New Guinea, and the Gulf of Mexico designed to turn around what has been a consistent and alarming slide in oil and gas production. A record eight of these mega-projects came on-line last year, Exxon said Monday — just as oil prices were falling by more than half. “Investors would be more than happy to see production decline but oil prices higher,” said Fadel Gheit, an analyst at Oppenheimer & Co. No such luck this year. These enormous projects were conceived and started years ago, as prices were rising. Now they are starting to produce oil and gas at a time when the price of global crude has been eviscerated by rising supplies and weak growth in demand. On Monday Exxon posted a 21 percent decline in both revenue and profit for the fourth quarter because of lower oil prices. The company said it earned $6.57 billion in the quarter, the lowest since the first quarter of 2010, on revenue of $87.28 billion. Last year Exxon earned $8.35 billion on revenue of $110.86 billion.

Rise Of The Vulture Investing Class -- Drilling for oil is an expensive process. Until the oil begins to flow, companies have to shell out cash without seeing much in return. Without revenues from other wells already in production, oil companies have to take on debt to finance operations. Even for companies with big production portfolios, debt is a crucial source of funds to keep the treadmill of new drilling going. Between 2010 and 2014, the oil industry took on around $550 billion in debt, a period of time in which oil prices surged. Now with a crash, that volume that becomes especially hard to service. The largest banks – JP Morgan, or Citibank, for example – are so massive that losses on loans to the energy industry will likely result in only “slight negatives,” as JP Morgan’s Jamie Dimon put it a January conference call with investors. But smaller more regionally-focused banks, especially in Texas and North Dakota, are facing a much bigger problem. During the last oil crash in the 1980’s, around 700 banks failed after oil prices crashed. Analysts aren’t expecting failures to come close to those numbers, but there are a series of banks that have high percentages of their loan portfolios coming from the energy sector. For example, companies like International Bancshares has (42.4 percent), and Cullen/Frost Bankers (35.9 percent), two Texas-based regional banks, are highly exposed, as CNN Money reported in January. Canadian banks are also reeling from oil prices that have dropped by more than 50 percent since mid-2014. The S&P/TSX Commercial Banks index, an index of eight Canadian banks, dropped by around 10 percent in January, the index’s worst start to a year since 1990, according to Bloomberg. Even British banks could be on the hook. The Royal Bank of Scotland, Barclays, and a series of other British banks are exposed to more than $50 billion in high-yield loans in the energy sector.

Even If Oil Rally Continues, Lenders Still At Risk - Yves here. Even with the impressive oil rally of the last two days, it isn’t clear that producers and lenders are out of the woods. While some analysts contend that the bottom is in, others see the rally as technical, driven in large measure by short-covering, and likely to fade.The uncertainty lies in what is really happening on the production side. Even though market-watchers took cheer from a sharp fall in rigs in service to 2012 level, it’s possible to keep production levels high with fewer rigs. For instance, a January 20 article in the Financial Times discussed how BHP Billiton was reducing its rig count in the US for shale oil from 26 at year end to 16 by June. Notice this sectionThe company does not expect the slowdown to have an immediate effect on its oil and gas production, which it still expects to average about 700,000 barrels of oil equivalent per day in the year to the end of June, including a 50 per cent increase in US shale oil production. Catch that? BHP Billiton expects to achieve higher production with fewer rigs.  The incentives of producers are just like that of OPEC: they need to keep revenues up to cover their obligations. That means it is not yet clear when we’ll see real reductions in output.  Moreover, even if this rally holds, another question is how quickly prices get back to levels that producers deem to be viable, which is over $80 a barrel and more like over $100 a barrel. If prices languish in the $50-$60 range, it will not provide much relief.

Oil shock: More energy firms slash spending - Another batch of energy companies will slash spending this year as low oil prices force the industry to scale back growth ambitions. BP said Tuesday it will cut capital expenditure by about 20% this year, and delay some investments as falling prices slam earnings.  The company will reduce exploration and production spending to $20 billion in 2015 -- down from an earlier estimate of as much as $26 billion. Total capital expenditure was $22.9 billion last year, around $2 billion less than initially forecast.  BP is not alone. Chinese energy major CNOOC said Tuesday it will cut spending by as much as 35% this year. And Russian oil firm Gazprom will slash spending by $8 billion this year, according to a Reuters report.  Last week, Royal Dutch Shell said it was scaling back its planned capital investment by $15 billion over the next three years. Chevron said it would trim spending by 13%.  The impact of sliding oil prices has also prompted big job losses. Halliburton plans to cut 1,000 positions due to the depressed oil market, while BP has also announced layoffs. BP took a $3.6 billion writedown in the fourth quarter - largely due to the recent drop in oil prices - pushing the company to a $969 million loss for the period. Still, the group's earnings were not as bad as feared, and its shares gained 3% in London trading.  BP also reported a slump in earnings from its 20% stake in Russian energy giant Rosneft, which has been hit by Western sanctions imposed over Russia's action in Ukraine.

China's CNOOC to slash 2015 spending in response to oil slump (Reuters) - Top Chinese offshore energy producer CNOOC Ltd announced a sharper than expected cut in capital spending for this year, in the first public response by a major Chinese oil company to the turmoil in the oil market. A 50 percent slide in crude prices since June due to slowing global demand and growing U.S. shale output is putting a heavy burden on oil companies around the world. The slump has wiped billions of dollars from their stock market values in recent months, and squeezed the spending of many oil majors. true Underscoring the severity of the impact from the oil price slump, state-controlled CNOOC said on Tuesday it will slash its 2015 capital expenditure (capex) by 26-35 percent to 70 billion-80 billion yuan ($11.19 billion-$12.79 billion), while still trying to grow production by up to 15 percent. The spending cuts are deeper than many analysts' estimates, some of whom had expected reductions of about 8 percent. "The company has certainly surprised the market with a far bigger cut in capex than it thinks," . "The combination of strong production growth plus the bigger-than-expected cut in capex bodes well for its future." Other major Chinese oil firms PetroChina and Sinopec are also expected to unveil lower budgets for 2015 when they release annual results in late March.

BP chief warns of oil industry slump - BP chief executive Robert Dudley warned on Tuesday that the oil industry faces its worst slump since 1986, with crude prices likely to stay at sharply lower levels for “several years” after plunging more than 50 per cent since last summer. His bleak prognosis for the industry – in the grip of “a raging gale” – came as the fall in crude triggered steep cuts to capital spending and jobs at both BP and BG Group , two of Europe’s biggest energy groups. Cnooc, China’s third-largest producer, also announced spending cuts. The moves by BP, BG Group and Cnooc were the latest in a wave of measures by the world’s biggest energy groups designed to shore up cash flow and protect dividends. Mr Dudley, speaking to reporters, said Opec members had told him they wanted to “fundamentally test” the oil market to see if US shale producers who had led America’s output boom could continue pumping crude at lower prices. His comments point to a battle of wills ahead in the market as Saudi Arabia and other Opec members wait to discover if their decision in November – not to cut output in the face of weaker than expected global demand – knocks out higher cost production elsewhere. “When I talk to [Opec members], what they seem to be saying is the world has developed high cost oil in the US, and some in Canada, and why should they be required to shut in their low cost production to allow more and more high cost oil to come on to the market that’s economic at $100 [a barrel],” said Mr Dudley. “They do not want to give up market share to high cost oil if they don’t have to. I think they are going to see this through.”

A Long Time Before We See $100 Again Says BP Chief: Bob Dudley, the CEO of BP PLC, says he believes that the 7-month-old slump in oil prices isn’t likely to reverse itself for some time, perhaps years, because the problem seems to be deeply embedded in the very economics of oil. “The fundamental supply and demand does remind me of 1986 a bit, where we could go into a period in this decade of lower oil prices,” Dudley told Bloomberg TV on Feb. 3, and that the price of a barrel of oil may go no higher than $60 for up to three years. In 1986 the price of a barrel of oil plunged from $30 to $10 and didn’t recover until Iraq’s 1990 invasion of Kuwait. Today, Dudley said, “[w]e do have [oil] stocks filling up around the world. China, which is still growing, for sure, it’s just not as much as it did. … It will be a long time before we see $100 again.” Related: Oil Majors’ Profits Take A Beating Dudley’s saturnine mood wasn’t lifted by BP’s report the same day of a loss in the fourth-quarter of 2014. His company, the first of the oil majors to report a loss, attributed the decline mostly to accounting deficits caused by the lower value of some of its reserves. BP’s replacement-cost loss, similar to the net income reported by US companies, was $969 million for the period, compared with a profit of $1.5 billion in the fourth quarter of 2013. Softening the blow, but evidently not Dudley’s disposition, was the fact that the company’s shares rose in London trading immediately after the report became public because BP’s underlying earnings exceeded analysts’ expectations.

Pain in oil and gas industry continues, outlook bleak - The threat of union workers going on strike at U.S. oil refineries has raised more questions than answers for some in the industry, but pulling oil out of Texas wells will continue. While that production will continue, the economic outlook for the state based on oil and gas production doesn’t look too good, one petroleum economist said. Alex Mills, president of the Texas Alliance of Energy Producers, said Monday that a big question that will need to be answered is what refineries will do with the excess crude oil that will continue to flow to the Gulf Coast. A decision will have to be made, because oil producers in the field aren’t going to stop producing. “Once you’re producing on a lease, you have certain legal responsibilities to continue to produce that lease,” he said. “You can stop for a little bit — maybe 30 days — but there are real strict requirements within the lease. “The reason for that is the owners of the minerals — the royalty owners — have a right to require the producers (and) operators to continuously produce the lease.”  Mills said the price of crude oil and gasoline is very speculative right now because of the uncertainty with the threat of a large strike looming. If there isn’t a walkout, speculators on the New York Mercantile Exchange might not raise the price of oil or gasoline. Any immediate change would likely be seen at the pump.

Weatherford to cut 5,000 jobs as it fights oil slump -- Weatherford International Plc plans to cut 5,000 jobs, or about 9 percent of its workforce, by the end of the first quarter as the oil services company tries to save costs amid sinking oil prices and budget cuts. The job cuts will focus on both operating and support positions and a majority of the reductions will be in the Western Hemisphere, the company said in a statement. Weatherford, which currently employs about 56,000 people across the world, expects the job cuts to result in annualized savings of over $350 million. “Due to the quickly changing market conditions, we are aligning and reducing our cost as well as organizational structures to match the new environment,” the company said. Weatherford said it expects its cost actions, a reduction in capital expenditure by $550 million to $900 million in 2015 and a positive contribution from working capital balances, to offset any reduction in earnings. Last month, the company said it would eliminate the position of chief operating officer as it copes with a 60 percent slide in global crude oil prices.

Despite CSX CEO's Confidence, US Oil Railcar Rates Have Crashed To 3 Year Lows - Two weeks ago, rail freight transportation company CSX's CEO Michael Ward stated 'unequivocally' that as far as the movement of crude by rail he has "not seen any changes," suggesting everything's fine down to $30-35 oil and "expected no impact on crude shipments." It appears he may have been somewhat careful with the truth as Reuters reports, while overall oil-train traffic remains near record highs, the shadowy industry that deals in the specialized 87-tonne crude carriers has seen monthly lease rates plunge to $1,300 late last month from a high of $2,450 about year earlier with the rates at their lowest in about three years. Even worse, railcar construction has surged amid the mal-investment boom exaggerating the over-supply, with one trader noting brokers were offering cars at spot rates of as little as $500 a month compared with $4,000 a year ago.

Schlumberger To Retake Oil Services Crown With New Deal -- Schlumberger Ltd.’s move to buy nearly half of Eurasia Drilling Co. (EDC), Russia’s largest oil drilling concern, will cost it about $1.7 billion and perhaps a few sleepless nights over the prospect that Western sanctions may eventually apply to the new acquisition. But the American oil services giant also just may have found a genuine bargain.  Houston-based Schlumberger’s decision to buy 45.65 percent of EDC comes at a time when the European Union and the United States have imposed stiff economic sanctions on Russia for its support of separatist fighters in neighboring Ukraine. Under the sanctions, Western energy companies may not help specific Russian companies explore for oil in the Arctic, in deep water or in underground shale. But neither EDC nor its largest shareholders, CEO Alexander Djaparidze and Alexander Putilov, are targets of the sanctions so far.  Still, if the East-West tensions don’t ease, the sanctions could expand, as they already have in the past year. Then there’s the 50 percent-plus plunge in oil prices over the past seven months, contributing to the risk Schlumberger faces in buying such a large stake in EDC.  Despite this low price, Russian companies are still producing oil prodigiously, even though they face the risk that many wells, especially older ones, may cease to be profitable if prices keep falling and/or stay low for a long period before stabilizing.

U.S. Supply Growth To Halt This Summer: Everyone knows it by now but the growth in domestic US oil production has been truly astonishing. Spurred on by high oil prices and easy credit, oil companies in Texas and North Dakota have been drilling like crazy and the result has been an inexorable rise in US domestic production. What is remarkable is that almost all of the growth in production has been recorded in just six states, Texas, North Dakota, Oklahoma, New Mexico, Utah and Colorado. Source EIA This chart shows US domestic production from 1981 to 2014 and the upturn in production is striking. Even more dramatic when you focus in on just those six states.  In 2008, just before the crash, there were almost as many rigs working in these six states as have been working there over the past three years, but back then the growth in supply was positively anaemic. Now, it seems as if the folk running these crews have really got their eye in, and lately, with around 1500 rigs drilling, annual growth has averaged about 30%. That's astonishing. There is obviously a correlation between rigs working and supply growth, but lately that correlation has changed.Back when shale wasn't even a gleam in Harold Hamm's eye, when about 600 rigs were working all the decent drilling locations were being snapped up. Adding more rigs in the pre-shale era didn't do anything for production growth. Nowadays though, growth and rig count are very strongly correlated. I would guess that when the rig count falls to somewhere between 600 and 1,000 rigs growth will grind to halt.

IHS study suggests U.S. oil production to halt by mid-year - A new report released by Colorado-based IHS Energy suggests that oil production in the United States could come to a screeching halt by the middle of this year. According to the report, growth is still expected in the early months of 2015, but that momentum will begin to level off in the second half of this year amidst prices at lows not seen since the 2008 Great Recession. The report was based on an IHS study of 39,000 wells with the assumption that West Texas Intermediate (WTI) prices remained below $60 a barrel. At the time of writing this story, WTI crude oil sits at $51.74 a barrel. The study identified a wide range of break-even prices for U.S. crude oil production. In 2014, approximately a quarter of new wells had a breakeven WTI price of $40 or less. Nearly half of new wells in 2014 had a breakeven price of $60 or less. On the other side of the spectrum, nearly 30 percent of new wells had breakeven prices of $81 or higher. The break-even level is the WTI price needed to cover capital and operating costs and generate a 10 percent return. The study suggests that monthly average U.S. production at the close of 2015 is projected to be about half a million barrels per day above the January 2015 average, but nearly all of that growth will come in the first half of the year. By December 2015, U.S. oil production growth will have been flat for several months, according to the report.

​Is Fracking Really Dying? - Two short years ago, industry analysts and television pundits were toasting North Dakota as the “Saudi Arabia of North America.” But the fracking rush that made the Peace Garden State the poster child of the U.S. energy boom has gone bust. North Dakota ’s numerous gas flares, even visible from the International Space Station, are flickering out as tens of thousands of energy workers are being given their pink slips. Many industry analysts say fracking is a victim of its own success, helping to drive oil prices so low it was no longer affordable to frack new wells. Others point to the drop in global demand, spurred by a slowdown in the Chinese economy, alternative energies and an American public that’s not only driving more fuel-efficient cars, but driving less. Most popular, perhaps, is the theory that the Organization of Petroleum Exporting Countries, led by Saudi Arabia, purposely sabotaged the U.S. fracking industry by maintaining its current production levels while global oil demand falls, causing prices to spiral downward. There is probably some truth to all three. The U.S. fracking industry, which hardly existed in 2008, doubled U.S. oil output in only six years. Because of fracking, last year the U.S. became the largest oil-producing nation, leapfrogging over Saudi Arabia and Russia . But fracking is expensive. While much depends on geology and geography, fracking companies need to fetch prices between $55 and $100 a barrel just to break even. As the price of oil is now at $44 a barrel — and threatening to drop even further — it makes little sense to develop or even operate these sites, many run by relatively small energy companies. Meanwhile, many OPEC nations, which mostly rely on less expensive and conventional extraction methods, can still continue making profits even at $30-35 a barrel.

U.S. workers strike for second day at nine refineries; one to shut (Reuters) - Union workers were on strike for a second day on Monday at nine U.S. refineries and chemical plants as they sought a new national contract with oil companies covering laborers at 63 plants. The walkouts were the first in support of a nationwide pact since 1980 and targeted plants with a combined 10 percent of U.S. refining capacity. One of the plants, Tesoro Corp's 166,000-barrel-per-day Martinez, California, refinery, was being shut because it was in the midst of planned maintenance work. The other refineries appeared set to continue running normally as operators initiated contingency plans, calling on trained managers as replacement workers. U.S. gasoline and diesel fuel prices rose on Monday on concerns over supply, as well as a bounce in crude. true Talks broke down against a backdrop of plunging crude prices, down nearly 60 percent since June, prompting oil companies to cut spending. The United Steelworkers union (USW) said Royal Dutch Shell, the lead industry negotiator, halted negotiations early Sunday after the union rejected a fifth proposal from the company. Shell said it would like to restart talks. Shell activated a strike contingency plan at its joint venture refinery and chemical plant in Deer Park, Texas, to keep operating normally.

10% Of US Refining Capacity Offline After US Oil Workers Stage Largest National Strike Since 1980 -- It's not exactly the same as if Wall Street were to unionize and demand higher wages, but when US energy workers - supposedly the best paid profession away from those who BTFD or BTFATH for a living - go on strike, it is time to pay attention, which is precisely what happened yesterday afternoon, when US union leaders launched a large-scale strike at nine refineries after failing to agree on a new national contract with major oil companies. It marks the first nationwide walkout since 1980 and impacts plants that together account for more than 10% of US refining capacity. The United Steelworkers Union (USW) began the strike on Sunday, after their current contract expired and no deal was reached despite five proposals.

Oil up 11 percent after two-day rally; trade volatile on stock builds  (Reuters) - Oil prices rose strongly again on Monday, tacking on a total of 11 percent over two straight sessions, as some investors bet that a bottom had formed to the seven-month long rout on the market even as others remained pessimistic. Benchmark Brent and U.S. oil futures swung in a band of about $4 a barrel, one of their widest in weeks, as near-term technical signals indicated further gains while fundamental data continued to weigh on the market. "We could get a pretty good bear market correction here to really mess up all the new shorts," said Walter Zimmerman, chief technical analyst at United-ICAP in Jersey City, New Jersey. true "In fact, at this point, I would rather just take profits on shorts and resell if the price low is broken, then just adding to shorts. I absolutely do not want to be adding to shorts down here." Zimmerman said Brent could rise to over $61 a barrel and U.S. crude above $59 as oil prices snap out of oversold territory for the first time in months on concerns that falling U.S. oil rig counts may rein in a market glut.

Oil prices up more as BP joins sector spending cuts (Reuters) - Oil rose more on Tuesday as BP said it will reduce capital expenditure, adding to cuts in investment in the sector and expectations that output will suffer and start to drain a glut. Oil has gained more than 15 percent since Thursday after data showed the number of U.S. drilling rigs had fallen the most in a week in nearly 30 years. Some investors are betting a floor has formed under the market's seven-month-long rout. BP Chief Executive Bob Dudley, tempered expectations of lower production, however, when he said on Tuesday that he expected U.S. oil output to rise until the summer of 2015 when it would flatten. true Brent crude oil futures LCOc1 were up $2.13 cents at $56.88 a barrel as of 1143 GMT. U.S. WTI futures were at $51.33 a barrel, up $1.76 cents. BP announced it would cut capital expenditure by 13 percent to $20 billion in 2015. Last week, Chevron (CVX.N) announced a 13 percent cut in capital expenditure to $35 billion. The announcement of capital expenditure cuts by major oil companies are helping support prices, said Michael Hewson, chief market analyst at CMC Markets. "We've seen a lot of oil companies announce significant cuts in capacity expenditure and reductions in rig counts. What you're getting at the moment is a paring back of expectations as a result of the measures being taken," Hewson said. "The seeds of an oil price recovery are being sown," Bernstein analysts said in a note, warning of downside risk to oil supply in places such as the Gulf of Mexico, the North Sea and Brazil, as companies cut costs in response to a fall of up to 60 percent in oil prices since mid-June.

Massive Crude Inventory Build Sends WTI Crude Plunging Back Towards $50 -- Against Reuters expectations of a 3.25 million barrel build, DOE reports a 6.3 million barrel build... Just 24 hours after Jim Cramer proclaimed, "this smells like a bottom" in crude oil, the crucial commodity (though it is unclear whether lower oil is good or bad today for now) appears to have flushed a few weak hands in a 3-day squeeze and 1430ET ramp-fest as price reasserts to the 'fundamentals' of over-supply and under-demand. WTI has plunged from over $54 at the NYMEX close yesterday to around $50 this morning...

EPA Critique Buoys Keystone Critics After Congress Backs Project - The U.S. Environmental Protection Agency will file a response to a federal study of the Keystone XL pipeline released a year ago, raising the hopes of critics who argue the findings understated the project’s climate risks. EPA Administrator Gina McCarthy said her agency will weigh in on the State Department review that largely blessed Keystone. The cross-border pipeline has become a flashpoint in a fight pitting energy development against environmental protection.  President Barack Obama has vowed to reject the pipeline if it’s found to worsen climate change.  “This EPA letter could be the path for Obama in deciding he doesn’t want this project,” said Bill Snape, an attorney at the Center for Biological Diversity, an environmental group critical of Keystone. “If the president is going to reject this pipeline, you would expect to see some reasoning for it in the EPA letter.”  The pipeline, which would cross three states then connect in Nebraska to a link leading to the Texas coast, has divided the Congress in a debate over energy and climate that analysts say outstrips its relevance to either. The Senate Thursday joined the House to pass legislation that would approve the project without waiting for Obama’s decision, a measure he says he will veto.

EPA Confirms Keystone XL Fails President’s Climate Test -- The U.S. Environmental Protection Agency (EPA) drove what may prove to be the final nail in the coffin for the proposed Keystone XL tar sands pipeline in comments released today, linking the project to an expansion of the tar sands and a significant increase in greenhouse case emissions.  As the Administration concludes its review of Keystone XL, the U.S. EPA’s critique of the proposed tar sands pipeline exposes the project’s impact on climate—an issue that President Obama said would be a threshold issue in deciding whether to allow the project to move forward. The EPA’s letter highlights the Department of State’s conclusion that at prices between $65 to $75 a barrel, “the higher transportation costs of shipment by rail ‘could have a substantial impact on oil sands production levels—possibly in excess of the capacity of the proposed project.'” Observing that the development of tar sands represents a significant increase in greenhouse gas emissions, the EPA’s comments lay the basis for Keystone XL’s rejection as failing the President’s climate test. In light of the EPA’s comments today, it is worth revisiting the terms of President Obama’s climate test for the embattled tar sands pipeline: “But I do want to be clear. Allowing the Keystone pipeline to be built requires finding that doing so would be in our nation’s interests. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution.” —President Barack Obama, Speech at Georgetown University,

January sees five major pipeline leaks - On Thursday, the Senate voted 62 to 36 to approve the Keystone XL tar-sands pipeline, which would move heavy crude oil across the Canada-U.S. border and down to Texas refineries and ports. Nine Democrats joined 53 Republicans in voting for the bill, which now must be reconciled with a House version before heading to President Barack Obama’s desk … and a promised veto.The pipeline needs White House approval because it crosses an international border, but perhaps odder than the futile effort of crafting legislation that is assured a veto is that the latest public push for the massive pipeline comes at the end of a month that has seen more than its share of serious pipeline accidents.  “Maybe this is just how pipelines celebrate January, but all over the country, pipelines new and old are popping off like roman candles,” said MSNBC host Rachel Maddow. Maddow noticed, as did the residents of several states, that there have been five major pipeline ruptures this month. That we know of. The number of major oil- and gas- pipeline accidents has been steadily growing in recent years. A major accident is defined by the U.S. Department of Transportation as one in which a person is killed or hospitalized because of injury, an explosion or fire occurred, more than five barrels of liquid are released or the total cost of the response exceeds $50,000.  In 2014, there were 73 major accidents, according to a review by the Associated Press — an 87 percent increase over 2009.

Is newly discovered Gulf spill oil stuck in the seabed? - Almost five years after the Deepwater Horizon disaster which plunged the Gulf of Mexico into economic and environmental turmoil, oil is still being discovered buried in the seabed. A recent study revealed that six to 10 million gallons of oil has settled into the floor of the Gulf. The author of the study, Jeff Chanton, is a professor of oceanography at Florida State University. ThinkProgress reported last week that Chanton was surprised there wasn’t more oil submerged in the sediment. “Everyone thinks oil is very buoyant and that it just floats on the surface,” he told ThinkProgress. In truth, many had observed crude oil clumping together on the surface, and eventually these clumps became heavy enough to sink on the sea floor. The initial Oil Budget Calculator issued by the federal government did not account for the possibility of finding crude in the Gulf’s depths. The oil’s presence just a few layers into the sediment poses a couple of primary problems. First, it’s accessible to aquatic life that occupies those layers.Chanton said the oil’s position on the sediment’s surface also means that it’s a part of the food chain: the worms and other benthic organisms that live on the seafloor and feed on sediments will ingest the oil, and the contaminants associated with the oil will be passed on to the creatures that eat the worms. That could be a long-term problem for the health of these deepwater Gulf fish, Chanton said. Shifts in sediment also pose a risk, as they could uncover the oil and release it back into the Gulf, exposing aquatic ecosystems to further danger.

Yet More BP Oil Found At Bottom Of Gulf - Scientists already have reported finding what they called a 1,235-square-mile “bathtub ring” of oil on the floor of the Gulf of Mexico left over from the huge 2010 BP oil spill. Now it appears this ring is part of a washroom set: A different team of scientists has found that up 10 million gallons of oil have created what can only be called a “bath mat” beneath the sediment of the gulf’s floor. First the ring. David Valentine and colleagues from the University of California at Santa Barbara wrote in the Proceedings of the National Academy of Sciences in October 2014 that about 10 million gallons of the spilled oil settled on the gulf’s floor. Its size: about the size of the state of Rhode Island. But what about the rest? As much as 200 million gallons of oil were spilled after the Deepwater Horizon oil rig, owned by BP and Anadarko Petroleum Corp., exploded off the coast of New Orleans, killing 11 workers on the rig and injuring 17 more, and allowing oil to gush into the gulf for nearly three months. All that oil has been hard to find. But a team of scientists led by Jeff Chanton found between 6 million and 10 million gallons buried in the sediment at the bottom of the gulf about 60 miles southeast of the Mississippi Delta. Chanton is a professor of oceanography at Florida State University (FSU). Chanton and his colleagues, writing in the journal Environmental Science & Technology, says they determined how oil caused particles in the gulf to accrete, or clump together, then sink all the way to the floor of a body of water.

Gulf of Mexico to see 41.2 million-acre lease auction - As a part of its five-year offshore drilling plan implemented in 2012, the Interior Department has scheduled an offshore oil and gas lease auction for March 18. The Hill reports that the auction will include drilling rights for 41.2 million acres in the Gulf of Mexico. There will be 7,788 blocks of unleased areas in the Gulf which could yield as many as a billion gallons of oil and four trillion cubic feet of gas. The auction will take place in New Orleans, though leases are included off the coast of Mississippi, Alabama and Louisiana. Abigail Ross Hopper, the Bureau of Ocean Energy Management’s new director, called the Gulf an important part of the Obama administration’s energy strategy. In a statement, she noted, “As a critical component of the nation’s energy portfolio, the Gulf holds vital energy resources that can continue to generate jobs and spur economic opportunities for Gulf producing states, as well as further reduce the nation’s dependence on foreign oil.” With oil prices currently experiencing a rollercoaster ride near record lows, the outlook of the Gulf’s oil and gas prospects is unclear. However, companies looking to invest in Gulf typically look at the long-term benefits beyond what the industry hopes will be a brief drop in prices.

Obama's tax hike for oil and natural gas ruffles industry leaders - As a part of President Barack Obama’s budget proposal for the 2016 fiscal year, the president is calling for higher taxes on the oil and natural gas industry valued at roughly $95 billion in revenue. This is the sixth year in a row that similar tax hikes have been proposed. In a released statement, API President and CEO Jack Gerard claimed that the energy tax hike would hinder the very goals expressed in Obama’s recent State of the Union address. “Historically, raising taxes on energy raises costs for consumers,” said Gerard. “America’s oil and natural gas renaissance has done everything on the president’s State of the Union wish list for the middle class. We create well-paying jobs, build infrastructure with private dollars, generate billions of dollars in government revenue, support retirees, and help businesses grow with affordable and reliable energy. This industry is the poster child for middle class economics.” Industry leaders like Gerard are worried that while oil and gas prices remain fairly low on the world market, new taxes will discourage investments. According to a study issued by Wood Mackenzie, tax hikes on oil and natural gas could equate to decreased revenue for the government and fewer jobs offered. Additionally, the study also revealed that allowing more oil and natural gas development on federal lands and waters could create more than 1 million new jobs and raise $127 billion in government revenue in under a decade. “The United States is now the number one producer of oil and natural gas in the world. Tax increases would jeopardize America’s competitiveness as it would discourage future investment. We need policies that will encourage investment, and higher taxes are not the answer,”

"Drillers Are In Denial" Brynjolfsson Warns Crude Bounce Is "One More Head-Fake" -- The latest uptick in crude prices -  Ostensibly, triggered by a notable drop in the Baker Hughes rig count - will be one more head-fake, a false breakout. Keep in mind, oil drilling rigs and oil wells are not the same thing. Armored Wolf's Jon Brynjolfsson expects global inventories to continue to build until at least June. Drillers seem to be in denial, they fail to acknowledge that as long as inventories are building toward untenable levels, there will be extreme pressure on spot crude prices. What they don’t seem to realize is that absent a universal suppliers’ cartel (which OPEC clearly is not, because its members are autonomous, and many of the largest producers, including Norway, Russia, and US are not even members), high social break even prices incentivize individual producers to pump more, not less, oil at low prices!

News Release - Baker Hughes Announces January 2015 Rig Counts: -- Baker Hughes Incorporated (NYSE:BHI) announced today that the international rig count for January 2015 was 1,258, down 55 from the 1,313 counted in December 2014, and down 67 from the 1,325 counted in January 2014. The international offshore rig count for January 2015 was 314, down 24 from the 338 counted in December 2014, and up 12 from the 302 counted in January 2014. The average U.S. rig count for January 2015 was 1,683, down 199 from the 1,882 counted in December 2014, and down 86 from the 1,769 counted in January 2014. The average Canadian rig count for January 2015 was 368, down 7 from the 375 counted in December 2014, and down 136 from the 504 counted in January 2014. The worldwide rig count for January 2015 was 3,309, down 261 from the 3,570 counted in December 2014, and down 289 from the 3,598 counted in January 2014.

US Oil Rig Count Plunges - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. plunged by 87 this week to 1,456 amid depressed oil prices. The Houston firm said Friday in its weekly report 1,140 rigs were exploring for oil and 314 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 plummeted by 41, North Dakota dropped 11, New Mexico was down nine, Colorado fell eight and Oklahoma seven. Kansas and West Virginia each lost four, Ohio and Utah were down two apiece and Louisiana was off one. Alaska, Arkansas, California, Pennsylvania and Wyoming were unchanged.

U.S. oil rig count falls to lowest since Dec. 2011: Baker Hughes (Reuters) - The number of rigs drilling for oil in the United States fell by 83 this week to 1,140 - the lowest since December 2011 - a survey showed on Friday, a clear sign of the pressure that tumbling crude prices have put on oil producers. That was a ninth straight week of declines, oil services firm Baker Hughes Inc said in its widely followed report. Unlike last Friday, when U.S. oil futures jumped higher in the hour after the Baker Hughes report, ending up over 8 percent on the day, there was a more muted reaction this week with U.S. crude holding earlier gains of about 2 percent at $51.50 per barrel. The rig count is down 29 percent from its October peak, although many analysts expect further reductions as firms slash spending plans. "The count is continuing to fall in direct relation to exploration and production companies' reevaluation of the economics and capex budgets," . The number of oil rigs has fallen in 14 of the last 17 weeks since hitting a record high of 1,609 in mid-October. "The drop was consistent with the recent velocity of rig count declines and is about in line with our expectations,"

US Rig Count Collapse Accelerates, Production Stays High -- The worldwide rig count ended January at 3,309, down 261 from December but it is the US and Canada that is dominating that collapse. Following last week's all-time record absolute drop of 94 rigs (over 7%, most since APR09), the oil rig count dropped for the 9th week in a row (down another 83 to 1140 rigs - down 27% in last 9 weeks) as it tracks the 4-mo lagged oil price perfectly. The Permian basin saw the biggest cut in rig count. This is the lowest oil rig count since Dec 2011 (down 19.5% YoY) and lowest total rig count in the US since March 2010 - down 25% in the last 9 weeks). Hopes of production cuts are simply wrong as the last 4 times that rig counts have dropped, no production cuts have occurred.

What The Rig Plunge Really Means For The Price Of Oil - The devil is in the details: The market is likely too excited about falling rig counts. Even after the natural gas experience, the market fails to appreciate that the relationship between rig count and production can be deceptive. Headline rig count declines may look impressive, but as we look at the data, much of the drop in oil rig count has come in low yielding vertical/directional rigs – i.e. the low-hanging fruit. Even within horizontal rigs, much of the decline has come in lower performing plays or lower tier counties within high quality plays. In some cases, we’ve seen a reallocation of rigs between counties within plays. This was particularly prominent in Midland last week. The most productive rigs will likely remain as long as possible, esp where hedges are in place, until redeterminations or cash flow issues force additional cuts.

US Production and Imports - Even before the shale revolution got underway, US net imports were falling. The data below is from the Weekly Petroleum Status Report and is in thousand barrels per day. This chart shows net crude oil and petroleum products imports. Net imports peaked in 2006 and started to fall in earnest in 2008. They continued to fall until 2010 when the three month average increased sharply and the annual average leveled out for about a year. Then as the Light Tight Oil revolution got underway in 2011, net imports started to fall again. The chart above shows net imports bottom out in late spring, March and April and heads back down again in June. Below is the last year of that chart amplified. But in December of 2014 net imports broke their trend and headed sharply up, about four months earlier than normal. Much of this increase in imports had to be caused by declining US production though part of it could be caused by increased consumption because of low prices. The EIA’s Petroleum Supply Monthly is out with US and individual states production numbers for November 2014. Below are some charts from that data. The data is in thousand barrels per day with the last data point November 2014.  US, down 31 kbd to 9,020,000 bpd. This is the first time the US has had a monthly decline that wasn’t blamed on a weather event in quite a while. Texas, up 48 kbd to 3,403,000 bpd. Because of Texas’s reporting procedures the EIA  has to guess at their oil and gas production. And their guess is that Texas oil production is behaving as if oil were still $100 a barrel. I believe there will be some big revisions in this data in a few months. North Dakota, up 3 kbd to 1,187,000 bpd. At least they get North Dakota right. Alaska, up 17 kbd to 517,000 bpd. Alaska always bottoms out in August, for summer maintenance, and peaks in December. The spike down in January 2011 was due to the pipeline leak and had to shut down for several days.

A Primer on the Oil Situation The long decline in oil prices from July 2014 to the present has several causes. Due to faltering major economies (e.g., EU, Japan, Russia, and a slowing of growth in China), the demand for oil diminished. At the same time, American shale oil production was booming. The result was abundant oil in a depressed market for oil, and those circumstances led to a long tumble in oil prices, which may continue. Many enterprises, profitable at $100/bbl., were unable to continue at substantially lower oil prices. The extent of fracking is declining for economic reasons. However, the only because Richard Cheney, VP under President George W. Bush, pushed through laws in 2005 which exempted oil and gas production from these existing laws: Clean Air Act, Clean Water Act, Safe Drinking Water Act, National Environmental Policy Act, Resource Conservation and Recovery Act, Emergency Planning and Community Right-to-Know Act, the Superfund act, and from various toxic reporting requirements (Source Exemptions for hydraulic fracturing under United States federal law) Without those exemptions, fracking would not have been possible.Fracking is horribly polluting via many carcinogenic agents (e.g., benzene and formaldehyde) and a laundry list of other toxics. Fracking sites are not monitored for environmental degradation, as they are exempt from regulation.Fracking is also water-intensive, using an average of about 20 million gallons of water (plus as many as 50 different chemical additives) per well. The water – now more toxic – must be removed from the well and disposed of safely – though there are no known purification processes.People who live and work near fracking sites are often chronically ill from the fumes, and families are often unable to sell and move – most people these days won’t buy a home near a fracked well because of toxics, so families essentially become prisoners in their homes. That we permit fracking is testimony that, as a nation, we value using shale oil more than we value protecting our families from living and working in extremely toxic/carcinogenic conditions.

The capital markets versus the more adventurous drillers - When things are bad in the oil and gas business, the operators tell each other that “the cure for low prices is low prices”. Low prices for the product encourage more use, and discourage drilling and associated development, so supply falls and then prices come back. That may not work so well this time for the US gas industry. The gas-directed exploration and production people in the US industry were hit by price declines much earlier than the oil producers. The Henry Hub futures price strip only hit bottom in the spring of 2012, and has been fitfully recovering since then. Still, even as the oil price drifted down over late summer, and then plunged from October on, the gas people thought they could see the end of their own tunnel. They had what looked like a solid international arbitrage working for them: with gas prices in Asia and continental Europe linked to oil, the US producers had enough of a cost advantage to justify the construction of liquefied natural gas export facilities, along with the associated pipelines and processing plants. These LNG export terminals would start to buoy the US gas price by 2016, just in time to keep the exploration and production people a step ahead of the junk bondholders’ lawyers. The US would be an energy export superpower, and could continue to put off devising a coherent foreign policy. Unfortunately for those depending on this vision, there appears to have been a capital markets supercycle within which the energy supercycle has been spinning. Over the past weeks, there is evidence that the low world oil prices could prolong the period of low US gas prices. Sometimes, it seems, low prices do not cure low prices; they make them lower.

BIS: There’s an oil-debt-dealer nexus -- FT Alphaville has written before about how the pronounced collapse in the price of oil appears very reminiscent of the disintegration in the value of a certain subprime financial asset; both have been swift, disorderly and self-reinforcing. A new report from The Bank for International Settlements emphasises the latter dynamic by drawing a connection between the vast sums of money energy companies have borrowed from investors in recent years as well as the retreat of traditional dealers from certain commodities-related transactions. The new dynamic has imparted a swift and sudden forcefulness to the recent price action in the crude price that goes beyond the effects of a simple change in production and consumption of oil. Here’s what they say:“One important new element is the substantial increase in debt borne by the oil sector in recent years. The greater willingness of investors to lend against oil reserves and revenue has enabled oil firms to borrow large amounts in a period when debt levels have increased more broadly. Issuance by energy firms of both investment grade and high-yield bonds has far outpaced the already substantial overall issuance of debt securities.” Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets (for example, more production is sold forward). Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments … An additional factor that may amplify the oil price decline is that many oil firms located outside the United States have nevertheless borrowed in US dollars [see left-hand panel of Graph 2 below]. This is a key point, because a back-footed energy company with a weak balance sheet is not going to cut back on its physical production until it absolutely has to. It has bills to pay. Big ones. Energy companies are likely to sell assets or seek extra financing in order to pay those bills. If they’re locked out of debt markets they’re likely to seek additional financing that will likely come on punitive terms. In any case, the motivation for many energy firms is to hang on to production for as long as possible, reinforcing the oil price slide.

Nascent U.S. oil export boom stalled by topsy-turvy market  -  Just as the Obama administration is starting to pull down barriers to exporting an abundance of U.S. shale oil, the topsy-turvy global oil markets have thrown up new ones. The stunning 60 percent collapse in oil prices since last summer has upended the relationship between regional markets, briefly pushing U.S. benchmark prices above those for global Brent crude – and effectively closing the arbitrage for exporting processed condensate just as U.S. export regulators began giving some firms the green light to press ahead. For the moment, that’s proving to be a less profitable prospect than many expected. Enterprise Products Partners, which had gained a jump on rivals with export clearance last summer, failed to award a one-year tender to sell processed condensate after a round of low bids, U.S. and Asian trade sources said last week. “The export boom has been postponed,” said John Auers, a consultant at Turner, Mason & Co. in Dallas. It’s been a tumultuous period for would-be exporters. Just a few months ago, dozens of producers were locked in a federal queue waiting for confirmation that they could press ahead with sales of lightly processed shale condensate. In late December, U.S. regulators began giving some firms such as Royal Dutch Shell the green light to go ahead. But as oil prices collapsed, some who secured the sought-after exemption from the four-decade-old export ban are finding it more difficult to find buyers for their crude.

Strikes The Latest Threat Facing U.S. Oil Industry - Workers are on strike at nine oil refineries and chemical plants around the United States in the largest such job action in 35 years. Members of the United Steelworkers union (USW) who are employed by more than 200 US oil terminals and pipelines as well as refineries and chemical plants struck the nine facilities on Feb. 1 after negotiations with several oil companies failed to end in an agreement on wages, safety and benefits. The contract covers 30,000 hourly workers. The negotiations had begun Jan. 21 with a settlement deadline at midnight, Jan. 31. The USW had rejected five offers by the companies lead negotiator, Royal Dutch Shell, the Anglo-Dutch oil giant representing several large oil companies operating in the United States, including Chevron Corp. and Exxon Mobil Corp. “Shell refused to provide us with a counter-offer and left the bargaining table,” USW International President Leo Gerard said. “We had no choice but to give notice of a work stoppage.”  From Shell headquarters in The Hague, Netherlands, company spokesman Ray Fisher said Shell was eager to resume negotiations. “We remain committed to resolving our differences with USW at the negotiating table and hope to resume negotiations as early as possible,” he said. Although picket lines were set up at nine of the companies’ facilities, only one has restricted production. But a walkout affecting all 200-plus facilities would stall up to 64 percent of American fuel production.

Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk  - Ratings agency Fitch had already warned about Canada’s magnificent housing bubble that is even more magnificent than the housing bubble in the US that blew up so spectacularly. “High household debt relative to disposable income” – at the time hovering near a record 164% – “has made the market more susceptible to market stresses like unemployment or interest rate increases,” it wrote back in July. On September 30, the Bank of Canada warned about the housing bubble and what an implosion would do to the banks: It’s so enormous and encumbered with so much debt that a “sharp correction in house prices” would pose a risk to the “stability of the financial system”  Then in early January, oil-and-gas data provider CanOils found that “less than 20%” of the leading 50 Canadian oil and gas companies would be able to sustain their operations long-term with oil at US$50 per barrel (WTI last traded at $47.85). “A significant number of companies with high-debt ratios were particularly vulnerable right now,” it said. “The inevitable write-downs of assets that will accompany the falling oil price could harm companies’ ability to borrow,” and “low share prices” may prevent them from raising more money by issuing equity. In other words, these companies, if the price of oil stays low for a while, are going to lose a lot of money, and the capital markets are going to turn off the spigot just when these companies need that new money the most. Fewer than 20% of them would make it through the bust.

Arctic Oil On Life Support -- Oil companies have eyed the Arctic for years. With an estimated 90 billion barrels of oil lying north of the Arctic Circle, the circumpolar north is arguably the last corner of the globe that is still almost entirely unexplored.  As drilling technology advances, conventional oil reserves become harder to find, and climate change contributes to melting sea ice, the Arctic has moved up on the list of priorities in oil company board rooms. That had companies moving north – Royal Dutch Shell off the coast of Alaska, Statoil in the Norwegian Arctic, and ExxonMobil in conjunction with Russia’s Rosneft in the Russian far north.  But achieving the goals of tapping the extensive oil reserves in the Arctic has been much harder than previously thought. Shell’s mishaps have been well-documented. The Anglo-Dutch company failed to achieve permits on time, had its drill ships run aground, and saw its oil spill containment dome “crushed like a beer can” during testing. That delayed drilling for several consecutive years.  However, the first month of 2015 has darkened Arctic dreams even further. Oil companies are scratching their heads trying to figure out how to deal with a collapse in oil prices, now below $50 per barrel. With virtually every upstream company around the world slashing spending, it is the highest-cost and riskiest projects that are getting scrapped first.  After having watched Shell fumble its Arctic campaign, Statoil put its drilling plans off the coast of Alaska on ice. But now with rock-bottom oil prices, Statoil has even shelved Arctic drilling plans in its own backyard.

Scotland adds to growing list of places that ban fracking - Scotland banned hydraulic fracturing Jan. 29, implementing an indefinite moratorium while the government studies environmental and health impacts of the oil and gas drilling technique, according to the BBC. Scottish officials told the BBC they’ll investigate concerns over the technique ranging from earthquakes to water pollution. The Midland Valley shale play in central Scotland is estimated to hold about 80 trillion cubic feet of gas and 6 billion barrels of oil.The nation joins a small but growing group of U.S. communities and international governments that have prohibited fracking. The Scotish ban came two days after a similar ban was voted down in the United Kingdom. Fracking is largely responsible for boosting U.S. production to record levels.In the United States, voter resolutions for the Nov. 2014 midterm elections led to fracking bans in Denton, Texas, two California counties and an Ohio city. Boulder County, Colorado, extended a 2012 ban pending the release of a National Science foundation study on environmental effects, slated for release in 2017.In December, New York became the first state to prohibit fracking, following a four-year statewide moratorium on the practice.  Fracking is also currently prohibited in Germany, Northern Ireland, France and Bulgaria.

Leaked Document Could Shatter UK Shale Dreams -- U.K. Prime Minister David Cameron’s hopes for a British-style shale gas revolution recently took a major hit. Cameron has promised that his government will be “going all out” to develop Britain’s shale gas resources, which he argues will create new jobs and cut dependence on imported gas. But a committee made up of members of parliament (MPs) from several political parties issued a damning new report on the state of “fracking” in the United Kingdom. The Environmental Audit Committee published a report that called for a 30-month moratorium on fracking, citing “huge uncertainties” regarding the environmental fallout from widespread drilling. On top of the usual controversies over water supplies, the report says that allowing fracking will upend British climate change goals. “Ultimately fracking cannot be compatible with our long-term commitments to cut climate-changing emissions unless full-scale carbon capture and storage technology is rolled out rapidly, which currently looks unlikely,” MP and Committee Chair Joan Walley said. “There are also huge uncertainties around the impact that fracking could have on our water supplies, air quality and public health.” The committee report was a political bombshell in London, but the House of Commons overwhelmingly shot down an amendment – by a vote of 308 to 52 – on January 26 that would have banned fracking outright.

Fracking war: North Africa - At the beginning of January, anti-fracking protests took a serious turn in In Salah, a small town in Algeria, and spread to neighboring towns in the area.  Despite the government’s announcement that further expansion in developing shale gas reserves has been halted–due to public concern of the environmental impacts–protests have continued on. In Salah is located 750 miles south of the capital of Algiers and is home to about 36,000 people.  Since January 1st, residents protesting against the government’s proposed plans to use fracking to extract shale gas in the region have been relentless.  During the week of January 19th, protests expanded to other cities across southern Algeria and into the northern coastal cities of Algiers and Oran. In Algeria, oil revenue accounts for 60 percent of the national budget.  The government has been attempting to diversify the country’s income stream by developing unconventional resources, such as shale gas.  Algeria’s government says that shale gas operations will aid the country’s energy transition. During December 2014, Algerian energy minister Youcef Yousfi said that shale gas test drilling in the Ahnet Basin, located 20 miles south of In Salah, showed promising results and deemed the first fracking operation very successful.  However, in July 2013, Algerian Prime Minister Abdelmalek Sellal announced that the government was only conducting surveys, and fracking would not occur until at least 2024.  Many residents are worried that with Yousfi announcing the success in the test drilling, fracking will start before 2024, even though the prime minister stated it wouldn’t.  According to the U.S. Energy Information Administration, Algeria is ranked third for recoverable shale gas resources, falling behind only China and Argentina.

This New Project Changes The Global Oil Market: We saw one of the most significant shifts in a long while for energy markets last week. With a key pipeline opening that will radically change global flows of crude oil. The project in question is the China-Myanmar oil pipeline. Which Chinese state media said on Thursday has now opened for test runs. The pipeline is one of the most ambitious constructions the global energy sector has seen. Running 771 kilometres from Myanmar’s western coastal port of Kyaukphyu, across the entire length of that country, and into the Chinese city of Kunming. The diagram below from Stratfor shows the route. The line has been an ongoing project for years now. With construction having begun in 2010, and been completed in May 2014. A twin natural gas pipeline that’s also part of the development was put into operation last year. The size of the pipeline is notable. But its location is even more significant when it comes to the worldwide movement of oil. The pipe provides the first overland access between China and shipments of crude sailing from the Middle East. Up until now, Middle East tankers were forced to sail through the Straits of Malacca between Indonesia and Malaysia in order to reach Asian buyers. A route that’s noted to be treacherous, and which adds almost two weeks to the journey for an average Saudi Arabia-to-Shanghai shipment.

Saudis Re-Unleash Oil Weapon, Slash Asia Prices By Most In 14 Years -- "This is further evidence that they are hellbent on protecting their market share in China," warns one strategist as just when US talking-heads thought things were 'stabilizing' Saudi Aramco slashes its official selling price for Arab Light crude by 90 cents to $2.30 a barrel less than Middle East benchmarks - the biggest discount in 14 years. As Bloomberg reports, the desert kingdom is continuing to fight for market share, and using the oil weapon by "trying to stay competitive in what is the biggest area of growth," as Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia.

Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad - — Saudi Arabia has been trying to pressure President Vladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices.Saudi Arabia and Russia have had numerous discussions over the past several months that have yet to produce a significant breakthrough, according to American and Saudi officials. It is unclear how explicitly Saudi officials have linked oil to the issue of Syria during the talks, but Saudi officials say — and they have told the United States — that they think they have some leverage over Mr. Putin because of their ability to reduce the supply of oil and possibly drive up prices. “If oil can serve to bring peace in Syria, I don’t see how Saudi Arabia would back away from trying to reach a deal,” a Saudi diplomat said. An array of diplomatic, intelligence and political officials from the United States and the Middle East spoke on the condition of anonymity to adhere to protocols of diplomacy.Any weakening of Russian support for Mr. Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft. Saudi officials have said publicly that the price of oil reflects only global supply and demand, and they have insisted that Saudi Arabia will not let geopolitics drive its economic agenda. But they believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad. Mr. Putin, however, has frequently demonstrated that he would rather accept economic hardship than buckle to outside pressures to change his policies. Sanctions imposed by the United States and European countries have not prompted Moscow to end its military involvement in Ukraine, and Mr. Putin has remained steadfast in his support for Mr. Assad, whom he sees as a bulwark in a region made increasingly volatile by Islamic extremism.

Terrorism Works? UAE Suspends ISIS Attacks, Threatens To Pull Out Of Coalition -- Following the disgusting images of a Jordanian pilot being burned (allegedly) burned alive by ISIS yesterday, the US coalition against the terrorists appears to be faltering. As The NY Times reports, The United Arab Emirates, a crucial Arab ally in the American-led coalition against the Islamic State, suspended airstrikes against the Sunni extremist group in December, citing fears for its pilots’ safety. The UAE made it clear its pilots will not return to the fight until the Pentagon improve its search-and-rescue efforts, shifting the base of support from Kuwait to Iraq, after foreign minister, Sheikh Abdullah bin Zayed bin Sultan Al Nahyan, "let [Barabara Leaf] have it over this," the new American ambassador, why Central Command, in his country’s view, had not put proper assets in northern Iraq for rescuing downed pilots.

Pre-9/11 Ties Haunt Saudis as New Accusations Surface - During the 1980s and ’90s, the historic alliance between the wealthy monarchy of Saudi Arabia and the country’s powerful clerics emerged as the major financier of international jihad, channeling tens of millions of dollars to Muslim fighters in Afghanistan, Bosnia and elsewhere. Among the project’s major patrons was Prince Salman Bin Abdulaziz al-Saud, who last month became Saudi Arabia’s king.Some of those fighters later formed Al Qaeda, which declared war on the United States and later mounted major attacks inside Saudi Arabia as well. In the past decade, according to officials of both the George W. Bush and Obama administrations, the Saudi government has become a valuable partner against terrorism, battling Al Qaeda at home and last year joining the American-led coalition against the extremists of the Islamic State.Continue reading the main story Saudi Arabia continues to be haunted by what some suspect was a tacit alliance with Al Qaeda in the years before the Sept. 11, 2001, terrorist attacks. Those suspicions burst out in the open again this week with the disclosure of a prison deposition of a former Qaeda operative, Zacarias Moussaoui, who claimed that more than a dozen prominent Saudi figures were donors to the terror group and that a Saudi diplomat in Washington discussed with him a plot to shoot down Air Force One.

Saudis Drop Major US-based Media Mouthpiece, Sell News Corp Stake After 18 Years -  With the fog of economic war clearing just enough to get a glimpse of the real narrative in the Saudi-US-Syria-Qatar-Russia-Europe chaos, we found it more than a little intriguing that, as Reuters reports, Saudi Arabia's Kingdom Holdings - the investment firm owned by billionaire Prince Alwaleed bin Talal - sold most of its stake in media giant News Corp. While stating that they "remain firm believers in News Corp’s competent management," no reason for the sale was given of the US-based media mouthpiece that has been a core holding since 1997.

New King Orders $29 Billion 'Handouts', Tells Saudi People: "You Deserve More" -- Because nothing says "we really do fear social unrest... and please stick with the new king" like Saudi Arabia spewing a massive $29.3 billion spending program that include lavish payments of two months bonus salary to all Saudi state employees and a series of subsidies. As al-Arabiya reports, King Salman bin Abdulaziz has issued a number of decrees because - as he wrote on Twitter (which you may remember is considered "the source of all evil" by the Grand Mufti of Saudi Arabia) "Dear Citizens, you deserve more," adding "do not forget to include me in your prayers."

Global deflation risk deepens as China economy slows - The risk of global deflation looms large for 2015 as surveys of China’s mammoth manufacturing sector showed excess supply and insufficient demand in January drove down prices and production. While the pulse of activity was livelier in Japan, India and South Korea, they shared a common condition of slowing inflation. “The slide in global oil prices and inflation has turned out to be even bigger than anticipated,” said David Hensley, an economist at JP Morgan, and central banks from Europe to Canada to India have responded by easing policy. “What is now in the pipeline will help extend the near-term impulse from energy to economic growth into the second half of the year.”  A fillip was clearly necessary in China where two surveys showed manufacturing struggling at the start of the year. The HSBC/Markit Purchasing Managers’ Index (PMI) inched a up a fraction to 49.7 in January, but stayed under the 50.0 level that separates growth from contraction. More worryingly, the official PMI – which is biased towards large Chinese factories – unexpectedly showed that activity fell for the first time in nearly 30 months. The reading of 49.8 in January was down from 50.1 in December and missed forecasts of 50.2. The report showed input costs sliding at their fastest rate since March 2009, with lower prices for oil and steel playing major roles. Ordinarily, cheaper energy prices would be good for China, one of the world’s most intensive energy consumers, but most economists believe the phenomenon is a net negative for Chinese firms because of its impact on ultimate demand.

China pumps $100 billion into banks to boost economy - China is acting to prevent a slowdown in the world's second largest economy from getting out of hand. The country's banks have been told they can keep less cash in reserve, a move the central bank hopes will encourage them to lend more to stimulate activity. Economic growth slowed last year to 7.4%, just below the government's official target and the weakest pace in 24 years. Data releases since then have pointed to a further loss of momentum -- the latest official survey of activity in China's huge manufacturing industry showed prices and production falling. And the rate of growth across manufacturing and services was the weakest in eight months in January, according to an HSBC survey. "Given continued contraction of the manufacturing sector, we believe more easing measures are warranted to support growth in the coming months,"

Impact Of China 0.5% RRR Cut Is Equivalent To RMB 630 Billion Liquidity Injection, Goldman Finds - To say that the PBOC is confused at this moment is a very big understatement: on one hand, yesterday the PBOC moved its reference rate for the yuan outside the daily trading band for the first time in 21 months, forcing the currency to strengthen as authorities seek to limit volatility in capital flows. And then just hours later, as reported first thing this morning, the same PBOC announced its broad RRR cut - the first one since May 2012 -  an attempt to ease ongoing, and thus tightening, capital outflows, and pushing the currency lower in the process. In short: unlike other central banks who hope that institutional and retail investors figure out their FX intentions and help them out by "frontrunning" their moves (which may never come) in what is now a clear and global currency war, China is certainly not making it easy for FX traders to figure out what will happen next.

Early Look: Deflation Clouds Loom Over China’s Economy -  Curbing rapidly rising prices used to be a top priority of China’s policy makers, but things have changed. In fact, last month, the country likely experienced its slowest increase in prices since the global financial crisis. The consumer-price index, a main gauge of inflation, likely rose only 0.9% from a year earlier, according to a median forecast of 13 economists surveyed by the Wall Street Journal. That would be much lower than December’s on-year increase of 1.5%. “Deflation risks are becoming more real,” Jian Chang, an economist of Barclays, said in a research note. Falling inflation has pushed up the real interest rate and increased debt burdens on companies, Ms. Chang said. AdvertisementLower oil prices, weak domestic demand and a comparison with a higher base may have trimmed January’s inflation to the lowest level since November 2009, when the CPI rose 0.6%, economists noted. Meanwhile, deflation in the producer-price index, which tracks prices paid at the factory gate, may have continued to worsen in January, falling 3.7% on-year after a 3.3% drop in December, economists said. That means China has seen industrial deflation for nearly three years. Prolonged deflation eats into companies’ profit margins and makes it difficult for them to make payments for their purchases. Over time, it can eventually lead to job losses. “It is time for the central bank to shift its focus from preventing financial risks to counteract low inflation and support economic growth,”

China’s Total Debt Load Equals 282% of GDP, Raising Economic Risks - China’s overall debt load has risen quickly since the global financial crisis. While still manageable, it raises some concerns for investors, the McKinsey Global Institute says in a new report. The prospect of a major economic slowdown in China is among the key concerns for policy makers and investors in a turbulent global outlook. Many believe the Chinese government has the resources to manage a smooth transition to a slower growth rate without causing a financial crisis. But the speed of Chinese debt growth, much of it related to real estate, raises risks that an unwinding unwinding of the country’s two-decade growth boom might not go down so smoothly.  Here are some key facts from the report.

  • Total Debt Equals 282% of GDP: That’s how big China’s total debt load, including borrowing by the government, banks, corporations and households, had gotten by the middle of 2014, the report says. That’s far above the average for developing countries and higher than some advanced economies including Australia, the United States, Germany and Canada.
  • One-Third of Global Debt Growth: China’s economy, the world’s second-largest, has added $20.8 trillion in new debt since 2007, accounting for more than a third of total debt growth globally in that period.
  • Corporate Debt Soars, Especially in Real Estate: The largest driver of this growth has been borrowing by non‑financial corporations, including property developers. At 125% of GDP, China now has one of the highest levels of corporate debt in the world.

Is the $1tn China carry trade imploding? China is not short of economic headaches. Overborrowed and overbuilt, its parlous state prompted the World Bank last month to warn of the potential for a “disorderly unwinding of financial vulnerabilities” that could clobber global growth. The admonition assumes extra significance as a swelling torrent of “hot money” cascades out of China, depriving some of the country’s most risky assets of the liquidity that has kept valuations buoyant over the past few years.  In the fourth quarter of last year, net outflows from China’s capital account reached a record of $91bn, following an outflow of $56.7bn in the third quarter. The chart to the left shows the impact that the receding funds are having on the capital account, creating a “new normal” of quarterly deficits and driving down China’s vast stock of foreign exchange reserves, which currently stand at $3.84tn. Analysts say these outflows reveal an unwinding of the “China carry trade”, through which speculators have borrowed short-term from overseas banks at relatively low interest rates and then invested in high-yielding Chinese assets amid expectations of a renminbi appreciation. “As for the source of outflows, we believe that the unwinding of carry trades, and other speculative short-term flows, has played a major role,” said Jason Daw at Societe Generale in Singapore. “Outflows in those short-term accounts are likely to remain sizeable,” he added.

This currency would be great if it wasn’t for the market, RMB edition  - “China reported the largest deficit in its capital and financial account in more than a decade for the last quarter of 2014, the latest evidence showing that capital is flowing out of the country,” you say?  It “recorded a deficit of $91.2 billion in the period under its capital and financial account, which covers investments, the State Administration of Foreign Exchange said Tuesday, based on preliminary estimates,” you add? A Great FX Outflow, indeed.  It’s also a reminder of what market forces look like when acting on the CNY — and of China’s limitations where ECB-aggravated currency wars are concerned. From SocGen: The CNY has depreciated by about 2% against the USD since the end of Q3 14. We see clear evidence that the current episode of weakness is driven by market forces, and the PBoC has been trying to limit the depreciation. The situation is quite different to in Q1 14, when the CNY depreciated by nearly 3%. A year ago, the onshore USD/CNY spot rate remained close to the bottom of the trading band during the first few weeks of depreciation (Chart 1), while the PBoC’s foreign assets continued to expand. In contrast, since mid-December, the onshore spot rate has been trading at more than 1% above the PBoC’s daily reference rate. Over the month, the PBoC’s foreign assets contracted by CNY 128.9bn (Chart 2), which was the second-biggest monthly drop ever. Unlike the series of official FX reserves, the PBoC’s balance sheet figures are not subject to changes in currency valuation. Such a big decline in its foreign assets provided unambiguous evidence of the PBoC’s intervention to support the yuan.

Did China just join the global currency wars? - The People’s Bank of China has joined its global peers in adopting a looser monetary policy to boost the country’s slowing economy. The central bank cut the reserve requirement ratio -- or the amount of deposits that banks must hold in reserve with the central bank -- by 0.5 per cent to 19.5 per cent for large commercial banks. It provides additional easing to smaller banks that have met the lending target to small and medium sized enterprises, slashing the reserve-requirement ratio by another 0.5 per cent. This is the first time the central bank has slashed the reserve ratio since May 2012. Chinese banks hold 113.86 trillion yuan in deposits. The across-the-board cut in the reserve ratio will free up 570 billion yuan’s worth of cash for the banks to lend out. The additional cut for smaller banks will add another 130 billion yuan to the total. The People’s Bank has been reluctant to cut interest rates or lower th  e reserve ratio in recent times due to concerns about building up more debt to the already highly leveraged corporate, as well as local government, balance sheets. Why did the central bank finally cut the reserve ratio?It wants to boost confidence. Chinese GDP growth in 2014 was one of the slowest periods on record. The country’s manufacturing sector also contracted for the first time since September 2012 with the official PMI falling to 49.8 -- below the expansion threshold. Economists are predicting an even tougher year ahead for 2015.

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

Commodities crash: Bad news for the world economy, but is anyone listening? -- Reading the general run of financial headlines might lead one to believe that price declines in those commodities which are highly sensitive to economic conditions such as iron ore, copper, oil, natural gas, coal, and lumber are good on their face.  Obviously, the declines aren't good for those who sell these commodities. But, those of us who buy these commodities in the form of cars, houses, utility bills and other products and services ought to be helping the world economy as we buy more stuff with the freed up income. As true as that may be, these commodity price declines also signal something else: exceptional weakness in the world economy. It is no secret that economic growth in Europe has been stalled for some time and is now receding. The European Union's confrontation with Russia over the Ukraine conflict and the resulting tit-for-tat economic sanctions levied by both sides are only worsening the economic climate. Russia has been hit by the double whammy of oil price declines and sanctions which are probably sending the country into recession. And, now the new anti-austerity government in Greece seems to be pushing Europe headlong into another Euro crisis as worries about Greek debt default spread. Chinese economic growth appears to be faltering. And, that seems to be one of the direct causes of the broad-based commodities price decline. A fast growing China has previously created enormous demand for basic commodities needed to build out its infrastructure--commodities such as copper, iron ore and the petroleum products needed to run all the vehicles and machines essential to that build-out. Lower growth makes it difficult for the country to provide work for all those who are leaving the countryside and streaming into the cities as China industrializes.Commodity-exporting nations such as Canada, Brazil and Australia have taken a big hit on declining Chinese and world demand.

Some Economists See Spell of Deflation Ahead for Japan - Some economists are betting Japan will slip back into deflation, at least for a time, in coming months as the effects of cheaper crude oil outweigh those of the weaker yen. Others are more upbeat, saying price falls are likely to be avoided and that in any case inflation will likely pick up later in the year as those lower oil prices help fuel gains in consumer spending and business investment. Japan’s core consumer price index–which strips out volatile food prices–slowed against last month to 0.5%, after excluding the effects of a sales-tax increase last year. That was the lowest level in 16 months, as the Bank of Japan strives to reach 2% inflation by around spring 2016 and defeat the Japanese people’s long-entrenched “deflationary mindset.” Most economists say further price weakness is to come before the benefits of lower oil prices are felt, and expect the BOJ to implement additional monetary easing. They differ mostly on timing and degree. SMBC Nikko chief economist Junichi Makino takes a pessimistic view. He said he expects core inflation to hit negative territory by February, prompting the BOJ to take additional action in April at the latest.HSBC sees Japan slipping into deflation in March, with the BOJ taking action as early as April, it said in a note Friday. On the other hand, Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management, said he doesn’t believe core CPI will hit negative territory because some companies are starting to raise prices and wage increases are expected. In any case, he said, the positive effects of lower energy prices will outweigh the negative over the longer term. He doesn’t expect the BOJ to take additional action this year.

"We Just Need To Print More Money" Bank Of Japan's New Board Member Clarifies Endgame - The Abe administration nominated a major proponent of reflationary monetary policy to the central bank’s board, buttressing Governor Haruhiko Kuroda’s efforts to save the nation from the dread of deflation. As Bloomberg reports, economist Yutaka Harada, who will replace Ryuzo Miyao, has said Japan can beat deflation by printing money in a 2013 book "Reflationary Policy Revives Japan’s Economy." So far that is not working so try harder... “The nomination is a good news for Kuroda... he will keep a majority on the board and win what he wants." Why such good news? As deputy director at the finance ministry’s Policy Research Institute, Harada exclaimed, "we just need to print money."

Central Banks in India and Australia Take Steps to Lift Growth - — Two more central banks have joined the growing international trend toward monetary stimulus as an antidote for weak global demand, as India on Tuesday reduced the reserves that commercial banks must hold while Australia cut its benchmark interest rate to a low.The Indian action was aimed at freeing banks to lend more instead of parking money in government bonds, while the Reserve Bank of Australia sought to directly reduce the cost of borrowing. Both actions were intended to encourage companies and individuals to borrow, spend and invest.The two central banks joined the European Central Bank, the Central Bank of Russia, the Bank of Canada, the Monetary Authority of Singapore and others in recent weeks that have taken measures to bolster their economies. Raghuram G. Rajan, the governor of the Reserve Bank of India, said at a news conference that he had not yet seen enough economic data to justify a further interest rate cut beyond the reduction of 0.25 percentage points he made on Jan. 15.

Modi can handle China ties without US help -- Reports about India backing China containment, post-Obama visit, are blinkered. Both India and China are key centres in an emerging polycentric world order. The U.S. fears their genuine reconciliation undermines western hegemony. But the civil nuclear deal, described as the centrepiece of new understanding with the U.S., could be a damper on the future of India’s indigenous technology. Modi’s challenge is Make in India in nuclear sector. President Barack Obama’s recent visit to New Delhi has generated a lot of speculation that India’s foreign policies under Prime Minister Narendra Modi’s leadership are slouching toward an alliance between the two countries with the shared objective of finessing the rise of China. The pro-American lobbyists in the Indian media have gone to town celebrating a so-called “new entente” with the US. Is there an entente, really? If so, is it altogether new? Is an entente necessary at all? Frankly, this is all becoming a bit like what Lao Tzu, the great philosopher and poet of ancient China, once said, ‘Those who know do not speak. Those who speak do not know.’ We simply do not know how far those who speak for Mr. Modi’s mind are in fact speaking for him. The high probability is – not one of the lobbyists.

Rajan Says U.S. Must Accept Strong Dollar as Fed Normalizes -- India’s central bank chief said the U.S. will have to accept a stronger exchange rate as the Federal Reserve turns toward raising interest rates for the first time since 2006. “The Fed will have to start at some point normalizing interest rates,” Raghuram Rajan, 52, said in an interview with Bloomberg TV India at the Reserve Bank of India headquarters in Mumbai. “Unless the Fed starts doing it, others aren’t going to follow suit. And the Fed, when it does that, will have to accept some appreciation of the dollar simply because it’s the first one out of the box.” He also warned Indian firms against borrowing in dollars, likening it to “Russian roulette.” The remarks Wednesday were among the most explicit yet among Group of 20 policy makers laying out expectations for the U.S. to resign itself to a stronger dollar. Appreciation in the currency, spurred by the U.S. economy outperforming most of its industrialized counterparts, already has damaged earnings at American companies including DuPont Co. and Procter & Gamble Co. Speaking days before G-20 finance chiefs meet in Istanbul Monday and Tuesday, Rajan said that there has been “noise” about exports not being as strong because of a stronger dollar. The Fed’s policy-setting Open Market Committee in its Jan. 28 statement said “international developments” would contribute to deciding how long to keep the benchmark rate near zero.

India: GDP growth rate up, confidence in statistics down? -- Have a chart Credit Suisse’s Neelkanth Mishra put out back in 2013, the same Neelkanth Mishra who has been arguing persuasively that if “activity in informal industries and rural areas were properly measured, India’s GDP would look bigger and more stable”:  Take from that what you will, but do keep in mind somewhere around half of India’s GDP and 90 per cent of it’s employment are informal, so GDP reporting isn’t the easiest task. As Mishra said in a previous note, “Unlike in the developed economies where informality is purely a deliberate choice to avoid taxation or regulations, in India it is more structural: a reflection of the lack of development and limited government reach.” So even if China and India both occupy the same area on the volatility of GDP table, it’s unfair to group them together on much bar the questionable amount of useful data to be found in two such static series. Unfair on India, that is.  Anyway… A new GDP series for India with FY12 as the base year was published last week* showing the economy growing by 6.9 per cent during the 2014 financial year, up from the previous figure of 4.7 per cent. As the FT reported, Indian growth for the financial year ending in March 2013 was also revised up, from 4.7 per cent to 5.1 per cent, in the changes announced by India’s Central Statistical Organisation. All very nice, but perhaps it’s not the upward revision to the growth rate we should concentrate on.For one, despite expectations of an increase in absolute GDP by up to 10 per cent, we got a verdict of “no change”. Colour those, like Mishra, who saw room for a serious upgrade, surprised. More on that below from Capital Economics but, for comparison, the past three series changes have coincided with upward revisions to the GDP, led mostly by services.

Baltic Dry Plunges At Fastest Pace Since Lehman, Hits New 29 Year Low -- The Baltic Dry Index dropped another 3% today to 590 - its first time below 600 since 1986 and not far from the all-time record low of 554 in July 1986. Of course, the absolute level is shrugged off by the over-supply-ists and the 'well fuel prices are down'-ists but the velocity of collapse (now over 60% in the last 3 months) suggests this far more than some 'blip' discrepancy between supply and demand - this is a structural convergence of massive mal-investment meets economic reality.

Baltic Dry Crashes To New 29-Year Low -- And the collapse just keeps going... since Thanksgiving, The Baltic Dry has fallen on 43 or the 47 days, down over 60% from the "China growth is back and all-is-well" hope-filled days of late October (when Jim Cramer "stressed the importance of watching the Baltic Dry Freight Index," as his bullish thesis confirmation). At 569, The Baltic Dry is inching ever closer to what will be the lowest level ever (554 on 7/31/1986) for the global shipping cost indicator...

Bulk Shipping Bankruptices Begin As Baltic Dry Collapse Continues - With one of the world’s leading dry bulk shipping companies, Copenhagen-based D/S Norden, having made huge losses for the last 2 years and expected to report dramatic losses in 2014 also, it is hardly surprising that the smaller bulk shipping firms are struggling as The Baltic Dry Index collapses ever closer to record all-time lows. As Reuters reports, privately-owned shipping company Copenship has filed for bankruptcy in Copenhagen after losses in the dry bulk market, with the CEO exclaiming, "we have reached a point where there is not more to do." We suspect, given the crash in shipping fees, that this is the first of many...

Lew: Global Economy Can’t Depend Just on the U.S. for Growth - The Obama administration feels pretty good about the U.S. economy. Now, it’s the rest of the world keeping his advisers on edge. Treasury Secretary Jacob Lew underscored those concerns in testimony to Congress Tuesday, where he promoted President Barack Obama‘s 2016 budget. “While the recovery in the U.S. economy has helped to drive global growth, the rest of the world cannot depend on the United States to be the sole engine of growth,” he said in remarks to the House Ways and Means Committee. World leaders had agreed at recent summit in Brisbane, Australia, that “more needs to be done to stimulate domestic demand around the world,” he said. “We cannot do it alone.” Mr. Lew observed last month that, when he became Treasury secretary two years ago, “we were just getting to the point where the world stopped blaming the United States for the financial crisis, and now we’re at a point where everyone marvels at the durability of the U.S. economy, the resilience of the U.S. economy, how we bounced back.” Gross domestic product, the broadest measure of goods and services produced across the U.S., notched an annual growth rate of 2.4% last year, the government said last week. That’s a touch better than the average of the nearly six-year-old recovery, but well below the 4% growth of the late 1990s.

What the market doom-and-gloomers fail to grasp about anemic growth - Roubini — Who would have thought that six years after the global financial crisis, most advanced economies would still be swimming in an alphabet soup — ZIRP, QE, CE, FG, NDR, and U-FX Int — of unconventional monetary policies? No central bank had considered any of these measures (zero interest rate policy, quantitative easing, credit easing, forward guidance, negative deposit rate, and unlimited foreign exchange intervention) before 2008. Today, they have become a staple of policy makers’ toolkits. Indeed, just in the last year and a half, the European Central Bank adopted its own version of FG, then moved to ZIRP, and then embraced CE, before deciding to try NDR. In January, it fully adopted QE. Indeed, by now the Fed, the Bank of England, the Bank of Japan, the ECB, and a variety of smaller advanced economies’ central banks, such as the Swiss National Bank, have all relied on such unconventional policies. One result of this global monetary-policy activism has been a rebellion among pseudo-economists and market hacks in recent years.This assortment of ‘Austrian’ economists, radical monetarists, gold bugs and bitcoin fanatics has repeatedly warned that such a massive increase in global liquidity would lead to hyperinflation, the U.S. dollar’s collapse, sky-high gold prices, and the eventual demise of fiat currencies at the hands of digital cryptocurrency counterparts.  None of these dire predictions has been borne out by events.

Global debts rise $57tn since crash: After the explosion of borrowing in the boom years that led to the great crash and recession of 2007-08, most governments - especially those of rich developed countries - said they would embark on policies that would lead to greater saving, debt reduction and what's known as deleveraging. They implied they would encourage prudence, so that the sum of household, business and government debt would fall. So what has actually happened to global debt? According to a new study by the influential consultancy McKinsey Global Institute, global debt has grown by $57tn or 17 percentage points of GDP or worldwide income since 2007, to stand at $199tn, equivalent to 286% of GDP. And the single biggest contributor to the rise and rise of global indebtedness is that government debts have increased by $25tn over these seven years. What is striking is that of 47 big economies, only five - Israel, Egypt, Romania, Saudi Arabia and Argentina - have actually succeeded in reducing their debts. But a further five have seen massive increments in their indebtedness: the debts of China have risen by 83 percentage points, Portugal's by 100 percentage points, Greece's by 103 percentage points, Singapore's by 129 percentage points and Ireland's by 172 percentage points.

Debt mountains spark fears of another crisis - The world is awash with more debt than before the global financial crisis erupted in 2007, with China’s debt relative to its economic size now exceeding US levels, according to a report. Global debt has increased by $57tn since 2007 to almost $200tn — far outpacing economic growth, calculates McKinsey & Co, the consultancy. As a share of gross domestic product, debt has risen from 270 per cent to 286 per cent.  McKinsey’s survey of debt across 47 countries — illustrated in an FT interactive graphic — highlights how hopes that the turmoil of the past eight years would spur widespread “deleveraging” to safer levels of indebtedness were misplaced. The report calls for “fresh approaches” to preventing future debt crises. “Overall debt relative to gross domestic product is now higher in most nations than it was before the crisis,” McKinsey reports. “Higher levels of debt pose questions about financial stability.” Overall, almost half of the increase in global debt since 2007 was in developing economies, but a third was the result of higher government debt levels in advanced economies. Households have also increased debt levels across economies — the most notable exceptions being crisis-hit countries such as Ireland and the US. “There are few indications that the current trajectory of rising leverage will change,” the report says. “This calls into question basic assumptions about debt and deleveraging and the adequacy of tools available to manage debt and avoid future crises.” Countries that McKinsey warns face “potential vulnerabilities” because of high household debt include the Netherlands, South Korea, Canada, Sweden, Australia, Malalysia and Thailand. “It is like a balloon. If you squeeze debt in one place, it pops up somewhere else in the system,”

Those mountains of debt (and assets) - A recent report by the McKinsey Global Institute on the increasing amount of debt among advanced and emerging markets made it to the front page of many financial newspapers yesterday (e.g. the FT). The report reminds us that in many countries debt is still going up as a % of GDP, that there is limited deleveraging. The Financial Times offers an interesting graphical tool to compare debt evolution for different countries.  The data is interesting and it highlights the difficulties in deleveraging but, in my mind, it might lead to readers to reach a simplistic conclusion that is not correct: that everyone is living beyond its means, that we are not learning and that this will not end up well.  Let me start with the obvious point: your debt is someone else's assets. The increase in debt as a % of GDP can be rephrased as an increase in assets as a % of GDP. It implies that the size of financial assets and liabilities is growing relative to GDP. That is not always bad. In many cases we think the opposite: the ratio of assets (or liabilities) to GDP is referred to as financial deepening and there is plenty of empirical evidence that it is positively correlated with growth and GDP per capita. To illustrate why only looking at debt can give you a very distorted picture of economic fundamentals  let me choose a country that best illustrates this point: Singapore. In the graphical tool developed by the Financial Times one can see that government debt in Singapore has increased over the last years. Here is a longer time series from the World Economic Outlook (IMF) going back to 1990.

Argentine President Arrest Warrant Discovered At Dead Prosecutor's Home -- “It would have provoked a crisis without precedents in Argentina," exclaims a political analyst after, as The NYTimes reports, a draft of a warrant for the arrest of President Cristina Fernández de Kirchner - accusing her of trying to shield Iranian officials from responsibility in the 1994 bombing of a Jewish center - was found at dead prosecutor Alberto Nisman's home. The new revelation has further inflamed theories regarding the heightened tensions between him and the government before he was found dead, as "it would have been a scandal on a level previously unseen."

Venezuela Begins Occupation of Private Supermarket Chain -National guardsmen and state price adjusters fanned out across Venezuela Wednesday to impose a military-style occupation with an unusual goal: Making sure shoppers can buy enough sugar. The South American country's socialist administration temporarily took over the Dia a Dia supermarket chain as part of a crackdown on the private businesses it blames for worsening shortages and long lines. Embattled President Nicolas Maduro says right-wing owners are purposely making shopping a nightmare by hoarding goods and removing checkout stations. He has promised to jail any business owner found to be fomenting economic chaos. Two executives of Venezuela's largest drugstore chain, Farmatodo, were detained over the weekend as part of an investigation by price-control authorities. On Monday night, Congress President Diosdado Cabello said officials had arrested Dia a Dia's owner and taken over its 35 stores "for the protection of Venezuelans." By Tuesday morning, armed soldiers were overseeing lines for bags of sugar at a Dia a Dia location near the presidential palace. Many economists blame price and currency controls for causing the economic distortions plaguing the country at a time when falling oil prices are battering its revenues. Analysts see this week's moves against business owners as an attempt to drive home Maduro's counter-narrative that the right-wing is waging an economic war.

Venezuela Runs Out Of Condoms: A Pack Now Costs $755 (If You Can Find It) - Unfortunately, the country whose president two weeks ago said that "Venezuela Must Deepen Socialism To Improve Economy", which is the political equivalent of "we must do even more QE to fix record wealth inequality", may have just hit rock bottom when Venezuelans, who already must line up for hours to buy the simplest of daily necessities (which they can obtain without being arrested in the process if they are lucky) now have to pay $755 for a pack of condoms. “The country is so messed up that now we have to wait in line even to have sex,” lamented Jonatan Montilla, a 31-year-old advertising company art director. “This is a new low.”

US companies face billions in Venezuela currency losses, Reuters analysis shows - - At least 40 major U.S. companies have substantial exposure to Venezuela's deepening economic crisis, and could collectively be forced to take billions of dollars of write downs, a Reuters analysis shows.The companies, all members of the S&P 500, and including some of the biggest names in Corporate America such as autos giant General Motors and drug maker Merck & Co Inc , together carry at least $11 billion of monetary assets in the Venezuelan currency, the bolivar, on their books.The official rate is at 6.3 bolivars to the dollar and there are two other rates in the government system - known as SICAD 1 and SICAD 2 - at about 12 and 50. The black market rate, though, was at about 190 bolivars to the dollar on Sunday, according to the website problem is that the dollar value of the assets as disclosed in many of the companies' accounts is based on either the rates at 6.3 or 12 and only a limited number of transactions are allowed at those rates. The assets would be worth a lot fewer dollars at the 50 rate in the government system and the dollar value would almost be wiped out at the black market rate.The currency system is also about to be shaken up following an announcement by Venezuela President Nicolas Maduro on Jan. 21, leading to fears of a further devaluation.American companies will also have additional exposure to the bolivar that isn't disclosed because they don't see the size of that exposure as material to their results. The Reuters analysis also doesn't look at the thousands of publicly traded and private American companies that aren't in the S&P 500 and will in some cases have bolivar assets.

Brazil's industrial output contracts sharply - --Brazilian industry contracted sharply in December and finished last year with its worst result since the 2009 recession, as rising interest rates, weak demand and shaky business confidence weighed on output. Industrial production tumbled 2.8% in December from November in seasonally adjusted terms, the Brazilian Institute of Geography and Statistics, or IBGE, said Tuesday. Economists had expected a smaller decline of 2.4%, according to the median estimate in a survey by the local Agencia Estado newswire. For the full year, output from Brazil's mines and factories fell 3.2% from 2013, the steepest decline since 2009, according to the IBGE.

Brazil faces recession, Rousseff under pressure as drought drags on (Reuters) - A severe drought is accelerating Brazil's expected descent into recession, adding to President Dilma Rousseff's woes as she takes unpopular austerity measures and faces economic fallout from a corruption scandal at state-run oil company Petrobras.Sao Paulo, Brazil's largest city, has nearly run out of water and the whole country faces power rationing as the worst drought in more than 80 years dries up hydroelectric reservoirs.The water and energy shortages are hitting just as the government moves to cut spending and raise taxes to restore business confidence shaken by her interventionist policies and revelations of a massive kickback scheme at Petrobras.Executives at leading engineering firms have been arrested in the corruption case and thousands of construction workers have been laid off, further hampering the economy as work is slowed or halted on major infrastructure projects.The economy appears on the verge of its second recession in a year and even low unemployment numbers, a bright spot of the economy in the last decade, are expected to start rising.Inflation is expected to top 7 percent despite double-digit interest rates."We know this first quarter will be terrible. We're not hiding that fact,"

Bracing for Another Storm in Emerging Markets - In 2012, Brazilian President Dilma Roussef scolded U.S. Federal Reserve Chairman Ben Bernanke’s monetary easing policies for creating a “monetary tsunami”: Financial flows to emerging markets that were appreciating currencies, causing asset bubbles, and generally exporting financial instability to the developing world. Now, as growth increases in the United States and interest rates follow, the tide is turning in emerging markets. Many countries may be facing capital flight and exchange-rate depreciation that could lead to financial instability and weak growth for years to come. The Brazilian president had a point. Until recently U.S. banks wouldn’t lend in the United States despite the unconventionally low interest rates. There was too little demand in the U.S. economy and emerging market prospects seemed more lucrative. From 2009 to 2013, countries like Brazil, South Korea, Chile, Colombia, Indonesia, and Taiwan all had wide interest rate differentials with the United States and experienced massive surges of capital flows. The differential between Brazil and the U.S. was more than 10 percentage points for a while—a much better bet than the slow growth in the United States. According to the latest estimates from the Bank for International Settlements (BIS), emerging markets now hold a staggering $2.6 trillion in international debt securities and $3.1 trillion in cross border loans—the majority in dollars. Official figures put corporate issuance at close to $700 billion since the crisis, but the BIS reckons that the figure is closer to $1.2 trillion when counting offshore transactions designed to evade regulations.

"The Stage Is Set For A Massive Housing Market Correction in Canada's Oilpatch" - Two weeks ago we reported that "the next victim of crashing oil prices has been identified: housing", particularly non-residential construction among the energy producing regions, where the capex collapse reality is already being felt far and wide. Eventually, once the overall economy of these same oil producing regions is impacted sufficiently, the pain would spread to residential housing as well, as the energy boom that kept the local economies humming for years, turns to a bust. But while the US patiently, and nervously, awaits the outcome of the crude crash, one place is already starting to suffer the consequences of the price collapse is Canada's energy Mecca, Calgary, where as the Financial Post reports, "the stage has been set for a massive correction in the oilpatch."

Russia lowers economic growth projection for this year amid falling oil prices - (Xinhua) -- Russian Economic Development Ministry on Saturday revised the country's economic forecast for 2015 and predicted that Russia's gross domestic product (GDP) will shrink by 3 percent in the year, given the oil price of 50 U.S. dollars per barrel. Previously, based on a presumed oil price of 80 U.S. dollar a barrel, the ministry estimated the country's GDP would fall by 0.8 percent for the year. "While consensus forecasts indicate higher estimates, we take the most conservative figures into account," said Economic Development Minister Alexei Ulyukayev. The ministry also expected an annual inflation rate of 12 percent in the year, compared with last December's projection of 7. 5 percent. The fresh estimates are part of the revised economic forecast for 2015 submitted to the government for approval. Russia's Ministry of Finance will have to make a few adjustments for this year's federal budget due to the worsening economic forecast. Ulyukayev also defended the cut by Russia's Central Bank Friday of the key interest rate from 17 to 15 percent, saying the move was "absolutely justified and necessary as it signified the financial stability risks have lowered."

Columnist in ‘Russia’s FT’ tells readers to pull their money out of banks and convert it to dollars now - A columnist for Russia's Vedomosti newspaper, a joint venture between the Financial Times and The Wall Street Journal, has advised readers to pull their savings out of banks and convert them into physical dollars.  The ruble has tanked over the past year, falling over 50% from 33 rubles to the dollar to 67 rubles at market open Friday. The collapse in the currency's value has helped drive up prices in the country, which is heavily reliant on imports, with inflation surging to 15% in January.  Now, it seems, it is affecting sentiment on the streets. Andrey Panov, a freelance columnist for Vedomosti, writes: It is better to keep money in foreign currency (dollars more than euros as the US economy is doing better than the EU) and prepare for what many economists are already saying could be a return to the conditions of the 1990s ... It is better to take your savings, or at least a portion of them, out of the banks. Who can guarantee that what will happen next won't be a situation in which all foreign currency deposits are forcibly converted [into rubles] or frozen? After all, the black market in cash worked even in Soviet times.

Apocalypse Now and Forever -- Kunstler  -- As a political psychoanalyst I find the Super-bowl halftime show the best concise index of how psychotic American culture is becoming from year to year, and the 2015 version signaled a complete break from reality, a nightmare of twerking robots in a hall of mirrors, as if America had utterly surrendered its tattered soul to some rogue motherboard pulsing deep within Dr. Evil’s subterranean palace of sin. Hence it is the perfect analog for understanding otherwise incomprehensible happenings such as the USA’s role in fomenting further chaos and mayhem in Ukraine. How otherwise to explain things like this morning’s New York Times report that the USA “now supports providing defensive weapons and equipment to Kiev’s beleaguered forces, and an array of administration and military officials appear to be edging toward that position….” Earth calling New York Times readers: I regret to inform you that this decision was already reached a year ago when we paid for the coup d’état against the elected President, Viktor Yanukovych, after the poor sap decided to not sign up with EU but rather the Russian-backed Eurasian Customs Union. Whoops! You’re so out of here, Bub, State Department Under Secretary Victoria Nuland burbled in a clandestinely recorded phone call to the American ambassador. Will somebody please find Yats! Yes Yats! [UKR politician Arseniy Yatsenyuk] and plug the Bluetooth earpiece of power into his skull! And so it went this past year with a cabal of the USA, the EU, and the IMF shoveling financial support (billions!), armaments, and surely boots-on-the ground into the Ukrainian morass. Last week, a reporter in eastern Ukraine approached a soldier in UKR army battle garb only to be told, in pitch perfect American English, to “get out of my face.” Say what??? The You-tube clip was seen all over the world and to this minute no agent of the US government has been called to account over it. Like I said, a hall of mirrors.

Gazprom Confident In European Future Despite ‘New Cold War’: As oil companies fret over meager quarterly earnings because of the low price of oil, Russia’s gas monopoly, the government-controlled Gazprom, says it will be increasing its deliveries to Europe during the next three years and is looking to Asia for more opportunities to sell gas and attract investment. Aleksandr Medvedev, Gazprom’s deputy CEO, said at an investor conference in Hong Kong on Feb. 3 that the company will increase its exports to Europe by between 5 percent and 8 percent to a level of 155 to 160 billion cubic meters through 2017 because of “continuing, gradual reduction of gas production in Europe.” This would be a meaningful rebound for Gazprom, the world’s largest producer of gas. In 2013, its exports dropped by 9 percent from 162 billion cubic meters to 147 billion cubic meters. At that time, the price of the gas in Europe – not including former Soviet republics – dropped from $403 per 1,000 cubic meters in 2012 to $385 for the same volume in 2013 and to $341 per 1,000 cubic meters in 2014. Still, Gazprom remains the largest single gas supplier to Europe, providing it with about 30 percent of its needs, and the company plans to keep it that way, according to Dmitry Lugai, the director of Gazprom’s prospective development. Gazprom’s plans don’t coincide with those of the European Union, which has been looking for alternate sources of fuel. About half the Russian gas going to the EU is piped through Ukraine, which has a difficult relationship with Russia. Two recent disputes between Moscow and Kiev have led to a shutoff of the Ukrainian pipeline, and reduced much-needed gas deliveries to EU customers.

Legal Options for Ukraine’s Russian Debt Problem - Ukraine's financial position is worsening, restructuring seems likely, and the big question is what to do about the $3 billion loan Victor Yanukovych saddled the country with before fleeing. Coverage of the loan here and here on Credit Slips, and bonus coverage on FT Alphaville (free registration required). Though a government-to-government loan in substance, the loan is disguised as an ordinary eurobond issue, with contract terms that give Russia extraordinary leverage. These include the right to accelerate early, trigger cross-default, and block or impede restructuring. That may be why recent reports suggest the plan is to pay Russia in full when the bonds mature in December 2015, though I can't imagine either Ukraine or its official lenders are thrilled at the prospect. Perhaps there are other options. The academic literature on sovereign debt often discounts the relevance of law and legal institutions, although Mitu Gulati and I argue here that this may be a mistake. Ukraine's case may illustrate the point. The country's leverage - what little it has - depends in part on whether it can place meaningful legal barriers in the way of any effort to enforce the bonds. That would likely involve English law and courts (see par. 16, page 35 of the prospectus). Below the jump, I discuss two possibilities. The first is a proposal by Anna Gelpern described in detail in this paper (which also has good background on the loan) and this blog post. The second is a brief but tantalizing proposal by Joseph Blocher and Mitu Gulati in the final section of this paper. In short, Anna proposes legislation making the debt unenforceable in English courts. Joseph and Mitu suggest that Ukraine is entitled to compensation for Russia's annexation of Crimea and can use this claim as a set-off against the debt. Both proposals raise unique challenges and questions.

Dangerous cracks at Europe’s centre - here are three crises afflicting Europe. Two are on the borders of the EU: a warlike Russia and an imploding Middle East. The third emergency is taking place inside the EU itself — where political, economic and diplomatic tensions are mounting. The past month has seen all three crises facing Europe intensify. The terrorist attacks in Paris heightened fears about the potential spillover of violence and religious tensions from the Middle East. Russian-backed separatists have renewed their offensive in Ukraine. And Syriza’s victory in Greece means that — for the first time since the euro crisis broke out — a radical left party has won an election in an EU country. The problems in Russia, the Middle East and the eurozone have very different roots. But, as they worsen, they are beginning to feed on each other. The economic slump in much of the EU has encouraged the rise of populist parties of the right and left. The sense of insecurity on which the populists feed has been further encouraged by the spillover from the conflict in the Middle East — whether in the form of terrorism or mass illegal migration. In countries such as Greece and Italy, the inflow of migrants from (or through) the Middle East has heightened the atmosphere of social crisis, making immigration almost as controversial as austerity. Meanwhile, Russia’s military intervention in Ukraine presents the EU with its biggest foreign policy challenge since the cold war. Mishandled, it could lead to military conflict. The EU, marshalled by Germany, has managed to unite around a reasonably tough package of sanctions. But the rise of the political extremes within Europe threatens EU unity on Russia — making it more likely that the Kremlin will be emboldened and that the crisis will escalate.

TTIP secrecy: Commission may face inquiry: The European Commission may face allegations of maladministration over its treatment of requests to access documents related to EU-US trade talks.Five non-governmental organisations (NGOs) have submitted a complaint to the EU Ombudsman Emily O’Reilly, who oversees complaints about European institutions, claiming that the European Commission failed to grant access to several documents related to the Transatlantic Trade and Investment Partnership (TTIP) talks. The Ombudsman has opened a case regarding the allegations but has not yet officially opened an investigation. “The negotiations have attracted unprecedented public interest, given the potential economic, social and political impact TTIP may have,” she said in a statement. The NGOs – ClientEarth, the European Environmental Bureau, Friends of the Earth Europe, the Corporate Europe Observatory and the European Federation of Journalists – said the decision to refuse access contravened requirements of the Aarhus Convention, which has specific allowances for documents that relate to the environment or emissions. The complaint said the Commission also ignored a July court ruling, in which judges ruled that refusal to allow access to documents should be an exception.

How negative can interest rates go? - Gavyn Davies - As global bond yields plumb new depths, an unprecedented experiment in monetary policy is underway in two small countries in Europe. By pushing policy interest rates more deeply into negative territory than ever seen before, the Swiss and Danish central banks are testing where the effective lower bound on interest rates really lies. The results are being closely watched by bond investors, and by the major central banks, which had previously assumed that the effective lower bound was close to zero.  The Danish central bank cut interest rates to -0.5 per cent last week, the third cut in the last two weeks. The Swiss National Bank cut its deposit rate to -0.75 per cent when it recently removed the ceiling on the Swiss franc. Money market rates in Switzerland have fallen to a low of -0.96 per cent. Bond yields have followed suit, right across the curve (see graph). Those who believed that long bond yields could not go negative have had a rude awakening. Denmark and Switzerland are clearly both special cases, because they have been subject to enormous upward pressure on their exchange rates. However, if they prove that central banks can force short term interest rates deep into negative territory, this would challenge the almost universal belief among economists that interest rates are subject to a zero lower bound (ZLB).

Negative rates and Gesell taxes: how low are we talking here?  - It’s a brave new world, even if the idea behind the ever more deeply negative rates being tried out in Switzerland and Denmark isn’t that new at all. Silvio Gesell — Keynes‘ strange, unduly neglected prophet — got there quite a while ago via his eponymous tax. It’s an idea that gets dredged back up every now and then and we’re tempted to do so again here as it neatly frames any conversation about any constraint on how negative these negative rates can get. For those not familiar with the 19th century idea of a Gesell tax, it’s basically a stamp tax on money that acts as a negative interest rate. The idea being that in order to be legal tender notes would have to bear an annual stamp provided by the government — and for which the government would charge a fee.   Where to next then? Both in terms of a new low in rates and in terms of which central banks might be induced to give ‘em a shot? As Gavyn Davies says, the fears which negative rates used to obviously provoke in central bankers has clearly faded, with Yellen, for example, pretty blasé about the whole thing: Denmark and Switzerland are clearly both special cases, because they have been subject to enormous upward pressure on their exchange rates. However, if they prove that central banks can force short term interest rates deep into negative territory, this would challenge the almost universal belief among economists that interest rates are subject to a zero lower bound (ZLB). During the financial crash, central bankers held policy rates just above zero. The Federal Reserve stopped cutting at 0-0.25 per cent and the Bank of England at 0.5 percent. They both quoted practical or institutional reasons for believing that rates could fall no further. There were fears that the money market computer systems would be technically unable to function with negative rates, and worries about squeezing profits in the financial sector [1].

Trying to Wrap Your Head around the SNB and Denmark? - When the Swiss National Bank lifted its cap on the franc, many thought they understood the message. It had reached the end of its rope. Some suggested the ownership structure of the SNB (owned by the Swiss cantons and individuals vs the stock exchange) opposed a further expansion of the its balance sheet (~80% of GDP vs ~20-25% in the UK and US by comparison. This was an important realization. Out of the Great Depression, national governments discovered their balance sheets. Although Reagan and Thatcher talked about rolling back the welfare state, neither succeeded. The state actually grew under Reagan, and the number of federal government employee rose. Still the Great Financial Crisis seemed to suggest limitations on the ever increasing state, and this was reflected in the loss of AAA rating by most high income sovereigns. In the Great Financial Crisis, central banks discovered their balance sheet. Is there no limit? From a purely theoretic point of view, there is not one as the central bank can swap reserves for securities endlessly. The Bank of Japan is expanding its balance sheet by 1.4% a month. On practical grounds, there seems to be some limit. By buying nearly the entire new supply of Japanese government bonds, the BOJ is disrupting the trading in the largest bond market in the world. It has suggested that if it were to decide to increase its quantitative easing efforts, it would have to buy other instruments, such as regional bonds. However, as we argued since the SNB's surprise announcement, the decision to abandon the franc's cap does not mean that it has abandoned its strategy, and its balance sheet would likely still expand.  The cap was a tactic.  It changed tactics.  We compare the cap to a Maginot Line.  It abandoned this tactic.  It was too rigid.  Its intervention became predictable and therefore acted as a transfer of wealth to speculators.

Nestle bond yield falls below zero on bond frenzy - Nestle's short-term euro-denominated bond yield has fallen into negative territory, possibly marking the first time in history that a corporate bond maturing in more than a year has had a negative yield. The Swiss food company is one of Europe's most highly rated companies, and the plunge in the Swiss government bond yields following the introduction of negative interest rates at the local central bank has already pushed the yield of its Swiss franc debt maturing in May to minus 51 basis points. But Nestle's €500m bond maturing in October 2016 has now also slipped below zero, a vivid example of how the surge in bond demand triggered by the European Central Bank's €60bn a month asset purchase programme is crimping borrowing costs across the continent – for governments and companies alike. The "bid" yield of the 2016 Nestle bond – as implied by the price investors are willing to pay for the bond – is still barely positive, but the "ask" yield (what bondholders are asking to sell their security) has continued to fall since going below zero in mid-January, according to Bloomberg data. That has pushed the mid-point between the two yields to minus 0.004 per cent today (see chart below).

Nestles Has First Ever Negative Interest Corporate Bond; Privilege of Lending Gone Mad - Economic madness continues nonstop. In the race for safe havens Nestle Bond Yield Falls Below Zero Nestle's short-term euro-denominated bond yield has fallen into negative territory, possibly marking the first time in history that a corporate bond maturing in more than a year has had a negative yield. Alberto Gallo of RBS points out that if eurozone companies and governments continue to issue debt at the same pace, then the euro-denominated bond market will actually start to shrink once the ECB starts buying, given that its purchases will outstrip monthly supply of debt. Yes indeed folks, you can can now pay Nestles for the privilege of lending it money.

Denmark Cuts Interest Rates for Fourth Time in a Month - Denmark’s central bank has cut a key interest rate for the fourth time in a month as it tries to keep the krone currency stable against the euro. Nationalbanken said on Thursday it had cut the interest rate on certificates of deposit by a further 0.25 percentage point to minus 0.75 percent. The change takes effect Friday and is the bank’s latest attempt to prevent the krone from rising too much against the euro. A negative deposit rate means banks have to pay to park their cash at the central bank. Other key interest rates were left unchanged.

Denmark cuts deposit rate for fourth time in three weeks - -- The Danish central bank on Thursday lowered its deposit rate for the fourth time in less than three weeks, in an effort to defend the krone's peg to the euro. The deposit rate was cut to negative 0.75% from negative 0.5%. It's only a week ago that the Danish National Bank slashed the deposit rate, following earlier rate cuts on Jan. 19 and Jan. 22. "Following the decision by the Swiss National Bank to discontinue the minimum exchange rate and the decision by the European Central Bank to launch an expanded asset-purchase program, there has been a considerable inflow of foreign currency," the Danish central bank said in the release on Thursday. The pressure on the krone/euro peg has sparked speculation that Denmark, like Switzerland, will have to abandon its exchange cap, but the country's central bank governor Lars Rohde on Thursday killed that notion. "The fixed exchange-rate policy is an indispensable element of economic policy in Denmark -- and has been so since 1982. Danmarks Nationalbank has the necessary instruments to defend the fixed exchange rate policy for as long as it takes," he said.

It Will Now Cost You 0.75% To Save Money In Denmark: Danish Central Bank Cuts Rates For FOURTH Time In Three Weeks -  It has become a weekly thing now. In its desperation to preserve the EURDKK peg, the Danish central banks has cut rates into negative, then cut them again, then again last week, and moments ago, just cut its deposit rate to negative one more time, pushing NIRP from -0.5% to -0.75%, its fourth "surprise" rate cut in the past 3 weeks!

There is something negative in the state of Denmark - Denmark’s central bank governor pledged to face down speculators testing its currency peg to the euro, saying he would do “whatever it takes” to defend it.Lars Rohde told the Financial Times that Nationalbank could “go on forever” defending the peg, after lowering interest rates four times in three weeks to a global record low of minus 0.75 per cent. It has also swelled its balance sheet to a record size by printing krone in an attempt to weaken the Danish currency.“The main message is that we are ready to do whatever it takes to defend the peg. We have unlimited access to Danish krone and we have no restrictions on our balance sheet,” he said, in his first public comments since the recent quadruple rate cuts. The FT article is here, here is Bloomberg coverage.  I would bet against them, in any case this will be a neat test case for our judgments of Switzerland.  The Danish government also has stopped selling bonds to help maintain the peg; Lord Polonius comments on that policy.  The Danes have announced a true precommitment, in a way the Swiss never did, now let’s see what happens.  Defense of the peg is in fact their only official monetary policy target, and the central bank head claims it is supported by all segments of Danish society.

Something economists thought was impossible is happening in Europe - Vox: Something really weird is happening in Europe. Interest rates on a range of debt — mostly government bonds from countries like Denmark, Switzerland, and Germany but also corporate bonds from Nestlé and, briefly, Shell — have gone negative. And not just negative in fancy inflation-adjusted terms like US government debt. It's just negative. As in you give the owner of a Nestlé bond 100 euros, and four years later Nestlé gives you back less than that.* In my experience, ordinary people are not especially excited about this. But among finance and economic types, I promise you that it's a huge deal — the economics equivalent of stumbling into a huge scientific discovery entirely by accident. Indeed, the interest rate situation in Europe is so strange that until quite recently, it was thought to be entirely impossible. There was a lot of economic theory built around the problem of the Zero Lower Bound — the impossibility of sustained negative interest rates. Some economists wanted to eliminate paper money to eliminate the lower bound problemto eliminate the lower bound problem. Paul Krugman wrote a lot of columns about it. One of them said "the zero lower bound isn’t a theory, it’s a fact, and it’s a fact that we’ve been facing for five years now." And yet it seems the impossible has happened. Broadly speaking, borrowing at negative cost is happening on the European continent. Mostly in the Eurozone, but actually most severely in Switzerland.

  • On Tuesday, Nestlé (which is headquartered in Switzerland) saw its four-year euro-denominated bonds trading at a negative interest rate.
  • Shell briefly saw negative rates on a bond last week.
  • Finland became the first European government to see negative rates on the initial sale of bonds.
  • The Netherlands, Sweden, and Austria have negative rates on five-year bonds.
  • Germany and Denmark have negative rates on bonds that last up to six years.

The Forces at Work as Developed World Currencies Diverge - As Europe still manages fallout from the SNB breaking the Swiss Franc peg earlier this month, we can discuss emerging market countries that might feel similar pressure from Europe and the US soon. It is easy to forget the extent to which emerging market economies rely on other currencies: Of all major base currencies, the euro and US dollar have displayed the largest divergence in recent months as the US economy strengthens and the EU continues QE.  The SNB’s action earlier this month is an interesting case study on countries pegged to a depreciating base currency. The SNB’s move was unexpected largely because the relative weakness of the Swiss franc looks positive for Switzerland at first glance. As an exporting nation, Switzerland benefits greatly from a weaker currency and greater trade competitiveness.  The usual concern about devalued currency is inflation, though this was clearly not an issue for the Swiss. Instead, the SNB was concerned with the mounting foreign exchange reserves necessary to maintain their peg. The EU’s latest expected round of QE, along with CHF’s ongoing use as a safe-haven currency, forced the SNB to reach $500 Billion in foreign reserves. Such large European exposure and expected future easing outweighed the benefit of favorable terms of trade and lower risk of deflation that came from weaker currency. Turning to other Euro-pegged countries, we see a similar trend in foreign exchange reserves. In contrast, the US dollar has appreciated on recent strong economic news, and USD-pegged countries should be drawing down on foreign currency reserves to strengthen their domestic currency. Though recent evidence is weak, we may see further draw-downs soon:

It’s Not The Oil Price That Is Causing Deflation In The Eurozone There very definitely is deflation in the eurozone and that’s a worry. But it’s not really the falling oil price that is either causing the deflation or something that should be described as deflation. Changes in relative prices just shouldn’t be considered in the same manner as changes in the general price level. Of course, there’s something more akin to art here than science in these definitions but it’s still somethng that’s worth distinguishing. For the eurozone (which has very little oil production in any of the constituent countries) a falling oil price is an undoubtedly positive development. A general deflation is not a good thing. The new figures have just come out from EurostatThe collapse in oil prices has helped to push the euro zone deeper into deflation, strengthening the case for the European Central Bank’s landmark decision to begin buying government bonds later this year to stave off a serious bout of falling prices in the region.Yes, in one sense, this is true, falling oil prices are falling prices and they’re included in that definition of inflation/deflation. But conceptually it’s different to have one price relatively falling compared to all others, as has been happening to oil, and having all prices falling (relative to the value of money). It’s that second which poses the dangers:  But the fall in oil prices could spur growth in the region by lifting spending on other goods. That appears to have happened in Spain, the region’s fourth- largest economy, which is growing at its fastest pace in seven years despite prices falling by 1.4 per cent in the year to January. German retail sales figures, also out yesterday, suggested falling oil prices had boosted consumption – though not by as much as expected. A rise in retail sales of 0.2 per cent between November and December missed expectations of a bigger spending surge in the eurozone’s largest economy.

ECB’s Coeure: QE Program is Open-Ended - The European Central Bank’s plan of large-scale asset purchases is open-ended and won’t be closed in a “hasty” manner, ECB Executive Board member Benoit Coeure said in remarks to reporters Monday. The central banker said that the program to buy 60 billion euros ($67.7 billion) a month in assets was intended to continue until September 2016. “We’ve also said that this would be done until we see a sustained convergence toward our definition of price stability,” he said. “Yes, it is an open-ended program.” The ECB aims for consumer price inflation to be just below 2% over the medium term. Mr. Coeure said that if the program isn’t achieving this goal as September 2016 approaches, “Then we’ll do more.” Moreover, he said, the ECB wouldn’t end the program prematurely. The ECB’s explanation that it intends to continue buying bonds well into next year is designed to send the message that it would refrain “from a hasty termination” of the program, he said. Mr. Coeure refrained from making any specific comments about Greece, saying only that currently there is a political process taking place. “It is not time for the central bank to step in.” During an earlier speech to a conference in Budapest, Mr. Coeure said the ECB’s “recent decision to expand our asset purchases, together with energy prices and an exchange rate more favorable to growth, have opened a unique window of opportunity for euro-area governments to act together, remove structural obstacles to growth, and pull our economy out of the low-growth, low-confidence trap.”

Eurozone alarm grows over Greek bailout brinkmanship - Eurozone officials are increasingly worried that Greece’s brinkmanship over its bailout will plunge the country into financial chaos after its finance minister said on Sunday that it would take up to four months to agree a “new contract” with creditors. Yanis Varoufakis, Greece’s newly appointed finance minister, said Athens would reject any further loans under its international rescue plan, despite Greece’s €172bn bailout expiring at the end of the month. He also said he expected the European Central Bank to prop up the country’s weakened banking system until a longer-term settlement could be reached.  Mr Varoufakis said Greece had been living for the next loan tranche for the past five years. “We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction,” he said, noting it was time to go “cold turkey”. His comments on Sunday underscored the fears of eurozone officials that the Greek government was unaware of the precariousness of its financial situation. “Everybody [in the eurozone] wants a deal,” said one senior eurozone official. “But through their actions and their rhetoric, the new government is making a lot of people upset. They are putting themselves in an impossible situation.” Mr Varoufakis was speaking in Paris on the first leg of a European tour intended to garner support for a renegotiation of its debt burden. Greece’s anti-austerity government roiled markets during a tumultuous first week in power with 40 per cent being wiped off the value of Greek banks following announcements to reverse spending cuts and privatisations. Despite a more emollient tone from Alexis Tsipras, Greece’s radical leftwing prime minister, over the weekend, EU officials have been dismayed by Athens’ repeated rejection of a bailout extension — and refusal to co-operate with the troika of international creditors. German officials were also irritated at its refusal to engage with Berlin, although Mr Varoufakis said he had now been invited to the German capital.

New Finance Minister Says Greece Is Insolvent -  The new Finance Minister of Greece has been making waves. In a meeting with Eurogroup chairman Jeroen Dijsselbloem on January 30th he appeared to say that Greece would no longer cooperate with the Troika – the combination of the IMF IMF, European Commission and the ECB that has been running Greece’s bailout programme. Dijsselbloem’s face was an absolute picture, as FT Alphaville gleefully reported. Except, of course, that Varoufakis was speaking in Greek, so this isn’t what he actually said. And Dijsselbloem, who was listening via a translation service, did not hear what he actually said. Nor did the world’s journalists, who by and large also don’t speak Greek. Varoufakis (who is bilingual) later said that he perhaps should have made his remarks in English. Nonetheless, his apparent refusal to deal with the Troika made headline news. The BBC’s headline claimed he said “No debt talks with EU-IMF Troika”. The FT put up an inflammatory headline saying that Varoufakis was refusing to work with the Troika. But the FT’s report explains it differently:  Mr Varoufakis….said Greece “is working from the standpoint of the best possible co-operation with its institutional partners and the International Monetary Fund but not with a [bailout] program that we think is anti-European.” Eh? How is this “refusing to cooperate”? The reporters continue: He also blasted the deeply unpopular bailout monitors from the European Commission, IMF and ECB, also known as “the troika”, saying: “We are not going to co-operate with a rottenly constructed committee.” Ah. The problem is what is meant by “the Troika”. In an interview with Emily Maitlis on the BBC’s Newsnight program later on January 30th, Varoufakis explained (in English) that the Troika has two levels: the institutions themselves, and the “bailout monitors” they have sent to Athens to ensure compliance with program demands. It is these monitors who have been rejected. So Varoufakis is not refusing to cooperate with the European institutions and the IMF. On the contrary, he says he wants a “rational discussion” with them. He is repudiating the bailout program that they have constructed.

Greece economy: PM Tsipras seeks to placate creditors: Greek Prime Minister Alexis Tsipras has said he is confident that agreement can be reached with creditors over repayment of Greece's debts. Mr Tsipras said in a statement issued to Bloomberg news agency that he had never intended to act unilaterally. German Chancellor Angela Merkel has ruled out debt cancellation, saying creditors had already made concessions. Mr Tsipras' Syriza party won last weekend's election with a pledge to have half the debt written off. Its new Finance Minister Yanis Varoufakis has refused to work with the "troika" of global institutions overseeing Greek debt, which had agreed a €240bn (£179bn; $270bn) bailout with the previous Greek government. The troika is made up of the European Commission, European Central Bank and International Monetary Fund. Greece still has a debt of €315bn - about 175% of gross domestic product - despite some creditors writing down debts in a renegotiation in 2012.  Mr Tsipras said Greece would repay its debts to the ECB and IMF, and reach a deal with the eurozone nations that funded most of the bailout package. "The deliberation with our European partners has just begun," he said. "Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole."

Syriza Walks Back Initial Defiance - Victims of austerity and their allies around the world may be placing too much hope in Syriza. Despite the demonization of the Greek party as “radical left” in the mainstream press, and the blistering reaction from the German government to its economically sound observations about the need to rethink bailouts, Syriza is no revolution-in-the-making. But because the frustration with and the human costs of the Troika’s destructive policies only continue to mount, the opposition is desperate for a champion, or at least a focal point. Syriza has thus increasingly become an object of projection of both its allies and its opponents. And that seems to be leading to some misreadings of the state of play. Mind you, the situation is fluid, and Syriza is trying to renegotiate the shape of the table, that is the very framework under which the bailouts are conducted. Needless to say, its Eurozone paymasters aren’t prepared to go back to first principles despite the abject failure of the bailouts (save in rescuing European banks and shifting the costs onto citizens). Moreover as we’ve outlined before, Syriza is operating against numerous constraints. First is an overly short timeframe for achieving a major shift in the foundations for negotiating. Greece has only until the end of February to secure additional bailout funds. It was conceivable that that drop dead date could have been pushed back (the rest of the Northern bloc had been inclined to go a full four months longer, which would have made that deadline roughly coincide with when Greece had a chunk of its debt due in June. Failure to secure a deal by then would produce a default on the maturing debt obligation).

Europe's creditors play with 'political fire' in pushing Greece to the brink - The North European power structure has issued stern and inflexible warnings to Greece. Syriza’s triumphant radicals must pay the country’s debts and stick to the letter of the hated `Memorandum’ imposed by creditors. If premier Alexis Tsipras breaches the terms of Greece’s EU-IMF Troika bail-out – signed by earlier leaders under duress, and deemed unjust in Athens – Europe will cut off €54bn of support for the Greek banking system and force the country out of the euro in short order. Europe must not yield to “blackmail,” said Germany’s ZEW institute. Wolfgang Schäuble, Germany’s finance minister, said the new Syriza government is bound by the contractual terms of Greece’s €245bn loan package from the Troika. “Elections change nothing. There are rules. We did whatever could be done to support Greece in difficult times, again and again," he said. When the crisis first erupted in 2010, and re-erupted in 2012, Europe lacked a firewall. The conflagration threatened to spread instantly from Greece to Portugal, Ireland, and beyond. This time Mr Schäuble thinks they are ready. “We face no risk of contagion, so nobody should think we can be put under pressure easily. We are relaxed,” he said.In Frankfurt, the Bundesbank’s Joachim Nagel warned that there will be “fatal consequences” if Greece violates the terms of the rescue deal. His words were echoed by the European Central Bank’s Benoît Cœuré, ubiquitous on the airways with hot admonitions. "Mr Tsipras must pay, those are the rules of the game, there is no room for unilateral behaviour in Europe,” he said.

The ECB Ready to Put a Choke Chain on Syriza -- Yves Smith --While Greek Finance Minister Yanis Varoufakis appeared to be gaining ground in his quest to build support in his uphill battle to restructure Greece’s debts and its relationship with the Eurozone, unelected technocrats may be about to lower the boom. In Paris, Varoufakis met with Finance Minister Michel Sapin, and headlines said France would “support” Greece. However, Sapin made clear that France did not back Greece on its most important demand, that of debt reduction, which he called “cancellation,” but would back a new timeframe and other changes in terms.  Press accounts typically described Varoufakis as striking a more conciliatory tone, but he did not back down from his statements on Friday, of being willing to deal with members of the Troika only separately and of not taking the February 28 bailout funds. Greece has apparently done a careful cash flow forecast and believes it can last until June, when it has principal payments on some of its debt coming due. Further details from the Financial Times:The finance chief said Athens would make proposals within a month for a “new contract” with the eurozone, which would be in place by the end of May. “We are not going to ask for any loans during this period. It is perfectly possible to establish liquidity provisions with the ECB.”…The bailout programme is due to expire on February 28. If it is not renewed, Greece will for the first time in five years be left without an EU financial backstop. Because the International Monetary Fund is unlikely to distribute funds without the EU’s participation, Athens could lack access to emergency funding to repay billions of euros in debt due in the coming months.EU officials believe the country could eke out €4.3bn in payments owed to the IMF next month, but will run into a wall at the beginning of June when the first of two bonds worth more than €3bn must be paid. Without bailout funding, and an ongoing sell-off in the private bond markets, Athens would be forced to default.

Plutocrats and their puppets expose themselves in every level - The phrase of the new Greek Minister for Health, Panagiotis Kouroumplis, during the ceremony of taking duties from the former minister Makis Voridis, was impressively characteristic: "Α patrician leaves and a plebeian comes."The magnitude of the unprecedented political change in Greece and Europe, can be more easily understood from various pictures and actions during the last week.  Right after his election, Alexis Tsipras chosen to visit the memorial in Kaisariani, the spot where 200 political activists - mostly communists - were executed by Nazi forces on May Day 1944. ( A blind man was chosen for the position of the Minister for Health. Panagiotis Kouroumplis has a good knowledge and shows sensitivity on public health issues but he was also blinded at the age of 10, from the explosion of a German hand-grenade, a remnant of World War II. The most powerful symbolism, however, was when the former PM, Antonis Samaras, chosen not to be present to deliver to Tsipras. This is probably the best proof so far of what the previous regime represented: an oligarchy which considers itself as a permanent owner of the power. Local plutocrats have been exposed by their puppet Antonis.

Grexit is an avoidable catastrophe for the eurozone - The past week reminded us of three truths. The first is that the eurozone crisis will not be over until it is resolved, that is, when the excess debt is written off. This truth is impervious to mood swings in Davos The second is that something that is unsustainable will have to stop sometime. We saw this when the Greek electorate put an end to a policy that failed to deliver, even on its own narrow terms, a fall in the debt burden. The third is that accidents happen. Of all foreseeable accidents, the potentially most catastrophic would, of course, be Grexit — a Greek exit from the eurozone. This could happen but it is by no means inevitable. The predominant German view is that Grexit would be a calamity for Greece, a minor shock for the eurozone and a non-event for the global economy. Newspaper editorials call on Chancellor Angela Merkel not to give in to blackmail. Even Sigmar Gabriel, Social Democrat chairman and economics minister, says the consequences of Grexit can be contained. He could not be more wrong. In fact, I believe that the consequences of Grexit are likely to be as damaging to the eurozone as they would be to Greece itself. Those who play down risks tend to be good at adding up numbers but not at grasping the complex dynamics of a default on such a scale. If Greece were to leave the eurozone, the prices of shares and other assets would slump across Europe. A lot of people — and not only those with direct exposure to Greece — would be caught wrongfooted. At that point, investors will wonder whether the eurozone is still a monetary union or just a loose single currency regime with wide entrance and exit doors. They will immediately question whether Portugal is safe.

WTF Headline Of The Day: Greek Judges Judge Judges' Pensions Cuts Unconstitutional - As the new Greek government begins 'reforming' the previous administration's austerity reforms and travels the length and breadth of Europe pitching its "we don't want more loans, we want debt reduction" ultimatum, Greek judges back at home have had their own moment of clarity in the new normal. The Greek Court of Auditors ruled on Monday that a decision by the previous government to cut the pensions of judges retroactively from August 2012 was unconstitutional and in violation of the European Convention of Human Rights... Well played judges.

Greece Finance Minister Varoufakis: 'Europe comes first': The economist-turned-finance minister seeking to renegotiate Greece's huge debt obligations says his priority is the well-being of all Europeans and has ruled out accepting more bailout cash. After talks with his French counterpart, Yanis Varoufakis said a new debt deal was needed within months. Michel Sapin said France was ready to help Greece settle with its creditors. Mr Varoufakis is in London on Monday for similar talks with the UK Chancellor George Osborne. Ahead of the meeting, Mr Osborne said that he welcomed the opportunity to "discuss face to face with Yanis Varoufakis the stability of the European economy and how to boost its growth". Mr Varoufakis is to travel to Rome next on his trip around Europe's capitals and financial hubs. His comments follow remarks on Saturday by new Greek PM Alexis Tsipras, who said he was confident Greece could reach a deal with creditors.

Who's Unreasonable Now? - Paul Krugman - OK, so as I understand the latest from the new Greek government, Yanis Varoufakis is saying that he and his colleagues don’t care what happens to the headline value of the debt — if you want to claim that there has been no write-off, OK. What they want instead is substantive but not outrageous relief from the burden of running primary surpluses (surpluses ex interest payments), reducing the amount of resources transferred to creditors from 4.5 to 1-1.5 percent of GDP; they also want flexibility to achieve these surpluses with a mix that includes more revenue and less spending austerity. This is a dastardly ploy by those left-wing radicals. You see, it’s completely reasonable.  We’ve been assured, repeatedly, that everyone is aware that Greek debt can’t be paid in full in the sense that Greece eventually runs primary surpluses equal in present value to the headline debt number. How exactly that reality is represented — whether it’s a frank reduction in headline debt or a repackaging that reduced the true burden without being quite so explicit — shouldn’t matter.  Once we’ve granted that the debt won’t really be paid in full, the question is how to manage that less-than-full payment. As I‘ve argued, the key point is to grant Greece some relaxation — but not elimination — of the requirement that it run large primary surpluses, thereby creating room for recovery. And that’s what Greece is now asking for. I can’t think of what basis Germany can use to reject this proposal out of hand. If the German position is that debt must always be paid in full, no relief in substance even if it manages to avoid debt write-offs on paper, then that position is basically crazy, and all assertions that Germany understands reality are proved wrong. If Germany thinks that the Greeks are demanding too much, well, we’re in a negotiation — hopefully one that does not rely on the threat that the ECB will destroy Greece’s banks if it fails to cave.

The ECB Tightens the Choke Chain on Greece - Yves Smith - We said that the ECB held the trump cards in dealing with Greece, via being able to impose conditions on its access to the Emergency Liquidity Authority. We thought the ECB would send an initial signal as to how opposed it was to Finance Minister Yanis Varoufakis’ bold proposals in whether it imposed conditions and how severe those were on the Greek Central bank’s request to access ELA funds, which it is sure to approve to tomorrow.  It turns out the ECB isn’t waiting that long to let its views be known. One important, but not widely recognized bone of contention is how quickly both sides need to reach a deal. Varoufakis was trying to push the timetable out until June, when Greece has to have a deal in order to avoid defaulting on maturing loans. Greece also had an earlier deadline it thought it could circumvent, that of an end of February deadline to access additional bailout funds. Varoufakis said it would not take that money (needed to pay off some maturing IMF loans) because Greece could work carefully within its existing sources of funds to meet the IMF payment and squeak by until June.  The extra time was critical to Varoufakis and Greece, both to try to win over doubts and opposition, as well as to get more support on the street and in polls in periphery countries. The longer the negotiations stay in play, the more it looks like Greece is acting like an equal, which would embolden other periphery countries. The ECB moved today to force Greece to negotiate a deal by the end of the month. That timetable virtually assures that none of the creative measures that Varoufakis has proposed are up for discussion, that the talks will stay within the existing bailout framework. That means all the Troika is prepared to discuss on Greek debt is extensions of maturity and perhaps an interest rate reduction. While that will provide some relief in real economic terms, it is likely to fall well short of what Varoufakis and Greek voters had wanted to achieve.

A deal to bring modernity to Greece - Maximum austerity and minimum reform have been the outcome of the Greek crisis so far. The fiscal and external adjustments have been painful. But the changes to a polity and economy riddled with clientelism and corruption have been modest. This is the worst of both worlds. The Greek people have suffered, but in vain. They are poorer than they thought they were. But a more productive Greece has failed to emerge. Now, after the election of the Syriza government, a forced Greek exit from the eurozone seems more likely than a productive new deal. But it is not too late. Everybody needs to take a deep breath. The beginning of the new government has been predictably bumpy. Many of its domestic announcements indicate backsliding on reforms, notably over labour market reform and public-sector employment. Alexis Tsipras, the prime minister, and Yanis Varoufakis, the finance minister, have ruffled feathers in the way they have made their case for a new approach. Telling their partners that they would no longer deal with the “troika” — the group representing the European Commission, the European Central Bank and International Monetary Fund — caused offence. It is also puzzling that the finance minister thought it wise to announce ideas for debt restructuring in London, the capital of a nation of bystanders. More significant, however, is whether Greece will run out of money soon. Most observers believe that Greece could find the €1.4bn it needs to pay the IMF next month even if the current programme were to lapse at the end of February. A more plausible danger is that Greek banks, vulnerable to runs by nervous depositors, would be deprived of access to funds from the European Central Bank. If that were to happen, the country would have to choose between constraining depositors’ access to their money and creating a new currency.

Cautious hope for Greece debt deal as leaders tour Europe: Greece's leaders have received a guarded welcome to their reported proposals for a debt deal, ahead of crunch talks with EU creditors. After a meeting in Rome with Greek PM Alexis Tsipras, Italian PM Matteo Renzi said his country would "give Greece a hand" without always agreeing with it. Greek Finance Minister Yanis Varoufakis has reportedly suggested a new deal for exchanging debt with bailout creditors. The radical left Greek government was elected on a pledge to end austerity. The Syriza party, led by Mr Tsipras, won last Sunday's vote by promising to write off half the country's massive debt, sparking alarm on the markets and among eurozone officials. The Greek government also said it would refuse new loans from the EU and the IMF, prompting questions about how it would finance itself. This week, however, Greek leaders on a tour of European capitals sought to allay some of the concerns. According to the Financial Times newspaper, Mr Varoufakis has retreated from the idea of writing off debt, instead suggesting that it could be exchanged for bonds that would be repaid only if the Greek economy grew.

Greece may be ‘weeks’ away from running out of money -— Investors on Tuesday cheered signs of progress toward resolving the new Greek government’s debt standoff with its eurozone partners, but it’s worth keeping in mind — as the table above illustrates — that there’s not a lot of time to spare. Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., reminded clients in a recent note that Greece’s debt schedule eventually leads to a scenario that ends in a government shutdown and/or default, possibly within a matter of weeks. “Greece will end up with a default, possibly in the form of a restructuring with a sizable haircut, but possibly in the shape of an outright default,” Weinberg wrote. “The only question is how soon. To believe otherwise cannot possibly be more than wishful thinking.” Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis are hitting European capitals in a bid to convince European leaders to ease the terms of the country’s €240 billion ($272 billion) bailout. Varoufakis on Wednesday said Greece needs a “bridge agreement” that could turn into a full accord by June.  A day earlier, Varoufakis told the Financial Times that Athens would propose a “menu of debt swaps” that would include two new types of bonds: The first would replace European rescue loans with bonds indexed to economic growth, while the second would consist of “perpetual bonds” that would replace the bonds held by the European Central Bank.

Will the Cavalry Ride Over the Hill in Time for Greece? -- Yves Smith -- We've cautioned readers that Greece is in a very weak bargaining position relative to its financial overlords in the Troika. As much as Finance Minister Yanis Varoufakis is making sound, logical arguments and presenting proposals that if anything are too accommodating, despite initial cool reactions, many of Greece's soi disant partners are diehard neoliberals and/or are politically constrained. Varoufakis is approaching them as if they can deal in good faith, when their idea of "good faith" comes from a punitive parallel universe. Three important meetings today will provide a better sense of whether Greece is gaining any political ground in its uphill battle to roll back austerity.  While Varoufakis and presumably Tsipras are unwilling to deploy the one realpolitik tool at their disposal, a threat of Grexit, other parties who have influence on the recalcitrant actors are more sensitive to the fact that much more is at issue than just the fate of Greece. The ongoing game of extend and pretend has managed to forestall what amounts to an existential crisis for the Eurozone. Its founders knew its structure was incomplete and imperfect, but they believed the logic of preventing future wars was so compelling that the inevitable future crises would be resolved by further integration.  Unfortunately, as we’ve been chronicling off and on since 2010, the northern bloc, and most important, Germany, have not wanted to give up its catbird seat. It has influence in excess of its population, continues to run trade surpluses with the rest of the Eurozone, which is tantamount to stealing demand, yet it is unwilling to accept the inevitable consequence of running sustained trade surpluses, which is that you must finance your trade partners (or to put it in the terms of petrostates, recycle your surpluses). Moving toward integration, particularly more powerful governance at the Eurozone level, and having more fiscal transfers to allow countries like Greece to have enough demand to have manageable levels of production and employment, means that Germany will have to cede power. And Europe still has strong nationalistic impulses, another obstacle to cementing the alliance.

ECB cancels soft treatment of Greek debt in warning to Athens (Reuters) - The European Central Bank abruptly canceled its acceptance of Greek bonds in return for funding on Wednesday, shifting the burden onto Athens' central bank to finance its lenders and isolating Greece unless it strikes a new reform deal. The move, which means the Greek central bank will have to provide its banks with tens of billions of euros of additional emergency liquidity in the coming weeks, was a response to what many in Frankfurt see as the Greek government's abandoning of its aid-for-reform program. The decision came just hours after Greece's new finance minister Yanis Varoufakis emerged from a meeting with ECB President Mario Draghi to claim that the ECB would do "whatever it takes" to support member states such as Greece. true In stark contrast, the ECB move, which required the support of a majority of central bank chiefs across the euro zone, shows widespread dismay with the new Greek government's plans not only in Frankfurt but across the 19-country bloc. The ECB announced its decision, which will take effect from Feb. 11, after those governors met in Frankfurt on Wednesday. It means that the tens of billions of euros of Greek government bonds as well as bank bonds guaranteed by Athens will no longer qualify as security in return for ECB funding to those banks.

ECB Cancels Greek Bank Funding; ECB vs. Novices; Brass Knuckles - It's difficult keeping up with the news. As soon as I finished Germany's "Time Pressure" Thesis; Noose Tightens on Europe, significant news on the debt standoff hit. An ECB press release today discusses Eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations.  In a nutshell, the ECB unexpectedly and suddenly canceled acceptance of Greek bonds as collateral for liquidity funding unless Greece honors the existing deal.  Until that happens, the Greek central bank, not the ECB, will have to take care of liquidity needs related to runs on Greek banks. The ECB press release states the situation with little fanfare as follows: "The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules."  Reuters reports ECB Cancels Soft Treatment of Greek Debt in Warning to Athens. The title is preposterous. When did the ECB ever provide Greece with a "Soft Treatment".

France Prepared To Support Greece in Debt Negotiations: Support, whatever that means. The negotiations and discussion surrounding the Greek debt issue are not straightforward nor transparent. People will tend to project their own opinions on to this since it is rather complicated, especially for those not familiar with international politics. There are a number of issues involved, and a number of players, some with their own interests and agendas that intersect enough with this to bring them into the discussions. And like most political situations of complexity the ultimate resolution will likely involve some compromise. So those who prefer to enhance their reputation by second guessing will almost certainly have some opportunity to say 'I told you so.' Like so many stock forecasters, they write their hits in marble, and their misses in sand. In addition, I cannot stress enough that relying on only one category of mainstream media sources on this entire topic can be highly misleading. The amount of spin and perception management being generated even by 'name' media sources these days is pronounced. Remember the stories being put out earlier this month that Russia was on the ropes, and was selling its gold to meet its reserve obligations?

Tsipras Does Not Rule Out Russian Aid As UK Chancellor Calls Greece "Greatest Risk To Global Economy" -- "It is clear that the stand-off between Greece and the eurozone is the greatest risk to the global economy," warns UK Chancellor George Osborne adding that he hopes Greece's new finance minister "acts responsibly," as Varoufakis toured Europe to discuss Greece's 'demands'. Mainstream media's attention, however, is not focused on this warning (remember, Greece is small and contained is the meme to pay attention to), but instead proclaimed Greece's pivot to Russia over when in fact, Tsipras words did anything but 'rule out' Russian aid as he said - specifically - "we are in substantial negotiations with our partners in Europe and those that have lent to us," adding that with regards Russia, "right now, there are no other thoughts on the table." Hardly the definitive "ruling out" that US media spins

The Tide Is Turning: Obama "Expresses Sympathy" For Greece; Lazard Says 50% Greek Haircut "Reasonable" -- The newsflow over the past several days was progressing much as expected: any time Greece demanded a bailout renegotiation (or termination), and an end to the Troika, Germany just said "Nein." And then something unexpected happened: the socialists came to the rescue when they voiced their support to their ideological peers in Greece. First, it was France whose finance minister said that France is "more than prepared to support Greece." And now it is Obama's turn who as the WSJ reported, has "expressed sympathy for the new Greek government as it seeks to rollback its strict bailout regime, saying there are limits to how far its European creditors can press Athens to repay its debts while restructuring the economy."

Greece Just Blew Up The Empire's Death Star Of Debt -- The Greek Elites and kleptocrats are terrified of the discipline that leaving the euro will impose, but the general public should welcome the transition to an economy and society that has been freed from the shackles of Imperial debt and the kleptocracy that has bled the nation dry. Although the financial media is blathering about negotiations and gamesmanship, the truth is Greece just blew up the Empire's Death Star of debt. There's nothing left to negotiate except the official admission that the Imperial Death Star of debt, the most fearsome threat in the galaxy, has been blown to smithereens. There are three fundamental points that need to be emphasized, mostly because they've been lost in handwringing, fearmongering and the ceaseless chatter of propaganda shills.

  • 1. Impaired debt and defaults result from imprudent underwriting and lender incompetence/ greed. Since when did it become accepted policy to reward imprudent lending, incompetence and greed?
  • 2. Greece will not be wiped out by leaving the euro currency--it will be freed to rebuilt itself with prudent fiscal management and policies that reward investment and penalize risky borrowing, speculation and corruption.
  • 3. The hundreds of billions of euros in so-called bailouts did not help Greece--all they did was bail out imprudent lenders and Euroland Elites. Virtually none of these vast sums helped the Greek nation or its people; what little did stay in Greece flowed to the kleptocrats that continued to rule Greece.

Dean Baker: New Leftist Greek Leaders Being "Very Smart" to Challenge German-Imposed Austerity | Democracy Now! (interview and transcript) Economist Dean Baker discusses last month’s victory of the left-wing Syriza party in Greece. This marked the first election victory in Europe of an anti-bailout party bent on reversing deep cuts demanded by international lenders. Baker praises the initial moves by the new government but warns Greece needs an "exit option" to leave the European Union.

For Greece, GDP-linked Debt May Be More Curiosity Than Cure - Can the damage of excessive debt be cured by linking to economic growth? Despite the obvious appeal to Greece, growth-linked debts face some fundamental problems. The prospect arose when Greece offered to creditors something you ordinarily see only in corporate restructurings: a de facto debt-for-equity swap. Greek Finance Minister Yanis Varoufakis has offered to replace some of its existing bonds with growth-linked bonds. Greece would replace some of its existing bonds, which pay interest, with bonds whose coupon is linked to growth in gross domestic product. If Greece doesn’t grow, it doesn’t pay. Growth-linked bonds are the latest iteration of an idea that has caught fire since the global financial crisis: replacing more debt with equity-like financing. Crises are usually preceded by rising leverage. The inflexibility of debt means that when asset prices or income falls, insolvency is likely to follow. Replacing debt with equity reduces leverage, making insolvency and crises less likely. Proposals for GDP-linked bonds have been around since at least the emerging markets debt crisis of the 1980s, but they have not caught on broadly. GDP-linked bonds face at least one formidable technical obstacle: the trustworthiness of the data on which payout is based. Years of misleading budgeting means that Greek GDP statistics will justifiably be treated with skepticism. Brazil underreported inflation in the 1980s to reduce payments on inflation-linked bonds, Mr. Mauro notes, and Argentina has systematically understated its own inflation. Even countries that don’t deliberately fiddle their data routinely revise GDP, often by a lot.

ECB raises heat on Athens with curb on cash for banks - The eurozone’s monetary policy makers have tightened Greek lenders’ access to cheap liquidity, banning the use of the country’s debt as collateral for the European Central Bank’s cash weeks before a limit was expected to come into force. The ECB’s governing council — composed of the heads of the eurozone’s national central banks and the top six officials on the central bank’s executive board, including Mario Draghi, the bank president — made the decision on Wednesday. A waiver that allowed Greek government debt to be used as collateral despite its junk credit rating was set to expire on February 28, if the Syriza-led government carried out its threat to leave its EU bailout programme. The rules come into force when the ECB’s main liquidity auction next matures, on February 11. The ECB said the early suspension was “in line with existing eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review”. The ban also covers Greek government-guaranteed bank debt, an important source of collateral for the country’s lenders. The early ban signals the ECB’s determination to take a tough line on Athens’ attempts to secure funding from the central bank for the three-month period between the exit of the bailout programme and the agreement of a new “contract” with eurozone leaders, which Yanis Varoufakis, Greece’s finance minister, hopes to have in place by the beginning of June. The move follows a meeting between Mr Varoufakis and Mr Draghi in Frankfurt on Wednesday.

ECB shuts off direct funds to Greece: The European Central Bank said it will no longer suspend its own collateral rules for Greek government debt, citing doubt over the commitment of the new government to previous reform pledges. "The Governing Council of the ECB today decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic," the Frankfurt-based central bank said in an e-mailed statement. "The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the program review and is in line with existing Eurosystem rules." The decision will force Greek lenders, who since 2010 had been able to access funds from the ECB against junk-rated collateral, to apply for funding from their national central bank at less-advantageous rates. The decision comes hours after Greek Finance Minister Yanis Varoufakis met ECB President Mario Draghi in Frankfurt to gain support for his government's push to renegotiate the terms of its international bailout. "This decision does not bear consequences for the counterparty status of Greek financial institutions in monetary policy operations," the ECB said in the statement. "Liquidity needs of Eurosystem counterparties, for counterparties that do not have sufficient alternative collateral, can be satisfied by the relevant national central bank, by means of emergency liquidity assistance (ELA) within the existing Eurosystem rules."

Greece Loses ECB Funds, Raising Pressure to Yield to Austerity - -- Greece lost a critical funding artery as the European Central Bank restricted loans to its financial system, raising pressure on the 10-day-old government to yield to German-led austerity demands to stay in the euro zone. The ECB’s decision, announced at 9:36 p.m. Wednesday in Frankfurt, will raise financing costs for Greek banks and stiffen oversight by the central bank. Greece’s Finance Ministry said the decision doesn’t reflect any negative developments in the nation’s financial sector. More from Europe Stocks Drop as Greek Bonds Tumble on ECB; Oil Down The next move is up to Prime Minister Alexis Tsipras, who swept to power promising to reverse five years of spending cuts that accompanied 240 billion euros ($272 billion) of bailout loans. The ECB move came hours before the Greek finance chief, Yanis Varoufakis, was due to meet Germany’s Wolfgang Schaeuble in Berlin and hours after he met ECB President Mario Draghi. “The Greek government has realized handcuffs are a lot tighter than they expected,” Paresh Upadhyaya, Boston-based director of currency strategy and portfolio manager at Pioneer Investment Management Inc., which oversees about $248 billion. The ECB’s message was “‘your predecessor signed on to the program and that’s why you got the assistance, you can’t just back away from that,’” he said.

What on earth is the ECB up to? - The ECB has abruptly announced withdrawal of the "waiver" under which it was prepared to accept Greek sovereign bonds as collateral for liquidity. This created a considerable Twitter storm, with lots of angry people saying the ECB's action was beyond its mandate and far too precipitate: it should at least have waited for the Greek Finance Minister, Yanis Varoufakis, to meet his German counterpart, and it should not be acting as if the bailout programme was ended when negotiations were still proceeding. I admit, I was one of those people. And I stand by my views. The ECB is acting far beyond its mandate in seeking to influence negotiations between Eurozone member states regarding the terms and conditions under which member states lend to their distressed partners. It has no business interfering in fiscal policy: if the Greek government decides to run 1.5% fiscal surpluses instead of 4.5%, hike minimum wages and create lots of government jobs, it is none of the ECB's business. The ECB's monetary policy failures are legion: it should put its own house in order, rather than interfering with the conduct of fiscal policy. And worse, its persistent interference in fiscal policy is a clear conflict of interest, as the Advocate General of the European Court of Justice noted in relation to the OMT programme. It should not be a member of the Troika at all, and certainly should not use changes in fiscal policy by a democratically-elected sovereign government - even one that has inherited an economy in tatters with a massive debt burden - as justification for limiting liquidity to that country's banking system. Monetary policy should never be used to serve fiscal or political ends. Not ever. 

Push Greece Off the Cliff? - Yesterday, like many, I was appalled by the ECB announcement that it would stop accepting Greek bonds as collateral for loans. The timing, right after Greek finance minister Varoufakis met Draghi, but before he met German finance minister Schauble, seemed a clear signal: the ECB sides with Germany and EU institutions, and the only possible outcome it expects is a complete rolling back of Syriza electoral promises, and a renewed Greek commitment to austerity and troika-style structural reforms (privatizations plus labour market reform, to say it simply). This would of course be terrible news for Europe (these recipes simply did not work, this is acknowledge  everywhere from the IMF to the White House, passing by Downing Street). And terrible news for democracy as well. The signal to voters would be “Enjoy your day at the polls. Then we decide in Brussels, Frankfurt and Berlin”.  Appalling, I said. This morning I have read a different, very interesting interpretation by Frances Coppola.  Please read the piece. Is wonderfully written. In a few sentences, it says that the ECB move may not be pressure just on Greece, but on both sides involved, i.e. on Germany as well. In a sort of mega game of chess, by weakening Greece, by pushing it closer to the edge of the cliff, the ECB forces both sides to actively look for a deal, in order to avoid the catastrophic effect of Grexit. Coppola mentions the principle of “coercive deficiency” (famously applied to nuclear deterrence): a weaker Greece makes it run out of options, and hence a deal unavoidable.

A Dance With Draghi - Krugman -  What happened was that the ECB declared that it will no longer accept Greek government bonds as collateral when lending to Greek banks. The initial reaction of some observers was that this was the end, that the ECB was pulling the plug arbitrarily and abruptly.But even before I had a chance to look at the details, I assumed that must be wrong. You can say many things about Mario Draghi; it’s quite possible that he will fail to save the euro, and quite possible that he is making big mistakes; but stupid and crude is not his style. Sure enough, this is a much subtler action that the first headlines suggested. This funding channel is one that Greek banks no longer use very much, and it’s not necessarily to keep them afloat; they can continue to borrow indirectly via the Greek central bank. So this is not a crisis-provoking event.What’s the point, then? Well, it’s posturing and signaling. But to whom, and to what end?Maybe it’s an effort to push the Greeks into reaching a deal, but my guess — and it’s only that — is that it’s actually aimed more at the Germans than at the Greeks. On one side, it’s the ECB making tough noises, which might keep Germany off their backs for a little while. On the other, it’s a wake-up call: dear Chancellor Merkel, we are *this* close to watching a Greek banking collapse and euro exit, and are you really sure you want to go down this route? Really, really?So this wasn’t brinksmanship; it was sort of pre-brinksmanship, a warning shot to all sides about what will happen next.Does Draghi know what he’s doing? Of course not — nobody in this situation knows what he or she is doing, because it’s structurally a mess. But don’t panic — yet.

ECB to Greece: Drop Dead - Yves Smith - Even by the standards of bank thuggishness, the move by the ECB against Greece last night was a stunner. Americans have become used to banks taking houses under dubious pretexts when both the investors and borrowers would do better with a writedown. But to see the ECB try take a country is another matter entirely. As one seasoned pro said, “If anyone had tried something like this against a country with a decent sized military, the tanks would be rolling.” The ECB’s bombshell was to put Greece at risk of an intensification of its ongoing bank run in order to pressure it to agree to a deal with the Troika under an impossibly tight timetable, even shorter than the February 28 pre-existing deadline that Greece Finance Minister Yanis Varoufakis had planned to extend until June. As we’ve discussed at length previously, a longer negotiation timetable would be necessary to meet Greece’s objective of restructuring of the relationship with the Troika. Greece wanted that to be based on the recognition that Greece could never pay off its debts and that it was in both side’s interest to let Greece implement more growth-oriented policies. But the message from the enforcers at the ECB was unambiguous: Greece has no rights and needs to accept its debtcropper status. The ECB has thus also effectively said that it would rather have fascists like Golden Dawn running Greece, which is what will eventually occur if it succeeds in breaking Syriza. It also just handed France’s Marine Le Pen, head of the nationalistic, anti-Eurozone Front National fantastic fodder for her campaign.

Why is Yellen Supporting the ECB Attack on Greece?Yves Smith As we describe in our earlier post today on Greece, the ECB’s hit job on Greece is an continuation of the destructive and ultimately self-defeating practice of letting the pet needs of banks trump those of governments and social orders. The ECB is willing to turn Greece into a failed state out of what looks like sheer brutality, with the apparent rationalization that punishing Greece will serve pour decourager les autres, meaning the other periphery countries, and potentially even France, that are calling for relief from failed austerity policies.  It isn’t just the Eurozone that is falling into a mire of faltering economic performance out of fealty to misguided economics principles and elite finance. The Eurozone has now joined Japan and most of Asia in a currency war against the US. thanks to its implementation of QE. Roughly one quarter of S&P earnings is from operations in Europe. Many companies are reporting earnings misses due to the impact of the strong dollar, both via making exports less competitive, and from lower profits from operations on the Continent, due both to the surging greenback and to the deterioration of European growth. Given how fixated US companies are on short-term profits, earnings misses are headcount cut futures. Thus the mismanagement of the Eurozone is of direct concern to the US, since our economies have significant interdependencies.Obama is one of the few national leaders to come out forcefully against the Troika’s efforts to squeeze more out of an already bankrupt Greece. From the Wall Street Journal report on his remarks: “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” Mr. Obama said

Is Athens Giving One of its Best Debt-Relief Allies the Cold Shoulder? - Greece’s new government is fueling unease in European creditor capitols with talk of tearing up its old bailout terms and starting afresh, including with a debt restructuring and a less-onerous economic overhaul. It’s also leaving one of its biggest creditors, the International Monetary Fund, largely in the dark about its plans. More than a week after Greeks elected Prime Minister Alexis Tsipras, whose anti-bailout platform allowed voters to vent pent-up frustrations at the strenuous terms of the country’s economic overhaul, Athens still hasn’t started negotiations with the fund. “We look forward to hearing from the authorities on their proposals and their ideas,” Gerry Rice, the IMF’s top spokesman, told journalists Thursday. Finance Minister Yanis Varoufakis met with the IMF’s European chief, Poul Thomsen, briefly in Paris on Sunday in the middle of his whirlwind, pan-European tour. But Mr. Rice said, it was purely an introductory meeting. “They met to get acquainted and to discuss the challenges facing Greece.” “Specific policy issues were not discussed in detail,” Mr. Rice added. That includes Mr. Varoufakis’ proposal for the IMF to give Athens relief on the debt it owes to the fund.

ECB collateral damages on Greece - The European Central Bank’s Governing Council has lifted the waiver of minimum credit rating requirements for greek government bonds which, until yesterday, had allowed banks to use them in normal ECB refinancing operations despite the fact that they did not fulfil minimum credit rating requirements. The suspension of the waiver was justified on the basis that currently the ECB deems it “not possible to assume a successful conclusion of the programme review”. The liquidity risk may be substantial. As of December 2014 Greek banks were borrowing about 56 billion from the Eurosystem facility. As collateral, they were pledging only a limited amount of government bonds (which were benefitting from the waiver that has just been removed). The latest available data from the bank of Greece in fact show only 12 billion of Greek government securities on the asset side of Greek banks.  Considering the limitations on the use of Treasury Bills (T-bills) in refinancing operations, Greek banks could have used at most 8 billion of government securities as collateral for their eurosystem borrowing. The rest, as very clearly explained by Macropolis and Karl Whelan, was collateralised using European Financial Stability Facility bonds (ESFS bonds) and the so called “Pillar II and Pillar III” instrument, such as uncovered government-guaranteed bank bonds. These Pillar II and III instruments - amounting to about 25 billion - were due to become ineligible for refinancing operations from 1st March 2015 anyway, but would still work for Emergency Liquidity Assistance (ELA) funding (although more expensively).  The removal of the waiver effectively means that the amount of Eurosystem borrowing that was collateralized with Greek government bonds (about 8 billion) would need to be migrated onto the ELA facility. As said, this would also be the case for the amount that is collateralized with Pillar II and III instruments, from 1st March. The EFSF bonds will likely remain eligible as collateral for normal operations.

Greece Still Defiant After ECB Mugging - Yves Smith - Quite a few pundits appear to be in denial about the aggressiveness of the ECB move towards Greece and what that signifies about the prospects for reaching a deal. The Syriza government insists it is not backing off from the major tenets of its yet-to-be-fully fleshed out proposal. In an interesting shift, some economists, including Frances Coppola in a Financial Times column and the Economist’s Free Exchange blog, risk-sharing ideas that Draghi himself has put forward. However, they miss that the body language of the ECB, having moved to make Greece’s negotiating timeframe as short as possible, is clearly signaling that it is trying to bring Greece to heel and force a deal within the current parameters. That makes it very difficult for new structures to be included in the negotiations. The strongest implicit message from the ECB was its rejection of deviations from the current deal, such as Greece’s rejection of Troika monitors (the comment in the ECB press release about how “it is currently not possible to assume a successful conclusion of the programme review.”). And even the media stories that took a more conciliatory tone towards the idea of negotiating financial terms took a very stern tone about the importance of structural reforms, as in driving wage rates down, along with the reasons to doubt Syriza’s promise that it can crack down on oligarchs and improve tax collection. The issue of “structural reforms” is a major outtrade, since Syriza is committed to higher, not lower wages, and having the government engage in direct hiring to reduce unemployment levels. So the message remains loud and clear: despite lip service to the idea of favoring growth over austerity, the most that Syriza might get is austerity lite. The Greece population is showing strong support of Syriza. Since when have you ever heard of pro-government rallies?

Shunned Greece Agrees To Boost Economic Cooperation With Russia - It's been an odd few days for Greece's new PM Alexis Tsipras. From being lambasted by Jeroen Dijsselbloem, shunned by Angela Merkel's henchmen, holding hands with Jean-Claude Juncker, and losing a key funding channel from Mario Draghi; Tsipras' anti-austerity platform has been 'supported' by Barack Obama and he has been invited for a visit to Russia by Vladimir Putin, and reminded that Russia is willing (and able) to provide financial aid if asked by finance minister Anton Siluanov. So headlines this evening from ekathimerini should not be entirely surprising that Putin and Tsipras have agreed to boost cooperation in the economy and energy, tourism, culture and transport sectors; and discussed the possible creation of a pipeline to carry natural gas from Russia to Europe via Turkey and Greece.

Eurogroup Gives Greece 10 Day Ultimatum: Apply For Bailout Or Grexit Europe has an unpleasant habit of dropping tape bombs at the most inopportune of times, like at 3pm or later a Friday. And while on Wednesday it was the ECB yanking repoable Greek collateral for local banks, today it was first S&P, which downgraded Greece 5 months after upgrading it, and moments ago it was none other than the Cyprus bail-in man himself, the Eurogroup's Dijsselbloem  who just have Greece a 10 day ultimatum to fall into place or risk a terminal bank run and capital controls (both hinted at earlier by the post-DOJ settlement political "rating agency')  This means that Greece now has 10 days, or until the Monday after next to decide whether it will stay in the Eurozone or Grexit. Update: And now this: "Moody's places Greece's Caa1 government bond rating on review for downgrade"

ECB split points to sensitivity of Greek liquidity curbs - The eurozone’s monetary policy makers were split on their decision to ban the use of Greek debt as collateral for the European Central Bank’s cheap cash. The split highlights the sensitivity of the move which has left the ECB exposed to accusations that it was interfering in political talks over Greece’s future in the euro. The ECB’s 25-member governing council on Wednesday revoked a waiver that allowed Greek government debt to be used as collateral, despite its junk credit rating. The waiver was already due to expire on February 28, if the Syriza-led government carried out its threat to leave its EU bailout programme. Its early cancellation — the waiver will now expire on February 11 — has been viewed as a warning shot to Athens, and to eurozone leaders, to agree a new deal as soon as possible. While the ECB had made clear its dislike of Syriza’s plan to exit its programme this month, the timing of Wednesday night’s move caught markets off guard with US stock markets and the euro falling sharply following the news. Monetary policy makers had been expected to wait until after a crucial meeting of eurozone finance ministers next week before acting. The council was fairly evenly split on whether to drop the waiver early or wait until the end of the month. However, some of the members who wanted to wait did not have a vote. The governing council works under a system of rotating votes. This month, the governors of the central banks of Greece, Cyprus, Ireland and France could not vote.

A kick in the teeth from the ECB: On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece. We should be clear about what this means. The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made. It looks very much like a deliberate attempt to undermine the new government. They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to. Clarity is important here because the European authorities, or the troika as they are commonly called, plunged the eurozone into at least two additional years of unnecessary recession that began in 2011 because they were playing a similar game of chicken. The ECB, for its part, deliberately and repeatedly allowed the eurozone to go the brink of financial meltdown during this period. It was not because the financial markets had the power to collapse the euro when they pushed the yield on the 10-year sovereign bonds of Italy and Spain to unsustainable levels in the range of 7 percent. It was because the ECB deliberately allowed these market actors to create an existential crisis for the euro, in order to force concessions from the governments of Spain, Italy, Greece, Portugal, and Ireland. These concessions were not just about paying off debt but also “structural reforms” that sought to remake the European welfare state in the weaker countries, including shrinking the size of the state, cutting spending on health care, pensions, and unemployment compensation, and changing labor laws that favored workers.

Michael Pettis explains the euro crisis (and a lot of other things, too)  --- This is literally the best analysis of the euro area’s problems we’ve ever read. You should take the time to closely read the whole thing yourself. We’ll wait. Now that you’re back, we thought we could add some value by highlighting and expanding on what we believe to be Pettis’s most important insights. First, the relevant units within the euro area aren’t countries but economic sectors. For all of the suffering that has occurred in places such as Spain, Ireland, and Greece, we shouldn’t forget that German workers have suffered from stagnant wages and decaying infrastructure. One of the worst costs — for Germany — has been the lack productivity growth. For all the talk of Teutonic competitiveness, German labour productivity has grown at the meagre pace of just 0.6 per cent per year, on average, since 1998. Output per hour worked is actually lower now than it was in 2007. For perspective, this track record is worse than that of practically every other rich country — including Greece and Spain!  The right distinction, therefore, isn’t between countries but between classes:  It was not the German people who lent money to the Spanish people. The policies implemented by Berlin that resulted in the huge swing in Germany’s current account from deficit in the 1990s to surplus in the 2000s were imposed at a cost to German workers, and have been at least partly responsible for Germany’s extremely low productivity growth — most of Germany’s growth before the crisis can be explained by the change in its current account — rather than by rising productivity. Moreover because German capital flows to Spain ensured that Spanish inflation exceeded German inflation, lending rates that may have been “reasonable” in Germany were extremely low in Spain, perhaps even negative in real terms. With German, Spanish, and other banks offering nearly unlimited amounts of extremely cheap credit to all takers in Spain, the fact that some of these borrowers were terribly irresponsible was not a Spanish “choice.”

Yanis Varoufakis Sums Up Europe In One Sentence - "A clueless political personnel, in denial of the systemic nature of the crisis, is pursuing policies akin to carpet-bombing the economy of proud European nations in order to save them."

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