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

Saturday, March 7, 2015

week ending Mar 7

 Fed Watch: Game On - The highlight of the week was Federal Reserve Chair Janet Yellen's testimony to the Senate and House. On net, I think her assessment of the US economy was more optimistic relative to the last FOMC statement, which gives a preview of the outcome of the March 17-18 FOMC meeting. Labor markets are improving, output and production are growing at a solid pace, oil is likely to be a net positive, both upside and downside risks from the rest of the world, and, after the impact of oil prices washes out, inflation will trend toward the Fed's 2% target. . No wonder then that the Fed continues to set the stage for rate hikes this year. Importantly, Yellen gave the green light for pulling "patient" at the next FOMC meeting: it is important to emphasize that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings. Instead the modification should be understood as reflecting the Committee's judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting.  She is under pressure from both hawks and moderates to leave June open for a rate hike, which requires pulling "patient" from the statement. But at the same time, they don't want the end of "patient" to be a guarantee of a rate hike in June. And that is the message Yellen sends here. More broadly, though, Yellen is signaling the end of extensive forward guidance. . This was also the message sent by Federal Reserve Vice Chair Stanley Fischer. Via the Wall Street Journal: Mr. Fischer said that while many believe the Fed will move rates steadily higher, meeting by meeting, in modest increments, it is unlikely the world will allow that to happen. “I know of no plans to follow one of those deterministic paths,” he said, adding, “I hope that doesn’t happen, I don’t believe that will happen.” Instead, Mr. Fischer affirmed that whatever the Fed does with short-term rates will be determined by the performance of the economy, which will almost certainly offer the unexpected.

Paper Argues For Fed To Hold Off On Rate Hikes Until Last Minute - Federal Reserve officials who want to boost short-term interest rates soon warn that if the central bank waits too long, rate increases will ultimately have to be more aggressive and potentially disruptive to the economy. Bloomberg NewsBut according to a new paper to be presented at a University of Chicago Booth School of Business conference Friday, the latter path is the one the Fed should follow. “It pays for the Fed to be cautious” about raising rates “until we see more evidence from the behavior of the economy and inflation that such increases are clearly warranted,” wrote the paper’s authors, University of California San Diego professor James Hamilton, University of Wisconsin professor Kenneth West, Bank of America/Merrill Lynch economist Ethan Harris and Goldman Sachs chief economist Jan Hatzius. Some Fed officials have argued the central bank should start raising its benchmark federal funds rate from near zero relatively soon and then increase it very gradually, in small increments spread out over time. In contrast, the authors wrote, “Our findings suggest that the funds rate should start to rise later but…somewhat more steeply,” provided the recovery strengthens and inflation picks up. Why hold off for as long as possible? The paper says big uncertainties about monetary policy and its relationship with the economy argue in favor of caution. The paper arrives as the central bank edges closer to raising rates. Most Fed officials expect to start this year, with several pointing to some point this summer as a likely time for action. Fed officials also don’t know how much they will raise the fed funds rate over time, given surprisingly weak inflation and uncertainties over the underlying state of labor markets and growth.

Fed’s Evans: Delay Fed Rate Hike Until First Half of 2016 -  Raising short-term interest rates off currently near zero levels this year would be a mistake, Federal Reserve Bank of Chicago President Charles Evans said Wednesday. “We should be patient in raising interest rates,” Mr. Evans said. “I think economic conditions will evolve in a way such that it will be appropriate to delay normalizing monetary policy–that is, to hold off on raising short-term rates–until 2016,” he said. On one side, “economic activity appears to be on a solid, sustainable growth path,” he said. But, “inflation is low and is expected to remain low for some time–and I have serious concerns that inflation will run even lower than I expect,” the central banker said in the text of speech prepared for delivery at an event in Lake Forest, Ill. Mr. Evans’ belief that the Fed is unlikely to find the conditions it wants to raise rates this year puts the veteran central banker at odds with most of his colleagues, who believe the central bank will be able able to increase rates this year. Several officials have said they would like to open the door to considering rate increases starting with the central bank’s mid-June policy meeting. Mr. Evans and the other Fed officials agree growth and hiring have all been positive, and for many officials, that is enough to support the view rates could begin to increase. But on the other side, the central bank has fallen short of its 2% price target for nearly three years, which argues against any move higher until there is greater clarity inflation gains will move back to levels Fed officials deem desirable. Mr. Evans’ opposition to rate rises could put him in a dissenting role on the rate-setting Federal Open Market Committee, where he holds a vote this year.

Fed’s Williams: Ready to Consider Rate Rises Starting This Summer - Federal Reserve Bank of San Francisco President John Williams on Thursday expressed confidence that robust economic growth and healthy job gains would push inflation up over time. Speaking in Honolulu, the official reiterated that this positive outlook for the economy means that the Fed is getting closer to the day when it can raise short-term interest rates. Such an action would amount to reducing the amount of stimulus the central bank is providing, rather than a switch to policy designed to slow the economy’s momentum, he said. Mr. Williams spoke as central bankers prepare to meet in the middle of this month to deliberate on monetary policy. While no action is expected at the upcoming Federal Open Market Committee meeting, a number of officials have said that with the mid-June Fed meeting, the door to raising rates likely will be open. “I’m not making a prediction about what the Fed will do,” Mr. Williams said in his speech. But, “assuming that things unfold along the lines I’ve forecast, I think that by midyear it will be the time to have a serious discussion about starting to raise rates.” In describing what a rate increase would mean for him, he said that “there’s a difference between easing off the gas and applying the brakes.” To support an increase in rates, Mr. Williams told reporters after his speech that “I’m looking for continued improvement in the labor market.” The official noted that “wages are a lagging indicator of the business cycle,” so it would be natural to expect them to rise given the improvement in the jobs market.

The Strange Urge to Raise Rates - Paul Krugman - Monetary policy attracts crazy people like moths to a flame; goldbugs, 100-percent-reserve-banking types, amateur historians who think they know exactly what happened when Diocletian ruled Rome but have no idea what happened in Japan in the last decade. One thing that has surprised and depressed me in recent years, however, has been the obsession with raising interest rates among economists who used to seem sensible. Five or six years ago, this was all about the allegedly imminent risk of high inflation. When that inflation failed to materialize, you might have expected a pause for reflection — an attempt to figure out why they got it so wrong, and maybe even to figure out why some of us basically got it right. But no; instead we got either recapitulations of the original argument, with no acknowledgment of past failures, or new reasons to do exactly the same thing, and raise rates. The Bank for International Settlements remains tight-money central. But Marty Feldstein is effectively shadowing the BIS position, with added conspiracy theory, and it’s kind of shocking to see.Up to a point, Feldstein has followed the now-usual arc: first dire warnings that inflation is looming; then, after years of inflation not happening, a quiet segue to “hey, what’s so bad about below-target inflation and maybe even a bit of deflation. Um, there have been many explanations of the current worry. The IMF published a very useful piece on why “lowflation” brings many of the same risks as outright deflation. And the Fed is very much thinking about the example of Sweden, which decided to hike rates out of vague concerns about financial stability, only to find itself staring at the very real risk of deflation.  Instead, however, Feldstein suggests — with not a shred of evidence — that central banks are operating under ulterior motives, notably a desire to help finance budget deficits.  It’s very, very strange, and distressing.

Robust Jobs Report Keeps Fed Moving Toward Midyear Rate Increase -  The robust job market keeps the Federal Reserve on track to alter its guidance on interest rates at its policy meeting this month—and debate whether to start raising short-term interest rates in June. With an increase of 295,000 in non-farm payrolls in February, reported by the Labor Department Friday, job gains have averaged 322,000 per month for the past four months, the fastest pace since late 1997. Meantime, the unemployment rate has dropped to 5.5%—the top of a 5.2% to 5.5% range of what many Fed officials considered to be full employment. Fed Chairwoman Janet Yellen signaled in testimony to Congress last week the Fed at its meeting March 17-18 would drop an assurance that it will be patient before raising rates. Friday’s robust number assure the central bank will proceed with that plan, opening the door to a rate increase by June. Still, there’s no guarantee the Fed will move by midyear. Officials want to see how output, employment and inflation unfold before acting. They remain concerned that inflation is running below their 2% inflation target. At $24.78, average hourly earnings for private-sector workers rose 2% in February from a year earlier. That’s exactly in line with the modest 2% average over the past four years. “There are perhaps hints,” Ms.Yellen told the Senate Banking Committee on Feb. 24, “but we’ve not seen any significant pickup in wage growth.” Still many officials have signaled the declining jobless rate and reduced labor market slack give them confidence that inflation is on track to return to the Fed’s 2% inflation objective in the coming years.

Some Fed Officials Think the U.S. Economy Is Already at Full Employment - The U.S. economic recovery reached another milestone in February: The nation’s unemployment rate fell to 5.5%, the top end of the range considered normal by most Federal Reserve policy makers. In their latest economic projections, released in December, 17 Fed officials pegged the longer-run U.S. unemployment rate somewhere in the range of 5% to 5.8%. The so-called central tendency of the range–removing the three highest and the three lowest estimates–was 5.2% to 5.5%. The jobless rate fell into their broader range last year. Now, it has reached the range as estimated by the center of the rate-setting Federal Open Market Committee. That’s a significant threshold because it represents what many economists call the nonaccelerating inflation rate of unemployment, or Nairu. The Fed could try to push the unemployment rate lower, but in theory that would stoke inflation–and the U.S. central bank’s mandate is to pursue both “maximum employment” and “stable prices.” So does that mean the Fed considers its work done on the labor front? Maybe not. As the Journal’s Jon Hilsenrath wrote last month, some Fed officials are thinking about revising down their estimates for long-run unemployment. After all, the jobless rate has fallen sharply with little sign of mounting price or wage pressures. Fed Chairwoman Janet Yellen told lawmakers last month that while the labor market has seen improvement, “too many Americans remain unemployed or underemployed, wage growth is still sluggish and inflation remains well below our longer-run objective.” That didn’t exactly sound like a description of an economy operating at full employment.

Fed’s Lacker Says June Policy Meeting Likely Best Time to Increase Rates - Federal Reserve Bank of Richmond President Jeffrey Lacker said Friday he is looking to the central bank’s mid-June policy meeting as the most probable time to raise short-term interest rates. Given the performance of the economy and very robust improvements in the job market, “June has to be on the table,” Mr. Lacker told a SiriusXM satellite radio program. He explained that as long as the economy meets his expectations, “June would strike me as the leading candidate for liftoff” in moving short-term interest rates off their current near-zero levels. Mr. Lacker was interviewed in the wake of the release Friday of very strong hiring data for February. Most Fed officials favor raising rates this year, with a number of policy makers pointing to the June Federal Open Market Committee gathering as the point at which officials will begin actively considering rate rises. Mr. Lacker, a voting member of the FOMC, was more direct in saying that June would likely be an ideal time to boost rates. The official also indicated that he favors moving away from the Fed’s current pledge to be “patient” with rate rises, saying he’d like the wording to be struck from the FOMC statement in order to give officials more flexibility to respond to economic data. Pointing to the Fed’s mid-March meeting, he said, “I think the upcoming meeting in a couple of weeks, just how we characterize the outlook for policy is going to be front and center” in deliberations. Mr. Lacker was upbeat about what he saw in the jobs report, which showed that the economy added 295,000 jobs during a drop in the unemployment rate to 5.5%.

Fed Watch: 'Patient' is History - The February employment report almost certainly means the Fed will no longer describe its policy intentions as "patient" at the conclusion of the March FOMC meeting. And it also keep a June rate hike in play. But for June to move from "in play" to "it's going to happen," I still feel the Fed needs a more on the inflation side. The key is the height of that inflation bar. The headline NFP gain was a better-than-expected 295k with 18k upward adjustment for January. The 12-month moving average continues to trend higher: Unemployment fell to 5.5%, which is the top of the central range for the Fed's estimate of NAIRU. Still, wage growth remains elusive: Is wage growth sufficient to stay the Fed's hand? I am not so sure.  I recently wrote: To get a reasonably sized consensus to support a rate hike, two conditions need to be met. One is sufficient progress toward full-employment with the expectation of further progress. I think that condition has already been met. The second condition is confidence that inflation will indeed trend toward target. That condition has not been met. To meet that condition requires at least one of the following sub-conditions: Rising core-inflation, rising market-based measures of inflation compensation, or accelerating wage growth. If any were to occur before June, I suspect it would be the accelerating wage growth. I am less confident that we will see accelerating wage growth by June, although I should keep in mind we still have three more employment reports before that meeting. Note, however, low wage growth does not preclude a rate hike. The Fed hiked rates in 1994 in a weak wage growth environment:

Koo: The Fed may be telling us something by characterizing the first rate hike as a ‘liftoff’  -- The Federal Reserve has kept its benchmark interest rate near zero for years in its effort to stimulate job growth and stoke inflation in the post-financial crisis world. But with job growth looking healthy and some signs that inflation could soon heat up, Fed Chair Janet Yellen and her colleagues have been preparing the markets and its participants for tighter monetary policy via an initial rate hike. "Given the importance of getting the timing right, the FOMC needs to be absolutely sure that tightening is the right thing to do," Nomura's Richard Koo writes. "On this point, three of the members on the rate-setting committee have already argued that the Fed should tighten, while Chair Yellen and the rest of the members believe the start of this long 375bp journey is similar to a rocket launch in that all conditions need to be favorable." Koo thinks that it's noteworthy the way Fed members are characterizing. RBCCM"Interestingly, these people are referring to the first rate hike as “lift-off,” which is the term used to describe the moment the rocket leaves its launching pad," Koo wrote. "This is an indication of how careful the Fed will have to be when pushing the button on a rate increase." Koo argues it's important that this path to monetary policy normalization be steady as she goes, or we could see trouble.

The Below-Zero Lower Bound - Paul Krugman - Further to my earlier post on negative interest rates: here’s what may be a simpler way to think about it. When central banks push interest rates on government debt below zero, the effective lower bound is the return on cash held by people who would otherwise be holding that government debt — not people looking to expand their checking accounts. So the liquidity advantages of bank deposits over cash in a vault are pretty much irrelevant. It’s all about the cost of storage.  And really, how high can that cost be? Cecchetti and Schoenholtz argue that given a little time banks or other financial institutions ought to be able to store currency for clients at very low cost — as they say, turning back into the goldsmiths from which banks as we know them evolved — and might even be able to provide some checking-like services on the side.  So it’s not quite a ZLB; but analytically and in terms of policy, a minus x lower bound, where x almost surely less than 1, isn’t all that different.

Suspicions About the Federal Reserve Spill Out in House Hearing -- Fed Chairman Janet Yellen fielded questions last Wednesday before a combative House Financial Services Committee. Tempers flared, fingers stabbed the air, arms waved wildly as House reps expressed pent up frustrations with how the Federal Reserve is handling the economy. At times, Yellen answered curtly and at one point rolled her eyes at questioning from Congressman Scott Garrett (R-NJ) who insinuated that Yellen had politicized her office by meeting so frequently with President Obama and Treasury Secretary Jack Lew. The anger and frustration were evident from both sides of the aisle. Congressman Michael Capuano, (D-MA), was incensed that the largest, most dangerous Wall Street banks are still being allowed to fail their living wills. Capuano read a portion of a statement from FDIC Vice Chair, Thomas Hoenig, which stated that these living wills “provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support.”Capuano barked at Yellen “if they don’t meet your requirements at the third try, what you said is…something along the lines that you’d be upset.” Yellen responded that what she had said was “we will find them to be not credible if we do not see progress…” Capuano interrupted in frustration: “Would you break them up?” Yellen responded that the banks would have two years to show that they had made changes.Visibly showing disgust at the answer, Capuano said: “So five years after Dodd-Frank, they still have potentially three years before there are any serious consequences to prove to you that they no longer offer a threat to the entire U.S. economic system.” Yellen responded that the Fed had put higher capital standards in place. Capuano said that these capital standards have been found insufficient by everyone who studies these matters “except the Fed.”

Warren Warns Fed to Curb Its Emergency-Lending Powers Further - The Federal Reserve has a lot of fires to put out on Capitol Hill, and Sen. Elizabeth Warren just started another one. The Massachusetts Democrat urged the central bank Tuesday to strengthen a rule curbing its emergency-lending powers. “If the Fed fails to do that, I believe Congress should act,” Ms. Warren said at a Senate Banking Committee hearing on potential changes to the Fed’s operations and structure. The rule, required under the 2010 Dodd-Frank law, is designed to limit the Fed’s ability to provide emergency support to individual financial firms, as it did on a large scale during the 2008 financial crisis. But Ms. Warren and other lawmakers—including Sens. Sherrod Brown (D., Ohio) and David Vitter (R., La.), and Rep. Scott Garrett (R., N.J.)—have complained the rule proposed by the Fed in December 2013 falls short of what Congress intended. The rule has not yet been finalized. In an Aug. 18 letter to the Fed, the lawmakers recommended the Fed establish a clear time limit for how long a financial firm can rely on emergency support, establish procedures for winding down emergency-lending programs and set limitations and a penalty rate on lending terms. Ms. Warren reiterated the letter’s recommendations at the hearing Tuesday. “This is a critically important aspect of Dodd-Frank that the Fed has just glossed over,” she said. “If big financial institutions know that they can rely on the Fed to save them if they start to falter, then they have every incentive to take on more risk.”

David Stockman Warns "It's One Of The Scariest Moments In History" -- "The Fed is out of control," exclaims David Stockman - perhaps best known for architecting Reagan's economic turnaround known as 'Morning in America' - adding that "people don't want to hear the reality and the truth that we're facing." Policymakers are "taking our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that's been built up and created by the American people over decades and decades." The Fed, Stockman concludes, "is a rogue institution," and their actions have led us to "one of the scariest moments in our history... it's a festering time-bomb and we're not sure when it will explode."

Key Republican Lawmaker Calls for Review of Fed Structure -  U.S. Senate Banking, Housing, and Urban Affairs Committee Chairman Richard Shelby (R., Ala.) said Tuesday his panel will review the Federal Reserve’s structure, given its broad new powers over the financial system. The 2010 Dodd-Frank law expanded Fed oversight of big banks and tasked it with monitoring financial stability. But Congress didn’t examine whether the Fed was “correctly structured” to account for its new authority, Mr. Shelby said. “As part of this effort, we will review proposals aimed at providing greater clarity in Fed decision-making and at reforming the composition of Federal Reserve System,” he said at the committee’s first hearing on Fed “reforms” since Republicans took control of the upper chamber in January. Mr. Shelby said he had asked for input from the Fed’s regional reserve bank presidents. Sen. Sherrod Brown (D., Ohio), the committee’s top Democrat, also said Congress should consider whether the current governance of the Fed system “appropriately holds regulators accountable and encourages diverse perspectives.” The Fed system comprises a seven-member Washington-based board of governors and 12 regional reserve banks run by their own presidents. The governors are nominated by the U.S. president and are subject to Senate confirmation. The reserve bank presidents are chosen by the banks’ board of directors, subject to approval by the board of governors.“With independent and accountable leaders, diverse perspectives, and strong regulation, the Federal Reserve System can be responsive to the American public,” Mr. Brown said. “This is where we should focus our discussion of reforms of the Federal Reserve System.” “Some changes would require legislation, but some would not,” he added.

Ready, Fire, Aim … Let’s Reform the Fed - Washington is abuzz these days with proposals to reform the Federal Reserve. Lawmakers want to subject its monetary policy decisions to congressional review, force it to follow strict monetary policy rules and demand the New York Fed president be confirmed by the Senate. At a Brookings Institution conference  Monday, other proposals emerged, such as requiring the Fed to pursue financial system stability as one of its formal mandates and stripping regional Fed banks of power. There is one overriding problem with all of these proposals: No consensus exists about what the Fed got wrong before, during and after the financial crisis or what exactly needs to be fixed. Most observers agree – and Fed officials have acknowledged — the central bank failed as a bank regulator before the 2007-2009 financial crisis. But on most other points, disagreement is rampant. A credible narrative existed about the Fed’s failings during and after the Great Depression. Its failure to act as a lender of last resort and provider of credit and money to a suffocating financial system made a bad recession and financial crisis much worse. Congress set out to expand its lending capabilities and concentrate its decision-making. Before reforms are set out this time, it would be helpful to have a credible narrative about how to fix the place. All lawmakers seem to have right now is a general sense they want more accountability from an institution they perceive as having worked too expansively in the shadows during the crisis.

Ben Bernanke Says Fed Already Follows Policy Rule - Former Federal Reserve Chairman Ben Bernanke said Monday that Republican efforts to force the central bank to adopt an official policy rule to conduct interest policy are redundant because the Fed already sets out clear benchmarks for its interest rate actions. “The Fed already has a rule,” Mr. Bernanke said during a panel discussion at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. “It’s committed to hitting a 2% inflation target and aiming for the natural rate of unemployment. These are rules.” In addition, Mr. Bernanke noted, the Fed publishes forecasts for where individual policy makers see the path of policy given their expectations for the economy’s performance. Mr. Bernanke was referring to a congressional proposal to require the Fed to adopt a mathematical rule for determining interest rate policy, similar to the so-called Taylor rule devised by Stanford University economist John B. Taylor. The former Fed chief said the proposal would restrict the Fed’s policy flexibility, though it would be less invasive than Sen. Rand Paul’s (R-Ky.) “Audit the Fed“ legislation, which would allow the Government Accountability Office to audit the Fed’s monetary policy decisions. Moreover, he added the latest economic research suggests Taylor-type rules, which provides a framework for interest rate policy based on how far the economy is running from its full potential, are “no longer state-of-the-art.” They would not have been very useful during the financial crisis, Mr. Bernanke said, and might have been actively counterproductive.

Dallas Fed’s Fisher Says Some In Congress Weighing His Fed Reform Plan - The outgoing leader of the Dallas Fed said Wednesday his plan to reform the U.S. central bank had caught the ear of Congress, although he declined to handicap the future of his proposal. Richard Fisher, who will leave the leadership role of the bank later in the month, said “I don’t think it makes any sense whatsoever for congress to get themselves involved in monetary policies, but we have to respect” legislators interest in how the bank is structured and functions. He told an El Paso, Texas audience that “I made some proposals that I thought would be sensible, but we will have to see what happens.” Last month, Mr. Fisher offered up a plan that would strip responsibilities from the New York Fed and increase the power of the other 11 regional Fed banks, in a bid to make the institution better represent the interests of the country.

The Fed Is Weird. Get Over It. - The Federal Reserve System is a strange, ungainly beast. Its strangest and ungainliest appendages are the regional Federal Reserve Banks, 12 technically private institutions scattered unevenly across the nation. The Federal Reserve Bank presidents are chosen by boards of local citizens -- although not, since the Dodd-Frank Act, by local bankers -- and are paid on a scale that actual government officials below the level of U.S. president can only dream of (unless you count state-university football and basketball coaches as government officials). Yet these well-remunerated private citizens get to help set the nation’s monetary policy. The New York Fed president has a permanent say in the deliberations of the rate-setting Federal Open Market Committee; the other 11 presidents rotate through four voting spots -- and they can come to the meetings even when they don’t vote. Is this weird? Absolutely (Texas Congressman Wright Patman once called the Fed "a pretty queer duck"). Is it of dubious constitutionality, as lawyer/historian Peter Conti-Brown argues in a paper that he presented at the Brookings Institution Monday? Probably. Is it a bad system that has reduced the effectiveness of the Fed and public trust in it, as Conti-Brown also argues? I’m not so sure about that. In his paper, which is great on the Fed history even if you disagree with the conclusions, Conti-Brown argues that the Fed would be more effective and more trusted if some or all of the Federal Reserve Bank presidents were appointed by the president and approved by Congress -- or, better yet, if the Federal Reserve Board appointed them. In his response to Conti-Brown at the Brookings event, former Philadelphia Fed President Charles Plosser argued that this was a solution in search of a problem. None of the Fed’s big historical failures -- the Great Depression, the Great Inflation of the 1970s, and the 2007-2008 financial crisis -- could really be attributed to the appointment process at regional reserve banks, Plosser said.

Why the Federal Reserve Bank Needs Defending - I confess to not having read all eighteen hundred of the transcript pages released on Wednesday, by the Federal Reserve, from the 2009 meetings of its policy-making Open Market Committee. But after going through some of the documents, which cover the period after the great financial crisis of 2007–2008, and reading the exemplary coverage of them at the Times, the Wall Street Journal, and the Financial Times, I was reminded of how fortunate we are to have a professional and largely apolitical institution overseeing the U.S. economy. At a time when much of the American system of government, particularly the relationship between Congress and the executive branch, is characterized by dysfunction and partisan warfare, the Fed is a shining exception. As a quasi-independent institution that is shielded from day-to-day political pressures, it can concentrate on the actual business of governing, and on preventing economic calamities. Its existence in this form, which Congressional Republicans have been seeking to undermine, provides an invaluable backstop for the U.S. economy and, indeed, the world economy.

Fed Chair Yellen and Husband Hold $4.9-$13.4 Million in Assets - Federal Reserve Chairwoman Janet Yellen and her husband, Nobel-prize-winning economist George Akerlof, reported total assets of between $4.9 million and $13.4 million last year, according to documents released Thursday by the U.S. Office of Government Ethics. Ms. Yellen is one of several millionaires on the Fed, with the wealthiest officials having made come from careers in banking and private equity. In their most recent previous disclosure in August, Ms. Yellen and her husband held assets worth between $5.3 million and $14.1 million in 2013. Fed officials’ asset holdings are disclosed in ranges, without revealing a specific total value. Many of Ms. Yellen and Mr. Akerlof’s investments are in retirement plans linked to the University of California, where they both have worked as professors. They also hold interests in private companies, including Raytheon, ConocoPhillips and others. Mr. Akerlof holds between $1 million and $5 million in a Vanguard Index Trust – 600 Portfolio

Americans say keep politics out of the Fed (Reuters) - Most Americans don't know who runs the Federal Reserve, but they do believe that elected officials should stay out of its business, according to a Reuters-Ipsos poll. Just 24 percent of those polled said Congress should be allowed to have detailed oversight of the Fed, the poll shows. More than double that amount said the central bank should be left alone. The poll of 1,388 Americans was conducted from Feb 20-24 to measure whether people supported proposed legislation that would expose the Fed to a full government audit, a move being led by Rand Paul, a likely 2016 presidential candidate. true The Republican Senator from Kentucky held an "Audit the Fed" rally in Iowa last month, and his spokesman told Reuters that polls showed Americans want the central bank to be audited. Supporters of the campaign say the Fed needs more transparency and accountability. Opponents say the Fed is already audited, and that exposure of internal policy discussions could lead to political influence over decisions on interest rates and damage market confidence.

Presidents should be able to declare economic emergencies: Bernanke - — Presidents should get the power to declare economic emergencies along the lines to declare war, said former Federal Reserve Chairman Ben Bernanke on Monday. While the Fed retains the authority it needs to respond to another financial crisis, financial crises “tend to have a certain chaotic element to them,” that no one can predict, Bernanke said during a panel discussion sponsored by The Hutchins Center on Fiscal and Monetary Policy. In light of this, it might make sense to give “the president some ability to declare emergencies or take extraordinary actions and not put that all on the Fed,” Bernanke said at a conference. “The constitution gives the president significant flexibility to respond to military situations,” in part because they are chaotic, he noted. “I am sure it is not politically possible, but it would be worth thinking about,” the former Fed chairman said. Shortly after the collapse of Lehman Brothers in the fall of 2008, the Bush White House went to Congress and asked for authority to purchase troubled assets from financial institutions. After the House initially rejected the proposal and stock markets tumbled, Congress reconsidered and the measure was signed into law and became the $700 billion Troubled Asset Relief Program, or TARP. At the same time, the Fed put in place several emergency loan measures to keep credit flowing to the economy. Many economists believe these loan programs were essentially fiscal policy outside the Fed’s traditional purview.

Fed’s Regional Banks Are ‘Unconstitutional,’ Brookings Paper Says - The Federal Reserve’s 12 regional banks are “unconstitutional” and contribute to the popular misperception that the central bank is a privately owned institution not fully accountable to the public interest. That’s according to Peter Conti-Brown, assistant Professor of legal studies and business ethics at The Wharton School of the University of Pennsylvania,  in a working paper for the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. The central bank is a public institution created by Congress. Both its chair and other members of its powerful seven-seat board of governors are appointed by the U.S. president and subject to Senate confirmation. However, the presidents of its regional reserve banks are appointed by a board of directors comprising mostly private-sector representatives heavily influenced by the banking sector, though the appointments are subject to approval by the board. Mr. Conti-Brown says this system violates constitutional law because the regional Fed bank presidents are public policy makers who are picked by a quasi-private structure, and the president has no authority to remove them without going through three distinct steps. “It is precisely this kind of nested removability problem that the Supreme Court has determined violates constitutional principles of separation of powers,” the author says.

The Slippery Slope of Disinflation - Paul Krugman - Arguments for tight money often rest on claims that inflation, even at low rates, is a slippery slope: say that 2 percent is OK, then people will make the case for 4, then 10, and before you know it we’re Weimar. It’s not clear whether that has ever really happened: actually existing Weimar, like all hyperinflations, was a byproduct of political chaos, and the 1970s had as much to do with oil shocks as with policy misjudgments. In any case, it’s certainly nothing we’ve seen in advanced countries for a long time. Almost five years ago, however, I started worrying about the opposite problem — the slippery slope of disinflation. We already knew from empirical evidence that prices were sticky enough to prevent full-bore deflationary spirals; but that very fact could lead to another kind of trap, in which policymakers and pundits start to treat below-target inflation as OK, and invent new rationales for raising interest rates. Now Tony Yates catches Andrew Sentance taking below-target inflation as a reason for opportunistic disinflation — we’re so low, why not go for zero?  The answer is that central banks have a 2 percent, not zero, inflation target for a reason — actually two reasons. (Amongst their reasons are surprise — surprise and fear — surprise, fear, and a fanatical devotion to …) As I tried to explain in my paper for last year’s ECB conference, positive inflation helps both with avoiding the zero lower bound (which isn’t as binding as everyone thought, but there are still limits to rate cuts) and with limiting the problems caused by downward nominal wage rigidity. And the experience of the past six years has made those concerns stronger, not weaker:

The $100 Trillion Reason the Fed is Terrified of Deflation - Over the last few months, Yellen repeatedly stated that lower oil prices were “positive” for the US economy. This is simply astounding because the Fed has repeatedly told us time and again that it was IN-flation NOT DE-flation that was great for the economy. And yet, repeatedly, the head of the Fed admitted, in public, that deflation can in fact be positive. How can deflation be both positive for the economy at the same time that the economy needs MORE inflation? The answer is easy… Yellen doesn’t care about the economy. She cares about the US’s massive debt load AKA the BOND BUBBLE. Yellen knows deflation is actually very good for consumers. Who doesn’t want cheaper housing or cheaper goods and services? In fact, deflation is actually the general order of things for the world: human innovation and creativity naturally works to increase productivity, which makes goods and services cheaper. However, DEBT DEFLATION is a nightmare for the Fed because it would almost immediately bankrupt both the US and the Too Big To Fail Wall Street Banks. With the US sporting a Debt to GDP ratio of over 100%... and the Wall Street banks sitting on over $191 TRILLION worth of derivatives trades based on interest rates (bonds), the very last thing the Fed wants is even a WHIFF of debt deflation to hit the bond markets. This is why the Fed is so obsessed with creating inflation: because it renders these gargantuan debt loads more serviceable. In simplest terms, the Fed must “inflate or die.” It will willingly sacrifice the economy, and Americans’ quality of life in order to stop the bond bubble from popping.

PCE Price Index: Inflation Slips Further Below the Fed Target -- The Personal Income and Outlays report for January was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate is 0.22%, down from 0.77% the previous month. The Core PCE index (less Food and Energy) at 1.31% is little changed from the previous month's 1.34% 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. In April of 2013, the Core PCE dropped below 1.4% and hovered in a narrow YoY range of 1.23% to 1.35% for twelve months. The subsequent months saw a higher plateau approaching 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. The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I've highlighted the 12 months consecutive when Core PCE hovered in a narrow range around its interim low, a level to which it has returned in the last two months. 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.

U.S. Inflation Undershoots Fed’s 2% Target For 33rd Straight Month -  A key gauge of U.S. consumer prices sank in January due partly to cheaper oil, undershooting the Federal Reserve’s goal of 2% annual inflation for the 33rd consecutive month. But a gauge of underlying price pressures remained resilient headed into 2015. The price index for personal consumption expenditures, which is the central bank’s preferred inflation gauge, rose 0.2% in January from a year earlier. That followed annual growth of 0.8% in December, 1.2% in November and 1.4% in October, the Commerce Department said Monday. It was the lowest reading for headline inflation since October 2009, when prices rose just 0.1% from a year earlier following seven months of year-over-year price declines as the 2007-09 recession ended. Excluding the often-volatile categories of food and energy, consumer prices rose 1.3% in January from the prior year. That was unchanged from annual growth of 1.3% in December though down from readings of 1.4% in November and 1.5% in October. Overall prices fell 0.5% in January from the prior month, and core prices rose 0.1% from December. Economists surveyed by The Wall Street Journal had expected a 0.1% increase for prices excluding food and energy.

Fed’s Evans Says Low Inflation Is A Bit of a Puzzle - Federal Reserve Bank of Chicago President Charles Evans said Wednesday that low inflation remains a bit of a puzzle as the economy shows momentum. Mr. Evans, whose remarks came during a question-and-answer session here, described the economy as doing better and showing momentum. But he said that isn’t enough to merit a rate increase until 2016 because of low inflation, which has fallen short of the central bank’s 2% price target for nearly three years. The central banker said low inflation isn’t just an issue here, but one that is being seen around the world. He added that U.S. inflation could become decoupled from other nations. Mr. Evans, who is a voting member of the monetary policy-setting Federal Open Market Committee, believes the Fed won’t get to that 2% price target until sometime in 2018, which would indicate the central bank could raise rates at some point in the first half of 2016.

Deflation, inflation, oil prices and asymmetries - When both headline and core inflation rose above target after the financial crisis, helped by rising oil prices, the Fed and Bank of England kept their nerve and did not raise interest rates. They saw through what was a temporary episode.  To what extent is what we are seeing right now just the mirror image of this period?  In terms of where inflation is and the monetary policy response, the situation today does indeed look like a mirror image. Headline inflation is or is about to be negative, and core inflation has fallen below target. As Tim Duy points out for the US, core inflation seems to be heading lower rather than returning to target. However I think that is where the symmetry ends. While the dangers of letting inflation rise above target because of temporary shocks are small, the dangers in the opposite direction are more serious.   One of the arguments used by the inflation hawks when oil prices were high is that even if the impact of higher oil prices on inflation was itself temporary, there was a danger that inflation expectations would increase, and the central bank would lose its anti-inflation credibility. My response at the time was three-fold: first, the private sector can see the reason that rates are not being raised (the continuing recession), so credibility should not be in danger; second, the best indication that the expectations that matter have shifted is when nominal wage inflation starts to pick up (which it did not), and third when that happens it will be easy to restore credibility and reduce expectations by raising rates. [1]  None of these arguments apply with deflation today.

Concerns About Deflation Show Up in an Obscure Derivatives Market - Something unusual is happening to prices right now: They are falling.The recent sharp decline in gas prices is part of the story, but there is now growing fear that the Federal Reserve will undershoot its own 2 percent inflation target, hindering the economic recovery. There’s also a small but worrying risk that the economy could enter a deflationary rut.At issue are inflation expectations. Economists believe expectations are critical because they shape the decisions individual shopkeepers make when deciding whether and by how much to raise their prices. Beliefs about inflation create a self-fulfilling prophecy in which today’s expected inflation becomes tomorrow’s actual inflation. The trick to managing inflation then, is to manage inflation expectations. In practice, though, it is very hard to observe what people expect inflation to be.That’s why it’s worth paying close attention to the disturbing portents from a relatively young and obscure derivatives market that provides new perspectives on inflation expectations — tracking not only the likely level of inflation, but also the risks that inflation might be too high, too low or just right. In this market, derivatives called inflation caps and inflation floors are, effectively, bets on the trajectory of prices over the next few years.Think of it as a prediction market for inflation. Just as prediction markets are better than experts, computer models or surveys at forecasting elections, sporting events and the weather, it seems likely that these markets are better at capturing inflation expectations.

4th Quarter GDP….Downward Revision….Keeps Us Guessing  -- The BEA’s second estimate of 4th quarter GDP trimmed the growth rate to 2.2% from 2.6%. The downward revision will certainly give those more “patient” policy makers additional ammo to sit back and let the dust settle further before making any moves.  Since the recovery began, real GDP has continued a long, slow climb out of the depths. As is evident in the graph below, the growth has been weaker than the typical recovery. Said differently, almost 30 quarters since the previous peak real GDP is less then 10% higher now; however, in the past real GDP was 20-30% higher after 30 quarters from the previous peak.  Meanwhile, a version of the Taylor Rule with unemployment targeted at 6% and inflation at 2% calls out for an increase…and has been for more than 4 years. However, average hourly earnings growth has been anemic, stuck around 2% since 2010, meaning any changes in real earnings came from changes in inflation. The latest drop in inflation has meant an increase in real hourly earnings of about 2%. As can be seen in the graph below real hourly earnings growth since 2010 spent lots of time in negative territory, rarely hit even 1% and has averaged about zero. Moreover, five year out inflation expectations are also low. With no inflation pressures now or later, many on the FOMC likely feel little reason to begin liftoff. Indeed, from Chair Yellen’s remarks to Congress, In sum, since the July 2014 Monetary Policy Report, there has been important progress toward the FOMC’s objective of maximum employment. However, despite this improvement, too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our longer-run objective. While many were thinking that liftoff might begin in the middle of this year, but these words from her testimony imply later rather than sooner, The FOMC’s assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings. If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.

More signs of a slowdown: Beginning in autumn 2013 and continuing through spring 2014, the housing market stalled in response to higher interest rates. Because of that, I anticipated an economic slowdown at about the end of 2014. More signs are emerging that the slowdown has occurred. First of all, here's a look at housing permits (blue, averaged quarterly YoY) with real YoY GDP (red): While there is no 1:1 correspondence, the leading nature of housing is clear. Yesterday ISM manufacturing for February was reported as the least positive in 13 months: Building construction declined (red in the graph below) -1.1% in January, and has been negative YoY for the last 3 months. I've also included monthly housing permits (blue), to show you that construction follows permits with a lag: Now here is an update of the Atlanta Fed's GDPNow calculations after yesterday's economic data: The forecast has now declined to +1.2% annualized. Last year the housing market never really went negative, nor did that other big consumer durable purchase, motor vehicles. So, while I think we are seeing a real slowdown, undoubtedly also influenced by developments like the West Coast port strike, weakness in Europe, and strength in the dollar, I do not believe this is in any way a recession indicator, and I believe it will be tranitory.

Fed's Beige Book: Economic Activity Expanded "across most regions", Oil "declined" - Fed's Beige Book "Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before February 23, 2015. " Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand across most regions and sectors from early January through mid-February. Six Districts noted that the local economy expanded at a moderate pace since the prior reporting period. Activity rose modestly in Philadelphia and Cleveland, while it increased slightly in Kansas City. Dallas noted a similar pace of growth as in the previous period, while Richmond reported that activity slowed from the modest pace seen in the prior period. Boston noted that business contacts were fairly upbeat this period, notwithstanding the severe weather.... Oil and natural gas drilling declined in the Cleveland, Minneapolis, Kansas City, and Dallas Districts. In contrast, the Richmond District reported that natural gas production was unchanged. The number of drilling rigs for oil and natural gas declined sharply in the Cleveland, Minneapolis, and Kansas City Districts. Oil and gas producers in the Cleveland, Kansas City, and Dallas Districts anticipate cuts in capital expenditures during 2015. Coal production was unchanged in both the Cleveland and Richmond Districts, while it increased modestly in the St. Louis District. Both the Cleveland and Richmond Districts reported lower coal prices.

The Fed’s Beige Book: We Read It So You Don’t Have To -- U.S. economic activity has continued to expand this year, but snowstorms in New England and a labor dispute at West Coast ports caused slowdowns in some parts of the country, according to the Federal Reserve’s latest survey of regional economic conditions. Here are some of the anecdotes offered from the Fed’s 12 regional banks:

US Macro Weakest Since July 2011 As Goldman Affirms Global Economy In Contraction -- Goldman's Global Leading Indicator (GLI) final print for February affirms the global economy has entered a contraction with accelerating negative growth. Just six months after "expansion", the Goldman Swirlogram has collapsed into "contraction" with monthly revisions notably ugly and 9 out of 10 components declining in February. Some have suggested, given US equity's strong February (buyback-driven) performance, that the US economy will decouple from the world... or even drive it.. but that is 100% incorrect. US Macro data has fallen at its fastest pace in 3 years and is at its weakest level since July 2011 as 42 of 48 data items have missed since the start of February.

Could Reduced Drilling Also Reduce GDP Growth? -- Atlanta Fed's macroblog -- Five or six times each month, the Atlanta Fed posts a "nowcast" of real gross domestic product (GDP) growth from the Atlanta Fed's GDPNow model. The most recent model nowcast for first-quarter real GDP growth is provided in table 1 below alongside alternative forecasts from the Philadelphia Fed's quarterly Survey of Professional Forecasters (SPF) and the CNBC/Moody's Analytics Rapid Update survey. The Atlanta Fed's nowcast of 1.2 percent growth is considerably lower than both the SPF forecast (2.7 percent) and the Rapid Update forecast (2.6 percent).  Why the discrepancy? The less frequently updated SPF forecast (now nearly a month old) has the advantage of including forecasts of major subcomponents of GDP. Comparing the subcomponent forecasts from the SPF with those from the GDPNow model reveals that no single factor explains the difference between the two GDP forecasts. The GDPNow model forecasts of the real growth rates of consumer spending, residential investment, and government spending are all somewhat weaker than the SPF forecasts. Together these subcomponents account for just under 1.0 percentage point of the 1.5 percentage point difference between the GDP growth forecasts. Most of the remaining difference in the GDP forecasts is the result of the different forecasts for real business fixed investment (BFI) growth. The GDPNow model projects a sharp 13.5 percent falloff in nonresidential structures investment that largely offsets the reasonably strong increases in the other two subcomponents of BFI. Much of this decline is due to petroleum and natural gas well exploration; a component which accounts for almost 30 percent of nonresidential structures investment and looks like it will fall sharply this quarter. The remainder of this blog entry "drills" down into this portion of the nonresidential structures forecast (pun intended). (A related recent analysis using the GDPNow model has been done here).

GDP Shocker: Atlanta Fed Calculates Q1 Growth Of Only 1.2% - While every other word from talking-heads and policy-makers relates various anecdotes (or simple lies) about US economic growth, The Atlanta Fed appears to have taken a 'data-dependent' perspective on the real economy (as opposed to smoke and mirrors). Based on their GDPNow "nowcasting" model, The Atlanta Fed projects Q1 2015 GDP growth os just 1.2% (less than half current sell-side economist consensus) and getting weaker... As The Atlanta Fed explains... The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our new GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release. The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 1.2 percent on March 2, down from 1.7 percent on February 26. The nowcasts for first-quarter real residential and nonresidential structures investment and for real state and local government spending all declined following this morning's construction spending release from the U.S. Census Bureau. This forecast from The Atlanta Fed is less than half consensus... and not even we were bearish enough.

JPM Cuts Q1 GDP: Warns "Here We Go Again" As "It Is Feeling Eerily Like Q1 Of Last Year" -- "In light of the data we've received this week – January reports for real consumer spending, construction spending, and net exports that varied from disappointing to downright weak, as well as a softer February print for car sales –-- we are marking down our tracking for annualized real GDP growth in Q1 from 2.5% to 2.0%. Even after this revision risks are more skewed to the downside than upside. By way of comparison, the Atlanta Fed's tracking estimate of Q1 recently came down to 1.2%. It's still relatively early in the quarterly data flow, even so, it is feeling eerily like Q1 of last year. In both cases the quarter began with high expectations, estimates were brought down as the quarter progressed, weather was blamed, but most forecasts remained upbeat on the medium-term outlook."

Slowing U.S. economy is inconvenient truth - Yes, Virginia, this was supposed to be the best year since 2008. Too bad it’s not turning out this way. Instead of growing 3% or better in the fourth quarter, the actual number hit the tape at 2.6% — and was subsequently revised downward to only 2.2%. Right away, the new year wound up with one strike against it, since the jumping off point for this year’s first quarter is now far below expectations. Then come the numbers: Consumer spending, which accounts for almost 70% of the country’s gross domestic product, fell in December and in January. Not only was this the first two-month decline since 2009, it comes at a time when falling energy prices should have given spending a fillip. Other data are coming in on the weak side as well. To be sure, part of this slowdown reflects the natural ebb and flow of economic activity. Growth never runs in a straight line for long, and after the economy’s performance in the second and third quarters of last year, a slowdown was to be expected. However, a good chunk of this slowdown traces to the unusually severe weather that struck most of the country late last year and early in this year. Now as we all know, most of the government’s data are adjusted to take recurring seasonal patterns into account. All that said, these spending patterns almost never occur exactly as the government’s number-crunchers expect. That is why the seasonally adjusted numbers rise or fall; they are behaving better or worse than average.

Difference Between Economic Growth Rates and Treasury Interest Rates Significantly Affects Long-Term Budget Outlook — An underappreciated factor in long-term budget projections is how the projected interest rate (“R”) that the federal government pays on its debt and the projected growth rate of the economy (“G”) relate to one another. In a nutshell, policymakers can more easily restore the nation’s fiscal health when the economic growth rate exceeds the average interest rate than vice versa. That’s because, when economic growth rates exceed Treasury interest rates, the burden of existing debt shrinks over time. (Or, putting it technically, policymakers can more easily achieve long-run debt sustainability when R minus G, or R-G, is negative than when it’s positive.)[1] For decades, analysts have made budget projections that extend 25, 50, or even 75 years into the future. Most generally show that debt as a percent of the economy (i.e., the “debt ratio”) could eventually rise to economically dangerous levels. That’s in large part because the government is running primary deficits — that is, separate and apart from interest costs, program costs exceed revenues — and these primary deficits are projected to continue at least through 2040 because revenues will not grow fast enough to offset the rise in baby boomer health and retirement costs. That’s the main reason why, last May, the Center on Budget projected that debt would rise as a share of the economy through 2040 (the period that our debt projection covers).[2]

What is the new normal for the real interest rate? - The yield on a 10-year Treasury inflation protected security was negative through much of 2012 and 2013, and remains today below 0.25%. Have we entered a new era in which a real rate near zero is the new normal? That’s the subject of a new paper that I just completed with Ethan Harris, head of global economics research at Bank of America Merrill Lynch, Jan Hatzius chief economist of Goldman Sachs, and Kenneth West professor of economics at the University of Wisconsin, which we presented at the U.S. Monetary Policy Forum annual conference in New York on Friday. For the project we assembled annual data on the interest rate set by the central bank (or close substitute) along with inflation estimates for 20 different countries going back in some cases to 1800, along with more detailed quarterly data since 1970. We constructed a proxy for expected inflation using autoregressions estimated over rolling windows. The figure below plots the resulting annual series for the ex-ante real interest rates for eight of the countries we looked at.  We found little support in these data for two of the popular conceptions many people have about real interest rates.

Chinese ownership of American bonds and stocks - On Friday, the Department of the Treasury released preliminary estimates of foreign holdings of US securities through June 2014. They show Japan as the top foreign investor, at $1.92 trillion. This is misleading. China is second at $1.82 trillion. And China is much less transparent about its bond investment than Japan. A glance at the other top investors makes clear there are trillions in indirect purchases, routed through third parties. China is responsible for a good chunk, pushing its true holdings of American bonds and stocks far past $2 trillion.  Ranking foreign holders of US securities shows an obvious problem. The totals for Japan, China, Britain, Canada, and Taiwan are sensible given their populations and economic relationships with the US. The other half of the top 10 holders are global capital centers, where national investors place money for various reasons. Someone else is investing in the US through the Caymans and Luxembourg. It is not just Chinese entities that invest through “offshore” sites. But China has by far the world’s largest stock of foreign exchange reserves, three times larger than Japan’s. These reserves, which hovered near $3.9 trillion over the course of 2014, have to be placed somewhere.

Boomers will keep U.S. debt sky high for years — As debt jumped over the past decade, economists warned that retiring baby boomers might soon overwhelm retirement programs, swamp the federal budget and keep the debt unusually high as far as the eye can see. That day has come and the answer now apparently is to “get used to it.”After years of debt that normally amounted to about a third of the nation’s total economy, it has spiked to more than 70 percent with no relief in sight.The nonpartisan Congressional Budget Office bases its estimate on current law, and it sees the debt levels approaching 80 percent in 2025.President Barack Obama’s proposed fiscal 2016 budget envisions the nation’s debt at 74 percent of the size of the U.S. economy in 10 years. But that’s if he gets all the changes he wants, including large tax increases. That’s highly unlikely.Just eight years ago, this number was about 35 percent, about the historical average. The latest forecasts suggest that official Washington now expects debt held by the public to remain at levels twice the historical average for the foreseeable future.White House Budget Director Shaun Donovan voiced in early February what other politicians might well have just thought privately. He likened the wave of retiring baby boomers – Americans born between 1946 and 1964 – to the proverbial “pig in a python” that bulges inside the reptile as it is swallowed, digested and passed through.“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,” Donovan said.

Lew: Treasury will take extraordinary actions ahead of hitting debt limit - - The Treasury Department will take extraordinary actions next week to stay under the debt ceiling, said Treasury Secretary Jacob Lew on Friday. In a letter to Speaker of the House John Boehner, Lew said the department will suspend sales of state and local government series securities, known as slugs, next Friday. Under legislation passed last year, the outstanding debt of the U.S. will be at the statutory limit on Monday, March 16 absent Congressional action. In his letter, Lew asked Congress to raise the debt limit as soon as possible. Earlier this week, the Congressional Budget Office said Treasury will be able to avoid default until October or November if the debt ceiling isn't raised.

Homeland Security funding drama darkens U.S. fiscal outlook (Reuters) - Congress narrowly averted a partial shutdown of the U.S. domestic security agency late on Friday night, but the forces behind the chaotic episode remain - fractious Republicans and House Speaker John Boehner's lack of control over them. That may portend more serious trouble ahead as Washington confronts fiscal challenges on a grander scale. In five to seven months, the federal debt ceiling will again be reached, and by October Congress must pass spending bills to keep the government running in the new fiscal year. Failing to deal effectively with these issues could have much more damaging repercussions - such as a broad government shutdown or a debt default - than a partial shutdown of the Department of Homeland Security (DHS). true What happens between now and then, including the handling of a one-week extension of Homeland Security funding, will be crucial. Some conservatives speak of ousting Boehner, but it is unlikely they can muster enough votes, while others made clear on Friday that they were willing to take big risks to score ideological points. Brinkmanship like this, reminiscent of 2013's 16-day federal government shutdown, was supposed to be over. Republican Senate Leader Mitch McConnell said there would be no more shutdowns after his party won control of the upper chamber and strengthened its grip on the House last November.

House breaks impasse, passes security funding without provisions (Reuters) - A chaotic three-month-long fight in Congress over funding the U.S. domestic security agency finally ended on Tuesday, but not before it highlighted House Speaker John Boehner's inability to halt the Republican Party's further descent into disorder. The House of Representatives approved full fiscal-year funding for the Department of Homeland Security, after attempts by conservative Republicans to make funding contingent on blocking actions on immigration last November by Democratic President Barack Obama in which he bypassed Congress. The final bill passed by the House in a 257-167 vote was a Senate measure stripped of language attacking Obama's orders, which lifted the threat of deportation for millions of undocumented residents. true The vote ended a fight that brought the DHS within hours of a partial shutdown last week and raised new questions about Boehner's leadership. Obama has said he will sign the funding bill for the department, formed after the Sept. 11, 2001 attacks to spearhead domestic counter terrorism efforts. Spending authority for the department was scheduled to end at midnight on Friday.

Program Spending Outside Social Security and Medicare, Already Low in Historical Terms, Is Projected to Fall Further Belies Critics’ Claims that Spending Is “Out of Control” — Congressional leaders are expected to unveil budget proposals in coming weeks that would reduce projected deficits solely by cutting programs and to justify that approach by claiming that the size and reach of the federal government are growing dramatically. The data do not support this claim.To be sure, total federal spending, including interest payments, rose considerably as a percent of the economy (gross domestic product or GDP) during the Great Recession and remained high in 2010 and 2011.  Since then, however, federal spending has dropped significantly, reflecting the economic recovery as well as the fact that most of the 2009 Recovery Act was designed to be temporary.  In addition, policymakers have taken several steps to reduce the deficit since 2010, primarily through program cuts.[2]  When only program spending (excluding interest payments on the debt) is considered:

  • Federal program spending outside Social Security and Medicare has fallen below its historical average and is projected to decline further under current policies.  As Table 1 indicates, total spending on federal programs outside Social Security and Medicare will fall to 11.2 percent of GDP in 2015 — below the 40-year average of 12.2 percent — and is projected to decline further over the next ten years, to 10.0 percent in 2025. 
  • The rise in Social Security and Medicare spending over time primarily reflects an aging population and rising health care costs.  Combined spending for these programs is projected to rise from 7.8 percent of GDP in 2015 to 9.3 percent by 2025.  This compares to average spending on these two programs of 6.2 percent over the past 40 years.  The large majority of this growth is explained by the aging of the population as the baby boom generation retires. 
  • Total program spending is expected to rise only slightly over the next decade, as the increase in Social Security and Medicare is nearly offset by the fall in other program spending.  Overall, program spending is expected to tick upwards, from 19.0 percent of GDP in 2015 to 19.3 percent in 2025.

Low-Income Programs Not Driving Nation’s Long-Term Fiscal Problem — Low-income programs are not driving the nation’s long-term fiscal problems, contrary to the impression that a narrow look at federal spending during the Great Recession and the years that immediately followed might leave. Lawmakers should bear this in mind as they consider proposals that may emerge in coming weeks for deep cuts in this part of the budget. FIGURE 1 Low-income program spending grew significantly between 2007 and 2010 in response to the severe economic downturn, helping to mitigate its worst effects. Since peaking in 2010 and 2011, federal spending on low-income programs other than health care has fallen considerably and will continue to fall as a percent of gross domestic product (GDP) as the economy more fully recovers. By 2018, it will — based on Congressional Budget Office estimates — drop below its average over the past 40 years, (from 1975 to 2014) and continue declining as a share of GDP after that. [1] (See Figure 1.) As a result, these programs do not contribute to the nation’s long-term fiscal problems. Specifically, federal spending for low-income programs outside health care (including refundable tax credits such as the Earned Income Tax Credit) rose from 1.9 percent of GDP in 2007 to a peak of 2.9 percent of GDP in fiscal years 2010 and 2011. This rise reflected the increase in need during the downturn as well as policies adopted in response. But such spending has dropped to an estimated 2.3 percent of GDP in 2015, and it is projected to return to the prior 40-year average of 2.1 percent by 2017 and then fall further, to 1.7 percent, by 2025.

McCain, Reed Want $577B Plus War Funding: Senate Armed Services Committee leaders are urging congressional budget writers to clear the Pentagon to spend $577 billion next year, $54 billion above existing spending caps. The Obama administration's 2016 budget request seeks $561 billion for defense, which is $38 billion over the caps. On Friday, House Armed Services Committee Chairman Mac Thornberry, R-Texas, sent a letter to House Budget Committee Chair Tom Price, R-Ga., requesting at $566 billion in base 2016 funds, $43 billion more than the caps. Pro-military lawmakers' efforts to persuade the chairs of the House and Senate Budget committees to give the Defense Department more annual funds continued Monday with a letter from SASC Chairman John McCain, R-Ariz., and Ranking Member Jack Reed, D-R.I., to Senate Budget panel leaders. "We recommend that defense spending for FY 2016 be restored to pre-sequestration [Budget Control Act] levels," they wrote to Chairman Mike Enzi, R-Wyo., and Ranking Member Bernie Sanders, I-Vt. "We would therefore request that you allocate $577 billion for FY 2016 in national defense discretionary budget authority and the associated outlays, in addition to the necessary funding for OCO."

Support for using ground troops against the Islamic State is increasing -- A new poll from Quinnipiac University released on Wednesday offers a startling bit of data: Americans now support the use of ground troops against the Islamic State by a two-to-one margin. The surprise there (if any) is in margin, not majority. Since the conflict with the Islamic State gained national attention at the end of last summer, polling has indicated increasing support for the use of ground troops -- a move that the Obama administration has rejected. The Quinnipiac poll is the two dots at far right on the chart below. (Polling from CBS, Gallup, McClatchy/Marist, CNN/ORC, Fox News, NBC and Quinnipiac asking if respondents support or oppose ground troops.)  Looking at its most recent snapshot, Quinnipiac found that men were much more likely to back the use of ground troops, which they do by a 40-point margin. Women are 24 percentage points more likely to support the idea.

CIA Whistleblower face 100 years for Exposing Government Lies -- CIA whistleblower, Jeffrey Sterling, now faces up to 100 years in prison and a fine of $2.25 million for blowing the whistle on the CIA planting false evidence of nuclear weapons in Iran. This demonstrates how corrupt the government is. They will start wars for personal gain and lie to the people each and every time. Obama promised he would be honorable and “protect” whistleblowers from prosecution and punishment, Just another crock of bullshit. He is due in court April 24th.

Dynamic Scoring Is Defensible but Has Drawbacks - Mankiw - How should Congress’s economists open a can of worms? Keith Hall, the new director of the Congressional Budget Office, is likely to be grappling with that odd question very soon.We don’t yet know how Mr. Hall’s leadership will differ from Mr. Elmendorf’s but we do know that he will face a big challenge. House Republicans have recently changed the rules: The Congressional Budget Office and Joint Committee on Taxation are now required to use “dynamic scoring” when evaluating major changes in tax and spending policy. This is the can of worms that awaits Mr. Hall as he takes on his new job. Until now, conventional budget analysis has used a process called static scoring, which assumes that the path of gross domestic product remains the same when the government changes taxes or spending. This procedure has the virtues of simplicity and transparency. Yet the assumption of unchanged G.D.P. also has one notable drawback: It is patently false. Much economic theory and empirical research confirm that fiscal policy influences the course of the economy. Indeed, having an economic impact is a big part of why policy makers use the tools at their disposal, whether it is the tax cuts of Ronald Reagan and George W. Bush or the stimulus package of Mr. Obama. It seems somehow churlish for Congress’s economists to assume that a policy change won’t accomplish its goal simply to make their jobs easier.

Mankiw on dynamic scoring - John Cochrane - Greg Mankiw has a nice op-ed on dynamic scoring The issue: When the congressional budget office "scores" legislation, figuring out how much it will raise or lower tax revenue and spending, it has been using "static" scoring. For example, it assumes that a tax cut has no effect on GDP, even if the whole point of the tax cut is to raise GDP.This is obviously inaccurate. But, as Greg points out, there is a lot of uncertainty in dynamic scoring. How much will a tax cut raise GDP, and thus potentially not cost as much in tax revenue? (Tax revenue = tax rate x income, so if income rises a given reduction in tax rate costs less in tax revenue.)By what mechanism? Keynesians will analyze the issue through a multiplier. The tax rate cut puts money in people's pockets, they spend the money, that raises income, and so forth. Other economists focus on the incentives of a tax cut rather than the income transfer. A tax rate cut can induce people to work, save, invest, go to school, etc.  They will come to different answers, especially for policies that emphasize transfers (often with bad incentives) or that emphasize incentives.How much will policy change growth rates? Long run growth really swamps everything. And the connection between policy and growth is especially hard to nail down. Greg doesn't really come down on how to solve this issue. I have two suggestions:

New Head of CBO makes Preposterous Claims on Disability -- 90% of the drop in the labor force since the Great Recession is attributed to young prime-age workers going on Social Security disability. OMG!!! Can this be true? Would the new CBO lie? Hasn't the Congressional Budget Office always been touted as a "non-partisan" body of the U.S. Government, and can always be wholly trusted to provide our political leaders with unbiased facts, free and clear of any ideological spin?Evidently, not any more. The Republicans have already launched a first strike on disability — and they have also been recruiting new players to advance their game plan.Incoming Republican leaders in Congress didn’t reappoint Doug Elmendorf to another term as head of the Congressional Budget Office. The move came after a campaign from conservative lawmakers, who wanted to change the way the CBO calculates the costs of government. Incoming House Budget Committee Chairman Tom Price (R-Ga) wanted a new director who would introduce so-called dynamic scoring to CBO analysis. Dynamic scoring is the idea that policy changes can induce significant macroeconomic effects, such as tax cuts partially paying for themselves. One economist, Mark Thoma, writes at his blog: "Another worry [about dynamic scoring] is the politicization of the CBO. See here and here. Also see here and here on the application of dynamic scoring to things such as Head Start and infrastructure spending." Republicans recently named Keith Hall as head of the Congressional Budget Office, installing a conservative Bush administration economist atop an agency charged with determining how much lawmakers’ bills would cost. Hall, who served on George W. Bush’s Council of Economic Advisers, is a critic of the Affordable Care Act, and shares Republican skepticism of government spending and regulation. He has criticized proposals to raise the minimum wage, expand regulation and boost anti-poverty programs. Last month, House Republicans formally adopted the controversial budgeting rules known as “dynamic scoring” — which aims to account for the macroeconomic effects of legislation.

Budgets, Taxes, and Addiction - How different will the House and Senate budgets be? There will be no joint budget resolution, despite GOP-control of both chambers. House Budget Committee chair Tom Price and Senate Budget Committee chair Mike Enzi will have separate fiscal blueprints, and their respective committees will mark them up the week of March 16. It could be the beginning of a long and tense intra-party battle. The Hill reports that GOP lawmakers involved in the budget discussions wouldn’t say whether the plans would include reconciliation instructions that the GOP could try to use to reverse parts of the Affordable Care Act or pass tax reform.

The Rubio-Lee Tax Reform Plan Raises Important Issues But Would Add Trillions to the Debt - The newest entrants in the tax reform sweepstakes are senators Marco Rubio (R-FL) and Mike Lee (R-UT).  Their plan is filled with a number of interesting and credible ideas but ducks many important questions. And, while it is not accompanied by a budget score, the elements that it specifies would add trillions of dollars to the nation’s debt over the next decade. It would also likely target the bulk of these new tax cuts to high-income households. Unlike former House Ways & Means Committee chair Dave Camp, Rubio and Lee did not write a tax bill. Rather, they’ve presented a framework for reform. As such, it is filled with many holes, some acknowledged and others not. Thus, it is incomplete. But it is nonetheless interesting. In many ways, it would shift the revenue code in the direction of a consumption tax. On the business side, they’d create a top rate of 25 percent that would apply to all corporations and those pass-through firms with income in excess of $150,000. Businesses could fully deduct the cost of all investment  (including inventories and real estate) in the year it is made. U.S.-based multinationals would be taxed through a dividend exemption system. The roughly $2 trillion in existing unrepatriated foreign income would be taxed at 6 percent, payable over 10 years.  For individuals, they’d collapse the current seven rates to two—15 percent and 35 percent. They’d eliminate head of household filing status, replace the standard deduction and personal exemption with a personal credit of $2,000 ($4,000 for joint filers), expand the child credit to up to $2,500 for some families, and repeal the Alternative Minimum Tax. They’d eliminate most itemized deductions but keep them for mortgage interest and charitable giving.

Cutting Capital Gains Taxes is a Dead End, Not a Step on the Road to a Consumption Tax - One of the most useful insights of public economics is the "theory of second best." The idea is that adopting some but not all of the features of optimal policy—the seminal article on the subject called this “piecemeal policy recommendations”—may actually make the economy less efficient. A great example is the argument for eliminating taxes on capital gains, as Senators Marco Rubio and Mike Lee will reportedly propose as part of their tax reform plan. They say it’s an incremental step toward a consumption tax, which would be much more efficient than an income tax because it would eliminate the tax bias against saving. But repealing the capital gains tax is not a step towards a better tax system because it would only reduce the tax on certain forms of saving, creating a bias among investment choices. Without other changes in the tax code, it would only hurt the economy. Like many economists, I think replacing the income tax with a progressive consumption tax—along the lines proposed by AEI economist Alan Viard and coauthors—would  boost  the economy (although by less than some fervent supporters believe). But that doesn't mean taking one step towards a consumption tax—exempting capital gains from tax while leaving other capital income taxable and interest expense fully deductible—would be productive. In fact, it would likely hurt the economy.  Put differently, unless Congress is willing to completely replace the income tax, it ought to keep the capital gains tax.

To Fight Inequality, Tax Land - In the lasting debate over Thomas Piketty’s book on outsized returns on capital, a significant fact has been obscured: If you exclude land and housing, capital has not risen as a share of the U.S. economy. If you're surprised, you're not the only one. Intuition suggests this capital-output ratio should be higher today than it was in the early 1900s. Yet, in the U.S., capital excluding land and housing has been roughly constant as a share of the economy since the mid-1950s, and is lower today than at the turn of the 20th century. What has skyrocketed over the past several decades is the value of land and housing. In the New York metropolitan area -- an extreme example, to be sure -- the average price per square foot of land rose to $366 in 2006, from $47 in 1999. Rising land prices aren't limited to New York, and they remain large even after the effects of the Great Recession. From 1970 to 2010, U.S. housing capital as a share of the economy rose by more than 40 percentage points, and by much more than that in other advanced economies, as Matthew Rognlie of the Massachusetts Institute of Technology has found. That increase, furthermore, explains almost all the rise in measured capital as a share of the economy. “There has been a large long-term increase in the share of net income from housing for every country in the sample except Germany," Rognlie explains. "Meanwhile, the non-housing capital share shows no clear trend.”

Median CEO Pay Tops $10 Million For The First Time - $10 Million = $10,000,000 = $27,397 per day, including weekends, holidays, etc. Median compensation for the chief executive of a Standard & Poor's 500 company was $10.8 million last year, according to a study by The Associated Press. That represents an 8.8 percent increase over 2012 and marks the first time that median compensation crossed the eight-figure mark. Much of the increase was due to performance cash bonuses, stock awards and options. The S&P 500 index rose 30 percent last year, while earnings per share increased by more than 5 percent, lifting CEO compensation, which is generally tied to such indicators. Bankers got the biggest raises, with total compensation on Wall Street rising 22 percent — matching the 22 percent they'd received a year earlier. Media industry CEOs also did nicely, with the top officials of CBS, Viacom, Walt Disney and Time Warner each pulling in more than $30 million. [Why media is so slanted towards the power elite.] All told, more than two-thirds of CEOs got a raise, according to the study, which AP and the executive pay research firm Equilar conducted using federal filing statements.A chief executive now makes about 257 times the average worker's salary

Glenn Hubbard and Hal Scott: A Financial System Still Dangerously Vulnerable to a Panic - - Dodd-Frank restrictions on the Federal Reserve’s powers to act as lender-of-last-resort, coupled with restrictions on federal guarantees for bank deposits and money-market funds, pose a threat to U.S. and global financial stability. The heart of the 2008 crisis was a panic following the bankruptcy of Lehman Brothers. Due to its losses from this bankruptcy, the Reserve Primary Fund “broke the buck,” touching off a run on other money-market funds. Credit markets froze. The Fed stepped in and supplied liquidity to the banking and non-banking financial sector, the latter through its authority under Section 13(3) of the Federal Reserve Act. Meanwhile, the Federal Deposit Insurance Corporation expanded the limits of deposit insurance, and the Treasury Department offered guarantees to money-market funds. Once the crisis abated, however, there was growing public concern about “moral hazard”—that government backstops and guarantees incentivized risky behavior in financial markets. The Dodd-Frank Act (July 2010) pulled back the Fed’s lender-of-last-resort powers for non-banks. They can now be exercised only with the approval of the Treasury secretary, and the Fed cannot lend to a single institution as it did with AIG . It must now only lend under a broad program, and must also meet heightened collateral requirements. In addition, the FDIC cannot expand guarantees to bank depositors without congressional approval, and the Treasury can’t do the same to money-market funds without new legislative authority. These changes could make it difficult for the Fed and other regulatory bodies to act effectively in the next crisis.

Who me? Oh, I’m just your average insider trader nabbed by the SEC  - I’m a man, 43 years old, pretty successful work wise. I invest about $200,000 and earn about $72,000 per tip. Mergers are my trade of choice. I’m probably richer than you and I have friends and family who like me enough to get illegal alongside — 23 per cent of those who who tip me or get tipped are family members, 35 per cent are friends, and 35 per cent are business associates. Mostly they live pretty close, like 26 miles close. Which is nice.I’m a firm believer in tradition (I’m more likely to share a tip with you if you share a common surname ancestry with me — which makes sense when you think about it) and old-fashioned respect (if I have my way, information flows upwards from subordinates to bosses, from younger tippers to older tippees, and from children to parents). I am, you’ll be unsurprised to hear, more likely to have a criminal record. More important, as soon as I’m more than one degree from the centre of a tipping web I start investing larger amounts, making less percentage wise but more in dollar terms. I don’t know the people as well, but the information spreads faster. So I suppose it makes sense that my diary is mostly made up of aspirational charts like this:

Corporate Borrowing Now Flows To Shareholders, Not Productive Investment: Study -- Why do companies take on debt? The conventional answer is that they need to invest: to hire more workers, upgrade facilities or invent new widgets. But fresh research shows that in the past three decades corporations increasingly borrow simply to reward shareholders.  At the same time corporate debt levels have risen to all-time highs, companies are rewarding shareholders with record payouts. It’s not just dividends. Since 2004, the corporate world has spent $6.9 trillion on stock buybacks -- in which a company repurchases its own shares to drive up stock prices. How is it that amid stiff market competition and increasing debt loads, companies have found so much money to spend on shareholders?  A new paper by Mason helps explain the trend. Starting in the 1980s, Mason argues, corporate executives increasingly prioritized pleasing shareholders over making the meat-and-potatoes investments of the kind that built the transistor, the 747 and the middle class. As a result, he writes, “Finance is no longer an instrument for getting money into productive businesses, but getting money out of them.”   Mason’s study joins a growing body of research that suggests some of our most basic assumptions about the economy might be off -- or at least woefully outdated.  “A lot of our ideas about corporate finance are still based on this older idea of how the world works,” Mason says.   In his paper, Mason compares corporate inflows -- earnings and borrowed money -- with outflows in the form of productive investments and shareholder rewards. In 1960, a dollar borrowed would generate an average 40 cents in additional investment. Since the mid-1980s, the investment per dollar borrowed has shrunk to 10 cents.   Taking the place of investment, he finds, is a correlation between borrowing and shareholder payouts -- an association that was nonexistent before the era of Gordon Gekko. As Mason writes, “Since the 1980s ... firms that borrow the most also tend to be the firms making the largest payouts to shareholders.”

Why companies are rewarding shareholders instead of investing in the real economy - If you’ve noticed the steep upward trajectory of the stock market over the past few years, looked around and wondered why cash doesn’t appear to be raining down upon your friends and neighbors, you’d be justified in wondering: What’s going on here? If corporate America is doing so well, shouldn’t we feel like things are getting better, too? In the past several years, profits have been increasingly paid back out to shareholders, rather than invested in hiring more people and paying them better. And lately, companies have even been borrowing money to make those shareholder payouts, because with interest rates so low, it’s a relatively cheap way to push stock prices higher. That’s according to a new paper from the Roosevelt Institute, a left-leaning think tank that's launching a project exploring how the financialization of the economy has unlinked corporates from the well-being of regular people. “The health of the financial system might matter less for the real economy than it once did,” writes J.W. Mason, an assistant professor of economics at John Jay College who wrote the paper, "because finance is no longer an instrument for getting money into productive businesses, but for getting money out of them." If it holds up, that has some pretty serious implications for how the Federal Reserve should go about tending the "real economy" in the future.

The Price of Oil Is About to Blow a Hole in Corporate Accounting -- There’s one place in the world where oil is still $95 a barrel. On paper. The U.S. Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them. So Continental Resources Inc., led by billionaire Harold Hamm, reported last month that the present value of its oil and gas operations increased 13 percent last year to $22.8 billion. For Devon Energy Corp., a pioneer of hydraulic fracturing, it jumped 31 percent to $27.9 billion. This year tells a different story. The average price on the first trading days of January, February and March was $51.28 a barrel. That means a lot of pain -- and writedowns -- are in store when drillers’ first-quarter numbers are announced in April and May.

Wolf Richter: “Default Monday”: Oil & Gas Companies Face Their Creditors as the Fracking Bubble Bursts - Debt funded the fracking boom. Now oil and gas prices have collapsed, and so has the ability to service that debt. The oil bust of the 1980s took down 700 banks, including 9 of the 10 largest in Texas. But this time, it’s different. This time, bondholders are on the hook. And these bonds – they’re called “junk bonds” for a reason – are already cracking. Busts start with small companies and proceed to larger ones. “Bankruptcy” and “restructuring” are the terms that wipe out stockholders and leave bondholders and other creditors to tussle over the scraps. Early January, WBH Energy, a fracking outfit in Texas, kicked off the series by filing for bankruptcy protection. It listed assets and liabilities of $10 million to $50 million. Small fry. A week later, GASFRAC filed for bankruptcy in Alberta, where it’s based, and in Texas – under Chapter 15 for cross-border bankruptcies. Not long ago, it was a highly touted IPO, whose “waterless fracking” technology would change a parched world. Instead of water, the system pumps liquid propane gel (similar to Napalm) into the ground; much of it can be recaptured, in theory. Ironically, it went bankrupt for other reasons: operating losses, “reduced industry activity,” the inability to find a buyer that would have paid enough to bail out its creditors, and “limited access to capital markets.” The endless source of money without which fracking doesn’t work had dried up. On February 17, Quicksilver Resources announced that it would not make a $13.6 million interest payment on its senior notes due in 2019. It invoked the possibility of filing for Chapter 11 bankruptcy to “restructure its capital structure.” On February 27, Hercules Offshore had its share-price target slashed to zero, from $4 a share, at Deutsche Bank, which finally downgraded the stock to “sell.” If you wait till Deutsche Bank tells you to sell, you’re ruined!

Crude Awakening: Why Next Week Could Be Carnage For Oil ETFs - Don’t look now, but the sharp slide in crude prices may be leading the proverbial sheep to slaughter. Investors have piled into the market’s largest crude ETF over the last several months sending the number of shares outstanding to the highest level since 2009. We suspect many of these “investors” might be unaware that they’re currently staring down the most severe decoupling between second- and first- month contracts in four years. "normal" knife catching BTFD'ers piled into USO for the bounce... The last 2 times such an extreme contango occurred, USO volatility was gappy and extreme. * * * Sell low, buy high anyone?

E&P Writedowns Loom As Reserves Overvalued By 60%- In principle, investors should be able to look to SEC filings for reliable information on publicly traded companies. As Bloomberg reports however, the commission’s rules on how drillers are required to value their reserves is effectively forcing companies to overstate the value of their O&G businesses by nearly two-thirds. Via Bloomberg: The U.S. Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them. Continental Resources (who reminded Bloomberg that it’s “just following the rules like everyone else”), reported the following data on proved reserves early last month: PDP reserves increased 21% from year-end 2013 to 490 MMBoe at December 31, 2014. The Company had 2,994 gross (1,565 net) proved undeveloped (PUD) locations at year-end 2014. The Bakken accounted for 82% of PUD locations at year-end. Continental's year-end 2014 proved reserves had a net present value discounted at 10% (PV-10) of $22.8 billion, a 13% increase over PV-10 of $20.2 billion for year-end 2013 proved reserves.

New York’s Benjamin Lawksy and the SEC’s Kara Stein and Luis Aguilar Push for Tougher Sanctions Against Bank Executives -- Yves Smith While the long-suffering American public is still waiting for prosecutions of bank executives for blowing up the global financial system, reform-minded regulators are taking steps to inflict other types of pain on them if they engage in misconduct.  New York’s Superintendent of Financial Services, Benjamin Lawsky, proposed in a speech last week (hat tip Adrien) that New York State adopt Sarbanes-Oxley-like rules that would require bank executives to certify personally that their firm had adequate money laundering controls. Established readers will recall that we’ve repeatedly cited Sarbanes Oxley as an obvious means for not simply fining bank executives (and the charges rack up quickly) but in providing a clear path to prosecution, since the Sarbanes Oxley language for criminal prosecutions tracks the language for civil violations. In other words, it was clearly designed to allow the SEC to launch a civil case, and if it found evidence of serious enough violations, to refer it to the Department of Justice to elevate it to a prosecution. Sarbanes Oxley required senior executives, at a minimum the CEO and the CFO, to certify the accuracy of financial statements and the adequacy of internal controls personally. The fact that the SEC has been loath to use a tool designed precisely to go after miscreant bank executives is one of the strongest pieces of evidence of how craven the SEC has become.  Even though, as we discussed, the SEC has serious impediments to improving its enforcement game, Commissioner Kara Stein, who has gone to war with the SEC’s chairman Mary Jo White, is also pressing the agency to get tougher with bank executives who run afoul of the law. Kara Stein and her fellow Democrat commissioner are pushing for lifetime bans, similar to the type of sanction that can be imposed on brokers.

Two Prominent Judges Take Bizarre Action in Occupy Wall Street Case - The Partnership for Civil Justice Fund (PCJF) finds itself in a uniquely bizarre situation. Two prominent judges with brain-trust status on the Second Circuit Court of Appeals, which is based in Manhattan, have overturned their own decision that they handed down just six months ago. That’s strange enough but what really has tongues wagging in legal circles is that they reversed themselves with no party asking them for a rehearing. The case had been accepted for an en banc (full court) hearing at the Second Circuit when the two suddenly reversed themselves. The case involves Occupy Wall Street – the largest protest movement against Wall Street bankers’ pillaging of the 99 percent with impunity from Washington since Wall Street first began trading under the Buttonwood tree in lower Manhattan. PCJF had filed a class-action lawsuit on behalf of approximately 700 Occupy Wall Street peaceful protesters who had been herded and corralled on the Brooklyn Bridge by the NYPD on October 1, 2011, then arrested en masse. Three days after the mass arrest, PCJF filed the class action lawsuit. The case was first heard at the U.S. District Court level by Judge Jed Rakoff, the same Judge who attempted to stop the cozy deals between Washington and Citigroup and was himself slapped down by the Second Circuit Court of Appeals. PCJF submitted video footage to the District Court showing that the NYPD led and escorted the marchers onto the Bridge, thus suggesting to the marchers that the police were allowing the procession to cross the Bridge. Police then blocked the means of dispersal from both the front and back end of the procession, removing any possibility of marchers being able to disperse even if they had heard an order to disperse.

 Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed - Yesterday, the Senate Banking Committee held the first of its hearings on widespread demands to reform the Federal Reserve to make it more transparent and accountable.  Senator Elizabeth Warren put her finger on the pulse of the growing public outrage over how the Federal Reserve conducts much of its operations in secret and appears to frequently succumb to the desires of Wall Street to the detriment of the public interest. Warren addressed the secret loans that the Fed made to Wall Street during the financial crisis as follows:“During the financial crisis, Congress bailed out the big banks with hundreds of billions of dollars in taxpayer money; and that’s a lot of money. But the biggest money for the biggest banks was never voted on by Congress. Instead, between 2007 and 2009, the Fed provided over $13 trillion in emergency lending to just a handful of large financial institutions. That’s nearly 20 times the amount authorized in the TARP bailout.“Now, let’s be clear, those Fed loans were a bailout too. Nearly all the money went to too-big-to-fail institutions. For example, in one emergency lending program, the Fed put out $9 trillion and over two-thirds of the money went to just three institutions: Citigroup, Morgan Stanley and Merrill Lynch.“Those loans were made available at rock bottom interest rates – in many cases under 1 percent. And the loans could be continuously rolled over so they were effectively available for an average of about two years.” One of the key reasons that the Fed wanted to keep this information buried from the public is that Citigroup was insolvent during the period it was receiving loans from the Fed.

In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors - Yves Smith  - The Wall Street Journal has published an important account of a behind-the-scenes power struggle at the Federal Reserve over authority for regulation. The result that the New York Fed has had significant amounts of its authority shifted to the Board of Governors in Washington, DC. This is a major win for Fed governor Dan Tarullo, who has emerged as one of the toughest critics of big financial firms at the Fed in the wake of the crisis. It is also a loss for the banks, since the New York Fed is widely recognized as close to Wall Street. Moreover, the Board of Governors is more accountable to citizens (its governors are Federal employees, the Board of Governors is subject to FOIA, although confidential supervisory of all financial regulators is exempt), while the regional Feds can best be thought of as public/private partnerships with weak governance structures,* so this move in theory is also a gain in terms of accountability to the public. However, since Greenspan holdover, deregulation enthusiast and Dodd Frank opponent Scott Alvarez remains as the general counsel of the Board of Governors, it's unlikely that any newfound serious intent by the Board of Governors will go all that far in practice, given the powerful role that Alvarez exerts over matters regulatory.

Bill Black: Question to Our Bank CEOs Who Are Criminals: “Have You No Sense of Decency”? - The FCPA Blog, an invaluable aid to anyone involved in the effort against corruption, has just run a story that epitomizes the neo-liberal approach to “liberty.” There is a massive movement, well-funded by political contributions, to privatize our prison systems. The private jailors overwhelmingly want to deal with the lowest risk jail populations – and then claim that they are “less expensive” than other prisons owned by the State. In Pennsylvania, in a fitting illustration of the dark side of von Hayek’s praise of “spontaneous order,” this privatization movement reached its neo-liberal peak when the owner of two privatized juvenile detention facilities bribed two Pennsylvania judges to send more kids to jail and maximize the owners’ profits. The huge size of the bribes demonstrates the scale of the miscarriage of justice and the enormous profits that injustice produced for the owner of the privatized juvenile detention facility. The FCPA Blog tells the sickening tale.“The First National Community Bank of Dunmore, Pennsylvania (FNCB) admitted that it failed to file suspicious activity reports on transactions linked to the judicial corruption scheme known as ‘cash for kids’ that spanned more than five years.Only after one of the judges involved in the bribery and kickback scheme pleaded guilty did the bank file a report.The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) fined the bank $1.5 million for willfully violating the Bank Secrecy Act.Two former judges in Pennsylvania — Michael Conahan and Mark Ciavarella — were ultimately convicted. Conahan was sentenced to 17.5 years in prison. Ciavarella was jailed for 28 years.

Negative Interest Rates Threaten the Banking System - WSJ: Earn next to nothing on your bank account but get more than 1% cash-back on every dollar you spend using a rewards card? If consumer banking is strange these days, the institutional banking business is even more bizarre. Banks are now charging their big institutional customers to keep money on deposit—and these so-called negative interest rates are forcing liquidity out of the banking system. The irony is that this is the result of postcrisis financial regulations that are supposed to ensure that banks remain liquid. J.P. Morgan Chase recently announced it may charge institutional clients as much as 5.5% on certain deposits, in an effort to push as much as $100 billion of these deposits out the door. Other U.S. banks already charge institutions negative interest to hold euro deposits. What accounts for this strange behavior? Once a U.S. bank accepts a deposit, it must pay insurance premiums to the Federal Deposit Insurance Corp. Dodd-Frank changed the way the premiums are calculated, and the upshot is that insurance costs rise on nearly every new dollar deposited, even though only $250,000 of each customer account is insured. Insurance premiums on average are about 20 basis points on each dollar deposit, although they can be as high as 45 basis points for a large bank. Deposits have to earn enough to cover deposit insurance and other bank operating costs. The money can be held as reserves at the Federal Reserve but it will earn only 25 basis points, not enough to offset insurance and other operating costs. Banks can also invest the money in loans or higher-yielding securities, but there is a catch. New regulations will soon restrict how banks may invest large institutional deposits.

Negative yield bonds: Here's who's buying -  Buying negative-yield bonds -- or paying for the privilege of loaning money to governments -- looks like a fool's game, but six types of investors have joined the play, JPMorgan said. The fear or deflation trader is the first type, as even negative-yield bonds can look attractive if expected deflation turns the real yield -- or the "headline" yield less the decline in prices -- into a gain, it said. This scenario that played out over two decades of deflation in Japan as investors shifted out of property and stocks to go to cash and Japan government bonds (JGBs).  Others are buying negative yield to make a bet that some currencies, such as the Swiss franc or the Danish krone, will appreciate, JPMorgan said. This has already partly played out in Switzerland, when the Swiss National Bank (SNB) last month surprised markets by terminating the franc's peg to the euro, sending its currency surging by as much as 30 percent initially.  A third type of buyer is just betting the bond price will rise even further, spurred by additional interest rate cuts from central banks or quantitative easing, JPMorgan said, noting many of these investors have already seen strong capital gains.  Central banks are another big buyer, with the European Central Bank (ECB) already saying its quantitative easing (QE) program will include negative-yield bonds, JPMorgan said.  Some investors -- such as index funds -- just don't have a choice, JPMorgan said. It estimated that around $150 billion of $350 billion worth of bond exchange-traded funds (ETFs) invest only in government bonds. The last group -- financial institutions such as banks and insurers -- may just be making the best of a bad job. Around 220 billion euros worth of reserves at the SNB, ECB and Danish central bank are subject to negative deposit rates, a figure set to rise as the ECB's QE kicks off, JPMorgan noted.

Busted Banks: TBTF and the Single Point of Entry - A Single Point of Entry (SPOE) is the FDIC’s proposal for saving the financial system when a giant financial institution strikes out on the derivatives market or discovers it has a school of London Whales. SPOE is important because the FDIC and the Bank of England have agreed on it as the best approach to a global resolution of a failing SIFI, the polite term for a TBTF bank. That agreement is crucial, because the largest banks can only be resolved on a global basis. SPOE is a method of resolution of a SIFI in financial distress without having to choose between a government bailout or the collapse of the global financial system. By contrast, legislation passed by the House would privatize the SPOE process and likely result in future bailouts. The legislation is being marketed under the term SPOE, but bears little relationship to the FDIC proposal. The three key aspects of the FDIC plan are that a) the resolution process will be controlled by the regulator; b) there will be no bailout of the SIFI’s owners and management; and c) the creditors of the parent holding company will be tossed overboard, returning the bank group to solvency by erasing debt and lessening the need for government money to make the process work. This post discusses the first two points, control and no bailout, while a second post will talk about the debt dump.

TBTF and The Single Point of Entry (SPOE): Part Two - In an earlier post I described the FDIC’s proposed SPOE approach to resolution of SIFI banks and other financial institutions under Title II of Dodd-Frank. That post discussed two of the three components of SPOE: control of the process by the regulator and no bailout for management or owners. This post lays out the role of the third component, the “forlorn hope” debt.  That debt is unsecured debt owed to a bank holding company (BHC) and predestined to get little or nothing in case of the failure of the BHC. It serves in effect as a debt reserve to buffer the financial distress of the bank group. By being dumped, it would make the group as a whole solvent. By contrast, legislation already passed by the House would ignore the need for the reserve, thus setting up another bank bailout. The reserve debt component of SPOE awaits a strong rule from the Fed to make it a reality. This post discusses what the rule must do. The debt reserve is assumed to be a large amount of unsecured debt the BHC issued in happier times. Under Title II, the FDIC would put a failing BHC into a receivership and spin off all the subsidiaries, including the actual bank, into a newly created BHC, BridgeCo, which is intended to be made solvent by virtue of its separation from the reserve debt of the original BHC. The holders of reserve debt would likely receive little or nothing and would be warned of that when they bought their bonds.  The idea is that this debt-reserve approach (in Europe often called “bail-in”) avoids or reduces the need for public money for the rescue of BridgeCo. The FDIC proposal concedes that some public money may be required. Most of us who have looked at it are quite sure at least temporary public money and the backing of the United States government will be necessary. Nonetheless, dumping the reserve debt as a quick path to solvency is a useful idea.

In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors -  Yves Smith - The Wall Street Journal has published an important account of a behind-the-scenes power struggle at the Federal Reserve over authority for regulation. The result that the New York Fed has had significant amounts of its authority shifted to the Board of Governors in Washington, DC. This is a major win for Fed governor Dan Tarullo, who has emerged as one of the toughest critics of big financial firms at the Fed in the wake of the crisis. It is also a loss for the banks, since the New York Fed is widely recognized as close to Wall Street. Moreover, the Board of Governors is more accountable to citizens (its governors are Federal employees, the Board of Governors is subject to FOIA, although confidential supervisory of all financial regulators is exempt), while the regional Feds can best be thought of as public/private partnerships with weak governance structures,* so this move in theory is also a gain in terms of accountability to the public. However, since Greenspan holdover, deregulation enthusiast and Dodd Frank opponent Scott Alvarez remains as the general counsel of the Board of Governors, it's unlikely that any newfound serious intent by the Board of Governors will go all that far in practice, given the powerful role that Alvarez exerts over matters regulatory.

Banks brace for Fed capital buffers inspection (Reuters) - The largest U.S. banks and their foreign rivals are facing a tough two-step check-up of their financial health by the Federal Reserve, forcing the firms to get a far better grip on how they measure risk. In its annual "stress tests", the Fed gauges whether banks have enough shareholder capital to withstand a severe economic shock like that of the 2007-09 crisis, when taxpayers spent billions of dollars to keep the industry afloat. On Thursday, it will publish the first leg of the tests, announcing which of the 31 banks have dropped below the 5 percent minimum for top-tier capital. true But the toughest part of the test comes on March 11, when the Fed reveals if the banks get approval for any planned increases in shareholder pay-outs. Last year, four banks failed that hurdle, while only one fell short of the first. Next week's review takes a look under the hood of the banks - which Wall Street critics say are "too large to manage" - by scrutinizing whether managers are in truly in control of their firms. And the test is becoming tougher each year. "If the senior management ... cannot explain how these results were produced, (the regulators are) going to have very little tolerance,"

Fed 2015 "Stress Test" Results: 31 Out Of 31 Pass, Mission Accomplished -- Four months ago, in another failed attempt to boost confidence in the Eurozone and stimulate lending (failed because three months later the ECB finally launched its own QE), the ECB conducted its latest stress test, which as we explicitly pointed out was an utter joke as even its "worst-case" scenario did not simulate a deflationary scenario. Two months later Europe was in outright deflation.  It was initially unclear just how comparably laughable the Fed's own stress test assumptions were, but refuting rumors that Deutsche and Santander would fail the Fed's stress test (perhaps because former FDIC head and current Santander head Sheila Bair wasn't too happy about her bank being one of the failed ones), moments ago the Fed released the results of the 2015 Fed stress test, and.... it seems there was no need to provide a sacrificial lamb as with stocks at record highs. In fact everything is awesome! Fed Stress Test Shows All 31 Banks Exceed Minimum Requirements.

Fed tests point to $500bn risk for banks - The biggest US banks would suffer combined losses of almost $500bn in the event of a financial crisis, according to stress tests carried out by the Federal Reserve, which rules next week on how much capital banks can return to shareholders. Morgan Stanley, Goldman Sachs and JPMorgan would take some of the biggest hits in a crisis, the Fed found. High quality global journalism requires investment.   All 31 banks taking part in the regulator’s latest round of stress tests on Thursday cleared the minimum hurdle, which was to preserve a capital ratio of at least 5 per cent to risk-weighted assets. Last year one of the smaller banks fell short. However, the Fed found that in a “severely adverse” scenario — including a deep recession and market meltdown — the banks would suffer combined losses of $490bn over a period of nine quarters. Some of the bigger banks would also come close to the 5 per cent capital threshold. Morgan Stanley, in particular, would see a drop in its tier one common ratio from 15 per cent at the end of the third-quarter last year to as low as 6.2 per cent. By the end of the period, its capital ratio would be 41 per cent smaller — compared to falls of 40 per cent at JPMorgan and 39 per cent at Citigroup. A Fed official nonetheless welcomed continued increases in the amount of absorbent capital held by the groups in the fifth round of stress tests since 2009, thanks to the effects of a strengthening US economy and efforts by the banks to beef up their capital ratios by retaining more profits.

February 2015: Unofficial Problem Bank list declines to 357 Institutions - This is an unofficial list of Problem Banks compiled only from public sources.  Here is the unofficial problem bank list for February, 2015.  Very busy week for the Unofficial Problem Bank List as the FDIC closed a bank and provided an update on its enforcement actions through January 2015. There were 21 removals this week pushing the list count down to 357 institutions with assets of $109.2 billion. A year ago, the list held 566 institutions with assets of $182 billion. During January 2015, the unofficial list declined by 31 institutions after 25 action terminations, four mergers, and two failures. In addition, assets fell by $13.3 billion during the month, which is the largest monthly decline since $18.1 billion in January 2014. The FDIC provided an update on the Official Problem Bank List figures this week. They currently list 291 institutions with assets of $87 billion. Since the FDIC's last release, the number of institutions on the Official Problem Bank List fell by 38 or 11.6 percent. In contrast, the unofficial list fell by 51 institutions or 12.5 percent over the same period. Given the slowdown in new additions to the list, we will start publishing updates at month-end going forward.

Attorney General Kamala D. Harris Announces 24 Year Prison Sentence For Leader of Mortgage Relief Scam -  – Attorney General Kamala D. Harris and United States Attorney for the Eastern District of California Benjamin B. Wagner today announced that Alan Tikal, the principal operator of a large-scale mortgage fraud scheme, was sentenced to 24 years in prison. “Alan Tikal’s actions were illegal and will not be tolerated in California. He and his partners defrauded hundreds of hard-working Californians who were fighting to keep their homes during our state’s foreclosure crisis,” Attorney General Harris said. “This predatory scheme robbed families of their life savings and in many cases, their homes. I thank our California Mortgage Fraud Strike Force and the U.S. Department of Justice for their work to bring these individuals to justice.” “The financial crisis that hit our communities so hard made it very difficult for a lot of people to make ends meet,“ said U.S. Attorney Wagner. “Alan Tikal cynically took advantage of the desperation those people felt for his own profit, stealing payments meant to preserve family homes. Although we cannot undo the harm Tikal inflicted, today’s sentence provides a measure of justice.” In September 2014, Alan David Tikal, 46, was convicted of 11 counts of mail fraud and one count of money laundering by United States District Judge Troy L. Nunley. The case was jointly prosecuted by the United States Attorney’s Office for the Eastern District of California and the California Attorney General’s Office.

Citigroup Forgot To Compensate 23,000 Consumers For Abusive Foreclosure Practices, Sending Checks Now – Several years ago, Citigroup reached a deal with federal regulators that required the company to provide compensation for nearly 380,000 people affected by foreclosure abuse. Only the lender didn’t exactly follow through, failing to send checks to 23,000 consumers.  Bloomberg reports that Citigroup is preparing to right that wrong by sending the overlooked consumers checks totaling $20 million. The compensation – which ranges from a few hundred dollars to as much as $125,000 per consumer – was a key requirement of the company’s settlement with the Federal Reserve and the Office of the Comptroller of the Currency to resolve the lender’s widespread foreclosure abuses.  In all, the consumers still awaiting monetary relief make up just 6% of those who were originally owed money by Citigroup. Back in 2012, Citigroup – along with 14 other banks – agreed to the settlement in order to resolve allegations that they mishandled loan papers, robo-signed legal documents, and improperly initiated foreclosures without reviewing each individual case. While the settlement was meant to provide relief to consumers wrongly pushed into foreclosure, Bloomberg reports that it also gave compensation to consumers who weren’t harmed by the banks’ shady practices.

Years after burst, New Yorkers still struggling to stay in homes – For the last six years, Elsie Collymore has been trying to hold on to her East New York home — a red and white brick two-family home overlooking busy Pennsylvania Avenue that she’s owned since 1988. Collymore is one of thousands of New Yorkers facing foreclosure in New York City, seven years after the housing bubble burst. Last year, 46,000 new foreclosure cases were filed in the state, and each case can take years to move through the courts. “Every night I go to sleep and think tomorrow they’re going to come and say get out of your house,” said Collymore. “It’s been rough.” Collymore, 67, was born in Trinidad. She started working for Long Island Jewish Medical Center in 1984, and after four years, thought she was financially ready for homeownership. She agreed to pay $116,000 for her home in 1988. Her loan was last modified in 2009 for $397,776 at 5.5 percent for 30 years. Since then, her overtime was cut and she fell behind on her monthly payments -- even with the extra money coming in from a boarder. Since then, she’s gone to at least 20 court hearings and paid several forbearances on her Federal Housing Administration loan through CitiMortgage.  “East New York And Brownsville are very hard hit because there’s a lot of predatory lending in those communities,” said Isobe, a lawyer with Bedford-Stuyvesant Community Legal Services that is representing Collymore for free. “Those are majority minority communities, a lot of immigrants, and just a lot of bad lending happens. There was kind of a bubble, and properties were being over appraised, to push people to borrow more money, and there was a precipitous drop in the crash. And I don’t think it’s really recovered.”

Servicing Matters - By now we’re all familiar with a plethora of Wall Street financial acronyms, from ABSs to CDOs and CDSs.  But what about MSRs (mortgage servicing rights)?  Until a year ago, I had never heard of MSRs, so I was surprised to find out that the rights to collect my mortgage payment are traded on Wall Street, much in the same way mortgage backed securities are traded. And, as a borrower, I have very little control over who purchases the servicing rights to my mortgage, despite the fact that it is usually the servicer who decides whether to offer a loan modification or start the foreclosure process if I become delinquent.  Borrowers can’t “shop around” for the best servicer – you get who you get (but maybe you should get upset). Does it really matter who services your loan?  To date, research has very little to say about this, though ask any housing counselor who has tried to shepherd a distressed loan through the modification process and the answer will be “most definitely.”  Unfortunately, most data on loan performance don’t allow researchers to identify the institution that services the loan, which makes analysis of servicer performance challenging.  So other than headlines about robo-signing or dual tracking, we have few studies that systematically study servicers and the ways in which they assist distressed borrowers.

Fannie Mae: Mortgage Serious Delinquency rate declined in January, Lowest since September 2008 -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in January to 1.86% from 1.89% in December. The serious delinquency rate is down from 2.33% in January 2014, and this is the lowest level since September 2008. 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 January to 1.86%. Freddie's rate is down from 2.34% in January 2014, 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 0.47 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will be under 1% in late 2016. The "normal" serious delinquency rate is under 1%, so maybe serious delinquencies will be close to normal at the end of 2016.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog, especially in judicial foreclosure states like Florida.

MBA: Mortgage Applications Little Changed in Latest Weekly Survey - From the MBA: Mortgage Applications Little Changed in Latest MBA Weekly Survey Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 27, 2015. ...The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.2 percent from one week earlier....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.96 percent from 3.99 percent, with points decreasing to 0.30 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. 2014 was the lowest year for refinance activity since year 2000. 2015 will probably see more refinance activity than in 2014, but not a large refinance boom. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is essentially unchanged from a year ago.

CoreLogic: House Prices up 5.7% Year-over-year in January - Notes: This CoreLogic House Price Index report is for January. The recent Case-Shiller index release was for 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 January 2015 CoreLogic Home Price Index (HPI®) which shows that home prices nationwide, including distressed sales, increased 5.7 percent in January 2015 compared to January 2014. This change represents 35 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased by 1.1 percent in January 2015 compared to December 2014. Including distressed sales, 27 states and the District of Columbia are at or within 10 percent of their peak. Four states, New York (+5.6), Wyoming (+8.3 percent), Texas (+8.3 percent) and Colorado (+9.1 percent), reached new highs in the home price index since January 1976 when the index starts. Excluding distressed sales, home prices increased 5.6 percent in January 2015 compared to January 2014 and increased 1.4 percent month over month compared to December 2014. ...

Zillow: January Case-Shiller House Price Index year-over-year change expected to be about the same as in December -- The Case-Shiller house price indexes for December were released last Tuesday. Zillow forecasts Case-Shiller a month early - now including the National Index - and I like to check the Zillow forecasts since they have been pretty close. From Zillow: 10- & 20-City Case-Shiller Composites Expected to Show Declines In Jan. From Dec The December S&P/Case-Shiller (SPCS) data released [last] week showed healthy home price appreciation largely at pace with prior months, with annual growth in the U.S. National Index at 4.6 percent in December. Annual appreciation in home values as measured by SPCS has been less than 5 percent for the past four months. We anticipate this trend to continue as annual growth in home prices slows to more normal levels between 3 percent and 5 percent. Zillow predicts the U.S. National Index to rise 4.5 percent on an annual basis in January. The 10- and 20-City Composite Indices both experienced modest bumps in annual growth rates in December; the 10-City index rose to 4.3 percent and the 20-City Index rose to 4.5 percent – up from rates of 4.2 percent and 4.3 percent, respectively, in November. The non-seasonally adjusted (NSA) 10- and 20-City indices both rose 0.1 percent from November to December. We expect both to turn negative in January, with each predicted to fall 0.1 percent month-over-month (NSA). All forecasts are shown in the table below. These forecasts are based on the December SPCS data release and the January 2014 Zillow Home Value Index (ZHVI), released Feb. 19. Officially, the SPCS Composite Home Price Indices for January will not be released until Tuesday, March 31. So the year-over-year change in for January Case-Shiller index will probably be about the same, or a little lower, than in the December report.

Construction Spending decreased 1.1% in January - The Census Bureau reported that overall construction spending decreased in January: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during January 2015 was estimated at a seasonally adjusted annual rate of $971.4 billion, 1.1 percent below the revised December estimate of $982.0 billion. The January figure is 1.8 percent above the January 2014 estimate of $954.6 billion. Both private and public spending decreased in January:  Spending on private construction was at a seasonally adjusted annual rate of $697.6 billion, 0.5 percent below the revised December estimate of $700.9 billion. ...In January, the estimated seasonally adjusted annual rate of public construction spending was $273.8 billion, 2.6 percent below the revised December estimate of $281.1 billion. Non-residential for offices and hotels is generally 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. As an example, construction spending for lodging is up 18% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 14% year-over-year (and will fall further in the coming months).

Personal Income increased 0.3% in January, Spending decreased 0.2% - The BEA released the Personal Income and Outlays report for January: Personal income increased $50.8 billion, or 0.3 percent ... in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $18.9 billion, or 0.2 percent...Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in January, in contrast to a decrease of 0.1 percent in December. ... The price index for PCE decreased 0.5 percent in January, compared with a decrease of 0.2 percent in December. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of less than 0.1 percent.  The following graph shows real Personal Consumption Expenditures (PCE) through January 2015 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change. The dashed red lines are the quarterly levels for real PCE.The increase in personal income was lower than expected,  Also the increase in PCE was below the 0.1% decrease consensus.  The sharp decline in oil and gasoline prices pulled down PCE (and the PCE price index).  Even though PCE decreased, real PCE increased in January (as shown in the graph). On inflation: The PCE price index increased 0.2 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.3 percent year-over-year in January.

US Savings Rate Surges To Highest Since 2012 As Consumers Save "Gas Tax Cut" Instead Of Spending - Following December's worse than expected drop in personal spending (and slowing groweth in incomes), analysts wewre expected the usual hockey-stick bounce... it did not happen. Despite all the exuberance over low gas prices, US personal spending dropped 0.2% in January - twice as bad as the 0.1% drop expected and the 3rd miss in a row. The spending drop was driven in large part by a slide in non-durables. Personal income also missed excpectations, rising just 0.3% (against a +0.4% expectation) hovering at its lowest growth since September. The savings rates surged to 5.5% - its highest since Dec 2012.

Saving Big on Energy Bills, People Take It to the Bank - Sometimes, even the supposed experts can lose track of a billion dollars or two. Or, in this case, $100 billion.While few outside of Texas and North Dakota are complaining about this huge savings that consumers have enjoyed since energy prices began falling last summer, economists have been stumped recently trying to figure out exactly what consumers are doing with the windfall.They have not gone on a shopping spree at the mall or online. Results at many retail chains have been mixed, and some stores that are middle-class fixtures, like Sears and J.C. Penney, continue to struggle.One hint at what consumers might be thinking came Monday, when new government data on the economy showed a healthy gain for wages and salaries in January, even as spending by consumers inched lower for the second month in a row. As a result, the savings rate ticked upward to 5.5 percent, the highest level in just over two years. The yardsticks for retail activity have been surprisingly lackluster lately. Even when the effect of lower gas prices and therefore less spending at service stations is stripped out, core retail sales were flat last month and actually dipped 0.2 percent in December.

U.S. Consumers’ Credit-Card Debt Falls in January -  U.S. consumers added to their debt burdens modestly in January, a sign they remain cautious about spending despite sturdier job growth. Outstanding consumer credit—reflecting Americans’ total debt outside of mortgages—grew $11.56 billion to $3.33 trillion in January, the Federal Reserve said Friday. That reflected a 4.18% jump at an annual rate. Economists surveyed by The Wall Street Journal had expected household debt to grow $14 billion in January. Updated figures showed household debt grew $17.87 billion in December, a bigger increase than the initially reported $14.75 billion gain. Increased borrowing for cars and higher education drove January’s debt increase. Nonrevolving credit, representing mostly auto loans and student debt, grew at a 6.29% annualized rate. Revolving credit, reflecting credit-card debt, fell 1.57% in January, though that followed a sizeable 8.41% increase for December. The report offers the latest sign consumers reined in their spending at the start of the year after going on a spree in the fourth quarter. Economists expect overall economic growth to clock in at a roughly 2% annual pace or less in the first quarter, based largely on projections of weak consumer spending. Such spending accounts for more than two-thirds of U.S. economic output.

Consumer Credit Rises At Slowest Pace Since 2013 (But Still Exponential), Revolving Credit Tumbles -- Last month we observed that in the aftermath of the worst print in non-revolving (i.e., student and auto loans) debt since November 2013, that the subprime-credit driven, pardon the pun, feeding frenzy for cars is now over. And sure enough, following this month's disappointing auto sales which missed virtually for every single producer, we were again correct. This month, however, things are even worse, because while last month it was the collapse in the non-revolving debt that was the highlight, at least it was modestly offset by a surge in revolving credit as consumer loaded up the credit cards. No such luck this month.   Moments ago, we learned that consumer credit in January crashed from a revised $17.9 billion to only $11.6 billion, far below the $14.7 billion expected,  the biggest miss since August, and the lowest growth in consumer credit since November 2013.

The Persistent Concerns about Altered Financial Data -- Marcy Wheeler - Remember that weird passage in the President’s Review Group Report warning against changing the account numbers in financial accounts as part of offensive cyberattacks? (2) Governments should not use their offensive cyber capabilities to change the amounts held in financial accounts or otherwise manipulate the financial systems; Second, governments should abstain from penetrating the systems of financial institutions and changing the amounts held in accounts there. The policy of avoiding tampering with account balances in financial institutions is part of a broader US policy of abstaining from manipulation of the financial system. These policies support economic growth by allowing all actors to rely on the accuracy of financial statements without the need for costly re-verification of account balances. This sort of attack could cause damaging uncertainty in financial markets, as well as create a risk of escalating counter-attacks against a nation that began such an effort. The US Government should affirm this policy as an international norm, and incorporate the policy into free trade or other international agreements.It was the kind of warning that left the strong impression that the US had already been engaged in such books-baking. It’s back again, in James Clapper’s Global Threats Report (curiously, it was not in last year’s Global Threats Report).

Costly shift to new credit cards won't fix security issues  (Reuters) - New technology about to be deployed by credit card companies will require U.S. consumers to carry a new kind of card and retailers across the nation to upgrade payment terminals. But despite a price tag of $8.65 billion, the shift will address only a narrow range of security issues. Credit card companies have set an October deadline for the switch to chip-enabled cards, which come with embedded computer chips that make them far more difficult to clone. Counterfeit cards, however, account for only about 37 percent of credit card fraud, and the new technology will be nearly as vulnerable to other kinds of hacking and cyber attacks as current swipe-card systems, security experts say. Moreover, U.S. banks and card companies will not issue personal identification numbers (PINs) with the new credit cards, an additional security measure that would render stolen or lost cards virtually useless when making in-person purchases at a retail outlet. Instead, they will stick with the present system of requiring signatures.  Anre Williams, president of global merchants services at American Express, cited cost and complexity as reasons for not issuing PIN numbers, which would require a much larger investment by card issuers.

Restaurant Performance Index shows solid Expansion in January - Note: In a related story, the WSJ reported yesterday Wages Rise at Restaurants as Labor Market Tightens Restaurant wages zoomed up to an annualized pace of more than 3% in the second half of last year from below a 1.5% pace in the first half of 2013, according to the Labor Department. ... Many restaurant owners are now scrambling to hire and retain workers, a potential precursor to widespread wage gains if it signals diminished slack in the labor market. Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remained Elevated in January Buoyed by higher same-store sales and traffic and a positive outlook among operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained elevated in January. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.7 in January, which represented the fourth consecutive month above the level of 102. In addition, January marked the 23rd consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators. “A solid majority of restaurant operators reported higher same-store sales and customer traffic in January, which helped keep the RPI well into positive territory,” “In addition, nearly six in 10 operators expect their business to improve in the next six months, with plans for capital expenditures also continuing at a high level.”

What’s Behind Restaurant Workers’ Faster-Rising Paychecks? - Restaurant workers received bigger raises last year than workers in most other jobs. Is that because the minimum wage has increased in recent years in two dozen states? Or because Americans are eating out more, causing restaurant owners to bump up pay for burger flippers, waitresses and dishwashers? The reality is some of both. Restaurants have hired at a faster pace than the typical company since the middle of 2010. Food workers’ hourly pay grew 3.1% last year after growing less than 2% a year for several years. That could show there’s a bigger need for restaurant workers than people willing to take those jobs for minimum-wage pay. “The jobs recovery has been concentrated in lower-wage sectors, particularly the restaurant and hospitality area,” said David Smith, a labor economist at Pepperdine University. “There’s a lot of demand for those types of workers, and that’s causing wages to inch up.” Hospitality, which includes restaurants, has accounted for about one in six jobs added anywhere in the country since economic growth started ticking up in mid-2009. At the same time, many states have raised the minimum wage that employers must pay their workers.. Big states, such as California, New York and 15 others, raised the minimum wage in 2014. Even more raised pay at the start of this year.

History Made: For The First Time Ever, US Consumers Spent More On Food In Restaurants Than In Grocery Stores --  Over the weekend, we mocked the WSJ for glorifying the US "wage recovery" by focusing on the "scarcity" of waiter and bartender jobs ("there is fierce competition" for restaurant workers the WSJ said), a concept well-explored on these pages: we have shown repeatedly that soaring number of waiters and bartenders have been the "backbone", so to say, of the US job recovery in recent years (alongside energy workers but that ship has now sailed). As it turns out the joke's on us.  As Mark Perry of the AEI shows, for the first time ever, the spending patterns of US consumers are so skewed, that Americans, or at least a small fraction of them, spent more on restaurants and bars, than what Americans, the much larger fraction, spent on grocery stores to prepare food for themselves. In other words, when it comes to food, either the bulk of Americans have forgotten how to cook and are hemmorghaning money to overpay for restaurant prepared dinners, or a small fraction of society - i.e., the 1% leisure class - now outspends the majority of the nation, those who can't afford to eat out no matter the amount of subsidies or handouts by the government, on food.

Weather-battered U.S. consumers skip mall, order in and head south (Reuters) - U.S. consumers battered by the wretched winter weather still afflicting much of the eastern half of the country have responded by ordering in rather than eating out, flying more frequently to Florida and cutting out trips to the mall, according to a Reuters review of company data. Cities ranging from Chicago to Bangor, Maine, set all time records for the lowest February temperatures. Boston got more than 100 inches of snow, crippling mass transit and prompting the system's head to quit. Lexington, Kentucky, is covered in more than 20 inches of snow, the result of the biggest snowstorm since 1943. In Miami, it was 83 under sunny skies on Thursday. Still, it's not all misery, all the time. While the relentless weather has dented traffic and sales for restaurants and mall retailers and frustrated delivery firms like United Parcel Service Inc and FedEx Corp, it's increased sales of snow shovels and rock salt from local hardware stores as well as Home Depot Inc and Lowe's Cos. true "Cold is like gold," said Matthew Maloney, the chief executive of online meal delivery service GrubHub Inc , based in Chicago and New York and affiliated with about 30,000 restaurants. In the afternoon before winter storm Juno hit the Northeast at the end of January, the size of GrubHub's orders rose 45 percent, with cheese pizza and hot chocolate orders more than doubling, according to company data provided to Reuters.

We’re at our Lowest Level of Misery in 56 Years, Thanks to Gas Prices -  By one measure, the U.S. economy is the best it’s been since the presidency of Dwight Eisenhower. The recent plunge in inflation has helped drive the U.S. Misery Index to its least miserable level since the spring of 1959. The Misery Index was proposed by the economist Arthur Okun in the 1970s, while he was a scholar at Washington’s Brookings Institution. When Mr. Okun proposed the index, the U.S. was in the grip of stagflation — a period of both high unemployment and high inflation. To capture the era’s misery, Mr. Okun (who had been on Lyndon Johnson’s Council of Economic Advisers) proposed simply adding the unemployment rate and the annual inflation rate into a new number. The index captured the economic anxiety of the time. Not only were many people struggling to find work in the 1970s, they were also grappling with accelerating price gains. The Misery Index reached an apex of 21.9 in May of 1980 when the unemployment rate was 7.5% and the inflation rate was 14.4%, as measured by the Consumer Price Index. The inflation of the era was finally brought under control when Federal Reserve Chairman Paul Volcker pushed interest rates as high as 20% to throttle the price gains. Inflation came down quickly, unemployment followed it down a few years later, and the U.S. settled in for two mostly good economic decades in the 1980s and 1990s. During the most recent recession, the Misery Index peaked in September of 2011, when the unemployment rate was 9% and the inflation rate was 3.8%. It was the highest level of economic misery recorded since the early 1980s. Since then, inflation has trended downwards and the unemployment rate has declined. But the current 56-year-low reading of the index is something of an anomaly. Inflation has plunged primarily because of the global collapse in oil prices. In January, the annual inflation rate fell by -0.1%.

Weekly Gasoline Price Update: Up 43 Cents in Five Weeks - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular rose 14 cents and Premium 13 cents. Regular is now up 43 cents (21 percent) since its interim weekly low set five weeks ago.  According to, California has the highest average price at $3.39, even topping Hawaii at $3.05. Idaho has the cheapest Regular at $2.05.

Despite Oil Price Plunge, California Gasoline Prices Soar - The average pump price of gasoline soared by about 25 cents a gallon last week, from $2.98 for regular gas on Feb. 23 to $3.23 on Feb. 27. And the rise has been greater since Jan. 30, when refineries began shifting to a costlier premium fuel – mandated only in California and only to limit emissions in warmer months, according to Tom Robinson, the chief of Robinson Oil in South Bay. On Feb. 26, some Southern California retailers, who had just paid premium wholesale prices for gasoline, passed that on to consumers as a price hike of 24 cents per gallon. The spike hit Northern California a day later, with service stations in the San Francisco area raising prices for regular gasoline by 20 cents a gallon to $3.19. Driving prices even higher, fuel consumption is at its highest in the state in seven years because of the balmy weather in the West this winter, which has spurred increased outdoor activity for the season, including driving. Add to that, an explosion Feb. 18 that stopped production at an Exxon Mobil Corp. refinery in Torrance, Calif., and production can’t resume until the state completes its investigation of the event. And the United Steelworkers strike against oil companies in the United States, now affecting 15 refineries, has closed the Tesoro facility in Martinez, Calif. Making matters even worse is that because only California begins using a unique blend of summer gasoline, it can’t conveniently and inexpensively buy it from neighboring states because they simply don’t supply it.

U.S. Light Vehicle Sales decrease to 16.2 million annual rate in February - Based on a WardsAuto estimate, light vehicle sales were at a 16.16 million SAAR in February. That is up 5.4% from February 2014, and down 2.4% from the 16.55 million annual sales rate last month.  The comparison to February 2014 was easy (sales were impacted by the severe weather last year). From John Sousanis at Wards Auto: February 2015 U.S. LV Sales Thread: SAAR Falls to 10-Month Low U.S. automakers sold 1.252 million light vehicles in February, a 5.4% increase in daily sales that left the seasonally adjusted annual sales rate (SAAR) at a 10-month low of just 16.16 million-units...Historic cold in parts of the country likely played a role in the shortfall, along with lower than expected fleet sales and some inventory shortages of key models. GM was the No.1 auto seller in February, accounting for 18.5% of sales, followed by Toyota (14.4%) and Ford (14.1%). This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for February (red, light vehicle sales of 16.16 million SAAR from WardsAuto). This was below the consensus forecast of 16.7 million SAAR (seasonally adjusted annual rate).The second graph shows light vehicle sales since the BEA started keeping data in 1967. Although below consensus, this was the tenth consecutive month with a sales rate over 16 million.

Light Vehicle Sales Per Capita: A Better Look at the Long-Term Trend -- For the past few years I've been following a couple of transportation metrics: Vehicle Miles Traveled and Gasoline Volume Sales. For both series I focus on the population adjusted data. Let's now do something similar with the Light Vehicle Sales report from the Bureau of Economic Analysis. This data series stretches back to January 1976. Since that first data point, the Civilian Noninstitutional Population Age 16 and Over (i.e., driving age not in the military or an inmate) has risen 61.7%. Here is a chart, courtesy of the FRED repository, of the raw data. This is a quite noisy series, to be sure. The latest data point is the preliminary February count published by WardsAuto. Here is my version on the FRED chart with a couple of additions.

  • I've added a 12-month moving average to smooth the noise and help visualize the trend.
  • I've overlaid a linear regression (the red line) to further illustrate the long-term trend.

In the chart above, the latest moving average value is 5.7% below is record high in September 2000.   Here is the same chart with two additional modifications.

  • I've created a per-capita version using the FRED's CNP16OV series for the adjustment.
  • I've indexed the numbers so that the first data point, January 1976, equals 100.
The moving-average for the per-capita series peaked in February 1979. Thirty-five-plus years later, it is now down 28.5% from that February 1979 peak month.  The good news is that this adjusted metric has continued to rise from its Great Recession historic low, and it is comfortably above the linear regression. It will be interesting to see if the post-recession growth continues in the years ahead. 

How Has the Pentagon Shaped Innovation? - Yale Insights (video) Defense spending has been a key driver of technology and innovation in the United States since the beginning of the Cold War, according to Yale SOM professor Paul Bracken. The Pentagon was a prime funder for the early growth of Silicon Valley and more recently quietly created another technology hub, focusing on defense, in northern Virginia. What are the key drivers for technological innovation in the U.S.? In a time when Silicon Valley, venture capital, and high-profile entrepreneurs offer glittering examples, Yale SOM professor Paul Bracken argues that a very important player is often overlooked. “The Department of Defense is one of the biggest sources of innovation in the United States, and it has been since the early part of the Cold War. It's referred to in Silicon Valley and in Washington, D.C., as the ‘mother of all venture capital firms,’” he said. Bracken explored the ongoing links between the Pentagon and the technology industry in a talk on December 2, 2014, titled “Silicon Valley and The Pentagon: An Analysis of the Dynamic Relationship among Silicon Valley, the Department of Defense, and the Intelligence Community: Past, Present and Future.”

US factory orders fall for sixth straight month: New orders for U.S. factory goods unexpectedly fell in January, posting their sixth straight monthly decline, a sign of weakness in the manufacturing sector. The Commerce Department said on Thursday new orders for manufactured goods slipped 0.2 percent after a revised 3.5 percent decline in December. Economists polled by Reuters had expected factory orders to gain 0.2 percent in January after a previously reported 3.4 percent tumble in December. US service sector activity ticks up in February The department also said orders for non-defense capital goods excluding aircraft—seen as a measure of business confidence and spending plans—rose 0.5 percent instead of the 0.6 percent advance reported last month.Manufacturing has been hurt by softening demand in Europe and Asia as well as a strong dollar and lower crude oil prices,which have caused some energy companies to either delay or cut back on capital expenditure projects. A labor dispute at U.S. West Coast ports, which has since been resolved, also has weighed on factory activity through disruptions to the supply chain. There is optimism the sector willregain momentum in the second quarter. Unfilled orders at factories fell 0.2 percent in January, declining for a second straight month. Shipments of non-defense capital goods orders excluding aircraft, used to calculate business equipment spending in the gross domestic product report, were revised up to show a 0.1 percent gain in January instead of a 0.3 percent fall.

US Factory Orders Drop For 6th Month In A Row - Worst Since Lehman -- Must be the weather... since August. US Manufacturers New Orders tumbled 0.2% in January (missing expectations of a 0.2% rise for the 6th of the last 7 months). This extends the losing streak for factory orders to 6 months, something we have not seen since the great recession in 2008... The drop was led by a plunge in Consumer Goods - not exactly what one would expect from all those gas savings? Just add it to the growing list of missed macro data expectations since the start of Feb!

Factory Orders Drop -0.2% on Oil -- The Manufacturers' Shipments, Inventories, and Orders report shows factory new orders declined by -0.2% for January.  The reason was most likely oil as nondurable goods new orders plunged by -3.1%.  Petroleum refinery shipments give another clue as they plunged by -11.6%.  Durable goods new orders by themselves increased 2.8%.  Transportation new orders propped up overall factory orders as without them, new orders would have declined -1.8%.  December Factory Orders dropped by -3.5%.  This is the sixth month in a row factory orders has declined.  The Census manufacturing statistical release is called Factory Orders by the press and covers both durable and non-durable manufacturing orders, shipments and inventories.Transportation equipment new orders increased 9.7% , but that's all volatile nondefense aircraft, which increased 128.7%.  Motor vehicles bodies & parts new orders had no change at all.  Core capital goods new orders increased by 0.5%.  The previous month showed a -0.5% decline, which basically makes core capital goods new orders for two months a net zero.  Core capital goods are capital or business investment goods and excludes defense and aircraft.  This is indicating slower economic growth.  Nondurable goods is having a rough time with a -3.1% drop.  The previous month was a -3.3% decline.  Manufactured durable goods new orders, increased 2.8%, yet December durable goods new orders decreased by -3.7%.  Shipments overall decreased -2.0%.  Nondurable goods shipments depth charged with a -3.1% loss as petroleum shipments nose dived by -11.6%.  Core capital goods shipments increased 0.1%, or barely nudged.  Core capital goods shipments go into the GDP calculation.  Below is a graph of core capital goods shipments. Inventories for manufacturing overall declined -0.4%.  Again we see oil impacting inventories dramatically.  Durable goods inventories increased 0.4% while nondurables decreased -1.7%.  Petroleum refineries inventories plunged by -11.3% as gasoline producers are obviously desperate to decrease supply and push prices back up. The inventory to shipments ratio increased to 1.36.  Increasing ratios can imply economic sluggishness. Unfilled Orders decreased -0.2%.  Core capital goods unfilled orders had no change and in durable goods decreased -0.2%.

Factory Orders Unexpectedly Decline 6th Month; Five Excuses; Orders vs. Shipments - Extending the longest streak since the 2008-2009 recession, Factory Orders Unexpectedly Decline 6th Month. New orders for U.S. factory goods unexpectedly fell in January, posting their sixth straight monthly decline, a sign of weakness in the manufacturing sector. The Commerce Department said on Thursday new orders for manufactured goods slipped 0.2 percent after a revised 3.5 percent decline in December.Economists polled by Reuters had expected factory orders to gain 0.2 percent in January after a previously reported 3.4 percent tumble in December.  The Bloomberg Consensus Estimate was also +0.2%, but the forecast range was a very wide -2.5% to 3.0%.To help explain the chart, Bloomberg notes that "Aircraft orders have a long lead to shipment." Diving into the Census Report, for January vs. December (seasonally adjusted) we find new orders look like this:

  • All Manufacturing: -0.2%
  • Excluding Transportation: -1.8%
  • Excluding Defense: -0.2%

Durable goods rose 2.8% due to jump in commercial aircraft orders. It was not enough to offset everything else.In the reports from Reuters and Bloomberg, some blame the rising dollar, some blame weakness in foreign demand, some blame the port strike, and some blame lower oil prices, and some blame cutbacks in the energy sector.

ISM Manufacturing index declined to 53.5 in February - The ISM manufacturing index suggests slower expansion in February than in January. The PMI was at 52.9% in February, down from 53.5% in January. The employment index was at 51.4%, down from 54.1% in January, and the new orders index was at 52.5%, down from 52.9%. From the Institute for Supply Management: February 2015 Manufacturing ISM® Report On Business® "The February PMI® registered 52.9 percent, a decrease of 0.6 percentage point from January’s reading of 53.5 percent. The New Orders Index registered 52.5 percent, a decrease of 0.4 percentage point from the reading of 52.9 percent in January. The Production Index registered 53.7 percent, 2.8 percentage points below the January reading of 56.5 percent. The Employment Index registered 51.4 percent, 2.7 percentage points below the January reading of 54.1 percent. Inventories of raw materials registered 52.5 percent, an increase of 1.5 percentage points above the January reading of 51 percent. The Prices Index registered 35 percent, the same percentage as in January, indicating lower raw materials prices for the fourth consecutive month. Comments from the panel express a growing level of concern over the West Coast dock slowdown, negatively impacting exports and imports and requiring workarounds and added costs." On that last sentence - the good news is the West Cost port slowdown has been resolved, although it will take a few months to catch up.

ISM Manufacturing Index: ISM Manufacturing Index: Slowest Growth in Thirteen Months -  Today the Institute for Supply Management published its monthly Manufacturing Report for February. The latest headline PMI was 52.9 percent, a decline from the previous month's 53.5 percent and below the forecast of 53.0. This was the lowest PMI since January 2014, thirteen months ago. Here is the key analysis from the report: "The February PMI® registered 52.9 percent, a decrease of 0.6 percentage point from January’s reading of 53.5 percent. The New Orders Index registered 52.5 percent, a decrease of 0.4 percentage point from the reading of 52.9 percent in January. The Production Index registered 53.7 percent, 2.8 percentage points below the January reading of 56.5 percent. The Employment Index registered 51.4 percent, 2.7 percentage points below the January reading of 54.1 percent. Inventories of raw materials registered 52.5 percent, an increase of 1.5 percentage points above the January reading of 51 percent. The Prices Index registered 35 percent, the same percentage as in January, indicating lower raw materials prices for the fourth consecutive month. Comments from the panel express a growing level of concern over the West Coast dock slowdown, negatively impacting exports and imports and requiring workarounds and added costs."  Here is the table of PMI components.

ISM Manufacturing Tumbles To 13-Month Lows, Employment Slumps, Construction Spending Plunges -- Despite a collapse in US macro data in February, Markit somehow managed to conjure a better than expected 55.1 print for US Manufacturing PMI. Under the covers employment creation was the slowest since July and inflationary pressures loom as selling prices rose notably. ISM Manufacturing printed 52.9 - a small miss vs 53.0 expectations - down for the 4th month in a row to 13-month lows, with employment at its weakest since June 2013. Construction spending's modest rebound in (seemingly un-weather-affected) December (after dropping in November) has been destroyed with a 1.1% drop in January (against expectations of 0.3% rise) for the biggest drop in 8 months.

ISM Non-Manufacturing Index increased to 56.9% in February - The February ISM Non-manufacturing index was at 56.9%, up from 56.7% in January. The employment index increased in February to 56.4%, up from 51.6% in January. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: February 2015 Non-Manufacturing ISM Report On Business® "The NMI® registered 56.9 percent in February, 0.2 percentage point higher than the January reading of 56.7 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 59.4 percent, which is 2.1 percentage points lower than the January reading of 61.5 percent, reflecting growth for the 67th consecutive month at a slower rate. The New Orders Index registered 56.7 percent, 2.8 percentage points lower than the reading of 59.5 percent registered in January. The Employment Index increased 4.8 percentage points to 56.4 percent from the January reading of 51.6 percent and indicates growth for the 12th consecutive month. The Prices Index increased 4.2 percentage points from the January reading of 45.5 percent to 49.7 percent, indicating prices contracted in February for the third consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth in February. Comments from respondents have increased in regards to the affects of the reduction in fuel costs and the impact of the West Coast port labor issues on the continuity of supply. Overall, supply managers feel mostly positive about the direction of the economy."

ISM Non-Manufacturing: Continued Growth in February - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56.9 percent, up fractionally from last month's 56.7 percent. Today's number came in above the forecast of 56.5. Here is the report summary:"The NMI® registered 56.9 percent in February, 0.2 percentage point higher than the January reading of 56.7 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 59.4 percent, which is 2.1 percentage points lower than the January reading of 61.5 percent, reflecting growth for the 67th consecutive month at a slower rate. The New Orders Index registered 56.7 percent, 2.8 percentage points lower than the reading of 59.5 percent registered in January. The Employment Index increased 4.8 percentage points to 56.4 percent from the January reading of 51.6 percent and indicates growth for the 12th consecutive month. The Prices Index increased 4.2 percentage points from the January reading of 45.5 percent to 49.7 percent, indicating prices contracted in February for the third consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth in February. Comments from respondents have increased in regards to the affects of the reduction in fuel costs and the impact of the West Coast port labor issues on the continuity of supply. Overall, supply managers feel mostly positive about the direction of the economy." 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.

Despite Hard Data Collapse, US Services Surveys Point To Modest Bounce In February - US Services PMI rose and beat very modestly from 57.0 to 57.1 in February (this is a flash print). This is the highest Services PMI print since October but Markit warns not to get excited, data "is up only slightly compared to the fourth quarter of last year, meaning growth this year is running at a rate similar to the 2.2% annualised pace seen late last year." ISM Services (survey) confirmed this modest improvement in February (despite all the hard data collapsing) boucing very modestly from 56.7 to 56.9 in Feb despite a drop in BusinessActivity and New Orders.

Trade Deficit decreased in January to $41.8 Billion - Earlier 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 $41.8 billion in January, down $3.8 billion from $45.6 billion in December, revised. January exports were $189.4 billion, down $5.6 billion from December. January imports were $231.2 billion, down $9.4 billion from December.The trade deficit was at the consensus forecast of $41.8 billion. The first graph shows the monthly U.S. exports and imports in dollars through January 2015.  Imports increased and exports decreased in January (some impact of West Coast port slowdown). Exports are 14% above the pre-recession peak and down 2% compared to January 204; imports are at the pre-recession peak, and unchanged compared to January 2014. The second graph shows the U.S. trade deficit, with and without petroleum, through January. 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 $58.96 in January, down from $73.64 in December, and down from $90.21 in January 2014. 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. The trade deficit with China increased to $28.6 billion in January, from $27.8 billion in January 2013. The deficit with China is a large portion of the overall deficit. The decrease in the trade deficit was due to a lower volume and lower price of oil imports (volatile month-to-month), and a slightly larger deficit with the Euro Area ($8.0 billion in Jan 2015 compared to $7.2 billion in Jan 2014).

US Trade Deficit Worse Than Expected As Auto Exports Tumble - As Chinese exports crashed in January (and imports were extremely weak), one could be forgiven for expecting the US trade deficit to be more extreme than the tumble it experienced in December... but no. The US Trade Deficit printed $41.8bn, slightly worse than the $41.1bn expectation but 'better' than the adjusted $45.6 billion. Imports dropped 3.9% in January and Exports fell 2.9% but YoY imports fell 0.17% and exports fell 1.75% - the last time both fell YoY was November 2008. This is the 2nd month in a row of worse than expected deficits (and 4th of last 5). The shift is led by big drops in Food & Beverage (-9.1%) and Auto (-7.0%) exports and an 11.3% plunge in Industrial Supplies imports.

EU goes to WTO over Boeing subsidies - - Just as I predicted, the European Union has filed a World Trade Organization complaint against Boeing's new round of subsidies from Washington state totaling $8.7 billion from 2025 to 2040.  The WTO found that Boeing's last round of state and local subsidies violates its Agreement on Subsidies and Countervailing Measures, and the facts are exactly the same -- except for the fact that the subsidies have grown from $160 million a year to $543 million a year, more than three times as much. This case is a slam-dunk.  Of course, after it loses, it's not like Washington state will comply with the ruling. It's not complying with the last ruling. But it gives us an opportunity to remember that Boeing embodies everything that's wrong with corporate America. According to Citizens for Tax Justice, from 2003 to 2012 Boeing made $35 billion in pre-tax profit, an average of $3.5 billion a year. It made this much despite the fact that its competitor Airbus is also subsidized. Its post-tax profit was $36.9 billion, which is to say that it received a net refund of $96 million from Washington state and $1.8 billion from the IRS over that 10-year period. In other words, it paid no state or federal income tax at all! Not only that: Boeing demanded, and ultimately won, a concession from the Machinists' union to end its defined-contribution pension and replace it with a 401(k) plan. So one of the last remaining true pensions in the private sector bites the dust, contributing to our coming retirement crisis.Finally, Boeing used the availability of huge relocation subsidies in other states as a bludgeon against both Washington state and the union. Ultimately, the states need federal rules to end this madness.

New Data Add Fuel to Arguments Against the Trans-Pacific Partnership - In December I showed that growing trans-Pacific trade deficits would set the stage for growing trade-related job displacement. New data released this month show that the U.S. trade deficit with the countries in the proposed Trans-Pacific Partnership (TPP) increased to an unexpectedly large $265.1 billion in 2014, as shown in the updated graph, below. This increase is further proof that U.S. workers don’t need another job-killing trade deal, which would undoubtedly grow the trade deficit even more. In addition, new developments are likely to increase opposition to the deal being crafted behind closed doors by negotiators from the United States and 11 other countries. In a remarkable op-ed in the Washington Post, Senator Elizabeth Warren identifies a key way in which the proposed TPP is a dangerous and unnecessary corporate giveaway. The TPP would create special tribunals, or dispute resolution panels, that would allow corporations and foreign investors (but not public interest groups or unions) to challenge U.S. laws “without ever setting foot in a U.S. court.” These deals give corporations special rights to force countries to roll back critical regulations. Right now, for example, Philip Morris is using the process to try force Uruguay to halt new anti-smoking regulations that are designed to improve public health. As Warren concludes, if these dispute panels are included in the final TPP, the only winners will be giant, multinational corporations. The TPP would also do nothing to combat currency manipulation, which is a major driver of U.S. trade deficits with TPP countries including Japan, Malaysia, and Singapore. Ending currency manipulation could reduce U.S. trade deficits and increase GDP—creating between 2.3 to 5.8 million jobs—but U.S. Trade Representative Froman has said that it has not been discussed in TPP negotiations. It’s increasingly clear that the TPP, like past trade and investment deals, would be a bad deal for U.S. workers. The president should not try to push this deal through, and Congress should not approve it.

The Administration’s Dishonest Response to Elizabeth Warren’s Attack on Secret Investor Arbitration Panels in Trade Deals - Yves Smith -- Elizabeth Warren has come out forcefully against the misleadingly named trade deals, the TransPacific Partnership and its ugly sister, the TransAtlantic Trade and Investment Partnership. Mind you, these treaties are not about trade. Trade is already substantially liberalized and in keeping, only five of the 29 chapters of the TransPacific Partnership deal with tariffs. What these pacts are primarily intended to do is strengthen intellectual property laws to help US software and entertainment companies, along with Big Pharma, increase their hefty profits, and to aid multinational by permitting the greatly increased use of secret, conflict-ridden arbitration panels that allow foreign investors to sue governments over laws that they contend reduced potential future profits. I am not making that up.  Warren focused on the so-called investor-state dispute settlement process in a Washington Post op-ed last week.  Here is the guts of her case against these tribunals:  ISDS would allow foreign companies to challenge U.S. laws — and potentially to pick up huge payouts from taxpayers — without ever stepping foot in a U.S. court. Here’s how it would work. Imagine that the United States bans a toxic chemical that is often added to gasoline because of its health and environmental consequences. If a foreign company that makes the toxic chemical opposes the law, it would normally have to challenge it in a U.S. court. But with ISDS, the company could skip the U.S. courts and go before an international panel of arbitrators. If the company won, the ruling couldn’t be challenged in U.S. courts, and the arbitration panel could require American taxpayers to cough up millions — and even billions — of dollars in damages.If that seems shocking, buckle your seat belt. ISDS could lead to gigantic fines, but it wouldn’t employ independent judges. Instead, highly paid corporate lawyers would go back and forth between representing corporations one day and sitting in judgment the next. Maybe that makes sense in an arbitration between two corporations, but not in cases between corporations and governments. If you’re a lawyer looking to maintain or attract high-paying corporate clients, how likely are you to rule against those corporations when it’s your turn in the judge’s seat?

Nurses Unite to Stop TransPacific Partnership Fast Track -  Yves Smith --In case you haven't noticed, nurses unions have emerged as a particularly powerful and credible labor/lobbying group. So it's encouraging to see them use their bully pulpit to rally voters to contact their Congresscritters and voice opposition to the upcoming vote on so-called fast track authority for the TransPacific Partnership. I'm heartened to see, in the Real News Network video below, that the nurses' representative puts forward compact, factually sound arguments as to why this misnamed "trade deal" is a sop to major corporations at the expense of citizens.

Top U.S. officials brief House Democrats on Pacific trade pact  (Reuters) - Senior U.S. officials on Tuesday briefed Democrats in the House of Representatives on a Pacific trade pact, as the administration pushed to overcome skepticism about trade deals among members of President Barack Obama's own party. U.S. Trade Representative Michael Froman and National Economic Council Director Jeff Zients updated Democrats on negotiations on the Trans-Pacific Partnership (TPP) and plans for further meetings with lawmakers, some of those present said. "He laid out the subjects in TPP and how we are going to become engaged in the full caucus in looking at them, where they are now, and where this administration intends to go," said Michigan Representative Sander Levin, the top Democrat on the House Committee on Ways and Means Committee. true "It was useful, the focus should be on the substance of the TPP and it was essentially ... a turn in that direction." It was the first meeting with the whole caucus for Froman, who declined to comment as he left the room. Trade is a hard sell for many Democrats worried about the impact on jobs, although the administration has stressed the benefits of bringing trading partners up to a higher standard on environmental and labor standards, issues with strong traction among party supporters.

U.S. optimistic global trade deal will come into force this year (Reuters) - The United States expects a global deal to cut customs red tape and streamline import procedures to come into force this year, a senior trade official said on Wednesday. Mark Linscott, Assistant U.S. Trade Representative for World Trade Organization and Multilateral Affairs, said Washington was "pretty confident" the deal agreed in Bali in 2013 would be up and running by year-end. "It's quite realistic to expect that the trade facilitation agreement can come into force by the end of the year," he told a Washington International Trade Association event. "It's not a hard deadline, but it's achievable." At least two-thirds of WTO members, or more than 100 countries, must ratify the deal before it can take effect. The United States is one of three nations which have already formally accepted the pact, which economists say will add as much as $1 trillion and 21 million jobs to the global economy.

Testimony: The Trans-Pacific Partnership and prospects for greater US trade -- This afternoon in testimony before the House Subcommittee on Asia and the Pacific, AEI resident scholar Claude Barfield provides careful analysis of the implications surrounding successful ratification of the Trans-Pacific Partnership (TPP) and the economic and security repercussions that would result from failure to reach an agreement. With the TPP an integral part of both President Obama’s “Pivot to Asia” and a necessary component of providing balance of power in the Pacific, Barfield’s testimony points out the historic importance of reaching a successful conclusion to the TPP negotiations and some of the issues at stake: From it’s outset, “the trans-Pacific pact has been hailed as the new model for a 21st Century trade agreement. The goal is to negotiate terms that go well beyond traditional FTAs and write rules for major inside-the-border barriers to competition. Thus in terms of the themes developed in this paper, the TPP has large geoeconomic implications: that is, if successful, it will provide the template and model for future FTAs around the world and, ultimately, for multinational negotiations in the WTO,” dealing with a large number of “21st century issues” including: state-owned-enterprises (SOEs); labor/environmental rules; intellectual property strictures; regulatory reform and coherence; government procurement liberalization; trade facilitation measures; supply chain management; and regulatory reform.

Look Who is Selling the TransPacific Partnership - Yves Smith -- Rather than take this letter by some Serious Economists pumping for the TransPacific Partnership and Transatlantic Trade and Investment Partnership apart myself, I thought it would make for good reader target practice. But the fact that they feel compelled to weigh in suggests that the Administration and its big corporate allies feel the need to mount a full court press. So I trust that readers will use some of the arguments from the comments on this post, or one earlier in the week, and call your Senators and Representative (phone numbers here and here) and tell them you expect them to vote against fast track authority for these toxic deals.

The Impact of Trade with Japan on U.S. Employment -- Governments always like to have us believe that trade deals are good for the economy.  From research done by Robert E. Scott at the Economic Policy Institute (EPI), we can quite clearly see that this is most definitely not the case for nearly 900,000 American workers.  As shown on this table, Japan is one of America's largest trading partners: In 2013, imports from Japan made up 6.1 percent of all imports into the United States and exports to Japan made up 4.1 percent of all goods and services exported from the United States.  The top five imports from Japan were vehicles, machinery, electrical machinery, optic and medical instruments and aircraft.  The top five exports to Japan were optic and medical instruments, aircraft, machinery, electrical machinery and meat (pork and beef). In 2012, the United States goods trade deficit with Japan was $76.3 billion, up $13.1 billion from 2011.  The goods trade deficit rose to $78.3 billion in 2013, reducing the U.S. GDP by $125.3 billion or 0.75 percent.     One of the biggest issues that has led to a growing trade deficit with Japan has been Japan's use of currency manipulation to control the value of the yen.  Japan is the world's second largest currency manipulator behind China.  By purchasing and holding assets denominated in foreign currencies, the Bank of Japan and the Government Pension Investment Fund (GPIF), Japan is able to adjust the value of the yen to suit Japan's macroeconomic goals.  Between 2000 and November 2014, Japan's holdings of foreign reserves nearly quadrupled, rising from $347 billion to $1.208 trillion.  The GPIF recently announced that it would increase its holdings of foreign stocks and bonds from 23 percent of its total of $1.2 trillion in 2013 to 40 percent in the near future.  When, through these actions, Japan keeps the value of the yen to dollar exchange rate at low levels, it makes Japanese goods cheaper for its trading partners and makes goods imported into Japan from its trading partners more expensive, making it cheaper for Japan's domestic consumers to "buy local". 

Challenger Job Cuts Surge 19%; Energy Sector Is 38% Of Total: "Falling Oil Hasn't Resulted In Higher Retail Spending" -- According to Challenger, the February total planned job cut were over 50,000 for the second month in a row, or a total of 103,620 in the first two months of 2015, up 19% from the same period last year, with a 38% of the total, or 39,621 of these job cuts, due to plunging oil prices and about to take place in the highest paid oil extraction space.

Weekly Initial Unemployment Claims increased to 320,000 - The DOL reported: In the week ending February 28, the advance figure for seasonally adjusted initial claims was 320,000, an increase of 7,000 from the previous week's unrevised level of 313,000. The 4-week moving average was 304,750, an increase of 10,250 from the previous week's unrevised average of 294,500. There were no special factors impacting this week's initial claims.  The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since January 2000.

Initial Jobless Claims Surge To 10 Month Highs, Worst Start To A Year Since 2009 --  Following this morning's dire Challenger Job Cuts data, it appears the hard reality that lower oil prices are not unambiguously good for America is setting in. Initial Jobless Claims surged last week (after a big jump the week before) to 320k (far worse than the 295k expectation) to the highest since May 2014. Continuing Claims also rose. Since the end of QE3 and the end of the government's fiscal year, the trend of improvment has clearly ended and a new regime of weakening labor markets has begun.

ADP: Private Employment increased 212,000 in February - From ADP: Private sector employment increased by 212,000 jobs from January to February according to the February 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 February, down from 45,000 jobs gained in January. The construction industry added 31,000 jobs, the same number as last month. Meanwhile, manufacturing added 3,000 jobs in February, well below January’s 15,000.Service-providing employment rose by 181,000 jobs in February, down from 206,000 in January. ...Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but slowing from the torrid pace of recent months. Job gains remain broad-based, although the collapse in oil prices has begun to weigh on energy-related employment. At the current pace of growth, the economy will return to full employment by mid-2016.”  This was below the consensus forecast for 220,000 private sector jobs added in the ADP report.   The BLS report for February will be released on Friday and the consensus is for 230,000 non-farm payroll jobs added in February.

The February 2015 ADP Employment Report Shows a Slow Down in Hiring  -- ADP's proprietary private payrolls jobs report gives us a monthly gain of 212,000 private sector jobs for February 2015.  January's ADP private payroll gains were strongly revised, from 213,000 to 250,000.  Financial activities had the highest job growth by ADP's records since 2006, while manufacturing only gained 3,000 jobs.  By the numbers the overall job growth is decelerating, yet in spite of this the report claims full employment will be reached by mid-2016.  ADP's reports in the service sector alone job gains were 181,000 private sector jobs. The goods sector gained were 31,000 jobs with 31,000 of the goods sector jobs added being in construction. Unfortunately ADP does not give a lot of breakdown in their job categories but clearly other areas of the goods producing sector lost jobs. Professional/business services jobs grew by 34,000. Trade/transportation/utilities showed the strong growth with 31,000 jobs,abet much less than last month's 50,000 gain. Financial activities payrolls added 20,000 jobs. Manufacturing added 3,000 jobs. Graphed below are the monthly job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange). As we can see manufacturing's figures are a rarity. ADP reports payrolls by business size as well. Small business, 1 to 49 employees, added 94,000 jobs with establishments having less than 20 employees adding 39,000 of those jobs. ADP does count businesses with one employee in there figures. Medium sized business payrolls are defined as 50-499 employees, added 63,000 jobs. Large business added 56,000 to their payrolls. If we take the breakdown further, large businesses with greater than 1,000 workers, added 38,000 of those large business jobs. Below is the graph of ADP private sector job creation breakdown of large businesses (bright red), median business (blue) and small business (maroon), by the above three levels. For large business jobs, the scale is on the right of the graph. Medium and Small businesses' scale is on the left.

February Employment Report: 295,000 Jobs, 5.5% Unemployment Rate -- From the BLS: Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today. ... After revision, the change in total nonfarm payroll employment for December remained at +329,000, and the change for January was revised from +257,000 to +239,000. With these revisions, employment gains in December and January were 18,000 lower than previously reported. Over the past 3 months, job gains have averaged 288,000 per month. 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 295 thousand in February (private payrolls increased 288 thousand). Payrolls for December and January were revised down by a combined 18 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In February, the year-over-year change was 3.3 million jobs. This was the highest year-over-year gain since end of the '90s. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate decreased in February to 62.8%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio was unchanged at 59.3% (black line).

Surprisingly Strong Jobs Growth in February: Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing. Employment in mining was down over the month.  Today's report of 295K new nonfarm jobs in January was well above the forecast of 240K. However, January nonfarm payrolls were revised downward by 18K from 257K to 239K. The unemployment rate ticked down from 5.7% to 5.5%.  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. Note the increasing peaks in unemployment in 1971, 1975 and 1982. The 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 1.7%. Click for a larger image The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

February Jobs Report Stronger Than Expected - Heading into today’s release of February’s Jobs Report, there was some anticipation that a month of cold, snowy weather in the MidWest and along the East Coast would cause the numbers to fall away from the strong trend we had seen throughout 2014, and which we continued to see in January. While the consensus forecast put job gains at roughly 235,000 for the month, some analysts were predicting a number much lower than that. As it turned out, February’s weather didn’t slow the jobs market much at all, although wage growth remains stubbornly stagnant:Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing. Employment in mining was down over the month.Both the unemployment rate (5.5 percent) and the number of unemployed persons (8.7 million) edged down in February. Over the year, the unemployment rate and the number of unemployed persons were down by 1.2 percentage points and 1.7 million, respectively. (See table A-1.)Among the major worker groups, the unemployment rate for teenagers decreased by 1.7 percentage points to 17.1 percent in February. The jobless rates for adult men (5.2  percent), adult women (4.9 percent), whites (4.7 percent), blacks (10.4 percent), Asians (4.0 percent), and Hispanics (6.6 percent) showed little or no change. (See tables A-1, A-2, and A-3.) Total nonfarm payroll employment rose by 295,000 in February, compared with an average monthly gain of 266,000 over the prior 12 months. Job gains occurred  in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing. Employment in mining declined over the month. (See table B-1.)

February Employment Stays Strong -  (9 graphs) According to the Bureau of Labor Statistics establishment survey, employment increased 295,000 from January to February and has increased by about 3.3 million since February 2014. January employment was revised down slightly by 18,000 and December had no revision.  This continues the trend of strong employment growth consistent with an an ongoing robust recovery.  The unemployment rate fell further to 5.5% average weekly hours were flat and average hourly earnings rose only slightly.   Job gains were robust, only mining and logging, non-durable goods, and temporary help services saw small declines. Is the decline in temporary help services, for the second month in a row, a signal of underlying strength in that firms are relying more on full-time workers rather than temps? Maybe, but, as the chart below shows, as a fraction of total employment, firms use temp help much less during downturns. Moreover, the use of temp services has doubled relative to total employment since the early 1990’s. Average weekly hours have remained fixed at 34.6 for the past 5 months after being stuck at 34.5 for the previous 7 months. Average hourly earnings rose only slightly from $24.75 to $24.78. While the establishment survey provided solid numbers, the household survey provided some mixed messages. True, the unemployment rate fell from 5.7% to 5.5%. But the labor force fell by 178,000 leading to a decline in labor force participation from 62.9 to 62.8 and no change in the employment to population ratio at 59.3. The number of persons working part time for economic reasons fell by 175,000, with 165,000 fewer reporting slack work reasons. The number of persons reporting part time for non-economic reasons increased by 15,000. All of this seems to provide further support for the view that the Fed should begin normalizing monetary policy sooner rather than later. Although recent communications have emphasized the view that they could be “patient,” we expect that language to disappear. The graphs below show the continued strength in the labor market, albeit slower than coming out of previous recessions.

Job Growth Remains Strong in February - Dean Baker - The labor market had another strong month in February, with employers adding 295,000 in the month. While there were small downward revisions to the January numbers, this still left the three month average at 288,000 jobs. The unemployment rate dropped to 5.5 percent, its lowest level since May of 2008, the early days of the recession. The employment-to-population ratio (EPOP) remained at 59.3 percent, more than 3.0 percentage points below its pre-recession level.The February performance is especially impressive given that an unusually severe winter might have been expected to dampen job growth, especially in sectors like construction and restaurants. Construction added 29,000 jobs and restaurants added an extraordinary 58,700 jobs. Of course, some of the weather effect may show up in the March data, since the worst weather came towards the end of the month, after the reference week for the survey.The gain in construction brings the average over the last four months to 38,000 jobs. This comes to a 7.5 percent annual growth rate in a context where reported construction spending has been relatively flat. This suggests that there could be some serious measurement issues in the data. Manufacturing employment growth slowed to 8,000 after averaging 28,000 the prior three months. Retail continues to show strong growth, adding 32,000 jobs, bringing its average since August to 29,900. The professional and technical services category, which tends to be higher paying, again showed strong growth, adding 31,800. This is roughly even with its 30,800 average over the last four months.There were some anomalies in the data that are likely to be reversed. The courier sector added 12,300 jobs, while education services reportedly added 21,300 jobs. Data in both sectors are highly erratic and almost certain to be largely reversed in future months. The temp sector lost 7,800 jobs in February, its second consecutive decline. Health care job growth fell back to 23,800, compared to an average of 39,250 over the prior four months. The 58,700 jobs added in the restaurant sector was the largest monthly gain since November of 2000.The data in the household survey was mostly positive. Involuntary part-time employment fell by another 175,000 in February and is now 570,000 below its year-ago level. There was a small rise in the number of people who have voluntarily chosen to work part-time. It is now 750,000 above its year-ago level and almost 900,000 higher than in February of 2013, before the exchanges from the Affordable Care Act came into existence.The percentage of people unemployed because they voluntarily quit their job rose from 9.5 percent to 10.2 percent, its highest level since May of 2008. This is still close to 2.0 percentage points below the pre-recession levels. The recovery continues to disproportionately benefit less educated workers. The unemployment rate for workers without a high school degree edged down by 0.1 percentage point to 8.4 percent, 1.4 percentage points below its year-ago level.   The EPOP for workers without high school degrees is down by roughly a percentage point from its pre-recession level, while the EPOP for college grads is down by close to four percentage points.

Unemployment Rate Drops on Those Dropping Out Again -  The February unemployment rate dropped yet again on a huge decline of those not considered part of the labor force anymore.  The official unemployment rate is now 5.5%, a -0.2 drop from last month.  The labor participation rate is at 37 year record lows.  From a year ago, the number of people considered not in the labor force has increased by 1.5 million.  Pundits will extol the dropping unemployment rate as evidence of a healthy employment situation, yet the never ending increase of those no longer in the labor force is most disconcerting.  That is no way to lower the unemployment rate.  This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS, or current population survey.  The CPS survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of sampling error.  The CPS has severe limitations, yet, it is our only real insight into what the overall population are doing for work.   The ranks of the employed grew by 96,000 this month.  This is within the margin of error of the survey.  From a year ago, the employed has increased by 2.996 million.  This is great actually, well beyond what is needed to keep up with increased population growth. Those unemployed decreased -274,000 to stand at 8,705,000. From a year ago the unemployed has decreased by -1.682 million, which is if one thinks about it, isn't that much in comparison to the number of employed increase. Below is the month change in unemployed and as we can see, this number normally swings wildly on a month to month basis. Those not in the labor force increased by 354,000 persons and to bet 92,898,000. The below graph is the monthly change of the not in the labor force ranks. Notice the increasing swells and wild monthly swings. Those not in the labor force has increased by 1,500,000 in the past year. The labor participation rate is at 62.8%, a -0.1 change from last month. Those aged 16 and over either working or looking for work is still at record lows, as shown in the below graph. The low labor participation rate is not all baby boomers and people entering into retirement. Below is a graph of the labor participation rate for those between the ages of 25 to 54. These are the prime working years, so one cannot blame retirement and college on the declining participation rate. The 25 to 54 age bracket labor participation rates have not been this low since the 1980's recession and the rate stands at 81.0%.

February Jobs Report: Wage Growth Is Stuck Around 2% -  Average hourly earnings in February rose by a meager 3 cents to $24.78, the Labor Department said Friday. That’s up only 2% over the past year, well below the more typical 3% pace seen before the recession. Higher wages would likely lead to more consumer spending and faster economic growth. They also could underpin inflation, which has been anemic. With employers hiring at a solid pace and unemployment falling, some economists think wages should eventually start to rise. “Faster wage growth has been the missing piece of the labor-market puzzle, and here the February jobs report was a step back, but wage growth should accelerate as the job market continues to tighten,” Gus Faucher, senior economist at PNC Financial Services, said in a note to clients. Indeed, some wage pressure appears to be emerging at the low end of the wage scale–at restaurants, for example.. But not all economists think wages are out of whack. Productivity, for one, might have to rise for workers to start demanding better pay. Nonfarm labor productivity decreased at a 2.2% annual rate during the fourth quarter of 2014. “Given the poor progress of labor productivity in recent years, averaging around just 1% per year, and stubbornly low inflation, the current rate of wage growth actually looks in line with fundamentals,” John Silvia, chief economist at Wells Fargo, said in a note to clients.

Diving Into the Payroll Report: Establishment +295K Jobs; Household +96K Employment, Labor Force -178K  - Once again we see the pattern of a strong establishment survey but a poor household survey. The latter varies more widely, and the tendency is for one to catch up to the other, over time. The question, as always, is which way?  Here is one stat that really stands out: The unemployment rate for teenagers 16-19 fell 1.7 percentage points. BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +295,000 - Establishment Survey
  • Employment: +96,000 - Household Survey
  • Unemployment: -274,000 - Household Survey
  • Involuntary Part-Time Work: -175,000 - Household Survey
  • Voluntary Part-Time Work: +15,000 - Household Survey
  • Baseline Unemployment Rate: -0.2 at 5.5% - Household Survey
  • U-6 unemployment: -0.3 to 11.0% - Household Survey
  • Civilian Non-institutional Population: +176,000
  • Civilian Labor Force: -178,000 - Household Survey
  • Not in Labor Force: +354,000 - Household Survey
  • Participation Rate: -0.1 at 62.8 - Household Survey
Please consider the Bureau of Labor Statistics (BLS) November 2014 Employment Report.Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing. Employment in mining was down over the month.  Click on Any Chart in this Report to See a Sharper Image

February Jobs Report – The Numbers - U.S. employers added 295,000 jobs in February, while the unemployment rate fell to 5.5% from January’s 5.7%. Economists surveyed by The Wall Street Journal had forecast a gain of 240,000 jobs and an unemployment rate of 5.6%.  Job growth averaged 288,000 over the past three months. January nonfarm payrolls were revised down by 18,000 to 239,000 and December’s tally remained at 329,000. February marks the 12th consecutive month of job gains above 200,000, the longest such stretch since the mid-1990s.  At $24.78, average hourly earnings for private-sector workers were up 2% in February from a year earlier. That’s in line with the modest 2% average over the last four years. With a tightening labor market, many economists are looking for signs of stronger pay gains. “There are perhaps hints,” Federal Reserve Chairwoman Janet Yellen said last month, “but we’ve not seen any significant pickup in wage growth.” The participation rate, representing the share of the population that either has a job or wants a job, was 62.8% in February. The rate rose from 62.7% in December to 62.9% in January before dipping last month. It remains near levels last seen in the late 1970s, in part due to baby boomers reaching retirement age. A stronger labor market could also draw discouraged workers who had given up on their job searches back into the mix. So far, there’s little sign that’s happening.  The headline unemployment rate checked in at 5.5% in February, down from January’s 5.7%. A broader measure–which includes people who aren’t working or looking for work, and people who want a full-time job but can only find a part-time position—declined to 11%, down from January’s 11.3%.  Private employers added 288,000 jobs in February. Manufacturers added 8,000 jobs. The service-producing sector,  which includes retail, restaurant and health-care jobs and has been a strong source of growth in the recovery, added 266,000 jobs. Hiring was stronger than economists had expected in the leisure and hospitality, trade and transport and professional services sectors. Meanwhile, government jobs grew by 7,000, but the gains were all from state and local municipalities. Despite all the miserable weather hitting parts of the eastern U.S. especially in New England, most people were able to get to their jobs in February. The Labor Department said in February 328,000 workers were unable to get to their jobs because of bad weather. That’s below the average of 387,000 in the previous 10 years.

Employment Report Comments and Graphs - This was a very solid employment report with 295,000 jobs added, although job gains for January were revised down 18,000.  Unfortunately there was little good news on wage growth, from the BLS: "In February, average hourly earnings for all employees on private nonfarm payrolls rose by 3 cents to $24.78. Over the year, average hourly earnings have risen by 2.0 percent." A few more numbers:  Total employment increased 295,000 from January to February and is now 2.8 million above the previous peak.  Total employment is up 11.5 million from the employment recession low. Private payroll employment increased 288,000 from January to February, and private employment is now 3.2 million above the previous peak. Private employment is up 12.0 million from the recession low. In February, the year-over-year change was 3.3 million jobs. This was the highest year-over-year gain since March '00.  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 decreased in February to 81.0%, and the 25 to 54 employment population ratio increased to 77.3%. 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. Average Hourly Earnings This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. . The blue line shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees. Nominal wage growth has been running close to 2% since 2010 and will probably pick up a little this year. Note: CPI has been running under 2%, so there has been some real wage growth.

February’s Jobs Report in 10 Charts - The U.S. economy added 295,000 jobs in February, the 12th straight month where job gains surpassed 200,000. That adds up to 3.3 million net new jobs, the best yearlong period of job gains in nearly 15 years. The headline jobless rate declined to 5.5%, the lowest since May 2008 and down from 5.7% in January. Measures of unemployment that include discouraged workers and marginally attached workers also declined. The broadest measure of underemployment, which also includes part-time workers who would like full-time work, declined to 11%, from 11.3% last month. The share of Americans participating in the labor force edged down slightly and remains near the lowest level in 36 years. The share of Americans with jobs was unchanged this month but has improved over the past year. Most of the employment gains over the past five years have come from full-time jobs. But the recovery has not yet been sufficient to restore the number of full-time jobs that the economy had before the recession. Unemployment has fallen for workers of all education levels. Despite the improvement in the overall rate of unemployment, an unusually large share of the unemployed have remained out of work for half a year or more. Among the unemployed, 31.1% have been jobless for more than half a year, a higher share than during any of the previous three recessions. The average spell of unemployment remains unusually long at 13.4 weeks. The share of workers facing short-term unemployment is back to prerecession levels. The share of long-term unemployment remains elevated. Average hourly earnings have yet to show a sustainable rise and have hovered near 2% annual gains for most of the recovery.

Americans Not In The Labor Force Rise To Record 92.9 Million As Participation Rate Declines Again -- For those (very few now, with even the Fed admitting the unemployment rate has become a meaningless, anachronistic relic) still wondering why the unemployment rate dropped once again, sliding from 5.7% to 5.5%, the reason is that while the number of unemployed Americans dropped by 274K thousand while those employed rose by 96K, the underlying math is that the civilian labor force dropped from 157,180 to 157,002 (following the major revisions posted last month), while the people not in the labor force rose by 354,000 in February, rising to a record 92,898,000 (people who currently want a job rose to 6,538K) matching the all time high number of Americans not in the labor force.

Oil and gas sector tarnishes strong U.S. jobs report --  The U.S. oil and gas sector bled away more jobs last month as sustained low oil prices forced energy producers to reduce spending, suggesting that further pain may be ahead for the struggling industry. A roughly 50 percent drop in oil prices since June has pummeled the U.S. oil sector, prompting a quick drop in activity. The number of oil rigs active in the United States has fallen 40 percent since October. The mining sector of the workforce, which includes oil and gas workers, fell by 9,300 to 844,500 last month, according to the Labor Department’s February payrolls report on Friday, driven by a fall in oil and gas drilling activity. The losses added to a 5,800 drop in January. Jobs in the oil extraction sub-sector, which includes rig workers, dropped 1,100 to 198,300, adding to a 1,800 drop in January. Support activities for mining, which includes oil and gas workers, fell 7,400. That made the energy sector a rare black mark in the jobs report, which showed nonfarm payrolls soaring 295,000 last month, beating expectations, and the jobless rate falling to a more than 6-1/2-year low of 5.5 percent. Job losses in the oil and gas sector have been relatively modest since June, in part due the lag between falling crude prices and job cuts. But the last two months suggest the speed of the cuts may be increasing as prices remain depressed.

Did The BLS Again Forget To Count The Tens Of Thousands Of Energy Job Losses? -- A month ago we asked if the "BLS Forget To Count Thousands Of Energy Job Losses" when as we showed, the BLS reported that only 1,900 jobs were lost in the entire oil and gas extraction space, which was a vast underestimation of what is taking place in reality, when compared to not only corporate layoff announcements, but what Challenger had reported was going on in the shale patch, when it calculated that some 21,300 jobs were lost in January in just the energy sector.  Today we ask again: did the BLS once more forget to add the now tens of thousands of jobs lost in the US energy sector? We ask because the divergence is getting, frankly, ridiculous.

The Recovery Is Complete: America Adds Most Waiters And Bartenders Since 2013 -- We are happy to report that in February, the US economy added a recovery-validating 58,700 waiters and bartenders, the highest monthly increase in this minimum wage category in 18 months.

Why No Wage Increases: More Than Half Of Jobs Added In February Were Lowest-Quality, Lowest-Paying -- The three biggest single-category jobs added in February (because Professional services includes numerous occupations), were also the three lowest quality, lowest paying ones:

  • Leisure and Hospitality, added 66K jobs
    Education and Health added 54K
    Retail trade added 32K

Together these three job categories accounted for 152K jobs, or more than half the total February job gains. They also represent the lowest paid jobs in the US.

Good News: A Year Later, More Prime-Age Men Are Working. But Their Numbers Haven’t Healed - Kenneth Gilkes Jr. and Joseph Maloney are back in the workforce full time. Aaron Miller has picked up part-time work, while sticking to his plan of getting an associate’s degree. Mark Riley took a chance on a job 800 miles away, but is now back looking for work. Each of these men were profiled for an article last winter focused on six men in prime working age who didn’t have jobs. Most of the men profiled in the article are finding their way back into the labor force after months–and in some cases years–without steady work. Nationally, the percentage of men ages 25 to 54 who are not working has fallen over the past year, but it isn’t back to prerecession levels and remains far above where it was for past generations. As of January, 15.6% of men in that age group weren’t working. That’s a percentage point lower than a year ago, but above the less than 13% seen in late 2007 before the recession hit and not close to the 6% seen in the early 1970s. The return to work for Mr. Gilkes, Mr. Maloney and others in many ways reflects the broader economic recovery. They have jobs, but getting back into the work force took time and a sizable toll.

WSJ Praises "Waiter, Bartender Recovery" While 74% Of Americans Believe They Will Work Until They Die - When a month ago we basked in the glow of what we dubbed the "Waiter and Bartender Recovery", highlighting that while the US is about to see the best performing, highest paid job sector in the last decade, i.e., those in the energy field.... get the axe as a result of the shale collapse and the "secret" US-Arab deal to make Putin beg, even if tens if not hundreds of thousands of well-paid (not retail, leisure, hospitality and temp workers), are about to get a pink slip as a result, one other job sector is seeing unprecedented gains, namely the US "waiter and bartender industry"..... whose total workers are soon set to surpass the entire US manufacturing sector... ... little did we know that some would not grasp this was pure sarcasm. One place this was clearly missed is the WSJ, which in a front-page article today praises the "Wages Rise at Restaurants as Labor Market Tightens." No really, to the WSJ "wage" increases for minimum-wage line cooks and burger flippers is what is now considered the sign of the recovery. We are not kidding. Some excerpts: Wage growth is breaking out in an unexpected corner of the U.S. economy: the nation’s restaurants and bars. Many restaurant owners are now scrambling to hire and retain workers, a potential precursor to widespread wage gains if it signals diminished slack in the labor market. They are also considering hiring "smart restaurant" minimum wage-crushing, burger-flipping robots, ordering tablets and implementing countless other automation processes which assures thousands of fewer carbon-based lifeforms will serve your fast food sandwich in the years to come, as those jobs that are paid the least of all for the simple reason that they provides virtually zero value, and are thus expendable... but don't let that get in the way of a good narrative.

U.S. CEOs See an Improving Economy But Will Hold Steady on Hiring -- Chief executives of large U.S. companies see the economy accelerating modestly in 2015, but are holding steady on their hiring plans, according the Business Roundtable’s first-quarter survey released Tuesday morning.The CEOs expect gross domestic product to advance 2.8% this year. That would be a pickup from the economy’s 2.4% expansion last year and marks a 0.4 percentage-point increase from the executives’ last projection released in December.The growth forecast is roughly in line with other estimates. Economists surveyed by The Wall Street Journal in February projected a 2.9% expansion this year. The Federal Reserve forecasts growth between 2.6% and 3%.  The CEO’s “forecast projects expansion, but it’s clear that the economy continues to perform below its potential,” said AT&T Inc. CEO Randall Stephenson, chairman of Business Roundtable. “Absent some fundamental shifts, be it with trade or tax reform…we won’t be able to break through that 3% barrier.”Among the CEOs, 40% said their firms would increase hiring over the next six months, while 23% expect to cut staff. Both readings matched the prior survey. In the survey, 80% of CEOs expected their company’s sales to increase in the next six months, the largest share in three years.

Fed’s Williams Sees Full U.S. Employment by Year End -  The U.S. economy will be operating at “full employment” by the end of this year as the unemployment rate drops to 5%, said John Williams, president of the Federal Reserve Bank of San Francisco, on Sunday. Mr. Williams was quite upbeat about the U.S. economic outlook in an interview with Fox News Channel, echoing remarks made to The Wall Street Journal Thursday. Citing broad-based employment gains in both low- and high-wage sectors, Mr. Williams said he believes the U.S. unemployment rate, currently at 5.7%, will fall to 5% by the end of this year. That’s a level consistent with full employment, which Fed officials see as the lowest rate of joblessness that doesn’t generate undue inflation. “We’re seeing lots of positive developments,” Mr. Williams said. “There are lots of signs of a good consumer spending trajectory.” Asked about U.S. inflation, which has been undershooting the Fed’s 2% target for nearly three years, Mr. Williams was also sanguine. He said the recent hit to consumer prices had been primarily driven by plunging energy costs, adding he expects inflation to stabilize and return to the central bank’s 2% goal over the next couple of years. Business investment, which has been lagging during this recovery, should also pick up as growth persists, Mr. Williams said. He forecasts the U.S. economy will grow 3% this year, solidly above the recent trend of around 2%.

Robots are hurting middle class workers - Two weeks ago, the famous economist Larry Summers sat in a chair on a stage at the National Press Club, talked with several other smart people for an hour and briefly upended a major debate in economics. The occasion was a forum, hosted by the Brookings Institution’ Hamilton Project, on technological change and its effect on American workers. Summers, the former Treasury Secretary who is arguably the most influential economist in Democratic Party circles today, joined a discussion on whether rapidly advancing technology — like robots — is killing jobs and hurting incomes for the middle class. Many economists say yes, because automated technology replaces the need for human labor and thus devalues it. And their answer is, at least in part, more education, so workers have better skills to earn jobs less replaceable by machines and algorithms. But there’s a loud group of liberal economists who argue that the answer is, for the most part, “no” — that other changes in the economy, such as the decline of unions and collective bargaining, are much more to blame. In his remarks, Summers, who previously had endorsed the idea that technology and automation are threatening middle class wages, seemed, to some, skeptical of the idea that technology is a major driver of stagnating wages. He also appeared dubious that education policy could fix the problem. America needs more jobs and workers need more power, he said. Betting on more education and skills training to fix things would be an “evasion.” Liberal economists celebrated the argument. “Larry Summers demolished the robots and skills arguments,” Mike Konczal, an economist at the Roosevelt Institute, wrote. Other economists, however, including Hamilton director Melissa Kearney, didn’t agree, and a debate has erupted since.

What are the Robots Doing? Rebalancing our Inequality Intellectual Portfolio - Recently I wrote about Larry Summers demolishing an argument about robots and our weak recovery on a panel. Jim Tankersley called up Summers to further discuss the topic, and put his interview online as a response meant to correct and expand on my post. But I don’t think we disagree here, and if anything Summers’ interview shows how much the consensus has changed. Before we continue, I should clarify what we are talking about. When people talk about “the robots,” they are really telling one of three stories:

  • 1. Technology has played an important role in the economic malaise of the past 35 years, broadly defined as a mix of stagnating median wages, increased inequality, and weakening labor-force participation.
  • 2. The Great Recession has led to such a weak and lackluster recovery in large part because of technology. In one version of this story, technology is simply taking all the jobs that would normally be found in a recovery. As the AP put it, “Five years after the start of the Great Recession, the toll is terrifyingly clear: Millions of middle-class jobs have been lost... They're being obliterated by technology.” Another, more popular, version is that workers simply don’t have the skills required for a high-technology labor force.
  • 3. We are moving to a post-work economy, one where robots substitute for human labor in massive numbers and fundamentally change society. Here’s an example. We may or may not be seeing the first hints of such a change now, depending on the story. The story I said Summers (as well as David Autor) demolished is the second. There’s no evidence that we are having a technology renaissance right now, or that technology has contributed in a major way to the weak recovery, or that a skills gap or other educational factor is holding back employment, or that highly skilled workers are having a great time in the labor market. However, Summers does argue for the first story as well, the one in which technology has played a role in the malaise of the past 30 years. .

ATMs and a Rising Number of Bank Tellers? - Tim Taylor - During the rise of ATM machines in US banking, did the number of bank tellers rise or fall? I would have guessed "fall," and I'm not alone. In a June 14, 2011, interview, President Obama used ATMs a an example of technology displacing labor. He said (I've added punctuation to the raw transcript): There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate. However, James Bessen collected the actual data on ATMs and bank tellers from an array of scattered sources. Overall, the story is that as the ATM machines arrived, the number of bank tellers held steady and even rose slightly. Bessen discusses the interaction between technology and employment in "Toil and Technology," in the March 2015 issue of Finance & Development. Here is Bessen's figure showing the rise in ATM machines and the number of tellers employed.

Out of Trouble, but Criminal Records Keep Men Out of Work -  A series of unfortunate events that began in 2012 when Mr. Mirsky lost a job as a Verizon technician culminated last year in a guilty plea for resisting arrest. He is facing the foreclosure of his home; his church has told him that he cannot serve as an usher; he is thousands of dollars in arrears on child support payments for his 8-year-old daughter. Even as the economy improves, Mr. Mirsky has been unable to find a permanent position so he can start rebuilding his life.“Even your lower-paying fast-food jobs are now doing background checks,” he said. “How can I pay child support if I can’t get a job?” The share of American men with criminal records — particularly black men — grew rapidly in recent decades as the government pursued aggressive law enforcement strategies, especially against drug crimes. In the aftermath of the Great Recession, those men are having particular trouble finding work. Men with criminal records account for about 34 percent of all nonworking men ages 25 to 54, according to a recent New York Times/CBS News/Kaiser Family Foundation poll.

Why the Gap Between Worker Pay and Productivity Is So Problematic -- One of the most frustrating parts of the sluggish recovery has been paltry wage gains for most workers. The stock market may be booming, corporate profits increasing, and home values rising, but middle and lower-class workers often don't truly feel the benefit of such improvements unless wages rise. But wage stagnation isn't just a problem borne of the financial crisis. When you look at the relationship between worker wages and worker productivity, there's a significant and, many believe, problematic, gap that has arisen in the past several decades. Though productivity (defined as the output of goods and services per hours worked) grew by about 74 percent between 1973 and 2013, compensation for workers grew at a much slower rate of only 9 percent during the same time period, according to data from the Economic Policy Institute.   I spoke with Jan W. Rivkin, an economist and senior-associate dean for research at Harvard Business School who studies labor markets and U.S. competitiveness, in order to learn more about the history of the gap, and what it means for workers and the broader economy. The interview that follows has been lightly edited and condensed for clarity.

If the economy’s so good, why aren’t workers getting raises? - Are wages stagnant because the economy was bad yesterday or because it's bad today? Yes. The problem is that even though unemployment is a normal-ish 5.7 percent, wage growth is still a below-normal 2.2 percent. It could be that companies aren't increasing wages to make up for the fact that they wanted to cut them during the recession, but couldn't. That's what the Federal Reserve calls "pent-up wage deflation." Or it could be that companies aren't increasing wages due to the fact that there's more slack than the unemployment rate is letting on. And that's why the Federal Reserve is, for example, paying close attention to part-time workers who want full-time jobs but can't find them. What does it matter which it is? Well, if the problem is in the past, then the Fed can ignore low wage growth and start raising rates. But if the problem is still with us, then the Fed can't ignore it and might have to put off its plans to start normalizing policy in June. Now you don't have to be an economist to know that people don't like taking pay cuts. It's pretty rational. If you have fixed costs, like a mortgage or student loans, then there's only so much less that you can afford to make. But it's not just that workers resist lower pay. It's that firms don't like to force it, either. That's because pay cuts make workers unhappy, and unhappy workers are less productive ones. So, as economist Truman Bewley found out when he actually asked people, companies think pay cuts are bad for business.

Walmart’s Visible Hand, by Paul Krugman -  A few days ago Walmart, America’s largest employer, announced that it will raise wages for half a million workers. For many of those workers the gains will be small, but the announcement is nonetheless a very big deal, for two reasons. First, there will be spillovers: Walmart is so big that its action will probably lead to raises for millions of workers employed by other companies. Second, and arguably far more important, is what Walmart’s move tells us — namely, that low wages are a political choice, and we can and should choose differently. Conservatives — with the backing, I have to admit, of many economists — normally argue that the market for labor is like the market for anything else. The law of supply and demand, they say, determines the level of wages, and the invisible hand of the market will punish anyone who tries to defy this law.Specifically,... a minimum wage, it’s claimed, will reduce employment and create a labor surplus... Pressuring employers to pay more, or encouraging workers to organize into unions, will have the same effect. But labor economists have long questioned this view..., workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand. ... Walmart is ready to raise wages.... And its justification for the move echoes what critics of its low-wage policy have been saying for years: Paying workers better will lead to reduced turnover, better morale and higher productivity.

Income inequality is taking a toll on the health of American workers -- "Income inequality" has already become a buzz phrase for the campaigns leading up to the 2016 elections. Likely candidates and pundits on both ends of the political spectrum have begun to talk about how fairness, social justice and -- even after the implementation of the Affordable Care Act -- the cost of health care insurance are contributing to the large and growing gap between the rich and poor. But a commentary by researchers at the UCLA Fielding School of Public Health points out another disturbing impact of income inequality: its effect on people's health. The article appears in the current online edition of the American Journal of Public Health. It has long been recognized that, even beyond access to high quality health care, people's income is a key factor in determining how healthy people are. But the commentary provides evidence that the degree of income inequality also can lead to a long list of health issues, including shortened life expectancy and poorer self-reported health status. Dr. Linda Rosenstock, the report's senior author, said lower- and sometimes middle-income wage workers often face additional workplace stresses that take a toll on their health -- among them, lower pay, lack of paid sick leave, an inability to find full-time work, the need to work double shifts to make ends meet. Those challenges can lead to high levels of stress, exhaustion, cardiovascular disease, lower life expectancy and obesity, and the effects can easily trickle down to impact families and children.

The Demolition Of Workers' Comp -- Oil and sludge pressurized at more than 700 pounds per square inch tore into Whedbee’s body, ripping his left arm off just below the elbow. Coworkers jerry-rigged a tourniquet from a sweatshirt and a ratchet strap to stanch his bleeding and got his wife on the phone.   It was exactly the sort of accident that workers’ compensation was designed for. Until recently, America’s workers could rely on a compact struck at the dawn of the Industrial Age: They would give up their right to sue. In exchange, if they were injured on the job, their employers would pay their medical bills and enough of their wages to help them get by while they recovered. No longer. Over the past decade, state after state has been dismantling America’s workers’ comp system with disastrous consequences for many of the hundreds of thousands of people who suffer serious injuries at work each year, a ProPublica and NPR investigation has found. The cutbacks have been so drastic in some places that they virtually guarantee injured workers will plummet into poverty. Workers often battle insurance companies for years to get the surgeries, prescriptions and basic help their doctors recommend. Two-and-a-half years after he lost his arm, Whedbee is still fighting with North Dakota’s insurance agency for the prosthesis that his doctor says would give him a semblance of his former life.

Austerity Kills: Economic Distress Seen as Culprit in Sharp Rise in Suicide Rate Among Middle Aged - Yves Smith I’m surprised, but perhaps I shouldn’t be, that a recent study hasn’t gotten the attention it warrants. It points to a direct connection between the impact of the crisis and a marked increase in suicide rates among the middle aged. This link seems entirely logical, given how many citizens found themselves whacked by a one-two punch of job loss or hours cutbacks combined with the sudden plunge in home prices. Normally, a last ditch course of action for most middle and upper middle class income members in the pre-crisis days, when things got desperate, was to sell you house and cut costs radically by moving into a much more modest rental. But that option vanished in all but the most stable markets (as in some flyover states that the subprime merchants ignored) due to home price declines trashing equity for all but those with small or no mortgages.  And you have the further psychological toll of the difficulty of re-inventing yourself if you are over 35. I can point to people who had enough in the way of resources and took steps that seemed entirely logical, taking courses to prepare them for a new career in fields with good underlying demand (see this post for one example; I can cite others) and got either poor returns on their expenditure of time and effort or had no success at all. People who thought that having a college degree and a steady history of good performance at white collar jobs gave them a measure of security had that illusion ripped from them.  The summary of the article from the Science website (hat tip Dr. Kevin): Suicide rates for adults between 40 and 64 years of age in the U.S. have risen about 40% since 1999, with a sharp rise since 2007. One possible explanation could be the detrimental effects of the economic downturn of 2007-2009, leading to disproportionate effects on house values, household finances, and retirement savings for that age group. In a study published in the American Journal of Preventive Medicine, researchers found that external economic factors were present in 37.5% of all completed suicides in 2010, rising from 32.9% in 2005.  In addition, suffocation, a method more likely to be used in suicides related to job, economic, or legal factors, increased disproportionately among the middle-aged. The number of suicides using suffocation increased 59.5% among those aged 40-64 years between 2005 and 2010, compared with 18.0% for those aged 15-39 years and 27.2% for aged >65 years.

Right-To-Work Laws: Designed To Hurt Unions and Lower Wages  - The fact that unions are responsible for workplace benefits, higher wages, and the right to overtime pay is the very reason Wisconsin Governor Scott Walker, the Koch Bothers, and other corporate interests hate them. Walker hates unions so much he compared them to ISIL terrorists, so it’s no wonder that he and Wisconsin’s Republican legislature are rushing through a “right-to-work” (RTW) bill. RTW laws were originally designed by business groups in the 1940’s to reduce union strength and finances, and over the years they’ve been successful. As Melanie Trotman of the Wall Street Journal pointed out to me this morning, none of the 10 states with the highest rates of unionization are right-to-work. The Illinois Economic Policy Institute calculates that RTW reduces union coverage by 9.6 percentage points, on average. Unsurprisingly, weakening unions leads to lower wages and salaries for union and non-union workers alike. Heidi Shierholz and Elise Gould showed that RTW is associated with a $1,500 reduction in annualized wages, on average, even when the analysis takes into account lower prices in those states. (On average, wages in RTW states are nearly $6,000 less.) Nevertheless, RTW supporters look at the very recent experience of Michigan and Indiana, which passed RTW laws in 2013 and 2012, respectively, to argue that RTW doesn’t inevitably lead to wage reductions. It’s a misguided argument, since no critic claims that the effects of RTW are immediate: It takes a little time for RTW to reduce dues collections, weaken union finances, undermine organizing, and weaken the bargaining position of workers. The law hasn’t even begun to apply to many contracts in Michigan.

Right to work for less: Gov. Scott Walker wants to lower worker pay in Wisconsin - The art of the misnomer — an industry standard of American politics — has rarely been more effectively applied than in right-to-work laws. Since Wisconsin Gov. Scott Walker (R) and the state legislature are in the midst of trying to turn the state into the 25th covered by the laws, it’s worth unpacking what’s going on here. Here’s what the legislation does: It makes it illegal for unions to negotiate contracts wherein everyone covered by that contract has to contribute to its negotiation and enforcement. Let’s be very clear about this: RTW does not confer some new right or privilege on those in states that adopt it. It takes away an existing right: the ability of unions to require the beneficiaries of union contracts to pay for their negotiation and enforcement. In anything, the law creates a right to freeload — to reap the significant benefits of union bargaining without paying for them. Let’s also be clear about what goes on in non-RTW states, as anti-union forces consistently distort the current reality. In non-RTW states, no one has to join a union. There have been no “closed shops” in America for more than 20 years. When RTW advocates say they’re fighting against “forced unionism,” they are making stuff up. There’s no such thing. Workers in a bargaining unit in non-RTW states don’t even have to pay full union dues. If they object to, say, the union’s political activities, they can pay reduced dues that cover only the costs of negotiating and enforcing the contract. Since that’s most of what local unions do, by the way, such fees amount to 80 percent to 90 percent of full dues.

Maybe Tax Increases Will Be Easier with a Little Southern Charm -- Alabama’s GOP Governor wants higher taxes on car and cigarette sales. Robert Bentley released details on how he’d close the state’s $700 million budget shortfall. And $587 million would come from new revenues. He’d raise an estimated $200 million by doubling the state sales tax on automobiles from 2 percent to 4 percent and collect another $205 million by boosting cigarette and tobacco taxes by 82.5 cents per pack. The governor would also “unearmark” $187 million in funds to put more money in the state’s Education Trust Fund: He’ll explain that later this week. Is it time to start taxing jet fuel in Atlanta? When Delta Airlines was facing bankruptcy in 2005, lawmakers allowed tax-free jet fuel purchases at Hartsfield-Jackson Atlanta International Airport. But Delta closed out 2014 with pre-tax income of $4.5 billion, $1.9 billion more than in 2013. Now, a bill working its way through the state legislature would restore taxes on jet fuel at the world’s busiest airport. The measure would raise $23 million a year for aviation upgrades throughout Georgia, according to state budget analysts. In South Carolina: Don’t ask, don’t tell. In 2006, the state cut homeowners’ property taxes by about half, believing that a one cent increase in the state’s sales tax would make up the revenue for school districts. But wishful thinking doesn’t pay the bills and sales tax collections never reached expectations. So far, the cumulative $866 million shortfall has been covered largely through the state’s General Fund. The Greenville News reports that GOP Senator Mike Fair, a member of the state’s Senate Finance Committee, didn’t know the how big the shortfalls have been. “Not a clue. It hasn't been discussed.”

Chicago in talks with banks to avert swap payments (Reuters) - Chicago has renegotiated an interest-rate swap agreement with one bank and is in discussions with another to avoid paying about $60 million in termination fees, the mayor's office said on Tuesday. Moody's Investors Service on Friday cut Chicago's general obligation rating by one notch to Baa2 - a level that allowed banks to end certain swaps the city uses to hedge interest-rate risk on its variable-rate bonds. Mayor Rahm Emanuel's office said the city late last week renegotiated swap terms to avoid having to pay BMO Harris Bank a required $20 million termination fee. Negotiations with Wells Fargo are ongoing over the remaining $40 million termination fee. Spokesmen for the banks declined to comment earlier on Tuesday about the status of the swap agreements. true In its report on Friday, Moody's said the ratings downgrade to just two steps above the junk level could trigger the immediate termination of four swap agreements, costing the city about $58 million. It also noted that the downgrade to Baa2 moves the city closer to termination of 11 more swaps deals. Termination on those contracts would potentially cost Chicago an additional $133 million, Moody's noted.

Preying on the Injured as Public Policy -- An investigation by ProPublica and NPR has found that Republican state legislators (on behalf of lobbyists working for their local chamber of commerce) have passed laws that cut worker compensation insurance benefits to save employers money. Because of this, now the U.S. taxpayers have to pick up the added costs in Social Security disability, Medicare and Medicaid.  In President Obama’s proposed budget for fiscal year 2016, OSHA would be funded at $592.1 million — which includes the following increases: $4 million for State Plan states; $18 million for federal enforcement; and $5 million for whistleblower protections. But as Safety and Health Magazine notes: "Where things get sticky in his proposal is under standards development and federal enforcement, for which the administration is seeking a $3.3 million and $17.6 million increase, respectively. Given the Republicans’ historically sour view of enforcement in favor of compliance assistance, I have a hard time seeing that dramatic rise happening." And as the National Law Review recently opined about the proposed budget increase for OSHA: "As expected, the White House budget had Democrats praising it and Republicans expressing opposition. Senator Patty Murray (D-WA), ranking member on the Senate Committee on Health, Education, Labor and Pensions, described the White House proposal as “a strong starting point” for building a “bipartisan budget deal.” Representative Hal Rogers (R-KY), who chairs the House Appropriations Committee, called it "irresponsible." (More here at the OSHA law blog)

Mayor Nutter Seeking 9 Percent Property Tax Hike to Fund Schools - Philadelphia Mayor Michael Nutter is proposing a more than 9 percent property tax hike as part of his final budget, administration officials tell NBC10. The money generated from the increase would infuse cash into the severely underfunded city schools. Nutter will ask for a 9.34 percent jump in property taxes during his budget presentation to Philadelphia City Council on Thursday. That would increase the property tax rate to 1.465 percent from 1.34 percent starting in the Fiscal Year 2016 which begins on July 1, 2015.  A Nutter Administration official said education is a paramount issue and the increase it will help fund the School District of Philadelphia appropriately. School District of Philadelphia Superintendent Dr. William Hite said Tuesday the district needs $300 million to have a balanced budget. He's hoping $103 million of that comes from the city. Despite an increase in the tax rate, officials say homeowners could still see a drop in their property tax bill in 2017 if a plan from Gov. Tom Wolf to reduce taxes statewide passes. Under the governor's Homestead proposal, the median property tax bill for Philadelphians would be $300 less than what they will pay this year, officials said.

Abandoned Walmart is Now America’s Largest 1-Floor Library - There are thousands of abandoned big box stores sitting empty all over America, including hundreds of former Walmart stores. With each store taking up enough space for 2.5 football fields, Walmart’s use of more than 698 million square feet of land in the U.S. is one of its biggest environmental impacts. But at least one of those buildings has been transformed into something arguably much more useful: the nation’s largest library. Meyer, Scherer & Rockcastle transformed an abandoned Walmart in McAllen, Texas, into a 124,500-square-foot public library, the largest single-floor public library in the United States.  The design won the International Interior Design Association’s 2012 Library Interior Design Competition. MSR stripped out the old ceiling and walls of the building, gave the perimeter walls and bare warehouse ceiling a coat of white paint, and set to work adding glass-enclosed spaces, bright architectural details and row after row of books.

How Higher Education Perpetuates Intergenerational Inequality -- Part of the mythology of US higher education is that it offers a meritocracy, along with a lot of second chances, so that smart and hard-working students of all background have a genuine chance to succeed--no matter their family income. But the data certainly seems to suggest that family income has a lot to do with whether a student will attend college in the first place, and even more to do with whether a student will obtain a four-year college degree.  Margaret Cahalan and Laura Perna provide an overview of the evidence in "2015 Indicators of Higher Education Equity in the United States: 45 Year Trend Report,"  Their report offers a range of evidence that the affordability of college is a bigger problem for students from low-income families even after taking financial aid into account. Students from low-income families take out more debt, and are more likely to attend for-profit colleges. Indeed, a general pattern for higher education a whole is that even as the cost of attending has risen, the share of the cost paid by households, rather  than by the state or federal government, has been rising. ... The effects of these patterns on inequality of incomes in the United States are clearcut: higher income families are better able to provide financial and other kinds of support for their children, both as they grow up, and when it comes time to attend college, and when it comes time to find a job after college. In this way, higher education has become a central part part of the process by which high-income families can seek to assure that their children are more likely to have high incomes, too.

U.S. millennials post ‘abysmal’ scores in tech skills test, lag behind foreign peers -  There was this test called the PIAAC test.  And it was daunting. It was like the SAT or ACT -- which many American millennials are no doubt familiar with, as they are on track to be the best educated generation in history -- except this test was not about getting into college. This exam, given in 23 countries, assessed the thinking abilities and workplace skills of adults. It focused on literacy, math and technological problem-solving. The goal was to figure out how prepared people are to work in a complex, modern society. And U.S. millennials performed horribly. That might even be an understatement, given the extent of the American shortcomings. No matter how you sliced the data – by class, by race, by education – young Americans were laggards compared to their international peers. In every subject, U.S. millennials ranked at the bottom or very close to it, according to a new study by testing company ETS. “We were taken aback,” said ETS researcher Anita Sands. “We tend to think millennials are really savvy in this area. But that’s not what we are seeing.”

Fed’s Dudley: Student Loans May Not Be For Everyone - –Federal Reserve Bank of New York President William Dudley warned Wednesday that borrowing to finance higher education may not be for everyone. “It’s true that virtually every study finds that the returns on college degrees are high, on average, relative to their cost” Mr. Dudley said. “But some people who take out student loans don’t end up with these high average returns,” he said. “Many who have pursued vocational training may be less remunerated in the market” relative to the past, the official said. “Similarly, some students attend certain for-profit universities with track records that indicate that their graduates have lower lifetime earnings than other types of educational institutions.” The central bank official didn’t comment on monetary policy or the economy in a speech that was prepared for delivery at a conference at his bank on student loan data. The New York Fed has been actively studying student loan issues, as part of broader efforts to better understand household finances, an area Mr. Dudley said was lacking in firm data.

Massachusetts public college retirees drive up six-figure pensions - The taxpayer-funded state pension system is exploding with six-figure payouts to retiring staffers at community colleges and smaller state schools, a Herald review found. All told, 203 out of the 357 state retirees hauling in six-figure pension checks last year hailed from taxpayer-funded community colleges and universities — including all 10 who were paid more than $200,000 in 2014, the review found. The number of retirees paid at least $100,000 by the Massachusetts State Employees’ Retirement System has skyrocketed by nearly 77 percent since 2011 as more college staffers retired, the review found.College staffers made up 40 percent of the more than 10,500 six-figure salaries on last year’s state payroll — surpassing even state police — which will translate into big taxpayer-funded pension payouts in future years. The state has budgeted more than $1.7 billion of taxpayer money to help pay for unfunded pensions this fiscal year. The unfunded pension liability — that is, projected retirement payments that likely will be footed by taxpayers — stands at more than $29 billion. That includes retirement plans for local public school teachers, officials say,

States Want To Cut Taxes Even More on Pensions. Bad Ideas Never Die. -- The siren song of retirement income free of state taxes continues to seduce politicians. No matter that there is little evidence that high taxes on pension income drive away seniors, or that few older people move from one state to another for any reason at all. No matter that tax-free retirement income benefits the rich at the expense of low- and moderate-income households. No matter that many states talking about doing this are facing serious budget shortfalls. In sum, excluding retirement income from state tax gives money that states don’t have to people who don’t need it to discourage them from doing something that, by and large, they are not doing. The idea of excluding pension income from state tax is hardly new. Nearly every state with an income tax has enacted some tax break for those over 65. But there seems to be a new wave of interest in expanding these subsidies proving, yet again, that bad ideas never die. Two examples: Rhode Island and Maryland.

Americans Aren’t Saving Enough for Retirement, but One Change Could Help - Here is something every non-rich American family should know: The odds are that you will run out of money in retirement.On average, a typical working family in the anteroom of retirement — headed by somebody 55 to 64 years old — has only about $104,000 in retirement savings, according to the Federal Reserve’s Survey of Consumer Finances.That’s not nearly enough. And the situation will only grow worse.The Center for Retirement Research at Boston College estimates that more than half of all American households will not have enough retirement income to maintain the living standards they were accustomed to before retirement, even if the members of the household work until 65, two years longer than the average retirement age today. Using a different, more complex model, the Employment Benefit Research Institute calculates that 83 percent of baby boomers and Generation Xers in the bottom fourth of the income distribution will eventually run short of money. Higher up on the income scale, people also face challenges: More than a quarter of those with incomes between the middle of the income distribution and the 75th percentile will probably run short.The standard prescription is that Americans should put more money aside in investments. The recommendation, however, glosses over a critical driver of unpreparedness: Wall Street is bleeding savers dry.“Everybody’s big focus is that we have to save more,” said John C. Bogle, founder and former chief executive of Vanguard, the investment management colossus. “A greater part of the problem is the failure of investors to earn their fair share of market returns.” A research paper by Mr. Bogle published in Financial Analysts Journal makes the case. Actively managed mutual funds, in which many workers invest their retirement savings, are enormously costly.

Straightening deck chairs during the "retirement crisis" - Here's Eduardo Porter:On average, a typical working family in the anteroom of retirement — headed by somebody 55 to 64 years old — has only about $104,000 in retirement savings, according to the Federal Reserve’s Survey of Consumer Finances. . . .  The standard prescription is that Americans should put more money aside in investments. The recommendation, however, glosses over a critical driver of unpreparedness: Wall Street is bleeding savers dry. “Everybody’s big focus is that we have to save more,” said John C. Bogle, founder and former chief executive of Vanguard, the investment management colossus. “A greater part of the problem is the failure of investors to earn their fair share of market returns.”So people are approaching retirement with $104,000, and "a greater part of the problem is the failure of investors to earn their fair share of market returns." What are we talking about? Bogle and Porter suggest that the real problem is about active vs. passive management.
I'm not kidding. That's what the article is about (despite its title).This is what I'm talking about when I say that the early retirement people have shown that the emperor has no clothes. Do Porter and Bogle really want us to believe that the main reason people are trying to retire on $100 grand is that they haven't made sufficient use of passive funds?Really? Really?! I'm as big a fan of passive management as anybody, but this is totally absurd. This sort of logic is straightening the deck chairs on the Titanic. What would the average nest egg be if everyone had chosen the right fee structure and asset allocation? Whatever it is, it's not going to get anyone very far in retirement, particularly if they're accustomed to spending money at the kind of rates that lead to having such a small stash at that age.

Baby boomers delaying retirement: It’s a myth, because retirement is inevitable, and bleaker than ever. The baby boomers are going to revolutionize retirement—or so many would have us think. They won’t be heading off to a life of leisure on the golf course, like their parents did. Instead, they’ll remain employed, collecting paychecks for work that is important and meaningful.  “[T]o this generation, ‘retirement’ usually means finding a different job,” Fortune opined last month. AARP’s magazine, not to be outdone, recently featured a woman who came out of retirement, quickly landing a job as the head of human resources for a charter school chain—at the age of 70. “I work a nine- or 10-hour day,” she gleefully told the magazine. That wasn’t enough for the Wall Street Journal, which upped the ante with “A Retirement Age of 100? It’s Coming.” No, actually, it’s not.Welcome to the latest in retirement porn. These articles, showcasing happy, fulfilled working seniors, are just another fairy tale, one that has as much of a relationship to reality as did the pre-Great Recession fantasy of the fiftysomething early retiree cashing out of the stock market and living happily ever after on a California vineyard.According to Alicia Munnell, the director of Boston College’s Center for Retirement Research, the average retirement age, which crept up slowly for a generation, stalled out in 2008 at 64 for men and 62 for women. In 2013 a MetLife Mature Market Institute survey found half of those born in 1946 had already completely retired and only one in five were working full-time. A more recent survey by Gallup reported a mere third of boomers aged 67 or 68 were employed. “Despite some expectations that baby boomers will defy the usual working patterns of aging Americans and stay in the workforce longer than those who came before them, the data do not appear to support that expectation,” Gallup’s report noted. So what, then, is driving the latest in late-life life fantasies? Financial desperation.

Bill Gross: Too Much Debt, Too Many Zombie Corporations, Low Interest Rates Destroy Pension System - In an Bloomberg Television interview Bill Gross of Janus Capital spoke with Bloomberg Television's Trish Regan about the outlook for Federal Reserve policy, the U.S. economy and his objectives at Janus Capital.  Key Quotes:

  • "Not even thin gruel is being offered to our modern-day Oliver Twist investors. You have to pay to come to the dinner table and then sit there staring at an empty plate."
  • "The interest rate can't be raised substantially even over the next two to three years."
  • "The US has escaped the liquidity trap that euroland and Japan are in. But, not necessarily for all time."
  • "[Low interest rates] keeps zombie corporations alive because they can borrow at 3 and 4 percent, as opposed to the 8 or 9 percent. It destroys business models. It's destroying the pension industry and in the insurance industry."
  • "ultimately, [low interest rates] destroy the capitalistic model at the margin. Instead of investing in the real economy, [corporations] can now simply borrow at close to 0 percent and buy their own stocks, which yield 2 or 3 percent on a dividend basis and provide a return of 6 or 7 percent on an earnings to price ratio basis."

What if We Funded Public Education Like Affordable Care Act Health Insurance? -- The Tax Policy Center’s recent panel discussion on the Affordable Care Act’s tax-based system of subsidies and penalties highlighted the convoluted way the ACA promotes health insurance. As a thought experiment, imagine if we funded public education the same way we pay for the ACA’s exchange-based insurance. Their goals are similar. Both seek to promote a form of universal or near-universal coverage – K-12 education for all and mandated health insurance for many. But they go about it in very different ways: one makes government subsidies explicit and the other makes much of them disappear, at least in the budgetary and political sense. Both require participation, through public schools or insurance purchased through state or federal health exchanges. They allow people to opt out if they meet specified public standards in other ways—through private or home schooling or with private health insurance or government coverage such as Medicare or Medicaid.  Both recognize that if government is going to require people to consume a good or service, it must provide financial assistance for those who can’t otherwise afford it. But the subsidies for public education and ACA insurance differ in their design. Public education starts by providing a service at no direct cost to users. Taxpayers -- even those without school-age children -- support education through some combination of property, income, and sales taxes. Because these levies impose higher absolute annual payments on higher- than lower-income households, they effectively reduce the net cost for those who are less well off, with the payment increasing as their ability to pay rises.  The ACA starts from the opposite direction. It requires nearly everyone to purchase health insurance, but then provides income-based subsidies to reduce the net cost of exchange-based insurance for low- and middle-income households. The budgetary expense of this subsidy is borne in general by federal taxpayers, even those who do not directly benefit from insurance available through the exchanges, such as senior citizens who are covered by Medicare.

Obamacare-Hatin’ Sheriff Wants You To Pay His Medical Bills For Him, Because He Ain’t Got No Obamacare - Former Arizona sheriff Richard Mack is the man who proposed using women as human shields at the Bundy Ranch last year. As you might expect, he’s an older “gentleman,” and he does not care for Obummercare. Pity that, since both he and his wife are recovering from serious illnesses, and they’re learning firsthand just how painful medically induced bankruptcy can be. Unfortunately, Sheriff Mack’s principles simply will not allow him to save tons of money and also maybe his own life and that of his wife by enrolling in an ACA-approved plan. So, like any self-reliant rugged individualist, he is begging people to give him money. Talking Points Memo tells us more. The former sheriff and his wife do not have health insurance and started a GoFundMe campaign to solicit donations from family and friends to cover the costs of their medical care. “Because they are self-employed, they have no medical insurance and are in desperate need of our assistance,” reads a note on Mack’s personal website. […] “It is difficult and humbling to say that we need your help, but we do.” Gee, we know some people who are self-employed, and thus couldn’t buy insurance for love or money. Then this weird thing happened: the United States Congress passed a bill mandating that insurance companies had to sell insurance to all comers, even self-employed ones, even if they had pre-existing conditions, and the president signed it into law! Huh.

Wonkette Commenters Teach Obamacare-Hating Sheriff A Lesson By Paying His Medical Bills - Wonkette is a force for good in the world, it has been proven! On Friday, we had the story of former Arizona sheriff guy Richard Mack, a wingnut Oath Keeper, who has also been a very public opponent of the tyrannical reach-around that is Obamacare. Mack and his wife do not have health insurance, because FREEDOM, but sadly both have suffered major health setbacks in the past several months, which has led them to experience the uniquely American wonders of getting driven into the poor house, due to ain’t got no health insurance. So, get this, instead of taking this as a lesson learned, and being responsible adults and purchasing health insurance under evil Obamacare, their friends started a GoFundMe, trying to crowd-source $30,000 out of the goodness of people’s hearts, so that the Macks might not have to face the consequences of their dumb actions. At the bottom of Wonkette’s Friday post, we asked people “to kill Sheriff Mack with kindness,” and to “[d]rop him $5 and a note reminding him what a shithead he’s been regarding access to affordable health care.” We asked, partly as a joke, but you all freaking DID IT, and the results are hilarious.

The Individual Mandate: Has the Obama Administration Silently Repealed the Rule that Virtually Everyone Must Have Health Insurance? -- Obamacare’s critics continue to argue that the Affordable Care Act (ACA) will self-destruct. Now, some claim the mandate that uninsured Americans must purchase coverage– or pay a stiff fine— is so “riddled with new loopholes and exemptions” it ceased to exist. When the ACA passed Congress in 2010, it offered a handful of basic exemptions to the mandate of everyone must be insured. For example, if the only comprehensive coverage available would cost more than 8% of a household’s income, the fine would be waived. Individuals who were in jail, or belonged to a recognized religious group that objects to all insurance, including Medicare and Social Security, they to could be excused.  But then, late in 2013, the administration quietly added some 14 new ways the uninsured could dodge the fine.. “’This latest reconstruction’ of the ACA received zero media coverage,’ a Wall Street Journal editorial declared, ‘and the Health and Human Services Department (HHS) didn’t think the details were worth discussing in a conference call, press materials or fact sheet.’” Yet if the new waivers went largely unnoticed, reform’s opponents claim that the swelling list of escape clauses will have a huge impact. By 2016, they say, almost 90% of the nation’s 30 million uninsured will be able to ignore the mandateof buying insurance – without paying the piper. So much for universal coverage. Just last week Bloomberg reported of; some Republicans referring to the new list of loopholes as a “stealth repeal” of the individual mandate. To her credit, Bloomberg’s Caroline Chen points out the contradiction in the GOP’s arguments. The same critics who, in the past, argued that the mandate represented “unwarranted government coercion” now criticize it for being too “wimpy.” Can they really have it both ways?

Is Supreme Court's chief justice ready to take down ObamaCare? - The case of King v. Burwell, set for arguments before the Court on Wednesday, threatens to gut the law by invalidating subsidies to help millions of people buy insurance in the roughly three-dozen states relying on the federally run marketplace. While it is legally far different than the 2012 case — a question of interpreting the text of the law rather than ruling on its constitutionality — Roberts faces the same kind of scrutiny. After Roberts’s surprise ruling in a 5-4 decision to uphold the law the last time, conservatives denounced him as a sellout. Conservative host Glenn Beck printed T-shirts with Roberts’s picture above the word “COWARD.” Louisiana Gov. Bobby Jindal, now a possible Republican presidential candidate, said Roberts was “just playing to the editorial pages of The Washington Post and The New York Times.” CBS reported after the decision, citing two anonymous sources, that Roberts had switched his vote to uphold the law and withstood a fierce lobbying campaign from the conservative wing of the Court. Now conservatives are putting pressure on Roberts again. John Yoo, who was a prominent lawyer in President George W. Bush’s Justice Department, wrote in National Review that the new case gives Roberts “the chance to atone for his error in upholding Obamacare.”

How the Supreme Court’s King v. Burwell Debacle Will End - I have known for the last five weeks—since January 27, to be exact—that the Supreme Court will uphold the Administration’s interpretation of the federal-subsidies provisions in the ACA when it issues its decision in the infamous King v. Burwell case whose argument date at the Court is Wednesday.  I also have known since then that the opinion will be unanimous, or nearly so, and that Antonin Scalia is likely to write it but if not will join it. I considered revealing this to AB readers earlier, but feared an F.B.I. inquiry into suspicions that I hacked into the computer system in Scalia’s chambers, so I hesitated.  But it’s now or never—Scalia will make his position clear at the argument, and then I will have lost my one chance, ever, for a career as a Vegas oddsmaker—and I think I can persuade the F.B.I. that I received my information not illegally but instead from this report recounting extensive, pointed comments Scalia made in open court on January 21, in a case that is not about the ACA but is, like King, about the methods the Court uses to interpret lengthy, highly-complex federal statutes with multiple interconnecting sections and subsections whose purpose is to establish a cohesive policy.

King v. Burwell's worst outcome » AEI: Opinions about the big Obamacare case the Supreme Court heard this week are highly polarized. But the court could find a way to split the difference between the conservative and liberal readings of the law — and that might be the worst of all worlds. The case, known as King v. Burwell, hinges on the wording of the Affordable Care Act. The law authorized federal subsidies to help people buy health insurance on state exchanges. Some states didn’t set up exchanges, and let the federal government do so for their residents instead. Conservatives argue that those states are now being illegally subsidized, because the wording of the law is specific to state exchanges. Liberals argue that this amounts to a typo and the subsidies should continue. The court could end up ruling for both sides. It could find that the conservative reading of the law — that states must create exchanges if they want the subsidies — is right. But it could also say that the federal government has no right to set that kind of condition on states — that doing so would violate the constitutional principle of federalism. By that logic, the subsidies could be allowed to continue. The justices reached a similar conclusion when they considered a challenge to Obamacare in 2012. The law as originally written tried to get states to expand Medicaid to new beneficiaries by yanking all federal funding if they refused. The court ruled that such a threat was unconstitutional coercion. It rewrote the law so that states that didn’t expand Medicaid could keep getting federal money for their existing beneficiaries. They would only miss out on the extra federal funds they would get for signing up new ones. This time, the White House is making a softer version of this argument before the court. It’s saying that the law doesn’t require states to set up exchanges if they want federal money, and that if the justices were to rule otherwise they’d be raising constitutional issues.

White House Plans No Rescue if Court Guts Health Care Law - As the Supreme Court prepares to hear arguments on Wednesday on whether to invalidate a crucial part of the president’s health care law, Obama administration officials say they are doing nothing to prepare for what could be a catastrophic defeat.Administration officials insist that any steps they could take to prepare for the potential crisis would be politically unworkable and ineffective, and that pursuing them would wrongly signal to the justices that reasonable solutions existed. The do-nothing strategy is meant to reinforce for the court what White House officials believe: that a loss in the health care case would be unavoidably disastrous for millions of people. There are no contingency plans in place if the court invalidates the Affordable Care Act subsidies that 7.5 million people in 34 states are receiving, administration officials said. No one is strategizing with governors or insurance company executives or lawmakers. There is no public relations plan to reassure people who might suddenly have to pay more for insurance. If the court rejects the subsidies — a decision unlikely to arrive until the end of the session in late June or early July — health experts said premiums could triple within weeks, causing millions of people to lose coverage. That could quickly lead to a collapse of the health insurance markets in two-thirds of the country. “If they rule against us, we’ll have to take a look at what our options are. But I’m not going to anticipate that,” President Obama said Monday in an interview with Reuters. “I’m not going to anticipate bad law.”

Supreme Court gives tacit approval for government to take anybody’s DNA - The Supreme Court on Monday let stand the conviction of a rapist whose prosecution rested on DNA swiped from the armrests of an interrogation-room chair. Without comment, the justices refused to review a 4-3 decision from Maryland's top court that upheld the life sentence and conviction of Glenn Raynor. The dissent on the Maryland Court of Appeals said a probable-cause warrant was needed and painted a grim picture of the future: The Majority’s approval of such police procedure means, in essence, that a person desiring to keep her DNA profile private, must conduct her public affairs in a hermetically sealed hazmat suit.... The Majority's holding means that a person can no longer vote, participate in a jury, or obtain a driver's license, without opening up his genetic material for state collection and codification. In urging the high court to review the case, the Electronic Frontier Foundation wrote that "allowing police the limitless ability to collect and search genetic material will usher in a future where DNA may be collected from any person at any time, entered into and checked against DNA databases, and used to conduct pervasive surveillance."

Patients overestimate benefits, underestimate harms of treatment. What if they knew the truth? - The following is co-authored by Austin Frakt and Aaron Carroll. It originally appeared on The Upshot (copyright 2015, The New York Times Company). Click over to that version of the post to see the accompanying chart. If we knew more, would we opt for different kinds and amounts of health care? Despite the existence of metrics to help patients appreciate benefits and harms, a new systematic review suggests that our expectations are not consistent with the facts. Most patients overestimate the benefits of medical treatments, and underestimate the harms; because of that, they use more care. The study, published in JAMA Internal Medicine and written by Tammy Hoffmann and Chris Del Mar, is the first to systematically review the literature on the accuracy of patients’ expectations of benefits and harms of treatment. They examined over 30 studies that assessed whether patients understood the upsides or downsides of certain treatments. To a great extent, patients didn’t. In the 34 studies that assessed understanding of benefits, patients overestimated their potential gain in 22 of them, or 65 percent. For instance, a 2002 study published in the Journal of the National Cancer Institute asked women who had undergone prophylactic bilateral (double) mastectomy to estimate how much the procedure reduced their risk of breast cancer. On average, the women thought they had reduced that risk from 76 percent to 11 percent, an absolute risk reduction of 65 percentage points.

Food preservatives linked to obesity and gut disease - Artificial preservatives used in many processed foods could increase the risk of inflammatory bowel diseases and metabolic disorders, according to research published on 25 February in Nature. In a study done in mice, chemicals known as emulsifiers were found to alter the make-up of bacteria in the colon — the first time that these additives have been shown to affect health directly. About 15 different emulsifiers are commonly used in processed Western foods for purposes such as smoothing the texture of ice cream and preventing mayonnaise from separating. Regulatory agencies such as the US Food and Drug Administration (FDA) rule that emulsifiers are “generally regarded as safe”, because there is no evidence that they increase the risk of cancer or have toxic effects in mammals. But when immunologist Andrew Gewirtz at Georgia State University in Atlanta and his colleagues fed common emulsifiers carboxymethylcellulose and polysorbate-80 to mice, they found evidence that the chemicals affected the animals' health. Although their diet was not otherwise changed, healthy mice whose water contained the chemicals became obese and developed metabolic problems such as glucose intolerance. In mice genetically engineered to be prone to inflammatory gut diseases, emulsifiers also seemed to increase the severity and frequency with which the animals developed inflammatory bowel disease.

Heavy Politics - Paul Krugman - A few days ago Bloomberg had a great story about the politicization of pizza — which is part of the broader pattern in which nutrition and obesity have become deeply partisan. Big Pizza is now an industry as dedicated to the GOP as coal or tobacco.This got me to wondering about the general association between politics and BMI; impressionistically, heaviness and redness go together, but I wanted something more systematic. So a few notes, mainly to myself. First, yes, there is a clear correlation between obesity and Republican lean at the state level. Here’s the scatter for the 2012 election: There are outliers — Utah especially, but also Montana and Wyoming, of which more in a minute, but overall the relationship is really clear. At the county level, the “diabetes belt” — that’s the CDC’s term, not mine — is clearly very Republican. An immediate question: is this all about ethnic and racial mixes? No. The CDC offers us this map of obesity rates among non-Hispanic whites: The pattern is still there. If anything, breaking out the ethnic groups strengthens the case for an association between politics and body mass. I thought Utah was a real outlier, very conservative but thin by American standards because of Mormonism; but if you go to the CDC source, it turns out that Utah’s low obesity rate reflects its small minority population, that non-Hispanic whites there have about the same prevalence of obesity that they do in New York, and somewhat higher than Massachusetts. That’s even more true of Montana and Wyoming.

What do doctors say to 'alternative therapists' when a patient dies? Nothing. We never talk  -- Research shows that nearly 70% of cancer patients and a staggering 90% of patients enrolled in an early phase clinical trial use alternative therapies. We now know that many of these therapies are not only unhelpful but are downright dangerous. Herbs and supplements can interact with chemotherapy and reduce its efficacy, a real drawback when therapy is given with curative intent. Canadian researchers found that of the 44 bottles of herbs they tested, a full third were outright substitutions – the plant advertised on the bottle was simply not there. Genetic fingerprinting reveals that many popular supplements are filled with powdered rice and weeds. The World Health Organisation calls this a threat to consumer safety. Electron therapy, radio waves, magnetic energy and light boxes as a cure for cancer have been consistently refuted by influential cancer organisations, including the American Cancer Society and Cancer Council Australia. Gerson therapy is promoted as “the natural treatment that activates the body’s extraordinary ability to heal itself”. The Cancer Research UK website explains that it requires an individual to consume nine (yes, nine) kilos of fruit and vegetables and use three or four coffee enemas every day. There is a discreet mention that “in certain situations Gerson therapy could be very harmful to health”. Young Jessica Ainscough, who shunned conventional treatment for her sarcoma, and recently died, was a follower.

The Diseases We Spend Our Health Dollars On - People worry a lot about their health-care costs, such as the share they pay of their health premium or the size of their deductible. But they tend to have a harder time getting their heads around the measures experts use to talk about the national health-cost problem, such as health spending as a percentage of gross domestic product, or the rate of increase in national health spending, or the difference in per capita health spending in the U.S. vs. other countries.  But there is good news for those who want to understand more. The Bureau of Economic Analysis (BEA) has made a real contribution to making health spending more comprehensible by analyzing health spending and price growth by common diseases and diagnoses such as cancer, heart disease, diabetes, and even the common cold. Doing that makes the problem of health-care costs much more understandable for everyone, and it can help direct the attention of policymakers, health professionals, and health-care institutions to where health-care dollars are going. In a very technical report, the BEA analyzed health spending by disease from 2000 to 2010, sorting diseases and diagnoses into categories. As shown by the chart above, which is adapted from BEA data, Americans spent the most–$234 billion–on circulatory diseases such as hypertension and heart disease in 2010. Next came general preventive care and general medical care for everyday problems such as the common cold or flu, at $207 billion. Musculoskeletal problems such back pain or arthritis came in third at $170 billion. Some prominent disease categories represented smaller shares of spending. For example, cancer represented 6.7% of spending, or $116 billion, and mental health conditions including dementia and depression accounted for 4.6% of spending, or $79 billion. A chart review of spending by disease is available here.

More American White Women Are Dying Prematurely - The Supreme Court heard arguments Wednesday in a case that could result in more than 8 million people losing their health insurance. The next day, the Urban Institute released a new report showing again just what's at stake in that case. Large swaths of the population have become so unhealthy that death rates are rising among a group long thought to be the healthiest American citizens: white women. And those numbers will only continue to skyrocket without a continued move toward universal health insurance. For several decades, life expectancy among white women had been on the rise. Not anymore. According to Urban Institute data, between 1999 and 2013, white women's death rates increased by nearly 12 percent, from 126 deaths per 100,000 women to 140 deaths. Such a wholesale and systematic reversal in life expectancy trends is extremely troubling, the researchers say—an "extreme indicator" that suggests large health declines in a broader population, and an indication that income inequality may be taking its toll on women's health. They point to other countries that have seen similar reversals in longevity trends, and they aren't pretty comparisons: Russia, with its epidemic of alcoholism, is among them, as is the teeming Industrial Revolution-era London that Charles Dickens chronicled. The Urban Institute researchers attribute the rise in US deaths among white women to a number of factors. The largest is the sharp spike in overdose deaths from prescription painkillers like Oxycontin, which jumped from 3.3 to 15.9 deaths per 100,000 between 1999 and 2011—an increase of a factor of five. But even without the spike in drug overdoses, white women's death rates are rising. As deaths from car accidents, breast cancer, and murder have declined, women have died in higher numbers from more pedestrian health care problems, such as the flu and respiratory infections, as well as chronic illnesses linked to obesity, such as diabetes, kidney disease (a complication of high blood pressure), and heart disease.

Engineering the Perfect Baby - MIT Technology Review - When I visited the lab last June, Church proposed that I speak to a young postdoctoral scientist named Luhan Yang, a Harvard recruit from Beijing who’d been a key player in developing a new, powerful technology for editing DNA called CRISPR-Cas9. With Church, Yang had founded a small company to engineer the genomes of pigs and cattle, sliding in beneficial genes and editing away bad ones. As I listened to Yang, I waited for a chance to ask my real questions: Can any of this be done to human beings? Can we improve the human gene pool? The position of much of mainstream science has been that such meddling would be unsafe, irresponsible, and even impossible. But Yang didn’t hesitate. Yes, of course, she said. In fact, the Harvard laboratory had a project to determine how it could be achieved. She flipped open her laptop to a PowerPoint slide titled “Germline Editing Meeting.” Here it was: a technical proposal to alter human heredity. “Germ line” is biologists’ jargon for the egg and sperm, which combine to form an embryo. By editing the DNA of these cells or the embryo itself, it could be possible to eliminate disease genes and to pass those genetic fixes on to future generations. Such a technology could be used to rid families of scourges like cystic fibrosis. It might also be possible to install genes that offer lifelong protection against infection, Alzheimer’s, and, Yang told me, maybe the effects of aging. These would be history-making medical advances that could be as important to this century as vaccines were to the last.

Hormone-disrupting chemicals ‘cost billions’: Common chemicals that disrupt human hormones could be costing more than €150bn ($165.4bn; £108.5bn) a year in damage to human health in Europe, a series of studies claims. The data suggests the high economic impact of chemicals in pesticides, plastics and flame retardants. The team said the estimates were conservative. However, experts cautioned the findings were "informed speculation" and called for more detailed research. The data was presented at the annual meeting of the Endocrinology Society. Endocrine-disrupting chemicals (EDCs) can be physically similar to the hormones that naturally control our body's physiology so mimic their function. They can also block the function of hormones. They have been linked with declining sperm counts, some cancers, impaired intelligence, obesity and diabetes. The main concern surrounds their impact during early development. The authors of the study argued that limiting exposure would have significant benefits. In the EU, one of the most famous disrupting chemicals, bisphenol A (BPA), has been banned in baby bottles and children's toys.  Yet the European Commission says the relationship between EDCs and health is not clear and has called for more detailed studies. Many of the conditions linked to EDCs are also influenced by a wide range of other environmental influences. And some scientists contest the levels in the environment are not high enough to influence health.

Chemical Exposure Linked to Billions in Health Care Costs: Exposure to hormone-disrupting chemicals is likely leading to an increased risk of serious health problems costing at least $175 billion (U.S.) per year in Europe alone, according to a study published Thursday. Chemicals that can mimic or block estrogen or other hormones are commonly found in thousands of products around the world, including plastics, pesticides, furniture, and cosmetics. The new research estimated health care costs in Europe, where policymakers are debating whether to enact the world's first regulations targeting endocrine disruptors. The European Union's controversial strategy, if approved, would have a profound effect on industries and consumer products worldwide. "If you applied these [health care] numbers to the U.S., they would be applicable, and in some cases higher," says Birnbaum, director of the U.S. National Institute of Environmental Health Sciences. The researchers detailed the costs related to three types of conditions: neurological effects, such as attention deficit disorders; obesity and diabetes; and male reproductive disorders, including infertility. The biggest estimated costs, by far, were associated with chemicals' reported effects on children's developing brains. Numerous studies have linked widely used pesticides and flame retardants to neurological disorders and altered thyroid hormones, which are essential for proper prenatal brain development.

Nearly Halted in Sierra Leone, Ebola Makes Comeback by Sea - It seemed as if the Ebola crisis was abating.New cases were plummeting. The president lifted travel restrictions, and schools were to reopen. A local politician announced on the radio that two 21-day incubation cycles had passed with no new infections in his Freetown neighborhood. The country, many health officials said, was “on the road to zero.”Then Ebola washed in from the sea.  Sick fishermen came ashore in early February to the packed wharf-side slums that surround the country’s fanciest hotels, which were filled with public health workers. Volunteers fanned out to contain the outbreak, but the virus jumped quarantine lines and cascaded into the countryside, bringing dozens of new infections and deaths.“We worked so hard,” said Emmanuel Conteh, an Ebola response coordinator in a rural district. “It is a shame to all of us.”  Public health experts preparing for an international conference on Ebola on Tuesday seem to have no doubt that the disease can be vanquished in the West African countries ravaged by it in the last year. But the steep downward trajectory of new cases late last year and into January did not lead to the end of the epidemic.In Sierra Leone, the hardest hit of the countries, the decline leveled off in late January, and the country has reported 60 to 80 new cases weekly since then. Guinea has experienced months of lower-level spread. Even in Liberia, where only a handful of treatment beds remain occupied, responders lament that a health care worker who recently became ill might have exposed dozens of colleagues and patients, and that a knife fight had exposed gang members to the blood of a man who tested positive for Ebola.

A plastic bag lobby exists, and it’s surprisingly tough - For years, environmental groups have been pushing laws to limit the use of plastic bags, which they say are wasteful, harm wildlife and linger as litter for centuries. Major cities have joined the effort in the past decade. Washington, D.C., Dallas, and Boulder require stores to charge fees for plastic bags; San Francisco, Los Angeles, Austin, Chicago and Seattle have banned the disposable bags outright. This year, though, the cause has suffered major setbacks. As it turns out, the plastic bag lobby — and one does exist — is anything but flimsy. Last year, California became the first state to pass a statewide ban on plastic bags in stores. But the law, which was set to go in effect for supermarkets in July, has been put on hold after the American Progressive Bag Alliance submitted a petition with over 800,000 names. Last week, California officials announced that voters would have to ratify the law in a referendum on the 2016 ballot.

300 scientists warn about safety of GMOs - Global Justice Ecology Project: On the heels of USDA deregulation of the Arctic® apple — the first genetically engineered apple — leading consumer, food safety and environmental groups issued a response to widespread media reports wrongly characterizing the science on GMOs as settled. The groups, including Consumers Union, Center for Food Safety, Friends of the Earth and Pesticide Action Network, pointed to a January 24 statement in the journal Environmental Sciences Europe— signed by 300 scientists, physicians and scholars — that asserts there is no scientific consensus on the safety of GMOs. The claim of scientific consensus on GMOs frequently repeated in the media is “an artificial construct that has been falsely perpetuated,” the peer-reviewed statement said.   Entitled “No scientific consensus on GMO safety,” the journal statement does not take a position on whether GMOs are unsafe or safe. Rather, it cites a concerted effort by GMO seed developers and some scientists, commentators and journalists to construct the claim that there is a “scientific consensus” on GMO safety, and that debate on the topic is “over.”

Did Slave Labor Produce Your Seafood? -- The glistening prawns at the supermarket might cost a quite a bit per pound, but off the shore of Thailand, the price of the catch is measured in the bodies of both fish and people. Life is cheap in the labor market that churns out our seafood. Last year reports emerged about forced labor in the multibillion-dollar Thai fishing industry; image-conscious Western retailers, multinationals and officials promised reform. But while media attention has evaporated, food retailers have returned to their normal routine of scarfing up cheap, seemingly abundant seafood from a murky supply chain. According to an investigation by the London-based Environmental Justice Foundation (EJF), the system is rigged so that the market depends on imported ultra-exploited labor, along with unbridled exploitation of Southeast Asia’s fragile marine ecosystem. The seeds of the crisis were planted back in the 1960s, when Thailand’s fishing industry exploded with the introduction of Western fishery technology. Over-intensification of industrial fishing eventually led to overexploitation, sparking a vicious cycle of Thai trawlers chasing dwindling fish supplies by foraying into neighboring countries’ waters. Amid lax regulation and endemic corruption, underground and pirate fishing operations metastasized, spawning a massive, violent maritime gangland. Today, while native Thai workers move away from the grueling low-wage labor of industrial fishing, migrants from poorer countries are drawn onto minimally regulated vessels and now make up roughly 80 percent of the industry’s estimated 145,000 workers.

California officials to supply just 20 percent of water: (AP) — Water districts that serve 25 million Californians and vast farmland can expect to receive a fraction of the supplies sought from the state during the fourth year of the drought, officials announced Monday. The State Water Project plans to deliver 20 percent of the requested amounts — a figure that marks a 5 percent increase from its previous estimate in January. However, it's the second-lowest amount since 1991, according to the California Department of Water Resources, which provides water to districts in the San Francisco Bay Area, San Joaquin Valley and Southern California. "It's a big deal, each little amount of water that we get," said Curtis Creel, assistant general manager of the Kern County Water Agency based in the agriculture-rich Central Valley. "The higher allocation does give us a little bit of breathing room compared to last year." Creel said the agency will be forced to draw on reserve water stored underground. Some farmers will have to rely on ground water or leave fields unplanted.

Businesses push to combat California drought - General Mills and Coca-Cola, makers of some of the world’s best known snacks and drinks, have called for bold measures to conserve California’s water supplies as the state enters its fourth year of drought. The pair is among a group of businesses in the US’s most populous state that are backing a plan to ensure the successful implementation of two water management strategies approved last year. A $7.5bn water bond to fund infrastructure projects and measures aimed at improving the management of the state’s groundwater supplies both need to be kept on track, said Kirsten James, a senior manager at Ceres, a non-profit environmental group behind the plan. “It is critical for a diverse group of stakeholders to demand aggressive action from our state leaders in order to secure California’s water future,” she said. More than 90 per cent of California is in a severe, extreme or exceptional drought after a year in which the state’s agriculture economy is estimated to have lost more than $2.2bn. In some areas, people have lost water in their homes. A number of the businesses backing the new campaign say the drought has already had an impact on their operations. “The water we thought we had just isn’t there any more, so we need to operate in a new environment.” While the companies have signed a public declaration that calls for “bold solutions” to improve water conservation, it is unclear what they want lawmakers to do precisely.

Even as the eastern U.S. freezes, there’s less cold air in winter than ever before - Residents of the eastern United States are enduring one of the most painfully cold periods in modern times. Since January, Syracuse, N.Y., has never had more days below zero. Bangor, Maine is witnessing its coldest month ever recorded.   Yet, in what may seem like a paradox, the amount of wintertime cold air circulating around the Northern Hemisphere is shrinking to record low levels. This winter (2014-2015) is on track to see the most depleted cold air supply ever measured. “We are still on pace to break the all-time record — no question about it,” says Jonathan Martin, a professor of meteorology at the University of Wisconsin-Madison. “Despite the brutal cold in the eastern U.S., the whole hemisphere is warmer this winter than it has ever been in history.” Using an analysis of atmospheric temperature data from the National Center for Atmospheric Research, Martin has been tracking the size of the Northern Hemisphere cold pool during winter (December-February) over time. Specifically, he has examined the total area of the hemisphere covered by temperatures 23 degrees (-5 degrees Celsius) or lower at an altitude of about 5,000 feet, for the period 1948-1949 to present. In a study accepted for publication in the Journal of Climate, Martin found that four of the five smallest Northern Hemisphere cold pools on record — averaged over the winter — have occurred since 2004.

Salmon freezing to death in Nova Scotia - - Above-average salmon mortality rates are being reported at three Nova Scotia locations due to extremely cold water temperatures. The high mortality rates were reported in the Annapolis Basin, Shelburne Harbour and Jordan Bay. "A department fish health veterinarian has visited the sites in Port Wade and Shelburne and will visit the Jordan Bay site in the next few days to investigate the expected cause of death," Fisheries and Aquaculture Minister Keith Colwell told reporters. "Our provincial fish health veterinarians investigate mortality events to rule out diseases of concern." A preliminary investigation suggests a superchill occurred in the area, a phenomenon that occurs every five to seven years. That, combined with low tides and cool air, is the likely cause.

The Economist explains: Why global warming does not necessarily result in warmer winters - The Economist: ON FEBRUARY 26th James Inhofe, a senator from Oklahoma, threw a snowball at another senator inside America’s upper chamber. He did it to back up his contention that man-made climate change is not the threat President Barack Obama (and many others) say it is. Mr Inhofe is chairman of the Senate’s environment committee and his argument has a simple and persuasive logic: much of the United States has experienced four unusually freezing winters in succession. Surely that contradicts the notion that the Earth’s climate is warming up? Not necessarily, for two reasons. First, the climate and the weather are not the same: they are related, but weather patterns develop and change over hours, days and weeks; the climate changes over years and decades. And second, the American landmass is just one small part of the surface of the globe. While temperatures have been well below average across much of the United States, other parts of the world have been abnormally warm. And indeed, there may be a connection between climate change and colder winters in parts of the northern hemisphere. The link is the Arctic region. Because the poles are colder than the equator, air streams north and south in order to equalise temperatures. In the northern hemisphere, this flow is called the jet stream. Because of the rotation of the Earth, the stream turns right as the planet spins, and flows in a wavy line around the pole, like a badly cut monk's tonsure. In the northern hemisphere the jet stream brings up warmer air from the south, producing more temperate weather in the northern regions over which it flows.

Climate Skeptic Senator Burned after Snowball Stunt - Oklahoma Senator James Inhofe, the biggest and loudest climate change denier in Congress, last week on the floor of the senate: “In case we have forgotten, because we keep hearing that 2014 has been the warmest year on record, I ask the chair, you know what this is? It’s a snowball. And that’s just from outside here. So it’s very, very cold out.” But his facile argument, that it’s cold enough for snow to exist in Washington, D.C., therefore climate change is a hoax, was rebutted in the same venue by Rhode Island Senator Sheldon Whitehouse: “You can believe NASA and you can believe what their satellites measure on the planet, or you can believe the Senator with the snowball. The United States Navy takes this very seriously, to the point where Admiral Locklear, who is the head of the Pacific Command, has said that climate change is the biggest threat that we face in the Pacific…you can either believe the United States Navy or you can believe the Senator with the snowball…every major American scientific society has put itself on record, many of them a decade ago, that climate change is deadly real. They measure it, they see it, they know why it happens. The predictions correlate with what we see as they increasingly come true. And the fundamental principles, that it is derived from carbon pollution, which comes from burning fossil fuels, are beyond legitimate dispute…so you can believe every single major American scientific society, or you can believe the Senator with the snowball.”

Jeb Bush Trashes Father’s Clean Air Legacy to Woo Far Right-Wing  - Jeb Bush trashed the Clean Air Act last week. He was speaking to the far right-wing Club for Growth, notorious for mounting mostly unsuccessful challenges from the right against Republican candidates during congressional primaries. A Washington Post reporter attended the speech and posted some of Bush’s remarks on Twitter: Jeb Bush hits Clean Air Act, airline regulations & Internet regs at Club for Growth — “stifled the ability for people to rise up.”  February 27, 2015 So Jeb Bush thinks the Clean Air Act “stifled the ability for people to rise up.” Does he mean polluting corporations that a 5-4 Supreme Court says are people? Or does he mean that loud clamor for “rising up” by ordinary Americans, who consistently voice very strong support for the Clean Air Act and clean air safeguards, with large majorities across the political spectrum Bob Marley, Mr. Bush ain’t. Jeb Bush’s father, President George H.W. Bush, signed the Clean Air Act Amendments of 1990 after 89 Senators and 401 House members (including 154 Republicans, all but 16) voted for the law.  President Bush’s signing statement said he took “great pleasure in signing [the Clean Air Act] as a demonstration to the American people of my determination that each and every American shall breathe clean air.”

McConnell Urges States to Defy U.S. Plan to Cut Greenhouse Gas — Senator Mitch McConnell, Republican of Kentucky and majority leader, is urging governors to defy President Obama by refusing to implement the administration’s global warming regulations. In an op-ed article published Wednesday in The Lexington Herald-Leader with the headline, “States should reject Obama mandate for clean-power regulations,” Mr. McConnell wrote: “The Obama administration’s so-called ‘clean power’ regulation seeks to shut down more of America’s power generation under the guise of protecting the climate.” He added, “Don’t be complicit in the administration’s attack on the middle class.” As Mr. Obama pushes an aggressive climate change agenda, the Environmental Protection Agency has proposed regulations to slash greenhouse gas emissions from coal-fired power plants, the nation’s largest source of planet-warming pollution. The rules, which the E.P.A. expects to be final this summer, would require each state to submit a plan detailing how it would cut coal-fired power plant pollution. Once implemented, the plans could lead to the closing of hundreds of coal plants, in what the administration says will be a transformation of the nation’s energy economy away from fossil fuels and toward sources like wind and solar. States that rely heavily on coal production or coal-fired electricity are wary of the plan, which could ultimately freeze demand for coal. Already, 12 states, including Mr. McConnell’s home state, have filed lawsuits opposing the plan and at least a dozen more are expected to file similar suits. But Mr. McConnell urged governors to fight the regulations by simply refusing to submit their state plans to the federal government.

House Republicans want to legally forbid EPA from looking at science it doesn’t like -- Two bills are up for a vote in the House of Representatives on Tuesday, both of which could significantly impact the way the Environmental Protection Agency is allowed to use science to come up with regulations. The Secret Science Reform Act and the Science Advisory Board Reform Act both require the EPA to consider only publicly available, easily reproducible data when making policy recommendations. Scientific organizations and environmental groups, as well as a number of Democrats, disapprove of the bills, arguing that they favor industry over real science.Over 50 scientific organizations spoke out in opposition to the Secret Science bill, noting that large-scale public health studies would be ineligible for consideration because large sample sizes could not be easily reproduced. “I cannot support legislation that makes it easier for industry to implement their destructive playbook, because risking the health of the American people is not a game that I’m willing to play,” said Representative Paul Tonko (D-NY) last week. The Science Advisory Board (SAB) Reform Act would change the structure of the SAB, the board of scientists and economists that review EPA risk assessments. The bill would give industry scientists more opportunities to join the panel, while preventing academic scientists from discussing their own research, ostensibly to avoid conflict of interest. What it actually does is “turn the idea of conflict of interest on its head,” according to Andrew Rosenberg, the director of the Center for Science and Democracy.

NOAA Announces Arrival Of El Niño, 2015 Poised To Beat 2014 For Hottest Year - The National Oceanic and Atmospheric Administration (NOAA) has announced that the long-awaited El Niño has arrived. NOAA’s Climate Prediction Center says we now have “borderline, weak El Niño conditions,” and there is a “50-60% chance that El Niño conditions will continue” through the summer. An El Niño is “characterized by unusually warm ocean temperatures in the Equatorial Pacific,” as NOAA has explained. That contrasts with the unusually cold temps in the Equatorial Pacific during a La Niña. Both are associated with extreme weather around the globe (though a weak El Niño like this will tend to have a muted effect). El Niños tend to set the record for the hottest years, since the regional warming adds to the underlying global warming trend. La Niña years tend to be below the global warming trend line. If even a weak El Niño does persist through summer, 2015 will almost certainly top 2014 as the hottest year on record. But there is a good chance it will do so in any case (unless a La Niña forms). After all, 2014 was the hottest year on record even though there was no official El Niño during the year.  The latest NASA temperature data make clear that not only has there been no “pause” in surface temperature warming in the past decade and a half, there hasn’t even been a significant change in trend. The very latest research suggests that we are about to enter a multiyear period of rapid warming. Fasten your seatbelts.

Let’s call it: 30 years of above average temperatures means the climate has changed: If you’re younger than 30, you’ve never experienced a month in which the average surface temperature of the Earth was below average. Each month, the US National Climatic Data Center calculates Earth’s average surface temperature using temperature measurements that cover the Earth’s surface. Then, another average is calculated for each month of the year for the twentieth century, 1901-2000. For each month, this gives one number representative of the entire century. Subtract this overall 1900s monthly average – which for February is 53.9F (12.1C) – from each individual month’s temperature and you’ve got the anomaly: that is, the difference from the average. The last month that was at or below that 1900s average was February 1985. These temperature observations make it clear the new normal will be systematically rising temperatures, not the stability of the last 100 years. The traditional definition of climate is the 30-year average of weather. The fact that – once the official records are in for February 2015 – it will have been 30 years since a month was below average is an important measure that the climate has changed.

Extreme weather events in our future climate -- "When an extreme weather event happens, the public wants to know—is this climate change?" That statement by Lawrence Berkeley Lab's Michael Wehner provided a good background for the session on climate change and unusual weather events that happened at the meeting of the American Association for the Advancement of Science. The fact is, scientists aren't well equipped to answer that question—at least not in a way the public's likely to find satisfying. Instead, Wehner said, science is on solid ground when it examines weather events in terms of probabilities: is the risk of a given event higher? Will the magnitude of a given type of event change? Wehner went through some historic events and examined how climate change shifted these probabilities. For example, events similar to Europe's 2003 heat wave (which saw 70,000 deaths) are already twice as likely to occur given the amount we've warmed over pre-industrial conditions. If we allow the globe to warm by 2°C over preindustrial levels, that probability goes up to 154 times. "By the end of the century," Wehner said, "when we're likely to see 4°C warming, this event will likely seem cold." Similar things were possible to say about the 2010 Russian heatwave (2-3 times more likely now, 5-8 times more likely at 2°C of warming) and the 2011 Texas drought (slightly elevated probability now, but up to 10 times more likely at 2°C). None of this is to say that climate change has caused any of these events; they occasionally appear in climate model runs without any added greenhouse gasses. It simply tilts the odds in their favor.

Doctors should take lead in push to curb climate change - experts: (Thomson Reuters Foundation) - Doctors should take the lead in supporting political efforts to cut the pace of climate change and encouraging more people to see the problem as a crucial issue for public health, experts say. With the 68th World Health Assembly coming up in May in Geneva, countries are poised to adopt the world's first resolution on air pollution and health, in an effort to reduce premature deaths linked to air pollution. Studies have found that air pollution can worsen a variety of health problems, from heart disease to strokes, said Carlos Dora, coordinator of public health and the environment at the World Health Organization (WHO). That suggests doctors should take action to try to curb air pollution and climate change, he said. "Climate change is a big factor (in determining peoples') health in the short term and doctors should take notice," he said. In particular, "there are a number of challenges to the capacities of current health systems to respond to these health issues, so doctors should be prepared", he said. For a growing number of doctors, "health and climate change are no longer seen as different issues and are almost seen as synonymous because there is more evidence and data out there that link the two," he said.

A February First: CO2 Levels Pass 400 PPM Milestone -- With only one day left in the month, it’s basically official: February’s average carbon dioxide level will be above 400 parts per million, a marker of how much of the greenhouse gas is accumulating in the atmosphere thanks to human emissions. Last year, the monthly average didn’t go above the 400 parts per million (ppm) mark until April, which was the first month in human history with carbon dioxide (CO2) levels that high. Levels stayed that high for a full three months, and they are likely to stay that high for many more this year. In just a few years, CO2 levels will be above this threshold permanently. Carbon dioxide levels in the atmosphere have been measured at the observatory atop Hawaii’s Mauna Loa volcano since 1958. That record — called the Keeling Curve, after the scientist who began the measurements, Charles Keeling — has shown the clear rise of CO2 over the decades.

Long-term data shows extensive loss of Arctic sea ice since the 1970s - It’s no surprise that Arctic sea ice is thinning. What is new is just how long, how steadily, and how much it has declined. University of Washington researchers compiled modern and historic measurements to get a full picture of how Arctic sea ice thickness has changed. The results, published in The Cryosphere, show a thinning in the central Arctic Ocean of 65% between 1975 and 2012. September ice thickness, when the ice cover is at a minimum, is 85% thinner for the same 37-year stretch. The study helps gauge how much the climate has changed in recent decades, and helps better predict an Arctic Ocean that may soon be ice-free for parts of the year. The project is the first to combine all the available observations of Arctic sea ice thickness. The earlier period from 1975 to 1990 relies mostly on under-ice submarines. Those records are less common since 2000, but have been replaced by a host of airborne and satellite measurements, as well as other methods for gathering data directly on or under the ice. “A number of researchers were lamenting the fact that there were many thickness observations of sea ice, but they were scattered in different databases and were in many different formats,” Lindsay said. The U.S. National Oceanic and Atmospheric Administration funded the effort to compile the various records and match them up for comparison.

Survivable IPCC projections are based on science fiction - the reality is much worse - The Ecologist: The IPCC's 'Representative Concentration Pathways' are based on fantasy technology that must draw massive volumes of CO2 out of the atmosphere late this century, writes Nick Breeze - an unjustified hope that conceals a very bleak future for Earth, and humanity. The IPPC (Intergovernmental Panel on Climate Change) published in their latest report, AR5, a set of 'Representative Concentration Pathways' (RCP's).  These RCP's (see graph, right) consist of four scenarios that project global temperature rises based on different quantities of greenhouse gas concentrations. The scenarios are assumed to all be linked directly to emissions scenarios. The more carbon we emit then the hotter it gets. Currently humanity is on the worst case scenario of RCP 8.5 which takes us to 2°C warming by mid century and 4°C warming by the end of the century.As Professor Schellnhuber, from Potsdam Institute for Climate Research (PIK) said, "the difference between two and four degrees is human civilisation." In 2009 the International Union of Forest Research Organisations delivered a report to the UN that stated that the natural carbon sink of trees could be lost at a 2.5°C temperature increase.The ranges for RCP 4.5 and RCP 6 both take us over 2.5°C and any idea that we can survive when the tree sink flips from being a carbon sink to a carbon source is delusional.

Can We Fix Climate Change With Technology? -- A report from the National Academy of Sciences concluded that experiments in blotting out the sun in order to reduce the amount of the sun’s rays that hit the Earth would be too risky. Spraying aerosols into the atmosphere – one leading approaching to “geoengineering” – would be a massive science experiment that would have unknown environmental side effects. The fallout on precipitation patterns, agricultural productivity, and the global climate cannot be fully known until it is unleashed. If the United States seeded the atmosphere with aerosols that produced more drought in, say, sub-Saharan Africa, that would potentially raise indefensible ethical questions.Lowering global temperatures by reducing sun exposure – euphemistically known as “albedo modification” – would also merely treat the symptom of climate change, rather than the cause. The concentration of greenhouse gases in the atmosphere would remain unchanged. As such, sending aerosols up into the sky would be a process that would need to be maintained for many hundreds of years. It would also do nothing to address ocean acidification, another extraordinary problem facing humanity, which could lead to the collapse of fisheries around the world and alter global climate patterns. “No reputable scientist I know thinks placing tiny reflecting particles in the stratosphere is a good idea, although some support studying it,” argues Philip Duffy, President the Woods Hole Research Center. Other geoengineering strategies include dumping iron into the oceans to suck up carbon. The panel stated unequivocally that reducing carbon emissions was indeed the preferred method to address climate change. Transitioning to clean energy and replanting forests would offer much safer options, the latter of which is an age-old and well-understood method of carbon capture and storage.

Oil Can't Compete With Renewables, Says National Bank of Abu Dhabi -- You wouldn’t expect a bank in the oil-rich Middle East to be touting the future of renewable energy over that of oil. But that’s just what the National Bank of Abu Dhabi (NBAD) is doing with its new report, Financing the Future of Energy: The opportunity for the Gulf’s financial services sector. Aimed primarily at investors and focusing on financial performance and potential, the report found that fossil fuels just weren’t keeping up with solar and wind, and were less likely to do so in the future, even if oil prices dropped much lower than they are now. Energy demand is expected to triple in the next 15 years in the rapidly growing Persian Gulf region—already the biggest energy consumer per capita in the world—a demand far outstripping the current supply. Yet, despite the recent plunge in oil prices, the report says that that demand will be more efficiently filled by renewables, offering more reliable and lucrative investment opportunities than oil. “Some of the report’s findings may surprise you, as they did me,” writes NBAD CEO Alex Thursby in the report’s introduction. “For example, renewable energy technologies are far further advanced than many may believe: solar photovoltaic (PV) and on-shore wind have a track record of successful deployment, and costs have fallen dramatically in the past few years. In many parts of the world, indeed, they are now competitive with hydrocarbon energy sources. Already, more than half of the investment in new electricity generation worldwide is in renewables. Potentially, the gains to be made from focusing on energy efficiency are as great as the benefits of increasing generation. Together, these help us to reframe how we think about the prospects for energy in the region.”

Here’s What Gas Would Have To Cost To Account For Health And Environmental Impacts - The average cost of a gallon of gasoline in the U.S. right now is $2.47. If that cost took into account the environmental and human health costs of burning the gasoline, however, it would more than double, according to a new study.  The study, published this week in the journal Climatic Change, created models for the “social cost of atmospheric release,” a method of determining the costs of emissions beyond their market value. According to the study, accounting for the social costs of burning gasoline would add an average of $3.80 per gallon to the pump price, raising the price to $6.27. Diesel has an even higher social cost of $4.80 per gallon.  The study also measured the social costs of other fossil fuels not used at the pump. Coal, for example, would jump from 10 cents per kilowatt hour to 42 cents per kilowatt hour, the study found. And natural gas, which has emerged in recent years as a cheap source of fuel, would see its price rise from 7 cents per kWh to 17 cents per kWh. In all, according to the study, the environmental costs of producing electricity in the U.S. total $330-970 billion every year.

Agriculture Secretary Champions the Biofuels Industry: Agriculture Secretary Tom Vilsack sees near-boundless opportunities for the U.S. biofuels industry to expand its market both inside the nation and around the globe. But he insists the key to that growth is moving beyond traditional ethanol and a 10-year-old government renewable fuel mandate to embrace exports and airlines' demand for cleaner-burning alternatives - while also beating back steep oil industry opposition.  "I'm very optimistic about the future of the bio-economy and the role biofuels and advanced biofuels will play in that future," Vilsack said in an interview. While Vilsack (pictured) praises the sector's successes, he also wants the industry to broaden its focus beyond the renewable fuels mandate, which forces refiners to meet annual biofuel quotas. An oil industry campaign against that statute and the prospect that Congress could repeal it has the biofuels sector "hunkered down," trying to guard against attacks, he said.

Bank of England warns of huge financial risk from fossil fuel investments - Insurance companies could suffer a “huge hit” if their investments in fossil fuel companies are rendered worthless by action on climate change, the Bank of England warned on Tuesday. “One live risk right now is of insurers investing in assets that could be left ‘stranded’ by policy changes which limit the use of fossil fuels,” said Paul Fisher, deputy head of the bank’s prudential regulation authority (PRA) that supervises banks and insurers and is tasked with avoiding systemic risks to the economy. “As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels – a growing financial market in recent decades – may take a huge hit,” Fisher told an insurance conference. He said there “are already a few specific examples of this having happened”, but did not name them, and added that it was clear his concerns had yet to “permeate” the sector. The new warning from one of the world’s key central banks follows a caution from its head Mark Carney that the “vast majority of [fossil fuel] reserves are unburnable” if climate change is to be limited to 2C, as pledged by the world’s governments. The bank will deliver a report to government on the financial risk posed by a “carbon bubble” later in 2015.

PNC Bank reduces financing for mountaintop removal coal mining - PNC Bank has said it will no longer finance coal companies that rely on mountaintop removal for more than 25% of their production. The bank in 2010 stopped financing companies that engage in the controversial practice for more than 50% of their production. But the new policy, which came out as part of the Pittsburgh, Pennsylvania-based bank’s corporate responsibility report (pdf) Monday, means that the largest US coal producers will no longer be able to get credit from the bank, experts say. “Driven by environmental and health concerns, as well as our risk appetite, we introduced a mountaintop removal (MTR) financing policy in late 2010 and subsequently enhanced that policy in 2014,” the report says. Under the new policy, deals with mountaintop removal companies will represent less than 0.25% of PNC’s total financing commitments, down from less than 0.5% last year, a company spokesperson said. The move follows years of campaigning from environmental organizations that have pressured banks to move away from financing mountaintop removal mining. The controversial mining method is especially used in the Appalachian Mountains in the eastern United States.

Small Quaker Group Takes Aim at Big Bank and Wins -- Earth Quaker Action Team (EQAT) is not the kind of group you'd expect to break the resolve of the seventh largest U.S. bank, but that's what happened today when, after five years of our pressure, PNC released a policy phasing out their financing of companies engaged in mountaintop removal coal mining. This news is especially significant because it is such a classic David and Goliath story: EQAT with an annual budget of $100K vs. PNC with profits over $4.2 billion last year. Until now, PNC had invested hundreds of millions of dollars in companies that extract coal by blowing up mountains and dumping the debris in streams. By persistently and creatively challenging PNC's claims of being a "green bank," our scrappy grassroots group pressured them to effectively cease their investments in a controversial practice that contributes to both climate change and high rates of cancer in Appalachia. Founded five years ago by a small band of Philadelphia Quakers, EQAT (pronounced "equate") wanted to combat climate change by taking on the giant corporations profiting from dirty energy. Like the young shepherd in the famous biblical tale, we heard people tell us it was hopeless--and it would have been if we had kept to the old strategies of letter writing and polite protests. Just as David abandoned traditional armor and surprised his adversary with a sling and a stone, we realized we couldn't win unless we changed the rules of the game, though unlike David, our tactics would be nonviolent.

Mountaintop Removal Coal Mining Ends on March 16 » Fourteen months after the world watched in astonishment as poorly regulated coal-washing chemicals contaminated the Elk River in West Virginia, coal country residents and supporters are gearing up for an epic showdown on March 16 with the state’s Department of Environmental Protection—and the U.S. Congress—over the mounting death toll and health crisis from mountaintop removal strip mining.  After witnessing the loss of their health, livelihoods, forests, historic farms and homes over a half century of unparalleled strip mining destruction, The People’s Foot movement—an extraordinary alliance of residents, community and environmental groups and national civil rights organizations—is coming down in Charleston, West Virginia, with a clear message: March 16 has officially been declared “No More Mountaintop Removal Permits Day.”The era of “clean coal” billboards is over in West Virginia. A new era of billboards calling for an end to the devastation of mountaintop removal and a transition to clean energy jobs has begun. In essence: Mountaintop removal ends March 16; the people declare that the West Virginia Department of Environmental Protection must no longer approve the necessary permits for this deadly and costly strip mining operation.

We are a democracy and we are allowed to reject fracking - Athens NEWS  - Yes we are a democracy and we in southeastern Ohio also have the right to reject fracking or injection wells if we so choose. The fact is that Ohio's environmental laws are among the weakest in the country and it is the reason that Ohio has been accepting radioactive waste, garbage from outside the state, and now fracking waste for years. Instead of listening to oil and gas propaganda, take a look at our laws. West Virginia, Pennsylvania, and Michigan send us their waste because their states prohibit it under their laws. Jobs are not much good if we have poisoned our water and land and we are all dying of cancer, or have sentenced our children and grandchildren to death. Around the country there are hundreds of earthquakes where there never were any; towns that now have all their water shipped in; explosions, leaks of oil contaminating land and water, cancer and other strange illnesses and rashes. There has been no attempt to really look at all of this. All we get is denial from the industry that it is happening. Dig a little deeper. Read about what is happening in North Dakota and other places. Slowly but surely the rest of the country is also waking up as it affects them and are protesting underground gas lines built through their communities and thousands of trains carrying oil occasionally derailing and exploding. Again, some democracy when the Ohio Department of Natural Resources, there to protect us, is in bed with the oil and gas industry. Can't even get a hearing. Some future. Some Democracy.

EV Energy Partners to sell interests in Utica Shale processing facilities - Local - Ohio: Texas-based EV Energy Partners intends to sell off its interests in processing facilities in the Utica Shale region of eastern Ohio. It is seeking a buyer for its 21 percent stake in Utica East Ohio, which operates natural gas-processing plants in Columbiana and Carroll counties and a liquids-separating plant in Harrison County. The company said it hopes to close the sale soon. It has invested $294 million in the processing. Last fall, EV Energy Partners sold its 9 percent interest in Ohio’s Cardinal Gas Services to two South Korean companies for $162 million. EV Energy Partners, a publicly traded company that is part of privately held EnerVest Ltd., has said for some time that it intends to sell Utica assets to monetize holdings for its institutional investors. The company has been marketing about 335,000 acres in eastern Ohio for several years. Those sales have been postponed due to low commodity prices.

To tax, or not to tax, shale oil and gas drillers - Ohio lawmakers are getting both sides of the argument on Gov. John Kasich's plan to raise taxes of shale gas and oil drillers. The Northeast Ohio Media Group reports that eastern Ohio officials from both parties told the Ohio House Ways and Means Committee Tuesday that the proposed tax hike is needed to pay for growing infrastructure costs created by drilling activity in their area, such as repaving more heavily traveled roads. But industry representatives said that with oil and gas prices plummeting in recent months, raising taxes now would devastate Ohio's promising but still-developing fracking activity. Kasich wants to use the proceeds of the increased taxes on drilling to pay for income-tax cuts.

Proposed fracking tax hike cheered by local officials, booed by industry advocates - -- State lawmakers on Tuesday heard two very different views from Eastern Ohio officials and energy industry representatives about the wisdom of significantly raising the state's fracking tax. Eastern Ohio officials from both parties told the Ohio House Ways and Means Committee that Gov. John Kasich's proposed tax hike is needed to pay for growing infrastructure costs created by drilling activity in their area, such as expanding sewer services and repaving more heavily traveled roads. In addition, they said, a higher tax would ensure that poverty-stricken areas of Eastern Ohio would be fairly compensated by energy companies that deplete the area's resources, then leave for good. "This industry lives off of our land," said Harrison County Commissioner Don Bethel, a Republican.However, industry representatives said that with oil and gas prices plummeting in recent months, raising taxes now would devastate Ohio's promising but still-developing hydraulic fracturing activity in the Marcellus and Utica shale formations.Last session, the Ohio Oil and Gas Association helped to write unsuccessful legislation to raise state severance taxes, though not by as much as what Kasich is currently seeking. But now, OOGA Executive Vice President Shawn Bennett told committee members that his group is opposed to any severance tax increase. He noted that 22 of Ohio's 59 drilling rigs in the Utica shale formation have shut down in the past two months alone because of low energy prices, and regional prices are even lower than national rates.

Ohio House bill would ease fracking in state parks - Gov. John Kasich has used the back door to keep fracking out of Ohio state parks and forests. Now, the legislature is trying a side door to fast-track fracking on public lands. A measure prioritized by House Republicans, who dominate the chamber, got a third hearing yesterday on its way to a likely committee vote next week. The legislature approved fracking in Ohio’s parks in 2011, and Kasich signed the bill. Top officials in his administration prepared a secret marketing plan in the final months of 2012 to sell fracking as a way to keep Ohioans from paying park entrance fees. Under the 2011 law, potential drillers must get permission from a newly created Oil and Gas Commission, complete an environmental study, determine the potential impact on visitors, seek public input and meet other requirements. But Kasich had a change of heart on allowing drilling on public lands and in effect imposed a unilateral moratorium by not appointing members to the commission — meaning that nobody could get an OK to drill in parks. However, under House Bill 8, GOP legislators would bypass the commission, wiping out the fracking prerequisites in the 4-year-old law — and ending the governor’s unofficial moratorium.

Ohio’s shale activity is taking a hit from low oil prices -- While low oil prices are allowing motorists the chance to indulge in low gasoline prices, some shale plays are beginning to take a hit. According to the Federal Reserve Bank of Cleveland’s latest Beige Book report, oil and gas activity in Ohio, Pennsylvania and West Virginia has declined due to low commodity prices.  The bank’s second report shows that prices are starting to affect operations, which those in the industry were warned about six months earlier in a previous Beige Book report.  However, economic activity in the Cleveland Fed’s area, including Ohio, certain areas of Kentucky, Pennsylvania and West Virginia, did grow at a moderate pace over the last six months. According to reports from the other 11 Federal Reserve districts, which are located in Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, economic activity across most regions and sectors grew during the month of January through mid-February. The Cleveland Fed’s district report also pointed out the following: -Manufacturers reports of declining orders were attributed to lower oil prices.

Strengthen Ky.'s limits on fracking - Editorial - Lexington Herald Leader Despite a long history of oil and natural gas production, Kentucky is only now being touched by the newer technologies that have ignited economic booms and bitter controversies in other states.Energy companies have begun acquiring drilling rights in the Rogersville shale, which curves from northeastern Kentucky and West Virginia through Central and Southern Kentucky and is too deep (9,000 feet in places) for traditional extraction methods.  Both chambers of the General Assembly last week enacted modest protections for the environment and neighboring landowners. But no one should mistake this industry-backed legislation as the final word on regulating horizontal high-volume fracturing, or fracking, in Kentucky. Operations capable of tapping deep shale are not your father's gas wells. They leave a much larger, more industrial footprint. They pollute the air with methane and carcinogens and are noisier and more intrusive than traditional oil and gas wells.Their impacts extend well beyond the site. A steady stream of heavy-truck traffic delivers the sand, chemicals and, if unavailable on site, water that are mixed and pumped underground at high pressure to crack the rock and free the gas or oil. Truckloads of chemical-laced wastewater must be hauled away for disposal, unless it's injected into deep wells on site, a concern in its own right.

Shedding light on a gas patch blackout - “Another flaw in the human character is that everybody wants to build and nobody wants to do the maintenance.”  That about sums up the central conclusion of our report, Blackout in the Gas Patch: How Pennsylvania Residents are Left in the Dark on Health and Enforcement—that as Pennsylvania’s government rushes to expand fracking, it is failing to protect air, water, and health. In other words, the state is more than willing to build the gas and oil industry, but is far less interested in making sure it functions well. Blackout is the first report to analyze oversight of the gas and oil industry on a site-by-site basis and from the starting point of why it matters, every day for real people. The starting point was a question that gas and oil field residents often ask when their health and environment change after drilling begins: What happened to cause my problems, and what’s being done to solve them? We wondered if answers could be found by weaving together two earlier threads of our work: the wide gaps in enforcement of oil and gas regulations and the health impacts reported by many gas patch residents in both Pennsylvania and other states. We decided to look for possible connections between events at certain gas well sites or facilities, how operators and state regulators handled the situation, and any impacts that occurred as a result. In the process, we examined information from the Pennsylvania Department of Environmental Protection (DEP), including files on 135 wells and facilities and documents and data related to air emissions, water quality, permitting, operations, incidents, inspections, and violations.  After more than a year of research and analysis, we reached the clear and disturbing conclusion that Pennsylvania is prioritizing development over enforcement; neglects oversight of operators and activities; undermines regulations; and prevents the public from getting information.

Marcellus Shale Players - The often mentioned and long awaited Marcellus Shale Players is Now Available ON-LINE. The Marcellus Shale Players is a 5-year and on-going project by Dory Hippauf. It began with the simple question of “WHO IS….”  Too often players are overlooked or simply dismissed as industry shills, yet these players are actively working hand in hand with politicians to write regulations, create laws and exemptions to benefit themselves. They craft and control the message you see often repeated in advertising and echoed through their connections.  The Marcellus Shale Players contains nearly 10,000 entries (and growing) of the who’s who in shale and now it’s available to the public through Shale Justice.  Ever wonder what a hockey team owner has to do with shale? Look up Terry Pegula on the Marcellus Shale Players to find out.  Who is the blonde spokeswoman in the Energy Tomorrow ads? It’s Brooke Alexander. What other connections does Energy Tomorrow have? Who is behind the ads? Who is running their public relations campaign, and what other connections are there?  Explore the Marcellus Shale Players, follow the money, connect the dots and create your own diagrams!

Assessing water quality in areas with fracked oil, gas wells --- More data and research are necessary to best understand the potential risks to water quality associated with unconventional oil and gas development in the United States, according to a recent U.S. Geological Survey study. “We mined the national water-quality databases from 1970 - 2010 and were able to assess long-term trends in only 16 percent of the watersheds with unconventional oil and gas resources,” said Zack Bowen, USGS scientist and principal author of the article that appears in American Geophysical Union’s Water Resources Research. “There are not enough data available to be able to assess potential effects of oil and gas development over large geographic areas.” There is not a national water-quality monitoring program in place that focuses on oil and gas development, so existing national water-quality databases and data on hydraulic fracturing were used to assess water-quality trends in oil and gas areas. The study found no widespread and consistent trends in water quality, such as chloride and specific conductance, in areas where unconventional oil and gas wells are prevalent. The amount of water-quality samples, where they are located and the varying constituents that are measured are limiting factors in existing national databases. Hydraulic fracturing is presently the primary stimulation technique for oil and gas production in low-permeability, unconventional resource reservoirs. Comprehensive, published and publicly available information regarding the extent, location and character of hydraulic fracturing and potential effects on regional or national water quality in the United States is scarce. More information can be found on the USGS frequently asked questions on hydraulic fracturing.

USGS: More data needed to assess any fracking-pollution link - (AP) — A new study by the U.S. Geological Survey says more data is needed to be able to say for sure if a link exists between unconventional oil and gas development and degraded water quality. The study published in the American Geophysical Union journal Water Resources Research finds no evidence hydraulic fracturing is polluting nearby surface water. However, the researchers say existing data to investigate long-term water quality trends is adequate in just 16 percent of U.S. watersheds with unconventional oil and gas resources. Some environmentalists blame fracking for causing pollution. Fracking employs pressurized water mixed with sand and chemicals to break open oil and gas deposits underground. The researchers say insufficient water-quality data from the years before fracking became commonplace impede long-term analysis of watersheds with oil and gas development.

Can Fracking Pollute Drinking Water? Don't Ask the EPA -- Can fracking pollute drinking water? The Environmental Protection Agency embarked in 2010 on what was intended to be a definitive study to find out. The answer could prove critical to future U.S. regulation of the multibillion-dollar fossil fuel sector and to ensuring water safety for millions of Americans. But after five years of fighting with the oil and gas industry, the agency may still be unable to provide a clear answer when a draft of the study is published this spring, based on internal EPA documents and interviews with people who have knowledge of the study. "We won’t know anything more in terms of real data than we did five years ago," said Geoffrey Thyne, a geochemist and a member of the EPA's 2011 Science Advisory Board, a group of independent scientists who reviewed the draft plan of the study. "This was supposed to be the gold standard. But they went through a long bureaucratic process of trying to develop a study that is not going to produce a meaningful result." More than a half-dozen former high-ranking EPA, administration and congressional staff members echoed Thyne's opinion, as did scientists and environmentalists. Nearly all the former government employees asked not to be identified because of ongoing dealings with government and industry. Two hundred pages of EPA emails and other documents about the study point to the same conclusions. The documents were acquired by Greenpeace under the Freedom of Information Act and shared with InsideClimate News.

How Much Frack Filth Does One Marcellus Shale Well Generate?  - This data is from the MacGeorge Gas Well drilled by WPX Energy , which is now defunct in our county, thankfully, and has left with lawsuits trailing them and they sold their gas leases to the another , gas company, Southwestern Energy. These four wells on this gas site were drilled in 2012…..and of course, have several DEP Violations….it is surrounded by private, water wells..

  • MACGEORGE SOUTHEAST 1 2H - Show Wellsite on Map
  • Waste Summary: DEP data thre Dec. 31st, 2014
  • Total Drill cuttings: 1,848,420 pounds (924 tons)
  • Total Drilling fluid waste: 50,736 gallons (1,208 bbls)
  • Total Fracing fluid waste: 13,860 gallons (330 bbls)
  • Total Produced fluid: 272,050 gallons (6,477 bbls)

(much more)

Frack Brine The Cure, or How To Get Rid of Millions of Gallons of Carcinogenic Frack Filth While Regulators Look the Other Way  - Frackers have millions of gallons of toxic radioactive frack slime to get rid of. So they give it away. Once approved for road spreading, there is way to check what’s in those trucks. None. But it damn sure ain’t sea water.  To put this travesty in perspective, if some fracker put that stuff on a road in Texas, he’d be pulled over, fined and the truck impounded. Bob Donnan gave a sample of the brine I got from a puddle on Parkview Road behind this tanker truck after I took the photo and gave it to a friend who does water sampling of streams in Greene County. He said when he took the lid off the bottle the fumes about knocked him out.  – In parts of Pennsylvania and New York, the answer to ice-slick wintry roads is simple: Put some gas production waste on it. Municipalities in the northern parts of both states use the salty wastewater from oil and gas production to melt ice in winter and suppress road dust in summer.  The salty liquid does a great job: The brine can be as much as 10 times saltier than typical road salt. Plus it comes cheap; oil and gas companies, glad not to have to pay for disposal, will sell it to towns for cheap, or give it away free. Both states’ environmental protection departments consider brine spreading to be a “beneficial use” of the industrial waste, meaning, in legal terms, that recycling it in this way “does not harm or threaten public health, safety, welfare or the environment.” But according to new research, the brine is anything but benign. Worse, states barely track it; New York doesn’t know how much of the stuff is being used on its roads, and the Pennsylvania department charged with regulating it appeared to not fully understand its potential effects until Newsweek got in touch.

Road De-Icing Fluids May Contain Unhealthy Chemicals - - During this seemingly endless winter road crews have been in a continual battle to keep streets and highways safe. Their chief weapon: saltwater. It adheres to the pavement better than bouncing rock salt and keeps ice from forming on top of it. But on some roads this salty solution may contain other potentially harmful substances. Most state transportation departments mix this brine themselves, using either simple salt and water or natural brine extracted from underground deposits. But in states with conventional natural gas and oil drilling wells, spreading the well wastewater on roads can be a cost-saving way to de-ice. This fluid is called produced brine. Because it circulates among deep rocks and contacts various forms of petroleum, the brine can contain radium, lead or other substances that can be harmful at certain levels of exposure. State regulations of produced brine for de-icing purposes vary greatly, and some experts are calling for more rigorous testing for long-term environmental and health effects. A 2014 U.S. Geological Survey study analyzed roadside sediment where produced brine from conventional wells had been spread as a de-icer and found elevated levels of radium, strontium, calcium and sodium. Radium is radioactive and can thus be carcinogenic. At high concentrations, sodium can be unhealthy for humans and animals. In plants high sodium levels disrupt nutrient intake, leading to death. The lead author of the study, research hydrologist Katherine Skalak, says the chemical contents of produced brine vary from well to well. When it flows out of the well, these fluids can also contain carcinogens, hydrocarbons and solvents

Microbes could help clean up after fracking - CBS News: As fracking has exploded across the country, so have toxic ponds of salty and contaminated water that litter places like North Dakota and Texas. Now, a team of researchers may have come up with process they believe will treat this wastewater, helping address one of the industry's biggest headaches. Writing in the journal Environmental Science Water Research & Technology, the University of Colorado Boulder scientists described their invention of a way to remove both salts and organic contaminants from fracking wastewater using microbes that gobble up the latter, leading to a chemical reaction that does away with the former. The process takes advantage of the fact that the contaminants found in the wastewater contain energy-rich hydrocarbons, the same compounds that make up oil and natural gas. The scientists introduce microbes into the waste, which eat up the hydrocarbons, producing an electric current that removes the salt. "The beauty of the technology is that it tackles two different problems in one single system," said Zhiyong Jason Ren, a CU-Boulder associate professor of environmental and sustainability engineering and co-author of the paper. "So far, we have been able to clean up the water so that it can used in irrigation, toilet flushing," Ren told CBS News. "It can be used for anything except drinking at this level. If we can use reuse the water, the companies don't need to buy new water and they could even make money from selling it to other users like farmers."

Fracking Air Omissions - Shale Test documents the toxic gas emissions from fracking that the regulators overlook, because the emissions can only be seen with an infrared camera, that the regulators don’t have. You can’t regulate what you can’t see. Just what the frackers paid for.  From Bob Donnan: Calvin Tillman pioneered a great deal of the information that initially opened our eyes about compressor stations and he continues his dedicated work leading ShaleTest while working with others like Tim Ruggiero, John Fenton and Earthworks. Calvin’s education (aka School of Hard Knocks) came when the O&G industry stuck a group of compressor stations just outside the city limits of DISH while he was mayor. He has since moved his family out of DISH and ‘off the shale’ since his children were having repeated health symptoms like nose bleeds. Calvin has visited our SW Pennsylvania area multiple times to offer us assistance.  Frank Finan, who I volunteered 2 days of chauffeuring to various compressor station sites in our tri-state area last year, spent his personal savings to buy a high-end FLIR camera. New ones retail in the $80,000 to $90,000 range and need to be recalibrated fairly often at considerable expense.

Shale Revolution Did Not Pay Investors Well -- We have all heard of the “shale revolution”. It has been touted as the energy panacea of our time. Given the extreme hype, one would expect that such enthusiasm would translate into above average share performance for shale operators. This has not been the case. Share performance has actually been quite mediocre and in some cases just downright poor.The shale revolution started with shale gas. The Marcellus shale which spans Pennsylvania, parts of NY, West Virginia and Ohio has probably received the greatest amount of attention since the State of New York had a drilling moratorium for years which was recently replaced in favor of an outright ban on the controversial technique used to unlock shale reserves called hydrofracture stimulation or more commonly referred to as “fracking”. Looking at the top producers in the Marcellus, one would expect that these companies would have enjoyed returns on their shares which were commensurate with their expectation of future growth potential for their product. Interestingly, this has not occurred. Five of the top producers in the Marcellus are Exco Resources, Range Resources, Chesapeake Energy, Anadarko and EOG, the former Enron Oil and Gas. Of these five companies, EOG was the only one which had reasonable returns over the past five years. EOG shares rose approximately 85% during that time right in line with the S&P 500 index. So nothing earth shattering here. EOG’s peers, however, had significantly weaker returns for shareholders. The next best performance was from Anadarko with a mere 18% over five years followed by Range with -1%, Chesapeake with -31% and Exco with a dismal -89%. And all during the height of the shale gas revolution.  The star for share performance in the Bakken was Continental Resources which did indeed enjoy gains of about 120% over the past five years. Hess Corp. was next with a return of a mere 22%. Whiting Petroleum and StatOil each turned in negative share returns of -12% and -19% respectively. So only one of the top operators even came close to matching returns from the index which is fine if you were lucky enough to cherry pick that company.

How to Get Fracked Gas to China via Upstate New York - Pipe fracked gas to LNG export terminals – and a new Chinese canal through Nicaragua. That’s the plan behind the Constitution Pipeline – the Keystone XL of LNG.  “A popular movement is building against the Federal Energy Regulatory Commission (FERC), for its outrageous rubber-stamping of permits for expansion of the gas industry. Kennedy’s powerful indictment of FERC on national television last week was the latest manifestation of this hopeful, much-needed development.Kennedy was speaking about the Constitution pipeline, one of about eight interstate pipelines originating in or going through Pennsylvania (ground zero for fracking in the Northeast) that are currently in some stage of getting approval from FERC, which interstate gas pipelines need to do. And the approval process is essentially pro-forma. In the two and a half or so years that I’ve been actively involved with this movement, I know of none proposed that have been rejected. It’s the same with proposed export terminals. At a federal Court of Appeals hearing last year in Washington, DC it was stated in open court that 95 percent or more of such proposed pipelines are approved, with no disagreement from the FERC lawyers present. Some of the other pipelines which FERC will likely approve—barring the kind of organized people’s uprising we have seen around the Keystone XL pipeline—are: Penn East, Mariner East 2, Atlantic Sunrise, Atlantic Coast, Algonquin Incremental Market and Northeast Energy Direct. Virtually all of these pipelines are being built, in part, to ship fracked gas from Pennsylvania, West Virginia, Ohio and possibly elsewhere in the Marcellus Shale region to gas export terminals that are being built or projects that are proposed, including in Nova Scotia, off the coast of NY/NJ and Cove Point in Maryland on the Chesapeake Bay.

More Penneast Garbageconomics - Last month, right before FERC was to hold its first scoping hearing on the PennEast pipeline, the PennEast Pipeline Corporation released an economic impact report.   The media picked up and dutifully transcribed the press release, and headlines touted 12,000 job figure, and gazillion of dollars that would flow into Pennsylvania and New Jersey.  PennEast contracted with Drexel University and Econsult to produce the report.   The report is being widely criticized for wild claims of job and economic benefits. Of particular interest is the claim of 12,000 jobs. A closer look reveals that the number refers to every job that could be related in any way during the seven-month construction period, making the job total much less once construction ends, environmentalists claim. This would include a food truck worker selling a Taco to an out of state pipeline construction worker as being counted a “job”. “No respectable economic analysis would give a result this large and the best recent work suggests there would be little if any net employment gains beyond the direct hires, most of who would be recruited from outside the area,” Jeffrey R. Shafer, former undersecretary of the U.S. Department of Treasury, stated in the release.

Exxon Mobil Settles With New Jersey Over Environmental Damage: A long-fought legal battle to recover $8.9 billion in damages from Exxon Mobil Corporation for the contamination and loss of use of more than 1,500 acres of wetlands, marshes, meadows and waters in New Jersey has been quietly settled by the state for around $250 million. The lawsuits, filed in 2004, had been litigated by the administrations of four New Jersey governors, finally advancing last year to trial. By then, Exxon's liability was no longer in dispute; the only issue was how much it would pay in damages. The stakes were high, given the enormous cost the state's experts had placed on restoring and replacing the resources damaged by decades of oil refining and other petrochemical operations, as well as of the public's loss of use of the land."The scope of the environmental damage resulting from the discharges is as obvious as it is staggering and unprecedented in New Jersey," the administration of Gov. Chris Christie said in a court brief filed in November. But a month ago, with a State Superior Court judge believed to be close to a decision on damages, the Christie administration twice petitioned the court to hold off on a ruling because settlement talks were underway. Then, last Friday, the state informed the judge that the case had been resolved.

Litchfield County town proposes state's first fracking ban - Connecticut Post: A Litchfield County town could become the first in the state to ban the storage or disposal of fracking waste. Washington residents will vote on the ban at a special town meeting at 7:30 p.m. Thursday in Bryan Memorial Town Hall. Carlos Canal, president of the Washington Environmental Council, circulated a petition requesting the vote and approached the town's Board of Selectmen. "The council was active in securing the passage of Senate Bill SP237 in the General Assembly," Canal said. "The bill started out to ban fracking waste storage in the state and finally passed establishing a three-year moratorium during which the commissioner of the DEEP will come up with guidelines." Chemicals used range from hydrochloric acid, ammonium persulfate, magnesium peroxide, magnesium oxide and sodium chloride. In June 2014, Gov. Dannel P. Malloy signed the law into effect, placing a moratorium on the storage or handling of hydraulic fracturing waste in the state. Pursuant to the law, the Department of Energy & Environmental Protection will categorize fracking waste as "hazardous waste" under Connecticut's hazardous waste policy.The DEEP will also review the potential environmental and health impacts and develop protections to ensure fracking waste and its by-products do not pose a risk.

Commissioners say proposed gas drilling regulations too restrictive – Allegany County Commissioners are taking the offensive in the debate over natural gas drilling in Western Maryland. Commissioners believe the regulations being considered by the state are so stringent that they would constitute a virtual ban on the use of hydraulic fracturing to drill for gas in Maryland. They are joined in the concern by Del. Wendell Beitzel, who devoted much of one of his recent newsletters to a discussion of issues related to gas drilling. “In my … opinion the regulations that have been drafted, if promulgated, would effectively stymie any natural gas development in Maryland,” Beitzel wrote. Commissioners arranged for a special presentation at a recent business meeting by county GIS Coordinator Greg Hildreth. Hildreth presented a map that he said showed that if proposed regulations were adopted, they would leave very little land in the county available for natural gas development. The Allegany County map conflicts with a map prepared by the Maryland Department of Natural Resources, which shows about triple the amount of land in the county would be available for drilling if the regulations were adopted. Hildreth said he believed Allegany County’s map accurately reflected what would happen if the regulations were adopted. Beitzel cited a similar map prepared by Garrett County staff. Only about 3,122 acres out of 87,000 in the portion of the county where drilling is feasible could be used for gas development, Hildreth said. After the presentation, two citizens expressed concern over the possibility of gas development in the county. Kenneth Wilmot of Cumberland said he was concerned about possible water pollution, especially of the underground aquifers and springs which provide water sources in the area. William Bartik of McCoole also said he was concerned about possible water pollution. “I was raised downstream from the (paper) mill, and I know what a dead river looks like,” Bartik said.

Studies target health, fracking -- Research: Problems subside when people move away from wells. Dogs serve as living recorders of toxic exposure. Cattle have trouble breeding. People report headaches, dizziness, difficulty breathing and a raft of other ills.Those are a few of the findings in a new suite of academic studies on natural-gas production and health being published today.People’s and animals’ troubles subside, one study found, when they move away from places where companies are producing natural gas with unconventional methods — that is, hydraulic fracturing, or fracking, the process already used on tens of thousands of wells in North Texas. The research, mostly by university scientists, centers mostly on another region where gas production has moved into established communities, the Marcellus Shale field in Pennsylvania. But it explores the same questions that arise in North Texas neighborhoods that now find wells and processing plants as newcomers.Volunteers and activists with Frack Free Denton often cited concerns about the potential health effects as they campaigned to ban fracking in the city limits.One of the group’s officers, Rhonda Love, a retired public health professor, prepared a white paper for city leaders several years ago citing some of the earliest research into health concerns over fracking. Bit by bit, science is plugging the gaps in public understanding left by limits and inadequacies of past research.

Nabors cuts nearly 3,500 jobs, more cuts could be on the way -- On and offshore drilling giant Nabors Industries announced Tuesday the company has cut 12 percent of its workforce as a result of rig losses due to lower oil prices, FuelFix reported. The 12 percent loss in workforce accounts for approximately 3,500 jobs. The company employs about 29,000 people. Of the 12 percent cut, 10 percent include cuts to its sales staff and a 20 percent reduction in its U.S. drilling workforce. Nabors, a Bermuda-based company which has its main offices in Houston, has fallen victim to the drop in oil prices to the tune of a 32 percent rig count reduction from its peak last year. In the fourth quarter alone, it saw an average utilization for its U.S. rigs fall to 78 percent. William Restrepo, Nabors chief financial officer, says he expects the U.S. rig count to decline 50 percent from its peak. In a conference call to investors, Nabors CEO Anthony Petrello touched on how the company is preparing for potential long-term downturn in oil prices. “We are not counting on the V,” Peterello said, referring to a potential V-shaped, or rapid, recovery in oil prices that would alleviate much of the industry’s ongoing pain in lost profits and jobs. Nabors executives added that the company may not be stopping at 12 percent and that they are looking at potentially being forced to cut up to 15 percent of its workforce in 2015. That 15 percent would account for 4,350 jobs.

Lessons for U.S. oil production from the gas industry -  The United States produced a record 25.7 trillion cubic feet of natural gas in 2014 according to preliminary estimates published by the Energy Information Administration (EIA) on Feb 27. Gas production has risen 27 percent since 2008 even though the number of rigs employed drilling for gas has declined by more than 80 percent over the same period.Continued growth in output despite a sharp drop in rigs and depressed gas prices is often cited as a warning not to rely on rig counts to forecast future production. The gas industry’s experience is especially relevant now given the plunge in oil prices and new drilling since June 2014. But the real lessons from the gas industry are more complicated and underscore the complicated relationship between prices, drilling and production. The gas industry’s experience holds two lessons for oil production. First, gas production would have fallen since 2008 in response to lower prices and drilling had it not been for the boom in crude production and high prices for natural gas liquids. Second, it is the combined value of all the products from a well (dry gas, natural gas liquids and crude) that determine the profitability of a well.

Despite falling oil prices, Texas oil output surged in December to the highest level since the 1970s - The Energy Information Administration (EIA) released new state crude oil production data last week for the month of December, and one of the highlights of that monthly report is that oil output in America’s No. 1 oil-producing state – Texas – continues its phenomenal, eye-popping rise. Here are some details of oil output in “Saudi Texas” for the month of December and the economic impact that production is having on the state and national economies:

  1. For the ninth straight month starting in April 2014, oil drillers in Texas pumped out more than 3 million barrels of crude oil every day (bpd) during the month of December. The 3.44 million bpd in December was the highest daily oil output in the Lone Star State in any month since at least January 1981, when the EIA started reporting each state’s monthly oil production (see top chart above). Compared to oil production a year ago, Texas posted a 24.8% increase in December.
  2. Remarkably, oil production in the Lone Star State has more than doubled in the last three years, from 1.68 million bpd in December 2011 to 3.44 million bpd in December of last year (see chart above), and that production surge has to be one of the most significant increases in oil output ever recorded in the US over such a short period of time.
  3. The exponential increase in Texas oil output over roughly the last four years has completely reversed the previous, gradual 28-year decline in the state’s conventional oil production that took place from 1981 to 2009 (see arrows in top chart) – thanks almost exclusively to the dramatic increases in the state’s output of newly accessible, unconventional shale oil.
  4. As recently as mid-2009, Texas was producing less than 20% of America’s domestic crude oil. The recent gusher of unconventional oil being produced in the Eagle Ford Shale and Permian Basin oil fields of Texas, thanks to breakthrough drilling and extraction technologies, has recently pushed the Lone Star State’s share of domestic crude oil production up to more than 37% of America’s crude output for the last five months.

Bill would allow property owners to sue over drilling ordinances  -- The latest bill to be filed after Denton banned hydraulic fracturing would make cities that adopt restrictive drilling regulations pay mineral owners for their loss of property. State Sen. Van Taylor, R-Plano, filed legislation last week that he says would set up a mechanism allowing a qualified group of property owners with a state-issued drilling permit to seek payment if they believe that ordinances make it impossible to profit from the oil or gas underneath their land. “Taking someone’s property without paying for it is wrong. You can’t take people’s property without compensation,” Taylor said. A city can implement any ban it wants and set any distance regulations it like, but should just be prepared to compensate for it, Taylor said. Jim Bradbury, a Fort Worth environmental lawyer who helped craft the city’s gas drilling ordinance, said Taylor’s bill will simply put another “arrow in the quiver” of oil and gas operators who oppose any regulation that makes their life more difficult. “My overall impression is that it creates an unnecessary hook that oil and gas drillers, or their mineral owners, could use to sue the city for enacting ordinances,” Bradbury said. Denton voters approved the first municipal fracking ban in Texas in November. A grassroots group pushed the ban after pleading for years with the city and state for help to stop drilling that they said was too close to homes, schools and hospitals.

Oklahoma knew fracking caused earthquakes but stayed quiet to appease energy industry: Oklahoma has suspected for years that fracking caused earthquakes, but they stayed quiet about the connection under pressure from the oil industry. The Oklahoma Geological Survey (OGS) finally admitted a possible link more than a year ago between oil and gas extraction and the recent outbreak of earthquakes in the state – which last year experienced 1.6 quakes per day of magnitude 3 or greater. That’s three times as many as California. The OGS joined a U.S. Geological Survey statement in October 2013 that found human activity, including wastewater disposal, could be a “contributing factor” in the surge in earthquakes. That angered the state seismologist’s boss, University of Oklahoma President David Boren, and oil executives, according to emails obtained by EnergyWire. Seismologist Austin Holland was called into meetings with Boren, state officials, and energy company executives after joining the statement, the emails showed.Holland had been aware of the link since at least 2010, when he told federal officials that quakes near Oklahoma City may have been triggered by gas and oil projects. However, he declined to publicly discuss the link until it could be demonstrated scientifically and suggested that changes in lake levels may be to blame for the quakes.

What is a California beach town willing to pay to avoid oil drilling? -- On Tuesday, the residents of Hermosa Beach are going to vote yet again on an oil and gas drilling initiative — whether to allow a contract with the energy company E&B Natural Resources Management to proceed despite a current drilling ban. The contract, which could mean hundreds of millions of dollars for the local government, received final approval from the City Council in 1992, but it has been in limbo ever since. A vote to block the drilling would come at an unusual cost: $17.5 million in damages to the energy company, the equivalent of about half the annual general fund budget in this city of almost 20,000 people. ... “It’s a little more than we probably should have paid,” Mayor Peter Tucker said, referring to the deal for potential damages. “But if it gets us out of this constant, constant oil issue we’ve had hanging over us for 30 years, I think it’s money well spent.” ... An environmental-impact statement commissioned by Hermosa Beach listed nine potential areas of concern that it said the company would be unable to mitigate, including air quality, aesthetics and noise. ... Supporters of the project say the fears voiced by opponents — declining property values, offensive odors and the potential for a spill that could spray fuel into the water, on the beach or over neighboring houses — are exaggerated. ... The company anticipates that the drilling would produce 35 million barrels over the 34-year life of the project, producing a potential $500 million windfall for Hermosa. (The revenue projection was made when the price of oil was close to $100 a barrel; it is about half that now.) ... The city has a surplus of close to $7 million that it has put aside to help pay the penalty. The rest would be paid in roughly $800,000 annual installments.

Chevron, Linn Told to Halt California Wells on Water Concern-- California regulators ordered oil drillers including Chevron Corp. and Linn Energy LLC to halt operations at 12 injection wells in the state because of concerns they may taint groundwater. The Division of Oil, Gas and Geothermal Resources said 10 of the well operators shut down voluntarily, while two were issued cease-and-desist orders. All the wells are located in Kern County, northeast of Los Angeles, are within a mile of the surface and 500 vertical feet underground of a water supply, the agency said. There is no evidence that drinking water has been contaminated, the agency said. Oil and gas drillers have been using injection wells for more than 50 years to help push hydrocarbons out of the ground. More than 50,000 oil-field injection wells operate in the state, according to the oil and gas division. An extensive shutdown of the wells would threaten the operations of a $34 billion industry that employs more than 25,000 people in the state, based on agency estimates. The wells are being shut “out of an abundance of caution for public health,” State Oil and Gas Supervisor Steven Bohlen said during a conference call with reporters. “This is an initial public health screen.” The agency said the orders were part of a “systematic statewide review” of injection wells. The state acknowledged that some well injections were taking place in zones that hadn’t been approved by the U.S. Environmental Protection Agency, triggering the evaluation of all 50,000 injection wells.

California Orders Oil Companies To Stop Drilling Near Drinking Water Supplies  - On Tuesday, California regulators ordered a dozen oil and gas wells to cease production over concerns that the wells may be contaminating groundwater.   Oil companies Chevron Corp. and Linn Energy LLC voluntarily stopped production at 10 of the Central Valley wells, while the two other wells were given cease-and-desist orders. While there is no evidence of drinking water contamination yet, the wells are located within a mile of the surface and within 500 feet of a water supply.  “As we’ve said before, the protection of California’s groundwater resources — as well as public health — is paramount, particularly in this time of extreme drought,” said Steven Bohlen, head of oil, gas and geothermal resources for the California Department of Conservation. “Halting injection into these wells is a significant step toward that goal.” According to Bohlen, the “produced water” created by the drilling process is different than the water used in fracking operations.  “They are two different things,” he said. “To be clear, in standard oil and gas operations, the producers skim off the oil and reinject the water back where it came from.” California is the third-highest oil producing state after Texas and North Dakota, and is home to 50,000 injection wells that have been operating in various capacities for decades. In 2014, California produced 205.3 million barrels of oil. California also produced more than 3.3 billion barrels of water in 2014, which is “usually very brackish and unsuitable for human use,” according to the California Department of Conservation.

Colorado land impact of oil and gas boom: scars spread and stay - Oil and gas companies have yet to fully restore land around half of the 47,505 inactive wells in Colorado, and 72 percent of those un-restored sites have been in the process for more than five years, The Denver Post has found. The state requires oil and gas companies to restore all sites completely — to reduce erosion, loosen compacted soil, prevent dust storms and control invasions of noxious weeds. But Colorado does not set a timetable for getting the job done. Nor do state regulators track how long companies take to complete required work. And unlike other states, Colorado does not require companies to submit reclamation plans before drilling.  The result is a worsening problem of damage from the oil and gas boom. On Friday, Colorado Oil and Gas Conservation Commission chairman Thomas Compton said he would like to consider improving state rules.

2014 a record-breaking year for Colorado - Colorado’s oil industry enjoyed record-breaking production in 2014. According to recent Denver Business Journal article, the Colorado Oil and Gas Conservation Commission’s (COGCC) reported that the state pumped more than 82.8 million barrels of crude oil, 85 percent of which came from Weld County. But a nearly 50 percent drop in oil prices concern experts, who are becoming wary of how long Colorado’s boom will last. The 82.8 million-barrel count for 2014 is a 27 percent jump from the 2013 total of 65.3 million barrels produced and twice the 39.4 million-barrel count for 2011. “I did not think we would see a 20 percent increase, year over year, and we are well beyond that,” said Matt Lepore, COGCC director. He added that the number is likely to see even more of a boost as the commission updates the numbers on its website daily. New technology has enabled to access previously untapped reserves via horizontal drilling, fueling the state’s boom. However, low fuel prices have yielded budget cuts and nationwide job losses, which worries economists. Several companies operating in Colorado have announced plans for rig and budget cuts. Colorado’s rig count dropped from 66 operating rigs in January to 44 by the end of February, Baker Hughes reported.

Amid low oil prices, companies wait to frack, complete wells — Oil companies that operate in Wyoming report that they are holding off on hydraulic fracturing and are waiting to complete newly drilled oil wells to save money during low oil prices. Oil prices are down around $50 a barrel, or roughly half the price a year ago. The hydraulic fracturing process of pumping pressurized water, sand and chemicals into wells to crack open deposits can add significantly to the cost of developing a deep oil well. EOG Resources, headquartered in Houston, announced that it plans to delay fracking 285 wells. Chesapeake Energy, based in Oklahoma City, likewise plans to wait until 2016 to complete about 100 wells, while Devon Energy, also based in Oklahoma City, is cutting back on fracking crews in Texas, the Casper Star-Tribune reports.. Oil wells often hit peak production soon after they are drilled. It makes sense for companies to wait to complete wells after oil prices are higher, said analyst James Williams with WRTG Economics in London, Arkansas. In related news, Oil prices affect Wyoming, Colorado college students. “Would you rather complete a 1,000-barrel-a-day well and get $50 a barrel or would you rather wait a couple months and get $70 a barrel?” Williams said. “That’s basically what these guys are doing.”

Crime In North Dakota’s Oil Boom Towns Is So Bad That The FBI Is Stepping In - High levels of crime in North Dakota’s oil fields have prompted the FBI to set up shop in the region. The FBI is opening an office in Williston, North Dakota and plans to have it fully staffed by later this year, The Hill reported Thursday. The FBI office — which will be North Dakota’s fifth — comes in response to North Dakota lawmakers’ and local officials’ calls for the FBI to step up its presence in North Dakota’s oil fields, which have seen a surge in criminal activity since the state’s oil boom began. “The opening of this office is in response to the unprecedented growth in population and economic activity associated with the oil exploration and production in the Bakken region and the corresponding increase in criminal activity,” Richard Thornton, special agent in charge of the Minneapolis FBI division, which will oversee the Williston office, said in a statement. “The FBI will be in a better position to effectively address these issues in this region of North Dakota through this new office.” North Dakota’s oil production began growing in the mid-2000s, when companies figured out how to extract oil from the state’s Bakken region. Around 2010, production in the state skyrocketed, and that boom brought in throngs of workers from around the county — a population increase that, as Thornton said, also brought with it an increase in crime. According to the Washington Post, violent crime in the state’s oil-rich Williston Basin region increased by 121 percent between 2005 and 2011. Drug use and prostitution are also prevalent.

Onshore oil storage approaches holding capacity - Growing inventories of oil and gas on the market are not only exerting pressure on global prices, but it’s also causing storage space facilities to approach capacity, causing some companies to store their product in offshore tankers.  Last week, CNBC reported that Head of Commodity Research for Bank of America-Merrill Lynch Francisco Blanch said, “We’re going to see pretty fast inventory builds over the next few weeks.” Currently, global supply is approximately 1.4 million barrels above demand each day. “If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that’s what we expect over the next few weeks,” he added. Blanch predicts that both Brent and West Texas Intermediate benchmark prices will sink to $30 per barrel. The American Petroleum Institute recently released information displaying how stockpiles of crude oil in the U.S. increased by an unanticipated 8.9 million barrels during the week ending on February 20. The total being stored currently sits at around 437 million barrels, up to 100 million of which might be held on floating storage vessels by the end of the second quarter. During the financial crisis of 2009, there were an estimated 110 barrels being stored on tanker ships. According to analysts at IHS, as much as 80 percent of available commercial storage in the U.S. is currently being used. As reported by CNBC, commodity strategist for Citigroup Ivan Szapakowki said, “Within around two months, [onshore storage will] be completely exhausted. The only remaining storage globally will then be floating storage, tankers.” Recently, Citigroup forecasted oil prices to drop as low as $20 per barrel before beginning to recover. While there is still onshore storage available, some companies have already begun to store it on tanker ships. Over the past 18 months, prices and lease rates for tanker ships have nearly doubled.

U.S. running out of room to store oil, price collapse next? — The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week. If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude — and probably gasoline, too — plummeting. “The fact of the matter is we are running out of storage capacity in the U.S.,” Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York. Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.

What could save the boom? Energy leaders call for crude exports -- With prices low and production high, businesses are pushing with new vigor in efforts to lift the ban America has over exporting crude petroleum. Most recently, ConocoPhillips Chairman and CEO Ryan Lance spoke at the U.S. Chamber of Commerce Tuesday on the matter. According to a news release from ConocoPhillips, Lance delivered his speech, “American Energy: Keeping the Momentum Going,” Tuesday with the message that the current ban is outdated and economically constraining the nation. Lance cited the nation’s oil and natural gas industry for supporting 9.8 million domestic jobs and the recent energy renaissance for providing 40 percent of the growth in the nation’s gross domestic product over the past two years. In addition, Lance explained lifting the ban would help the eventual manufacture capacity of U.S. refineries who are already overwhelmed with production. By enabling a surplus of U.S. light crude that exceeds U.S. refiners’ processing capacity to sell on the world market, this would create additional demand for light oil from the nation’s growing shale producing fields. Lance also noted that the whole process would help sustain the energy-driven economic stimulation and job creation that has contributed to the rebounding U.S. economy. According to ConocoPhillips, there are currently seasonal surpluses of light oil, and these are expected to extend year-round by 2017. The resulting price discounts on domestic light oil sold to refiners, combined with weak world oil prices, threatens to force proposed development projects below their break-even points. Lance feels that unless exports are allowed, the pace of drilling would slow, causing domestic job losses and damaging the economy.

TransCanada Is Seizing People’s Land To Build Keystone, But Conservatives Have Been Dead Silent - For Julia Trigg Crawford, watching TransCanada construct the southern leg of the Keystone XL pipeline on a corner of her 600-acre farm was “gut-wrenching.” Crawford, who lives in Direct, Texas, had been trying since 2011 to keep the pipeline company off her property. But she ultimately lost, the portion of her land needed for the pipeline condemned through eminent domain — a process by which government can force citizens to sell their property for “public use,” such as the building of roads, railroads, and power lines. Crawford can’t wrap her head around why TransCanada, a foreign company, was granted the right of eminent domain to build a pipeline that wouldn’t be carrying Texas oil through the state of Texas. That question — how eminent domain can be used in a case like Keystone — has some anti-Keystone groups stumped too. But the groups that usually are vocal proponents of property rights, including the Institute for Justice, have been silent when it comes to the controversial pipeline.“I have not seen a single group that would normally rail against eminent domain speak up on behalf of farmers or ranchers on the Keystone XL route,” said Jane Kleeb, founder of the anti-Keystone group Bold Nebraska.  She had thought that at least a few conservative or pro-lands rights groups would have voiced their general support for Keystone XL, but still denounced the use of eminent domain to get it built. That hasn’t happened, Kleeb said — not among property rights groups nor among most pro-Keystone lawmakers.

Get Ready: The Senate Will Start Trying To Override Obama’s Keystone XL Veto Today - The U.S. Senate will begin the process of attempting to override the President’s veto on the Keystone XL pipeline Wednesday, an attempt that’s not predicted to succeed but that likely won’t be the last time Congress tries to force approval of the controversial project. The Senate is expected to issue a cloture vote on the override Wednesday, and then vote on whether to override the president’s veto on Thursday. Senate Democrats had been prepared to filibuster the override vote, a threat that prompted the vote for cloture, which allows the Senate to place a time limit on how long a bill is considered.   The Senate isn’t expected to succeed in overriding the president’s veto. As of Friday, the Hill reports, pipeline supporters had 63 out of the 67 votes needed to override the veto. Nine Senate Democrats had voted on the bill approving the pipeline, and Sen. John Hoeven (R-ND) told the Hill that he was working to get more Democrats to override the veto.  Still, the prospect of an override doesn’t look likely, and some Senators are already planning ways to get the pipeline approved via future legislation. Sen. Hoeven, for example, told the Hillthat Keystone XL legislation could be tacked on to a long-term transportation funding bill, much to the chagrin of his Democratic colleagues.

Senate fails to pass bill to override Obama's Keystone XL pipeline veto - The Senate has failed to pass a bill that would override Barack Obama’s veto of the Keystone XL pipeline, in a victory for environmentalists who oppose the controversial project. The Republican majority, led by Senator Mitch McConnell, set up a cloture motion attempt to defeat the president after he vetoed a bill approving the pipeline in January. The measure failed by 62 votes in favor and 37 against. Republicans needed two-thirds of the Senate (67 votes) to defeat the president’s veto, but were unable to win over five additional Democrats. In January the Senate passed the bill by a vote of 62-36, garnering eight Democratic votes.  The controversial pipeline has been under discussion in Washington since Obama took office six years ago, and the president refused to voice his position on the issue until the matter came to a head with January’s bill. Supporters of the divisive project say that it will create jobs and boost the economy; opponents say its economic benefits are limited and its environmental costs dangerous and massive.

Texas releases details on crude shipments from Bakken region - As many as 10 trains weekly have been coming into Texas carrying a million gallons or more of Northern Plains crude oil that’s been involved in fiery derailments in the U.S. and Canada. Details on the shipments were released Friday by the Texas Attorney General’s Office under a public records request from The Associated Press. They show BNSF Railway hauling up to six trains weekly into the Houston area. The Fort Worth-based railroad reported two to four trains weekly along a second route through Tarrant and McLennan Counties. Kansas City Southern Railway reported hauling up to one train a month into Nederland, Texas. A train carrying crude from the Bakken region of Montana and North Dakota derailed and sparked a spectacular fire last week in West Virginia. Hundreds of families were forced to evacuate.

Oil-train accidents raise concern in Phila.: The Philadelphia region’s petroleum refineries, many of which faced closure four years ago, have experienced an economic revival, thanks to the arrival of a virtual pipeline of domestic crude oil by rail. But the same petroleum from North Dakota’s Bakken oil field has been implicated in a succession of dramatic North American rail accidents in the last two years, most recently Monday in West Virginia. Video images of orange fireballs erupting from crumpled tank cars near the village of Mount Carbon last week reignited concerns that the same thing could happen here. Two major freight carriers, CSX and Norfolk Southern, now move 45 to 80 oil trains through Philadelphia each week, Samantha Phillips, the city’s director of emergency management, said. More than 700,000 people in the region - including 400,000 in Philadelphia - live within a half-mile of the rail lines that carry crude oil, according to an Inquirer analysis. Federal emergency-response guidelines recommend a half-mile evacuation zone if a tank car containing crude oil catches fire. “We could be evacuating a lot of people, I don’t dismiss that,” Phillips said. But she added: “I don’t think the strategy of scaring the crap out of people is a really effective way of promoting city preparedness.”

Report lists Wilkes-Barre neighborhoods at high risk for evacuation in event of oil train derailment -- A report released Monday by the environmental advocacy group PennEnvironment Research and Policy Center listed the Wilkes-Barre area among the locations throughout the state with neighborhoods most at risk of potential evacuation in the event of an oil train accident. “Danger Around the Bend, The Threat of Oil Trains in Pennsylvania,” identified areas by Zip Code and ranked eastern Wilkes-Barre in the 18702 sector third behind locales in West Philadelphia and northern Reading. A total of 29,277 people living locally within the half-mile evacuation zone would be affected by derailments of trains carrying highly volatile crude oil from North Dakota’s Bakken Shale Formation. Scranton trailed in fifth place, with 15,426 people affected in its North and West sides. But it climbed a peg higher when ranking cities statewide with the most people living in a potential evacuation area. Philadelphia topped the list of cities, with an affected population of 709,869. Scranton ranked fourth with a 61,004 people. The Philadelphia Energy Solutions refinery in south Philadelphia is the largest consumer of Bakken crude.

Are you in danger of an oil train derailment or fire? -- If a crude oil train in Pennsylvania were to derail, catch fire or both, about 1.5 million people are potentially in danger, reported a PublicSource analysis. To break it down, this is equal to one in every nine Pennsylvanians, or 11.5 percent of the state’s population.  Out of the entire state, 327 K-12 schools, 37 hospitals and 61 nursing homes could be affected by a crude oil train derailment or fire.  To some these numbers may seem absurd, but the truth is that they are realistic.  According to a report released by the Department of Transportation Pipeline and Hazardous Materials Safety Administration, an estimated 15 crude oil train derailments will take place this year in the U.S. The recent CSX train derailment that was carrying North Dakota’s Bakken crude oil has given many people a reason to not only be worried about their health and safety, but also train safety.  The train derailed and burst into flames that burnt for several days, which caused hundreds of people to evacuate their homes.  The derailment also caused water contamination, leaving people with their water shut off.  The entire incident left people in Pennsylvania questioning when it would happen in their state. Officials across the state of Pennsylvania say they are concerned about the potential for a train derailment.  Pottstown Fire Chief Richard Lengel expressed is worry to PublicSource’s partner, the Pottstown Mercury: If something catastrophic happens, there’s no municipality along the railroad that can handle it; the volume is too great … We just have to hope that nothing happens, honestly.

White House mulled, then balked at curbing explosive gas on oil trains -- The Obama administration weighed national standards to control explosive gas in oil trains last year but rejected the move, deciding instead to leave new rules to North Dakota alone. Current and former administration officials told Reuters that they were unsure of federal jurisdiction to force the energy industry to drain volatile gas from crude oil originating in North Dakota’s fields. Instead, they opted to back North Dakota’s effort to remove the cocktail of explosive gas – known in the industry as ‘light ends’ – and rely on the state to contain the risk. North Dakota’s regulations come into force next month. The administration’s internal debate shows that concern about the risks associated with oil trains reached the upper level of the White House. But the administration balked at addressing the problem in new regulations governing crude oil trains that it is preparing to introduce this spring. A growing number of safety advocates say those rules are insufficient to regulate a product that is hauled thousands of miles of track and across many state lines.

York County left to spend $1.27 million on pipes under CSX railroad -- The mile-long train carrying North Dakota crude oil to Yorktown that derailed, burst into flames and shut down two water treatment plants in West Virginia has York County officials trying to prevent a local worst-case scenario – a train derailment due to flooding at two outdated culverts under the CSX railroad track near Route 17. A train derailment near Route 17 and Fort Eustis Boulevard could send crude oil directly into the Poquoson River. The Poquoson River headwaters flow into Newport News’ Hardwood’s Mill Reservoir, which serves residents across the Peninsula. “As the train is approaching Yorktown, it is going very slow,” said Dave Morris, a natural resources manager for regional water provider Newport News Waterworks. “That relieves some of our concern, but any time you are hauling petroleum across our watershed it is something we worry about.” Morris estimated that a train bringing oil into Yorktown would be traveling at 10 to 15 mph. According to media reports, a CSX train that derailed in Lynchburg in April 2014, spilling oil into the James River and bursting into flames, was traveling at about 24 mph. York County sent a letter to CSX recently to repeat its request that CSX remove a dislodged section of pipe that blocks some of the Poquoson River, said Board of Supervisors Chairman Thomas Shepperd. A CSX representative told the county in January that it would be fixed by March 1. “But it still sits there,” Shepperd said.

BNSF oil train derails in rural Illinois; two cars aflame (Reuters) - A BNSF Railway [BNISF.UL] train loaded with crude oil derailed and caught fire on Thursday afternoon in a rural area south of Galena, Illinois, according to local officials and the company. The incident marks the latest in a series of derailments in North America and the third in three weeks involving trains hauling crude oil, which has put a heightened focus on rail safety. Dark smoke was seen for miles around the crash site, and the Illinois Environmental Protection Agency told local that two of the cars were potentially on fire. Images posted online by Dubuque Scanner showed flames several hundred feet high, while aerial footage showed the wreck spread across two sets of track. The train with 105 loaded cars - 103 of them carrying crude oil - derailed around 1:20 p.m. CST (1920 GMT), according to a BNSF statement. The incident occurred on what appears to be a major rail line alongside the Mississippi River that handles as many as 50 oil-trains a week, one official said. true "The sky is pretty dark down there, the smoke is pretty black," said Kevin Doyle, whose property borders the tracks. "If you're standing on the tracks you can throw a rock in the water." BNSF said there were no reported injuries and no evacuations. The Berkshire Hathaway Inc unit did not know what had caused the derailment, which occurred about 3 miles outside Galena, a town of just over 3,000 on the border with Wisconsin.

Freight train carrying crude oil derails near Illinois city: (AP) — A freight train loaded with crude oil derailed in northern Illinois on Thursday, bursting into flames and prompting officials to suggest that everyone with 1 mile evacuate, authorities said. The BNSF Railway train derailed around 1:05 p.m. in a rural area where the Galena River meets the Mississippi, according to company spokesman Andy Williams. The train had 103 cars loaded with crude oil, along with two buffer cars loaded with sand. A cause for the derailment hadn't yet been determined. No injuries were reported. Only a family of two agreed to leave their home, Galena City Administrator Mark Moran said at a news conference late Thursday, adding that the suggestion to evacuate was prompted by the presence of a propane tank near the derailment. The derailment occurred 3 miles south of Galena in a wooded and hilly area that is a major tourist attraction and the home of former President Ulysses S. Grant. The Jo Daviess County Sheriff's Department confirmed the train was transporting oil from the Northern Plains' Bakken region. Earlier in the day, Moran said 8 tankers had left the track. But Williams said at the news conference that only six cars derailed, two of which burst into flames and continued to burn into the night. Firefighters could only access the derailment site by a bike path, said Galena Assistant Fire Chief Bob Conley. They attempted to fight a small fire at the scene but were unable to stop the flames.

Another Oil Bomb Train Explodes, Third in Last Three Weeks  -- Yet another train carrying volatile crude oil from the Bakken shale formation in North Dakota derailed yesterday, this time in northwestern Illinois near the historic tourist area of Galena overlooking the Mississippi River. It follows recent derailments in West Virginia and Ontario. The area in which it occurred was not as remote as the Ontario derailment. However, it did not require as extensive evacuation as the one in West Virginia in which hundreds were forced from their homes in the bitter cold. According to the Chicago Sun-Times, firefighters were allowing the fireball to burn itself out.  The 105-car train included 103 cars loaded with the crude oil, with eight derailing. It’s not known yet if any oil spilled into the Mississippi River.   So far this year, these derailments, followed by explosions and fires, have happened only in unpopulated and sparsely populated areas. But their frequency is alarming to more densely populated communities on the rail paths of these trains with many saying it’s only a matter of time until a derailment causes a disaster like the one that killed 47 in Lac-Mégantic, Quebec in July 2013—or worse.  While the U.S. Department of Transportation has proposed new rules for trains carrying dangerous cargo, they would allow the easily ruptured DOT-111 tankers to remain in use for another two-and-a-half years and the industry continues to lobby for a longer phase-out period. However, the cars that derailed and burned yesterday were the supposedly safer newer CPC-1232 tankers.

Third Fiery Oil Train Derailment In Three Weeks Hits Rural Town  - On Thursday afternoon, six cars from a 103-car train loaded with Bakken oil derailed and two caught fire in northern Illinois, according to the Associated Press. The derailment occurred in a rural area near the town of Galena, Illinois, and prompted authorities to set an evacuation radius of one mile from the crash site. Only one family had obeyed the evacuation notice. As of Friday morning there was not any suggested cause nor reported injuries. Though several miles from Galena, the crash occurred near the home of former President Ulysses S. Grant, which has made the area a tourist attraction.  Firefighters could only reach the fire in the heavily wooded area on a bike path, and were allowing it to burn itself out on Thursday evening after an attempt to fight it failed and they had to pull back.The Federal Railroad Administration confirmed that the train was still on fire on Thursday, saying that “once the scene is contained and secured, we will be conducting a thorough investigation to determine the probable cause of the derailment.”Michael Trevino, VP of external communications at BNSF, said that the company was setting up a claims center and taking actions to prevent the spread of oil into waterways including the nearby Mississippi River. A company statement released late Thursday night stated: “We are grateful for the efforts of the first responders at this incident and sincerely regret the inconvenience this event has caused to the community.” Galena City Administrator Mark Moran said “I did confirm that the train crew was safely removed from the scene without injury,” and Fire Captain Brett Temperly said crews had to evacuate the scene less than two hours after the derailment, leaving some $10,000 worth of equipment behind.

More Exploding Shale Oil Bomb Trains! -  Just when you thought it might be safe to be within a fracking mile of a railroad track! Kaboom goes another shale oil bomb train! Yet another train carrying volatile crude oil from the Bakken shale formation in North Dakota derailed yesterday, this time in northwestern Illinois near the historic tourist area of Galena overlooking the Mississippi River. It follows recent derailments in West Virginia and Ontario. The area in which it occurred was not as remote as the Ontario derailment. However, it did not require as extensive evacuation as the one in West Virginia in which hundreds were forced from their homes in the bitter cold. According to the Chicago Sun-Times, firefighters were allowing the fireball to burn itself out. Residents of the Galena area might be especially uneasy about trains rolling through their area. A month ago, a train carrying ethanol derailed in Dubuque, Iowa 15 miles away, with a dozen cars going off the tracks and several landing on the frozen Mississippi River. That fire burned for a day before it went out. So far this year, these derailments, followed by explosions and fires, have happened only in unpopulated and sparsely populated areas. But their frequency is alarming to more densely populated communities on the rail paths of these trains with many saying it’s only a matter of time until a derailment causes a disaster like the one that killed 47 in Lac-Mégantic, Quebec in July 2013—or worse.“Rail transport of crude oil has increased 4000% in the past six years,” said Marc Yaggi, executive director at Waterkeeper Alliance. “Many of these trains travel along and over our waterways, putting our communities, first responders and drinking-water sources directly in harm’s way. This latest derailment shows yet again how explosive this practice can be. Urgent action is needed by the federal Department of Transportation to put the brakes on the unsafe transport of crude oil.”

Oil Train That Caught Fire In Illinois Was Using Supposedly Safer Cars - On Thursday afternoon, six cars from a 103-car train loaded with Bakken oil derailed and two caught fire in northern Illinois, according to the Associated Press.  The derailment occurred in a rural area near the town of Galena, Illinois, and prompted authorities to set an evacuation radius of one mile from the crash site. Only one family had obeyed the evacuation notice. As of Friday morning there was not any suggested cause nor reported injuries.  Firefighters could only reach the fire in the heavily wooded area on a bike path, and were allowing it to burn itself out on Thursday evening after an attempt to fight it failed and they had to pull back. The Federal Railroad Administration confirmed that the train was still on fire on Thursday, saying that “once the scene is contained and secured, we will be conducting a thorough investigation to determine the probable cause of the derailment.” Michael Trevino, VP of external communications at BNSF, said that the company was setting up a claims center and taking actions to prevent the spread of oil into waterways including the nearby Mississippi River. Last month’s fiery Bakken oil train derailment in West Virginia involved the supposedly safer, tougher CPC 1232 new model rail cars. Earlier that month another bad oil train derailment in Canada involving the newer, upgraded rail cars caused a fire that burned for six days. BNSF stated that the cars involved in Thursday’s explosion were also the newer CPC 1232 model cars. Canada’s Transportation Safety Board noted that the derailment in February suggests the new requirements the U.S. and Canada agreed upon last year do not go far enough to ensure the reliable, safe transportation of such a volatile fossil fuel.

Dramatic Explosion Footage: Warren Buffett-Owned Oil Freight Train Derails, Bursts Into Flames -- Back in March 2013 we wrote a post presenting "the new US petroleum pipelines" in which we explained "why crony capitalist #1, the "rustic" Octogenarian of Omaha, and Obama tax advisor #1, Warren Buffett has been aggressively attempting to corner the railroad market, while the administration relentlessly refuses to allow assorted new, and very much competing petroleum pipelines from America's neighbor to the north to cross through the US." The answer was shown on the chart below which showed the exponential increase in petroleum rail car loadings.  It also explains why after Buffett's purchase of Burlington Northern Santa Fe (BNSF) in 2009, Obama has been so staunchly against allowing the Keystone XL pipeline: because if there is anything that would allow Buffett to preserve the momentum of his soaring oil transit business, it is maintaining a veto on any competing pipelines. A veto which Obama implemented for the latest time just a few days ago.  Of course, it would be uncouth of the US president to say that he is against a pipeline because one of his crony backers, his tax advisor ("push income tax higher all you want, but don't you dare touch that capital gains and dividend tax"), and perhaps the biggest single beneficiary of the government bailout of Wall Street in 2008, tells him to. So instead Obama, to appease his progressive rank and file, decided to crack down on the "danger" of pipelines - after all, the world is riddled with horror stories about the tens of thousands of miles of US commodity pipelines spontaneously combusting, exploding or otherwise blowing up and destroying the pristine nature all around them. Maybe not, but that's where the "unbiased" media comes into play. The same media which we doubt will have much if anything to say about the train derailment, crash and subsequent massive explosion which took place at 1:20 pm in a rural area where the Galena River meets the Mississippi. The train in question? One of Warren Buffett's own: a BNSF Railway freight train loaded with crude oil.

Illinois oil train derailment involved safer tank cars: — The rail cars that split open and burst into flames during a western Illinois oil train derailment this week had been retrofitted with protective shields to meet a higher safety standard than federal law requires, according to railroad officials. The fire continued to burn Friday, a day after the derailment in a rural area south of the city of Galena. No injuries were reported, but the accident was the latest in a series of failures for the safer tank-car model that has led some people calling for even tougher requirements. "It certainly begs that question when ... those standards failed to prevent leakage and explosions that threaten human safety and environmental contamination," said Steve Barg, director of the Jo Daviess Conservation Foundation, which owns a nature preserve several hundred yards from the derailment site. BNSF Railway said the train's tank cars were a newer model known as the 1232. It was designed during safety upgrades voluntarily adopted by the industry four years ago in hopes of keeping cars from rupturing during derailments. But 1232 standard cars have split open in three other accidents in the past year, including one in West Virginia last month. That train was carrying 3 million gallons of North Dakota crude when it derailed, shooting fireballs into the sky, leaking oil into a waterway and burning down a house. The home's owner was treated for smoke inhalation, but no one else was injured. In Thursday's accident in Illinois, 21 of the train's 105 cars derailed in an area where the Galena River meets the Mississippi. BNSF Railway said a resulting fire spread to five rail cars. Firefighters could only access the derailment site by a bike path, said Galena Assistant Fire Chief Bob Conley.

Derailed U.S. oil train still burning; shipment delays expected --  A BNSF Railway train loaded with crude oil that derailed and caught fire Thursday afternoon was still burning Friday, and the company warned that shipments along the line could be delayed up to 48 hours. Local emergency management officials confirmed that five tank cars out of 21 that derailed were on fire, and seven were damaged, including the tank cars that continued to burn.There were no injuries, BNSF said. The incident is the latest in a series of derailments in North America and the third in three weeks involving trains hauling crude oil, which has heightened the focus on rail safety. BNSF said it didn’t know what caused the derailment, but said the tank cars were of a newer model, the CPC 1232, which are supposedly better protected against damage than older ones.The Casualty Prevention Circular (CPC) model 1232 is the newer version of the DOT-111 car manufactured before 2011. The earlier version was criticized by regulators and operators for being prone to puncture. The CPC 1232 has new safety specifications, including a thicker tank, top-fitting protection and a pressure relief system. The train derailed in Galena, Illinois, approximately 164 miles west of Chicago. The line is commonly used to carry crude oil to Chicago before it heads to East Coast refineries. “Customers may experience delays of 24 to 48 hours on shipments moving through this corridor,” the company said in an alert posted on its website.

Going Off the Rails: There's No Safe Way to Haul Oil by the Trainload - When 27 CSX tanker cars loaded with fracked North Dakota crude tumbled onto a West Virginia riverbank on President’s Day, the ensuing fireballs leveled a house and forced hundreds of people to flee amid a heavy snowstorm.   Even though 19 of the derailed cars — each carrying 30,000 gallons of oil — erupted into flames, nobody died in this particular disaster. But it may have fired a fatal shot into the argument that trains can “safely” haul crude across North America.  After most of these increasingly frequent accidents, critics urge the government to make operators use “safer” tanker cars. Yet the cars that went off the rails, exploded into flames, and then smoldered for days alongside the Kanawha River were the new-and-improved model.  Slower speeds are also billed as a way to increase oil train safety. Yet this one was chugging along at just 33 miles per hour in a 50-mph zone when it tumbled off-track between the aptly named towns of Boomer and Mount Carbon.  Given its quick growth, many Americans don’t get how big the oil-by-rail industry is or why they should worry about its risks. The number of crude carloads chugging across the nation rocketed from 9,500 in 2008 to 500,000 last year.  The advocacy group Oil Change International created an interactive map of oil train routes you can use to see if any run past your house. It looks like a giant spider web stretched from coast to coast.  Foes of oil-by-rail oppose the industry’s new reliance on what they call “bomb trains” because of how easily tanker cars can detonate when they go off the rails and how prone they are to doing that.

The Best Way to Prevent Exploding Trains? Higher Oil Prices -  Wreckage from the latest oil train explosion hadn't yet been cleared from the crash site in West Virginia last week when President Obama vetoed legislation that would have approved construction of the Keystone XL pipeline. The timing of the two events crystallizes one of the puzzles at the heart of the U.S. oil boom: How do we move all this new crude around the country? As production in the U.S. has soared to more than 9 million barrels a day—up from just 5 million back in 2008—the pipeline industry has scrambled to reorient itself around new oilfields in North Dakota and Texas. But railroads have proven more nimble and in many cases beat pipelines to the punch. The amount of crude being moved by trains jumped by almost 5,000 percent since 2009, even though trains are less efficient and typically more expensive than pipelines.   Energy companies can choose whether to send a crude train to a refinery in Philadelphia or to one in Port Arthur Texas, depending on which location offers higher prices. This brings us to one of the more common and unfortunate reactions to the increasing number of oil train explosions: The incorrect argument that these mishaps wouldn't be happening with such frequency if only Obama would simply approve Keystone XL. But Keystone, whatever its merits, is primarily intended to move crude from Canada.  Right now, with oil prices down more than 50 percent from highs reached last summer, companies are understandably wary about investing in a big pipeline projects up to the Bakken. In December, for example, Enterprise Products Partners canceled a proposed pipeline to move oil from North Dakota down to Oklahoma. A similar line was canceled back in 2012 by the Tulsa-based energy company Oneok, at a time when oil prices were about $40 per barrel higher than today.

Motor Oil Spill Contaminates Washington River, Coating Birds And Endangering Wildlife - More than 1,000 gallons of used motor oil leaked into a river and irrigation canals in Washington state this weekend, oiling at least 50 birds and contaminating an area that’s rich in wildlife, according to state officials.  About 1,500 gallons of used motor oil, which can contain toxins and heavy metals, leaked from an aboveground storage tank into Washington’s Sulphur Creek and Yakima River Sunday. Cleanup crews are trying to recover and contain the spilled oil by laying down booms and using vacuums. An oil sheen has been spotted about 20 miles away from the site of the spill, Joye Redfield-Wilder, a spokesperson for the Department of Ecology, told ThinkProgress. But the Department of Ecology says that most of the oil has remained in a seven-mile section of Sulphur Creek, and that the creek is boomed at the spot where it enters the Yakima River in an attempt to prevent any more oil from entering the river.

Responders address cleanup of North Slope spill - — Responders have recovered nearly 4,000 gallons of crude oil, water and other fluids from a pipeline leak at a Hillcorp Alaska production site on the North Slope. The Alaska Department of Environmental Conservation says responders were able to reach the site at about 6 a.m. Sunday after severe blizzard conditions overnight Saturday halted response efforts. KTUU reports the leak from a 10-inch production line at Milne Point was first spotted shortly before 8 a.m. Saturday. DEC officials say the cause of the rupture remains under investigation. The crude escaped from a hole in the line. Responders say an estimated 38,000-square-foot area around the leak was heavily to lightly misted by fluids. DEC on-scene coordinator Tom DeRuyter says responders do not have a solid estimate for how much liquid spilled.

The Obama Administration, Shell, and the Fate of the Arctic Ocean  In the Chukchi Sea and the adjacent Beaufort Sea, off Arctic Alaska, you can commonly spot bowhead, beluga, and grey whales there, while fin whales, minkes, humpbacks, killer whales, and narwhals are all venturing into these seas ever more often as the Arctic and its waters continue to warm rapidly. The problem, however, is that the major oil company Royal Dutch Shell wants to drill in the Chukchi Sea this summer and that could, in the long term, spell doom for one of the last great, relatively untouched oceanic environments on the planet. Let me explain why Shell’s drilling ambitions are so dangerous. Just think of the way the blowout of one drilling platform, BP’s Deepwater Horizon, devastated the Gulf of Mexico.  Now, imagine the same thing happening without any clean-up help in sight. You might have heard about “the sixth extinction,” the way at this moment species are blinking off at a historically unprecedented rate. The Arctic seas of Alaska, however, still are sanctuaries not only for tens of thousands of whales, but also hundreds of thousands of walruses and seals, millions of birds, thousands of polar bears, and innumerable fish from more than one hundred species, not to mention all the uncharismatic sub-sea life that eludes our eyes but makes up the food web — phytoplankton, sea urchins, sand dollars, and sea cucumbers, to name only a few. Think of the Arctic Ocean as among the last remaining marine ecological paradises on the planet. Now for that oil. Looking for it in Arctic waters happens to be the most dangerous form of drilling imaginable, because no proven technology exists that could clean up a major oil spill in distant ice-choked seas in the cold and dark, under one of the harshest environments on Earth. Even during the brief “summer” open-water season, ice floes remain a constant threat as Shell found out in 2012 when one of its drill ships encountered a floe the size of Manhattan and was forced to disconnect from its seafloor anchor and temporarily halt its operations. Deep fog severely restricts visibility. Storms are not exceptions but the norm, and are becoming more frequent and violent in a rapidly warming region.

Environmental groups sue Port of Seattle over Shell oil fleet (Reuters) - A coalition of environmental groups sued the Port of Seattle on Monday to stop the lease of a terminal to Royal Dutch Shell Plc's Arctic oil drilling fleet, arguing a proper environmental review was never conducted, court records showed. Earthjustice, along with other groups including the Sierra Club, filed the suit in a Washington state court, alleging the drilling operation was substantially different from the terminal's prior use, meaning an environmental review had to be done under state law. The complaint against the port and Foss Maritime Co, which would work for Shell under the two-year lease, also alleged that officials reached the arrangement without public disclosure and that the fleet could pollute the area's water. true "The Port shut out the public and subverted laws that are designed to foster an informed public assessment of controversial proposals like this one," Earthjustice Managing Attorney Patti Goldman said in a statement. Shell, Europe's largest energy firm, is intent on restarting its Arctic drilling campaign in Alaska's Chukchi Sea this summer. It was suspended in early 2013 following the grounding of a drilling rig.

Big Blow For Shale Energy: Chevron Terminates All Shale Gas Exploration In Europe -- The Shale Energy Industry suffered another big blow as Chevron terminated its last European operations in Romania due to poor exploration results and ongoing anti-fracking protests.  Chevron also suspended all operations in Poland last month and cancelled shale gas agreements in Ukraine and Lithuania. This is just another bad sign for the Shale Energy Industry.  A few years ago, the hype put out by the Main Stream Media (MSM), was that there was an endless amount of shale oil and gas reserves all over the world.  Of course, this was pure nonsense as a few of the more enlightened energy analysts knew better. According to the article, Chevron Ditches Last European Fracking Project In Romania: While the US Energy Information Administration had previously estimated that Romania could potentially recover enough gas to cover domestic demand for more than a century, the exploration failures resulted in the country’s prime minister, Victor Ponta, saying last year that it looks like Romania “does not have shale gas.” Globally, Chevron’s 2014 failure rate stood at 30 percent, as compared to 18 percent in 2013, according to Bloomberg. Sixteen of the 53 wells the company drilled were found to have had no commercially viable quantities of oil or natural gas.

Extent of stealth fracking in Gulf of Mexico revealed - Government lists at least 100 sites offshore where regulators approved the controversial exploration method. While a debate rages over the use of hydraulic fracturing to exploit fossil fuel reserves inland, the practice has quietly taken hold offshore, in the Gulf of Mexico. Documents obtained by “Fault Lines” reveal that the world’s largest oil firms are now fracking in some of the Gulf’s deepest waters — raising questions about how it is being regulated. A list of about 100 well sites offers one of the first snapshots of the practice, which until just a couple years ago was unknown to the public. “There’s been a level of secrecy that’s shielded this activity from view, literally and figuratively,” said Jonathan Henderson, who works for New Orleans ’ Gulf Restoration Network. “This activity is taking place offshore, and the public can’t get out here [to see it].” The list of sites obtained by “Fault Lines” reveals that BP, ConocoPhillips, Shell and nearly two dozen other companies were approved to use offshore fracking in 2013. It also reveals that fracking has occurred in the vicinity of the 2010 BP Deepwater Horizon spill. Chevron, which operates several nearshore rigs visited by a “Fault Lines” team in January, said it also uses offshore fracking “safely and efficiently” at its deepest water sites.

Algeria: Violence Erupts at Protest Over Shale Gas Drilling Project - Protests against hydraulic fracturing, or fracking, for shale gas in southern Algeria turned violent over the weekend when the police clashed with demonstrators outside a base run by the American company Halliburton near the town of Ain Salah. Tensions were still running high on Sunday, but no further violence was reported. Antifracking protests against the government oil and gas company Sonatrach and its international partners have occurred almost daily for two months, but had been peaceful until now. Clashes broke out when protesters approached Halliburton’s walled compound and burned tires in the roads. The police fired tear gas and detained at least a dozen. About 20 protesters were injured, three of them seriously, according to a local hospital. Algeria, which gets much of its revenue from the export of oil and gas, has been conducting a pilot project to test for shale gas near Ain Salah and announced in December that it was ready to start extracting gas by hydraulic fracturing. Groups that oppose the government have joined the local protesters in Ain Salah to demand a moratorium on fracking, citing environmental concerns.

OPEC price points strangled oil sands and offshore, fracturing kept its wits -- OPEC may have dealt some damage to the American shale boom along with other competing countries, but senior expert from the consulting firm McKinney and Company stated that they didn’t rock oil prices nearly enough to turn the lights off on the hydraulic fracturing boom. Forbes Magazine reported that Joe Quoyeser of McKinney and Company told an audience at Northwestern University’s Kellogg Energy Conference in Chicago about the failed attempt to run U.S. drillers out of the market. “If the Saudis think they’re going to put U.S. shale players out of business, they’re probably not, although there will be less drilling,” Quoyeser said. Quoyeser stated that the real victims of $50 barrel prices include the oil sands production of Canada and many deep water operations. Oil sands, for instance, require a heating method to extract petroleum. This process requires natural gas, and according to Quoyser, is unsustainable if the price of oil falls below $75 per barrel. Anyone paying attention to oil and gas production in America over the past few months has seen two trends. On one hand jobs are disappearing at an alarming rate as companies readjust budgets in the midst of low prices. On the other hand, oil production has actually increased as verified by numerous agencies including the Energy Information Agency. “Our view is that OPEC and the Saudis talked this market down. This was a rhetorically driven price adjustment.” Essentially, Saudi Arabia and other OPEC nations saw this as a chance to take a small pain now rather than a larger pain in the future. Although, it’s worth mentioning that this small-time pain is costing Saudi Arabia $500 million per day.

Crude Carnage Continues Amid Saudi Production & Storage Limits -- Crude oil prices are once again following the path of least deja vu resistance this morning. Having spiked into NYMEX close on Friday (exactly as they did following the rig count data the previous week), WTI is back to a $48 handle this morning following news that Saudi Arabia has increased production to its highest level since 2013. Iraq (another OPEC nation) stirred the pot further by forecasting increased supplies in the next month. This comes as US production hits record highs and vital Oklahoma storage tanks will fill up even sooner than expected, driving the "JK" spread above $2.50 (April delivery drastically cheaper than May). As on analysts noted, as "Cushing continues to fill massively, we could see a '3' handle on WTI."

Crude Jumps After API Inventories Build Less Than Expected - The last three times that API inventories reported (each notably greater than expected), crude prices tumbled (only to ramp hilariously the next day following DOE inventory data). Against Bloomberg estimates of a 3.95 million barrel build, API printed only a 2.89 million barrel build; and WTI crude prices surged to the day's highs. Crude jumped to the highs of the day...

Crude Plunges On Biggest Weekly Inventory Build In 14 Years | Zero Hedge: So much for last night's lower than expected API build, DOE data shows a massive build compared to the 3.95 mm barrels expected: *Crude Inventories Rose 10.30 mln Barrels, EIA Says.  This is the 8th build in a row and biggest weekly inventory rise in 14 years. This is the fastest inventory build EVER... and WTI has broken back below $50... Unambiguously good still? Charts: Bloomberg

U.S Oil Prices Rise After Supply Data - WSJ: U.S. oil prices rose on Wednesday after weekly data showed that inventories at a key storage hub increased less than expected. Light, sweet oil for April delivery settled up $1.01, or 2%, at $51.53 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, settled lower as concerns ebbed that violence in Libya would immediately halt production. Front-month futures fell 47 cents, or 0.8%, to $60.55 a barrel on ICE Futures Europe.U.S. crude stockpiles rose by 10.3 million barrels to 444.4 million barrels in the week ended Feb. 27, the Energy Information Administration said Wednesday. Analysts surveyed by The Wall Street Journal had predicted a 4.6 million-barrel increase. The gain was the biggest for a single week since March 2001. However, supplies in Cushing, Okla., the delivery point for the Nymex contract, rose by 500,000 barrels, less than many had expected. Cushing inventories are within a few million barrels of their all-time high. As they rose rapidly in recent weeks, traders bet that the price difference between U.S. oil prices and Brent prices, known as the spread, would widen. Now that Cushing supplies appear to be growing more slowly, traders are reversing those bets by buying U.S. oil and selling Brent

US Daily crude oil production highest since Dec 1972: (table) US Crude oil production hit another post-1973 record with 9.32 million barrels per day.

The World Is Running Out of Places to Store All of Its Oil - The world is now pumping so much more oil than it needs that corporations are apparently running out of space to store the stuff. If the globe were a giant gas tank, its meter would be getting close to full. Here's how the Wall Street Journal sums up the situation in numbers today:  U.S. crude-oil supplies are at their highest level in more 80 years, according to data from the Energy Information Administration, equal to nearly 70% of the nation’s storage capacity. A key U.S. storage hub in Cushing, Okla., is expected to hit maximum capacity this spring. While estimates are rough, Citigroup Inc. believes European commercial crude storage could be more than 90% full, and inventories in South Korea, South Africa and Japan could be at more than 80% of capacity. The main cause here, again, is that oil production is still outstripping demand. But the problem is being exacerbated because the crude market has entered what's known as contango, which is when buyers are willing to pay more for oil delivered a few months from now (when supplies might finally drop and bring up prices) than they are for oil delivered today. Investors have responded by snapping up cheap crude now, putting it in storage, and locking in futures contracts that amount to guaranteed money. (Good news for them: There's even talk of the market hitting "super contango.") As a result of all this activity, the Journal reports that the cost of storage itself is rising, which is leading to the creation of the brand new trade in oil storage futures. Weird things are happening. As storage space becomes ever more scarce, it could ultimately force prices lower, as drillers find themselves with fewer customers who have the capacity to hold onto the crude. That's one reason Citibank analysts have suggested the cost of a barrel could potentially drop to around $20. That said, if the situation gets bad enough, drillers may finally just choose to leave their oil in the ground. Also, companies are presently building more storage capacity, which could alleviate the problem a bit.

The rush to hoard oil is getting so intense that there’s a market forming for oil storage futures contracts - More and more investors and traders are betting on a rebound in oil prices, and many effectively are hoarding oil.  But when you hoard oil, you have to store it somewhere. In fact, spare storage capacity is getting so tight that the cost of storage is surging, sending the oil futures market into super contango, which is where the futures contract price is higher than the expected price.  All of this has inspired a lot of creativity from the industry. Storage itself is becoming as big a commodity as the oil.  In the case of producers, Bloomberg reports that some are taking advantage of this situation by relying on nature's storage space: the ground.   From Bloomberg:  Drillers who have spent millions boring holes through petroleum-rich shale rock are just waiting for prices to go up before turning on the spigot. From North Dakota to Texas, there are more than 3,000 wells that have been drilled but not tapped, based on estimates from Wood Mackenzie Ltd. and RBC Capital Markets LLC. Waiting gives producers such as Apache Corp. and EOG Resources Inc. a better chance of receiving a higher price. It could also delay a recovery by attracting more supply every time prices rise.  And on the traders' side, there's a new derivative in town: the oil storage futures contract.  The CME Group has just announced a new futures contract for Gulf Coast crude-oil storage. Here are the details, from the WSJ:   At the beginning of every month, a 30-minute online auction will be held through brokerage NEO Markets Inc. In the auction, LOOP LLC – known to many as the Louisiana Offshore Oil Port – will sell 7,000 contracts. Each contract will give the buyer the right, but not the obligation, to store 1,000 barrels of sour crude oil in LOOP’s Clovelly Hub in Louisiana for a month.  Once the contracts are sold through the auction, they can be bought and sold freely. At the end of the month, anyone holding a contract can use the storage space, which will hold the oil in either an above-ground storage tank or an underground cavern.

Congress Facing Huge Pressure To Lift Oil Export Ban -- A lobbying blitz is underway to scrap the decades old ban on crude oil exports from the United States.  Originally implemented during price spikes in the 1970’s, oil exports from the U.S. have been legally blocked, save for exemptions given to exports to Canada. That was largely a nonissue for several decades as the U.S. was a massive importer of oil, and there wasn’t much of an opportunity for domestic drillers to export crude. That all changed in the last few years with a flood of new production. Calls for lifting the ban on exports began in earnest in 2014. The Obama administration has not decisively taken a stance on the issue, but has shown some willingness to allow exports to move forward. In June 2014, the Commerce Department granted waivers to a several producers to export ultralight forms of oil known as condensate. Rather than satiate demands for export, the move only sparked more interest.  Many more companies applied for their own waivers, and Commerce began approving them. In December 2014 the agency also issued a clarification on what constitutes “condensate,” and while it did not issue a blanket lift on the oil export ban, the move essentially green lighted the export of ultralight forms of oil that had undergone only minimal processing.  The Obama administration threw the industry a bone by offering a relief valve for all the oil supplies that have built up within U.S. borders. By allowing some exports, the federal government opens up the market for producers, where they can sell oil at a higher price. After all, WTI is currently selling for just $50 per barrel, while Brent is selling at a $10 premium. But now the oil industry, sensing its advantage, is stepping up the lobbying effort to once and for all scrap the four decade export ban.

Baker Hughes: Monthly U.S. rig count drops 20 percent - (UPI) -- The number of U.S. rigs actively exploring for or producing oil or gas was down 20 percent from January. Oil services company Baker Hughes published its monthly rig count report for February, and the average U.S. rig count for February was 1,348, down 335 from January and down 421 year-on-year. The average Canadian rig count was 363, down 5 from January and down 263 year-on-year. Oil prices are off about half their June value, as U.S. inventories accumulate, which has led to planned spending cuts in exploration and production. The U.S. Energy Information Administration in its petroleum status report for the week ending Feb. 20, the most recent data available, said U.S. crude oil inventories increased by 8.4 million barrels from the previous week to 434.1 million barrels, the highest level for this time of year in at least 80 years. The total international rig count for February was 1,275, up 17 from January and down 66 year-on-year. The international offshore rig count for February was 324, up 10 from January and up 6 year-on-year.

Oil rig count falls by 64: — Producers laid down more rigs this week as the effects of low prices continued to ripple through the industry. The number of rigs searching or drilling for oil fell by 64 to 922, according to oil service company Baker Hughes’ weekly count. The total number of rigs chasing oil and gas fell by 75 to 1,192, down from 1,267 last week. The rig count has fallen precipitously following a collapse in crude oil prices last year. Analysts have closely watched the reports for signs that producers are slowing their rate of production, in hopes that cutbacks might stem the flood of crude that has driven down prices. In total, the combined oil and gas count has fallen by about 38 percent from a recent high of 1,931 in September of last year. Crude rigs peaked at 1,609 in October 2014 and are now about 43 percent lower. Crude oil prices were headed down about midway through trading on Friday. Benchmark crude oil futures for next-month delivery were down 91 cents or 1.8 percent to $49.85 per barrel on the New York Mercantile Exchange.

Baker Hughes: U.S. oil rig count hits lowest since April 2011 - The number of U.S. drilling rigs in use fell sharply in the week to Friday, almost doubling the cuts of the past two weeks and hitting the lowest since April 2011, a survey showed.The number of rigs drilling for oil in the United States fell by 64 to 922, oil services company Baker Hughes Inc said in its weekly report. “The drop in the oil rig count was a little more than expected, as we thought the velocity of declines had slowed,” The reduction this week almost doubled declines of 33 and 37 in the prior two weeks. But those declines were less steep than those of the prior three weeks, which exceeded 80.Rigs fell for the 13th straight week as producers cut activity in the face of slumping oil prices. The number of oil rigs in use has fallen in 18 of the past 21 weeks, according to Baker Hughes.The rig count has fallen at the quickest rate on record over the past four months, dropping more than 40 percent from a record high of 1,609 in October. Texas, the state with the most rigs, again lost the most this week, shedding 32 to 537, the lowest since 2010, Baker Hughes said.  The shale play with the biggest losses was Permian in West Texas and New Mexico, the nation’s biggest and fastest growing shale oil play.  The Permian lost 24 oil rigs to 328, the least since 2011, according to data going back to 2011.  Horizontal rigs, the most efficient type of rig most often used to extract oil or gas from shale, fell by 51 to 895, the lowest since 2010.Less efficient vertical and directional rigs, meanwhile, fell to the lowest since 1991 and 1993, respectively, according to data going back to 1991.

Rig Count Decline Re-Accelerates To 2nd Biggest Drop In 22 Years -- Following last week's slowing in the pace of rig count, crude prices dropped and then spiked, and it makes today's data under more scrutiny. At around $49.50, WTI prices have round-tripped back almost perfectly to the scene of the crime before today's rig count data hit. The total oil rig count dropped almost 6%, down 75 to 1,192 meaning a re-acceleration of the rig count decline and the 2nd biggest drop since 1993. WTI prices popped on the news and are fading back now...

Exxon CEO: Get used to lower oil prices — ExxonMobil CEO Rex Tillerson expects the price of oil to remain low over the next two years because of ample global supplies and relatively weak economic growth. Speaking at the company’s annual investor meeting in New York, Tillerson cautioned that geopolitical turmoil could unexpectedly send prices higher. But he said that if tensions calm, much more oil is ready to hit the market — a market that is already flush with crude oil. Exxon’s presentation to investors outlining its business plans through 2017 assumes a price of $55 a barrel for global crude. That’s $5 below where Brent crude, the most important global benchmark, traded on Wednesday. It’s about half of what Brent averaged between 2011 and the middle of last year.

ExxonMobil: A continuous series of unfortunate events -- After ExxonMobil distributed more than 5 million gallons of tainted fuel in the Baton Rouge area in March 2014, a lawsuit against the company alleges it has denied more claims than it has paid. The company said it has paid more than $4.6 million to nearly 2,900 motorists impacted by the tainted fuel. Two batches of bad fuel produced at ExxonMobil in mid-March 2014 caused some Baton Rouge area drivers to experience problems with their intake and valve systems. Exxon’s claims handling program and toll-free number received 7,458 calls, which resulted in more than $4.6 million in payments to 2,883 motorists who required automotive service.   In January, federal officials issued a $1 million penalty against ExxonMobil for safety violations stemming from a pipeline rupture in 2011 that spilled 63,000 gallons of crude into Montana’s Yellowstone River. The pipeline break during summer flooding left oil along an 85-mile stretch of the river, killing fish and wildlife and prompting months of cleanup. In February, ExxonMobil asked federal regulators to reconsider the penalty imposed against the company.  In February, the Illinois Department of Human Rights said there was evidence of discrimination at an ExxonMobil facility in the state following a gay rights group’s hiring complaint. Freedom to Work’s 2013 complaint says the Texas oil giant was sent two similar resumes for a job in Patoka. However, one applicant indicated she was a gay-rights activist and had higher grades. The complaint says ExxonMobil only made efforts to contact the other applicant. A few weeks later, an Exxon refinery facility in Torrance, California exploded causing four injuries. Nearly three weeks after the blast and there’s still no word on what caused the explosion. The explosion has caused gas processing to be shut down and gas prices to rise. The refinery in Torrance produces about 8 percent of California’s gas.

Is ExxonMobil preparing to buy BP? -- Exxon Mobil Corp. is making a splash with its move to sell $8 billion of debt in a bond offering, the most sizable deal in the energy industry since oil prices began their staggering nosedive. Bloomberg reports that ExxonMobil held a seven-part sale of both fixed- and floating-rate notes. “Exxon holds top triple-A credit ratings from Moody’s Investors Service and Standard & Poor’s, making it one of only three U.S. corporations — Johnson & Johnson and Microsoft Corp. are the others — that stand on nearly equal footing with governments in debt markets,” the article notes. Because of this status, ExxonMobil had no lack of buyers. A top corporate name combined with higher yields than bonds from sovereign debt make Exxon’s securities a hot commodity. The sale of securities, the largest portion of which were 10-year, 2.709 percent notes that sold for $1.75 billion, was likely a move to improve Exxon’s financial security. With oil prices still crippled, the move could help the company maintain a war chest for future acquisitions. Rumors have arisen that the Texas-based company is using the bond sale to prepare for the purchase of BP PLC, the London-based oil giant which some have speculated is susceptible to a takeover. According to the Dallas Business Journal, Exxon officials have noted in recent months that they remain alert to the values of acquisition possibilities. Given BP’s weakened status in the aftermath of the Deepwater Horizon disaster in 2010, it could be a viable target for other major oil companies.

Could Oil Prices Plummet A Second Time?- Are oil prices heading for a double dip? The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year. However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time. Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days. Well completions can make up as much as three-quarters of the total project cost. Several prominent shale drillers have confirmed they are undertaking such a wait-and-see strategy. EOG Resources, one of the biggest Texas shale drillers, announced its plans in late February to hold off on completions. Chesapeake Energy and Continental Resources have now followed suit. As the industry clears out that queue of wells awaiting completion, a rush of new supplies could come online, pushing WTI prices down once again. Even with well completions being suspended, supplies continue to build. The latest EIA data shows that oil stocks in the United States climbed to 434 million barrels, the highest levels in storage in over 80 years. Finally, there is some evidence that the ability to move excess oil into storage may run into trouble if production does not decline. Storage tanks are starting to fill, raising the possibility that a glut could worsen. There is a great deal of uncertainty around how quickly this might happen. The EIA sought to clarify, noting that the markets have confused some of its storage figures – some oil supplies in the EIA’s weekly inventory data is actually sitting in pipelines and at well sites, meaning there is more storage capacity available than many news outlets had originally thought. An EIA analyst recently told Bloomberg that overall storage capacity is only at about 60 percent, and “[w]e still have a way to go before we can consider ourselves to be full,”

Global Crude Oil Production Growth Grinding To A Halt -- This is the third in a monthly series of posts chronicling the action in the global oil market in 13 key charts. The February 2015 post is here. EIA oil price and Baker Hughes rig count charts are updated to end February 2015, the remaining oil production charts are updated to January 2015 using the IEA OMR data. The main oil production changes from December to January are:

    • World total liquids down 40,000 bpd
    • OPEC down 240,000 bpd
    • N America down 10,000 bpd
    • Russia and FSU down 70,000 bpd
    • UK and Norway down 40,000 bpd (compared with January 2014)
    • Asia up 60,000 bpd
  • 1. Global oil production has now been flat, just over 94 Mbpd since September 2014 (5 months).
  • 2. The fall in the oil price reversed in February. The low point for Brent and WTI was reached on 13th January when Brent hit $45.13. The bounce came on news of plunging US drilling rig count but has been much more muted for WTI compared with Brent. The US glut of LTO appears to continue.
  • 3. The main dynamic statistic has been the plunge in US oil rig count down 237 rigs for the month of February. Gas rig count is also heading down at the more sedate rate of 39 rigs for the month.
  • 4. I anticipate that the price bottom may be in but that price will bounce sideways along bottom for several months until we see significant falls in OECD production. Whilst there are clear signs that production growth has halted there is, as yet, little sign of production falling.
  • 5. Iraq and Libya combined were down 370,000 bpd in January. This may account for part of the bounce in price.

    The Era of Petro-Exuberance – The Real Reasons Underlying Today’s Crude Oil Prices -  - In refusing to cut production, one central bank of oil (Saudi Arabia) followed a script written by Paul Volcker 36 years earlier. Volcker became head of the US central bank in August 1978 when inflation in the US was out of control. Oil today is in straits similar to those of the US economy in the late 1970s. The managers of the "central banks of oil," which include key producing countries and consuming nations that own large strategic stocks (especially the US and Japan), should be concentrating on oil prices and the rate of oil price increases or decreases, just as Descalzi suggests. However, all have ignored this responsibility for the last 10 years. This "dereliction of duty" on the part of oil producers and consuming nations allowed crude prices to rise to excessively high levels. As a result, an irrational exuberance grew in the oil industry, fueling larger and larger capital expenditures on gigantic projects to produce oil and, at the same time, prompting investment in expensive technology developments aimed at eliminating oil use. Investors in both camps received an additional boost from the quantitative easing advanced by central banks after the 2009 crisis. To his credit, Saudi Arabia's Ali Naimi, the obvious head of the Saudi "central bank of oil," spotted the warning signals. At an Opec conference in late December 2014 in Dubai, he noted the increasingly aggressive pressures aimed at curbing oil consumption. In a quote reported by Petroleum Intelligence Weekly, he was plainly thinking of such programs adopted in the US, Europe and now China. "There are many things happening in the energy sphere — technology on the one hand and efficient [sic] on the other, there are politics. All of these are good for humanity, but they will definably be a threat to oil demand in the future. My question to the panel — is there a black swan that we don't know about which will come by 2050 and we will have no demand?" Naimi also made this observation: "I attend all the climate change discussions, and I get the sense that people want to get rid of coal, oil, and gas." He added that a cap on global warming of 1.5°C to 2°C would mean "good-bye oil."

    US Will Never Gain Oil Market Crown Says IEA Head - No matter how much oil the United States produces over the next few years, it will never become the next Saudi Arabia in the global oil market, according to Fatih Birol, the new executive director of the International Energy Agency (IEA). What's especially interesting about this forecast is that it directly contradicts what Birol said only three months ago, and he gave no explanation for his change of mind. On Feb. 26, Birol told The Telegraph’s Middle East Congress in London that OPEC, particularly the Persian Gulf members, will prevail over all other producers for the foreseeable future, even though the revolution in extracting shale oil has been “excellent news” for American producers. “The United States will never be a major oil exporter. Their import needs are getting less but the US is not becoming Saudi Arabia,” Birol told the conference. “Their production growth is good to diversify the market but it will not solve the world’s oil problems.”Certainly, Birol acknowledged, 2014 crude production by countries that are not among OPEC’s 12 members was greater than it had been in three decades, helping create an oversupply of oil that caused prices to erode and robbed OPEC producers of some of their market share.But at least for the next 10 years, the cartel’s two top producers, Saudi Arabia and Iraq, will be the countries best equipped to meet the world’s demand for energy, especially if non-OPEC producers such as Brazil, Canada and the United States see production falter, Birol said. Birol’s comments don’t jibe with what he said on Nov. 12, 2014, when he was still the IEA’s chief economist, when introducing the agency’s annual World Energy Outlook. In that report, the IEA said US oil production is likely to exceed Saudi Arabia’s in the next 10 years, making the country nearly self-sufficient in energy and poising it to become a net exporter of oil.

    Saudi king keeps close hand on oil in remodeling strategic team – Saudi Arabia’s subtle change of energy policymaker line-up since the accession of new King Salman in late January appears to give the monarch’s inner circle a firmer hand on the kingdom’s oil strategy than previous rulers have enjoyed. The most notable change was the promotion of the king’s son Prince Abdulaziz bin Salman, long a member of the No. 1 crude exporter’s OPEC delegation, to the role of deputy oil minister from assistant oil minister, a post he had held for many years. On the same day, King Salman formed a new body replacing the Supreme Petroleum Council and appointed another son, Prince Mohammed bin Salman, to head the new Supreme Council for Economic Development. There are no indications that those moves will lead to changes in the fundamental way the kingdom makes its oil decisions or diminish the influence of veteran oil minister Ali al-Naimi. However, the king is clearly laying the ground for a generational shift in how Riyadh develops its energy and economic strategies. “This would ensure that, whether it is a domestic policy through Prince Mohammed and the economic council or international oil policy through Prince Abdulaziz, it is still very closely guided by the king himself,”

    ISIS Set Iraqi Oil Fields On Fire, Stalls Military Advance - Thick black smoke billowing from oil wells northeast of the city of Tikrit is obstructing Shi'ite militiamen and Iraqi soldiers attempts to drive ISIS from the Sunni Muslim city after militants set them on fire. Reuters reports a witness and a military source said Islamic State fighters ignited the fire at the Ajil oil field to shield themselves from attack by Iraqi military helicopters. As we noted previously, the battle for Tikrit is key as it will determine whether and how fast the Iraqi forces can advance further north and attempt to win back Mosul, the biggest city under Islamic State rule.

    Obama seeks Iran nuclear freeze as Netanyahu speech nears: Iran should agree to freeze sensitive nuclear activity for at least a decade if it wants to strike a deal with the US, President Barack Obama has said. However, the odds are against talks with Iran ending with an agreement, Mr Obama told Reuters news agency. Negotiations on Iran's nuclear programme are at a critical stage, with an outline agreement due on 31 March. Israeli Prime Minister Benjamin Netanyahu is expected to urge the US Congress on Tuesday to oppose a deal. He was invited to speak at the US Capitol by Republican House Speaker John Boehner, angering Democrats. Mr Netanyahu - who faces domestic elections in two weeks' time - will not meet Mr Obama during his visit to the US. 'Rolled back' In his interview, the US president said disagreements over Iran would not be "permanently destructive" to the US-Israel relationship. But Mr Netanyahu had been wrong on Iran before when he opposed an interim nuclear agreement struck last year, Mr Obama said.

    Official data confirms Chinese coal use fell in 2014 - Chinese coal use fell by 2.9 per cent in 2014 compared to the previous year, according to official Chinese government data published today. The official data confirms widely discussed expectations of a reduction in coal use first published by Greenpeace last October. The reduction in coal use was despite an increase in the capacity of coal-fired power stations, the figures show. Significantly, preliminary analysis suggests the reduction in coal use will mean Chinese emissions fell in 2014.  The official data also shows that low-carbon generation capacity, including nuclear and renewables, grew rapidly during 2014. However, it remains a long way behind China's coal capacity. Against an overall increase in Chinese energy use of 2.2 per cent, coal was the only major energy source to see falling demand during 2014, with a 2.9 per cent drop. At the same time, the Chinese economy grew by 7.4 per cent, showing it is decreasing its energy intensity. The chart below shows the percentage change in use for different energy sources in 2014, compared to the previous year.

    China Cuts Interest Rates to Stimulate Slowing Economy - With its growth engine slowing, China said on Saturday that it was reducing the nation’s benchmark interest rates for the second time in three months.In an announcement on its website, China’s central bank said that, effective Sunday, the one-year bank lending rate would drop 0.25 percentage point to 5.35 percent and that deposit rates would also be reduced by a quarter percentage point.The move, which will make it cheaper to borrow money, comes as policy makers search for ways to stimulate the economy while also promoting overhauls aimed at allowing market forces to play a greater role in the country’s development.China already has the world’s second-largest economy after the United States. And during much of last year, it was expanding about 7.5 percent. But late in the year, momentum slowed considerably, raising concerns that growth targets would not be met and that a deeper downturn was possible.In the fourth quarter of last year, growth dipped to 7.3 percent, the slowest rate in more than two decades. And in January, China’s consumer price index slid to 0.8 percent, its weakest showing since late 2009.Economists are now pressing the People’s Bank of China to ease its monetary policy in the hope of bolstering growth.

    China's rate cut insufficient: investors expect more PBoC stimulus and yuan devaluation - China's central bank followed up with a second rate cut this year. While many believe this is a step in the right direction, the move alone will do little to reduce high real rates and tight effective monetary policy. Source: TradingEconomics In fact money market rates in China have been rising. Here are the overnight and the 1-week SHIBOR (interbank) rates for example. Source: At the same time inflation has been moving lower, with CPI hitting 0.8% YoY in the last report. This results in real rates that are as high as 2.6% for the overnight interbank lending and 4% for the one week loans. The situation in the repo markets is similar. Given the current slowdown, these real rates are not sustainable - many more cuts will be needed. Source: @georgemagnus1 The PBoC pointed out that the reason for the cut was to achieve "real interest rate levels suitable for fundamental trends in economic growth, prices and employment". Market participants and analysts remain a skeptical. Deutsche Bank: - The rate cut is not enough to stabilize the economy. We believe growth will continue to weaken in March and Q1 GDP will drop to 6.8% (consensus 7.2%). The key issue is whether the central government will loosen fiscal policy significantly and quickly enough to offset the slide of fiscal spending on local government side. We do not see signal of such easing yet. Without meaningful pickup of fiscal spending, growth momentum will likely weaken further The expectations are that a whole series of cuts could be coming as China's growth slows further. That's why just as the short-term rates rose recently, markets view these rates falling significantly in the longer term. The rate swap curve has become even more inverted over the past month.

    Governor Zhou Reverses Tactic as China Outlook Worsens - Hopes for a soft landing in the world’s second largest economy look increasingly in doubt. The decision by the People’s Bank of China to cut interest rates on Saturday is testament to growing worry among Chinese policy makers about a property bust and industrial capacity glut that together have hamstrung growth. That the rate cut came right before an annual meeting of the National People’s Congress this week shows the policy winds are shifting in response. Against this backdrop, my colleague Lingling Wei reports on an important shift inside the PBOC that could be a prelude to more aggressive action and personnel moves: For much of last year, the PBOC, under long-serving Governor Zhou Xiaochuan , insisted on targeted efforts rather than broader moves like rate cuts out of concern that broadly easing credit would worsen debt problems. The central bank is acceding to demands from the Chinese leadership to reduce financing costs for businesses and bolster growth, according to officials and advisers to the bank. A rate cut in November was the first such move in two years and was followed last month by an across-the-board measure lowering the amount of money banks need to hold in reserve, thereby freeing up more funds for lending. Mr. Zhou, an advocate for market-oriented reforms, is expected to step down soon, according to officials at the central bank. At 67, he has already passed the retirement age of 65 for senior Chinese officials. The Wall Street Journal reported in late September that Chinese leaders were discussing replacing Mr. Zhou amid disagreements over the direction of financial policy. Attempts to reach Mr. Zhou weren’t successful. The latest slew of easing measures is “a clear reversal of what Zhou has long insisted on,” a central bank official said. The world’s other central banks are becoming worried too. In her semiannual testimony to Congress last week, Federal Reserve Chairwoman Janet Yellen slipped in a warning that one risk to global growth is that China could slow more than anticipated. The developments, moreover, have important investment implications. It could put new upward pressure on the U.S. dollar and also drive investment flows into the U.S.

    China Projects 2015 Budget Deficit of 1.62 Trillion Yuan - China projects a 2015 budget deficit of 1.62 trillion yuan ($258.5 billion), or about 2.3% of gross domestic product, the finance ministry said Thursday. The budget deficit is 270 billion yuan more than the budget deficit of last year, the ministry said. The budget deficit prepared for 2015 is up from a 2014 final budget deficit rate of 2.1% for 2014, according to calculations of The Wall Street Journal. Revenue in 2015 is expected to be 15.43 trillion yuan, up 7.3% from 2014, according to the ministry's budget. The 2015 revenue figure includes a 100 billion yuan contribution from the government's budget stabilization fund, effectively " rainy-day money" for government use. Spending is predicted to be 17.15 trillion yuan in 2015, up 10.6%, according to the budget. The budget for defense spending will rise by 10.1% to 886.9 billion yuan, compared with an actual 12.2% increase in 2014. The finance ministry said it would continue its proactive fiscal policies with an appropriate expansion of support for the economy. It also said that it would strengthen supervision of debt held by local governments.

    And It's Gone! After 3 Days, Beijing Bans Discussion Of Viral China Smog Documentary -- Just 3 days after "Under The Dome" went massively viral (152 million views on China's Tencent alone), exposing the reality of China's disastrous pollution in an in-depth 104-minute documentary, The FT reports Chinese censors have moved to tamp down discussion domestically.  We had previously noted with surprise just how 'big' the story had got without Beijing's intervention and now we see propaganda authorities directed news outlets on Monday not to publish stories about Under the Dome.

    The Coming Chinese Crackup - WSJ: On Thursday, the National People’s Congress convened in Beijing in what has become a familiar annual ritual. Some 3,000 “elected” delegates from all over the country—ranging from colorfully clad ethnic minorities to urbane billionaires—will meet for a week to discuss the state of the nation and to engage in the pretense of political participation. Some see this impressive gathering as a sign of the strength of the Chinese political system—but it masks serious weaknesses. Chinese politics has always had a theatrical veneer, with staged events like the congress intended to project the power and stability of the Chinese Communist Party, or CCP. Officials and citizens alike know that they are supposed to conform to these rituals, participating cheerfully and parroting back official slogans. This behavior is known in Chinese as biaotai, “declaring where one stands,” but it is little more than an act of symbolic compliance. Despite appearances, China’s political system is badly broken, and nobody knows it better than the Communist Party itself. China’s strongman leader, Xi Jinping , is hoping that a crackdown on dissent and corruption will shore up the party’s rule. He is determined to avoid becoming the Mikhail Gorbachev of China, presiding over the party’s collapse. But instead of being the antithesis of Mr. Gorbachev, Mr. Xi may well wind up having the same effect. His despotism is severely stressing China’s system and society—and bringing it closer to a breaking point.

    Business Activity Contracts in Japan, Modest Expansion in China; PBOC Rate Cut Seen - Markit has new reports out today on service activity in China and Japan. The former shows a bit of growth, the latter contraction. Because the reports are diffusion indices that give no weighting to the size of the companies reporting, one must look at these reports with a broad brush. The Markit Japan Services PMI shows service sector business activity contracts in February. Key points:

    • Service sector activity falls, while new business remains just inside growth territory
    • Input price inflation eased at Japanese services firms
    • Business sentiment strengthens

    The Markit HSBC China Services PMI shows business activity growth at five-month high. Key Points:

    • Manufacturers and service providers both see stronger expansions of business activity and new orders
    • Job creation slows at service providers, while manufacturers cut staff numbers fractionally
    • Sharp decline in input prices in manufacturing sector contrasts with solid increase in service sector cost burdens

    Is China changing its exchange rate policy? - At the National People’s Congress in Beijing on Thursday, Premier Li set a target of about 7 per cent for GDP growth in 2015, and around 3 per cent for inflation. At present, both targets look hard to attain, especially on inflation. Economic reform remains paramount for the government, but China’s premier made clear that this could only succeed in the context of adequate growth. This will probably necessitate a progressive easing in fiscal, monetary and exchange rate policy – something that is already under way.  The Chinese renminbi’s exchange rate has weakened noticeably against the dollar in the past few weeks, raising concern that Beijing is joining the “currency wars” that are (allegedly) being waged by other major nations.  A big change in China’s exchange rate strategy would certainly be something to worry about. Not only would it mean that the deflationary forces evident in the country’s manufacturing sector would be exported to the rest of the world, it would also disrupt the uneasy truce on trade and exchange rate policy that has emerged between the US and China since mid-2014. Fortunately, on the evidence available to date, it seems that China has changed its currency strategy in a relatively limited way, and in a manner that is difficult to criticise in view of exchange rate turbulence elsewhere in the world.

    Japanese Bonds & Stocks Drop As Services PMI Tumbles Into Contraction - After three hopeful months of greater-than-50 prints for Japanese Services PMI, February saw it plunge back into contraction with a considerably worse than expected 48.5 print. This drags the overall composite PMI for Japan to 50.0, its weakest reading in 4 months as New Orders drop to May 2014 lows and employment craters to its lowest since Oct 2012. On the heels of last night's weak JGB auction and sell-off in stocks on relatively hawkish comments from economists, tonight is seeing more of the same as the Nikkei 225 is having the worst 2 days in 2 months and JGB yields are jumping once again. Abegeddon is back...

    Kuroda approaching limit on JGB buying, says ex-BOJ official : Speeding up the Bank of Japan’s purchases of Japanese government bonds would risk further distorting the world’s second-biggest sovereign debt market, said Yuri Okina, vice chairman at Japan Research Institute. “If additional easing is done using government bonds, it may have the considerable side-effect of impairing the functioning of the market,” Okina, an economist and a former BOJ official, said on Feb. 26 in an interview in Tokyo. “It will probably be difficult for the BOJ to boost the pace that it buys government bonds.” Gov. Haruhiko Kuroda told the Diet last month that JGB liquidity hadn’t fallen particularly as a result of the purchases. He has also said the BOJ has “many options” and may need to get creative with any further monetary stimulus. Primary dealers responsible for distributing JGBs to investors told the government in November it was getting harder to determine prices because net supply was low. The BOJ accumulates government bonds at an annual pace of about ¥80 trillion ($667 billion) under an unprecedented “qualitative and quantitative” easing program that Kuroda expanded in October. The policy gives the central bank room to soak up every new bond issued. The BOJ held ¥233 trillion of JGBs and treasury bills as of Sept. 30, or 23 percent of total issuance.

    Japan Monetary Base Surges 36.7% In February: The monetary base in Japan spiked 36.7 percent on year in February, the Bank of Japan said on Tuesday, coming in at 275.261 trillion yen. That follows the 37.4 percent annual surge in January. Banknotes in circulation added 3.7 percent on year, while coins in circulation added 0.8 percent. Current account balances climbed 63.6 percent, including a 64.6 percent spike in reserve balances. The adjusted monetary base climbed 43.2 percent on year to 285.688 trillion yen.

    Japan Now Spends 43% Of Tax Revenue To Fund Interest On Debt -- It’s entirely possible that we may see interstellar space travel in our lifetime. And what a dream that would be. But in the meantime, for anyone that’s losing patience with space technology, I would recommend you visit Japan. Because for anybody that has been here, this place is as close as it gets to being on another planet. Japan is a land of irony and dichotomy. It is one of the most conservative cultures in the world, while simultaneously being one of the most perverted. Business culture here is yet another thing that seems totally alien. Creativity and innovation are constrained by process and procedure. The individual is never celebrated, and dutiful compliance is everything. In Japanese corporate culture, business meetings follow a strict agenda. New ideas, no matter how valuable, are simply not welcome. They actually have a term here called nemawashi, which is a meeting before a meeting. The idea being that if you have an idea to present at a meeting, you need to discuss it first so that nobody’s caught off guard or embarrassed by not having a prepared response. This is a cultural nuance that is completely lost on most Westerners. It stems from this mindset that everyone has an obligation to make sure that nobody else looks bad. This carries over especially into Japan’s economic and financial situation. As a percentage of GDP the government here is carrying more debt than anyone else on the planet. At one quadrillion yen, the debt level is so high that it now takes the government 43% of its central tax revenue just to pay interest this year.

    April-Jan fiscal deficit overshoots full-year target - govt (Reuters) - India's January fiscal deficit overshot the full-year target as the gap swelled to 5.68 trillion rupees ($91.70 billion), or 107 percent of the target for the 2014/15 fiscal year ending in March, government data showed on Monday. The deficit was 98.2 percent during the same period a year ago. However, while presenting the federal annual budget on Saturday, Finance Minister Arun Jaitley said the government would meet the budgeted fiscal deficit target of 4.1 percent of GDP for the year ending March 31 through spending cuts and higher tax collection.

    India Cuts Key Interest Rate for Second Time This Year - India’s central bank surprised markets Wednesday morning with a cut to its key lending rate for the second time this year, as it joined a world-wide trend of monetary easing that is driving global interest rates to multiyear lows. The Reserve Bank of India cut its main repurchase rate by 0.25 percentage point to 7.5%, citing weakness in parts of the economy as well as favorable inflation figures and structural overhauls included in the government’s proposed budget. RBI governor Raghuram Rajan explained his decision to cut rates ahead of the central bank’s next scheduled monetary-policy meeting in April, saying: “The still-weak state of certain sectors of the economy as well as the global trend toward easing suggest that any policy action should be anticipatory.” With its latest move, the RBI joined a dozen central banks, from Singapore to Switzerland, which have cut rates since January to stimulate economic growth and stave off deflation. The People’s Bank of Chinalowered rates Saturday for the second time in less than four months. But jumping on the easy-money bandwagon carries risks for India and other emerging markets. If the U.S. Federal Reserve starts tightening, developing economies could face large capital outflows.

    Why India Will Keep Growing Faster Than China - The economic growth race between India and China started in the late 1940s, around the time India gained independence and adopted democracy and China turned to communism. Given the sheer size of their populations, each has the potential to dominate the global economy but until recently, it's been no contest: In 2013, China's per capita gross domestic product was 4.5 times larger than India's.  The latest forecast suggests that the tide may be turning in India's favor, possibly for good. The World Bank anticipates (PDF) that, by 2017, India will be growing faster than China:  This is a short-term forecast based on some very specific circumstances. India, for example, now has a credible central banker doing sensible things like tackling inflation. The country's popular new government is finally building infrastructure and cutting the red tape that held the economy back for so many years. If India keeps it up, the World Bank expects its economy to grow 7 percent in 2017, up from 5.5 percent in 2014. Meanwhile, the forecast calls for growth in China (PDF) to slow as its government reduces spending, tightens credit, and unwinds its housing bubble. The bank expects China's growth to fall from 7.4 percent in 2o14 to a modest 6.9 percent in 2017.  Once that happens, growth will depend on demographics and each country's ability to innovate. India has a better outlook on both fronts. Its population is growing; China's is shrinking. It's harder to predict which country will be better at innovation. Signs point to India because democracies, with their secure property rights and general stability, tend to be better at fostering successful entrepreneurship. China's authoritarian capitalism is a new model, and it's not clear whether it can produce the sort of environment in which people take chances, form businesses, and invent things.

    Another Culprit of Low Inflation: Asia’s Stronger–Yes, Stronger–Currencies - Falling oil prices are exacerbating low inflation across Asia but there’s yet another culprit: currency strength. True, most currencies in Asia are weaker against a resurgent dollar. Still, many have strengthened against the euro and the yen, which have fallen amid a recent spate of dismal economic data and easing measures. East Asia buys a large amount of goods from Europe and Japan, so this is making imports cheaper and adding to downward pressures on prices. DBS economist David Carbon thinks strengthening currencies could have an even bigger impact on inflation than falling crude prices. Asia’s imports comprise 20% to 35% of gross domestic product, while imports of crude oil make up 1% to 6%, he says. “When you do the math, strong currencies are just as important a driver of low inflation as oil.” Asia is now importing more from Europe and Japan than from the U.S., so local currency strength against the weakening euro and yen is having an outsize effect on prices. Asia’s imports from Europe in the final months of last year were more than 40% higher than those from the U.S. in dollar terms—and from Japan, roughly 10% higher, according to data from HSCB Holdings PLC.

    Global stimulus swells as China eases, ECB to start soon on QE (Reuters) - Global stimulus is swelling, with China cutting interest rates ahead of disappointing factory data and the European Central Bank set to start government bond purchases just as data hints the euro zone economy may be picking up. Central banks from Switzerland to Turkey, Canada and Singapore have already loosened monetary policy this year and chances are high the Reserve Bank of Australia will cut rates for a second time in as many months on Tuesday. The People's Bank of China (PBOC) on Saturday cut its benchmark lending and deposit rates, pre-empting official data which showed a second consecutive month of shrinking manufacturing activity. The European Central Bank will meanwhile start its trillion-euro quantitative easing programme this month. The latest Markit Eurozone Manufacturing Purchasing Managers' Index (PMI) still pointed to only a modest pace of growth across factories in the euro zone but some economists were sounding a bit more optimistic about the future. The latest PMI held steady at 51.0 in February, slightly below an earlier flash reading of 51.1 and just above the 50 threshold that separates growth from contraction.

    Using Exchange Rates as Monetary Policy Instruments - St. Louis Fed  -- In the past two months, several central banks have unexpectedly intervened in the foreign exchange market, reacting to changes in the world economic environment (low oil prices and a slowdown of world growth) and to announcements by the Federal Reserve and the European Central Bank (ECB). Are these unexpected moves a one-time event, or do they constitute a new way of doing monetary policy? What are the possible consequences of these unexpected moves for other countries trying to defend their currency?

    World's Largest Container-Shipper Warns Global Trade Is Slowing Down -- As Søren Skou, Maerk's CEO, admitted when he warned that global trade growth could slow this year from recent 4% growth ratnes, as Chinese, Brazilian and Russian economies disappoint, the Baltic Dry is still not only relevant and accurate but telling the real story of global growth, or lack thereof.  “The economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great.” He added that: "To my mind volumes were sluggish. There is nothing in container volume numbers that suggest that the global economy is just on the verge of starting a new growth trend.”

    Mexico preparing for low oil prices; crude output fall – Falling oil production remains the most important risk to Mexico’s economy this year and may force the government to tighten spending further into 2016, Mexican Finance Minister Luis Videgaray said on Wednesday. Speaking to reporters at the London Stock Exchange, Videgaray said the risk was that oil production could fall further, following January’s output decline which sent production to the lowest since mid-1990s. “Certainly oil production remains the most important risk to (gross domestic product) output this year,” Videgaray said. Oil accounts for 13 percent of Mexico’s exports and a third of budget revenues. “We need to prepare for a scenario where the price of oil remains low and output of crude may not be as high as it was forecast… We need to prepare public finances to face such risks and that’s a key reason why in January we did budget cuts,” he said. The government was braced for a situation “where (oil) production stays where it is and may even go lower,” he added.

    Red flags in Cuba slow investment: — After an initial wave of enthusiasm following President Obama's decision to re-establish relations and expand trade with Cuba, American businesses are hitting the brakes. Although companies such as MasterCard, American Express, Netflix and Twitter have announced plans to expand operations in Cuba, they can't flourish on the island until two essential U.S. industries get on board: banking and telecommunications. And so far, officials in those fields are hesitant to jump into the risky Cuban market. "Capital doesn't like to go where there's risk," said Alex Sanchez, president and CEO of the Florida Bankers Association. "It's not going to Iran, it's not going to Iraq and it probably won't go to Cuba for a while because of the risk." Ever since Obama and Cuban President Raúl Castro made their historic announcement in December that they would end 50 years of estrangement, diplomats in both countries have been working to formalize that process. The other part of the deal expands trade between the two countries. American businesses can now sell more products to Cuba and Cuban entrepreneurs can export their products to the U.S. market. American businesses can establish corresponding bank accounts in Cuba to facilitate those transactions, travelers can use their credit and debit cards on the island, and U.S. telecom companies can help build up Cuba's Internet infrastructure. In the months since, however, lawyers and compliance officers at U.S. companies have been raising red flags. The biggest is that Cuba remains on the U.S. State Department's list of State Sponsors of Terrorism, which severely limits the ability of American companies to do business with the country.

    The fiasco that is the Nicaragua Canal, explained -   -- Back in December, one of the world’s largest — and possibly most flat-out insane — construction projects got underway. Nicaragua has enlisted a little-known Chinese billionaire to dig a 161-mile canal across the country and link the Pacific and Atlantic Oceans. If built, the Nicaragua Canal would be longer, wider, and deeper than the 51-mile Panama Canal to the south. It could, in fact, be the largest excavation in human history:  Why a new canal? The idea, at least, is that a bigger Nicaragua canal could accommodate the next generation of super-sized container ships that can’t squeeze through Panama’s locks. Nicaragua’s leaders have also promised the project could double GDP in one of Central America’s poorest countries. But that's only if the canal actually gets finished. And that's still a huge question mark. Most press coverage to date has emphasized the potential for complete and utter disaster. The consortium in charge — the Hong Kong Nicaragua Canal Development Group (HKND), led by Beijing-based telecom billionaire Wang Jing — has little experience with these sorts of projects and was awarded the contract in a secret deal with Nicaragua's Sandinista government. No environmental reviews were conducted beforehand, even though the project runs through Lake Nicaragua, the country's main source of drinking water. Experts warn that the construction timetable (5 years) is implausible, that the canal could be threatened by volcanoes, and that there may not even be enough shipping demand to justify the project's massive price tag ($50 billion or more). And that's only the start of the problems…

    Argentina says creditors filed $7-8 billion more claims in debt battle (Reuters) - Argentina's economy minister said on Tuesday "me-too" investors who want compensation for debt owed since the country's 2002 default have lodged claims for between $7 billion and $8 billion in the hope of gaining from its legal battle with other holdouts. A U.S. judge ordered Argentina in 2012 to pay a group of hedge funds that did not participate in its 2005 and 2010 debt restructuring, including Elliott Management Corp's NML Capital Ltd and Aurelius Capital Management, $1.33 billion plus interest. Argentina refused to pay, calling the creditors "vulture funds" for seeking to pick clean the carcass of Latin America's third-largest economy after its devastating 2002 default on $100 billion in debt. true The country now says it wants to reach a deal, after its legal battle with the holdouts pushed it into default on its restructured debt in July. But it wants to settle claims from all creditors who refused the swaps at the same time. U.S. District Judge Thomas Griesa in New York said he would deal with "me too" claims filed by March 2 on the same schedule as those of the hedge funds.

    Cecilia Nahon: Argentina vs the Vultures -  Yves Smith - This Institute of New Economic Thinking interview describes how Argentina's completed sovereign debt restructuring was derailed by vulture fund NML Capital in a reading of the original bonds' pari passu clause that was contrary to well-established practice. Even the US Treasury had weighed in on the side of Argentina in an amicus brief. The interview of Argentine ambassador Cecilia Nahon by Marshall Auerbach goes into the backstory of the restructuring, that Argentina's woes in no small measure resulted from following the IMF's neoliberal fads du jour.

    Only mass default will end the world's addiction to debt - In a valedictory speech at the weekend of characteristically Latin American duration – a mind-numbing three hours – the Argentine president, Cristina Fernandez de Kirchner, claimed that her country was the only one in the world to have reduced its national debt over recent years. I doubt she is right about being alone in this “achievement” – there must surely be others - but even if she is, I’m not sure that reduction in the national debt via the mechanism of default is anything to boast of. Only Kirchner could think this a matter of national pride. Nonetheless, where Argentina treads, others will surely soon be following. The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default. Greece we already know about, but the coming much wider outbreak of debt repudiation will not be confined to sovereign nations. Last week, there was another foretaste of what’s to come in developments at Austria’s failed Hypo Alpe-Adria-Bank International. Taxpayers have had enough of paying for the country’s increasingly crisis-ridden banking sector, and have determined to bail in private creditors to the remnants of this financial road crash instead - to the tune of $8.5bn in the specific case of Hypo Alpe-Adria. Finally, creditors are being made to pay for the consequences of their own folly. You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy’s addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers.

    Lord Rothschild: 'Investors face a geopolitical situation as dangerous as any since WW2' - Jacob Rothschild, the 78 year-old banker and chairman of RIT Capital Partners, has delivered savers in the £2.3bn trust a stark warning about global instability and the fragility of future returns. He used his chairman's statement in the trust's 2014 annual report to outline his concerns, saying that on top of a "difficult economic background" investors face "a geopolitical situation perhaps as dangerous as any we have faced since World War II". He said this was the result of "chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union". This was a much gloomier assessment of the world than the picture painted in his statement a year ago.

    Pope Francis attacks 'throw-away' economic globalization (Reuters) - Pope Francis launched a fresh attack on economic injustice on Saturday, condemning the "throw-away culture" of globalization and calling for new ways of thinking about poverty, welfare, employment and society. In a speech to the association of Italian cooperative movements, he pointed to the "dizzying rise in unemployment" and the problems that existing welfare systems had in meeting healthcare needs. For those living "at the existential margins" the current social and political system "seems fatally destined to suffocate hope and increase risks and threats," he said. true The Argentinian-born pope, who has often criticized orthodox market economics for fostering unfairness and inequality, said people were forced to work long hours, sometimes in the black economy, for a few hundred euros a month because they were seen as easily replaceable. "'You don't like it? Go home then'. What can you do in a world that works like this? Because there's a queue of people looking for work. If you don't like it, someone else will," he said in an unscripted change from the text of his speech. "It's hunger, hunger that makes us accept what they give us," he said.

    Russian Foreign Currency Mortgage Holders Sue Central Bank Over Ruble Collapse --  A consumer protection agency representing foreign currency mortgage holders in Russia has sued the Central Bank over its handling of a currency crisis last year during which the ruble lost over 40 percent of its value against the U.S. dollar. Tens of thousands of Russians have been left on the verge of financial ruin by the Central Bank's actions, according to a statement by the Society for Consumer Rights Protection late last week. Pressured by a falling oil price, economic problems and Western sanctions on Moscow over the Ukraine crisis, the ruble lost 39 percent of its value between the beginning of November and the end of January. The suit against the Central Bank was filed at Moscow's Meshchansky District Court last week, according to the Society for Consumer Rights Protection. At the beginning of November, as oil price falls intensified, the Central Bank abolished the trading corridor that it used to regulate the value of the ruble and ceased regular interventions on the foreign exchange market, accelerating the ruble's devaluation. "The Central Bank violated the rights of a large number of families who have foreign currency mortgages. It didn't fulfill the requirement of the law and the constitution to maintain the stability of the national currency, and, moreover, didn't keep its public promises about supporting the currency corridor," according to the Society for Consumer Rights Protection.

    Russians to Spend More Than Half of Their Income on Food - Soaring inflation and a reduction in real wages could have Russians spend half of their income on food by the end of this year, a news report said Monday. A survey of Russian retail prices by VTB Capital cited by business daily Vedomosti predicted spending on food could account for between 50-55 percent of household income by the end of 2015, up from 40 percent last year. Inflation and a reduction in real wages, linked to the devaluation of the ruble, are to blame for the predicted hike in food expenditure, the report said. The ruble has been hit hard by a global drop in the price of oil and Western sanctions against Moscow for its involvement in Ukraine. Inflation on food products hit a high of up to 22 percent in February, but this figure is expected to stabilize in the second quarter and will hover around 9.6 percent by the end of 2015, Vedomosti cited the VTB analysts as saying. Food price inflation has been compounded by a drop in the value of Russians' real wages, which are expected to decrease 6.8 percent year-on-year by the end of 2015, the report added.

    Russian inflation soars to fastest pace since 2002 - Russian inflation accelerated in February to the fastest pace in almost 13 years, complicating the prospects for deeper monetary easing in the aftermath of the country's worst currency crisis since 1998. Consumer prices rose 16.7 percent from a year earlier, compared with 15 percent in January, the Federal Statistics Service in Moscow said in a statement Thursday. That matched the median estimate of 22 economists surveyed by Bloomberg. Prices rose 2.2 percent from the previous month. Inflation has more than doubled from the start of last year. That followed a 46 percent drop in the ruble last year, which ignited price growth that was already on the uptick following Russia's bans on food imports in retaliation for U.S. and European sanctions over the conflict in Ukraine. The advance in prices last month brings inflation above the central bank's benchmark interest rate, which policy makers unexpectedly lowered at their last meeting in January as they signaled concern over a recession facing the Russian economy.

    Russian wealth fund shrinks most since 2010 as budget gap widens - Russia’s Reserve Fund, one of the country’s two sovereign wealth funds, dropped last month the most in more than four years as the government unsealed it to cover a widening budget deficit. The value of the fund fell $8 billion in February to $77.1 billion, the lowest since December 2012, as the Finance Ministry used its maximum yearly allowance of 500 billion rubles ($8 billion) for budget financing, according to a statement by the ministry on Tuesday. The fund disposed of $3.6 billion, 3.1 billion euros ($3.5 billion) and 510 million pounds ($769 million). The world’s biggest energy exporter, entering its first recession in six years, uses the fund to cover its burgeoning shortfall after the price of oil, which together with natural gas accounts for about half of state revenue, fell to the lowest since 2009. The Finance Ministry last week said it wants to dip deeper into the fund as the deficit may be 3.8 percent of gross domestic product this year. “The reserves provide not only stability, but also financial certainty,” Finance Minister Anton Siluanov said Monday. “If we eat through our reserves, we’ll lose that stability and won’t have the resources to finance the budget deficit.”

    Impotent Western Sanctions Fail To Disrupt Russian Energy Exports - Energy exports from Russia, in the form of coal, oil, natural gas and uranium, continue to flow unimpeded, despite Western efforts to damage the Russian economy for interfering in Ukraine. In some ways, the sanctions have had the desired effect. But in others, notably the energy trade, they have failed, and in fact it could be argued they have backfired, by hurting the businesses that do business with Russia. Moreover, the sanctions have further isolated Russia from Europe and drawn it closer to alternative energy partners, namely Turkey and China. To recap, in March of 2014 the United States and the European Union, along with other countries and international organizations, implemented a series of sanctions against individuals and businesses from Russia and Ukraine, in response to the perceived annexation of Crimea, a peninsula in southern Ukraine. Russia retaliated by imposing sanctions of its own, including a ban on food imports from the EU, US, Norway, Canada and Australia. As the unrest continued into southern and eastern Ukraine, the sanctions were expanded. Despite sanctions, Russian coal is moving at higher volumes to the European countries most dependent on the cheap fossil fuel for home heating. German coal imports are the highest since 2006, as importers take advantage of a lower ruble and lower oil prices. According to the news site RT, Germany imported over 12 million tonnes of coal from Russia in 2014, despite the country’s reputation as a leader in renewable energy, symbolized through “energiewende”, the much-lauded plan to switch Germany from nuclear power and fossil fuels to renewables. The dirty truth is that Germany gets about half of its electricity from coal, with the other half coming from natural gas and nuclear. About a third of German coal comes from Russia. In addition, the former World War adversaries also trade a lot of natural gas; 25 billion cubic meters per year imported by Germany, to be exact.

    Ukraine unofficially has 272 percent inflation -- Ukraine had a revolution, it has a war now, and it's all but broke. Inflation is officially 28.5 percent, but, according to Johns Hopkins professor Steve Hanke, it's really more like 272 percent.  It's hard to overstate how challenged Ukraine is. Its economy has actually shrunk since communism ended in 1991. Or since 1992. Or even 1993. The IMF estimates that Ukraine's underground—and non-tax-paying—economy is as much as 50 percent of GDP. Now Ukraine's not-so-cold war with Russia is destroying the little that's left. It's not just that Ukraine has lost the factories in the rebel-held east that make up a quarter of its industrial capacity. It's that it can't afford to fight a war against what is still its biggest trading partner—Russia. The only way for Ukraine to pay its bills is to dip into its reserves. But those have dwindled down to $6.42 billion, only enough for a little more than a month of imports. (Three months worth is considered the absolute least you can get by with). So Ukraine has done what all countries do when they've run out of money: go to the IMF. It's announced a $17.5 billion bailout in return for tough reforms, including cutting energy subsidies for households. But even that won't be enough to stop Ukraine from defaulting on its debt—or, if you're feeling more polite, restructuring its bonds. Those have already fallen to less than 50 cents on the dollar in anticipation of the nonpayment to come. In short, Ukraine doesn't have any foreign currency and doesn't have the ability to earn any more. And that means there's nothing left to support the value of its currency, the hryvnia—so it doesn't have much anymore. Ukraine had been pegging it at 8 per dollar before the war began, but was then forced to let it slide down to 16 per dollar, where it tried to re-peg the hryvnia. This failed. Ukraine didn't have the dollars to prop up its currency for very long, and when it belatedly admitted this, the hryvnia collapsed. Then it collapsed some more after the latest peace deal fell apart. So Ukraine's central bank has done the only thing it could do: everything.  But that, as you can see above, is still a 70 percent fall from the start of 2014.

    Ukraine's Central Bank Hikes Benchmark Rate to 30 Percent - Ukraine's central bank will raise its benchmark refinancing rate to 30 percent from 19.5 percent, the head of the central bank said on Tuesday, as the bank tries to rein in rocketing inflation and persistent currency weakness.  The new interest rate, which comes into effect on Wednesday, is the highest for 15 years.  Central bank chief Valeriia Gontareva said in a media briefing that the decision was taken because the bank saw the "threat of inflation had risen strongly due to negative consequences from currency market panic".  The bank will also extend a rule obliging companies to sell 75 percent of their foreign currency earnings among other measures to help stabilise the hryvnia, which Gontareva said she hoped would return to a level of 20-22 to the dollar "quickly".

    Euro Area Inflation Expectations–Anchors Away? - - NY Fed -  Euro area inflation expectations have been falling at both short- and long-term horizons, with the latter development suggesting the current low inflation environment is perceived as likely to persist. Because long-term inflation expectations play a key role in the decisions of households and firms, economists have stressed the importance of long-term inflation expectations being anchored at a central bank’s target. In this post, we use survey data on inflation forecasts to document evidence of recent “unanchoring” of euro area long-term inflation expectations, and note the difference in comparison to the 2008-09 period, when current inflation and short-term inflation expectations also declined but long-term inflation expectations remained steady.  As shown in the chart below, euro area inflation has declined steadily since 2012. The chart also shows a similar decline during the previous recession that extended from first-quarter 2008 to second-quarter 2009 (indicated in gray shading). Because of this parallel, it would be interesting to know individuals’ views of these inflation episodes and how they compare.

    Are Central Banks Creating Deflation? -- Last week we noted that with the start of Q€ just around the corner, the ECB finds itself in a rather absurd situation. In what we called the ultimate easy money paradox (or, alternatively, the ultimate Keynesian boondoggle), Mario Draghi and crew are doomed to trip over their own policies as they (literally) attempt to monetize twice the net supply of eurozone fixed income this year.  The problem is two-fold: 1) the central bank’s adventures in NIRP-dom mean anyone willing to sell their EGBs would face the truly silly prospect of sending the proceeds right back where they came from, except at a cost of 20 bps (negative deposit facility rate), and 2) because the central bank’s easy money policies have compressed credit spreads, sellers who wanted to reinvest the cash they would theoretically receive for their EGBs would have to do so at ridiculously low rates, a scenario that would compound QE’s already negative effect on NIM for banks and would be absolutely untenable for insurers. So what we have “is one deflation-fighting policy stymying another [and] the central bank’s previous efforts to drive down rates thwarting its current plans to … drive down rates.”  Now, courtesy of Citi’s Matt King, it’s our distinct pleasure to present yet another wonderfully ridiculous paradox inadvertently created by central banks who apparently aren’t capable of understanding when they’re just pushing on a string: manufactured deflation or, more poignantly, just what the doctor did not order. Here’s Citi:   It’s that linkage between investment (or the lack of it) and all the stimulus which we find so disturbing. If the first $5tn of global QE, which saw corporate bond yields in both $ and € fall to all-time lows, didn’t prompt a wave of investment, what do we think a sixth trillion is going to do? Another client put it more strongly still. “By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?”

    Euro-Area Negative-Yield Bond Universe Expands to $1.9 Trillion -- The European Central Bank’s imminent bond-buying plan has left $1.9 trillion of the euro region’s government securities with negative yields. Germany sold five-year notes at an average yield of minus 0.08 percent on Wednesday, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020. By the next day, German notes with a maturity out to seven years had sub-zero yields, while rates on seven other euro-area nations’ debt were also negative. While some bonds had such yields as far back as 2012, the phenomenon has gathered pace since the ECB’s decision to cut its deposit rate to below zero last year. Even when investors extend maturities, and move away from the region’s core markets, returns are becoming increasingly meager. Ireland’s 10-year yield slid below 1 percent for the first time this week, Portugal’s dropped below 2 percent, while Spanish and Italian rates also tumbled to records. “It is something that many would not have pictured a year ago,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.” Bond Indexes Eighty-eight of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have negative yields, data compiled by Bloomberg show. Euro-area bonds make up about 80 percent of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index, the data show.

    Schlumberger Debt Signals Free Cash as Stimulus Distorts Markets -- Investors are paying to hold Schlumberger Ltd.’s short-term debt as tumbling benchmark rates offer companies the prospect of raising funds for free. The world’s largest oilfield services provider saw its Swiss franc-denominated commercial paper trade with a negative yield, Joao Felix, director of external communications, said by e-mail. Dutch energy company Alliander NV said last month its short-term bond yields traded below zero. The European Central Bank’s plan to pump 1.1 trillion-euro ($1.2 trillion) into the region’s economy through large-scale bond purchases is driving borrowing costs to record lows. Some companies are going a step further and selling the debt with rates below zero directly to investors, according to David Hiscock at industry group the International Capital Market Association. “We are living in unusual times,” Hiscock, senior director for market practice and regulatory policy at Zurich-based ICMA, said by phone. “That looks set to persist with the ECB about to kick off the QE program to try to stimulate activity by driving rates as low as they can be,” he said, referring to the ECB’s quantitative easing program. Investors are willing to accept next to nothing to hold investment-grade corporate bonds because of their relative safety and as they still offer higher rates than benchmark government bonds.

    Why negative interest rates could become the new normal - Roubini - Monetary policy has become increasingly unconventional in the last six years, with central banks implementing zero-interest-rate policies, quantitative easing, credit easing, forward guidance, and unlimited exchange-rate intervention. But now we have come to the most unconventional policy tool of them all: negative nominal interest rates. Such rates currently prevail in the eurozone, Switzerland, Denmark, and Sweden. And it is not just short-term policy rates that are now negative in nominal terms: about $3tn of assets in Europe and Japan, at maturities as long as 10 years (in the case of Swiss government bonds), now have negative interest rates. At first blush, this seems absurd: why would anyone want to lend money for a negative nominal return when they could simply hold on to the cash and at least not lose in nominal terms? In fact, investors have long accepted real (inflation-adjusted) negative returns. When you hold a checking or current account in your bank at a zero interest rate – as most people do in advanced economies – the real return is negative (the nominal zero return minus inflation): a year from now, your cash balances buy you less goods than they do today. And if you consider the fees that many banks impose on these accounts, the effective nominal return was already negative even before central banks went for negative nominal rates. In other words, negative nominal rates merely make your return more negative than it already was. Investors accept negative returns for the convenience of holding cash balances, so, in a sense, there is nothing new about negative nominal interest rates.

    How Negative Can Rates Go? - Krugman -- We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it. But how low? Evan Soltas is getting some attention with an interesting attempt to find the true lower bound on interest rates; David Keohane cited a similar, more detailed estimate a month ago.  In both the Soltas and Keohane pieces, there’s a discussion of storage costs for currency, which are not as trivial as one might have assumed. But they go on to say that the real lower bound comes from the fact that bank deposits are more useful than currency in a safe, because you can write checks and all that. Basically, in the modern world deposits are actually more liquid than cash, at least for most transactions that don’t involve controlled substances or concrete overshoes. But you need to think about the incentives for holding a dollar in one form or the other at the margin, and I think that changes the story.  In normal times, we invoke the convenience of money — its extra liquidity — to explain why people hold money at zero or at any rate low interest rates when there are other safe assets offering higher yields. We think of money demand as determined by people increasing their holdings up to the point where the opportunity cost of holding money, the interest rate on other safe assets, equals its utility from increased liquidity. Once interest rates on safe assets are zero or lower, however, liquidity has no opportunity cost; people will saturate themselves with it. That’s why we call it a liquidity trap! And what this means is that the marginal dollar of money holdings is being held solely as a store of value — the medium of exchange utility is irrelevant.This in turn should mean that the usefulness of deposits is irrelevant in trying to find the true lower bound. The marginal holder is simply looking for a store of value, and the only question should therefore be storage costs.

    Negative Yields Buy Security - The seemingly ludicrous idea of paying money to government central banks for the security of return of principal has reached new highs as Europe's deflationary malaise spreads in length and depth. Bond prices are so high that yields on $3.75 trillion of the developed world's $24 trillion plus monetary liquidity have currently turned negative. This "inversion" has spread to a dozen countries, where government bond investors pay for the privilege of eventually getting their money back from those nations' treasury debts, and long-term bonds issued. This relatively recent phenomenon is closely tied to the deflationary degeneration that most of Western and Central Europe are now experiencing, with little end in sight. The extended glut of such major commodities as oil, copper, iron ore, natural gas, etc. project slim hopes that this "deflation malady" will soon be reversed. Where Greece's depressing economic deflation was once unique in a relatively stable European business/financial climate, pessimism regarding reversal has now impacted an increasing segment of this once solid bastion of global economic strength. Since the aftermath of World War II, Europe has generally provided 20% of the growing world gross domestic product. Now, such nations as Spain, Portugal, and a number of Balkan countries, as well as others are flashing signs of negativity.

    This is nuts, where have all the bonds gone? -- “It’s official, there are no more sellers of bonds.” An investor told us yesterday, and he’s not alone. Bond buying on ECB QE, the Greek loan extension and recent growth data in the periphery has transformed itself into bond hoarding. Serious question: is there a nuttier asset class than core eurozone bonds at the moment? Half or more of them are trading with negative yields:  Which leads to another way of putting that question: whether the greater fool theory is setting in. One way to make a capital gain on buying a bond with a negative yield is, presumably, waiting for that yield to go even more negative — all the better if someone subsequently materialises to buy the bond before yields start to edge back up again. The ECB is going to be one such buyer, and the QE plan being announced on Thursday will be entering a very static market. As Gallo says, “investors know the ECB will buy and have anticipated its moves. But because everyone also knows that future buying will exceed supply of bonds from sovereigns and corporates, the result is a generalised hoarding.” That might also reflect a view that QE is going to fail – deflation and low to no yields are here to stay, ensuring bonds will go on appreciating and finding ready buyers in Europe. Well, what if that view suddenly gets mugged by reality? And in future, how easy will it be to flip the stuff below? (And while we’re asking questions, what’s up with Lithuania above?)

    So at what point do we see corporate yields going to zero?  - Rhetorical question, just to share this chart from Dominik Winnicki and team at Barclays (click to enlarge)… Across all European investment grade credit, the proportion of issuance yielding more than 2 per cent has shrunk to just 5 per cent. In less than a year the proportion yielding less than 0.5 per cent has gone from none to almost 1-bond-in-3. We have too many candidates these days for our This is nuts series. This chart didn’t make the grade. But it is nuts, all the same. There might be more on this in the usual place.

    Eurozone fiscal policy - still not getting it - mainly macro - The impact of fiscal austerity on the Eurozone as a whole has been immense. In my recent Vox piece, I did a back of the envelope calculation which said that GDP in 2013 might be around 4% lower as a result of cuts in government consumption and investment alone. This seemed to accord with some model based exercises of the impact of austerity as a whole, but others gave larger numbers. We now have another estimate, which can be thought of as a rather more thorough attempt to do what I did in the Vox article. This paper uses multipliers and applies them to the fiscal changes that have occurred in the Eurozone from 2011. Apart from the later start date, the first difference compared to my back of the envelope calculation is that they include all fiscal changes, and not just government consumption and investment. As a large part of the fiscal consolidation in the Eurozone has involved reducing fiscal transfers, this is important.  The second, and more interesting, difference is that rather than pluck a multiplier out of the air, as I did, they use a meta analysis of empirical studies by Gechert that I have previously linked to. The studies on which this meta analysis is based are not ideal from my personal point of view (more on this later), but what it does show is that fiscal multipliers are larger in depressed economies. Applying these ‘meta multipliers’ to the Eurozone fiscal consolidation implies that GDP was 7.7% lower by 2013 as a result. These numbers are more in the ballpark of the Rannenberg et al paper that I have discussed before.

    Europe puts future at risk by playing safe - The economic equivalent of a ceasefire agreement is a debt rollover of an insolvent state. In Europe, we have had both in the past three weeks. Europe’s political and economic diplomacy is focused solely on averting imminent catastrophe with no strategic purpose. The danger is that Ukraine and Greece are ending up as failed states. Just look where Greece has ended up after five years of crisis resolution. It has had one of the worst performances in economic history; yet we have just concluded an extension of the same policy. Can this be sustainable? The pragmatists in Europe’s chancelleries say they can roll over loans indefinitely at very low interest rates. Economically, this is the equivalent of a debt writedown; yet politically it is easier to deliver because you do not need to recognise losses. The equivalent statement in a military conflict would be: if you renew a ceasefire often enough, you end up with peace. This type of argument is not only immoral and dishonest. It also does not work. While you play this game of ex­tend-and-pretend, the real economy implodes: austerity has caused a meltdown in income and employment. Monetary policy mistakes caused a fall in eurozone-wide inflation rates that made it impossible for Greece and other periphery countries to improve the competitiveness they lost in the early years of monetary union. If the EU deals with Ukraine in the same way it dealt with Greece, you can expect to see a parallel development in a few years. The Minsk ceasefire, negotiated between the leaders of Russia, Ukraine, France and Germany, may hold for a while, more or less. The Europeans may use this as a pretext for not renewing sanctions, and for not imposing new ones. And once the ceasefire breaks down — as it will — the European policy making establishment will pretend to be surprised and appalled, leaving Ukraine as a failed state and a buffer zone between the EU and Russia. They will also have failed to rein in Russian President Vladimir Putin’s territorial ambitions elsewhere in eastern Europe. The EU should have confronted Greek debt and Mr Putin’s territorial ambition early on, rather than allowing both to spin out of control. By playing it safe for now, the EU puts at risk its military and economic security.

    ECB launches €1.1 trillion blitz as bond market dries up -- The European Central Bank is to launch a €1.1 trillion blitz of bond purchases from Monday to avert deflation and revive lending, finally joining the “QE club” a full six years after the Bank of England and the US Federal Reserve. The belated move came as the ECB sharply raised its growth forecasts to 1.5pc this year and 1.9pc next year, leaving it unclear whether such massive stimulus is still needed or even advisable. Year-on-year retail sales jumped 3.7pc in January as the delayed effects of falling energy prices feed through to household spending. Mario Draghi, the ECB’s president, said the radical measures first unveiled by the central bank nine months ago had restored confidence and were starting to bear fruit, alleviating credit stress across every part of the eurozone. “Our monetary policy decisions have worked,” he said. While coy in admitting it, Mr Draghi has already achieved much of his desired effect by driving the euro down 20pc against the dollar and the Chinese yuan since last spring. The devaluation has proved a powerful form of stimulus, even if the eurozone’s inflation rate is still languishing at -0.3pc. The euro slumped yet further after he confirmed that there would be no retreat from the original plan to buy €60bn of assets each month, mostly sovereign bonds. It touched an 11-year low of $1.10 against the dollar. The pound has reclaimed all the ground lost against the euro since 2007, closing at €1.38 on Thursday. Under the scheme, each national central bank in the ECB system is responsible for buying its own bonds, reducing the level of shared liabilities to just 20pc of the total. This leaves weaker countries at risk of a bad “feedback loop” if the EMU debt crisis ever returns. They will buy bonds with yields as low as -0.2pc, and up to 33pc of each country’s public debt.

    ECB could buy negative yielding assets  - The European Central Bank will buy negative yielding assets as part of its large-scale bond-buying program as long as the yield is above the central bank's deposit rate, the ECB said in a statement. "In principle, purchases of nominal marketable debt instruments at a negative yield to maturity are permissible as long as the yield is above the deposit facility rate," the statement read. The ECB's deposit rate, the rate it sets on overnight deposits at the central bank, is currently negative 0.2 per cent, meaning that banks pay to park funds with the central bank. The ECB left all rates unchanged at its meeting Thursday, the first meeting after the ECB announced that it would engage in large-scale bond purchases known as quantitative easing, or QE. The bond-buying program will start on March 9. The statement said the ECB and the central banks of countries that use the euro intend "to conduct purchases in a gradual and broad-based manner." In his press conference earlier, ECB President Mario Draghi repeated that the ECB intends to buy €60 billion ($A80.1bn) a month of public- and private-sector assets from March this year until September 2016.

    ECB slashes 2015 inflation outlook to 0% --- Inflation in the eurozone is likely to remain critically low over the next few months, with consumer-price growth set to average only 0% in 2015, according to the European Central Bank's latest staff projections released on Thursday. The outlook marks a sharp revision from the 0.7% forecast from December, reflecting the negative impact from lower prices. However, inflation should start to gradually pick up in the latter half of 2015, supported by "the favorable impact of our recent monetary policy measures", a weak euro and lower oil prices, ECB President Mario Draghi said at the news conference. For 2016, the bank lifted its inflation forecast to 1.5%, up from 1.3% expected previously. For 2017, the ECB expects inflation to rise to 1.8%, close to the central bank's target of just below 2%.

    Denmark intervenes in currency market in big way - Denmark's central bank bought a record amount of foreign currency last month in a bid to protect the krone's peg to the euro, underscoring the fallout from the European Central Bank's efforts to boost economic growth. The Nationalbanken's net purchases of foreign exchange amounted to 168.7 billion Danish kronor ($25.32 billion) in February, equal to about 9% of the Nordic country's gross domestic product. The scale of the intervention was a record for Denmark's central bank, which also made significant net purchases of foreign currency the previous month. The central bank doesn't specify the types of currencies it buys. "The [central bank] has never bought or sold foreign exchange to this extent before, which shows that the krone has been under very significant appreciation pressure in recent months," said Citigroup economist Tina Mortensen in a note. The central bank said the bulk of interventions took place during days around its interest-rate reduction on Feb. 5. The central bank said its foreign-exchange reserves increased by 172.9 billion kronor, to 737.1 billion kronor in February.

    Eurozone faces first regional bankruptcy as debt debacle stalks Austria's Carinthia - The Alpine region of Carinthia faces probable bankruptcy after Austria’s central government refused to vouch for debts left by a disastrous banking expansion in eastern Europe and the Balkans. It would be the first sub-sovereign default in Europe since the Lehman Brothers crisis, comparable in some respects to the bankruptcy of California's Orange County in 1994 or the city of Detroit in 2013. Austria’s finance minister, Jörg Schelling, said Vienna would not cover €10.2bn (£7.4bn) in bond guarantees issued by the Carinthian authorities for the failed lender Hypo Alpe Adria, or for the "Heta" resolution fund that succeeded it. This leaves the 550,000-strong province on the Slovene border to fend for itself as losses spin out of control. “The government won’t waste another euro of taxpayer money on Heta,” he said, insisting that there must be an end to moral hazard. The Hypo affair has alredy cost taxpayers €5.5bn. The Austrian state has said it will cover €1bn of its own guarantees “on the nail” but nothing more. Sources in Vienna suggested that even senior bondholders are likely to face a 50pc writedown, becoming the first victims of the eurozone’s tough new “bail-in” rules for creditors. These rules are already in force in Germany and Austria, and will be mandatory everywhere next year.

    Austria sells bonds at negative yield - Austria Tuesday joined a handful of European countries that have sold five-year government bonds at a negative yield at an auction, reflecting low and falling borrowing costs across the euro area ahead of the start of the European Central Bank’s blockbuster sovereign bond-buying program. This means investors are effectively paying the Austrian state for buying its debt. In February, Finland and Germany sold 2020-dated five-year bonds, while Sweden sold 2019-dated bonds at negative yields. The Austrian Treasury sold €1.1 billion ($1.23 billion) of government bonds maturing in October 2019 and October 2024, including a €100 million allotment to the state. The average yield on the 2019 bond was -0.038%, compared with 0.025% at its previous tap in January. Bond prices—which rise when bond yields fall—are broadly expected to move higher initially when the ECB begins its bond purchases, although some market participants said the quantitative easing is largely priced-in, hence they foresee limited potential for yield falls.

    Irish-Style Banking Inquiry into the 2008 Financial Crisis -NEP’s Bill Black on The Real News Network discussing his recent testimony in Ireland for a banking inquiry and the challenges the country faces in acknowledging its financial crisis. Video is below. For the transcript, click here.

    France wants companies to make appliances that last longer - — France is ordering manufacturers to inform consumers how long they can expect their TV, cell phone or other appliance to last — before they buy it. A new French government decree that came into effect this week aims at fighting so-called planned obsolescence. That is when companies design strategies to limit the life span of appliances, so that consumers will have to replace them. The measure requires manufacturers to inform vendors how long spare parts for an appliance will continue to be produced. The vendor is then required to inform the buyer, in writing. Violators face up to 15,000 euros ($16,800) in fines. A similar French measure coming into effect next year will require manufacturers to replace or repair faulty appliances for free for the first two years after purchase.

    Humiliated Greece eyes Byzantine pivot as crisis deepens - Greece's new currency designs are ready. The amateur blueprints are a minor sensation in Greek artistic circles. They are only half in jest. Greece's Syriza radicals have signed a fragile ceasefire with the eurozone's creditor powers. Few think this can last as escalating deadlines reach their kairotic moment in June. Each side has agreed to a deception with equal cynicism, knowing that the interim deal evades the true nature of Greece's crisis and cannot bridge the immense political divide.They have bought time, but not much. "I am the finance minister of a bankrupt country," says Yanis Varoufakis, the rap-artist Keynesian with a mission to correct all of Europe's economic ills. First he has to deal with his own liquidity crisis. Tax arrears have reached €74bn (£54bn), rising by €1.1bn a month. "This isn't tax evasion. These are normal people who can't pay because they are in distress," he told the Telegraph. The Greek Orthodox Church is struggling to pick up the pieces. "The local councils can't cope, so people come to us for food," said Father Nicolaos of St Panourios parish in a working-class district of West Athens. "We're feeding 270 people and it is getting worse every day. Today we discovered three young children going through rubbish bins for food. They are living in a derelict building and we have no idea who they are," he said, sitting in a cramped office packed with bags of bread and supplies. 

    Spain, Portugal sought to trip up gov’t, Tsipras says: Leftist Prime Minister Alexis Tsipras on Saturday accused governments in Spain and Portugal of working with the conservative opposition at home in a bid to weaken, or even topple, his anti-austerity administration. Addressing SYRIZA’s central committee on Saturday, Tsipras said that Madrid and Lisbon officials had sided against Athens during negotiations on February 20 that led to a four-month extension of the country’s loan deal. “We were up against an axis of powers led by Spain and Portugal, which for obvious political reasons sought to lead the whole negotiation to the brink,” Tsipras said. “Their plan was, and it remains, to wear down, topple or bring our government to unconditional surrender before our work starts to yield fruit and before the Greek example affects other countries,” he said. Both Mediterranean countries will hold elections this year. Tsipras said that the reaction of the European People’s Party (EPP), of which New Democracy is a member, had shown that Greece’s main conservative opposition was an “accomplice” and “executive arm” in the anti-SYRIZA campaign.

    Spanish PM hits back at Greek accusation of anti-Athens 'axis': Spain's center-right Prime Minister Mariano Rajoy hit back on Sunday against accusations from Greece's leftist premier that Spain and Portugal had led a conservative conspiracy to topple his anti-austerity government. Greek Prime Minister Alexis Tsipras said Spain and Portugal had taken a hard line in talks on the euro zone extending the Greek bailout program because they feared the rise of the left in their own countries. Greeks have directed much of their fury about years of austerity dictated by international creditors at Germany, the biggest contributor to their country's 240-billion-euro bailout. But in a speech on Saturday to his Syriza party, which won an election on Jan. 25, Tsipras turned on Madrid and Lisbon, accusing them of attempting to sabotage the negotiations for political reasons. "We found opposing us an axis of powers ... led by the governments of Spain and Portugalwhich for obvious political reasons attempted to lead the entire negotiations to the brink," Tsipras said. "Their plan was and is to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries," he said, adding: "And mainly before the election in Spain."

    Greece seeks negotiations on ECB bond repayment: Greece called into question on Saturday a major debt repayment it must make to the European Central Bank this summer, after acknowledging it faces problems in meeting its obligations to international creditors. Finance Minister Yanis Varoufakis said Athens should negotiate with the ECB on 6.7 billion euros in Greek government bonds held by the Frankfurt-based bank that mature in July and August. Varoufakis did not say what he hoped to achieve in any talks, but he accused the ECB of making a mistake in buying the bonds around the time Greece had to take an EU/IMF bailout in 2010. "Shouldn’t we negotiate this? We will fight it," he said in an interview with Skai television. "If we had the money we would pay ... They know we don’t have it." The government of leftist Prime Minister Alexis Tsipras promised to honour all its debt obligations when it struck a deal with the euro zone last week that extended Greece’s bailout programme for four months. But Athens will get no more money until the European Commission, ECB and International Monetary Fund have approved in detail its economic plans during the four-month period. With tax revenue falling far short of target last month and an economic recovery faltering, the state must repay an IMF loan of around 1.6 billion euros in March and find 800 million in interest payments in April. It then needs about 7.5 billion in July and August to repay the bonds held by the ECB and make other interest payments. The ECB bought the bonds on the secondary market under its Securities Markets Programme (SMP) which aimed to reduce borrowing costs for troubled southern European governments during the euro zone debt crisis.

    Greek debt becoming less sustainable: The agreement between the Greek government and its lenders, which was sanctioned by the Eurogroup last Tuesday, appears to be more of a respite and less of a sea change in the relationship between the two sides. The apparent confidence gap is bound to aggravate economic conditions and undermine talks on debt relief unless it is bridged fast. Refraining from adversarial statements is the least they can do at this point, especially some ministers. According to the latest revision of gross domestic product data, based on seasonally adjusted figures, the Greek economy shrank by a revised 0.4 percent in the last quarter of 2014 compared to the previous quarter as opposed to a 0.2 percent drop in the flash estimate. This brought the real GDP growth rate to 0.75 percent for the whole year, still better than earlier forecasts, ranging between 0.4 and 0.6 percent. Political uncertainty appears to have taken its toll as households and businesses cut back on spending. Unfortunately, businessmen and others think this trend has continued in the first months of 2015. If they are right, real GDP will dip again in the first quarter of this year, compared to the last one in 2014. This will make it unlikely to reach the budget goal of 2.9 percent annual growth in 2015. Moreover, international investment banks and others are downgrading this year’s economic growth forecasts, ranging between 0.6 and 2 percent. With the consumer price index continuing to decline, the prospects for an end to deflation do not look promising at this point. In the 12-month period from February 2014 to January 2015, average prices as measured by the CPI decreased by 1.4 percent year-on-year. Even if deflation settles closer to a 1 percent average decline, nominal GDP is likely to be little changed and may even shrink, assuming real economic activity disappoints.

    To beat austerity Greece must break free from the euro --  What should we as Syriza do and how could the left across Europe help? The most vital step is to realise that the strategy of hoping to achieve radical change within the institutional framework of the common currency has come to an end. The strategy has given us electoral success by promising to release the Greek people from austerity without having to endure a major falling-out with the eurozone. Unfortunately, events have shown beyond doubt that this is impossible, and it is time that we acknowledged reality. For Syriza to avoid collapse or total surrender, we must be truly radical. Our strength lies exclusively in the tremendous popular support we still enjoy. The government should rapidly implement measures relieving working people from the tremendous pressures of the last few years: forbid house foreclosures, write off domestic debt, reconnect families to the electricity network, raise the minimum wage, stop privatisations. This is the programme we were elected on. Fiscal targets and monitoring by the “institutions” should take a back seat in our calculations, if we are to maintain our popular support. At the same time, our government must approach the looming June negotiations with a very different frame of mind from February. The eurozone cannot be reformed and it will not become a “friendly” monetary union that supports working people. Greece must bring a full array of options to the table, and it must be prepared for extraordinary liquidity measures in the knowledge that all eventualities could be managed, if its people were ready. After all, the EU has already wrought disaster on the country.

    Greek Kolotumbas Increasing at Disconcerting Rate -- Yves Smith -- I’m at risk of getting whiplash from watching the speed at which Greece is changing its position on key issues. And while I’d be delighted to be proven wrong, there are reasons to think this pattern does not bode well for the government’s ongoing negotiations. The negotiations between Greece and its creditors are not garden-variety bargaining between two parties. These are complex multi-party dealings that are part of ongoing relationships. Thus they also involve a substantial amount of diplomacy. One of the things we flagged at the outset as a large obstacle for Syriza was the degree to which its messaging was public, and what it felt necessary to say to its domestic supporters might be at odds with what it might convey to its creditors, and vice versa. There are signs that the diplomacy/relationship establishment part of this project is not going swimmingly. A recent Der Spiegel article, which was admittedly a bit of a puff piece for German finance minister Wolfgang Schauble, nevertheless had a revealing section. There’s a disputed account of a meeting in which Varoufakis allegedly yelled at the Eurogroup head, Jeroen Dijsselbloem repeatedly, calling him a liar. Varoufakis and Dijsselbloem both deny that this took place. But regardless of what happened, look at what transpired next: The result was that last Friday’s Euro Group meeting was atomized, with small groups of two to four people meeting individually with Schäuble, with International Monetary Fund head Christine Lagarde, with European Central Bank head Mario Draghi and with Dijsselbloem. Varoufakis quickly realized that he was alone, that the other 18 finance ministers were against him. But he took it as validation for his approach…. Prior to the beginning of last Friday’s meeting, Dijsselbloem had telephoned with European leaders to consolidate support behind his compromise proposal. German Chancellor Angela Merkel made it clear to Tsipras that there were no other alternatives. “It’s either that, or it’s over,” she said. And Tsipras relayed his decision to his finance minister: He had decided to give in. Thereafter, Varoufakis was largely uninvolved in the talks, sources say.

    Theater Of The Absurd: Spain To Provide 14% Of Funds For Third Greek Bailout -- The ink is not even dry on the much fought extension of the Greek bailout, so hated in Greece because it perpetuates the "austerity" memorandum conditions and already Spain is stoking the anti-austerity fire in Athens even more when moments ago Spain's Guindos revealed that not only is a third Greek bailout imminent, and will cost Europe's taxpayers between €30 and €50 billion, but that Spain, whose banks were completely insolvent as recently as 2 years ago and were only "saved" thanks to the ECB's direct and indirect (repo) bond monetization pathways will provide between 13% and 14% of the funding!  What makes the announcement doubly ironic (the broke bailount out the insolvent, or is the bankrupt saving the liquidating?), is that just hours earlier Spain’s deputy minister for the European Union Inigo Mendez de Vigo said that "Greece should do less talking, do more reforms." But why if Spain will be so kind as to provide the funding needed for the next Greek bailout, and the bailout after that, and the one after that…

    Greek European deal: where are we? - The European deal done six days ago was supposed to stabilise the Greek debt crisis. In return for a bit of fiscal autonomy the Syriza government (a) recognised its debts as legitimate (b) gave its lenders a running veto on any measures taken that might impact on the economy, the banks or the budget balance. But the situation in Greece is still critical. First because Greece gets no new loans from the deal. Because it is pledged to run a budget surplus it has to finance the state from tax receipts. But these have reportedly slumped by 22 per cent since December. Normally the government could bridge the gap by issuing short term bonds called T-Bills but the ECB has placed a €15bn cap on that and it’s been reached. Second, Greece faces some imminent debt repayments. €2.5bn this month, mainly to the IMF, €1.7bn in April-May, then €3.5bn to the ECB and European governments in June. Finance minister Yanis Varoufakis said they would definitely pay the IMF, but that the ECB debt was “in a different league” and he would seek to renegotiate it alongside the bigger debt deal he is trying to do in June.  Third, pressure on the radical left government from its support base is growing. PM Alexis Tsipras announced five laws on Saturday. They included a write off of small debts for 3.7 million people; an instalment scheme for people who owe up to €50,000 in tax; food stamps, free electricity and free housing for those in extreme poverty. Plus the reopening of the state broadcaster ERT and the closure of a controversial gold mine, in Skouries, which has been the target of bitter environmental protests.

    Greece in talks for third bailout of up to €50bn, Spain says - Negotiations have begun on a third bailout package for Greece worth between €30bn and €50bn, the Spanish economy minister said on Monday. “We are negotiating a third rescue for Greece,” Luis de Guindos told a conference in Pamplona. The minister added that the Spanish government, which has been locked in a war of words with Athens in recent days, would contribute 13-14 per cent of the bailout. The accord would provide for “flexibility” and would include fresh conditions for Greece. Mr de Guindos, one of the frontrunners to take over the presidency of the eurogroup of finance ministers this year, added: “Greece will not leave the euro. It would not be good for Europe and not for the monetary union either . . . For Greece, there is no alternative to European solidarity.” It has long been expected that Greece would have to seek another bailout to cover its financing needs. But Mr de Guindos is the first European minister to declare publicly that negotiations had begun, and to specify the amount of money at stake. Other officials appeared to play down his claims or suggest they were premature. A spokeswoman for Jeroen Dijsselbloem, the current eurogroup head, said: “It’s not something that is being discussed in the eurogroup.” A spokeswoman for Mr de Guindos clarified later on Monday that the minister had merely wanted to give an estimation of the size of a future Greek bailout, and to indicate the likely Spanish contribution. The notion of another bailout — and the reform conditions attached to it — is highly contentious in Greece. Over the weekend, the country’s new premier, Alexis Tsipras — who rose to prominence by railing against the bailout — insisted that Greece would not seek a third programme.

    Greece eyes last central bank funds to avert IMF default - Greece is preparing to tap its final pension reserves at the country’s central bank if needed to avert a devastating default to the International Monetary Fund and keep the government going over the next two weeks. The Greeks must pay the IMF €1.5bn in a series of deadlines this month, starting with €300m as soon as Friday. No developed country has ever defaulted to the IMF in the history of the Bretton Woods financial system. Such a move would shatter confidence and reduce Greece to a financial pariah in motley company with Zimbabwe.George Stathakis, the economy minister, said the government still has hidden reserves to keep operations going for a few more weeks, brushing aside warnings that the state could run out of cash within 10 days. “These stories are exaggerated. We have various buffers, including €3bn or €4bn at the Bank of Greece," he told The Telegraph. It is understood that the central bank deposits are mostly part of Greece’s social security and pension system. Analysts say it is far from clear whether the government can legitimately tap this money without breaching other fiduciary obligations. “We think the funds are already down to €1.8bn. If they draw on this, how are they going to meet their pension bills next month?” said one banker. A senior Greek official opened the door last week to a possible “delay” in repayments to the IMF, perhaps for a month or two, setting off alarm bells among investors and bank depositors. It was taken as an admission that the country is now desperate as capital flight runs at €800m a day.

    Greek Pensioners To Fund Ukraine's Government: Syriza Will Tap Pension Funds To Pay IMF -- Just yesterday we warned that, among the 'solutions' the Greek government was exploring in its scramble for cash to pay back The IMF loan, was 'borrowing' from the nation's pension funds. Today we get the sad confirmation that indeed Greece will raid cash reserves in pension funds and other public sector entities to cover its funding needs. As Reuters reports, Greece will use short-term repo transactions to transfer the cash, but one government official said they could not be used to repay the IMF. As the radical left-wing government takes from the implictly wealthier Greeks (pension funders), it is giving free electricity, a rent allowance, and food stamps to the poor.

    Greece taps public sector cash to help cover March needs - sources (Reuters) - Greece is tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs this month, debt officials told Reuters on Tuesday. Shut out of debt markets and with aid from lenders frozen, Athens is in danger of running out of cash in the coming weeks as it faces a 1.5 billion euro loan repayment to the International Monetary Fund this month. The government has sought to calm fears and says it will be able to make the IMF payment and others, but not said how. At least part of the state's cash needs for the month will be met by repo transactions in which pension funds and other state entities sitting on cash lend the money to the country's debt agency through a short-term repurchase agreement for up to 15 days, debt agency officials told Reuters. However, one government official said they could not be used to repay the IMF unless Athens was able to repay the state entities the cash it borrowed from them. Debt officials sought to play the repos as advantageous for both sides, arguing that the funds get a better return on their cash than what is available in the interbank market. "It is not something new, it's a tactic that started more than a year ago and is a win-win solution. It's a proposal, we are not twisting anyone's arm," one official said.

    Greece Said To Tap Social Security Capital To Fund T-Bill Rollover -- Today's Greek T-Bill rollover auction came, and it was successful, even if it means the yield on the paper rose from 2.75% previously to 2.97% - the highest yield in 11 months, since the 3.01% in April of 2014. The problem is when looking at where the funds came from: as Bloomberg reported, also citing Kathimerini, today it was the turn of Greek Social Security funds to prop up the auction, with part of the reserves of other public entities held at Bank of Greece also used to cover the Treasury-bill auction. Bloomberg adds that the "investment of common capital reserves was necessary as no foreign investors participated in auction, Greek banks couldn’t buy additional securities as they weren’t allowed to increase their exposure to Greek Treasury bills." The biggest problem is that  about €750m of the T-bills maturing Friday were held by foreign investors who didn’t participate in today’s auction.

    Do Greece, the Troika, and the Eurogroup Actually Have a Deal? -- Yves Smith - Ambrose Evans-Pritchard has a new article on Greece’s scramble to find the funds to meet it March IMF payments, which are €1.5b in total, with €300 due on Friday. Note that IMF payment dates aren’t as hard and fast as credit card due dates; the agency allows borrowers some leeway if they have a clear intent to pay. Nevertheless, Evans-Pritchard’s most important observation may be the one at the close of his article: Whatever piece of paper they signed in Brussels 10 days ago, the two sides are still talking past each other. In other words, the two sides disagree profoundly as to what the memo means. And that may mean that in reality, there is no deal at all.   I had described the memorandum that was signed to extend the current so-called bailout for four months as a letter of intent, and was worried about using that term, since in the US, smart lawyers make sure to specify that a letter of intent is non-binding. By contrast I assumed that both parties were committed to the process outlined in their February pact. But the ambiguity that was cited as a virtue that allowed both sides achieve closure so that the bailout did not expire on February 28 and to present the agreement as a win to domestic audiences may be backfiring.  From the Troika/Eurogroup side, there are logical reasons for them to see Greece as a supplicant who is in no position to bargain. If you are a borrower who has to go to market to refinance, which is in some ways the position Greece is in, you have to accept the terms on offer. The alternative is a default on its non-IMF debt*, which if Greece could do without leaving the Eurozone, is the best of its unattractive options.   However, the ECB has the whip hand here. It is not clear that the ECB’s governing board would allow the critical bank lifeline to Greek banks, the ELA, to continue.  If the ECB were to terminate the ELA, Greece would have to move rapidly to support its banking system, and have a bank holiday, impose capital controls, nationalize the banks and issue drachma so it could shore them up.

    IMF abdication on Greece  -- In an otherwise sound critique of Mr. Varoufakis’ list of proposals for Greek government policies last week, Mme. Lagarde’s letter to Mr. Dijsselbloem contains an additional, unremarked, but revealing element. After saying that, in the IMF’s view, the Greek list was sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, she added: … but a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions. One might casually read that phrase as throwaway diplomacy or simply as recognizing the facts of life. But either way, the IMF thereby washed its hands about what might follow if the Europeans determined that the letter was insufficient as a starting point. The message would have been very different had her phrase been: … and I would [strongly?] encourage you and your European colleagues to reach a similar determination promptly. With so much in play, why did the IMF not clearly put that marker on the record? The explanation is unlikely to be that it understood via midnight phone calls that the Europeans had pre-approved the letter. At the least, European officials on the other end of such calls had no assurance of how their various parliaments would respond to the IMF’s own substantive and strongly expressed concerns with Greek plans. Instead, the explanation is likely that, in the IMF view, Grexit was unlikely to follow a negative determination or/and that if it did, it would not be systemic even if, as Mme. Lagarde had just publicly stated, it would be disastrous for Greece itself.

    Greek Gov't Looking More and More Like the Tower of Babel -- A little over a month in the Maximos Mansion and it seems that the Greek government officials are in constant competition with each other over who is going to sound more leftist, more “for the people,” who commiserates more, who is more true to his campaign promises, who is more humble and dedicated to the “cause.” SYRIZA MPs and cabinet members continuously contradict each other; and themselves. It is as if some of them make two different statements for each major issue: one for the European Union and one for internal consumption. One for the creditors and one for the crisis-stricken Greeks. The debt negotiations and the extension deal signed is the point where the most contradictions occur. Finance Minister Yanis Varoufakis says that leaving the euro zone would be a disaster and at the same time another SYRIZA MP and economics expert, Costas Lapavitsas, states in a British newspaper that Greece will never come out of the crisis if it remains in the common currency bloc. Other SYRIZA cabinet members openly criticize Mr. Varoufakis for giving too much to the lenders. Regarding repayment of debts to the state, Deputy Finance Minister Nadia Valavani took back the proposal for a haircut of the capital owed and retained the writeoff of all penalties imposed. Mrs. Valavani claimed that she should take into consideration the opinion of other economics experts, despite the fact that she believes there should be a writeoff of capital.

    Can Greece avoid going bankrupt this month? -- March represents a crucial four weeks for Syriza. Greece is due to make a €1.5bn repayment of its loans to the International Monetary fund this month. Its first €300m payment is due on Friday, in addition to more than $4.5bn in short-term bond redemptions that will also mature later this month. Given that the country will not receive its bail-out cash until April at the earliest, the new Leftist government has already hinted that it may have to delay fulfilling its obligations to the IMF. Should it fail to make its loan repayments, Greece would join an ignominious list of international pariahs and war-torn failed states, and become the only developed economy to renege on its commitments to the Fund in 70 years (see chart below). But the squeeze on the country's public finances shows no sign of abating. Capital flight accelerated to €64m last week, according to JP Morgan. Greek bank deposits have reached their lowest level in more than a decade and tax revenues have collapsed since January. Finance minister Yanis Varoufakis has sought to calm the tensions by vowing to "squeeze blood out of stone" in order to pay back the IMF. "We shall do it," he told the Associated Press earlier this week. But the Greeks are running out of options fast.

    ECB says willing to restore financing for Greek banks once deal is reached: European Central Bank chief Mario Draghi said Thursday that the ECB is prepared to restore a key channel of financing for Greek banks once Athens reaches a debt deal with its eurozone partners. "The ECB is the first to wish to restart lending to the Greek economy providing the conditions are in place," Draghi told a news conference. And one of the conditions was that Greece and its partners should put in place "a process which suggests successful completion of reviews," he said. Greek banks are dependent on the ECB for financing, but the eurozones central bank has said it no longer accepts Greek sovereign bonds as collateral for loans. It had done so previously under a special waiver mechanism, but only as long as Greece continued to abide by the conditions of its bailout programme. However, Athens' new anti-austerity government under Prime Minister Alexis Tsipras was elected on his promise to renegotiate the tough bailout conditions. And the ECB rescinded the waiver until a new deal was reached. "Right now the ECB cannot buy Greek bonds," Draghi said. "If certain conditions are in place as far as economic policy is concerned, that would make the governing council think that in some time from now bonds would again be eligible," Draghi said. Without the waiver, Greek banks now rely solely on emergency liquidity assistance (ELA) which is more expensive than normal central bank refinancing operations.

    Varoufakis: “We have Plan B” after ECB Draghi’s says No,No,No to liquidity: “We have Plan B” Greek Finance Minister Yanis Varoufakis told private Mega TV on Thursday, just a couple of hours after ECB head Mario Draghi linked ECD funding with Greece’s compliance to the bailout and austerity program, righting the conditions for liquidity. At a press conference today, Mario Draghi distributed money around, but to the Greek, he said three times “No”. NO, ECB will not allow Athens to sell additional T-bills total worth 8 billion euro. NO, ECB will not buy Greek bonds under its new assets-buying program. NO, ECB will not accept Greek bonds as collateral. Draghi said further that the European Central Bank has already lent 100 billion euros to Greece’s banks, or 68 percent of the country’s gross domestic product. Only concession towards Greece was to raise the Emergency Liquidity Assistance (ELA) fund by 500,000,000 euro to total €68.8 billion. “The ECB is a rule-based institution. It is not a political institution. It cannot provide monetary financing to governments, either directly or indirectly. We cannot give money to banks to fund governments,” Draghi said

    Greece Proposes To Become A Tax-Collecting Police State: Will "Wire" Tourists And Unleash Them As "Tax Inspectors" -- "We propose the following: that large numbers of non-professional inspectors are hired on a strictly short-term, casual basis (no longer than two months, and without any prospect of being rehired) to pose, after some basic The very 'news' that thousands of casual "onlookers" are everywhere, bearing audio and video recording equipment on behalf of the tax authorities, has the capacity to shift attitudes very quickly, spreading a sense of justice across society and engendering a new tax compliance culture - especially if combined with the appropriate communication of the simple message that the time has come for everyone to share the burden of public services and goods."

    Troika Tightening the Noose on Greece as Government Cash Crunch Worsens -- Yves Smith We warned almost as soon as the memorandum was agreed among Greece, the Troika, and the Eurogroup, that given that the government was already out of cash and had IMF payments due in March, the logical course of action would be to withhold funds to force Greece to give in on structural reforms. Remember that the current “bailout,” which is being used as a term of art, is seen by the Troika and Eurogroup as a continuation of the existing IMF funding package, which includes a set of structural reforms. Syriza wanted to change what it says are 30% of them. The IMF and ECB have made clear that they expect the new government to stick with the existing program, and their body language is that they aren’t open to much in the way of changes, save perhaps humanitarian relief (Varoufakis has said that he secured agreement on that issue; the Troika has been mum).  Indeed, the creditors are behaving just as expected. From Friday’s ekathimerini:Greece submitted to Eurogroup chief Jeroen Dijsselbloem Friday an outline of seven reform proposals to form the basis for discussion at Monday’s meeting of eurozone finance ministers, but the signs from Brussels are that Athens is no closer to securing the release of its next tranche of bailout funding.The 11-page document sent by Finance Minister Yanis Varoufakis sets out several proposals that have already been made public as well as some that were only made known Friday. The suggestion that caused the most surprise was to fight tax evasion by enlisting non-professional inspectors, including tourists, on a two-month basis during which they would collect audiovisual data that could be used to target evaders..In his letter to Dijsselbloem, Varoufakis calls for technical discussions regarding the proposals to begin as soon as possible.

    Cash-strapped Greece repays first part of IMF loan due in March (Reuters) - Greece repaid the first 310-million-euro installment of a loan from the International Monetary Fund that falls due this month, meeting an initial deadline in the cash-strapped state's scramble to cover its funding needs, a government source said on Friday. Prime Minister Alexis Tsipras' newly elected government must pay a total of 1.5 billion euros to the IMF this month over two weeks starting on Friday. His government has said it will make the payments but there has been growing uncertainty over the country's cash position as it faces a steep fall in tax revenues while aid from EU/IMF lenders remains frozen until Athens completes reforms it has promised to do.

    Greece sends proposals, but no decision due at Monday's Eurogroup: Greece submitted to Eurogroup chief Jeroen Dijsselbloem Friday an outline of seven reform proposals to form the basis for discussion at Monday’s meeting of eurozone finance ministers, but the signs from Brussels are that Athens is no closer to securing the release of its next tranche of bailout funding. The 11-page document sent by Finance Minister Yanis Varoufakis sets out several proposals that have already been made public as well as some that were only made known Friday. The suggestion that caused the most surprise was to fight tax evasion by enlisting non-professional inspectors, including tourists, on a two-month basis during which they would collect audiovisual data that could be used to target evaders. Varoufakis also outlined plans to activate a fiscal council to generate budget savings and update licensing of gaming and lotteries to boost state revenues by an estimated 500 million euros. He also gave details of the government’s plan to ease the social impact of the crisis, which will cost some 200 million euros, and to introduce a new payment plan for tax debtors, which the coalition estimates could raise 3 billion euros in revenues. In his letter to Dijsselbloem, Varoufakis calls for technical discussions regarding the proposals to begin as soon as possible. “We envisage that... the majority of the items on our first list can be further specified as soon as possible so that the resulting agreement can be ratified by the Eurogroup, and Greece’s Parliament, and become the basis for the review,” wrote the Greek finance minister, who added that the government proposes all technical discussions and fact-finding or fact-exchange sessions should take place in Brussels.

    IMF’s Director Batista: Greek bailout was “to save German & French banks” (video): This was never said officially before! “They gave money to save German and French banks, not Greece,” Paolo Batista, one of the Executive Directors of International Monetary Fund told Greek private Alpha TV on Tuesday. Batista strongly criticized not only the euro zone and the European Central Bank but also the IMF and the Fund’s managing Director Christine Lagarde for defending Europe much too much.. He urged Greece to directly negotiate with the IMF and favored the restructuring of the Greek debt that is been hold by the European partners. Video: English with Greek subtitles

    How fraudulent blood money makes the world go round; Death, drugs, and HSBC — Recent reporting on illegal tax evasion by the world’s second largest bank, HSBC, opens a window onto the pivotal role of Western banks in facilitating organised crime, drug-trafficking and Islamist terrorism. Governments know this, but they are powerless to act, not just because they’ve been bought by the banks: but because criminal and terror financing is integral to global capitalism. Now one whistleblower who uncovered an estimated billion pounds worth of HSBC fraud in Britain, suppressed by the British media, is preparing a prosecution that could blow wide open the true scale of criminal corruption in the world’s finance capital. Following revelations that the Swiss banking arm of HSBC — the world’s second largest bank — was engaged in massive fraudulent tax-evasion relating to assets totaling $100 billion, Peter Oborne dropped an unexpected bombshell. The veteran journalist exposed how one of Britain’s leading national broadsheets, The Telegraph, refused to cover the HSBC scandal to protect its corporate advertising revenues. The increasing encroachment of corporate power on The Telegraph’s editorial decisions was among the factors, Oborne said, that led him to resign from his position as chief political commentator at the paper.

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