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

Saturday, April 18, 2015

week ending Apr 18

Bernanke Suggests Fed Abandon Fed Funds Rate, Keep Balance Sheet Large -  The Federal Reserve may want to change the way it controls short-term interest rates and maintain a larger asset portfolio than it did before the financial crisis, former Fed chairman Ben Bernanke said Wednesday. Control of monetary policy “might be more, rather than less, effective” if the Fed moved away from targeting a benchmark interest rate called the federal funds rate, Mr. Bernanke said in remarks during a panel discussion hosted by the International Monetary Fund in Washington D.C. The fed funds rate is a rate banks pay each other for overnight loans of reserves, which are the deposits they keep with the Fed. Because the Fed has flooded the financial system with reserves, these rates have been pushed toward zero and banks don’t trade them much anymore. Instead of focusing on the fed funds market, Mr. Bernanke said the Fed should consider targeting a market rate known as the “repo rate,” where financial institutions are very active, or some other short-term money market rate. He endorsed the Fed using two new instruments to manage rates: interest it pays on banks’ excess reserves and an interest rate it pays on transactions called reverse repurchase agreements, or reverse repos. Fed officials have been reluctant to use reverse repos very aggressively, but he played down those concerns. Mr. Bernanke, who left office in early 2014, spoke as the Fed is preparing to raise short-term rates that have been pinned near zero since December 2008. Officials have said they expect to begin raising rates this year, though the precise timing for the first increase remains uncertain. The Fed has for years used the fed funds rate to tighten or loosen credit in the economy. In the past, the Fed changed the rate by increasing or decreasing the amount of reserves in the banking system. But because of the huge amount of reserves now, it will use new tools to manage interest rates.

Yellen and Bernanke Go Separate Ways on Exit Strategy - For much of the past year, the Federal Reserve Chairwoman has been mapping out a complex strategy for the mechanics of raising short-term interest rates. The effort has consumed large portions of Fed policy meetings and resulted in stacks of staff memos. On Wednesday, Mr. Bernanke suggested she adopt a new strategy.  As part of her strategy, Ms. Yellen and her colleagues at the Fed have decided to stick with the central bank’s longstanding tradition of targeting a short-term interbank lending rate called the fed funds rate. Mr. Bernanke said they ought to drop it. “The fed funds market is small and idiosyncratic. Monetary control might be more, rather than less, effective if the Fed changed its operating instrument to the repo rate or another money market rate,” he said.Ms. Yellen’s strategy also depends upon substantially shrinking the Fed’s portfolio of securities by 2020,  allowing bonds to mature without reinvesting the proceeds. Mr. Bernanke suggested the Fed keep the portfolio large. “I wonder if the case for keeping the balance sheet somewhat larger than before the crisis has been adequately explored,” he said.Mr. Bernanke also weighed in on an evolving Fed debate about a new instrument being tested by the New York Fed called overnight reverse repos. These are in effect like a deposit facility for money market funds and other financial institutions. They give the Fed their overnight cash and the Fed uses overnight reverse repos to pay them interest in return. As the head of the New York Fed’s market group, Simon Potter, said in a speech Wednesday, they appear to be a powerful instrument for controlling short-term interest rates. Fed officials, in fact, worry they might be too powerful; so attractive that investors might flock to them in a crisis and drain money out of the banking system,  or money market funds might build a whole new industry out of their use. Fed officials have decided they want to limit the use of overnight reverse repos.  Mr. Bernanke suggested the Fed’s concerns about the program were misplaced, noting there were actions the Fed could take to mitigate problems associated with its use. His views appear to be broadly aligned with Brian Sack, the former head of the New York Fed’s market’s desk and Joseph Gagnon, a former Fed economist.

The Fed Can Be Patient About Raising Interest Rates - WSJ: On Wednesday, March 18, the financial world got its answer: The Fed is still patient, in fact extremely patient. But it’s not going to use that p-word anymore. Instead its language is now more specific. “The Committee anticipates that it will be appropriate to raise the . . . federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective.” The most important word in this sentence got little attention: and. The Fed wants to see two things before it is ready to raise interest rates: “further improvement in the labor market” (even though the unemployment rate is now back to spring 2008 levels), and convincing evidence that inflation (which has been running below target) is heading back to 2%. Waiting for both may require a lot of—well—patience. Then why jettison the p-word? As devout Fed-watchers know, Chair Janet Yellen had defined being “patient” as waiting at least two more Fed meetings—roughly a quarter—before raising rates. She said “at least two,” but markets, craving concreteness, translated that to exactly two. So dropping “patient” in March would have been read as a signal that a rate hike was likely in June. The Fed did not want to send such a signal. So the p-word disappeared even though the p-concept remained. How patient will the Fed be? Its latest forecast sees the unemployment rate dropping into its target range, now 5%-5.2%, by the fourth quarter. But the Fed keeps lowering that target range. And inflation is not forecast to reach 2% until 2017. Are Yellen & Co. right or wrong to be so patient? I think they are right.

Fed’s Lacker Says a Strong Case Can Be Made for Higher Rates --Federal Reserve Bank of Richmond President Jeffrey Lacker said Wednesday a good argument can still be made to raise rates at the U.S. central bank’s mid-June policy meeting. “I think a strong case can be made that short term interest rates should be higher right now,” Mr. Lacker said in response to audience questioning at a speech in Charleston, S.C. He added that even with some signs economic activity might have softened over the start of the year, “I think the case is likely to remain strong” that rates should move up off of near zero levels by the June central bank meeting. Mr. Lacker is a voting member of the monetary policy setting Federal Open Market Committee. He spoke as expectations about the policy outlook have been thrown into flux by unexpectedly weak data. Most Fed officials expect to see rates rise this year. Key officials had broadly pointing to the summer as the most likely time to increase the cost of borrowing in the U.S., but the economic data has suggested the Fed may hold off until later in the year. Mr. Lacker has long suggested the economy is near ready for higher interest rates. He said he would approach the June Fed meeting with “an open mind” and suggested the economy’s performance may have been weighed down by temporary factors. Speaking with reporters after his speech–the formal remarks were devoted to educational issues–Mr. Lacker said that if the Fed holds off too long on raising rates, it can create risks for the economy. He added that a push higher in rates followed by a move down would not be the problem for Fed credibility some of his colleagues have said.

Bullard: Now May Be Good Time to Start Raising Rates - Federal Reserve Bank of St. Louis President James Bullard said Wednesday “now” may be the appropriate time to begin raising short-term interest rates from near zero, with the U.S. economy poised for a boom and unemployment headed below 5%. “There’s a mismatch between the monetary policy side, which is still at emergency settings, and the economy itself, which is arguably reasonably close to normal,” Mr. Bullard said at a conference in Washington. “Now may be a good time to begin normalizing monetary policy so that it is set appropriately for an improving economy over the next couple of years.” Mr. Bullard has been a consistent advocate for raising the Fed’s benchmark short-term rate from near zero. In recent months, he signaled he would have been willing to boost borrowing costs this spring. Mr. Bullard has also warned that if rates haven’t gone up by the fall, it could be a problem for the Fed and the broader economy. “If I’m right that you’ve got a coming boom in the U.S. economy and you’re going to keep interest rates that low through that boom that sounds like a recipe for asset market bubbles, and they’ve been a killer for the U.S. economy in the last 20 years,” he said. On Wednesday, Mr. Bullard declined to name a specific time for the first interest rate increase. “I’m being deliberately vague on that because it really is supposed to depend on the data and I haven’t seen all the data for the spring yet,” he said.

Fed’s Mester Comfortable With Raising Rates ‘Relatively Soon’ - The U.S. economy has improved to a point where the risks of delaying policy tightening by the Federal Reserve could soon outweigh the benefits of keeping rates near zero, a top Fed official said Thursday, suggesting a June liftoff in rates is possible if incoming data allow. “If it turns out that the incoming information shows that growth is regaining momentum after the first-quarter slowdown and more broadly supports my forecast, I would be comfortable with liftoff relatively soon,” Federal Reserve Bank of Cleveland President Loretta Mester said in remarks prepared for delivery before the Forecasters Club of New York. Responding to media questions, the central banker said “relatively soon” means any of the upcoming policy gatherings beyond the April 28-29 meeting is fair game, stressing that her view will depend on how the economy evolves. The Fed’s most recent policy statement has already ruled out taking action in April. In March, Ms. Mester said she considered June to be “a viable option” for the Fed to kick off its tightening process. The Fed in March removed language from its policy statement that the central bank would remain “patient” about raising interest rates. Ms. Mester said Thursday she supported that wording change, which has given the Fed flexibility to act. Ms. Mester on Thursday acknowledged the disappointing data on economic activity in the first quarter, but said she views the slowdown as “temporary,” driven by factors such as harsh winter weather. The official expects the U.S. economy to bounce back with an average 3% growth for the balance of the year and through 2016, which she expects to help lift inflation toward the Fed’s 2% long-run goal by late 2016.

Fed’s Rosengren: Conditions Not Yet Met to Support Rate Rises - Federal Reserve Bank of Boston President Eric Rosengren said Thursday the economy is not yet ready for higher short-term rates. Given the Fed’s current inflation and job market performance goals, “I do not think that either condition has been met” to support moving short-term rates off of their current near-zero levels, Mr. Rosengren said in the text of a speech to be delivered in London. “Although there has been noticeable improvement in the labor market over the past few years, since March the indicators have been a bit mixed,” Mr. Rosengren said. “Inflation remains stubbornly below our target of 2%,” he added. Mr. Rosengren, who is not currently a voting member of the monetary-policy setting Federal Open Market Committee, spoke amid brewing uncertainty about the outlook for monetary policy. While Mr. Rosengren has been hesitant to embrace a push toward higher borrowing costs, most officials have been on board with a boost in short-term rates this year. A number of them had indicated the conversation over rate rises would start with the FOMC’s mid-June policy meeting. But a slate of weak economic data over the start of this year, which now includes softening job gains, have altered the conversation. Many now believe the Fed may raise rates later in the year relative to recent expectations. Mr. Rosengren’s comments Thursday highlight the belief the Fed is still some ways from where it wants to be, and that could help quell the push for higher rates for now.

Fed’s Lockhart’s Uncertain Outlook Drives Him to Cautious View on Rate Rises - Federal Reserve Bank of Atlanta President Dennis Lockhart said Thursday that unexpected economic weakness over the start of the year means it will likely take longer to gain enough confidence in the outlook to raise short-term interest rates. Given how the economy has performed thus far, “I think waiting a while longer improves the chances of seeing confirmation from incoming data that the economy is on the desired path,” Mr. Lockhart said in a speech given to a local group in West Palm Beach, Fla. In contrast with recent remarks that suggested the Fed’s mid-June meeting would open the door to discussions about raising rates off of their current near-zero levels, Mr. Lockhart offered no guidance in his comments about when the Fed might act. Speaking to reporters later, Mr. Lockhart said a June rate increase wasn’t “off the table,” but was “not my preference.” He also said, while observers tend to obsess about when rates will begin to rise, they should focus as well on the subsequent pace of increases. If rates rise rapidly, that could cool the economy, he said. For that reason, the Fed prefers a more gradual path of increases, he said. Mr. Lockhart is a voting member of the monetary-policy-setting Federal Open Market Committee. He is widely viewed as a centrist on the FOMC, with views that are a reliable guide to the future of policy making.

Q. and A. With the Fed’s John Williams: Timing of Rate Rise Is Overrated - John Williams, president of the Federal Reserve Bank of San Francisco, says he’s done talking about which month the Fed will start to raise its benchmark interest rate.“I’ve sworn to myself that from now on the only months of the year I’ll refer to is months that have reference to births and anniversaries,” he said in an interview this week.But Mr. Williams did offer a specific answer about the timing of that first increase: He will vote to raise rates, he said, when he expects unemployment to fall to its minimum sustainable level within the next year, and inflation to rise to 2 percent within the next two years.He also offered his thoughts on the great debate between Ben Bernanke and Larry Summers, and the consequences for monetary policy.The transcript of our conversation was lightly edited for clarity.

The limits of monetary policy - Here is Cullen Roche quoting Ben Bernanke: "In light of our recent experience, threats to financial stability must be taken extremely seriously. However, as a means of addressing those threats, monetary policy is far from ideal. And Cullen then goes on:
  That’s a pretty interesting quote. You could actually apply that perfectly to, well, using monetary policy for anything. After all, it is an inherently indirect and imprecise policy tool. It works only through indirect transmission mechanisms like overnight interest rate changes, expectations channels, wealth effects, etc. If the past five years haven’t proven that monetary policy is a rather indirect and blunt policy, then I don’t know what would. Basically, monetary policy is weak sauce.... This is from Cullen's commentary on Ben's post about financial stability. Ben argues that monetary policy is not the right means of addressing financial stability concerns, and makes the case for greater use of macroprudential tools. The whole post is well worth reading, but I've summarised Ben's key argument here:

  • The Fed has kept interest rates very low ever since the Lehman shock. Because of Fed easy money policies, the US economy is now recovering, unemployment is at near normal levels and deflation risk is low.
  • Nonetheless, Fed easy money policies have come in for continual criticism. Initially the criticism focused on fears of high inflation, but since inflation has failed to materialise, criticism now centres around financial stability concerns.
  • Monetary policy is not the right tool to address financial stability concerns. It is too blunt an instrument to pop asset bubbles safely, and using it to address financial stability concerns may conflict with using it to achieve primary mandates of price stability and full employment. 
  • Therefore central banks should use macroprudential measures to ensure financial stability, not monetary policy.

‘Super taper tantrum’ ahead, warns IMF - José Viñals, the director of the IMF’s monetary and capital markets department, warned of a “super taper tantrum” and spiking yields as the US central bank gets nearer to lifting rates from near-zero levels. “This is going to take place in uncharted territory,” he said in an interview.  In its Global Financial Stability Report, released on Wednesday, the IMF argued that risks have not only risen worldwide, but that they have rotated to parts of the financial world that are harder to monitor — including to the non-bank sector. Among the key worries are “severe challenges” brewing in the EU life insurance sector amid plunging interest rates in the region. Many policies are offering generous return guarantees that are “unsustainable” in a prolonged low-interest rate environment, the IMF warned, highlighting German and Swedish firms.  In the report, the IMF said a sudden rise of 100 basis points in 10-year Treasury yields was “quite conceivable” once the market wakes up to the possibility of the first rise in official rates in nearly a decade. “Shifts of this magnitude can generate negative shocks globally, especially in emerging market economies,” the IMF said. Higher US interest rates could expose particular vulnerabilities in emerging markets where companies have issued large amounts of debt in dollars, the IMF said, adding that between 2007 and 2014 debt had grown faster than GDP in all major emerging markets.  Mr Viñals also laid out a scenario which he called a “Yellen conundrum” in which the central bank is forced to tighten policy more sharply than planned because longer-term interest rates do not respond to hikes in the Fed’s target range. “This exit is a lot more complex to figure out, and this is behind the uncertainty that there is in the markets,” he said.

None Dare Call It Fraud - Its Just A "Savings Glut" -- David Stockman - There is a $100 trillion bond market out there that has been priced by a handful of central bankers, not a planet teeming with exhuberant savers. The mad descent of the former into the whacky world of QE and ZIRP has caused a double whammy distortion in the bond markets of the world. In the first instance, the major central banks swaped $15 trillion of zero-cost fiat credit issued by their digital printing presses for a like amount of govenrment bonds, thereby driving up the price of the latter without causing a ripple of financial offet anywhere in the known universe. Stated differently, the extra $15 trillion of demand for fixed income debt did not arrise from real economic resources—–that is, income set-aside from the fruits of current production and allocated to the purchase of government bonds. It was just conjured from pure financial nothingness. Secondly, by driving the front-end of the yield curve to zero and pegging it there for upwards of 80 months now, the central banks conjured a second wave of bond demand from financial nothingness. To wit, zero cost repo credit and related forms of carry trade funding. When the fast money speculators decide to buy today what the central banks promise they will be buying for months or years to come under QE, they don’t exactly dig into their idle cash balances to fund the purchases. Actually, they buy the bonds first and then post them as collateral for a 95 cents on the dollar advance at less than 10bps of interest. In other words, ZIRP in the front-end money markets generates new credit-financed demand at the middle and back-end of the bond curve, thereby further goosing the price of these securities. And where did the repo lender get the cash to advance to the bond speculator? Well, more often than not by re-hypothecating the stocks and bonds in their customers trading accounts, which securities had undoubtedly been purchased on prime broker margin in the first place.  So, no, there isn’t a savings glut in the world; there is an outbreak of destructive central bank bond buying and money market price pegging that is virtually destroying the world’s bond market. What we have is a fraud wrapped in a bogus theory. Only none dare call it that.

How the Federal Reserve Is Destroying Your Economic Future - Lynn  Parramore - When it comes to what goes on in the marble corridors of the Federal Reserve, Americans tend to be suspicious. For different reasons, both the right and the left have challenged Fed policies aimed at bolstering the economy in the wake of the Great Recession. In two papers for the Institute of New Economic Thinking’s Working Group on the Political Economy of Distribution, “Have Large Scale Asset Purchases Increased Bank Profits?” and the forthcoming “The Impact of ‘Quantitative Easing’ on Expected Profits: Explaining the Rise and Fall of the Fed’s QE Policy,” economist Gerald Epstein and his colleague Juan Antonio Montecino sought to find out who in the economy tends to benefit from the Fed’s actions. They conclude that Wall Street and wealthy Americans are the big winners from policies like quantitative easing, while the rest see little improvement in their economic lives. End result? Inequality is getting worse. (interview transcript)

Fed’s Kocherlakota Worried Too-Low Inflation Could Persist for Years - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Tuesday he is worried undesirably low levels of inflation could be embedded in the U.S. economy for years to come. “I’m much more worried about the downside” of having inflation stay persistently under the Fed’s 2% target, Mr. Kocherlakota said. “We’ve see in Europe and Japan, that when inflation gets stuck at low levels, it’s very hard to get it back up,” he said. The policymaker’s warning came in remarks that reiterated his belief that raising short-term interest rates this year would be a mistake given tepid inflation and evidence the job market still has more ground to gain. With inflation well under the Fed’s official 2% target and the strong chance it will stay that way for several more years, “raising the Fed funds rate in 2015 would be inappropriate, because such an action would serve to further delay the return of inflation to target.” The official said while the job market had a good year in 2014, it is still trying to climb out of a deep hole. Because of that, the Fed should be doing all it can to aid further job market gains, which would in turn help push inflation back to desired levels. “The data on inflation and employment show that we could produce and consume more as a country by utilizing more of our available human resources,” Mr. Kocherlakota said. “Monetary policy can–and should–be used to help make that desirable outcome happen,” he said.

Key Measures Show Low Inflation in March The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.6% annualized rate) in March. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.9% annualized rate) in March. The CPI less food and energy also rose 0.2% (2.8% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for March here.This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.8%. Core PCE is for February and increased 1.4% year-over-year.  On a monthly basis, median CPI was at 2.6% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI was at 2.8% annualized.  On a year-over-year basis these measures suggest inflation remains below the Fed's target of 2% (median CPI is slightly above 2%).

Who is right about the equilibrium interest rate? -- The equilibrium real interest rate continues to lie at the heart of discussions about economic policy in the US and elsewhere. Ben Bernanke has written that the equilibrium rate, and not the FOMC, is the ultimate determinant of interest rates in the economy, and claims that it is discussed at every Fed meeting. The recent debate about secular stagnation between Mr Bernanke and Lawrence Summers centres on a difference about the future path for the equilibrium rate. And Cleveland Fed President Loretta Mester says that it is “the issue policy makers are grappling with” at the FOMC.   Most important of all, Janet Yellen has focused all her intellectual firepower on the subject in her most important speech on monetary policy since she became Fed Chair. In this recent blog, I outlined the meaning of the equilibrium rate, and showed that the FOMC’s implicit forecast for that rate accounts for much more than half of the tightening in US rates indicated in the committee’s dots chart over the next 3 years. The markets, however, do not believe the dots, and forward rates show a much smaller increase in US rates than the Fed indicates. The future path for bond and equity prices will depend largely on who is right about the equilibrium real rate: the Fed or the markets? The debate is well captured by the recent Bernanke vs Summers interchange on secular stagnation. The Bernanke view is that, in the medium term, the Fed is in effect forced to deliver the federal funds rate that is implied by the equilibrium real rate, since if they do anything else the economy will soon move away from their dual mandate on maximum employment and 2 per cent inflation.

WSJ Economists' Forecasts for 10-Year Yields and the Fed Funds Rate - The Fed minutes of its March 17-18 policy meeting released last week was were generally viewed by the popular financial press as showing a split in the FOMC on the timing of a rate hike. The Wall Street Journal has now made available its April survey of economists on key economic indicators. At this point only 19 percent of the 60+ economists see a June rate hike, with a 65-percent majority identifying September as the liftoff date. With the Fed now off center stage, let's take a quick look at a couple of items in the April Wall Street Journal survey of economists, starting with where the Federal Reserve is headed with the Fed Funds Rate, which is currently hovering around 0.12 percent. The April survey was sent to 72 economists, with responses received from 61. Here is a table showing the major response statistics -- Low, Median (middle), Average (aka Mean) and High -- at six-month intervals from June 2015 to December 2017. Here is the equivalent table showing the forecasts for the 10-year Treasury Note yield, which closed Friday at 1.96 percent. Since a picture is worth a thousand words, here's a short visual essay illustrating the forecast averages for the two series, rounded to one decimal. Economic indicators this year have been a mixed bag. The most popular headline employment numbers (new nonfarm jobs and the unemployment rate) have generally beaten expectations (although the March new jobs were a bit disappointing). In contrast, Industrial Production had been weak, and Retail Sales have been abysmal. Of course, the weakness can be attributed to another savage winter (a repeat of last year's meme). Meanwhile, the economists in the latest WSJ survey have slightly moderated their optimistic view of the US economy. Five of the six 10-year-yield forecasts have been trimmed by 10 bps, and the June 2017 forecast by 20 bps. The Fed Funds Rate forecasts for the comparable timeframes have been trimmed a bit more. Below is the same column chart for the March survey.

The Economy Has Slowed Because the Fed Has Already Tightened - The U.S. economy has downshifted rather abruptly in the last few months, prompting new discussion within the Federal Reserve about delaying its first interest-rate increase. Yet the growth deceleration should not come as a surprise, because the Fed has already tightened. True, the Fed’s interest-rate target remains close to zero. But the Fed tightens through its words, not just its actions, and the drumbeat of chatter from the Fed in the last year has made it clear that officials plan to start raising rates sometime this year. That chatter has made itself felt in stock, bond, and most important foreign exchange markets. The dollar’s sharp rise in the last six months is not due not just to the European Central Bank’s dramatic easing of monetary policy through quantitative easing (QE, the purchase of bonds with newly created money), but to the juxtaposition of the ECB’s action against anticipation that the Fed will soon tighten. Anticipation of tighter U.S. monetary policy also shows up in various measures of risk such as the spread between yields on corporate bonds and safe Treasurys, which have widened, or the stock market, which has stopped climbing. These are captured nicely in an index of financial conditions compiled by Goldman Sachs. The index has risen sharply since last August, by enough to imply a 0.75 percentage point slowing in economic growth this year.

Fed’s Fischer: U.S. Economy Should Rebound After ‘Poor’ First Quarter - The U.S. economy had a weak start to 2015 but growth should rebound going forward, Federal Reserve Vice Chairman Stanley Fischer said Thursday. “There’s definitely a rebound on the way already, and we’ll see at what speed it proceeds,” Mr. Fischer said during an interview on CNBC. “The first quarter was poor. That seems to be a new seasonal pattern. It’s been that way for about four of the last five years.” The effect on the Fed’s policy decisions, he said, depends on “how quickly we come out. If you look at last year, we had negative growth in the first quarter and then spectacular growth which made up for that. We don’t know what’s going to happen in the second quarter here yet.” Mr. Fischer said he expects “a recovery” but “whether it will be spectacular or just moderate is hard to say now.” Most officials at the U.S. central bank expect to begin raising short-term interest rates this year, but the precise timing of the first rate increase remains uncertain. Richmond Fed President Jeffrey Lacker said Wednesday that he thinks a “strong case” can be made to raise rates at the Fed’s June policy meeting, and suggested the economy’s recent performance may have been weighed down by temporary factors. But New York Fed President William Dudley said last week that the recent stretch of weak economic data means “it’d be reasonable to think that the timing of the Fed’s first rate hike might be a little further off in time.

Fed’s Rosengren Says Dollar Strength Crimping U.S. Growth - A top Federal Reserve official said Thursday the dollar’s strength is crimping growth in the U.S. and may require the central bank to delay raising interest rates. Federal Reserve Bank of Boston President Eric Rosengren told an audience in London that the greenback’s rise is hitting exports and manufacturing and risks slowing growth overall. “The United States won’t grow quite as strongly as it would have if we didn’t have this kind of exchange-rate movement,” he said while answering questions following a speech at the Royal Institute of International Affairs, also known as Chatham House. He said that may require Fed officials to delay raising borrowing costs. A strong dollar “has implications for how quickly we might have to raise rates when it starts becoming appropriate to raise rates.” Mr. Rosengren, who isn’t currently a voting member of the monetary-policy setting Federal Open Market Committee, spoke amid brewing uncertainty about the outlook for monetary policy. Although Mr. Rosengren has been hesitant to embrace a push toward higher borrowing costs, most officials have been on board with a boost in short-term rates this year. A number of them had indicated the conversation over rate rises would start with the FOMC’s mid-June policy meeting. Mr. Rosengren added it may be “several years” before annual inflation in the U.S. reaches the Fed’s 2% goal.

How Much More Dollar Appreciation? -- One important factor in the growth prospects for the US economy is the trajectory of the dollar. [1] If dollar stabilizes a March levels, US economic growth might rebound. On the other hand, continued appreciation bodes ill. Based on history over the floating rate era, the expected duration of an appreciation is about 5 years (depreciations about 2 years). The current surge in the dollar has only been going on for only slightly over half a year, although when dated from the trough of 2011Q2, it’s been going on just a bit over 4 years. Either way, by this metric, it appears that there is still some additional way to go before the dollar peaks. Figure 1 shows the evolution of the real value of the dollar against a broad basket of currencies; description of the construction of such indices is detailed in this paper.  While it is common to characterize exchange rates as a random walk, for real rates, this characterization is not completely apt. One can reject a unit root (allowing for a trend) at marginal levels, using the Elliott-Rothenberg-Stock unit root test. The trend obtained using OLS indicates a trend depreciation at about 0.9% per year. More interestingly, an inspection of Figure 1 suggests that there are long swings in the dollar’s value. This observation is not new, and was first made 25 years ago by Engel and Hamilton (AER, 1990). The fact that when the dollar appreciates, it continues to appreciate is suggestive that the dollar’s current ascent is not yet over. By the long-swing metric, there seems to be some more appreciation in store. The same is true using a threshold approach. However, these conclusions are based upon historical patterns, for which there are not many independent observations – two and a half dollar cycles essentially. In addition, there is no guarantee that these patterns will persist.

The $9 Trillion Short That’s Seen Sending the Dollar Even Higher --Investors speculating the dollar rally is fizzling out may be overlooking trillions of reasons why it will keep on going. There’s pent-up demand for the U.S. currency that will underpin years of appreciation because the world is “structurally short” the dollar, according to investor and former International Monetary Fund economist Stephen Jen. Sovereign and corporate borrowers outside America owe a record $9 trillion in the U.S. currency, much of which will need repaying in coming years, data from the Bank for International Settlements show. In addition, central banks that had reduced their holdings of the greenback are starting to reverse course, creating more demand. The dollar’s share of global foreign reserves shrank to a record 60 percent in 2011 from 73 percent a decade earlier, though it’s since climbed back to 63 percent. So, the short-term ebbs and flows caused by changes in Federal Reserve policy or economic data releases may be overwhelmed by these larger forces combining to fuel more appreciation, according to Jen, the London-based co-founder of SLJ Macro Partners LLP and the former head of currency research at Morgan Stanley. “Short-covering will continue to power the dollar higher,” said Jen, who predicts a 9 percent advance in the next three months to 96 cents per euro. “The dollar’s strength is not just about cyclical factors such as growth. The recent consolidation will likely prove to be temporary.” Most strategists and investors agree on the reasons for the dollar’s advance versus each of its major counterparts during the past year: the prospect of higher U.S. interest rates while other nations are loosening policy.

Let the good times roll (because they won’t last) - Get it while it’s hot because there won’t be as much coming later. That roughly sums up what Goldman Sachs is telling clients. In a client note, their analysts say they have been disappointed in recent months, and the outlook further down the road is even grimmer. “Our Q1 GDP tracking estimate stands at just 1.2%, and while our Current Activity Indicator averaged 2.5% in Q1, this too is a substantial slowdown from the late-2014 pace,” analysts say. They cite the usual excuse of seasonal weather, but that doesn’t really carry too much weight – it’s always cold in winter, and there’s always a spring bounce. So turning to their reason number two, it gets worrisome – the rapid decline of energy prices. That’s not going away with the seasonal change. As for number three? “Third, the stronger dollar has started to act as a drag on the economy, and the manufacturing sector in particular,” they say. “This week, we reassess the growth outlook to ask whether our expectation for a return to a strong growth environment still makes sense.” Their conclusion? Strength – or at least a dead-cat bounce – in the near-term, and a negative drag in the longer term.

Q1 GDP Expectations Are Crashing - In just six short months, expectations for US economic growth in Q1 2015 has been slashed by more than half (from 'trend' 3% to a mere 1.4% growth this week). While consensus is still well above the Atlanta Fed's 0.1% forecast, the sell-side is rapidly being forced to admit it's not just the weather...

IMF cuts its U.S. growth estimate for 2015 by a half point - -- The International Monetary Fund on Tuesday lowered its outlook for U.S. economic growth by a half percentage point this year, to 3.1%, and cut its 2016 estimate by two-tenths, also to 3.1%. The IMF downgrade still makes it more optimistic on growth than the Federal Reserve, which is forecasting 2.5% growth this year. But the IMF kept its global growth forecast for this year at 3.5% and nudged up its 2016 estimate by a tenth of a percentage point to 3.6%, as the IMF raised its 2015 growth estimate for the euro area, Japan, the United Kingdom and India. "A number of complex forces are shaping the prospects around the world," said Olivier Blanchard, IMF Economic Counselor, in a statement. "Legacies of both the financial and the euro area crises -- weak banks and high levels of public, corporate, and household debt -- are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process."

Fed's Beige Book: Economic Activity Expanded mostly at Modest to Moderate pace -- Fed's Beige Book: Reports from the twelve Federal Reserve Districts indicate that the economy continued to expand across most regions from mid-February through the end of March. Activity in the Richmond, Chicago, Minneapolis, Dallas, and San Francisco Districts grew at a moderate pace, while New York, Philadelphia, and St. Louis cited modest growth. Boston reported that business activity continues to expand, while Cleveland cited a slight pace of growth. Atlanta and Kansas City described economic conditions as steady. ...Demand for manufactured products was mixed during the current reporting period. Weakening activity was attributed in part to the strong dollar, falling oil prices, and the harsh winter weatherAnd on real estate:  Residential real estate activity improved in the Cleveland, Richmond, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts, while remaining steady in all others, except New York, which reported softening conditions. Philadelphia, Cleveland, Atlanta, and Dallas reported a slowdown in construction activity due in part to harsh weather conditions. Low-to-declining levels of inventory were cited by contacts in Boston, Philadelphia, Cleveland, Atlanta, Chicago, and San Francisco. The Chicago District reported that inventories were near historic lows, particularly for lower-priced homes. Most Districts reported a tight supply of residential real estate in most price points of the market. The Philadelphia and Cleveland Districts reported that mid- to high-priced homes were selling better, while Chicago, Kansas City, and Dallas  The multifamily sector remains strong, with flat to declining vacancy rates reported in multiple Districts. Boston, Cleveland, and San Francisco reported a continued shortage of skilled labor, which was cited as a factor driving up wages.

The Fed’s Beige Book: We Read It So You Don’t Have To - The U.S. economy expanded across most regions of the country in February through the end of March, with cheaper gasoline boosting retail sales in some districts and travel and tourism rebounding in other areas. Still, a strong dollar, falling oil prices and harsh winter weather slowed activity in some sectors, according to the Federal Reserve’s Beige Book report, a survey of regional economic conditions. Here are some of the anecdotes offered from the Fed’s 12 regional banks:

Sometimes, Boosting Supply Requires More Demand, by Greg Ip, WSJ: --The Federal Reserve, everyone agrees, can boost growth in the short run. But can it do it over the long run? This once heretical concept is the latest argument in favor of the Fed taking its time about raising interest rates. Traditionally, economists treated supply and demand as separate matters. Supply – the ability to produce stuff over the long run – is determined by structural factors such as demographics and technology. Demand – how much households, government and business spend on stuff – is a short-run phenomenon driven by interest rates, budget policies, and mood swings. The Fed, in this traditional view, can affect how demand fluctuates around the long-run trend, but it can’t affect the long-run trend itself. But in real life, supply and demand are not so easily separated. The labor force is a function not just of the number of people of working age (a supply-side factor), but also how long they’ve been unemployed and thus how useful their skills are (a demand-side factor). Business investment in new equipment isn’t just a function of the state of technology (a supply side factor), but what they anticipate sales to be in coming years (a demand side factor). This means that policies that affect demand in the short run can, conceivably, affect supply in the long run, as well. The technical term for this is “hysteresis”: the tendency for a temporary shock to produce a permanent change. Jay Powell, a Fed governor, makes the point in a speech last week. He notes that around the world, estimates of potential GDP – that is, how much the economy can supply when capital and labor are fully utilized – have dropped since the financial crisis. Staff research finds that this routinely happens after a financial crisis

Japan Just Topped China to Be the Top Holder of U.S. Treasuries - Japan owned $1.2244 trillion of U.S. debt, compared with $1.2237 trillion for China as of February, according to Treasury Department data released Wednesday. Japan’s holdings fell $14.2 billion from the preceding month and China’s dropped by $15.4 billion. Even with the declines in the most recent period, Treasuries remain the most favored benchmark asset worldwide because of the U.S.’s unparalleled financing flexibility as the issuer of the pre-eminent reserve currency and as home to the deepest and most liquid capital markets. Japan’s holdings of Treasuries increased $13.6 billion from a year earlier, while China’s declined $49.2 billion. “All things considered, you have a more liquid, higher-yielding paper,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., one of 22 primary dealers that trade with the Federal Reserve. “I wouldn’t be too concerned about the selling in February. Yield levels were low at the end of January.” Slower Growth At the same time, signs of capital outflows are mounting in China as economic growth slows, which reduces the need for authorities to buy dollar assets to keep the yuan from strengthening too much. In Japan, the central bank has embarked on record monetary easing to end years of deflation, flooding the financial system with money and resulting in a weaker yen and interest rates close to zero.

Did Japan Really Overtake China as the Biggest Foreign Holder of U.S. Treasury Debt? A Deeper Look at the Math - According to the U.S. government’s latest data on Major Foreign Holders of U.S. Treasurys, Japan marginally overtook China in February as the largest foreign holder of American debt.  But that’s not necessarily the case if you look at the more granular data, adding the net change in short-term obligations (the monthly change in column 9 of the report) and the net change in long-term debt holdings (net transactions of bonds and notes). Instead of China cutting its holdings by $15.4 billion that the major-foreign-holders table shows, the detailed data shows Beijing adding $6.783 billion. Those calculations underscore that Treasury’s data is really just an educated guess, as we’ve noted here before. Furthermore, they don’t include major transactions that other countries, such as Belgian and Caribbean banking centers, are likely conducting on behalf of China and other countries. That’s likely masking some countries’ total portfolio holdings. And given that the major-foreign-holders table only shows a $700 million difference in holdings of $1.224 trillion each, the margin of error means it’s not really clear yet that Japan is truly the top foreign holder of U.S. debt.

National Debt: Since When is the Fed “The Public”?: This issue has been driving me crazy for a while, and I never see it written about. When responsible people talk about the national debt, they point to Debt Held by the Public: what the federal government owes to non-government entities — households, firms, and foreign entities. (Irresponsible people talk about Gross Public Debt — an utterly arbitrary and much larger measure that includes debt the government owes to itself.) Debt Held by the Public is the almost-universally-accepted measure of “the national debt.” That would be perfectly reasonable, except that… Federal Reserve banks are counted as part of “the public.” So government bonds held by this government entity — money that the government owes to itself — are counted as part of the debt government owes to others. The Fed has bought up trillions of dollars in government bonds since 2008, to the point that Debt Held by the Public has become an almost meaningless measure (click for source): Here it is as a percent of GDP: Debt actually held by “the public” equals 57% of GDP – and declining — not 73% of GDP.

U.S. Budget Deficit Widens, Ending Run of Shrinkage - The U.S. budget deficit widened slightly during the first half of the 2015 fiscal year, ending a streak of sustained declines. The Treasury ran a deficit of $439 billion during the first half of the fiscal year begun Oct. 1, up 6% from a year earlier, the Treasury Department said Monday in its monthly report.  Deficits are still near their lowest levels in six years. An improving economy and government spending curbs have reduced the flow of red ink for the U.S. after it ran up huge deficits following the financial crisis in 2008. The deficit stood at $413 billion through the first half of the 2014 fiscal year. That was down sharply from $600 billion in 2013 and $779 billion in 2012.  Against this backdrop, Fitch Ratings affirmed the U.S. government’s triple-A credit rating in a report Monday that said better economic growth would narrow deficits as a share of the overall economy, even though it said further deficit reduction appeared unlikely in the near term. “The U.S. has achieved a rapid fiscal consolidation based on economic recovery and tight spending limits, but further deficit narrowing will be more hard-won,” analysts wrote in their report.  Congress and the White House agreed to a series of spending curbs—known as the sequester—four years ago that sharply reined in government spending. A growing economy also has boosted tax receipts.  More recently, government spending has climbed amid an uptick in outlays on entitlement programs such as Medicare and Social Security. The bite of the sequester has also eased after lawmakers agreed two years ago to slightly higher government funding levels.

Snapshots of Global Military Spending - Here's a table showing the 15 countries with the highest level of military spending. US is one-third of all global military spending, or to put it another way, US military spending is roughly equal to the next seven nations on the list combined. Of course, it's worth remembering that military spending doesn't buy the same outcomes in all countries; for example, the pay of a soldier in India or China is considerably lower than that in the United States. It's also interesting to me that US military spending as a share of GDP is higher than for  most of the other countries in the top 15, with the exception of Russia, Saudi Arabia, and UAE. And it's thought-provoking to compare, say, military spending in China to that in Japan and South Korea, or military spending in Russia to that in Germany and France.

Deal Reached on Fast-Track Authority for Obama on Trade Accord - Key congressional leaders agreed Thursday on legislation to give President Obama special authority to finish negotiating one of the world’s largest trade accords, starting a rare battle that aligns the president with Republicans against a broad coalition of Democrats. In what is sure to be one of the toughest fights of his last 19 months in office, the “fast track” bill allowing the White House to pursue its planned Pacific trade deal also heralds a divisive fight within the Democratic Party, one that could spill into the 2016 presidential campaign.  With committee votes planned next week, liberal senators such as Sherrod Brown of Ohio are demanding to know Hillary Rodham Clinton’s position on the bill to give the president so-called trade promotion authority, or TPA. Trade unions, environmentalists, and Latino political organizations — potent Democratic constituencies — also quickly lined up in opposition, arguing that past trade pacts have failed to deliver on their promise and that the latest effort will harm American workers and the middle class rather than helping them. The deal was struck by senators Orrin Hatch of Utah, the Finance Committee chairman; Ron Wyden of Oregon, the committee’s ranking Democrat; and Representative Paul D. Ryan, a Wisconsin Republican and the chairman of the House Ways and Means Committee.  It would give Congress the power to vote on the more encompassing 12-nation Trans-Pacific Partnership once it is completed but would deny lawmakers the chance to amend what would be the largest trade deal since the North American Free Trade Agreement of 1994, which President Clinton pushed through Congress despite opposition from labor and other Democratic constituencies. A separate trade accord with Europe is also in the works.

Lawmakers Unveil Secretly Negotiated Deal To Fast-Track Free Trade - Congress’ tax committees announced an agreement Thursday to speed through a bill to give President Barack Obama the fast-track authority that he will need to push mammoth new trade deals through Congress.  While many believed a deal was in the works, news that it was actually done came as a surprise to members of both the House Ways and Means Committee and the Senate Finance Committee, which had been called to a hearing on the deal less than 12 hours earlier.  The “trade promotion authority” bill, or TPA, would allow the White House to cut new trade deals with Asian and European nations, and then pass them through Congress using expedited procedures. Under these rules, the deals cannot be amended or obstructed, and they get a simple up-or-down vote.  The fast-track authority would likely pave the way for both the controversial Transatlantic Trade and Investment Partnership agreement with the European Union, and the Trans-Pacific Partnership with a dozen Asian nations. Both deals are vastly larger than NAFTA, and would involve about two-thirds of the entire world’s economy. Currently, the United States has trade agreements covering just 10 percent of world trade.  The hastily called Senate hearing on the TPA featured three of the administration's top officials on trade: Treasury Secretary Jack Lew, Agriculture Secretary Tom Vilsack and United States Trade Representative Michael Froman. The deal's backers are Ways and Means Chairman Paul Ryan (R-Wis.), Finance Committee Chairman Sen. Orrin Hatch (R-Utah) and the top Democrat on the Finance Committee, Sen. Ron Wyden (Ore.). Several Democrats at the morning session seemed furious that they had been summarily called in about a measure they had not been shown or given any time to read, signaling that Obama will face a major struggle with his own party to get his trade agenda passed.

Deal to Fast-track Trans-Pacific Partnership - Top congressional Republicans and Democrats on Thursday said they've reached a deal to allow President Barack Obama to negotiate trade agreements subject to an up-or-down vote from Congress. The "fast-track" legislation comes as Obama seeks a sweeping trade agreement with 11 Pacific nations. It would renew presidential authority to present trade agreements that Congress can endorse or reject, but not amend. The Trans-Pacific Partnership (TPP) proposes a trade agreement involving the United States, Japan, Vietnam, Canada, Mexico and seven other Pacific-rim nations. "It's important for America, it's important for the world that we get this done," said Senate Finance Committee Chairman Orrin Hatch, R-Utah. The deal between Hatch and the committee's top Democrat, Ron Wyden of Oregon, is no guarantee trade legislation will pass Congress. Many Democrats, particularly those identified closely with organized labor, are still opposed. "You can't fast track fast track — that's a complete abdication of our responsibilities," said Sen. Sherrod Brown, D-Ohio. Liberal opponents of TPP cite the nation's experience with prior trade deals such as the North American Free Trade Agreement (NAFTA), which the labor federation AFL-CIO says cost the United States hundreds of thousands of jobs. Others are concerned about what they see as the excessive secrecy around the negotiation process and the hints that it might allow signatory states to challenge the laws of other countries in an international court

Obama's Free Trade Deal Lets Corporations Impose Their Will - Progressives who usually make up President Obama’s base supporters are mounting loud protests against his newest proposal on international trade, the Trans-Pacific Partnership (TPP), as a key Democrat in the Senate reportedly prepares to strike a deal that would send the TPP hurtling toward passage. While liberal objections to free trade deals often spring from concerns about lost jobs, the newest round of that fight centers on more fundamental questions about the kind of country America should be. The TPP’s most objectionable components are less about actual trade, and more centered on the future of online freedom of speech and the balance of public power between corporations and citizens. The deal appears to give high-powered corporate interests the right to edit the American social contract.. Where past trade fights have centered on the risk of job losses, the biggest criticisms of the TPP have zeroed in on provisions that have less to do with trade in the traditional sense and more to do with helping corporate shareholders and executives impose their will and extract profits from the public. The leaked drafts describe a tribunals system called Investor-state Dispute Settlement (ISDS) that would allow corporate interests to sue countries over an alarming range of actions intended to defend the public interest. ISDS represents a warped version of a basically reasonable idea, according to the Economic Policy Institute’s Josh Bivens. Traditional trade tribunals are meant to protect foreign businesspeople from having their investments in a country snapped up by soldiers and nationalized. “If a US corporation opens a big production facility somewhere else you don’t want foreign governments to just come in and take it from them,” Bivens said.

Obama’s trade pitch falling flat with Dems -- An aggressive effort by the administration to win support for President Obama’s trade agenda appears to be stuck. As few as 15 House Democrats might vote to give the president fast-track authority, according to dozens of Democratic lawmakers, business group representatives and activists on both sides of the trade fight interviewed by The Hill. That’s far fewer than the 50 Democrats Speaker John Boehner (R-Ohio) and other Republicans have asked the White House to deliver. And with as many as 60 House Republicans ready to vote against giving Obama fast-track or trade promotion authority, it’s possible a vote would fail on the floor.

Congress Is Trying To Reauthorize Key Patriot Act Provisions by Sneaking it Into 'USA Freedom Act' -- June 1, 2015 is a very important day for American civil liberties and the Constitution. On that day, Section 215 of the Patriot Act, one of the most egregious pieces of legislation passed in U.S. history, will expire automatically without reauthorization from Congress. Naturally, this is causing a panic attack within the heart of the NSA, FBI and all the authoritarian lackey legislators in Washington D.C. With the chances of a clean reauthorization next to none, these crafty “representatives” and their puppeteers need to figure out a way to sneak it into another piece of legislation. What better way to do this than making it a part of something that ostensibly appears to be reining in surveillance powers. Enter the USA Freedom Act.

An agonising way to abolish boom and bust - Secular stagnation might once have sounded like a dose of anguish for agnostics, perhaps following unemployment for unbelievers and hard times for heathens. But the thesis that the world is approaching a lasting period of low growth has decisively moved into the mainstream conversation about economics.  Last week saw a heavyweight clash on the subject between Ben Bernanke, former Federal Reserve chairman, and Lawrence Summers, veteran policy maker and serial holder of strong opinions. This week, the International Monetary Fund added to the gloom, with estimates of weak potential growth.  As often happens when a technical discussion turns general, different uses of the term “secular stagnation” mean that it confuses as much as elucidates. In some ways, though, the policy implications should command more consensus than the theories that underlie them.  Mr Summers uses secular stagnation to mean the difficulty of getting the economy to run at full capacity when factors such as weak investment demand have pushed down the equilibrium real interest rate — that needed to keep output at full steam. The response should be to reduce the actual real rate of interest by loosening monetary policy further or, better, to boost demand by increasing public investment.  By contrast, a variety of technology pessimists use the term to mean that the supply capacity of the economy is growing more slowly because, after inventing the internet (or maybe just before) the human race ran out of good ideas. (Slower technological progress can play a walk-on role in Mr Summers’ thesis, but his analysis is mainly about demand, not supply.) As for Mr Bernanke, he doubts secular stagnation is a big issue at all, arguing the slow recovery of the US economy can be explained by temporary headwinds including a battered financial system and weakness in the housing market. The implication is that America is recovering, aided by the Fed’s monetary stimulus, and that normal service will soon be resumed.

Tax Season: It Ain’t Over Till It’s Over -- The IRS and the ACA: Working hard and working well. The IRS, thanks to years of preparation since the Affordable Care Act became law in 2010, has managed the current tax filing season smoothly, according to IRS Commissioner John Koskinen, even with new ACA burdens and IRS budget cutbacks. “It's amazing what the IRS can do when it's given that time,” said National Taxpayer Advocate Nina Olson.  IRS budget cuts put tax compliance at risk, and IRS Commissioner Koskinen shared one idea at last week’s TPC forum: A taxpayer should have a secure online IRS account through which she can get information, update personal information, file returns, pay taxes, and connect with IRS staff. That sounds great, but TPC’s Howard Gleckman explains the uphill political and cultural battle for that transition. Until IRS management improves and Congress stops treating the agency like its favorite punching bag, taxpayer compliance will continue to suffer.  What if it were easier to understand and follow tax filing laws? The Urban Institute’s Gene Steuerle thinks simplification should be a primary objective of tax reform. Simpler laws could improve compliance, and removing requirements that can’t be enforced could free up IRS resources. But as Gene acknowledges, there’s a catch: “To achieve this goal, leaders of both parties have to cooperate to make changes that benefit the public, even when it gives them no partisan advantage.” Nobody ever said making things easy would be… easy.

Why The Top 2 Percent Pay Lots of Tax: Evidence from President Obama’s 1040 - The White House released Barack Obama’s 2014 tax return last week. It showed that the President and First Lady paid $93,362 in federal taxes on a total income of $477,383—an effective tax rate of 19.6 percent. But those are only the top-line numbers—their return contains lots of interesting information that shows how the income tax affects people whose income falls just below the top 1 percent. The Obamas didn’t quite make it into that vaunted 1 percent last year—the Tax Policy Center estimates that their adjusted gross income (AGI) would have had to exceed $500,000 to get them into that group.  For openers, they had to pay two taxes created by the Affordable Care Act: the 0.9 percent additional Medicare tax on earnings above $250,000 ($200,000 for unmarried filers) and the 3.8 percent net investment income tax on high investment earnings. The first added $1,752 to the President’s tax bill and the latter tacked on another $498. The Obamas’ high income also zeroed out their personal and dependent exemptions and knocked $5,170 off their itemized deductions. That was the result of two provisions resurrected by the 2012 American Taxpayer Relief Act (ATRA). The Personal Exemption Phaseout (PEP) cuts exemptions by 2 percent for each $2,500 (or part thereof) of AGI over indexed thresholds—$305,050 for couples in 2014. Result: the Obamas lost all of the $15,800 of exemptions for their four-person family. The Limitation on Itemized Deductions sliced their deductions for state and local taxes, mortgage interest, and charitable donations by 3 percent of their AGI in excess of the same $305,050 threshold. Combined, the two provisions boosted the Obama’s taxable income by nearly $21,000.

The greatest trick the rich ever pulled was making us believe they pay all the taxes - Vox: Typically when politicians fight about taxes, they fight about the income tax. That is to say, they fight about the tax that rich people hate — not the taxes poor people hate. This leads to a really perverse dynamic, wherein the taxes the privileged pay are worthy of attention and the ones the poor pay are ignored. It paints a picture where the government is being supported on the backs of the wealthy, and the poor and middle class are free-riding. It leads to plans for various kinds of tax cuts and tax reforms that matter massively for the rich and very little for the poor. The issue here is the ceaseless focus on the federal income tax. A report from the Joint Committee on Taxation found that most Americans (65.4 percent of filers) pay more in payroll taxes than income taxes. It's only once you start looking at folks making over $200,000 a year that most people are paying more in income taxes. The numbers here are surprising if you think about tax systems as something people only pay into, rather than get anything out of. But because so much of US social policy is structured as tax credits, a lot of people get more money back from income taxes than they put in. The JCT finds that people making under $40,000 get $81.1 billion more back from the income tax system than they put in — largely because of refundable credits like the Earned Income Tax Credit and the Child Tax Credit. But that same group pays $121.5 billion in payroll taxes. They still, on net, contribute billions to the federal government every year. Of course, this doesn't even count the sizable contribution of the poor and middle class in state and local taxes, which are actually higher for the poor than they are for the rich.

Ain't No Family Farms Lost Due to the Estate Tax -- Dean Baker - It's repeal the estate tax season, which means we are hearing all sorts of nonsense about how the tax forces people to sell their family farm or business. It should be self-evident that this is nonsense since no one owes a penny of tax on an estate worth less than $5.4 million. And, just to be clear, this is net of debt. If the "family farm" is worth $10 million, but comes with $5 million in debt, then the net worth is $5 million, meaning the kids get it after paying zero in tax.  But if you still think that families are losing their farms because of the tax, then it's worth going back to an old NYT story by David Cay Johnston. Johnston called the American Farm Bureau, a major lobbyist against the tax, and asked to be put in contact with someone who had lost their farm due to the estate tax. The Farm Bureau could not produce a single family anywhere in the country who had lost their farm as a result of the tax.   In short, families do not lose farms or businesses due to the estate tax. They lose them because the next generation doesn't feel like operating them. This is just one more story that politicians tell in order to justify reducing taxes on the very wealthy. The media should point this fact out.

The 1 percent are parasites: Debunking the lies about free enterprise, trickle-down, capitalism and celebrity entrepreneurs -- ‘When did you last get a job from a poor person?’ So goes my favorite Tea Party slogan. The Americans are good at slogans but the Tea Party specializes in discombobulatingly daft ones. Of course you won’t get a job from a poor person, we wearily concede, but it doesn’t follow that the rich create jobs, as if they have special powers that turn their gains into a gift of jobs to the rest of us. U.S. billionaire Nick Hanauer is refreshingly honest about this: ‘If it was true that lower taxes for the rich and more wealth for the wealthy led to job creation, today we would be drowning in jobs.’ So why hasn’t the spectacular shift in income and financial wealth to the rich over the last four decades led to unprecedented jobs growth? First of all, we need to ask what the rich and super-rich do with their spare money. They generally use it to try to get even more, through either real investment or financial ‘investment.’ In the latter case, whether by betting on market movements or buying income-yielding assets, or the many other ways unearned income can be extracted, their actions are unlikely to result in net job creation. Some ‘investment’ is used to buy up firms in order to sell off parts of them – to asset-strip them, in other words. This is likely to result in job losses, and indeed may reduce the ability of the firm to produce in the long run. Many companies have boosted their profits by cutting jobs. But even if the rich do fund real investment in productive businesses – in equipment, training, new infrastructures or whatever – this may or may not result in job creation. Some businesses need to employ more people if they are to expand, but some do not: they may make more profit by reducing the number of workers they employ, whether by intensifying work for the remaining workers or automating their jobs. Either way, as Nick Hanauer makes clear, hiring more workers ‘is a course of last resort for the capitalist.’ Extra workers may enable more output, but if firms can find other ways of expanding output that are cheaper, they will.

Why Americans Don’t Want to Soak the Rich - With rising income inequality in the United States, you might expect more and more people to conclude that it’s time to soak the rich. Here’s a puzzle, though: Over the last several decades, close to the opposite has happened.Since the 1970s, middle-class incomes have been stagnant in inflation-adjusted terms, while the wealthy have done very well; inequality of wealth and income has risen.Over that same period, though, Americans’ views on whether the government should work to redistribute income — to tax the rich, for example, and funnel the proceeds to the poor and working class — have, depending on which survey answers you look at, either been little changed, or shifted toward greater skepticism about redistribution.In other words, Americans’ desire to soak the rich has diminished even as the rich have more wealth available that could, theoretically, be soaked. It’s not just public opinion polls, either. It shows up in the actual policies espoused by candidates for office and enacted by Congress. In 1980, the highest earning Americans faced a 70 percent tax on every dollar they earned beyond $215,400 for a married couple, for example, the equivalent of $544,000 today. Over the last decade, by contrast, the top marginal rate has ranged between 35 percent (which President George W. Bush secured in 2003) and 39.6 percent (which President Obama advocated and which took effect in 2013). New research offers a bit more evidence on what may be occurring. It doesn’t disprove either the conventional liberal or conservative argument. But it does show some of the ways that Americans’ attitudes toward redistribution are more complex than either would suggest.

Is Support for Income Redistribution Really Falling? - With stagnant wages and rising inequality already emerging as key issues in the 2016 Presidential race, there is, naturally, a lot of interest in how voters view the prospect of the federal government adopting more redistributive policies, such as raising taxes on the wealthy. Intuition and rational-choice theory would suggest that, as the gap between the wealthy and everybody else increases, support for redistribution goes up. But a number of empirical studies published in recent years have cast doubt on this theory, finding that support for redistribution has remained flat, or even that it has fallen. For instance, a 2010 study by Nathan J. Kelly, of the University of Tennessee, and Peter K. Enns, of Cornell University, concluded, “When inequality in America rises, the public responds with increased conservative sentiment.” In a 2013 paper by Matthew Luttig, of the University of Minnesota, backed up this finding, noting, “the absolute level and the changing structure of inequality have largely been a force promoting conservatism, not increasing support for redistribution as theoretically expected.” In the Times on Wednesday, Thomas Edsall argued, “Redistribution is in trouble, and that is likely to tie America in knots for years to come.” The Economists Free Exchange column this week said that “politicians betting on their Robin Hood credentials” should be wary of voters, particularly older ones, because they “may be more inclined to back the Sheriff of Nottingham.” On Friday, the Times published another piece, by Neil Irwin, that was headlined “Why Americans Don’t Want to Soak the Rich.”

Goldman Reports Best Quarter In Four Years, "Average" Employee Paid $381,948 -- The one TBTF "bank" which unabashedly admits it is just a taxpayer backstopped hedge fund printing money for its owners (while supervising the NY Fed and all other central banks with various former employees in charge) with no actual lending or depository operations, Goldman Sachs, just hit it out of the park, when moments ago it reported Q1 earnings that smashed both top and bottom-line expectations, with revenues of $10.62 billion, up 13.8% from last year, and EPS of $6.00 printing far above the expected $9.31bn and $4.26. This was the best revenue generating quarter for Goldman since Q1 2011, or in four years.

No More Cheating: Restoring the Rule of Law in Financial Markets - Simon Johnson -  The political debate about finance in the US is often cast as markets versus regulation, as if “more regulation” means the efficiency of private sector decisions will necessarily be impeded or distorted. But this is the wrong way to think about the real policy choices that – like it or not – are now being made. The question is actually what kind of markets do you want: fair and well-functioning, with widely shared benefits; or deceptive, dangerous, and favoring just a relatively few powerful people?  In a speech on Wednesday, Senator Elizabeth Warren (D., MA) laid out a vision for better financial markets. This is not a left-wing or pro-big government agenda. Senator Warren’s proposals are, first and foremost, pro-market. She wants – and we should all want – financial firms and markets that work for customers, that encourage innovation, and that do not build up massive risks which can threaten the financial system and bring down the economy.Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers. This is hard to argue against. Some parts of the financial sector are well-run, providing essential services at reasonable prices and with sound ethics throughout. Other parts of finance have drifted, frankly, into deceiving people – on fees, on risks, on terms and conditions – as a primary source of profits. We don’t allow this kind of cheating in the non-financial sector and we shouldn’t allow it in finance either. The unfortunate and indisputable truth is that our rule-making and law-enforcement agencies completely fell asleep prior to 2008 with regard to protecting borrowers and even depositors against predation. Even worse, since the financial crisis, the Securities and Exchange Commission, the Justice Department, and the Federal Reserve Board of Governors proved hard or near impossible to awake from this slumber.

Anti-Wall Street senator lambasts bank non-prosecution deals - - Elizabeth Warren, the anti-Wall Street senator, has lashed out at US regulators for being soft on misbehaving banks, describing settlements that extracted billion dollar fines as a “slap on the wrist” and demanding that banks be put on trial. The remarks by Ms Warren, who has emerged as a standard bearer of the Democratic left, are designed to put pressure on the US authorities as they come close to concluding their investigation into the manipulation of the foreign exchange market.  They are also likely to feed into the 2016 presidential election campaign. Although Ms Warren has criticised regulators as weak before, her timing suggests a renewed effort to pull Democrats to the left on Wall Street reform as the party waits to see what position Hillary Clinton will take on the matter. Although the Department of Justice has helped to secure more than $100bn in fines from banks as part of settlements over wrongdoing since the financial crisis, Ms Warren said the deals — known as deferred or non-prosecution agreements — were insufficient and being misused. “Today, the Department of Justice doesn’t take big financial institutions to trial — ever — even when financial institutions engage in blatantly criminal activity,” Ms Warren said according to prepared remarks. She said that some banks had broken the law again despite having signed agreements vowing to improve their behaviour, and called on the authorities to stop allowing banks to enter into a second deferred prosecution agreement if they are already operating under a first. “The DoJ and [the Securities and Exchange Commission] sit by while the same giant financial institutions keep breaking the law — and time after time, the government just says, ‘please don’t do it again’,” she said at a Levy Institute conference in Washington. “It’s time to stop recidivism in financial crimes and to end the ‘slap on the wrist’ culture that exists at the Justice Department and the SEC.”

Dodd-Frank 2.0: The Unfinished Business of Financial Reform -- Our former co-blogger, Senator Elizabeth Warren, delivered an incredibly important speech yesterday laying out the work still to be done on financial reform. This speech is a bigger deal than Senator Warren's Antonio Weiss speech or her famous Citibank speech. This speech is a blueprint for Dodd-Frank 2.0.  It lays out a detailed vision of the challenges for reform work going forward:

  • break up the big banks;
  • a 21st Century Glass-Steagal Act that promotes narrow banking;
  • a targeted financial transactions tax to reduce unnecessary volatility from excessive arbitrage;
  • elimination of the tax system's preference for debt over equity financing, a limit on the Fed's emergency lending authority;
  • a simplification of the financial regulatory system (does this as presaging a reduction in the number of bank regulators? The SEC should certainly feel the heat from this speech...);
  • reforms aimed at the various types of short-term debt that are the hallmark of the shadow banking sector (money market mutual funds, repo).

There are three remarkable things about this speech.  First, what is truly groundbreaking is that Senator Warren recognizes that the problems in the financial regulatory space are not just technocratic ones but political, and that technocratic fixes will never work until and unless the political structure of financial regulation is reformed.  Senator Warren's speech says exactly what needs to be said:  the power of large financial institutions not only threatens our economy, it threatens our democracy. Senator Warren has picked up the mantle of Teddy Roosevelt.

Elizabeth Warren Throws Down Gauntlet, Calls for Genuine Financial Reform -- Yves Smith -- At the Levy Conference, Elizabeth Warren launched a new campaign for tough-minded, effective financial regulation. This ought to be a straightforward call for restoring banking to its traditional role of facilitating real economy activity. Instead, in this era of “cream for the banks, crumbs for everyone else,” common-sense reforms to make banks deal fairly with customers and remove their outsized subsidies will no doubt be depicted by pampered financiers as an unfair plot to target a successful industry. But as we’ve stressed, Big Finance gets more government support than any line of business, even military contractors. They are utilities and should be regulated as such. Thus even Warren’s bold call to action falls short of the degree to which the financial service industry need to be curbed.  Below is the video of her speech; I’ve also embedded the text at the end of the post.

Wall Street’s Wealth Transfer System Is Imperiling the U.S. Economy - For nine years now we have written about Wall Street’s institutionalized system of transferring wealth from decent, hardworking Americans to the denizens of Wall Street and those it selectively chooses to favor in the one percent class. The 401(k) plan is viewed by most Americans as a way to save for retirement. That’s a good thing – right? It is not a good thing when two-thirds of your savings over a working lifetime end up in Wall Street’s pocket, as carefully demonstrated by Frontline and math-checked by us. The very same Wall Street banks that are asset-stripping 401(k)s are the same banks that asset-stripped the equity in homes across America through illegal foreclosures and mortgage fraud and then were allowed to decide on their own how much to pay their victims. If you attempt to legally challenge being ripped off by Wall Street, you will end up in a private justice system created by Wall Street lawyers and run by a self-regulatory agency. You will not be allowed to take your claim to one of the nation’s courts where juries are randomly selected from a large pool of fellow citizens.  Even when serious financial crimes are committed against our cities and counties, causing mass layoffs and economic suffering to millions, no one will go to jail. Prosecutors will allow Wall Street to pay a fraction of the amount stolen and walk away.  After each illegal cartel on Wall Street is exposed, removing any doubt that this is an institutionalized wealth transfer system, new Wall Street cartels crop up faster than you can say “where are the customers yachts.” Today, Wall Street is under investigation for the following cartels: rigging interest rates (Libor); rigging precious metals trading; rigging foreign currency trading; hoarding physical commodities – and that’s likely just the tip of the iceberg.  Add dark pools, high frequency trading, and stock exchange collusion to the 401(k), private justice system and cartel fleecing activity and you have an almost perfect system for criminal financial wealth transfers with impunity.

Investors Like CalPERS and New York City in the Dark About Private Equity FeesYves Smith - Steve Miller is a private equity industry expert who works for the general partners, or GPs, meaning the private equity firms. He ‘fesses up that most private equity firms are not disclosing the fees they take from portfolio companies to their investors. Revealingly, Miller depicts a May 2014 speech by the former SEC exam chief Andrew Bowden in which Bowden called out grifting and other sharp practices in private equity as “infamous”. Recall Bowden’s discussion of fees: Many limited partnership agreements are broad in their characterization of the types of fees and expenses that can be charged to portfolio companies (as opposed to being borne by the adviser). This has created an enormous grey area, allowing advisers to charge fees and pass along expenses that are not reasonably contemplated by investors… So … when we think about the private equity business model as a whole, without regard to any specific registrant, we see unique and inherent temptations and risks that arise from the ability to control portfolio companies, which are not generally mitigated, and may be exacerbated, by broadly worded disclosures and poor transparency.  Thus, Miller admitting that nearly a year after the Bowden speech, the general partners have yet to come clean. And do not forget that the vagueness of the limited partnership agreements and the lack of adequate monitoring by the investors facilitated the abuses the Bowden cited:

Questioning the Seaworthiness of Bond Funds - The Federal Reserve, in a February report on monetary conditions, suggests that individual investors may have gotten the misleading impression that mutual funds and E.T.F.s trade more readily than the bond markets themselves, and the consequences could be quite serious. “These funds now hold a much higher fraction of the available stock of relatively less liquid assets — such as high-yield corporate debt, bank loans and international debt — than they did before the financial crisis,” the Fed said in the report. And as the funds expand, they may pose a threat, it said: “Their growth heightens the potential for a forced sale in the underlying markets if some event were to trigger large volumes of redemptions.” The Fed is essentially asking how smoothly bond E.T.F. shares will trade when markets are in turmoil, as they will surely be one day. It is also concerned that, if people start to panic, traditional fixed-income mutual funds will have trouble raising the cash they need to cover redemptions. In the report, the Fed didn’t answer its own questions. But it clearly intends to keep monitoring these parts of the market carefully. For one thing, the Fed has raised these issues previously. So has a 2014 report from the International Monetary Fund as well as a 2013 report by the Treasury’s Office of Financial Research. These concerns have been fueled, in part, by the rapid expansion of bond E.T.F.s, which were introduced only a dozen years ago. By the end of January, they held assets of just over $308 billion, up from $57 billion in 2008. In contrast, fixed-income mutual funds, a fixture of the marketplace for decades, held about $3.5 trillion in assets at the end of January, up from about $3.2 trillion at the end of 2013.

Fed official warns ‘flash crash’ could be repeated - A senior Federal Reserve official has warned that last autumn’s “flash crash” in US Treasuries could happen again due to the changing nature of the US government debt market, and urged banks, investors and exchanges to adopt a revised set of guidelines in response to the turmoil. The US Treasury market is the biggest and most liquid in the world, and forms the bedrock for the global financial system. Its steadiness and the solid creditworthiness of the US government is a large reason why it constitutes a mainstay of global central banking reserves and the default haven asset in times of crisis. However, last October, Treasuries see-sawed dramatically, seemingly on little news. The yield on the benchmark 10-year US government bond, which moves inversely to price, slid as much as 33 basis points to 1.86 per cent before rising to settle at 2.13 per cent. Mathematically this move was so sharp it would only be expected to occur once every 1.6bn years. However, Simon Potter, executive vice-president of the Federal Reserve Bank of New York, warned in a speech on Monday that the unintended consequences of regulatory and market changes could mean that “that sharp intraday price moves become more common” in the future. The volatility of the US Treasury market that day has been pored over by regulators, traders and exchanges, but no definitive reason has been found for the wild fluctuations. Jamie Dimon, the head of JPMorgan, also highlighted the October 15 “flash crash” in his annual letter to his shareholders, and said that it constituted a “warning shot across the bow”, attributing the sharpness of the moves to regulatory changes that encourage the hoarding of Treasuries and discourage banks from helping to cushion sharp moves in bond markets.

Insight - U.S. public companies seek bankruptcy at fastest first-quarter rate since 2010 (Reuters) - The number of bankruptcies among publicly traded U.S. companies has climbed to the highest first-quarter level for five years, according to a Reuters analysis of data from research firm Plunging prices of crude oil and other commodities is one of the major reasons for the increased filings, and bankruptcy experts said a more aggressive stance by lenders may also be hurting some companies. While U.S. stocks have climbed to near record levels and the jobless rate has fallen to a six-year low, 26 publicly traded U.S. corporations filed for bankruptcy in the first three months of 2015. The number doubled from 11 in the first quarter of last year and was the highest since 27 in the first quarter of 2010, which was in the immediate aftermath of the financial crisis. In addition, many of the bankruptcies were large. Six companies had reported at least a billion dollars in assets when they filed in the first quarter of this year, the most in the first quarter of any year since 2009. The $34 billion (23 billion pounds) in assets held by the 26 companies is the second highest for a first quarter in the past decade. The highest was the $102 billion held by the public companies that filed in the first quarter of 2009 when the crisis was at its worst.

U.S. firms’ high debt loads amplified the Great Recession - One of the dominant narratives of the Great Recession is the important role of U.S. household debt in the intensity and duration of the economic contraction between the end of 2007 and the middle of 2009, and the subsequent slow recovery. Research by Atif Mian of Princeton University and Amir Sufi of the University of Chicago documents the critical role of accumulating mortgage debt by U.S. households in the subsequent massive pull back in consumption once house prices started to collapse in 2006 and 2007. Yet U.S. households weren’t the only economic actors adding debt in the years leading up to the Great Recession. New research by Xavier Giroud of the Massachusetts Institute of Technology’s Sloan School of Management and Holger Mueller of the Stern School of Business at New York University shows that the financial leverage of companies was also instrumental to the length and severity of the sharp economic contraction. The new paper , argues that while household debt, as emphasized by Mian and Sufi, is very important to understanding the last recession, the balance sheets of employers were central to the economic downturn as well. As Giroud and Muelle put it, “households do not lay off workers. Firms do.” The two authors find that the way households responded to the collapse in housing prices mattered, but only in so much as it affected companies as the consumers of their products and services pulled back on consumption. But how that enduring decline in consumer spending affected the large economy through employment trends depends on how firms reacted to this decline. Giroud and Mueller examined that link by looking at the changes in employment by establishment between 2007 and 2009.

Big Brother will be watching bankers --  WALL Street traders are already threatened by computers that can do their jobs faster and cheaper. Now the humans of finance have something else to worry about: algorithms that make sure they behave. JPMorgan Chase, which has racked up more than $36-billion (about R425-billion) in legal bills since the 2008 financial crisis, was rolling out a program to identify rogue employees before they go astray, said Sally Dewar, head of regulatory affairs for Europe, who is overseeing the project. Dozens of inputs, including whether employees skip compliance classes, violate personal trading rules or breach market-risk limits, will be fed into the software. Dewar said: “It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader. The idea is to refine those data points to help predict patterns of behaviour.” The surveillance program, which is being tested in the trading business and will be operational in the global investment banking and asset management divisions by 2016, offers a glimpse of Wall Street’s future. An industry reeling from billions of dollars in fines for the actions of employees who rigged markets, cheated clients and aided criminals is turning to technology to police itself better. At New York-based JPMorgan, the world’s biggest investment bank by revenue, the push is the result of government probes into fraudulent mortgage-bond sales; the $6.2-billion London Whale trading loss; services provided to Ponzi scheme operator Bernie Madoff and the rigging of currency and energy.

Unsafe and Unsound Banks - New York Times Editorial - After the latest round of bank stress tests last month, the Federal Reserve announced that, by and large, the nation’s biggest banks would all be able to withstand another crisis without requiring bailouts. This month, Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, released data that contradict the Fed’s conclusions. In the face of Mr. Hoenig’s challenge, the Fed would do well to recall a chapter from its recent history. Before the financial crisis, when Alan Greenspan, then chairman of the Fed, was insisting all was well with the banks, one Fed governor, the late Edward Gramlich, warned of mounting risks. He was ignored. At issue this time around is the level of bank capital, which reflects the amount of loss a bank can endure before failing (or, if the bank is “too big to fail,” requiring a bailout). According to the Fed’s main measure, capital at the eight largest American banks averaged 12.9 percent of assets at the end of 2014, well above required regulatory minimums. In contrast, Mr. Hoenig’s calculations show that capital at those same banks averaged only 4.97 percent at the end of 2014. In a recent speech, Mr. Hoenig noted that under American accounting rules, derivative holdings add $300 billion to the balance sheets of five top banks — JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley. Under international rules, the holdings would add $4 trillion. History favors Mr. Hoenig’s approach. Gains and losses on derivatives may be offsetting when the economy is stable, but in the financial crisis American taxpayers were forced to hand the banks tens of billions of dollars to make good on derivative bets gone bad. In a healthy system, the banks would hold enough capital to ensure that doesn’t happen again. Do they now? Fed officials seem to think so. They should think again.

A Victory Against the Shadows - Paul Krugman - There are two big lessons from GE’s announcement that it is planning to get out of the finance business. First, the much maligned Dodd-Frank financial reform is doing some real good. Second, Republicans have been talking nonsense on the subject. GE Capital was a quintessential example of the rise of shadow banking. In most important respects it acted like a bank; it created systemic risks very much like a bank; but it was effectively unregulated, and had to be bailed out through ad hoc arrangements that understandably had many people furious about putting taxpayers on the hook for private irresponsibility.  Most economists, I think, believe that the rise of shadow banking had less to do with real advantages of such nonbank banks than it did with regulatory arbitrage — that is, institutions like GE Capital were all about exploiting the lack of adequate oversight. And the general view is that the 2008 crisis came about largely because regulatory evasion had reached the point where an old-fashioned wave of bank runs, albeit wearing somewhat different clothes, was once again possible. So Dodd-Frank tries to fix the bad incentives by subjecting systemically important financial institutions — SIFIs — to greater oversight, higher capital and liquidity requirements, etc.. And sure enough, what GE is in effect saying is that if we have to compete on a level playing field, if we can’t play the moral hazard game, it’s not worth being in this business. That’s a clear demonstration that reform is having a real effect.

Dodd-Frank’s Hotel California May Have Exit After All -  General Electric may be the first to find out if it is possible to escape the Hotel California.In G.E.’s case, the reference refers to the company’s designation as a “systemically important financial institution” under the Dodd-Frank financial overhaul law. The label for companies deemed too big to fail subjects them to heightened regulation, some fear forever. G.E.’s recent move to shed large pieces of its finance operations will put that provision to the test.G.E.’s determination to not only check out but leave has focused scrutiny on a Dodd-Frank provision that some view as even stickier.Dodd-Frank section 117 provides that large bank holding companies that participated in the government’s Troubled Asset Relief Program during the financial crisis are subject to greater regulation, just as if they had been designated as systemically important by the Financial Stability Oversight Council, regardless of any action by the council. Furthermore, the provision also states that these companies shall continue to be treated as if they had been designated, even after they cease to be bank holding companies.The provision was no doubt intended for Goldman Sachs and Morgan Stanley. The two investment banks became bank holding companies during the financial crisis, giving them access to the Federal Reserve’s discount window and giving the market some reassurance that they would not follow Lehman Brothers into bankruptcy.After the crisis, there would have been a natural temptation to drop the bank holding company status and Fed regulation. But Dodd-Frank changed all that.

Blackstone’s Real Estate Muscle on Display in GE Deal - WSJ: The $23 billion deal with partner Wells Fargo WFC 0.22 % & Co., announced by the three companies on Friday, illustrates Blackstone’s position in the real-estate industry as the firm to call when it is time to unload tens of billions of dollars of property in one fell swoop. The New York private-equity firm has long been friendly to big deals, most notably the 2007 leveraged buyouts of Hilton Worldwide Holdings HLT -0.84 % and Sam Zell’s Equity Office Properties Trust, the U.S.’s largest office landlord. But in recent years it has seen fundraising soar to the point where—before the GE deal—it had more than $28 billion in cash at its disposal to spend on real estate alone. “Blackstone’s scale in the real-estate space is unmatched,” Stephen Ellis, an analyst at Morningstar Inc., said in a note to clients on Friday. “This type of scale provides Blackstone with deep insight into the market, letting it put more capital to work.” Blackstone, formed as a small advisory shop for corporate mergers and acquisitions three decades ago, has become enthralled with property. Real estate is the single largest profit generator for the firm, bringing in $1.9 billion of income in 2014 from investment returns and management fees.

SEC Reaches "Appropriate" Settlement With Freddie Mac Execs Who Will Pay Nothing And Receive No Punishment - Last month, we discussed a government report which showed that, much to the chagrin of a few billionaires and a long line of retail investors who bought the proverbial dip, Fannie Mae and Freddie Mac may be destined, by design, by decades of reckless behavior, and by Treasury decree, to be insolvent most of the time. Today, we learned that when it comes to accountability for the executives who helped put the companies in a position whereby receivership became necessary in mid-2008, we can forget about it.  In what was billed as a “high profile” case, the SEC had sought financial and other penalties against three former Freddie Mac executives who allegedly “misled” investors in 2006 by understating the amount of subprime exposure the GSE had on its books while it was simultaneously still sucking up and packaging bad loans. If the SEC allegations are indeed accurate, it’s probably safe to say that using the term “understated” to describe the executives’ misrepresentations is, well, an understatement, because it appears they may have lowballed the figure by a factor of 28. But all’s well that ends in a catastrophic housing market meltdown apparently because as WSJ notes, everyone seems to have gotten a pretty good deal considering their actions may have contributed mightily to the worst financial crisis since The Great Depression: the executives agreed for a limited time not to sign certain reports required by chief executives or finance chiefs and to pay a total of $310,000 to a fund meant to compensate defrauded investors. The breakdown of the fees is as follows: Richard Syron, $250,000; Donald Bisenius, $50,000; Patricia Cook, $10,000. As you can see, Ms. Cook got off pretty easy, but then again, they all did because they don’t actually have to pay the fines: Those amounts will be paid by insurance from Freddie Mac that covered the executives.

Q1 Report on Commercial Real Estate - Some excerpts from a quarterly report from CBRE: U.S. Commercial Real Estate Sees Positive Start to 2015  The U.S. commercial real estate market showed continued strength across all property types in the first quarter of 2015 (Q1 2015), according to the latest analysis from CBRE Group, Inc...Q1 2015 marked the 12th consecutive quarter of office vacancy rate declines. The trend remains broad-based across U.S. office markets. Vacancy fell in 41 of the 62 markets, rose in 18, and remained unchanged in three. Absorption of office space in the quarter was 9.5 million sq. ft. The industrial real estate recovery has now continued for 19 quarters, the longest uninterrupted stretch of declining availability since CBRE began tracking industrial market activity in 1980. The start of 2015 saw the vast majority of markets continue to improve—41 reported declines in availability, while four remained unchanged and 12 recorded increases.  Retail availability remained unchanged between Q4 2014 and Q1 2015. However, availability at year end 2014 was 50 bps below its year-earlier rate and is now 180 bps below the post-recession peak of 13.3%. 34 of the 62 markets tracked had availability decline in Q1 2015, while 28 recorded flat or increasing rates. Forty-three markets have improved upon their rates from one year ago.Preliminary data shows that apartment demand continued to grow in Q1 2015, with the multifamily housing vacancy rate declining to 4.5%, a 40 bps drop from a year earlier. This represents a continuation of a persistent downward trend in national vacancy rates that began several years ago. The market is very tight and apartment demand remains strong as the vacancy rate pushes closer to its 20-year vacancy low of 3.7%.

CoreLogic: "Foreclosure inventory declined by 27.3 percent" Year-over-year  -- From CoreLogic: Press Release and National Foreclosure Report  CoreLogic® ... today released its February 2015 National Foreclosure Report which shows that the foreclosure inventory declined by 27.3 percent and completed foreclosures declined by 15.7 percent from February 2014. According to CoreLogic data, there were 39,000 completed foreclosures nationwide in February 2015, down from 46,000 in February 2014 and representing a decrease of 67 percent from the peak of completed foreclosures in September 2010. ... CoreLogic also reports the number of mortgages in serious delinquency declined by 19.3 percent from February 2014 to February 2015 with 1.5 million mortgages, or 4 percent, in serious delinquency (defined as 90 days or more past due, including those loans in foreclosure or REO). This is the lowest delinquency rate since June 2008. On a month-over-month basis, the number of seriously delinquent mortgages declined by 1.1 percent. As of February 2015 the national foreclosure inventory included approximately 553,000 homes compared to 761,000 homes in February 2014. The foreclosure inventory as of February 2015 represented 1.4 percent of all homes with a mortgage, compared to 1.9 percent in February 2014. A couple of points: 1) Foreclosures are still an obstacle to new single family construction in some areas, and 2) Foreclosure inventory is still more than double the normal level.  But this is moving the correct direction (fewer foreclosures and fewer delinquencies).

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in March -- Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for a few selected cities in March. On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Mid-Atlantic is up year-over-year because of an increase foreclosure as lenders work through the backlog). Short sales are down in these areas. The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in March -- Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for a few selected cities in March. On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Mid-Atlantic is up year-over-year because of an increase foreclosure as lenders work through the backlog). Short sales are down in these areas. The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

MBA: Mortgage Applications Decrease in Latest Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 10, 2015. ...The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. ... The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 7 percent higher than the same week one year ago...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.87 percent from 3.86 percent, with points increasing to 0.38 from 0.27 (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 a little 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 7% higher than a year ago.

Housing Starts at 926 thousand Annual Rate in March -- From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in March were at a seasonally adjusted annual rate of 926,000. This is 2.0 percent above the revised February estimate of 908,000, but is 2.5 percent below the March 2014 rate of 950,000.  Single-family housing starts in March were at a rate of 618,000; this is 4.4 percent above the revised February figure of 592,000. The March rate for units in buildings with five units or more was 287,000. Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,039,000. This is 5.7 percent below the revised February rate of 1,102,000, but is 2.9 percent above the March 2014 estimate of 1,010,000.: Single-family authorizations in March were at a rate of 636,000; this is 2.1 percent above the revised February figure of 623,000. Authorizations of units in buildings with five units or more were at a rate of 378,000 in March. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in March. Multi-family starts are down 2.5% year-over-year. Single-family starts (blue) increased in March and are also down about 2.5% year-over-year. The second graph shows total and single unit starts since 1968.

Housing Starts And Permits Miss Badly As "Warm Weather" Rebound Fails To Materialize  -- Overnight, when previewing today's housing starts number, SocGen forecast that "housing starts to rebound; On the data front, housing starts in March should increase by 17% mom, reversing the steep drop in February." Bank of America added: We look for housing starts to rebound sharply to 1.035 million in March after the disappointing drop in February. The decline in February was concentrated in the Northeast which witnessed a 57% decline in the month. This seems extreme and likely a function of poor weather conditions, which should support a recovery with the start of spring. Moreover, building permits are running at 1.102 million in February, suggesting starts should rebound to be more in line with the pace of permits.  Moments ago the Department of Commerce reported March starts and permits data, which after the February collapse was expected by everyone to rebound strongly because, well, it didn't snow as much in March as it did in February. Apparently it did, because not only did Housing Starts miss massively, and just as bad as in February, printing at 926K, on expectations of a 1.040MM rebound from last month's revised 908K, but permits also missed and in fact declined from last month's 1102K to 1039K,

Homebuilding Off to Slow Start in 2015; Starts Miss Expectations; Atlanta Fed GDP Forecast 0.1% -- Add home building to the list of disappointing economic reports. The Bloomberg Consensus for seasonally adjusted starts was for 1.04 million. Instead we saw .926 million.  Housing is still sluggish based on the latest starts data which disappointed. Starts in March slightly rebounded a monthly 2.0 percent after plunging a monthly 15.3 percent in February. Expectations were for a 1.040 million pace for February. The 0.926 million unit pace was down 2.5 percent on a year-ago basis. By region, starts gained 114.9 percent in the Northeast-almost certainly a weather related rebound but in a small region. The Midwest also saw a weather related gain of 31.3 percent. However, the large South region declined 3.5 percent and the West fell 19.3 percent. Housing permits were a little stronger but still disappointed, falling 5.7 percent after gaining 4.0 percent in February. The 1.039 million unit pace was up 2.9 percent on a year-ago basis. The median market forecast was for a 1.085 million unit pace.  Housing starts unexpectedly fell sharply in February. Starts fell a monthly 17.0 percent, following no change in January. The 0.897 million unit pace was down 3.3 percent on a year-ago basis. This was the lowest starts level since January 2014 with a 0.897 million unit annualized pace. The Atlanta Fed's GDPNow Forecast ticked down to 0.1% growth for the quarter, based on yesterday's poor Industrial Production numbers.

Comments on March Housing Starts -- March was another disappointing month for housing start.  In February, it was easy to blame the weather, especially in the Northeast where starts plunged and then bounced back in March. However, in March, the weakness was more in the South and West (maybe related to oil prices in Texas and the drought in California). Note: It is also possible that the West Coast port slowdown impacted starts a little in March.  The labor situation was resolved in February, and any impact should disappear quickly. This graph shows the month to month comparison between 2014 (blue) and 2015 (red). Even with two weak months, starts are still running about 5% ahead of 2014 through March. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months). Note that the blue line (multi-family starts) might be starting to move more sideways.I think most of the growth in multi-family starts is probably behind us - although I expect solid multi-family starts for a few more years (based on demographics).

Take A Broader View to Better Understand the New-Home Market - The Commerce Department’s  monthly figures on the new-home market typically come with a lot of noise. Its latest report Thursday on March home starts was no exception. The headline numbers show home-construction starts up a paltry 2% on a seasonally adjusted annual basis after a steep decline in February. And residential building permits issued in March were down 5.7% from a month earlier. How does this square with recent reports that sales in February and March of both new and existing homes were robust? The answer is that monthly Census numbers are notoriously volatile. The better approach is to take a broader view, taking more than one month into account and factoring out the skewing influence of multifamily projects. For example, consider that the first-quarter total of permits issued for single-family homes shows a 5.6% increase from last year’s first quarter. In the same span, actual construction starts for single-family homes are up 4.4%. That’s not a gangbusters gain, but it is a healthy increase for a first quarter rocked by harsh weather in some regions. Many economists puzzled over the March home-start figures on Thursday. Mark Zandi, chief economist at Moody’s Analytics, noted that first-time buyers still are struggling with stringent mortgage-qualification standards, though those are slowly easing. He added that inventory of both new and existing homes at entry-level prices remains scant. “I expect single-family construction to pick up significantly this spring and summer,” Mr. Zandi said. “Mortgage credit is slowly becoming more available, and as the job market approaches full employment, wage growth will pick up.”

Homebuilder Confidence In April Jumps Most Since July - It appears the homebuilders have got over the weather issues as NAHB optimism surged to 56 - beating expectations of 55. However this surge merely brings NAHB confidence back to its average stagnant levels of the last 2 years. Only Midswest saw confidence drop as homebuilders hope soared with future buyers at the highest since Dec 2014. Let's just hope sales follow through or the weather excuse is going to get old...

NMHC: Apartment Market Conditions Tighter in April Survey - From the National Multi Housing Council (NMHC): Apartment Markets Expand in April NMHC Quarterly SurveyAll four indexes landed above the breakeven level of 50 in the April National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. “The song remains the same—the apartment markets are not only strong but getting stronger,” said Mark Obrinsky, NMHC’s SVP of Research and Chief Economist. “Despite occasional predictions to the contrary, markets keep getting tighter. As new construction increases, so do absorptions, indicating the demand for apartments is not yet close to being sated.” The Market Tightness Index increased by 7 points from last quarter (and by 2 points from a year earlier) to 58. Thirty-one percent of respondents reported tighter conditions than three months ago. This now marks the fifth consecutive quarter where the index indicates overall improving conditions.This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. This indicates market conditions were tighter over the last quarter.

Credit Crunch Underway: Can Recession Be Far Behind? - There is quite obviously some serious financial stress manifesting in the data and this does not bode well for the growth of the economy going forward. These readings are as low as they have been since the recession started and to see everything start to get back on track would take a substantial reversal at this stage. The data from the CMI is not the only place where this distress is showing up, but thus far, it may be the most profound. The combined score is getting dangerously closer to the contraction zone and has not been this weak in many years (going back to 2010). It is sitting at 51.2 and that is down from the 53.2 noted last month.  The most drastic fall took place with the unfavorable factors that indicate the real distress in the credit market. It has tumbled from 50.5 to 48.5 and that is firmly in the contraction zone—a place this index has not been since the days right after the recession formally ended. The signal this sends is that many companies are not nearly as healthy as it has been assumed and that there is considerably less resilience in the business sector than assumed.   The breakdown of the two index categories proves instructive. The category of sales slid to 57.9 and that is a far cry from the 65.7 that was notched back in October of last year. These numbers have been in the high 5 0s and 60s for the last year and now the slide is accelerating. The new credit applications category actually improved from 54.5 to 57.4, but when one combines this reading with the one for amount of credit extended, you get a n even more miserable story than one would assume. The latter reading went from 52.1 to a very troubling 46.1. There may be more applications for credit, but there is not all that much getting issued and that indicates that much of the new credit being requested is coming from companies that are not in a position to get that credit.

Ilargi: The American Consumer Will Never Be Back - That title may be a bit much, granted, because never is a very long time. I might instead have said “The American Consumer Won’t Be Back For A Very Long Time”. Still, I simply don’t see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. Looks pretty infinity and beyond to me. However, that is by no means a generally accepted point of view in the financial press. There’s reality, and then there’s whatever it is they’re smoking, and never the twain shall meet. Admittedly, my title may be a bit provocative, but in my view not nearly as provocative, if not offensive, as Peter Coy’s at Bloomberg, who named his latest effort “US Consumers Will Open Their Wallets Soon Enough”. I know, sometimes they make it just too easy to whackamole ‘em down and into the ground. But even then, these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what’s truly happening to their lives, and their societies. And they’re not nearly getting enough of it through the ‘official’ press. So here goes nothing:

Retail Sales increased 0.9% in March - On a monthly basis, retail sales increased 0.9% from February to March (seasonally adjusted), and sales were up 1.3% from March 2014. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $441.4 billion, an increase of 0.9 percent from the previous month, and 1.3 percent above March 2014. ... The January 2015 to February 2015 percent change was revised from -0.6 percent to -0.5 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline increased 1.0%. Retail sales ex-autos increased 0.4%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 4.3% on a YoY basis (1.3% for all retail sales). The increase in March was below consensus expectations of a 1.0% increase.

March Retail Sales Increase 0.9% on Autos - The March 2015 Retail Sales report shows retail sales increased 0.9% for the month as auto sales had a major comeback increase of 2.8%. Without autos & parts sales, March retail sales increased 0.4%. Gasoline sales declined by -0.6%. Building materials had a good month with a 2.1% sales increase. Retail sales have now increased 1.3% from a year ago. Retail sales are reported by dollars, not by volume with price changes removed. Retail trade sales are retail sales minus food and beverage services and these sales also increased 0.9% for the month. Retail trade sales includes gas. Total March retail sales were $441.4 billion. Below are the retail sales categories monthly percentage changes. These numbers are seasonally adjusted. General Merchandise includes Walmart, super centers, Costco and so on. Furniture had a good month as did clothing. Department stores by themselves saw a 1.4% monthly sales increase. Below is a graph of just auto sales. Auto sales and parts had a come back, overall a 2.7% increase for the month and for autos alone, 2.8%. For the year, motor vehicle sales have increased 5.8%. Autos & parts together have increased 5.2% Below are the retail sales categories by dollar amounts. As we can see, autos are by far the largest amount of retail sales. Autos and parts is more than groceries and almost rivals groceries, booze and eating out combined.Graphed below are weekly regular gasoline prices, so one can see what happened to gas prices in March. Gasoline station sales are down a whopping -22.0% from a year ago. Gas prices are projected to be the lowest since 2009 for that summer roadtrip. The below pie chart breaks down the monthly seasonally adjusted retail sales by category as a percentage of total March sales by dollar amounts. One can see how dependent monthly retail sales are on auto sales by this pie chart. America is a Car nation while prices soar through the stratosphere once again.

U.S. Retail Sales Rise for First Time in Four Months - WSJ: U.S. consumers boosted their spending in March but showed signs of continued caution despite months of cheaper gasoline and rising confidence. Sales at retailers and restaurants increased 0.9% last month to a seasonally adjusted $441.4 billion, the Commerce Department said Tuesday. That was the biggest monthly gain in a year, but it was still down from November, when retail sales reached their highest level since the end of the recession. Economists surveyed by The Wall Street Journal had expected total sales would jump 1.1% in March to offset three months of declines. The disappointing performance underscored the economy’s difficulty in accelerating almost six years into the expansion. “This outcome confounds all the standard consumer-spending models,” said J.P. Morgan chief U.S. economist Michael Feroli. “Job gains, wealth gains, low gas prices and very high consumer sentiment would all point to solid consumer spending increases.” Retail-sales data can be volatile from month to month. Spending surged last fall before slowing during harsh winter weather in much of the country. The dip was reminiscent of a slowdown during the first quarter of 2014, when below-normal temperatures and severe weather kept shoppers away from stores. A March thaw was expected to drive a bigger rebound in consumer spending last month. “Instead, consumers’ high level of confidence seems only to be matched by their conservatism,”

Americans’ Spending on Dining Out Just Overtook Grocery Sales for the First Time Ever - Grocery stores are finding it harder to make headway with shoppers as a surge in spending at restaurants over the past several months signals Americans are more likely to ditch the brown bags in favor of doggy bags. Sales at restaurants and bars overtook spending at grocery stores in March for the first time ever, according to Commerce Department data released Tuesday that dates to 1992. An otherwise fairly unremarkable retail sales report offered some insight into the evolution of American eating habits, hinting at a generational shift that already has restaurants thinking about how to cater to those growing ranks of millennials. That younger cohort has been identified as being more willing to spend on "food away from home," according to a November report from Morgan Stanley. Source: Morgan Stanley And the National Restaurant Association has caught on. The food services trade association that boasts almost 500,000 members is focused on how to cater to the army of young folks that are set to overtake the baby-boomer generation this year. "Millennials view dining out as a social event (i.e. a chance to connect)," the Restaurant Association advises on their website. "They tend to favor fast food, deli food and pizza restaurants over coffee shops, high-end dining and casual dining. Their diversity and interest in new things draw them to more ethnic restaurants too." At the same time, older Americans have been expressing less of a willingness to spend on dining out while funneling more cash toward those grocery trips. The share of 51- to 69-year-olds who said they are spending more on groceries compared with a year earlier outstripped those who said they are spending less by 45 percentage points, according to a Gallup survey conducted Nov. 10-20.

March Retail Sales Bounce Back, But Q1 Ended Down 1.3% Quarter-over-Quarter - The Advance Retail Sales Report released this morning shows that sales in March came in at 0.9% month-over-month, snapping three months of contraction. February sales were revised upward from -0.6% to -0.5%. Core Retail Sales (ex Autos) came in at 0.4%, also snapping a three-month decline. Today's numbers came in a tad below the forecast of 1.0% for Headline Sales and 0.6% for Core Sales.  Even with the bounce, however, total Q1 retail sales show a 1.3% contraction from sales in Q4 2014. The two charts below are log-scale snapshots of retail sales since the early 1990s. Both include an inset to show the trend over the past 12 months. The one on the left illustrates the "Headline" number. On the right is the "Core" version, which excludes motor vehicles and parts (commonly referred to as "ex autos"). Click on either thumbnail for a larger version.  Here is the year-over-year version of Core Retail Sales. The next chart illustrates retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. Note the highlighted values at the start of the two recessions since the inception of this series in the early 1990s.  For a better sense of the reduced volatility of the "Control" series, here is a YoY overlay with the headline retail sales. Given the sharp decline in gasoline prices in recent months, we would expect Retail Sales ex Gasoline to look stronger than the headline number, with savings on gas prices increasing other purchases. Indeed March sales, were up 1.0% versus the 0.9% increase in total sales.

Retail Sales Miss For 4th Month In A Row: First Time Since Lehman - After 3 months of missed expectations and the first consecutive drop in retail sales since Lehman, retail sales rose 0.9% in March (missing expectations of +1.1%), following a revised 0.5% drop in February. While the 0.9% rise is the biggest since March last year, this is now the worst streak of missed expectations in retail sales since 2008/9. Ex-Autos, retail sales also missed expectations (rising just 0.4% vs 0.7% exp). This is the worst March YoY growth in retail sales (control group) since 2009... The breakdown shows what we already know: courtesy of soaring non-revolving loans, auto sales spiked in March... ... however offset by modest increases in other category, with electronics, food and online sales posting a decline. Too warm outside to spend money on And another quick look at the control group: while rising at 0.3% in March, this was below the 0.5% expected, meaning another cut to Q1 GDP, while the annual increase of 2.4% was the lowest since last February.

Good news and bad news about March retail sales: The good news is, as forecast by the Weekly Indicators, nominal retail sales for March increased +0.9%. February's decline was shaved by .1% up to -0.5%. The bad news is, even with that increase, retail sales have not exceeded their November 2014 high, either in nominal or real terms. Let's take a more detailed look. First, here's a look at real, inflation-adjusted retail sales through February, normed to 100 at their November 2014 peak: There was a slight positive revision of February sales in this morning's report, but still, as of one month ago, we were -1.3% below the peak. Next, here is the monthly percentage change in nominal retails sales over the last 12 months (blue) vs. the monthly percentage change in consumer prices (red): Even if there were no inflation at all in March, we would still be about -0.4% below the peak. On Friday the CPI will be reported, and estimates are for a +0.2% or +0.3% increase. The bottom line is that, in March, we pretty much reversed February's big decline. But we have not made up for the other big decline in December. So, we're moving in the right direction, but it remains a concern that we remain below where we were 4 months ago.

Experts Confounded: Retail Sales Rise First Time in Four Months, But Weaker Than Expected -- The Bloomberg retail sales consensus estimate was for a 1.1% gain. Sales did rise for the first time in four months, but not as much as expected. Retail sales in March rebounded 0.9 percent after dropping 0.5 percent in February. The market consensus for March was for a 1.1 percent boost. Excluding autos, sales gained 0.4 percent, following no change in February. Expectations were for a 0.6 percent increase. Gasoline sales dipped 0.6 percent after 2.3 percent increase in February. Excluding both autos and gasoline sales rebounded 0.5 percent after declining 0.3 percent in February. Expectations were for a 0.4 percent increase.  Please consider U.S. Retail Sales Rise for First Time in Four Months. U.S. retail sales rose for the first time in four months in March, but the gain wasn’t enough to offset weaker spending during the winter months as consumers continued to largely pocket savings from cheaper gasoline prices. “This outcome confounds all the standard consumer-spending models,” J.P. Morgan chief U.S. economist Michael Feroli said in a note to clients. “Job gains, wealth gains, low gas prices and very high consumer sentiment would all point to solid consumer spending increases.”“The rebound we had been waiting for was rather soft and disappointing,” Laura Rosner, an economist at BNP Paribas, said in a note to clients. Paying less at the pump should free up money for U.S. consumers to spend elsewhere. But many are socking that money away, or using it to pay down debt.

Post-Recession, Have U.S. Consumers Abandoned Their ‘Shop ‘Til You Drop’ Mentality? - U.S. consumers have long been viewed as the shoppers of the world, buying goods made both domestically and overseas. The Great Recession seems to have changed this “shop ’til you drop” dynamic. Saving, not shopping, is the hallmark of this expansion. That’s a bad thing for producers, but not necessarily bad for the U.S. economy in the long run. The latest piece of evidence was a gain in March retail sales that failed to beat expectations. After accounting for price changes and assuming a steady rise in services, real consumer spending probably grew at an annual rate of less than 2% in the first quarter, which would be the weakest showing in a year.The years right after the last recession were called the New Normal, a time of financial sluggishness, reduced economic growth and lowered consumer aspirations. The New Normal, however, wasn’t expected to last almost six years into this upturn. Yet recent consumer data suggest households remain very focused on building a financial cushion to guard against the next crisis. To do that, they are being very cautious about their purchases. The budget challenges may be worse for those 30 years and younger. That’s the generation who should be powering the economy by starting new households, buying homes and purchasing new items to furnish them. That isn’t happening, in part because of other demands on their incomes.On Tuesday, Wall Street Journal writer Anne Tergesen wrote 25 years may be the right age to start funding one’s retirement account. That means many young adults are faced with paying off student loans, budgeting for high rents, maybe saving a down payment to buy a home, and also saving for retirement. That doesn’t leave much left over for shopping.

Do Energy Prices Drive the Long-Term Inflation Expectations of Households? -- Between July 2014 and January 2015, the average price of gasoline fell by more than 33 percent. This decline in gas prices has significantly impacted the Consumer Price Index (CPI), which has actually fallen every month since October 2014. Both the dramatic fall in gasoline prices and the recurrent drops in the CPI raise the question of how these developments are affecting the long-term inflation expectations of households. This is a question worth pursuing, because anchored long-term inflation expectations are important for promoting short-run inflation stability and for facilitating central bank efforts to achieve output stability. Over the past several months, two noted measures of long-term inflation expectations have slipped somewhat: the expectations of households from the Thomson Reuters/University of Michigan Surveys of Consumers (UM Survey) and the expectations estimated by the Federal Reserve Bank of Cleveland (FRBC) based upon financial market data and professional forecasts. Are these expectations anchored or are they driven by energy-price changes? Some prominent analysts have argued that household inflation expectations respond strongly to changes in energy prices. But previous analysis has focused mainly on shorter-term inflation expectations. We examine the role played by energy prices in influencing long-term inflation expectations relative to the impact of movements in the CPI and other macroeconomic variables.

Consumers Love Higher Gas Prices: UMich Confidence Rises To 2nd Highest In 8 Years - Having fallen for the last two months, with stock prices back near record highs, many expected an exuberant bounce in UMich Consumer Sentiment and were not disappointed. In the face of rising gas prices, Consumers were loving it - UMich printed 95.9, beating expectations of 94.0 by the most since August, for the 2nd most exuberance since 2007. Current and futures expectations rose notably as consumers believe now is a good time buy a home, vehicle, ore major appliance more than ever.

BLS: CPI increased 0.2% in March, Core CPI increased 0.2%  - From the BLSThe Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index declined 0.1 percent before seasonal adjustment. The index for all items less food and energy rose 0.2 percent in March, the same increase as in January and February.  This was lower than the consensus forecast of a 0.2% increase for CPI, and at the forecast of a 0.2% increase in core CPI.

March CPI Shows Inflation Rising -- The Consumer Price Index increased 0.2% for March, the same rate as February, as overall energy costs continued to rise.  Gasoline prices alone increased 3.9%.  Inflation without food or energy prices considered increased 0.2% for the month.  From a year ago overall inflation declined -0.1% and this is due to the previous plunge in gasoline prices.   CPI measures inflation, or price increases. Yearly inflation is now flat as shown in the below graph as gasoline prices really gave a break to consumers. Core inflation, or CPI with all food and energy items removed from the index, has increased 1.8% for the last year. Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate. While all are predicting interest rates will rise, Federal Reserve Chair Janet Yellen has testified that the low inflation numbers are a a concern since increased interest rates would lower economic activity. Most in the press screamed this month means the Fed will raise interest rates, yet one can see from annual inflation it's really tame, so expect any Fed increase to be very small. Graphed below is the core inflation change from a year ago. Core CPI's monthly percentage change is graphed below. This month core inflation increased 0.2%, mainly on shelter. The energy index overall increased 1.1% for the month, but is still down -18.3% from a year ago. The BLS separates out all energy costs and puts them together into one index. Gasoline by itself increased 3.9% for the month while fuel oil jumped 5.9%. For the year, gasoline has declined -29.2%, while Fuel oil has dropped -24.9%. Natural gas dropped for the month by -2.7% while Electricity dropped -1.1%. From a year ago national gas prices have declined -14.4% and electricity is about break even, a 0.9% increase. Graphed below is the overall CPI energy index.  Graphed below is the CPI gasoline index only, which shows gas prices wild ride and recent increases.  The summer is still predicted to have the cheapest gas since 2009.

March 2015 Inflation - Core minus shelter inflation appears to have bottomed out.  We have three straight months of C-S inflation at 0.1% or higher for the first time since 2Q 2014 and March C-S inflation came in at 0.2%, which is the highest reading for a single month in more than 2 years. Shelter inflation for the month was 0.27%, which is about the trend level we have seen since the mid 1990s, except for the aftermath of the 2008 crisis, where the drop in incomes became sharp enough to cut into housing consumption. I attribute this to a long-running shortage in housing, which was only partially mitigated during the housing boom of the 2000s. The post QE mortgage recovery story continues to look plausible. One danger was that non-shelter inflation would continue to fall, and that the economy wouldn't have the legs to keep recovering without QE. I think the economy is close enough to systemic recovery now that real interest rates and real wage growth should be strong enough to allow for non-distorted economic activity even if inflation is somewhat soft. The danger was mainly in sharp deflation. It looks like we have avoided this. Forward inflation expectations appear to have stabilized, also. If mortgages begin to expand, we should see a convergence of shelter inflation and non-shelter inflation. (This convergence will probably be associated with rising home prices, which will be erroneously associated with housing inflation.) This happened from 2002 to 2005, also. This should buoy real incomes and help keep the Fed from throttling liquidity, until the "bubble" police start begging for some more self flagellation. As long as liquidity is made available, returns (and prices) of homes and real long term bonds should also converge to long term trends.

Food Prices Fell in March, but the Grocery Relief Could be Short Lived - Americans saw some price relief last month on their grocery bills, a development that helped hold inflation in check despite an uptick in gasoline prices. The cost of food at home, Labor Department speak for groceries, fell 0.5% last month. The decline, the largest in nearly six years, was driven by a 1.4% decrease in fruit and vegetable prices. Everything from apples to bananas to dried peas costs less last month, according to the Labor Department. But the price break may be short lived. Food prices are still up 2.3% from a year earlier, a sizable gain compared to nearly non-existent overall inflation. That reflects a drought in the western U.S. that’s dried up crops, especially in California. As peak growing season nears,  there’s no sign of the drought letting up. California Gov. Jerry Brown recently ordered mandatory, statewide water cuts for the first time ever. Outside of fruits and veggies, several other food products cost less last month, including most meats, dairy, nonalcoholic beverages.The price of pork fell 2.6%–the largest decrease since July 1983. The price drop like reflects increased supply following a virus outbreak that killed millions of pigs since the spring of 2013. In one bit of crummy news, the price index that includes doughnuts rose 2.8% in March, the fattest gain since 1999. But don’t worry, coffee prices dipped 0.7% in March.

CPI: there is still no inflation, and real wage growth has stopped - This inflation report this morning concluded 4 data series that size up where we are at our current crossroads.   Industrial production tanked, as expected.  Housing (of which I'll write more later) was a mixed bag:  the more forward-looking and less volatile permits, as revised, tied their post-recession high in February but fell back, in a normally variable range, in March.  Starts, which were severely impacted by the weather especially in the Northeast during February, only came back partway, as the Western region took a dive (Oil patch weakness?).  As to inflation, the primary takeaway I heard from the talking heads was "OMG! OMG! Core CPI ticked up .1% to 1.8%, thus moving closer to the Fed's 2% ceiling, oops, I mean target." But the fact is that headline CPI is still just a skosh negative YoY:  The tame CPI number means that real retail sales for March took back almost all February's weakness, although they are still below their November peak: They also mean that real wages declined slightly more in March from their January peak:

Producer Price Index: In Line with Expectations -- Today's release of the March Producer Price Index (PPI) for Final Demand came in at 0.2% month-over-month seasonally adjusted. That follows the previous month's -0.5% decline. Core Final Demand (less food and energy) also came in at 0.2% month-over-month following a -0.5% change the month before. The forecasts were for 0.2% headline and 0.2% core. The year-over-year change in Final Demand is -0.8%, the lowest in the brief history of this data series. Here is the summary of the news release on Finished Goods: The Producer Price Index for final demand increased 0.2 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved down 0.5 percent in February and 0.8 percent in January. On an unadjusted basis, the index for final demand decreased 0.8 percent for the 12 months ended in March.... In March, more than half of the rise in final demand prices can be attributed to a 0.3-percent advance in the index for final demand goods. Prices for final demand services moved up 0.1 percent. More…  The BLS shifted its focus to its new "Final Demand" series in 2014. I fully support this shift. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since my focus is on longer term trends, I continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates. The Headline Finished Goods for March came in at -0.52% MoM and is down -3.25% YoY. Core Finished Goods were up 0.52% MoM and 2.02% YoY.Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. The plunge over the past several months in headline PPI is, of course, energy related -- now fractionally off its interim low set last month. Core PPI has remained relatively stable over the past year.

U.S. business inventories rise; sales flat: U.S. business inventories rose slightly more than expected in February as sales remained weak, a trend that could leave businesses with little appetite to accumulate more stock. The Commerce Department said on Tuesday business inventories increased 0.3 percent after being unchanged in January. Economists polled by Reuters had forecast inventories rising 0.2 percent in February.  Inventories are a key component of gross domestic product. Retail inventories excluding autos, which go into the calculation of GDP, increased 0.5 percent in February. They rose 0.2 percent in January. The gain in inventories excluding autos could prompt economists to bump up their first-quarter GDP growth estimates, which are currently running below a 1.5 percent annual pace. The economy grew at a 2.2 percent pace in the fourth quarter.

US Industrial Production Tumbled In March -  Output in the US industrial sector slumped a hefty 0.6% in March, far more more than expected. The decline marks the third monthly slide in the past four months and the biggest decrease since mid-2012, the Federal Reserve reports. More troubling is the ongoing deceleration in the year-over-year growth rate for industrial output. Industrial production increased 2.0% for the year through last month, the slowest annual rise in nearly two years. Today’s update marks the fourth consecutive month of a lesser rate of growth. What’s more, the descent has been sharp. Output was growing at an annual pace of 4.9% as recently as November; as of today’s release, growth has slowed by more than half to a mild 2.0%.  The manufacturing component of industrial activity is decelerating as well, in part because of the strong US dollar, which is hobbling exports. The bear market in energy prices is also a factor by way of slowing operations at oil companies. In addition, “the output of utilities fell 5.9% to largely reverse a similarly sized increase in February, which was related to unseasonably cold temperatures,” the Fed noted.  One bright spot is the rise in production for the cyclically sensitive corner of durable consumer goods, including a 3.0% increase for auto products last month. Nonetheless, the general trend for industrial activity continues to weaken. It’s unclear if it’s a temporary setback or an early warning for the business cycle. This much is clear: the margin of comfort is running thin and so next month’s update will be critical for deciding if the US economy’s recent weakness is a prelude for a higher degree of trouble down the road.

Fed: Industrial Production decreased 0.6% in March - From the Fed: Industrial production and Capacity Utilization Industrial production decreased 0.6 percent in March after increasing 0.1 percent in February. For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009. The decline last quarter resulted from a drop in oil and gas well drilling and servicing of more than 60 percent at an annual rate and from a decrease in manufacturing production of 1.2 percent. In March, manufacturing output moved up 0.1 percent for its first monthly gain since November; however, factory output in January is now estimated to have fallen 0.6 percent, about twice the size of the previously reported decline. The index for mining decreased 0.7 percent in March. The output of utilities fell 5.9 percent to largely reverse a similarly sized increase in February, which was related to unseasonably cold temperatures. At 105.2 percent of its 2007 average, total industrial production in March was 2.0 percent above its level of a year earlier. Capacity utilization for the industrial sector decreased 0.6 percentage point in March to 78.4 percent, a rate that is 1.7 percentage points below its long-run (1972–2014) average.  This graph shows Capacity Utilization. This series is up 11.1 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.4% is 1.7% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production decreased 0.6% in March to 105.2. This is 25.6% above the recession low, and 4.4% above the pre-recession peak. This was below expectations, although much of the decline was due to the "drop in oil and gas well drilling and servicing".

The Big Four Economic Indicators: Industrial Production -- According to the Federal Reserve, "Industrial production decreased 0.6 percent in March after increasing 0.1 percent in February. For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009. The decline last quarter resulted from a drop in oil and gas well drilling and servicing of more than 60 percent at an annual rate and from a decrease in manufacturing production of 1.2 percent. In March, manufacturing output moved up 0.1 percent for its first monthly gain since November; however, factory output in January is now estimated to have fallen 0.6 percent, about twice the size of the previously reported decline.... Capacity utilization for the industrial sector decreased 0.6 percentage point in March to 78.4 percent, a rate that is 1.7 percentage points below its long-run (1972-2014) average." The full report is available here. Today's month-over-month decline of 0.64 percent (to two decimal places) came in well below the consensus of -0.3 percent. As I've mentioned before, my personal view is that Industrial Production is the least useful of the Big Four economic indicators. It's a hodge-podge of underlying index components and subject to major revisions, which undercuts its value as a near-term indicator of economic health. As a long-term indicator, it needs two key adjustments to correlate with economic reality. First, it should be adjusted for inflation using some sort of deflator relevant to production. Second, it should be population-adjusted. The chart below is my preferred way to look at Industrial Production over the long haul. I've used the Producer Price Index for All Commodities as the deflator and Census Bureau's mid-month population estimates to adjust for population growth. I've indexed the adjusted series so that 2007=100.

US Industrial Production Plunges By Most Since Aug 2012, Utility Output Drops Most In 9 Years -- Mortgage Apps tumble, Empire Fed slumps, and now Industrial Production plunges... Against expectations of a 0.3% drop MoM, US Factory Output was twice as bad at -0.6% - the worst since August 2012 (and lamost worst since June 2009). This is the 4th miss in a row. What is even more stunning is that despite the coldest of cold winters that crashed the US economy, Utilities saw their output crash 5.9% - the most in 9 years (explained as follows - largely reversing a similarly-sized increase in February, which was related to unseasonably cold temperatures). Motor Vehicles saved the data from being a catastrophe with a 3.2% rise (following a 3.6% drop In Feb).

Industrial Production Hasn't Been This Bad Since Q2 2009 -- The Federal Reserve Industrial Production & Capacity Utilization report shows industrial production decreased -0.6% while January was revised downward to a -0.4% decline.  February showed a measly 0.1% increase, so overall the first quarter looks bleak  Annualized Q1 showed a -1.0% decline and such a contraction has not happened since Q2 2009.  The G.17 industrial production statistical release is also known as output for factories and mines.Total industrial production has now increased 2.0% from a year ago and this yearly gain is much lower than last month.  Currently industrial production is 5.2 percentage points above the 2007 average.  Below is graph of overall industrial production's percent change from a year ago. Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +2.4%
  • Mining:             +3.7%
  • Utilities:           -3.6%

The worst news of this report is January manufacturing was revised downward from -0.3% to -0.6%, that's quite a revision downward.  Annualized, manufacturing dropped -1.2% for Q1, another decline not seen since Q2 2009.  Manufacturing output is 1.2 percentage points above it's 2007 Levels.  Within manufacturing, durable goods rebounded, increasing 0.2% for the month. Motor vehicles & parts increased 3.2%, reversing last month's drop. Primary metals dropped -3.2%. Nondurable goods manufacturing showed a 0.1% gain for the month as food, textiles and petroleum all gained 0.6%. Nondurable manufacturing has increased 2.3% for the year. Mining showed a -0.7% monthly decrease, but has grown 3.7% for the year. Mining includes gas and electricity production and the Fed have a special aggregate index for oil and gas well drilling. Oil and gas well drilling dropped a whopping -17.7% and for the year is down -36.6%. What a collapse this is.

String of Good News Snaps at One: Industrial Production Down 0.6 Percent, First Quarterly Decline Since 2009 -- The string of good news in industrial production snapped at one month. The Fed's Industrial Production and Capacity Utilization report shows Industrial production decreased 0.6 percent in March after increasing 0.1 percent in February. For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009. The decline last quarter resulted from a drop in oil and gas well drilling.In March, manufacturing output moved up 0.1 percent for its first monthly gain since November; however, factory output in January is now estimated to have fallen 0.6 percent, about twice the size of the previously reported decline. The index for mining decreased 0.7 percent in March. The output of utilities fell 5.9 percent to largely reverse a similarly sized increase in February, which was related to unseasonably cold temperatures.  Economists at least got the direction correct. Nonetheless, the Bloomberg Industrial Production Consensus was -0.3 percent, once again too optimistic.In January, December and November were revised sharply lower.  This month,  January was revised lower. If March is revised lower next month, there was no string of good news on industrial production at all.

Just Released: April Empire State Manufacturing Survey Indicates Sluggish Conditions - NY Fed - The April 2015 Empire State Manufacturing Survey, released today, points to continued weakness in New York’s manufacturing sector. The survey’s headline general business conditions index turned slightly negative for the first time since December, falling 8 points to -1.2 in a sign that the growth in manufacturing had paused. The new orders index—a bellwether of demand for manufactured goods—was also negative, pointing to a modest decline in orders for a second consecutive month. Employment growth slowed, too. The Empire Survey has been signaling sluggish growth since October of last year after fairly strong readings from May through September. A number of factors may be contributing to this weakness. First, since mid-2014, the dollar has appreciated significantly, making imports cheaper for domestic consumers and U.S. exports more expensive for foreign consumers. Indeed, in January we asked our respondents how changes in the value of the dollar were affecting sales and profits (see our January Supplemental Survey Report). On net, respondents reported that the stronger dollar was hurting sales to foreign customers, though few said it was hurting domestic sales and many indicated they were benefiting from lower input prices. Still, because the stronger dollar may be reducing activity at firms with which manufacturers do business, the effects may be being felt indirectly. Second, the recent drop in oil prices is likely contributing to a decline in oil and gas investment, which may slow activity for manufacturers who produce equipment for that industry. On the positive side, however, many manufacturers are benefiting from lower oil prices. Third, the unusually snowy winter slowed activity for some firms in the region.

Empire State Manufacturing Conditions Go Negative - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at -1.2 shows a drop from last month's 6.9, which signals a slight contraction in activity. The forecast was for a reading of 7.0. The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report.The April 2015 Empire State Manufacturing Survey indicates that business activity was flat for New York manufacturers. The headline general business conditions index turned slightly negative for the first time since December, falling eight points to -1.2. The new orders index, negative for a second consecutive month, dropped four points to -6.0 — evidence that orders were declining. The shipments index climbed to 15.2, indicating that shipments expanded at a solid pace. Labor market indicators pointed to an increase in employment levels but a somewhat shorter workweek. Input price increases picked up, with the prices paid index rising seven points to 19.2, while the prices received index fell four points to 4.3. The future general business conditions index climbed for a second consecutive month, suggesting greater optimism among manufacturers than in February and March, and the capital spending and technology spending indexes also advanced.   Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Empire State Manufacturing Index Back in Contraction, New Sales and Unfilled Orders Sharply Decline -- Bad news in economic reports continues amidst occasional and one-time positive reports. The Bloomberg Empire State Manufacturing consensus was not only overoptimistic. The Empire State index points to month-to-month contraction for April, at minus 1.19 for only the second negative reading in the last 23 months. The other negative reading was in December which was just about the beginning of this indicator's slowdown.New orders are contracting noticeably, at minus 6.00 for the second straight contraction. Weakness in exports, tied to the strong dollar and soft global demand, is a major factor behind the dip in orders. Unfilled orders, at minus 11.70, are in sharp contraction for a second straight month.But the drop in orders has yet to pull down shipments which, at least for now, are still in the plus column and well into the plus column, at 15.23. Employment is also well into the plus column at 9.57 on top of March's standout strength of 18.56.Still, shipments and employment are certain to turn lower if orders don't pick up. But, in an optimistic note, that's exactly what the sample sees as a sizable 52 percent expect general conditions to improve in the next six months.

April Empire Fed Manufacturing Plunges, New Orders Crash To Jan 2013 Lows - Empire Fed Manufacturing tumbled to -1.2 in April (missing expectations of a post-weather-bounce to 7.17) from 6.9 in March. Across the board the report was painful as Prices Paid surged, employment plunged, and work hours tumbled. Hope rermains as the business outlook improved (but even there capex and new orders were weak) New Orders stood out as it crashed to its lowest since Jan 2013. It appears there is more afoot than just weather...

Philly Fed Business Outlook: Another Month of Modest Growth -  The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 7.5, up from last month's 5.0. The 3-month moving average came in at 5.9, little changed from 5.5 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was little unchanged at 35.5 versus the previous month's 32.0. Today's 7.5 came in above the 6.0 forecast at is the introduction from the Business Outlook Survey released today: Manufacturing activity in the region increased modestly in April, according to firms responding to this month's Manufacturing Business Outlook Survey. Indicators for general activity and new orders were positive but remained at low readings. Firms reported overall declines in shipments this month, but employment and work hours increased at the reporting firms. Firms reported continued price reductions in April, with indicators for prices of inputs and the firms' own products remaining negative. The survey's indicators of future activity suggest a continuation of modest growth in the manufacturing sector over the next six months. Full PDF Report)  The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now above its post-contraction peak in September of last year.

Philly Fed Positive, but New Orders Stall, Backlog of Orders Contracts, Prices Contract; Why the Optimism?  -- As typical, there is not much to cheer about in the latest Philadelphia Fed Manufacturing Survey.  The index is hovering above zero where it has been for months. That's about as good as it gets. April vs. March New orders are weak and shipments while shipments dipped into contraction. Prices paid is negative for the second month and prices received has been in contraction for four months. The number of employees is positive, but that will not last long unless orders pick up. Strength in the US dollar suggests orders, especially export orders, won't pick up. That said, a special survey question this month shows exports only account for 10 percent of revenue. Thus, weakness in orders is also local. Special Question on Exports Approximately what percentage of your total revenues come from exports and what percentage of total nonlabor costs are paid to foreign suppliers?As is typically the case, firms were optimistic in their forecast six months ahead. A look at the first chart suggests such expectations are useless.

Documenting the Investment Slowdown - There's a bubbling controversy over the "secular stagnation" hypothesis that investment levels are not only low, but likely to remain low. I've posted some thoughts on the controversy here and there:

I'm sure I'll return to the disputes over secular stagnation before too long, but for now, I just want to lay out some of the evidence documenting the investment slowdown. Such a slowdown is troublesome both for short-term reasons, because demand for investment spending is part of what should be driving a growing economy forward in the short-run, and also for long-term reasons, because investment helps to build productivity growth for increasing the standard of living in the future. The IMF asks "Private Investment: What's the Hold-Up?" in Chapter 4 of the World Economic Outlook report published in April 2015. Here's a summary of some of the IMF conclusions

Small Business Optimism: A Nine-Month Low - The latest issue of the NFIB Small Business Economic Trends is out today. The April update for March came in at 95.2, a a 2.8 drop from the previous month and the lowest reading in nine months. The index is now at the 26th percentile in this series.  The forecast was for 98.4. Here is the opening summary of the news release. The Small Business Optimism Index fell 2.8 points to 95.2, declining in sympathy with the rather weak stream of reports on the economy. Bad weather was certainly depressing, for both shoppers and the construction industry. All 10 Index components declined, contributing to the 31 point decline in net positive responses. The only good news is that the 10 Index components didn't fall further, not much to hang on to. Consumer spending has not shown much strength and the saving rate has increased. Not a recession scenario overall for sure, but there is not much growth energy in the economy, especially with the energy boom deflating a bit.  The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.

Small Business Optimism Plunges To 9-Month Lows As Hiring Plans Tumble -- Remember back at the turn of the year when NFIB Small Business Optimism was surging and the mainstream media proclaimed that jobs were coming back thanks to small business, and Obama stated "the shadow of crisis is behind us." Well, if March's Small Business Optimism index is to be believed... it's not. At 95.2 (missing expectations for the 3rd month in a row), this is the least optimistic small businesses have been in 9 months. Worse still, all those jobs that were going to be created by this optimism.. Hiring Plans dropped to 6-month lows.

Small Business Owners Less Upbeat in March, says NFIB - Small business owners scaled back their enthusiasm in March, according to a report released Tuesday. In turn, they plan on less hiring and capital spending in the near term. The National Federation of Independent Business‘s small-business optimism index fell to 95.2 in March, from 98 in February. Economists surveyed by The Wall Street Journal projected the index to hold at 98.0. The NFIB said the index is the lowest since June 2014 and is back below its long-term average. All 10 subindexes declined last month. Readings on plans to add jobs and raise capital spending took hits. The subindex covering plans to create new jobs fell two percentage points to 10%. The capital outlays subindex dropped two points to 24%. Overall, only 10% of respondents thought now is a good time to expand, a drop of three points from February. Part of the weaker hiring number reflects a rise in recent hires. The average increase in workers added per firm was 0.18 worker in March, which the NFIB said bested the “excellent” readings of 0.16 in January and February. Also, the mismatch of labor eased somewhat. The subindex covering jobs that are hard to fill fell five points to 24%. But of those looking for workers, 84% said they were seeing few or no applicants who were qualified for the open positions. In addition to cuts in hiring, small businesses are also trimming their physical expansion plans. Only 24% of owners plan to make capital outlays in the near term. That’s down from 26% in February and “not a strong reading historically,” the report said. Unlike hiring, the drop in spending plans does not follow a speed-up in past spending. In March, 58% of small business owners reported making capital outlays, down 2 points from February.

What You Need to Know About Trade Agreements and Fast Track - In this video, Lilliston discusses an issue that is rarely reported in the mainstream media, and poorly understood by the general public, namely: free trade agreements.  Free trade agreements, such as the North American Free Trade Agreement (NAFTA), have huge implications, both in terms of our economy and our daily lives. Lilliston began looking at NAFTA in the early '90s when he worked with Ralph Nader. One of the aspects Lilliston finds most disturbing is the fact that trade agreements are negotiated in secret; hence it's very difficult to engage in a public debate about them. By the time Congress votes on them, the deals have already been struck, and the public has no way of knowing the details of the negotiations.  Fast Track is an important part of this discussion. Fast Track, Lilliston explains, gives the President the right to negotiate and finalize a trade agreement, and then present it to Congress for a vote. Under the US constitution, Congress has the right to engage in trade agreements prior to this, and to set negotiating parameters. For example, Congress might insist on parameters to protect the environment or public health.  But under Fast Track, Congress more or less relinquishes this right (and responsibility), letting the President negotiate at will instead. And, once the agreements are completed, you can no longer make any amendments. Congress simply votes for the agreement or against it, in its entirety. Adding to the difficulty is the fact that even members of Congress are limited in getting a full understanding of the details of the agreement they're voting for. They're only allowed to read the agreement in a special room, and they're not allowed to bring in any aides, experts, or trade legal lawyers they might need to decipher the text. Moreover: "They can take notes, but they can't bring the notes out of the meeting with them. They have to leave them there. This is how secret this trade agreement is,"

Fast Track to Lost Jobs and Lower Wages -- This week, Senator Hatch will reportedly introduce “fast track” (trade promotion authority) legislation in the Senate, to help President Obama complete the proposed Trans-Pacific Partnership (TPP), a trade and investment deal with eleven other countries in Asia and the Americas. “Fast Track” authority would allow the President to submit trade agreements to Congress without giving members of Congress the opportunity to amend the deal. Experience has shown that these trade and investment deals typically result in job losses and downward pressure on the wages of most American workers. The last thing America needs is renewal of fast track and more trade and investment deals rushed through Congress. The administration has claimed that the TPP will create jobs, but it will not. There are other policies that have attracted bipartisan support, including ending currency manipulation and rebuilding infrastructure that could each create millions of U.S. jobs. President Obama has limited political capital to expend with the Republican-controlled Congress and he must choose his policies wisely.  For more than twenty years, both Democratic and Republican administrations have claimed that free trade agreements like the U.S. – Korea Free Trade Agreement (KORUS) and the North American Free Trade Agreement (NAFTA) would lead to growing U.S. exports and stimulate creation of goods jobs in the United States. Claims that trade and investment deals would support domestic job creation have proven to be empty promises. Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by American workers.

Don’t Keep the Trans-Pacific Partnership Talks Secret - WHEN WikiLeaks recently released a chapter of the Trans-Pacific Partnership Agreement, critics and proponents of the deal resumed wrestling over its complicated contents. But a cover page of the leaked document points to a different problem: It announces that the draft text is classified by the United States government. Even if current negotiations over the trade agreement end with no deal, the draft chapter will still remain classified for four years as national security information. The initial version of an agreement projected by the government to affect millions of Americans will remain a secret until long after meaningful public debate is possible.  National security secrecy may be appropriate to protect us from our enemies; it should not be used to protect our politicians from us. For an administration that paints itself as dedicated to transparency and public input, the insistence on extensive secrecy in trade is disappointing and disingenuous. And the secrecy of trade negotiations does not just hide information from the public. It creates a funnel where powerful interests congregate, absent the checks, balances and necessary hurdles of the democratic process. Free-trade agreements are not just about imports, tariffs or overseas jobs. Agreements bring complex national regulatory systems together, such as intellectual property law, with implications for free speech, privacy and public health. The level of secrecy employed by the Office of the United States Trade Representative is not typical of how most international agreements are negotiated. It’s not even how our negotiating partners say they want to operate. Yet it is the way that the Obama administration handles trade deals, from a failed anti-counterfeiting agreement more than two years ago to the TPP today. The trade representative’s office keeps trade documents secret as national security information, claiming that negotiating documents — including work produced by United States officials — are “foreign government information.”

TPP, Trans-Pacific Partnership: The public deserves to know what's in the free-trade treaty. --In the next few weeks, Congress may give special status to a massive “free trade” treaty that you are not allowed to read. Based on leaks of portions of the deal, however, the Trans-Pacific Partnership (TPP) appears to be at least partly a grab bag of special favors for corporate interests—among them the entertainment and pharmaceutical industries—and an end-run around domestic law. Naturally, given that Congress seems increasingly owned by moneyed interests, this mockery of thoughtful governance and policy may well happen. But there's still time to modify it, or block it outright if the worst provisions remain, and I'm glad to see an emerging coalition aiming to do just that. Advertisement The few government and corporate officials who are permitted to read the TPP insist that the proposed multilateral deal among Pacific Rim nations is a 21st-century approach to trade and other economic issues. President Obama and his trade representatives call the TPP a vital boost for American interests. Oh, and it's so wonderful and important that it absolutely must get “fast track” status, which basically means Congress would only be permitted to say yea or nay with little or no debate. Freer trade is generally a fine idea. But what's leaked out from the TPP negotiations so far is grim, and we can thank the American negotiators for a lot of the badness—and we can thank Wikileaks’ public-spirited leaker(s) for what we do know. About 18 months ago, for instance, Wikileaks published a draft  of the “intellectual property” chapter, and published an updated draft last November. Public health officials were among many to sound the alarm, since the TPP would likely lead to higher drug prices and expanded industry control over medical technology and procedures. One of the biggest winners if TPP goes through with the draft provisions would be Hollywood film studios. The consistent U.S. position—expanded control globally for copyright holders, including longer terms and even more draconian penalties for infringement (and even some security research)—amounts to a Hollywood wish list. Unfortunately for the rest of us, if enacted as drafted, the TPP would have "extensive negative ramifications for users' freedom of speech, right to privacy and due process, and hinder peoples' abilities to innovate," according to the Electronic Frontier Foundation

A Trade Bill So Controversial Even Its Name Is Hot Topic The trade legislation U.S. senators are expecting to introduce Thursday is so controversial that Washington can’t even agree on what to call it. Many Democrats refer to the measure, which has been passed in various forms for decades, as “fast track.” Same for unions and other traditional opponents of opening up barriers at the border.  But don’t tell that to Republicans, who prefer “trade promotion authority.” A Republican House aide said using “fast track” to refer to the legislation is “wildly unfair and unbalanced.” Rep. Paul Ryan, chairman of the House Ways & Means Committee, even corrected a reporter this year when asked about “fast track.” “Don’t do that in your paper, okay?” Mr. Ryan said, endorsing “trade promotion authority” instead. That is what the legislation was called when it passed Congress during the George W. Bush administration in 2002.  The law lets Congress set the negotiating objectives but prevents lawmakers from inserting amendments or mounting procedural hurdles to the president’s deal when it comes up for a final vote. Some lawmakers say recent fast track bills have gone too far in ceding congressional authority. When Sen. Ron Wyden was chairman of the Finance Committee last year he advocated a “smart track” with additional safeguards to please Democrats, and the Oregon Democrat insisted on some of those in the bill to be unveiled today.

The Trans-Pacific Partnership Is Unlikely to Be a Good Deal for American Workers - Debate is heating up about the Trans-Pacific Partnership (TPP)—a proposed new trade agreement. At EPI we urge policymakers to assess every issue they approach—whether macroeconomic stabilization policy, tax and budget policy, regulatory policy, labor policy, or yes, trade policy—on the grounds of whether or not it will boost wages for the vast majority of Americans. This is an important benchmark because most Americans’ hourly pay has not been boosted at all from the economy’s growth over the past generation (Figure A depicts the growing wedge between hourly pay for the vast majority and economy-wide productivity).  In regard to the TPP and wages for the vast majority of Americans, there are two important concerns in play. The first is whether it will help generate aggregate demand (i.e., increase spending by households, governments, and businesses) and tighter labor markets in coming years. The second is whether it will lead to a trade policy that boosts low- and moderate-wage workers’ power to bargain for higher wages—instead of continuing to favor corporate managers and capital owners. This briefing paper makes the following points:

  • Unless there is a strong currency provision in the TPP, reductions in the U.S. trade deficit—the most promising route back to sustainable full employment—will be harder to obtain following its passage.
  • Recent claims that a strong currency provision in the TPP would be impossible to craft without impinging on the Federal Reserve’s ability to undertake expansionary monetary policy to fight recessions are clearly wrong.
  • Expanded trade, particularly with trading partners that are poorer and more labor-abundant than the United States, is likely to lower the wages of most American workers.
  • (much more)

How Pending “Trade” Deals Would Undermine Zoning and Local Land Use Rules - A key principle of land use in the United States is that homeowners can often veto new buildings on nearby land that other people own. A trade agreement that’s currently in the works could have a huge impact on that long-established system of local control.The Trans Pacific Partnership (TPP) is a trade pact that would change the rules for investments and trade among its signers. It’s currently in behind-closed-doors negotiation among 12 countries, including the United States, Australia, Canada, Japan, Mexico, and Singapore. Other countries could join later.A recently leaked draft of the TPP gives investors from member nations the right to sue when a decision by a local government “interferes with distinct, reasonable investment-backed expectations.”  Panels of private lawyers chosen by the investors and the federal government will meet to decide the suits. If the investors win, the federal government must reimburse them for the loss of future profits.  Critics of the TPP argue that it could gut environmental and health regulation. They point to the past history of trade agreements to back up that concern. The TPP’s backers, on the other hand, assert that the treaty only bans arbitrary or discriminatory actions. No matter who turns out to be right about that, the pact is likely to undermine local oversight of land use.

The Rich Man's Profits Are Our First Priority  - Susan of Texas -- Megan McArdle's heart bleeds for the working man. I've written before about the problems facing workers who are at the whims of their employers -- shifts that are scheduled a week or less in advance, on-call periods for which they're supposed to be available on short notice to work but might not get it. This is obviously bad for the workers: It plays havoc with their schedules, making it difficult to schedule child care and, of course, rendering it impossible to take on a second job. The New York attorney general agrees and is now questioning 13 major retailers, including Gap and Sears, about their practices.   That sounds terrible. It must be eradicated at once. The problem is that once you start to find legal remedies, you fall down a bit of a rabbit hole. How do you prevent retailers from basically making it impossible to have a life while working for them, while also allowing economically beneficial transactions to take place? Indeed. How will you help the working man if it costs the rich owner any money? It simply can't be done because one must never interfere with profits.

Weekly Initial Unemployment Claims increased to 294,000  -- The DOL reported: In the week ending April 11, the advance figure for seasonally adjusted initial claims was 294,000, an increase of 12,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 281,000 to 282,000. The 4-week moving average was 282,750, an increase of 250 from the previous week's revised average. The previous week's average was revised up by 250 from 282,250 to 282,500. There were no special factors impacting this week's initial claims.  The previous week was revised up by 1,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

Lawler: Texas Employment Declines (Housing Impact)  From housing economist Tom Lawler: Texas: Non-Farm Payoll Employment Fell in March. The Texas Workforce Commission reported that non-farm payroll employment in the Lone Star State declined by 25,400 (or -0.22%) on a seasonally adjust basis in March, the first monthly decline since September 2009 and the largest monthly decline since August 2009. Declines were broad-based from an industry perspective, with mining and logging, construction, manufacturing, and the service-producing sectors all experiencing a monthly dip in employment.From the end of 2013 to the end of 2014 non-farm payroll employment in Texas increased by 3.6%, easily outpacing the 2.3% growth for the US as a whole. In 2014 single-family building permits in Texas were up 8.7% from 2013 compared to 1.5% for the US as a whole. In the first two months of 2015 single-family building permits were up 6.7% from the comparable period of 2013, compared to a YOY gain of 5.6% for the US as a whole. CR note: As Lawler points out, single family building permits (and housing starts) have increased much faster in Texas than in the U.S. With the slowdown due to lower oil prices, employment is now falling, and building will probably slow.

Philly Fed: State Coincident Indexes increased in 46 states in February -- From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for February 2015. In the past month, the indexes increased in 46 states, decreased in one, and remained stable in three, for a one-month diffusion index of 90. Over the past three months, the indexes increased in 49 states and decreased in one (West Virginia), for a three-month diffusion index of 96. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed: The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

The Long-term Unemployed: Lost, but not Forgotten -- According to a new report from the Department of Labor (Trends in Long-term Unemployment), people unemployed in 2014 couldn't count on a college degree to save them from long-term joblessness. The data also show it doesn't matter what industry you work in — and confirmed previous studies, that the longer you're out of work, the less likely you are to get another job. One Princeton University study last year showed that after 15 months, the long-term unemployed were more than twice as likely to have withdrawn from the labor force than the short-term unemployed.The share of the unemployed who were out of work for 52 weeks or longer reached a record high of 31.9 percent in 2011. The share unemployed for 99 weeks or longer reached a record peak at 15.1 percent in 2011 (99 weeks = 1 year, 10 months and 3 weeks). There were 6.8 million unemployed over 27 weeks in April 2010.But because so many left the labor force, all of these measures of long-term unemployment have trended down since their respective peaks, but still remain high by historical standards. Five years after the Great Recession officially ended in June 2009, the number of long-term unemployed still made up a larger share of unemployment than during any previous recession.  Below are the numbers of all who were counted as "unemployed" since the onset of the Great Recession to the present.

The Very Real Hardship of Unpredictable Work Schedules -- On Monday, New York's attorney general announced that he had sent letters to 13 major retailers inquiring about their use of "on-call scheduling," which can make workers responsible for showing up at a moment's notice, or leave them without a shift just as quickly. "Such practices take a toll on workers and prevent employees from securing childcare or pursuing other job and educational opportunities," according to a post on the attorney general's Facebook page.  For Americans who work traditional nine-to-five jobs, the life of a worker with a constantly-changing shift schedule can be difficult to fathom. Employees can wind up spending time, and money, commuting to their job, only to be told to leave early, or that they're not needed at all that day. A sudden call to work can mean scrambling for child care, or turning down much-needed hours. And a constantly shifting schedule can lead to uneven earnings, with income spiking in some months and plummeting in others, making it incredibly difficult to budget. For students using part-time jobs to make ends meet, schedule changes can mean making a choice between attending class and earning enough money to pay tuition. For workers with kids, it can mean a constant struggle to find and afford child care. The problem is bigger than mere inconvenience. According to a recent study from the Economic Policy Institute, this is life for about 17 percent of the labor force. So called "just-in-time scheduling" is far more common for those who work for hourly wages or are part-time employees, or both. Part-time workers—more than six million Americans—are more than twice as likely to have unpredictable hours than full-time employees.

Work makes Fritos --  I’ve gone around on the Universal Basic Income (‘UBI’) more times than I care to remember, but Vox’s Dylan Matthews brings something news to the table, pointing to the contemporary Democrats’ default anti-poverty policy: get people into a job, any job. Translated that means work supports for jobs with very low pay and scant prospects for upward mobility.  There are alternatives to low-pay employment. There is production in cooperatives, or in worker-owned and managed firms. These are real things. There is self-employment. There is working less — workers of the world, relax! This entails reduction in hours of the working day, through the institution of shorter work weeks or work-sharing. These are also real things. My comrade, the legendary Sandwichman, will have more to say in this vein, among others. He is an expert on less work, in theory and in practice. Last, and not least, there is the wages agenda. You will seldom hear a Democratic big-shot suggesting less work. The labor movement, for understandable reasons, is fixated on maximizing employment and wages. I call it ‘productionism,’ even though I love me some labor unions and wage growth. Of course people need jobs because they need income. The question is whether an exclusive focus on any-damn-job and wages is good strategy. There is a lot wrong with Econ 101 supply-and-demand, but there should be little doubt that constricting labor supply to employers will force them to offer better wages and accept lower profits. Let’s desacralize work. Dignity of work, my fanny. Work that is truly voluntary would be nice. Work that is compelled as an alternative to destitution does not comport with any reasonable concept of dignity. It’s like the dignity of kicking back to Tony Soprano. Where does the UBI come in? The principle of providing an alternative to employment is sound. A universal program, however, is too diffuse. More than half the country doesn’t need a UBI. Giving them one requires taxing it all back, which is a lot of money — trillions — sloshing back and forth, the proverbial putting out and taking in the same laundry. Lots of opportunities for slips between the cup and lip, at both ends. It looks stupid.

Working, but Needing Public Assistance Anyway - A home health care worker in Durham, N.C.; a McDonald’s cashier in Chicago; a bank teller in New York; an adjunct professor in Maywood, Ill. They are all evidence of an improving economy, because they are working and not among the steadily declining ranks of the unemployed.Yet these same people also are on public assistance — relying on food stamps, Medicaid or other stretches of the safety net to help cover basic expenses when their paychecks come up short.And they are not alone. Nearly three-quarters of the people helped by programs geared to the poor are members of a family headed by a worker, according to a new study by the Berkeley Center for Labor Research and Education at the University of California. As a result, taxpayers are providing not only support to the poor but also, in effect, a huge subsidy for employers of low-wage workers, from giants like McDonald’s and Walmart to mom-and-pop businesses. “This is a hidden cost of low-wage work,” said Ken Jacobs, chairman of the Berkeley center and a co-author of the report, which is scheduled for release on Monday. Taxpayers pick up the difference, he said, between what employers pay and what is required to cover what most Americans consider essential living costs.The report estimates that state and federal governments spend more than $150 billion a year on four key antipoverty programs used by working families: Medicaid, Temporary Assistance for Needy Families, food stamps and the earned-income tax credit, which is specifically aimed at working families.This disparity has helped propel the movement to raise the minimum wage and prompted efforts in a handful of states to recover public funds from employers of low-wage workers. In Connecticut, for example, a legislative proposal calls for large employers to pay a fee to the state for each worker who earns less than $15 an hour. In 2016, California will start publishing the names of employers that have more than 100 employees receiving Medicaid, and how much these companies cost the state in public assistance.

Get a Job? Most Welfare Recipients Already Have One - It’s poor-paying jobs, not unemployment, that strains the welfare system. That’s one key finding from a study by researchers at the University of California, Berkeley, that showed the majority of households receiving government assistance are headed by a working adult. The study found that 56% of federal and state dollars spent between 2009 and 2011 on welfare programs — including Medicaid, food stamps and the Earned Income Tax Credit — flowed to working families and individuals with jobs. In some industries, about half the workforce relies on welfare. “When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs,” said Ken Jacobs, chairman of the university’s Center for Labor Research and Education and one of the report’s authors. More than half of front-line fast-food workers receive some form of government assistance. Pay for those workers has received significant attention recently. Fast-food workers have held several protests and strikes over the past year. And earlier this month, McDonald’s said it would raise pay for 90,000 of its lowest-paid employees at company-operated stores. Among other fields, 48% of home-care workers and 25% of part-time college faculty also receive government assistance. The report bolsters the long-standing contention that taxpayers are subsidizing low-wage employers.

Low Wage Workers Are Storming the Barricades -- A few weeks back, when Walmart announced plans to raise its starting pay to $9 per hour, I wrote a column saying this was just the beginning of what would be a growing movement around raising wages in America. Today marks a new high point in this struggle, with tens of thousands of workers set to join walkouts and protests in dozens of cities including New York, Chicago, LA, Oakland, Raleigh, Atlanta, Tampa and Boston, as part of the “Fight for $15” movement to raise the federal minimum wage.This is big shakes in a country where people don’t take to the streets easily, even when they are toiling full-time for pay so low it forces them to take government subsidies to make ends meet, as is the case with many of the employees from fast food retail outlets like McDonalds and Walmart, as well as the home care aids, child caregivers, launderers, car washers and others who’ll be joining the protests. It’s always been amazing to me that in a country where 42% of the population makes roughly $15 per hour, that more people weren’t already holding bullhorns, and I don’t mean just low-income workers. There’s something fundamentally off about the fact that corporate profits are at record highs in large part because labor’s share is so low, yet when low-income workers have to then apply for federal benefits, the true cost of those profits gets pushed back not to companies, but onto taxpayers, at a time when state debt levels are at record highs. Talk about an imbalanced economic model.

Is $15 an Hour a Realistic Goal for Fast-Food Workers? -  Fast-food workers in dozens of cities are rallying Wednesday, demanding a $15 hourly wage for their work. They’re joined in some cases by home-care aides, retail clerks and other low-wage workers who often earn closer to the federal minimum wage of $7.25 an hour than their stated goal. But is $15 an hour a realistic demand? At first blush, it seems a real stretch.A $15 an hour federal pay floor would represent a 107% increase in the minimum wage. The largest-ever one-time increase to the minimum wage was 88%. That occurred in 1951 when the federal minimum jumped to 75 cents an hour from 40 cents. The last minimum-wage increase, phased in over three years through 2009, was a 41% increase to the current rate from $5.15 an hour. At $15 an hour, protesters are also demanding a 57% increase from the $9.53 an hour wage a non-manager, fast-food worker averaged in February.To put that in perspective, it took 18 years for fast-food workers to see a similar percentage from the $6.10 an hour they earned at the start of 1998, according to the Labor Department. So who currently makes $15 an hour? In 2014, brickmasons earned an average wage of $15.12 an hour, according to the Labor Department. Pharmacy technicians averaged $14.95 an hour, and various categories of assemblers and production workers—typical factory jobs—earned between $14.78 and $15.25 an hour. Each of those jobs would generally require more skill and training that an entry-level position at a restaurant.   And while restaurant workers wages are rising faster than pay increases in the broader economy, wage gains have generally been muted. Average hourly earnings for all workers was $24.86 last month, up a mild 2.1% from a year earlier. But there are several reasons that $15 an hour may not be such a reach.  San Francisco, Seattle and the airport suburb of SeaTac, Wash., have already established minimum wages of $15 an hour, though it will take a few years to reach that rate in the larger cities. There is also clear momentum for a higher minimum wage at the state level. Less than half of states still follow the federal wage. Last year, 14 states acted to raise their minimum wages, with Massachusetts setting the nation’s highest rate at $11 an hour by 2017.

Why you should be afraid: the next recession is likely to include wage deflation - Beginning 3 years ago, I identified poor wage growth  as the shortfall in the economy that worries me the most. And it still worries me, even though there has been some modest improvement. Why? Because unless there is enough of a cushion, the next recession, whenever it comes, there is a significant danger of outright wage deflation. And as we know from the Great Depression, outright wage deflation means that payments on previously contracted debts become, in real terms, higher. This can lead to a vicious spiral of debt-deflation, whereby more and more people fall behind on debt, leading to a further economic contraction, more unemployment, and even more wage deflation, and so the cycle repeats.  So why am I particularly concerned now?  Because a decline in wage growth is a feature of virtually all recessions.  And we may start the next recession from such a low level of wage growth that the decline in wage growth turns into an absolute decline.Here's the data.  Below is a graph of the YoY% change in average hourly wages (a mean measure) for the last 50 years (blue), and also median usual weekly earnings, a quarterly measure, since the start of the series in 1979 (red):

By One Measure, Wages for Most U.S. Workers Peaked in 1972 - By one measure, wages for most U.S. workers peaked more than four decades ago. Adjusted for inflation, average weekly earnings for production and nonsupervisory employees–the bulk of the workforce–topped out in October 1972, according to the Labor Department. In today’s dollar, that weekly paycheck was the equivalent of about $811, compared with just under $703 a week last month. Data released Friday showed real average hourly earnings for production and nonsupervisory employees fell a seasonally adjusted 0.1% from February to March, and real average weekly earnings decreased by 0.4%, underscoring soft wage gains during this recovery. From a year earlier, inflation-adjusted hourly and weekly earnings increased by 2.3% percent. The picture isn’t quite so bleak when looking at inflation-adjusted hourly wages, though they still haven’t returned to the era when Richard Nixon won re-election, Eugene Cernan became the last man to walk on the moon and the Dow Jones Industrial Average closed above 1,000 for the first time. A recent jump in real average earnings is largely due to low inflation, rather than surging paychecks. Cheaper gasoline and a strong dollar have pushed down overall prices, leaving many Americans with more money in their pockets–though they’re not necessarily spending it all.

Study says low wages cost US $153bn a year - The US government spends roughly $153bn a year to support the families of low-wage workers, according to a new study released days before thousands of workers are set to strike for higher wages in cities across the country. Nearly three-quarters of all recipients of public assistance programmes — including Medicaid health insurance and food stamps — are members of families in which at least one member works, according to the study by the University of California-Berkeley’s Center for Labor Research and Education. “When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs,” said Ken Jacobs, head of the centre and co-author of the report. “This creates significant cost to the states.” More than half of all fast-food workers and nearly half of childcare and home care workers rely on public assistance, the study found. Many workers in those industries are set to strike in 200 cities on Wednesday in what organisers say will be the largest ever protests for higher wages and union rights, following rallies and walkouts throughout the country over the past two years. Wednesday’s strikes will come two weeks after McDonald’s — which has become the main target of the national wage rise movement — announced that it would raise the wages of roughly 90,000 employees in the US. The average McDonald’s employee will earn more than $10 an hour by the end of next year, compared to the national federal minimum wage of $7.25. That decision seems to have backfired on the company, with critics charging that the increase is superficial because it only affects employees at 1,500 company-owned stores — and not those at roughly 12,500 franchisee-owned restaurants. Though McDonald’s exercises control over many aspects of the business — from portion sizes to branding — the company has long argued that franchisees are responsible for setting wages.

Poverty-level wages cost U.S. taxpayers $153 billion every year-- While the U.S. economy rebounds, persistent low wages are costing taxpayers approximately $153 billion every year in public support to working families, including $25 billion at the state level, according to a new report from the University of California, Berkeley, Center for Labor Research and Education. The report details for the first time the state-by-state cost to taxpayers of low wages in the United States. Following decades of wage cuts and health benefits rollbacks, more than half of all state and federal spending on public assistance programs (56 percent) now goes to working families, the report documents. "When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs," said Ken Jacobs, chair of the labor center and co-author of the new report. "This creates significant cost to the states." The report analyzed state spending for Medicaid/Children's Health Insurance Program and Temporary Aid to Needy Families (TANF), and federal spending for those programs and food stamps (SNAP) and the Earned Income Tax Credit (EITC). The UC Berkeley researchers also report that:

  • On average, 52 percent of state public assistance spending supports working families, with costs as high as $3.7 billion in California, $3.3 billion in New York and $2 billion in Texas.
  • Reliance on public assistance can be found among workers in a diverse range of occupations, including frontline fast-food workers (52%), childcare workers (46%), home care workers (48%) and even part-time college faculty (25%).

The real "middle class" is even worse off -  When we talk about the problems that middle-class households face, for example, how much financial stress they face or the "hollowing out" of the middle class, the precise definition of "middle class" is important. The usual way of defining the middle class is the middle 50 percent of the income or wealth distribution. However, this measure can lead to ambiguities because the middle 50 percent of the income distribution is not the same as the middle 50 percent of the wealth distribution. It can also lead to instabilities due to changes in the demographic composition of the population over time. Recent research from the St. Louis Fed's Center for Household Financial Stability attempts to overcome these problems by adopting a demographic definition of the middle class. And it makes a difference. As the authors noted, changing the definition reveals that "the middle class may be under more financial pressure than has been otherwise reported." What is a demographic definition of the middle class? The authors divide households headed by someone at least 40 years old into three groups, Thrivers, Middle Class and Stragglers. They define these groups like this (from a summary of the research):

  • Thrivers are families likely to have income and wealth significantly above average in most years and are headed by someone with a two- or four-year college degree who is non-Hispanic white or Asian.
  • Middle Class are families likely to have income and wealth near average in most years and are headed by someone who is white or Asian with exactly a high school diploma, or black or Hispanic with a two- or four-year college degree
  • Stragglers are families likely to have income and wealth significantly below average in most years and are headed by someone with no high school diploma of any race or ethnicity, and black or Hispanic families with at most a high school diploma

Foodstamp Financiers: Wells Fargo Workers Protest Re-Emergence Of Predatory Practices -- One of America’s biggest banks is going to be protested by an unlikely group today: its employees. As The Guardian reports, Wells Fargo bankers are protesting the bank’s alleged predatory practices – mainly the sales quotas imposed on some of its workers (which have led to at least 30 employees opening duplicate accounts, sometimes without customers’ knowledge, in order to inflate their sales numbers). One worker warns, “it is not in Wells Fargo’s best interest for customers to purchase products and services they don’t use or need.” Now where have we seen this kind of activity before? Wells Fargo bank workers are not the only ones struggling to make ends meet without breaking ethical standards as bank tellers have collected as much as $105m in food stamps.

Why Stop At Food Stamps? Let’s Limit Use Of All Federal Benefits -- Missouri State Representative Rick Brattin (R-55) has proposed a bill that would prohibit Missourians who participate in the Supplemental Nutrition Assistance Program (SNAP, aka food stamps) from using their benefits to buy “cookies, chips, energy drinks, soft drinks, seafood, or steak.” But why stop at food stamps? Let’s limit beneficiaries’ use of all federal benefits. Start with an easy one: unemployment benefits. No spending that money on a new suit for job interviews. That old sport coat or pantsuit will be fine.  How about crop subsidies? Some farmers buy fancy farm implements with GPS and air-conditioned cabs. No more of that. And no spending those subsidies on high tech seeds, fertilizers, and weed killers.But I’m a tax guy and want to focus on tax benefits. The earned income credit (EITC) is a good place to start—it can use the same rules Representative Brattin has proposed for food stamps. And do the same for the child credit—kids don’t need the omega-3 that they’d get from seafood. Education credits and deductions for tuition and interest on student loans? No using those to study classics or English lit. Every student getting educational assistance should require to major in a STEM subject. That might even yield a positive return for the government—those majors are the ones getting good jobs these days and they’ll pay lots of taxes. One of my favorites: the mortgage interest deduction. Some people use the savings to buy houses with Jacuzzi tubs, walk-in wine cellars, and his-and-her master bathrooms. No more of that. People getting a tax break on their mortgages should settle for a tract home no larger than 1,500 square feet with one bathroom and no garage.

The numbers are staggering: US is ‘world leader’ in child poverty - America’s wealth grew by 60 percent in the past six years, by over $30 trillion. In approximately the same time, the number of homeless children has also grown by 60 percent.  Financier and CEO Peter Schiff said, “People don’t go hungry in a capitalist economy.” The 16 million kids on food stamps know what it’s like to go hungry. Perhaps, some in Congress would say, those children should be working. “There is no such thing as a free lunch,” insisted Georgia Representative Jack Kingston, even for schoolkids, who should be required to “sweep the floor of the cafeteria” (as they actually do at a charter school in Texas).The callousness of U.S. political and business leaders is disturbing, shocking. Hunger is just one of the problems of our children. Teacher Sonya Romero-Smith told about the two little homeless girls she adopted: “Getting rid of bedbugs, that took us a while. Night terrors, that took a little while. Hoarding food..”  The U.S. has one of the highest relative child poverty rates in the developed world. As UNICEF reports, “[Children's] material well-being is highest in the Netherlands and in the four Nordic countries and lowest in Latvia, Lithuania, Romania and the United States.” Over half of public school students are poor enough to qualify for lunch subsidies, and almost half of black children under the age of six are living in poverty.

San Antonio Woman Fined $2000 For Feeding The Homeless -- Based on the newsflow in the last few weeks, Americans must increasingly consider themselves lucky just to avoid getting shot in the back or being run over by trigger-happy, heavily armed officers of the law. Unfortunately while we (hope we) mostly jest, the reality is that America has quietly turned into a heavily weaponized police state right under everyone's noses. A police state in which one doesn't have to be considered even a remote threat by the authorities to suffer. Consider the completely innocuous act of feeding the homeless, with a permit, which as San Antonio philanthropist Joan Cheever, founder of the nonprofit food truck, the Chow Train, discovered last week was enough to get her ticketed and fined $2000 for feeding the homeless.

Good Jobs First reveals top federal subsidy recipients: Subsidy Tracker 3.0 - Good Jobs First, a national non-profit best known for its work on state and local subsidies to business, unveiled in March its Subsidy Tracker 3.0. This work differs from previous publications on federal subsidies by being project-based/firm-based, rather than program-based. This lets us know which companies have received the most federal subsidies over the years.“Uncle Sam’s Favorite Corporations” finds that the federal government has awarded $68 billion in “grants and special tax credits” in the last 15 years. 2/3 of this has gone to large corporations. This is on top of hundreds of billions of dollars given to the banking sector during the financial crisis. One advantage of using Subsidy Tracker 3.0 is that it incorporates previous work by Good Jobs First tracking parent/subsidiary relationships.One substantial finding is that: Six parent companies have received more than $1 billion in grants and allocated tax credits (those awarded to specific companies), 21 have received $500 million or more, and 98 have received $100 million or more. Just 582 large companies account for 67% of the $68 billion total. All six of the billion-recipients are in the energy sector: Spanish company Iberdrola tops the list with $2.2 billion, followed by NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy. And five companies were on all three of the top 50 federal subsidy recipients list, the top 50 bailout list, and the top 50 state & local subsidy list: Boeing, Ford, General Electric, General Motors, and JPMorgan Chase.

Detroit, Stockton bankruptcies may flag wider problems: Fed's Dudley -  (Reuters) - The municipal bankruptcies in Detroit and Stockton, California, may foretell more widespread problems in the United States than is implied by current bond ratings, a top Federal Reserve official said on Tuesday. "While these particular bankruptcy filings have captured a considerable amount of attention, and rightly so, they may foreshadow more widespread problems than what might be implied by current bond ratings," New York Fed President William Dudley said at a closed-door workshop on Chapter 9, the part of the U.S. bankruptcy code covering local government insolvencies. "We need to focus our attention today on addressing the underlying issues before any problems grow to the point where bankruptcy becomes the only viable option," he added, according to a text of his speech. Dudley, whose Fed district includes the debt-stricken U.S. territory of Puerto Rico, did not mention by name any municipalities or states that risked going the way of Detroit and Stockton. But he highlighted the difficulties some jurisdictions face when they issue debt to finance operating deficits, and when they under-fund public pensions. In Chicago, for example, unfunded pension liabilities for the city, the board of education and other local governments that draw taxes from it exceed $35 billion, according to the Civic Federation, an independent fiscal watchdog.

Treasury Officials Increase Efforts With Finances of Puerto Rico -- Antonio Weiss, the former Wall Street banker who became a top adviser to the Treasury secretary this year, has made two trips to Puerto Rico in recent weeks.Kent Hiteshew, who runs the Treasury Department’s office of state and local finance, has also met with government officials in San Juan multiple times this spring.The Treasury Department is quietly stepping up its involvement in Puerto Rico, indicating that the island’s financial problems, which have been simmering for years, are reaching a critical point. High-ranking officials have been shuttling between Washington and Puerto Rico, advising commonwealth officials as they try to stabilize the island’s finances.  But it is a quandary with no clear-cut solution and potentially far-reaching effects. Puerto Rico is struggling with far more debt than analysts believe it can repay, and no legal framework exists to reduce the burden. Financially troubled cities and counties in the United States can take shelter in bankruptcy court, but federal law denies that option to United States territories and commonwealths, and attempts to amend the law face an uphill battle.

Emanuel scoffs at Rauner suggestion that CPS declare bankruptcy -  Mayor Rahm Emanuel on Wednesday threw cold water on Gov. Bruce Rauner's suggestion that Chicago Public Schools should consider declaring bankruptcy to get its financial house in order, instead returning to the argument that the state should provide relief for the cash-strapped district. Rauner's school board moves to offset CPS cuts"The idea that you would go to bankruptcy and yet you would leave in place a tax code that has dual taxation on Chicago citizens is wrong," Emanuel said when asked about Rauner's talk about CPS going bankrupt. "Nothing is worse economics and a worse strategy than leaving in place dual taxation on Chicago residents that are the only residents in the state that have to pay twice, and only get the benefit of one teacher." Emanuel brought up the dual taxation argument frequently during the recent mayoral campaign, but it's one that seems unlikely to gain much traction in Springfield. Chicagoans pay for CPS pensions through property taxes and also pay state income tax. The state pays for suburban and Downstate teacher pensions. But critics note that CPS gets a bigger share of state school funding. 8The mayor was responding to comments Rauner made Tuesday in an interview with Ariel Investments President Mellody Hobson. When Hobson asked how hard it would be to enact his vision of a smaller government bureaucracy and increased business growth to help fix the state's finances, Rauner responded that it would be difficult but "the opportunity to do it is right now, because the state has a crisis, the city of Chicago has a crisis."

L.A. schools iPad program subject of inquiry by SEC -- The federal Securities and Exchange Commission recently opened an informal inquiry into whether Los Angeles school officials complied with legal guidelines in the use of bond funds for the now-abandoned $1.3-billion iPads-for-all project. In particular, the agency was concerned with whether the L.A. Unified School District properly disclosed to investors and others how the bonds would be used, according to documents provided to The Times. District officials said they were optimistic that they had addressed the SEC concerns. The news of the SEC inquiry came the same week that L.A. Unified officials demanded a refund from computer giant Apple over curriculum supplied on the devices by Pearson, which sells education services and materials worldwide. Problems plagued the fall 2013 rollout of the iPad project and questions later arose about whether Apple or Pearson had an unfair advantage in the bidding process. An ongoing criminal investigation by the FBI is looking into that matter. Current and former district officials have denied any wrongdoing.

Lack of vocational education stifles US mobility - “Companies are hiring but nobody is skilled enough to work,” says Mr Hughes, who works on the factory floor at Chicago-based Freedman Seating, a company that makes seats for buses and trains. “You can’t just walk in and ask them to train you.” Mr Torres made it to Freedman thanks in part to the education he received at a local school, Austin Polytechnical Academy, which offers students training in manufacturing skills such as computer-controlled cutting and design, in partnership with local employers. His case is rare. The US private sector is in the midst of its longest uninterrupted hiring spree on record, opening up positions in a range of so-called “middle-skilled jobs” — from manufacturing to medical care and parts of IT — that could offer routes out of poverty. Yet in poor neighbourhoods, such as the Austin area of Chicago, large swaths of the population are ill-equipped to take advantage of the openings — if they even know they exist. Many leave local schools without even the “basic competencies” needed for a career, says Erica Swinney, who heads the academy’s manufacturing programme. Harry Holzer, a visiting fellow at the Brookings Institution think-tank, says the US suffers from a stratified education system which fails to equip poorer children with basic skills, combined with a longstanding under-investment in vocational qualifications.

Atlanta School Workers Sentenced in Test Score Cheating Case - — In an unexpectedly harsh sentence after a polarizing six-year ordeal, eight of the 10 educators convicted of racketeering in one of the nation’s largest public school cheating scandals were sentenced to prison terms of up to seven years Tuesday after they refused to take sentencing deals that were predicated on their acceptance of responsibility and a waiver of their right to appeal.As a result, the sentences, meted out after a raucous court hearing, offered a conflicted, inconclusive coda to a scandal that has brought shame and soul-searching to Atlanta and its 50,000-student public school system. Some were furious with the sentences, and some were pleased.  And as some of the defendants vowed to appeal, it ensured that this city would continue to grapple with two harrowing and interrelated questions: How much mercy should be due a roster of educators with otherwise spotless records? And what kind of justice is due the thousands of students, most of them poor minorities, whose falsely inflated standardized test scores obscured their academic shortcomings?

Prison time for some Atlanta school educators in cheating scandal - (CNN)There was nothing routine about a sentencing hearing Tuesday in Atlanta that wrote the final legal chapter of one of the most massive school cheating scandals in the country. Educators were convicted April 1 of racketeering and other lesser crimes related to inflating test scores of children from struggling schools. One teacher was acquitted. One by one, they stood, alongside their attorneys, before Fulton County Superior Court Judge Jerry Baxter. In this system, a jury decides guilt or innocence, the judge metes out punishment. Until Monday, he said he planned to sentence the educators to prison. When verdicts were reached, he ordered them directly to jail. But on Monday he changed his mind and decided to allow prosecutors to offer them deals that would have allowed them to avoid the possible 20-year sentence that racketeering carries. And that's why there were sparks when some of the educators, flanked by their attorneys, did not directly and readily admit their responsibility. Baxter was not pleased. He raised his voice numerous times and shouted at attorneys. Some attorneys shouted back. At one point, one of the defense lawyers said he might move to recuse the judge and the judge retorted that he could send that attorney to jail. "Everybody starts crying about these educators. This was not a victimless crime that occurred in this city!" Baxter said. Repeatedly, Baxter appeared frustrated when more educators did not simply accept the deal and plainly vocalize their guilt. "These stories are incredible. These kids can't read," he said.

Is College Worth It? Job Market Hysteresis and Lumpiness in Educational Investments - On a recent Minneapolis-Saint Paul to London-Heathrow flight, I watched the 2014 documentary Ivory Tower. The movie is about the rising cost of attending college in the US,* and what might have caused it. The movie spends some time showing the viewer a number of borderline white-elephant large-scale infrastructure projects (e.g., a new football stadium here, a new climbing wall there, etc.) and speculates that such investments as well as admin bloat (i.e., increases in the number of university staff who are neither faculty nor support staff) have caused the cost of college to rise at a much faster rate than the income of the average US household. Because I have an obvious stake in those issues, the documentary made me reflect a great deal about the state of university education in the US. While it is certainly true that in my last job, I often felt more like a GO at a four-year Club Med than as a college professor (something I no longer feel in my current job, thank God), the rising costs of college made me think about a question often posed in the media these days (almost always accompanied with some crappy stock photo of young college graduates in full academic regalia on the day of their graduation), namely “Is college still worth it?” Answers tend to range from a more liberal “Yes, but …” usually followed with “you have to major in something that will be in demand in four years” to a more conservative “No, college is useless, you have to make your own way,” followed by vague mentions of Mark Zuckerberg, Steve Jobs, and Bill Gates (all college dropouts, all billionaires).

The Disadvantages of an Elite Education -It didn’t dawn on me that there might be a few holes in my education until I was about 35. I’d just bought a house, the pipes needed fixing, and the plumber was standing in my kitchen. There he was, a short, beefy guy with a goatee and a Red Sox cap and a thick Boston accent, and I suddenly learned that I didn’t have the slightest idea what to say to someone like him. So alien was his experience to me, so unguessable his values, so mysterious his very language, that I couldn’t succeed in engaging him in a few minutes of small talk before he got down to work. Fourteen years of higher education and a handful of Ivy League degrees, and there I was, stiff and stupid, struck dumb by my own dumbness. “Ivy retardation,” a friend of mine calls this. I could carry on conversations with people from other countries, in other languages, but I couldn’t talk to the man who was standing in my own house. It’s not surprising that it took me so long to discover the extent of my miseducation, because the last thing an elite education will teach you is its own inadequacy. As two dozen years at Yale and Columbia have shown me, elite colleges relentlessly encourage their students to flatter themselves for being there, and for what being there can do for them. The advantages of an elite education are indeed undeniable. You learn to think, at least in certain ways, and you make the contacts needed to launch yourself into a life rich in all of society’s most cherished rewards. To consider that while some opportunities are being created, others are being cancelled and that while some abilities are being developed, others are being crippled is, within this context, not only outrageous, but inconceivable.

A Tenured Professor On Why Hiring Adjuncts Is Wrong -- As the college admissions season winds down, I hav­e some hard choices to make, but my dilemma is not about choosing where to enroll. It’s about how many adjunct instructors I will hire to teach required courses next fall. As a department chair at Columbia University, I am compelled to hire many people on a part-time basis, although they want and deserve full-time jobs. These adjuncts are among the finest, longest-serving instructors in many universities, and it’s well known that their lasting contributions can transform the lives of their students. It’s also no secret that they are getting a raw deal. Overworked and underpaid, they often struggle to get by and, when taken to an extreme, the consequences can be tragic. With each passing year, it becomes clearer that cheap labor has become the hidden foundation of American higher education. According to the American Association of University Professors, more than 50 percent of all faculty hold part-time appointments. A vast workforce of mostly non-unionized adjunct instructors—the so-called “contingent faculty”—now comprises the core of the teaching faculty. They often teach as many courses as full-time instructors, but because they are considered part-time, they have no voting power in departments or universities, no benefits, no job security and no office in which to meet with their students.

Number of Adjunct Professors on Public Assistance Is Shocking  -- Academia was once a secure job track, that offered both the opportunity to explore your research interests and the ability to maintain your livelihood.  New research out from UC Berkeley's Center for Labor Research and Education shows that for many who teach at universities, economic security is a thing of the past. The report shows that part-time—adjunct—faculty at colleges and universities are on some form of public assistance at about half the rate of fast-food workers: Click to enlarge. The recession, which lasted from 2007 to around 2010, was particularly severe on this population. During that time, “the number of people with master's degrees who received food stamps and other aid climbed from 101,682 to 293,029, and the number of people with Ph.D.'s who received assistance rose from 9,776 to 33,655.” “Everyone thinks a Ph.D. pretty much guarantees you a living wage and, from what I can tell, most commentators think that college professors make $100,000 and more,” said Michael Bérubé, the president of the Modern Language Association, who was interviewed for the report. “But I've been hearing all year from non-tenure-track faculty making under $20,000, and I don't know anyone who believes you can raise a family on that. Even living as a single person on that salary is tough, if you want to eat something other than ramen noodles every once in a while."

Just Released: Press Briefing on Student Loan Borrowing and Repayment Trends, 2015 - NY Fed - This morning, Jamie McAndrews, the Director of Research at the Federal Reserve Bank of New York, spoke to the press about the economic recovery, and his speech was followed by a special briefing by New York Fed economists on student loans. Here, we provide a short summary of the student loan briefing.  The first portion of the special briefing on student loans described the outstanding aggregate balance and highlighted some changes in borrowing patterns. The aggregate student loan balance has increased steadily, even during the “great deleveraging,” when the balances of other household debt types declined. While student debt may have historically been held by younger borrowers, the balances held by borrowers of all age groups have increased. In fact, the fastest growth has been in balances held by borrowers over age sixty, which increased 850 percent between 2004 and 2014. In 2004, 25 percent of student debt was held by borrowers over age forty; that share climbed to 35 percent by 2014. This change occurred primarily as a result of increases in the number of borrowers over forty, which grew at nearly double the pace of younger borrowers.

Who is Helping Consumers With Defaulted Student Loans? »  Clearly, the biggest surprise in consumer borrowing since the crash has been the explosive expansion of student loan debt. It has surpassed both auto lending and credit card lending. And, since it ties with Payday Lending and pre-crash sub-prime mortgage lending for the thinnest underwriting there are defaults aplenty.  Consumer advocates are rightly urging the Department of Education to provide simpler and clearer paths forward for consumers with student loans in default but many people still need a helper.  As defaults in mortgage loans and on credit card loans have fallen, providers who live on the profits of counseling people who default on those loans have turned their attention and their advertising and marketing to consumers who are in trouble on their student  Since bankruptcy offers very little to this crowd, and sometimes their social security payments might be offset, and collectors can be very aggressive, people in trouble on their student loans can be desperate for help.  Similar to mortgage loans, the world of government student loan defaults is many times more complex than the world of credit card defaults.   Even in that simpler world of credit card defaults an expert such as then Professor, now Senator Elizabeth Warren years ago warned consumers to stay far away from all consumer credit counseling agencies. here Now these counseling agencies have stepped in in a big way to purport to help those with student loan defaults. Several of the largest providers piloted an effort which now has expanded to the National Foundation of Credit Counselors.  here This effort is new so it is too soon to evaluate the results. Suffice to say the standards in the credit counseling world have not been high and there is a worry that this will be a back door approach to sell the student loan borrower a debt management plan, which remains a high profit item.

Ackman Says Student Loans Are the Biggest Risk in the Credit Market -- Bill Ackman says the biggest risk in the credit market is student loans. “If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back,” Ackman, who runs $20 billion Pershing Square Capital Management, said today at 13D Monitor’s Active-Passive Investor Summit in New York. The balance of student loans outstanding in the U.S. -- also including private loans without government guarantees -- swelled to $1.3 trillion as of the second quarter 2014, based on data released by the Federal Reserve in October. The rising level has prompted investors and government officials to draw parallels to the subprime mortgage market before housing collapsed starting in 2006. About $100 billion of federal student loans are in default, 9 percent of outstanding balances, according to a Treasury Borrowing Advisory Committee update on student lending trends released in November. Ackman, 48, said “young people are the kind of people that protest” and predicted that one administration or another will forgive student debt. The investor, who last year trounced other money managers with a 40 percent gain in his public fund, said at the conference he doesn’t like fixed income markets generally because of very low U.S. interest rates and that investors should be wary of aggressive lending terms.

Goldman Sachs: "An Update on Student Loans: A Bigger Headwind but Still Not a Deal Breaker"  - Some excerpts from interesting analysis by Goldman Sachs economists Alec Phillips and Hui Shan: An Update on Student Loans: A Bigger Headwind but Still Not a Deal Breaker   The upshot is that the student debt burden on young households has increased and it has become a bigger headwind to housing demand compared to a few years ago. That said, we still think the sheer size of the millennials who are currently in their 20s and whose housing consumption should increase sharply in the coming years will support aggregate housing demand.   However, we are skeptical that student loans would pose serious systemic risks even if default rates increased significantly from their already high levels. The main reason is simply that around two-thirds of the outstanding balance of student loans is held directly on the federal government's balance sheet, and most of the remainder is held in the form of asset backed securities that are guaranteed by the federal government, subject to a small first loss (up to 3% of the outstanding balance and accrued interest). ... The bottom line is that the non-guaranteed portion of federal student loan balances plus all non-federal student loans that have not yet been charged off by lenders is probably not much greater than $100 billion and could be as low as $20 billion. Of slightly greater concern is the fact that student loan debt is in many ways senior to other forms of consumer debt. For example, student loans cannot generally be discharged in bankruptcy, and borrowers in default can face wage garnishments and reduced tax refunds, among other remedies. In theory, this makes it more likely that a borrower's limited income would be used to repay student loan debt rather than to service mortgage or other consumer debt. This could, in theory, increase the default rate on non-student debt during the next economic downturn.

The Student-Loan Problem Is Even Worse Than Official Figures Indicate - Student loans are proving to be a much bigger burden on households than previously thought. Nearly one in three Americans who are now having to pay down their student debt–or a staggering 31.5%–are at least a month behind on their payments, new research from the Federal Reserve Bank of St. Louis suggests. That figure is far higher than official delinquency measures reported by the Education Department and the New York Fed. And it’s also likely the most accurate. Here’s why: The official measures reflect delinquencies as a share of all Americans with student debt, but millions of borrowers aren’t even required to make payments yet. Many are currently in college or grad school and thus don’t have to make payments until six months after they leave. Others are out of school and past that grace period but have received permission by their lender—the federal government in most cases—to suspend payments for a range of reasons, such as being unemployed. Including these borrowers in the broader pool of student-loan debt makes official delinquency rates artificially low. A more precise way of measuring delinquencies is to just look at borrowers who are required to make payments. In their new paper, St. Louis Fed researchers determined that, as of Jan. 1, more than half of student-loan debt–55%– was held by borrowers who were in repayment. The remaining 45% weren’t in repayment. Stripping out the borrowers not in repayment, they concluded that 31.5% of Americans with student debt were at least 30 days behind on a payment at that time. This matches up with previous research from the New York Fed suggesting the actual delinquency rate is likely double the official delinquency measure, when excluding borrowers not in repayment.

Is The Student Debt Bubble About To Witness Its 2007 Moment? - Two days ago we highlighted a new study from the St. Louis Fed where someone had the very prudent idea to strip out loans in deferment and forbearance from the denominator of the student debt delinquency rate equation so everyone could get a better idea of what the real numbers look like. The thing is, you can’t be delinquent when you aren’t required to make payments, so if you divide the number of delinquent student loans by the total amount of outstanding debt including loans in deferment and forbearance, you are comparing apples to oranges. Only around 55% of outstanding student loans are in repayment, and obviously, what we really want to know is what percentage of those loans are delinquent. We don’t care what percentage of total outstanding student debt is delinquent because 45% of borrowers aren’t yet required to make payments so it makes absolutely no sense to include them in the equation — we know what percentage of that group is delinquent, it’s 0%, because no one is asking them for any money yet.  What we can do though, is divide the amount of debt that’s delinquent by the total amount of debt in repayment and then extrapolate from that and say something like this: “If 55% of total student debt is currently in repayment and 27% of that is delinquent, then it seems reasonable to assume that a similar rate will prevail for the other 45% of borrowers once they go into repayment unless something changes in the economy which it won’t, so in all likelihood, about 1 in 3 student borrowers will end up 30 or more days delinquent and that adds up to about $400 billion in student debt that likely won’t be in good standing.”

"Staggering" Student Loan Defaults On Deck: 27% Of Students Are A Month Behind On Their Payments - Calls for a benevolent suspension of both personal responsibility and accounting truisms (which mandate that one person’s liability is everywhere and always someone else’s asset) in the interest of forgiving all student loans at the expense of the US taxpayer aside, America has a student debt problem. Here are some good places to start if you need a refresher:

As we’ve documented exhaustively in the past, the country is laboring under around $1.3 trillion in non-dischargeable loans to students which isn’t a good thing, especially in a country where the jobs driving the economic “recovery” have, until last month, been created in the food service industry and where wage growth is a concept reserved for only 20% of the workforce. It would seem that this could make it increasingly difficult for students to repay their debt, especially considering how quickly tuition costs have risen. In other words, tuition is going up, wages aren’t, and the latter point there is only relevant in the event you find a job that pays you a wage in the first place (i.e. where your compensation isn’t determined by the generosity of the “supervisory” Americans who can still afford to eat out).

Investing in You: Group urges student loan 'debt strike': Did you borrow for college and end up the victim of a sky-high-interest student loan? A new group, Debt Collective, says it's time to go on a "debt strike." That is, stop paying. An outgrowth of Occupy Wall Street, Debt Collective is a year-old activist organization rallying financially strapped students of the now-defunct Corinthian Colleges.  The strikers are mostly young adults, including some single parents, who borrowed from Corinthian's lending arm at up to 14 percent annually. They still owe on their loans, despite the fact that Corinthian, a for-profit college, was investigated and ultimately shut down by federal regulators. Its students got no help with outstanding loans. The only agency with the authority to grant relief is the U.S. Department of Education. (Student debt cannot be discharged by declaring bankruptcy.) So Debt Collective has taken up their cause - and that of those who owe $1.3 trillion in education debt. Among 43 million total federal student-loan borrowers, 7.3 million are 90 days delinquent on their loans, and five million are in default. Corinthian's collapse exposed this national problem. The Education Department has "no process to allow students to apply for, or to initiate, debt cancellation for students who have been subject to illegal practices by their schools," says Ann Larson, one of Debt Collective's organizers.

Detroit Taxpayers Could Be Given Option To Support City Retirees « Council President Brenda Jones is asking the city’s pension board to explore putting a check-off box on tax forms to help retirees who took a hit during the Detroit bankruptcy proceedings reports WWJ’s Citybeat reporter Vickie Thomas.  “Ask them to add a statement to the city and or state taxes, asking people if they would like to contribute to retirees,” said Jones.  Jones says they are also exploring the possibility of a foundation that could accept donations.“To help with the restoration of the pensioners — pension, as well as to help fund the VEBA (Voluntary Employee Beneficiary Association),” added Jones.In 2013, Detroit was struggling, crushed under billions of dollars in debt following decades of mismanagement, population flight and loss of tax revenue. The city lost a quarter-million residents between 2000 and 2010.Detroit now has an estimated 700,000 residents; down from 1.8 million in the 1950s.In December, the bankruptcy proceedings officially ended — after months of negotiations with banks, bond insurers, unions and groups representing thousands of retirees. Bolstered by the so-called “Grand Bargain” — a unique promise of $800 million from foundations, major corporations and the state to soften pension cuts and prevent the sale of city-owned art.Retirees who didn’t work for the police or fire departments can now expect to see a 4.5 percent pension cut and the elimination of annual cost-of-living payments under the agreement.

House Takes Step to Patch Pension Fund Hole - The Texas House gave preliminary approval Monday to legislation aimed at replenishing Texas’ underfunded retirement system for state employees.  House Bill 9, filed by Rep. Dan Flynn, R-Canton, and backed by several House leaders, increases state employee contributions to the Employees Retirement System pension fund to 9.5 percent — a 2 percent increase. The state would start chipping in 2 percent more as well. State employees would also get 2.5 percent pay raises to compensate for the larger share of their salaries going to the pension fund. Lawmakers passed the bill Monday on a voice vote and without debate. It still must pass on third reading before heading to the Senate.   The fund is about $7.2 billion short — a deficit that is expected to grow by about half a billion dollars every year if left unaddressed. The fund has not been fully funded in 19 of the past 20 years.

Chris Christie’s terrible Medicaid idea - The issue came up this week when Christie, New Jersey’s Republican governor and an expected presidential candidate, gave a speech in New Hampshire on entitlement reform. While I’ve questioned Christie’s bona fides as a fiscal conservative, he deserves some kudos for being one of the few politicians on the national stage to venture near this third rail of American politics. Some of his ideas are worth considering and may actually find support on both sides of the aisle (changing how we calculate Social Security cost-of-living adjustments, for example). But one Christie proposal is less a brave innovation than a craven gimmick to pass the buck to other politicians, a strategy Christie has honed over the years. I’m referring to his proposal to cap federal spending on Medicaid — which Christie condemned as “the fastest-growing federal entitlement” — and leave it to the states to figure out how to reduce spending. Right now, the federal government covers a fixed share of each state’s overall costs for Medicaid, a program that, along with the Children’s Health Insurance Program (CHIP), helps provide health care to nearly 70 million low-income Americans; Christie would instead limit each state to a fixed dollar amount per beneficiary.

U.S. conservatives threaten delay to fixing Medicare doctor payments (Reuters) - Conservative objections over spending are raising doubts over whether the U.S. Senate can quickly approve legislation fixing the Medicare physician payment system, in a possible setback for Republicans keen to show they can get things done. Some Senate conservatives are threatening to insist that the measure be fully paid for, after the House of Representatives passed a version of the "doc fix" bill two weeks ago that would expand the federal deficit. Senate procedural rules confer more power on individual lawmakers, meaning their objections could result in considerable delay and amendments to the bill even if they are in a minority. The House bill was a rare show of bipartisan accord, and had been shaping up to be the 2015-2016 Republican-controlled Congress’ first substantial achievement. As approved by the House, the $214 billion initiative would replace a 1990s formula that linked Medicare doctors' reimbursements to economic growth with a new one more focused on quality of care. Republican Speaker John Boehner and Democratic Leader Nancy Pelosi leaned across the aisle to get it passed overwhelmingly in the House of Representatives on March 26, just before a spring break. Senate leaders said they would take it up quickly after lawmakers return to Washington on Monday.

Senate approves bill changing how Medicare pays doctors | Fox News: The Senate overwhelmingly passed legislation permanently overhauling how Medicare pays physicians late Tuesday in a rare show of near-unanimity from Congress. The legislation headed off a 21 percent cut in doctors' Medicare fees that would have taken effect Wednesday, when the government planned to begin processing physicians' claims reflecting that reduction. The bill also provides billions of extra dollars for health care programs for children and low-income families, including additional money for community health centers.  Working into the evening, the Senate approved the measure 92-8 less than three weeks after the House passed it by a lopsided 392-37. The bill's passage brought statements of praise from both President Obama and Republican congressional leaders. "It's a milestone for physicians, and for the seniors and people with disabilities who rely on Medicare for their health care needs," Obama said in a statement before later adding "I will be proud to sign it into law."

Say goodbye to the lawsuit challenging the Hill fix -- The Seventh Circuit yesterday released an opinion dismissing a lawsuit, brought by Senator Ron Johnson and his legislative counsel, challenging yet another aspect of the Affordable Care Act’s implementation. Good riddance, I say. The case involves an ACA requirement that members of Congress and their staff secure health coverage through one of the new exchanges. To implement that provision, the Obama administration decided that members and their staff—most of whom don’t make a ton of money—would be eligible for subsidies to help defray the cost of new exchange plans. The federal rule implementing that decision has become known as the “Hill fix.” Senator Johnson and his counsel think it’s unlawful. (I don’t.) I was skeptical of the lawsuit from the moment it was filed. The most pressing problem was standing: how could Johnson and his counsel claim to be injured by a federal rule that offered subsidies to them? “Getting a windfall from Uncle Sam,” I wrote at the time, “isn’t exactly an injury.”That’s basically what the Seventh Circuit held. Johnson and his counsel advanced three arguments in support of their standing, none of which the court found persuasive. First, the plaintiffs said that they didn’t want to shoulder the administrative burden of separating those staffers who had to go on the exchange from those who, under the ACA, could retain their employer-sponsored coverage. But the Seventh Circuit rightly held that, “even if the Rule does place an administrative burden on plaintiffs, that does not give them standing to challenge the aspects of the Rule that they allege are illegal, which are unrelated to the imposition of an administrative burden.”

Oh, look! The uninsured rate fell again! - As any conservative can tell you, Obamacare is a job-killing “train wreck.” Not only is it a job killer, there is no way that it could possibly work. Except, of course, it does. When I last visited this issue, the percentage of adults without health insurance had fallen from its peak of 18.0% in the third quarter of 2013 to 13.4% in the second quarter of 2014. Now, as Gallup (via Matt Yglesias) shows us, it continues to fall, dropping to 11.9% in the first quarter of 2015, based on over 43,000 interviews throughout the quarter. This is a drop of exactly one percentage point from the fourth quarter of 2014, or about 2.4 million adults. The gains that we have seen now through two enrollment cycles (Q4 2013 through Q1 2015) affect every major demographic group, as the following table from Gallup shows.  Especially notable are the gains for minorities (8.3 percentage points for Hispanics and 7.3 for African-Americans), those with income below $36,000 per year (8.7 points) and adults from 26-34 (7.4 points). But notice that even Americans making over $90,000 annually have seen their uninsured rate fall by 2.3 points, meaning that 40% of this group is no longer uninsured. This is actually the biggest percentage gain among any of the demographics Gallup surveyed.

The one chart that proves Obamacare really is working (for the fascists) -- With the election cycle starting up again, we are going to be bombarded more and more with propaganda like this:  7 Charts That Prove Obamacare Is Working  I submit to you that, below, is the one chart that proves Obamacare really is working (for the fascists). Since the Obama administration began pushing the healthcare reform bill in early 2009, the stock prices of the Big Five health insurers have done remarkably well, even vs. the S&P 500, and even without taking into account their phenomenal dividend yields.

  • Question: How many patients did Cigna, BCBS (Anthem), Aetna, United Healthcare, or Cigna diagnose or treat last month?  Last year?
  • Answer: Zero.

The Tangle of Coordinated Health Care - Who coordinates the coordinators? -- More specifically, who coordinates the proliferating number of health care helpers variously known as case managers, care managers, care coordinators, patient navigators or facilitators, health coaches or even — here’s a new one — “pathfinders”? Rachel Schwartz, a licensed clinical social worker for close to 20 years, came face to face with this quandary earlier this month. Employed by a home care agency in Virginia, she visited a woman in her late 70s who had recently come home from the hospital.The patient, who lives with her husband and daughter, has diabetes and dementia. Ms. Schwartz, during the scant one to three social work visits that Medicare will cover, planned to help her sign up for community services like Meals on Wheels.“We’re trying to keep people at home and out of hospitals,” she said.  But the woman also had a care manager through her Medicare Advantage program, her daughter reported, handing over a business card. Not wanting to duplicate those efforts, Ms. Schwartz left the care manager a message, then later texted a former colleague who worked for the same program. Did she know this care manager? They should collaborate.  No, the colleague didn’t know her. She might not be a field case manager, she texted back; she might be a telephonic manager.Telephonic? “I thought, ‘Gosh, I don’t even know what that is,’ ” Ms. Schwartz said. “I’m struggling with, what is my role? How do I best help my patients?” she said. To truly coordinate, “I need to think of calling every possible person involved, but I don’t always know who these people are.” (The nearly duplicated applications on behalf of the veteran came to light only because he happened to mention the other care coordinator’s first name, and Ms. Schwartz recognized it and called her.)

An unexpected after-death side effect of Obamacare - An old law may create a headache for some of the 11 million Americans who gained health coverage through the Affordable Care Act's (ACA) Medicaid expansion. The estate recovery law allows states to recover Medicaid costs for patients who are older than 55 when they die, although some limits apply, such as exceptions for the disabled and hardship exemptions for survivors. The law is taking some newly enrolled Medicaid patients by surprise, but it's also prompting a few states to push back on the practice, according to The Wall Street Journal. While the law has been around since 1993, it may be little known to many Medicaid recipients, who are nonelderly adults with incomes at or below 138 percent of the federal poverty level. That works out to about $16,245 for an individual in 2015. Even though Medicaid is thought of as a program to provide free health insurance to poor Americans, the estate recovery law was designed to shore up the program's finances by getting back some of what Medicaid spends on long-term care.  Some enrollees weren't aware of the program when they signed up, while others were given wrong information, PBS' NewsHour reported last month. One couple, Ruth and Rod Morgan, told the news magazine they had heard about the estate recovery act and asked about it when they signed up in California's Medicaid program, but they were told that it wasn't the case. "And then weeks later, we got a letter in the mail saying, congratulations, congratulations! You qualified for Medi-Cal. And then on the back page, this little paragraph says that you are subject to estate recovery, and do not contact your social worker about this,"

U.S. Drug Spending Increases Most in 13 Years to $373.9 Billion - U.S. spending on prescription drugs saw the largest increase since 2001, with the nation’s pharmacy bill rising to $373.9 billion last year as new treatments came to market and manufacturers increased prices on old ones. “Last year’s $43 billion growth in spending on medicines was the highest ever,” said Murray Aitken, executive director the IMS Institute for Healthcare Informatics, which issued the report. The institute is part of IMS Health Holdings Inc., a data company that tracks prescription drug use. Much of the increase came from treatments for hepatitis C, cancer, diabetes and multiple sclerosis after U.S. regulators approved more new drugs than any year since 2001. In total, spending on prescription drugs rose 13.1 percent in 2014, according to the report. While 11.7 million Americans gained health coverage under the Patient Protection and Affordable Care Act, they weren’t a major driver of the spending growth, Aitken said. The main contributors were new and expensive specialty treatments, which include medicine for viral diseases, cancer and auto-immune disorders such as rheumatoid arthritis. Drugmakers introduced four new products for hepatitis C, a liver virus that’s infected about 3 million people in the U.S. The drugs are among the most expensive treatments ever, with Gilead Sciences Inc.’s Harvoni listing at more than $1,000 a pill. In total, the U.S. spent $12.3 billion on the treatments, according to the report.

Lousy Electronic Medical Records Fuel Successful LawsuitsYves Smith - From time to time, we’ve featured post from the informative Health Care Renewal blog on the appalling state of electronic medical records. Many readers have doubted its message, since the assumption that anything computerized has to be better than doctors maintaining handwritten records, often in famously illegible handwriting. However, as HCR stresses, underlying, well-established procedures and practices were revised to conform to the dictates of computer systems, with result being crapification of the activity. Second, the design priority was the money, meaning billing and doctor control in mind, with patient outcomes taking a back seat. The result has been in some cases to worsen medical outcomes. Indeed, HCR has noted that electronic medical records have been found in hospital systems to be a top cause of patient risk. Confirmation of HCR’s dim view comes via a new article in ComputerWorld (hat tip Chuck L) on how the screw-ups resulting from lousy electronic medical records are large and frequent enough to have caught the attention of attorneys. The interesting twist is that it is the software companies that are the litigation targets.From the ComputerWorld story:As electronic medical records (EMRs) proliferate under federal regulations, kludgey workflow processes and patient data entry quality can be problematic…Keith Klein, a medical doctor and professor of medicine at the David Geffen School of Medicine at UCLA, described four such cases where judgments reached more than $7.5 million because the data contained in an EMR couldn’t be trusted in court… EMRs require physicians to perform their own data entry, stealing precious face time with patients. What had been a note jotted into a paper record, now involves a dozen or more mouse clicks to navigate a complex EMR workflow

Nutritional clinical trials vs. observational studies for dietary recommendations.: The takeaway from the potato controversy is not that lobbyists sometimes base their campaigns on real science. Rather it’s that the David-and-Goliath narrative of science versus Big Ag may be blinding us to another, even bigger problem: the fact that there is often very little solid science backing recommendations about what we eat. Most of our devout beliefs about nutrition have not been subjected to a robust, experimental, controlled clinical trial, the type of study that shows cause and effect, which may be why Americans are pummeled with contradictory and confounding nutritional advice. Nutritional bad guys that have fallen from grace in the national consciousness—white potatoes, eggs, nuts, iceberg lettuce—have been redeemed years later. Onetime good guys, like margarine and pasta, have been recast as villains. Cholesterol is back in the probably-won’t-kill-you column after being shunned for 40 years, as of the latest nutritional advice from the Dietary Guidelines Advisory Committee in February. (That advice was still too timid, according to Cleveland Clinic cardiologist Steve Nissen, who also wants the nutritional guidelines to admit our best evidence suggests fat isn’t bad for you either). And then there’s salt—don’t eat too little, says the newest research. You could die.

Watch: Not Even the FDA Knows What's in Your Food --  The Center for the Public Integrity made a video this week about a legal loophole that allows food companies to add new ingredients to foods with no government safety review. Using a 57-year-old law, companies can “declare their ingredients are ‘generally recognized as safe’ and add them to foods without ever even telling federal regulators,” according to the Center for Public Integrity.The biggest concern comes from new food additives. “People are consuming foods with added flavors, preservatives and other ingredients that are not at all reviewed by regulators for immediate dangers or long-term health effects,” says the Center for Public Integrity. Despite cases of hospitalization and even death from ingredients such as lupin, mycoprotein and carrageenan, these foods are still “generally recognized as safe.” Watch the Center for Public Integrity’s video here:

Let's call these ingredients "Sometimes Considered as Mostly Safe" (SCAMS) - A new report by the Center for Public Integrity and the Center for Science in the Public Interest suggests that some food ingredients have been falling through the cracks, with nobody in authority confirming that they are safe.  By law, the federal government has long accepted food ingredients that are "Generally Recognized as Safe" (GRAS), without the need for elaborate testing. The new reports note many examples where ingredients that are classified as GRAS have been allergenic, have been suspected of being carcinogens, or never were submitted for FDA review (becuase such review is sometimes optional). In some cases, ingredients were submitted for FDA review for consideration as GRAS, and then withdrawn because FDA had questions, but these ingredients ended up in the food supply anyway.  The Center for Public Integrity writes:Critics of the system say the biggest concern, however, is that companies regularly introduce new additives without ever informing the FDA. That means people are consuming foods with added flavors, preservatives and other ingredients that are not at all reviewed by regulators for immediate dangers or long-term health effects.Overall, most food safety officials with the companies involved quite probably are mostly confident the food ingredients are safe for most people (especially those without allergies), and felt it would be overkill to subject the ingredients to a large volume of testing. In such cases, though, let's stop calling such food ingredients "GRAS." From now on, more truthfully, let's call new ingredients that lack FDA review: Sometimes Considered as Mostly Safe " (SCAMS).

“God Damn the Pusher Man” – Especially when Enabled by the FDA Revolving Door  -- Who is watching the watchers?  A story this week involving “speed”-like drugs added to “dietary supplements” suggests how far the once respected US Food and Drug Administration has fallen. The story began with a paper by Cohen and colleagues published a relatively obscure medical journal, and then picked up by the news media.  The main points of the article were: BMPEA (beta-methylphenylethylamine) is a compound first synthesized in the 1930s as a “potential replacement” for amphetamines.  Animal tests revealed amphetamine-like properties.  The compound was never tested on humans, and never marketed. But, BMPEA remained known only as a research chemical until early 2013 when the FDA identified BMPEA in multiple supplements labelled as containing ‘Acacia rigidula’, even though the stimulant has never been identified or extracted from Acacia rigidula, a shrub native to Texas. So Cohen et al undertook to identify “nutritional supplements” said to contain acacia rigidula and test them for BMPEA.  They found 21 such supplements, all of which tested positive. The authors then recommended,  that supplement manufacturers immediately recall all supplements containing BMPEA, and that the FDA use all its enforcement powers to eliminate BMPEA as an ingredient in dietary supplements. Consumers should be advised to avoid all supplements labelled as containing Acacia rigidula. Physicians should remain alert to the possibility that patients may be inadvertently exposed to synthetic stimulants when consuming weight loss and sports supplements. Despite the likely riskiness of BMPEA, the FDA did nothing when it found it in numerous dietary supplements in 2013, and has not indicated that it will do anything now.  This round trip through the door was noted rather obliquely in a New York Times article in late April, 2014, focused on how slowly the FDA has reacted to apparently dangerous “dietary supplements,” Before joining the F.D.A. in 2011, Dr. [Daniel] Fabricant was a top executive at an industry trade group, the Natural Products Association. The article had previously identified Dr Fabricant as the director of the division of dietary supplement programs in the agency’s Center for Food Safety and Applied Nutrition.

The Common Painkiller That Also Kills Pleasure - Acetaminophen — also known as Tylenol (or paracetamol outside the US) — kills positive emotions, a new study finds. Studies have already shown that the painkiller blunts both physical and psychological pain. But this is the first time anyone has thought to test the popular painkiller’s effect on both negative and positive emotions. Acetaminophen is such a popular drug that it is found in over 600 different medicines. Geoffrey Durso, the study’s lead author, said: “This means that using Tylenol or similar products might have broader consequences than previously thought. Rather than just being a pain reliever, acetaminophen can be seen as an all-purpose emotion reliever.” It is not yet known if other pain relievers like aspirin or ibuprofen have the same effect.  The research might suggest, though, that some factors affect both our positive and negative emotions in a similar way.

U.S. meat industry buying more human antibiotics -FDA: (Reuters) - Sales of medically important antibiotics in the United States for use in livestock jumped by 20 percent between 2009 and 2013, federal regulators reported on Friday, data that is sure to feed the national debate about the growth of drug-resistant bacteria. The U.S. Food and Drug Administration reported that domestic sales and distribution for such drugs approved for use in cattle, chickens, hogs and other food animals increased 3 percent between 2012 and 2013, according to the annual report. Public health advocates, along with some lawmakers and scientists, have criticized the long-standing practice of using antibiotics in livestock, saying it is fueling the rise of antibiotic-resistant bacteria. Agribusinesses defend the practice, saying animal drugs are needed to help keep cattle, pigs and chickens healthy, and increase production of meat for U.S. consumers. Last month, the White House issued a sweeping plan to slow the growing and deadly problem of antibiotic resistance over the next five years. While the plan set clear goals for reducing such infections in humans, there were no such specific limits created for the agricultural sector. How U.S. meat producers are using such drugs, and how much they are used on certain animal classes, is not publicly known. The U.S. Agriculture Department said it is planning to begin collecting more detailed data on antibiotics used on farms, a potential precursor to setting targets for reducing use of the drugs in animals.

Study: Dogs Have a 93 Percent Accuracy Rate In Detecting Prostate and Bladder Cancer -- It appears that we would all be better off if we just let our dogs sniff our rear ends. In Buckinghamshire, researchers have found that dogs have a 93% reliability rate when detecting bladder and prostate cancer. The research by by Dr Claire Guest and her colleagues has been published in Humanitas Clinical and Research Centre in Milan. The research involved two German shepherds sniffing the urine of 900 men – 360 with prostate cancer and 540 without. Not only did the dogs have a near perfect record, they were virtually identical. Dog one got it right in 98.7% of cases, while for dog two this was 97.6%. Medical Detection Dogs trains specialist dogs to detect the odor of human disease. Another example of why dogs are man’s best friend. It appears that the cats tested simply shrugged and looked for a new owner.

Tech titans’ latest project: Defy death -- Thiel, who is 47 and estimated to be worth $2.2 billion, said in an interview. “It’s those who have an optimism about what can be done that will shape the future.”  He and the tech titans who founded Google, Facebook, eBay, Napster and Netscape are using their billions to rewrite the nation’s science agenda and transform biomedical research. Their objective is to use the tools of technology — the chips, software programs, algorithms and big data they used in creating an information revolution — to understand and upgrade what they consider to be the most complicated piece of machinery in existence: the human body. The entrepreneurs are driven by a certitude that rebuilding, regenerating and reprogramming patients’ organs, limbs, cells and DNA will enable people to live longer and better. The work they are funding includes hunting for the secrets of living organisms with insanely long lives, engineering microscopic nanobots that can fix your body from the inside out, figuring out how to reprogram the DNA you were born with, and exploring ways to digitize your brain based on the theory that your mind could live long after your body expires. “I believe that evolution is a true account of nature,” as Thiel put it. “But I think we should try to escape it or transcend it in our society.”  Oracle founder Larry Ellison has proclaimed his wish to live forever and donated more than $430 million to anti-aging research. “Death has never made any sense to me,” he told his biographer, Mike Wilson. “How can a person be there and then just vanish, just not be there?”

China's gruesome live organ harvest exposed in documentary - China's hospitals are harvesting the body parts of thousands of political prisoners and removing their vital organs while they are still alive, according to a harrowing documentary exposing the horrific state-sanctioned practice.   Doctors and medical students working in state-run civilian and military hospitals take up to 11,000 organs a year from donors under no anaesthetic to supply China's lucrative "organs on-demand" transplant program, say a network of invesitgators comprised of international researchers, doctors and human rights lawyers attempting to end the macabre abuses.  The documentary, Human Harvest: China's Organ Trafficking, by Canadian filmmaker Leon Lee, followed these investigators for eight years as they worked to mobilise international condemnation of what they say is a booming billion-dollar organ harvesting industry for the benefit of wealthy paying organ recipients."When I cut through [the body] blood was still running ... this person was not dead," said one doctor of his first encounter with live organ harvesting as a medical student filmed by Lee."I took the liver and two kidneys. It took me 30 minutes," he said. A former Chinese hospital worker and doctor's wife, whose identity was withheld, told Lee that her husband had removed the corneas of 2000 people while they were still alive. Afterwards the bodies were secretly incinerated.  China has the second highest rate of transplants in the world, with startlingly short wait times for transplant recipients of just two to three weeks.

Empty Ebola Clinics in Liberia Are Seen as Misstep in U.S. Relief Effort - — As bodies littered the streets and the sick lay dying in front of overwhelmed clinics last year, President Obama ordered the largest American intervention ever in a global health crisis, hoping to stem the deadliest Ebola epidemic in history.But after spending hundreds of millions of dollars and deploying nearly 3,000 troops to build Ebola treatment centers, the United States ended up creating facilities that have largely sat empty: Only 28 Ebola patients have been treated at the 11 treatment units built by the United States military, American officials now say.Nine centers have never had a single Ebola patient.“My task was to convince the international organizations, ‘You don’t need any more E.T.U.s,’ ” said Dr. Hans Rosling, a Swedish public health expert who advised Liberia’s health ministry, referring to Ebola treatment units.“I warned them, ‘The only thing you’ll show is an empty E.T.U.,’ ” he added. “ ‘Don’t do it.’ ”The American response, it turns out, was outpaced by the fast-moving and unpredictable disease.Facing criticism that his reaction to the devastating epidemic had been slow and inadequate, Mr. Obama announced his signature plan in mid-September, focusing on Liberia, America’s historical ally.But even before the first treatment center built by the American military opened there, the number of Ebola cases in Liberia had fallen drastically, casting doubt on the American strategy of building facilities that took months to complete.The emphasis on constructing treatment centers — so widely championed last year — ended up having much less impact than the inexpensive, nimble measures taken by residents to halt the outbreak, many officials say.

Toxic Smog Puts Cancer as Leading Cause of Death in China -- Beijing’s 21-million residents live in a toxic fog of particulate matter, ozone, sulphur dioxide, mercury, cadmium, lead and other contaminants, mainly caused by factories and coal burning. Schools and workplaces regularly shut down when pollution exceeds hazardous levels. People have exchanged paper and cotton masks for more elaborate, filtered respirators. Cancer has become the leading cause of death in the city and throughout the country.Chinese authorities, often reluctant to admit to the extent of any problem, can no longer deny the catastrophic consequences of rampant industrial activity and inadequate regulations. According to Bloomberg News, Beijing’s Centre for Disease Control and Prevention says that, although life expectancy doubled from 1949 to 2011, “the average 18-year-old Beijinger today should prepare to spend as much as 40 percent of those remaining, long years in less than full health, suffering from cancer, cardiovascular disease and arthritis, among other ailments.”China’s government also estimates that air pollution prematurely kills from 350,000 to 500,000 Beijing residents every year. Water and soil pollution are also severe throughout China. The documentary film Under the Dome, by Chinese journalist Chai Jing, shows the extent of the air problem. The film was viewed by more than 150 million Chinese in its first few days, apparently with government approval. Later it was censored, showing how conflicted authorities are over the problem and its possible solutions. The pollution problem also demonstrates the ongoing global conflict between economic priorities and human and environmental health.

Stunning Photos Capture Devastating Worldwide E-Waste Problem » A lot has been written about electronic waste. In 2012, 50 million tons of e-waste was generated worldwide, and with the proliferation of smartphones, smart watches and other tech gear, that number will only increase. United Nations officials estimate that the volume of e-waste generated worldwide is expected to climb by 33 percent by 2017 to 65 million tons. Those cold, hard numbers say a lot, but sometimes the pictures say much more. If unused electronic goods aren’t gathering dust in the garage, they are either recycled (about 30 percent of the time) or simply thrown away—out of sight, out of mind. But as you scroll through this post on your smartphone or computer, it’s important to remember that modern luxuries have a price. While e-waste in the U.S. only makes up 2 percent of the country’s municipal solid waste stream, it’s a much more prevalent and devastating problem to less affluent countries, as demonstrated by these haunting images from Italian photographer Valentino Bellini’s ongoing Bit Rot Project.  “About 80 percent of the e-waste produced in developed countries (North America and Europe on the top of the list) is not disposed of in situ, but shipped, most of the time illegally, to developing countries on cargo ships, where it is illegally disposed of,”

The Most Contaminated Place in the World - One of the more tragic results of the Information Age’s ballyhooed shrinking (or flattening or scrunching or crumpling) of the world is that we’re better apprised of international tragedies while also feeling less able to do anything about them. Take the Marshall Islands—a small chain of land masses in the Pacific—to be precise, seventy thousand-people-spread-out-over-a-thousand-tiny-islands small. If you’ve heard of the Islands at all, it’s most likely as a footnote in the history of the dawn of the atomic age. Between 1946 and 1958, the United States tested sixty-seven nuclear devices in the Marshalls, turning a pristine equatorial paradise into a military proving ground crackling with radioactivity. In 1956, the United States Atomic Energy Commission called the Marshall Islands “by far the most contaminated place in the world.” Unfortunately, America’s collective memory has a much shorter half-life than strontium-90. While we breezed past the Cold War to boldly face the End of History—shifting our focus to the more noble pursuits of creating Twitter, Gak, and an industrial-incraceration complex to rival the Gulags, the Marshall Islands continued to invisibly smolder. Keeping up the pretense of actually caring, Americans shuffled the islanders around here and there during the testing, uh, boom of the fifites—though these maneuvers seem in retrospect more of a bid to placate them in the short term than any actual effort to secure their health and safety.  Some were forced from their homes in the forties and only allowed to return in the seventies, only to be relocated again in 1978 after food grown on the site tested for radiation in hazardous quantities. People on Rongelap Atoll were permitted to return to their homes in 1957, but left again in 1985 after rumors about lingering levels of radiation proved to be true. (Surprise, surprise.) Rongelapers suffered from “tissue destructive effects” long after the testing stopped. The infamous 1954 “Bravo 1” testing of a 15-ton hydrogen bomb, a thousand times more powerful than the one dropped on Hiroshima, bathed the Bikini Atoll in radioactivity. Sixty years afterward, people are still afraid to return.

Cleanup Continues After Colorado Springs Train Derailment: Seven rail cars jumped the tracks scarily close to a Colorado Springs neighborhood. "It's been an accident waiting to happen," neighbor Sophia Firewalker said. Firewalker said seeing the crash less than a block away from her home was not only upsetting, it's something she's been worried about for almost a decade. You can't get much closer to the railroad tracks than the people living just south of Sierra Madre and Fountain, where the tracks cut across Sierra Madre a stone's throw away from houses. "Normally when the train comes by, it rumbles the house,"  "I've been through earthquakes and stuff like that in California...but this had both me and my dog trying to figure out what the heck was going on. ... It actually shook my house." Seven cars on the 13-car train toppled over, nearly landing in Stevens' backyard. Teri Fowles, who lives across the street from the tracks, said she saw the accident unfold. "Grabbed the dogs and ran to the back because, you know, you've got all this metal coming towards you. ... When this all toppled over, it was just nothing but white dust, you couldn't see." At first there were concerns that a dangerous chemical had spilled, and HAZMAT rushed to contain it before it could get into the creek or any drains. It turned out the train was hauling ammonium sulfate, a type of dry ammonium used in fertilizer that is much less dangerous than other types of dry ammonia.

Authorities lift evacuation order after 39-car train derailment in South Carolina -- Authorities say an evacuation order has been lifted for all but four homes following a 39-car train derailment in rural South Carolina. Derrick Becker, public information officer for the South Carolina Emergency Management Division, tells The Associated Press that no one was injured following the crash about 8:30 p.m. Friday in Trenton. He says four homes closest to the wooded crash scene remain evacuated Saturday as a precaution. Becker says one of the derailed Norfolk Southern tankers was carrying anhydrous ammonia and another was carrying ammonia nitrate, or dry fertilizer. He said no harmful spills were detected by Aiken County Hazmat officials who responded to the scene. The cause of the derailment remains under investigation by National Transportation Safety Board and Norfolk Southern officials. No further details were immediately available.

I haven't given you an Ash-hole update in a while -- John's Mark Trail post from earlier reminded me to post this update on the Ohio Emerald Ash Borer invasion from hell:Central Ohio has been especially hard hit by the ravages of a killer insect that has destroyed tens of thousands of majestic ash trees the last few years. The Columbus Dispatch reports that American Electric Power has a crew dedicated to cutting down dead and dying ash trees before they fall on power lines. AEP took down 13,000 ash trees last year alone.The city of Columbus has spent about $4.5 million to remove 17,000 ash trees since 2011. The removal of 450 ash trees on a city golf course has dramatically altered its layout. The emerald ash borer is an invasive species from Asia that destroys vital tissue beneath the bark. State officials estimate there are 3.8 billion ash trees in Ohio.via The strategy for Ash borer control still puzzles me.  Ohio preemptively cuts Ash trees to prevent Ash trees from dying from invasion.  I get the idea--stop the spread here before it spreads somewhere else, but it still seems, well, Ash-backwards.  And 3.8 billion Ash trees?  Does that seem high to anyone else? According to NASA, in 2005 there were about 400 billion trees in the world.That means that almost 1% of the world's trees are Ash trees in Ohio despite Ohio having less than 0.08% of the world's land area.  Can that be right?

Yet Another Study Proves GMOs Are Not “Substantially Equivalent” Even Among Themselves, Let Alone To Non-GM Crops -- A new study compared two varieties of Monsanto’s MON810 insecticidal maize under optimal conditions and under two kinds of environmental stress: Cold and wet conditions, and hot and dry. According to the pro-GM activists, in the case of both varieties: 1. The transgene should be equally active. 2. It should express equal levels of the Bt toxin (Cry1AB, vs. corn borers and other lepidopteran larvae). 3. There should be a clear, constant ratio of transgene activity to Bt expression. 4. Environmental stresses should have no effect on 1-3. 5. If there is any effect, it should be the same in both varieties.The results were quite different:

  • 1. Under optimal conditions, transgenic action (gauged by the RT-PCR test) was similar, but the average Bt content (tested by ELISA) was higher in one variety than the other.
  • 2. Under cold/wet conditions, the Bt content increased in one variety but not the other.
  • 3. Hot/dry conditions, transgenic expression was significantly lower in one variety, but this did not affect Bt content.

The researchers concluded that even though transgene expression was similar under “normal” conditions, Bt content is affected also by the genetics of the original maize variety, and will therefore vary chaotically from variety to variety (a given transgene will be bred into often dozens of varieties). Under stress conditions the Bt content is highly unpredictable. Inconsistent Bt expression will help the target insects develop resistance, another refutation of the scam “refuge” policy.

Decision near on water rationing plan during drought: The board of Southern California's water wholesaler is scheduled to vote Tuesday on rationing water deliveries to the 26 Southland water districts and cities it serves, a plan that could mean much higher water costs for areas that don't take significant conservation measures. A committee of the board plans Monday to discuss the proposed cutbacks, which would take effect July 1. The board's vote would mark only the third time in the last 25 years that drought has forced the Metropolitan Water District of Southern California to reduce deliveries. Although the MWD began the current drought in 2012 with record amounts of water reserves stored in groundwater banks and regional reservoirs, the agency has drawn them down to meet demand. The MWD now has 1.2 million acre-feet of non-emergency storage, compared with 2.7 million acre-feet two years ago. An acre-foot is enough to supply two households for a year. Reducing wholesale deliveries will help stretch those reserves in case the drought, now in its fourth year, persists for several more years. If parched times extend beyond that, MWD General Manager Jeffrey Kightlinger said recently, the agency would have to make much more draconian cuts.

California's New Era of Heat Destroys All Previous Records - The California heat of the past 12 months is like nothing ever seen in records going back to 1895. The 12 months before that were similarly without precedent. And the 12 months before that? A freakishly hot year, too. What's happening in California right now is shattering modern temperature measurements—as well as tree-ring records that stretch back more than 1,000 years. It's no longer just a record-hot month or a record-hot year that California faces. It's a stack of broken records leading to the worst drought that's ever beset the Golden State. The chart below shows average temperatures for the 12 months through March 31, for each year going back to 1895. The orange line shows the trend rising roughly 0.2 degrees Fahrenheit per decade, just a bit faster than the warming trend observed worldwide. The last 12 months were a full 4.5 degrees Fahrenheit (2.5 Celsius) above the 20th century average. Doesn't sound like much? When measuring average temperatures, day and night, over extended periods of time, it's extraordinary. On a planetary scale, just 2.2 degrees Fahrenheit is what separates the hottest year ever recorded (2014) from the coldest (1911). California's drought has already withered pastures and forced farmers to uproot orchards and fallow farmland. It's costing the state billions each year that it goes on. Governor Jerry Brown issued an executive order this month for the first mandatory statewide water restrictions in U.S. history, with $10,000-a-day penalties against water agencies that fail to reduce water use by 25 percent.

California's Record-Breaking Heat & Drought "Is Only The Beginning" - The California heat of the past 12 months is like nothing ever seen in records going back to 1895, notes Bloomberg's Tom Randall, and with the already record-low snowpack starting its melt early, "we aren't nearing the end of California's climate troubles. We're nearing the beginning." What's happening in California right now is shattering modern temperature measurements - as well as tree-ring records that stretch back more than 1,000 years.  What makes this drought so troubling, as Bloomberg reports, is that while the 4.5 degree above-normal temps that California has seen are unprecedented; they are not entirely unexpected. The International Panel on Climate Change, with more than 1,300 scientists, forecasts global temperatures to rise anywhere from 2.5 to 10 degrees Fahrenheit over the next century, depending largely on how quickly humans reduce dependence on fossil fuels. The chart below shows average temperatures for the 12 months through March 31, for each year going back to 1895. The orange line shows the trend rising roughly 0.2 degrees Fahrenheit per decade, just a bit faster than the warming trend observed worldwide.

In California, a Wet Era May Be Ending - When Gov. Jerry Brown of California imposed mandatory cutbacks in water use earlier this month in response to a severe drought, he warned that the state was facing an uncertain future. “This is the new normal,” he said, “and we’ll have to learn to cope with it.”The drought, now in its fourth year, is by many measures the worst since the state began keeping records of temperature and precipitation in the 1800s. And with a population now close to 39 million and a thirsty, $50 billion agricultural industry, California has been affected more by this drought than by any previous one.But scientists say that in the more ancient past, California and the Southwest occasionally had even worse droughts — so-called megadroughts — that lasted decades. At least in parts of California, in two cases in the last 1,200 years, these dry spells lingered for up to two centuries.The new normal, scientists say, may in fact be an old one.Few experts say California is now in the grip of a megadrought, which is loosely defined as one that lasts two decades or longer. But the situation in the state can be seen as part of a larger and longer dry spell that has affected much of the West, Southwest and Plains, although not uniformly.  The wider dry spell began after the last strong El Niño, the weather pattern that develops in response to warmer water temperatures in the Eastern Pacific and can bring heavy winter precipitation. That was 17 years ago. “What we’re seeing is nudging up to being comparable to some of the megadroughts,”

Higher water rates on tap as utilities cover losses from drought -- Planning to save water this year to help with the drought? Don’t expect to save money. Water departments across California, including dozens in the Bay Area, are now looking to raise rates — in many cases by double digits — to shore up revenues as customers use less water during dry times and water sales plummet. Some agencies, including the East Bay Municipal Utility District, are also considering hitting their biggest water users with fines. The latest agency to confront the problem of dwindling dollars during drought is the San Francisco Public Utilities Commission, the Bay Area’s largest water supplier. This week, it began notifying more than two dozen communities that buy its water that wholesale prices will increase 28 percent, effective July 1. In most cases, that hike is expected to be passed on to retail customers. “It’s going to be a very difficult thing to explain to people,” said Syed Murtuza, the public works director for the city of Burlingame, which gets all its water from the Public Utilities Commission and expects to raise local rates a yet-to-be-determined amount. “You’re saving water,” he said, “and the next thing you’re told is your water costs are going up.”

Southern California making cuts to wholesale water deliveries — Southern California’s water wholesaler voted on Tuesday to cut its deliveries to cities and communities by 15 percent as the state clamps down on water usage amid a devastating four-year drought. The Metropolitan Water District’s plan aims to put cities in the greater Los Angeles area in compliance with an order by Governor Jerry Brown to reduce water use by 25 percent, the first mandatory statewide reduction in California history. Beginning in July, two-dozen member agencies will be fined up to four times their regular rates for demanding excess water. Those penalties will range from $1,480 to $2,960 per acre-foot of water. The cutbacks are expected to last a year, with opportunities each month to amend the system. A formal reconsideration is scheduled for December, during the rainy season. If Brown’s statewide plan succeeds, businesses and residents will use only three-quarters of the amount they used in 2013. The savings would amount to some 1.5 million acre-feet of water in the next nine months, just as the state snowpack is at its lowest level on record.

Drought Means California Town Could Be Out Of Water By Summer’s End   — In one California town, they’re already so low on water, this woman you’re about to meet is washing her clothes every 10 days and taking a shower twice a week. The community in Mariposa County may run out of water by the end of the summer. The images are startling—water levels are so low that what is usually hundreds of feet underwater is now exposed. Houseboats that once floated on Lake McClure now sit in a parking lot. Lake Don Pedro community services general manager Peter Kampa says his pumps could go dry by August. “The lake will be down far enough where our pumps, even our emergency floating pumps can’t access the water anymore,” he said. Leslie Farrow is one of about 1,500 people that get her water from what’s left of the lake. She’s had to make major cutbacks after the district increased mandatory water conservation and banned all outdoor watering. “I do laundry maybe every 10 days instead of every three days, and showers in this house is Wednesdays and Sundays and thats just the way it is,” she said. Farrow uses rain barrels to catch rainwater off her roof and saves her excess household water from going down the drain by bottling it in the garage.But Farrow must also share the little water her district has with nearby Merced Irrigation District, which is required to release water from Lake McClure downriver every year for fish.

One Solution to California’s Drought: Tax Water -- The idea is straight out of Economics 101: If you want people to do less of something, raise the price. And California desperately needs its residents and businesses to use less water. So rather than trying to curb water use through a complex maze of regulation, why not just raise the price though a new state-wide tax on all users? Governor Jerry Brown, perhaps feeling constrained by the state’s stiff anti-tax laws, is taking the regulatory approach. Last week he announced an executive order requiring cities to reduce their water use by 25 percent by next year. But his proposed regulatory curbs such are already being called unfair and will almost surely generate decades of litigation. Farmers, who use 80 percent of the state’s water, are exempt from the curbs. Worse, any regulations would have to navigate an incredibly complex system of private water rights, governing both groundwater and rivers and streams. And they’d have to be managed by the state water board, nine regional water commissions, and hundreds of local water districts—many of which are likely to be highly sensitive to hometown political pressures. By contrast, a tax would be relatively easy to administer. If a B-list owner of a Beverly Hills mini-mansion really felt the need keep his green lawn, he could do so. But he’d have to pay a tax. If a farmer wanted to grow water-intensive crops such as almonds or rice (in a state where it has barely rained in 3 years), he still could. But his price would include the tax. If more expensive water makes that farmer no longer cost-competitive, he’d have to invest in water-saving technology or do something else with his land. But it would be his choice. He wouldn’t be barred from water-intensive farming. He’d just have to pay the real cost of using a scarce resource.

Cows Suck Up More Water Than Almonds - Justin Fox - Almond growers have been catching a lot of flak lately for snarfing up so much of California's water. This isn't entirely unfair -- almonds have been the state's big agricultural growth story during the past couple of decades, and they are thirsty little drupes. Still, it isn't the whole story. Last week Philip Bump of the Washington Post and Alissa Walker of Gizmodo both offered defenses of the almond-industrial complex that I would recommend reading if you're interested in that kind of stuff (I clearly am). Meanwhile, I figured I'd try to offer a little context.  Here are the top 10 water users among California's crops, compiled using the most recent California Department of Water Resources dataI could get my hands on.  One thing that stands out is how low many iconic and important California crops are on the list. Strawberries, for example, are part of that 10th-place "lettuce, broccoli" category -- the DWR calls it "other truck" -- which also includes other berries, artichokes, asparagus, carrots, cauliflower, celery, peas, spinach, flowers and nursery products. Tomatoes come in 12th place, onions and garlic 14th, melons, squash and cucumbers 16th.  Meanwhile, stuff that cows eat ranks pretty high on the list. There's alfalfa and pasture, of course. In California, the livestock are overwhelmingly bovine, so put it all together and growing things to feed cattle use more than 10 million acre-feet of water in California in an average year. All the people in California used 8.6 million acre-feet a year in the two years in question. So that's interesting.  Now, the cattle themselves don't consume much water -- direct water use by livestock farmers in California seems to be quite modest. Also, I've already written a whole column about how comparing agricultural water use with urban water use can be misleading. People eat things that take lots of water to grow. People also eat cattle, and drink their milk. Still, it does seem important to understand that raising cattle takes up more of California's water than any other activity.

For Drinking Water in Drought, California Looks Warily to Sea -- Every time drought strikes California, the people of this state cannot help noticing the substantial reservoir of untapped water lapping at their shores — 187 quintillion gallons of it, more or less, shimmering so invitingly in the sun. Now, for the first time, a major California metropolis is on the verge of turning the Pacific Ocean into an everyday source of drinking water. A $1 billion desalination plant to supply booming San Diego County is under construction here and due to open as early as November, providing a major test of whether California cities will be able to resort to the ocean to solve their water woes. Across the Sun Belt, a technology once dismissed as too expensive and harmful to the environment is getting a second look. Texas, facing persistent dry conditions and a population influx, may build several ocean desalination plants. Florida has one operating already and may be forced to build others as a rising sea invades the state’s freshwater supplies. In California, small ocean desalination plants are up and running in a handful of towns. Plans are far along for a large plant in Huntington Beach that would supply water to populous Orange County. A mothballed plant in Santa Barbara may soon be reactivated. And more than a dozen communities along the California coast are studying the issue. The facility being built here will be the largest ocean desalination plant in the Western Hemisphere, producing about 50 million gallons of drinking water a day. So it is under scrutiny for whether it can operate without major problems. “It was not an easy decision to build this plant,” said Mark Weston, chairman of the agency that supplies water to towns in San Diego County. “But it is turning out to be a spectacular choice. What we thought was on the expensive side 10 years ago is now affordable.” Still, the plant illustrates many of the hard choices that states and communities face as they consider whether to tap the ocean for drinking water.

California Governor Brown hears business concerns about drought plan (Reuters) - California Governor Jerry Brown on Thursday promised to consider the concerns of businesses affected by his order to cut urban water use by 25 percent as the prolonged drought in the most populous U.S. state drags into its fourth year. Brown, a Democrat, met Thursday with representatives from businesses that would be affected by California's first mandatory cutbacks in urban water use, including swimming pool builders, cemetery operators, landscapers and water providers. "We shouldn't be shutting down particular industries," John Norwood, president of the California Pool and Spa association said after the meeting. Several cities and water districts, he said, have imposed restrictions on filling and building new swimming pools, effectively killing the businesses of contractors who design and install them. Norwood said that pools, once filled, use less water than the lawns they typically replace. "People put in outdoor kitchens, seating areas, pools - it all replaces the lawn," he said.

California Is "A Totally Artificial World Of Water Use" & Desalination Can't Fix It -- Like many other towns in California, Santa Barbara is projecting a significant water shortfall in 2017. The solutions, being proposed for now, are extreme water conservancy, desalination plants, and sewage recycling following Jerry Brown's diktat that  "as Californians, we have to pull together and save water in every way we can." However, others insist that conserving water will not be enough, "I don't think we can really conserve our way out of this problem, this problem being a combination of drought and of incredibly high water demand by a growing population and climate change," warns NASA scientist Jay Famiglietti and environmentalists exclaim "we don't even know how much we need because we waste so much; we live in a total artificial world of water use and water supply." As we noted before, this is just beginning.

9 States Report Record Low Snowpack Amid Epic Drought  -- California gets most of the attention in drought news coverage because so much of the state is in exceptional drought—the highest level—but 72 percent of the Western U.S. is experiencing drought conditions, according to the latest U.S. Drought Monitor data.  When California’s snowpack assessment showed that the state’s snowpack levels were 6 percent of normal—the lowest ever recorded—it spurred Gov. Brown’s administration to order the first-ever mandatory water restrictions. California’s snowpack levels might be the lowest, but the Golden State is not the only one setting records. A new report from the U.S. Department of Agriculture (USDA) finds that nine states reported record low snowpack. The report states: The largest snowpack deficits are in record territory for many basins, especially in the Cascades and Sierra Nevada where single-digit percent of normal conditions prevail. Very low snowpacks are reported in most of Washington, all of Oregon, Nevada, California, parts of Arizona, much of Idaho, parts of New Mexico, three basins in Wyoming, one basin in Montana and most of Utah. Only high elevation areas in the Rocky Mountains and Interior Alaska had normal or close to normal snowpack levels. “The only holdouts are higher elevations in the Rockies,” said Garen. “Look at the map and you’ll see that almost everywhere else is red.” Red indicates less than half of the normal snowpack remains. Dark red indicates snowpack levels are less than 25 percent of normal.

Leaking Las Vegas: Lake Mead Water Levels Continue To Crash -- The last time we looked at Las Vegas water supply, the comments from professionals were "Vegas is screwed," and unless water levels in Lake Mead rise by 7%, "it's as bad as you can imagine." The bad news... Water levels in Lake Mead have never been lower for this time of year - and this is before the Summer heat seasonal plunge takes effect. We noted previously, as with many things in Sin City, the apparently endless supply of water is an illusion. America’s most decadent destination has been engaged in a potentially catastrophic gamble with nature and now, 14 years into a devastating drought, it is on the verge of losing it all. “The situation is as bad as you can imagine,” said Tim Barnett, a climate scientist at the Scripps Institution of Oceanography. “It’s just going to be screwed. And relatively quickly. Unless it can find a way to get more water from somewhere Las Vegas is out of business. Yet they’re still building, which is stupid.”

Mighty Rio Grande Now a Trickle Under Siege - — On maps, the mighty Rio Grande meanders 1,900 miles, from southern Colorado’s San Juan Mountains to the Gulf of Mexico. But on the ground, farms and cities drink all but a trickle before it reaches the canal that irrigates Bobby Skov’s farm outside El Paso, hundreds of miles from the gulf.Now, shriveled by the historic drought that has consumed California and most of the Southwest, that trickle has become a moist breath.“It’s been progressively worse” since the early 2000s, Mr. Skov said during a pickup-truck tour of his spread last week, but he said his farm would muddle through — if the trend did not continue. “The jury’s out on that,” he said.Drought’s grip on California grabs all the headlines. But from Texas to Arizona to Colorado, the entire West is under siege by changing weather patterns that have shrunk snowpacks, raised temperatures, spurred evaporation and reduced reservoirs to record lows.  In a region that has replumbed entire river systems to build cities and farms where they would not otherwise flourish, the drought is a historic challenge, and perhaps an enduring one. Many scientists say this is the harbinger of the permanently drier and hotter West that global warming will deliver later this century. If so, the water-rationing order issued this month by Gov. Jerry Brown of California could be merely a sign of things to come.

Brazil's worst drought in 80 years from the air, in pictures -

Sao Paulo water crisis: Drought draws locals to polluted dam -  IT’S a city that more than 11 million people call home, and it’s located in one of the wealthiest regions of South America.  Yet Brazil’s bustling Sao Paulo is a megacity on the brink of disaster. There’s water everywhere, but barely a drop to drink.  Despite the country having the largest supply of freshwater in the entire world, it has been battling a huge water problem for months. And now, the state government is so desperate to save the city that it has come up with a controversial “solution”. It wants to tap into a long-polluted dam in an area locals described to the Wall Street Journal as “a foul soup of raw sewage laced with human excrement”. While the government says it will use treated water only from the non-polluted parts of the Billings reservoir, scientists have warned it would be a dangerous move due to the high levels of faecal matter and contaminants. It hasn’t been used as a potable water source for decades, and locals won’t even swim in it.  “If they want to use this water, they will have to stop this [pollution] first,” marina worker Valdir Mastrocezari, 56, who blames contaminants for a rash on his arms, told the WSJ. “People don’t swim here. We avoid putting our feet in the water.” The plan is one of several proposals put forward in a bid to end the water crisis which has left millions going without it for days on end.

Why Brazil's megadrought is a Wall Street failure - It’s hard to overestimate the appalling environmental and economic crisis that’s brewing in Brazil right now. The country is in the grip of a crippling megadrought – the result of pollution, deforestation and climate change – that deeply threatens its economy, society and environment. And the damage may be permanent: São Paulo, Brazil’s largest city and industrial center, has begun rationing water and is discussing whether or not it will need to depopulate in the near future. But if Brazil’s drought is shocking, Wall Street’s shortsighted approach to the country is appalling. Institutional investors’ reports on the country – the seventh largest economy in the world – cite worries about inflation, government cutbacks and low consumer confidence. But I could not find a single analysis that mentioned the existential threat facing the country: the megadrought that is expected to last decades and could destroy the Brazilian economy. Not a single analysis cited the brutal global impact that this will cause. In other words, a host of institutional investors have found worrisome things to say about Brazil, but none seem to be aware of – or, at least, willing to face – the country’s greatest threat.  Attempting to separate economies from environment – as many of these analysts seem to do – is like trying to separate mind and body. It simply doesn’t work.  We will never repair our business models and government policies to conform to the real environmental constraints of the 21st century until we repair this fundamental flaw in our economic system. Investors and analysts regularly review a host of factors – including national debt, inflation, currency devaluation and other financial considerations – when they formulate their economic predictions. Their decision to omit the environment as a fundamental economic consideration is willfully ignorant and negligent.

China is a “major driver” of environmental degradation in Latin America -- China’s increased trade and investment in Latin America over the past decade has resulted in powerful social and environmental impacts such as job losses and pollution, although the growing relationship has also brought some benefits, says new research published today. The high concentration of Chinese activity in Latin America’s agriculture and extractive sectors has placed a heavy strain on water supplies, increased deforestation and greenhouse gas emissions (GHGs) and is aggravating local concerns about resource use and job creation, the study coordinated by Boston University’s Global Economic Governance Initiative (GEGI) concludes. But the paper, entitled China in Latin America: Lessons for South-South Cooperation and Sustainable Development also highlights the potential for cooperation on renewable energy projects. And while China’s mining, hydropower and railway companies are stamping an indelible footprint on Latin American landscapes, the paper notes that Chinese companies do not necessarily perform any worse than other international firms operating in the region, despite their relative inexperience and lower levels of regulation at home.

Global agencies call for urgent action to avoid irreversible groundwater depletion: - FAO, UNESCO, the World Bank, GEF and the International Association of Hydrogeologists have today called for action by the global community to manage the increasingly urgent depletion and degradation of limited groundwater resources. Ahead of the 7th World Water Forum in South Korea (12-17 April), the five organizations have proposed a set of principles governments can use for better groundwater management. The 2030 Vision and Global Framework for Action represent a bold call for collective, responsible action by governments and the global community to ensure sustainable use of groundwater. For too long, groundwater governance has been an area of policy neglect, resulting in the degradation and depletion of this critical resource. Global groundwater withdrawals have tripled over the past half century -- more than a fourth of current withdrawals are non-sustainable. Widespread groundwater pollution is threatening humans and the environment. Most urban aquifers suffer from sanitation issues while coastal aquifers are exposed to saline water intrusion. Industrial pollution, pesticides and fertilizers also find their way into reservoirs. The amount of renewable groundwater is unevenly distributed across regions. Some areas, especially those with low rainfall, are at risk more than others. Withdrawal intensity is highest in large parts of China, India, Pakistan, Bangladesh, Iran, the United States, Mexico and Europe. This could result in lost freshwater reserves at a time when groundwater storage is critical for sustaining water security and adapting to climate variability.

NASA: January To March 2015 Was The Hottest 3-Month Start To Any Year On Record Globally -- NASA reported Tuesday that this was the hottest three-month start (January to March) of any year on record. This was the third warmest March on record in NASA’s dataset (and the first warmest in the dataset of the Japan Meteorological Agency). The odds are increasing that this will be the hottest year on record. Last week NOAA predicted a 60 percent chance that the El Niño it declared in March will continue all year. El Niños generally lead to global temperature records, as the short-term El Niño warming adds to the underlying long-term global warming trend.  And in fact, with March, we have broken the record again for the hottest 12 months on record: April 2014 – March 2015. The previous record was March 2014 – February 2015 set the previous month. And the equally short-lived record before that was February 2014 – January 2015.

When April is the New July: Siberia’s Epic Wildfires Come Far Too Early - Robert Scribbler - What we are currently witnessing is something that should never happen — an outbreak of fires with summer intensity during late April at a time when Siberia should still be frigid and frozen. Last year, during late July and early August, a series of epic wildfires raged to the north and west of Russia’s far eastern Amur region. About a week later, the skies opened up in a ten-day-long deluge that pushed the Amur River bordering Russia and China to levels not seen in the entire 150 year span of record-keeping for the region. The floods promoted strong growth in the region, penetrating permafrost zones to enhance melt, providing major fuel sources for fires should they re-emerge. Come winter, a persistent warm ridge pattern in the Jet Stream transported hotter than usual air over this region. The winter was far, far warmer than it should have been. And when spring came, it came like the onset of summer. Last week, temperatures soared into the 70s and ever since the beginning of April, freakishly large fires for so early in the burn season erupted. By April 23rd, the Russian fire ministry had logged nearly 3,000 fires. The outbreak was so intense that, just a few days ago, more than 5,000 pieces of heavy equipment and an army of firefighters were engaged throughout a large stretch of Russia from the still frozen shores of Lake Baikal to the far eastern Amur region. But last night’s LANCE-MODIS satellite pass brought with it unexpected new horrors: Using the scale provided by LANCE MODIS, we see that the fire at upper left is currently about 15 x 18 miles (270 square miles) in area and that the fire at lower right is about 23 x 20 miles (460 square miles) in area. Today, we have monster fires comparable to those which burned during Russia’s worst ever recorded fire seasons, at their height, burning next to snow covered regions in late April

In Alps, glaciers retreat as climate debate goes on - (videos, slide show) The world's glaciers are disappearing. Climate change skeptics are not. The people who study our oceans and skies worry about both of these phenomena. But in wide swaths of 21st century America, the argument is still stuck on what to call the other side. "Denier" can also describe those who reject the Holocaust, so some who refuse to believe that human behavior is warming the planet prefer the label "skeptic." But scientists are de facto skeptics, and many resent that word being hijacked by people who sneer at their work and accuse them of fraud. They suggest "denialists." The other side counters with "fearmongering warmists." Meanwhile, the glaciers don't care. They just melt. After reading countless scientific studies on our warming world, I've always sought proof through the eyes of people who really know their ice. And after reading countless refusals and rebuttals from libertarian bloggers, I've always wanted to visit their annual convention and better understand how they think. So this episode of "The Wonder List" takes us from a Heartland Institute pow-wow in Las Vegas to the glaciers of the French Alps. It is a quest to challenge "rock stars" of the denialist/skeptic camp and then challenge my feeble mountaineering skills with the best alpinists in the world.

A 1,000 Mile Stretch Of The Pacific Ocean Has Heated Up Several Degrees And Scientists Don’t Know Why -- According to two University of Washington scientific research papers that were recently released, a 1,000 mile stretch of the Pacific Ocean has warmed up by several degrees, and nobody seems to know why this is happening.  This giant “blob” of warm water was first observed in late 2013, and it is playing havoc with our climate.  And since this giant “blob” first showed up, fish and other sea creatures have been dying in absolutely massive numbers. For a large portion of the Pacific Ocean to suddenly start significantly heating up without any known explanation is a really big deal.  The following information about this new research comes from the University of Washington“In the fall of 2013 and early 2014 we started to notice a big, almost circular mass of water that just didn’t cool off as much as it usually did, so by spring of 2014 it was warmer than we had ever seen it for that time of year,” said Nick Bond, a climate scientist at the UW-based Joint Institute for the Study of the Atmosphere and Ocean, a joint research center of the UW and the U.S. National Oceanic and Atmospheric Administration. Bond coined the term “the blob” last June in his monthly newsletter as Washington’s state climatologist. He said the huge patch of water – 1,000 miles in each direction and 300 feet deep – had contributed to Washington’s mild 2014 winter and might signal a warmer summer. It would be one thing if scientists knew why this was happening and had an explanation for it. But they don’t. In fact, according to the Washington Post, they are calling this something that is “totally new”… Scientists have been astonished at the extent and especially the long-lasting nature of the warmth, with one NOAA researcher saying, “when you see something like this that’s totally new you have opportunities to learn things you were never expecting.” The following map comes from the NOAA, and it shows what this giant “blob” looks like…

Britain’s fish ‘n’ chip favourites could dwindle as North Sea warms -- The fishing industry in the North Sea is worth  over $1 billion a year. Some of Britain's best-loved fish are caught there, such as haddock and cod, which are among the  top five most-consumed fish in the UK. But the findings of a new study, published in Nature Climate Change, suggest that warmer waters will make the North Sea less suitable for many of our mealtime favourites. And they may not be able to migrate to other areas, the researchers say.  North sea temperatures have risen by 1.3C over the last 30 years and are predicted to rise by a further 1.8C over the next 50 years. The study estimates how these rising temperatures will affect some of the most abundant North Sea fish species. The researchers looked at eight bottom-dwelling fish, known as 'demersal' species: dab, haddock, hake, lemon sole, ling, long rough dab, plaice, and saithe. Using 30 years of fisheries data from the North Sea and projections for climate change, the researchers developed models to estimate future abundance and distribution of the eight fish species by the middle of this century.The models take into account factors such as sea temperatures at the surface and near the seabed, and salinity. They project future fish numbers and the latitudes and depths were the fish are most likely to be found.  Contrary to expectations, the study finds fish may not search out cooler, deeper waters or head north as the North Sea warms.

Increase in shellfish deaths causes 'full-scale panic' for B.C. industry -- Despite insatiable demand, many are concerned B.C.’s once-thriving shellfish industry could be sinking. “I’d say it’s full-scale panic mode (for scallop farmers),” said Rob Saunders, CEO of Qualicum Beach-based Island Scallops.  The company has seen its scallop death rates rise to nearly 95% since 2010, leading to millions of dollars in losses. Ocean acidification — a worldwide problem — is likely to blame. Saunders said the company’s hatcheries, which produce scallop, oyster, prawn and sea urchin “seeds,” have also had trouble with increased deaths. In order to grow, the B.C. industry must double its seed production. “Everyone is desperately trying to understand what’s going on and what can be done,” he said. Other B.C. shellfish growers, like Denman Island oyster farmers Greg Wood and his wife Hollie, have found themselves “going year by year to see if we can make it.” Wood blames oyster mortality rates on rising ocean temperatures, which cause more parasites and bacteria to grow.  “The problems are extreme,” he said. “We’re being attacked from all angles.” The possibility of a coal mine a few kilometres from Baynes Sound, where 50% of B.C.’s shellfish are grown, is a major concern. While each type of shellfish is different in its ability to tolerate changing ocean conditions, they all depend on a clean environment, said Roberta Stevenson, executive director of the B.C. Shellfish Grower’s Association. “Ocean warming, urban run-off, acidification — it all has an impact,” she said.

Oceans Facing Carbon Rates Which Spurred Mass Die-Off 250 Million Years Ago --In case you weren't already worried about the current and rapid acidification of the world's oceans, a new report by leading scientists finds that this very phenomenon is to blame for the worst mass extinction event the planet earth has ever seen—approximately 252 million years ago. The findings, published this week in the journal Science by University of Edinburgh researchers, raise serious concerns about the implications of present-day acidification, driven by human-made climate change."Scientists have long suspected that an ocean acidification event occurred during the greatest mass extinction of all time, but direct evidence has been lacking until now," said lead author Dr. Matthew Clarkson in a statement. "This is a worrying finding, considering that we can already see an increase in ocean acidity today that is the result of human carbon emissions."The paper looks at the culprit behind the Permo-Triassic Boundary mass extinction, which wiped out more than 90 percent of marine species and two-thirds of land animals, making it even more severe than the die-off of the dinosaurs.A summary of the researchers' findings explains the mass die-off "happened when Earth’s oceans absorbed huge amounts of carbon dioxide from volcanic eruptions. This changed the chemical composition of the oceans—making them more acidic—with catastrophic consequences for life on Earth." The kicker? The carbon that drove this process during the Permian-Triassic Boundary extinction was "released at a rate similar to modern emissions,"

Economic Collapse Will Limit Climate Change, Predicts Climate Scientist -- In late 2014, the World Bank published a remarkable document that should have shaken the international business world. Titled "Turn Down the Heat: Confronting the New Climate Normal", it drew on 1,300 publications to explore the impacts of a world four degrees centigrade warmer - the world our grandchildren seem likely to inherit before the end of this century.  Authored by climate scientists of the Potsdam Institute for Climate Impact Research, the report's three hundred plus pages are densely written and often hard for non-experts to understand. However, some passages about the impact of a 4°C temperature rise are crystal clear. Here a section on North Africa:  "There is a considerable likelihood of warming reaching 4°C above pre-industrial levels within this century... Crop yields are expected to decline by 30 percent with 1.5-2°C warming and up to 60 percent with 3-4°C warming... Large fractions of currently marginal rain-fed cropland are expected to be abandoned or transformed into grazing land; current grazing land, meanwhile, may become unsuitable for any agricultural activity..."  I wondered, what about maximum temperatures? According to the study: "In a 4°C world, 80 percent of summer months are projected to be hotter than 5-sigma (unprecedented heat extremes) by 2100, and about 65 percent are projected to be hotter than 5-sigma during the 2071-2099 period."  As I've got no idea what that actually means, I jumped at the chance to talk with climate scientist Christopher Reyer, one of the co-authors of the study, What does '5-sigma' mean? "It's quite clear that temperatures will be warmer," Reyer said. By way of comparison, he explained, the 2003 heat wave in Europe [in which an estimated 70,000 people died during a 2.3°C hotter-than-usual summer], was only a 3-sigma event.   So, would it be possible to survive a 5-sigma event outdoors in Marrakech? "That depends how you define 'survive'," answered the climate wonk, adding that it would probably be survivable if you kept to the shade and didn't move. However, any kind of human activity would be impossible in that kind of temperature.

Congress Is Pushing A Bill To Significantly Weaken The EPA’s Climate Rule -- A bill that would delay and ultimately weaken the Environmental Protection Agency’s proposed rule limiting carbon dioxide emissions from power plants is making its way through the U.S. House of Representatives. A subcommittee of the House Energy and Commerce Committee held a lengthy hearing on Tuesday on the Ratepayer Protection Act, which allows state governors to refuse to implement the EPA’s proposed carbon reductions if those reductions would have a “significant adverse effect” on electric bills or grid reliability. In other words, the bill — sponsored by Rep. Ed Whitfield (R-KY) — tells states that, if their proposed plans to reduce carbon emissions might threaten electric prices or electricity itself, they don’t have to make plans at all. The bill would also delay final implementation of the rule until all legal challenges have been dismissed, a process which could take years. Two high-profile legal cases challenging the EPA climate rules are scheduled to be argued this week.  Whitfield on Tuesday said the purpose of his bill is to prevent states from having to deal with the EPA’s “damaging overreach.”

Did The Senate Just Say Yes To Action On Climate Change? --It’s not a bill, it’s non-binding, and there’s no guarantee anything will actually come of it. But either way, the Republican-led Senate apparently thinks climate change should be tackled in the final federal budget for fiscal year 2016.  On Thursday evening, the Senate approved a motion to instruct budget negotiators to “insist” that the final spending bill include measures to address human-caused climate change. Specifically, it calls for funding that “respond[s] to the causes and impacts of climate change, including the economic and national security threats posed by human-induced climate change.” Via the motion, budget negotiators were also instructed to provide funds for the Department of Defense to bolster resilience of critical military infrastructure to the impacts of climate change.  This, of course, does not mean that the final budget will definitely include funding to respond to the threats of human-caused warming. All it means is that the Senate has officially stated that the budget should include that type of allocation. The lawmakers participating in the budget conference committee are under no official obligation to do so, however.

When Climate Science Clashes With Real-World Policy -- When a San Francisco panel began mulling rules about building public projects near changing shorelines, its self-described science translator, David Behar, figured he would just turn to the U.N.’s most recent climate assessment for guidance on future sea levels. He couldn’t. Nor could Behar, leader of the city utility department’s climate program, get what he needed from a 2012 National Research Council report dealing with West Coast sea level rise projections. A National Climate Assessment paper dealing with sea level rise didn’t seem to have what he needed, either. Even after reviewing two California government reports dealing with sea level rise, Behar says he had to telephone climate scientists and review a journal paper summarizing the views of 90 experts before he felt confident that he understood science’s latest projections for hazards posed by the onslaught of rising seas. “You sometimes have to interview the authors of these reports to actually understand what they’re saying,” Behar said. “On the surface,” the assessments and reports that Behar turned to “all look like they’re saying different things,” he said. “But when you dive deeper — with the help of the authors, in most cases — they don’t disagree with one another very much.”

Former Obama Economic Adviser Calls for Shift in Biofuels Mandate - A former White House economic adviser is calling for changes to a 2005 law mandating increased use of alternative fuels in the nation’s transportation supply, adding a key voice to a growing chorus of people who say the policy is not working. In a report to be published Thursday, Harvard University professor Jim Stock, who served on President Barack Obama’s Council of Economic Advisers in 2013 and 2014, proposes several reforms to the biofuels mandate, known as the renewable fuel standard, including some requiring congressional approval. The report adds to a growing body of politicians and experts who are questioning the law’s effectiveness amid regulatory uncertainty and lower oil prices. Biofuels, mostly corn-based ethanol, have been blended into the nation’s gasoline supply since Congress passed the law a decade ago to promote the use of alternative fuels. But the government has struggled in putting together regulations and mandates for a more diverse offering of fuels, such as products made from municipal solid waste, plant material and biogas. Low gasoline prices, which are more than a dollar cheaper today than this time last year, are also making alternative fuels less cost-competitive. Obama administration officials acknowledge that the law has been a struggle to enforce, though they have not said whether they think Congress should change it.

American Companies Are Shipping Millions Of Trees To Europe, And It’s A Renewable Energy Nightmare  - In late March, a loosely affiliated coalition of southerners gathered outside of the British Consulate in Atlanta, Georgia with an unusual concern: wood pellets. The group, primarily made up of outdoors enthusiasts and conservationists, had traveled from multiple states to British Consul General Jeremy Pilmore-Bedford’s doorstep. Chief on their minds was the rapidly increasing use of the pellets, a form of woody biomass harvested from forests throughout the southeastern U.S. and burned for renewable electricity in Europe. According to the group, what started as a minor section of Europe’s renewable energy law has now burgeoned into a major climate and environmental headache.  White said that the surge in demand fueled by Europe has caused “the clearcutting of wetlands and bottomlands on a massive scale,” and that Georgia now finds itself in the crosshairs of the industry.  I don’t think policymakers were able to see in advance that this would drive the entire destruction of Southeastern forests for wood pellets.  The expansive forests of the Carolinas, Georgia, and other nearby states have survived many human threats over the last few centuries, but the latest is one of the most unexpected. The rapid growth of Europe’s biomass industry, driven by the region’s renewable energy targets, is chipping away at southeastern forests. Enviva, the world’s largest supplier of these wood pellets, currently owns and operates six manufacturing facilities in the Southeast. In filing for a $100 million initial public offering (IPO) in October, the company states that demand for utility-grade wood pellets is expected to grow 21 percent annually from 2013 to 2020. The growth is being fueled by the conversion of coal-fired power plants to biomass-fired plants in Northern Europe and, increasingly, in South Korea and Japan, according to the company.

A Call to Look Past Sustainable Development -  The average citizen of Nepal consumes about 100 kilowatt-hours of electricity in a year. Cambodians make do with 160. Bangladeshis are better off, consuming, on average, 260.Then there is the fridge in your kitchen. A typical 20-cubic-foot refrigerator — Energy Star-certified, to fit our environmentally conscious times — runs through 300 to 600 kilowatt-hours a year.American diplomats are upset that dozens of countries — including Nepal, Cambodia and Bangladesh — have flocked to join China’s new infrastructure investment bank, a potential rival to the World Bank and other financial institutions backed by the United States.The reason for the defiance is not hard to find: The West’s environmental priorities are blocking their access to energy.  A typical American consumes, on average, about 13,000 kilowatt-hours of electricity a year. The citizens of poor countries — including Nepalis, Cambodians and Bangladeshis — may not aspire to that level of use, which includes a great deal of waste. But they would appreciate assistance from developed nations, and the financial institutions they control, to build up the kind of energy infrastructure that could deliver the comfort and abundance that Americans and Europeans enjoy. Too often, the United States and its allies have said no.The United States relies on coal, natural gas, hydroelectric and nuclear power for about 95 percent of its electricity, said Todd Moss, from the Center for Global Development. “Yet we place major restrictions on financing all four of these sources of power overseas.”This conflict is not merely playing out in the strategic maneuvering of the United States and China as they engage in a struggle for influence on the global stage. Of far greater consequence is the way the West’s environmental agenda undermines the very goals it professes to achieve and threatens to advance devastating climate change rather than retard it.

Report: Carbon Capture More Costly than Renewables and Will Increase Climate Pollution Even making assumptions sympathetic to CCS, it is the most expensive option for attempting to reduce emissions.  – A new Greenpeace USA report, Carbon Capture Scam (CCS): How a False Climate Solution Bolsters Big Oil, shows that carbon capture and sequestration is significantly more expensive than renewable energy for attempting to reduce carbon pollution. The report also details how CCS proposals maintain our dependence on fossil fuels and exacerbate climate pollution. Carbon capture could actually increase the overall climate pollution associated with fossil fuels, by promoting increased extraction, combustion, and fugitive emissions. The Greenpeace analysis uses US Energy Information Administration (EIA) cost projections for CCS and renewable energy to calculate relative costs of reducing carbon pollution. Even using EIA’s optimistic assumptions about CCS effectiveness and costs, the report shows that CCS would still cost almost 40% more per kilogram of avoided carbon dioxide than solar photovoltaic, 125% more than wind and 260% more than geothermal. It calculates that in 2019, based on EIA cost estimates, carbon capture and sequestration would cost 18 cents to avoid the emission of each kilogram of carbon dioxide per unit of electricity, while solar photovoltaics cost 13 cents, wind costs 8 cents, and geothermal costs 5 cents. “The truth is that carbon capture and sequestration is not worth the investment – sequestration is a gamble while carbon capture does nothing but prop up the oil industry,” said Greenpeace Legislative Representative Kyle Ash. “Its price tag is further evidence that our focus should be on moving toward affordable renewable energy, not wasting time with false solutions.”

How Much Water Does The Energy Sector Use? -- Water and energy have a symbiotic relationship. Energy is needed to move water to people and businesses. Water, in turn, is necessary to produce energy. Of course, different types of energy require varying levels of water use. Take electricity generation as an example. For the United States, electricity generation in 2014 came from the following sources: 38 percent from coal, 27 percent from natural gas, 19.5 percent from nuclear, 6 percent from hydropower, close to 7 percent from non-hydro renewables, and the remainder from a collection of smaller sources. But those sources of electricity use water at very different rates. The chart below, using data from a new report from the U.S. Geological Survey, details how water intensive electricity generation is, measured in liters of water needed to generate one kilowatt-hour of electricity.  One significant factor that determines the ultimate volume of water a power plant needs is its cooling system. Most conventional power plants use either a “once-through” system or a cooling “tower.” A once-through system pulls water from a river or a lake, cycles the water through the power plant to help generate electricity, and then discharges it back into the environment. In contrast, a tower recirculates the water instead of discharging it. But towers end up using 30 to 70 percent more water because the water ends up being lost through evaporation, whereas the once-through system returns the water to the river or lake.However, it should be noted that once-through systems likely have higher levels of consumption than can be measured, because the higher temperature for the discharged water raises the temperature of the river, resulting in higher evaporation downstream that isn’t accounted for. Based on the data, nuclear power and natural gas steam generation uses the most water to generate a single kilowatt-hour of electricity. Natural gas uses quite a bit of water in the drilling phase (see: fracking), which makes it more water-intensive than coal. But natural gas combined-cycle (CC) plants are much more efficient.

BP dropped green energy projects worth billions to focus on fossil fuels -- BP pumped billions of pounds into low-carbon technology and green energy over a number of decades but gradually retired the programme to focus almost exclusively on its fossil fuel business, the Guardian has established. At one stage the company, whose annual general meeting is in London on Thursday, was spending in-house around $450m (£300m) a year on research alone - the equivalent of $830m today. The energy efficiency programme employed 4,400 research scientists and R&D support staff at bases in Sunbury, Berkshire, and Cleveland, Ohio, among other locations, while $8bn was directly invested over five years in zero- or low-carbon energy. But almost all of the technology was sold off and much of the research locked away in a private corporate archive. Facing shareholders at its AGM, company executives will insist they are playing a responsible role in a world facing dangerous climate change, not least by supporting arguments for a global carbon price. But the company, which once promised to go “beyond petroleum” will come under fire both inside the meeting and outside from some shareholders and campaigners who argue BP is playing fast and loose with the environment by not making meaningful moves away from fossil fuels.

Coal producers say Northwest environmentalists blocking Asia-bound exports | Fox News: Coal-producing states charge Northwestern environmentalists are blocking them from exporting the fuel to hungry overseas nations, costing America jobs and revenue while doing nothing to lessen the use of fossil fuels. Wyoming, the nation's top producer of coal at 400 million tons per year, only exports about one percent of that. Officials would like to send as much as 70 million tons to coal-hungry Asian nations, but say opposition from states that control Pacific ports is blocking them from doing business. Cowboy State Gov. Matt Mead believes it is unconstitutional for other states to stop his landlocked state from getting its goods to market.  "It's challenging a particular commodity and we think that is interference with interstate commerce," Mead said.Late last year, the state of Oregon rejected a key permit needed to move ahead with proposed construction of the Coyote Island Terminal, a Columbia River terminal proposed by Australia-based Ambre Energy. It was to be built at the Port of Morrow which has several other terminals from which agricultural commodities, processed foods, wood and mining products, and solid waste are already shipped up and down the river. Coal from Wyoming, Montana and other western producers would be shipped by rail to the terminal, then put on barges that would carry it some 300 miles to the coast, where it would be transferred to Asia-bound, ocean-going vessels. Although the project survived the environmental review process, the Oregon Department of State Lands denied a permit to build a dock needed for the project, saying it would interfere with a nearby tribal fishery. The department "determined that, while the proposed project has independent utility, it is not consistent with the protection, conservation and best use of the state's water resources," said Lands Department spokeswoman Julie Curtis.

Cheap coal is a lie – stand up to the industry’s cynical fightback - Al Gore - It is becoming increasingly difficult to avoid the reality that the days of coal ... are numbered. In a world where carbon emissions will increasingly have to be constrained, coal, as the dirtiest of the fossil fuels, is the energy asset most vulnerable ... to seeing its market value collapse well ahead of its previously anticipated useful life. ... But as the coal industry fights for survival, it has ... embarked on a global campaign to promote coal as the solution to energy poverty. This disingenuous claim is predicated on the notion that coal is the cheapest way of providing electricity to the one-fifth of the world’s population lacking access to an electricity grid.This is extremely misleading. If ever implemented, it would actually significantly worsen the condition of the 1.3 billion people mired in energy poverty.Most developing countries face serious challenges that are already being exacerbated by climate change-related extreme weather events. They are being battered by stronger storms, more destructive floods, deeper and longer droughts and disruptive switches in the seasonal timing of rain.  Food security and water supplies are being compromised, natural resources stressed, and critical infrastructure crippled.Access to affordable and reliable energy is, of course, essential for sustainable development, poverty reduction, improved access to education and healthcare, and the promotion of public safety and stable government. We should not waver in our commitment to remedy energy poverty... But the relative merits of different energy options must be considered over the long term with an emphasis on three factors: financial cost, reliability, and impact on society and the environment. And when viewed through this lens, renewable energy – particularly solar photovoltaic energy, or PV – far outranks coal as the best future energy choice for developing nations. ...

Athens County group files appeal on new injection well - –– Athens County Fracking Action Network has appealed the recent permitting of another injection well in Torch, Ohio, owned by Jeff Harper of West Virginia. The latest Athens County frack waste injection well, the K&H #3, was permitted last month by Ohio Department of Natural Resources. According to the notice of appeal, “This appeal is brought pursuant to O.R.C. §1509.36 and Ohio Adm. Code §§1509-1-09 and 1509-1-11. The Chief’s issuance of the injection well permit for Well Number 34-009-2-3824-00-00 was unreasonable and unlawful for a number of reasons, including, but not limited to, the following…: 1) The Chief unlawfully and unreasonably approved the permit in light of information known to him from the two other K&H injection disposal wells located on the same tract of land as Well Number 34-009-2-3824-00-00 that the geologic strata where the wastes would be injected for disposal did not adequately confine the wastes, thereby failing to demonstrate that the well would not result in an adverse effect on human health and/or contamination to ground water protected by R.C. Chapter 1509 and the federal Safe Drinking Water Act.  2) The Chief unlawfully and unreasonably approved the permit by requiring that the injection well’s protective casing extend only to an inadequate depth of approximately half of the 4,200 foot deep borehole, thereby insufficiently confining the waste, which fails to demonstrate that the well would not result in an adverse effect on human health and/or contamination to ground water protected by R.C. Chapter 1509 and the federal Safe Drinking Water Act.  3) The Chief unlawfully and unreasonably approved the permit based upon the requirements of guidance documents and ‘standard operating procedures’ which constitute ‘rules’ under ORC Chapter 119 but which are unlawful due to the Chief’s failure to adopt them in compliance with the legally required safeguards for rulemaking under Ohio law.  4) The Chief unlawfully and unreasonably approved the permit in a manner that does not protect underground sources of drinking water in violation of federal and state requirements governing the injection of oil and gas waste liquids.”

Athens County likely to become No. 1 chemical frackwaste acceptor in Ohio -  A brine injection well recently permitted to Troy Township will likely make Athens County the biggest acceptor of chemical-laden fracking waste in Ohio. The well, owned by K&H Partners, was permitted by the Ohio Department of Natural Resources on March 18, to accept as many as 12,000 barrels of brine per day from a steady flow of tractor-trailers travelling down Rt. 50. The Athens County Fracking Action Network (ACFAN) took legal action against ODNR Tuesday, citing sizeable human health concerns for air and water quality and demanding a retraction of the permit. “There is something really wrong with a system that forces an economically disadvantaged area for the economic gain of a handful of people while threatening what is a growing local food tourism and renewables industry,” said Crissa Cummings, a local activist who chained herself to the K&H gate last June to protest the safety of the wells. “The fact that our local community has no say in the decision making is a serious problem.” Brine is a byproduct of the fracking process, where two to five million gallons of chemicals and sand are combined with water and shot underground to crack shale layers and access the oil and gas below. Much of that combined fluid rebounds after the oil is extracted and must be disposed, becoming the brine that is injected into underground wells. ODNR is not required by law to monitor the long-term structural safety of these wells or the surrounding air quality. K&H owns two other injection wells in Troy, which accepted about 2.5 of the 2.9 million barrels of brine relocated into Athens County’s seven injection wells last year. The third well would increase that yearly total to 4.4 million barrels.

Drop in oil, gas prices fuels debate over severance taxes: To hear representatives of the oil and gas industry in Ohio tell it, the huge decline in oil and natural gas prices because of oversupply globally makes it absolutely the wrong time to increase the severance tax — as proposed by Gov. John Kasich in his biennium budget sent to the Legislature. But as far as Kasich is concerned, the industry has had a free ride for several years and it’s time for drillers to pay for the right to tap into Ohio’s natural resources. The governor, who won re-election in November by a landslide and talked about the severance tax on the campaign trail, has dismissed the industry’s claim that the current decline in prices justifies a reassessment of the 6.5 percent tax that would generate an estimated $180 million. “It’s never a good time” as far as the industry is concerned, the governor has replied when asked to comment about the statewide campaign launched by the Oil and Gas Association to build political, community and media support for its opposition to the severance-tax proposal. We have long supported such a tax because this region’s Utica Shale play lured major oil and gas producers from around the country in the early days for exploration. The process used to fracture the shale — fracking — to get at the deposits resulted in major environmental problems that had to be addressed urgently. The need arose to legislatively deal with what was taking place because state government was ill prepared to deal with the earthquakes and other challenges associated with fracking.

Oil and gas tax hike in Ohio is dead for now, lawmaker says  -- Any tax increase on oil and gas fracking activity in Ohio is dead for now after lawmakers stripped a proposed tax hike from the state's budget bill, a key Ohio House member said Wednesday. On Tuesday, lawmakers removed a budget proposal by Gov. John Kasich to raise the state severance tax on horizontal drilling to pay for income-tax cuts. There are currently no other plans to advance any other bill to change the state's severance tax, said state Rep. Ryan Smith, a Gallia County Republican who chairs the House Finance Committee. "There's a lot of slowdown in that industry right now, and we don't want to pile on," Smith said in an interview, echoing concerns raised by oil and gas officials about plummeting energy prices. The revised budget bill would set up a study committee, composed of House and Senate members, the state tax director and state budget director, to further investigate tax changes. Currently, Ohio charges flat rates of 20 cents per barrel of oil and 3 cents per thousand cubic feet of natural gas.

Utica and Marcellus well activity in Ohio  - While activity in the Utica and Marcellus shale formations in Ohio is nearly the same as it was in last week’s well update report, one Ohio company has come to an agreement to end a lawsuit. American Energy-Utica, a subsidiary of American Energy LP, has made a deal with Chesapeake Energy Corp. and the Energy & Minerals Group to pay Chesapeake $25 million and give the company 6,000 acres of its land located in Ohio. The deal was decided by Aubrey McClendon’s major financial backers on Tuesday morning. McClendon, who is currently American Energy LP’s director, was not involved or informed of the deal by the Energy & Mineral Group. The following information is provided by the Ohio Department of Natural Resources and is through the week ending on April 11th. Activity in the Utica Shale formation in Ohio has had a few slight changes when compared to last week’s update.  According to this week’s report, 344 wells were drilled (down 5), 253 drilling (up 11), 430 permitted (down 18) and 845 producing (up 6), bringing the total number of wells in the Utica to 1,872. The Marcellus Shale in Ohio has zero change reported when compared to last week’s well report.  The area is still sitting at 15 wells permitted, 15 drilled, 13 producing and one well inactive.  There are a total of 44 wells in the Ohio Marcellus Shale.

Fracking Waste Puts Public at Risk, Study Says - Weakness in state regulations governing hazardous oil-and-gas waste have allowed the leftovers to be disposed of with little regard to the dangers they pose to human health and the environment, according to a recent study by the environmental organization Earthworks. The report says states disregard the risks because of a decades-old federal regulation that allows oil-and-gas waste to be handled as non-hazardous material. Those rules, established by the U.S. Environmental Protection Agency in 1988, exempted the waste from the stricter disposal requirements required of hazardous substances and allowed the states to establish their own disposal standards. In its report, "Wasting Away: Four states' failure to manage gas and oil field waste from the Marcellus and Utica Shale," Earthworks studied rules governing disposal of the often toxic waste––and the gaps in those regulations in New York, Pennsylvania, West Virginia and Ohio. The organization, which is often criticized by the industry as being consistently biased, concludes the EPA was wrong when it applied the non-hazardous label to oil-and-gas waste. "Drilling waste harms the environment and health, even though states have a mandate to protect both," "Their current 'see no evil' approach is part of the reason communities across the country are banning fracking altogether. States have a clear path forward: if the waste is dangerous and hazardous, stop pretending it isn't and treat it and track it like the problem it is."

New geological maps allow for better understanding of the Marcellus Shale -- Thanks to the U.S. Energy Information Administration (EIA), new updates to maps and geological information for the Marcellus Shale formation has allowed for a better understanding of the shale’s structure, thickness and extent. In order to create these maps, the EIA uses data collected from the wells in the formation. The maps show the formation’s extent and the structure of the areas that are productive and prospectively productive. The structure and thickness maps are extremely important when determining resource estimation and when defining areas where hydrocarbon extraction is practical. The maps that show the top and bottom of the shale formation as a 3-D surfaces are handy when giving approximate guesses of subsurface volumes and “detection of regional structural and tectonic features such as major faults, folds, and thrusts.” For the structure and thickness maps, the EIA uses stratigraphic correlations from state geological survey agencies. The data is based on 2,416 wells in the Marcellus Shale, which is located in Pennsylvania, West Virginia, Ohio, and New York. Due to the recent fracking ban in New York, the data there is from wells developed before 2010. As reported by the EIA, “The Marcellus Middle Devonian-age shale extends from New York in the north to Kentucky and Tennessee in the south and is the most prolific natural gas-producing formation in the Appalachian basin. The formation’s and play’s footprints cover about 95,000 square miles and 72,000 square miles, respectively. The Marcellus formation consists of several sublayers that are grouped in the Lower and Upper Marcellus intervals. The Lower Marcellus has a significantly higher organic matter concentration compared with the Upper Marcellus.” The elevation of the top of the Marcellus ranges from 1,000 feet to 8,000 feet below sea level. This part of the formation mainly produces natural gas and is located in northeastern Pennsylvania.  However, in southwestern Pennsylvania, West Virginia, and southeastern Ohio, the formation becomes more “liquid-rich” due to the area being less thermally mature.To read the full report by the EIA, click here.

Test well in Putnam County leads to gas speculation -- As gas companies continue to develop the Marcellus Shale in Northern West Virginia, recent gas exploration in Putnam County and Eastern Kentucky have people speculating about the possibility of a future gas boom in the southwest part of the state. Last year, Cabot Oil and Gas drilled a vertical test well into the Rogersville Shale, a relatively unexplored deep-shale formation that underlies parts of northeast Kentucky and the southwestern counties of West Virginia. The test well, located just northeast of Hometown, is the first permitted well drilled into the Rogersville in West Virginia, but Cabot’s exploration of the geological formation comes on the heels of two exploratory wells being tapped by another company just over the state line, in Lawrence County, Kentucky. While neither of the gas developers has released production data from the three wells, the companies’ continued interest has government and industry officials waiting to see if the Rogersville can become the country’s next profitable shale formation.

Fracking Waste Study Says States Aren't Doing Enough to Protect Public - There’s a new report: (Wasting Away - Four states’ failure to manage oil and gas waste in the Marcellus and Utica Shale) that examines this subject published by Earthworks – a nonprofit concerned with the adverse impacts of mineral and energy development. Lead author Nadia Steinzor explains that the EPA didn’t exempt the industry because the waste wasn’t considered a threat, but because state regulation of this waste was considered adequate. Of course, this was a couple decades before the horizontal gas drilling boom. Steinzor and her colleagues decided to see what they could learn about waste practices in West Virginia, Ohio, Pennsylvania, and New York, where Marcellus and Utica shale gas are being developed. The report indicates that states are well behind the curve in adapting to the natural gas boom: good characterizations of the waste is incomplete according to a 2014 study that’s cited; and not much information is available about where the waste is coming from, going to, or how it gets there.  West Virginia Department of Environmental Protection officials say most information that does exist about oil and gas production and waste disposal procedures is available online. What information isn’t public can be accessed with a fee and a Freedom of Information Act request.   Steinzor’s report argues that states don’t require enough information and often rely on operators to self-report in good faith. The Earthworks report cites a 2013 study that says nearly half of all liquid oil and gas waste is shipped out of state, the remainder is injected underground. But Amy Mall from NRDC says rules for injection wells everywhere are also in need of attention.  “We think the rules for those disposal wells need to be much stronger than they are now because those disposal wells are not designed to handle toxic waste.”

22 Finger Lakes Municipalities Say No to Gas Storage  - At the close of Tuesday night’s Board meetings, the Towns of Varick (3-1) and Seneca Falls (unanimous) added their votes against Crestwood’s proposed gas storage and transport facility in Schuyler County.  On the heels of last month’s unanimously passed City of Syracuse Resolution, these additions comprise 21 municipalities surrounding Seneca Lake and throughout the Finger Lakes region, representing nearly 760,000 constituents, who are urging Governor Andrew Cuomo to deny permits for gas storage to Texas-based Crestwood Midstream. “The Seneca Falls Canal Harbor is the historic gateway to the Finger Lakes.  It’s the birthplace of Women’s Rights, among other social and religious reforms that have been supported by local residents.  We are pleased that they are standing up for their right to clean water and air and against the dirty industrialization that Crestwood proposes. This is the most basic of human rights, after all,” says Yvonne Taylor, co-founder of Gas Free Seneca. The map of opposition continues to grow, making it increasingly difficult for Governor Cuomo to ignore the pleas of his voters in the Finger Lakes Region.  At their regularly scheduled Town Board Meeting Wednesday the Town of Ovid, in a surprise move, brought to the floor a resolution opposing Crestwood Midstream’s gas storage plans on Seneca Lake. In the discussion preceding the vote, one Board member said that he had been out talking to Town residents about the gas storage in anticipation of the issue coming up. He said that he hadn’t found one Town resident who was in favor of the project.

A Ticking Time Bomb for NYC  -- A very large gas pipeline will soon skirt the Indian Point Energy Center (IPEC), an aging nuclear power plant that stands in the town of Cortlandt in Westchester County, New York, 30 miles north of Manhattan. The federal agencies that have permitted the project have bowed to two corporations – the pipeline’s owner, Spectra Energy, and Entergy, which bought the Indian Point complex in 2001 from its former owner.  A hazards assessment by a former employee of one of the plant’s prior owners, replete with errors, was the basis for the go-ahead. A dearth of mainstream press coverage leaves ignorant the population that stands to be most impacted by a nuclear catastrophe, which experts say could be triggered by a potential pipeline rupture. I urge Truthout’s audience to read an earlier article by Alison Rose Levy, which includes details I haven’t space to recap here. Since 2011, Spectra Corporation, owner of the 1,129-mile Algonquin Pipeline, which runs from Texas to Beverly, Massachusetts, where it connects with another pipeline running into Canada, has sought to expand the pipeline in order to transport fracked gas north from Pennsylvania. Spectra, one of the largest natural gas infrastructure companies in North America, calls the planned enlargements “The Algonquin Incremental Market Project” (AIM). “I have never seen a situation that essentially puts 20 million residents at risk, plus the entire economics of the US.”  AIM includes a two-mile section of 42-inch pipe carrying gas under very high pressures. It is this pipeline segment that will flank IPEC, which stands in a seismic zone. The nuclear complex has a derelict history. In 2001, The New York Times reported that “the plant has encountered a string of accidents and mishaps since it went into operation on June 26, 1973.” The IPEC has also been on the federal list of the nation’s worst nuclear power plants.

Fracking Dean Skelos – Frackers NY Bag Man to be Indicted -  -- The frackers thought they could buy their way into New York by simply bribing the right state officials -the way they did in Fracksylvania. No one was more important to that strategy than Dean Skelos, who controlled what got out of committee in the Senate. The fractavists always figured the guy for a crook. Which he is.  Dean Skelos Target of Corruption Case State Senate leader Dean Skelos and his son are being probed by the US Attorney’s Office, which has convened a grand jury and presented evidence about possible corruption in the latest claim of ­financial misconduct to rock ­Albany, sources said.  The Long Island Republican was targeted by US Attorney Preet Bharara over Skelos’ relationship with an Arizona contracting company that hired Skelos’ son, Adam — and that was awarded a lucrative Nassau County contract, according to a report in The New York Times. The company, AbTech Industries, received a storm-water-treatment contract despite not having submitted the lowest bid, the Times said. Law-enforcement sources told The Post that state senators have been subpoenaed in the investigation and evidence in the probe has been presented to a grand jury.

From the East Coast, Bakken Oil's outlook not so bad - Philadelphia Energy Solutions, operator of the East Coast’s biggest refinery at its 357,000-Bbl/d capacity, runs two high-speed rail unloaders every day, moving Bakken crude from two 100-car CSX “unit” trains each, some 70 percent of its refining capacity. And according to materials distributed at Philadelphia Energy’s downtown headquarters, two other rail unloaders are in the works. One is to unload butane, likely from the rich-gas fields of Southwest Pennsylvania and West Virginia and plays as far away as Texas, but the other one is for crude oil. Just down the Delaware River shore at Eddystone, Pennsylvania, another unloader takes crude from two Norfolk Southern unit trains and loads it onto a barge for transport to Delta Airlines’ subsidiary Monroe Energy, to be refined into jet fuel, kerosene and diesel in its 205,000-Bbl/d plant, with any gasoline produced sold off to a retail partner. At Delaware City, south of Wilmington, Delaware, PBF Energy’s 190,000-Bbl/d refinery operates another rail unloader. Its capacity is much less than Philadelphia Energy’s, but company press releases say its uptake is being increased. And what does get unloaded is shared, barged across the Delaware to Paulsboro, to PBF’s 180,000-Bbl/d New Jersey refinery.

More oil moves by rail, and it moves here: About half the crude oil that now moves by rail in America is bound for Mid-Atlantic states, mostly refineries near Philadelphia, data from the U.S. Energy Department show. More than 33.7 million barrels of crude were shipped by rail in January, a fiftyfold increase from 630,000 barrels in January 2010, according to the U.S. Energy Information Administration (EIA). That tremendous growth in crude-by-rail shipments - which already has triggered safety concerns after a series of fiery oil-train derailments - has broader implications for regional transportation systems and foreign trade. Shale oil, whose production has boomed in the upper Midwest, the Rocky Mountains, and Texas, has displaced imported oil mostly delivered by ships. That oil trade has sailed on to other ports. "This whole marketplace is changing," . "Whatever anybody thought about the energy marketplace 10 or 20 years ago, it has changed." Imports of crude oil to the United States fell 21 percent from 2009 to 2014, a decline offset by big increases in rail-borne imports of Canadian heavy crude from oil sands, according to the EIA. On the East Coast, where refiners were formerly tethered to overseas suppliers, oil imports dropped 47 percent from 2009 through 2014. According to the EIA, most of the regional decline has come at the expense of African oil producers - Nigeria, Angola, Gabon, and Equatorial Guinea.

Shale Gas Opponents Shout Down Industry Speaker at Philadelphia LNG Session -- Anti-fracking protestors late Thursday disrupted a public information session on the possibility of building a liquefied natural gas export terminal in Philadelphia, shouting down speakers from the industry and finally being ejected by security officers. About half a dozen protestors repeatedly interrupted an opening presentation at Drexel University by Jason French, Director of Government and Public Affairs for Cheniere Energy which is building two LNG export terminals in Louisiana and Texas at a combined cost of $34 billion. “We are not interested in hearing from this liar,” one protestor shouted at French as he began his presentation. Another accused the industry of wanting to create a “sacrifice zone” in its plans for a complex of refineries, petrochemical plants and oil and gas transportation facilities, known as the energy hub, in Philadelphia. French made several attempts to restart his talk but was repeatedly shouted down by protestors who accused the company of wanting to “poison” air and water; of operating a “ponzi scheme” to profit from the people of Philadelphia, and of ignoring a “list of the harmed” containing names of some 6,000 people who say their health has suffered from unconventional gas development. One protestor demanded that the event provide equal time for opponents of an LNG terminal to speak, and called for the agenda to include a discussion of public health. But City Councilman David Oh, who chaired the discussion, refused to change the agenda, and told the protestors that they were preventing an informative session for most of the approximately 100 people attending the event, titled “LNG Exports – Exploring the Possibilities in Philadelphia.”

North Carolina’s Governor Says Offshore Drilling Should Be Closer To Beaches - A new federal proposal to allow offshore oil drilling from Virginia to Georgia is receiving some pushback from North Carolina Governor Pat McCrory, who on Wednesday said drilling should be allowed even closer to his state’s renowned beaches and fishing grounds than is currently being considered Testifying before a House of Representatives panel on energy and mineral resources, McCrory first hailed the Obama administration’s offshore drilling plan for the Atlantic as an economic boon. But he then decried the proposal’s inclusion of a 50-mile “buffer zone” — an area where drilling is not allowed to occur — designed to reduce conflicts with other coastal industries like tourism and fishing, and mitigate impacts on coastal wildlife. The buffer zone would extend from Georgia’s southern border to Virginia’s northern limit. In his testimony, McCrory criticized the buffer zone as putting too much of the offshore resources “under lock and key.” Similarly, in a recently publicized letter to Secretary of the Interior Sally Jewell, McCrory requested that the protective buffer be shrunk to just 30 miles, to allow drilling to occur 20 miles closer to North Carolina’s beaches than they would be under the Obama administration’s plan. “North Carolina’s coastal and ocean activities would be undisturbed and the viewshed from any of our 320 miles of ocean beaches and shoreline would remain unobstructed with buffer reduction to 30 miles,” he wrote.

1 dead, 1 injured in gas plant explosion — Authorities say one person is dead following an explosion at a Tampa Bay area gas plant. Tarpon Springs police say the accidental explosion occurred Thursday afternoon at MagneGas Corp., an alternative energy company. Officials say one man was found dead, and another was flown to a St. Petersburg hospital with serious injuries. Police weren’t immediately naming the victims. About two dozen other workers were evacuated from the area. Tarpon Springs Fire Rescue reports the scene is secure. The State Fire Marshal’s Office is investigating the cause of the explosion. According to the MagneGas website, the company converts liquid waste into a hydrogen-based fuel, which can be used for metal cutting, cooking, heating and powering natural gas bi-fuel automobiles.

DEATH in the Oil Patch - At least nine oil workers have died since 2010 from inhaling toxic amounts of vapors while measuring crude oil in storage tanks at well sites, according to new findings by federal researchers. The National Institute for Occupational Safety and Health report, posted Friday, documents a poorly understood hazard in the oil field from volatile hydrocarbons, also called volatile organic compounds, or VOCs. Many oil workers and supervisors don’t realize the petrochemicals can kill (EnergyWire, Oct. 27, 2014). “These deaths are tragic — especially since they can happen suddenly and without warning,” said Robert Harrison, an occupational medicine physician at the University of California, San Francisco, who has been researching such deaths. “It is very important that safety programs are in place to prevent workers from breathing toxic chemicals when they gauge or sample tanks.” All crude oil has compounds called volatile hydrocarbons such as benzene, butane and propane. Shale crude sometimes has more of these compounds than conventional oil. It’s related to why shale oil is more prone to explode in rail cars. The chemicals bubble up from the crude oil and collect in storage tanks. “These conditions could occur due to high concentrations of gases and vapors inside the tank which are released in a burst of pressure as the tank hatch is opened by the worker for manual gauging or sampling operations,” NIOSH officials wrote in the Friday posting.

Emergency crews still trying to replug gas well in southwest Arlington  City of Arlington crews, gas well operator Vantage Energy and Boots and Coots, a well control company, worked through the night to resolve a gas well mishap in southwest Arlington. Boots & Coots attempted to replug the gas well at 4 a.m., but was unsuccessful, the city of Arlington said on its website. “Boots and Coots will be bringing in additional resources to replace the gas wellhead as quickly and safely as possible,” the city said. “While there has been no gas released to this point, the possibility exist that a release could occur. All citizens are asked to stay away from the area impacted by this gas well incident.” The incident involved “flow back of pressurized fracking water” at the well site along Little Road, according to officials. Crews were to initiate a new well control effort at 8 a.m., according to the city.  Current limited evacuation plans for residents on Oak Bourne Drive, Englishtown Drive, Willowdale Drive and Jewell Drive remain in effect. The city said it would provide regular updates on social media. The evacuation was deemed necessary after the well site, run by Vantage Energy, had an issue “that resulted in flow back of pressurized fracking water” at just before 3 p.m. Saturday, officials said.  At 8 p.m. Vantage Energy tried to control the well by injecting mud; when that did not work, the well-control company Boots and Coots was called.

Evacuation zone expanded near Arlington gas well - The evacuation area around an uncontrolled natural gas well in southwest Arlington has been widened, officials said Sunday just after noon. A statement from the city says residents within an eighth-of-a-mile of the well on Little Road are being asked to evacuate. The Red Cross has opened an Emergency Evacuation post at Martin High School, 4501 W. Pleasant Road in Arlington. Also, a resident information center is open at the Arlington Fire Training Center, 5501 Ron McAndrew Drive. Residents must go to the fire training center for hotel vouchers, officials said. Vantage Energy is providing the vouchers. So far, 10 people have claimed vouchers today, a fire official said. As of 11:30 a.m., no gas release had taken place. A third effort to plug the well was expected to be underway at noon. As a precaution, the fire department evacuated 13 homes Saturday near the Lake Arlington Baptist Church drill site on Little Road after Vantage Energy called 911 to report that natural gas was pushing pressurized fracking water out of the well. The area around the drill site remains closed. Efforts to plug the well Saturday night and early Sunday morning were unsuccessful. “We did evacuate a neighborhood to the east and a street to the west as a precaution. Now that these well control efforts have not worked, we are in the next-step decision-making process,” Fire Chief Don Crowson said Sunday morning.

Texas Railroad Commission to rename Arlington gas well blowout well  - Boots & Coots, a Halliburton well control services company, has been working through the night to get control of an Arlington gas well blowout in a neighborhood. So far, attempts to get control have been unsuccessful. This is the first blowout in a neighborhood since Rep. Drew Darby filed HB 40, a bill to “preempt most regulation of oil and gas operations by cities and all other political subdivision.” Texas Railroad Commission to rename neighborhood blowout wells.  The Texas Railroad Commission (RRC) has announced a new naming system for neighborhood oil and gas wells that experience blowouts. Commissioner Craddick issued a prepared statement: The oil and gas industry is king in our great state and will rule in every Texas neighborhood. We expect to see more frequent minor upsets such as the one in the Arlington neighborhood as regulations loosen. In honor of those neighborhoods that survive, the Commission has developed a new system of renaming neighborhood blowout wells.  The minor upset at Vantage Energy’s Lake Arlington Baptist Church well where hazmat crews are on the scene, has caused neighborhood evacuations, a no fly zone, and is currently attended by over 40 fire fighters and Boots & Coots. The latest update from the Arlington Fire Depart Facebook page:“City of Arlington crews, Vantage Energy and Boot and Coots, a well control company, worked through the night to resolve a gas well incident located in the LABC gas well in Southwest Arlington. Boots & Coots well control attempted to re-plug the gas well at 4:00 a.m., but was unsuccessful in their attempt. Boots and Coots will be bringing in additional resources to replace the gas wellhead as quickly and safely as possible. While there has been no gas released to this point, the possibility exist that a release could occur. All citizens are asked to stay away from the area impacted by this gas well incident.”

Crews begin oil spill cleanup in West Odessa - Crews with DCP Midstream and the Ector County Environmental Office are assessing an oil spill that took place Tuesday afternoon in West Odessa. Environmental office officials said they were called to Moss Avenue and West Third Street about oil coming from the ground. The low-pressure pipeline, according to Scott McMeans, supervisor at DCP Midstream, was a natural gas line that leaked due to corrosion causing oil to flow out. McMeans said that sometimes when oil producers have an upset at their tank batteries they can carry oil through the natural gas line, which was the case with the line that leaked Tuesday afternoon. “It is unintentional by both parties but it happens from time to time,” McMeans said. McMeans also said that clean up would take about 48 hours and about two barrels of oil were released until the line was shut off.

1,400 Eagle Ford wells drilled, but uncompleted, IHS says - Just because the market is down doesn’t mean companies operating in the Eagle Ford are giving up their leasing agreements or abandoning their assets. According to a new analysis from the IHS, almost 1,400 wells in the South Texas fields have been drilled but not completed (DUC). Oil production businesses are trying their best to deal with a slumping market. Therefore, wells are being drilled but not advancing to the next step of hydraulic fracturing operations. Thanks to the 50 percent drop in the price of oil from 2014 highs, companies are doing what they can to refrain from pushing more petroleum commodities into an unforgiving market.  According to a press release from IHS, this tactic could give a select few operators an advantage over competitors. Nearly 40 percent of those 1,400 delayed wells have a break-even costs below $30 per barrel. IHS lists BHP Billiton, Chesapeake, Anadarko Petroleum, EOG Resources, ConocoPhillips and Pioneer Resources as the companies who are benefiting from the drilled-but-not-completed well tactic. Thirty-three other operators account for the remainder. “In this low oil-price environment, operators in the Eagle Ford and other U.S. shale plays are focused on optimizing the value of their assets and managing their costs, and these drilled, but uncompleted wells enable them to do that more effectively for several reasons,”

Texas House Bill 40 Frack Anywhere Limps Sideways - Texas HB 40, Frack Anywhere,  limped out of committee as of last night, with some feel good wording that leaves the bill as poorly worded as it began: “The bill prohibits a municipality or other political subdivision from enacting or enforcing an ordinance or other measure, or an amendment or revision of an ordinance or other measure, that bans, limits, or otherwise regulates an oil and gas operation within the boundaries or extraterritorial jurisdiction of the municipality or political subdivision.” The key word above is “limits” – since a land use plan, ie. zoning limits where industrial activities may take place, as written, the bill could be construed to negate zoning, meaning Frack Anywhere, even in a single family residential district. “The bill expressly preempts the authority of a municipality or other political subdivision to regulate an oil and gas operation but authorizes a municipality to enact, amend, or enforce an ordinance or other measure that regulates only aboveground activity related to an oil and gas operation that occurs at or above the surface of the ground, including a regulation governing fire and emergency response, traffic, lights, or noise, or imposing notice or reasonable setback requirements; that is commercially reasonable; that does not effectively prohibit an oil and gas operation conducted by a reasonably prudent operator; and that is not otherwise preempted by state or federal law.” Note that they say that the municipality can regulate “aboveground” activity that occurs “at or above the surface” – which is a bit redundant. then list examples – such as noise ordinances, setbacks, traffic; but do not mention land use ordinances, ie. zoning. By the same token, they do not expressly override zoning ordinances, since land use ordinances the exclusive prerogative of municipalities in Texas under the state constitution and the state has no land use rules and regulations for oil and gas activities.

Texas pushes forward with bill that would ban fracking bans — The Texas state House of Representatives has passed a bill that would block cities in Texas from banning the controversial oil and gas exploration method known as hydraulic fracturing, or fracking. After an overwhelming vote of 122-18, the proposal – House Bill 40 – advanced to the state Senate, where lawmakers have not taken up the bill just yet. The bill featured 70 co-sponsors and had the support of the oil and gas industry.  The House vote comes just a few months after voters in a small Texas town called Denton approved a measure that banned fracking in the area. Denton was the first Texas city or county to ban the practice, the oil industry has already filed a lawsuit seeking to reverse the prohibition.  On Friday, Rep. Drew Darby (R-San Angelo), who introduced the bill, said the ban on banning fracking was needed to ensure that cities didn’t implement different regulations that harm the state’s economy.  “In the absence of this bill, a statewide patchwork of oil and gas regulation is likely,” Darby said to the Houston Chronicle.  Notably, similar comments were made by the Texas Oil & Gas Association, which is also suing Denton. “HB 40 is a welcome solution because Texas can't afford a patchwork of regulations for an industry that supports 40 percent of our economy,” the association tweeted after the vote, Reuters reported.  However, opponents say the measure would also take aim at measures passed by local communities addressing health, safety and more.

Texas House approves so-called ‘Denton fracking ban’ bill —House lawmakers moved to bar cities from banning fracking and enacting a wide variety of other oil and gas-related ordinances in an action that critics call an affront to local control. Backers rebuffed arguments that the bill would overturn ordinances that have long been in place in some cities. Municipalities would still be able to adopt ordinances that help to mitigate traffic, noise and some setbacks, they said. The bill won approval from the House 122-18. “This strikes a fine balance,” said Rep. Drew Darby, R-San Angelo. “We tried to use a rifle shot to accommodate the needs of this growing state and the needs to develop the oil and gas resources, and yet protect the citizens of this great state.” But some Democrats argued that municipalities need to have the say in order to protect public health and safety. The bill could also lead to more litigation between cities and the oil and gas industry, opponents said. “As it is currently written, it would be a gold mine for lawyers,” said Rep. Sylvester Turner, D-Houston. The “commercially reasonable” standards for oil and gas ordinances would be a “legal haven” for lawyers to challenge, he said.

Texas House approves gutting municipal fracking bans (Reuters) - The Texas House overwhelmingly approved a bill on Friday that would give the state the exclusive right to regulate the oil and gas industry, and gut the power of municipalities to pass anti-fracking rules. In Texas, the top U.S. crude producer and the birthplace of fracking, the bill also needs to be passed by the state's Senate and signed by the governor before it becomes law. State lawmakers have been under pressure to halt an incipient anti-fracking movement since November, when voters in the town of Denton voted to outlaw the oil and gas extraction technique behind the U.S. energy boom.  Operators say it is safe, but many environmental groups oppose the practice - calling it wasteful, polluting, dirty and noisy.

Texas House OKs rules to prohibit city fracking bans  - Cities and counties in Texas could no longer prohibit hydraulic fracturing under an oil and gas industry-backed measure overwhelmingly approved by the House. The bill passed Friday comes months after the city of Denton banned local fracking over environmental and safety concerns. That ordinance is now being challenged by lawsuits brought by the state and industry groups. Republicans say the new restrictions are needed to prevent a patchwork of drilling laws from spreading across Texas. The bill has been among the most contentious in Republican Gov. Greg Abbott’s first session. Abbott has stayed clear of the heated debate but has criticized local governments for what he calls overregulation. The Senate still needs to take action on the bill before it goes to Abbott’s desk.

Oil, gas spill report for April 14 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks.  . Noble Energy Inc., reported on March 8 that a production tank developed a hole, outside of LaSalle. It is approximated that less than 100 barrels of oil spilled. The site did not contain a liner or ring. A remediation has been scheduled and all equipment has been shut in. Noble Energy Inc., reported on March 7 that during operations a flowline leak was discovered outside of Keenesburg. It is approximated that less than five barrels of condensate and less than five barrels of produced water spilled. Repairs were made and production equipment was shut in. Bonanza Creek Energy, reported on March 6 that when BCEI contractors were preparing to reinsert a well rod when oil spilled onto the well pad outside of Kersey. It is approximated that less than five barrels of oil spilled. A rod was inserted into the tubing and closed to stop the release.  Bayswater Exploration, reported on March 3 that residual contamination from a much older release was discovered outside of Johnstown. . Bayswater is working with Great Western to determine the next step to properly clean the location. Kerr McGee Oil & Gas, reported on March 2 that during abandonment activities hydrocarbon impacts were discovered, outside of Fort Lupton. It is unknown the amount of condensate spill and produced water that spilled, but it is approximated that less than five barrels of fluid spilled. Approximately 40 cubic yards of material was excavated for disposal. Groundwater samples were collected and submitted to a laboratory, results revealed that benzene, toluene and total xylenes concentrations were above COGCC standards. Excavation activities are ongoing.

Cheyenne residents: 150 feet is not enough - Wyoming recently set a new guideline requiring oil and gas producers to operate an additional 150 feet away from homes, but some residents say that’s not enough, according to Sheridan Media. “If the governor think 150 feet is going to make a damn bit of difference with a 10-acre pad, he’s out of his mind,” said Wayne Lax, a homeowner near Cheyenne. The new rules, which were enacted earlier this week, require new projects to develop at least 500 feet away from homes, as opposed to the previous distance of 350 feet. Additionally, operators must notify all residents within 1,000 feet of a well pad and submit a plan to mitigate issues such as noise, light nuisance and traffic. Setback proponents say that the increase is an improvement, but not nearly enough to sufficiently shield residents from noise, dust, traffic and toxic emissions. However, the Wyoming Oil and Gas Conservation commission said that “there is no definitive science or data with regard to the energy development effects on human health which provides any clear guidance in setting setback requirements.”

Judge supports Sandpiper pipeline in northern Minnesota - Enbridge Energy’s plans for a new pipeline to carry North Dakota crude oil across northern Minnesota got a major boost Monday when an administrative judge concluded that the Sandpiper project is needed — and that other proposed routes are not as good. The finding by Administrative Law Judge Eric Lipman is not the final word on the $2.6 billion proposed pipeline. But it was a clear defeat for environmental groups, which questioned the need, pointed to the risk of spills and suggested six alternative routes. “Everyone agrees that an oil spill in Aitkin County or Carlton County would be very bad,” Lipman wrote in a 104-page ruling released late Monday. “Whether it would be better, or less likely, for a pipeline to break in another community, nobody can say for sure.” The route favored by Enbridge takes a Z-shaped path, running east from the North Dakota border into Clearbrook, Minn., where Enbridge owns an oil terminal. Then the line would turn south toward Park Rapids following existing crude oil pipelines and run east to Superior, partly on a transmission line right of way. North Dakota has approved its portion of the 610-mile pipeline from the Bakken oil region. Much of the Minnesota route is unpopulated, yet it runs through a region covered with wetlands and lakes. Lipman concluded that Enbridge’s proposed route “does the best job of minimizing potential impacts to human populations and environmental resources.” Denying the company a certificate of need “would have an adverse effect on the future adequacy, reliability and efficiency of energy supply” in Minnesota and other states, he wrote.

Bakken Shale Oil Well Output Drops To Lowest Since 2009 --  In addition to the EIA's amusing oil price forecast, which as noted previously leaves quite a bit to be desired considering it was a year ago that the EIA completely failed to anticipate the plunge in crude prices, which have collapsed far below its worst case estimate... there is another more substantial problem with the EIA predicting a consistent increase in oil output for the next 25 years.  That something is revealed when looking at the most recent Bakken shale production data, which earlier today revealed yet another month of declining total output, which after peaking in December is at 1.2 million barrels per day, as can be seen on the chart below.  However, it is not the total output, but the productivity of any given well that is troubling. As can also be seen on the chart below, the output per Bakken well has tumbled to 3,410, down from the 3862 recorded the month before, and the lowest since early 2009.Something is off: either US oil production is set to tumble, leading to another junk bond, and equity, rout among the energy companies (which as noted earlier are now trading at a near record high 32x forward PE), or oil production will continue rising and lead to another steep drop in prices, because without a dramatic pick up in demand, all this extra oil is merely piling up in Cushing and in various other storage hubs around the country, where it is merely awaiting for the tiniest increase in oil prices before hitting the market.

N.D. sees second consecutive monthly drop in oil output - North Dakota’s oil production declined in February for the second consecutive month as drilling new wells slackened amid low oil prices. State regulators said Tuesday that February’s output was just short of 1.18 million barrels per day, down 50,435 daily barrels since December, which was the state’s all-time high. It was the first consecutive two-month drop since January 2011. The number of rigs drilling for North Dakota oil and gas dropped to 91 this month, down from 108 in March and 160 in February, according to data released by the state Department of Mineral Resources. The peak of drillings was 370 rigs in October 2012, the department said in its Director’s Cut report. The average wellhead price for North Dakota crude oil fell to $31.47 per barrel in March, but has recovered to $36.25 per barrel, the report said. The average price is based on light sweet crude prices posted at a Twin Cities refinery, minus delivery costs. The report said the number of uncompleted wells in North Dakota rose to an estimated 900 at the end of February as drillers decided to hold off on the final step — injecting water, sand and chemicals to free gas and oil in the Bakken or Three Forks shale layers.

Man Camps Become Ghost Towns - Drillers spent big to house workers in the new boomtowns. No more.  At the peak of the fracking boom a few years ago, Jeff Myers converted his South Texas hunting camp into rental oilfield housing. Little wonder: The industry had an almost insatiable hunger for the grunt laborers—the roughnecks—to work the fields, and employers were happy to spend whatever it took to house and feed them. Today that boomtown demand—and $100-per-barrel prices—is a bittersweet memory, and occupancy at Myers’s once-packed Double C Resort has dropped to 10 percent as job cuts take hold. “There aren’t going to be any winners down here,” he says. “Everybody’s going to have to adjust.”  America’s oilfield “man camps”—as the industry calls them—are turning into ghost towns as drillers cut back the free housing, food, and air travel once used to lure shale boom workers. The mini-settlements that sprang up throughout drilling regions in Texas, North Dakota, and Colorado are fading away as energy companies look to slash as much as $114 billion in spending this year, says a Cowen Group survey, and lay off tens of thousands of employees. “The money flies” when the oil field’s booming, says Milton Allen, who’s built and developed facilities for the oil industry for the past 15 years and operates a 12-room man camp in the Eagle Ford Shale in South Texas. “Then when the market starts to trim down, the money stops.”

EOG has lion's share of 900 North Dakota wells awaiting fracking - Oil producer EOG Resources Inc has the lion’s share of an estimated 900 North Dakota wells waiting to be fracked, according to state data, showing that even major oil titans are mothballing operations while they hope for a rebound in oil prices. For months the conventional wisdom in North Dakota’s Bakken shale formation had been that smaller producers with weak cash flow comprised the bulk of that estimate. While the estimate had been published monthly, it was not clear until a Tuesday update from the state’s Department of Mineral Resources (DMR) who was dominating the list. Oilfield service companies have aggressively sought the information, hoping to drum up new business. By late May, the number of wells waiting to be fracked is expected to breach 1,000, DMR officials said, fueled largely by cheap oil and a $5.3 billion industry tax break expected to hit in June. Oil producers have up to a year to frack the wells before they must ask state officials to label them “temporarily abandoned.” The fact that industry stalwarts like EOG are having to hold off on fracking new wells shows how much low prices make the remote Bakken far less economical compared to other U.S. shale plays.

House panel guts funds for North Dakota rail safety program - — North Dakota House budget writers have stripped funding for a state-run rail safety program intended to supplement federal oversight of burgeoning oil train traffic after a string of accidents involving trains carrying crude. The Public Service Commission had requested $972,000 in the next two-year budget cycle to fund the program that included two rail safety inspectors and a rail safety manager to supplement inspections by the Federal Railroad Administration. The program had been a campaign platform for Republican Public Service Commissioner Julie Fedorchak when she ran for the position last year. GOP Gov. Jack Dalrymple also had included the funding for the program in his budget, but the House Appropriations Committee on Tuesday cut the funding in the agency’s budget request. The Senate in February unanimously approved the funding for the PSC, which regulates everything from auctioneers to pipelines. The full House has yet to adopt the budget panel’s recommendation. “I’m disappointed,” Fedorchak said, adding that she was hopeful the funding would be reinserted by the House, or when House and Senate budget writers meet to work out the differences in the bill. Opponents of the funding, including Underwood Republican Rep. Jeff Delzer, who is chairman of the Appropriations Committee, said the additional state inspectors are not needed.

Transportation officials issue oil train safety measures -— An emergency order requiring trains hauling crude oil and other flammable liquids to slow down as they pass through urban areas and a series of other steps to improve the safety were announced Friday by the Department of Transportation. The Obama administration has been under intense pressure from members of Congress as well as state and local officials to ensure the safety of oil trains that traverse the country after leaving the Bakken region of North Dakota. To get to refineries on the East and West coasts and the Gulf of Mexico, oil shipments travel through more than 400 counties, including major metropolitan areas such as Philadelphia, Seattle, Chicago, Newark and dozens of other cities. There have been a series of fiery oil train explosions in the U.S. and Canada in recent years, including one just across the border in Lac-Megantic, Quebec, that killed 47 people. Major freight railroads have already limited oil trains to no more 40 mph in “high threat” urban areas under a voluntary agreement reached last year with Transportation Secretary Anthony Foxx. But Friday’s order makes the speed limitation a requirement and extends it to trains carrying other flammable liquids like ethanol. However, investigators have said the trains in most of the recent accidents were traveling at less than 40 mph but still derailed.

Port of Longview shows interest in siting oil refinery -- Documents obtained by an environmental group show the Port of Longview could become home to an oil refinery receiving 100- to 120-car unit trains loaded with crude from North Dakota’s Bakken shale formation. A slide presentation, an unsigned memo of understanding dated July 2014 and discussion points indicate the port has discussed a refinery project with Riverside Energy, Inc. Under a 50-year lease, Riverside would operate a 30,000-barrel-per day refinery, loading diesel, gasoline and jet fuel onto ships bound for “regional” primary target markets and for California as a “secondary target market,” documents show. Revelations of a proposed oil refinery at the Port of Longview underscore the increasing attention energy producers are putting on the Northwest as a hub for transferring crude and processing it into fuels. In a news release, Columbia Riverkeeper, which obtained the documents under the state’s public records law, said an oil refinery in Longview poses a new threat to public health and the environment. It also represents the first proposal to build a refinery on the West Coast in more than 25 years, the group said. Refineries “are extremely dirty and emit toxic pollution,” Brett VandenHeuvel, executive director for Columbia Riverkeeper, said Wednesday. In Oregon and Washington, 11 refineries and port terminals are being planned or built or already operating oil-by-rail shipments, according to Sightline Institute, a Seattle-based nonprofit that focuses on sustainability issues. In Clark County, Tesoro Corp., a petroleum refiner, and Savage Companies, a transportation company, want to build the nation’s largest rail-to-marine oil transfer terminal at the Port of Vancouver. The facility would receive an average 360,000 barrels of crude per day.

U.S. shale boom nears turning point -- Oil production from major U.S. shale plays will decline by almost 60,000 barrels per day between April and May according to new estimates from the Energy Information Administration. Production is expected to decline in the Bakken, Niobrara and Eagle Ford plays next month. Only the Permian Basin is expected to post a small month-on-month increase in output (“Drilling Productivity Report” Apr 2015). With the number of rigs drilling for oil in the United States down by almost 53 percent in just six months, according to oilfield services company Baker Hughes, the shale boom appears to be approaching a turning point. The crude market remains substantially oversupplied as a result of past production, but the degree of excess supply should narrow in the coming months. The attached chartbook presents a selection of contemporary indicators for supply, demand, stocks and prices, including spreads, in the U.S. oil market. To view the chartbook, click here.

Interior Secretary Defends Government’s New Rules For Fracking On Public Lands -- Department of Interior Secretary Sally Jewell hit back against criticism to her department’s recently announced rules on hydraulic fracturing on public lands Thursday, saying that the rules were a needed update to the former set of regulations. Speaking to press after an event at the Center for American Progress, Jewell said that the rules’ treatment of wastewater disposal and chemical disclosure in fracking projects on public lands are important for public safety. “It’s been four or five years in the making,” she said, adding that the department had made adjustments to the regulations based on the 1.7 million comments they got on the proposed rules. “It’s really important that the public be reassured that groundwater is protected, that frack fluids are disclosed in terms of whats in them, and their disposed of properly.”The Interior Department’s Bureau of Land Management announced its final rules for fracking on public lands in March, regulations that will require oil and gas companies to disclose the chemicals they use when fracking on protected lands and prohibit the companies from storing wastewater in open pits on these lands. Some environmental groups had wanted to rules to go further in protecting public lands from oil and gas development, however — a group of five large groups called the regulations “toothless.”Jewell also said Thursday that though it’s her agency’s job to ensure that the regulations put in place protect the public, the oil and gas industry also has a role to play in educating the public about their practices.

EIA: U.S. to become a net exporter of natural gas by 2017 - The United States will transition from a net importer of natural gas to a net exporter of the fuel by 2017 as the nation’s shale gas production continues to grow, the U.S. Energy Information Administration said on Tuesday in its Annual Energy Outlook. In its 2014 outlook, the EIA forecast the U.S. would become a net exporter of gas before 2020. The EIA said increases in domestic gas production are expected to reduce demand for gas imports from Canada and support growth in exports to Mexico, Asia and Europe. Net gas exports would continue to grow after 2017, with annual net exports reaching 3.0 trillion cubic feet to 13.1 tcf in 2040, the agency said. The United States produced a total of 24.4 tcf of dry gas in 2013 and was expected to produce between 31.9 tcf to 50.6 tcf in 2040, according to the report. There are four LNG export terminals under construction in the United States in Maryland, Louisiana and Texas. The four terminals have contracts to export gas to customers in Asia and Europe and are expected to enter service between 2016 and 2019. In addition, there are more than half a dozen pipeline projects to move gas from the United States to Mexico under construction or in development with some expected to enter service over the next few years.

EDF And The Frackers - Is This Fracking Industry Flak Playing Both Sides?   Inside Climate News has revealed that a key leader of oil and gas industry front groups that oppose new fracking regulations may have been playing both sides of the issue. In an investigation into the funding of the Environmental Defense Fund’s (EDF) work on oil and gas regulation, Inside Climate News discovered that a key EDF funder had hired FTI Consulting’s David Blackmon to promote fracking regulations. Unbeknownst to his employer, Blackmon is a longtime oil industry consultant who is paid to oppose regulation of the fracking industry.  The funder in question is the Cynthia and George Mitchell Foundation, established by the late George Mitchell, known as the “father of fracking.” George Mitchell owned and operated Mitchell Energy, the first company to combine horizontal drilling and hydraulic fracturing in the Barnett shale, which sparked the “shale revolution.” Mitchell created the foundation with part of the $3.5 billion sale of Mitchell Energy to Devon Energy. The Mitchell Foundation describes itself as “a grantmaking foundation that seeks innovative, sustainable solutions for human and environmental problems.”While its goals seem noble, the fortunes of the foundation and the people who run it continue to be inexorably linked to the success of the oil and gas industry. The foundation itself has more than $38 million in stock in Devon Energy. Three of George Mitchell’s beneficiaries own over $21 million of Devon Energy apiece. Altogether the Mitchell Foundation and the Mitchell heirs own over one fifth of Devon Energy.

Schlumberger announces further job cuts, cost reductions - The world’s largest oilfield services provider, Schlumberger Ltd., reported its lowest first-quarter profit within four years and subsequent additional job cuts, according to Bloomberg news. The profit decline and job cuts are a result of the company’s customers cutting costs and the drastic reduction in overall spending due to current market prices and drilling slowdown. In a statement made by Schlumberger, net income fell to $975 million this year, the lowest level for the first quarter since 2011. A year prior, the company reported a net income of $1.59 billion. In a statement, Chief Executive Officer Paal Kibsgaard said, “We believe a recovery in U.S. land drilling activity will be pushed out in time, as the inventory of uncompleted wells builds and as the re-fracturing market expands.” The dramatic decline of drilling activity in North America was a major factor in the decision to further cut the company’s workforce. Related: Mass layoffs complicate oil industry’s long-term plans: Kemp In January, the company announced that it would cut 9,000 jobs. The additional 2,000 jobs to be cut will decrease the oil giant’s workforce by 15 percent when compared to the personnel employed in the third quarter of 2014. Kibsgaard stated, “We also anticipate that a recovery in activity will fall well short of reaching previous levels, hence extending the period of pricing weakness.”

Supply or Demand? The IMF Breaks Down the Collapse of Oil Prices - One of the most important questions for economists about the past year’s collapse in oil prices is whether it was driven by supply or demand. If the price drop was caused by increased supply, then it’s good news for the economy as prices fell simply because oil is available in more abundance. If prices fell because demand in the economy was weak, it would be bad news, signaling the economy’s fundamentals were deteriorating. In its latest World Economic Outlook, economists at the International Monetary Fund tackled the question. Their conclusion: It started out as a bad-news demand story, but turned into the good-news supply story.  To disentangle which factor was more important, the IMF looked at the change in global stock prices and oil prices every day and made an interesting set of assumptions: If stock prices and oil prices both decline, it suggests something unhealthy in the economy — or weak demand. If oil prices fall, but stock prices rise, it suggests a positive development has occurred — increased oil supply. The IMF’s chart, above, breaks down the cumulative percent change in oil prices (using a logarithmic scale), by whether the decline was driven by supply or demand. From late July to mid-October, the IMF’s approach suggests that most of the drop could be attributed to demand. The price of West Texas Intermediate crude oil declined from about $105 to about $82 in this period. The IMF model says this initial decline was 96% due to weakening global demand. But from mid-October until early January, the story changed. Oil prices dropped from $82 to $50 in this period. In these months, the decline was primarily driven by increased supply. The IMF attributes 58% of the drop at the end of last year to supply and only 42% to demand.

US Shale Oil Production Expected To Fall Next Month - Federal officials estimate monthly production from the nation's top shale oil reserves will decline next month. It's the first time the U.S. Energy Information Administration's Drilling Productivity Report forecasted a decrease since it debuted in October of 2013. Overall, production from the seven U.S. shale deposits tracked by the agency is expected to drop by 57,000 barrels per day between April and May, led by the Eagle Ford formation in Texas and the Bakken formation in North Dakota and Montana. Those areas — the second- and third-most productive shale regions, respectively — should show declines of 33,000 bpd and 23,000 bpd. The much less productive Niobrara formation, primarily in Colorado and Wyoming, should also see a decrease of 14,000 bpd. The Permian formation in Texas and New Mexico, the nation's most productive shale deposit, should see an increase of 11,000 bpd next month. The Utica formation in Ohio should produce about 2,000 additional bpd, while the EIA expects no change in either the southern Haynesville formation or the eastern Marcellus formation.Natural gas wells from those formations, meanwhile, should see a decline of 23,000 cubic feet per day next month..

‘EIA: U.S. shale oil output to fall in May, first drop in 4 years - Oil production from the fastest-growing U.S. shale plays is set to fall some 45,000 barrels per day to 4.98 million bpd in May from April, the first monthly decline in over four years, projections from the U.S. Energy Information Administration showed on Monday. The projected slip from 5.02 million bpd in April underscores how record crude production from the U.S. shale boom may be backtracking after global markets saw prices effectively slashed by 60 percent since June on oversupply and lackluster demand. Oil production from the Permian Basin of West Texas and New Mexico were forecast to rise 11,000 bpd to 1.99 million bpd, the smallest monthly increase since November 2013, according to the EIA’s drilling productivity report. Production from the Bakken formation of North Dakota will fall 23,000 bpd to 1.3 million bpd. Eagle Ford oil production in South Texas will fall 33,000 bpd to 1.69 million bpd, the largest monthly drop since EIA began tracking the data in 2007. Meanwhile, new-well oil production has accelerated as drillers look to squeeze more oil from rigs.  In the Eagle Ford, new-well oil production per rig rose by 20 bpd to 700 bpd in May. A month earlier, it rose by 22 bpd to 680 bpd, the fastest increase on record with the EIA. Similarly, Permian new-well oil production per rig rose by 36 bpd to 240 bpd in April and by 25 bpd to 265 bpd in May, the fastest increases on record with the EIA.

Has The U.S. Reached “Peak Oil” At Current Price Levels? -- Last night the EIA once again capitulated on the myth that rig counts don’t matter and the productivity of wells would largely offset, leaving the industry on a continuous path to higher output. The current consensus of 500,000 B/D additional growth in 2015 US production now appears very much at risk. Look how far we have come, folks, from all that media hysteria this past year. Yesterday, Reuters even wrote an article stating that the EIA prediction of a sequential decline in oil production in May vs. April would be the first, if proven, true prediction. Meanwhile, fact checking would indicate that this, in fact, occurred last week as reported here. In any event the EIA now thinks that production will decline 57,000 B/D in May counter to earlier expectations that the Permian would largely offset declines in the Eagle Ford and the Bakken. This is despite higher productivity of existing wells proving that rig count does matter and the market has underestimated the effects of high decline rates.  Further, the hysteria about Cushing overflowing with oil also appears unlikely to occur, as a result. Yet another in a string of attempts by the media to misconstrue the facts.   Now as a topper, we hear from the North Dakota Resource Management that amazingly February oil output fell 1% sequentially in the month despite producing wells increasing! Thus even the theory that well productivity would increase is dispelled. To reiterate, look for EIA to revise its oil production estimates for 1Q after the crisis wanes later in 2015. The warning in an article here sounded that producers reaching deep into the lower cost, most productive regions (which is clearly occurring in Bakken), would come at a price.

Crude Dips After EIA Forecasts Increased Oil Production For A Decade -- The EIA's annual energy outlook has something for everyone as it attempts to forecast energy markets out to 2040. For the bears, US crude oil production is expected to rise (even more than they had forecast last year - before the price collapse) as it seems, according to EIA the only thing more stimulative for oil production than high prices is low prices. For the bulls, EIA exuberantly forecasts prices soaring to over $240 by 2040 in a high growth environment. Crude prices are dipping modestly from their ramp highs.

EIA Projects "U.S. energy imports and exports come into balance, First time since the 1950s"  -- New long term projections from the EIA: Annual Energy Outlook 2015 and press release: EIA's AEO2015 projects that U.S. energy imports and exports come into balance, a first since the 1950s, because of continued oil and natural gas production growth and slow growth in energy demand U.S. net energy imports decline and ultimately end in most AEO2015 cases, driven by growth in U.S. energy production—led by crude oil and natural gas—increased use of renewables, and only modest growth in demand. Net energy imports end before 2030 in the AEO2015 Reference case and before 2020 in the High Oil Price and High Oil and Gas Resource cases (Figure 1). Significant net energy imports persist only in the Low Oil Price and High Economic Growth cases, where U.S. supply is lower and demand is higher. Continued strong growth in domestic production of crude oil from tight formations reduces net imports of petroleum and other liquids. Through 2020, strong growth in domestic crude oil production from tight formations leads to a decline in net petroleum imports and growth in product exports in all AEO2015 cases. The net import share of petroleum and other liquids product supplied falls from 26% in 2014 to 15% in 2025 and then rises slightly to 17% in 2040 in the Reference case. With greater U.S. crude oil production in the High Oil Price and High Oil and Gas Resource cases, the United States becomes a net petroleum exporter after 2020.

EIA: U.S. crude oil output to soar till 2020 despite price rout - The U.S. government on Tuesday forecast domestic crude production will rise even more than expected a year ago, undeterred by the worst price rout since the financial crisis. U.S. crude oil production will peak at 10.6 million barrels per day in 2020, a million barrels more than the high forecast a year earlier, according to the annual energy outlook by the Energy Information Administration, the statistical arm of the U.S. Energy Department. Crude production will then moderate to 9.4 million bpd in 2040, 26 percent more than expected a year ago, the agency said. The reference case in the report forecasts Brent prices of $56 a barrel in 2015, rising to about $91 a barrel in 2025, $10 a barrel less than levels expected a year ago. The report uses the 2013 value of the dollar as its measure. Despite lower prices, higher production will result mainly from increased onshore oil output, predominantly from shale formations, the agency said.

Bullish Signs For Crude But Pain Not Over Yet - The latest data from the U.S. Energy Information Administration predicts that shale output will decline by 57,000 barrels per day in May. It will be led by losses of 23,000 bpd in the Bakken, a decline of 33,000 bpd in the Eagle Ford, and 14,000 in the Niobrara. That will outweigh the small gains expected in the Permian and Utica, increases of 11,000 bpd and 2,000 bpd, respectively. The reduction in output follows last week’s news that rig counts fell by more than expected. Another 40 oil and gas rigs were taken offline for the week ending on April 2, a larger loss than in recent weeks. The total number of active oil and gas rigs fell below 1,000 for the first time in over four years. The ongoing pain in America’s shale fields are a bullish sign for oil prices, which have posted substantial gains recently. Oil traders have been waiting for signs of a genuine decline in production, and we may finally be arriving at that point. There are a few caveats, however. Oil inventories are still climbing, now at their highest levels in over 80 years. Also, drillers have a backlog of wells that still need to be completed, as many operators are waiting for prices to recover before they finish them. That will bring a new rush of production online, which will temper any oil price gains. Still, WTI has moved firmly above $50 per barrel and Brent is close to the $60 mark. Nevertheless, much of the damage to corporate balance sheets from low oil prices has already been done. First quarter earnings reports are set to be released beginning this month, which will show figures from the first full quarter when oil prices were at their lows. The results from the previous quarter covered a period of time in which oil prices were still above $70 per barrel. Despite the planned reduction of $126 billion in industry-wide spending this year, more will be needed to correct balance sheets, according to a report from Wood Mackenzie.

Oil Market Too Murky To Call Says IEA: It was in late June of 2014 that oil prices began their steep decline, but 10 months later there’s still no indication of when and how the supply of oil, and the demand for it, will balance out to arrive at a fair market price, the International Energy Agency (IEA) reports. In fact, it says, “the outlook is only getting murkier.” On the supply side of the equation, there’s evidence that low prices are reducing crude output by producers of shale oil, particularly in the United States, because retrieving that oil often requires hydraulic fracturing, or fracking, which is more expensive than conventional methods. Yet the IEA, the Paris-based organization that advises its 29 member states on energy policy, said April 15 in its monthly Oil Market Report that US output is forecast to grow this year.  Meanwhile, there is no evidence that OPEC will lower its own output, which, under Saudi leadership, it decided to keep at a level of 30 million barrels a day in an effort to regain market share. In fact, the report said, the cartel increased production by nearly 900,000 barrels per day in March over February. Saudi Arabia alone increased production last month to even more than its usual 10 million barrels per day, it said. Then there’s Iran, whose production and export of its vast oil holdings has been sharply limited by sanctions imposed by the European Union and the United States over its nuclear program, which Tehran says is for peaceful purposes but others suspect is aimed at producing weapons. Iran has reached a tentative deal to restrict this program in exchange for a gradual lifting of sanctions.

What's Really Behind The U.S Crude Oil Build -- In recent weeks the sell side analysts who cover energy have become so complacent that they merely plug in the current strip prices into their earnings models for E&P companies. Not one, except Mike Rothman at Cornerstone Analytics, is questioning the “why?” or “how?” of what is occurring. The 200 or so players who effectively control the oil futures market have changed behavior and expectations as the oil price curve has collapsed. Prices from late 2016 into 2018 are essentially flat in the low to mid 60s, believe it or not, which would essentially bankrupt most of OPEC, US conventional oil, part of US shale and deep offshore drilling. So ask where is the oil going to come from? Yet the madness continues until investors realize E&P companies need a higher price to justify investments in the space.

An update on oil prices - Demand for gasoline has picked up significantly recently. In January, U.S. vehicle miles driven hit a new all time high.  However inventories are still at record levels (see first graph) and there is the possibility of significantly more global supply from Iran (see EIA discussion below). Also note that oil imports have increase recently (the U.S. is a large oil importer).Here is an excerpt from the Weekly Petroleum Status ReportU.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending April 3, 2015, 201,000 barrels per day more than the previous week’s average. Refineries operated at 90.1% of their operable capacity last week. ...U.S. crude oil imports averaged over 8.2 million barrels per day last week, up by 869,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.6 million barrels per day, 4.8% above the same four-week period last year. ...U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.9 million barrels from the previous week. At 482.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.  It is difficult to forecast oil and gasoline prices due to world events - and the response of producers to price changes, but currently the EIA expects gasoline prices to average $2.40/gal in 2015 according to the Short Term Energy Outlook released last week:  • On April 2, Iran and the five permanent members of the United Nations Security Council plus Germany (P5+1) reached a framework agreement that could result in the lifting of oil-related sanctions against Iran. Lifting sanctions could substantially change the STEO forecast for oil supply, demand, and prices by allowing a significantly increased volume of Iranian barrels to enter the market. If and when sanctions are lifted, the baseline forecast for world crude oil prices in 2016 could be reduced $5-$15/barrel (bbl) from the level presented in this STEO. ...

Oil ETF investors head for exit, risking new slump -  Oil investors who amassed a $6 billion long position in exchange traded funds, occupying as much as a third of the U.S. futures market, are now racing for the exit at a near record pace. Outflows from four of the largest oil-specific exchange traded funds, including the largest U.S. Oil Fund , reached $338 million in two weeks to April 8, according to data from ThomsonReuters Lipper. That is the first two-week outflow since September and the biggest since early 2014, marking a turnaround from heavy inflows in December and January on bets that oil prices would quickly rebound from six-year lows. If the exodus gathers pace it could signal new pressure on crude oil prices that had begun to stabilize at around $50 a barrel this year following their 60 percent plunge, says John Kilduff, a partner at energy fund Again Capital LLC in New York. Retail investors may have been “trying to bottom fish and got washed out with the recent new low,” he said. Global oil ETF holdings were equivalent to 150 to 160 million barrels’ worth of crude oil futures as of last week, according to ETF Securities. That would represent as much as 30 percent of open interest in the most-liquid U.S. oil futures contract, which saw record open interest of 530,000 lots in March, although some of those fund holdings are in other contracts.

The Exodus Begins: Oil ETFs See Biggest Outflows In 15 Months - Just as we warned previously (here, here, and here), the knife-catching, contango-crushed, BTFDers that piled over $6bn into Oil ETFs have severely underperformed this year. The USO ETF has fallen by more than 9% since the start of the year, whereas front-month U.S. oil futures have dipped by less than 3% on account of roll costs, and as of last week, investors have started to exit this massive position en masse. As Reuters reports, outflows from four of the largest oil-specific exchange traded funds reached $338 million in two weeks to April 8 - the first since September and largest since Jan 2014. It seems Goldman was right about "misguided retail investors."

Fossil Fuel Divestment & Investors’ Bottom Line -- Investors who have dumped holdings in fossil fuel companies have outperformed those that remain invested in coal, oil and gas over the past five years according to analysis by the world’s leading stock market index company,  MSCI, which runs global indices used by more than 6,000 pension and hedge funds, found that investors who divested from fossil fuel companies would have earned an average return of 13% a year since 2010, compared to the 11.8%-a-year return earned by conventional investors.The figures indicate that if a major charitable institution or foundation with £100m in funds had divested from fossil fuels in November 2010 they would be around £7m better off today than if they had maintained their holdings in coal, oil and gas companies. In total, a portfolio of shares with fossil fuel companies included has grown in value by 62.2% since 2010, but this compares to the 69.9% growth of a fund without fossil fuel investments. The data will challenge the widespread belief among asset managers that divestment hurts the financial performance of investment funds.  One reason why funds without fossil fuel companies have outperformed is that the precipitous fall in the oil price that began in June last year has driven down the share price of companies such as BP and Shell. But the MSCI data reveals that its ‘All Companies ex Fossil Fuels Index’ outperformed throughout 2012 and 2013, before the fall in the oil price.

No super-contango this time around -- Izabella Kaminska - Oil prices, both Brent and WTI, remain depressed: But time-spreads — the difference between near-term prices and long-term prices — are narrowing. This means the opportunity to make easy profits from just storing physical oil for long periods of time is diminishing. It also suggests that this time round the oil slump will not lead to the sort of physical market free lunch that we saw during the super contango era of 2008. This despite the fact that, oddly enough,the market seems to be holding more crude than ever before. Indeed, as John Kemp noted on Monday: In the case of crude, however, the contango has narrowed even as U.S. commercial stockpiles have climbed to the highest level in more than 80 years. U.S. commercial crude stocks have risen by almost 97 million barrels, around 25 percent, since the start of 2015, according to the U.S. Energy Information Administration (EIA). Reported crude stocks increased by nearly 11 million barrels last week alone, the largest one-week build for 14 years.  It was the tenth-largest build reported since the EIA began publishing weekly information on crude stocks back in 1982. Yet the contango spread has continued to tighten, suggesting physical traders are looking past short-term oversupply to a tighter supply-demand balance in the second six months of the year. Overall, what this signifies is that the futures market is not prepared to subsidise the physical market to the same degree it was prepared to in 2008. For your reference, here are a couple of long-term charts that show the differential between the first month and fourth month futures of both WTI and Brent. You can see the degree to which this year’s contango under performed that seen in 2008.

Crude Pops After Smaller-Than-Expected API Inventory Build, Cushing Capacity Concerns Remain -- After last week's record inventory build, it is perhap sno surpriose that API reports a 2.6mm build (below expectationsfor a mere 3.5mm bbl build). If this is confirmed by DOE data tomorrow, this will be the 14th week in a row - the longest streak on record. More importantly, the Cushing inventory build rose more than last week (+1.3mm vs +1.2mm) -  this is the 18th week in a row of inventory builds at Cushing (which is now over 90% full - 70.8mm bbl capacity).

Oil prices rise after signs of U.S. production dip  – Oil prices rose in early Asian trading on Wednesday after signs of a dip in U.S. production, but trading was cautious ahead of an anxiously awaited reading on China’s growth pulse. Front-month Brent crude futures were trading up 42 cents a $58.85 a barrel by 0141 GMT, while U.S. crude had risen 38 cents to $53.67. In the United States, North Dakota’s February oil production fell 15,000 barrels per day (bpd) versus January, although the number of producing wells hit a record high. This followed a U.S. Energy Information Administration (EIA) report forecasting U.S. shale production would fall by 45,000 bpd to 4.98 million bpd in May, which would be the first monthly decline in four years. Yet market activity on Wednesday morning in Asia was cautious as traders awaited a wash of Chinese data, including first quarter GDP and industrial output figures, to be published at 0200 GMT. China’s annual economic growth likely slowed to a six-year low of 7 percent in the first quarter as demand at home and abroad faltered, fanning expectations of more policy stimulus to avert a sharper slowdown.

WTI Spikes Above $55 After Crude Inventories Rise At Slowest Pace In 14 Weeks -- For the 14th week in a row, US crude inventories rose; but against expectations of a 3.5mm build (and weak API overnight), DOE printed a mere 1.294mm bbl build - the lowest since the build streak began on the first week of January. Crude prices are spiking on the news (though we note last week saw the biggest build in 30 years with the 2 week average above trend). Total crude inventrory continues to make new record highs (and pressure Cushing capacity).

Brent crude oil hits 2015 high as U.S. output slows -- Oil rose more than 3 percent on Thursday, pushing Brent crude to a 2015 high above $63 per barrel on increasing evidence that U.S. production is peaking, balancing a market that has been in heavy oversupply for more than a year. Oil prices collapsed in the six months to January, pushing Brent down more than 60 percent to almost $45 a barrel. But the market has gradually recovered this year as much lower prices have discouraged oil exploration and production, especially in the United States. “People are realizing that the U.S. production juggernaut is slowing, at least for now,” said Virendra Chauhan, oil analyst at London-based consultancy Energy Aspects. “U.S. production is down for the second time in three weeks and refinery runs are spiking up, driving demand higher.” In related news, U.S. shale boom nears turning point: Kemp. Brent crude futures for June on Thursday hit $63.29 a barrel, the highest since December, after the previous much weaker front-month futures contract, for May, expired on Wednesday. By 1235 GMT, June Brent was at $62.27 a barrel, down $1.05 from the previous close for June, but up sharply from Wednesday’s close for May at $60.32. U.S. crude was at $55.29, down $1.10, after hitting a 2015 high of $56.69 on Wednesday.

US Rig Count Drops For Record 19th Week In A Row -- Rig counts fell for a record 19th week in a row. Total rigs dropped 34 to 954 and oil rigs dropped 26 to 374. This means the total rig count drop is now greater than 50% - the fastest drop since 1986. Crude prices had slid into the rig count announcement and popped afterwards.

Canadian oil and gas firms ‘bleeding money’ amidst darkest outlook in a decade -- Canada’s oil and gas industry is projected to report the biggest drop in profit in at least a decade starting next week as crude’s collapse pummels some of the world’s costliest producers. Earnings per share for Canadian petroleum producers will fall more than half for the 63 members of an energy industry sub-sector of the Standard & Poor’s/TSX Composite Index, according to data compiled by Bloomberg. Almost half of those companies, including Calgary-based Cenovus Energy and Canadian Natural Resources Ltd., are expected to post losses in the quarter that ended March 31. “This will be a brutal quarter for earnings,” said Robert Mark, director of research at MacDougall, MacDougall & MacTier Inc. “They’re bleeding money right now.” Oil prices remain about 50 per cent below June highs after the Organization of Petroleum Exporting Countries resisted calls to cut production amid surging North American output. Benchmark West Texas Intermediate crude oil fell to a six-year low in March of under $45 but has since rebounded 30 per cent, settling Thursday at $56.71 US per barrel, its highest level in four months.

100,000 People Are Without Water After Thieves Puncture Oil Pipeline In Mexico --Thousands of people in southern Mexico have been left without water after a punctured pipeline spilled oil into local waterways. Over the weekend in the Mexican state of Tabasco, thieves bored a hole in an oil pipeline operated by government-owned energy firm Pemex in an attempt to steal some of the oil. That puncture caused oil to spill into rivers, endangering drinking water. Originally, about 500,000 people were left without water after four water treatment facilities were closed so that officials could ensure the oil didn’t make its way into drinking water sources, but that number has dropped to about 100,000 people after two of the plants were re-opened.  The other treatment plants likely won’t open until Friday, to give official enough time to clean up oil near the plants. Until then, the state government is urging people to ration their water, and schools in the city of Villahermosa closed Wednesday to avoid endangering students. So far, it’s unclear how much oil spilled into the waterways, which included the Sierra River.  “The damage is terrible. Of course we want to avoid the contamination of drinking water processing plants, but the environmental damage is indisputably going to be very big regardless,” Humberto de los Santos, mayor of Centro, told International Business Times. According to IBT, cleanup could take up to 15 days.  Thieves targeting pipelines for their oil and gasoline have become a major problem in Mexico. In just eight months in 2014, according to McClatchy, 7.5 million barrels of oil and gas went missing in Mexico. The theft has climbed over the years: in 2000, Mexico had 155 cases of oil and gas theft from pipelines, while in 2013, thieves tapped pipelines 2,614 times. Pemex said in February that in 2014, the number of illegal taps totaled 3,674.

New Sea Drilling Rule Planned, 5 Years After BP Oil Spill - The Obama administration is planning to impose a major new regulation on offshore oil and gas drilling to try to prevent the kind of explosions that caused the catastrophic BP oil spill in the Gulf of Mexico, administration officials said Friday.The announcement of the Interior Department regulation, which could be made as soon as Monday, is timed to coincide with the five-year anniversary of the disaster, which killed 11 men and sent millions of barrels of oil spewing into the gulf. The regulation is being introduced as the Obama administration is taking steps to open up vast new areas of federal waters off the southeast Atlantic Coast to drilling, a decision that has infuriated environmentalists.The rule is expected to tighten safety requirements on blowout preventers, the industry-standard devices that are the last line of protection to stop explosions in undersea oil and gas wells. The explosion of the Deepwater Horizon oil rig on April 20, 2010, was caused in part when the buckling of a section of drill pipe led to the malfunction of a supposedly fail-safe blowout preventer on a BP well called Macondo.It will be the third and biggest new drilling-equipment regulation put forth by the Obama administration in response to the disaster. In 2010, the Interior Department announced new regulations on drilling well casings, and in 2012, it announced new regulations on the cementing of wells.

Secrecy shrouds decade-old oil spill in Gulf of Mexico - — The company responsible for a decade-old oil leak in the Gulf of Mexico has downplayed its size and shrouded its work in secrecy. But an Associated Press investigation has revealed evidence the Taylor Energy spill is far worse than what it — or the federal government — has publicly reported. Presented with AP’s findings, the Coast Guard provided a new leak estimate about 20 times greater than one the company recently touted. Outside experts say the spill could be one of the largest ever in the Gulf. Taylor Energy has spent tens of millions of dollars to contain and stop its leak but says nothing can be done to completely halt the sheens. The company has presented federal regulators with a proposed “final resolution,” but details remain under wraps.

Another frack mess! 200 Evacuated, Nearly 70 homes damaged in Albania when “volcanoes” of gas, mud (chemicals?) and water erupt during drilling. Canadian firm Bankers Petroleum Ltd (has steam injection pilot project there), was at 500 metres depth when “volcanos” of gas, mud (chemicals?) and water erupted.  Click to watch: Fontänen aus Gas und Schlamm schießen aus dem BodenNearly 70 houses damaged by gas explosions in Albania Nearly 70 houses were damaged by gas explosions occurred in southwestern Albania, the head of Kuman commune, Rajmond Plaka, said on Thursday. Among which 35 of them have grave and serious damages, three are uninhabitable, while the others will be assessed by a commission established by the region, Plaka said.Also criminal proceedings have been launched against Bankers Petroleum which caused gas explosion in Marinza, Fier Police Directorate announced on Thursday. The places where the gas exploded are located nearly 200 meters from the well where the company was drilling. Authorities inspected the houses damaged from the mud and water leaking from the explosions. Also an unpaved road in Marinza village suffered some damage in several parts.Police are still waiting for experts of the Albanian National Agency of Natural Resources (NANR) to determine the causes of the explosions. Meantime, it is very difficult for the residents evacuated from the village to go back to their homes due to the gas, water and mud that have entered in their houses. Hundreds of tons of clay have fallen on their lands, houses, while the walls of some houses have cracked. Big and dangerous holes have appeared in the lands and roads, while the panicked residents seek the assistance of the state authorities, according to Albanian Daily News.

The ExxonMobil Explosion That Nobody Is Talking About — Just before 9 a.m. on February 18, the ExxonMobil refinery in Torrance, California exploded, shaking the surrounding community with the force of a 1.7 magnitude earthquake, and sending a quarter ton of sulfur oxide gas into the atmosphere.  My property is about 2 and 1/4 acres in size and 100 percent of it, I mean every square millimeter, was covered in the fallout.  Workers inside the refinery likened the incident to a “loud sonic boom,” and soon roughly 50 firefighters were battling a three-alarm fire. First responders initially feared the possibility of radioactive materials at the scene, though that concern was ruled out some three hours after the initial explosion. Regulators fail to give people fair warning about how to protect themselves, or how to prevent the same thing happening again. This is entirely preventable. “At about 11:30 that morning, an officer called and said ‘I talked to them; it’s okay, just wash it away.’ And no tests were done at 11:30 in the morning,” Commiso said. “A shelter in place was still active, but the fire department was telling me I could wash it down the storm drain.”   Michelle Kinman’s home sits almost 3 miles southwest of the refinery, and it, too, received a considerable dusting of chemical fallout on the day of the explosion. “I can remember the contrast between the color of the ash and the color of the patio furniture. We didn’t touch it that day, and no one from the city or Exxon reached out to me to tell me how to handle it or clean it up. It rained twice in the weeks after, which is what eventually washed it away.”Local and state agencies have so far concluded that the fallout was non-toxic. But with a federal investigation ongoing and many questions unanswered, residents in Torrance are still upset nearly two months after the accident, with what they see as a series of lapses in governmental response. Many Torrance citizens feel as though they don’t fully comprehend what, exactly, transpired on February 18, nor how it might still be impacting their health.

Dutch court halts gas extraction in earthquake epicentre -- The Council of State on Tuesday halted the extraction of natural gas in a part of Groningen which has been at the centre of a spate of earthquakes.The council, which is the highest administrative court in the Netherlands, said the Loppersum gas works can only be used if extraction at other sites is no longer possible or if supplies are threatened. The ruling is preliminary and the final verdict will be delivered later this year when all complaints have been assessed.There are five extraction points in the Loppersum area, where thousands of homes have been damaged by the quakes caused as the land settles.Ministers agreed earlier this year to cut back the volume of gas extracted from under the province in an effort to reduce the earthquake risk.In total, the government has set a ceiling of almost 40 billion cubic metres this year. Some three billion cubic metres of this should have come from the Loppersum field.Campaigners had asked the court to halt gas extraction altogether. However, this is not an option because a ban would have a severe impact on supplies to the Netherlands and abroad, the court said.

Video: Chevron cover-up of Amazon pollution  – Videos reportedly leaked by a whistleblower at the Chevron Corp. purport to show employees and consultants paid by the energy giant finding petroleum contamination at sites in the Ecuadorean Amazon that the company claimed was cleaned up years earlier.  According to the environmental advocacy group Amazon Watch, which released the videos, the recordings arrived at the nonprofit’s office in 2011 with no return address and a note that read, “I hope this is useful for you in the trial against Texaco/Chevron. [Signed] A friend from Chevron.” Amazon Watch said the videos show Chevron employees conducting pre-inspections in 2005 and 2006 to find clean soil samples ahead of court-monitored inspections.    The videos are the latest twist in a decades-long court battle between the California-based Chevron and plaintiffs from the Lago Agrio area of the Amazon. In one of the videos, which Amazon Watch says was filmed at the Shushufindi 21 site, a Chevron employee identified only as Rene and a consultant from engineering firm URS identified only as Dave can be seen laughing about finding petroleum in a soil sample they have taken: 

Is fracking responsible for the flooding of an Upper Egyptian village? | Egypt Independent: The village of Fares, located about 75km north of the city of Aswan near Kom Ombo, is currently being destroyed by severe flooding of contaminated water caused by controversial oil drilling practices performed over the past four years, according to residents. Fares is an agricultural village home to approximately 25,000 residents. While they rely on arable land to survive, the continuous destruction of farms, trees, water supplies and even housing has forced many to try move away from the village into the desert, or onto higher terrain in the mountains. However, government officials have been preventing evacuees from relocating onto what they claim is “private land,” leaving many of Fares’ residents homeless. According to Sheikh Ahmed Abdel Hameed, a resident of Fares and key community activist, the initial floodings started in 2009 when oil drillers from DanaGas started test drilling on residential land in Fares without local consent. “Not long after the drillers left, contaminated water started to pump out of the ground from the holes they had made, destroying everything,” says Abdel Hameed, adding that now over 500 feddans of land and housing has been destroyed by constant flooding. “It’s poisonous water, and even small amounts destroy the plantations and trees, instead of hydrating them ... and sometimes it can get up to five feet high, destroying our houses too.” It is believed that this reaction is caused by a controversial drilling practice known as hydraulic fracturing, or fracking. It entails drilling a vertical tunnel thousands of feet below the surface until it reaches a layer of rock where gas or oil are buried.

Rosneft sets world record for longest well  -- Rosneft, an integrated oil company majority owned by the government of Russia, broke another world record Tuesday. Off the coast of Russia’s Sakhalin Island at the Chayvo field, the company reports that it has drilled the longest well in the world. Petro Global News reports that the O-14 production well drilled to a depth of 44,291 feet and reached horizontally to 39,478 feet. Part of the Sakhalin-1 project, the offshore drilling endeavor is tapping into the Arkutun-Dagi, Odoptu and Chayvo deepwater fields. Since the project’s beginnings, Rosneft has broken nine world records. In 2013 alone, the company set two world records for measured drilling depth. Rosneft said in a statement that the great reach of the project was also drilled in record time by utilizing ExxonMobil’s ‘Fast Drill Process.’ Rosneft chairman and President Igor Sechin said in a statement, “This well continues successful implementation of our outstanding project. I would like to express my thanks to our partners – ExxonMobil. Usage of their drilling technologies made this achievement possible.” Rosneft began production in the Chayvo field in 2005. Since then, its Sakhalin-1 project has produced 80 million tons of oil and 16 billion cubic meters of gas, according to Petro Global News. Currently, the amount of recoverable reserves for the project is estimated to contain roughly 487 billion cubic feet meters of gas and 236 million tons of oil.

Oil-Rich Nations Are Selling Off Their Petrodollar Assets at Record Pace - In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club. Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets. If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets. “This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London. Saudi Arabia, the world’s largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years, according to data from the Saudi Arabian Monetary Agency. That’s almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month. The International Monetary Fund commodity index, a broad basket of natural resources from iron ore and oil to bananas and copper, fell in January to its lowest since mid-2009. Although the index has recovered a little since then, it still is down more than 40 percent from a record high set in early 2011.

The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace -- Back in November we chronicled the (quiet) death of the Petrodollar, the system that has buttressed USD hegemony for decades by ensuring that oil producers recycled their dollar proceeds into still more USD assets creating a very convenient (if your printing press mints dollars) self-fulfilling prophecy that has effectively underwritten the dollar’s reserve status in the post WWII era. Now, with oil prices still in the doldrums, oil producers are selling off their USD assets in a frenzy threatening the viability of petrocurrency mercantilism and effectively extracting billions in liquidity from the system just as the Fed prepares to hike

OPEC publication urges non-members to help stabilize oil market --OPEC has criticized unidentified non-member countries for their refusal to cooperate with the oil exporter group in propping up prices and repeated its call for them to do so. “There is a stubborn willingness of some non-OPEC producers to adopt a go-it-alone attitude, with scant regard for the consequences,” said the commentary in the latest edition of the monthly OPEC Bulletin. “In the past, OPEC has often shouldered the burden of ensuring oil market stability alone. In the current situation, which should be of great concern to ALL, is it not time for this burden to be shared?” The Organization of the Petroleum Exporting Countries last year refused to cut its oil output after non-member countries including Russia declined to offer output curbs, deepening a slide in oil prices.

Saudi Oil Production Hits All Time High, Surges By 'Half A Bakken' - As hopeful US investors buy everything oil-related on the back of a lower than expected crude build this week (after the biggest build in 30 years the week before), The Kingdom has stepped up overnight and ruined the dream of supply-restrained price recovery as it announced a surge in production output in March to yet another record high. The nation boosted crude output by 658,800 barrels a day in March to an average of 10.294 million a day, which as Bloomberg notes, is about half the daily production from the Bakken formation. WTI Crude prices have slipped by around 2% from yesterday's NYMEX Close ramp highs as it appears Saudi Arabia is not willing to just let this effort to squeeze Shale stall.

Saudi Arabia's Plan to Extend the Age of Oil - Last fall, as oil prices crashed, Ali al-Naimi, Saudi Arabia’s petroleum minister and the world’s de facto energy czar, went mum. He still popped up, as is his habit, at industry conferences on three continents. Yet from mid-September to the middle of November, while benchmark crude prices plunged 21 percent to a four-year low, Naimi didn’t utter a word in public. For 20 years, Bloomberg Markets reports in its May 2015 issue, the world’s $2 trillion oil market has parsed Naimi’s every syllable for signs of where supply and prices are heading. Twice during previous routs—amid the Asian financial crisis in 1998 and again when the global economy melted down 10 years later—Naimi reversed oil’s free fall by orchestrating production cutbacks among members of OPEC. This time, he went to ground.At the cartel’s semiannual meeting on Nov. 27 in Vienna, Naimi shot down proposed output reductions supported by a majority of the 12 members in favor of a more daring strategy: keep pumping and wait for lower prices to force high-cost suppliers out of the market. Oil prices fell a further 10 percent by the end of the next day and kept going. Having averaged $110 a barrel from 2011 through the middle of 2014, Brent crude, the global benchmark, dipped below $50 in January. Naimi, 79, dominated the debate at the November meeting, according to officials briefed on the closed-door proceedings. He told his OPEC counterparts they should maintain output to protect market share from rising supplies of U.S. shale oil, which costs more to get out of the ground and thus becomes less viable as prices fall. In December, he said much the same thing in a press interview, arguing that it was “crooked logic” for low-cost producers such as Saudi Arabia to pump less to balance the market.

Is Saudi Arabia Setting The World Up For Major Oil Price Spike? - In order to maintain a grip on market share by pushing U.S. shale producers out of the market, Saudi Arabia (and OPEC) is willing to use up its spare capacity. That could lead to a price spike. Saudi Arabia produced 10.3 million barrels per day in the month of March, a 658,000 barrel-per-day increase over the previous month. That is the highest level of production in three decades for the leading OPEC member. On top of the Saudi increase, Iraq boosted output by 556,000 barrels per day, and Libya succeeded in bringing 183,000 barrels per day back online. OPEC is now collectively producing nearly 31.5 million barrels per day, well above the cartel’s stated quota of just 30 million barrels per day.  More output will prolong the slump in oil prices, which will force even more U.S. shale production out of the market. The signs of success are already showing – the U.S. is set to lose 57,000 barrels per day in production in May, and rig counts are still falling.The increase in Saudi production would also suggest that global markets are well-supplied. But, more Saudi oil comes at the cost of a shrinking global spare capacity. Saudi Arabia is essentially the only oil producer that has significant slack production capabilities, which can be ramped up or down depending on market conditions. That is what has allowed Saudi Arabia to influence prices to its liking for so many years. But when the Kingdom produces near flat out, it starts to run out of ammo. It is kind of like a central bank running interest rates near zero – once you are at that point, you run out of tools in the event that you need to do more.

Iran: The World's Oil Giant -  Iran has been in the news on a regular basis over the past few weeks and, as such, I would like to take an updated look at Iran's significance on the world's oil markets, particularly in light of the fact that the end of economic sanctions against Iran could mean that Western oil companies are once again free to operate within its borders.  Iran is a founding member of OPEC.  According to OPEC's website, Iran has the third largest oil reserves among the 12 nations that comprise the cartel as shown here: OPEC's oil reserves of make up almost 81 percent of the world's total oil reserves.  Among OPEC nations, Venezuela has the largest reserves totaling 298.4 billion barrels and Saudi Arabia has the second largest at 265.8 billion barrels.  With reserves of 157.8 billion barrels, Iran comes in third place with 13 percent of OPEC's crude oil reserves and 10 percent of the world's total conventional crude reserves.  Here is a graph showing how Iran's proven conventional oil reserves have grown over the past 35 years: In 2014, Iran produced an average of 3.121 million BOPD, roughly 10 percent of OPEC's output when production from Iraq is included. One of the big factors that has impacted Iran's oil industry is the imposition of sanctions; this resulted in a dramatic drop in oil production as you can see on this graph: According to the Energy Information Administration, Iran's oil production in 2013 was 3.113 million BOPD, down from 4.054 million BOPD in 2011. As shown on this graph, in 2013, Iran consumed 1.87 million BOPD of its own production: Domestic consumption of Iran's oil is rising as the population grows since most of the domestic consumption is related to the use of both diesel and gasoline. Now, let's combine Iran's oil production and consumption data. Here is a graph showing how net exports of Iranian crude have changed over the past four years: Note the significant impact of sanctions on total oil production (in blue).Just prior to the Iranian Revolution, Iran's oil production was in the 6 million BOPD range.  Imposition of international sanctions and a high rate of decline in Iran's oil fields pushed daily oil production down to approximately 1.5 million BOPD by the early 1980s.  This had risen to around 4 million BOPD after the turn of the new millennium but, as I noted above, sanctions have had a significant negative impact on the nation's oil output.

Russia opens way to missile deliveries to Iran, starts oil-for-goods swap – Russia paved the way on Monday for missile system deliveries to Iran and started an oil-for-goods swap, signaling that Moscow may have a head-start in the race to benefit from an eventual lifting of sanctions on Tehran. The moves come after world powers, including Russia, reached an interim deal with Iran this month on curbing its nuclear program. The Kremlin said President Vladimir Putin signed a decree ending a self-imposed ban on delivering the S-300 anti-missile rocket system to Iran, removing a major irritant between the two after Moscow canceled a corresponding contract in 2010 under pressure from the West. A senior government official said separately that Russia has started supplying grain, equipment and construction materials to Iran in exchange for crude oil under a barter deal. Sources told Reuters more than a year ago that a deal worth up to $20 billion was being discussed and would involve Russia buying up to 500,000 barrels of Iranian oil a day. Officials from the two countries have issued contradictory statements since then on whether a deal has been signed, but Deputy Foreign Minister Sergei Ryabkov said on Monday one was already being implemented. “I wanted to draw your attention to the rolling out of the oil-for-goods deal, which is on a very significant scale,” Ryabkov told a briefing with members of the upper house of parliament on the talks with Iran.

Tony Abbott says iron ore price collapse blew $30-billion black hole in federal budget -  The federal budget has suffered a $30 billion revenue write-down over the next four years because of the collapsing iron ore price, according to Prime Minister Tony Abbott. Mr Abbott has revealed the growing revenue black hole at a business lunch in Sydney on Wednesday. "Since last year's budget, collapsing iron ore prices and the subsequent write-down in tax receipts have already driven a cut in government revenue of more than $30 billion over four years," he said. After a recent bounce, the benchmark Tianjin iron ore spot price in China crept back just above $US50 a tonne yesterday, but is still less than half the $US117 a tonne it was this time last year and well off peaks above $US180 a tonne in 2011. Treasurer Joe Hockey has said Treasury is contemplating a price as low as $35 per tonne in its estimates. Mr Abbott also used today's speech to formally confirm that the Government will not go ahead with a promised company tax cut for big businesses. But larger companies will not be forced to pay a levy that was designed to help fund the Prime Minister's dumped paid parental leave scheme.

Australia Runs out of Luck, Now Needs a Miracle - While leveraged property investors in Sydney and Melbourne are desperately hunting for a senseless “net-yield” that makes the yield on a German 2-year bund look rewarding, the Australian mining sector is screaming towards what may be one of the greatest and colossal economic breakdowns in modern Western history. As iron ore illustrates, this is not a downturn; this is a spectacular crash in the spot price of a commodity. And the sad news is, there is no new demand scenarios (unless China builds more apartments than its population) to suggest that more supply is needed to fulfil the demand of the global economy. Australia made two bets. The first bet was that China would willingly consume every ounce of iron ore Australian miners could dig from the ground and pay a premium. Unfortunately, Australia has built an (incredibly sophisticated and streamlined) iron ore production operation so big that the world may never be able to consume all that it can supply. Our treasury, RBA, Miners and politicians assumed that China would forever grow. But they failed to calculate over the long-term that if China continues to consume all the iron ore dug from Australia’s underground, the world’s most populous nation would literally need to build a national subway network, literally an airport every 22 kilometres apart from each other and literally more dwellings than people. I truly wonder, how many decent Australians lost their job challenging their employer, whether it be in the mining industry, or at government level for doing the maths and saying something is simply not adding up.

Australian bonds print first ever negative rate - Australia has this week joined the illustrious list of governments that have been able to borrow money at negative interest rates. The Australian Office of Financial Management, which manages the government's debt programme, sold $200 million of inflation-linked bonds maturing in 2018 to 13 investors on Tuesday at a yield of -0.0763 per cent. It was the first time the government set the price of a new bond that implied a negative return for investors. At Tuesday's auction of 2018 bonds investors bid the bond price up so that the implied rate was slightly below zero. This meant investors were paying up because they expect the Reserve Bank of Australia to cut the current cash rate of 2.25 per cent to below inflation, which is currently at 1.7 per cent. Investors pay a price to own the bonds and in return get a rate of 1 per cent plus a rate linked to the Consumer Price Index, which they receive when the bond matures in 2018. Excluding the gains tied to the inflation rate, they would get less back than their initial investment.

Citi Writes Iron Ore Price Obituary  --As Wall Street struggles to explain last night’s trade data out of China which seemed to vividly illustrate the notion that the combination of the yuan’s dollar peg and generally weak demand can and will take a devastating toll on the country’s exports, and as iron ore does its best dead cat bounce impression on the “psychologically” (to use the words of one analyst who spoke to Reuters) important news that Australia’s fourth largest miner is suspending operations, Citi is out with a rather dismal take on the outlook for iron ore prices. This comes on the heels of last week’s Bloomberg report wherein metals analyst Kenneth Hoffman described the situation on the ground in China as “a lot worse than you think,” citing “idle cranes, empty construction sites, and half-finished abandoned buildings” as evidence that China appears to be landing, and landing hard. In fact, Citi now sees China as “an ongoing headwind for industrial commodities.” Here’s more: Industrial commodities are mostly negative on a YTD basis, the strengthening US$ and ongoing macro concerns over China have impacted the precious metals and bulks, respectively. The exceptions have been aluminum, zinc, palladium, and gold which have seen modest gains... Citi retains a bottom of consensus forecast for iron ore… Steel demand is seeing only seasonal improvement typical of post-CNY. However, real estate demand remains quite soft…Environmental pressure has risen with the strengthened environmental law, which is forcing steel curtailments and increasing environmental compliance costs. Iron ore prices to fall to $30s... Large scale supply growth is set to add to pressure from weak demand and deleveraging. Moreover, cost deflation and marginal production are shifting to stickier suppliers

China's export numbers miss expectations - China's monthly trade data shows exports fell in March from a year ago by 14.6% in yuan terms, compared to expectations for a rise of more than 8%. Imports meanwhile fell 12.3% in yuan terms compared to forecasts for a fall of more than 11%. The numbers mean the country's monthly trade surplus has shrunk to its smallest in 13 months. China's economy grew by 7.4% in 2014, its weakest for almost 25 years. Analysts said recent indicators showed further signs the slowdown is continuing. In US dollar terms, China's exports for the month fell 15%, while imports fell 12.7%. Currency conversion factors based on US dollar and Chinese yuan movements over the last year mean some official numbers from the mainland are now reported in both currencies. The official March data leaves the country with a monthly trade surplus of 18.16bn Chinese yuan ($2.92bn; £1.99bn). In February, China's monthly trade surplus hit a record $60.6bn, as exports grew and imports slid back.

China March exports far worse than expected - China's exports and imports for March both fell sharply from a year earlier, according to data released Monday. Exports dropped 15% from March 2014, widely missing expectations for a substantial jump, with Reuters having tipped a 12% gain and The Wall Street Journal citing forecasts for a 10% rise. Imports were likewise weak, falling 12.7%, against a projected drop of 12% in the Wall Street Journal survey. The resulting trade surplus totalled $3.1 billion for the month, a fraction of the $45.4 billion predicted by Reuters and well off from February's $60.6 billion. The Chinese stock markets seemed to largely ignore the data, however, with Hong Kong's Hang Seng up 0.4%, and the Shanghai Composite up 1.3% as broker stocks rallied on reports of further easing for investing rules in China. However, a 0.3% gain for the S&P/ASX 200 in Australia -- which counts China as its top trading partner -- evaporated after the data, leaving a 0.1% loss.

China first-quarter GDP growth slows to 7% -  China's gross domestic product rose 7.0% from a year earlier in the first quarter, slowing from the 7.3% growth in the fourth quarter of last year, the National Bureau of Statistics said Wednesday. The increase was slightly above a median rise of 6.9% forecast by 15 economists polled by The Wall Street Journal. The Chinese economy expanded 1.3% from the previous quarter on a seasonally-adjusted basis, the statistics bureau said.

China GDP Tumbles To Lowest In 6 Years Amid Quadruple Whammy Of Dismal Data -- A month ago we warned "Beijing, you have a big problem," and showed 10 charts to expose the reality hiding behind a stock market rally up over 100% in the last year. Tonight we get confirmation that all is not well - China GDP fell to 7.0% (its lowest in 6 years) with QoQ GDP missing expectations at +1.3% (vs 1.4%). Then retail sales rose 10.2% YoY - the slowest pace in 9 years (missing expectations of 10.9%). Fixed Asset Investment rose 13.5% - the lowest since Dec 2000 (missing expectations). And finally Industrial Production massively disappointed, rising only 5.6% YoY (weakest since Dec 2008). Finally, as a gentle reminder to the PBOC-front-runners, a month ago Beijing said there was no such thing as China QE (and no, the weather is not to blame.. but the smog?).

China growth slowest in six years, more stimulus expected soon (Reuters) - China grew at its slowest pace in six years at the start of 2015 and weakness in key sectors suggested the world's second-largest economy was still losing momentum, intensifying Beijing's struggle to find the right policy mix to shore up activity. Measures to support the property sector and a series of cuts in interest rates and bank reserve requirements look to have delivered less support to the economy than hoped, apart from feeding a stock market surge, raising expectations of more stimulus soon. Gross domestic product (GDP) grew an annual 7.0 percent in the first quarter, slowing from 7.3 percent in the fourth quarter of 2014, China's statistics bureau said. While matching the median forecast in a Reuters poll, some analysts said it seemed stronger than data on the components of growth suggested. "Despite a headline growth rate in line with expectations, underlying economic activities appear to have softened further,"  Analysts calculated the GDP deflator had fallen 1.2 percent, a six-year low, indicating broad deflationary pressures.  Monthly retail sales, industrial output and fixed asset investment data released with the GDP figures all missed analyst expectations. Growth in fixed-asset investment (FAI), a key economic driver, was the slowest since 2000, while industrial output grew at its weakest since the global financial crisis in 2008.

China’s First-Quarter GDP in Four Charts - China on recorded its slowest growth rate since 2009, a time when the global economy was staggering beneath the effects of the financial crisis. First-quarter growth slowed to 7% on-year from 7.3% last quarter, a signal that the world’s second-biggest economy has little wiggle room to meet its annual growth target of about 7%. Here’s a breakdown of China’s GDP in four charts: China’s factories are hurting. Value-added industrial output, a measure of manufacturing production, has hit financial-crisis levels. Industrial production grew by 5.6% on-year in March, far short of economists’ expectations of 6.9%, amid weak global and domestic demand–a dynamic that has pressured prices. Chinese shoppers aren’t buying. Retail-sales rose 10.2% in March. That’s slower than during the financial crisis. Big spending is shrinking. First-quarter fixed-asset investment, which measures money put to big projects and factories, rose 13.5% on year, below economists’ expectations of 13.9%.

China growth slowest in six years, more stimulus expected soon (Reuters) - China grew at its slowest pace in six years at the start of 2015 and weakness in key sectors suggested the world's second-largest economy was still losing momentum, intensifying Beijing's struggle to find the right policy mix to shore up activity. Measures to support the property sector and a series of cuts in interest rates and bank reserve requirements look to have delivered less support to the economy than hoped, apart from feeding a stock market surge, raising expectations of more stimulus soon. Gross domestic product (GDP) grew an annual 7.0 percent in the first quarter, slowing from 7.3 percent in the fourth quarter of 2014, China's statistics bureau said. While matching the median forecast in a Reuters poll, some analysts said it seemed stronger than data on the components of growth suggested. "Despite a headline growth rate in line with expectations, underlying economic activities appear to have softened further,"  Analysts calculated the GDP deflator had fallen 1.2 percent, a six-year low, indicating broad deflationary pressures.  Monthly retail sales, industrial output and fixed asset investment data released with the GDP figures all missed analyst expectations. Growth in fixed-asset investment (FAI), a key economic driver, was the slowest since 2000, while industrial output grew at its weakest since the global financial crisis in 2008.

China's True Economic Growth Rate: 1.6% -- While the world gasped last night when China's production-based, and goalseeked GDP number came in at 7.0% - the lowest in 6 years... ... the truly scary numbers were in the details, which revealed unprecedented deterioration. The key among these were shown previously, and are as follows: Plunging consumer sentiment: oddly this hasn't been offset by China's unprecedented stock bubble. The worst retail sales in 9 years: Tumbling auto sales: The weakest fixed asset investment (recall that in China capex spending accounts for over half of GDP growth) in the 21st century Industrial production worse since the Lehman crisis: And of course, home prices: Which brings us back to China's "7.0%" GDP. Because as Cornerstone Macro reports, "Our China Real Economic Activity Index Slowed To Just 1.6% YY In 1Q." The indicator in question looks at many of the components shown above, such as retail sales, car sales, rail freight, industrial production, and several others, to determine an accurate indicator of the true state of China's economy. It finds that not only is China's economic growth rate not rising at a 7.0% Y/Y rate, but is in fact the lowest it has been in modern history!

World Bank forecasts slower China economic growth - --Economic growth of developing markets in the East Asia-Pacific region is likely to improve this year in most countries but slow as a whole due to a drag exerted by China, the World Bank said. It notes that growth in the region has been buffeted by a rapid fall in oil prices and a rising U.S. dollar, which have created conditions that have benefited some countries at a cost to others. China's pace of growth will slow to 7.1% in 2015 from 7.4% a year earlier, the World Bank said. Growth in the developing markets of the East Asia-Pacific region, including China, Indonesia and the Philippines, will slow to 6.7% this year from 6.9% in 2014, it said. Growth in the region as a whole--including developed markets like South Korea and Singapore--will remain flat at 6%. The World Bank expects China's economy to slow even further in the years to come, falling as low as 6.9% in 2017 due to policy efforts to address financial vulnerabilities and achieve sustainable growth. "Low fuel prices will benefit developing East Asia Pacific as a whole, but their impact will vary across countries," the World Bank said in a report published Monday. It expects economies that rely on oil imports or fuel subsidies such as Indonesia, Thailand and the Philippines, to gain significantly from the falling price of oil, which it said could remain up to 45% lower in 2015 and may rise "only modestly" in 2017. However, the World Bank warns that growth in the East Asia-Pacific region could be threatened by factors both within and outside its borders, such as a slowdown in trade from the eurozone or Japan. "Higher U.S. interest rates and an appreciating U.S. dollar, associated with monetary policy divergence across the advanced economies, may raise borrowing costs, generate financial volatility, and reduce capital inflows more sharply than anticipated,"

Michael Pettis: Will China’s Asian Infrastructure Investment Bank Eventually Matter? - Yves Smith: The financial media has attributed considerable importance to the fact that many of America's close allies, including the UK, Australia, and Israel, have joined China's new infrastructure bank against the clearly-stated desires of the US. While these moves seem to signal America's declining influence, it does not necessarily follow that the infrastructure bank is destined to become a major international institution any time soon. Michael Pettis deflates some of the hype surrounding this initiative, arguing that it is less significant from a geopolitical and practical perspective than virtually all commentators assume. China is simply not about to become the issuer of the reserve currency any time soon, and that limits how much financial clout it will have.

China’s Yuan as a Rival to the U.S. Dollar? It’s Closer Than You Think - American strategic economic leadership, to an unappreciated extent, rests on the central role the dollar plays in the global financial system, as the latest Capital Account column argues. Who can challenge that leadership? Neither the yen nor the deutsche mark nor its successor, the euro, has dethroned the dollar. The only contender on the horizon is China’s yuan and most experts think that’s at least decades away. Not only is the yuan not yet freely convertible, there is not yet a deep liquid market of yuan assets for foreigners to buy. But the yuan could challenge the dollar sooner than the consensus believes, and a new report from Louis-Vincent Gave helps make the case. Mr. Gave notes that internationalization should be seen as one component of a broader strategy by China to carve out a more central role in the global economic system, including the Asian Infrastructure Investment Bank, the Silk Road infrastructure fund to improve connections within Asia, and the Contingent Reserve Arrangement (a mini-International Monetary Fund).This year will be remembered as the date China became “deeply serious, and committed, to internationalizing the renminbi and assuming a ‘great power’ status around the world.”Foreign investors can already buy up to $1 billion worth of Chinese securities, but there isn’t much for them to buy, which hampers the yuan’s internationalization. But once it becomes freely convertible, “then Chinese equities and fixed income will quickly be included in all major benchmarks (whether MSCI All Countries, Barclays global aggregates etc…), thereby forcing all the dumb indexed money … to sell everything else and buy China.”

IMF Says Yuan on Path to Inclusion in SDR Basket: IMF Managing Director Christine Lagarde says her organization will do an assessment this year on whether to include the Chinese currency into its supplementary foreign exchange reserves (SDR). Lagarde made the comments at the spring meetings of the International Monetary Fund and World Bank in Washington D.C. The assessment of a currency's eligibility to be added into the SDR is based on the export capacity of the country where the currency is being issued and the usability of the currency as an international currency. Lagarde says the assessment will determine whether the Chinese currency meets the criteria. "I believe that what the Chinese authorities have actually indicated in terms of liberalization of interest rates, in terms of opening up of the capital account, in terms of deepening of the financial markets, actually will naturally be conducive to an assessment of whether or not the renminbi is freely usable, which is, as you know, one of the key criteria. The other one is the export capacity and I think that on that one, nobody has any doubt as to whether or not China fits the bill." The SDR is an international reserve asset created by the IMF in 1969 to replenish the official reserves of its member states. Currently the SDR basket consists of four currencies - the U.S. dollar, euro, pound sterling, and Japanese yen. Last month, Chinese Premier Li Keqiang asked Lagarde to include the yuan in its SDR basket, pledging to speed up the renminbi's basic convertibility. The IMF's board will hold an initial discussion on China's request next month.

IMF Calls On Bank of Japan To Crank Up Stimulus Steps -- The International Monetary Fund said Tuesday that the Bank of Japan should buy more private assets to achieve its inflation target, a suggestion that could add fuel to speculation about further action by the bank later this year. Inflation in Japan has been flat recently, well short of the BOJ’s 2% target, leading many analysts to expect that the central bank will announce further easing measures, perhaps in July or October. The Washington-based IMF didn’t discuss the timing of any possible Japanese moves in its latest World Economic Outlook, but it did provide insight into the kinds of easing the BOJ might consider. It also called on the BOJ to communicate better. In the wake of Gov. Haruhiko Kuroda’s second “bazooka” last October, the BOJ is annually buying about ¥80 trillion ($670 billion) of assets, mainly Japanese government bonds. It has also expanded its purchases of stocks and property funds. The goal is to encourage private companies and others to put their idle cash into riskier assets or spend it. The IMF said the impact of the BOJ’s purchases “could be strengthened by increasing the share of private assets in purchases and extending the program to longer-maturity government bonds.” While the BOJ already buys some longer-maturity government bonds with terms up to 40 years, the average maturity is seven to 10 years.

Japan's huge debt pile just got scarier - Japan's debt pile will grow out of control unless policymakers take steps to reform the country's tax system and address its shrinking labour force, the Organisation for Economic Co-operation and Development has warned. The OECD said gross government debt, which currently stands at a record 226pc of gross domestic product (GDP), would balloon to more than 400pc by 2040 if the government did not carry out reforms. Angel Gurria, the OECD's secretary-general, said monetary stimulus and stronger growth alone would not be enough to haul the economy out of its two-decade malaise. "Japan’s future prospects depend on ensuring fiscal sustainability over the long term. With a budget deficit of around 8pc of GDP, the debt ratio is set to rise further into uncharted territory," he said. In its annual healthcheck of Japan, the OECD said the economy could be "at risk" if the country's borrowing costs suddenly rose. "A detailed and credible fiscal plan is essential to maintain market confidence and to achieve a primary surplus by fiscal year 2020," said Mr Gurria. The OECD said the government would need to implement a squeeze of 7pc of GDP - the equivalent of raising consumption tax from 8pc to 22pc - just to keep Japan's debt ratio at its current level. Even with a hike of this magnitude, if growth and inflation remained subdued at around 1pc and 0.5pc respectively, the OECD said Japan's debt ratio would remain above 200pc of GDP by 2040. Structural reforms matched with real growth of 2pc and inflation close to the Bank of Japan's 2pc target would help the ratio to decline to nearly 100pc.

Japan's "Over 65" Rise To Record 33 Million, More Than Double Number Of Children - With Abenomics seemingly a total failure (aside from managing to collapse the currency and living standards of the population - worst Misery Index in 33 years) the demographic crisis that Japan faces just got more crisis-er. As NHKWorld reports, Japan's population continues to fall (4th year in a row) but what is worse, there are now 33 million people over the age of 65 (a record 26%), more than double the number under the age of 14 (16.2 million). The ministry says the population will likely continue declining for some time as fewer babies are born and society ages. The implications are catastrophic...

Why Japan’s prisons are turning into nursing homes (VIDEO) — Most prisons spend a lot of time and effort keeping inmates from escaping. In Japan, the greater challenge is convincing convicts to leave. Among developed economies, Japan has one of the highest proportions of elderly prisoners. Crimes committed by senior citizens have quadrupled over the past two decades. Today, almost one in five convicts is over 60. The soaring costs of caring for these greying jailbirds are an added pressure on Prime Minister Shinzo Abe’s government, which is already burdened by a world-class debt load equal to roughly 240 per cent of gross domestic product. To reduce repeat offenses, Japan aims to slash the number of convicts who are homeless at the time of their release by more than 30 per cent by 2020, when it hosts the summer Olympic games. Hitting such targets will be tough, particularly given the surge over the last decade in elderly prisoners, who often prefer a government-subsidised life behind bars to an isolated, destitute one on the outside.

Trade Surplus a (Temporary) Respite for Rupiah - Indonesia on Wednesday posted a $1.1 billion trade surplus for March, its first time breaking the billion-dollar mark in 15 months, and the fourth consecutive month of surplus. That will give the ailing rupiah currency a lift, but not as much as the government might hope. The rupiah is down almost 5% this year and is at around a 17-year low. Investors have begun to retrench capital from Indonesia in anticipation that U.S. Federal Reserve will start to raise short-term interest rates later this year, pushing up returns in dollar-based assets. Indonesia’s large current-account deficit is a worry as it makes the country dependent on foreign capital. That’s why Wednesday’s trade surplus is good news. Trade is a large component of the current account. Economists are projecting a smaller overall current-account deficit because of these large trade surpluses, the result of lower imports of oil and other goods, even as exports also fell due to weak commodity demand in China. Santitarn Sathirathai, an economist at Credit Suisse , said the trade news and its effect on the current account “ought to give the Bank Indonesia some comfort,” putting Indonesia on target to achieve Credit-Suisse’s full-year current account deficit target of 2.7% of GDP, lower than the central bank’s projection of up to 3.3%. “In the near-term at least, it does help to alleviate pressure on the rupiah, at least on the margins,” said Gundy Cahyadi, economist at DBS. But both economists don’t expect a big recovery for the rupiah. The market was also unimpressed, with the rupiah trading steady after the news at 12,975 to the U.S. dollar.

India Secures Uranium Supply Deal With Canada -- On Wednesday, Indian Prime Minister Narendra Modi and Canadian Prime Minister Stephen Harper announced a deal that will see Canada’s Cameco Corporation supply India with 3,000 metric tonnes of uranium over the next five years. The deal will be worth an estimated $280 million and is the major capstone announcement to come out of Modi’s trip to Canada, the first standalone visit to that nation by any Indian prime minister in over 40 years. With the deal, Canada will become the first Western nation, and the third nation overall, to supply India with uranium (only Kazakhstan and Russia do so currently).Announcing the deal at a joint press conference with Harper, Modi noted that the agreement “launches a new era of bilateral cooperation and a new level of mutual trust and confidence.” He framed the importance of the deal in terms of its relevance for India’s move toward cleaner energy: “The supply of uranium is important as India is keen to have clean energy. The world is worried about global warming and climate change. We want to give something to humanity through clean energy… For us, uranium is not just a mineral but an article of faith and an effort to save the world from climate change.” Harper saw the deal as a landmark moment in India-Canada bilateral relations, something that would bring an end to what he described as “unnecessary frosty relations.” “The deal will enable India to power its growth using clean energy,” he added. The uranium supply deal comes 45 years after Canada formally banned all exports of uranium and any nuclear hardware to India in 1974, following India’s “Smiling Buddha” nuclear test (its first ever). Under the agreement announced this week, all Canadian uranium supplied to India will be monitored under the IAEA’s safeguards as well.

India’s New GDP Numbers: A Peek Under the Hood -- Still confused about those sizzling new economic-growth figures coming out of India? You’re not alone.The country’s Central Statistical Office invited analysts and economists to a daylong workshop in New Delhi this week, hoping to explain and clarify the recent revisions to its methodology for estimating gross domestic product.Those revisions suddenly caused India’s projected growth rate to shoot past China’s, which in turn thrust the nuts and bolts of India’s GDP calculation into the spotlight. Officials were pelted with questions as they walked through the new data sources, the updated surveys, the tweaked methods of extrapolating and scaling and counting. Much of the information about the new GDP method had already been made public in a 144-page document released last month. But who has the time? Here are some highlights.

  • 1. In India, all cars used to be equal. In earlier Indian GDP data, the key manufacturing indicator was the monthly index of industrial production, which is based on the total quantity of output in a sample of a few thousand factories. “The problem is that Marutis and Audis are all put together as the same,” said Ashish Kumar, director-general of the Central Statistical Office. In other words, by gauging only the volume of production, the old series was overlooking changes in monetary value brought about by product improvement and differentiation. The impact on final growth rates is huge—and still slightly hard to swallow. In the 12 months that ended March 2013, manufacturing expanded 6.2% in the new GDP series, compared with 1.1% in the old. And in the following year, for which the old series had shown a 0.7% contraction, the new series has manufacturing growing by 5.3%.
  • 2. All workers used to be equal, too. Well, at least for gauging activity in the informal economy. Small, unregistered companies—a major chunk of the Indian economy—typically employ unpaid helpers in addition to owners and hired workers. But before, these firms’ output was being estimated by taking the total number of workers and multiplying by per-capita added value.No longer. The new GDP series uses an “effective labor input” method, which assigns different weights to different kinds of workers based on their productivity. The chart is here:

India's New GDP Figures: Modi Takes BS Seriously! - "The estimated “evacuation (defecation) rates” are 0.3 kilograms per day for goats and 0.8 kilograms per day for sheep. The study, titled “Positive Environmental Externalities of Livestock in Mixed Farming Systems of India,” was conducted jointly by the Central Institute for Research on Goats, in Makhdoom, Uttar Pradesh, and the National Center for Agricultural Economics and Policy Research in New Delhi. With all those “droplets” added in, the value of India’s livestock sector in the new GDP series is 9.1 billion rupees, or $150 million, higher than it was in the old series."  Wall Street Journal on India's GDP Revisions Animal droppings (BS) is just one of many innovation of Central Statistical Office (CSO) that are being used to support India's claim to be growing faster than China. Until early February, when CSO changed the way it measures economic activity, India was enduring its weakest run of growth since the mid-1980s. Now it is outpacing China, having grown an annual 7.5% in the fourth quarter of last year, reports Business Standard.Based on the latest methodology,  it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?

Hanging some of India’s public banks out to dry?  -- Evidence of a potentially large change in India’s banking system from Credit Suisse and Neelkanth Mishra’s India markets team: Even within bank loans, which are losing share to bonds in corporate borrowing, [public sector, or PSU, banks] are losing share to private banks, being short of capital. In this environment, by allocating just Rs80 bn for PSU bank recapitalisation in the FY16E budget (half that of the previous year, and the lowest after FY10), the government has shown willingness to let PSU banks fall in relevance, and not perpetuate moral hazard by bailing out weak banks. This is a remarkable and unexpected change in stance, given the potential advantages in micro-managing three-fourths of the bank lending space in India.  And lo did the wails of certain politicians rent the sky. A sky now that much emptier of politically useful influence. Even if the general ability of politicians to directly, er, direct PSUs has fallen, many of the regional, smaller banks are still very much political beasts. For those not familiar with India, the public sector banks make up a serious chunk of the banking system over here. They control some 70 per cent of assets and, crucially, take up an even more serious chunk of India’s problem loans. It depends on how you measure it — for example, does one take into account loans which are clearly dodgy but haven’t been acknowledge yet? — but estimates vary from about 1o per cent for the entire banking system to well above 20 per cent for the weakling PSUs. A reason problem loans exist is because PSUs have (and it is in the past for many, one hopes) given loans that weren’t commercially smart. India’s promoter problem has always had a very obvious political underpinning. The curious aspect is perhaps the attention paid to coal and spectrum scams, while capital shovelled into PSUs went relatively uncommented upon.

India’s central bank chief accuses G-7 of currency manipulation -— The largest industrial countries are flouting global financial rules against beggar-thy-neighbor currency depreciation, and the International Monetary Fund has to be a more neutral referee and flag offenses, said Raghuram Rajan, the governor of the Reserve Bank of India, on Thursday. “We really need to assess our rules of the game,” Rajan said in a speech at a seminar on the sidelines of the IMF/World Bank spring meetings. Group of 20 officials have accepted the recent decline in the yen and the euro as the by-product of monetary policies designed to spur domestic demand. But Rajan said this was just a “fig leaf” for foreign exchange manipulation and that the richest countries were ignoring the spillover effects on emerging markets. The IMF needs to play a more neutral role and ferret out currency manipulation wherever it can be found. The rule has to be “if it walks like a duck or quacks like a duck, it is a duck,” Rajan said. India has been taking baby steps toward full capital-account convertibility but still places restrictions on swapping rupees for other currencies. Rajan has recently called for full capital-account convertibility. At the seminar, Olivier Blanchard, the IMF’s chief economist, said he strongly disagreed with Rajan. He said the main effect of Europe’s quantitative easing has been lowering long-term interest rates. Rajan also criticized many central banks, including the Federal Reserve, for asserting they must follow domestic mandates in setting policy. “At what point does the domestic mandate get trumped by international responsibility,” he asked. “If it never gets trumped, then let’s stop talking about international responsibility,” he said. He said that central banks must be concerned with being good global citizens and that this “bites at certain times.”

India’s Central Bank Chief Okay With Fed Move Toward Higher Rates - –India’s central bank chief signaled Thursday he’s at peace with Federal Reserve rate increases when they arrive, despite past misgivings. “I don’t think we expect the Fed to remain on hold forever,” Reserve Bank of India Governor Raghuram Rajan said as part of a panel discussion at the International Monetary Fund’s spring meetings in Washington. “At some point the Fed has to decide it’s appropriate and start moving. We have to adjust to that,” he said. For the global economy, “we’ve dug this hole. When we climb out of it has certain effects” and central bankers need to be mindful of that, he said. Mr. Rajan has been critical in the past of Fed policies that caused financial havoc overseas by fueling large capital flows in and out of emerging-markets. He has called on Fed officials to think more about how their moves affect other countries around the world. Fed officials have countered that while they are mindful of the effect of their policies on the global stage, they nevertheless have to act with U.S. domestic concerns at the fore. They also regularly noted other nations need to manage their own economies according to their needs. Mr. Rajan made his comments as many Fed officials say they would like to start raising short-term U.S. interest rates from near zero this year, but are unsure about the timing of the first increase in light of recent weak economic data. His remarks came as part of a discussion about the outlook for Asian economies. He spoke with Harvard University’s Lawrence Summers, in a discussion moderated by Adam Posen, president of the Peterson Institute for International Economics. Mr. Rajan also said his economy and others are facing notable challenges to their growth models given slowing economic activity in much of the world. That calls into question the durability of basing strong levels of growth on the ability to export.

AIIB won’t be used for Pakistan link - CHINA does not plan to use either the new Asian Infrastructure Investment Bank or Silk Road fund to finance the US$46 billion Pakistan-China Economic Corridor, with money to come from both countries instead, a senior diplomat said yesterday. President Xi Jinping’s trip to Pakistan next week is expected to focus on the corridor, a planned network of roads, railways and energy projects linking Pakistan’s deep-water Gwadar port on the Arabian Sea with China’s far-western Xinjiang region. It would shorten the route for China’s energy imports, bypassing the Straits of Malacca between Malaysia and Indonesia, a bottleneck at risk of blockade in wartime. Chinese Assistant Foreign Minister Liu Jianchao said the project would be good for Pakistan’s economic development, but he did not give financing details. “Several different facets will be utilized for the financing of these projects. Both sides will increase cooperation, to jointly provide financing support,” he told a news briefing. “As to whether the AIIB or the Silk Road fund will be used, at present these are being looked into, or are in the planning stages. So at the moment we are not considering using these mechanisms or platforms or financial organizations to provide financing,” Liu said.

Pakistan Edges Closer to Charging CIA With Murder Over Drone Strikes - A landmark case may open the door for a possible multibillion-dollar class-action lawsuit launched by relatives of the alleged 960 civilian victims of U.S. drone strikes in Pakistan A senior judge in Pakistan has ordered police to formally investigate former CIA agents for allegedly authorizing a 2009 drone strike. If the case moves forward, it may subject the U.S. embassy in Islamabad to sensitive police investigations and even result in U.S. citizens for the first time being charged with murder for covert drone strikes in the South Asian nation. Last Tuesday, the Islamabad High Court ordered police to open a criminal case against former CIA Islamabad Station Chief Jonathan Bank and ex-CIA legal counsel John A. Rizzo for murder, conspiracy, terrorism and waging war against Pakistan. The complainant is Kareem Khan, whose son Zahin Ullah Khan and brother Asif Iqbal were killed in an alleged December 2009 CIA drone strike in the mountainous Waziristan region bordering Afghanistan. The case was lauded as the “first of its kind for directly implicating and naming a CIA official” by University of Hull international legal expert Niaz Shah.

How "Illiterate" Are Pakistan's "illiterate" Cell Phone Users? -- Pakistan's teledensity of 76.65% significantly exceeds the country's reported literacy rate of just 60%. This data raises the following questions:

  • 1. Are the 16.65% of Pakistani cell phone users classified as "illiterate" really illiterate?
  • 2. If they are "illiterate", then how are they able to use the mobile phones?
  • 3. Isn't there significant anecdotal evidence to suggest that many of those classified as "illiterate" are in fact  quite literate in terms of the use of cell phone technology?

To try and get answers to the above questions, let's look at the findings of a survey of "illiterate" Pakistani women on Benazir Income Support Program (BISP) conducted by the Consultative Group to Assist the Poor  (CGAP):

How The World Bank Broke Its Promise To Protect The Poor:

  • Over the last decade, projects funded by the World Bank have physically or economically displaced an estimated 3.4 million people, forcing them from their homes, taking their land or damaging their livelihoods.
  • The World Bank has regularly failed to live up to its own policies for protecting people harmed by projects it finances.
  • The World Bank and its private-sector lending arm, the International Finance Corp., have financed governments and companies accused of human rights violations such as rape, murder and torture. In some cases the lenders have continued to bankroll these borrowers after evidence of abuses emerged.
  • Ethiopian authorities diverted millions of dollars from a World Bank-supported project to fund a violent campaign of mass evictions, according to former officials who carried out the forced resettlement program.
  • From 2009 to 2013, World Bank Group lenders pumped $50 billion into projects graded the highest risk for “irreversible or unprecedented” social or environmental impacts — more than twice as much as the previous five-year span.

Women are more likely to be physically assaulted in developed countries, study shows -- When researchers examine violent assault numbers, historically the data has pointed to higher rates of female victimization in developing countries.But a study by a West Virginia University sociology professor finds that women in developed countries -- like the United States -- are actually more likely to be physically assaulted than women in developing countries. In "Individual and Structural Opportunities: A Cross-National Assessment of Females' Physical and Sexual Assault Victimization," Professor Rachel E. Stein examines how individuals' daily routines and elements of country structure create opportunities prime for victimization. "Research on developing countries will often lump sexual assault, physical assault and robbery together and sometimes studies expand to examine all types of victimization to increase the report record count," Stein said. Using data from the International Crime Victimization Survey from 45 countries, Stein reviewed physical and sexual assault victimization statistics at the national level to determine whether the societal structures around victims played a part in the frequency of attacks. Sexual victimization is defined as incidents where, "people sometimes grab, touch, or assault others for sexual reasons in a really offensive way." Physical victimization is defined as "being threatened or personally attacked by someone in a way that really frightened you." The sample was limited to females only.

Global recovery at risk of stalling - The global economy is mired in a “stop and go” recovery “at risk of stalling again”, according to the latest Brookings Institution-Financial Times tracking index. The index, released ahead of the International Monetary Fund’s twice-yearly forecasts this week, highlights how the modestly improved growth outlook in advanced economies has been offset by weakness in emerging markets. “A modest reversal of fortunes between the advanced and emerging market economies belies the fact that both groups still face stunted growth prospects,” said Professor Eswar Prasad, an economist and senior fellow at Brookings. The world economy grew 3.4 per cent last year, according to the IMF, roughly at its long-term average rate, which disappointed many officials who expected faster expansion because output is still recovering from the effects of the 2008-09 global financial crisis and faster-growing emerging economies now account for more than half of the world economy. Last week, Christine Lagarde, head of the IMF, described the world’s current economic performance as, “just not good enough”. The Tiger index — Tracking Indices for the Global Economic Recovery — shows how measures of real activity, financial markets and investor confidence compare with their historical averages in the global economy and within each country. “Barring three economies with sustained growth momentum — the US, UK, and India — there are few others where short-term growth prospects look encouraging,” Prof Prasad said.

Threats to Global Financial Stability Are Rising, the IMF Says - The International Monetary Fund on Wednesday published its latest review of the top threats to global financial stability, saying risks to the system had increased since last year. The fund cited a long list of potential trouble spots around the world, from currencies to monetary policy. Here are eight major risks on the fund’s radar. Rising Volatility: Wide, damaging swings in exchange rates and bond markets “could become more common and more pronounced” as the financial industry evolves. Events such as the flash crash in U.S. Treasurys last October and the surge in the value of the Swiss franc are the harbingers of such volatility. “Low market liquidity may act as a powerful amplifier of financial stability risks,” the fund said. New technology such as high-frequency trading, stronger regulation of the traditional banking sector and the changing makeup of market participants are creating new vulnerabilities. Deflation and Bad Loans: Policymakers in the eurozone and Japan could foment instability if they rely too much on easy-money policies and fail to address problem loans and overhaul their economies to make them more competitive. “Failure to support current monetary policies will leave the economy vulnerable and risks tipping it into a downside scenario of increased deflation pressure, a still-indebted private sector, and stretched bank balance sheets,” the fund warned. Oil Price Plummet: Consumers, especially in net oil importers such as the U.S., China, India, Europe and Japan, are getting a windfall from falling energy costs. But oil companies and their creditors are facing losses on their cash-intense investments in production. Many companies are finding it increasingly hard to pay their debts.

IMF tells regulators to brace for global 'liquidity shock' - An illusion of liquidity has beguiled financial markets across the world and spawned some of the worst excesses seen on Wall Street in modern times, the International Monetary Fund has warned. Investors are borrowing money to buy shares on the US stockmarket at a torrid pace and are resorting to the same sorts of financial engineering that preceded the last two financial crises. "Margin debt as a percentage of market capitalisation remains higher than it was during the late-1990s stock market bubble. The increasing use of margin debt is occurring in an environment of declining liquidity," said the IMF in its Global Financial Stability Report. "Lower market liquidity and higher market leverage in the US system increase the risk of minor shocks being propagated and amplified into sharp price corrections," it said. The report said there are clear signs that underwriting standards are deteriorating in a pervasive search for yield. So-called "covenant-light loans" with poor protection for creditors now make up two-thirds of all new leveraged loans in the US.

Euro Depreciation Will Restrain the U.S. and China for Years, the IMF Says - Short-term currency pain for the world’s two largest economies will ultimately bring long-term economic gain. That’s one of the key messages from the International Monetary Fund in its latest World Economic Outlook released Tuesday. Bleak growth prospects are leading the fund to back more easy-money policies in Europe and Japan that will depreciate the euro and the yen and juice their economies. For the IMF, the threat of global economic anemia outweighs potential asset bubbles, emerging-market crises and the drag on growth in the U.S. and China as the strengthening dollar and yuan curb exports. To bolster its case, the IMF published economic models showing the potential impacts from the weakening of the euro and the yen against the dollar and the yuan. The IMF assumed that the exchange-rate movements are persistent, only waning gradually over the next five years. The IMF found that the dollar and yuan appreciation cut net exports in the U.S. by nearly 1% of GDP a year and almost 2% of GDP for China. (Dotted lines are a variation on the model where trade responds more gradually.) On the flip side of the coin, exports surged in the eurozone and Japan: That theoretically helps fuel growth in Europe and Japan: As the economies in Europe and Japan revived, the IMF argues, it bumped up demand around the world and boosted global growth: It even boosts Chinese and U.S. gross domestic product, though the loss of exports is a drag on growth in China through 2017 and undermines U.S. output through 2018: This argument is why U.S. officials, along with the other Group of 20 largest economies, in February effectively backed currency depreciation as a tool for promoting growth.

An economic future that may never brighten - It seems at first to be a puzzling scenario, and you might wonder whether it is possible at all: output can be at potential but still not be sustainable. Yet a chapter of the International Monetary Fund’s latest World Economic Outlook illuminates just this scenario. We may even be living in it. Output is “at potential” when it does not generate inflationary or deflationary pressure. Sustainability — and I am referring here to financial sustainability, not the environmental kind — is something else entirely. Output is financially sustainable when spending patterns and the distribution of income are such that the fruit of economic activity can be absorbed without creating dangerous imbalances in the financial system. It is unsustainable if generating enough demand to absorb the output of the economy requires too much borrowing, real rates of interest rates that are far below zero, or both. To see how that predicament might arise, start by imagining an economy that is balanced in the sense that the amount of money which households and businesses wish to save is exactly the same as the amount they wished to spend on physical investments. So far, so good. But suppose growth of potential output then fell sharply. The level of desired investment would also fall, because the needed capital stock would be smaller. But the amount that people wished to save might not fall, or not by as much; in fact, if people expect to be poorer in future, they might even wish to save more. If so, real interest rates might need to decline sharply, to restore balance between investment and savings. Such a decline in real interest rates might also trigger a rise in the price of long-term assets and an associated surge in credit. These effects would offer a temporary remedy to the faltering demand. But if the credit boom later collapsed, leaving borrowers struggling to refinance debt, demand would then operate under a double burden. The medium-term consequences of excess debt and a risk-averse financial sector would aggravate the longer-term consequences of the weaker potential growth. The WEO illuminates one important aspect of such a story. Potential output, it argues, is indeed growing more slowly than before. In the advanced countries, the decline began in the early 2000s; in emerging economies, after 2009. (See charts.)

IMF Forecasts Greece Will Be Europe's Fastest Growing Country; Makes Fun Of Its Own Predictions -- Making fun of the IMF, which has become a quarterly tradition here, has an increasingly sad aspect to it: like picking on a mentally disabled person, and we do it with the greatest of reservations. However, we will continue doing it becuase today, in addition to its latest set of global and regional growth projections, the IMF has provided some serious ammo for mockery but most notably, it is now making fun of itself too! First, here is the latest summary of IMF GDP expectations, as mapped by the organization itself. The IMF's detailed breakdown by country and region is below... ... however the reason we would suggest ignoring it, aside from the IMF's own abysmal forecasting track record... ... is two fold. First, in an appendix titled "Private Investment: What's the Holdup" in which the IMF asks "Is There a Global Slump in Private Investment?", the organization clearly has missed the memo of the past two years in which courtesy of global ZIRP (and NIRP) companies are far more incentivized to buy back their own stock and generate instant returns for management and shareholders than to invest in the future and in "private investment." While we give the IMF a few years to figure this out, we were amused by the IMF's own mockery of itself, when it showed how its own forecasts of private investment in 2004 and in 2007 turned out relative to, well, reality. They need no commentary

QE Must Be Backed by Reforms to Avoid Damaging Side Effects, Says IMF - —Quantitative-easing measures being undertaken by central banks in the eurozone and Japan could have destabilizing side effects on the economy and financial markets unless they are backed by structural reforms and efforts to address problem loans, the International Monetary Fund said on Wednesday. “Failure to support current monetary policies will leave the economy vulnerable and risks tipping it into a downside scenario of increased deflation pressure, a still-indebted private sector, and stretched bank-balance sheets,” the IMF said in its Global Financial Stability Report. “QE—by design—entails a continued low-interest-rate environment,” the IMF said. “While this should help the macro economy, it will pose severe challenges to institutional investors, particularly weak European life insurers, further weighing on their ability to rerisk their balance sheets in support of QE.” The ECB last month launched a €60 billion ($63.3 billion) per month bond-buying plan, mostly public debt, in a bid to raise annual growth in consumer prices—which have contracted four-straight months in the eurozone—back to the ECB’s target near 2%. The plan is expected to run through September 2016, and has already brought government-bond yields down sharply with many government-debt yields now negative in Europe. One key factor in QE’s ultimate success in Europe is how banks tackle nonperforming loans, the IMF said, noting that the eurozone had more than €900 billion in these loans in 2014 concentrated in Cyprus, Greece, Ireland, Italy, Portugal and Slovenia. “Banks with high levels of nonperforming assets may hamper the transmission of QE via banks,” the IMF said.

Ahead of IMF Meetings, a Look at Shifting Economic Risks - It is the season, in Washington, to warn about risks. In her curtain-raiser for the International Monetary Fund’s spring meetings, Managing Director Christine Lagarde used the word a dozen times. But the threats to the world economy are shifting. More will be said about this as finance ministers and central bankers arrive in Washington this week and the IMF issues its semi-annual analyses of the state of the world economy. In case you can’t wait, here’s a quick summary of what’s on the minds of the professional worriers at the IMF when they talk about “the rotation of risks.” * “Macroeconomic risks have decreased,” Ms. Lagarde said. The world economy may be growing at a disappointing pace, but it’s a long way from the recession of just a few years ago. Yet “financial and geopolitical risks have increased.” Especially geopolitical concerns: Think Russia, Ukraine, Syria, Iran, and Yemen. On the financial front, very low interest rates and easy credit may be prompting some investors to make foolish bets in their quest for higher yields. More recently, the sharp moves in the dollar, yen, and euro exchange rates pose a challenge to some economies caught in the cross-fire. Nigeria, for instance, pegs its currency to the dollar even though a rising currency is not what its oil-dependent economy needs right now. * Risks are shifting from advanced economies, which are gradually healing, to emerging markets, where the variety of ailments include falling commodity prices and side effects of a slowdown in China and internal political tensions. This is, of course, a switch from the Great Recession, when emerging markets were a source of strength amid a financial crisis emanating from the U.S. and (later) Europe.

At Global Economic Gathering, U.S. Primacy Is Seen as Ebbing - — As world leaders converge here for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most.The spring meetings of the International Monetary Fund and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J. Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since.“It’s almost handing over legitimacy to the rising powers,” Arvind Subramanian, the chief economic adviser to the government of India, said of the United States in an interview on Friday. “People can’t be too public about these things, but I would argue this is the single most important issue of these spring meetings.”Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns.Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.

IMF says slowing emerging-market growth is sapping global economy - Global economic growth will climb only marginally this year as slowing output in major emerging markets and a feeble expansion in rich countries drag down near-term prospects, the International Monetary Fund said Tuesday. Emerging markets are on course for the sixth consecutive year of falling growth rates, led by a faster-than-expected slowdown in China, a steep contraction in Russia and recession in Brazil, the IMF said in its flagship World Economic Outlook released ahead of its semiannual meetings. With sluggish recoveries in Europe and Japan and softer output in the U.S. as a stronger dollar weighs on exports, the global economy should expand by 3.5% this year, the IMF said. That forecast is up just 0.1 percentage point from last year’s expansion. Global growth is roughly on par with the average of the last three decades. But it isn’t enough to surmount the legacies of the 2008 financial crisis: stubbornly high jobless rates, hefty debt burdens and stagnating growth in several of the world’s largest economies. Together with aging workforces and deteriorating productivity levels around the world, the global economy faces a bleak, l ow-growth outlook through 2020, IMF economists worry. IMF Managing Director Christine Lagarde, who previewed the outlook in a speech last week, will urge the world’s finance officials meeting in Washington this week to use all available policy tools to jolt the global economy out of a nearly decadelong rut.

Obama says Castro meeting could be turning point in U.S.-Cuba ties -  (Reuters) - U.S. President Barack Obama said on Saturday his historic meeting with Cuban President Raul Castro could be a "turning point" as the two former Cold War foes seek to restore full diplomatic relations. Obama met with Castro earlier on Saturday in the highest-level talks between the two countries in almost 60 years. He told reporters at a summit meeting in Panama that the U.S. and Cuban governments will continue to have differences, and that he will push Cuba on issues of democracy and human rights, but that they can advance their mutual interests. He also said his dramatic changes to U.S. policy on Cuba in the last four months have majority support among Americans and the overwhelming support of Cubans.

Financial mafia threatens Correa, Greece the next target? - “Ecuadorean President Rafael Correa says a telephoned death threat forced the abrupt cancellation of a presidential lunch with citizens in a town near Quito. Correa read aloud a threat at a news conference that he said the town's mayor received via text message on his cellphone. He said the message threatened multiple deaths along with his own at Tuesday's lunch. News media showed images of police and soldiers with dogs clearing people from the central square of Tabacundo after they had begun dining.” ( The struggle of Correa to right-off a significant percentage of Equador's public debt is well known. From Wikipedia: “Correa has called for a renegotiation of Ecuador's $10.2 billion external debt, at 25% of GDP, following the example of Argentine President Néstor Kirchner. In his inaugural address on 15 January, Correa stated his belief that part of Ecuador's external debt is illegitimate, because it was contracted by military regimes. He also denounced the 'so-called Washington Consensus.' Correa has threatened to default on Ecuador's foreign debt, and to suspend review of the country's economy by the World Bank and the International Monetary Fund; indeed, on April 26, 2007, he ordered the expulsion from Ecuador of the World Bank's country manager.”  Obviously, the dominant financial system and the global economic elites would receive such actions as a threat to their dominance. The role of Economic Hit Men like John Perkins and their action especially in Latin America is now well known.

Millions of Russians Edge Toward Poverty as Economic Pressure Mounts  - Moscow Times: "There is not sufficient money for food now," said Burkutskaya, who has twins aged 14 and another child aged 13. "They are on holiday in a week and I don't know what I will feed them." A single parent whose disability diagnosis means she does not work, Burkutskaya, 50, said rising inflation meant she could no longer afford non-essentials, particularly clothes. "When you are alone with all your problems it is very difficult," she said, before hurrying off to collect her three children from school. Burkutskaya is one of millions of ordinary Russians squeezed by an economic crisis that will cause the number of people in poverty to spike for the first time since the 1990s, challenging a narrative of rising prosperity that has been a hallmark of President Vladimir Putin's 15-year rule. Some experts predict that almost 10 million people — from a population of 143 million — could this year join the 16.1 million people already living below the poverty line.

US court allows EU money-laundering case vs RJ Reynolds (Reuters) - A sharply divided U.S. appeals court on Monday cleared the way for the European Union to pursue its lawsuit accusing R.J. Reynolds of running a global money-laundering scheme that involved drug and cigarette smuggling. By an 8-5 vote that prompted four written dissents, the 2nd U.S. Circuit Court of Appeals in New York let stand an April 2014 ruling by a three-judge panel of the same court in favor of France, Germany, Italy and 23 other European countries. These countries accused R.J. Reynolds of directing a decade-long scheme from the United States that involved the smuggling of illegal narcotics into Europe by Colombian and Russian crime groups, the laundering of proceeds from the sale of these drugs, and the use of these proceeds by importers to buy R.J. Reynolds cigarettes. The European Union said this hurt its economies and legitimate markets, deprived member nations of tax revenue, and violated the Racketeer Influenced and Corrupt Organizations Act, a U.S. anti-racketeering law. The lawsuit began in 2002. R.J. Reynolds is part of Reynolds American Inc, the 2nd-largest U.S. tobacco company, whose brands include Camel and Pall Mall. The Winston-Salem, North Carolina-based company is awaiting regulatory approval to buy rival Lorillard Inc. Neither R.J. Reynolds nor its lawyers immediately responded to requests for comment.

Taxes on Employment Continue to Rise - —Governments in developed economies raised taxes on employment for the fourth straight year in 2014, although at a slower pace, as they strove to cut their budget deficits without doing too much harm to economic and jobs growth, the Organization for Economic Cooperation and Development said Tuesday. Releasing its annual Taxing Wages report, the Paris-based research body said the tax wedge rose in 23 of its 34 members during 2014, fell in nine and was unchanged in two. The tax wedge is the difference between what businesses pay to employ a worker, and what that worker receives after income taxes and social security contributions from both employers and workers. On average the tax wedge rose to 36.0% of the cost of employing an unmarried worker without a child, from 35.9% in 2013. In the decade to 2010, the tax wedge fell steadily, but that trend reversed as governments sought to shore up revenues as their debts soared in the years following the financial crisis. As in the previous year, that increase in the tax wedge was almost entirely due to higher income taxes, although that was accomplished by a failure to raise tax-free allowances and credits as wages rose, rather than by hikes in tax rates. “Governments are trying to balance the fact that they have got to protect fiscal deficits but at the same time have to create economies growth,” said Maurice Nettley, head of tax data at the OECD. The OECD has long argued that where possible, taxes on employment should be lowered to boost jobs and growth, with governments compensating for the lost revenue by raising taxes on property, consumption and environmentally damaging activities.

A European Rebound? « European Economic Snapshot (series of 8 graphs with analysis) The recent news from Europe has been much more optimistic about a budding recovery for most Europe and the Eurozone. The dramatic decline in the value of the Euro against the dollar and the beginning of  the ECB’s program of quantitative easing has sparked optimism about the prospects for recovery. With complete data for 2014 now in we can begin to see some uptick in European growth. Whether this will prove to be a robust recovery remains to be seen – for now it qualifies only as little green shoots and the problems of Greece will weigh heavily in the months to come. Europe is a story of diverging economic fortunes and those diverging fortunes are leading to political unrest in many countries. The growing influence of more extreme parties is one of the results as countries resist the economic orthodoxy that seems to be imposed by Germany and the wealthier countries. The following chart is based on OECD Data – we have been forced to abandon Eurostat as a data source as they seem incapable of updating the national accounts data for their member countries in a timely way. This shows that, since 2010, U.S. GDP has increased by 10% – slower than we might have wished. Ireland, the U.K. and  Germany have increased by 7-8% while others have been much more stagnant…and then there is Greece. Even those economies that have been stagnant, aside from Greece and Italy, show some signs of improvement. Consumption show much the same picture but most countries have seen an uptick in late 2014.  Investment is more of a concern as it has been slow to recover. Exports are improving across Europe aided by a sharp fall in the value of the Euro beginning in early 2014.  The improvements in the economies will be further aided by the continued fall in the the first quarter of 2015. 

Europe Is Running Low on Children - Figures released by the European Union’s statistics agency Thursday show the 28-member bloc is running low on children, a trend that is set to continue. People aged less than 15 years accounted for 18.6% of the population in 1994, but just 15.6% in 2014. Eurostat estimates the rate of decline will slow in the coming decades, but just 15% of the population will be children in 2050. The situation is even more daunting for the eurozone’s economic powerhouse, Germany. From 16.4% of the population in 1994, children now account for just 13.1%, the lowest proportion in the bloc, and that share is set to fall further: Figures released by the European Union’s statistics agency Thursday show the 28-member bloc is running low on children, a trend that is set to continue. People aged less than 15 years accounted for 18.6% of the population in 1994, but just 15.6% in 2014. Eurostat estimates the rate of decline will slow in the coming decades, but just 15% of the population will be children in 2050. The situation is even more daunting for the eurozone’s economic powerhouse, Germany. From 16.4% of the population in 1994, children now account for just 13.1%, the lowest proportion in the bloc, and that share is set to fall further, to 12.7% in 2050. In Ireland, which has the highest share, children account for 22% of the population, but that too is set to fall. The fact that the bloc’s population is set to age rapidly, and that actual population decline is set to be severe in Germany, is not a new revelation, even if the figures on children bring it home in a fairly stark manner. Children are the workers of the future. And with people living longer, those future workers will each have to support a larger number of retirees. Some economists have concluded that the eurozone may have little choice but to encourage higher levels of immigration if it is to avoid decades of very low economic growth that will leave it with high levels of debt.

Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers - WSJ - Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers. At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes. The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate. All over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates. Interest rates have been falling sharply, in some cases into negative territory, since the European Central Bank last year introduced measures meant to spur the economy in the eurozone, including cutting its own deposit rate. The ECB in March also launched a bond-buying program, driving down yields on eurozone debt in hopes of fostering lending.  In countries such as Spain, Portugal and Italy, the base interest rate used for many loans, especially mortgages, is the euro interbank offered rate, or Euribor. The rate is based on how much it costs European banks to borrow from each other. AdvertisementBanks set interest rates on many loans as a small percentage above or below a benchmark such as Euribor. As rates have declined, sometimes to below zero, some banks have faced the paradox of paying interest to those who have borrowed money from them. Lenders, hoping to avoid the expense of having to pay borrowers, are turning to central banks for guidance. But what they are hearing is less than comforting. Portugal’s central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. The central bank, however, said lenders are free to take “precautionary measures” in future contracts. More than 90% of the 2.3 million mortgages outstanding in Portugal have variable rates linked to Euribor.

"Inconceivable" Negative Interest Rates on Mortgages in Portugal and Spain, with Italy On Deck  - The vast majority of mortgages in Portugal, and a huge number in Italy and Spain are tied to Euribor, the rate it costs European banks to borrow from each other. If Euribor drops low, enough banks will have to pay borrowers. It has already happened in Spain. The Wall Street Journal reports Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers. Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers. At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes. Portugal’s central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. The central bank, however, said lenders are free to take “precautionary measures” in future contracts. More than 90% of the 2.3 million mortgages outstanding in Portugal have variable rates linked to Euribor. In Spain, a spokesman for the central bank said it is studying the issue. Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don’t include any clause on what happens if benchmark rates go below zero. In Spain, Bankinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory. An executive at another Spanish bank said the lender in recent months has started to put in place an interest-rate floor on thousands of short-term business loans that are tied to short-term variations of Euribor. Two-month Euribor, is at minus 0.004%. For new loans, the bank is increasing the cushion it charges customers above Euribor. Hundreds of thousands of additional loans would be affected if medium-term Euribor rates enter negative territory, the executive said. The six-month rate is currently at 0.078%.

Dutch five-year DSLs sell at negative yields for first time (Reuters) - Plunging interest rates across Europe allowed the Netherlands to borrow money over five years at negative yields for the first time on Tuesday, as it raised 2.5 billion euros ($2.64 billion) at a yield of -0.094 percent in a Dutch State Loan auction. The negative yield, which in effect means lenders are paying the Dutch state to hold their money, comes as Dutch central bank warned that low interest rates in Europe posed a risk to insurers' solvency and financial stability as a whole. Yields on Dutch bonds have been in negative territory for some time, with the yield on a three-year DSL reopened on March 10 coming in at -0.129 percent.

Dutch Central Banker Fired For Being A "Nazi Cross-Dressing, Nymphomaniac, Dominatrix" Prostitute -- They say don't let money printing get to your head, but for one now former central banker it is far too late. The identity of the former employee of the Dutch Central Bank in question is unknown, what is known is that the money authority of the Netherlands has fired a 46-year-old female employee who for 6 of her 8 years with the central bank made money on the side as a "dominatrix prostitute who described herself as a high-class nymphomaniac and earned €10,000 a week dressing up as a Nazi and whipping men."

Rise in Eurozone Savings Rate Sounds Deflation Alarm - It’s all looking pretty encouraging for the European Central Bank. The ECB’s quarterly bank lending survey released Tuesday showed that commercial banks are using the funds to make new loans, and that they will continue to do so. Separately, The European Union’s statistics agency said that production by factories, mines and utilities was 1.1% higher than in January, and 1.6% higher than in the same month a year earlier.Taken together, those developments suggest the central banks recently launched €1 trillion ($1.06 trillion) asset-purchase program is already bearing fruit.Those indications that the eurozone’s economy is on the mend follow a series of surveys that point to a broad-based revival in household and business confidence and private sector activity, while prices fell only slightly in March, suggesting inflation may soon return to the currency area.But there are occasional reminders of what so worried policy makers as 2014 drew to a close, and it seemed possible the currency area could slide into deflation, or at last find itself trapped in a long, self-perpetuating period of low growth and low inflation.Figures also released by Eurostat Tuesday showed the savings rate continued to rise as 2014 drew to a close. The savings rate measures that part of disposable income that isn’t spent on goods and services, but instead set aside for future use. The rise in the savings rate hasn’t been particularly dramatic, and takes it back to where it was as recently as the first quarter of 2013 but nowhere near as high as it was in the first quarter of 2009, when households braced themselves for the fallout from the financial crisis. Still, it is a rise, and that will send minor alarm bells ringing for those who fear that households may respond to falling consumer prices by postponing discretionary purchases.

Should We Be Spooked by Deflation? A Look at the Historical Record  - Concerns about deflation – falling prices of goods and services – are rooted in the view that it is very costly. This column tests the historical link between output growth and deflation in a sample covering 140 years for up to 38 economies. The evidence suggests that this link is weak and derives largely from the Great Depression. The authors find a stronger link between output growth and asset price deflations, particularly during postwar property price deflations. There is no evidence that high debt has so far raised the cost of goods and services price deflations, in so-called debt deflations. The most damaging interaction appears to be between property price deflations and private debt.

Greece’s poor are back to where they were in 1980 -- In the last seven years, Greece's economic collapse has wiped out all the progress its poor had made in the previous 28 years.  Now there are a lot of ways to think about how historic Greece's recession has been. Its economy has fallen about as much as the U.S.'s did during the Great Depression. Its unemployment rate peaked at 28 percent. And, as Derek Thompson points out, its cities have become filled with smog during the winters, because its people can't afford to heat their homes any other way than burning whatever they can get their hands on. But think about this last one. It probably gets us the closest to having a real idea what it's been like to live through Greece's slump.  Well, other than the chart above. It shows how much money Greek people from the richest to the poorest 10 percent have had after accounting for taxes and inflation the past 40 years. The simple story, as you can see, is that there was a big jump for everybody after the junta was pushed out in 1974, a big stagnation from the mid-80s to the mid-90s, an even bigger jump, especially for the rich, after that, and then a big crash that's erased 30 years of gains—or more. Greece's rich have done a little better than the rest, with their real disposable incomes "only" falling to 1985 levels. But its poor have fallen even further, all the way back to where they were in 1980.

INET Video: Varoufakis and Stiglitz

Debunking the Causes of the Eurozone CrisisYves Smith - Yves here. One of the major focuses of the INET conference in Paris was the Eurozone crisis. The live broadcast of Nobel prize winner Joe Stiglitz’s interview of Yanis Varoufakis attracted over 50 million viewers. Another event widely anticipated among conference attendees was a panel on the last day of the conference, Saturday, featuring Hans Werner Sinn, a well-known and particularly vocal defender of the orthodox German view of the Greek crisis, that Greece had been a profligate borrower that needed to take a big dose of austerity medicine. The other panelists contested various aspects of Sinn’s thesis, but the most striking and effective contrast came from Servass Storm of Delft University, who summarized a devastating paper that shredded conventional wisdom on the roots of the Eurozone crisis. I’ll present a post on the paper proper later this week. Lee Sheppard was gracious enough to recap the panel, which was notable also by virtue of Sinn toning down his normally forceful views, although in the Q&A section, he became more heated. It is worth noting that Sinn advocated the idea of a temporary exit from the Eurozone for Greece (how does that work, exactly?) with Greece getting relief (aka subsidies) for essential imports like pharmaceuticals.

Euro zone officials shocked by Greece's stance: Germany's FAS paper (Reuters) - Euro zone officials were shocked at Greece's failure to outline plans for structural reforms at last week's talks in Brussels, a German newspaper on Saturday cited participants as saying, adding the Greek representative behaved like a "taxi driver". A meeting of deputy finance ministers on Thursday gave Athens a six working day deadline to present revised economic reform plans before euro zone finance ministers meet on April 24 to consider unlocking emergency funding to keep Greece afloat. Euro zone sources told the Frankfurter Allgemeine Sonntagszeitung that they were disappointed and shocked at Athens' lack of movement in its plans, and in particular its reluctance to talk about cutting civil servants' pensions. The mood between Greece's leftist government and its euro zone partners, especially Germany, has deteriorated in the last few weeks, with personal recriminations flying between ministers and calls from Athens for Berlin to pay war reparations. The paper said at last week's meeting the Greek representative just asked where the money was "like a taxi driver", according to sources, and insisted his country would soon be bankrupt. The euro zone sources told the paper that Greece's creditors do not believe this is the case and that it would be a domestic political issue if Athens is unable to fully pay salaries and pensions. The paper also said that German Finance Minister Wolfgang Schaeuble, who has taken a tough line toward Greece in bailout talks, would have to get the Bundestag lower house of parliament to vote on any fundamental changes to the reform program.

Greek Negotiator "Shocks" Eurozone Officials, Behaves Like "Taxi Driver": Hope Of Greek Deal "Blown" -- The mood between Greece's leftist government and its euro zone partners, especially Germany, has deteriorated in the last few weeks, with personal recriminations flying between ministers and calls from Athens for Berlin to pay war reparations. The paper said at last week's meeting the Greek representative just asked where the money was "like a taxi driver", according to sources, and insisted his country would soon be bankrupt. The euro zone sources told the paper that Greece's creditors do not believe this is the case and that it would be a domestic political issue if Athens is unable to fully pay salaries and pensions.

Greece defends bailout tactics as latest deadline looms - Greece has denied being intransigent in its dealings with eurozone officials, ahead of another crucial week for the cash-strapped country. Greece’s finance ministry dismissed on Sunday a report by a German newspaper which reported that eurozone officials were “disappointed” by Greece’s  failure to come up with plans for economic reforms at last week’s talks in Brussels. The mood between Greece’s leftist government and its eurozone partners has remained tense during negotiations to determine whether or not the country qualifies for further financial aid from international lenders. Frankfurter Allgemeine Sonntagszeitung (FAS) cited officials at last week’s meeting as saying they were shocked by the lack of progress, and that the new Greek representative just asked where the money was – “like a taxi driver” – and insisted his country would soon be bankrupt. Eurozone officials disagreed with this assessment, saying Athens was still able to meet its international obligations, and regarded its ability to pay public sector wages and pensions as a domestic problem, according to the report. They deplored Greece’s unwillingness to discuss cuts to public sector pensions. The finance ministry in Athens hit back on Sunday, saying: “When the readers of FAS read the minutes … the newspaper will have difficulty justifying its headline and the content of its article. Such reports undermine the negotiation and Europe.”

Eurogroup wants Greece's list of reforms by April 20: report - (AFP) - The European Union has given Greece up to April 20 to present a list of reforms which, if found acceptable, would unlock the final tranche of aid funds promised under a multi-billion-euro bailout, a German newspaper reported. Eurogroup ministers have set the deadline in order to have sufficient time to examine Athens' proposal ahead of a meeting on April 24, the Frankfurter Allgemeine Zeitung quoted unnamed representatives in the negotiations in a report to be published in its Sunday edition. Negotiators from Greece and the EU have struggled to make headway over the final payout of 7.2 billion euros as Athens has refused to consider cutting civil servants' pensions. Alexis Tsipras's government, which was elected on an anti-austerity ticket, is reticent about accepting further cuts in public spending. Rather, it is looking at raising national revenues through improving tax compliance.

Greece and lenders head back to technical talks: Technical work aimed at securing a basis for an agreement between Greece and its lenders is expected to begin in Athens and Brussels on Monday ahead of a Eurogroup meeting on April 24. Kathimerini understands that the deliberations will resume after discussions during Wednesday’s Euro Working Group ended with an agreement that Athens should have a comprehensive proposal to make within six working days. The reform proposals will have to cover fiscal, pension, labor and privatization issues, according to creditors. Sources said that during Wednesday’s meeting Greece’s representative, Finance Ministry general secretary Nikos Theocharakis, told his counterparts that the government might not have enough cash beyond April 24. However, lenders do not appear convinced by this as they think Athens is trying to use its lack of liquidity as a way of pressuring the institutions into agreeing to disburse some of the 7.2 billion euros remaining in bailout funds. Nevertheless, Finance Minister Yanis Varoufakis appears certain that that a consensus will be reached soon. “I am very confident,” he told Bloomberg TV on Thursday. “The negotiations are proceeding quite well. It is in our mutual interest to strike a deal by the 24th, and I’m sure we will.”

"We Have Come To The End Of The Road" - Greece Prepares For Default, FT Reports Update: as always is the case in Europe, nothing is confirmed until it is officially denied by officials, so here you go: Greece denies report that it is preparing for debt default ... It should hardly come as a surprise that after the latest round of Greek pre-negotiation negotiations with the Troika, in which the Greek representative was said to behave like a taxi driver, who "just asked where the money was and insisted his country would soon be bankrupt" and in which the Eurozone members "were disappointed and shocked at Athens' lack of movement in its plans, and in particular its reluctance to talk about cutting civil servants' pensions" that the next Greek step is to fall back - yet again - to square zero: threats of an imminent default. Which is precisely what, according to the FT, has happened "Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April."

Greece prepares for debt default if talks with creditors fail - Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April, according to people briefed on the radical leftist government’s thinking. The government, which is rapidly running out of funds to pay public sector salaries and state pensions, has decided to withhold €2.5bn of payments due to the International Monetary Fund in May and June if no agreement is struck, they said.“We have come to the end of the road . . . If the Europeans won’t release bailout cash, there is no alternative [to a default],” one government official said. A Greek default would represent an unprecedented shock to Europe’s 16-year-old monetary union only five years after Greece received the first of two EU-IMF bailouts that amounted to a combined €245bn. The warning of an imminent default could be a negotiating tactic, reflecting the government’s aim of extracting the easiest possible conditions from Greece’s creditors, but it nevertheless underlined the reality of fast-emptying state coffers. Default is a prospect for which other European governments, irritated at what they see as the unprofessional negotiating tactics and confrontational rhetoric of the Greek government, have also begun to make contingency plans. In the short term, a default would almost certainly lead to the suspension of emergency European Central Bank liquidity assistance for the Greek financial sector, the closure of Greek banks, capital controls and wider economic instability. Although it would not automatically force Greece to drop out of the eurozone, a default would make it much harder for Alexis Tsipras, prime minister, to keep his country in the 19-nation area, a goal that was part of the platform on which he and his leftist Syriza party won election in January.

Varoufakis sets up date with Obama to break Greece’s debt stalemate -- Greece's finance minister Yanis Varoufakis is due to meet President Barack Obama on Thursday, in a sign that Athens is appealing to the highest levels of international diplomacy to secure its future in the eurozone. Mr Obama has previously indicated his support for the Leftist government, calling for a fast and equitable solution to the country's debt crisis.  "You cannot keep on squeezing countries that are in the midst of depression," the US president said in February following Syriza's election victory.   The visit comes amidst a growing stalemate between the Greek government and eurozone creditors, with officials at the International Monetary Fund privately voicing doubts about the country's continued membership of the eurozone.  According to reports in Greek media, Poul Thomsen, the IMF's Europe director told his executive board that negotiations were "not working" and he could not envisage a successful conclusion to the country's current bail-out. Athens has also repeated its threats to default on its lenders if no new bail-out cash is released.  A Greek official was quoted in the Financial Times saying: "We have come to the end of the road . . . If the Europeans won’t release bail-out cash, there is no alternative [to a default]."

Greek deficit hits 3.5% of GDP in 2014  - Greece's budget deficit was 3.5 per cent of GDP in 2014 more than doubling forecasts, the official statistical agency says. The government that preceded the radical leftist government elected in January had forecast a deficit of 1.3 per cent of GDP, while the European Commission's forecast was 1.6 per cent. Data on the primary surplus - budget balance between interest payments on debt - also missed earlier forecasts. The previous government had expected primary surplus to be 2.0 per cent of output although Wednesday's data showed that it reached just 0.4 per cent. Overall public debt fell to €317.1 billion ($A443.00 billion) in 2014 from €319.17 billion in 2013. However, it rose as a proportion of output to 177.1 per cent in 2014 from 175 per cent in 2013.

Greek Bonds Tumble, Yield Highest In 2 Years On Report Germany Prepares For Greek Default -- Berlin is drawing up contingency plans as Germany prepares for an increasingly likely Greek default, Zeit reports. The new plan purportedly is designed to prop up the Greek banking sector in the event Athens misses a payment, but it's contingent upon the Syriza government acting less "taxi-driver-ish" at the reform negotiating table. In the event Greece will not cooperate, Germany is prepared to let them go but Brussels will help "facilitate" the transition to the drachma (that currency Goldman recently said the country "can't just print").

A senior eurozone figure says it’s ‘impossible’ to work with Greece and it’ll miss its deadline for a deal -- Greece's bailout negotiations resume again Wednesday, and the outlook is no better.  According to Süddeutsche Zeitung, one of Germany's biggest newspapers, a senior eurozone official said it was "simply impossible" to work with the Greek government.  According to the report, the mood in Europe's institutions is between "frustration and resignation," and the official suggests there will be no deal by the time European finance ministers meet for the Eurogroup Summit on April 24, the soft deadline for an agreement.  The German business newspaper Handelsblatt even had European Commissioner Valdis Dombrovskis chiming in to suggest no deal is likely by the time the Eurogroup meets.  Bloomberg got the same message from its anonymous source in the talks:  The two sides are not moving closer to a deal, said an international official involved with the negotiations. The Greek government's refusal to proceed with any privatizations, and its pledges to reverse labor-market reform, pension reform and budget savings can't be accepted by the country's creditors, the official said.  If the talks go on much longer, they'll run toward May 12, the date at which HSBC expects Greece may have to default.  Here's a chart from Barclays showing major payments coming up for Greece. Without the €7.2 billion ($7.67 billion) bailout tranche, those May-June payments will become increasingly difficult, and it is extremely unlikely that Athens will make them all:

The Weak Suffer What They Must: Yanis And The End Of Europe -- Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016 that reveals a few things that haven’t gotten much attention to date. Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue. Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall.

Another 5.27 Billion in Capital Flight from Greece in March - Data from the Bank of Greece for March shows net Target2 liability for Greece increased by another €5.27 billion in March to €96.427 billion.  Target2 represents capital flight from Greece.  Data for the chart is from Eurocrisis Monitor, with my update reflecting the latest data from the Bank of Greece.  The pace has slowed, but the trend is clear. Capital flight from Greece continues. For a refresher course on Target2, please see Reader From Europe Asks "Can You Please Explain Target2?" Eurozone exposure to Greek liabilities is €96.427 billion of Target2 imbalances plus another €14.028 billion net liabilities related to the allocation of euro banknotes.Thanks to reader Lars who has been following these imbalances. Net liabilities to euro banknotes was about €13 billion last month and €10 billion at the end of 2014.

Greece: Default or Grexit? - Yves Smith -- As the impasse between Greece and its creditors is approaching an inevitable train wreck resolution, commentators who should know better have depicted the possible outcomes as Grexit or a deal. As we have said from the outset, the best of Greece’s bad options is a default while staying within the Eurozone. And given that a Grexit would be messy, would result in losses on the ELA and potentially Target2 balances being allocated to member states (a political nightmare) and could lead to eventual political contagion (as in paving the way for future departures) the least risky path for the EU and Eurozone is also to keep Greece in the fold. As Ed Harrison discusses in a Boom/Bust segment, a default in place is the most likely outcome of negotiations that have degenerated into Greece and the Troika talking past each other. The news wrap starts with an update on Greece and moves straight into the interview with Ed.  Keep in mind that Schauble saying that Greece must stay in the Eurozone is a big shift in his position; he has repeatedly said in the past that if they can’t adhere to the rules, they should leave. However, even though Varoufakis and Schauble now agree that there should be no Grexit, that decision does not lie in their hands. The key party whose forbearance is necessary is the ECB. Now it might seem obvious that the ECB has plenty of reason to accommodate what Germany apparently wants. However, the Bundesbank’s Jens Weidemann has yet to weigh in on this issue, and it is possible that he is more bloody-minded than Schauble. Moreover, the ECB has long been uncomfortable about the use of the ELA, which is meant to be used only with solvent banks that are having temporary liquidity problems, to prop up insolvent institutions.

The ECB Is Considering A Parallel Greek Currency -- Today, to our dismay, we find that the ECB has not only considered a "parallel currency" alterantive but for Greece this may be a reality before long. According to Reuters, the ECB "has analyzed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual second currency within the euro bloc, people with knowledge of the exercise told Reuters." "The fact is we are not seeing any progress... So we have to look at these scenarios."

Greece’s Main Creditors Said to Be Unwilling to Allow Euro Exit --Greece’s major creditors are not ready to let the country drop out of the euro as long as Prime Minister Alexis Tsipras shows willingness to meet at least some key demands, according to two people familiar with the discussions. Chancellor Angela Merkel will go a long way to prevent a Greek exit from the single currency, though only so far, one of the people said. Every possibility is being considered in Berlin to pull Greece back from the brink and keep it in the 19-nation euro, the person said. For all the foot-dragging in Athens, some creditors are willing to show Greece more flexibility in negotiations over its finances to prevent a euro exit, the second person said. The red line is that the Syriza-led government shows readiness to commit to at least some economic reform measures, said both people, who asked not to be named discussing strategy. “Our view is that Greece is not going to exit the euro,” Stephen Macklow-Smith, head of European equity strategy at JPMorgan Asset Management in London, said in a Bloomberg Television interview on Friday. While both sides have “very entrenched positions” in the negotiations, “if you look at the way the euro-zone crisis has developed, in every case what you’ve seen is in return for firm action you get concessions.” Escalating Rhetoric The brinkmanship has sent Greek government bonds heading toward their worst week since Tsipras’s election in January at the head of an anti-austerity coalition. While the public rhetoric has escalated amid a standoff over releasing the last tranche of aid, creditors are willing to cut Greece some slack, the second person said.

ECB’s Nowotny: ELA Can’t Be Long-Term Financing Substitute for Greek Banks - –European Central Bank governing council member Ewald Nowotny said Friday the central bank’s emergency-lending program can’t become a long-term financing mechanism for Greek banks. “Due to the legal structure, the ECB isn’t in the situation to substitute long-term financing, that’s a political decision,” Mr. Nowotny said at the International Monetary Fund’s Spring Meetings. “If a decision [on a program for Greece] doesn’t come about, the ECB can’t replace it, we’re not a replacement for a politically-decided program,” Mr. Nowotny said. The ECB can only offer emergency-liquidity assistance, or ELA, to solvent banks, and the Greek banks currently receiving it can’t increase their exposure to Greek government debt. Under ELA, the Greek central bank lends money to its country’s financial institutions. The loans carry a higher interest rate than standard ECB loans, and the credit risk stays with Greece. Austrian Finance Minister Hans Jörg Schelling said IMF officials have told the Austrian delegation that the financial situation in Greece remains “diffuse” as talks between international creditors over the country’s credit crisis continue. “We still don’t have any clarity unfortunately, and the largest problem we have is one of trust,” the minister said.

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