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

Saturday, May 2, 2015

week ending May 2

Boston Fed Admits There Is No Exit, Suggests QE Become "Normal Monetary Policy" - It’s virtually impossible to say what effect Fed tightening will have in both the Treasury and corporate bond markets given the lack of liquidity in both and then there’s EM where carnage unfolded in 2013 after a certain bearded bureaucrat said the wrong thing about the direction of Fed policy.  Given all of this, we’re not surprised to learn that in a new paper entitled “Let’s Talk About It: What Policy Tools Should The Fed ‘Normally’ Use?”, the Boston Fed is now suggesting that QE become a permanent tool at the disposal of the Fed. After all, “financial stability” depends on it…During the onset of a very severe financial and economic crisis in 2008, the federal funds rate reached the zero lower bound (ZLB). With this primary monetary policy tool therefore rendered ineffective, in November 2008 the Federal Reserve started to use its balance sheet as an alternative policy tool when it began the large-scale asset purchases. Now attention is turning to how the Fed should transition back to a more conventional monetary policy stance. Largely missing from these discussions about the Fed's "exit strategy" is a consideration that perhaps it should retain, not discard, the balance sheet tools.  Yes, oddly missing from the Fed’s exit strategy is the idea that there should be no exit.

Fed mulls perma-QE - During the onset of a very severe financial and economic crisis in 2008, the federal funds rate reached the zero lower bound (ZLB). With this primary monetary policy tool therefore rendered ineffective, in November 2008 the Federal Reserve started to use its balance sheet as an alternative policy tool when it began the large-scale asset purchases. Now attention is turning to how the Fed should transition back to a more conventional monetary policy stance. Largely missing from these discussions about the Fed’s “exit strategy” is a consideration that perhaps it should retain, not discard, the balance sheet tools. Since the Dodd-Frank Act (DFA) has added maintaining financial stability to the Fed’s existing dual mandate to achieve maximum sustainable employment in the context of price stability, it might be beneficial to have several tools to achieve multiple policy objectives. An additional consideration is that some of these tools may be needed to stem future crises as a result of the DFA’s new limitations on how the Fed can provide liquidity under such adverse circumstances. In an effort to spur a broader debate, this brief discusses what is known and knowable regarding the effectiveness of balance sheet tools and examines four primary arguments for keeping these as part of the Fed’s toolkit.

Fedspeak Cheatsheet: Fed Officials Could Wait Longer to Raise Rates - Federal Reserve officials have made clear they won’t raise interest rates at their policy meeting Tuesday and Wednesday. And they’ve stopped using phrases such as “considerable time” and “patient” to signal how much longer they’ll wait to start lifting borrowing costs. So the only suspense this week surrounds how their post-meeting statement will characterize the winter slowdown in U.S. growth. Several officials have said recently they think it was probably a temporary soft patch, and they expect to see a rebound in coming months. A small number of policy makers still want to start raising their benchmark short-term interest rate from near zero this summer, but others sound increasingly inclined to wait until the fall or even later to act. Two say they want to wait until next year. Here are some key excerpts from Fed officials’ public remarks since their March meeting.

FOMC Statement: Slowdown "in part reflecting transitory factors" -- FOMC Statement: Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Read the Full Text of the Fed’s April Statement -- Here is the full statement from the Federal Reserve’s policy-making committee.

Parsing the Fed: How the Statement Changed in April from March -- The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the April statement compared with March.

Highlights from the Fed’s April Policy Statement -- What caught our eye in the Federal Reserve‘s April policy statement, released Wednesday:  Federal Reserve officials kept open the door to an interest-rate increase in June, but it looks increasingly unlikely, given weakening economic conditions since the Fed’s last policy meeting. The Commerce Department said this morning gross domestic product slowed to a 0.2% seasonally adjusted annual rate in the first quarter, down from 2.2% from the fourth quarter and 5% in the third quarter. The Fed this afternoon acknowledged that the economy slowed in the winter months, “in part reflecting transitory factors.” The pace of job gains has moderated, growth in household spending declined and business investment softened, officials said. But they expect “with appropriate policy accommodation, economic activity will expand at a moderate pace.” For most Fed watchers, a June rate hike now seems pretty unlikely. The September meeting is for most the next logical date for action because it has a press conference. But Paul Ashworth at Capital Economics sees it a bit differently. “We wouldn’t completely rule out a late July hike, however, since Fed Chairwoman Janet Yellen could use her semiannual congressional testimony in mid-July to flag such a move ahead of time,” he writes. “Either way, we still think the Fed will start to raise rates in the second half of this year and, as wage growth and price inflation rebound, we anticipate that rates will rise much more rapidly next year than either the markets or the Fed currently expect,” The Fed has said it won’t raise rates until it sees inflation moving toward its 2% target. The Commerce Department’s report this morning on first-quarter economic growth showed prices fell 2% in early 2015, while core prices excluding food and energy grew 0.9%. In its statement, Fed officials reiterated that they expect inflation to gradually return to their 2% objective “as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.” –Kate Davidson

Fed Watch: FOMC Snoozer --The FOMC concluded their meeting today, and the result left Fed watchers struggling to find something interesting to say. The really offered no insight into the economy with the opening paragraph:  Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable. Policy-wise, nothing changed other than the elimination of any date-based forward guidance, as expected.  In their defense, the repeated pattern of weakness in the first quarter over the past several years should leave one hesitant to draw much if any conclusions from recent data. I attribute the flat growth to a variety of factors, most of which are technical or transitory: seasonal adjustment problems, weather impacts, the West coast port slowdown, a greater initial impact of falling oil prices on investment than consumption (as predicted by the Atlanta Fed), and the stronger dollar. It was a mistake to get caught up in last year's first quarter GDP decline, and I think it would be a mistake to get caught up in this year's. Indeed, the underlying pace of growth remains stable to ever-so-gradually accelerating:

Fed’s Mester: ‘All Meetings Are on the Table’ For Rate Rises - Federal Reserve Bank of Cleveland President Loretta Mester said Friday she is not yet willing to rule out supporting a rise in rates at central bank’s June policy meeting despite data showing a very weak start to growth in 2015. When it comes to boosting rates off their current near zero levels, “all meetings are on the table,” Ms. Mester told reporters after a speech held at the Federal Reserve Bank of Philadelphia. “I’m going to be data dependent, I’m going to look at the data, and go into each meeting with an assessment of the data that comes in. So I’m not taking any of the meetings off the table.”  Ms. Mester is the first official to speak publicly since this week’s gathering of the monetary-policy setting Federal Open Market Committee. Officials held interest rates steady then amid rising concern about the economy after data showed negligible levels of growth in the first quarter. The economy’s performance is raising questions about the ability of the Fed to boost rates off of near-zero levels this year, as many central bankers would like to see. Market expectations of the first rate rise have been moving steadily later into the year in reaction to the data. A number of key officials have also shown less confidence about the timing of the increase. In recent remarks Ms. Mester had signaled an openness to raising rates over the first half of the year, which pointed to the Fed’s mid-June policy meeting as a time the institution could act. In her comments to reporters, Ms. Mester kept that expectation in play. She signaled that while data over the first quarter was indeed a “disappointment,” it remains to be seen whether the weakness will prove enduring. “It’s too early” to be sure the second quarter has already run into trouble, she said.  “We have quite a bit of data coming out between now and the June meeting, and I’m going to be particularly attentive to that data,” especially when it comes to job market numbers, Ms. Mester said. “I can be agnostic at this point and just wait for the data to come in,” and then decide on what the right policy for rates will be, she said.

When Exactly Will The Fed Launch QE4? - US households appeared to reach “peak debt” in 2007. Now, the corporate and government sectors – not to mention students and auto buyers – are pulling up to their maximum debt limits, too.   “Everybody – including every corporation and government – has a capacity limit for debt,” says Swiss money manager Felix Zulauf. “Once they reach capacity, they stop buying. Then the additional sales turn to additional inventories, employees turn to jobless statistics, and profits turn to losses.” Maybe the cycle will reverse soon. Maybe it won’t. But US corporate profits – already at record highs – can’t go much higher unless: (a) wages rise, (b) consumer borrowing rises or (c) government borrowing rises. None of which looks likely.   No one earned it. No one saved it. But here’s our prediction: Someone will miss it when it is gone! If the US money supply were a deck of cards, Uncle Sam has been slipping in extra aces for the last 44 years. In the third quarter, net liquidity is likely to turn negative. And the stock market is likely to correct. What then? The Fed will panic and announce QE4… and other measures.

Quantitative Easing and The Great Recession: Who Wins? Who Loses? - The Federal Reserve (“the Fed”), the central bank of the United States, is at the center of a big political fight, once again. Ron Paul, former libertarian congressman, says we should “End the Fed” and reinstitute a gold standard; Rick Perry, former governor of Texas, said the Fed policy of low interest rates is “treasonous” and Fed officials should be sent to Texas where they know how to “deal with” such people; Senator Rand Paul (Ron’s son) has put forward a bill to “Audit the Fed” and establish more Congressional control over monetary policy; and progressives from Senators Bernie Sanders and Elizabeth Warren to the Occupy Movement are highly critical of the revolving door between Fed officials and Wall Street, but oppose Paul, Paul and Perry’s “hard money” policies that would make life harder for debtors. Such enduring conflicts have real causes; in its founding and very structure, the Fed is a creature of the financial industry, yet the Fed has enormous economic power that affects everyone in the U.S. economy (and indeed, the world). Most importantly, it has enormous public power – to print legal tender (the U.S. dollar) – yet it has a political structure that to varying degrees insulates it from democratic control. And with the demise of fiscal policy as a strong tool of macroeconomic policy (conservatives have blocked the use of government spending and taxation as tools of economic policy), the Fed’s power to set interest rates has become the most important and flexible tool of macroeconomic policy.

The Taylor Rule: A benchmark for monetary policy? - Ben Bernanke - Stanford economist John Taylor's many contributions to monetary economics include his introduction of what has become known as the Taylor rule (as named by others, not by John). The Taylor rule is a simple equation—essentially, a rule of thumb—that is intended to describe the interest rate decisions of the Federal Reserve's Federal Open Market Committee (FOMC). The Taylor rule is a valuable descriptive device. However, John has argued that his rule should prescribe as well as describe—that is, he believes that it (or a similar rule) should be a benchmark for monetary policy. Starting from that premise, John has been quite critical of the Fed's policies of the past dozen years or so. He repeated some of his criticisms at a recent IMF conference in which we both participated. In short, John believes that the Fed has not followed the prescriptions of the Taylor rule sufficiently closely, and that this supposed failure has led to very poor policy outcomes. In this post I will explain why I disagree with a number of John's claims.  I'll begin with some Taylor rule basics. Historically, the FOMC has set monetary policy by raising or lowering its target for the federal funds rate, the interest rate at which banks make overnight loans to each other. The Taylor rule, which John introduced in a 1993 paper, is a numerical formula that relates the FOMC's target for the federal funds rate to the current state of the economy. Here's the formula:

Bernanke 1; WSJ Editorial Board 0 -- From Bernanke's Blog -- It's generous of the WSJ writers to note, as they do, that "economic forecasting isn't easy." They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent.  and then there is this: The WSJ also argues that, because monetary policy has not been a panacea for our economic troubles, we should stop using it. I agree that monetary policy is no panacea, and as Fed chairman I frequently said so. With short-term interest rates pinned near zero, monetary policy is not as powerful or as predictable as at other times. But the right inference is not that we should stop using monetary policy, but rather that we should bring to bear other policy tools as well. I am waiting for the WSJ to argue for a well-structured program of public infrastructure development, which would support growth in the near term by creating jobs and in the longer term by making our economy more productive. We shouldn't be giving up on monetary policy, which for the past few years has been pretty much the only game in town as far as economic policy goes. Instead, we should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy. Just beautiful.

Why the Fed Will Crash the Economy If It Hikes Rates: In Three Charts -- If you’ve been scratching your head since the middle of last year as consumer confidence surveys depicted an optimistic, eager to spend consumer while other hard economic data was showing a sputtering economy, we’re here to put your mind to rest. You’re not crazy. The U.S. economy is dramatically diverging from where most consumers think it is and we have three charts to prove it.  Most Americans have never heard of the Labor Force Participation Rate. Consumers judge the availability of jobs, or lack of them, by the Unemployment Rate that is fed to them in newspaper headlines and TV sound bites monthly. The Unemployment Rate has been coming down nicely and fueling positive vibes among consumers. Unfortunately, the Labor Force Participation Rate, which measures the number of people who are either employed or actively looking for a job has been hitting historic low numbers, suggesting far more slack in the labor market than captured by the official Unemployment Rate. Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find — in other words, you are severely underemployed — the government doesn’t count you in the 5.6%. Few Americans know this.” (Read the full article here.)Then there is the divergence between consumer confidence and spending on big ticket items, i.e., durable goods, items expected to last for three or more years. A healthy consumer should be committing to buying refrigerators, washing machines, computers, etc. But check out the chart below showing the dramatic divergence between consumer confidence and durable goods orders.

Could Machines Put Central Bankers Out of a Job? - The fast-changing technological infrastructure of financial transactions, including nonbank finance, digital currencies, peer-to-peer lending and crowd-funding present a challenge to the monetary policies of the Federal Reserve and other top central banks, says Randall Kroszner, a former Fed board governor. In a paper presented at the Atlanta Fed’s 20th annual conference on financial markets, Mr. Kroszner explores the implications of technological shifts for commercial banks, whose lending-on-deposits model underpins the ability of interest-rate policy to be transmitted to the real economy. “From a macroeconomic perspective, commercial banks–and possibly central banks–face the potential for disruptive competition in the payments system that could affect the traditional channels of monetary policy transmission,” writes Mr. Kroszner, who was a Fed governor from 2006 through 2009, through the worst of the financial crisis. For years, the Fed has loosened or tightened credit by adjusting the amount of banks’ excess reserves, the money they park at the central bank. When the Fed added reserves to the system, interest rates fell, encouraging borrowing and spurring economic activity. When the Fed removed reserves, rates rose and the economy cooled. But now, Mr. Kroszner says, new funding sources could reduce the Fed’s control of the supply of money, rates and inflation. “Digital currencies, mobile-phone banking, crowd-funding, peer-to-peer lending could diminish the role that traditional commercial banks play in the standard ‘money multiplier’ process through which changes in bank reserve affect the money supply and the price level,”

2% Inflation Rate Target Is Questioned as Fed Policy Panel Prepares to Meet -  The cardinal rule of central banking, in the United States and in most other industrial nations, is that annual inflation should run around 2 percent.But as the Federal Reserve prepares to start raising its benchmark interest rate later this year to keep future inflation from exceeding that pace, it is facing persistent questions about the wisdom of the rule and the possible benefits of significantly increasing its target.Higher inflation could disrupt economic activity, but it also would enhance the Fed’s power to stimulate the economy during recessions. And some experts say the struggles of the Fed and other central banks to provide enough stimulus since the Great Recession suggest they could use more room for maneuvering.“Most developed countries’ central banks have experienced difficulty in providing sufficient monetary stimulus to spur a robust recovery in their economies,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a recent speech in London. “This may imply that inflation targets have been set too low.”As the Fed’s policy-making committee concludes a two-day meeting in Washington on Wednesday, officials were expected to discuss how much longer the central bank should hold its benchmark rate near zero, as it had done since December 2008. Officials had planned to start raising rates between June and September, but growth has fallen short of the Fed’s expectations this year, which could delay the liftoff.Inflation has mostly remained well below the 2 percent target since the global economic downturn. The Fed’s preferred measure, published by the Bureau of Economic Analysis, rose just 1.4 percent during the 12 months ending in February.

PCE Price Index: Virtually No Change in the Fed's Preferred Inflation Gauge -- The Personal Income and Outlays report for March was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate is 0.33%, statistically unchanged from 0.31% the previous month. The Core PCE index (less Food and Energy) at 1.35% is only one basis point above the previous month's 1.34% YoY.  The general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. In April of 2013, the Core PCE dropped below 1.4% and hovered in a narrow YoY range of 1.23% to 1.35% for twelve months. The subsequent months saw a higher plateau approaching 1.5%, but the most recent months are closer to the lower range.  The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when Core PCE hovered in a narrow range around its interim low, a level to which it has returned in the last four months. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. Also included is an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The two percent benchmark is the Fed's conventional target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. The most recent FOMC statement now refers only to the two percent target.

U.S. Inflation Undershoots the Fed’s 2% Target for the 35th Straight Month - It’s now been nearly three years since U.S. inflation hit the Federal Reserve’s 2% target, according to new data from the Commerce Department. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose just 0.3% in March from a year earlier, the same increase as the previous month, the Commerce Department said Thursday. That was the 35th consecutive month that inflation has undershot the Fed’s goal. The oil price crash, a strong dollar and weak overseas economies have all kept inflation at bay. But some slack in the U.S. economy may also be keeping prices muted. Excluding the volatile food and energy categories, prices climbed 1.3% in March from a year earlier for the fourth consecutive month. The Fed has two mandates: maximum employment and price stability. The two aren’t at odds, at least for the moment, but we’re getting closer.  In projections released last month, Fed policy makers lowered their estimate of the longer-run jobless rate to a range between 5% and 5.2%. But inflation isn’t even close. Some central bank officials have flagged low inflation as a concern, but most say the weak readings are likley due to temporary factors–such as lower oil prices–and they eventually expect it to move back toward 2%.

Fed Watch: Data Note -- The Personal Income and Outlays report for March was released today. The pace of spending accelerated to 0.3% in real terms, the highest since last November and indication that the economy is perhaps shaking off some of its winter blues. On the other hand, inflation undershot the Fed's target for the 35th consecutive month, with core-inflation climbing just 1.3% over the past year. I would be a little wary that Fed officials won't find room for a somewhat more optimistic read on the data. Indeed, core-inflation on a monthly basis is also recovering from a winter stumble: The annualized monthly rate was for core-PCE inflation was 1.79% in March, arguably within spitting distance of the Fed's target. Definitely something policymakers will be watching. At least those not thinking that 2% is too low a target in any event. So although we should keep an eye on the year-over-year numbers, we should be listening for what policymakers say about the month-over-month trends. Right now, those trends argue in favor of the "transitory" hypothesis. Monetary policymakers will also be watching, obviously, next week's employment report. Only two left before the June meeting, and they need to be reasonably good for the pendulum to swing back to the hawks by then. But would only "reasonably good" be "good" enough? One thing I am watching is how much longer Fed officials will be content to risk falling behind the curve. I think the Fed is concerned about the potential for a discontinuous jump in wage growth as the economy approaches 5% unemployment, illustrated as:

Deflation? Oil's 45 percent rebound could be markets' next headache -- Whisper it, but the next challenge for financial markets and policymakers may not be deflation, but the remarkable surge in oil prices from the six-year low touched in January. Since then, Brent crude futures have risen 45 percent. If that is sustained or even increased throughout this year, inflation next year could rise significantly, posing questions for policymakers largely committed to ultra-loose policy. No fewer than 27 central banks around the world have eased monetary policy to some extent this year in a battle against deflation, slowing growth or both. These measures have ranged from interest rate cuts to bond-buying “quantitative easing” programs. All have been in response to the fall in inflation rates and inflation expectations driven by the 60 percent collapse in oil prices over the latter part of last year. Investors’ bets on the timing of the first interest rate increase from the U.S. Federal Reserve were pushed back to late this year or maybe even 2016, the euro plummeted and global stocks rose to new historical peaks. But many of these market moves have stalled, some even reversing. Inflation assumptions baked into index-linked bonds have rebounded, the euro is up five weeks out of the last six, and asset prices of oil exporters such as Russia have recovered a large chunk of last year’s dramatic oil-led slump.

Forecasting Q1 GDP: Gazing Into the Crystal Ball - The big economic number this week will be the Q1 Advance Estimate for GDP on Wednesday at 8:30 AM ET.  What do economists see in their collective crystal ball for Q1 of 2015? Let's take a look at the GDP forecasts from the latest Wall Street Journal survey of economists conducted earlier this month. Here's a snapshot of the full array of WSJ opinions about Q1 GDP with highlighted values for the median (middle), mean (average) and mode (most frequent). In the latest forecast, the median and mean were quite close. The mode (ten of 62 forecasts) was a tad lower at 1.2%, and the second most frequent value, held by eight respondents, was bit higher 1.5%. In essence, 35% of the economists' forecasts fell within a narrow 0.3% range.As the visualization above illustrates, despite the cluster in the middle, the overall opinions ranged from a grimly pessimistic 0.0% to a happy outlier at 3.0%. The consensus is for 1.0%. The consensus is fractionally higher at 1.1%, but its own estimate is for 0.4%.  Wednesday's release of the Advance Estimate for Q1 GDP is, of course, a rear-view mirror look at the economy. The WSJ survey also asks the participants to forecast GDP for the four quarters of 2015. Here is a table documenting the median, mean and extremes for those forecasts.

U.S. GDP barely grows in first quarter - — The nation’s economic growth slowed to a crawl in the first quarter, a period marked by severe weather, a soaring dollar that curbed American exports and a steep drop in investment by U.S. energy companies after oil prices tanked. Gross domestic product expanded by a meager 0.2% annual pace, well below the MarketWatch forecast of a 1.2% gain. By contrast, the economy grew at a 2.2% rate in the final three months of 2014. For the most part, consumers continued to spend at modest clip to keep the economy afloat, helped by a sharp drop in inflation that stretched their dollars a little further. Outlays rose 1.9%, down from an unsustainable 4.4% in the prior quarter but just several ticks below the average gain since a U.S. recovery began in mid-2009.Steady consumer spending, fueled by a surge in hiring over the past few years and a plunge in gasoline prices, is expected to keep the economy on track for stronger growth in the months ahead. Most economists predict a rebound soon in a replay of what happened in 2014, when a 2.1% decline in first-quarter GDP spawned by harsh winter weather was followed by outsized gains of 4.6% and 5% in the spring and summer. “First quarter GDP was disappointing, but the economy should bounce back in the second quarter and in the rest of this year,” said Gus Faucher, senior economist at PNC Financial Services. Yet few expect the snapback in 2015 to be quite as strong, owing mainly to the strong dollar. The dollar has jumped almost 10% in value over the past 12 months, making American goods and service more expensive for foreigners to buy. A major labor dispute at key West Coast ports earlier this year that’s since been settled also disrupted the flow of trade. As a result, exports sank 7.2% in the first three months of the year, while imports edged up 1.8%, the Commerce Department said Wednesday. A bigger trade deficit subtracts from GDP.

BEA: Real GDP increased at 0.2% Annualized Rate in Q1 - From the BEA: Gross Domestic Product: First Quarter 2015 (Advance Estimate) Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent....The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.  The deceleration in real GDP growth in the first quarter reflected a deceleration in PCE, downturns in exports, in nonresidential fixed investment, and in state and local government spending, and a deceleration in residential fixed investment that were partly offset by a deceleration in imports and upturns in private inventory investment and in federal government spending.The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.5 percent in the first quarter, compared with a decrease of 0.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 0.3 percent, compared with an increase of 0.7 percent. Real personal consumption expenditures increased 1.9 percent in the first quarter, compared with an increase of 4.4 percent in the fourth.. The advance Q1 GDP report, with 0.2% annualized growth, was below expectations of a 1.0% increase.  Personal consumption expenditures (PCE) increased at a 1.9% annualized rate. The key negatives were trade (subtracted 1.25 percentage point) and investment in nonresidential structures (subtracted 0.75 percentage points). Trade was impacted by the West Coast port issues, and the decline in nonresidential structures was probably due to bad weather and less investment in oil and gas.

Q1 GDP Advance Estimate Surprises to the Downside - The Advance Estimate for Q1 GDP, to one decimal, came in at 0.2 percent, a substantial drop from the 2.2 percent of the previous quarter. Today's number was a disappointment for most economic forecasts, which were looking for a higher Advance Estimate. For example, both and had forecast of 1.0 percent. Today's weak number, however, was not a complete shock. Note that the Atlanta Fed's GDPNow indicator, last updated on April 26th, was forecasting Q1 GDP at 0.1 percent. Here is an excerpt from the Bureau of Economic Analysis news release:  Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.   The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and "Comparisons of Revisions to GDP" on page 5). The "second" estimate for the first quarter, based on more complete data, will be released on May 29, 2015.   The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release]  Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.25% average (arithmetic mean) and the 10-year moving average, currently at 1.50 percent.

Economy stalls in the first quarter - The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 0.2% annual rate in the first quarter. And that was even after a big inventory build-up from goods produced but not sold. Taking out the inventory contribution, real final sales fell by half a percent at an annual rate.  The biggest factor was a deterioration in net exports, with lower exports subtracting nearly 1 percentage point from the annual growth rate and rising imports subtracting another quarter point. The strengthening dollar, which ended the quarter 8% higher than it had started and 20% higher than it had been a year earlier surely contributed to this. To the extent the strong dollar reflects the fact that the U.S. is likely to tighten monetary policy sooner than some of its trading partners, this underscores the need for the Federal Reserve to take international developments into account. The good news is that the dollar has slipped back down 2% from where it had been at the end of March. Labor problems on west coast ports during the quarter may also have had some temporary effect on exports. But to the extent that the fall in exports reflects economic weakness outside the U.S., it is more of a source of concern.The GDP numbers also reflected weakness within the U.S., with nonresidential fixed investment subtracting 0.44 percentage points from the annual growth rate. Bill McBride thinks this “was probably due to bad weather and less investment in oil and gas.” Shale oil has changed industry dynamics in that firms get can get in and out of these operations much more quickly than most conventional oil projects. The result is that the lag between an oil price change and a response in investment spending is shorter than it used to be. I was expecting this to be more than offset by higher consumption spending as consumers spent the cash they saved at the gas pump. But consumption growth in the first quarter was also weaker than it has been.  The new GDP report brought a modest increase in our Econbrowser Recession Indicator Index up to a still quite low value of 7.9%. This uses today’s data release to form a picture of where the economy stood as of the end of 2014:Q4, and views the Q1 report as most likely a temporary disappointing blip.

Economy Stalled as First Quarter GDP Only 0.2% --  First quarter 2015 real GDP is a measly, pathetic 0.2%.  That's quite disappointing, and just shavings and crumbs away from contraction.  Consumer spending was less than half of the contribution Q4 brought and exports imploded.  While some think this is a report to ignore, that economic growth will spring back, we think this is quite a foreboding of bad news. As a reminder, GDP is made up of:  Y= C + I + G + (X - M)  where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the GDP component comparison in percentage point spread from Q4 to Q1.  Lest we forget, trade data is always delayed and we believe imports will be revised much higher, potentially causing a Q1 GDP contraction. Consumer spending, C was 44% of the Q4 amount.  Consumer spending is the engine of the economy so this is quite the bad sign in terms of demand.  Durable goods was miniscule, only a 0.05 percentage point contribution as individual sector contributions were flat across the board.  Consumer spending services added 1.26 percentage points with health care by itself adding 0.62 percentage points to GDP.  That is an enormous amount of spending just on health care.  For comparison's sake, spending to house oneself and corresponding utilities was a 0.59 percentage point GDP contribution.  Below is a percentage change graph in real consumer spending going back to 2000. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon).  This is another horrific sign for when the economy is doing poorly the first thing to do is durable goods spending.Imports and Exports, M & X slammed Q1 GDP with a -1.25 percentage point subtraction. Exports were-0.96 percentage points as imports were -0.29 percentage points. The worse news of this beyond a significant decline in export demand is trade data always comes in for the next revision to GDP and almost always pulls GDP lower due to imports. Government spending, G contributed –0.15 percentage points to Q1 GDP, where federal government spending stopped it's hemorrhage with a 0.02 percentage points of GDP. State and local government gross investment took off -0.23 percentage points to real GDP.

1st Quarter GDP Disappoints…Again. « U.S. Economic Snapshot:  (10 grahs) Today’s release of first quarter real GDP by the Bureau of Economic Analysis saw another weak 1st quarter, gaining only 0.2% at an annual rate.  It was expected that first quarter growth would be weak but this was below most analysts estimates. They were off by about a full percentage point as the median forecast was around 1%. The first quarter of last year was forecast to be around 1.1% and the eventual revisions left it at -2.1%!  It may well be that the first quarter numbers for 2015 will eventually come in negative. While there is much discussion of the impact of a severe winter on GDP…that is only a small part of the story. The bigger issues facing the economy are declining commodity prices – particularly oil prices and the much stronger U.S. dollar as other countries try to stimulate their domestic economies. The U.S. is a big oil producing economy so the impact of lower oil prices, while helping consumers, hurts producers and has a decidedly chilling impact on investment. In the first quarter alone, twenty five central banks around the world eased their monetary policies in an attempt to stimulate their economies. The effects of these could be long lasting. The decline in investment is likely to be a long lasting drag on growth. The decline in exports is only the first wave of the impact of a strengthening dollar. The biggest detractors from GDP growth in the first quarter were non-residential fixed investment and exports. Nevertheless, the U.S. has an interest in other countries stimulating their economies. The U.S. is still the strongest game in town. Europe and Japan have continued to lag far behind in the recovery from the financial crisis – a fact the following graph makes very clear. But this tolerant stance will become more difficult to maintain when the Fed begins the cycle of raising interest rates later this year. That will undoubtedly strengthen the dollar further and raise questions about the unsynchronized nature of monetary stimulus among developed economies. So what does all this mean for the Fed and the future of policy? With such a weak reading for GDP and with the Atlanta Fed’s GDPNow forecast of just 0.9% growth for the second quarter likely means liftoff is likely not in the cards for the next couple of meetings at least.

First-Quarter GDP – At A Glance - WSJ:  U.S. economic output expanded at a 0.2% seasonally adjusted annual rate in the early months of 2015, the Commerce Department said Wednesday. Here’s a quick look at the report. A number of factors pulled overall first-quarter growth lower, including bad weather, a slowdown at West Coast ports, a stronger U.S. dollar, weak global demand and lower oil prices. The single biggest drag was falling exports of goods, which knocked 1.26 percentage points off GDP, the most since the first quarter of 2009. The second-biggest factor weighing on growth was a slowdown in business investment in new structures. U.S. consumer spending slowed in the first quarter, despite lower gas prices and strong job creation. Spending on goods inched up at a 0.2% rate, compared with 4.8% in the fourth quarter. Spending on services grew at a 2.8% pace, compared with the previous quarter’s 4.3%. Spending on housing and utilities contributed 0.59 percentage point to the quarter’s 0.2% growth rate, versus 0.24 percentage point in the prior GDP report. That was offset in part by lower spending on motor vehicles and groceries. Business Investment Drops Businesses slowed spending in the early months of the year, suggesting U.S. companies remain cautious amid weak global demand and the strengthening dollar. Business investment–which reflects spending on software, research and development, equipment and structures—shrank at a 3.4% rate, after growing at 4.7% in the fourth quarter and 8.9% in the third quarter. The dropoff reflected a slowdown in spending on new structures, driven primarily by the oil sector. Trade Weighs on First-Quarter Growth Foreign trade subtracted 1.25 percentage points from the first quarter’s 0.2% GDP growth rate. Exports fell at a 7.2% annual pace during the quarter, down from the previous quarter’s 4.5%, while imports slowed to 1.8%. Imports are a subtraction from the GDP calculation, so that dragged down broader growth, though not as much as the previous quarter. A stronger dollar makes U.S. exports more expensive and imports cheaper.  Federal Reserve officials have been watching for signs of firming inflation as they weigh when to raise interest rates. They didn’t get any reassurance from this morning’s report, which showed overall prices fell 2%, the most since the first quarter of 2009. Prices excluding food and energy rose 0.9%, still well below the Fed’s 2% inflation target.

Real Q1 GDP 0.2% vs. Consensus 1.0%; Disaster in the Details - The first quarter real GDP estimate of 0.2% was released today. In spite of all the extremely week economic reports lately, economists still could not figure out GDP was going to be near zero. The Bloomberg Consensus estimate was for 1.0%. Note the lowest estimate was 0.2%. No one predicted negative. Who was it that predicted 2.4%? What planet is that person on?  So what else is there to do but blame the weather?  Heavy weather and the strong dollar took their toll on first-quarter GDP which, at only plus 0.2 percent, came in at the very low end of the Econoday consensus. This compares with an already soft fourth quarter which is unrevised at plus 2.2 percent. Exports were the heaviest drag on the first quarter reflecting the strong dollar's effect on foreign demand. The heavy weather of the quarter contributed to an outright contraction in business spending (nonresidential fixed investment) and an abrupt slowing in consumer spending (personal consumption expenditures). Price data, reflecting lower energy prices, are soft with the GDP price index at minus 0.1 percent vs the Econoday consensus for plus 0.5 percent. Prices were also soft in the fourth quarter at an unrevised plus 0.1 percent. Details include an unwanted surge in inventories tied to lower demand and also possibly to shipment constraints tied to the quarter's West Coast port strike. Imports, likely limited by the port strike, did pull down GDP but to a much lesser extent than the prior quarter (imports are a subtraction in the GDP calculation). Federal Reserve policy makers, in this afternoon's FOMC statement, may downplay first-quarter weakness as temporary. Nevertheless, the complete lack of punch underway in early second-quarter indicators, together with the softness of the fourth quarter when there were no special factors not to mention the lack of inflationary pressures in the economy, offer plenty of fuel for the doves at the Fed who want to hold off the first signals of a rate increase.

The Harsh Winter Actually Boosted The US Economy In Q1, As Did Obamacare --Even as the rest of the US economy was a major disaster with the clear exception of inventory accumulation, which at some point will have to be sold unleashing the next deflationary wave and forcing the Fed's helicopter to finally take off, another question is what happened to the US consumer: after all, in the US one can use Amazon in the comfort of one's snowed in home, and while the crash in oil turned out to be unambiguously bad (just as we warned) for CapEx, some 70% of the US economy was and is in the hands of the relentless spending habits of Joe Sixpack. Which is why a quick look at what said Joe spent in the harsh winter reveals something stunning: no, not that the most consumed "service" was again healthcare - mandatory spending on Obamacare will be with us for a long, long time, "boosting" the US economy by this mandatory spending item.  No, what surprised even us is that far from subtracting from GDP growth, the harsh winter actually boosted consumption, in the form of Utility (i.e., heating) spending, which made up the second largest increase in personal consumption in the first quarter. Because, to every economist's cries of horror, freezing weather while perhaps reducing discretionary spending actually boosts spending on such mundane, if very expensive, tasks as utilities which, to the same economists, also translates into growth.

US Economy Grinds To A Halt, Again: Q1 GDP Tumbles Below Expectations, Rises Paltry 0.2% -- And so the Atlanta Fed, whose "shocking" Q1 GDP prediction Zero Hedge first laid out nearly 2 months ago, with its Q1 GDP 0.1% forecast was spot on. Moments ago the BEA reported that Q1 GDP was far worse than almost everyone had expected, and tumbled from a 2.2% annualized growth rate at the end of 2014 to just 0.2%, in a rerun of last year when it too "snowed" in the winter. In other words, in the quarter in which the S&P rose to unseen highs, the economy ground to a near halt. Only this time it wasn't the snow, as the main reason for the plunge in economic growth was not only personal consumption which was cut by more than 50% from last quarter, tumbling to just 1.31%, but fixed investment, i.e., CapEx, which subtracting 0.40% from the bottom line GDP number, was the lowest print since 2009!  The fact that trade also subtracted a whopping 1.25% from the final number shows that while one can blame the weather for anything, the reality is that in the start of the year global trade did indeed grind to a halt, a picture which is only getting worse with every passing day.  The only good news: the massive inventory build, the largest since 2010, boosted GDP by nearly 3.0%. Without this epic stockpiling of non-farm inventory which will have to be liquidated at some point (and at a very low price) Q1 GDP would have been -2.5%.

Q1 GDP up only 0.2%. Don’t freak out…but don’t chill out either. - The “don’t-freak-out” part relates to a) the fact that advanced data are subject to substantial revisions, b) first quarter seasonal factors may be depressing the number a bit, though I’d guess that’s a small part of the big deceleration, and most importantly c) as OTE’ers know, I tend to try to see through the monthly bips and bops by looking at year-over-year numbers, which have real GDP up 3%, an acceleration from last quarter’s 2.4%.  The “don’t-chill-out” part comes from something I’ve been writing a lot about lately: the growth-slowing impact of the strong dollar through the larger trade deficit. Net exports shaved a big 1.3 ppts off of this quarter’s real growth rate and 1 ppt of last quarter’s.  While I don’t believe the strong dollar is a function of currency management by our trading partners–it’s more about relative growth rates and central bank actions–I certainly would consider this a reminder of the growth downside of the strong dollar. It’s Buddha’s way of telling us that there needs to be enforceable currency disciplines in the TPP!

Ignore the 'whiff of panic' as US economy stalls - The US economy has suddenly stalled. A blizzard of shockingly weak figures raise the awful possibility that America's six-year growth cycle since the Great Recession has already rolled over, with unsettling implications for the world. Worse yet, this apparent exhaustion is taking hold even before the Federal Reserve has begun to raise interest rates or to drain any of its $3.7 trillion of quantitative easing and balance-sheet expansion. Former US Treasury Secretary Larry Summers warned in Davos earlier this year that the Fed typically needs to cut rates by three or four percentage points to combat each cyclical downturn. It is currently at zero. "Are we anywhere near the point when we have 3pc or 4pc running room to cut rates? This is why I am worried," he said. "Nobody over the last 50 years, not the IMF, not the US Treasury, has predicted any of the recessions a year in advance, never," he said. We should not ignore his warnings lightly, yet for once I am an optimist, clinging to the belief that the US will recover from the strange "air pocket" of early 2015. A siege of snow and ice across the North East over the late winter - for the second year in a row, and some say evidence of a drastically slowing Gulf Stream - has obscured the picture. The first flash of data is often wrong, in any case. Yet the latest GDP figures are indisputably atrocious. "It is hard to put lipstick on that pig: This is unequivocally a very weak report," said Harm Badholz from UniCredit. The slump in the annual growth rate to 0.2pc in the first quarter does not convey the full horror of it. Once you strip out a surge in inventories - often a pre-recession warning - the economy contracted sharply. Investment in business buildings and factories fell 23pc. "A whiff of panic is in the air," said the Economic Cycle Research Institute.  The putatitve post-winter rebound keeps disappointing. Citigroup's economic surprise index has tumbled to deeply negative levels. The Conference Board's index of consumer confidence fell from 101.4 to 95.2 in April.

Stagnant GDP at the Start of 2015 is the Latest Evidence That the Economy Hasn’t Reached Escape Velocity - The Commerce Department estimates that U.S. gross domestic product (GDP, the widest measure of overall economic activity) was near stagnant in the first three months of 2015, growing at only a 0.2 percent annualized rate. This is a clear deceleration from the 2.2 percent growth rate in the previous quarter. Final sales (GDP minus the volatile inventory components of GDP) actually declined in the first quarter. Most of this deceleration is likely transitory—due in part to particularly bad weather in the first quarter. Growth in the rest of 2015 will most likely be faster than previously projected, as the economy bounces back from this weak start to the year. Yet data on GDP in recent years confirms that the U.S. economy has not reached escape velocity—growth rates have not broken past the 2-2.5 pace that normally is associated with rapid declines in economic slack. Because growth has been steady for years, it might be tempting for some policymakers to shrug their shoulders and declare that this is the “new normal” and the best we can do. The economic evidence clearly suggests otherwise—this economy still needs active measures to boost demand to achieve a full recovery. At a minimum, this means the Federal Reserve should put off interest rate increases for the rest of 2015.

Another Year, Another Weak First Quarter for GDP. What Gives? - The reasons are sometimes different, but the results frustratingly similar. Since 2010, first-quarter gross domestic product growth has averaged a seasonally adjusted annual rate of 0.6%. For all other quarters, it’s 2.9%. That’s worked out to slow but steady growth and a bit of a puzzle for some economists. “While we can point to one-off factors of European sovereign debt crises and two harsh winters, the repeated pattern of soft first-quarter growth will fuel skepticism about the process by which the [Bureau of Economic Analysis] seasonally adjusts the GDP data,” Michael Gapen, chief U.S. economist at Barclays, said in a note to clients. The Commerce Department’s BEA adjusts its numbers to account for seasonal biases–historical patterns related to the number of working days, weather and the like. If analysts get it right, the adjustments reveal genuine changes in the economy’s growth. But if they’re missing repeating patterns, then the data could seem skewed. “While we believe there are a number of real-world factors affecting the economy such as the weather, energy prices and the strong dollar, we’re aware of the potential for residual seasonality in GDP and its components, and we’re looking into it,” said Nicole Mayerhauser, chief of BEA’s National Income and Wealth Division. “We’re continually looking for ways to minimize this phenomenon.”  Ms. Mayerhauser said initial research suggests first- and fourth-quarter growth rates are lower than those of the third and second quarters. “BEA is developing methods for addressing what it has found,” she said. For the past two years, weather has been partly blamed for slushy economic data. Parts of the country were pummeled by blizzards, shutting down some businesses and keeping people at home rather than at work. If early 2015′s estimated 0.2% growth is just a seasonal blip, GDP should come roaring back in the second quarter, as it did last year. If there’s a more fundamental problem with the economy, GDP numbers could lag.

A Rare Win for Economic Forecasting: The Atlanta Fed Almost Nails Its First-Quarter Growth Estimate -  The U.S. economy’s sharp slowdown in the first three months of the year may have caught almost all Wall Street forecasters off guard. But it didn’t surprise the Federal Reserve Bank of Atlanta. The regional Fed bank’s frequently updated GDPNow forecast proved to be one of the most reliable indications of where first-quarter growth would stand. The Commerce Department reported Wednesday that the economy grew at a mere 0.2% annual rate, against Wall Street expectations of a 1% gain. When most private sector forecasters were overestimating growth, the Atlanta Fed gauge, last updated on Friday, had growth in gross domestic product pegged at 0.1% for the quarter. The GDPNow gauge has been warning of weakness in the first quarter for some time. That notion was not by itself controversial, as most forecasters and Fed officials saw a weak 2015 kickoff. But the Atlanta Fed proved to be standout when it came to accurately quantifying how much trouble the economy had on its hands. The Atlanta Fed “certainly nailed it this time,” said J.P. Morgan Chase chief U.S. economist Michael Feroli. The GDPNow gauge is updated five to six times a month as new economic data comes available. On its website, the Atlanta Fed stressed that the tool is not an official forecast. The bank also noted that over time, the GDPNow forecast absolute average error relative to the first release of the quarterly GDP data is 0.68 percentage point. The closer the report release time, the more accurate the Atlanta Fed tool becomes, it said.

Q1 GDP: Investment -- The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.  In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.  The dashed gray line is the contribution from the change in private inventories.  This can't be used blindly.  Residential investment is so low as a percent of the economy that the small decline early last year was not  a concern. Residential investment (RI) increased at a 1.3% annual rate in Q1. Equipment investment increased at a 0.1% annual rate, and investment in non-residential structures decreased at a 23.1% annual rate. On a 3 quarter trailing average basis, RI is slightly positive (red), equipment is a slower positive (green), and nonresidential structures are down (blue). Note: Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery - and is now causing a decline. I expect investment to be solid going forward (except for energy and power), and for the economy to grow at a decent pace for the remained of 2015.The second graph shows residential investment as a percent of GDP. Residential Investment as a percent of GDP has been increasing, but it still below the levels of previous recessions - and I expect RI to continue to increase for the next few years. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

Q1 2015 GDP Details on Residential and Commercial Real Estate -- The BEA released the underlying details for the Q1 advance GDP report today. Yesterday, the BEA reported that investment in non-residential structures decreased at a 23.1% annual rate in Q1.  All of the decline could be attributed to less petroleum exploration and less investment in electrical. Both declined at a 50% annual rate in Q1.  There was some weakness in lodging investment, but that might be weather related. Excluding petroleum and electrical, non-residential investment in structures was unchanged in Q1.  The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level. Investment in offices increased slightly in Q1, is down about 43% from the recent peak (as a percent of GDP) and increasing from a very low level - and is still below the lows for previous recessions (as percent of GDP). With the high office vacancy rate, office investment will only increase slowly. Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 59% from the peak. The vacancy rate for malls is still very high, so investment will probably stay low for some time. Lodging investment declined in Q1, but with the hotel occupancy rate near record levels, it is likely that hotel investment will increase in the near future. Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 65%. The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Biggest Inventory Build In History Prevents Total Collapse Of The US Economy - While we already observed that in Q1, US GDP rose by an appalling 0.2%, far, far below the consensus Wall Street estimate (in case you missed it, here again is the one thing every Wall Street economist desperately needs) and precisely in line with the Atlanta Fed forecast which we brought attention to in early March, confirming yet again that US stocks no longer reflect any fundamentals but merely Fed and global liquidity injections, there is something far more disturbing under the surface of today's GDP report. Inventories. Specifically, the $121.9 billion increase in private, mostly nonfarm, inventories in the first quarter. Cutting to the punchline, this was the biggest inventory build in history.Another punchline: in Q1 2015, the US economy rose by a paltry $6.3 billion in nominal terms to $17.710 trillion. Here is how the total GDP growth compares to just the increase in inventories, which as we wrote earlier this week, is the primary reason why the world is now gripped in a global deflationary wave. In other words, if US inventories, already at record high levels, and with the inventory to sales rising to great financial crisis levels, had not grown by $121.9 billion and merely remained flat, US Q1 GDP would not be 0.2%, but would be -2.6%. Oh heck, just round it down to -3.0% Which means that as this massive inventory overhang is eventually cleared out (once the US runs out of space to store all these widgets, gadgets and raw materials, here's looking at you Cushing) US GDP will be pressured even more with every passing quarter, or else the moment of deflationary rapture when everyone is forced to liquidate and/or dump this inventory at the same time, will result in a monetary supernova which will leave the Fed with no choice but to literally paradrop money on the continental US.

Atlanta Fed Cuts Q2 GDP Forecast To +0.8% After Construction Spending Crunch | Zero Hedge: Just as we warned earlier, the April data is not suggesting the kind of post-weather Q2 bounce in economic growth that everyone is praying for (or not if you're long stocks). On the heels of this morning's tumble in construction spending, The Atlanta Fed forecasts second-quarter real nonresidential structures investment to collapse 20%, leading to a mere 0.8% Q2 GDP growth estimate (dramatically below consensus hope expectations of 3.3% growth). They nailed it in in Q1...Source: Atlanta Fed

Albert Edwards On What Happens Next: "More QE - Everywhere!" -- "The Q1 US GDP data was a major disappointment to the market as business investment declined due to the intensifying US profits recession. Only the biggest inventory build in history stopped the economy subsiding into a recessionary quagmire. The US economy is struggling and the Fed will ultimately re-engage the QE spigot. Talk is growing that China will soon be doing the same as local authorities struggle to issue debt. But this week we want to focus on Japan, having just made my fist visit to that fine nation for over a decade! Japan, the third largest economy in the world, is also in trouble (see chart below) and will soon be increasing its off-the-scale QE programme to an out-of-this-world QE programme." - Albert Edwards

Missing From Secular Stagnation Debate, The Role of Enormous Debt -- Kenneth Rogoff, the Harvard professor and author of the book “This Time is Different,” weighs in with an alternative explanation for the slow growth and low interest rates that paint over the global economy and puzzle so many central bankers these days. In Mr. Rogoff’s view, it is all about the debt. The world economy is playing out a familiar cycle of credit expansion, asset boom, and then sharp reversal. “As credit booms, asset prices rise, raising their value as collateral, thereby helping to expand credit and raise asset prices even more. When the bubble ultimately bursts, often catalysed by an underlying adverse shock to the real economy, the whole process spins into a harsh and precipitous reverse,” Mr. Rogoff says in a paper taking issue with his colleague Lawrence Summers, whose writings on secular stagnation ignited the debate. Everyone seems to want to disagree with Mr. Summers these days. In a blog post earlier this month, former Fed Chairman Ben Bernanke took aim at the Summers’ idea that the world is plagued by a chronic excess of saving and dearth of investment demand. Mr. Bernanke argues it is hard to imagine the kind of shortfall of profitable investments Mr. Summers describes. (A side note of interest. Mr. Summers, Mr. Bernanke and Mr. Rogoff all studied at the Massachusetts Institute of Technology in the late 1970s. Their presence at the center of this debate is testament to MIT’s dominance a generation ago.) The Summers and Bernanke debate focuses on the puzzle of exceptionally low interest rates, but not so much on the debt cycle that preceded them. Mr. Rogoff tries to fill that void. Secular stagnation shows how long-running trends, such an aging population or declining productivity, might lead to slow growth and low rates. It doesn’t say much about the credit boom that brought the global economy to its knees six years ago. “The secular stagnation view does not capture the heart attack the global economy experienced; slow-moving demographics do not explain sharp housing price bubbles and collapses,” Mr. Rogoff argues

The US as a Debtor Economy - When a country runs a trade deficit and imports more than it exports, like the US economy, producers in other countries are by definition receiving a greater value in US dollars from selling in the United States than the value of the foreign currency that US producers are receiving from exporting abroad. Through the windings of the foreign exchange markets and the international financial system, these US dollars are invested or loaned back into the US economy. In this way, a trade deficit is inevitably accompanied by an inflow of investment capital. The long string of US trade deficits means that, over time, the US has become a debtor economy, which can be defined as an economy where the total amount that foreigners have invested over time in the US economy is greater than the total amount that US investors hold in the economies of other countries.  Here's a table from the IMF (specifically, it's an edited version of a table from Chapter 4 of the October 2014 World Economic Outlook) showing the biggest debtor and creditor economies around the world. In absolute size of net foreign liabilities, the US leads the way, although as a share of the US GDP, the US position looks less worrisome. The IMF report gives as a very rough guideline that when the net foreign liabilities of a country exceed 60%, there is reason for heightened concern. On this list, Spain and Poland exceed that threshold. The biggest creditor economies, based on mostly running trade surpluses over the years, are who you would expect: Japan, China (along with Hong Kong and Taiwan), Germany, and some big oil exporters.

House Republicans pass budget plan cutting social services while ramping up military spending - Republicans in U.S. House of Representatives passed the first joint House-Senate budget plan in six years on Thursday, a measure that aids the party’s goal of dismantling President Barack Obama’s signature healthcare reform law this year. The Republican-authored plan would eliminate deficits by 2024 through deep cuts to social programs while increasing military spending by nearly $40 billion next year. It passed 226-197 largely on party lines.The Republican-controlled Senate is expected to pass the budget plan next week. Because it is a non-binding resolution, Obama does not sign it into law.

Trade Woes Bedevil Obama, Fed - The first quarter was the worst in a year for the U.S., with growth slumping to a miserly 0.2%. It’s also shaping up as the best in a while for the long-suffering eurozone, with industrial activity, confidence and bank loan data all pointing up. The weak U.S. and strong European showings are two sides of the same coin: a strong dollar and a weak euro, as the Federal Reserve gets set to raise interest rates even as the European Central Bank carries out quantitative easing, that is buying bonds with newly created money. This poses special challenges to both the Federal Reserve, which must decide whether to go ahead with an interest rate increase in coming months; and to President Barack Obama, who is trying to sell a trade deal just as trade is dragging the U.S. economy down. Clearly, some of the abrupt first-quarter slowdown is transitory, related to both a port strike and cold weather, as the Fed said Wednesday. Those factors may also have explained some of the sharp 7.2% drop in exports. Net trade subtracted a whopping 1.25 percentage points from first-quarter growth. Some of that should be recaptured in coming months. But all of it won’t, because trade is being affected by longer-lasting influences: the rise in the dollar and a softening in growth in some other countries, most notably China, which is rippling through many of the U.S.’s trading partners. Indeed, trade has been a drag on growth in four of the past five quarters. It subtracted 0.22 percentage points from growth in 2014 as a whole.

Obama & TPP: Every One That Doeth Evil Hateth the Light -- William K. Black - President Obama wants the world to know that he takes it personally that the Democratic Party’s base opposes his latest effort to sell out the people of the world to the worst corporations through the infamous Trans-Pacific Partnership (TPP) deal. Obama blurted out at a press conference a number of conservative Republican memes as his sole basis for pushing TPP. He then launched personal attacks on Senator Elizabeth Warren and labor leaders (without naming them). Obama, who is famous for keeping his cool when criticized by the GOP, is thin-skinned when criticized by Democrats. Obama never raged at the Republicans’ “death panel” attacks on him, but he raged at Warren as supposedly making an equivalently openly dishonest attack on TPP’s secret drafting process. One of the most reprehensible aspects of TPP is that it is (still) being drafted in secret – that it from us, the people – but with corporate lobbyists literally drafting their wish list. Warren is way out of Obama’s league in this arena of protecting the American people from CEOs’ frauds and abuses. Obama is the one who infamously told the bankers he was protecting them from the American people’s demands for the restoration of the rule of law so that the banksters would be held accountable for leading the fraud epidemics that drove the financial crisis and the Great Depression. Obama, being Obama, phrased that in the form of a vile slander of the American people, claiming that they wanted to use “pitchforks” rather than prosecutions. Here is the “money quote” from Warren and Senator Sherrod Brown’s letter responding to Obama’s attack. “‘Executives of the country’s biggest corporations and their lobbyists already have had significant opportunities not only to read [the TPP text], but to shape its terms,’ the letter reads. ‘The Administration’s 28 trade advisory committees on different aspects of the TPP have a combined 566 members, and 480 of those members, or 85%, are senior corporate executives or industry lobbyists. Many of the advisory committees — including those on chemicals and pharmaceuticals, textiles and clothing, and services and finance — are made up entirely of industry representatives.’” In sum, Obama stacked the committees to ensure that the CEOs’ lobbyists would completely dominate the secret drafting of TPP. And everyone in America know that the result of that has to be a Faux Trade agreement crafted to allow the CEOs to plunder with impunity.

Why the TPP is a better trade agreement than you think - In a word, Vietnam.  Vietnam has about ninety million people and a relatively low per capita income, below by 2k by some measures.  It liberalized tariffs a good deal upon WTO accession, but since then has done some backsliding.  It has large numbers of state-owned enterprises, and its policies toward such enterprises could use more transparency and predictability, as indeed TPP would bring.  Most generally, Vietnam is not today a free country.  Bringing Vietnam into TPP would further ensure their attachment to a broadly liberal global trading order.  TPP also would bring free(r) labor unions to Vietnam.Tuong Lai writes (see the first link above):But Vietnam cannot play its significant geopolitical role until it fully develops economically and further liberalizes politically. And adopting the T.P.P.’s requirements — free trade unions, reduced state participation in the economy, greater transparency — will help Vietnam along that route. Many potential TPP signers still have significant tariffs against Vietnamese textiles?  Here is Jack SheehanVietnam is set to gain the most from the TPP due to the potential for a greater share of the apparel and footwear market, particularly in the US and Japan. In 2012, Vietnam exported almost $7bn (£4.2bn) worth of apparel to the US, which accounted for 34% of US apparel imports. Vietnam also exported $2.4bn worth of footwear. The TPP will allow Vietnam to export apparel to the US at a 0% tariff rate, which will make Vietnamese exports even more competitive.Here is an assessment from the Peterson Institute that Vietnam will be the biggest gainer from TPP.  Do you get that, progressives?  Poorest country = biggest gainer.  Isn’t that what we are looking for? 

This Is Not A Trade Agreement - Krugman - OK, Greg Mankiw has me puzzled. Has he really read nothing about TPP? Is he completely unaware of the nature of the argument?   Personally, I’m a lukewarm opponent of the deal, but I don’t see it as the end of the Republic and can even see some reasons (mainly strategic) to support it. One thing that should be totally obvious, however, is that it’s off-point and insulting to offer an off-the-shelf lecture on how trade is good because of comparative advantage, and protectionists are dumb. For this is not a trade agreement. It’s about intellectual property and dispute settlement; the big beneficiaries are likely to be pharma companies and firms that want to sue governments.  Those are the issues that need to be argued. David Ricardo is irrelevant.

Mankiw Mendacity and Morality and his League of Failed Economists - William K. Black -- I met N. Gregory Mankiw for the first and only time in 1993 when he was a discussant for George Akerlof and Paul Romer’s paper on “Looting: The Economic Underworld of Bankruptcy for Profit.” Mankiw was generally dismissive of the importance of the paper because it refuted his dogmas. But the show stopper for someone outside the academy like me (I was a financial regulator in 1993) was this line: “it would be irrational for savings and loans [CEOs] not to loot.” I dubbed this “Mankiw morality.” The show stopper for me was not that Mankiw would say it, but that none of the economists present even blinked when he said it. To that point I had seen many failed economists like Alan Greenspan and George Benston and the law and economics specialists like Daniel Fischel and Judge Frank Easterbrook embarrass themselves in the context of the savings and loan fraud epidemics, but I had not understood until Mankiw’s pronouncement how successfully academic economists had driven even the most fundamental concepts of morality out of their departments. Mankiw has gone on to be the author of the leading economic textbooks, chairman of the economics department at Harvard, and a Republican activist who attaches himself to Republicans whose campaigns for the presidential nomination he feels have the best prospects for success. Mankiw’s latest role is as a cheerleader for the Trans-Pacific Partnership. His two recent efforts in that role are helping to organize an open letter by fellow economists who served as Chairs of the President’s Council of Economic Advisers – a rogues’ gallery that includes the leading architects of the criminogenic environments that produced our recurrent, intensifying financial crises – and writing a column in the New York Times claiming that economists have reached “near unanimity” on the need for the TPP. The rogues’ gallery includes Mankiw, Alan Greenspan and Ben Bernanke, so it is self-refuting.

The Revolution Will Not be Fast-Tracked  - For those who remain confused, U.S. President Barack Obama is being enthusiastically and aggressively mendacious about the details of the TPP (Trans-Pacific Partnership) ‘agreement;’ its ISDS (Investor-State Dispute Settlement) mechanism and his goals in seeking ‘fast-track’ authority to see the agreement passed without amendments being made. (A quick technical take down can be found here). Under ISDS mechanisms virtually identical to those in the TTP and TTIP (Transatlantic Trade and Investment Partnership) Australia has already been sued by Philip Morris Asia for ‘lost profits’ from a plain packaging law that discourages tobacco use. Under the terms of the ISDS mechanism no reciprocation is required; there is no obligation that Philip Morris pay Australia for the increased health care costs from use of its tobacco products. Rather than arguing the merits of his ‘trade’ agreements Mr. Obama is using deception by omission to sell them. By analogy, in 1973 National Lampoon ran a cover (above) with the threat “If You Don’t Buy This Magazine, We’ll Kill This Dog,” the point being that people are ‘free’ to buy the magazine or not, but the dog will die if they don’t. In similar fashion Mr. Obama is selling the ISDS mechanism by claiming that allowing corporations to exact large fines for passing labor and environmental regulations will have no effect on ‘sovereignty.’ While it is technically true that the ISDS mechanism doesn’t preclude civil legislation from being passed, the ability of corporate tribunals to assess and enforce ruinous fines will be an effective deterrent to passing civil legislation in the public interest. Mr. Obama could not have graduated from Law School without understanding this.  As current mythology has it, Republicans are the central proponents of ‘free-trade’ policies and the trade deals that are their product. Since the end of WWII the U.S. has engaged militarily across Central and South America, the Middle East, Haiti, the Dominican Republic and Southeast Asia for the benefit of U.S. corporations and connected capitalists.  The overwhelming purpose of these invasions, coups, assassinations, arms sales, bombings and political impositions was to undermine (foreign) sovereignty for the benefit of large corporations.

‘Fast Track’ Trade Legislation – At A Glance -- Ten things to know about U.S. "fast track" trade legislation. The Republican congressional leaders who introduced it insist on referring to the legislation as “trade promotion authority,” and the actual bill has a longer name. In any case, the legislation sets the priorities for the trade negotiations of President Barack Obama and the next president, in exchange guaranteeing a vote on the resulting trade agreement without amendments.  Critics say fast track pushes Congress to rubber-stamp a trade deal, including the Trans-Pacific Partnership deal now under negotiation, without due consideration or public input. But with built-in delays, it will take months between the completion of a deal like the TPP and the congressional vote on the deal, including a public 60-day waiting period before the president can sign off and send it to Congress. The details of the trade negotiations are confidential now but will be published before the deal comes to a vote. The bill gives the Obama administration a litany of negotiating objectives on issues ranging from intellectual property to currency manipulation, but Congress can still approve a trade deal even if all the objectives are not met. Detroit wants a stronger currency objective to prevent Japan and other countries from weakening their currencies to gain trade advantages, but the administration says officials in other countries would balk at such rules. The latest fast track legislation has a mechanism backed by Sen. Ron Wyden (D., Ore.) that would allow a trade deal, if key congressional committees disapprove, to be put on a “slow track,” with amendments and procedural delays allowed. But critics of the measure say the two committees involved are the ones that easily approved fast track legislation in April and are unlikely to get in the way of trade deals. After sailing through the committees, the bigger test will be in a wider floor vote, especially in the House, where a significant number of Republicans may balk at giving Mr. Obama international negotiating authority and few Democrats may step forward to support it.

Is TPP trade deal a massive giveaway to major corporations? An exchange between Obama and Sherrod Brown - One way to make sense of the bewilderingly complex debate over the massive Trans-Pacific Partnership trade deal — which involves a dozen countries around the Pacific and could impact some 40 percent of U.S. trade — is to understand that there are a number of separate arguments about it proceeding on different tracks. There’s the argument over whether the deal’s higher labor standards will even be enforceable for countries such as Vietnam. There’s the argument over whether more import competition will further weaken American manufacturing, or whether lowering tariffs abroad will strengthen American exports. There’s the argument over whether TPP’s intellectual property rules will primarily benefit Big Pharma and major corporations. There’s the argument over whether the “fast track” process is legitimate. And this is one of the most contentious arguments of all: The debate over the TPP’s Investor-State Dispute Settlement provision. The ISDS, which has drawn high profile criticism from from Elizabeth Warren and many others, is a mechanism contained in the deal that would allow for the litigation of disputes between corporations and local governments in a manner designed to create a stable legal environment for investments in participating countries. On the conference call with reporters that I wrote about on Friday, President Obama defended the ISDS at length.  Critics of the ISDS provision have argued that it could allow major corporations to challenge local laws, including financial and environmental regulations in the United States and anti-smoking regulations in other countries; it could put taxpayers on the hook for expensive settlements in favor of those corporations; and it could undermine U.S. sovereignty and tilt the playing field further in their favor. In his remarks, Obama rejected these arguments. I’ll quote him at length:

Just the Facts: Trade and Investment Deals Are Bad for Working Families -- Last week, the president claimed that critics who say that the Trans-Pacific Partnership (TPP) “is bad for working families… don’t know what they are talking about.”  But the truth is, there is an emerging consensus that globalization has put downward pressure on the wages of most working Americans, and has redistributed income from the bottom to the top. My colleague Josh Bivens has shown that expanded trade with low-wage countries has reduced the annual wages of a typical worker by $1,800 per year. Given that there are roughly 100 million non-college-educated workers in the U.S. economy, the scale of wage losses suffered by this group likely translates to roughly $180 billion. Trade and investment deals such as the Korea-U.S. Free Trade Agreement (completed by President Obama), and the agreement to bring China into the World Trade Organization in 2001 (negotiated by President Clinton), have contributed these lost wages. It’s not surprising that one commentator concluded that “the Trans-Pacific Partnership trade deal is an abomination,” precisely because of its impacts on “low-skilled manufacturing workers and income inequality.”

The Battle Over the Trans-Pacific Partnership and Fast-Track Gets Hot | Dean Baker --President Obama must be having trouble getting the votes for fast-track authority since the administration is now pulling out all the stops to push the deal. This has included a press call where he apparently got testy over the charge by critics that the Trans-Pacific Partnership (TPP) is a secret trade deal.  Obama insisted the deal is not secret, but googling "TPP" will not get you a copy of the text. Apparently President Obama is using a different definition of "secret" than the ordinary English usage. But that wasn't the only fun in the last week. The administration got 13 former Democratic governors to sign a letter boasting about the jobs generated by the growth of exports. The letter noted that exports had added "$760 billion to our economy between 2009 and 2014 -- one-third of our total growth." It neglected to mention that imports had grown even faster, diverting $890 billion in demand away from the domestic economy to foreign economies.  Contrary to what the governors were claiming in their letter, trade was a net negative to the tune of more than $130 billion over this five-year period. Instead of adding jobs, the growing trade deficit was drag on growth, slowing job creation and putting downward pressure on wages. The growth in the trade deficit over this period has the same impact on the economy as if people pulled $130 billion out of their paychecks each year and stuffed it under their mattress.  The United States already has almost $4 trillion in trade annually (at 23 percent of GDP). This figure has been rising rapidly. It will continue to rise rapidly whether or not Congress approves the TPP. The fact that trade is good has nothing to do with whether Congress should approve the TPP.

Thinking About TPP and TATIP: "Free Trade" - Brad DeLong --The advocates for the TPP and TATIP should be making the following points:

  1. The gains from trade from these agreements will be equitably distributed as a result of policies X.
  2. The stronger copyright protections will actually boost world growth.
  3. Alternatively, if (2) is false and the stronger copyright protections are actually bad for the world, it will benefit the United States to receive higher rents from our past and future investments in intellectual property, and the United States ought to exert its bargaining power to get a better deal for us.
  4. The dispute-settlement provisions will lead to better political-economic governance in the world as a whole, and will lead to harmonization at the top rather than a race to the regulatory bottom via policies Y.

Those are the arguments that should be made–if they can–to command general support for the TPP and the TATIP. But, as Dean Baker points out, those are not the arguments that are being made: Dean Baker: Correction to Mankiw: Economists Actually Agree, Just Because You Call Something “Free Trade” Doesn’t Make It Free Trade: “Greg Mankiw joined the parade of prominent people saying silly things… …to help push fast-track trade authority through Congress. He headlined a column:‘Economists actually agree on this point: The Wisdom of Free Trade.’ The piece then goes on to argue for fast-track trade authority to allow for the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP).

Skepticism About Trade Deals is Warranted -- In 1993, it seemed obvious to me that NAFTA was about one main thing: providing a huge new (and much cheaper) labor force to U.S. manufacturers by making it safe for them to build factories in Mexico without fear of expropriation or profit-limiting regulation. But the Clinton administration claimed it would open a new market to U.S. business, and  U.S. Trade Representative Mickey Kantor, President Clinton, and even Labor Secretary Bob Reich argued that it would create jobs for American workers and even increase job creation in the U.S. auto and steel industries. They said NAFTA would benefit Mexican workers and help create a bigger Mexican middle class, while deterring migrant workers from crossing the border to seek jobs in the United States with better wages. They also argued an alternative theory: that NAFTA would help keep U.S. manufacturers from moving to Southeast Asia, and that it was better to keep that off-shored work in our hemisphere and along our border. What actually happened?

  1. The trade balance with Mexico went from positive to very negative, resulting in the loss of more than 600,000 jobs in the United States.
  2. Mexico’s corn farmers were overwhelmed by a flood of cheaper U.S. corn and almost 2 million agricultural workers were displaced. Most of them migrated illegally to the United States and remain here as exploited, undocumented workers.
  3. Wages fell for Mexican industrial workers, to the point that autoworkers in Mexico now make less than Chinese autoworkers. Some Japanese carmakers start paying Mexican workers at 90 to 150 pesos per day, or $6 to $10.
  4. U.S. auto companies shifted investment to Mexico to exploit its much cheaper labor. AP reports that “Mexican auto production more than doubled in the past 10 years.

The Trans-Pacific Partnership - What’s at stake: U.S. Congressional leaders have recently introduced a bipartisan bill to renew the power of the president to negotiate trade agreements. If the Senate passes the bill, this is expected to inject momentum in regional trade negotiations with both Europe (TTIP) and Asia (TPP). Danielle Kurtzleben writes that the Trans-Pacific Partnership has become one of the hottest topics in Washington, as it appears to be one of the few topics on which President Barack Obama and Republicans might be able to reach any sort of agreement in this session of Congress. Roger Altman and Richard Haass write that after five years, American-led negotiations over the Trans-Pacific Partnership are nearly complete. The next step is for Congress to allow for the same legislative process — an up-or-down vote on the deal — that it applied to recent trade pacts, including the North American Free Trade Agreement of 1993 and the United States-South Korea free trade agreement of 2011.  Timothy Lee writes that Obama's predecessors have enjoyed Trade Promotion Authority, also known as "fast track", which allowed them to negotiate a number of trade deals. But the authority expired in 2007, and Obama has struggled to get it renewed by Congress (Naked Capitalism notes that Obama failed in the last Congress to get fast-tracked due mainly to considerable opposition in the Democratic party). Danielle Kurtzleben writes that the idea of fast track is that a president needs to be able to negotiate a treaty without the fear that Congress will amend it after he and a whole bunch of other countries come to agreement on a deal. When the president has TPA, he consults with Congress, but once a deal is reached, Congress can only vote it up or down — no amendments. Without that authority, it's not really feasible to reach a credible deal with foreign leaders. Greg Mankiw writes that with influential lawmakers like Senator Elizabeth Warren opposed to the measure, final congressional approval is far from certain.

Just another Day of More Bad Trade Deals and Elected Officials Who Don't Care -- Americans Don't Want It.  Analysis Shows It Hurts People.  Yet Congress and This President Could Care Less.  What's fascinating is how we've seen this dance before and no matter how many put up a fight, more disastrous trade treaties get passed and enacted into law anyway.  Lip service is given to the damage done by past trade deals and politicians campaign on stopping them.  Yet when it comes to what multinational corporations want, multinational corporations get and damn the populace.  Such is the case with the latest.  Called TPP, shorthand for the transpacific partnership, this deal covers over 40% of the globe's GDP and overrides national law and domestic governments.  it will also fast track the race to the bottom on wages on wages:The deal will turbo charge a salary race-to-the-bottom. Many hardworking Americans will see their jobs shipped to low-pay meccas like Vietnam. Those more fortunate will be able to keep working, but for less. The only winners will be big business, which will bask in the glory of its additional billions in profits.Public Citizen Gives 50 reasons why TPP is a bad idea and we're sure they could come up with 50 more.  At the link they outline the impact for each state and it ain't pretty.The TPP would extend the North American Free Trade Agreement (NAFTA) model that has contributed to massive U.S. trade deficits and job loss, downward pressure on middle class wages, unprecedented levels of inequality, lagging exports, new floods of agricultural imports, and the loss of family farms.The Economic Policy Institute is warning like Cassandra on TPP: TPP isn’t even about free trade—it’s about who will and won’t face fierce global competition. And guess who won’t? And as has been well-documented by now, much of what the U.S. policymaking class champions under the rubric of “free trade” is nothing of the sort. For example, the biggest winners from trade agreements have traditionally been U.S. corporations that rely on enforcing intellectual property monopolies for their profits—pharmaceutical and software companies

Fast/Track/TPP: The Death of National Sovereignty, State Sovereignty, Separation of Powers, and Democracy  -- Most of the critical attention given to the Fast Track Trade Agreement legislation and to the associated Trans-Pacific Partnership (TPP) Congressional – Executive Agreement on mainstream corporate media and by politicians and establishment interest groups interacting with them in the beltway echo chamber, has focused on the likely or possible economic impacts of these. But relatively little attention has focused on sovereignty, constitutional separation of powers, or democracy impacts, which however are being covered increasingly well in alternative social media. See here, here, here, and here. In hopes of breaking through this fragmentation by type of media of the debate over the TPP, I’ll focus this post only on governance impacts and try to make the case, that this so-called trade agreement, if passed and implemented would create profound governance changes in the United States without benefit of the constitutional amendments that would normally be required to accomplish such changes. I’ll also make the case that the governance impacts destroy national sovereignty, state sovereignty, separation of powers, and democracy. The anti-democratic fast track process that gives Representatives and Senators no space to represent the range of people electing them. This process provides no room for debate of the TPP that includes the public and severely restricts Congressional debate. It also incorporates secrecy of the TPP drafts, hiding them from the public and making it an impossible burden for Congresspeople to evaluate them and to solicit the views of their constituencies about them. It also then provides for keeping the proposed or actual agreement secret so that the American people can’t even know what the law is that may result in international levies of many billions of dollars upon them, for four years after the TPP is either passed or defeated.

Selling Out the Constitution and Main Street on Trade - The Washington elite in both parties are famous for their bickering over issues large and small but they seem to have found rare bipartisan agreement on the free trade deals before Congress. A cause for celebration? Main Street USA should think again. The multinational corporations that finance the political class in Washington are lobbying hard for Trade Promotion Authority (TPA) or Fast Track, immediately followed by the passage of the Trans-Pacific Partnership (TPP), an agreement with 11 other nations to open their markets to the “free” flow of goods and services. Why do companies like Wal-Mart and Apple want free trade so badly with these Pacific Rim countries? The answer is simple: so they can export jobs and import cheap goods at the expense of the American worker. Both the Fast Track and the TPP should worry average Americans who root their values in the Constitution and want an economy that works for those that work hard and play by the rules. President Obama wants Fast Track authority to limit the power of Congress. According to Article I, Section 8 of the US Constitution, Congress alone has the power to “regulate commerce with foreign nations” yet Congressional Republicans want to cede that power to the president. Although the president is granted broad negotiating powers for treaties, Fast Track guts the 2/3 requirement for Senate ratification, limits debate, eliminates amendments and requires a mere simple majority in both houses of Congress for the passage of any trade agreement under the allotted procedure. Fast Track binds the hands of future Congresses by ceding the power of trade agreements beyond the two-year term of its current members. In other words, a popular revolt against Fast Track at the ballot box would be toothless since the sitting president would have to sign a new law repealing their own extra-Constitutional power to regulate trade without Congress’s consent.

How bad are the investor arbitration clauses in TPP? -- Mood affiliation aside, these clauses do not constitute a significant reason to oppose the treaty, in my view.  Gary Hufbauer has a good discussion:  ISDS provisions enable a foreign investor to seek compensation in an amount determined by an impartial panel of arbitrators, if a host government expropriates its property, or regulates its business in an arbitrary or discriminatory manner. Such protections have been deemed necessary in agreements going back at least to a Germany-Pakistan accord in 1959, and they have successfully protected US investments overseas in many countries.  Often these ISDS provisions are part of bilateral investment treaties (BITs), of which more than 2,200 are now in force worldwide. The United States has 41 BITs with countries near and far, and is actively negotiating a BIT with China, aimed at strengthening the rights of investors in a country that has not always been fair. Starting with the North American Free Trade Agreement (NAFTA) in 1994, the United States has also included ISDS in the investment chapters in nearly all its free trade agreements (FTAs), now numbering 20.  The record shows that, far from a record of multinational corporations trampling sovereign states, investors have won fewer than a third of the cases resolved by the ISDS process.1 Arbitration procedures were formalized in 1996, when the World Bank created the International Center for the Settlement of Investment Disputes (ICSID) as a neutral forum to handle ISDS claims. To date, ICSID has handled almost 500 cases.2 Of these, 36 percent were settled between the parties before going to arbitration. The arbitrators declined to hear 16 percent of claims for want of jurisdiction. They dismissed 19 percent of claims for lack of merit. Only in 29 percent of cases did the arbitrators uphold some or all of the business claims.

Obama’s Big Trade Failure » Dean Baker - The Obama administration is doing its full court press, pulling out all the stops to get Congress to approve the fast-track authority that is almost certainly necessary to get the Trans-Pacific Partnership (TPP) through Congress. One of the biggest remaining stumbling blocks is that the deal will almost certainly not include provisions on currency. This means that parties to the agreement will still be able to depress the value of their currency against the dollar in order to gain a competitive advantage. This is a really big deal, which everyone thinking about the merits of the TPP should understand. The value of the dollar relative to other currencies is by far the main determinant of our balance of trade. We can talk about better education and training for our workforce, improving our infrastructure and better research, all of which are important for the economy. But anyone who claims that improvements in these areas can offset the impact of a dollar that is overvalued against another currency by 15 to 20 percent is out of touch with reality. If the dollar is overvalued by 20 percent against another country’s currency, it has the same effect as imposing a 20 percent tariff on US exports and giving a government subsidy of 20 percent to imports. This is the direct effect when other countries deliberately buy up U.S. assets to prop up the dollar against their currency. This is the main reason the United States is currently running a trade deficit of more than $500 billion a year. This trade deficit creates a huge gap in demand. It has the same impact as if households were taking $500 billion a year out of their paychecks and stuffing the money under their mattress. There is no obvious way to make up this gap in demand. In principle we could fill the gap with large budget deficits, but this is a political non-starter. Based on a dubious reading of the data from the second half of last year, some analysts had thought the economy was booming again, despite the large trade deficit.

Newly Leaked TTIP Draft Reveals Far-Reaching Assault on US/EU Democracy -- A freshly-leaked chapter from the highly secretive Transatlantic Trade and Investment Partnership (TTIP) agreement, currently under negotiation between the United States and European Union, reveals that the so-called "free trade" deal poses an even greater threat to environmental and human rights protections—and democracy itself—than previously known, civil society organizations warn. The revelation comes on the heels of global protests against the mammoth deal over the weekend and coincides with the reconvening of negotiations between the parties on Monday in New York. The European Commission's latest proposed chapter (pdf) on "regulatory cooperation" was first leaked to Friends of the Earth and dates to the month of March. It follows previous leaks of the chapter, and experts say the most recent iteration is even worse. "The Commission proposal introduces a system that puts every new environmental, health, and labor standard at European and member state level at risk. It creates a labyrinth of red tape for regulators, to be paid by the tax payer, that undermines their appetite to adopt legislation in the public interest,"  Regulatory cooperation refers to the "harmonization of regulatory frameworks between the E.U. and the U.S. once the TTIP negotiations are done," ostensibly to ensure such regulations do not pose barriers to trade, the Corporate Europe Observatory explained earlier this month. However, analysts have repeatedly warned that, euphemisms aside, "cooperation," in fact, allows corporate power to trample democratic protections, from labor to public health to climate regulations, while encouraging a race to the lowest possible standards.

Secret WTO Trade Deal Threatens Internet Freedom, New Leak Reveals - Global governments are secretly negotiating a little-known mega trade deal that poses a threat to internet freedoms and boon to corporate interests, analysts warned Wednesday, citing a just-leaked U.S. proposal. The Trade in Services Agreement (TISA), under discussion between a 50-country subset of  World Trade Organization members for nearly two years, is so secretive that its talks aren't even announced to the public, making it even more shadowy than the Trans-Pacific Partnership. Kept in the dark about the deal, the global public will be hugely impacted by its provisions. "What these closed-door negotiations do is cement in place rules for global governance—rules that affect a whole host of issues that aren't about trade at all, such as privacy, financial stability and much more,"  "There is extreme industry influence in this closed-door trade negotiation process,". "On the U.S. side there are more than 500 corporate advisers who have access to these texts while the public and many elected officials are locked out." All that is publicly known about the content of the TISA pact was exposed through leaks, the first of which was published by Wikileaks in June and revealed that negotiators aim to further deregulate global financial markets.  The latest leak shows that negotiators are also taking aim at internet freedoms.

Indicting the Trans – Pacific Partnership: Even One of These Counts Is Sufficient to Vote to Kill It! -- To really appreciate what a travesty the TPP is, and the scandal of the failure of our Congress to reject it, and the “Fast Track Authority“ sought for it, out of hand, I’m going to list 23 negative consequences that would likely follow from it. Any one of these, would, by itself be sufficient for any representative of the people, Senator or Congressperson, to vote to kill it. I’ll offer this list in the form of stanzas appropriate for a chant, except for the starting point in the list.  The tune of the chant that might be used is the tune used for Dayenu, the passover seder chant in which Dayenu means “It would have been sufficient,” where the reference is to all the things the almighty is purported to have done for the Israelites on their way out of Egypt and during their wanderings in the Sinai. I’m sure the President is familiar with this chant since he has had seders at the White House more than once. I’m also sure that he never envisioned using Dayenu to highlight the horrors of one of his favorite projects, the passage of “Fast Track Authority,” the TPP, and other “free trade” agreements such as the TTIP, and the TISA, all of which would get “Fast Track Authority” if the present bill passes.

Ridiculing Concerns About TPP Tyranny - People who support the Administration’s efforts on the TPP have been known to reply to my posts on this subject by attempting to ridicule the scenarios I’ve presented as possible under the TPP Agreement as “out there” speculation of the tin foil variety that will never actually happen. For those who think that my examples of what is possible under the TPP are just this kind of speculation, please keep in mind that I don’t have the proposed draft agreements to work from. This is due to the President’s decision to classify the drafts and seek Fast Track Authority before disclosing them more freely even to Congress for an up or down vote. However, there is no indication from anyone that the actual drafts of the agreement contain rules that would definitively prevent the possible very damaging consequences I’ve mentioned here for example. Elizabeth Warren and Bill Black make clear why the secrecy and Fast Track Authority (FTA) itself are anti-democratic, and they also point out that some speculation, or at least educated guesses about what exactly is in the TPP, is forced upon us in order to carry on political debate before it is too late to have it because Congress has given up its constitutionally important debate, negotiation, and amendment capabilities to the Fast Track process.

Obama trade bill in trouble - The House is currently dozens of votes short of being able to pass legislation that would allow President Barack Obama to send trade deals to Congress for fast approval, according to senior lawmakers and aides in both parties, imperiling a top White House priority for the president’s final years in office.At this point, upward of 75 House Republicans could vote against trade promotion authority if it comes up for a vote in the coming weeks, according to aides and lawmakers involved in the process. Some of the lawmakers fear job losses in their districts from free trade; others distrust Obama and oppose giving him more power.Story Continued Below House GOP leaders will begin officially canvassing for votes Friday, but they’ve been in private strategy sessions for weeks, learning about the intricacies of the bill from Ways and Means Chairman Paul Ryan (R-Wis.).House Democrats, meanwhile, say just 12 to 20 of their lawmakers support Obama’s request. That figure, if it holds, would amount to a stinging rebuke of a president by his own party.

Obama Doing Republicans Dirty Work for Them With TPP -- The old adage “politics makes strange bedfellows” has never been proven so true as in today’s battle over the proposed Trans-Pacific Partnership trade deal, or TPP. Opposition is led, in the Senate, by Democrats Sherrod Brown, Elizabeth Warren, Harry Reid and Debbie Stabenow, as well as independent Sen. Bernie Sanders. They’re joined in the House by Democrats Rosa DeLauro, Barbara Lee, Keith Ellison, Donna Edwards and Sandy Levin. And where’s President Obama? Instead of lining up with fellow Democrats, he’s siding with Republican leaders Mitch McConnell and John Boehner. Strange bedfellows, indeed. But it’s worse than that. Obama’s not just siding with Republicans, he’s doing their dirty work for them. Unloading with both barrels last week, he accused Warren and other TPP critics of being “wrong,” not knowing what they’re talking about, simply playing to their “fundraising lists,” using “misinformation that stirs up the base but ultimately doesn’t serve them well” and being “dishonest” about secrecy surrounding the TPP process. He even compared them to Sarah Palin and others who claimed that “death panels” were part of ObamaCare.

Economists Say White House Argument on Outsourcing Falls Flat - The White House is attacking one of the central critiques of its trade policy: that free-trade agreements can lead to outsourcing and offshoring that destroy American jobs. Economists, though, aren’t buying the administration’s logic. President Barack Obama and administration officials say workers shouldn’t worry about massive job shifts stemming from the 12-nation Trans-Pacific Partnership, now in the final phase of negotiation,  because the pangs of globalization have run their course. In a study released Friday, White House economic advisers found no significant link between U.S. free-trade agreements and investment abroad. On average, U.S. direct investment into its trading partners grew by 6.3% a year in the five years after a free-trade agreement took effect, or close to the growth rate of U.S. investment into countries with no trade agreement, according to the study. The evidence from the investment figures “suggests that U.S. firms do not increase net outsourcing when the United States enters FTAs,” says the report, from the White House Council of Economic Advisers. It offered 10 reasons to support the administration’s trade policy. The report comes as Congress is considering “fast track” legislationthat would expedite passage of the Pacific deal. “There has not been an increase in outsourcing,” the chairman of the advisers, Jason Furman, said in a call with reporters. “On net, the different forces involved here roughly cancel out.” But economists on both sides of the trade debate say the White House seems to be barking up the wrong tree, muddling arguments about two distinct things–foreign investment and outsourcing–on a hot-button issue that is dividing the public and Congress. Labor unions and skeptical economists are warning the Pacific pact could lead to the kind of outsourcing many workers blame on the North American Free Trade Agreement, the landmark 1993 deal with Mexico and Canada.

Still Report -- TPP - (video) If TPP passes: you will see another million or three jobs offshored, permanently lost My comment: There is really no "debate" to have here -- if this passes you will see another million or three jobs offshored, permanently lost.  America, stand up before our entire nation turns into one gigantic Baltimore!

Globalization" Was Policy, Not Something That Happened -- E.J. Dionne and Harold Meyerson both had interesting columns in the Post this morning, but they suffer from the same major error.  Both note the loss of manufacturing jobs and downward pressure on the wages of non-college educated workers due to effects of trade. But both speak of this as being the result of a natural process of globalization. This is wrong. The downward pressure on wages was the deliberate outcome of government policies designed to put U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This was a conscious choice. Our trade deals could have been designed to put our doctors and lawyers in direct competition with much lower paid professionals in the developing world. Trade deals could have focused on developing clear standards that would allow students in Mexico, India, and China to train to U.S. levels and then practice as professionals in the United States on the same terms as someone born in New York or Kansas. This would have provided enormous savings to consumers in the form of lower health care costs, legal fees, and professional services more generally. The argument for free trade in professional services is exactly the same as the argument for free trade in manufactured goods. The big difference is that doctors and lawyers have much more power than autoworkers and textile workers, therefore the politicians won't consider subjecting them to international competition. However that is no reason for columnists not to talk about this fact. More generally, the heavy hand of government is all over the upward redistribution of the last three and a half decades. We have a Federal Reserve Board that has repeatedly raised interest rates to keep workers from getting jobs and bargaining power. A tax system that directly and explicitly subsidizes many people getting high six or even seven-figure salaries at universities, hospitals, and private charities and foundations. We have government subsidies for too big to fail banks.

While Hillary Was Secretary of State, Foreign Corporations in Favor of TPP Paid Bill over a Million Dollars The Trans-Pacific Partnership has divided the Democratic Party, with most Democrats in Congress and activists in the country opposing the agreement as party elites such as Barack Obama are supporting it.  One major Democrat who has refused to outright support or oppose the agreement in its current form is Hillary Clinton. “Well, any trade deal has to produce jobs and raise wages and increase prosperity and protect our security,” she told the New Hampshire local media. “We have to do our part in making sure we have the capabilities and the skills to be competitive.” However, as Secretary of State, she was part of the negotiating team for the deal, calling it the “gold standard” of trade agreements. In a statement she gave in the summer of 2012, she said the agreement would “benefit” the United States. Watch it:  (VIDEO) These actions stood in sharp contrast to Clinton's rhetoric during her 2008 bid for the presidency, where she sharply criticized free trade agreements. There are likely a number of factors for why Clinton went from a critic of these corporate-written trade agreements to a supporter while in the Obama administration to more or less neutral today. But one very important factor for voters to know about is the role her own personal wealth might have played in the matter. Because spousal income is shared, cabinet officials are required to report not only their own personal financial data but also incoming income their spouse receives. While Clinton was Secretary of State, her husband continued his lucrative corporate speaking tour, receiving millions of dollars from both foreign and domestic corporations. Many of these corporations were themselves enthusiastic supporters of the Trans-Pacific Partnership. We have listed them below:

Wingnut Welfare and Work Incentives - Paul Krugman -- Wingnut welfare is an important, underrated feature of the modern U.S. political scene. I don’t know who came up with the term, but anyone who follows right-wing careers knows whereof I speak: the lavishly-funded ecosystem of billionaire-financed think tanks, media outlets, and so on provides a comfortable cushion for politicians and pundits who tell such people what they want to hear. Lose an election, make economic forecasts that turn out laughably wrong, whatever — no matter, there’s always a fallback job available.  Obviously this reality has important incentive effects. It encourages conservatives to espouse ever-cruder positions, because they don’t need to be taken seriously outside their closed universe. But it also, I’ve been noticing, makes them remarkably lazy. Thus, Matt O’Brien marvels at Stephen Moore’s latest, with its “cherry-picking and unsupported assertions.” What O’Brien doesn’t note is that these assertions aren’t new; Moore and others have made them many times before, and they’ve been thoroughly debunked many times, for example here and here. No, revenues didn’t experience miraculous growth under Reagan; if you adjust, as you obviously should, for inflation and population growth, they grew less in the Reagan years than they did under Ford/Carter, and much less than under Clinton. Yes, the share of taxes paid by the rich rose — but only because of soaring inequality, which raised the share of the wealthy in income. And so on. What’s remarkable, then, is that Moore doesn’t even try to come up with new distortions. He just rolls out the old debunked stuff, ignoring the criticisms. There are many adjectives you could apply to this work, but the one that stands out for me is just plain lazy.

American Exceptionalism Re-Revisited: OECD Taxes/GDP Since 1965 -  The OECD has posted this measure for most countries for 2013, so I thought I’d update this chart. It pretty much speaks for itself.

Largest Bank In America Joins War On Cash-- The war on cash is escalating. Just a week ago, the infamous Willem Buiter, along with Ken Rogoff, voiced their support for a restriction (or ban altogether) on the use of cash (something that was already been implemented in Louisiana in 2011 for used goods). Chase, the largest bank in the U.S.,  has enacted a policy restricting the use of cash in selected markets; bans cash payments for credit cards, mortgages, and auto loans; and disallows the storage of "any cash or coins" in safe deposit boxes.  Buiter defended his "controversial" call for a ban on cash, as Bloomberg reports“The world’s central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.  In a new piece, Citi’s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to cash. According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction? Cash therefore gives people an easy and effective way of avoiding negative nominal rates. Buiter’s note suggests three ways to address this problem:

  1. Abolish currency.
  2. Tax currency.
  3. Remove the fixed exchange rate between currency and central bank reserves/deposits.

Yes, Buiter’s solution to cash’s ability to allow people to avoid negative deposit rates is to abolish cash altogether. (Note that he’s far from being the first to float this idea. Ken Rogoff has given his endorsement to the idea as well, as have others.)

The “War on Cash” in 10 Spine-Chilling Quotes - The war on cash is escalating. As Mises’ Jo Salerno reports, the latest combatant to join the fray is JP Morgan Chase, the largest bank in the U.S., which recently enacted a policy restricting the use of cash in selected markets; bans cash payments for credit cards, mortgages, and auto loans; and disallows the storage of “any cash or coins” in safe deposit boxes. In other words, the war has moved on from one of words to actions. Here are ten quotes that should chill the spine of any individual who cherishes his or her freedom and anonymity:

Money Worries - Kunstler  -- The cynicism among the informed classes has never been so deep. Even the pompom boys in the cheerleading clubs like CNBC and The Wall Street Journal express wonderment at the levitation of stock indexes and bond values. The truth, as opposed to truthiness, is they no longer believe their own bullshit about growthiness.The suppression of interest rates and pervasive accounting fraud has thundered through the financial system, and the deformities caused by it have emerged in currency war, currency instability, trade collapse, and political crisis. Years of central bank intervention have stolen the capital of the future to construct a Potemkin economy meant to conceal the sickening gyre of diminishing returns strangling business as usual. Until it collapses by a great deal more than the wished-for mere 20 percent, more perversities will be piled onto the already existing burden. Is it not a wonder that professionalized interest groups like AARP have not screamed bloody murder over the suppression of interest rates which deprives its members of bank account and bond interest on savings? Instead AARP, like virtually every enterprise in America, has turned to racketeering. Don’t worry, they’ll be gone from the scene soon enough. The next shoe to drop will be various forms of bail-ins and attempts to prevent bank account and money market holders from getting access to their cash. A withdrawal above $2,000 already can trigger a report to the IRS. The next step will be to put a simple ceiling on withdrawals. Will that trigger public ire? Who knows? Nothing yet has in the USA. The meme currently circulating is the fear that government would like to abolish cash altogether and put in a regime of all-electronic money. Being allergic to conspiracy ideas, I’m skeptical about this idea, but I really can’t dismiss it. A cashless society would conceptually allow government much more leak-proof control of all citizen money transactions. Mainly it could funnel tax revenue into the treasury much more efficiently. It raises some obvious practical concerns, such as: would such a program lead to an enhanced  colossal skim of credit card company off-creaming?  And what about the percentage of poorer Americans who don’t have credit cards or bank accounts now, either because they don’t understand how it all works, or they’re forced to function in the “gray” economy for one reason or another (e.g. a drug felony rap). And what kind of as-yet-unknown perverse work-arounds would this new system provoke?

Wall Street Pushes Back on Foreign Bribery Probe - WSJ: Wall Street banks are embroiled in an intense dispute with the U.S. government over its “aggressive” interpretation of foreign-bribery laws, a flurry of legal wrangling in a probe with broad implications for how corporations do business overseas, according to people familiar with the matter. The previously unreported campaign by banks goes to the heart of a wide-ranging inquiry into whether they ran afoul of U.S. antibribery laws by giving jobs to relatives of managers of state-owned companies and other well-connected officials, including the kin of high-ranking Chinese government officials known as “princelings,” allegedly to curry favor in getting deals. In a series of meetings, calls and letters to regulators and federal prosecutors, banks have accused the government of overreaching by threatening to criminalize standard business practices in some countries, according to people close to the firms. The pushback differs from the normal squabbling over settlement terms, in part because the outcome is likely to set a blueprint for future cases, according to people familiar with the matter. The government maintains its approach, which the banks have privately called “aggressive,” is within the confines of the law. J.P. Morgan Chase JPM -0.06 % & Co., under investigation over its hires in Asia, is preparing a white paper to submit to the Securities and Exchange Commission and Justice Department, setting out the bank’s concerns about their approach, the people said. Other banks under scrutiny have separately urged officials to change their position, the people said.

The Financial Markets Now Control Everything - The financial markets don't just dominate the economy--they now control everything. . In effect, politicians now look to the markets for policy guidance, and any market turbulence now causes governments to quickly amend their policies to "rescue" the all-important markets from instability. This is a global trend that has gathered momentum since the program was broadcast in 1999, as The Global Financial Meltdown of 2008-09 greatly reinforced the dominance of markets. It's not just banks that have become too big to fail; the markets themselves are now too influential and big to fail.The government must prop up markets, not just to insure the cash keeps flowing into political campaign coffers, but to save pension funds and the "wealth effect" that is now the sole driver of "growth" (expanding consumption) other than debt. To maintain the illusion of growth and rising wealth, the financial markets must continually reach greater extremes: extremes of debt, leverage, obscurity and valuations. These extremes destabilize markets, first beneath the surface and then all too visibly. The technological advances of the past decade have enabled a host of financial schemes that together have the potential to destabilize the markets globally.Technology enables high-frequency (HFT) traders to only suffer one losing day per year, complex reverse-repo swaps/trades, huge derivative bets and shadow banking, where all the risks generated by these activities can pool up outside the view and control of regulators. The entire economic and political structure is now dependent in one way or another on the continued expansion of financial markets.

"Too Big To Fail Is A License For Recklessness" America's Banking System Is A "Fragile House Of Cards" - Too Big to Fail is a license for recklessness. These institutions defy notions of fairness, accountability, and responsibility. They are the largest, most complex, and most indebted corporations in the entire economy. We all have to be really alarmed by the fact that not only do we still have such institutions, but many of them are ever-larger and more complex and at least as dangerous, if not more so, than they were before the financial crisis. They are too big to manage and control. They take enormous risks that endanger everybody. They benefit from the upside and expose the rest of us to the downside of their decisions. These banks are too powerful politically as well. As they seek profits, they can make wasteful and inefficient loans that harm ordinary people, and at the same time they might refuse to make certain business loans that can help the economy. They can even break the laws and regulations without the people responsible being held accountable. Effectively we're hostages because their failure would be so harmful. They're likely to be bailed out if their risks don't turn out well. Ordinary people continue to suffer from a recession that was greatly exacerbated or even caused by recklessness in the financial system and failed regulation. But the largest institutions, especially their leaders — even in the failed ones — have suffered the least. They're thriving again and arguably benefitting the most from efforts to stimulate the economy.

Catastrophe deals threaten reinsurance sector ‘collapse’ - The $575bn industry that protects insurers from earthquakes, hurricanes and other disasters risks a banking-style meltdown if it continues making “dangerous” changes to how it is structured, new research has found. After a three-year study of the reinsurance sector, a team of business school academics has found that some companies are now packaging together catastrophe risks in a similar way to the carving up of subprime mortgages by big banks before the financial crisis. As a result, the victims of a costly catastrophe – such as an earthquake or storm that destroys large areas – could run into problems having their insurance claims paid. Professor Paula Jarzabkowski of Cass Business School, one of the researchers, said mainstream insurers were potentially spreading risks to parties that did not fully understand them.  Many have been increasingly turning to pension funds and other capital markets investors – by issuing securities such as catastrophe bonds – as an alternative to traditional reinsurance. But Prof Jarzabkowski warned that these insurance companies were in danger of not being covered as well as they believed if an especially costly disaster, such as an earthquake hitting California, were to strike. “If these instruments work as insurers hope, they can alleviate a lot of hardship and suffering,” she said. “If they don’t, societies are exposed to having less capacity to rebuild in the wake of a disaster.” In a book to be launched this week, Prof Jarzabkowski and two fellow business school academics suggest that the market has become over-reliant on catastrophe models to assess the risks – and could freeze following a catastrophe.

Elizabeth Warren is Not Impressed with Your Diamond-Encrusted Ring – Alexis Goldstein - This week, Senator Warren blasted the insurance industry for the perks they give their annuities salespeople for peddling conflicted advice. Warren wrote in a statement that these “questionable practices” highlight the need for the very rule her five Senate colleagues are lobbying against. And she also sent 15 letters to annuity providers like Allianz and AIG, asking the companies for information about the rewards they offered to their brokers. She didn’t stop there. In a Senate Banking Committee hearing on April 28, Senator Warren called out some of the luxurious kickbacks that annuities salespeople get: “I got interested in what kinds of kickbacks some of these insurance salesman were getting when they pushed people to buy annuities. And what I found is pretty amazing. I found free cruises luxury vacations at five-star resorts, an African Safari, private yacht tours of the Mediterranean, iPads, Mercedes-Benz leases, and — get this one — a diamond encrusted, NFL Superbowl style ring with a large ruby in the middle.” While Senator Warren doesn’t mention her Democratic colleagues that have pushed back on the Labor Department’s proposal by name, her obsessive focus on the glitzy rewards the rule would prevent don’t make them look very good, either. In her letter to the insurance companies, Senator Warren wrote that those selling annuities were “more interested in earning perks than in acting in their clients’ best interest” and that this conflict places Americans’ “retirement security at risk.” The clear implication of her messaging is this — either you stand with efforts to protect Americans saving for retirement from conflicts, or you stand with the annuity providers who are making it rain diamonds, luxury vacations, and gold watches on their brokers, as American’s retirement savers pick up the tab.

We Made an SEC Private Equity Whistleblower Filing  - Yves Smith - Before you get too excited, our SEC whistleblower filing is a minimalist version of the genre, but we thought it would be instructive to readers nevertheless. We came across what looks like a slam-dunk securities law violation by sheer happenstance. When we were reading Eileen Appelbaum and Rosemary Batt’s important book, Private Equity at Work, we noticed an in-passing reference to Riverside Partners as an example of a private equity firm whose strategy emphasized making operating improvements in the companies it purchased. As Appelbaum and Batt pointed out, for smaller and mid-sized deals (up to roughly $350 million in transaction value), private equity firms can make a case that they have make a bona fide economic contribution, since companies in that size range that have growth potential often need to professionalize their operations or reach new markets. In theory, the private equity firm can help them fill those gaps via helping provide the needed systems and personnel, or via acquisitions or mergers (note that firms that target bigger deals often make similar claims, but Appelbaum and Batt found their returns depended largely on cost cutting and financial engineering). On a whim, we decided to look at Riverside’s Form ADV. Investment advisers are required to make this filing as part of their registration process with the SEC and state securities regulators. Part 2 of the filing is a narrative, written in plain English, in which the adviser describes its fee schedule, conflicts of interest, whether it has been the subject of disciplinary action, and other important information. Investment advisers must provide their investors at least annually with an update of material changes to the brochure and deliver or offer to deliver an updated brochure to the client. The SEC’s site provides a link to the most current version of the Form ADV.

Arrest of Nav Sarao is ridiculous - Everyone on Wall Street has been talking about this week's arrest of a little-known UK-based trader on allegations that he caused the May 6, 2010 "Flash Crash." That's because the consensus view on the Street is that the arrest itself is absolutely ridiculous. In fact, as one trader put it, it's "beyond ridiculous." Over the past few days, we've had several conversations with traders, quantitative analysts, and hedge fund managers. It was the topic of conversation at happy hours and charity events. What's more, there wasn't a single person we spoke to who bought the argument that one guy wiped billions from the market in a matter of minutes by "spoofing" — a practice in which a trader orders a bunch of trades and then cancels them. It creates artificial demand and manipulates the price of a stock. It's been almost five years since the "Flash Crash" and regulators are suddenly blaming Navinder "Nav" Sarao, a 36-year-old who trades S&P futures from his mom and dad's house in a London suburb.   Yep, regulators think a guy in saggy sweatpants and Nike Airs trading from his parents' basement did it.  Sarao was arrested and charged with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of "spoofing" .  If convicted on all counts, Sarao could face up to 380 years in prison based on the maximum sentences for each.  Sarao was granted bail ($7.5 million).

The Flash Crash Trader Has Strong Defense Witnesses -  Prosecutors from the U.S. Justice Department have already lost their case in the court of public opinion against Navinder Singh Sarao, the man they allege fueled the Flash Crash in the stock market on May 6, 2010, trading from his bedroom in his parents’ house in the U.K. Yesterday, Terry Duffy, Executive Chairman of the CME Group and the man who sits atop the futures market in Chicago where the Justice Department alleges Sarao tricked the market into a collapse, threw cold water on hopes of building this case before a jury. Duffy told Maria Bartiromo the following in an interview on Fox Business News: “They took Accenture to a penny [Accenture is a stock that trades in New York, not in the futures markets in Chicago]; noone’s talking about Accenture going to a penny that day…But yet they’re blaming the futures market and the futures market is the only one that gave the data to all the regulators the day of the event. We looked through all this data and it was talked about by the regulators and us that the futures market did not cause this. I testified in Washington, showed how we went down, stopped, with our functionality replenished liquidity and the market kept on trading. They tried to blame Waddell Reed for it now they’re going to blame Mr. Sarao for it…” Sarao is charged by the Justice Department with inflicting carnage through the use of the E-mini, a futures contract based on the Standard and Poor’s 500 index. Chicago is one-hour behind New York. The crux of the Justice Department’s Flash Crash case against Sarao is this: “Between 12:33 p.m. and 1:45 p.m., Sarao placed 135 sell orders consisting of either 188 or 289 lots, for a total of 32,046 contracts. Sarao canceled 132 of these orders before they could be executed.”

BofA ‘Hustle’ appeal tests Justice’s novel use of old S&L statute: (Reuters) – In successive rulings in 2013, three well-regarded federal judges in Manhattan endorsed the Justice Department’s creative adaptation of an old law from the savings and loan crisis of the 1980s to cases against banks involved in the financial crisis of the 2000s. That April, U.S. District Judge Lewis Kaplan refused to dismiss the government’s civil suit against Bank of New York Mellon. Similar rulings followed in August from U.S. District Judge Jed Rakoff in the so-called “Hustle” case against Bank of America and in September from U.S. District Judge Jesse Furman in a Justice Department civil suit against Wells Fargo. All three banks had argued that the statute at the heart of the government suits, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, was intended to protect financial institutions from self-dealing insiders – and not to enable the government to bring suits against the banks themselves. FIRREA permits Justice to bring civil cases against defendants that engage in mail or wire fraud “affecting a federally insured financial institution.” The government said in the BNY Mellon, BofA and Wells Fargo cases that the banks had affected themselves by committing fraud. .“The upshot is that the government will likely be able to pursue civil charges against federally insured financial institutions (whose misconduct in most cases would affect themselves) for conduct going back 10 years (the limitations period. Conduct leading into or during the financial crisis could be the subject of FIRREA claims for several more years to come.” BofA went on to lose a jury trial in the case before Rakoff, which involved allegations that Countrywide defrauded Fannie Mae and Freddie Mac when it sold them mortgages underwritten with a fast-track automated system. Rakoff hit the bank with $1.2 billion in damages, along the way rejected BofA’s “self-affecting” defenses in summary judgment and post-trial motions. BNY Mellon settled the government’s FIRREA case (as well as related New York attorney general claims) last month for $714 million. In the case before Judge Furman, Wells Fargo and the government are still in discovery, according to the docket.

SEC Investigating Whether Bank of America Broke Customer-Protection Rules - WSJ: The Securities and Exchange Commission is investigating whether Bank of America Corp. BAC 0.58 % broke rules designed to safeguard client accounts, potentially putting retail-brokerage funds at risk in order to generate more profits, according to people familiar with the inquiry. For at least three years, the bank used large, complex trades and loans to save tens of millions of dollars a year in funding costs and to free up billions of dollars in cash and securities for trading that Bank of America otherwise would have needed to keep off-limits, these people said. Now, the SEC is investigating whether the bank’s unusual strategy violated customer-protection rules and whether the bank misled regulators about what it was doing, these people said.  Bank of America, the second-largest U.S. lender by assets, stopped the strategy in mid-2012, amid internal debate about its potential regulatory and other risks, they said. The trades took place in Bank of America’s Merrill Lynch unit, which it bought in 2009. “These transactions, which began at Merrill Lynch before the acquisition by Bank of America, received extensive review and approval,” a spokeswoman for the Charlotte, N.C.-based bank said. “The firm fully complied with the rules designed to safeguard client funds.”

Big Banks Use Loophole to Avoid Ban - WSJ: —Big banks are using a little-known loophole to avoid triggering a Securities and Exchange Commission ban on selling certain lucrative products to clients in the wake of enforcement actions. Deutsche Bank AG DBK 1.02 % last week was able to avoid the threat of a ban on selling stakes in hedge funds by tucking specific language into an $800 million agreement it reached with a different regulator—the Commodity Futures Trading Commission—to resolve an interest-rate-rigging probe. Five other banks had similar provisions included in CFTC agreements resolving allegations of currency manipulation in November. The language allows the banks to avoid asking the SEC for a waiver—a process that has become fraught with uncertainty amid commissioner disagreements over whether to allow financial firms to avoid a “bad actor” ban. A CFTC spokesman didn’t respond to requests for comment on why the agency used the provisions in its settlements.

New Jersey still caught in foreclosure nightmare: The foreclosure nightmare that haunted U.S. homeowners during and after the Great Recession has loosened its grip considerably in most states. In New Jersey, the bad dream just gets scarier. Foreclosures there are 17 percent higher than they were in 2014, and bank repossessions of homes are up 18 percent, the housing-analytics firm RealtyTrac reported last week - even as the rest of the country logged the lowest foreclosure numbers in eight years. One in every 234 homes in the state with a mortgage is in some stage of the foreclosure process - the fifth-highest rate in the nation.  By contrast, Pennsylvania's foreclosure rate is one in every 462 houses and falling. For the United States as a whole, the rate is one in 421. New Jersey "should really be compared to where everyone else was two years ago," said William Hall, manager of housing programs at the nonprofit credit-counseling agency Clarifi, which has an office in Cherry Hill and offered advice to 769 South Jersey homeowners in 2014. In the first three months of this year, RealtyTrac reports, 14,524 houses were in the foreclosure pipeline in Burlington, Camden, and Gloucester Counties alone. The data show that 4,535 of those properties were vacant - "zombies" abandoned by their owners on lenders' orders but for which the foreclosure process was never completed. Philadelphia and its four suburban Pennsylvania counties have four times the number of homes as the three South Jersey counties but had just 12,046 foreclosures in the first quarter, RealtyTrac reports.

New Reverse Mortgage Policy Leaves Widows and Widowers Homeless — Karen Hunziker was just 60 years old when her husband, Charles, secured a reverse mortgage on their Pollock Pines, Calif. home. At the time, Hunziker was advised by the mortgage broker to remove her name from the title in order to qualify for the loan.  “We were both very concerned that I could be giving up my property rights, but the salesperson assured us I would be protected until 62 years old when I would be put on the title,” said Hunziker.   However when she turned 62, Hunziker and her husband were informed by an attorney that the only way she could be on the title would be to refinance into a new reverse mortgage. She was subsequently told the couple would need to contribute $60,000 in order to get a new loan.  “That was impossible because of the first reverse mortgage,” said Hunziker, who works as an artist craftswoman.  Although the couple had lived in the home for 19 years, Hunziker received a foreclosure warning letter from Financial Freedom some ten days after her husband passed away in May 2014.  The mortgage servicer reportedly told Hunziker that it plans to foreclose the marital property in May.   That’s because Hunziker is a non-borrowing spouse.Although it was legal for brokers to make the mortgage only to Charles Hunziker, it wasn’t accurate to say that his wife, Karen, could be added to the mortgage when she turned 62 or that she wouldn’t face foreclosure if the older spouse passed away.

Freddie Mac: Mortgage Serious Delinquency rate declined in March - Freddie Mac reported that the Single-Family serious delinquency rate declined in March to 1.73%, down from 1.81% in February. Freddie's rate is down from 2.20% in March 2014, and the rate in March was the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".   Although the rate is declining, the "normal" serious delinquency rate is under 1%.   The serious delinquency rate has fallen 0.47 percentage points over the last year - and the rate of improvement has slowed recently - but at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.  So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Apps up 21% YoY -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 24, 2015. ... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index was unchanged from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 21 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 3.85 percent from 3.83 percent, with points increasing to 0.35 from 0.32 (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 21% higher than a year ago.

The myth that mortgage credit is really tight - AEI: Claims that housing has not recovered since the financial crisis because credit is tight are everywhere: from Fed Chair Yellen to economists working within and outside the government. In a piece published today, former Fed economist Stephen Oliner, now an AEI scholar, explains why they are wrong: [M]ost people with a steady job and an average (or worse) credit score can get a mortgage. Many borrowers taking out home purchase loans these days have less than perfect credit. The federal government has been more than willing to guarantee higher-risk mortgages, and it’s been doing a lot of business with lenders that originate the loans and then pass the credit risk to taxpayers. [T]he median credit score for borrowers who took out an FHA-guaranteed home purchase loan was 673. About two-thirds of all individuals in the U.S. have a higher credit score than that. [T]he FHA is already operating, in effect, as a large subprime lender. Extending even riskier mortgages would not turn out well. History shows that prudent underwriting is the only way to ensure a stable housing finance system and sustainable homeownership.

Housing Bubble 2: Investor Purchases Hit Record, Small Investors Pile in, ‘Smart Money’ Gets Out -- People buying homes to live in – rather than as investments to be rented out – form the bedrock of a healthy housing market. It was once called the American Dream. Then came the bubble, its collapse, and the new boom that is already a bigger bubble than the prior one in many cities. And in some metro areas, investors are now the majority of buyers! In the first quarter, the proportion of owner-occupant buyers fell to 63.2% of all residential sales, down from 65.8% in the fourth quarter last year, and down from 68.6% a year ago, RealtyTrac reported today. It was the lowest quarterly level in the data series going back to 2011. Who were the other buyers? Investors. The report defined them as buyers who purchased a property but then had their property tax bill mailed to a different address. And these investors accounted for a record of 36.8% of all home sales. In some metro areas, investors went hog-wild, elbowing owner-occupants into minority status. Here are the metro areas with a population of at least 500,000 where this miracle of our “healed” housing market has occurred in Q1, the miracle being that investors make up the majority of all homebuyers:

Black Knight: House Price Index up 0.7% in February, 4.6% year-over-year -- Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From Black Knight: Black Knight Home Price Index Report: February Transactions – U.S. Home Prices Up 0.7 Percent for the Month; Up 4.6 Percent Year-Over-Year Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on February 2015 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.  For a more in-depth review of this month’s home price trends, including detailed looks at the 20 largest states and 40 largest metros, please download the full Black Knight HPI Report at The Black Knight HPI increased 0.7% percent in February, and is off 9.5% from the peak in June 2006 (not adjusted for inflation).  The year-over-year increase in the index has been about the same for the last six months.   The press release has data for the 20 largest states, and 40 MSAs.

Case-Shiller: National House Price Index increased 4.2% year-over-year in February -  S&P/Case-Shiller released the monthly Home Price Indices for February ("February" is a 3 month average of December, January and February prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. From S&P: Widespread Gains in Home Prices for February According to the S&P/Case-Shiller Home Price Indices Data released for February 2015 show that home prices continued their rise across the country over the last 12 months. ... Both the 10-City and 20-City Composites saw larger year-over-year increases in February compared to January. The 10-City Composite gained 4.8% year-over-year, up from 4.3% in January. The 20-City Composite gained 5.0% year-over-year, compared to a 4.5% increase in January. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.2% annual gain in February 2015, weaker than the 4.4% increase in January 2015. ... The National Index rebounded in February, reporting a 0.1% change for the month. Both the 10- and 20-City Composites reported significant month-over-month increases of 0.5%, their largest increase since July 2014. Of the sixteen cities that reported increases, San Francisco and Denver led all cities in February with increases of 2.0%and 1.4%. Cleveland reported the largest drop as prices fell 1.0%. Las Vegas and Boston reported declines of -0.3% and -0.2% respectively. The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 15.2% from the peak, and up 0.9% in February (SA). The Composite 20 index is off 14.1% from the peak, and up 0.9% (SA) in February. The National index is off 7.6% from the peak, and up 0.4% (SA) in February. The National index is up 24.3% from the post-bubble low set in December 2011 (SA). The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 4.8% compared to February 2014. The Composite 20 SA is up 5.0% year-over-year.. The National index SA is up 4.2% year-over-year.  The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

A Comment on House Prices: Real Prices and Price-to-Rent Ratio in February --The expected slowdown in year-over-year price increases has occurred. In October 2013, the National index was up 10.9% year-over-year (YoY). In February 2015, the index was up 4.2% YoY.  However the YoY change has only declined slightly over the last six months. Looking forward, I expect the YoY increases for the indexes to move more sideways (as opposed to down).   Two points: 1) I don't expect (as some) for the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it was good news for housing and the economy. In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (36%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 7.6% below the bubble peak.   However, in real terms, the National index is still about 21% below the bubble peak.  This graph shows the price to rent ratio (January 1998 = 1.0). On a price-to-rent basis, the Case-Shiller National index is back to May 2003 levels, the Composite 20 index is back to December 2002 levels, and the CoreLogic index is back to March 2003. In real terms, and as a price-to-rent ratio, prices are mostly back to 2003 levels - and maybe moving a little sideways now.

Zillow Forecast: Expect Case-Shiller National House Price Index up 4.2% year-over-year change in March - The Case-Shiller house price indexes for February were released this week. Zillow forecasts Case-Shiller a month early - now including the National Index - and I like to check the Zillow forecasts since they have been pretty close. From Zillow: March Case-Shiller Forecast: 20-City Index to Show Annual Growth Above 5% Once Again The February S&P/Case-Shiller (SPCS) data published today showed a slight uptick in home value appreciation for the 10- and 20-City indices, compared to the prior month. However, appreciation in the national index fell slightly in February, to an annual pace of 4.2 percent, from 4.4 percent in January 2015. Annual appreciation in the national series hit a post-bubble peak of 10.9 percent in October 2013 and has declined in every month since December 2013. The 10- and 20-City Composite Indices both experienced modest bumps in annual growth rates in February; the 10-City index rose 4.8 percent and the 20-City Index rose to 5 percent, up from rates of 4.3 percent and 4.5 percent, respectively, in January. The non-seasonally adjusted (NSA) 10- and 20-City indices were each up 0.5 percent in February from January, and we expect both to show further gains in March. All forecasts are shown in the table below. These forecasts are based on the February SPCS data release and the March 2015 Zillow Home Value Index (ZHVI), published April 22. Officially, the SPCS Composite Home Price Indices for March will not be released until Tuesday, May 26.

NAR: Pending Home Sales Index increased 1.1% in March, up 11% year-over-year -- From the NAR: Pending Home Sales Increase in March for Third Consecutive Month The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.1 percent to 108.6 in March from an upward revision of 107.4 in February and is now 11.1 percent above March 2014 (97.7). The index has now increased year-over-year for seven consecutive months and is at its highest level since June 2013 (109.4)....The PHSI in the Northeast fell (1.5 percent) for the fourth straight month to 80.2 in March, but is still 0.6 percent above a year ago. In the Midwest the index declined 2.5 percent to 107.5 in March, but is 11.3 percent above March 2014.Pending home sales in the South increased 4.0 percent to an index of 126.5 in March and are 12.4 percent above last March. The index in the West rose 1.7 percent in March to 103.7, and is now 15.6 percent above a year ago. This was close to expectations of a 1.0% increase. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in April and May.

Pending Home Sales Rise In March As Weather Effect Dissipates -- Following the plunge in new home sales (and surge in existing home sales), pending home sales rose slightly more than expected in March. Up 1.1% MoM (vs +1.0% exp), this is still a slowing in the pace of appreciation from February's upwardly revised 3.6% jump. A 13.4% surge YoY (NSA) has prompted exuberance from NAR as they throw off any vestiges of weather-related problems and proclaims the spring housing market is back (except Northeast saw sales drop 1.5% - for the 4th straight month; and The Midwest fell 2.5% MoM).

Median New Home Sale Prices in the U.S. - How many times has the median sale price of the new homes sold in the U.S. sustainably doubled since the U.S. Census Bureau began monitoring them in January 1963?  The answer is revealed in our chart below! With "sustainably doubling" being defined as when the median sales price has risen above the level when the price has doubled without falling back below it in all the time recorded since, the surprising answer is that the median sales price of new homes in the U.S. has only sustainably doubled just four times, with the fourth period just being recorded in October 2014! Looking at more recent history, when we plot the trajectory of the trailing twelve month average of median new home sale prices against median household income since December 2000, we find that the current trend for the rate of increase of these prices is now rising at a rate that is just under half that recorded during the main inflation phases of what we've identified as the first and second U.S. housing bubbles. That puts the current growth rate of median new home sale prices with respect to median household income about 3--4 times greater that what was typical in periods outside of the expansion of housing bubbles in the U.S. economy.

Why New Homes Have Become More Expensive: They’re Much Bigger - Prices of new homes have zoomed higher over the past few years. One big driver: the growing size of the American home. Economists at CoreLogic last year concluded that around half of the 18% gain in new-home prices between 2010 and 2013 stemmed from changes in the size and quality of new homes, which are laden with more amenities such as fireplaces, walk-in closets, and additional rooms. The CoreLogic analysis used data published by the Census Bureau that constructs a price index based on “constant-quality” homes—that is, what prices would look like over time for homes with the same size and amenities. The phenomenon of more expensive—and bigger—homes isn’t brand new, of course. Before the housing bubble, home sizes grew steadily every year. Tom Lawler, an independent housing economist in Leesburg, Va., recently used the constant-quality price index to examine home prices going back to 1970. Last year, new homes sold for an average $343,000, more than double what they sold for in 1970 after adjusting for inflation. His analysis showed that if builders had sold homes with similar characteristics to those sold in 1970, average prices would have been much lower, at around $199,000. That is up just 23% from 1970 after adjusting for inflation.

Homeownership rate drops to quarter-century low - MarketWatch: In the latest sign of a changing housing market, homeownership rates are at a quarter-century low, while the rental-vacancy rate is close to the slimmest proportion in more than two decades, according to government data released Tuesday. The seasonally adjusted homeownership rate, which shows the share of occupied homes in which an owner lives, fell to 63.8% in the first quarter — the lowest proportion since the end of 1989, the U.S. Census Bureau said.  Families with income both above and below the median have seen drops in homeownership rates over the past year. Weak income growth and difficult-to-get mortgages are likely behind homeownership drops, experts say. Home prices that are running higher aren’t helping, either. Nor are the millions of properties that are underwater — these homes are worth less than owners owe for their mortgage — with borrowers struggling to make monthly payments, However, long-term trends show that the drop in homeownership is actually pushing the U.S. back to “normal” levels, said Sam Khater, deputy chief economist at CoreLogic, an Irvine, Calif.–based analysis firm. The market may even see further drops, he added.

The Homeownership Rate Is Now the Lowest Since 1989, But There’s a Silver Lining -  The U.S. homeownership rate continued to decline in 2015, hitting its lowest level since 1989. But economists saw a silver lining in that number. The seasonally adjusted homeownership rate declined to 63.8% in the first quarter of 2015 compared with 65% in the first quarter of 2014, according to estimates published by the Commerce Department on Tuesday. For the second consecutive quarter, the number of total households–renters and owners–jumped significantly. Because many of those new households are renting, that can drive down the homeownership rate as a percentage of total households, while providing a glimmer of hope in the long term. The report estimated that renter households increased by more than 1.8 million from the first quarter of 2014, while the number of owner households decreased by 386,000. The quarterly estimates are viewed as not terribly reliable by some economists, but the numbers suggest a step in the right direction. Economists have been waiting for 20-somethings to emerge from their parents’ basements and begin renting on their own. That is important for the owner-occupied market because, eventually, those renters will likely buy homes. “Many of those new renter households will become homeowners, but probably not soon,” said Jed Kolko, chief economist at Trulia.

Death Of The Middle Class: Homeownership Rate Drops To 29 Year Low As Average Rent Hits Record High --- Earlier today the US Census released its latest quarterly data, which confirmed that for what is left of America's middle class, owning a home has become virtually impossible, with the homeownership rate tumbling from 64.0% to 63.7%, which is tied for the lowest historic print since the first quarter of 1986, with the only difference that then the trendline was higher. Now, as can be seen on the chart below, it isn't. At this rate, by the end of the 2015 and certainly by the end of Obama's second term, the US homeownership rate will drop to the lowest in modern US history.

Rents spike to new record in Q1 -- Tuesday the Census Bureau released its quarterly report on homeownership.  While the bulk of the commentary focused on the homeownership rate, and price of housing, I would like to focus on apartment rentals. The share of apartment building compared to single family home construction has jumped since the last recession, partly due to the swelling demographic of Millennials entering the market, and partly due to stagnant wages.  Here is the rental vacancy rate compared with the homeowner vacancy rate: Rental vacancies made a record low in the 4th quarter of 2014, and bounced up just a little in the first quarter of 2015. This is the flip side of the 20-year low in homeownership rates: Unsurprisingly, in nominal terms, the median asking rent has been rising to new records in the last several years: But that doesn't tell us what has been going on in real terms. To do that, we should adjust for inflation, or alternatively by wages. That is what I have done in the chart below. It shows nominal asking rents vs. median weekly wages as compiled by the BLS. It shows that real rents declined in the 1990s as wages increased, soared in the 2000 - 2009 period, and had remained below that peak ever since -- until this past quarter:

Construction Spending decreased 0.6% in March -- Earlier today, the Census Bureau reported that overall construction spending decreased in March:  The U.S. Census Bureau of the Department of Commerce announced today that construction spending during March 2015 was estimated at a seasonally adjusted annual rate of $966.6 billion, 0.6 percent below the revised February estimate of $972.9 billion. The March figure is 2.0 percent above the March 2014 estimate of $947.3 billion.  Both Private and public spending decreased: Spending on private construction was at a seasonally adjusted annual rate of $702.4 billion, 0.3 percent below the revised February estimate of $704.7 billion. ...In March, the estimated seasonally adjusted annual rate of public construction spending was $264.2 billion, 1.5 percent below the revised February estimate of $268.2 billion.  Non-residential for offices and hotels is generally increasing, but spending for oil and gas is declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending. As an example, construction spending for lodging is up 22% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 16% year-over-year.  This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending has been moving sideways, and is 48% below the bubble peak. Non-residential spending is 15% below the peak in January 2008. Public construction spending is now 19% below the peak in March 2009 and about 1% above the post-recession low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is down 2.5%. Non-residential spending is up 9% year-over-year. Public spending is unchanged year-over-year.

Construction Spending "Once Again Defies Expectations" Much Weaker Than Expected; Four Reasons Economists Perplexed - Economists have been overly optimistic on the majority of economic reports for going on six months. Today the Bloomberg Consensus estimate for construction spending was for a 0.4% gain. The actual result was a decline of 0.6%.  Construction spending once again defied expectations. March construction spending dropped 0.6 percent against expectations of an increase of 0.4 percent. On the year, construction spending was up 2.0 percent, down from February's annual increase of 2.7 percent. Both residential and public building declined. While weather can still be blamed for some of the decline, a basic weakness in the building sector was apparent.  Private residential spending dropped 1.6 percent on the month with both single family and multi-family homes declined. In addition, residential construction excluding new homes, which captures home remodeling, also declined after gains in the previous two months. Nonresidential private construction provided a ray of sunshine -- it advanced 1.0 percent on gains in the office, manufacturing, and health care sectors. Public construction was down for a third straight month to its lowest level since February 2014. State and local government spending, the much larger portion of public construction, dropped in both February and March while Federal Government construction retreated after an 8.6 percent surge in the previous month. Four Key Reasons Economists are Perplexed:

  1. Weakness is "transitory" as the Fed explained on Wednesday.
  2. Clearly the economy could use more Walmarts and McDonald's as there is not yet one on every corner. Forget about the fact that wages are going up and that will damper earnings and reduce the desire to open marginal stores.
  3. Millennials working multiple part-time jobs will soon buy a new home thanks to rise in hourly wage to $12.
  4. We certainly need to build more public schools as retiring boomers will be going back to 8th grade en masse.

Earlier from the BEA: Personal Income increased slightly in March, Core PCE prices up 1.3% year-over-year - Earlier the BEA released the Personal Income and Outlays report for March:  Personal income increased $6.2 billion, or less than 0.1 percent ... in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $53.4 billion, or 0.4 percent...Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in March, in contrast to a decrease of less than 0.1 percent in February. ... The price index for PCE increased 0.2 percent in March, the same increase as in February. The PCE price index, excluding food and energy, increased 0.1 percent in March, the same increase as in February.The March price index for PCE increased 0.3 percent from March a year ago. The March PCE price index, excluding food and energy, increased 1.3 percent from March a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through March 2015 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

No Growth In Personal Income Pushes Savings Rate To Lowest In 2015; Spending Misses Expectations -- The myth of the resurgent US consumer, who was somehow supposed to benefit massively from the "unambiguously good" plunge in oil and gas prices, has been gutted and eviscerated, with the latest confirmation coming from the Personal Income and Spending data, in which we find that not only did personal income not grow in March, with wage growth the lowest in 2015 (with manufacturing workers' incomes coming flat and Trade and Transportation wages actually down), but because spending rose by a weaker than expected 0.4% in March, the 4th miss in the past 5 months, US personal savings have resumed declining and all those "gas savings" are finally being spent: just not where they should be spent, and not in the amounts hoped.

Real Disposable Income Per Capita Declined Fractionally in March -- With the release of today's report on March Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The March nominal -0.04% month-over-month decline in disposable income drops to -0.21% when we adjust for inflation. The year-over-year metrics are 2.89% nominal and 2.56% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000.  Nominal disposable income is up 62.4% since then. But the real purchasing power of those dollars is up only 22.8%.  Let's take one more look at real DPI per capita, this time focusing on the year-over-year percent change since the beginning of this monthly series in 1959. The chart below highlights the value for the months when recessions start to help us evaluate the recession risk for the current level.

A Surprising Decline in Consumer Confidence - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through April 17. The headline number of 95.2 was a substantial drop from the revised March final reading of 101.4, a slight revision from 101.3. Today's number was well below the forecast of 102.5. Here is an excerpt from the Conference Board press release.“Consumer confidence, which had rebounded in March, gave back all of the gain and more in April,”  “This month’s retreat was prompted by a softening in current conditions, likely sparked by the recent lackluster performance of the labor market, and apprehension about the short-term outlook. The Present Situation Index declined for the third consecutive month. Coupled with waning expectations, there is little to suggest that economic momentum will pick up in the months ahead.” The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end we have highlighted recessions and included GDP. The regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope resembles the regression trend for real GDP shown below, and it is a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference.

Consumer Confidence Tumbles, Misses By Most In 5 Years - Stunned... Despite soaring stock prices and low gas prices, Consumer Confidence tumbled to 95.2 (against expectations of a jump to 102.2) to its lowest sicne 2014. This is the biggest miss since June 2010. We are going to need more oil price deflation and stock price reflation (and less looting). New England and West South Central Regions saw the biggest plunge in confidence and despite the plunge in current situation, future expectations (aka "hope") jumped from 90 to 96.

A Surprising Decline in Consumer Confidence - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through April 17. The headline number of 95.2 was a substantial drop from the revised March final reading of 101.4, a slight revision from 101.3. Today's number was well below the forecast of 102.5. Here is an excerpt from the Conference Board press release.“Consumer confidence, which had rebounded in March, gave back all of the gain and more in April,”  “This month’s retreat was prompted by a softening in current conditions, likely sparked by the recent lackluster performance of the labor market, and apprehension about the short-term outlook. The Present Situation Index declined for the third consecutive month. Coupled with waning expectations, there is little to suggest that economic momentum will pick up in the months ahead.” The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end we have highlighted recessions and included GDP. The regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope resembles the regression trend for real GDP shown below, and it is a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference.

Why So Many Americans Feel So Powerless -- Robert Reich - As I travel around America, I’m struck by how utterly powerless most people feel. The companies we work for, the businesses we buy from, and the political system we participate in all seem to have grown less accountable. I hear it over and over: They don’t care; our voices don’t count. A large part of the reason is we have fewer choices than we used to have. In almost every area of our lives, it’s now take it or leave it. Companies are treating workers as disposable cogs because most working people have no choice. They need work and must take what they can get. Although jobs are coming back from the depths of the Great Recession, the portion of the labor force actually working remains lower than it’s been in over thirty years – before vast numbers of middle-class wives and mothers entered paid work. Which is why corporations can get away with firing workers without warning, replacing full-time jobs with part-time and contract work, and cutting wages. Most working people have no alternative. Consumers, meanwhile, are feeling mistreated and taken for granted because they, too, have less choice. U.S. airlines, for example, have consolidated into a handful of giant carriers that divide up routes and collude on fares. In 2005 the U.S. had nine major airlines. Now we have just four. It’s much the same across the economy. Eighty percent of Americans are served by just one Internet Service Provider – usually Comcast, AT&T, or Time-Warner.The biggest banks have become far bigger. In 1990, the five biggest held just 10 percent of all banking assets. Now they hold almost 45 percent.

Can Algorithms Form Price-Fixing Cartels? - On the day after Easter this year, an online poster retailer named David Topkins became the first e-commerce executive to be prosecuted under antitrust law. In a complaint that was scant on details, the U.S. Department of Justice’s San Francisco division charged Topkins with one count of price-fixing, in violation of the Sherman Act. The department alleged that Topkins, the founder of Poster Revolution, which was purchased in 2012 by, had conspired with other sellers between September of 2013 and January of last year to fix the prices of certain posters sold on Amazon Marketplace. Topkins pleaded guilty and agreed to pay a twenty-thousand-dollar fine. “We will not tolerate anticompetitive conduct, whether it occurs in a smoke-filled room or over the Internet using complex pricing algorithms,” Assistant Attorney General Bill Baer, of the department’s antitrust division, said. Casual observers might wonder why, for its first Sherman Act antitrust case against an online-sales executive, the Department of Justice targeted a relatively small-time retailer in the wall-décor industry. After all, Silicon Valley is no doubt replete with e-commerce executives who have colluded to bend rules and harm consumers. Coupled with the details of the complaint, however, Baer’s statement suggests that prosecutors might have been interested in a tool underlying Topkins’s apparent misdeeds: an algorithm he had coded to instruct his company’s software to set prices.

Weekly Gasoline Price Update: Up Nine Cents -- It's time again for our weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, the price of Regular and premium both rose nine cents. This is the second week of price increases after six weeks of decline. According to, California has the highest average price for Regular at $3.42. South Carolina has the cheapest at $2.27.

Vehicle Sales Forecasts: Best April in "13 Years" -- The automakers will report April vehicle sales on Friday, May 1st. Sales in March were at 17.05 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales will be strong in April too.  April sales (SA) will probably be the best since 2005.  Note:  There were 26 selling days in April, the same as last year.  Here are a couple of forecasts: From WardsAuto: Forecast: April Daily Sales to Reach 13-Year High A WardsAuto forecast calls for U.S. automakers to deliver 1.474 million light vehicles this month.  The forecasted daily sales rate of 56,706 over 26 days represents a 6.7% improvement from like-2014 (also 26 days) and would mark the industry’s best April, on a daily basis, since 2002, as well as the highest April sales volume since 2000...The report puts the seasonally adjusted annual rate of sales for the month at 16.8 million units, down from March’s 17.1 million SAAR, but some 800,000 units above year-ago and slightly ahead of the 16.8 million first-quarter SAAR.  From J.D. Power: New-Vehicle Sales in April Strongest for the Month in a Decade Total light-vehicle sales are projected to reach 1,463,700, a 5 percent increase compared with April 2014 and the highest level for the month since April 2005 when 1,500,624 new vehicles were sold. [Total forecast 16.6 million SAAR] Another strong month for auto sales.

U.S. Light Vehicle Sales declined to 16.5 million annual rate in April - Based on a WardsAuto estimate, light vehicle sales were at a 16.5 million SAAR in April. That is up 3.3% from April 2014, and down 3.2% from the 17.05 million annual sales rate last month.This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for April (red, light vehicle sales of 16.5 million SAAR from WardsAuto). This was below the consensus forecast of 16.9 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967.

ATA Trucking Index increased in March - Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Gained 1.1% in March American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 1.1% in March, following a revised drop of 2.8% during the previous month. In March, the index equaled 133.5 (2000=100). The all-time high is 135.8, reached in January 2015. Compared with March 2014, the SA index increased 5%, which was above the 3.3% gain in February but below January’s 6.7% year-over-year increase. During the first quarter, tonnage was unchanged from the previous quarter while increasing 5% from the same period in 2014. ... “While tonnage did not fully recoup the loss from February, it increased nicely in March,” said ATA Chief Economist Bob Costello. Costello added that truck tonnage has increased in five of the last six months, but is off 1.7% from the high in January.  Trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $681.7 billion, or 81.2% of total revenue earned by all transport modes.

Restaurant Performance Index shows Expansion in March -- Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remained Positive in March As a result of higher same-store sales and a continued optimistic outlook for future business conditions, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in positive territory in March. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.2 in March, down 0.4 percent from February’s level of 102.6. Despite the decline, March marked the 25th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.  “Looking forward, restaurant operators remain solidly optimistic about future business conditions, with six in 10 expecting to have higher sales in six months.”The index decreased to 102.2 in March, down from 102.6 in February. (above 100 indicates expansion).  Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is another solid reading - and it is likely restaurants are benefiting from lower gasoline prices and are having to raise wages - a little - to attract and retain workers.

Q2 GDP 'Excuse' Emerges: Up To 16,000 West Coast Port Truckers Go On Strike  -- The collapse of Q1 GDP has been placed squarely on the shoulders of weather (too hot, too cold, and definitely not just right) and the dockworkers strike which shut 29 seaports. As Q1 GDP plunged, so Q2 was lifted hockey-stick-like to keep the growth dream alive but so far in Q2, data has not shown the bounce expected... so we are going to need a bigger excuse. We have found one! As NBC Los Angeles reports, truck drivers who haul goods from the nation's busiest port complex in Los Angeles and Long Beach went on strike Monday in the latest action as part of a long-running labor dispute (it wasn't immediately clear how many of the 16,000 truckers would walk off the job).

Dallas Fed: Texas Manufacturing Activity Weakens Again - From the Dallas Fed: Texas Manufacturing Activity Weakens Again Texas factory activity declined in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a second negative reading in a row, coming in at -4.7.  Other measures of current manufacturing activity also reflected continued contraction in April. The new orders index edged up but remained negative at -14. The growth rate of orders index held steady at -15.5, posting its sixth consecutive negative reading. ...Perceptions of broader business conditions remained quite pessimistic for a fourth month in a row. The general business activity index stayed negative but ticked up to -16 in April, while the company outlook index moved down to -7.8, reaching its lowest reading in nearly two and a half years. Labor market indicators reflected slight employment gains but shorter workweeks. The April employment index rebounded to 1.8 after dipping below zero last month. The last of the regional Fed surveys (Richmond Fed) will be released tomorrow. Three of the four surveys released so far have indicated contraction in April (especially Dallas due to lower oil prices).

Dallas Fed Extends Miss Streak To Record 5 Months, Hovers Near 6-Year Low - Despite all of Dick Fisher's promises, The Dallas Fed Manufacturing Outlook had collapsed in the last 4 months (and is down for 6 months in a row - the longest losing streak in history) and April did not disappoint. Against expectations of -12, Dallas Fed printed -16 (the 5th large miss in a row). Silver-lining enthusiasts will note this is a slight rise from 2-year lows at -17.4 in March but remains close to 6-year lows. Of the 15 sub-cmponents only wages and employment were positive (sure why not) as capacity utilization and new order growth rates slowing further. Prices Paid are at their most negative since Lehman and "hope" collapsed. It appears low oil prices are not a net positive to the Texas economy after all.

6th Straight Negative New Orders Reading for Dallas Fed Manufacturing Survey -- New orders in the Dallas Fed manufacturing survey came in negative for the sixth straight month today. Weakness was expected due to collapse in oil prices, but the business activity range number was lower than any Bloomberg Consensus estimate. The Dallas Fed reports Texas Manufacturing Activity Weakens Again: Texas factory activity declined in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a second negative reading in a row, coming in at -4.7. Other measures of current manufacturing activity also reflected continued contraction in April. The new orders index edged up but remained negative at -14. The growth rate of orders index held steady at -15.5, posting its sixth consecutive negative reading. The capacity utilization index pushed further negative to -10.4, its lowest level since August 2009, and the shipments index edged up but stayed below zero at -5.6. Perceptions of broader business conditions remained quite pessimistic for a fourth month in a row. The general business activity index stayed negative but ticked up to -16 in April, while the company outlook index moved down to -7.8, reaching its lowest reading in nearly two and a half years.

Manufacturing Falls Apart in the Middle of the US - Wolf Richter - Texas shed 25,400 jobs in March. Not earth-shattering, given the size of its economy: 0.2% of its 11.78 million jobs. But Oklahoma shed 12,900 jobs, or about 0.7% of its 1.67 million jobs. In just one month! It’s not just workers in the oil field who are getting axed as drilling rigs are being idled. It’s spreading to industries that supply the oil and gas sector. Broader weaknesses in manufacturing are cropping up as well. And they wormed their way into the Dallas Fed’s Texas Manufacturing Outlook Survey.  Hence, the second negative reading in a row (-4.7), after a zigzagging decline since the exuberance of last summer, just before the oil bust hit. It was a gloomy read:Other measures of current manufacturing activity also reflected continued contraction in April. The new orders index edged up but remained negative at -14. The growth rate of orders index held steady at -15.5, posting its sixth consecutive negative reading. The capacity utilization index pushed further negative to -10.4, its lowest level since August 2009, and the shipments index edged up but stayed below zero at -5.6.Perceptions of broader business conditions remained quite pessimistic for a fourth month in a row. The general business activity index stayed negative but ticked up to -16 in April, while the company outlook index moved down to -7.8, reaching its lowest reading in nearly two and a half years. In the comments section, the executives decorated their gloom and doom about the oil sector with gripes about the weather, which had been nasty, and about the dollar, which is too strong for exporters, but not strong enough for importers. Here are some highlights, by sector. Note the issues beyond oil and gas:

Richmond Fed: Manufacturing Remained Soft in April -- The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components. The April update shows the manufacturing composite at -3, up from -8 last month. Above zero indicates expanding activity; below zero indicates contraction. Today's composite number was a tick below the forecast of -2. Because of the highly volatile nature of this index, the chart below includes a 3-month moving average, now at -3.7, to facilitate the identification of trends. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Richmond Fed Manufacturing Index Negative Second Month -- The Fed manufacturing surveys continue to disappoint. Today, the Richmond Fed reading came in at -3 matching the lowest guess on BloombergThe headline index is in the minus column for the second month in a row, at minus 3 vs March's minus 8. New orders are in the negative column for the 3rd month in a row, at minus 6, while backlog orders, at minus 8, continue to extend their long negative streak. Shipments are negative, at minus 6, and capacity utilization is negative, at minus 4.Yet despite the weakness in orders and despite the weakness in shipments, employment in this report, as it curiously has been in other manufacturing reports as well, is up, to plus 7 vs plus 6 in March. This must reflect confidence that ongoing weakness is only temporary and that order and shipment momentum is certain to build. Other details include depressed price readings, consistent with other reports as well. The manufacturing sector is being held down by weak exports and trouble in the oil & gas sector, but it's not keeping firms from hiring. The Richmond Fed reports Manufacturing Sector Activity Remained Soft; Employment and Wages Grew Mildly Overall, manufacturing conditions remained soft in April. The composite index for manufacturing moved to a reading of -3 following last month’s reading of -8. The index for shipments and the index for new orders gained seven points in April, although both indicators finished at only -6. Manufacturing employment grew mildly this month. The indicator gained one point, ending at a reading of 7. Manufacturers looked for better business conditions in the next six months. Survey participants expected faster growth in shipments and in the volume of new orders in the six months ahead. Producers also looked for increased capacity utilization and anticipated rising backlogs. Expectations were for somewhat longer vendor lead times. Survey participants planned more hiring, along with moderate growth in wages and a pickup in the average workweek during the next six months. It's important to note that a single firm hiring one person will counterbalance another firm firing 50. It's entirely possible employment is not as strong as it looks (not that 7 is a particularly strong number in the first pace).

Richmond Fed: "Manufacturing Sector Activity Remained Soft"  - From the Richmond Fed: Manufacturing Sector Activity Remained Soft; Employment and Wages Grew Mildly Overall, manufacturing conditions remained soft in April. The composite index for manufacturing moved to a reading of −3 following last month's reading of −8. The index for shipments and the index for new orders gained seven points in April, although both indicators finished at only −6.  Manufacturing employment edged up a point this month, with the index ending at 7. The average workweek lengthened, moving the index up eight points to end at 4. The average wage index added one point to end at 9. This is the last of the regional surveys for April.  Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Richmond Fed Manufacturing Survey Misses 5th Of Last 6 Months - For the second month in a row, Richmond Fed printed below 0 - which has prompted renewed QE from the Fed, or a recession, in the past. At -3 (worse than the -2 expected), this is the 5th miss of the last 6 months. Under the surface, components improved but New Order Volume, capacity utilization, and shipments all printed a negative contractionary level. While the data bounced, it remains a weak bounce off 2 year lows.

Chicago PMI Bounces -- Following ISM Milwaukee's major miss this morning (and income and spending data weakness), and 2 months of significant misses, Chicago PMI printed 52.3 (handily beating expectations of a bounce to 50.0). Employment rose at a faster pace in April but Prices Paid tumbled at a faster pace. ISM Milwaukee big miss... But Chicago Beat... The breakdown:

  • Prices Paid fell compared to last month
  • New Orders rose compared to last month
  • Employment rose compared to last month
  • Inventory fell compared to last month
  • Supplier Deliveries fell compared to last month
  • Production rose compared to last month
  • Order Backlogs rose compared to last month
  • Business activity has been positive for 10 months over the past year.
  • Number of Components Rising: 4

US Manufacturing Weakest In 2 Years As Construction Spending Plunges; Mfg Employment Lowest Since 2009 -- April's Manufacturing PMI printed a minimally disappointing 54.1 (against 54.2 prior and expectations) - its lowest since January and hardly the post-weather Q2 surge everyone was hoping for. New Orders and Production were the weakest since December and export business fell for the first time in 5 months and input prices dropped for the 4th month in a row; all leading Markit to demand The Fed remain patient. ISM Manufacturing missed expectations and has not risen for 5 months (its longest streak since the recession) with a contraction in the employment index to lowest since Sept 2009. And then Construction Spending plunged 0.6% (against a +0.5% exp.) - the 7th miss in 10 months and worst April print since 2009.

ISM Manufacturing index unchanged at 51.5 in April - The ISM manufacturing index suggested sluggish expansion in April. The PMI was at 51.5% in April, unchanged from 51.5% in March. The employment index was at 48.3%, down from 50.0% in March, and the new orders index was at 53.5%, up from 51.8%. From the Institute for Supply Management: April 2015 Manufacturing ISM® Report On Business® "The April PMI® registered 51.5 percent, the same reading as in March. The New Orders Index registered 53.5 percent, an increase of 1.7 percentage points from the reading of 51.8 percent in March. The Production Index registered 56 percent, 2.2 percentage points above the March reading of 53.8 percent. The Employment Index registered 48.3 percent, 1.7 percentage points below the March reading of 50 percent, reflecting contracting employment levels from March. Inventories of raw materials registered 49.5 percent, a decrease of 2 percentage points from the March reading of 51.5 percent. The Prices Index registered 40.5 percent, 1.5 percentage points above the March reading of 39 percent, indicating lower raw materials prices for the sixth consecutive month. While the March and April PMI® were equal, both registering 51.5 percent, 15 of the 18 manufacturing industries reported growth in April while only 10 industries reported growth in March, indicating a broader distribution of growth in April among the 18 industries." Here is a long term graph of the ISM manufacturing index. This was below expectations of 52.0%, but still indicates expansion in April.

ISM Manufacturing Index: Unchanged ... Lowest Growth Since May 2013 - Today the Institute for Supply Management published its monthly Manufacturing Report for April. The latest headline PMI was 51.5 percent, unchanged from the previous month and below the forecast of 52.0. The indicator remains at the lowest PMI since May 2013.  Here is the key analysis from the report:"The April PMI® registered 51.5 percent, the same reading as in March. The New Orders Index registered 53.5 percent, an increase of 1.7 percentage points from the reading of 51.8 percent in March. The Production Index registered 56 percent, 2.2 percentage points above the March reading of 53.8 percent. The Employment Index registered 48.3 percent, 1.7 percentage points below the March reading of 50 percent, reflecting contracting employment levels from March. Inventories of raw materials registered 49.5 percent, a decrease of 2 percentage points from the March reading of 51.5 percent. The Prices Index registered 40.5 percent, 1.5 percentage points above the March reading of 39 percent, indicating lower raw materials prices for the sixth consecutive month. While the March and April PMI® were equal, both registering 51.5 percent, 15 of the 18 manufacturing industries reported growth in April while only 10 industries reported growth in March, indicating a broader distribution of growth in April among the 18 industries."  Here is the table of PMI components.

ISM Manufacturing Survey Stays a Shoddy 51.5% for April -- The April ISM Manufacturing Survey PMI had no change from March and is still a barely breathing growth of 51.5%.  Manufacturing employment went into contraction as did inventories.  Exports improved as did new orders and production.  The worse news of the ISM manufacturing report is employment.  Manufacturing jobs have just been hammered and slaughtered so to see indicators of yet more layoffs is really bad news and implies manufacturers don't see March and April as just a little bump in the road.  This is also the weakest growth in two years. The ISM Manufacturing survey is a direct survey of manufacturers. Generally speaking indexes above 50% indicate growth and below indicate contraction. Every month ISM publishes survey responders' comments, which are part of their survey. In spite of the slow and sluggish growth manufacturer's comments are still positive. Cheap energy was a positive and multiple sectors commented on the West cost port strike, which was long over in April. Others mentioned slow growth and flat demand. New orders did increase 1.7 percentage points to 53.5%, which is still fairly weak growth. The Census reported March durable goods new orders increased 4.0%, where factory orders, or all of manufacturing data, will be out later this month. Note the Census one month lag from the ISM survey. The ISM claims the Census and their survey are consistent with each other and they are right. Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics. Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. Below is the ISM table data, reprinted, for a quick view.

ISM Disappoints, Led by Decline in Employment --In addition to construction estimates missing by a mile today, ISM also disappointed, albeit not by much.  The Bloomberg Consensus estimate for ISM was 52.0 but the report was a slightly weaker 51.5. It's the details that are interesting. There's a new unwanted wrinkle in the ISM report and that's weakness in employment, holding down the headline index to 51.5 in April, unchanged from March. Employment has been holding strong in other reports -- but not in the ISM report where the index is down nearly 2 points to a sub-50 level of 48.3 to indicate month-to-month contraction. This is the first time this reading is in contraction since May 2013 and it's the lowest reading since all the way back in September 2009.  Other indications, however, are positive. New orders actually rose in the month, up 1.7 points to 53.5, and export orders are above 50 for the first time this year, at 51.5 for a 4.0 point gain. Production, at 56.0, is especially strong as are import orders at 54.0 for a 1.5 point gain. Prices, as in other reports, remain in contraction, little changed at 40.5.  And there's solid breadth in the report with 15 of 18 industries showing composite growth in the month with strength in the auto industry specifically cited. This report is mixed though the decline in employment won't be raising expectations for next week's employment report for April. Let's investigate all the details of today's report straight from the Institute for Supply Management Manufacturing ISM® Report On Business® released this morning.

US jobs relapse raises fresh doubts on Fed tightening - A key indicator of manufacturing jobs in the US has dropped to its lowest level since the financial crisis as industry remains stuck in the doldrums, dashing hopes for a swift rebound after the economy ground to a halt in the first quarter. The surprisingly weak data greatly reduce any likelihood the US Federal Reserve will raise rates in June for the first time in eight years, once again putting off the long-feared turning point in the global monetary cycle and perhaps offering another reprieve for dollar debtors across the world. The closely-watched index of the Institute for Supply Management (ISM) remained anaemic in April, confirming fears that the strong US dollar and energy crash in the once-booming shale states are taking a serious toll.  The employment component dropped sharply to 48.3, below the “boom-bust line” of 50 and the lowest in almost six years. The relapse is likely to set off alarm bells at the Fed, where chairman Janet Yellen pays very close attention to the labour market.  Overall manufacturing output failed to pick up as expected, remaining at a two-year low of 51.5, and looks too weak to power a full recovery in the second quarter.

When Will Apple Stop Screwing the US Economy? -  Sharp was about to go bankrupt and default on some major debt. This put Apple at risk, since Sharp was a major source of Apple’s LCD screens. The story goes that rather than come to Sharp’s aid, Apple instead approached the bankers and offered to buy the factory assets after bankruptcy – for pennies on the dollar of course. Talk about kicking someone when they’re down! True or not, when I share that story with others who have dealt with Apple, they shrug their shoulders and say that they aren’t surprised. That’s the Apple way. Business is not a popularity contest, but when the winner-take-all, cripple-the-other-guy approach goes too far and begins to damage the economy, it’s time to rein things in.The issue at hand is the way Apple’s relentless greed has undermined the US economy and damaged its future industrial competitiveness. All so Apple can make $5 more per phone. After oil and cars, smartphones are the US’ biggest import. Almost $100B of phones was imported in 2014 (per the Census Bureau). Half of them were Apple iPhones. The trade in smartphones cuts two ways:

  • It is singlehandedly keeping afloat the economies of China, Taiwan, Korea and Vietnam.
  • The flip side is that it is steadily hurting the US economy, as I’ll show in a moment.

Despite US Services PMI Miss, Markit Says "FOMC Should Normalize Policy Sooner" -- After 3 months of somewhat surprising strength (given the background of disastrous hard data), US Services PMI dropped in April by the most since December, missing expectations by the most on record. Against serial extrapolators' expectations of a rise to 58.9, PMI fell to 57.8 with cost inflation jumping to a six-month high and the biggest rise in the jobs index suggests to Markit that "the FOMC to consider starting the process of normalising monetary policy sooner rather than later at its meeting later this week.."

China Passes Mexico as the Top Source of New U.S. Immigrants -- Move over, Mexico. When it comes to sending immigrants to the U.S., China and India have taken over, research being presented Friday at the Population Association of America conference shows.China was the country of origin for 147,000 recent U.S. immigrants in 2013, while Mexico sent just 125,000, according to a Census Bureau study by researcher Eric Jensen and others that analyzed annual immigration data for 2000 to 2013 from the American Community Survey. (An “immigrant” here is any foreign-born person in the U.S. who lived abroad a year prior, regardless of legal status, though undocumented immigrants may be undercounted in the survey.) India, with 129,000 immigrants, also beat Mexico, though the two countries’ results weren’t statistically different from each other. A year earlier, in 2012, Mexico and China had been basically tied for top-sending country—with Mexico at 125,000 and China at 124,000. It’s not just China and India. Several of the top immigrant-sending countries in 2013 were from Asia, including South Korea, the Philippines and Japan. For a decade, immigration to the U.S. from China and India, which boast the world’s biggest populations, has been rising. Meanwhile, immigration from Mexico has been declining due to improvements in the Mexican economy and lower Mexican birth rates. More recently, the Great Recession also reduced illegal immigration from Mexico. A shift in America’s immigrant community will take far longer. In 2012, five times as many immigrants in the U.S. were from Mexico than China.

Weekly Initial Unemployment Claims decreased to 262,000, Lowest since April 2000  == The DOL reportedIn the week ending April 25, the advance figure for seasonally adjusted initial claims was 262,000, a decrease of 34,000 from the previous week's revised level. This is the lowest level for initial claims since April 15, 2000 when it was 259,000. The previous week's level was revised up by 1,000 from 295,000 to 296,000. The 4-week moving average was 283,750, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 500 from 284,500 to 285,000.  There were no special factors impacting this week's initial claims.  The previous week was revised up 1,000. The following graph shows the 4-week moving average of weekly claims since January 2000.

The Last Time Initial Jobless Claims Were This Low Was The Peak Of The Dot-Com Bubble -- Initial jobless claims have been worse than expected for the last 2 weeks but remained below the magical 300k level, so it was only appropriate that this week all the great economic news of late - record plunge in US macro disappointments and a dismal 0.2% GDP print - would be met with the lowest claims print in 15 years. At 262k (against a 290k expectation), initial claims has only been lower once - the week of April 14th 2000 - which just happened to mark the top of the Dot-Com bubble. While this is great news, we do note that a rolling average of Texas Jobless claims shows the improving trend has stalled.

Initial Unemployment Claims Plunge to 262,000 - Lowest Since April 2000; What's Going On?  --Initial unemployment claims plunged to 262,000 today bettering the Bloomberg Consensus.. Initial claims, not skewed by special factors, plunged 34,000 in the April 25 week to 262,000 which is the lowest level since all the way back to April 2000. The 4-week average is down 1,250 to a 283,750 level which is just below a month-ago and points to improvement for the April employment report.  Continuing claims, where reporting lags by a week, are also at or near 15-year lows. In data for the April 18 week, continuing claims fell 74,000 to 2.253 million with the 4-week average down 18,000 to 2.291 million. The unemployment rate for insured workers is at 1.7 percent. The Labor Department says there are no special factors in today's report though adjusting for weekly data surrounding Easter, which fell late in April last year, is always tricky. Still, on its face, today's report speaks to solid improvement in the labor market and to a big bounce back for the April employment report.  Initial claims are in the basket of leading indicators. I boxed in four times in blue where claims turned up strong and no recession occurred. Red boxes show four occasions where claims turned up and a recession followed later. The purple boxes show two occasions where claims bottomed just as recession started. I suspect the next turn higher, whenever it occurs, is likely to be significant. There will not be much of a warning. Other data suggests a recession may have already started.

Employment Cost Index increases 0.7% in Q1, Up 2.6% YoY  - Note: On a monthly basis, the focus is on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") employment report. There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different. Here is the Q1 ECI from the BLS: EMPLOYMENT COST INDEX - MARCH 2015 Compensation costs for civilian workers increased 0.7 percent, seasonally adjusted, for the 3-month period ending March 2015, the U.S. Bureau of Labor Statistics reported today. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.7 percent, and benefits (which make up the remaining 30 percent of compensation) increased 0.6 percent.  Compensation costs for civilian workers increased 2.6 percent for the 12-month period ending March 2015, rising from the March 2014 increase in compensation costs of 1.8 percent. Wages and salaries increased 2.6 percent for the 12-month period ending March 2015, which was higher than the 1.6-percent increase in March 2014. Benefit costs increased 2.7 percent for the 12-month period ending March 2015, compared with a 2.1-percent increase for the 12-month period ending March 2014.This graph shows the year-over-year change in Total Compensation and Wages and Salaries using the quarterly wage data from the Employment Cost Index.  Both increased 2.6 year-over-year in Q1 and suggest compensation is increasing.

Living Arrangements, Labor Force Participation and Income - St. Louis Fed -- A recent article in The Regional Economist shows that measures such as labor force participation (LFP) and income inequality are closely connected with the living arrangements people choose. Senior Economist Guillaume Vandenbroucke examined how economic life differs for people in various living arrangements, focusing on LFP and earnings. Vandenbroucke compared the LFP rates of married men with married women1 and also the rates of never-married men with never-married women, all within the ages of 18 to 50. He found that the LFP rate of married men has been above 90 percent over the past 35 years, but the LFP rate for married women rose considerably from less than 50 percent in 1970 to about 70 percent in 1990, which is roughly where it resides today. On the other hand, the LFP rates for never-married males and females have both hovered around the 75 percent mark since the 1970s.  He noted that these findings don’t answer the “which comes first” question, “That is, are people deciding to participate in the labor force based on their living arrangement, or are they choosing their living arrangement based on whether they are members of the labor force?.”

The Job Guarantee would enhance the private sector - Bill Mitchell -- There are still those who criticise the concept of a Job Guarantee. As I understand the arguments presented in the E-mail torrents, the mechanism, whereby the Job Guarantee undermines the private sector is claimed to be something like this.  If there is strong demand for labour from the private sector, the Job Guarantee ‘demand for labour’ will drive overall labour demand into excess. Excess is relative to the available supply of workers. The claim is that the Job Guarantee introduces an unnatural scarcity for labour, beyond which the private market would generate itself in a growing environment.  In any excess demand situation, the price has to rise as competition for the scarce labour intensifies. Private firms would then be involved in a bidding war which will either discourage new entries or generate accelerating inflation. These claims seem to invent a new version of excess demand relative to the agreed terms by economists of all persuasions. Excess demand is calibrated in terms of available supply and is associated with price bids at going prices. The Job Guarantee only employs workers at a fixed price which becomes the effective minimum wage in the economy. It absorbs workers who have a zero market bid for their services. It therefore does not compete for labour at market prices and therefore cannot introduce an ‘excess demand’ for labour. The fixed price bid is invariant in a cyclical sense, although the minimum wage would be increased over time in recognition of productivity growth and other considerations. The non-Job Guarantee employers will always be able to bid the workers away from the Job Guarantee pool if they are prepared to offer more attractive conditions, which generated a satisfactory target rate of profit (or in the case of a public sector employer – a satisfactory social return).  Obviously, firms that cannot profitably produce anything that the ‘market’ desires at the minimum wage will be forced out of business.

The Raise the Wage Act: The new proposal to raise the federal minimum wage to $12 in 2020 -  I’ve got good news and bad news. The good news is that there’s a new proposal coming out today to raise the federal minimum wage to $12.00 by 2020, along with some other useful features I’ll get back to in a moment. The bad news is that the opponents of the increase, with little regard for the evidence, will soon be trotting out the same tired arguments about how the policy kills jobs and hurts the people it’s intended to help. But before we re-engage in this age-old dance, let us consider the findings from a recent book that exhaustively analyzes decades of research on this question of the impact of increases in the minimum wage. I’m not suggesting that facts will lead the lobbyists to stand down. I’m just saying that if you’re sick of “he-said, she-said” debates on the issue, you might want to cut through the noise with the help of some highly credible research. That would be What Does the Minimum Wage Do?, by Dale Belman and Paul Wolfson.   Their core finding: Considered together, increases in the minimum wage raise the hourly wage and earnings of workers in the lower part of the wage distribution and have very modest or no effects on employment, hours, and other labor market outcomes.  The minimum wage can then, as originally intended, be used to improve the conditions of those working in the least remunerative sectors of the labor market.  While not a full solution to the issues of low-wage work, it is a useful instrument of policy that has low social costs and clear benefits.

Democratic Lawmakers Pitch $12-an-Hour Minimum-Wage Plan - Democratic lawmakers are upping the ante on the minimum wage Thursday, pitching a plan to lift the federal pay floor by 66% to $12 an hour by 2020. The proposal appears to be a long-shot—a plan to raise the minimum wage to $10.10 an hour failed last year. But the new legislation helps frame the wider debate around income inequality just as the 2016 presidential campaign gets under way. The issue has gained further attention in recent months thanks to rallies by fast-food workers and moves by employers including McDonalds and Walmart to raise minimum wages. Sen. Patty Murray (D., Wash.) and Rep. Bobby Scott (D., Va.) are set to introduce their measure Thursday afternoon. The lawmakers say their proposal will lead to wage increases for nearly 38 million Americans and “help more families make ends meet.” The proposal is in many ways more aggressive than the $10.10-plan that passed a Democratic-controlled Senate last year but failed to pass muster with Republicans in the House. Republicans now control both chambers. The increase to $12 an hour, from the current $7.25 rate, would be much steeper than 40% increase in phased in between 2007 and 2009 or 39% bump considered last year. Republican lawmakers have said a large increase in the minimum wage will cost the country jobs. A report from the Congressional Budget Office published last year showed an increase to $10.10 an hour would cost the economy about 500,000. A smaller increase to $9 an hour was projected to cost 100,000 jobs.

We Can Afford a $12.00 Federal Minimum Wage in 2020 - Introduction and executive summary. By a wide range of measures, the current federal minimum wage of $7.25 per hour is well below the historical peak reached in 1968, with profound implications for the standard of living of workers at or near the minimum wage. The most common reference point in the public debate is the real (inflation-adjusted) value of the minimum wage. If the minimum wage had kept pace with price increases since 1968, by 2014 it would have stood at $9.54—about 32 percent higher than its actual level.1 Information on the purchasing power of the minimum wage over time, however, paints an incomplete picture. As a benchmark for workers’ living standards, the inflation-adjusted value of the minimum wage falls short because it assumes that minimum-wage workers should not expect their standard of living to improve relative to the standard achieved by workers 50 years ago, despite a doubling in the average worker’s productivity over the same period.2 More importantly for purposes of this report, the real value of the minimum wage tells us little about what the economy can realistically afford to pay low-wage workers at any given point in time. This report reviews a much wider range of benchmarks in order to evaluate how high the federal minimum wage can go and still fall within our historical experience. An extensive body of research since the early 1990s has investigated the employment impacts of federal, state, and local minimum wages in a range that falls roughly between $6 and $10 per hour. That research suggests that minimum wages in this range have little or no negative effect on employment.3 Recent proposals to raise the federal minimum wage, such as the Harkin–Miller proposal to target $10.10 by 2016, represent a continuation of the legislative advances of the last 20 years.

Why raising minimum wages is riskier than expanding the EITC -- To my mind, a risk-free strategy to boost incomes for minimum wage workers is to expand the Earned Income Tax Credit program. The federal EITC program is now the largest anti-poverty program for non-elderly workers in the United States. It does so by encouraging work and increasing the after-tax wage for those with low earnings. Since it is a refundable tax credit, it is available as a cash payment to those without a tax liability. As per a recent estimate, almost 28 million people received over $66 billion in EITC payments for tax year 2013. The EITC has lifted an estimated 6.5 million people above the poverty line including 3.3 million children. There are other programs that help low-income households as well, such as SNAP (food stamp program) and Temporary Assistance for Needy Families (TANF). However, these are not as effective as the EITC in helping people move out of poverty. As opposed to minimum wage hikes which are potentially associated with losses in employment and less income mobility for low-skilled workers, a vast literature shows that the EITC increases employment of low-skilled adults while supplementing incomes. Studies suggest that the EITC was responsible for 60 percent of the 8.7 percentage point increase in labor force participation of single mothers between 1984 and 1996. The EITC is also associated with better health outcomes for children and mothers in households that receive EITC support.

Data Tables: Raising the Minimum Wage to $12 by 2020 Would Lift Wages for 38 Million Workers -- These tables are from Raising the Minimum Wage to $12 by 2020 Would Lift Wages for 38 Million American Workers, a forthcoming paper by David Cooper of the Economic Policy Institute. State-by-state tables with data on characteristics of workers who would be affected by increasing the federal minimum wage to $12 by July 2020. [pdf]

Scarce Skills, Not Scarce Jobs -  If you’ve lost your white-collar job to downsizing, or to a worker in India or China, you’re most likely a victim of what economists have called technological unemployment. There is a lot of it going around, with more to come.” The robots perform tasks that humans previously performed. The fear is that they are replacing human jobs, eliminating work in distribution centers and elsewhere in the economy. It is not hard to imagine that technology might be a major factor causing persistent unemployment today and threatening “more to come.” Surprisingly, the managers of distribution centers and supply chains see things rather differently: in surveys they report that they can’t hire enough workers, at least not enough workers who have the necessary skills to deal with new technology. “Supply chain” is the term for the systems used to move products from suppliers to customers. Warehouse robots are not the first technology taking over some of the tasks of supply chain workers, nor are they even seen as the most important technology affecting the industry today.

Robots May Look Like Job-Killers, But It’s Hard to See in the Numbers - Robots are goosing the productivity of the world’s factories, but does that mean fewer jobs for humans? Countries are adopting them at different speeds, with some of the fastest growth in Asia—particularly China. If robots are the automated job-killers many say they are, then you’d expect nations deploying the most machines to see the biggest job losses in manufacturing. But it isn’t that simple. There’s no relationship visible in the numbers between the change in factory employment and robot use, says Mark Muro, senior fellow at the Brookings Institution. In a blog post, he and Brookings colleague Scott Andes took a recent report by two European economists that found robots enhanced productivity in 17 countries in recent decades and checked to see how job losses stacked up among some of the biggest robot users. They found some countries that have adopted robots much faster than the U.S.—including Germany and South Korea—saw far smaller losses in jobs between 1996 and 2012. Meanwhile, both Britain and Australia have lagged the U.S. on robots, yet suffered deeper job losses.  They then asked the question a different way: How many jobs would each country expect to lose if the drop in factory employment was proportional to the rise in robots? Again, there’s no clear linkage. “By this metric the United States should have lost one-third more manufacturing jobs than it actually did and Germany should have lost 50 percent more, while the United Kingdom lost five times more than it should have,” they wrote.

More US Americans See Themselves as Working Class -- from Gallup Gallup began asking this five-part social class question in 2000. In that year, and at several points since, a high of 63% of Americans identified as either upper-middle or middle class. The average percentage placing themselves in the two middle-class categories between 2000 and 2008 was 61%. Gallup didn't ask the question between 2009 and 2011, but in 2012 and again this year, the combined middle-class percentage dropped significantly, to 50% and 51%, respectively. On the other hand, the percentage of Americans identifying as working and lower class rose to 47% and 48%, up from a low of 33% in 2000. There are many ways researchers measure subjective social class. This particular question gives Americans five categories from which to choose. Just 1% of Americans say they are upper class, with the rest spread out in Gallup's April 9-12 survey across upper-middle (13%), middle (38%), working (33%) and lower (15%) class categories. The detailed trends are displayed at the end of this article. Questions which ask respondents to choose only between upper, middle and lower class categories find a larger percentage in the middle-class category than is the case with the five-category measure. Across all major demographic and political subgroups, identification as middle class or upper-middle class has declined since 2008. In particular, the drop in middle-/upper-middle-class identification by income category has been fairly consistent, between five and nine percentage points in each income group. Overall, even as middle-class identification has dropped across the board, Americans' views of their social class have remained closely tied to their income, as would be expected.

The Political Roots of Widening Inequality - Robert Reich - For the past quarter-century I’ve offered in articles, books, and lectures an explanation for why average working people in advanced nations like the United States have failed to gain ground and are under increasing economic stress: Put simply, globalization and technological change have made most of us less competitive. The tasks we used to do can now be done more cheaply by lower-paid workers abroad or by computer-driven machines. My solution—and I’m hardly alone in suggesting this—has been an activist government that raises taxes on the wealthy, invests the proceeds in excellent schools and other means people need to become more productive, and redistributes to the needy. These recommendations have been vigorously opposed by those who believe the economy will function better for everyone if government is smaller and if taxes and redistributions are curtailed. While the explanation I offered a quarter-century ago for what has happened is still relevant—indeed, it has become the standard, widely accepted explanation—I’ve come to believe it overlooks a critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. And the governmental solutions I have propounded, while I believe them still useful, are in some ways beside the point because they take insufficient account of the government’s more basic role in setting the rules of the economic game.

Income Inequality Is Costing the U.S. on Social Issues - Thirty-five years ago, the United States ranked 13th among the 34 industrialized nations that are today in the Organization for Economic Cooperation and Development in terms of life expectancy for newborn girls. These days, it ranks 29th.  In 1980, the infant mortality rate in the United States was about the same as in Germany. Today, American babies die at almost twice the rate of German babies.  “On nearly all indicators of mortality, survival and life expectancy, the United States ranks at or near the bottom among high-income countries,” says a report on the nation’s health by the National Research Council and the Institute of Medicine.  What’s most shocking about these statistics is not how unhealthy they show Americans to be, compared with citizens of countries that spend much less on health care and have much less sophisticated medical technology. What is most perplexing is how stunningly fast the United States has lost ground.  The blame for the precipitous fall does not rest primarily on the nation’s doctors and hospitals. The United States has the highest teenage birthrate in the developed world — about seven times the rate in France, according to the O.E.C.D. More than one out of every four children lives with one parent, the largest percentage by far among industrialized nations. And more than a fifth live in poverty, sixth from the bottom among O.E.C.D. nations. Among adults, seven out of every 1,000 are in prison, more than five times the rate of incarceration in most other rich democracies and more than three times the rate for the United States four decades ago.The point is: The United States doesn’t have a narrow health care problem. We’ve simply handed our troubles to the medical industry to fix. In many ways, the American health care system is the most advanced in the world. But whiz-bang medical technology just cannot fix what ails us.

A Partial Solution to Income Inequality - - I want to come back to one of the points from my last post. There I noted the global economy was hit by a series of large positive supply shocks beginning in the mid-1990s: the rapid advances in technology and the opening up of Asia. The former raised productivity while the latter increased the world's labor supply. Both pushed up the return to capital and put downward pressure on global inflation. This run of positive supply shocks continued into the 2000s--productivity growth peaked between 2002 and 2004--but was interrupted by the Great Recession. It now appears to be returning to full stride. This time, though, the supply shocks are not coming from further increases in the global supply of labor, but from further technological advances. The increased digitization, automation, and overall smart-machining of our economy is and will continue to bring huge productivity gains. For example, by the end of 2016 there will be 30 U.S. cities with driverless cars, artificial intelligence will be diagnosing illness, and 3D printers will be making practically everything including themselves. And oh yea, robots will be delicately picking fruit. These examples highlight the second machine age where we will see rapid productivity growth that will reinforce the high return to capital. How the world handles this second machine age over the next few decades will be, in my view, one of the biggest economic challenges going forward. Rapid technological advances are ultimately good for long-run growth, but in the short run they can be very disruptive to many jobs and industries. This has always been true, but the pace and size of these disruptive supply shocks are likely to increase. It is true that we do not see much evidence in the data yet for this process, but I chalk that up to measurement problems and that we are only the cusp of these changes. In any event, I suspect that this issue will make the present-day concerns over secular stagnation, liquidity traps, saving gluts, and the Japanification of Europe look quaint

Is Your State Racist? -- With the topic of racial division increasingly top of mind in America, The Washington Post reports a new study suggests that the rural Northeat and South are the most racist regions of America. The study, based on Goggle searches for race-related phrases, shows racist people in the U.S. appear to be clustered along the Appalachian Mountains from Georgia, through New York and all the way up to Vermont.   Other hotbeds of racist searches appear in areas of the Gulf Coast, Michigan's Upper Peninsula, and a large portion of Ohio.

Oklahoma’s Key Expert in Supreme Court Lethal Injection Case Did His Research on - Tomorrow, when the Supreme Court hears oral arguments in the highest-profile death penalty challenge in seven years, the justices will begin ruling on this question: Does Oklahoma’s use of the common surgical sedative midazolam fail to make prisoners unconscious during lethal injections, thus violating the Eighth Amendment’s protection against “cruel and unusual punishment”? For many court watchers, however, a subject of special scrutiny will be the credibility of Oklahoma’s key expert witness, Dr. Roswell Lee Evans, who has testified that inmates “would not sense the pain” of an execution after receiving a high dose of midazolam.  The case, first brought by four condemned Oklahoma inmates, stems from the botched April 2014 execution of convicted murderer Clayton Lockett. Although Lockett received a substantial dose of midazolam intravenously, it failed to render him unconscious as he was administered the paralytic agent vecuronium bromide and the caustic heart-stopping drug potassium chloride. Witnesses reported that he moaned and writhed on the gurney for more than 40 minutes until his death.

On the Road Again… Plans to raise state gas taxes move down the road in Minnesota and South Carolina. The Minnesota Senate passed a 16-cent-per-gallon gas tax hike that would be triggered when pump prices fall to $2.50 per gallon. Minnesota’s levy is currently 28.5 cents per gallon. In South Carolina, the Senate will consider a House-approved plan to boost the tax by the equivalent of 10 cents per gallon. It would raise $400 million for the state’s roads. As for the nation’s highway funding? It’s likely to remain flat. So concludes House Transportation Committee Chair Bill Shuster, even though transportation advocates recommend a $50 billion annual increase. Surface transportation funding expires May 31. Senate Finance Committee Democrats still express hope for a bipartisan, long-term solution. Somewhere down the road.

Aging Sewer Facilities May Cost Minnesota Over a Billion Dollars: - Minnesota sewer facilities are aging and are expected to cost our state over one billion dollars to update. It's something we all use every day that many of us take for granted. Minnesota's aging sewer system and water treatment facilities are in need of updates.  Mountain Lake is updating their sewer system... Krahn, "Our current system was built in approximately 1957." ...but at a cost that stinks. "The second part of the project, or the waste water treatment plant, which has been estimated 10, 11 million dollars, we don't have a firm figure yet." The first part was a $12 million project to upgrade their sewer pipes. Krahn, "Most of them were clay and they had to be replaced." And residents were forced to upgrade their sewer systems to meet current laws with loans through the sewer department. Mountain Lake's facility is equipped to treat up to 350,000 gallons a day, but heavy rain events can overload the system up to a million gallons. The city would attempt to pump sewers during such heavy events to keep basements from flooding and the treatment facility from overloading... Krahn, "But pollution control was pushing us for all of our violations as far as hydraulic overloading, which is over that 350,000 a day, plus all of the violations where we were putting pumps in sanitary sewer manholes during heavy rains and pumping to storm sewers that go to lakes." The costs of updating the aging sewer facilities is hitting many towns across Minnesota.  The 294 facilities are listed on the 2015 Clean Water Project Priority List. And the cost to update all those facilities comes at a whopping one point five billion dollars. A cost too high for many residents.

A tale of two cities: Part 1, The epicenter of America’s transportation system: Within a year, two at the most, Chicago will be the next ‘biggest US municipal bankruptcy ever,’ overtaking Detroit for that dubious honor. Yes, that’s bankruptcy looming.  While no one else has written this yet, with no power comes no responsibility, so I will (and have).  Chicago’s slide is the subject matter of a broadly useful article in National Journal (March 28, 2015), and in its pursuit of the political-news angle, the story misses a larger question: Has Chicago become too large to be sustainable?That question asks another, one it’s taken me two years to formulate: Should Chicago’s bankruptcy be the occasion for the city’s breakup into smaller municipalities?

New round of water shut-offs to begin in Detroit -- Last year, the Local 4 Defenders broke the story about Detroit's controversial water shut-offs. Now, a year later, after protests made national headlines, moratoriums and departmental reforms aimed to reduce shut-offs. When the Detroit Water and Sewage Department starting shutting off water to commercial and residential customers 60 days behind on bills or owing more than $150, a debate erupted over whether water was a human right. Several groups appealed to the United Nations for support. More than 15,000 customers had their service cut between March and June, although many have since had it restored. The water department said the aggressive crackdown was needed because the department was responsible for about $6 billion of the $18 billion debt that pushed Detroit into bankruptcy. Unlike some debt that must be paid down by tax revenue, water department debt is covered by bill-paying customers. Protesters said insufficient warning was given and not enough outreach done to help those who could simply not afford their bills.

Anger as Hurricane Sandy victims have to pay back emergency aid with interest --Thousands of families whose homes were destroyed by Hurricane Sandy are being ordered to repay some of the compensation they received from the government.  The Federal Emergency Management Agency (FEMA) is not only demanding interest on what it says were overpayments, but Washington is ready to call in debt collectors to recoup the cash.  That is not the only blow faced by families whose lives were devastated by the October 2012 hurricane which claimed 117 lives in the US and caused an estimated $50 billion (£32.5 billion) damage.  FEMA has, under pressure from senators, started investigating allegations that engineers’ reports into the damage suffered by home owners were deliberately doctored to deny victims insurance payouts.  It is a fresh blow to an agency whose reputation was severely tarnished by its response to Hurricane Katrina in 2005. “When we first started digging we just didn’t believe what our constituents were telling us,” said Jason Tuber, a senior aide to Senator Bob Menendez of New Jersey, who has taken up the cudgels on behalf of the victims.  “I didn’t believe they could be screwing things up so badly." But it turned out that things were even worse than thought.  “I have been working in government for 10 years and this is the most egregious thing we have come across.”

The Bad News (Poverty) and Good News (Education) About Millennial Parents - Much has been written about millennials–the nickname for the generation of young people born in the 1980s and 1990s–and the rough time they’ve had in the economy. But now that the generation is getting older, and  the oldest millennials are in their mid-30s by some definitions, an increasing number are parents themselves. A new report from Konrad Mugglestone, a policy analyst at Young Invincibles, a Washington-based group that represents the interests of young Americans, has dived into the data on millennial parents(defined in this report as those ages 18 to 34). The biggest challenge has been the damaged economy. The weak economy itself is no surprise, but what’s surprising is that this postrecession period has been especially hard on young parents. Young parents have always been somewhat more likely than nonparents to be in poverty. This has especially been the case in recent years, with close to one-quarter of young parents in poverty. Since 2009, the share of impoverished young people has been higher than at any other point in the past 25 years. Since 2009, 16% of young people without children were in poverty, up 5 percentage points from the late 1990s. As many as 23% of young parents were in poverty, however, an 8 percentage point increase. But there’s good news, too, about young parents. Today’s youngest mothers and fathers are better educated than parents 10 and 20 years ago. The economy has placed increasing value on education over recent decades. If the economy continues to improve, these parents may prove well positioned to provide for their children.

Classroom Diversity Matters in Early Education - Over the past decade, public investments in early childhood education have increased, and policymakers have focused on creating high-quality, sustainable preschool programs. However, largely missing from early childhood policy discussions is consideration of classroom diversity and how it affects the equity, quality, and sustainability of preschool programs. Studies have shown that socioeconomically and racially diverse preschool classrooms offer important cognitive and social benefits for children, but few children enrolled in public preschool programs have access to these types of classrooms.  A Better Start: Why Classroom Diversity Matters in Early Education summarizes what we know about racial and economic diversity in Head Start and state pre-K classrooms, discusses how diversity and quality are linked, and recommends steps policymakers can take to increase diversity in preschool classrooms.  Download the Report

Kansas shows us what could happen if Republicans win in 2016 -  No more pencils, no more books. No more teachers’ dirty looks. Usually this is an anthem of celebration, of respite from the angst-inducing strictures of K-12 schooling. But this year, across Kansas, the jingle is coming a little sooner than expected, and with mournful undertones. At least eight Kansas school districts recently announced that they’re starting summer break early this year, and not because kids have already learned so much that they deserve a few extra days off. It’s because these schools ran out of money, thanks to state leaders’ decision to ax education spending midyear to plug an ever-widening hole in their budget.  In at least one district, Twin Valley, children are being kicked out two weeks earlier than planned. Haven School District is closing five days early to save an expected $4,000 per day, said Superintendent Rick White, but next year the district will likely shave off 10 days. White told me that members of the school board are also looking for other creative ways to absorb the $750,000 in cuts handed down by the legislature for this year and next. They, and their educators, must continue to find new and innovative ways to do less with less. In balancing the budget on the backs of children, Kansas politicians are behaving shamefully. But they may also be doing the rest of the country a favor, by giving us a preview of what might happen if Republicans control the White House and Congress after the 2016 ­election.

Whats the Matter with Education in Kansas? -- Washington Post’s Catherine Rampell opined an example of what could happen in 2016 if the Republicans win by featuring what is happening with education after another $51 million in cuts. A recent letter by 17-year-old junior at Smoky Valley High School Haeli Maas to Governor Brownback cuts to the chase of it. To Governor Sam Brownback,   I am currently sixteen years old and a junior at Smoky Valley High School, while also maintaining two jobs. In my free time I do homework, and the chances of any other free time are incredibly rare. While in school, I maintain a 3.8 GPA, something I am very proud of. I am enrolled in honors courses and try my best to make everything I do count. I love school. I have loved school since the day I started school. I hope that in the future I will be allowed to continue my education in college, and love school just as much in my time there.. Education is important and it should never be put on the back burner to the rest of the issues. Do not write off my generation and refuse us the opportunity to educate ourselves, because we will surprise you. We are capable and ready to take on the world, and if we are put into the world without the education to make a difference, then it is you who will pay. It is you who will count on us in your age. If you wish to see this great state continue to be great, educate the future. I will have completed my public education within the next year and a half. I will move on into the future and I will succeed because that is who I am. I have younger siblings still in school, and I fear for them. I fear that my little sister will forget her love for school, and lose the spark that makes her such a unique and beautiful person. It is up to you to keep that spark. It is up to you to fight for our future and our education, so that we may fight for you when the time comes.

Why can’t we read anymore? -- Last year, I read four books. The reasons for that low number are, I guess, the same as your reasons for reading fewer books than you think you should have read last year: I’ve been finding it harder and harder to concentrate on words, sentences, paragraphs. Let alone chapters. Chapters often have page after page of paragraphs. It just seems such an awful lot of words to concentrate on, on their own, without something else happening. And once you’ve finished one chapter, you have to get through the another one. And usually a whole bunch more, before you can say finished, and get to the next. The next book. The next thing. The next possibility.  Still, I am an optimist. Most nights last year, I got into bed with a book — paper or e — and started. Reading. Read. Ing. One word after the next. A sentence. Two sentences. Maybe three. And then … I needed just a little something else. Something to tide me over. Something to scratch that little itch at the back of my mind— just a quick look at email on my iPhone; to write, and erase, a response to a funny Tweet from William Gibson; to find, and follow, a link to a good, really good, article in the New Yorker, or, better, the New York Review of Books (which I might even read most of, if it is that good). Email again, just to be sure. I’d read another sentence. That’s four sentences. It takes a long time to read a book at four sentences per day.

Alabama’s high school football coaching salaries soar past $120,000, search for how much your coach makes - Ensuring the viability of any football program at any level starts with hiring an elite coach with a proven track record – and keeping him. For Alabama high-school football, that increasingly means paying a higher coaching salary than ever. Hoover football coach Josh Niblett received a raise earlier this month from $114,471 to a state-best $125,000 per year, according to Hoover City Schools. That marked the fourth time over the last 10 months that one Alabama high-school coach’s salary leapfrogged another to become the state’s highest-paid public school coach. “It has kind of been getting outrageous," Niblett said. "It started off with the money college coaches were making, but I think if you go to other states like Texas or Georgia you will find [high school] guys making a lot more than $125,000. The numbers those guys are making -- and not teaching -- are unbelievable.”   Niblett is referring to another growing trend in high-school football – coaches being paid simply to coach, and not also teach an academic class, which has been common for generations.

The Status of Online of Learning in Higher Education - Everyone knows that online technologies have the potential to disrupt existing arrangements in higher education, perhaps in extreme ways. But how far has the disruption proceeded? And what are the main barriers ahead? Elaine Allen and Jeff Seaman have been doing annual surveys on these issues for 12 years. Their latest is "Grade Level: Tracking Online Education in the United States," published by the Babson Survey Research Group and Quahog Research Group, LLC. (Accessing the report may require free registration.) As Allen and Seaman point out, the "National Center for Education Statistics’ Integrated Postsecondary Education Data System (IPEDS) added “distance” education to the wealth of other data that they collect and report on US higher education institutions." Allen and Seaman were collecting data from a sample of over 600 colleges and universities, but the IPEDS data is mandatory for all institutions of higher education. I recommend the full report, but here are a few results that caught my eye.Allen and Seaman provide evidence that over 70% of degree-granting institutions, and over 95% of those with the largest enrollments, now have distance-learning online options. Many of these institutions say that distance learning is crucial to the future of their institutions. Over 5 million students are currently taking at least one distance-learning class, although the rate of growth of students taking such classes seems to have slowed in recent years. On the other hand, faculty seem increasingly leery of online education, and many of them do not seem especially willing to embrace it. Many students are finding that completing online courses on their own is difficult. Skepticism about MOOCs, or "massively open online courses," is on the rise.

College Encourages Lively Exchange Of Idea -- Saying that such a dialogue was essential to the college’s academic mission, Trescott University president Kevin Abrams confirmed Monday that the school encourages a lively exchange of one idea. “As an institution of higher learning, we recognize that it’s inevitable that certain contentious topics will come up from time to time, and when they do, we want to create an atmosphere where both students and faculty feel comfortable voicing a single homogeneous opinion,” said Abrams, adding that no matter the subject, anyone on campus is always welcome to add their support to the accepted consensus. “Whether it’s a discussion of a national political issue or a concern here on campus, an open forum in which one argument is uniformly reinforced is crucial for maintaining the exceptional learning environment we have cultivated here.” Abrams told reporters that counseling resources were available for any student made uncomfortable by the viewpoint.

Hundreds of Louisiana students protest budget cuts - — Hundreds of Louisiana State University students and university supporters gathered at the state capitol to protest proposed budget cuts to higher education. The Advocate reports people gathered to protest up to 80 percent cuts in university and college budgets slated for July 1. Higher education officials say the cuts would likely lead to layoffs and reduced offerings on campuses across the state. Dressed in LSU purple and gold, students rallied outside the capitol Thursday in Baton Rouge waving signs and chanting. Inside, groups from all 13 schools in the Louisiana Community and Technical College System held a demonstration. Lawmakers wrapped up their third week of the session Thursday without a clear plan for sparing higher education and health care from a $1.6 billion shortfall in the Louisiana budget.

Students left hanging after Corinthian closes remaining campuses: Two days of class and an internship were all that stood between Leticia Ruiz and a medical assisting degree — a credential she now knows she'll never get. Her school, Everest College-Alhambra, abruptly shut down Sunday along with two dozen other career-oriented campuses run by Santa Ana-based Corinthian Colleges Inc. She had to cancel the internship interview scheduled for Tuesday with a cardiovascular physician's office in the area. "They told me there's really no point in me going," said Ruiz, 21, who lives in East Los Angeles. She's among 16,000 students in California and across the country who face grim choices after being displaced by the sudden closure of Corinthian's remaining campuses. A U.S. Education Department statement called it "the largest college shut-down in American history." Like many students, Ruiz has two bad options: Either navigate the maze in transferring credits to another institution — knowing few will accept them — or apply for a federal loan refund and start over. For many of Corinthian's nontraditional students — people raising children, juggling full-time jobs and struggling to pay bills — the collapse of one of the nation's largest for-profit college corporations has thrown another boulder into an already rocky path to a decent career. It's only the latest obstacle they've faced since the U.S. Department of Education started cracking down on Corinthian last year amid concerns the company was falsifying job placement rates.

For-Profit Schools Get Bailed Out, Students Get Sold Out - - Alexis Goldstein - Corinthian Colleges, Inc. was a chain of for-profit schools that finally collapsed yesterday after facing charges of predatory lending, false job placement statistics, deceptive marketing, securities fraud, and the unlawful use of military seals in advertisements. These abuses all happened at a school that essentially lived off taxpayer support — Corinthian received $1.2 billion in federal student loan money last year. But instead of closing the failed school down — which would have made over 72,000 students eligible for a refund — the Department of Education decided to save it. The Department facilitated a sale of 56 Corinthian campuses to the debt collector ECMC, and even bailed the school out — providing a $16 million emergency cash infusion last June.  Students of Corinthian have not seen the same government generosity, despite supportive rhetoric directed their way from the Obama Administration. In his debut post for Medium, Secretary Duncan wrote that “in the United States, education is meant to be the great equalizer.” But Duncan acknowledged in a recent Senate hearing that “bad actors” like Corinthian had taken “a massive influx of taxpayer resources” only to leave students “in a worse position than where they started.” Yet, despite comments like these, the Department continues to not only defend their bailout of Corinthian, but to also collect on federal student loans incurred by the failed school’s students. An all-volunteer group called the Debt Collective — which I am a part of — has called on the Department to cancel all current and former Corinthian students’ debt, and to set up a clear system for how other wronged borrowers can pursue the same. And even politicians have taken notice, with lawmakers and law enforcement alike — including thirteen Senators, nine state Attorneys General, and three members of the House of Representatives — sending letters to the Department calling on the students’ debt to be extinguished, given how fraudulently it was incurred.

Pressure is on Dept of Education to Obey the Law  - Alexis Goldstein - The pressure is building on the Department of Education to cancel the debt of defrauded students of the now-closed for-profit chain, Corinthian Colleges, Inc. From two big new endorsements from major unions for the Corinthian student debt strike, to a litany of politicians calling out the Department of Education for being “out of touch with reality,” it seems the Department may finally, after so many years of malfeasance, do its job.  On Monday, Corinthian Colleges shut the last of its campuses for good. Also on Monday, Senator Elizabeth Warren and Representative Elijah Cummings called out Corinthian and the Department of Education at an event at Howard University. And on of the largest Teachers Unions, the American Federation of Teachers (AFT), endorsed the Corinthian debt strike:“The AFT lauds the organizers of the student debtor movement—most notably the ‘Corinthian 100’ debt strikers—for bringing this extreme abuse of students into the public view, and we urge Secretary Duncan to use his maximum authority to relieve Corinthian students’ crippling debt.” On Tuesday, another major union, SEIU, endorsed the Corinthian 100 with a strong statement from its President, Mary Kay Henry: “Dear Former Corinthian Students, I am writing on behalf of the 2 million members of SEIU who are proud to stand in solidarity with you as you strike your federal student loan debt. Your courageous decision to go on a debt strike sends a powerful message that all Corinthian students deserve better.” Also on Tuesday, Representative Maxine Waters re-iterated her own endorsement of the debt strike with a speech on the House floor. Rep. Waters joined Senator Dick Durbin today to introduce the CLASS Act, which would end forced arbitration in student enrollment agreements, something long used by for-profits to ensure students couldn’t sue them in court:

Control Fraud and For-Profit “Universities” (Et Tu, Bill Clinton?)  -- Corinthian University…. Sounds like Corinthian leather, doesn’t it? And Laureate… like “Poet Laureate.” The branding just reeks of class. In this post, I’ll take a look at the just-collapsed Corinthian University, and then at Laureate University, soon to issue its first successful IPO — one can only hope that second time is the charm[1] — through the lens of Willam R. Black’s concept of accounting control fraud, which he has used so successfully to explain the looting the big banks did during the subprime crisis that preceded the Great Financial Crash of 2007-2008. I should say at once that I can’t make an iron-clad case, partly because my finance skillz are so rudimentary, and partly because Laureate, for reasons we will see, would be a tough nut for any researcher to crack. But the fact set certainly is suggestive! Here is Black’s Formula for accounting control fraud; we might go so far as to regard it as an elite playbook.[3] Here’s the four-part “recipe” for a fraudulent lender optimizing fictional accounting income and real losses:

  • 1. Grow massively
  • 2. By making awful loans at a premium yield
  • 3. While employing extreme leverage, and
  • 4. Providing only grossly inadequate loss reserves

From the fraudster’s perspective, the appeal of control fraud is that it’s a “sure thing.” Black explains:  So first, let’s take Black’s Formula and apply it to for-profit universities like Corinthian or Laureate.

One More Reason Why The Student Debt Bubble Is About To Get A Lot Larger - Although nearly 93% of parents say they expect their children to attend college, only 57% have either saved money or plan to save money for tuition. Those two figures don't match up, meaning someone will have to step in and fill the education funding void.  With tuition rates rising by a staggering 24% every five years, just about the last thing the government (and by extension, the taxpayer) needs is another reason to suspect that the student debt bubble is going to start growing even faster than it already is. Unfortunately, new evidence suggest that just might be the case.  Via WSJ: Parents are having a harder time saving for college, a report released Wednesday shows. Fewer American parents are saving for college and the average sum that families who are saving have accumulated to pay college costs has fallen, according to a report by the country’s largest private student-loan lender SLM Corp., better known as Sallie Mae, and market-research company Ipsos Public Affairs. Forty-eight percent of parents with children under age 18 are saving for college this year, down from 51% last year and a peak of 62% in 2009, the report says. On average, those families that are saving have $10,040 set aside for college, down 25% from $13,408 in 2014. The findings come as college costs continue to rise. The average annual cost of tuition, fees and room and board at private nonprofit four-year colleges and universities totaled $42,419 for the current 2014-15 academic year, up 3.6% over a year prior and up 21% from 2009-10, according to data from the College Board. At public four-year colleges, that figure was $18,943 for in-state students, up 3% and 24.3%, respectively. Parents feel overwhelmed about how to save for college costs, according to the Sallie Mae-Ipsos report, with 20% of parents saving for college and 38% of those not saving sharing that feeling.'

Meet IBR, The Student Loan Bubble's Dirty Secret - As a reminder, “IBR” stands for Income Based Repayment and, as the name suggests, simply means that payments on federal student loans are calculated based on how much the borrower earns. Here’s how Fedloan Servicing (a Department of Education approved servicer), describes the program: Under this plan, your monthly payments are based on your adjusted gross income and family size. If you're married and file a joint federal income tax return, your spouse's adjusted gross income, and eligible student loan debt, if applicable, is also taken into consideration. And here is how the organization describes a typical IBR-eligible borrower:  I have little or no income and mounds of student loan debt, so I'm stressed about my monthly payments. Now consider the following information about monthly payments: They are based on your adjusted gross income (individually or with your spouse, as applicable), your family size, and your state of residence. They may be less than the interest that accrues each month.  They may be as low as $0.00. Note that last point — “may be as low as zero.” In other words, depending on your financial situation, you may not have to make monthly payments at all. After 300 “qualifying monthly payments” — so after 25 years of payments — any remaining balance is forgiven and legally discharged. The interesting thing about this is that if the calculated payment is zero, it still counts as a “qualifying monthly payment.” That is, if, based on the borrower’s financial situation, he/she is not required to make an actual cash payment for a period, that period still counts towards the 300 “payments” needed to have the balance of the debt discharged, meaning that in the end, borrowers could end up paying substantially less than principal (taxpayers eat the balance) and are effectively allowed to remain in a perpetual state of default while avoiding actual payment default along the way.

America’s Student Debt Pain Threatening a Corner of Bond Market - America’s mounting student-debt problem is threatening to create trouble in part of a $170 billion bond market tied to government-guaranteed loans. With borrowers increasingly struggling to repay their student loans, Moody’s Investors Service is warning it may take investors longer than promised to get their money back. The credit grader said this month it may lower rankings on $3 billion of top-rated debt as investors face the threat of slowing principal payments or even receiving no interest. The concern underscores the fallout from a record $1.2 trillion in U.S. student loans that’s spreading to everything from the housing market and consumer spending to taxpayers. As a sluggish economic recovery forces borrowers to miss payments or tap relief programs, only 37 percent are current and reducing their balances, according to a Federal Reserve Bank of New York presentation this month. “The recession really hit a large portion of the borrowers who have student loans hard,” "Because of that, a significant portion of borrowers have used” various options to avoid paying down their debt. Thanks to the government’s guarantees of 97 percent of loan balances, Moody’s and Fitch Ratings see little risk that investors won’t eventually get their money back even if missed payments accelerate. But the threat of downgrades and slower principal payments fueled an investor retreat that’s driving yields higher on some top-rated securities.

Oregon Court Throws Out Bulk Of Public Pension Overhaul Measures --  The Oregon Supreme Court tossed out much of the state legislature's 2013 attempts to curb pension payouts to retired public workers. The plan was meant to save about $5 billion in costs for PERS -- Oregon's Public Employees Retirement System. Most of that savings came from trimming annual cost of living increases for retirees. But In a unanimous decision the court said lawmakers couldn't do that. Thursday’s decision means government agencies in Oregon will have higher pension costs in years to come. “You can't go back and say 'Oops, I think we're paying you too much,’” retiree Brooks Koenig said. He’s happy with the decision. Koenig retired in 2003 after 26 years in state and local government. The court ruled that cost of living increases can be cut for people who haven't yet retired. Legislative leaders said they have no immediate plans to take another run at cutting public pension costs.

The Real Financial Crisis That Is Looming - : There is a financial crisis on the horizon. It is a crisis that all the Central Bank interventions in the world cannot cure. It is a financial crisis that will continue to change the economic landscape of America for decades to come. No, I am not talking about the next Lehman event or the next financial market meltdown. Although something akin to both will happen in the not-so-distant future. It is the lack of financial stability of the current, and next, generation that will shape the American landscape in the future. The nonprofit National Institute on Retirement Security released a study in March stating that nearly 40 million working-age households (about 45 percent of the U.S. total) have no retirement savings at all. And those that do have retirement savings don't have enough. As I discussed recently, the Federal Reserve's 2013 Survey of consumer finances found that the mean holdings for families with retirement accounts was only $201,000.  Such levels of financial "savings" are hardly sufficient to support individuals through retirement. This is particularly the case as life expectancy has grown, and healthcare costs skyrocket in the latter stages of life due historically high levels of obesity and poor physical health. The lack of financial stability will ultimately shift almost entirely onto the already grossly underfunded welfare system.

1 in 5 Elderly Americans Dies Broke, Survey Shows --  46% of Americans had less than $10,000 in financial assets in the last year of their lifeIt’s the biggest financial worry for anyone saving for retirement: will I outlive my savings and die broke?Based on surveys repeatedly pointing to dismally low levels of retirement savings, most American households have reason to be concerned. The latest report on how many Americans die broke comes from an analysis by the Employee Benefits Research Institute based on data from the University of Michigan’s Health and Retirement Study.  Of those 85 or older who died between 2010 and 2012, roughly one in five had no assets other than a house, according to the analysis. The average home equity was about $140,000. Roughly one in eight of those households had no assets at all. Those who died single at 85 or older fared worse, roughly a quarter had only some equity in a house — about $83,000 on average. One in six had nothing, and one in 10 died with an average debt of about $6,000. For those who died at a younger age, the numbers were even worse. Some 30 percent of households losing a family member between ages 50 and 64 had no assets left. Those households also had lower incomes than older retirees.

A Small But Important Change in Retirement Savings Rules - Earlier this year, the Obama Administration proposed a small and almost unnoticed change in retirement savings rules that could be a big help to middle-income seniors who want to preserve assets to pay for medical and long-term care costs in very old age.  The proposal would exempt those who have $100,000 or less in retirement savings from having to take required taxable distributions from 401(k)s, IRAs, and the like starting at age 70 ½. Under current Minimum Required Distribution (MRD) rules, those with modest savings are effectively forced by the government to draw down their assets.  And that leaves them with less money when they may really need it in their 80s and 90s. The current rules are in place to make sure that those with large retirement balances pay some tax on their accounts. And the easiest way is for the government to require taxable distributions once someone reaches a certain age. But for the three-quarters of retirees whose accounts are smaller than $100,000, these rules create a serious problem:  After 20 years of making required distributions, a typical $100,000 account would shrink in value by about one-third (even before figuring inflation). And many moderate-income retirees won’t have funds when they most need them.   If you want to look at the plan, it’s in Treasury’s description of Administration tax proposals (the Green Book) on page 143.

Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices -    On Feb. 10, Valeant Pharmaceuticals International bought the rights to a pair of life-saving heart drugs. The same day, their list prices rose by 525% and 212%. Neither of the drugs, Nitropress or Isuprel, was improved as a result of costly investment in lab work and human testing, Valeant said. Nor was manufacture of the medicines shifted to an expensive new plant. The big change: the drugs’ ownership. “Our duty is to our shareholders and to maximize the value” of the products that Valeant sells, said Laurie Little, a company spokeswoman. “Sometimes pricing comes into it, sometimes volume comes into it.” More pharmaceutical companies are buying drugs that they see as undervalued, then raising the prices. It is one of a number of industry tactics, along with companies regularly upping the prices of their own older medicines and launching new treatments at once unheard of sums, driving up the cost of drugs. Since 2008, branded-drug prices have increased 127%, compared with an 11% rise in the consumer price index, according to drug-benefits manager Express Scripts Holding Co. Needham & Co. said in a June 2014 research note there were as many as 50% drug-price increases during the previous 2½ years as there were in the prior decade.

Boston Globe Misapplies Economic Theory to Defend High Drug Prices -- Jeff Jacoby had an interesting article in the Boston Globe on Sunday where he argue that if the demand for something doubled the price must increase—it is basic introductory economics. What price is too high for a miracle drug? His argument is so typical of how so many columnist and/or bloggers demonstrate that a little knowledge is a dangerous thing.   In basic theory many economist draw supply and demand curve that show if demand doubles the price will increase. But most are aware that this is actually a special case where all the assumptions of the perfect competition model  hold.  But, practical economists realize that this is a special case and that there are many exceptions to this theory. But the drug industry is a clear case where introductory economic analysis does not work because the drug industry is one of those industries where much of the cost of bring a new product to market is sunk or fixed cost. The specific sunk or fixed cost in the drug industry is the fortunes spent on research, development and testing before a new drug can be brought to market. These expenses are capitalized and incorporated into the price of a drug. The rough and ready rule of thumb is that these sunk or fixed cost account for about half of the price of a new drug. Exactly how much of this sunk cost is incorporated depends heavily on the estimate of how large the market for the drug will be. For example, if a drug firm has $1 billion in these sunk cost and they expect to sell two billion units of the drug they can assign $0.50 to the price of each pill for the sunk cost and another $0.50 for other costs of manufacturing, distribution, advertising, profits, etc., etc., so the final price is $1.00 per pill. But if the demand suddenly doubles, as Jacoby writes, the price does not have to increase. Rather the $1billion in fixed or sunk cost can now be spread over four billion units rather than original two billion units so the cost per unit falls from $.50 to $0.25. Consequently, the drug firm can cut the price of the drug from $1.00 per pill to $0.75 per unit and still make more profits than they did when the price was $1.00.

Blue Bell Listeria Outbreak Has Been Going on For Five Years, CD -- An outbreak of listeria linked to Blue Bell ice cream products has been going on quietly for as long as five years, federal health officials said Tuesday. Genetic tests link Listeria bacteria from two separate Blue Bell factories to at least six cases of listeriosis dating back to 2010, the Centers for Disease Control and Prevention told NBC News. The outbreak, which has killed three people and put seven others into the hospital, involves two distinct strains of the bacteria that have been making people sick from Kansas to South Carolina, the CDC says. The three exposed people who died all were in Kansas. Blue Bell's recalled all of its products because of the outbreak, and says people should throw away any of its products in their refrigerators or freezers. "CDC recommends that consumers do not eat any Blue Bell brand products, and that institutions and retailers do not serve or sell them," the agency said in a statement Tuesday. Two of Blue Bell's facilities were found to be contaminated — one in Texas and one in Oklahoma. And now, the CDC investigation shows they may have been contaminated as far back as 2010. "This is a complex and ongoing multistate outbreak investigation of listeriosis illnesses occurring over several years," CDC said in a statement. "Several strains of Listeria monocytogenes are involved in this outbreak. Information indicates that various Blue Bell brand products are the source of this outbreak."

Iowa governor declares state of emergency due to bird flu outbreak == Gov. Terry Branstad of Iowa declared a state of emergency as bird flu continued to spread around the state, including possible cases at four poultry farms announced on Friday. Nearly 17 million chickens and turkeys in the state are dead, dying or scheduled to be killed because of the disease. The proclamation, in effect until May 31, activates disaster response procedures and allows state agencies to help dispose of dead birds, an increasing problem in the state, where 27 percent of its 60 million egg-laying chickens will be wiped out. Iowa is the nation’s leading egg producer, providing one of every five eggs eaten in the country, and ninth in turkey production. “This is a magnitude much greater than anything we’ve dealt with in recent modern times,” Governor Branstad said. Over all, chicken and turkey producers in the Midwest could lose more than 21 million birds because of the disease.

Long-term exposure to air pollution may pose risk to brain structure, cognitive functions  - So air pollution might reduce our ability to recognize the problem, and make us more susceptible to being fooled by those who profit from it and try to derail regulations that might reduce their profits. Air pollution, even at moderate levels, has long been recognized as a factor in raising the risk of stroke. A new study led by scientists from Beth Israel Deaconess Medical Center and Boston University School of Medicine suggests that long-term exposure can cause damage to brain structures and impair cognitive function in middle-aged and older adults. Writing in the May 2015 issue of Stroke, researchers who studied more than 900 participants of the Framingham Heart Study found evidence of smaller brain structure and of covert brain infarcts, a type of "silent" ischemic stroke resulting from a blockage in the blood vessels supplying the brain.  The study evaluated how far participants lived from major roadways and used satellite imagery to assess prolonged exposure to ambient fine particulate matter, particles with a diameter of 2.5 millionth of a meter, referred to as PM2.5. These particles come from a variety of sources, including power plants, factories, trucks and automobiles and the burning of wood. They can travel deeply into the lungs and have been associated in other studies with increased numbers of hospital admissions for cardiovascular events such as heart attacks and strokes.

Is 2015 The Year Soil Becomes Climate Change’s Hottest Topic? -- Last week, 650 people from 80 countries gathered in Germany for a week-long discussion about an increasingly important topic in climate change: soil. Dubbed Global Soil Week by the Global Soil Forum — an international body dedicated to achieving responsible land use and soil management — the conference brought together scientists and environmental advocates from all over the world who hoped to translate scientific research about soil into tangible policies for its management. 2015 is shaping up to be a big year for soil — in addition to being Global Soil Week’s third year running, the United Nations Food and Agriculture Organization has declared it the International Year of Soil. José Graziano da Silva, director of the FAO, has called soil a “nearly forgotten resource,” and has implemented more than 120 soil-related projects around the world to mark the International Year of Soil. Farming First, a global agriculture coalition with more than 150 support organizations, has also called for soil health to be a top priority in the UN’s new Sustainable Development Goals. Soils — and the microbes that live within them — store three times as much carbon as is in the atmosphere, and four and a half times as much as in all plants and animals. “If the soil carbon reserve is not managed properly,” Lal said, “it can easily overwhelm the atmosphere.”

California orders no water diversions despite legal rights - About 1,500 farms and individuals in the Central Valley were ordered Thursday to stop taking water from rivers and streams for irrigation, the latest move by state regulators to save water amid intensifying drought conditions. It was the start of the latest round of water restrictions as rivers and streams across California run too dry to provide enough water to grow crops and to provide safe passage for fish, and it applies to the Stanislaus, Tuolumne and Merced rivers. The State Water Resources Control Board started sending letters to water rights holders, mostly Central Valley farmers in the San Joaquin River watershed who don’t belong to irrigation districts, ordering them to stop pumping from streams. The order applies only to those who obtained water licenses after 1914, holding so-called junior water rights. The Modesto, Turlock, Oakdale and South San Joaquin irrigation districts enjoy pre-1914 rights, but such senior right-holders were warned that they are likely to face cutbacks in California’s fourth year of drought as well, the board’s letter warned. Related The board has not restricted senior water rights since it prohibited pumping on a portion of the Sacramento River in the 1970s. Farmers are pumping water from underground wells and buying water from other sources as they face increasing restrictions on the use of government-monitored water during the drought. Federal and state agencies also slashed water deliveries from reservoir systems earlier in the year.

San Jose, Santa Clara mayors drink recycled sewage to push expanding reclaimed water - -- San Jose Mayor Sam Liccardo, Santa Clara Mayor Jamie Matthews and other Silicon Valley leaders on Monday took big gulps of recycled water -- filtered, cleaned and disinfected sewage -- to show that it is safe and should be a growing part of Silicon Valley's drinking water future. "Delicious," said Liccardo, as cameras clicked. "Good stuff!" said Matthews, as video rolled. Capitalizing on public interest in water supply issues during California's historic drought, the pair appeared at a public water treatment plant in Alviso to unveil plans for an $800 million expansion of recycled water in Santa Clara County over the next 10 years. Once derided as "toilet to tap," recycled water has been used in San Jose and other cities in Santa Clara County since 1997, but only for irrigating golf courses, landscaping and other nondrinking uses, such as in industrial cooling. Under the new proposal, San Jose and the Santa Clara Valley Water District are calling for expanding that use from 20,000 acre-feet a year now to about 55,000 acre-feet a year -- or 20 percent of the county's total water demand -- by 2025. An acre-foot is about 325,851 gallons of water, or the amount that two Bay Area families of five use in a year.And rather than using it only for landscaping, they hope to mix it with existing groundwater and serve it to back the public to drink.

Drought Frames Economic Divide of Californians - Alysia Thomas, a stay-at-home mother in this working-class city, tells her children to skip a bath on days when they do not play outside; that holds down the water bill. Lillian Barrera, a housekeeper who travels 25 miles to clean homes in Beverly Hills, serves dinner to her family on paper plates for much the same reason. In the fourth year of a severe drought, conservation is a fine thing, but in this Southern California community, saving water means saving money. The challenge of California’s drought is starkly different in Cowan Heights, a lush oasis of wealth and comfort 30 miles east of here. That is where Peter L. Himber, a pediatric neurologist, has decided to stop watering the gently sloping hillside that he spent $100,000 to turn into a green California paradise, seeding it with a carpet of rich native grass and installing a sprinkler system fit for a golf course. But that is also where homeowners like John Sears, a retired food-company executive, bristle with defiance at the prospect of mandatory cuts in water use.The fierce drought that is gripping the West — and the imminent prospect of rationing and steep water price increases in California — is sharpening the deep economic divide in this state, illustrating parallel worlds in which wealthy communities guzzle water as poorer neighbors conserve by necessity. The daily water consumption rate was 572.4 gallons per person in Cowan Heights from July through September 2014, the hot and dry summer months California used to calculate community-by-community water rationing orders; it was 63.6 gallons per person in Compton during that same period.

California's Fire Season Is Shaping Up to Be a "Disaster" - On Monday, 200 firefighters evacuated an upscale residential neighborhood in Los Angeles as they responded to a wildfire that had just broken out in the nearby hills. Ninety minutes later, the fire was out, with no damage done. But if that battle was a relatively easy win, it belied a much more difficult war ahead for a state devastated by drought.  California is in the midst of one of its worst droughts on record, so bad that earlier this month Gov. Jerry Brown took the unprecedented step of ordering mandatory water restrictions. Snowpack in the Sierra Nevada is currently the lowest on record for this time of year. And the outlook for the rest of the year is bleak: The latest federal projections suggest the drought could get even worse this summer across the entire state (as well as many of its neighbors): That's a very bad sign for California's wildfire season. After several years of super-dry conditions, the state is literally a tinderbox. "The outlook in California is pretty dire," said Wally Covington, a leading fire ecologist at Northern Arizona University. "It's pretty much a recipe for disaster."

Alaskan Entrepreneur Wants to Sell Bulk Water Shipments to Drought-Stricken California -- An entrepreneur attempting to pioneer the shipment of large volumes of water from an Alaskan town to thirsty global markets claims his company is a step closer after signing a contract to deliver 10 million gallons per month to a buyer in dry California. Terry Trapp, chief executive of Alaska Bulk Water Inc., announced the deal in a March 25 letter to officials in Sitka, an island town of 9,000 people, which has offered to sell surplus water from a reservoir also used for hydroelectric power generation. Alaska Bulk Water’s goal is to ship water by tanker or barge by July, according to the letter. After working with the company and its predecessors for nearly a decade and seeing numerous delays, cancellations, and contracts that were not fulfilled, Sitka officials are both skeptical and hopeful that the deal comes to fruition. “They have told us for years that they have contracts signed, but that does not mean we’ve shipped any water,” Garry White told Circle of Blue. White is the executive director of Gary Paxton Industrial Park, which manages Sitka’s bulk water agreements. “Moving water is the true test of whether this happens,” he added. Trapp would not discuss the details of the contract or the business operation with Circle of Blue, saying only that the company is working out the economics and logistics of the water trade. “We’re trying to haul water from Alaska to California, and we’re looking for the most cost-efficient way to get that done,” Trapp said.

The Dying Sea -- There is a place in the California desert where a pipe pokes out from a berm made of broken concrete and delivers freshwater to a dying sea. I stood there recently, on a beach of crumbled barnacles, and watched it gush. The sea was the dull blue of a cataract, surrounded by small volcanoes, bubbling mud pots, and ragged, blank mountains used for bombing practice by the Navy and the Marines. The air smelled sweet and vaguely spoiled, like a dog that has got into something on a hot day. When the wind blew, it veiled the mountains in dust and sent puckered waves to meet the frothy white flow from the pipe. The sea, which is called the Salton Sea, is fifteen times bigger than the island of Manhattan and no deeper in most places than a swimming pool. Since 1924, it has been designated as an agricultural sump. In spite of being hyper-saline, and growing saltier all the time, the sea provides habitat to some four hundred and thirty species of birds, some of them endangered, and is one of the last significant wetlands remaining on the migratory path between Alaska and Central America.

Nevada's Lake Mead on track to reach record low water level amid drought (Reuters) - Nevada's Lake Mead, the largest capacity reservoir in the United States, is on track to drop to its lowest water level in recorded history on Sunday as its source, the Colorado River, suffers from 14 years of severe drought, experts said on Friday. The 79-year-old reservoir, formed by the building of the Hoover Dam outside Las Vegas, was expected to dip below 1,080 feet on Sunday, lower than a previous record of 1,080.19 feet last August, according to the U.S. Bureau of Reclamation. Predictions show that on May 31, the reservoir will have dipped again to 1,075 feet, well below its record high levels of around 1,206 feet in the 1980s, according to Bureau of Reclamation data. Lake Mead supplies water to agriculture and about 40 million people in Nevada, Arizona, Southern California, and northern Mexico. The water source and several other man-made reservoirs springing from the 1,450-mile (2,230-km) Colorado River, have dropped to as low as 45 percent of their capacity as the river suffers a 14th straight year of crippling drought. About 96 percent of the water in Lake Mead is from melted snow that falls in "upper basin" states of Colorado, Utah, New Mexico, and Wyoming, officials said. Over the past 14 years, snowfall has dropped in the Rocky Mountains, leading to a drop in snow pack runoff that feeds the river, according to Bureau of Reclamation statistics. In 2013, runoff was at 47 percent of normal. The lake's levels are nearing a critical trigger where federal officials will have to start rationing water deliveries to Nevada, Arizona and parts of California.

Lake Mead expected to reach its lowest level soon - Lake Mead's water level has dropped to the lowest level it's ever been. The lake has come down well over a 140 feet at its peak, and it's projected to recede even more this summer. Experts say the dam hasn't been this low since it was built. Lake Mead is the primary source of water in Nevada's drought-stricken region, but it's getting low enough where restrictions on how much water we can use may be put into place. The low water is having a direct impact on boaters and even causing new dangers, according to park goers. Harold Adams is a Las Vegas resident that has been boating on Lake Mead since the 60's, but he says a lot has changed including the safe routs around his favorite getaway. “There are islands popping up, and they don't mark them all,” said Adams. “There was a man a few slips from me last year that had a 40-foot boat, but he hit an island out there and tore his props up. It sank the boat.” However, besides adding new dangers, the dwindling lake has cost the Lake Mead Recreation area around $30 million during the drought. Construction this May is estimated to cost another $2 million. But that doesn't count the vendors and marinas that now have to sink to new lows. “Since we are going to new record lows earlier, they could just adjust their utility lines. However, now that we are reaching new record lows they are going to have to extend the utilities even further,”

This Is What Epic Drought Looks Like: Lake Mead Hits Historic Low » The big doom-and-gloom news in the water world this week is that America’s former largest reservoir, Lake Mead near Las Vegas on the Colorado River, hit a historic low on Sunday. The reservoir serves water to the states of Arizona, Nevada and California, providing sustenance to nearly 20 million people and crops that feed the nation. For nearly two decades every water supply agency in the Southwest U.S., including the U.S. Bureau of Reclamation which manages the Colorado River system, has known that the river is “over-allocated”—i.e., that more water is taken out than flows in. Yet, almost nothing has been done to stem the decline which is likely to get worse as climate change progresses. Finally in 2013, the Bureau of Reclamation publicly created the “Colorado River Basin Study” that, sure enough, said the system is in severe decline and offered a bunch of ideas on how to address it. However, few of those ideas have been enacted as the nation watches the reservoir drop and Nevada, Arizona and California still take almost all of their full allotment of water out of the river. Even more malevolently, the level of water in Lake Mead is partly driven by how much water flows into it from the upstream states of Colorado, Utah and Wyoming. At the same time that Mead hit a historic low, those three states are not only still taking all of the same water out of the system, they are aggressively planning to build even more dams and reservoirs that divert more water.

  • In Colorado, Denver Water is proposing to build a larger dam/reservoir, Northern Water (which supplies water to Northern Colorado) is also proposing to build a new reservoir, and the State of Colorado is going through a planning process to build billions of dollars worth of water projects, all of which would further drain the Colorado River ecosystem.
  • In Utah, state and local planners are moving forward with a massive pipeline proposal out of the Colorado River at Lake Powell, and the state government is going through a planning process that proposes to put more dams on every river in the state.
  • In Wyoming, water planners are aggressively trying to start two reservoir projects that would further drain the Green River which flows into the Colorado, and are planning more water diversion projects in the future.

All of these projects are being proposed so the upstream states can get the last legally allowed drops of water out of the system before it collapses in the near future. This water management is a kind of “Mutually Assured Destruction” escalating the water war across the Southwest U.S.

New Study Shows Climate Change Is Already Hurting Coffee Growth  -- For years, studies have warned that a warmer planet might mean fewer cups of morning coffee — but a new study claims that rising temperatures are already taking their toll on East Africa’s coffee crops.  The study, conducted by researchers at the University of Witwatersrand in South Africa, found that Tanzania’s production of Arabica coffee — the most-consumed coffee species in the world — has fallen by 46 percent since 1966. Over the same period of time, the average nighttime temperature in Tanzania increased 1.4 degrees Celsius.   Craparo and his colleagues began by looking for long-term data about coffee yields. In Tanzania, most coffee is grown by small hold farmers who don’t necessarily keep detailed records of their yields and the climate. To circumvent this, the study looked at data from three different sources: the Tanzania Coffee Board, the Tanzanian National Bureau of Statistics, and the agricultural statistics division of the Food and Agricultural Organization of the United Nations.  Using climate and yield data from those sources, the researchers analyzed the impact of climate variables on crop yield. Through statistical analysis, they found that increasing temperature had a negative effect on coffee yields — but the specific interaction between temperature and coffee growth surprised them.

Experts Warn of “Cataclysmic” Changes as Planetary Temperatures Rise -- We are watching unprecedented melting of glaciers across the planet, increasingly high temperature records and epic-level droughts that are now becoming the new normal: Planetary distress signals are increasing in volume.  One of these took place recently in Antarctica, of all places, where two unprecedentedly high temperatures were recorded, providing an ominous sign of accelerating ACD as one of the readings came in at just over 63 degrees Fahrenheit.   A fascinating recent report shows that approximately 12 million people living in coastal areas will be displaced during the next 85 years, with areas along the Eastern Seaboard of the United States seeing some of the most dramatic impacts.  In the US, another report shows that the Navajo Nation is literally dying of thirst, with one of the nation's leaders flatly sounding the alarm by stating, "We're going to be out of water."  A study just published in Geophysical Research Letters bolsters the case that a period of much faster ACD is imminent, if it hasn't already begun.  On that note, leading climate researchers recently said there is a possibility that the world will see a 6-degree Celsius temperature increase by 2100, which would lead to "cataclysmic changes" and "unimaginable consequences for human civilization."   With these developments in mind, let us take a look at recent developments across the planet since the last dispatch.

Permafrost feedback update 2015: is it good or bad news? - Ted Schuur and sixteen other permafrost experts have just published a review paper in Nature: Climate change and the permafrost feedback (paywalled). This long and authoritative article (7 pages of text, plus 97 references) provides a state-of-the-art update on the expected response of permafrost thawing to man-made climate change. Much of the work reported on in this paper has been published since the 2013 IPCC AR5 report. It covers new observations of permafrost thickness and carbon content, along with laboratory experiments on permafrost decomposition and the results of several modelling exercises.  The overall conclusion is that, although the permafrost feedback is unlikely to cause abrupt climate change in the near future, the feedback is going to make climate change worse over the second half of this century and beyond. The emissions quantities are still uncertain, but the central estimate would be like adding an additional country with the unmitigated emissions the current size of the United States' for at least the rest of the century. This will not cause a climate catastrophe by itself, but it will make preventing dangerous climate change that much more difficult. As if it wasn't hard enough already.

Gravity data show that Antarctic ice sheet is melting increasingly faster --  During the past decade, Antarctica's massive ice sheet lost twice the amount of ice in its western portion compared with what it accumulated in the east, according to Princeton University researchers who came to one overall conclusion -- the southern continent's ice cap is melting ever faster. The researchers "weighed" Antarctica's ice sheet using gravitational satellite data and found that from 2003 to 2014, the ice sheet lost 92 billion tons of ice per year, the researchers report in the journal Earth and Planetary Science Letters. If stacked on the island of Manhattan, that amount of ice would be more than a mile high -- more than five times the height of the Empire State Building. The vast majority of that loss was from West Antarctica, which is the smaller of the continent's two main regions and abuts the Antarctic Peninsula that winds up toward South America. Since 2008, ice loss from West Antarctica's unstable glaciers doubled from an average annual loss of 121 billion tons of ice to twice that by 2014, the researchers found. The ice sheet on East Antarctica, the continent's much larger and overall more stable region, thickened during that same time, but only accumulated half the amount of ice lost from the west, the researchers reported.

California Gov. Brown Orders Major Cut in Greenhouse Gas Emissions - WSJ: California will develop North America’s most stringent greenhouse gas–reduction standards over the next 15 years under an executive order signed on Wednesday by Democratic Gov. Jerry Brown.Mr. Brown ordered that, by 2030, greenhouse-gas emissions be 40% below 1990 levels. The targets align the nation’s largest state with standards set by the European Union last October and come ahead of the United Nations Climate Change Conference in Paris later this year. Mr. Brown’s goals won praise from foreign dignitaries, including World Bank President Jim Yong Kim and Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change. “California’s announcement is a realization and a determination that will gladly resonate with other inspiring actions within the U.S. and around the globe,” Ms. Figueres said. “It is yet another reason for optimism in advance of the U.N. climate conference in Paris in December.” The new order comes as Mr. Brown has aimed to make climate change a signature issue of his administration, while also dealing with an extreme drought. Business leaders in the state cautioned of the order’s potential economic impacts. “As California continues its leadership role in addressing climate change, costs on business and impacts on jobs and competitiveness cannot be ignored,” said Allan Zaremberg, president and chief executive of the California Chamber of Commerce.

This Public Utility Is Waging an All-Out War on Renewable Energy  -- America’s electricity landscape is changing dramatically. Clean energy resources like solar and wind are becoming cost competitive with conventional coal.  While some in the utility industry are adapting their business models to accommodate these changes, others are fighting it. Nowhere is this more apparent than in Ohio, where Akron-based power company, FirstEnergy, recently gained regulatory approval to abandon its energy efficiency programs. While this move is expected to raise electricity rates for FirstEnergy customers and increase harmful emissions from the coal-fired power plants that will be needed to “fill the gap” of previously offset energy demand, FirstEnergy has much more in store for the Buckeye State. In fact, they are waging an all-out war on clean energy in a last-ditch effort to protect their inefficient, polluting and unprofitable fleet of coal-fired power plants. FirstEnergy, which owns power plants and distribution utilities in five states, is burdened by its heavy reliance on coal, a strategic decision accelerated back in 2011 when it acquired Allegheny Power—an energy company whose fleet was comprised of 78 percent coal-fired plants. . As a result, FirstEnergy’s stock price has plummeted and financial analysts have downgraded the company. In an effort to remain competitive in an evolving industry, FirstEnergy is now requesting that the Public Utilities Commission of Ohio (PUCO) authorize substantial, customer-funded subsidies to bail out its uneconomic power plants. This deal would lock in what Environmental Defense Fund’s Cheryl Roberto, in testimony before the PUCO, called “non-competitive purchase agreement.” This type of agreement would ensure a substantial portion of FirstEnergy’s power comes from its failing coal plants for years to come—regardless of their profitability and an evolving energy market that’s already trending toward cleaner energy resources. Customers, moreover, would be forced to pay the subsidy whether the plants deliver power or not, bearing the operational risks for these plants.

ALEC-Tied Politicians Push North Carolina To Gut Its Environmental Protection Act - It only took two weeks for the Republican-led House in North Carolina to introduce and pass a bill gutting the state’s environmental law.  The House passed the SEPA Reform Act on Wednesday after allowing total of one minute of public comment. Two of the three bill sponsors have ties to the conservative American Legislative Exchange Council.  The bill will largely dismantle the State Environmental Policy Act (SEPA), opponents say. Under SEPA, a 1971 law to “encourage the wise, productive, and beneficial use of the natural resources of the State without damage to the environment,” any project that uses state funds or state land is subject to an environmental assessment progress. The SEPA Reform Act changes the trigger for review at $10 million of state funds.  But environmental advocates say a $10-million threshold still effectively wipes SEPA off the books, and state representatives know that.  “It was stated on the floor that $10 million would rarely if ever be triggered,” Southern Environmental Law Center senior attorney Mary Maclean Asbill told ThinkProgress.

UN Scientists Call for Action on Marine Microplastics as New York Assembly Passes Microbeads Ban  -- New York may become the next state to ban microbeads. Last week, the New York Assembly passed a bill, the Microbeads-Free Waters Act, which would “prohibit the sale of personal cosmetic products containing microbeads.” The bill passed by an overwhelming majority of 139 to 1.  Microbeads are tiny bits of plastic put in consumer products such as toothpastes and facial scrubs that often pass through wastewater treatment facilities and eventually pollute our waterways. The bill would prohibit the sale of personal cosmetic products containing synthetic plastic microbeads after January 1, 2016, according to the Natural Resources Defense Council (NRDC). Over-the-counter drugs that fall under the definition of personal cosmetic products would receive an additional year to comply and prescription drugs are exempt. The bill has now moved to the state Senate, but it has stalled there. The Senate bill’s sponsor, Sen. Thomas O’Mara, advanced a different bill in committee “that fundamentally fails to address the microbeads problem,” says the NRDC. Not only would the Senate bill’s version take longer to go into effect, but it exempts some types of plastic and “biodegradable” microbeads, which aren’t truly biodegradable. The bill also forbids municipalities, counties and local governments from taking further action to stop this form of water pollution, says the NRDC.  Dr. Marcus Eriksen of 5 Gyres agrees. “When we found microbeads in the Great Lakes, we knew that this had to change and that we couldn’t replace plastic microbeads with the so called ‘biodegradable’ microbeads, which is exactly what the Personal Care Products Council is pushing the New York Senate to do. It will not solve the problem.”

Wyoming's smog problem - Who’s got the smog? According to a report from the American Lung Association, western states do, particularly Wyoming. According to Wyoming Public Media, the association’s State of the Air report noted Wyoming’s Upper Green River Basin, where oil and gas development, wildfires and drought feed into the area’s troubling air quality.  The study evaluated data from 2011 to 2013—a time when some parts of the state surpassed Los Angeles’ smog problem.  Residents of Pinedale, an area saturated with oil production, complained of respiratory problems.  The Environmental Protection Agency gave Wyoming three years to meet federal air quality standards, during which the state made significant improvements. Steve Dietrich with the Wyoming Department of Environmental Quality said this is important to keep in mind while interpreting the data. “I’m not saying it’s not valid or not useful,” Dietrich said. “What I would say is that it’s a snapshot in time based on data that’s available.”

Contentious markup expected today as House science panel takes up COMPETES bill | Science/AAAS - Representative Lamar Smith (R–TX) has never hidden his desire to reshape federal research policy— often over the objections of much of the scientific community—since he became chair of the House of Representatives science committee 2 years ago. Last week, he introduced legislation that lays out those plans in unprecedented detail, and the reaction was predictable. Although academic leaders say that some parts of the new, 189-page bill are better than previous versions, they believe it would seriously damage the U.S. research enterprise. The bill not only sets out funding levels for several research agencies that in some cases depart sharply from those the Obama administration requested for 2016; it would also reshape key policies and priorities guiding those agencies. In particular, researchers complain that the bill (H.R. 1806), called the America COMPETES Reauthorization Act of 2015, would:

  • Narrow the scope of research at the Nation-al Science Foundation (NSF) by designating some scientific disciplines as more important to the nation than others;
  • Sharply reduce NSF’s authority to fund the social sciences and the geosciences;
  • Restrict NSF’s ability to build large new scientific facilities by requiring the agency to follow new, controversial, accounting practices;
  • Curtail climate change research at the Department of Energy (DOE);
  • Block the government from using DOE research findings in writing regulations;
  • And squeeze the budgets for DOE’s applied research program and its fledgling Advanced Research Projects Agency- Energy (ARPA-E).

Pope Francis Steps Up Campaign on Climate Change, to Conservatives’ Alarm - Since his first homily in 2013, Pope Francis has preached about the need to protect the earth and all of creation as part of a broad message on the environment. It has caused little controversy so far.  But now, as Francis prepares to deliver what is likely to be a highly influential encyclical this summer on environmental degradation and the effects of human-caused climate change on the poor, he is alarming some conservatives in the United States who are loath to see the Catholic Church reposition itself as a mighty voice in a cause they do not believe in.As part of the effort for the encyclical, top Vatican officials will hold a summit meeting Tuesday to build momentum for a campaign by Francis to urge world leaders to enact a sweeping United Nations climate change accord in Paris in December. The accord would for the first time commit every nation to enact tough new laws to cut the emissions that cause global warming. The Vatican summit meeting will focus on the links between poverty, economic development and climate change, with speeches and panel discussions by climate scientists and religious leaders, and economists like Jeffrey Sachs of Columbia. The United Nations secretary general, Ban Ki-moon, who is leading efforts to forge the Paris accord, will deliver the opening address.In the United States, the encyclical will be accompanied by a 12-week campaign, now being prepared with the participation of some Catholic bishops, to raise the issue of climate change and environmental stewardship in sermons, homilies, news media interviews and letters to newspaper editors, said Dan Misleh, executive director of the Catholic Climate Covenant in Washington.

HSBC Advises Clients Against Fossil Fuel Investment - The bank wrote to its clients that fossil fuel companies will become "economically non-viable” Often dismissed as unwise by oil industry proponents and criticized as a distraction even by supporters of action on climate change, the divestment movement is no longer being ignored. Look no further than CeraWeek, an annual get-together of North America’s fossil fuel elite.The attention paid to the divestment at CeraWeek suggests that the growing publicity and success from the environmental movement’s ability to secure divestment commitments from universities, banks, pension funds, churches, and other wealth funds are starting to be perceived as a threat by the fossil fuel industry. A few weeks earlier, The Guardian made a splash with its “Keep it in the Ground” campaign, a very firm declaration in support of divestment. The Guardian Media Group vowed to divest its £800 million fund as well. The growing concern over carbon pollution raises the possibility of a regulatory or tax crackdown, both at the national and international level. Newsweek reported on April 21 that HSBC wrote in a private note to its clients that there is an increasing risk that fossil fuel companies will become “economically non-viable.” As a result, HSBC advised its clients to divest from fossil fuels because they may be too risky. If investors fail to get out of fossil fuels, the bank says, they “may one day be seen to be late movers, on ‘the wrong side of history.’” As the divestment campaign builds up steam, major oil and gas companies are starting to see the writing on the wall.

What do volcanic eruptions mean for the climate? - Having lain dormant for over 40 years, the Calbuco volcano last night erupted twice within the space of a few hours. The blast sent a  huge cloud of ash over southern Chile. Carbon Brief has asked a number of experts what volcano eruptions mean for the climate, and whether or not we can expect this latest event to have global consequences. Volcanic eruptions can affect climate in  two main ways.  First, they release the greenhouse gas carbon dioxide, contributing to warming of the atmosphere. But the effect is very small. Emissions from volcanoes since 1750 are  thought to be at least 100 times smaller than those from fossil fuel burning. Second, sulphur dioxide contained in the ash cloud can produce a cooling effect, explains Prof Jim McQuaid, professor of atmospheric composition at the University of Leeds:"Sulphur dioxide is quickly converted into sulphate aerosol which then alongside the fine volcanic ash forms a partial barrier to incoming solar radiation"  You can see this in the NASA video below that maps movements of particles in the Earth's atmosphere. Volcanic eruptions are rated from zero to eight on a scale of  explosivity, measured by the amount of ash and debris they produce. Before Calbuco, the most recent significant volcano eruption was Mount Pinatubo in the Philippines in June 1991. This was rated as a six, while the first of the Calbuco eruptions has been rated as a four or five,  according to a minister of the Chilean Government.   One important factor is how high it reaches in the atmosphere, Prof Richard Allan, professor of climate science at the University of Reading, tells Carbon Brief: "If a volcanic eruption is large enough to reach the stratosphere - above 8km in polar regions and above 15km in tropical regions - the absence of weather at these altitudes means that the injected aerosol particles can stick around for a number of years, reflecting sunlight back to space and cooling the planet." Satellite images suggest the Calbuco ash cloud has reached at least 14km, Dr Anja Schmidt, a researcher in volcanic impacts and hazards at the University of Leeds, tells Carbon Brief.

4/25/2015 — Land rising out of the sea in Hokkaido Japan — Rose 50 feet (over 1,000 feet long) OVERNIGHT - A massive sudden (1 day) collapse and rise of land has occurred along the coast of Hokkaido Japan. Major global earthquake activity is taking place, and serious crustal movement is obviously underway in the region around North Japan. ________ The new land began rising from the sea yesterday morning (April 24, 2015) with just a 1 meter rise (3 feet), then began rising rapidly, the event is still ongoing as of April 25th into 26th 2015. At the same time of the land rising, the area around the rise began to subside. One area displacing the other. The new land mass has now risen over 50 feet above the water (near 1,000 feet long), and near 10 meters wide (30 feet)! Not ‘small’ by any means, and a very rare occurrence to top it off.

Mountaintop Removal Is Encroaching On Communities In Appalachia --The rate of mountaintop removal mining may have slowed in the U.S., but the practice is still encroaching on many Appalachian communities, according to a new report. The report, published Tuesday by environmental group Appalachian Voices, mapped the communities in West Virginia, Kentucky, and Virginia that have been located near a mountaintop removal operation at any time over the last 30 years. The report highlighted 50 communities that have “seen the greatest recent encroachment of large-scale mining activities,” finding that 23 — or nearly half — of those communities are located in West Virginia, a state that had a particularly high rate of mountaintop removal mining in 2014.  These communities are dealing with higher rates of poverty and population loss than communities that aren’t located near mining operations, the report found. Mountaintop removal is a form of surface mining that involves blasting off the tops of mountains to get to the coal underneath. The method is considered the most destructive way to extract coal, as the mining operations can blast away up to 400 vertical feet off a mountain’s summit, a blast that, along with the coal processing that follows, creates a large amount of waste. A form of waste disposal called valley fills — in which the debris is dumped into valleys, destroying streams and killing aquatic life — alsostill sometimes occurs in mining operations.  The actual blasts destroy ecosystems too — according to Appalachian Voices, mountaintop removal has destroyed more than 500 mountains so far in central and southern Appalachia, and has impacted ecosystems that are rich in biological diversity.

Help Save One of America’s Most Pristine and Endangered Rivers from Proposed Coal Mine  --Approximately 45 miles west of Anchorage, Alaska, near Beluga and Tyonek, lies the Chuitna River watershed. Like most of Alaska’s untouched beauty, this area houses pristine aquatic and terrestrial ecosystems. These areas are home to animals such as fox, lynx, wolves, coyotes, wolverines, waterfowl, bears, moose and beluga whales. However, the most important renewable resource to Alaska’s economy, culture and well-being includes five species of wild Pacific salmon, including sockeye, coho, chinook, pink and chum salmon. Among this beautiful, pristine, nearly untouched ecosystem, an out of state company, PacRim Coal has proposed a coal strip mine. Not only is the coal market dwindling in today’s economy, but this proposal would be the first in Alaska’s history to even think about mining directly through a salmon stream. A conservative estimate of the total length of salmon streams to be removed would be roughly 13.7 miles through Middle Creek, a main tributary in the Chuitna River watershed. Besides the destruction of the streams, PacRim Coal would have to dig 300 feet down to have access to the coal bed. This estimate only accounts for the first phase of coal mining on West Cook Inlet. The project would have a total of three phases, all destroying salmon habitat. PacRim owns the leases to these three phases, while another company, Barrick Gold holds the surrounding coal leases. Both PacRim’s and Barrick Gold’s leases would displace 57 miles of salmon streams and a total area of 60 square miles, all to produce 12 million tons of coal per year for a minimum of 25 years.

Factories In Two Of China’s Most Polluted Provinces Are Failing At Limiting Their Emissions  -- China’s call for emissions controls from factories are largely being ignored, according to a Greenpeace report.  The report, which looks at state-reported data for Jiangsu and Hebei provinces, shows that heavy industry is not complying with strict emissions standards China set for coal plants in January 2012, as well as standards for industries like steel and iron which were added later that year. The plants had a two-and-a-half-year grace period for compliance. According to the Greenpeace report, up to 85 percent of heavy industry in Jiangsu and Hebei have emissions that exceed the limits set by the 2012 standards.  “Our findings show that after more than a year since the action plan was initiated, there are widespread problems in actually enforcing the cap on emissions.”  China’s 2012 emissions standards were largely a response to domestic pressure. Chinese activists and media have increasingly rallied for clean air in the rapidly developing nation. China currently gets about two-thirds of its electricity from coal, which contributes more than 40 percent of some types of the country’s pollutants.  Heavy industry sources, such as coal, iron, steel, and cement factories, are responsible for more than 80 percent of emissions in both provinces, according to the Greenpeace report. In Hebei, 30 percent of the factories and power plants surveyed “seriously exceeded” emissions standards. In Jiangsu, which is one of China’s most densely populated provinces, nearly half the plants “seriously exceeded” emissions standards.

Massive Forest Fire Heads Toward Chernobyl -- Have you ever wondered what would happen if a raging forest fire swept across an area severely contaminated by radioactive waste? We can't say that we have either, but we may be about to find out because there are around 400 hectares of woodland on fire in the exclusion zone around Chernobyl. While the Ukrainian government claims the fire is "contained," some say the mass burning of plants which may have absorbed significant levels of contaminants over the nearly three decades since the Chernobyl nuclear accident has the potential to "resuspend" harmful agents in the surrounding air. Here's ecologist Christopher Busby who spoke to RT:

2000x Normal Radiation Found In Tokyo Playground, Officials Deny Any Link To Fukushima -- When a specially-designed robot dies within 3 hours of being exposed to Fukushima's radiation, it is clear something is not quite as propagandized in Japan; and today, as SCMP reports, extremely high levels of radiation have been discovered in a children's playground in Tokyo. While two hours of exposure to a child would be equivalent to the maximum does allowable in a year, Japanese officials say they do not think it is connected to the disaster at Fukushima. We are not sure whether that is supposed to reassure or terrorize locals?

End Nuclear Power Now, Says World Uranium Symposium -- Three hundred delegates from 20 countries that produce uranium for nuclear power, weapons and medical uses called for an end to all uranium mining in a declaration launched on Earth Day this week at a meeting in Quebec, Canada. The venue for the World Uranium Symposium was chosen because Quebec state is currently considering whether to continue its moratorium on uranium mining, having already closed down its only nuclear power plant in 2013.The city of Quebec is also symbolic because this is where Canada, the U.S. and the UK made a cooperation agreement in 1943 that led to the building of the world’s first nuclear weapons. Two of the resulting atomic bombs were used to destroy the Japanese cities of Hiroshima and Nagasaki in 1945. But the symposium was more concerned about the damage that existing uranium mining is doing to the welfare of indigenous peoples, and the “erroneous view” that nuclear power can help solve the problem of climate change.

Report: Ashtabula, Youngstown Considered Earthquake Danger Zones - The deadly 7.8 magnitude earthquake in Nepal last weekend was caused by a shift in the earth's tectonic plates, which is a cause of nature. But, some earthquakes apart of a recent investigation by the United State Geological Survey, are one's that top scientists say, are caused by people. “The Department of Natural Resources called us and said we need to investigate why they occur regularly,” says Columbia University's Senior Researcher, Won Young Kim. Kim's study focuses on states like Oklahoma, Texas, and Ohio, who have all reported rare earthquakes in the last few years. In fact, Ashtabula, Ohio reported seismic activity in 2001. In Youngstown, the town was rocked by an earthquake just last year. Experts say, the common denominator is oil and gas drilling. “About a year ago now, in Youngstown, they had a well that was too close to a fault that they didn't know was there,” says Dr. Brian Zimmerman, Department Chair of Geological Sciences at Edinboro University. “It was an ancient fault that would've never moved on its own but when they pumped water into it at high pressure, it started to produce earthquakes.” As soon as the Department of Natural Resources shut down drilling operations in Youngstown, seismic activity ceased. Scientists say these earthquakes are happening in strange places near us because they are located near wells used to inject wastewater. These waters are essential in oil drilling because it pumps deep into the earth, causes rock to break apart and free oil trapped inside. The process is called fracking and that is what natural gas companies want, but in return, we're at risk for an earthquake. ”Right now, there's a lot of discussion about how to best monitor a well,” Dr. Zimmerman says. “{We're working on] having seismic detectors around the well so that if it starts to produce earthquakes, you'll know immediately and that you can stop the frack operation until you can determine what's going on.”

Ohio giving away its oil, gas - Cincinnati Enquirer Editorial -  When it comes to Ohio's oil and natural gas, the state's position with drillers is essentially this: Come on in and take it. Taxpayers don't get their fair share from the state's oil and gas reserves. Ohio does have a tax that drillers have to pay for the oil and gas they remove from the state's energy resources. But it was set up in a different time – more than 40 years ago, when Ohio's production, mainly of oil, was a local, small-scale affair. Known as a severance tax, it's now embarrassingly low, especially when compared to what drillers willingly pay in other states as they seek to exploit shale gas reserves using the technique of hydraulic fracturing. Worse, when the tax was first put in place in 1970, it wasn't tied to market prices. That means that no matter how much drillers are profiting by selling Ohio's oil and gas, the state's taxpayers make the same measly amount. That may have made short-term sense in 1972, but it doesn't make sense 40 years on. Ohio's severance tax is currently one element of the budget battle between Gov. John Kasich and the General Assembly as they debate remaking the state's tax structure. It's possible the severance tax will get shunted to a tax committee. But regardless of how this tax fits in the budget picture, we don't want taxpayers, or lawmakers, to lose sight of the larger problem: Compared to most other energy-producing states, Ohio is giving away its oil and natural gas. That needs to stop. Taxpayers deserve a fair share of the resources they own

Groups opposed to fracking don't want drilling on state-owned land - -- Groups that oppose horizontal hydraulic fracturing, or fracking, gathered outside the Statehouse Tuesday to urge lawmakers to kill a bill they say would make it easier to drill for oil and gas on state-owned land. About 25 people held signs, listened to protest music and otherwise voiced their opinions after visiting legislators and urging them to vote against House Bill 8. "Enough is enough," said Alison Auciello, the Ohio organizer for Food & Water Watch, which has pushed for a statewide ban on fracking. "We are not seeing the promises come to fruition with this industry. What we've seen are accidents, leaks, spills. We've seen man-made earthquakes... They're happening almost on a daily basis, and now the state wants to fast-track fracking on our state lands." HB 8 would speed up state consideration of agreements by property owners who want to join together to tap oil and gas reserves on their lands. HB 8 also includes provisions for the inclusion of state-owned lands in unitization applications, though lawmakers in the House edited language related to state-own lands to include protections for state parks and forests. "It doesn't change state laws that pertain to where hydraulic fracturing can occur," said Rep. Christina Hagan, R-Alliance, primary sponsor of the legislation. She added, "It simply eases the government bureaucracy standing in the way of development." HB 8 passed the House in March on a unanimous vote, with Republicans and Democrats supporting. Deliberations on the bill are under way in the Ohio Senate.

Groups ask for federal review of Ohio injection-well program -  A coalition of environmental and community groups asked a federal watchdog office on Wednesday to investigate alleged legal violations by the state’s injection well approval program. In a letter to the U.S. Environmental Protection Agency’s Office of Environmental Justice, the coalition, coordinated by the Citizens for Health, Environment & Justice, alleges that Ohio’s injection well program disproportionately impacts the state’s low-income Appalachian areas and has failed to meet a federal directive assuring those communities specific safeguards. The groups also charge that affected areas receive “comically inadequate” opportunities for public participation. Injection wells pump wastewater from oil and gas drilling deep inside the earth. Some such wells in Ohio have been linked to earthquakes. According to research by the groups, 75 percent of the 237 active injection wells in Ohio are concentrated in the state’s 32 counties officially recognized as part of Appalachia due to their low-income status. Only 17.4 percent of Ohioans live in those counties. The groups told the office that a 1994 executive order signed by President Bill Clinton required that low-income communities impacted by environmental issues be provided with effective public input and reliable enforcement programs. “With ODNR, it’s everything for the oil and gas industry and nothing for the public. They act just as biased toward the industry as their own secret communications plan revealed them to be,” Teresa Mills, of Citizens for Health, Environmental & Justice, said in a news release. “They treat Appalachian Ohio as the fracking industry’s dumping ground whose people are too poor to resist taking the lion’s share of Ohio’s waste and that from surrounding states.”  

Taxing fracking won't make it safe - The “fracking tax” has been at the center of Gov. John Kasich’s policy for years now, even while local impacts keep piling up. Governor Kasich’s budget bill originally included an income tax cut – one that would disproportionately benefit the wealthiest Ohioans – offset by usage-based taxes. One of those usage-based taxes was an increase in severance taxes on the controversial oil and gas drilling practice more commonly known as fracking. In eastern Ohio, residents have witnessed the impact of leaks, spills, man-made earthquakes, explosions, truck accidents and more from fracking operations. Ohio injects underground an ever-increasing amount of waste from fracking. The waste is rarely tested for radioactivity and not subject to toxicity restrictions or chemical disclosure. Half of the waste disposed of in Ohio is being imported from other states in the region. Ohio officials still haven’t figured out what was in the thousands of gallons of oil and gas waste spilled in two Vienna Township wetland areas and a private pond earlier this month. While many states across the country are recognizing the dangers of fracking, Ohio leaders are debating how much money we can make from it and how that money will be spent. New York banned the practice last year, citing risks that outweigh the potential benefits. Maryland’s legislature just passed a moratorium to halt the practice and allow further study. But, here in Ohio, our leaders are debating how much money the state will require drillers to pay for extracting our natural resources. Governor Kasich wanted an increase, but House Republicans scrapped it.

27 Investigation leads Sen. Brown to propose train-safety law - – Friday, the U.S. Transportation Secretary and his Canadian counterpart made a major call for safer rail tank cars.  Thursday, Senator Sherrod Brown credited WKBN for first reporting safety concerns with those cars, leading to a new law he introduced.The concern is that older cars carrying oil and gas from fracking operations are more likely to explode if the train derails, and kill people near the tracks. WKBN Reporter Amanda Smith spent the day looking through the 35-page law, which is designed to make rail oil cars safer.The law, if passed, would charge fees for companies shipping crude oil in those old cars, starting at $175 dollars per car, per trip, then increasing to $1400 over the next two years.They will get tax credits – for switching to newer, safer cars. “We are pushing the rail companies, the railroads, to take out of service those rail cars that could potentially create safety problems,” Brown said.  The Senator began advocating for rail safety after Smith questioned him for a story that appeared on March 12, showing how millions of gallons of crude oil pass through the Mahoning Valley every week. That report showed that first responders like firefighters don’t know what’s passing through their towns. “We want to make sure whenever a rail car passes through Austintown, or passes through Youngstown, or through any community, that local first responders know when those cars are going through, what’s in those cars and the quanity of what’s in those cars,” Brown said.Two weeks after that story, Brown pressured the federal Department of Transportation to approve safety standards for rail oil tankers. The department approved those rules Friday. Then, Thursday, Brown and 5 other senators, introduced a bill to mandate train companies use those cars.The bill would also create a new federal system for tracking these shipments.

Company president claims explosion was extremely rare - Last month, a pipeline explosion shocked Upper Arlington and is currently under investigation, but the president of the company responsible for the pipeline claims the incident was extremely rare and not likely to occur again. Dan Creekmur, president of Columbia Gas of Ohio, said he is confident in its pipeline system.  Although the explosion is extremely unfortunate, the chance of it happening again is very rare.  As reported by the Columbus Business First, Creekmur said there are questions that still need to be answered regarding the March 21st explosion.  He also explained he does understand that residents want answers and an explanation, but still backs the pipeline system: The pipeline explosion managed to flatten an entire home and cause damages to another.  The gas-leak stretched to neighborhoods located miles away from the blast site.  As of Monday, April 13th, several residents had not been able to return to their homes due to the explosion.  Workers removed debris and pieces of glass from several homes that were severely damaged. Luckily, no one was reported injured.  According to Creekmur, the event is “very isolated” and a “very unusual set of circumstances.” According to Upper Arlington Fire Department officials, countywide protocols were followed regarding the explosion and gas leak.  Dispatchers received a 911 call a 12:46 p.m. on March 21st regarding the smell of natural gas near the residence of 3418 Sunningdale Way about two hours before the home exploded.  The 911 caller explained that Columbia Gas was already at the home attempting to resolve the issue. Two hours after the 911 call, the home exploded and firefighters were dispatched the scene.  Capitan Mark Hollingshead explained that just because a gas company happens to be working at a location, it doesn’t necessarily mean the fire division is automatically dispatched.

Utica and Marcellus well activity in Ohio -- Activity in the Utica Shale formation and Marcellus Shale formation in Ohio have both seen little change when compared to last week’s well update.   .The following information is provided by the Ohio Department of Natural Resources and is through the week of April 25th. 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, 390 wells were drilled (up 10), 219 drilling (down 10), 420 permitted (down 1) and 854 producing (up 7), bringing the total number of wells in the Utica to 1,883 (up 6). 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, 12 drilled, 15 producing and one well drilling. There are a total of 44 wells in the Ohio Marcellus Shale.

Range Resources releases first-quarter results - On Tuesday, Range Resources announced its first-quarter results, which had a couple big highlights. During the first-quarter, which ended on March 31st, Range Resources recorded a few key events and statistics that occurred:

  • -Production volumes reached a record high, averaging 1,328 Mmcfe per day, a 26% increase over the -prior-year quarter.
  • -Unit costs declined $0.53 per mcfe, or 15% compared to the prior-year.
  • -Washington County Marcellus well was brought on line in late April with a 24-hour production rate of 43.4 Mmcfe per day. This is a new record and the highest rate ever for any Marcellus well.
  • -Record Utica well has cumulative production to date of 1.2 Bcf under constrained conditions.
  • -New well in dry gas area of Washington County, Pennsylvania was brought on line in first quarter at a 24-hour production rate of 31.3 Mmcf per day.
  • -An additional long-term LNG sales agreement was signed, bringing total LNG sales agreements to 200,000 Mmbtu per day.

Has Well Productivity Peaked in the Nation’s Largest Shale Gas Play? : The Marcellus shale gas play of Pennsylvania and West Virginia came onto the scene in 2007 in a big way and has grown to become the nation’s largest. It has accounted for much of the growth of U.S. shale gas production, and made up for declines in former shale gas giants like the Haynesville and Barnett plays of Louisiana and eastern Texas. Companies have scrambled to build pipeline infrastructure to connect the Marcellus to consumers in the U.S. northeast. Canadians, once supplied by gas from western Canada, are also looking to the Marcellus (and the much smaller Utica play in Ohio) for future supply; the pipelines that delivered gas to the east might be converted to instead deliver bitumen from the western tar sands. Companies in both the northeastern U.S. and eastern Canada are looking to build LNG terminals to export the shale gas bounty, and the first LNG export terminal on the Gulf coast will open later this year.  The prognosis for the Marcellus is therefore very important, as it is being counted on to supply abundant cheap gas to the northeast and elsewhere for decades to come. One of the big problems in figuring out what is happening with the Marcellus is the tardiness with which the states provide production data to the general public and to data vendors such as Drillinginfo, which I utilize extensively to analyze shale plays. West Virginia provides data in one-year chunks, and won’t release what happened in 2014 until mid-2015. Pennsylvania is somewhat better, releasing data in six-month chunks. In the absence of recent accurate production data, there has been much speculation on Marcellus production using proxies such as pipeline receipts and algorithms to estimate what production might be. Pennsylvania’s recent release of data from the last half of 2014, however, provides an opportunity to take an updated look at the Marcellus, considering that Pennsylvania comprises 85% of Marcellus production.

Rogersville deep shale drilling next for the Huntington area? -  - Fracking operators are cueing up to dive into the deep Rogersville Shale deposit, located beneath eastern Kentucky and parts of southern and west-central West Virginia.  The Rogersville Shale is deeper than the Marcellus and Utica shale gas plays that have created a fracking boom in parts of northern West Virginia. Companies have drilled at least four test wells into the Rogersville. Exxon drilled the first well in Wayne County, W.Va. in 1975. This well is said to be the original source of information leading to the current investigation of the Rogersville Shale. Oil and gas companies have more recently drilled test wells in Putnam County, W.Va., Johnson County Ky., and in Lawrence County Ky. Lawrence County is just across the Big Sandy River from Wayne County, W.Va.Landowners in both states, including Wayne County, WV members of the Huntington-based Ohio Valley Environmental Coalition (OVEC), have been approached by land agents seeking to lease land. This fuels speculation that the current corporate investigation into the Rogersville "could be the beginning of our region's first tight oil play," according to an article in an international oil and gas newspaper. A 2014 U.K. Kentucky Geological Survey report concludes that a "viable petroleum system exists in the Rogersville." West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco told Natural Gas Intel's Shale Daily, "some operators from Kentucky to West Virginia have been busy scooping up deep mineral rights for the Rogersville Shale." According to DeMarco, the formations that include the Rogersville run anywhere from 10,000 to 30,000 feet below ground in West Virginia.

Activist fined $1,000 for violating order to stay off gas sites -- A Susquehanna County judge has fined anti-fracking activist Vera Scroggins $1,000 for getting too close to a natural gas site earlier this year. The money will cover part of the legal fees incurred by the region’s biggest gas driller– Cabot Oil and Gas. The company has repeatedly sought to have her held in contempt of court for violating an injunction to stay off its property. At a court hearing Thursday in Montrose, Scroggins maintained her innocence and hopes to appeal the fine. “[Cabot] had a false witness, who was willing to perjure himself under oath, and the judge found him more credible. I am not willing to pay a fine for something I didn’t do.” If she doesn’t pay within 45 days, she could go to jail. Judge Kenneth Seamans didn’t seem to mind that possibility. “If there’s a fine and she doesn’t pay it, she’s going to jail.” he said. “And I’m going on vacation.”

National Fuel Gas to lower prices -  Bill Clinton was a first-term president and gasoline was selling for $1.24 a gallon the last time natural gas prices were this low. National Fuel Gas Distribution Corp. has announced that the delivered price of natural gas will fall 6.46 percent, effective today. The resulting price is the lowest in 19 years. A typical residential customer — one who uses 90,000 cubic feet of gas annually — will see the monthly bill fall from $61.42 to $57.45. That monthly bill represents a 66 percent decline from August 2008 when the company’s average customer was paying $173.20 a month. What’s changed since the price of gas peaked is the supply of natural gas, said Carly Manino, spokeswoman for National Fuel. “Continued decreases in the market price of natural gas are due in large part to the increasing production in the Marcellus Shale,” the utility said in a statement. “Nearly all of the gas consumed by National Fuel utility customers comes from Northeast-produced shale gas.” By law, Pennsylvania utilities are required to pass along the price of natural gas without a loss or profit.

O&G companies are dropping big money to cancel contracts - With commodity prices still low, oil and gas companies have started to spend their money on terminating drilling contracts rather than going through with the operations. Antero Resources Corp., which has operations in the Utica and Marcellus Shale formations, is one of the companies that has jumped on the cancellation train. According to the company’s earnings report, during the first-quarter, the company spent $9 million to delay or cancel its drilling contracts. However, $9 million isn’t even close to what Antero has spent so far this year to drill a well. During the first-quarter, the company spent $569 million just in drilling and completion costs. The company’s production increased during the first-quarter, but the number of rigs it had dropped from 21 to 11. While Antero’s decision to spend $9 million to cancel contracts may seem like a lot, it could always be worse, which is the case for Whiting Petroleum Corp. While being the largest producer in North Dakota, Whiting spent nearly $27 million just to terminate drilling contracts. As reported by Columbus Business First, areas in North Dakota and Texas that are loaded with oil have been affected more due to commodity prices when compared to areas that are rich in natural gas like Ohio, Pennsylvania and West Virginia.

Study links air pollution in Baltimore, DC to fracking outside Maryland - --Even though Maryland has yet to permit any hydraulic fracturing for natural gas, emissions linked to the controversial drilling technique have been detected in the air in Baltimore and Washington, according to a new study.  In a paper published in the journal Atmospheric Environment, University of Maryland scientists reported finding that levels of ethane, a component of natural gas, rose 30 percent from 2010 through 2013 in air samples taken at a monitoring station in Essex.  A similar spike in ethane levels was detected at a monitor in Washington near Howard University - but not in Atlanta, where there is no fracking occurring in neighboring states. The UM researchers say they couldn't find anything in Maryland that could account for such increases. Indeed, levels of other air pollutants responsible for summertime smog have declined significantly since the 1990s.  But in reviewing air circulation patterns in the Mid-Atlantic region, researchers found that the bulk of prevailing winds reaching Baltimore and Washington passed over areas of Pennsylvania, West Virginia and Ohio where there is widespread drilling for gas."What we’re trying to do is wave a little flag," said Sheryl H. Ehrman, a co-author of the paper and chair of UM's chemical and biomolecular engineering department. "It looks like we’ve got a problem. I think we’ve got a regional issue."The study, which was underwritten in part by the Maryland Department of the Environment, comes as the Hogan administration mulls adopting regulations to allow hydraulic fracturing, commonly called "fracking," in western Maryland.

Fracking Wells Could Pollute The Air Hundreds Of Miles Away - Air pollution from hydraulic fracturing operations can likely travel hundreds of miles, even into states with little or no fracking, a new study has found. The study, published in the journal Atmospheric Environment, looked at hourly measurements of air pollutants like ethane and methane — gases that are found in natural gas — in Baltimore, Maryland and Washington, D.C. between 2010 and 2013. It found that ethane measurements increased by 30 percent between 2010 and 2013 in the region.  The researchers focused on ethane because they couldn’t find enough data for methane emissions during the time period, and ethane is the second-most abundant compound in natural gas. Ethane spikes in Maryland and D.C.’s air isn’t good news for residents of the region: when ethane is breathed in, it can cause nausea, headaches, and dizziness.  But Maryland doesn’t currently allow fracking — former Gov. Martin O’Malley didn’t propose fracking regulations until the end of his term, and the state didn’t have any fracking between 2010 and 2013. So the researchers compared the ethane data to natural gas production in neighboring states atop the Marcellus shale play, including West Virginia, Pennsylvania, and Ohio. By doing so, the researchers found that the ethane emissions they found in Maryland appeared to be coming from these neighboring states’ natural gas operations.  “As shale natural gas production continues to expand, this increasing trend will continue in downwind regions until more efficient control technologies are applied,” the authors write in the study.

The downside of “Drill, baby, drill!”—degraded North American ecosystems --  The number of oil and gas wells drilled within central Canada and central USA has continued to rise, with an average of 50,000 new wells per year since 2000. These wells bring economic benefits and expectations of at least a temporary energy security. However, the benefits also come with a downside: the potential loss or degradation of local ecosystems. Recently, a team of scientists explored this threat, providing the first empirical analysis of the consequences of drilling on our ecosystem. In their new study, high resolution satellite data of vegetation dynamics was combined with industry data and publicly available historical records of oil and gas well locations.  The team first investigated changes in the amount of carbon fixed by plants and then accumulated in biomass. Changes in this process were examined because carbon fixation and accumulation are fundamental to the life cycle on Earth. Analysis revealed that across central North America, oil and gas activity reduced the amount of carbon fixed and accumulated in biomass by ~4.5 Tg of carbon (equivalent to a month of forage for five million animals) or 10 Tg of dry biomass (equivalent to ~6 percent of wheat produced in the region in 2013). The reduction comes largely from the direct removal of vegetation due to construction of the drilling sites and necessary roads. This downward trend will likely persist with continued growth in oil and gas activities. Wildlife habitat and landscape connectivity are two other major ecosystem functions that the team looked at. They estimated that the land area occupied by oil and gas equipment from 2000-2013 is equivalent to the land area of three Yellowstone National Parks. The takeover of this much land can interfere with migratory pathways, alter wildlife behavior and mortality, and increase the likelihood of a disruptive and invasive species infiltrating the ecosystem.

Tar Sands Mining Coming to the Tennessee River Valley?  --  The Alabama Oil & Gas Board has been authorized by the state legislature to create regulations to allow for the strip mining of tar sands in North Alabama. The agency has stated that they will release a draft of these proposed regulations soon, along with a public notice and opportunity for a public hearing to comment on the rules. Tennessee Riverkeeper expects that the Oil & Gas Board will conduct at least one public hearing to solicit comments from concerned citizens and stakeholders, before it issues a final draft of the proposed regulations. No oil sands mining can be conducted in Alabama until The Alabama Oil & Gas Board establishes regulations. However, one local mineral exploration company has already purchased several thousand acres of pristine land in the Tennessee River Valley of northwest Alabama with the anticipation of commencing the mining operation once the necessary operational permits have been issued by the Oil & Gas Board. Companies, including MS Industries and Archer Petroleum, have plans to strip mine large areas of Northwest Alabama near the Tennessee River. Bituminous sands, or tar sands, or oil sands, are a type of unconventional petroleum deposit, that have only recently been considered to be a part of the world’s oil reserves. Tar sands extraction negatively affects the land, air, and water in communities near these mines. The mining of oil sands can release a grim litany of heavy metals including: arsenic, cadmium, chromium, lead, and mercury. The mining of oil sands can also release petroleum-based volatile organic compounds such as: benzene, toluene, ethylbenzene, and xylenes into local groundwater and surface streams.

Florida House passes fracking regulation bill — The House passed a bill Monday to study and regulate fracking, as well as prevent local governments from banning the oil and gas drilling practice. Democrats strongly opposed the bill, saying hydraulic fracturing would put the water supply at risk and the practice should instead be banned. But Republicans said fracking isn’t regulated right now and the bill would ensure that it’s done safely. “This bill puts safety and control mechanisms in order for us as the Legislature and the people of the state of Florida to know what’s being put in the ground,” said Republican Rep. Frank Artiles. “Your vote ‘no’ on this bill is going to allow fracking to go on as the wild, wild West.” . The bill would require the state to study the effects of fracking in Florida, particularly because of its unique geography. Proponents said fracking wouldn’t be allowed until after the study and until the Department of Environmental Protection writes rules for the industry.

Florida Joins Texas And Oklahoma In Attempt To Revoke Local Control Over Fracking --On Monday, the Florida House of Representatives passed a bill that calls for regulation over the fracking industry for the first time. But the bill doesn’t go far enough in protecting the state’s environment from fracking, environmental groups say, and it also severely limits local and regional control over the controversial practice. HB 1205, which has a Senate version scheduled for a hearing on Tuesday, would allow fracking to continue in the state after a study into the controversial process is completed and the the Florida Department of Environmental Protection (DEP) finishes its final rule-making. The bill does not regulate or require public disclosure of chemicals used in fracking wells that are low pressure or use less than 100,000 gallons of fluid, or in fracking-like extraction techniques such as acidization, which dissolves rather than fractures rock.  The section of the bill that lays out the “ban on fracking bans” language states that “to avoid unnecessary duplication, a county, municipality, or other political subdivision of the state may not adopt or establish programs to accomplish the purposes of this section.”  The bill, which passed 82-34 mostly along party lines, is the latest in a string of state-level legislation that purport to regulate the oil and gas industry but actually make it harder for cities and municipalities to take independent action on fracking. Lawmakers in Oklahoma and Texas recently passed legislation effectively banning local control over the oil and gas industry. Authorities and industry leaders in these states are worried that more municipalities might follow the lead of towns like Denton, Texas in instituting a ban on fracking within city limits.

Florida Says “NO” To Frackers — “Today, Florida state legislators responded to the growing movement of Florida voters who are standing up against fracking and the oil and gas industry. By killing two pro-fracking bills that would have allowed new dirty forms of fracking in Florida, and would have also barred local communities from enacting their own local fracking bans, legislators have protected Florida from the public health and environmental risks associated with drilling and fracking. “Just like in New York and Maryland, the science showing the dangers of fracking has won out over the powerful oil and gas lobby. A large coalition of grassroots groups devoted to fighting against fracking have once again showed that voters have a say in ensuring that fracking will not be allowed to contaminate our air, pollute our water, and harm our communities.”

Scientists are more certain than ever that oil and gas drilling are causing earthquakes (AP) — With the evidence coming in from one study after another, scientists are now more certain than ever that oil and gas drilling is causing hundreds upon hundreds of earthquakes across the U.S. So far, the quakes have been mostly small and have done little damage beyond cracking plaster, toppling bricks and rattling nerves. But seismologists warn that the shaking can dramatically increase the chances of bigger, more dangerous quakes. Up to now, the oil and gas industry has generally argued that any such link requires further study. But the rapidly mounting evidence could bring heavier regulation down on drillers and make it more difficult for them to get projects approved. The potential for man-made quakes "is an important and legitimate concern that must be taken very seriously by regulators and industry,"  A series of government and academic studies over the past few years — including at least two reports released this week alone — has added to the body of evidence implicating the U.S. drilling boom that has created a bounty of jobs and tax revenue over the past decade or so. On Thursday, the U.S. Geological Survey released the first comprehensive maps pinpointing more than a dozen areas in the central and eastern U.S. that have been jolted by quakes that the researchers said were triggered by drilling. The report said man-made quakes tied to industry operations have been on the rise. Scientists have mainly attributed the spike to the injection of wastewater deep underground, a practice they say can activate dormant faults. Only a few cases of shaking have been blamed on fracking, in which large volumes of water, sand and chemicals are pumped into rock formations to crack them open and free oil or gas.

Fracking is not the cause of quakes. The real problem is fracking’s wastewater - New earthquake hazard maps show that fracking’s byproducts are clearly to blame for recent swarms of earthquakes plaguing several states.  The maps highlight 17 hot spots where communities face a significantly increased risk of earthquakes, and the accompanying report links the earthquakes to injection wells used to dispose of fracking wastewater. Previous maps did not include earthquakes that are induced by human activities. “We consider induced seismicity to be primarily triggered by the disposal of wastewater into deep wells,” said Mark Petersen, chief of the National Seismic Hazard Project for the U.S. Geological Survey, which released the maps last week.  The earthquake hot spots include portions of Oklahoma, Kansas, Texas, Ohio, Arkansas, Alabama, Colorado and New Mexico. Until recently, many of these states were some of the places in the United States least likely to have an earthquake. But then high oil prices brought in companies eager to exploit ancient seabeds where oil and gas mingle with brine.Hydraulic fracturing, or fracking, extracts far more water from these underground oil-laden rocks than traditional drilling. Currently there is no way to treat, store and release the billions of gallons of wastewater at the surface. Instead, drillers pump the fluid back underground, below groundwater, into wells where it sometimes triggers earthquakes. For instance, in Oklahoma, state records show that companies injected more than 1.1 billion barrels of wastewater into the ground in 2013, the most recent year for which data is available. The following year, Oklahoma had more magnitude-3 earthquakes than California did. The quakes clustered around wastewater injection wells. Oklahoma’s current earthquake rate is now 600 times higher than its pre-fracking rate, which was based on the state’s natural seismicity, the state geological survey said.

Could a Kentucky fracking boom bring quakes?: With Kentucky making a bid for its own fracking boom, the U.S. Geological Survey this week came out with a new study showing the federal agency's scientists are more convinced than ever that drilling waste disposal is causing lots of earthquakes in the central and eastern United States. Oklahoma has in recent years become the earthquake capitol of the United States - not California. Go figure. And scientists are doing just that. The USGS study comes as the Kentucky Geological Survey has been casting a wider net to study any potential induced-earthquakes from oil and gas drilling in eastern Kentucky. So far, the KGS says, there have been no known induced earthquakes attributed to oil and gas drilling -- yet, anyway.

USGS Man made Earthquakes Up 4 000 Percent in NM - Man-made earthquakes in New Mexico, linked to oil and gas exploration, have increased by about 4,000 percent in recent years, according to a new report from the U.S. Geological Survey.  Robert Williams, a geophysicist with the USGS, explains how the millions of gallons of water extracted with oil and gas, and then returned underground through disposal wells, appear to be causing the instability that leads to more earthquakes. "When you inject that water back into a different location in the earth, you're changing the stress conditions of the rocks," says Williams. "It can lead to changes and stresses on the fault, and weaken those forces holding the fault together, which can then cause an earthquake." In the first 13 years of this century, Williams says there were 16 earthquakes measured at magnitude 3.8 in New Mexico compared to only one quake of that size in the preceding 32 years. He says the major spike in quake activity began in 2009, and mirrors major growth in oil and gas development. Williams says the USGS will use its research to help in future forecasting of earthquakes.The report also notes major man-made earthquake increases in Alabama, Arkansas, Colorado, Kansas, Ohio, Oklahoma, and Texas. Williams says last year, Oklahoma, the most active of the states for the first time ever, had more quakes of 'magnitude three' and higher, than California. "For Oklahoma in 2014, there were 585 earthquakes magnitude three and greater," he says. "California had about 200 of that size."

Frack-Happy Texas Shuts Down Earthquake-Prone Injection Wells - Texas is not known for using caution when it comes to oil and gas development. Fracking has swept the state like a hurricane, despite attempts by some environmental and community activists. So it’s kind of startling to hear that the conservative Texas Railroad Commission, which oversees oil and gas operations and has generally been very cordial toward them, has ordered companies operating two wastewater injection wells in Azle, just northwest of Fort Worth, to justify keeping their wells open. The commission has ordered four “show cause” hearings in June, where well operators must show why their permits should not be canceled. It follows a report last week by a team of researchers from Southern Methodist University (SMU) saying that a swarm of earthquakes in the area in November and December 2013, including two magnitude 3.6 quakes, was likely caused by the injection wells activating fault lines millions of years old. The area had previously experienced no earthquakes. According to the Dallas Morning News, “The Azle study is one of the most in-depth investigations of a Texas earthquake swarm. While earlier reports have linked quakes with wastewater wells based largely on timing and proximity, [study lead author Matthew] Hornbach and his colleagues sought to gain a clearer understanding of what was happening along the faults.”

Saying Mean Things About Fracking Can Get You Sued, Because Texas - The Texas Supreme Court ruled that an oil and gas company can go ahead and sue an anti-fracking activist for defamation, because of course it did. Steve Lipsky is the Parker County homeowner famous for being able to light his water on fire after Range Resources started fracking near his property. He's been very outspoken about his flammable water on Facebook, in the media, the Gasland films and in a civil suit he filed against Range in 2011. His case got tossed and the company counter-sued Lipsky and his wife for $3 million, accusing him of defamation. Lipsky filed a motion to dismiss the suit, but the Texas Supreme Court just ruled that nope, sorry, the case against Lipsky can go forward. In an opinion delivered Friday, Justice John P. Devine wrote that "homeowner Steve Lipsky has portrayed Range as incompetent, even reckless, as a gas producer, thereby injuring the company's reputation."  Sure, there's scientific evidence suggesting that Lipksy's portrayal of Range is a least somewhat justified. But in this lawsuit, Range is the real victim. As Justice Devine explains: Environmental responsibility is an attribute particularly important to those in the energy industry -- none more so than natural gas producers, such as Range, who employ horizontal drilling and hydraulic fracturing in their business. Accusations that Range's fracking operations contaminated the aquifer thus adversely affect the perception of Range's fitness and abilities as a natural gas producer. Sure, Range didn't offer a whole lot of proof that Lipsky's activism actually hurt the company's business, the court acknowledged, but it offered enough to satisfy the court.

UT Poll says Americans back fracking bans by cities -- A majority of Americans and Texans support allowing cities to ban hydraulic fracturing, even if state law otherwise permits it, according to a national online poll released Wednesday by the University of Texas at Austin. The UT Energy poll shows that 58 percent of the people surveyed nationally support giving cities the authority to adopt bans like the one passed by Denton in November and that 53 percent of the Texans participating in the poll support giving city’s that power. In the poll, 25 percent nationally and in Texas disagreed that city’s should be allowed to ban the controversial drilling practice. The poll comes at a time when state lawmakers are seeking to keep other cities from copying efforts like the one mounted in Denton to ban hydraulic fracturing, or “fracking.” “At present, it appears a large majority of Americans think cities should have the right to decide if they want to ban fracking locally,” said UT Energy Poll Director Sheril? Kirshenbaum. The poll surveyed 2,078 people from across the country and has a margin of error of 3 percentage points. The poll also reported that only 44 percent nationally said they were familiar with fracking, and that based on what they knew that 44 percent were against it while 42 percent voiced their support.

Service companies keep cutting as rigs keep falling -- Permian Basin producers again dropped drilling rigs this week, Baker Hughes reported Friday, as service companies announced another round of job cuts. Baker Hughes counted 12 fewer rigs in the Permian Basin, leaving 246 drilling for oil and gas in the region. About 74 percent drill horizontal wells as producers focus on core areas. Nationally, the oil and gas rig count fell by 22 to 932 rigs. Some observers expect the downward march to continue. The regional benchmark Plains-West Texas Intermediate oil price rallied this week — ending Friday at $53.75 per barrel. But it remains less than half the price of last summer amid concerns of oversupply and weak demand. And the largest oilfield services companies continue to lay off thousands more employees in what analysts considered a precursor to layoffs among their smaller competitors. Oilfield services companies are some of Odessa’s top private employers. “The Permian is definitely seeing major rig count reductions and major reductions in both drilling and completion,” said Chris Robart, a managing director with IHS Energy in Houston. “So you are going to see that coming down, the layoffs, in addition to what you are seeing.”

OU researchers must look into better ways of producing oil and natural gas - Editorials - Oklahoma is a state built on oil: in 2013 Oklahoma ranked fifth in the country in crude oil production and accounted for 7.1 percent of gross natural gas production. In fact, the U.S. oil industry has grown rapidly in recent years with the adoption of extraction methods that make it easier to remove oil and gas. But Oklahoma’s increased reliance on oil and gas production has coincided with an unnatural spike in earthquakes occurring across the state. The Oklahoma Geological Survey released its “Statement on Oklahoma Seismicity” on Tuesday that attributes extraction methods involving the injection of wastewater in disposal wells as the likely cause of the majority of recent earthquakes in Oklahoma. As one of the nation’s premier research universities, we call on OU to research the environmental impacts of wastewater injection in the production of oil and gas. We know Oklahoma depends on the oil industry and we know oil and natural gas companies are some of the largest recruiters of OU grads. However, the popularity of petroleum engineering and energy management majors at OU should not hold OU researchers back from investigating. Extraction methods involving the injection of produced water in disposal wells have made oil and gas more readily accessible, but at an apparent high environmental cost. Produced water is “naturally occurring water within the Earth that is often high in salinity and coexists with oil and gas in the subsurface,” according to the Oklahoma Geological Survey report. We implore OU researchers to look into less environmentally traumatic ways to produce oil and gas. We have no illusions that Oklahoma or the U.S. will end its dependence on oil and natural gas anytime soon, but we cannot sit idly by as multiple earthquakes occur daily in our state.

Could Fracking Spark a Modern-Day Dust Bowl? » Oil wells and natural gas may have made individual Americans rich, but they have impoverished the great plains of North America, according to new research.. Fossil fuel prospectors have sunk 50,000 new wells a year since 2000 in three Canadian provinces and 11 U.S. states, and have damaged the foundation of all economic growth: net primary production—otherwise known as biomass, or vegetation.  Brady Allred, assistant professor of rangeland ecology at the University of Montana’s College of Forestry and Conservation, and colleagues write in the journal Science that they combined years of high-resolution satellite data with information from industry and public records to track the impact of oil drilling on natural and crop growth. They conclude that the vegetation lost or removed by the expansion of the oil and gas business between 2000 and 2012 added up to 10 million tonnes of dry vegetation, or 4.5 million tonnes of carbon that otherwise would have been removed from the atmosphere. Put another way, this loss amounted to the equivalent of fodder for five million cattle for one month from the rangelands, and 120 million bushels of wheat from the croplands. This wheat equivalent, they point out, adds up to the equivalent of 13 percent of the wheat exported by the U.S. in 2013.

Oil, gas spill report for April 27 -  The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Kerr McGee Oil & Gas Onshore LP reported on April 6 that an active mud tank was overfilled, resulting in a water-based drilling backflow outside of Erie. It is approximated that eight barrels of water-based drilling mud released onto the well pad containment. Kerr McGee Oil & Gas Onshore LP reported on April 6 that in the process of transferring liquids, a vertical tank overflowed due to a manifold valve that washed out. It is approximated that 13 barrels of water-based drilling fluid released onto the well pad containment. Kerr McGee Oil & Gas Onshore LP reported on April 10 that during plugging and abandonment procedures, hydrocarbon impacts were discovered beneath the produced water sump outside of Fort Lupton. It is unknown the amount of condensate spill and produced water that released, but it is approximated to have been less than five barrels.  DCP Midstream LP reported on April 13 that upon the investigation of a leaky valve it was found that soil contained a release of condensate, outside of Longmont. It is approximated that more than a barrel of condensate released throughout the soil.Foundation Energy Management LLC reported on April 16 that leak developed in the stuffer box, outside of Briggsdale. The leak was discovered by a pumper and it was approximated that one barrel of oil spilled.   Kerr McGee Gathering LLC reported on April 16 that during repairs and maintenance historical impacts were discovered outside of Erie. It is approximated that more than one barrel of condensate spilled. Roughly 300 cubic yards of impacted material was removed for disposal at a landfill. Kerr McGee Oil & Gas Onshore LP reported on April 17 that during the deconstruction of a tank battery, a historical petroleum hydrocarbon was encountered beneath the water sump, outside of Platteville. It is unknown the amount of condensate and produced water that was spilled, but it was approximated to be more than one barrel. Whiting Oil & Gas Corp. reported on April 20 a tank overflowed causing a release of produced water, outside of New Raymer. It is approximated that more than five barrels, but less than 100 barrels, of produced water spilled. NGL Water Solutions DJ LLC reported on April 20 that a lightning strike caused the loss of a tank battery, outside of Greeley. It is approximated that less than five barrels of produced water spilled. The facility was shut in an there were no injuries.

Mapping the Dangers of Fracking - Did you know that about 20 percent of U.S. oil and gas reserves and resources are beneath federal public lands? Some of these public lands are next to our most beautiful national parks, including Glacier National Park in Montana, or national forests like George Washington and Jefferson National Forests in Virginia and Shawnee National Forest in Illinois, to name a few. But it can be hard to visualize the scope of the danger that fracking poses to our public lands. That’s why Food & Water Watch created a map to help illustrate the vast span of public lands across America, and illuminate where Big Oil and Gas corporations aim to drill and frack through it.The yellow areas are U.S. federal lands. The red areas in the map are where—given inconsistent data—there are oil and gas deposits. Lands in red are where there’s already been a wave of drilling and fracking for oil and gas, or where companies envision fracking before long. The overlapping orange areas are public lands that are either being fracked now, or could be soon. Check out the blue pins to learn about specific public lands and how they’re at risk from fracking. Fracking on public lands such as these is dangerous on many levels: it introduces toxic chemicals to water; it disrupts the habitats of millions of animals, including endangered species; it poses serious risks to human health, such as breast cancer; and it spurs on climate change. The production of oil and natural gas in 2013 from federal public lands led to more than 292 million tons of carbon-dioxide equivalent greenhouse gas emissions, or about what 61 million cars emit in a year.

Idaho creates new laws and rules for oil and gas industry — Idaho is just weeks away from getting a new title: oil- and gas-producing state. Lawmakers and regulators for the last four years have been trying to prepare and earlier this year approved a bevy of laws and rules to keep up with the nascent industry made possible in Idaho with new technologies. Idaho Department of Lands Director Tom Schultz says the state is now similar to other oil and gas states when it comes to fees and operational regulations. Laws passed in 2015 requested by the state agency include making production records public, setting rules for cooperation among companies developing the same pool and setting application fees to cover the state’s cost. Industry-proposed bills also passed. One gives state officials the option to exclude federal lands from a drilling unit.

New federal fracking rules are insufficient, Slocum says - – A new federal rule doesn’t go far enough to protect the environment from the dangers of fracking, Tyson Slocum, director of Public Citizen’s Energy Program, said today. The rule requires companies to disclose most of the chemicals used in the fracking injection process to a website controlled by industry, and requires most fracking waste fluids to be stored in covered metal containers instead of open pits. This rule applies only to fracking on federal lands, which represents just 11 percent of all fracking in the United States.  “The new standards could hardly be more accommodating to the fracking industry, yet the industry is hyperventilating over a handful of woefully inadequate and incomplete disclosure requirements,” said Slocum. Here’s what the rule should say, according to Public Citizen:

  • All chemicals should be disclosed prior to injection with no exceptions for proprietary claims, and they should be posted on a website controlled by the federal government, not the fracking industry.
  • Fracking companies should have to certify that injecting chemicals into the ground won’t contaminate the local water supply.
  • Fracking fluids should be recycled. Companies that use them should be required to process and purify the fracking waste fluids.
  • Companies should be required to conduct seismic surveys prior to drilling and injecting wastewater into the ground. Recent studies have linked wastewater wells to earthquakes.
  • Companies should be required to ensure maximum containment of methane leaks at wellheads. Methane is a greenhouse gas that is 87 times more polluting than carbon dioxide.
  • Any company fracking on federal land should be prohibited from entering into confidential nondisclosure agreements with any party harmed by the fracking process.

2 injured in Wyoming oil facility explosion, fire -— Two workers are injured in an explosion and fire at an oil facility in Converse County. The blast happened just before noon Friday at the Chesapeake Energy facility about four miles north of Douglas. Rob Black with the state Department of Workforce Services says two contractors with Susquehanna Services were pumping fluid out of containers at the time. Black says one worker was life-flighted to a hospital with burns and the other was hospitalized with as-yet unknown injuries. The workers’ identities and conditions weren’t immediately available. Firefighters put out the fire while the workers were evacuated. Sheriff’s officials say state and local officials are investigating. The area around Douglas has seen heavy oil drilling in recent years.

North Dakota: Death Trap? - For the third year in a row, people died on the job in North Dakota than any other state in2015, The Guardian reports. According to an annual report from union federation AFL-CIO, 14.9 fatalities occurred per 100,000 workers—four times the national average and double the amount of work-related deaths in 2007.The death toll is especially concentrated in the energy industry and construction, the report said:The fatality rate in the mining and oil and gas extraction sector in North Dakota was an alarming 84.7 per 100,000, nearly seven times the national fatality rate of 12.4 per 100.000 in this industry; and the construction sector fatality rate in North Dakota was 44.1 per 100,000, more than four times the national fatality rate of 9.7 per 100,000. Other states topping the list of deadliest workforces include Wyoming at 9.5 deaths per 100,000, West Virginia with 8.6 deaths per 100,000, Alaska with 7.9 deaths per 100,000 and New Mexico at 6.7 per 100,000.

North Dakota Legislature OKs state-run rail safety program — The North Dakota Legislature on Monday approved funding for a state-run rail safety pilot program intended to supplement federal oversight of oil train traffic. A House-Senate conference committee had been deadlocked for several days about the proposal, but finally decided to resolve differences and fund the $523,000 program that includes two rail safety inspectors. Senators voted 47-0 to adopt the conference committee compromise Monday, while the House endorsed it 85-4 hours later. The program is part of the Public Service Commission’s $22.2 million budget. The Public Service Commission had requested $972,000 in the next two-year budget cycle to fund the program consisting of 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 to help prevent oil train accidents, like one in his hometown of Casselton that left an ominous cloud over the city and led some residents to evacuate. But House budget writers stripped the funding earlier this month, with many Republicans saying it’s not needed and that it duplicates the federal government’s efforts.

Recent oil train crashes in the US and Canada - Sweeping regulations to boost the safety of trains transporting crude oil, ethanol and other flammable liquids were announced Friday by U.S. and Canadian officials. The long-awaited regulations are a response to a series of oil train accidents in both countries over the last few years that have resulted in spectacular fires that burned for days. Here are some of those accidents:

  • — July 5, 2013: A runaway Montreal, Maine & Atlantic Railway train that had been left unattended derailed, spilling oil and catching fire inside the town of Lac-Megantic in Quebec. Forty-seven people were killed and 30 buildings burned in the town’s center. About 1.6 million gallons of oil was spilled. The oil was being transported from the Bakken region of North Dakota, the heart of an oil fracking boom, to a refinery in Canada.
  • — Nov. 8, 2013: An oil train from North Dakota derailed and exploded near Aliceville, Alabama. There were no deaths but an estimated 749,000 gallons of oil spilled from 26 tanker cars.
  • — Dec. 30, 2013: A fire engulfed tank cars loaded with oil on a Burlington Northern-Santa Fe train after a collision about a mile from Casselton, North Dakota. No one was injured, but more than 2,000 residents were evacuated as emergency responders struggled with the intense fire.
  • — Jan. 7, 2014: A 122-car Canadian National Railway train derailed in New Brunswick, Canada. Three cars containing propane and one car transporting crude oil from Western Canada exploded after the derailment, creating intense fires that burned for days. About 150 residents of nearby Plaster Rock were evacuated.
  • — Jan. 20, 2014: Seven CSX train cars, six of them containing oil from the Bakken region, derailed on a bridge over the Schuylkill River in Philadelphia. The bridge is near the University of Pennsylvania, a highway and three hospitals. No oil was spilled and no one was injured. The train from Chicago was more than 100 cars long.
  • — April 30, 2014: Fifteen cars of a crude oil train derail in Lynchburg, Virginia, near a railside eatery and a pedestrian waterfront, sending flames and black plumes of smoke into the air. Nearly 30,000 gallons of oil were spilled into the James River.
  • — Feb. 14, 2015: A 100-car Canadian National Railway train hauling crude oil and petroleum distillates derailed in a remote part of Ontario, Canada. The blaze it ignited burned for days.
  • — Feb. 16, 2015: A 109-car CSX oil train derailed and caught fire near Mount Carbon, West Virginia, leaking oil into a Kanawha River tributary and burning a house to its foundation. The blaze burned for most of week.
  • — March 10, 2015: 21 cars of a 105-car Burlington Northern-Santa Fe train hauling oil from the Bakken region of North Dakota derailed about 3 miles outside Galena, Illinois, a town of about 3,000 in the state’s northwest corner.
  • — March 7, 2015: A 94-car Canadian National Railway crude oil train derailed about 3 miles outside the Northern Ontario town of Gogama. The resulting fire destroyed a bridge. The accident was only 23 miles from the Feb. 14th derailment.

Enbridge Energy seeks OK for replacement crude oil pipeline across northern Minnesota - Another proposed crude oil pipeline, along with another round of controversy, is coming to northern Minnesota. Pipeline operator Enbridge Energy on Friday asked state regulators for approval to build a $2.1 billion, 337-mile pipeline to replace a 1960s-era Line 3 pipeline. It carries crude oil from Canada to the Midwest, but has a history of ruptures. The Minnesota segment is part of a $7.5 billion project by the Calgary-based company to build a new 36-inch diameter line from Hardisty, Alberta, to Superior, Wis., where Enbridge has a terminal and connections to pipelines serving the Midwest, Gulf Coast and eastern Canada. Like Enbridge’s other big Minnesota pipeline project — the proposed Sandpiper from North Dakota — the Line 3 replacement would pass through Clearbrook, Minn., site of two oil terminals, then turn southeast toward Park Rapids, and finally east to Superior. Although the two lines are on the same route, Enbridge is required to get a separate route permit for Line 3, along with a certificate of need. Earlier this month, an administrative judge concluded that the Sandpiper project is needed. Now that same kind of review — with hearings across the state and reams of written filings — starts for Line 3. The process will take months. In lengthy filings with the state Public Utilities Commission, Enbridge said that growth in western Canada’s crude oil production over the next 15 years will quickly fill the new, expanded Line 3. The company wants to begin construction next year, and finish in 2017. An analysis for Enbridge by consulting firm Muse Stancil said that Canada’s National Energy Board projects a 2.1 million barrel per day increase in production from Alberta’s oil sands by 2030. Enbridge’s Line 3 replacement would carry 760,000 barrels per day.

Traders alarmed oil glut is a strain on West Texas storage tanks (Reuters) – Four-hundred miles from the near overflowing tanks at the U.S. oil hub in Cushing, Oklahoma, a second glut in the Permian Basin of West Texas is pressuring oil prices once again as pipeline disruptions strand millions of barrels in the region. The Permian, the fastest-growing shale play, accounts for about a fifth of the country’s total oil production, and is expected to produce about 2 million barrels of crude a day in May. The region houses over 20 million barrels of crude storage. Stockpiles in the Permian have hit several records in the last four weeks, according to data from industry information provider Genscape. Investors have zeroed in on storage, waiting for declines in weekly inventory data to signal demand is rising or production is beginning to taper off. Stockpiles in Cushing, the delivery point for the U.S. futures contract, hit a record in the week to March 13, and Gulf Coast supply has been robust. Now a Permian backlog shows signs of an even bigger supply glut. Pipeline interruptions next month will compound already high inventories in the region that have grown because production has outpaced takeaway capacity. Crude from the Permian that gets stored in Midland, Texas, awaiting transport to the Gulf Coast, will be diverted to Cushing, where it will add to burgeoning supplies, possibly putting even more downward pressure on crude prices, traders said.

Eagle Ford condensate finds a way out of the country  - The push for exports is about to have a new leader in Eagle Ford as a report from Argus Media claimed that Cheniere Energy will become the first major LNG exporter in the lower 48. In addition, the company plans to also export US condensates from its operations in Corpus Christi, Texas. According to the report, the Houston-based company figures that by 2017, it will begin exporting 200,000 b/d of condensates from its planned greenfield LNG export terminal. The project has a price tag of roughly $1 billion. Cheniere also stated that the capacity could be expanded to 1 million b/d which would move the cost of the facility up to $2 billion. The condensate exports are expected to target Asian markets by arbitraging the WTI-Brent spread. Exports have been the talk of the industry for months now. Late last year, the Commerce Department’s Bureau of Industry and Security, which is the main U.S. export authority, informally encouraged some oil companies to consider exporting the lightly processed form of crude oil called condensate. In November of last year, BHP Billiton Ltd became the first company to announce it would export lightly processed ultra-light U.S. oil without explicit permission from the government. According to Reuters, BHP said it was on firm legal footing because its product was similar to what the agency had already blessed for other companies in a landmark ruling earlier in 2014. Regardless of what these new export ventures mean for the comfort of government abiding exports, it’s all good news for the Eagle Ford Shale play. Cheniere’s condensate products will almost exclusively come from the South Texas fields. Texas Railroad Commissioner Christi Craddick recently gave her support for exports, highlighting the benefits Texas oil and gas production could gain.

U.S. and Canada ready with oil train safety plan – The United States and Canada are expected to present a cross-border plan on Friday to make oil train deliveries safer. For a link to U.S. enforcement actions concerning oil trains, click here. Below is a list of major oil train concerns, past efforts to fix the problem and final measures expected to be announced on Friday.

  • Most existing tankers have 7/16th-inch steel frames
  • Future models are expected to require 9/16th-inch frames plus an additional protective jacket
  • New models will also have hardened fittings and other safety features
  • The retirement plan for existing tankers is not yet known
  • March 11, Canada Transport Minister Lisa Raitt said some existing tankers should be allowed to stay in service through 2025
  • March 24, oil industry executives asked the White House to endorse a retirement schedule longer than a decade
  • April 3, the National Transportation Safety Board suggested a five-year plan for retiring older tank cars
  • Federal regulators are not expected to curb volatility of crude oil train cargo
  • April 1, North Dakota limits vapor pressure for oil train crude to 13.7 pounds per square inch
  • February 2014, three oil companies were fined $93,000 for wrongly classifying their cargo
  • Besides those sanctions, federal officials have not mandated controls on volatility
  • A U.S. Energy Department study of volatility is at least many months from completion

The New Keystone XL Pipeline: Jordan Cove -- A quiet cove at the edge of the Pacific Ocean is heir apparent to the raging debate over the Keystone XL pipeline. With a massive natural gas terminal and its own power plant, the pipeline that’s proposed to end at Coos Bay is slated as one of the next lavish investments in our nation’s continuing commitment to fossil fuels that propel the climate crisis.   Forget the compelling mantra of “energy independence.” That goal has driven the engine of mining, drilling and pumping across the coal, oil and gas fields of America ever since the Arab oil embargo of 1973. Who would disagree that we should be less-dependent on foreign oil? It drains our balance of payments, precipitates wars, and feeds the specter of terrorism. For energy independence, we sacrificed American landscapes, waterways, and communities from permafrost at Prudhoe Bay to BP blowouts on the Gulf Coast, not to mention the scourge of Appalachian mountaintop removal and the fracking of gas in pockmarked well-fields poisoning groundwater from Colorado to Pennsylvania.  But now, in a move that could define the phrase “bait-and-switch,” the mantra is “export” by corporations that will profit more by selling home-grown fuel abroad than by selling it here. For export at Jordan Cove we would slice a pipeline swath through whole mountain ranges and enclaves of ancient forests for 230 miles from the West’s interior drylands to the Pacific. Crossings will put 400 streams at risk including Oregonians’ cherished waters of the Klamath, Umpqua, Coquille and Rogue Rivers—all vital to endangered salmon and steelhead trout. Coos Bay fingers through more acreage than any other West Coast estuary between the Columbia River and San Francisco. Water here pulses with Pacific tides that nourish commercial and sport fisheries renowned for generations, but 5.6 million cubic yards would be dredged from those rich waters and fertile wetlands for the berth of one gas-tanker alone. It’s a lot to give up so that the industrial-military engine of China can thrive.

Oil-Fund Outflows Bode Ill for Prices - WSJ: Money is pouring out of a popular investment tied to the oil market, a sign that a monthlong crude-price rally may be running out of gas. Exchange-traded funds that invest in U.S. oil futures, including the $3.1 billion United States Oil Fund USO -0.46 % LP, have registered about $2.7 billion of investor outflows this month, according to investment bank Macquarie Group Ltd. MQG 0.66 % That reverses an inflow that started in January as oil prices tumbled. These ETFs took in roughly $6 billion this year through mid-March, when the U.S. oil benchmark hit a six-year low, according to Macquarie. Traders and analysts are closely watching weekly production and demand data for signs that the global glut of crude oil that sent prices swooning last year may be shrinking. They are also watching the ETF trends closely, because they say crude prices are vulnerable to a pullback following a 32% run-up since March 17. ETF buying “created a bottom in March,” said Olivier Jakob, managing director of Swiss consulting firm Petromatrix GmbH. If investors “all exit at the same time, then it will also put pressure on the market.” A renewed drop in oil prices could inject fresh uncertainty into global markets. Last year’s plunge upended economic forecasts, government budgets and corporate earnings as oil producers struggled to stay afloat and consumers pocketed fuel savings. Crude prices on the New York Mercantile Exchange remain more than 45% below their June 2014 high, settling Friday at $57.15 a barrel, and global markets are watching for signs that the market has bottomed.

A Rundown Of The EIA’s Latest Energy Predictions -- Last week the U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2015 (AEO2015). The report presents updated projections for U.S. energy markets through 2040 based on six cases, defined as follows:

  • 1. Reference — Real gross domestic product (GDP) grows at an average annual rate of 2.4% from 2013 to 2040. North Sea Brent crude oil prices rise to $141/barrel (bbl) (2013 dollars) in 2040.
  • 2. Low Economic Growth — Real GDP grows at an average annual rate of 1.8% from 2013 to 2040. Other energy market assumptions are the same as in the Reference case.
  • 3. High Economic Growth — Real GDP grows at an average annual rate of 2.9% from 2013 to 2040. Other energy market assumptions are the same as in the Reference case.
  • 4. Low Oil Price — Light, sweet (Brent) crude oil prices remain around $52/bbl (2013 dollars) through 2017, and then rise slowly to $76/bbl in 2040 while OPEC increases its liquids market share from 40% in 2013 to 51% in 2040
  • 5. High Oil Price — Brent crude oil prices rise to $252/bbl (2013 dollars) in 2040 while OPEC’s market share declines to 32%.
  • 6. High Oil and Gas Resource — Estimated ultimate recovery (EUR) per shale gas, tight gas, and tight oil well is 50% higher and well spacing is 50% closer than in the Reference case. Tight oil resources are added to reflect new plays or the expansion of known tight oil plays, and the EUR for tight and shale wells increases by 1%/year more than the annual increase in the Reference case to reflect additional technology improvements.

U.S. crude stocks build less than expected as Cushing draws - EIA – U.S. crude inventories rose last week to hit a record high for the 16th straight week but the build was smaller than expected as supplies at the Cushing, Oklahoma, oil hub declined for the first time since November, data from the Energy Information Administration (EIA) showed on Wednesday. Crude stockpiles rose 1.9 million barrels to 490.91 million in the week to April 24, compared with analysts’ expectations for an increase of 2.3 million barrels. Crude stocks at Cushing, the delivery point for U.S. crude futures, fell 514,000 barrels, the EIA said. The decline at Cushing was the first since Nov. 28, according to EIA data. U.S. crude for June delivery extended gains after the EIA report and was up $1.40 at $58.46 a barrel at 11:05 a.m. EDT (1505 GMT), after posting a fresh 2015 peak at $58.55. Brent June crude was up $1.06 at $65.70, having reached a 2015 peak at $65.92. Industry group the American Petroleum Institute (API) reported a crude build of 4.2 million barrels on Tuesday. “The under 2 million-barrel build is less than half of what the API had prepped the market for, so not surprisingly we’re getting higher price action here,”

Crude Spikes After First Cushing Inventory Draw Since November (charts) For the first time since November 2014, Cushing saw an inventory decline (-514k) last week. This has promopted a spike up to yesterday's highs in WTI Crude. The total inventgory build was 1.9mm bbl (less than the expected 3.2mm bbl) but continues the record streak to 16 weeks. Cushing "Draw"... But total inventories rose for the 16th week in a row... WTI shot up to run yesterday's stops near $58...

U.S. shale firms revive hedging as oil rebounds, may vex OPEC -- U.S. oil producers are rushing to take advantage of the rebound in oil markets by locking in prices for next year and beyond, safeguarding future supplies and possibly paving the way for a rebound in production. The flurry of hedging activity in the past month will help sustain producers’ revenues even if oil markets tumble again, which is bad news for OPEC nations, such as Saudi Arabia, that are counting on low prices to stunt the rapid rise of U.S. shale and other competitors. Oil drillers are racing to buy protection for 2016 and 2017 in the form of three-way collars and other options, according to four market sources familiar with the money flows. In some cases, that means guaranteeing a price of no less than $45 a barrel while capping potential revenues at $70. U.S. crude futures traded just below $60 a barrel on Thursday.  Pioneer is considering hedging out to 2017, chief executive Scott Sheffield told Reuters. The company says it may add more rigs in the Permian Basin this summer and has already hedged 90 percent of this year’s production and 60 percent for 2016. “You can do pretty decent three-ways, but you don’t want to give up a bunch of upside,” Sheffield said last week. A three-way collar involves buying a put option, which sets a floor for prices and selling a call option at a higher strike price, which caps gains in case of a rally but yields income that serves to offset the cost of the put options. In addition, the company sells another out-of-the-money put as well, which lowers the overall cost of the transaction but exposes the producer to greater risk if prices drop too low.

US oil and natural gas rig count drops by 27 to 905 -   Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 27 this week to 905 amid depressed oil prices. Houston-based Baker Hughes said Friday that 679 rigs were seeking oil and 222 explored for natural gas. Four were listed as miscellaneous. A year ago, 1,854 rigs were active. Among major oil- and gas-producing states, Texas lost 13 rigs; Oklahoma lost seven; New Mexico and Pennsylvania were each down two; and Alaska, Arkansas, Kansas and Louisiana were each down one. North Dakota and Wyoming each gained one rig. California, Colorado, Ohio, Utah and West Virginia were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

Weekly US oil rig count falls by 24, marking 21 consecutive declines: US crude oil futures closed Friday's session down 48 cents at $59.15 per barrel after weekly data from oilfield services firm Baker Hughes showed U.S. drillers continued to draw down the number of rigs exploring for oil. The oil rig count fell by 24 to a total of 679, down from 1,527 at the same time last year. The report marked the 21st consecutive week that energy firms took more rigs offline than they added. Brent was down 37 cents at $66.42 a barrel by 2:38 p.m.  It rose to a 2015-peak of $66.93 on Thursday and increased 21 percent in April. West Texas Intermediate traded as high as $59.90 a barrel before settling. Read MoreTraders see crude oil going to $65—but not higher Oil prices eased off 2015 highs on Friday as the dollar strengthened and after Iraq said its crude oil exports hit a record in April. Brent and U.S. crude rallied between 20 and 25 percent in April, helped by a weaker dollar and bets that a global supply glut would ease, following the June-to-January sell-off that halved prices from above $100 a barrel. News that Iraq's oil exports rose in April to a record 3.08 million barrels per day from 2.98 million bpd in March served as a reminder of ample supply in the market.

Crude Bounces After Oil Rig Count Decline Slows - Oil prices have tumbled this morning ahead of the Baker Hughes rig count data but algos bounced them after the pace of oil rig count decline slowed further. For an unprecedented 21st week in a row, the US total rig count declined this week (down 27 to 905).  Oil rigs fell 24 to 679 for the fastest total collapse in rig counts in history (down over 57% in 21 weeks). This is a faster pace of decline than the previous week for total rigs but a slower pace of decline for oil rigs.

How Shale Is Becoming The Dot-Com Bubble Of The 21st Century - As I review the financials of one of the largest shale producers in the United States, Whiting Petroleum (WLL), I can’t help but notice the parallels to the .COM era of 1999 which, to some extent, has already returned to the technology and biotech sectors of today. Back then, the faster you burned cash to capture customers regardless of earnings to drive your topline, the higher your valuation. The theory was that after capturing the customers (in energy today, it is the wells) spending would slow and so would customer additions allowing companies to generate cash. By the way, a classic recent case is none other than Netflix (NFLX) which, in the past was exposed for accounting gimmicks that continue even today. It is still following this path of burning cash for the sake of customer additions, while never generating any cash in its entire existence.  Cash was plentiful in 1999 so it could always be raised as the Federal Reserve began its easy money era creating a series of bubbles for the next 15 years. Does this sound familiar to what is occurring now? It will end the same way and that process has already started as currency wars heat up and our economy grinds to a halt proving QE does not, in fact, create wealth (temporary yes for the 1%, short term, until POP) but instead it destroys it by distorting asset prices, misallocating investments, and ultimately creating an equity crash.We just witnessed this in energy, as all the economic stats that distorted the real underlying economic weakness in the economy led energy producers to overproduce while easy money fueled it and expanded speculation in the futures market. Back in 1999 did the internet companies adapt their business models? Some which still survive today did, but most went bankrupt. The parallels here with energy are simply stunning as most E&P companies need to spend well over their operational cash flow in order to not only grow but to replace the wells that are producing tied to depletion. Money is free right? Well we are witnessing the first stages now and it may not last, as junk bond investors in energy can attest.

Witnessing A Fundamental Change In The Oil Sector - The U.S. oil production decline has begun.It is not because of decreased rig count. It is because cash flow at current oil prices is too low to complete most wells being drilled.The implications are profound. Production will decline by several hundred thousand barrels per day before the effect of reduced rig count is fully seen. Unless oil prices rebound above $75 or $85 per barrel, the rig count won’t matter because there will not be enough money to complete more wells than are being completed today. Tight oil production in the Eagle Ford, Bakken and Permian basin plays declined approximately 111,000 barrels of oil per day in January. These declines are part of a systematic decrease in the number of new producing wells added since oil prices fell below $90 per barrel in October 2014 Deferred completions (drilled uncompleted wells) are not discretionary for most companies. Producers entered into long-term rig contracts assuming at least $90 oil prices. Lower prices result in substantially reduced cash flows. Capital is only available to fulfill contractual drilling commitments, basic costs of doing business, and to complete the best wells that come closest to breaking even at present oil prices.Much of the new capital from junk bonds and share offerings is being used to pay overhead and interest expense, and to pay down debt to avoid triggering loan covenant thresholds. Hedges help soften the blow of low oil prices for some companies but not enough to carry on business as usual when it comes to well completions. The decrease in well completions provides additional evidence that the true break-even price for tight oil plays is between $75 and $85 per barrel. The Eagle Ford Shale is the most attractive play with a break-even price of about $75 per barrel. Well completions averaged 312 per month from January through September 2014 when WTI averaged $100 per barrel (Figure 2). When oil prices dropped below $90 per barrel in October, November well completions fell to 214. As prices fell further, 169 new producing wells were added in December and only 118 in January.  Bakken break-even prices are higher at about $85 per barrel. Well completions averaged 189 per month from January through September 2014. In November, only 80 new producing wells were added. In December and January, 123 and 114 new wells were added, respectively. Orders for rail cars used to transport oil decreased by 70% in the first quarter of 2015 compared with the fourth quarter of 2014.

Low Oil Prices Could Destabilize Financial System -- Could the rising levels of debt in the oil industry contribute to destabilization in the financial system?The collapse in oil prices has forced drillers to turn to debt markets to keep their operations going. According to the Wall Street Journal, there has been $86.8 billion in new debt issued so far in 2015, a 10 percent increase over last year.  But that trend is not necessarily new. The oil industry has relied on debt for quite some time, but the dramatic fall in oil prices has put a bright spotlight on the practice. The Bank for International Settlements concluded in a March 2015 report that outstanding debt in the oil and gas sector has reached $2.5 trillion, a massive increase over the $1 trillion in debt in 2006. All of that debt could put extra pressure on companies to continue to produce flat out, as cash flows are critical to meet debt payments. Ironically, however, the incentive to continue to produce as much as possible could merely exacerbate the period of depressed oil prices. That could prevent oil markets from stabilizing. “[I]f the need to service debt delays a pullback in production, a lower price may act more slowly to balance supply and demand,” BIS concludes.  What is interesting is the willingness on behalf of Big Finance to lay out the cash for strapped companies. BIS finds that loose monetary policy since 2008 has contributed to the debt-fueled investment boom in oil and gas. Debt issuance in the oil and gas sector has increased by 15 percent per year since 2006, rising much faster than other sectors.

Poll: Oil prices to stay weak for at least a year -- Oil is likely to stay relatively weak for at least the next year, a Reuters poll forecast on Thursday, suggesting a slowdown in oil production in the United States will not be enough to offset a global supply glut. Reuters monthly survey of 32 analysts predicted North Sea Brent crude would average $60 a barrel in 2015, up 80 cents from the projection in last month’s survey. The North Sea crude oil benchmark has averaged around $56 a barrel so far this year. Brent prices collapsed to a low just above $45 in January from a high above $115 a barrel, and have recovered gradually over the last three months to trade close to $66 by Wednesday’s close. The price crash has forced some exploration companies to stop drilling for oil and the number of rigs operating in the United States has fallen for 20 weeks in a row to its lowest since 2010, data from oil services company Baker Hughes show. But global inventories are so high, with U.S. crude oil stockpiles at an all-time record, that the market will stay weak for some time, the Reuters poll forecasts. And U.S. oil production will be “more robust than expected,” Frank Klumpp, an analyst at LBBW, said. While a few analysts see crude output slipping in the second half of this year, most believe that ample supplies, and the chance of extra Iranian volumes hitting the market if sanctions are lifted mid-year, will keep prices under pressure.

Inching Toward Conflict: US Navy To Escort Cargo Ships In Persian Gulf; Iran Refuses To Back Down -- Moments ago there was yet another step up in the Persian Gulf naval escalation when CNN reported that the U.S. Navy will escort U.S.-flagged cargo ships through Strait of Hormuz in wake of Iran seizure this week, a US official says. Specifically, the Navy will henceforth accompany ships on concern that Iran’s Revolutionary Guard may seize them, CNN’s Jim Sciutto says in Twitter post, citing CNN’s Barbara Starr. It is unclear what happens if either the accompanied cargo ship, or the US Navy warship leaves international waters, and enters Iran territory, which as the Bab el-Mandeb Strait is virtually assured: a strait which as the following US Naval update map has become as busy for US traffic as the 405 Freeway during rush hour.

Saudi Arabia replaces crown prince in sweeping shake-up - Saudi Arabia’s King Salman bin Abdulaziz al-Saud has announced a sweeping shake-up that paves the way for a new generation of rulers in the world’s biggest oil producer. King Salman replaced crown prince Prince Muqrin, his half-brother, with Mohammed bin Nayef al-Saud, the king’s nephew who was previously deputy crown prince. The king’s son, Mohammed bin Salman, was named deputy crown prince, elevating the youthful defence minister and royal court chief to second in line to the throne. The king took power when his half-brother Abdullah died in January at a challenging time for the kingdom, with oil prices at record lows and rising Islamist extremism in the region. The sweeping reshuffle includes some rapid rises — and falls. The ailing King Abdullah chose Muqrin as second in line to the throne after Salman in March last year. Diplomats had previously speculated that Muqrin’s tenure would prove brief, but few foresaw such a swift defenestration to make way for other emerging forces within the family. Mohammed bin Nayef’s elevation to the post of crown prince makes him the first grandson of Ibn Saud to hold the position, a historic shift towards the new generation of princes at the next regal succession.

New Saudi King Consolidates Power To Maintain Current Oil Policy -- Less than four months into his reign, Bloomberg reports that Saudi Arabia’s King Salman is consolidating power with a major reshuffle of succession lines and government officials. "The new king has proved consistent in his determination to elevate members of his close family to key positions," noted one analyst. As the world’s top oil exporter plays a more prominent role in the region’s power struggles, it apears Salman wants family close. Oil policy is unlikely to change, notes Bloomberg's Julian Lee, as this brings younger men into top government positions, paving way for transfer of power to new generation of princes.

The great Saudi cash burn - There were those who said it would never happen. Then there were those who said it wouldn’t matter even if it did happen. And there were those who recognised Saudi Arabia was probably panicking about the prospect of a destabilising cash burn situation as soon as the term Saudi America became a thing.  But, as the FT reports on Friday, Saudi cash burn is now not only a big thing, it’s an accelerating big thing: The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz Al Saud dips into the rainy-day fund and increases domestic borrowing to fund public-sector salaries and large development projects.  Which speaks, err, literal volumes about the near-record amount of crude Saudi is currently pushing into the market. As JBC Energy reported today: JBC Energy’s assessment for OPEC crude output in April sees this having jumped to 30.9 million b/d, up 125,000 b/d from March. The uptick comes mostly due to higher Saudi Arabian production and a partial Libyan recovery, and thus brings the average of the last two months some 1.2 million b/d higher compared to Mar-Apr 2014. The very high levels of production in the world’s top crude exporter for March were not a one-off as the Kingdom continues to produce near record levels. The logical explanation is that Saudi Arabia is engaged in a race to the bottom with US shale producers, and is now prepared to throw everything it has at the market just to ensure it is the last man standing when everything settles down. Most would say the sheer size of reserves ($708bn) means the Kingdom has a good chance of achieving this objective in the long run. But, as Olivier Jakob of Petromatrix noted this week, we must also be conscious of the power shuffle going on within the Saudi leadership:

Why Are We Losing in the Middle East? Too Much STEM, Not Enough Humanities -- Science, technology, engineering and mathematics (STEM) are enriching in many ways, but a society whose higher education has been narrowed to those subjects is a society headed for trouble. Nowhere is this more glaringly true than in the case of America's response to Islamist terrorism since 9/11. American leaders might have avoided a series of horrific mistakes if they had relied a bit more on the humanities and a bit less on the STEM. The 9/11 attack occurred at a time when American confidence had never been higher in the superiority of our economy, our polity and our technologically-advanced military. Against all this, al Qaeda's killers brought only suicidal bravado, fanatical religion, organizational patience and ultra low-tech box cutters. In the aftermath, our national response was and remains heavily STEM-centered. At home, we have deployed advanced computer technology and the mathematics of big data processing to massively increase security surveillance of our own population. Abroad, we have combined surveillance technology with the engineering of drone aircraft in an attempt to defeat terrorism by killing off the key terrorists directly.  Meanwhile, what has been our response to the terrorists' suicidal bravado? We still do not have one. And what about the fanaticism of their version of Islam? We remain baffled. Part of the reason why is that answers to questions like these are never forthcoming from STEM-think. As we approach the fourteenth anniversary of the attack, despite our stupendous STEM advantage, we are far from victory in either Iraq or Afghanistan. Meanwhile, the terrorist enemy has successfully opened new fronts in Syria, Yemen, Kenya and Nigeria.

The great Chinese coal collapse - Many people are intrigued by official Chinese GDP growth dropping from 13% in 2007 to 7% now. This is better: official Chinese coal production growth fell from 12.7% in 2008 to (approximately) -3.5% in the first quarter of this year. It’s an economic and social sea change. Also a rare event: someone in DC (me) admits a mistake. Rapid Chinese coal production continued even after the financial crisis hit and some observers (me) then drew the conclusion it would slow only gradually. How wrong those poor saps were. Chinese coal output is publicized irregularly but state media report an industry estimate of a 2% drop in 2014. Then the faster fall from January through March this year. Of course, the trend could reverse again but its very existence constitutes a powerful change. Official data on coal are flawed but previously showed output more than quadrupling from 880 million tons in 2000 to 3.7 billion tons in 2013. Annual growth averaged 11% for 14 years and was close to 9%, on a huge base, as recently as 2011. While there’s no guarantee, it’s now possible Chinese coal production has peaked. Consumption, too – the first quarter saw a 42% plunge in import volume to 49 million tons, contributing to a 4.7% decline in domestic coal sales. The explanation is a long-term economic slowdown and the ecologically-driven policy and popular shift from coal as lifeblood to coal as undesirable. The policy shift – accepting high oil and gas import dependence and spending heavily on solar and wind — shows China can move quickly (talk of gradual reform is often cover for unwillingness to act).

Chinese energy figures suggest much slower growth than advertised -- Last year China reported the slowest economic growth in 24 years, about 7.4 percent. But the true figure may actually be much lower, and the evidence is buried in electricity figures which show just 3.8 percent growth in electricity consumption. David Fridley, a staff scientist in the China Energy Group at the Lawrence Berkeley National Laboratory, has been a longtime collaborator with the Chinese on energy management, efficiency and policy. Fridley, who has held Chinese energy-related jobs for 35 years, believes that electricity consumption in China is a better indicator of its economic growth.  Historically, electricity consumption and economic growth in China have been very closely linked. "From 2005 to 2013, the average elasticity of electricity demand was 1.09, meaning electricity demand was up about 1.09 percent for every percent rise in GDP," Fridley wrote in an email. "In 2014, that number fell to 0.51, the lowest in this 10-year period. During the economic crisis of 2008, it did fall below the average, to 0.60, but quickly rebounded to above 1." That tells Fridley that something is up. He's not the only one who thinks the government growth numbers aren't reliable. China's premier, Li Keqiang, has said China's GDP figures are "for reference only." Bloomberg reported that in a declassified U.S. diplomatic cable from 2007 then-U.S. ambassador Clark Randt related a dinner conversation with Li, secretary general of Liaoning Province at the time, in which Li revealed his preferred indicators of Chinese economic activity: rail cargo volume, loan disbursements and--wait for it--electricity consumption. China's leaders don't believe their own government growth numbers.

Guessing Game: China's "Real" GDP Growth Could Be As Low As 3.8% -  In “Ignore This Measure Of Global Liquidity At Your Own Risk” we pointed out that according to the very data points which Premier Li Keqiang himself prefers to examine for an indication of where the economy stands (electricity consumption, rail freight volume, and credit growth), China’s GDP growth is likely running far below the reported 7% figure. Here’s the visual:  Since then, the country has turned in a rather abysmal spate of data including a 15% decline in exports, the lowest Y/Y industrial production growth since 2008, astonishingly low rail freight volumes, and, at the aggregate level, the worst GDP growth in six yearsyears. Of course the reality of the situation is likely far worse as demand for steel (and by extension, iron ore) collapses on the back of Beijing’s attempt to transition the country towards a more service-based economy. Meanwhile, the “war on pollution” could hit industrial production hard going forward causing still more pain even as government options to fight the downturn are limited by a reluctance to devalue the yuan which, thanks to a strong dollar and unprecedented stimulus in Japan and Europe, has seen double-digit REER appreciation over the past year. What does all of this mean? Well, a lot of things including that Chinese QE may be inevitable (if it’s not already here), but from a GDP perspective it means that no one really knows what the real figures are, as a sharply decelerating economy makes the official numbers even more opaque than they were in the first place. Here’s WSJ with more: Efforts to discern China’s actual growth rate have kept economists pinned to their calculators for years, and for good reason. For one, the figures are suspiciously smooth, with none of the sharp gyrations seen in the U.S. or other economies. The methodology often appears inconsistent or contradictory. Then there are the many ways China’s GDP figures appear to clash with other data points considered more difficult to manipulate. Economists point to the discrepancy between headline GDP growth and industrial production, often seen as a proxy for growth, which grew by 5.6% year to year in March—its lowest level since late 2008.

Residential real estate in China: the delicate balance of supply and demand —When President Nixon and Chairman Mao shook hands in Beijing in 1972, only 17% of the 862 million Chinese lived in urban areas and the entire stock of housing was state owned. Today, more than half of China’s 1.4 billion residents live in cities, while 9 out of 10 households own their homes. Unsurprisingly, this housing revolution has brought with it a property price boom. Over the past decade, urban land prices have risen more than four-fold, with high flyers like Beijing surging by a factor of more than 10 (for the data, see here). Will China follow the same path the U.S. took in the last decade? Will China’s boom turn into a bust?  Because of the country’s scale, the answers to these questions matter greatly not just for China, but for the global economy as a whole. Today, China accounts for 13% of global GDP at market exchange rates (about 60% of U.S. nominal GDP). So, despite the recent slowdown in annual economic growth from 9% to about 7% annually, China remains the leading contributor to global expansion. In addition, swings in Chinese demand have become a principal determinant of global commodity prices. At home, construction drives a significant share of activity: China reportedly used more cement in the first three years of this decade (2011 to 2013) than the United States did in the entire 20th century! Real estate prices also matter for the health of China’s financial system: municipalities, which rely on land sales for revenues, borrow extensively from the shadow banking system to finance infrastructure investment.

China’s Central Bank Swoops to the Rescue - WSJ: China’s central bank is back again to save the day. Just don’t call it quantitative easing. The People’s Bank of China looks set to introduce new easing measures aimed at smoothing implementation of a local-government debt restructuring, The Wall Street Journal reported Tuesday. The aim is to encourage banks to buy new bonds issued by local governments. These bonds replace loans owed by local government financing vehicles, off-balance-sheet platforms set up by towns and provinces to get around restrictions on direct borrowing. The first wave of refinancing is under way, with an initial tranche of bonds worth 1 trillion yuan ($160 billion). The trouble is that the new bonds have longer duration and lower interest rates than the debt they replace, so banks are hardly keen to make the swap. Now the PBOC looks set to take up the burden itself. The PBOC would swap long-term loans for local government bonds now held by banks. This would give the banks added liquidity, and allow them to lend the money back into the real economy at a higher rate. Some have described the plan as China’s version of quantitative easing, but this is misleading. Quantitative easing involves outright purchases of bonds or other assets by central banks, with the aim of effecting a broad monetary easing and spurring economic growth.

China Rethinks Safety Net for Its Banking System - — When the United States started insuring customer deposits, the government wanted to instill faith in the country’s financial system, which had been broken by a string of bank runs and failures during the Great Depression.China wants to do the opposite.With the introduction of deposit insurance on Friday, Beijing is looking to shake the public’s faith, namely the long-held belief that the government will bail out troubled banks. In short, China is trying to introduce risk into the system.As China moves to restructure its state-run economy, such banking reform is considered critical. To help bolster consumer demand and wean itself off growth fueled by cheap credit, China needs banks to take a more market-driven approach. That means making smarter loans to companies and individuals — and accepting the consequences when they don’t work out.“The reality in China was that the deposits of the proletariat have always been de facto backed up by the central government,” said Jim Antos, a banking analyst in Hong Kong at Mizuho Securities Asia. Formal deposit insurance is “the first step in a process where maybe we can have some way to deal with the resolution of financial problems in banks in China, something like a bank failure.”

China may join the unconventional monetary club -- At the IMF/World Bank spring meetings in Washington a week ago, downside risks to the Chinese economy were discussed solemnly, but calmly. There was no mood of crisis, no feeling that a major dislocation in the economy or the financial sector was imminent. Meanwhile, the surge in Chinese equity prices so far this year hardly seems to indicate an impending recession. Yet there are signs of trouble ahead. Real interest rates and the real exchange rate have both been rising at a time when the domestic credit market is under stress. Deflation has taken hold in the real estate sector and in the over-supplied heavy manufacturing sector, where much of the troubled debt is to be found. And the most recent quarter has seen GDP growth dipping to its lowest level since the global financial shock. It is becoming apparent that a much larger easing in policy might be needed to head off a hard landing. Fortunately, this is now clearly underway. The underlying growth rate in the economy has now been slowing for many years as economic rebalancing takes effect. In the Fulcrum model for economic activity, the long run growth rate is estimated to have slowed gradually from 11.5 per cent in 2007 to 6.5 per cent now. This decline has been both inevitable and, to a large extent, desirable. As the graph below on the right shows, the model’s probability distribution for GDP growth in the 2015 calendar year has shifted markedly downwards, with a much increased statistical risk of a sub 6 per cent outcome – one definition of a hard landing in the Chinese context.

How the Yuan Could Win Reserve Currency Status Even if the U.S. Objects -  Washington’s veto-power at the International Monetary Fund may not apply when the executive board decides later this year whether to include the yuan in the elite basket of currencies that comprise the IMF’s emergency lending reserves. China’s bid to get its currency included in the IMF’s Strategic Drawing Rights, or SDR, has recently gained support from key U.S. allies as Beijing increasingly flexes its muscle in the global economy. The inclusion of the yuan in the SDR doesn’t mean the yuan will rival the dollar anytime soon. But it could accelerate the liberalization of China’s long-closed financial markets and boost demand for the yuan by the world’s central banks. It would also be a key step in projecting China’s growing economic power in the international economy. IMF officials already appear to be backing the move. Managing Director Christine Lagarde said in Beijing earlier this month it’s more a matter of when than if the yuan should be included. And at the fund’s spring meetings, she said the IMF needs to “better integrate fast growing emerging markets,” including as it reviews the SDR currency basket. There are two major principles the IMF follows to determine whether a currency should be included in the SDR: Is it stable and is it used in international transactions? If the fund wants to change those principles, then a supermajority representing 85% of the fund’s 188 member countries must back the changes. Because the U.S., as the largest shareholder, holds roughly 17% of the fund’s total voting shares, it can block such changes. But if a currency is deemed to meet those principles, then only a 70% majority is required to approve it in the SDR, according to the fund’s articles.

Obama: We’re All for the Asian Infrastructure Investment Bank - The U.S. never opposed a new China-led infrastructure bank, President Barack Obama said Tuesday, challenging a common narrative that Beijing out-maneuvered Washington by persuading key U.S. allies to sign up as founding members. “We’re all for it” if the Asian Infrastructure Investment Bank incorporates strong financial, social and environmental safeguards, Mr. Obama said. The administration was dealt an embarrassing political blow when the U.K., Germany, France and a host of other Western nations snubbed requests by Washington officials to sit out membership in the AIIB amid questions over the new institution’s standards. The diplomatic bruising renewed questions about whether the U.S. is losing its economic clout in the world.The president didn’t see it exactly that way.“Let me be very clear and dispel this notion that we were opposed or are opposed to other countries participating in the Asia infrastructure bank,” he said at a press conference with Japanese Prime Minister Shinzo Abe. “That is simply not true.”He suggested Washington’s position is more nuanced.“Our simple point to everybody in these conversations around the Asian infrastructure bank is, let’s just make sure that we’re running it based on best practices,” Mr. Obama said.In fact, the administration has said it wants to cooperate with the AIIB to ensure the new institution develops strong standards, a message it has promulgated for months.

Obama says we need the TPP to compete with China. That argument has a big flaw. - Vox: President Barack Obama made one of his favorite arguments for the Trans-Pacific Partnership in an interview with the Wall Street Journal this week. "If we don’t write the rules, China will write the rules out in that region," Obama warned. He elaborated on his concerns later in the interview: We want to make sure that you [e.g., China] are not manipulating your currency. We want to make sure that you are not, you know, having state-sponsored organizations subsidize and effectively dump goods into our markets and undercut our prices. We want to make sure that our intellectual property is protected, that you are enforcing fair and neutral laws when it comes to U.S. foreign investment and not forcing technology transfer. You know, so there are just a whole range of rules that we want to make sure they’re abiding by. And we want to make sure that the other countries surrounding China are abiding by them as well. One problem with this argument is that it's not clear the TPP would accomplish many of these objectives. China isn't a party to the TPP, so the agreement wouldn't stop China from subsidizing its exports or stealing American technology. And the Obama administration has pointedly refused to include currency manipulation language in the TPP, arguing that insisting on it would cause countries like Japan to walk away from the table. But the larger problem with this argument is the assumption that if "we" — American negotiators — write the rules, then it must be good for the American people. But that's not necessarily true.

US ‘welcome’ to use China’s man-made islands for civilian purposes - The US and other countries will be welcome to use facilities on islands China is building in the South China Sea for civilian activities “when the conditions are right”, according to a statement released by Beijing late on Thursday. As well the tentative offer of access for purposes such as weather forecasting and search and rescue operations, Beijing assured Washington that its island-building would not affect navigation or overflight rights, in an effort to allay fears that Beijing is pursuing military expansion in regional waters. Alarm has been growing among China’s neighbours, particularly Vietnam and the Philippines, at the rapid transformation of coral reefs in the South China Sea into land masses — or what US Pacific Fleet commander Admiral Harry Harris called “a great wall of sand” in a speech a month ago. The construction projects focus on the strategic Paracel and Spratly island chains, most of which were until recently little more than coral atolls but now sport facilities such as living quarters and harbours. One island, Fiery Cross Reef in the Spratlys, even has a newly built airstrip. The activity extends China’s naval reach into the western Pacific but also buttresses the country’s maritime sovereignty claims based on the “nine-dash line”, a marking on Chinese maps that encompasses about 90 per cent of the South China Sea. China counters that many of its neighbours, including the Philippines, Vietnam and Taiwan, have also built up islands and reefs in territory claimed by Beijing using dredgers, derelict ships and other structures.

Once Concerned, China Is Quiet About Trans-Pacific Trade Deal - — As Congress debates the direction of economic policy in the Pacific, the main country worried about an American-led trade deal has gone nearly silent: China.Two years ago, the prospect of the deal, the Trans-Pacific Partnership, evoked fears in China of commercial encirclement, particularly as the initiative followed the Obama administration’s strategic turn to Asia. Meeting with President Obama in California in 2013, President Xi Jinping of China made a point of asking that the United States keep him informed on the negotiations, even though Beijing did not want to join the nascent trade agreement. The tempo of negotiations has accelerated considerably since then, with people involved saying that an agreement is close. Michael Froman, the United States trade representative, flew to Japan last week for talks. Prime Minister Shinzo Abe, who arrived in the United States on Sunday, is scheduled to discuss the pact in Washington and address a joint meeting of Congress. And Congress is deciding whether to give the president fast-track authority for such trade agreements, which would put a deal to a vote without allowing amendments.As the deal has come to the forefront again, the Chinese government has changed its view. Some of China’s leading trade policy intellectuals now say that they have few concerns about the agreement. They also say that the pact could even help China, by making it easier for Beijing to pursue its own regional agreements without facing criticism that it should instead pursue ambitious global free trade pacts that would require significantly opening its markets to Western competition. “We don’t think T.P.P. is a challenge to China — we will watch and study,” said He Weiwen, a former Commerce Ministry official who is now the co-director of the China-United States-European Union Study Center in Beijing.

Japan Retail Sales Plunge Most Ever On Base Effect, Widespread Economic Weakness -- Overnight we got the latest proof that there is nothing worse for an economy than to be run by a bunch of central planning academics who get "advice" from Paul Krugman. The reason: Japan's retail sales which crashed by 9.7% Y/Y, the biggest annual drop in history. To be sure, the biggest reason for the annual drop was the base effect with the surge in demand last March ahead of the April 2014 consumption tax hike, but the drop was bigger than what consensus had expected, as expectations were for a -7.3% drop. And confirming that things are getting worse on a sequential basis as well, was the 1.9% drop in sales in March compared to a 0.7% increase in February. In fact, as the chart belows show, on an indexed basis, the March retail sales print was one of the worst since last year's tax hike.

Japan's Amari plays down expectations on U.S. trade deal progress  (Reuters) - Japanese Economy Minister Akira Amari played down the prospect of substantial progress in trade talks being announced after a summit meeting between Japan and the United States on Tuesday. Japanese Prime Minister Shinzo Abe meets U.S. President Barack Obama in Washington. Japanese public broadcaster NHK said a joint statement after the meeting would probably refer to "substantial progress" in negotiations between the two countries on a trade deal and would talk of them cooperating to move towards an agreement on the 12-country Trans-Pacific Partnership (TPP) trade pact However, Amari told a news conference: "The most we could expect in a joint statement is to say there is 'welcome progress' (on a Japan-U.S. trade deal)." The trade negotiations between the two are seen as crucial for the wider TPP as their economies account for 80 percent of the group involved in the talks. Amari said progress had been made on some aspects of the trade talks between the two countries but other aspects were "deadlocked" and he expected the two leaders to instruct officials to make efforts towards an early agreement. The two leaders are unlikely to discuss details of the trade deal.

Top TPP Negotiators at Odds over Drug Patent, Intellectual Property - --Top negotiators of 12 countries participating in Trans-Pacific Partnership free trade negotiations failed in the latest round of talks near Washington through Sunday to narrow gaps over contentious issues, such as rules for the protection of drug patents and intellectual property rights. At the four-day meeting held in Maryland from Thursday, the United States and emerging countries remained particularly at odds over proposed extensions of drug patents and rules for legal actions against violations of intellectual property rights. Meanwhile, the meeting produced progress in the work of setting investment rules to prevent unfair treatment of foreign companies, with participants selecting issues left to ministerial political decisions, Japanese government sources said. The failure to reach a broad agreement partly stems from a wait-and-see stance of the participants other than the United States due to uncertainties over U.S. congressional discussions on giving President Barack Obama "fast track" authority to negotiate trade deals, known as the Trade Promotion Authority. The participants refrained from showing their final cards, given that without the TPA, the U.S. Congress could force revisions to trade agreements reached among the 12 TPP members.

Abe, Obama aligned on early TPP accord -— Prime Minister Shinzo Abe and U.S. President Barack Obama welcomed “the significant progress” made in the bilateral Trans-Pacific Partnership negotiations and expressed determination to realize an early conclusion of the talks. Led by Japan and the United States, the creation of new trade rules in the Asia-Pacific region is reaching its final phase. In the joint statement issued after the Tuesday summit, the two countries said, “As the two largest economies in TPP, we are working to finalize the most high-standard trade agreement ever negotiated.” They expressed their resolution to make progress, stating that, “TPP will drive economic growth and prosperity in both countries and throughout the Asia-Pacific region by ... reinforcing our work together.”  A Japan-U.S. agreement is important as a step toward a comprehensive conclusion in the TPP talks, as the two nations account for 80 percent of economic activity across the 12 member countries. Last spring, Japan compromised with the United States over trade in beef and pork, among the major five agricultural items, to largely cut tariffs on the two meats. The main issues are being narrowed down to when U.S. tariffs on auto parts (2.5 percent for most products) should be abolished, and the amount by which Japan should increase its rice imports. At a joint press conference after the summit, Abe said, “We’ve confirmed that we would work together for the early and successful conclusion of the [TPP] talks,” while Obama said “I know that Prime Minister Abe, like me, is deeply committed to getting this done, and I’m confident we will ... [TPP] will be good for the workers of both our countries.”

Obama Bribes Abe to Support the TPP by Unleashing Japanese Military --Our resident Japan expert, Clive, had pointed out that the US Trade Representative, Michael Froman, had nothing to offer Japan to change its indifference to the proposed TransPacific Partnership. Only the State Department could serve up the needed inducements, and they were missing in action.  But that changed as Obama became more eager about pushing his toxic, traitorous deal over the line. We pinged Clive Wednesday evening:I heard from a Congressional staffer today that Japan has changed its position on the TPP from being cool to being keen about it You pointed out early on that Froman couldn’t deliver a deal, that State needed to get involved.Apparently that happened.I noticed the defense pact and wondered if it had anything to do with the TPP. Apparently it did. The understanding with the “defense” agreement is that the US will let Japan go offensive. Any corroborating evidence in the Japanese media? We got corroborating evidence in the form of a must-read story by Patrick Smith in Salon, which describes in some detail the roots of Abe’s militarism. His grandfather, Nobusuke Kiishi, was charged as a war criminal but never tried because (unlike in Germany), the US reversed itself on rousting out war leaders, deciding it needed to rely on them to rein in communists.  As to Abe, let’s take the occasion to deconstruct these various deals he is cutting with the Obama administration. On the defense side, Abe’s new accord with Washington marks the most significant change in the security relationship since Kiishi’s connivances. Where Kerry broke very new ground is in extending this concept to the disputed islands Japan calls the Senkakus and China the Diaoyus. This is astonishingly indelicate, to put the point mildly—an open affront to Beijing. Abe, a vigorous hawk on the islands question, horse-traded something Washington dearly wants in exchange for its endorsement of Tokyo’s territorial claim.

Thailand Unexpectedly Cuts Benchmark Rate - WSJ: —Thailand’s faltering economy pushed the central bank to unexpectedly cut its policy rate on Wednesday, as poor exports and slower-than-predicted economic recovery continued to exact a toll on business. The Bank of Thailand’s monetary policy committee members voted 5-2 to cut the benchmark interest rate by 0.25 percentage point to 1.5%, citing slow economic recovery despite higher government spending and a sunnier outlook for the tourism sector. The latest rate cut also aimed to weaken the Thai baht to lift exports, which account for roughly two-thirds of Thailand’s gross domestic product, while helping boost domestic spending.

The great unraveling of globalization - Cisco was just the latest victim of globalization, the tantalizing but perilous business principle that has — quietly — counted among its casualties some of the world’s largest companies. Indeed, although multinational executives avoid talking about it publicly, profits in global markets are underwhelming — and doing business internationally is full of unanticipated risks. “Even for the most successful multinationals, profit margins in international markets are on average lower than margins in the domestic market,”  “It’s the liability of foreign markets. By virtue of the fact that you are foreign, you are at a disadvantage.” That’s a far cry from the way globalization was pitched, as the strategic imperative du jour nearly two decades ago. It was supposed to act like a rising tide, lifting all boats in poor and rich countries alike. Buoyed by hundreds of thousands of new assembly line jobs courtesy of multinationals in emerging nations, the middle class would swell, which in turn would propel higher local consumption. More factories would be needed to meet the demand, further raising local standards of living and handing the largest non-domestic companies a vast and enthusiastic new customer base. Western corporations — hoping to find new fast-growth revenue channels and inexpensive manufacturing opportunities to augment mature, developed economies at home — moved to set up shop in far-flung regions like China, Brazil, Russia and India, where the greatest GDP gains were anticipated, as well as in so-called second tier emerging nations such as Thailand, Malaysia, the Philippines and Nigeria.  Yet despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion.

Is Globalization Finished? - World trade volumes fell in the early months of 2015, once again disappointing the expectations of economists. Figures released by the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, show trade volumes fell 0.9% in February, having fallen 1.6% in January. The World Trade Organisation has already lowered its forecasts for trade growth this year, to 2.8% from the 5.3% it projected in April 2014. It isn’t the first time the WTO has cut its trade forecasts in recent years, and it shares that habit with the International Monetary Fund and the Organisation for Economic Cooperation and Development. So why have forecasters been getting it wrong? The most obvious answer is that trade isn’t the main thing they have been wrong about. Over recent years, forecasters have regularly overestimated world economic growth. When it disappoints, so does trade. That is how the WTO’s director general, Roberto Azevêdo, explained the most recent cut in forecasts. “Trade growth has been disappointing in recent years, due largely to prolonged sluggish growth in GDP following the financial crisis,” he said. “Looking forward we expect trade to continue its slow recovery but with economic growth still fragile and continued geopolitical tensions, this trend could easily be undermined.”

An assessment of the state of the world economy -- Complex forces are shaping macroeconomic evolutions around the world. In this column, IMF’s Chief Economist Olivier Blanchard describes some of these forces and provides an overview of the state of the world economy. Putting the forces together, the baseline forecasts are that advanced countries will do better this year than last, and emerging countries will slow down. Overall, the global growth will be roughly the same as last year, with the macroeconomic risks having slightly decreased.

The ten richest Africans own as much as the poorest half of the continent -- In January 2014, Oxfam released a widely-cited briefing paper which argued that the richest 85 people in the world owned more than the poorest half of the population in 2013 (Oxfam, 2014).[1] In this blog post I estimate this statistic for Africa. The blog builds on background research for an upcoming flagship report “The State of Poverty and Inequality in Africa” led by the World Bank’s Africa Chief Economist Office. I find that the ten richest Africans own more than the bottom half of the continent. Calculating this number requires two ingredients: (1) The wealth of the richest people, and (2) the distribution of wealth around the world (and by region) to estimate the total wealth of the bottom 50%.  The data used in both of these calculations are patchy, so these estimates should be interpreted with (a lot of) caution.   Table 1 shows the (cumulative) regional and global distribution of wealth. These are the regions used by Credit Suisse (2014), which treats China and India as separate regions. Furthermore, Africa is defined geographically and thus includes Northern Africa, in contrast to the World Bank’s definition of Sub-Saharan Africa. For example, the table shows that the poorest 50% of Africans own 59bn USD in 2014. Note that the poorest parts of the wealth distribution in the rich countries (and the world) have negative wealth, i.e. a net debt.[6]

Vancouver a 'critical' money laundering hub for transnational criminals, experts say: Vancouver is “emerging as a critical money laundering hub” for international criminals, due to a convergence of factors including drug money, international connections, an active port, and a hot real estate market, experts say. International criminals looking to “wash” ill-gotten gains in Vancouver remain a persistent problem, said Kim Marsh, a Vancouver-based financial crime specialist with decades of experience in law enforcement and private investigations. Thursday in Vancouver, Marsh will make a presentation to a group of anti-money laundering professionals, detailing his role in a complex 2013 investigation that came to be known as “the Libyan Caper,” a story illustrating the global nature and massive scope of money laundering. In Vancouver, one can’t look at money laundering without considering property investment, Marsh said. And a more active market means more opportunity for funds to be washed. “What’s happening here in the real estate market is pretty remarkable,” said Marsh, who now works for a fraud protection firm after 25 years with the RCMP. He mentioned an “increase in value of property across the board” and “non-stop residential building.”“Part of that is the success story of Vancouver. But there’s a lot of dirty money washing around with these purchases,” said Marsh, now executive vice-president of international operations for IPSA International, a root9B Technologies company. It’s a growing concern for Vancouver, said Christine Duhaime, a financial crime specialist. “There is more of a money laundering problem now and part of that is because law enforcement agencies say Vancouver is emerging as a critical money laundering hub for transnational criminal organizations,” Duhaime said.

The Dollar Joins the Currency Wars - Roubini – In a world of weak domestic demand in many advanced economies and emerging markets, policymakers have been tempted to boost economic growth and employment by going for export led-growth. This requires a weak currency and conventional and unconventional monetary policies to bring about the required depreciation. Since the beginning of the year, more than 20 central banks around the world have eased monetary policy, following the lead of the European Central Bank and the Bank of Japan. Until recently, US policymakers were not overly concerned about the dollar’s strength, because America’s growth prospects were stronger than in Europe and Japan. Indeed, at the beginning of the year, there was hope that US domestic demand would be strong enough this year to support GDP growth of close to 3%, despite the stronger dollar. Lower oil prices and job creation, it was thought, would boost disposable income and consumption. Capital spending (outside the energy sector) and residential investment would strengthen as growth accelerated. But things look different today, and US officials’ exchange-rate jitters are becoming increasingly pronounced. The dollar appreciated much faster than anyone expected; and, as data for the first quarter of 2015 suggest, the impact on net exports, inflation, and growth has been larger and more rapid than that implied by policymakers’ statistical models. Moreover, strong domestic demand has failed to materialize; consumption growth was weak in the first quarter, and capital spending and residential investment were even weaker. As a result, the US has effectively joined the “currency war” to prevent further dollar appreciation. Fed officials have started to speak explicitly about the dollar as a factor that affects net exports, inflation, and growth.‎ And the US authorities have become increasingly critical of Germany and the eurozone for adopting policies that weaken the euro while avoiding those – for example, temporary fiscal stimulus and faster wage growth – that boost domestic demand.

When QE Leads To Deflation: A Look At The "Confounding" Global Supply Glut -- On Saturday we once again explored the question of whether central banks are creating deflation. The idea that post-crisis DM monetary policy may be causing disinflationary pressures to build is somewhat counterintuitive on its face but in fact makes quite a lot of sense. Here’s how we explained it: The premise is simple. By keeping rates artificially suppressed, the central banks of the world effectively make it impossible for the market to purge itself of inefficient actors and loss-making enterprises. As a result, otherwise insolvent companies are permitted to remain operational, contributing to oversupply and making it difficult for the market to reach equilibrium. The textbook example of this dynamic is the highly leveraged US shale complex which, by virtue of both artificially low borrowing costs and the Fed-driven hunt for yield, has retained access to capital markets in the midst of the oil slump and has thus continued to drill contributing to the very same price declines that put the entire space in jeopardy in the first place. Expanding upon that a bit, we might say this: those who have access to easy money overproduce but unfortunately, they do not witness a comparable increase in demand from those to whom the direct benefits of ultra accommodative policies do not immediately accrue. Meanwhile, as WSJ notes, governments are reluctant to spend in the face of heavy debt burdens and increased scrutiny on fiscal policy in the wake of the European debt crisis while China, that all important source of voracious demand, is in the midst of executing the dreaded “hard landing.”

Negative Interest Rates: The Financial Black Hole -- It feels like not a single soul is worried about the increasing amount of negative interest rates. Ignorance or indifference? This could become a very expensive ordeal. A black swan event is a metaphor for an enormous problem that develops underneath the surface and then suddenly puts the whole financial system at risk. The financial crisis of 2008 was a black swan event, for example, that slowly developed in the US real estate market where excess had ruled in the years before. Today, market conditions are ideal for a new black swan event to develop. An event like this takes people by surprise, because it matures under the radar in places where no one is looking. Today, for example, everyone is afraid of deflation. That means that everyone is also trying to prepare for deflation. If everyone takes measures against deflation you get a mass migration to cash and government bonds, however, which are the assets that perform the best in a deflationary environment. Take a look at Japan: the yen had been on the rise for years up until the Japanese central bank took exceptionally aggressive monetary measures to fight the trend (at which they succeeded). Japanese investors historically also like its country’s government bonds, however, ever since deflation tormented the country in the ‘90s. At one point you got a 5% yield on a 10-year Japanese government bond, today you get 0.3% per year for the next 10 years.

The “War on Cash” Migrates to Switzerland -- The war on cash is proliferating globally. It appears that the private members of the world’s banking cartels are increasingly joining the fun, even if it means trampling on the rights of their customers. Yesterday we came across an article at Zerohedge, which notes that JP Morgan Chase has apparently joined the “war on cash”, by “restricting the use of cash in selected markets, restricting borrowers from making cash payments on credit cards, mortgages, equity lines and auto loans, as well as prohibiting storage of cash in safe deposit boxes”. This reminded us immediately that we have just come across another small article in the local European press in which a Swiss pension fund manager discusses his plight with the SNB’s bizarre negative interest rate policy. In Switzerland this policy has long ago led to negative deposit rates at the commercial banks as well. The difference to other jurisdictions is however that negative interest rates have become so pronounced, that it is by now worth it to simply withdraw one’s cash and put it into an insured vault.  Having realized this, said pension fund manager, after calculating that he would save at least 25,000 CHF per year on every CHF 10 m. deposit by putting the cash into a vault, told his bank that he was about to make a rather big withdrawal very soon. After all, as a pension fund manager he has a fiduciary duty to his clients, and if he can save money based on a technicality, he has to do it. What happened next is truly stunning. Surely everybody is aware that Switzerland regularly makes it to the top three on the list of countries with the highest degree of economic freedom. At the same time, it has a central bank whose board members are wedded to Keynesian nostrums similar to those of other central banks. . As a result, withdrawing one’s cash is evidently regarded as “interference with the SNB’s monetary policy goals”.

The Swiss have eliminated the Zero Lower Bound - So, this is fun. Via Zero Hedge comes this report from a little Swiss website, Schweizer Radio und Fernsehen (SRF). It seems that a pension fund tried to evade negative rates on deposits by withdrawing a very large amount of physical cash with the intention of vaulting it. But the bank refused to allow it to withdraw the money in the form of physical cash. Is this lawful? Zero Hedge thinks it isn't. But the bank has not refused to allow the money to be withdrawn. It has simply restricted the form in which the money can be taken. Since electronic money and physical cash are fully fungible, it is hard to see how this restriction can be regarded as unlawful without undermining the value of electronic money - which would be highly destabilising in a modern monetary economy. And this effectively means that the zero lower bound does not exist..... Read the whole article on Forbes.

​Swiss central bank takes a $32 billion beating - CBS News: Switzerland's central bank says it suffered a first-quarter loss of 30 billion Swiss francs ($32 billion) as the rapid appreciation of the national currency led to high foreign exchange losses. The Swiss National Bank said Thursday that its loss on foreign currency positions alone came in at 29.3 billion Swiss francs in the quarter, which ended March 31, while the value of its gold reserves dropped 1 billion francs. The Swiss National Bank shocked markets in January when it dropped its cap on the Swiss franc's value against the euro, leading to a currency spike and "as a result, to exchange rate-related losses on all investment currencies." Because its result "depends largely on developments in the gold, foreign exchange and capital markets," the bank says strong fluctuations are to be expected.

Negative Rates Halt Payments in European Asset-Backed Bonds - Bonds backed by loans to Spanish small businesses became the first asset-backed securities to stop making interest payments last week after benchmark rates turned negative, according to JPMorgan Chase & Co. The floating-rate notes, which were sold as part of a securitization in 2007 by Banco Popular Espanol SA, cease payments to investors when the euro three-month interbank offered rate, or Euribor, falls to zero. The benchmark is now at minus 0.005 percent, according to data compiled by the European Money Markets Institute. Investors in outstanding asset-backed bond are the latest to suffer the consequences of the European Central Bank’s efforts to spur new lending and boost growth in the euro area. Yields on about $2 trillion of government notes along with about 150 billion euros of covered bonds have also dropped below zero. “This is another example of the side-effects of ECB action,” said Gareth Davies, JPMorgan’s head of European asset-backed securities research in London. More notes including some Dutch residential mortgage-backed securities with government guarantees may stop paying interest if rates drop further, according to Davies. Banco Popular’s securities are the first to stop paying interest and others may follow if benchmark rates fall further. More than 2.2 billion euros of notes secured with residential mortgages in Europe are among asset-backed securities priced with spreads over Euribor of five basis points or less, according to data compiled by Bloomberg.

Poland joins negative yield club - Poland has become the first emerging market to sell debt at a negative yield, underscoring the relentless decline of borrowing costs in global markets. The Swiss franc-denominated SFr580m three-year bond will pay no coupon and yielded minus 0.213 per cent, swelling the growing pool of negative yielding government debt in Europe. Since the European Central Bank unveiled its landmark sovereign bond-buying programme this year to stoke inflation and stimulate growth in flagging eurozone economies, prices in bond markets have soared, sending yields to record lows. Several highly rated European sovereigns have already sold bonds with negative yields but emerging market governments have up to this point been unable to tempt investors in similar fashion. Poland is rated six notches below Germany’s triple A Standard & Poor’s rating but the aggressive loosening of monetary policy in Europe has fuelled unprecedented demand for fixed income, driving yields down in riskier assets.

Negative interest rates put world on course for biggest mass default in history -  Here’s an astonishing statistic; more than 30pc of all government debt in the eurozone – around €2 trillion of securities in total – is trading on a negative interest rate. With the advent of European Central Bank quantitative easing, what began four months ago when 10-year Swiss yields turned negative for the first time has snowballed into a veritable avalanche of negative rates across European government bond markets. In the hunt for apparently “safe assets”, investors have thrown caution to the wind, and collectively determined to pay governments for the privilege of lending to them. On a country by country basis, the statistics are even more startling. According to investment bank Jefferies, some 70pc of all German bunds now trade on a negative yield. In France, it's 50pc, and even in Spain, which was widely thought insolvent only a few years ago, it's 17pc. Not only has this never happened before on such a scale, but it marks a scarcely believable turnaround on the situation at the height of the eurozone crisis just a little while back, when some European bond markets traded on yields that reflected the very real possibility of default. Yet far from being a welcome sign of returning economic confidence, this almost surreal state of affairs actually signals the very reverse. How did we get here, and what does it mean for the future? Whichever way you come at it, the answer to this second question is not good, not good at all.

Europe’s Debt Selloff Erases $61 Billion in Value in One Day -  Investors revolting against negative yields in Europe wiped 55 billion euros ($61 billion) off the value of the region’s government bonds in one day. The value of European debt dropped to 5.844 trillion euros on Wednesday, the lowest level since March 30, in Bank of America Merrill Lynch’s Euro Government Index. Signs of inflation in the 19-nation economy choked off demand at a German government-debt auction as investors contended with a flood of supply from simultaneous sales by Italy and Portugal. The European Central Bank’s 1.1 trillion-euro quantitative-easing program gives cause to avoid the region’s government bonds, said Steven Wieting, global chief investment strategist in New York at Citigroup Inc.’s private bank. Wieting said on April 29 the bank cut allocation to German bunds in favor of U.S. Treasuries in the five- to seven-year range. “There is no reason to accept negative yields for the same reasons that institutional investors might,” said Wieting, whose funds hold a smaller amount of bunds than indexes recommend. Since his bank advises some of the world’s most affluent families, with assets that total $374 billion, Wieting isn’t required to hold easy-to-trade sovereign debt. “Private-wealth clients don’t need to follow that particular herd.”

Eurozone Inflation Expectations Rise - The European Central Bank appears to be winning its battle to persuade households and consumers that inflation will pick up over coming months and years. The ECB last month ushered in a new era by launching an aggressive bond-buying program known as quantitative easing that will flood the eurozone with more than €1 trillion in newly created money. Consumer prices declined for the fourth straight month in March, but what the ECB feared most of all was that consumers and businesses would grow accustomed to falling prices, and adjust their behavior accordingly. Many economists and central bankers believe that falling prices don’t by themselves constitute deflation. For that chronic condition to take root, consumers and businesses have to cut back on spending because they expect prices to fall further, the outcome being a decline in output and employment that pushes prices even lower. As Japan’s experience with falling prices since the late 1990s has shown, once inflation expectations become “de-anchored” from the inflation target—in the ECB’s case, just below 2%—it can be difficult to reattach them.

Europe Has A "Severe Case Of Low-Flation", Goldman Says -- "The effects on underlying inflation have so far been tepid. What is worrisome is that market participants still do not see consumer price inflation returning to the ECB’s 2% target on a sustained basis, let alone going above it, over any reasonable time horizon," Goldman says. And while the bank is ultimately confident that the Goldmanite in charge of the ECB will succeed in driving up inflation over time, the market would be wise to note that the US and Japanese experience with QE don't provide much in the way of empirical support for that contention.

Ukraine Readies Itself for War When No One Wants to Pay for It  -- John Helmer - What if the Ukrainian government resumes the war noone wants to pay for – not the US, the European Union, Poland, Canada, least of all Kiev? Public statements by Ukrainian and international officials identify two payment deadlines for war, and for peace. The first falls on May 31, Natalie Jaresko, the US minister of Ukrainian Finance, has told the London Times, when $15.3 billion in sovereign bond debt must be written off “through lower interest rates, longer payment terms, and in some cases, a cut in the sum owed.” The second deadline falls a month later, at the end of June, when the International Monetary Fund (IMF) must decide whether the government in Kiev has met the conditions required for payment of $1.5 billion, the second instalment of the Extended Fund Facility (EFF) which commenced just six weeks ago. A default on May 31 will make inevitable a delay in IMF loan disbursement in June. The combination will halt the European Union promise to start a new €1.8 billion in Macro Financial Assistance (MFA). Russian sources believe that unless Kiev starts a new military offensive in the Donbass within days, when cross-border Russian action can be blamed, creditor governments pressured into paying and bondholders into conceding losses, there won’t be enough cash later on to pay for troops, machines and ammunition.

Germany’s free ride on the global economy -- In a world increasingly characterized by a global savings glut, Germany stands out as the major industrialized country that has the largest external current account surplus. This should be a real concern to the United States since Germany’s external imbalance is now constituting an important headwind to the US economic recovery by dimming US export prospects. It is doing so in much the same way as China’s external imbalance did before. Of particular concern is the fact that policies in both Germany and Europe are pointing to a further increase in this imbalance in the immediate term.  According to the IMF’s recent World Economic Outlook report, Germany’s external current account surplus has widened to around US$300 billion, which makes it even larger than that of China. More striking yet is the fact that Germany’s current account surplus is expected to reach as much as 8 ½% of GDP in 2015 at a time that China’s external surplus is expected to have narrowed to 3 ¼% of GDP. An implication of Germany’s widening current account surplus, is that the recent relative strengthening in the balance of payments position of the European economic periphery has not been achieved through a re-balancing within Europe. Rather it has been achieved at the expense of the rest of the global economy. As Germany’s current account surplus has widened, the US economic recovery has stalled in part due to a less favorable external position. Sadly, there is every reason to expect that this situation will worsen further in the period immediately ahead considering Germany’s present budgetary policy and the European Central Bank’s recent resort to quantitative easing.

Germany spied on French and EU officials for US: report - (AFP) - German intelligence services spied on top French officials and the European Commission on behalf of the American spy agency NSA, according to an article to appear Thursday in Sueddeutsche Zeitung. Germany's BND foreign intelligence agency helped the National Security Agency (NSA) carry out "political espionage" by surveilling "top officials at the French Foreign Ministry, the Elysee Palace and European Commission" the German daily paper is to report. Long portrayed as a victim of snooping by allies, Chancellor Angela Merkel's government has grappled this week with embarrassing reports of German spying on European firms on behalf of the United States.

Europe Has Completely Lost It Ilargi -- After the high-level EU summit on the migrant issue, hastily convened after close to a thousand people drowned last weekend off the Lybian coast, Dutch PM Mark Rutte was quoted by ‘his’ domestic press as saying ‘Our first priority is saving human lives’. That sounds commendable, and it also sounds just like what everybody knows everybody else wants to hear. One can be forgiven, therefore, for thinking that it’s somewhat unfortunate that the one person tasked by Brussels with executing the noble ‘saving lives’ strategy, doesn’t seem to entirely agree with Rutte:EU Borders Chief Says Saving Migrants’ Lives ‘Shouldn’t Be Priority’ For Patrols The head of the EU border agency has said that saving migrants’ lives in the Mediterranean should not be the priority for the maritime patrols he is in charge of, despite the clamour for a more humane response from Europe following the deaths of an estimated 800 people at sea at the weekend. On the eve of an emergency EU summit on the immigration crisis, Fabrice Leggeri, the head of Frontex, flatly dismissed turning the Triton border patrol mission off the coast of Italy into a search and rescue operation.  He also voiced strong doubts about new EU pledges to tackle human traffickers and their vessels in Libya. “Triton cannot be a search-and-rescue operation. I mean, in our operational plan, we cannot have provisions for proactive search-and-rescue action. This is not in Frontex’s mandate, and this is in my understanding not in the mandate of the European Union,” Leggeri told the Guardian.

Italy debt management chief defends use of derivatives (Reuters) - The head of Italy's debt management office defended the use of derivatives contracts taken on by the treasury to hedge against interest rate risks which cost more than 12 billion euros ($13 billion) over the past four years. Maria Cannata, who has been in charge of Italy's 2.17 trillion euro debt pile for more than a decade, told Corriere della Sera daily she had no intention of resigning after a TV programme questioned the treasury's handling of derivatives. At the end of 2014, the treasury faced a potential loss of 42.6 billion euros if the contracts were terminated then, official data show. The programme, broadcast by state television on Sunday night, said the treasury in some case may have overpaid investment banks that structured the contracts and in any case was not transparent in making those contracts available to the public. "I won't be frightened by the rhetoric used against us," she said. Asked if she had ever thought of resigning, she said: "No way." Cannata said the contracts' average costs of around 3 billion euros a year were only 3.5-3.7 percent of overall debt servicing costs of 80 billion euros and that budget projections already factored them in.

EU Frustration Over Greece Boils Over at Eurogroup Meeting - Months of mounting tensions between Greece and its creditors boiled over at a high-level EU meeting on Friday with eurozone finance ministers angrily accusing their Greek counterpart of backtracking on commitments and failing to grasp the deep differences that still divide them. Athens is running desperately short of cash and many eurozone officials fear that, without an agreement to release some of the remaining €7.2bn in its bailout programme, the government could default as early as mid-May.  Eurozone officials briefed on the closed-door, three-hour meeting said Yanis Varoufakis, the Greek finance minister, specifically warned that cash was so tight that government coffers might run dry in a matter of weeks. The antagonism between Mr Varoufakis and other ministers became so severe during the eurogroup session that Slovenia’s finance minister suggested if bailout talks did not progress more quickly the eurozone should prepare a “Plan B” to deal with a Greek default. The contentious session undermined claims by Greek officials that a Thursday meeting in Brussels between Alexis Tsipras, the Greek prime minister, and Angela Merkel, his German counterpart, had narrowed the differences. The claims briefly sent the euro rallying in morning trading, but those gains evaporated after news of the differences emerged.

Greece and its lenders must reach a debt reform deal 'by early May' - (Reuters) - Greece and its lenders must reach a reform deal by early May to address Greece's need for cash, Deputy Prime Minister Yannis Dragasakis said in an interview with a Greek newspaper published on Saturday. Shut out of international markets and locked in talks with its European Union and International Monetary Fund creditors over its proposed reform-for-cash deal, Greece risks running out of cash within weeks. But euro zone finance ministers warned its leftist government on Friday that it would get no fresh aid until it agrees to a complete economic reform plan. Athens must pay the International Monetary Fund almost 1 billion euros ($1.1 billion) in May. It has said it wants to honor its obligations and needs lenders to offer something in return. "There is clearly a potential and an imperative need for an interim deal to be concluded in the first days of May, if not within April," Dragasakis said in an interview with Avgi newspaper, the mouthpiece of the leftist government of Alexis Tsipras. "We are mainly requesting that the current liquidity problem be recognized as a problem of common responsibility and that it be jointly addressed", he said. "Otherwise, the country's ability to smoothly service its external obligations would be in an ever growing contrast to Greek people's survival."

UBS chairman says Greek default increasingly seen by IMF as controllable (Reuters) - UBS's chairman said a default by Greece is seen by the International Monetary Fund as "systemically controllable" and he believed it would have a negligible impact on the Swiss bank itself, according to a newspaper interview published on Saturday. Athens is lurching closer to bankruptcy, with its next big test on May 12, when it is due to pay 750 million euros to the IMF. Euro zone finance ministers told Greece on Friday that its leftist government would get no more aid until it agreed a complete economic reform plan. In an interview with Neue Zuercher Zeitung, the chairman of Zurich-based UBS, Axel Weber, addressed the alternative if euro zone and Greek officials fail to reach an agreement. "I've just come from a meeting of the International Monetary Fund. There, the consensus is increasingly that a Greek default would be systemically controllable," Weber said in the interview, without elaborating. Weber is the former head of Germany's central bank, during which time he also served as the German governor of the IMF. He has been chairman of UBS since 2012. Weber said the Swiss bank had reduced its exposure to Greek debt long ago, and that thus a default would have negigible consequences.

Default Necessary but Grexit Not - Until last week, discussions with Greece did not go well. That changed when the circus of international financial diplomacy moved to Washington for the spring meetings of the International Monetary Fund and the World Bank. Then it became worse. My hunch is that this show will go on for quite a while. The Greeks want to merge the talks on the extension of the current, second, loan programme with the talks on the new third one. For that to work they will require temporary bridging finance to get through the summer. This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.  The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default. My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit. The complexity is severe, and they may not have had the time to work it out. But it may be the only way to avert utter disaster. On whom could, or should, Greece default? It could default on its citizens by not paying public-sector wages or pensions. That would be morally repugnant and politically suicidal for the Syriza-led government. In theory, it could default on the two loans it received from its EU partners, though it is not due to start repaying the first of those until 2020, and the second in 2023. It could also default on the remaining private-sector bondholders but that would not be a good idea. Greece might need private sector investors later. It could also default on the IMF and the European Central Bank. The IMF is expecting a series of repayments. The ECB wants its money back in the next few months on debt it holds on its books. Defaulting on the IMF and ECB is the only option that would bring genuine financial relief in the short term. Nobody has ever done that. It might trigger Grexit. Then again, it might not. Default is not synonymous with exit. There is no EU ruling that says you have to leave the eurozone when you default on your debt.

Eurozone officials seek to bypass Varoufakis to spur Greek talks - A fraught eurozone meeting in Riga at the weekend has left Yanis Varoufakis, the Greek finance minister, increasingly isolated both in Brussels and in Athens as officials seek to bypass him in an effort to jump-start bailout talks. Greece’s dire financial position is forcing eurozone authorities to look beyond Mr Varoufakis to Alexis Tsipras, prime minister, much like in February when Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup, brokered an extension of the current bailout programme. According to two eurozone officials, Mr Dijsselbloem phoned Mr Tsipras from Riga in an effort to mend fences after Friday’s feisty eurogroup meeting, where Mr Varoufakis was rounded on by his eurozone colleagues. In a sign that Mr Varoufakis’s combative approach is prompting concern in Greece as well, a senior Athens official said the Riga meeting was likely to lead to him being sidelined as Mr Tsipras and his deputy Yannis Dragasakis take a more hands-on role. Amid the acrimony, differences over a new list of reforms that is to be agreed by Athens were barely discussed at the meeting, putting off indefinitely a deal to unlock access to the funds left from Greece’s €172bn bailout. “All the ministers told [Mr Varoufakis]: this cannot go on,” said Luis de Guindos, Spain’s finance minister. Mr Varoufakis shrugged off criticism from his eurozone colleagues, comparing his situation to that of US President Franklin D. Roosevelt as he pushed through the New Deal. “They are unanimous in their hatred for me and I welcome their hatred,” he tweeted. Some eurozone and Greek officials believe divisions between Mr Varoufakis and Mr Tsipras are deepening and that a concerted appeal to the prime minister could still produce a deal by late May, the time many feel an agreement has to be reached if any aid disbursement can be made before the current bailout expires at the end of June.

Eurogroup Demands Varoufakis’ Ouster; Trajectory Toward Default Continues - Yves Smith - In case you had any doubts that Greece is supposed to act like a good debt vassal, the Eurogroup’s hissy fit over Yanis Varoufakis at last Friday’s meeting, which stoked a raft of unflattering articles, has now led it to demand to that Greek government remove him. Not that this is new news; there were similar rumblings in February, when the hostility between Varoufakis and German finance minister Wolfgang Schauble reached the level were Schauble refused to be in the same room with his Greek counterpart. The solution during the negotiations then was to isolate Varoufakis while Christine Lagarde, Eurogroup chief Jeoren Djisselbloem, and other top Eurocrats played conference room shuttle diplomacy to hammer out language that was presented to Greek Prime Minister Alex Tsipras directly, circumventing Varoufakis entirely (later reports described the memo as a fait accompli, with one account stating that Tsipras was told to take it or leave it, and another saying he was permitted to change one word).  Is Varoufakis really on his way out? Take this assessment with a fistful of salt, since the Eurocrats seem to believe that Tsipras is more likely to bend to their views than Varoufakis. In fact, by all accounts, Tsipras is very much in charge (despite all the uncoordinated mouthing off by various ministers; talk and decisions are two different matters). So there’s no strong basis for thinking that getting what the Eurogroup deems to be a prettier face as the Greek front person will change anything they care about. Nevertheless, here is the Financial Times’ account: In a sign that Mr Varoufakis’s combative approach is prompting concern in Greece as well, a senior Athens official said the Riga meeting was likely to lead to him being sidelined as Mr Tsipras and his deputy Yannis Dragasakis take a more hands-on role.  Some eurozone and Greek officials believe divisions between Mr Varoufakis and Mr Tsipras are deepening and that a concerted appeal to the prime minister could still produce a deal by late May, the time many feel an agreement has to be reached if any aid disbursement can be made before the current bailout expires at the end of June.

Greece tries to ease tensions with lenders by reshuffling negotiating team - Greece moved to inject fresh momentum into problem-plagued talks with creditors on Monday, reshuffling its negotiating team to try and defuse tensions over its outspoken finance minister. Hopes that a compromise deal was imminent helped rally the markets, as the FTSE rose to a new record high in London, despite Athens insisting that Yanis Varoufakis would continue to supervise talks. In a bid to ease tensions with lenders, the Syriza party-led coalition said the minister of international financial relations, Euclid Tsakalotos, would take over the coordination of the new team. The appointment will see the economics professor, who was raised in the UK, assuming a more active role in face-to-face negotiations with creditors. Reacting to the news, a senior European Union official confided that it had become “impossible” to do business with Varoufakis. “It had got to the point where eyes roll,” he said. “People had got sick and tired of being lectured about austerity and the effects of the crisis. Any sympathy for Greece was eroded by his failure to draft concrete proposals.” However, one well-placed Athens official insisted that Varoufakis’s role had been upgraded “in many ways”. The official added: “To make him resign would be to retreat and the government would never do that.” Three months after his elevation to power, prime minister Alexis Tsipras has come under extraordinary pressure to remove Varoufakis. Yet last night Tsipras said that his finance minister “is an important asset for the government, and [with creditors] he speaks their language better then they do”. In a wide-ranging interview aired on Greek TV, Tsipras rejected suggestions that his government had any intention of sacrificing the politician. Now that negotiations with creditors were in the final straight, Greece had to reorganise its negotiating team, the PM said.

Tsipras Reshuffles Negotiating Team to Sideline Varoufakis - Greece’s outspoken finance minister Yanis Varoufakis has been sidelined after three months of fruitless talks with international creditors to unlock €7.2bn in bailout funds, heartening investors and sparking a rally on the Athens stock market. Eurozone officials said they were encouraged by the move by Alexis Tsipras, Greece’s prime minister, to overhaul his bailout negotiating team in the wake of an acrimonious meeting of eurozone finance ministers in Riga last week. The shake-up comes as Athens faces questions over whether it can meet this month’s wage and pension bill of nearly €2bn as well as a €750m loan repayment due to the International Monetary Fund on May 12. The Athens stock market rose nearly 4.4 per cent on the news and borrowing costs on Greece’s July 2017 bonds were down almost 4 percentage points from Friday’s close to 21 per cent. Yields on Greece’s benchmark 10-year bonds were down a full percentage point at 11.4 per cent. The socialist opposition Pasok party said the government was “emasculating Mr Varoufakis . . . and attempting to send a message to the Europeans and the IMF indicating political will for an agreement”. While Mr Varoufakis retained his position as finance minister, Euclid Tsakalotos, deputy foreign minister for economic affairs, was appointed co-ordinator of the new team. The Oxford-educated economist is close to Mr Tsipras and his appointment was seen as an attempt to shield the new team from Mr Varoufakis. A government official insisted the finance minister would remain involved, heading a new “political negotiating team” and would remain “in the frame of collective decision-making and execution” by the leftwing Syriza-led government.

If Greece falls, no one wants their prints on the murder weapon: The game of chicken between Greece and its international creditors is turning into a vicious blame game as Athens lurches closer to bankruptcy with no cash-for-reform agreement in sight. Europe's political leaders and central bankers and Greek politicians agree on only one thing: if Greece goes down, they don't want their fingerprints on the murder weapon. If Athens runs out of cash and defaults in the coming weeks, as seems increasingly possible, no one wants to be accused of having pushed it over the edge or failed to try to save it. Greece's leftist government has already identified its culprit of choice - Germany, Europe's main paymaster, accused of having inflicted toxic austerity policies on Greeks, causing a «humanitarian crisis». Euro zone governments are preparing the ground to blame the novice government of Prime Minister Alexis Tsipras for having blustered, obstructed, failed to meet commitments and evaded hard choices while Athens burned. "We are doing everything we can to save Greece from itself, but in the end, it's up to them,» is the message pouring out of Berlin, Brussels and IMF headquarters in Washington.German Chancellor Angela Merkel has been careful to express goodwill and tried to build a relationship of trust with Tsipras while insisting Greece must meet its lenders' reform conditions, which include fiercely resisted pension cuts and labor reforms. "Everything must be done to prevent» Greece running out of money, she said after talks with Tsipras last week. «On the German side, we are prepared to provide all the support that is asked of us. But of course reforms must be done,» she added. Investors briefly hoped her pledge might be a turning point, similar to European Central Bank President Mario Draghi's 2012 vow to do «whatever it takes to preserve the euro». But Merkel's comments could also be interpreted as an exercise in pre-emptive blame avoidance. Unlike Draghi, she did not say who should do everything to stop Greece going bust.

Talking down the risk of Grexit is not the answer - According to the prevailing mantra, the eurozone is now more resilient and better equipped than it was in 2011 to absorb a shock such as a Greek exit from the monetary union. The relative calm in financial markets in recent weeks seems to confirm that view. However, many of the assumptions underlying this benign assessment may be seriously questioned if Grexit does indeed happen. It is true that, over the past four years, the institutional framework has been strengthened in several ways. First, the European Stability Mechanism has been fully established and financed, to support countries’ adjustment programmes. Second, the ECB has adopted the outright monetary transactions programme to protect countries against the risk of an undesired exit. Third, the ECB is implementing quantitative easing, which is helping to increase market liquidity and reduce long-term interest rates in all countries. Fourth, banking union has been created, with a view to increasing the stability of the eurozone financial system and in particular break the perverse correlation between sovereign and bank risk. But it is very difficult to anticipate what would happen if a country such as Greece exited the single currency. Many observers and commentators seem to think that the effects would be similar to a currency devaluation and debt default. This is an oversimplification, which probably underestimates the overall effects, for both Greece and financial markets. Contagion is very hard to predict, as it reflects the interaction between a myriad of market participants reacting to an event without precedent, as the experience with the 2011-12 Greek debt restructuring episode has shown.

Greek President Pavlopoulos Rules Out Possibility of Euro Exit – SPIEGEL - Time is running out for Greece and its international creditors. If an agreement isn't found by June, the country will face insolvency. The new Greek president, Prokopis Pavlopoulos, has now told SPIEGEL his views on the conflict: He rules out the possibility of a Grexit and promises that all the loans made to Greece will be paid back, but he is also critical of past austerity programs. "Some of the measures imposed on us go beyond EU law," Pavlopoulos said to SPIEGEL at his official residence in Athens. "We want to be equal members of Europe." Among other things, the law professor feels that international lenders' criticisms of the minimum wage and other labor rights in his country are problematic. Pavlopoulos pointed out that in Germany, too, there is a minimum standard of living. "We are not asking for anything more than for the Greek people to enjoy what Germany's Constitutional Court considers as an established social right for the German people," Pavlopoulos said. He also claimed that parts of the austerity programs "were not at all growth friendly, but rather would lead the Greek economy to a recessionary course." Pavlopoulos is a member of the conservative Nea Dimokratia party and has been in office since March. Earlier in his career, he served as an advisor to former Prime Minister Konstantinos Karamanlis, who led Greece as it transitioned from a military dictatorship to a European democracy. The comments mark the first time the new president has expressed his views on the euro debt dispute to any German media organization.

University rectors and mayors stall over cash: As the government scrambles to raise the cash to cover its pending obligations in the coming months, it remained unclear on Monday whether university rectors and local authorities would comply with a decree forcing them to hand over their reserves. An attempt by Education Minister Aristides Baltas (photo) to convince rectors to transfer their reserves to a Bank of Greece account and help the central government pay its dues was met with resistance as the rectors insisted on a meeting with Prime Minister Alexis Tsipras to discuss the demand in detail. The decree, issued last week, obliges all state organizations ranging from local authorities to universities to transfer their cash reserves to the government, noting that the money will earn a generous interest rate and can be returned to the organizations if necessary. Baltas sought to win over the rectors during an emergency meeting on Monday by promising that funding set aside for research would be exempted from the transfer. But the academics appeared unmoved, insisting on an audience with the premier. Meanwhile, the country’s secondary school teachers’ union (OLME) lashed out against the government’s attempt to take the reserves of municipalities and regional authorities. It accused the government of “grabbing money” and “instead of providing relief for the the working classes, it uses it to satisfy the needs of creditors.”

Greece €400 Million Short For Wage And Pension Payments, Rushes To Pass Troika-Friendly Laws -- According to Bloomberg, the Greek government is €400 million short of the amount needed for payment of pensions and salaries this month, citing a Kathimerini report. Surprisingly, this takes place even as Greece’s IKA, OGA pension funds have been informed by the government that amount needed for payment of pensions will be deposited today, while the Greece’s OAEE pension fund has said payment of pensions won’t be a problem. In other words, someone is not telling the truth: either there is enough money or there isn't. And if the latter case is valid, then either the government or the pensions are now openly lying to the population.

ECB's Coeure says Grexit not a scenario ECB is working on - magazine (Reuters) - The European Central Bank is making no plans for a Greek exit from the euro zone, ECB Executive Board Member Benoit Coeure said in a magazine interview. "The exit of Greece is not a scenario we are working on," Coeure was quoted as telling French magazine Alternatives Economiques. In a transcript of the interview released by the ECB, Coeure also said that, as things stood, there was no reason for concern about the euro area recovering in 2015 and 2016.

'We won't surrender': Firebrand Greek minister risks fresh schism with Europe -  Hopes that a revamped Greek bail-out team would finally break a deadlock with creditors took a fresh blow on Wednesday, after a senior government minister pledged "no surrender" to international lenders. Highlighting a deep schism within the ruling party, energy minister Panagiotis Lafazanis said there could be "no compromise" with creditor powers, who were seeking "subordination" from the Greek people. "Our government will not bow down, neither will it surrender," wrote Mr Lafazanis in a Greek newspaper. "Syriza will not accept an agreement that would be incompatible to its radical commitments." A popular figurehead of the party's radical Left Platform, Mr Lafazanis attacked the Troika for threatening the country with the prospect of a "Grexit". "If our 'partners' and the IMF believe that they will blackmail us using the refusal of financing as a weapon, and that they will terrorise the Greek people forever using the 'bogeyman' of default and of a national currency, they are woefully deluded." The energy minister has been one of the fiercest critics of plans to undercut Athens' promises to raise the minimum wage and pensions for the poorest. He added the country could gradually get on its feet after a euro exit, but warned monetary union would be "subjected to a grave and mortal wound" should Greece be forced out. The intervention comes amid hope that Athens was edging closer to agreeing the basis for its reforms-for-cash programme, after a two-month hiatus that has pushed Greece towards insolvency.

Greece mulls sale of ports to reach deal with EU/IMF lenders - government source (Reuters) - Greece's government is mulling selling stakes in the country's two largest ports as a concession to reach an agreement with its international lenders and unlock bailout funds, a government official said on Wednesday. "The negotiating team wants a deal with lenders and we are willing to sell Piraeus and Thessaloniki ports, 51 percent stakes," a government official told reporters. "This has not been decided but in order to reach a deal we may do it."

The coming defaults of Greece --When thinking about Greece’s dilemma, two facts from Reinhart and Rogoff research are highly relevant:

  • Defaults on public debts are pretty mundane events; and
  • Greece is historically the world’s leading serious defaulter.

What makes the coming event interesting is that it will be the first time that a default occurs within a monetary union.The crucial observation is that there is no automatic link between a default and monetary-union membership. As we know from previous experiments of government default within the dollar monetary union – the defaults of Orange County in California and Detroit in Michigan – a sub-central government can default and keep the currency. The unique characteristics of such events are that: 1) an exchange-rate depreciation cannot help shift expenditure to the defaulting region’s production; and 2) there is no local central bank to provide liquidity to both the government and commercial banks during the hard phase of the default. The Greek government might be tempted to recover its own currency but the short-run costs are likely to far exceed the short-run benefits, as explained by Eichengreen (2010). An idea of what would await Greece is provided by Levy Yeyati (2011) in his description of how Argentina gave up its currency board link to the US dollar, an easier case given that the national currency was already in place. The Argentinian example should warn the Greek authorities of the political turmoil that could follow a default.

Why Syriza Failed - Yves Smith - While the path for the ruling Greek government to make a deal with its creditors is fraught, it is pressing forward to try to come to an agreement by the next Eurogroup meeting, May 11. Greece has an IMF payment due May 12 that it will find difficult to meet. With the new urgency and the, um, realignment of the negotiating team, the odds now look to favor Greece capitulating even in the event of a default even if the ruling coalition tries holding ground on some of its red lines like pensions. If a default were to occur, it’s not hard to imagine that the IMF and the ECB would make Greece an offer it can’t refuse: the IMF would reverse itself on giving Greece a grace period for its payment if it relented on the disputed issues, otherwise the ECB would have no choice in light of the default to remove or limit its support under the ELA That would force Greece to impose capital controls, nationalize its banks, and issue drachma to recapitlaize them. Both the Greek public and most Syriza members are opposed to a Grexit.  Tsipras continues to send mixed signals on its intentions.  Consider this section from the Financial Times yesterday that we flagged in Links: The moves come as senior Greek ministers have publicly acknowledged in recent days that they may be forced to accept economic measures they have been attempting to avoid, a sign they are preparing Greek voters for concessions. Today, the Financial Times has Tsipras again taking up a defiant posture and saying he might be forced to call a referendum. We’ve said that the likely lead time makes that impossible (as in Greece will almost certainly default before a referendum can take place) and the Eurogroup chief Jeroen Djisselbloem cleared his throat and said pretty much the same thing (which may amount to calling the Tsipras idea a bluff). From today’s Financial TimesGreece’s leftwing prime minister has warned that he would hold a referendum if international creditors insisted on a “vicious circle of austerity” as the key to unlocking urgently needed bailout money. A referendum could lead to weeks of continued uncertainty about Greece’s solvency. A plan by Athens to hold a plebiscite in 2011 was effectively scuppered by eurozone leaders. But some officials also believe it could be a way for Mr Tsipras to win public support for an eventual reform programme.

European Unemployment By Country: Youth Unemployment In Greece, Spain Remains Over 50% - Eurostat reported moments ago that European CPI came in flat in March, as expected, and up a fraction from a modest -0.1% print last month, driven entirely by an ongoing 5.8% drop in energy prices, while food, services and goods all posted modest increases in the past month.  To some this was another indication that the deflation in the Eurozone is ending. Of course, if that is the case, it is risk negative and EUR positive because in addition to yesterday's first positive loan creation print in 3 years, the ECB's QE may not even need to last until September of 2016 before European inflation comes back with a bang. On the other hand, looking at the other Eurostat release today, showing that European unemployment remained flat at 11.3%, despite expectations of a modest decline to 11.2%, with Italy's 13% print leading the rise in unemployment up from 12.7%, and far worse than the 12.6% expected, and suddenly the end to Draghi's QE does not look that imminent. This follows the March unemployment print which not only missed consensus but was worse than the highest estimate. But the scariest data, once again, is revealed in the table of European youth unemployment. Here we see that both Spain and Greece now share the same youth unemployment figure of 50.1%, while Italy has reversed its recent improving trend, and is now at 43.1% and rising.

Quick breakthrough at Brussels Group looks unlikely: Greece’s hopes of an emergency Eurogroup being called as early as Monday to confirm the progress in Brussels Group talks, and thereby possibly prompting the European Central Bank to allow Athens to issue more treasury bills to relieve its liquidity problem, appear to be misplaced. Several European Union officials have told Kathimerini that it is unlikely eurozone finance ministers will be in a position to discuss the state of negotiations at the beginning of the week. Greece’s lenders insist that there must be a staff-level agreement on the range of measures being demanded in return for 7.2 billion euros in bailout funding before the matter can be referred to the Eurogroup. Athens, though, hopes that there can be an initial agreement on a bare minimum of reforms that would prompt the ECB to increase its 15-billion-euro ceiling on the level of Greek T-bills that can be issued and allow local banks to increase their exposure to this form of debt. The first two days of the Brussels Group deliberations, which began on Thursday, confirmed that there is a substantial distance separating Greece and its lenders. For instance, they differ on macroeconomic projections. Athens still believes growth this year can reach 1.2 to 1.4 percent and that this would lead to a primary surplus of 1.2 percent. Creditors see these projections as extremely optimistic.

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