FOMC Minutes: June Rate Hike Unlikely - From the Fed: Minutes of the Federal Open Market Committee, April 28-29, 2015 . Excerpts: Although participants expressed different views about the likely timing and pace of policy firming, they agreed that the Committee's decision to begin firming would appropriately depend on the incoming data and their implications for the economic outlook. A few anticipated that the information that would accrue by the time of the June meeting would likely indicate sufficient improvement in the economic outlook to lead the Committee to judge that its conditions for beginning policy firming had been met. Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, al-though they generally did not rule out this possibility. Participants discussed the merits of providing an explicit indication, in postmeeting statements released prior to the commencement of policy firming, that the target range for the federal funds rate would likely be raised in the near term. However, most participants felt that the timing of the first increase in the target range for the federal funds rate would appropriately be determined on a meeting-by-meeting basis and would depend on the evolution of economic conditions and the outlook. In keeping with this data-dependent approach, some participants further suggested that the postmeeting statement's description of the economic situation and outlook, and of progress toward the Committee's goals, provided the appropriate means by which the Committee could help the public assess the likely timing of the initial increase in the target range for the federal funds rate.
Fed Looks Past June for First Rate Hike - Federal Reserve officials at their April policy meeting said in the most explicit terms yet that they are unlikely to start raising short-term interest rates in June, as seemed possible when 2015 began. Officials have been saying they won’t begin lifting their benchmark federal funds rate from near zero until they see more improvement in the labor market and are confident inflation will rise toward their 2% target. Several of them started the year thinking they might reach that point by midyear. But by last month, after watching the economy stumble through the winter, many at the April 28-29 meeting were doubtful those criteria for a rate increase would be met, according to minutes of the meeting released Wednesday. Many officials “thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes said. While the minutes suggest a rate increase isn’t completely off the table, only a few Fed officials thought they would have enough confidence to begin raising interest rates at the June 16-17 meeting. Market participants are increasingly looking toward September—or beyond—for a Fed rate increase.
What the Fed Minutes Tell Us - Mohamed El-Erian -- Here are seven takeaways from the minutes of the April 28-29 meeting of the Federal Open Market Committee released Wednesday.
- Federal Reserve officials attribute part of the recent economic slowdown to “transitory factors,” which they consider likely to prove both temporary and reversible. This characterization also applies to household spending, which is viewed as “partly or even largely transitory.”
- The international context isn't helpful to the U.S. economy. Fed officials deem “foreign economic and financial developments” as constituting “potential downside risks,” and they specifically mention Greece and China.
- They remain relaxed about the prospects for higher prices and expect the inflation rate to “rise gradually" toward the Fed's 2 percent objective. Deflation or high and unstable inflation aren't viewed as constituting material risks.
- Financial stability is a concern for the FOMC. Members specifically pointed to low risk premiums that could well reverse “when the Committee decides to begin policy firming.”
- The FOMC has yet to agree on a date to start the interest-rate increase cycle. Although June hasn't been ruled out, the minutes suggest very limited appetite for moving then.
- Uncertainty isn't limited to the timing of the first rate increase. Central bankers are also actively discussing the final destination, given that “estimates of such equilibrium interest rates were highly uncertain.”
- Behind the scenes, and recognizing the uncertainties ahead, Fed officials have been “testing normalization tools,” such as charges on bank reserves.
Ahead of April Fed Meeting, Big Banks Expected First Rate Rise in September - Wall Street’s biggest banks told the Federal Reserve recently they were projecting the central bank would start raising short-term interest rates in September.According to a survey of so-called primary dealer banks conducted ahead of the Fed’s April 28-29 policy meeting, the median expectation of these banks was for a September rate rise, the same as what they expected before the March meeting. The New York Fed polls the primary dealers—banks that do business directly with the Fed—ahead of each gathering of the monetary policy setting Federal Open Market Committee. The most recent survey was conducted at a time when central bank officials were providing less guidance than in previous months about the likely timing of rate rises.New York Fed President William Dudley explained in recent remarks that the Fed has said enough about its goals to allow market participants to “think right along” with officials in attempting to divine the rate outlook.The dealer survey, released Thursday, comes a day after the Fed released minutes of the April meeting showing many officials thought it unlikely they would decide in June to raise their benchmark short-term interest rate from near zero. In a recent speech, Atlanta Fed President Dennis Lockhart noted that market forecasts of a September rate rise looked “reasonable” to him.
Fed still seen in lift-off mode as Yellen takes center stage - The U.S. Federal Reserve is likely to stick with plans to raise interest rates later this year, with progress toward its employment and inflation goals helping allay concerns over the economy's recent weakness, current and former Fed officials say. Fed Chair Janet Yellen, who on Friday will talk about the economy's prospects, is expected to acknowledge the recent sluggishness, including near stagnant performance in the first few months of the year. But she will also probably repeat the mantra that better days should follow a temporary swoon, and highlight the economy's steady job growth, keeping the Fed on track for its first policy tightening in nearly a decade. Interviews with current and former Fed officials suggest that policymakers do not need much more evidence that the economy can withstand a modest initial rate rise by September, long seen as a reasonable time to act. "We have not seen a significant disruption on the employment side, and inflation looks like it's pretty well contained for now," despite the first-quarter slowdown, said Jeffrey Fuhrer, senior policy advisor at the Boston Fed, which is among the more dovish Fed banks. Alan Blinder, a former Fed Vice Chair, said the combination of the economy's lower potential output, worries about prompting financial instability, and the fact that the Fed has long telegraphed a move in 2015 are speaking in favor of at least taking the first step toward reducing monetary stimulus. "I wouldn't be totally shocked if the Fed (raised rates by) 25 basis points either in September or December, and then just held there for a while to see what happens,"
Yellen: Expect Rate Hike in 2015, Several Years before Fed Funds Rate "back to normal" level --From Fed Chair Janet Yellen: The Outlook for the Economy [I]f the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term. After we begin raising the federal funds rate, I anticipate that the pace of normalization is likely to be gradual. The various headwinds that are still restraining the economy, as I said, will likely take some time to fully abate, and the pace of that improvement is highly uncertain. If conditions develop as my colleagues and I expect, then the FOMC's objectives of maximum employment and price stability would best be achieved by proceeding cautiously, which I expect would mean that it will be several years before the federal funds rate would be back to its normal, longer-run level. Having said that, I should stress that the actual course of policy will be determined by incoming data and what that reveals about the economy. We have no intention of embarking on a preset course of increases in the federal funds rate after the initial increase. Rather, we will adjust monetary policy in response to developments in economic activity and inflation as they occur. If conditions improve more rapidly than expected, it may be appropriate to raise interest rates more quickly; conversely, the pace of normalization may be slower if conditions turn out to be less favorable.
Fed’s Williams Touts Value of Inflation Target - Federal Reserve Bank of San Francisco President John Williams said Thursday inflation targets are important in creating effective monetary policy. Speaking at a conference held by Stanford University’s Hoover Institution, Mr. Williams observed briefly that price targets like the Fed’s 2% inflation goal make the Fed “formally and in fact accountable for the one thing a central bank can do: Control inflation.” Keeping price pressures at desired levels is “the one thing” a central bank “should own,” he said. The Fed adopted its 2% price target at the start of 2012. It has failed to achieve this goal for nearly three years, a shortfall that has motivated it to pursue an aggressively easy money policy. Mr. Williams was speaking at a conference discussing the value of policy-making rules for central banks.
Fed’s Evans: Overshooting Fed’s 2% Price Target May Be A Good Idea - Federal Reserve Bank of Chicago President Charles Evans renewed his call for the U.S. central bank to refrain from raising short-term interest rates this year, in remarks that said it might not be a bad idea for officials to allow inflation to rise above their 2% target for at least a time. Given that the Fed has fallen short of hitting its price target for a number of years, “it makes sense to favor some overshooting” of the 2% price target in a bid to achieve the central bank’s growth and price pressure mandates more quickly, he said. “There aren’t any serious costs of modestly overshooting our inflation target–particularly considering how long inflation has been below our target,” Mr. Evans said. The central banker made his comments in a speech prepared for delivery in Stockholm on Monday. Mr. Evans is a voting member of the monetary-policy setting Federal Open Market Committee. Most in markets expect the Fed to raise rates later this year, lifting them from the current near zero setting. That outlook has grown more uncertain, however, amid data showing the year started off weakly. At the same time, most key Fed officials are offering less guidance about the timing of rate rises, saying instead that they’ll consider action at any meeting, in a decision that will be determined by how the data has come in and what the outlook is. Mr. Evans has been one of the few remaining voices left at the Fed to argue explicitly against action this year. While he is upbeat about the outlook for growth, he has been arguing for some time that there are real prices to be paid from falling short of the Fed’s price target. He doesn’t believe inflation will rise to desired levels until 2018, and he continues to warn raising rates too early will cause problems. “Economic activity appears to be on a solid, sustainable growth path,” Mr. Evans said. “However, the weak first-quarter data do give me pause, and I would like to see confirmation that they are indeed a transitory aberration,” he said, explaining “it likely will not be appropriate to begin raising the fed funds rate until sometime in early 2016.”
Is the Fed’s 2% Inflation Target Too Low? - Central bankers around the developed world have agreed for much of the past two decades that 2% is a good objective for inflation. They want inflation to be low and stable, but they don’t want it too low. Interest rates move in line with inflation, and they don’t want inflation so low that interest rates are near zero. Then they would have no room to cut rates in a downturn to stimulate economic growth. Thus they have gravitated to 2%, a number born out of pragmatism more than any econometric model or proof. Now, as with so much economic orthodoxy in this post-crisis era, people are starting to wonder if it’s the right number. Minutes of the Federal Reserve’s April 28-29 policy meeting, released Wednesday, shows officials debated whether the 2% objective is too low. One Fed official, unnamed as per tradition in the minutes, suggested the central bank should discuss raising it. In a higher inflation world, the Fed would have more room to maneuver with short-term interest rates, which have been pinned near zero since December 2008. It would have more room to respond if a new downturn were to emerge. It would allow the Fed to avoid another controversial bond buying program as an alternative to cutting rates. This isn’t an entirely new idea. International Monetary Fund chief economist Olivier Blanchard floated the idea of a 4% inflation target in 2010. It is against the odds that the Fed would actually change its inflation target. It would be a shocking move for investors, who have made myriad decisions based on expectations inflation will remain anchored near 2%. Moreover, it took nearly two decades of discussion to formally adopt the 2% goal. The minutes make clear officials don’t take the idea of change lightly. Still, the fact that it is getting air-time at a Fed policy meeting four years after Mr. Blanchard broached the idea is noteworthy and testament to the nagging problems that confront central banks in a slow-growing post-crisis global economy.
Key Measures Show Low Inflation in April --The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.2% annualized rate) in April. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.2% annualized rate) in April. The CPI less food and energy rose 0.3% (3.1% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for April here. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.7%, and the CPI less food and energy rose 1.8%. Core PCE is for March and increased 1.35% year-over-year. On a monthly basis, median CPI was at 2.2% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI was at 3.1% annualized. On a year-over-year basis these measures suggest inflation remains below the Fed's target of 2% (median CPI is slightly above 2%). The key question for the Fed is if these key measures will move back towards 2%.
Fed’s Evans: Natural Jobless Rate in U.S. May Be Lower Than 5% - —Chicago Fed President Charles Evans said Wednesday that it was by no means certain that the natural rate of unemployment in the U.S. is 5% and that it might be even be lower, suggesting that it might take even longer for inflation to get back up to the Fed’s 2% target. “I’ve got the natural rate of unemployment at 5%, [but] my research staff has indicated it could be lower than that,” he said. “There’s a lot of uncertainty about that. As unemployment goes down, I’m also going to be looking to see what inflation is doing. Because if we’ve got a natural rate below 5%, we might not see inflation pick up until we go even further. That’s a complicated one.” The dovish central banker, who has repeatedly advocated that the Fed wait until next year to raise rates, said, however, that he had an “open mind” about determining appropriate policy and could be convinced to change his mind if data surprised positively. “I will listen to other viewpoints, depending on where we are and the data we’ve seen. I could be convinced to agree to something earlier than that. I think the data would have to look different than they currently are expected to look, but I’m going to go in with an open mind.” He also told reporters that for him rises in nominal wage growth and core inflation were key indicators about the future path of inflation.
Why the Fed is starting to get nervous - Economists remain fairly optimistic about the US economy but the Federal Reserve may not be thinking along the same line. Despite a string of poorly received data, economists still believe that the US economy will bounce back over the remainder of the year. But as the ordinary data persists into April -- several months longer than initially expected -- it begs the question: is the US economy not as strong as we initially thought? The latest Wall Street Journal survey shows that economists remain fairly optimistic about the US economy. Much like the Federal Reserve, economists have decided in mass that the US economy has little to fear from its slow start to the year. About 73 per cent of economists surveyed believe that the Fed will begin hiking rates in September. Back in January, around half of all economists surveyed thought that the Fed would raise rates in June. What’s striking is that so few economists have shifted their views significantly; the share of economists who believe a rate hike will be delayed until next year is practically unchanged since the surveys conducted in January and February.
WSJ Economists' May Forecasts for 10-Year Yields and the Fed Funds Rate -- On Wednesday the Fed will release the FOMC Minutes for its April meeting. Meanwhile let's take a quick look at a couple of items in the May Wall Street Journal survey of economists, starting with where the Federal Reserve is headed with the Fed Funds Rate, which is currently hovering around 0.12 percent. The May survey was sent to 72 economists, with responses received from 62. Here is a table showing the major response statistics -- Low, Median (middle), Average (aka Mean) and High -- at six-month intervals from June 2015 to December 2017.
The U.S. Underestimates Growth - WSJ -- Today’s pessimists about the economy’s rate of growth are wrong because the official statistics understate the growth of real GDP, of productivity, and of real household incomes. Understanding this problem should change the political debate about income growth and income inequality. But it should not change the focus on what matters: policies to increase everyone’s real incomes even faster. Government statisticians are supposed to measure price inflation and real growth. Which means that, with millions of new and rapidly changing products and services, they are supposed to assess whether $1,000 spent on the goods and services available today provides more “value” or “satisfaction” to American consumers than $1,000 spent a year ago. Even more difficult, they are tasked with estimating exactly how much it costs now to buy the same quantity of “value” or “satisfaction” that $1,000 could buy a year ago. These tasks are virtually impossible, and the problem begins at the beginning—when an army of shoppers go around the country at the government’s behest to sample the prices of different goods and services. Does a restaurant meal with a higher price tag than a year ago reflect a higher cost for buying the same food and service, or does the higher price reflect better food and better service? Or what combination of the two? Or consider the higher price of a day of hospital care. How much of that higher price reflects improved diagnosis and more effective treatment? And what about valuing all the improved electronic forms of communication and entertainment that fill the daily lives of most people?
Why the US economy can’t shake Great Recession -- Ever since the Great Recession, the first quarter has brought with it dramatically lower economic activity in the U.S., resulting in significant downgrades to annual growth forecasts. This year was no different, and now we are seeing strong evidence that this year's slump threatens to move beyond the winter months. Many have characterized the U.S. economy's inability to grow robustly as an expected after-effect of a severe cyclical downturn. Such interpretation is well past its sell-by date. It's time to recognize that globalization has brought with it issues that defy cyclical economic prescriptions. We need to move beyond wishing that this monumental shift can be resolved by conventional measures and form a consensus leading to more effective policy. In the first quarter, the GDP growth rate fell to +0.2 percent annualized, from an average of +2.4 percent during 2014. Trade data that emerged subsequently indicates that the first quarter growth rate will be revised downward into negative territory and that the second quarter will prove disappointing as well.In fact, the entire post-recession economic recovery in the U.S. has been far less than stellar. Median household real incomes have not recovered and jobs created have been at lower wages than previously existing jobs. The pace of job growth has slowed significantly this year, with the percentage of the employable population actually working near a 35 year low. The good news is that we are finally seeing several prominent economists speaking forcefully on the subject. And we are at the beginning of a presidential election process in which the reticence of the present administration, when it comes to taking potent action on these issues, is being called into question. As lackluster as recent U.S. economic results have been, our competitors around the world are under even more economic pressure. Policy makers in the euro zone and Japan, as well as less-developed nations, have pursued measures that have had the effect of devaluing their currencies against the U.S. dollar, hurting U.S. exports and making their exports more competitive.
Why many experts missed this: Cheap oil can hurt US economy — If there was one thing most economists agreed on at the start of the year, it was this: Plunging oil prices would boost the U.S. economy. It hasn’t worked out that way. The economy is thought to have shrunk in the January-March quarter and may barely grow for the first half of 2015 — thanks in part to sharp cuts in energy drilling. And despite their savings at the gas pump, consumers have slowed rather than increased their spending. At $2.71 a gallon, the average price of gas nationwide is nearly $1 lower than it was a year ago. In January, the average briefly reached $2.03, the lowest in five years. Cheaper oil and gas had been expected to turbocharge spending and drive growth, more than making up for any economic damage caused by cutbacks in the U.S. oil patch. Consider what Federal Reserve Chair Janet Yellen said in December: Lower gas prices, Yellen declared, are “certainly good for families. … It’s like a tax cut that boosts their spending power.” Other experts were more direct: “Lower oil prices are an unambiguous plus for the U.S. economy,” Chris Lafakis, an economist at Moody’s Analytics, wrote in January. So what did they get wrong? It turns out that the economic effects of lower energy prices have evolved since the Great Recession. Corporate spending on drill rigs, steel piping for wells and railcars to transport oil has become an increasingly vital driver of economic growth. So when oil prices fall and energy companies retrench, the economy suffers.
Weak First-Quarter Growth Due to Seasonal Issues After All, SF Fed Says - Economists at the Federal Reserve Bank of San Francisco argue in a new paper that issues with seasonal adjustments in the official growth statistics are depressing winter figures. The San Francisco findings contrast with those of Fed board economists in a research note last week. It found “no firm evidence” of inadequate seasonal adjustments that might be skewing the data.The U.S. economy barely grew in the first quarter, according to Commerce Department data, and many analysts believe revisions will show the economy contracted during the period. A similar pattern of unexpected weakness was seen early last year as well. “The official estimate of real [gross domestic product] growth for the first three months of 2015 was shockingly weak. However, such estimates in the past appear to have understated first-quarter growth fairly consistently, even though they are adjusted to try to account for seasonal patterns,” write San Francisco Fed research director Glenn Rudebusch and two co-authors in the regional central bank’s weekly Economic Letter. “Applying a second round of seasonal adjustment corrects this residual seasonality. After this correction, aggregate output grew much faster in the first quarter than reported,” they say. The new adjustment raises real GDP growth in the first quarter to a 1.8% annual rate from an initial reading of 0.2%, the report says.
Grand Central: Don’t Put Too Much Weight on Atlanta Fed Growth Estimate Yet - The Federal Reserve Bank of Atlanta’s economic forecasting model seems to be sending an ominous signal about the economy’s current growth prospects. After accurately projecting paltry economic growth in the first quarter, Atlanta’s model is again signaling meager growth in the second. But, as Atlanta Fed Research Director David Altig explained in an interview with the Wall Street Journal, now is not the time to worry about the signal it is sending. The Atlanta Fed model is called model is called GDPNow. It estimates growth in gross domestic product in the current quarter as the quarter unfolds. The model won praise and attention for correctly projecting near zero growth in first-quarter economic output when many Wall Street analysts were predicting expansion at a rate near 1%. The official Commerce Department estimate for the first quarter growth rate is 0.2% and many analysts now expect revisions to reveal a contraction. Looking beyond the first quarter, the Atlanta model estimates growth at a 0.7% rate in the second quarter, a truly dismal rate after a first quarter contraction. However, Mr. Altig noted that the Atlanta Fed model could be misleading early in a quarter, because it doesn’t have a lot of information to go on. “It is not telling us much of anything right at the moment,” Mr. Altig said. “What it is designed really to do is to build up in a consistent and reasonable way toward a real-time quarterly forecast as data comes in. This thing really only starts to send off what we would consider to be a reasonable signal about things as the data accumulates over the quarter. We would not encourage anyone to put a lot of weight on the number that is coming out right now.”
Grand Central: The Phrase of the Day is “Residual Seasonality” - We at The Wall Street Journal are reading about residual seasonality so you don’t have to. At issue is whether government statistics are adequately capturing normal seasonal variation in measures of economic output. Economic activity slows down in the first quarter, after the holidays and when weather turns unaccommodating for commerce. Seasonal adjustments used by statisticians are meant to smooth this out so the data don’t make the first quarter of the year look like the beginning of a broader downtrend in economic output. It is a live issue now because the Commerce Department has reported the economy grew at a meager rate of 0.2% in the first quarter. Was this normal seasonal variation or a lasting slowdown? Economists were asking similar questions in 2014 and in 2011, when recorded output contracted. People who understand the inner workings of X12-ARIMA statistical algorithms used in the seasonal adjustment process disagree. Economists at the Federal Reserve Bank of San Francisco re-estimated first quarter output using additional statistical adjustments and found the economy expanded at a 1.8% annual rate when adjusted for predictable seasonal patterns, not 0.2%. Macroeconomic Advisers, a private research firm, found that flawed seasonal adjustments tends to reduce recorded first quarter output by 1.6 percentage points. Actual bad weather subtracted an additional 1.6 percentage points from output, Macroeconomic Advisers found. However a study by Federal Reserve Board economists in Washington found no convincing evidence of residual seasonality in recent years. The analysts in these competing studies took different approaches. The Fed board economists focused on the 2010 to 2014 period and found that 2011 and 2014 were simply outlier quarters. The San Francisco Fed and Macroeconomic Advisers found evidence of seasonal adjustment distortions going back two decades.
Feds see problems with GDP data, backs CNBC findings: The government agency charged with calculating the nation's growth rate is acknowledging problems with its numbers and pledging a series of fixes over the next several months. In a statement to CNBC, the Bureau of Economic Analysis said it's "aware of issues" in it gross domestic product data and "is developing methods to address what it has found." The BEA statement comes after CNBC, in a detailed report in April, showed that first-quarter GDP data have been weaker than the other three quarters for the past 30 years and substantially weaker in the past five. Several economists, including researchers at the San Francisco and Philadelphia Federal Reserve banks and many Wall Street economists, have since confirmed CNBC's findings. Many attribute the problem to what is known as "residual seasonality," which are seasonal patterns that remain in the data even though the information is already adjusted for seasonal variations. Nicole Mayerhauser, chief of BEA's national income and wealth division, which oversees the GDP report, said in the statement that the agency has identified several sources of trouble in the data, including federal defense service spending. Mayerhauser said initial research has shown this category of spending to be generally lower in the first and the fourth quarters. The BEA will also be adjusting "certain inventory investment series" that have not previously been seasonally adjusted. In addition, the agency will provide more intensive seasonal adjustment quarterly service spending data.
First-Quarter Growth May Look Better After Upcoming Statistical Tweaks - The Commerce Department on Friday said it is planning a series of steps to smooth out statistical quirks that may be affecting quarterly gross domestic product data. The move could make first (and fourth) quarters of the year a little less bad and the rest of the year a little less good. This year, a phenomenon known as residual seasonality became a hot topic of discussion in some economic circles after Commerce reported a paltry 0.2% rate of expansion for GDP in the first quarter of 2015. That wasn’t the only time the the economy opened on a bad note: Since 2010, first-quarter GDP has averaged a rate of 0.6%. For all other quarters, it’s 2.9%. The trend appears to hold up going even further back, though it may have become exaggerated since the latest recession. What gives?Commerce adjusts its data for recurring seasonal factors–things like weather, holidays and production schedules–to better identify underlying trends in the economy. That’s not to say that a particularly fierce winter shouldn’t be reflected in the data. But other issues may also be weighing on first-quarter numbers. In a blog post, Commerce’s Bureau of Economic Analysis said it “is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon.”Starting this summer–with the release of second-quarter GDP on July 30–Commerce is looking to:
- • Adjust measures of federal government defense services spending, which appear to have lower growth rates in the first and fourth quarter of the year.
- • Start adjusting some inventory investment numbers that don’t now account for seasonal factors.
- • Start adjusting some figures from the Census Bureau’s quarterly services survey that until now haven’t had sufficient time spans for seasonal analysis.
Chicago Fed: Economic Growth Increased Slightly In April - "Index shows economic growth increased slightly in April": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by gains in employment-related indicators, the Chicago Fed National Activity Index (CFNAI) moved up to -0.15 in April from -0.36 in March. Two of the four broad categories of indicators that make up the index increased from March, but only one of the four categories made a positive contribution to the index in April. The index's three-month moving average, CFNAI-MA3, increased slightly to -0.23 in April from -0.27 in March. April's CFNAI-MA3 suggests that growth in national economic activity was some- what below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index, which is also a three-month moving average, was unchanged at -0.12 in April. Thirty-eight of the 85 individual indicators made positive contributions to the CFNAI in April, while 47 made negative contributions. Forty-six indicators improved from March to April, while 37 indicators deteriorated and two were unchanged. Of the indicators that improved, 19 made negative contributions. [Download PDF News Release] The previous month's CFNAI was revised upward to -0.36 from -0.42. The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.
Chicago Fed: US Economic Growth Remains Sluggish In April - The Chicago Fed National Activity Index’s three-month average (CFNAI-MA3) ticked higher in April, but growth remained below the historical trend for the third month in a row. The latest string of three consecutive negative values represents the longest stretch of below-trend data in nearly two years. Still, CFNAI-MA3 inched up to -0.23 last month and so it remains well above the -0.70 mark that signals the start of new recessions. Nonetheless, growth is still weak by recent standards and so today’s report will continue to stoke debate about the economic outlook. “Two of the four broad categories of indicators that make up the index increased from March, but only one of the four categories made a positive contribution to the index in April,” the Chicago Fed said in a statement. Yet the slightly higher reading for CFNAI-MA3 offers another clue for arguing that the US isn’t in recession, at least based on last month’s numbers. It’s still early for deciding how May’s profile compares, although preliminary clues for this month still point to an ongoing expansion, albeit at a lesser pace vs. the robust gains witnessed in late-2014. Today’s business survey data for the manufacturing sector, for instance, offers a modestly upbeat profile. Markit’s purchasing managers’ index (PMI) dipped to 53.8 for May from 54.1 in the previous month, touching a 16-month low. But that’s still well above the neutral 50.0 mark that separates growth from contraction. Meanwhile, running today’s revised CFNAI-MA3 data through a probit modelcontinues to show that the probability is low (roughly 9%) that a recession started in April (a view that jibes with yesterday’s update on business cycle risk via The Capital Spectator’s proprietary indexes). The current risk estimate in the chart below is based on a probit regression that analyzes the historical record of NBER’sbusiness cycle dates with CFNAI-MA3.
Chicago Fed Contracts For 4th Month In A Row As Initial Jobless Claims Hover Near 40 Year Lows -- Initial claims rose very modestly this week but the smoother 4-week average hit fresh cycle lows at 271k - just shy of the lowest level since 1973. Continuing claims also fell to new cycle lows at their lowest since 2000. It appears, as we have noted previously, that peak job-related cost-cutting has been achieved. However, it's not all unicorns and ponies... as Chicago Fed National Activity Indicator printed a disappointing -0.15, the 4th month in a row of contraction. Jobless data says everything is awesome... But Chicago Fed says all is not well... The CFNAI Diffusion Index, which is also a three-month moving average, was unchanged at –0.12 in April. Thirty-eight of the 85 individual indicators made positive contributions to the CFNAI in April, while 47 made negative contributions. Forty-six indicators improved from March to April, while 37 indicators deteriorated and two were unchanged. Of the indicators that improved, 19 made negative contributions. Charts: Bloomberg
Nobody Cares About the Deficit - Krugman -- Sitting here in the UK, where everyone continues to believe that budget deficits are the central issue despite overwhelming evidence to the contrary, it’s refreshing to look home once in a while and contemplate the utter collapse of the deficit-scold agenda. One way to see this is to track the disappearance of Alan Simpson from the radar; another is to look at polls that ask people to name important issues. For example, CNN/ORC has been asking consistent questions for several years; here’s the percentage of voters naming the budget deficit as the most important issue:
- January 2013: 23 percent
- May/June 2014: 15 percent
- Sept. 2014: 8 percent
In the most recent CBS/NYTimes poll, which was open-ended, the deficit didn’t even make it onto the list. And you know what? The public is right, and the Very Serious People were and are wrong.
This Is How You "Boost" GDP: US Sells Over $4 Billion In Weapons To Israel, Iran And Saudi Arabia -- War, what's it good for? Aside from countless deaths of innocent civilians of course, it means a GDP boost for the biggest exporter of weapons on earth, the United States, and even more profits for the US military-industrial complex. Profits which mean the shareholders of America's arms manufacturers get even richer. Which is why following months of middle-eastern sabre ratling and numerous quasi-wars already raging in the region, moments ago the U.S. State Department approved the sale of 10 MH-60R Seahawk helicopters to Saudi Arabia for $1.9 billion, the first step in "a major multibillion-dollar modernization of the Saudi navy's eastern fleet." According to Reuters, the Pentagon's Defense Security Cooperation Agency (DSCA) notified lawmakers on Thursday about the possible arms sale, which has been discussed for years. The Saudi government had requested a sale of the 10 MH-60R multi-mission helicopters, built by Sikorsky Aircraft, a unit of United Technologies Corp and Lockheed, as well as radars, missiles and other equipment, the agency said. Why do the Saudis need a modernization of their already state of the art weapons? "Saudi Arabia will use the enhanced capability as a deterrent to regional threats and to strengthen its homeland defense," the agency said. In other words, the Saudis, by funding ISIS, are creating the very "regional threat" (which recently has launched numerous false flag attacks against the same Saudi Arabia to provie the cover for needing such a modernization) that they need to wage war against.
Pentagon sending 2,000 anti-tank weapons to Iraq - The Pentagon announced on Thursday it is sending 2,000 anti-tank weapons to Iraq, following the rout of U.S.-backed forces in Ramadi by the Islamic State in Iraq and Syria (ISIS). The weapons will arrive as early as next week, said Pentagon spokesman Army Col. Steve Warren. He said the U.S. is also expediting the delivery of other equipment, including ammunition and other equipment to counter ISIS's increasing reliance on vehicle-borne bombs. Within the last 30 days, the U.S. also helped to deliver coalition donations of 22 million rounds of small arms ammunition and 12,000 mortar rounds to the Iraqi army, Warren said. Since Iraqi Prime Minister Haider al-Abadi's visit to Washington in April, the U.S. has also delivered 250 mine-resistant, ambush-protected (MRAP) vehicles, 50 of them with mine rollers; 2,000 Hellfire missiles; 20,000 M-16s; 10,000 sets of body armor and helmets; and millions of rounds of ammunition, including small arms, tank artillery and anti-tank weapons. The weapons are going to the central government of Iraq, for distribution to its army, as well as Kurdish peshmerga and Sunni tribal fighters.
Senate Budget Hearing Preview; Politicization of CBO Means Projections Will Favor Deregulation, Tax Cuts and Entitlement Cuts and Will Disfavor Government Spending on Infrastructure and Education - Today at 10:30 AM the Senate Budget Committee is set to hold a hearing on oversight of the Congressional Budget Office (CBO). Dr. Keith Hall, Director of the CBO, is the lone scheduled witness. The hearing represents one of the first opportunities for stakeholders to learn the extent to which Mr. Hall is pushing to alter the economic assumptions that are critical to CBO budget projections and analyses of individual legislative items. The appointment of Keith Hall to be Director of the Congressional Budget Office is the most dramatic effort by a Congress to overtly politicize the CBO, an organization that has long been relied upon as being objective and nonpartisan. The CBO’s work is so important and each economic assumption so critical to the ability to pass any given piece of legislation that one could argue the CBO, given the disagreement over economic assumptions in the economic community, has always made political decisions. Mr. Hall, however, has a much more politically charged background than previous CBO Directors; he previously worked at the Mercatus Center, a conservative think tank funded in part by the Koch Family foundation, and has made statements (detailed in a recent WSJ article) that support tax cuts, entitlement cuts, and deregulation and that disfavor government spending and an increase in the minimum wage. The Wall Street Journal, in a 2004 article, described Mercatus: “When it comes to business regulation in Washington, Mercatus… has become the most important think tank you’ve never heard of.” Further, WSJ explained, “Mercatus’s rise owes much to the oil-and-gas company Koch Industries Inc… a privately owned company in Wichita, Kan., that contributes heavily to Republican causes and candidates.” The CBO’s willingness to implement “dynamic scoring” in its analyses is also in line with a partisan view that favors tax cuts and deregulation and disfavors government spending.
Jeb Bush Adopts Voodoo Economics - Jeb’s father in 1980 got it right with his phrase “voodoo economics”. Of course Papa Bush had to settle for being Reagan’s Vice President. We know George Jr. listened to the Three Stooges (Art Laffer, Lawrence Kudlow, and Stephen Moore). Daniel Strauss reports: Former Florida Gov. Jeb Bush (R) voiced support for House Republicans' move to switch to a type of budget scoring that assumes tax cuts create economic growth and counterbalance lost revenue. Speaking in New Hampshire on Thursday, Bush was asked about House Republicans' move to adopt the "dynamic scoring" method for scoring budgets. Although critics argue that this approach to scoring is essentially "fairy dust" and "cooks the books" on budget scoring, many Republicans and even a few conservative Democrats have pushed for using the controversial method. In December of last year, House Republicans opted to not reappoint Doug Elmendorf as the head of the nonpartisan Congressional Budget Office, essentially paving the way to adopt dynamic scoring. At the beginning of 2016, House GOPers passed a rule requiring all budgets to use dynamic scoring in budget estimates. Bush first said he was "all in" for eliminating the "bean counters" who use the traditional "static scoring" method. "The House has done this and I think it's the right thing," Bush said in New Hampshire on Thursday. He went on to praise House Ways and Means Committee Chairman Paul Ryan (R-WI), who, in Sept 2014, actually floated the idea that the CBO adopt dynamic scoring. "One of the guys I most respect in Washington D.C. is Paul Ryan. He's thoughtful, he's optimistic, he believes that if you create the right conditions all of us interacting amongst ourselves will create far more benefits for far more people," Bush said. Hey – I’m no fan of bean counters but could someone tell Jeb that Paul Ryan’s accounting is fraudulent?
What we’re arguing about when we’re arguing about trade deals. -- One problem in this whole debate over the Trans-Pacific Partnership is that we lose the forest for the trees. We end up arguing about trade deals—and worse, a deal almost no one has read (because it’s negotiated in secret)—as opposed to the broader underlying issues of the economic impact of trade from the perspective of what matters most: growth, jobs, wages, incomes, and inequality. I draw that distinction because what follows is not about politics. Many players in this debate form their views based on perceived labor or corporate interests, or the fact that their constituents are convinced, often legitimately, that prior trade deals have hurt them. That’s not what I’m thinking about here. What follows is instead is my brief take on the economic questions invoked by the debate. For a deeper dive into much of what’s here, see Chapter 5 in the Reconnection Agenda (I’m not saying it’s any good, but I will say that I spent a lot of time trying to make some of the less intuitive parts of this as clear as possible.) There’s trade and then there’s trade deficits: Economists and the punditry typically pull for more trade because its benefits are well known: greater supplies of goods (and thus lower prices), the opportunities for trading partners to produce and sell more of the goods and services in which they specialize, greater interdependence between countries, the opportunity for developing countries to spur their development.Of course there are costs to those displaced by trade, but in the textbook model, the benefits are more widely felt than the costs.That’s not, however, the full story in the US by a longshot. The key distinction is, as the figure above shows, that we’ve run large—in terms of their impact on the generally benign scenario just described—trade deficits since the mid-1970s.
Healthcare groups object to Medicare cuts in trade bill -- Leading healthcare provider groups are objecting to Medicare cuts being used to help pay for a new House Republican trade bill. The Trade Adjustment Assistance (TAA) bill helps workers displaced by trade and provides a tax credit to help pay for health insurance. It was rolled out in addition to a proposal to give President Obama “fast-track” authority on trade. The healthcare providers object to the TAA bill including a 0.25 percent cut in Medicare payments in fiscal year 2024, which amounts to a $700 million cut, according to the Congressional Budget Office. The move adds to the 2 percent cut that came as part of the sequester passed in 2011. “Hospitals, physicians, nursing homes and home health and hospice providers have already absorbed hundreds of billions of dollars in cuts to the Medicare program in recent years,” says a letter to lawmakers Tuesday from the provider groups. “Additionally alarming is the use of Medicare cuts to pay for non-Medicare related legislation, a precedent that we believe is unwise.”
Senate Democrats Work with Republicans Throw Medicare Under the Bus as Part of TPP Fast Track Sausage-Making -- I got an email blast on Medicare and TPP from Democracy for America, so I looked into it. Here’s the paragraph in question from DFA: There’s a big — brand new — attack on Medicare that’s just been added in the Senate to the Fast Track bill for the TPP. The bill would cut a whopping $700 million from Medicare, hurting seniors who need access to health care. Has Trade Adjustment Assistance been added to the TPP Fast Track bill? In a word, no. The Trade Adjustment Assistance Act (TAA) and the Trade Promotion Authority (“Fast Track”) are separate pieces of legislation, so when DFA says that TAA has “just been added in the Senate to the Fast Track bill for the TPP,” that’s not correct. Still, that doesn’t mean that a deal wasn’t cut, and that seems to be just what’s happened. National Journal: The Trade Adjustment Assistance reauthorization bill hasn’t received as much attention as the fast-track trade authority bill, but Democrats see it as a priority: The program helps workers who have been put out of a job because of foreign trade with job-training and placement as well as health-insurance costs. The House and Senate are expected to move the bill in tandem with the fast-track trade measure, said an aide to Democratic Sen. Ron Wyden, who hashed out the trade deal with Sen. Orrin Hatch and Rep. Paul Ryan, both Republicans.And the bills indeed moved in tandem; the Senate voted for closure of both Fast Track and TAA last Thursday, May 14. Has $700 million been cut from Medicare as a result? Because that’s a lot of money, even today.[1] In a word, yes.[2] Modern Health Care:The Trade Adjustment Assistance Act, sponsored by Rep. David Reichert (R-Wash.), would rely on $700 million in reduced Medicare spending in 2024 to pay for [sic] healthcare coverage and other benefits for workers who lose coverage because of any agreements negotiated under fast-track trade authority sought by President Barack Obama. The $700 million in savings would be achieved by increasing Medicare cuts that were part of the sequester by 0.25% in 2024.
Trade and Trust - Paul Krugman -- I’m getting increasingly unhappy with the way the Obama administration is handling the dispute over TPP. I understand the case for the deal, and while I still lean negative I’m not one of those who believes that it would be an utter disaster. But the administration — and the president himself — don’t help their position by being dismissive of the complaints and lecturing the critics (Elizabeth Warren in particular) about how they just have no idea what they’re talking about. That would not be a smart strategy even if the administration had its facts completely straight — and it doesn’t. Instead, assurances about what is and isn’t in the deal keep turning out to be untrue. We were assured that the dispute settlement procedure couldn’t be used to force changes in domestic laws; actually, it apparently could. We were told that TPP couldn’t be used to undermine financial reform; again, it appears that it could. How important are these concerns? It’s hard to judge. But the administration is in effect saying trust us, then repeatedly bobbling questions about the deal in a way that undermines that very trust.
The Trojan Horse President - I am not an economist, not even close, but Joseph Stiglitz is. Stiglitz is actually a Nobel Prize winning economist, former Chair of President Clinton's Council of Economic Advisers, and former chief economist for the World Bank. Joseph Stiglitz is positively terrified of the Trans-Pacific Partnership (TPP) deal being pushed rabidly by President Obama. Because he is, I am also frightened by what this "deal" portends. Stiglitz: Fundamental to America's system of government is an impartial public judiciary, with legal standards built up over the decades, based on principles of transparency, precedent, and the opportunity to appeal unfavorable decisions. All of this is being set aside, as the new agreements call for private, non-transparent, and very expensive arbitration. Moreover, this arrangement is often rife with conflicts of interest; for example, arbitrators may be a "judge" in one case and an advocate in a related case.If there ever was a one-sided dispute-resolution mechanism that violates basic principles, this is it. That is why I joined leading U.S. legal experts, including from Harvard, Yale, and Berkeley, in writing a letter to President Barack Obama explaining how damaging to our system of justice these agreements are.Rules and regulations determine the kind of economy and society in which people live. They affect relative bargaining power, with important implications for inequality, a growing problem around the world. The question is whether we should allow rich corporations to use provisions hidden in so-called trade agreements to dictate how we will live in the twenty-first century. I hope citizens in the U.S., Europe, and the Pacific answer with a resounding no.
The Mis-selling of TPP - Krugman - Good ideas do not need lots of lies told about them in order to gain public acceptance, and if you see a lot of lies, or at least misdirection, being used to sell a policy you should be very, very concerned about said policy.And the selling of TPP just keeps getting worse.William Daley’s pro-TPP op-ed in today’s Times is just awful, on multiple levels. No acknowledgment that the real arguments are not about trade but about intellectual property and dispute settlement; on top of that a crude mercantilist claim that trade liberalization is good because it means more exports; some Dean Baker bait with numbers — $31 billion in trade surplus! All of 0.2 percent of GDP!But what really annoyed me, even if it’s not necessarily the worst bit, was this:But today, of the 40 largest economies, the United States ranks 39th in the share of our gross domestic product that comes from exports. This is because our products face very high barriers to entry overseas in the form of tariffs, quotas and outright discrimination.Actually, no. We have a low export share because we’re a big country. Here’s population versus exports as a percentage of GDP for OECD countries:Photo Credit Population isn’t the only determinant — geography matters too, as the contrast between Luxembourg (in the middle of Europe) and Iceland shows. But claiming that the relatively low US export share says anything at all about trade barriers makes me want to bang my head against a wall.If this is the best TPP advocates can come up with, this is not looking like a good idea.
How Much Should a Currency Be Worth? No One Really Knows - WSJ -- Legislation that targets currency manipulation might make or break U.S. President Barack Obama’s signature Pacific trade deal. But calling out offenders for currency transgressions is far from a clear-cut exercise. U.S. lawmakers, companies and unions are trying to use pending trade legislation to strike back at countries they say subsidize their industries through devalued exchange rates. They’re finding themselves entangled in a decadeslong debate about currency valuations that has bedeviled leading institutions such as the International Monetary Fund and the World Trade Organization. The complicated currency calculus is likely to persist well beyond any deal, stymieing attempts to rein in exchange-rate complaints through arbitration or diplomacy. Some U.S. lawmakers are channeling their constituents’ long-held grievances by pressing to incorporate enforceable currency provisions into the Trans-Pacific Partnership, a proposed 12-nation free-trade deal tying together 40% of the global economy. Legislators from manufacturing-heavy states in particular—such as Michigan, Ohio and New York—worry that TPP members and potential future partners such as South Korea and China could offset any gains made through the pact by depreciating their currencies. A weaker currency slashes production costs and fuels exports, at the expense of competitors overseas. Some economists and companies, for example, say China’s managed exchange-rate policy over the past decade cost the U.S. millions of jobs as Beijing subsidized its exporters by keeping the value of the yuan as much as 40% below the level market fundamentals would suggest. “Currency manipulation is the mother of all trade barriers,” said Stephen Biegun, a vice president of international government affairs for Ford Motor Co. Ford, like other U.S. auto makers, is backing lawmaker proposals to punish countries that depreciate their currencies to gain a competitive advantage.
Some administration officials defend trade pact as national security policy - The Democratic Party’s civil war on trade has taken a sudden national security turn. Defense Secretary Ashton B. Carter said President Obama’s Pacific trade deal was as important to the military as a new aircraft carrier. Former top State Department official Kurt Campbell warned that U.S. diplomacy in Asia would earn a failing grade if the trade pact perishes in Congress. Michèle Flournoy, a former No. 3 at the Pentagon, wrote in a recent newspaper editorial: “America’s prestige, influence and leadership [is] on the line.” As Capitol Hill progressives fan fears of domestic job losses in the rancorous debate over trade, Washington’s Democratic foreign policy elite has mounted a fierce defense of the pact as crucial to the Obama administration’s national security strategy.Behind their warnings lies the uncomfortable truth that some inside the administration view the Trans-Pacific Partnership (TPP), a broad 12-nation accord, as a policy aimed foremost at China. On Tuesday, on his way home from meetings in Beijing focused on maritime disputes in the region, Secretary of State John F. Kerry will stop in Seattle to deliver remarks about the strategic importance of the trade pact.
The tribes are locked in battle over trade deals - FT.com: Normally the small group of wonks who analyse trade agreements go quietly about their business in the crepuscular half-light of resolute public apathy. Suddenly, the searchlight has swung to their murky corner and they are blinking in surprise. This week’s shenanigans on Capitol Hill, where the Senate Democrats first blocked then unblocked President Barack Obama’s bid for trade promotion authority, which eases the passage of trade deals through Congress, might look like standard Washington posturing. But behind it — and imperilling the passage of the Trans-Pacific Partnership (TPP) being negotiated with 11 other Pacific Rim nations — is a surge in campaigning activism against trade deals. Trade negotiations are facing the biggest wave of public criticism at least since the multilateral “Doha round” died seven years ago. They even recall the mass anti-globalisation demonstrations of the late 1990s, albeit without the more physically confrontational activists and the consequent tear gas. The causes are obvious. With the launch of TPP and TTIP, sceptics of trade deals finally have live examples to go after. Globalisation, mostly but not entirely unfairly, catches the blame for rising inequality; and trade deals catch the blame for globalisation. Trade deals are now also more invasive. Instead of import tariffs, they are focused on issues such as food hygiene rules and copyright regimes for books and films. Particularly controversial is a subject previously abstruse even to wonks: “investor-state dispute settlement” (ISDS), which allows companies to sue governments directly for unfair restrictions. European campaigners fear US companies will use the proposed ISDS provisions in TTIP to force private competition into state-regulated health systems.
Elizabeth Warren Details Obama's Broken Trade Promises: -- Sen. Elizabeth Warren (D-Mass.) issued a report Monday morning detailing decades of failed trade enforcement by American presidents including Barack Obama, the latest salvo in an ongoing public feud between Warren and Obama over the Trans-Pacific Partnership. Obama is currently negotiating the major trade pact with 11 other nations. While the text of the TPP agreement remains classified information, it is strongly supported by Republican leaders in Congress and corporate lobbying groups including the U.S. Chamber of Commerce. The deal is opposed by most congressional Democrats, along with labor unions, environmental groups and advocates of Internet freedom. Obama has repeatedly insisted the TPP will include robust labor protections, and has dismissed Warren's criticisms as "dishonest," "bunk" and "misinformation." On Monday, Warren fired back, showing that Obama simply has not effectively enforced existing labor standards in prior trade pacts. According to the report, a host of abuses, from child labor to the outright murder of union organizers, have continued under Obama's watch with minimal pushback from the administration. "The United States does not enforce the labor protections in its trade agreements," the report reads, citing analyses from the Government Accountability Office, the State Department and the Department of Labor. Of the 20 countries the U.S. currently has trade agreements with, 11 have documented reliance on child labor, forced labor or other human rights abuses related to labor, according to the report. The violations are not confined to exploitation. Since Obama finalized a labor action plan with the government of Colombia in 2011, 105 union activists have been murdered. Obama called the Colombian deal "a win-win for workers" at the time. Despite these trade violations, none of these countries has faced significant consequences from the United States government.
This Time, Sen. Warren Slams Obama on Labor Enforcement in Trade Deals - Sen. Elizabeth Warren has warned loudly that a trade provision before the Senate could gut her prized Wall Street rules. Now, one of President Barack Obama‘s leading critics on trade is taking him to task for not protecting workers. The Democratic senator from Massachusetts, a champion of financial rules to rein in Wall Street, says in a new report, “Broken Promises,” that Mr. Obama and past presidents have done too little to protect the rights and wages of workers when negotiating trade deals such as the big Trans-Pacific Partnership deal now in the works. Her attack highlights a concern that is making it difficult to find Democratic votes for so-called fast track trade legislation. “The rhetoric has not matched the reality,” Sen. Warren says. “There have been widespread enforcement problems and flaws.” The Senate is currently debating fast track, which would ensure the Pacific trade agreement gets a timely final vote in Congress without amendments, if it’s completed. The Senate could approve the legislation as early as this week, but it’s likely to face a rougher path to approval in the House, where many conservatives are joining the majority of Democrats in opposing the measure. Democratic lawmakers who share concerns with labor groups have been some of the staunchest critics of fast track, also known as trade promotion authority, and the Trans-Pacific Partnership that the legislation would expedite. The TPP includes Vietnam and other countries with low labor standards, raising concerns that a trade deal would lift barriers at the border and encourage further offshoring and outsourcing.
Imports Displace Domestic Jobs: Why Do Proponents of Trade Agreements Have So Much Trouble Acknowledging This Fact? -- Dean Baker -- Suppose Ford closes an assembly plant in Ohio and instead has its cars assembled in Mexico and shipped back to the United States. The workers in the Ohio factory have lost their jobs because of imports. This is a very simple point. For some reason supporters of trade deals like the Trans-Pacific Partnership (TPP) have trouble acknowledging this basic fact. It is not possible to have a serious assessment of the impact of TPP or any trade deal without considering the workers who would likely lose their jobs due to increased imports. It is also important to note that the impact stems well beyond the workers who lose their jobs to the much larger number who see a reduction in pay as a result of reduced demand for their labor. With a recent report on the topic, the Congressional Research Service (CRS) seems to have joined the ranks of the denialists. The report goes to great lengths to argue that it is not possible to produce a figure for jobs lost due to imports that is comparable to the International Trade Administration (ITA) estimate that $1 billion of exports supports an average of 5,590 jobs. The report correctly notes that the ITA estimate was explicitly designed as an estimate of the jobs associated with $1 billion in exports, based on the goods and services the United States exports. It then argues at length that it is wrong to use this number for estimating the jobs lost due to $1 billion in imports. While the composition of exports is different from the composition of imports, it is unlikely that the relationship between employment and output is hugely different between the export and the import competing sectors. In fact, since wages are somewhat lower in manufacturing in import competing sectors than in manufacturing in the export sector, it is likely that more job loss would be associated with a $1 billion increase in imports than would be associated with a $1 billion increase in exports.
Trade and the Decline of U.S. Manufacturing Employment - Krugman - As Matthew Yglesias notes, many people believe that US manufacturing has disappeared because it has all moved to China and Mexico — but they’re largely wrong. I’m not sure that pointing to measures of industrial production is the bet way to make this point, however. A better approach, or so I’d argue, is to ask how much of the decline in manufacturing employment would have been avoided if we weren’t running big trade deficits. Let’s start with the US trade balance in manufactured goods. Or actually let’s use a pretty good proxy that’s easy to pull up from FRED, the nonag-nonoil balance — non-agricultural exports minus non-petroleum imports. Here it is as a share of GDP: We had rough balance in this measure 40 years ago, exporting about as much in the way of manufactured goods as we imported; nowadays it’s a persistent deficit on the order of 3 percent of GDP. That 3 percent matters — it’s a pretty major obstacle in efforts to achieve full employment, because it’s a drag on the overall demand for US goods and services. But it’s not the main explanation, or even close, for the decline in manufacturing employment as a share of the total, which is down around 15 points since 1970: You might be tempted to say that the widening trade deficit in manufactures accounts for 20 percent of this long-term decline — 3 points out of 15 — but even that is an exaggeration, because not every dollar of manufactured exports (or imports) corresponds to a dollar of manufacturing value-added. For the most part, in other words, declining manufacturing employment isn’t due to trade. Again, that doesn’t mean that trade deficits are OK, or that trade hasn’t had other effects. But even if we’d had a highly protectionist world or in some other way had blocked the move into trade deficit, we’d still have seen most of the great decline in industrial jobs.
The Trans-Pacific Partnership (TPP): This Is Not About Ricardo - The Obama administration is lobbying hard for Congress to pass a trade promotion authority (TPA) and to quickly approve the Trans-Pacific Partnership (TPP), a free trade agreement that is on the verge of being finalized. The administration and its supporters on this issue, including leading Republicans, argue that the case for TPP rests on basic economic principles and is only strengthened by the findings of modern research. On both counts their claims are greatly exaggerated – particularly with regard to the notion that more trade, on these terms, is necessarily better for the United States. There is a strong theoretical and empirical case – dating back to David Ricardo in 1817 – that freer trade should make countries better off. However, modern-day trade agreements, including those currently being negotiated, are very different from earlier experiences with trade liberalization. The TPP is not only – perhaps not even mostly – about freer trade, and thus who gains and who loses is very much dependent on what exactly are the details of the agreement. The exact nature of the provisions matters and at this point, because the TPP text is not available to the public, we cannot be sure whom this trade agreement will help or hurt within the United States or elsewhere. Contrary to the mutual benefits of international trade in general, there is no clear-cut theoretical case that stronger enforcement of IPRs will benefit all parties. In the world in which the developing countries can imitate technologies of developed countries, improving intellectual property rights protection in developing countries is actually likely to make them worse off. This is intuitive: ignoring the developed countries’ IPRs allows developing countries to adopt better technologies faster, increasing welfare there. In the case of medicines, for example, forcing lower income countries to fully respect all patents will mean more expensive treatments and less access to life-saving drugs.
Debate Over Currency Cheating Intensifies in Trade Talks - — Thirty-six years ago, Japan lowered import tariffs on foreign automobiles to zero, ostensibly opening the world’s fourth-largest auto market to full international competition. Yet United States automakers say 93 percent of the cars on Japan’s well-tended roads are still made in Japan by Japanese companies.Consumers there simply prefer their country’s cars, Japan has said.Automakers in the United States, however, say something else has long been amiss: the systematic, intentional weakening of the yen by Japanese policy makers, which effectively raised the cost of all kinds of imports, autos included.With bipartisan momentum building for a currency amendment to the trade bill, President Obama on Tuesday publicly backed a pledge by the leaders of the Senate Finance Committee and Representative Paul D. Ryan of Wisconsin, chairman of the House Ways and Means Committee, to complete a trade policy enforcement bill by next month.That bill, which passed the Senate last week, contains its own tough currency measure, but Republicans are quietly working to water it down if not remove it altogether. Mr. Obama backed what he called “constructive tools to address unfair currency practices.”Opponents say the moment for such harsh measures has passed. The last time Japan overtly interfered with its exchange rate was 2011. China’s currency, the renminbi, which was long held down to help the country’s export industries penetrate markets in the United States and elsewhere, has been gaining value against the dollar. And the Obama administration insists its own diplomacy has effectively dealt with the problem.On Tuesday, citing those gains, Treasury Secretary Jacob J. Lew sent a letter to the bipartisan leadership of the Senate Finance Committee, saying he would recommend that the president veto a trade-promotion authority bill that included a mandated response to currency manipulation.Yet American politicians, pressed hard by Detroit, say they are not going to give up this chance to finally legislate a solution.
Preventing Currency Manipulation - Simon Johnson - As Congress debates the trade promotion authority, TPA, the issue of currency manipulation remains firmly on the table. The administration and Republican leadership insist that language discouraging currency manipulation should not be included in the TPA (and also not in the Trans-Pacific Partnership, TPP, a trade agreement currently under negotiation). Many Democrats and Republicans continue to argue in favor of prohibiting currency manipulation. On Tuesday, the Treasury Department and White House claimed that the amendment proposed by Senators Rob Portman (R., Ohio) and Deborah Stabenow (D., Michigan) would actually impede the ability of the Federal Reserve to conduct monetary policy. This is absurd. The Portman-Stabenow amendment clearly and precisely addresses protracted one-way intervention in foreign exchange markets, i.e., large-scale purchases of foreign assets by a central bank. The Federal Reserve does not engage in such activities – nor will it engage in this kind of intervention in the foreseeable future. US monetary policy involves buying and selling domestic assets. The Fed does not buy foreign assets on any significant scale. There is nothing in this amendment that would impede the workings of US monetary policy. To suggest otherwise is to mischaracterize the nature of this amendment. There are instead three main issues of substance worth further consideration. First, can we measure currency manipulation? The answer here is clear: yes. Second, do countries currently manipulate their exchange rates on a massive scale? For the most part, the extent of manipulation is at a relative low (as Robert Samuelson argues in the Washington Post). Third, if the US insists on addressing currency manipulation in the TPP, would this derail the agreement? No, it would not – precisely because the US would be taking up this issue in a constructive negotiated framework.
Why Is The White House Threatening To Veto An Imaginary Trade Promotion Authority (TPA)? -- Simon Johnson - At today’s daily briefing, White House spokesman Josh Earnest communicated the president’s threat to veto any trade promotion authority (TPA) that “could undermine the independence or ability of the Federal Reserve to make monetary policy decisions”. (The question was posed at minute 42:50, Mr. Earnest’s answer starts at 43:31, and the lead up to this quote starts around 45:20.)Mr. Earnest’s statement seems clear enough, but what potential TPA is he talking about? Either the White House is confused or some other communications strategy is at work here. Either way, Mr. Earnest is describing some imaginary version of TPA that is simply not on the congressional table. He most certainly cannot be accurately describing the bipartisan Portman-Stabenow amendment, currently before the Senate. This amendment specifically goes out of its way to state that it would not “restrict the exercise of domestic monetary policy.” Here is the full text: The Portman-Stabenow amendment is focused entirely on “protracted large-scale intervention in one direction in the exchange markets,” i.e., the situation when a foreign central bank acquires a massive amount of foreign assets (typically dollars) in a successful attempt to keep their currency undervalued – and therefore their exports much cheaper than they would otherwise be. This is not something that the Federal Reserve does – nor anything that it is likely to do in the foreseeable future.
Currency Sanctions in the Trade Bill: A Risk or a Ruse? - Would sanctioning currency manipulators really put U.S. monetary policy at risk? Maybe. Maybe not. The risk that tough anti-manipulation measures could impede Federal Reserve policies is one of the main arguments the Obama administration is using to warn lawmakers against including binding penalties against countries that devalue their exchange rates in key trade legislation. Lawmakers pushing for tough rules inside a trade bill say the argument is erroneous. “Those who oppose currency disciplines continue to raise this false argument,” Rep. Sander Levin, (D., Mich.), the ranking member on the House committee responsible for trade policy and a chief advocate for tougher currency sanctions, said in a speech Thursday. The White House warned this week President Barack Obama would veto fast-track legislation if it contained measures that would penalize countries for devaluing their currencies. The administration says such measures would kill the years-long effort to seal the Trans-Pacific Partnership free-trade deal, a pillar of the president’s plan to boost the U.S. economy and fortify economic and strategic ties in Asia. Central to the administration’s argument is a claim that those measures could constrain legitimate monetary policy such as the Fed’s easy-money stimulus in the wake of the financial crisis. It would “put our domestic macroeconomic policies in the hands of uninformed arbitrators without appropriate expertise and confuse our already successful engagement in the G-20, the G-7, the IMF, and bilaterally,” Treasury told lawmakers in a letter this week. (See the administration’s full argument here.)
Obama on the TPP: Beckoning Us to the Graveyard - “We have to make sure America writes the rules of the global economy and we should do it today while our economy is in a position of global strength. If we don’t write the rules for trade around the world, guess what, China will. And they’ll write those rules in a way that gives Chinese workers and Chinese businesses the upper hand.” Those very few words of Obama’s, his most widely circulated PR effort to garner support for the TPP (Trans Pacific Partnership) and thoroughly representative of the thinking of our imperial elite, are so revealing, so wrong and so dangerous on so many levels that one scarcely knows where to begin. In fact they carry the seeds of our destruction. And they are focused on China. First, the arrogance and hegemonic intent of the statement is astonishing even though it has become routine for the U.S. elite. What gives the United States, a country of 300 million on the opposite side of the vast Pacific, the right to determine the rules of trade for East Asia, which includes China, a country of 1.3 billion people? The U.S. can no longer assert that privilege based on its economic power since its gross GDP, measured in Purchasing Power Parity is now, according to the IMF, second to China’s. Clear evidence of the relative power of the Chinese and American economies was the world’s reaction to China’s launch of the badly needed Asian Infrastructure Investment Bank (AIIB) to provide development funds for Asia and beyond. U.S. allies, even the UK and Israel, stumbled over one another to join the AIIB, despite the bullying of the U.S. to stop them, leaving the U.S. and its cat’s paw in East Asia, Japan, out in the cold. More amazingly, the U.S. thinks it can write the rules of trade for China and East Asia! Given the new economic realities, that day is past. Indeed, Obama, perhaps unwittingly in his desperation to sell the measure by frightening us into acceptance of it, acknowledges this fact. What else can he mean when he says, “we should do it (pass TPP) today while our economy is in a position of global strength.” What is he saying implicitly about the situation tomorrow?
Elizabeth Warren Cites Hillary Clinton Quote Against The TPP | Video - WARREN: I've joined with Senator Heitkamp, Senator Manchin and a number of other senators to propose a simple change to the fast-track bill, a change that would prevent Congress from using this expedited process on any trade deal that includes so-called investor state dispute settlement (ISDS) provisions, and I come to the floor today to urge my colleagues to support this amendment. ISDS is an obscure process that allows big companies to go to corporate-friendly arbitration panels that sit outside any court system in order to challenge laws they don't like. These panels can force taxpayers to write huge checks to those big corporations with no need to file a suit in court, no appeals and no judicial review. Now, most Americans don't think that the minimum wage or anti-smoking regulations are trade barriers, but a foreign corporation used ISDS to sue Egypt after Egypt raised its minimum wage. Tobacco giant Philip Morris went after Australia and Uruguay to stop their rules to cut smoking rates. Under TPP, corporations can use these channels to challenge rules right here in America.
Hundreds of tech companies line up to oppose TPP trade agreement -- More than 250 tech companies have signed a letter demanding greater transparency from Congress and decrying the broad regulatory language in leaked parts of the controversial Trans-Pacific Partnership trade bill. The TPP would create an environment hostile to journalists and whistleblowers, said policy directors for the Electronic Frontier Foundation and Fight for the Future, co-authors of the letter. “TPP’s trade secrets provisions could make it a crime for people to reveal corporate wrongdoing ‘through a computer system’,” says the letter. “The language is dangerously vague, and enables signatory countries to enact rules that would ban reporting on timely, critical issues affecting the public.” Among the signatories are activist, sci-fi author and Guardian tech columnist Cory Doctorow. “Democracies make their laws in public, not in smoke-filled rooms,” Doctorow wrote. “If TPP’s backers truly believed that they were doing the people’s work, they’d have invited the people into the room. The fact that they went to extreme, unprecedented measures to stop anyone from finding out what was going on – even going so far as to threaten Congress with jail if they spoke about it – tells you that this is something being done *to* Americans, not *for* Americans.” Also on the list were prominent members of the open source community, including David Heinemeier Hansson, creator of the popular Ruby on Rails web development framework, image hosting company Imgur and domain name manager Namecheap. There was a notable absence from the letter of big, international tech companies like Apple, Google and Facebook. Apple and AT&T are part of the president’s International Trade Advisory Committee (which advises the Oval Office on matters relating to industry) and their representatives have their representatives have presumably been able to read sections of the bill that would apply to their industry.
250+ Tech Companies and Digital Rights Groups: TPP Could Criminalize Journalism and Whistleblowing -- Hundreds of tech companies and digital rights groups – including Imgur, DreamHost, Namecheap, AVG, Mediafire, Internet Archive, BoingBoing, Piwik, Private Internet Access, and more than 200 others – signed a letter to Congress today stating: Criminalizing Journalism and Whistleblowing: TPP’s trade secrets provisions could make it a crime for people to reveal corporate wrongdoing “through a computer system.” The language is dangerously vague, and enables signatory countries to enact rules that would ban reporting on timely, critical issues affecting the public. TPP sucks.
Fast Track Amendments Are Too Little Too Late to Salvage the TPP Agreement - As part of the congressional to-and-fro over the pending Fast Track bill, senators with concerns about the process and substance of trade negotiations have been putting forward some proposed amendments. None of these amendments would alter the substance of what Fast Track is—a bill to authorize the President to enter into binding trade agreements such as the Trans-Pacific Partnership (TPP) without proper congressional oversight over these secretive, industry-led deals. As such, even if they were to be adopted, the amendments do not address our most fundamental concerns with the bill. Nevertheless, they do hone in on a couple of the most egregious problems with Fast Track and with the trade deals that it enables, including the TPP and Trans-Atlantic Trade and Investment Partnership (TTIP). Perhaps the issue that has received the most attention has been that of investor-state dispute settlement (ISDS); which gives foreign corporations a free pass to overturn or receive compensation for the effects of democratically-enacted laws that negatively affect their business. Senators Elizabeth Warren and Heidi Heitkamp, with support of 13 other senators, have tabled an amendment that would exclude access to the Fast Track procedure [PDF] for any trade agreement that contains an ISDS clause. As things stand, that would include both the TPP and the TTIP, which means that both of those agreements would have to come before Congress before the United States signs them—which in turn would probably defeat the agreements. A second amendment, from Sens. Blumenthal, Brown, Baldwin, and Udall, addresses the lack of transparency of the agreement, and would require “all formal proposals advanced by the United States in negotiations for a trade agreement” to be published on the Web within five days of those proposals being shared with other parties to the negotiations. This would bring the United States up to the same level as the European Commission, which has already begun publishing its own TTIP position papers and text proposals to the public.
Trade and Trust, by Pau Krugman - First of all, whatever you may say about the benefits of free trade, most of those benefits have already been realized. A series of past trade agreements, going back almost 70 years, has brought tariffs and other barriers to trade very low to the point where any effect they may have on U.S. trade is swamped by other factors, like changes in currency values. In any case, the Pacific trade deal isn’t really about trade. Some already low tariffs would come down, but the main thrust of the proposed deal involves strengthening intellectual property rights — things like drug patents and movie copyrights — and changing the way companies and countries settle disputes. And it’s by no means clear that either of those changes is good for America. As I see it, the big problem here is one of trust. International economic agreements are, inevitably, complex, and you don’t want to find out at the last minute — just before an up-or-down, all-or-nothing vote — that a lot of bad stuff has been incorporated into the text. So you want reassurance that the people negotiating the deal are listening to valid concerns, that they are serving the national interest rather than the interests of well-connected corporations. Instead of addressing real concerns, however, the Obama administration has been dismissive, trying to portray skeptics as uninformed hacks who don’t understand the virtues of trade. But they’re not: the skeptics have on balance been more right than wrong about issues like dispute settlement, and the only really hackish economics I’ve seen in this debate is coming from supporters of the trade pact. It’s really disappointing and disheartening to see this kind of thing from a White House that has, as I said, been quite forthright on other issues. And the fact that the administration evidently doesn’t feel that it can make an honest case for the Trans-Pacific Partnership suggests that this isn’t a deal we should support.
Obscure Government Document Shows Elizabeth Warren Is Right About TPP -- As opponents and advocates of the Trans-Pacific Partnership (TPP) continue to battle it out, the debate over the agreement has largely focused on the issue of trade – whether jobs will be lost or gained, what the agreement will do to our trade deficit, and other related matters. It's worth pointing out that the United States already trades heavily with the other 11 nations included in the TPP talks. As Paul Krugman says, “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.” Senator Elizabeth Warren (D-MA) has been particularly critical of the so-called Investor State Dispute Settlement provisions, which would empower corporations to use international courts to sue the U.S. government and others who are enacting regulations and protections that harm their profits. The Obama administration is arguing that the deal is instead about trade and increasing American exports abroad. They have set up a web page on the U.S. Trade Representative's (USTR) site listing the benefits of exports from each of the fifty states in order to argue for the Trans-Pacific agreement. Yet an obscure government document put out by that very same office makes Warren's case for her. The office puts out an annual report on “foreign trade barriers” around the world, going country by country to list complaints the U.S. government has about their laws with respect to commerce. If you read the 2015 report, you'll quickly see that many of the complaints are about laws designed to promote environment, labor, and anti-monopolistic practices – and relate only vaguely to the larger issue of trade and tariffs. The complaints seem more focused around opposing regulations that restrict the rights of multi-national corporations and their investors.
Republicans claim enough votes to pass fast-track trade bill | Reuters: Top Republicans predicted on Sunday that both chambers of Congress would muster the votes to pass the "fast-track" authority sought by President Barack Obama to negotiate major trade deals, despite opposition from Obama's fellow Democrats. "Yes, we’ll pass it. We'll pass it later this week," Senate Republican leader Mitch McConnell said in an interview with ABC. Republican U.S. Representative Paul Ryan said on CNN's "State of the Union" that he was confident the measure would also pass the House of Representatives. "We will have the votes," said Ryan, chairman of the House Ways and Means Committee. "We're doing very well. We're gaining a lot of steam and momentum." The trade issue has made unlikely allies of Republicans in Congress and the Democratic president. McConnell, who has frequently clashed with Obama on a number of issues, offered him rare praise on Sunday. "The president has done an excellent job on this," McConnell said on ABC's "This Week." He pointed out that the six-year Trade Promotion Authority was "not just for President Obama, but for the next president as well."
Trade bill clears Senate hurdle - (CNN) A free trade initiative that is pitting President Barack Obama against his own party cleared a major procedural hurdle in the Republican-controlled Senate on Thursday. The 62-38 vote to end debate on the bill, moving it toward a final vote, was a victory for Obama, who had linked with Senate Majority Leader Mitch McConnell, R-Kentucky, to push the bill despite opposition from Senate Democratic leaders. McConnell said he's willing to consider a host of amendments that Democrats are poised to offer later Thursday. "This last vote was a major step forward on this important legislation," said Utah Sen. Orrin Hatch, a Republican who sponsored the bill. The Senate is now set to vote on changes to the bill, including one that would force the Obama administration to use trade deals to crack down on countries that manipulate the value of their currencies to give their exports a price advantage in the United States — an amendment the White House opposes because it would add a huge new complication into trade negotiations. Even though Senate passage is ultimately now much more likely, the House could be tougher. There, tea party conservatives are linking up with liberals to form a broader populist opposition than what existed in the Senate.The measure would hand the President six years' worth of "trade promotion authority" — the power to submit trade deals to Congress for an up-or-down vote with limited debate and no amendments.
Obama trade bill clears big Senate hurdle – On life support as of early Thursday morning, President Barack Obama’s trade agenda has found new life. In a dramatic vote critical to the future of the president’s goal of securing new trade deals with Pacific Rim and European countries, the Senate on Thursday broke a bipartisan filibuster of legislation to give the president “fast-track” authority to negotiate new trade deals. The 62-38 vote preserves the possibility that the Senate can finish the trade bill before the Memorial Day recess, which would be a major boon to Obama and Republican leaders in the House and Senate. It came after a round of horse-trading that assures the Export-Import Bank will receive a chance at a lifeline to live past June 30, when it is scheduled to expire. “It was a nice victory. We’re going to continue and finish up the bill this week,” Senate Majority Leader Mitch McConnell told reporters. McConnell was seen on the floor talking with senators in both parties who want to see Ex-Im extended, and soon after a half-dozen lawmakers announced their support for the trade measure, lifting it above the filibuster’s 60-vote threshold. Republican and Democratic senators had been pushing to attach Ex-Im to the trade bill. But McConnell resisted because he fears that combining the two would have imperiled the trade bill’s prospects in the House, where it already faces difficult odds. The suspense on the Senate floor Thursday began when Republicans offered more votes on amendments to the trade bill, which were summarily rejected by Sen. Sherrod Brown (D-Ohio) as insufficient for a bill of this magnitude. McConnell and Senate Finance Chairman Orrin Hatch (R-Utah) then chose to roll the dice and plow ahead with the vote. The roll call lasted about 45 minutes, and McConnell cut the deal with Ex-Im backers on the Senate floor, in plain view of the media.
This Time, Senate Votes to Advance Trade Pact - NYTimes.com: A flurry of last-minute deal-making on the Senate floor Thursday rescued President Obama’s ambitious trade agenda from defeat, advancing legislation that would empower the president to complete a sweeping, 12-nation Pacific trade accord.The bill, the first to grant a president trade promotion authority since 2002, still must weather a bunch of amendment votes on Friday, but Senate passage is now likely before the Memorial Day weekend, Senate leaders said. That would set up a difficult showdown early next month in the House, where Mr. Obama will have to work to persuade Democrats to back him.“We understand we’ve got work to do,” said Representative Ron Kind, Democrat of Wisconsin, who is leading efforts to round up Democratic votes for trade promotion in the House.Thursday’s dramatic vote in the Senate was a major step forward for Mr. Obama’s trade effort, which envisions an accord spanning the Pacific and encompassing 40 percent of the world’s economy. Any trade agreement secured by a president with trade promotion authority could still be rejected by Congress, but it could not be amended or filibustered.
How Senate broke logjam on 'fast track' trade bill (+video) - Senators can work late into the night trying to find a path out of a thicket, but sometimes it’s only at the last minute, on the Senate floor, that a deal comes together. That’s what happened Thursday morning on the highly controversial issue of trade. A half-hour into a key procedural vote on President Obama’s premier initiative, the outlook did not look good for granting him “fast track” trade negotiating authority. More than 30 Democrats had lined up against Mr. Obama, while a scrum of senators from both parties huddled in the well, speaking with the majority leader, Sen. Mitch McConnell (R) of Kentucky. Others gathered on the periphery as the core group talked. Suddenly, Sen. Maria Cantwell (D) of Washington spun around and registered a “yea” vote. More “yeas” quickly followed. The logjam was broken and the president got the 60-plus votes he needed to move ahead on a fast track bill, with passage expected soon. What broke the dam? The specific deal was that majority leader McConnell assured Senator Cantwell of an opportunity in June to offer her bipartisan amendment to reauthorize the Export-Import Bank. The authorization for the 70-year-old federal export credit agency runs out June 30. Good riddance, say many Republicans, including McConnell, who view the bank as corporate welfare. But Cantwell and others want to save the Ex-Im Bank as a key financier of exports and preserver of jobs. Cantwell had hoped to salvage the bank by attaching reauthorization to a high-profile piece of must-pass legislation for the president, i.e., trade. McConnell and others wanted it out of the trade bill because it would upset the carefully negotiated package with the House, where passage is far from assured.
If Fast Track Passes, Anything Attached to a “Trade” Treaty Will Pass -- Gaius Publius: We recently discussed the “Fast Track” method by which Dodd-Frank legislation can be overturned without going through anything like the normal Congressional process. Under Fast Track, “trade” bills cannot be filibustered in the Senate, can’t be amended in either house, are subject to limited debate and must receive a simple up-or-down vote. As Russ Feingold says, it’s a rigged process.The method that could be used to overturn Dodd-Frank — attach the rollback requirement to a “trade” treaty negotiated by the president alone, then fast-track it through Congress — could also be used to move anything though Congress, so long as it can be attached to a trade treaty, even a bilateral one between the U.S. and just one other country. Any other country. Togo. Nauru. Let’s take a hypothetical example. Say some U.S. president receives large campaign contributions from the imported meat industry — that’s a pretty big industry, by the way, so they have lots of what it takes to make large contributions with. Now let’s say — in a completely unrelated development — this industry wanted to sweeten CEO income and industry sales by asking the U.S. president to get rid of “country-of-origin labeling” laws. How could a future president, who coincidentally supports the profit goals of this industry, get “country-of-origin labeling” laws overturned, almost by executive action? She could add a requirement to any trade treaty that these laws be repealed, then fast-track this treaty through Congress. No amendments, no filibuster, little debate, just an up-or-down vote on the whole treaty. Done deal.
How The Media Deceive The Public About "Fast Track" And The "Trade Bills" - The way that “Fast Track” is described to the American public is as an alternative method for the Senate to handle “Trade Bills” (TPP & TTIP) that the President presents to the Senate for their approval; and this alternative method is said to be one in which “no amendments are permitted, and there will be a straight up-or-down vote on the bill." But, in fact, the “Fast Track” method is actually to require only 50 Senators to vote “Yea” in order for the measure to be approved by the Senate, whereas the method that is described and required in (Section 2 of) the U.S. Constitution is that the President “shall have the Power, by and with the Advice and Consent of the Senate, to make treaties, provided two thirds of the Senators present concur.” That’s not 50 Senators; it’s 67 Senators, that the Constitution requires. In other words: “Fast Track Trade Promotion Authority” (which was invented by the imperial President Richard Nixon in 1974, in order to advance his goal of a dictatorial Executive, that the Presidency would become a dictatorship) lowers the Constitutionally required approval from 67 Senators down to only 50 Senators. This two-thirds rule is set forth in the Constitution in order to make especially difficult the passing-into-law of any treaty that the United States will have with any foreign country. The same two-thirds requirement is set forth for amending the Constitution, except that that’s a two-thirds requirement in both the House and the Senate: Getting two-thirds of either house of Congress to vote for a bill is rare and difficult, but it has happened 27 times, because the entire process was public, and because there was widespread support of each Amendment. By contrast: Obama’s proposed trade treaties are still secret.
Obama Takes Unexpected Setback On Trade Agenda- President Barack Obama's trade agenda suffered a setback Friday evening during a series of last-minute maneuvers in the Senate. While the upper chamber eventually passed a bill that would help Obama streamline a trade pact with 11 Pacific nations, the final product threw a wrench into the president's plans. The Senate approved a bill to "fast-track" trade agreements negotiated by the president. The agreement will prevent Congress from amending or filibustering Obama's controversial Trans-Pacific Partnership agreement. The TPP deal would have a hard time surviving without fast-track authority. But a key crackdown on human trafficking survived the legislative jujitsu. The White House considers the provision a deal-breaker, as it would force one of the nations involved in the TPP talks -- Malaysia -- out of the agreement. An immigration-related amendment authored by Sen. Ted Cruz (R-Texas) never got a vote, making it far more difficult for Obama to win over skeptical tea party Republicans in the House. The slavery provision's survival means that the House will either need to amend the bill and send it back to the Senate, which would cause a delay and complicate the House debate, or pass a bill and go to conference with the Senate, also causing a delay. It also potentially could be fixed in separate legislation otherwise moving through Congress. But time is not on the side of advocates of the trade agenda, as summer recess is approaching, followed by a heated presidential campaign season. "It leaves a substantial problem that no one's sure how will be addressed," said one senator. If fast-track is ultimately approved, 60 days would need to pass before the TPP could be voted on.
Good News on TPP, as Senate Passes Fast Track Bill with Human Trafficking Poison Pill - Yves Smith - Yves here. Wow, never in my wildest dreams would I have predicted this outcome. Remember, passing Fast Track in the Senate was supposed to be the easy part. Not only did Fast Track get rejected on its first try — “Welcome aboard the S.S. Lame Duck, Mr. President!” — now we get this. Ryan Grim explains: The Senate approved a bill to “fast-track” trade agreements negotiated by the president. The agreement will prevent Congress from amending or filibustering Obama’s controversial Trans-Pacific Partnership agreement. The TPP deal would have a hard time surviving without fast-track authority. But a key crackdown on human trafficking survived the legislative jujitsu. The White House considers the provision a deal-breaker, as it would force one of the nations involved in the TPP talks — Malaysia — out of the agreement. From the US State Department: Malaysia (Tier 3 [the worst]) is a destination and, to a lesser extent, a source and transit country for men, women, and children subjected to forced labor and women and children subjected to sex trafficking. The overwhelming majority of trafficking victims are among the estimated two million documented and two million or more undocumented foreign workers in Malaysia. Foreign workers typically migrate willingly to Malaysia from other countries in Asia—primarily Indonesia, Bangladesh, the Philippines, Nepal, Burma, Cambodia, Vietnam, India, Thailand, and Laos—in search of greater economic opportunities.
Pacific trade deal could be two weeks away if US fast-track measure passes - The US Congress could soon pass legislation to fast-track the Trans-Pacific Partnership (TPP), which may result in the 12-nation trade deal being passed within a fortnight. President Barack Obama needs the Trade Promotion Authority to fast-track trade talks between TPP nations, which account for nearly 40% of the global economy. Australia is one of those nations. Trade Promotion Authority would give the president the power to negotiate an agreement that Congress would then be able to approve or block, but not amend. In a surprising development, the president has the support of his Republican opponents in granting the authority, but faces opposition from Democrats. A procedural vote on the Trade Promotion Authority was narrowly blocked in the Senate by Democrats last week, despite Obama making it one the centrepieces of his presidency. The head of the Influential Ways and Means Committee, Republican Paul Ryan, said Obama now has the congressional votes to win the debate, with US Senate majority leader Mitch McConnell saying that would happen by the end of this week. “These sorts of sentiments are now starting to pervade the hill in Washington, and if that’s true it would pave the way to possibly conclude negotiations by all 12 countries in the following fortnight,” the Australian trade minister, Andrew Robb, told ABC Radio on Monday.
The Importance of Taxing Capital --“At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation.” That’s Larry Summers — with whom I have often disagreed in the past — at a Brookings event on the tradeoff between equality and efficiency. For most of our lives, government policy in the United States and most of the developed world has been focused (at least in theory) on efficiency: colloquially speaking, making the pie bigger rather than worrying about how the pie is divided up. Rising tide, boats, you know the rest: Laffer Curve, unleashing the job creators, and so on. Inequality is something we profess to regret while doing nothing about it. Now, however, inequality has become a first-class issue of its own. I hear that the Republican presidential candidates are climbing over each other trying to show empathy for the working poor. But what to do? When Summers says that we need to worry less about “capital costs” and more about the “distributional aspects of capital taxation,” he’s talking about how we tax capital. This may sound socialist — since “capital” is the root of “capitalism,” taxing it must be some pinko plot, right? But we’re just talking about doing something the United States has been doing for a century: taxing income from investments, whether housing rent, bond coupons, stock dividends, gains on sales of paintings, etc. We call all that stuff (housing, bonds, stocks, paintings, etc.) “capital” because it has the magical property of making money all by itself, without any effort by its owner (what we call “labor”).
The Revolt of Small Business Republicans - Robert Reich - For years, small-business groups such as the National Federation of Independent Businesses have lined up behind big businesses lobbies. They’ve contributed to the same Republican candidates and committees favored by big business. And they’ve eagerly connected the Republican Party in Washington to its local business base. Retailers, building contractors, franchisees, wholesalers, and restaurant owners are the bedrock of local Republican politics. But now small businesses are breaking ranks. They’re telling congressional Republicans not to make the deal at the very top of big businesses’ wish list – a cut in corporate tax rates. “Given the option, this or nothing, nothing is better for our members,” the director of legislative affairs at Associated Building Contractors told Bloomberg News. (Associated Building Contractors gave $1.6 million to Republicans in the 2014 midterm elections and nothing to Democrats.) Small businesses won’t benefit from such a tax deal because most are S corporations and partnerships, known as “pass-throughs” since business income flows through to them and appears on their owners’ individual tax returns. So a corporate tax cut without a corresponding cut in individual tax rates would put small businesses at a competitive disadvantage. And since a cut in the individual rate isn’t in the cards – even if it could overcome the resistance of Republican deficit hawks, President Obama would veto it – small businesses are saying no to a corporate tax cut
Americans Spend More on Taxes Than Food, Clothing and Shelter Combined - Every year, the Tax Foundation compares the total amount of taxes paid in America and the amount of spending on the necessities of food, clothing, and shelter. In most recent years, the Tax Foundation has concluded that Americans spend more on taxes than on necessities — and 2015 is no different. The Tax Foundation projections show a total of $4.85 trillion in taxes paid in 2015, divided between $3.28 trillion in federal taxes and $1.57 trillion collected at the state and local level. According to the Tax Foundation, total taxes are approximately 31% of the national income. Using data available from the Bureau of Economic Analysis (BEA), the Tax Foundation calculated approximately $4.3 trillion in spending for the basics with food at around $1.8 trillion, clothing at $0.3 trillion, and housing at $2.2 trillion.Here’s the real question: Is this spending comparison indicative of a problem or of a correct and equitable tax structure? Should any of us be outraged? Probably not, although there are reasons for concern.Certainly, the trend is not promising. The gap between taxes and spending on the essentials in 2012 was approximately $150 billion, rising to almost $300 billion in 2014 and around $550 billion in 2015. It’s hard to spin that as a positive development.
The Secret Fed Paper That Advocated a "Carry Tax" on All Physical Cash -- Many commentators have noted that mainstream economists are calling to do away with cash entirely. It would be easy to scoff at these proposals as completely insane if the Fed hadn’t published a paper back in 1999 suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing tospend the money. The author of this lunacy is a visiting scholar with the ECB, the Fed, the IMF, and the Swiss National Bank. The fact that two of those groups have already imposed negative interest rates (ECB and SNB) should give warning that these sorts of ideas are actually taken very seriously by Central Banks.The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:
- 1) A carry tax (meaning tax the value of actual physical cash that is taken out of the system)
- 2) Buy assets (QE)
- 3) Money transfers (literally HAND OUT money through various vehicles)
Dodd-Frank Senate reform fight ends in stalemate - Republicans and Democrats failed to find common ground on revising post-crisis financial reform at a crucial meeting on Thursday, which all but eliminated the possibility of imminent change to the Dodd-Frank act. The 12 Republicans on the Senate banking committee voted against a Democratic bill focused on small community banks,reports Barney Jopson in Washington. The 10 Democrats on the committee voted against a broader-ranging Republican bill.That signals that neither bill has a realistic chance of getting a full vote on the Senate floor. The disagreement capped a week of partisan enmity, but members of the Senate banking committee nonetheless expressed a desire to renew a search for bipartisan consensus in the months ahead. Analysts, however, said the chances of significant reforms being passed into law before the 2016 elections were not high.
For the Highest-Paid C.E.O.s, the Party Goes On - (w/ interactive graphic) It pays to work for John C. Malone.The billionaire who built a cable and communications empire is 74, and no longer a chief executive himself. But Mr. Malone still exerts sway from various boardrooms, and the C.E.O.s at the companies he oversees are routinely among the best compensated managers on the planet. Last year, the largess was particularly notable.Take Discovery Communications, the cable group behind Shark Week and shows like “Cake Boss.” Mr. Malone spun Discovery out of his media group and still sits on the board. His choice for chief executive, David M. Zaslav, received total compensation worth $156 million last year, making him the highest-paid chief of an American public company, according to the Equilar 200 Highest-Paid CEO Rankings, conducted for The New York Times. Just behind Mr. Zaslav on the list of the highest-paid chief executives is Michael T. Fries of Liberty Global, an international cable and wireless group that Mr. Malone presides over as chairman. And while Mr. Fries made considerably less than Mr. Zaslav — $44 million less — he still got a package worth $112 million.
Hedge Funds Close Doors, Facing Low Returns and Investor Scrutiny - For decades, nearly everything that the billionaire Julian Robertson touched turned to gold. Mr. Robertson, founder of the hedge fund Tiger Management, seeded a network of hugely successful “Tiger Cubs” — companies that in turn seeded more talent. It became the closest thing the hedge fund industry had to a dynasty. Since the start of this year, however, the managers of three firms spun out of that gilded empire have called it quits after volatile performances and sometimes steep losses. They will return money to investors and focus on managing their own wealth. TigerShark, Tiger Consumer and JAT Capital Management are just three examples among a recent wave of hedge funds that have closed their doors to investors in the face of choppy markets. They are a reminder that the hedge fund industry is not all spectacular returns. In past years, titans like George Soros and Stanley F. Druckenmiller have also taken down their shingles, choosing to manage their own enormous wealth without the worry of pesky investors. These days, bothersome investors who make too many demands are just one item on a long list of frustrations. Privately, and sometimes publicly, managers complain that it has become harder to make money and that regulation has raised the cost of business. Add to that six long years of a bull stock market in the United States, and a coinciding six consecutive years of underperformance from the hedge fund industry. The average hedge fund returned 3 percent last year compared with a 13.7 percent gain for the Standard & Poor’s 500-stock index.
Regulators warn of cyber threat to financial stability - FT.com: US regulators are increasingly concerned about the threat that cyber attacks pose to financial stability after assaults on Sony Pictures and Target highlighted the proliferating range of techniques used by digital raiders. In a new report on risks to the financial system, regulators also sounded the alarm on risk-taking by institutions searching for higher investment yields, as well as the threat of rising interest rates triggering market volatility. On cyber security, the annual report from the Financial Stability Oversight Council said “the prospect of a more destructive incident that could impair financial sector operations” was even more concerning than recent breaches that have compromised financial information. Jack Lew, the US Treasury secretary, took a swipe at Republicans while presenting the report on Tuesday, claiming that a GOP financial reform bill announced last week would deliberately “tie this council in knots with delays and hurdles”. Mr Lew said cyber security was the primary focus of multiple regulators and that it was essential for businesses and government to work together to share information and find ways to mitigate the damage done by successful attacks. The regulators’ report pointed to the troubling implications of last year’s attack on Sony Pictures — which the US blamed on North Korea — noting that the company’s computers were apparently rendered inoperable, suggesting that attackers had reached a new level of sophistication.An FSOC official said recent cyber assaults also underlined how companies had multiple vulnerabilities and attackers were constantly probing news ways to penetrate their systems.
IMF Paper Finds That Too Much Finance is Bad for Growth - Yves Smith - As the world has floundered in low growth post-crisis, with advanced economies still suffering with credit overhangs and hypertrophied, largely unreformed financial services sectors, it has become acceptable, even among Serious Economists, to question the logic that a bigger financial sector is necessarily better. Of course, the logic of “more finance, please” was never stated in those terms; it was presented in the voodoo of “financial deepening,” meaning, in layperson’s terms, that more access to more types of financial products and services would be a boon. For instance, one argument often made in favor of more robust financial services is that they allow for consumers to engage in “lifetime smoothing” of spending. That basically means if times are bad or an individual has a big investment they to make, he can borrow against future earnings. But we have seen how well that works in practice. Most people have an optimistic bias, so they will tend to underestimate how long it will take them to get back to their old level of income, assuming that even happens, which makes it too easy for them to rationalize borrowing rather than going into radical belt tightening ASAP. And we’ve seen, dramatically, on how college debt pushers get students to take on debt to “invest” in their education, when for many, the payoff never comes. Moreover, despite an enormous increase activity and widespread use of technology, costs of financial intermediation have increased, as Walter Turbewille shows, citing a study by Thomas Philippon:
Banks To Plead Guilty To Criminal Rigging Charges, Pay $5.6 Billion For Manipulating Markets -- As the live webcast from US AG Loretta Lynch indicates, moments ago the DOJ announced five global banks including Citi, J.P. Morgan, Barclays, RBS would plead guilty to criminal charges to conspiring to manipulate FX Prices, and would pay some $5.6 billion in combined penalties to resolve a long running U.S. investigation into whether traders at the banks colluded to move foreign currency rates in directions to benefit their own positions. More from the WSJ: Four of the banks, J.P. Morgan Chase & Co., Barclays PLC, Royal Bank of Scotland Group PLC, and Citigroup Inc., will plead guilty to conspiring to manipulate the price of U.S. dollars and euros, authorities said. The fifth bank, UBS AG , received immunity in the antitrust case, but will plead guilty to manipulating the Libor benchmark after prosecutors said the bank violated an earlier accord meant to resolve those allegations of misconduct. UBS will also pay an additional Libor-related fine. Bank of America Corp. will also pay a $205 million penalty to the Fed to resolve the regulator’s foreign exchange probe. Bank of America didn’t face similar action from the Justice Department. Authorities said euro dollar traders at the banks, who were self-described members of “The Cartel” communicated through coded language in an online chat room to coordinate attempts to move rates set at 1:15 and 4 p.m. Turns out ratting our criminal peers out does pay after all: One UBS trader also engaged in the same collusive behavior in the euro and dollar market, but the bank wasn’t charged over that conduct because it had obtained immunity by being the first bank to report the possible antitrust violations.
Six banks fined $5.6bn over rigging of foreign exchange markets - FT.com: Six global banks will pay more than $5.6bn to settle allegations that they rigged foreign exchange markets, in a scandal the FBI said involved criminality “on a massive scale”. Four banks also agreed to plead guilty to conspiring to fix prices and rig bids in the $5.3tn a day forex market, in what they hope will draw a line under one of the biggest cases of misconduct in banking since the global financial crisis. Announcing the settlement, the US Department of Justice said that between December 2007 and January 2013, traders at Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland who described themselves as “The Cartel” used an exclusive chatroom and coded language to manipulate benchmark exchange rates, “in an effort to increase their profits”. One Barclays trader wrote in a November 5, 2010 chat: “If you aint cheating, you aint trying”, according to the New York Department of Financial Services (DFS), which was part of the settlement. Loretta Lynch, the US attorney-general, said the penalties the banks will pay were “fitting”, and “commensurate with the pervasive harm that was done”. The fines should “deter competitors from chasing profits without regard to fairness to law or public welfare”. “This is a major blow for these banks, both financially and for their reputation,” “Questions will be asked as to why no CEO or senior figure has resigned at any of these banks as the size of this fine and the investigations so far have revealed the rigging of forex was part of the culture of these banks,” he said.
JPMorgan’s Jamie Dimon Deals With His Bank’s Felony Charge – Badly -- After more than 200 years of operation, yesterday JPMorgan Chase became an admitted felon. That action for foreign currency rigging came less than two years after the bank was charged with two felony counts and given a deferred prosecution agreement for aiding and abetting Bernie Madoff in the largest Ponzi fraud in history. The felony counts came amid three years of non-stop charges against JPMorgan Chase for unthinkable frauds: from rigging electric markets to ripping off veterans to charging credit card customers for fictitious credit monitoring and manipulating the Libor interest rate benchmark. Against this backdrop of a serial crime spree on the part of employees on multiple continents and coast to coast in the United States, JPMorgan released a statement yesterday regarding the bank pleading guilty to a felony charge for engaging in the rigging of foreign currency trading, calling it “principally attributable to a single trader.” In the statement, Dimon says the bank has a “historically strong culture.” Dimon is, if nothing else, a master of the grand illusion. Attempting to foster the illusion that there was simply one bad apple behind JPMorgan having to finally plead guilty to a felony is not only an insult to the public, it flies in the face of five regulators’ findings in the matter. JPMorgan’s involvement in the rigging of foreign currency has now been looked at by the Commodity Futures Trading Commission (CFTC), the Office of the Comptroller of the Currency (OCC), the U.S. Justice Department, the Federal Reserve, and the U.K.’s Financial Conduct Authority. Not one of these regulators alluded to the problem as being one bad apple. The CFTC placed the blame squarely at the feet of management, writing: “This conduct occurred at various times over the course of the Relevant Period without detection by JPMC in part because of internal controls and supervisory failures at JPMC.”
Matt Taibbi on Democracy Now: Banks Admit to Crimes, Pay $5 Billion, And Still No One Goes to Jail - Yves Smith - Matt Taibbi discussed the latest round of bank settlements on Democracy Now. This time, Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland pleaded guilty to conspiracy to manipulate foreign exchange rates in dollars and Euros. While this settlement was a step forward by virtue of the banks admitted to specific, criminal acts, yet again the institution is fined while the executives go unpunished. And we again have to listen to the intelligence-insulting claims that the top brass were victims of bad actors. Here is a link from the day of: Eric Holder launches 90-day crusade against bank leaders From the article: After years of pressure from some lawmakers, civic leaders and Occupy Wall Street protesters, the country’s No. 1 law enforcer said Tuesday he has instructed many of his 93 federal prosecutors to review any residential mortgage fraud case they have brought against a financial institution stemming from the 2008 financial crisis to see if any executive could be held accountable for the company’s actions. Both civil and criminal cases will be on the table, Holder said.The prosecutors have been given three months to report their findings to Washington. And predictably, this bold talk was yet another show for the rubes. Nothing took place and no report was made public. Some Democrats in the Senate, such as Sherrod Brown and Elizabeth Warren, threatened to slow-walk the confirmation of Loretta Lynch unless cases were filed against individuals. But as an insider tersely put it, “Dems voted for Lynch and lost their leverage.”
Banks Are Now Pleading Guilty to Crimes. So Why Aren’t They Being Punished Like Criminals? - Not so long ago, federal prosecutors were simply terrified by the idea of what might happen if they ever brought criminal charges against a major bank. They worried that the consequences of a felony conviction might cause a large financial institution to collapse and wreak havoc on Wall Street, much as the accounting firm Arthur Andersen went bust after it was convicted for its role in the Enron scandal. So the Department of Justice and the Securities and Exchange Commission landed on a compromise. When bankers got caught doing something illegal, the government asked them to pay a hefty fine and sign a "deferred prosecution agreement," in which they promised to mend their behavior forever more. The government lawyers got to trumpet billion-dollar penalties. The banks got to go back to their businesses without much long-term damage. For everyone else, it was pretty clear Wall Street had simply gotten "too big to jail." Advertisement Lately, the government's lawyers have gotten a little braver. Attorney General Loretta Lynch announced Wednesday that four of the world's largest banks had pleaded guilty to criminal charges that their traders had conspired to fix the massive and poorly regulated foreign exchange market. Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland all admitted to being felons. Meanwhile, Switzerland's UBS, pleaded guilty to manipulating the benchmark Libor interbank lending rate. The five banks are ponying up $5.6 billion in fines. But that's basically the extent of the punishment.
The criminal cabal on Wall Street (from the WSWS) --On Wednesday, five major international banks, including JPMorgan Chase and Citigroup, America’s largest and third-largest financial institutions, pleaded guilty to felony charges for helping to manipulate global foreign exchange markets, paying a wrist-slap fine of about $1 billion apiece.The financial impact on JPMorgan and the other banks for pleading guilty to a felony will be effectively zero. As part of the deal, the Securities and Exchange Commission issued waivers exempting the banks from the legal repercussions arising from their status as criminal organizations, giving them continued preferential treatment in issuing debt, as well as the continued right to operate mutual funds.Despite the claims by Justice Department officials of a criminal conspiracy "on a massive scale," carried out with "breathtaking flagrancy," there was no talk of breaking up JPMorgan or any other bank, let alone bringing criminal charges against any of their executives.The rigging of global foreign exchange rates is only the latest in the string of crimes, frauds and criminal conspiracies for which JPMorgan has been fined by US and international regulators.* In January 2013, JPMorgan, together with 10 other banks, agreed to pay a combined $8.5 billion to settle charges that they forged documents to foreclose homes more quickly.* In November 2013, the bank agreed to pay $13 billion to settle charges that it defrauded investors by selling fraudulent mortgage-backed securities in the run-up to the housing bubble collapse in 2007 and 2008.* That same month, JPMorgan paid $4.5 billion to settle charges that it defrauded pension funds and other institutional investors to whom it sold mortgage bonds.* In December 2013, JPMorgan and eight other banks were fined $2.3 billion for manipulating the London Interbank Offered Rate (Libor), the global benchmark interest rate on which the values of trillions of dollars in securities are based.*
SEC Commissioner Kara Stein Issues Blistering Dissent on Waivers for Bank Recidivists - SEC Commissioner Kara Stein has waged an uphill battle to have the agency stop giving financial firm miscreants waivers from sanctions that would otherwise take effect when they enter into settlements for bad conduct. Stein took issue with the SEC’s prior stance, that these “get out of jail” cards were issued freely to big firms by virtue of simply asking for them. The tacit assumption seemed to be that these firms were big reputable players and hence imposing the normal legally-mandated sanctions was overkill. In fact, as we know too well, the behemoth banks do disproportionate harm by their bad actions, and recent history has shown that they’ve misbehaved across a large swathe of businesses. Despite the fact that a single SEC commissioner has limited power, Stein has managed to stymie the granting of some of these waivers by teaming up with like-minded SEC Commissioner Luis Aguilar on cases where Chairman Mary Jo White has had to recuse herself. Stein and Aguilar’s opposition to granting waivers on a recent Bank of America settlement led to further negotiations that imposed additional requirements upon the Charlotte bank. Stein and Aguilar has also been pushing for tougher punishments, including lifetime bans from SEC regulated entities for bank executives who break securities laws. Below is Stein’s dissent on the granting of waivers to the five banks that admitted to a criminal conspiracy to rig the spot foreign exchange market in dollars and Euros. As Stein points out, the issue isn’t just the severity of this particular incident; it’s that theses firms are recidivist bad actors yet have been granted waivers on the barmy presumption that they are for the most part, corporate citizens in good standing.
Theft of Debit-Card Data From ATMs Soars - WSJ: Criminals are stealing card data from U.S. automated teller machines at the highest rate in two decades, preying on ATMs while merchants crack down on fraud at the checkout counter. The incidents, in which thieves steal information from debit cards to make counterfeit plastic, are taking place at ATMs that are owned by banks as well as independently owned cash kiosks in shopping centers, convenience stores and restaurants, according to industry executives. From January to April 9, 2015, the number of attacks on debit cards used at ATMs reached the highest level for that period in at least 20 years, according to FICO, a credit-scoring and analytics firm. The company tracks such incidents through its card- monitoring service for financial institutions that represent more than 65% of all U.S. debit cards. Debit-card compromises at ATMs located on bank property jumped 174% from Jan. 1 to April 9, compared with the same period last year, while successful attacks at nonbank machines soared by 317%, according to FICO. “These tremendous spikes in fraud are unprecedented,” said John Buzzard, who manages FICO’s card-alert service. The company declined to disclose the total number of such incidents, citing contractual restrictions with its customers.
Bank Reliance on Short-Term Funds a Harbinger of Crisis - Banks that depend heavily on short-term sources of cash to fund longer-term operations and investments open themselves up to the risk of runs, and potentially a full-blown crisis, according to research from the Federal Reserve Bank of Dallas that identifies such “liquidity mismatches” as an early sign of impending trouble. “Liquidity mismatch helps predict bank failure and distress one or two years ahead,” write Dallas Fed staffers in the regional bank’s May Economic Letter. “Liquidity mismatch rose significantly before the financial crisis, especially at large banks,” the authors write. “The rise in mismatch contributed to the rise in bank failures and cases of distress.” The model indicates a five percentage point increase in liquidity mismatches raises the chances of “failure or distress” in the following 12 months by about a quarter of a percentage point. “These effects may appear small, but they should be gauged against the average failure or distress rate of 1.4 percentage points per quarter in 2007–11,” the authors say. Last year, the Fed adopted a rule requiring more than 30 of the biggest U.S. banks to add a combined $100 billion more in cash or cash-like assets than they currently hold for very short-term financing needs. “New rules to reduce 12-month liquidity mismatches will take effect in the next few years,” the Dallas Fed said.
5Obama's Push to Expand Credit to "Credit Invisibles" - A recently released government study by the Consumer Financial Protection Bureau on "Credit Invisibles" has some interesting facts on people with and without credit histories.
- Approximately 188.6 million Americans have credit records at one of the NCRAs that can be scored by the commercially-available model. This represents over 80 percent of the adult population.
- An additional 19.4 million Americans, representing 8.3 percent of the adult population, have credit records that cannot be scored. These are almost evenly split between consumers with credit records that are insufficient unscored (9.9 million) and those that are stale unscored (9.6 million).
- The remaining 11 percent of adults, or about 26 million Americans, are credit invisible.
- Over 80 percent of 18 or 19 year olds are credit invisible or have unscored records. This percentage drops substantially for older consumers, falling below 40 percent in total for the 20 to 24 year old age group. After age 60, the number of consumers that are credit invisible or that have an unscored record increases with age.
- Over 10 million of the estimated 26 million credit invisibles are younger than 25. Consumers in this age group also account for a disproportionate share of insufficient-unscored credit records. In contrast, most consumers with stale-unscored records are middle aged. Consumers aged between 25 and 50 account for over half of stale-unscored credit records.
Black Knight: Mortgage Delinquencies increased slightly in April - According to Black Knight's First Look report for April, the percent of loans delinquent increased 1% in April compared to March, and declined 15% year-over-year. The percent of loans in the foreclosure process declined 2% in March and were down 25% over the last year. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.77% in April, up from 4.70% in March. The percent of loans in the foreclosure process declined in April to 1.51%. This was the lowest level of foreclosure inventory since January 2008. The number of delinquent properties, but not in foreclosure, is down 406,000 properties year-over-year, and the number of properties in the foreclosure process is down 252,000 properties year-over-year. Black Knight will release the complete mortgage monitor for April in early June.
Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in April -- Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in April. On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Mid-Atlantic is up year-over-year because of an increase in foreclosures in Baltimore). Short sales are down in these areas. The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers has been declining.
The myth that mortgage credit is really tight -- The claim that mortgage credit is very tight for all but pristine borrowers has been repeated so often by respected policymakers and economists that it is now taken as fact. When Janet Yellen says that mortgage credit is hard to come by ― as she did at all of her FOMC press conferences last year ― people listen. The drumbeat about tight mortgage credit has continued this year, with commentary to that effect in the Fed’s Monetary Policy Report to Congress and the Administration’s Economic Report of the President. Economists outside the government regularly offer the same assessment. This characterization of today’s mortgage market, however, is misleading. The truth is that most 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.
MBA: Mortgage Applications Decrease in Latest Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 1.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 15, 2015. ... The Refinance Index increased 0.3 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier, to the lowest level since April. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 11 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 4.04 percent, its highest level since December 2014, from 4.00 percent, with points decreasing to 0.32 from 0.36 (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. It would take much lower rates - below 3.5% - to see a significant refinance boom this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 11% higher than a year ago.
Existing Home Sales in April: 5.04 million SAAR, Inventory down 0.9% Year-over-year - The NAR reports: Existing-Home Sales Lose Momentum in April Total existing–home sales, which are completed transactions that include single–family homes, townhomes, condominiums and co–ops, declined 3.3 percent to a seasonally adjusted annual rate of 5.04 million in April from an upwardly revised 5.21 million in March. Despite the monthly decline, sales have increased year–over–year for seven consecutive months and are still 6.1 percent above a year ago. ... Total housing inventory at the end of April increased 10.0 percent to 2.21 million existing homes available for sale, but is still 0.9 percent below a year ago (2.23 million). Unsold inventory is at a 5.3–month supply at the current sales pace, up from 4.6 months in March. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in April (5.04 million SAAR) were 3.3% lower than last month, and were 6.1% above the April 2014 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 2.21 million in April from 2.01 million in March. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.
Existing Homes Sales Lose Momentum in April - This morning's release of the March Existing Homes Sales disappointed expectations, slipping to a seasonally adjusted annual rate of 5.04 million units from an upwardly revised 5.21 million in March (previously 5.19 million). The Investing.com consensus was for 5.24 million. The latest number represents a 3.3% decrease from the previous month but a 6.1% increase year-over-year. Here is an excerpt from today's report from the National Association of Realtors. Lawrence Yun, NAR chief economist, says sales in April failed to keep pace with the robust gain seen in March. "April's setback is the result of lagging supply relative to demand and the upward pressure it's putting on prices," he said. "However, the overall data and feedback we're hearing from Realtors® continues to point to elevated levels of buying interest compared to a year ago. With low interest rates and job growth, more buyers will be encouraged to enter the market unless prices accelerate even higher in relation to incomes." [Full Report] For a longer-term perspective, here is a snapshot of the data series, which comes from the National Association of Realtors. The data since January 1999 is available in the St. Louis Fed's FRED repository here. Over this time frame we clearly see the Real Estate Bubble, which peaked in 2005 and then fell dramatically. Sales were volatile for the first year or so following the Great Recession. The latest estimate puts us back to the general level around the turn of the century.
Existing Home Sales Lower Than Any Economist's Estimate; Rising Supply a Good Thing? --Economists overestimated existing home sales today, rounding out another impressive day of overoptimism. New home sales came in at a seasonally adjusted 5.04 million annualized rate. The Bloomberg Consensus Estimate was 5.22 million. 5.04 million was below the lower end of the consensus range of 5.10 M to 5.32 M. Existing homes sales are not living up to springtime expectations, down 3.3 percent in April to a 5.04 million annual rate which is just below the low-end Econoday forecast. Three of 4 regions show contraction in April with the sharpest decline, minus 6.8 percent, in the South, which is by far the largest housing region. Year-on-year, total sales are still up a respectable 6.1 percent. Another positive is a rise in supply with 2.21 million used homes on the market vs 2.01 million in March. This rise, together with the drop in sales, raises supply relative to sales to 5.3 months from 4.6 months. And another positive is a 4.1 percent rise in the median price to $219,400 which is up 8.9 percent year-on-year. But this report in sum is a disappointment, failing to point to any building momentum. Strength in the housing sector may be switching, from existing home sales to new home sales at least based on this report compared to the historic surge earlier this week in housing starts & permits. But housing data month-to-month are always volatile and, on net, it's too soon to decipher how strong the spring housing season is right now.
A Few Comments on April Existing Home Sales - Inventory is still very low (and down 0.9% year-over-year in April). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. This will be important to watch over the next few months during the Spring buying season. Also, the NAR reported total sales were up 6.1% from April 2014, however normal equity sales were up even more, and distressed sales down sharply. From the NAR (from a survey that is far from perfect): Distressed sales — foreclosures and short sales — were 10 percent of sales in April, unchanged from March and below the 15 percent share a year ago. Seven percent of April sales were foreclosures and 3 percent were short sales. Last year in April the NAR reported that 15% of sales were distressed sales. A rough estimate: Sales in April 2014 were reported at 4.75 million SAAR with 15% distressed. That gives 712 thousand distressed (annual rate), and 4.04 million equity / non-distressed. In April 2015, sales were 5.04 million SAAR, with 10% distressed. That gives 504 thousand distressed - a decline of about 29% from April 2014 - and 4.54 million equity. Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 12%. The following graph shows existing home sales Not Seasonally Adjusted (NSA).
An About-Face for McMansions - Is the McMansion back? Or is the first-quarter record high in the median size of newly built, single-family homes a statistical blip? Many economists are opting for the latter, given trends in the broader housing market, including construction of a greater number of smaller, affordable homes. The median size of a home built in the U.S. in the first quarter registered 2,521 square feet, up 76 square feet, or 3%, from the fourth quarter, according to Commerce Department data released Tuesday. It was the first increase for that that measure after three consecutive quarters of decline. Robert Dietz, an economist with the National Association of Home Builders, suggests that last quarter’s increase is due more to a smaller amount of housing construction in the first quarter relative to previous quarters than to a return to a market focused on megahomes. “I think it is due to the fact that the total amount of quarterly single-family (construction) starts was lower than prior quarters, thus rolling back some of the market expansion that was causing median size to level off,” Mr. Dietz said Tuesday in an email. He added that April’s 20.2% surge in the pace of U.S. home-construction starts, as well as expected gains in housing construction for the rest of this year, “should cause size to level off” going forward. Still, Americans’ taste for increasingly larger new homes doesn’t sour easily. Median home sizes in the U.S. have generally risen over the decades, as buyers have favored adding more rooms and larger garages.
New Residential Housing Starts Surge in April - The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for April new residential housing starts. The latest reading of 1.135M was well above the Investing.com forecast of 1.019M.Here is the opening of this morning's monthly report: Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,135,000. This is 20.2 percent (±14.4%) above the revised March estimate of 944,000 and is 9.2 percent (±10.6%)* above the April 2014 rate of 1,039,000. Single-family housing starts in April were at a rate of 733,000; this is 16.7 percent (±10.6%) above the revised March figure of 628,000. The April rate for units in buildings with five units or more was 389,000. [link to report] Here is the historical series for total privately-owned housing starts, which dates from 1959. Because of the extreme volatility of the monthly data points, a 3-month moving average has been included.
Housing Starts Surge to Highest Since Nov 2007, Permits At 7 Year Highs -- Following two ugly months of dramatically missed expectations, Housing Starts exploded to 'recovery' highs (highest since Nov 2007) jumping 20.2% MoM to 1.135million (against 1.015 exp.). This is the 2nd biggest MoM jump in history. Permits also surged in April (jumping 10.1% MoM - the most since 2012) to 1.143 million (well above expectations) and the highest since June 2008. Well these huge mal-investment spikes make perfect sense in light of the collapse in lumber prices (and thus demand). Starts Soar... Permits spike... Which all makes perfect sense... Charts: Bloomberg
Housing Starts increased to 1.135 Million Annual Rate in April, Highest since 2007 - From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,135,000. This is 20.2 percent above the revised March estimate of 944,000 and is 9.2 percent above the April 2014 rate of 1,039,000. Single-family housing starts in April were at a rate of 733,000; this is 16.7 percent above the revised March figure of 628,000. The April rate for units in buildings with five units or more was 389,000. Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,143,000. This is 10.1 percent above the revised March rate of 1,038,000 and is 6.4 percent above the April 2014 estimate ... Single-family authorizations in April were at a rate of 666,000; this is 3.7 percent above the revised March figure of 642,000. Authorizations of units in buildings with five units or more were at a rate of 444,000 in April. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) increased in April. Multi-family starts are up 9.2% year-over-year. Single-family starts (blue) increased in April and are up about 14.7% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), This was well above expectations of 1.029 million starts in April. Overall this was a solid report with upward revisions to prior months.
A Strong Rebound For US Housing Construction In April - Home-building activity in the US rebounded sharply in April, the US Census Bureaureports. After two months of weakness, housing starts revived to 1.135 million units in seasonally adjusted annualized terms. The 20.2% increase in April is the strongest monthly gain since the early 1990s, pushing the number of newly built units to a new post-recession high. The outsized increase is due in part to the comparison with an unusually soft run of construction activity in March. In any case, today’s numbers offer some hope that that the housing market may be strengthening after a tepid first quarter. Then again, the year-over-year trend, although it ticked higher last month, still reflects a substantial degree of deceleration in growth vs. recent history. Housing starts increased 9.2% for the year through April—the first instance of growth for the annual comparison in three months. Newly issued permits for residential construction increased at a modestly lesser rate in annual terms through last month, rising 6.4%. Construction activity that’s advancing at 5% to 10% a year isn’t spectacular by the standards of recent years—those days are long gone. But assuming that the current pace endures, the outlook for housing remains positive, albeit in the context of a relatively moderate late-cycle growth rate. From a business cycle perspective, today’s numbers suggest that the economy will keep its head above water if only moderately so. Even after factoring in today’s upbeat numbers, the case for a strong second-quarter rebound is on thin ice. The good news is that today’s release provides a degree of comfort for arguing that the economy, although challenged in April, is still growing and so perhaps the notion of a Q2 revival, while battered and bruised lately, isn’t dead after all.
Housing Starts and Permits Surge Most in Seven Years -- In one of the few economic bright spots recently, housing starts surged beating Bloomberg Consensus Estimates. There were hardly any indications before today, but the spring housing surge is here. Today's housing starts & permits report is one of the very strongest on record with starts soaring 20.2 percent in April to a much higher-than-expected annual rate of 1.135 million with permits up 10.1 percent to a much higher-than-expected 1.143 million. Both readings easily top the Econoday high-end forecast of 1.120 million for each. The gain for starts is the best in 7-1/2 years with the gain in permits the best in 7 years. Today's report is an eye-opener and will re-establish expectations for building strength in housing, a sector held down badly in the first quarter by severe weather. Housing starts & permits have been some of the most disappointing data on the calendar, underscoring how weak the new home market really is. Excuses were abundant during the heavy weather of the first quarter but those excuses won't apply to the latest report which is for April. Both starts and permits are expected to show big gains from depressed levels.
New Residential Building Permits Rise 10.1% in April - The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for April new residential building permits.The latest reading of 1.143M was well above the Investing.com forecast of 1.060M. Here is the opening of this morning's monthly report: Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,143,000. This is 10.1 percent (±2.2%) above the revised March rate of 1,038,000 and is 6.4 percent (±2.1%) above the April 2014 estimate of 1,074,000. Single-family authorizations in April were at a rate of 666,000; this is 3.7 percent (±0.9%) above the revised March figure of 642,000. Authorizations of units in buildings with five units or more were at a rate of 444,000 in April. [link to report]Here is the complete historical series, which dates from 1960. Because of the extreme volatility of the monthly data points, a 3-month moving average has been included. Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1960. Here is a chart of housing starts as a percent of the population.
Comments on April Housing Starts --So much for the doom and gloom of February and March. Total housing starts in April were solid and well above expectations - and at the highest level since 2007. Single family starts were at the highest level since January 2008. This first graph shows the month to month comparison between 2014 (blue) and 2015 (red). Even with weak housing starts in February and March, total starts are still running 5.5% ahead of 2014 through April. Single family starts are running 7.6% ahead of 2014 through April. Starts for 5+ units are only up 1% for the first four months compared to last year. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months). Note that the blue line (multi-family starts) might be starting to move more sideways. I think most of the growth in multi-family starts is probably behind us - although I expect solid multi-family starts for a few more years (based on demographics).The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.
Quarterly Housing Starts by Intent -- In addition to housing starts for April, the Census Bureau also released the Q1 "Started and Completed by Purpose of Construction" report today. It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series. However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The quarterly report released today showed there were 112,000 single family starts, built for sale, in Q1 2015, and that was below the 129,000 new homes sold for the same quarter, so inventory decreased in Q1 (Using Not Seasonally Adjusted data for both starts and sales). The first graph shows quarterly single family starts, built for sale and new home sales (NSA).
Minimum Wage in U.S. Cities Not Enough to Afford Rent, Report Says - A San Francisco household would need to make $39.65 an hour to afford the market rent for a two-bedroom apartment, according to a new report that highlights a wide gap between stagnant incomes and rising rents in many parts of the country. Around the country, renter households would need to make $19.35 an hour working full time to afford a two-bedroom unit, which is $4 more than the estimated average wage of U.S. workers, according to the report released Tuesday by the National Low Income Housing Coalition. Rental affordability has grown as a challenge in recent years due to a number of factors, including increasing demand as more people choose to rent or are forced to because they can’t get mortgages; a relative lack of rental construction in recent years in comparison to past cycles; and stagnant wage growth. There is no state in the country where someone earning either the state or federal minimum wage can afford a market-rate one-bedroom apartment, according to the report. A minimum wage worker would need to work 86 hours per week to afford a one-bedroom apartment. The researchers looked at much a family would need to make to keep its rental costs at a reasonable level–30% of its income–to afford rent and utilities on a modest rental unit in a short amount of time, as defined by the Department of Housing and Urban Development. San Francisco was the most expensive metropolitan area, followed closely by Stamford-Norwalk in Connecticut, where a typical two-bedroom apartment demands that income earners in the household make a combined $37.37 an hour working full-time, according to the report.
NAHB: Builder Confidence decreased to 54 in May -- The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 54 in May, down from 56 in April. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Falls Two Points in May Builder confidence in the market for newly built, single-family homes in May dropped two points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. It is a nine-point increase from the May 2014 reading of 45. ..The index’s components were mixed in May. The component charting sales expectations in the next six months rose one point to 64, the index measuring buyer traffic dropped a single point to 39, and the component gauging current sales conditions decreased two points to 59. Looking at the three-month moving averages for regional HMI scores, the South and Midwest each rose one point to 57 and 55, respectively. The Northeast fell by one point to 41 and the West dropped three points to 55.
Home Builders Optimistic Despite Decline in Traffic; Housing Market Index Declines - The National Association of Home Builders' Housing Market Index once again reveals positive builder sentiment even though new home sales are weak. The HMI is Derived from a monthly survey that NAHB has been conducting for 30 years. The index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. A new release came out today and although the index was positive, the Bloomberg Consensus Number was lower than any economist's forecast. The housing market index has long been signaling strength in the new home market that has yet to appear, but the signal is less strong in May. The index fell 2 points from April to 54 which is below the low-end Econoday forecast. Weakness in traffic has been a major feature of this report, underscoring the lack of first-time buyers in the housing sector. A plus in today's report is a 1 point gain in future sales, a component that is well out in front at a very strong 64.
AIA: Architecture Billings Index declined in April - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment. From the AIA: Architecture Billings Remain Stuck in Winter Slowdown Riding a stretch of increasing levels of demand for thirteen out of the last fifteen months, the Architecture Billings Index (ABI) dropped in April for the second month this year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI score was 48.8, down sharply from a mark of 51.7 in March. This score reflects a decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.1, up from a reading of 58.2 the previous month. This graph shows the Architecture Billings Index since 1996. The index was at 48.8 in April, down from 51.7 in March. Anything below 50 indicates contraction in demand for architects' services. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions. The multi-family residential market was negative for the third consecutive month - and this might be indicating a slowdown for apartments - or at least less growth. According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This index was mostly positive over the last year, suggesting an increase in CRE investment in 2015.
Consumers Report Greater Comfort With Their Finances While Still Struggling To Make Ends Meet - Consumers are feeling the most secure about their jobs and finances than at any point in this expansion, while at the same time weak wage growth means many are still struggling to meet monthly expenses. Personal finance website Bankrate.com asked 1,000 consumers to assess their current finances. The survey found 30% of U.S. consumers think their overall financial situation is better now than a year ago. That’s up from 26% saying that in April. At the same time, only 16% of consumers said their financial situation has worsened, compared to 21% saying that last month. The results are the most upbeat since Bankrate began the surveys in 2010, just as the recovery was taking hold. “As the economy gets better, people have been feeling better about a range of items, including finances, job security, net worth and comfort levels on taking on debt,” . The Bankrate results echo the findings of the consumer sentiment survey released last Friday by the University of Michigan. The Michigan survey found a steep drop in how consumers viewed the economy at large, but an increase in confidence about their own personal finances. The Bankrate results, however, show that while households feel more comfortable about many aspects of their finances, many are still struggling to make ends meet every month. For those people, falling gasoline prices have offered a boost. When Bankrate asked consumers what they were doing with the money saved at the gas pump, 40% were buying necessities like food or paying the rent. Another 23% said they saved or invested the money. Only 14% said they were spending the gas money on “extras” like travel or eating out.
April Consumer Price Index: Core Inflation Remains Steady, Headline Deflation Worsens --The Bureau of Labor Statistics released the April CPI data this morning. The year-over-year unadjusted Headline CPI came in at -0.20% (rounded to -0.2%), down from -0.07% (rounded to -0.1%) the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.81% (rounded to 1.8%), unchanged to one decimal pace from the previous month's 1.75% (rounded to 1.8%). Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data, The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index declined 0.2 percent before seasonal adjustment. The index for all items less food and energy rose 0.3 percent in April and led to the slight increase in the seasonally adjusted all items index. The index for shelter rose, as did the indexes for medical care, household furnishings and operations, used cars and trucks, and new vehicles. In contrast, the indexes for apparel and airline fares declined in April. The energy index declined in April, while the food index was unchanged. The indexes for gasoline, natural gas, and fuel oil all declined, while the electricity index was unchanged. The food at home index declined for the second month in a row, offsetting an increase in the index for food away from home. Major grocery store food group indexes were mixed. [More…] The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.
CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned --The CPI came in exactly inline with the Bloomberg Consensus option today. It's the details, not the overall number that is worrying. Pull forward that rate hike is what some of the hawks are thinking after reading today's consumer price report where a benign looking headline, up only 0.1 percent in April, masks rising pressure through many components. Excluding food and energy, core prices rose 0.3 percent which doesn't seem that much but is outside Econoday's high-end forecast for 0.2 percent. It is also the highest since January 2013. The year-on-year rate for the core is plus 1.8 percent which, after dipping to 1.6 percent earlier in the year, is closing in on the Fed's general inflation target of 2.0 percent. Readings showing pressure are outside energy including medical costs (up a very steep 0.7 percent in the month) and education costs (up 0.5 percent). Shelter costs, reflecting rising rents, came in at plus 0.3 percent for the 3rd time in 4 months which is the hottest streak for this reading since way back in late 2006 and early 2007. Also standing out are gains in furniture (up 1.3 percent) and used cars (up 0.6 percent). Oil prices have been on the rise but not energy costs, at least in the April report which fell a heavy 1.3 percent. Gasoline fell 1.7 percent in the month. Two other readings also showed downward pressure: airfares (minus 1.3 percent) and apparel (minus 0.3 percent). Food costs were flat. The headline CPI is down 0.2 percent year-on-year which looks downright deflationary. The CPI Seasonally Adjusted Numbers from the BLS look even worse.
- All Items Less Food and Energy rose 0.3% (following a rise of 0.2% in March and 0.2% in February)
- Medical Care jumped 0.9% in April (following a rise of 0.4% in March).
- Used Cars jumped 0.6% (following a rise of 1.2% in March and 1.0% in February).
- Shelter rose 0.3% (following a rise of 0.3% in March and 0.2% in February)
Supposedly energy prices declined 1.3%. Gasoline led the way with a 1.7% decline. Does that seem believable?
Core Consumer Prices Jump Most Since March 2006 Thanks To Surging Healthcare Costs - The market appears to have chosen the hotter-than-expected Core CPI print (as opposed to weakest headline CPI YoY print since Oct 2009 of -0.2%) as key. Core CPI rose 0.3% MoM in April - the most since March 2006; and 1.8% YoY - the most since Jan 2013. The biggest driver of the surge in consumer prices is medical care costs - which rose 0.7% - the biggest increase since January 2007 (thanks Obamacare). Overall CPI is the lowest since Oct 2009... The Core CPI breakdown...The index for all items less food and energy increased 0.3 percent in April, its largest increase since January 2013. The shelter index increased 0.3 percent, the same increase as in March. The indexes for rent, owners' equivalent rent, and lodging away from home all rose 0.3 percent. The medical care index rose 0.7 percent, its largest increase since January 2007. The index for medical care services rose 0.9 percent with the hospital services index rising 1.9 percent. The index for household furnishings and operations rose 0.5 percent, its largest increase since September 2008. The index for used cars and trucks increased 0.6 percent, and the new vehicles index rose 0.1 percent. The indexes for alcoholic beverages and for tobacco were both unchanged in April. The apparel index declined for the first time since December, falling 0.3 percent. The index for airline fares continued to decline, falling 1.3 percent after a 1.7-percent decline in March.nThe index for all items less food and energy has risen 1.8 percent over the past 12 months, the same increase as for the 12 months ending March. This is slightly below its 1.9-percent annualized increase over the past 10 years. The shelter index has risen 3.0 percent over the last year, and the medical care index has advanced 2.9 percent. The index for airline fares fell 7.5 percent over the last year, and the indexes for apparel and for used cars and trucks have also declined.
Wolf Richter: Atlanta Fed ‘Sticky CPI’ Soars, Hottest Inflation Since July 2008 - Inflation has not been a problem recently, according to the Consumer Price Index. Energy prices have plunged, which helped, and the rising costs of housing, which account for over one-third of the index, are purposefully mitigated via some elegant statistical twists, and that helped a lot. Everyone has been lulled to sleep by the sheer absence of consumer price inflation. And the Fed has used this low inflation as pretext to keep its foot all the way on the accelerator of total interest-rate repression, though it isn’t accelerating much of anything other than asset price inflation. But that was then, and this is now. The headline CPI still looks benign, inching up 0.1% in April on a seasonally adjusted basis, the Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index declined 0.2% before seasonal adjustment, thanks to the energy index, which plunged 19.4%. But the core CPI (less food and energy) rose 0.3% in April, its largest increase since January 2013. Some of the standouts: Shelter +0.3%; rent, owners’ equivalent rent, and lodging away from home +0.3%; medical care +0.7%, its largest increase since January 2007; medical care services +0.9%, hospital services +1.9%; household furnishings and operations +0.5%, its largest increase since September 2008; used cars and trucks +0.6%; new vehicles +0.1 percent. Heat is building up beneath the overall index. To shed more light on this phenomenon, the Atlanta Fed releases a “sticky-price consumer price index,” the “Sticky CPI,” which consists of a weighted basket of items that change price relatively slowly. And in April, annualized, it soared 3.50%, the sharpest increase since July 2008! “Core Sticky CPI ex-shelter” soared 3.83%, the highest since August 2008. This puts the Sticky CPI at 2.1% above where it was a year ago, even though the overall headline CPI, thanks to the plunge in energy, actually declined over the same period. The Sticky CPI is not supposed to jump like this; it consists of items that change price “relatively slowly,” as the Atlanta Fed describes it. Now they’re in lift-off mode. This chart, going back to January 2009 shows the sudden spike of inflation, as expressed by the Sticky CPI:
Consumer prices slow with O&G in the west - Despite a slow but steady oil price recovery for Colorado, the growth recently came to a halt, and with it, consumer prices. According to the Denver Business Journal, the U.S. Bureau of Labor Statistics reported a 0.3 percent jump in the federal consumer price index (CPI) in western states for the month of April. This gain is notably smaller than the 0.8 percent month-to-month jump in March and 0.6 percent jump in February. The index accounts for a broad span of spending, including housing and services such as haircuts, transportation costs such as gasoline took and especially hard hit. BLS reports spending within the sector shrank by 0.1 percent between March and April. The CPI for western states, including Colorado, Arizona, California, Wyoming and Utah, has seen a 1 percent growth since this time last year, but transportation costs still experienced an 8 percent drop in that same timeframe. As a whole, the U.S. CPI saw a 0.1 percent rise from March to April.
Walmart’s sales disappoint again as shoppers keep gas savings - As gas prices hit multi-year lows a few months ago, many retailers hoped the savings consumers would enjoy would yield a bonanza. Those hopes have been dashed.Instead of going out to buy a new polo shirt or barbecue grill, consumers seem to be saving some of what they would have spent on gas to pay other bills.Walmart, a unit of Wal-Mart Stores on Tuesday joined a chorus of U.S. retailers to report disappointing first quarter sales that has included Macy’s, Gap Inc and Kohl’s.The retailer reported comparable sales, which includes digital revenue but excludes newly opened or closed stores, rose 1.1%- not bad, but below the 1.5% Wall Street was looking for. On the earnings side, Wal-Mart, which also owns Sam’s Club and Walmart stores abroad, reported a profit of $1.03 per share, down from $1.11 a year ago, and a penny lower than analysts anticipated.So what happened? Consumers have shifted their budget to other priorities, the company said.“We know that many of our U.S. customers are using their tax refunds and the extra money from lower gas prices to pay down debt or put it into savings,” Wal-Mart CEO Doug McMillon said on Tuesday.“They’re also using these funds for everyday expenses like utilities and groceries. That’s where we can be their destination of choice.”
LA area Port Traffic Decreased in April --Note: LA area ports were impacted by labor negotiations that were settled on February 21st. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April. Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was down 0.2% compared to the rolling 12 months ending in March. Outbound traffic was down 1.1% compared to 12 months ending in March. Inbound traffic had been increasing, and outbound traffic had been moving down recently. The recent downturn in exports might be due to the strong dollar and weakness in China. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were down 2% year-over-year in April; exports were down 11% year-over-year. The labor issues are now resolved - the ships have disappeared from the outer harbor - and the distortions from the labor issues are behind us. This data suggests a smaller trade deficit in April.
ATA Trucking Index decreased 3% in April - Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Fell 3% in April American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index fell 3% in April, following a revised gain of 0.4% during the previous month. In April, the index equaled 128.6 (2000=100), which was the lowest level since April 2014. The all-time high is 135.8, reached in January 2015. Compared with April 2014, the SA index increased just 1%, which was well below the 4.2% gain in March and the smallest year-over-year gain since February 2013. ... “Like most economic indicators, truck tonnage was soft in April,” said ATA Chief Economist Bob Costello. “Unless tonnage snaps back in May and June, GDP growth will likely be suppressed in the second quarter.” Costello added that truck tonnage is off 5.3% from the high in January. Trucking serves as a barometer of the U.S. economy, representing 68.8% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled just under 10 billion tons of freight in 2014. Motor carriers collected $700.4 billion, or 80.3% of total revenue earned by all transport modes. Here is a long term graph that shows ATA's For-Hire Truck Tonnage index. The dashed line is the current level of the index. The index is now up only 1.0% year-over-year.
Industrial Production Takes Another -0.3% Tumble -- The Federal Reserve Industrial Production & Capacity Utilization report shows industrial production decreased -0.3% as gas and oil well drilling continues to collapse. Overall mining contracted a very large -0.8%. Manufacturing was unchanged. March also showed a -0.3% industrial production change. This if the fifth month in a row for a loss. The G.17 industrial production statistical release is also known as output for factories and mines.Total industrial production has now increased 1.9% from a year ago. Currently industrial production is 5.2 percentage points above the 2007 average. Below is graph of overall industrial production's percent change from a year ago. Here are the major industry groups industrial production percentage changes from a year ago.
- Manufacturing: +2.3%
- Mining: +1.3%
- Utilities: +0.1%
For the month there was no change in manufacturing and the previous month saw a 0.3% increase. Manufacturing output is 1.5 percentage points above it's 2007 Levels and is shown in the below graph.Within manufacturing, durable goods increased 0.1% for the month and 2.6% for the year. Motor vehicles & parts increased 1.3%. Machinery dropped -0.9%. Nondurable goods manufacturing showed a -0.1% gain for the month as food, beverages, tobacco showed a -0.6% drop. Nondurable manufacturing has increased 2.5% for the year. Mining showed a -0.8% monthly decrease, and is now up 1.3% for the year, but at this rate, don't count on a year to year expansion in mining. Mining includes gas and electricity production and the Fed have a special aggregate index for oil and gas well drilling. Oil and gas well drilling dropped a whopping -14.5% and for the year is down -46.5%. This is an astounding collapse in well drilling. Below is oil and gas well drilling and one can see the boom and bust cycle. Utilities declined -1.3% for the month and have increased only 0.1% for the year. Utilities are volatile due to weather and why the below graph shows the wild swings. One can track the polar vortexes and heat waves in the below graph.
PMI Manufacturing Index Flash May 21, 2015: - Markit's US manufacturing sample had been far stronger than other readings on the sputtering sector but is a little less so with the May report where the index slipped slightly to a 16-month low of 53.8, 8 tenths below the Econoday consensus. Slowing growth in new orders, including weakness in export orders tied directly to strength in the dollar, held down the May index. Another area of weakness remains the energy sector where business spending is down. Shipment growth slowed to its slowest rate so far this year. Strength in the report is centered in employment, but this won't last if orders continue to slow. Deliveries continue to be delayed in part by persistent bottlenecks tied to the long since resolved port strike. Costs are up but inflation remains marginal. The manufacturing sector is having a tough spring following six prior months of slowing.
US Manufacturing PMI Tumbles To Lowest In 16 Months As New Orders Tumbled - Having dipped and missing by the most on record in April, Markit's US Manufacturing PMI printed 53.8 (against expectations of 54.5). This comes on the heels of weakness in European PMIs (especially Germany - but but but lower EUR... exports, growth, etc...) and Chinese PMIs. This is the lowest US Manufacuring PMI since Jan 2014 (in the middle of the polar vortex). May saw the slowest rise in new orders since Jan 2014 - but the post-weather rebound? - and input costs rrise for the first time in 2015. Markis now carefully noting that "the survey is likely to encourage policymakers to err on the side of caution." As Markit explains, “Manufacturers reported their weakest growth since the start of 2014 in May, with the survey results ad ing to fears that the strong dollar is weighing on the US economy and hitting corporate earnings.Although falling only modestly, export sales have now dipped for two straight months, something not seen for two years and a far cry from the solid export performance seen this time last year. Overall order books are consequently growing at the slowest rate seen since the start of last year. “Higher oil prices are meanwhile pushing up firms’ input costs for the first time so far this year, but producers seem to have been able to pass the increase on to customers. However there are few signs of any significant upturn in inflation.
Philly Fed Hovers Near 15-Month Lows, Prices Paid Collapse Most Since Lehman -- After a very modest bounce in April, Philly Fed fell again in May, printing a disappointing 6.7 (against 8.0 expectations). Philly Fed has now missed 5 of the last 6 (and 7 of the last 9) months. While new orders picked up, prices paid plunged at recessionary pace, inventories tumbled, and the average workweek slumped. Hope also tumbled as future expectations dropped.
Philly Fed Business Outlook: Another Month of Modest Increase -- The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. While it focuses exclusively on business in this district, this regional survy gives a generally reliable clue as to direction of the broader Chicago Fed's National Activity Index. The latest gauge of General Activity came in at 6.7, down from last month's 7.5. The 3-month moving average came in at 6.4, down from 5.9 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was little unchanged at 33.9 versus the previous month's 35.5. Today's 6.7 came in below the 8.0 forecast at Investing.com. Here is the introduction from the Business Outlook Survey released today: Manufacturing activity in the region increased modestly in May, according to firms responding to this month's Manufacturing Business Outlook Survey. Indicators for general activity, new orders, and shipments were positive but remain at low readings. Employment increased at the reporting firms, but the employment index moderated compared with April. Firms reported continued price reductions in May, with indicators for prices of inputs and the firms' own products remaining negative. The survey's indicators of future activity suggest that firms expect continuing growth in the manufacturing sector over the next six months. (Full Report) The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now above its post-contraction peak in September of last year.
Philly Fed Region "Weak but Stable"; Kansas City Region "Declines More Sharply" -- More weak economic reports came out today. Let's take a look at two regional manufacturing reports. The Bloomberg Economic Consensus for the Philadelphia Fed Business Outlook Survey was 8.0. Economists got the leading sign correct, but the consensus estimate was a tad high with the index posting 6.7. Activity in the Mid-Atlantic manufacturing sector is slow but stabilizing, based on the Philly Fed's general conditions index which came in at 6.7 for May, down slightly from 7.5 in April and against Econoday expectations for 8.0. The best news in the report is a slight uptick in new orders, to 4.0 from 0.7. This isn't searing but is at least in the plus column as are shipments, at 1.0 from minus 1.8. Employment, at 6.7, is also in the plus column. Manufacturers in the region are reporting significant price contraction, especially in costs which is a surprise given the rise underway in oil prices. In light of rising energy prices, price contraction especially in finished goods tells the real story: very weak demand. The range of economists' estimates for the Kansas City Fed Business Outlook Survey was -1 to +1. Economists were not even close on this one. The early indications on May's manufacturing activity have been slightly positive, that is until the Kansas City Fed report where the composite index is in deeply negative ground at minus 13. This is the weakest of the recovery for this reading and follows an already weak minus 7 in April. New orders this month are deeply negative, at minus 19, as are backlog orders at minus 21. These readings, reflecting contraction for export orders and trouble in the energy sector, point to significant trouble for the region's manufacturing activity in the months ahead. Shipments are already in contraction, at minus 9, as is employment, at a deeply negative minus 17 that contrasts with mostly positive employment indications in other reports. The Federal Reserve Bank of Kansas City reports Tenth District Manufacturing Declines More Sharply. “Factories in our region saw an even sharper decline in May than in March or April, as exports fell further and energy - related producers saw another drop in orders,” said Wilkerson. “However, firms’ overall still plan a modest in crease in employment over the next six to twelve months.” The month-over-month composite index was -13 in May, down from -7 in April and -4 in March. The last time the composite index was lower was in April 2009.
Kansas City Fed: Manufacturing Contraction Accelerates in May 2015: Of the three regional manufacturing surveys released to date for May, two show weak manufacturing growth one is in contraction. The market was expecting a range between -2 to 1 (consensus -2) versus the actual at -13. Tenth District manufacturing activity declined more sharply in May than in previous months and producers' expectations also fell, with both reaching their lowest levels since mid-2009. However, most price indexes increased slightly, reversing a recent trend of decline. In a special question about hiring plans, the majority of firms indicated they were planning to either leave employment levels unchanged or increase them slightly over the next twelve months. The month-over-month composite index was -13 in May, down from -7 in April and -4 in March (Tables 1 & 2, Chart). The last time the composite index was lower was in April 2009. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in durable goods manufacturing, including a continued decline in aircraft production and further weakness in metals and machinery. In addition, several nondurable goods plants also reported sluggish activity, particularly for plastics and food production. Production fell most sharply in energy-producing states like Oklahoma and New Mexico, but it was also down in most other District states. The majority of other month-over-month indexes also decreased from the previous month. The production index contracted from -2 to -13, and the shipments and new orders indexes also fell. The order backlog, employment, and new orders for exports indexes edged higher but still remained well below zero. The finished goods inventory index increased from -1 to 0, while the raw materials inventory index dropped into negative territory.
Kansas City Fed In Recession Territory After Respondent "Laid Off 8% Of Workforce In 2 Months" - For the 5th month in a row, Kansas City Fed missed expectations by an inmcreaisngly large amount. May's -13 print is the worst since April 2009, and is the biggest drop since 2009. Every single individual component also tumbled led by orders, backlog, number of employees and average workweek. Firmly in recession territory, the respondents comments are stunningly reminiscent of the great recession (or depression)... Some respondents said: “We had a good first quarter but the brakes have been applied since the start of May. Looks like our business will be down compared to last May.” “It is becoming increasingly difficult to find qualified job candidates who are not carrying some form of personal baggage / problem.”“We are continuing to operate at full capacity but the volume of new orders has slowed significantly with the ongoing cutbacks in E&P expenditures.” “We laid off 8% of the workforce over the last two months. The low price of oil combined with dropping steel prices has caused adverse volatility in new orders and margins. The strong dollar is beginning to incent unabated dumping of product at prices that challenge our raw material cost from domestic sources. The cost and complexity of government regulation continues to steer even more resources and attention away from productive economic activities.” “The drop in oil prices has impacted our business severely for the worse.”
More on the Myth of Outsourcing’s Efficiency - Yves Smith - A pet issue is that the claim that outsourcing and offshoring lower costs is greatly exaggerated. Offshoring and outsourcing (we’ll just say “outsourcing” for the purposes of this post) do lower direct factor and lower-level worker costs. But they do so at the increase of greater coordination costs of much more highly-paid managers. And they also increase shipping and financings costs, and downside risk. Having people work at a distance, whether managerially or by virtue of being in an outside organization where the relationship is governed by contract, increases rigidity (harder to respond to changes in market demand) and the odds of screw-ups due to communication lapses. And outsourcing also reduces an organization’s skills. Those lower-level people have a lot of product know-how that you lose when you transfer activities to an outside operation. It’s nice to think that you can hollow out your organization and just do all the sexy design and marketing stuff and dump the grunt work on other players. But over time you are breeding future competitors. Thus offshoring is best understood as a device for transferring income from the rank and file to middle level and senior executives. Yesterday, Clive explained how outsouring over time starts to create its own bureaucracy bloat. It’s the modern corporate version of one of the observations of C. Northcote Parkinson: “Officials make work for each other.” As Clive describes, the first response to the problems resulting from outsourcing is to try to bury them, since outsourcing is a corporate religion and thus cannot be reversed even when the evidence comes in against it. And then when those costs start becoming more visible, the response is to try to manage them, which means more work (more managerial cost!) and/or hiring more outside specialists (another transfer to highly-paid individuals).
American Innovation Lies on Weak Foundation - It’s easy, indeed, to be excited about the scientific and technological prowess of American companies. But talk to a scientist in a research lab almost anywhere and you are likely to hear that the edifice of American innovation rests on an increasingly rickety foundation. Investment in research and development has flatlined over the last several years as a share of the economy, stabilizing at about 2.9 percent of the nation’s gross domestic product in 2012, according to the National Science Foundation. That may not be far from the overall peak. But other countries are now leaving the United States behind. And even more critically, investment in basic research — the fundamental building block for innovation and economic advancement — steadily shrank as a share of the economy in the decade to 2012, the last year for which there are comprehensive statistics.The trend poses two big challenges. The first concerns government budgets for basic research, the biggest source of financing for scientific inquiry. It fell in 2013 to substantially below its level 10 years earlier and, as one of the most politically vulnerable elements in an increasingly straitened federal budget, looks likely to shrink further. The second, equally important, challenge regards the future of corporate research. Evidence suggests that American corporations, constantly pressured to increase the next quarter’s profits in the face of powerful foreign competition, are walking away from basic science, too.
Weekly Initial Unemployment Claims increased to 274,000, Lowest 4-Week average in 15 years -- The DOL reported: In the week ending May 16, the advance figure for seasonally adjusted initial claims was 274,000, an increase of 10,000 from the previous week's unrevised level of 264,000. The 4-week moving average was 266,250, a decrease of 5,500 from the previous week's unrevised average of 271,750. This is the lowest level for this average since April 15, 2000 when it was 266,250. There were no special factors impacting this week's initial claims. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.
Goldman's Hatzius: "The Employment Gap Is Much Bigger than the FOMC's Current Estimate" - Some excerpts from a research piece by Goldman Sachs chief economist Jan Hatzius: The Employment Gap Is Much Bigger than the FOMC's Current Estimate of the Unemployment Gap: The Fed's most "official" view of excess labor market slack is the gap between the unemployment rate (currently 5.4%) and the midpoint of the FOMC's central tendency range for the "longer-term" rate (currently 5.1%), which is usually taken to be an estimate of the structural unemployment rate. Taken at face value, this implies that the US economy can only create an additional 500,000 jobs before the labor market starts to overheat. ... If this is the right perspective, it would be entirely sensible, and perhaps urgent, to start normalizing monetary policy soon. But we think it is a misleading perspective, for two reasons. First, the FOMC's current estimate of the structural unemployment rate is likely to continue falling ... This would not only be in keeping with the trend over the past two years, but also with a new study by the Chicago Fed which argues that population aging is likely to push structural unemployment significantly lower over time. ... If the Chicago Fed estimates are correct, the economy would be able to create about 800,000 jobs before the labor market starts to overheat in the short term, and as many as 1.4 million jobs in the longer term. Second, there is probably significant labor market slack outside the unemployment gap because there is an important cyclical element in the decline of the labor force participation rate since 2007. This is consistent with Federal Reserve Research.
40 percent of unemployed have quit looking for jobs: At a time when 8.5 million Americans still don't have jobs, some 40 percent have given up even looking. The revelation, contained in a new survey Wednesday showing how much work needs to be done yet in the U.S. labor market, comes as the labor force participation rate remains mired near 37-year lows. A tight jobs market, the skills gap between what employers want and what prospective employees have to offer, and a benefits program that, while curtailed from its recession level, still remains obliging have combined to keep workers on the sidelines, according to a Harris poll of 1,553 working-age Americans conducted for Express Employment Professionals. On the bright side, the number is actually better than 2014, the survey's inaugural year, when 47 percent of the jobless said they had given up. "This survey shows that some of the troubling trends we observed last year are continuing," "While the economy is indeed getting better for some, for others who have been unemployed long term, they are increasingly being left behind." Duration matters: The longer someone was out of work, the more likely it is that they've quit looking. Of the total, 55 percent who were unemployed for more than two years fell into the category; 32 percent of those idle for 13 to 24 months and 34 percent out for seven to 12 months had quit as well. Just 21 percent out for three months or less had stopped looking.
More Americans Feel Comfortable Quitting Their Jobs, Survey Finds - A poll of unemployed workers in the U.S. suggests that a growing, albeit small, share of individuals are out of work by choice. A Harris Poll of 1,553 unemployed individuals found that nearly one-fifth decided to quit their jobs, apparently buoyed by the improving economy and reports of a warming labor market. The poll was conducted in April and commissioned by staffing firm Express Employment Professionals. A similar poll last year found that 15% of respondents had quit their last job. The out-of-work individuals who reported they were laid off dropped to 28% this year from 36% last year. To be sure, the survey represents a small sample of the total unemployed in the U.S., but government data also suggests more workers are quitting. The most recent Labor Department job openings and labor turnover survey, released on May 12, found that the number of voluntary quits rose to 2.8 million in March from 2.7 million in February. March’s figures also represent a boost from the 2.4 million quits recorded in March 2014. Despite reports of a hot labor market in fields like engineering and architecture,, people who leave their jobs may be surprised by what they find on the job hunt, said Express chief executive Robert Funk. Demand for workers in highly skilled roles–IT workers, for example, or those in accounting–is high, but the demand for candidates in jobs that require fewer skills remains tepid, he said. “We’re really in a tale of two economies right now,” Funk said. Overall, demand for workers is “bubbling along,” he added. “It’s not robust, except in these skilled areas.”
H-1B Visas Do Not Create Jobs or Improve Conditions for U.S. Workers -- The common wisdom on Capitol Hill, carefully nurtured by corporate lobbyists and campaign cash, is that America needs more high-tech guestworkers, requiring a big increase in the number of H-1B guestworker visas made available each year. A number of senators, including Amy Klobuchar and Orrin Hatch, have introduced legislation to double or triple the number of non-immigrant tech workers who can be imported each year, despite evidence from the U.S. Government Accountability Office, independent researchers, and various media reports that the H-1B is used to lower wages and displace U.S. workers. The senators endlessly proclaim that H-1B employees are good for our economy, that businesses can’t find enough talent here, that the H-1Bs are innovative, the “best and the brightest,” and that importing them leads to more job creation. In support, they cite a paper by Agnes Scott College researcher Madeline Zavodny, which found that hiring H-1Bs creates jobs for Americans: specifically, that “adding 100 H-1B workers results in an additional 183 jobs among U.S. natives.” The problem is that it isn’t true. Zavodny’s research couldn’t discern whether the H-1Bs were hired because the economy was growing and jobs were being created—for natives and guestworkers alike—or whether the H-1Bs were responsible for the job growth. (The weakness of her results is demonstrated by another, completely implausible finding she reports, that H-2B unskilled guestworkers are associated with two-and-a-half times greater job creation than the college-educated H-1Bs: 464 jobs for every 100 H-2B guestworkers. The notion that hiring low-wage-earning landscapers and groundskeepers, hotel maids and dishwashers—most of whom have little or no college education—spurs spectacular job growth is ludicrous on its face.)
Los Angeles Lifts Its Minimum Wage to $15 Per Hour - The nation’s second-largest city voted Tuesday to increase its minimum wage from $9 an hour to $15 an hour by 2020, in what is perhaps the most significant victory so far for labor groups and their allies who are engaged in a national push to raise the minimum wage.The increase, which the City Council passed in a 14-to-1 vote, comes as workers across the country are rallying for higher wages and several large companies, including Facebook and Walmart, have moved to raise their lowest wages. Several other cities, including San Francisco, Chicago, Seattle and Oakland, Calif., have already approved increases, and dozens more are considering doing the same. In 2014, a number of Republican-leaning states like Alaska and South Dakota also raised their state-level minimum wages by ballot initiative.The effect is likely to be particularly strong in Los Angeles, where, according to some estimates, almost 50 percent of the city’s work force earns less than $15 an hour. Under the plan approved Tuesday, the minimum wage will rise over five years “The proposal will bring wages up in a way we haven’t seen since the 1960s. There’s a sense spreading that this is the new norm, especially in areas that have high costs of housing.” The groups pressing for higher minimum wages said that the Los Angeles vote could set off a wave of increases across Southern California, and that higher pay scales would improve the way of life for the region’s vast low-wage work force. Supporters of higher wages say they hope the move will reverberate nationally. Gov. Andrew M. Cuomo of New York announced this month that he was convening a state board to consider a wage increase in the local fast-food industry, which could be enacted without a vote in the State Legislature. Immediately after the Los Angeles vote, pressure began to build on Mr. Cuomo to reject an increase that falls short of $15 an hour.
Los Angeles' Minimum Wage on Track to go up to $15 by 2020 -- The Los Angeles City Council on Tuesday backed a plan to raise the city’s minimum wage to $15 per hour, joining a trend sweeping cities across the country as elected leaders seek to boost stagnating pay for workers on the lowest rungs of the socio-economic ladder. Lawmakers agreed to draft an ordinance raising the $9-an-hour base wage to $15 by 2020 for as many as 800,000 workers, making L.A. the largest city in the nation to adopt a major minimum-wage hike. Chicago, San Francisco and Seattle already have approved similar increases, and raising the federal minimum wage has moved to the forefront of the Democratic Party’s agenda. The first wage boost — to $10.50 per hour — to take effect in July 2016. Some labor leaders have expressed dissatisfaction with the gradual timeline elected leaders set for raising base wages. But on Tuesday the harshest criticism of the law came from business groups, which warned lawmakers that the mandate would force employers to lay off workers or leave the city altogether.
Warren Buffett: $15 Minimum Wage Will Crush the Working Class - Warren Buffett is a favorite of the American left for his support of such policies as higher taxes on the rich and healthcare reform. But advocates for workers rights may be a little less pleased with the billionaire investor after he published an op-ed in The Wall Street Journal Friday, decrying the efforts in many cities across the United States to raise the minimum wage to as much as $15 per hour. Buffett admitted that the middle class has increasingly hurt by an economy that rewards people with “specialized talents,” but not the vast majority of Americans who hold “more commonplace skills.” However, Buffett argues that trying to solve the problem of stagnant wages for working Americans by raising the minimum wage is misguided. Writes Buffett: In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity. That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty. Instead, Buffett says, we should expand the earned income tax credit, also known as a “negative income tax,” in which the government subsidizes the wages of workers making under a certain amount. “The EITC rewards work and provides an incentive for workers to improve their skills,” Buffett writes. “Equally important, it does not distort market forces, thereby maximizing employment.”
Judge: McDonald's workers can sue over costly payroll cards - (AP) -- A northeastern Pennsylvania judge has ruled that more than 2,000 people can take the owners of 16 McDonald's restaurants to court over their practice of paying employees with fee-laden debit cards. Former McDonald's employee Natalie Gunshannon and four other people who worked for the franchise owners filed suit in 2013, saying the payroll card they were forced to use charged fees for numerous kinds of transactions. The Citizens' Voice of Wilkes-Barre (http://bit.ly/1PoIS3a ) reports that Luzerne County Judge Thomas F. Burke Jr. gave class-action status to the lawsuit this week, entitling nearly 2,400 people to damages if the plaintiffs win. After the suit was filed, franchise owners Albert and Carol Mueller said they would give employees the choice of being paid by check, direct deposit or payroll card.
Presenting WalMart's Leaked Anti-Union Training Video -- Last month, we asked: “Why Is WalMart Mysteriously Shuttering Stores Nationwide For Plumbing Issues?” The story, which has since gone viral, goes like this. WalMart inexplicably closed five geographically distinct locations across the US, citing persistent plumbing issues. These pesky “clogs and leaks” are apparently so endemic at the shuttered stores that they will need to remain closed for at least six months. Needless to say, the 2,200 or so employees whose jobs ‘went down the drain’ so to speak were skeptical given that no one had seen any evidence that the plumbing was indeed bad and considering the fact that WalMart gave them virtually no notice whatsoever before closing the stores. Local media quickly picked up on the issue and discovered that no plumbing permits had been filed in any of the cities where the stores were closed and the LA Times subsequently discovered that at one location, the Pico Rivera WalMart in California, $500,000 in renovations had been completed in the previous year including plumbing repairs. As it turns out, the Pico Rivera location isn’t just any old WalMart. In fact, as we documented in “Did WalMart Close A California Store To Punish Employees Who Protested Labor And Working Conditions?”, the store’s employees have been at the forefront of pickets, walkouts, sit-ins, protests, and various and sundry other demonstrations aimed at raising awareness about working conditions and management’s retaliatory tendencies when it comes to workers who escalate concerns.Now, the UFCW is seeking a labor board injunction in connection with the plumbing incident. Now, a “New Associate Orientation” video has surfaced. In the nine minute clip (entitled “Protect Your Signature”) WalMart patiently explains to new hires why unions are bad.
The second job you don’t know you have -- Technology has knocked the bottom rung out of the employment ladder, which has sent youth unemployment around the globe skyrocketing and presented us with a serious economic dilemma. While many have focused on the poor state of our educational system or the “jobless” recovery, another, overlooked factor behind this trend is the phenomenon of “shadow work.” I define shadow work as all the unpaid jobs we do on behalf of businesses and organizations: We are pumping our own gas, scanning our own groceries, booking our travel and busing our tables at Starbucks. Shadow work is a new concept, so as yet, no one has compiled economic data on how many jobs we, the consumers, have taken over from (erstwhile) employees. Yet it is surely a force shrinking the job market, and the unemployment it creates is structural. Thanks in part to this new phenomenon, widespread joblessness could become entrenched in the social landscape. Consider what you now do yourself: You can bank on your cell phone, check yourself out at CVS or the grocery store without ever speaking to an employee, book your own flights and print your boarding pass at the airport without ever talking to a ticket agent — and that’s just in the last few years. Imagine what’s coming next. In the modern economy, there is no bigger issue than jobs and the cost of maintaining a staff. For the vast majority of businesses, schools and nonprofits, personnel is the largest budget item. Politicians and pundits who shake their heads at the stubbornness of high unemployment rates are either overlooking or ignoring the obvious. Our economic and political system is stacked to reward businesses for discarding employees, not hiring them.
Derailed - America’s economic arteries are becoming sclerotic - The Economist --LATE on May 12th, a New York-bound Amtrak passenger train derailed near Philadelphia, killing seven people and injuring scores more. Many of the seven carriages were mangled and rolled on their sides. The engine’s metal chassis lay in twisted pieces, and the track was left in ribbons. The accident closed the busiest rail corridor in the country. Whatever the reason, rail incidents, particularly for Amtrak, a government-subsidised passenger rail company, seem to be ever more common. The Philadelphia accident came hours before the House Appropriations Committee was due to meet to debate a transport bill, which helps fund Amtrak. The company is an odd beast. It runs for profit, but its board is appointed by the president. It is entirely funded by the government, receiving roughly $1.4 billion a year in subsidies. Even with that help it operates in the red, losing $227m a year. Congress, fed up with this mismanagement, has been considering tightening the purse-strings. The Senate has been slow to approve $7.8 billion in Amtrak funding that has already been cleared by the Republican-dominated House. Much of the money goes to prop up sagging rails and refurbish rolling stock. Anthony Coscia, Amtrak’s chairman, remarked recently that the passenger network is “still entirely underfunded for what we accomplish”. Yet never has rail travel, particularly in the north-east, been more important. In the past 15 years passenger traffic in the region has increased by about 50%. The north-east corridor, from Washington to Boston, has never been busier. More than 750,000 passengers use its service each day. According to Amtrak, if the corridor is shut down for even a day, it would cost America’s economy around $100m in increased congestion costs and lost productivity.
America's premier rail superhighway is slowly falling apart - — The trains that link global centers of learning, finance and power on the East Coast lumber through tunnels dug just after the Civil War, and cross century-old bridges that sometimes jam when they swing open to let tugboats pass. Hundreds of miles of overhead wires that deliver power to locomotives were hung during the Great Depression. The rails of the Northeast Corridor are decaying, increasingly strained — and moving more people than ever around the nation's most densely populated region. Amtrak's ridership on the corridor is up 50 percent since 1998, thanks mostly to the introduction of high-speed trains now favored by travelers who used to fly between New York, Washington and Boston. Amtrak carried a record 11.6 million riders on the corridor in fiscal year 2014. Commuter railroads that rely heavily on the rail corridor, like the Metro-North Railroad serving New York and Connecticut, also have been breaking ridership records. Half of the route's 1,000 bridges are around a century old. Not all are at the end of their useful lives, but at current funding levels, it would take 300 years to replace all of them, according to the Northeast Corridor Commission of transportation officials. A 105-year-old bridge over New Jersey's Hackensack River, the Portal Bridge, wouldn't close for 45 minutes in February after it opened for a tugboat. Plans call for a pair of replacement bridges. The first one will cost $940 million. There are 10 such "historic moveable bridges" along the corridor. In Connecticut, officials are working on a plan to replace a swinging bridge over the Norwalk River. It was built in 1896.
Public Transportation Is Failing America's Poor - The Atlantic: Transportation is about more than just moving people from point A to point B. It’s also a system that can either limit or expand the opportunities available to people based on where they live. In many cities, the areas with the shoddiest access to public transit are the most impoverished—and the lack of investment leaves many Americans without easy access to jobs, goods, and services. To be certain, the aging and inadequate transportation infrastructure is an issue for Americans up and down the economic ladder. Throughout the country highways are crumbling, bridges are in need of repair, and railways remain inadequate. Improvement to public transportation—buses, trains, and safer routes for bicycles—is something that just about everyone who lives in a major metropolitan area has on their wish list. But there’s a difference between preference and necessity: “Public transportation is desired by many but is even more important for lower-income people who can't afford cars,” “Without really good public transportation, it's very difficult to deal with inequality,” Kanter said. Access to just about everything associated with upward mobility and economic progress—jobs, quality food, and goods (at reasonable prices), healthcare, and schooling— relies on the ability to get around in an efficient way, and for an affordable price. A recent study from Harvard found that geographic mobility was indeed linked to economic mobility, and a 2014 study from NYU found a link between poor public-transit access and higher rates of unemployment and decreased income in New York City.
Dead Nation Walking - Kunstler -- The otherwise excellent David Stockman posted a misguided blog last week that contained all the boilerplate arguments denouncing passenger rail: that it’s addicted to government subsidies and that a “free market” would put it out of its misery because Americans prefer to drive and fly from one place to another. One reason Americans prefer to drive — say, from Albany, NY, to Boston — is that there is only one train a day, it never leaves on time or arrives on time, and it takes twice as long as a car trip for no reason that makes any sense. Of course, this is exactly the kind of journey ( slightly less than 200 miles) that doesn’t make sense to fly, either, given all the dreary business of getting to-and-from the airports, not to mention the expense of a short-hop plane ticket. Nowhere on earth is there passenger rail that pays for itself. But, of course, you don’t hear anyone complain about the public subsidies for driving or air travel. Who do you think pays for the interstate highway system? What major airport is privately owned and operated? Some of the decisions made over our rail system are so dumb you wonder how the executives on board ever got their jobs. For instance the train between New York City and Chicago never runs on time for the simple reason that Amtrak sold the right-of-way to the CSX freight line. CSX then tore up the second track because there was an antiquated state real estate tax on railroad tracks. As a result, freight trains have priority on the single track and the passenger trains have to pull over on sidings every time a freight needs to go by. Earth calling the New York state legislature. Rescind the stupid tax. America is going to need trains more than it thinks right now, despite what the “free market” says. The condition of our trains is symptomatic of the shape of the nation. The really sad part is we missed the window of opportunity to build a high-speed system. Capital will soon be too scarce for that. But we still have a conventional network that not so many decades ago was the envy of the world, and we know exactly how to fix it. We just don’t want to. No will left. Apparently we’d rather just turn into the walking dead.
Runnin’ on Empty - Long-term federal highway funding: Still stuck in the breakdown lane. House Transportation and Infrastructure Committee Chair Bill Shuster and Ways & Means Chair Paul Ryan need more time to “reach a bipartisan agreement” on financing the Highway Trust Fund so they introduced a bill to extend the program for two months. The Senate seems ready to move on a similar measure. That will apparently do for now, since current funding should last into July. Ways & Means Committee Democrats want hearings on highway funding in June, but lawmakers have made little progress on a long-term funding solution. Minnesota may need more time for its infrastructure funding plans, too. House and Senate leaders could soon have a budget deal that boosts public school funding and maintains a low-income health care program. But they have only until the end of today to choose between tax relief or transportation funding. Both Republicans and Democrats want to increase transportation funding, but House Republicans are also insisting on $2 billion in tax relief. Nebraska’s legislature overrode a veto of a gas tax increase. Republican Governor Pete Ricketts opposed a 6-cent-per-gallon gas tax increase, but the bill’s Republican sponsor Senator Jim Smith said the tax is the best way to pay for construction and improve road safety. Nebraska’s total gas tax will grow to 31.6 cents per gallon over four years. Once fully effective, it would raise an extra $25 million a year for the state, and $51 million annually for cities and counties. Vermont’s legislature figured out a way to raise taxes, too. It passed a $30 million tax package on Saturday and can now adjourn its 2015 session. Democratic Governor Peter Shumlin wanted to limit tax increases to $15 million. The House and Senate applied Vermont’s 6 percent sales tax to soft drinks for the first time, but most new revenues come from limiting the ability of high-income taxpayers to claim income tax deductions.
Rewarding Work, Paying by the Mile, a Windfall, and… Tax Magic -- Redesign the EITC to help more low-income workers. TPC’s Elaine Maag thinks that’s the way to go. She explains in her new paper: “A worker credit based on individual earnings, and not contingent on having children at home, could provide substantial benefits to all low-income workers, ease administration for the IRS, and encourage work for childless individuals and secondary earners. A broadly available $1,500 credit would cost around $870 billion over 10 years.” Bay State Senate D’s would freeze the state’s income tax rate and increase its EITC. The Massachusetts Senate began debating the state’s $38 billion budget this week. Democratic leaders want to expand the state’s earned income tax credit over the next three years from 15 percent to 22.5 percent of the federal EITC. By 2017, it would boost the subsidy for the average low-wage earner by about $470 a year. The expansion’s $145 million price tag would be offset by freezing the income tax rate at 5.15 percent, instead of allowing it to drop to 5 percent over the next few years as scheduled. Oregon drivers can sign up to pay a per-mile tax starting July 1. The first-in-the-nation statewide program will raise money for roads and bridges, as gasoline tax revenue continues to decline. Up to 5,000 volunteers can sign up to drive with devices that collect mileage data. They’ll pay 1.5 cents for each mile traveled on Oregon public roads. They’ll still pay the state’s gasoline tax when they fill up, but get a credit on their monthly pay-per-mile bill to make up for it.
Many Big U.S. Cities See Population Gains Slow Again - As the recession fades in the rearview mirror, many big U.S. cities that saw population gains when the economy was down are growing more slowly, even as suburbs remain stable or grow faster. Population growth slowed in 33 of the nation’s 50 largest cities between July 2013 and July 2014 compared to the prior year, according to Kenneth Johnson, a demographer at the University of New Hampshire, who analyzed new Census Bureau data released on Thursday. The latest data largely echo trends from July 2012 to July 2013, Mr. Johnson says, when big-city population growth also eased. This spring, less-granular census data hinted that Americans are finally starting to return to the suburbs—and to even more far-flung areas called “exurbs.”The brunt of the city-growth slowdown appears to be in the Northeast and Midwest, and in bigger cities and coastal areas. Twelve of the 14 largest cities in the North and Midwest saw smaller population gains than in the previous year, Mr. Johnson found. “The big-city slowdown is pretty clear,” he says. However, the South and West—especially the nation’s Sunbelt—is a little different: Just 21 of the 37 largest cities in the South and West saw slower population growth, Mr. Johnson says.
People have no idea what inequality actually looks like - Inequality, we keep hearing, will be a major theme of the upcoming election. Hillary Clinton has been preaching about it. Republicans are suddenly doing it, too. Both sides have been talking to the same eminent academics worried about what economic inequality could mean for the future of American children. But here is an important point worth remembering about the electorate these candidates have been talking to: Most people — regardless of whether you ask about the poor or the rich, income or wealth, the shape of the income distribution or an individual's position in it — have a terrible sense of what inequality actually looks like. This key point comes from a new National Bureau of Economic Research working paper by Vladimir Gimpelson at the Higher School of Economist in Moscow and Daniel Treisman at UCLA. They looked at several sets of international survey data gauging how much people know in many countries, including the United States, about economic inequality, the ways it's been changing and how their own incomes compare. Their conclusion, which minces no words: In recent years, ordinary people have had little idea about such things. What they think they know is often wrong. Widespread ignorance and misperceptions of inequality emerge robustly, regardless of the data source, operationalization, and method of measurement. People aren't good at guessing the share of the population that lives in poverty in their country. We're not very accurate at estimating how much workers in various jobs earn (in the United States, we're not bad with shop assistants and unskilled factory workers, but we way overestimate what doctors and Cabinet secretaries make). We're also not that great at recognizing whether inequality and poverty are worsening or improving with time. And many of these surveys suggest that the rich think they're poorer than they really are while the poor think they're richer — a pattern that implies a lot of us like to think we're hanging out somewhere in the middle.
Poor People Work: A Majority of Poor People Who Can Work Do -- The figure below shows the population of those in poverty segmented into various labor status categories. The top bar shows that 35.2 percent of the poor between the ages of 18 and 64 in 2013 were considered not currently eligible to work because they are retired, going to school, or disabled. The other 64.8 percent of working-age poor are currently eligible to work. The second bar shows us that among these currently-eligible workers, 62.6 percent are working and 44.3 percent are working full-time. Of the working-age poor eligible for employment, 37.4 percent are not working—a share that includes the 3.3 million unemployed poor people currently seeking a job. Despite what some policymakers and pundits might have us believe, a significant share of the poor work. This means that policies that boost employment and wages are important and underappreciated tools for reducing poverty. To boost wage-growth and reduce poverty rates, a policy agenda must include provisions to raise the minimum wage, raise the overtime threshold, eliminate wage theft, and strengthen workers’ collective bargaining rights.
US will take Rohingya migrants - The United States is willing to take in Rohingya refugees as part of international efforts to cope with Southeast Asia's stranded boat people, the State Department said Wednesday. Spokeswoman Marie Harf said early Thursday Thailand time that the US is prepared to take a leading role in any multicountry effort, organized by the United Nations refugee agency, to resettle the most vulnerable refugees. In the past three weeks, more than 3,000 people - Rohingya Muslims fleeing persecution in Myanmar and Bangladeshis trying to escape poverty - have landed in overcrowded boats on the shores of various Southeast Asian countries. Aid groups say thousands more are stranded at sea after human smugglers abandoned their boats because of a crackdown by authorities. Indonesia, Malaysia and Thailand have been reluctant to let the Rohingya in and have turned boats full of hungry, thirsty people away, because they fear a flood of unwanted migrants. But on Wednesday, they relented. Ms Harf welcomed the governments' decision "to uphold their responsibilities under international law and provide humanitarian assistance and shelter to 7,000 vulnerable migrants." The US would consider requests from the U.N. High Commissioner for Refugees and International Organization for Migration for funds to help receive and screen refugees as they come to shore.
How to Live a Middle-Class Life in New York City on Less Than $5,000 a Year- Marie was mixing basil for pesto on the kitchen counter of a brownstone in the Crown Heights neighborhood of Brooklyn when the doorbell rang. Her friend Janet Kalish was early for lunch: the butternut squash was still cooking. “I found kilos of carrots yesterday,” Kalish said joyfully. “I have to give them away before they turn bad!” Kalish had collected the carrots on the street, just like the parmesan Marie was grating had been rescued from the trash. The pair became friends when Marie started dumpster diving three years ago. Drifting from the American philosophy of incessant consumption, some have adapted to a system of interdependence and sharing – and eating for free is just the first step.Marie lives a New York middle-class life spending less than $5,000 a year. Kalish, who travels more, needs $10,000. They work, eat, have a home, but there’s no rent bill or grocery shopping. No regular salary, even. Money isn’t their currency. Marie is a petite, black-haired French woman who looks just like the conventional fortysomething Brooklynite. But she has no job, no visa, and lives in a three-story house for free. Living in the US also comes with an additional bit of daring: she’s an illegal immigrant. For privacy reasons, she asked to be identified with her first name only. Eight years ago Marie arrived in the US, where she decided to remain. She has been staying for five years with her friend Greg, a real estate agent. They met in upstate New York in 2010 at a permaculture internship in which Marie spent a month learning how to farm sustainably. She needed a place to stay, he had a vacant room, so she became his home keeper, cleaning, gardening and bringing dumpster-dived food in lieu of rent.
How To Measure the Black Market - St. Louis Fed -- The informal economy, also known as the underground economy or the black market, makes up a significant portion of the overall economy. It is estimated to be as much as 36 percent of the gross domestic product (GDP) of developing nations and 13 percent of developed countries’ GDP.1 However, as an article by Economist Paulina Restrepo-Echavarria in The Regional Economist points out, measuring the informal economy is quite difficult. Direct attempts to measure the size of the informal economy typically have circumstances that make them problematic. Questionnaires and surveys, for instance, rely on respondents being truthful, which may not happen if it requires admitting to not reporting taxes. Another direct measure involves calculating the discrepancy between income declared for tax purposes and that measured by selective checks. Restrepo-Echavarria gave an example of comparing the number of jobs declared by firms with the number of employed people found through household surveys, with the difference representing the informal workforce. “Once the informal number of workers is identified, informal workers can be attributed the same net compensation as similar workers in the formal economy.” As Restrepo-Echavarria noted, indirect approaches “are macroeconomic approaches that try to use an indicator of the informal economy as a proxy for its size or growth.” The following are a couple of these approaches and the issues with each method. (Additional indirect approaches were covered in the original article, “Measuring Underground Economy Can Be Done, but It Is Difficult.”)
U.S. and Israel have worst inequality in the developed world - The OECD found that the gap between rich and poor is at record levels in most of its 34 member countries. But the U.S. and Israel stood out from the pack. In the U.S., the richest 10% of the population earn 16.5 times the income of the poorest 10%. In Israel, the richest 10% earn 15 times that of the poorest. That compares with the average ratio of 9.6 times across the OECD. The income gap has been growing steadily in recent decades. In the 1980s, the rich made about 7 times as much as the poor. The report also reveals wealth inequality is even more extreme than income inequality. Data from 2012 shows that among 18 member nations, the top 10% of households controlled half of all wealth, while the bottom 40% owned just 3%. Based on the top 5%, the U.S. has the widest wealth gap. These households own nearly 91 times the wealth of the average. Both the U.S. and Israel have seen inequality grow faster in part because of comparatively low spending on social programs and benefits, said Mark Pearson, the author of the 330-page report. Other countries, such as France, are better at redistributing wealth using taxes and benefits, he said.
US Faces Scathing UN Review on Human Rights Record - The United States was slammed over its rights record Monday at the United Nations’ Human Rights Council, with member nations criticizing the country for police violence and racial discrimination, the Guantánamo Bay Detention Facility and the continued use of the death penalty. The issue of racism and police brutality dominated the discussion on Monday during the country’s second universal periodic review (UPR). Country after country recommended that the U.S. strengthen legislation and expand training to eliminate racism and excessive use of force by law enforcement. "I'm not surprised that the world's eyes are focused on police issues in the U.S.," said Alba Morales, who investigates the U.S. criminal justice system at Human Rights Watch. "There is an international spotlight that's been shone [on the issues], in large part due to the events in Ferguson and the disproportionate police response to even peaceful protesters,"
Kansas could lose millions for limiting welfare recipients to $25 at ATMs -- A first-of-its-kind provision that prevents welfare recipients in Kansas from withdrawing more than $25 a day from an ATM might violate federal law, and could jeopardize the state’s federal funding if not amended. The Social Security Act requires states to ensure that recipients of Temporary Assistance for Needy Families, or TANF, “have adequate access to their cash assistance” and can withdraw money “with minimal fees or charges.”At stake is about $102 million in TANF block grant funds that Kansas receives every year from the federal government.The state’s controversial ATM limit was added as an amendment to a welfare overhaul bill signed in April by Gov. Sam Brownback, a Republican. The new law also bars welfare recipients from spending their benefit money at certain places, including movie theaters, massage parlors, cruise ships and swimming pools. It also sets stricter eligibility requirements and shortened the amount of time people can receive assistance.Brownback said in an interview on Friday that he is aware of the possible conflict with federal statutes and that the affected state agencies in his administration are working to fix it.
As Illinois runs out of options in budget crisis, tax rises seen in the cards | Reuters: With no easy way to financially engineer or negotiate its way out of a budget and pensions crisis, Illinois is likely to dish out some unpleasant medicine to its residents in the next few years. And investors say that is most likely to come in the form of higher taxes. Given the Democrats' control of the state legislature and their opposition to many proposals for spending cuts, municipal bond fund managers see little alternative for Republican Governor Bruce Rauner other than eventually agreeing to hike taxes, such as raising the state’s income tax or broadening its sales tax base. The state has a chronic structural budget deficit, as well as the lowest credit ratings and worst-funded pension system among the 50 states. Chicago, the third biggest U.S. city and the place where about one in five of the state's residents live, is suffering from similar pension issues and may have to take additional pain, the investors said.Rauner got into office in a November election after campaigning for eliminating a temporary 2011 personal income tax hike to 5 percent from 3 percent enacted under former Democratic Governor Pat Quinn. That was largely rolled back in January to 3.75 percent. Rauner has ruled out hiking taxes unless he can get pension cuts and other reforms, including creating areas where employees in unionized workplaces can opt out of joining unions or paying union dues. The Democrat-controlled House rejected this so-called right-to-work proposal last week.
San Bernardino council backs bankruptcy plan that hammers bondholders - San Bernardino's council approved a bankruptcy exit plan on Monday night that seeks to virtually eliminate the southern California city's pension bond debt while paying Calpers, the state pension system, in full. The city council voted 6-1 for the plan after a debate which included input from residents. The bankruptcy blueprint, called a plan of adjustment, must now be presented to the federal judge overseeing the city's bankruptcy by May 30, under a court-imposed deadline. Under the plan, city officials want to slash their $50 million pension debt to just a penny on the dollar. The city previously agreed to pay Calpers, its biggest creditor, in full now and at all times in the future, an agreement incorporated into the plan. The Luxembourg-based bank EEPK, holder of the $50 million pension obligation bonds, Ambac Assurance Corp, which insures a portion of the bonds, and Wells Fargo, the bond trustee, have declined to comment since the plan was released last Thursday. San Bernardino also intends to virtually eliminate retiree health care costs under the plan, and to outsource its fire, emergency response and trash services. San Bernardino, a city of 205,000 65 miles east of Los Angeles, declared bankruptcy in August 2012 with a $45 million deficit.
‘Prisonized’ neighborhoods make ex-cons more likely to return to the slammer --The gates at American prisons can seem like revolving doors. People come in, do their time, and—within 3 years—half are back behind bars, according to U.S. Department of Justice statistics. Now, a scientist says he has nailed down one potential risk factor. An intriguing natural experiment that followed ex-cons displaced by Hurricane Katrina suggests that when former prisoners wind up moving to the same neighborhood, they are more likely to return to a life of crime. "We can’t forget about where people live, and neighborhood context influences behavior.” Kirk was following the fate of parolees leaving Louisiana prisons after Hurricane Katrina when he noticed something unusual. Those parolees who moved away from their original New Orleans neighborhoods were less likely to land back in jail than those who returned. He theorized that higher concentrations of former prisoners in the old neighborhoods might have something to do with the difference. It’s almost impossible to tease apart which factors drive something as complicated as crime. But in this case, the Katrina disaster offered an unplanned, natural experiment. After the flood, fewer newly released prisoners were moving to New Orleans. Instead, they were settling farther afield, in places like Lafayette and Baton Rouge. Kirk used these post-Katrina shifts—driven by an outside natural disaster rather than internal forces such as rising poverty or gentrification—to see whether changes in the concentration of people just out of prison affected reincarceration rates.
Poor Little Rich Women - The women I met, mainly at playgrounds, play groups and the nursery schools where I took my sons, were mostly 30-somethings with advanced degrees from prestigious universities and business schools. They were married to rich, powerful men, many of whom ran hedge or private equity funds; they often had three or four children under the age of 10; they lived west of Lexington Avenue, north of 63rd Street and south of 94th Street; and they did not work outside the home. Instead they toiled in what the sociologist Sharon Hays calls “intensive mothering,” exhaustively enriching their children’s lives by virtually every measure, then advocating for them anxiously and sometimes ruthlessly in the linked high-stakes games of social jockeying and school admissions.Their self-care was no less zealous or competitive. No ponytails or mom jeans here: they exercised themselves to a razor’s edge, wore expensive and exquisite outfits to school drop-off and looked a decade younger than they were. Many ran their homes (plural) like C.E.O.s. It didn’t take long for me to realize that my background in anthropology might help me figure it all out, and that this elite tribe and its practices made for a fascinating story.I was never undercover; I told the women I spent time with that I was writing a book about being a mother on the Upper East Side, and many of them were eager to share their perspectives on what one described as “our in many ways very weird world.”
Want A Low-Wage Job? Go To College - Simply put - if you want a low-wage job, go to college. As EPI explains, In 1979, only 56.7 percent of low-wage workers had a high school degree, compared with 77.5 percent in 2013. Correspondingly, many more low-wage workers have attended at least some college or have a college degree, which the graph identifies as “college.” Whileonly 23.9 percent of low-wage workers in 1979 had some college experience or a college degree, that group had grown to 44.2 percent by 2013.Yet low-wage workers’ hourly wages have not improved much over this time… Think about that for one second... despite all the narrative about "getting on in life" and American Dreams... almost half of US graduates can do no better than a low-wage job.. Perhaps it is time to rethink the "college for everyone" meme as 'fair' and instead realize it is nothing more than government delaying the inevitable of a middle-class being down-trodden to debt-servitude for the good of the few at the top who need credit to be extended to any or everyone in order for the obvious unsustainability to be exposed for all to see.
The In-State Tuition Break, Slowly Disappearing - Over the last decade, state governments and universities have been chipping away at a pillar of American opportunity: in-state tuition. Many of the most elite public universities are steadily restricting the number of students who are allowed to pay in-state tuition in the first place. A result is the creeping privatization of elite public universities that have historically provided an accessible route to jobs in academia, business and government. One of the most important paths to upward mobility, open on a meritocratic basis to people from all economic classes, is narrowing.. The nonprofit Carnegie Foundation classifies 147 public universities as national leaders in conducting research. An additional 500 regional public universities conduct less research and often have less selective admissions policies. These two groups — national and regional public universities — each educate about the same number of students. Most students attending public universities stay in the state where their parents reside, in large part because in-state students have traditionally received a steep tuition discount. Out-of-state students have long been in the minority and pay tuition closer to that charged by private universities. From 2000 to 2012 (the latest year of available federal data), nine out of 10 additional regional public university students were in-state. The pattern at elite national universities was very different. There, the majority of additional students were from other states. Instead of extending their traditional mission of providing an affordable, high-quality education to local residents, national universities focused on recruiting students from other states and nations, many of whom paid much higher tuition rates. As a result, the number of in-state spots relative to the college-going population as a whole declined significantly at national public universities.
Fake Diplomas, Real Cash: Pakistani Company Axact Reaps Millions -- Seen from the Internet, it is a vast education empire: hundreds of universities and high schools, with elegant names and smiling professors at sun-dappled American campuses. Their websites, glossy and assured, offer online degrees in dozens of disciplines, like nursing and civil engineering. There are glowing endorsements on the CNN iReport website, enthusiastic video testimonials, and State Department authentication certificates bearing the signature of Secretary of State John Kerry. “We host one of the most renowned faculty in the world,” boasts a woman introduced in one promotional video as the head of a law school. “Come be a part of Newford University to soar the sky of excellence.” Yet on closer examination, this picture shimmers like a mirage. The news reports are fabricated. The professors are paid actors. The university campuses exist only as stock photos on computer servers. The degrees have no true accreditation. In fact, very little in this virtual academic realm, appearing to span at least 370 websites, is real — except for the tens of millions of dollars in estimated revenue it gleans each year from many thousands of people around the world, all paid to a secretive Pakistani software company.That company, Axact, operates from the port city of Karachi, where it employs over 2,000 people and calls itself Pakistan’s largest software exporter, with Silicon Valley-style employee perks like a swimming pool and yacht.Axact does sell some software applications. But according to former insiders, company records and a detailed analysis of its websites, Axact’s main business has been to take the centuries-old scam of selling fake academic degrees and turn it into an Internet-era scheme on a global scale.
Gender And The Harvard Math Department - mathbabe - This year, there were no female students in Math 55a, the most intense freshman math class, and only two female students graduating with a primary concentration in math. There are also a total of zero tenured women faculty in Harvard math. So, I decided to do some statistical sleuthing and co-directed a survey of Harvard undergraduates in math. We got a 1/3 response rate among all math concentrators at Harvard, with 150 people in total (including related STEM concentrations) filling it out. The main finding of our survey analysis is that the dearth of women in Harvard math is far more than a “pipeline issue” stemming from high school. So, the tale that women are coming in to Harvard knowing less math and consequently not majoring in math is missing much of the picture. Women are dropping out of math during their years at Harvard, with female math majors writing theses and continuing on to graduate school at far lower rates than their male math major counterparts. And it’s a cultural issue. Our survey indicated that many women would like to be involved in the math department and aren’t, most women feel uncomfortable as a result of the gender gap, and women feel uncomfortable in math department common spaces.
Robert De Niro drops F-bombs in blunt, inspirational speech to NYU grads: ‘You made it — and you’re f*cked’: obert De Niro did not waste much time offering some harsh truths on Friday to graduates at New York University’s Tisch School of Arts, the New York Daily News reported. “Tisch graduates, you made it — and you’re f*cked,” he said within a minute of taking the stage, drawing raucous applause.While graduates from NYU’s medicine, law, nursing and business schools are guaranteed employment, De Niro joked, and the school of English graduates “are now the faculty,” the students leaving the Tisch School chose to follow their own path, rather than bow down to logic and common sense. “But you didn’t have that choice, did you?” he said. “You discovered a talent, developed an ambition and recognized your passion. When you feel that, you can’t fight it; you just go with it. When it comes to the arts, passion should always trump common sense. You aren’t just following dreams, you’re reaching for your destiny.” “A new door is opening for you a door to a lifetime of rejection,” he said. “It’s inevitable. How do you cope? I hear that Valium and Vicodin work.”
Bubble In Higher Education: When Will It Pop? - The soaring bull market in higher education has been flying high for some time. Many factors combined to make it the perfect storm: the demographic rise of the millennials, easy money from the Fed, the “Chivas Regal” effect in pricing strategy that many colleges and universities adopted, and the US government virtually taking over the market for student loans. It’s a vicious circle as colleges raise prices, students take out easy loans, and the institutions raise prices again. However, it all seems to be coming to a head as several factors begin to show the chinks in the armor. First, the US Federal Government now holds close to 45% of its total financial assets in student debt. This does not include things like land or the any of the Fed’s assets, but it is still extremely significant. Pre-crisis, it was only about one-third of those levels at about 15%. The main reason for this increase is that the government seems to be the only organization backing student loans. Before the Financial Crisis in 2007, the government only owned $100 billion of student debt – now it owns over $800 billion. Next, the delinquency rate has risen rapidly over the last decade. Even the St. Louis Federal Reserve branch is becoming concerned with this. In their research article from April 2015, they write: “A delinquency rate of 15 percent for all student loan borrowers implies a delinquency rate of 27.3 percent for borrowers with loans in repayment.” The problem is that real wages aren’t increasing, and many youth are left unemployed or with low paying jobs. With an average debt load just short of $30,000, it is no wonder that graduates are still struggling. Lastly, colleges are starting to run into problems making ends meet and often institutions are going bankrupt. Particularly at risk are for-profit colleges with low prestige, as well as liberal arts colleges. Corinthian Colleges agreed to sell or close 107 campuses, leaving 72,000 students in the dust. Sweet Briar College has been in a potential bankruptcy saga for months. Even Louisiana State University is in the middle of drawing up its bankruptcy plan.
“The Art of the Gouge”: NYU as a Model for Predatory Higher Education -Yves Smith - Under Chairman of the Board Martin Lipton and President John Sexton, New York University has been to operate as a real estate development/management business with a predatory higher-education side venture. A group of 400 faculty members at NYU, Faculty Against the Sexton Plan (FASP), have been working for years against what Pam Martens has called “running NYU as a tyrannical slush fund for privileged interests.” FASP just published a devastating document, The Art of the Gouge, which describes how NYU engages in a mind-numbing range of tricks and traps to extract as much in fees as possible from students, while at the same time failing to invest in and often degrading the educational “product”. The first part of the report, embedded below, goes through a mind-numbing and degrading set of scams perpetrated on students, including the bait and switch of hitting them with extra charges they can’t possibly find out about before they have committed to the school, to the tune of an estimated $10,000 per year; providing mediocre education in programs that require “study abroad” while also requiring them to stay in grossly overpriced university housing; admitting a high proportion of foreign students, precisely because they pay higher fees (and predictably, NYU’s premiums are even higher than that of other schools), and offering shamelessly overpriced, narrow, and not very good health services. Mind you, that list only scratches the surface. The second part, which describes how the funds are used, describes in gory detail how the school throws money at real estate empire-building, disproportionately for administrative space and housing when teaching facilities are in short supply. The third document describes how NYU is an even more extreme practitioner of squeezing the incomes of faculty while gold-plating administrator pay and perks.
Make College Free By Taxing Stock Trades, Dem Presidential Candidate Says - As the student loan bubble steams along towards the $1.5 trillion mark, pundits, researchers, and even (gasp) ratings agencies are starting to sound the alarm. While everyone is (as usual), around three years behind when it comes to admitting what’s been outlined extensively in these pages, we’re at least glad to see that the world is waking up to the fact that i) $1.3 trillion is a lot of money, ii) delinquency rates are far higher than the headline figures suggest, iii) students are never, repeat never, going to repay all of this, and iv) it is taxpayers who will eventually foot the bill. America needs a plan, because as we’re fond of reminding people, one person’s liability is another person’s asset, meaning debt is never really “cancelled”, it’s just written off at some else’s expense. Ideally, opportunities in the job market and a robust economy would allow new graduates to obtain high-paying, full-time jobs which would in turn allow them to pay down their loans, but since that isn’t going to happen any time soon, we’re open to suggestions. Fortunately, Democratic Presidential candidate Bernie Sanders has a plan that will ensure future generations of taxpayers aren’t stuck paying for their parents' college degrees: simply tax investors so the entire country can go to school for free. Via Bloomberg: Democratic presidential candidate Bernie Sanders wants to take from the rich in order to make public college tuition-free for everyone else.On Tuesday, the Vermont senator will hold a press conference in the nation's capital at which he will introduce a plan to use a so-called Robin Hood tax on stock transactions to fund tuition at four-year public colleges and universities. Sanders' bill sets a 50-cent tax on every "$100 of stock trades on stock sales, and lesser amounts on transactions involving bonds, derivatives, and other financial instruments," the group Robin Hood Tax on Wall Street said Monday in a press release.
Forgive and Forget: Bankruptcy Reform in the Context of For-Profit Colleges - The growth of the for-profit-college sector has not met the promise of its potential. Rather than provide quality, affordable education to its students — many of whom belong to vulnerable populations — some for-profit institutions have created learning environments that impose significant costs without much benefit. The average tuition is more than four times higher than the average in-district tuition at a public two-year college and 67% higher than the average in-state tuition at a public four-year institution.. Yet the increased costs of attending for-profit institutions do not translate to a better employment outlook for their graduates. Unfortunately, when it comes to debt incurred at underperforming for-profit institutions, the existing bankruptcy regime continues to deny retrospective relief to those who need it most. Yet a core principle of debt relief is the notion of a “fresh start.”As one bankruptcy court has put it, seeking relief for student loans incurred at an institution that failed to deliver adequate training and employable skills “is not the intentional abuse of bankruptcy laws for which denial of discharge was intended as a remedy.” This Note advocates for two different reforms to current bankruptcy law that can complement the ex ante regulations adopted in 2014 and that would more fully address the role of for-profit institutions in the student debt crisis
The Student Loan Write-offs Have Begun: 78,000 Students File For Debt Discharge After Corinthian Closures - When Corinthian Colleges abruptly shuttered its remaining campuses late last month we askedif for-profit colleges will be the next multi-billion dollar taxpayer-sponsored bailout. That may have seemed like a bit of hyperbole on our part but in fact it was not, because as we explained then, students left out in the cold by Corinthian owed some $200 million in federal student loans and when the government forces an institution to close its doors (which is effectively what happened with Corinthian), students can apply to have their debt discharged. Because Corinthian is a for-profit institution, students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees), we said that more likely than not, the government (i.e. taxpayers) would end up eating the cost of forgiving their debt. Fast forward three weeks and sure enough, the government is scrambling to figure out what to do after Secretary of Education Arne Duncan received a group request from 78,000 students requesting loan forgiveness. Via Reuters: The bankruptcy of Corinthian Colleges Inc, one of the biggest for-profit college chains, has set off a scramble to find a way to wipe away billions of dollars of student loans for those who attended its campuses. More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools. The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.
Half of college graduates expect to be supported by their families - About half of students expect to be supported financially by their parents for up to two years after graduation, according to a new survey of 500 students and 500 parents released Tuesday by Upromise, the savings division of Sallie Mae, the student lender. And almost half of students surveyed said they would be willing to pay their parents rent if they moved back home post-graduation, the survey found. Only 5% of parents say they would not let their child move back in with them after graduation. Parents seem to be more lenient about letting their graduate children come back home. Some 36% of parents say they expected to support their children financially for more than two years, up from just 18% last year, and only 2.8% of parents expect their kids to have a full-time job after college and only one-quarter see them having any kind of job in their chosen field when they graduate. And if they moved in with their parents after graduation, 20% of students expect it would be at no cost to themselves. Both students and their parents are more accepting of the new normal, says Erin Condon, president of Upromise by Sallie Mae. “We were pleasantly surprised that parents and students were very aligned in their expectations,” she says. “One could argue that this generation is entitled or spoiled, but you could always argue that they are financially responsible and not biting off more than they can chew by making effort to get off on the right foot to make sure that long-term success is there.”
Pension Funds Lose Money On Salesmen, State Retirees Pay, Study Shows - International Business Times -- The only thing Illinois Gov. Bruce Rauner wants to say about his state’s pension system is that he thinks the required payouts are so burdensome, there should be a constitutional amendment that would allow him to cut them. Rauner himself is a former private equity executive who managed hundreds of millions of dollars from public pension funds (including some in Illinois). As the pension funding crisis has become increasingly acute, he has avoided talking about how his own industry may have contributed to the crisis: specifically, through high fees and underperformance -- and, according to a new report, influence peddling. The analysis comes from researchers at the U.S. Securities and Exchange Commission, University of California at Berkeley’s School of Law, and the University of Oregon. It indicates that pension investments hawked by the finance industry’s politically connected salesmen -- known as “placement agents” -- are delivering inferior returns in comparison with investments that pension officials pick on their own. Rauner’s firm, GTCR, in which he retains a substantial equity stake, admits in SEC filings that it uses placement agents to raise money from public pension funds. William Atwood, the executive director of the Illinois State Board of Investment, told International Business Times that GTCR had used a placement agent to raise money from a state pension fund.
Is Calpers missing the forest for the trees? -- The California Public Employees’ Retirement System, which manages more than $300bn on behalf of current and future retirees, is thinking about selling much of its timber assets, according to the Wall Street Journal. Specifically, it has offered to sell about 300,000 acres in Louisiana — about 16 per cent of its total forestry holdings — and if this goes well, Calpers could then sell another 1,000,000 or so acres in east Texas, which would cut the total portfolio by around 80 per cent. According to the Journal’s anonymous sources, the biggest problem has been low returns. Much of Calpers’s timber assets were acquired during the housing bubble, when forest prices were high in the expectation of robust demand for wood to build homes. In the past five years, Calpers’s returns on timber have been negative. (if an illiquid asset is marked down without anyone around to trade it, did the owner actually lose money? Calpers’s holdings are currently worth more than all of the timberland transactions that occurred in 2014, according to the Journal.) Besides the puns, there are other grounds for mocking Calpers’s latest decision. This is the same pension that stopped investing in hedge funds in part because it was unusually bad at picking active managers. As it happens, Pensions & Investments reported as recently as December 2013 that Calpers’s managers were considering plans to add to their forestry portfolio before, apparently, changing their minds. The latest rumours probably tell us more about Calpers’s ability to invest responsibly on behalf of its beneficiaries than about the appeal of timberland as an asset class. Seriously though, all of this presents as good as an opportunity as any to ponder what pension funds are for and how they ought to invest.
Early Retirement Withdrawals Could Fuel Risky Behavior, New Paper Says - The U.S. makes it easy to withdraw money from a defined-contribution retirement account. That gives workers plenty of leeway in managing their savings, but also risks undermining Americans’ retirement security, according to a new paper comparing policies in six advanced economies. The working paper, from a group of economists at Harvard and Yale universities and the National Bureau of Economic Research, found that other countries impose limits on cashing out of defined-contribution plans. But U.S. rules allow transfers of employer-sponsored accounts to individual retirement accounts once worers leave that employer. Money in IRAs can then be withdrawn in most cases by paying a 10% tax penalty before the worker reaches the eligibility age of 59½. Withdrawals can be used for any reason a worker chooses. Americans increasingly relied on the flexibility during tough times in the recession and its aftermath. Politicians have seized on the opportunity, too. Sen. Marco Rubio (R., Fla.), a 2016 presidential candidate, disclosed in a Federal Election Commission filing last week that he withdrew about $68,000 from one of his own retirement accounts last year. Germany, Singapore and United Kingdom ban withdrawals before their respective eligibility ages but make some exceptions for people with disabilities or terminal illnesses. Singapore will also allow limited withdrawals for home purchases, which must be repaid if the home is sold, and for education expenses, which must be repaid within 12 years. Canada and Australia provide tax advantages for early withdrawals when workers see their incomes fall or lose their jobs. In the U.S., by contrast, workers can withdraw their savings with relatively little penalty.
‘Graying’ U.S., Germany and Italy Expect Social Security Cuts. But Who Is Saving? - Only one in five Americans who haven’t yet retired think Social Security benefits will still be at current levels when they leave the workforce, signaling a potential shift in responsibility for financial security as the population ages. The Pew Research Center in a new study found an additional 31% of Americans expect benefits at reduced levels and 41% think they won’t receive any benefits at all. “If government benefits are reduced or not available, future retirees will need to rely even more heavily on their own personal savings,” Pew said in the report, which uses parallel surveys in the U.S., Germany and Italy to look at how families are adjusting to rapidly changing demographics. The three countries are among the “grayest” of the West’s advanced economies. In Italy and Germany, just over one-fifth of the population is 65 or older, a level the U.S. is expected to reach in 2050. In the U.S., that’s already straining public finances and has led some politicians to call for reduced benefits. While the two European nations in the Pew survey offer some insight into the demographic future of the U.S., Pew cautioned that cultural and political factors separate the three countries. “Nothing speaks to this more than the fact that, compared with Americans, twice as many Germans and even more Italians think the government should bear the greatest responsibility for people’s economic well-being in their old age,” the report said. “By contrast, in the U.S. a majority say that families or individuals themselves should see to the well-being of seniors.” That may be a tough expectation to meet. Germans and Italians harbor even greater doubts about their governments’ social security systems–only 11% of Germans and 7% of Italians believe there will be enough money to maintain benefits at current levels.
How Wall Street Is Fighting to Rip Off Your Retirement Money - The Department of Labor is scheduled to advance the “fiduciary rule,” which would legally require advisers who offer individual investment advice for a fee to act in their clients’ best interest. Right now, they are subject to a lower “suitability” standard, where the broker must reasonably believe the recommendation is suitable for their client. This standard is vague and easily gamed by the industry. The new proposal would be the first update to the rule in 40 years and would finally cover employment-based retirement accounts like 401(k)s, which didn’t exist in 1975. The upper-middle class is disproportionately represented in these plans. While 69 percent of households making over $200,000 a year have an Individual Retirement Account (IRA), only 21 percent of households below the median income of $50,000 a year have one, according to a report from the Investment Company Institute. This matches government data on retirement accounts offered at work. The lack of a fiduciary rule for these accounts subjects investors to being ripped off. Under current law, IRA and 401(k) advisers can recommend products in which they have a financial stake, making the whole advisory process more like a racketeering effort. Financial advisers can get back-door payments from the providers of the products they recommend. So they steer savers into high-cost actively managed funds (which perform worse than low-cost passive index funds) and complex, expensive annuities, or recommend rollovers from cheap 401(k) plans into high-fee IRAs. They also create “churn” through constant buying and selling of stocks and funds, earning a new fee on each sale.
Health Insurers Seek Hefty Rate Boosts -- Major insurers in some states are proposing hefty rate boosts for plans sold under the federal health law, setting the stage for an intense debate this summer over the law’s impact. In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3% increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25%. All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act. “This year, health plans have a full year of claims data to understand the health needs of the [health insurance] exchange population, and these enrollees are generally older and often managing multiple chronic conditions,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans, an industry group. “Premiums reflect the rising cost of providing care to individuals and families, and the explosion in prescription and specialty drug prices is a significant factor.”
How to Keep Down Sky-High Hospital Bills: Don’t Pay - Hospital prices have risen nearly three times as much as overall inflation since Ronald Reagan was president. Health payers have tried HMOs, accountable care organizations and other innovations to control them, with little effect. A small benefits consulting firm called ELAP Services is causing commotion by suggesting an alternative: Refuse to pay. When hospitals send invoices with charges that seem to bear no relationship to their costs, the Pennsylvania firm tells its clients (generally medium-sized employers) to just say no. Instead, employers pay hospitals a much lower amount for their services—based on ELAP’s analysis of what is reasonable after analyzing the hospitals’ own financial filings. For facilities on the receiving end of ELAP’s unusual strategy, this is a disruption of business as usual, to say the least. Hospitals are unhappy but have failed to make headway against it in court. “It was a leap of faith,” when Huffines Auto Dealerships, which provides coverage to 300 employees and their families, signed on to the ELAP plan a few years ago, said Eric Hartter, chief financial officer for the Texas firm. What he says now: “This is the best form of true health care reform that I’ve come across.”
Improving the Health of US Children - "A large volume of high-quality research shows that unhealthy children grow up to be unhealthy adults, that poor health and low income go hand in hand, and that the consequences of both poverty and poor health make large demands on public coffers. Thus promoting children’s health is essential for improving the population’s health; policies to prevent children’s health problems can be wise investments; and policy makers should implement carefully designed policies and programs to promote child health." Thus say Janet Currie and Nancy Reichman in their introductory essay to the Spring 2015 issue of Future of Childen, which features eight other articles on the theme of "Policies to Promote Child Health. Sara Rosenbaum and Robert Blum lead off with an essay, "How Healthy Are Our Children?" Here's a thought-provoking table of the main causes of child mortality in the US a century ago, as compared with today. The entries of the table for a century ago help to define some past successes, while the entries for the present point to current challenges. An overall shift seems clear. Infectious diseases are down. Injuries, homicide and suicide have taken their place near the top of the list. These conditions help to make clear that the modern health problems of American children are mostly about broader conditions of health and safety, which in turn are often correlated with family income and measures of socioeconomic status. The chapter in the Future of Children issue summarize the evidence that does exist about factors that are correlated with child health. Here's a sampling from Rosenbaum and Blum write (footnotes omitted):
Study: Severe vision loss is most common in the South: — Health officials say bad eyesight in the U.S. is most common in the South. A new report found the South was home to three-quarters of the U.S. counties with the highest prevalence of severe vision loss. The South also has higher rates of poverty, diabetes and chronic disease. Health officials believe those problems are all related to the vision loss. The Centers for Disease Control and Prevention released the report Thursday. Overall, about 3 percent of people had severe vision loss. The highest rate was from Owsley County, Kentucky, which surpassed 18 percent. The study is the CDC's first county-level assessment of blindness and severe vision loss. It's based on millions of U.S. Census Bureau survey responses from 2009 through 2013.
Berkeley Votes to Warn Cellphone Buyers of Health Risks -- The City Council of Berkeley, California last night unanimously voted to require electronics retailers to warn customers about the potential health risks associated with radio-frequency (RF) radiation emitted by cellphones, setting itself up to become the first city in the country to implement a cellphone "right to know" law. "If you carry or use your phone in a pants or shirt pocket or tucked into a bra when the phone is ON and connected to a wireless network, you may exceed the federal guidelines for exposure to RF radiation," the notice, which must be posted in stores that sell cellphones, reads in part. "This potential risk is greater for children. Refer to the instructions in your phone or user manual for information about how to use your phone safely." The ordinance is widely expected to face a robust court challenge from the Cellular Telephone Industries Association, the wireless industry's trade group. The law "violates the First Amendment because it would compel wireless retailers to disseminate speech with which they disagree,"
Tobacco companies prepare multi-billion compensation claims over UK plain packaging - Telegraph: Tobacco companies are preparing to launch what could be one of the biggest ever legal claims against the British Government for losses as a result of the introduction of plain packaging for cigarettes. They are expected to begin lodging papers at the High Court as early as Friday, seeking a multi-billion compensation payout for being stripped of the right to use instantly recognisable brands. Lawyers will argue that forcing them to use entirely unbranded packaging would amount to deprivation of a highly valuable intellectual property. Although the companies would leave it to the court to determine the exact level of compensation, industry analysts have suggested the combined value of the industry in the UK could be as much as £11 billion. A collective payout on that scale would wipe out almost the whole of the Government’s planned £12 billion welfare savings and dwarf the £8 billion of extra cash for the NHS promised by the Conservatives at the General Election. The Telegraph understands that Philip Morris International, the company behind Marlboro cigarettes, is likely to be among the first to lodge papers with most of the major tobacco companies following soon after. Lawyers for the companies are expected to base their claim around a legal opinion drawn up by Lord Hoffmann, the former senior Appeal Court judge, which concludes that banning the use of branding on cigarette packaging altogether could be a breach of trademark law. The opinion also argues that denying a company the right to use an internationally recognised trademark in Britain could be in breach of the principle of free movement of goods within the European Union.
Disputes Emerge on African Ebola Drug Trials - WSJ: The Ebola crisis is winding down in West Africa, but the effort to develop drugs to treat the virus hasn’t lost its urgency, dividing scientists over whether it is ethical to test treatments on patients without rigorous research controls. “We couldn’t do this in the U.S., and you couldn’t do it in the U.K., so why do you think you can do it in Africa?” Andre Kalil, a leading Ebola doctor from the University of Nebraska Medical Center, said as he confronted the University of Oxford’s Jake Dunning, who has helped run Ebola drug trials in Liberia and Sierra Leone, at a World Health Organization meeting in April. Leading U.S. and European doctors are meeting again this week in Geneva to assess the progress and ethics of African Ebola trials. At issue is the way doctors from Oxford, Doctors Without Borders and other European groups are evaluating experimental Ebola drugs without using a comparison group of patients given a placebo—just as Doctors Without borders has done with vaccines. Randomly assigning patients to drugs or a placebo is the gold standard for testing whether drugs work and aren’t causing harm. With the outbreak waning—the WHO just declared Liberia free of the virus—it now appears likely scientists won’t gather enough evidence to show which Ebola drugs work.
Frontline health workers were sidelined in $3.3bn fight against Ebola: Hundreds, if not thousands, of nurses and other frontline staff fighting Ebola have been underpaid throughout the outbreak – and many remain so today. The lack of pay is not simply a matter of corrupt officials stealing donor money, because so-called "hazard pay" was issued through direct payments to frontline workers starting in November, then electronic payments to bank accounts and mobile phones beginning in December. The problems appear to be twofold: first, Sierra Leone's national health system has been so underfunded for so long, that it was a monumental challenge to document all of the country's care workers and set up payment distribution channels to them. Second, it turns out that relatively little money was set aside for local frontline staff within Sierra Leone's health system in the first place. In fact, less than 2% of €2.9bn ($3.3bn) in donations to fight Ebola in West Africa were earmarked for them. Instead, the vast majority of money, donated from the taxpayers of the UK, the US and two-dozen other countries, went directly to Western agencies, more than 100 non-governmental organisations (NGOs), and to the UN.Strikes drew attention to staff frustrations throughout the outbreak, but many health workers suppressed their anger and pressed on with their jobs. They did not want to risk their prospects of eventual pay. Indeed, at Kenema Government Hospital, the entire burial team was fired after the demonstration last November.
Don’t Fear the CRISPR: In April, Chinese scientists announced that they’d used the CRISPR gene editing technique to modify non-viable human embryos. The experiment focused on modifying the gene that causes the quite serious hereditary blood disease Beta-thalassemia. You can read the paper here. Carl Zimmer has an excellent write-up here. Tyler has blogged about it here. And Alex here.
Marginal Revolution aside, the response to this experiment has been largely negative. Science and Nature, the two most prestigious scientific journals in the world, reportedly rejected the paper on ethical grounds. Francis Collins, director of the NIH, announced that NIH will not fund any CRISPR experiments that involve human embryos. NIH will not fund any use of gene-editing technologies in human embryos. The concept of altering the human germline in embryos for clinical purposes has been debated over many years from many different perspectives, and has been viewed almost universally as a line that should not be crossed. This is a mistake, for several reasons.
- The technology isn’t as mature as reported. Most responses to it are over-reactions.
- Parents are likely to use genetic technologies in the best interests of their children.
- Using gene editing to create ‘superhumans’ will be tremendously harder, riskier, and less likely to be embraced by parents than using it to prevent disease.
- A ban on research funding or clinical application will only worsen safety, inequality, and other concerns expressed about the research.
Genetically Engineering Humans Isn’t So Scary (Don’t Fear the CRISPR, Part 2) - Yesterday I outlined why genetically engineered children are not imminent. The Chinese CRISPR gene editing of embryos experiment was lethal to around 20% of embryos, inserted off-target errors into roughly 10% of embryos (with some debate there), and only produced the desired genetic change in around 5% of embryos, and even then only in a subset of cells in those embryos. Over time, the technology will become more efficient and the combined error and lethality rates will drop, though likely never to zero. Human genome editing should be regulated. But it should be regulated primarily to assure safety and informed consent, rather than being banned as it is most developed countries (see figure 3). It’s implausible that human genome editing will lead to a Gattaca scenario, as I’ll show below. And bans only make the societal outcomes worse. The primary fear of human germline engineering, beyond safety, appears to be a Gattaca-like scenario, where the rich are able to enhance the intelligence, looks, and other traits of their children, and the poor aren’t.But boosting desirable traits such as intelligence and height to any significant degree is implausible, even with a very low error rate.The largest ever survey of genes associated with IQ found 69 separate genes, which together accounted for less than 8% of the variance in IQ scores, implying that at least hundreds of genes, if not thousands, involved in IQ. (See paper, here.) As Nature reported, even the three genes with the largest individual impact added up to less than two points of IQ: The three variants the researchers identified were each responsible for an average of 0.3 points on an IQ test. … That means that a person with two copies of each variant would score 1.8 points higher on an intelligence test than a person with none of them. Height is similarly controlled by hundreds of gene. 697 genes together account for just one fifth of the heritability of adult height. (Paper at Nature Genetics here). For major personality traits, identified genes account for less than 2% of variation, and it’s likely that hundreds or thousands of genes are involved.
Country-of-origin meat labels face WTO decision - A fight over U.S. meat labels is poised to enter a contentious new round when the World Trade Organization decides, as soon as Monday, whether country-of-origin labels discriminate against livestock from Canada and Mexico. U.S. meat labels, introduced in 2009 and mandated by Congress, require meatpackers to identify where animals are born, raised and slaughtered—and whether those steps occur in different countries, as they often do. The information is then printed on packages of beef, pork and other meat products sold in grocery stores. Many U.S. ranchers and consumer advocates, who are mounting an aggressive campaign to get more information put on food packages, are supporters of country-of-origin labels. While there is no evidence to suggest imported livestock poses a health risk, supporters say consumers deserve to know where their food is coming from. Canada and Mexico, on the other hand, contend that labeling requirements put their cows and pigs at a disadvantage—not because consumers snub their products but because U.S. meatpackers don’t want to go through the hassle and expense of tracking imported animals. As a result, meatpackers offer lower prices for hogs and cattle brought in from Canada and Mexico. Both Canada and Mexico have filed challenges with the WTO, which has ruled against the U.S. on the issue before. The international trade body is now weighing a final challenge based on changes the U.S. made to its labeling requirements in 2013.
EU dropped pesticide laws due to US pressure over TTIP, documents reveal -- EU moves to regulate hormone-damaging chemicals linked to cancer and male infertility were shelved following pressure from US trade officials over the Transatlantic Trade and Investment Partnership (TTIP) free trade deal, newly released documents show. Draft EU criteria could have banned 31 pesticides containing endocrine disrupting chemicals (EDCs). But these were dumped amid fears of a trade backlash stoked by an aggressive US lobby push, access to information documents obtained by Pesticides Action Network (PAN) Europe show. On the morning of 2 July 2013, a high-level delegation from the US Mission to Europe and the American Chambers of Commerce (AmCham) visited EU trade officials to insist that the bloc drop its planned criteria for identifying EDCs in favour of a new impact study. By the end of the day, the EU had done so. Minutes of the meeting show commission officials pleading that “although they want the TTIP to be successful, they would not like to be seen as lowering the EU standards”. The TTIP is a trade deal being agreed by the EU and US to remove barriers to commerce and promote free trade.
France to force big supermarkets to give unsold food to charities --French supermarkets will be banned from throwing away or destroying unsold food and must instead donate it to charities or for animal feed, under a law set to crack down on food waste. The French national assembly voted unanimously to pass the legislation as France battles an epidemic of wasted food that has highlighted the divide between giant food firms and people who are struggling to eat. As MPs united in a rare cross-party consensus, the centre-right deputy Yves Jégo told parliament: “There’s an absolute urgency – charities are desperate for food. The most moving part of this law is that it opens us up to others who are suffering.” Supermarkets will be barred from deliberately spoiling unsold food so it cannot be eaten. Those with a footprint of 4,305 sq ft (400 sq m) or more will have to sign contracts with charities by July next year or face penalties including fines of up to €75,000 (£53,000) or two years in jail.In recent years, French media have highlighted how poor families, students, unemployed or homeless people often stealthily forage in supermarket bins at night to feed themselves, able to survive on edible products which had been thrown out just as their best-before dates approached. But some supermarkets doused binned food in bleach to prevent potential food-poisoning by eating food from bins. Other supermarkets deliberately binned food in locked warehouses for collection by refuse trucks to stop scavengers.
Adieu to food waste: French govt forces supermarkets to donate to charity — RT News: The French government has taken steps to minimize food waste, banning large supermarkets from destroying unsold products. They will instead be forced to donate the goods to charities or farms. The National Assembly unanimously voted in favor of the ban on Thursday as part of a larger environmental bill. It explicitly prohibits the practice of intentionally spoiling food so it cannot be eaten. "It's scandalous to see bleach being poured into supermarket dustbins along with edible foods," said Socialist MP Guillaume Garot, a former food minister who sponsored the bill, as quoted by AFP. Under the new legislation, large supermarkets – those measuring 400 square meters or more – will be forced to give any unsold, but still edible, goods to charities which can serve it to those less fortunate. This includes products that were packaged wrong or damaged, or that are past a recommended use-by date but are not dangerous to eat. Food that is past a firm expiration date would go to farms to be used as animal feed or compost. The supermarkets must sign formal contracts with charities by July next year, or face penalties of up to €75,000 (US$83,900) or two years in jail.
Nearly 40 Million Birds Dead as Avian Flu Ravages Midwest - The devastating avian influenza sweeping the Midwest has forced the mass slaughter of nearly 40 million diseased chicken, turkey and wild birds in order to contain the outbreaks, according to the latest grisly numbers from the U.S. Department of Agriculture (USDA). According to the USDA, since it was first detected in December 2014, there have been several ongoing highly pathogenic avian influenza cases along the Pacific, Central and Mississippi Flyways (or migratory bird paths). The strains in particular, H5N2 and H5N8, have been found in wild birds, as well as backyard and commercial poultry flocks. This is the worst epidemic of bird flu in the nation’s history. Egg-producers in Iowa, the top egg-producing state, have been hit the hardest, with a shocking 40 percent Iowa’s egg-laying hens dead or to be euthanized. In a report from Harvest Public Media (via NPR), while some local incinerators are burning dead birds 24 hours a day, other landfills have been turning away the carcasses for fear of contamination and neighbors’ complaints. Listen here:
U.S. bird flu causing egg squeeze, emergency measures -- As a virulent avian influenza outbreak continues to spread across the Midwestern United States, some egg-dependent companies are contemplating drastic steps: importing eggs from overseas or looking to egg alternatives. A spokeswoman for grain giant Archer Daniels Midland Co said that, as egg supplies have tightened and prices risen, the company has received numerous inquiries from manufacturers about the plant-based egg substitutes it makes. And with a strong dollar bolstering the buying power of U.S. importers, some companies are scouting for egg supplies abroad. "The U.S. has never imported any significant amount of eggs, because we've always been a very low-cost producer," "Now, that's no longer the case." Still, companies wanting to import eggs may have to look far afield. "Canada is short on eggs and has been buying heavily from the U.S. for the last several years," "Mexico has been dealing with its own outbreaks of avian influenza, so they're banned from importing into the U.S. The logical place people will be looking now would be Europe."
Exclusive: Iowa bird-flu farms fall short on containment measures - Measures to control the worst bird flu outbreak in U.S. history are not being enforced at several farms at its epicenter in northwestern Iowa, potentially increasing the risks that the disease could spread further, spot checks by Reuters show. In visits to six affected sites in Iowa last week, a Reuters reporter found procedures at three in Sioux County did not comply with USDA or state protocols for restricting access to infected sites, providing protective gear to workers and cleaning the wheels of vehicles leaving the sites. Burke Healey, the USDA's national incident commander coordinating response to the bird flu, said he was concerned about the findings of lax biosecurity in Iowa after hearing about them from Reuters. Shortfalls in biosecurity can violate agreements signed by farm owners, he said. "If they're allowing you to drive in and out of that property unrestricted, then that's going against what we've requested of them and what they've agreed to do for us," Healey said. The U.S. Department of Agriculture and state officials have established quarantine zones and mandated strict biosecurity procedures at and around farms in Iowa and other affected states. Steps include controlling access and minimizing traffic at infected farms; requiring protective clothing for workers; killing all poultry and securely disposing of carcasses, litter, feed and any other appropriate materials, including manure; and cleaning and disinfecting the affected premises, equipment and vehicles.
Chipotle Under Attack for Going GMO Free --Since when do the mainstream news media, in a country that worships at the altar of capitalism and the free market, launch a coordinated attack against a company for selling a product consumers want? When that company dares to cross the powerful biotech industry. How else to explain the unprecedented negative coverage of Chipotle, merely because the successful restaurant chain will eliminate genetically modified foods (GMOs)? The biotech industry has a long history of discrediting scientists who challenge the safety of GMOs. That intimidation campaign worked well until consumers connected the dots between GMO foods (and the toxic chemicals used to grow them) and health concerns. Once consumers demanded labels on GMO foods, the biotech industry responded with a multimillion dollar public relations campaign. Yet despite spending millions to influence the media, and millions more to prevent laws requiring labels on products the industry claims are safe, Monsanto has lost the hearts and minds of consumers. The latest polls show that 93 percent of Americans support mandatory labeling of GMO foods. Chipotle has made a sound business decision, which has forced the biotech industry to stoop to a new low: vilifying businesses. Sadly, the mainstream media appear all too happy (manipulated?) to go along with the attack.
Field study shows how a GM crop can have diminishing success at fighting off insect pest - - A new study from North Carolina State University and Clemson University finds the toxin in a widely used genetically modified (GM) crop is having little impact on the crop pest corn earworm (Helicoverpa zea) - which is consistent with predictions made almost 20 years ago that were largely ignored. The study may be a signal to pay closer attention to warning signs about the development of resistance in agricultural pests to GM crops. At issue is genetically engineered corn that produces a Bacillus thuringiensis (Bt) protein which, in turn produces a toxin called Cry1Ab. This GM corn was originally designed to address a pest called the European corn borer (Ostrinia nubilalis) and went on the market in 1996. In the late 1990s, scientists found that Cry1Ab was also fairly affective against H. zea. But the scientists also predicted that enough H. zea were surviving to lead to the species developing resistance to Cry1Ab. That work was done, in part, by Fred Gould, an entomology researcher at NC State. More than 15 years later, another NC State researcher wanted to see if Gould's predictions held up.Reisig and his collaborator, Francis Reay-Jones of Clemson, evaluated corn crop sites in both North Carolina and South Carolina over two years - and the results were fairly stark. In the late 1990s, Cry1Ab reduced both the number of H. zea larvae and the size of the larvae, compared to non-Bt corn. But Reisig and Reay-Jones found that Cry1Ab now has little or no effect on number or size of H. zea larvae compared to non-Bt corn. "There was a warning that zea could develop a resistance to this toxin," Reisig says. "But no changes were made in how to manage Cry1Ab, and now it appears that zea has developed resistance."
Here’s How The White House Plans To Curb Staggering Honeybee Losses - The White House announced a national strategy to combat pollinator losses Tuesday, an effort that comes on the heels of a report showing more than 40 percent of managed honeybees were lost last year. The White House strategy lays out a goal to reduce winter losses of managed honeybees to no more than 15 percent in the next 10 years. Winter losses of managed honeybees for the 2014-2015 season topped 23.1 percent, according to a survey released last week. Beekeepers say that the maximum level of losses they can experience and still remain economically viable is 18.7 percent. Part of the White House’s strategy to reduce bee losses will be ramping up research and surveying efforts on honeybees, in an attempt to determine what stressors are most dangerous to bees and what are the best ways to manage bees’ habitat. The strategy, which grew out of a pollinator task force created by executive order last year, doesn’t just tackle managed honeybees — bees that are kept by beekeepers to pollinate crops around the country. It also singles out monarch butterflies, another pollinator that has been facing serious declines over the last several years. Over the last two decades, monarch populations have declined by 90 percent, a drop that has been precipitated in part by removal of milkweed — a key food source for monarch larvae — along with changing weather patterns, and deforestation. The White House wants to increase the eastern monarch butterfly population to 225 million butterflies by 2020, a goal it aims to accomplish through public-private partnerships and actions in both the U.S. and Mexico, where the butterflies spend the winter.
To fight bee decline, Obama proposes more land to feed bees - (AP) — The Obama administration hopes to save the bees by feeding them better. A new federal plan aims to reverse America's declining honeybee and monarch butterfly populations by making millions of acres of federal land more bee-friendly, spending millions of dollars more on research and considering the use of fewer pesticides. While putting different type of landscapes along highways, federal housing projects and elsewhere may not sound like much in terms of action, several bee scientists told The Associated Press that this a huge move. They say it may help pollinators that are starving because so much of the American landscape has been converted to lawns and corn that don't provide foraging areas for bees. "This is the first time I've seen addressed the issue that there's nothing for pollinators to eat," said University of Illinois entomologist May Berenbaum, who buttonholed President Barack Obama about bees when she received her National Medal of Science award last November. "I think it's brilliant." Environmental activists who wanted a ban on a much-criticized class of pesticide said the Obama administration's bee strategy falls way short of what's needed to save the hives. Scientists say bees — crucial to pollinate many crops — have been hurt by a combination of declining nutrition, mites, disease, and pesticides. The federal plan is an "all hands on deck" strategy that calls on everyone from federal bureaucrats to citizens to do what they can to save bees, which provide more than $15 billion in value to the U.S. economy, according to White House science adviser John Holdren.
Problems With Obama’s Plan to Save the Bees -- The White House must stop favoring corporate interests by protecting the pesticide industry rather than the pollinators on which our food system depends. The task force’s reliance on voluntary proposals to pollinator protections is an unacceptable concession to pesticide industry interests. We have seen these types of loose standards fail to protect human health and environmental well-being before. While the goals laid out in the White House Task Force’s strategy to promote pollinator health are vitally important, the approach is insufficient. Domestic bee losses have risen to an unprecedented 42.1 percent of colonies this year, which demands urgent action to drive those numbers down. The task force calls for more research and assessment of the impacts on pollinators of a pesticide class called neonicotinoids. Two years ago, the European Union passed a two-year moratorium on three of the most widely used neonicotinoids. Voluntary management practices, insignificant label changes and weak state pollinator plans will not do enough to reverse the decline of pollinator populations. The White House must step up and suspend the use of neonicotinoids and other systemic insecticides that are linked to bee declines, which is a serious threat to biodiversity and our food system.
Does California Face Limits to Growth? Evidence from Alfalfa: Is California doomed? Of course not, but it will need to use scarce resources more efficiently. A silver lining of the combination of bad policies (i.e low water prices and overly generous property rights to water for agriculture and the absence of water markets) combined with drought is that these circumstances nudge the people of California to take a second look at how we are currently allocating scarce resources. 80% of water is used by farmers in this state. 50% of urban water is used outside. We face prices of less than 1/2 cent per gallon. Could we be using this scarce resource efficiently? Some facts about agriculture. Note that rice and alfalfa are not on this list. Here is our production of alfalfa. 6.1 million tons per year. It takes 135,000 gallons of water to grow one ton of alfalfa. If we sacrificed all of our alfalfa production (which is not one of the 10 biggest commodities for CA), each of the 40 million Californians could have an extra 20,500 gallons of water a year each (56 gallons per person per day)! No crisis! No limits to growth. Just simple choices. Raise water prices and alfalfa land will be converted into a higher use activity.
L.A. getting no Owens Valley runoff for first time since 1913 - For the first time since 1913 -- when Department of Water and Power chief architect William Mulholland opened the waterway -- the 233-mile Los Angeles Aqueduct has stopped carrying Owens Valley runoff to Los Angeles. As severe drought continues to grip California, the DWP confirmed Thursday that it had dammed the aqueduct at Owens Lake in order to conserve meager Eastern Sierra snow runoff. "That's how bad this drought is," said LADWP Spokeswoman Amanda Parsons. "We've never kept the water in the valley before. This is unprecedented." The eight-foot-tall dam, which is constructed of concrete blocks, reeds and mud, will remain in place at least until November, so that the LADWP can fulfil a variety of mandated obligations, including dust mitigation, tribal land requirements and assisting the Lower Owens River Project -- the nation's largest river restoration effort. Roughly 10,000 acre-feet of water saved from last year's runoff will be exported to Los Angeles from a storage area south of the dam between now and sometime after November, Parsons said. Basically, we will not be exporting any water from the Eastern Sierra runoff to Los Angeles this year until November, and when we do it will be only 15% of what Los Angeles would typically receive during an average year," Parsons said. Usually, the aqueduct supplies Los Angeles with a third of its water.
Your Contribution to the California Drought - California farmers produce more than a third of the nation’s vegetables and two-thirds of its fruits and nuts. To do that, they use nearly 80 percent of all the water consumed in the state. It is the most stubborn part of the crisis: To fundamentally alter how much water the state uses, all Americans may have to give something up. The portions of foods shown here are grown in California and represent what average Americans, including non-Californians, eat in a week. We made an estimate of the amount of water it takes to grow each portion to give you a sense of your contribution to the California drought. The estimates include the amount of water used to make derivative products. For example, grape consumption includes not just fresh grapes, but also wine, jam and juice. A rise in prices may be inevitable if a persistent drought forces California farmers to slash production. “Consumers would have a choice of either substituting the higher-priced product for something else, look for products where imports increased to alleviate some of the shortage, go without, or look for those products that can be grown easily in other states,” said Craig A. Chase, a program manager at the Leopold Center for Sustainable Agriculture.
California Agriculture To Face Strict Mandatory Water Cuts, Officials Say -- I would not have guessed a year ago that we would start to have this conversation. Rights to water in California have historically been decided on a first-come, first-served basis, meaning those with senior water rights have been present on their land since the Gold Rush. The first round of mandatory restrictions — expected to come on Friday — will impact holders of century-old water rights in the watershed of the San Joaquin River, which stretches through the Central Valley from the Sierra Nevada to the San Francisco Bay and serves as the primary source of water for farmers in the region. Under the impending cuts, it’s expected that some of those farmers would be forced to cease all pumping from the river. To avoid mandatory cuts, a second group of farmers — senior water rights holders from the Sacramento and San Joaquin River delta — have offered to voluntary curb their water use by 25 percent, in exchange for a promise from the state that they would not be subject to further cuts even if the drought were to worsen. According to the Associated Press, state officials promised a decision on the farmers’ offer by Friday, though it’s unclear if those voluntary levels would be enough to benefit California’s increasingly-depleted waterways. “If those numbers work from the perspective of what’s available, that makes good business sense, because for farmers…you have to make certain planting decisions and you want to know how much water you’re going to have available over the rest of the growing season,”
California water cuts move to those with century-old rights (AP) -- California farmers who hold some of the state's strongest water rights avoided the threat of deep mandatory cuts when the state accepted their proposal Friday to voluntarily reduce consumption by 25 percent amid one of the worst droughts on record. Officials hope the deal will serve as a model for more such agreements with growers in the nation's top-producing farm state, where agriculture accounts for 80 percent of all water drawn from rivers, streams and the ground. "We're in a drought unprecedented in our time. That's calling upon us to take unprecedented action," Felicia Marcus, chairwoman of the state Water Resources Control Board, said in announcing the agreement. The rare concession from the farmers is the latest indication of the severity of the water shortage in California, which is suffering through its driest four years on record. California water law is built around preserving the rights of so-called senior rights holders - farmers and others whose acreage abuts rivers and streams, or whose claims to water date back a century or more, as far back as Gold Rush days. The offer potentially could cover hundreds of farmers in the delta of the Sacramento and San Joaquin rivers, the heart of California's water system. About 25 percent of all California river water runs through the delta, according to the state's Department of Water Resources. Some of the farmers made the offer after state officials warned they were days away from ordering the first cuts in more than 30 years to the senior water rights holders' allotments.
California farmers vow to cut water use - FT.com: Thousands of Californian farmers have pledged to cut their water use by a quarter during this growing season, to help save supplies in the state’s fourth straight year of drought. The state government has accepted a proposal from growers in the Sacramento-San Joaquin River Delta to voluntarily cut back water usage — either by reducing consumption per field or leaving land fallow — matching the reduction in water use imposed on Californian cities and towns last month. The farmers are trying to head off the potential for a larger curtailment of their water use in the coming growing season. Nasa has warned that the drought could threaten the US food supply. Felicia Marcus, chair of the State Water Board, said the deal would help ensure “significant water conservation efforts” in the delta, through which about half the total river flow in the state passes. “It allows participating growers to share in the sacrifice that people throughout the state are facing because of the severe drought, while protecting their economic wellbeing by giving them some certainty,” she said. California is the largest agricultural state in the US, with farms and ranches making about $46bn in 2013, the last year for which statistics are available, far more than the second largest, Iowa, with $31.2bn.
Welcome To The Bubble State, Where Everything Is Unsustainable - Since its inception, California has always portrayed itself as the land of opportunity. Kind of like a dream within the American dream. It’s the California dream to be precise, and while it has taken on many forms over the years, the song has always remained the same. That song preaches that anyone can become fabulously wealthy here. But unlike the American dream, the California dream does not demand effort, at least not in its current form. Instead, it offers low hanging fruit. It claims to be overflowing with opportunities, just waiting to be exploited. The grass is always greener here, and a new millionaire is made every day. So why not you? What are you waiting for? Anybody can make it big in the Golden State, haven’t you heard? You’d be a damn fool to stay in your podunk Midwestern town. Get over here already! Of course, if you ask anyone who actually lives here, they’ll tell you the truth. The only people getting rich from the dream are the ones who made it up. They prey on the gullible masses who think they can move here and become movies stars, and tech CEO’s. You might be thinking to yourself “But how do you house and feed all these gullible masses?” I would say, as inefficiently as humanly possible. Only in California would they build gigantic cities hundreds of miles away from the nearest source of fresh water, because the weather is just so darn pleasant in LA. Then they feed those people with crops grown on thousands of square miles of desert. Not even Las Vegas can hold a torch to that kind of madness.
Climate change threatens electric power supply in California, report warns -- Californians may have to start rationing more than water, including how much they turn on their lights and how often they use their hairdryers. By 2050, extended years of drought in the state could lead to an electricity shortage as well as a water shortage, according to a study published on Monday in the journal Nature Climate Change. In the study, Arizona State University authors Matthew Bartos and Mikhail Chester found that almost half (46%) of 978 electric power stations in the western US should expect to face a decrease in electricity generating capacity by “mid-century”, a timeframe coined as 2040 to 2060, due to climate change. A 10-year drought scenario would reduce the energy-producing capacity of vulnerable electric power stations by as much as 8.8%, the authors found. Worse, the study warns that current plans looking at electricity generating facilities in the western US have not taken into account the effects of climate change on productiveness, meaning they may have grossly overestimated the region’s preparedness in the face of a changing climate and its capacity to meet electricity needs more generally.The study analysed all electricity generating methods used in the area, including fossil-fuel facilities using steam and combustion technology as well as renewables like wind, solar and water. The authors found that while climate change may affect all forms of electricity production, it will have a disproportionately negative effect on older fossil fuel technologies.
California joins other states, provinces in climate change agreement - Gov. Jerry Brown signed an agreement Tuesday with leaders from 11 other states and countries pledging cooperation to battle climate change. “This global challenge requires bold action on the part of governments everywhere,” Brown said in a statement. “It’s time to be decisive. It’s time to act.” The agreement includes the states of Oregon, Washington and Vermont, as well as the provinces of British Columbia and Ontario in Canada, the states of Baja California and Jalisco in Mexico, and the British country of Wales. Also involved are states and provinces in Brazil, Germany, and Spain. "We will strive to bring more states into this agreement," Brown said at the event. Although the terms are not legally binding, by signing the agreement the leaders are committing to specific targets for reducing greenhouse gas emissions by 2050. At that point, emissions would either need to be at least 80% below 1990 levels, or less than 2 metric tons per capita.
Disappearing Lake Powell underlines drought crisis facing Colorado river -- What locals nickname the “bathtub ring” runs for most of Lake Powell’s 1,900-mile shoreline, which is half as long again as the US west coast. The ring of white calcium carbonate absorbed into the rock from the water contrasts sharply with the deep colours of the sandstone. These days, it also provides a dramatically visible marker of the crisis facing the Colorado river after years of diminishing snowfalls on the Rockies. Month by month, as water levels fall, more of the bathtub ring is exposed. Today, it towers 100ft or more above the boaters as what federal officials are describing as the worst drought in the Colorado Basin in a century diminishes a river that provides water to 40 million people in seven states. Lake Powell – a crucial cog in the machinery of water delivery – is at only 45% of capacity. What goes into Lake Powell is largely decided by how much snow falls on the Rockies in winter. But what comes out is governed by complex agreements made nearly a century ago, and adjusted over the years, which divvy up the river’s water between seven states. Under those agreements, Lake Powell serves in part as a reservoir for the states clustered around the Colorado river’s upper basin – Colorado, Wyoming, Utah and New Mexico. It is also obliged to release specified amounts of water into its sister reservoir and the country’s largest, Lake Mead, 180 miles downriver. Lake Mead in turn provides water to seven out of 10 Nevada residents, to a vast construct of aqueducts serving Arizona plantations and cities, and to help slate the seemingly insatiable thirst of southern California. But after 15 years of diminishing snow falls on the Rockies, the US government agency managing the Colorado river’s water, the Bureau of Reclamation, is now facing a difficult balancing act as levels in both lakes sink to record lows and rationing looms. “We all are depending on the snow pack on the Rockies and Lake Powell is the first reservoir,” “It doesn’t look very good. We have 56% of normal snowpack is the last reading that I saw. It’s just terrible.” The fall in water levels in Lake Mead are as dramatic as those in Lake Powell. It has dropped from over 90% of capacity in 2000 to less than 40%. In April, the water in Lake Mead fell to its lowest level since 1937 when it was still being filled after construction of the Hoover dam. “We are at a record low and we expect to drop even lower in the summer months,”
Washington State Is In A Drought ‘Unlike Any We’ve Ever Experienced’ -- Citing historically low snowpack, falling river levels, and rising temperatures, Gov. Jay Inslee (D-WA) declared a statewide drought emergency for Washington on Friday. “We’re really starting to feel the pain from this snowpack drought. Impacts are already severe in several areas of the state,” Inslee said. “Difficult decisions are being made about what crops get priority water and how best to save fish.” Sectors that rely heavily on melting snowpack, like agriculture and wildlife, are expected to be hit hardest by the drought, with the Washington Department of Agriculture anticipating $1.2 billion in crop losses this year.Statewide, snowpack levels are currently 16 percent of normal, ten percent lower than the last time a statewide drought emergency was declared in 2005. Of 98 snow sites measured at the beginning of the month by the Natural Resources Conservation Service (NRCS), 66 were snow free — 11 of them for the first time in history. Along with record low snowpack, the NRCS found that 17 of 34 long-term measuring sites recorded their earliest peak on record, occurring on average 48 days earlier than normal. “This drought is unlike any we’ve ever experienced,” Maia Bellon, director of the Washington Department of Ecology, said. “Rain amounts have been normal but snow has been scarce. And we’re watching what little snow we have quickly disappear.”
Washington State Drought Monitoring Report (PDF)
Past 12 Months Tied for Warmest on Record - April capped a 12-month period that tied the warmest such stretch on record, according to data released Tuesday. That period, going back to May 2014, tied the previous record holder, the 12 months from April 2014 to March 2015. Of the 10 warmest 12-month periods on record, nine occurred in the past two years, most of them in back-to-back stretches. The clustering of such warm periods is a marker of how much global temperatures have risen thanks to the human-driven buildup of heat-trapping gases in the Earth’s atmosphere. April’s heat also ensured that 2015 is still the warmest year-to-date on record. And with a healthy looking El Nino that could further intensify in the coming months, the chances that the year as a whole could best last year’s record-breaking temperature are boosted. Data released Tuesday by the National Oceanic and Atmospheric Administration (NOAA) ranked this April as the fourth-warmest April in the past 136 years, with an average global temperature 1.33°F above the 20th century average. NASA’s similar database put the month tied for the third-warmest April; each agency treats global temperature data in slightly different ways, creating small differences, but overall broad agreement.
Climate Change Means Widespread Mortality For Old, Tall Trees - As climate change drives up global temperature and increases the frequency of intense droughts, the world’s oldest, biggest trees might be the most vulnerable, according to a recent study published in Nature Climate Change. Using Darcy’s law — an equation that describes the flow of water through a porous medium — researchers at the Los Alamos National Laboratory looked at what types of vegetation might survive best, and which would most likely die first, due to global warming. The equation takes into account things like plant height and leaf area, among other factors, to measure how effectively water can move through the plant. The researchers found that the plants that were most likely to survive were short plants with smaller leaf area. Tall trees with large leaf area, on the other hand, were the most likely to die. A crucial component of the equation is vapor pressure deficit — how much moisture the air holds versus how much moisture it can possibly hold. McDowell previously found that even if precipitation trends don’t change, atmospheric warming causes the vapor pressure deficit to go up, which makes conditions feel drier for plants. “That means that the holes on the leaves of plants — stomata, which allow water out and CO2 in — will lose more water in 50 years than they will today,” McDowell said, “and are losing more water today than they did 50 years ago.” At some point, McDowell said, it’s healthier for the ecosystem to replace large trees with plants better adapted to using water in a warmer environment.
Shellfish species shrinking as rising carbon emissions hit marine life - Sea creatures are set to shrink as the world’s oceans become more acidic. That is the startling warning given by an international group of biologists who have charted the likely impact of rising carbon dioxide levels on marine life. The group reveals that not only are hundreds of marine species likely to be wiped out as more and more carbon dioxide is dissolved in the Earth’s oceans but also that creatures that do survive – in particular those with shells, such as clams, oysters and snails – will be left puny and shrunken as a result. “We have already seen this effect in commercial oyster beds in the US, where marine farmers have had to stop growing young oysters in sea water because their shells could no longer form properly in our increasingly acidic seas. Instead they have to grow them in tanks where water acidity can be controlled,” “And as the oceans get even more acidic, the problem of species shrinkage – known as the Lilliput effect – will become more and more common. It is a clear warning of the extreme dangers we are facing as carbon emissions continue to rise around the planet.” Scientists estimate that the oceans absorb around a million tonnes of carbon dioxide every hour. As a result our seas have become 30% more acidic than they were a century ago. This increased acidity plays havoc with levels of calcium carbonate, which forms the shells and skeletons of many sea creatures, and also disrupts reproductive activity. These threats have led to the phenomenon of ocean acidification being dubbed global warming’s “equally evil twin”.
Florida retrieving 700,000 tires after failed bid to create artificial reef - Florida officials have resumed raising some of the hundreds of thousands of tires dumped off its shores decades ago during an unsuccessful attempt to create an artificial reef. Between 1m and 2m tires were piled in the waters around Florida in the 1970s, but coral and fish never took to them as hoped, according to Allison Schutes manager of the Trash Free Seas program at the Washington-based Ocean Conservancy. Now they are causing other problems. “The ocean has ever-changing currents and storms, and they’re moving around and smothering and killing natural coral,” she said. The cleanup effort, which began again last week, is focused on the artificial Osborne Reef, a massive pile of about 700,000 tires dropped near Fort Lauderdale by dozens of boats in 1972, said Pat Quinn, a Broward County natural resource specialist overseeing the cleanup. The Florida legislature authorized $2m for the work in 2007 and military divers began in 2008, exhuming nearly 62,000 tires from their watery graves, according to the Florida Department of Environmental Protection. Yet the effort stalled as divers, who were tethered to the surface wearing heavy suits, were called away over the years for more urgent duties.
Heat is piling up in the depths of the Indian Ocean - The world’s oceans are playing a game of hot potato with the excess heat trapped by greenhouse gas emissions. Scientists have zeroed in on the tropical Pacific as a major player in taking up that heat. But while it might have held that heat for a bit, new research shows that the Pacific has passed the potato to the Indian Ocean, which has seen an unprecedented rise in heat content over the past decade. The new work builds on a series of papers that have tracked the causes for what’s been dubbed the global warming slowdown, a period over the past 15 years that has seen surface temperatures rise slower than they did the previous decade. Shifts in Pacific tradewinds have helped sequester heat from the surface to the top 2,300 feet of the ocean. But unlike Vegas, what happens in the Pacific doesn’t stay in the Pacific. Since 2003, upper ocean heat content has actually been slowly decreasing in the Pacific.
What is the ‘warm blob’ in the Pacific and what can it tell us about our future climate? -- People living across the US have lived through some odd weather in the past year. It’s been unusually warm and dry in the western US, while the East had a very cold and snowy winter. Meanwhile, scientists have been seeing Pacific marine species in places they’re not normally found and a huge spike in hungry, stranded sea lion pups on California shores. All these phenomena are linked to a giant patch of remarkably warm water off the West Coast in the northeast Pacific Ocean called “the blob,” a term I coined when we first started to notice it during the fall of 2013 and winter of 2014. This piece summarizes the mechanisms responsible for the blob, enumerates some of its direct and indirect impacts, and discusses the opportunity provided by this climate event. Better understanding the blob is important not only to predicting weather and its impact on ecosystems but also because it can provide insight into the effects we could see from warmer ocean waters in the future.
Antarctic region shows sudden, surprising ice loss -- A region of Antarctica once thought to be relatively stable has shown a dramatic loss of ice in recent years, raising concerns about how much it could be contributing to rising seas. Using data from satellites including the European Space Agency's CryoSat-2 satellite,which is dedicated to remote-sensing of ice, researchers found that the Southern Antarctic Peninsula showed no signs of change up until 2009. But soon after, multiple glaciers along a vast coastal expanse, measuring some 750 km (460 miles) in length, started to shed ice into the ocean at a nearly constant rate of 60 cubic km, or about 55 trillion liters of water, each year. "It appears that sometime around 2009, the ice-shelf thinning and the subsurface melting of the glaciers passed a critical threshold that triggered the sudden ice loss," Bert Wouters, who led the study that appeared in Science this week and is with the Bristol Glaciology Centre at the University of Bristol, said. This makes the region the second largest contributor to sea level rise in Antarctica. "To date, the glaciers added roughly 300 cubic km of water to the ocean," Wouters said. "That's the equivalent of the volume of nearly 350,000 Empire State Buildings combined."
New study finds a hot spot in the atmosphere - When scientists use the phrase “global warming” they are often talking about increases to the amount of energy stored in oceans or increases to the temperature of the atmosphere closest to the ground. But obtaining an accurate estimate of the rate of warming is difficult. Changes to instruments, errors in measurements, short term fluctuations all can conspire to hide the “real” temperature. This is where the new study comes in. The authors develop a new method to account for natural variability, long-term trends, and instruments in the temperature measurement. They make three conclusions. First, warming of the atmosphere in the tropical regions of the globe hasn’t changed much since the late 1950s. Second, the vertical height of the tropics that has warmed is a bit smaller than the models predict. Finally, there is a change in observed cooling in the stratosphere – the layer of the atmosphere above the troposphere. Taken together, these results show that the tropospheric warming has continued as predicted by scientists years ago. Embedded in this research is a conclusion about the so-called “tropospheric hot spot”. This “hot spot” refers to expectations that as global warming progresses, the troposphere will warm faster than the Earth surface. The hot spot is really hard to detect; it requires high quality measurements at both the surface and throughout the troposphere. Past studies which could not detect a hot spot were often used by climate contrarians to call into question our simulation models and even our basic understanding of the atmosphere. But this new study finds a clear signal of the hotspot. In fact, the temperature in the troposphere is rising roughly 80% faster than the temperature at the Earth’s surface (within the tropics region). This finding agrees very well with climate models which predicted a 64% difference.
What would it take to limit climate change to 1.5°C? - Limiting temperature rise by 2100 to less than 1.5°C is feasible, at least from a purely technological standpoint, according to the study published in the journal Nature Climate Change by researchers at the International Institute for Applied Systems Analysis (IIASA), the Potsdam Institute for Climate Impact Research (PIK), and others. The new study examines scenarios for the energy, economy, and environment that are consistent with limiting climate change to 1.5°C above pre-industrial levels, and compares them to scenarios for limiting climate change to 2°C. "Actions for returning global warming to below 1.5°C by 2100 are in many ways similar to those limiting warming to below 2°C," says IIASA researcher Joeri Rogelj, one of the lead authors of the study. "However, the more ambitious 1.5°C goal leaves no space to further delay global mitigation action and emission reductions need to scale up swiftly in the next decades." The authors note, however, that the economic, political, and technological requirements to meet even the 2°C target are substantial. In the run-up to climate negotiations in December 2015, such information is important for policymakers considering long-term goals and steps to achieve these goals. "In 1.5°C scenarios, the remaining carbon budget for the 21st century is reduced to almost half compared to 2°C scenarios," explains PIK researcher Gunnar Luderer, who co-led the study. "As a consequence, deeper emissions cuts are required from all sectors, and global carbon neutrality would need to be reached 10-20 years earlier than projected for 2°C scenarios."
The awful truth about climate change no one wants to admit - Vox: There has always been an odd tenor to discussions among climate scientists, policy wonks, and politicians, a passive-aggressive quality, and I think it can be traced to the fact that everyone involved has to dance around the obvious truth, at risk of losing their status and influence. The obvious truth about global warming is this: barring miracles, humanity is in for some awful shit. Here is a plotting of dozens of climate modeling scenarios out to 2100, from the IPCC:The black line is carbon emissions to date. The red line is the status quo — a projection of where emissions will go if no new substantial policy is passed to restrain greenhouse gas emissions. . We recently passed 400 parts per million of CO2 in the atmosphere; the status quo will take us up to 1,000 ppm, raising global average temperature (from a pre-industrial baseline) between 3.2 and 5.4 degrees Celsius. That will mean, according to a 2012 World Bank report, "extreme heat-waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise," the effects of which will be "tilted against many of the world's poorest regions," stalling or reversing decades of development work. "A 4°C warmer world can, and must be, avoided," said the World Bank president. But that's where we're headed. It will take enormous effort just to avoid that fate. Holding temperature down under 2°C — the widely agreed upon target — would require an utterly unprecedented level of global mobilization and coordination, sustained over decades. There's no sign of that happening, or reason to think it's plausible anytime soon. And so, awful shit it is.
Bill McKibben’s and the Climate Movement’s Fatal Misunderstanding of the Role of Demand (for Energy/Fossil Fuels) --Last week, Bill McKibben penned an op-ed in the New York Times with the title “Obama’s Catastrophic Climate-Change Denial” in response to the Administration’s decision to allow Shell Oil to drill for oil in the Arctic Ocean. Here finally, after years of gentle chiding, I thought, one of the leaders of the US (and worldwide) climate movement would compare the Obama Administration’s rhetoric to the stark reality of the Administration’s negligent policy with regard to energy and climate action. Obama (whom I campaigned for in 2008) has been treated gently by most progressives in ways that have compromised the content of contemporary progressive politics as well as action on climate change. But compared to the possibility of destruction of human civilization due to carbon emissions and subsequent warming, the Obama Administration’s climate-related government actions can only be viewed as weak concessions or palliatives. Obama and the Democrats also have, with tepid policy proposals and concerned-sounding rhetoric, partially paralyzed the climate movement and encouraged false hope and paralysis within a movement that might have grown in number and risen up to change our government’s policies on climate (and other issues).And indeed, on the issues of the Obama Administration’s policy attitude towards fossil fuel infrastructure and exploration projects, McKibben, at the end of the piece does make a convincing case that the Obama style of climate action is the type that accept(s) the science, and indeed make long speeches about the immorality of passing on a ruined world to our children. They just deny the meaning of the science, which is that we must keep carbon in the ground” However, as right as McKibben is, on a moral level, to call out the Obama Administration’s hypocrisy, he also, as clearly as ever, displays in his logic a theory of social, economic and technical change that is at best naïve and at worst a catastrophic dead-end for the climate movement and therefore, probably, humanity. In this theory, the role of demand for fossil fuels takes a backseat to the implied political scenario of “stoppering” the SUPPLY of fossil fuels, “keeping carbon in the ground”, as if via the sheer force of a moral-ethical “lid”. I understand and encourage the symbolic power of protests such as those occurring in Puget Sound by valiant kayakers against Shell’s Arctic-bound oil rig but, unfortunately, the climate movement cannot remain only in the realm of symbolism.
Exclusive: The CIA Is Shuttering a Secretive Climate Research Program -- On Wednesday, when President Barack Obama spoke at the US Coast Guard Academy's commencement ceremony, he called climate change "an immediate risk to our national security." In recent months, the Obama administration has repeatedly highlighted the international threats posed by global warming and has emphasized the need for the country's national security agencies to study and confront the issue. So some national security experts were surprised to learn that an important component of that effort has been ended. A CIA spokesperson confirmed to Climate Desk that the agency is shuttering its main climate research program. Under the program, known as Medea, the CIA had allowed civilian scientists to access classified data—such as ocean temperature and tidal readings gathered by Navy submarines and topography data collected by spy satellites—in an effort to glean insights about how global warming could create security threats around the world. In theory, the program benefited both sides: Scientists could study environmental data that was much higher-resolution than they would normally have access to, and the CIA received research insights about climate-related threats. But now, the program has come to a close.
India, China commit to work together on climate change: (Reuters) - China and India, the world's No. 1 and No. 3 greenhouse gas emitters, projected a united front on climate change on Friday with a rare joint statement that asked rich countries to step up efforts to reduce global carbon emissions. The statement, issued by the two largest developing nations during Indian Prime Minister Narendra Modi's visit to China, asked wealthy countries to provide finance, technology and other necessary support to emerging countries to help reduce their own emissions. "The two sides urged the developed countries to raise their pre-2020 emission reduction targets and honour their commitment to provide $100 billion per year by 2020 to developing countries," the statement said. While both countries stopped short of making any commitments, they said they would submit their respective plans to curb greenhouse gas emissions well before crucial global climate talks are held in Paris later this year. India, which is the world's No. 3 emitter of greenhouse gases, has been under pressure to make commitments after the top two emitters - China and the United States - agreed to new limits on carbon emissions starting in 2025. Modi has signalled he will not bow to foreign pressure and will instead focus on increased use of clean energy to fight the adverse effects of climate change. He wants to quintuple India's renewable energy capacity by 2022.
Geoengineering is fast and cheap but not key to halting climate change The likelihood of human extinction due to climate change is an open question, and one that is missed in most climate discussions. We know that the two to four degrees of projected warming this century is likely to force the relocation of people from flooded cities, shift growing seasons, cut a substantial fraction out of our GDP, and have a disproportionate impact upon the most impoverished parts of the world – but it doesn’t stop there. Today’s climate models also suggest a small probability of exceeding four degrees of warming, and research has suggested that anything beyond 12 degrees would render most of the planet uninhabitable for humanity. . Even the most pessimistic scenarios from the Intergovernmental Panel on Climate Change (IPCC) predict less than a 30% chance of exceeding 6.4 degrees of warming this century, while Martin L Weitzman of Harvard ballparks the probability of human extinction-level climate change at around 1% – assuming nothing is done about it. As Wagner and Weitzman point out, entrenched economic interests mean the world subsidises fossil fuels to the tune of $500bn (£328bn) each year. Moreover, climate suffers a free rider problem – any country that unilaterally cuts emissions suffers the full economic ramifications of such a move, while the benefits only occur if all countries come to an agreement. Alternatively, the easy and fast way to reduce global temperatures would be through geoengineering. Spraying sulphate aerosols into the atmosphere would mimic the reflective particles released from volcanic eruptions, cooling the planet and returning us to pre-industrial temperatures. Such a project would probably be cheap – one tonne of sulphur dioxide would be sufficient to cancel out the climate effects of almost 30,000 tons of carbon dioxide, and Wagner and Weitzman estimate that the total cost of lowering the entire planet’s temperature is likely to be less than $10bn per year. Due to the affordability of this project, any single country could unilaterally undertake a geoengineering project, bypassing the bureaucratic hurdles and perpetual gridlock of international agreements.
Tepco Begins Removing Cover From Destroyed Fukushima Reactor Just As Local Farmers Plant Rice -- May is usually the time when farmers in Japan's Fukushima prefecture - best known for being the tragic venue of the 2011 Fukushima Nuclear Power Plant disaster - plant rice. This year, however, they will be planting something else: an unknown, and quite lethal, amount of radioactive dust. According to EFE, earlier today TEPCO began work to remove the cover placed over the building housing reactor No. 1, a key step towards dismantling the plant. The work is part of a preparatory process that could take several years for the eventual removal of nuclear fuel from the spent fuel pool in the No. 1 reactor building. The cover, incidentally, was made of polyester.
Renewables Are Disruptive to Coal and Gas -- Over the last 5 years, the price of new wind power in the US has dropped 58% and the price of new solar power has dropped 78%. That’s the conclusion of investment firm Lazard Capital. The key graph is here (here’s a version with US grid prices marked). Lazard’s full report is here. Utility-scale solar in the West and Southwest is now at times cheaper than new natural gas plants. Here’s UBS on the most recent record set by solar. (Full UBS solar market flash here.) We see the latest proposed PPA price for Xcel’s SPS subsidiary by NextEra (NEE) as in NM as setting a new record low for utility-scale solar. [..] The 25-year contracts for the New Mexico projects have levelized costs of $41.55/MWh and $42.08/MWh. That is 4.155 cents / kwh and 4.21 cents / kwh, respectively. Even after removing the federal solar Investment Tax Credit of 30%, the New Mexico solar deal is priced at 6 cents / kwh. By contrast, new natural gas electricity plants have costs between 6.4 to 9 cents per kwh, according to the EIA. The New Mexico plant is the latest in a string of ever-cheaper solar deals. SEPA’s 2014 solar market snapshot lists other low-cost solar Power Purchase Agreements. (Full report here.) Wind prices are also at all-time lows. Here’s Lawrence Berkeley National Laboratory on the declining price of wind power (full report here): After topping out at nearly $70/MWh in 2009, the average levelized long-term price from wind power sales agreements signed in 2013 fell to around $25/MWh. After adding in the wind Production Tax Credit, that is still substantially below the price of new coal or natural gas.
China coal use falls: CO2 reduction this year could equal UK total emissions over same period - Official data from China shows coal use continuing to fall precipitously – bringing carbon dioxide emissions down with it. The data – which comes months before crucial climate talks in Paris – means China has cut emissions during the first four months of the year by roughly the same amount as the total carbon emissions of the United Kingdom over the same period. The figures suggest the decline in China’s coal use is accelerating after data for last year showed China’s coal use fell for the first time this century An analysis of the data by Greenpeace/Energydesk China suggests coal consumption in the world’s largest economy fell by almost 8% and CO2 emissions by around 5% in the first four months of the year, compared with the same period in 2014. It comes after the latest data – for April – showed coal output down 7.4% year on year amidst reports of fundamental reform for the sector. China also recently ordered more than 1,000 coal mines to close. The reduction in emissions from 2014 to 2015 is roughly equal to the total CO2 emissions of the UK over four months, and the reduction in coal use is equal to four times UK total consumption. If the reduction continues until the end of the year, it will be the largest recorded year-on-year reduction in coal use and CO2 in any country.
Proposed EPA Carbon Rules Will Mean Higher Bills and Fewer Coal Plants, New Report Says - A new report written at the request of House Science and Technology Chairman Lamar Smith (R., Texas), concludes that a proposed Environmental Protection Agency rule cutting carbon emissions from power plants will, by 2020, cause electricity prices to go up by 4.9% and drive more than double the amount of coal-fired electricity to go offline than what EIA predicts would occur without the rule. That sounds a lot like the criticism coming from congressional Republicans and the energy industry, both of whom are fighting the rule and are pointing to EIA’s report as evidence it will hurt the economy. Looking closely at the numbers shows a more complicated picture. Proposed in June 2014 and expected to become final in August, the draft EPA rule calls for a 30% cut in power-plant carbon emissions by 2030 based on emissions levels in 2005. It’s the centerpiece of President Barack Obama’s efforts to address climate change, which he hopes to leaves as a legacy of his time in the White House. The two agencies agree that electricity prices—how much you pay per kilowatt hour on your electricity bill—will go up under the rule. EIA predicts that under the rule, retail electricity prices will go up by 4.9% by 2020 and 4% by 2030. That’s a little lower than what EPA projects will happen in an economic analysis it released alongside the proposed rule in June. It said then that electricity prices would go up by between 3.6% and 6.5% by 2020 and between 2.7% and 3.1% by 2030. EPA predicts that electricity bills that households must ultimately pay will rise between 1.1% and 3.2% by 2020 but ultimately decrease by up to 8.7% by 2030, driven by energy efficiency and lower electricity demand. EIA, on the other hand, predicts electricity bills will rise by 3% by 2030 even considering energy efficiency and lower electricity demand.
Coal: Bankruptcies and more layoffs - For one CEO in the coal industry, bankruptcies and more layoffs are on the way to his company’s mines. During the North American Coalbed Methane Forum, Murray Energy Corp. Founder and CEO Robert Murray said in a speech that he expects there to be a coal bankruptcy disclosed and that the entire industry will begin restructuring, which will in turn put several mining jobs on the line. Murray explained how the coal industry has three fates it could face: Every major coal company in this country is either going to be broken up or sold or in bankruptcy except two. And I hope I am one of them. And it will happen by the end of next year. As reported by the Pittsburgh Business Times, “Murray said he believes that as a result of bankruptcies, six of the nation’s 45 longwall operations will be brought to a halt. Of the remaining 39, Murray would have 17, he said.” He also explained more layoffs will happen at his own mines. Currently, Murray Energy employs about 8,600 people, but after recent layoffs that number has dropped to 7,500. Murray did not share anything regarding the company’s future plans.
AEP wants an answer, fast - There is no stopping American Electric Power Company Inc. (AEP) when it comes to its power purchase agreement. The Columbus, Ohio, based utility is asking regulators to make a decision by October 1st regarding its power purchase agreement so it can decide whether or not to sell its electric plants in Ohio. The agreement will guarantee the financial stability of the company’s coal-fired power plants. As reported by the Columbus Business First, in filings made last Friday AEP “updated arguments for its so-called power purchase agreement that calls for ratepayers to guarantee the income of those plants that can generate 3,100 megawatts of electricity.” By asking regulators to have an answer by October 1st, AEP would be ahead of FirstEnergy Corp, who is also asking for a similar agreement to be approved. FirstEnergy is expecting an answer from regulators by the fourth-quarter of this year. AEP’s President Pablo Vegas stated the following in a letter that was submitted with the company’s updated filings to the Public Utilities Commission of Ohio: In order to make strategic decisions regarding the future of these plants, including investments or a potential sale, AEP needs to get an answer on the PPA question first.AEP, which is following FirstEnergy’s footsteps, is also saying that it is too expensive to keep its long-running plants open without the guarantee of financial stability from ratepayers. According to the Columbus Business First. “Ohio’s deregulated power market prohibits utilities from fair competition, the companies claim, so regulators should approve the plan that opponents like the Ohio Sierra Club argue would put Ohio back on the track toward regulation and higher power prices.”
The Great Fossil Fuel Subsidy Myth -- Every few months — or constantly, depending on your attention span — we hear another round of passionate recommendations that fossil fuel subsidies be phased out to level the playing field for clean energy. Sounds like a sensible goal, but there’s reason to think that eliminating fossil fuel subsidies wouldn’t be nearly as transformative as is often suggested. Energy subsidies are a tricky business. Here’s a 2011 report, commissioned by the Nuclear Energy Institute, quantifying energy subsidies over time:It looks like fossil fuels are the big winner, while zero-carbon technologies have the deck stacked against them. Again, though, other reports tell whatever story the authors want. Here’s renewable advocates Nancy Pfund and Ben Healy in 2011, somewhat in contrast to the NEI report: By their telling, renewables have received almost no relative subsidy support, and are dwarfed by fossil and nuclear alike. Of course, NEI has an interest in making nuclear subsidies look reasonable, as do Pfund and Healy for renewables. So these reports are easy to dismiss by opponents. But all accounts seem to agree that fossil fuels are by far the largest beneficiary of public subsidies. That suggests that fossil fuel subsidies should be phased out, a move that would significantly benefit emerging zero-carbon technologies. Right? Not so fast. While fossil fuel subsidies do account for the bulk of historical subsidies, the per-unit subsidization of fossil energy today remains much lower than it is for renewable energy technologies.
Act Local, Solve Global: The $5.3 Trillion Energy Subsidy Problem -- IMF Blog - US$5.3 trillion; 6½ percent of global GDP—that is our latest reckoning of the cost of energy subsidies in 2015. These estimates are shocking. The figure likely exceeds government health spending across the world, estimated by the World Health Organization at 6 percent of global GDP, but for the different year of 2013. They correspond to one of the largest negative externality ever estimated. They have global relevance. And that’s not all: earlier work by the IMF also shows that these subsidies have adverse effects on economic efficiency, growth, and inequality. We define energy subsidies as the difference between what consumers pay for energy and its “true costs,” plus a country’s normal value added or sales tax rate. These “true costs” of energy consumption include its supply costs and the damage that energy consumption inflicts on people and the environment. These damages, in turn, come from carbon emissions and hence global warming; the health effects of air pollution; and the effects on traffic congestion, traffic accidents, and road damage. Most of these externalities are borne by local populations, with the global warming component of energy subsidies only a fourth of the total (Chart 1). Energy subsidies are both large and widespread. They are pervasive across advanced and developing countries. Emerging Asia accounts for about half of the total, while advanced economies account for about a quarter (Chart 2). The largest subsidies, in absolute terms, are in China (US$2.3 trillion), the United States (US$699 billion), Russia (US$335 billion), India (US$277 billion), and Japan (US$157 billion). For the European Union, subsidies are also substantial (US$330 billion).
Global Energy Subsidies Are Big—About US$5 Trillion Big - IMF - In their blog, Ben Clements and Vitor Gaspar make the points that global energy subsidies are still very substantial, that there is a strong need for reform in many countries, and that now is a great time to do it. This blog sets out what we mean by “energy subsidies,” provides details on their estimation, and explains how they continue to be high despite the recent drop in international energy prices (Chart 1). Our latest update of global energy subsidies shows that “pre-tax” subsidies—which occur when people and businesses pay less than it costs to supply the energy—are smaller than a few years back. But “post-tax” subsidies—which add to pre-tax subsidies an amount that reflects the environmental, health and other damage that energy use causes and the benefit from favorable VAT or sales tax treatment—remain extremely high, and indeed are now well above our previous estimates.While pre-tax subsidies have fallen, the efficiency costs of failing to charge for environmental and other damage and secure a contribution to revenues are even larger than we previously thought. So the urgent need for energy price reform—in a wide range of both advanced and developing countries—remains. Low international oil prices have not made the problem go away. But they provide a great opportunity to move towards more efficient pricing of energy.
Energy subsidies top $6.6 trillion, lift carbon emissions by a fifth: IMF study: The world subsidises energy consumption to the tune of more than $200,000 per second, with about 60 per cent of that going to support coal, according to researchers at the International Monetary Fund. In a paper published by the IMF, the authors found that energy subsidies are much more than previously estimated. These will rise to $US5.3 trillion ($6.6 trillion) in 2015, or about 6.5 per cent of total global output. For some developing nations, such as in the former Soviet Union and Pakistan, the subsidies approach 18 per cent of GDP. About 80 per cent of the subsidies are the result of environmental damage from burning fossil fuels, with about one-quarter of that portion attributed to climate change impacts, the four IMF researchers led by David Coady said. Removing subsidies would help reduce greenhouse gas emissions by 20 per cent, the study found, adding the issue of energy support will be high on the agenda at the Paris climate summit planned for December in France. Premature deaths related to air pollution would also be cut by more than half."Among different energy products, coal accounts for the biggest subsidies, given its high environmental damage and because (unlike for road fuels) no country imposes meaningful excises on its consumption," the authors said.
Report: Fossil Fuels Receive $5.3 Trillion A Year In Subsidies Worldwide - The world pays $5.3 trillion a year in hidden costs to keep burning fossil fuels, according to a new report from the International Monetary Fund (IMF). This is in addition to the $492 billion in direct subsidies offered by governments around the world — write-offs and write-downs and land-use loopholes. In case these numbers are too big to imagine, $492 billion is enough to buy every taxable property in the city of Boston nearly five times over. Basically, governments buy oil, gas, and coal producers five Bostons every year. It’s hard to imagine $5.3 trillion a year. It’s about a third of America’s gross domestic product. It’s enough to buy 55 Bostons. And it’s the amount of money it costs us, every year, to make up for the damage caused by fossil fuels. Usually, subsidies refer to direct financial assistance from a government, but this report calls all public costs subsidies — not just direct assistance, but also the amount spent to deal with the damage of pollution by fossil fuels.The crazy thing is that the bulk of this money spent to deal fossil fuel damage isn’t even for climate change mitigation, which makes up about 23 percent of the costs, the IMF found. (Arguably, devastating climate change will cost humanity much, much more than $5.3 trillion a year, but how do you put a price on Miami?) Most of the expenditures calculated by the IMF represent “environmental change.” Specifically, local air pollution makes up 46 percent of the costs. This makes sense, when you consider that air pollution kills 7 million people per year, putting a considerable financial burden on worldwide healthcare systems.
Fossil fuels subsidised by $10m a minute, says IMF -- Fossil fuel companies are benefitting from global subsidies of $5.3tn (£3.4tn) a year, equivalent to $10m a minute every day, according to a startling new estimate by the International Monetary Fund. The IMF calls the revelation “shocking” and says the figure is an “extremely robust” estimate of the true cost of fossil fuels. The $5.3tn subsidy estimated for 2015 is greater than the total health spending of all the world’s governments. The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas. These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change: “This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.” Lord Stern said that even the IMF’s vast subsidy figure was a significant underestimate: “A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.” The IMF, one of the world’s most respected financial institutions, said that ending subsidies for fossil fuels would cut global carbon emissions by 20%. That would be a giant step towards taming global warming, an issue on which the world has made little progress to date. Ending the subsidies would also slash the number of premature deaths from outdoor air pollution by 50% – about 1.6 million lives a year.
In Heavily Fracked Ohio County, Unsafe Levels of Toxic Pollutants - Emissions generated by fracking operations may be exposing people to some toxic pollutants at levels higher than the U.S. Environmental Protection Agency considers safe for long-term exposure, according to scientists from Oregon State University and the University of Cincinnati. The researchers took air samples in Carroll County, the home of 480 permitted wells––the most in any of Ohio's 88 counties. The team found chemicals released during oil and gas extraction that can raise people's risk of cancer and respiratory ailments. Researchers caution they don't want to create undue alarm with their findings, but they say they hope the results will highlight the urgent need to conduct more in-depth studies of fracking emissions and the potential effects on human health. "What we see here suggests that more needs to be known about the risks people face when exposed," said study co-leader Erin Haynes, a University of Cincinnati scientist. Haynes' co-author on the study agrees. "You can't extrapolate to every situation, but the findings in our study might give one pause to want more information on air quality if they were living near these kinds of operations," said Kim Anderson, an environmental chemist with OSU’s College of Agricultural Sciences.
Athens to join multi-county talks about injection wells - Athens County will send a representative to a meeting of other county officials in Ohio looking to discuss making a push to change laws regulating oil-and-gas waste injection wells. Meanwhile, in neighboring Meigs County, a group of anti-fracking activists has launched a campaign petitioning voters for formation of a charter county government to go on the ballot in November. A similar effort is being proposed in Athens County, where activists are hoping that by changing to a charter form of government, the county can assert home rule in unincorporated areas and ban the dumping of oil-and-gas hydraulic fracking waste as well as use of water from sources in the county for fracking activities. The Athens County Bill of Rights Committee is a countywide version of the city of Athens' Bill of Rights Committee that last year proposed a citywide ban on all oil and gas/fracking activities, which passed in November with 79 percent of the vote. Recent Ohio court decisions, including a pivotal Ohio Supreme Court decision earlier this year, have backed up the state of Ohio and drilling industry's contention that the state has primacy over oil and gas regulation, basically stating, "what the state allows, local government can't prohibit." That is part of the impetus for the meeting between various county officials, with the Youngstown Vindicator reporting last week that officials from Trumbull, Ashtabula, Mahoning, Stark, Portage, Meigs and Morrow counties have been invited to the summit.
Company plans to begin barging frack waste soon - Athens NEWS - A Texas-based company looking to barge deep-shale drilling waste to an off-loading facility in Meigs County on the Ohio River is planning to start operations this coming September. But so far, the U.S. Coast Guard has not given GreenHunter Resources Inc. permission to barge the type of frack waste the company tells its investors it intends to barge, and the U.S. Army Corps of Engineers has expressly forbidden it. Despite this, the company now says it will start doing so this fall. At issue are two different types of fracking waste, one known as legacy fluid, which is associated with traditional oil and gas wells, and the other is what the Coast Guard calls shale gas extraction waste water (SGEWW), which comes from the new deep-shale, horizontal hydraulic fracturing wells. GreenHunter appears prepared to argue that its approval to barge "oil-field waste" from the Coast Guard and handle "legacy waste" at its offloading terminal means that it's allowed to do so with the wastewater from horizontal hydraulic fracturing operations. This would distinguish it from waste materials from the shale gas extraction wastewater (SGEWW) on which the Coast Guard has not yet made a determination and the Army Corps has explicitly forbidden. Earlier this week, Marcellus Drilling News, reporting GreenHunter's intentions to start operating in September, called the Meigs County facility the "centerpiece" of the company's strategy. "Using the USCG's own rules and regulations against them, GreenHunter said current regulations issued in 1987 give them the right to barge brine right now," MDN reported. "And they intend to do so as soon as they have a facility built to load the barges… Although a war of words has gone back and forth, GreenHunter has not backed down." The company's Mills Hunter Facility off-loading complex, once built, company officials said, would double the company's injection capacity at its Meigs facility from 14,500 42-gallon barrels per day to about 30,000. GreenHunter has two injection wells operating at the Mills Hunter facility, and plans to have six
Fulton Co. board asks for tests of water wells — The Fulton County Board of Health wants NEXUS Gas Transmission to incur the cost of testing water wells before, during, and after construction in the highly fragile Oak Openings region if the company does not re-route its proposed 250-mile pipeline to avoid it. In a new filing with the Federal Energy Regulatory Commission, the county health board said NEXUS should be required to pay for testing an undefined number of wells if it remains committed to pumping natural gas through Oak Openings, a globally rare oak savanna region in Lucas, Fulton, and Henry counties. Groundwater levels are high and more susceptible to pollution in the Oak Openings region because pollutants can pass easily through permeable sand aquifers. In a recent interview, Kim Cupp, Fulton County health commissioner, told The Blade she believes it will be virtually impossible to keep water wells from being polluted in the Oak Openings region, even during construction. The board’s latest filing said collecting baseline and follow-up data is necessary to show “any impacts to the water supplies utilizing the shallow unconfined aquifer associated with the pipeline construction and utilization.” NEXUS has reportedly told some property owners it is in the process of re-routing the project away from Oak Openings, but it has not confirmed that and is not scheduled to finalize the route until this fall.
Oil and gas industry fighting back on possible tax increase - Columbus Dispatch: The American Petroleum Institute has started running statewide radio ads and making robo-calls this week in hopes of beating back an anticipated fracking tax proposal by Senate Republicans. Senate President Keith Faber, R-Celina, has said an increased severance tax on shale fracking is likely to be included in the Senate-passed version of the two-year, $71.5 billion budget. The Kasich administration also has expressed some confidence that the Senate will propose a “fair” tax. “We’ve been told directly from the state Senate that they’re going to increase taxes on our industry, regardless of the concerns we’ve tried to communicate with them,” said Chris Zeigler, executive director of the American Petroleum Institute – Ohio, which represents a number of large oil and gas companies. As oil and gas is taken from the ground across eastern Ohio, state leaders have spent the last three-and-a-half years kicking around proposals to increase Ohio’s 20 cents per barrel severance tax – a rate that Gov. John Kasich calls “unconscionable.” In his initial budget, Kasich proposed a 6.5 percent tax on oil and gas sold at the wellhead, and a 4.5 percent rate on natural-gas liquids, such as ethane and butane. The tax was part of a package that included a 23 percent income tax cut. The House pulled Kasich’s severance tax proposal out of the two-year budget, arguing it was too aggressive and could stifle an industry that was struggling from low prices. Some House leaders also don’t want to see so much severance tax money used for an income tax cut. Legislative Republicans have repeatedly rebuffed Kasich’s severance tax proposals.
PDC may start drilling in the Utica again - After suspending its oil and gas drilling operations in December of last year, PDC Energy Inc. announced it may resume work sooner than planned. PDC suspended its oil and gas operations in Ohio’s Utica Shale formation due to better economics in the shale field located near its “home” in Denver. However, now that the company has received positive feedback from the wells it had already drilled in the Utica, it’s considering bringing back operations to the region sooner rather than later. According to the Columbus Business First, while speaking with analysts, PDC explained “its Dynamite well pad in southeastern Guernsey County is outperforming cost and production projections.” PDC’s Senior Vice President of Operations Scott Reasoner said the well continues to surprise the company. PDC also has “high hopes” for a well that is just north of the Dynamite pad which is ready to begin production. As reported by the Columbus Business First, “PDC today focuses on the Wattenberg field in central Colorado. It has said that oil prices would need to hit between $70 and $80 a barrel to consider moving rigs to the Utica again. They’re in the high $50s now.” While speaking with analysts, PDC was asked if the company’s Utica wells were producing better at lower oil prices, would it consider moving its target price closer to $70. CEO Bart Brookman answered analysts with the following: We would like oil in that mid-$60s, maybe high-$60s (mark) when we really start looking at this and saying it begins to compete with the middle core area of the Wattenberg field.
Utica and Marcellus well activity in Ohio - Activity in the Utica and Marcellus shale formations in Ohio have both seen very little change, if any, change when compared to last week’s well activity update. However, one well in Ohio isn’t exactly producing like it was hoped to. The idea of waterless fracking excited the entire oil and gas industry, but now it may not be the light at the end of the tunnel for fracking. EV Energy Partners LP and eight other companies joined forces with GasFrac Energy Services and drilled a waterless fracking test well in Tuscarawas County, Ohio. Last week, the well had officially been producing for 90 days, but its production wasn’t even close to its neighboring well. The Nettles test well produced about half the amount of oil when compared to the well next to it. The following information is provided by the Ohio Department of Natural Resources and is through the week of May 9th.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, 423 wells were permitted, 565 drilled, 861 producing, 13 inactive, 24 in final restoration and 3 abandoned. This brings the total number of wells in the Utica to 1,889. 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, 13 drilled, 14 producing and one well inactive. There are a total of 43 wells in the Ohio Marcellus Shale.
Marcellus permit activity in Pennsylvania - Permit activity in the Marcellus Shale formation in Pennsylvania saw a downturn in permits over the last week, but the forests in Pennsylvania may have a chance at an upturn. It has been seven years since natural gas development began in the Marcellus Shale formation, and since then gas companies have made little to no effort to restore Pennsylvania’s state forests that have been impacted by natural gas operations. There is a total of 1,700 acres of forest that need to be restored, and scientists from Penn State, along with Pennsylvania State foresters, have decided now is the time an effort is to be made to rebuild the land. Kelly Sitch, a botanist with the Department of Conservation and Natural Resources (DCNR), is one of many who are trying to find a way to restore land that has been impacted by natural gas projects. Sitch has spent several hours in the woods and has also studied how gas operations have changed the landscape of Pennsylvania. As of now, the team has planted an assorted variety of grasses, legumes and various wildflowers in the different soil mixtures. On the outer edges they have planted different types of trees and shrubs. The following information is provided by the Pennsylvania Department of Environmental Protection and covers May 11th through May 17th. New: 4 Renewed: 10
Wolf, business leaders, clash over proposed natural-gas tax -- Gov. Tom Wolf clashed Monday with a coalition of more than a dozen business groups that is trying to derail his proposed severance tax on natural-gas drilling, charging that they are putting gas and oil interests ahead of the schools and children that Wolf says will benefit from his plan. “We cannot keep doing the same thing and expecting different results in Pennsylvania,” Wolf said in a response to the coalition led by the Pennsylvania Chamber of Business and Industry. “Now is the time to do big things in Pennsylvania.” In a letter to Wolf and members of the Legislature last week, the coalition said the natural gas industry has helped create about 200,000 jobs, paid more than $2 billion in various state taxes since 2008 and reduced energy costs across the state. “A higher severance tax would drive our fastest-growing industry out of the state,” said chamber President Gene Barr. Said Dave Taylor, president of the Pennsylvania Manufacturers Association, also a coalition member, “If state government wants more middle-class jobs, economic growth and long-term tax revenue, we should optimize conditions for continued growth, not punish this emerging industry with higher taxes.” Pennsylvania is the only major gas-producing state without a severance tax. Wolf has proposed a 5 percent tax on the value of the gas extracted from the Marcellus Shale formation plus a flat fee of 4.7 cents per unit of gas and a pricing “floor” that would ensure extra revenue when gas prices hit rock bottom.
Scroggins is at it again - Anti-fracking activist Vera Scroggins is at it again, only this time facing felony charges. Scroogins’ most recent violation is a bit more serious than stepping too close to a Cabot Oil & Gas site. This time the anti-fracking activist is facing six felony charges for recording a lawyer and his secretary without their permission. Scroggins’ actions violate Pennsylvania’s wiretapping laws. As reported by State Impact Pennsylvania, “The charges stem from a 2013 incident in which Scroggins was denied an application to have her anti-fracking group participate in the town’s Fourth of July parade.” In the criminal complaint, which was filed this week, Craig Stevens, also an activist, and Scroggins visited the parade chair, Attorney Laurence Kelly requesting an application for the parade. While doing so, Scroggins recorded Kelly and his secretary, who had no knowledge of the recorder until the conversation ended. Scroggins claims her camera was visible for the duration of the conversation and made the following comment: I have a 3 minute, 20 second video talking to him … He refused to let us in the parade and said we’re too controversial because we’re anti-fracking. He said, ‘You’re recording this without my permission. It’s against the law.’ While the six felony charges are Scroggins’ most severe charges yet, this is not her first go around with the court system. For years she has been in a legal war with Cabot Oil & Gas. According to Scroggins, the legal battle between her and Cabot is strictly political, and are out to get her. She believes the felony charges are “the latest little scheme,” and that lawyers, the DA and gas industry have a “club” in the county.
It’s Time to Stop FERC’s Rubber Stamping of Fracking Infrastructure Projects --“If someone is upset with fracking, they should probably talk to the states.” —Norman Bay, Chairman of the Federal Energy Regulatory Commission (FERC), May 14, 2015. FERC has more to do with fracking than any other federal agency, and much more than any one state. They approve interstate pipelines to carry fracked gas, compressor stations to push the gas along, storage terminals to store it and, for the last two years, export terminals to ship it around the world. Without this infrastructure, fracking wouldn’t be happening. Norman Bay is not stupid. He knows this. And yet, because FERC has been a target of nonviolent direct action for more than 10 months, organized by Beyond Extreme Energy (BXE), and because BXE is planning a return to FERC from May 21-29, he has been thrown off, saying and doing things that have not been helpful to resolve “the situation” they are now in. Bay made this ridiculous statement on the day that FERC had its monthly public meeting. But it was not held on the regular third Thursday of the month that it has been held for years and years. Bay and his fellow FERC Commissioners canceled it because of a disingenuous concern, they said, for “the safety of FERC staff and the public” in the face of BXE’s publicly-announced plans to take nonviolent action at FERC on that day.To add insult to injury, on May 14, the day that this meeting was rescheduled, dozens of members of the public were kept from the room where the “public” meeting was held, six were detained by Federal Protective Services police and three were arrested.
Court blocks pipeline eminent domain - A Kentucky appeals court has upheld a ruling that prevents the developers of the Bluegrass Pipeline from using the power of eminent domain to purchase property easements. And the Louisville attorney who has been representing a group of Kentucky landowners fighting Bluegrass said the ruling is broad enough to apply to another controversial pipeline that seeks to carry hazardous natural gas liquids through Kentucky from fracking zones in Ohio and Pennsylvania to the Gulf Coast. That's the proposed re-purposing of Kinder Morgan's existing Tennessee Gas pipeline. These companies, including Oklahoma-based Williams company, the Bluegrass Pipeline developer, "will have to deal with landowners on a willing seller, willing buyer basis," said the attorney, Tom FitzGerald, director of the Kentucky Resources Council. He said it will also preclude Kentucky oil and gas producers from using the threat of eminent domain to site gathering lines and wells. Williams spokesman Tom Droege did not immediately return a request for comment late Friday afternoon, nor did representatives of the Kentucky Oil and Gas Association, which has been following the case. The Court of Appeals ruling issued Friday agreed with Franklin Circuit Judge Phillip Shepherd that only pipeline companies that are or will be regulated by the state's Public Service Commission can use the courts to force a purchase of property or easements."In addition, the (natural gas liquids) in Bluegrass's pipeline (would) be transported to a facility in the Gulf of Mexico," the judges wrote. "If these NGLs are not reaching Kentucky consumers, then Bluegrass and its pipeline cannot be said to be in the public service of Kentucky."
Local activists say fracking poses threat to Fayette County's water - Water, water everywhere, and not a drop to drink. That’s what’s going on in the Lochgelly area of Fayette County, according to local activists. To warn the public about the danger to their water, a meeting took place Saturday at the Historic Oak Hill School in Oak Hill. “Water is being compromised by hydrofracking (hydraulic fracturing) waste being dumped into abandoned mines,” Tom Rhule said. “We know it’s being done because they got caught. Coal slurry was being mixed with fracking waste and injected into underground mines.” According to Rhule, a local construction firm, Danny Webb Construction, lost its permits to store the waste from hydraulic fracturing, a process used to pull natural gas from deep below the earth. “There’s no permits and no waiver for the storing of this waste,” Rhule said. “According to Fayette County’s Source Water Assessment Report, underground mines in some locations are being used to dispose of fracking waste.” The problem is that the mines are near water sources, like Wolf Creek and the New River, Rhule said. “The DEP is permitting the waste to be put into abandoned mines,” he said. “I know from talking to DEP officials. I’m currently trying to get a FOIA request submitted to get definitive proof.”
New York's Fracking Ban --From the report on the NY fracking ban: High-volume hydraulic fracturing "raises new, significant, adverse impacts not studied" in the state's last major analysis of oil and gas development in 1992, the 2,000-page report concludes. The negative effects that fracking could bring to the state include:
- — Air impacts that could affect respiratory health due to increased levels of particulate matter, diesel exhaust or volatile organic chemicals.
- — Climate change impacts due to methane and other volatile organic chemical released into the atmosphere.
- — Drinking water impacts from underground migration of methane and/or fracturing fluid chemicals associated with faulty well construction or seismic activity.
- — Surface spills potentially resulting in soil, groundwater and surface water contamination.
- — Surface water contamination resulting from inadequate wastewater treatment.
- — Earthquakes and creation of fissures induced during the hydraulic fracturing stage.
- — Community impacts such as increased vehicle traffic, road damage, noise, odor complaints,and increased local demand for housing and medical care.
Issued by the Department of Environmental Conservation, the "Final Supplemental Generic Environmental Impact Statement" took more than six years to produce, as public comments on drafts and the burgeoning literature on the various effects of fracking led to repeated revisions of the study.
Frack Action Petition to Re-do the sGEIS - The NYS Department of Environmental Conservation (DEC) released the final fracking review this past Wednesday. This is the next step for New York to finalize the ban on high-volume hydraulic fracturing, which was first announced by the DEC, Department of Health, and Governor Cuomo on December 17th, 2014. While the final review sets the stage for the ban on high-volume fracking, it’s the forthcoming “Findings Statement” that will implement the ban. While we are carefully reading the final review and awaiting the Findings Statement, we wanted to share this news, some information about the process, as well as the ban’s permanence. The final review (read it here) is called the Final Supplemental Generic Environmental Impact Statement, or Final SGEIS. Hundreds of thousands of New Yorkers commented on prior iterations of this document years ago, overwhelmingly raising the harms of fracking and calling for a ban. The Final SGEIS is approximately 2,000 pages long. By law, the Department of Environmental Conservation must wait at least a minimum of ten days from the release of the Final SGEIS, before issuing a final Findings Statement. The Findings Statement will be the document with which the DEC can legally ban high-volume fracking. Of course, a different governor could take a different approach. But at least while Andrew Cuomo is governor, we have every reason to believe that the ban is going to remain in place. Unfortunately, we do know that the oil and gas industry will do everything in its power to destroy the ban. All this being said, there is every reason for our movement to remain intact and vigilant.Please sign our petition to DEC Commissioner Martens and Governor Cuomo calling for the Findings Statement to have the strongest possible language instituting the ban.
Indian Point Fire Raises Huge Concerns Over Siting of Spectra Pipeline --For over a year, local, county, state and federal elected officials, as well as the public, have joined the calls by pipeline, nuclear power and medical disaster and safety experts for a full independent risk assessment of the siting of a massive new gas pipeline 105 feet from vital structures at the aging nuclear plant. In fact, Westchester, Rockland and Putnam counties and several municipalities passed resolutions last year calling for independent health and risk assessments and other protective measures prior to any decisions about the pipeline that were dismissed by the Federal Energy Regulatory Commission (FERC). Both FERC and the Nuclear Regulatory Commission (NRC) signed off on the project despite numerous unresolved questions and unverifiable claims made by Entergy, the nuclear power plant’s operator, in its own internal analysis of the safety of the plant in connection with the risk posed by Spectra Energy’s Algonquin Incremental Market (AIM) high pressure gas pipeline. The transformer fire last week dramatically demonstrates that a comprehensive, independent and transparent risk assessment must be implemented immediately and the findings fully addressed before the pipeline company takes further action. NRC and FERC approvals for the AIM project warrant immediate retraction in the absence of a thorough independent risk analysis. Rick Kuprewicz of Accufacts, a renowned pipeline expert, and Paul Blanch, a nuclear power expert with more than 45 years of nuclear safety experience, analyzed the Entergy hazard study that was confirmed by the NRC, and believe the analyses severely underestimate the risk of catastrophic failure at the plant in the event of a pipeline rupture. Kuprewicz said, “in the event of a pipeline rupture in this sensitive location, the system dynamics will substantially delay the recognition and appropriate shutoff and responses such that the gas will explode and burn for quite a period of time.”
Warren woman arrested for tree-sitting protest of pipeline — A 26-year-old Warren woman has been arrested for a tree-sitting protest of a proposed natural gas pipeline expansion. Sherrie Anne Andre was charged Tuesday afternoon with trespassing, resisting arrest, obstruction and disorderly conduct. Andre had suspended a wooden platform in the tree near a Spectra Energy compressor station in Burrillville early Tuesday. Police say she was in the tree for about five hours. Andre is a member of Fighting Against Natural Gas, or FANG. The group says the tree is on land that would be cleared if the gas compressor station were upgraded to expand the Algonquin pipeline, which brings natural gas to New England from shale formations.
Tokyo Gas targets more U.S. shale gas investments -exec - Tokyo Gas Co Ltd, Japan’s biggest gas utility, is looking to invest in more U.S. shale gas production as a hedge to liquefied natural gas (LNG) imports from the United States to start next year, a company executive said on Monday. The company has inked contracts to buy 1.9 million tonnes per year (tpy) of LNG from U.S. producers and aims to invest in an equal volume in the upstream sector, said Shigeru Muraki, a board member and executive adviser at Tokyo Gas. “We try to expand our investment in the shale gas production in the United States. That can be the natural hedge for LNG,” he told reporters on the sidelines of an industry conference. The company has contracted to buy 1.4 million tpy of U.S. LNG from the Cove Point project, which will start shipments in the second or third quarter next year, and 0.5 million tpy from Mitsui & Co’s Cameron project, he said. In 2013, Tokyo Gas bought a stake in a shale gas field in Texas’ Barnett Basin from Quicksilver Resources that would give it 0.35 million to 0.5 million tpy of gas output. Companies seeking to attract investments in U.S. shale projects are offering terms that could work even after oil prices fell, he said, citing a project proposed last month in Houston that would yield fixed revenue of $11 per million British thermal units (mmBtu) for deliveries by ship to Asia.
Judge temporarily halts fracking approvals in North Carolina - A judge has halted the approval of fracking operations in North Carolina until a higher court weighs in on the legality of the appointment of several boards that manage state resources and the environment.Wake County Superior Court Judge Donald W. Stephens’ decision earlier this month prevents the Mining and Energy Commission from approving drilling units for hydraulic fracturing until the state Supreme Court decides a separate case regarding how the state panels are formed. No drilling units had been approved before the judge issued his order. Stephens issued a preliminary injunction that stops the commission from accepting or processing applications for drilling units for hydraulic fracturing, or fracking. The process involves injecting water, sand and chemicals to break apart underground rocks so oil and gas can escape. Stephens also delayed proceedings in the lawsuit filed against the state’s Mining and Energy Commission pending the other case’s outcome. The state’s highest court will hear arguments in late June on the separate lawsuit by Gov. Pat McCrory and two of his predecessors that challenged how several other state commissions were appointed. A panel of judges sided with McCrory earlier this year in striking down the way lawmakers appointed those boards, and the decision was appealed to the high court.
Judge Says No to Fracking -- A judge in North Carolina has blocked the start of fracking in that state over a challenge to the membership of the commission charged with issuing the permits.“Finally some good news in our long battle to keep fracking out of NC!” exulted North Carolina environmental nonprofit Haw River Assembly, one of the parties to the lawsuit, on its Facebook page. The Southern Environmental Law Center (SELC) was granted the preliminary injunction it sought in Wake County Superior Court to delay the state’s Energy and Mining Commission from taking any action on permits, effectively reinstating (for the time being) the state’s longtime moratorium on fracking which was lifted by the legislature last summer. The group was representing the Haw River Assembly, a member of the Waterkeeper Alliance network, and landowner Keely Wood Puricz, whose property abuts a tract leased for natural gas exploration. The dispute revolves around what SELC and the parties it represents see as an unconstitutional attempt by the state legislature to control the commission and violate the state’s separation of powers. After establishing the commission in 2012, it gave itself the power to appoint eight members to the governor’s five. Governor Pat McCrory, along with two former North Carolina governors, is challenging the practice in a separate lawsuit. The legislature used the same tactic to keep control of the state’s Coal Ash Commission, Oil and Gas Commission, and North Carolina Mining Commission.
Oil Billionaire Wanted University Scientists Dismissed For Linking Fracking Activity To Earthquakes -- Despite a growing body of scientific research connecting oil and gas activity to a dramatic spike in earthquakes across several U.S. states, some industry leaders are fighting this characterization. Harold Hamm, billionaire CEO of Oklahoma City-based Continental Resources, told a dean at the University of Oklahoma last year that he was so displeased by the university’s research on the topic that he wanted certain scientists dismissed, Bloomberg News reported. In an email to colleagues dated July 16, 2014 and obtained by Bloomberg, Larry Grillot, the dean of the university’s Mewbourne College of Earth and Energy, said that he had met with Hamm, a major donor to the university, to discuss his concerns about earthquake reporting by the Oklahoma Geological Survey (OGS), which is housed in the university. “Mr. Hamm is very upset at some of the earthquake reporting to the point that he would like to see select OGS staff dismissed,” Grillot wrote, adding that Hamm indicated he would be meeting with Oklahoma Gov. Mary Fallin (R) to discuss moving the OGS out of the university. OGS seismologist Austin Holland was summoned to meet with Hamm and university president David Boren in late 2013 to discuss some of his findings linking fracking activity to earthquakes. In an interview with EnergyWire published earlier this week, Hamm denied any attempt to bully the scientist: “We care about the industry,” he said. “When people disparage parts of it, I want to know why. I want to know what basis they have for doing that.”
Billionaire Oil CEO Demands Scientists Fired After Oklahoma Quake Study -- The billionaire CEO of Continental Resources told a dean at the University of Oklahoma that he wanted earthquake researchers fired. In one of the most transparently oligarchic tactics we have seen yet during this 'recovery', oil tycoon Harold Hamm demanded certain scientists be dismissed following their findings that fracking wastewater disposal was the cause of the spike in Oklahoma earthquakes. Despite his protestations recently that "I don't try to push anyone around," as the following email obtained by Bloomberg, exposes, "Mr. Hamm is very upset at some of the earthquake reporting to the point that he would like to see select OGS staff dismissed." As we noted previously, no matter what other problems may or may not be linked to hydraulic fracturing, or fracking, the disposal of wastewater from oil and gas drilling almost certainly is primarily responsible for the recent spate of earthquakes in Oklahoma, normally a seismologically quiet state. That’s the conclusion of a report issued April 21 by the Oklahoma Geological Survey (OGS), in which the state geologist Richard D. Andrews and Dr. Austen Holland, the state seismologist, said the rate of earthquakes near major oil and gas drilling operations that produce large amounts of wastewater demonstrate that the quakes “are very unlikely to represent a naturally occurring process.” Andrews and Holland concluded that the “primary suspected source” of the quakes is not hydraulic fracturing, or fracking, in which water and chemicals are injected under high pressure to crack shale to free oil and gas trapped inside. It said the source is more likely the injection of wastewater from this process in disposal wells, because water used in fracking cannot be re-used.
Permian gets shaken up by earthquake -- Earthquakes are becoming more and more frequent these days in oil regions of the U.S., including the Permian Basin. U.S. Geological Survey (USGS) officials have confirmed that a 3.1 magnitude earthquake shook the ground in the Permian Basin. The earthquake took place off of Highway 285, north of Fort Stockton on Sunday at 4:16 pm. There have been no injuries or damages reported. According to USGS data, this earthquake is the fourth on to take place in the Permian this year. What is causing the earthquakes to occur so frequently is still being debated. As reported by the San Antonio Business Journal, “Three earthquakes were recorded in the same area in late March and early April while similar earthquakes have been reported in the Dallas-Fort Worth Metroplex and south of San Antonio in the Eagle Ford Shale region.” On Monday, a 3.3 magnitude quake was recorded. At 1:14 pm, just 3 miles south-southwest of Farmers Branch, the USGS confirmed the quake. Last Thursday, the USGS also confirmed a 4.0 magnitude quake in the Mexican state of Coahuila. Studies from all over the nation are linking the cause of the earthquakes to disposal wells. The wells consist of salty wastewater from oil and natural gas drilling. However, the debate over the cause of the earthquakes has two sides. Steve Everley from Energy In Depth, which is funded by the oil industry, explained that he is skeptical about the models that were used during the studies, specifically studies conducted by the USGS and Southern Methodist University.
South Texas oil well explodes, prompting evacuations — A South Texas oil well exploded, spewing toxic hydrogen sulfide gas that forced the evacuation of several nearby homes. The Karnes County Sheriff’s Office says The explosion happened Tuesday afternoon off Farm Road 792 about four miles east of Karnes City. Sheriff Dwayne Villanueva said the well pump that exploded was shut off but hydrogen sulfide gas still escaped. A statement from the well owner, Encana Corp., said no injuries were reported from the 3:30 p.m. incident. Hydrogen sulfide is a flammable, colorless gas that smells like rotten eggs. At high levels, exposure can be lethal.
Area near natural gas blowout closed to residents, travelers - A white cloud of natural gas continued to spew from an Encana well in Karnes County on Wednesday. About 20 people were evacuated from their homes as a precautionary measure, Karnes County Sheriff Dwayne Villanueva said. The residents were moved to La Quinta Inn & Suites, where they remained Wednesday. The blowout began about 3:30 p.m. Tuesday at a well located near the intersection of Farm-to-Market Road 792 and County Road 343, about four miles east of Karnes City, according to a statement from Encana. Workers were attempting to place tubing in the hole when a pressure buildup forced the tubing out of the hole, according to an incident report from the Railroad Commission of Texas. Water and gas shot 30 feet above the rig floor, according to the report. Natural gas spewing from the well appeared to be traveling northwest, Villanueva said. Encana is monitoring the site for hydrogen sulfide, a colorless gas with a rotten egg smell, according to the company’s statement. Hydrogen sulfide can cause irritation of the eyes, nose, throat and respiratory system, and in high concentrations, it can cause unconsciousness, coma and death.
US states seek to block city fracking bans - FT.com: US cities that want to ban fracking are clashing with oil-friendly state governments trying to stop municipal policy makers from outlawing shale energy production. While the US and Saudi Arabia vie for dominance in the global oil market, the fracking battles highlight American shale’s vulnerability to domestic political barriers that are inconceivable in Riyadh. On Monday, Greg Abbott, the governor of Texas, is expected to sign into law a bill that denies cities the right to impose fracking bans, which he compares dismissively to prohibitions on plastic bags. The bill gives cities the authority to engage in “commercially reasonable” regulation of above-ground activity such as traffic and lighting, but no authority over drilling and fracking. Lawmakers in other states are also looking for ways to prevent or deter assertions of local control, as the oil industry warns that bans choke the economy and create an unmanageable patchwork of rules. Anti-ban moves are sparking outrage among residents, who are worried about earthquakes and pollution linked to shale oil and gas extraction and say that cities’ rights to self-determination are being threatened. Conflict over local control has flared in Oklahoma, Colorado, Pennsylvania and New York.
Texas Prohibits Local Fracking Bans - WSJ: —Last year, a city in North Texas banned fracking. State lawmakers want to make sure that never happens again. On Monday, Republican Gov. Greg Abbott signed a law that prohibits bans of hydraulic fracturing altogether and makes it much harder for municipal and county governments to control where oil and gas wells can be drilled. Similar efforts are cropping up in states including New Mexico, Ohio, Colorado and Oklahoma, where both chambers of the legislature have passed a bill that limits local governments to “reasonable” restrictions on oil and gas activities. This is all part of a broader legislative and judicial effort, backed by the oil industry, to limit local governments’ ability to regulate drilling. Backers say that both the Oklahoma and Texas bills were proposed in response to a voter-approved ban on fracking in Denton, Texas, in November. One of the authors of the Texas bill said his motivation was to protect an economically important industry. “Oil is a huge job driver for the state of Texas,” The new law eliminates a “patchwork of local ordinances creating more and more regulation, some of which is intentionally onerous and intended to stop or limit oil and gas development,” said Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association. The law has angered officials in Denton, about 50 miles northwest of Dallas, where residents approved the first ban in the state. Officials there said they supported it only after failed efforts to resolve quality-of-life problems including a well explosion and noisy drilling near homes and schools.
Local ban nullified by state, fracking resumes in Denton | bakken.com: — A North Texas city whose fracking ban prompted lawmakers to limit such local power says a driller has revealed plans to resume fracking gas wells in the city. According to documents obtained through an open records request, the Denton Record-Chronicle (http://bit.ly/1IQ9kPl ) reports Vantage Energy notified the city early Tuesday of its plans to begin fracking on Denton’s west side, beginning next Wednesday. The notice came the morning after Gov. Greg Abbott signed House Bill 40 into law Monday afternoon, limiting local authority to restrict fracking. During last November’s election, Denton voters banned fracking within the borders of the city of about 125,000 residents, eliciting immediate vows by oil and gas drillers to topple that ban. The state and the drillers filed lawsuits challenging the ban in court, and the Legislature fulfilled the drillers’ vows last week. The Denton ban remains on the books, but Mayor Chris Watts says the new state law likely renders it unenforceable and would likely stymie any effort to block Vantage plans to finish its gas wells. “It’s my understanding we don’t plan on seeking an injunction,” Watts told the Record-Chronicle. As for the lawsuits still on the court dockets, city officials will be discussing those soon, Watts said.
The Frackettes - 'The Death of Democracy' - YouTube (musical parody, Denton troupe)
Banning Fracking Bans: The Paradox of Local Control - Center for Effective Government --There is a new paradox emerging in the fracking debate. The oil and gas industry firmly opposes federal fracking standards, claiming that states know best how to govern their own lands. States are currently responsible for the majority of industry oversight, and rules can vary significantly among them. But this staunch support for local control doesn’t extend to counties and cities. At least, it doesn’t when those locals are not interested in having fracking in their backyard. Drilling companies have supported state efforts to strip communities of their rights to ban fracking and repeatedly challenged local fracking bans and restrictions in court. The justification? Local restrictions lead to a "patchwork of regulations" that inhibits industry growth. Of course, differing state standards also create a patchwork of policies, but oil and gas companies don’t mind this because most states have rules or practices that favor the industry. Local control is championed until industry profits are at stake. What the oil and gas industry actually wants is “industry control.” Four state legislatures introduced bills this spring that would prevent local communities from regulating fracking, and other states have taken recent action against local control:
- Texas Governor Greg Abbott signed a bill that prohibits communities from voting to ban fracking. The law also blocks any local rules that deal with subsurface activity or prevent drilling from taking place.
- The same week that Oklahoma’s government acknowledged that fracking is linked to the surge in earthquakes, state lawmakers passed two bills to limit cities and counties from directly regulating the oil industry. One of these bills would make ordinances that limit fracking a theft and would enable owners of mineral rights to seek monetary compensation. Both bills now go to Governor Mary Fallin for signature.
- Additional bills in Florida and New Mexico would have prevented communities from banning fracking, but they failed to advance. A Colorado bill that would have made communities liable for lost mineral royalties due to fracking bans also failed.
- The Ohio Supreme Court ruled last February that municipalities cannot restrict drilling practices if the state allows them.
- Oil and gas companies in Colorado sued in court to overturn at least three local fracking bans.
Oil groups ask court to temporarily block U.S. fracking rules – Two oil and gas groups have asked a federal court to block the implementation new U.S. rules for hydraulic fracturing on public lands until their lawsuit challenging the regulations is resolved. The Independent Petroleum Association Of America (IPAA) and the Western Energy Alliance filed a motion on Friday for a preliminary injunction to prevent the Interior Department’s Bureau of Land Management from enforcing the regulations, arguing the standards will cause their members irreparable harm. The regulations, finalized in March, would require companies to provide data on the chemicals used in hydraulic fracturing, or fracking, and to take steps to prevent leakage from oil and gas wells on federally owned land. They do not cover wells on private land. Fracking, involves the injection of large amounts of water, sand and chemicals underground at high pressure to extract fuel. In their filing with the U.S. District Court for the District of Wyoming, the oil trade groups said the fracking regulations display a “misunderstanding” of the technical aspects of oil and gas production. The groups said the Bureau also failed to properly account for the economic consequences of the rules.
Oil, gas spill report for May 17 -The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks.
- KP Kauffman Company Inc. reported on May 12 that heavy rain caused condensate from excavated soil to wash into an excavated area that had been prepared to repair a damaged flowline, outside of Fort Lupton.
- Encana Oil & Gas (USA) Inc. reported on May 12 that it appears that an inattentive oil hauler was loading out condensate from a location outside of Longmont. It is approximated that less than five barrels of condensate released.
- Kerr McGee Oil & Gas Onshore LP reported on May 11 that a line over-pressurized, due to the failure of a kill switch on a pumping unit, outside of Berthoud. It is approximated that one barrel of oil was released outside of containment and onto the ground surface.
- Noble Energy Inc. reported on May 11 that a tank overflowed when production was being switched between two tanks, outside of LaSalle. It is approximated that 80 barrels of oil released inside the falcon steel ring liner.
- DCP Midstream LP reported on May 11 that a DCP owned valve sprayed condensate into the air, due to an unexpected shutdown of a compressor station, outside of Keenesburg. Three to five acres of grass were affected and will be sprayed with a Terradis SW Bioserfactant to eliminate hydrocarbons. Soil samples will be drawn after five to seven days to assure compliance with COGCC standards.
- EOG Resources Inc. reported on May 8 that approximately three to four barrels of oil spilled onto the well pad, when a polish rod liner failed, outside of Grover.
- Kerr McGee Oil & Gas Onshore LP reported on May 7 that a tank overflowed, outside of Fort Lupton, during well completion activities, because of a kinked hose on the manifold, which prevented the fluids from equalizing into a separate tank. It is approximated that eight barrels of produced water and two barrels of oil released onto lined containment.
- PDC Energy Inc. reported on May 7 that while a pumper was changing a thermoweld on a separator, approximately one barrel of crude oil was spilled, outside of secondary containment, outside of Ault. When the thermoweld was removed, oil began to escape the containment.
- Noble Energy Inc. reported on May 6 that during operation outside of Gill, a leak occurred at a produced water vault and produced water line. It is approximated that less than five barrels of condensate spilled.
- Noble Energy Inc. reported on May 6 that a contract operator left the drains unattended, outside of Raymer. It is approximated that 115 barrels of oil and water were released inside ring and lined containment.
- DCP Midstream LP reported on May 6 that a personnel responded to a call about a potential leak that was then traced to an area where vegetation was dying, near the subdivision of Eaton Commons in Eaton.
- Noble Energy Inc. reported on May 4 that a small hole was discovered in a produced water vault, outside of Raymer. It is approximated that 32 barrels of produced water spilled.
Oil Slick Blackens Refugio State Beach in Santa Barbara County; Coast Guard Responding -- Emergency officials and the U.S. Coast Guard were responding to an 4-miles-wide oil slick off the coast of Refugio State Beach in Santa Barbara County on Tuesday. Multiple local news outlets reported a pungent smell from spilled oil on the popular beach about 20 miles west of downtown Santa Barbara. U.S. Coast Guard crews were responding to an “unknown sheen” at Refugio, the guard’s Los Angeles/Long Beach office Twitter account stated. The sheen was from a ruptured pipeline on the shore side that had been “secured,” the Coast Guard office later confirmed in a tweet.County fire and emergency officials were responding to the 4-mile-wide of oil slick, the Coast Guard stated, saying it would oversee cleanup of the oil. The Coast Guard also said in a tweet that Exxon was responding, but ExxonMobil spokesman Christian Flathman said the pipeline was not one of the company’s and the company was not responding. Flathman said he planned to contact the Coast Guard. Houston-based Plains All-American Pipeline was later identified as the “responsible party.” Aerial video from Sky5 showed a large amount of dark oil in the water and on the sand. Workers appeared to be treating a spill in a field on the other side of the 101 Freeway from the beach. At least a quarter-mile patch appeared to be slicking the surface of the ocean water off the beach, aerial video showed. The Santa Barbara Channel was the site of a massive oil spill in 1969 that left the coast darkened with oil, killed thousands of birds and galvanized the environmental movement.
Plains All American Pipeline Ruptures; 21,000 Barrel 4-Mile Oil Slick On Santa Barbara Beaches - Emergency officials and Exxon Mobil were responding Tuesday afternoon to a ruptured pipeline that was leaking crude oil into the ocean off the Santa Barbara County coast, authorities said. The Santa Barbara County office of emergency management has identified the responsible party as Plains All American Pipeline. As The LA Times reports, by 3:45 p.m., the leak had left a 21,000 barrel four-mile-long sheen of oil extending about 50 yards into the waters along Refugio State Beach in Goleta, said U.S. Coast Guard Petty Officer Andrea Anderson. First trains, now pipelines... The ruptured pipeline -- which runs along the coast near Highway 101 -- was first reported to county fire officials about noon. Coast Guard crews arrived and stopped the leak, Anderson said. It's unclear how much oil streamed into the ocean, and officials could not confirm what type of oil had been flowing through the pipeline. As Sputnik reports, According to one of the first responders, the oil was leaking at a rapid rate of “a couple of hundred BMP,” or barrels per minute. Speaking to the Santa Barbara Independent after arriving at the scene, County Fire spokesperson David Zenobi said the leak, which had originated from a broken pipeline on land, had stopped.
Pipeline Ruptures In California, Spilling Thousands Of Gallons Of Oil Into The Ocean -- On Tuesday, a pipeline along the coast of California just north of Santa Barbara ruptured and spilled an estimated 21,000 gallons of crude oil. A significant portion of this oil ended up in the ocean, creating a four-mile-long slick along the coastline. Nearby Refugio State Beach was evacuated, and those on the scene said it smelled “something like burned rubber” and that the spill was “just devastating.” Wildlife has also been impacted. Two whales swam precariously close to the spill on Tuesday and birds have been spotted covered in oil. As the oil slick moves slowly southward toward the city of Santa Barbara and the true environmental costs become clearer, residents are eager to know the cause of the spill. On Wednesday, the Santa Barbara County District Attorney announced the county was reviewing “potentially relevant criminal and civil statutes” related to the spill. The pipeline, built in 1991 to carry about 150,000 barrels of oil per day, was shut down within several hours of rupturing and a culvert was put up to prevent any more flow into the ocean. Late Tuesday, the owner of the pipeline, Houston-based Plains All American Pipeline, released a statement saying the exact amount of oil released is unknown and that it is working to begin cleanup and remediation efforts.
Pipeline Spews 21,000 Gallons of Oil Along California Coast – After people reported a foul smell, Santa Barbara first responders found an onshore pipeline spilling into a culvert and then into a storm drain that empties into the ocean. It was shut off by a Coast Guard crew about three hours after discovery. “Channelkeeper is sickened to learn of the oil spill in the Santa Barbara Channel and is extremely concerned about its inevitable impacts on water quality and marine life,” said Kira Redmond, executive director of the environmental watchdog group Santa Barbara Channelkeeper. “We will be out on the water to investigate the extent and impacts of the spill, monitor the containment efforts, keep the public updated, provide any assistance we can with the clean-up and ultimately ensure that the responsible party cleans up the oil that has marred our precious beaches, ocean and marine life.” That “responsible party” is Houston-based Plains All American Pipeline. It issued a statement saying, “Plains deeply regrets this release has occurred and is making every effort to limit its environmental impact.” “Oil spills are never accidents. They are the direct result of substandard oversight of fossil fuel companies who put their profits above human and environmental impacts,” Greenpeace Executive Director Annie Leonard said. “Now is the time for our leaders to take responsibility for the oil companies they let run rampant in our country. This doesn’t have to be our future. If our leaders don’t have the courage to stand up to the oil industry, we’ll continue to see spills from California to Alaska and beyond. We must demand better from President Obama as he looks forward in greenlighting risky drilling projects like Arctic drilling that endanger our oceans and the climate.”
21,000 gallons of crude oil leaked near Santa Barbara County beaches - A ruptured pipeline near Santa Barbara leaked an estimated 21,000 gallons of crude oil Tuesday, some of which flowed into the ocean and left a thick coat of black tar along the county’s pristine shores, authorities said. The rupture, located along an 11-mile long underground pipe that’s part of a larger oil transport network bound for Kern County, was first reported about noon after a woman at Refugio State Beach in Goleta smelled the crude’s noxious fumes. Coast Guard crews stopped the leak by 3 p.m., said Coast Guard Petty Officer Andrea Anderson. It’s unclear what caused the break in the pipeline. After flowing from the pipeline, crude pooled in a culvert before spilling into the Pacific, where it created a four-mile-long sheen extending about 50 yards into the water. Officials said winds could send the oil another four miles south toward Isla Vista. The pipeline, built in 1991 and designed to carry about 150,000 barrels of oil per day, is owned by Houston-based Plains All American Pipeline, which said in a statement that it shut down the pipe. The culvert was also blocked to prevent more oil from flowing into the ocean, the company said. By late Tuesday, a thick layer of crude had begun to wash ashore, with black tar smearing the rocks as the brackish tides arrived. “It is horrible,” said Brett Connors, 35, a producer from Santa Monica who said he spotted sea lions swimming in the oil slick. “You want to jump in there and save them.”
Cleanup crews hit beaches near Santa Barbara after oil spill: Cleanup crews fanned out Wednesday along a stretch of scenic California coastline stained by thousands of gallons of crude oil that spilled from broken pipe and flowed into the Pacific Ocean. Workers from an environmental cleanup company strapped on boots and gloves and picked up shovels and rakes to tackle the gobs of goo stuck to sand and rocks along Refugio State Beach on the southern Santa Barbara County coast. The accident happened on the same stretch of coastline as a 1969 spill, which was the largest ever in U.S. waters at the time and is credited with giving rise to the American environmental movement. Members of the International Bird Rescue organization were also on hand Wednesday to clean any birds that become covered with oil, though none were immediately spotted in the calm seas that produced only small waves. The broken onshore pipeline spewed oil down a storm drain and into the ocean for several hours Tuesday before it was shut off, creating a slick some 4 miles long about 20 miles west of Santa Barbara. Initial estimates put the spill at about 21,000 gallons, but that figure would likely change after a Wednesday morning flyover gave a better sense of the scope,. Authorities responding to reports of a foul smell near Refugio State Beach around noon found a half-mile slick in the ocean, county fire Capt. Dave Zaniboni said. They traced the oil to the pipeline that spilled into a culvert running under a highway and into a storm drain that empties into the ocean. The 24-inch pipeline was shut off about three hours later. It’s owned by Plains All American Pipeline, which said it stopped the flow of oil and blocked the culvert.
California oil spill: Up to 105,000 gallons lost - (CNN)—Oil pipeline company officials said Wednesday that as many as 105,000 gallons of crude oil may have spilled from a ruptured pipeline on the California coast. The 24-inch pipeline ruptured along the Santa Barbara coast, leaking the oil near Refugio State Beach, a protected state park, just before Memorial Day weekend marks the start of the summer tourist season. Houston-based Plains All American Pipeline based the estimate -- what it called a worst-case scenario -- on the typical flow rate of oil and the elevation of the pipeline, said Rick McMichael, the company's director of pipeline operations. The pipeline is still underground, so it will take a few days to determine how much crude oil was actually spilled. McMichael told reporters an estimated 21,000 gallons of crude had gone into the Pacific Ocean. The cause of the spill was still being investigated, he said, but there were problems Tuesday morning at two of the company's pump stations. Plains Chairman Greg Armstrong said he was deeply sorry for the spill. "We apologize for the damage that has been done to the wildlife and to the environment, and we're very sorry for the disruption and inconvenience that it has caused the citizens and visitors of this area," he said. Armstrong said his company had been given permission to work through the night on the cleanup. "This spill is unlike ones that we've responded to in the past." said Coast Guard Capt. Jennifer Williams at an earlier news conference. The spill originated inland, where the U.S. Environmental Protection Agency has jurisdiction, but has gone to the shoreline and the water, where the Coast Guard has responsibility -- thus the need for a combined response.
The California Oil Spill Is Even Worse Than We Thought - Gov. Jerry Brown declared a state of emergency in California on Wednesday, after oil spill estimates soared from 21,000 gallons to more than 105,000 gallons. The crude oil spill, from a pipeline along the coast just north of Santa Barbara, has resulted in the closure of two beaches and local fisheries, and damaged the sensitive habitat of endangered birds, the governor’s office said. The spill has also drawn attention to the safety record of company that operates the pipeline, Plains All American Pipeline. Responders, including the Coast Guard, U.S. Environmental Protection Agency, California Department of Fish and Wildlife, and Santa Barbara Office of Emergency Management, have been removing buckets of oily sludge from the beach, coastal areas, and water. Coast Guard Capt. Jennifer Williams told reporters that 7,700 gallons of “oily water mixture” has been removed. El Capitan Beach, a state park, is closed until at least Thursday. Refugio State Beach is also closed, and a fishing ban is in place for a half-mile out to sea, for a mile up and down the coast. Wildlife is not taking this well. The Audubon Society reported that brown pelicans in the area have been killed, and dead, oil-sodden lobsters, octopus, and other marine animals have washed up on shore. Federal records show that the Plains All American Pipeline has had 175 safety and maintenance infractions since 2006, the Los Angeles Times reported. The Times’ analysis found that “Plains’ rate of incidents per mile of pipe is more than three times the national average.”
State of Emergency Declared: California Oil Spill Now Estimated at 105,000 Gallons -- Tuesday afternoon, news spread of the latest oil-related tragedy to occur in the U.S.—an oil pipeline ruptured in Santa Barbara County in Central California, along the Refugio State Beach coastline. Though the pipeline was on land, it was found to be leaking into a culvert that eventually emptied into the ocean. By the time the pipeline was shut off, oil had been spilling into the sea for at least three hours.Oil from a broken pipeline coats miles of the Pacific Ocean and shoreline near Goleta, Calif., May 20, 2015, after a 24-inch underground pipeline broke May 19th and leaked into a culvert leading to the ocean. Houston-based Plains All American Pipeline said an thousands of gallons of oil were released before the pipeline was shut down. Photos by Jonathan Alcorn/Greenpeace. As of Tuesday evening, officials claimed that an estimated 21,000 gallons had spilled into the ocean in an oil slick that was four miles wide. Unfortunately, as of yesterday morning, the slick had spread to at least nine miles wide, as the winds and tides did what they do. And now, a new estimate says that up to 105,000 gallons of oil might have been spilled. Yesterday, California Gov. Jerry Brown declared a state of emergency due to the effects of the oil spill on Santa Barbara County.
California Governor Declares State Of Emergency As Santa Barbara Oil Spill Worsens Dramatically - What was originally thought to be around 21,000 barrels is now over 105,000 barrels of oil spilled on to the pristine beaches of Santa Barbara County. On Wednesday, Gov. Jerry Brown declared a state of emergency for Santa Barbara County to free up resources to respond to the spill, which as the following horrible images show, is far worse than it initially appeared. After seeing all of that, it is no wonder that OilPrice.com's Charles Kennedy believes this latest oil pipeline spill could galvanize environmentalist opposition. A pipeline in California broke and spilled oil into the Pacific Ocean on May 19. Oil washed up on the shores in Santa Barbara County with the slick extending an estimated 4 miles. While data is preliminary, the pipeline may have spilled 21,000 gallons, or 500 barrels, perhaps even more. For now, it is unclear what caused the pipeline to rupture. The pipeline, owned by Plains All American Pipeline, was constructed in 1991 and has a daily throughput of about 150,000 barrels. “Plains deeply regrets this release has occurred and is making every effort to limit its environmental impact. Our focus remains on ensuring the safety of all involved. No injuries have been reported at this time,” the company said in a statement released early on May 20.
California governor declares state of emergency after oil slick spreads off coast – An oil spill from a ruptured onshore pipeline that fouled beaches and threatened wildlife along a scenic stretch of the California coast spread across 9 miles of ocean Wednesday and officials said up to 105,000 gallons may have leaked out. Up to a fifth of that amount -- 21,000 gallons -- reached the sea, according to estimates. Federal regulators were investigating the leak as workers in protective suits raked and shoveled stinky black goo off the beaches, and boats towed booms into place to corral the two slicks off the Santa Barbara coast. The coastline was the scene of a much larger spill in 1969 -- the largest in U.S. waters at the time -- that is credited with giving rise to the American environmental movement. The chief executive of the company that runs the pipeline, Plains All American Pipeline LP, was at the site of the spill Wednesday and apologized for it. "We deeply, deeply regret that this incident has occured at all," Chairman and CEO Greg L. Armstrong said at a news conference. "We apologize for the damage that it's done to the wildlife and to the environment and we're very sorry for the disruption and inconvenience that it's caused on the citizens and the visitors to this area." Crude was flowing through the pipe at 54,600 gallons an hour at the time of the leak Tuesday, the company said. Company officials didn't say how long it leaked before it was discovered and shut down, or discuss the rate at which oil escaped. Federal regulators from the Department of Transportation, which oversees oil pipeline safety, investigated the leak's cause, the pipe's condition and the potential regulatory violations. The 24-inch pipe built in 1991 had no previous problems and was thoroughly inspected in 2012, according to Plains. The pipe underwent similar tests about two weeks ago, though the results had not been analyzed yet. There was no estimate on the cost of the cleanup or how long it might take.
Workers Race to Clean Up Oil Spill on California Coast - NYTimes.com: Cleanup crews wearing white coveralls and masks shoveled oil-soaked mud into plastic bags on Thursday near Santa Barbara, Calif., where a ruptured pipeline fouled beaches just days before holiday weekend crowds were expected to descend on them, a blow to the tourism-dependent city.Thousands of feet of floating booms, and skimmer vessels, have also been deployed to contain the oil from a spill that began Tuesday and protect areas of shoreline where birds nest and marine mammals come ashore. “We’ve got a total of 18 cleanup vessels scheduled today, up from 10 yesterday,” said Lt. Jonathan McCormick of the Coast Guard. On Wednesday, the Coast Guard reported that 272 people were involved in the round-the-clock effort, and on Thursday, Lieutenant McCormick said, “we’re expecting an additional 100 folks in the field.” The increase comes hours after Gov. Jerry Brown declared a state of emergency on Wednesday night, and the owner of the line, Plains All American Pipeline, released its estimate that up to 105,000 gallons of crude oil was released underground, with about one-fifth of that reaching the ocean. Lieutenant McCormick cautioned, “Those are still estimates and it’s still under investigation.” The California Department of Parks and Recreation has ordered the closing of two popular state beaches with campsites that were affected by the sticky, smelly crude, Refugio and El Capitan. The Department of Fish and Wildlife has banned fishing up to a mile on either side of Refugio, and up to half a mile offshore. On Thursday morning, officials of multiple state and federal agencies, as well as the pipeline company, took a helicopter flight over the affected area to assess the spread of the oil — late yesterday, the Coast Guard said oil slicks in the water stretched nine miles — and determine whether the beach and fishing restrictions should expand.
As Santa Barbara oil spill cleanup continues, damage still being assessed - Environmental specialists on land and in boats worked along a picturesque stretch of shoreline north of Santa Barbara this morning to clean a portion of the Pacific Ocean fouled by thousands of gallons of oil from a broken pipeline. The 24-inch pipe owned by Houston-based Plains All American Pipeline ruptured about noon Monday, and 21,000 gallons flowed into the sea before workers could seal the breach. The break occurred on land, but the oil flowed into the ocean via a culvert that connected to a storm drain. Workers from the pipeline company stopped the flow by blocking the culvert. The oil poured into the Pacific along Refugio State Beach. It’s the same area that was fouled in 1969 by a larger spill, an event that helped spawn the environmental movement. Clean Oceans, a non-profit group, was hired to deal with the oily water, and Patriot Environmental is dealing with the damage on shore, said Susan Klein-Rothchild, spokeswoman for the Santa Barbara County Emergency Operations Center. “There are three priorities right now. One is the safety of the responders and the public, two is the impact to the wildlife and the environment and three is cleaning up the spill,” she said. All three are happening simultaneously.”
Winds, choppy seas slow cleanup of California oil spill - — Weather has slowed cleanup efforts at the site of an oil spill that fouled a California shoreline. The National Weather Service says gusty winds are whipping up waves as high as 4 feet early Friday off Santa Barbara County. Several days of calm seas had helped crews. A small watercraft advisory was issued overnight and Santa Barbara news station KEYT-TV says oil skimming vessels were brought in late Thursday because of bad weather. Crews have yet to excavate the section of pipeline that broke Tuesday, spilling an estimated 105,000 gallons of crude. About 21,000 gallons is believed to have made it to the sea and split into slicks that stretched 9 miles along the coast. As of Thursday, more than 9,000 gallons had been raked, skimmed and vacuumed up.
Huge Oversight Gap on Refugio Pipeline in Santa Barbara County -- One of the big surprises to emerge out of the most dramatic oil spill to hit the South Coast this century is that the Plains All American Pipeline is the only pipeline in all of Santa Barbara County not to have an automatic shut-off valve. Not coincidentally, it happens to be the only pipeline over which the County Energy Division has no safety and inspection oversight authority. “We’re flying blind,” said County Energy Division czar Kevin Drude. That’s because All American Pipeline (Plains hadn’t bought it yet) took Santa Barbara County to court more than 20 years ago to restrict the county’s legal authority to inspect X-rays of the pipeline welds. It won. The consequences of that victory appear to be bearing bitter fruit. Because the county was denied the regulatory authority to require that Plains equip its pipeline with an automatic shut-down valve in case of a rupture, The Santa Barbara Independent has discovered, the Plains pipeline is the only pipeline in the county without this key safety feature. Instead, the Plains pipeline must be shut down manually in case of such emergencies. According to Drude, the equipment the county requires — known as SCADA — of other pipeline operators is so sensitive it can detect the loss of 20 barrels of oil over a 20-hour period. By contrast, the Plains pipeline leaked about 2,500 barrels worth of oil in a matter of a few hours before the company’s crew manually shut it down. Exactly how and why the Allied Pipeline — by far the biggest in the county — was built without this critical safety feature remains uncertain. The few people still on the scene who were involved back then have, at best, hazy recollections. What is clear is the vehemence with which All American Pipeline fought any intrusion of county oversight.
Oil shouldn't spoil vacations for California beach tourists — Images of sticky black beaches and stories of the stink of oil from a broken coastal pipeline shouldn’t force canceled plans for the vast majority of tourists planning ocean vacations in California. People who had immediate plans at two popular state-owned beaches — Refugio and El Capitan — need to make new ones, as those two spots in the immediate line of the oil spill in Santa Barbara County are closed through Memorial Day weekend and the coast highway next to them has seen slowdowns for the cleanup operations. However, they represent just a segment of the beaches in Santa Barbara County, the pristine and often pricey stretch of coastline whose boosters bill it as “America’s Riviera.” The tourism group Visit Santa Barbara and its members are trying to spread the word that almost all of the area, including every hotel and resort, is open for business, spokeswoman Karna Hughes said Thursday. “The spill hasn’t reached the waters off Santa Barbara,” Hughes said. The slick from the pipeline, which burst and spewed into the ocean on Tuesday, now covers nine miles of ocean, but it’s diluting as it spreads and is still 15 miles from Santa Barbara itself. A handful of reports of bits of oil reaching further south may be the naturally occurring seepage that happens in the oil-rich area. “There are some scattered tar balls but those may not even be associated with this spill,”
Cleanup continues at oil train wreck site in North Dakota — Cleanup efforts continue at the site of a recent oil train derailment in North Dakota. Amy McBeth with BNSF Railway tells the Minot Daily News crews in Heimdal are cleaning the tank cars, which will then be scrapped. The train hauling Bakken crude derailed May 6. No one was hurt but residents of Heimdal were evacuated for about a day. The newspaper reports the train consisted of 109 cars, of which 107 were loaded with crude oil and two were loaded with sand. The six tank cars that exploded into flames were a model slated to be phased out or retrofitted by 2020 under a recently announced federal rule. McBeth says crews are “containing and recovering product from the slough” and will be monitoring the area for several months.
Oil spill cleanup an eerie sight - There wasn’t a surfer, swimmer or camper in sight Wednesday. Instead, there were emergency vehicles, industrial-sized black dumpsters, supply trucks, a makeshift command post, ranks of port-a-potties and wash stations, and crews of white-helmeted workers clad in white, head-to-toe protective gear. It didn’t look like a holiday. It looked like a MASH unit on the moon. Rocks on the beach were splattered in black. Mild breezes riffled the fronds but the smell in the air was more loading dock than lotus. With shovels in hand, workers slowly tromped along the shore. They dug into inky mud and dumped each shovelful into hundreds, then thousands of clear plastic bags. At points, they formed human chains, passing the heavy loads from one hand to the next, and, finally, into dumpsters. Approached by the many journalists beside the fouled beach, workers politely declined to comment. On the sand, Peuyoko Perez, an auto parts driver from Ventura, sang a mournful ode — a “willow song,” as he called it — in a Chumash dialect. He said he was paying homage to nature and to the sea, and was pleading for willow-like flexibility among conflicting interests in cleaning up the mess and preventing future disasters. “This is an attack against the land, animals, fish, human beings — and I’m tired of it,” he said. Amid darkened clusters of seaweed, he looked out at the ocean. He said he planned to burn sage later in the day for cleansing.
9 oil well deaths lead to warning about inhaling chemicals — Federal officials are warning about the dangers of inhaling chemicals at oil wells following the deaths of nine workers over the last five years. All of the deaths involved workers at crude production tanks. Colorado and North Dakota each had three deaths and Texas, Oklahoma and Montana each had one death. The Denver Post reports that most were originally considered to be due to natural causes or heart failure. But the men were later found to have all inhaled toxic amounts of hydrocarbon chemicals after either taking measurements of oil or other byproducts in the tank or takings samples of oil for testing. The industry says the sudden rise in deaths could be linked to the number of inexperienced workers brought in to work during the energy boom.
"Oil To Die For" explores the Bakken, the deadliest workplace in America (Video) - While working the night shift at a North Dakota oil well site, a 21-year-old Montana man climbed to the top of an oil storage tank to check its levels. Upon opening the hatch Dustin Bergsing was inundated by toxic fumes and, according to North Dakota state forensic examiners, died from the inhalation of petroleum vapors. The story has become tragically commonplace since the beginning of the shale revolution in western North Dakota. Since 2008, over 50 men have died at North Dakota oilfield sites. Todd Melby, a reporter, interactive producer and filmmaker best known for “Black Gold Boom,” a public media project examining North Dakota’s oil activity, began covering events in the oil patch in 2012. The frequency of short format reporting on these incidents prompted him to investigate beyond a worker’s name, age and cause of death. In an effort to show the human toll of the oil boom, Melby created an interactive documentary titled “Oil to Die For.” While exploring how North Dakota became the most dangerous place to work in America, Melby brings the oil patch alive and allows users to access court documents, watch interviews and experience the environment at their own pace. During an interview with Minnesota Public Radio, Melby said, “When people criticize fracking and the oil industry, they focus on the environmental hazards, and there are lots of those. But people aren’t really focusing on those human stories. There are men who are dying at alarming rates in North Dakota and that deserves to be paid attention to. Those lives are important.” To experience the interactive documentary “Oil to Die For,” click here.
ND approves two Bakken pipeline projects - Two pipeline projects have been approved by the North Dakota Public Service Commission after the company involved assured that leak detection will be enhanced. Following a large saltwater spill, Meadowlark Midstream told state officials that the company would improve leak detection in its transport systems. State commissioners granted approval to a 46-mile crude oil pipeline in Divide and Burke counties as well as the conversion and extension of an existing 10-mile pipeline in Williams County, reports the Forum News Service. The 46-mile pipeline will carry crude oil produced in the Fortuna area to the Basin Transload Facility located outside Columbus. The transmission line is capable of carrying up to 25,000 barrels per day and could eventually haul 50,000 barrels per day. The smaller project in Williams County will add four miles of new pipeline to an existing gathering line which will transport crude oil from a station in Epping to the Little Muddy Creek Station. Early this year, Meadowlark Midstream was found responsible for a pipeline spill near Williston. The spill released approximately 3 million gallons of saltwater (also known as brine), a by-product of the oil and gas drilling process, which contaminated waterways including the Blacktail Creek. FNS reports that a company representative told state commissioners that after evaluating the incident, measures had been taken to improve pipeline monitoring. Additionally, the company asserted that operating crude oil pipelines carry less risk due to being constructed with steel instead of composite materials. Also, the crude pipelines have fewer inlets than the saltwater systems, making them easier to monitor.
Enbridge: Bakken pipeline to be completed by 2017 -- Enbridge may soon double the amount of oil it exports from North Dakota once the Sandpiper Pipeline comes online, reports KX News. Preliminary construction of the 600-mile pipeline will begin in North Dakota this summer with more than 3,000 people working on the project. The current timeline for completion projects the line will begin moving 225-thousand barrels of oil per day in 2017. The new pipeline will expand upon Enbridge’s current Bakken pipeline network and will create a new route, carrying more than double the company’s current transportation capacity. As reported by KX News, Enbridge North Dakota Director of Operations Bob Steede said, “The sandpiper pipeline starts in the Tioga, North Dakota, area, roughly follows … our existing pipeline network, comes to Clearbrook, Minnesota, and then works its way to Superior, Wisconsin.” Groundwork on the project will begin in North Dakota this summer, as well as upgrading current facilities and installing new pump stations near Berthold, Stanley and Beaver Lodge. Steede noted that Superior, Wisconsin, is a significant North American pipeline hub and that “the benefit of pipelines is that they are historically a safer alternative for [oil] transport.” Although the pipeline has been approved in North Dakota, the project has yet to be approved in Minnesota, delaying construction about a year. Last month, however, a Minnesota judge recommended approval of the pipeline. Steede added that completion of the pipeline is important, despite the current decline in oil prices. “Our existing pipeline is currently full, so with lower oil prices operating costs are looked at more seriously and the pipeline is the economical way to transport crude oil and help the producers out,” he said. To read the full report, click here.
Coast Guard: Fire on gulf oil platform; 28 evacuated - — The Coast Guard says 28 workers were evacuated from an oil production platform off Louisiana’s coast after a fire broke out. A Coast Guard news release says the fire was reported at 2:50 a.m. Friday near Breton Island, which is close to Louisiana’s southeastern coast. Production was shut down and no injuries have been reported. The Coast Guard reported a light sheen of oil could be seen from the air along a more than one-mile stretch of water. Also, the news release said, about 4,000 barrels of crude oil is stored on the platform. It was unclear whether the fire was out or under control at mid-morning. The cause of the fire was under investigation.
Dolphin die-off in Gulf of Mexico spurred by BP oil spill - scientists - – A record dolphin die-off in the northern Gulf of Mexico was caused by the largest oil spill in U.S. history, researchers said on Wednesday, citing a new study that found many of the dolphins died with rare lesions linked to petroleum exposure. Scientists said the study of dead dolphins tissue rounded out the research into a spike of dolphin deaths in the region affected by BP Plc’s oil spill that was caused by the 2010 Deepwater Horizon oil rig explosion. Millions of barrels of crude oil spewed into Gulf waters, and a dolphin die-off was subsequently seen around coastal Louisiana, Alabama and Mississippi, according to the National Oceanic and Atmospheric Administration (NOAA). “Dolphins were negatively impacted by exposure to petroleum compounds,” from the spill, said Stephanie Venn-Watson, a veterinary epidemiologist at the National Marine Mammal Foundation and lead author of the study published in the scientific journal PLOS ONE. “Exposure to these compounds caused life-threatening adrenal and lung disease that has contributed to the increase of dolphin deaths in the northern Gulf of Mexico,” she added. More than 1,200 cetacean marine mammals, mostly bottlenose dolphins, have been found beached or stranded since the spill, according to NOAA, which has declared an ongoing “unusual mortality event” under 1972 Marine Mammal Protection Act.
Record Dolphin Die-Off Linked to Gulf Oil Spill -- It was more than five years ago when the Deepwater Horizon offshore oil rig in the Gulf of Mexico blew out, spewing an unknown amount of oil. The April 2010 accident was the worst oil spill to ever occur in U.S. waters and it had far-reaching impacts on the region’s economy and ecosystems that continue to this day. Now a newly released study, funded by the Deepwater Horizon National Resource Damage Assessment, which includes the National Oceanic and Atmospheric Administration (NOAA), National Fish and Wildlife Foundation, BP (the oil company responsible for the spill and others) details the disastrous impact for the spill on the health and mortality of dolphins in the Gulf. The study analyzes what it calls “an unusual mortality event (UME)” among dolphins off the coast of Louisiana, Alabama and Mississippi between February 2010 and 2014. More than 1,300 dolphins are estimated to have died. “The Deepwater Horizon oil spill was proposed as a contributing cause of adrenal disease, lung disease and poor health in live dolphins examined during 2011 in Barataria Bay, Louisiana,” said the study. It also analyzed dead dolphin carcasses stranded in the three states between June 2010 and December 2012 and compared the analyses to dead, stranded dolphins found outside the area or prior to the oil spill to come to the conclusion that the die-off was unprecedented and the result of an adrenal gland condition never previously seen in dolphins in the region that made them susceptible to pneumonia.
'Shell no': Hundreds take to boats in Seattle to protest Arctic drilling - Hundreds of activists decked out in neoprene wetsuits and life jackets took to the waters of Elliott Bay on Saturday. In kayaks, canoes, paddleboards and other vessels, they sent the message that Royal Dutch Shell should cancel its plan to drill in the Arctic Ocean. The “Paddle in Seattle” – a daylong, family friendly festival in a West Seattle park and an on-the-water protest by “Shell no” kayaktivists – was held only blocks from where Shell’s Polar Pioneer drilling rig is docked at the Port of Seattle’s Terminal 5. The brightly colored boats lined the grass as paddlers loaded gear while lights on the towering rig twinkled in the background. Once out on the water, kayakers gathered in formation and hoisted signs and banners that read: “Climate Justice”, “Oil-Free Future”, “Shell No, Seattle Draws The Line”, and “We can’t burn all the oil on the planet and still live on it”. Many had posters or red scarfs that had the Shell logo with crossed kayak paddles underneath – resembling the skull-and-crossbones image. Eric Day, with the Swinomish Indian Tribe, was one of many Native American paddlers who brought their canoes to the event. Drilling in the Arctic would hurt those who live off the land, he said. “This is our livelihood. We need to protect it for the crabbers, for the fishermen,” Day said. “We need to protect it for our children.” Annie Leonard, executive director of Greenpeace USA, said there is a long list of reasons why drilling in the Arctic is a bad idea. The focus should be on renewable energy in this time of climate change, not dirty fuels, she said. Greg Huyler, a 51-year-old scuba diver from Yakima, Washington, stood on the sidewalk and shook his head in opposition to the event. “It’s a bunch of crap,” he said. “The problem is, all of these kayaks are petroleum products, and they’re going to gripe about drilling for oil. And 90% of them drove here in cars that use petroleum products.”
Kayaktivists Vs. A Massive Oil Rig: Inside Seattle’s Fight Against Shell’s Arctic Drilling Plans -- On Saturday, they came by sea: hundreds of “kayaktivists” gathering around a newly-arrived, massive offshore oil drilling rig in Seattle’s Elliot Bay. On Monday, they came by land, with an estimated 700 people blocking the road to the Port of Seattle’s Terminal 5 for about six hours. Their goal? Disrupt access as the rig attempted to prepare for departure to Alaska in Shell’s bid to start drilling for oil in the Arctic. Do it long enough to cause a delay that shortens the already-short drilling window during the Arctic summer. The effort was organized by ShellNo, “a coalition of activists, artists, and noisemakers battling Shell in Seattle.” A broad array of local groups, as well as some who came down from Alaska, have turned what would have been a simple drilling rig transfer into a rallying cry for climate change and the Arctic. “To be honest, this has been something of a surprise to me,” said Emily Johnston of 350 Seattle, one of the coalition’s partner organizations. “I’ve never seen anything like this. When the Kulluk [a Shell Arctic drilling rig] was here in 2012 there was nothing like this here.” “Part of our goal is to delay them as long as possible because the drilling window is quite small,” Johnston said. Shell has spent well over $5 billion in its effort to try to explore for oil in the rapidly melting Arctic Ocean, attempting to make progress for several years and thus far failing miserably. In 2012, the oil giant hit delay after delay: its oil spill recovery barge failed to meet code, one rig went out of control in Dutch Harbor after slipping anchor, they postponed exploratory drilling until 2013 after just drilling two preparatory wells, and another rig (the aforementioned Kulluk) was nearly lost after it ran aground in harsh weather while heading south for the winter.
Shell Oil’s Cold Calculations for a Warming World - Last week, when the Obama administration gave tentative approval to Shell Oil’s plan to return to the Arctic after its disastrous attempt to find oil there in 2012, I found myself thinking of a conversation I had several years ago with a man named Jeremy Bentham. Bentham leads Shell’s legendary team of futurists, whose methods have been adopted by the Walt Disney Company and the Pentagon, among others.The scenario planners, as they call themselves, are paid to think unconventional thoughts. They read fiction. They run models. They talk to hippies. They talk to scientists. They consult anyone who can imagine surprising, abrupt change. Then the oil company readies itself, as best it can, for all of them. In early 2008, weeks before Shell bid a record-breaking $2.1 billion on oil leases in the melting Arctic Ocean — the basis for the newly approved drilling plan — the company’s futurists released a new pair of scenarios describing the next 40 years on Earth. They were based on what Bentham called “three hard truths”: That energy demand, thanks in part to booming China and India, would only rise; that supply would struggle to keep up; and that climate change was dangerously real. Shell’s internal research showed that alternative energy systems — wind, solar, carbon capture — would take decades to make just a 1-percent dent in our massive global energy system, even if they grew at 25 percent a year. “It takes them 30 years to just begin to start becoming material,” Bentham explained to me. One scenario, called “Blueprints,” painted a moderately hopeful vision of green energy and concerted action within the constraints of technological change, of a swiftly rising price on carbon emissions as the world comes together to remake its energy systems. In this vision of the future, there is active carbon trading. There is a strong global climate treaty. There is still far more warming than society can easily bear — approaching 7 degrees Fahrenheit — but the world still averts the very worst of climate change.
Canadian Aboriginal Group Rejects $1 Billion Fee for Natural Gas Project - — A small aboriginal community in British Columbia has rejected a $1 billion payment for a natural gas project, the latest setback for the Canadian energy industry’s effort to bolster exports.A group led by the Malaysian energy company Petronas had offered the money to the Lax Kw’alaams Band, to help push through a plan to build a liquefied natural gas ship terminal near their remote community. It is part of an overall pipeline and gas drilling project that the group, Pacific NorthWest LNG, values at 36 billion Canadian dollars.The community, which has about 3,600 members, has consistently rejected the plan over concerns that it would harm fish habitats, particularly for salmon. After six public meetings over the issue, the band council voted against the payment.“Hopefully, the public will recognize that unanimous consensus in communities (and where unanimity is the exception) against a project where those communities are offered in excess of a billion dollars, sends an unequivocal message this is not a money issue: This is environmental and cultural,” Garry Reece, mayor of the band, said in a statement announcing the vote on Wednesday.Canada’s strategy to increase gas exports has been running into challenges on several fronts.Keystone XL, a pipeline that would carry Canada’s oil sands to the American gulf coast, remains stalled in Washington. Other aboriginal groups have effectively blocked an oil sands pipeline project in British Columbia, the Northern Gateway.Now, the liquefied natural gas project may also be in limbo.
ConocoPhillips says to maintain capex for next 3 years - ConocoPhillips expects to maintain capital expenditure for the next three years, after reducing it earlier this year due to the oil price drop, Chief Executive Ryan Lance told Reuters on Monday. The largest independent U.S. energy company, which cut its 2015 capital budget by $2 billion to $11.5 billion in January, “should hold (investment) flat for three years,” despite a slight recovery in oil prices, Lance said on the sidelines at the Asia Oil and Gas Conference in Kuala Lumpur. Crude prices have almost halved from $115 a barrel in June 2014 as global supplies grew and demand was dented by slowing economies in places like China. ConocoPhillips, like other exploration and production companies, has slashed capital spending in response to persistently lower oil prices, and is further reducing its rig count for fields in the lower 48 U.S. states. Production is expected to fall in the third and fourth quarters in the company’s shale fields, including the Permian in West Texas and the Bakken in North Dakota. But its total output was still expected to rise 2 percent to 3 percent for the year. The company, which is focusing on the Eagle Ford shale in Texas and North Dakota’s Bakken shale, has said it would also spend less on major projects, many of which are nearing completion. ConocoPhillips is also preparing to sell noncore oil and gas producing acreage in the United States, in the latest sign that oil majors are becoming more accepting of lower oil prices.
Energy groups take knife to $100bn of spending after oil rout - FT.com: More than $100bn of spending on new projects by the world’s energy companies has been slowed, postponed or axed following the oil price plunge, evidence of the drastic industry action that will curb output in coming years. Companies including Royal Dutch Shell, BP, ConocoPhillips and Statoil have led moves to curtail capital spending on 26 major projects worldwide, according to analysis commissioned for the Financial Times. The delays and cancellations, many disclosed quietly in recent weeks and months, come amid a wider retrenchment by the industry that has seen thousands lose their jobs and led to a slowdown in the US shale boom. The research by consultancy Rystad Energy shows that producers have targeted some of the highest-cost areas as they have trimmed spending, with nine Canadian oil sands projects put back, each ranging from $1bn to $10bn in planned expenditure. “Things are moving to the right and the particular area that is suffering is western Canada,” said Alastair Syme, energy analyst at Citigroup. “It is one area of the world outside US shale, where companies are actually stopping investment in train.” After reaching $115 a barrel last June, the price of oil plummeted to a low of $45 in January, as surging output of US shale oil and softening demand in Asia stoked a glut in the market. The decline accelerated after Opec, led by Saudi Arabia, decided not to cut production to support prices. Crude has since rebounded to around $66. While the $118bn total expenditure would be spread over several years, the impact of deferring investment on such projects would be to delay future production, with as many as 1.5m barrels a day — nearly 2 per cent of global oil output in 2013 — to come two years later than planned, said Rystad.
Clock Running Out For Struggling Oil Companies - Low oil prices are endangering an increasing number of exploration and production companies. According to a new report from Moody’s Investors Service, the oil and gas industry could see the rate of defaults rise over the next year. The companies in danger of going belly up, not surprisingly, are the ones that already have low credit ratings. Moody’s finds that the default rate for oil drillers with a credit rating of B2 or lower could jump from 2.7 percent to 7.4 percent by March 2016.Moreover, distressed oil companies make up a rising share of overall firms with a poor credit rating – roughly 14.8 percent of the companies with a B3 credit rating or worse covered by Moody’s are in oil and gas. That is up sharply from the 8 percent share that oil firms accounted for in 2014. The credit ratings agency also said that even if oil prices rise to $70 or $75 per barrel, the weakest firms probably won’t be safe. Debt is piling up and banks are starting to restrict capital to drillers that are in the most trouble. Even worse is the fact that there is no certainty that oil prices will rise. Goldman Sachs just predicted that oil prices will fall once again to $45 per barrel. High levels of crude oil inventories and only a slight fall in production thus far likely mean that the glut will persist. More importantly, efficiency gains have lowered the breakeven price for a barrel of crude, meaning that fewer drillers will cut back than the markets had previously expected. With several companies willing to put rigs back into action soon, oil prices have likely topped off for now.
Millions of Barrels of Oil Are About to Vanish - Millions of barrels of untapped oil that U.S. shale drillers discovered during the boom years are about to disappear from their inventories. Six years ago, the industry pushed the Securities and Exchange Commission to make it easier for companies to claim proved reserves for wells that wouldn’t be drilled for years. Some prospects considered sure-things when crude was $95 a barrel are money losers at today’s $60. When crude crashed in 2008, 44 U.S. companies wiped 630 million barrels from their books. Now the stakes are higher. Of all the proved reserves of oil and natural gas liquids found by the 44 companies since 2008, more than half -- 5.4 billion barrels out of the 9.7 billion -- is attributed to wells that don’t exist yet, according to data compiled by Bloomberg. “We’re going to see a lot of proved undeveloped reserves get vaporized,” said Ed Hirs, a managing director at Houston-based Hillhouse Resources LLC, an independent energy company, who also teaches energy economics at the University of Houston. “It could easily be 10 or 20 years before some of these wells get drilled if prices stay at these levels.” The shale boom has pushed U.S. oil production to the highest in more than 40 years and slashed the country’s reliance on imported fuel. The untapped resources are viewed by investors and lenders as a sign of a company’s growth potential, and helped the industry attract more than $230 billion in bonds, loans and share sales since the end of 2008.While undrilled prospects have always been part of oil companies’ inventories, they’ve become a much larger share since the SEC changed the rules. Undeveloped properties account for 43 percent of proved reserves for the 44 companies, the data show, up from 26 percent at the end of 2008.
Where there is oil and gas there is Schlumberger - Schlumberger doesn’t actually own any oil or gas fields itself, meaning it was not on the Guardian’s divestment list of 200 companies as part of its “Keep it in the ground” campaign – but as perhaps the most sophisticated oilfields services company on the planet, it is key to deep-sea drilling, arctic exploration, re-fracking (a bid to “stimulate” a dwindling fracking site to boost its production) and more, and works with many of the nationally-owned oil companies that hold most of the world’s reserves. It does all this with a huge £114m investment from the Wellcome Trust, and the Gates Foundation Trust also holds a shareholding of more than $3m in the company. Schlumberger may lack the public profile of its rival in the field, Halliburton – which became notorious among campaigners in the aftermath of the war in Iraq, especially through its ties to controversial former US vice-president Dick Cheney – but it’s bigger than it by far. Schlumberger is valued at almost three times its US-owned rival, and has around 35,000 more staff. One of Schlumberger’s tricks of the trade is its near-statelessness. Unlike Halliburton, it is not US-owned. Despite being a publicly listed company both in the US and the UK, and having “headquarters” in London (a sleek glass skyscraper just yards from Buckingham Palace), Paris, The Hague and Houston, Schlumberger is formally incorporated in Curaçao, a Caribbean offshore haven with ties to the Netherlands. The company’s complex structure, which routes its operating companies through subsidiaries in the Netherlands, British Virgin Islands and Panama, often works in its favour. One such upside was for years that Schlumberger was able to operate in Iran and Sudan, despite US sanctions, because it wasn’t a US company, and so it did – including directly for the National Iranian Oil Company.
An update on oil prices - Demand for gasoline has picked up significantly recently. In February, U.S. vehicle miles driven hit a new all time high. Gasoline prices have increased too (although some of the increase was due to refinery problems). From the LA Times: Four-dollar gasoline returns to the L.A. area On Friday, the average for a gallon of regular in the Los Angeles area was higher than $4 for the first time since July, according to daily fuel price reports by AAA and GasBuddy.com. The recent surge in regional fuel prices has left local drivers paying more on average than motorists anywhere else in the U.S. Analysts attributed the rise to a supply pinch caused by problems at the state's refineries, and predicted relief may not arrive in time for Memorial Day weekend road trips.This graph shows WTI and Brent spot oil prices from the EIA. (Prices Friday added). According to Bloomberg, WTI was at $59.69 per barrel on Friday, and Brent at $66.81 Prices have increased sharply off the recent bottom, but are still down 40%+ year-over-year.
Signs point to recovery - Oil prices tick upward. The drop in rigs drilling in the Permian Basin continues to flatten. And some observers expect the worst of the layoffs are over. Meanwhile, some of the biggest drillers in the region, Pioneer Natural Resources and EOG Resources, announced plans in the past two weeks to start drilling soon, dependent on price stability and other factors. But there are a number of factors analysts and oil company managers watch that could undermine that recovery. The main ones: production, demand for crude oil, storage capacity and activity of the Organization of Petroleum Exporting Countries. “They are massive overhangs,” said Joseph Triepke, a financial analyst from Odessa and managing director of Oilpro. com. “Oil cannot go to $100 a barrel. One of those three things will break (and) that will prevent a nice recovery and any sort of boom again.” The Permian Basin is the most active oil basin in the country, despite losing half its rigs since the peak of November. There were 233 rigs running in the region on Friday. But the past two weeks saw producers issue a series of optimistic outlooks as prices steadily rise. The national benchmark grew by about 36 percent since mid-March. The regional Plains-West Texas Intermediate benchmark ended at $56.25 per barrel on Friday. Many of the fundamentals that halved prices since the peak of June 2014 remain in place, such as oversupply.
This May Just Be The Start Of The Oil Price War Says IEA - Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world’s most influential oil-producing country, he has enormous influence. But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC’s strategy of forcing US shale to cut back is succeeding. The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia’s effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called “light, tight oil” (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point. “In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked,” the IEA reported. “Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating.” But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers. As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again. But that, evidently, isn’t good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. “Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks,” the report said.
Goldman Sachs Predicting $45 Oil By October -- Rig counts are down by nearly 1,000 (or nearly 60 percent) since hitting a high in October 2014. Spending on some of the world’s largest projects has been cut by a combined $129 billion, a figure that could balloon to $200 billion by 2016. The spending and drilling contraction is finally leading to some small production declines. The downturn in activity sparked optimistic sentiment among oil traders that the markets have adjusted, and could be on their way back up. Not so fast, says Goldman Sachs. The investment bank argues in a new report that not only is the oil rally a bit premature, but that the rally itself will be “self-defeating.” The rally could bring drillers back, but that would merely contribute to a reversal in price gains. More drilling and more production worsen the glut that has not yet been resolved, and prices could be in for a double dip (or triple dip if you count the price declines from February to March 2015). The Goldman Sachs report says that the problem is not just from a surplus of crude, but also a surplus of capital. Access to cheap finance has allowed production companies to stay in the game and continue to drill new wells. Even companies that have seen their cash flows dry up or have run into liquidity problems have still been able to find investors willing to pony up fresh capital. For example, in January and February, the world’s largest oil companies issued $31 billion of new debt, the highest quarterly total on record. Part of the reason for new debt is the need to raise capital – in other words, it is evidence of distress. But new debt was only made possible by the ultra-low interest rate environment. The Federal Reserve has kept interest rates low for many years, hoping to stimulate the economy. But that also has investors struggling to find yield, inducing more risk taking. With safer assets not offering the returns that investors are looking for, large levels of investment and lending are being funneled into oil companies, including some that are in precarious financial positions.
Goldman Can Now Predict The Price Of Oil In 2020 - Back in the summer of 2008, Goldman predicted that oil would rise to $200. Promptly thereafter, oil did rise to $150... and then crashed to $40 when the entire world nearly ended, and when Goldman et al grudgingly accepted a few trillion in taxpayer bailouts so their shareholders could bicker today over the helicopter landing protocol in the Hamptons. Many were so amused by Goldman's epic inaccuracy of being wrong by about 80% just a few months out, that some got the blasphemous idea that Goldman was merely trading against its clients, who even had an internal codename: "muppets." Goldman's historical predictive snafus did not prevent the company to come out in July of 2014 and forecast it that "The long-awaited global recovery appears to be getting on track, lifting commodity demand", in the process completely missing the imminent oil rout which saw oil tumble to $40 yet again. And just to show that predicting 0 out 2 market routs and retaining credibility is about par for Wall Street, overnight the cephalopod company released its latest foreacst. And not just any forecast, but one stretching to 2017, 2018, 2019 and, yes, even 2020! This is what Goldman thinks will happen not this year, not near year, but in five years. We now assume WTI oil prices of $57/$60/$60/$55/$50 in 2016/17/18/19/20. We mark to market 2Q 2015 WTI oil price to $57.50/bbl. Our blended average 2H 2015 WTI outlook remains at $51/bbl.
Oil Prices Will Fall: A Lesson In Gravity - The oil price collapse is not over yet. It is more likely that the Brent price could fall back into the mid-$50 range than that it will continue to rise toward $70 per barrel. That is because oil prices have risen based on sentiment alone. The fundamentals of supply and demand indicate a dismal reality: oil prices will fall and may fall hard in the near term. Our present situation is like that of the cartoon character Wile E. Coyote. He routinely ran off of a cliff and as long as he didn’t look down, everything was fine. But as soon as he looked down and saw that there was no ground beneath him, he fell. Hope and momentum cannot overcome gravity. Neither can ignoring the data.When I look down from $60 WTI and almost $68 Brent, I see no support except sentiment. Like Wile E. Coyote, we need a gravity lesson about oil prices. What goes up for no reason, will come down sooner than later and it may fall hard. The principal reason for the oil-price collapse is a production surplus–more supply than demand for oil. The latest data from EIA (Figure 2) indicates that the surplus is the greatest since the current oil-price collapse began. In other words, the cause of the price collapse is getting worse, not better!
Crude Tumbles Despite 3rd Weekly Inventory Draw & Production Plunge - Following last night's 5.2 million barrel inventory draw reported by API, crude prices surged once again (bouncing off levels before the first inventory draw at the end of April). Consensus appears confused since Bloomberg median estimates were for a 1.75mm draw while survey respondents expected a 3.82 million barrel draw this morning. DOE data showed a disappointly lower than API, 2.67 million barrel draw - which initially sent crude prices tumbling... machines bid them back, and now they are plunging again. Production dropped 1.2% overall - its biggest weekly drop since July 2014. 3rd weekly inventory draw in a row... And production plunged by the most in 10 months... Which sent crude falling - then soaring - then dumping... Retracing gains post API - as it appears the market was disappointed that the DOE draw was not as big as API had predicted.. Charts: Bloomberg
US oil and natural gas rig count drops by 3 to 885 - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by three this week to 885. Houston-based Baker Hughes said Friday that 659 rigs were seeking oil and 222 explored for natural gas. Four were listed as miscellaneous. A year ago, 1,857 rigs were active. Among major oil- and gas-producing states, Louisiana lost four rigs, West Virginia declined by three and Kansas, North Dakota and Ohio each lost one. New Mexico and Pennsylvania gained three rigs apiece, Arkansas was up by two and Oklahoma increased by one. Alaska, California, Colorado, Texas, Utah and Wyoming were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.
Oil Prices Unmoved By Oil Rig Count Decline Of Just 1 - The total rig count dropped by just 3 last week - the smallest decline since December - to 885, tracking perfectly with the 4-month lagged oil price we have been showing for 4 months. Oil rigs dropped just 1 on the week to just 659 - the lowest since August 2010. Oil prices are unch.
U.S. oil drillers add rigs in Niobrara and Eagle Ford - Baker Hughes - Oil drillers added rigs in two U.S. shale basins this week, data showed on Friday, the strongest sign yet that higher crude prices are coaxing producers back to the well pad after a slump in activity of nearly six months. Overall, U.S. drillers reduced the number of active rigs by just one this week, oil services company Baker Hughes Inc said. It was the 24th straight weekly decline, bringing the total down to 659, the lowest since August 2010. In the latest week, drillers added three oil rigs in the Niobrara basin in Wyoming and Colorado and two in the Eagle Ford in South Texas, according to the closely followed report. That brought the total number of active rigs up to 22 in the Niobrara and 89 in the Eagle Ford. The Eagle Ford is the nation’s second biggest shale oil field, while the Niobrara is the fourth largest. The Permian basin in western Texas and eastern New Mexico, the biggest and fastest growing U.S. shale oil play, lost one oil rig to 232, the lowest since at least 2011, according to Baker Hughes data going back to 2011. Three other shale formations also lost one rig each this week.
How do you lose 100 million barrels of oil? -- Oil-market watchers are struggling to reconcile the large estimated oversupply in the market with the much smaller buildup of reported inventories and narrowing contango in futures prices. Some blame the barrel counters who compile official statistics on supply, demand and stocks. But the truth is that information on the world oil market is incomplete and it is easy for hundreds of millions of barrels of oil to disappear from the supply chain without being counted. According to the three main statistical agencies, the global market has been oversupplied by between 1.5 million and 2.5 million barrels per day (bpd) since the start of the year. Stockpiles should have increased by between 200 million and 350 million barrels, according to the International Energy Agency, OPEC and the U.S. Energy Information Administration. U.S. crude stocks have indeed increased by around 100 million barrels since the start of the year while China’s stocks appear to have risen by between 50 and 100 million barrels. But that still leaves more than 100 million barrels that have simply vanished from the international statistical system. These lost barrels show up under error terms such as “miscellaneous-to-balance” and “unaccounted for” in reports published by statistical agencies which could be over-estimating supplies, under-estimating demand and inventories, or a combination of all three – because all data on oil production, consumption and stocks, especially outside the United States, is only a very rough approximation. Once we accept that the numbers are fuzzy, it follows that any analysis and forecasts based upon them must be fuzzy too.
India plans new oil subsidy rules to push ONGC stake sale - – India plans to reform rules governing the level of discounts upstream state oil firms including ONGC offer to retailers, a senior finance ministry official said on Friday, a move that could expedite the sale of a stake in the company. The government hopes to sell shares in ONGC and India Oil Corp. to raise about a third of its budget target for asset sales of $11 billion – and reduce its fiscal deficit to 3.9 percent of GDP in the 2015/16 fiscal year. Currently ONGC (Oil and Natural Gas Corp), Oil India and GAIL (India) sell crude and fuels like cooking gas at discounted rates to partly compensate retailers for losses they incur on selling fuels at government-set rates. But the finance ministry and oil ministry are in talks to work out a mechanism for easing the subsidy burden for the upstream companies, Ratan P. Watal, expenditure secretary at the Ministry of Finance, told reporters on Friday. Earlier, sources told Reuters that the oil ministry had set a new subsidy formula for the April-June quarter that would exempt upstream companies from discounting sales of crude oil and refined products if global oil prices are up to $60 per barrel.
OPEC Struggling To Keep Up The Pace In Oil Price War - Goldman Sachs (GS) seems to believe oil must fall to $45 by October (like it previously thought $30 oil was a certainty) to clear the market and rebalance, despite signs that a readjustment is already underway. When was the last time fundaments got ignored and prices went in opposite direction? Asset prices continue to be set by central bankers, and not free markets, so the GS call does make sense if you believe fundamentals don’t matter at all. Still, they should be discussed either way. Rather than being based on the fundamentals, GS, like others, have consistently been off the mark when it comes to oil prices, but refuse to acknowledge it (the agenda at GS has been exposed via Zerohedge). Multiple calls just this week for $45, on top of other economic research, clearly reveal this. I will be first to admit that I thought oil prices short term would peak in $60s and $70s, but I never thought they would retest the lows. Why should they, if all the trends point to markets slowly rebalancing? In fact, there is growing evidence that not only are we slowly rebalancing but the world may actually be running short of oil. According to Reuters, Saudi Arabia has turned down requests from China for more oil, as they are using it for their own domestic refining needs. It goes on to quote: “[a]nother source with a Chinese refinery that takes Saudi oil said Saudi heavy crude was ‘a bit tight’ in May and June.” China was forced to turn to Russia, Oman, and other non-OPEC nations for their needed supply. Why would Saudi Arabia refuse to supply China unless oil was, in fact, tight?
Apply Now: Saudi Arabia Is Hiring 8 Executioners -- As this year’s heavily-indebted new college graduates are about to discover, the post-crisis job market is tough (unless you’re an aspiring bartender or farmer or happen to have studiedpetroleum engineering) and since the US economic “recovery” officially died in Q1, things aren’t likely to get better anytime soon. Because we know how hard it is out there, and because we know that even if you do find a steady job your wage growth is likely to be anything but steady, we like to keep readers apprised of interesting employment opportunities across the globe. As a reminder, the China-led Asian Infrastructure Investment Bank is hiring for anyone looking to get in on the yuan hegemony ground floor, and for those keen on protecting Europe’s central banking cabal from marauding bands of anti-austerity clowns, the ECB is hiring “fire experts.” If, however, you happen to be particularly adept at wielding a sword and believe strongly that stiff penalties for crime play an important role in deterring future misdeeds you might consider joining Saudi Arabia’s Ministry Of Civil Service as a “Perpetrator Of Retribution.” Here’s more from The NY Times: Job seekers in Saudi Arabia who have a strong constitution and endorse strict Islamic law might consider new opportunities carrying out public beheadings and amputating the hands of convicted thieves. The eight positions, as advertised on the website of the Ministry of Civil Service, require no specific skills or educational background for “carrying out the death sentence according to Islamic Shariah after it is ordered by a legal ruling.” But given the grisly nature of the job, a scarcity of qualified swordsmen in some regions of the country and a rise in the frequency of executions, candidates might face a heavy workload.
U.S. Wakes Up to New (Silk) World Order » The real Masters of the Universe in the U.S. are no weathermen, but arguably they’re starting to feel which way the wind is blowing. History may signal it all started with this week’s trip to Sochi, led by their paperboy, Secretary of State John Kerry, who met with Foreign Minister Lavrov and then with President Putin. Arguably, a visual reminder clicked the bells for the real Masters of the Universe; the PLA marching in Red Square on Victory Day side by side with the Russian military. Even under the Stalin-Mao alliance Chinese troops did not march in Red Square. As a screamer, that rivals the Russian S-500 missile systems. Adults in the Beltway may have done the math and concluded Moscow and Beijing may be on the verge of signing secret military protocols as in the Molotov-Ribbentrop pact. The new game of musical chairs is surely bound to leave Eurasian-obsessed Dr. Zbig “Grand Chessboard” Brzezinski apoplectic.
Belligerent US Refuses To Cede Control Over IMF In Snub To China - One story that’s been covered extensively in these pages over the past several months is the emergence of the China-led Asian Infrastructure Investment Bank. The bank began to attract quite a bit of attention in early March when the UK decided, much to Washington’s chagrin, tomake a bid for membership. The dominoes fell quickly after that and within a month it was quite clear that The White House’s effort to discourage its allies from supporting the new institution had failed in dramatic fashion. Since then, China has been careful not to jeopardize the overwhelming support the bank has received. While Beijing is keen on expanding China’s regional influence and promoting the widespread use of the yuan, downplaying the idea that the new bank will become a tool of Chinese foreign policy is critical if it hopes to enjoy the long-term support of the many traditional US allies who have become early adopters so to speak. Similarly, China must be sensitive to the perception that the AIIB is the first step towards usurping the dollar as the world’s reserve currency and although Beijing has dispelled the notion of “yuan hegemony” as nonsensical, it’s clear that the renminbi will play a key role in loans made from the new bank. So while the AIIB certainly represents an attempt on China’s part to realize its regional ambitions (what we’ve described as the establishment of a Sino-Monroe Doctrine) and carve out a foothold for the yuan on the global stage, it’s also a product of Washington’s failure to adapt to a changing world. That is, the establishment of new supranational lenders suggests the US-dominated multilateral institutions that have characterized the post-war world are proving unable (for whatever reason) to meet the needs of modernity. Nowhere is this more apparent than the IMF, where reforms aimed at making the Fund more reflective of its membership have been stymied by Congressional ineptitude for years. AsBloomberg reports, the US has apparently learned very little from the AIIB experience: The Obama administration signaled it won’t jeopardize the U.S. power to veto IMF decisions to achieve its goal of giving China and other emerging markets more clout at the lender, according to people familiar with the matter.
China's not building islands for mere economic gain - Secretary of State John Kerry will be in Beijing this weekend. Originally he was supposed to be laying the groundwork for Chinese President Xi Jinping’s first state to the U.S. this fall. But now he’s going to be talking about islands. The Islands that China is building in the highly disputed South China Sea. There are seven so far, about 2,000 acres in all, whipped up out of thin air – or rather, whipped up out of sand dredged from the sea floor and built up on top of coral atolls. China’s artificial islands are its way of aggressively, but quietly, staking its claim to the Spratly Islands in the South China Sea. Calling the Spratlys “Islands” though, is kindof a stretch. There are hundreds of them, but most are coral reefs or atolls, only breaking the surface at low tide. And yet, they represent “ the world’s most complicated territorial dispute,” Vietnam, Malaysia, Brunei, Taiwan, the Philippines, and China all have overlapping claims. All six states have bolstered their claims in the archipelago via some form of construction activity, but none have created islands where there were none – or merely reefs – before,
Beijing We Have A Problem: China Suffers Record Capital Outflow In Q1 Back on April 18 in “China Sees Largest Capital Outflow In Three Years,” we noted that according to JP Morgan estimates, China saw its fourth consecutive quarter of capital outflows in Q1, bringing the total over the last 12 months to some $300 billion. This is part and parcel of what we have called China’s “currency conundrum” wherein Beijing needs to devalue in order to support the export-driven economy, but can’t for fear of exacerbating capital flight and/or jeopardizing an IMF SDR bid (assuming China is still interested in the latter after Washington’s abject refusal to reform the Fund's structure), The official numbers for the first three months of the year are now in and sure enough, China reported a record $159 billion deficit on its capital and financial accounts. More, via UBS: FX reserves shrank sharply by USD 113 billion in Q1, following last Q4’s contraction of USD 45 billion and 2014’s annual increase of USD 22 billion. PBC’s FX asset also shrunk by RMB 252 billion in Q1 (vs. last Q4’s fall of RMB 134 billion). Our preliminary estimates show that China saw non-FDI capital outflows of around USD 190 billion in Q1 on a BoP basis. Recent data release showed that China’s capital & financial account (excluding reserve assets) recorded a deficit of USD 159 billion in Q1… In Q1 2015, China saw an even sharper pace of FX reserve contraction, with a negative valuation effect (of around USD 34 billion) and non-FDI capital outflows (of around USD 190 billion) more than offsetting a still sizable trade surplus of goods & service (USD 77 billion) and largely stable net FDI. The main types of non-FDI capital flows include the usual portfolio investment flows, trade credit flows, other foreign borrowing and foreign lending, domestic banks interbank borrowing and offshore lending, interest rate arbitrage flows, and capital flight. Factors driving recent persistent capital outflows likely include: corporates’ increasingly holding on to their FX proceeds due to weaker RMB appreciation expectation; growing market concerns over China's property downturn and recent weak economic data; weakening or unwinding of interest rate arbitrage capital flows due to the anticipated rise in global interest rates and fall in domestic interest rates; an increased desire by domestic residents to diversify their assets globally; among others.
Interest Rate Liberalization — With Chinese Characteristics - As part of an effort to open up the Chinese economy, the central bank has said it wants to do away with its controls on domestic interest rates — and it might even complete the ambitious task this year. That would mean banks could set interest rates for deposits and loans all by themselves, without the helping hand of central authorities. Earlier this month, the People’s Bank of China took another step in this direction, giving banks the authority to raise deposit interest rates to 1.5 times the benchmark rate that it sets. That was up from 1.3 times previously, ostensibly meaning more competition among banks vying to attract customers — and perhaps more enticing deposit rates. But letting go of controls is easier said than done. Last week the central bank quietly told commercial banks to refrain from exercising that new authority and keep deposit rates below the ceiling, fearing the increased cost of funds would be passed on to borrowers. That, in turn, would hurt companies already struggling in an economy that is showing slower growth. The central bank also let banks know that if they didn’t follow instructions, they would suffer unspecified consequences.
China gets serious about reflation - Amid further signs of a weakening economy, there is no longer any doubt that a major policy easing is clicking into gear in China. For the first time since 2008, the government has accepted that the economy has hit a patch of serious trouble, and the most recent policy statement by the politburo adopts a much more urgent tone than anything that has preceded it under President Xi Jinping. But deflationary economic forces remain powerful and it is still far from clear whether the policy adjustment has been large enough to rescue the deteriorating situation. The markets are optimistic about the outcome. Remarkably, the Chinese equity market (Shanghai “A” shares) has been flying this year, and is now up 33 per cent year to date, by far the strongest of the world’s major markets. The Hong Kong market is also up strongly, by 18 per cent. This ebullience in share prices has left macro investors wondering whether a broader “China reflation” trade – encompassing other global equities, commodities, related currencies and bonds – is now appropriate. This may be premature – much more work remains to be done. The latest monthly batch of data showing that the underlying growth rate in activity (according to our “nowcast” models), has dropped sharply to only 5.3 per cent. This is much lower than the government’s informal 7 per cent growth target, and may also be lower than the growth rate needed to stabilise employment.
China Manufacturing PMI Contracts Third Month, Output Index at 13 Month Low - The slowdown in China continues as the HBSC Flash PMI shows Output contracts at strongest rate in just over a year. Key Points:
- Flash China Manufacturing PMI™ at 49.1 in May (48.9 in April). Two-month high.
- Flash China Manufacturing Output Index at 48.4 in May (50.0 in April). 13-month low.
Adios Sweatshop: PRC's Mfg Plan to be Asia's Germany - A few days ago I featured a post on how low-cost manufacturing is migrating to even lower-cost locations than China such as Vietnam. So, even authoritarian China is not immune to upward pressures on wages as firms keen on the cheapest manufacturing possible head elsewhere. Now we receive news that even China is aware of these pressures and is adjusting accordingly. Instead of trying to remain the lowest-cost producer in perpetuity, which is impossible, it too is seeking value-added industries where productivity gains from capital and labor can help ensure that it remains the world's largest producer. From Caixin Online: China’s State Council has unveiled a 10-year plan for upgrading the nation’s manufacturing capacity so it can catch up with production powerhouses like Germany and fend off competition from other developing countries. The Ministry of Industry and Telecommunication Technology (MIIT), which led the creation of the “Made in China 2025” plan, said the strategy is intended to give China an edge in innovation, green development and quality goods. The MIIT put the focus on 10 sectors, including high-end computerized machinery and robotics, aerospace equipment, renewable-energy cars and biological medicine. Sha Nansheng, vice director of the MIIT’s Department of Science and Technology, said the country’s manufacturing industries are facing pressure on two fronts: competition from other developing countries where labor costs are lower, and a renewed push by developed nations of the West seeking an advantage in industrial manufacturing.
Beijing holds sway: China solidifies top AIIB share, influence as capital doubles - -- China is set to emerge as the biggest shareholder in its proposed Asian Infrastructure Investment Bank, contributing nearly 30% of the lender's $100 billion in capital and holding a powerful influence on its management. The 57 founding countries agree on a draft of the bank's articles of incorporation, China's Finance Ministry said Friday at the close of three days of negotiations in Singapore. If all goes according to China's plan, member countries would sign the charter late next month in Beijing, and the bank would begin operations by year's end. The members agreed the bank should start with $100 billion in capital -- twice the initial proposal, a person at the negotiations said. China proposed the increase, arguing it would make the AIIB more creditworthy and thus better able to raise funds in the bond market. China and other Asian members likely will contribute 75% of the total, with those from outside the region putting up the rest, as initially proposed. European members had sought a bigger stake but began worrying about the financial burden when it became clear the capital would be doubled. India looks likely to be the second-largest shareholder, with about 10%. Advanced economies including European powers, Australia and South Korea are expected to have a combined stake roughly equal to China's. The AIIB's 12-member board of directors, nine of whom are to be Asians, would lack a permanent presence at the bank's Beijing headquarters. China, through its handpicked governor, thus would wield considerable influence. Transparency will depend on whether advanced-economy members can unite and check any arbitrary actions by China, a Beijing-based diplomat said.
Japan plans $100 billion in Asia infrastructure aid, matching AIIB capital level - The central government is eyeing $100 billion in public-private assistance for infrastructure development in Asian countries over the next five years, Jiji Press learned Monday. Prime Minister Shinzo Abe will announce the plan to increase infrastructure investments and loans for Asian countries on Thursday, sources said. The amount is the same as the planned capital of the China-led Asian Infrastructure Investment Bank, in which Japan has declined to become a founding member. The envisioned assistance is aimed at demonstrating Japan’s stance to contribute to building up high-quality infrastructure in Asia through human resource development and technological transfers and showing the difference from the AIIB, so that Japan can keep a high profile in the region. In the initiative, the government will extend yen loans to Asian countries through the Japan International Cooperation Agency and lend through the government-affiliated Japan Bank for International Cooperation. The government is also mulling greater financial assistance by the Asian Development Bank, to which it is the largest contributor.
PRC Infrastructure Battle: Japan Pledges $100B for Asia - There is utterly fascinating news coming out of Tokyo that the Japanese are preparing to provide a hundred billion dollars in funding to Asian countries in need of infrastructure. Especially smarting from being overtaken as Asia's largest and the world's second-largest economy, Japan does not enjoy playing second fiddle to the Chinese (usurpers). I recently made a series of posts on the upcoming formation of the so-called Asian Infrastructure Investment Bank (AIIB)[1, 2, 3]. Notably, the US tried to persuade all and sundry of its allies not to join the AIIB. However, only Japan actually heeded the jealous Americans' call to stay out. Now, however, we may have the latest round in Japan-China one-upmanship. For the AIIB, China is pledging a $50B initial contribution to be matched by the other members. Not to be outdone, the Japanese are saying they will pony up $100B for Asian countries to improve their infrastructure by themselves: Japan will announce a $100 billion plan to invest in roads, bridges, railways and other building projects in Asia, a report said Tuesday, weeks after China outlined its vision for a new infrastructure development bank in the region. In the latest twist of a tussle for influence in the fast-growing region, Prime Minister Shinzo Abe is set to unveil the five-year public-private partnership this week, Jiji Press reported. The sum is in line with the expected $100 billion capital of the Asian Infrastructure Investment Bank (AIIB) that Beijing and more than 50 founding member states are establishing.
Bank of Japan Relaxing All-Out Approach to Hitting Inflation Target - The Bank of Japan appears to be relaxing its stance of doing whatever it takes to quickly reach its 2.0% inflation target, as it opts to wait for tightening labor conditions and higher economic growth to push up prices. The central bank’s at-all-costs approach was first introduced when it launched its aggressive monetary easing campaign in April 2013. The BOJ has called its strategy of buying massive amounts of Japanese Government Bonds and other domestic financial instruments effective in reversing the deflationary mindset of the nation’s consumers, pushing up corporate prices and changing wage-setting patterns. While few private economists expect the BOJ to take extra stimulus steps when its policy board holds a regular two-day meeting later this week, a number of economists still see further action either in July or October because they don’t expect the inflation rate to resume rising later this year as the BOJ has projected. But people familiar with the BOJ’s thinking say there is a growing sense among some officials that the BOJ won’t necessarily stick to its whatever-it-takes approach, particularly after the central bank in April pushed back the timing of achieving its price growth target by about six months as inflation decelerates. The BOJ’s all-out approach should be given up, one of those people said, expressing the view that monetary policy should be steered in a way that’s supportive of the economy.
Japan’s First-Quarter GDP Growth Is Fastest in a Year - WSJ: Solid recoveries in both the household and corporate sectors helped Japan post surprisingly robust growth for the first quarter of 2015, confirming that the nation has left behind last year’s recession. Real gross domestic product, the broadest measure of economic activity, grew by an annualized 2.4% between January and March, the government said Wednesday, much stronger than a revised 1.1% in the October-December period. It also beat a 1.5% growth forecast by economists surveyed by The Wall Street Journal. The figures offer support for policy makers’ view that the economy is on its way to recovery, as growth in corporate profits is leading to pay raises for workers and greater consumer spending. “We thought it would be a matter of time before things turned upbeat, but my impression today was that things have turned brighter earlier than expected,” said Tomo Kinoshita, chief economist at Nomura Securities Co. Economists pointed to a shadow on the otherwise upbeat data—the surprising buildup in inventories. An increase in unsold goods suggests consumption may have failed to keep pace with production. Inventories contributed 0.5% percentage point to overall quarterly growth of 0.6%. Without that, annualized growth for the first quarter would have been just 0.4% rather than 2.4%.
The Dark Side of Japan’s First-Quarter Growth Drivers - A buildup in inventories and higher exports helped Japan record stronger-than expected growth in the first quarter, but those engines may cool in the second quarter. Real gross domestic product grew 0.6% quarter-on-quarter, or an annualized rate of 2.4%. Of that, private-sector inventory investment contributed 0.5 percentage point. In other words, growth would have been close to zero if inventories hadn’t expanded. “As this reflects production in excess of final demand, it is difficult to view in a positive light,” wrote economists at Barclays. Exports were another bright spot, up 2.4% quarter-on-quarter, following a 3.2% rise in the October-December quarter. The cheaper yen is finally beginning to have an impact on Japan’s trade and companies like Fuji Heavy Industries Ltd., maker of Subaru cars, are racking up record sales with help from products made in Japan and shipped to the U.S. The question is whether the U.S. and China—the world’s two biggest economies and Japan’s two biggest customers—will keep supporting Japan’s recovery. As WSJ’s Jon Hilsenrath wrote last week, recent soft economic data have led to fresh expectations of dimmer U.S. growth.And property is a drag on China’s economy. Japan’s economy has tended to go one step forward and one step back in recent years: Last year’s increase in the national sales tax led to a big step back, while Wednesday’s GDP growth was a step ahead for Prime Minister Shinzo Abe’s revival program. To declare a complete return to health, Mr. Abe needs more than two quarters of upturn, and that will require a helping hand from global trading partners that are themselves operating at less than full strength.
Japan debt plan needs BOJ to keep rates low for years -sources | Reuters: Japanese Prime Minister Shinzo Abe's plan to cut the country's debt pile will rely on the Bank of Japan keeping government bond yields low for years to come, people involved in its crafting say, which could force the bank to maintain its massive monetary stimulus for longer than it wants. Abe has pledged to come up with plans to fix Japan's tattered finances, but he is reluctant to raise taxes or cut spending drastically for fear of hurting the fragile economy. The Cabinet Office, a ministry overseeing the government's economic policies, is updating its public finance forecasts in July, and they will serve as the basis for the fiscal reform plans. It faces a stiff challenge to come up with estimates that will enable Japan's debt burden, which is nearly twice the size of its GDP, to fall. A particular dilemma is that long-term interest rates may start to rise if the BOJ's stimulus programme succeeds in reflating the economy and accelerating inflation toward its 2 percent target. To keep borrowing costs as low as possible, since debt servicing takes up nearly a quarter of government spending, the Cabinet Office is considering saying in its forecasts that the BOJ ought to be expected to keep bond yield gains in check, several people involved in the drafting of the forecasts told Reuters. Any such language could pile pressure on the BOJ to maintain its stimulus programme longer than it would like. The central bank now expects Japan to hit 2 percent inflation in the fiscal year ending in March 2017.
India Bad Loans Seen Hitting 14-Year-High Amid Considerable Pain - Stressed assets of Indian lenders are seen rising to the highest in at least 14 years and Bank of Baroda’s chief executive officer says there’s still “considerable pain” in Asia’s third-biggest economy. The local unit of Fitch Ratings estimates the percentage of soured and restructured loans in the banking system will reach the highest since 2001 in the year through March 2016. A record proportion of reworked assets are expected to turn bad in the period, according to Standard & Poor’s Indian arm. Three of India’s five biggest banks reported an increase in bad loans for the year ended March 31 as policy makers’ efforts to boost investment and economic growth have yet to bear fruit. Central bank Governor Raghuram Rajan said May 14 that while improvements in credit quality will be slow, he doesn’t see the soured assets leading to a financial crisis. “There is considerable pain still left in the economy,” Ranjan Dhawan, Bank of Baroda’s Mumbai-based CEO, said in a May 11 interview. “Some of the big corporate houses are facing liquidity issues and may face difficulty in repaying.” Stressed assets will rise to 13 percent of total advances by March, according to India Ratings and Research Pvt., the Fitch unit. The ratio was 10.73 percent as of December, the latest central bank data show. Crisil Ratings, S&P’s Indian arm, estimates the sum of total soured loan and restructured advances that are likely to turn bad will reach an unprecedented 5.3 trillion rupees ($83 billion) in the same period.
India’s Central Bank Chief Wants More Central-Bank Coordination - Reserve Bank of India governor Raghuram Rajan said Tuesday that global financial institutions like the International Monetary Fund need to do a better job at mediating between the policies pursued by the world’s major central banks. Gov. Rajan said the lack of an effective, cooperative safety net has the potential to push the world toward a succession of crises, as countries seek to stimulate domestic demand by cutting interest rates and devaluing their currencies in turn, a move that pushes others to do the same. “The current non-system in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector,” Gov. Rajan said in the text of a speech given before the Economic Club of New York. “It is a problem of collective action.” He said in his speech that while he understands a central bank taking aggressive action to get its economy back on track, it can go too far if the policies are continued for too long. While he didn’t point a finger at any specific central bank, he nevertheless said unconventional policies like those pursued by the Federal Reserve, European Central Bank and the Bank of Japan can have the practical effect of shifting demand around, rather that stimulating a fundamental improvement in domestic conditions. What is more, the policies can have strong foreign-exchange effects that would normally be frowned upon. He was speaking in reference to stimulus programs that lower the value of a country’s currency. “Once you enter into this type of competition, you find it very hard to come out,” Mr. Rajan said.
The economy in Pakistan is indeed improving --The recent terror attack in Karachi won’t help any, but still the news is looking up, from The FT: The IMF has acknowledged that Pakistan averted a balance of payments crisis in 2013 and managed to stabilise its foreign reserves. This week Standard & Poor’s, the credit rating agency, raised the outlook for its B minus rating from stable to positive, while Moody’s last month raised its outlook to stable from negative — albeit for a Caa1 rating, which puts it one notch above Greece. With liquid foreign reserves having grown almost fourfold in the past year to $12.5bn, a figure equivalent to about three months of imports, Mr Wathra has less cause for concern about the stability of the rupee than some of his predecessors.The recent plunge in the price of crude has seen the cost of oil imports fall to $9.7bn in the nine months to March, down from just over $11.2bn a year earlier, according to central bank figures.Falling oil prices have also helped lower the fiscal deficit to an expected 5 per cent of gross domestic product in the year to June, down from above 8 per cent just over two years ago. And the country’s GDP is forecast to grow by about 4 per cent this year, following a similar rise last year. You may recall my earlier post on Pakistan being an undervalued economy, more here too. It still is.
Indonesia Just Sank "A Large Chinese Vessel" And 40 Other Fishing Boats In The South China Sea - According to The China People's Daily, Indonesia has just sank a large Chinese vessel and 40 other foreign ships caught fishing in The South China Sea. AP confirms that Indonesian authorities blew up and sank the 41 vessels... which seems like something that might just lead to some serious escalation if true...And AP's confirmation... Indonesian authorities blew up and sank 41 foreign fishing vessels Wednesday as a warning against poaching in the country's waters. The vessels from a variety of countries were blown up in several ports across the archipelago, which has some of the world's richest fishing grounds. Navy spokesman First Adm. Manahan Simorangkir said 35 vessels were sunk by the navy and six by the coast guard police. Fisheries Minister Susi Pudjiastuti said Indonesia has blown up several other boats since the current government took over last year after President Joko "Jokowi" Widodo was elected. Part of his platform was to preserve Indonesia's oceans to ensure future generations will benefit from its rich waters. The boats, seized from Chinese, Malaysian, Philippine, Thai and Vietnamese fishermen, were blown up on National Awakening Day, which commemorates the first political movement toward Indonesia's independence.
World’s central bankers braced for big divergence - FT.com: Since the global financial crisis, mankind has learnt to live with a third certainty along with death and taxes — monetary loosening. Central banks have slashed interest rates to record lows and embarked upon unprecedented programmes of asset purchases in an attempt to raise inflation and restart economic growth. The common path on which monetary policy makers have strolled, however, is expected to diverge this year. The timing of the partition and the way in which its side effects are managed hold big implications for financial stability and the global recovery. After years of respectable growth and sizeable falls in unemployment, the US Federal Reserve and the Bank of England have ceased to expand their quantitative easing programmes and are eyeing a first rise in interest rates in nearly 10 years. The European Central Bank, conversely, is in full loosening mode, having launched a €1.1tn scheme of asset purchases. In Asia, the Bank of Japan is busy with its own bond-buying programme, while the People’s Bank of China has just cut interest rates three times in six months. The immediate danger facing the world economy lies in when exactly the US’s rate lift-off will take place. Growth has disappointed in the first quarter, with weak retail sales and industrial production figures last week showing that the US slowdown may be more than a seasonal dip. Economists fear that the damage arising from a premature tightening by the Fed would go well beyond the US: a new recession in the world’s most important economy would hurt exporters across all continents, as well as hitting confidence and investment.
Companies Based in Developing Economies Make Record Share of FDI - Companies based in developing economies have sharply increased their overseas investments, with those headquartered in Asia overtaking their counterparts in North America in 2014 as the largest source of foreign direct investment for the very first time. Figures released Monday by the United Nations Conference on Trade and Development showed FDI undertaken by developing-country firms jumped by 30% in 2014. Their share of global FDI was 36%, up from just 12% in 2007, prior to the onset of the global financial crisis. The surge is part of a major shift in the pattern of overseas investment that has taken place since the crisis. Figures previously released by UNCTAD showed China became the world’s top destination for foreign direct investment in 2014, edging the U.S. out of that position for the first time since 2003. The total amount invested overseas by companies based in Asian developing countries was $440 billion, exceeding the $390 billion invested by companies based in North America for the first time on record. Companies based in Hong Kong and China led the way, investing a combined $266 billion. Companies based in developed economies have long invested overseas both to gain access to new markets and to move production to lower cost locations, in the process gaining a global presence. The 2014 surge indicates an increasing number of companies based in developing economies have become large enough to behave in the same way.
A World of Underinvestment -- Today’s global economy bears striking similarities to the immediate post-war period: high unemployment, high and rising debt levels, and a global shortage of aggregate demand are constraining growth and generating deflationary pressures. And now, as then, the level and quality of investment have been consistently inadequate, with public spending on tangible and intangible capital – a critical factor in long-term growth – well below optimal levels for some time. Of course, there are also new challenges. The dynamics of income distribution have shifted adversely in recent decades, impeding consensus on economic policy. And aging populations – a result of rising longevity and declining fertility – are putting pressure on public finances. Nonetheless, the ingredients of an effective strategy to spur economic growth and employment are similar: available balance sheets (sovereign and private) should be used to generate additional demand and boost public investment, even if it results in greater leverage. Recent IMF research suggests that, given excess capacity, governments would probably benefit from substantial short-run multipliers. More important, the focus on investment would improve prospects for long-term sustainable growth, which would enable governments and households to pursue responsible deleveraging. Likewise, international cooperation is just as critical to success today as it was 70 years ago. Because the balance sheets (public, quasi-public, and private) with the capacity to invest are not uniformly distributed around the world, a determined global effort – which includes an important role for multilateral financial institutions – is needed to clear clogged intermediation channels. There is plenty of incentive for countries to collaborate, rather than using trade, finance, monetary policy, public-sector purchasing, tax policy, or other levers to undermine one another. After all, given the connectedness that characterizes today’s globalized financial and economic systems, a full recovery anywhere is virtually impossible without a broad-based recovery nearly everywhere.
Most of the world’s workers have insecure jobs, ILO report reveals - A global shift to more insecure jobs since the financial crisis is fuelling growing inequality and higher rates of poverty, according to a new report that estimates only a quarter of the world’s workers are on permanent contracts.The International Labour Organization (ILO) said the remaining three quarters are employed on temporary or short-term contracts, working informally often without any contract, are self-employed or are in unpaid family jobs.A worldwide trend away from secure jobs risked “perpetuating a vicious circle of weak global demand and slow job creation” that has dogged many countries since the crisis, the UN agency said. In its World Employment and Social Outlook 2015 (WESO), the agency highlighted a rise in part-time employment, especially among young women. Though some workers welcome the flexibility of part-time jobs and self-employment, often such roles are down to lack of choice, it said. “In some cases, non-standard forms of work can help people get a foothold into the job market. But these emerging trends are also a reflection of the widespread insecurity that’s affecting many workers worldwide today,” said ILO director-general Guy Ryder. “The shift we’re seeing from the traditional employment relationship to more non-standard forms of employment is in many cases associated with the rise in inequality and poverty rates in many countries,” added Ryder. “What’s more, these trends risk perpetuating the vicious circle of weak global demand and slow job creation that has characterized the global economy and many labour markets throughout the post-crisis period.”
Brazil's economy hit by recession, unemployment - Economic activity in Brazil tumbled in the first quarter and unemployment climbed to a near four-year high, adding to signs of a painful recession that could worsen as President Dilma Rousseff clamps down on spending. The central bank said today its IBC-Br economic activity index dropped 0.8 percent in the first quarter from the last three months of 2014, after sliding more than expected in March. In a separate report, statistics agency IBGE said Brazil's unemployment rate climbed to 6.4 percent last month, the highest since May 2011. The figures highlight the steep downturn of the Brazilian economy that has dragged Rousseff's popularity to record lows and threatened the investment-grade rating of the once high-flying emerging market star. The end of a decade-long commodities boom partly explains the fall from grace of the mining and agriculture powerhouse that grew an average of 4 percent a year in the last 10 years. Other Latin American countries are also starting to feel the pinch of the plunge in commodities prices, with Mexico's economy growing at its slowest pace in over a year in the first quarter. Since her re-election in October, left-leaning Rousseff has cut spending and raised taxes to regain investors' confidence despite fears the austerity could deepen the recession and erode her popular and political support. Brazil is expected to announce a budget freeze of up to 80 billion reais on Friday in order to meet its key fiscal goal this year. Economists also expect the central bank to raise interest rates towards 14 percent in coming months, one of the highest among major world economies.
China Bails Out Brazil In $50 Billion Regional Power Grab - In early April, we asked if the $3.5 billion in financing the Chinese Development Bank provided to heavily indebted Petrobras was indicative of how China intends to invest once the Beijing-led Asian Infrastructure Investment Bank is officially up and running. We also noted how interesting (and ironic given how we’ve characterized the AIIB), it is that Beijing is investing in Washington’s backyard, effectively slighting the original Monroe Doctrine even as China tacitly implements its own take on an official policy of regional influence and control. Three weeks later, we documented Xi Jinping’s historic trip to Pakistan where the Chinese President pledged to invest $46 billion in a variety of infrastructure projects including the long-delayed Iran-Pakistan natural gas pipeline as part of Beijing’s ambitious (to say the list) Silk Road initiative. As a reminder, the $46 billion is 53% more than the US has invested in Pakistan in 13 years and six times as much as what Washington promised under a recent program which the New York Times called a “dramatic failure.” It’s against this backdrop that Chinese Premier Li Keqiang is touring Brazil, Colombia, Peru and Chile, and as Bloomberg notes, “China’s interest in Latin American isn’t just about oil and agriculture anymore.” It sure isn’t, because in a set of agreements worth as much as $54 billion, Beijing has just effectively bailed out AIIB member Brazil, further entrenching China into the economic and political future of Latin America in the process.
Venezuela's Inflation Rate Is 200% and Credit Card Companies Are Cashing In - Venezuela’s economic collapse is driving factories out of business, leaving store shelves barren and wiping out workers’ purchasing power. MasterCard Inc. is doing just fine. Two powerful forces are pushing Venezuelans to rely increasingly on credit cards amid the chaos: runaway inflation and soaring crime. People are racing to spend their money as fast as they can, trying to keep ahead of consumer price increases that Bank of America Corp. estimates could almost reach 200 percent this year. Yet because that inflation surge has decimated the value of Venezuela’s money, shopping with cash would require carrying around a brick-sized wad of 100-bolivar bills -- not a great idea in a country with the world’s second-highest murder rate. “We’re enlarging our participation into the consumption of families, displacing cash, even though those families might be consuming the same or even less,” Gilberto Caldart, head of Latin America for MasterCard, the world’s second-biggest payments network, said in an interview in his Miami office. “That’s the paradox.”While reluctant to delve into specifics, Caldart said that the company’s Venezuela business is growing in line with the rest of its Latin America operations, an amazing statement given the depths of the country’s recession. The International Monetary Fund predicts a 7 percent economic contraction in the oil-producing nation this year following a 4 percent decline in 2014.
Russia Buys More Dollars to Replenish Currency Reserves - The Bank of Russia has intervened again on currency markets to replenish its hard-currency reserves and has indicated it may increase the volume of daily interventions in the near future. The central bank–which reports its currency-market activities with a two-day lag–said on Thursday that it bought $200 million on Tuesday, bringing total purchases to nearly $1 billion since last Wednesday. Despite the intervention, which market participants say is an attempt to limit the ruble’s recovery as oil prices have strengthened, the Russian currency has remained broadly stable on currency markets. Kseniya Yudaeva, the central bank’s first deputy chairman, said the volume of daily interventions may change in the near future when the bank decides on the sufficiency of its international reserves, state RIA news agency reported Thursday. “The central bank carried out another verbal intervention aimed at cooling speculation around the ruble’s growth,” Nordea Bank said in a research note. The central bank said last week that it had started buying $100 million to $200 million a day to replenish the country’s depleted foreign-exchange reserves. The Bank of Russia has sold billions of dollars of foreign currency to support the embattled ruble over the past year as falling oil prices and sanctions imposed by Western countries sapped investor confidence in Russia’s export-dependent economy. The sanctions were prompted by Russia’s annexation of Crimea last March and its role in the continued conflict between separatist rebels and government forces in the east of Ukraine.
Ukraine's economy contracts 17.6 pct as conflict takes toll - (AP) — Ukraine's economy contracted by a stunning 17.6 percent in the first quarter of 2015 from a year earlier as the country struggles to cope with the impact of unrest in the industrial heartland of the east. The State Statistics Agency said Friday that the rate of economic slowdown worsened in every quarter last year. Eastern Ukraine, where many major industries and coalmines are located, has been the stage of bitter fighting between government and separatist forces since last April. The bloodshed has sparked the flight of 1.5 million people and left more than 7,000 people dead. This year's budget is predicated on an anticipated 5.5 percent drop in the size of the economy. Inflation is seen hitting at least 26.7 percent, although many economists believe it will be higher.
Consumption to Help German Economy to Grow, Bundesbank Says -- The German economy is expected to continue to grow on the back of consumption, the country’s central bank said Monday, less than a week after the country recorded sluggish growth in the first quarter. “The dent in the global economy held back exports, while imports strongly increased” the Deutsche Bundesbank said in its monthly bulletin Monday. Last week Germany’s statistics office reported that Europe’s largest economy expanded by only 0.3% in quarterly terms in the first quarter, disappointing economists’ expectations for stronger growth. Looking ahead, the central bank said the German economy “will probably expand further in coming months” on the back of consumers. Turning to industry, the bank said that while cyclical progress remains in place, weak orders figures early in the year suggest that German industry should move for now only at a “sluggish” pace. Still, a strengthening world economy and the low value of the euro should open up export chances for German firms outside of the single-currency bloc, it said. Experts were disappointed with Germany’s preliminary growth figure last week, with economists polled by The Wall Street Journal expecting a 0.5% expansion in quarterly terms in the first quarter. The latest economic indicators point to “a continuation of the upswing at a moderate pace”, the German economics ministry said last week following the release of the GDP figures. It expects the economy to grow 1.8% both this year and next. In a separate article, the Bundesbank said that thus far the introduction of a minimum wage in Germany, which started at the beginning of this year, has only had a small upward effect on consumer prices, even though in individual industries there have been clear price rises due to the minimum wage. “The effects on the consumer price index as a whole should however remain limited.”
Ratings agency Fitch to downgrade many European banks-newspaper - Ratings agency Fitch will soon downgrade European banks en masse, possibly even at the start of the week, German newspaper Handelsblatt said, citing unnamed financial sources. In most cases the banks will be downgraded by between one and a maximum of four levels, according to an advance copy of an article due to be published on Monday. Fitch was not immediately available to comment when contacted by Reuters. Handelsblatt said a spokesman did not want to comment on the report. The move would be a reaction to European governments having become less willing to prop up banks if they get into a crisis, the newspaper said. The newspaper said dozens of banks would be affected by the downgrade, including Deutsche Bank, which would see its rating fall slightly, and Commerzbank, which would be hit much harder.
Euro Slumps After Official Says ECB Will Front-Load Stimulus - WSJ: The euro fell hard against the U.S. dollar Tuesday, while European stocks and bonds surged on the prospect of the European Central Bank ramping up its asset-purchase program in May and June. By late afternoon, the euro was down 1.6% against the buck on the day at just over $1.11, after the ECB published comments delivered by board member Benoît Coeuré saying the central bank would moderately front-load purchases in its bond-buying program in anticipation of less market liquidity in the summer. The central bank would be able to keep its monthly average of €60 billion ($68.35 billion) in purchases, “while having to buy less in the holiday period,” Mr. Coeuré said. “Even though this is just front-loading, it is effectively an increase in the size of quantitative easing, even if just for a short period of time,” “It shows that within the existing framework, the ECB is willing and able to be incredibly flexible,” Mr. Derrick said.
Noyer: ECB will act if inflation target isn't met - The European Central Bank is ready to take additional steps to boost inflation if its current quantitative easing program proves insufficient, the head of France's central bank Christian Noyer said Tuesday. "The Eurosystem is ready to go further if necessary to deliver on its mandate of maintaining inflation close to but below 2%," Mr. Noyer said at a Euromoney conference speech in Paris. Mr. Noyer, who sits on the governing council of the ECB, said the central bank's program to buy 60 billion euros ($67.05 billion) of assets a month has had a positive impact on inflation expectations. But re-anchoring inflation expectations takes time, he said. "The purchase program will continue until the end of September 2016 and beyond if we do not see a sustained adjustment in the path of inflation," Mr. Noyer said. Mr. Noyer said external factors, particularly recent oil-price declines, explain the fall in inflation. But economic weakness also motivated the ECB to embark on its quantitative easing program, he said.
ECB Ready to Go Further if Inflation Target Not Met—French Central Bank Chief - The European Central Bank is ready to take additional steps to boost inflation if its current quantitative easing program proves insufficient, the head of France’s central bank Christian Noyer said Tuesday. “The Eurosystem is ready to go further if necessary to deliver on its mandate of maintaining inflation close to but below 2%,” Mr. Noyer said at a Euromoney conference speech in Paris. Mr. Noyer, who sits on the governing council of the ECB, said the central bank’s program to buy €60 billion ($67.05 billion) of assets a month has had a positive impact on inflation expectations. But re-anchoring inflation expectations takes time, he said. “The purchase program will continue until the end of September 2016 and beyond if we do not see a sustained adjustment in the path of inflation,” Mr. Noyer said. Mr. Noyer said external factors, particularly recent oil-price declines, explain the fall in inflation. But economic weakness also motivated the ECB to embark on its quantitative easing program, he said. “My overall assessment regarding the euro area situation is that an activity slack is still at play,” Mr. Noyer said.
It Begins... Greece Demands An Emergency Meeting! -- As expected, Greece was able to make the 750M EUR payment to the International Monetary Fund last Tuesday but in order to get its hands on the cash, the country had to force all of its public service departments to fork over the remaining cash they had left. As we were warning in a previous article, even though the Greeks were able to pay the 200M EUR interest payment and 750M EUR principal payment, its future after these two repayments was absolutely unsure. Over the next three months, Greece will have to cough up an additional 7B EUR and as you can imagine, it just doesn’t have the money. It doesn’t even have a fraction of that money as we’re estimating Greece’s financial possibility to repay more debt to be less than a billion Euro. That’s why Greece wants to schedule another meeting with the Eurogroup before the end of this month (and this was confirmed by a government official). This indicates the country really is running on fumes here. Time to ring the alarm bell once again as the ‘negotiations’ between Greece and the other European counterparties don’t seem to be resulting in a solution. The problem about these negotiations is that they will aggravate the situation. The longer it takes, the more urgent the situation gets and it wouldn’t surprise us to see yet another quick but temporary fix the evening before a large payment is due. This is just kicking the can further down the road and the same problems will re-surface 3 or 6 months later. The Greek minister of Finance was hinting at the possibility the 27B EUR of bonds that are currently being held by the ECB (as part of its Securities Markets Programme) should see the maturity date being extended. Again, this is just another temporary fix as the bonds will be due someday. Extending the maturity date by just a few years won’t help at all.
New proposals on way, focus on five key areas -- Greece is due to finish sending on Saturday its latest proposals to the country’s lenders in the hope that it will have a response by the beginning of next week and that talks in Brussels can resume with the aim of concluding a deal that would unlock another 7.2 billion euros in bailout funding. Kathimerini understands that there are five key areas in which Athens and its creditors are still some distance apart and will have to work on over the next few days. These are macroeconomic forecasts, fiscal targets, new measures, labor market reforms and pension cuts. Greece and the institutions appear to have converged on the growth forecast for this year, with both sides predicting the economy will expand by 0.5 percent. On fiscal targets, there also appears to be a meeting of minds. The primary surplus target for this year is expected to be between 1 and 1.5 percent, rising to 1.5 to 2 percent next year and to 3.5 percent from 2017. With regards to new measures to cover this year’s fiscal gap, Athens and its lenders have yet to agree on a comprehensive package. It will, however, include an overhaul of Greece’s value-added tax. It is likely that there will be just two, rather than the current three, rates. The top rate is set to be between 18 and 20 percent, while the lower rate between 8 and 9 percent. The government is also considering leaving in place the solidarity tax on incomes above 30,000 euros without the 30 percent reduction that the previous coalition had introduced. Other taxes may also be introduced. Greece and its lenders seem far apart on the issue of labor reform as the government insists that collective contracts should be reintroduced and that the institutions’ demands for relaxing the restrictions on mass dismissals should not be met. On pensions, the government is proposing the scrapping of early pensions as an alternative to introducing the “zero deficit” rule, which would mean stopping public subsidies to pension funds.
Greece pays public sector wages to avert fresh economic crisis -- Greece avoided another financial crisis by paying about €500m (£360m) in wages to public sector workers, but suffered another downgrade of its credit rating. “The mid-May payments of wages and pensions ... were made within the scheduled time frame,” the finance ministry said. They had been due on Friday. The payment came as Greece remained locked in talks with its creditors in an effort to release €7.2bn of bailout funds to avoid a default and exit from the eurozone. In a sign the leftist Syriza government was preparing to compromise over some of the reforms demanded by Brussels and the International Monetary Fund, it said it would push ahead with privatisation of its biggest port, Piraeus. It is in talks with China’s Cosco Group, which manages two container piers at the port, about selling a majority stake. “We are in very advanced talks to expand this cooperation very soon in relation with the inclusion of a railway network as well,” the defence minister, Panos Kammenos, told an economic conference in Athens. The Greek prime minister, Alexis Tsipras, said his country was “very close” to reaching a vital deal with bailout lenders, but insisted there was “no possibility” of giving in to key demands including further cuts to pensions and wages.
Tsipras Letter Reveals Precariousness of Greece’s Finances - Greece came so close to defaulting on last week’s €750m International Monetary Fund repayment that the prime minister warned IMF chief Christine Lagarde he could not pay it without EU aid. Alexis Tsipras wrote to Ms Lagarde, warning that the IMF repayment would be missed unless the European Central Bank immediately raised its curbs on Greece’s ability to issue short-term debt.The letter, first reported by the Greek daily Kathimerini but independently confirmed by the Financial Times, raises questions about how close Athens is to bankruptcy. In addition to payments due to the IMF next month totalling €1.5bn, the Greek government has struggled to meet its wage and pension bills, which must be paid at the end of the month. The next €300m IMF payment is due on June 5. The contents of the Greek prime minister’s letter were revealed by Ms Lagarde at a closed-door meeting of the fund’s board on Thursday. According to officials briefed on the talks, Poul Thomsen, head of the IMF’s European department, warned the board that negotiations on the Greek economic reform package remained so unproductive that the fund could be forced to withhold its €3.6bn portion of the €7.2bn aid tranche. Officials said Ms Lagarde fully backed Mr Thomsen, telling staff that they should not proceed with a “quick and dirty” approval process.
Greece Will Default On June 5 Without Deal, IMF Leaks -- Another week came and went with no breakthrough in negotiations between Greece and its creditors. The IMF is now fed up and has reportedly refused to be a part of any new bailout program for Greece, after Athens drew down its SDR reserves to makes its latest payment to the Fund. That money will now need to be repaid and in a move that surely marks the new gold standard for absurd circular funding schemes, Greece will likely look to use the next tranche of IMF money to payback its IMF SDR reserve which it tapped to pay the IMF. The country’s public sector employees live in limbo, not knowing from one week to the next whether they will be paid and commuters are now subjected to a 50 second looped highlight reel of the Nazi occupation meant to rally the country behind the government’s quarter trillion euro war reparations claim (they might as well just ask for a 'gagillion') on Germany which has now become the symbol of tyranny and debt servitude for many Greek citizens. Given the situation, one would be inclined to think that Alexis Tsipras would be falling all over himself to cut a deal with creditors because while giving up on campaign promises to voters isn’t ideal, it’s better than going down in history as the PM who sent the country careening into a drachma death spiral, Alas we were back to the now ubiquitous ‘red line’ rhetoric on Friday as Tsipras continued to employ the “tell EU officials one thing behind close doors and tell the public the exact opposite a day later” negotiating technique. Here’s more from Bloomberg: Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said.“Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.”
Greece has no money to pay the IMF, Alexis Tsipras warned creditors - The brinkmanship at the heart of Greece’s 11th hour escape from default has been laid bare, as it was revealed Alexis Tsipras told creditors the country would not be able to fulfil its obligations to the International Monetary Fund. Greece narrowly avoided falling into arrears with the IMF after tapping its own emergency reserve account at the Fund to make a €750m payment back to it last week. But it has emerged that the prime minister was seemingly unaware of the cash reserves just days before the payment was due. According to reports in Greek newspaper Kathimerini, Mr Tsipras wrote to IMF chief Christine Lagarde, European Central Bank president Mario Draghi and the European Commission's Jean Claude-Juncker, telling them his government would default without a release of emergency funds days before payment was due on May 12. The Greek premier also appealed to the ECB to allow his cash-starved government to issue short-term government debt and requested the return of €1.9bn in profits held by the ECB from holding Greek bonds. Following Syriza's election, the ECB has banned Greek banks from increasing their holdings of T-bills, placing a further squeeze on the government which is scrambling to find the cash to make its public sector obligations every two weeks. Mr Draghi and his governing council failed to lift the prohibition at a meeting last week, but did provide an additional €1.1bn in emergency liqudity to the country's banks. Greek negotiators are now hoping to agree the terms of a deal by the end of this week, as the country faces a punishing schedule of repayments to the IMF in June.
Greek Endgame Nears for Tsipras as Collateral Evaporates - Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors. As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say. “The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.” European policy makers are losing patience with Tsipras who said as recently as May 14 that he won’t compromise on any of his key demands. He’s planning to force a discussion of Greece at a summit of European Union leaders in Latvia that begins on May 21, a day after the European Central Bank’s Governing Council meets in Frankfurt.
Greece Cornered as IMF and ECB Refuse to Relent -- Yves Smith - Even though Greece has looked to be on the verge running out of cash since late March, the government has managed to extend its own sell-by date by deferring payments to government suppliers, finding and emptying every pocket of funds it could fund, and most recently, using a special drawing rights account to pay the IMF. This is tantamount to the sort of behavior that Yanis Varoufakis decried early in the negotiations, of the creditors’ extend and pretend behavior being tantamount to using one’s credit card to pay the mortgage. But it increasingly looks like a default is nigh. Varoufakis, who in the past has been reassuring or at least non-commital about Greece’s financial condition, said the government had only about two weeks of funding left as of the IMF payment finesse last week. The IMF was less precise as to timing, but a leaked bureaucratically measured memo dated May 14 stated the obvious: that there is no way Greece can meet its obligations coming due between June and August unless they come to a deal with the creditors. Even as Greece is becoming visibly more desperate, so far, its “partners” are not acting as if they are alarmed by the prospect of default, as in scrambling to find ways to finesse Syriza’s red line or extend the negotiation timetable. Ekathimerini stated on Sunday that Alex Tsipras sent a letter to IMF managing director Christine Lagarde on May 8 stating that Greece would not be able to make its May 12 IMF payment, and also sent the letter to the EU’s Jean-Claude Juncker and the Mario Draghi of the ECb. Tsipras also reportedly called US Treasury Secretary Jack Lew with the same information. Yet the threat of an imminent default did not lead to a breakthrough (as in a concession) from the creditors in the technical-leval talks over the weekend, to the Eurogroup relenting on its existing plan to make no decision (as in not authorize) regardling a release of funds at its May 11 meeting. or to the ECB letting up on its government funding choke chain.
The simple core of the Grexit and Brexit conundrums - FT.com: If you rise above the technical issues, the British problem could be elegantly solved through deeper integration for the member states of the eurozone, and more decentralisation for the rest. The solution for Greece requires a bit more lateral thinking but is not really difficult either. For Greece to prosper in the eurozone, the following three things will need to happen. First, Athens will need to recognise what appears to be a depressing reality. If you really want to be locked in permanent monetary union with the likes of Germany and Finland, you will need to become more like them. Second, the eurozone countries must accept some economic truths — all expressed accurately, albeit not diplomatically — by Yanis Varoufakis, Greek finance minister. They should begin by recognising that austerity was an unqualified disaster. They should also think differently about debt sustainability. When they drew up the latest Greek loan programme in 2012, together with the International Monetary Fund, they first calculated the outstanding debt, then made some wildly optimistic assumptions about growth, and then calculated the fiscal surpluses needed for the country to pay down that debt. The surpluses were the residual in this calculation: they had to do all the adjusting. The trouble is that if the assumptions proved too optimistic, the surpluses would have to grow unbearably large. This is what happened in Greece. The grown-up way would be to reverse the procedure. Cap the annual amount for debt servicing, and then find out how much you can pay back. What you cannot pay, you should not pay. It should be forgiven. While the first two requirements are based on recognition, the last is based on action. Greece should unilaterally default, but do so in a co-operative way. By this I mean, not default on more than it needs to; not default on all creditors but only the ones that can absorb the losses best; and in particular spare the few remaining private creditors.
Greece nears ‘endgame’ as large June payments loom - Greece's Prime Minister Alexis Tsipras is under the gun to reach a reform deal with international creditors BySaraSjolin Markets reporter Signs are emerging that the Greek government is at serious risk of defaulting on its upcoming International Monetary Fund repayments, as one European Central Bank official warned Athens is facing its “endgame” in debt talks. In a leaked document seen by Channel 4 News, staff at the IMF said “there will be no possibility for the Greek authorities to repay the whole amount” of the 1.5 billion euros ($1.71 billion) due to the fund in June, without further financial aid from the lenders. The next repayment of €300 million is due on June 5. At the same time, Athens is scrambling to find enough money to pay salaries and pensions, which are due at the end of the month. ECB Executive Board member Yves Mersch said over the weekend that the “endgame” is here for Greece, warning that the situation is “not tenable”. Greece has for months been locked in a negotiation impasse with its lenders over the release of the next €7.2 million in bailout cash. The creditors won’t disburse the money until Athens agrees to a set of economic overhauls, but the anti-austerity government is refusing to accept strict reforms it says will hurt the Greek people.
Greece debt crisis: Bank run gains pace as default fears grow -- Greece needs to secure a deal with creditors to avoid going bankruptThe broke country is on borrowed time before it goes bankrupt and is forced to exit the euro. "People are taking more or less everything they have got out of their accounts for fear that the government will be dipping into them next,” a bank official told the Guardian. The government today promised not to bar or block cash deposits in banks in an apparent effort to stop the withdrawals. But Greece has struggled to pay pensions, public sector wages and suppliers in recent weeks, which has sent alarm bells ringing through the country. And fears increased last week when the Greek finance minister Yanis Varoufakis said that Athens has just two weeks remaining before it completely runs out of money. Furthermore, a leaked memo over the weekend confirmed that Greece's most recent loan repayment has in effect cleaned out the last of its available cash. It's now certain that Athens will not be able to make its next €1.5billion repayment to the International Monetary Fund (IMF) on June 5 without cash from euro creditors. At the same time it has to find the money to pay pension and wage bills. An impending loan of a €7.2billion (£5.6billion) would keep Greece running, but it will not be released unless the leftist-government agrees to welfare reforms. However, the Greek Prime Minister Alexis Tsipras has again confirmed that he will not agree to the changes desired by creditors, which include labour and pension overhauls. Negotiations between the two sides are still taking place. Both sides say they are closer to reaching a deal, but still there has not been a breakthrough. Time is running out to save Greece, but sentiment from euro leaders has been increasingly nonplussed about a default.
European Commission Tables Proposal on Greece to Break Logjam -- Yves Smith - The Greek site ToVima reports that the European Commission has put forward a new proposal to try to force the release of funds to Greece. This proposal has not been approved by the IMF or ECB and requires use of an ECB facility, the ESFS. While this would seem to be a positive development, recall that an effort of the EC to intercede in the negotiations, the famed Moscovici memo of February, has been negotiated with Greece but was not taken up by the Troika as a basis for negotiations. The problem in general in that the EC does not have funding power and is thus trying to get other parties to commit to funding Greece. The report notes that it does not expect the IMF to participate. Indeed, the proposal says it is an effort to cut the Gordian knot among the parties. In practice, this memo seeks to cut out the IMF and to pressure the ECB into cooperating, as in providing funding. But it also requires Greece to cross some of its long-established red lines. There are several issues that look to have the potential to be stumbling blocs. First is the requirement that an agreement be reached by June to unlock €5 billion euros. Part of the comes via requiring the ECB to “unlock” the €1.9 billion in the SMP program, which Greece has repeatedly asked the ECB to provide then and the ECB has refused to release. Second is that it requires Greece to agree to structural reforms similar to those proposed by the OECD. The memo specifically mentions labor market reforms, which is one of Greece’s red lines. If Greece were to accept this memo, it amounts to capitulation. But it appears to offer Greece a concession on the labor reforms issue, in that it says that Greece will:
Alexis Tsipras claims Greece is close to securing deal with Brussels and the IMF - The Greek prime minister, Alexis Tsipras, has sought to prevent a full-blown run on the debt-stricken country’s banks by promising that he is close to reaching a deal with creditors. Speaking to a group of business leaders, he said the government is ready to compromise with Brussels and the International Monetary Fund as long as a deal will stabilise the situation and allow the country to raise money on the financial markets again. Tsipras told the Federation of Hellenic Enterprises that Greece was “in the final straight for an agreement” with creditors, adding that a deal would come “very soon”. In a late-night interview on Greek television Yanis Varoufakis, the country’s finance minister said he expected a deal with creditors next week, which would save the cash-strapped country from fast approaching bankruptcy. “I think we are very close,” Varoufakis said. “Let’s say about a week.” The comments by Tsipras and Varoufakis came after a Greek government spokesman denied suggestions Athens was considering a Cyprus-style raid on savers’ bank accounts..
Greece Still Has a Fighting Chance - Anatole Kaletsky (2015) has a take on Europe vs. Greece confrontation. He notices that, since coming to power in January, the Greek government has believed that default on its debt would be a strong enough threat to the Eurozone, which would force Europe to choose between two alternatives: either Grexit (with potentially disruptive consequences for the euro) or unconditional debt relief. Kaletsky argues that the European authorities, in fact, have a third option in their cards: if default occurred, the EU could trap Greece inside the Eurozone, instead of Grexit, and starve it of money, pure and simple. So that Europe would showcase Greece as the ‘no-alternative-to-our-rule’ banner, for all to see, and herald that its rules may not be broken. But the Greeks are not bound to passively accept this gloomy destiny. We have recently argued in this blog about a possible way for Greece to avoid this trap (Bossone and Cattaneo 2015). Our proposal would help the economy recover, repay its debts, and still remain in the euro. As we explained, it does not rely on the oft-invoked alternative of Greece resorting to issuing IOUs that the government would use instead of euros to pay for public salaries and pensions. We have argued that this solution would not be sustainable, inter alia, because it would do nothing to boost demand and GDP expansion. Our alternative is the issuance of Tax Credit Certificates (TCC), to be assigned to workers and enterprises at no charge.[1] For readers’ convenience, we briefly remind the essence of the proposal. In addition, addressing some relevant comments from readers, we point to key safeguards of our proposal that would make the TCC robust against fiscal risks.
Greece can not make June 5 IMF payment without deal- lawmaker (Reuters) - Greece will not be able to make a payment to the International Monetary Fund that falls due on June 5 without a deal with its international lenders, the government's parliamentary speaker said on Wednesday. Athens faces several payments totaling about 1.5 billion euros ($1.7 billion) to the IMF next month and is in talks with the European Union and the International Monetary Fund to clinch a cash-for-reforms deal before it runs out of money. "Now is the moment that negotiations are coming to a head. Now is the moment of truth, on June 5," parliamentary speaker Nikos Filis, from the ruling Syriza party, told ANT1 television. "If there is no deal by then that will address the current funding problem, they won't get any money," he said. Without access to debt markets or aid, the government has found itself locked in tough negotiations as coffers run dry. A payment of about 750 million euros to the IMF last week was only made after emptying a holding account at the Fund. Talks with the European Union and International Monetary Fund lenders have dragged on for the past four months. A successful conclusion would release around 7.2 billion euros ($8.1 billion) in aid, but talks have stumbled over pension and labour reform proposed by the creditors and resisted by Athens.
E.C.B. Said to Be Unlikely to Cut Greece Loose - — The European Central Bank is not ready to pull the plug on Greece — not yet at least.Members of the central bank’s Governing Council are scheduled to meet in Frankfurt on Wednesday and are expected to conduct an intense discussion about the life support they are providing to Greek banks. But despite being unhappy with the way the Greek government has been handling debt negotiations, the policy makers are not likely to do anything that would provoke a crisis, according to analysts and a person familiar with the governing council’s thinking.The central bank has lent more than 110 billion euros, or about $125 billion, to struggling Greek lenders. If the Greek government went bankrupt and caused the country’s banking system to collapse, the central bank could suffer huge losses.But, despite having little patience remaining with the behavior of leaders of Greece’s leftist government, the central bank’s policy makers are not likely to further restrict the flow of emergency cash to Greek banks quite yet, analysts said. The central bank has placed a ceiling of €80 billion on lending to Greek banks through a program known as emergency liquidity assistance. The central bank has been raising the ceiling in increments weekly, keeping the banks on a short leash. Greece is in such a precarious position that any change in central bank policy could alarm markets and have serious consequences. “That could be self-fulfilling,” perhaps forcing Athens to take drastic measures like imposing restrictions on bank withdrawals, said Lefteris Farmakis, an economist at Nomura in London. “Clearly it’s not a trivial thing to do.” But, he said, the European Central Bank could soon run out of patience.
Greece says deal near, again – Greece is one week away from completing a deal to secure the final €7.2 billion of its bailout program — that’s the word from Greek Finance Minister Yanis Varoufakis. But the optimistic assessment comes as left-wingers in the ruling Syriza party show signs of rebelling, voters lose faith in Syriza and the costs of not reaching a deal continue to escalate. “I think we are very close,” Varoufakis told Greek television. “Let’s say (it’s a matter of) about a week.” Despite Varoufakis’s comments, the message from Economic Commissioner Pierre Moscovici is unchanged from previous weeks: “We are making substantial progress and progress in substance… But of course we are not there.” However, pressure is growing. “I’d say the talks need to speed up, rather than that they are going too fast,” German Chancellor Angela Merkel said Tuesday. She was echoed by French President François Hollande, who called on negotiations to accelerate to keep Greece in the euro. If the negotiations get that far, leaders could take up a deal on the sidelines of the Eastern Partnership Summit in Riga on Thursday and Friday. Greek Labor Minister Panos Skourletis told Greek television that Prime Minister Alexis Tsipras’ government will reach a cash-for-reforms deal “in the coming days.” Skourletis cited June 5 as a deadline. That is the date of the country’s next €310 million payment to the International Monetary Fund — part of €1.5 billion Greece owes the Fund next month. It is pretty clear that Greece doesn’t have the money to pay without outside help. But the sticking points that have prevented a disbursement of the final bailout funds for the last four months remain evident. Tsipras is still weaving between reform measures demanded by Greece’s creditors and breaking with unpopular austerity policies.
Defiant Greeks force Europe to negotiating table as time-bomb ticks - Telegraph: Europe's creditor powers have started to wobble. Berlin, Paris and Brussels are coming to the grim conclusion that Greece may not capitulate as expected, and time is running out fast. Athens is now warning openly that the "moment of truth" will come on June 5, when the country faces default on a €300m payment to the International Monetary Fund, unless the EU authorities hand over the next tranche of bail-out cash. It would be hazardous to bet the integrity of monetary union on the assumption that this is just a bluff. For the past four months the creditor bloc has been dictating terms, mechanically repeating the same demand that Alexis Tsipras and his Syriza rebels deliver on an austerity contract that they vowed to repudiate and which the previous conservative government was unable to implement. EMU leaders have never at any moment acknowledged that the extra loans imposed on a bankrupt Greek state in 2010 were chiefly designed to save the euro and stem a European-wide banking crisis at a time when the eurozone had no defences against contagion. They have yielded slightly on Greece's primary budget surplus but are still insisting on fiscal targets that can only trap Greece in a vicious circle of low growth and under-investment. Such a regime would leave the country just as bankrupt in the early 2020s as it was when the traumatic ordeal began, with nothing to show for so many cuts and a decade of depression.
German Finance Minister Schäuble Doesn’t Rule Out Greek Default - WSJ: Germany’s finance minister said he couldn’t rule out a Greek default, a stance that will add pressure on Athens as negotiations over much-needed financing enter their final stretch. Asked whether he would repeat an assurance he gave in late 2012 that Greece wouldn’t default, Wolfgang Schäuble told The Wall Street Journal and French daily Les Echos that “I would have to think very hard before repeating this in the current situation.” “The sovereign, democratic decision of the Greek people has left us in a very different situation,” he said, referring to the January election that delivered a radical-left government that has vowed to reverse five years of creditor-mandated austerity and painful economic overhauls. In an interview in his spartan Berlin office on Tuesday, Mr. Schäuble, a key architect of Europe’s controversial austerity-driven response to the eurozone debt crisis, showed no willingness to compromise in the negotiations to unlock the final installment of Greece’s €245 billion ($272 billion) bailout. Without a deal, the program will expire in six weeks, leaving Greece with no option but to default on billions of euros in debt repayments coming due this summer.
Are The IMF and the EU at Loggerheads Over Greece? - naked capitalism -- Yves here. One of the problems with discussing Greece negotiations that there are so many moving parts and so much backstory that any vantage winds up omitting some information, which raises the question of whether the loss was a sound streamlining of the issue down to its essentials, or may have gotten rid of a material, and potentially important element. This post does a very fine job of summarizing the economic basis of the simmering row between the IMF and Eurozone. But that means it’s thin on the politics of the dispute, namely, that quite a few Eurocrats, most prominently the European Commission’s Jean-Claude Juncker, are mighty unhappy that a non-European institution is playing such a powerful role in European politics. The wee problem is the EC has no checkbook, and the IMF was brought in in the first place to help defray the large costs of the stealth rescues of French and German banks. Moreover, as we’ve also discussed, the IMF’s raising of the sustainability issue at this juncture makes it even harder for the other members of the Troika to paper things over and enter into a partial bailout deal to avert a Greek default. Just as Syriza’s hard left is making it well-nigh impossible for Tsipras to capitulate, one has to wonder if the IMF is trying to play a similar role here (keep in mind that the IMF at the April 24 Eurogroup meeting at Riga took a harder line that Hugh indicates via his quote from an April 22 Wall Street Journal article).
Greece nears debt deal in May as money runs low - (Reuters) - Greece is near a cash-for-reforms deal with its euro zone partners and the International Monetary Fund that would help it meet debt repayments next month, the country's finance minister said on Monday, as worries persist over a possible bankruptcy. Athens has been defending its "red lines" in talks with lenders, refusing to yield on further pension cuts and more labor market liberalization to clinch a deal that would release remaining bailout aid, despite a pressing cash crunch. "I think we are very close (to a deal) ... let's say in a week," Yanis Varoufakis told Star TV channel late show Ston Eniko. "Another currency is not on our radar, not in our thoughts." Greece faces payments of about 1.5 billion euros to the IMF next month and 6.7 billion euros to redeem government bonds that are held by the European Central Bank and mature in July and August. To give itself breathing space, it has proposed Europe's bailout fund pay for 27 billion euros of its bonds held by the European Central Bank, which start maturing in July and August, Varoufakis said, pledging to repay the fund over a longer term. The move was the latest attempt by the outspoken minister, who has been sidelined in negotiations with creditors, to revive the idea of a debt swap to help Athens manage its upcoming debt payments but has not received any interest from lenders.
Greek Talks Break Up in Riga as Earlier Optimism Evaporates - Late-night negotiations between the Greek, French and German government leaders ended without any sign of a breakthrough that will unlock bailout funds and ensure Greece’s future in the euro region. With time running out for a deal to free up the remaining 7.2 billion-euro ($8 billion) tranche of aid, talks between Prime Minister Alexis Tsipras, President Francois Hollande and Chancellor Angela Merkel broke up shortly before 1 a.m. on Friday in the Latvian capital Riga with the three agreeing only to stay in close contact. The negotiations took place in a “friendly and constructive atmosphere” and focused on “the successful fulfillment of the current program,” according to a common statement issued by the French and German governments separately. “It was agreed that the talks between the Greek government and the institutions will be continued,” they said.
Deal no closer following PM’s meetings in Riga: Athens believes that Greece could still clinch an agreement with its lenders but probably at the start of June, rather than by the end of this month as it had previously hoped, following the meetings Prime Minister Alexis Tsipras held on the sidelines of the European Union leaders’ summit in Riga, Latvia. Tsipras met with German Chancellor Angela Merkel and French President Francois Hollande for more than two hours on Thursday night. He held talks with European Commission President Jean-Claude Juncker on Friday. Neither of the meetings produced the kind of political breakthrough or boost that the Greek side had hoped for, leading to officials from Athens stressing that it will be difficult to break the deadlock in talks on the country’s bailout program quickly. Tsipras said on Friday morning he was “very optimistic” of soon reaching a “long-term, sustainable and viable solution without the mistakes of the past” but Merkel and Hollande made it clear in their comments that the Greek government needs to focus on the technical deliberations taking place in Brussels so it can reach a deal before it runs out of money. “It was a very friendly and constructive exchange,” Merkel said. “But it is clear, the work with the three institutions has to go on. There is still a lot to do.” “Everyone knows the deadline, because it’ll be around June 6 or 7 that Greece will need liquidity to meet certain repayments,“ Hollande said. “That doesn’t mean that other phases cannot be prepared but what interests the Chancellor and I is what responses Greece can make to release the funds which would give Greece the means to pay the amounts it owes in June.”
Eurozone says no Greek deal without IMF - FT.com: European leaders have told Greece there will be no deal to release desperately needed bailout aid without approval from the more hardline International Monetary Fund, setting up a stand-off that could leave cash-strapped Athens without funds well into June. The message, delivered by Angela Merkel, the German chancellor, to Alexis Tsipras, her Greek counterpart, at a private meeting in Riga, Latvia’s capital, as well as by lower-level European officials to their Greek interlocutors, comes as the IMF has been weighing whether to withhold its €3.6bn portion of the €7.2bn bailout tranche Athens needs to avoid default. Eurozone and Greek negotiators have been pushing to complete a deal by the end of the month to free up bailout funds before the first in a series of loan repayments owed the IMF totalling €1.5bn falls due June 5. But securing IMF approval for a bailout deal significantly complicates that timeline. IMF officials believe Mr Tsipras’s government has reversed many of the economic reforms the IMF had agreed with previous Greek governments and do not feel Athens will be able to hit budget targets that would allow its growing debt pile to be reduced quickly. IMF staff have told their board they would not disburse aid without a “comprehensive” deal that started to lower debt levels. They also want EU assurances that Greece will be able to pay its bills for the next 12 months, a demand that could require eurozone governments to commit to another bailout programme. "It has to be a comprehensive approach, not a quick and dirty job," Christine Lagarde, IMF chief, said at an event in Rio de Janeiro on Friday.. Greek officials have told their eurozone counterparts they are worried about the IMF’s hardline stance and have argued their conditions are politically undeliverable, especially when it comes to the pension reforms, which remain the biggest stumbling block.
Greece hits IMF wall – Greece’s hopes of doing an end-run around the tough International Monetary Fund and striking a bailout deal with its more forgiving European partners has struck a hurdle, with Germany and the IMF making it clear that the Fund has to be involved in any rescue. Greek Prime Minister Alexis Tsipras huddled with his European counterparts at the Eastern Partnership summit in a bid to break the impasse in negotiations that have lasted four months. A meeting among Tsipras, French President François Hollande and German Chancellor Angela Merkel broke up without any resolution early Friday morning. It was characterized as “a constructive, friendly talk,” by Merkel, but the German leader then added, “It’s clear that there has to be continued work with the three institutions [the IMF, the Commission and the European Central Bank].” “Whenever there are questions to answers or advice is needed, we’re there,” she said about herself and Hollande. “But the work has to be done with the institutions.” Speaking at a banking conference in Brazil, IMF Managing Director Christine Lagarde said an eventual Greek deal “has to be a comprehensive approach, not a quick and dirty job,” according to Reuters. That will come as bad news to Athens.
Europe faces second revolt as Portugal's ascendant Socialists spurn austerity - Europe faces the risk of a second revolt by Left-wing forces in the South after Portugal’s Socialist Party vowed to defy austerity demands from the country’s creditors and block any further sackings of public officials. "We will carry out a reverse policy,” said Antonio Costa, the Socialist leader. Mr Costa said a clear majority of his party wants to halt the “obsession with austerity”. Speaking to journalists in Lisbon as his country prepares for elections - expected in October - he insisted that Portugal must start rebuilding key parts of the public sector following the drastic cuts under the previous EU-IMF Troika regime. The Socialists hold a narrow lead over the ruling conservative coalition in the opinion polls and may team up with far-Left parties, possibly even with the old Communist Party. “There must be an alternative that allows us to turn the page on austerity, revive the economy, create jobs, and – while complying with euro area rules – restore hope to this county,” he said. While the Socialist Party insists that it is a different animal from the radical Syriza movement in Greece, there is a striking similarity in some of the pre-electoral language and proposals. Syriza also pledged to stick to EMU rules, while at the same time campaigning for policies that were bound to provoke a head-on collision with creditors.
Fed’s Fischer Calls for Greater European Fiscal Integration - Europe’s Economic and Monetary Union will “very likely” survive its current crisis, but greater fiscal integration is needed for the eurozone’s future, the U.S. central bank’s No. 2 official said Thursday. “The decision to use the single currency to drive the European project forward was a risky one, and at some stage or probably in several stages, it will be necessary to put the missing fiscal framework into place,” Federal Reserve Vice Chairman Stanley Fischer said in remarks prepared for delivery at a conference hosted by the European Central Bank in Sintra, Portugal. Mr. Fischer said past setbacks and crises for the post-World War II European integration effort have “spurred policy makers to take steps that they might not otherwise have taken at that time, and the end result of those steps has been a more unified European monetary union.” Greater monetary integration in the form of the euro’s 1999 introduction “until recently seemed to be a major success,” Mr. Fischer said, and “in turn made crystal clear the need for more fiscal integration.” Mr. Fischer expressed optimism that the eurozone will endure, though he acknowledged the European Union faces “the possibilities of major difficulties associated with the current Greek crisis and, later, with a potential British exit.”
Grand bargain emerging on Europe as Germany adjusts to Cameron victory - Germany has opened the door to a grand bargain and possible treaty changes to prevent Britain pulling out of the European Union, a risk deemed calamitous for German interests and for the long-term stability of the EU. “We have a huge interest in the UK remaining a strong and engaged member,” said Wolfgang Schäuble, the German finance minister. Mr Schäuble said Berlin is determined to find some way to combine its own drive for deep reforms of the EU system with Britain’s particular demands. “We will try to move in this direction, possibly through agreements that would later be incorporated into treaty changes. There is a big margin of manoeuvre,” he told the French newspaper Les Echos and the Wall Street Journal. The shift in policy comes as political leaders across Europe wake up to the stark reality of a British referendum on EU membership as soon as next year following David Cameron’s shock victory in the elections this month. “Everybody is very aware that Britain is the next big problem on the horizon. The mood is that we’ve got to save the British from themselves,” said Giles Merritt, head of the Friend’s of Europe think tank in Brussels. “The Germans realize that they have to do something to stop this becoming a ‘Britain-alone’ drama and move it onto more constructive ground. They are trying to defuse a confrontation before Cameron starts it, because he does have a habit of coming to summits and saying all the wrong things in the wrong tone of voice,” he said. Mr Schäuble has invited George Osborne to Germany to thrash out possible areas of compromise, building on the close entente between the two pro-austerity conservatives. The Chancellor will play the lead role in the coming negotiations on EU membership terms.
The Not-Brexit Negotiations as UK Referendum Looms - Yves Smith - To be clear, even the loving-to-fan-controversia media are playing down the notion of a possible Brexit resulting from the surprising Conservative victory. While Cameron put the issue in play by promising a referendum on continue EU membership in 2016 or 2017, the sceptered isle has a specific set of demands, and the European political leaders are looking to negotiate a deal. Ambrose Evans-Prithcard sets forth the UK’s probable position:While the Government has yet to lay down its precise demands, the broad contours are by now well known. The list includes a clamp-down on benefits for EU migrants, an opt-out from “ever closer union”, safeguards for the City, guaranteed access to the single market for the ‘outs’, an end to protectionism in services, and powers for national parliaments to issue “red cards” on EU laws.Most of these are goals are achievable. The EU’s creative lawyers have a knack for crafting ways to meet the needs of Europe’s exasperating political geometry. Mr Cameron has gone quiet on demands for wholesale repatriation of powers or for a whittling down of the ‘acquis’ – the EU’s vast corpus of directives and regulations – knowing that both are anathema for Germany. Evans-Pritchard also points out that British negotiations will lead other countries to press their claims. European officials are therefore thinking in broader terms: Stephen Booth from Open Europe said the faint outlines of a “grand bargain” are starting to emerge, with three blocs of states each securing some of what they want: the German-led hawks gain more powers to police budgets; the French-led social bloc unlocks more investment; and the non-euro ‘outs’ – chiefly Britain, Sweden, Denmark, and Poland – secure a new dispensation that recognizes their different status and prevents hostile stitch-ups by the eurozone.
The UK Just Fell Into Deflation - Consumer prices fell 0.1% in the year to April, with the UK officially and unexpectedly entering deflation. Most people in the UK are a lot more used to inflation — when prices rise. Tuesday's figures mean that on average, prices are falling in the UK for the first time in at least 55 years. Analysts were expecting prices to stay flat year-on-year, with 0% inflation. Core prices, which strip out the effects of volatile items like food and energy, were expected to rise by 1%. But in fact, core prices rose by just 0.8%, the lowest figure since 2001. The Office for National Statistics (ONS) estimates that the UK had some brief periods of deflation in the late 1950s and 1960. The last time the UK had a prolonged period of deflation was way back in the 1930s, in the aftermath of the Great Depression. Here's how that looks:
U.K. Inflation Falls Below Zero for First Time Since 1960 - Britain’s inflation rate fell below zero for the first time in more than half a century, as the drop in food and energy prices depressed the cost of living. Consumer prices declined 0.1 percent in April from a year earlier, the Office for National Statistics said in London on Tuesday. Economists had forecast the rate to be zero, according to the median of 35 estimates in a Bloomberg News survey. Core inflation slowed to 0.8 percent, the lowest since 2001. With inflation so far below the Bank of England’s 2 percent target, policy makers are under little immediate pressure to raise the key interest rate from a record-low 0.5 percent. Governor Mark Carney said last week that any period of falling prices will be temporary and an expected pickup in inflation at the end of the year means the next move in borrowing costs is likely to be an increase. “For now, it represents an obstruction to a BOE rate hike,” “Enjoy it while it lasts because there is a good chance that inflation will be back in positive territory next month.” The central bank forecast last week that inflation will average 0.6 percent this year and 1.6 percent in 2016. It will return to the 2 percent goal in the second quarter of 2017. In April, the consumer-prices index was affected by the timing of the Easter holiday -- which fell earlier in April this year than in 2014 --- with air and sea fares having the biggest downward contribution to the annual rate. Food prices fell 3 percent in April from a year earlier, while fuels and lubricants plunged 12.3 percent.
Bank of England Official Says Oil Price Fall May Have Bigger Effect Than Forecast - —The recent slump in the oil price may have a bigger short-term effect on the U.K. economy than the Bank of England expects, one of the central bank’s nine policy makers said Thursday. In a speech in London, Martin Weale said his calculations suggest that the 40% slide in the price of crude oil since last year’s peak may give a bigger boost to growth over the next two years than the BOE’s forecasts suggest. It may also drive annual inflation lower than officials predict, at least in the short term, he said. Mr. Weale stressed that his analysis indicates only that there is a risk growth turns out higher than forecast and inflation lower, not that he necessarily expects those outcomes. More importantly, he said that any extra impact on inflation from the fall in the oil price is likely to prove fleeting and so shouldn’t much alter the outlook for interest rates. Investors expect the BOE to begin raising short-term interest rates in the U.K. in mid-2016. “By early 2017 I believe the effect will have faded,” he said. “So the best response is not to worry about this risk should it materialize.” Consumer prices in the U.K. fell on the year for the first time in more than half a century in April but the BOE’s latest forecasts show officials expect the current weakness in inflation in the U.K. to swiftly pass. Officials expect annual inflation to return to its 2% target by 2017.
Did Osborne Pause Austerity in 2013? - No, says The Times' David Smith. He says that the notion that there was a pause in austerity is an "austerity myth". He points to this chart from the Office for Budget Responsibility that shows fiscal consolidation as a percentage of GDP (relative to the 2008 Budget) continuing on throughout 2013 and 2014 and 2015.. But the OBR's chart doesn't actually show what I would define as austerity. It shows the size of the government budget as a percentage of GDP relative to previous budgets. That's a good deal of moving parts. And that creates a good deal of ambiguity. Under such a definition, if the economy grows and government spending stays constant, there has been fiscal consolidation. In fact, if the size of the budget grows but the economy grows more, there has still been "fiscal consolidation". What I am referring to when I claim that Osborne paused austerity in 2013 is the pause in the slashing back of government spending. Simply, up 'til 2013 the government was year on year cutting spending in real terms. The bottom came in 2013. In 2014 and 2015 — prior to the election — the government stopped cutting spending.
#TakeUsWithYouScotland: 1000s in N. England sign petition to join 'future independent Scotland' Over 35,000 people from northern England have signed a petition, asking to join future independent Scotland and sever from London. It says ‘the northerners’ have more bonds with Scotland than with “the ideologies of the London-centric south.” “The deliberations in Westminster are becoming increasingly irrelevant to the north of England,” says an online petition to the UK Government on change.org website. The document dubbed: ‘Allow the north of England to secede from the UK and join Scotland’ has been signed by almost 35,000 people. “The northern cities feel far greater affinity with their Scottish counterparts such as Glasgow and Edinburgh than with the ideologies of the London-centric south,” the petition says.
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